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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003 Commission file number 1-10360

CRIIMI MAE INC.
(Exact name of registrant as specified in its charter)

Maryland	52-1622022
(State or other jurisdiction of Incorporation or organization)	(I.R.S. Employer Identification No.)

11200 Rockville Pike
Rockville, Maryland 20852
(301) 816-2300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock	New York Stock Exchange, Inc.
Series B Cumulative Convertible Preferred Stock	New York Stock Exchange, Inc.
Series F Redeemable Cumulative Dividend Preferred Stock	New York Stock Exchange, Inc.
Series G Redeemable Cumulative Dividend Preferred Stock	New York Stock Exchange, Inc.

Securities registered pursuant to Section 12(g) of the Act:
None

        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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10K or any amendment to this Form 10K. o

        Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities and Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ý    No o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ý    No o

        The aggregate market value (based upon the last reported sale price on the New York Stock Exchange on June 30, 2003) of the shares of CRIIMI MAE Inc. common stock held by non-affiliates was approximately $148.7 million. (For purposes of calculating the previous amount only, all directors and executive officers of the registrant are assumed to be affiliates.)

        As of March 1, 2004, 15,471,420 shares of CRIIMI MAE Inc. common stock with a par value of $0.01 were outstanding.

Documents Incorporated By Reference

        The information required by Part III (Items 10, 11, 12, 13 and 14) is incorporated by reference to the Registrant's definitive proxy statement to be filed pursuant to Regulation 14A relating to the Registrant's 2004 annual meeting of shareholders.

CRIIMI MAE INC.

2003 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

		Page
	PART I
Item 1.	Business	3
Item 2.	Properties	18
Item 3.	Legal Proceedings	19
Item 4.	Submission of Matters to a Vote of Security Holders	19
	PART II
Item 5.	Market for the Registrant's Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities	20
Item 6.	Selected Financial Data	21
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	55
Item 8.	Financial Statements and Supplementary Data	56
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	57
Item 9A.	Controls and Procedures	57
	PART III
Item 10.	Directors and Executive Officers of the Registrant	58
Item 11.	Executive Compensation	58
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	58
Item 13.	Certain Relationships and Related Transactions	58
Item 14.	Principal Accountant Fees and Services	58
	PART IV
Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	59
Signatures		66

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FORWARD-LOOKING STATEMENTS. When used in this Annual Report on Form 10-K, in future filings with the Securities and Exchange Commission (the SEC or the Commission), in our press releases or in our other public or shareholder communications, the words "believe," "anticipate," "expect," "contemplate," "may," "will" and similar expressions are intended to identify forward-looking statements. Statements looking forward in time are included in this Annual Report on Form 10-K pursuant to the "safe harbor" provision of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially, including, but not limited to the risk factors contained or referenced under the headings "Business—Certain Risk Factors," and "Management's Discussion and Analysis of Financial Condition and Results of Operations". Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of anticipated or unanticipated events.

PART I

ITEM 1. BUSINESS

Overview

        CRIIMI MAE Inc. (together with its consolidated subsidiaries, We or CRIIMI MAE) is a commercial mortgage company structured as a self-administered real estate investment trust (or REIT). We currently own, and manage, a significant portfolio of commercial mortgage-related assets. Historically, we have focused primarily on acquiring high-yielding, non-investment grade (rated below BBB- or unrated) commercial mortgage-backed securities (subordinated CMBS). We commenced operations in 1989, are incorporated in Maryland, and are not a government sponsored entity or in any way affiliated with the United States government or any United States government agency. Our stock is traded on the New York Stock Exchange under the symbol "CMM".

        During late 2003, we undertook a review of the current market for acquisition of subordinated CMBS in preparation for the expected resumption of such acquisition activities in 2004. Due to a variety of factors such as increased competition in the sector, less attractive investment yields and underwriting standards that are widely believed to be deteriorating due to the surplus of investment capital dedicated to the subordinated CMBS market, we now believe that it is more prudent for us to focus our 2004 investment activity in the "manufacturing" of subordinated CMBS investments rather than pursuing secondary-market acquisition opportunities as we have in the past. By "manufacturing" we mean directly originating, or purchasing at origination, commercial mortgage loans, and financing these loans via the periodic issuance of investment-grade rated CMBS. This strategy would continue our historical focus on higher-yielding tranches of CMBS, but would allow us to better control the risk inherent in such investments by involving the company in the transactions at inception (i.e. at the time the loans are originated).

        As a full-service commercial mortgage company, we expect to originate, service and securitize commercial mortgage loans—which we believe gives us a competitive advantage over other securitized lenders in terms of level of service provided to mortgage loan borrowers and flexibility in addressing borrower needs over the term of their loans. Our aim would be to use securitization as a financing tool to create attractive long-term investment yields as opposed to the current market paradigm in which securitization is primarily used to generate short-term arbitrage gains on sale. Our goal is to deliver an attractive return on shareholders' equity generated by earnings that are sustainable over the long-term. We remain prepared to augment those returns by selectively participating in the subordinated CMBS acquisition market if market conditions warrant.

        Our existing business consists of investments in our core assets (subordinated CMBS backed by pools of commercial mortgage loans on multifamily, retail, hotel, and other commercial real estate) and

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investments in non-core assets (direct and indirect investments in government-insured mortgage-backed securities and a limited number of other assets). We also are a trader in CMBS, residential mortgage-backed securities, agency debt securities and other fixed income securities. We intend to refinance the shorter-term, recourse debt related to our existing subordinated CMBS through a collateralized debt obligation (CDO), other refinancing transaction, or combination thereof, by mid-2004.

        We have significant experience in the following areas:

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Subordinated CMBS Acquisitions. We were a leading purchaser of subordinated CMBS from 1996 to 1998, acquiring an aggregate face amount of approximately $2.8 billion through 1998. We have not made any further subordinated CMBS acquisitions since 1998.



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CMBS Resecuritizations. We completed two of the commercial real estate industry's first resecuritizations of subordinated CMBS in 1996 and 1998. These transactions had a combined face value of $449 million and $1.8 billion, respectively.



•

Loan Originations and Securitizations. Prior to 1999, we had originated more than $900 million in aggregate principal amount of commercial real estate mortgage loans. In 1998, we securitized approximately $496 million of commercial mortgage loans originated or acquired by us. We have not originated any loans since 1998.



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Mortgage Servicing. Through our servicing subsidiary, CRIIMI MAE Services Limited Partnership (CMSLP), we are responsible for special servicing functions for 2,800 loans, representing an aggregate $15.3 billion of commercial mortgage loans underlying our subordinated CMBS. Additionally, CMSLP performs special servicing for third parties on approximately 440 loans, with aggregate principal balances of approximately $2 billion.

2003 Accomplishments

        Our strategic priorities and accomplishments in 2003 were as follows:

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Refine and Develop Our Team and Realign Executive Compensation

Priority: Ensure that we have the personnel with the requisite expertise to maximize asset values and develop and execute investment strategies.

Accomplishment: We added to our senior management team, led by Barry Blattman, Mark Jarrell and Stephen Abelman and retained Cynthia Azzara. In addition to refining our team, during late 2003, we realigned our executive compensation based on current industry norms, resulting in a reduction in aggregate annual cash compensation payable to executives.

•

Resume Payment of Preferred Stock Dividends

Priority: Address the preferred stock dividends in arrears.

Accomplishment: During 2003, we paid all preferred stock dividends that were in arrears and all current preferred stock dividends to prepare for our return to the capital markets. In furtherance of our goal to return to the capital markets, on January 27, 2004, we filed a shelf registration statement with the Securities and Exchange Commission to register an aggregate principal amount of $200 million of debt securities, warrants, preferred shares and common shares for sale.

•

Maximize Core Asset Values

Priority: Maximize the value of our existing subordinated CMBS portfolio by accelerating workouts or dispositions of commercial mortgage loans in special servicing and by taking advantage of the "delevering" of our portfolio which occurs as CMBS classes senior to our CMBS pay down.

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Accomplishment: We made significant strides towards this priority in 2003 by resolving approximately $596 million of specially serviced assets compared to approximately $354 million during 2002. Additionally, through February 29, 2004, we resolved an additional $54 million of specially serviced assets. In 2004, we intend to structure an anticipated CDO or other refinancing of the Bear Stearns Debt (as defined below) in a manner that we benefit from portfolio delevering and continue to enjoy the potential for increases in value that could result from future ratings upgrades and continued improvement in the secondary market for seasoned subordinated CMBS.

•

Earn Attractive Returns

Priority: Earn attractive returns through the prudent investment of our capital and net cash flows.

Accomplishment: Our 2003 accomplishments in enhancing returns were evident primarily in our non-core investments. For our non-core assets (primarily insured mortgage securities), we enhanced returns by completing or making preparations to complete three "clean-up" calls related to outstanding collateralized mortgage obligation financings, significantly reducing our financing costs associated with these investments. In December 2003, we refinanced the $24.5 million balance of our Fannie Mae funding note resulting in a significant reduction in annualized interest costs. We prepaid the Freddie Mac funding note in March 2004 and expect to prepay the CMO debt by the end of the second quarter of 2004, which is expected to result in further interest savings. For our core subordinate CMBS portfolio, we have hired Stephen Abelman, an experienced manager of distressed real estate, who has restructured our Asset Management group to expedite reviews of our specially serviced loans, which we believe will result in more efficient resolutions of our specially serviced assets.

•

Pursue Investments

Priority: Develop and execute strategies relating primarily to CMBS and commercial mortgage loans that capitalize on our real estate and mortgage finance, underwriting, loan management and special servicing experience, and our access to performance information on mortgages and real estate markets throughout the country derived from our special servicing responsibilities.

Accomplishment: We evaluated returning to the subordinated CMBS acquisition model historically employed by us as a way of capitalizing on our existing expertise and, as indicated above, concluded that we could better utilize this expertise in an originations-focused business plan for 2004. We believe our development in management and personnel in late 2003 provides us with a foundation to begin execution of this strategy in 2004.

2003 Recapitalization Overview

        On January 23, 2003, we completed a recapitalization of the secured debt incurred upon our emergence from Chapter 11 in April 2001. We refer to that secured debt as the Exit Debt. This recapitalization was funded with approximately $344 million in proceeds from debt and equity financings and a portion of our available cash and liquid assets. The recapitalization included approximately $14 million in common equity and $30 million in senior secured subordinated debt purchased by Brascan Real Estate Finance Fund I L.P., a private asset management fund established by Brascan Corporation and a New York-based management team. We refer to the senior secured subordinated debt as the BREF Debt and Brascan Real Estate Finance Fund I L.P. as the BREF Fund. Additionally, we received $300 million in secured financing in the form of a repurchase transaction from a unit of Bear, Stearns & Co., Inc., which we refer to as the Bear Stearns Debt.

        The recapitalization increased our financial flexibility primarily through the elimination of the requirement to use virtually all of our net cash flow to pay down principal on the Exit Debt. This,

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along with the elimination of REIT distribution requirements due to our net operating losses (NOLs), provides us with additional liquidity for mortgage-related investments and acquisitions and other corporate purposes. We presently intend to use substantially all of our net cash flow for investments, hedging activities and general working capital purposes. See Note 6 of Notes to Consolidated Financial Statements for further discussion of the January 2003 recapitalization.

Business Segments

        Management currently assesses our performance and allocates resources principally on the basis of two lines of business: portfolio investment and mortgage servicing. These two lines of business, or operating segments, are managed separately as they provide different sources and types of revenues.

Portfolio Investment

        Portfolio investment primarily includes (i) CMBS, (ii) direct investments in government insured securities and entities that own government insured securities, (iii) direct investments in mezzanine loans and (iv) securities trading activities. Our income from this segment is primarily generated from these assets.

CMBS

        CMBS are generally created by pooling commercial mortgage loans and directing the cash flow from such mortgage loans to various tranches of securities. The tranches consist of investment grade (AAA to BBB-), non-investment grade (BB+ to D) and unrated securities. The first step in the process of creating CMBS is loan origination. Loan origination occurs when a financial institution lends money to a borrower to refinance or to purchase a commercial real estate property, and secures the loan with a mortgage on the property that the borrower owns or purchases. Commercial mortgage loans are typically non-recourse to the borrower. A pool of these commercial mortgage loans is then accumulated, often by a large commercial bank or other financial institution. One or more rating agencies then analyze the loans and the underlying real estate to determine their credit quality. The mortgage loans are then deposited into an entity that is not subject to taxation, often a real estate mortgage investment conduit (or REMIC). The investment vehicle then issues securities backed by the cash flows from commercial mortgage loans, or CMBS.

        At the time of a securitization, one or more entities are appointed as "servicers" for the pool of mortgage loans, and are responsible for performing servicing duties which include collecting payments (master or direct servicing), monitoring performance (loan management) and working out or foreclosing on defaulted loans (special servicing). Each servicer typically receives a fee and other financial incentives based on the type and extent of servicing duties.

        The CMBS are divided into tranches, which are afforded certain priority rights to the cash flow from the underlying mortgage loans. Interest payments typically flow first to the most senior tranche until it receives all of its accrued interest and then to the junior tranches in order of seniority. Principal payments typically flow to the most senior tranche until it is retired. Tranches are then retired in order of seniority, based on available principal. Losses, if any, are generally first applied against the principal balance of the lowest rated or unrated tranche. Losses are then applied in reverse order of seniority. Each tranche is assigned a credit rating by one or more rating agencies based on the agencies' assessment of the likelihood of the tranche receiving its stated payment of principal. The CMBS are then sold to investors through either a public offering or a private placement.

        Historically, we have focused primarily on acquiring or retaining non-investment grade and unrated tranches, issued by mortgage conduit entities, in which we believed our market knowledge and real estate expertise allowed us to earn attractive risk-adjusted returns. We did not acquire any subordinated CMBS subsequent to 1998. Prior to the fall of 1998, we generally acquired subordinated CMBS in

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privately negotiated transactions, which allowed us to perform due diligence on a substantial portion of the mortgage loans underlying the subordinated CMBS as well as the underlying real estate prior to consummating the purchase. In connection with our subordinated CMBS acquisitions, we targeted diversified mortgage loan pools with a mix of property types, geographic locations and borrowers.

        As of December 31, 2003, our $1.1 billion portfolio of assets included $837 million of CMBS (representing approximately 78% of our total consolidated assets), which had the following ratings (based on fair value) reflected as a percentage of total CMBS:

Rating	% of CMBS
A+, BBB+ or BBB	39%	(a)
BB+, BB or BB-	40%
B+, B or B-	17%
CCC, D or Unrated	4%

(a)

Represents investment grade securities reflected on our balance sheet as a result of CBO-2, our second resecuritization transaction.

CMBS Resecuritizations

        We initially funded a substantial portion of our subordinated CMBS acquisitions with short-term, variable-rate secured debt. To mitigate our exposure to interest rate risk, our business strategy was to periodically refinance a significant portion of this short-term, variable-rate recourse debt with fixed-rate, non-recourse debt having maturities that matched those of our mortgage assets securing such debt, also known as match-funded debt. We effected such refinancings by pooling subordinated CMBS, once a sufficient pool of subordinated CMBS had been accumulated, and issuing newly created CMBS backed by the pooled subordinated CMBS. The CMBS issued in such resecuritizations were fixed-rate obligations with maturities that matched the maturities of the subordinated CMBS backing the new CMBS. These resecuritizations also increased the amount of borrowings available to us due to the increased collateral value of the new CMBS relative to the pooled subordinated CMBS. The increase in collateral value was principally attributable to the seasoning of the underlying mortgage loans and the diversification that occurred when such subordinated CMBS were pooled. We generally used the cash proceeds from the investment grade CMBS that were sold in the resecuritization to reduce the amount of our short-term, variable-rate debt. We then used the net excess borrowing capacity created by the resecuritization to obtain new short-term, variable-rate secured borrowings, typically provided by the subordinated CMBS issuer and, to a lesser extent, cash, to purchase additional subordinated CMBS.

        In December 1996, we completed our first resecuritization of subordinated CMBS, CRIIMI MAE Trust I Series 1996-C1 (CBO-1), with a combined face value of approximately $449 million involving 35 individual securities collateralized by 12 mortgage securitization pools. In CBO-1 we sold, in a private placement, securities with a face amount of $142 million and retained securities with a face amount of approximately $307 million. As a result of CBO-1, we refinanced approximately $142 million of short-term, variable-rate, secured recourse debt with fixed-rate, non-recourse, match-funded debt.

        In May 1998, we completed our second resecuritization of subordinated CMBS, CRIIMI MAE Commercial Mortgage Trust Series 1998-C1 (CBO-2), with a combined face value of approximately $1.8 billion involving 75 individual securities collateralized by 19 mortgage securitization pools and three of the retained securities from CBO-1. In CBO-2, we eventually sold, in private transactions, securities with an aggregate face amount of $673 million and retained securities with a face amount of approximately $1.1 billion.

        As of December 31, 2003, our total debt was approximately $765.6 million, of which approximately 53% was fixed-rate, match-funded, non-recourse debt and approximately 47% was variable-rate or

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fixed-rate debt that was not match-funded. See Notes 4 and 6 to the Notes to Consolidated Financial Statements for further information regarding our CMBS resecuritizations and variable-rate secured borrowings.

Loan Originations and Securitizations

        From 1996 through 1998, we originated mortgage loans principally through mortgage loan conduit programs with major financial institutions for the primary purpose of pooling such loans for securitization. We viewed a securitization as a means of extracting the maximum value from the mortgage loans originated. In June 1998, we securitized approximately $496 million of the commercial mortgage loans originated or acquired by us through a mortgage loan conduit program with Citicorp Real Estate, Inc. and, through our subsidiary, CRIIMI MAE CMBS Corp., issued Commercial Mortgage Loan Trust Certificates, Series 1998-1 (CMO-IV). In CMO-IV, we sold all of the investment grade tranches to third parties and received net cash flow on the CMBS retained by us. We sold all of our remaining interests in CMO-IV in November 2000.

Portfolio Investment's Assets

        See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" for a discussion of Portfolio Investment's Assets.

Mortgage Servicing

        We conduct our mortgage loan servicing operations through CMSLP. CMSLP's principal servicing activities are described below.

Special Servicing

        A special servicer typically provides asset management and resolution services with respect to nonperforming or underperforming loans within a pool of mortgage loans. When we acquired subordinated CMBS, we typically required that we retain the right to appoint the special servicer for the related mortgage pools. When serving as special servicer of mortgage loans in a CMBS pool, CMSLP has the authority to deal directly with any borrower that fails to perform under certain terms of its mortgage loan, including the failure to make payments, and to manage any loan workouts and foreclosures. As special servicer, CMSLP earns fee income on services provided in connection with any loan servicing function transferred to it from the master servicer. We believe that because we own the first loss unrated or lowest rated bond of all but two CMBS transactions, we have an incentive to quickly resolve any loan workouts. As of December 31, 2003, CMSLP was designated as the special servicer for approximately 2,800 commercial mortgage loans, representing an aggregate principal amount of approximately $15.3 billion of commercial mortgage loans underlying our CMBS. Additionally, CMSLP performed special servicing on approximately 440 loans, representing an aggregate principal balance of approximately $2 billion, for third parties. We currently have a Standard & Poors (S&P) Special Servicer ranking of "below average". Despite the ranking, S&P provided a "positive outlook" and recognized that CMSLP has begun to take measures to stabilize its operations, most notably by hiring some well-experienced asset management personnel.

Loan Management

        In April 2003, we restructured CMSLP's property servicing group resulting in the termination of 10 employees. In conjunction with this restructuring, we have outsourced substantially all of our contractual property servicing duties related to the labor-intensive tasks of financial statement collection and analysis and property inspection performance. The outsourcing was completed in February 2004. This outsourcing does not relieve us of any of our contractual obligations or reduce any of our rights as

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property servicer, since CMSLP remains the property servicer of record, but it does relieve us of the administrative task of collecting financial operating data. This will allow the remaining resources in surveillance to focus more on collateral analysis. For the outsourced loans, CMSLP coordinates the delivery of monthly reports and inspections with the third-party servicers. For the portfolios for which the third-party servicer is not also the master servicer, CMSLP reviews and approves the reports from these servicers prior to submission by CMSLP to the securitization trustees.

        For all of the loans underlying our subordinated CMBS portfolio, including those outsourced as noted above, CMSLP performs analyses of operating performance and property inspections as part of its routine asset monitoring process. This allows CMSLP to identify and evaluate potential issues that could result in losses. As of February 29, 2004, CMSLP analyzes the performance and physical condition of approximately 2,800 commercial mortgage loans, representing an aggregate principal of $15 billion.

Other Servicing

        CMSLP performs master and/or direct servicing for an insignificant number of non-CMBS loans. A master servicer typically provides administrative and reporting services to the trustee with respect to a particular issuance of CMBS or other securitized pools of mortgages. Direct (or primary) servicers typically perform certain functions for the master servicer.

The Reorganization Plan

        On October 5, 1998, CRIIMI MAE Inc. (unconsolidated) and two operating subsidiaries, CRIIMI MAE Management, Inc. and CRIIMI MAE Holdings II, L.P., filed for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Maryland, Southern Division, in Greenbelt, Maryland. On November 22, 2000, the United States Bankruptcy Court for the District of Maryland entered an order confirming our reorganization plan, and we emerged from Chapter 11 on April 17, 2001. Under our reorganization plan, the holders of our equity retained their shares of stock and our creditors were paid in full.

Certain Risk Factors

        In addition to the risk factors set forth below, please see the discussion of various risks in "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

Our significant indebtedness limits our ability to take certain actions and could adversely affect our financial condition if we are unable to meet our obligations.

        We are highly leveraged. As of December 31, 2003, our total consolidated indebtedness was $765.6 million (of which $350.0 million was recourse debt), and our shareholders' equity was $291.8 million.

        Our ability to meet our existing debt service obligations depends on a number of factors, including management's ability to:

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maintain cash flow from our mortgage assets (which is impacted by, among other things, the credit performance of the mortgage loans underlying our subordinated CMBS and changes in interest rates and spreads); and



•

generate capital internally from operating and investing activities and expected reductions in REIT distribution requirements to shareholders due to net operating losses for tax purposes.

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        Our high level of debt:

•

limits our ability to obtain additional capital;



•

significantly reduces income available for other activities;



•

restricts our ability to react quickly to changes in our business;



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limits our ability to hedge our assets and liabilities; and



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makes us more vulnerable to general adverse economic and industry conditions.

We are subject to a number of borrowing risks, including refinancing risk and margin calls.

        The Bear Stearns Debt and BREF Debt mature in January 2006. As a result, we must either refinance or retire the remaining principal balances of each of the Bear Stearns Debt and BREF Debt at their maturity in 2006. In 2004, we expect to refinance the Bear Stearns Debt through a CDO, other refinancing, or combination thereof. There can be no assurance that a refinancing will occur or that it will be advantageous to us. Such a transaction may increase the cost of our borrowings, require increased amortization payments and cash sweeps and fail to provide us with sufficient funds to retire the entire amount outstanding of the Bear Stearns Debt, all of which may significantly reduce our cash flow, and further limit our financial flexibility.

        Substantially all of our future borrowings are expected to continue to be in the form of collateralized borrowings, as are the Bear Stearns Debt and BREF Debt. A default under our collateralized borrowings could result in a liquidation of the collateral. If we are forced to liquidate any assets that qualify as qualified real estate assets (under the REIT provisions of the Internal Revenue Code) to repay borrowings, there can be no assurance that we will be able to maintain compliance with the REIT provisions of the Internal Revenue Code regarding asset and source of income requirements. See the risk factor related to tax related risks. The liquidation of CMBS or other assets could also result in the loss of our Investment Company Act exclusion. See the risk factor related to the Investment Company Act exclusion. A default under the operative documents of any collateralized borrowing could result in a default under the operative documents of other collateralized or non collateralized borrowing or other obligations, which could result in our being required to pay all such obligations. We may be unable to repay such obligations.

        A substantial portion of any future borrowings used to acquire mortgage-related assets may be structured as collateralized, short-term, floating-rate secured borrowings. The amount borrowed under such agreements is typically based on the market value of the assets pledged to secure specific borrowings. Under adverse market conditions, the value of pledged assets could decline, and lenders could initiate margin calls (in which case we could be required to post additional collateral or to reduce the amount borrowed to restore the ratio of the amount of the borrowing to the value of the collateral). In order to meet a margin call, we may be required to sell assets at prices lower than their carrying value or provide additional collateral, which could have an adverse effect on us and our financial position and results of operation.

We face considerable competition from competitors with greater resources, which could adversely affect our ability to execute our strategy to become a full-service commercial mortgage company.

        If we resume commercial mortgage loan originations and/or other mortgage related activities, we would compete with financial institutions, mortgage REITs, specialty finance companies, banks, mortgage companies, hedge funds, other lenders, and/or other entities originating and/or purchasing commercial mortgage-related assets. Many of these competitors may have greater access to capital and/or other resources (or the ability to obtain capital at a lower cost) and may have other advantages over us. Although subject to a non-competition agreement with us through January 2006, BREF Fund and its controlled affiliates are permitted to sponsor collateralized bond or loan obligations, or CBOs,

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and to acquire subordinated CMBS for inclusion in such CBOs. As a result, they could compete with us in connection with such activities.

Failure to manage mismatch between long-term mortgage assets and short-term funding could negatively impact our net income and distributions.

        Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control. Interest rate fluctuations can adversely affect our net income and value in many ways and present a variety of risks, including the risk of a mismanagement between asset yields and borrowing rates and reshaping of the yield curve. We intend to continue entering into hedging transactions, as appropriate, in an effort to protect our mortgage assets and related debt from interest rate fluctuations. See the risk factor regarding limited protection from hedging transactions.

        Our operating results depend in large part on differences between the income from our mortgage assets and our borrowing costs. We may finance a significant portion of new investments with borrowings, initially, having adjustable interest rates (or borrowing rates) that reset while the rates on fixed rate investments stay constant. If interest rates rise, borrowing rates (and borrowing costs) are expected to rise while coupon rates (and investment income) on our fixed rate mortgage assets remain constant. This would decrease both our net income, potentially resulting in a net loss, and the mark-to-market value of our net assets, and would be expected to slow future investments of assets. Although we intend to invest primarily in fixed-rate mortgage assets, we also may own adjustable rate mortgage assets. We may fund these adjustable rate mortgage assets with borrowings having borrowing rates which reset monthly or quarterly. To the extent that there is a difference between (i) the interest rate index used to determine the coupon rate of the adjustable rate mortgage assets (asset index) and (ii) the interest rate index used to determine the borrowing rate for the related financing (borrowing index), we will be exposed to "basis" risk. Typically, if the borrowing index rises more than the asset index, our net income would decrease, all other things being constant. Additionally, our adjustable rate mortgage assets may be subject to periodic rate adjustment limitations and periodic and lifetime rate caps which limit the amount that the coupon rate can change during any given period. No assurance can be given as to the amount or timing of changes in interest rates or their effect on our mortgage assets, their valuation or income derived therefrom. During periods of changing interest rates, coupon rate and borrowing rate mismatches could negatively impact our net income and distributions.

Our hedging transactions provide limited protection.

        There can be no assurance that our hedging activities will have the desired impact of protecting us from the risks associated with changes in interest rates. No hedging activity can completely protect us from the risks associated with changes in interest rates. Non-performance by counterparties to hedging transactions could result in losses to us. We may not be able to dispose of, or close out a hedging position without the consent of the counterparty, and we may not be able to enter into an offsetting hedging contract in order to cover our risk. There can be no assurance that a liquid market will exist for the purchase or sale of hedging instruments, and we may be required to maintain a position until expiration, which could result in losses. There can be no assurance that we will be able to replace a hedge upon expiration which could result in increased interest rate risk. See further discussion of our derivative financial instruments in Note 7 of Notes to Consolidated Financial Statements.

Owning subordinated CMBS subjects us to significant risks.

        Potential Losses and Reduced Cash Flows.    As an owner of the most subordinate tranches of CMBS, we will be the first to bear any loss and will absorb 100% of the losses on the underlying mortgage loan collateral until cumulative losses exceed the principal amount of our subordinated CMBS. We will also be the last to receive cash flow from the underlying mortgage loans. Interest payments typically flow first to the most senior certificates until they receive all of their accrued interest and then sequentially to the junior certificates in order of seniority. Principal payments typically flow to the most senior certificates until they are retired. Tranches are then retired in order of seniority based

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on available principal. When delinquencies, defaults and losses occur, cash flows otherwise due to our subordinated CMBS may not be advanced by the master servicers to the extent required to meet scheduled principal and interest payments, resulting in interest shortfalls to our subordinated CMBS. See below for a discussion of our most significant borrowing relationship and its potential impact on our cash flows. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and Note 4 to Notes of Consolidated Financial Statements.

        Changes in Value due to Economic Factors.    The value of our subordinated CMBS, along with our book value per diluted share, can change due to a number of economic factors. These factors include changes in the value of the underlying real estate, fluctuations in U.S. Treasury rates, and changes in the spread between interest rates on our subordinated CMBS and the U.S. Treasury securities with comparable maturities. For instance, changes in the performance of the properties securing the underlying mortgage loans can result in interest payment shortfalls to the extent there are mortgage payment delinquencies, and principal losses to the extent that there are payment defaults and the amounts of such principal and interest shortfalls are not fully recovered. These losses may result in a permanent decline in the value of our subordinated CMBS and may change our anticipated yield to maturity on such subordinated CMBS if the losses are in excess of those previously estimated. CMBS are priced at a spread above the current U.S. Treasury security (such as the 10 year U.S. Treasury Note) with a maturity that most closely matches the CMBS's weighted average life. The value of CMBS can be affected by changes in U.S. Treasury rates, as well as changes in the spread between such CMBS and the U.S. Treasury security with a comparable maturity. Generally, increases and decreases in both U.S. Treasury rates or spreads will result in temporary changes in the value of our subordinated CMBS assuming that we have the ability and intent to hold our subordinated CMBS investments until maturity. Temporary changes in fair value are reflected as a component of shareholders' equity. However, such temporary changes in the value of our subordinated CMBS become permanent changes realized through our income statement when the expected credit losses related to those subordinated CMBS are greater or occur sooner than originally anticipated or we no longer intend or fail to have the intent and ability to hold such subordinated CMBS to maturity. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and Note 4 to Notes of Consolidated Financial Statements.

        Significant borrowing relationship related to certain mortgage loans underlying our subordinated CMBS.    The most significant borrowing relationship in our specially serviced mortgage loan portfolio consists of 27 loans with scheduled principal balances as of December 31, 2003 totaling approximately $133 million spread across three CMBS transactions secured by hotel properties in the western and Pacific northwestern states. As of December 31, 2003, our total exposure, including advances and interest on advances of approximately $43 million, on these loans was approximately $176 million. Such total exposure is prior to the application of payments made to date by the borrower under the terms of our consensual settlement agreement and is expected to be reduced by the application of such payments at the settlement agreement closing. The borrower initially filed for bankruptcy protection in February 2002 and indicated that the properties had experienced reduced operating performance due to new competition, the economic recession, and reduced travel resulting from the September 11, 2001 terrorist attacks. We entered into a consensual settlement agreement dated February 25, 2003 pursuant to which the loan terms were amended and modified. This agreement was subsequently approved and confirmed by the bankruptcy court on March 28, 2003. The parties are currently proceeding toward closing a comprehensive modification of each loan, which is expected to occur in March 2004 and which is expected to return the loans to performing status. The closing of the loan modification is a complex process involving a large number of parties, all of whom must ultimately agree on, among other things, a reconciliation of payments and funds applied since the loan modification was approved by the bankruptcy court. The borrower continues to make payments under the modified terms. As of December 31, 2003, the borrower has made principal and interest payments totaling approximately $10 million, the majority of which represents interest paid (as compared to principal amortization) on

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the modified loan balances. During the year ended December 31, 2003, the borrower also sold one of the properties that secured these loans. In addition, as of December 31, 2003, the borrower has remitted approximately $1.5 million in funds from debtor-in-possession accounts, which is expected to be applied to arrearages at closing.

        Cash received from our subordinated CMBS could be significantly reduced if we are not successful in resolving these loans favorably and returning them to performing status. If the modifications are not successfully closed, the loans would remain in default. There can be no assurance that the borrower would continue making the loan payments required under the loan modifications or that the trust master servicers would continue to advance loan payments on behalf of the borrower. Further, as previously mentioned, as a result of the borrower's initial default, the trust master servicers have advanced substantial amounts of principal and interest payments to the related trusts. We do not believe that the governing trust agreements are clear as to the manner in which such master servicer advances are to be reimbursed, and are attempting to negotiate an arrangement with the master servicers and other parties to the trust which would provide for reimbursement of master servicer advances that would be in the best interest of all of the respective certificateholders. To the extent that we cannot successfully complete those arrangements, we and the other trust parties could dispute the proper reimbursement mechanics, and, as a result, the timing and/or amount of payments made to us on our subordinated CMBS, and the related fair value of our subordinated CMBS, could be adversely affected. Finally, even if both the loan modifications and master servicer advance reimbursement arrangements are successfully completed, distributions on our subordinated CMBS, and the related fair value of our subordinated CMBS, will continue to be dependent on the borrower's continued performance under the terms of the modified loans.

Limited liquidity of the subordinated CMBS market results in uncertainty in the valuation of our portfolio.

        There is no active secondary trading market for subordinated CMBS. This limited liquidity results in uncertainty in the valuation of our portfolio of subordinated CMBS. The liquidity of such market has historically been limited, and during adverse market conditions has been severely limited. Future adverse market conditions would likely adversely impact the value of our subordinated CMBS and amounts we could realize if we were required to sell all or a portion of our subordinated CMBS. Due to this limited liquidity, among other matters, management's estimate of the value of our subordinated CMBS could vary significantly from the value that could be realized in a current sale transaction.

        The limited liquidity of the subordinated CMBS market and the resulting potential uncertainty in the valuation of our subordinated CMBS contributes to the risk of margin calls due to the creditor's discretionary determination of collateral market value in a limited liquidity market. This was a factor in connection with our October 1998 Chapter 11 filing. See the risk factors related to borrowing risks.

The effects of terrorist attacks, economic and industry slowdown have contributed to defaults on the mortgage loans underlying our subordinated CMBS.

        The economic and commercial real estate industry slowdown, terrorist attacks and threats of further terrorist attacks have contributed to defaults on mortgage loans underlying our subordinated CMBS. These factors may continue to negatively impact the values of the commercial real estate securing the mortgage loans, weakening collateral coverage and the demand for the commercial real estate securing the underlying mortgage loans and increasing the possibility of defaults and losses. Mortgage loan defaults related to our subordinated CMBS have resulted in increased estimated losses, and may result in further losses on our subordinated CMBS. See Note 4 to the Notes to Consolidated Financial Statements and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" for information regarding the performance of the underlying mortgage loans underlying our subordinated CMBS. The factors described in this paragraph could also adversely affect loans that we may originate in the future.

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We are subject to a number of tax related risks including loss of REIT status.

        REIT Status.    We have elected to qualify as a REIT for tax purposes under sections 856-860 of the Internal Revenue Code. We are required to meet income, asset, ownership and distribution tests to maintain our REIT status. Although there can be no assurance, we believe that we have satisfied the REIT requirements for all years through, and including 2003. There can also be no assurance that we will maintain our REIT status for 2004 or subsequent years. If we fail to maintain our REIT status for any taxable year, we will be taxed as a regular domestic corporation subject to federal and state income tax in the year of disqualification and for at least the four subsequent years. Depending on the amount of any such federal and state income tax, we may have insufficient funds to pay any such tax and also may be unable to comply with some or all of our obligations, including the Bear Stearns and BREF Debt.

        We and two of our subsidiaries incorporated in 2001 jointly elected to treat such two subsidiaries as taxable REIT subsidiaries (TRS) effective January 1, 2001. The TRSs allow us to earn non-qualifying REIT income while maintaining our REIT status. These two subsidiaries hold all of the partnership interests of CMSLP.

        Net Operating Loss for Tax Purposes/Trader Election.    For tax purposes we have elected to be classified as a trader in securities. We trade in both short and longer duration fixed income securities, including CMBS, residential mortgage-backed securities and agency debt securities (such securities traded and all other securities of the type described constituting the "Trading Assets" to the extent owned by us or any qualified REIT subsidiary, meaning generally any wholly owned subsidiary that is not a taxable REIT subsidiary). Such Trading Assets are classified as Other MBS on our balance sheet.

        As a result of our election in 2000 to be taxed as a trader, we recognized a mark-to-market tax loss on our Trading Assets on January 1, 2000 of approximately $478 million (the January 2000 Loss). Such loss was recognized evenly for tax purposes over four years beginning with the year 2000 and ending in 2003. Such loss was ordinary, which allowed us to offset our ordinary income.

        We generated a net operating loss (or NOL) for tax purposes of approximately $84.0 million and $83.6 million during the years ended December 31, 2003 and 2002, respectively. As such, our taxable income was reduced to zero and, accordingly, our REIT distribution requirement was eliminated for 2003 and 2002. As of December 31, 2003, our accumulated and unused net operating loss (or NOL) was $307.8 million. Any accumulated and unused net operating losses, subject to certain limitations, generally may be carried forward for up to 20 years to offset taxable income until fully utilized. Accumulated and unused net operating losses cannot be carried back because we are a REIT.

        There can be no assurance that our position with respect to our election as a trader in securities will not be challenged by the Internal Revenue Service (or IRS) and, if challenged, will be defended successfully by us. As such, there is a risk that the January 2000 Loss will be limited or disallowed, resulting in higher tax basis income and a corresponding increase in REIT distribution requirements. It is possible that the amount of any under-distribution for a taxable year could be corrected with a "deficiency dividend" as defined in Section 860 of the Internal Revenue Code; however, interest may also be due to the IRS on the amount of this under-distribution.

        If we are required to make taxable income distributions to our shareholders to satisfy required REIT distributions, all or a substantial portion of these distributions, if any, may be in the form of non-cash dividends. There can be no assurance that such non-cash dividends would satisfy the REIT distribution requirements and, as such, we could lose our REIT status or may not be able to satisfy some or all of our contractual obligations.

        Our future use of NOLs for tax purposes could be substantially limited in the event of an "ownership change" as defined under Section 382 of the Internal Revenue Code. As a result of these limitations imposed by Section 382 of the Internal Revenue Code, in the event of an ownership change,

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our ability to use our NOL carryforwards in future years may be limited and, to the extent the NOL carryforwards cannot be fully utilized under these limitations within the carryforward periods, the NOL carryforwards would expire unutilized. Accordingly, after any ownership change, our ability to use our NOLs to reduce or offset taxable income would be substantially limited or not available under Section 382. In general, a company reaches the "ownership change" threshold if the "5% shareholders" increase their aggregate ownership interest in the company over a three-year testing period by more than 50 percentage points. The ownership interest is measured in terms of total market value of the company's capital stock. If an "ownership change" occurs under Section 382 of the Internal Revenue Code, our prospective use of our accumulated and unused NOL will be limited.

        We do not believe BREF Fund's investment in our common stock and warrants to purchase common stock has created an "ownership change" under Section 382. In addition, we are not aware of any other acquisition of shares of our capital stock that has created an "ownership change" under Section 382. We have adopted a shareholder rights plan and amended our charter to minimize the chance of an ownership change within the meaning of Section 382 of the Internal Revenue Code; however there can be no assurance that an ownership change will not occur.

        Changes in Tax Laws.    Our activities, structure and operations may be adversely affected by changes in the tax laws applicable to REITs and "traders in securities" for tax purposes.

If we recognize phantom income our shareholders may be required to pay federal income tax with respect to such income before such income is realized by them in an economic sense.

        Our investment in subordinated CMBS may cause us, under certain circumstances, to recognize taxable income in excess of our economic income (phantom income) actually received and to experience an offsetting excess of economic income over our taxable income in later years. As a result, our shareholders, from time to time, may be required to treat distributions that economically represent a return of capital as taxable dividends for federal income tax purposes. Such distributions would be offset in later years by distributions representing economic income that would be treated as returns of capital for federal income tax purposes. Accordingly, if we recognize phantom income, our shareholders may be required to pay federal income tax with respect to such income on an accelerated basis (i.e., before such income is realized by shareholders in an economic sense). Taking into account the time value of money, such an acceleration of federal income tax liabilities would cause shareholders to receive an after-tax rate of return on an investment in our stock that would be less than the after-tax rate of return on an investment with an identical before-tax rate of return that did not generate phantom income. As the ratio of our phantom income to our total income increases, the after-tax rate of return received by a shareholder paying taxes on such distributions will decrease.

We are dependent upon the performance of key personnel.

        Our business is dependent upon the performance of key employees, including Barry Blattman, our Chairman and Chief Executive Officer, and Mark Jarrell, our President and Chief Operating Officer, and other executive officers. We cannot be certain that any key employee will continue in such capacity for any particular period of time. All of our key employees are "at will" such that we or they may terminate their employment at any time and for any reason, or no reason. The loss of key personnel, or the inability to hire and retain qualified employees, could adversely effect our business, financial condition and results of operations.

Failure to qualify for the Investment Company Act exclusion could have a material adverse effect on us.

        Under the Investment Company Act of 1940, as amended, an investment company is required to register with the Securities and Exchange Commission (SEC) and is subject to extensive restrictive and potentially adverse regulation relating to, among other things, operating methods, management, capital structure, dividends and transactions with affiliates. However, as described below, companies primarily

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engaged in the business of acquiring mortgages and other liens on and interests in real estate (Qualifying Interests) are excluded from the requirements of the Investment Company Act.

        To qualify for the Investment Company Act exclusion, we, among other things, must maintain at least 55% of our assets in Qualifying Interests (the 55% Requirement) and are also required to maintain an additional 25% in Qualifying Interests or other real estate-related assets (Other Real Estate Interests and such requirement, the 25% Requirement). According to current SEC staff interpretations, we believe that all of our government-insured mortgage securities constitute other Real Estate Interests and that certain government-insured mortgage securities also constitute Qualifying Interests. In accordance with current SEC staff interpretations, we believe that all of our subordinated CMBS constitute Other Real Estate Interests and that certain of our subordinated CMBS also constitute Qualifying Interests. On certain of our subordinated CMBS, we, along with other rights, have the unilateral right to direct foreclosure with respect to the underlying mortgage loans. Based on such rights and our economic interest in the underlying mortgage loans, we believe that the related subordinated CMBS constitute Qualifying Interests. As of December 31, 2003, we believe that we were in compliance with both the 55% Requirement and the 25% Requirement.

        If the SEC or its staff were to take a different position with respect to whether such subordinated CMBS constitute Qualifying Interests, we could, among other things, be required either (i) to change the manner in which we conduct our operations to avoid being required to register as an investment company or (ii) to register as an investment company, either of which could have a material adverse effect on us. If we were required to change the manner in which we conduct our business, we would likely have to dispose of a significant portion of our subordinated CMBS or acquire significant additional assets that are Qualifying Interests. Alternatively, if we were required to register as an investment company, we expect that our operating expenses would significantly increase and that we would have to significantly reduce our indebtedness, which could also require us to sell a significant portion of our assets. No assurances can be given that any such dispositions or acquisitions of assets, or deleveraging, could be accomplished on favorable terms, or at all. There are restrictions under certain of the operative documents evidencing the Bear Stearns and BREF Debt which could limit possible actions we may take in response to any need to modify our business plan in order to register as an investment company or avoid the need to register. Certain dispositions or acquisitions of assets could require approval or consent of certain holders of this Debt. Any such results could have a material adverse effect on us.

        Further, if we were deemed an unregistered investment company, we could be subject to monetary penalties and injunctive relief. We would be unable to enforce contracts with third parties and third parties could seek to obtain rescission of transactions undertaken during the period we were deemed an unregistered investment company, unless the court found that under the circumstances, enforcement (or denial of rescission) would produce a more equitable result than nonenforcement (or grant of rescission) and would not be inconsistent with the Investment Company Act.

If two trusts formed in connection with two CMBS resecuritization transactions in which we own all the equity interests were to lose their "taxable mortgage pool" exemption, we could be materially adversely affected.

        An entity that constitutes a "taxable mortgage pool" as defined in the Internal Revenue Code (TMP) is treated as a separate corporate level taxpayer for federal income tax purposes. In general, for an entity to be treated as a TMP (i) substantially all of the assets must consist of debt obligations and a majority of those debt obligations must consist of mortgages, (ii) the entity must have more than one class of debt securities outstanding with separate maturities, and (iii) the payments on the debt securities must bear a relationship to the payments received from the mortgages. As of December 31, 2003, we owned all of the equity interests in two trusts that constitute TMPs (individually a Trust and together the Trusts). The Trusts were formed in connection with our CBO-1 and CBO-2 resecuritization

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transactions. See "Business-CMBS Resecuritizations" and Note 4 to the Notes to Consolidated Financial Statements for descriptions of CBO-1 and CBO-2. The statutory provisions and regulations governing the tax treatment of TMPs (the TMP Rules) provide an exemption for TMPs that constitute "qualified REIT subsidiaries" (that is, entities whose equity interests are wholly owned by a REIT or a qualified REIT subsidiary). As a result of this exemption and the fact that as of December 31, 2003 we owned all of the equity interests in each of the Trusts, as of December 31, 2003 the Trusts were not required to pay a separate corporate level tax on income they derive from their underlying mortgage assets.

        As of December 31, 2003, we also owned certain securities structured as debt issued by the Trusts (the Bonds). As of December 31, 2003, certain of the Bonds owned by us served as collateral (the Pledged Bonds) for certain secured debt. If a creditor were to seize or sell the Pledged Bonds and the Pledged Bonds were deemed to constitute equity interests (rather than debt) in the Trusts, then the Trusts would no longer qualify for the exemption under the TMP Rules provided for qualified REIT subsidiaries. The Trusts would then be required to pay a corporate level federal income tax. As a result, available funds from the underlying mortgage assets that would ordinarily be used by the Trusts to make payments on certain securities issued by the Trusts (including the equity interests and the Pledged Bonds) would instead be applied to tax payments. Since the equity interests and Bonds owned by us are the most subordinated securities and, therefore, would absorb payment shortfalls first, the loss of the exemption under the TMP Rules could have a material adverse effect on their value, the payments received thereon and the value of our stock.

        In addition to causing the loss of the exemption under the TMP Rules, a seizure or sale of the Pledged Bonds and a characterization of them as equity for tax purposes, rather than debt, could also jeopardize our REIT status if the value of the remaining ownership interests in any Trust held by us (i) exceeded 5% of the total value of our assets or (ii) constituted more than 10% of the Trust's voting interests. Although it is possible that the election by the TMPs to be treated as taxable REIT subsidiaries could prevent the loss of our REIT status, there can be no assurance that a valid election could be made given the timing of a seizure or sale of the Pledged Bonds.

        On the effective date of our January 2003 recapitalization, we effected an affiliate reorganization principally to indirectly secure the Bear Stearns Debt with the equity interests in the Trusts. As a result of the affiliate reorganization, our REIT subsidiary CBO REIT II owns the Pledged Bonds and indirectly owns all of the equity interests in the Trusts (through its ownership of two qualified REIT subsidiaries which hold the equity interests in the Trusts). We believe that the TMP risks set forth above remain applicable, as of the effective date of our January 2003 recapitalization, with respect to CBO REIT II; provided, however, that the risks referenced in the two immediately preceding paragraphs should only apply if a creditor were to seize or sell collateral which constituted or represented only a portion of the equity interests in a Trust.

Employees

        As of February 1, 2004, we had 81 employees, 52 of whom are employed by CMSLP and 29 of whom are employed by CRIIMI MAE Management, Inc., one of our wholly owned subsidiaries.

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Executive Officers

        The following table sets forth information concerning our executive officers as of March 1, 2004:

Name	Age	Position
Barry S. Blattman	41	Chairman of the Board and Chief Executive Officer
Mark R. Jarrell	43	President and Chief Operating Officer
Cynthia O. Azzara	44	Executive Vice President, Chief Financial Officer and Treasurer
Stephen M. Abelman	42	Executive Vice President, Asset Management
Daniel P. Warcholak	43	Senior Vice President, Fixed Income/Capital Markets

        Barry S. Blattman has served as Chairman of the Board and Chief Executive Officer since January 23, 2003, and as President from January 23, 2003 to September 15, 2003.

        Mark R. Jarrell has served as President and Chief Operating Officer since September 15, 2003, and as a director from January 23, 2003 to August 13, 2003.

        Cynthia O. Azzara has served as Chief Financial Officer since 1994, Executive Vice President since August 2003, Senior Vice President from 1995 to August 2003 and Treasurer since 1997.

        Stephen M. Abelman has served as Executive Vice President since October 29, 2003.

        Daniel P. Warcholak has served as Senior Vice President since September 2003, as Group Vice President from March 2002 to September 2003 and as Vice President from January 1998 to March 2002.

Internet Website

        Our internet website can be found at www.criimimaeinc.com. We make available, free of charge on or through our website, access to our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after such material is filed with, or furnished to, the SEC. We also make available, free of change, access to our Codes of Business Conduct and Ethics, Board of Directors Goverance Guidelines, Audit Committee Charter, Compensation and Stock Option Committee Charter and Nominating and Governance Committee Charter.

Certifications

        Our Chief Executive Officer and Chief Financial Officer have executed certifications dated March 11, 2004, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, and we have included those certifications as exhibits to our Annual Report on Form 10-K for the year ended December 31, 2003. In addition, our Chief Executive Officer has certified to the New York Stock Exchange that he is unaware of any violation by CRIIMI MAE of the NYSE's corporate governance listing standards in effect as of February 26, 2004.

ITEM 2. PROPERTIES

        We lease our corporate offices at 11200 Rockville Pike, Rockville, Maryland. As of December 31, 2003, these offices occupy approximately 67,600 square feet. As of March 1, 2004, approximately 32,000 square feet of this office space was available to sublet to third parties and we are actively seeking sublet tenants.

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ITEM 3. LEGAL PROCEEDINGS

        In the course of our normal business activities, various lawsuits, claims and proceedings have been or may be instituted or asserted against us. Although there can be no assurance, based on currently available facts, we believe that the disposition of matters pending or asserted will not have a material adverse effect on our consolidated financial position, results of operations or liquidity. See Note 18 of Notes to Consolidated Financial Statements.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        We did not submit any matters to a vote of security holders during the fourth quarter of 2003.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Data

        Our common stock is listed on the New York Stock Exchange (symbol: CMM). On October 17, 2001, we implemented a one-for-ten reverse stock split designed, in part, to satisfy the New York Stock Exchange market price listing requirement. All share and per share information in this Annual Report on Form 10-K has been retroactively adjusted to reflect the reverse stock split. Share information adjustments include, without limitation, adjustments to the number of common shares issued and outstanding, issued as dividends on and upon conversion of shares of preferred stock and issuable under outstanding options.

        As of March 1, 2004, we had approximately 2,700 holders of record of our common stock. The following table sets forth the high and low closing sales prices for our common stock during the periods indicated.

	2003				2002
	Sales Price				Sales Price
Quarter Ended
	High		Low		High		Low
March 31	$	10.86	$	8.20	$	4.19	$	3.49
June 30		11.32		8.87		7.39		3.45
September 30		11.96		10.36		8.87		6.15
December 31		11.40		10.00		10.43		7.69

Dividends

        No cash dividends were paid to common shareholders during 2003 or 2002. See "Business—Certain Risk Factors" for a brief discussion of the elimination of our REIT distribution requirements for 2003 and 2002 due to our net operating losses for tax purposes. Under the operative documents evidencing the BREF Debt and Bear Stearns Debt, we are permitted to pay cash dividends to shareholders after the payment of required principal and interest on that debt.

