Consolidated Securitization Vehicles

9 Months Ended

Sep. 30, 2012

ConsolidatedSecuritizationVehiclesAbstract

Consolidated Securitization Vehicles

Note 7. Consolidated Securitization Vehicles

As of September 30, 2012, our consolidated balance sheet includes an aggregate $402.2 million of assets and $517.1 million of liabilities related to four consolidated securitization vehicles. 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.

Due to the deconsolidation of CT Legacy Asset on February 10, 2012, as discussed in Note 1, we deconsolidated one CT CDO, CT CDO III, and three other securitization vehicles that are owned by CT Legacy Asset.

CT CDOs

We currently consolidate three 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 three 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 7. 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.

Other Consolidated Securitization Vehicles

As discussed above, we currently consolidate one other securitization vehicle, which is substantially similar to the CT CDOs. This securitization vehicle invests in commercial real estate debt instruments, which investments were not originated or transferred to the entity by us. In addition to our investment in the subordinate classes of the securities issued by this vehicle, we are named special servicer on its collateral assets. As a result of consolidation, our ownership interest in this consolidation vehicle has been eliminated, and our balance sheet reflects both the assets held and debt issued by this vehicle to third-parties. Similarly, our operating results and cash flows include the gross amounts related to the assets and liabilities of the securitization vehicle, as opposed to our net economic interest in this entity. Special servicing fees paid to us on assets owned by this vehicle are eliminated in consolidation.

Our interest in the assets held by this securitization vehicle, which are consolidated on our balance sheet, is restricted by the structural provisions of this entity, and a recovery of our investment in the vehicle will be limited by its distribution provisions. The liabilities of the securitization vehicle, which are also consolidated on our balance sheet, are non-recourse to us, and can generally only be satisfied from its collateral assets.

We are not obligated to provide, nor have we provided, any financial support to this consolidated securitization vehicle. In addition, this investment has been made through one of our CT CDOs, which limits our exposure to loss as discussed above. We have recognized losses on the collateral assets of this CT CDO in excess of our investment therein, resulting in a zero net exposure to loss as of September 30, 2012.

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. 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, 2012 was as follows (in thousands):

	CMBS			CDOs & Other			Total Book Value (1)
December 31, 2011		$357,037			$1,935			$358,972
Principal paydowns		(38,393	)		(1,935	)		(40,328	)
Discount/premium amortization & other (2)		(259	)		202			(57	)
Other-than-temporary impairments:
Recognized in earnings		(160	)		—			(160	)
Recognized in accumulated other comprehensive income		160			—			160
Deconsolidation of CT Legacy Asset (3)		(193,737	)		29,998			(163,739	)
September 30, 2012		$124,648			$30,200			$154,848

(1)	Includes securities with a total face value of $236.4 million and $490.9 million as of September 30, 2012 and December 31, 2011, respectively.
(2)	Includes mark-to-market adjustments on securities previously classified as available-for-sale, amortization of other-than-temporary impairments, and losses, if any.
(3)	As further described above, we deconsolidated CT Legacy Asset in the first quarter of 2012. As a result, the securities owned by its consolidated securitization vehicle are no longer included in our consolidated financial statements. Also, certain securities which are owned by our consolidated securitization vehicles, that had previously been eliminated in consolidation, are now included in our consolidated financial statements. See Note 6 for additional discussion on CT Legacy Asset.

As of both September 30, 2012 and December 31, 2011, 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, 2012 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		$136,933			$30,200		$167,133
Mark-to-market adjustments on securities     previously classified as available-for-sale		6			—		6
Other-than-temporary impairments recognized in    accumulated other comprehensive income		(12,291	)		—		(12,291	)
Total book value as of September 30, 2012		$124,648			$30,200		$154,848

The following table details overall statistics for our consolidated securitization vehicles’ securities portfolio as of September 30, 2012 and December 31, 2011:

	September 30, 2012	December 31, 2011
Number of securities	33	52
Number of issues	23	36
Rating (1) (2)	B+	BB+
Fixed / Floating (in millions) (3)	$154 / $1	$358 / $1
Coupon (1) (4)	6.15%	6.49%
Yield (1) (4)	6.32%	7.41%
Life (years) (1) (5)	3.1	2.5

