10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

OR

o 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 1-14788

Capital Trust, Inc.

(Exact name of registrant as specified in its charter)

Maryland	94-6181186
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
410 Park Avenue, 14th Floor, New York, NY	10022
(Address of principal executive offices)	(Zip Code)
(212) 655-0220 (Registrant's telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ý   No o

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of outstanding shares of the registrant's class A common stock, par value $0.01 per share, as of October 28, 2011 was 22,211,108.

CAPITAL TRUST, INC.

INDEX

Part I.	Financial Information
	Item 1:	Financial Statements	1
		Consolidated Balance Sheets – September 30, 2011 (unaudited) and December 31, 2010
		Consolidated Statements of Operations – Three and Nine Months Ended September 30, 2011 (unaudited) and 2010 (unaudited)	2
		Consolidated Statements of Changes in Shareholders' Deficit – Nine Months Ended September 30, 2011 (unaudited) and 2010 (unaudited)	3
		Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2011 (unaudited) and 2010 (unaudited)	4
		Notes to Consolidated Financial Statements (unaudited)	5
	Item 2:	Management's Discussion and Analysis of Financial Condition and Results of Operations	62
	Item 3:	Quantitative and Qualitative Disclosures About Market Risk	92
	Item 4:	Controls and Procedures	94
Part II.	Other Information
	Item 1:	Legal Proceedings	95
	Item 1A:	Risk Factors	95
	Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	95
	Item 3:	Defaults Upon Senior Securities	95
	Item 4:	(Removed and Reserved)	95
	Item 5:	Other Information	95
	Item 6:	Exhibits	96
	Signatures		97

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Capital Trust, Inc. and Subsidiaries

Consolidated Balance Sheets

September 30, 2011 and December 31, 2010

 (in thousands, except per share data)

	September 30,		December 31,
	2011		2010
	(unaudited)
Assets
Cash and cash equivalents		$28,219		$24,449
Securities held-to-maturity		—		3,455
Loans receivable, net		24,945		606,318
Loans held-for-sale, net		—		5,750
Equity investments in unconsolidated subsidiaries		10,611		8,932
Accrued interest receivable		—		2,392
Deferred income taxes		1,750		658
Prepaid expenses and other assets		2,109		9,952
Subtotal		67,634		661,906
Assets of Consolidated Variable Interest Entities ("VIEs")
CT Legacy REIT, Excluding Securitization Vehicles
Restricted cash		13,715		—
Securities held-to-maturity		2,591		—
Loans receivable, net		207,028		—
Loans held-for-sale, net		32,107		—
Accrued interest receivable and other assets		4,638		—
Subtotal		260,079		—
Securitization Vehicles
Securities held-to-maturity		397,001		504,323
Loans receivable, net		783,662		2,891,379
Real estate held-for-sale		10,342		8,055
Accrued interest receivable and other assets		21,171		55,027
Subtotal		1,212,176		3,458,784
Total assets		$1,539,889		$4,120,690

See accompanying notes to consolidated financial statements.

- 1 -

Capital Trust, Inc. and Subsidiaries

Consolidated Balance Sheets

September 30, 2011 and December 31, 2010

 (in thousands, except per share data)

	September 30,			December 31,
	2011			2010
	(unaudited)
Liabilities & Shareholders' Deficit
Liabilities:
Accounts payable and accrued expenses		$7,717			$6,726
Repurchase obligations		—			372,582
Senior credit facility		—			98,124
Junior subordinated notes		—			132,190
Secured notes		7,686			—
Participations sold		24,945			259,304
Interest rate hedge liabilities		—			8,451
Subtotal		40,348			877,377
Non-Recourse Liabilities of Consolidated VIEs
CT Legacy REIT, Excluding Securitization Vehicles
Accounts payable and accrued expenses		683			—
Repurchase obligations		66,637			—
Mezzanine loan, net of unamortized discount		53,367			—
Participations sold		97,465			—
Interest rate hedge liabilities		9,326			—
Subtotal		227,478			—
Securitization Vehicles
Accounts payable and accrued expenses		2,988			3,809
Securitized debt obligations		1,352,446			3,621,229
Interest rate hedge liabilities		27,482			29,462
Subtotal		1,382,916			3,654,500
Total liabilities		1,650,742			4,531,877
Commitments and contingencies		—			—
Equity:
Class A common stock, $0.01 par value, 100,000 shares authorized, 21,967 and 21,917 shares issued and outstanding as of September 30, 2011 and December 31, 2010, respectively ("class A common stock")		220			219
Restricted class A common stock, $0.01 par value, 244 and 33 shares issued and outstanding as of September 30, 2011 and December 31, 2010, respectively ("restricted class A common stock" and together with class A common stock, "common stock")		2			—
Additional paid-in capital		596,899			559,411
Accumulated other comprehensive loss		(38,497	)		(50,462	)
Accumulated deficit		(658,789	)		(920,355	)
Total Capital Trust, Inc. shareholders' deficit		(100,165	)		(411,187	)
Noncontrolling interests		(10,688	)		—
Total deficit		(110,853	)		(411,187	)
Total liabilities and shareholders' deficit		$1,539,889			$4,120,690

See accompanying notes to consolidated financial statements.

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Capital Trust, Inc. and Subsidiaries

Consolidated Statements of Operations

Three and Nine Months Ended September 30, 2011 and 2010

(in thousands, except share and per share data)

(unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Income from loans and other investments:
Interest and related income		$25,642			$40,280			$95,187			$119,783
Less: Interest and related expenses		21,838			31,557			80,381			94,462
Income from loans and other investments, net		3,804			8,723			14,806			25,321
Other revenues:
Management fees from affiliates		1,753			2,050			4,927			5,990
Incentive management fees from affiliates		—			733			—			733
Servicing fees		1,460			84			2,208			2,821
Total other revenues		3,213			2,867			7,135			9,544
Other expenses:
General and administrative		4,941			5,148			19,868			14,398
Total other expenses		4,941			5,148			19,868			14,398
Total other-than-temporary impairments of securities		(30,687	)		(29,963	)		(35,620	)		(69,798	)
Portion of other-than-temporary impairments of securities recognized in other comprehensive income		173			(5,921	)		(3,098	)		12,094
Impairment of real estate held-for-sale		(1,055	)		(4,000	)		(1,055	)		(4,000	)
Net impairments recognized in earnings		(31,569	)		(39,884	)		(39,773	)		(61,704	)
Recovery of (provision for) loan losses		17,152			(95,916	)		34,401			(150,143	)
Valuation allowance on loans held-for-sale		—			(6,036	)		(224	)		(6,036	)
Gain on extinguishment of debt		20,054			185			271,031			648
Income from equity investments		307			1,056			2,105			2,358
Income (loss) before income taxes		8,020			(134,153	)		269,613			(194,410	)
Income tax (benefit) provision		(236	)		556			1,214			849
Net income (loss)		$8,256			($134,709	)		$268,399			($195,259	)
Less: Net loss (income) attributable to noncontrolling interests		5,466			—			(1,935	)		—
Net income (loss) attributable to Capital Trust, Inc.		$13,722			($134,709	)		$266,464			($195,259	)
Per share information:
Net income (loss) per share of common stock:
Basic		$0.60			($6.02	)		$11.77			($8.73	)
Diluted		$0.57			($6.02	)		$11.08			($8.73	)
Weighted average shares of common stock outstanding:
Basic		22,730,080			22,389,901			22,630,672			22,356,857
Diluted		24,121,973			22,389,901			24,057,374			22,356,857

See accompanying notes to consolidated financial statements.

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 Capital Trust, Inc. and Subsidiaries

 Consolidated Statements of Changes in Shareholders' Deficit

 For the Nine Months Ended September 30, 2011 and 2010

 (in thousands)

 (unaudited)

	Comprehensive (Loss) Income			Class A Common Stock		Restricted Class A Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Accumulated Deficit			Total
Balance at January 1, 2010					$218		$1		$559,145			($39,135	)		$—			($689,396	)		($169,167	)
Net loss attributable to Capital Trust, Inc.		($195,259	)		—		—		—			—			—			(195,259	)		(195,259	)
Cumulative effect of change in accounting principle		—			—		—		—			3,800			—			(45,615	)		(41,815	)
Unrealized loss on derivative financial instruments		(10,281	)		—		—		—			(10,281	)		—			—			(10,281	)
Amortization of unrealized gains and losses on securities		(754	)		—		—		—			(754	)		—			—			(754	)
Amortization of deferred gains and losses on settlement of swaps		(74	)		—		—		—			(74	)		—			—			(74	)
Other-than-temporary impairments of securities related to fair value adjustments in excess of expected credit losses, net of amortization		(9,496	)		—		—		—			(9,496	)		—			—			(9,496	)
Restricted class A common stock earned		—			1		—		44			—			—			—			45
Deferred directors' compensation		—			—		—		150			—			—			—			150
Balance at September 30, 2010		($215,864	)		$219		$1		$559,339			($55,940	)		$—			($930,270	)		($426,651	)
Balance at January 1, 2011					$219		$—		$559,411			($50,462	)		$—			($920,355	)		($411,187	)
Net income attributable to Capital Trust, Inc.		$266,464			—		—		—			—			—			266,464			266,464
Net income attributable to noncontrolling interests		1,935			—		—		—			—			1,935			—			1,935
Allocation to noncontrolling interests		—			—		—		37,156			—			(12,623	)		—			24,533
Purchase of noncontrolling interests		—			—		—		(142	)		—			—			—			(142	)
Consolidation of additional securitization vehicles		—			—		—		—			538			—			(4,898	)		(4,360	)
Unrealized gain on derivative financial instruments		2,912			—		—		—			2,912			—			—			2,912
Loss on interest rate swaps not designated as cash flow hedges		4,447			—		—		—			4,447			—			—			4,447
Amortization of unrealized gains and losses on securities		(93	)		—		—		—			(93	)		—			—			(93	)
Amortization of deferred gains and losses on settlement of swaps		(75	)		—		—		—			(75	)		—			—			(75	)
Other-than-temporary impairments of securities related to fair value adjustments in excess of expected credit losses, net of amortization		4,236			—		—		—			4,236			—			—			4,236
Restricted class A common stock earned		—			1		2		324			—			—			—			327
Deferred directors' compensation		—			—		—		150			—			—			—			150
Balance at September 30, 2011		$279,826			$220		$2		$596,899			($38,497	)		($10,688	)		($658,789	)		($110,853	)

See accompanying notes to consolidated financial statements.

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Capital Trust, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2011 and 2010

(in thousands)

(unaudited)

	2011			2010
Cash flows from operating activities:
Net income (loss)		$268,399			($195,259	)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Net impairments recognized in earnings		39,773			61,704
(Recovery of) provision for loan losses		(34,401	)		150,143
Valuation allowance on loans held-for-sale		224			6,036
Gain on extinguishment of debt		(271,031	)		(648	)
Income from equity investments		(2,105	)		(2,358	)
Employee stock-based compensation		411			107
Incentive awards plan expense		3,395			—
Deferred directors' compensation		150			150
Amortization of premiums/discounts on loans and securities and deferred              interest on loans		(969	)		(2,581	)
Amortization of deferred gains and losses on settlement of swaps		(75	)		(74	)
Amortization of deferred financing costs and premiums/discounts on
debt obligations		9,304			5,596
Deferred interest on senior credit facility		—			2,954
Loss on interest rate swaps not designated as cash flow hedges		6,255			—
Changes in assets and liabilities, net:
Accrued interest receivable		3,406			351
Deferred income taxes		(1,093	)		877
Prepaid expenses and other assets		624			1,178
Accounts payable and accrued expenses		(2,931	)		56
Net cash provided by operating activities		19,336			28,232
Cash flows from investing activities:
Principal collections and proceeds from securities		70,929			35,806
Add-on fundings under existing loan commitments		—			(1,562	)
Distributions from equity investments		4,345			—
Principal collections of loans receivable		1,879,041			183,761
Proceeds from disposition of loans		5,750			23,548
Contributions to unconsolidated subsidiaries		(3,413	)		(2,917	)
Distributions from unconsolidated subsidiaries		3,839			29
Increase in restricted cash		(13,715	)		—
Net cash provided by investing activities		1,946,776			238,665
Cash flows from financing activities:
Repayments under repurchase obligations		(306,042	)		(42,568	)
Repayments under senior credit facility		(22,932	)		(3,750	)
Repayment of junior subordinated notes		(4,640	)		—
Borrowing under mezzanine loan		83,000			—
Repayments under mezzanine loan		(20,000	)		—
Repayment of securitized debt obligations		(1,679,970	)		(224,384	)
Payment of financing expenses		(11,126	)		—
Purchase of noncontrolling interests		(142	)		—
Purchase of secured notes		(405	)		—
Vesting of restricted Class A common stock		(85	)		—
Net cash used in financing activities		(1,962,342	)		(270,702	)
Net increase (decrease) in cash and cash equivalents		3,770			(3,805	)
Cash and cash equivalents at beginning of period		24,449			27,954
Cash and cash equivalents at end of period		$28,219			$24,149

See accompanying notes to consolidated financial statements.

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Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

Note 1. Organization

References herein to “we,” “us” or “our” refer to Capital Trust, Inc. and its subsidiaries unless the context specifically requires otherwise.

We are a fully integrated, self-managed, real estate finance and investment management company that specializes in credit sensitive financial products. To date, our investment programs have focused on loans and securities backed by commercial real estate assets. We invest for our own account directly on our balance sheet and for third parties through a series of investment management vehicles. Our business model is designed to produce a mix of net interest margin from our balance sheet investments, and fee income and co-investment income from our investment management vehicles. In managing our operations, we focus on originating investments, managing our portfolios and capitalizing our businesses. From the inception of our finance business in 1997 through September 30, 2011, we have completed approximately $12.0 billion of investments in the commercial real estate debt arena. We conduct our operations as a real estate investment trust, or REIT, for federal income tax purposes. We are traded on the New York Stock Exchange, or NYSE, under the symbol “CT”, and are headquartered in New York City.

March 2011 Restructuring

On March 31, 2011, we restructured, amended, or extinguished all of our outstanding recourse debt obligations, which we refer to as our March 2011 restructuring. Our March 2011 restructuring involved: (i) the contribution of certain of our legacy assets to a newly formed subsidiary, CT Legacy REIT Mezz Borrower, Inc., or CT Legacy REIT, (ii) the assumption of our legacy repurchase obligations by CT Legacy REIT, and (iii) the extinguishment of the remainder of our recourse obligations, our senior credit facility and junior subordinated notes. The restructuring was financed with a new $83.0 million mezzanine loan obtained by CT Legacy REIT from an affiliate of Five Mile Capital Partners LLC, or Five Mile, and the issuance of equity interests in the common stock of CT Legacy REIT to our former junior subordinated noteholders and former lenders under our senior credit facility, as well as to an affiliate of Five Mile.

Capital Trust, Inc.

Following the completion of our March 2011 restructuring, we no longer have any recourse debt obligations, and retain unencumbered ownership of 100% of (i) our investment management platform, CT Investment Management Co., LLC, (ii) our co-investment in CT Opportunity Partners I, LP, (iii) our residual ownership interests in CT CDOs I, II, and IV, and (iv) our tax-basis net operating losses. Furthermore, we have a 52% equity interest in the common stock of CT Legacy REIT. Our economic interest in CT Legacy REIT is, however, subject to (i) the secured notes, which are non-recourse obligations that are collateralized by certain of our retained equity interests in the common stock of CT Legacy REIT, (ii) incentive awards that provide for the participation in our retained equity interests in CT Legacy REIT, and (iii) the subordinate class B common stock of CT Legacy REIT owned by our former junior subordinate noteholders. See below for further discussion of the secured notes, management incentive awards plan, and class B common stock.

In addition to our interest in the common stock of CT Legacy REIT, we also own 100% of its outstanding class A preferred stock. The class A preferred stock initially entitles us to cumulative preferred dividends of $7.5 million per annum, which dividends will be reduced in January 2013 to the greater of (i) 2.5% of CT Legacy REIT’s assets, and (ii) $1.0 million per annum.

CT Legacy REIT

In connection with the restructuring, we transferred substantially all of our directly held interest earning assets to CT Legacy REIT. The transferred assets included: (i) all of the loans and securities which serve as collateral for the legacy repurchase obligations, except for certain subordinate interests in CT CDOs I and II, (ii) our subordinate interests in CT CDO III, and (iii) 100% of our previously unencumbered loans and securities, which we collectively refer to as our Legacy Assets.

CT Legacy REIT, which is expected to be taxed as a REIT commencing in 2011, is beneficially owned 52% by us, 24% by an affiliate of Five Mile, and 24% by the former lenders under our senior credit facility. In addition, the former holders of our junior subordinated notes received class B common stock, a subordinate class of common stock of CT Legacy REIT, which is described below. Capital Trust, Inc. will manage CT Legacy REIT and the Legacy Assets as a liquidating portfolio.

During the second and third quarters of 2011, the CT Legacy REIT portfolio received repayments of $265.9 million, including full loan satisfactions of $224.8 million and partial repayments of $41.1 million, which repayments represented approximately 50% of the initial net book value of the CT Legacy REIT portfolio.

- 6 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

Mezzanine Loan

CT Legacy REIT entered into an $83.0 million mezzanine loan (which was subsequently reduced to $64.1 million, including deferred interest, as of September 30, 2011) that carries a 15.0% per annum interest rate, of which 7.0% per annum may be deferred, and that matures on March 31, 2016. The mezzanine loan is not recourse to Capital Trust, Inc. except for certain limited non-recourse, “bad boy” carve outs. Proceeds from the mezzanine loan were used to (i) extinguish the senior credit facility, (ii) extinguish the junior subordinated notes, (iii) provide for cash paydowns of the repurchase obligations, (iv) pay transaction expenses, and (v) establish liquidity reserves at CT Legacy REIT.

The mezzanine loan is collateralized by 100% of the equity interests in a subsidiary of CT Legacy REIT, which in-turn owns all of our Legacy Assets, subject in part to the repurchase obligations. Five Mile has consent rights with respect to material actions on the Legacy Assets such as material modifications, sales, and/or the pursuit of certain remedies with regard to the Legacy Assets. The mezzanine loan also contains covenants that (i) prohibit CT Legacy REIT from paying common stock cash dividends until the mezzanine loan has been repaid, (ii) prohibit us from selling or otherwise transferring our equity interests in CT Legacy REIT, and (iii) require the continued employment of certain key employees.

During the second quarter of 2011, $20.0 million of the mezzanine loan was repaid using proceeds from the satisfaction of former repurchase facility collateral assets. As further described below, during the second quarter of 2011, the Morgan Stanley and Citigroup repurchase obligations were terminated and the remaining collateral thereunder was released.

In addition, as discussed above, an affiliate of Five Mile acquired a 24% equity interest in the common stock of CT Legacy REIT in conjunction with the making of the mezzanine loan.

Repurchase Obligations

Our $339.6 million of legacy repurchase obligations (which were subsequently reduced to $66.7 million as of September 30, 2011) with JP Morgan, Morgan Stanley and Citigroup were assumed by wholly-owned subsidiaries of CT Legacy REIT, and the recourse to Capital Trust, Inc. was eliminated. In addition, the facilities were amended with the following terms:

· Each of the repurchase lenders received cash paydowns equal to 10% of their then outstanding balances, in the aggregate $33.9 million.

· Except for certain key man provisions, all restrictive covenants governing the operations of Capital Trust, Inc. were eliminated, including covenants restricting employee compensation, dividend payments, and new balance sheet investments.

· Net interest margin sweep and periodic amortization provisions were eliminated.

· All forms of margin call or similar requirements under the facilities were eliminated.

· Maturity dates were extended to December 15, 2014 in the case of JP Morgan, January 31, 2013 in the case of Morgan Stanley, and March 31, 2013 in the case of Citigroup, subject in all three cases to periodic required repayment thresholds.

· Interest rates were increased to LIBOR + 2.50% per annum in the cases of JP Morgan and Morgan Stanley, and LIBOR + 1.50% per annum in the case of Citigroup, subject in all three cases to periodic rate increases over the term of each respective facility.

During the second and third quarters of 2011, $238.1 million of the legacy repurchase obligations were repaid, including the full repayment and termination of the Morgan Stanley and Citigroup facilities and a release of the remaining collateral thereunder, as well as a $106.8 million repayment of the JP Morgan facility.

Senior Credit Facility

Our $98.1 million senior credit facility was fully satisfied and all collateral for the senior credit facility was released in exchange for (i) a cash payment of $22.9 million, (ii) a 24% equity interest in the common stock of CT Legacy REIT, and (iii) $2.8 million of secured notes, as further discussed below.

- 7 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

Junior Subordinated Notes

Our $143.8 million of junior subordinated notes were fully satisfied in exchange for (i) a cash payment of $4.6 million, (ii) 100% of the subordinate class B common stock of CT Legacy REIT, as further described below, and (iii) $5.0 million of secured notes, as further discussed below. The subordinate class B common stock is a subordinate class that entitles its holders to receive approximately 25% of the dividends that would otherwise be payable to us on certain of our equity interest in the common stock of CT Legacy REIT, after aggregate cash distributions of $50.0 million have been paid to all other classes of common stock.

In April 2011, we purchased 118,651 shares of class B common stock of CT Legacy REIT for an average price of $1.20 per share.

Secured Notes

In conjunction with the satisfaction of the senior credit facility and the junior subordinated notes, a wholly-owned subsidiary issued secured notes to our former creditors, which secured notes are non-recourse to us. The secured notes had an aggregate initial face balance of $7.8 million and are secured by 93.5% of our equity interests in the class A-1 and class A-2 common stock of CT Legacy REIT, which represents 48.3% of the total outstanding class A-1 and class A-2 common stock of CT Legacy REIT. The secured notes mature on March 31, 2016 and bear interest at a rate of 8.2% per annum, which interest may be deferred until maturity. All dividends we receive from our equity interests in the common stock of CT Legacy REIT which serve as collateral under the secured notes must be used to pay, or prepay, interest and principal due thereunder. Any prepayment, or partial prepayment, of the remaining secured notes will incur a prepayment premium resulting in a total payment of principal and interest under the secured notes of $11.1 million.

In April 2011, we purchased $405,000 of the secured notes at par.

Management Incentive Awards Plan

Upon completion of our March 2011 restructuring, we granted senior level employees incentive awards issued under our long term incentive plan that participate in amounts earned from our retained equity interest in CT Legacy REIT. The awards provide payments to certain senior level employees equal to as much as 6.75% of the total recovery (subject to certain caps) of our Legacy Assets, net of CT Legacy REIT’s obligations, when and if distributed to us as dividends.

Note 2. Summary of Significant Accounting Policies

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP, for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The accompanying unaudited consolidated interim financial statements should be read in conjunction with the consolidated financial statements and the related management’s discussion and analysis of financial condition and results of operations filed with our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. In our opinion, all material adjustments (consisting of normal, recurring accruals) considered necessary for a fair presentation, in accordance with GAAP, have been included. The results of operations for the nine months ended September 30, 2011 are not necessarily indicative of results that may be expected for the entire year ending December 31, 2011.

Principles of Consolidation

The accompanying financial statements include, on a consolidated basis, our accounts, the accounts of our wholly-owned subsidiaries, and variable interest entities, or VIEs, in which we are the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation.

VIEs are defined as entities in which equity investors (i) do not have the characteristics of a controlling financial interest, and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The entity that consolidates a VIE is known as its primary beneficiary, and is generally the entity with (i) the power to direct the activities that most significantly impact the VIE’s economic performance, and (ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE.

Our consolidated VIEs include: (i) the CT Legacy REIT, and (ii) ten securitization vehicles, including our four CT CDOs which were sponsored and issued by us, as well as six other, similar, vehicles. See Note 10 and Note 11 for additional information on our investments in VIEs.

- 8 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

Balance Sheet Presentation

Our consolidated balance sheets separately present: (i) our direct assets and liabilities, (ii) the direct assets and liabilities of CT Legacy REIT, and (iii) the assets and liabilities of consolidated securitization vehicles, some of which are subsidiaries of CT Legacy REIT. Assets of all consolidated VIEs can generally only be used to satisfy the obligations of those VIEs, and the liabilities of consolidated VIEs are non-recourse to us.

We have aggregated all the assets and liabilities of the consolidated securitization vehicles due to our determination that these entities are substantively similar and therefore a further disaggregated presentation would not be more meaningful. Similarly, the notes to our consolidated financial statements separately describe (i) our direct assets and liabilities, (ii) the direct assets and liabilities of CT Legacy REIT, and (iii) the assets and liabilities of consolidated securitization vehicles, some of which are subsidiaries of CT Legacy REIT.

Equity Investments in Unconsolidated Subsidiaries

Our co-investment interests in the private equity funds we manage are accounted for using the equity method. These entities’ assets and liabilities are not consolidated into our financial statements due to our determination that (i) these entities are not VIEs, and (ii) the investors have sufficient rights to preclude consolidation by us. As such, we report our allocable percentage of the earnings or losses of these entities on a single line item in our consolidated statements of operations as income from equity investments.

One such fund, CT Opportunity Partners I, LP, or CTOPI, maintains its financial records at fair value in accordance with GAAP. We have applied such accounting relative to our investment in CTOPI, and include any adjustments to fair value recorded at the fund level in determining the income we record on our equity investment in CTOPI.

Revenue Recognition

Interest income from our loans receivable is recognized over the life of the investment using the effective interest method and is recorded on the accrual basis. Fees, premiums, discounts and direct costs associated with these investments are deferred until the loan is advanced and are then recognized over the term of the loan as an adjustment to yield. For loans where we have unfunded commitments, we amortize these fees and other items on a straight line basis. Fees on commitments that expire unused are recognized at expiration. Income accrual is generally suspended for loans at the earlier of the date at which payments become 90 days past due or when, in the opinion of management, recovery of income and principal becomes doubtful. Income is then recorded on the basis of cash received until accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed.

Interest income from our securities is recognized using a level yield with any purchase premium or discount accreted through income over the life of the security. This yield is calculated using cash flows expected to be collected which are based on a number of assumptions on the underlying loans. Examples include, among other things, the rate and timing of principal payments, including prepayments, repurchases, defaults and liquidations, the pass-through or coupon rate, and interest rates. Additional factors that may affect reported interest income on our securities include interest payment shortfalls due to delinquencies on the underlying mortgage loans and the timing and magnitude of expected credit losses on the mortgage loans underlying the securities. These are impacted by, among other things, the general condition of the real estate market, including competition for tenants and their related credit quality, and changes in market rental rates. These uncertainties and contingencies are difficult to predict and are subject to future events that may alter the assumptions.

Fees from special servicing and asset management services are recorded on an accrual basis as services are rendered under the applicable agreements, and when receipt of fees is reasonably certain. We do not recognize incentive income from our investment management business until contingencies have been eliminated. Depending on the structure of our investment management vehicles, certain incentive fees may be in the form of carried interest or promote distributions.

Cash and Cash Equivalents

We classify highly liquid investments with original maturities of three months or less from the date of purchase as cash equivalents. We place our cash and cash equivalents with high credit quality institutions to minimize credit risk exposure. As of, and for the periods ended, September 30, 2011 and December 31, 2010, we had bank balances in excess of federally insured amounts. We have not experienced any losses on our demand deposits, commercial paper or money market investments.

Restricted Cash

We classify the cash balances held by CT Legacy REIT as restricted because of limitations imposed on the payment of dividends by CT Legacy REIT to its common equity holders, including us. As further described in Notes 1 and 10, common dividends cannot be paid by CT Legacy REIT until the mezzanine loan and repurchase obligations have been satisfied. Accordingly, while these cash balances are available for use by CT Legacy REIT for operations, debt service, or other purposes, they are currently unavailable to us.

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Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

Securities

We classify our securities as held-to-maturity, available-for-sale, or trading on the date of acquisition of the investment. Held-to-maturity investments are stated at cost, adjusted for the amortization of any premiums or discounts, which are amortized through our consolidated statements of operations using the level yield method described above. Other than in the instance of an other-than-temporary impairment, as discussed below, these held-to-maturity investments are carried on our consolidated financial statements at their amortized cost basis.

We may also invest in securities which may be classified as available-for-sale. Available-for-sale securities are carried at estimated fair value with the net unrealized gains or losses reported as a component of accumulated other comprehensive income (loss) in shareholders’ equity. Changes in the valuations do not affect our reported income or cash flows, but do impact shareholders’ equity and, accordingly, book value per share. On August 4, 2005, we changed the accounting classification of certain of our securities from available-for-sale to held-to-maturity. We have not designated any securities as available-for-sale since that time.

Further, as required under GAAP, when, based on current information and events, there has been an adverse change in the cash flows expected to be collected from those previously estimated for one of our securities, an other-than-temporary impairment is deemed to have occurred. A change in expected cash flows is considered adverse if the present value of the revised cash flows (taking into consideration both the timing and amount of cash flows expected to be collected) discounted using the security’s current yield is less than the present value of the previously estimated remaining cash flows, adjusted for cash receipts during the intervening period.

Should an other-than-temporary impairment be deemed to have occurred, the security is written down to fair value. The total other-than-temporary impairment is bifurcated into (i) the amount related to expected credit losses, and (ii) the amount related to fair value adjustments in excess of expected credit losses, or the Valuation Adjustment. The portion of the other-than-temporary impairment related to expected credit losses is calculated by comparing the amortized cost basis of the security to the present value of cash flows expected to be collected, discounted at the security’s current yield, and is recognized through earnings in the consolidated statement of operations. The remaining other-than-temporary impairment related to the Valuation Adjustment is recognized as a component of accumulated other comprehensive income (loss) in shareholders’ equity. A portion of other-than-temporary impairments recognized through earnings is accreted back to the amortized cost basis of the security through interest income, while amounts recognized through other comprehensive income (loss) are amortized over the life of the security with no impact on earnings.

Loans Receivable, Provision for Loan Losses, Loans Held-for-Sale and Related Allowance

We purchase and originate commercial real estate debt and related instruments, or Loans, generally to be held as long-term investments at amortized cost. Management is required to periodically evaluate each of these Loans for possible impairment. Impairment is indicated when it is deemed probable that we will not be able to collect all amounts due according to the contractual terms of the Loan. If a Loan is determined to be impaired, we write down the Loan through a charge to the provision for loan losses. Impairment on these loans is measured by comparing the estimated fair value of the underlying collateral to the book value of the respective loan. These valuations require significant judgments, which include assumptions regarding capitalization rates, leasing, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan, loan sponsorship, actions of other lenders and other factors deemed necessary by management. Actual losses, if any, could ultimately differ from these estimates.

In conjunction with our quarterly loan portfolio review, management assesses the performance of each loan, and assigns a risk rating based on several factors including risk of loss, loan-to-value ratio, or LTV, collateral performance, structure, exit plan, and sponsorship. Loans are rated one through eight, which are defined as follows:

1 - Low Risk: A loan that is expected to perform through maturity, with relatively lower LTV, higher in-place debt yield, and stable projected cash flow.

2 - Average Risk: A loan that is expected to perform through maturity, with medium LTV, average in-place debt yield, and stable projected cash flow.

3 - Acceptable Risk: A loan that is expected to perform through maturity, with relatively higher LTV, acceptable in-place debt yield, and some uncertainty (due to lease rollover or other factors) in projected cash flow.

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Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

4 - Higher Risk: A loan that is expected to perform through maturity, but has exhibited a material deterioration in cash flow and/or other credit factors. If negative trends continue, default could occur.

5 - Low Probability of Default/Loss: A loan with one or more identified weakness that we expect to have a 15% probability of default or principal loss.

6 - Medium Probability of Default/Loss: A loan with one or more identified weakness that we expect to have a 33% probability of default or principal loss.

7 - High Probability of Default/Loss: A loan with one or more identified weakness that we expect to have a 67% or higher probability of default or principal loss.

8 - In Default: A loan which is in contractual default and/or which has a very high likelihood of principal loss.

In addition, for certain pools of smaller loans which have similar credit characteristics, primarily loans with an outstanding principal balance of $10.0 million or less in our consolidated securitization vehicles, we have recorded a general provision for loan losses in lieu of the asset-specific provisions we record on all other loans. This general provision is based on macroeconomic data with respect to historic loan losses, vintage, property type, and other factors deemed relevant for such loan pools. These loans do not undergo the same level of asset management as our larger, direct investments.

In certain cases, we may classify loans as held-for-sale based upon the specific facts and circumstances of particular Loans, including known or expected transactions. Loans held-for-sale are carried at the lower of our amortized cost basis and fair value. A reduction in the fair value of loans held-for-sale is recorded as a charge to our consolidated statement of operations as a valuation allowance on loans held-for-sale.

Real Estate Held-for-Sale

Loan investments where we have foreclosed upon the underlying collateral and own an equity interest in real estate are categorized as real estate owned. We generally do not intend to hold such foreclosed assets for long-term operations and therefore classify such assets as real estate held-for-sale on our consolidated balance sheets. Real estate held-for-sale are carried at the lower of our basis in the real estate and fair value, with reductions in fair value recorded as an impairment of real estate-held-for-sale on our consolidated statements of operations.

Deferred Financing Costs

The deferred financing costs which are included in prepaid expenses and other assets on our consolidated balance sheets include issuance costs related to our debt obligations, and are amortized using the effective interest method, or a method that approximates the effective interest method, over the life of the related obligations.

Repurchase Obligations

In certain circumstances, we have financed the purchase of investments from a counterparty through a repurchase agreement with that same counterparty. We currently record these investments in the same manner as other investments financed with repurchase agreements, with the investment recorded as an asset and the related borrowing under any repurchase agreement recorded as a liability on our consolidated balance sheets. Interest income earned on the investments and interest expense incurred on the repurchase obligations are reported separately on our consolidated statements of operations.

Interest Rate Derivative Financial Instruments

In the normal course of business, we use interest rate derivative financial instruments to manage, or hedge, cash flow variability caused by interest rate fluctuations. Specifically, we currently use interest rate swaps to effectively convert floating rate liabilities that are financing fixed rate assets to fixed rate liabilities. The differential to be paid or received on these agreements is recognized on the accrual basis as an adjustment to the interest expense related to the attendant liability. The interest rate swap agreements are generally accounted for on a held-to-maturity basis, and, in cases where they are terminated early, any gain or loss is generally amortized over the remaining life of the hedged item. These swap agreements must be effective in reducing the variability of cash flows of the hedged items in order to qualify for the aforementioned hedge accounting treatment. Changes in value of effective cash flow hedges are reflected on our consolidated financial statements through accumulated other comprehensive income (loss) and do not affect our net income (loss). To the extent a derivative does not qualify for hedge accounting, and is deemed a non-hedge derivative, the changes in its value are included in net income (loss).

To determine the fair value of interest rate derivative financial instruments, we use a third-party derivative specialist to assist us in periodically valuing our interests.

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Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

Income Taxes

Our financial results generally do not reflect provisions for current or deferred income taxes on our REIT taxable income. Management believes that we operate in a manner that will continue to allow us to be taxed as a REIT and, as a result, we generally do not expect to pay substantial corporate level taxes other than those payable by our taxable REIT subsidiaries. Many of these requirements, however, are highly technical and complex. If we were to fail to meet these requirements, we may be subject to federal, state and local income tax on current and past income, and penalties.

Accounting for Stock-Based Compensation

Stock-based compensation expense is recognized in net income using a fair value measurement method, which we determine with the assistance of a third-party appraisal firm. Compensation expense for the time vesting of stock-based compensation grants is recognized on the accelerated attribution method and compensation expense for performance vesting of stock-based compensation grants is recognized on a straight line basis.

The fair value of the performance vesting restricted common stock is measured on the grant date using a Monte Carlo simulation to estimate the probability of the market vesting conditions being satisfied. The Monte Carlo simulation is run approximately 100,000 times. For each simulation, the payoff is calculated at the settlement date, and is then discounted to the grant date at a risk-free interest rate. The average of the values over all simulations is the expected value of the restricted common stock on the grant date. The valuation is performed in a risk-neutral framework, so no assumption is made with respect to an equity risk premium. Significant assumptions used in the valuation include an expected term and stock price volatility, an estimated risk-free interest rate and an estimated dividend growth rate.

Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by us.

Comprehensive Income (Loss)

Total comprehensive income (loss) was $279.8 million and ($215.9) million for the nine months ended September 30, 2011 and 2010, respectively. The primary components of comprehensive income (loss) other than net income (loss) are the unrealized gains and losses on derivative financial instruments and the component of other-than-temporary impairments of securities related to the Valuation Adjustment.

There was a one-time $3.8 million adjustment to accumulated other comprehensive loss upon our adoption of new accounting guidance effective January 1, 2010. See below discussion under “Recent Accounting Pronouncements” in this Note 2 for additional information. See Note 12 for additional discussion of accumulated other comprehensive loss.

Earnings per Share of Common Stock

Basic earnings per share, or EPS, is computed based on the net earnings allocable to common stock and stock units, divided by the weighted average number of shares of common stock and stock units outstanding during the period. Diluted EPS is based on the net earnings allocable to common stock and stock units, divided by the weighted average number of shares of common stock, stock units and potentially dilutive common stock options and warrants. See Note 12 for additional discussion of earnings per share.

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 and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may ultimately differ from those estimates.

Reclassifications

Certain reclassifications have been made in the presentation of the prior period consolidated financial statements to conform to the September 30, 2011 presentation.

Segment Reporting

We operate in two reportable segments. We have an internal information system that produces performance and asset data for the two segments along service lines.

The Balance Sheet Investment segment includes our consolidated portfolio of interest earning assets and the financing thereof.

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Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

The Investment Management segment includes the investment management activities of our wholly-owned investment management subsidiary, CT Investment Management Co., LLC, or CTIMCO, and its subsidiaries, as well as our co-investments in investment management vehicles. CTIMCO is a taxable REIT subsidiary and serves as the investment manager of Capital Trust, Inc., all of our investment management vehicles and CT CDOs, and serves as senior servicer and special servicer for certain of our investments and for third parties.

Fair Value of Financial Instruments

The “Fair Value Measurements and Disclosures” Topic of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or the Codification, defines fair value, establishes a framework for measuring fair value, and requires certain disclosures about fair value measurements under GAAP. Specifically, this guidance defines fair value based on exit price, or the price that would be received upon the sale of an asset or the transfer of a liability in an orderly transaction between market participants at the measurement date. Our assets and liabilities which are measured at fair value are discussed in Note 17.

Recent Accounting Pronouncements

New accounting guidance which was effective as of January 1, 2010 changed the criteria for consolidation of VIEs and removed a preexisting consolidation exception for qualified special purpose entities, which includes certain securitization vehicles. The amended guidance requires a qualitative, rather than quantitative assessment of when a VIE should be consolidated. Specifically, an entity would generally be required to consolidate a VIE if it has (i) the power to direct the activities that most significantly impact the entity’s economic performance, and (ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE.

As a result of the amended guidance, we have consolidated an additional seven VIEs beginning January 1, 2010, all of which are securitization vehicles not sponsored by us. We have consolidated these entities generally due to our ownership interests in subordinate classes of securities issued by the VIEs, which investments carry certain control provisions. Although our investments are generally passive in nature, by owning more than 50% of the controlling class of each vehicle we do control special servicer naming rights, which we believe gives us the power to direct the most significant economic activities of these entities.

Upon consolidation of these seven securitization vehicles, we recorded a one-time adjustment to shareholders’ equity of ($41.8) million on January 1, 2010. This reduction in equity is due to the difference between the aggregate pre-consolidation book value of our investment in these vehicles (which were accounted for as securities) and the aggregate net assets, or equity, of those vehicles upon consolidation. This difference was primarily caused by asset impairments recorded at the entity-level which are in excess of our investment amount. Due to the fact that the liabilities of these vehicles are entirely non-recourse to us, this excess charge to equity, as well as similar charges on securitization vehicles previously consolidated, will eventually be reversed when our interests in the entities are repaid or sold, or the entities are otherwise deconsolidated in the future.

In January 2010, the FASB issued Accounting Standards Update 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements,” or ASU 2010-06. ASU 2010-06 amends existing disclosure guidance related to fair value measurements. Specifically, ASU 2010-06 requires (i) details of significant asset or liability transfers in and out of Level 1 and Level 2 measurements within the fair value hierarchy, and (ii) inclusion of gross purchases, sales, issuances, and settlements within the rollforward of assets and liabilities valued using Level 3 inputs within the fair value hierarchy. In addition, ASU 2010-06 clarifies and increases existing disclosure requirements related to (i) the disaggregation of fair value disclosures, and (ii) the inputs used in arriving at fair values for assets and liabilities valued using Level 2 and Level 3 inputs within the fair value hierarchy. ASU 2010-06 is effective for the first interim or annual period beginning after December 15, 2009, except for the gross presentation of the Level 3 rollforward, which is required for annual reporting periods beginning after December 15, 2010 and for interim periods within those years. The adoption of ASU 2010-06 did not have a material impact on our consolidated financial statements. Additional disclosures, as applicable, are included in Note 17.

In July 2010, the FASB issued Accounting Standards Update 2010-20, “Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses,” or ASU 2010-20. ASU 2010-20 primarily requires additional disaggregated disclosures of (i) credit risks associated with financing receivables, and (ii) impaired financing receivables and the related allowance for credit losses. ASU 2010-20 is generally effective for the first interim or annual period ending after December 15, 2010; however certain disclosures are not required until the first interim or annual period beginning after December 15, 2010. The adoption of ASU 2010-20 did not have a material impact on our consolidated financial statements. Additional disclosures have been included, as applicable, in the notes to our consolidated financial statements.

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Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

In April 2011, the FASB issued Accounting Standards Update 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring,” or ASU 2011-02. ASU 2011-02 primarily clarifies when creditors should classify loan modifications as troubled debt restructurings and provides examples and factors to be considered. Loan modifications which are considered troubled debt restructurings could result in additional disclosure requirements and could impact the related provision for loan losses. ASU 2011-02 is effective for the first interim or annual period beginning after June 15, 2011, with retrospective application to the beginning of the year. The adoption of ASU 2011-02 will impact how we account for loan modifications, and may result in an increase in the loan modifications we classify as troubled debt restructurings, and therefore our provision for loan losses.

In April 2011, the FASB issued Accounting Standards Update 2011-03, “Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements,” or ASU 2011-03. ASU 2011-03 primarily removes certain criteria from the consideration of effective control over assets subject to repurchase agreements. The removal of these criteria will generally result in asset transfers pursuant to repurchase agreements being accounted for as secured borrowings, with both the transferred assets and repurchase liability recorded on the transferor’s balance sheet. ASU 2011-03 is effective for the first interim or annual period beginning after December 15, 2011, and is to be applied prospectively to transactions which occur subsequent to the effective date. The adoption of ASU 2011-03 is not expected to have a material impact on our financial statements.

In May 2011, the FASB issued Accounting Standards Update 2011-04, “Fair Value Measurement (Topic 860): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” or ASU 2011-04. ASU 2011-04 amends existing guidance on fair value measurements related to (i) instruments held in a portfolio, (ii) instruments classified within shareholders’ equity, (iii) application of the “highest and best use” concept to nonfinancial assets, (iv) application of blockage factors and other premiums and discounts in the valuation process, and (v) other matters. In addition, ASU 2011-04 expanded the required disclosures around fair value measurements including (i) reporting the level in the fair value hierarchy used to value assets and liabilities which are not measured at fair value, but where fair value is disclosed, and (ii) qualitative disclosures about the sensitivity of Level 3 fair value measurements to changes in unobservable inputs used. ASU 2011-04 is effective for the first interim or annual period beginning after December 15, 2011. The adoption of ASU 2011-04 is not expected to have a material impact on our financial statements, however may significantly expand our disclosures related to fair value measurements.

In June 2011, the FASB issued Accounting Standards Update 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income,” or ASU 2011-05. ASU 2011-05 does not change the items that must be reported in other comprehensive income, however it eliminates the option to present other comprehensive income on the statement of shareholders’ equity and instead requires either (i) a continuous statement of comprehensive income which would replace the current statement of operations, or (ii) an additional statement of other comprehensive income, which would immediately follow the statement of operations, and would report the components of other comprehensive income. ASU 2011-05 is effective for the first interim or annual period beginning after December 15, 2011, and should be applied retrospectively to all periods reported after the effective date. The adoption of ASU 2011-05 is not expected to have a material impact on our financial statements.

Note 3. Securities Held-to-Maturity

As described in Note 1, in conjunction with our March 2011 restructuring of our recourse debt obligations, a significant portion of our assets, including all of our securities, were transferred to a majority-owned subsidiary, CT Legacy REIT. In addition, as described in Note 2, our consolidated balance sheets separately state our direct assets and liabilities and certain assets and liabilities of consolidated VIEs. See Note 10 for disclosures regarding securities that have been transferred to CT Legacy REIT, and see Note 11 for comparable disclosures regarding securities that are held in consolidated securitization vehicles, as separately stated on our consolidated balance sheets.

- 14 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

Prior to their transfer to CT Legacy REIT, our securities portfolio consisted of commercial mortgage-backed securities, or CMBS, collateralized debt obligations, or CDOs, and other securities. Activity relating to our securities portfolio for the nine months ended September 30, 2011 was as follows (in thousands):

	CMBS			CDOs & Other			Total Book Value (1)
December 31, 2010		$2,246			$1,209			$3,455
Principal paydowns		(45	)		—			(45	)
Discount/premium amortization & other (2)		168			12			180
Other-than-temporary impairments:
Recognized in earnings		(1,653	)		—			(1,653	)
Recognized in accumulated other comprehensive income		1,640			—			1,640
Transfer to CT Legacy REIT		(2,356	)		(1,221	)		(3,577	)
September 30, 2011		$—			$—			$—

(1)	Includes securities with a total face value of $36.0 million as of December 31, 2010. All securities have been transferred to CT Legacy REIT on March 31, 2011, as discussed in Note 1.
(2)	Includes mark-to-market adjustments on securities previously classified as available-for-sale, amortization of other-than-temporary impairments, and losses, if any.

The following table details overall statistics for our securities portfolio as of September 30, 2011 and December 31, 2010:

	September 30, 2011	December 31, 2010
Number of securities	─	7
Number of issues	─	5
Rating (1) (2)	N/A	CCC
Fixed / Floating (in millions) (3)	$─ / $─	$2 / $1
Coupon (1) (4)	N/A	7.44%
Yield (1) (4)	N/A	10.54%
Life (years) (1) (5)	N/A	1.9

(1)	Represents a weighted average as of December 31, 2010.
(2)	Weighted average ratings are based on the lowest rating published by Fitch Ratings, Standard & Poor’s or Moody’s Investors Service for each security and exclude unrated equity investments in CDOs with a net book value of $1.2 million as of December 31, 2010.
(3)	Represents the aggregate net book value of our portfolio allocated between fixed rate and floating rate securities.
(4)	Coupon is based on the securities’ contractual interest rates, while yield is based on expected cash flows for each security, and considers discounts/premiums and asset non-performance. Calculations for floating rate securities are based on LIBOR of 0.26% as of December 31, 2010.
(5)	Weighted average life is based on the timing and amount of future expected principal payments through the expected repayment date of each respective investment.

The table below details the ratings and vintage distribution of our securities as of September 30, 2011 and December 31, 2010 (in thousands):

	Rating as of September 30, 2011						Rating as of December 31, 2010
Vintage		B	CCC and Below		Total			B	CCC and Below		Total
2003		$—		$—		$—		$—		$1,210		$1,210
2002		—		—		—		—		—		—
2000		—		—		—		—		955		955
1997		—		—		—		218		—		218
1996		—		—		—		—		1,072		1,072
Total		$—		$—		$—		$218		$3,237		$3,455

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Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

Other-than-temporary impairments

Quarterly, we reevaluate our securities portfolio to determine if there has been an other-than-temporary impairment based upon expected future cash flows from each securities investment. As a result of this evaluation, under the accounting guidance discussed in Note 2, during the first quarter of 2011, we recorded a gross other-than-temporary impairment of $13,000 prior to the transfer of these securities to CT Legacy REIT. In addition, we determined that $1.6 million of impairments previously recorded in other comprehensive income should be recognized as credit losses due to a decrease in cash flow expectations for two of our securities.

To determine the component of the gross other-than-temporary impairment related to expected credit losses, we compare the amortized cost basis of each other-than-temporarily impaired security to the present value of its revised expected cash flows, discounted using its pre-impairment yield. Significant judgment of management is required in this analysis that includes, but is not limited to, (i) assumptions regarding the collectability of principal and interest on the underlying loans, net of related expenses, and (ii) current subordination levels at both the individual loans which serve as collateral under our securities and at the securities themselves.

The following table summarizes activity related to the other-than-temporary impairments of our securities during the nine months ended September 30, 2011 (in thousands):

	Gross Other-Than-Temporary Impairments			Credit Related Other-Than-Temporary Impairments			Non-Credit Related Other-Than-Temporary Impairments
December 31, 2010		$30,567			$27,776			$2,791
Additions due to change in expected cash flows		13			1,653			(1,640	)
Amortization of other-than-temporary impairments		(110	)		(67	)		(43	)
Transfer to CT Legacy REIT (1)		(30,470	)		(29,362	)		(1,108	)
September 30, 2011		$—			$—			$—

(1) All securities have been transferred to CT Legacy REIT on March 31, 2011, as discussed in Note 1.

Unrealized losses and fair value of securities

As discussed above, we do not directly own any securities as of September 30, 2011. Historically, certain of our securities have been carried at values in excess of their fair values. This difference can be caused by, among other things, changes in credit spreads and interest rates.

The following table shows the gross unrealized losses and fair value of our securities for which the fair value is lower than our book value as of December 31, 2010 and that were not deemed to be other-than-temporarily impaired (in millions):

	Less Than 12 Months				Greater Than 12 Months					Total
	Estimated Fair Value		Gross Unrealized Loss		Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Book Value (1)
Floating Rate		$—		$—		$0.2		($1.1	)		$0.2		($1.1	)		$1.3
Fixed Rate		—		—		—		—			—		—			—
Total		$—		$—		$0.2		($1.1	)		$0.2		($1.1	)		$1.3

(1) Excludes, as of December 31, 2010, $2.2 million of securities which were carried at or below fair value and securities against which an other-than-temporary impairment equal to the entire book value was recognized in earnings.

As of December 31, 2010, one of our securities with a book value of $1.3 million was carried at a balance in excess of its fair value. Fair value for this security was $158,000 as of December 31, 2010. In total, as of December 31, 2010, we had seven investments in securities with an aggregate book value of $3.5 million that have an estimated fair value of $5.5 million, including three investments in CMBS with an estimated fair value of $5.3 million and four investments in CDOs and other securities with an estimated fair value of $158,000. These valuations do not include the value of interest rate swaps entered into in conjunction with the purchase/financing of these investments, if any.

- 16 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

We determine fair values using third party dealer assessments of value, and our own internal financial model-based estimations of fair value. See Note 17 for further discussion of fair value.

Note 4. Loans Receivable, Net

As described in Note 1, in conjunction with our March 2011 restructuring of our recourse debt obligations, a significant portion of our assets, including all of our loans, were transferred to a majority-owned subsidiary, CT Legacy REIT. Our only remaining loans have been sold to third-parties and recorded as participations sold assets and liabilities, as further described in Note 8. In addition, as described in Note 2, our consolidated balance sheets separately state our direct assets and liabilities and certain assets and liabilities of consolidated VIEs. See Note 10 for disclosures regarding loans receivable that have been transferred to CT Legacy REIT, and see Note 11 for comparable disclosures regarding loans receivable that are held in consolidated securitization vehicles, as separately stated on our consolidated balance sheets.

Activity relating to our loans receivable for the nine months ended September 30, 2011 was as follows (in thousands):

	Gross Book Value			Provision for Loan Losses			Net Book Value (1)
December 31, 2010		$978,098			($371,780	)		$606,318
Satisfactions (2)		(71,070	)		—			(71,070	)
Principal paydowns		(15,152	)		—			(15,152	)
Discount/premium amortization & other		(7,653	)		—			(7,653	)
Recovery of provision for loan losses		—			7,914			7,914
Realized loan losses		(119,584	)		119,584			—
Transfer to CT Legacy REIT		(739,694	)		244,282			(495,412	)
September 30, 2011		$24,945			$—			$24,945

(1)	Includes loans with a total principal balance of $24.9 million and $979.1 million as of September 30, 2011 and December 31, 2010, respectively.
(2)	Includes final maturities, full repayments, and sales.

The following table details overall statistics for our loans receivable portfolio as of September 30, 2011 and December 31, 2010:

	September 30, 2011	December 31, 2010
Number of investments (1)	1	29
Fixed / Floating (in millions) (2)	$─ / $25	$55 / $551
Coupon (3) (4)	1.49%	4.02%
Yield (3) (4)	1.48%	3.81%
Maturity (years) (3) (5)	0.1	1.7

(1)	Our only remaining loan has been sold to third-parties and recorded as participations sold assets and liabilities, as further described in Note 8.
(2)	Represents the aggregate net book value of our portfolio allocated between fixed rate and floating rate loans.
(3)	Represents a weighted average as of December 31, 2010.
(4)	Calculations for floating rate loans are based on LIBOR of 0.24% and 0.26% as of September 30, 2011 and December 31, 2010, respectively.
(5)	Represents the final maturity of each investment assuming all extension options are executed.

- 17 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

The tables below detail the types of loans in our portfolio, as well as the property type and geographic distribution of the properties securing our loans as of September 30, 2011 and December 31, 2010 (in thousands):

	September 30, 2011				December 31, 2010
Asset Type	Book Value		Percentage		Book Value		Percentage
Subordinate interests in mortgages		$24,945		100%		$113,591		18%
Senior mortgages		—		―		240,150		39
Mezzanine loans		—		―		229,346		38
Other		—		―		23,231		5
Total		$24,945		100%		$606,318		100%
Property Type	Book Value		Percentage		Book Value		Percentage
Hotel		24,945		100%		$147,014		24%
Office		—		―		307,390		51
Healthcare		—		―		53,705		9
Multifamily		—		―		18,093		3
Retail		—		―		11,460		2
Other		—		―		68,656		11
Total		$24,945		100%		$606,318		100%
Geographic Location	Book Value		Percentage		Book Value		Percentage
Southeast		$11,978		48%		$170,400		28%
Southwest		10,782		43		94,491		15
Midwest		2,185		9		6,967		1
Northeast		—		―		175,297		29
West		—		―		54,688		9
Northwest		—		―		29,926		5
International		—		―		39,470		7
Diversified		—		―		35,079		6
Total		$24,945		100%		$606,318		100%

Loan risk ratings

Quarterly, management evaluates our loan portfolio for impairment as described in Note 2. In conjunction with our quarterly loan portfolio review, management assesses the performance of each loan, and assigns a risk rating based on several factors including risk of loss, LTV, collateral performance, structure, exit plan, and sponsorship. Loans are rated one (less risk) through eight (greater risk), which ratings are defined in Note 2.

The following table allocates the net book value and principal balance of our loans receivable based on our internal risk ratings as of September 30, 2011 and December 31, 2010 (in thousands):

		Loans Receivable as of September 30, 2011						Loans Receivable as of December 31, 2010
Risk Rating		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		1		$24,945		$24,945		10		$375,169		$374,885
	4 - 5		—		—		—		8		141,667		126,540
	6 - 8		—		—		—		11		462,221		104,893
Total			1		$24,945		$24,945		29		$979,057		$606,318

- 18 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

In making this risk assessment, one of the primary factors we consider is how senior or junior each loan is relative to other debt obligations of the borrower. The following tables further allocate our loans receivable by both loan type and our internal risk ratings as of September 30, 2011 and December 31, 2010 (in thousands):

		Senior Mortgage Loans
		as of September 30, 2011						as of December 31, 2010
Risk Rating		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		—		$—		$—		2		$129,200		$128,852
	4 - 5		—		—		—		4		57,554		57,513
	6 - 8		—		—		—		3		66,347		53,785
Total			—		$—		$—		9		$253,101		$240,150

		Subordinate Interests in Mortgages
		as of September 30, 2011						as of December 31, 2010
Risk Rating		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		1		$24,945		$24,945		1		$48,000		$48,000
	4 - 5		—		—		—		1		28,965		14,483
	6 - 8		—		—		—		5		110,585		51,108
Total			1		$24,945		$24,945		7		$187,550		$113,591

		Mezzanine & Other Loans
		as of September 30, 2011						as of December 31, 2010
Risk Rating		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		—		$—		$—		7		$197,969		$198,033
	4 - 5		—		—		—		3		55,148		54,544
	6 - 8		—		—		—		3		285,289		—
Total			—		$—		$—		13		$538,406		$252,577

Loan impairments

We have no impaired loans as of September 30, 2011. However, certain of our loans receivable which were transferred to CT Legacy REIT had previously been impaired, and are discussed in Note 10.

The following table details our average balance of impaired loans by loan type, and the income recorded on such loans subsequent to their impairment during the nine months ended September 30, 2011 (in thousands):

Income on Impaired Loans for the Nine Months Ended September 30, 2011
Asset Type	Average Net Book Value		Income Recorded (1)
Senior Mortgage Loans		$17,269		$255
Subordinate Interests in Mortgages		19,940		225
Mezzanine & Other Loans		—		1,915
Total		$37,209		$2,395

(1) Substantially all of the income recorded on impaired loans during the period was received in cash. See also Note 10 for disclosure of income recorded on impaired loans subsequent to their transfer to CT Legacy REIT, substantially all of which was also received in cash.

Nonaccrual loans

In accordance with our revenue recognition policies discussed in Note 2, we do not accrue interest on loans which are 90 days past due or, in the opinion of management, are otherwise uncollectable. Accordingly, we do not have any material interest receivable accrued on nonperforming loans as of September 30, 2011.

- 19 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

Note 5. Loans Held-for-Sale, Net

Activity relating to our loans held-for-sale for the nine months ended September 30, 2011 was as follows (in thousands):

	Gross Book Value			Valuation Allowance			Net Book Value
December 31, 2010		$16,130			($10,380	)		$5,750
Satisfactions		(16,130	)		10,380			(5,750	)
September 30, 2011		$—			$—			$—

During the second quarter of 2010, we reclassified a $16.1 million mezzanine loan to loans held-for-sale, against which we have previously recorded a provision for loan losses of $10.6 million. During 2010, we increased the book value of this loan by $263,000 resulting in a net book value of $5.8 million as of December 31, 2010. The loan was subsequently sold in January 2011 for its net book value of $5.8 million.

Note 6. Equity Investments in Unconsolidated Subsidiaries

Our equity investments in unconsolidated subsidiaries consist of our co-investments in investment management vehicles that we sponsor and manage. As of September 30, 2011, we had a co-investment in one such vehicle, CT Opportunity Partners I, LP, or CTOPI, in which we have a commitment to invest up to $25.0 million, or 4.6% of CTOPI’s total capital commitments. We have funded $15.8 million of our commitment as of September 30, 2011 and received $4.5 million as a return of capital, resulting in an $11.3 million funded and a $13.7 million unfunded commitment balance.

Activity relating to our equity investments in unconsolidated subsidiaries for the nine months ended September 30, 2011 was as follows (in thousands):

	CTOPI			Other			Total
December 31, 2010		$8,931			$1			$8,932
Contributions		3,413			—			3,413
Income from equity investments		2,106			(1	)		2,105
Distributions		(3,839	)		—			(3,839	)
September 30, 2011		$10,611			$—			$10,611

In accordance with the CTOPI management agreement, CTIMCO may earn incentive compensation when certain returns are achieved for the partners of CTOPI, which will be accrued if and when earned, and when appropriate contingencies have been eliminated.

As of September 30, 2011, our maximum exposure to loss from CTOPI was $9.8 million.

Note 7. Debt Obligations

As described in Note 1, on March 31, 2011, we restructured, amended, or extinguished all of our outstanding recourse debt obligations, which restructuring included the assumption of certain debt obligations by a subsidiary, CT Legacy REIT. In addition, as described in Note 2, our consolidated balance sheets separately state our direct assets and liabilities and certain assets and liabilities of consolidated VIEs. See Note 10 for disclosures regarding debt obligations of CT Legacy REIT, and see Note 11 for comparable disclosures regarding debt obligations of consolidated securitization vehicles, all of which are non-recourse to us, as separately stated on our consolidated balance sheets.