        In April 2002, dividends to preferred shareholders for the fourth quarter of 2001 and the first quarter of 2002 were paid in the form of shares of common stock. During 2003, dividends were paid to preferred shareholders in cash. See Notes 12 and 13 to Notes to Consolidated Financial Statements.

        On March 21, 2002, we redeemed in cash all 173,000 outstanding shares of our Series E Cumulative Convertible Preferred Stock at the stated redemption price of $106 per share plus accrued and unpaid dividends through and including the date of redemption. The total redemption price was approximately $18.7 million ($396,000 of which represented accrued and unpaid dividends).

Sale of Unregistered Securities

        In connection with the January 2003 recapitalization, BREF acquired 1,212,617 shares of our newly issued common stock, or approximately 8% of our outstanding common stock after giving effect to the share acquisition, at $11.50 per share, or approximately $13.9 million. BREF also received seven-year warrants to purchase up to 336,835 additional shares of common stock at a purchase price of $11.50 per share. In connection with the sale, BREF represented that it was an "accredited investor" within the meaning of Rule 501 under the Securities Act and that it had no intent to distribute the purchased securities. We claimed an exemption from registration under the Securities Act under Rule 506 of Regulation D in connection with this sale.

Repurchases

        We did not repurchase any shares of our equity securities during the fourth quarter of 2003.

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ITEM 6. SELECTED FINANCIAL DATA

Selected Consolidated Financial Data

Accounting Under Accounting Principles Generally Accepted in the United States

        The following table contains selected consolidated financial information about us. The selected financial data should be read in conjunction with the consolidated financial statements, the notes thereto, and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" included elsewhere in this Annual Report on Form 10-K. There were no cash dividends declared on our common stock for any of the periods presented. See Note 2 to Notes to Consolidated Financial Statements and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" for a discussion of the accounting for servicing revenue, derivatives, goodwill and other intangibles, preferred stock issuance costs and a discussion of certain expenses related to Chapter 11 reorganization, all of which affect the comparability of the periods presented below.

			For the years ended December 31,
			2003			2002			2001			2000			1999
			(in thousands, except per share amounts)
Consolidated Income Statement Data:
	Interest income		$	104,415		$	124,460		$	134,375		$	195,252		$	222,323
	Interest and related expense			(70,800	)		(93,743	)		(98,861	)		(139,366	)		(151,337	)
		Net interest margin		33,615			30,717			35,514			55,885			70,986
	General and administrative expenses			(11,986	)		(10,618	)		(10,951	)		(11,301	)		(12,049	)
	Servicing operations, net			(1,496	)		(42	)		(585	)		—			—
	Impairment on CMBS			(14,738	)		(70,226	)		(34,655	)		(143,478	)		—
	Reorganization items			—			—			(1,813	)		(68,572	)		(178,900	)
	Net income (loss) before cumulative effect of accounting changes			2,895			(46,359	)		(17,937	)		(148,584	)		(126,529	)
	Dividends paid or accrued on preferred shares, including redemption costs			(7,007	)		(9,337	)		(8,146	)		(6,912	)		(5,840	)
	Net loss to common shareholders			(4,111	)		(65,462	)		(24,223	)		(155,495	)		(132,369	)
	Net loss per diluted share after cumulative effect of accounting changes		$	(0.27	)	$	(4.77	)	$	(2.18)	(1)	$	(25.02)	(1)	$	(24.51)	(1)
Financial Data:
	Cash flows provided by (used in):
		Operating activities	$	20,794		$	56,872		$	52,679		$	(6,818	)	$	26,064
		Investing activities		141,222			86,838			53,535			113,351			130,693
		Financing activities		(169,568	)		(131,758	)		(195,484	)		(53,474	)		(125,073	)

21

Consolidated Balance Sheet Data:
	Mortgage Assets:
		CMBS	$	837,003	$	861,980	$	824,220	$	852,534	$	1,179,363
		Insured mortgage securities		147,498		275,340		343,091		385,751		394,857
		Other		3,900		5,248		8,462		4,312		470,205
	Servicing assets			10,392		26,357		24,766		—		—
	Total assets			1,069,212		1,241,085		1,315,004		1,557,840		2,293,661
	Debt:
		Total recourse debt		350,043		375,952		407,637		558,585		925,704
		Total nonrecourse debt		415,550		546,039		616,715		645,170		1,056,646
	Total liabilities			777,432		949,424		1,053,959		1,289,582		2,074,313
	Shareholders' equity			291,780		291,661		261,045		268,258		219,349

(1)

Pro forma net loss per diluted share assuming the adoption of SFAS 142 and the change in accounting for servicing revenue as of January 1, 2001, 2000 and 1999 would have been $(2.11), $(24.51) and $(23.90), respectively.

Tax Basis Accounting

		For the year ended December 31,
		2003			2002			2001			2000			1999
		(in thousands)
Interest income		$	176,976		$	181,462		$	187,079		$	246,576		$	278,450
Interest and related expense			(103,176	)		(120,789	)		(129,186	)		(171,282	)		(186,766	)
	Net interest margin		73,800			60,673			57,893			75,294			91,684
Other, net			(13,543	)		(10,161	)		(5,812	)		(5,739	)		(4,240	)
Credit losses on CMBS			(24,658	)		(14,480	)		(4,370	)		(1,287	)		(621	)
January 2000 Loss recognized			(119,543	)		(119,542	)		(119,542	)		(119,542	)		—
Mark-to-market loss on trading assets as of 04/17/01			—			—			(8,573	)		—			—
Mark-to-market (loss) gain on trading assets			(94	)		(60	)		(135	)		49,933			—
Dividends paid or accrued on preferred shares			(7,007	)		(9,337	)		(8,145	)		(6,912	)		(5,840	)
Dividends not deductible due to net operating loss			7,007			9,337			8,145			6,912			—
Reorganization items			—			—			(10,159	)		(35,604	)		(12,950	)
Loss on warehouse obligation			—			—			—			—			(36,328	)
Loss on sale of trading assets			—			—			—			(12,607	)		—
(Net operating loss)/taxable income			(84,038	)		(83,570	)		(90,698	)		(49,552	)		31,705
Accumulated net operating loss, January 1			(223,820	)		(140,250	)		(49,552	)		—			—
Remaining January 2000 Loss			—			(119,543	)		(239,085	)		(358,627	)		—
Accumulated and unused net operating loss and remaining January 2000 Loss		$	(307,858	)	$	(343,363	)	$	(379,335	)	$	(408,179	)	$	—

22

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

        Our existing business consists of:

•

investments in our core assets, which are subordinated CMBS backed by pools of commercial mortgage loans on multifamily, retail, hotel, and other commercial real estate;



•

investments in non-core assets, including direct and indirect investments in government-insured mortgage backed securities and a limited number of other assets; and



•

trading in CMBS, residential mortgage-backed securities, agency debt securities and other fixed income securities.

        We also perform mortgage servicing through our servicing subsidiary, CRIIMI MAE Services Limited Partnership (CMSLP). CMSLP performs special servicing on the commercial mortgage loans underlying our subordinated CMBS.

        Currently, our primary source of revenue and cash is our subordinated CMBS. We receive cash flows from our investments in subordinated CMBS in connection with payments made on the underlying commercial mortgage loans. The net interest margin related to our subordinated CMBS is impacted by, among other things, the credit performance of the mortgage loans underlying our subordinated CMBS and the interest expense on our recourse debt.

        During late 2003, we undertook a review of the current market for acquisition of subordinated CMBS in preparation for the expected resumption of such acquisition activities in 2004. Due to a variety of factors such as increased competition in the sector, less attractive investment yields and underwriting standards that are widely believed to be deteriorating due to the surplus of investment capital dedicated to the subordinated CMBS market, we now believe that it is more prudent for us to focus our 2004 investment activity in the "manufacturing" of subordinated CMBS investments rather than pursuing secondary-market acquisition opportunities as we have in the past. By "manufacturing" we mean directly originating, or purchasing at origination, commercial mortgage loan, and financing these loans via the periodic issuance of investment-grade rated CMBS. This strategy would continue our historical focus on higher-yielding tranches of CMBS, but would allow us to better control the risk inherent in such investments by involving the company in the transactions at inception (i.e. at the time the loans are originated).

        As a full-service commercial mortgage company, we expect to originate, service and securitize commercial mortgage loans—which we believe gives us a competitive advantage over other securitized lenders in terms of level of service provided to mortgage loan borrowers and flexibility in addressing borrower needs over the term of their loans. Our aim would be to use securitization as a financing tool to create attractive long-term investment yields as opposed to the current market paradigm in which securitization is primarily used to generate short-term arbitrage gains on sale. Our goal is to deliver an attractive return on shareholders' equity generated by earnings that are sustainable over the long-term. We remain prepared to augment those returns by selectively participating in the subordinated CMBS acquisition market if market conditions warrant.

        We currently face certain significant business risks, including those risks related to owning subordinated CMBS and refinancing risks related to our Bear Stearns Debt and BREF Debt, which mature in January 2006. We are currently exploring refinancing alternatives, including, among others, a collateralized debt obligation, to address our refinancing risk.

23

Liquidity and Cash Flow

        Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to repay recourse borrowings, fund investments and lending activities and for other general business purposes. Currently, our primary source of funds for liquidity consists of cash flows from our subordinated CMBS and, to a lesser extent, cash flows from our insured mortgage securities, equity investments and mezzanine loans.

        Our ability to make mortgage related investments, including direct loan originations, depends on, among other things, our ability to engage in such activities under the terms and conditions of the operative documents evidencing our obligations, our internally generated cash flows, available liquidity, and our ability to access additional capital. Factors which could affect our ability to access additional capital include the amount of our debt, among other things, the cost and availability of such capital, the availability of investment product at attractive rates of return, changes in interest rates and interest rate spreads, changes in the commercial mortgage industry and the commercial real estate market, the effects of terrorism, general economic conditions, perceptions in the capital markets of our business, results of our operations, and our financial leverage, financial condition, and business prospects. There can be no assurance that we will be able to resume mortgage related investments or obtain additional capital, or that the terms of any such capital will be favorable to us.

Summary of Significant Sources and Uses of Cash Related to Existing Business

        The following table is a summary of our significant sources and uses of cash during the years ended December 31, 2003 and 2002 (in millions):

		For the year ended
		2003			2002
Cash received from CMBS rated BB+ through unrated		$	60.0		$	70.6
Cash distribution from the AIM Limited Partnerships(1)			3.3			2.7
Net cash received from insured mortgage securities			2.3			3.4
Cash received from investment in mezzanine loans			2.7			1.0
Cash used to service recourse debt:
	Principal payments (excluding retirement of recourse debt)		(6.1	)		(36.2	)
	Interest payments		(22.2	)		(31.7	)
Cash used to pay interest rate swap			(0.5	)		—
Cash used to pay current and previously deferred preferred dividends			(12.2	)		(0.4	)
Cash used to pay executive contract terminations and severance			(4.5	)		—
Cash used to pay principal and interest on mortgage payable			(0.8	)		(0.8	)
Cash used to prepay Fannie Mae funding note			(2.0	)		—
General and administrative expenses(2)			(12.0	)		(10.6	)
BREF maintenance fee(2)			(1.7	)		—

(1)

Cash distributions from the AIM Limited Partnerships are primarily a return on investment.

(2)

The general and administrative expenses and BREF maintenance fee are the amounts as reflected in our Consolidated Statements of Income.

        The decrease in cash received from CMBS (rated BB+ through unrated) is primarily the result of increased interest shortfalls on our subordinated CMBS resulting from increased defaults, realized losses and appraisal reduction events during 2003 as compared to 2002. Cash flows from our subordinated CMBS will continue to be affected by additional defaults, realized losses, interest shortfalls, master servicer advance recoveries and appraisal reduction amounts on properties underlying

24

our subordinated CMBS. Estimated cumulative losses on our subordinated CMBS, which have been included in our estimated yields, are expected to continue to increase significantly through 2005 and will likely result in further decreased cash received from our subordinated CMBS in future years. Also, we currently face uncertainty regarding the potential impact of the outcome of events involving our most significant borrowing relationship as discussed under the caption "Financial Condition—Summary of CMBS—Specially Serviced Mortgage Loans." Our future cash flows from our subordinated CMBS, and the related fair value determination of our subordinated CMBS, could be significantly adversely affected if certain loan modifications and servicer reimbursement arrangements are not resolved satisfactorily.

        The increase in cash received from the AIM Limited Partnerships (which are four publicly traded limited partnerships that hold insured mortgages and whose general partner is one of our subsidiaries) is primarily the result of continuing prepayments of the mortgages held by the AIM Limited Partnerships and the resulting distributions to partners, including one of our wholly-owned subsidiaries. In February 2004, three of the four AIM Limited Partnerships were liquidated; accordingly, we received liquidating distributions aggregating approximately $1.8 million in February 2004. We currently expect our cash flows from the AIM Limited Partnerships to remain at a similar level in 2004 as compared to 2003 due to the liquidations.

        For our insured mortgage securities, the net cash received after debt service, which is generally excess interest and prepayment penalties, decreased during 2003 due to the significant prepayment of the mortgage securities during 2003 and 2002. We expect the net cash flows from our insured mortgages to increase during 2004 compared to 2003, due to the prepayment of the Freddie Mac funding note in March 2004 and the expected prepayment of the CMO debt by the end of the second quarter of 2004, as discussed below in "Capital Resources—Non-Recourse Debt," assuming asset balances and LIBOR remain at current levels. The repayments of the debt will increase our net interest margin related to these assets since we will be replacing higher, fixed rate debt with LIBOR-based debt, which is currently lower.

        The increase in cash received from our mezzanine loans was primarily the result of the $1.7 million repayment of one of the loans. We currently expect the cash flow from our mezzanine loans to decrease in 2004 as compared to 2003.

        The principal payments on our recourse debt decreased by approximately $30.1 million during 2003 as compared to 2002 primarily due to the refinancing of the Exit Debt in January 2003. The Bear Stearns Debt required quarterly principal amortization payments of $1.25 million through January 2004, increasing to approximately $1.9 million per quarter thereafter. If we complete the anticipated refinancing of the Bear Stearns Debt during 2004, our principal payments could be significantly higher than the existing payments required under the Bear Stearns Debt. The BREF Debt does not require principal amortization payments. During 2002, substantially all of our net cash flows were required to be used to pay principal and interest payments on the Exit Debt.

        The interest payments on our recourse debt decreased by approximately $9.5 million during 2003 due to a lower average coupon rate and lower average balance of our recourse debt following the recapitalization in January 2003. We expect our interest payments to decrease further during 2004 under our current recourse debt facilities as compared to 2003 interest payments, assuming LIBOR remains constant. If we complete the anticipated refinancing during 2004, our interest payments could be significantly higher than the interest payments currently required under the Bear Stearns Debt.

        We made preferred dividend payments of approximately $12.2 million during the year ended December 31, 2003 following the Board's decision to pay all previously deferred preferred stock dividends and current dividends during 2003. We expect our total preferred dividend payments to decrease in 2004 as compared to 2003 since we will only be paying current dividends in 2004.

25

        As detailed in the table above, we made payments for general and administrative expenses, executive contract terminations and severance, the BREF maintenance fee and the interest rate swap during 2003 and 2002. See further discussion of these income statement items in our discussion of results of operations in 2003 compared to 2002.

2003 compared to 2002

        Net cash provided by operating activities decreased by approximately $36.1 million to $20.8 million during 2003 as compared to $56.9 million during 2002. The decrease was primarily attributable to us no longer being required to restrict cash due to the retirement of our Exit Debt, a decrease in cash received from our subordinated CMBS as previously discussed, $2.4 million paid to certain executives for contract terminations, and $2.1 million of severance paid to our former Chairman and former President.

        Net cash provided by investing activities increased by approximately $54.4 million to $141.2 million during 2003 compared to $86.8 million during 2002. The increase was primarily attributable to:

•

a $50.3 million increase in proceeds from insured mortgage security prepayments during 2003;



•

$1.7 million of proceeds from the prepayment of a mezzanine loan during 2003;



•

$10.1 million of purchases of investment-grade CMBS by CMSLP during 2002; partially offset by



•

$8.8 million of proceeds from the sale of servicing rights during 2002; and



•

a $2.3 million reduction in proceeds from the sale of investment-grade CMBS by CMSLP during 2003.

        Net cash used in financing activities increased by approximately $37.8 million to $169.6 million during 2003 compared to $131.8 million during 2002. The increase is primarily attributable to the payment of approximately $12.2 million in preferred stock dividends during 2003 and a $61.0 million increase in principal payments on the securitized mortgage obligations due to higher insured mortgage security prepayments as discussed previously. In connection with the January 2003 recapitalization, we repaid approximately $373.6 million of Exit Debt through the incurrence of an aggregate $330.0 million of Bear Stearns and BREF Debt, the net proceeds of $13.5 million from the issuance of common stock to BREF Fund, and $30.1 million of our available cash and liquid assets. During 2003, we also paid approximately $6.4 million of debt issuance costs, primarily in connection with the January 2003 recapitalization. During 2002, we paid $18.7 million (approximately $396,000 of which represented accrued and unpaid dividends) to redeem the Series E Preferred Stock. We redeemed all 173,000 outstanding shares of the Series E Preferred Stock at the stated redemption price of $106 per share plus accrued and unpaid dividends through and including the date of redemption. The approximate $2.2 million difference between the aggregate liquidation value, including preferred stock issuance costs, and the redemption price is reflected as a dividend on preferred stock in 2002.

2002 compared to 2001

        Net cash provided by operating activities increased by approximately $4.2 million during 2002 as compared to 2001. The increase was primarily attributable to net sales of other MBS during 2002 compared to net purchases during 2001. The 2002 results also reflect a decrease in restricted cash and accounts payable and accrued expenses following the settlement of the First Union litigation in March 2002. The 2001 decrease in receivables and other assets reflects the January 2001 receipt of funds withheld related to our interest in CMO-IV. The 2001 results also reflect a decrease in restricted cash and accounts payable and accrued expenses caused by cash outflows on the April 17, 2001 Chapter 11 effective date, including approximately $44.7 million to pay off accrued interest on debt incurred

26

prior to the Chapter 11 filing, $3.9 million to pay an emergence financing origination fee related to a portion of the Exit Debt and $7.4 million to pay accrued payables related to the Chapter 11 filing.

        Net cash provided by investing activities increased by approximately $33.3 million to $86.8 million during 2002 compared to $53.5 million during 2001. The increase was primarily attributable to:

•

a $37.8 million increase in proceeds from mortgage security prepayments during 2002;



•

$8.8 million of proceeds from the sale by CMSLP of its servicing rights (excludes reimbursement of advances, which are included in operating cash flows) during 2002; partially offset by



•

net cash of $4.4 million that CMSLP invested in investment-grade CMBS during 2002; and



•

$6.8 million of cash reflected in 2001 as a result of the consolidation of CMSLP beginning in July 2001.

        Net cash used in financing activities decreased by approximately $63.7 million to $131.8 million during 2002 compared to $195.5 million during 2001. The decrease is primarily attributable to:

•

a $119.8 million decrease in principal payments on our recourse and other non-match funded debt, including the Exit Debt, during 2002; partially offset by



•

$18.7 million paid to redeem the Series E Preferred Stock; and



•

a $37.3 million increase in principal payments on the securitized mortgage debt obligations due primarily to higher mortgage security dispositions in 2002.

        The 2001 principal payments on recourse debt include approximately $127.2 million paid on the April 17, 2001 Chapter 11 effective date, which was used to pay off a portion of the aggregate principal relating to debt incurred prior to the Chapter 11 filing.

Capital Resources

        As of December 31, 2003, our total consolidated indebtedness was $765.6 million (of which $350.0 million was recourse debt), and our shareholders' equity was approximately $291.8 million. The following discussion summarizes our existing recourse debt, hedging instruments and non-recourse debt as of December 31, 2003.

Recourse Debt

        Certain information regarding our existing recourse debt is as follows (in thousands):

		12/31/03 Face Amount		Current Interest Rate	Annual Principal Payments		Maturity Date
Bear Stearns Debt		$	296,250	LIBOR + 300 bps	$	7,500	January 2006
BREF Debt			31,267	15%		—	January 2006
Bear Stearns repurchase agreement			22,526	Varies		Varies	August 2005
	Total recourse debt	$	350,043

        The Bear Stearns Debt is collateralized by first direct and/or indirect liens on all of our subordinated CMBS, and is subject to a number of terms, conditions and restrictions including margin requirements. The BREF Debt is collateralized by an indirect second lien on all of our subordinated CMBS and is not prepayable.

        The Bear Stearns repurchase agreement is collateralized by approximately $25 million of insured mortgage securities as of December 31, 2003. The interest rate under the Bear Stearns repurchase agreement, which is currently based on one-month LIBOR plus 10 basis points, varies by the type of

27

collateral. The Bear Stearns repurchase agreement is also subject to liquidity requirements and, in certain instances, margin requirements. We expect further borrowings under the Bear Stearns repurchase agreement during 2004, including borrowings in connection with the anticipated repayment of the Freddie Mac funding note and the CMO debt, as discussed below. For a discussion of the related risk factors, see "Business—Certain Risk Factors" under the caption "We are subject to a number of borrowing risks, including refinancing risk and margin calls".

        See Note 6 of the Notes to Consolidated Financial Statements for a more detailed description of these borrowing facilities, and see below for a discussion regarding the anticipated refinancing of the Bear Stearns Debt.

Hedging Instruments

        The following is a summary of our derivative financial instruments as of December 31, 2003 (in thousands):

		Notional Amount		Estimated Fair Value		Weighted Average Interest Rate		Maturity Date
Pay fixed interest rate swaps		$	100,000	$	3,422	4.15	%	October 15, 2013
Interest rate cap			50,000		16	2.25	%	November 4, 2004
	Total	$	150,000	$	3,438

        We have entered into an interest rate swap agreement to hedge the variability of the future interest payments on the anticipated CDO attributable to changes in interest rates. Our obligations to Bear Stearns under the interest rate swap documents are collateralized by certain assets as described in Note 6. Through December 31, 2003, these swaps were treated as cash flow hedges for GAAP. We have entered into three interest rate swap transactions under this agreement in which we agreed to pay Bear Stearns a weighted average fixed rate of 4.15% per annum in exchange for floating payments based on one-month LIBOR on the total notional amount of $100 million. These swaps provide for monthly interest payments which commenced November 15, 2003. We intend to terminate the swaps simultaneously with the issuance of the CDO or other refinancing transaction.

        We also maintain an interest rate cap indexed to one-month LIBOR to partially limit the adverse effects of potential rising interest rates on our variable rate secured debt. The interest rate cap provides protection to the extent interest rates, based on a readily determinable interest rate index, increase above the stated interest rate cap, in which case we would receive payments based on the difference between the index and the cap.

        See "Business—Certain Risk Factors" for a discussion of the related risk factors, under the caption "Our hedging transactions provide limited protection".

Non-Recourse Debt

        Our non-recourse debt of $415.5 million as of December 31, 2003 is collateralized, in general, by either our investment grade CMBS or certain of our insured mortgage securities that are pledged to secure the non-recourse debt. Principal payments on these obligations are required to the extent of principal payments made on the underlying investment grade CMBS or insured mortgage securities. See Note 6 of Notes to Consolidated Financial Statements for a more detailed discussion of our non-recourse debt.

        In January 2004, the face amount of our Freddie Mac funding note was reduced to approximately $25.4 million due to principal prepayments on the underlying mortgage securities. Since the face value of the debt is less than 20% of the original face value after the January 2004 payment, we have the

28

option of prepaying this debt. We prepaid this debt in March 2004 by using $1.1 million of our cash and borrowing $20.9 million under the Bear Stearns repurchase agreement. We expect to recognize a loss on extinguishment of debt of approximately $707,000 during the three months ended March 31, 2004 due to the write-off of unamortized discount and deferred fees.

        In February 2004, the face amount of the CMO debt was reduced to approximately $45.9 million due to principal prepayments on the underlying mortgage securities. Since the face value of the debt is less than 25% of the original face value after the February payment, we have the option of prepaying this debt. We expect to prepay this debt in the second quarter of 2004 by borrowing under the Bear Stearns repurchase agreement, subject to Bear's approval, and/or selling certain of the mortgage loans that collateralize the CMO debt. We will recognize a loss on extinguishment of debt upon the repayment of this debt due to the write-off of unamortized discount and deferred fees.

Anticipated Refinancing of Bear Stearns Debt

        We continue to explore a refinancing of the Bear Stearns Debt during 2004. For a discussion of the related risk factors, see "Business—Certain Risk Factors" under the caption "We are subject to a number of borrowing risks, including refinancing risk and margin calls".

Summary of Contractual Obligations

        The following table summarizes our contractual obligations as of December 31, 2003. For debt obligations, the table presents the contractual principal payments.

Payments due by period
(in thousands)

		Total		2004		2005-2006		2007-2008		Thereafter
Long-Term Debt:
	Recourse to CRIIMI MAE	$	350,043	$	7,905	$	342,138	$	—	$	—
	Non-Recourse to CRIIMI MAE(a)		458,148		7,319		64,481		13,928		372,420
Operating Lease Obligations			7,476		1,881		3,690		1,905		—
Purchase Obligations			488		367		95		26		—
Severance Obligations			749		747		2		—		—
Totals		$	816,904	$	18,219	$	410,406	$	15,859	$	372,420

(a)

Most of these obligations relate to our securitized mortgage obligations. Payments of principal on the securitized mortgage obligations are required to the extent mortgage principal is received on the related collateral. The projected principal payments on the securitized mortgage obligations are based on the stated terms of the underlying mortgages.

        We have entered into employment agreements with three of our senior executive officers. Significant contract provisions include minimum annual base salaries, guaranteed minimum bonus payments and stock awards. These contracts are primarily "at will" employment agreements, under which we or the executive may terminate employment for any reason or no reason. If we terminate any of these executives without cause, then we are obligated to pay the executive as specified in their individual contracts. As of December 31, 2003, minimum aggregate severance payments payable by us was approximately $200,000.

Results of Operations

2003 compared to 2002

        Financial statement net loss to common shareholders for the years ended December 31, 2003 and 2002 was approximately $(4.1) million and $(65.5) million, respectively. The significant reduction in net loss in 2003 as compared to 2002 was primarily the result of $14.7 million of impairment charges related to certain subordinated CMBS that were recognized during 2003 compared to impairment charges of $70.2 million that were recognized during 2002.

29

        2003 results include:

•

approximately $14.7 million of impairment charges related to certain subordinated CMBS;



•

approximately $6.7 million of net gain on extinguishment of debt;



•

approximately $3.2 million of recapitalization expenses;



•

approximately $2.9 million in executive contract termination expenses;



•

approximately $3.3 million of additional amortization expense on collateralized mortgage obligations;



•

approximately $1.9 million in hedge ineffectiveness expense; and



•

approximately $3.1 million of additional interest expense during the 45 day redemption notice period for the Series A and Series B Senior Secured Notes.

        2002 results include:

•

approximately $70.2 million of impairment charges related to certain subordinated CMBS;



•

an approximate $9.8 million non-cash charge to write-off goodwill upon the adoption of Statement of Financial Accounting Standards (or SFAS) No. 142;



•

approximately $4.9 million from the gain on the sale by CMSLP of master and direct servicing rights;



•

approximately $2.8 million of additional amortization expense on collateralized mortgage obligations;



•

approximately $1.0 million of recapitalization expenses; and



•

approximately $2.2 million reflected as an additional dividend on preferred stock in connection with the redemption of the Series E Preferred Stock (representing the difference between the aggregate liquidation value, including the initial preferred stock issuance costs, and the redemption price).

Net Interest Margin

        Net interest margin increased by approximately $2.9 million to $33.6 million during 2003 compared to $30.7 million during 2002, primarily due to reduced borrowing costs related to the January 2003 recapitalization, partially offset by additional interest expense related to discount amortization of our collateralized mortgage obligations, as discussed below.

Interest Income—CMBS

        Interest income from investment grade CMBS did not change significantly during 2003 as compared to 2002. Interest income from subordinated CMBS decreased by approximately $12.0 million, or 16%, to $62.6 million during 2003 as compared to $74.6 million during 2002, primarily due to changes in our loss estimates related to CMBS during 2002 and 2003 and the resulting reduction in interest income on CMBS. GAAP require that yields on CMBS be recalculated and revised as estimated future cash flows change. The revised yield on CMBS is based on the current amortized cost (adjusted for impairment) and the revised future cash flows, including the assumed timing and amount of future defaults and credit losses. The revised weighted average yield as of January 1, 2004, 2003, and 2002 was 11.9%, 11.6% and 12.4%, respectively.

        The effective interest method of recognizing interest income on CMBS results in income recognition that differs from cash received. For the year ended December 31, 2003, we recognized

30

approximately $11.0 million of discount amortization, partially offset by approximately $3.3 million of cash received in excess of income recognized on subordinated CMBS due to the effective interest method. For the year ended December 31, 2002, we recognized approximately $11.4 million of discount amortization, partially offset by approximately $2.9 million of cash received in excess of income recognized on subordinated CMBS due to the effective interest method. The net effect of the discount amortization and the cash received in excess of income is an adjustment to the basis of our subordinated CMBS.

Interest Income—Insured Mortgage Securities

        Interest income from insured mortgage securities decreased by approximately $8.3 million, or 35%, to $15.5 million during 2003 from $23.8 million during 2002. This decrease was principally due to the prepayment or sale of approximately 45% of the total insured mortgage portfolio from December 31, 2002 through December 31, 2003. The prepayment activity corresponds with the low mortgage interest rate environment during this period. These prepayments result in corresponding reductions in the outstanding principal balances of the collateralized mortgage obligations-insured mortgage securities and the related interest expense.

Interest Expense

        Interest expense of approximately $70.8 million for 2003 was 24% lower than the interest expense of approximately $93.7 million for 2002. The decrease is attributable to a lower average debt balance during 2003 ($849 million) compared to 2002 ($975 million), and a lower average effective interest rate on total debt outstanding during 2003 (8.2%) compared to 2002 (9.5%). These decreases were partially offset by additional amortization on the collateralized mortgage obligations as discussed below.

        The overall weighted average effective interest rate on the Bear Stearns Debt and BREF Debt was 5.8% for the year ended December 31, 2003, and the weighted average coupon (pay) rate on the Bear Stearns Debt and BREF Debt was 4.5%, reflecting the significant reduction in borrowing costs related to the January 2003 recapitalization. The difference in the weighted average effective interest rate and the weighted average pay rate primarily relates to our deferral of two-thirds of the interest on the BREF Debt during the first 5 months of the BREF Debt. The weighted average effective interest rate on the Exit Debt was 10.4% for the year ended December 31, 2002. The weighted average pay rate on the Exit Debt was 8.0% during the same period.

        On January 23, 2003, we deposited amounts with the indenture trustee to pay all principal and interest on our outstanding Series A and Series B Senior Secured Notes on the March 10, 2003 redemption date. This redemption required deposit of the redemption amount 45 days prior to the actual redemption of the notes. The 45 day notice period resulted in approximately $3.1 million of additional interest expense during the period January 23, 2003 through March 10, 2003 since the Bear Stearns Debt, BREF Debt, and the Series A and B secured notes were outstanding at the same time.

        Interest expense on the collateralized mortgage obligations-insured mortgage securities decreased following significant prepayments of mortgages underlying the insured mortgage securities, as discussed previously. This decrease in interest expense was partially offset by approximately $3.3 million of additional discount and deferred fees amortization expenses during 2003, which are reflected as interest expense, compared to approximately $2.8 million of additional amortization expenses during 2002. The increase in amortization is the result of the mortgages prepaying faster than anticipated and increases in our assumed prepayment speed which, under the effective interest method of recognizing interest expense, required an adjustment to cumulative amortization recorded through interest expense.

        During the years ended December 31, 2003 and 2002, we recognized hedge expense of approximately $1.0 million and $1.1 million, respectively, on our interest rate caps. Our interest rate cap, which matured on November 3, 2003 (which we purchased in April 2002), set one-month LIBOR

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at a rate of 3.25%. On October 31, 2003, we purchased an interest rate cap with a notional amount of $50 million, maturity on November 4, 2004, and capping one-month LIBOR at 2.25%. As of December 31, 2003, the one-month LIBOR rate was 1.12%.

General and Administrative Expenses

        General and administrative expenses increased by approximately $1.4 million to $12.0 million during 2003 as compared to $10.6 million during 2002 primarily due to an increase in professional fees incurred in connection with the interest rate swap and related netting agreement and corporate governance compliance due to the Sarbanes-Oxley Act of 2002, and an increase in salary expenses. We expect a reduction in general and administrative expenses during 2004, excluding any additional general and administrative expenses that may result from our new business initiatives, primarily due to anticipated decreases in corporate legal fees and the realignment of executive cash compensation. We are currently estimating general and administrative expenses to be $10 million during 2004, excluding any additional general and administrative expenses that may result from our new business initiatives.

Mortgage Servicing

        The following is a summary of the consolidated results of operations of CMSLP (in thousands):

	Year ended December 31,
Description
	2003			2002
Servicing revenue	$	9,483		$	10,986
Servicing general and administrative expenses		(9,168	)		(8,854	)
Servicing amortization, depreciation and impairment		(1,811	)		(2,173	)
Servicing restructuring expenses		(149	)		(189	)
Servicing gain on sale of servicing rights		—			4,864
Servicing (loss) gain on sale of investment-grade CMBS		(5	)		241
GAAP net (loss) income from CMSLP	$	(1,650	)	$	4,875

        The net loss from CMSLP of $(1.7) million for the year 2003 compares to the net income from CMSLP of $4.9 million for 2002. CMSLP's 2002 results include a $4.9 million gain from the sale of servicing rights. CMSLP's total revenue decreased by approximately $1.5 million, or 14%, to approximately $9.5 million during 2003. This decrease is primarily the result of reduced mortgage, servicing income, other servicing revenue and interest income earned on cash and investments. General and administrative expenses were $9.2 million and $8.9 million during 2003 and 2002, respectively. The increase in general and administrative expenses was primarily attributable to increased expenses related to additional resources dedicated to special servicing resolutions and severance payments made in connection with managerial changes.

        During 2003, amortization, depreciation and impairment was approximately $1.8 million as compared to $2.2 million during 2002. This $362,000 decrease was primarily the result of accelerated prepayments on the AIM Limited Partnerships' insured mortgages and a lower balance of depreciable assets in 2003 as compared to 2002, which reduced amortization expense. During 2003 and 2002, the AIM Limited Partnerships experienced a significant amount of prepayments of their insured mortgages which reduced CMSLP's cash flows from its sub-advisory contracts with the AIM Limited Partnerships. As a result, in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," we evaluated CMSLP's investment in the sub-advisory contracts for impairment. We reduced the value of CMSLP's investment in the sub-advisory contracts with the AIM Limited Partnerships and recorded an impairment charge of approximately $499,000 and $340,000 during 2003 and 2002, respectively.

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        In April 2003, we restructured CMSLP's property servicing group resulting in the termination of 10 employees. In conjunction with this restructuring, we have outsourced substantially all of our contractual property servicing duties related to the labor-intensive tasks of financial statement collection and analysis and property inspection performance. The outsourcing was completed in February 2004. This outsourcing does not relieve us of any of our contractual obligations or reduce any of our rights as property servicer, since CMSLP remains the property servicer of record, but it does relieve us of the administrative task of collecting financial operating data. This will allow the remaining resources in surveillance to focus more on collateral analysis. For the outsourced loans, CMSLP coordinates the delivery of monthly reports and inspections with the third-party servicers. For the portfolios for which the third-party servicer is not also the master servicer, CMSLP reviews and approves the reports from these servicers prior to submission by CMSLP to the trustees.

        In February 2002, CMSLP sold all of its rights and obligations under its CMBS master and direct servicing contracts primarily because the contracts were not profitable, given the relatively small volume of master and direct CMBS servicing that CMSLP was performing. This sale resulted in a gain of approximately $4.9 million during the year ended December 31, 2002. In connection with this restructuring, 34 employee positions were eliminated. During 2002, net restructuring expenses of approximately $189,000 were recorded primarily to account for vacant office space that was taking longer to sublease than originally anticipated.

Income Tax Benefit (Expense)

        During 2003, we recorded an income tax benefit of approximately $603,000. During 2002, we recorded income tax expense of approximately $460,000. During 2002, approximately $1.0 million of income tax expense was recognized as a result of the gain on the sale by CMSLP of its CMBS master and direct servicing rights. This tax expense of $1.0 million was partially offset by tax refunds that were not previously accrued of approximately $552,000 that were recognized during 2002. The income tax benefit (expense) was recognized by our TRSs that own the partnership interests in CMSLP. These TRSs are separately taxable entities that cannot use our net operating loss carryforward to reduce their taxable income. The income tax benefit (expense) that was recognized by our TRSs was the result of CMSLP's financial results.

Equity in Earnings (Losses) from Investments

        Total equity in earnings (losses) from investments of approximately $142,000 and $(42,000) for the years ended December 31, 2003 and 2002, respectively, includes our net equity from the AIM Limited Partnerships and the net equity from our 20% limited partnership interest in the advisor to the AIM Limited Partnerships during these periods. The 2003 and 2002 results also include impairment charges on our equity investment in the advisor to the AIM Limited Partnerships. These impairment charges of $233,000 and $460,000 relate to significant prepayments of the insured mortgages in the AIM Limited Partnerships' portfolios during the years ended December 31, 2003 and 2002, respectively. On a comparative basis, the net equity from the AIM Limited Partnerships decreased primarily due to a reduction in the AIM Limited Partnerships' mortgage assets. Three of the AIM Limited Partnerships (AIM 84, AIM 86 and AIM 88) were liquidated in February 2004, resulting in an aggregate liquidating distribution to us of approximately $1.8 million.

Other Income

        Other income decreased by approximately $1.3 million to $1.3 million during 2003 from $2.6 million during 2002. This decrease was primarily attributable to lower interest income earned on reduced cash balances during 2003 as compared to 2002.

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        We own a shopping center in Orlando, Florida, which we account for as real estate owned. The following is a summary of the financial results of the shopping center (in thousands):

	Years ended December 31,
	2003			2002
Interest expense	$	(871	)	$	(858	)
Depreciation expense		(155	)		(149	)
Other, net		182			234
Net loss	$	(844	)	$	(773	)

        The other, net amount is included in other income. Interest expense and depreciation expense are included in their respective captions in our Consolidated Statements of Income. We have been working to reposition and stabilize this asset to increase its value, although we are also considering other alternatives.

Impairment on Subordinated CMBS

        Impairment on subordinated CMBS decreased to $14.7 million during 2003 compared to $70.2 million during 2002. As of December 31, 2003, the projected loss severities of certain of the underlying mortgage loans have increased which has resulted in an increase in our overall expected loss estimate related to our subordinated CMBS to $581 million. This revision to the overall expected loss estimate is primarily the result of increased projected losses due to lower internal estimates of values on properties underlying certain mortgage loans and real estate owned by underlying trusts, and, in some cases, changes in the timing of resolution and disposition of certain specially serviced assets, which when combined, has resulted in higher projected loss severities on certain loans and real estate owned by underlying trusts currently or anticipated to be in special servicing. The primary reasons for lower estimates of value include the poor performance of certain properties and related markets and changes to workout negotiations due, in large part, to the softness in the economy and the lag typically associated with real estate fundamentals, the continued slowdown in travel and, in some cases, over-supply of hotel properties, and a shift in retail activity in some markets. There can be no assurance that our revised overall expected loss estimate of $581 million will not be exceeded as a result of additional or adverse events or circumstances.

        As we determined that there had been an adverse change in expected future cash flows, we believed some of our subordinated CMBS had been impaired under EITF 99-20 and SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," as of June 30, 2003, September 30, 2003 and December 31, 2003. As the fair values of the impaired subordinated CMBS aggregated approximately $8.9 million, $4.7 million and $1.1 million below the amortized cost basis as of June 30, 2003, September 30, 2003 and December 31, 2003, respectively, we recorded other than temporary impairment charges (aggregating $14.7 million) through the income statement of these same amounts during the second, third and fourth quarters of 2003. The impairment charges reduced our basis in those impaired bonds (see also "Interest Income—CMBS").

        During 2002, we also revised our overall expected loss estimate related to our subordinated CMBS. The revisions to the overall expected loss estimate during 2002 were primarily the result of the same factors as those described above. As we determined that there had been an adverse change in expected future cash flows, we believed some of our CMBS had been impaired during 2002 and recorded other than temporary impairment charges aggregating $70.2 million through the income statement during 2002.

        For further discussion of our loss estimate see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Summary of CMBS".

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BREF Maintenance Fee

        Pursuant to the Investment Agreement with Brascan Real Estate Financial Investments LLC, which we refer to as BREF Investments, we are obligated to pay BREF Investments a quarterly maintenance fee of $434,000 through January 2006. The expense of approximately $1.7 million during 2003 represents the maintenance fee for the period January 14 through December 31, 2003.

Hedge Ineffectiveness Expense

        As previously stated, during 2003, we entered into a total of three interest rate swaps to hedge the variability of the future interest payments on the anticipated CDO attributable to future changes in interest rates. Through December 31, 2003, these swaps are treated as cash flow hedges for GAAP. Under these swaps, we agreed to pay Bear Stearns a weighted average fixed interest rate of 4.15% per annum in exchange for floating rate payments based on one-month LIBOR on the total notional amount of $100 million. These swaps were effective on October 15, 2003, terminate on October 15, 2013 and provide for monthly interest payments commencing November 15, 2003. On November 15, 2003, we began making monthly payments to Bear Stearns equal to the difference between the weighted average swap rate of 4.15% per annum and the then current one-month LIBOR rate, on the notional amount of $100 million. We made actual payments of approximately $501,000 during 2003. The interest rate swaps were designated to hedge future interest payments on the anticipated CDO. As the expected date of the CDO has changed, we recognized approximately $1.9 million of hedge ineffectiveness during the year ended December 31, 2003, in accordance with SFAS No. 133. The $1.9 million expense represents the present value of the expected payments during the period of delay. We have an asset of approximately $3.4 million in Other Assets as of December 31, 2003, representing the aggregate fair value of the interest rate swaps. During the first quarter of 2004, we have started exploring other refinancing alternatives, including the CDO. As a result, we will begin reflecting changes in the fair value of the swaps through earnings as hedge ineffectiveness in 2004.

Executive Contract Termination Costs

        In August 2003, the employment contracts for former executive officers David Iannarone and Brian Hanson, and Cynthia Azzara expired and were not renewed. These contracts were put into place in 2001 to ensure management continuity following our emergence from Chapter 11 proceedings and through our January 2003 recapitalization. In connection with the contract terminations, we recognized approximately $1.0 million of executive contract termination expenses for each of Mr. Iannarone and Ms. Azzara and approximately $825,000 of executive contract termination expense related to severance and related benefit payments for Mr. Hanson. Mr. Iannarone and Ms. Azzara were each paid their contract termination payments during the year ended December 31, 2003. Approximately $399,000 of Mr. Hanson's payments was made during the year ended December 31, 2003, and approximately $414,000 was paid in January 2004 in accordance with the terms of his terminated employment agreement.

        Ms. Azzara has continued with us as an "at will" employee and was promoted to Executive Vice President, Chief Financial Officer and Treasurer. Mr. Hanson was subsequently rehired as an "at will" employee, as Vice President, Portfolio Management, effective January 1, 2004. Mr. Iannarone resigned his position as Executive Vice President, Legal and Deal Management effective October 24, 2003.

Recapitalization Expenses

        In connection with the January 2003 recapitalization, we amended the employment contracts of our former Chairman, William B. Dockser, and former President, H. William Willoughby, to provide for their termination on January 23, 2003. During the first quarter 2003, we recognized approximately

35

$2.6 million of expenses related to severance and related benefit payments and accelerated vesting of certain outstanding stock options held by Messrs. Dockser and Willoughby.

        We consolidated our office space in connection with our January 2003 recapitalization and, as a result, we recorded approximately $580,000 of expense for vacant office space during 2003. The accrual for the vacant space represents the fair value of lease payments through 2007, a tenant improvement allowance and a broker commission, all net of estimated sublease revenue in accordance with SFAS No. 146.

        During 2002, we recognized approximately $1.0 million of recapitalization expenses related to the services performed by our investment banking firm during the initial stages of our exploration of strategic alternatives.

Net Gain on Extinguishment of Debt

        During the three months ended March 31, 2003, we reversed approximately $7.8 million of accrued extension fees related to the Exit Debt since the debt was repaid and the extension fees were no longer payable. This reversal is reflected as a gain on extinguishment of debt in our consolidated statement of income. This reversal was partially offset by approximately $403,000 of breakage fee paid to the lender of the Exit Variable-Rate Secured Borrowing and legal fees of approximately $47,000, resulting in a net gain on extinguishment of debt of $7.3 million.

        In December 2003, we repaid our Fannie Mae funding note, which had a unpaid principal balance of approximately $24.5 million by using approximately $22.5 million available under our $200 million repurchase facility with Bear Stearns and approximately $2.0 million of our cash. In connection with the funding note repayment, we recognized a $665,000 loss on extinguishment of debt for the write-off of unamortized bond discount and deferred financing fees.

Cumulative Effect of Adoption of SFAS 142

        In 2001, the Financial Accounting Standards Board issued SFAS No. 142. SFAS No. 142, among other things, prohibits the amortization of existing goodwill and certain types of other intangible assets and establishes a new method of testing goodwill for impairment. Under SFAS No. 142, the method for testing goodwill for impairment occurs at the reporting segment level (as defined in SFAS No. 142) and is performed using a fair value based approach. SFAS No. 142 was effective for us on January 1, 2002. Effective upon adoption on January 1, 2002, we wrote off our goodwill and recorded a resulting impairment charge of approximately $9.8 million for this change in accounting principle. The goodwill relates to the Portfolio Investment reporting segment (as defined in Note 20 of the Notes to Consolidated Financial Statements). The fair value of the reporting segment was determined using a market capitalization approach, and the impairment was primarily a result of the significant decrease in the price of our common stock price since the merger of certain mortgage businesses affiliated with CRI, Inc. into CRIIMI MAE in 1995. This change in accounting principle reduced our annual amortization expense by approximately $2.8 million through June 2005. The pro forma net income and pro forma earnings per share disclosures in Note 2 of the Notes to Consolidated Financial Statements present our net income and earnings per share as if this accounting principle had been applied to those periods presented.

REIT Status and Other Tax Matters

        See "BUSINESS—Certain Risk Factors", under the caption "We are subject to a number of tax related risks including loss of REIT status", for a discussion of REIT status, net operating loss and other tax matters.

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        Net Operating Loss for Tax Purposes.    We generated a net operating loss for tax purposes of approximately $84.0 million during the year ended December 31, 2003 compared to a net operating loss of approximately $83.6 million during the year ended December 31, 2002. As a result of our trader election in early 2000, we recognized a mark-to-market tax loss of approximately $478 million on certain trading assets on January 1, 2000. The January 2000 loss was recognized evenly from 2000 through 2003 for tax purposes (approximately $120 million per year).

        A summary of our 2003 and 2002 net operating loss is as follows (in millions):

	2003			2002
	($ in millions)
January 2000 Loss	$	(478.2	)	$	(478.2	)
LESS: Amounts recognized in 2000 and 2001		239.1			239.1
LESS: Amounts recognized in 2002		119.5			119.5
LESS: Amounts recognized in 2003		119.6			—
Balance Remaining of January 2000 Loss to be recognized in future periods	$	—		$	(119.6	)
Taxable Income for the year before recognition of January 2000 Loss	$	35.7		$	36.0
LESS: January 2000 Loss recognized		(119.6	)		(119.5	)
PLUS: Mark-to-market unrealized loss on trading securities		(0.1	)		(0.1	)
Net operating loss	$	(84.0	)	$	(83.6	)
Accumulated net operating loss through January 1	$	(223.8	)	$	(140.2	)
Net operating loss created during the year		(84.0	)		(83.6	)
Net operating loss utilization		—			—
Net operating loss carried forward for use in future periods	$	(307.8	)	$	(223.8	)

Results of Operations

2002 compared to 2001

        Financial statement net loss to common shareholders for the years ended December 31, 2002 and 2001 was $(65.5) million and $(24.2) million, respectively. The significant change in the 2002 results from 2001 was primarily the result of $70.2 million of impairment charges related to certain subordinated CMBS that were recognized during 2002 compared to impairment charges of $34.7 million that were recognized during 2001.

        2002 results include:

•

approximately $70.2 million of impairment charges related to certain subordinated CMBS;



•

an approximate $9.8 million non-cash charge to write-off goodwill;



•

approximately $4.9 million from the gain on the sale by CMSLP of master and direct servicing rights;



•

approximately $2.2 million reflected as an additional dividend on preferred stock in connection with the redemption of the Series E Preferred Stock (representing the difference between the aggregate liquidation value, including the initial preferred stock issuance costs, and the redemption price); and



•

approximately $2.8 million of additional amortization expense on collateralized mortgage obligations.

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        2001 results include:

•

approximately $34.7 million of impairment charges related to certain subordinated CMBS;



•

approximately $1.9 million of net revenue due to the effect of changes in accounting principles, primarily a change in accounting for servicing revenue;



•

an aggregate of approximately $5.7 million of expenses relating to the Chapter 11 reorganization;



•

approximately $2.8 million of amortization that was recorded during the year ended December 31, 2001 on the goodwill written-off on January 1, 2002; and



•

approximately $356,000 of additional amortization expense on collateralized mortgage obligations.

Net Interest Margin

        Net interest margin decreased by approximately $4.8 million to $30.7 million during 2002 compared to $35.5 million during 2001, primarily due to a reduction in income from subordinated CMBS following decreases in the amortized cost of the subordinated CMBS, and an increase in additional interest expense related to discount amortization of our collateralized mortgage obligations. These items are discussed in further detail below.

Interest Income—CMBS

        Interest income from investment grade CMBS did not change significantly during 2002 as compared to 2001. Interest income from subordinated CMBS decreased by approximately $5.2 million, or 7%, to $74.6 million during 2002 as compared to $79.8 million during 2001 primarily due to changes in our loss estimates related to CMBS during 2002 and 2001 and the resulting reduction in interest income on CMBS. The revised weighted average yield as of January 1, 2002 and 2001 was 12.4%.

        The effective interest method of recognizing interest income on CMBS results in income recognition that differs from cash received. For the year ended December 31, 2002 we recognized approximately $11.4 million of discount amortization, partially offset by approximately $2.9 million of cash received in excess of income recognized on subordinated CMBS due to the effective interest method. For the year ended December 31, 2001, we recognized approximately $10.5 million of discount amortization, partially offset by approximately $3.5 million of cash received in excess of income recognized on subordinated CMBS due to the effective interest method. The net effect of the discount amortization and the cash received in excess of income is an adjustment to the basis of our subordinated CMBS.

Interest Income—Insured Mortgage Securities

        Interest income from insured mortgage securities decreased by approximately $5.0 million, or 17%, to $23.8 million during 2002 from $28.9 million during 2001. This decrease was principally due to the prepayment of approximately 21% of the total insured mortgage portfolio from December 31, 2001 through December 31, 2002. This prepayment activity corresponded with the low mortgage interest rate environment during this period. These prepayments resulted in corresponding reductions in the outstanding principal balances of the collateralized mortgage obligations-insured mortgage securities and the related interest expense.

Interest Expense

        Interest expense of approximately $93.7 million for 2002 was approximately $5.1 million lower than the interest expense of approximately $98.9 million for 2001. The decrease is attributable to a lower

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average debt balance during 2002 ($975 million) compared to 2001 ($1.1 billion), partially offset by a higher average effective interest rate on total debt outstanding during 2002 (9.5%) compared to 2001 (8.9%). Interest expense on the collateralized mortgage obligations-insured mortgage securities decreased following significant prepayments of mortgages underlying the insured mortgage securities, which was partially offset by approximately $2.8 million of additional discount and deferred cost amortization expenses during 2002. These additional amortization expenses are the result of the mortgages prepaying faster than previously anticipated and increases in our assumed prepayment speed during 2002 which, under the effective interest method of recognizing interest expense, required an adjustment to cumulative interest expense.