(1)	Represents a weighted average as of September 30, 2012 and December 31, 2011, 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 0.21% and 0.30% as of September 30, 2012 and December 31, 2011, 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, 2012 (in thousands):

	Rating as of September 30, 2012
Vintage	AAA		AA		A	BBB		BB		B	CCC and Below		Total
2006		$—		$—	$—		$—		$—	$—		$15,130		$15,130
2005		—		—	—		—		—	—		36,672		36,672
2004		—		—	—		24,753		—	—		—		24,753
2003		—		—	—		3,005		1,977	—		—		4,982
2002		—		—	—		—		6,729	—		2,384		9,113
2001		—		—	—		—		—	5,426		2,557		7,983
2000		2,894		—	—		—		19,056	—		3,997		25,947
1999		—		—	4,000		—		15,023	—		—		19,023
1998		—		2,160	7,397		—		151	—		1,537		11,245
Total		$2,894		$2,160	$11,397		$27,758		$42,936	$5,426		$62,277		$154,848

The table below details the ratings and vintage distribution of our consolidated securitization vehicles’securities as of December 31, 2011 (in thousands):

	Rating as of December 31, 2011
											CCC and
Vintage	AAA		AA		A	BBB		BB		B	Below		Total
2006		$—		$—	$—		$—		$—	$—		$14,884		$14,884
2005		—		—	—		—		—	—		7,060		7,060
2004		—		24,780	1,935		—		—	—		—		26,715
2003		9,908		—	—		3,011		1,966	—		—		14,885
2002		—		—	—		—		6,712	—		2,283		8,995
2001		—		—	—		—		—	5,426		1,730		7,156
2000		2,891		—	—		—		19,935	—		3,985		26,811
1999		—		—	11,233		1,414		17,380	—		—		30,027
1998		45,956		46,315	37,580		43,607		11,901	—		5,000		190,359
1997		4,434		—	16,159		—		5,223	2,762		3,502		32,080
Total		$63,189		$71,095	$66,907		$48,032		$63,117	$8,188		$38,444		$358,972

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, 2012, we determined that $160,000 of impairments previously recorded in other comprehensive income should be recognized as credit losses due to a decrease in cash flow expectation for one 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 these 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, 2012 (in thousands):

	Gross Other-Than-Temporary Impairments			Credit Related Other-Than-Temporary Impairments			Non-Credit Related Other-Than-Temporary Impairments
December 31, 2011		$130,360			$114,223			$16,137
Additions due to change in expected      cash flows		—			160			(160	)
Amortization of other-than-temporary      impairments		(373	)		(128	)		(245	)
Reductions due to realized losses		(26,263	)		(26,263	)		—
Deconsolidation of CT Legacy Asset (1)		(25,567	)		(22,126	)		(3,441	)
September 30, 2012		$78,157			$65,866			$12,291

(1) As further described in Note 1, we deconsolidated CT Legacy Asset in the first quarter of 2012. As a result, the securities owned by its consolidated securitization vehicles, some of which were other-than-temporarily impaired, are no longer included in our consolidated financial statements.

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, 2012 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		18.6		(11.6	)		57.6		(5.8	)		76.2		(17.4	)		93.6
Total		$18.6		($11.6	)		$57.6		($5.8	)		$76.2		($17.4	)		$93.6

(1) Excludes, as of September 30, 2012, $61.2 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 September 30, 2012, 16 of our consolidated securitization vehicles' securities with an aggregate book value of $93.6 million were carried at values in excess of their fair values. Fair value for these securities was $76.2 million as of September 30, 2012. In total, as of September 30, 2012, our consolidated securitization vehicles had 33 investments in securities with an aggregate book value of $154.8 million that have an estimated fair value of $144.7 million, including 29 investments in CMBS with an estimated fair value of $126.1 million and four investments in CDOs and other securities with an estimated fair value of $18.6 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, 2011 and that are not deemed to be other-than-temporarily impaired (in millions):

	Less Than 12 Months					Greater Than 12 Months					Total
			Gross					Gross					Gross
	Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized
	Fair Value		Loss			Fair Value		Loss			Fair Value		Loss			Book Value (1)
Floating Rate		$—		$—			$—		$—			$—		$—			$—
Fixed Rate		154.1		(4.7	)		130.1		(11.1	)		284.2		(15.8	)		300.0
Total		$154.1		($4.7	)		$130.1		($11.1	)		$284.2		($15.8	)		$300.0

(1) Excludes, as of December 31, 2011, $59.0 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 December 31, 2011, 35 of our consolidated securitization vehicles' securities with an aggregate book value of $300.0 million were carried at values in excess of their fair values. Fair value for these securities was $284.2 million as of December 31, 2011. In total, as of December 31, 2011, our consolidated securitization vehicles had 52 investments in securities with an aggregate book value of $359.0 million that have an estimated fair value of $350.2 million, including 51 investments in CMBS with an estimated fair value of $348.3 million and one investment in CDOs and other securities with an estimated fair value of $1.9 million.