- 20 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

As of September 30, 2011 and December 31, 2010, we had $7.7 million and $602.9 million of total debt obligations outstanding, respectively. The balances of each category of debt, their respective coupons and all-in effective costs, including the amortization of fees and expenses, were as follows (in thousands):

	September 30, 2011				December 31, 2010		September 30, 2011
Debt Obligations	Principal Balance		Book Value		Book Value		Coupon		All-In Cost		Maturity Date
Secured notes		$7,686		$7,686		$—		8.19%		8.19%	March 31, 2016
Repurchase obligations
JPMorgan		—		—		224,915		N/A		N/A		N/A
Morgan Stanley		—		—		105,044		N/A		N/A		N/A
Citigroup		—		—		42,623		N/A		N/A		N/A
Total repurchase obligations		—		—		372,582		N/A		N/A		N/A
Senior credit facility		—		—		98,124		N/A		N/A		N/A
Junior subordinated notes		—		—		132,190		N/A		N/A		N/A
Total/Weighted Average		$7,686		$7,686		$602,896		8.19%		8.19%	March 31, 2016

Secured Notes

In conjunction with our March 2011 restructuring and the corresponding satisfaction of our senior credit facility and junior subordinated notes, a wholly-owned subsidiary issued secured notes to our former creditors, which secured notes are non-recourse to us. The secured notes had an aggregate initial face balance of $7.8 million and are secured by 93.5% of our equity interests in the class A-1 and class A-2 common stock of CT Legacy REIT, which represents 48.3% of the total outstanding class A-1 and class A-2 common stock of CT Legacy REIT. The secured notes mature on March 31, 2016 and bear interest at a rate of 8.2% per annum, which interest may be deferred until maturity. All dividends we receive from our equity interests in the common stock of CT Legacy REIT which serve as collateral under the secured notes must be used to pay, or prepay, interest and principal due thereunder. Any prepayment, or partial prepayment, of the secured notes will incur a prepayment premium resulting in a total payment of principal and interest under the secured notes of $11.1 million.

In April 2011, we purchased $405,000 of the secured notes at par.

Repurchase Obligations

On March 31, 2011, our legacy repurchase obligations with JP Morgan, Morgan Stanley and Citigroup were assumed by wholly-owned subsidiaries of CT Legacy REIT, and the recourse to Capital Trust, Inc. was eliminated. See Note 10 for further discussion of these amended facilities at CT Legacy REIT.

Senior Credit Facility

On March 31, 2011, our senior credit facility was fully satisfied and all collateral for the senior credit facility was released in exchange for (i) a cash payment of $22.9 million, (ii) a 24% equity interest in the common stock of CT Legacy REIT, and (iii) $2.8 million of secured notes, as discussed above.

Junior Subordinated Notes

On March 31, 2011, our junior subordinated notes were fully satisfied in exchange for (i) a cash payment of $4.6 million, (ii) 100% of the subordinate class B common stock of CT Legacy REIT, and (iii) $5.0 million of secured notes, as discussed above.

Note 8. Participations Sold

Participations sold represent interests in certain loans that we originated and subsequently sold to one of our investment management vehicles or to third-parties. We present these participations sold as both assets and non-recourse liabilities because these arrangements do not qualify as sales under GAAP. Generally, participations sold are recorded as assets and liabilities in equal amounts on our consolidated balance sheets, and an equivalent amount of interest income and interest expense is recorded on our consolidated statements of operations. However, impaired loan assets must be reduced through the provision for loans losses while the associated non-recourse liability cannot be reduced until the participation has been contractually extinguished. This can result in an imbalance between the loan participations sold asset and liability. We have no economic exposure to these liabilities.

- 21 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

During the nine months ended September 30, 2011, (i) a $75.0 million loan participation sold, which had previously been 100% impaired, was terminated as a result of a restructuring which termination resulted in recognition of a $75.0 million gain on extinguishment of debt, (ii) a $97.5 million loan participation sold, which had similarly been 100% impaired, was transferred to CT Legacy REIT, and (iii) a $51.8 million loan participation sold was fully repaid.

The following table describes our participations sold assets and liabilities as of September 30, 2011 and December 31, 2010 (in thousands):

	September 30,		December 31,
	2011		2010
Participations sold assets
Gross carrying value		$24,945		$259,304
Less: Provision for loan losses		—		(172,465	)
Net book value of assets		24,945		86,839
Participations sold liabilities
Net book value of liabilities		24,945		259,304
Net impact to shareholders' equity		$—		($172,465	)

Note 9. Derivative Financial Instruments

As described in Note 1, in conjunction with our March 2011 restructuring of our recourse debt obligations a significant portion of our assets were transferred to a majority-owned subsidiary, CT Legacy REIT. This transfer included all of our interest rate hedging instruments. In addition, as described in Note 2, our consolidated balance sheets separately state our direct assets and liabilities and certain assets and liabilities of consolidated VIEs. See Note 10 for disclosures regarding interest rate hedging instruments of CT Legacy REIT, and see Note 11 for comparable disclosures regarding interest rate hedging instruments of consolidated securitization vehicles, all of which are non-recourse to us, as separately stated on our consolidated balance sheets.

The following table summarizes the notional amounts and fair values of our interest rate swaps as of September 30, 2011 and December 31, 2010 (in thousands).

Counterparty	September 30, 2011 Notional Amount		Interest Rate		Maturity		September 30, 2011 Fair Value		December 31, 2010 Fair Value
JPMorgan Chase		—		N/A		N/A		$—		($2,172	)
JPMorgan Chase		—		N/A		N/A		—		(1,969	)
JPMorgan Chase		—		N/A		N/A		—		(2,773	)
JPMorgan Chase		—		N/A		N/A		—		(1,015	)
JPMorgan Chase		—		N/A		N/A		—		(490	)
JPMorgan Chase		—		N/A		N/A		—		(32	)
Total/Weighted Average		$—		N/A		N/A		$—		($8,451	)

As of December 31, 2010, all of our derivative financial instruments were designated as cash flow hedges and recorded at their fair value as interest rate hedge liabilities on our consolidated balance sheet. During the nine months ended September 30, 2011, we did not enter into any new derivative financial instrument contracts.

- 22 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

The table below shows amounts recorded to other comprehensive income and amounts recorded to interest expense from other comprehensive income for the nine months ended September 30, 2011 and 2010 (in thousands).

	Amount of gain (loss) recognized		Amount of loss reclassified from OCI
	in OCI for the nine months ended (1)		to income for the nine months ended (2)
Hedge	September 30, 2011	September 30, 2010	September 30, 2011	September 30, 2010
Interest rate swaps	$933	($1,716)	($586)	($2,237)

(1)	Represents the amount of unrealized gains and losses recorded to other comprehensive income during the period, net of the amount reclassified to interest expense.
(2)	Represents net amounts paid to swap counterparties during the period, which are included in interest expense, offset by an immaterial amount of non-cash swap amortization.

Note 10. CT Legacy REIT, Excluding Securitization Vehicles

As described in Note 1, on March 31, 2011, we restructured, amended, or extinguished all of our outstanding recourse debt obligations, and contributed certain of our legacy assets and debt obligations to a newly formed subsidiary, CT Legacy REIT Mezz Borrower, Inc., or CT Legacy REIT.

CT Legacy REIT is a consolidated VIE that is economically owned 52% by us, 24% by an affiliate of Five Mile, and 24% by the former lenders under our senior credit facility. In addition, the former holders of our junior subordinated notes received class B common stock of CT Legacy REIT, a subordinate class of common stock which entitles its holders to receive approximately 25% of the dividends that would otherwise be payable to us on our equity interest in the common stock of CT Legacy REIT, after aggregate cash distributions of $50.0 million have been paid to all other classes of common stock.

As of September 30, 2011, our consolidated balance sheet includes an aggregate $260.1 million of assets and $227.5 million of liabilities related to CT Legacy REIT. In addition, CT Legacy REIT consolidates three securitization trusts which are presented on our consolidated balance sheets with other securitization trusts owned by us directly, which are discussed in Note 11.

The liabilities of CT Legacy REIT are all non-recourse to us, and we are not obligated to provide, nor have we provided, any financial support to CT Legacy REIT. Accordingly, other than in the event of a breach of certain limited non-recourse, “bad boy” carve outs, our maximum exposure to loss as a result of our investment in CT Legacy REIT is limited to $162.9 million, the face amount of our equity interest in CT Legacy REIT’s net assets. After giving effect to provisions for loan losses and other-than-temporary impairments recorded as of September 30, 2011, our remaining net exposure to loss from CT Legacy REIT is $61.1 million.

As described in Note 2, our consolidated balance sheets separately present: (i) our direct assets and liabilities, (ii) the direct assets and liabilities of CT Legacy REIT, and (iii) the assets and liabilities of consolidated securitization vehicles, some of which are subsidiaries of CT Legacy REIT. The following disclosures relate specifically to the direct assets and liabilities of CT Legacy REIT, as separately stated on our consolidated balance sheets.

- 23 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

A. Securities Held-to-Maturity – CT Legacy REIT

CT Legacy REIT’s securities portfolio consists of CMBS, CDOs, and other securities. Activity relating to these securities for the nine months ended September 30, 2011 was as follows (in thousands):

	CMBS			CDOs & Other		Total Book Value (1)
December 31, 2010		$—			$—		$—
Transfer from Capital Trust, Inc.		2,356			1,221		3,577
Principal paydowns		(94	)		—		(94	)
Consolidation of additional securitization vehicle (2)		(1,120	)		—		(1,120	)
Discount/premium amortization & other (3)		205			23		228
September 30, 2011		$1,347			$1,244		$2,591

(1)	Includes securities with a total face value of $29.5 million as of September 30, 2011.
(2)	Beginning in the third quarter of 2011, CT Legacy REIT consolidated an additional securitization vehicle, which was previously accounted for as part of its securities portfolio with a net book value of $1.1 million. See Note 11 for additional discussion.
(3)	Includes mark-to-market adjustments on securities previously classified as available-for-sale, amortization of other-than-temporary impairments, and losses, if any.

As of September 30, 2011, all of CT Legacy REIT’s securities were classified as held-to-maturity.

The following table allocates the book value of CT Legacy REIT’s securities as of September 30, 2011 between their amortized cost basis, amounts related to mark-to-market adjustments on securities previously classified as available-for-sale, and the portion of other-than-temporary impairments not related to expected credit losses (in thousands):

	CMBS			CDOs & Other		Total Securities
Amortized cost basis		$2,369			$1,244		$3,613
Mark-to-market adjustments on securities previously classified     as available-for-sale		(531	)		—		(531	)
Other-than-temporary impairments recognized in accumulated    other comprehensive income		(491	)		—		(491	)
Total book value as of September 30, 2011		$1,347			$1,244		$2,591

The following table details overall statistics for CT Legacy REIT’s securities portfolio as of September 30, 2011 and December 31, 2010:

	September 30, 2011	December 31, 2010
Number of securities	6	─
Number of issues	5	─
Rating (1) (2)	CCC	N/A
Fixed / Floating (in millions) (3)	$2 / $1	$─ / $─
Coupon (1) (4)	8.38%	N/A
Yield (1) (4)	6.41%	N/A
Life (years) (1) (5)	5.6	N/A

(1)	Represents a weighted average as of September 30, 2011.
(2)	Weighted average ratings are based on the lowest rating published by Fitch Ratings, Standard & Poor’s or Moody’s Investors Service for each security.
(3)	Represents the aggregate net book value of the portfolio allocated between fixed rate and floating rate securities.
(4)	Coupon is based on the securities’ contractual interest rates, while yield is based on expected cash flows for each security, and considers discounts/premiums and asset non-performance. Calculations for floating rate securities are based on LIBOR of 0.24% as of September 30, 2011.
(5)	Weighted average life is based on the timing and amount of future expected principal payments through the expected repayment date of each respective investment.

- 24 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

The table below details the ratings and vintage distribution of CT Legacy REIT’s securities as of September 30, 2011 (in thousands):

	Rating as of September 30, 2011
Vintage		B	CCC and Below		Total
2003		$—		$1,246		$1,246
1997		189		—		189
1996		—		1,156		1,156
Total		$189		$2,402		$2,591

Other-than-temporary impairments

Certain of the securities which were transferred to CT Legacy REIT have previously been other-than-temporarily impaired both during the nine months ended September 30, 2011, and in prior periods. The following table summarizes activity related to the other-than-temporary impairments of these securities as of September 30, 2011 (in thousands):

	Gross Other-Than-Temporary Impairments			Credit Related Other-Than-Temporary Impairments			Non-Credit Related Other-Than-Temporary Impairments
December 31, 2010		$—			$—			$—
Transfer from Capital Trust, Inc.		30,470			29,362			1,108
Amortization of other-than-temporary impairments		(228	)		(149	)		(79	)
Consolidation of additional securitization vehicle (1)		(3,357	)		(2,819	)		(538	)
September 30, 2011		$26,885			$26,394			$491

(1) Beginning in the third quarter of 2011, CT Legacy REIT consolidated an additional securitization vehicle, which was previously accounted for as part of its securities portfolio with an other-than-temporary impairment of $3.4 million. See Note 11 for additional discussion.

Unrealized losses and fair value of securities

Certain of CT Legacy REIT’s securities are carried at values in excess of their fair values. This difference can be caused by, among other things, changes in credit spreads and interest rates. The following table shows the gross unrealized losses and fair value of securities for which the fair value is lower than their book value as of September 30, 2011, and that are not deemed to be other-than-temporarily impaired (in millions):

	Less Than 12 Months				Greater Than 12 Months					Total
	Estimated Fair Value		Gross Unrealized Loss		Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Book Value (1)
Floating Rate		$—		$—		$0.2		($1.1	)		$0.2		($1.1	)		$1.3
Fixed Rate		—		—		—		—			—		—			—
Total		$—		$—		$0.2		($1.1	)		$0.2		($1.1	)		$1.3

(1) Excludes, as of September 30, 2011, $1.3 million of securities which were carried at or below fair value and securities against which an other-than-temporary impairment equal to the entire book value was recognized in earnings.

As of September 30, 2011, one of CT Legacy REIT's securities with a book value of $1.3 million was carried at a value in excess of its fair value. Fair value for this security was $158,000 as of September 30, 2011. In total, as of September 30, 2011, CT Legacy REIT had six investments in securities with an aggregate book value of $2.6 million that have an estimated fair value of $1.8 million, including two investments in CMBS with an estimated fair value of $1.6 million and four investments in CDOs and other securities with an estimated fair value of $158,000.

- 25 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

We determine fair values using third party dealer assessments of value, and our own internal financial model-based estimations of fair value. See Note 17 for further discussion of fair value. We regularly examine our securities portfolio and have determined that, despite the differences between book value and fair value discussed above, our expectations of future cash flows have changed adversely for six of our securities, against which we have recognized other-than-temporary-impairments.

Our estimation of cash flows expected to be generated by our securities portfolio is based upon an internal review of the underlying loans securing our investments both on an absolute basis and compared to our initial underwriting for each investment. Our efforts are supplemented by third-party research reports, third-party market assessments and our dialogue with market participants. As of September 30, 2011, we do not intend to sell our securities, nor do we believe it is more likely than not that we will be required to sell our securities before recovery of their amortized cost bases, which may be at maturity. This, combined with our assessment of cash flows, is the basis for our conclusion that these investments are not impaired, other than as described above, despite the differences between estimated fair value and book value. We attribute the difference between book value and estimated fair value to the current market dislocation and a general negative bias against structured financial products such as CMBS and CDOs.

Investments in variable interest entities

CT Legacy REIT’s securities portfolio includes investments in both CMBS and CDOs, which securitization structures are generally considered VIEs. We have not consolidated these VIEs due to our determination that, based on the structural provisions of each entity and the nature of our investments, we do not have the power to direct the activities that most significantly impact these entities' economic performance.

These securities were acquired through investment, and do not represent a securitization or other transfer of our assets. We are not named as special servicer on these investments, nor do we have the right to name special servicer.

CT Legacy REIT is not obligated to provide, nor has it provided, any financial support to these entities. As of September 30, 2011, CT Legacy REIT’s maximum exposure to loss as a result of its investment in these entities is $29.5 million, the principal amount of its securities portfolio. We have recorded other-than-temporary impairments of $26.9 million against this portfolio, resulting in a net exposure to loss of $2.6 million as of September 30, 2011.

B. Loans Receivable, Net – CT Legacy REIT

Activity relating to CT Legacy REIT’s loans receivable for the nine months ended September 30, 2011 was as follows (in thousands):

	Gross Book Value			Provision for Loan Losses			Net Book Value (1)
December 31, 2010		$—			$—			$—
Transfer from Capital Trust, Inc. on March 31, 2011		739,694			(244,282	)		495,412
Satisfactions (2)		(241,442	)		—			(241,442	)
Principal paydowns		(20,596	)		—			(20,596	)
Discount/premium amortization & other		936			—			936
Provision for loan losses		—			5,049			5,049
Realized loan losses		(1,434	)		1,434			—
Reclassification to loans held-for-sale		(32,331	)		—			(32,331	)
September 30, 2011		$444,827			($237,799	)		$207,028

(1)	Includes loans with a total principal balance of $444.5 million as of September 30, 2011.
(2)	Includes final maturities, full repayments, and sales.

- 26 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

The following table details overall statistics for CT Legacy REIT’s loans receivable portfolio as of September 30, 2011 and December 31, 2010:

	September 30, 2011	December 31, 2010
Number of investments	18	─
Fixed / Floating (in millions) (1)	$48 / $159	$─ / $─
Coupon (2) (3)	4.37%	N/A
Yield (2) (3)	4.90%	N/A
Maturity (years) (2) (4)	1.6	N/A

(1)	Represents the aggregate net book value of the portfolio allocated between fixed rate and floating rate loans.
(2)	Represents a weighted average as of September 30, 2011.
(3)	Calculations for floating rate loans are based on LIBOR of 0.24% as of September 30, 2011.
(4)	Represents the final maturity of each investment assuming all extension options are executed.

The tables below detail the types of loans in CT Legacy REIT’s portfolio, as well as the property type and geographic distribution of the properties securing these loans, as of September 30, 2011 and December 31, 2010 (in thousands):

	September 30, 2011				December 31, 2010
Asset Type	Book Value		Percentage		Book Value		Percentage
Senior mortgages		$78,429		37%		$—		―%
Subordinate interests in mortgages		66,013		32		—		―
Mezzanine loans		39,401		19		—		―
Other		23,185		12		—		―
Total		$207,028		100%		$—		―%
Property Type	Book Value		Percentage		Book Value		Percentage
Office		$84,238		41%		$—		―%
Hotel		75,517		36		—		―
Multifamily		14,212		7		—		―
Other		33,061		16		—		―
Total		$207,028		100%		$—		―%
Geographic Location	Book Value		Percentage		Book Value		Percentage
Northeast		$56,216		27%		$—		―%
West		45,731		22		—		―
Southwest		40,754		19		—		―
Southeast		20,072		10		—		―
Northwest		9,876		5		—		―
International		34,379		17		—		―
Total		$207,028		100%		$—		―%

Loan risk ratings

Quarterly, management evaluates CT Legacy REIT’s loan portfolio for impairment as described in Note 2. In conjunction with our quarterly loan portfolio review, management assesses the performance of each loan, and assigns a risk rating based on several factors including risk of loss, LTV, collateral performance, structure, exit plan, and sponsorship. Loans are rated one (less risk) through eight (greater risk), which ratings are defined in Note 2.

- 27 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

The following table allocates the net book value and principal balance of CT Legacy REIT’s loans receivable based on our internal risk ratings as of September 30, 2011 and December 31, 2010 (in thousands):

		Loans Receivable as of September 30, 2011						Loans Receivable as of December 31, 2010
Risk Rating		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		3		$56,519		$56,949		—		$—		$—
	4 - 5		7		99,094		99,066		—		—		—
	6 - 8		8		288,873		51,013		—		—		—
Total			18		$444,486		$207,028		—		$—		$—

In making this risk assessment, one of the primary factors we consider is how senior or junior each loan is relative to other debt obligations of the borrower. The following tables further allocate CT Legacy REIT’s loans receivable by both loan type and our internal risk ratings as of September 30, 2011 and December 31, 2010 (in thousands):

		Senior Mortgage Loans
		as of September 30, 2011						as of December 31, 2010
Risk Rating		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		—		$—		$—		—		$—		$—
	4 - 5		3		48,503		48,475		—		—		—
	6 - 8		2		43,047		29,953		—		—		—
Total			5		$91,550		$78,428		—		$—		$—

		Subordinate Interests in Mortgages
		as of September 30, 2011						as of December 31, 2010
Risk Rating		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		1		$13,000		$13,000		—		$—		$—
	4 - 5		2		31,954		31,954		—		—		—
	6 - 8		4		85,537		21,060		—		—		—
Total			7		$130,491		$66,014		—		$—		$—

		Mezzanine & Other Loans
		as of September 30, 2011						as of December 31, 2010
Risk Rating		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		2		$43,519		$43,949		—		$—		$—
	4 - 5		2		18,637		18,637		—		—		—
	6 - 8		2		160,289		—		—		—		—
Total			6		$222,445		$62,586		—		$—		$—

Loan impairments

The following table describes CT Legacy REIT’s impaired loans as of September 30, 2011, including impaired loans that are current in their interest payments and those that are delinquent on contractual payments (in thousands):

			September 30, 2011
Impaired Loans	No. of Loans		Gross Book Value		Provision for Loan Loss			Net Book Value
Performing loans		3		$201,165		($191,289	)		$9,876
Non-performing loans		3		68,520		(46,510	)		22,010
Total impaired loans		6		$269,685		($237,799	)		$31,886

- 28 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

The following table details the allocation of CT Legacy REIT’s provision for loan losses as of September 30, 2011 (in thousands):

	September 30, 2011
Impaired Loans	Principal Balance		Provision for Loan Loss		Loss Severity
Mezzanine & other loans		$222,445		$160,289		72%
Subordinate interests in mortgages		130,491		64,448		49
Senior mortgages		91,550		13,062		14
Total/Weighted Average		$444,486		$237,799		53%

Generally, we have recorded provisions for loan loss against all loans which are in maturity default, or otherwise have past-due principal payments. As of September 30, 2011, CT Legacy REIT had three loans with an aggregate net book value of $43.5 million which were in maturity default but had no provision recorded. We expect to collect all principal and interest due under these loans upon their resolution.

The following table details CT Legacy REIT’s average balance of impaired loans by loan type, and the income recorded on such loans subsequent to their impairment during the nine months ended September 30, 2011 (in thousands):

Income on Impaired Loans for the Nine Months Ended September 30, 2011
Asset Type	Average Net Book Value		Income Recorded (1)
Senior Mortgage Loans		$9,779		$200
Subordinate Interests in Mortgages		23,091		208
Mezzanine & Other Loans		—		3,187
Total		$32,870		$3,595

(1) Substantially all of the income recorded on impaired loans during the period was received in cash. See also Note 4 for disclosure of income recorded on impaired loans prior to their transfer to CT Legacy REIT, substantially all of which was also received in cash.

 

Nonaccrual loans

In accordance with our revenue recognition policies discussed in Note 2, we do not accrue interest on loans which are 90 days past due or, in the opinion of management, are otherwise uncollectable. Accordingly, we do not have any material interest receivable accrued on CT Legacy REIT’s nonperforming loans as of September 30, 2011.

The following table details CT Legacy REIT’s loans receivable which are on nonaccrual status as of September 30, 2011 (in thousands):

Non-Accrual Loans Receivable as of September 30, 2011
Asset Type	Principal Balance		Net Book Value
Senior Mortgage Loans		$25,100		$12,038
Subordinate Interests in Mortgages		85,537		21,059
Mezzanine & Other Loans		152,289		—
Total		$262,926		$33,097

Loan modifications

During the nine months ended September 30, 2011, two modifications of CT Legacy REIT loans were considered troubled debt restructurings, as defined under GAAP. A troubled debt restructuring is generally any modification of a loan to a borrower that is experiencing financial difficulties, where a lender agrees to terms that are more favorable to the borrower than is otherwise available in the current market. These loan modifications included: (i) a nine-month extension of a $18.0 million senior mortgage loan which is in maturity default, and (ii) a two-year extension of a $24.3 million subordinate mortgage interest, including a 2.0% spread increase which will accrue on a deferred basis. Both of these loans have been individually assessed for impairment, and have not been impaired due to our determination that the underlying collateral value is sufficient to cover our investment in the loans.

- 29 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

C. Loans Held-for-Sale, Net – CT Legacy REIT

Activity relating to CT Legacy REIT’s loans held-for-sale for the nine months ended September 30, 2011 was as follows (in thousands):

	Gross Book Value		Valuation Allowance			Net Book Value
December 31, 2010		$—		$—			$—
Reclassification from loans receivable		32,331		—			32,331
Valuation allowance on loans held-for-sale		—		(224	)		(224	)
September 30, 2011		$32,331		($224	)		$32,107

During the second quarter of 2011, CT Legacy REIT reclassified a $32.5 million senior mortgage loan to loans held-for-sale, against which it has recorded a $224,000 valuation allowance to reflect this loan at its approximate fair value.

D. Debt Obligations – CT Legacy REIT

As of September 30, 2011, CT Legacy REIT had $130.8 million of total debt obligations outstanding. The balances of each category of debt, their respective coupons and all-in effective costs (including the amortization of fees and expenses) were as follows (in thousands):

	September 30, 2011				December 31, 2010		September 30, 2011
Debt Obligations	Principal Balance		Book Value		Book Value		Coupon (1)			All-In Cost (1)				Maturity Date (2)
Repurchase obligation (JPMorgan)		$66,637		$66,637		$—		2.74	%		2.74	%		December 15, 2014
Mezzanine loan(3)		64,134		53,367		—		15.00	%		18.74	%		March 31, 2016
Total/Weighted Average		$130,771		$120,004		$—		8.75	%		10.59	%	(4)	August 3, 2015

(1)	Assumes LIBOR of 0.24% at September 30, 2011 for floating rate debt obligations.
(2)	Maturity dates represent the contractual maturity of each facility.
(3)	The mezzanine loan carries a 15.0% per annum interest rate, of which 7.0% per annum may be deferred. The all-in cost of the mezzanine loan includes the amortization of deferred fees and expenses.
(4)	Including the impact of interest rate hedges with an aggregate notional balance of $60.9 million as of September 30, 2011, the effective all-in cost of CT Legacy REIT’s debt obligations would be 12.88% per annum.

Repurchase Obligations

In conjunction with our March 2011 restructuring, on March 31, 2011 our legacy repurchase obligations with JP Morgan, Morgan Stanley and Citigroup were assumed by wholly-owned subsidiaries of CT Legacy REIT, and the recourse to Capital Trust, Inc. was eliminated. The balances then outstanding under the three repurchase obligations with JP Morgan, Morgan Stanley and Citigroup were $173.5 million, $93.2 million, and $38.1 million, respectively.

During the second quarter of 2011, the Morgan Stanley and Citigroup repurchase obligations were fully repaid and extinguished, and the remaining collateral thereunder was released.

The JP Morgan facility matures on December 15, 2014 and bears interest at a rate of LIBOR + 2.50% per annum (2.74% as of September 30, 2011), which rate will increase to LIBOR + 3.00% per annum for the period from March 31, 2013 through March 30, 2014, and then to LIBOR + 3.50% per annum for the period from March 31, 2014 through maturity. In addition, periodic repayment targets must be met under the facility, which require the outstanding balance be reduced to: $110.0 million by December 15, 2011, $65.0 million by December 15, 2012, and $30 million by December 15, 2013. As of September 30, 2011, the JP Morgan facility had an outstanding balance of $66.6 million.

- 30 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

The following table details the aggregate outstanding principal balance, book value and fair value of CT Legacy REIT’s assets, primarily loans receivable, which were pledged as collateral under the JP Morgan repurchase facility as of September 30, 2011, as well as the amount at risk (in thousands). The amount at risk is generally equal to the book value of our collateral less the outstanding principal balance of the repurchase facility.

			Loans and Securities Collateral Balances, as of September 30, 2011
Repurchase Lender	Facility Balance		Principal Balance		Book Value		Fair Value (1)		Amount at Risk (2)
JP Morgan		$66,637		$318,240		$177,213		$157,252		$124,317

(1)	Fair values represent the amount at which assets could be sold in an orderly transaction between a willing buyer and willing seller. The immediate liquidation value of these assets would likely be substantially lower.
(2)	Amount at risk is calculated on an asset-by-asset basis for each facility and considers the greater of (a) the book value of an asset and (b) the fair value of an asset, in determining the total risk.

Mezzanine Loan

On March 31, 2011, CT Legacy REIT entered into an $83.0 million mezzanine loan with Five Mile that carries a 15.0% per annum interest rate, of which 7.0% per annum may be deferred, and that matures on March 31, 2016. The mezzanine loan is not recourse to Capital Trust, Inc. except for certain limited non-recourse, “bad boy” carve outs.

The mezzanine loan is collateralized by 100% of the equity interests in a subsidiary of CT Legacy REIT, which in-turn owns all of CT Legacy REIT’s assets, subject in-part to the repurchase obligations described above. Five Mile has consent rights with respect to material actions concerning CT Legacy REIT’s assets such as material modifications, sales, and/or the pursuit of certain remedies with regard to such assets. The mezzanine loan also contains covenants that (i) prohibit CT Legacy REIT from paying common stock cash dividends until the mezzanine loan has been repaid, (ii) prohibit us from selling or otherwise transferring our equity interests in CT Legacy REIT, and (iii) require the continued employment of certain key employees.

In addition, an affiliate of Five Mile acquired a 24% equity interest in the common stock of CT Legacy REIT in conjunction with the making of the mezzanine loan.

As of September 30, 2011, the mezzanine loan had an outstanding principal balance of $64.1 million (including deferred interest) and a book balance of $53.4 million. The difference between book balance and principal outstanding is due to costs associated with the mezzanine loan, primarily the equity interest in CT Legacy REIT discussed above. Including the amortization of these costs, the mezzanine loan has an all-in cost of 18.74%.

E. Participations Sold – CT Legacy REIT

Participations sold represent interests in certain loans that we originated and subsequently sold to one of our investment management vehicles or to third parties. We present these participations sold as both assets and non-recourse liabilities because these arrangements do not qualify as sales under GAAP. Generally, participations sold are recorded as assets and liabilities in equal amounts on our consolidated balance sheets, and an equivalent amount of interest income and interest expense is recorded on our consolidated statements of operations. However, impaired loan assets must be reduced through the provision for loans losses while the associated non-recourse liability cannot be reduced until the participation has been contractually extinguished. This can result in an imbalance between the loan participations sold asset and liability. We have no economic exposure to these liabilities.

In connection with our March 2011 restructuring, a $152.3 million loan, in which we have previously sold a $97.5 million participation, was transferred to CT Legacy REIT.

- 31 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

The following table describes CT Legacy REIT’s participations sold assets and liabilities as of September 30, 2011 and December 31, 2010 (in thousands):

	September 30,			December 31,
	2011			2010
Participations sold assets
Gross carrying value		$97,465			$—
Less: Provision for loan losses		(97,465	)		—
Net book value of assets		—			—
Participations sold liabilities
Net book value of liabilities		97,465			—
Net impact to shareholders' equity		($97,465	)		$—

F. Derivative Financial Instruments – CT Legacy REIT

To manage interest rate risk, we have historically employed interest rate swaps, or other arrangements, to convert a portion of our floating rate debt to fixed rate debt in order to index-match our assets and liabilities. The interest rate swaps that we have employed were designated as cash flow hedges and designed to hedge fixed rate assets against floating rate liabilities. Under cash flow hedges, we pay our hedge counterparties a fixed rate amount and our counterparties pay us a floating rate amount, which we settle monthly, and record as a component of interest expense. Our counterparties in these transactions are financial institutions and we are dependent upon the financial health of these counterparties and a functioning interest rate derivative market in order to effectively execute our hedging strategy.

The following table summarizes the notional amounts and fair values of CT Legacy REIT’s interest rate swaps as of September 30, 2011 and December 31, 2010 (in thousands). The notional amount provides an indication of the extent of our involvement in the instruments at that time, but does not represent exposure to credit or interest rate risk.

Counterparty	September 30, 2011 Notional Amount		Interest Rate (1)			Maturity		September 30, 2011 Fair Value			December 31, 2010 Fair Value
JPMorgan Chase		$17,623		5.14	%		2014		($2,086	)		$—
JPMorgan Chase		16,636		4.83	%		2014		(2,048	)		—
JPMorgan Chase		16,403		5.52	%		2018		(3,408	)		—
JPMorgan Chase		7,062		5.11	%		2016		(1,229	)		—
JPMorgan Chase		3,176		5.45	%		2015		(555	)		—
Total/Weighted Average		$60,900		5.17	%		2015		($9,326	)		$—

(1) Represents the gross fixed interest rate we pay to our counterparties under these derivative instruments. We receive an amount of interest indexed to one-month LIBOR on all of our interest rate swaps.

During the second quarter of 2011, as a result of significant repayments of CT Legacy REIT’s floating rate debt obligations, these interest rate swaps ceased to be highly effective hedging instruments. We therefore discontinued the designation of these hedges as cash flow hedges. As a result, beginning in the second quarter of 2011, any change in the fair values of these interest rate swaps is recorded as a non-cash component of interest expense on our consolidated statement of operations. We recognized $1.8 million of such non-cash interest expense during the nine months ended September 30, 2011.

In addition, as a result of the termination of the effective hedge designation, we reclassified $3.2 million from accumulated other comprehensive income as non-cash interest expense on our consolidated financial statements. In future periods we will recognize additional non-cash interest expense as the remaining balance of accumulated other comprehensive income is amortized over the life of each related facility. Net payments under such interest rate swaps during the nine months ended September 30, 2011 totaled $1.5 million, and were recorded as a component of interest expense.

Over the next twelve months, we expect approximately $2.3 million to be reclassified from other comprehensive income to interest expense. This amount represents the amortization of losses previously recorded in other comprehensive income on interest rate swaps which are no longer designated as cash flow hedges.

As of September 30, 2011, CT Legacy REIT has not posted any assets as collateral under derivative agreements.

- 32 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

Note 11. Consolidated Securitization Vehicles

As of September 30, 2011, our consolidated balance sheet includes an aggregate $1.2 billion of assets and $1.4 billion of liabilities related to 10 consolidated securitization vehicles. Due to the non-recourse nature of these vehicles, and other factors discussed below, our net exposure to loss from investments in these entities is limited to $4.1 million.

Our consolidated securitization vehicles include two categories of entities: (i) collateralized debt obligations sponsored and issued by us, which we refer to as CT CDOs and (ii) other consolidated securitization vehicles which were not issued or sponsored by us. We have historically consolidated the CT CDOs; however we began consolidating the additional securitization vehicles as of January 1, 2010, as discussed in Note 2.

CT CDOs

We currently consolidate four collateralized debt obligation, or CDO, entities, which are VIEs that were sponsored by us. These CT CDOs invest in commercial real estate debt instruments, some of which we originated/acquired and transferred to the CDO entities, and are financed by the debt and equity they issue. We are named as collateral manager of all four CT CDOs and are named special servicer on a number of CDO collateral assets. As a result of consolidation, our subordinate debt and equity ownership interests in these CT CDOs have been eliminated, and our balance sheet reflects both the assets held and debt issued by these CDOs to third-parties. Similarly, our operating results and cash flows include the gross amounts related to the assets and liabilities of the CT CDO entities, as opposed to our net economic interests in these entities. Fees earned by us for the management of these CDOs are eliminated in consolidation.

Our interest in the assets held by these CT CDOs, which are consolidated on our balance sheet, is restricted by the structural provisions of these entities, and our recovery of these assets will be limited by the CDOs’ distribution provisions, which are subject to change due to covenant breaches or asset impairments, as further described below in this Note 11. The liabilities of the CT CDOs, which are also consolidated on our balance sheet, are non-recourse to us, and can generally only be satisfied from each CDOs’ respective asset pool.

We are not obligated to provide, nor have we provided, any financial support to these CT CDOs. Accordingly, other than in the event of a breach of certain representations or warranties, which are discussed in detail below, our maximum exposure to loss as a result of our investment in these entities is limited to $233.6 million, the notional amount of the subordinate debt and equity interest we retained in these CDOs. After giving effect to certain transfers of these interests, provisions for loan losses and other-than-temporary impairments recorded as of September 30, 2011, our remaining net exposure to loss from these entities is $4.1 million.

Other Consolidated Securitization Vehicles

As discussed above, we currently consolidate six additional securitization vehicles, all of which are substantially similar to the CT CDOs. These securitization vehicles invest in commercial real estate debt instruments, which investments were not originated or transferred to the entities by us. In addition to our investment in the subordinate classes of the securities issued by these vehicles, we are named special servicer on a number of their assets. As a result of consolidation, our ownership interests in these consolidation vehicles have been eliminated, and our balance sheet reflects both the assets held and debt issued by these vehicles to third-parties. Similarly, our operating results and cash flows include the gross amounts related to the assets and liabilities of the securitization vehicles, as opposed to our net economic interests in these entities. Special servicing fees paid to us on assets owned by these vehicles are eliminated in consolidation.

Our interest in the assets held by these securitization vehicles, which are consolidated on our balance sheet, is restricted by the structural provisions of these entities, and a recovery of our investment in the vehicles will be limited by each entity’s distribution provisions. The liabilities of the securitization vehicles, which are also consolidated on our balance sheet, are non-recourse to us, and can generally only be satisfied from each vehicle’s respective asset pool.

During the third quarter of 2011, realized losses on a loan held by the consolidated MSC 2007-XLFA securitization vehicle resulted in a complete loss to our subordinate investment in MSC 2007-XLFA. Accordingly, we were no longer considered the primary beneficiary of MSC 2007-XLFA and ceased consolidating it under GAAP. Also during the third quarter of 2011, we consolidated a new securitization vehicle, GECMC 2000-1. A realized loss on a loan held by GECMC 2000-1 resulted in a complete loss to the investments subordinate to us and made our investment in GECMC 2000-1 the most subordinate in the remaining securitization structure. Accordingly, we then became the primary beneficiary of GECMC 2000-1 and began consolidating it under GAAP. We have previously accounted for GECMC 2000-1 as a security in our CT Legacy REIT portfolio.

- 33 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

We are not obligated to provide, nor have we provided, any financial support to these consolidated securitization vehicles. In addition, four of these six investments have been made through our CT CDOs, which limits our exposure to loss as discussed above. Accordingly, as of September 30, 2011, our maximum exposure to loss as a result of our investment in these entities is limited to $75.5 million, the notional amount of our investment in the two securitization vehicles not held by our CT CDOs. As a result of consolidation, we have recognized losses on collateral assets in excess of our investment in these entities, resulting in a zero net exposure to loss as of September 30, 2011.

As described in Note 2, our consolidated balance sheets separately present: (i) our direct assets and liabilities, (ii) the direct assets and liabilities of CT Legacy REIT, and (iii) the assets and liabilities of consolidated securitization vehicles, some of which are subsidiaries of CT Legacy REIT. The following disclosures relate specifically to the assets and liabilities of consolidated securitization vehicles, as separately stated on our consolidated balance sheets.

A. Securities Held-to-Maturity – Consolidated Securitization Vehicles

Our consolidated securitization vehicles’ securities portfolio consists of CMBS, CDOs, and other securities. Activity relating to these securities for the nine months ended September 30, 2011 was as follows (in thousands):

	CMBS			CDOs & Other			Total Book Value (1)
December 31, 2010		$456,312			$48,011			$504,323
Principal paydowns		(41,389	)		(29,401	)		(70,790	)
Consolidation of securitization vehicle (2)		(1,000	)		—			(1,000	)
Discount/premium amortization & other (3)		886			(811	)		75
Other-than-temporary impairments:
Recognized in earnings		(37,065	)		—			(37,065	)
Recognized in accumulated other comprehensive income		1,458			—			1,458
September 30, 2011		$379,202			$17,799			$397,001

(1)	Includes securities with a total face value of $519.1 million and $594.4 million as of September 30, 2011 and December 31, 2010, respectively.
(2)	Beginning in the third quarter of 2011, CT CDO I consolidated an additional securitization vehicle, which was previously accounted for as part of its securities portfolio with a net book value of $1.0 million. See the introduction to this Note 11 for additional discussion.
(3)	Includes mark-to-market adjustments on securities previously classified as available-for-sale, amortization of other-than-temporary impairments, and losses, if any.

As of both September 30, 2011 and December 31, 2010, all of our consolidated securitization vehicles’ securities were classified as held-to-maturity.

The following table allocates the book value of our consolidated securitization vehicles’ securities as of September 30, 2011 between their amortized cost basis, amounts related to mark-to-market adjustments on securities previously classified as available-for-sale, and the portion of other-than-temporary impairments not related to expected credit losses (in thousands):

	CMBS			CDOs & Other		Total Securities
Amortized cost basis		$386,214			$17,799		$404,013
Mark-to-market adjustments on securities previously classified as available-for-sale		4,523			—		4,523
Other-than-temporary impairments recognized in accumulated other comprehensive income		(11,535	)		—		(11,535	)
Total book value as of September 30, 2011		$379,202			$17,799		$397,001

- 34 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

The following table details overall statistics for our consolidated securitization vehicles’ securities portfolio as of September 30, 2011 and December 31, 2010:

	September 30, 2011	December 31, 2010
Number of securities	53	56
Number of issues	37	40
Rating (1) (2)	BB+	BB+
Fixed / Floating (in millions) (3)	$396 / $1	$503 / $1
Coupon (1) (4)	6.49%	6.66%
Yield (1) (4)	7.10%	6.97%
Life (years) (1) (5)	2.4	3.4

(1)	Represents a weighted average as of September 30, 2011 and December 31, 2010, respectively.
(2)	Weighted average ratings are based on the lowest rating published by Fitch Ratings, Standard & Poor’s or Moody’s Investors Service for each security.
(3)	Represents the aggregate net book value of the portfolio allocated between fixed rate and floating rate securities.
(4)	Coupon is based on the securities’ contractual interest rates, while yield is based on expected cash flows for each security, and considers discounts/premiums and asset non-performance. Calculations for floating rate securities are based on LIBOR of 0.24% and 0.26% as of September 30, 2011 and December 31, 2010, respectively.
(5)	Weighted average life is based on the timing and amount of future expected principal payments through the expected repayment date of each respective investment.

The table below details the ratings and vintage distribution of our consolidated securitization vehicles’ securities as of September 30, 2011 (in thousands):

	Rating as of September 30, 2011
Vintage	AAA		AA		A	BBB		BB		B	CCC and Below		Total
2006		$—		$—	$—		$—		$—	$—		$15,079		$15,079
2005		—		—	—		—		—	—		20,479		20,479
2004		—		24,789	2,419		—		—	—		—		27,208
2003		9,908		—	—		3,013		1,964	—		—		14,885
2002		—		—	—		6,700		—	2,709		—		9,409
2001		—		—	—		1,301		—	4,128		1,536		6,965
2000		2,922		—	—		—		—	—		24,208		27,130
1999		—		—	11,260		1,416		17,377	—		—		30,053
1998		65,919		46,127	37,577		43,551		12,108	—		5,256		210,538
1997		5,250		—	18,417		—		5,212	2,891		3,485		35,255
Total		$83,999		$70,916	$69,673		$55,981		$36,661	$9,728		$70,043		$397,001

The table below details the ratings and vintage distribution of our consolidated securitization vehicles’securities as of December 31, 2010 (in thousands):

	Rating as of December 31, 2010
Vintage	AAA		AA		A	BBB		BB		B	CCC and Below		Total
2006		$—		$—	$—		$—		$—	$—		$15,248		$15,248
2005		—		—	—		—		—	—		22,033		22,033
2004		—		24,815	8,414		—		—	—		2,400		35,629
2003		9,906		—	—		3,020		1,959	—		—		14,885
2002		—		—	—		6,663		—	2,652		—		9,315
2001		—		—	—		4,814		4,129	—		3,537		12,480
2000		2,923		—	—		—		—	—		26,017		28,940
1999		—		—	11,337		1,423		17,366	—		—		30,126
1998		98,017		45,593	38,045		43,524		43,534	—		4,125		272,838
1997		—		—	26,124		—		5,182	3,360		3,546		38,212
1996		24,617		—	—		—		—	—		—		24,617
Total		$135,463		$70,408	$83,920		$59,444		$72,170	$6,012		$76,906		$504,323

- 35 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

Other-than-temporary impairments

Quarterly, we reevaluate our consolidated securitization vehicles’ securities portfolio to determine if there has been an other-than-temporary impairment based upon expected future cash flows from each securities investment. As a result of this evaluation, under the accounting guidance discussed in Note 2, during the nine months ended September 30, 2011, we recorded a gross other-than-temporary impairment of $35.6 million. In addition, we determined that $1.5 million of impairments previously recorded in other comprehensive income should be recognized as credit losses due to a decrease in cash flow expectations for five of our securities.

To determine the component of the gross other-than-temporary impairment related to expected credit losses, we compare the amortized cost basis of each other-than-temporarily impaired security to the present value of its revised expected cash flows, discounted using its pre-impairment yield. Significant judgment of management is required in this analysis that includes, but is not limited to, (i) assumptions regarding the collectability of principal and interest on the underlying loans, net of related expenses, and (ii) current subordination levels at both the individual loans which serve as collateral under our securities and at the securities themselves.

The following table summarizes activity related to the other-than-temporary impairments of our consolidated securitization vehicles’ securities during the nine months ended September 30, 2011 (in thousands):

	Gross Other-Than-Temporary  Impairments			Credit Related Other-Than-Temporary Impairments			Non-Credit Related Other-Than-Temporary Impairments
December 31, 2010		$88,586			$74,576			$14,010
Additions due to change in expected cash flows		35,607			37,065			(1,458	)
Amortization of other-than-temporary impairments		(3,771	)		(2,754	)		(1,017	)
September 30, 2011		$120,422			$108,887			$11,535

Unrealized losses and fair value of securities

Certain of our consolidated securitization vehicles’ securities are carried at values in excess of their fair values. This difference can be caused by, among other things, changes in credit spreads and interest rates. The following table shows the gross unrealized losses and fair value of securities for which the fair value is lower than their book value as of September 30, 2011 and that are not deemed to be other-than-temporarily impaired (in millions):

	Less Than 12 Months					Greater Than 12 Months					Total
	Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Book Value (1)
Floating Rate		$—		$—			$—		$—			$—		$—			$—
Fixed Rate		170.0		(5.7	)		132.9		(17.4	)		302.9		(23.1	)		326.0
Total		$170.0		($5.7	)		$132.9		($17.4	)		$302.9		($23.1	)		$326.0

(1) Excludes, as of September 30, 2011, $71.0 million of securities which were carried at or below fair value and securities against which an other-than-temporary impairment equal to the entire book value was recognized in earnings.

As of September 30, 2011, 36 of our consolidated securitization vehicles' securities with an aggregate book value of $326.0 million were carried at values in excess of their fair values. Fair value for these securities was $302.9 million as of September 30, 2011. In total, as of September 30, 2011, our consolidated securitization vehicles had 53 investments in securities with an aggregate book value of $397.0 million that have an estimated fair value of $384.4 million, including 51 investments in CMBS with an estimated fair value of $367.3 million and two investments in CDOs and other securities with an estimated fair value of $17.1 million.

- 36 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

The following table shows the gross unrealized losses and fair value of our consolidated securitization vehicles’ securities for which the fair value is lower than our book value as of December 31, 2010 and that are not deemed to be other-than-temporarily impaired (in millions):

	Less Than 12 Months					Greater Than 12 Months					Total
	Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Book Value (1)
Floating Rate		$—		$—			$—		$—			$—		$—			$—
Fixed Rate		29.3		(1.2	)		221.2		(37.4	)		250.5		(38.6	)		289.1
Total		$29.3		($1.2	)		$221.2		($37.4	)		$250.5		($38.6	)		$289.1

(1) Excludes, as of December 31, 2010, $215.2 million of securities which were carried at or below fair value and securities against which an other-than-temporary impairment equal to the entire book value was recognized in earnings.

As of December 31, 2010, 33 of our consolidated securitization vehicles’ securities with an aggregate book value of $289.1 million were carried at values in excess of their fair values. Fair value for these securities was $250.5 million as of December 31, 2010. In total, as of December 31, 2010, our consolidated securitization vehicles had 56 investments in securities with an aggregate book value of $504.3 million that have an estimated fair value of $475.3 million, including 54 investments in CMBS with an estimated fair value of $426.6 million and two investments in CDOs and other securities with an estimated fair value of $48.7 million. These valuations do not include the value of interest rate swaps entered into in conjunction with the purchase/financing of these investments, if any.

We determine fair values using third party dealer assessments of value, and our own internal financial model-based estimations of fair value. See Note 17 for further discussion of fair value. We regularly examine our securities portfolio and have determined that, despite these differences between book value and fair value, our expectations of future cash flows have only changed adversely for 12 of our securities, against which we have recognized other-than-temporary-impairments. See Note 10A for additional discussion of fair value estimations.

Investments in variable interest entities

Our consolidated securitization vehicles’ securities portfolio includes investments in both CMBS and CDOs, which securitization structures are generally considered VIEs. We have not consolidated these VIEs due to our determination that, based on the structural provisions of each entity and the nature of our investments, we do not have the power to direct the activities that most significantly impact these entities' economic performance.

These securities were acquired through investment, and do not represent a securitization or other transfer of our assets. We are not named as special servicer on these investments.

We are not obligated to provide, nor have we provided, any financial support to these entities. As these securities are financed by our non-recourse CT CDOs, our exposure to loss is therefore limited to our interests in these consolidated entities described above in this Note 11.

- 37 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

B. Loans Receivable, Net – Consolidated Securitization Vehicles

Activity relating to our consolidated securitization vehicles’ loans receivable for the nine months ended September 30, 2011 was as follows (in thousands):

	Gross Book Value			Provision for Loan Losses		Net Book Value (1)
December 31, 2010		$3,145,968		($254,589	)		$2,891,379
Satisfactions (2)		(1,441,373	)	—			(1,441,373	)
Principal paydowns		(114,633	)	—			(114,633	)
Deconsolidation of securitization vehicle (3)		(595,919	)	—			(595,919	)
Consolidation of securitization vehicle (4)		24,439		(2,000	)		22,439
Discount/premium amortization & other		331		—			331
Recovery of provision for loan losses		—		21,438			21,438
Realized loan losses		(53,603	)	53,603			—
September 30, 2011		$965,210		($181,548	)		$783,662

(1)	Includes loans with a total principal balance of $1.0 billion and $3.2 billion as of September 30, 2011 and December 31, 2010, respectively.
(2)	Includes final maturities and full repayments.
(3)	We no longer consolidate the MSC 2007-XLFA securitization vehicle beginning in the third quarter of 2011. See the introduction of Note 11 above for further discussion.
(4)	We consolidated an additional securitization vehicle, GECMC 2000-1, beginning in the third quarter of 2011. See the introduction of Note 11 above for further discussion.

The following table details overall statistics for our consolidated securitization vehicles’ loans receivable portfolio as of September 30, 2011 and December 31, 2010:

	September 30, 2011	December 31, 2010
Number of investments	73	94
Fixed / Floating (in millions) (1)	$199 / $585	$213 / $2,678
Coupon (2) (3)	3.43%	2.27%
Yield (2) (3)	3.55%	2.27%
Maturity (years) (2) (4)	1.1	1.3

(1)	Represents the aggregate net book value of the portfolio allocated between fixed rate and floating rate loans.
(2)	Represents a weighted average as of September 30, 2011 and December 31, 2010, respectively.
(3)	Calculations for floating rate loans are based on LIBOR of 0.24% and 0.26% as of September 30, 2011 and December 31, 2010, respectively.
(4)	For loans in CT CDOs, assumes all extension options are executed. For loans in other consolidated securitization vehicles, maturity is based on information provided by the trustees of each respective entity.

- 38 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

The tables below detail the types of loans in our consolidated securitization vehicles’ loan portfolio, as well as the property type and geographic distribution of the properties securing these loans, as of September 30, 2011 and December 31, 2010 (in thousands):

	September 30, 2011					December 31, 2010
Asset Type	Book Value			Percentage		Book Value			Percentage
Senior mortgages		$340,196			43%		$2,225,983			76%
Subordinate interests in mortgages		249,194			31		333,622			11
Mezzanine loans		201,789			26		316,283			11
Other		—			—		22,850			2
Total		$791,179			100%		$2,898,738			100%
Property Type	Book Value			Percentage		Book Value			Percentage
Office		$341,900			43%		$825,292			28%
Hotel		223,447			28		611,435			21
Retail		168,162			21		178,146			7
Healthcare		21,051			3		1,156,880			40
Other		36,619			5		126,985			4
Total		$791,179			100%		$2,898,738			100%
Geographic Location	Book Value			Percentage		Book Value			Percentage
Northeast		$248,247			31%		$417,351			14%
West		156,429			20		163,932			6
Southwest		151,505			19		172,088			6
Southeast		125,604			16		318,655			11
Midwest		25,184			3		18,302			1
Diversified		84,210			11		1,808,410			62
Total		$791,179			100%		$2,898,738			100%
Unallocated loan loss provision (1)		(7,517	)				(7,359	)
Net book value		$783,662					$2,891,379

(1) We have recorded a general provision for loan losses against certain pools of smaller loans in our consolidated securitization vehicles. This general provision is not specifically allocable to any loan asset type, collateral property type, or geographic location, but rather to an overall pool of loans. See Note 2 for additional details.

Loan risk ratings

Quarterly, management evaluates our consolidated securitization vehicles’ loan portfolio for impairment as described in Note 2. In conjunction with our quarterly loan portfolio review, management assesses the performance of each loan, and assigns a risk rating based on several factors including risk of loss, LTV, collateral performance, structure, exit plan, and sponsorship. Loans are rated one (less risk) through eight (greater risk), which ratings are defined in Note 2.

- 39 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

The following table allocates the net book value and principal balance of our consolidated securitization vehicles’ loans receivable based on our internal risk ratings as of September 30, 2011 and December 31, 2010 (in thousands):

		Loans Receivable as of September 30, 2011							Loans Receivable as of December 31, 2010
Risk Rating (1)		Number of Loans		Principal Balance		Net Book Value			Number of Loans		Principal Balance		Net Book Value
	1 - 3		13		$374,172		$373,543			26		$2,031,176		$2,030,344
	4 - 5		7		195,478		195,258			11		408,400		408,052
	6 - 8		13		277,041		102,404			19		589,090		341,252
	N/A		40		119,974		119,974			38		119,090		119,090
Total			73		$966,665		$791,179			94		$3,147,756		$2,898,738
Unallocated loan loss provision:							(7,517	)						(7,359	)
Net book value							$783,662							$2,891,379

(1) We have recorded a general provision for loan losses against certain pools of smaller loans in our consolidated securitization vehicles. These loans have not been individually risk-rated, but have been assessed for loss based on macroeconomic factors. See Note 2 for additional details.

In making this risk assessment, one of the primary factors we consider is how senior or junior each loan is relative to other debt obligations of the borrower. The following tables further allocate our consolidated securitization vehicles’ loans receivable by both loan type and our internal risk ratings as of September 30, 2011 and December 31, 2010 (in thousands):

		Senior Mortgage Loans
		as of September 30, 2011						as of December 31, 2010
Risk Rating (1)		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		5		$201,812		$201,812		12		$1,639,820		$1,639,815
	4 - 5		1		12,728		12,728		6		335,043		335,043
	6 - 8		1		33,214		16,907		3		193,983		143,676
	N/A		38		108,749		108,749		36		107,449		107,449
Total			45		$356,503		$340,196		57		$2,276,295		$2,225,983

(1) We have recorded a general provision for loan losses against certain pools of smaller loans in our consolidated securitization vehicles. These loans have not been individually risk-rated, but have been assessed for loss based on macroeconomic factors. See Note 2 for additional details.

		Subordinate Interests in Mortgages
		as of September 30, 2011						as of December 31, 2010
Risk Rating (1)		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		6		$134,012		$133,520		7		$189,323		$188,666
	4 - 5		4		69,750		69,530		4		71,415		71,067
	6 - 8		9		147,634		44,419		11		185,913		71,748
	N/A		1		1,725		1,725		1		2,141		2,141
Total			20		$353,121		$249,194		23		$448,792		$333,622

(1) We have recorded a general provision for loan losses against certain pools of smaller loans in our consolidated securitization vehicles. These loans have not been individually risk-rated, but have been assessed for loss based on macroeconomic factors. See Note 2 for additional details.

- 40 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

		Mezzanine & Other Loans
		as of September 30, 2011						as of December 31, 2010
Risk Rating (1)		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		2		$38,348		$38,211		7		$202,033		$201,863
	4 - 5		2		113,000		113,000		1		1,942		1,942
	6 - 8		3		96,193		41,078		5		209,194		125,828
	N/A		1		9,500		9,500		1		9,500		9,500
Total			8		$257,041		$201,789		14		$422,669		$339,133

(1) We have recorded a general provision for loan losses against certain pools of smaller loans in our consolidated securitization vehicles. These loans have not been individually risk-rated, but have been assessed for loss based on macroeconomic factors. See Note 2 for additional details.

Loan impairments

The following table describes our consolidated securitization vehicles’ impaired loans as of September 30, 2011, including impaired loans that are current in their interest payments and those that are delinquent on contractual payments (in thousands):

	September 30, 2011
Impaired Loans	No. of Loans		Gross Book Value		Provision for Loan Loss			Net Book Value
Performing loans		4		$82,507		($108,432	)		($25,925	)
Non-performing loans		7		154,929		(65,599	)		89,330
Total impaired loans		11		$237,436		($174,031	)		$63,405

In addition, as described in Note 2, we have recorded a $7.5 million general provision for loan losses against 40 loans in our consolidated securitization vehicles with an aggregate principal balance of $120.0 million.

The following table details the allocation of our consolidated securitization vehicles’ provision for loan losses as of September 30, 2011 (in thousands):

	September 30, 2011
Impaired Loans	Principal Balance		Provision for Loan Loss		Loss Severity
Subordinate interests in mortgages		$351,396		$102,608		29%
Senior mortgages		247,755		16,307		7
Mezzanine & other loans		247,540		55,116		22
Unallocated (1)		119,974		7,517		6
Total/Weighted Average		$966,665		$181,548		19%

(1) We have recorded a general provision for loan losses against certain pools of smaller loans in our consolidated securitization vehicles. This general provision is not specifically allocable to any loan asset type, but rather to an overall pool of loans. See Note 2 for additional details.

Generally, we have recorded provisions for loan loss against all loans which are in maturity default, or otherwise have past-due principal payments. As of September 30, 2011, our consolidated securitization vehicles had one loan with a net book value of $1.6 million which was in maturity default but had no provision recorded. We expect to collect all principal and interest due under this loan upon its resolution.

- 41 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

The following table details our consolidated securitization vehicles’ average balance of impaired loans by loan type, and the income recorded on such loans subsequent to their impairment during the nine months ended September 30, 2011 (in thousands):

Income on Impaired Loans for the Nine Months Ended September 30, 2011
Asset Type	Average Net Book Value		Income Recorded (1)
Senior Mortgage Loans		$61,157		$3,197
Subordinate Interests in Mortgages		16,717		1,739
Mezzanine & Other Loans		111,703		3,844
Total		$189,577		$8,780

(1) Substantially all of the income recorded on impaired loans during the period was received in cash.

Nonaccrual loans

In accordance with our revenue recognition policies discussed in Note 2, we do not accrue interest on loans which are 90 days past due or, in the opinion of management, are otherwise uncollectable. Accordingly, we do not have any material interest receivable accrued on nonperforming loans as of September 30, 2011.