        The overall weighted average effective interest rate and weighted average coupon rate on the Exit Debt was 10.4% and 8.0%, respectively, during 2002. The overall weighted average effective interest rate and weighted average coupon rate on the Exit Debt was 11.1% and 8.9%, respectively, for the period April 17, 2001 to December 31, 2001. The difference in the Exit Debt's weighted average effective interest rate and the weighted average coupon rate primarily related to the accrual of estimated extension fees and the accrued interest related to the 7% per annum, accreting interest on the Series B Senior Secured Notes, both of which are included in the weighted average effective interest rate, but not included in the weighted average coupon rate.

        During 2002 and 2001, we recognized hedging expense through earnings of approximately $1.1 million on our interest rate caps. In addition, we recognized a $135,000 loss through earnings during 2001 due to the adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities".

General and Administrative Expenses

        General and administrative expenses decreased by approximately $333,000 to $10.6 million during 2002 as compared to $11.0 million during 2001 primarily due to a decrease in legal fees in 2002, partially offset by an increase in employment costs and higher directors and officers liability insurance premiums in 2002.

Depreciation and Amortization

        Depreciation and amortization decreased by approximately $2.6 million to $1.1 million during 2002 as compared to $3.7 million during 2001. The decrease is primarily attributable to the adoption of SFAS No. 142 on January 1, 2002. The adoption of SFAS No. 142 reduced our annual amortization expense by approximately $2.8 million. See further discussion above in 2003 compared to 2002 under the caption "Cumulative Effect of Adoption of SFAS 142".

Mortgage Servicing

        In July 2001, we began accounting for CMSLP on a consolidated basis due to a reorganization which resulted in the partnership interests of CMSLP being held by two of our wholly owned TRSs. Prior to July 2001, we accounted for CMSLP under the equity method as we did not control the voting common stock of the general partner of CMSLP. CMSLP's assets, liabilities, revenues and expenses are labeled as "servicing" on our consolidated financial statements.

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        The following is a summary of the consolidated results of operations of CMSLP (in thousands):

		Year ended December 31,
Description
		2002			2001
CMSLP's results of operations (reflected in consolidated income statements effective July 1, 2001):
	Servicing revenue	$	10,986		$	6,684
	Servicing general and administrative expenses		(8,854	)		(5,570	)
	Servicing amortization, depreciation and impairment		(2,173	)		(1,699	)
	Servicing restructuring expenses		(189	)		(438	)
	Servicing gain on sale of servicing rights		4,864			—
	Servicing gain on sale of investment-grade CMBS		241			—
GAAP net income (loss) from CMSLP		$	4,875		$	(1,023	)

        The net income from CMSLP of $4.9 million for the year ended December 31, 2002 compares to the aggregate of the net equity in losses from CMSLP/CRIIMI MAE Services, Inc. (or CMSI) of $(2.3) million for the year ended December 31, 2001 (as summarized below) and the net loss from CMSLP of $(1.0) million for the six months ended December 31, 2001. CMSLP's net income of $4.9 million during 2002 includes a $4.9 million gain from the sale of servicing rights and $189,000 of restructuring expenses. CMSLP's total revenue decreased by approximately $1.5 million to approximately $11.0 million during 2002 compared to $12.5 million during 2001 (includes full year 2001 results). This decrease is primarily the result of the sale of servicing rights which reduced mortgage servicing income and interest income earned on the escrow balances, partially offset by higher revenue from special servicing. General and administrative expenses were $8.9 million and $11.9 million (includes full year 2001 results) during the years ended December 31, 2002 and 2001, respectively. The decrease in general and administrative expenses was primarily attributable to the staff reductions that occurred in the fourth quarter of 2001 and the first quarter of 2002 following CMSLP's sale of its CMBS master and direct servicing contracts, as discussed below.

        During 2002, amortization, depreciation and impairment was approximately $2.2 million as compared to $3.4 million (includes full year 2001 results) during 2001. This $1.2 million decrease was primarily the result of the 2002 sale of servicing rights, which reduced amortization expense, and lower impairment on CMBS held by CMSLP during 2002 as compared to 2001. The decrease was partially offset by an impairment charge of approximately $340,000 that was recorded on CMSLP's investment in AIM Limited Partnerships' sub-advisory contracts during 2002. See a discussion of this impairment charge in the discussion of "2003 compared to 2002".

        As previously discussed, in February 2002, CMSLP sold all of its rights and obligations under its CMBS master and direct servicing contracts. A restructuring charge of approximately $438,000 was recorded during the fourth quarter of 2001 to account for employee severance costs, non-cancelable lease costs, and other costs related to the restructuring. During 2002, additional net restructuring expenses of approximately $189,000 were recorded primarily to account for vacant office space that was taking longer to sublease than originally anticipated. CMSLP received approximately $12.4 million in cash, which included reimbursement of servicing advances, in connection with this sale.

Equity in Earnings (Losses) from Investments

        Total equity in earnings (losses) from investments for 2002 and 2001 included our net equity from the AIM Limited Partnerships and the net equity from our 20% limited partnership interest in the advisor to the AIM Limited Partnerships, and includes net equity from CMSLP/CMSI for the six months ended June 30, 2001 (since CMSLP's operations were consolidated effective July 1, 2001).

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In addition, as discussed below, the 2002 results include an impairment charge on our equity investment in the advisor to the AIM Limited Partnerships. On a comparative basis, the net equity from the AIM Limited Partnerships decreased primarily due to a reduction in the AIM Limited Partnerships' mortgage assets.

        As previously discussed, during 2002, the AIM Limited Partnerships experienced a significant amount of prepayments of their insured mortgages. These prepayments reduced cash flows on our 20% investment in the advisor to the AIM Limited Partnerships. As a result, the advisor to the AIM Limited Partnerships evaluated its investment in the advisory contracts for impairment. The advisor reduced the value of its investment in the advisory contracts to the AIM Limited Partnerships and recorded an impairment charge. We recorded our portion of the impairment charge, totaling approximately $460,000, as of December 31, 2002. This impairment charge is included in equity in earnings (losses) from investments in our Consolidated Statement of Income. This investment is included in our Portfolio Investment segment.

        The following is a summary of our equity in earnings (losses) from investments (in thousands):

	Year ended December 31,
Description
	2002			2001
AIM Limited Partnerships—net equity in earnings	$	419		$	647
Impairment on investment in AIM Limited Partnerships' advisor		(461	)		—
CMSLP/CMSI—net equity in (losses) earnings		—			(2,279	)
Total Equity in Losses from Investments	$	(42	)	$	(1,632	)

Income Tax Benefit (Expense)

        During 2002, we recorded a net income tax expense of approximately $460,000. During 2001, we recorded an income tax benefit of approximately $336,000. During 2002, approximately $1.0 million of income tax expense was recognized as a result of the gain on the sale by CMSLP of its CMBS master and direct servicing rights. This tax expense of $1.0 million was partially offset by tax refunds that were not previously accrued of approximately $552,000 that were recognized during 2002. The income tax expense was incurred by our TRSs that own the partnership interests in CMSLP, which are separate taxable entities that cannot use our net operating loss carryforward to reduce their taxable income. The income tax benefit that was recognized by our TRSs during 2001 was the result of the net loss incurred by CMSLP during the period July through December 2001.

Other Income

        Other income decreased by approximately $1.3 million to $2.6 million during 2002 from $4.0 million during 2001. This decrease was primarily attributable to lower interest income earned on reduced cash balances during 2002 as compared to 2001, partially offset by an increase in net income (before interest expense and depreciation expense) from a shopping center that we account for as real estate owned, as discussed below.

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        In October 2001, one of our wholly owned subsidiaries acquired certain partnership interests in a partnership that was the obligor on a mezzanine loan payable to us in exchange for curing a default on the first mortgage loan through a cash payment of approximately $276,000. This partnership and another of our wholly owned subsidiaries own 100% of the partnership interests in the partnership which is the obligor on the first mortgage loan. The first mortgage loan is secured by a shopping center in Orlando, Florida. As a result of this acquisition, we own 100% of the partnership interests and are consolidating the partnership's financial results as of October 1, 2001. We account for these assets as real estate owned, and the real estate is being held for investment. The following is a summary of the financial results of the shopping center (in thousands):

	Years ended December 31,
	2002			2001
Interest expense	$	(858	)	$	(213	)
Depreciation expense		(149	)		(26	)
Other, net		234			(27	)
Net loss	$	(773	)	$	(266	)

Impairment on Subordinated CMBS

        Impairment on subordinated CMBS increased to $70.2 million during 2002 compared to $34.7 million during 2001. Although the total amount of loans in special servicing only increased slightly from $792 million as of December 31, 2001 to $811 million as of December 31, 2002, the amount of estimated total mortgage loan defaults had increased, the projected loss severities of the underlying mortgage loans currently or anticipated to be in special servicing had increased, and the timing of certain projected losses was anticipated to occur sooner than previously estimated, all of which resulted in an increase in our overall expected loss estimate related to our subordinated CMBS portfolio to $503 million as of December 31, 2002. The revisions to the overall expected loss estimate during 2002 were primarily the result of increased projected loan losses due to lower than anticipated appraisals and lower internal estimates of values on real estate owned by underlying trusts and properties underlying certain defaulted mortgage loans, which, when combined with the updated loss severity experience and increased expectation of defaults, resulted in higher projected loss severities on mortgage loans and real estate owned by underlying trusts currently or anticipated to be in special servicing. Primary reasons for lower appraisals and lower estimates of value resulting in higher projected loss severities on mortgage loans included the poor performance of certain properties and related markets, failed workout negotiations, and extended time needed to liquidate assets due, in large part, to the continued softness in the economy, the continued downturn in travel and, in some cases, over-supply of hotel properties, and a shift in retail activity in some markets, including the closing of stores by certain national and regional retailers. In addition, two significant hotel portfolios transferred into special servicing in early January 2003. The unpaid principal balances of these two hotel portfolios aggregated approximately $212.2 million. Since we determined that there had been an adverse change in expected future cash flows, we believed some of our subordinated CMBS had been impaired as of June 30, 2002, September 30, 2002 and December 31, 2002. As the fair values of the impaired subordinated CMBS aggregated approximately $5.2 million, $29.9 million and $35.1 million below the amortized cost basis as of June 30, 2002, September 30, 2002 and December 31, 2002, respectively, we recorded other than temporary impairment charges through the income statement aggregating $70.2 million during the second, third and fourth quarters of 2002. The impairment charges reduced our basis in those impaired bonds (see also "Interest Income—CMBS").

        During 2001, we also revised our overall expected loss estimate related to our subordinated CMBS portfolio. The revisions to the overall expected loss estimate during 2001 were primarily the result of

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the continued slowing U.S. economy and recession exacerbated by the terrorist attacks on September 11, 2001 and subsequent threats of terrorism, which were principal causes of greater than previously anticipated monetary defaults on the underlying mortgage loans and lower than previously anticipated appraisal amounts on properties underlying certain defaulted loans. These factors increased the estimated principal loss on the mortgage loans. As we determined that there had been an adverse change in expected future cash flows, we believed some of our subordinated CMBS had been impaired during 2001. As the fair value of the impaired subordinated CMBS was below the amortized cost during 2001, we recorded other than temporary impairment charges through the income statement aggregating $34.7 million during 2001.

Reorganization Items

        During 2001, we recorded reorganization items due to the Chapter 11 filings of CRIIMI MAE Inc., CRIIMI MAE Management, Inc., and CRIIMI MAE Holdings II, L.P. as follows (in thousands):

Short-term interest income	$	2,491
Professional fees		(3,870	)
Other		(801	)
Net recovery on real estate owned		367
Total reorganization expense, net	$	(1,813	)

        We did not recognize any reorganization expense in 2002.

Emergence Financing Origination Fee

        In connection with the emergence from Chapter 11 in April 2001, we paid a one-time, emergence financing origination fee of approximately $3.9 million related to the Exit Variable-Rate Secured Borrowing. This fee was required to be expensed immediately under GAAP.

Cumulative Effect of Adoption of SFAS 142

        See discussion of this item in "2003 compared to 2002".

Cumulative Effect of Change in Accounting Principle Related to Servicing Revenue

        As of July 1, 2001, CMSLP changed its accounting policy related to the recognition of special servicing fee revenue. Special servicing fees are paid to CMSLP when mortgage loans collateralizing our CMBS are in default. Historically, CMSLP had deferred special servicing fee revenue and recorded that revenue into earnings using the method consistent with our policy of recognizing interest income over the life of our CMBS on the level yield basis. CMSLP changed its accounting policy to recognize the special servicing fees in earnings on a current basis as we believe this policy better matches the special servicing fees CMSLP earns with the direct costs expended for performing its special servicing obligations. The CMBS and special servicing contracts are separate legal instruments or contracts.

        We were required to reflect this change in accounting principle as a cumulative catch-up as of January 1, 2001. As of January 1, 2001, CMSLP had approximately $2.0 million in deferred revenue related to the special servicing fee revenue. As a result, this amount was recorded in income and reflected as a cumulative change in accounting principle for the year ended December 31, 2001. The results of operations for the year ended December 31, 2001 reflect the recognition of special servicing fee revenue on a current basis. As previously discussed, prior to July 1, 2001, CMSLP was accounted for using the equity method and, as a result, the impact of the new accounting principle (except for the

43

cumulative catch-up) is reflected in equity in earnings (losses) from investments for the six months ended June 30, 2001 and on a consolidated basis for the six months ended December 31, 2001.

Net Operating Loss for Tax Purposes

        We generated a net operating loss for tax purposes of approximately $83.6 million for the year ended December 31, 2002 compared to a net operating loss of approximately $90.6 million in 2001, as follows:

	2002			2001
	($ in millions)
January 2000 Loss	$	(478.2	)	$	(478.2	)
LESS: Amounts recognized in 2000		119.6			119.6
LESS: Amounts recognized in 2001		119.5			119.5
LESS: Amounts recognized in 2002		119.5			—
Balance Remaining of January 1, 2000 Loss to be recognized in future periods	$	(119.6	)	$	(239.1	)
Taxable Income for the year before recognition of January 2000 Loss	$	36.0		$	29.0	(1)
LESS: January 2000 Loss recognized		(119.5	)		(119.5	)
PLUS: Mark-to-market unrealized loss on trading securities		(0.1	)		(0.1	)
Net operating loss	$	(83.6	)	$	(90.6	)
Accumulated net operating loss through January 1	$	(140.2	)	$	(49.6	)
Net operating loss created during the year		(83.6	)		(90.6	)
Net operating loss utilization		—			—
Net operating loss carried forward for use in future periods	$	(223.8	)	$	(140.2	)

(1)

Taxable income for the year ended December 31, 2001 includes an approximate $8.6 million loss on certain trading securities in connection with the transfer of certain trading securities on April 17, 2001 to CBO REIT following the reorganization effected to facilitate the collateral structure for the Exit Debt. Assets transferred to CBO REIT (and subsequently transferred to CBO REIT II in January 2003) are no longer required to be marked-to-market on a tax basis.

Financial Condition

Summary of Cash Position and Shareholders' Equity

        As of December 31, 2003, our cash and cash equivalents aggregated approximately $21.7 million, including approximately $4.4 million held by CMSLP. In addition to our cash, we had additional liquidity at December 31, 2003 comprised of $3.9 million in Other MBS which are included elsewhere in our balance sheet. As of March 5, 2004, our liquidity included approximately $26.6 million of cash and cash equivalents and approximately $4.1 million of Other MBS.

        As of December 31, 2003 and 2002, shareholders' equity was approximately $291.8 million or $14.91 per diluted share and approximately $291.7 million or $16.32 per diluted share, respectively. The decrease in book value per diluted share is primarily the result of the common shares issued in connection with the January 2003 recapitalization. These diluted book value per share amounts are based on shareholders' equity presented in accordance with GAAP. The December 2003 amounts include, among other things, approximately $36.3 million of net assets related to our CMBS rated A+ through BBB, which we do not actually own, but are required by GAAP to be included on our balance

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sheet (see "Summary of CMBS" below for a further discussion). These investment grade CMBS, which aggregate approximately $325.3 million at December 31, 2003, are reflected at fair value and the related match-funded debt, which aggregates approximately $289.0 million at December 31, 2003, is reflected at amortized cost, in each case in accordance with GAAP.

Summary of CMBS

        As of December 31, 2003, our assets, in accordance with GAAP, include CMBS with an aggregate face amount of approximately $1.5 billion rated from A+ to D and unrated. Such CMBS had an aggregate fair value of approximately $837 million (representing approximately 78% of our total consolidated assets) and an aggregate amortized cost of approximately $750 million. Such CMBS represent investments in securities issued in connection with CBO-1, CBO-2 and Nomura Asset Securities Corporation Series 1998-D6 (or Nomura). The following is a summary of the ratings of our CMBS as of December 31, 2003 (in millions):

Rating(1)		Fair Value		% of CMBS
Investment Grade:
	A+, BBB+ or BBB(2)	$	325.3	39	%
Retained Portfolio:
	BB+, BB or BB-	$	332.5	40	%
	B+, B or B-	$	145.4	17	%
	CCC, D or Unrated	$	33.8	4	%

(1)

Ratings are provided by Standard & Poor's.

(2)

Represents investment grade securities that we reflect as assets on our balance sheet as a result of the issuance of the CBO-2 transaction. As indicated in footnote 4 to the table below, GAAP requires both these assets (reflected as "CMBS pledged to Secure Securitized Mortgage Obligation-CMBS") and their related liabilities (reflected as "Collateralized Bond Obligations—CMBS") to be reflected on our balance sheet. As of December 31, 2003, the fair value of these assets as reflected in our balance sheet was approximately $325.3 million and the amortized cost of the debt as reflected in our balance sheet was approximately $289.0 million. All cash flows related to the investment grade CMBS are used to service the corresponding securitized mortgage obligations. As a result, we currently receive no cash flows from the investment grade CMBS.

        As of December 31, 2003, the weighted average pay rate and the loss adjusted weighted average life (based on face amount) of the investment grade securities was 7.0% and 7.9 years, respectively. The weighted average pay rate and the loss adjusted weighted average life (based on face amount) of the

45

BB+ through unrated CMBS securities, sometimes referred to as the retained portfolio, were 5.2% and 11.0 years, respectively. The aggregate investment by the rating of the CMBS is as follows:

Security Rating	Face Amount as of 12/31/03 (in millions)		Weighted Average Pay Rate as of 12/31/03		Loss Adjusted Weighted Average Life(1)	Fair Value as of 12/31/03 (in millions)			Discount Rate or Range of Discount Rates Used to Calculate Fair Value as of 12/31/03		Amortized Cost as of 12/31/03 (in millions)(5)			Amortized Cost as of 12/31/02 (in millions)
Investment Grade Portfolio
A+(4)	$	59.4	7.0	%	3 years	$	62.2		4.5%		$	57.0		$	59.4
BBB+(4)		150.6	7.0	%	9 years		152.2		6.8%			133.6			132.3
BBB(4)		115.2	7.0	%	9 years		110.9		7.6%			96.5			95.3
Retained Portfolio
BB+		319.0	7.0	%	11 years		256.2		10.2%-10.6%			227.1			223.0
BB		70.9	7.0	%	13 years		52.0		11.5%			47.5			46.8
BB-		35.4	7.0	%	14 years		24.3		12.4%			21.2			20.8
B+		88.6	7.0	%	14 years		48.7		15.7%			46.9			46.0
B		177.2	8.9	%	17 years		90.7		16.2-16.5%			86.5			85.1
B-(2)(10)		12.0	8.0	%	17 years		6.0		15.0%	(8)		5.5			5.5
CCC(2)		70.9	—	%	1 year		—		15.0%	(8)		—			3.8
D(2)(9)(10)		106.3	0.5	%	25 years		16.5		15.0%	(8)		11.8			22.6
Unrated/Issuer's Equity(2)(3)		256.5	2.4	%	1 year		17.3		15.0%	(8)		16.7			20.0
Total	$	1,462.0	5.6	%	10 years	$	837.0	(7)			$	750.3	(6)	$	760.6

(1)

The loss adjusted weighted average life represents the weighted average expected life of the CMBS based on our current estimate of future losses. As of December 31, 2003, the fair values of the B-, CCC, D and the unrated/issuer's equity were derived primarily from interest cash flow anticipated to be received since our current loss expectation assumes that the full principal amount of these securities will not be recovered. See also "Advance Limitations, Appraisal Reductions and Losses on CMBS" below.

(2)

The CMBS experience interest shortfalls when the weighted average net coupon rate on the underlying CMBS is less than the weighted average stated coupon payments on our subordinated CMBS. Such interest shortfalls will continue to accumulate until they are repaid through either excess interest and/or recoveries on the underlying CMBS or a re-characterization of principal cash flows, in which case they may be realized as a loss of principal on the subordinated CMBS. Such anticipated losses, including shortfalls, have been taken into consideration in the calculations of fair market values and yields to maturity used to recognize interest income as of December 31, 2003.

(3)

The unrated/issuer's equity subordinated CMBS from CBO-1 and CBO-2 currently do not have a stated coupon rate since these securities are only entitled to the residual cash flow payments, if any, remaining after paying the securities with a higher payment priority. As a result, effective coupon rates on these securities are highly sensitive to the monthly cash flow payments received from the underlying CMBS that represent the collateral for CBO-1 and CBO-2.

(4)

In connection with CBO-2, $62.6 million (currently A+ rated) and $60.0 million (currently BBB+ rated) face amount of investment grade CMBS were sold with call options and $345 million (currently A+ rated) face amount were sold without call options. Also in connection with CBO-2, in May 1998, we initially retained $90.6 million (currently BBB+ rated) and $115.2 million (currently BBB rated) face amount of CMBS, both with call options, with the intention to sell these CMBS at a later date. Such sale occurred March 5, 1999. Since we retained call options on certain sold CMBS (currently rated A+, BBB+ and BBB bonds), we did not surrender control of these CMBS pursuant to the requirements of SFAS No. 125, and thus these CMBS are accounted for as a financing and not a sale. Since the CBO-2 transaction is recorded as a partial financing and a partial sale, we are deemed to have retained these CMBS with call options issued in connection with CBO-2, from which we currently receive no cash flows, and are required to reflect them as CMBS on the balance sheet.

(5)

Amortized cost reflects approximately $14.7 million of impairment charges related to the unrated/issuer's equity bonds in CBO-2 and Nomura, and the CCC bond and the D bond in CBO-2, which were recognized during the year ended December 31, 2003. These impairment charges are in addition to the cumulative impairment charges of approximately $248.4 million that were recognized through December 31, 2002. See discussion of the impairment charges in "Impairment on CMBS".

(6)

See Notes 1 and 8 to Notes to Consolidated Financial Statements for information regarding the subordinated CMBS for tax purposes.

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(7)

As of December 31, 2003, the aggregate fair values of the CBO-1, CBO-2 and Nomura bonds were approximately $18.7 million, $813.6 million and $4.7 million, respectively.

(8)

As a result of the estimated loss of principal on these CMBS, the fair values and discount rates of these CMBS are based on a loss adjusted yield to maturity.

(9)

Although the principal balance of the D bond in CBO-2 is expected to be outstanding for approximately 25 years, the bond is not expected to receive any cash flows beyond the next 18 months.

(10)

In November 2003, the B- bond in CBO-2 was downgraded to D by Standard & Poor's.

Determination of Fair Value of CMBS

        Our determination of fair values for our CMBS portfolio is a process that requires significant judgements and estimates. The process begins with the compilation and evaluation of pricing information (such as nominal spreads to U.S. Treasury securities or nominal yields) that, in our view, is commensurate with the market's perception of value and risk of comparable assets. We use a variety of sources to compile such pricing information including: (i) recent offerings and/or secondary trades of comparable CMBS (i.e., securities comparable to our CMBS and/or to the CMBS (or collateral) underlying our CMBS issued in connection with CBO-1 and CBO-2), (ii) communications with dealers and active CMBS investors and/or advisors regarding the pricing and valuation of our securities and comparable securities, (iii) institutionally available research reports, (iv) analyses prepared by the nationally recognized rating organizations responsible for the initial rating assessment and on-going surveillance of such CMBS, and (v) other qualitative and quantitative factors that may impact the value of the CMBS such as the market's perception of the issuers of the CMBS and the credit fundamentals of the commercial properties securing each pool of underlying commercial mortgage loans. We make further adjustments to such pricing information based on our specific knowledge of our CMBS and the impact of relevant events, which is then used to determine the fair value of our CMBS using a discounted cash flow approach. Expected future gross cash flows are discounted at assumed market yields for our CMBS rated A+ through B, depending on the rating. The fair value for those CMBS incurring principal losses and interest shortfalls (i.e., B-rated bonds through our unrated/issuer's equity) based on our overall expected loss estimate are valued at a loss adjusted yield to maturity that, in our view, is commensurate with the market's perception of the value and risk of comparable securities, using a discounted cash flow approach. Such anticipated principal losses and interest shortfalls, as well as the timing and amount of potential recoveries of such shortfalls, are critical estimates and have been taken into consideration in the calculation of fair values and yields to maturity used to recognize interest income as of December 31, 2003. We have disclosed the range of discount rates by rating category used in determining the fair values as of December 31, 2003 in the table above.

        The liquidity of the subordinated CMBS market has historically been limited. Additionally, during adverse market conditions, the liquidity of such market has been severely limited. For this reason, among others, management's estimate of the value of our subordinated CMBS could vary significantly from the value that could be realized in a current transaction.

Mortgage Loan Pool

        We have $15.3 billion and $17.4 billion of seasoned commercial mortgage loans underlying our subordinated CMBS as of December 31, 2003 and 2002, respectively. This decline in unpaid principal balance is primarily due to prepayments, pay-offs at maturity and liquidations of certain underlying mortgage loans, and to a lesser extent, normal loan amortization related to the underlying mortgage

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loans. The commercial mortgage loans are secured by properties of the types and in the geographic locations identified below:

Property Type		12/31/03 Percentage(i)		Geographic Location(ii)	12/31/03 Percentage(i)
Retail		31	%	California	16	%
Multifamily		27	%	Texas	12	%
Hotel		15	%	Florida	8	%
Office		14	%	Pennsylvania	6	%
Other(iv)		13	%	New York	5	%
	Total	100	%	Other(iii)	53	%
				Total	100	%

(i)

Based on a percentage of the total unpaid principal balance of the underlying loans.

(ii)

No significant concentration by region.

(iii)

No other individual state makes up more than 5% of the total.

(iv)

Our ownership interest in one of the 20 CMBS transactions underlying CBO-2 includes subordinated CMBS in which our exposure to losses arising from certain healthcare and senior housing mortgage loans is limited by other subordinated CMBS (referred to herein as the "Subordinated Healthcare/Senior-Housing CMBS"). These other CMBS are not owned by us and are subordinate to our CMBS in this transaction. As a result, our investment in such underlying CMBS will only be affected if interest shortfalls and/or realized losses on such healthcare and senior housing mortgage loans are in excess of the other Subordinated Healthcare/Senior-Housing CMBS. We currently estimate that the interest shortfalls and/or realized losses on such healthcare and senior housing mortgage loans will exceed the Subordinated Healthcare/Senior Housing CMBS. The principal balance of the Subordinated Healthcare/Senior Housing CMBS as of December 31, 2003 is approximately $3.4 million. As of December 2003, the aggregate principal balance of healthcare and senior housing mortgage loans, underlying the Subordinated Healthcare/Senior Housing CMBS, that are specially serviced by another special servicer, and therefore not in our special servicing loan balance, is approximately $83 million.

Specially Serviced Mortgage Loans

        CMSLP performs special servicing on the loans underlying our subordinated CMBS. A special servicer typically provides asset management and resolution services with respect to nonperforming or underperforming loans within a pool of mortgage loans. When serving as special servicer of a mortgage loan pool, CMSLP has the authority, subject to certain restrictions in the applicable CMBS pooling and servicing documents, to deal directly with any borrower that fails to perform under certain terms of its mortgage loan, including the failure to make payments, and to manage any loan workouts and foreclosures. As special servicer, CMSLP earns fee income on services provided in connection with any loan servicing function transferred to it from the master servicer. We believe that because we own the first loss unrated or lowest rated bond of virtually all of the CMBS transactions underlying our subordinated CMBS, we have an incentive to efficiently and effectively resolve any loan workouts. As

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of December 31, 2003 and 2002, specially serviced mortgage loans included in the commercial mortgage loans described above are as follows:

	12/31/03		12/31/02
Specially serviced loans due to monetary default(a)	$	963.8 million	$	736.1 million
Specially serviced loans due to covenant default/other		58.2 million		74.7 million
Total specially serviced loans(b)	$	1,022.0 million	$	810.8 million
Percentage of total mortgage loans(b)		6.7%		4.7%

(a)

Includes $163.8 million and $130.5 million, respectively, of real estate owned by underlying trusts. See also the table below regarding property type concentrations for further information on real estate owned by underlying trusts.

(b)

As of February 29, 2004, total specially serviced loans were approximately $1.1 billion, or 7.0% of the total mortgage loans.

        The specially serviced mortgage loans as of December 31, 2003 were secured by properties of the types and located in the states identified below:

Property Type		$ (in millions)			Percentage		Geographic Location	$ (in millions)		Percentage
Hotel		$	533.2	(1)	52	%	Florida	$	154.6	15	%
Retail			225.1	(2)	22	%	Texas		113.1	11	%
Multifamily			102.4		10	%	Oregon		92.7	9	%
Healthcare			81.2		8	%	California		47.8	5	%
Office			47.1		5	%	Massachusetts		47.6	5	%
Industrial			23.8		2	%	Pennsylvania		44.4	4	%
Other			9.2		1	%	Other		521.8	51	%
	Total	$	1,022.0		100	%	Total	$	1,022.0	100	%

(1)

Approximately $111.4 million of these loans in special servicing are real estate owned by underlying trusts. Full service hotels represent 39% of the total hotel loans in special servicing and limited service hotels represent 61% of the total hotel loans in special servicing.

(2)

Approximately $38.6 million of these loans in special servicing are real estate owned by underlying trusts.

        The following table provides a summary of the change in the balance of specially serviced loans from December 31, 2002 to December 31, 2003:

		(in millions)
Specially Serviced Loans, December 31, 2002		$	810.8
	Transfers in due to monetary default		640.2
	Transfers in due to covenant default and other		190.8
	Transfers out of special servicing		(595.9	)
	Loan amortization(1)		(23.9	)
Specially Serviced Loans, December 31, 2003		$	1,022.0

(1)

Represents the reduction of the scheduled principal balances due to borrower payments or, in the case of loans in monetary default, advances made by the master servicers.

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        The most significant borrowing relationship in our specially serviced mortgage loan portfolio consists of 27 loans with scheduled principal balances as of December 31, 2003 totaling approximately $133 million spread across three CMBS transactions secured by hotel properties in the western and Pacific northwestern states. As of December 31, 2003, our total exposure, including advances and interest on advances of approximately $43 million, on these loans was approximately $176 million. Such total exposure is prior to the application of payments made to date by the borrower under the terms of our consensual settlement agreement and is expected to be reduced by the application of such payments at the settlement agreement closing. The borrower initially filed for bankruptcy protection in February 2002 and indicated that the properties had experienced reduced operating performance due to new competition, the economic recession, and reduced travel resulting from the September 11, 2001 terrorist attacks. We entered into a consensual settlement agreement dated February 25, 2003 pursuant to which the loan terms were amended and modified. This agreement was subsequently approved and confirmed by the bankruptcy court on March 28, 2003. The parties are currently proceeding toward closing a comprehensive modification of each loan, which is expected to occur in March 2004 and which is expected to return the loans to performing status. The closing of the loan modification is a complex process involving a large number of parties, all of whom must ultimately agree on, among other things, a reconciliation of payments and funds applied since the loan modification was approved by the bankruptcy court. The borrower continues to make payments under the modified terms. As of December 31, 2003, the borrower has made principal and interest payments totaling approximately $10 million, the majority of which represents interest paid (as compared to principal amortization) on the modified loan balances. During the year ended December 31, 2003, the borrower also sold one of the properties that secured these loans. In addition, as of December 31, 2003, the borrower has remitted approximately $1.5 million in funds from debtor-in-possession accounts, which is expected to be applied to arrearages at closing.

        Cash received from our subordinated CMBS could be significantly reduced if we are not successful in resolving these loans favorably and returning them to performing status. If the modifications are not successfully closed, the loans would remain in default. There can be no assurance that the borrower would continue making the loan payments required under the loan modifications or that the trust master servicers would continue to advance loan payments on behalf of the borrower. Further, as previously mentioned, as a result of the borrower's initial default, the trust master servicers have advanced substantial amounts of principal and interest payments to the related trusts. We do not believe that the governing trust agreements are clear as to the manner in which such master servicer advances are to be reimbursed, and are attempting to negotiate an arrangement with the master servicers and other parties to the trust which would provide for reimbursement of master servicer advances that would be in the best interest of all of the respective certificateholders. To the extent that we cannot successfully complete those arrangements, we and the other trust parties could dispute the proper reimbursement mechanics, and, as a result, the timing and/or amount of payments made to us on our subordinated CMBS, and the related fair value of the subordinated CMBS, could be adversely affected. Finally, even if both the loan modifications and master servicer advance reimbursement arrangements are successfully completed, distributions on our subordinated CMBS, and the related fair value of the subordinated CMBS, will continue to be dependent on the borrower's continued performance under the terms of the modified loans.

Advance Limitations, Appraisal Reductions and Losses on CMBS

        We experience shortfalls in expected cash flow on our CMBS prior to the recognition of a realized loss primarily due to servicing advance limitations resulting from appraisal reductions. An appraisal reduction event can result in reduced master servicer principal and interest advances based on the amount by which the sum of the unpaid principal balance of the loan, accumulated principal and interest advances and other expenses exceeds 90% (in most cases) of the newly appraised value of the property underlying the mortgage loan. As the holder of the lowest rated and first loss bonds, our

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bonds are the first to experience interest shortfalls as a result of the reduced advancing requirement. In general, the master servicer can advance up to a maximum of the difference between 90% of the property's appraised value and the sum of accumulated principal and interest advances and expenses. As an example, assuming a weighted average coupon of 6% on a first loss subordinated CMBS, a $1 million appraisal reduction would reduce our net cash flows by up to $60,000 on an annual basis, assuming that the total exposure was equal to or greater than 90% of the appraised value immediately prior to receipt of the new appraisal (appraisal reduction). The ultimate disposition or work-out of the mortgage loan may result in a higher or lower realized loss on our subordinated CMBS than the calculated appraisal reduction amount. Cumulative appraisal reductions through December 31, 2003 for the CMBS transactions in which we retain an ownership interest as reported by the underlying trustees or as estimated by us were as follows (in thousands):

CBO-2		$	151,859
CBO-1			73,684
Nomura			20,516
	Total	$	246,059

        Certain securities from the CBO-1, CBO-2 and Nomura transactions are expected to experience principal write-downs over their expected lives. The following tables summarize the actual realized losses on our CMBS through December 31, 2003 (including realized mortgage loan losses expected to pass through to our CMBS during the next month) and the expected future real estate losses underlying our CMBS (in thousands):

	CBO-1		CBO-2		Nomura		Total
Year 1999 actual realized losses	$	738	$	—	$	—	$	738
Year 2000 actual realized losses		3,201		1,087		—		4,288
Year 2001 actual realized losses		545		8,397		238		9,180
Year 2002 actual realized losses		11,554		25,113		563		37,230
Year 2003 actual realized losses		11,796		57,913		1,920		71,629
Cumulative actual realized losses through December 31, 2003	$	27,834	$	92,510	$	2,721	$	123,065
Cumulative actual realized losses through the year 2003	$	27,834	$	92,510	$	2,721	$	123,065
Expected loss estimates for the year 2004		51,529		122,121		14,663		188,313
Expected loss estimates for the year 2005		36,369		118,345		13,134		167,848
Expected loss estimates for the year 2006		3,577		16,054		3,521		23,152
Expected loss estimates for the year 2007		2,096		14,075		3,437		19,608
Expected loss estimates for the year 2008		1,953		7,147		2,987		12,087
Expected loss estimates for the remaining life of CMBS		6,764		33,419		7,185		47,368
Cumulative expected loss estimates (including cumulative actual realized losses) through life of CMBS	$	130,122	$	403,671	$	47,648	$	581,441

        We revised our overall expected loss estimate related to our subordinated CMBS to $581 million at December 31, 2003, with such total losses occurring or expected to occur through the life of the subordinated CMBS portfolio. This revision to the overall expected loss estimate is primarily the result of increased projected losses due to lower internal estimates of values on properties underlying certain mortgage loans and real estate owned by underlying trusts, and, in some cases, changes in the timing of resolution and disposition of certain specially serviced assets, which when combined, has resulted in higher projected loss severities on loans and real estate owned by underlying trusts currently or anticipated to be in special servicing. The primary reasons for lower estimates of value include the poor

51

performance of certain properties and related markets and changes to workout negotiations due, in large part, to the softness in the economy and the lag typically associated with real estate fundamentals, the continued slowdown in travel and, in some cases, over-supply of hotel properties, and a shift in retail activity in some markets. There can be no assurance that our revised overall expected loss estimate of $581 million will not be exceeded as a result of additional or adverse events or circumstances. See further discussion of changes to the overall expected loss estimate and impairment charges in the discussions above regarding "Impairment on Subordinated CMBS".

Summary of Other Assets

Portfolio Investment

        As of December 31, 2003 and 2002, our other assets consisted primarily of insured mortgage securities, equity investments, mezzanine loans, Other MBS, cash and cash equivalents (as previously discussed), principal and interest receivables and real estate owned.

        We had $147.5 million and $275.3 million (at fair value) invested in insured mortgage securities as of December 31, 2003 and 2002, respectively. The reduction in total fair value is primarily attributable to the prepayment or sale of approximately 45% (based on amortized cost) of the insured mortgages during the year ended December 31, 2003. As of December 31, 2003, 86% of our remaining investment in insured mortgage securities were GNMA mortgage-backed securities and 14% were FHA-insured mortgage loans.

        As of December 31, 2003 and 2002, we had approximately $3.5 million and $6.2 million, respectively, in investments accounted for under the equity method of accounting. Included in equity investments are (a) the general partnership interests (2.9% to 4.9% ownership interests) in the AIM Limited Partnerships, and (b) a 20% limited partnership interest in the advisor to the AIM Limited Partnerships. The decrease in these investments is primarily due to significant underlying loan payoffs and normal cash flow distributions. The carrying values of our equity investments are expected to continue to decline over time as the AIM Limited Partnerships' asset bases decrease and proceeds are distributed to partners. Three of the AIM Limited Partnerships (AIM 84, AIM 86 and AIM 88) were liquidated in February 2004.

        During the year ended December 31, 2003, one mezzanine loan prepaid. This prepayment resulted in a decrease in Other Assets of approximately $1.7 million. As of December 31, 2003 and 2002, we had approximately $4.1 million and $5.9 million in mezzanine loans, respectively.

        Our Other MBS primarily include investment grade CMBS, investment grade residential mortgage-backed securities, agency debt securities and other fixed income securities. As of December 31, 2003 and 2002, the fair values of our Other MBS were approximately $3.9 million and $5.2 million, respectively.

        We own a shopping center in Orlando, Florida which we account for as real estate owned. As of December 31, 2003 and 2002, we had $8.6 million and $8.8 million, respectively, in real estate owned assets included in other assets ($8.3 million and $8.4 million, respectively, relating to the actual building and land). In addition, we had $7.3 million and $7.2 million of mortgage payable (net of discount) related to the real estate as of December 31, 2003 and 2002, respectively. We have been working to reposition and stabilize this asset to increase its value, although we are also considering other alternatives.

Mortgage Servicing

        As of December 31, 2003 and 2002, CMSLP's other assets consisted primarily of advances receivable, investments in interest-only strips, investments in CMBS, fixed assets, and investments in sub-advisory contracts. The servicing other assets have decreased by approximately $7.8 million from $13.8 million at December 31, 2002 to $6.0 million at December 31, 2003. The decrease is primarily the result of the sale of investment grade CMBS in January 2003 in connection with our recapitalization. In October 2003, we received approximately $2.5 million in advances receivable reimbursement related to one loan, which resulted in a corresponding decrease in advances receivable.

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Summary of Liabilities

Portfolio Investment

        As of December 31, 2003 and 2002, our liabilities consisted primarily of debt, accrued interest and accrued payables. Total recourse debt decreased by approximately $25.9 million to $350.0 million as of December 31, 2003 from $376.0 million as of December 31, 2002 primarily due to the repayment of the Exit Debt during the first quarter of 2003 principally through the incurrence of the Bear Stearns Debt and BREF Debt, partially offset by the $22.5 million of borrowing under the Bear Stearns $200 million secured borrowing facility to repay the Fannie Mae funding note. Total non-recourse debt decreased by approximately $130.5 million to $415.5 million as of December 31, 2003 from $546.0 million as of December 31, 2002. This decrease is primarily attributable to significant prepayments of mortgages underlying the insured mortgage securities during 2003, which resulted in a corresponding reduction in the principal balances of the securitized mortgage obligations, and the repayment of the Fannie Mae funding note in December 2003. Our payables and accrued liabilities decreased by approximately $16.7 million to $10.0 million as of December 31, 2003 from $26.7 million as of December 31, 2002 primarily due to the January 2003 recapitalization and the payment of preferred stock dividends totaling $5.2 million that were previously deferred. Additionally, during the three months ended March 31, 2003, we reversed approximately $7.5 million of extension fees that were accrued at December 31, 2002 on the Exit Debt since they were no longer payable. In addition, we paid $2.9 million of interest that was accrued, as of December 31, 2002, on the Series B Senior Secured Notes.

Mortgage Servicing

        As of December 31, 2003 and 2002, CMSLP's liabilities consisted primarily of operating accounts payable and accrued expenses. The Servicing liabilities increased by approximately $1.1 million to $1.8 million as of December 31, 2003 from $757,000 as of December 31, 2002 primarily due to the accrual of executive contract termination costs, severance costs and other normal operating expenses.

Dividends/Other

        No cash dividends were paid to common shareholders during the year 2003 due to our net operating losses for tax purposes. Based on current taxable income estimates, it is expected that preferred or common dividends, if any, paid in 2004 and thereafter will be taxable to the shareholders since we are not expecting to generate net operating losses. However, we are expecting to use our accumulated net operating losses beginning in 2004. Dividends paid in 2001, 2002, and 2003 were considered "return of capital" for tax.

        As of December 31, 2003, there were no unpaid preferred dividends. On March 9, 2004, the Board of Directors declared cash dividends of $0.68, $0.30 and $0.375 per share of Series B, Series F and Series G Preferred Stock, respectively, payable on March 31, 2004 to shareholders of record on March 19, 2004.

        Factors which could impact dividends, if any, include (i) the level of income earned on mortgage assets, such as subordinated CMBS (including, but not limited to, the amount of original issue discount income, interest shortfalls and realized losses on subordinated CMBS), (ii) net operating losses, (iii) the fluctuating yields on short-term, variable-rate debt and the rate at which our LIBOR-based debt is priced, as well as the rate we pay on our other borrowings and fluctuations in long-term interest rates, (iv) changes in operating expenses, including hedge costs, (v) margin calls, (vi) the level of income earned on our insured mortgage securities depending primarily on prepayments, (vii) the rate at which cash flows from mortgage assets, mortgage dispositions, and, to the extent applicable, distributions from our subsidiaries can be reinvested, (viii) cash dividends paid on preferred shares, (ix) to the extent applicable, whether our taxable mortgage pools continue to be exempt from corporate level taxes,

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(x) realized losses on certain transactions, and (xi) the timing and amounts of cash flows attributable to our other lines of business—mortgage servicing. Cash dividends on our common stock are subject to the prior payment of all accrued and unpaid dividends on our preferred stock, and cash dividends on our junior classes of preferred stock are subject to the prior payment of all accrued and unpaid dividends on our senior preferred stock.

Critical Accounting Policies

        The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. We continually evaluate the estimates we use to prepare the consolidated financial statements, and update those estimates as necessary. In general, management's estimates are based on historical experience, on information from third parties, and other various assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ materially from those estimates.

        Management considers an accounting estimate to be critical if:

•

it requires assumptions to be made that were uncertain at the time the estimate was made; and



•

changes in the estimate or different estimates that could have been selected could have a material impact on our consolidated results of operations or financial condition.

        Our critical accounting estimates include the determination of fair value of our subordinated CMBS and interest income recognition related to our CMBS.

•

Fair value of subordinated CMBS—Due to the limited liquidity of the subordinated CMBS market and the resulting lack of a secondary market, the values of our subordinated CMBS are based on available market and certain third party information and management's estimates. These estimates require significant judgment regarding assumptions for defaults on the underlying commercial mortgage loan collateral, timing of loss realization and resultant loss severity, timing and amount of principal losses and interest shortfalls, timing and amount of potential recoveries of such shortfalls and discount rates. Notes 3 and 4 to Notes to Consolidated Financial Statements contain a detailed discussion of the methodology used to determine the fair value of our subordinated CMBS as well as a sensitivity analysis related to the fair value of these subordinated CMBS due to changes in assumptions related to losses on the underlying commercial mortgage loan collateral and discount rates.



•

Interest income recognition related to subordinated CMBS—Interest income recognition under EITF No. 99-20 requires us to make estimates based on certain assumptions including expected losses on the underlying commercial mortgage loan collateral (which directly impact the cash flows on our subordinated CMBS in the form of interest shortfalls and loss of principal) and the impact these factors would have on future cash flow. Note 4 to Notes to Consolidated Financial Statements details the expected realized losses by year that we expect to incur related to our subordinated CMBS. The cash flows we project to arrive at the effective interest rate to recognize interest income are adjusted for these expected losses. The judgment regarding future expected credit losses is subjective as credit performance is particular to an individual deal's specific underlying commercial mortgage loan collateral. In general, if we increase our expected losses or determine such losses will occur sooner than previously projected and the CMBS's fair value is below cost, then the CMBS will be considered impaired and adjusted to fair value with the impairment charge recorded through earnings.

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Recent Accounting Pronouncements

        In January 2003, the FASB issued FASB Interpretation (or FIN) No. 46, "Consolidation of Variable Interest Entities", an interpretation of Accounting Research Bulletin No. 51, "Consolidated Financial Statements." FIN No. 46 explains how to identify variable interest entities and how an enterprise assesses its interests in a variable interest entity to decide whether to consolidate that entity. This Interpretation requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. FIN No. 46 is effective immediately for variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. According to FIN No. 46R issued in December 2003, the Interpretation applies at the end of the first reporting period ending after March 15, 2004, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. We do not expect the adoption of FIN No. 46 to have a material effect on our financial position or results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Our principal market risk is exposure to changes in interest rates related to the U.S. Treasury market as well as the LIBOR market. We will have fluctuations in the amount of interest expense paid on our variable rate debt primarily due to changes in one-month LIBOR. We will also experience fluctuations in the market value of our mortgage assets related to changes in the yields of U.S. Treasury securities as well as changes in the spread between U.S. Treasury securities and the mortgage assets and overall required returns. The combination of the risk free rate (U.S. Treasury yields) and the related spread is the discount rate used to determine the fair value of our mortgage assets. As of December 31, 2003, the average U.S. Treasury rate used to price our CMBS, excluding the B- through unrated/issuer's equity CMBS, had increased by 43 basis points, compared to December 31, 2002. As of December 31, 2003, credit spreads used to price our investment grade CMBS tightened and credit spreads used to price our subordinated CMBS which are not expected to experience losses widened, compared to December 31, 2002. The fair values of our CCC and D CMBS in CBO-2 and our unrated/issuer's equity are determined using a loss adjusted yield to maturity, which, in our view, is commensurate with the market's perception of value and risk of comparable assets. As described above, interest rates and spreads, which are reflective of the credit fundamentals of the underlying commercial real estate assets, impact the fair values of our CMBS. See Note 6 of Notes to Consolidated Financial Statements for a discussion of our margin maintenance requirements under the Bear Stearns Debt.

CMBS

        The required rate of return used to determine the fair values of our CMBS is comprised of many variables, such as a risk-free rate, a liquidity premium and a credit risk premium. These variables are combined to determine a total rate that, when used to discount the CMBS's assumed stream of future cash flows, results, in our view, in the fair value of such cash flows. The determination of such rate is dependent on many quantitative and qualitative factors, such as, but not limited to, the market's perception of the issuers of the CMBS and the credit fundamentals of the commercial properties underlying each underlying pool of commercial mortgage loans.

        If we assumed that the discount rate used to determine the fair values of our CMBS (A+ through unrated bonds) increased by 100 basis points and 200 basis points, the increase in the discount rate would have resulted in a corresponding decrease in the fair values of our CMBS (A+ through unrated bonds) by approximately $45.8 million (or 5.5%) and approximately $88.0 million (or 10.5%), respectively, as of December 31, 2003. A 100 basis point and 200 basis point increase in the discount rate would have resulted in a corresponding decrease in the value of our subordinated CMBS (BB+ through unrated bonds) by approximately $29.6 million (or 5.8%) and $56.6 million (or 11.1%), respectively, as of December 31, 2003.

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        See also Note 4 of Notes to Consolidated Financial Statements for a discussion of other factors that could affect the fair values of our CMBS, including changes in the timing and/or amount of credit losses on underlying mortgage loans, master servicer advances, the receipt of mortgage payments earlier than projected due to prepayments, and delays in the receipt of monthly cash flow distributions on CMBS due to mortgage loan defaults and/or extensions in loan maturities.

Interest Rate Swap

        During 2003, we entered into three interest rate swaps to hedge the variability of the future interest payments on the anticipated CDO transaction attributable to changes in interest rates. Our obligations to Bear Stearns under the interest rate swap documents are collateralized by certain assets as described in Note 6 to Notes to Consolidated Financial Statements. Through December 31, 2003, these swaps were treated as cash flow hedges for GAAP. Under these swaps, we have agreed to pay Bear Stearns a weighted average interest fixed rate of 4.15% per annum in exchange for floating payments based on one-month LIBOR on the total notional amount of $100 million. These swaps were effective on October 15, 2003.

        The swaps are intended to protect our cost of financing in connection with our anticipated CDO. We intend to terminate the swaps simultaneously with the issuance of the CDO or other refinancing transaction. As of December 31, 2003, the aggregate fair value of the interest rate swaps was an asset of approximately $3.4 million. A 100 basis point increase (decrease) in the 10-year swap rates would result in an approximate $8 million increase (decrease) in the fair value of our interest rate swaps, with an aggregate notional amount of $100 million.

Variable Rate Debt

        We maintain an interest rate cap to mitigate the adverse effects of rising interest rates on the amount of interest expense payable under our variable rate debt. On October 31, 2003, we purchased an interest rate cap for $45,000 with a notional amount of $50 million, an effective date of November 4, 2003, maturity on November 4, 2004, and capping one-month LIBOR at 2.25%. Our cap provides protection to the extent interest rates, based on a readily determinable interest rate index (typically one-month LIBOR), increase above the stated interest rate cap, in which case, we would receive payments based on the difference between the index and the cap. The term of the cap as well as the stated interest rate of the cap, which is currently above the current rate of the index, would limit the amount of protection that the cap offers. The one-month LIBOR rate was 1.12% at December 31, 2003.

        A 100 basis point increase in the one-month LIBOR index would have increased our interest expense on our Bear Stearns Debt by approximately $2.8 million during the year ended December 31, 2003.