We determine fair values using a combination of third-party dealer assessments of value and our own internal financial model-based estimations of fair value. See Note 12 for further discussion of fair value. We regularly examine our consolidated securitization vehicles’ 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 11 of our consolidated securitization vehicles’ securities, against which we have recognized other-than-temporary-impairments. See Note 6A 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 for 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. The notional amount of the subordinate debt and equity interests we retained in our CT CDOs is $162.0 million. After giving effect to certain transfers of these interests, provisions for loan losses and other-than-temporary impairments recorded as of September 30, 2012, we have no remaining net exposure to loss from these entities.

B. Loans Receivable, Net – Consolidated Securitization Vehicles

Activity relating to our consolidated securitization vehicles’ loans receivable for the nine months ended September 30, 2012 was as follows (in thousands):

	Gross Book Value			Provision for  Loan Losses			Net Book Value (1)
December 31, 2011		$814,572			($201,974	)		$612,598
Satisfactions (2)		(62,950	)		—			(62,950	)
Principal paydowns		(1,816	)		—			(1,816	)
Discount/premium amortization & other		156			—			156
Recovery of provision for loan losses		—			2,819			2,819
Realized loan losses		(22,001	)		22,001			—
Deconsolidation of CT Legacy Asset (3)		(435,744	)		99,394			(336,350	)
September 30, 2012		$292,217			($77,760	)		$214,457

(1)	Includes loans with a total principal balance of $292.8 million and $815.7 million as of September 30, 2012 and December 31, 2011, respectively.
(2)	Includes final maturities and full repayments.
(3)	As further described in Note 1, we deconsolidated CT Legacy Asset in the first quarter of 2012. As a result, the loans owned by its consolidated securitization vehicles are no longer included in our consolidated financial statements.

The following table details overall statistics for our consolidated securitization vehicles’ loans receivable portfolio as of September 30, 2012 and December 31, 2011:

	September 30, 2012	December 31, 2011
Number of investments	14	71
Fixed / Floating (in millions) (1)	$44 / $170	$280 / $333
Coupon (2) (3)	4.34%	5.11%
Yield (2) (3)	4.63%	5.72%
Maturity (years) (2) (4)	3.0	3.6

(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, 2012 and December 31, 2011, respectively.
(3)	Calculations for floating rate loans are based on LIBOR of 0.21% and 0.30% as of September 30, 2012 and December 31, 2011, 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, 2012 and December 31, 2011 (in thousands):

	September 30, 2012					December 31, 2011
Asset Type	Book Value		Percentage			Book Value			Percentage
Subordinate interests in     mortgages		$129,509		60	%		$225,773			36	%
Senior mortgages		65,000		30			241,323			39
Mezzanine loans		19,948		10			152,934			25
Total		$214,457		100	%		$620,030			100	%
Property Type	Book Value		Percentage			Book Value			Percentage
Office		$185,006		86	%		$317,940			51	%
Hotel		27,322		13			174,419			28
Retail		—		—			72,701			12
Healthcare		—		—			18,837			3
Other		2,129		1			36,133			6
Total		$214,457		100	%		$620,030			100	%
Geographic Location	Book Value		Percentage			Book Value			Percentage
Northeast		$98,757		46	%		$199,361			32	%
West		78,700		37			152,774			25
Southeast		21,707		10			124,456			20
Southwest		15,293		7			57,046			9
Midwest		—		—			24,957			4
Diversified		—		—			61,436			10
Total		$214,457		100	%		$620,030			100	%
Unallocated loan loss provision (1)		—					(7,432	)
Net book value		$214,457					$612,598

(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, 2012 and December 31, 2011 (dollars in thousands):

		Loans Receivable as of September 30, 2012						Loans Receivable as of December 31, 2011
Risk Rating (1)		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		5		$118,333		$118,006		22		$416,032		$415,661
	4 - 5		2		78,700		78,622		3		44,057		43,945
	6 - 8		7		95,795		17,829		17		271,988		76,784
	N/A		—		—		—		29		83,639		83,640
Total			14		$292,828		$214,457		71		$815,716		$620,030
Unallocated loan loss provision:							—						(7,432	)
Net book value							$214,457						$612,598

(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 information.