The following table details our consolidated securitization vehicles’ loans receivable which are on nonaccrual status as of September 30, 2011 (in thousands):

Non-Accrual Loans Receivable as of September 30, 2011
Asset Type	Principal Balance		Net Book Value
Senior Mortgage Loans		$—		$—
Subordinate Interests in Mortgages		107,201		38,419
Mezzanine & Other Loans		96,194		41,078
Total		$203,395		$79,497

Loan modifications

During the nine months ended September 30, 2011, two modifications of loans in consolidated securitization vehicles were considered troubled debt restructurings, as defined under GAAP. A troubled debt restructuring is generally any modification of a loan to a borrower that is experiencing financial difficulties, where a lender agrees to terms that are more favorable to the borrower than is otherwise available in the current market. These loan modifications included: (i) a 28-month extension of a $33.0 million subordinate mortgage interest, and (ii) a four-month extension of a $6.6 million subordinate mortgage interest, neither of which extensions included a modification of interest rates. Both of these loans have been individually assessed for impairment, and other than a $3.3 million impairment previously recorded against the $6.6 million subordinate mortgage interest, no additional impairment was necessary.

- 42 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

C. Real Estate Held-for-Sale – Consolidated Securitization Vehicles

Activity relating to our consolidated securitization vehicles’ real estate held-for-sale for the nine months ended September 30, 2011 was as follows (in thousands):

	Gross Book Value		Other-Than-Temporary Impairment			Net Book Value
December 31, 2010		$15,068		($7,013	)		$8,055
Consolidation of additional securitization vehicles (1)		9,892		(6,550	)		3,342
Impairment of real estate held-for-sale		—		(1,055	)		(1,055	)
September 30, 2011		$24,960		($14,618	)		$10,342

(1) As further described above, we began consolidating an additional securitization vehicle in the third quarter of 2011. This newly consolidated vehicle held an investment in real estate held-for-sale with a net book value of $3.3 million at the time of consolidation.

D. Debt Obligations – Consolidated Securitization Vehicles

As of September 30, 2011 and December 31, 2010, our consolidated securitization vehicles had $1.4 billion and $3.6 billion of total non-recourse securitized debt obligations outstanding, respectively. The balances of each entity’s outstanding securitized debt obligations, their respective coupons and all-in effective costs, including the amortization of fees and expenses, were as follows (in thousands):

	September 30, 2011				December 31, 2010		September 30, 2011
Non-Recourse Securitized Debt Obligations	Principal Balance		Book Value		Book Value		Coupon(1)			All-In Cost(1)				Maturity Date(2)
CT CDOs
CT CDO I		$121,930		$121,930		$199,573		1.13	%		1.14	%		July 2039
CT CDO II		202,282		202,282		262,281		0.85	%		1.15	%		March 2050
CT CDO III		205,083		205,576		239,911		5.26	%		5.17	%		June 2035
CT CDO IV (3)		242,520		242,520		280,820		0.97	%		1.10	%		October 2043
Total CT CDOs		771,815		772,308		982,585		2.10	%		2.20	%		July 2042
Other securitization vehicles
GMACC 1997-C1		86,170		86,170		98,154		7.10	%		7.10	%		July 2029
GECMC 00-1 H		25,050		25,050		N/A		5.90	%		5.90	%		August 2027
GSMS 2006-FL8A		50,552		50,552		125,598		1.08	%		1.08	%		June 2020
JPMCC 2005-FL1A		89,753		89,753		95,695		0.81	%		0.81	%		February 2019
MSC 2007-XLFA		—		—		751,131		N/A			N/A				N/A
MSC 2007-XLCA		328,613		328,613		522,137		2.02	%		2.02	%		July 2017
CSFB 2006-HC1		—		—		1,045,929		N/A			N/A			N/A
Total other securitization vehicles		580,138		580,138		2,638,644		2.67	%		2.67	%		March 2020
Total/Weighted Average		$1,351,953		$1,352,446		$3,621,229		2.35	%		2.40	%	(4)	December 2032

(1)	Represents a weighted average for each respective facility, assuming LIBOR of 0.24% at September 30, 2011 for floating rate debt obligations.
(2)	Maturity dates represent the contractual maturity of each securitization trust. Repayment of securitized debt is a function of collateral cash flows which are disbursed in accordance with the contractual provisions of each trust, and is generally expected to occur prior to the maturity data above.
(3)	Comprised, at September 30, 2011, of $229.4 million of floating rate notes sold and $13.1 million of fixed rate notes sold.
(4)	Including the impact of interest rate hedges with an aggregate notional balance of $298.5 million as of September 30, 2011, the effective all-in cost of our consolidated securitization vehicles’ debt obligations would be 3.46% per annum.

As discussed above in the introduction to this Note 11, our consolidated securitization vehicles generally include two categories of entities: (i) collateralized debt obligations sponsored and issued by us, which we refer to as CT CDOs and (ii) other consolidated securitization vehicles which were not issued or sponsored by us. We have historically consolidated the CT CDOs; however we began consolidating the additional securitization vehicles as of January 1, 2010.

- 43 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

CT CDOs

As of September 30, 2011, our outstanding CT CDOs included four separate issuances with a total face value of $771.8 million. As of September 30, 2011, loans receivable and securities with a book balance of $228.2 million and $397.0 million, respectively, were financed by our CT CDOs. As of December 31, 2010, loans receivable and securities with a book balance of $299.9 million and $504.3 million, respectively, were financed by our CT CDOs.

CT CDO I and CT CDO II each have interest coverage and overcollateralization tests, which, when breached, provide for hyper-amortization of the senior notes sold by a redirection of cash flow that would otherwise have been paid to the subordinate classes, some of which are owned by us. Furthermore, all four of our CT CDOs provide for the re-classification of interest proceeds from impaired collateral as principal proceeds, which also serve to hyper-amortize the senior notes sold.

During 2009, we were informed by our CDO trustee of impairments due to rating agency downgrades of certain of the securities which serve as collateral in all of our CT CDOs. These impairments, combined with the non-performance of certain loan collateral, resulted in breaches of interest coverage and overcollateralization tests at CT CDO I and CT CDO II, as well as the reclassification of interest proceeds from the impaired collateral as principal proceeds in all four of our CT CDOs. Other than collateral management fees, we currently do not receive any cash payments from CT CDO I, CT CDO II, and CT CDO IV, and receive irregular cash payments from CT CDO III.

Further, due to the hyper-amortization of senior notes, certain subordinate classes are accruing unpaid interest, resulting in an increased liability to these classes. As senior notes which carry a lower rate of interest continue to hyper-amortize, and certain subordinate notes continue to accrue deferred interest, the weighted-average cost of debt for our CT CDOs has and will continue to increase.

When we formed (and reinvested) our four CT CDOs, we made certain representations and warranties with respect to Capital Trust, Inc. and the loans and securities that we contributed as collateral to these CT CDOs. In the event that these representations or warranties are proved to have been untrue at the time that the respective collateral was contributed, we may be required to repurchase certain of those loans and securities. These representations and warranties generally relate to specific corporate and asset related subjects, including, among other things, proper corporate authorization; compliance with laws and regulations; ownership of the assets; title to, lack of liens encumbering, and adequate insurance covering the underlying collateral properties; and the lack of existing loan defaults.

The maximum potential amount of future payment we may be required to make to repurchase assets is $907.9 million, the current face amount of all loans and securities in our four CT CDOs. In certain cases, we may be able to reduce the impact of any such purchase obligation through recoveries from the exercise of remedies against the institution from which we acquired the asset and received substantially the same representations and warranties. This potential recoverable amount is not currently estimable and would depend on the nature of the representation and warranty breached and the circumstances under which each asset was transferred to the CT CDO. Since inception, we have not been required to repurchase any assets nor have we received any notice of assertion of a potential breach of any representation or warranty. Any payment required to repurchase a loan or security could materially impact our liquidity.

Other Consolidated Securitization Vehicles

In addition to the CT CDOs sponsored by us, which are discussed above, we also have consolidated other securitization vehicles beginning on January 1, 2010, as discussed in Note 2. The debt obligations of these entities are separately presented on our consolidated balance sheet along with the CT CDOs issued by us, as they are also securitized, non-recourse obligations. These obligations will generally be satisfied with the repayment of assets in each such entity’s collateral pool, or will be discharged when losses are realized. As of September 30, 2011, loans receivable with an aggregate book value of $555.5 million serve as collateral for the securities issued by these other consolidated securitization vehicles.

- 44 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

E. Derivative Financial Instruments – Consolidated Securitization Vehicles

The following table summarizes the notional amounts and fair values of our consolidated securitization vehicles’ interest rate swaps as of September 30, 2011 and December 31, 2010 (in thousands). The notional amount provides an indication of the extent of our involvement in the instruments at that time, but does not represent exposure to credit or interest rate risk.

Counterparty	September 30, 2011 Notional Amount		Interest Rate (1)			Maturity		September 30, 2011 Fair Value			December 31, 2010 Fair Value
Swiss RE Financial		$238,225		5.10	%		2015		($22,614	)		($24,037	)
Bank of America		44,631		4.58	%		2014		(2,771	)		(3,331	)
Morgan Stanley		—		3.95	%		2011		—			(398	)
Bank of America		10,535		5.05	%		2016		(1,512	)		(1,267	)
Bank of America		5,104		4.12	%		2016		(585	)		(422	)
Morgan Stanley		74		5.31	%		2011		—			(7	)
Total/Weighted Average		$298,569		5.00	%		2015		($27,482	)		($29,462	)

(1) Represents the gross fixed interest rate we pay to our counterparties under these derivative instruments. We receive an amount of interest indexed to one-month LIBOR on all of our interest rate swaps.

As of both September 30, 2011 and December 31, 2010, all of the derivative financial instruments of our consolidated securitization vehicles were classified as cash flow hedges, and recorded at fair value as interest rate hedge liabilities on our consolidated balance sheet.

The table below shows amounts recorded to other comprehensive income and amounts recorded to interest expense from other comprehensive income for the nine months ended September 30, 2011 and 2010 (in thousands):

	Amount of gain (loss) recognized					Amount of loss reclassified from OCI
	in OCI for the nine months ended (1)					to income for the nine months ended (2)
Hedge	September 30, 2011		September 30, 2010			September 30, 2011			September 30, 2010
Interest rate swaps		$1,980		($8,563	)		($11,512	)		($12,305	)

(1)	Represents the amount of unrealized gains and losses recorded to other comprehensive income during the period, net of the amount reclassified to interest expense.
(2)	Represents net amounts paid to swap counterparties during the period, which are included in interest expense, offset by an immaterial amount of non-cash swap amortization.

All of our consolidated securitization vehicles’ interest rate swaps were classified as highly effective for all of the periods presented. Over the next twelve months, as we make payments under our hedge agreements, we expect approximately $13.1 million to be reclassified from other comprehensive income to interest expense. This amount is generally equal to the present value of expected payments under the respective derivative contracts.

As of September 30, 2011, our consolidated securitization vehicles have not posted any assets as collateral under derivative agreements.

Note 12. Shareholders’ Equity

Authorized Capital

We have the authority to issue up to 200,000,000 shares of stock, consisting of 100,000,000 shares of class A common stock and 100,000,000 shares of preferred stock. Subject to applicable NYSE listing requirements, our board of directors is authorized to issue additional shares of authorized stock without shareholder approval. In addition, to the extent not issued, currently authorized stock may be reclassified between class A common stock and preferred stock.

Common Stock

Shares of class A common stock are entitled to vote on all matters presented to a vote of shareholders, except as provided by law or subject to the voting rights of any outstanding preferred stock. Holders of record of shares of class A common stock on the record date fixed by our board of directors are entitled to receive such dividends as may be declared by the board of directors subject to the rights of the holders of any outstanding preferred stock. A total of 22,748,729 shares of common stock and stock units were issued and outstanding as of September 30, 2011.

- 45 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

We did not repurchase any of our common stock during the nine months ended September 30, 2011, other than the 34,892 shares we acquired pursuant to elections by incentive plan participants to satisfy tax withholding obligations through the surrender of shares equal in value to the amount of the withholding obligation incurred upon the vesting of restricted stock.

Preferred Stock

We have not issued any shares of preferred stock since we repurchased all of the previously issued and outstanding preferred stock in 2001.

Warrants

In conjunction with the March 2009 restructuring of our legacy repurchase obligations, we issued to our former repurchase lenders warrants to purchase an aggregate 3,479,691 shares of our class A common stock at an exercise price of $1.79 per share. The warrants will become exercisable on March 16, 2012 and expire on March 16, 2019, and may be exercised through a cashless exercise at the option of the warrant holders. The fair value assigned to these warrants, totaling $940,000, has been recorded as an increase to additional paid-in capital, and was amortized into interest expense over the term of the related debt obligations. The warrants were valued using the Black-Scholes valuation method.

Dividends

We generally intend to distribute each year substantially all of our taxable income (which does not necessarily equal net income as calculated in accordance with GAAP) to our shareholders to comply with the REIT provisions of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. To the extent permitted, we may make certain distributions in stock, taking into consideration the recent Internal Revenue Service rulings which allow REITs to distribute up to 90% of their dividends in the form of stock for tax years ending on or before December 31, 2011.

In addition, ourdividend policy remains subject to revision at the discretion of our board of directors. All distributions will be made at the discretion of our board of directors and will depend upon our taxable income, our financial condition, our maintenance of REIT status and other factors as our board of directors deems relevant.

No dividends were declared during the nine months ended September 30, 2011 or 2010.

- 46 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

Accumulated Other Comprehensive Loss

The following table details the primary components of accumulated other comprehensive loss as of September 30, 2011 and significant activity for the nine months ended September 30, 2011 (in thousands):

	Mark-to-Market on Interest Rate Hedges			Deferred Gains on Settled Hedges			Other-than-Temporary Impairments			Unrealized Gains on Securities			Total
December 31, 2010		($37,914	)		$165			($16,800	)		$4,087			($50,462	)
Consolidation of additional securitization vehicles (1)		—			—			538			—			538
Unrealized gain on derivative financial instruments		2,912			—			—			—			2,912
Ineffective portion of cash flow hedges (2)		4,447			—			—			—			4,447
Amortization of net unrealized gains on securities		—			—			—			(93	)		(93	)
Amortization of net deferred gains on settlement of swaps		—			(75	)		—			—			(75	)
Other-than-temporary impairments of securities (3)		—			—			4,236			—			4,236
September 30, 2011		($30,555	)		$90			($12,026	)		$3,994			($38,497	)

(1)	As further described above, we began consolidating an additional securitization vehicle in the third quarter of 2011. This newly consolidated vehicle was previously accounted for as part of CT Legacy REIT’s securities portfolio. This security had previously been other-than-temporarily impaired, a portion of which was recorded in accumulated other comprehensive income, and is now eliminated in consolidation.
(2)	As a result of significant repayments under floating rate debt obligations of CT Legacy REIT a portion of its interest rate swaps were deemed ineffective in the second quarter of 2011 and are no longer designated as hedging instruments. As a result, a portion of accumulated other comprehensive income is reclassified into earnings each period to reflect the non-hedge designation. See Note 10 for further discussion.
(3)	Represents the reclassification of other-than-temporary impairments of securities to credit losses recognized through earnings, including amortization of prior other-than-temporary impairments of $1.1 million.

Noncontrolling Interests

The noncontrolling interests included on our consolidated balance sheet represent the equity interests in CT Legacy REIT which are not owned by us, as described in Note 1. CT Legacy REIT’s outstanding common stock includes class A-1 common stock, class A-2 common stock, and subordinate class B common stock. A portion of CT Legacy REIT’s consolidated equity and results of operations are allocated to these noncontrolling interests based on their pro-rata ownership of CT Legacy REIT. The following table describes activity relating to noncontrolling interests for the nine months ended September 30, 2011 (in thousands):

	Noncontrolling Interests
December 31, 2010		$—
Allocation to noncontrolling interests		(12,623	)
Net income attributable to noncontrolling interests		1,935
September 30, 2011		($10,688	)

As of September 30, 2011, the noncontrolling interests recorded on our consolidated balance sheet was a deficit, which reflects the consolidated book value of CT Legacy REIT, including certain securitization trusts in which losses have been recorded in excess of CT Legacy REIT’s net investment.

During the second quarter of 2011, we purchased 118,651 shares of class B common stock of CT Legacy REIT which were issued to our former lenders in conjunction with our March 2011 restructuring. This purchase did not impact the book value of noncontrolling interests.

- 47 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

Earnings Per Share

The following table sets forth the calculation of Basic and Diluted earnings per share, or EPS, based on the weighted average of both restricted and unrestricted class A common stock outstanding, for the nine months ended September 30, 2011 (in thousands, except share and per share amounts):

	Nine Months Ended September 30, 2011
	Net		Wtd. Avg.		Per Share
	Income		Shares		Amount
Basic EPS:
Net income allocable to common stock		$266,464		22,630,672		$11.77
Effect of Dilutive Securities:
Warrants & Options outstanding for the purchase of common stock		—		1,426,702
Diluted EPS:
Net income per share of common stock and assumed conversions		$266,464		24,057,374		$11.08

The following table sets forth the calculation of Basic and Diluted EPS based on the weighted average of both restricted and unrestricted class A common stock outstanding, for the nine months ended September 30, 2010 (in thousands, except share and per share amounts):

	Nine Months Ended September 30, 2010
	Net			Wtd. Avg.		Per Share
	Loss			Shares (1)		Amount
Basic EPS:
Net loss allocable to common stock		($195,259	)		22,356,857		($8.73	)
Effect of Dilutive Securities:
Warrants & Options outstanding for the purchase of common stock		—			—
Diluted EPS:
Net loss per share of common stock and assumed conversions		($195,259	)		22,356,857		($8.73	)

(1) Diluted EPS excludes 129,000 options and 3.5 million warrants which were not dilutive for the period. These instruments could potentially impact Diluted EPS in future periods, depending on changes in our stock price.

The following table sets forth the calculation of Basic and Diluted earnings per share, or EPS, based on the weighted average of both restricted and unrestricted class A common stock outstanding, for the three months ended September 30, 2011 (in thousands, except share and per share amounts):

	Three Months Ended September 30, 2011
	Net		Wtd. Avg.		Per Share
	Income		Shares		Amount
Basic EPS:
Net income allocable to common stock		$13,722		22,730,080		$0.60
Effect of Dilutive Securities:
Warrants & Options outstanding for the purchase of common stock		—		1,391,893
Diluted EPS:
Net income per share of common stock and assumed conversions		$13,722		24,121,973		$0.57

- 48 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

The following table sets forth the calculation of Basic and Diluted EPS based on the weighted average of both restricted and unrestricted class A common stock outstanding, for the three months ended September 30, 2010 (in thousands, except share and per share amounts):

	Three Months Ended September 30, 2010
	Net			Wtd. Avg.		Per Share
	Loss			Shares (1)		Amount
Basic EPS:
Net loss allocable to common stock		($134,709	)		22,389,901		($6.02	)
Effect of Dilutive Securities:
Warrants & Options outstanding for the purchase of common stock		—			—
Diluted EPS:
Net loss per share of common stock and assumed conversions		($134,709	)		22,389,901		($6.02	)

(1) Diluted EPS excludes 129,000 options and 3.5 million warrants which were not dilutive for the period. These instruments could potentially impact Diluted EPS in future periods, depending on changes in our stock price.

Note 13. General and Administrative Expenses

General and administrative expenses for the nine months ended September 30, 2011 and 2010 consisted of the following (in thousands):

	Nine Months Ended September 30,
General and Administrative Expenses	2011		2010
Personnel costs		$7,162		$7,103
Restructuring awards		2,750		—
Professional services		3,914		4,129
Operating and other costs		1,617		1,761
Subtotal		15,443		12,993
Non-cash personnel costs
Management incentive awards plan - CT Legacy REIT		3,395		—
Employee stock-based compensation		411		107
Subtotal		3,806		107
Expenses of consolidated securitization vehicles		619		1,298
Total		$19,868		$14,398

Note 14. Gain on Extinguishment of Debt

Gain on extinguishment of debt for the nine months ended September 30, 2011 and 2010 consisted of the following (in thousands):

	Nine Months Ended September 30,
Gain on Extinguishment of Debt	2011		2010
Extinguishment of senior credit facility and junior subordinated notes (1)		$174,846		$—
Termination of loan participation sold (2)		75,000		—
Securitized debt obligations (3)		21,185		648
Total		$271,031		$648

(1)	Represents the gain recorded on the extinguishment of certain of our legacy debt obligations as part of our March 2011 restructuring. See Note 1 for further discussion.
(2)	Represents the gain recorded on the termination of a loan participation sold which had previously been impaired. See Note 8 for further discussion.
(3)	Represents the gain recorded as a result of realized losses in consolidated securitization vehicles. As losses in these vehicles are realized, they result in the extinguishment of certain subordinate classes of securitized debt. See Note 10 for further discussion.

- 49 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

Note 15. Income Taxes

Capital Trust, Inc. has made an election to be taxed as a REIT under Section 856(c) of the Internal Revenue Code, commencing with the tax year ending December 31, 2003. As a REIT, we generally are not subject to federal, state, and local income taxes except for the operations of our taxable REIT subsidiary, CTIMCO. To maintain qualification as a REIT, we must distribute at least 90% of our annual REIT taxable income to our shareholders and meet certain other requirements. If we fail to maintain our qualification as a REIT, we may be subject to material penalties as well as federal, state and local income tax on our taxable income at regular corporate rates. As of September 30, 2011 and December 31, 2010, Capital Trust, Inc. was in compliance with all REIT requirements.

In addition, Capital Trust, Inc. includes in its taxable income, the income generated by investments in our CT CDOs. Due to the redirection provisions of our CT CDOs, which reallocate principal proceeds and interest otherwise distributable to us to repay senior noteholders, assets financed through our CT CDOs may generate current taxable income without a corresponding cash distribution to us. See Note 11 for further discussion of these redirection provisions.

As of December 31, 2010, Capital Trust, Inc. had net operating losses, or NOLs, and net capital losses, or NCLs, available to be carried forward and utilized in current or future periods. These included NOLs of approximately $302.0 million and NCLs of approximately $129.0 million at Capital Trust, Inc., as well as NOLs of approximately $3.6 million at CTIMCO. As a result of our March 2011 restructuring, Capital Trust, Inc. will realize cancellation of indebtedness income of approximately $180.5 million for the 2011 taxable year which will reduce the available NOLs. The utilization of NOLs will also require us to pay alternative minimum taxes of approximately $2.0 million.

Deferred income taxes recorded on our consolidated balance sheets reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used in the computation of our current income tax obligations.

Our consolidated financial statements also include tax provisions related to taxable REIT subsidiaries of CT Legacy REIT. Although CT Legacy REIT is taxed separately from Capital Trust, Inc., its operations, including any income tax provisions, are consolidated for financial reporting purposes. The portion of our consolidated income tax provision related to CT Legacy REIT is immaterial for the nine months ended September 30, 2011.

Note 16. Employee Benefit and Incentive Plans

Stock-Based Incentive Plans

We had stock-based incentive awards outstanding under three benefit plans as of September 30, 2011: (i) the Amended and Restated 1997 Non-Employee Director Stock Plan, or 1997 Director Plan, (ii) the 2007 Long-Term Incentive Plan, or 2007 Plan, and (iii) the 2011 Long-Term Incentive Plan, or 2011 Plan. The 1997 Director Plan and the 2007 Plan expired in 2007 and June 2011, respectively and no new awards may be issued under them. Under the 2011 Plan, a maximum of 1 million shares of class A common stock may be issued. Shares canceled under previous plans are available to be reissued under the 2011 Plan. As of September 30, 2011, there were 969,183 shares available under the 2011 Plan.

Under these plans, our employees are issued shares of our restricted class A common stock. We record grant date fair value of these shares as an expense over their vesting period. A portion of these shares vest pro-rata over a three-year service period, with the remainder contingently vesting after a four-year period based on the returns we have achieved.

As of September 30, 2011, unvested share-based compensation consisted of 244,424 shares of restricted class A common stock with an unamortized value of $410,000. Subject to vesting conditions and the continued employment of certain employees, these costs will be recognized as compensation expense over the next two and a half years.

- 50 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

Activity under these three plans for the nine months ended September 30, 2011 is summarized in the table below in share and share equivalents:

Benefit Type	1997 Employee Plan			1997 Director Plan		2007 Plan			2011 Plan		Total
Options
Beginning balance		12,224			—		—			—		12,224
Expired		(12,224	)		—		—			—		(12,224	)
Ending balance		—			—		—			—		—
Restricted Class A Common Stock(1)
Beginning balance		—			—		32,785			—		32,785
Granted		—			—		300,000			—		300,000
Vested		—			—		(88,361	)		—		(88,361	)
Ending balance		—			—		244,424			—		244,424
Stock Units(2)
Beginning balance		—			68,544		416,855			—		485,399
Granted and deferred		—			—		21,405			30,817		52,222
Ending balance		—			68,544		438,260			30,817		537,621
Total outstanding		—			68,544		682,684			30,817		782,045

(1)	Comprised of both performance based awards that vest upon the attainment of certain common equity return thresholds and time based awards that vest based upon an employee’s continued employment on pre-established vesting dates.
(2)	Stock units are granted to certain members of our board of directors in lieu of cash compensation for services and in lieu of dividends earned on previously granted stock units.

A summary of the unvested restricted class A common stock as of and for the nine months ended September 30, 2011 was as follows:

	Restricted Class A Common Stock
	Shares			Grant Date Fair Value
Unvested at January 1, 2011		32,785			$5.67
Granted		300,000			2.29
Vested		(88,361	)		2.62
Unvested at September 30, 2011		244,424			$2.65

A summary of the unvested restricted class A common stock as of and for the nine months ended September 30, 2010 was as follows:

	Restricted Class A Common Stock
	Shares			Grant Date Fair Value
Unvested at January 1, 2010		79,023			$7.99
Granted		16,875			1.27
Vested		(45,287	)		8.16
Unvested at September 30, 2010		50,611			$6.43

The total grant date fair value of restricted shares that vested during the nine months ended September 30, 2011 and 2010 was$231,000 and $127,000, respectively.

Incentive Management Fee Grants

In addition to the equity interests detailed above, we may grant percentage interests in the incentive compensation received by us from certain of our investment management vehicles. As of September 30, 2011, we had granted 45% of the CTOPI incentive compensation to our employees.

- 51 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

CT Legacy REIT Management Incentive Awards Plan

As described in Note 1, incentive awards have been issued to certain of our senior level employees which entitle them to as much as 6.75% of the recovery (subject to certain caps) of our legacy assets, net of CT Legacy REIT’s obligations, when and if distributed to us as dividends.

Note 17. Fair Values

Assets and Liabilities Recorded at Fair Value

Certain of our assets and liabilities are measured at fair value either (i) on a recurring basis, as of each quarter-end, or (ii) on a nonrecurring basis, as a result of impairment or other events. Generally, loans held-for-sale, real estate held-for-sale, and interest rate swaps are measured at fair value on a recurring basis, while impaired loans and securities are measured at fair value on a nonrecurring basis. These fair values are determined using a variety of inputs and methodologies, which are detailed below.

As discussed in Note 2, the “Fair Value Measurement and Disclosures” Topic of the Codification establishes a fair value hierarchy that prioritizes the inputs used in determining fair value under GAAP, which includes the following classifications, in order of priority:

· Level 1 generally includes only unadjusted quoted prices in active markets for identical assets or liabilities as of the reporting date.

· Level 2 inputs are those which, other than Level 1 inputs, are observable for identical or similar assets or liabilities.

· Level 3 inputs generally include anything which does not meet the criteria of Levels 1 and 2, particularly any unobservable inputs.

- 52 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

The following table summarizes our assets and liabilities, including those of CT Legacy REIT and our consolidated securitization vehicles, which are recorded at fair value as of September 30, 2011 (in thousands):

				Fair Value Measurements Using
				Quoted Prices		Other			Significant
	Total			in Active		Observable			Unobservable
	Fair Value at			Markets		Inputs			Inputs
	September 30, 2011			(Level 1)		(Level 2)			(Level 3)
Measured on a recurring basis:
CT Legacy REIT's loans held-for-sale		$32,107			$—		$—			$32,107
Securitization vehicles' real estate held-for-sale		$10,342			$—		$—			$10,342
CT Legacy REIT's interest rate hedge liabilities		($9,326	)		$—		($9,326	)		$—
Securitization vehicles' interest rate hedge liabilities		($27,482	)		$—		($27,482	)		$—
Measured on a nonrecurring basis:
CT Legacy REIT's impaired loans: (1)
Senior mortgages		$12,038			$—		$—			$12,038
Subordinate interests in mortgages		19,848			—		—			19,848
Mezzanine loans		—			—		—			—
		$31,886			$—		$—			$31,886
Securitization vehicles' securities held-to-maturity (2)		$1,527			$—		$—			$1,527
Securitization vehicles' impaired loans: (1)
Senior mortgages		$16,907			$—		$—			$16,907
Subordinate interests in mortgages		5,419			—		—			5,419
Mezzanine loans		41,078			—		—			41,078
		$63,404			$—		$—			$63,404

(1)	Loans receivable against which we have recorded a provision for loan losses as of September 30, 2011.
(2)	Securities which were other-than-temporarily impaired during the three months ended September 30, 2011.

The following methods and assumptions were used to estimate the fair value of each type of asset and liability which was recorded at fair value as of September 30, 2011:

Loans held-for-sale: Loans held-for-sale are valued based on expected proceeds from a sale of the asset.

Real estate held-for-sale: Real estate held-for-sale is valued based on expected proceeds from a sale of the asset.

Interest rate hedge liabilities: Interest rate hedges are valued using advice from a third party derivative specialist, based on a combination of observable market-based inputs, such as interest rate curves, and unobservable inputs such as credit valuation adjustments due to the risk of non-performance by both us and our counterparties. See Notes 10 and 11 for additional details on our interest rate hedges.

Impaired securities: Securities which are other-than-temporarily impaired are generally valued by a combination of (i) obtaining assessments from third-party dealers and, (ii) in cases where such assessments are unavailable or, in the opinion of management, deemed not to be indicative of fair value, discounting expected cash flows using internal cash flow models and estimated market discount rates. In the case of internal models, expected cash flows of each security are based on management’s assumptions regarding the collection of principal and interest on the underlying loans and securities. The table above includes only securities which were impaired during the three months ended September 30, 2011. Previously impaired securities have been subsequently adjusted for amortization, and are therefore no longer reported at fair value as of September 30, 2011.

- 53 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

As of September 30, 2011, one of our consolidated securitization vehicles’ securities was other-than-temporarily impaired and therefore reported at fair value. The dealer valuation obtained for the security was determined to not be indicative of fair value and, accordingly, it was valued internally by discounting expected future cash flows. The security had a 1998 vintage and was rated “BB” by Fitch Ratings, Inc. This security was valued using a discount rate of 10%, resulting in a valuation equal to 5% of the face amount of the security.

Impaired loans: The loans identified for impairment are collateral dependant loans. Impairment on these loans is measured by comparing management’s estimation of fair value of the underlying collateral to the book value of the respective loan. These valuations require significant judgments, which include assumptions regarding capitalization rates, leasing, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan, loan sponsorship, actions of other lenders and other factors deemed necessary by management. The table above includes all impaired loans, regardless of the period in which impairment was recognized.

Additional details of CT Legacy REIT’s loans which were recorded at fair value as of September 30, 2011 are described below:

Senior mortgage loans: One of CT Legacy REIT’s senior mortgage loans with a principal balance of $25.1 million was reported at fair value as of September 30, 2011. This hotel loan matured in September 2011 and has a coupon of 2.0% per annum as of September 30, 2011.

Subordinate interests in mortgages: Three of CT Legacy REIT’s subordinate interests in mortgage loans with an aggregate principal balance of $84.3 million are reported at fair value as of September 30, 2011, including two hotel loans ($43.4 million), and one condominium loan ($40.9 million). These loans have a weighted average maturity of May 2013 and a weighted average coupon of 3.0% per annum as of September 30, 2011.

Mezzanine loans: Two of CT Legacy REIT’s mezzanine loans with an aggregate principal balance of $160.3 million are reported at fair value as of September 30, 2011, including one hotel loan ($152.3 million) and one office loan ($8.0 million). These loans have a weighted average maturity of April 2012 and a weighted average coupon of 3.7% per annum as of September 30, 2011.

Additional details of our consolidated securitization vehicles’ loans which were recorded at fair value as of September 30, 2011 are described below:

Senior mortgage loans: One of our consolidated securitization vehicles’ senior mortgage loans with a principal balance of $33.2 million was reported at fair value as of September 30, 2011, which is classified as a mixed-use/other loan. The loan has a maturity of May 2015 and a coupon of 2.0% per annum as of September 30, 2011.

Subordinate interests in mortgages: Eight of our consolidated securitization vehicles’ subordinate interests in mortgage loans with an aggregate principal balance of $108.6 million are reported at fair value as of September 30, 2011, including three hotel loans ($60.9 million), two office loans ($27.7million), one multifamily loan ($5.5 million), one retail loan ($4.4 million) and one mixed-use/other loan ($10.2 million). The loans have a weighted average maturity of November 2011 and a weighted average coupon of 3.4% per annum as of September 30, 2011.

Mezzanine loans: Two of our consolidated securitization vehicles’ mezzanine loans with an aggregate principal balance of $96.2 million are reported at fair value as of September 30, 2011, including one hotel loans ($75.5 million) and one retail loan ($20.7 million). The loans have a weighted average maturity of May 2011 and a weighted average coupon of 2.4% per annum as of September 30, 2011.

- 54 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

The following table reconciles the beginning and ending balances of assets measured at fair value on a recurring basis using Level 3 inputs (in thousands):

	Loans			Real Estate
	Held-for-Sale			Held-for-Sale
December 31, 2010		$5,750			$8,055
Transfer from loans receivable		32,331			—
Consolidation of additional securitization vehicles		—			3,342
Satisfactions		(5,750	)		—
Adjustments to fair value included in earnings:
Valuation allowance on loans held-for-sale		(224	)		—
Impairment of real estate held-for-sale		—			(1,055	)
September 30, 2011		$32,107			$10,342

Fair Value of Financial Instruments

In addition to the above disclosures for assets and liabilities which are recorded at fair value, GAAP also requires disclosure of fair value information about financial instruments, whether or not recognized in the statement of financial position, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are estimated using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the estimated market discount rate and the estimated future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in an immediate settlement of the instrument. Rather, these fair values reflect the amounts that management believes are realizable in an orderly transaction among willing parties. These disclosure requirements exclude certain financial instruments and all non-financial instruments.

- 55 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

The following table details the carrying amount, face amount, and approximate fair value of the financial instruments described above:

Fair Value of Financial Instruments
(in thousands)	September 30, 2011						December 31, 2010
	Carrying Amount		Face Amount		Fair Value		Carrying Amount		Face Amount		Fair Value
Financial assets:
Cash and cash equivalents		$28,219		$28,219		$28,219		$24,449		$24,449		$24,449
Securities held-to-maturity		—		—		—		3,455		36,015		5,518
Loans receivable, net		24,945		24,945		22,450		606,318		979,057		499,176
CT Legacy REIT
Restricted cash		13,715		13,715		13,715		—		—		—
Securities held-to-maturity		2,591		29,494		1,792		—		—		—
Loans receivable, net		207,028		444,486		175,698		—		—		—
Securitization Vehicles
Securities held-to-maturity		397,001		519,073		384,421		504,323		594,434		475,272
Loans receivable, net		783,662		966,666		696,313		2,891,379		3,147,755		2,548,715
Financial liabilities:
Repurchase obligations		—		—		—		372,582		372,680		372,680
Senior credit facility		—		—		—		98,124		98,124		14,719
Junior subordinated notes		—		—		—		132,190		143,753		2,875
Secured notes		7,686		7,686		7,686		—		—		—
Participations sold		24,945		24,945		22,450		259,304		259,304		81,589
CT Legacy REIT
Repurchase obligations		66,637		66,637		66,637		—		—		—
Mezzanine loan		53,367		64,134		64,134		—		—		—
Participations sold		97,465		97,465		—		—		—		—
Securitization Vehicles
Securitized debt obligations		1,352,446		1,351,937		879,388		3,621,229		3,620,446		2,717,787

The following methods and assumptions were used to estimate the fair value of each class of financial instruments, excluding those described above that are carried at fair value, for which it is practicable to estimate that value:

Cash and cash equivalents: The carrying amount of cash on deposit and in money market funds is considered to be a reasonable estimate of fair value.

Securities held-to-maturity: These investments, other than securities that have been other-than-temporarily impaired, are recorded on a held-to-maturity basis and not at fair value. The fair values presented above have been estimated by a combination of (i) obtaining assessments from third party dealers and, (ii) in cases where such assessments are unavailable or, in the opinion of management, deemed not to be indicative of fair value, discounting expected cash flows using internal cash flow models and estimated market discount rates. The expected cash flows of each security are based on management’s assumptions regarding the collection of principal and interest on the underlying loans and securities.

Loans receivable, net: Other than impaired loans, these assets are recorded at their amortized cost and not at fair value. The fair values presented above were estimated by management taking into consideration factors including capitalization rates, leasing, occupancy rates, availability and cost of financing, exit plan, sponsorship, actions of other lenders and indications of market value from other market participants.

Restricted cash: The carrying amount of restricted is considered to be a reasonable estimate of fair value.

Secured notes: These notes are recorded at their total face balance and not at fair value. The face amount is considered to be a reasonable estimate of fair value as these notes were issued on March 31, 2011.

Participations sold: These liabilities are recorded at their amortized cost and not at fair value. The fair values presented above are consistent with those presented for the related loan assets.

- 56 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

Repurchase obligations: These facilities are recorded at their total face balance and not at fair value. The face amount is considered to be a reasonable estimate of fair value as these facilities were restructured on March 31, 2011.

Mezzanine loan: This instrument is recorded at its amortized cost and not at fair value. The face amount is considered to be a reasonable estimate of fair value as this loan was originated on March 31, 2011.

Securitized debt obligations: These obligations are recorded at the face value of outstanding obligations to third parties and not at fair value.The fair values presented above have been estimated by obtaining assessments from third party dealers.

Note 18. Supplemental Disclosures for Consolidated Statements of Cash Flows

As described in Note 2, our financial statements include eleven consolidated securitization vehicles. The consolidation of these entities has materially impacted our statement of cash flows, primarily the amounts reported as principal collections of loans and repayments of securitized debt obligations. Notwithstanding the gross presentation on our consolidated statement of cash flows, the consolidation of these entities has no impact on our net cash flow.

Interest paid on our outstanding debt obligations during the nine months ended September 30, 2011 and 2010 was $85.2 million and $79.9 million, respectively. The difference between interest expense on our consolidated statement of operations and interest paid is primarily due to non-cash interest expense recorded on loan participations sold, as well as amortization of discounts on our debt obligations.

Net taxes paid by us during the nine months ended September 30, 2011 were $2.4 million and taxes recovered by us for the nine months ended September 30, 2010 were $132,000.

Note 19. Transactions with Related Parties

We earn base management and incentive fees in our capacity as investment manager for multiple vehicles which we have sponsored. Due to the nature of our relationship with these vehicles, all management fees are considered revenue from related parties under GAAP.

On November 9, 2006, we commenced our CT High Grade MezzanineSM, or CT High Grade I, investment management initiative and entered into three separate account agreements with affiliates of W. R. Berkley Corporation, or WRBC, with an aggregate commitment of $250 million, which was subsequently increased to $350 million in July 2007. Subsequent to the expiration of the CT High Grade I investment period, we continued to invest on behalf of WRBC under the CT High Grade I platform on a non-discretionary basis, bringing WRBC’s total allocated capital to $414 million as of September 30, 2011. Pursuant to these agreements, we invested capital, on a discretionary basis, on behalf of WRBC in commercial real estate mortgages, mezzanine loans and participations therein. The separate accounts are entirely funded with committed capital from WRBC and are managed by a subsidiary of CTIMCO. CTIMCO earns a management fee equal to 0.25% per annum on invested assets.

WRBC beneficially owned common stock representing approximately 16.9% of our outstanding common stock and stock units as of October 28, 2011, and a member of our board of directors is an employee of WRBC. In addition, a wholly-owned subsidiary of WRBC is an investor in Five Mile and certain private funds under its management. As discussed in Notes 1 and 10, Five Mile provided an $83.0 million mezzanine loan to CT Legacy REIT in connection with our March 2011 restructuring.

In July 2008, CTOPI, a private equity fund that we manage, held its final closing completing its capital raise with $540 million total equity commitments. EGI-Private Equity II, L.L.C., an affiliate under common control of the chairman of our board of directors, owns a 3.7% limited partner interest in CTOPI. During the nine months ended September 30, 2011, we recorded $2.1 million of fees from CTOPI, $86,000 of which were attributable to EGI Private Equity II, L.L.C.

CTOPI has purchased $75.5 million face value of our CT CDO notes in the open market for $40.4 million. These purchases were from third parties, and were not sold by us.

Note 20. Segment Reporting

We operate in two reportable segments. We have an internal information system that produces performance and asset data for our two segments along service lines.

The Balance Sheet Investment segment includes our consolidated portfolio of interest earning assets and the financing thereof. The Investment Management segment includes the investment management activities of our wholly-owned investment management subsidiary, CT Investment Management Co., LLC, or CTIMCO, and its subsidiaries, as well as our co-investments in investment management vehicles. CTIMCO is a taxable REIT subsidiary and serves as the investment manager of Capital Trust, Inc., all of our investment management vehicles and CT CDOs, and serves as senior servicer and special servicer for certain of our investments and for third parties.

- 57 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

The following table details each segment's contribution to our operating results and the identified assets attributable to each such segment for the nine months ended, and as of, September 30, 2011 (in thousands):

	Balance Sheet			Investment			Inter-Segment
	Investment			Management			Activities			Total
Income from loans and other investments:
Interest and related income		$95,187			$—			$—			$95,187
Less: Interest and related expenses		80,381			—			—			80,381
Income from loans and other investments, net		14,806			—			—			14,806
Other revenues:
Management fees from affiliates		—			6,171			(1,244	)		4,927
Servicing fees		—			2,840			(632	)		2,208
Total other revenues		—			9,011			(1,876	)		7,135
Other expenses:
General and administrative		5,372			15,740			(1,244	)		19,868
Servicing fee expense		632			—			(632	)		—
Total other expenses		6,004			15,740			(1,876	)		19,868
Total other-than-temporary impairments of securities		(35,620	)		—			—			(35,620	)
Portion of other-than-temporary impairments of securities recognized in other comprehensive income		(3,098	)		—			—			(3,098	)
Impairment of real estate held-for-sale		(1,055	)		—			—			(1,055	)
Net impairments recognized in earnings		(39,773	)		—			—			(39,773	)
Recovery of provision for loan losses		34,401			—			—			34,401
Valuation allowance on loans held-for-sale		(224	)		—			—			(224	)
Gain on extinguishment of debt		271,031			—			—			271,031
Income from equity investments		—			2,105			—			2,105
Income (loss) before income taxes		274,237			(4,624	)		—			269,613
Income tax provision (benefit)		2,615			(1,401	)		—			1,214
Net income (loss)		$271,622			($3,223	)		$—			$268,399
Less: Net loss attributable to noncontrolling interests		(1,935	)		—			—			(1,935	)
Net income (loss) attributable to Capital Trust, Inc.		$269,687			($3,223	)		$—			$266,464
Total assets		$1,528,441			$11,448			$—			$1,539,889

All revenues were generated from external sources within the United States. The Investment Management segment earned fees of $1.2 million for management of the Balance Sheet Investment segment and $632,000 for serving as collateral manager of the four CT CDOs consolidated under our Balance Sheet Investment segment.

- 58 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

The following table details each segment's contribution to our operating results and the identified assets attributable to each such segment for the nine months ended, and as of, September 30, 2010 (in thousands):

	Balance Sheet			Investment		Inter-Segment
	Investment			Management		Activities			Total
Income from loans and other investments:
Interest and related income		$119,783			$—		$—			$119,783
Less: Interest and related expenses		94,462			—		—			94,462
Income from loans and other investments, net		25,321			—		—			25,321
Other revenues:
Management fees from affiliates		—			6,244		(254	)		5,990
Incentive management fees		—			733		—			733
Servicing fees		—			4,351		(1,530	)		2,821
Total other revenues		—			11,328		(1,784	)		9,544
Other expenses:
General and administrative		4,659			9,993		(254	)		14,398
Servicing fee expense		1,530			—		(1,530	)		—
Total other expenses		6,189			9,993		(1,784	)		14,398
Total other-than-temporary impairments of securities		(69,798	)		—		—			(69,798	)
Portion of other-than-temporary impairments of securities recognized in other comprehensive income		12,094			—		—			12,094
Impairment of real estate held-for-sale		(4,000	)							(4,000	)
Net impairments recognized in earnings		(61,704	)		—		—			(61,704	)
Provision for loan losses		(150,143	)		—		—			(150,143	)
Valuation allowance on loans held-for-sale		(6,036	)		—		—			(6,036	)
Gain on extinguishment of debt		648			—		—			648
Income from equity investments		—			2,358		—			2,358
(Loss) income before income taxes		(198,103	)		3,693		—			(194,410	)
Income tax provision		14			835		—			849
Net (loss) income		($198,117	)		$2,858		$—			($195,259	)
Total assets		$4,225,572			$15,943		$—			$4,235,851

All revenues were generated from external sources within the United States. The Investment Management segment earned fees of $254,000 for management of the Balance Sheet Investment segment and $1.5 million for serving as collateral manager of the four CT CDOs consolidated under our Balance Sheet Investment segment as well as special servicing activity for certain CT CDO assets for the nine months ended September 30, 2010.

- 59 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

The following table details each segment's contribution to our operating results and the identified assets attributable to each such segment for the three months ended, and as of, September 30, 2011 (in thousands):

	Balance Sheet			Investment			Inter-Segment
	Investment			Management			Activities			Total
Income from loans and other investments:
Interest and related income		$25,642			$—			$—			$25,642
Less: Interest and related expenses		21,838			—			—			21,838
Income from loans and other investments, net		3,804			—			—			3,804
Other revenues:
Management fees from affiliates		—			2,372			(619	)		1,753
Servicing fees		—			1,671			(211	)		1,460
Total other revenues		—			4,043			(830	)		3,213
Other expenses:
General and administrative		2,427			3,344			(830	)		4,941
Total other expenses		2,427			3,344			(830	)		4,941
Total other-than-temporary impairments of securities		(30,687	)		—			—			(30,687	)
Portion of other-than-temporary impairments of securities recognized in other comprehensive income		173			—			—			173
Impairment of real estate held-for-sale		(1,055	)		—			—			(1,055	)
Net impairments recognized in earnings		(31,569	)		—			—			(31,569	)
Recovery of provision for loan losses		17,152			—			—			17,152
Gain on extinguishment of debt		20,054			—			—			20,054
Income from equity investments		—			307			—			307
Income before income taxes		7,014			1,006			—			8,020
Income tax provision (benefit)		703			(939	)		—			(236	)
Net income		$6,311			$1,945			$—			$8,256
Less: Net loss attributable to noncontrolling interests		5,466			—			—			5,466
Net income attributable to Capital Trust, Inc.		$11,777			$1,945			$—			$13,722
Total assets		$1,528,441			$11,448			$—			$1,539,889

All revenues were generated from external sources within the United States. The Investment Management segment earned fees of $619,000 for management of the Balance Sheet Investment segment and $211,000 for serving as collateral manager of the four CT CDOs consolidated under our Balance Sheet Investment segment.

- 60 -

Capital Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(unaudited)

The following table details each segment's contribution to our operating results and the identified assets attributable to each such segment for the three months ended, and as of, September 30, 2010 (in thousands):

	Balance Sheet			Investment		Inter-Segment
	Investment			Management		Activities			Total
Income from loans and other investments:
Interest and related income		$40,280			$—		$—			$40,280
Less: Interest and related expenses		31,557			—		—			31,557
Income from loans and other investments, net		8,723			—		—			8,723
Other revenues:
Management fees from affiliates		—			1,859		191			2,050
Incentive management fees		—			733		—			733
Servicing fees		—			1,066		(982	)		84
Total other revenues		—			3,658		(791	)		2,867
Other expenses:
General and administrative		1,295			3,662		191			5,148
Servicing fee expense		982			—		(982	)		—
Total other expenses		2,277			3,662		(791	)		5,148
Total other-than-temporary impairments of securities		(29,963	)		—		—			(29,963	)
Portion of other-than-temporary impairments of securities recognized in other comprehensive income		(5,921	)		—		—			(5,921	)
Impairment recognized in earnings		(4,000	)							(4,000	)
Net impairments recognized in earnings		(39,884	)		—		—			(39,884	)
Provision for loan losses		(95,916	)		—		—			(95,916	)
Valuation allowance on loans held-for-sale		(6,036	)							(6,036	)
Gain on extinguishment of debt		185			—		—			185
Income from equity investments		—			1,056		—			1,056
(Loss) income before income taxes		(135,205	)		1,052		—			(134,153	)
Income tax provision		—			556		—			556
Net (loss) income		($135,205	)		$496		$—			($134,709	)
Total assets		$4,225,572			$15,943		$—			$4,235,851

All revenues were generated from external sources within the United States. The Investment Management segment earned fees of $191,000 for management of the Balance Sheet Investment segment and earned $982,000 for serving as collateral manager of the four CT CDOs consolidated under our Balance Sheet Investment segment as well as special servicing activity for certain CT CDO assets for the three months ended September 30, 2010.

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ITEM 2.          Management's Discussion and Analysis of Financial Condition and Results of Operations

References herein to “we,” “us” or “our” refer to Capital Trust, Inc. and its subsidiaries unless the context specifically requires otherwise.

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this quarterly report on Form 10-Q. Historical results set forth are not necessarily indicative of our future financial position and results of operations.

Introduction

We are a fully integrated, self-managed, real estate finance and investment management company that specializes in credit sensitive financial products. To date, our investment programs have focused on loans and securities backed by commercial real estate assets. We invest for our own account directly on our balance sheet and for third parties through a series of investment management vehicles. Our business model is designed to produce a mix of net interest margin from our balance sheet investments, and fee income and co-investment income from our investment management vehicles. In managing our operations, we focus on originating investments, managing our portfolios and capitalizing our businesses. From the inception of our finance business in 1997 through September 30, 2011, we have completed approximately $12.0 billion of investments in the commercial real estate debt arena. We conduct our operations as a real estate investment trust, or REIT, for federal income tax purposes. We are traded on the New York Stock Exchange, or NYSE, under the symbol “CT”, and are headquartered in New York City.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of these financial statements requires our management to make estimates and assumptions with regard to the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Actual results could differ from these estimates. There have been no material changes to our Critical Accounting Policies described in our annual report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2011.

March 2011 Restructuring

On March 31, 2011, we restructured, amended, or extinguished all of our outstanding recourse debt obligations, which we refer to as our March 2011 restructuring. Our March 2011 restructuring involved: (i) the contribution of certain of our legacy assets to a newly formed subsidiary, CT Legacy REIT Mezz Borrower, Inc., or CT Legacy REIT, (ii) the assumption of our legacy repurchase obligations by CT Legacy REIT, and (iii) the extinguishment of the remainder of our recourse obligations, our senior credit facility and junior subordinated notes. The restructuring was financed with a new $83.0 million mezzanine loan obtained by CT Legacy REIT from an affiliate of Five Mile Capital Partners LLC, or Five Mile, and the issuance of equity interests in the common stock of CT Legacy REIT to our former junior subordinated noteholders and former lenders under our senior credit facility, as well as to an affiliate of Five Mile.

Capital Trust, Inc.

Following the completion of our March 2011 restructuring, we no longer have any recourse debt obligations, and retain unencumbered ownership of 100% of (i) our investment management platform, CT Investment Management Co., LLC, (ii) our co-investment in CT Opportunity Partners I, LP, (iii) our residual ownership interests in CT CDOs I, II, and IV, and (iv) our tax-basis net operating losses. Furthermore, we have a 52% equity interest in the common stock of CT Legacy REIT. Our economic interest in CT Legacy REIT is, however, subject to (i) the secured notes, which are collateralized by certain of our retained equity interests in the common stock of CT Legacy REIT, (ii) incentive awards that provide for the participation in amounts earned from our retained equity interests in the common stock of CT Legacy REIT, and (iii) the subordinate common stock of CT Legacy REIT owned by our former junior subordinate noteholders, all of which are further described in Note 1 to our consolidated financial statements.

In addition to our interest in the common stock of CT Legacy REIT, we also own 100% of its outstanding class A preferred stock. The class A preferred stock initially entitles us to cumulative preferred dividends of $7.5 million per annum, which dividends will be reduced in January 2013 to the greater of (i) 2.5% of CT Legacy REIT’s assets, and (ii) $1.0 million per annum.

CT Legacy REIT

In connection with the restructuring, we transferred substantially all of our directly held interest earning assets to CT Legacy REIT. The transferred assets included: (i) all of the loans and securities which serve as collateral for the legacy repurchase obligations, except for certain subordinate interests in CT CDOs I and II, (ii) our subordinate interests in CT CDO III, and (iii) 100% of our previously unencumbered loans and securities, which we collectively refer to as our Legacy Assets.

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CT Legacy REIT, which is expected to be taxed as a REIT commencing in 2011, is beneficially owned 52% by us, 24% by an affiliate of Five Mile, and 24% by the former lenders under our senior credit facility. In addition, the former holders of our junior subordinated notes received class B common stock, a subordinate class of common stock of CT Legacy REIT, which is described in Note 1 to our consolidated financial statements. Capital Trust, Inc. will manage CT Legacy REIT and the Legacy Assets as a liquidating portfolio.

During the second and third quarters of 2011, the CT Legacy REIT portfolio received repayments of $265.9 million, including full loan satisfactions of $224.8 million and partial repayments of $41.1 million, which repayments represented approximately 50% of the initial net book value of the CT Legacy REIT portfolio.

Principles of Consolidation and Balance Sheet Presentation

The accompanying financial statements include, on a consolidated basis, our accounts, the accounts of our wholly-owned subsidiaries, and variable interest entities, or VIEs, in which we are the primary beneficiary, prepared in accordance with GAAP. All significant intercompany balances and transactions have been eliminated in consolidation.

Our consolidated balance sheets separately present: (i) our direct assets and liabilities, (ii) the direct assets and liabilities of CT Legacy REIT, and (iii) the assets and liabilities of consolidated securitization vehicles, some of which are subsidiaries of CT Legacy REIT. Assets of all consolidated VIEs can generally only be used to satisfy the obligations of those VIEs, and the liabilities of consolidated VIEs are non-recourse to us. Similarly, the following discussion separately describes (i) our direct assets and liabilities, (ii) the direct assets and liabilities of CT Legacy REIT, and (iii) the assets and liabilities of consolidated securitization vehicles, some of which are subsidiaries of CT Legacy REIT.

Discussion of Operations

We include below in our discussion of operations: (i) an overview of the operations of our parent company, Capital Trust, Inc., including its wholly-owned investment management subsidiary, (ii) a discussion of the consolidated balance sheet and operating results of Capital Trust, Inc. prepared in accordance with GAAP, (iii) a discussion of the adjusted balance sheet and operating results of Capital Trust, Inc., and (iv) a discussion of CT Legacy REIT on an adjusted, deconsolidated basis.

We believe that our adjusted balance sheet and operating results provide meaningful information to consider, in addition to our consolidated balance sheet and statement of operations prepared in accordance with GAAP. These adjusted measures help us to evaluate our financial position and performance without the effects of certain transactions and GAAP adjustments that are not necessarily indicative of our current investment portfolio, operations, capitalization, or shareholders’ equity.

See section III below for a presentation and discussion of our adjusted balance sheet and operating results.

I. Capital Trust, Inc.

Subsequent to our March 2011 restructuring, our business has focused on managing (i) the operations of our investment management and special servicing platform, and (ii) the recovery from the legacy investments within CT Legacy REIT’s portfolio. Our investment management business is operated through our subsidiary, CT Investment Management Co., LLC, or CTIMCO, and includes: (i) management of our public company parent, Capital Trust, Inc. pursuant to which CTIMCO earns $3.5 million per annum, offset by fees earned from related CDO collateral management and special servicing assignments; (ii) collateral management of the four CT CDOs which we have sponsored; (iii) special servicing of investments within both our public company and private equity portfolios as well for third parties; and (iv) our private equity management mandates, which are described below.

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Investment Management Overview

We act as an investment manager for third parties and as special servicer for certain of our loan investments, as well as for third-parties. The table below details investment management and special servicing fee revenue generated by our wholly-owned, taxable, investment management subsidiary, CT Investment Management Co., LLC, or CTIMCO, for the nine months ended September 30, 2011 and 2010:

Investment Management Revenues
(in thousands)	September 30, 2011			September 30, 2010
Fees generated as:
Public company manager (1)		$1,244			$254
Private equity manager		4,927			6,723
CDO collateral manager		598			715
Special servicer		2,242			3,636
Total fees		$9,011			$11,328
Eliminations (2)		(1,876	)		(1,784	)
Total fees, net		$7,135			$9,544

(1)	Public company management fees are offset by special servicing and CDO collateral management fees generated by our balance sheet portfolio. Gross public company management fees were $2.6 million for the nine months ended September 30, 2011 and 2010, offset by an aggregate $2.8 million and $2.4 million of such fees, respectively.
(2)	Fees received by CTIMCO from Capital Trust, Inc., or other consolidated subsidiaries, have been eliminated in consolidation.

We have developed our investment management business in order to create operating leverage within our platform, generating fee revenue from investing third party capital and, in certain instances, earning co-investment income. Our active investment management mandates are described below:

· CT Opportunity Partners I, LP, or CTOPI, is currently investing capital. The fund held its final closing in July 2008 with $540 million in total equity commitments from 28 institutional and individual investors. Currently, $296 million of committed equity remains undrawn. We have a $25 million commitment to invest in the fund ($11 million currently funded, $14 million unfunded) and entities controlled by the chairman of our board of directors have committed to invest $20 million. In May 2010, the fund’s investment period was extended to December 13, 2011. The fund targets opportunistic investments in commercial real estate, specifically high yield debt, equity and hybrid instruments, as well as non-performing and sub-performing loans and securities. We earn base management fees of 1.3% per annum of invested capital, as well as net incentive management fees of 17.7% of profits after a 9% preferred return and a 100% return of capital.

· CT High Grade Partners II, LLC, or CT High Grade II, is no longer investing capital (its investment period expired in May 2011). The fund closed in June 2008 with $667 million of commitments from two institutional investors. The fund targeted senior debt opportunities in the commercial real estate sector and did not employ leverage. We earn a base management fee of 0.40% per annum on invested capital. As of September 30, 2011, CT High Grade II has invested $588.1 million in 33 transactions, of which $554.5 million remains outstanding.

· CT High Grade MezzanineSM, or CT High Grade I, is no longer formally investing capital (its investment period officially expired in July 2008). The fund closed in November 2006, with a single, related party institutional investor committing $250 million, which was subsequently increased to $350 million in July 2007. Subsequent to the expiration of the CT High Grade I investment period, we continued to invest on behalf of WRBC under the CT High Grade I platform on a non-discretionary basis, bringing WRBC’s total allocated capital to $414 million as of September 30, 2011. This separate account targeted lower LTV subordinate debt investments without leverage. We earn management fees of 0.25% per annum on invested capital. As of September 30, 2011, CT High Grade I has invested $484.9 million in 13 transactions, of which $261.6 million remains outstanding.

· CT Large Loan 2006, Inc., or CT Large Loan, is no longer investing capital (its investment period expired in May 2008). The fund closed in May 2006 with total equity commitments of $325 million from eight institutional investors. We earn management fees of 0.75% per annum of fund assets (capped at 1.5% on invested equity).

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The table below provides additional information regarding the three private equity funds and one separate account we managed as of September 30, 2011.

Investment Management Mandates, as of September 30, 2011
(in millions)
							Base	Incentive
		Total	Total Capital		Co-		Management	Management
	Type	Investments(1)	Commitments		Investment %		Fee	Fee
Investing:
CTOPI	Fund	$246	$540		4.63%	(2)	1.28% (Assets)	(3)
Liquidating:
CT High Grade II	Fund	555	667		—		0.40% (Assets)	N/A
CT High Grade I	Sep. Acc.	262	414	(4)	—		0.25% (Assets)	N/A
CT Large Loan	Fund	172	325		—	(5)	0.75% (Assets) (6)	N/A

(1)	Represents total investments, on a cash basis, as of period-end.
(2)	We have committed to invest $25.0 million in CTOPI.
(3)	CTIMCO earns net incentive management fees of 17.7% of profits after a 9% preferred return on capital and a 100% return of capital, subject to a catch-up. We have allocated 45% of the CTOPI incentive management fees to our employees as long-term performance awards.
(4)	CT High Grade I closed with capital commitments of $350 million. Subsequent to the expiration of the CT High Grade I investment period, we continued to invest on behalf of WRBC under the CT High Grade I platform on a non-discretionary basis, bringing WRBC’s total allocated capital to $414 million as of September 30, 2011.
(5)	We have co-invested on a pari passu, asset by asset basis with CT Large Loan.
(6)	Capped at 1.5% of equity.