Insured Mortgage Securities

        There would not be a material change in the fair values of our insured mortgage securities if we assumed that the discount rate used to determine the fair values increased by 100 basis points and 200 basis points as of December 31, 2003 since the underlying mortgages are generally prepayable and have an assumed weighted average life of less than one year.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The financial statements and supplementary data are set forth in this Annual Report on Form 10-K commencing on page F-1.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        On June 5, 2002, the Board of Directors, upon recommendation of the Audit Committee, selected Ernst & Young LLP as our independent accountants for our consolidated financial statements for the year ending on December 31, 2002. The Board, upon the recommendation of the Audit Committee, dismissed Arthur Andersen LLP on May 8, 2002, effective as of May 14, 2002, when Arthur Andersen completed its audit of the December 31, 2001 financial statements of the CRIIMI MAE Management Inc. Retirement Plan.

        Except as noted below, Arthur Andersen's reports on our consolidated financial statements for the years ended December 31, 2001 and 2000 did not contain an adverse opinion or disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope or accounting principles. Arthur Andersen's report on our consolidated financial statements for the year ended December 31, 2000 contained a qualified opinion about our ability to continue as a going concern because of our voluntary filing for relief under Chapter 11 of the Bankruptcy Code on October 5, 1998. We emerged from Chapter 11 on April 17, 2001 and Arthur Andersen's subsequent report on our consolidated financial statements for the year ended December 31, 2001 did not contain such qualifying opinion. Arthur Andersen's report on our consolidated financial statements for the year ended December 31, 2001 referenced a change in (1) our method of accounting for derivatives and (2) the method of accounting related to the recognition of special servicing fee revenue of CMSLP.

        During the years ended December 31, 2001 and 2000 and through the date of dismissal, there were: (i) no disagreements with Arthur Andersen on any matter of accounting principle or practice, financial statements disclosure, or auditing scope or procedure which, if not resolved to Arthur Andersen's satisfaction, would have caused them to make reference to the subject matter in connection with their report on our consolidated financial statements for such years; and (ii) there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.

        We provided Arthur Andersen with a copy of the foregoing disclosures and Arthur Andersen submitted a letter, dated May 10, 2002, stating its agreement with such statements. These disclosures and Arthur Andersen's letter were filed with the SEC under Form 8-K on May 10, 2002.

        During the years ended December 31, 2001 and 2000 and the subsequent interim period through June 5, 2002, neither we nor anyone on our behalf consulted Ernst & Young LLP with respect to the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on our consolidated financial statements, or any other matters or reportable events listed in Items 304(a)(2)(i) and (ii) of Regulation S-K.

ITEM 9A. CONTROLS AND PROCEDURES

        We have carried out an evaluation, under the supervision and with the participation of our management including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as that term is defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended. Based on that evaluation, our principal executive officer and principal financial officer concluded that as of December 31, 2003, which is the end of the period covered by this Annual Report on Form 10-K, our disclosure controls and procedures are effective.

        There have been no changes in our internal controls over financial reporting in the fiscal quarter ending December 31, 2003 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART III

        The information required by Part III (Item 10-Directors and Executive Officers, Item 11-Executive Compensation, Item 12-Security Ownership of Certain Beneficial Owners and Management, Item 13-Certain Relationships and Related Transactions and Item 14-Principal Accountant Fees and Services) is incorporated herein by reference to our definitive proxy statement to be filed pursuant to Regulation 14A relating to our 2004 annual meeting of shareholders.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)

List of documents filed as part of this report:

1 and 2. Financial Statements and Financial Statement Schedules

Description	Page
Report of Independent Auditors	F-1
Consolidated Balance Sheets as of December 31, 2003 and 2002	F-3
Consolidated Statements of Income for the years ended December 31, 2003, 2002 and 2001	F-4
Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income for the years ended December 31, 2003, 2002 and 2001	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001	F-6
Notes to Consolidated Financial Statements	F-7

        All other financial statements and financial statement schedules have been omitted since the required information is included in the financial statements or the notes thereto, or is not applicable or required.

Exhibit Number	Description
2.1	Third Amended Joint Plan of Reorganization as confirmed by the United States Bankruptcy Court for the District of Maryland, Greenbelt Division on November 22, 2000 (incorporated by reference to Exhibit 2.1 to Form 8-K filed with the SEC on December 28, 2000).
3.1	Articles Supplementary reclassifying and designating 203,000 authorized but unissued shares of Series E Cumulative Convertible Preferred Stock as authorized but unissued preferred stock, filed with the Maryland State Department of Assessments and Taxation on January 9, 2004 (incorporated by reference to Exhibit 3.6 to Form S-3 filed with the SEC on January 27, 2004).
3.2	Articles of Amendment, filed with the Maryland State Department of Assessments and Taxation on May 15, 2002 (incorporated by reference to Exhibit 3 to Current Report on Form 8-K filed with the SEC on May 16, 2002).
3.3	Articles Supplementary for Series H Junior Preferred Stock, filed with the Maryland State Department of Assessments and Taxation on January 30, 2002 (incorporated by reference to Exhibit 3.2 to Form S-8 filed with the SEC on June 13, 2002).
3.4	Articles of Amendment to CRIIMI MAE Inc. Charter, filed with the Maryland State Department of Assessments and Taxation on October 12, 2001 (incorporated by reference to Exhibit 3.1 to Form S-8 filed with the SEC on June 13, 2002).
3.5	Articles of Amendment to Exhibit B of the Articles of Amendment and Restatement of CRIIMI MAE Inc. which pertains to the preferences, conversion and other rights, voting powers, restrictions and limitations as to dividends, qualifications and terms and conditions of redemption of the Series E Cumulative Convertible Preferred Stock (incorporated by reference to Exhibit 3 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2001).

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3.6	Articles of Amendment and Restatement of CRIIMI MAE Inc., including Exhibit A, Exhibit B, Exhibit C and Exhibit D thereto pertaining to the preferences, conversion and other rights, voting powers, restrictions and limitations as to dividends, qualifications and terms and conditions of redemption of the Series B Cumulative Convertible Preferred Stock, Series E Cumulative Convertible Preferred Stock, the Series F Redeemable Cumulative Dividend Preferred Stock and the Series G Redeemable Cumulative Dividend Preferred Stock, respectively, filed with the Maryland State Department of Assessments and Taxation on April 17, 2001 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed with the SEC on June 1, 2001).
3.7	Second Amended and Restated Bylaws of CRIIMI MAE Inc., as amended on January 14, 2004, (filed herewith).
4.1	Warrant to Purchase Common Stock of CRIIMI MAE Inc., dated as of January 23, 2003 (incorporated by reference to Exhibit 4.3 to Form 8-K filed with the SEC on January 30, 2003).
4.2	Senior Subordinated Secured Note Agreement, dated as of January 14, 2003 by and between CRIIMI MAE Inc. and Brascan Real Estate Finance Fund I, L.P. (incorporated by reference to Exhibit 4.1 to Form 8-K filed with the SEC on January 30, 2003).
4.3	Intercreditor and Subordination Agreement, dated as of January 14, 2003, by and among Bear, Stearns International Limited and Brascan Real Estate Financial Investments LLC (incorporated by reference to Exhibit 4.2 to Form 8-K filed with the SEC on January 30, 2003).
4.4	Registration Rights Agreement, dated as of January 14, 2003, between CRIIMI MAE Inc. and Brascan Real Estate Finance Fund, L.P. (incorporated by reference to Exhibit 4(d) to Annual Report on Form 10-K for the year ended December 31, 2002).
4.5	Third Amendment to Rights Agreement, dated as of January 3, 2003 between CRIIMI MAE Inc. and Registrar and Transfer Company, as Rights Agent (incorporated by reference to the Company's Form 8-A/A filed with the SEC on January 3, 2003).
4.6	Second Amendment to Rights Agreement, dated as of November 14, 2002 between CRIIMI MAE Inc. and Registrar and Transfer Company, as Rights Agent (incorporated by reference to Exhibit 4.2 to Form 8-A/A filed on November 15, 2002).
4.7	Amended and Restated First Amendment to Rights Agreement, dated as of June 10, 2002 between CRIIMI MAE Inc. and Registrar and Transfer Company, as Rights Agent (incorporated by reference to Exhibit 4.1 to the Company's Form 8-A/A filed with the SEC on June 13, 2002).
4.8	Rights Agreement, dated as of January 23, 2002 between CRIIMI MAE Inc. and Registrar and Transfer Company, as Rights Agent (the "Rights Agreement"). The Rights Agreement includes, as Exhibit A, the form of Articles Supplementary to the Articles of Incorporation of the Company setting forth the terms of the Series H Preferred Stock, as Exhibit B, the form of Rights Certificate and, as Exhibit C, the form of Summary of Rights to Purchase Preferred Shares (incorporated by reference to Exhibit 4 to Current Report on Form 8-K filed on January 25, 2002).

60

10.1	Master Repurchase Agreement, executed on August 28, 2003 to be effective as of June 26, 2003, by and between Bear Stearns & Co. Inc., as Agent for Bear, Stearns International Limited and CRIIMI MAE Asset Acquisition Corp. (incorporated by reference to Exhibit 10.5 to Form 8-K filed with the SEC on September 5, 2003).
10.2	Annex I to Master Repurchase Agreement, executed on August 28, 2003 to be effective as of June 26, 2003, by and between Bear, Stearns & Co. Inc., as Agent for Bear, Stearns International Limited and CRIIMI MAE Asset Acquisition Corp. (incorporated by reference to Exhibit 10.6 to Form 8-K filed with the SEC on September 5, 2003).
10.3	Side Letter Agreement, executed on August 28, 2003 to be effective as of June 26, 2003, by and between Bear Stearns & Co. Inc., CRIIMI MAE Asset Acquisition Corp. and CRIIMI MAE Inc. (incorporated by reference to Exhibit 10.7 to Form 8-K filed with the SEC on September 5, 2003).
10.4	ISDA Master Agreement, dated as of June 26, 2003, between Bear, Stearns International Limited and CRIIMI Newco, LLC and CBO REIT II, Inc. (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).
10.5	Schedule to the ISDA Master Agreement dated as of June 26, 2003, between Bear, Stearns International Limited and each of CRIIMI Newco, LLC and CBO REIT II, Inc. (incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).
10.6	ISDA Credit Support Annex dated as of June 26, 2003, between Bear, Stearns International and CRIIMI Newco, LLC and CBO REIT II, Inc. (incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).
10.7	Netting and Security Agreement dated as of June 26, 2003, between and among Bear, Stearns International Limited, CRIIMI Newco LLC and CBO REIT II Inc. (incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).
10.8	Amendment No. 1 to Repurchase Agreement, dated as of June 26, 2003, between Bear, Stearns International Limited, CRIIMI Newco LLC and CBO REIT II, Inc. (incorporated by reference to Exhibit 10.5 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).
10.9	Repurchase Agreement, dated as of January 14, 2003, and all exhibits and schedules, among Bear, Stearns International Limited, as Buyer, CRIIMI Newco, LLC, as a Seller, and CBO REIT II, Inc., as a Seller (incorporated by reference to Exhibit 10.1 to Form 8-K filed with the SEC on January 30, 2003).
10.10	Amendment No. 1 to Guarantee, dated as of June 26, 2003, between Bear, Stearns International Limited, and CRIIMI MAE Inc. (incorporated by reference to Exhibit 10.6 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).
10.11	Guarantee, dated as of January 14, 2003, by CRIIMI MAE Inc. in favor of Bear, Stearns International Limited (incorporated by reference to Exhibit 10.5 to Form 8-K filed with the SEC on January 30, 2003).

61

10.12	Engagement Letter, dated as of January 14, 2003, by and between CRIIMI MAE Inc. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 10.8 to Form 8-K filed with the SEC on January 30, 2003).
10.13	Amendment No. 2 to Investment Agreement, dated as of January 13, 2003, by and between CRIIMI MAE Inc. and Brascan Real Estate Financial Investments LLC (incorporated by reference to Exhibit 10.2 to Form 8-K filed with the SEC on January 30, 2003).
10.14	Amendment No. 1 to Investment Agreement dated as of December 2, 2002 to the Investment Agreement between CRIIMI MAE Inc. and Brascan Real Estate Financial Investments LLC (incorporated by reference to Exhibit 10.1 to Form 8-K filed with the SEC on December 4, 2002).
10.15	Investment Agreement dated as of November 14, 2002 between CRIIMI MAE Inc. and Brascan Real Estate Financial Investments LLC (incorporated by reference to Exhibit 10.2 to Form 8-K filed with the SEC on December 4, 2002).
10.16	Exhibit D (Form of Non-Competition Agreement) to the Investment Agreement dated as of November 14, 2002 between CRIIMI MAE Inc. and Brascan Real Estate Financial Investments LLC (incorporated by reference to Exhibit 10.5 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2002).
10.17	Company Pledge Agreement, dated as of January 14, 2003, by and between CRIIMI MAE Inc. and Brascan Real Estate Finance Fund I, L.P. (incorporated by reference to Exhibit 10.3 to Form 8-K filed with the SEC on January 30, 2003).
10.18	Newco Member Pledge Agreement, dated as of January 14, 2003, by and between CRIIMI Newco Member, Inc. and Brascan Real Estate Finance Fund I, L.P. (incorporated by reference to Exhibit 10.4 to Form 8-K filed with the SEC on January 30, 2003).
10.19	Deposit Trust Agreement dated as of May 8, 1998 between CRIIMI MAE CMBS Corp. and Wilmington Trust Company, as Owner Trustee (incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended March 31, 2003).
10.20	Terms Indenture Agreement dated May 8, 1998 between CRIIMI MAE Commercial Mortgage Trust and the trustee (incorporated by reference to Exhibit 10(s) to Annual Report on Form 10-K for 2001).
10.21	Standard Indenture Provisions dated as of May 8, 1998 related to Terms Indenture Agreement dated May 8, 1998 between CRIIMI MAE Commercial Mortgage Trust and the trustee (incorporated by reference to Exhibit 10(t) to Annual Report on Form 10-K for 2001).
10.22	Deposit Trust Agreement dated as of December 20, 1996 between CRIIMI MAE QRS1, Inc. and Wilmington Trust Company, as Owner Trustee (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended March 31, 2003).
10.23	Indenture Agreement dated December 20, 1996 between CRIIMI MAE QRS 1, Inc. and the trustee (incorporated by reference from Exhibit 4(sss) to Annual Report on Form 10-K for 1996).

62

10.24	Seven Percent Funding Note due September 17, 2031 dated September 22, 1995 between CRIIMI MAE Financial Corporation II and the Federal Home Loan Mortgage Corporation (incorporated by reference to Exhibit 4(bbb) to Annual Report on Form 10-K for 1995).
10.25	Funding Note Purchase and Security Agreement dated as of September 22, 1995 among the Federal Home Loan Mortgage Corporation, CRIIMI MAE Inc. and CRIIMI MAE Financial Corporation II (incorporated by reference to Exhibit 4(ccc) to Annual Report on Form 10-K for 1995).
10.26	Assignment and Agreement dated as of September 22, 1995 between CRIIMI MAE Inc. and CRIIMI MAE Financial Corporation II (incorporated by reference to Exhibit 4(ddd) to Annual Report on Form 10-K for 1995).
10.27	Form of Indenture between CRIIMI MAE Financial Corporation and the trustee (incorporated by reference to Exhibit 4.1 to S-3 Registration Statement filed with the Securities and Exchange Commission on September 12, 1995).
10.28	Registrant's 2001 Stock Incentive Plan (incorporated by reference to Annex B to Definitive Proxy Statement filed with the SEC on August 16, 2001).
10.29	Registrant's Second Amended and Restated Stock Option Plan for Key Employees (incorporated by reference herein to Exhibit G to Exhibit 99.6 to the Registrant's Current Report on Form 8-K filed with the SEC on September 22, 2000).
10.30	Dividend Reinvestment and Stock Purchase Plan between CRIIMI MAE Inc. and shareholders (incorporated by reference from the registration statement on Form S-3A filed December 9, 1997).
10.31	Separation Agreement, dated as of November 20, 2003, by and between CRIIMI MAE Inc. and Craig Lieberman (filed herewith).
10.32	Restricted Stock Award Agreement, dated as of November 6, 2003, by and between CRIIMI MAE Inc. and Stephen M. Abelman (incorporated by reference to Exhibit 10.12 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2003).
10.33	Employment Offer Letter, dated as of October 29, 2003, by and among Stephen M. Abelman, CRIIMI MAE Inc. and CRIIMI MAE Services Limited Partnership (incorporated by reference to Exhibit 10.11 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2003).
10.34	Restricted Stock Award Agreement, dated as of October 3, 2003, by and between CRIIMI MAE Inc. and Cynthia O. Azzara (incorporated by reference to Exhibit 10.9 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2003).
10.35	Employment Offer Letter, dated as of August 26, 2003, by and among Cynthia O. Azzara, CRIIMI MAE Inc. and CRIIMI MAE Management, Inc. (incorporated by reference to Exhibit 10.4 to form 8-K filed with the SEC on September 5, 2003).
10.36	Termination of Employment Agreement, dated as of August 26, 2003, by and between Cynthia O. Azzara and CRIIMI MAE Inc. (incorporated by reference to Exhibit 10.3 to Form 8-K filed with the SEC on September 5, 2003).

63

10.37	Restricted Stock Award Agreement, dated as of September 15, 2003, by and between CRIIMI MAE Inc. and Mark Jarrell (incorporated by reference to Exhibit 10.8 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2003).
10.38	Employment Offer Letter Agreement, dated as of August 11, 2003 and effective a of September 15, 2003, between CRIIMI MAE Inc. and Mark R. Jarrell (incorporated by reference to Exhibit 10.10 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).
10.39	Termination of Employment Agreement, dated as of August 26, 2003, by and between David B. Iannarone and CRIIMI MAE Inc. (incorporated by reference to Exhibit 10.1 to Form 8-K filed with the SEC on September 5, 2003).
10.40	Amendment to Employment Agreement of William B. Dockser, dated as of January 14, 2003 (incorporated by reference to Exhibit 10.9 to Form 8-K filed with the SEC on January 30, 2003).
10.41	Employment Agreement dated and effective as of June 29, 2001 between the Company and William B. Dockser (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on July 10, 2001).
10.42	Amendment to Employment Agreement of H. William Willoughby, dated as of January 14, 2003 (incorporated by reference to Exhibit 10.10 to Form 8-K filed with the SEC on January 30, 2003).
10.43	Employment Agreement dated and effective as of June 29, 2001 between the Company and H. William Willoughby (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on July 10, 2001).
16.1	Letter from Arthur Andersen LLP to the SEC dated May 10, 2002 (incorporated by reference to Exhibit 16 to Current Report on Form 8-K filed with the SEC on May 10, 2002).
18.1	Letter from the Company's former independent public accountants, Arthur Andersen LLP, regarding the change in accounting policy related to the recognition of special servicing fee revenue by CRIIMI MAE Services Limited Partnership, a wholly owned subsidiary of the Company (incorporated by reference to Exhibit 18 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2001).
21.1	Subsidiaries of CRIIMI MAE Inc. (filed herewith).
23.1	Consent of Ernst & Young LLP (filed herewith).
23.2	Consent of Ernst & Young LLP (filed herewith).
31.1	Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) (filed herewith).
31.2	Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) (filed herewith).
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

64

99.1	Letter to Securities and Exchange Commission from the Company dated March 27, 2002 regarding the representations received from Arthur Andersen LLP in connection with its audit of the Company's December 31, 2001 consolidated financial statements (incorporated by reference to Exhibit 99(p) to Annual Report on Form 10-K for 2001).
99.2	Special Serviced Loan Report relating to specially serviced loans underlying the Company's CMBS as of December 31, 2003 (filed herewith).

(b)

Reports on Form 8-K

Date	Purpose
October 16, 2003	To report a press release dated October 15, 2003 announcing the resignation of Executive Vice President David B. Iannarone effective October 24, 2003.
October 30, 2003	To report a press release dated October 29, 2003 announcing the appointment of Stephen M. Abelman as Executive Vice President—Asset Management effective October 29, 2003.
November 12, 2003	To report a press release dated November 11, 2003 announcing the declaration of cash dividends for the fourth quarter of 2003 on our Series B, Series F and Series G Preferred Stock.
November 12, 2003	To report a press release dated November 12, 2003 announcing our financial results for the three and nine months ended September 30, 2003.
December 19, 2003	To report a press release dated December 17, 2003 announcing the prepayment of the $24.5 million balance of a 7% funding note issued to Fannie Mae.

65

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

	CRIIMI MAE INC.
March 12, 2004 DATE	/s/  BARRY S. BLATTMAN Barry S. Blattman Chairman of the Board and Chief Executive Officer

        KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Barry S. Blattman, his attorney-in-fact, each with the power of substitution for him in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

March 12, 2004 DATE	/s/  BARRY S. BLATTMAN Barry S. Blattman Chairman of the Board and Chief Executive Officer (Principal Executive Officer)
March 12, 2004 DATE	/s/  CYNTHIA O. AZZARA Cynthia O. Azzara Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
March 9, 2004 DATE	/s/  JEFFREY M. BLIDNER Jeffrey M. Blidner Director
March 9, 2004 DATE	/s/  JOSHUA B. GILLON Joshua B. Gillon Director
March 9, 2004 DATE	/s/  ARTHUR N. HAUT Arthur N. Haut Director

66

March 9, 2004 DATE	/s/  ROBERT J. MERRICK Robert J. Merrick Director
March 9, 2004 DATE	/s/  JOHN S. MOODY John S. Moody Director
March 9, 2004 DATE	/s/  BRUCE K. ROBERTSON Bruce K. Robertson Director
March 9, 2004 DATE	/s/  GLENN J. RUFRANO Glenn J. Rufrano Director
March 9, 2004 DATE	/s/  ROBERT E. WOODS Robert E. Woods Director

67

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
CRIIMI MAE Inc.

        We have audited the accompanying consolidated balance sheets of CRIIMI MAE Inc. and subsidiaries (CRIIMI MAE) as of December 31, 2003 and 2002, and the related consolidated statements of income, changes in shareholders' equity and comprehensive income, and cash flows for the years then ended. These financial statements are the responsibility of CRIIMI MAE's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of CRIIMI MAE as of December 31, 2001, and for the year then ended, were audited by other auditors who have ceased operations and whose report dated March 21, 2002, expressed an unqualified opinion on those statements and included an explanatory paragraph that disclosed the change in CRIIMI MAE's method of accounting for derivatives and CRIIMI MAE Services Limited Partnership's, a wholly-owned subsidiary of CRIIM MAE, method of accounting for special servicing fee revenue both of which are discussed in Note 2 to these consolidated financial statements.

        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the 2003 and 2002 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of CRIIMI MAE at December 31, 2003 and 2002, and the consolidated results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States.

        As discussed in Note 2 to the consolidated financial statements, CRIIMI MAE changed its method of accounting for preferred stock issuance costs in 2003 and changed its method of accounting for goodwill and other intangible assets in 2002.

Ernst & Young LLP
McLean, Virginia
March 8, 2004

F-1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of
CRIIMI MAE Inc.:

        We have audited the accompanying consolidated balance sheets of CRIIMI MAE Inc. and its subsidiaries (CRIIMI MAE) as of December 31, 2001 and 2000, and the related consolidated statements of income, changes in shareholders' equity and comprehensive income and cash flows for the years ended December 31, 2001, 2000 and 1999. These financial statements are the responsibility of CRIIMI MAE's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of CRIIMI MAE as of December 31, 2001 and 2000, and the consolidated results of their operations and their cash flows for the years ended December 31, 2001, 2000 and 1999, in conformity with accounting principles generally accepted in the United States.

        As discussed in Note 3 to the consolidated financial statements, effective January 1, 2001, CRIIMI MAE changed its method of accounting for derivatives. In addition, as discussed in Note 3 to the consolidated financial statements, effective January 1, 2001, CRIIMI MAE Services Limited Partnership, a wholly-owned subsidiary of CRIIMI MAE, changed its method of accounting related to the recognition of special servicing fee revenue.

Arthur Andersen, LLP
Vienna, Virginia
March 21, 2002

This is a copy of the audit report previously issued by Arthur Andersen LLP in connection with our filing of our Annual Report on Form 10-K for the year ended December 31, 2001. This audit report has not been reissued by Arthur Andersen LLP in connection with this Annual Report on Form 10-K. See Exhibit 16(a) for further discussion.

F-2

CRIIMI MAE INC.

CONSOLIDATED BALANCE SHEETS

			December 31, 2003			December 31, 2002
Assets:
	Mortgage assets:
		Subordinated CMBS pledged to secure recourse debt, at fair value	$	511,681,345		$	535,507,892
		CMBS pledged to secure Securitized Mortgage Obligations—CMBS, at fair value		325,321,411			326,472,580
		Other MBS, at fair value		3,900,132			5,247,771
		Insured mortgage securities pledged to secure Securitized Mortgage Obligations, at fair value		122,376,761			275,340,234
		Insured mortgage securities pledged to secure recourse debt, at fair value		25,120,897			—
	Equity investments			3,530,436			6,247,868
	Other assets			25,603,905			24,987,348
	Receivables			24,013,265			16,293,489
	Servicing other assets			5,964,635			13,775,138
	Servicing cash and cash equivalents			4,427,615			12,582,053
	Other cash and cash equivalents			17,271,342			16,669,295
	Restricted cash and cash equivalents			—			7,961,575
Total assets			$	1,069,211,744		$	1,241,085,243
Liabilities:
	Bear Stearns variable rate secured debt		$	296,250,000		$	—
	Bear Stearns repurchase agreement			22,526,000
	BREF senior subordinated secured note			31,266,667			—
	Securitized mortgage obligations:
		Collateralized bond obligations—CMBS		288,979,376			285,844,933
		Collateralized mortgage obligations—insured mortgage securities		119,237,756			252,980,104
	Mortgage payable			7,332,404			7,214,189
	Payables and accrued expenses			10,007,787			26,675,724
	Servicing liabilities			1,831,974			756,865
	Exit variable-rate secured borrowing			—			214,672,536
	Series A senior secured notes			—			92,788,479
	Series B senior secured notes			—			68,491,323
Total liabilities				777,431,964			949,424,153
Shareholders' equity:
	Preferred stock, $0.01 par; 75,000,000 shares authorized; 3,424,992 shares issued and outstanding			34,250			34,250
	Common stock, $0.01 par; 300,000,000 shares authorized; 15,384,648 and 13,945,068 shares issued and outstanding, respectively			153,846			139,451
	Accumulated other comprehensive income			91,582,756			102,122,057
	Deferred compensation			(766,093	)		(19,521	)
	Warrants outstanding			2,564,729			—
	Additional paid-in capital			633,348,675			620,411,938
	Accumulated deficit			(435,138,383	)		(431,027,085	)
Total shareholders' equity				291,779,780			291,661,090
Total liabilities and shareholders' equity			$	1,069,211,744		$	1,241,085,243

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

F-3

CRIIMI MAE INC.

CONSOLIDATED STATEMENTS OF INCOME

			For the years ended December 31,
			2003			2002			2001
Interest income:
	CMBS Interest Income:
		Income from Investment Grade CMBS	$	26,292,699		$	26,037,116		$	25,706,810
		Income from Subordinated CMBS		62,588,506			74,576,975			79,816,023
	Insured mortgage securities			15,533,660			23,845,841			28,852,719
	Total interest income			104,414,865			124,459,932			134,375,552
Interest and related expenses:
	Bear Stearns variable rate secured debt			13,593,337			—			—
	BREF senior subordinated secured note			4,783,855			—			—
	Bear Stearns repurchase agreement			13,644			—			—
	Exit variable-rate secured borrowing			859,106			14,928,105			14,648,215
	Series A senior secured notes			2,130,722			11,638,828			8,780,576
	Series B senior secured notes			2,697,006			13,904,086			9,224,817
	Fixed-rate collateralized bond obligations—CMBS			26,125,662			25,788,683			25,518,425
	Fixed-rate collateralized mortgage obligations—insured securities			18,652,818			25,394,390			27,097,730
	Variable-rate secured borrowings—CMBS			—			—			7,325,059
	Fixed-rate senior unsecured notes			—			—			2,712,142
	Hedging expense			999,544			1,101,746			1,073,392
	Other interest expense			943,982			987,567			2,480,604
	Total interest expense			70,799,676			93,743,405			98,860,960
Net interest margin				33,615,189			30,716,527			35,514,592
	General and administrative expenses			(11,985,927	)		(10,618,303	)		(10,951,420	)
	Deferred compensation expense			(204,311	)		(110,154	)		—
	Depreciation and amortization			(567,629	)		(1,095,861	)		(3,718,485	)
	Servicing revenue			9,483,196			10,985,770			6,683,886
	Servicing general and administrative expenses			(9,167,932	)		(8,854,569	)		(5,570,162	)
	Servicing amortization, depreciation, and impairment expenses			(1,811,028	)		(2,173,137	)		(1,699,186	)
	Servicing restructuring expenses			(148,878	)		(188,614	)		(437,723	)
	Servicing gain on sale of servicing rights			—			4,864,274			—
	Servicing (loss) gain on sale of investment-grade CMBS			(5,672	)		241,160			—
	Income tax benefit (expense)			602,577			(460,288	)		336,439
	Equity in earnings (losses) from investments			141,732			(41,882	)		(1,632,042	)
	Other income, net			1,317,433			2,646,033			3,983,412
	Net losses on mortgage security dispositions			(645,169	)		(995,412	)		(41,982	)
	Impairment on Subordinated CMBS			(14,738,431	)		(70,225,506	)		(34,654,930	)
	BREF maintenance fee			(1,663,667	)		—			—
	Hedge ineffectiveness			(1,949,439	)		—			—
	Executive contract termination costs			(2,852,915	)		—			—
	Recapitalization expenses			(3,196,603	)		(1,048,559	)		—
	Net gain on extinguishment of debt			6,672,872			—			—
	Reorganization items			—			—			(1,813,220	)
	Emergence financing origination fee			—			—			(3,936,616	)
				(30,719,791	)		(77,075,048	)		(53,452,029	)
Net income (loss) before cumulative effect of change in accounting principle				2,895,398			(46,358,521	)		(17,937,437	)
Cumulative effect of adoption of SFAS 142				—			(9,766,502	)		—
Cumulative effect of change in accounting principle related to servicing revenue				—			—			1,995,262
Cumulative effect of adoption of SFAS 133				—			—			(135,142	)
Net income (loss) before dividends paid or accrued on preferred shares				2,895,398			(56,125,023	)		(16,077,317	)
Dividends paid or accrued on preferred shares, including redemption costs				(7,006,696	)		(9,337,018	)		(8,145,481	)
Net loss to common shareholders			$	(4,111,298	)	$	(65,462,041	)	$	(24,222,798	)
Earnings per common share:
	Basic and diluted—before cumulative effect of change in accounting principle		$	(0.27	)	$	(4.06	)	$	(2.35	)
	Basic and diluted—after cumulative effect of change in accounting principle		$	(0.27	)	$	(4.77	)	$	(2.18	)
Shares used in computing basic earnings per share				15,149,303			13,710,914			11,087,790

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

F-4

CRIIMI MAE INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME

For the years ended December 31, 2003, 2002 and 2001

			Preferred Stock Par Value			Common Stock Par Value			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Deferred Compensation			Warrants Outstanding		Total Shareholders' Equity			Comprehensive Income (Loss)
Balance at December 31, 2000			$	61,245		$	62,353		$	612,496,343		$	(341,342,246	)	$	(3,019,679	)	$	—		$	—	$	268,258,016
	Net loss before dividends paid or accrued on preferred shares			—			—			—			(16,077,317	)		—			—			—		(16,077,317	)	$	(16,077,317	)
	Other comprehensive income:
		Adjustment to unrealized losses on mortgage assets		—			—			—			—			(3,040,719	)		—			—		(3,040,719	)		(3,040,719	)
		Adjustment to unrealized loss on interest rate cap		—			—			—			—			(383,200	)		—			—		(383,200	)		(383,200	)
	Comprehensive loss																									$	(19,501,236	)
	Dividends accrued or paid on preferred shares			—			—			—			(8,145,481	)		—			—			—		(8,145,481	)
	Common shares issued related to preferred stock dividends			—			30,334			20,405,150			—			—			—			—		20,435,484
	Conversion of preferred shares into common shares			(25,265	)		36,695			(11,430	)		—			—			—			—		—
	Common shares issued			—			2			1,458			—			—			—			—		1,460
	Common shares redeemed in reverse stock split in lieu of fractional shares			—			(11	)		(3,554	)		—			—			—			—		(3,565	)
Balance at December 31, 2001				35,980			129,373			632,887,967			(365,565,044	)		(6,443,598	)		—			—		261,044,678
	Net loss before dividends paid or accrued on preferred shares						—			—			(56,125,023	)		—			—			—		(56,125,023	)	$	(56,125,023	)
	Other comprehensive income:
		Adjustment to unrealized gains and losses on mortgage assets		—			—			—			—			109,170,220			—			—		109,170,220			109,170,220
		Adjustment to unrealized losses on interest rate caps		—			—			—			—			(604,565	)		—			—		(604,565	)		(604,565	)
	Comprehensive income																									$	52,440,632
	Dividends accrued or paid on preferred shares			—			—			—			(9,337,018	)		—			—			—		(9,337,018	)
	Common shares issued related to preferred stock dividends			—			9,664			3,435,128			—			—			—			—		3,444,792
	Common shares issued			—			89			43,341			—			—			—			—		43,430
	Restricted stock issued			—			325			129,350			—			—			(129,675	)		—		—
	Amortization of deferred compensation			—			—			—			—			—			110,154			—		110,154
	Redemption of Series E Preferred Stock			(1,730	)		—			(16,083,848	)		—			—			—			—		(16,085,578	)
Balance at December 31, 2002				34,250			139,451			620,411,938			(431,027,085	)		102,122,057			(19,521	)		—		291,661,090
	Net income before dividends paid or accrued on preferred shares			—			—			—			2,895,398			—			—			—		2,895,398		$	2,895,398
	Other comprehensive income:
		Adjustment to unrealized gains and losses on mortgage assets		—			—			—			—			(16,252,696	)		—			—		(16,252,696	)		(16,252,696	)
		Adjustment to unrealized gains and losses on derivative financial instruments		—			—			—			—			5,713,395			—			—		5,713,395			5,713,395
	Comprehensive loss																									$	(7,643,903	)
	Dividends paid on preferred shares			—			—			—			(7,006,696	)		—			—			—		(7,006,696	)
	Common shares issued			—			13,742			14,196,162			—			—			—			—		14,209,904
	Restricted stock issued			—			966			1,087,203			—			—			(1,088,169	)		—		—
	Amortization of deferred compensation			—			—			—			—			—			204,312			—		204,312
	Accelerated vesting of stock options			—			—			547,600			—			—			—			—		547,600
	Shares repurchased or forfeited			—			(313	)		(329,499	)		—			—			137,285			—		(192,527	)
	Warrants issued			—			—			(2,564,729	)		—			—			—			2,564,729		—
Balance at December 31, 2003			$	34,250		$	153,846		$	633,348,675		$	(435,138,383	)	$	91,582,756		$	(766,093	)	$	2,564,729	$	291,779,780

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

F-5

CRIIMI MAE INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

				For the years ended December 31,
				2003			2002			2001
Cash flows from operating activities:
	Net income (loss) before dividends paid or accrued on preferred shares			$	2,895,398		$	(56,125,023	)	$	(16,077,317	)
	Adjustments to reconcile net income (loss) before dividends paid or accrued on preferred shares to net cash provided by operating activities:
		Gain on extinguishment of debt (non-cash portion)			(7,122,818	)		—			—
		Amortization of discount and deferred financing costs on debt			10,751,564			7,581,595			4,650,912
		Discount amortization on mortgage assets, net			(10,939,596	)		(11,310,220	)		(10,121,136	)
		Accrual of extension fees related to Exit Debt			336,921			4,308,290			3,142,159
		Depreciation and other amortization			567,629			1,095,861			3,718,485
		Net losses on mortgage security dispositions			645,169			995,412			41,982
		Equity in earnings from investments			(141,732	)		41,882			1,632,042
		Servicing amortization, depreciation and impairment			1,811,028			2,173,137			1,699,186
		Hedging expense			999,544			1,101,746			1,208,534
		Recapitalization expenses (non-cash portion)			1,127,225			—			—
		Amortization of deferred compensation			204,312			110,154			—
		Impairment on Subordinated CMBS			14,738,431			70,225,506			34,654,930
		Interest accreted to debt			1,266,667			4,553,940			2,138,914
		Hedge ineffectiveness expense			1,949,439			—			—
		Gain on sale of servicing rights and investment-grade CMBS			5,672			(5,105,434	)		—
		Cumulative effect of adoption of SFAS 142			—			9,766,502			—
		Cumulative effect of change in accounting principle related to servicing revenue			—			—			(1,995,262	)
		Changes in assets and liabilities:
			Decrease in restricted cash and cash equivalents		7,961,575			30,252,702			57,631,724
			(Increase) decrease in receivables and other assets		(6,553,520	)		608,295			24,246,641
			Decrease in payables and accrued expenses		(4,740,108	)		(6,823,422	)		(46,607,226	)
			Decrease (increase) in servicing other assets		2,641,645			3,036,686			(1,369,229	)
			Increase (decrease) in servicing liabilities		1,075,109			(2,903,308	)		449,580
		Sales (purchases) of other MBS, net			1,314,484			3,288,094			(4,244,330	)
		Change in reorganization items accrual			—			—			(1,755,193	)
		Non-cash reorganization items			—			—			(366,529	)
		Net cash provided by operating activities			20,794,038			56,872,395			52,678,867
Cash flows from investing activities:
	Proceeds from mortgage security prepayments and dispositions				123,416,778			73,070,231			35,235,975
	Proceeds from prepayment of mezzanine loan				1,696,749			—			—
	Distributions received from AIM Limited Partnerships				3,336,528			2,662,014			3,556,809
	Receipt of principal payments from insured mortgage securities				2,884,415			3,823,603			4,308,118
	Cash received in excess of income recognized on Subordinated CMBS				3,323,182			2,919,904			3,591,841
	Principal payments on Subordinated CMBS				3,247,664			—			—
	Proceeds from sale of servicing rights by CMSLP				—			8,810,923			—
	Purchases of investment-grade CMBS by CMSLP				—			(10,108,652	)		—
	Sales of investment-grade CMBS by CMSLP				3,316,508			5,659,875			—
	Cash reflected upon consolidation of CMSLP				—			—			6,841,907
		Net cash provided by investing activities			141,221,824			86,837,898			53,534,650
Cash flows from financing activities:
	Principal payments on securitized mortgage debt obligations				(137,712,348	)		(76,727,913	)		(39,386,850	)
	Principal payments on recourse debt				(379,702,338	)		(36,239,032	)		(23,740,992	)
	Principal payments on secured borrowings and other debt obligations				(108,123	)		(100,392	)		(132,353,015	)
	Proceeds from issuance of debt				352,526,000			—			—
	Payment of debt issuance costs				(6,402,445	)		—			—
	Payment of dividends on preferred shares				(12,186,376	)		—			—
	Proceeds from the issuance of common stock, net				14,209,904			43,431			—
	Redemption of Series E Preferred Stock, including accrued dividends				—			(18,733,912	)		—
	Common stock repurchased				(192,527	)		—			(3,565	)
		Net cash used in financing activities			(169,568,253	)		(131,757,818	)		(195,484,422	)
Net (decrease) increase in other cash and cash equivalents					(7,552,391	)		11,952,475			(89,270,905	)
Cash and cash equivalents, beginning of period(1)					29,251,348			17,298,873			106,569,778
Cash and cash equivalents, end of period(1)				$	21,698,957		$	29,251,348		$	17,298,873

(1)

Comprised of Servicing cash and cash equivalents and Other cash and cash equivalents.

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

F-6

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     ORGANIZATION

General

        CRIIMI MAE Inc. (together with its consolidated subsidiaries, We or CRIIMI MAE) is a commercial mortgage company structured as a self-administered real estate investment trust (or REIT). We currently own, and manage, a significant portfolio of commercial mortgage-related assets. Historically, we have focused primarily on acquiring high-yielding, non-investment grade (rated below BBB- or unrated) commercial mortgage-backed securities (subordinated CMBS). We commenced operations in 1989, are incorporated in Maryland, and are not a government sponsored entity or in any way affiliated with the United States government or any United States government agency. Our stock is traded on the New York Stock Exchange under the symbol "CMM".

        Our existing business consists of investments in our core assets (subordinated CMBS backed by pools of commercial mortgage loans on multifamily, retail, hotel, and other commercial real estate) and investments in non-core assets (direct and indirect investments in government-insured mortgage-backed securities and a limited number of other assets). We also are a trader in CMBS, residential mortgage-backed securities, agency debt securities and other fixed income securities. We intend to refinance the shorter-term, recourse debt related to our existing subordinated CMBS through a collateralized debt obligation (CDO), other refinancing transaction, or combination thereof, by mid-2004.

        During late 2003, we undertook a review of the current market for acquisition of subordinated CMBS in preparation for the expected resumption of such acquisition activities in 2004. Due to a variety of factors such as increased competition in the sector, less attractive investment yields and underwriting standards that are widely believed to be deteriorating due to the surplus of investment capital dedicated to the subordinated CMBS market, we now believe that it is more prudent for us to focus our 2004 investment activity in the "manufacturing" of subordinated CMBS investments rather than pursuing secondary-market acquisition opportunities as we have in the past. By "manufacturing" we mean directly originating, or purchasing at origination, commercial mortgage loans, and financing these loans via the periodic issuance of investment-grade rated CMBS. This strategy would continue our historical focus on higher-yielding tranches of CMBS, but would allow us to better control the risk inherent in such investments by involving the company in the transactions at inception (i.e. at the time the loans are originated).

January 2003 Recapitalization

        On January 23, 2003, we completed a recapitalization of the secured debt incurred upon our emergence from Chapter 11 in April 2001. We refer to that secured debt as the Exit Debt. This recapitalization was funded with approximately $344 million in proceeds from debt and equity financings and a portion of our available cash and liquid assets. The recapitalization included approximately $14 million in common equity and $30 million in senior secured subordinated debt purchased by Brascan Real Estate Finance Fund I L.P., a private asset management fund established by Brascan Corporation and a New York-based management team. We refer to the senior secured subordinated debt as the BREF Debt and Brascan Real Estate Finance Fund I L.P. as BREF Fund. Additionally, we received $300 million in secured financing in the form of a repurchase transaction from a unit of Bear, Stearns & Co., Inc. (the Bear Stearns Debt).

The Reorganization Plan

        On October 5, 1998, CRIIMI MAE Inc. (unconsolidated) and two operating subsidiaries, CRIIMI MAE Management, Inc. and CRIIMI MAE Holdings II, L.P., filed for relief under Chapter 11 of the

F-7

U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Maryland, Southern Division, in Greenbelt, Maryland. On November 22, 2000, the United States Bankruptcy Court for the District of Maryland, entered an order confirming our reorganization plan, and we emerged from Chapter 11 on April 17, 2001.

        Our reorganization plan provided for the payment in full of all of our allowed claims primarily through the Chapter 11 reorganization (including proceeds from certain asset sales) totaling $847 million. Included in the Chapter 11 reorganization was approximately $262.4 million in Exit Debt provided by affiliates of Merrill Lynch Mortgage Capital, Inc. (or Merrill Lynch) and German American Capital Corporation (or GACC) through a variable-rate secured financing facility (the Exit Variable-Rate Secured Borrowing), in the form of a repurchase transaction, and approximately $166.8 million in Exit Debt provided through two series of senior secured notes issued to some of our unsecured creditors. All rights and obligations of Merrill Lynch and GACC under the Exit Variable-Rate Secured Borrowing operative agreements were subsequently assigned to ORIX Capital Markets, LLC. The Exit Debt was directly or indirectly secured by substantially all of our assets, and virtually all of our cash flows relating to existing assets were used to satisfy principal, interest and fee obligations under the Exit Debt and to pay our general and administrative and other operating expenses. The terms of the Exit Debt significantly restricted the amount of cash dividends that could be paid to shareholders. All Exit Debt was paid off in full in connection with the January 2003 recapitalization. Under our reorganization plan, the holders of our equity retained their shares of stock.

REIT Status/Net Operating Loss for Tax Purposes

        REIT Status.    We have elected to qualify as a REIT for tax purposes under sections 856-860 of the Internal Revenue Code. We are required to meet income, asset, ownership and distribution tests to maintain our REIT status. Although there can be no assurance, we believe that we have satisfied the REIT requirements for all years through, and including 2003. There can also be no assurance that we will maintain our REIT status for 2004 or subsequent years. If we fail to maintain our REIT status for any taxable year, we will be taxed as a regular domestic corporation subject to federal and state income tax in the year of disqualification and for at least the four subsequent years. Depending on the amount of any such federal and state income tax, we may have insufficient funds to pay any such tax and also may be unable to comply with some or all of our obligations, including the Bear Stearns and BREF Debt.

        We and two of our subsidiaries incorporated in 2001 jointly elected to treat such two subsidiaries as taxable REIT subsidiaries (TRS) effective January 1, 2001. The TRSs allow us to earn non-qualifying REIT income while maintaining our REIT status. These two subsidiaries hold all of the partnership interests of CMSLP.

        Net Operating Loss for Tax Purposes/Trader Election.    For tax purposes we have elected to be classified as a trader in securities. We trade in both short and longer duration fixed income securities, including CMBS, residential mortgage-backed securities and agency debt securities (such securities traded and all other securities of the type described constituting the "Trading Assets" to the extent owned by us or any qualified REIT subsidiary, meaning generally any wholly owned subsidiary that is not a taxable REIT subsidiary). Such Trading Assets are classified as Other MBS on our balance sheet.

        As a result of our election in 2000 to be taxed as a trader, we recognized a mark-to-market tax loss on our Trading Assets on January 1, 2000 of approximately $478 million (the January 2000 Loss). Such loss was recognized evenly for tax purposes over four years beginning with the year 2000 and ending in 2003. Such loss was ordinary, which allowed us to offset our ordinary income.

        We generated a net operating loss (or NOL) for tax purposes of approximately $84.0 million and $83.6 million during the years ended December 31, 2003 and 2002, respectively. As such, our taxable income was reduced to zero and, accordingly, our REIT distribution requirement was eliminated for

F-8

2003 and 2002. As of December 31, 2003, our accumulated and unused net operating loss (or NOL) was $307.8 million. Any accumulated and unused net operating losses, subject to certain limitations, generally may be carried forward for up to 20 years to offset taxable income until fully utilized. Accumulated and unused net operating losses cannot be carried back because we are a REIT.

        There can be no assurance that our position with respect to our election as a trader in securities will not be challenged by the Internal Revenue Service (or IRS) and, if challenged, will be defended successfully by us. As such, there is a risk that the January 2000 Loss will be limited or disallowed, resulting in higher tax basis income and a corresponding increase in REIT distribution requirements. It is possible that the amount of any under-distribution for a taxable year could be corrected with a "deficiency dividend" as defined in Section 860 of the Internal Revenue Code, however, interest may also be due to the IRS on the amount of this under-distribution.

        If we are required to make taxable income distributions to our shareholders to satisfy required REIT distributions, all or a substantial portion of these distributions, if any, may be in the form of non-cash dividends. There can be no assurance that such non-cash dividends would satisfy the REIT distribution requirements and, as such, we could lose our REIT status or may not be able to satisfy some or all of our contractual obligations.

        Our future use of NOLs for tax purposes could be substantially limited in the event of an "ownership change" as defined under Section 382 of the Internal Revenue Code. As a result of these limitations imposed by Section 382 of the Internal Revenue Code, in the event of an ownership change, our ability to use our NOL carryforwards in future years may be limited and, to the extent the NOL carryforwards cannot be fully utilized under these limitations within the carryforward periods, the NOL carryforwards would expire unutilized. Accordingly, after any ownership change, our ability to use our NOLs to reduce or offset taxable income would be substantially limited or not available under Section 382. In general, a company reaches the "ownership change" threshold if the "5% shareholders" increase their aggregate ownership interest in the company over a three-year testing period by more than 50 percentage points. The ownership interest is measured in terms of total market value of the company's capital stock. If an "ownership change" occurs under Section 382 of the Internal Revenue Code, our prospective use of our accumulated and unused NOL will be limited.

        We do not believe BREF Fund's investment in our common stock and warrants to purchase common stock has created an "ownership change" under Section 382. In addition, we are not aware of any other acquisition of shares of our capital stock that has created an "ownership change" under Section 382. We have adopted a shareholder rights plan and amended our charter to minimize the chance of an ownership change within the meaning of Section 382 of the Internal Revenue Code; however there can be no assurance that an ownership change will not occur.

Investment Company Act

        Under the Investment Company Act of 1940, as amended, an investment company is required to register with the Securities and Exchange Commission (SEC) and is subject to extensive restrictive and potentially adverse regulation relating to, among other things, operating methods, management, capital structure, dividends and transactions with affiliates. However, as described below, companies primarily engaged in the business of acquiring mortgages and other liens on and interests in real estate (Qualifying Interests) are excluded from the requirements of the Investment Company Act.

        To qualify for the Investment Company Act exclusion, we, among other things, must maintain at least 55% of our assets in Qualifying Interests (the 55% Requirement) and are also required to maintain an additional 25% in Qualifying Interests or other real estate-related assets (Other Real Estate Interests and such requirement, the 25% Requirement). According to current SEC staff interpretations, we believe that all of our government-insured mortgage securities constitute Other Real Estate Interests and that certain of our government insured mortgage securities also constitute

F-9

Qualifying Interests. In accordance with current SEC staff interpretations, we believe that all of our subordinated CMBS constitute Other Real Estate Interests and that certain of our subordinated CMBS also constitute Qualifying Interests. On certain of our subordinated CMBS, we, along with other rights, have the unilateral right to direct foreclosure with respect to the underlying mortgage loans. Based on such rights and our economic interest in the underlying mortgage loans, we believe that the related subordinated CMBS constitute Qualifying Interests. As of December 31, 2003, we believe that we were in compliance with both the 55% Requirement and the 25% Requirement.

        If the SEC or its staff were to take a different position with respect to whether such subordinated CMBS constitute Qualifying Interests, we could, among other things, be required either (i) to change the manner in which we conduct our operations to avoid being required to register as an investment company or (ii) to register as an investment company, either of which could have a material adverse effect on us. If we were required to change the manner in which we conduct our business, we would likely have to dispose of a significant portion of our subordinated CMBS or acquire significant additional assets that are Qualifying Interests. Alternatively, if we were required to register as an investment company, we expect that our operating expenses would significantly increase and that we would have to significantly reduce our indebtedness, which could also require us to sell a significant portion of our assets. No assurances can be given that any such dispositions or acquisitions of assets, or deleveraging, could be accomplished on favorable terms, or at all. There are restrictions under certain of the operative documents evidencing our obligations, which could limit possible actions we may take in response to any need to modify our business plan in order to register as an investment company or avoid the need to register. Certain dispositions or acquisitions of assets could require approval or consent of certain holders of these obligations. Any such results could have a material adverse effect on us.

        Further, if we were deemed an unregistered investment company, we could be subject to monetary penalties and injunctive relief. We would be unable to enforce contracts with third parties and third parties could seek to obtain rescission of transactions undertaken during the period we were deemed an unregistered investment company, unless the court found that under the circumstances, enforcement (or denial of rescission) would produce a more equitable result than nonenforcement (or grant of rescission) and would not be inconsistent with the Investment Company Act.