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, 2012 and December 31, 2011 (dollars in thousands):

		Senior Mortgage Loans
		as of September 30, 2012						as of December 31, 2011
Risk Rating (1)		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		—		$—		$—		10		$117,452		$117,452
	4 - 5		1		65,000		65,000		1		12,551		12,551
	6 - 8		—		—		—		4		43,988		27,680
	N/A		—		—		—		29		83,639		83,640
Total			1		$65,000		$65,000		44		$257,630		$241,323

(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, 2012						as of December 31, 2011
Risk Rating (1)		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		4		$98,295		$98,058		8		$175,560		$175,314
	4 - 5		1		13,700		13,622		2		31,506		31,394
	6 - 8		7		95,795		17,829		9		122,306		19,065
	N/A		—		—		—		—		—		—
Total			12		$207,790		$129,509		19		$329,372		$225,773

(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, 2012						as of December 31, 2011
Risk Rating (1)		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		1		$20,038		$19,948		4		$123,020		$122,895
	4 - 5		—		—		—		—		—		—
	6 - 8		—		—		—		4		105,694		30,039
	N/A		—		—		—		—		—		—
Total			1		$20,038		$19,948		8		$228,714		$152,934

(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, 2012, including impaired loans that are current in their interest payments and those that are delinquent on contractual payments (dollars in thousands):

	September 30, 2012
Impaired Loans	No. of Loans		Gross Book Value		Provision for Loan Loss			Net Book Value
Performing loans		1		$15,062		($15,062	)		$—
Non-performing loans		5		66,828		(62,698	)		4,130
Total impaired loans		6		$81,890		($77,760	)		$4,130

The following table details the allocation of our consolidated securitization vehicles’ provision for loan losses as of September 30, 2012 (in thousands):

	September 30, 2012
Impaired Loans	Principal Balance		Provision for Loan Loss		Loss Severity
Subordinate interests in mortgages		$82,094		$77,760		95	%
Total/Weighted Average		$82,094		$77,760		95	%

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, 2012, our consolidated securitization vehicles had two loans with a net book value of $52.7 million which were in maturity default but had no provision recorded. We expect to collect all principal and interest due under this loan upon their 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, 2012 (in thousands):

Income on Impaired Loans for the Nine Months ended September 30, 2012
Asset Type	Average Net Book Value		Income Recorded (1)
Senior Mortgage Loans		$4,232		$168
Subordinate Interests in Mortgages		5,097		404
Mezzanine & Other Loans		5,135		210
Total		$14,464		$782

(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, 2012.

The following table details our consolidated securitization vehicles’ loans receivable which are on nonaccrual status as of September 30, 2012 (in thousands):

Nonaccrual Loans Receivable as of September 30, 2012
Asset Type	Principal Balance		Net Book Value
Subordinate Interests in Mortgages		$82,094		$4,130
Total		$82,094		$4,130

Loan modifications

During the nine months ended September 30, 2012, there was one modification of a loan in a consolidated securitization vehicle that was considered a troubled debt restructuring, 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. This loan modification included a six-month extension of a $6.6 million subordinate mortgage loan with no interest rate increase. This loan has been individually assessed for impairment, and no impairment beyond the existing $4.6 million impairment was determined to be 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, 2012 was as follows (in thousands):

	Gross Book Value			Other-Than-Temporary Impairment			Net Book Value
December 31, 2011		$24,960			($14,618	)		$10,342
Deconsolidation of CT Legacy Asset (1)		(24,960	)		14,618			(10,342	)
September 30, 2012		$—			$—			$—

(1) As further described in Note 1 above, we deconsolidated CT Legacy Asset in the first quarter of 2012. As a result, the real estate held-for-sale owned by its consolidated securitization vehicles is no longer included in our consolidated financial statements.