Originations

We have historically allocated investment opportunities between our balance sheet and investment management vehicles based upon our assessment of risk and return profiles, the availability and cost of capital, and applicable regulatory restrictions associated with each opportunity. Currently, we are originating investments only for our investment management business, which are summarized in the table below for the nine months ended September 30, 2011 and for the year ended December 31, 2010.

Originations(1)
($ in millions)	Nine months ended September 30, 2011	Year ended December 31, 2010
	#  /   $	#  /   $
Investment management	10  /   $212	20   /   $306

(1) Includes total commitments, both funded and unfunded, net of any related purchase discounts.

Asset Management

We actively manage the CT Legacy REIT portfolio and the assets held by our investment management vehicles with our in-house team of asset managers. While these investments are primarily in the form of debt, we are aggressive in exercising the rights afforded to us as a lender. These rights may include collateral level budget approvals, lease approvals, loan covenant enforcement, escrow/reserve management/collection, collateral release approvals and other rights that we may negotiate. In light of the recent deterioration in property level performance, property valuation, and the real estate capital markets, a significant number of our loans are either non-performing and/or on our watch list. This requires intensive efforts on the part of our asset management team to maximize the recovery of those investments.

We actively manage our various securities portfolios using a combination of quantitative tools and loan/property level analysis to monitor the performance of the securities and their collateral against original expectations. Securities are analyzed to monitor underlying loan delinquencies, transfers to special servicing, and changes to the servicer’s watch list population. Realized losses on underlying loans are tracked and compared to original loss expectations. On a periodic basis, individual loans of concern are also re-underwritten.

Investment in CT Legacy REIT

Following the completion of our March 2011 restructuring, we retained a 52% equity interest in the class A common stock of CT Legacy REIT. Also, in April 2011, we purchased 118,651 shares of class B common stock of CT Legacy REIT for an average price of $1.20 per share. The outstanding common stock of CT Legacy REIT is comprised of 4.4 million shares of class A-1 common stock, 5.6 million shares of class A-2 common stock, and 1.5 million shares of class B common stock. The class B common stock is a subordinate class that entitles its holders to receive approximately 25% of the dividends that would otherwise be payable to the class A-1 common stock, after aggregate cash distributions of $50.0 million have been paid to all other classes of common stock.

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The following table details the allocation of CT Legacy REIT’s adjusted equity by class of common stock, and Capital Trust Inc’s aggregate investment in the common stock of CT Legacy REIT on an adjusted basis as of September 30, 2011. The adjusted equity balance is used to evaluate our investment in CT Legacy REIT because it excludes from GAAP equity the securitization vehicles consolidated at CT Legacy REIT, and other items which are not indicative of our economic interests in the recovery of our legacy portfolio. See section III below for a presentation and discussion of CT Legacy REIT’s adjusted balance sheet and operating results.

Capital Trust, Inc.'s Investment in CT Legacy REIT as of September 30, 2011
(in thousands)
CT Legacy REIT total adjusted assets (1)	$265,399
CT Legacy REIT total adjusted liabilities (1)	(130,638	)
Total CT Legacy REIT adjusted equity (1)	$134,761
CT Legacy REIT equity:
Allocable to Class A-1 shares	$49,900
Allocable to Class A-2 shares	75,550
Allocable to Class B shares	9,311
	$134,761
Capital Trust, Inc. ownership by class:
Class A-1	100	%
Class A-2	14	%
Class B	8	%
Capital Trust, Inc. adjusted equity allocation:
Class A-1	49,900
Class A-2	10,444
Class B	754
Total Capital Trust investment in CT Legacy REIT	$61,098

(1) See section III below for a presentation and discussion of CT Legacy REIT’s adjusted balance sheet.

As discussed above, our $61.1 million interest in the common stock of CT Legacy REIT is subject to (i) the secured notes, which are collateralized by certain of our equity interests in the common stock of CT Legacy REIT, and (ii) incentive awards that provide for the participation in amounts earned from our retained equity interests in the common stock of CT Legacy REIT. We also own 100% of the outstanding class A preferred stock of CT Legacy REIT, which investment is not represented on our balance sheet.

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The following table details our interest in CT Legacy REIT’s adjusted equity, net of the secured notes and management incentive awards as of September 30, 2011:

Capital Trust, Inc.'s Net Investment in CT Legacy REIT as of September 30, 2011
(in thousands)
Gross investment in CT Legacy REIT (1)	$61,098
Secured notes, including prepayment premium (2)	(11,059	)
Management incentive awards plan, fully vested (3)	(8,809	)
Investment in CT Legacy REIT, net	$41,230

(1)	Gross investment in CT Legacy REIT is calculated on an adjusted basis as detailed in the preceding table. See section III below for a presentation and discussion of CT Legacy REIT’s adjusted balance sheet.
(2)	Includes the full potential prepayment premium on secured notes, as described below. We carry this liability at its amortized basis of $7.7 million on our balance sheet as of September 30, 2011. The remaining interest and prepayment premium will be recognized, as applicable, over the term of the secured notes as a component of interest expense.
(3)	Assumes full payment of the management incentive awards plan, as described below, based on the hypothetical GAAP liquidation value of CT Legacy REIT as of September 30, 2011. We periodically accrue a payable for the management incentive awards plan based on the vesting schedule for the awards and continued employment of the award recipients. As of September 30, 2011, our balance sheet includes $3.4 million in accounts payable and accrued expenses for the management incentive awards plan.

Secured Notes

In conjunction with our March 2011 restructuring and the corresponding satisfaction of our senior credit facility and junior subordinated notes, a wholly-owned subsidiary issued secured notes to our former creditors, which secured notes are non-recourse to us. The secured notes had an aggregate initial face balance of $7.8 million and are secured by 93.5% of our equity interests in the class A-1 and class A-2 common stock of CT Legacy REIT, which represents 48.3% of the total outstanding class A-1 and class A-2 common stock of CT Legacy REIT. The secured notes mature on March 31, 2016 and bear interest at a rate of 8.2% per annum, which interest may be deferred until maturity. All dividends we receive from our equity interests in the common stock of CT Legacy REIT which serve as collateral under the secured notes must be used to pay, or prepay, interest and principal due thereunder. Any prepayment, or partial prepayment, of the secured notes will incur a prepayment premium resulting in a total payment of principal and interest under the secured notes of $11.1 million.

In April 2011, we purchased $405,000 of the secured notes at par.

Management Incentive Awards Plan

Upon completion of our March 2011 restructuring, we granted senior level employees incentive awards issued under our long term incentive plan that participate in amounts earned from our retained equity interest in CT Legacy REIT. The awards provide payments to certain senior level employees equal to as much as 6.75% of the total recovery (subject to certain caps) of our Legacy Assets, net of CT Legacy REIT’s obligations, when and if distributed to us as dividends.

Class A Preferred Stock

In addition to our interest in the common stock of CT Legacy REIT, we also own 100% of its outstanding class A preferred stock, which investment does not appear on our balance sheet. The class A preferred stock initially entitles us to cumulative preferred dividends of $7.5 million per annum, which dividends will be reduced in January 2013 to the greater of (i) 2.5% of CT Legacy REIT’s assets, and (ii) $1.0 million per annum.

Taxes

Capital Trust, Inc. has made a tax election to be treated as a REIT, and therefore generally is not subject to federal, state, and local income taxes except for the operations of our taxable REIT subsidiary, CTIMCO. The primary benefit from this election is that we are able to deduct dividends paid to our shareholders from the calculation of taxable income, effectively eliminating corporate taxes on the operations of the REIT. In order to qualify as a REIT, our activities must focus on real estate investments and we must meet certain asset, income, ownership and distribution requirements. These qualifications have become more difficult to meet in light of the transfer of our legacy portfolio to CT Legacy REIT in conjunction with our March 2011 restructuring, and the lack of new, replacement investment activity. If we fail to maintain our qualification as a REIT, we may be subject to material penalties and potentially subject to past and future taxes. As of September 30, 2011 and December 31, 2010, we were in compliance with all REIT requirements.

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We have net operating losses, or NOLs, and net capital losses, or NCLs, available to be carried forward and utilized in current or future periods. As of December 31, 2010, these included NOLs of approximately $302.0 million and NCLs of approximately $129.0 million at Capital Trust, Inc., as well as NOLs of approximately $3.6 million at CTIMCO. As a result of our March 2011 restructuring, Capital Trust, Inc. will recognize cancellation of indebtedness income of approximately $180.5 million for the 2011 taxable year which will reduce the available NOLs. The utilization of NOLs will also require us to pay alternative minimum taxes of approximately $2.0 million.

Our consolidated financial statements also include tax provisions related to taxable REIT subsidiaries of CT Legacy REIT. Although CT Legacy REIT is taxed separately from Capital Trust, Inc. its operations, including any income tax provisions, are consolidated for financial reporting purposes. The portion of our consolidated income tax provision related to CT Legacy REIT is immaterial for the nine months ended September 30, 2011.

II. Discussion of Consolidated Operations of Capital Trust, Inc.

Balance Sheet Investments

Our consolidated balance sheet investments include various types of commercial mortgage backed securities and collateralized debt obligations, or Securities, and commercial real estate loans and related instruments, or Loans, all of which are assets of either CT Legacy REIT or consolidated securitization vehicles. We collectively refer to these as Interest Earning Assets. The table below shows our Interest Earning Assets as of September 30, 2011 and December 31, 2010.

Consolidated Interest Earning Assets
(in millions)	September 30, 2011					December 31, 2010
	Book Value		Yield(1)			Book Value		Yield(1)
Securities held-to-maturity		$—		—			$3		10.54	%
Loans receivable, net (2)		—		—			519		4.09
Loans held-for-sale, net		—		—			6		—
Subtotal / Weighted Average		$—		—			$528		4.08	%
Consolidated VIE Assets
CT Legacy REIT
Securities held-to-maturity		$3		6.41	%		$—		—
Loans receivable, net (2)		207		4.90			—		—
Loans held-for-sale, net		32		6.26			—		—
Subtotal / Weighted Average		$242		5.10	%		$—		—
Securitization Vehicles
Securities held-to-maturity		$397		7.10	%		$504		6.97	%
Loans receivable, net		784		3.55			2,891		2.27
Subtotal / Weighted Average		$1,181		4.74	%		$3,395		2.97	%
Total / Weighted Average		$1,423		4.80	%		$3,923		3.12	%

(1)	Yield on floating rate assets assumes LIBOR of 0.24% and 0.26% at September 30, 2011 and December 31, 2010, respectively.
(2)	Excludes loan participations sold with a net book value of $24.9 million and $86.8 million as of September 30, 2011 and December 31, 2010, respectively. These participations are net of $97.5 million and $172.5 million of provisions for loan losses as of September 30, 2011 and December 31, 2010, respectively.

In addition to our investments in Interest Earning Assets, we also hold equity investments in unconsolidated subsidiaries, which represent our co-investments in private equity funds that we manage. As of September 30, 2011, this $10.6 million balance relates to one such fund, CT Opportunity Partners I, LP, or CTOPI.

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Asset Management

The table below details the overall credit profile of CT Legacy REIT’s Interest Earning Assets, excluding those held by consolidated securitization trusts, which includes: (i) Loans against which we have recorded a provision for loan losses, or reserves, (ii) Securities which have been other-than-temporarily impaired, and (iii) Loans and Securities that are categorized as Watch List Assets, which are currently performing but pose a higher risk of non-performance and/or loss. We actively monitor and manage Watch List Assets to mitigate these risks in our portfolio.

Portfolio Performance - CT Legacy REIT (1)
(in millions, except for number of investments)	September 30, 2011			December 31, 2010 (2)
Interest earning assets, CT Legacy REIT ($ / #)		$242 / 25			$528 / 38
Impaired Loans (3)
Performing loans ($ / #)		$43 / 4			$59 / 7
Non-performing loans ($ / #)		$22 / 3			$21 / 3
Total ($ / #)		$65 / 7			$80 / 10
Percentage of interest earning assets		26.9	%		15.2	%
Impaired Securities (3) ($ / #)		$1 / 5			$2 / 6
Percentage of interest earning assets		0.6	%		0.4	%
Watch List Assets (4)
Watch list loans ($ / #)		$118 / 9			$158 / 9
Watch list securities ($ / #)		$1 / 1			$1 / 1
Total ($ / #)		$119 / 10			$159 / 10
Percentage of interest earning assets		49.2	%		30.1	%

(1)	Portfolio statistics exclude loan participations sold, but includes loans held-for-sale.
(2)	Balances as of December 31, 2010 represent the portfolio performance when it was held directly by Capital Trust, Inc., before transfer to CT Legacy REIT.
(3)	Amounts represent net book value after provisions for loan losses, valuation allowances on loans-held-for-sale and other-than-temporary impairments of securities.
(4)	Watch List Assets exclude Loans against which we have recorded a provision for loan losses or valuation allowance, and Securities which have been other-than-temporarily impaired.

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The table below details the overall credit profile of Interest Earning Assets held in consolidated securitization trusts, which includes: (i) Loans where we have foreclosed upon the underlying collateral and own an equity interest in real estate, (ii) Loans against which we have recorded a provision for loan losses, or reserves, (iii) Securities which have been other-than-temporarily impaired, and (iv) Loans and Securities that are categorized as Watch List Assets, which are currently performing but pose a higher risk of non-performance and/or loss. We actively monitor and manage Watch List Assets to mitigate these risks in our portfolio.

Portfolio Performance - Consolidated Securitization Vehicles
(in millions, except for number of investments)	September 30, 2011			December 31, 2010
Interest earning assets of consolidated securitization vehicles ($ / #)		$1,181 / 126			$3,395 / 151
Real estate owned ($ / #)		$10 / 2			$8 / 1
Percentage of interest earning assets		0.9	%		0.2	%
Impaired Loans (1)
Performing loans ($ / #)		$17 / 4			$168 / 7
Non-performing loans ($ / #)		$46 / 7			$69 / 7
Total ($ / #)		$63 / 11			$237 / 14
Percentage of interest earning assets		5.3	%		7.0	%
Impaired Securities (1) ($ / #)		$10 / 12			$14 / 11
Percentage of interest earning assets		0.8	%		0.4	%
Watch List Assets (2)
Watch list loans ($ / #)		$285 / 8			$514 / 12
Watch list securities ($ / #)		$36 / 7			$65 / 9
Total ($ / #)		$321 / 15			$579 / 21
Percentage of interest earning assets		27.2	%		17.1	%

(1)	Amounts represent net book value after provisions for loan losses, valuation allowances on loans-held-for-sale and other-than-temporary impairments of securities.
(2)	Watch List Assets exclude Loans against which we have recorded a provision for loan losses or valuation allowances, and Securities which have been other-than-temporarily impaired.

As of September 30, 2011, there were significant differences between the estimated fair value and the book value of some of the Securities in our consolidated securitization vehicles portfolio. We believe these differences to be related to the high degree of structural complexity combined with poor reporting available on these securities and a general negative bias against structured financial products and not reflective of a change in cash flow expectations from these securities. Accordingly, we have not recorded any additional other-than-temporary impairments against such Securities.

The ratings activity of our consolidated Securities portfolio over the nine months ended September 30, 2011 and the year ended December 31, 2010 is detailed below:

Rating Activity(1)
	Nine months ended September 30, 2011	Year ended December 31, 2010
Securities Upgraded	5	2
Securities Downgraded	16	28

(1) Represents activity from any of Fitch Ratings, Standard & Poor’s or Moody’s Investors Service.

Capitalization

We capitalize our business with a combination of debt and equity. On March 31, 2011, we restructured, amended, or extinguished all of our outstanding recourse debt obligations, which involved: (i) the assumption of our legacy repurchase obligations by CT Legacy REIT, and (ii) the extinguishment of the remainder of our recourse obligations, our senior credit facility and junior subordinated notes. The restructuring was financed with a new $83.0 million mezzanine loan obtained by CT Legacy REIT. See Note 1 to our consolidated financial statements for further discussion of our March 2011 restructuring.

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Commencing in April 2011, our consolidated debt obligations, which we collectively refer to as Interest Bearing Liabilities, include (i) our secured notes, which are non-recourse to us and secured only by certain of our equity interests in the common stock of CT Legacy REIT, (ii) CT Legacy REIT’s repurchase obligations and mezzanine loan, which are non-recourse to us, and (iii) non-recourse securitized debt obligations of consolidated securitization vehicles. Our equity capital is currently comprised entirely of common stock.

The table below describes our consolidated Interest Bearing Liabilities including those of CT Legacy REIT and our consolidated securitization vehicles, as of September 30, 2011 and December 31, 2010:

Consolidated Interest Bearing Liabilities (1)
(Principal balance, in millions)	September 30, 2011			December 31, 2010
Recourse debt obligations
Secured credit facilities
Repurchase obligations		$—			$373
Senior credit facility		—			98
Subtotal		—			471
Unsecured credit facilities
Junior subordinated notes		—			144
Total recourse debt obligations		$—			$615
Weighted average effective cost of debt (2) (3)		N/A			3.25	%
Non-Recourse debt obligations
Capital Trust, Inc.
Secured notes		$8			$—
Weighted average effective cost of Capital Trust, Inc. debt		8.19	%		N/A
CT Legacy REIT
Repurchase obligations		$67			$—
Mezzanine loan		64			—
Total CT Legacy REIT debt obligations		$131			$—
Weighted average effective cost of CT Legacy REIT debt (2) (4)		10.59	%		N/A
Consolidated Securitization Vehicles
CT collateralized debt obligations		$772			$982
Other consolidated securitization vehicles		580			2,639
Total securitization vehicles debt obligations		$1,352			$3,621
Weighted average effective cost of securitization vehicles debt (2) (5)		2.40	%		1.34	%
Total interest bearing liabilities		$1,483			$4,236
Shareholders' deficit		($100	)		($411	)

(1)	Excludes loan participations sold.
(2)	Floating rate debt obligations assume LIBOR of 0.24% and 0.26% at September 30, 2011 and December 31, 2010, respectively.
(3)	Including the impact of interest rate hedges with an aggregate notional balance of $64.1 million as of December 31, 2010, the effective all-in cost of our recourse debt obligations would be 3.77% per annum.
(4)	Including the impact of interest rate hedges with an aggregate notional balance of $60.9 million as of September 30, 2011, the effective all-in cost of CT Legacy REIT’s debt obligations would be 12.88% per annum.
(5)	Including the impact of interest rate hedges with an aggregate notional balance of $298.6 million as of September 30, 2011 and $339.7 million as of December 31, 2010, the effective all-in cost of our consolidated securitization vehicles’ debt obligations would be 3.46% and 1.78% per annum, respectively.

Secured Notes

In conjunction with the satisfaction of the senior credit facility and the junior subordinated notes, a wholly-owned subsidiary issued secured notes to our former creditors, which secured notes are non-recourse to us. The secured notes had an aggregate initial face balance of $7.8 million and are secured by 93.5% of our equity interests in the class A-1 and A-2 common stock of CT Legacy REIT, which represents 48.3% of the total outstanding class A-1 and A-2 common stock of CT Legacy REIT. The secured notes mature on March 31, 2016 and bear interest at a rate of 8.2% per annum, which interest may be deferred until maturity. All dividends we receive from our equity interests in the common stock of CT Legacy REIT which serve as collateral under the secured notes must be used to pay, or prepay, interest and principal due thereunder. Any prepayment, or partial prepayment, of the secured notes will incur a prepayment premium resulting in a total payment of principal and interest under the secured notes of $11.1 million.

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During the second quarter of 2011, we purchased $405,000 of the secured notes at par.

Repurchase Obligations

As of September 30, 2011, CT Legacy REIT was party to one repurchase obligation, which is non-recourse to Capital Trust, Inc, has an aggregate outstanding balance of $66.6 million and an all-in cost of LIBOR plus 2.50% per annum (2.74% at September 30, 2011).

During the second and third quarters of 2011, $238.1 million of the legacy repurchase obligations were repaid, including the full repayment and termination of the Morgan Stanley and Citigroup facilities and a release of the remaining collateral thereunder, as well as a $106.8 million repayment of the JP Morgan facility.

See Note 10 to our consolidated financial statements for additional discussion of the terms of CT Legacy REIT’s repurchase obligations.

Mezzanine Loan

CT Legacy REIT entered into an $83.0 million mezzanine loan with Five Mile that carries a 15.0% per annum interest rate, of which 7.0% per annum may be deferred, and that matures on March 31, 2016. The mezzanine loan is non-recourse to Capital Trust, Inc. except for certain limited non-recourse, “bad boy” carve outs.

During the second quarter of 2011, $20.0 million of the mezzanine loan was repaid using proceeds from the satisfaction of former Morgan Stanley and Citigroup repurchase facility collateral assets.

See Note 10 to our consolidated financial statements for additional discussion of the terms of CT Legacy REIT’s mezzanine loan.

Securitized Debt Obligations

Non-recourse debt obligations of consolidated securitization vehicles include our four CT CDOs, as well as securities issued by other consolidated securitization vehicles which are not sponsored by us.

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These consolidated non-recourse securitized debt obligations are described below:

Non-Recourse Securitized Debt Obligations
(in millions)	September 30, 2011					December 31, 2010
	Book Value		All-in Cost(1)			Book Value		All-in Cost(1)
CT CDOs
CT CDO I		$122		1.14	%		$200		0.96	%
CT CDO II		202		1.15			262		1.06
CT CDO III		206		5.17			240		5.16
CT CDO IV		243		1.10			281		1.04
Total CT CDOs		$773		2.20	%		$983		2.03	%
Other securitization vehicles
GMACC 1997-C1		$84		7.10	%		$97		7.12	%
GECMC 00-1 H		25		5.90			N/A		N/A
GSMS 2006-FL8A		51		1.08			126		0.81
JPMCC 2005-FL1A		90		0.81			96		0.82
MSC 2007-XLFA		—		―			751		0.49
MSC 2007-XLCA		329		2.02			522		1.52
CSFB 2006-HC1		—		―			1,046		0.77
Total other securitization vehicles		$579		2.67	%		$2,638		1.08	%
Total non-recourse debt obligations		$1,352		2.40	%		$3,621		1.34	%

(1) Includes amortization of premiums and issuance costs of CT CDOs. Floating rate debt obligations assume LIBOR of 0.24% and 0.26% at September 30, 2011 and December 31, 2010, respectively.

Shareholders’ Equity

We did not issue any new shares of class A common stock during the nine months ended September 30, 2011. Changes in the number of outstanding shares during the nine months ended September 30, 2011 resulted from restricted common stock grants, forfeitures and vesting, as well as stock unit grants.

The following table calculates our book value per share as of September 30, 2011 and December 31, 2010:

Shareholders' Equity
	September 30, 2011			December 31, 2010
Book value (in millions)		($100	)		($411	)
Shares:
Class A common stock		21,966,684			21,916,716
Restricted common stock		244,424			32,785
Stock units		537,621			485,399
Warrants & Options (1)		—			—
Total		22,748,729			22,434,900
Book value per share		($4.40	)		($18.33	)

(1) Excludes shares issuable upon the exercise of outstanding warrants and options. These shares are not dilutive as of both September 30, 2011 and December 31, 2010 because an increase in shares would decrease our book deficit per share.

As of September 30, 2011, there were 22,211,108 shares of our class A common stock and restricted common stock outstanding. There were also outstanding warrants to purchase 3,479,691 shares of our class A common stock at an exercise price of $1.79 per share. The warrants will become exercisable on March 16, 2012 and expire on March 16, 2019, and may be exercised through a cashless exercise.

In addition, the equity section of our consolidated balance sheet includes amounts attributable to noncontrolling interests. Noncontrolling interests represents the equity interests in CT Legacy REIT not owned by us, and is currently a deficit on a consolidated basis due to losses recognized on loans in securitization vehicles in excess of CT Legacy REIT’s investment in such entities. As these excess losses are reversed and CT Legacy REIT generates earnings, the noncontrolling interests will be adjusted to reflect the value of CT Legacy REIT’s net assets not owned by us.

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Other Balance Sheet Items

Participations sold represent interests in certain loans that we originated and subsequently sold to one of our investment management vehicles or to third parties. We present these participations sold as both assets and non-recourse liabilities because these arrangements do not qualify as sales under GAAP. Generally, participations sold are recorded as assets and liabilities in equal amounts on our consolidated balance sheets, and an equivalent amount of interest income and interest expense is recorded on our consolidated statements of operations. However, impaired loan assets must be reduced through the provision for loans losses while the associated non-recourse liability cannot be reduced until the participation has been contractually extinguished. This can result in an imbalance between the loan participations sold asset and liability. We have no economic exposure to these liabilities.

As of September 30, 2011, we had two such participations sold with a total gross book value of $122.4 million, one of which was transferred to CT Legacy REIT in conjunction with our March 2011 restructuring. We have recorded a $97.5 million provision for loan losses against one of these participation sold assets, resulting in a net book value of $24.9 million as of September 30, 2011.

Interest Rate Exposure

We endeavor to manage a book of assets and liabilities that are generally matched with respect to interest rates, typically financing floating rate assets with floating rate liabilities and fixed rate assets with fixed rate liabilities. In some cases, we finance fixed rate assets with floating rate liabilities and, in those cases, we may use interest rate derivatives, such as swaps, to effectively convert the floating rate debt to fixed rate debt. In such instances, the equity we have invested in fixed rate assets is not typically swapped, leaving a portion of our equity capital exposed to changes in value of the fixed rate assets due to interest rate fluctuations. The balance of our assets earn interest at floating rates and are financed with floating rate liabilities, leaving a portion of our equity capital exposed to cash flow variability from fluctuations in rates. Generally, these assets and liabilities earn interest at rates indexed to one-month LIBOR.

Our counterparties in these transactions are large financial institutions and we are dependent upon the financial health of these counterparties and a functioning interest rate derivative market in order to effectively execute our hedging strategy.

The table below details our interest rate exposure as of September 30, 2011 and December 31, 2010:

Interest Rate Exposure
(in millions)	September 30, 2011			December 31, 2010
Value exposure to interest rates(1)
Fixed rate assets		$781			$898
Fixed rate debt		(401	)		(493	)
Interest rate swaps		(359	)		(404	)
Net fixed rate exposure		$21			$1
Weighted average coupon (fixed rate assets)		7.07	%		7.18	%
Cash flow exposure to interest rates(1)
Floating rate assets		$1,114			$3,616
Floating rate debt less cash		(1,047	)		(3,717	)
Interest rate swaps		359			404
Net floating rate exposure		$426			$303
Weighted average coupon (floating rate assets) (2)		2.71	%		2.13	%
Net income impact from 100 bps change in LIBOR		$4.3			$3.0

(1)	All values are in terms of face or notional amounts, and include loans classified as held-for-sale.
(2)	Weighted average coupon assumes LIBOR of 0.24% and 0.26% at September 30, 2011 and December 31, 2010, respectively.

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Results of Operations

Comparison of Results of Operations: Three Months Ended September 30, 2011 vs. September 30, 2010
(in thousands, except per share data)
	2011			2010			Change			% Change
Income from loans and other investments:
Interest and related income		$25,642			$40,280			($14,638	)		(36.3	%)
Less: Interest and related expenses		21,838			31,557			(9,719	)		(30.8	%)
Income from loans and other investments, net		3,804			8,723			(4,919	)		(56.4	%)
Other revenues:
Management fees from affiliates		1,753			2,050			(297	)		(14.5	%)
Incentive management fees from affiliates		—			733			(733	)		(100.0	%)
Servicing fees		1,460			84			1,376			N/A
Total other revenues		3,213			2,867			346			12.1	%
Other expenses:
General and administrative		4,941			5,148			(207	)		(4.0	%)
Total other expenses		4,941			5,148			(207	)		(4.0	%)
Total other-than-temporary impairments of securities		(30,687	)		(29,963	)		(724	)		2.4	%
Portion of other-than-temporary impairments of securities recognized in other comprehensive income		173			(5,921	)		6,094			N/A
Impairment of real estate held-for-sale		(1,055	)		(4,000	)		2,945			(73.6	%)
Net impairments recognized in earnings		(31,569	)		(39,884	)		8,315			(20.8	%)
Recovery of (provision for) loan losses		17,152			(95,916	)		113,068			N/A
Valuation allowance on loans held-for-sale		—			(6,036	)		6,036			N/A
Gain on extinguishment of debt		20,054			185			19,869			N/A
Income from equity investments		307			1,056			(749	)		(70.9	%)
Income (loss) before income taxes		8,020			(134,153	)		142,173			(106.0	%)
Income tax (benefit) provision		(236	)		556			(792	)		N/A
Net income (loss)		$8,256			($134,709	)		$142,965			(106.1	%)
Less: Net loss attributable to noncontrolling interests		5,466			—			5,466			N/A
Net income (loss) attributable to Capital Trust, Inc.		$13,722			($134,709	)		$148,431			(110.2	%)
Net income (loss) per share - diluted		$0.57			($6.02	)		$6.59			N/A
Dividend per share		$0.00			$0.00			$0.00			N/A
Average LIBOR		0.22	%		0.29	%		(0.07	%)		(23	%)

Income from loans and other investments, net

A decline in Interest Earning Assets of $2.6 billion or 64% from September 30, 2010 to September 30, 2011 and an increase in non-performing loans contributed to a $14.6 million, or 36% decrease in interest income during the third quarter of 2011 compared to the third quarter of 2010. Interest expense decreased $9.7 million, or 31%, due to a decrease in leverage by $3.1 billion or 67%, this was offset by non-cash interest expense of $2.3 million resulting from the discontinuation of hedge accounting beginning the second quarter of 2011. On a net basis, net interest income decreased by $4.9 million, or 56%.

Management fees from affiliates

Base management fees from our investment management business decreased $297,000, or 14.5%, during the third quarter of 2011 compared to the third quarter of 2010. The decrease was attributed primarily to an amendment to the CTOPI management agreement in 2010, which reduced management fees and extended the fund’s investment period.

Incentive management fees from affiliates

We recorded $733,000 of incentive management fees during the third quarter of 2010 in conjunction with the liquidation of CT Mezzanine Partners III, Inc., or Fund III. We recorded no such fees during the third quarter of 2011.

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Servicing fees

Servicing fees increased $1.4 million during the third quarter of 2011 compared to the third quarter of 2010. The increase in fees was primarily due to significant one-time modification fees we recorded in the third quarter of 2011 for our services as special servicer for certain loans.

General and administrative expenses

General and administrative expenses include personnel costs, operating expenses, professional fees and expenses associated with consolidated securitization vehicles. Excluding expenses from consolidated securitization vehicles, general and administrative expenses decreased by $196,000 between the third quarter of 2011 and the third quarter of 2010. The decrease was primarily due to lower professional fees and other operating costs.

Net impairments recognized in earnings

During the third quarter of 2011, we recorded $30.7 million of other-than-temporary impairments of securities on one of our securities that had an adverse change in cash flow expectations. Of this amount, $30.5 million was included in earnings and the remainder, $173,000, was recorded in other comprehensive income. In addition, we recorded a $1.1 million impairment on real estate held-for-sale to reflect the property at fair value.

During the third quarter of 2010, we recorded a gross other-than-temporary impairment of $30.0 million on seven of our securities that had an adverse change in cash flow expectations, all of which was included in earnings. We also reclassified $5.9 million of impairments that were previously included in other comprehensive income into earnings due to revised cash flow expectations. In addition, we recorded a $4.0 million impairment on Real Estate Held-for-Sale to reflect the property at fair value.

Recovery of (provision) for loan losses

During the third quarter of 2011, we recorded $17.2 million recovery of provisions for loan losses. The recovery was represented primarily by two loans that had previously been impaired.

During the third quarter of 2010 we recorded an aggregate $95.9 million provision for loan losses. This net provision included $98.4 million of provisions against six loans, offset by a $2.5 million recovery of one loan that had previously been impaired.

Valuation allowance on loans held-for-sale

We did not record any valuation allowance on loans held-for-sale during the third quarter of 2011.

During the third quarter of 2010, we recorded $6.0 million of valuation allowances on two loans that we classified as held-for-sale to reflect these assets at fair value.

Gain on extinguishment of debt

During the third quarter of 2011, we recorded $20.1 million of gain on the extinguishment of debt due to realized losses from collateral assets held by consolidated securitization trusts.

During the third quarter of 2010, we recorded a $185,000 gain on the extinguishment of debt due to realized losses from collateral assets held by consolidated securitization trusts.

Income from equity investments

The income from equity investments during the third quarter of 2011 was from our co-investment in CTOPI. CTOPI’s income for the quarter was primarily comprised of investment income and fair value adjustments.

The income from equity investments during the third quarter of 2010 was primarily from our co-investment in CTOPI. CTOPI’s income for the quarter was largely the result of fair value adjustments on its investment portfolio.

Income tax (benefit) provision

During the third quarter of 2011, we recorded a net income tax benefit of $236,000 which is primarily comprised of an increase of our deferred tax asset at CTIMCO.

During the third quarter of 2010, we recorded an income tax provision of $556,000 which was primarily due to differences between GAAP and tax recognition methodologies associated with certain revenue and expense items.

Net loss attributable to noncontrolling interests

The net loss attributable to noncontrolling interests recorded during the third quarter of 2011 represents the pro-rata share of CT Legacy REIT’s net loss for the quarter allocable to equity interests not owned by us.

We did not have any noncontrolling interests in the third quarter of 2010.

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Dividends

We did not pay any dividends in the third quarter of 2011 or 2010.

Comparison of Results of Operations: Nine Months Ended September 30, 2011 vs. September 30, 2010
(in thousands, except per share data)
	2011			2010			Change			% Change
Income from loans and other investments:
Interest and related income		$95,187			$119,783			($24,596	)		(20.5	%)
Less: Interest and related expenses		80,381			94,462			(14,081	)		(14.9	%)
Income from loans and other investments, net		14,806			25,321			(10,515	)		(41.5	%)
Other revenues:
Management fees from affiliates		4,927			5,990			(1,063	)		(17.7	%)
Incentive management fees from affiliates		—			733			(733	)		(100.0	%)
Servicing fees		2,208			2,821			(613	)		(21.7	%)
Total other revenues		7,135			9,544			(2,409	)		(25.2	%)
Other expenses:
General and administrative		19,868			14,398			5,470			38.0	%
Total other expenses		19,868			14,398			5,470			38.0	%
Total other-than-temporary impairments of securities		(35,620	)		(69,798	)		34,178			(49.0	%)
Portion of other-than-temporary impairments of securities recognized in other comprehensive income		(3,098	)		12,094			(15,192	)		N/A
Impairment of real estate held-for-sale		(1,055	)		(4,000	)		2,945			(73.6	%)
Net impairments recognized in earnings		(39,773	)		(61,704	)		21,931			(35.5	%)
Recovery of (provision for) loan losses		34,401			(150,143	)		184,544			(122.9	%)
Valuation allowance on loans held-for-sale		(224	)		(6,036	)		5,812			(96.3	%)
Gain on extinguishment of debt		271,031			648			270,383			N/A
Income from equity investments		2,105			2,358			(253	)		(10.7	%)
Income (loss) before income taxes		269,613			(194,410	)		464,023			N/A
Income tax provision		1,214			849			365			43.0	%
Net income (loss)		$268,399			($195,259	)		$463,658			N/A
Less: Net income attributable to noncontrolling interests		(1,935	)		—			(1,935	)		N/A
Net income (loss) attributable to Capital Trust, Inc.		$266,464			($195,259	)		$461,723			(236.5	%)
Net income (loss) per share - diluted		$11.08			($8.73	)		$19.81			N/A
Dividend per share		$0.00			$0.00			$0.00			N/A
Average LIBOR		0.21	%		0.28	%		(0.07	%)		(24.7	%)

Income from loans and other investments, net

A decline in Interest Earning Assets of $2.6 billion or 64% from September 30, 2010 to September 30, 2011 and an increase in non-performing loans contributed to a $24.6 million, or 21% decrease in interest income during the first nine months of 2011 compared to the first nine months of 2010. Interest expense decreased $14.1 million, or 15%, due to decrease in leverage by $3.1 billion or 67%, this was offset by non-cash interest expense of $11.3 million resulting from the discontinuation of hedge accounting and the amortization of costs associated with the mezzanine loan. On a net basis, net interest income decreased by $10.5 million, or 42%.

Management fees from affiliates

Base management fees from our investment management business decreased $1.1 million or 18%, during the first nine months of 2011 compared to the first nine months of 2010. The decrease was attributed primarily to an amendment to the CTOPI fund’s management agreement, which reduced management fees and extended the fund’s investment period. This was offset by an increase in management fees from CT High Grade II which had increased assets under management in 2011 compared to in 2010.

Incentive management fees from affiliates

We did not record any incentive management fees during the first nine months of 2011.

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We recorded $733,000 of incentive management fees during the first nine months of 2010 in conjunction with the liquidation of Fund III.

Servicing fees

Servicing fees decreased $613,000 during the first nine months of 2011, compared to the first nine months of 2010. The decrease in fees was primarily due to higher one-time modification fees recorded in the first nine months of 2010 for our services as special servicer for certain loans.

General and administrative expenses

General and administrative expenses include personnel costs, operating expenses, professional fees and expenses associated with consolidated securitization vehicles. Excluding expenses from consolidated securitization vehicles, general and administrative expenses increased by $6.2 million between the first nine months of 2011 and the first nine months of 2010. The increase was primarily due to (i) $3.4 million of expenses recognized in 2011 in connection with the management incentive awards plan, and (ii) $2.8 million one-time restructuring bonuses paid in 2011.

Net impairments recognized in earnings

During the first nine months of 2011, we recorded a gross other-than-temporary impairment of $35.6 million on seven of our securities that had an adverse change in cash flow expectations. In addition, we recognized $3.1 million of previous other-than-temporary impairments from other comprehensive income into earnings, to reflect additional credit impairments on these securities. We also recorded a $1.1 million impairment on real estate held-for-sale to reflect the property at fair value.

During the nine months ended September 30, 2010, we recorded a gross other-than-temporary impairment of $69.8 million on 12 of our securities that had an adverse change in cash flow expectations. Of this amount, $12.1 million was included in other comprehensive income, resulting in a net $57.7 million impairment included in earnings. In addition, we recorded a $4.0 million impairment on real estate held-for-sale to reflect the property at fair value.

Recovery of (provision) for loan losses

During the first nine months of 2011, we recorded a net $34.4 million recovery of provisions for loan losses. The net recovery included $43.8 million in recoveries on previously impaired loans offset by $9.4 million in additional loan loss provisions.

During the first nine months of 2010, we recorded $150.1 million of provisions for loan losses against 11 loans.

Valuation allowance on loans-held-for-sale

During the first nine months of 2011 we recorded a valuation allowance of $224,000 on one loan we classified as held-for-sale at September 30, 2011. During the first nine months of 2010, we recorded $6.0 million of valuation allowances on two loans that we classified as held-for-sale to reflect these assets at fair value.

Gain on extinguishment of debt

During the first nine months of 2011, we recorded $271.0 million of gain on the extinguishment of debt. This was primarily comprised of (i) a $174.8 million gain on extinguishment of our senior credit facility and junior subordinated notes, (ii) a $75.0 million gain associated with the elimination of participation sold liability, and (iii) $20.1 million of gains on the extinguishment of debt due to realized losses from collateral assets held by consolidated securitization trusts. See Note 14 for further information.

During the first nine months of 2010, we recorded a $648,000 gain on the extinguishment of debt due to realized losses from collateral assets held by consolidated securitization trusts.

Income from equity investments

The income from equity investments during the first nine months of 2011 was primarily earned from our co-investment in CTOPI. CTOPI’s income for the nine months was primarily comprised of investment income and fair value adjustments. The income from equity investments during the first nine months of 2010 was primarily from our co-investment in CTOPI, and was primarily due to fair value adjustments on the underlying investments in the fund.

Income tax provision

During the first nine months ended September 30, 2011, we recorded a net income tax provision of $1.2 million as a result of $2.3 million in current income tax expense offset by a $1.1 million benefit due to an increase to our deferred tax asset at CTIMCO.

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During the first nine months of 2010, we recorded an income tax provision of $849,000 which was primarily due to differences between GAAP and tax recognition methodologies associated with certain revenue and expense items.

Net loss attributable to noncontrolling interests

The net loss attributable to non-controlling interests recorded during the first nine months of 2011 represents the pro-rata share of CT Legacy REIT’s net loss for the nine months allocable to equity interests not owned by us.

We did not have any noncontrolling interests in the third quarter of 2010.

Dividends

We did not pay any dividends in the first nine months of 2011 or 2010.

Liquidity and Capital Resources

Liquidity

As of September 30, 2011, our primary sources of liquidity include $28.2 million of cash on deposit at Capital Trust, Inc. and CTIMCO; the $7.5 million per annum class A preferred dividend distributions we receive from CT Legacy REIT; and management fees we earn from private equity funds and CDOs we manage, and fees earned from special servicing assignments. Uses of liquidity include operating expenses; various capital commitments to our managed funds; and any dividends necessary to maintain our REIT status. We generally have no obligations to provide financial support to CT Legacy REIT or our consolidated securitization vehicles, and all debt obligations of such entities, though consolidated onto our financial statements, are non-recourse to us. We believe our current sources of capital will be adequate to meet our near-term cash requirements.

We currently do not have access to significant liquidity from our portfolio of Interest Earning Assets. CT Legacy REIT owns a substantial portion of our Interest Earning Assets, the proceeds of which cannot be distributed to CT Legacy REIT’s common shareholders, including us, until the related repurchase obligation and mezzanine loan have been repaid. Accordingly, other than the preferred dividends discussed above, we will not receive distributions from CT Legacy REIT in the near term. We will, however, receive our proportionate share of the proceeds generated from the CT Legacy REIT portfolio, subject to repayment of our secured notes, once CT Legacy REIT’s leverage has been repaid.

In addition, as described in Note 11 to our consolidated financial statements, covenant breaches in our CT CDOs have resulted in a redirection of cash flow to amortize senior noteholders, which amounts would otherwise have been available to us. The additional principal amortization to senior CT CDO notes are a function of cash received under each respective collateral pool, and are only required to the extent there is cash flow in excess of the interest expense otherwise due under each respective vehicle. Accordingly, these redirection provisions cannot result in a cash outflow from us to our CT CDOs, only a diminution of liquidity available to us.

Cash Flows

Our consolidated statements of cash flows include the cash inflows and outflows of the consolidated VIEs described in Note 2 to our consolidated financial statements. While this does not impact our net cash flow, it does increase certain gross cash flow disclosures.

We experienced a net increase in cash of $3.8 million for the nine months ended September 30, 2011, compared to a net decrease of $3.8 million for the nine months ended September 30, 2010.

Cash provided by operating activities during the nine months ended September 30, 2011 was $19.3 million, compared to cash provided by operating activities of $28.2 million during the same period of 2010. The decrease was primarily due to a decrease in our cash net interest margin and expenses related to our March 2011 restructuring.

During the nine months ended September 30, 2011, cash provided by investing activities was $1.9 billion, compared to $238.7 million provided by investing activities during the same period in 2010. The increase was primarily due to additional asset principal repayments inside of consolidated securitization vehicles in 2011.

During the nine months ended September 30, 2011, cash used in financing activities was $2.0 billion, compared to $270.7 million during the same period in 2010. This increase was primarily due to (i) additional repayments of securitized debt obligations of $1.5 billion during 2011, (ii) additional repayments of our repurchase obligations of $263.5 million, (iii) a combined $23.8 million of repayments to extinguish our senior credit facility and junior subordinated notes at a discount, and (iv) the payment of $11.1 million of finance costs associated with our March 2011 restructuring. This was offset by net borrowings of $63.0 million under the mezzanine loan at CT Legacy REIT.

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Capitalization

Our authorized capital stock consists of 100,000,000 shares of $0.01 par value class A common stock, of which 22,211,108 shares were issued and outstanding as of September 30, 2011, and 100,000,000 shares of preferred stock, none of which were outstanding as of September 30, 2011.

Pursuant to the terms of our prior debt restructuring completed on March 16, 2009, we issued to JP Morgan, Morgan Stanley and Citigroup warrants to purchase 3,479,691 shares of our class A common stock at an exercise price of $1.79 per share, the closing bid price on the New York Stock Exchange on March 13, 2009. The warrants will become exercisable on March 16, 2012 and expire on March 16, 2019, and may be exercised through a cashless exercise.

Secured Notes

As of September 30, 2011, we had non-recourse notes outstanding with a face balance of $7.7 million which are secured by 93.5% of our equity interests in the class A-1 and class A-2 common stock of CT Legacy REIT. The terms of these agreements are described in Note 7 to our consolidated financial statements.

CT Legacy REIT

As of September 30, 2011, CT Legacy REIT was an obligor under a $66.6 million outstanding repurchase obligation, as well as a $64.1 million mezzanine loan. These facilities are all non-recourse to us, and are further described in Note 10 to our consolidated financial statements.

Consolidated Securitization Vehicles

As of September 30, 2011, our consolidated securitization vehicles had non-recourse securitized debt obligations with a total face value of $1.4 billion. The terms of these obligations are described in Note 11 to our consolidated financial statements.

Contractual Obligations

The following table sets forth information about certain of our contractual obligations as of September 30, 2011:

Contractual Obligations(1)
(in millions)
	Payments due by period
	Total		Less than  1 year		1-3 years		3-5 years		More than  5 years
Parent Level
Secured notes		$8		$—		$—		$8		$—
Equity investments(2)		14		14		—		—		—
Operating lease obligations		7		1		2		2		2
Subtotal		29		15		2		10		2
CT Legacy REIT
Repurchase obligations		67		—		67		—		—
Mezzanine loan		64		—		—		64		—
Subtotal		131		—		67		64		—
Consolidated Securitization Vehicles
CT CDOs		772		—		—		—		772
Other securitization vehicles		580		—		—		—		580
Subtotal		1,352		—		—		—		1,352
Total contractual obligations		$1,512		$15		$69		$74		$1,354

(1)	We are also subject to interest rate swaps for which we cannot estimate future payments due.
(2)	CTOPI’s investment period expires in December 2011, at which point our obligation to fund capital calls will be limited. It is possible that our unfunded capital commitment will not be entirely called, and the timing and amount of such required contributions is not estimable. Our entire unfunded commitment is assumed to be funded by December 2011 for purposes of the above table.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

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III. Non-GAAP Disclosures: Adjusted Balance Sheet and Operating Results

We believe that our adjusted balance sheet and operating results provide meaningful information to consider, in addition to our consolidated balance sheet and statement of operations prepared in accordance with GAAP. These adjusted measures help us to evaluate our financial position and performance without the effects of certain transactions and GAAP adjustments that are not necessarily indicative of our current investment portfolio, operations, capitalization, or shareholders’ equity.

We believe that the accounting for loan participations sold as well as the consolidation of VIEs, in particular the consolidation of non-recourse securitization vehicles, while in accordance with GAAP, has resulted in a presentation of gross assets and liabilities, provisions/impairments, and operations being recorded in excess of our economic interests in such entities. Accordingly, our adjusted balance sheet and operating results (i) eliminate loan participations sold, and (ii) deconsolidate securitization vehicles which are presented gross in accordance with GAAP, and show instead our cash investment in these non-recourse entities, adjusted for losses expected or incurred, and the cash income earned thereon. Due to the non-recourse nature of these entities, our investment amount as well as our income cannot be less than zero on a cash basis. In addition, we eliminate the interest expense recognized due to interest rate swaps no longer designated as cash flow hedges, which is a non-cash reclassification from other comprehensive income into earnings that does not impact book value. We also separately show our financial position and operations from those of CT Legacy REIT.

Adjusted Balance Sheet

Our adjusted balance sheet is not an alternative or substitute for our consolidated balance sheet prepared in accordance with GAAP as a measure of our financial position. Rather, we believe that our adjusted balance sheet is an additional measure that is a valuable tool for analyzing our business. Our adjusted balance sheet should not be viewed as an alternative measure of shareholders’ equity, and we may not prepare our adjusted balance sheet in the same manner as other companies that use a similarly titled measure.

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The following table details the transition from our consolidated balance sheet prepared in accordance with GAAP to the adjusted balance sheets of Capital Trust, Inc. and CT Legacy REIT, as of September 30, 2011:

Adjusted Balance Sheet as of September 30, 2011
(in thousands, except per share data)							Adjusted Balance Sheet
	Consolidated GAAP Capital Trust, Inc.			Adjustments (1)(2)(3)			CT Legacy REIT		Capital Trust, Inc.
Assets
Cash and cash equivalents		$28,219			$—			$—		$28,219
Loans receivable, net		24,945			(24,945	)		—		—
Equity investments in unconsolidated subsidiaries		10,611			—			—		10,611
Investment in CT Legacy REIT		—			61,098			—		61,098
Deferred income taxes		1,750			—			—		1,750
Prepaid expenses and other assets		2,109			625			—		2,734
Subtotal		67,634			36,778			—		104,412
Assets of Consolidated VIEs
CT Legacy REIT, Excluding Securitization Vehicles
Restricted cash		13,715			—			13,715		—
Securities held-to-maturity		2,591			5,320			7,911		—
Loans receivable, net		207,028			—			207,028		—
Loans held-for-sale, net		32,107			—			32,107		—
Accrued interest receivable and other assets		4,638			—			4,638		—
Subtotal		260,079			5,320			265,399		—
Assets of consolidated securitization vehicles		1,212,176			(1,212,176	)		—		—
Total/adjusted assets		$1,539,889			($1,170,078	)		$265,399		$104,412
Liabilities & Shareholders' Equity
Accounts payable and accrued expenses		$7,717			$—			$—		$7,717
Secured notes		7,686			—			—		7,686
Participations sold		24,945			(24,945	)		—		—
Subtotal		40,348			(24,945	)		—		15,403
Non-Recourse Liabilities of Consolidated VIEs
CT Legacy REIT, Excluding Securitization Vehicles
Accounts payable and accrued expenses		683			625			1,308		—
Repurchase obligations		66,637			—			66,637		—
Mezzanine loan, net of unamortized discount		53,367			—			53,367		—
Participations sold		97,465			(97,465	)		—		—
Interest rate hedge liabilities		9,326			—			9,326		—
Subtotal		227,478			(96,840	)		130,638		—
Liabilities of consolidated securitization vehicles		1,382,916			(1,382,916	)		—		—
Total/adjusted liabilities		1,650,742			(1,504,701	)		130,638		15,403
Total/adjusted equity		(100,165	)		323,935			134,761		89,009
Noncontrolling interests		(10,688	)		10,688			—		—
Total/adjusted liabilities and shareholders' equity		$1,539,889			($1,170,078	)		$265,399		$104,412
Capital Trust, Inc. book value/adjusted book value per share:
Basic		($4.40	)							$3.91
Diluted		($4.40	)							$3.61

(1)	All securitization vehicles have been deconsolidated and reported at our cash investment amount, adjusted for current losses relative to our equity investment in each vehicle. Due to the non-recourse nature of these entities, our investment cannot be less than zero on a cash basis. See note 11 to our consolidated financial statements for discussion of consolidated securitization vehicles.
(2)	Loan participations which have been sold to third-parties, and did not qualify for sale accounting, have been eliminated. See Note 8 to our consolidated financial statements for discussion of loan participations sold.
(3)	Non-cash interest expense recognized due to interest rate swaps no longer designated as cash flow hedges has been eliminated. See Note 10 to our consolidated financial statements for discussion of interest rate swaps not designated as hedging instruments.

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Adjusted Operating Results

Our adjusted earnings is not an alternative or substitute for net income as a measure of our performance. Rather, we believe that adjusted earnings is an additional measure that is a valuable tool for analyzing our performance. Adjusted earnings should not be viewed as an alternative measure of either our operating liquidity, or funds available for our cash needs. In addition, we may not calculate adjusted earnings in the same manner as other companies that use a similarly titled measure.

The following table details the transition from our consolidated statement of operations prepared in accordance with GAAP to the adjusted operating results of Capital Trust, Inc. and CT Legacy REIT for the nine months ended September 30, 2011:

Adjusted Income Statement for the Nine Months Ended September 30, 2011
(in thousands, except per share data)							Adjusted Income Statement
	Consolidated GAAP Capital Trust, Inc.			Adjustments (1)(2)(3)			CT Legacy REIT			Capital Trust, Inc.
Income from loans and other investments:
Interest and related income		$95,187			($73,013	)		$13,420			$8,754
Less: Interest and related expenses		80,381			(60,492	)		15,784			4,105
Income from loans and other investments, net		14,806			(12,521	)		(2,364	)		4,649
Other revenues:
Management fees from affiliates		4,927			—			—			4,927
Servicing fees		2,208			632			—			2,840
Total other revenues		7,135			632			—			7,767
Other expenses:
General and administrative		19,868			(646	)		2,133			17,089
Total other expenses		19,868			(646	)		2,133			17,089
Total other-than-temporary impairments on securities		(35,620	)		12,131			(23,476	)		(13	)
Portion of other-than-temporary impairments on securities recognized in other comprehensive income		(3,098	)		1,458			—			(1,640	)
Impairments on real estate held-for-sale		(1,055	)		1,055			—			—
Net impairments recognized in earnings		(39,773	)		14,644			(23,476	)		(1,653	)
Recovery of (provision for) loan losses		34,401			(21,439	)		5,048			7,914
Valuation allowance on loans held-for-sale		(224	)		—			(224	)		—
Gain on extinguishment of debt		271,031			(96,185	)		—			174,846
Income from equity investments		2,105			—			—			2,105
Loss from CT Legacy REIT		—			—			—			(11,170	)
Intercompany dividends		—			—			(3,771	)		3,771
Income (loss)/adjusted income (loss) before income taxes		269,613			(114,223	)		(26,920	)		171,140
Income tax provision		1,214			—			—			1,214
Net income (loss)/adjusted net income (loss) before noncontrolling interests		268,399			(114,223	)		(26,920	)		169,926
Less: Net income attributable to noncontrolling interests		(1,935	)		1,935			—			—
Net income (loss)/adjusted net income (loss)		$266,464			($112,288	)		($26,920	)		$169,926
Earnings/adjusted earnings per share:
Basic		$11.77									$7.51
Diluted		$11.08									$7.06

(1)	All securitization vehicles have been deconsolidated; adjusted balances include only cash income received from such vehicles. Due to the non-recourse nature of these entities, our net income from such entities cannot be less than zero on a cash basis. See note 11 to our consolidated financial statements for discussion of consolidated securitization vehicles.
(2)	Loan participations which have been sold to third-parties, which did not qualify for sale accounting, have been eliminated. See Note 8 to our consolidated financial statements for discussion of loan participations sold.
(3)	Non-cash interest expense recognized due to interest rate swaps no longer designated as cash flow hedges has been eliminated. See Note 10 to our consolidated financial statements for discussion of interest rate swaps not designated as hedging instruments.

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The following table details the transition from our consolidated statement of operations prepared in accordance with GAAP to the adjusted operating results of Capital Trust, Inc. and CT Legacy REIT, for the three months ended September 30, 2011:

Adjusted Income Statement for the Three Months Ended September 30, 2011
(in thousands, except per share data)							Adjusted Income Statement
	Consolidated GAAP Capital Trust, Inc.			Adjustments (1)(2)(3)			CT Legacy REIT			Capital Trust, Inc.
Income from loans and other investments:
Interest and related income		$25,642			($19,763	)		$5,879			$—
Less: Interest and related expenses		21,838			(16,217	)		5,523			98
Income from loans and other investments, net		3,804			(3,546	)		356			(98	)
Other revenues:
Management fees from affiliates		1,753			—			—			1,753
Servicing fees		1,460			198			—			1,658
Total other revenues		3,213			198			—			3,411
Other expenses:
General and administrative		4,941			(323	)		305			4,313
Total other expenses		4,941			(323	)		305			4,313
Total other-than-temporary impairments on securities		(30,687	)		7,211			(23,476	)		—
Portion of other-than-temporary impairments on securities recognized in other comprehensive income		173			(173	)		—			—
Impairments on real estate held-for-sale		(1,055	)		1,055			—			—
Net impairments recognized in earnings		(31,569	)		8,093			(23,476	)		—
Recovery of (provision for) loan losses		17,152			(2,670	)		14,482			—
Gain on extinguishment of debt		20,054			(20,054	)		—			—
Income from equity investments		307			—			—			307
Loss from CT Legacy REIT		—			—			—			(4,480	)
Intercompany dividends		—			—			(1,875	)		1,875
Income (loss)/adjusted loss before income taxes		8,020			(17,656	)		(10,818	)		(3,298	)
Income tax benefit		(236	)		—			—			(236	)
Net income (loss)/adjusted net loss before noncontrolling interests		8,256			(17,656	)		(10,818	)		(3,062	)
Less: Net income attributable to noncontrolling interests		5,466			(5,466	)		—			—
Net income (loss)/adjusted net loss		$13,722			($23,122	)		($10,818	)		($3,062	)
Earnings/adjusted earnings per share:
Basic		$0.60									($0.13	)
Diluted		$0.57									($0.13	)

(1)	All securitization vehicles have been deconsolidated; adjusted balances include only cash income received from such vehicles. Due to the non-recourse nature of these entities, our net income from such entities cannot be less than zero on a cash basis. See note 11 to our consolidated financial statements for discussion of consolidated securitization vehicles.
(2)	Loan participations which have been sold to third-parties, which did not qualify for sale accounting, have been eliminated. See Note 8 to our consolidated financial statements for discussion of loan participations sold.
(3)	Non-cash interest expense recognized due to interest rate swaps no longer designated as cash flow hedges has been eliminated. See Note 10 to our consolidated financial statements for discussion of interest rate swaps not designated as hedging instruments.

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Quarterly Performance

The following table describes the activity in Capital Trust, Inc.’s balance sheet accounts, on an adjusted basis, during the third quarter of 2011:

Comparison of adjusted balance sheet of Capital Trust, Inc: As of September 30, 2011 vs. June 30, 2011
(in thousands)
	September 30, 2011		June 30, 2011		Change			% Change
Assets:
Cash and cash equivalents		$28,219		$28,430		($211	)		(0.7	%)
Equity investments in unconsolidated subsidiaries		10,611		9,851		760			7.7	%
Investment in CT Legacy REIT		61,098		65,579		(4,481	)		(6.8	%)
Deferred income taxes		1,750		1,597		153			9.6	%
Prepaid expenses and other assets		2,734		2,610		124			4.8	%
Total adjusted assets		$104,412		$108,067		($3,655	)		(3.4	%)
Liabilities and Shareholders' Equity
Liabilities:
Accounts payable and accrued expenses		$7,717		$8,618		($901	)		(10.5	%)
Secured notes		7,686		7,529		157			2.1	%
Total adjusted liabilities		15,403		16,147		(744	)		(4.6	%)
Total Adjusted Shareholders' Equity		89,009		91,920		(2,911	)		(3.2	%)
Total adjusted liabilities and shareholders' equity		$104,412		$108,067		$2,167			(3.4	%)

Cash and cash equivalents

Cash and cash equivalents decreased by $211,000 during the third quarter of 2011. This was primarily due to (i) payments of $3.5 million of general and administrative expenses, (ii) $2.0 million of estimated AMT tax payments, and (iii) net contributions of $452,000 to CTOPI. This was offset by (i) $2.3 million of management fees received from affiliates, (ii) $1.9 million of preferred dividend distributions received from CT Legacy REIT, and (iii) $1.6 million of special servicing fees and CDO collateral management fees received.

Equity investments in unconsolidated subsidiaries

The increase of $760,000 was due to $452,000 of net contributions made to CTOPI, as well as $308,000 of income from our co-investment in CTOPI.