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

        Our consolidated financial statements are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (or GAAP). 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 at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Consolidation and Minority Interests

        Effective July 2001, we acquired voting control of CMSLP and began accounting for this subsidiary on a consolidated basis. We had previously accounted for CMSLP under the equity method. CMSLP's assets, liabilities, revenues and expenses are labeled as "servicing" on our consolidated financial statements. The accompanying consolidated financial statements include the financial results of CRIIMI MAE and all of our majority-owned and controlled subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

F-10

Reclassifications

        Certain 2002 and 2001 amounts have been reclassified to conform to the 2003 presentation.

Other Cash and Cash Equivalents and Servicing Cash and Cash Equivalents

        Cash and cash equivalents consist of cash and money market accounts.

Restricted Cash and Cash Equivalents

        Restricted cash and cash equivalents consisted of cash and money market accounts that were legally restricted pursuant to covenants under the Exit Debt.

Transfer of Financial Assets

        We have transferred assets (mortgages and mortgage securities) in securitization transactions where the transferred assets become the sole source of repayment for newly issued debt. These transfers of financial assets were accounted for in accordance with SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities," as amended by SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities—a Replacement of FASB Statement No. 125." The transfer is treated as a sale when both legal and control rights to a financial asset are transferred. Transfers are assessed on an individual component basis. In a securitization, the cost basis of the original assets transferred is allocated to each of the new financial components based upon the relative fair value of the new financial components. For components where sale treatment is achieved, a gain or loss is recognized for the difference between that component's allocated cost basis and fair value. For components where sale treatment is not achieved, an asset is recorded representing the allocated cost basis of the new financial components retained and the related incurrence of debt is also recorded. In transactions where none of the components are sold, we recognize the incurrence of debt and the character of the collateralizing assets remains unchanged.

Income Recognition and Carrying Basis

CMBS

        We recognize income on our CMBS in accordance with Emerging Issues Task Force (EITF) Issue No. 99-20, "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets". Under EITF 99-20, we calculate a revised yield based on the current amortized cost of the investment and the revised future cash flows when there has been a change in estimated future cash flows from the cash flows previously projected (generally due to credit losses and/or prepayment speeds). This revised yield is applied prospectively to recognize interest income. We classify our CMBS as "available for sale" and carry them at fair market value with temporary changes in fair value recorded as a component of shareholders' equity.

Insured Mortgage Securities

        Our consolidated investment in insured mortgage securities consists of participation certificates generally evidencing a 100% undivided beneficial interest in government-insured multifamily mortgages issued or sold pursuant to programs of the Federal Housing Administration, or FHA, and mortgage-backed securities guaranteed by the Government National Mortgage Association, or GNMA. Payment of principal and interest on FHA-insured certificates is insured by the U.S. Department of Housing and Urban Development, or HUD, pursuant to Title 2 of the National Housing Act. Payment of principal and interest on GNMA mortgage-backed securities is guaranteed by GNMA pursuant to Title 3 of the National Housing Act. Our insured mortgage securities are classified as "available for sale." As a

F-11

result, we carry our insured mortgage securities at fair value with changes in fair value recorded as a component of shareholders' equity.

        Insured mortgage securities income consists of amortization of the discount or premium plus the stated mortgage interest payments received or accrued. The difference between the cost and the unpaid principal balance at the time of purchase is carried as a discount or premium and amortized over the remaining contractual life of the mortgage using the effective interest method. The effective interest method provides a constant yield of income over the term of the mortgage security.

Other Mortgage-Backed Securities

        Interest income on other mortgage-backed securities (or Other MBS) consists of amortization of the discount or premium on primarily investment-grade securities, plus the stated investment interest payments received or accrued on Other MBS. The difference between the cost and the unpaid principal balance at the time of purchase is carried as a discount or premium and amortized over the remaining contractual life of the investment using the effective interest method. The effective interest method provides a constant yield of income over the term of the investment. Our Other MBS are classified as "available for sale." As a result, we carry these securities at fair value and changes in fair value are recorded as a component of shareholders' equity. Upon the sale of such securities, any gain or loss is recognized in the income statement.

Equity Investments

        CRIIMI, Inc., a wholly owned subsidiary, owns all of the general partnership interests in American Insured Mortgage Investors (AIM 84), American Insured Mortgage Investors—Series 85, L.P., American Insured Mortgage Investors L.P.—Series 86 and American Insured Mortgage Investors L.P.—Series 88 (collectively, referred to as the AIM Limited Partnerships). The AIM Limited Partnerships own mortgage assets which are substantially similar to our insured mortgage securities. CRIIMI, Inc. receives the general partner's share of income, loss and distributions (which ranges from 2.9% to 4.9%) from each of the AIM Limited Partnerships. In addition, we own a 20% limited partnership interest in the advisor to the AIM Limited Partnerships. We are utilizing the equity method of accounting (because we do not control these investees) for our investment in the AIM Limited Partnerships and advisory partnership, which provides for recording our share of net earnings or losses in the AIM Limited Partnerships and advisory partnership reduced by distributions from the limited partnerships and adjusted for purchase accounting amortization. AIM 84, AIM 86 and AIM 88 were liquidated in February 2004, resulting in an aggregate liquidating distribution to us of approximately $1.8 million. Our general partner share of income, loss and distributions for the one remaining AIM Limited Partnership, AIM 85, is 4.9%.

        On July 1, 2001, we began accounting for our servicing subsidiary, CMSLP, on a consolidated basis as opposed to accounting for CMSLP under the equity method. This change in accounting method was a result of a reorganization in which the partnership interests in CMSLP are now held by two of our wholly-owned and controlled taxable REIT subsidiaries. Prior to July 1, 2001, we accounted for CMSLP under the equity method since we did not control the voting common stock of the general partner of CMSLP. CMSLP's assets, liabilities, revenues and expenses are labeled as "servicing" on the consolidated financial statements.

Impairment

CMBS

        We assess each CMBS for other than temporary impairment when the fair market value of the asset declines below amortized cost and when one of the following conditions also exists: (1) our revised projected cash flows related to the CMBS and the CMBS's current cost basis result in a

F-12

decrease in the yield compared to what was previously used to recognize income, or (2) fair value has been below amortized cost for a significant period of time and we conclude that we no longer have the ability or intent to hold the security for the period that fair value is expected to be below amortized cost through the period of time we expect the value to recover to amortized cost. This decrease in yield would be primarily a result of the credit quality of the security declining and a determination that the current estimate of expected future credit losses exceeds credit losses as originally projected or that expected credit losses will occur sooner than originally projected. The amount of impairment loss is measured by comparing the fair value, based on available market information and management's estimates, of the subordinated CMBS to its current amortized cost basis; the difference is recognized as a loss in the income statement. We assess current economic events and conditions that impact the value of our CMBS and the underlying real estate in making judgments as to whether or not other than temporary impairment has occurred. During the years ended December 31, 2003, 2002 and 2001, we recognized impairment charges of $14.7 million, $70.2 million and $34.7 million on our subordinated CMBS, respectively. See Note 4 for further discussion of the impairment charges.

        None of our subordinated CMBS have fair values that are below their respective amortized cost basis at December 31, 2003.

Insured Mortgage Securities

        We assess each insured mortgage security for other than temporary impairment when the fair market value of the asset declines below amortized cost for a significant period of time and we conclude that we no longer have the ability to hold the security through the market downturn. The amount of impairment loss is measured by comparing the fair value of an insured mortgage security to its current amortized cost basis, with the difference recognized as a loss in the income statement. We did not recognize any impairment on our insured mortgage securities during the years ended December 31, 2003, 2002 and 2001.

        At December 31, 2003, some of our insured mortgage securities had fair values below their current amortized cost basis. The fair value and cost basis of these insured mortgages which have been in unrealized loss positions for greater than 12 months was approximately $5.4 million and $5.5 million, respectively, resulting in approximately $97,000 in unrealized losses. The fair value and cost basis of these insured mortgages which have been in unrealized loss positions for less than 12 months was approximately $59.6 million and $60.0 million, respectively, resulting in approximately $373,000 in unrealized losses. Considering the nature of these investments and the severity and duration of the unrealized losses, and based on our assessment as described above, we do not believe these insured mortgages are impaired at December 31, 2003.

Equity Investments

        We recognize impairment on our investments accounted for under the equity method if a decline in the market value of the investment below its carrying basis is judged to be "other than temporary". During 2003 and 2002, the AIM Limited Partnerships experienced a significant amount of prepayments of their insured mortgages. These prepayments reduced cash flows on our 20% investment in the advisor to the AIM Limited Partnerships. As a result, in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the advisor to the AIM Limited Partnerships evaluated its investment in the advisory contracts for impairment. The advisor reduced the value of its investment in the advisory contracts to the AIM Limited Partnerships and recorded an impairment charge. Our portion of the impairment charge, totaling approximately $233,000 and $460,000, during the years ended December 31, 2003 and 2002, respectively, is included in Equity in Earnings from Investments in our Consolidated Statement of Income. This investment is included in our Portfolio Investment segment. We did not recognize any impairment charges during 2001.

F-13

        Also, as a result of the significant prepayments experienced by the AIM Limited Partnerships, CMSLP's cash flows from its sub-advisory contracts with the AIM Limited Partnerships have been reduced. As a result, in accordance SFAS No. 144, we evaluated CMSLP's investment in the sub-advisory contracts for impairment. Our estimated future undiscounted cash flows from this investment were projected to be less than the book value on the investment during 2003 and 2002. As a result, we believed that CMSLP's investment in the sub-advisory contracts was impaired at each of those dates. We estimated the fair value of the investment using a discounted cash flow methodology. We reduced the value of CMSLP's investment in the sub-advisory contracts with the AIM Limited Partnerships and recorded an impairment charge of approximately $499,000 and $340,000 during the years ended December 31, 2003 and 2002, respectively, which is included in Servicing amortization, depreciation and impairment expenses in our Consolidated Statement of Income. We did not recognize any impairment charges on CMSLP's equity investment during 2001.

Receivables

        Receivables primarily consist of interest and principal receivables. In addition, prepayments in the insured mortgage securities portfolio, if any, that have not yet been received are included in receivables.

Other Assets

        Other assets primarily include deferred financing costs, deferred costs, investment in mezzanine loans, the fair value of derivative financial instruments and real estate owned.

        Deferred financing costs are costs incurred in connection with the establishment of our financing facilities and are amortized using the effective interest method over the terms of the borrowings. Also included in deferred costs are mortgage selection fees, which were paid in connection with acquisitions of the insured mortgage securities. These deferred costs are being amortized using the effective interest method on a specific mortgage basis from the date of the acquisition of the related mortgage over the term of the mortgage. Upon disposition of a mortgage, the related unamortized fee is treated as part of the mortgage asset carrying value in order to measure the gain or loss on the disposition.

        Property held for investment is carried at cost and depreciated over its estimated useful life and will be evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. At such time, if the expected future undiscounted cash flows from the property are less than the cost basis, the assets will be marked down to fair value. Costs relating to development and improvement of property are capitalized, provided that the resulting carrying value does not exceed fair value. Costs relating to holding the assets are expensed.

F-14

Servicing Other Assets and Servicing Liabilities

        At December 31, 2003 and 2002, the following comprised servicing other assets and servicing liabilities (in thousands):

	2003		2002
Receivables and other assets	$	3,293	$	5,717
Investment in interest-only certificates and CMBS		1,579		5,374
AIM Limited Partnerships' sub-advisory contracts(1)		162		1,034
Other, including fixed assets		931		1,650
Total servicing other assets	$	5,965	$	13,775
Accounts payable	$	1,832	$	757

(1)

As discussed earlier in this Note, we recorded impairment charges of approximately $499,000 and $340,000 related to this asset during 2003 and 2002, respectively.

Servicing Revenue and Servicing Amortization, Depreciation and Impairment

        Servicing revenue represents revenue earned by CMSLP, which primarily consists of mortgage servicing fees, assumption fees, other ancillary servicing fees, interest income, and sub-advisory fees from the AIM Limited Partnerships. Servicing amortization, depreciation and impairment expenses include CMSLP's amortization of sub-advisory fees, impairment on mortgage servicing rights, impairment on sub-advisory contracts (as discussed above) and depreciation and amortization of fixed and other assets.

        For the years ended December 31, 2003, 2002 and 2001, the following comprised servicing revenue and servicing expenses (in thousands):

		2003		2002			2001(1)
Mortgage servicing fees		$	5,398	$	5,463		$	3,570
Assumption fees and other servicing income			3,472		4,312			2,178
Interest income			264		694			835
AIM Limited Partnerships' sub-advisory fees			349		517			303
	Total servicing revenue	$	9,483	$	10,986	(2)	$	6,886
Amortization of sub-advisory fees and mortgage servicing rights		$	405	$	690		$	734
Depreciation and amortization of fixed and other assets			881		1,073			466
Impairment on AIM Limited Partnerships' sub-advisory contracts, mortgage servicing rights and CMBS			525		410			499
	Total servicing amortization, depreciation and impairment	$	1,811	$	2,173		$	1,699

(1)

The 2001 amounts reflect CMSLP's results during the period July 1, 2001 through December 31, 2001, since CMSLP was not accounted for on a consolidated basis until July 2001.

(2)

Excludes gain on sales of servicing rights and investment-grade CMBS, which were recognized in 2002.

F-15

Discounts on Debt

        Discounts incurred in connection with the issuance of debt are amortized using the effective interest method over the projected term of the related debt, which is based on management's estimate of prepayments on the underlying collateral and are included as a component of interest expense. In addition, as discussed in Note 6, prior to January 2003 there were significant extension fees payable accrued under the terms of the Exit Debt. We had estimated the amounts of these extension fees and were amortizing the fees using the effective interest method over the term of the related debt. However, these accrued extension fees were reversed into income in January 2003 (as they were no longer payable) due to the repayment of the Exit Debt.

Derivative Financial Instruments

        We adopted SFAS No. 133 on January 1, 2001. In accordance with the transition provisions of SFAS No. 133, we recorded a cumulative effect type adjustment of approximately $(135,000) in earnings to recognize, at fair value, the interest rate caps designated as cash flow hedges as of January 1, 2001.

        Our interest rate swaps are carried at fair value with the effective portion of the derivative's gain or loss recorded in other comprehensive income and subsequently recognized in earnings as hedging or interest expense in the same period or periods the hedged forecasted transaction affects earnings. The ineffective portion of the derivative's gain or loss is recorded in earnings as hedge ineffectiveness expense as it occurs. We record changes in fair value related to the effective portion of the derivative's gain or loss on a quarterly basis to accumulated other comprehensive income through other comprehensive income in accordance with SFAS 133. We record changes in fair value related to the ineffective portion of the derivative's gain or loss through hedge ineffectiveness expense in the income statement in accordance with SFAS 133. Upon the termination of a hedging relationship, the amount in accumulated other comprehensive income will be amortized over the remaining life of the previously hedged interest payments. See Note 7 for a further discussion.

        We have used interest rate caps to hedge the variability in interest payments associated with our variable rate debt. From January 1, 2001 through June 30, 2001, in accordance with SFAS No. 133, all changes in the fair value of the interest rate caps related to intrinsic value were recorded in other comprehensive income and all changes in fair value related to time value were recorded through earnings as those changes in fair value were considered ineffective. Beginning in July 1, 2001, we record all changes in fair value (both intrinsic and time value) through other comprehensive income in accordance with a FASB Derivatives Implementation Group interpretation. Amounts recorded in other comprehensive income will be reclassified into earnings in the period in which earnings are affected by the hedged cash flows, which is monthly as the variable rate debt's interest rate resets monthly to one month LIBOR as does the interest rate cap. Upon the termination of a hedging relationship, the amount in accumulated other comprehensive income will be amortized over the remaining life of the previously hedged cash flows.

Shareholders' Equity

        On October 17, 2001, we effected a one-for-ten reverse stock split. All share and per share information in these Notes to Consolidated Financial Statements and the accompanying Consolidated Financial Statements has been retroactively adjusted to reflect the reverse stock split. Share information adjustments include, without limitation, adjustments to the number of common shares issued and outstanding, issued as dividends on and upon conversion of shares of preferred stock, and issuable under outstanding options.

F-16

Earnings Per Share

        Basic earnings per share (or EPS) amounts represent net income, or loss, available to common shareholders divided by the weighted average common shares outstanding during the year. The weighted average common shares outstanding amounts include the weighted average amount of common shares payable or paid to preferred shareholders related to dividends as of the respective dividend declaration dates. Diluted earnings per share amounts represent basic EPS adjusted for dilutive common stock equivalents, which could include stock options, warrants and certain series of convertible preferred stock. See Note 14 for a reconciliation of basic earnings per share to diluted earnings per share.

Income Taxes

        We have elected to qualify as a REIT for tax purposes under Sections 856-860 of the Internal Revenue Code for the 2003 and 2002 tax years. We are required to meet income, asset, ownership and distribution tests to maintain our REIT status for federal and state tax purposes. We will monitor and minimize the levels of non-qualifying income in order to meet REIT qualification criteria. See Note 1 for additional discussion.

        During the years ended December 31, 2003, 2002 and 2001, no excess inclusion was distributed. Excess inclusion income results from our prior resecuritization of mortgage securities in our portfolio. A shareholder's allocable share of excess inclusion represents the minimum taxable income reportable by the shareholder for that year; it may not be offset by a net operating loss and may represent unrelated business taxable income for some shareholders.

        We account for income taxes under SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 requires the reporting of deferred tax assets and liabilities using rates expected to be in effect in future tax years when the book-to-tax differences reverse. Additionally, SFAS No. 109 requires that a valuation allowance be established for deferred tax assets if it is determined that the realization of the asset is not "more likely than not."

        We and two of our subsidiaries incorporated in 2001 jointly elected to treat such two subsidiaries as TRS effective January 1, 2001. These subsidiaries allow us to earn non-qualifying REIT income while maintaining our REIT status. The partnership interests of CMSLP are held by these two subsidiaries. These subsidiaries are separately taxable entities that cannot use our net operating loss carry forward to reduce their taxable income. Thus, we will recognize income tax expense to the extent these subsidiaries are subject to income taxes.

Cash Flow

        The following is the supplemental cash flow information:

		Years ended December 31,
		2003		2002		2001
Cash paid for interest		$	61,378,348	$	72,488,764	$	124,468,367
Cash paid for income taxes			264,356		947,300		42,000
Non-cash investing and financing activities:
	Restricted stock issued		1,088,169		129,675		—
	Preferred stock dividends paid in shares of common stock		—		3,444,792		20,443,229
	Exit Debt incurred		—		—		(429,239,509	)
	Pre-emergence debt and payables repaid through issuance of Exit Debt		—		—		429,239,509
	Fair value of real estate assets acquired		—		—		8,784,105
	Fair value of real estate liabilities acquired		—		—		(569,991	)
	Fair value of mortgage assumed		—		—		(7,130,638	)

F-17

Comprehensive Income

        Comprehensive income includes net earnings as currently reported (before dividends accrued or paid on preferred shares) adjusted for other comprehensive income. Other comprehensive income consists of (a) changes in unrealized gains and losses related to our CMBS and Other MBS and insured mortgage securities which were disposed of or impaired during the period with the resulting gain or loss reflected in net earnings (reclassification adjustments), (b) the change in the unrealized gain or loss related to those investments that were not disposed of or impaired during the period, and (c) certain changes in the fair value of our derivative financial instruments accounted for under SFAS No. 133. The table below details other comprehensive income for the periods presented:

	2003			2002			2001
Reclassification adjustment for (gains) losses from dispositions included in net income	$	(1,570,878	)	$	1,829,607		$	350,066
Reclassification adjustment for impairment losses recognized on CMBS included in net income		—			(406,724	)		—
Unrealized holding (losses) gains on mortgage securities arising during the period		(14,681,818	)		107,747,337			(3,390,785	)
Unrealized gains (losses) on derivative financial instruments		5,713,395			(604,565	)		(383,200	)
Net adjustment to other comprehensive income	$	(10,539,301	)	$	108,565,655		$	(3,423,919	)

        The following table summarizes our accumulated other comprehensive income:

	December 31, 2003		December 31, 2002
Unrealized gains on mortgage assets	$	86,857,129	$	103,109,822
Unrealized gains (losses) on derivative financial instruments		4,725,627		(987,765	)
Accumulated other comprehensive income	$	91,582,756	$	102,122,057

Recent Accounting Pronouncements

        In January 2003, the FASB issued FASB Interpretation (or FIN) No. 46, "Consolidation of Variable Interest Entities", an interpretation of Accounting Research Bulletin No. 51, "Consolidated Financial Statements." FIN No. 46 explains how to identify variable interest entities and how an enterprise assesses its interests in a variable interest entity to decide whether to consolidate that entity. This Interpretation requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. FIN No. 46 is effective immediately for variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. According to FIN No. 46R issued in December 2003, the Interpretation applies at the end of the first reporting period ending after March 15, 2004, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. We do not expect the adoption of FIN No. 46 to have a material effect on our financial position or results of operations.

F-18

Adjustment for Initial Preferred Stock Issuance Costs

        At the July 31, 2003 Emerging Issues Task Force meeting, the SEC Observer clarified the application of Topic D-42 related to preferred stock issuance costs. According to the clarification, all preferred stock issuance costs, regardless of where in the stockholders' equity section the costs were initially recorded, should be charged to income available to common shareholders for the purpose of calculating earnings per share at the time the preferred stock is redeemed. The SEC Observer indicated that preferred stock issuance costs not previously charged to income available to common shareholders should be reflected retroactively in financial statements for reporting periods ending after September 15, 2003 by restating the financial statements of prior periods on an as filed basis.

        As the result of this guidance, we charged to income available to common shareholders approximately $1.2 million in preferred stock offering costs during the year ended December 31, 2002 related to our Series E preferred stock redeemed in March 2002. The following is a summary of the effect of this change in accounting principle on our Consolidated Statement of Income and Consolidated Statement of Changes in Shareholders' Equity and Comprehensive Income during the year ended December 31, 2002:

		As reported			Adjustment			Adjusted
Dividends paid or accured on preferred shares		$	(8,122,791	)	$	(1,214,227	)	$	(9,337,018	)
Net loss to common shareholders			(64,247,814	)		(1,214,227	)		(65,462,041	)
Earnings (loss) per common share:
	Basic and diluted — before cumulative effect of change in accounting principle		(3.97	)		(0.09	)		(4.06	)
	Basic and diluted — after cumulative effect of change in accounting principle		(4.69	)		(0.08	)		(4.77	)
Additional paid-in capital			619,197,711			1,214,227			620,411,938
Accumulated deficit			(429,812,858	)		(1,214,227	)		(431,027,085	)

        All applicable 2002 disclosures have been adjusted to reflect this change in accounting principle.

Change in Accounting Principle related to Special Servicing Fee Revenue Recognition

        As of July 1, 2001, CMSLP changed its accounting policy related to the recognition of special servicing fee revenue. Special servicing fees are paid to CMSLP when mortgage loans collateralizing CMBS owned by CRIIMI MAE are in default. Historically, CMSLP had deferred special servicing fee revenue and recorded that revenue into earnings using the method consistent with our policy of recognizing interest income over the life of our CMBS on the level yield basis. CMSLP changed its accounting policy to recognize the special servicing fees in earnings on a current basis as we believe this policy better matches the special servicing fees CMSLP earns with the direct costs expended for special servicing the loans. The CMBS and special servicing contracts are separate legal instruments or contracts.

        We were required to reflect this change in accounting principle as a cumulative catch-up as of January 1, 2001. As of January 1, 2001 CMSLP had approximately $2.0 million in deferred revenue related to the special servicing fee revenue. As a result, this amount was recorded into income and was reflected as a cumulative change in accounting principle for the year ended December 31, 2001. The results of operations for the year ended December 31, 2001 reflect the recognition of special servicing fee revenue on a current basis. As previously discussed, prior to July 1, 2001, CMSLP was accounted for using the equity method and, as a result, the impact of the new accounting principle (except for the cumulative catch-up) is reflected in equity in income from investments for the six months ended June 30, 2001 and on a consolidated basis for the six months ended December 31, 2001.

F-19

Change in Accounting Principle due to Adoption of SFAS No. 142

        In 2001, the Financial Accounting Standards Board (or FASB) issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142, among other things, prohibits the amortization of existing goodwill and certain types of other intangible assets and establishes a new method of testing goodwill for impairment. Under SFAS No. 142, the method for testing goodwill for impairment occurs at the reporting segment level (as defined in SFAS No. 142) and is performed using a fair value based approach. SFAS No. 142 was effective on January 1, 2002. The transition provisions of SFAS No. 142 required us to reclassify $8.4 million of intangible assets related to the merger in 1995, to goodwill. When combined with the current goodwill of $1.4 million, this resulted in $9.8 million of goodwill on our books. Effective upon adoption on January 1, 2002, we wrote off this goodwill and recorded a resulting impairment charge of approximately $9.8 million for this change in accounting principle. The goodwill relates to the Portfolio Investment segment (as defined in Note 20). The fair value of the segment was determined using a market capitalization approach and the impairment was primarily a result of the significant decrease in our common stock price since our merger in 1995. This change in accounting principle reduces our annual amortization expense by approximately $2.8 million through June 2005.

        The following table presents pro forma disclosures assuming that SFAS No. 142 was adopted at the beginning of 2001:

		2001
Reported net loss to common shareholders		$	(24,222,798	)
Add: Goodwill amortization			399,468
Add: Intangible assets amortization			2,390,004
Adjusted net loss to common shareholders		$	(21,433,326	)
Basic and diluted earnings per share:
	Reported basic and diluted earnings per share after cumulative effect of changes in accounting principles	$	(2.18	)
	Goodwill amortization		0.04
	Intangible assets amortization		0.21
	Adjusted basic and diluted earnings per share after cumulative effect of changes in accounting principles	$	(1.93	)

Accounting during Chapter 11 Proceedings

Liabilities Subject to Chapter 11 Proceedings

        Liabilities which were subject to Chapter 11 proceedings, including claims that became known after the Chapter 11 petition date, were reported at their expected allowed claim amount in accordance with SFAS No. 5, "Accounting for Contingencies." To the extent that the amounts of claims changed as a result of actions in the Chapter 11 or other factors, the recorded amount of liabilities subject to the Chapter 11 proceeding was adjusted. The gain or loss resulting from the entries to record the adjustment was recorded as a reorganization item.

Reorganization Items

        Reorganization items were items of income and expense that were realized or incurred because of the Chapter 11 reorganization. During the year ended December 31, 2001, we recorded reorganization

F-20

items due to the Chapter 11 filings of CRIIMI MAE, CRIIMI MAE Management and CRIIMI MAE Holdings II as follows (in thousands):

Reorganization Items	2001
Short-term interest income	$	2,491
Professional fees		(3,870	)
Other		(801	)
Net recovery on real estate owned		367
Total reorganization expense, net	$	(1,813	)

3.     FAIR VALUE OF FINANCIAL INSTRUMENTS

        The following estimated fair values of our consolidated financial instruments are presented in accordance with GAAP, which define fair value as the amount at which a financial instrument could be exchanged in a current transaction between willing parties, in other than a forced sale or liquidation. These values do not represent our liquidation value or the value of the securities under a portfolio liquidation.

		As of December 31, 2003						As of December 31, 2002
		Amortized Cost			Fair Value			Amortized Cost			Fair Value
		(in thousands)
ASSETS:
Subordinated CMBS pledged to secure recourse debt(1)		$	463,194		$	511,681		$	473,571		$	535,508
CMBS pledged to secure Securitized Mortgage Obligations—CMBS(1)			287,093			325,321			287,040			326,473
Other MBS(1)			3,994			3,900			5,308			5,248
Insured mortgage securities pledged to secure Securitized Mortgage Obligations(1)			122,291			122,377			273,655			275,340
Insured mortgage securities pledged to secure recourse debt(1)			25,051			25,121			—			—
Derivative financial instruments(1)			38			3,438			992			4
Servicing other assets			See footnote (2	)		See footnote (2	)		See footnote (2	)		See footnote (2	)
Servicing cash and cash equivalents			4,428			4,428			12,582			12,582
Other cash and cash equivalents			17,271			17,271			16,669			16,669
Restricted cash and cash equivalents			—			—			7,962			7,962
LIABILITIES:
BREF senior subordinated secured note			31,267			33,950			—			—
Bear Stearns variable rate secured debt			296,250			296,250			—			—
Bear Stearns repurchase agreement			22,526			22,526
Securitized mortgage obligations:
	Collateralized bond obligations—CMBS		288,979			325,321			285,845			326,473
	Collateralized mortgage obligations—insured mortgage securities		119,238			122,791			252,980			266,367
Mortgage payable			7,332			7,364			7,214			7,341
Exit variable-rate secured borrowing			—			—			214,673			214,673
Series A senior secured notes			—			—			92,788			92,788	(3)
Series B senior secured notes			—			—			68,491			68,491	(3)

(1)

Recorded at fair value in the accompanying Consolidated Balance Sheet.

(2)

CMSLP owned subordinated CMBS and interest-only strips with an aggregate amortized cost basis of approximately $1.5 million and $1.9 million and a fair value of approximately $1.6 million and $2.1 million as of December 31, 2003 and December 31, 2002, respectively. Additionally, as of December 31, 2002, CMSLP owned investment-grade CMBS with an aggregate cost basis and fair value of approximately $3.3 million. The investment-grade CMBS were sold in January 2003 in connection with our recapitalization.

F-21

(3)

Since these notes were redeemed in January 2003 at face value, we disclosed the face value as the fair value as of December 31, 2002.

        The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

CMBS

        Our determination of fair values for our CMBS portfolio is a subjective process. The process begins with the compilation and evaluation of pricing information (such as nominal spreads to U.S. Treasury securities or nominal yields) that, in our view, is commensurate with the market's perception of value and risk of our assets and comparable assets. We use a variety of sources to compile such pricing information including: (i) recent offerings and/or secondary trades of comparable CMBS (i.e., securities comparable to our CMBS or to the CMBS (or collateral) underlying our CMBS issued in connection with CBO-1 and CBO-2), (ii) communications with dealers and active CMBS investors and/or advisors regarding the pricing and valuation of our securities and comparable securities, (iii) institutionally available research reports, (iv) analyses prepared by the nationally recognized rating organizations responsible for the initial rating assessment and on-going surveillance of such CMBS, and (v) other qualitative and quantitative factors that may impact the value of the CMBS such as the market's perception of the issuers of the CMBS and the credit fundamentals of the commercial properties securing each pool of underlying commercial mortgage loans. We make further adjustments to such pricing information based on our specific knowledge of our CMBS and the impact of relevant events, which is then used to determine the fair value of our CMBS using a discounted cash flow approach. Expected future gross cash flows are discounted at assumed market yields for our CMBS rated A+ through B, depending on the rating. The fair value for those CMBS incurring principal losses and interest shortfalls (i.e., B- rated bonds through our unrated/issuer's equity) based on our overall expected loss estimate are valued at a loss adjusted yield to maturity that, in our view, is commensurate with the market's perception of the value and risk of comparable securities, using a discounted cash flow approach. Such anticipated principal losses and interest shortfalls, as well as the timing and amount of potential recoveries of such shortfalls, are critical estimates and have been taken into consideration in the calculation of fair values and yields to maturity used to recognize interest income as of December 31, 2003. We have disclosed the range of discount rates by rating category used in determining the fair values as of December 31, 2003 in Note 4.

        The liquidity of the subordinated CMBS market has historically been limited. Additionally, during adverse market conditions, the liquidity of such market has been severely limited. For this reason, among others, management's estimate of the value of our subordinated CMBS could vary significantly from the value that could be realized in a current transaction.

Other MBS

        The fair value of the Other MBS is an estimate based on the indicative market price from publicly available pricing services, as well as management estimates.

Insured Mortgage Securities

        We calculated the estimated fair value of the insured mortgage securities portfolio as of December 31, 2003 and 2002, using a discounted cash flow methodology. The cash flows were discounted using a discount rate and other assumptions that, in our view, was commensurate with the market's perception of risk and value. We used a variety of sources to determine the discount rate, including institutionally available research reports, communications with dealers and active insured mortgage security investors regarding the valuation of comparable securities and recent transactions.

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Servicing, Restricted and Other Cash and Cash Equivalents

        The carrying amount approximates fair value because of the short maturity of these instruments.

Obligations Under Financing Facilities

        The fair values of the securitized mortgage obligations as of December 31, 2003 and 2002 were calculated using a discounted cash flow methodology similar to that discussed for CMBS above. The carrying amount of the Bear Stearns Debt and the Bear Stearns repurchase agreement (and at December 31, 2002, the Exit Variable-Rate Secured Borrowing) approximates fair value because the current rate on the debt resets monthly based on market rates. The fair value of the BREF Debt was estimated by applying a discount rate to the debt's future cash flows. The discount rate was determined by considering the BREF Debt's relative position in our capital structure in relation to our other capital. The fair value of the mortgage payable is estimated based on current market interest rates of commercial mortgage debt. As of December 31, 2002, the fair values of the Series A and Series B Senior Secured Notes are the same as the face values since the notes were redeemed in January 2003.

Derivative Financial Instruments

        The fair values of our interest rate swaps and interest rate cap are the estimated amounts that we would realize to terminate the agreements as of December 31, 2003 and 2002, taking into account current interest rates and the current creditworthiness of the counterparties. The amounts were determined based on valuations received from the counterparties to the agreements.

4.     CMBS

        As of December 31, 2003, our assets, in accordance with GAAP, include CMBS with an aggregate face amount of approximately $1.5 billion rated from A+ to D and unrated. Such CMBS had an aggregate fair value of approximately $837 million (representing approximately 78% of our total consolidated assets) and an aggregate amortized cost of approximately $750 million. Such CMBS represent investments in securities issued in connection with CRIIMI MAE Trust 1 Series 1996-C1 (or CBO-1), CRIIMI MAE Commercial Mortgage Trust Series 1998-C1 (or CBO-2) and Nomura Asset Securities Corporation Series 1998-D6 (or Nomura). The following is a summary of the ratings of our CMBS as of December 31, 2003 (in millions):

Rating(1)		Fair Value		% of CMBS
Investment Grade Portfolio:
	A+, BBB+ or BBB(2)	$	325.3	39	%
Retained Portfolio:
	BB+, BB or BB-	$	332.5	40	%
	B+, B or B-	$	145.4	17	%
	CCC, D or Unrated	$	33.8	4	%

(1)

Ratings are provided by Standard & Poor's.

(2)

Represents investment grade securities that we reflect as assets on our balance sheet as a result of the issuance of the CBO-2 transaction. As indicated in footnote 4 to the table below, GAAP requires both these assets (reflected as "CMBS pledged to Secure Securitized Mortgage Obligation—CMBS") and their related liabilities (reflected as "Collateralized Bond Obligations—CMBS") to be reflected on our balance sheet. As of December 31, 2003, the fair value of these assets as reflected in our balance sheet was approximately $325.3 million and the amortized cost of the debt as reflected in our balance sheet was approximately $289.0 million. All cash flows related

F-23

to the investment grade CMBS are used to service the corresponding securitized mortgage obligations. As a result, we currently receive no cash flows from the investment grade CMBS.

        As of December 31, 2003, the weighted average pay rate and the loss adjusted weighted average life (based on face amount) of the investment grade securities was 7.0% and 7.9 years, respectively. The weighted average pay rate and the loss adjusted weighted average life (based on face amount) of the BB+ through unrated CMBS securities, sometimes referred to as the retained portfolio, were 5.2% and 11.0 years, respectively. The aggregate investment by the rating of the CMBS is as follows:

Security Rating	Face Amount as of 12/31/03 (in millions)		Weighted Average Pay Rate as of 12/31/03		Loss Adjusted Weighted Average Life(1)	Fair Value as of 12/31/03 (in millions)			Discount Rate or Range of Discount Rates Used to Calculate Fair Value as of 12/31/03		Amortized Cost as of 12/31/03 (in millions)(5)			Amortized Cost as of 12/31/02 (in millions)
Investment Grade Portfolio
A+(4)	$	59.4	7.0	%	3 years	$	62.2		4.5%		$	57.0		$	59.4
BBB+(4)		150.6	7.0	%	9 years		152.2		6.8%			133.6			132.3
BBB(4)		115.2	7.0	%	9 years		110.9		7.6%			96.5			95.3
Retained Portfolio
BB+		319.0	7.0	%	11 years		256.2		10.2%-10.6%			227.1			223.0
BB		70.9	7.0	%	13 years		52.0		11.5%			47.5			46.8
BB-		35.4	7.0	%	14 years		24.3		12.4%			21.2			20.8
B+		88.6	7.0	%	14 years		48.7		15.7%			46.9			46.0
B		177.2	8.9	%	17 years		90.7		16.2-16.5%			86.5			85.1
B-(2)(10)		12.0	8.0	%	17 years		6.0		15.0%	(8)		5.5			5.5
CCC(2)		70.9	—		1 year		—		15.0%	(8)		—			3.8
D(2)(9)(10)		106.3	0.5	%	25 years		16.5		15.0%	(8)		11.8			22.6
Unrated/Issuer's Equity(2)(3)		256.5	2.4	%	1 year		17.3		15.0%	(8)		16.7			20.0
Total	$	1,462.0	5.6	%	10 years	$	837.0	(7)			$	750.3	(6)	$	760.6

(1)

The loss adjusted weighted average life represents the weighted average expected life of the CMBS based on our current estimate of future losses. As of December 31, 2003, the fair values of the B-, CCC, D and the unrated/issuer's equity were derived primarily from interest cash flow anticipated to be received since our current loss expectation assumes that the full principal amount of these securities will not be recovered. See also "Advance Limitations, Appraisal Reductions and Losses on CMBS" below.

(2)

The CMBS experience interest shortfalls when the weighted average net coupon rate on the underlying CMBS is less than the weighted average stated coupon payments on our subordinated CMBS. Such interest shortfalls will continue to accumulate until they are repaid through either excess interest and/or recoveries on the underlying CMBS or a re-characterization of principal cash flows, in which case they may be realized as a loss of principal on the subordinated CMBS. Such anticipated losses, including shortfalls, have been taken into consideration in the calculations of fair market values and yields to maturity used to recognize interest income as of December 31, 2003.

(3)

The unrated/issuer's equity subordinated CMBS from CBO-1 and CBO-2 currently do not have a stated coupon rate since these securities are only entitled to the residual cash flow payments, if any, remaining after paying the securities with a higher payment priority. As a result, effective coupon rates on these securities are highly sensitive to the monthly cash flow payments received from the underlying CMBS that represent the collateral for CBO-1 and CBO-2.

(4)

In connection with CBO-2, $62.6 million (currently A+ rated) and $60.0 million (currently BBB+ rated) face amount of investment grade CMBS were sold with call options and $345 million (currently A+ rated) face amount were sold without call options. Also in connection with CBO-2, in May 1998, we initially retained $90.6 million (currently BBB+ rated) and $115.2 million (currently BBB rated) face amount of CMBS, both with call options, with the intention to sell these CMBS at a later date. Such sale occurred March 5, 1999. Since we retained call options on certain sold CMBS (currently rated A+, BBB+ and BBB bonds), we did not surrender control of these CMBS pursuant to the requirements of SFAS No. 125, and thus these CMBS are accounted for as a financing and not a sale. Since the CBO-2 transaction is recorded as a partial financing and a partial sale, we are deemed to have retained these CMBS with call options issued in connection with CBO-2, from which we currently receive no cash flows, and are required to reflect them as CMBS on the balance sheet.

(5)

Amortized cost reflects approximately $14.7 million of impairment charges related to the unrated/issuer's equity bonds in CBO-2 and Nomura, and the CCC bond and the D bond in CBO-2, which were recognized during the year ended

F-24

December 31, 2003. These impairment charges are in addition to the cumulative impairment charges of approximately $248.4 million that were recognized through December 31, 2002. See discussion of the impairment charges later in this Note.

(6)

See Notes 1 and 8 to Notes to Consolidated Financial Statements for information regarding the subordinated CMBS for tax purposes.

(7)

As of December 31, 2003, the aggregate fair values of the CBO-1, CBO-2 and Nomura bonds were approximately $18.7 million, $813.6 million and $4.7 million, respectively.

(8)

As a result of the estimated loss of principal on these CMBS, the fair values and discount rates of these CMBS are based on a loss adjusted yield to maturity.

(9)

Although the principal balance of the D bond in CBO-2 is expected to be outstanding for approximately 25 years, it is not anticipated that any principal will be collected.

(10)

In November 2003, the B- bond in CBO-2 was downgraded to D by Standard & Poor's.

Mortgage Loan Pool

        We have $15.3 billion and $17.4 billion of seasoned commercial mortgage loans underlying our subordinated CMBS as of December 31, 2003 and 2002, respectively. The commercial mortgage loans are secured by properties of the types and in the geographic locations identified below:

Property Type		12/31/03 Percentage(i)		Geographic Location(ii)	12/31/03 Percentage(i)
Retail		31	%	California	16	%
Multifamily		27	%	Texas	12	%
Hotel		15	%	Florida	8	%
Office		14	%	Pennsylvania	6	%
Other(iv)		13	%	New York	5	%
	Total	100	%	Other(iii)	53	%
				Total	100	%

(i)

Based on a percentage of the total unpaid principal balance of the underlying loans.

(ii)

No significant concentration by region.

(iii)

No other individual state makes up more than 5% of the total.

(iv)

Our ownership interest in one of the 20 CMBS transactions underlying CBO-2 includes subordinated CMBS in which our exposure to losses arising from certain healthcare and senior housing mortgage loans is limited by other subordinated CMBS (referred to herein as the "Subordinated Healthcare/Senior-Housing CMBS"). These other CMBS are not owned by us and are subordinate to our CMBS in this transaction. As a result, our investment in such underlying CMBS will only be affected if interest shortfalls and/or realized losses on such healthcare and senior housing mortgage loans are in excess of the other Subordinated Healthcare/Senior-Housing CMBS. We currently estimate that the interest shortfalls and/or realized losses on such healthcare and senior housing mortgage loans will exceed the Subordinated Healthcare/Senior Housing CMBS. The principal balance of the Subordinated Healthcare/Senior Housing CMBS as of December 31, 2003 is approximately $3.4 million. As of December 2003, the aggregate principal balance of healthcare and senior housing mortgage loans, underlying the Subordinated Healthcare/Senior Housing CMBS, that are specially serviced by another special servicer, and therefore not in our special servicing loan balance, is approximately $83 million.

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Specially Serviced Mortgage Loans

        CMSLP performs special servicing on the loans underlying our subordinated CMBS. A special servicer typically provides asset management and resolution services with respect to nonperforming or underperforming loans within a pool of mortgage loans. When serving as special servicer of a mortgage loan pool, CMSLP has the authority, subject to certain restrictions in the applicable CMBS pooling and servicing documents, to deal directly with any borrower that fails to perform under certain terms of its mortgage loan, including the failure to make payments, and to manage any loan workouts and foreclosures. As special servicer, CMSLP earns fee income on services provided in connection with any loan servicing function transferred to it from the master servicer. We believe that because we own the first loss unrated or lowest rated bond of virtually all of the CMBS transactions underlying our subordinated CMBS, we have an incentive to efficiently and effectively resolve any loan workouts.

        As of December 31, 2003 and 2002, specially serviced mortgage loans included in the commercial mortgage loans described above are as follows:

	12/31/03		12/31/02
Specially serviced loans due to monetary default(a)	$	963.8 million	$	736.1 million
Specially serviced loans due to covenant default/other		58.2 million		74.7 million
Total specially serviced loans(b)	$	1,022.0 million	$	810.8 million
Percentage of total mortgage loans(b)		6.7%		4.7%

(a)

Includes $163.8 million and $130.5 million, respectively, of real estate owned by underlying trusts. See also the table below regarding property type concentrations for further information on real estate owned by underlying trusts.

(b)

As of February 29, 2004, total specially serviced loans were approximately $1.1 billion, or 7.0% of the total mortgage loans.

        The specially serviced mortgage loans as of December 31, 2003 were secured by properties of the types and located in the states identified below:

Property Type		$ (in millions)			Percentage		Geographic Location	$ (in millions)		Percentage
Hotel		$	533.2	(1)	52	%	Florida	$	154.6	15	%
Retail			225.1	(2)	22	%	Texas		113.1	11	%
Multifamily			102.4		10	%	Oregon		92.7	9	%
Healthcare			81.2		8	%	California		47.8	5	%
Office			47.1		5	%	Massachusetts		47.6	5	%
Industrial			23.8		2	%	Pennsylvania		44.4	4	%
Other			9.2		1	%	Other		521.8	51	%
	Total	$	1,022.0		100	%	Total	$	1,022.0	100	%

(1)

Approximately $111.4 million of these loans in special servicing are real estate owned by underlying trusts. Full service hotels represent 39% of the total hotel loans in special servicing and limited service hotels represent 61% of the total hotel loans in special servicing.

(2)

Approximately $38.6 million of these loans in special servicing are real estate owned by underlying trusts.

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        The following table provides a summary of the change in the balance of specially serviced loans from December 31, 2002 to December 31, 2003:

		(in millions)
Specially Serviced Loans, December 31, 2002		$	810.8
	Transfers in due to monetary default		640.2
	Transfers in due to covenant default and other		190.8
	Transfers out of special servicing		(595.9	)
	Loan amortization(1)		(23.9	)
Specially Serviced Loans, December 31, 2003		$	1,022.0

(1)

Represents the reduction of the scheduled principal balances due to borrower payments or, in the case of loans in monetary default, advances made by the master servicers.

        The most significant borrowing relationship in our specially serviced mortgage loan portfolio consists of 27 loans with scheduled principal balances as of December 31, 2003 totaling approximately $133 million spread across three CMBS transactions secured by hotel properties in the western and Pacific northwestern states. As of December 31, 2003, our total exposure, including advances and interest on advances of approximately $43 million, on these loans was approximately $176 million. Such total exposure is prior to the application of payments made to date by the borrower under the terms of our consensual settlement agreement and is expected to be reduced by the application of such payments at the settlement agreement closing. The borrower initially filed for bankruptcy protection in February 2002 and indicated that the properties had experienced reduced operating performance due to new competition, the economic recession, and reduced travel resulting from the September 11, 2001 terrorist attacks. We entered into a consensual settlement agreement dated February 25, 2003 pursuant to which the loan terms were amended and modified. This agreement was subsequently approved and confirmed by the bankruptcy court on March 28, 2003. The parties are currently proceeding toward closing a comprehensive modification of each loan, which is expected to occur in March 2004 and which is expected to return the loans to performing status. The closing of the loan modification is a complex process involving a large number of parties, all of whom must ultimately agree on, among other things, a reconciliation of payments and funds applied since the loan modification was approved by the bankruptcy court. The borrower continues to make payments under the modified terms. As of December 31, 2003, the borrower has made principal and interest payments totaling approximately $10 million, the majority of which represents interest paid (as compared to principal amortization) on the modified loan balances. During the year ended December 31, 2003, the borrower also sold one of the properties that secured these loans. In addition, as of December 31, 2003, the borrower has remitted approximately $1.5 million in funds from debtor-in-possession accounts, which is expected to be applied to arrearages at closing. As described below, there can be no assurance that our overall expected loss estimate will not be exceeded as a result of additional or existing adverse events or circumstances related to this exposure.

Advance Limitations, Appraisal Reductions and Losses on CMBS

        We experience shortfalls in expected cash flow on our CMBS prior to the recognition of a realized loss primarily due to servicing advance limitations resulting from appraisal reductions. An appraisal reduction event can result in reduced master servicer principal and interest advances based on the amount by which the sum of the unpaid principal balance of the loan, accumulated principal and interest advances and other expenses exceeds 90% (in most cases) of the newly appraised value of the property underlying the mortgage loan. As the holder of the lowest rated and first loss bonds, our bonds are the first to experience interest shortfalls as a result of the reduced advancing requirement. In general, the master servicer can advance up to a maximum of the difference between 90% of the

F-27

property's appraised value and the sum of accumulated principal and interest advances and expenses. As an example, assuming a weighted average coupon of 6% on a first loss subordinated CMBS, a $1 million appraisal reduction would reduce our net cash flows by up to $60,000 on an annual basis, assuming that the total exposure was equal to or greater than 90% of the appraised value immediately prior to receipt of the new appraisal (appraisal reduction). The ultimate disposition or work-out of the mortgage loan may result in a higher or lower realized loss on our subordinated CMBS than the calculated appraisal reduction amount. Cumulative appraisal reductions through December 31, 2003 for the CMBS transactions in which we retain an ownership interest as reported by the underlying trustees or as estimated by CMSLP were as follows (in thousands):

CBO-2		$	151,859
CBO-1			73,684
Nomura			20,516
	Total	$	246,059

        Certain securities from the CBO-1, CBO-2 and Nomura transactions are expected to experience principal write-downs over their expected lives. The following tables summarize the actual realized losses on our CMBS through December 31, 2003 (including realized mortgage loan losses expected to pass through to our CMBS during the next month) and the expected future real estate losses underlying our CMBS (in thousands):

	CBO-1		CBO-2		Nomura		Total
Year 1999 actual realized losses	$	738	$	—	$	—	$	738
Year 2000 actual realized losses		3,201		1,087		—		4,288
Year 2001 actual realized losses		545		8,397		238		9,180
Year 2002 actual realized losses		11,554		25,113		563		37,230
Year 2003 actual realized losses		11,796		57,913		1,920		71,629
Cumulative actual realized losses through December 31, 2003	$	27,834	$	92,510	$	2,721	$	123,065
Cumulative actual realized losses through the year 2003	$	27,834	$	92,510	$	2,721	$	123,065
Expected loss estimates for the year 2004		51,529		122,121		14,663		188,313
Expected loss estimates for the year 2005		36,369		118,345		13,134		167,848
Expected loss estimates for the year 2006		3,577		16,054		3,521		23,152
Expected loss estimates for the year 2007		2,096		14,075		3,437		19,608
Expected loss estimates for the year 2008		1,953		7,147		2,987		12,087
Expected loss estimates for the remaining life of CMBS		6,764		33,419		7,185		47,368
Cumulative expected loss estimates (including cumulative actual realized losses) through life of CMBS	$	130,122	$	403,671	$	47,648	$	581,441

        We revised our overall expected loss estimate related to our subordinated CMBS to $581 million at December 31, 2003, with such total losses occurring or expected to occur through the life of the subordinated CMBS portfolio. This revision to the overall expected loss estimate is primarily the result of increased projected losses due to lower internal estimates of values on properties underlying certain mortgage loans and real estate owned by underlying trusts, and, in some cases, changes in the timing of resolution and disposition of certain specially serviced assets, which when combined, has resulted in higher projected loss severities on certain loans and real estate owned by underlying trusts currently or anticipated to be in special servicing. The primary reasons for lower estimates of value include the poor performance of certain properties and related markets and changes to workout negotiations due, in large part, to the softness in the economy and the lag typically associated with real estate fundamentals,

F-28

the continued slowdown in travel and, in some cases, over-supply of hotel properties, and a shift in retail activity in some markets. There can be no assurance that our revised overall expected loss estimate of $581 million will not be exceeded as a result of additional or existing adverse events or circumstances.

        During 2003, we determined that there had been an adverse change in expected future cash flows for certain of the CMBS as of June 30, 2003, September 30, 2003 and December 31, 2003 due to the factors mentioned previously. As a result, we believed some of our CMBS had been impaired under EITF 99-20 and SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," as of each of those dates. As the fair values of the impaired CMBS aggregated approximately $14.7 million below the amortized cost basis, we recorded other than temporary impairment charges through the income statement during 2003.

        During 2002, we revised our overall expected loss estimate related to our subordinated CMBS portfolio. The revisions to the overall expected loss estimate during 2002 were primarily the result of the same factors as those described above. As we determined that there had been an adverse change in expected future cash flows, we believed some of our CMBS had been impaired during 2002. As the fair value of the impaired subordinated CMBS aggregated approximately $70.2 million below the amortized cost, we recorded other than temporary impairment charges through the income statement during 2002.