D. Debt Obligations – Consolidated Securitization Vehicles

As of September 30, 2012 and December 31, 2011, our consolidated securitization vehicles had $497.4 million and $1.2 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, 2012				December 31, 2011		September 30, 2012
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		$91,044		$91,044		$121,409		1.26	%		1.28	%		July 2039
CT CDO II		156,900		156,900		199,751		0.92	%		1.21	%		March 2050
CT CDO III		—		—		199,553		N/A			N/A				N/A
CT CDO IV (3)		198,927		198,927		221,540		1.07	%		1.23	%		October 2043
Total CT CDOs		446,871		446,871		742,253		1.06	%		1.23	%		February 2045
Other securitization vehicles
GMACC 1997-C1		—		—		83,672		N/A			N/A				N/A
GECMC 00-1 H		—		—		24,847		N/A			N/A				N/A
GSMS 2006-FL8A		50,552		50,552		50,552		1.06	%		1.06	%		June 2020
MSC 2007-XLCA		—		—		310,083		N/A			N/A				N/A
JPMCC 2004-FL1A		—		—		—		N/A			N/A				N/A
Total other securitization vehicles		50,552		50,552		469,154		1.06	%		1.06	%		June 2020
Total/Weighted Average		$497,423		$497,423		$1,211,407		1.06	%		1.21	%	(4)	August 2042

(1)	Represents a weighted average for each respective facility, assuming LIBOR of 0.21% at September 30, 2012 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 date above.
(3)	Comprised, at September 30, 2012, of $184.9 million of floating rate notes sold and $14.0 million of fixed rate notes sold.
(4)	Including the impact of interest rate hedges with an aggregate notional balance of $273.7 million as of September 30, 2012, the effective all-in cost of our consolidated securitization vehicles’ debt obligations would be 4.09% per annum.

As discussed above in the introduction to this Note 7, 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.

CT CDOs

As of September 30, 2012, our consolidated CT CDOs, CT CDO I, CT CDO II, and CT CDO IV, included three separate issuances with a total face value of $446.9 million. As of September 30, 2012, loans receivable and securities with a book balance of $149.5 million and $154.8 million, respectively, were financed by our three consolidated CT CDOs. As of December 31, 2011, loans receivable and securities with a book balance of $208.3 million and $359.0 million, respectively, were financed by our four consolidated CT CDOs, one of which was deconsolidated as of February 10, 2012.

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 three of our consolidated 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 three of our consolidated CT CDOs. Other than collateral management fees, we currently do not receive any cash payments from these consolidated CDOs.

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 consolidated CT CDOs has and will continue to increase.

In March 2012, the trustee for CT CDO II informed us of an event of default resulting from a failure of CT CDO II to pay the full amount of interest due to its Class B Notes, which failure resulted from a shortage of funds available to the CDO for such payments. We are not obligated to, nor have we, provided any financial support to CT CDO II to rectify this event of default.

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 $722.5 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 consolidate one other securitization vehicle which was not sponsored or issued by us. The debt obligations of this entity 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 the entity’s collateral pool, or will be discharged when losses are realized.

As of September 30, 2012, loans receivable with an aggregate book value of $65.0 million serve as collateral for the securities issued by this other consolidated securitization vehicle. As of December 31, 2011, loans receivable with an aggregate book value of $404.3 million serve as collateral for the securities issued by these five other consolidated securitization vehicles, three of which was deconsolidated as of February 10, 2012.

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, 2012 and December 31, 2011 (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, 2012 Notional Amount		Interest Rate (1)			Maturity		September 30, 2012 Fair Value			December 31, 2011 Fair Value
Swiss RE Financial		$223,802		5.10	%		2015		($15,631	)		($20,540	)
Bank of America		34,270		4.58	%		2014		(1,499	)		(2,368	)
Bank of America		10,535		5.05	%		2016		(1,387	)		(1,461	)
Bank of America		5,104		4.12	%		2016		(572	)		(573	)
Total/Weighted Average		$273,711		5.01	%		2015		($19,089	)		($24,942	)

(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, 2012 and December 31, 2011, 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, 2012 and 2011 (in thousands):

	Amount of net 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, 2012			September 30, 2011		September 30, 2012			September 30, 2011
Interest rate swaps		($5,853	)		$1,980		($10,182	)		($11,512	)

(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 $9.8 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, 2012, our consolidated securitization vehicles have not posted any assets as collateral under derivative agreements.