Investment in CT Legacy REIT

The decrease of $4.5 million was due to the recognition of our share of CT Legacy REIT‘s adjusted net loss for the third quarter of 2011.

Deferred income taxes

The increase in deferred income taxes was primarily due to the timing difference between GAAP and tax in connection with the recognition of certain general and administrative expenses at our taxable REIT subsidiary, CTIMCO.

Prepaid expenses and other assets

The increase in prepaid expenses and other assets was primarily due to the prepayment of annual insurance premiums, offset by collections of management fees from affiliates which were previously accrued.

Accounts payable and accrued expense

The $901,000 decrease in accounts payable and accrued expenses was primarily due to the payment of a previously accrued $2.0 million income tax liability. This was offset by a $417,000 accrual of expense related to the management incentive awards plan, and an increase of $682,000 in accrued general and administrative expenses.

Secured notes

The secured note balance increased due to $157,000 of deferred interest accrued during the third quarter of 2011.

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Total adjusted shareholders’ equity

Adjusted shareholders’ equity decreased by $2.9 million during the third quarter of 2011. The decrease was due to a $3.1 million adjusted net loss for the third quarter of 2011, offset by the recognition of certain stock-based compensation.

The following table compares Capital Trust, Inc.’s operating results, on an adjusted basis, during the second and third quarters of 2011:

Comparison of adjusted operating results of Capital Trust, Inc: Three Months Ended September 30, 2011 vs. June 30, 2011
(in thousands)
	Q3 2011		Q2 2011		Change			% Change
Income from loans and other investments:
Interest and related income	$—		$—			$—			N/A
Less: Interest and related expenses	98		140			(42	)		(30.0	%)
Income from loans and other investments, net	(98	)	(140	)		42			(30.0	%)
Other revenues:
Management fees	1,753		1,595			158			9.9	%
Servicing fees	1,658		649			1,009			155.5	%
Total other revenues	3,411		2,244			1,167			52.0	%
Other expenses:
General and administrative	4,313		4,078			235			5.8	%
Total other expenses	4,313		4,078			235			5.8	%
Income from equity investments	307		842			(535	)		(63.5	%)
Loss from CT Legacy REIT	(4,480	)	(5,975	)		1,495			(25.0	%)
Intercompany dividends	1,875		1,896			(21	)		(1.1	%)
Adjusted net loss before income taxes	(3,298	)	(5,211	)		1,913			(36.7	%)
Income tax (benefit) provision	(236	)	1,061			(1,297	)		(122.2	%)
Adjusted net loss	($3,062	)	($6,272	)		$3,210			(51.2	%)

Income from loans and other investments, net

Decrease in interest expense during the third quarter of 2011 was primarily due to non-cash adjustments related to previously settled interest rate swaps.

Management fees from affiliates

Base management fees from our investment management business increased by $158,000 during the third quarter of 2011 as a result of additional investment activity at our investment management vehicles.

Servicing fees

Servicing fees increased $1.0 million during the third quarter of 2011 compared to the second quarter of 2011. The change was primarily due to the variable nature of special services fees, including $1.3 million of one-time payments received during the third quarter of 2011.

General and administrative expenses

General and administrative expenses include personnel costs, operating expenses and professional fees, which were generally consistent from period-to-period.

Income from equity investments

The income from equity investments during the third quarter of 2011 of $307,000 was derived from our co-investment in CTOPI. CTOPI’s income for the quarter was largely the result of (i) realization of income on loans purchased at discounts that were satisfied at par during the quarter, and (ii) fair value adjustments on its investment portfolio. The income from equity investments during the second quarter of 2011 was also primarily from our co-investment in CTOPI.

Loss from CT Legacy REIT

During the third quarter of 2011, we recognized $4.5 million of adjusted loss from CT Legacy REIT. The loss was driven by other-than-temporary impairments of securities recorded at CT Legacy REIT during the third quarter of 2011. During the second quarter of 2011, we recognized $6.0 million of adjusted loss from CT Legacy REIT. The loss was driven by loan loss provisions recorded at CT Legacy REIT during the second quarter of 2011.

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Income tax provision

We recorded a $236,000 income tax benefit during the third quarter of 2011, which was primarily due to changes in the deferred tax asset related to our taxable REIT subsidiary, CTIMCO.

IV. CT Legacy REIT, as Adjusted and Deconsolidated

Interest Earning Assets

CT Legacy REIT’s investment portfolio includes various types of commercial mortgage backed securities and collateralized debt obligations, or Securities, and commercial real estate loans and related instruments, or Loans. We collectively refer to these as Interest Earning Assets. The table below shows CT Legacy REIT’s Interest Earning Assets as of September 30, 2011 and December 31, 2010 on an adjusted basis. See section III above for a presentation and discussion of CT Legacy REIT’s adjusted balance sheet and operating results.

CT Legacy REIT Interest Earning Assets
(in millions)	September 30, 2011					December 31, 2010
	Book Value		Yield(1)			Book Value		Yield(1)
Securities held-to-maturity (2)		$8		6.41	%		$—		—
Loans receivable, net		207		4.90			—		—
Loans held-for-sale, net		32		6.26			—		—
Subtotal / Weighted Average		$247		5.13	%		$—		—

(1)	Yield on floating rate assets assumes LIBOR of 0.24% as of September 30, 2011.
(2)	Weighted average yield excludes $39.7 million of retained interests in CT CDO III which represent a subordinate investment that is paid an amount of interest based on the total cash flows of the CDO collateral assets each period.

The table below details the overall credit profile of CT Legacy REIT’s Interest Earning Assets, which includes: (i) Loans against which we have recorded a provision for loan losses, or reserves, (ii) Securities which have been other-than-temporarily impaired, and (iii) Loans and Securities that are categorized as Watch List Assets, which are currently performing but pose a higher risk of non-performance and/or loss. We actively monitor and manage Watch List Assets to mitigate these risks in our portfolio. All amounts are calculated on an adjusted basis. See section III above for further details of CT Legacy REIT’s adjusted balance sheet and operating results.

Portfolio Performance - CT Legacy REIT (1)
(in millions, except for number of investments)	September 30, 2011			December 31, 2010
Interest earning assets, CT Legacy REIT ($ / #)		$247 / 30			$― / ―
Impaired Loans (2)
Performing loans ($ / #)		$43 / 4			$― / ―
Non-performing loans ($ / #)		$22 / 3			$― / ―
Total ($ / #)		$65 / 7			$― / ―
Percentage of interest earning assets		26.3	%		―	%
Impaired Securities (2) ($ / #)		$2 / 9			$― / ―
Percentage of interest earning assets		0.6	%		―	%
Watch List Assets (3)
Watch list loans ($ / #)		$118 / 9			$― / ―
Watch list securities ($ / #)		$6 / 2			$― / ―
Total ($ / #)		$124 / 11			$― / ―
Percentage of interest earning assets		50.2	%		―	%

(1)	Portfolio statistics includes loans held-for-sale. All amounts are calculated on an adjusted basis. See section III above for a presentation and discussion of CT Legacy REIT’s adjusted balance sheet and operating results.
(2)	Amounts represent net book value after provisions for loan losses, valuation allowances on loans-held-for-sale and other-than-temporary impairments of securities.
(3)	Watch List Assets exclude Loans against which we have recorded a provision for loan losses or valuation allowance, and Securities which have been other-than-temporarily impaired.

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Interest Bearing Liabilities

As of September 30, 2011, CT Legacy REIT’s debt obligations, which we collectively refer to as Interest Bearing Liabilities, include its repurchase obligations and mezzanine loan, both of which are non-recourse to us. The table below describes CT Legacy REIT’s Interest Bearing Liabilities as of September 30, 2011 and December 31, 2010 on an adjusted basis. See section III above for further details of CT Legacy REIT’s adjusted balance sheet and operating results.

Interest Bearing Liabilities
(Principal balance, in millions)	September 30, 2011			December 31, 2010
Repurchase obligations		$67			$—
Mezzanine loan		64			—
Total CT Legacy REIT debt obligations		$131			$—
Weighted average effective cost of CT Legacy REIT debt (1) (2)		10.59	%		N/A

(1)	Floating rate debt obligations assume LIBOR of 0.24% at September 30, 2011.
(2)	Including the impact of interest rate hedges with an aggregate notional balance of $60.9 million as of September 30, 2011, the effective all-in cost of CT Legacy REIT’s debt obligations would be 12.88% per annum.

Repurchase Obligations

As of September 30, 2011, CT Legacy REIT was party to one repurchase obligation, which is non-recourse to Capital Trust, Inc., that has an aggregate outstanding balance of $66.6 million and an all-in cost of LIBOR plus 2.50% per annum (2.74% at September 30, 2011).

During the second quarter of 2011, the Morgan Stanley and Citigroup facilities were fully repaid and extinguished. See Note 10 to our consolidated financial statements for additional discussion of the terms of CT Legacy REIT’s repurchase obligations.

Mezzanine Loan

CT Legacy REIT entered into an $83.0 million mezzanine loan with Five Mile (which was subsequently reduced to $64.1 million as of September 30, 2011) that carries a 15.0% per annum interest rate, of which 7.0% per annum may be deferred, and that matures on March 31, 2016. The mezzanine loan is non-recourse to Capital Trust, Inc. except for certain limited non-recourse, “bad boy” carve outs.

During the second quarter of 2011, $20.0 million of the mezzanine loan was repaid using proceeds from the satisfaction of former Morgan Stanley and Citigroup repurchase facility collateral assets.

See Note 10 to our consolidated financial statements for additional discussion of the terms of CT Legacy REIT’s mezzanine loan.

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Quarterly Performance

The following table describes the activity in CT Legacy REIT’s balance sheet accounts, on an adjusted basis, during the third quarter of 2011:

Comparison of adjusted balance sheet of CT Legacy REIT: As of September 30, 2011 vs. June 30, 2011
(in thousands)
	Q3 2011	Q2 2011	Change			% Change
Assets:
Restricted cash	$13,715	$10,225		$3,490			34.1	%
Securities held-to-maturity	7,911	30,663		(22,752	)		(74.2	%)
Loans receivable, net	207,028	247,190		(40,162	)		(16.2	%)
Loans held-for-sale, net	32,107	32,107		—			N/A
Accrued interest receivable and other assets	4,638	5,995		(1,357	)		(22.6	%)
Total adjusted assets	$265,399	$326,180		($60,781	)		(18.6	%)
Liabilities and Shareholders' Equity
Liabilities:
Accounts payable and accrued expenses	$1,308	$1,385		($77	)		(5.6	%)
Repurchase obligations	66,637	119,343		(52,706	)		(44.2	%)
Mezzanine loan, net of unamortized discount	53,367	51,631		1,736			3.4	%
Interest rate hedges liabilities	9,326	8,288		1,038			12.5	%
Total adjusted liabilities	130,638	180,647		(50,009	)		(27.7	%)
Total Adjusted Shareholders' Equity	134,761	145,533		(10,772	)		(7.4	%)
Total adjusted liabilities and shareholders' equity	$265,399	$326,180		($39,237	)		(18.6	%)

Restricted cash

Restricted cash increased by $3.5 million during the third quarter of 2011. This was primarily due to (i) $3.7 million of net interest on investments, (ii) $1.9 million of net proceeds from investments, and (iii) $1.4 million of distributions from CT CDO III. This was offset by (i) $1.9 million of preferred stock distributions to Capital Trust, Inc., (ii) $1.3 million of current interest paid on the mezzanine loan, and (iii) $300,000 of general and administrative expenses.

Securities held-to-maturity

During the third quarter of 2011, securities held-to-maturity decreased by $22.8 million. This was primarily due to $23.5 million of other-than-temporary impairments, offset by an increase due to changes in recovery expectations on CT CDO III.

Loans receivable, net

During the third quarter of 2011, loans receivable decreased by $40.2 million. This decrease was primarily due to loan repayments of $54.6 million, offset by a $14.5 million reversal of provisions for loan losses.

Accrued interest receivable and other assets

During the third of 2011, prepaid expenses and other assets decreased by $1.4 million. This decrease was primarily due to collection of receivables during the quarter.

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Repurchase obligations

Repurchase obligations decreased by $52.7 million during the third quarter of 2011 due to principal repayments of collateral assets.

Mezzanine loan, net of unamortized discount

The mezzanine loan increased by $1.7 million due (i) $1.1 million of deferred interest accrued during the quarter, and (ii) $603.000 of discount amortization.

Interest rate hedge liabilities

The decrease in the fair value of interest rate hedges reflects changes in the yield curve over the life of the respective hedges.

Total adjusted shareholders equity

Adjusted shareholders’ equity decreased primarily due to the $10.8 million adjusted net loss for the period. See the preceding adjusted income statement for details of the adjusted net loss.

The following table compares CT Legacy REIT’s operating results, on an adjusted basis, during the second and third quarters of 2011:

Comparison of adjusted operating results of CT Legacy REIT: Three Months Ended September 30, 2011 vs. June 30, 2011
(in thousands)
	Q3 2011		Q2 2011		Change			% Change
Income from loans and other investments:
Interest and related income	$5,879		$7,541			($1,662	)		(22.0	%)
Less: Interest and related expenses	5,523		10,187			(4,664	)		(45.8	%)
Income from loans and other investments, net	356		(2,646	)		3,002			(113.5	%)
Other expenses:
General and administrative	305		518			(213	)		(41.1	%)
Total other expenses	305		518			(213	)		(41.1	%)
Total other-than-temporary impairments of securities	(23,476	)	—			(23,476	)		100.0	%
Portion of other-than-temporary impairments of securities
recognized in other comprehensive income	—		—			—			N/A
Net impairments recognized in earnings	(23,476	)	—			(23,476	)		100.0	%
Recovery of (provisions for) loan losses	14,482		(9,434	)		23,916			N/A
Valuation allowance on loans held-for-sale	—		(224	)		224			(100.0	%)
Intercompany dividends	(1,875	)	(1,896	)		21			(1.1	%)
	12,607		(11,554	)		24,161			N/A
Adjusted net loss	($10,818	)	($14,718	)		$3,900			(26.5	%)

Income from loans and other investments, net

Interest income and interest expense both declined during the third quarter of 2011 as a result of $54.6 million of collections from the Legacy Asset portfolio, and the related repayments of CT Legacy REIT’s repurchase obligations. In addition, interest expense decreased during the third quarter of 2011 as a result of a one-time charge of $4.4 million due to the acceleration of amortization of discount from the $20.0 million paydown of the mezzanine loan during the second quarter of 2011.

General and administrative expenses

General and administrative expenses are primarily comprised of professional fees, which were generally consistent from period-to-period.

Net impairments recognized in earnings

During the third quarter of 2011, CT Legacy REIT recognized $23.5 million of other-than-temporary impairments of securities, primarily related to its investment in CT CDO III.

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Recovery of (provision for) loan losses

During the third quarter of 2011, CT Legacy REIT recorded a recovery of a previous provision for loan losses against one loan. During the second quarter of 2011, CT Legacy REIT recorded a provision for loan losses against three loans.

Valuation allowance on loans held-for-sale

During the second quarter of 2011, CT Legacy REIT recorded a $224,000 valuation allowance against one loan which was classified as held-for-sale. No such allowance was recorded during the third quarter of 2011.

Note on Forward-Looking Statements

Except for historical information contained herein, this quarterly report on Form 10-Q contains forward-looking statements within the meaning of the Section 21E of the Securities Exchange Act of 1934, as amended, which involve certain risks and uncertainties. Forward-looking statements are included with respect to, among other things, our current business plan, business and investment strategy, access to capital and portfolio management. These forward-looking statements are identified by their use of such terms and phrases as “intend,” “goal,” “estimate,” “expect,” “project,” “projections,” “plans,” “seeks,” “anticipates,” “should,” “could,” “may,” “designed to,” “foreseeable future,” “believe,” “scheduled” and similar expressions. Our actual results or outcomes may differ materially from those anticipated. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. We assume no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Important factors that we believe might cause actual results to differ from any results expressed or implied by these forward-looking statements are discussed in the risk factors contained in Exhibit 99.1 to this Form 10-Q, which are incorporated herein by reference. In assessing forward-looking statements contained herein, readers are urged to read carefully all cautionary statements contained in this Form 10-Q.

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ITEM 3.           Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

The principal objective of our asset and liability management activities is to maximize net interest income while minimizing levels of interest rate risk. Interest income and interest expense are subject to the risk of interest rate fluctuations. In certain instances, to mitigate the impact of fluctuations in interest rates, we use interest rate swaps to effectively convert floating rate liabilities to fixed rate liabilities for proper matching with fixed rate assets. Each derivative used as a hedge is matched with a liability with which it is expected to have a high correlation. The swap agreements are generally held-to-maturity and we do not use interest rate derivative financial instruments for trading purposes. The differential to be paid or received on these agreements is recognized as an adjustment to interest expense and is recognized on the accrual basis.

As of September 30, 2011, a 100 basis point change in LIBOR would impact our net income by approximately $4.3 million.

Credit Risk

Our loans and investments, including our fund investments, are also subject to credit risk. The ultimate performance and value of our loans and investments depends upon the owners’ ability to operate the properties that serve as our collateral so that they produce cash flows adequate to pay interest and principal due to us. To monitor this risk, our asset management team continuously reviews our investment portfolio and in certain instances is in constant contact with our borrowers, monitoring performance of the collateral and enforcing our rights as necessary.

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The following table provides information about our financial instruments that are sensitive to changes in interest rates as of September 30, 2011, including instruments held directly by Capital Trust, Inc., as part of the CT Legacy REIT portfolio, and in consolidated securitization vehicles. For financial assets and debt obligations, the table presents face balance and weighted average interest rates. For interest rate swaps, the table presents notional amounts and weighted average fixed pay and floating receive interest rates. These notional amounts are used to calculate the contractual cash flows to be exchanged under each contract.

Financial Assets and Liabilities Sensitive to Changes in Interest Rates as of September 30, 2011
(in thousands)
Capital Trust, Inc. Debt Obligations:
	Secured Notes
Fixed rate debt		$7,686
Interest rate(1)		8.19	%
Floating rate debt		$—
Interest rate(1)		—
CT Legacy REIT Assets:
	Securities			Loans Receivable			Total
Fixed rate assets		$27,910			$48,056			$75,966
Interest rate(1)		8.70	%		8.20	%		8.39	%
Floating rate assets		$1,584			$331,464			$333,048
Interest rate(1)		2.71	%		3.91	%		3.90	%
CT Legacy REIT Debt Obligations:
	Repurchase Obligations			Mezzanine Loan			Total
Fixed rate debt		$—			$64,134			$64,134
Interest rate(1)		—			15.00	%		15.00	%
Floating rate debt		$66,637			$—			$66,637
Interest rate(1)		2.74	%		—			2.74	%
CT Legacy REIT Derivative Financial Instruments:
Notional amounts		$60,900
Fixed pay rate(1)		5.17	%
Floating receive rate(1)		0.19	%
Assets of Consolidated Securitization Vehicles:
	Securities			Loans Receivable			Total
Fixed rate assets		$494,600			$210,632			$705,232
Interest rate(1)		6.41	%		8.14	%		6.92	%
Floating rate assets		$24,472			$756,034			$780,506
Interest rate(1)		1.84	%		2.12	%		2.11	%
Non-Recourse Debt Obligations of Consolidated Securitization Vehicles:
	CT CDOs			Other Vehicles			Total
Fixed rate debt		$218,161			$111,220			$329,381
Interest rate(1)		5.35	%		6.83	%		5.85	%
Floating rate debt		$553,654			$468,902			$1,022,556
Interest rate(1)		0.82	%		1.69	%		1.22	%
Derivative Financial Instruments of Consolidated Securitization Vehicles:
Notional amounts		$298,569
Fixed pay rate(1)		5.00	%
Floating receive rate(1)		0.19	%

(1) Represents weighted average rates where applicable. Floating rates are based on LIBOR of 0.24%, which is the rate as of September 30, 2011.

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ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this quarterly report was made under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by Securities and Exchange Commission rules and forms and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There have been no significant changes in our “internal control over financial reporting” (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1: Legal Proceedings

On June 2, 2011, Philips International Investments, LLC, as plaintiff, commenced a lawsuit against us, several of our affiliates, as well as other unaffiliated entities and individuals, in the Supreme Court of the State of New York, County of New York, arising out of the acquisition of certain real properties in the Lehigh Valley, Pennsylvania area by a private equity fund managed by our investment management subsidiary. The properties were purchased from Liberty Property Trust, a publicly traded REIT, after the plaintiff failed to close on the acquisition of the properties, an acquisition effort that was undertaken by plaintiff before our investment management subsidiary pursued the purchase of the properties. Plaintiff alleges causes of action against, and seeks damages from, us for (i) breaches of fiduciary duty and fraud of co-defendants not affiliated with us on the theory that we were either a partner of the co-defendants or their agent, (ii) aiding and abetting the alleged fraud and (iii) tortuous interference with contract. Plaintiff seeks damages from us in the amount of $100 million. We are vigorously defending against these claims and believe that they are wholly without merit. Our motion to dismiss the action is currently pending before the court.

ITEM 1A: Risk Factors

In addition to the other information discussed in this quarterly report on Form 10-Q, please consider the risk factors provided in our updated risk factors attached as Exhibit 99.1 hereto, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we deem to be immaterial may adversely affect our business, financial condition, or operating results.

ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3: Defaults Upon Senior Securities

None.

ITEM 4: (Removed and Reserved)

ITEM 5: Other Information

None.

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ITEM 6: Exhibits

	3.1a	Charter of Capital Trust, Inc. (filed as Exhibit 3.1.a to Capital Trust, Inc.’s Current Report on Form 8-K (File No. 1-14788) filed on April 2, 2003 and incorporated herein by reference).
	3.1b	Certificate of Notice (filed as Exhibit 3.1 to Capital Trust, Inc.’s Current Report on Form 8-K (File No. 1-14788) filed on February 27, 2007 and incorporated herein by reference).
	3.2a	Second Amended and Restated By-Laws of Capital Trust, Inc. (filed as Exhibit 3.2 to Capital Trust, Inc.’s Current Report on Form 8-K (File No. 1-14788) filed on February 27, 2007 and incorporated herein by reference).
	3.2b	First Amendment to the Second Amended and Restated By-Laws of Capital Trust, Inc. (filed as Exhibit 3.1 to Capital Trust, Inc.’s Current Report on Form 8-K (File No. 1-14788) filed on July 26, 2011 and incorporated herein by reference).
+	31.1	Certification of Stephen D. Plavin, Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
+	31.2	Certification of Geoffrey G. Jervis, Chief Financial Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
·	32.1	Certification of Stephen D. Plavin, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
·	32.2	Certification of Geoffrey G. Jervis, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
·	99.1	Updated Risk Factors from Capital Trust, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2010, filed on March 31, 2011 with the Securities and Exchange Commission.
*	101.INS	XBRL Instance Document
*	101.SCH	XBRL Taxonomy Extension Schema Document
*	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
*	101.LAB	XBRL Taxonomy Extension Label Linkbase Document
*	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
*	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

________________________

· Filed herewith

+ This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act.

* Attached as Exhibit 101 to this Quarterly Report on Form 10-Q are the following materials, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at September 30, 2011 and December 31, 2010; (ii) the Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010; (iii) the Consolidated Statements of Changes in Shareholders’ Deficit for the nine months ended September 30, 2011; (iv) the Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010; and (v) Notes to Consolidated Financial Statements tagged as blocks of text.

Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not “filed” or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act, is deemed not “filed” for purposes of Section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.

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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.

	CAPITAL TRUST, INC.
November 1, 2011	By:	/s/ Stephen D. Plavin
Date		Stephen D. Plavin
		Chief Executive Officer (principal executive officer)

November 1, 2011	By:	/s/ Geoffrey G. Jervis
Date		Geoffrey G. Jervis
		Chief Financial Officer (principal financial officer and

- 97 -

EX-31.1

Exhibit 31.1

CERTIFICATION

PURSUANT TO 17 CFR 240.13a-14

PROMULGATED UNDER

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Stephen D. Plavin, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Capital Trust, Inc.;

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 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 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 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: November 1, 2011

 /s/ Stephen D. Plavin

Stephen D. Plavin

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

PURSUANT TO 17 CFR 240.13a-14

PROMULGATED UNDER

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Geoffrey G. Jervis, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Capital Trust, Inc.;

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 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 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 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: November 1, 2011

 /s/ Geoffrey G. Jervis     

Geoffrey G. Jervis

Chief Financial Officer

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 Capital Trust, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen D. Plavin, Chief Executive Officer 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) 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/ Stephen D. Plavin   

Stephen D. Plavin

Chief Executive Officer

November 1, 2011

This certification accompanies each report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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 Capital Trust, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Geoffrey G. Jervis, Chief Financial Officer 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) 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/ Geoffrey G. Jervis   

Geoffrey G. Jervis

Chief Financial Officer

November 1, 2011

This certification accompanies each report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99.1

Exhibit 99.1

RISK FACTORS

Risks Related to Our Investment Activities

Our current business is subject to a high degree of risk. Our assets and liabilities are subject to increasing risk due to the impact of market turmoil in commercial real estate. Our efforts to stabilize our business with the restructuring of our debt obligations may not be successful as our balance sheet portfolio is subject to the risk of further deterioration and ongoing turmoil in the financial markets.

Our portfolio is comprised of debt and related interests, directly or indirectly secured by commercial real estate. A significant portion of these investments are in subordinate positions, increasing the risk profile of our investments as underlying property performance deteriorates. Furthermore, we have leveraged our portfolio at the corporate level, effectively further increasing our exposure to loss on our investments. The recent financial market turmoil and economic recession has resulted in a material deterioration in the value of commercial real estate and dramatically reduced the amount of capital to finance the commercial real estate industry (both at the property and corporate level). Given the composition of our portfolio, the leverage in our capital structure and the continuing negative impact of the commercial real estate market turmoil, the risks associated with our business have dramatically increased. Even with our March 2009 and March 2011 debt restructurings, we may not be able to satisfy our obligations to our lenders. The impact of the economic recession on the commercial real estate sector in general, and our portfolio in particular, cannot be predicted and we expect to experience significant defaults by borrowers and other impairments to our investments. These events may trigger defaults under our restructured debt obligations that may result in the exercise of remedies that may cause severe (and potentially complete) losses in the book value of our investments. Therefore, an investment in our class A common stock is subject to a high degree of risk.

We need to recapitalize our business in order to commence balance sheet investment activity and this may involve a high cost of capital and significant dilution to our shareholders.

In order to commence balance sheet investment activity, we will need to obtain substantial additional capital for which we can provide no assurances. The capital markets have not completely recovered from the financial crisis and even if we can access the capital markets, any new capital we raise may be at a high cost and/or involve significant dilution to our shareholders.

The U.S. and other financial markets have been in turmoil, and the U.S. and other economies in which we invest are in the midst of a weak recovery from the recent severe recession that can be expected to negatively impact our operations.

The U.S. and other financial markets have been experiencing extreme dislocations and a severe contraction in available liquidity globally as important segments of the credit markets are frozen as lenders are unwilling or unable to originate new credit. Global financial markets have been disrupted by, among other things, volatility in security prices, credit rating downgrades, sovereign debt default concerns, currency devaluation, and the failure and near failure of a number of large financial institutions and declining valuations, and this disruption has been acute in real estate related markets. This disruption has lead to a decline in business and consumer confidence and increased unemployment and has precipitated a severe economic recession around the globe where recoveries have been weak and may not be sustained. As a consequence, owners and operators of commercial real estate that secure or back our investments have experienced distress and commercial real estate values have declined substantially. We are unable to predict the likely duration or severity of the current disruption in financial markets and adverse economic conditions which could materially and adversely affect our business, financial condition and results of operations, including leading to significant impairment to our assets and our ability to generate income.

Our existing loans and investments expose us to a high degree of risk associated with investing in real estate assets.

Real estate historically has experienced significant fluctuations and cycles in performance that may result in reductions in the value of our real estate related investments. The performance and value of our loans and investments once originated or acquired by us depends upon many factors beyond our control. The ultimate performance and value of our investments is subject to the varying degrees of risk generally incident to the ownership and operation of the properties which collateralize or support our investments. The ultimate performance and value of our loans and investments depends upon, in large part, the commercial property owner’s ability to operate the property so that it produces sufficient cash flows necessary either to pay the interest and principal due to us on our loans and investments or pay us as an equity advisor. Revenues and cash flows may be adversely affected by:

· changes in national economic conditions;

· changes in local real estate market conditions due to changes in national or local economic conditions or changes in local property market characteristics;

· the extent of the impact of the current turmoil in the financial markets, including the lack of available debt financing for commercial real estate;

· tenant bankruptcies;

· competition from other properties offering the same or similar services;

· changes in interest rates and in the state of the debt and equity capital markets;

· the ongoing need for capital improvements, particularly in older building structures;

· changes in real estate tax rates and other operating expenses;

· adverse changes in governmental rules and fiscal policies, civil unrest, acts of God, including earthquakes, hurricanes and other natural disasters, and acts of war or terrorism, which may decrease the availability of or increase the cost of insurance or result in uninsured losses;

· adverse changes in zoning laws;

· the impact of present or future environmental legislation and compliance with environmental laws;

· the impact of lawsuits which could cause us to incur significant legal expenses and divert management’s time and attention from our day-to-day operations; and

· other factors that are beyond our control and the control of the commercial property owners.

In the event that any of the properties underlying or collateralizing our loans or investments experiences any of the foregoing events or occurrences, the value of, and return on, such investments, our profitability and the market price of our class A common stock would be negatively impacted. In addition, our restructured debt obligations contain covenants which limit the amount of protective investments we may make to preserve value in collateral securing our investments.

A prolonged economic slowdown, a lengthy or severe recession characterized by a weak recovery, a continuing credit crisis, or declining real estate values could harm our operations or may adversely affect our liquidity.

We believe the risks associated with our business are more severe during periods of economic slowdown or recession like those we are currently experiencing, particularly if these periods are accompanied by declining real estate values.The recent dislocation of the global credit markets and anticipated collateral consequences to commercial activity of businesses unable to finance their operations as required has lead to a weakening of general economic conditions and precipitated declines in real estate values and otherwise exacerbated troubled borrowers’ ability to repay loans in our portfolio or backing our CMBS. We have made loans to hotels, an industry whose performance has been severely impacted by the recent recession. Declining real estate values would likely reduce the level of new mortgage loan originations, since borrowers often use increases in the value of their existing properties to support the purchase of or investment in additional properties, which in turn could lead to fewer opportunities for our investment. Borrowers may also be less able to pay principal and interest on our loans as the real estate economy continues to weaken. Continued weakened economic conditions could negatively affect occupancy levels and rental rates in the markets in which the collateral supporting our investments are located, which, in turn, may have a material adverse impact on our cash flows and operating results of our borrowers. Further, declining real estate values like those occurring in the commercial real estate sector significantly increase the likelihood that we will incur losses on our loans in the event of default because the value of our collateral may be insufficient to cover our basis in the loan. Any sustained period of increased payment delinquencies, foreclosures or losses could adversely affect both our net interest income from loans in our portfolio as well as our ability to operate our investment management business, which would significantly harm our revenues, results of operations, financial condition, liquidity, business prospects and our share price.

We are exposed to the risks involved with making subordinated investments.

Our subordinated investments involve the risks attendant to investments consisting of subordinated loans and similar positions. Subordinate positions incur losses before the senior positions in a capital structure and, as a result, foreclosures on the underlying collateral can reduce or eliminate the proceeds available to satisfy our subordinate investment. Also, in certain cases where we experience appraisal reductions, we may lose our controlling class status or special servicer designation rights. In many cases, management of our investments and our remedies with respect thereto, including the ability to foreclose on or direct decisions with respect to the collateral securing such investments, is subject to the rights of senior lenders and the rights set forth in inter-creditor or servicing agreements. Our interests and those of the senior lenders and other interested parties may not be aligned, which can lead to disputes and litigation.

We are subject to counterparty risk associated with our debt obligations and interest rate swaps.

Our counterparties for these critical financial relationships include both domestic and international financial institutions. Many of them have been severely impacted by the credit market turmoil and have been experiencing financial pressures. In some cases, our counterparties have filed bankruptcy, leading to financial losses for us.

We may guarantee many of our debt and contingent obligations.

We may guarantee the performance of many of our obligations, including, but not limited to, our repurchase agreements, derivative agreements, obligations to co-invest in our investment management vehicles and unsecured indebtedness. The non-performance of such obligations may cause losses to us in excess of the capital we initially may have invested or committed under such obligations and there is no assurance that we will have sufficient capital to cover any such losses.

Our success depends on the availability of attractive investments and our ability to identify, structure, consummate, leverage, manage and realize returns on attractive investments.

Our operating results are dependent upon the availability of, as well as our ability to identify, structure, consummate, leverage, manage and realize returns on, credit sensitive investment opportunities for our managed vehicles and our balance sheet assuming we are able to resume balance sheet investment activity. In general, the availability of desirable investment opportunities and, consequently, our balance sheet returns and our investment management vehicles’ returns, will be affected by the level and volatility of interest rates, conditions in the financial markets, general economic conditions, the demand for credit sensitive investment opportunities and the supply of capital for such investment opportunities. We cannot make any assurances that we will be successful in identifying and consummating investments which satisfy our rate of return objectives or that such investments, once consummated, will perform as anticipated. In addition, if we are not successful in investing for our investment management vehicles, the potential revenues we earn from management fees and co-investment returns will be reduced. We may expend significant time and resources in identifying and pursuing targeted investments, some of which may not be consummated.

The real estate investment business is highly competitive. Our success depends on our ability to compete with other providers of capital for real estate investments.

Our business is highly competitive. Competition may cause us to accept economic or structural features in our investments that we would not have otherwise accepted and it may cause us to search for investments in markets outside of our traditional product expertise. We compete for attractive investments with traditional lending sources, such as insurance companies and banks, as well as other REITs, specialty finance companies and private equity vehicles with similar investment objectives, which may make it more difficult for us to consummate our target investments. Many of our competitors have greater financial resources and lower costs of capital than we do, which provides them with greater operating flexibility and a competitive advantage relative to us.

Our loans and investments may be subject to fluctuations in interest rates which may not be adequately protected, or protected at all, by our hedging strategies.

Our current balance sheet investments include loans with both floating interest rates and fixed interest rates. Floating rate investments earn interest at rates that adjust from time to time (typically monthly) based upon an index (typically one month LIBOR). These floating rate loans are insulated from changes in value specifically due to changes in interest rates; however, the coupons they earn fluctuate based upon interest rates (again, typically one month LIBOR) and, in a declining and/or low interest rate environment, these loans will earn lower rates of interest and this will impact our operating performance. Fixed interest rate investments, however, do not have adjusting interest rates and, as prevailing interest rates change, the relative value of the fixed cash flows from these investments will cause potentially significant changes in value. We may employ various hedging strategies to limit the effects of changes in interest rates (and in some cases credit spreads), including engaging in interest rate swaps, caps, floors and other interest rate derivative products. We believe that no strategy can completely insulate us or our investment management vehicles from the risks associated with interest rate changes and there is a risk that they may provide no protection at all and potentially compound the impact of changes in interest rates. Hedging transactions involve certain additional risks such as counterparty risk, the legal enforceability of hedging contracts, the early repayment of hedged transactions and the risk that unanticipated and significant changes in interest rates may cause a significant loss of basis in the contract and a change in current period expense. We cannot make assurances that we will be able to enter into hedging transactions or that such hedging transactions will adequately protect us or our investment management vehicles against the foregoing risks.

Accounting for derivatives under GAAP is extremely complicated. Any failure by us to account for our derivatives properly in accordance with GAAP on our consolidated financial statements could adversely affect our earnings. In particular, cash flow hedges which are not perfectly correlated (and appropriately designated and/or documented as such) with a variable rate financing will impact our reported income as gains, and losses on the ineffective portion of such hedges.

Our use of leverage may create a mismatch with the duration and index of the investments that we are financing.

We attempt to structure our leverage to minimize the difference between the term of our investments and the leverage we use to finance each investment. In March 2009 and March 2011, we restructured our recourse debt obligations; however, there can be no assurances that our restructuring will enable the successful collection of our assets. The risks of a duration mismatch are further magnified by the trends we are experiencing in our portfolio which results from extending loans made to our borrowers in order to maximize the likelihood and magnitude of our recovery on our assets. This trend effectively extends the duration of our assets, while our liabilities have set maturity dates.

Our loans and investments are illiquid, which will constrain our ability to vary our portfolio of investments.

Our real estate investments and structured financial product investments are relatively illiquid and some are highly illiquid. Such illiquidity may limit our ability to vary our portfolio or our investment management vehicles’ portfolios of investments in response to changes in economic and other conditions. Illiquidity may result from the absence of an established market for investments as well as the legal or contractual restrictions on their resale. In addition, illiquidity may result from the decline in value of a property securing these investments. We cannot make assurances that the fair market value of any of the real property serving as security will not decrease in the future, leaving our or our investment management vehicles’ investments under-collateralized or not collateralized at all, which could impair the liquidity and value, as well as our return on such investments.

We may not have control over certain of our loans and investments.

Our ability to manage our portfolio of loans and investments may be limited by the form in which they are made. In certain situations, we or our investment management vehicles may:

· acquire investments subject to rights of senior classes and servicers under inter-creditor or servicing agreements;

· acquire only a minority and/or a non-controlling participation in an underlying investment;

· co-invest with third parties through partnerships, joint ventures or other entities, thereby acquiring non-controlling interests; or

· rely on independent third party management or strategic partners with respect to the management of an asset.

Therefore, we may not be able to exercise control over the loan or investment. Such financial assets may involve risks not present in investments where senior creditors, servicers or third party controlling investors are not involved. Our rights to control the process following a borrower default may be subject to the rights of senior creditors or servicers whose interests may not be aligned with ours. A third party partner or co-venturer may have financial difficulties resulting in a negative impact on such asset, may have economic or business interests or goals which are inconsistent with ours and those of our investment management vehicles, or may be in a position to take action contrary to our or our investment management vehicles’ investment objectives. In addition, we and our investment management vehicles may, in certain circumstances, be liable for the actions of our third party partners or co-venturers.

Developments with our CDO financings have negatively impacted our cash flow.

The terms of CDOs generally provide that the principal amount of investments must exceed the principal balance of the related bonds by a certain amount and that interest income must exceed interest expense by a certain ratio. Certain of our CT CDOs provide that, if defaults, losses, or rating agency downgrades cause a decline in collateral value or cash flow levels, the cash flow otherwise payable to our retained subordinated classes may be redirected to repay classes of CDOs senior to ours until the tests are returned to compliance. We have breached these tests and cash flow has been redirected for three of our four CT CDOs and there can be no assurances that this will not occur with the remaining CT CDO. Once breached there is no certainty about when or if the cash flow redirection will remedy the tests’ failure or that cash flow will be restored to our subordinated classes. Other than collateral management fees, we currently receive cash payments from only one of our four CDOs, CDO III, which has caused a material deterioration in our cash flow available for operations, debt service, debt repayments and unfunded loan and fund management commitments.

We may be required to repurchase loans that we have sold or to indemnify holders of our CDOs.

If any of the loans we originate or acquire and sell or securitize through our CT CDOs do not comply with representations and warranties that we make about certain characteristics of the loans, the borrowers and the underlying properties, we may be required to repurchase those loans or replace them with substitute loans. In addition, in the case of loans that we have sold instead of retained, we may be required to indemnify persons for losses or expenses incurred as a result of a breach of a representation or warranty. Repurchased loans typically require a significant allocation of working capital to carry on our books, and our ability to borrow against such assets is limited. Any significant repurchases or indemnification payments could adversely affect our financial condition and operating results.

The commercial mortgage and mezzanine loans we originate or acquire and the commercial mortgage loans underlying the commercial mortgage backed securities in which we invest are subject to delinquency, foreclosure and loss, which could result in losses to us.

Our commercial mortgage and mezzanine loans are secured by commercial property and are subject to risks of delinquency and foreclosure, and risks of loss that are greater than similar risks associated with loans made on the security of single-family residential property. The ability of a borrower to repay a loan secured by an income-producing property typically is dependent primarily upon the successful operation of the property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced, the borrower’s ability to repay the loan may be impaired. Net operating income of an income-producing property can be affected by, among other things, tenant mix, success of tenant businesses, property management decisions, property location and condition, competition from comparable types of properties, changes in laws that increase operating expenses or limit rents that may be charged, any need to address environmental contamination at the property, changes in national, regional or local economic conditions and/or specific industry segments, declines in regional or local real estate values, declines in regional or local rental or occupancy rates, increases in interest rates, real estate tax rates and other operating expenses, and changes in governmental rules, regulations and fiscal policies, including environmental legislation, acts of God, terrorism, social unrest and civil disturbances.

Our investments in subordinated commercial mortgage backed securities and similar investments are subject to losses.

In general, losses on an asset securing a mortgage loan included in a securitization will be borne first by the equity holder of the property and then by the most junior security holder, referred to as the “first loss” position. In the event of default and the exhaustion of any equity support and any classes of securities junior to those in which we invest (and in some cases we may be invested in the junior-most classes of securitizations), we may not be able to recover all of our investment in the securities we purchase. In addition, if the underlying mortgage portfolio has been overvalued by the originator, or if the values subsequently decline and, as a result, less collateral is available to satisfy interest and principal payments due on the related mortgage backed securities, the securities in which we invest may incur significant losses. Subordinate interests generally are not actively traded and are relatively illiquid investments and recent volatility in CMBS trading markets has caused the value of these investments to decline.

The prices of lower credit quality CMBS are generally less sensitive to interest rate changes than more highly rated investments, but more sensitive to adverse economic downturns and underlying borrower developments. A projection of an economic downturn, for example, could cause a decline in the price of lower credit quality CMBS because the ability of borrowers to make principal and interest payments on the mortgages underlying the mortgage backed securities may be impaired, as has occurred throughout the recent economic recession and weak recovery. In such event, existing credit support in the securitization structure may be insufficient to protect us against the loss of our principal on these securities.

We may have difficulty or be unable to sell some of our loans and commercial mortgage backed securities.

A prolonged period of frozen capital markets, decline in commercial real estate values and an out of favor real estate sector may prevent us from selling our loans and CMBS. Given the terms of our March 2011 debt restructuring, we may be forced to sell assets in order to meet required debt reduction levels. If the market for real estate loans and CMBS is disrupted or dislocated, this may be difficult or impossible, causing further losses or events of default.

The impact of the events of September 11, 2001 and the effect thereon on terrorism insurance expose us to certain risks.

The terrorist attacks on September 11, 2001 disrupted the U.S. financial markets, including the real estate capital markets, and negatively impacted the U.S. economy in general. Any future terrorist attacks, the anticipation of any such attacks, and the consequences of any military or other response by the U.S. and its allies may have a further adverse impact on the U.S. financial markets and the economy generally. We cannot predict the severity of the effect that such future events would have on the U.S. financial markets, the economy or our business.

In addition, the events of September 11, 2001 created significant uncertainty regarding the ability of real estate owners of high profile assets to obtain insurance coverage protecting against terrorist attacks at commercially reasonable rates, if at all. This led to the creation of The Terrorism Risk Insurance Act of 2002, to provide a federal backstop against insurance claims related to acts of terrorism. This law was extended in December 2007 and then again under a new law, the Terrorism Risk Insurance Program Reauthorization Act, or TRIPRA, which expires in 2014. There is no assurance that TRIPRA will be extended beyond 2014. The absence of affordable insurance coverage may adversely affect the general real estate lending market, lending volume and the market’s overall liquidity and may reduce the number of suitable investment opportunities available to us and the pace at which we are able to make investments. If the properties that we invest in are unable to obtain affordable insurance coverage, the value of those investments could decline and in the event of an uninsured loss, we could lose all or a portion of our investment.

The economic impact of any future terrorist attacks could also adversely affect the credit quality of some of our loans and investments. Some of our loans and investments will be more susceptible to such adverse effects than others. We may suffer losses as a result of the adverse impact of any future attacks and these losses may adversely impact our results of operations.

There are increased risks involved with construction lending activities.

We originate loans for the construction of commercial and residential use properties. Construction lending generally is considered to involve a higher degree of risk than other types of lending due to a variety of factors, including generally larger loan balances, the dependency on successful completion of a project, the dependency upon the successful operation of the project (such as achieving satisfactory occupancy and rental rates) for repayment, the difficulties in estimating construction costs and loan terms which often do not require full amortization of the loan over its term and, instead, provide for a balloon payment at stated maturity.

Some of our investments and investment opportunities may be in synthetic form.

Synthetic investments are contracts between parties whereby payments are exchanged based upon the performance of an underlying obligation. In addition to the risks associated with the performance of the obligation, these synthetic interests carry the risk of the counterparty not performing its contractual obligations. Market standards, GAAP accounting methodology, regulatory oversight and compliance requirements, tax and other regulations related to these investments are evolving, and we cannot be certain that their evolution will not adversely impact the value or sustainability of these investments. Furthermore, our ability to invest in synthetic investments, other than through taxable REIT subsidiaries, may be severely limited by the REIT qualification requirements because synthetic investment contracts generally are not qualifying assets and do not produce qualifying income for purposes of the REIT asset and income tests.

Risks Related to Our Investment Management Business and Management of CDOs

Our current financial condition may adversely impact our investment management business.

In large part, our ability to raise capital and garner other investment management and advisory business is dependent upon our reputation as a balance sheet manager and credit underwriter, as well as the ability to demonstrate that we have the resources to manage and co-invest in our internal funds. Our recent losses and our March 2009 and March 2011 debt restructurings may have a negative impact on our reputation. In addition, further credit deterioration in our balance sheet portfolio and our overall financial condition could jeopardize our status as an approved special servicer by the three major rating agencies, which would impair our ability to generate future servicing revenues.

We are subject to risks and uncertainties associated with operating our investment management business, and we may not achieve the investment returns that we expect.

We will encounter risks and difficulties as we operate our investment management business. In order to achieve our goals as an investment manager, we must:

· manage our investment management vehicles successfully by investing their capital in suitable investments that meet their respective investment criteria;

· actively manage the assets in our portfolios in order to realize targeted performance;

· create incentives for our management and professional staff to develop and operate the investment management business; and

· structure, sponsor and capitalize future investment management vehicles that provide investors with attractive investment opportunities.

If we do not successfully operate our investment management business to achieve the investment returns that we or the market anticipates, our results of operations may be adversely impacted.

We may expand our investment management business to involve other investment classes where we do not have prior investment experience. We may find it difficult to attract third party investors without a performance track record involving such investments. Even if we attract third party capital, there can be no assurance that we will be successful in deploying the capital to achieve targeted returns on the investments.

We face substantial competition from established participants in the private equity market as we offer investment management vehicles to third party investors.

We face significant competition from large financial and other institutions that have proven track records in marketing and managing vehicles and otherwise have a competitive advantage over us because they have access to pre-existing third party investor networks into which they can channel competing investment opportunities. If our competitors offer investment products that are competitive with products offered by us, we will find it more difficult to attract investors and to capitalize our investment management vehicles.

Our investment management vehicles are subject to the risk of defaults by third party investors on their capital commitments.

The capital commitments made by third party investors to our investment management vehicles represent unsecured promises by those investors to contribute cash to the investment management vehicles from time to time as investments are made by the investment management vehicles. Accordingly, we are subject to general credit risks that the investors may default on their capital commitments. If defaults occur, we may not be able to close loans and investments we have identified and negotiated or make protective advances to support existing investments which could materially and adversely affect the investment management vehicles’ investment program or make us liable for breach of contract, in either case to the detriment of our franchise in the private equity market.

CTIMCO’s role as collateral manager for our CT CDOs and investment manager for our funds may expose us to liabilities to investors.

We are subject to potential liabilities to investors as a result of CTIMCO’s role as collateral manager for our CT CDOs and our investment management business generally. In serving in such roles, we could be subject to claims by CDO investors and investors in our funds that we did not act in accordance with our duties under our CT CDO and investment fund documentation or that we were negligent in taking or refraining from taking actions with respect to the underlying collateral in our CT CDOs or in making investments. In particular, the discretion that we exercise in managing the collateral for our CT CDOs and the investments in our investment management business could result in a liability due to the current negative conditions in the commercial real estate market and the inherent uncertainties surrounding the course of action that will result in the best long term results with respect to such collateral and investments. This risk could be increased due to the affiliated nature of our roles. If we were found liable for our actions as collateral manager or investment manager and we were required to pay significant damages to our CT CDO and investment advisory investors, our financial condition could be materially adversely effected.

Our investment management agreements contain “clawback” provisions which may require repayment of incentive management fees previously received by us.

As part of our investment management business we earn incentive fees based on the performance of certain of our investment management vehicles. The investment management agreements which govern our relationships with these vehicles contain “clawback” provisions which may require the repayment of incentive fees previously received by us. If certain predetermined performance thresholds are not met upon the ultimate dissolution of such entities, we could be required to refund either a portion, or all of incentive fees previously received.

Risks Related to Our Company

We are dependent upon our senior management team to develop and operate our business.

Our ability to develop and operate our business depends to a substantial extent upon the experience, relationships and expertise of our senior management and key employees. We cannot assure you that these individuals will remain in our employ. Our chief executive officer, Stephen D. Plavin, our chief financial officer, Geoffrey G. Jervis, and our chief credit officer, Thomas C. Ruffing, are currently not employed pursuant to employment agreements. There can be no assurance that Messrs. Plavin, Jervis, and Ruffing will enter into new employment agreements pursuant to which they agree to long-term employment with us. In addition, the departure of any two of Messrs. Plavin, Jervis, and Ruffing from their employment with us constitutes an event of default under our restructured debt obligations unless we hire suitable replacements acceptable to the lenders.

There may be conflicts between the interests of our investment management vehicles and us.

We are subject to a number of potential conflicts between our interests and the interests of our investment management vehicles. We are subject to potential conflicts of interest in the allocation of investment opportunities between our balance sheet, once our balance sheet investment activity resumes, and our investment management vehicles. In addition, we may make investments that are senior or junior to, participations in, or have rights and interests different from or adverse to, the investments made by our investment management vehicles. Our interests in such investments may conflict with the interests of our investment management vehicles in related investments at the time of origination or in the event of a default or restructuring of the investment. Finally, our officers and employees may have conflicts in allocating their time and services among us and our investment management vehicles.

We must manage our portfolio in a manner that allows us to rely on an exclusion from registration under the Investment Company Act of 1940 in order to avoid the consequences of regulation under that Act.

We rely on an exclusion from registration as an investment company afforded by Section 3(c)(5)(C) of the Investment Company Act of 1940, as amended. Under this exclusion, we are required to maintain, on the basis of positions taken by the SEC staff in interpretive and no-action letters, a minimum of 55% of the value of the total assets of our portfolio in “mortgages and other liens on and interests in real estate,” which we refer to as “Qualifying Interests,” and a minimum of 80% in Qualifying Interests and real estate related assets. Because registration as an investment company would significantly affect our ability to engage in certain transactions or to organize ourselves in the manner we are currently organized, we intend to maintain our qualification for this exclusion from registration. In the past, based on SEC staff positions, when required due to the mix of assets in our balance sheet portfolio, we have purchased agency residential mortgage backed securities that represent the entire beneficial interests in the underlying pools of whole residential mortgage loans, which we treat as Qualifying Interests. Investments in such pools of whole residential mortgage loans may not represent an optimum use of our investable capital when compared to the available investments we target pursuant to our investment strategy. These investments present additional risks to us, and these risks are compounded by our inexperience with such investments. We continue to analyze our investments and may acquire other pools of whole loan residential mortgage backed securities when and if required for compliance purposes.

We treat certain of our investments in CMBS, B Notes and mezzanine loans as Qualifying Interests for purposes of determining our eligibility for the exclusion provided by Section 3(c)(5)(C) to the extent such treatment is consistent with guidance provided by the SEC or its staff. In the absence of such guidance that otherwise supports the treatment of these investments as Qualifying Interests, we will treat them, for purposes of determining our eligibility for the exclusion provided by Section 3(c)(5)(C), as real estate related assets or miscellaneous assets, as appropriate.

We understand the SEC staff has recently reconsidered its interpretive policy under Section 3(c)(5)(C) and whether to advance rulemaking to define the basis for the exclusion. We cannot predict the outcome of this reconsideration or potential rulemaking initiative and its impact on our ability to rely on the exclusion.

In light of the lack of on-balance sheet investment activity since 2009, our Qualifying Interests asset base continues to repay without the addition of newly originated Qualified Interests, making it more difficult for us to continue to comply with the current exclusion.

If our portfolio does not comply with the requirements of the exclusion we rely upon, we could be forced to alter our portfolio by selling or otherwise disposing of a substantial portion of the assets that are not Qualifying Interests or by acquiring a significant position in assets that are Qualifying Interests. Altering our portfolio in this manner may have an adverse effect on our investments if we are forced to dispose of or acquire assets in an unfavorable market and may adversely affect our stock price. Separately, we may need to avail ourselves of alternative exclusions and exemptions which may require a change in the organizational structure of our business.

If it were established that we were an unregistered investment company, there would be a risk that we would be subject to monetary penalties and injunctive relief in an action brought by the SEC, that we would be unable to enforce contracts with third parties and that third parties could seek to obtain rescission of transactions undertaken during the period it was established that we were an unregistered investment company and limitations on corporate leverage that would have an adverse impact on our investment returns.

Changes in accounting pronouncements have materially changed the presentation and content of our financial statements.

Beginning January 1, 2010, we adopted new accounting guidance which required us to consolidate certain securitization trust entities in which we have subordinate investments. This consolidation resulted in a significant increase to our GAAP-basis assets and liabilities, which may be misleading to readers of our financial statements. In addition, we are required to record losses under GAAP on consolidated assets which may be in excess of our economic interest in the respective consolidated entities.

We may not have sufficient cash flow to satisfy our tax liability arising from the use of CDO financing.

Due to the redirection provisions of our CDOs, which reallocate principal and interest otherwise distributable to us to repay senior note holders, assets financed through our CDOs may generate current taxable income without a corresponding cash distribution to us. In order to raise the cash necessary to meet our tax and/or distribution requirements, we may be required to borrow funds, sell a portion of our assets at disadvantageous prices or find other alternatives. In any case, there can be no assurances that we will be able to generate sufficient cash from these endeavors to meet our tax and/or distribution requirements.

In the event we experience an “ownership change” for purposes of Section 382 of the Internal Revenue Code, of 1986, as amended, our ability to utilize our net operating losses and net capital losses against future taxable income will be limited, increasing our dividend distribution requirement for which we may not have sufficient cash flow.

We have substantial net operating and net capital loss carry forwards which we use to offset our tax and/or distribution requirements. In the event that we experience an “ownership change” for purposes of Section 382 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, our ability to use these losses will be effectively eliminated. An “ownership change” is determined based upon the changes in ownership that occur in our class A common stock for a trailing three year period. Such ownership change provisions may be triggered by regular trading activity in our common stock, and are generally beyond our control. The issuance of our preferred stock purchase rights pursuant to our tax preservation shareholder rights plan deters but does not prevent such an ownership change. In addition, such efforts to preserve these tax benefits may significantly constrain our ability to raise additional capital through offerings of class A common stock.

Risks Relating to Our Class A Common Stock

Sales or other dilution of our equity may adversely affect the market price of our class A common stock.

In connection with restructuring our debt obligations, we issued warrants to purchase 3,479,691 shares of our class A common stock, which represents approximately 15.3% of our outstanding class A common stock as of July 29, 2011. These warrants become exercisable on March 16, 2012. The market price of our class A common stock could decline as a result of sales of a large number of shares of class A common stock acquired upon exercise of the warrants in the market. If the warrants are exercised, the issuance of additional shares of class A common stock would dilute the ownership interest of our existing shareholders.

Because a limited number of shareholders, including members of our management team, own a substantial number of our shares, they may make decisions or take actions that may be detrimental to your interests.

Our executive officers and directors, along with vehicles for the benefit of their families, collectively own and control 1,169,919 shares of our common stock representing approximately 5.2% of our outstanding common stock as of October 28, 2011. W. R. Berkley Corporation, or WRBC, which employs one of our directors, owns 3,843,413 shares of our common stock, which represents approximately 16.9% of our outstanding common stock as of October 28, 2011. By virtue of their voting power, these shareholders have the power to significantly influence our affairs and are able to influence the outcome of matters required to be submitted to shareholders for approval, including the election of our directors, amendments to our charter, mergers, sales of assets and other acquisitions or sales. The influence exerted by these shareholders over our affairs might not be consistent with the interests of some or all of our other shareholders. In addition, the concentration of ownership in our officers or directors or shareholders associated with them may have the effect of delaying or preventing a change in control of our company, including transactions in which you might otherwise receive a premium for your class A common stock, and might negatively affect the market price of our class A common stock.

Some provisions of our charter and bylaws, tax benefits preservation rights plan and Maryland law may deter takeover attempts, which may limit the opportunity of our shareholders to sell their shares at a favorable price.

Some of the provisions of our charter and bylaws and Maryland law discussed below could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our shareholders by providing them with the opportunity to sell their shares at a premium to the then current market price.

Issuance of Preferred Stock Without Shareholder Approval. Our charter authorizes our board of directors to authorize the issuance of up to 100,000,000 shares of preferred stock and up to 100,000,000 shares of class A common stock. Our charter also authorizes our board of directors, without shareholder approval, to classify or reclassify any unissued shares of our class A common stock and preferred stock into other classes or series of stock and to amend our charter to increase or decrease the aggregate number of shares of stock of any class or series that may be issued. Our board of directors, therefore, can exercise its power to reclassify our stock to increase the number of shares of preferred stock we may issue without shareholder approval. Preferred stock may be issued in one or more series, the terms of which may be determined without further action by shareholders. These terms may include preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption. The issuance of any preferred stock, however, could materially adversely affect the rights of holders of our class A common stock and, therefore, could reduce the value of the class A common stock. In addition, specific rights granted to future holders of our preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The power of our board of directors to issue preferred stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change in control, thereby preserving the current shareholders’ control.

Advance Notice Bylaw. Our bylaws contain advance notice procedures for the introduction of business and the nomination of directors. These provisions could discourage proxy contests and make it more difficult for you and other shareholders to elect shareholder-nominated directors and to propose and approve shareholder proposals opposed by management.

Maryland Takeover Statutes. We are subject to the Maryland Business Combination Act which could delay or prevent an unsolicited takeover of us. The statute substantially restricts the ability of third parties who acquire, or seek to acquire, control of us to complete mergers and other business combinations without the approval of our board of directors even if such transaction would be beneficial to shareholders. “Business combinations” between such a third party acquirer or its affiliate and us are prohibited for five years after the most recent date on which the acquirer or its affiliate becomes an “interested shareholder.” An “interested shareholder” is defined as any person who beneficially owns 10 percent or more of our shareholder voting power or an affiliate or associate of ours who, at any time within the two-year period prior to the date interested shareholder status is determined, was the beneficial owner of 10 percent or more of our shareholder voting power. If our board of directors approved in advance the transaction that would otherwise give rise to the acquirer or its affiliate attaining such status, the acquirer or its affiliate would not become an interested shareholder and, as a result, it could enter into a business combination with us. Our board of directors could choose not to negotiate with an acquirer if the board determined in its business judgment that considering such an acquisition was not in our strategic interests. Even after the lapse of the five-year prohibition period, any business combination with an interested shareholder must be recommended by our board of directors and approved by the affirmative vote of at least:

· 80% of the votes entitled to be cast by shareholders; and

· two-thirds of the votes entitled to be cast by shareholders other than the interested shareholder and affiliates and associates thereof.

The super-majority vote requirements do not apply if the transaction complies with a minimum price requirement prescribed by the statute.

The statute permits various exemptions from its provisions, including business combinations that are exempted by the board of directors prior to the time that an interested shareholder becomes an interested shareholder. Our board of directors has exempted any business combination involving a limited liability company indirectly controlled by a trust for the benefit of Samuel Zell, our chairman of the board, and his family and approved in advance, the issuance of shares to WRBC. As a result, these parties may enter into business combinations with us without compliance with the super-majority vote requirements and the other provisions of the statute.