        During 2001, we revised our overall expected loss estimate related to our subordinated CMBS portfolio. The revisions to loss estimates during 2001 were primarily the result of the continued slowing U.S. economy and recession, which were exacerbated by the terrorist attacks on September 11, 2001 and subsequent terrorist actions and threats. Principally as a result of the slowing economy and terrorist actions and threats, the underlying mortgage loans had a greater than previously anticipated number of monetary defaults during 2001. Additionally, appraisal amounts on properties underlying certain defaulted loans were significantly lower than previously anticipated, thereby increasing the estimated principal loss on the commercial loans. As we had determined that there had been an adverse change in expected future cash flows and that the then current estimate of expected credit losses exceeded credit losses as previously projected, we believed certain of the CMBS had been impaired during 2001. As the fair value of the impaired bonds aggregated approximately $34.7 million below the amortized cost basis, we recorded other than temporary impairment charges through the income statement during 2001.

Yield to Maturity

        The following table summarizes yield-to-maturity information relating to our CMBS on an aggregate pool basis:

Pool	Anticipated Yield-to- Maturity as of 1/1/01(1)		Anticipated Yield-to- Maturity as of 1/1/02(1)		Anticipated Yield-to- Maturity as of 1/1/03(1)		Current Anticipated Yield-to- Maturity as of 1/1/04(1)
CBO-2 CMBS	11.8	%	12.1	%	11.6	%	11.7	%
CBO-1 CMBS	21.0	%	14.3	%	11.6	%	19.1	%
Nomura CMBS	25.3	%	28.7	%	8.0	%	15.0	%
Weighted Average	12.4	%	12.4	%	11.6	%	11.9	%

(1)

Represents the anticipated weighted average yield over the expected average life of the CMBS based on our estimate of the timing and amount of future credit losses and other significant items that are anticipated to affect future cash flows.

F-29

Determining Fair Value of CMBS

        We use a discounted cash flow methodology for determining the fair value of our CMBS. See Note 3 for a discussion of our fair value methodology.

Key Assumptions in Determining Fair Value

        The gross mortgage loan cash flows from each commercial mortgage loan pool and their corresponding distribution on the CMBS may be affected by numerous assumptions and variables including:

(i)

changes in the timing and/or amount of credit losses on the commercial mortgage loans (credit risk), which are a function of:



•

the percentage of mortgage loans that experience a default either during the mortgage term or at maturity (referred to in the industry as a default percentage);



•

the recovery period represented by the time that elapses between the default of a commercial mortgage loan and the subsequent foreclosure and liquidation of the corresponding real estate (a period of time referred to in the industry as a lag); and,



•

the percentage of mortgage loan principal lost as a result of the deficiency in the liquidation proceeds resulting from the foreclosure and sale of the commercial real estate (referred to in the industry as a loss severity);



(ii)

the discount rate used to derive fair value, which is comprised of the following:



•

a benchmark risk-free rate, calculated by using the current, "on-the-run" U.S. Treasury curve and interpolating a comparable risk-free rate based on the weighted-average life of each CMBS; plus,



•

a credit risk premium; plus,



•

a liquidity premium;



(iii)

changes in cash flows related to principal losses and interest shortfalls, as well as the timing and amount of potential recoveries of such shortfalls, based on our overall expected loss estimate for our CMBS, the fair value of which is determined using a loss adjusted yield to maturity;



(iv)

delays and changes in monthly cash flow distributions relating to mortgage loan defaults and/or extensions in the loan's term to maturity (see Extension Risk below); and



(v)

the receipt of mortgage payments earlier than projected (prepayment); and



(vi)

the amount and timing of principal and interest advances contributed to the trust.

Sensitivities of Key Assumptions

        Since we use a discounted cash flow methodology to derive the fair value of our CMBS, changes in the timing and/or the amount of cash flows received from the underlying commercial mortgage loans, and their allocation to the CMBS, will directly impact the value of such securities. Accordingly, delays in the receipt of cash flows and/or decreases in future cash flows resulting from higher than anticipated credit losses, among other things, will result in an overall decrease in the fair value of our CMBS. Furthermore, any increase/(decrease) in the required rate of return for CMBS will result in a corresponding (decrease)/increase in the value of such securities. We have included the following narrative and numerical disclosures to demonstrate the sensitivity of such changes to the fair value of our CMBS.

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Key Assumptions Resulting in an Adverse Impact to Fair Value

        Factors which could adversely affect the valuation of our CMBS include: (i) the receipt of future cash flows less than anticipated due to higher credit losses (i.e., higher credit losses resulting from a larger percentage of loan defaults, and/or losses occurring greater or sooner than projected, and/or longer periods of recovery between the date of default and liquidation (see also "Key Assumptions in Determining Fair Values" and "Sensitivity of Fair Value to Changes in Credit Losses" below)), (ii) an increase in the required rate of return (see "Sensitivity of Fair Value to Changes in the Discount Rate" below) for CMBS, and/or (iii) the receipt of cash flows later than anticipated (see "Sensitivity of Fair Value to Extension Risk" below).

        Sensitivity of Fair Value to Changes in Credit Losses

        For purposes of this disclosure, we used a market convention for simulating the impact of increased credit losses on CMBS. Generally, the industry uses a combination of an assumed percentage of loan defaults (referred to in the industry as a Constant Default Rate or "CDR"), a lag period and an assumed loss severity. For purposes of this disclosure, we assumed the following loss scenarios, each of which was assumed to begin immediately following December 31, 2003: (i) 3.0% per annum of the commercial mortgage loans were assumed to default and 30% of the then outstanding principal amount of the defaulted commercial mortgage loans were assumed to be lost (referred to in the industry as a 3.0% CDR and 30% loss severity, and referred to herein as the "3%/30% CDR Loss Scenario"), and (ii) 3.0% per annum of each commercial mortgage was assumed to default and 40% of the then outstanding principal amount of each commercial mortgage loan was assumed to be lost (referred to in the industry as a 3.0% CDR and 40% loss severity, and referred to herein as the "3%/40% CDR Loss Scenario"). The reduction in amount of cash flows resulting from the 3%/30% CDR Loss Scenario and the 3%/40% CDR Loss Scenario would result in a corresponding decline in the fair value of our aggregate CMBS by approximately $62.6 million (or 7.5%) and $149.3 million (or 17.8%), respectively. The reduction in amount of cash flows resulting from the 3%/30% CDR Loss Scenario and the 3%/40% CDR Loss Scenario would result in a corresponding decline in the fair value of our subordinated CMBS (BB+ through unrated/issuer's equity) by approximately $60.5 million (or 11.8%) and $145.0 million (or 28.3%), respectively.

        The aggregate amount of credit losses assumed under the 3%/30% CDR Loss Scenario and the 3%/40% CDR Loss Scenario totaled approximately $739 million and $984 million, respectively. These amounts are in comparison to the aggregate amount of anticipated credit losses estimated by us as of December 31, 2003 of approximately $581 million used to calculate GAAP income yields. It should be noted that the amount and timing of the anticipated credit losses assumed by us related to the GAAP income yields are not directly comparable to those assumed under the 3%/30% CDR Loss Scenario and the 3%/40% CDR Loss Scenario.

Sensitivity of Fair Value to Changes in the Discount Rate

        The required rate of return used to determine the fair value of our CMBS is comprised of many variables, such as a risk-free rate, a liquidity premium and a credit risk premium. These variables are combined to determine a total rate that, when used to discount the CMBS's assumed stream of future cash flows, results in a net present value of such cash flows. The determination of such rate is dependent on many quantitative and qualitative factors, such as, but not limited to, the market's perception of the issuers and the credit fundamentals of the commercial real estate underlying each pool of commercial mortgage loans. For purposes of this disclosure, we assumed that the discount rate used to determine the fair value of our CMBS increased by 100 basis points and 200 basis points. The increase in the discount rate by 100 and 200 basis points, respectively, would result in a corresponding decline in the value of our aggregate CMBS by approximately $45.8 million (or 5.5%) and $88.0 million

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(or 10.5%), respectively, and our subordinated CMBS by approximately $29.6 million (or 5.8%) and $56.6 million (or 11.1%), respectively.

        The sensitivities above are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption; in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract the sensitivities.

        Sensitivity of Fair Value to Extension Risk

        For purposes of this disclosure, we assumed that the maturity date of each commercial mortgage loan underlying the CMBS was extended for a period of 12 months and 24 months beyond the contractual maturity date specified in each mortgage loan. The delay in the timing and receipt of such cash flows for an extended period of time consisting of 12 months and 24 months, respectively, would result in a corresponding decline in the value of our aggregate CMBS by approximately $9.1 million (or 0.9%) and $17.5 million (or 1.7%), respectively, and our subordinated CMBS by approximately $7.7 million (or 1.1%) and $14.1 million (or 2.0%), respectively.

        Impact of Prepayment Risk on Fair Value

        Our investments in subordinated CMBS are purchased at a discount to their face amount due to their subordinated claim to principal and interest cash flows and priority of allocation of realized losses. As a result of the discounted purchase price, the return of principal sooner than anticipated from prepayments, and/or in amounts greater than initially assumed when determining the discounted purchase price, would result in an increase in the value of our subordinated CMBS. Such appreciation in value would result from the higher subordination level of the CMBS transaction relative to comparable CMBS and the potential for an upgrade in the ratings category of the security. Since the effects of prepayments would enhance the value of our subordinated CMBS, other than if high-coupon mortgage loans underlying our subordinated CMBS are prepaid thus reducing the excess interest available to our subordinated CMBS, the effects of increased prepayments were excluded from the sensitivity analysis above. It should be noted that the effects of a decline in prepayments is reflected in the Sensitivity of Fair Value to Extension Risk above.

5.     INSURED MORTGAGE SECURITIES

        We own the following insured mortgage securities directly or indirectly through wholly owned subsidiaries (dollars in thousands):

	As of December 31, 2003
	Number of Mortgage Securities		Fair Value		Amortized Cost		Weighted Average Effective Interest Rate		Weighted Average Remaining Term
CRIIMI MAE Financial Corporation(2)	14		$	55,511	$	55,232	8.23	%	24 years
CRIIMI MAE Financial Corporation II(3)	14			66,866		67,059	7.19	%	21 years
CRIIMI MAE Asset Acquisition Corp.(4)	11			25,121		25,051	7.70	%	24 years
	39	(1)	$	147,498	$	147,342	7.67	%(1)	23 years	(1)

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	As of December 31, 2002
	Number of Mortgage Securities	Fair Value		Amortized Cost		Weighted Average Effective Interest Rate		Weighted Average Remaining Term
CRIIMI MAE	1	$	5,730	$	5,340	8.00	%	32 years
CRIIMI MAE Financial Corporation	22		77,454		76,653	8.40	%	25 years
CRIIMI MAE Financial Corporation II	28		145,576		145,396	7.19	%	23 years
CRIIMI MAE Financial Corporation III	16		46,580		46,266	7.92	%	27 years
	67	$	275,340	$	273,655	7.67	%(1)	25 years	(1)

(1)

Weighted averages were computed using total face amount of the mortgage securities. It is likely that some of the underlying mortgage loans may prepay. Weighted average lives are one year or less based on our prepayment assumptions. Approximately 45% (based on amortized cost) of our insured mortgage loans prepaid or were sold (one mortgage) during the year ended December 31, 2003.

(2)

Effective in January 2004, we have the option of prepaying the debt (the "CMO debt") that is collateralized by these assets, since the face amount of the debt is less than 25% of the original face value. We expect to prepay the CMO debt during the second quarter of 2004, as discussed in Note 6, and sell some or all of these assets and transfer the remaining assets to CRIIMI MAE Asset Acquisition Corp.

(3)

In January 2004, three insured mortgages with an aggregate amortized cost of approximately $40.4 million prepaid. The prepayments will result in a loss on disposition of approximately $578,000 during the three months ended March 31, 2004, due to the write-off of related unamortized premium and costs. Following these prepayments, we have the option of prepaying the Freddie Mac funding note, which is collateralized by these assets, since the face value of the debt is less than 20% of the original face value. We prepaid the debt in March 2004, as discussed in Note 6, and transferred these assets to CRIIMI MAE Asset Acquisition Corp.

(4)

As discussed in Note 6, we prepaid the Fannie Mae funding note and transferred the assets that collateralized that debt to CRIIMI MAE Asset Acquisition Corp. in December 2003. The assets are now pledged to secure the $22.5 million borrowed under the Bear Stearns repurchase agreement.

        We receive the net cash flows after debt service, generally excess interest and prepayment penalties, from the wholly-owned subsidiaries that have pledged these insured mortgage securities to secure the related obligations which represent the total cash flows that we receive from these mortgage securities.

        Descriptions of the mortgage securities that we own, directly or indirectly, which exceed 3% of the total carrying value of the consolidated mortgage securities as of December 31, 2003, summarized

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information regarding other mortgage securities and mortgage securities income earned in 2003, 2002 and 2001, including interest earned on the disposed mortgage securities, are as follows (in thousands):

		Mortgage Securities as of December 31, 2003								Mortgage Income Earned
		Face Value(1)		Fair Value(2)(4)(5)		Amortized Cost(1)(3)		Effective Interest Rate	Final Maturity Date Range	2003		2002		2001
CRIIMI MAE Financial Corporation
	FHA-Insured Certificates
	Stoddard Baptist Nursing Home	$	8,641	$	8,727	$	8,712	7.90%	3/2027	$	694	$	703	$	712
	Other (6 mortgage securities)		11,484		11,572		11,452	7.13% - 10.58%	05/2027 - 04/2034		1,069		1,078		1,086
	GNMA Mortgage-Backed Securities
	Bellhaven Nursing Center		13,637		13,706		13,637	8.38%	12/2031		1,147		1,156		1,164
	Capital Crossing Apartments		9,309		9,355		9,341	7.73%	5/2021		728		745		762
	Other (5 mortgage securities)		12,090		12,151		12,090	7.75% - 8.25%	10/2015 - 04/2035		979		993		1,005
			55,161		55,511		55,232				4,617		4,675		4,729
CRIIMI MAE Financial Corporation II
	GNMA Mortgage-Backed Securities
	Brittany Bay Townhomes		4,835		4,859		4,769	7.38%	04/2029		361		366		370
	Oakwood Garden Apartments		11,996		12,056		12,211	7.25%	10/2023		867		885		901
	San Jose South		26,078		26,209		26,261	7.25%	10/2023		1,902		1,940		1,975
	Other (11 mortgage securities)		23,624		23,742		23,818	7.00% - 7.65%	03/2021 - 04/2029		1,724		1,751		1,777
			66,533		66,866		67,059				4,854		4,942		5,023
CRIIMI MAE Asset Acquisition Corp.
	GNMA Mortgage-Backed Securities
	North Central Care Center		6,731		6,765		6,861	7.75%	02/2035		521		524		527
	Other (10 mortgage securities)		18,265		18,356		18,190	7.13% - 10.05%	08/2014 - 06/2034		1,425		1,449		1,472
			24,996		25,121		25,051				1,946		1,973		1,999
Total Insured Mortgage Securities		$	146,690	$	147,498	$	147,342				11,417		11,590		11,751
Insured Mortgage Security Dispositions											4,117		12,256		17,102
Insured Mortgage Securities Interest Income										$	15,534	$	23,846	$	28,853

(1)

Principal and interest on mortgage securities is payable at level amounts over the life of the mortgage asset. Total annual debt service payable to the referenced subsidiaries for the mortgage securities held as of December 31, 2003 is approximately $13.8 million.

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(2)

Reconciliations of the carrying amount of our insured mortgage securities for the years ended December 31, 2003 and 2002 follow (in thousands):

		For the year ended December 31,
		2003			2002
Balance at beginning of year		$	275,340		$	343,091
	Adjustment to net unrealized gains and losses on mortgage securities		(1,530	)		9,577
	Principal payments		(2,884	)		(3,824	)
	Mortgage prepayments/sale		(123,382	)		(73,437	)
	Net amortization of (premium) discount		(46	)		(67	)
Balance at end of year		$	147,498		$	275,340

(3)

All mortgages are collateralized by first or second liens on residential apartment, retirement home, nursing home or townhouse complexes which have diverse geographic locations and are FHA-insured certificates or GNMA mortgage-backed securities. Payment of the principal and interest on FHA-insured certificates is insured by the U.S. Department of Housing and Urban Development pursuant to Title 2 of the National Housing Act. Payment of the principal and interest on GNMA mortgage-backed securities is guaranteed by GNMA pursuant to Title 3 of the National Housing Act.

(4)

None of these mortgage securities are delinquent as of December 31, 2003.

(5)

As of December 31, 2003, the tax basis of these mortgage securities was approximately $147.3 million.

6.     OBLIGATIONS UNDER FINANCING FACILITIES

        The following table summarizes our debt outstanding as of December 31, 2003 and 2002 (in thousands):

			As of and for the year ended December 31, 2003
			Ending Balance		Effective Rate at Year End		Average Balance		Average Effective Rate
Recourse to CRIIMI MAE:
Bear Stearns debt(1)			$	296,250	4.9	%	$	287,490	4.7	%
BREF debt(2)				31,267	16.2	%		29,519	16.2	%
Bear Stearns repurchase agreement(3)				22,526	1.5	%		926	1.5	%
Exit variable-rate secured borrowing(4)				—	—			12,885	6.7	%
Series A senior secured notes(4)				—	—			17,972	11.9	%
Series B senior secured notes(4)				—	—			13,318	20.3	%
Non-Recourse to CRIIMI MAE:
Securitized mortgage obligations:
	CMBS(5)			288,979	9.1	%		287,380	9.1	%
	Freddie Mac funding note(6)			64,407	7.7	%		99,578	10.5	%
	CMO(7)			54,831	7.6	%		60,046	8.5	%
	Fannie Mae funding note(3)			—	—			32,270	9.7	%
Mortgage payable(8)				7,332	12.0	%		7,268	12.0	%
		Total debt	$	765,592	7.3	%	$	848,652	8.2	%

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			As of and for the year ended December 31, 2002
			Ending Balance		Effective Rate at Year End		Average Balance		Average Effective Rate
Recourse to CRIIMI MAE:
Exit variable-rate secured borrowing(4)			$	214,673	6.2	%	$	228,732	6.5	%
Series A senior secured notes(4)				92,789	12.2	%		96,077	12.1	%
Series B senior secured notes(4)				68,491	21.1	%		66,005	21.1	%
Non-Recourse to CRIIMI MAE:
Securitized mortgage obligations:
	CMBS(5)			285,845	9.1	%		284,436	9.1	%
	Freddie Mac funding note(6)			139,550	7.6	%		157,145	8.8	%
	CMO(7)			68,527	7.5	%		88,585	8.8	%
	Fannie Mae funding note(3)			44,903	7.4	%		46,663	8.2	%
Mortgage payable(8)				7,214	12.0	%		7,157	12.0	%
		Total debt	$	921,992	9.2	%	$	974,800	9.5	%

(1)

The effective interest rate includes the amortization of deferred financing fees. During the year ended December 31, 2003, we recognized $1.5 million of interest expense related to the amortization of the deferred financing fees.

(2)

The effective interest rate includes the amortization of deferred financing fees. During the year ended December 31, 2003, we recognized $343,000 of interest expense related to the amortization of the deferred financing fees.

(3)

The Fannie Mae funding note was repaid in December 2003 by borrowing approximately $22.5 million available under our $200 million repurchase facility with Bear Stearns and using approximately $2.0 million of our cash. As of December 31, 2002, the face amount of the note was $45.8 million, with unamortized discount of $847,000. The fair value of collateral as of December 31, 2003 and 2002 was $25 million and $47 million, respectively.

(4)

The effective interest rate during the years ended December 31, 2003 and 2002 includes the accrual of estimated extension fees through January 23, 2003. During the years ended December 31, 2003 and 2002, we recognized aggregate interest expense of $337,000 and $4.3 million related to estimated extension fees on these facilities, respectively. The exit variable-rate secured borrowing was repaid in full on January 23, 2003 and the Series A and B senior secured notes were repaid in full on March 10, 2003. The cumulative accrued extension fees (from April 17, 2001 through January 23, 2003) were reversed into income in gain on extinguishment of debt in 2003.

(5)

As of December 31, 2003 and 2002, the face amount of the debt was $328.4 million with unamortized discount of $39.5 million and $42.6 million, respectively. The fair value of the collateral as of December 31, 2003 and 2002 was $325 million and $326 million, respectively.

(6)

As of December 31, 2003 and 2002, the face amount of the note was $65.4 million and $143.1 million, respectively, with unamortized discount of $1.0 million and $3.5 million, respectively. The fair value of the collateral as of December 31, 2003 and 2002 was $67 million and $146 million, respectively. In January 2004, the face amount of this debt was reduced to approximately $25.4 million due to principal prepayments on the underlying mortgage securities. Since the face value of the debt is less than 20% of the original face value after the January 2004 payment, we have the option of prepaying this debt. We prepaid this debt in March 2004, by using $1.1 million of our cash and borrowing $20.9 million under the Bear Stearns repurchase agreement. We expect to recognize a loss on extinguishment of debt of approximately $707,000

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during the three months ended March 31, 2004 due to the write-off of unamortized discount and deferred fees.

(7)

As of December 31, 2003 and 2002, the face amount of the note was $55.7 million and $70.0 million, respectively, with unamortized discount of $867,000 and $1.5 million, respectively. The fair value of the collateral as of December 31, 2003 and 2002 was $56 million and $77 million, respectively. In February 2004, the face amount of this debt was reduced to approximately $45.9 million due to principal prepayments on the underlying mortgage securities. Since the face value of the debt is less than 25% of the original face value after the February payment, we have the option of prepaying this debt. We expect to prepay this debt in the second quarter of 2004 by borrowing under the Bear Stearns repurchase agreement, subject to Bear Stearns' approval, and/or selling certain of the mortgage securities that collateralize this debt. We will recognize a loss on extinguishment of debt upon the repayment of this debt due to the write-off of unamortized discount and deferred fees.

(8)

As of December 31, 2003 and December 31, 2002, the unpaid principal balance of this mortgage payable was $8.6 million and $8.7 million, respectively, and the unamortized discount was $1.3 million and $1.5 million, respectively. The coupon rate on the mortgage payable is 7.34%. The effective interest rate on the mortgage payable is 12.00% as a result of the discount amortization. The discount is being amortized to interest expense through maturity in 2008.

        Our debt maturities as of December 31, 2003 are as follows (in thousands):

2004	$	15,224
2005		37,513
2006		369,105
2007		2,877
2008		11,052
Thereafter		372,420
	$	808,191	(a)

(a)

Payments of principal on the securitized mortgage obligations are required to the extent mortgage principal is received on the related collateral. The projected principal payments on the securitized mortgage obligations are based on the stated terms of the underlying mortgages.

Debt Incurred in Connection with January 2003 Recapitalization

Bear Stearns Debt

        Bear Stearns provided $300 million in secured financing to two of our subsidiaries, in the form of a repurchase transaction under the January 2003 recapitalization. The Bear Stearns Debt matures in 2006, bears interest at a per annum rate equal to one-month LIBOR plus 3%, payable monthly, and required quarterly principal payments of $1.25 million through January 2004. The principal payments increased to $1.875 million per quarter effective January 23, 2004 since a collateralized debt obligation transaction (or CDO) was not completed by January 23, 2004. If Bear Stearns structures a CDO or other transaction that meets certain rating requirements and we decline to enter into such transaction, the interest rate will increase by 1%, to one-month LIBOR plus 4% and we will have to pay Bear Stearns an additional $2 million in cash. Although CRIIMI MAE Inc. (unconsolidated) is not a primary obligor of the Bear Stearns Debt, it has guaranteed all obligations under the debt. We paid a commitment fee of 0.5% of the Bear Stearns Debt to Bear Stearns. We also paid $250,000 of Bear Stearns' legal expenses.

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        On the effective date of our January 2003 recapitalization, we effected an affiliate reorganization principally to indirectly secure the Bear Stearns Debt with the equity interests in CBO-1 and CBO-2. As a result of the affiliate reorganization, our REIT subsidiary (CBO REIT II), owns all bonds previously pledged to secure the Exit Debt and indirectly owns all of the equity interests in CBO-1 and CBO-2 (through its ownership of the two qualified REIT subsidiaries which hold the equity interests in CBO-1 and CBO-2).

        The Bear Stearns Debt is collateralized by first direct and/or indirect liens on all of our subordinated CMBS, and is subject to a number of terms, conditions and restrictions including, without limitation, scheduled principal and interest payments, and restrictions and requirements with respect to the collection and application of funds. The indirect first liens are first liens on the equity interests of three of our subsidiaries that hold certain subordinated CMBS. If the outstanding loan amount under the Bear Stearns Debt exceeds 85% of the aggregate market value of the collateral securing the Bear Stearns Debt, as determined by Bear Stearns in its sole good faith discretion, then Bear Stearns, if, and as, permitted after the application of the terms of a netting agreement entered into in connection with an interest rate swap (as described below), can require us to transfer cash, cash equivalents or securities so that the outstanding loan amount will be less than or equal to 80% of the aggregate market value of the collateral (including any additional collateral provided). Failure to meet any margin call could result in an event of default which would enable Bear Stearns to exercise various rights and remedies including acceleration of the maturity date of the Bear Stearns Debt and the sale of the collateral. In order to meet a margin call, we may be required to sell assets at prices lower than their carrying value which could result in losses. Under the Bear Stearns Debt, we are required to obtain interest rate protection in the form of a cap, swap or other derivative.

BREF Debt

        In connection with the January 2003 recapitalization, BREF Fund purchased $30 million of our newly issued subordinated debt. The BREF Debt matures on January 13, 2006 and bears interest at an annual rate of 15%. The interest on the BREF Debt is payable semi-annually and there are no principal payments until maturity. We have a right to defer two-thirds of the interest on the BREF Debt, during its term. On the June 15, 2003 payment date, we deferred two-thirds of the interest. This deferred interest is capitalized and treated as additional principal due upon maturity. On the December 15, 2003 payment date, we paid all non-capitalized interest current. The BREF Debt is secured by first liens on the equity interests of two of our subsidiaries. Although these liens effectively provide BREF Fund with an indirect lien on all of our subordinated CMBS that are held by three of our other lower-tier subsidiaries, Bear Stearns has first direct liens on the equity interests of these three lower tier subsidiaries and on certain of the subordinated CMBS held by one of these lower tier subsidiaries. Pursuant to an intercreditor agreement between Brascan Real Estate Financial Investments LLC, which we refer to as BREF Investments, and Bear Stearns, BREF Investments has agreed generally that the BREF Debt is subordinate and junior to the prior payment of the Bear Stearns Debt and has further agreed to contractual restrictions on its ability to realize upon its liens. We paid BREF Investments an origination fee of $200,000, equal to 0.5% of the $30 million in subordinated debt it had acquired plus the additional $10 million in subordinated debt that, at our option, it could have acquired prior to January 14, 2004. We also paid BREF Investments $1 million for expenses in connection with the transactions. Pursuant to the Investment Agreement with BREF Investments, we are also obligated to pay BREF Investments a quarterly maintenance fee of $434,000 through January 2006.

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Interest Rate Swap Agreement and Netting Agreement

        During the second quarter of 2003, two of our subsidiaries (the primary obligors of the Bear Stearns Debt) entered into an interest rate swap agreement for the purpose of hedging the variability of expected future interest payments on our anticipated CDO, as more fully described under Note 7.

        Under the interest rate swap documents, our two subsidiaries have granted to Bear Stearns a security interest in all of their rights, title and interest in certain assets, including property now or hereafter held by Bear Stearns in connection with the Bear Stearns Debt or the interest rate swap documents and certain contract rights under the Bear Stearns Debt and interest rate swap documents (including the subsidiaries' rights to any "margin excess" related to the collateral securing the Bear Stearns Debt, with margin excess as defined in the Bear Stearns Debt documents), to secure their obligations under the interest rate swap documents and the Bear Stearns Debt. This security interest constitutes additional collateral for the Bear Stearns Debt. Also under the interest rate swap documents, on any day on which there exists any obligation for us to deliver cash or additional eligible collateral under either the interest rate swap or the Bear Stearns Debt, such obligation will be deemed satisfied to the extent there exists a margin excess under the Bear Stearns Debt or an obligation for Bear Stearns to deliver cash or eligible collateral under the interest rate swap. CRIIMI MAE Inc. has guaranteed all of its subsidiaries' obligations under the interest rate swap documents, as well as the Bear Stearns Debt.

Bear Stearns $200 Million Secured Borrowing Facility

        On August 28, 2003, one of our subsidiaries finalized and executed (effective as of June 26, 2003) a $200 million secured borrowing facility, in the form of a repurchase transaction, with Bear Stearns. This facility may be used for the acquisition of CMBS and for financing certain other transactions involving securities. The securities to be transferred to Bear Stearns in each transaction under this facility will be subject to the approval of Bear Stearns in its sole discretion. The debt will be secured by the securities transferred to Bear Stearns, and if the market value of the collateral declines we may be required to pay down the debt or post additional collateral. This facility may be used for one or more transactions. The financing available for a subordinated CMBS purchased under this facility ranges from 80% to 15% of the market value of the CMBS. The applicable percentage depends primarily upon the ratings category of the CMBS and, to a lesser extent, upon the number of issuer trusts from which we have purchased CMBS. The maturity date of each transaction will be determined at the time the transaction is closed and, in each case; will be on or before August 14, 2005. As to each CMBS transaction, accrued and unpaid interest will be payable monthly at an annual rate ranging from one-month LIBOR plus 0.8% to one-month LIBOR plus 2% and all unpaid principal and accrued and unpaid interest will be payable at maturity. Commencing on the date of the closing of the first transaction under this facility, we will be required to maintain liquidity of at least $10 million in cash and investment grade securities in order to use the facility for additional repurchase transactions. Since the CDO was not closed by October 14, 2003, this liquidity requirement will continue to increase by $2.5 million per calendar quarter subsequent to October 14, 2003. The liquidity requirement will terminate upon the closing of the CDO or repayment in full of the Bear Stearns Debt. CRIIMI MAE Inc. has guaranteed the obligations of its subsidiary under this facility. In December 2003, we borrowed approximately $22.5 million under this facility to repay the Fannie Mae funding note. This borrowing is collateralized by the insured mortgage securities held by CRIIMI MAE Asset Acquisition Corp and bears an interest rate of one-month LIBOR plus 10 basis points. See Note 5 for information on the collateral. We made additional borrowings of approximately $20.9 million under this facility in March 2004 in connection with the prepayment of the Freddie Mac funding note and expect further borrowings in connection with the anticipated prepayment of the CMO debt, subject to Bear Stearns' approval.

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Exit Debt

        The Exit Debt, which closed on April 17, 2001 and was then repaid in early 2003, consisted of three components, as summarized below. Substantially all cash flows relating to existing assets were used to satisfy principal, interest and fee obligations under the Exit Debt. The Exit Debt was secured by substantially all of our assets. There were restrictive covenants, including financial covenants and certain restrictions and requirements with respect to cash accounts and the collection, management, use and application of funds in connection with the Exit Debt. The terms of the Exit Debt also significantly restricted the amount of cash dividends that could be paid to shareholders.

Exit Variable-Rate Secured Borrowing

        The Exit Variable-Rate Secured Borrowing provided for (i) interest at a rate of one month LIBOR plus 3.25% payable monthly, (ii) principal repayment/amortization obligations, including, without limitation, a requirement to pay down an aggregate $50 million in principal by April 16, 2003, (iii) extension fees of 1.5% of the unpaid principal balance payable at the end of each of 24, 30, 36 and 42 months after April 17, 2001, and (iv) maturity on April 16, 2005 assuming we exercised our options to extend the maturity date of the debt. In connection with this debt, the outstanding stock of CBO REIT held by CRIIMI MAE was transferred to the lenders pursuant to a repurchase agreement. The obligations under the Exit Variable-Rate Secured Borrowing were secured by a first or third priority lien on certain CMBS, the stock in certain subsidiaries, and certain deposit accounts. The foregoing transferred stock and assets securing the Exit Variable-Rate Secured Borrowing also secured the Series A and Series B Senior Secured Notes, which constituted the balance of the Exit Debt. The Exit Variable-Rate Secured Borrowing was repaid in full on January 23, 2003 in connection with our recapitalization.

Series A Senior Secured Notes

        The Series A Senior Secured Notes provided for (i) interest at a rate of 11.75% per annum payable monthly, (ii) principal repayment/amortization obligations, including, without limitation, a principal payment obligation of $5 million due April 15, 2003 (the failure to make this payment would not have constituted an event of default but would have resulted in a 200 basis point increase in the interest rate on the unpaid principal amount if certain miscellaneous collateral was not sold or otherwise disposed of), (iii) extension fees of 1.5% of the unpaid principal balance payable at the end of each of 48, 54, and 60 months after April 17, 2001, and (iv) maturity on April 15, 2006. The cash flow from certain miscellaneous assets, which secured both the Series A Senior Secured Notes and the Series B Senior Secured Notes, was applied, on a monthly basis, as principal amortization payments on the Series A Senior Secured Notes. The Series A Senior Secured Notes were secured by a first priority lien on the stock transferred in connection with the Exit Variable-Rate Secured Borrowing, by a first or second priority lien on certain CMBS, the stock in certain subsidiaries, and certain deposit accounts (these assets also secured the Exit Variable-Rate Secured Borrowing), and by a first priority lien on certain miscellaneous assets. The Series A Senior Secured Notes were redeemed on March 10, 2003 in connection with our recapitalization.

Series B Senior Secured Notes

        The Series B Senior Secured Notes provided for (i) interest at a rate of 13% per annum, payable semi-annually, with additional interest at the rate of 7% per annum accreting over the debt term, (ii) extension fees of 1.5% of the unpaid principal balance payable at the end of each of 48, 54 and 60 months after April 17, 2001 (with the payment 60 months after the April 17, 2001 also including an amount based on the unpaid principal balance 66 months after April 17, 2001), and (iii) maturity on April 15, 2007. The Series B Senior Secured Notes were secured by a second priority lien on the stock transferred in connection with the Exit Variable-Rate Secured Borrowing (this asset also secured the Series A Senior Secured Notes), by a second or third priority lien on certain CMBS, the stock in certain subsidiaries, and certain deposit accounts (those assets also secured the Exit Variable-Rate Secured Borrowing and the Series A Senior Secured Notes), and by a second priority lien on certain miscellaneous assets (these assets also secured the Series A Senior Secured Notes). The Series B Senior Secured Notes were redeemed on March 10, 2003 in connection with our recapitalization.

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Net Gain on Extinguishment of Debt

        During 2003, we reversed approximately $7.8 million of accrued extension fees related to the Exit Debt since the debt was repaid and the extension fees were no longer payable. This reversal is reflected as a gain on extinguishment of debt in our consolidated statement of income. This reversal was partially offset by approximately $403,000 of breakage fee paid to the lender of the Exit Variable-Rate Secured Borrowing and legal fees of approximately $47,000, resulting in a net gain on extinguishment of debt of approximately $7.3 million.

        In December 2003, we repaid the Fannie Mae funding note. In connection with the funding note repayment, we recognized a $665,000 loss on extinguishment of debt for the write-off of unamortized bond discount and deferred financing fees.

7.     DERIVATIVE FINANCIAL INSTRUMENTS

        In the second and third quarters of 2003, we entered into a total of three interest rate swaps to hedge the variability of the future interest payments on the anticipated CDO attributable to future changes in interest rates. Our obligations to Bear Stearns under the interest rate swap documents are collateralized by certain assets as described in Note 6. Through December 31, 2003, these swaps were treated as cash flow hedges for GAAP. Under these swaps, we agreed to pay Bear Stearns a weighted average fixed interest rate of 4.15% per annum in exchange for floating payments based on one-month LIBOR on the total notional amount of $100 million. These swaps are effective on October 15, 2003, terminate on October 15, 2013 and provide for monthly interest payments commencing November 15, 2003. On November 15, 2003 we began making monthly payments to Bear Stearns equal to the difference between the weighted average swap rate of 4.15% per annum and the current one-month LIBOR rate on the notional amount of $100 million. The interest rate swaps were designated to hedge future interest payments on the anticipated CDO. As the expected date of the CDO was changed, we recognized approximately $1.9 million of hedge ineffectiveness during the year ended December 31, 2003, in accordance with SFAS No. 133. The $1.9 million expense represents the present value of the expected payments during the period of delay. We have an asset of approximately $3.4 million in Other Assets as of December 31, 2003, representing the aggregate fair value of the interest rate swaps. During the first quarter of 2004, we have started exploring other refinancing alternatives, including the CDO. As a result, we will begin reflecting changes in the fair value of the swaps through earnings as hedge ineffectiveness in 2004. We intend to terminate the swaps simultaneously with the issuance of the CDO or other refinancing transaction. We expect to amortize approximately $1.3 million from accumulated other comprehensive income into earnings during 2004 in connection with the proposed transaction.

        We maintain an interest rate cap indexed to one-month LIBOR to partially limit the adverse effects of potential rising interest rates on our variable-rate debt. The interest rate cap provides protection to the extent interest rates, based on a readily determinable interest rate index, increase above the stated interest rate cap, in which case, we would receive payments based on the difference between the index and the cap. On October 31, 2003, we purchased an interest rate cap for $45,000 with a notional amount of $50 million, an effective date of November 4, 2003, maturity on November 4, 2004, and capping one-month LIBOR at 2.25%. At December 31, 2003, the interest rate cap had a fair value of approximately $16,000. We designated this interest rate cap, in accordance with SFAS No. 133, to hedge the Bear Stearns Debt.

        We are exposed to credit loss in the event of non-performance by the counterparties to the interest rate cap and interest rate swaps should interest rates exceed the cap rate, or if the floating rate exceeds the fixed swap rates respectively, however, we do not anticipate non-performance by the counterparties. The counterparties (or the parent to the counterparty in the case of the interest rate swaps and cap) have long-term debt ratings of A or above by Standard and Poor's and A2 or above by Moody's.

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Although neither the cap nor swaps are exchange-traded, there are a number of financial institutions which enter into these types of transactions as part of their day-to-day activities.

8.     DIFFERENCES BETWEEN GAAP NET INCOME (LOSS) AND TAXABLE LOSS

        The differences between GAAP net income (loss) and taxable income (loss) are generally attributable to differing treatment of unrealized/realized gains and losses associated with certain assets; the bases, income, impairment, and/or credit loss recognition related to certain assets; and amortization of various costs. The distinction between GAAP net income (loss) and taxable income (loss) is important to our shareholders because dividends or distributions, if any, are declared and paid on the basis of taxable income or loss. CRIIMI MAE Inc. does not pay Federal income taxes as long as we satisfy the requirements for exemption from taxation pursuant to the REIT requirements of the Internal Revenue Code. We calculate our taxable income or loss, as if we were a regular domestic corporation. This taxable income or loss level determines the amount of dividends, if any, we are required to distribute over time in order to eliminate our tax liability.

        As a result of our trader election in early 2000, we recognized a mark-to-market tax loss of approximately $478 million on certain trading securities on January 1, 2000. The January 2000 mark-to-market loss was recognized evenly from 2000 through 2003 for tax purposes (approximately $120 million per year).

        A summary of our 2003 and 2002 net operating losses for tax purposes is as follows:

	2003			2002
	($ in millions)
January 2000 Loss	$	(478.2	)	$	(478.2	)
LESS: Amounts recognized in 2000 and 2001		239.1			239.1
LESS: Amounts recognized in 2002		119.5			119.5
LESS: Amounts recognized in 2003		119.6			—
Balance Remaining of January 2000 Loss to be recognized in future periods	$	—		$	(119.6	)
Taxable Income for the year before recognition of January 2000 Loss	$	35.7		$	36.0
LESS: January 2000 Loss recognized		(119.6	)		(119.5	)
LESS: Mark-to-market unrealized loss on trading securities		(0.1	)		(0.1	)
Net operating loss	$	(84.0	)	$	(83.6	)
Accumulated net operating loss through January 1	$	(223.8	)	$	(140.2	)
Net operating loss created during the year ended December 31		(84.0	)		(83.6	)
Net operating loss utilization		—			—
Net operating loss carried forward for use in future periods	$	(307.8	)	$	(223.8	)

        As of December 31, 2003, our TRSs have an aggregate deferred tax asset of approximately $1.8 million. We have recorded a valuation allowance of approximately $1.7 million against the deferred tax asset, resulting in a net deferred tax asset of approximately $183,000 as of December 31, 2003. In addition, as of December 31, 2003, we have a current income tax receivable of approximately $751,000 related to the 2003 tax loss of one of the TRSs.

9.     SERVICING RESTRUCTURING AND SALE OF CMBS MASTER AND DIRECT SERVICING RIGHTS

        In April 2003, we restructured CMSLP's property servicing group resulting in the termination of 10 employees. We recognized approximately $149,000 of servicing restructuring expenses, representing employee severance and related benefits, during 2003. In conjunction with this restructuring, we have

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outsourced substantially all of our contractual property servicing duties related to the labor-intensive tasks of financial statement collection and analysis and property inspection performance. The outsourcing was completed in February 2004. This outsourcing does not relieve us of any of our contractual obligations or reduce any of our rights as property servicer, since CMSLP remains the property servicer of record. All severance and other employee benefits were paid as of December 31, 2003.

        In February 2002, CMSLP sold all of its rights and obligations under its CMBS master and direct servicing contracts because the contracts were not profitable, given the relatively small volume of master and direct CMBS servicing that CMSLP was performing. This sale resulted in a gain of approximately $4.9 million during 2002. In connection with this restructuring, 34 employee positions were eliminated. During the year ended December 31, 2002, approximately $1.0 million of income tax expense was recognized as a result of the gain on the sale by CMSLP of its master and direct servicing rights. The income tax expense was incurred by us through our wholly-owned TRSs that own partnership interests in CMSLP. These TRSs are separately taxable entities that cannot use our NOL to reduce their taxable income. As a result of this sale and related restructuring, CMSLP recorded restructuring expenses of approximately $438,000 in the fourth quarter of 2001. During the year ended December 31, 2002, CMSLP recorded additional net restructuring expenses of $189,000 primarily related to rent on vacant office space that was taking longer to sublease than originally anticipated. The following is a summary of the restructuring liability:

	Severance and other employee benefits			Non-cancelable Lease Costs			Other			Total
Balance, January 1, 2002	$	184,967		$	100,372		$	10,000		$	295,339
Amounts paid in 2002		(174,745	)		(239,048	)		(13,686	)		(427,479	)
Additional accrual in 2002		—			195,150			12,786			207,936
Accrual reversed in 2002		(10,222	)		—			(9,100	)		(19,322	)
Balance, December 31, 2002		—			56,474			—			56,474
Amounts paid in 2003		—			(56,474	)		—			—
Balance, December 31, 2003	$	—		$	—		$	—		$	—

10.   EXECUTIVE CONTRACT TERMINATION COSTS

        In August 2003, the employment contracts for former executive officers David Iannarone and Brian Hanson, and Cynthia Azzara expired and were not renewed. These contracts were put into place in 2001 to ensure management continuity following our emergence from Chapter 11 proceedings and through our January 2003 recapitalization. In connection with the contract terminations, we recognized approximately $1.0 million of expenses for each of Mr. Iannarone and Ms. Azzara and approximately $825,000 of expense related to severance and related benefit payments for Mr. Hanson. Mr. Iannarone and Ms. Azzara were each paid their contract termination payments during the year ended December 31, 2003. Approximately $399,000 of Mr. Hanson's payments were made during the year ended December 31, 2003 and approximately $414,000 was paid in January 2004 in accordance with the terms of his terminated employment agreement.

        Ms. Azzara has continued with us as an "at will" employee and was promoted to Executive Vice President, Chief Financial Officer and Treasurer. Mr. Hanson was subsequently hired as an "at will" employee, as Vice President, Portfolio Management effective January 1, 2004. Mr. Iannarone subsequently resigned his position as Executive Vice President, Legal and Deal Management effective October 24, 2003.

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11.   RECAPITALIZATION EXPENSES

        In connection with the January 2003 recapitalization, we amended the employment contracts of our former Chairman, William B. Dockser, and former President, H. William Willoughby, to provide for their termination on January 23, 2003. During the three months ended March 31, 2003, we recognized approximately $2.6 million of expenses related to severance and related benefit payments, and accelerated vesting of certain outstanding stock options held by Messrs. Dockser and Willoughby. These expenses are reflected as recapitalization expenses in our consolidated statement of income.

        We consolidated our office space in connection with our January 2003 recapitalization and, as a result, we recorded approximately $580,000 of expense for vacant office space during 2003. The accrual for the vacant space represents the fair value of lease payments through 2007, a tenant improvement allowance and a broker commission, all net of estimated sublease revenue in accordance with SFAS No. 146.

12.   COMMON STOCK

        On October 17, 2001, we implemented a one-for-ten reverse stock split designed, in part, to satisfy the New York Stock Exchange market price listing requirement. All share and per share information in these notes to consolidated financial statements and the accompanying consolidated financial statements has been retroactively adjusted to reflect the reverse stock split. Share information adjustments include, without limitation, adjustments to the number of common shares issued and outstanding, issued as dividends on and upon conversion of shares of preferred stock and issuable under outstanding options.

        We had 300,000,000 authorized shares and 15,384,648 and 13,945,068 issued and outstanding shares of $0.01 par value common stock as of December 31, 2003 and 2002, respectively. In connection with the January 2003 recapitalization, BREF Fund acquired 1,212,617 shares of our newly issued common stock, or approximately 8% of our outstanding common stock after giving effect to the share acquisition, at $11.50 per share, or approximately $13.9 million.

        The following table summarizes the common stock activity through December 31, 2003:

Date	Description	Common Shares Issued		Balance of Common Shares Outstanding
December 31, 2001	Balance			12,937,341
	Restricted stock issued	32,500
	Dividends to Preferred Stock	966,327
	Stock options exercised	8,900
December 31, 2002	Balance			13,945,068
	Shares issued to BREF Fund	1,212,617
	Stock options exercised	161,567
	Restricted stock granted	96,631
	Shares repurchased or forfeited	(31,235	)
December 31, 2003	Balance			15,384,648

        In connection with the January 2003 recapitalization, BREF Fund also received seven-year warrants to purchase up to 336,835 additional shares of common stock at $11.50 per share. The fair value of the warrants was calculated as approximately $2.6 million using the Black-Scholes option pricing model. The assumptions we used to value the warrants are consistent with the assumptions used to value our stock options. The warrants are a component of equity.

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Shareholder Rights Plan

        In January, 2002, our Board of Directors adopted a Shareholder Rights Plan to preserve our net operating losses for tax purposes. As discussed in Note 1, the future use of our net operating loss carryforward could be substantially limited in the event of an "ownership change" within the meaning of Section 382 of the Internal Revenue Code. The Shareholder Rights Plan is designed to deter an "ownership change" within the meaning of Section 382 of the Internal Revenue Code by discouraging any person or group from acquiring five percent or more of our outstanding common shares.

        Under the Shareholder Rights Plan, one right was distributed for each share of our common stock to shareholders of record as of February 4, 2002. The rights trade with the underlying shares of our common stock. The rights will become exercisable if a person or group (or Acquiring Person) acquires beneficial ownership of 5% of our outstanding common stock or announces a tender offer for 5% or more of the common stock. An Acquiring Person also includes a person or group that held 5% or more of the common stock as of January 23, 2002, and that acquires additional common shares. An exception could be made if the transaction is approved by our board of directors.

        If the rights become exercisable, each right will entitle its holder to purchase one one-thousandth of a share of a new series of preferred stock (the Series H Junior Preferred Stock) at an exercise price of $23 per share. If a person or group becomes an Acquiring Person in a transaction that has not been approved by the board of directors, then each right, other than those owned by the Acquiring Person, would entitle the holder to purchase $46.00 worth of our common stock for the $23.00 exercise price.

        We generally will be entitled to redeem the rights at $0.001 per right. The rights will expire 10 years after the date of issuance. However, the Board of Directors may amend the Shareholder Rights Plan to provide that the rights will expire at an earlier date.

        In connection with BREF's equity investment, the definition of an Acquiring Person in the Shareholder Rights Plan was amended to exclude BREF with respect to the equity purchased in the transaction.

13.   PREFERRED STOCK

        As of December 31, 2003 and 2002, 75,000,000 shares of preferred stock were authorized. As of December 31, 2003 and 2002, 3,000,000 shares were designated as Series B Cumulative Convertible Preferred Stock, 1,610,000 shares were designated as Series F Redeemable Cumulative Dividend Preferred Stock, 3,760,000 shares were designated as Series G Redeemable Cumulative Dividend Preferred Stock and 45,000 shares were designated as Series H Junior Preferred Stock. In January 2004, our Board of Directors reclassified the 203,000 shares previously designated as Series E Preferred Stock as authorized but unissued.

        As of December 31, 2003, there were no accrued and unpaid dividends for any series of our preferred stock. On March 9, 2004, the Board of Directors declared cash dividends of $0.68, $0.30 and $0.375 per share of Series B, Series F and Series G Preferred Stock, respectively, payable on March 31, 2004 to shareholders of record on March 19, 2004.

Series B Cumulative Convertible Preferred Stock

        Holders of Series B Preferred Stock will be entitled to receive when and as declared by the Board of Directors out of legally available assets, cumulative dividends payable quarterly in cash or common stock in an amount equal to the sum of (i) $0.68 per share per quarter plus (ii) the product of the excess over $3.00, if any, of the quarterly cash dividend declared and paid with respect to each share of common stock times a conversion ratio of 0.4797 times one plus a conversion premium of 3%, subject to adjustment upon the occurrence of certain events. Since the Series B Preferred Stock voted to accept the Chapter 11 reorganization plan, the relative rights and preferences of the Series B Preferred

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Stock were amended to permit the payment of dividends in cash or common stock (or a combination thereof) at our election. The Series B Preferred Stock is (i) convertible at the option of the holders and (ii) subject to redemption at our sole discretion after the tenth anniversary of issuance in August 2006. Each share of Series B Preferred Stock was originally convertible into 0.22844 shares of common stock, subject to adjustment upon the occurrence of certain events. Due to certain adjustment provisions in Exhibit A of our Articles of Amendment and Restatement related to the Series B Preferred Stock, the payment of dividends to holders of common stock in the form of preferred stock in 1999 and 2000, the payment of dividends on other series of preferred stock in shares of common stock during 2001 and 2002, and the reverse stock split effected in 2001 resulted in adjustments to the Series B conversion price such that one share of Series B Preferred Stock was convertible into 0.4797 shares of common stock as of December 31, 2003. The liquidation preference and the redemption price on the Series B Preferred Stock is $25 per share.

        As of December 31, 2003 and 2002, there were 1,593,982 shares of Series B Preferred Stock issued and outstanding. The following table summarizes the dividend payment activity for 2003 and 2002 for the Series B Preferred Stock:

Declaration Date	Payment Date	Dividends per Series B Share		Amount of Dividends			Time Period for which dividends were accrued
March 21, 2002	April 15, 2002	$	1.36	$	2,167,816	(a)	10/1/01-3/31/02
March 5, 2003	March 31, 2003	$	0.68	$	1,083,908		4/01/02-6/30/02
May 15, 2003	June 30, 2003	$	0.68	$	1,083,908		7/01/02-9/30/02
June 3, 2003	June 30, 2003	$	2.04	$	3,251,723		10/01/02-6/30/03
August 14, 2003	September 30, 2003	$	0.68	$	1,083,908		7/01/03-9/30/03
November 11, 2003	December 31, 2003	$	0.68	$	1,083,908		10/01/03-12/31/03

(a)

We issued 607,938 shares of common stock in connection with the payment of dividends to holders of Series B Preferred Stock. We determined the number of shares of common stock to issue by dividing the dollar amount of the dividend payable by the volume-weighted average of the sale prices of the common stock for the 10-trading day period commencing after the declaration date.

