EXHIBIT 99.2

                              GOTHAM PARTNERS, L.P.
                              110 EAST 42ND STREET
                            NEW YORK, NEW YORK 10017



                                                May 15, 2001


BY HAND
-------
Special Committee of the Board of Directors of
First Union Real Estate Equity and Mortgage Investments


Gentlemen:

            This letter will serve to set forth the general outline of a
transaction we are proposing (the "Proposed Transaction") between First Union
Real Estate Equity and Mortgage Investments ("First Union") and Gotham Partners,
L.P. ("Gotham"). We believe that the Proposed Transaction represents an
attractive opportunity for First Union and its public stockholders to
participate in an ongoing business with a larger equity and asset base, and a
disciplined, experienced and focused management team with a proven record of
value creation. We believe that the Proposed Transaction would be in the best
interest of First Union and its stockholders. Furthermore, we believe that
consummation of the Proposed Transaction would result in a stronger combined
company which is well positioned to achieve high long-term rates of return for
its stockholders.

            In short, the Proposed Transaction consists of the acquisition by
First Union of certain public and private operating businesses and assets owned
and controlled by Gotham in exchange for newly issued equity of First Union.
(For various tax and other reasons, we think this may most easily be
accomplished through the creation of a new company ("Newco") that would be First
Union's successor, but we would expect to work with you and your financial and
legal advisors to arrive at the optimal structure.) The equity in the combined
company to be issued in respect of the acquisition of the Gotham assets would be
based upon the value of those businesses contributed by Gotham, and a per share
price of $2.40. We expect that the surviving company's common equity would
continue to be listed and traded on the NYSE or another major U.S. exchange,
subject to normal approval requirements.

            We would welcome the opportunity to share with you the details and
investment potential of the businesses and assets we propose to contribute. In
the aggregate, we believe their equity value to be in excess of $160 million. In
addition, we would also be willing to explore an additional cash equity
investment from Gotham or a third party of up to an additional $200 million.



First Union Real Estate Equity and Mortgage Investments
May 15, 2001
Page 2


            The Proposed Transaction would be subject to approval by the
stockholders of First Union and to other customary conditions, including
registration of the shares to be issued as part of the Proposed Transaction. We
would expect and require that those First Union stockholders currently
represented on the First Union Board of Directors would commit to support and
vote in favor of the Proposed Transaction as a condition of our own willingness
to proceed.

            Subsequent to the consummation of the Proposed Transaction, the
existing managing partners of Gotham, William A. Ackman and David P. Berkowitz,
would become Chairman and President of the combined company and certain other
employees of Gotham would assume management roles in the company.

            The Proposed Transaction would be effected pursuant to a combination
agreement in form and substance customary for transactions of this sort, which
would be entered into only following (i) approval and recommendation by the
unaffiliated members of the First Union Board of Directors, who we would expect
to serve as a Special Committee of the Board in connection with the
consideration of the Proposed Transaction, and (ii) receipt by First Union of an
opinion from your independent financial advisor as to the fairness from a
financial point of view of the Proposed Transaction to the stockholders of First
Union unaffiliated with Gotham.

            We expect that the holders of First Union's Series A Preferred Stock
would continue to hold an identical instrument following the Proposed
Transaction; no refinancing or repayment is necessary or contemplated.
Additionally, in connection with the Proposed Transaction, we expect that First
Union's 8.875% Secured Senior Notes due September 15, 2003 will remain
outstanding.

            As you know, we and our financial and legal advisors (Peter J.
Solomon Company and Wachtell, Lipton, Rosen & Katz) are prepared to meet with
the Special Committee and your legal and financial advisors at your convenience
to review the Proposed Transaction and any other aspects of First Union, Gotham
or the businesses of Gotham proposed to be combined with First Union that may be
of interest or assistance. In addition, we would like to arrange for you or such
other members of the Special Committee as may be appropriate, together with your
financial and legal advisors, to meet the management of the key businesses of
Gotham proposed to be combined with First Union. Of course, we reserve the right
to amend or withdraw the proposal at any time at our sole discretion.


First Union Real Estate Equity and Mortgage Investments
May 15, 2001
Page 3

            We look forward to continuing to work with you on the Proposed
Transaction.

                                          Very truly yours,






cc.   Thomas H. McCormick, Esq., Shaw Pittman