We are also subject to the Maryland Control Share Acquisition Act. With certain exceptions, the Maryland General Corporation Law provides that “control shares” of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter, excluding shares owned by the acquiring person or by our officers or by our directors who are our employees, and may be redeemed by us. “Control shares” are voting shares which, if aggregated with all other shares owned or voted by the acquirer, would entitle the acquirer to exercise voting power in electing directors within one of the specified ranges of voting power. A person who has made or proposes to make a control share acquisition, upon satisfaction of certain conditions, including an undertaking to pay expenses, may compel our board to call a special meeting of shareholders to be held within 50 days of demand to consider the voting rights of the “control shares” in question. If no request for a meeting is made, we may present the question at any shareholders’ meeting.

If voting rights are not approved at the shareholders’ meeting or if the acquiring person does not deliver the statement required by Maryland law, then, subject to certain conditions and limitations, we may redeem for fair value any or all of the control shares, except those for which voting rights have previously been approved. If voting rights for control shares are approved at a shareholders’ meeting and the acquirer may then vote a majority of the shares entitled to vote, then all other shareholders may exercise appraisal rights. The fair value of the shares for purposes of these appraisal rights may not be less than the highest price per share paid by the acquirer in the control share acquisition. The control share acquisition statute does not apply to shares acquired in a merger, consolidation or share exchange if we are not a party to the transaction, nor does it apply to acquisitions approved or exempted by our charter or bylaws. Our bylaws contain a provision exempting certain holders identified in our bylaws from this statute, including WRBC, and a limited liability company indirectly controlled by a trust for the benefit of Samuel Zell and his family.

We are also subject to the Maryland Unsolicited Takeovers Act which permits our board of directors, among other things and notwithstanding any provision in our charter or bylaws, to elect on our behalf to stagger the terms of directors and to increase the shareholder vote required to remove a director. Such an election would significantly restrict the ability of third parties to wage a proxy fight for control of our board of directors as a means of advancing a takeover offer. If an acquirer was discouraged from offering to acquire us, or prevented from successfully completing a hostile acquisition, you could lose the opportunity to sell your shares at a favorable price.

Shareholder rights plans such as the plan we recently adopted for the purpose of preserving our tax benefits, are commonly understood to have anti-takeover effects. Under our tax benefit preservation rights agreement, if any person or group acquires 4.9% or more of our outstanding class A common stock without the approval of our board of directors under specific circumstances, our existing shareholders have the right to purchase shares of our class A common stock at a substantial discount to the public market price. The agreement is intended to act as a deterrent to any person or entity seeking to acquire 4.9% or more of our outstanding common stock without the prior approval of our board of directors.

The price of our class A common stock may be impacted by many factors.

As with any public company, a number of factors may impact the trading price of our class A common stock, many of which are beyond our control. These factors include, in addition to other risk factors mentioned in this section:

· the level of institutional interest in us;

· the perception of REITs generally and REITs with portfolios similar to ours, in particular, by market professionals;

· the attractiveness of securities of REITs in comparison to other companies;

· the market’s perception of our ability to successfully manage our portfolio; and

· the general economic environment and the commercial real estate property and capital markets.

Your ability to sell a substantial number of shares of our class A common stock may be restricted by the low trading volume historically experienced by our class A common stock.

Although our class A common stock is listed on the New York Stock Exchange, the daily trading volume of our shares of class A common stock has historically been lower than the trading volume for certain other companies. As a result, the ability of a holder to sell a substantial number of shares of our class A common stock in a timely manner without causing a substantial decline in the market value of the shares, especially by means of a large block trade, may be restricted by the limited trading volume of the shares of our class A common stock.

Our shares of class A common stock may be delisted from the NYSE if the price per share trades below $1.00 for an extended period of time, which could negatively affect our business, our financial condition, our results of operations and our ability to service our debt obligations.

Our class A common stock at times has traded below $1.00. In the event the average closing price of our class A common stock for a 30-day period is below $1.00, our stock could be delisted from the NYSE. The threat of delisting and/or a delisting of our class A common stock could have adverse effects by, among other things:

· reducing the trading liquidity and market price of our class A common stock;

· reducing the number of investors willing to hold or acquire our class A common stock, thereby further restricting our ability to obtain equity financing; and

· reducing our ability to retain, attract and motivate directors, officers and employees.

Risks Related to our REIT Status and Certain Other Tax Items

Our charter does not permit any individual to own more than 9.9% of our class A common stock, and attempts to acquire our class A common stock in excess of the 9.9% limit would be void without the prior approval of our board of directors.

For the purpose of preserving our qualification as a REIT for federal income tax purposes, our charter prohibits direct or constructive ownership by any individual of more than a certain percentage, currently 9.9%, of the lesser of the total number or value of the outstanding shares of our class A common stock as a means of preventing ownership of more than 50% of our class A common stock by five or fewer individuals. The charter’s constructive ownership rules are complex and may cause the outstanding class A common stock owned by a group of related individuals or entities to be deemed to be constructively owned by one individual. As a result, the acquisition of less than 9.9% of our outstanding class A common stock by an individual or entity could cause an individual to own constructively in excess of 9.9% of our outstanding class A common stock, and thus be subject to the charter’s ownership limit. There can be no assurance that our board of directors, as permitted in the charter, will increase, or will not decrease, this ownership limit in the future. Any attempt to own or transfer shares of our class A common stock in excess of the ownership limit without the consent of our board of directors will be void, and will result in the shares being transferred by operation of the charter to a charitable trust, and the person who acquired such excess shares will not be entitled to any distributions thereon or to vote such excess shares.

The 9.9% ownership limit may have the effect of precluding a change in control of us by a third party without the consent of our board of directors, even if such change in control would be in the interest of our shareholders or would result in a premium to the price of our class A common stock (and even if such change in control would not reasonably jeopardize our REIT status). The ownership limit exemptions and the reset limits granted to date would limit our board of directors’ ability to reset limits in the future and at the same time maintain compliance with the REIT qualification requirement prohibiting ownership of more than 50% of our class A common stock by five or fewer individuals.

There are no assurances that we will be able to pay dividends in the future.

We expect in the future when we generate taxable income to pay quarterly dividends and to make distributions to our shareholders in amounts so that all or substantially all of our taxable income in each year, subject to certain adjustments, is distributed. This, along with our compliance with other requirements, should enable us to qualify for the tax benefits accorded to a REIT under the Internal Revenue Code. All distributions will be made at the discretion of our board of directors and will depend on our earnings, our financial condition, maintenance of our REIT status and such other factors as our board of directors may deem relevant from time to time. There are no assurances that we will be able to pay dividends in the future, and we may use our substantial net operating losses carried forward to offset future taxable income, and therefore reduce our dividend requirements. In addition, some of our distributions may include a return of capital, which would reduce the amount of capital available to operate our business. There have also been recent changes to the Internal Revenue Code that would allow us to pay required dividends in the form of additional shares of common stock equal in value up to 90% of the required dividend.

We will be dependent on external sources of capital to finance our growth.

As with other REITs, but unlike corporations generally, our ability to finance our growth must largely be funded by external sources of capital because we generally will have to distribute to our shareholders 90% of our taxable income in order to qualify as a REIT, including taxable income where we do not receive corresponding cash. Our access to external capital will depend upon a number of factors, including general market conditions, the market’s perception of our growth potential, our current and potential future earnings, cash distributions and the market price of our class A common stock.

If we do not maintain our qualification as a REIT, we will be subject to tax as a regular corporation and face a substantial tax liability. Our taxable REIT subsidiaries will be subject to income tax.

We expect to continue to operate so as to qualify as a REIT under the Internal Revenue Code. However, qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which only a limited number of judicial or administrative interpretations exist. Notwithstanding the availability of cure provisions in the tax code, various compliance requirements could be failed and could jeopardize our REIT status. Furthermore, new tax legislation, administrative guidance or court decisions, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to qualify as a REIT. If we fail to qualify as a REIT in any tax year, then:

· we would be taxed as a regular domestic corporation, which under current laws, among other things, means being unable to deduct distributions to shareholders in computing taxable income and being subject to federal income tax on our taxable income at regular corporate rates;

· any resulting tax liability could be substantial, could have a material adverse effect on our book value and would reduce the amount of cash available for distribution to shareholders;

· unless we were entitled to relief under applicable statutory provisions, we would be required to pay taxes, and thus, our cash available for distribution to shareholders would be reduced for each of the years during which we did not qualify as a REIT; and

· we generally would not be eligible to requalify as a REIT for four full taxable years.

Fee income from our investment management business is expected to be realized by one of our taxable REIT subsidiaries, and, accordingly, will be subject to income tax.

Complying with REIT requirements may cause us to forego otherwise attractive opportunities and limit our expansion opportunities.

In order to qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, our sources of income, the nature of our investments in commercial real estate and related assets, the amounts we distribute to our shareholders and the ownership of our stock. We may also be required to make distributions to shareholders at disadvantageous times or when we do not have funds readily available for distribution. Thus, compliance with REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.

Complying with REIT requirements may force us to liquidate or restructure otherwise attractive investments.

In order to qualify as a REIT, we must also ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets. The remainder of our investments in securities cannot include more than 10% of the outstanding voting securities of any one issuer or 10% of the total value of the outstanding securities of any one issuer unless we and such issuer jointly elect for such issuer to be treated as a “taxable REIT subsidiary” under the Internal Revenue Code. The total value of all of our investments in taxable REIT subsidiaries cannot exceed 25% of the value of our total assets. In addition, no more than 5% of the value of our assets can consist of the securities of any one issuer other than a taxable REIT subsidiary. If we fail to comply with these requirements, we must dispose of a portion of our assets within 30 days after the end of the calendar quarter in order to avoid losing our REIT status and suffering adverse tax consequences.

Since we have not originated new balance sheet investments since 2009 and transferred a substantial portion of our investments to CT Legacy REIT, our ability to satisfy the asset and income REIT qualification requirements will be more difficult and unless we are able to raise the capital to originate new balance sheet investments, our status as a REIT will ultimately be jeopardized.

Complying with REIT requirements may force us to borrow to make distributions to shareholders.

From time to time, our taxable income may be greater than our cash flow available for distribution to shareholders. If we do not have other funds available in these situations, we may be unable to distribute substantially all of our taxable income as required by the REIT provisions of the Internal Revenue Code. Thus, we could be required to borrow funds, sell a portion of our assets at disadvantageous prices or find another alternative. These options could increase our costs or reduce our equity. Our restructured debt obligations may cause us to recognize taxable income without any corresponding cash income and we may be required to distribute additional dividends in cash and/or class A common stock.

Certain of our legacy assets are subject to separate REIT qualifications and restrictions as a result of our March 2011 debt restructuring.

In conjunction with our March 2011 debt restructuring, we transferred certain of our legacy assets to CT Legacy REIT, a special purpose entity which will be taxed as a REIT for purposes of federal income taxes. As a REIT, CT Legacy REIT is generally subject to the same risks described above with respect to distribution requirements, limitations on the types and quantities of permissible assets and income, and penalties for non-compliance with REIT regulations. As a result of restrictions under our mezzanine loan at CT Legacy REIT, cash distributions cannot be made to the shareholders of CT Legacy REIT until such debt has been fully repaid. Should a dividend be required to comply with REIT regulations, CT Legacy REIT may declare a “consent dividend” which will pass a pro-rata share of its taxable income to us without a corresponding cash payment.

In addition, CT Legacy REIT is generally precluded from making new investments, and a portion of the legacy assets which are held by CT Legacy REIT may not qualify as REIT real estate assets. Accordingly, there is a risk that as the portfolio liquidates in the ordinary course, the asset mix at CT Legacy REIT, or income thereon, may violate REIT regulations and force CT Legacy REIT to either sell assets, potentially at disadvantageous prices, and/or terminate REIT status, which could result in material taxes and penalties, and which would constitute a default under the mezzanine loan.

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Per Share data	Sep. 30, 2011	Dec. 31, 2010
Class A Common Stock
Par value	$ 0.01	$ 0.01
Shares authorized	100,000	100,000
Shares issued	21,967	21,917
Shares outstanding	21,967	21,917
Restricted Class A Common Stock
Par value	$ 0.01	$ 0.01
Shares issued	244	33
Shares outstanding	244	33

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Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Share data	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Income from loans and other investments:
Interest and related income	$ 25,642	$ 40,280	$ 95,187	$ 119,783
Less: Interest and related expenses	21,838	31,557	80,381	94,462
Income from loans and other investments, net	3,804	8,723	14,806	25,321
Other revenues:
Management fees from affiliates	1,753	2,050	4,927	5,990
Incentive management fees from affiliates		733		733
Servicing fees	1,460	84	2,208	2,821
Total other revenues	3,213	2,867	7,135	9,544
Other expenses:
General and administrative	4,941	5,148	19,868	14,398
Total other expenses	4,941	5,148	19,868	14,398
Total other-than-temporary impairments of securities	(30,687)	(29,963)	(35,620)	(69,798)
Portion of other-than-temporary impairments of securities recognized in other comprehensive income	173	(5,921)	(3,098)	12,094
Impairment of real estate held-for-sale	(1,055)	(4,000)	(1,055)	(4,000)
Net impairments recognized in earnings	(31,569)	(39,884)	(39,773)	(61,704)
Recovery of (provision for) loan losses	17,152	(95,916)	34,401	(150,143)
Valuation allowance on loans held-for-sale		(6,036)	(224)	(6,036)
Gain on extinguishment of debt	20,054	185	271,031	648
Income from equity investments	307	1,056	2,105	2,358
Income (loss) before income taxes	8,020	(134,153)	269,613	(194,410)
Income tax provision	(236)	556	1,214	849
Net income (loss)	8,256	(134,709)	268,399	(195,259)
Less: Net income attributable to noncontrolling interests	5,466		(1,935)
Net (loss) income attributable to Capital Trust, Inc.	$ 13,722	$ (134,709)	$ 266,464	$ (195,259)
Net (loss) income per share of common stock:
Basic	$ 0.60	$ (6.02)	$ 11.77	$ (8.73)
Diluted	$ 0.57	$ (6.02)	$ 11.08	$ (8.73)
Weighted average shares of common stock outstanding:
Basic	22,730,080	22,389,901	22,630,672	22,356,857
Diluted	24,121,973	22,389,901	24,057,374	22,356,857

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Fair Values

3 Months Ended

Sep. 30, 2011

Notes to Financial Statements

Fair Values

Note 17. Fair Values

Assets and Liabilities Recorded at Fair Value

Certain of our assets and liabilities are measured at fair value either (i) on a recurring basis, as of each quarter-end, or (ii) on a nonrecurring basis, as a result of impairment or other events. Generally, loans held-for-sale, real estate held-for-sale, and interest rate swaps are measured at fair value on a recurring basis, while impaired loans and securities are measured at fair value on a nonrecurring basis. These fair values are determined using a variety of inputs and methodologies, which are detailed below.

As discussed in Note 2, the “Fair Value Measurement and Disclosures” Topic of the Codification establishes a fair value hierarchy that prioritizes the inputs used in determining fair value under GAAP, which includes the following classifications, in order of priority:

· Level 1 generally includes only unadjusted quoted prices in active markets for identical assets or liabilities as of the reporting date.

· Level 2 inputs are those which, other than Level 1 inputs, are observable for identical or similar assets or liabilities.

· Level 3 inputs generally include anything which does not meet the criteria of Levels 1 and 2, particularly any unobservable inputs.

The following table summarizes our assets and liabilities, including those of CT Legacy REIT and our consolidated securitization vehicles, which are recorded at fair value as of September 30, 2011 (in thousands):

				Fair Value Measurements Using
				Quoted Prices		Other			Significant
	Total			in Active		Observable			Unobservable
	Fair Value at			Markets		Inputs			Inputs
	September 30, 2011			(Level 1)		(Level 2)			(Level 3)
Measured on a recurring basis:
CT Legacy REIT's loans held-for-sale		$32,107			$—		$—			$32,107
Securitization vehicles' real estate held-for-sale		$10,342			$—		$—			$10,342
CT Legacy REIT's interest rate hedge liabilities		($9,326	)		$—		($9,326	)		$—
Securitization vehicles' interest rate hedge liabilities		($27,482	)		$—		($27,482	)		$—
Measured on a nonrecurring basis:
CT Legacy REIT's impaired loans: (1)
Senior mortgages		$12,038			$—		$—			$12,038
Subordinate interests in mortgages		19,848			—		—			19,848
Mezzanine loans		—			—		—			—
		$31,886			$—		$—			$31,886
Securitization vehicles' securities held-to-maturity (2)		$1,527			$—		$—			$1,527
Securitization vehicles' impaired loans: (1)
Senior mortgages		$16,907			$—		$—			$16,907
Subordinate interests in mortgages		5,419			—		—			5,419
Mezzanine loans		41,078			—		—			41,078
		$63,404			$—		$—			$63,404

(1)	Loans receivable against which we have recorded a provision for loan losses as of September 30, 2011.
(2)	Securities which were other-than-temporarily impaired during the three months ended September 30, 2011.

The following methods and assumptions were used to estimate the fair value of each type of asset and liability which was recorded at fair value as of September 30, 2011:

Loans held-for-sale: Loans held-for-sale are valued based on expected proceeds from a sale of the asset.

Real estate held-for-sale: Real estate held-for-sale is valued based on expected proceeds from a sale of the asset.

Interest rate hedge liabilities: Interest rate hedges are valued using advice from a third party derivative specialist, based on a combination of observable market-based inputs, such as interest rate curves, and unobservable inputs such as credit valuation adjustments due to the risk of non-performance by both us and our counterparties. See Notes 10 and 11 for additional details on our interest rate hedges.

Impaired securities: Securities which are other-than-temporarily impaired are generally valued by a combination of (i) obtaining assessments from third-party dealers and, (ii) in cases where such assessments are unavailable or, in the opinion of management, deemed not to be indicative of fair value, discounting expected cash flows using internal cash flow models and estimated market discount rates. In the case of internal models, expected cash flows of each security are based on management’s assumptions regarding the collection of principal and interest on the underlying loans and securities. The table above includes only securities which were impaired during the three months ended September 30, 2011. Previously impaired securities have been subsequently adjusted for amortization, and are therefore no longer reported at fair value as of September 30, 2011.

As of September 30, 2011, one of our consolidated securitization vehicles’ securities was other-than-temporarily impaired and therefore reported at fair value. The dealer valuation obtained for the security was determined to not be indicative of fair value and, accordingly, it was valued internally by discounting expected future cash flows. The security had a 1998 vintage and was rated “BB” by Fitch Ratings, Inc. This security was valued using a discount rate of 10%, resulting in a valuation equal to 5% of the face amount of the security.

Impaired loans: The loans identified for impairment are collateral dependant loans. Impairment on these loans is measured by comparing management’s estimation of fair value of the underlying collateral to the book value of the respective loan. These valuations require significant judgments, which include assumptions regarding capitalization rates, leasing, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan, loan sponsorship, actions of other lenders and other factors deemed necessary by management. The table above includes all impaired loans, regardless of the period in which impairment was recognized.

Additional details of CT Legacy REIT’s loans which were recorded at fair value as of September 30, 2011 are described below:

Senior mortgage loans: One of CT Legacy REIT’s senior mortgage loans with a principal balance of $25.1 million was reported at fair value as of September 30, 2011. This hotel loan matured in September 2011 and has a coupon of 2.0% per annum as of September 30, 2011.

Subordinate interests in mortgages: Three of CT Legacy REIT’s subordinate interests in mortgage loans with an aggregate principal balance of $84.3 million are reported at fair value as of September 30, 2011, including two hotel loans ($43.4 million), and one condominium loan ($40.9 million). These loans have a weighted average maturity of May 2013 and a weighted average coupon of 3.0% per annum as of September 30, 2011.

Mezzanine loans: Two of CT Legacy REIT’s mezzanine loans with an aggregate principal balance of $160.3 million are reported at fair value as of September 30, 2011, including one hotel loan ($152.3 million) and one office loan ($8.0 million). These loans have a weighted average maturity of April 2012 and a weighted average coupon of 3.7% per annum as of September 30, 2011.

Additional details of our consolidated securitization vehicles’ loans which were recorded at fair value as of September 30, 2011 are described below:

Senior mortgage loans: One of our consolidated securitization vehicles’ senior mortgage loans with a principal balance of $33.2 million was reported at fair value as of September 30, 2011, which is classified as a mixed-use/other loan. The loan has a maturity of May 2015 and a coupon of 2.0% per annum as of September 30, 2011.

Subordinate interests in mortgages: Eight of our consolidated securitization vehicles’ subordinate interests in mortgage loans with an aggregate principal balance of $108.6 million are reported at fair value as of September 30, 2011, including three hotel loans ($60.9 million), two office loans ($27.7million), one multifamily loan ($5.5 million), one retail loan ($4.4 million) and one mixed-use/other loan ($10.2 million). The loans have a weighted average maturity of November 2011 and a weighted average coupon of 3.4% per annum as of September 30, 2011.

Mezzanine loans: Two of our consolidated securitization vehicles’ mezzanine loans with an aggregate principal balance of $96.2 million are reported at fair value as of September 30, 2011, including one hotel loans ($75.5 million) and one retail loan ($20.7 million). The loans have a weighted average maturity of May 2011 and a weighted average coupon of 2.4% per annum as of September 30, 2011.

The following table reconciles the beginning and ending balances of assets measured at fair value on a recurring basis using Level 3 inputs (in thousands):

	Loans			Real Estate
	Held-for-Sale			Held-for-Sale
December 31, 2010		$5,750			$8,055
Transfer from loans receivable		32,331			—
Consolidation of additional securitization vehicles		—			3,342
Satisfactions		(5,750	)		—
Adjustments to fair value included in earnings:
Valuation allowance on loans held-for-sale		(224	)		—
Impairment of real estate held-for-sale		—			(1,055	)
September 30, 2011		$32,107			$10,342

Fair Value of Financial Instruments

In addition to the above disclosures for assets and liabilities which are recorded at fair value, GAAP also requires disclosure of fair value information about financial instruments, whether or not recognized in the statement of financial position, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are estimated using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the estimated market discount rate and the estimated future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in an immediate settlement of the instrument. Rather, these fair values reflect the amounts that management believes are realizable in an orderly transaction among willing parties. These disclosure requirements exclude certain financial instruments and all non-financial instruments.

The following table details the carrying amount, face amount, and approximate fair value of the financial instruments described above:

Fair Value of Financial Instruments
(in thousands)	September 30, 2011						December 31, 2010
	Carrying Amount		Face Amount		Fair Value		Carrying Amount		Face Amount		Fair Value
Financial assets:
Cash and cash equivalents		$28,219		$28,219		$28,219		$24,449		$24,449		$24,449
Securities held-to-maturity		—		—		—		3,455		36,015		5,518
Loans receivable, net		24,945		24,945		22,450		606,318		979,057		499,176
CT Legacy REIT
Restricted cash		13,715		13,715		13,715		—		—		—
Securities held-to-maturity		2,591		29,494		1,792		—		—		—
Loans receivable, net		207,028		444,486		175,698		—		—		—
Securitization Vehicles
Securities held-to-maturity		397,001		519,073		384,421		504,323		594,434		475,272
Loans receivable, net		783,662		966,666		696,313		2,891,379		3,147,755		2,548,715
Financial liabilities:
Repurchase obligations		—		—		—		372,582		372,680		372,680
Senior credit facility		—		—		—		98,124		98,124		14,719
Junior subordinated notes		—		—		—		132,190		143,753		2,875
Secured notes		7,686		7,686		7,686		—		—		—
Participations sold		24,945		24,945		22,450		259,304		259,304		81,589
CT Legacy REIT
Repurchase obligations		66,637		66,637		66,637		—		—		—
Mezzanine loan		53,367		64,134		64,134		—		—		—
Participations sold		97,465		97,465		—		—		—		—
Securitization Vehicles
Securitized debt obligations		1,352,446		1,351,937		879,388		3,621,229		3,620,446		2,717,787

The following methods and assumptions were used to estimate the fair value of each class of financial instruments, excluding those described above that are carried at fair value, for which it is practicable to estimate that value:

Cash and cash equivalents: The carrying amount of cash on deposit and in money market funds is considered to be a reasonable estimate of fair value.

Securities held-to-maturity: These investments, other than securities that have been other-than-temporarily impaired, are recorded on a held-to-maturity basis and not at fair value. The fair values presented above have been estimated by a combination of (i) obtaining assessments from third party dealers and, (ii) in cases where such assessments are unavailable or, in the opinion of management, deemed not to be indicative of fair value, discounting expected cash flows using internal cash flow models and estimated market discount rates. The expected cash flows of each security are based on management’s assumptions regarding the collection of principal and interest on the underlying loans and securities.

Loans receivable, net: Other than impaired loans, these assets are recorded at their amortized cost and not at fair value. The fair values presented above were estimated by management taking into consideration factors including capitalization rates, leasing, occupancy rates, availability and cost of financing, exit plan, sponsorship, actions of other lenders and indications of market value from other market participants.

Restricted cash: The carrying amount of restricted is considered to be a reasonable estimate of fair value.

Secured notes: These notes are recorded at their total face balance and not at fair value. The face amount is considered to be a reasonable estimate of fair value as these notes were issued on March 31, 2011.

Participations sold: These liabilities are recorded at their amortized cost and not at fair value. The fair values presented above are consistent with those presented for the related loan assets.

Repurchase obligations: These facilities are recorded at their total face balance and not at fair value. The face amount is considered to be a reasonable estimate of fair value as these facilities were restructured on March 31, 2011.

Mezzanine loan: This instrument is recorded at its amortized cost and not at fair value. The face amount is considered to be a reasonable estimate of fair value as this loan was originated on March 31, 2011.

Securitized debt obligations: These obligations are recorded at the face value of outstanding obligations to third parties and not at fair value.The fair values presented above have been estimated by obtaining assessments from third party dealers.

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Document and Entity Information	3 Months Ended
	Sep. 30, 2011	Oct. 28, 2011
Document And Entity Information
Entity Registrant Name	Capital Trust Inc
Entity Central Index Key	0001061630
Document Type	10-Q
Document Period End Date	Sep. 30, 2011
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		22,211,108
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2011

XML

Segment Reporting

3 Months Ended

Sep. 30, 2011

Notes to Financial Statements

Segment Reporting

Note 20. Segment Reporting

We operate in two reportable segments. We have an internal information system that produces performance and asset data for our two segments along service lines.

The Balance Sheet Investment segment includes our consolidated portfolio of interest earning assets and the financing thereof. The Investment Management segment includes the investment management activities of our wholly-owned investment management subsidiary, CT Investment Management Co., LLC, or CTIMCO, and its subsidiaries, as well as our co-investments in investment management vehicles. CTIMCO is a taxable REIT subsidiary and serves as the investment manager of Capital Trust, Inc., all of our investment management vehicles and CT CDOs, and serves as senior servicer and special servicer for certain of our investments and for third parties.

The following table details each segment's contribution to our operating results and the identified assets attributable to each such segment for the nine months ended, and as of, September 30, 2011 (in thousands):

	Balance Sheet			Investment			Inter-Segment
	Investment			Management			Activities			Total
Income from loans and other investments:
Interest and related income		$95,187			$—			$—			$95,187
Less: Interest and related expenses		80,381			—			—			80,381
Income from loans and other investments, net		14,806			—			—			14,806
Other revenues:
Management fees from affiliates		—			6,171			(1,244	)		4,927
Servicing fees		—			2,840			(632	)		2,208
Total other revenues		—			9,011			(1,876	)		7,135
Other expenses:
General and administrative		5,372			15,740			(1,244	)		19,868
Servicing fee expense		632			—			(632	)		—
Total other expenses		6,004			15,740			(1,876	)		19,868
Total other-than-temporary impairments of securities		(35,620	)		—			—			(35,620	)
Portion of other-than-temporary impairments of securities recognized in other comprehensive income		(3,098	)		—			—			(3,098	)
Impairment of real estate held-for-sale		(1,055	)		—			—			(1,055	)
Net impairments recognized in earnings		(39,773	)		—			—			(39,773	)
Recovery of provision for loan losses		34,401			—			—			34,401
Valuation allowance on loans held-for-sale		(224	)		—			—			(224	)
Gain on extinguishment of debt		271,031			—			—			271,031
Income from equity investments		—			2,105			—			2,105
Income (loss) before income taxes		274,237			(4,624	)		—			269,613
Income tax provision (benefit)		2,615			(1,401	)		—			1,214
Net income (loss)		$271,622			($3,223	)		$—			$268,399
Less: Net loss attributable to noncontrolling interests		(1,935	)		—			—			(1,935	)
Net income (loss) attributable to Capital Trust, Inc.		$269,687			($3,223	)		$—			$266,464
Total assets		$1,528,441			$11,448			$—			$1,539,889

All revenues were generated from external sources within the United States. The Investment Management segment earned fees of $1.2 million for management of the Balance Sheet Investment segment and $632,000 for serving as collateral manager of the four CT CDOs consolidated under our Balance Sheet Investment segment.

The following table details each segment's contribution to our operating results and the identified assets attributable to each such segment for the nine months ended, and as of, September 30, 2010 (in thousands):

	Balance Sheet			Investment		Inter-Segment
	Investment			Management		Activities			Total
Income from loans and other investments:
Interest and related income		$119,783			$—		$—			$119,783
Less: Interest and related expenses		94,462			—		—			94,462
Income from loans and other investments, net		25,321			—		—			25,321
Other revenues:
Management fees from affiliates		—			6,244		(254	)		5,990
Incentive management fees		—			733		—			733
Servicing fees		—			4,351		(1,530	)		2,821
Total other revenues		—			11,328		(1,784	)		9,544
Other expenses:
General and administrative		4,659			9,993		(254	)		14,398
Servicing fee expense		1,530			—		(1,530	)		—
Total other expenses		6,189			9,993		(1,784	)		14,398
Total other-than-temporary impairments of securities		(69,798	)		—		—			(69,798	)
Portion of other-than-temporary impairments of securities recognized in other comprehensive income		12,094			—		—			12,094
Impairment of real estate held-for-sale		(4,000	)							(4,000	)
Net impairments recognized in earnings		(61,704	)		—		—			(61,704	)
Provision for loan losses		(150,143	)		—		—			(150,143	)
Valuation allowance on loans held-for-sale		(6,036	)		—		—			(6,036	)
Gain on extinguishment of debt		648			—		—			648
Income from equity investments		—			2,358		—			2,358
(Loss) income before income taxes		(198,103	)		3,693		—			(194,410	)
Income tax provision		14			835		—			849
Net (loss) income		($198,117	)		$2,858		$—			($195,259	)
Total assets		$4,225,572			$15,943		$—			$4,235,851

All revenues were generated from external sources within the United States. The Investment Management segment earned fees of $254,000 for management of the Balance Sheet Investment segment and $1.5 million for serving as collateral manager of the four CT CDOs consolidated under our Balance Sheet Investment segment as well as special servicing activity for certain CT CDO assets for the nine months ended September 30, 2010.

The following table details each segment's contribution to our operating results and the identified assets attributable to each such segment for the three months ended, and as of, September 30, 2011 (in thousands):

	Balance Sheet			Investment			Inter-Segment
	Investment			Management			Activities			Total
Income from loans and other investments:
Interest and related income		$25,642			$—			$—			$25,642
Less: Interest and related expenses		21,838			—			—			21,838
Income from loans and other investments, net		3,804			—			—			3,804
Other revenues:
Management fees from affiliates		—			2,372			(619	)		1,753
Servicing fees		—			1,671			(211	)		1,460
Total other revenues		—			4,043			(830	)		3,213
Other expenses:
General and administrative		2,427			3,344			(830	)		4,941
Total other expenses		2,427			3,344			(830	)		4,941
Total other-than-temporary impairments of securities		(30,687	)		—			—			(30,687	)
Portion of other-than-temporary impairments of securities recognized in other comprehensive income		173			—			—			173
Impairment of real estate held-for-sale		(1,055	)		—			—			(1,055	)
Net impairments recognized in earnings		(31,569	)		—			—			(31,569	)
Recovery of provision for loan losses		17,152			—			—			17,152
Gain on extinguishment of debt		20,054			—			—			20,054
Income from equity investments		—			307			—			307
Income before income taxes		7,014			1,006			—			8,020
Income tax provision (benefit)		703			(939	)		—			(236	)
Net income		$6,311			$1,945			$—			$8,256
Less: Net loss attributable to noncontrolling interests		5,466			—			—			5,466
Net income attributable to Capital Trust, Inc.		$11,777			$1,945			$—			$13,722
Total assets		$1,528,441			$11,448			$—			$1,539,889

All revenues were generated from external sources within the United States. The Investment Management segment earned fees of $619,000 for management of the Balance Sheet Investment segment and $211,000 for serving as collateral manager of the four CT CDOs consolidated under our Balance Sheet Investment segment.

The following table details each segment's contribution to our operating results and the identified assets attributable to each such segment for the three months ended, and as of, September 30, 2010 (in thousands):

	Balance Sheet			Investment		Inter-Segment
	Investment			Management		Activities			Total
Income from loans and other investments:
Interest and related income		$40,280			$—		$—			$40,280
Less: Interest and related expenses		31,557			—		—			31,557
Income from loans and other investments, net		8,723			—		—			8,723
Other revenues:
Management fees from affiliates		—			1,859		191			2,050
Incentive management fees		—			733		—			733
Servicing fees		—			1,066		(982	)		84
Total other revenues		—			3,658		(791	)		2,867
Other expenses:
General and administrative		1,295			3,662		191			5,148
Servicing fee expense		982			—		(982	)		—
Total other expenses		2,277			3,662		(791	)		5,148
Total other-than-temporary impairments of securities		(29,963	)		—		—			(29,963	)
Portion of other-than-temporary impairments of securities recognized in other comprehensive income		(5,921	)		—		—			(5,921	)
Impairment recognized in earnings		(4,000	)							(4,000	)
Net impairments recognized in earnings		(39,884	)		—		—			(39,884	)
Provision for loan losses		(95,916	)		—		—			(95,916	)
Valuation allowance on loans held-for-sale		(6,036	)							(6,036	)
Gain on extinguishment of debt		185			—		—			185
Income from equity investments		—			1,056		—			1,056
(Loss) income before income taxes		(135,205	)		1,052		—			(134,153	)
Income tax provision		—			556		—			556
Net (loss) income		($135,205	)		$496		$—			($134,709	)
Total assets		$4,225,572			$15,943		$—			$4,235,851

All revenues were generated from external sources within the United States. The Investment Management segment earned fees of $191,000 for management of the Balance Sheet Investment segment and earned $982,000 for serving as collateral manager of the four CT CDOs consolidated under our Balance Sheet Investment segment as well as special servicing activity for certain CT CDO assets for the three months ended September 30, 2010.

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Equity Investments in Unconsolidated Subsidiaries

3 Months Ended

Sep. 30, 2011

Notes to Financial Statements

Equity Investments in Unconsolidated Subsidiaries

Note 6. Equity Investments in Unconsolidated Subsidiaries

Our equity investments in unconsolidated subsidiaries consist of our co-investments in investment management vehicles that we sponsor and manage. As of September 30, 2011, we had a co-investment in one such vehicle, CT Opportunity Partners I, LP, or CTOPI, in which we have a commitment to invest up to $25.0 million, or 4.6% of CTOPI’s total capital commitments. We have funded $15.8 million of our commitment as of September 30, 2011 and received $4.5 million as a return of capital, resulting in an $11.3 million funded and a $13.7 million unfunded commitment balance.

Activity relating to our equity investments in unconsolidated subsidiaries for the nine months ended September 30, 2011 was as follows (in thousands):

	CTOPI			Other			Total
December 31, 2010		$8,931			$1			$8,932
Contributions		3,413			—			3,413
Income from equity investments		2,106			(1	)		2,105
Distributions		(3,839	)		—			(3,839	)
September 30, 2011		$10,611			$—			$10,611

In accordance with the CTOPI management agreement, CTIMCO may earn incentive compensation when certain returns are achieved for the partners of CTOPI, which will be accrued if and when earned, and when appropriate contingencies have been eliminated.

As of September 30, 2011, our maximum exposure to loss from CTOPI was $9.8 million.

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Transactions with Related Parties

3 Months Ended

Sep. 30, 2011

Notes to Financial Statements

Transactions with Related Parties

Note 19. Transactions with Related Parties

We earn base management and incentive fees in our capacity as investment manager for multiple vehicles which we have sponsored. Due to the nature of our relationship with these vehicles, all management fees are considered revenue from related parties under GAAP.

On November 9, 2006, we commenced our CT High Grade MezzanineSM, or CT High Grade I, investment management initiative and entered into three separate account agreements with affiliates of W. R. Berkley Corporation, or WRBC, with an aggregate commitment of $250 million, which was subsequently increased to $350 million in July 2007. Subsequent to the expiration of the CT High Grade I investment period, we continued to invest on behalf of WRBC under the CT High Grade I platform on a non-discretionary basis, bringing WRBC’s total allocated capital to $414 million as of September 30, 2011. Pursuant to these agreements, we invested capital, on a discretionary basis, on behalf of WRBC in commercial real estate mortgages, mezzanine loans and participations therein. The separate accounts are entirely funded with committed capital from WRBC and are managed by a subsidiary of CTIMCO. CTIMCO earns a management fee equal to 0.25% per annum on invested assets.

WRBC beneficially owned common stock representing approximately 16.9% of our outstanding common stock and stock units as of October 28, 2011, and a member of our board of directors is an employee of WRBC. In addition, a wholly-owned subsidiary of WRBC is an investor in Five Mile and certain private funds under its management. As discussed in Notes 1 and 10, Five Mile provided an $83.0 million mezzanine loan to CT Legacy REIT in connection with our March 2011 restructuring.

In July 2008, CTOPI, a private equity fund that we manage, held its final closing completing its capital raise with $540 million total equity commitments. EGI-Private Equity II, L.L.C., an affiliate under common control of the chairman of our board of directors, owns a 3.7% limited partner interest in CTOPI. During the nine months ended September 30, 2011, we recorded $2.1 million of fees from CTOPI, $86,000 of which were attributable to EGI Private Equity II, L.L.C.

CTOPI has purchased $75.5 million face value of our CT CDO notes in the open market for $40.4 million. These purchases were from third parties, and were not sold by us.

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Consolidated Securitization Vehicles

3 Months Ended

Sep. 30, 2011

Notes to Financial Statements

Consolidated Securitization Vehicles

Note 11. Consolidated Securitization Vehicles

As of September 30, 2011, our consolidated balance sheet includes an aggregate $1.2 billion of assets and $1.4 billion of liabilities related to 10 consolidated securitization vehicles. Due to the non-recourse nature of these vehicles, and other factors discussed below, our net exposure to loss from investments in these entities is limited to $4.1 million.

Our consolidated securitization vehicles include two categories of entities: (i) collateralized debt obligations sponsored and issued by us, which we refer to as CT CDOs and (ii) other consolidated securitization vehicles which were not issued or sponsored by us. We have historically consolidated the CT CDOs; however we began consolidating the additional securitization vehicles as of January 1, 2010, as discussed in Note 2.

CT CDOs

We currently consolidate four collateralized debt obligation, or CDO, entities, which are VIEs that were sponsored by us. These CT CDOs invest in commercial real estate debt instruments, some of which we originated/acquired and transferred to the CDO entities, and are financed by the debt and equity they issue. We are named as collateral manager of all four CT CDOs and are named special servicer on a number of CDO collateral assets. As a result of consolidation, our subordinate debt and equity ownership interests in these CT CDOs have been eliminated, and our balance sheet reflects both the assets held and debt issued by these CDOs to third-parties. Similarly, our operating results and cash flows include the gross amounts related to the assets and liabilities of the CT CDO entities, as opposed to our net economic interests in these entities. Fees earned by us for the management of these CDOs are eliminated in consolidation.

Our interest in the assets held by these CT CDOs, which are consolidated on our balance sheet, is restricted by the structural provisions of these entities, and our recovery of these assets will be limited by the CDOs’ distribution provisions, which are subject to change due to covenant breaches or asset impairments, as further described below in this Note 11. The liabilities of the CT CDOs, which are also consolidated on our balance sheet, are non-recourse to us, and can generally only be satisfied from each CDOs’ respective asset pool.

We are not obligated to provide, nor have we provided, any financial support to these CT CDOs. Accordingly, other than in the event of a breach of certain representations or warranties, which are discussed in detail below, our maximum exposure to loss as a result of our investment in these entities is limited to $233.6 million, the notional amount of the subordinate debt and equity interest we retained in these CDOs. After giving effect to certain transfers of these interests, provisions for loan losses and other-than-temporary impairments recorded as of September 30, 2011, our remaining net exposure to loss from these entities is $4.1 million.

Other Consolidated Securitization Vehicles

As discussed above, we currently consolidate six additional securitization vehicles, all of which are substantially similar to the CT CDOs. These securitization vehicles invest in commercial real estate debt instruments, which investments were not originated or transferred to the entities by us. In addition to our investment in the subordinate classes of the securities issued by these vehicles, we are named special servicer on a number of their assets. As a result of consolidation, our ownership interests in these consolidation vehicles have been eliminated, and our balance sheet reflects both the assets held and debt issued by these vehicles to third-parties. Similarly, our operating results and cash flows include the gross amounts related to the assets and liabilities of the securitization vehicles, as opposed to our net economic interests in these entities. Special servicing fees paid to us on assets owned by these vehicles are eliminated in consolidation.

Our interest in the assets held by these securitization vehicles, which are consolidated on our balance sheet, is restricted by the structural provisions of these entities, and a recovery of our investment in the vehicles will be limited by each entity’s distribution provisions. The liabilities of the securitization vehicles, which are also consolidated on our balance sheet, are non-recourse to us, and can generally only be satisfied from each vehicle’s respective asset pool.

During the third quarter of 2011, realized losses on a loan held by the consolidated MSC 2007-XLFA securitization vehicle resulted in a complete loss to our subordinate investment in MSC 2007-XLFA. Accordingly, we were no longer considered the primary beneficiary of MSC 2007-XLFA and ceased consolidating it under GAAP. Also during the third quarter of 2011, we consolidated a new securitization vehicle, GECMC 2000-1. A realized loss on a loan held by GECMC 2000-1 resulted in a complete loss to the investments subordinate to us and made our investment in GECMC 2000-1 the most subordinate in the remaining securitization structure. Accordingly, we then became the primary beneficiary of GECMC 2000-1 and began consolidating it under GAAP. We have previously accounted for GECMC 2000-1 as a security in our CT Legacy REIT portfolio.

We are not obligated to provide, nor have we provided, any financial support to these consolidated securitization vehicles. In addition, four of these six investments have been made through our CT CDOs, which limits our exposure to loss as discussed above. Accordingly, as of September 30, 2011, our maximum exposure to loss as a result of our investment in these entities is limited to $75.5 million, the notional amount of our investment in the two securitization vehicles not held by our CT CDOs. As a result of consolidation, we have recognized losses on collateral assets in excess of our investment in these entities, resulting in a zero net exposure to loss as of September 30, 2011.

As described in Note 2, our consolidated balance sheets separately present: (i) our direct assets and liabilities, (ii) the direct assets and liabilities of CT Legacy REIT, and (iii) the assets and liabilities of consolidated securitization vehicles, some of which are subsidiaries of CT Legacy REIT. The following disclosures relate specifically to the assets and liabilities of consolidated securitization vehicles, as separately stated on our consolidated balance sheets.

A. Securities Held-to-Maturity – Consolidated Securitization Vehicles

Our consolidated securitization vehicles’ securities portfolio consists of CMBS, CDOs, and other securities. Activity relating to these securities for the nine months ended September 30, 2011 was as follows (in thousands):

	CMBS			CDOs & Other			Total Book Value (1)
December 31, 2010		$456,312			$48,011			$504,323
Principal paydowns		(41,389	)		(29,401	)		(70,790	)
Consolidation of securitization vehicle (2)		(1,000	)		—			(1,000	)
Discount/premium amortization & other (3)		886			(811	)		75
Other-than-temporary impairments:
Recognized in earnings		(37,065	)		—			(37,065	)
Recognized in accumulated other comprehensive income		1,458			—			1,458
September 30, 2011		$379,202			$17,799			$397,001

(1)	Includes securities with a total face value of $519.1 million and $594.4 million as of September 30, 2011 and December 31, 2010, respectively.
(2)	Beginning in the third quarter of 2011, CT CDO I consolidated an additional securitization vehicle, which was previously accounted for as part of its securities portfolio with a net book value of $1.0 million. See the introduction to this Note 11 for additional discussion.
(3)	Includes mark-to-market adjustments on securities previously classified as available-for-sale, amortization of other-than-temporary impairments, and losses, if any.

As of both September 30, 2011 and December 31, 2010, all of our consolidated securitization vehicles’ securities were classified as held-to-maturity.

The following table allocates the book value of our consolidated securitization vehicles’ securities as of September 30, 2011 between their amortized cost basis, amounts related to mark-to-market adjustments on securities previously classified as available-for-sale, and the portion of other-than-temporary impairments not related to expected credit losses (in thousands):

	CMBS			CDOs & Other		Total Securities
Amortized cost basis		$386,214			$17,799		$404,013
Mark-to-market adjustments on securities previously classified as available-for-sale		4,523			—		4,523
Other-than-temporary impairments recognized in accumulated other comprehensive income		(11,535	)		—		(11,535	)
Total book value as of September 30, 2011		$379,202			$17,799		$397,001

The following table details overall statistics for our consolidated securitization vehicles’ securities portfolio as of September 30, 2011 and December 31, 2010:

	September 30, 2011	December 31, 2010
Number of securities	53	56
Number of issues	37	40
Rating (1) (2)	BB+	BB+
Fixed / Floating (in millions) (3)	$396 / $1	$503 / $1
Coupon (1) (4)	6.49%	6.66%
Yield (1) (4)	7.10%	6.97%
Life (years) (1) (5)	2.4	3.4

(1)	Represents a weighted average as of September 30, 2011 and December 31, 2010, respectively.
(2)	Weighted average ratings are based on the lowest rating published by Fitch Ratings, Standard & Poor’s or Moody’s Investors Service for each security.
(3)	Represents the aggregate net book value of the portfolio allocated between fixed rate and floating rate securities.
(4)	Coupon is based on the securities’ contractual interest rates, while yield is based on expected cash flows for each security, and considers discounts/premiums and asset non-performance. Calculations for floating rate securities are based on LIBOR of 0.24% and 0.26% as of September 30, 2011 and December 31, 2010, respectively.
(5)	Weighted average life is based on the timing and amount of future expected principal payments through the expected repayment date of each respective investment.

The table below details the ratings and vintage distribution of our consolidated securitization vehicles’ securities as of September 30, 2011 (in thousands):

	Rating as of September 30, 2011
Vintage	AAA		AA		A	BBB		BB		B	CCC and Below		Total
2006		$—		$—	$—		$—		$—	$—		$15,079		$15,079
2005		—		—	—		—		—	—		20,479		20,479
2004		—		24,789	2,419		—		—	—		—		27,208
2003		9,908		—	—		3,013		1,964	—		—		14,885
2002		—		—	—		6,700		—	2,709		—		9,409
2001		—		—	—		1,301		—	4,128		1,536		6,965
2000		2,922		—	—		—		—	—		24,208		27,130
1999		—		—	11,260		1,416		17,377	—		—		30,053
1998		65,919		46,127	37,577		43,551		12,108	—		5,256		210,538
1997		5,250		—	18,417		—		5,212	2,891		3,485		35,255
Total		$83,999		$70,916	$69,673		$55,981		$36,661	$9,728		$70,043		$397,001

The table below details the ratings and vintage distribution of our consolidated securitization vehicles’securities as of December 31, 2010 (in thousands):

	Rating as of December 31, 2010
Vintage	AAA		AA		A	BBB		BB		B	CCC and Below		Total
2006		$—		$—	$—		$—		$—	$—		$15,248		$15,248
2005		—		—	—		—		—	—		22,033		22,033
2004		—		24,815	8,414		—		—	—		2,400		35,629
2003		9,906		—	—		3,020		1,959	—		—		14,885
2002		—		—	—		6,663		—	2,652		—		9,315
2001		—		—	—		4,814		4,129	—		3,537		12,480
2000		2,923		—	—		—		—	—		26,017		28,940
1999		—		—	11,337		1,423		17,366	—		—		30,126
1998		98,017		45,593	38,045		43,524		43,534	—		4,125		272,838
1997		—		—	26,124		—		5,182	3,360		3,546		38,212
1996		24,617		—	—		—		—	—		—		24,617
Total		$135,463		$70,408	$83,920		$59,444		$72,170	$6,012		$76,906		$504,323

Other-than-temporary impairments

Quarterly, we reevaluate our consolidated securitization vehicles’ securities portfolio to determine if there has been an other-than-temporary impairment based upon expected future cash flows from each securities investment. As a result of this evaluation, under the accounting guidance discussed in Note 2, during the nine months ended September 30, 2011, we recorded a gross other-than-temporary impairment of $35.6 million. In addition, we determined that $1.5 million of impairments previously recorded in other comprehensive income should be recognized as credit losses due to a decrease in cash flow expectations for five of our securities.

To determine the component of the gross other-than-temporary impairment related to expected credit losses, we compare the amortized cost basis of each other-than-temporarily impaired security to the present value of its revised expected cash flows, discounted using its pre-impairment yield. Significant judgment of management is required in this analysis that includes, but is not limited to, (i) assumptions regarding the collectability of principal and interest on the underlying loans, net of related expenses, and (ii) current subordination levels at both the individual loans which serve as collateral under our securities and at the securities themselves.

The following table summarizes activity related to the other-than-temporary impairments of our consolidated securitization vehicles’ securities during the nine months ended September 30, 2011 (in thousands):

	Gross Other-Than-Temporary  Impairments			Credit Related Other-Than-Temporary Impairments			Non-Credit Related Other-Than-Temporary Impairments
December 31, 2010		$88,586			$74,576			$14,010
Additions due to change in expected cash flows		35,607			37,065			(1,458	)
Amortization of other-than-temporary impairments		(3,771	)		(2,754	)		(1,017	)
September 30, 2011		$120,422			$108,887			$11,535

Unrealized losses and fair value of securities

Certain of our consolidated securitization vehicles’ securities are carried at values in excess of their fair values. This difference can be caused by, among other things, changes in credit spreads and interest rates. The following table shows the gross unrealized losses and fair value of securities for which the fair value is lower than their book value as of September 30, 2011 and that are not deemed to be other-than-temporarily impaired (in millions):

	Less Than 12 Months					Greater Than 12 Months					Total
	Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Book Value (1)
Floating Rate		$—		$—			$—		$—			$—		$—			$—
Fixed Rate		170.0		(5.7	)		132.9		(17.4	)		302.9		(23.1	)		326.0
Total		$170.0		($5.7	)		$132.9		($17.4	)		$302.9		($23.1	)		$326.0

(1) Excludes, as of September 30, 2011, $71.0 million of securities which were carried at or below fair value and securities against which an other-than-temporary impairment equal to the entire book value was recognized in earnings.

As of September 30, 2011, 36 of our consolidated securitization vehicles' securities with an aggregate book value of $326.0 million were carried at values in excess of their fair values. Fair value for these securities was $302.9 million as of September 30, 2011. In total, as of September 30, 2011, our consolidated securitization vehicles had 53 investments in securities with an aggregate book value of $397.0 million that have an estimated fair value of $384.4 million, including 51 investments in CMBS with an estimated fair value of $367.3 million and two investments in CDOs and other securities with an estimated fair value of $17.1 million.

The following table shows the gross unrealized losses and fair value of our consolidated securitization vehicles’ securities for which the fair value is lower than our book value as of December 31, 2010 and that are not deemed to be other-than-temporarily impaired (in millions):

	Less Than 12 Months					Greater Than 12 Months					Total
	Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Book Value (1)
Floating Rate		$—		$—			$—		$—			$—		$—			$—
Fixed Rate		29.3		(1.2	)		221.2		(37.4	)		250.5		(38.6	)		289.1
Total		$29.3		($1.2	)		$221.2		($37.4	)		$250.5		($38.6	)		$289.1

(1) Excludes, as of December 31, 2010, $215.2 million of securities which were carried at or below fair value and securities against which an other-than-temporary impairment equal to the entire book value was recognized in earnings.

As of December 31, 2010, 33 of our consolidated securitization vehicles’ securities with an aggregate book value of $289.1 million were carried at values in excess of their fair values. Fair value for these securities was $250.5 million as of December 31, 2010. In total, as of December 31, 2010, our consolidated securitization vehicles had 56 investments in securities with an aggregate book value of $504.3 million that have an estimated fair value of $475.3 million, including 54 investments in CMBS with an estimated fair value of $426.6 million and two investments in CDOs and other securities with an estimated fair value of $48.7 million. These valuations do not include the value of interest rate swaps entered into in conjunction with the purchase/financing of these investments, if any.

We determine fair values using third party dealer assessments of value, and our own internal financial model-based estimations of fair value. See Note 17 for further discussion of fair value. We regularly examine our securities portfolio and have determined that, despite these differences between book value and fair value, our expectations of future cash flows have only changed adversely for 12 of our securities, against which we have recognized other-than-temporary-impairments. See Note 10A for additional discussion of fair value estimations.

Investments in variable interest entities

Our consolidated securitization vehicles’ securities portfolio includes investments in both CMBS and CDOs, which securitization structures are generally considered VIEs. We have not consolidated these VIEs due to our determination that, based on the structural provisions of each entity and the nature of our investments, we do not have the power to direct the activities that most significantly impact these entities' economic performance.

These securities were acquired through investment, and do not represent a securitization or other transfer of our assets. We are not named as special servicer on these investments.

We are not obligated to provide, nor have we provided, any financial support to these entities. As these securities are financed by our non-recourse CT CDOs, our exposure to loss is therefore limited to our interests in these consolidated entities described above in this Note 11.

B. Loans Receivable, Net – Consolidated Securitization Vehicles

Activity relating to our consolidated securitization vehicles’ loans receivable for the nine months ended September 30, 2011 was as follows (in thousands):

	Gross Book Value			Provision for Loan Losses		Net Book Value (1)
December 31, 2010		$3,145,968		($254,589	)		$2,891,379
Satisfactions (2)		(1,441,373	)	—			(1,441,373	)
Principal paydowns		(114,633	)	—			(114,633	)
Deconsolidation of securitization vehicle (3)		(595,919	)	—			(595,919	)
Consolidation of securitization vehicle (4)		24,439		(2,000	)		22,439
Discount/premium amortization & other		331		—			331
Recovery of provision for loan losses		—		21,438			21,438
Realized loan losses		(53,603	)	53,603			—
September 30, 2011		$965,210		($181,548	)		$783,662

(1)	Includes loans with a total principal balance of $1.0 billion and $3.2 billion as of September 30, 2011 and December 31, 2010, respectively.
(2)	Includes final maturities and full repayments.
(3)	We no longer consolidate the MSC 2007-XLFA securitization vehicle beginning in the third quarter of 2011. See the introduction of Note 11 above for further discussion.
(4)	We consolidated an additional securitization vehicle, GECMC 2000-1, beginning in the third quarter of 2011. See the introduction of Note 11 above for further discussion.

The following table details overall statistics for our consolidated securitization vehicles’ loans receivable portfolio as of September 30, 2011 and December 31, 2010:

	September 30, 2011	December 31, 2010
Number of investments	73	94
Fixed / Floating (in millions) (1)	$199 / $585	$213 / $2,678
Coupon (2) (3)	3.43%	2.27%
Yield (2) (3)	3.55%	2.27%
Maturity (years) (2) (4)	1.1	1.3

(1)	Represents the aggregate net book value of the portfolio allocated between fixed rate and floating rate loans.
(2)	Represents a weighted average as of September 30, 2011 and December 31, 2010, respectively.
(3)	Calculations for floating rate loans are based on LIBOR of 0.24% and 0.26% as of September 30, 2011 and December 31, 2010, respectively.
(4)	For loans in CT CDOs, assumes all extension options are executed. For loans in other consolidated securitization vehicles, maturity is based on information provided by the trustees of each respective entity.

The tables below detail the types of loans in our consolidated securitization vehicles’ loan portfolio, as well as the property type and geographic distribution of the properties securing these loans, as of September 30, 2011 and December 31, 2010 (in thousands):

	September 30, 2011					December 31, 2010
Asset Type	Book Value			Percentage		Book Value			Percentage
Senior mortgages		$340,196			43%		$2,225,983			76%
Subordinate interests in mortgages		249,194			31		333,622			11
Mezzanine loans		201,789			26		316,283			11
Other		—			—		22,850			2
Total		$791,179			100%		$2,898,738			100%
Property Type	Book Value			Percentage		Book Value			Percentage
Office		$341,900			43%		$825,292			28%
Hotel		223,447			28		611,435			21
Retail		168,162			21		178,146			7
Healthcare		21,051			3		1,156,880			40
Other		36,619			5		126,985			4
Total		$791,179			100%		$2,898,738			100%
Geographic Location	Book Value			Percentage		Book Value			Percentage
Northeast		$248,247			31%		$417,351			14%
West		156,429			20		163,932			6
Southwest		151,505			19		172,088			6
Southeast		125,604			16		318,655			11
Midwest		25,184			3		18,302			1
Diversified		84,210			11		1,808,410			62
Total		$791,179			100%		$2,898,738			100%
Unallocated loan loss provision (1)		(7,517	)				(7,359	)
Net book value		$783,662					$2,891,379

(1) We have recorded a general provision for loan losses against certain pools of smaller loans in our consolidated securitization vehicles. This general provision is not specifically allocable to any loan asset type, collateral property type, or geographic location, but rather to an overall pool of loans. See Note 2 for additional details.

Loan risk ratings

Quarterly, management evaluates our consolidated securitization vehicles’ loan portfolio for impairment as described in Note 2. In conjunction with our quarterly loan portfolio review, management assesses the performance of each loan, and assigns a risk rating based on several factors including risk of loss, LTV, collateral performance, structure, exit plan, and sponsorship. Loans are rated one (less risk) through eight (greater risk), which ratings are defined in Note 2.

The following table allocates the net book value and principal balance of our consolidated securitization vehicles’ loans receivable based on our internal risk ratings as of September 30, 2011 and December 31, 2010 (in thousands):

		Loans Receivable as of September 30, 2011							Loans Receivable as of December 31, 2010
Risk Rating (1)		Number of Loans		Principal Balance		Net Book Value			Number of Loans		Principal Balance		Net Book Value
	1 - 3		13		$374,172		$373,543			26		$2,031,176		$2,030,344
	4 - 5		7		195,478		195,258			11		408,400		408,052
	6 - 8		13		277,041		102,404			19		589,090		341,252
	N/A		40		119,974		119,974			38		119,090		119,090
Total			73		$966,665		$791,179			94		$3,147,756		$2,898,738
Unallocated loan loss provision:							(7,517	)						(7,359	)
Net book value							$783,662							$2,891,379

(1) We have recorded a general provision for loan losses against certain pools of smaller loans in our consolidated securitization vehicles. These loans have not been individually risk-rated, but have been assessed for loss based on macroeconomic factors. See Note 2 for additional details.

In making this risk assessment, one of the primary factors we consider is how senior or junior each loan is relative to other debt obligations of the borrower. The following tables further allocate our consolidated securitization vehicles’ loans receivable by both loan type and our internal risk ratings as of September 30, 2011 and December 31, 2010 (in thousands):

		Senior Mortgage Loans
		as of September 30, 2011						as of December 31, 2010
Risk Rating (1)		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		5		$201,812		$201,812		12		$1,639,820		$1,639,815
	4 - 5		1		12,728		12,728		6		335,043		335,043
	6 - 8		1		33,214		16,907		3		193,983		143,676
	N/A		38		108,749		108,749		36		107,449		107,449
Total			45		$356,503		$340,196		57		$2,276,295		$2,225,983

(1) We have recorded a general provision for loan losses against certain pools of smaller loans in our consolidated securitization vehicles. These loans have not been individually risk-rated, but have been assessed for loss based on macroeconomic factors. See Note 2 for additional details.