Series E Cumulative Convertible Preferred Stock

        In March 2002, we redeemed all 173,000 outstanding shares of the Series E Preferred Stock at the stated redemption price of $106 per share in cash plus accrued and unpaid dividends through and including the date of redemption. The total redemption price was $18,734,000 ($396,000 of which represented accrued and unpaid dividends for the period October 1, 2001 through March 21, 2002). The $2,252,000 difference between the aggregate liquidation value, including the initial preferred stock issuance costs, and the redemption price is reflected as a dividend on preferred stock during the year ended December 31, 2002.

Series F Redeemable Cumulative Dividend Preferred Stock

        Since the holders of Series F Preferred Stock voted to accept the Chapter 11 reorganization plan, the relative rights and preferences of the Series F Preferred Stock were amended to permit the payment of dividends in cash or common stock (or a combination thereof) at our election. The Series F Preferred Stock is redeemable at our option in cash or shares of parity stock, at our election, at a price of $10.00 per share together with an amount (in cash and/or common stock, as applicable) equal to any accrued and unpaid dividends through the dividend declaration date next preceding the redemption date. The Series F Preferred Stock provides for dividends at a fixed annual rate of 12%. The liquidation value of the Series F Preferred Stock is $10.00 per share.

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        As of December 31, 2003 and 2002, there were 586,354 shares of Series F Preferred Stock issued and outstanding. The following table summarizes the dividend payment activity for 2003 and 2002 for the Series F Preferred Stock:

Declaration Date	Payment Date	Dividends per Series F Share		Amount of Dividends			Time Period for which dividends were accrued
March 21, 2002	April 15, 2002	$	0.60	$	351,812	(a)	10/1/01-3/31/02
March 5, 2003	March 31, 2003	$	0.30	$	175,906		4/01/02-6/30/02
May 15, 2003	June 30, 2003	$	0.30	$	175,906		7/01/02-9/30/02
June 3, 2003	June 30, 2003	$	0.90	$	527,719		10/01/02-6/30/03
August 14, 2003	September 30, 2003	$	0.30	$	175,906		7/01/03-9/30/03
November 11, 2003	December 31, 2003	$	0.30	$	175,906		10/01/03-12/31/03

(a)

We issued 97,824 shares of common stock in connection with the payment of dividends to holders of Series F Preferred Stock. We determined the number of shares of common stock to issue by dividing the dollar amount of the dividend payable by the volume-weighted average of the sale prices of the common stock for the 10-trading day period commencing after the declaration date.

Series G Redeemable Cumulative Dividend Preferred Stock

        Since the holders of the Series G Preferred Stock voted to accept the Chapter 11 reorganization plan, the relative rights and preferences of the Series G Preferred Stock were amended to permit the payments of dividends in cash or common stock (or a combination thereof) at our election. The Series G Preferred Stock is redeemable, at our option, in whole or in part, at any time after issuance in cash or shares of parity capital stock, at our election, at a price of $10.00 per share together with an amount (in cash and/or common stock, as applicable) equal to any accrued and unpaid dividends through the dividend declaration date next preceding the redemption date. The Series G Preferred Stock provides for dividends at a fixed annual rate of 15%. The liquidation value of the Series G Preferred Stock is $10 per share.

        As of December 31, 2003 and 2002, there were 1,244,656 shares of Series G Preferred Stock issued and outstanding. The following table summarizes the dividend payment activity for 2003 and 2002 for the Series G Preferred Stock:

Declaration Date	Payment Date	Dividends per Series G Share		Amount of Dividends			Time Period for which dividends were accrued
March 21, 2002	April 15, 2002	$	0.750	$	933,492	(a)	10/01/01-3/31/02
March 5, 2003	March 31, 2003	$	0.375	$	466,746		4/01/02-6/30/02
May 15, 2003	June 30, 2003	$	0.375	$	466,746		7/01/02-9/30/02
June 3, 2003	June 30, 2003	$	1.125	$	1,400,238		10/01/02-6/30/03
August 14, 2003	September 30, 2003	$	0.375	$	466,746		7/01/03-9/30/03
November 11, 2003	December 31, 2003	$	0.375	$	466,746		10/01/03-12/31/03

(a)

We issued 260,565 shares of common stock in connection with the payment of dividends to holders of Series G Preferred Stock. We determined the number of shares of common stock to issue by dividing the dollar amount of the dividend payable by the volume-weighted average of the sale prices of the common stock for the 10-trading day period commencing after the declaration date.

Series H Junior Preferred Stock

        Shares of Series H Junior Preferred Stock purchasable upon exercise of the Rights will not be redeemable. Each share of Series H Junior Preferred Stock will be entitled to a minimum preferential quarterly dividend payment of $10.00 per share but will be entitled to an aggregate dividend of 1,000

F-47

times the dividend declared per share of common stock. In the event of liquidation, the holders of the Series H Junior Preferred Stock will be entitled to a minimum preferential liquidation payment of $1,000 per share but will be entitled to an aggregate payment of 1,000 times the payment made per share of common stock. Each share of Series H Preferred Stock will have 1,000 votes, voting together with the shares of common stock. Finally, in the event of any merger, consolidation or other transaction in which shares of common stock are exchanged, each share of Series H Junior Preferred Stock will be entitled to receive 1,000 times the amount received per share of common stock. These rights are protected by customary antidilution provisions. See Note 12 for a further discussion of the adoption of and reasons for adopting the Shareholder Rights Plan. As of December 31, 2003 there were no shares of Series H Preferred Stock issued and outstanding.

14.   EARNINGS PER SHARE

        The following table reconciles basic and diluted earnings per share for the years ended December 31, 2003, 2002, and 2001.

		(Loss)/income			Shares	Per Share Amount
Year ended December 31, 2003
Basic and diluted earnings per share(1):
	Loss to common shareholders and assumed conversions	$	(4,111,298	)	15,149,303	$	(0.27	)
Year ended December 31, 2002
Net loss before cumulative effect of changes in accounting principles		$	(55,695,539	)	13,710,914	$	(4.06	)
Cumulative effect of change in accounting principle related to SFAS 142			(9,766,502	)	13,710,914		(0.71	)
Basic and diluted earnings per share(1):
	Loss to common shareholders and assumed conversions	$	(65,462,041	)	13,710,914	$	(4.77	)
Year ended December 31, 2001
Net loss before cumulative effect of changes in accounting principles		$	(26,082,918	)	11,087,790	$	(2.35	)
Cumulative effect of change in accounting principle related to SFAS 133			(135,142	)	11,087,790		(0.01	)
Cumulative effect of change in accounting principle related to servicing fee revenue			1,995,262		11,087,790		0.18
Basic and diluted earnings per share(1):
	Loss to common shareholders and assumed conversions	$	(24,222,798	)	11,087,790	$	(2.18	)

(1)

The common stock equivalents for the preferred stock and stock options are not included in the calculation of diluted earnings per share for 2003, 2002 or 2001 because the effect would be anti-dilutive.

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15.   STOCK BASED COMPENSATION PLANS

        We have three stock option and/or award plans: the 2001 Stock Incentive Plan, the Second Amended and Restated Stock Option Plan for Key Employees and the 1996 Non-Employee Director Stock Plan.

2001 Stock Incentive Plan

        Under the 2001 Stock Incentive Plan, a maximum of 1,235,000 shares are available for grant pursuant to stock awards and stock options. As of December 31, 2003, options to purchase 630,000 shares have been granted to employees and directors. In addition, restricted stock awards of 129,131 shares had been granted to employees as of December 31, 2003. Under the 2001 Stock Incentive Plan, options granted must have an option price of not less than fair market value of a share of common stock on the date of grant. The vesting schedule varies by grant. No option or award of stock may be granted under the 2001 Stock Incentive Plan after July 1, 2011.

Second Amended and Restated Stock Option Plan for Key Employees

        Under the Key Employee Plan, a maximum of 450,000 shares were available for grant pursuant to stock options. Options may no longer be granted under the Key Employee Plan. As of December 31, 2003, net options to purchase 396,971 shares had been granted to employees. Under the Key Employee Plan, options granted after July 28, 1995 have an option price of not less than fair market value of a share of common stock on the date of grant and expire after eight years.

1996 Non-Employee Director Stock Plan

        In September 2001, the Board amended the compensation to be provided to the unaffiliated directors. In connection with the approval of such amended compensation package, the annual grant of shares and options and the right to elect to receive shares or options in lieu of the directors' annual retainer under the Director Stock Plan were suspended indefinitely effective the first business day of January 2002. All share related compensation for unaffiliated directors is currently being provided under the 2001 Stock Incentive Plan. Under the Director Plan, a maximum of 87,313 shares were available for grant pursuant to stock awards and stock options. As of December 31, 2003, options to purchase 2,040 shares had been granted to directors. These options have an exercise price equal to the market price of a share of common stock on the date of grant, vested on the date of grant, and expire after ten years.

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Summary of Stock Based Compensation Activity

        A summary of these stock plans as of December 31, 2003, 2002 and 2001, and changes during the years then ended is presented in the table below:

		2001 Stock Plan				Key Employee Plan				Directors' Plan
		Stock Options		Weighted Average Price		Stock Options		Weighted Average Price		Stock Options	Weighted Average Price
Balance, January 1, 2001		—		$	—	207,825		$	102.08	1,131	$	87.25
	Adjustment of 3/01(1)	—			—	103,844			102.08	609		87.25
	Granted	285,000			2.78	137,500			5.70	300		7.30
	Exercised	—			—	—			—	—		—
	Forfeited	—			—	(14,302	)		75.61	—		—
Balance, December 31, 2001		285,000			2.78	434,867			72.94	2,040		75.49
	Granted	317,000			6.77	—			—	—		—
	Exercised	(2,500	)		2.78	(6,400	)		5.70	—		—
	Forfeited	(8,000	)		2.78	(16,889	)		45.65	—		—
Balance, December 31, 2002		591,500			4.92	411,578			74.61	2,040		75.49
	Granted	28,000			9.35	—			—	—		—
	Exercised	(135,767	)		4.39	(25,800	)		5.70	—		—
	Forfeited	(8,234	)		7.41	(37,301	)		74.55	—		—
Balance, December 31, 2003		475,499		$	5.29	348,477		$	79.72	2,040	$	75.49
Exercisable, December 31, 2001		94,998		$	2.78	389,435		$	78.53	2,040	$	75.49
Exercisable, December 31, 2002		295,493		$	4.23	407,413		$	75.27	2,040	$	75.49
Exercisable, December 31, 2003		397,060		$	4.91	348,477		$	79.72	2,040	$	75.49

(1)

Adjustment as a result of anti-dilution provision associated with Series G Preferred Stock dividend paid to holders of common stock.

        The following table summarizes information about stock options outstanding at December 31, 2003:

	Options Outstanding				Options Exercisable
Range of Exercise prices	Number outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number exercisable	Weighted Average Exercise Price
$2.78-$15.93	609,308	5.8	$	5.64	530,869	$	5.41
$15.94-$31.87	54,134	2.3		31.25	54,134		31.25
$31.88-$47.81	348	5.0		35.63	348		35.63
$47.82-$111.56	5,325	0.5		108.75	5,325		108.75
$111.57-$127.50	2,967	1.0		127.50	2,967		127.50
$127.51-$159.38	153,934	1.8		158.21	153,934		158.21
$2.78-$159.38	826,016	4.8	$	36.86	747,577	$	39.98

        In addition to the stock option grants included in the table above, 96,631 shares and 32,500 shares of restricted stock were awarded to certain employees under the 2001 Stock Incentive Plan during the years ended December 31, 2003 and 2002, respectively. The weighted average price of our common stock was $10.96 and $3.99 at the award dates in 2003 and 2002, respectively. There are 69,071

F-50

unvested restricted shares as of December 31, 2003. The fair value of the restricted stock at date of grant is recognized as deferred compensation expense over the vesting period.

        We account for our stock-based compensation arrangements in accordance with the intrinsic value method as defined by Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees". SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure", which was effective January 1, 2003 for us, requires certain disclosures related to our stock-based compensation arrangements. The following table presents the effect on net income and earnings per share if we had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", to our stock-based compensation (in thousands, except per share amounts):

		Years ended December 31,
		2003			2002			2001
Net loss to common shareholders		$	(4,111	)	$	(65,462	)	$	(24,223	)
Add: Stock-based compensation expense included in reported net loss			752			110			—
Less: Stock-based compensation expense determined under the fair value based method for all awards			(1,182	)		(1,124	)		(1,271	)
Pro forma net loss to common shareholders		$	(4,541	)	$	(66,476	)	$	(25,494	)
Earnings (loss) per share:
	Basic and diluted—as reported	$	(0.27	)	$	(4.77	)	$	(2.18	)
	Basic and diluted—pro forma	$	(0.30	)	$	(4.85	)	$	(2.30	)

        The weighted average fair value of the options granted was $6.23, $4.74, and $2.66 during 2003, 2002 and 2001, respectively. The fair value of the 2003, 2002 and 2001 option grants was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	2003		2002		2001
Risk-free interest rate	2.65	%	4.23	%	4.29	%
Expected life	4.64 years		4.73 years		4.78 years
Expected volatility	85.8	%	89.2	%	91.4	%
Dividend yield	—	%	—	%	—	%

16.   401(k) PLAN

        Our 401(k) retirement investment plan is open to all of our full-time employees who are at least 21 years of age. The employees may elect voluntary pre-tax wage deferrals ranging from 0% to 100% of eligible compensation for the year up to $11,000 annually for the 2003 plan year. Plan participants who reached the age of 50 during the 2003 plan year were eligible to defer an additional $1,000 during the year. We made contributions to the 401(k) plan through June 30, 2003. We contributed up to 5% of each participant's eligible compensation during the year up to a maximum compensation permitted by the IRS (such maximum compensation was $200,000 during 2003), which vested over five years. From July 1, 2003 through December 31, 2003, we did not make contributions to the 401(k) plan. Total 401(k) contribution expense for the years ended December 31, 2003, 2002 and 2001 was approximately $119,000, $234,000, and $249,000, respectively, and is reflected in general and administrative expense. We intend to begin making contributions again during 2004.

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17.   TRANSACTIONS WITH RELATED PARTIES

        The following is a summary of the related party transactions which occurred during the years ended December 31, 2003, 2002 and 2001.

			For the years ended December 31,
			2003			2002			2001
Amounts paid or accrued to BREF and affiliates
Compensation for services of Barry Blattman(1)(5)			$	1,000,000		$	—		$	—
BREF maintenance fee(2)				1,663,667			—			—
Reimbursement of recapitalization expenses(2)				1,000,000			—			—
Origination fee(2)				200,000			—			—
Expense reimbursements to affiliates of BREF Fund and employees of these affiliates(5)				32,835			—			—
		Total	$	3,896,502		$	—		$	—
Amounts received or accrued from the AIM Limited Partnerships
	Income(3)		$	377,640		$	544,226		$	751,021
	Return of capital(4)			2,324,448			2,245,304			1,723,949
		Total	$	2,702,088		$	2,789,530		$	2,474,970
Amounts received or accrued for AIM Acquisition Limited Partnership(3)			$	157,083		$	232,873		$	284,411
Expense reimbursements from:
	AIM Limited Partnerships(5)		$	248,136		$	203,668		$	183,898
	CMSLP(5)			—			—			248,428
		Total	$	248,136		$	203,668		$	432,326
Expense reimbursement (to) from CRI:
	Expense reimbursement to CRI(5)(6)		$	(90,241	)	$	(340,847	)	$	(321,505	)
	Expense reimbursement from CRI(5)			88,090			190,095			87,381
		Net expense reimbursement	$	(2,151	)	$	(150,752	)	$	(234,124	)

(1)

As previously discussed, Barry Blattman, our Chairman and CEO, is affiliated with BREF Fund and BREF Investments. The Board's Compensation and Stock Option Committee set Mr. Blattman's total compensation for services provided in 2003 as Chairman and Chief Executive Officer at $1.0 million. Upon the recommendation of the Compensation and Stock Option Committee and the approval of the disinterested members of the Board, we paid $1.0 million in cash in 2004 to Brascan Real Estate Financial Partners, LLC (BREF Partners), an affiliate of BREF Fund and BREF Investments, with respect to the services provided by Mr. Blattman during 2003.

(2)

See discussion of the BREF maintenance fee, the reimbursement of recapitalization expenses and the origination fee in Note 6. Additionally, as discussed in Note 12, we issued seven-year warrants to BREF Fund to purchase up to 336,835 shares of our common stock at $11.50 per share in connection with the January 2003 recapitalization. There are also other existing and potential relationships, transactions and agreements with BREF Fund and/or certain of its affiliates (including BREF Investments) relating to the composition of our Board of Directors, additional subordinated debt financing, non-competition and other matters.

(3)

Included as equity in earnings from investments on the accompanying consolidated statements of income.

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(4)

Included as a reduction of equity investments on the accompanying consolidated balance sheets.

(5)

Included in general and administrative expenses on the accompanying consolidated statements of income.

(6)

Pursuant to an administrative services agreement between us and CRI, CRI provided us with certain administrative and office facility services and other services, at cost, with respect to certain aspects of our business. We used the services provided under the administrative services agreement to the extent such services were not performed by CRIIMI MAE Management or provided by another service provider. The majority of such services under this agreement were terminated in March 2003. Our former Chairman is a director, executive officer and principal shareholder of CRI.

        In addition to the transactions listed above, in connection with our merger in 1995, we entered into a deferred compensation arrangement with William Dockser, Chairman until January 23, 2003 and a Director from January 23, 2003 through February 25, 2004, and H. William Willoughby, President and a Director until January 23, 2003, in an original aggregate amount of $5,002,183 pursuant to which we agreed to pay Messrs. Dockser and Willoughby for services performed in connection with the structuring of the merger. Our obligation to pay the deferred compensation is limited, with certain exceptions, to the creation of an irrevocable grantor trust for the benefit of Messrs. Dockser and Willoughby and the transfer to such trust of the right to receive such deferred compensation (the Note Receivable) in the original aggregate principal amount of $5,002,183. The deferred compensation is fully vested and payable only to the extent that payments are made by CRI on the Note Receivable. Payments of principal and interest on the Note Receivable/deferred compensation are payable quarterly and terminate in June 2005. The Note Receivable/deferred compensation bears interest at the prime rate (4.00% as of December 31, 2003) plus 2% per annum. During the years ended December 31, 2003, 2002 and 2001, aggregate payments of approximately $574,000, $616,000 and $2.6 million (including $946,000 in accrued interest), respectively, were made on the Note Receivable/deferred compensation. These aggregate payments were split approximately equally among Messrs. Dockser and Willoughby. The unpaid aggregate principal balance on the note receivable/deferred compensation was $875,368 at December 31, 2003. The financial statement impact of these transactions is immaterial.

18.   LITIGATION

Bankruptcy Proceedings and Other Litigation

        On the October 5, 1998 petition date, CRIIMI MAE Inc., CRIIMI MAE Management, Inc. and CRIIMI MAE Holdings II, L.P. filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. On November 22, 2000, the Bankruptcy Court entered an order confirming the reorganization plan before it. We emerged from Chapter 11 on April 17, 2001, at which date all material litigation matters existing subsequent to the petition date had been settled or resolved except for the First Union litigation, which was settled in February 2002 as discussed below.

First Union

        We entered into a settlement agreement with First Union National Bank dated as of February 6, 2002. On March 5, 2002, the Bankruptcy Court entered an order approving the settlement agreement. The settlement agreement became effective on March 20, 2002. The dispute concerned whether First Union was a secured or unsecured creditor in connection with certain credit and custodian agreements between CRIIMI MAE and First Union. First Union's claim amount was approximately $18.6 million. Reference is made to the settlement agreement, previously filed with the Bankruptcy Court (and with the Securities and Exchange Commission as an exhibit to a Current Report on Form 8-K filed on February 13, 2002), for a more detailed description of the terms and conditions of the settlement agreement.

F-53

        On March 20, 2002, a previously issued Series A Senior Secured Note having a December 31, 2001 face amount of $7,484,650 and previously issued Series B Senior Secured Notes having a December 31, 2001 aggregate face amount of $4,809,273 were released from escrow to First Union. On March 20, 2002, First Union sold the notes. The proceeds from the sale of the notes, combined with the escrowed cash, resulted in total proceeds of approximately $18.8 million. We retained the approximate $238,000 of cash in excess of the First Union claim amount of $18.6 million. In addition, approximately $22,938,260 of our restricted cash became unrestricted.

Other

        In the course of our normal business activities, various lawsuits, claims and proceedings have been or may be instituted or asserted against us. Based on currently available facts, we believe that the disposition of matters pending or asserted will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.

19.   SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

        The following is a summary of unaudited quarterly results of operations for the years ended December 31, 2003, 2002 and 2001:

	2003
	First Quarter		Second Quarter			Third Quarter			Fourth Quarter
Interest Income	$	26,723,870	$	26,388,876		$	25,607,633		$	25,694,486
Net income (loss) to common shareholders		4,262,541		(3,580,779	)		(7,374,724	)		2,581,664
Basic net earnings (loss) per share		0.28		(0.24	)		(0.49	)		0.17
Diluted net earnings (loss) per share		0.28		(0.24	)		(0.49	)		0.17

	2002
	First Quarter			Second Quarter		Third Quarter			Fourth Quarter
Interest Income	$	32,031,879		$	31,743,348	$	31,508,173		$	29,176,532
Net income (loss) to common shareholders		(8,042,208	)		2,295,745		(25,101,506	)		(34,614,072	)
Basic net earnings (loss) per share		(0.62	)		0.16		(1.80	)		(2.48	)
Diluted net earnings (loss) per share		(0.62	)		0.16		(1.80	)		(2.48	)

	2001
	First Quarter		Second Quarter			Third Quarter			Fourth Quarter
Interest Income	$	33,811,044	$	33,718,486		$	33,588,020		$	33,258,002
Net income (loss) to common shareholders		6,030,160		(2,375,818	)		(723,708	)		(27,153,432	)
Basic net earnings (loss) per share		0.80		(0.21	)		(0.06	)		(2.10	)
Diluted net earnings (loss) per share		0.64		(0.21	)		(0.06	)		(2.10	)

20.   SEGMENT REPORTING

        Management currently assesses our performance and allocates capital principally on the basis of two lines of business: portfolio investment and mortgage servicing. These two lines of business are managed separately as they provide different sources and types of revenues.

        Portfolio investment currently includes (i) CMBS, (ii) direct and indirect investments in government insured mortgage securities and entities that own government insured mortgage securities, (iii) investments in mezzanine loans and (iv) securities trading activities. Our income from this segment is primarily generated from these assets.

F-54

        Mortgage servicing, which consists of all the operations of CMSLP, primarily includes performing servicing functions with respect to the mortgage loans underlying our CMBS. CMSLP performs a variety of servicing including special servicing and loan management. For these services, CMSLP earns a servicing fee which is calculated as a percentage of the principal amount of the servicing portfolio typically paid when the related service is rendered. These services may include either routine monthly services, non-monthly periodic services or event-triggered services. In acting as a servicer, CMSLP also earns other income which includes, among other things, assumption fees and modification fees. Overhead expenses, such as administrative expenses, are allocated either directly to each business line or through estimates based on factors such as number of personnel or square footage of office space.

        The following tables detail the financial performance of these operating segments for the years ended December 31, 2003, 2002 and 2001.

		As of and for the year ended December 31, 2003
		Portfolio Investment			Mortgage Servicing			Elimination of Intercompany Transactions			Consolidated
Interest income		$	104,414,865		$	—		$	—		$	104,414,865
Interest expense			(70,802,378	)		—			2,702			(70,799,676	)
	Net interest margin		33,612,487			—			2,702			33,615,189
General and administrative expenses			(10,901,540	)		—			(1,084,387	)		(11,985,927	)
Deferred compensation expense			(204,311	)		—			—			(204,311	)
Depreciation and amortization			(567,629	)		—			—			(567,629	)
Impairment on CMBS			(14,738,431	)		—			—			(14,738,431	)
Servicing revenue			—			9,485,898			(2,702	)		9,483,196
Servicing general and administrative expenses			—			(10,252,319	)		1,084,387			(9,167,932	)
Servicing amortization, depreciation and impairment			—			(1,811,028	)		—			(1,811,028	)
Servicing restructuring expenses			—			(148,878	)		—			(148,878	)
Servicing loss on sale of investment-grade CMBS						(5,672	)					(5,672	)
Income tax benefit (expense)			—			602,577			—			602,577
Equity in earnings (losses) from investments			141,732			—			—			141,732
Other, net			672,264			—			—			672,264
BREF maintenance fee			(1,663,667	)		—			—			(1,663,667	)
Executive contract termination costs			(2,028,343	)		(824,572	)		—			(2,852,915	)
Recapitalization expenses			(3,196,603	)		—			—			(3,196,603	)
Net gain on extinguishment debt			6,672,872			—			—			6,672,872
Hedge ineffectiveness			(1,949,439	)		—			—			(1,949,439	)
			(27,763,095	)		(2,953,994	)		(2,702	)		(30,719,791	)
Net income (loss) before changes in accounting principles		$	5,849,392		$	(2,953,994	)	$	—		$	2,895,398
	Total assets	$	1,058,970,703		$	10,241,041		$	—		$	1,069,211,744

F-55

		As of and for the year ended December 31, 2002
		Portfolio Investment			Mortgage Servicing			Elimination of Intercompany Transactions			Consolidated
Interest income		$	124,459,932		$	—		$	—		$	124,459,932
Interest expense			(93,765,029	)		—			21,624			(93,743,405	)
	Net interest margin		30,694,903			—			21,624			30,716,527
General and administrative expenses			(10,714,975	)		—			96,672			(10,618,303	)
Deferred compensation expense			(110,154	)		—			—			(110,154	)
Depreciation and amortization			(1,095,861	)		—			—			(1,095,861	)
Impairment on CMBS			(70,225,506	)		—			—			(70,225,506	)
Servicing revenue			—			11,570,862			(585,092	)		10,985,770
Servicing general and administrative expenses			—			(9,321,365	)		466,796			(8,854,569	)
Servicing amortization, depreciation and impairment			—			(2,173,137	)		—			(2,173,137	)
Servicing restructuring expenses			—			(188,614	)		—			(188,614	)
Servicing gain on sale of servicing rights			—			4,864,274			—			4,864,274
Servicing gain on sale of investment-grade CMBS			—			241,160			—			241,160
Income tax benefit (expense)			326,998			(787,286	)		—			(460,288	)
Equity in earnings (losses) from investments			(41,882	)		—			—			(41,882	)
Other, net			1,650,621			—			—			1,650,621
BREF maintenance fee			—			—			—			—
Executive contract termination costs			—			—			—			—
Recapitalization expenses			(1,048,559	)		—			—			(1,048,559	)
Net gain on extinguishment debt			—			—			—			—
Hedge ineffectiveness			—			—			—			—
			(81,259,318	)		4,205,894			(21,624	)		(77,075,048	)
Net income (loss) before changes in accounting principles		$	(50,564,415	)	$	4,205,894		$	—		$	(46,358,521	)
	Total assets	$	1,214,741,938		$	26,812,985		$	(469,680	)	$	1,241,085,243

F-56

		As of and for the year ended December 31, 2001
		Portfolio Investment			Mortgage Servicing			Elimination of Intercompany Transactions(1)			Consolidated
Interest income		$	134,375,552		$	—		$	—		$	134,375,552
Interest expense			(98,860,960	)		—			—			(98,860,960	)
	Net interest margin		35,514,592			—			—			35,514,592
General and administrative expenses			(10,840,864	)		—			(110,556	)		(10,951,420	)
Deferred compensation expense			—			—			—			—
Depreciation and amortization			(3,718,485	)		—			—			(3,718,485	)
Impairment on CMBS			(34,654,930	)		—			—			(34,654,930	)
Reorganization items			(1,813,220	)		—			—			(1,813,220	)
Emergence loan origination fee			(3,936,616	)		—			—			(3,936,616	)
Servicing revenue			—			12,705,666			(6,021,780	)		6,683,886
Servicing general and administrative expenses			—			(12,165,374	)		6,595,212			(5,570,162	)
Servicing amortization, depreciation and impairment			—			(3,378,076	)		1,678,890			(1,699,186	)
Servicing restructuring expenses			—			(437,723	)		—			(437,723	)
Income tax benefit (expense)			—			336,439			—			336,439
Equity in earnings (losses) from investments			646,692			—			(2,278,734	)		(1,632,042	)
Other, net			3,941,430			—			—			3,941,430
BREF maintenance fee			—			—			—			—
Executive contract termination costs			—			—			—			—
Recapitalization expenses			—			—			—			—
Net gain on extinguishment debt			—			—			—			—
Hedge ineffectiveness			—			—			—			—
			(50,375,993	)		(2,939,068	)		(136,968	)		(53,452,029	)
Net income (loss) before changes in accounting principles		$	(14,861,401	)	$	(2,939,068	)	$	(136,968	)	$	(17,937,437	)
	Total assets	$	1,289,827,494		$	25,176,629		$	—		$	1,315,004,123

(1)

We perform the mortgage servicing functions through CMSLP which, through June 30, 2001, was accounted for under the equity method. The elimination column reclassifies CMSLP under the equity method as it was accounted for in our consolidated financial statements. Beginning in the third quarter of 2001, CMSLP's results were consolidated into our consolidated financial statements.

F-57

QuickLinks

TABLE OF CONTENTS
PART I

ITEM 1. BUSINESS

ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES

PART III
PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

SIGNATURES
REPORT OF INDEPENDENT AUDITORS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
CRIIMI MAE INC. CONSOLIDATED BALANCE SHEETS
CRIIMI MAE INC. CONSOLIDATED STATEMENTS OF INCOME
CRIIMI MAE INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
CRIIMI MAE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

EX-3.7

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Exhibit 3.7

SECOND AMENDED AND RESTATED
BYLAWS
OF
CRIIMI MAE INC.
(the "Corporation")

ARTICLE I
OFFICES

        The Corporation may have such office(s) at such place(s), both within and outside the State of Maryland, as the Board of Directors (the "Board") from time to time determines or as the business of the Corporation from time to time requires.

ARTICLE II
MEETINGS OF STOCKHOLDERS

        Section l.    Annual Meetings.    Annual meetings of the stockholders of the Corporation (the "Stockholders") shall be held at such time and place (within or outside the State of Maryland) as shall be designated from time to time by the Board and stated in the notice of the meeting. Subject to the Charter, at each annual meeting Stockholders shall elect directors to succeed those whose terms then expire and shall transact such other business as may properly be brought before the meeting.

        Section 2.    Special Meetings.    Except as otherwise prescribed by law, the Charter or these Bylaws, special meetings of Stockholders for any purpose or purposes may be called only by the Chairman of the Board, if there be one, the President or the Board of Directors, and must be called by the Secretary upon the written request of a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time of any such written request) or of Stockholders entitled to cast at least 25 percent of all the votes entitled to be cast at the meeting. Requests for special meetings shall state the purpose or purposes of the proposed meeting and shall state that no other business shall be conducted. Special meetings of Stockholders shall be held at such time and place (within or outside the State of Maryland) as shall be designated by the Board.

        Section 3.    Notices of Annual and Special Meetings.    Except as otherwise prescribed by law, the Charter or these Bylaws, written notice of any annual or special meeting of Stockholders shall state the place, date and time thereof and, in the case of a special meeting, the purpose or purposes for which the meeting is called, and shall be given to each Stockholder of record entitled to vote at such meeting and to each other Stockholder entitled to notice of such meeting not less than ten (10) nor more than ninety (90) days prior to the meeting. Business transacted at a special meeting shall be confined to the purpose or purposes stated in the notice of such meeting.

        Section 4.    Presiding Officers; Order of Business.    At all meetings of Stockholders, any Stockholder present and entitled to vote in person or by proxy shall be entitled to require, by written request to the chairman of the meeting, that the order of business shall be as follows:

(1)

Organization.



(2)

Proof of service of notice of meeting or of waivers thereof. (The certificate of the Secretary of the Corporation, or the affidavit of any other person who mailed or published the notice or caused the same to be mailed or published, shall be proof of service of such notice.)



(3)

Submission by the Secretary of the Corporation of a list of the Stockholders of record entitled to vote, present in person or by proxy.



(4)

Reading of unapproved minutes of preceding meetings of the Stockholders and action thereon; provided that such reading and action may be waived with respect to any or all such unapproved minutes in the discretion of the chairman of the meeting.

(5)

Reports, if any, of officers.



(6)

Election of directors to succeed those whose terms expired or to fill vacancies otherwise existing on the Board of Directors, if the meeting is an annual meeting or a special meeting called for such purpose.



(7)

Old business, if any.



(8)

New business, if any.



(9)

Adjournment.

        Section 5.    Quorum.    At any meeting of Stockholders, the presence in person or by proxy of Stockholders entitled to cast a majority of the votes thereat shall constitute a quorum, except with respect to any matter which, under applicable law or the Charter, requires approval by a separate vote of one or more classes or series of stock, in which case the presence, in person or by proxy, of Stockholders entitled to cast a majority of the votes of each class or series required to vote as a class on the matter shall constitute a quorum. In the absence of a quorum, the chairman of the meeting or the Stockholders present in person or by proxy, by majority vote and without notice other than by announcement at the meeting, may adjourn the meeting from time to time, but not for a period exceeding one hundred twenty (120) days after the original record date, until a quorum shall be present.

        Section 6.    Adjourned Meetings.    A meeting of Stockholders convened on the date for which it was called (including one adjourned to achieve a quorum as above provided in Section 5 of this Article) may be adjourned from time to time without further notice other than by announcement at the meeting to a date not more than one hundred twenty (120) days after the original record date, and any business may be transacted at any adjourned meeting which could have been transacted at the meeting as originally called.

        Section 7.    Voting.    When a quorum is present at any meeting of the Stockholders, the affirmative vote of a majority of the votes cast or, with respect to any matter requiring a class vote, the affirmative vote of a majority of the votes cast by each class or series entitled to vote as a class on the matter, shall decide any question brought before such meeting (except that directors may be elected by the affirmative vote of a plurality of the votes cast or the affirmative vote of a majority of the votes cast of each class or series entitled to vote as a class with respect to a director, as the case may be), unless the matter is one upon which by express provision of the Charter, a different vote is required, in which case such express provision shall govern and control the decision on such matter.

        The Board of Directors may fix the record date for the determination of Stockholders entitled to vote in the manner provided in Article VIII, Section 4 of these Bylaws.

        Section 8.    Advance Notice of Matters to be Presented at an Annual Meeting of Stockholders.    Subject to the express terms of the Articles Supplementary of any class or series of preferred stock then outstanding, at an annual meeting of the Stockholders, only such business shall be conducted as shall have been properly brought before the annual meeting as set forth below. To be properly brought before an annual meeting, such business must be (1) specified in the notice of the annual meeting (or any supplement thereto) given by the Corporation pursuant to Section 3 of Article II of these Bylaws, (2) brought before the annual meeting by, on behalf of or under the direction of the Board of Directors, the Chairman of the Board, if there be one, or the President, or (3) properly brought before the annual meeting by a Stockholder entitled to vote at the annual meeting.

        In addition to any other applicable requirements including, without limitation, any requirements imposed by the Securities Exchange Act of 1934, as amended, the rules and regulations thereunder or any successor statute, rules or regulations, for business properly to be brought before an annual meeting by a Stockholder, the Stockholder must have given timely notice thereof in writing to the Secretary. To be timely, such Stockholder's notice must be delivered or mailed to and received by the

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Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 100th day and not later than the close of business on the 90th day prior to the first anniversary of the date of the notice of the annual meeting given by the Corporation pursuant to Section 3 of Article II of these Bylaws and released to Stockholders in connection with the prior year's annual meeting; provided, however, that in the event that, during the prior year, the Corporation did not hold an annual meeting, or if the date of the current year's annual meeting is more than thirty (30) days from the first anniversary of the date of the prior year's annual meeting (other than as a result of adjournment), then such Stockholder's notice must be delivered or mailed to and received by the Secretary at the principal executive offices of the Corporation not later than the later of the close of business on the 90th day prior to such current year's annual meeting date or the 10^th day following the day on which public announcement of the date of the current year's annual meeting is first made.

        For purposes of this Section 8 and Section 9 of Article II of these Bylaws, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended or any successor statute thereto.

        A Stockholder's notice to the Secretary shall set forth as to each matter the Stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the records of the Corporation, of the Stockholder proposing such business, (iii) the class (and series, if there be one) and number of shares of the Corporation that are beneficially owned by the Stockholder, (iv) proof of ownership of such shares and (v) any material direct or indirect interest, financial or otherwise, of the Stockholder, its affiliates or associates, in such business.

        Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 8 (and in accordance with any applicable provisions of the securities laws of the United States or any other applicable jurisdiction or the rules and regulations of any stock exchange or automated quotation system on or in which the securities of the Corporation are traded or listed for trading). The chairman of the annual meeting shall have the authority, if the facts warrant, to determine that business was not properly brought before the annual meeting in accordance with the provisions of this Section 8, and if he should so determine, he shall so declare to the annual meeting and any such business not properly brought before the annual meeting shall not be transacted. Any such determination by the chairman of the annual meeting shall be final, conclusive and binding.

        Section 9.    Advance Notice of Nominees for Director.    Subject to the express terms of the Articles Supplementary of any class or series of preferred stock then outstanding, only persons who are nominated in accordance with the following procedures shall be eligible for election as directors at any meeting of Stockholders. Nominations of persons for election to the Board of Directors of the Corporation at an annual meeting of Stockholders or at a special meeting of Stockholders as to which the notice of meeting provides for election of directors may be made, (i) by or under the direction of the Board of Directors, (ii) by any nominating committee or person appointed by the Board of Directors, or (iii) by any Stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 9. In addition to any other applicable requirements including, without limitation, any requirements imposed by the Securities Exchange Act of 1934, as amended, the rules and regulations thereunder or any successor statute, rules or regulations, such nominations, other than those made by or under the direction of the Board of Directors or by any nominating committee or person appointed by the Board of Directors or those relating to the rights of the holders of any class or series of preferred stock to nominate and separately elect directors, must be made pursuant to timely notice in writing to the Secretary.

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        In the event that such Stockholder notice pertains to an annual meeting of Stockholders, to be timely, such notice must be delivered or mailed to and received by the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 100^th day and not later than the close of business on the 90^th day prior to the first anniversary of the date of the notice of the annual meeting given by the Corporation pursuant to Section 4 of Article II of these Bylaws and released to Stockholders in connection with the prior year's annual meeting; provided, however, that in the event that, during the prior year, the Corporation did not hold an annual meeting, or if the date of the current year's annual meeting is more than thirty (30) days from the first anniversary of the date of the prior year's annual meeting (other than as a result of adjournment), then such Stockholder's notice must be delivered or mailed to and received by the Secretary at the principal executive offices of the Corporation not later than the later of the close of business on the 90^th day prior to such current year's annual meeting or the 10^th day following the day on which public announcement of the date of such annual meeting is first made.

        In the event that such Stockholder's notice pertains to a special meeting of Stockholders as to which the notice of meeting provides for election of directors, to be timely, such Stockholder's notice must be delivered or mailed to and received by the Secretary at the principal executive offices of the Corporation not later than the 10^th day following the day on which public announcement of the date of such special meeting is first made.

        Such Stockholder's notice shall set forth: (a) as to each person whom the Stockholder proposes to nominate for election as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class (and series, if there be one) and number of shares of stock of the Corporation that are beneficially owned by the person, and (iv) any other information relating to the person that is required to be disclosed in or other documents required in connection with solicitations of proxies for election of directors pursuant to the Securities Exchange Act of 1934, as amended, the rules and regulations thereunder or any successor statute, rules or regulations; and (b) as to the Stockholder giving the notice, (i) the name and address of the Stockholder, as they appear on the records of the Corporation, (ii) the class (and series, if there be one) and number of shares of the Corporation that are beneficially owned by the Stockholder and (iii) proof of ownership of such shares. The Corporation may require any proposed nominee to furnish such other information or documentation as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director of the Corporation or to permit the Corporation to comply with applicable law.

        Subject to the express terms of the Articles Supplementary of any class or series of preferred stock then outstanding, no person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth herein. The chairman of the meeting at which the election is taking place shall have the authority, in his sole discretion, if the facts warrant, to determine that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Any such determination by the chairman of such meeting shall be final, conclusive and binding.

        Section 10.    Informal Action by Stockholders.    Any action required or permitted to be taken at any meeting of the Stockholders may be taken without a meeting if a consent in writing setting forth such action is signed by all the Stockholders entitled to vote thereon, a written waiver of any right to dissent is signed by each Stockholder entitled to notice of, but not the right to vote on, such action, and each such consent and waiver is filed with the records of the Stockholders' meetings.

        Section 11.    Proxies.    A Stockholder may vote its shares owned of record either in person or by proxy. The proxy shall be in writing and shall be signed by the Stockholder or by the Stockholder's duly authorized attorney-in-fact or be in such other form as may be permitted by the Maryland General Corporation Law, including documents conveyed by electronic transmission. A copy, facsimile

4

transmission or other reproduction of the writing or transmission may be substituted for the original writing or transmission for any purpose for which the original transmission could be used. Every proxy shall be dated, but need not be sealed, witnessed or acknowledged. No proxy shall be valid after eleven (11) months from its date, unless otherwise provided in the proxy. In the case of stock held of record by more than one person, any co-owner or co-fiduciary may execute the proxy without the joinder of the co-owner(s) or co-fiduciary (ies), unless the Secretary of the Corporation is notified in writing by any co-owner or co-fiduciary that the joinder of more than one is to be required. At all meetings of Stockholders, the proxies shall be filed with and verified by the Secretary of the Corporation, or, if the chairman of the meeting shall so direct, by the secretary of the meeting.

ARTICLE III
DIRECTORS

        Section 1.    General Powers; Number; Tenure.    The business and affairs of the Corporation shall be managed under the direction of the Board, which may exercise all powers of the Corporation and perform or authorize the performance of all lawful acts and things which are not by law, the Charter or these Bylaws directed or required to be exercised or performed by the Stockholders. Subject to the express terms of the Articles Supplementary of any class or series of preferred stock then outstanding, the number of directors of the Corporation shall be in fixed accordance with the terms and provisions set forth in the Charter. The directors shall be divided into three (3) classes, as nearly equal in number as reasonably possible, with the term of office of one class to expire at the 2001 annual meeting of Stockholders, the term of office of another class to expire at the 2002 annual meeting of Stockholders and the term of office of the remaining class to expire at the 2003 annual meeting of Stockholders. At each annual meeting of Stockholders following such initial classification, directors elected to succeed those directors whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of Stockholders after their election and when their respective successors are elected and qualified. Directors need not be Stockholders of the Corporation or residents of the State of Maryland.

        Section 2.    Unaffiliated Directors.    Except when one or more vacancies exist, at least a majority of the entire Board and a majority of every committee of the Board shall be Unaffiliated Directors. Unaffiliated Directors are those directors who do not perform any services for the Corporation, other than as directors, and who are not directors, officers or employees of C.R.I., Inc., a Delaware corporation.

        Section 3.    Vacancies and Newly Created Directorships.    Subject to the express terms of the Articles Supplementary of any class or series of preferred stock then outstanding, any vacancy in the Board of Directors as a result of any reason and any newly created directorship resulting by any increase in the number of directors shall be filled in accordance with the terms and provisions set forth in the Charter.

        Section 4.    Removal; Resignation.    (a) Any director or directors may be removed in accordance with the terms and provisions set forth in the Charter.

        (b)   Any director may resign at any time by giving written notice to the Board, the Chairman of the Board (if there be one), the President, or the Secretary of the Corporation. Unless otherwise specified in such written notice, a resignation shall take effect upon delivery thereof to the Board or the designated officer. A resignation need not be accepted in order for it to be effective.

        Section 5.    Place of Meetings.    The Board of Directors may hold both regular and special meetings either within or outside the State of Maryland, at such time and place as the Board from time to time determines or, in the absence of such determination, as the party calling the meeting may fix.

        Section 6.    Annual Meeting; Regular Meetings.    The annual meeting of each newly elected Board shall be held as soon as is practicable following the annual meeting of the Stockholders, and no notice

5

to the newly elected directors of such meeting shall be necessary for such meeting to be lawful, provided a quorum is present thereat. Additional regular meetings of the Board may be held, at such time and place as from time to time may be determined by the Board and upon such notice as may be required by these Bylaws.

        Section 7.    Special Meetings.    Special meetings of the Board may be called by the Chairman of the Board (if there be one), by the President or by any three (3) directors, subject to the express terms of the Articles Supplementary of any class or series of preferred stock then outstanding.

        Section 8.    Quorum; Adjournments.    A majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time of any such meeting) shall constitute a quorum for the transaction of business at each and every meeting of the Board, and subject to the express terms of the Articles Supplementary of any class or series of preferred stock then outstanding, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors, except as may otherwise specifically be provided by law, the Charter or these Bylaws. If a quorum is not present at any meeting of the Board, the directors present may adjourn the meeting, from time to time, without notice other than announcement at the meeting, until a quorum is present.

        Section 9.    Notice of Meetings.    To the extent practicable, at least twenty-four (24) hours notice shall be given of all meetings of the Board, except as provided in Section 6 of this Article III and except that any meeting of the Board held pursuant to a prior resolution of the Board shall require no additional notice. The purpose of any regular meeting of the Board of Directors need not be stated in the notice thereof. All annual and regular meetings of the Board of Directors shall be general meetings, and any and all business may be transacted thereat whether or not stated in the notice thereof. Unless otherwise indicated in the notice thereof, all special meetings of the Board of Directors shall be general meetings, and any and all business may be transacted thereat whether or not stated in the notice thereof.

        Section 10.    Compensation.    Directors shall be entitled to such compensation for their services as directors as from time to time may be fixed by the Board including, without limitation, for their services as members of committees of the Board, and in any event shall be entitled to reimbursement of all reasonable expenses incurred by them in attending meetings of the Board of Directors or any committee(s) of which they are members. Any director may waive any retainer for service as a director or compensation for any meeting. No director who receives compensation as a director shall be barred from serving the Corporation in any other capacity or from receiving compensation and reimbursement of reasonable expenses for service in such other capacities.

        Section 11.    Informal Action by Directors.    Any action required or permitted to be taken at any meeting of the Board may be taken without a meeting if a written consent to such action is signed by all members of the Board, and each such consent is filed with the minutes of the Board.

        Section 12.    Meetings by Telephone or Similar Communications.    The directors may participate in meetings by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time. Participation in any such meeting shall constitute presence in person by such director at such meeting.

ARTICLE IV
COMMITTEES

        Section 1.    Formation of Committees; Quorum.    Subject to the express terms of the Articles Supplementary of any class or series of preferred stock then outstanding, the Board of Directors may appoint from among its members an executive committee and other committees of the Board of Directors, each committee to be composed of one (1) or more of the directors of the Corporation. Except when one or more vacancies exist, at least a majority of the directors of each committee shall

6

be Unaffiliated Directors; provided, however, that subject to the express terms of the Articles Supplementary of any class or series of preferred stock then outstanding, any pricing committee or any transactional committee formed from time to time may be comprised of any directors designated by the Board. The Board of Directors, subject to the express terms of the Articles Supplementary of any class or series of preferred stock then outstanding, may delegate to such committees any of the powers of the Board of Directors except those which may not by law be delegated to a committee. Such committee or committees shall have the name or names as may be determined from time to time by resolution adopted by the Board of Directors. Unless the Board of Directors designates one or more directors as alternate members of any committee to replace an absent or disqualified member of a committee at any meeting of that committee, subject to the express terms of the Articles Supplementary of any class or series of preferred stock then outstanding, the members of any such committee present at any meeting and not disqualified from voting may, whether or not they constitute a quorum, appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member of such committee. At meetings of any such committee, a majority of members, including any alternate members of such committee to the extent provided by the Board or selected by the other members of the committee as provided above, shall constitute a quorum for the transaction of business, and the act of the majority of such members and alternate members present at any meeting at which a quorum is present shall be the act of the committee.

        Section 2.    Minutes of Committee Meetings.    Each committee shall keep regular minutes of its proceedings, which shall be filed with the minutes of the Board.

        Section 3.    Compensation; Informal Action by Committees; Meetings by Telephone or Similar Communications.    Unless otherwise prohibited by law, the provisions of Article III Sections 11 (Compensation), 12 (Informal Action by Directors) and 13 (Meetings by Telephone or Similar Communications) shall apply to any committees from time to time created by the Board.

ARTICLE V
OFFICERS

        Section 1.    Positions.    The Board of Directors may elect a Chairman of the Board from among the directors. The Board of Directors shall elect a President, a Treasurer and Secretary, and may elect one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers, employees and /or agents of the Corporation, and with such powers and duties, as the Board from time to time deems necessary or appropriate. The Board may delegate to the Chairman of the Board, if there be one, or the President of the Corporation, the authority to appoint any officer or agent of the Corporation and to fill any vacancy in the office of any officer, other than those of the Chairman of the Board, President, Treasurer and Secretary; provided, however, that the Board shall at all times retain the right to fill any vacancy or to remove any officer appointed pursuant to such delegated authority, in each case by resolution of the Board. Any two offices, except those of President and Vice President, may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity when such instrument is required to be executed, acknowledged or verified by any two or more officers. In its discretion, the Board of Directors may leave unfilled any offices except those of President, Treasurer and Secretary. All officers shall hold office at the pleasure of the Board and for such terms as the Board or the officer appointing a subordinate officer, as the case may be, determines, which terms may exceed the term of the Board or the officer making such appointment, or until their respective successors are chosen and qualify.

        Section 2.    Chairman of the Board.    The Chairman of the Board, if one is elected, shall have the responsibility for the implementation of the policies determined by the Board of Directors and for the administration of the business affairs of the Corporation. The Chairman, if there be one, shall preside over the meetings of the Board and of the Stockholders if present at the meeting. The Chairman, if there be one, shall be the Chief Executive Officer of the Corporation.

7

        Section 3.    President.    The President shall be the Chief Executive Officer of the Corporation unless there is a Chairman of the Board elected by the Board, in which case the President shall be the Chief Operating Officer. The President shall have the responsibility for the active management of the business and general supervision and direction of all of the affairs of the Corporation. In the absence of the Chairman of the Board (or if none shall be elected), the President shall preside over the meetings of the Board and of the Stockholders if present at the meeting, and shall perform such other duties as may be assigned by the Board of Directors or any executive committee. The President shall have the authority, on the Corporation's behalf, to endorse securities owned by the Corporation and to execute any documents requiring the signature of an executive officer. The President shall perform such other duties as the Board of Directors may direct.

        Section 4.    Vice Presidents.    The Vice Presidents, in the order of priority designated by the Board of Directors (or if not designated, in order of their seniority as vice presidents), shall be vested with all the power and may perform all the duties of the President in the latter's absence. They may perform such other duties as may be prescribed by the Board of Directors, any executive committee, the President or the Chairman of the Board, if there be one.

        Section 5.    Treasurer.    Unless the Board designates another officer, the Treasurer shall be the Chief Financial Officer of the Corporation. The Treasurer shall have general supervision over the Corporation's finances, and shall perform such other duties as may be assigned by the Board of Directors, the President or the Chairman of the Board, if there be one. If required by resolution of the Board, the Treasurer shall furnish a bond (which may be a blanket bond) with such surety and in such penalty for the faithful performance of duty as the Board of Directors may from time to time require, the cost of such bond to be paid by the Corporation.