		Subordinate Interests in Mortgages
		as of September 30, 2011						as of December 31, 2010
Risk Rating (1)		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		6		$134,012		$133,520		7		$189,323		$188,666
	4 - 5		4		69,750		69,530		4		71,415		71,067
	6 - 8		9		147,634		44,419		11		185,913		71,748
	N/A		1		1,725		1,725		1		2,141		2,141
Total			20		$353,121		$249,194		23		$448,792		$333,622

(1) We have recorded a general provision for loan losses against certain pools of smaller loans in our consolidated securitization vehicles. These loans have not been individually risk-rated, but have been assessed for loss based on macroeconomic factors. See Note 2 for additional details.

		Mezzanine & Other Loans
		as of September 30, 2011						as of December 31, 2010
Risk Rating (1)		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		2		$38,348		$38,211		7		$202,033		$201,863
	4 - 5		2		113,000		113,000		1		1,942		1,942
	6 - 8		3		96,193		41,078		5		209,194		125,828
	N/A		1		9,500		9,500		1		9,500		9,500
Total			8		$257,041		$201,789		14		$422,669		$339,133

(1) We have recorded a general provision for loan losses against certain pools of smaller loans in our consolidated securitization vehicles. These loans have not been individually risk-rated, but have been assessed for loss based on macroeconomic factors. See Note 2 for additional details.

Loan impairments

The following table describes our consolidated securitization vehicles’ impaired loans as of September 30, 2011, including impaired loans that are current in their interest payments and those that are delinquent on contractual payments (in thousands):

	September 30, 2011
Impaired Loans	No. of Loans		Gross Book Value		Provision for Loan Loss			Net Book Value
Performing loans		4		$82,507		($108,432	)		($25,925	)
Non-performing loans		7		154,929		(65,599	)		89,330
Total impaired loans		11		$237,436		($174,031	)		$63,405

In addition, as described in Note 2, we have recorded a $7.5 million general provision for loan losses against 40 loans in our consolidated securitization vehicles with an aggregate principal balance of $120.0 million.

The following table details the allocation of our consolidated securitization vehicles’ provision for loan losses as of September 30, 2011 (in thousands):

	September 30, 2011
Impaired Loans	Principal Balance		Provision for Loan Loss		Loss Severity
Subordinate interests in mortgages		$351,396		$102,608		29%
Senior mortgages		247,755		16,307		7
Mezzanine & other loans		247,540		55,116		22
Unallocated (1)		119,974		7,517		6
Total/Weighted Average		$966,665		$181,548		19%

(1) We have recorded a general provision for loan losses against certain pools of smaller loans in our consolidated securitization vehicles. This general provision is not specifically allocable to any loan asset type, but rather to an overall pool of loans. See Note 2 for additional details.

Generally, we have recorded provisions for loan loss against all loans which are in maturity default, or otherwise have past-due principal payments. As of September 30, 2011, our consolidated securitization vehicles had one loan with a net book value of $1.6 million which was in maturity default but had no provision recorded. We expect to collect all principal and interest due under this loan upon its resolution.

The following table details our consolidated securitization vehicles’ average balance of impaired loans by loan type, and the income recorded on such loans subsequent to their impairment during the nine months ended September 30, 2011 (in thousands):

Income on Impaired Loans for the Nine Months Ended September 30, 2011
Asset Type	Average Net Book Value		Income Recorded (1)
Senior Mortgage Loans		$61,157		$3,197
Subordinate Interests in Mortgages		16,717		1,739
Mezzanine & Other Loans		111,703		3,844
Total		$189,577		$8,780

(1) Substantially all of the income recorded on impaired loans during the period was received in cash.

Nonaccrual loans

In accordance with our revenue recognition policies discussed in Note 2, we do not accrue interest on loans which are 90 days past due or, in the opinion of management, are otherwise uncollectable. Accordingly, we do not have any material interest receivable accrued on nonperforming loans as of September 30, 2011.

The following table details our consolidated securitization vehicles’ loans receivable which are on nonaccrual status as of September 30, 2011 (in thousands):

Non-Accrual Loans Receivable as of September 30, 2011
Asset Type	Principal Balance		Net Book Value
Senior Mortgage Loans		$—		$—
Subordinate Interests in Mortgages		107,201		38,419
Mezzanine & Other Loans		96,194		41,078
Total		$203,395		$79,497

Loan modifications

During the nine months ended September 30, 2011, two modifications of loans in consolidated securitization vehicles were considered troubled debt restructurings, as defined under GAAP. A troubled debt restructuring is generally any modification of a loan to a borrower that is experiencing financial difficulties, where a lender agrees to terms that are more favorable to the borrower than is otherwise available in the current market. These loan modifications included: (i) a 28-month extension of a $33.0 million subordinate mortgage interest, and (ii) a four-month extension of a $6.6 million subordinate mortgage interest, neither of which extensions included a modification of interest rates. Both of these loans have been individually assessed for impairment, and other than a $3.3 million impairment previously recorded against the $6.6 million subordinate mortgage interest, no additional impairment was necessary.

C. Real Estate Held-for-Sale – Consolidated Securitization Vehicles

Activity relating to our consolidated securitization vehicles’ real estate held-for-sale for the nine months ended September 30, 2011 was as follows (in thousands):

	Gross Book Value		Other-Than-Temporary Impairment			Net Book Value
December 31, 2010		$15,068		($7,013	)		$8,055
Consolidation of additional securitization vehicles (1)		9,892		(6,550	)		3,342
Impairment of real estate held-for-sale		—		(1,055	)		(1,055	)
September 30, 2011		$24,960		($14,618	)		$10,342

(1) As further described above, we began consolidating an additional securitization vehicle in the third quarter of 2011. This newly consolidated vehicle held an investment in real estate held-for-sale with a net book value of $3.3 million at the time of consolidation.

D. Debt Obligations – Consolidated Securitization Vehicles

As of September 30, 2011 and December 31, 2010, our consolidated securitization vehicles had $1.4 billion and $3.6 billion of total non-recourse securitized debt obligations outstanding, respectively. The balances of each entity’s outstanding securitized debt obligations, their respective coupons and all-in effective costs, including the amortization of fees and expenses, were as follows (in thousands):

	September 30, 2011				December 31, 2010		September 30, 2011
Non-Recourse Securitized Debt Obligations	Principal Balance		Book Value		Book Value		Coupon(1)			All-In Cost(1)				Maturity Date(2)
CT CDOs
CT CDO I		$121,930		$121,930		$199,573		1.13	%		1.14	%		July 2039
CT CDO II		202,282		202,282		262,281		0.85	%		1.15	%		March 2050
CT CDO III		205,083		205,576		239,911		5.26	%		5.17	%		June 2035
CT CDO IV (3)		242,520		242,520		280,820		0.97	%		1.10	%		October 2043
Total CT CDOs		771,815		772,308		982,585		2.10	%		2.20	%		July 2042
Other securitization vehicles
GMACC 1997-C1		86,170		86,170		98,154		7.10	%		7.10	%		July 2029
GECMC 00-1 H		25,050		25,050		N/A		5.90	%		5.90	%		August 2027
GSMS 2006-FL8A		50,552		50,552		125,598		1.08	%		1.08	%		June 2020
JPMCC 2005-FL1A		89,753		89,753		95,695		0.81	%		0.81	%		February 2019
MSC 2007-XLFA		—		—		751,131		N/A			N/A				N/A
MSC 2007-XLCA		328,613		328,613		522,137		2.02	%		2.02	%		July 2017
CSFB 2006-HC1		—		—		1,045,929		N/A			N/A			N/A
Total other securitization vehicles		580,138		580,138		2,638,644		2.67	%		2.67	%		March 2020
Total/Weighted Average		$1,351,953		$1,352,446		$3,621,229		2.35	%		2.40	%	(4)	December 2032

(1)	Represents a weighted average for each respective facility, assuming LIBOR of 0.24% at September 30, 2011 for floating rate debt obligations.
(2)	Maturity dates represent the contractual maturity of each securitization trust. Repayment of securitized debt is a function of collateral cash flows which are disbursed in accordance with the contractual provisions of each trust, and is generally expected to occur prior to the maturity data above.
(3)	Comprised, at September 30, 2011, of $229.4 million of floating rate notes sold and $13.1 million of fixed rate notes sold.
(4)	Including the impact of interest rate hedges with an aggregate notional balance of $298.5 million as of September 30, 2011, the effective all-in cost of our consolidated securitization vehicles’ debt obligations would be 3.46% per annum.

As discussed above in the introduction to this Note 11, our consolidated securitization vehicles generally include two categories of entities: (i) collateralized debt obligations sponsored and issued by us, which we refer to as CT CDOs and (ii) other consolidated securitization vehicles which were not issued or sponsored by us. We have historically consolidated the CT CDOs; however we began consolidating the additional securitization vehicles as of January 1, 2010.

CT CDOs

As of September 30, 2011, our outstanding CT CDOs included four separate issuances with a total face value of $771.8 million. As of September 30, 2011, loans receivable and securities with a book balance of $228.2 million and $397.0 million, respectively, were financed by our CT CDOs. As of December 31, 2010, loans receivable and securities with a book balance of $299.9 million and $504.3 million, respectively, were financed by our CT CDOs.

CT CDO I and CT CDO II each have interest coverage and overcollateralization tests, which, when breached, provide for hyper-amortization of the senior notes sold by a redirection of cash flow that would otherwise have been paid to the subordinate classes, some of which are owned by us. Furthermore, all four of our CT CDOs provide for the re-classification of interest proceeds from impaired collateral as principal proceeds, which also serve to hyper-amortize the senior notes sold.

During 2009, we were informed by our CDO trustee of impairments due to rating agency downgrades of certain of the securities which serve as collateral in all of our CT CDOs. These impairments, combined with the non-performance of certain loan collateral, resulted in breaches of interest coverage and overcollateralization tests at CT CDO I and CT CDO II, as well as the reclassification of interest proceeds from the impaired collateral as principal proceeds in all four of our CT CDOs. Other than collateral management fees, we currently do not receive any cash payments from CT CDO I, CT CDO II, and CT CDO IV, and receive irregular cash payments from CT CDO III.

Further, due to the hyper-amortization of senior notes, certain subordinate classes are accruing unpaid interest, resulting in an increased liability to these classes. As senior notes which carry a lower rate of interest continue to hyper-amortize, and certain subordinate notes continue to accrue deferred interest, the weighted-average cost of debt for our CT CDOs has and will continue to increase.

When we formed (and reinvested) our four CT CDOs, we made certain representations and warranties with respect to Capital Trust, Inc. and the loans and securities that we contributed as collateral to these CT CDOs. In the event that these representations or warranties are proved to have been untrue at the time that the respective collateral was contributed, we may be required to repurchase certain of those loans and securities. These representations and warranties generally relate to specific corporate and asset related subjects, including, among other things, proper corporate authorization; compliance with laws and regulations; ownership of the assets; title to, lack of liens encumbering, and adequate insurance covering the underlying collateral properties; and the lack of existing loan defaults.

The maximum potential amount of future payment we may be required to make to repurchase assets is $907.9 million, the current face amount of all loans and securities in our four CT CDOs. In certain cases, we may be able to reduce the impact of any such purchase obligation through recoveries from the exercise of remedies against the institution from which we acquired the asset and received substantially the same representations and warranties. This potential recoverable amount is not currently estimable and would depend on the nature of the representation and warranty breached and the circumstances under which each asset was transferred to the CT CDO. Since inception, we have not been required to repurchase any assets nor have we received any notice of assertion of a potential breach of any representation or warranty. Any payment required to repurchase a loan or security could materially impact our liquidity.

Other Consolidated Securitization Vehicles

In addition to the CT CDOs sponsored by us, which are discussed above, we also have consolidated other securitization vehicles beginning on January 1, 2010, as discussed in Note 2. The debt obligations of these entities are separately presented on our consolidated balance sheet along with the CT CDOs issued by us, as they are also securitized, non-recourse obligations. These obligations will generally be satisfied with the repayment of assets in each such entity’s collateral pool, or will be discharged when losses are realized. As of September 30, 2011, loans receivable with an aggregate book value of $555.5 million serve as collateral for the securities issued by these other consolidated securitization vehicles.

E. Derivative Financial Instruments – Consolidated Securitization Vehicles

The following table summarizes the notional amounts and fair values of our consolidated securitization vehicles’ interest rate swaps as of September 30, 2011 and December 31, 2010 (in thousands). The notional amount provides an indication of the extent of our involvement in the instruments at that time, but does not represent exposure to credit or interest rate risk.

Counterparty	September 30, 2011 Notional Amount		Interest Rate (1)			Maturity		September 30, 2011 Fair Value			December 31, 2010 Fair Value
Swiss RE Financial		$238,225		5.10	%		2015		($22,614	)		($24,037	)
Bank of America		44,631		4.58	%		2014		(2,771	)		(3,331	)
Morgan Stanley		—		3.95	%		2011		—			(398	)
Bank of America		10,535		5.05	%		2016		(1,512	)		(1,267	)
Bank of America		5,104		4.12	%		2016		(585	)		(422	)
Morgan Stanley		74		5.31	%		2011		—			(7	)
Total/Weighted Average		$298,569		5.00	%		2015		($27,482	)		($29,462	)

(1) Represents the gross fixed interest rate we pay to our counterparties under these derivative instruments. We receive an amount of interest indexed to one-month LIBOR on all of our interest rate swaps.

As of both September 30, 2011 and December 31, 2010, all of the derivative financial instruments of our consolidated securitization vehicles were classified as cash flow hedges, and recorded at fair value as interest rate hedge liabilities on our consolidated balance sheet.

The table below shows amounts recorded to other comprehensive income and amounts recorded to interest expense from other comprehensive income for the nine months ended September 30, 2011 and 2010 (in thousands):

	Amount of gain (loss) recognized					Amount of loss reclassified from OCI
	in OCI for the nine months ended (1)					to income for the nine months ended (2)
Hedge	September 30, 2011		September 30, 2010			September 30, 2011			September 30, 2010
Interest rate swaps		$1,980		($8,563	)		($11,512	)		($12,305	)

(1)	Represents the amount of unrealized gains and losses recorded to other comprehensive income during the period, net of the amount reclassified to interest expense.
(2)	Represents net amounts paid to swap counterparties during the period, which are included in interest expense, offset by an immaterial amount of non-cash swap amortization.

All of our consolidated securitization vehicles’ interest rate swaps were classified as highly effective for all of the periods presented. Over the next twelve months, as we make payments under our hedge agreements, we expect approximately $13.1 million to be reclassified from other comprehensive income to interest expense. This amount is generally equal to the present value of expected payments under the respective derivative contracts.

As of September 30, 2011, our consolidated securitization vehicles have not posted any assets as collateral under derivative agreements.

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Summary of Significant Accounting Policies

3 Months Ended

Sep. 30, 2011

Notes to Financial Statements

Summary of Significant Accounting Policies

Note 2. Summary of Significant Accounting Policies

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP, for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The accompanying unaudited consolidated interim financial statements should be read in conjunction with the consolidated financial statements and the related management’s discussion and analysis of financial condition and results of operations filed with our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. In our opinion, all material adjustments (consisting of normal, recurring accruals) considered necessary for a fair presentation, in accordance with GAAP, have been included. The results of operations for the nine months ended September 30, 2011 are not necessarily indicative of results that may be expected for the entire year ending December 31, 2011.

Principles of Consolidation

The accompanying financial statements include, on a consolidated basis, our accounts, the accounts of our wholly-owned subsidiaries, and variable interest entities, or VIEs, in which we are the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation.

VIEs are defined as entities in which equity investors (i) do not have the characteristics of a controlling financial interest, and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The entity that consolidates a VIE is known as its primary beneficiary, and is generally the entity with (i) the power to direct the activities that most significantly impact the VIE’s economic performance, and (ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE.

Our consolidated VIEs include: (i) the CT Legacy REIT, and (ii) ten securitization vehicles, including our four CT CDOs which were sponsored and issued by us, as well as six other, similar, vehicles. See Note 10 and Note 11 for additional information on our investments in VIEs.

Balance Sheet Presentation

Our consolidated balance sheets separately present: (i) our direct assets and liabilities, (ii) the direct assets and liabilities of CT Legacy REIT, and (iii) the assets and liabilities of consolidated securitization vehicles, some of which are subsidiaries of CT Legacy REIT. Assets of all consolidated VIEs can generally only be used to satisfy the obligations of those VIEs, and the liabilities of consolidated VIEs are non-recourse to us.

We have aggregated all the assets and liabilities of the consolidated securitization vehicles due to our determination that these entities are substantively similar and therefore a further disaggregated presentation would not be more meaningful. Similarly, the notes to our consolidated financial statements separately describe (i) our direct assets and liabilities, (ii) the direct assets and liabilities of CT Legacy REIT, and (iii) the assets and liabilities of consolidated securitization vehicles, some of which are subsidiaries of CT Legacy REIT.

Equity Investments in Unconsolidated Subsidiaries

Our co-investment interests in the private equity funds we manage are accounted for using the equity method. These entities’ assets and liabilities are not consolidated into our financial statements due to our determination that (i) these entities are not VIEs, and (ii) the investors have sufficient rights to preclude consolidation by us. As such, we report our allocable percentage of the earnings or losses of these entities on a single line item in our consolidated statements of operations as income from equity investments.

One such fund, CT Opportunity Partners I, LP, or CTOPI, maintains its financial records at fair value in accordance with GAAP. We have applied such accounting relative to our investment in CTOPI, and include any adjustments to fair value recorded at the fund level in determining the income we record on our equity investment in CTOPI.

Revenue Recognition

Interest income from our loans receivable is recognized over the life of the investment using the effective interest method and is recorded on the accrual basis. Fees, premiums, discounts and direct costs associated with these investments are deferred until the loan is advanced and are then recognized over the term of the loan as an adjustment to yield. For loans where we have unfunded commitments, we amortize these fees and other items on a straight line basis. Fees on commitments that expire unused are recognized at expiration. Income accrual is generally suspended for loans at the earlier of the date at which payments become 90 days past due or when, in the opinion of management, recovery of income and principal becomes doubtful. Income is then recorded on the basis of cash received until accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed.

Interest income from our securities is recognized using a level yield with any purchase premium or discount accreted through income over the life of the security. This yield is calculated using cash flows expected to be collected which are based on a number of assumptions on the underlying loans. Examples include, among other things, the rate and timing of principal payments, including prepayments, repurchases, defaults and liquidations, the pass-through or coupon rate, and interest rates. Additional factors that may affect reported interest income on our securities include interest payment shortfalls due to delinquencies on the underlying mortgage loans and the timing and magnitude of expected credit losses on the mortgage loans underlying the securities. These are impacted by, among other things, the general condition of the real estate market, including competition for tenants and their related credit quality, and changes in market rental rates. These uncertainties and contingencies are difficult to predict and are subject to future events that may alter the assumptions.

Fees from special servicing and asset management services are recorded on an accrual basis as services are rendered under the applicable agreements, and when receipt of fees is reasonably certain. We do not recognize incentive income from our investment management business until contingencies have been eliminated. Depending on the structure of our investment management vehicles, certain incentive fees may be in the form of carried interest or promote distributions.

Cash and Cash Equivalents

We classify highly liquid investments with original maturities of three months or less from the date of purchase as cash equivalents. We place our cash and cash equivalents with high credit quality institutions to minimize credit risk exposure. As of, and for the periods ended, September 30, 2011 and December 31, 2010, we had bank balances in excess of federally insured amounts. We have not experienced any losses on our demand deposits, commercial paper or money market investments.

Restricted Cash

We classify the cash balances held by CT Legacy REIT as restricted because of limitations imposed on the payment of dividends by CT Legacy REIT to its common equity holders, including us. As further described in Notes 1 and 10, common dividends cannot be paid by CT Legacy REIT until the mezzanine loan and repurchase obligations have been satisfied. Accordingly, while these cash balances are available for use by CT Legacy REIT for operations, debt service, or other purposes, they are currently unavailable to us.

Securities

We classify our securities as held-to-maturity, available-for-sale, or trading on the date of acquisition of the investment. Held-to-maturity investments are stated at cost, adjusted for the amortization of any premiums or discounts, which are amortized through our consolidated statements of operations using the level yield method described above. Other than in the instance of an other-than-temporary impairment, as discussed below, these held-to-maturity investments are carried on our consolidated financial statements at their amortized cost basis.

We may also invest in securities which may be classified as available-for-sale. Available-for-sale securities are carried at estimated fair value with the net unrealized gains or losses reported as a component of accumulated other comprehensive income (loss) in shareholders’ equity. Changes in the valuations do not affect our reported income or cash flows, but do impact shareholders’ equity and, accordingly, book value per share. On August 4, 2005, we changed the accounting classification of certain of our securities from available-for-sale to held-to-maturity. We have not designated any securities as available-for-sale since that time.

Further, as required under GAAP, when, based on current information and events, there has been an adverse change in the cash flows expected to be collected from those previously estimated for one of our securities, an other-than-temporary impairment is deemed to have occurred. A change in expected cash flows is considered adverse if the present value of the revised cash flows (taking into consideration both the timing and amount of cash flows expected to be collected) discounted using the security’s current yield is less than the present value of the previously estimated remaining cash flows, adjusted for cash receipts during the intervening period.

Should an other-than-temporary impairment be deemed to have occurred, the security is written down to fair value. The total other-than-temporary impairment is bifurcated into (i) the amount related to expected credit losses, and (ii) the amount related to fair value adjustments in excess of expected credit losses, or the Valuation Adjustment. The portion of the other-than-temporary impairment related to expected credit losses is calculated by comparing the amortized cost basis of the security to the present value of cash flows expected to be collected, discounted at the security’s current yield, and is recognized through earnings in the consolidated statement of operations. The remaining other-than-temporary impairment related to the Valuation Adjustment is recognized as a component of accumulated other comprehensive income (loss) in shareholders’ equity. A portion of other-than-temporary impairments recognized through earnings is accreted back to the amortized cost basis of the security through interest income, while amounts recognized through other comprehensive income (loss) are amortized over the life of the security with no impact on earnings.

Loans Receivable, Provision for Loan Losses, Loans Held-for-Sale and Related Allowance

We purchase and originate commercial real estate debt and related instruments, or Loans, generally to be held as long-term investments at amortized cost. Management is required to periodically evaluate each of these Loans for possible impairment. Impairment is indicated when it is deemed probable that we will not be able to collect all amounts due according to the contractual terms of the Loan. If a Loan is determined to be impaired, we write down the Loan through a charge to the provision for loan losses. Impairment on these loans is measured by comparing the estimated fair value of the underlying collateral to the book value of the respective loan. These valuations require significant judgments, which include assumptions regarding capitalization rates, leasing, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan, loan sponsorship, actions of other lenders and other factors deemed necessary by management. Actual losses, if any, could ultimately differ from these estimates.

In conjunction with our quarterly loan portfolio review, management assesses the performance of each loan, and assigns a risk rating based on several factors including risk of loss, loan-to-value ratio, or LTV, collateral performance, structure, exit plan, and sponsorship. Loans are rated one through eight, which are defined as follows:

1 - Low Risk: A loan that is expected to perform through maturity, with relatively lower LTV, higher in-place debt yield, and stable projected cash flow.

2 - Average Risk: A loan that is expected to perform through maturity, with medium LTV, average in-place debt yield, and stable projected cash flow.

3 - Acceptable Risk: A loan that is expected to perform through maturity, with relatively higher LTV, acceptable in-place debt yield, and some uncertainty (due to lease rollover or other factors) in projected cash flow.

4 - Higher Risk: A loan that is expected to perform through maturity, but has exhibited a material deterioration in cash flow and/or other credit factors. If negative trends continue, default could occur.

5 - Low Probability of Default/Loss: A loan with one or more identified weakness that we expect to have a 15% probability of default or principal loss.

6 - Medium Probability of Default/Loss: A loan with one or more identified weakness that we expect to have a 33% probability of default or principal loss.

7 - High Probability of Default/Loss: A loan with one or more identified weakness that we expect to have a 67% or higher probability of default or principal loss.

8 - In Default: A loan which is in contractual default and/or which has a very high likelihood of principal loss.

In addition, for certain pools of smaller loans which have similar credit characteristics, primarily loans with an outstanding principal balance of $10.0 million or less in our consolidated securitization vehicles, we have recorded a general provision for loan losses in lieu of the asset-specific provisions we record on all other loans. This general provision is based on macroeconomic data with respect to historic loan losses, vintage, property type, and other factors deemed relevant for such loan pools. These loans do not undergo the same level of asset management as our larger, direct investments.

In certain cases, we may classify loans as held-for-sale based upon the specific facts and circumstances of particular Loans, including known or expected transactions. Loans held-for-sale are carried at the lower of our amortized cost basis and fair value. A reduction in the fair value of loans held-for-sale is recorded as a charge to our consolidated statement of operations as a valuation allowance on loans held-for-sale.

Real Estate Held-for-Sale

Loan investments where we have foreclosed upon the underlying collateral and own an equity interest in real estate are categorized as real estate owned. We generally do not intend to hold such foreclosed assets for long-term operations and therefore classify such assets as real estate held-for-sale on our consolidated balance sheets. Real estate held-for-sale are carried at the lower of our basis in the real estate and fair value, with reductions in fair value recorded as an impairment of real estate-held-for-sale on our consolidated statements of operations.

Deferred Financing Costs

The deferred financing costs which are included in prepaid expenses and other assets on our consolidated balance sheets include issuance costs related to our debt obligations, and are amortized using the effective interest method, or a method that approximates the effective interest method, over the life of the related obligations.

Repurchase Obligations

In certain circumstances, we have financed the purchase of investments from a counterparty through a repurchase agreement with that same counterparty. We currently record these investments in the same manner as other investments financed with repurchase agreements, with the investment recorded as an asset and the related borrowing under any repurchase agreement recorded as a liability on our consolidated balance sheets. Interest income earned on the investments and interest expense incurred on the repurchase obligations are reported separately on our consolidated statements of operations.

Interest Rate Derivative Financial Instruments

In the normal course of business, we use interest rate derivative financial instruments to manage, or hedge, cash flow variability caused by interest rate fluctuations. Specifically, we currently use interest rate swaps to effectively convert floating rate liabilities that are financing fixed rate assets to fixed rate liabilities. The differential to be paid or received on these agreements is recognized on the accrual basis as an adjustment to the interest expense related to the attendant liability. The interest rate swap agreements are generally accounted for on a held-to-maturity basis, and, in cases where they are terminated early, any gain or loss is generally amortized over the remaining life of the hedged item. These swap agreements must be effective in reducing the variability of cash flows of the hedged items in order to qualify for the aforementioned hedge accounting treatment. Changes in value of effective cash flow hedges are reflected on our consolidated financial statements through accumulated other comprehensive income (loss) and do not affect our net income (loss). To the extent a derivative does not qualify for hedge accounting, and is deemed a non-hedge derivative, the changes in its value are included in net income (loss).

To determine the fair value of interest rate derivative financial instruments, we use a third-party derivative specialist to assist us in periodically valuing our interests.

Income Taxes

Our financial results generally do not reflect provisions for current or deferred income taxes on our REIT taxable income. Management believes that we operate in a manner that will continue to allow us to be taxed as a REIT and, as a result, we generally do not expect to pay substantial corporate level taxes other than those payable by our taxable REIT subsidiaries. Many of these requirements, however, are highly technical and complex. If we were to fail to meet these requirements, we may be subject to federal, state and local income tax on current and past income, and penalties.

Accounting for Stock-Based Compensation

Stock-based compensation expense is recognized in net income using a fair value measurement method, which we determine with the assistance of a third-party appraisal firm. Compensation expense for the time vesting of stock-based compensation grants is recognized on the accelerated attribution method and compensation expense for performance vesting of stock-based compensation grants is recognized on a straight line basis.

The fair value of the performance vesting restricted common stock is measured on the grant date using a Monte Carlo simulation to estimate the probability of the market vesting conditions being satisfied. The Monte Carlo simulation is run approximately 100,000 times. For each simulation, the payoff is calculated at the settlement date, and is then discounted to the grant date at a risk-free interest rate. The average of the values over all simulations is the expected value of the restricted common stock on the grant date. The valuation is performed in a risk-neutral framework, so no assumption is made with respect to an equity risk premium. Significant assumptions used in the valuation include an expected term and stock price volatility, an estimated risk-free interest rate and an estimated dividend growth rate.

Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by us.

Comprehensive Income (Loss)

Total comprehensive income (loss) was $279.8 million and ($215.9) million for the nine months ended September 30, 2011 and 2010, respectively. The primary components of comprehensive income (loss) other than net income (loss) are the unrealized gains and losses on derivative financial instruments and the component of other-than-temporary impairments of securities related to the Valuation Adjustment.

There was a one-time $3.8 million adjustment to accumulated other comprehensive loss upon our adoption of new accounting guidance effective January 1, 2010. See below discussion under “Recent Accounting Pronouncements” in this Note 2 for additional information. See Note 12 for additional discussion of accumulated other comprehensive loss.

Earnings per Share of Common Stock

Basic earnings per share, or EPS, is computed based on the net earnings allocable to common stock and stock units, divided by the weighted average number of shares of common stock and stock units outstanding during the period. Diluted EPS is based on the net earnings allocable to common stock and stock units, divided by the weighted average number of shares of common stock, stock units and potentially dilutive common stock options and warrants. See Note 12 for additional discussion of earnings per share.

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 and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may ultimately differ from those estimates.

Reclassifications

Certain reclassifications have been made in the presentation of the prior period consolidated financial statements to conform to the September 30, 2011 presentation.

Segment Reporting

We operate in two reportable segments. We have an internal information system that produces performance and asset data for the two segments along service lines.

The Balance Sheet Investment segment includes our consolidated portfolio of interest earning assets and the financing thereof.

The Investment Management segment includes the investment management activities of our wholly-owned investment management subsidiary, CT Investment Management Co., LLC, or CTIMCO, and its subsidiaries, as well as our co-investments in investment management vehicles. CTIMCO is a taxable REIT subsidiary and serves as the investment manager of Capital Trust, Inc., all of our investment management vehicles and CT CDOs, and serves as senior servicer and special servicer for certain of our investments and for third parties.

Fair Value of Financial Instruments

The “Fair Value Measurements and Disclosures” Topic of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or the Codification, defines fair value, establishes a framework for measuring fair value, and requires certain disclosures about fair value measurements under GAAP. Specifically, this guidance defines fair value based on exit price, or the price that would be received upon the sale of an asset or the transfer of a liability in an orderly transaction between market participants at the measurement date. Our assets and liabilities which are measured at fair value are discussed in Note 17.

Recent Accounting Pronouncements

New accounting guidance which was effective as of January 1, 2010 changed the criteria for consolidation of VIEs and removed a preexisting consolidation exception for qualified special purpose entities, which includes certain securitization vehicles. The amended guidance requires a qualitative, rather than quantitative assessment of when a VIE should be consolidated. Specifically, an entity would generally be required to consolidate a VIE if it has (i) the power to direct the activities that most significantly impact the entity’s economic performance, and (ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE.

As a result of the amended guidance, we have consolidated an additional seven VIEs beginning January 1, 2010, all of which are securitization vehicles not sponsored by us. We have consolidated these entities generally due to our ownership interests in subordinate classes of securities issued by the VIEs, which investments carry certain control provisions. Although our investments are generally passive in nature, by owning more than 50% of the controlling class of each vehicle we do control special servicer naming rights, which we believe gives us the power to direct the most significant economic activities of these entities.

Upon consolidation of these seven securitization vehicles, we recorded a one-time adjustment to shareholders’ equity of ($41.8) million on January 1, 2010. This reduction in equity is due to the difference between the aggregate pre-consolidation book value of our investment in these vehicles (which were accounted for as securities) and the aggregate net assets, or equity, of those vehicles upon consolidation. This difference was primarily caused by asset impairments recorded at the entity-level which are in excess of our investment amount. Due to the fact that the liabilities of these vehicles are entirely non-recourse to us, this excess charge to equity, as well as similar charges on securitization vehicles previously consolidated, will eventually be reversed when our interests in the entities are repaid or sold, or the entities are otherwise deconsolidated in the future.

In January 2010, the FASB issued Accounting Standards Update 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements,” or ASU 2010-06. ASU 2010-06 amends existing disclosure guidance related to fair value measurements. Specifically, ASU 2010-06 requires (i) details of significant asset or liability transfers in and out of Level 1 and Level 2 measurements within the fair value hierarchy, and (ii) inclusion of gross purchases, sales, issuances, and settlements within the rollforward of assets and liabilities valued using Level 3 inputs within the fair value hierarchy. In addition, ASU 2010-06 clarifies and increases existing disclosure requirements related to (i) the disaggregation of fair value disclosures, and (ii) the inputs used in arriving at fair values for assets and liabilities valued using Level 2 and Level 3 inputs within the fair value hierarchy. ASU 2010-06 is effective for the first interim or annual period beginning after December 15, 2009, except for the gross presentation of the Level 3 rollforward, which is required for annual reporting periods beginning after December 15, 2010 and for interim periods within those years. The adoption of ASU 2010-06 did not have a material impact on our consolidated financial statements. Additional disclosures, as applicable, are included in Note 17.

In July 2010, the FASB issued Accounting Standards Update 2010-20, “Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses,” or ASU 2010-20. ASU 2010-20 primarily requires additional disaggregated disclosures of (i) credit risks associated with financing receivables, and (ii) impaired financing receivables and the related allowance for credit losses. ASU 2010-20 is generally effective for the first interim or annual period ending after December 15, 2010; however certain disclosures are not required until the first interim or annual period beginning after December 15, 2010. The adoption of ASU 2010-20 did not have a material impact on our consolidated financial statements. Additional disclosures have been included, as applicable, in the notes to our consolidated financial statements.

In April 2011, the FASB issued Accounting Standards Update 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring,” or ASU 2011-02. ASU 2011-02 primarily clarifies when creditors should classify loan modifications as troubled debt restructurings and provides examples and factors to be considered. Loan modifications which are considered troubled debt restructurings could result in additional disclosure requirements and could impact the related provision for loan losses. ASU 2011-02 is effective for the first interim or annual period beginning after June 15, 2011, with retrospective application to the beginning of the year. The adoption of ASU 2011-02 will impact how we account for loan modifications, and may result in an increase in the loan modifications we classify as troubled debt restructurings, and therefore our provision for loan losses.

In April 2011, the FASB issued Accounting Standards Update 2011-03, “Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements,” or ASU 2011-03. ASU 2011-03 primarily removes certain criteria from the consideration of effective control over assets subject to repurchase agreements. The removal of these criteria will generally result in asset transfers pursuant to repurchase agreements being accounted for as secured borrowings, with both the transferred assets and repurchase liability recorded on the transferor’s balance sheet. ASU 2011-03 is effective for the first interim or annual period beginning after December 15, 2011, and is to be applied prospectively to transactions which occur subsequent to the effective date. The adoption of ASU 2011-03 is not expected to have a material impact on our financial statements.

In May 2011, the FASB issued Accounting Standards Update 2011-04, “Fair Value Measurement (Topic 860): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” or ASU 2011-04. ASU 2011-04 amends existing guidance on fair value measurements related to (i) instruments held in a portfolio, (ii) instruments classified within shareholders’ equity, (iii) application of the “highest and best use” concept to nonfinancial assets, (iv) application of blockage factors and other premiums and discounts in the valuation process, and (v) other matters. In addition, ASU 2011-04 expanded the required disclosures around fair value measurements including (i) reporting the level in the fair value hierarchy used to value assets and liabilities which are not measured at fair value, but where fair value is disclosed, and (ii) qualitative disclosures about the sensitivity of Level 3 fair value measurements to changes in unobservable inputs used. ASU 2011-04 is effective for the first interim or annual period beginning after December 15, 2011. The adoption of ASU 2011-04 is not expected to have a material impact on our financial statements, however may significantly expand our disclosures related to fair value measurements.

In June 2011, the FASB issued Accounting Standards Update 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income,” or ASU 2011-05. ASU 2011-05 does not change the items that must be reported in other comprehensive income, however it eliminates the option to present other comprehensive income on the statement of shareholders’ equity and instead requires either (i) a continuous statement of comprehensive income which would replace the current statement of operations, or (ii) an additional statement of other comprehensive income, which would immediately follow the statement of operations, and would report the components of other comprehensive income. ASU 2011-05 is effective for the first interim or annual period beginning after December 15, 2011, and should be applied retrospectively to all periods reported after the effective date. The adoption of ASU 2011-05 is not expected to have a material impact on our financial statements.

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Participations Sold

3 Months Ended

Sep. 30, 2011

Notes to Financial Statements

Participations Sold

Note 8. Participations Sold

Participations sold represent interests in certain loans that we originated and subsequently sold to one of our investment management vehicles or to third-parties. We present these participations sold as both assets and non-recourse liabilities because these arrangements do not qualify as sales under GAAP. Generally, participations sold are recorded as assets and liabilities in equal amounts on our consolidated balance sheets, and an equivalent amount of interest income and interest expense is recorded on our consolidated statements of operations. However, impaired loan assets must be reduced through the provision for loans losses while the associated non-recourse liability cannot be reduced until the participation has been contractually extinguished. This can result in an imbalance between the loan participations sold asset and liability. We have no economic exposure to these liabilities.

During the nine months ended September 30, 2011, (i) a $75.0 million loan participation sold, which had previously been 100% impaired, was terminated as a result of a restructuring which termination resulted in recognition of a $75.0 million gain on extinguishment of debt, (ii) a $97.5 million loan participation sold, which had similarly been 100% impaired, was transferred to CT Legacy REIT, and (iii) a $51.8 million loan participation sold was fully repaid.

The following table describes our participations sold assets and liabilities as of September 30, 2011 and December 31, 2010 (in thousands):

	September 30,		December 31,
	2011		2010
Participations sold assets
Gross carrying value		$24,945		$259,304
Less: Provision for loan losses		—		(172,465	)
Net book value of assets		24,945		86,839
Participations sold liabilities
Net book value of liabilities		24,945		259,304
Net impact to shareholders' equity		$—		($172,465	)

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General and Administrative Expenses

3 Months Ended

Sep. 30, 2011

Notes to Financial Statements

General and Administrative Expenses

Note 13. General and Administrative Expenses

General and administrative expenses for the nine months ended September 30, 2011 and 2010 consisted of the following (in thousands):

	Nine Months Ended September 30,
General and Administrative Expenses	2011		2010
Personnel costs		$7,162		$7,103
Restructuring awards		2,750		—
Professional services		3,914		4,129
Operating and other costs		1,617		1,761
Subtotal		15,443		12,993
Non-cash personnel costs
Management incentive awards plan - CT Legacy REIT		3,395		—
Employee stock-based compensation		411		107
Subtotal		3,806		107
Expenses of consolidated securitization vehicles		619		1,298
Total		$19,868		$14,398

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Derivative Financial Instruments

3 Months Ended

Sep. 30, 2011

Notes to Financial Statements

Derivative Financial Instruments

Note 9. Derivative Financial Instruments

As described in Note 1, in conjunction with our March 2011 restructuring of our recourse debt obligations a significant portion of our assets were transferred to a majority-owned subsidiary, CT Legacy REIT. This transfer included all of our interest rate hedging instruments. In addition, as described in Note 2, our consolidated balance sheets separately state our direct assets and liabilities and certain assets and liabilities of consolidated VIEs. See Note 10 for disclosures regarding interest rate hedging instruments of CT Legacy REIT, and see Note 11 for comparable disclosures regarding interest rate hedging instruments of consolidated securitization vehicles, all of which are non-recourse to us, as separately stated on our consolidated balance sheets.

The following table summarizes the notional amounts and fair values of our interest rate swaps as of September 30, 2011 and December 31, 2010 (in thousands).

Counterparty	September 30, 2011 Notional Amount		Interest Rate		Maturity		September 30, 2011 Fair Value		December 31, 2010 Fair Value
JPMorgan Chase		—		N/A		N/A		$—		($2,172	)
JPMorgan Chase		—		N/A		N/A		—		(1,969	)
JPMorgan Chase		—		N/A		N/A		—		(2,773	)
JPMorgan Chase		—		N/A		N/A		—		(1,015	)
JPMorgan Chase		—		N/A		N/A		—		(490	)
JPMorgan Chase		—		N/A		N/A		—		(32	)
Total/Weighted Average		$—		N/A		N/A		$—		($8,451	)

As of December 31, 2010, all of our derivative financial instruments were designated as cash flow hedges and recorded at their fair value as interest rate hedge liabilities on our consolidated balance sheet. During the nine months ended September 30, 2011, we did not enter into any new derivative financial instrument contracts.

The table below shows amounts recorded to other comprehensive income and amounts recorded to interest expense from other comprehensive income for the nine months ended September 30, 2011 and 2010 (in thousands).

	Amount of gain (loss) recognized		Amount of loss reclassified from OCI
	in OCI for the nine months ended (1)		to income for the nine months ended (2)
Hedge	September 30, 2011	September 30, 2010	September 30, 2011	September 30, 2010
Interest rate swaps	$933	($1,716)	($586)	($2,237)

(1)	Represents the amount of unrealized gains and losses recorded to other comprehensive income during the period, net of the amount reclassified to interest expense.
(2)	Represents net amounts paid to swap counterparties during the period, which are included in interest expense, offset by an immaterial amount of non-cash swap amortization.

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Debt Obligations

3 Months Ended

Sep. 30, 2011

Notes to Financial Statements

Debt Obligations

Note 7. Debt Obligations

As described in Note 1, on March 31, 2011, we restructured, amended, or extinguished all of our outstanding recourse debt obligations, which restructuring included the assumption of certain debt obligations by a subsidiary, CT Legacy REIT. In addition, as described in Note 2, our consolidated balance sheets separately state our direct assets and liabilities and certain assets and liabilities of consolidated VIEs. See Note 10 for disclosures regarding debt obligations of CT Legacy REIT, and see Note 11 for comparable disclosures regarding debt obligations of consolidated securitization vehicles, all of which are non-recourse to us, as separately stated on our consolidated balance sheets.

As of September 30, 2011 and December 31, 2010, we had $7.7 million and $602.9 million of total debt obligations outstanding, respectively. The balances of each category of debt, their respective coupons and all-in effective costs, including the amortization of fees and expenses, were as follows (in thousands):

	September 30, 2011				December 31, 2010		September 30, 2011
Debt Obligations	Principal Balance		Book Value		Book Value		Coupon		All-In Cost		Maturity Date
Secured notes		$7,686		$7,686		$—		8.19%		8.19%	March 31, 2016
Repurchase obligations
JPMorgan		—		—		224,915		N/A		N/A		N/A
Morgan Stanley		—		—		105,044		N/A		N/A		N/A
Citigroup		—		—		42,623		N/A		N/A		N/A
Total repurchase obligations		—		—		372,582		N/A		N/A		N/A
Senior credit facility		—		—		98,124		N/A		N/A		N/A
Junior subordinated notes		—		—		132,190		N/A		N/A		N/A
Total/Weighted Average		$7,686		$7,686		$602,896		8.19%		8.19%	March 31, 2016

Secured Notes

In conjunction with our March 2011 restructuring and the corresponding satisfaction of our senior credit facility and junior subordinated notes, a wholly-owned subsidiary issued secured notes to our former creditors, which secured notes are non-recourse to us. The secured notes had an aggregate initial face balance of $7.8 million and are secured by 93.5% of our equity interests in the class A-1 and class A-2 common stock of CT Legacy REIT, which represents 48.3% of the total outstanding class A-1 and class A-2 common stock of CT Legacy REIT. The secured notes mature on March 31, 2016 and bear interest at a rate of 8.2% per annum, which interest may be deferred until maturity. All dividends we receive from our equity interests in the common stock of CT Legacy REIT which serve as collateral under the secured notes must be used to pay, or prepay, interest and principal due thereunder. Any prepayment, or partial prepayment, of the secured notes will incur a prepayment premium resulting in a total payment of principal and interest under the secured notes of $11.1 million.

In April 2011, we purchased $405,000 of the secured notes at par.

Repurchase Obligations

On March 31, 2011, our legacy repurchase obligations with JP Morgan, Morgan Stanley and Citigroup were assumed by wholly-owned subsidiaries of CT Legacy REIT, and the recourse to Capital Trust, Inc. was eliminated. See Note 10 for further discussion of these amended facilities at CT Legacy REIT.

Senior Credit Facility

On March 31, 2011, our senior credit facility was fully satisfied and all collateral for the senior credit facility was released in exchange for (i) a cash payment of $22.9 million, (ii) a 24% equity interest in the common stock of CT Legacy REIT, and (iii) $2.8 million of secured notes, as discussed above.

Junior Subordinated Notes

On March 31, 2011, our junior subordinated notes were fully satisfied in exchange for (i) a cash payment of $4.6 million, (ii) 100% of the subordinate class B common stock of CT Legacy REIT, and (iii) $5.0 million of secured notes, as discussed above.

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Consolidated Statements of Changes in Shareholders' Deficit (Unaudited) (USD $) In Thousands	Comprehensive (Loss) Income	Class A Common Stock	Restricted Class A Common Stock	Additional Paid-In Capital	Accumulated Other Comprehensive Loss	Noncontrolling Interests	Accumulated Deficit	Total
Beginning balance, value at Dec. 31, 2009		$ 218	$ 1	$ 559,145	$ (39,135)		$ (689,396)	$ (169,167)
Net income attributable to Capital Trust, Inc.	(195,259)						(195,259)	(195,259)
Cumulative effect of change in accounting principle					3,800		(45,615)	(41,815)
Unrealized gain (loss) on derivative financial instruments	(10,281)				(10,281)			(10,281)
Amortization of unrealized gains and losses on securities	(754)				(754)			(754)
Amortization of deferred gains and losses on settlement of swaps	(74)				(74)			(74)
Other-than-temporary impairments of securities related to fair value adjustments in excess of expected credit losses, net of amortization	(9,496)				(9,496)			(9,496)
Restricted class A common stock earned		1		44				45
Deferred directors' compensation				150				150
Ending balance, value at Sep. 30, 2010	(215,864)	219	1	559,339	(55,940)		(930,270)	(426,651)
Beginning balance, value at Dec. 31, 2010		219		559,411	(50,462)		(920,355)	(411,187)
Net income attributable to Capital Trust, Inc.	266,464						266,464	266,464
Net income attributable to noncontrolling interests	1,935					1,935		1,935
Allocation to noncontrolling interests				37,156		(12,623)
Purchase of noncontrolling interests				(142)				(142)
Consolidation of additional securitization vehicles					538		(4,898)	(4,360)
Unrealized gain (loss) on derivative financial instruments	2,912				2,912			2,912
Loss on interest rate swaps not designated as cash flow hedges	4,447				4,447			4,447
Amortization of unrealized gains and losses on securities	(93)				(93)			(93)
Amortization of deferred gains and losses on settlement of swaps	(75)				(75)			(75)
Other-than-temporary impairments of securities related to fair value adjustments in excess of expected credit losses, net of amortization	4,236				4,236			4,236
Restricted class A common stock earned		1	2	324				327
Deferred directors' compensation				150				150
Ending balance, value at Sep. 30, 2011	$ 279,826	$ 220	$ 2	$ 596,899	$ (38,497)	$ (10,688)	$ (658,789)	$ (110,853)

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Securities Held-to-Maturity

3 Months Ended

Sep. 30, 2011

Notes to Financial Statements

Securities Held-to-Maturity

Note 3. Securities Held-to-Maturity

As described in Note 1, in conjunction with our March 2011 restructuring of our recourse debt obligations, a significant portion of our assets, including all of our securities, were transferred to a majority-owned subsidiary, CT Legacy REIT. In addition, as described in Note 2, our consolidated balance sheets separately state our direct assets and liabilities and certain assets and liabilities of consolidated VIEs. See Note 10 for disclosures regarding securities that have been transferred to CT Legacy REIT, and see Note 11 for comparable disclosures regarding securities that are held in consolidated securitization vehicles, as separately stated on our consolidated balance sheets.

Prior to their transfer to CT Legacy REIT, our securities portfolio consisted of commercial mortgage-backed securities, or CMBS, collateralized debt obligations, or CDOs, and other securities. Activity relating to our securities portfolio for the nine months ended September 30, 2011 was as follows (in thousands):

	CMBS			CDOs & Other			Total Book Value (1)
December 31, 2010		$2,246			$1,209			$3,455
Principal paydowns		(45	)		—			(45	)
Discount/premium amortization & other (2)		168			12			180
Other-than-temporary impairments:
Recognized in earnings		(1,653	)		—			(1,653	)
Recognized in accumulated other comprehensive income		1,640			—			1,640
Transfer to CT Legacy REIT		(2,356	)		(1,221	)		(3,577	)
September 30, 2011		$—			$—			$—

(1)	Includes securities with a total face value of $36.0 million as of December 31, 2010. All securities have been transferred to CT Legacy REIT on March 31, 2011, as discussed in Note 1.
(2)	Includes mark-to-market adjustments on securities previously classified as available-for-sale, amortization of other-than-temporary impairments, and losses, if any.

The following table details overall statistics for our securities portfolio as of September 30, 2011 and December 31, 2010:

	September 30, 2011	December 31, 2010
Number of securities	─	7
Number of issues	─	5
Rating (1) (2)	N/A	CCC
Fixed / Floating (in millions) (3)	$─ / $─	$2 / $1
Coupon (1) (4)	N/A	7.44%
Yield (1) (4)	N/A	10.54%
Life (years) (1) (5)	N/A	1.9

(1)	Represents a weighted average as of December 31, 2010.
(2)	Weighted average ratings are based on the lowest rating published by Fitch Ratings, Standard & Poor’s or Moody’s Investors Service for each security and exclude unrated equity investments in CDOs with a net book value of $1.2 million as of December 31, 2010.
(3)	Represents the aggregate net book value of our portfolio allocated between fixed rate and floating rate securities.
(4)	Coupon is based on the securities’ contractual interest rates, while yield is based on expected cash flows for each security, and considers discounts/premiums and asset non-performance. Calculations for floating rate securities are based on LIBOR of 0.26% as of December 31, 2010.
(5)	Weighted average life is based on the timing and amount of future expected principal payments through the expected repayment date of each respective investment.

The table below details the ratings and vintage distribution of our securities as of September 30, 2011 and December 31, 2010 (in thousands):

	Rating as of September 30, 2011						Rating as of December 31, 2010
Vintage		B	CCC and Below		Total			B	CCC and Below		Total
2003		$—		$—		$—		$—		$1,210		$1,210
2002		—		—		—		—		—		—
2000		—		—		—		—		955		955
1997		—		—		—		218		—		218
1996		—		—		—		—		1,072		1,072
Total		$—		$—		$—		$218		$3,237		$3,455

Other-than-temporary impairments

Quarterly, we reevaluate our securities portfolio to determine if there has been an other-than-temporary impairment based upon expected future cash flows from each securities investment. As a result of this evaluation, under the accounting guidance discussed in Note 2, during the first quarter of 2011, we recorded a gross other-than-temporary impairment of $13,000 prior to the transfer of these securities to CT Legacy REIT. In addition, we determined that $1.6 million of impairments previously recorded in other comprehensive income should be recognized as credit losses due to a decrease in cash flow expectations for two of our securities.

To determine the component of the gross other-than-temporary impairment related to expected credit losses, we compare the amortized cost basis of each other-than-temporarily impaired security to the present value of its revised expected cash flows, discounted using its pre-impairment yield. Significant judgment of management is required in this analysis that includes, but is not limited to, (i) assumptions regarding the collectability of principal and interest on the underlying loans, net of related expenses, and (ii) current subordination levels at both the individual loans which serve as collateral under our securities and at the securities themselves.

The following table summarizes activity related to the other-than-temporary impairments of our securities during the nine months ended September 30, 2011 (in thousands):

	Gross Other-Than-Temporary Impairments			Credit Related Other-Than-Temporary Impairments			Non-Credit Related Other-Than-Temporary Impairments
December 31, 2010		$30,567			$27,776			$2,791
Additions due to change in expected cash flows		13			1,653			(1,640	)
Amortization of other-than-temporary impairments		(110	)		(67	)		(43	)
Transfer to CT Legacy REIT (1)		(30,470	)		(29,362	)		(1,108	)
September 30, 2011		$—			$—			$—

(1) All securities have been transferred to CT Legacy REIT on March 31, 2011, as discussed in Note 1.

Unrealized losses and fair value of securities

As discussed above, we do not directly own any securities as of September 30, 2011. Historically, certain of our securities have been carried at values in excess of their fair values. This difference can be caused by, among other things, changes in credit spreads and interest rates.

The following table shows the gross unrealized losses and fair value of our securities for which the fair value is lower than our book value as of December 31, 2010 and that were not deemed to be other-than-temporarily impaired (in millions):

	Less Than 12 Months				Greater Than 12 Months					Total
	Estimated Fair Value		Gross Unrealized Loss		Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Book Value (1)
Floating Rate		$—		$—		$0.2		($1.1	)		$0.2		($1.1	)		$1.3
Fixed Rate		—		—		—		—			—		—			—
Total		$—		$—		$0.2		($1.1	)		$0.2		($1.1	)		$1.3

(1) Excludes, as of December 31, 2010, $2.2 million of securities which were carried at or below fair value and securities against which an other-than-temporary impairment equal to the entire book value was recognized in earnings.

As of December 31, 2010, one of our securities with a book value of $1.3 million was carried at a balance in excess of its fair value. Fair value for this security was $158,000 as of December 31, 2010. In total, as of December 31, 2010, we had seven investments in securities with an aggregate book value of $3.5 million that have an estimated fair value of $5.5 million, including three investments in CMBS with an estimated fair value of $5.3 million and four investments in CDOs and other securities with an estimated fair value of $158,000. These valuations do not include the value of interest rate swaps entered into in conjunction with the purchase/financing of these investments, if any.

We determine fair values using third party dealer assessments of value, and our own internal financial model-based estimations of fair value. See Note 17 for further discussion of fair value.

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Loans Receivable, Net

3 Months Ended

Sep. 30, 2011

Notes to Financial Statements

Loans Receivable, Net

Note 4. Loans Receivable, Net

As described in Note 1, in conjunction with our March 2011 restructuring of our recourse debt obligations, a significant portion of our assets, including all of our loans, were transferred to a majority-owned subsidiary, CT Legacy REIT. Our only remaining loans have been sold to third-parties and recorded as participations sold assets and liabilities, as further described in Note 8. In addition, as described in Note 2, our consolidated balance sheets separately state our direct assets and liabilities and certain assets and liabilities of consolidated VIEs. See Note 10 for disclosures regarding loans receivable that have been transferred to CT Legacy REIT, and see Note 11 for comparable disclosures regarding loans receivable that are held in consolidated securitization vehicles, as separately stated on our consolidated balance sheets.

Activity relating to our loans receivable for the nine months ended September 30, 2011 was as follows (in thousands):

	Gross Book Value			Provision for Loan Losses			Net Book Value (1)
December 31, 2010		$978,098			($371,780	)		$606,318
Satisfactions (2)		(71,070	)		—			(71,070	)
Principal paydowns		(15,152	)		—			(15,152	)
Discount/premium amortization & other		(7,653	)		—			(7,653	)
Recovery of provision for loan losses		—			7,914			7,914
Realized loan losses		(119,584	)		119,584			—
Transfer to CT Legacy REIT		(739,694	)		244,282			(495,412	)
September 30, 2011		$24,945			$—			$24,945

(1)	Includes loans with a total principal balance of $24.9 million and $979.1 million as of September 30, 2011 and December 31, 2010, respectively.
(2)	Includes final maturities, full repayments, and sales.

The following table details overall statistics for our loans receivable portfolio as of September 30, 2011 and December 31, 2010:

	September 30, 2011	December 31, 2010
Number of investments (1)	1	29
Fixed / Floating (in millions) (2)	$─ / $25	$55 / $551
Coupon (3) (4)	1.49%	4.02%
Yield (3) (4)	1.48%	3.81%
Maturity (years) (3) (5)	0.1	1.7

(1)	Our only remaining loan has been sold to third-parties and recorded as participations sold assets and liabilities, as further described in Note 8.
(2)	Represents the aggregate net book value of our portfolio allocated between fixed rate and floating rate loans.
(3)	Represents a weighted average as of December 31, 2010.
(4)	Calculations for floating rate loans are based on LIBOR of 0.24% and 0.26% as of September 30, 2011 and December 31, 2010, respectively.
(5)	Represents the final maturity of each investment assuming all extension options are executed.

The tables below detail the types of loans in our portfolio, as well as the property type and geographic distribution of the properties securing our loans as of September 30, 2011 and December 31, 2010 (in thousands):

	September 30, 2011				December 31, 2010
Asset Type	Book Value		Percentage		Book Value		Percentage
Subordinate interests in mortgages		$24,945		100%		$113,591		18%
Senior mortgages		—		―		240,150		39
Mezzanine loans		—		―		229,346		38
Other		—		―		23,231		5
Total		$24,945		100%		$606,318		100%
Property Type	Book Value		Percentage		Book Value		Percentage
Hotel		24,945		100%		$147,014		24%
Office		—		―		307,390		51
Healthcare		—		―		53,705		9
Multifamily		—		―		18,093		3
Retail		—		―		11,460		2
Other		—		―		68,656		11
Total		$24,945		100%		$606,318		100%
Geographic Location	Book Value		Percentage		Book Value		Percentage
Southeast		$11,978		48%		$170,400		28%
Southwest		10,782		43		94,491		15
Midwest		2,185		9		6,967		1
Northeast		—		―		175,297		29
West		—		―		54,688		9
Northwest		—		―		29,926		5
International		—		―		39,470		7
Diversified		—		―		35,079		6
Total		$24,945		100%		$606,318		100%

Loan risk ratings

Quarterly, management evaluates our loan portfolio for impairment as described in Note 2. In conjunction with our quarterly loan portfolio review, management assesses the performance of each loan, and assigns a risk rating based on several factors including risk of loss, LTV, collateral performance, structure, exit plan, and sponsorship. Loans are rated one (less risk) through eight (greater risk), which ratings are defined in Note 2.

The following table allocates the net book value and principal balance of our loans receivable based on our internal risk ratings as of September 30, 2011 and December 31, 2010 (in thousands):

		Loans Receivable as of September 30, 2011						Loans Receivable as of December 31, 2010
Risk Rating		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		1		$24,945		$24,945		10		$375,169		$374,885
	4 - 5		—		—		—		8		141,667		126,540
	6 - 8		—		—		—		11		462,221		104,893
Total			1		$24,945		$24,945		29		$979,057		$606,318

In making this risk assessment, one of the primary factors we consider is how senior or junior each loan is relative to other debt obligations of the borrower. The following tables further allocate our loans receivable by both loan type and our internal risk ratings as of September 30, 2011 and December 31, 2010 (in thousands):

		Senior Mortgage Loans
		as of September 30, 2011						as of December 31, 2010
Risk Rating		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		—		$—		$—		2		$129,200		$128,852
	4 - 5		—		—		—		4		57,554		57,513
	6 - 8		—		—		—		3		66,347		53,785
Total			—		$—		$—		9		$253,101		$240,150

		Subordinate Interests in Mortgages
		as of September 30, 2011						as of December 31, 2010
Risk Rating		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		1		$24,945		$24,945		1		$48,000		$48,000
	4 - 5		—		—		—		1		28,965		14,483
	6 - 8		—		—		—		5		110,585		51,108
Total			1		$24,945		$24,945		7		$187,550		$113,591

		Mezzanine & Other Loans
		as of September 30, 2011						as of December 31, 2010
Risk Rating		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		—		$—		$—		7		$197,969		$198,033
	4 - 5		—		—		—		3		55,148		54,544
	6 - 8		—		—		—		3		285,289		—
Total			—		$—		$—		13		$538,406		$252,577

Loan impairments

We have no impaired loans as of September 30, 2011. However, certain of our loans receivable which were transferred to CT Legacy REIT had previously been impaired, and are discussed in Note 10.

The following table details our average balance of impaired loans by loan type, and the income recorded on such loans subsequent to their impairment during the nine months ended September 30, 2011 (in thousands):

Income on Impaired Loans for the Nine Months Ended September 30, 2011
Asset Type	Average Net Book Value		Income Recorded (1)
Senior Mortgage Loans		$17,269		$255
Subordinate Interests in Mortgages		19,940		225
Mezzanine & Other Loans		—		1,915
Total		$37,209		$2,395

(1) Substantially all of the income recorded on impaired loans during the period was received in cash. See also Note 10 for disclosure of income recorded on impaired loans subsequent to their transfer to CT Legacy REIT, substantially all of which was also received in cash.

Nonaccrual loans

In accordance with our revenue recognition policies discussed in Note 2, we do not accrue interest on loans which are 90 days past due or, in the opinion of management, are otherwise uncollectable. Accordingly, we do not have any material interest receivable accrued on nonperforming loans as of September 30, 2011.

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Shareholders' Equity

3 Months Ended

Sep. 30, 2011

Notes to Financial Statements

Shareholders' Equity

Note 12. Shareholders’ Equity

Authorized Capital

We have the authority to issue up to 200,000,000 shares of stock, consisting of 100,000,000 shares of class A common stock and 100,000,000 shares of preferred stock. Subject to applicable NYSE listing requirements, our board of directors is authorized to issue additional shares of authorized stock without shareholder approval. In addition, to the extent not issued, currently authorized stock may be reclassified between class A common stock and preferred stock.

Common Stock

Shares of class A common stock are entitled to vote on all matters presented to a vote of shareholders, except as provided by law or subject to the voting rights of any outstanding preferred stock. Holders of record of shares of class A common stock on the record date fixed by our board of directors are entitled to receive such dividends as may be declared by the board of directors subject to the rights of the holders of any outstanding preferred stock. A total of 22,748,729 shares of common stock and stock units were issued and outstanding as of September 30, 2011.

We did not repurchase any of our common stock during the nine months ended September 30, 2011, other than the 34,892 shares we acquired pursuant to elections by incentive plan participants to satisfy tax withholding obligations through the surrender of shares equal in value to the amount of the withholding obligation incurred upon the vesting of restricted stock.

Preferred Stock

We have not issued any shares of preferred stock since we repurchased all of the previously issued and outstanding preferred stock in 2001.

Warrants

In conjunction with the March 2009 restructuring of our legacy repurchase obligations, we issued to our former repurchase lenders warrants to purchase an aggregate 3,479,691 shares of our class A common stock at an exercise price of $1.79 per share. The warrants will become exercisable on March 16, 2012 and expire on March 16, 2019, and may be exercised through a cashless exercise at the option of the warrant holders. The fair value assigned to these warrants, totaling $940,000, has been recorded as an increase to additional paid-in capital, and was amortized into interest expense over the term of the related debt obligations. The warrants were valued using the Black-Scholes valuation method.

Dividends

We generally intend to distribute each year substantially all of our taxable income (which does not necessarily equal net income as calculated in accordance with GAAP) to our shareholders to comply with the REIT provisions of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. To the extent permitted, we may make certain distributions in stock, taking into consideration the recent Internal Revenue Service rulings which allow REITs to distribute up to 90% of their dividends in the form of stock for tax years ending on or before December 31, 2011.

In addition, ourdividend policy remains subject to revision at the discretion of our board of directors. All distributions will be made at the discretion of our board of directors and will depend upon our taxable income, our financial condition, our maintenance of REIT status and other factors as our board of directors deems relevant.

No dividends were declared during the nine months ended September 30, 2011 or 2010.

Accumulated Other Comprehensive Loss

The following table details the primary components of accumulated other comprehensive loss as of September 30, 2011 and significant activity for the nine months ended September 30, 2011 (in thousands):

	Mark-to-Market on Interest Rate Hedges			Deferred Gains on Settled Hedges			Other-than-Temporary Impairments			Unrealized Gains on Securities			Total
December 31, 2010		($37,914	)		$165			($16,800	)		$4,087			($50,462	)
Consolidation of additional securitization vehicles (1)		—			—			538			—			538
Unrealized gain on derivative financial instruments		2,912			—			—			—			2,912
Ineffective portion of cash flow hedges (2)		4,447			—			—			—			4,447
Amortization of net unrealized gains on securities		—			—			—			(93	)		(93	)
Amortization of net deferred gains on settlement of swaps		—			(75	)		—			—			(75	)
Other-than-temporary impairments of securities (3)		—			—			4,236			—			4,236
September 30, 2011		($30,555	)		$90			($12,026	)		$3,994			($38,497	)

(1)	As further described above, we began consolidating an additional securitization vehicle in the third quarter of 2011. This newly consolidated vehicle was previously accounted for as part of CT Legacy REIT’s securities portfolio. This security had previously been other-than-temporarily impaired, a portion of which was recorded in accumulated other comprehensive income, and is now eliminated in consolidation.
(2)	As a result of significant repayments under floating rate debt obligations of CT Legacy REIT a portion of its interest rate swaps were deemed ineffective in the second quarter of 2011 and are no longer designated as hedging instruments. As a result, a portion of accumulated other comprehensive income is reclassified into earnings each period to reflect the non-hedge designation. See Note 10 for further discussion.
(3)	Represents the reclassification of other-than-temporary impairments of securities to credit losses recognized through earnings, including amortization of prior other-than-temporary impairments of $1.1 million.

Noncontrolling Interests

The noncontrolling interests included on our consolidated balance sheet represent the equity interests in CT Legacy REIT which are not owned by us, as described in Note 1. CT Legacy REIT’s outstanding common stock includes class A-1 common stock, class A-2 common stock, and subordinate class B common stock. A portion of CT Legacy REIT’s consolidated equity and results of operations are allocated to these noncontrolling interests based on their pro-rata ownership of CT Legacy REIT. The following table describes activity relating to noncontrolling interests for the nine months ended September 30, 2011 (in thousands):

	Noncontrolling Interests
December 31, 2010		$—
Allocation to noncontrolling interests		(12,623	)
Net income attributable to noncontrolling interests		1,935
September 30, 2011		($10,688	)

As of September 30, 2011, the noncontrolling interests recorded on our consolidated balance sheet was a deficit, which reflects the consolidated book value of CT Legacy REIT, including certain securitization trusts in which losses have been recorded in excess of CT Legacy REIT’s net investment.

During the second quarter of 2011, we purchased 118,651 shares of class B common stock of CT Legacy REIT which were issued to our former lenders in conjunction with our March 2011 restructuring. This purchase did not impact the book value of noncontrolling interests.

Earnings Per Share

The following table sets forth the calculation of Basic and Diluted earnings per share, or EPS, based on the weighted average of both restricted and unrestricted class A common stock outstanding, for the nine months ended September 30, 2011 (in thousands, except share and per share amounts):

	Nine Months Ended September 30, 2011
	Net		Wtd. Avg.		Per Share
	Income		Shares		Amount
Basic EPS:
Net income allocable to common stock		$266,464		22,630,672		$11.77
Effect of Dilutive Securities:
Warrants & Options outstanding for the purchase of common stock		—		1,426,702
Diluted EPS:
Net income per share of common stock and assumed conversions		$266,464		24,057,374		$11.08

The following table sets forth the calculation of Basic and Diluted EPS based on the weighted average of both restricted and unrestricted class A common stock outstanding, for the nine months ended September 30, 2010 (in thousands, except share and per share amounts):

	Nine Months Ended September 30, 2010
	Net			Wtd. Avg.		Per Share
	Loss			Shares (1)		Amount
Basic EPS:
Net loss allocable to common stock		($195,259	)		22,356,857		($8.73	)
Effect of Dilutive Securities:
Warrants & Options outstanding for the purchase of common stock		—			—
Diluted EPS:
Net loss per share of common stock and assumed conversions		($195,259	)		22,356,857		($8.73	)

(1) Diluted EPS excludes 129,000 options and 3.5 million warrants which were not dilutive for the period. These instruments could potentially impact Diluted EPS in future periods, depending on changes in our stock price.

The following table sets forth the calculation of Basic and Diluted earnings per share, or EPS, based on the weighted average of both restricted and unrestricted class A common stock outstanding, for the three months ended September 30, 2011 (in thousands, except share and per share amounts):

	Three Months Ended September 30, 2011
	Net		Wtd. Avg.		Per Share
	Income		Shares		Amount
Basic EPS:
Net income allocable to common stock		$13,722		22,730,080		$0.60
Effect of Dilutive Securities:
Warrants & Options outstanding for the purchase of common stock		—		1,391,893
Diluted EPS:
Net income per share of common stock and assumed conversions		$13,722		24,121,973		$0.57

The following table sets forth the calculation of Basic and Diluted EPS based on the weighted average of both restricted and unrestricted class A common stock outstanding, for the three months ended September 30, 2010 (in thousands, except share and per share amounts):

	Three Months Ended September 30, 2010
	Net			Wtd. Avg.		Per Share
	Loss			Shares (1)		Amount
Basic EPS:
Net loss allocable to common stock		($134,709	)		22,389,901		($6.02	)
Effect of Dilutive Securities:
Warrants & Options outstanding for the purchase of common stock		—			—
Diluted EPS:
Net loss per share of common stock and assumed conversions		($134,709	)		22,389,901		($6.02	)

(1) Diluted EPS excludes 129,000 options and 3.5 million warrants which were not dilutive for the period. These instruments could potentially impact Diluted EPS in future periods, depending on changes in our stock price.

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Loans Held for Sale, Net

3 Months Ended

Sep. 30, 2011

Notes to Financial Statements

Loans Held for Sale, Net

Note 5. Loans Held-for-Sale, Net

Activity relating to our loans held-for-sale for the nine months ended September 30, 2011 was as follows (in thousands):

	Gross Book Value			Valuation Allowance			Net Book Value
December 31, 2010		$16,130			($10,380	)		$5,750
Satisfactions		(16,130	)		10,380			(5,750	)
September 30, 2011		$—			$—			$—

During the second quarter of 2010, we reclassified a $16.1 million mezzanine loan to loans held-for-sale, against which we have previously recorded a provision for loan losses of $10.6 million. During 2010, we increased the book value of this loan by $263,000 resulting in a net book value of $5.8 million as of December 31, 2010. The loan was subsequently sold in January 2011 for its net book value of $5.8 million.

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Income Taxes

3 Months Ended

Sep. 30, 2011

Notes to Financial Statements

Income Taxes

Note 15. Income Taxes

Capital Trust, Inc. has made an election to be taxed as a REIT under Section 856(c) of the Internal Revenue Code, commencing with the tax year ending December 31, 2003. As a REIT, we generally are not subject to federal, state, and local income taxes except for the operations of our taxable REIT subsidiary, CTIMCO. To maintain qualification as a REIT, we must distribute at least 90% of our annual REIT taxable income to our shareholders and meet certain other requirements. If we fail to maintain our qualification as a REIT, we may be subject to material penalties as well as federal, state and local income tax on our taxable income at regular corporate rates. As of September 30, 2011 and December 31, 2010, Capital Trust, Inc. was in compliance with all REIT requirements.

In addition, Capital Trust, Inc. includes in its taxable income, the income generated by investments in our CT CDOs. Due to the redirection provisions of our CT CDOs, which reallocate principal proceeds and interest otherwise distributable to us to repay senior noteholders, assets financed through our CT CDOs may generate current taxable income without a corresponding cash distribution to us. See Note 11 for further discussion of these redirection provisions.

As of December 31, 2010, Capital Trust, Inc. had net operating losses, or NOLs, and net capital losses, or NCLs, available to be carried forward and utilized in current or future periods. These included NOLs of approximately $302.0 million and NCLs of approximately $129.0 million at Capital Trust, Inc., as well as NOLs of approximately $3.6 million at CTIMCO. As a result of our March 2011 restructuring, Capital Trust, Inc. will realize cancellation of indebtedness income of approximately $180.5 million for the 2011 taxable year which will reduce the available NOLs. The utilization of NOLs will also require us to pay alternative minimum taxes of approximately $2.0 million.

Deferred income taxes recorded on our consolidated balance sheets reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used in the computation of our current income tax obligations.

Our consolidated financial statements also include tax provisions related to taxable REIT subsidiaries of CT Legacy REIT. Although CT Legacy REIT is taxed separately from Capital Trust, Inc., its operations, including any income tax provisions, are consolidated for financial reporting purposes. The portion of our consolidated income tax provision related to CT Legacy REIT is immaterial for the nine months ended September 30, 2011.

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Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Cash flows from operating activities:
Net income (loss)	$ 268,399	$ (195,259)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net impairments recognized in earnings	39,773	61,704
(Recovery of) provision for loan losses	(34,401)	150,143
Valuation allowance on loans held for sale	224	6,036
Gain on extinguishment of debt	(271,031)	(648)
Income from equity investments	(2,105)	(2,358)
Employee stock-based compensation	411	107
Incentive awards plan expense	3,395
Deferred directors' compensation	150	150
Amortization of premiums/discounts on loans and securities and deferred interest on loans	(969)	(2,581)
Amortization of deferred gains and losses on settlement of swaps	(75)	(74)
Amortization of deferred financing costs and premiums/discounts on debt obligations	9,304	5,596
Deferred interest on senior credit facility		2,954
Loss on interest rate swaps not designated as cash flow hedges	6,255
Changes in assets and liabilities, net:
Accrued interest receivable	3,406	351
Deferred income taxes	(1,093)	877
Prepaid expenses and other assets	624	1,178
Accounts payable and accrued expenses	(2,931)	56
Net cash provided by operating activities	19,336	28,232
Cash flows from investing activities:
Principal collections and proceeds from securities	70,929	35,806
Add-on fundings under existing loan commitments		(1,562)
Distributions from equity investments	4,345
Principal collections of loans receivable	1,879,041	183,761
Proceeds from disposition of loans	5,750	23,548
Contributions to unconsolidated subsidiaries	(3,413)	(2,917)
Distributions from unconsolidated subsidiaries	3,839	29
Increase in restricted cash	(13,715)
Net cash provided by investing activities	1,946,776	238,665
Cash flows from financing activities:
Repayments under repurchase obligations	(306,042)	(42,568)
Repayments under senior credit facility	(22,932)	(3,750)
Repayment of junior subordinated notes	(4,640)
Borrowing under mezzanine loan	83,000
Repayments under mezzanine loan	(20,000)
Repayment of securitized debt obligations	(1,679,970)	(224,384)
Payment of financing expenses	(11,126)
Purchase of noncontrolling interests	(142)
Purchase of secured notes	(405)
Vesting of restricted class A common stock	(85)
Net cash used in financing activities	(1,962,342)	(270,702)
Net increase (decrease) in cash and cash equivalents	3,770	(3,805)
Cash and cash equivalents at beginning of period	24,449	27,954
Cash and cash equivalents at end of period	$ 28,219	$ 24,149

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Employee Benefit and Incentive Plans

3 Months Ended

Sep. 30, 2011

Notes to Financial Statements

Employee Benefit and Incentive Plans

Note 16. Employee Benefit and Incentive Plans

Stock-Based Incentive Plans

We had stock-based incentive awards outstanding under three benefit plans as of September 30, 2011: (i) the Amended and Restated 1997 Non-Employee Director Stock Plan, or 1997 Director Plan, (ii) the 2007 Long-Term Incentive Plan, or 2007 Plan, and (iii) the 2011 Long-Term Incentive Plan, or 2011 Plan. The 1997 Director Plan and the 2007 Plan expired in 2007 and June 2011, respectively and no new awards may be issued under them. Under the 2011 Plan, a maximum of 1 million shares of class A common stock may be issued. Shares canceled under previous plans are available to be reissued under the 2011 Plan. As of September 30, 2011, there were 969,183 shares available under the 2011 Plan.

Under these plans, our employees are issued shares of our restricted class A common stock. We record grant date fair value of these shares as an expense over their vesting period. A portion of these shares vest pro-rata over a three-year service period, with the remainder contingently vesting after a four-year period based on the returns we have achieved.

As of September 30, 2011, unvested share-based compensation consisted of 244,424 shares of restricted class A common stock with an unamortized value of $410,000. Subject to vesting conditions and the continued employment of certain employees, these costs will be recognized as compensation expense over the next two and a half years.

Activity under these three plans for the nine months ended September 30, 2011 is summarized in the table below in share and share equivalents:

Benefit Type	1997 Employee Plan			1997 Director Plan		2007 Plan			2011 Plan		Total
Options
Beginning balance		12,224			—		—			—		12,224
Expired		(12,224	)		—		—			—		(12,224	)
Ending balance		—			—		—			—		—
Restricted Class A Common Stock(1)
Beginning balance		—			—		32,785			—		32,785
Granted		—			—		300,000			—		300,000
Vested		—			—		(88,361	)		—		(88,361	)
Ending balance		—			—		244,424			—		244,424
Stock Units(2)
Beginning balance		—			68,544		416,855			—		485,399
Granted and deferred		—			—		21,405			30,817		52,222
Ending balance		—			68,544		438,260			30,817		537,621
Total outstanding		—			68,544		682,684			30,817		782,045

(1)	Comprised of both performance based awards that vest upon the attainment of certain common equity return thresholds and time based awards that vest based upon an employee’s continued employment on pre-established vesting dates.
(2)	Stock units are granted to certain members of our board of directors in lieu of cash compensation for services and in lieu of dividends earned on previously granted stock units.

A summary of the unvested restricted class A common stock as of and for the nine months ended September 30, 2011 was as follows:

	Restricted Class A Common Stock
	Shares			Grant Date Fair Value
Unvested at January 1, 2011		32,785			$5.67
Granted		300,000			2.29
Vested		(88,361	)		2.62
Unvested at September 30, 2011		244,424			$2.65

A summary of the unvested restricted class A common stock as of and for the nine months ended September 30, 2010 was as follows:

	Restricted Class A Common Stock
	Shares			Grant Date Fair Value
Unvested at January 1, 2010		79,023			$7.99
Granted		16,875			1.27
Vested		(45,287	)		8.16
Unvested at September 30, 2010		50,611			$6.43

The total grant date fair value of restricted shares that vested during the nine months ended September 30, 2011 and 2010 was$231,000 and $127,000, respectively.

Incentive Management Fee Grants

In addition to the equity interests detailed above, we may grant percentage interests in the incentive compensation received by us from certain of our investment management vehicles. As of September 30, 2011, we had granted 45% of the CTOPI incentive compensation to our employees.

CT Legacy REIT Management Incentive Awards Plan

As described in Note 1, incentive awards have been issued to certain of our senior level employees which entitle them to as much as 6.75% of the recovery (subject to certain caps) of our legacy assets, net of CT Legacy REIT’s obligations, when and if distributed to us as dividends.

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Supplemental Disclosures Consolidated Statements of Cash Flows

3 Months Ended

Sep. 30, 2011

Notes to Financial Statements

Supplemental Disclosures Consolidated Statements of Cash Flows

Note 18. Supplemental Disclosures for Consolidated Statements of Cash Flows

As described in Note 2, our financial statements include eleven consolidated securitization vehicles. The consolidation of these entities has materially impacted our statement of cash flows, primarily the amounts reported as principal collections of loans and repayments of securitized debt obligations. Notwithstanding the gross presentation on our consolidated statement of cash flows, the consolidation of these entities has no impact on our net cash flow.

Interest paid on our outstanding debt obligations during the nine months ended September 30, 2011 and 2010 was $85.2 million and $79.9 million, respectively. The difference between interest expense on our consolidated statement of operations and interest paid is primarily due to non-cash interest expense recorded on loan participations sold, as well as amortization of discounts on our debt obligations.

Net taxes paid by us during the nine months ended September 30, 2011 were $2.4 million and taxes recovered by us for the nine months ended September 30, 2010 were $132,000.

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Organization

3 Months Ended

Sep. 30, 2011

Notes to Financial Statements

Organization

Note 1. Organization

References herein to “we,” “us” or “our” refer to Capital Trust, Inc. and its subsidiaries unless the context specifically requires otherwise.

We are a fully integrated, self-managed, real estate finance and investment management company that specializes in credit sensitive financial products. To date, our investment programs have focused on loans and securities backed by commercial real estate assets. We invest for our own account directly on our balance sheet and for third parties through a series of investment management vehicles. Our business model is designed to produce a mix of net interest margin from our balance sheet investments, and fee income and co-investment income from our investment management vehicles. In managing our operations, we focus on originating investments, managing our portfolios and capitalizing our businesses. From the inception of our finance business in 1997 through September 30, 2011, we have completed approximately $12.0 billion of investments in the commercial real estate debt arena. We conduct our operations as a real estate investment trust, or REIT, for federal income tax purposes. We are traded on the New York Stock Exchange, or NYSE, under the symbol “CT”, and are headquartered in New York City.

March 2011 Restructuring

On March 31, 2011, we restructured, amended, or extinguished all of our outstanding recourse debt obligations, which we refer to as our March 2011 restructuring. Our March 2011 restructuring involved: (i) the contribution of certain of our legacy assets to a newly formed subsidiary, CT Legacy REIT Mezz Borrower, Inc., or CT Legacy REIT, (ii) the assumption of our legacy repurchase obligations by CT Legacy REIT, and (iii) the extinguishment of the remainder of our recourse obligations, our senior credit facility and junior subordinated notes. The restructuring was financed with a new $83.0 million mezzanine loan obtained by CT Legacy REIT from an affiliate of Five Mile Capital Partners LLC, or Five Mile, and the issuance of equity interests in the common stock of CT Legacy REIT to our former junior subordinated noteholders and former lenders under our senior credit facility, as well as to an affiliate of Five Mile.

Capital Trust, Inc.

Following the completion of our March 2011 restructuring, we no longer have any recourse debt obligations, and retain unencumbered ownership of 100% of (i) our investment management platform, CT Investment Management Co., LLC, (ii) our co-investment in CT Opportunity Partners I, LP, (iii) our residual ownership interests in CT CDOs I, II, and IV, and (iv) our tax-basis net operating losses. Furthermore, we have a 52% equity interest in the common stock of CT Legacy REIT. Our economic interest in CT Legacy REIT is, however, subject to (i) the secured notes, which are non-recourse obligations that are collateralized by certain of our retained equity interests in the common stock of CT Legacy REIT, (ii) incentive awards that provide for the participation in our retained equity interests in CT Legacy REIT, and (iii) the subordinate class B common stock of CT Legacy REIT owned by our former junior subordinate noteholders. See below for further discussion of the secured notes, management incentive awards plan, and class B common stock.

In addition to our interest in the common stock of CT Legacy REIT, we also own 100% of its outstanding class A preferred stock. The class A preferred stock initially entitles us to cumulative preferred dividends of $7.5 million per annum, which dividends will be reduced in January 2013 to the greater of (i) 2.5% of CT Legacy REIT’s assets, and (ii) $1.0 million per annum.

CT Legacy REIT

In connection with the restructuring, we transferred substantially all of our directly held interest earning assets to CT Legacy REIT. The transferred assets included: (i) all of the loans and securities which serve as collateral for the legacy repurchase obligations, except for certain subordinate interests in CT CDOs I and II, (ii) our subordinate interests in CT CDO III, and (iii) 100% of our previously unencumbered loans and securities, which we collectively refer to as our Legacy Assets.

CT Legacy REIT, which is expected to be taxed as a REIT commencing in 2011, is beneficially owned 52% by us, 24% by an affiliate of Five Mile, and 24% by the former lenders under our senior credit facility. In addition, the former holders of our junior subordinated notes received class B common stock, a subordinate class of common stock of CT Legacy REIT, which is described below. Capital Trust, Inc. will manage CT Legacy REIT and the Legacy Assets as a liquidating portfolio.

During the second and third quarters of 2011, the CT Legacy REIT portfolio received repayments of $265.9 million, including full loan satisfactions of $224.8 million and partial repayments of $41.1 million, which repayments represented approximately 50% of the initial net book value of the CT Legacy REIT portfolio.

Mezzanine Loan

CT Legacy REIT entered into an $83.0 million mezzanine loan (which was subsequently reduced to $64.1 million, including deferred interest, as of September 30, 2011) that carries a 15.0% per annum interest rate, of which 7.0% per annum may be deferred, and that matures on March 31, 2016. The mezzanine loan is not recourse to Capital Trust, Inc. except for certain limited non-recourse, “bad boy” carve outs. Proceeds from the mezzanine loan were used to (i) extinguish the senior credit facility, (ii) extinguish the junior subordinated notes, (iii) provide for cash paydowns of the repurchase obligations, (iv) pay transaction expenses, and (v) establish liquidity reserves at CT Legacy REIT.

The mezzanine loan is collateralized by 100% of the equity interests in a subsidiary of CT Legacy REIT, which in-turn owns all of our Legacy Assets, subject in part to the repurchase obligations. Five Mile has consent rights with respect to material actions on the Legacy Assets such as material modifications, sales, and/or the pursuit of certain remedies with regard to the Legacy Assets. The mezzanine loan also contains covenants that (i) prohibit CT Legacy REIT from paying common stock cash dividends until the mezzanine loan has been repaid, (ii) prohibit us from selling or otherwise transferring our equity interests in CT Legacy REIT, and (iii) require the continued employment of certain key employees.

During the second quarter of 2011, $20.0 million of the mezzanine loan was repaid using proceeds from the satisfaction of former repurchase facility collateral assets. As further described below, during the second quarter of 2011, the Morgan Stanley and Citigroup repurchase obligations were terminated and the remaining collateral thereunder was released.

In addition, as discussed above, an affiliate of Five Mile acquired a 24% equity interest in the common stock of CT Legacy REIT in conjunction with the making of the mezzanine loan.

Repurchase Obligations

Our $339.6 million of legacy repurchase obligations (which were subsequently reduced to $66.7 million as of September 30, 2011) with JP Morgan, Morgan Stanley and Citigroup were assumed by wholly-owned subsidiaries of CT Legacy REIT, and the recourse to Capital Trust, Inc. was eliminated. In addition, the facilities were amended with the following terms:

· Each of the repurchase lenders received cash paydowns equal to 10% of their then outstanding balances, in the aggregate $33.9 million.

· Except for certain key man provisions, all restrictive covenants governing the operations of Capital Trust, Inc. were eliminated, including covenants restricting employee compensation, dividend payments, and new balance sheet investments.

· Net interest margin sweep and periodic amortization provisions were eliminated.

· All forms of margin call or similar requirements under the facilities were eliminated.

· Maturity dates were extended to December 15, 2014 in the case of JP Morgan, January 31, 2013 in the case of Morgan Stanley, and March 31, 2013 in the case of Citigroup, subject in all three cases to periodic required repayment thresholds.

· Interest rates were increased to LIBOR + 2.50% per annum in the cases of JP Morgan and Morgan Stanley, and LIBOR + 1.50% per annum in the case of Citigroup, subject in all three cases to periodic rate increases over the term of each respective facility.

During the second and third quarters of 2011, $238.1 million of the legacy repurchase obligations were repaid, including the full repayment and termination of the Morgan Stanley and Citigroup facilities and a release of the remaining collateral thereunder, as well as a $106.8 million repayment of the JP Morgan facility.

Senior Credit Facility

Our $98.1 million senior credit facility was fully satisfied and all collateral for the senior credit facility was released in exchange for (i) a cash payment of $22.9 million, (ii) a 24% equity interest in the common stock of CT Legacy REIT, and (iii) $2.8 million of secured notes, as further discussed below.

Junior Subordinated Notes

Our $143.8 million of junior subordinated notes were fully satisfied in exchange for (i) a cash payment of $4.6 million, (ii) 100% of the subordinate class B common stock of CT Legacy REIT, as further described below, and (iii) $5.0 million of secured notes, as further discussed below. The subordinate class B common stock is a subordinate class that entitles its holders to receive approximately 25% of the dividends that would otherwise be payable to us on certain of our equity interest in the common stock of CT Legacy REIT, after aggregate cash distributions of $50.0 million have been paid to all other classes of common stock.

In April 2011, we purchased 118,651 shares of class B common stock of CT Legacy REIT for an average price of $1.20 per share.

Secured Notes

In conjunction with the satisfaction of the senior credit facility and the junior subordinated notes, a wholly-owned subsidiary issued secured notes to our former creditors, which secured notes are non-recourse to us. The secured notes had an aggregate initial face balance of $7.8 million and are secured by 93.5% of our equity interests in the class A-1 and class A-2 common stock of CT Legacy REIT, which represents 48.3% of the total outstanding class A-1 and class A-2 common stock of CT Legacy REIT. The secured notes mature on March 31, 2016 and bear interest at a rate of 8.2% per annum, which interest may be deferred until maturity. All dividends we receive from our equity interests in the common stock of CT Legacy REIT which serve as collateral under the secured notes must be used to pay, or prepay, interest and principal due thereunder. Any prepayment, or partial prepayment, of the remaining secured notes will incur a prepayment premium resulting in a total payment of principal and interest under the secured notes of $11.1 million.

In April 2011, we purchased $405,000 of the secured notes at par.

Management Incentive Awards Plan

Upon completion of our March 2011 restructuring, we granted senior level employees incentive awards issued under our long term incentive plan that participate in amounts earned from our retained equity interest in CT Legacy REIT. The awards provide payments to certain senior level employees equal to as much as 6.75% of the total recovery (subject to certain caps) of our Legacy Assets, net of CT Legacy REIT’s obligations, when and if distributed to us as dividends.

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CT Legacy REIT, Excluding Securitization Vehicles

3 Months Ended

Sep. 30, 2011

Notes to Financial Statements

CT Legacy REIT, Excluding Securitization Vehicles

Note 10. CT Legacy REIT, Excluding Securitization Vehicles

As described in Note 1, on March 31, 2011, we restructured, amended, or extinguished all of our outstanding recourse debt obligations, and contributed certain of our legacy assets and debt obligations to a newly formed subsidiary, CT Legacy REIT Mezz Borrower, Inc., or CT Legacy REIT.

CT Legacy REIT is a consolidated VIE that is economically owned 52% by us, 24% by an affiliate of Five Mile, and 24% by the former lenders under our senior credit facility. In addition, the former holders of our junior subordinated notes received class B common stock of CT Legacy REIT, a subordinate class of common stock which entitles its holders to receive approximately 25% of the dividends that would otherwise be payable to us on our equity interest in the common stock of CT Legacy REIT, after aggregate cash distributions of $50.0 million have been paid to all other classes of common stock.

As of September 30, 2011, our consolidated balance sheet includes an aggregate $260.1 million of assets and $227.5 million of liabilities related to CT Legacy REIT. In addition, CT Legacy REIT consolidates three securitization trusts which are presented on our consolidated balance sheets with other securitization trusts owned by us directly, which are discussed in Note 11.

The liabilities of CT Legacy REIT are all non-recourse to us, and we are not obligated to provide, nor have we provided, any financial support to CT Legacy REIT. Accordingly, other than in the event of a breach of certain limited non-recourse, “bad boy” carve outs, our maximum exposure to loss as a result of our investment in CT Legacy REIT is limited to $162.9 million, the face amount of our equity interest in CT Legacy REIT’s net assets. After giving effect to provisions for loan losses and other-than-temporary impairments recorded as of September 30, 2011, our remaining net exposure to loss from CT Legacy REIT is $61.1 million.

As described in Note 2, our consolidated balance sheets separately present: (i) our direct assets and liabilities, (ii) the direct assets and liabilities of CT Legacy REIT, and (iii) the assets and liabilities of consolidated securitization vehicles, some of which are subsidiaries of CT Legacy REIT. The following disclosures relate specifically to the direct assets and liabilities of CT Legacy REIT, as separately stated on our consolidated balance sheets.

A. Securities Held-to-Maturity – CT Legacy REIT

CT Legacy REIT’s securities portfolio consists of CMBS, CDOs, and other securities. Activity relating to these securities for the nine months ended September 30, 2011 was as follows (in thousands):

	CMBS			CDOs & Other		Total Book Value (1)
December 31, 2010		$—			$—		$—
Transfer from Capital Trust, Inc.		2,356			1,221		3,577
Principal paydowns		(94	)		—		(94	)
Consolidation of additional securitization vehicle (2)		(1,120	)		—		(1,120	)
Discount/premium amortization & other (3)		205			23		228
September 30, 2011		$1,347			$1,244		$2,591

(1)	Includes securities with a total face value of $29.5 million as of September 30, 2011.
(2)	Beginning in the third quarter of 2011, CT Legacy REIT consolidated an additional securitization vehicle, which was previously accounted for as part of its securities portfolio with a net book value of $1.1 million. See Note 11 for additional discussion.
(3)	Includes mark-to-market adjustments on securities previously classified as available-for-sale, amortization of other-than-temporary impairments, and losses, if any.

As of September 30, 2011, all of CT Legacy REIT’s securities were classified as held-to-maturity.

The following table allocates the book value of CT Legacy REIT’s securities as of September 30, 2011 between their amortized cost basis, amounts related to mark-to-market adjustments on securities previously classified as available-for-sale, and the portion of other-than-temporary impairments not related to expected credit losses (in thousands):

	CMBS			CDOs & Other		Total Securities
Amortized cost basis		$2,369			$1,244		$3,613
Mark-to-market adjustments on securities previously classified     as available-for-sale		(531	)		—		(531	)
Other-than-temporary impairments recognized in accumulated    other comprehensive income		(491	)		—		(491	)
Total book value as of September 30, 2011		$1,347			$1,244		$2,591

The following table details overall statistics for CT Legacy REIT’s securities portfolio as of September 30, 2011 and December 31, 2010:

	September 30, 2011	December 31, 2010
Number of securities	6	─
Number of issues	5	─
Rating (1) (2)	CCC	N/A
Fixed / Floating (in millions) (3)	$2 / $1	$─ / $─
Coupon (1) (4)	8.38%	N/A
Yield (1) (4)	6.41%	N/A
Life (years) (1) (5)	5.6	N/A

(1)	Represents a weighted average as of September 30, 2011.
(2)	Weighted average ratings are based on the lowest rating published by Fitch Ratings, Standard & Poor’s or Moody’s Investors Service for each security.
(3)	Represents the aggregate net book value of the portfolio allocated between fixed rate and floating rate securities.
(4)	Coupon is based on the securities’ contractual interest rates, while yield is based on expected cash flows for each security, and considers discounts/premiums and asset non-performance. Calculations for floating rate securities are based on LIBOR of 0.24% as of September 30, 2011.
(5)	Weighted average life is based on the timing and amount of future expected principal payments through the expected repayment date of each respective investment.

The table below details the ratings and vintage distribution of CT Legacy REIT’s securities as of September 30, 2011 (in thousands):

	Rating as of September 30, 2011
Vintage		B	CCC and Below		Total
2003		$—		$1,246		$1,246
1997		189		—		189
1996		—		1,156		1,156
Total		$189		$2,402		$2,591

Other-than-temporary impairments

Certain of the securities which were transferred to CT Legacy REIT have previously been other-than-temporarily impaired both during the nine months ended September 30, 2011, and in prior periods. The following table summarizes activity related to the other-than-temporary impairments of these securities as of September 30, 2011 (in thousands):

	Gross Other-Than-Temporary Impairments			Credit Related Other-Than-Temporary Impairments			Non-Credit Related Other-Than-Temporary Impairments
December 31, 2010		$—			$—			$—
Transfer from Capital Trust, Inc.		30,470			29,362			1,108
Amortization of other-than-temporary impairments		(228	)		(149	)		(79	)
Consolidation of additional securitization vehicle (1)		(3,357	)		(2,819	)		(538	)
September 30, 2011		$26,885			$26,394			$491

(1) Beginning in the third quarter of 2011, CT Legacy REIT consolidated an additional securitization vehicle, which was previously accounted for as part of its securities portfolio with an other-than-temporary impairment of $3.4 million. See Note 11 for additional discussion.

Unrealized losses and fair value of securities

Certain of CT Legacy REIT’s securities are carried at values in excess of their fair values. This difference can be caused by, among other things, changes in credit spreads and interest rates. The following table shows the gross unrealized losses and fair value of securities for which the fair value is lower than their book value as of September 30, 2011, and that are not deemed to be other-than-temporarily impaired (in millions):

	Less Than 12 Months				Greater Than 12 Months					Total
	Estimated Fair Value		Gross Unrealized Loss		Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Book Value (1)
Floating Rate		$—		$—		$0.2		($1.1	)		$0.2		($1.1	)		$1.3
Fixed Rate		—		—		—		—			—		—			—
Total		$—		$—		$0.2		($1.1	)		$0.2		($1.1	)		$1.3

(1) Excludes, as of September 30, 2011, $1.3 million of securities which were carried at or below fair value and securities against which an other-than-temporary impairment equal to the entire book value was recognized in earnings.

As of September 30, 2011, one of CT Legacy REIT's securities with a book value of $1.3 million was carried at a value in excess of its fair value. Fair value for this security was $158,000 as of September 30, 2011. In total, as of September 30, 2011, CT Legacy REIT had six investments in securities with an aggregate book value of $2.6 million that have an estimated fair value of $1.8 million, including two investments in CMBS with an estimated fair value of $1.6 million and four investments in CDOs and other securities with an estimated fair value of $158,000.

We determine fair values using third party dealer assessments of value, and our own internal financial model-based estimations of fair value. See Note 17 for further discussion of fair value. We regularly examine our securities portfolio and have determined that, despite the differences between book value and fair value discussed above, our expectations of future cash flows have changed adversely for six of our securities, against which we have recognized other-than-temporary-impairments.

Our estimation of cash flows expected to be generated by our securities portfolio is based upon an internal review of the underlying loans securing our investments both on an absolute basis and compared to our initial underwriting for each investment. Our efforts are supplemented by third-party research reports, third-party market assessments and our dialogue with market participants. As of September 30, 2011, we do not intend to sell our securities, nor do we believe it is more likely than not that we will be required to sell our securities before recovery of their amortized cost bases, which may be at maturity. This, combined with our assessment of cash flows, is the basis for our conclusion that these investments are not impaired, other than as described above, despite the differences between estimated fair value and book value. We attribute the difference between book value and estimated fair value to the current market dislocation and a general negative bias against structured financial products such as CMBS and CDOs.

Investments in variable interest entities

CT Legacy REIT’s securities portfolio includes investments in both CMBS and CDOs, which securitization structures are generally considered VIEs. We have not consolidated these VIEs due to our determination that, based on the structural provisions of each entity and the nature of our investments, we do not have the power to direct the activities that most significantly impact these entities' economic performance.

These securities were acquired through investment, and do not represent a securitization or other transfer of our assets. We are not named as special servicer on these investments, nor do we have the right to name special servicer.

CT Legacy REIT is not obligated to provide, nor has it provided, any financial support to these entities. As of September 30, 2011, CT Legacy REIT’s maximum exposure to loss as a result of its investment in these entities is $29.5 million, the principal amount of its securities portfolio. We have recorded other-than-temporary impairments of $26.9 million against this portfolio, resulting in a net exposure to loss of $2.6 million as of September 30, 2011.

B. Loans Receivable, Net – CT Legacy REIT

Activity relating to CT Legacy REIT’s loans receivable for the nine months ended September 30, 2011 was as follows (in thousands):

	Gross Book Value			Provision for Loan Losses			Net Book Value (1)
December 31, 2010		$—			$—			$—
Transfer from Capital Trust, Inc. on March 31, 2011		739,694			(244,282	)		495,412
Satisfactions (2)		(241,442	)		—			(241,442	)
Principal paydowns		(20,596	)		—			(20,596	)
Discount/premium amortization & other		936			—			936
Provision for loan losses		—			5,049			5,049
Realized loan losses		(1,434	)		1,434			—
Reclassification to loans held-for-sale		(32,331	)		—			(32,331	)
September 30, 2011		$444,827			($237,799	)		$207,028

(1)	Includes loans with a total principal balance of $444.5 million as of September 30, 2011.
(2)	Includes final maturities, full repayments, and sales.

The following table details overall statistics for CT Legacy REIT’s loans receivable portfolio as of September 30, 2011 and December 31, 2010:

	September 30, 2011	December 31, 2010
Number of investments	18	─
Fixed / Floating (in millions) (1)	$48 / $159	$─ / $─
Coupon (2) (3)	4.37%	N/A
Yield (2) (3)	4.90%	N/A
Maturity (years) (2) (4)	1.6	N/A

(1)	Represents the aggregate net book value of the portfolio allocated between fixed rate and floating rate loans.
(2)	Represents a weighted average as of September 30, 2011.
(3)	Calculations for floating rate loans are based on LIBOR of 0.24% as of September 30, 2011.
(4)	Represents the final maturity of each investment assuming all extension options are executed.

The tables below detail the types of loans in CT Legacy REIT’s portfolio, as well as the property type and geographic distribution of the properties securing these loans, as of September 30, 2011 and December 31, 2010 (in thousands):

	September 30, 2011				December 31, 2010
Asset Type	Book Value		Percentage		Book Value		Percentage
Senior mortgages		$78,429		37%		$—		―%
Subordinate interests in mortgages		66,013		32		—		―
Mezzanine loans		39,401		19		—		―
Other		23,185		12		—		―
Total		$207,028		100%		$—		―%
Property Type	Book Value		Percentage		Book Value		Percentage
Office		$84,238		41%		$—		―%
Hotel		75,517		36		—		―
Multifamily		14,212		7		—		―
Other		33,061		16		—		―
Total		$207,028		100%		$—		―%
Geographic Location	Book Value		Percentage		Book Value		Percentage
Northeast		$56,216		27%		$—		―%
West		45,731		22		—		―
Southwest		40,754		19		—		―
Southeast		20,072		10		—		―
Northwest		9,876		5		—		―
International		34,379		17		—		―
Total		$207,028		100%		$—		―%

Loan risk ratings

Quarterly, management evaluates CT Legacy REIT’s loan portfolio for impairment as described in Note 2. In conjunction with our quarterly loan portfolio review, management assesses the performance of each loan, and assigns a risk rating based on several factors including risk of loss, LTV, collateral performance, structure, exit plan, and sponsorship. Loans are rated one (less risk) through eight (greater risk), which ratings are defined in Note 2.

The following table allocates the net book value and principal balance of CT Legacy REIT’s loans receivable based on our internal risk ratings as of September 30, 2011 and December 31, 2010 (in thousands):

		Loans Receivable as of September 30, 2011						Loans Receivable as of December 31, 2010
Risk Rating		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		3		$56,519		$56,949		—		$—		$—
	4 - 5		7		99,094		99,066		—		—		—
	6 - 8		8		288,873		51,013		—		—		—
Total			18		$444,486		$207,028		—		$—		$—

In making this risk assessment, one of the primary factors we consider is how senior or junior each loan is relative to other debt obligations of the borrower. The following tables further allocate CT Legacy REIT’s loans receivable by both loan type and our internal risk ratings as of September 30, 2011 and December 31, 2010 (in thousands):

		Senior Mortgage Loans
		as of September 30, 2011						as of December 31, 2010
Risk Rating		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		—		$—		$—		—		$—		$—
	4 - 5		3		48,503		48,475		—		—		—
	6 - 8		2		43,047		29,953		—		—		—
Total			5		$91,550		$78,428		—		$—		$—

		Subordinate Interests in Mortgages
		as of September 30, 2011						as of December 31, 2010
Risk Rating		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		1		$13,000		$13,000		—		$—		$—
	4 - 5		2		31,954		31,954		—		—		—
	6 - 8		4		85,537		21,060		—		—		—
Total			7		$130,491		$66,014		—		$—		$—

		Mezzanine & Other Loans
		as of September 30, 2011						as of December 31, 2010
Risk Rating		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		2		$43,519		$43,949		—		$—		$—
	4 - 5		2		18,637		18,637		—		—		—
	6 - 8		2		160,289		—		—		—		—
Total			6		$222,445		$62,586		—		$—		$—

Loan impairments

The following table describes CT Legacy REIT’s impaired loans as of September 30, 2011, including impaired loans that are current in their interest payments and those that are delinquent on contractual payments (in thousands):

			September 30, 2011
Impaired Loans	No. of Loans		Gross Book Value		Provision for Loan Loss			Net Book Value
Performing loans		3		$201,165		($191,289	)		$9,876
Non-performing loans		3		68,520		(46,510	)		22,010
Total impaired loans		6		$269,685		($237,799	)		$31,886

The following table details the allocation of CT Legacy REIT’s provision for loan losses as of September 30, 2011 (in thousands):

	September 30, 2011
Impaired Loans	Principal Balance		Provision for Loan Loss		Loss Severity
Mezzanine & other loans		$222,445		$160,289		72%
Subordinate interests in mortgages		130,491		64,448		49
Senior mortgages		91,550		13,062		14
Total/Weighted Average		$444,486		$237,799		53%

Generally, we have recorded provisions for loan loss against all loans which are in maturity default, or otherwise have past-due principal payments. As of September 30, 2011, CT Legacy REIT had three loans with an aggregate net book value of $43.5 million which were in maturity default but had no provision recorded. We expect to collect all principal and interest due under these loans upon their resolution.

The following table details CT Legacy REIT’s average balance of impaired loans by loan type, and the income recorded on such loans subsequent to their impairment during the nine months ended September 30, 2011 (in thousands):

Income on Impaired Loans for the Nine Months Ended September 30, 2011
Asset Type	Average Net Book Value		Income Recorded (1)
Senior Mortgage Loans		$9,779		$200
Subordinate Interests in Mortgages		23,091		208
Mezzanine & Other Loans		—		3,187
Total		$32,870		$3,595

(1) Substantially all of the income recorded on impaired loans during the period was received in cash. See also Note 4 for disclosure of income recorded on impaired loans prior to their transfer to CT Legacy REIT, substantially all of which was also received in cash.

 

Nonaccrual loans

In accordance with our revenue recognition policies discussed in Note 2, we do not accrue interest on loans which are 90 days past due or, in the opinion of management, are otherwise uncollectable. Accordingly, we do not have any material interest receivable accrued on CT Legacy REIT’s nonperforming loans as of September 30, 2011.

The following table details CT Legacy REIT’s loans receivable which are on nonaccrual status as of September 30, 2011 (in thousands):

Non-Accrual Loans Receivable as of September 30, 2011
Asset Type	Principal Balance		Net Book Value
Senior Mortgage Loans		$25,100		$12,038
Subordinate Interests in Mortgages		85,537		21,059
Mezzanine & Other Loans		152,289		—
Total		$262,926		$33,097

Loan modifications

During the nine months ended September 30, 2011, two modifications of CT Legacy REIT loans were considered troubled debt restructurings, as defined under GAAP. A troubled debt restructuring is generally any modification of a loan to a borrower that is experiencing financial difficulties, where a lender agrees to terms that are more favorable to the borrower than is otherwise available in the current market. These loan modifications included: (i) a nine-month extension of a $18.0 million senior mortgage loan which is in maturity default, and (ii) a two-year extension of a $24.3 million subordinate mortgage interest, including a 2.0% spread increase which will accrue on a deferred basis. Both of these loans have been individually assessed for impairment, and have not been impaired due to our determination that the underlying collateral value is sufficient to cover our investment in the loans.

C. Loans Held-for-Sale, Net – CT Legacy REIT

Activity relating to CT Legacy REIT’s loans held-for-sale for the nine months ended September 30, 2011 was as follows (in thousands):

	Gross Book Value		Valuation Allowance			Net Book Value
December 31, 2010		$—		$—			$—
Reclassification from loans receivable		32,331		—			32,331
Valuation allowance on loans held-for-sale		—		(224	)		(224	)
September 30, 2011		$32,331		($224	)		$32,107

During the second quarter of 2011, CT Legacy REIT reclassified a $32.5 million senior mortgage loan to loans held-for-sale, against which it has recorded a $224,000 valuation allowance to reflect this loan at its approximate fair value.

D. Debt Obligations – CT Legacy REIT

As of September 30, 2011, CT Legacy REIT had $130.8 million of total debt obligations outstanding. The balances of each category of debt, their respective coupons and all-in effective costs (including the amortization of fees and expenses) were as follows (in thousands):

	September 30, 2011				December 31, 2010		September 30, 2011
Debt Obligations	Principal Balance		Book Value		Book Value		Coupon (1)			All-In Cost (1)				Maturity Date (2)
Repurchase obligation (JPMorgan)		$66,637		$66,637		$—		2.74	%		2.74	%		December 15, 2014
Mezzanine loan(3)		64,134		53,367		—		15.00	%		18.74	%		March 31, 2016
Total/Weighted Average		$130,771		$120,004		$—		8.75	%		10.59	%	(4)	August 3, 2015

(1)	Assumes LIBOR of 0.24% at September 30, 2011 for floating rate debt obligations.
(2)	Maturity dates represent the contractual maturity of each facility.
(3)	The mezzanine loan carries a 15.0% per annum interest rate, of which 7.0% per annum may be deferred. The all-in cost of the mezzanine loan includes the amortization of deferred fees and expenses.
(4)	Including the impact of interest rate hedges with an aggregate notional balance of $60.9 million as of September 30, 2011, the effective all-in cost of CT Legacy REIT’s debt obligations would be 12.88% per annum.

Repurchase Obligations

In conjunction with our March 2011 restructuring, on March 31, 2011 our legacy repurchase obligations with JP Morgan, Morgan Stanley and Citigroup were assumed by wholly-owned subsidiaries of CT Legacy REIT, and the recourse to Capital Trust, Inc. was eliminated. The balances then outstanding under the three repurchase obligations with JP Morgan, Morgan Stanley and Citigroup were $173.5 million, $93.2 million, and $38.1 million, respectively.

During the second quarter of 2011, the Morgan Stanley and Citigroup repurchase obligations were fully repaid and extinguished, and the remaining collateral thereunder was released.

The JP Morgan facility matures on December 15, 2014 and bears interest at a rate of LIBOR + 2.50% per annum (2.74% as of September 30, 2011), which rate will increase to LIBOR + 3.00% per annum for the period from March 31, 2013 through March 30, 2014, and then to LIBOR + 3.50% per annum for the period from March 31, 2014 through maturity. In addition, periodic repayment targets must be met under the facility, which require the outstanding balance be reduced to: $110.0 million by December 15, 2011, $65.0 million by December 15, 2012, and $30 million by December 15, 2013. As of September 30, 2011, the JP Morgan facility had an outstanding balance of $66.6 million.

The following table details the aggregate outstanding principal balance, book value and fair value of CT Legacy REIT’s assets, primarily loans receivable, which were pledged as collateral under the JP Morgan repurchase facility as of September 30, 2011, as well as the amount at risk (in thousands). The amount at risk is generally equal to the book value of our collateral less the outstanding principal balance of the repurchase facility.

			Loans and Securities Collateral Balances, as of September 30, 2011
Repurchase Lender	Facility Balance		Principal Balance		Book Value		Fair Value (1)		Amount at Risk (2)
JP Morgan		$66,637		$318,240		$177,213		$157,252		$124,317

(1)	Fair values represent the amount at which assets could be sold in an orderly transaction between a willing buyer and willing seller. The immediate liquidation value of these assets would likely be substantially lower.
(2)	Amount at risk is calculated on an asset-by-asset basis for each facility and considers the greater of (a) the book value of an asset and (b) the fair value of an asset, in determining the total risk.

Mezzanine Loan

On March 31, 2011, CT Legacy REIT entered into an $83.0 million mezzanine loan with Five Mile that carries a 15.0% per annum interest rate, of which 7.0% per annum may be deferred, and that matures on March 31, 2016. The mezzanine loan is not recourse to Capital Trust, Inc. except for certain limited non-recourse, “bad boy” carve outs.

The mezzanine loan is collateralized by 100% of the equity interests in a subsidiary of CT Legacy REIT, which in-turn owns all of CT Legacy REIT’s assets, subject in-part to the repurchase obligations described above. Five Mile has consent rights with respect to material actions concerning CT Legacy REIT’s assets such as material modifications, sales, and/or the pursuit of certain remedies with regard to such assets. The mezzanine loan also contains covenants that (i) prohibit CT Legacy REIT from paying common stock cash dividends until the mezzanine loan has been repaid, (ii) prohibit us from selling or otherwise transferring our equity interests in CT Legacy REIT, and (iii) require the continued employment of certain key employees.

In addition, an affiliate of Five Mile acquired a 24% equity interest in the common stock of CT Legacy REIT in conjunction with the making of the mezzanine loan.

As of September 30, 2011, the mezzanine loan had an outstanding principal balance of $64.1 million (including deferred interest) and a book balance of $53.4 million. The difference between book balance and principal outstanding is due to costs associated with the mezzanine loan, primarily the equity interest in CT Legacy REIT discussed above. Including the amortization of these costs, the mezzanine loan has an all-in cost of 18.74%.

E. Participations Sold – CT Legacy REIT

Participations sold represent interests in certain loans that we originated and subsequently sold to one of our investment management vehicles or to third parties. We present these participations sold as both assets and non-recourse liabilities because these arrangements do not qualify as sales under GAAP. Generally, participations sold are recorded as assets and liabilities in equal amounts on our consolidated balance sheets, and an equivalent amount of interest income and interest expense is recorded on our consolidated statements of operations. However, impaired loan assets must be reduced through the provision for loans losses while the associated non-recourse liability cannot be reduced until the participation has been contractually extinguished. This can result in an imbalance between the loan participations sold asset and liability. We have no economic exposure to these liabilities.

In connection with our March 2011 restructuring, a $152.3 million loan, in which we have previously sold a $97.5 million participation, was transferred to CT Legacy REIT.

The following table describes CT Legacy REIT’s participations sold assets and liabilities as of September 30, 2011 and December 31, 2010 (in thousands):

	September 30,			December 31,
	2011			2010
Participations sold assets
Gross carrying value		$97,465			$—
Less: Provision for loan losses		(97,465	)		—
Net book value of assets		—			—
Participations sold liabilities
Net book value of liabilities		97,465			—
Net impact to shareholders' equity		($97,465	)		$—

F. Derivative Financial Instruments – CT Legacy REIT

To manage interest rate risk, we have historically employed interest rate swaps, or other arrangements, to convert a portion of our floating rate debt to fixed rate debt in order to index-match our assets and liabilities. The interest rate swaps that we have employed were designated as cash flow hedges and designed to hedge fixed rate assets against floating rate liabilities. Under cash flow hedges, we pay our hedge counterparties a fixed rate amount and our counterparties pay us a floating rate amount, which we settle monthly, and record as a component of interest expense. Our counterparties in these transactions are financial institutions and we are dependent upon the financial health of these counterparties and a functioning interest rate derivative market in order to effectively execute our hedging strategy.

The following table summarizes the notional amounts and fair values of CT Legacy REIT’s interest rate swaps as of September 30, 2011 and December 31, 2010 (in thousands). The notional amount provides an indication of the extent of our involvement in the instruments at that time, but does not represent exposure to credit or interest rate risk.

Counterparty	September 30, 2011 Notional Amount		Interest Rate (1)			Maturity		September 30, 2011 Fair Value			December 31, 2010 Fair Value
JPMorgan Chase		$17,623		5.14	%		2014		($2,086	)		$—
JPMorgan Chase		16,636		4.83	%		2014		(2,048	)		—
JPMorgan Chase		16,403		5.52	%		2018		(3,408	)		—
JPMorgan Chase		7,062		5.11	%		2016		(1,229	)		—
JPMorgan Chase		3,176		5.45	%		2015		(555	)		—
Total/Weighted Average		$60,900		5.17	%		2015		($9,326	)		$—

(1) Represents the gross fixed interest rate we pay to our counterparties under these derivative instruments. We receive an amount of interest indexed to one-month LIBOR on all of our interest rate swaps.

During the second quarter of 2011, as a result of significant repayments of CT Legacy REIT’s floating rate debt obligations, these interest rate swaps ceased to be highly effective hedging instruments. We therefore discontinued the designation of these hedges as cash flow hedges. As a result, beginning in the second quarter of 2011, any change in the fair values of these interest rate swaps is recorded as a non-cash component of interest expense on our consolidated statement of operations. We recognized $1.8 million of such non-cash interest expense during the nine months ended September 30, 2011.

In addition, as a result of the termination of the effective hedge designation, we reclassified $3.2 million from accumulated other comprehensive income as non-cash interest expense on our consolidated financial statements. In future periods we will recognize additional non-cash interest expense as the remaining balance of accumulated other comprehensive income is amortized over the life of each related facility. Net payments under such interest rate swaps during the nine months ended September 30, 2011 totaled $1.5 million, and were recorded as a component of interest expense.

Over the next twelve months, we expect approximately $2.3 million to be reclassified from other comprehensive income to interest expense. This amount represents the amortization of losses previously recorded in other comprehensive income on interest rate swaps which are no longer designated as cash flow hedges.

As of September 30, 2011, CT Legacy REIT has not posted any assets as collateral under derivative agreements.

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Gain on Extinguishment of Debt

3 Months Ended

Sep. 30, 2011

Notes to Financial Statements

Gain on Extinguishment of Debt

Note 14. Gain on Extinguishment of Debt

Gain on extinguishment of debt for the nine months ended September 30, 2011 and 2010 consisted of the following (in thousands):

	Nine Months Ended September 30,
Gain on Extinguishment of Debt	2011		2010
Extinguishment of senior credit facility and junior subordinated notes (1)		$174,846		$—
Termination of loan participation sold (2)		75,000		—
Securitized debt obligations (3)		21,185		648
Total		$271,031		$648

(1)	Represents the gain recorded on the extinguishment of certain of our legacy debt obligations as part of our March 2011 restructuring. See Note 1 for further discussion.
(2)	Represents the gain recorded on the termination of a loan participation sold which had previously been impaired. See Note 8 for further discussion.
(3)	Represents the gain recorded as a result of realized losses in consolidated securitization vehicles. As losses in these vehicles are realized, they result in the extinguishment of certain subordinate classes of securitized debt. See Note 10 for further discussion.

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Consolidated Balance Sheets (USD $) In Thousands	Sep. 30, 2011	Dec. 31, 2010
Assets
Cash and cash equivalents	$ 28,219	$ 24,449
Securities held-to-maturity		3,455
Loans receivable, net	24,945	606,318
Loans held-for-sale, net		5,750
Equity investments in unconsolidated subsidiaries	10,611	8,932
Accrued interest receivable		2,392
Deferred income taxes	1,750	658
Prepaid expenses and other assets	2,109	9,952
Subtotal, assets	67,634	661,906
Total assets	1,539,889	4,120,690
Liabilities:
Accounts payable and accrued expenses	7,717	6,726
Repurchase obligations		372,582
Senior credit facility		98,124
Junior subordinated notes		132,190
Secured notes	7,686
Participations sold	24,945	259,304
Interest rate hedge liabilities		8,451
Subtotal, liabilities	40,348	877,377
Total liabilities	1,650,742	4,531,877
Commitments and contingencies
Equity:
Additional paid-in capital	596,899	559,411
Accumulated other comprehensive loss	(38,497)	(50,462)
Accumulated deficit	(658,789)	(920,355)
Total Capital Trust, Inc. shareholders' deficit	(100,165)	(411,187)
Noncontrolling interests	(10,688)
Total Equity	(110,853)	(411,187)
Total liabilities and shareholders' deficit	1,539,889	4,120,690
CT Legacy REIT, Excluding Securitization Vehicles
Assets
Restricted cash	13,715
Securities held-to-maturity	2,591
Loans receivable, net	207,028
Loans held-for-sale, net	32,107
Accrued interest receivable and other assets	4,638
Subtotal, assets	260,079
Liabilities:
Accounts payable and accrued expenses	683
Repurchase obligations	66,637
Mezzanine loan, net of unamortized discount	53,367
Participations sold	97,465
Interest rate hedge liabilities	9,326
Subtotal, liabilities	227,478
Securitization Vehicles
Assets
Securities held-to-maturity	397,001	504,323
Loans receivable, net	783,662	2,891,379
Real estate held-for-sale	10,342	8,055
Accrued interest receivable and other assets	21,171	55,027
Subtotal, assets	1,212,176	3,458,784
Liabilities:
Accounts payable and accrued expenses	2,988	3,809
Securitized debt obligations	1,352,446	3,621,229
Interest rate hedge liabilities	27,482	29,462
Subtotal, liabilities	1,382,916	3,654,500
Class A Common Stock
Equity:
Class A common stock: $0.01 par value, 100,000 shares authorized, 21,967 and 21,917 shares issued and outstanding, respectively ("class A common stock"); restricted class A common stock: $0.01 par value, 244 and 33 shares issued and outstanding, respectively ("restricted class A common stock" and together with class A common stock, "common stock")	220	219
Restricted Class A Common Stock
Equity:
Class A common stock: $0.01 par value, 100,000 shares authorized, 21,967 and 21,917 shares issued and outstanding, respectively ("class A common stock"); restricted class A common stock: $0.01 par value, 244 and 33 shares issued and outstanding, respectively ("restricted class A common stock" and together with class A common stock, "common stock")	$ 2