        Section 6.    Secretary.    The Secretary shall keep the minutes of the meetings of the Stockholders and of the Board of Directors and shall attend to the giving and serving of all notices of the Corporation required by law, the Charter or these Bylaws. The Secretary shall maintain at all times in the principal office of the Corporation at least one copy of the Bylaws with all amendments to date, and shall make the same, together with the minutes of meetings of the Stockholders, the annual statement of affairs of the Corporation and any voting trust or other Stockholders agreement on file at the office of the Corporation, available for inspection by any officer, director or Stockholder during reasonable business hours. The Secretary shall perform such other duties as may be assigned by the Board of Directors, the President or the Chairman of the Board, if there be one.

        Section 8.    Assistant Treasurer(s) and Secretary/ies.    The Board of Directors may designate, or may delegate to the Chairman of the Board, if there be one, or the President of the Corporation the authority to designate, from time to time Assistant Treasurers and Assistant Secretaries, who shall perform such duties as may from time to time be assigned to them by the Board of Directors, the President or the Chairman of the Board, if there be one.

        Section 9.    Compensation; Removal; Vacancies.    The Board of Directors shall have power to fix the compensation of all officers of the Corporation. Subject to any limitation imposed by the rules of the New York Stock Exchange, the Board of Directors may authorize any committee, or officer upon whom the power to appoint subordinate officers may have been conferred, to fix the compensation of officers or subordinate officers, as applicable. The Board of Directors shall have the power, at any regular or special meeting, to remove any officer if, in the judgment of the Board, the best interests of the Corporation will be served by such removal. The Board of Directors may authorize any officer to remove subordinate officers. The removal of any officer shall not prejudice any contract rights thereof. The Board of Directors, at any regular or special meeting, shall have power to fill a vacancy occurring in any office.

        Section 10.    Substitutes.    The Board of Directors may, from time to time in the absence of any one of its officers or at any other time, designate any other person or persons on behalf of the

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Corporation to sign any contracts, deeds, notes or other instruments in the place or stead of any of such officers, and may designate any person to fill any of said offices, temporarily or for any particular purpose; and any instrument so signed in accordance with a resolution of the Board shall be the valid act of the Corporation as fully as if executed by any regular officer.

ARTICLE VI
NOTICES

        Section 1.    Notice to Stockholders.    Whenever by law, the Charter or these Bylaws notice is required to be given to any Stockholder, such notice shall be in writing and may be given to each Stockholder by personal delivery to the Stockholder at the Stockholder's residence or usual place of business, by leaving the notice at such residence or usual place of business, by electronic mail to any electronic mail address of the Stockholder or any other electronic means, or by mailing it, postage prepaid, and addressed to the Stockholder at the address appearing on the books of the Corporation or its transfer agent. Such delivery, leaving, electronic transmission or mailing of notice shall be deemed the time of giving such notice.

        Section 2.    Notice to Directors.    Whenever by law, the Charter or these Bylaws notice is required to be given to any director, such notice may be given in any one of the following ways: by personal delivery, by personal voice telephone communication or by telephone facsimile transmission, by telegram, cablegram, telex, first class mail, electronic mail or by delivery service providing confirmation of delivery, addressed to such director at the address therefor appearing on the books of the Corporation. The time when such notice shall be consigned to a communication company for delivery or when it shall be transmitted by telephone, telephone facsimile, telegram, cablegram, telex or electronic mail shall be deemed to be the time of the giving of such notice; if given by delivery service, such notice shall be deemed given the business day following the date of consignment to such delivery service; and, if mailed, such notice shall be deemed given forty-eight (48) hours after the time it is deposited in the mail, postage prepaid.

        Section 3.    Waiver of Notice.    Notice to any Stockholder or director of the time, place and/or purpose of any meeting of Stockholders or directors or of any committee of the Board required by law or by these Bylaws may be dispensed with if such Stockholder shall attend in person or by proxy, or if such director shall attend in person, as the case may be, or if such absent Stockholder or director shall, in writing filed with the records of the meeting either before or after the holding thereof, waive such notice.

ARTICLE VII
INDEMNIFICATION AND LIMITATION OF LIABILITY

        (A)  Mandatory Indemnification.    The Corporation shall indemnify each person who is or was, or has agreed to become, a director or officer of the Corporation and each person who, while a director of the Corporation and, at the request of the Corporation, is or was serving, or has agreed to serve, as a director, officer, partner, joint venturer, trustee, employee or agent of another corporation, partnership, joint venture, trust, other enterprise or employee benefit plan against any and all liabilities and expenses incurred in connection with each such person's services in such capacities to the maximum extent permitted by the Maryland General Corporation Law, as from time to time amended.

        (B)  Discretionary Indemnification.    If approved by the Board of Directors, the Corporation may indemnify any of its employees or agents against any or all liabilities and expenses incurred in connection with each such person's services in such capacities and any of its employees, agents or other persons who are or were serving, or who have agreed to serve, at the request of the Corporation, as a director, officer, partner, joint venturer, trustee, employee or agent of another corporation, partnership, joint venture, other enterprise or employee benefit plan, to the extent and on such terms and subject to such conditions and limitations, as determined to be appropriate by the Board of Directors.

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        (C)  Advancing Expenses Prior to a Decision.    The Corporation shall advance expenses to its directors and officers entitled to mandatory indemnification to the maximum extent permitted by the Maryland General Corporation Law and may, in the discretion of the Board of Directors, advance expenses to employees, agents and others who may be granted indemnification.

        (D)  Other Provisions for Indemnification.    The Board of Directors may, by Bylaw, resolution or agreement, make further provision for indemnification of directors, officers, employees and agents and the advancement of expenses thereto.

        (E)  Limitation of Liability of Directors and Officers.    To the maximum extent that limitations on the liability of directors and officers are permitted by the Maryland General Corporation Law, as from time to time amended, no director or officer of the Corporation shall have liability to the Corporation or its stockholders for money damages. This limitation on liability applies to events occurring at the time a person serves as a director or officer of the Corporation whether or not such person is a director or officer at the time of any proceeding in which liability is asserted.

        (F)  Insurance.    The Corporation shall maintain insurance to the extent reasonably available, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Maryland General Corporation Law.

        (F)  Effect of Amendment or Repeal. No amendment or repeal of any section of this Article VII, whether by action of the Board of Directors or the Stockholders, shall apply to or affect in any respect the rights to indemnification or limitation of liability of any director or officer of the Corporation with respect to any alleged act or omission which occurred prior to such amendment, repeal or adoption.

ARTICLE VIII
STOCK

        Section 1.    Issue.    Each Stockholder shall be entitled to a certificate or certificates which shall represent and certify the number and class of shares of stock owned in the Corporation. Each certificate shall be signed by the Chairman of the Board, the President or any Vice President and be countersigned by the Secretary or any Assistant Secretary or the Treasurer or any Assistant Treasurer. The signatures of the Corporation's officers and its corporate seal appearing on stock certificates may be facsimiles if each such certificate is authenticated by the manual signature of an officer of a duly authorized transfer agent. Stock certificates shall be in such form, not inconsistent with law and the Charter, as shall be approved by the Board of Directors. In case any officer of the Corporation who has signed any certificate ceases to be an officer of the Corporation, whether by reason of death, resignation or otherwise, before such certificate is issued, then the certificate may nevertheless be issued by the Corporation with the same effect as if the officer had not ceased to be such officer as of the date of such issuance.

        Section 2.    Transfers.    The Board of Directors shall have power and authority to make all such rules and regulations as the Board may deem expedient concerning the issue, transfer and registration of stock certificates. The Board of Directors may appoint one or more transfer agents and/or registrars for its outstanding stock, and their duties may be combined. No transfer of stock shall be recognized or binding upon the Corporation until recorded on the books of the Corporation, or, as the case may be, of its transfer agent and/or of its registrar, upon surrender and cancellation of a certificate or certificates for a like number of shares.

        Section 3.    Record Dates for Dividends and Stockholders' Meeting.    The Board of Directors may fix a date not exceeding ninety (90) days preceding the date of any meeting of Stockholders, any dividend payment date or any date for the allotment of rights, as a record date for the determination of the Stockholders entitled to notice of and to vote at such meeting, or entitled to receive such dividends or

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rights, as the case may be, and only Stockholders of record on such date shall be entitled to notice of and to vote at such meeting or to receive such dividends or rights, as the case may be. In the case of a meeting of Stockholders, the record date shall be fixed not less than ten (10) days prior to the date of the meeting.

        Section 4.    Lost, Stolen or Destroyed Certificate.    The Board may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation which is claimed to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board, in its discretion, may require as a condition precedent to issuance that the owner of such lost, stolen or destroyed certificate, or his or her legal representative, advertise the same in such manner as the Board shall require and/or to give the Corporation a bond in such sum, or other security in such form, as the Board may direct, as indemnity against any claim that may be made against the Corporation with respect to the certificate claimed to have been lost, stolen or destroyed.

ARTICLE IX
GENERAL PROVISIONS

        Section 1.    Fiscal Year.    The fiscal year of the Corporation shall be as determined from time to time by the Board.

        Section 2.    Seal.    The corporate seal shall have inscribed thereon the name of the Corporation, the year of its incorporation and the words "Corporate Seal" and "Maryland."

        Section 3.    Action with Respect to Securities of Other Entities.    Unless otherwise directed by the Board, the President or the Chairman of the Board, if there be one, or any officer of the Corporation authorized by the President or the Chairman of the Board shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders or other security holders of or with respect to any action of stockholders or other security holders of any other corporation or other entity in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation.

        Section 4.    Amendment of the Bylaws.    Subject to the express terms of the Articles Supplementary of any class or series of preferred stock then outstanding, these Bylaws may be added to, altered, amended, repealed or suspended by a vote of a majority of the Board of Directors at any regular or special meeting of the Board at which a quorum is present, but the Stockholders may make additional Bylaws and may alter, repeal or suspend any Bylaws, whether adopted by them or otherwise, upon the affirmative vote of the holders of at least 66²/3% of the voting power of all the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of the directors, voting together as a single class; provided, however, that no Bylaws so made shall serve to invalidate any prior action of the Board which would have been valid if such Bylaw had not been made.

        Section 5.    Control Share Law.    Any acquisition of any shares of stock of the Corporation, including any acquisition of voting rights or other interests in any such stock, shall be exempt from the provisions of Title 3, Subtitle 7 of the Maryland General Corporation Law (Voting Rights of Certain Control Shares). Accordingly, the provisions of Title 3, Subtitle 7 of the Maryland General Corporation Law shall not apply to this Corporation.

        Section 6.    Conflict with Articles Supplementary.    In the event of a conflict between the terms of these Bylaws and of the Articles Supplementary of any class or series of preferred stock then outstanding, unless otherwise required by law or provided by the express terms of such Articles Supplementary, the terms of such Articles Supplementary shall govern and control.

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SECOND AMENDED AND RESTATED BYLAWS OF CRIIMI MAE INC. (the "Corporation")

EX-10.31

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Exhibit 10.31

SEPARATION AGREEMENT

        THIS SEPARATION AGREEMENT (this "Agreement"), made and entered into as of this 20^th day of November, 2003 (the "Effective Date"), by and between CRIIMI MAE, Inc., a Maryland corporation ("CRIIMI", CRIIMI, together with all of its subsidiaries and affiliates to be collectively referred to as the "Company") and Craig Lieberman ("Executive").

W I T N E S S E T H:

        WHEREAS, Executive was serving as the Company's Senior Vice President—Strategic Asset Resolution; and

        WHEREAS, Executive and the Company mutually agree and acknowledge that Executive's employment with the Company terminated effective as of November 13, 2003 (the "Termination Date") and on the Termination Date, Executive resigned all positions held with the Company as of the Termination Date; and

        WHEREAS, Executive and the Company hereby acknowledge that such parties mutually agreed to settle fully and finally any and all matters between them, including but not limited to, those matters related to Executive's employment with the Company and termination thereof.

        NOW, THEREFORE, for and in consideration of the mutual promises, covenants and obligations contained herein, the Company and Executive agree as follows:

ARTICLE I

TERMINATION

        Executive hereby acknowledges his termination as an employee and officer of the Company as of the close of business on the Termination Date. Accordingly, as of the Termination Date, Executive resigned all of his positions with the Company, including, without limitation, as an employee and officer of the Company. As of the Termination Date, any and all existing employment, severance, service or similar agreements between Executive and the Company either written or oral, shall be terminated and shall cease to have any effect.

ARTICLE II

PAYMENTS AND BENEFITS

        Section 2.1    Payments.    The Company shall pay Executive all earned, but unpaid base salary through the Termination Date on the first payroll payment date which occurs following the Termination Date and shall pay Executive for all of his earned, but unused paid-time-off through the Termination Date on the second payroll payment date which occurs following the Termination Date, in both cases, consistent with customary Company policies. Executive understands and agrees that effective as of the Termination Date he is no longer authorized to incur any expenses, obligations or liabilities on behalf of the Company and will promptly submit for reimbursement all outstanding expenses incurred by Executive prior to the Termination Date.

        Section 2.2    Severance Payments.    Provided that Executive does not revoke the release contemplated herein, commencing on the first payroll payment date which occurs after the eighth day following the Effective Date, the Company agrees to pay Executive severance in the amount of: (i) $33,333.33 per month for the first two (2) months following the Termination Date and

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(ii) $20,833.33 per month for the next five (5) months after the 2^nd month anniversary following the Termination Date (such amounts to be collectively referred to as the "Severance Amounts"). The Severance Amounts shall be paid in accordance with the Company's regular payroll procedures. In addition to the foregoing, on the first payroll payment date after the eighth day following the Effective Date and provided Executive does not revoke the release contemplated hereunder, the Company agrees to pay Executive $200,000 in respect of his annual bonus for the year of termination (the "Bonus Amount", the Bonus Amount and the Severance Amount collectively referred to as the "Severance Payment"). Executive acknowledges that the Company may withhold from the Severance Payment or any other benefits or compensation payable under this Agreement all federal, state, city or other taxes as may be required pursuant to any law or governmental regulation or ruling.

        Section 2.3    Company Benefits.    As of the Termination Date, Executive and his eligible dependents shall be eligible to elect COBRA health insurance continuation coverage in accordance with applicable law. In the event that Executive elects COBRA coverage and remains eligible for such coverage, the Company agrees to pay the cost of Executive's COBRA premiums until November 30, 2004.

        Section 2.4    Relocation.    Executive agrees that in consideration for the promises and benefits set forth in this Agreement, the relocation benefits agreement between the Company and Executive dated June 6, 2003 (the "Relocation Agreement") shall terminate as of the Termination Date and Executive acknowledges and agrees that the Company has fully performed its obligations under the Relocation Agreement as of the Termination Date.

        (a)   The Company shall pay all reasonable and pre-approved expenses incurred by Executive in moving his household effects which he incurs on or prior to August 31, 2004 in accordance with one of clauses (i), (ii) or (iii) below:

          (i)  if Executive remains in Bethesda, Maryland (or anywhere within the fifty (50) mile radius thereof), the Company will pay such moving expenses as they relate to moving his household effects that remain in Charlotte, North Carolina to Bethesda, Maryland;

         (ii)  if Executive moves from Bethesda, Maryland to Charlotte, North Carolina (or anywhere within the fifty (50) mile radius thereof), the Company will pay such moving expenses as they relate to moving his household effects from Bethesda, Maryland to Charlotte, North Carolina; or

        (iii)  if Executive moves to a location outside of the fifty (50) mile radius of Bethesda, Maryland or Charlotte, North Carolina, the Company will pay such moving expenses as they relate to moving his household effects from Bethesda, Maryland and Charlotte, North Carolina to such new location.

        (b)   The Company agrees to reimburse Executive for his monthly rental payments in the amount of $5,250, up through and including the earlier of: (i) the last day of the month Executive closes either on the sale or lease of Executive's current Charlotte, North Carolina residence (the "Residence") or (ii) July 31, 2004. In the event that Executive sells or leases the Residence prior to July 31, 2004, the Company shall pay Executive $2,000 per month (pro-rated for partial months) commencing from the date of such sale or lease through and including July 31, 2004.

        (c)   The Company agrees to reimburse Executive for all reasonable and customary brokerage commissions and selling expenses incurred by Executive in connection with the sale or lease of the Residence, including legal fees and closing costs, but in no event shall such amount exceed 9% of the gross selling price of the Residence in the case of a sale or 15% of the annual rental income in the case of a leases; provided, that, such sale or lease occurs on or prior to August 31, 2004. For the avoidance of doubt, the Company shall have no obligations under this Section 2.4(c) with respect to any sale or lease of the Residence which occurs after August 31, 2004.

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        (d)   In addition to the payments described in this Section 2.4 (the "Relocation Benefits"), the Company agrees, to the extent not already paid, to make a "gross-up" payment to Executive to offset any income tax liability Executive may incur by reason of any of the Relocation Benefits and/or any payments previously made under the Relocation Agreement being treated as taxable income under the Internal Revenue Code of 1986, as amended, as reasonably determined by an accountant selected by the Company.

        Section 2.5    No Other Payments.    Executive acknowledges that the Company had no obligation to provide the Severance Payment and other benefits specifically set forth in this Agreement and that such Severance Payment and other benefits are solely in exchange for the agreement of the parties set forth herein, including but not limited to, the Release of Claims as set forth in Article III. Except as specifically provided herein or as otherwise may be required by law, Executive acknowledges that he shall not be entitled to receive any other payments, salary, bonus, pension, medical, life, disability insurance or any other benefits or equity-related compensation, stock options, incentive compensation, or severance or separation pay or any other claim or compensation or benefits of any kind or nature whatsoever that Executive may now have or ever claimed to have been entitled to from the Company. Executive's participation in any other Company employee benefit plan shall terminate effective as of the Termination Date in accordance with the terms of such employee benefit plans and applicable law.

ARTICLE III

RELEASE

        Section 3.1    Release of Claims.    

        (a)   It is understood and agreed by the parties to this Agreement that in consideration of the mutual promises and covenants contained in this Agreement, and after consultation with counsel, Executive for himself and each of his respective heirs, representatives, agents, successors and assigns, irrevocably and unconditionally releases and forever discharges the Company and its respective current and former officers, directors, members, partners, shareholders, employees, representatives, heirs, attorneys and agents, as well as its respective predecessors, parent companies, subsidiaries, affiliates, divisions, successors and assigns and their respective current and former officers, directors, members, partners, shareholders, employees, representatives, attorneys and agents, from any and all causes of action, claims, actions, rights, judgments, obligations, damages, demands, accountings or liabilities of whatever kind or character, which Executive may have against them, or any of them, by reason of or arising out of, touching upon or concerning Executive's employment with the Company and the termination of his employment with the Company, or any statutory claims, or any and all other matters of whatever kind, nature or description, whether known or unknown, occurring on or prior to the Effective Date. Executive acknowledges that this release of claims specifically includes, but is not limited to, any and all claims for fraud; breach of contract; breach of the implied covenant of good faith and fair dealing; inducement of breach; interference with contractual rights; wrongful or unlawful discharge or demotion; violation of public policy; invasion of privacy; intentional or negligent infliction of emotional distress; intentional or negligent misrepresentation; conspiracy; failure to pay wages, benefits, vacation pay, severance pay, attorneys' fees, or other compensation of any sort; defamation; unlawful effort to prevent employment; discrimination on the basis of race, color, sex, national origin, ancestry, religion, age, disability, handicap, medical condition or marital status; any claim under Title VII of the Civil Rights Act of 1964 ("Title VII", as amended), 42 U.S.C. 2000, et seq., the Age Discrimination in Employment Act ("ADEA"), 29 U.S.C. 621, et seq., the Older Workers Benefit Protection Act ("OWBPA"), 29 U.S.C. 626(f); violation of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"); the Americans with Disabilities Act ("ADA"); violation of the Occupational Safety and Health Act ("OSHA") or any other health and/or safety laws, statutes or regulations; violation of the Employee Retirement Income Security Act of 1974 ("ERISA"); violation of

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the Internal Revenue Code of 1986, as amended; any applicable local or state law relating to employment or wages or any other wrongful conduct, based upon events occurring prior to the Effective Date. Notwithstanding the provisions of this paragraph, nothing in this waiver or release shall be construed to constitute any release or waiver by Executive of his rights or claims against the Company arising out of or referred to in this Agreement.

        (b)   Executive represents and warrants that he has not assigned or subrogated any of his rights, claims and causes of action, including any claims referenced in this Agreement, or authorized any other person or entity to assert such claim or claims on his behalf, and he agrees to indemnify and hold harmless the Company against any assignment of said rights, claims and/or causes of action.

        Section 3.2    Waiver of Rights Under the Age Discrimination Act.    Executive understands that this Agreement, and the release contained herein, waives claims and rights Executive might have under ADEA. The waiver of Executive's rights under ADEA does not extend to claims or rights that might arise after the Effective Date. Up and until the seventh day following the Effective Date of this Agreement, Executive may revoke the terms of this Agreement relating to ADEA claims by a written document received by Mark Libera, 11200 Rockville Pike, Rockville, Maryland, 20852. Since this release with respect to ADEA claims is a material inducement in the Company's willingness to enter into this Agreement, its obligations to pay the Severance Payment and other benefits exclusively provided for in this Agreement shall cease upon the receipt of any such notice of revocation by Executive. Executive acknowledges that he has been given up to 21 days to decide whether to sign this Agreement which Executive may choose to waive and may evidence such waiver by executing this Agreement and returning it to the Company prior to the expiration of such 21 day period.

ARTICLE IV

NO ADMISSION OF LIABILITY

        Executive further acknowledges, covenants, and agrees that no final findings or final judgments have been made by any court or arbitration panel against the Company in favor of Executive and that Executive does not purport and will not claim to be a prevailing party for any purpose.

ARTICLE V

CONFIDENTIALITY, NON-DISCLOSURE, NON-SOLICITATION AND COOPERATION

        Section 5.1    Confidentiality of Agreement.    The parties agree that the terms and conditions of this Agreement are confidential. Executive represents that neither he nor any attorney he may have retained to review this Agreement, have disclosed the terms or conditions of this Agreement to anyone, except as permitted pursuant to this Section 5.1. Except as may be required by law, neither Executive nor his attorneys may disclose the terms and conditions of this Agreement to any other person or entity, except that Executive may disclose the provisions of this Agreement to his immediate family and financial advisors, provided, that, Executive makes the person to whom disclosure is made aware of the confidentiality provisions of this Agreement and such person agrees in writing to keep the terms of this Agreement confidential. If subpoenaed to appear in any civil or criminal litigation, or by any governmental authority, to testify as to the contents of this Agreement, Executive agrees to, within three (3) business days after receipt of such subpoena, forward a copy of the subpoena to the Company and to notify the proponent of the subpoena that this Agreement is the subject of a Confidentiality Agreement. The Company may disclose the terms and conditions of this Agreement to its respective officers, directors, accountants and counsel, and as required by law. Executive further agrees that he will not encourage others who are not parties to this Agreement to demand any disclosure of the terms and conditions of this Agreement. Notwithstanding anything in this Agreement or in any other written or oral understanding or agreement to which the parties hereto are parties or by which they are bound,

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each party (and its representatives, agents and employees) may consult any tax advisor regarding the tax treatment and tax structure of the transaction contemplated by this Agreement and may at any time disclose to any person, without limitation of any kind, the tax treatment and tax structure of such transaction and all materials (including opinions or other tax analyses) that are provided relating to such treatment or structure. The preceding sentence is intended to satisfy the requirements for the transaction contemplated herein to avoid classification as a "confidential transaction" in accordance with Treasury Regulations Section 1.6011-4(b)(3) and shall be interpreted consistent with and limited to such intent.

        Section 5.2    Non-Disclosure of Confidential Information.    Confidential Information shall mean and include:

        (a)   any and all confidential, proprietary, secret or non-public information related in any way to the business or operations, present or future, of the Company or any customer of the Company, which is now or in the future shall become known to Executive as a result of his relationship with the Company;

        (b)   without limitation of the foregoing, any intellectual property rights acquired or developed by the Company whether or not patentable or copyrightable, including all business plans, know-how, technical information, inventions, designs, equipment, configurations, ideas, concepts, processes, procedures, operations, research and development plans, computer software, specifications, documentation, trade secrets, (including the expression of any of the foregoing in notes, formulas, test procedures and results, reports, memoranda, or other written materials, software or other material of whatsoever nature) as well as pricing information, business, operational and marketing plans.

Executive acknowledges that the Confidential Information was and in the future may have been acquired or developed by the Company at a great expense, may be a special, valuable, and a unique asset of the Company and represent the sole exclusive property of the Company. Executive acknowledges that in the course of his employment with the Company he has obtained Confidential Information and personal knowledge of, and influence over, clients, of the Company. Executive acknowledges that any wrongful use or disclosure of Confidential Information would greatly damage the Company causing it irreparable harm and injury. Executive covenants and agrees that, at all times following the Termination Date, he shall not, directly or indirectly, publish, divulge or disclose, in whole or in part, or suffer the use by any third party, for his own benefit or the benefit of the any other person, any Confidential Information other than as may be required by law.

        Section 5.3    Non-Solicitation.    By executing this Agreement, Executive acknowledges that he understands that the Company's ability to operate its businesses depends upon its ability to attract and retain skilled people and that the Company has and will continue to invest substantial resources in training such employees. For a period of twelve (12) months following the Termination Date, Executive shall not directly or indirectly, individually or on behalf of other persons or entities, solicit or induce or attempt to solicit or induce or hire any person engaged or employed (whether part-time or full-time) by the Company, including as an independent contractor, adviser or consultant to leave the employ of, or cease providing services to, the Company, as the case may be, or in any other manner seek to engage or employ any such person (whether or not for compensation) as an officer, employee, consultant, adviser, independent contractor or otherwise, such that such person would thereafter be unable to devote the same business time, attention, energies, abilities and efforts to the business then conducted by the Company, as the case may be, as was theretofore devoted. In the event that Executive breaches or threatens to breach any of the covenants contained herein, the Company shall be entitled to seek a temporary or permanent injunction against Executive prohibiting any further violation of any such covenants, it being acknowledged and agreed that any such breach of the covenants will cause irreparable harm to the Company and that the remedy at law for any breach or threatened breach of such covenants would be inadequate to protect the interests of the Company. The injunctive or

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equitable relief provided herein shall be in addition to any award of damages, compensatory, punitive, exemplary or otherwise, to which the Company may be entitled and shall not be construed to limit the right of the Company to collect such damages.

        Section 5.4    Cooperation.    In consideration of the benefits provided in this Agreement, following the Termination Date, Executive agrees to provide reasonable cooperation, assistance and information to the Company, at such times as mutually agreed by the parties, on such matters relating to Executive's employment or area of responsibility at the Company, including, without limitation, the "Shilo Inn" loan matter. Executive agrees that he will make himself reasonable available to satisfy his obligations, if any, under this Section 5.4.

ARTICLE VI

MISCELLANEOUS

        Section 6.1    Disparagement.    The parties agrees that they will not at any time, in any way, disparage the other and in the case of the Company, any individuals associated with the Company including its present or former officers, directors, agents, and employees, by making or soliciting any comments, statement or the like to the media or to others, either orally or in writing, that may be considered to be derogatory or detrimental, in any way, to the good name or business reputation of the other party. Executive further agree that he will not engage in any conduct that is in any way injurious, or may be perceived to be injurious, the Company's reputation or interest, including but not limited to, encouraging or assisting the other to bring any form of suit, claim or cause of action against the Company in any forum.

        Section 6.2    Notices.    For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered, sent by facsimile or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to such address as provided in the signature pages hereto or sent to such other address or facsimile number as each party may furnish to the other in writing from time to time in accordance with this Section 6.2.

        Section 6.3    Applicable Law.    This Agreement is entered into under, and shall be governed for all purposes by, the laws of the State of Maryland without giving effect to any choice of law principles which could cause the application of the laws of another jurisdiction.

        Section 6.4    No Waiver.    No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall (a) be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time or (b) preclude insistence upon strict compliance in the future.

        Section 6.5    Severability.    If a court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, then the invalidity or unenforceability of that provision shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect and such invalid or unenforceable provision shall be reformulated by such court to preserve the intent of the parties hereto.

        Section 6.6    Counterparts.    This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement.

        Section 6.7    Headings.    The paragraph headings have been inserted for purposes of convenience and shall not be used for interpretive purposes.

6

        Section 6.8    Gender and Plurals.    Wherever the context so requires, the masculine gender includes the feminine or neuter, and the singular number includes the plural and conversely.

        Section 6.9    Assignment.    This Agreement is binding on Executive and the Company and their respective successors and assigns; provided, however, that the rights and obligations of the Company under this Agreement may be assigned to a successor entity. No rights or obligations of Executive hereunder may be assigned by Executive to any other person or entity, except by will or the laws of descent and distribution. In the event of Executive's death prior to receipt by Executive of all amounts payable by the Company hereunder, such amounts shall be payable to Executive's designated beneficiaries on the same schedule as provided for in this Agreement.

        Section 6.10    Entire Agreement.    Except as otherwise specifically provided herein, this Agreement constitutes the entire agreement of the parties with regard to the subject matter hereof, contains all the covenants, promises, representations, warranties and agreements between the parties with respect to Executive's termination of employment from the Company and supersedes all prior employment, severance, service or similar agreements between Executive and the Company or any of its predecessors or affiliates, including, without limitation, the Relocation Agreement. Executive acknowledges and agrees that the consideration provided for herein is adequate consideration for the agreements set forth herein. Except as otherwise provided herein, each party to this Agreement acknowledges that no representation, inducement, promise or agreement, oral or written, has been made by either party, or by anyone acting on behalf of either party, which is not embodied herein, and that no agreement, statement, or promise relating to Executive's termination of employment with the Company that is not contained in this Agreement, shall be valid or binding. Any modification of this Agreement will be effective only if it is in writing and signed by the party to be charged. If Executive is eligible to receive any payments or benefits from the Company in the nature of severance or termination pay pursuant to any employee benefit plan or otherwise ("Other Payment"), then such Other Payments shall off-set, on a dollar for dollar basis, the Severance Payment provided in Section 2.2 of this Agreement.

        Section 6.11    Arbitration.    Except as provided in Section 6.11 of this Agreement, any dispute arising between the Company and Executive with respect to the performance or interpretation of this Agreement shall be submitted to arbitration, before one arbitrator, in Rockville, Maryland, for resolution in accordance with the Commercial Arbitration Rules of the American Arbitration Association, modified to provide that the decision by the arbitrator shall be final and binding on the parties, shall be furnished in writing, separately and specifically stating the findings of fact and conclusions of law on which the decision is based, and shall be rendered within 90 days following empanelment of the arbitrator. The cost of arbitration shall initially be borne by the party requesting arbitration. Following a decision by the arbitrator, the costs of arbitration shall be divided and legal fees shall be awarded as directed by the arbitrator.

        Section 6.12    Construction of Agreement.    This Agreement shall be interpreted without regard to the identity of the drafter, and shall not be construed for or against either party.

        Section 6.13    Return of Company Property.    Executive shall assign to the Company all right, title and interest to inventions, discovery, improvements, trade secrets and other products developed by him alone or in conjunction with others at any time while employed by the Company or any of its affiliates and will cooperate in filing applications for letters patent and in executing assignments upon the Company's request. On the Effective Date, Executive shall deliver to the Company, without retaining any copies thereof, all property and Confidential Information of the Company in any medium or form, and all material based or derived from such property or Confidential Information, including, without limitation, credit or charge cards, automobile, files, software, records, computer access codes, business equipment (including fax machines, telephones, and personal computers) and instruction manuals of the Company which are in the possession of Executive.

7

        Section 6.14    Breach.    Executive agrees and acknowledges that if he breaches any representation, covenant, promise or undertaking made pursuant to this Agreement, the Company is authorized to pursue all rights and remedies available in law or equity, which rights and remedies may include, but are not limited to, Executive's obligation to promptly return to the Company all amounts paid by the Company to Executive under this Agreement, including without limitation, the Severance Payment and the payments contemplated under Section 2.4 hereof.

ARTICLE VII

EXECUTIVE ACKNOWLEDGEMENTS

        Executive acknowledges that:

          (i)  He has read and understands the terms of this Agreement and has voluntarily agreed to these terms without coercion or undue persuasion by the Company or any officer, director or other agent thereof;

         (ii)  He has been encouraged by the Company to seek competent legal counsel in his review and consideration of this Agreement and its terms;

        (iii)  He has been advised, that in accordance with ADEA, he has twenty-one (21) days to consider the terms of this Agreement and may revoke the Agreement within seven (7) days after he executes the Agreement by written notification to the Company; and

        (iv)  This Agreement does not purport to waive, and does not waive, any rights Executive may have which arise after the Effective Date.

* * * *

[The next page is the signature page]

8

        IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the 20^th day of November, 2003.

CRIIMI MAE, INC.
11200 Rockville Pike
Rockville, Maryland, 20852
By:	/s/  MARK R. JARRELL Mark R. Jarrell
By:	/s/  CRAIG LIEBERMAN Craig Lieberman

9

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SEPARATION AGREEMENT

EX-21.1

Exhibit 21.1

Subsidiaries of CRIIMI MAE Inc.:

a.

CRIIMI, Inc., incorporated in Maryland.



b.

CRIIMI MAE Financial Corporation, incorporated in Maryland.



c.

CRIIMI MAE Financial Corporation II, incorporated in Maryland.



d.

CRIIMI MAE Management, Inc., incorporated in Maryland.



e.

CRIIMI MAE QRS 1, Inc., incorporated in Delaware.



f.

CRIIMI MAE Services Limited Partnership, formed in Maryland.



g.

CRIIMI MAE CMBS Corp., incorporated in Delaware.



h.

CMSLP Management Company, Inc., incorporated in Maryland.



i.

CMSLP Holding Company, Inc., incorporated in Maryland.



j.

CBO REIT II, Inc., incorporated in Maryland.



k.

CRIIMI Newco Member, Inc., incorporated in Maryland.



l.

CRIIMI Newco, LLC, formed in Delaware.



m.

CRIIMI MAE Asset Acquisition Corp., incorporated in Maryland.

EX-23.1

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Exhibit 23.1

Consent of Independent Auditors

        We consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-112259) of CRIIMI MAE Inc. and in the related Prospectus of our report dated March 8, 2004, with respect to the 2003 and 2002 consolidated financial statements of CRIIMI MAE Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2003.

Ernst & Young LLP
McLean, Virginia
March 8, 2004

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Consent of Independent Auditors

EX-23.2

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Exhibit 23.2

Consent of Independent Auditors

        We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-88462) pertaining to the CRIIMI MAE Management, Inc. Retirement Plan and in the Registration Statements (Form S-8 Nos. 333-73100 and 333-90410) pertaining to the CRIIMI MAE Inc. 2001 Stock Incentive Plan of our report dated March 8, 2004, with respect to the 2003 and 2002 consolidated financial statements of CRIIMI MAE Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2003.

Ernst & Young LLP
McLean, Virginia
March 8, 2004

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Consent of Independent Auditors

EX-31.1

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Exhibit 31.1

CERTIFICATION

I, Barry S. Blattman, certify that:

1.

I have reviewed this Annual Report on Form 10-K of CRIIMI MAE 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 officers 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)) 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)

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

c)

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 the 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 officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)

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

b)

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

Date:	March 12, 2004	/s/  BARRY S. BLATTMAN
		Barry S. Blattman Chairman of the Board and Chief Executive Officer

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CERTIFICATION

EX-31.2

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Exhibit 31.2

CERTIFICATION

I, Cynthia O. Azzara, certify that:

1.

I have reviewed this Annual Report on Form 10-K of CRIIMI MAE 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 officers 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)) 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)

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

c)

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 the 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 officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)

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

b)

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

Date:	March 12, 2004	/s/  CYNTHIA O. AZZARA
		Cynthia O. Azzara Executive Vice President, Chief Financial Officer and Treasurer

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CERTIFICATION

EX-32.1

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Exhibit 32.1

Certification

        This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and accompanies the Annual Report on Form 10-K (the "Form 10-K") for the year ended December 31, 2003 of CRIIMI MAE Inc. (the "Issuer").

        I, Barry S. Blattman, Chief Executive Officer, certify that to the best of my knowledge:

(i)

the Form 10-K fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and



(ii)

the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

March 12, 2004	/s/  BARRY S. BLATTMAN
DATE	Barry S. Blattman Chairman of the Board and Chief Executive Officer

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Certification

EX-32.2

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Exhibit 32.2

Certification

        This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and accompanies the Annual Report on Form 10-K (the "Form 10-K") for the year ended December 31, 2003 of CRIIMI MAE Inc. (the "Issuer").

        I, Cynthia O. Azzara, Chief Financial Officer, certify that to the best of my knowledge:

(i)

the Form 10-K fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and



(ii)

the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

March 12, 2004	/s/  CYNTHIA O. AZZARA
DATE	Cynthia O. Azzara Executive Vice President, Chief Financial Officer and Treasurer

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Certification

EX-99.2

Exhibit 99.2

Special Serviced Loan Detail Report as of December 2003

Asset	Special Service Type	Prop Type	Underlying Transaction	PROPERTY NAME	CITY	ST	# of Months Delinq	Scheduled Balance as of December 2003
CBO1	REO	Healthcare	NASC 1994-C3	Fallon	Fallon	NV	32	3,512,867
CBO1	Monetary	Hotel	NASC 1994-C3	Super 8	Florence	KY	0	1,356,018
CBO1	Monetary	Healthcare	NASC 1994-C3	Oakwood Manor	Dyersburg	TN	0	1,046,342
CBO1	Monetary	Healthcare	NASC 1994-C3	Briarwood Manor	Lexington	TN	0	1,202,735
CBO1	Monetary	Healthcare	NASC 1994-C3	Whitehaven Manor	Memphis	TN	0	1,834,981
CBO1	Monetary	Healthcare	NASC 1994-C3	Parkview Manor	Humboldt	TN	0	1,506,773
CBO1	REO	Healthcare	ASC 1995-D1	Golden Age	Lyons	IL	41	3,174,844
CBO1	REO	Hotel	ASC 1995-D1	Days Inn — Airport	Savannah	GA	26	3,652,490
CBO1	REO	Hotel	ASC 1995-D1	Days Inn — Abercorn	Savannah	GA	26	2,352,386
CBO1	Monetary	Hotel	ASC 1995-D1	SREE — Comfort Inn — Hardeeville	Hardeeville	SC	1	1,712,035
CBO1	Monetary	Hotel	ASC 1995-D1	SREE — Comfort Inn — Spartansburg	Spartansburg	SC	8	1,594,512
CBO1	Monetary	Healthcare	ASC 1995-D1	Colonial Manor Rehabilitation Center	Weymouth	MA	2	4,957,410
CBO1	Monetary	Hotel	ASC 1996-D2	American Inn, Independence	Independence	MO	19	2,950,747
CBO1	Monetary	Hotel	ASC 1996-D2	American Motel, Kansas City	Kansas City	KS	19	2,600,839
CBO1	Monetary	Hotel	ASC 1996-D2	American Motel, Wheat Ridge	Wheat Ridge	CO	19	2,190,860
CBO1	Monetary	Hotel	ASC 1996-D2	Interstate Inn, Council Bluffs	Council Bluffs	IA	19	2,045,688
CBO1	Monetary	Hotel	ASC 1996-D2	American Inn, Springfield	Springfield	MO	19	1,915,757
CBO1	Monetary	Hotel	ASC 1996-D2	Interstate Inn, Blue Springs	Blue Springs	MO	19	1,887,032
CBO1	Monetary	Hotel	ASC 1996-D2	American Inn, Hammond	Hammond	IN	19	1,885,439
CBO1	Monetary	Hotel	ASC 1996-D2	American Inn, Blue Springs	Blue Springs	MO	19	1,589,708
CBO1	Monetary	Hotel	ASC 1996-D2	Interstate Inn, Wheat Ridge	Wheat Ridge	CO	19	1,393,518
CBO1	REO	Hotel	ASC 1996-D2	Homegate — El Paso	El Paso	TX	37	6,149,815
CBO1	REO	Hotel	ASC 1996-D2	Homegate — Fiesta Park	San Antonio	TX	37	10,201,458
CBO1	REO	Hotel	ASC 1996-D2	Harvey Hotel, LBJ	Dallas	TX	0	5,544,601
CBO1	Monetary	Hotel	ASC 1996-D2	Mountain Valley Lodge	Pigeon Forge	TN	0	3,812,866
CBO1	Monetary	Hotel	ASC 1996-D2	Creekstone Inn	Pigeon Forge	TN	0	3,757,588
CBO1	Monetary	Hotel	ASC 1996-D2	Mountain Skys/Roadway Inn	Pigeon Forge	TN	0	2,565,162
CBO1	Monetary	Hotel	ASC 1996-D2	Briarstone Inn	Pigeon Forge	TN	0	1,672,817
CBO1	Monetary	Hotel	ASC 1996-D2	Shiloh Lodge	Pigeon Forge	TN	0	1,352,995
CBO1	Monetary	Hotel	ASC 1996-D2	Woodfin Suites	Rockville	MD	0	11,142,115
CBO1	REO	Hotel	ASC 1996-D2	Ramada Inn-Mobile	Mobile	AL	25	6,127,929
CBO1	Monetary	Hotel	ASC 1996-D2	Sheraton-Shreveport	Shreveport	LA	11	5,117,306
CBO1	Monetary	Hotel	ASC 1996-D2	Quality Inn Center-Seattle	Seattle	WA	3	1,965,995
CBO1	Monetary	Hotel	ASC 1996-D2	Days Inn Westhaven	West Haven	CT	0	2,240,654
CBO1	Monetary	Hotel	ASC 1996-D2	Richmond-Super 8	Richmond	VA	0	817,535
CBO1	Monetary	Hotel	ASC 1996-D2	Martinsburg-Super 8	Martinsburg	WV	0	660,316
CBO1	Monetary	Hotel	ASC 1996-D2	Super 8-Memphis	Memphis	TN	0	880,071
CBO1	REO	Hotel	SASCO (LBCMT) 1995-C2	Holiday Inn North Fort Worth	Fort Worth	TX	12	8,443,302
CBO1	REO	Hotel	SASCO (LBCMT) 1995-C2	Holiday Inn South Fort Worth	Fort Worth	TX	12	6,424,700
CBO1	Monetary	Retail	SASCO (LBCMT) 1995-C2	Wheaton Plaza Shopping Center	Millville	NJ	18	2,819,424
CBO1	Monetary	Retail	DLJMAC 1995-CF2	Columbia Mall	Hemlock	PA	2	22,166,912
CBO1	Covenant	Hotel	DLJMAC 1995-CF2	Holiday Inn Oceanfront Hotel	Hilton Head Island	SC	0	5,139,458
CBO1	Covenant	Hotel	DLJMAC 1995-CF2	Fort Wayne Hilton at the Convention Center	Fort Wayne	IN	0	3,821,648
CBO1	Covenant	Hotel	DLJMAC 1995-CF2	Holiday Inn Hotel	Santa Fe	NM	0	3,821,648
CBO1	Covenant	Hotel	DLJMAC 1995-CF2	Radisson Inn- New Orleans Airport	Kenner	LA	0	3,492,196
CBO1	Covenant	Hotel	DLJMAC 1995-CF2	Holiday Inn, Phoenix West	Phoenix	AZ	0	3,096,854
CBO1	Covenant	Hotel	DLJMAC 1995-CF2	Holiday Inn- Meadowlands Hotel	Washington	PA	0	2,767,401
CBO1	Covenant	Hotel	DLJMAC 1995-CF2	Royce Hotel- Pittsburgh Airport	Coraopolis	PA	0	2,372,057
CBO1	Covenant	Hotel	DLJMAC 1995-CF2	Radisson, Phoenix Airport	Phoenix	AZ	0	1,713,153
CBO1	Covenant	Hotel	DLJMAC 1995-CF2	Holiday Inn Express	Palm Desert	CA	0	1,251,919
CBO1	REO	Hotel	MLMI 1995-C3	Ramada Inn Nashville	Nashville	TN	26	2,224,987
CBO1	Monetary	Hotel	MLMI 1995-C3	Ramada Inn Montgomery	Montgomery	AL	6	782,764
CBO1	Monetary	Retail	MLMI 1995-C3	7340 International Drive	Orlando	FL	12	7,234,519
CBO1	REO	Retail	MLMI 1995-C3	Kmart Plaza (Cadillac, MI)	Cadillac	MI	7	4,275,193

CBO2	Monetary	Multifamily	DLJMAC 1996-CF2	Lakeside Village Apartments	Houston	TX	1	5,262,382
CBO2	Monetary	Multifamily	DLJMAC 1996-CF2	Vista Villas Retirement Community	New Braunfels	TX	6	1,207,058
CBO2	Covenant	Multifamily	DLJMAC 1996-CF2	Lamplight Court Apartments	Bellefontaine	OH	0	1,253,028
CBO2	Covenant	Multifamily	DLJMAC 1996-CF2	Camellia Court Apartments	Daytona Beach	FL	0	984,522
CBO2	Covenant	Multifamily	DLJMAC 1996-CF2	Blossom Corner I Apartments	Orlando	FL	0	939,771
CBO2	REO	Retail	DLJMAC 1996-CF2	Eagle Country Market	Clinton	IA	29	3,224,010
CBO2	Monetary	Healthcare	DLJMAC 1997-CF2	Abington Manor	Westland	MI	6	8,555,570
CBO2	Monetary	Multifamily	DLJMAC 1997-CF2	Willowdaile Apartments	Durham	NC	9	4,532,771
CBO2	Monetary	Retail	DLJMAC 1997-CF2	Mercado Mediterranean Village	Orlando	FL	20	16,482,606
CBO2	Monetary	Retail	DLJMAC 1997-CF2	Washington Park Plaza Shopping Center	Homewood	IL	8	4,092,692
CBO2	Monetary	Office	DLJMAC 1997-CF2	Tropicana Plaza Office Park	Las Vegas	NV	3	2,717,350
CBO2	Covenant	Office	DLJMAC 1997-CF2	Research and Development Building	Mountain View	CA	0	2,445,378
CBO2	Monetary	Retail	DLJMAC 1997-CF2	Fenton Park Mall	Fenton	MO	0	2,559,878
CBO2	Monetary	Hotel	DLJMAC 1997-CF2	Four Points Riverwalk North(G)	San Antonio	TX	13	12,165,506
CBO2	Monetary	Hotel	DLJMAC 1997-CF2	Ramada Resort — Maingate(G)	Kissimmee	FL	13	9,072,581
CBO2	Monetary	Hotel	DLJMAC 1997-CF2	Holiday Inn — Maingate West(G)	Kissimmee	FL	14	8,545,638
CBO2	Monetary	Hotel	DLJMAC 1997-CF2	EconoLodge — Hawaiian Resort(G)	Kissimmee	FL	13	8,385,264
CBO2	Monetary	Hotel	DLJMAC 1997-CF2	Holiday Inn Express (G)	Orlando	FL	12	6,735,704
CBO2	Monetary	Retail	FULB 1997-C1	The Sports Authority	Pembroke Pines	FL	0	12,509,712
CBO2	Monetary	Multifamily	FULB 1997-C1	Landmark Apartments	Tuscaloosa	AL	4	4,641,227
CBO2	Monetary	Multifamily	FULB 1997-C1	Broadmoor Apartments	Meridian	MS	4	4,529,837
CBO2	Monetary	Hotel	FULB 1997-C1	Days Inn — Atlanta Airport	College Park	GA	26	3,817,089
CBO2	Monetary	Multifamily	FULB 1997-C1	Lake Mist	Charlotte	NC	14	3,497,203
CBO2	Monetary	Hotel	FULB 1997-C1	Comfort Inn	Bensalem	PA	8	3,206,278
CBO2	Monetary	Hotel	FULB 1997-C1	Crestview Holiday Inn	Crestview	FL	13	3,141,723
CBO2	Monetary	Multifamily	FULB 1997-C1	College Main Apartments	Bryan	TX	3	3,096,654
CBO2	Monetary	Hotel	FULB 1997-C1	Best Western Patio Motel	New Orleans	LA	10	2,901,742
CBO2	REO	Healthcare	FULB 1997-C1	Country Gardens	Norcross	GA	22	2,308,551
CBO2	Monetary	Industrial	FULB 1997-C1	1000 West Crosby	Carrollton	TX	1	1,933,269
CBO2	Monetary	Hotel	FULB 1997-C1	Holiday Inn Bay City	Bay City	MI	9	1,944,959
CBO2	Monetary	Healthcare	FULB 1997-C1	Gaulden Manor Nursing Center	Baltimore	OH	46	933,619
CBO2	Monetary	Multifamily	SASCO (LBCMT) 1996-C2	Country House	Grand Blanc	MI	2	8,058,675
CBO2	REO	Hotel	SASCO (LBCMT) 1996-C2	Hilton Hotel Sioux City	Sioux City	IA	23	4,980,230
CBO2	REO	Hotel	SASCO (LBCMT) 1996-C2	Holiday Inn Wichita	Wichita	KS	23	4,392,969
CBO2	REO	Hotel	SASCO (LBCMT) 1996-C2	Holiday Inn Augusta	Augusta	GA	23	3,356,793
CBO2	REO	Hotel	SASCO (LBCMT) 1996-C2	Best Western Des Moines	Des Moines	IA	23	2,757,433
CBO2	REO	Hotel	SASCO (LBCMT) 1996-C2	Holiday Inn Richfield	Richfield	OH	23	2,578,896
CBO2	Monetary	Healthcare	SASCO (LBCMT) 1996-C2	Franciscan Manor	Lompoc	CA	17	2,526,753
CBO2	REO	Hotel	SASCO (LBCMT) 1996-C2	Sheraton Omaha	Omaha	NE	23	1,813,004
CBO2	REO	Hotel	SASCO (LBCMT) 1996-C2	Comfort Inn Duncan	Duncan	SC	13	1,988,236
CBO2	Monetary	Retail	MCFI 1997-MC1	Plymouth K-Mart	Plymouth	MA	7	6,680,789
CBO2	Monetary	Retail	MCFI 1997-MC1	Tillmans Square Shopping Center	Mobile	AL	20	5,875,060
CBO2	Monetary	Retail	MCFI 1997-MC1	Cookeville Mall	Cookeville	TN	2	3,796,167
CBO2	REO	Retail	MCFI 1997-MC1	Whispering Pines Shopping Center	Manchester	TN	22	1,905,871
CBO2	Monetary	Multifamily	MCFI 1997-MC1	Diplomat Apartments	Jackson	MS	10	3,921,053
CBO2	Monetary	Multifamily	MCFI 1997-MC1	Parkside Commons Apartments	Portland	OR	0	2,495,260
CBO2	REO	Hotel	MCFI 1997-MC1	Radisson Hotel & Suites-Buffalo Air	Cheektowaga	NY	27	6,895,706
CBO2	Monetary	Industrial	MCFI 1997-MC1	Casco Warehouse	El Paso	TX	1	1,893,419
CBO2	Monetary	Retail	MLMI 1996-C1	Post Falls Factory Outlet Center	Post Falls	ID	5	3,929,583
CBO2	Monetary	Hotel	MLMI 1996-C1	Comfort Inn — Airport — Little Rock	Little Rock	AR	1	1,509,137
CBO2	REO	Retail	MLMI 1996-C1	West Kentucky Outlet Center	Eddyville	KY	53	8,485,858
CBO2	Monetary	Multifamily	MLMI 1996-C1	Cedar Creek Apartments	Santa Fe	NM	0	3,522,458
CBO2	Monetary	Industrial	MLMI 1996-C1	Quality Logistics	Hutchins	TX	1	3,414,915

CBO2	Monetary	Retail	MLMI 1996-C1	Village @ Eland	Phoenixville	PA	9	1,946,887
CBO2	REO	Retail	MLMI 1996-C2	Market Place Shopping Center	Shelby	NC	3	6,040,430
CBO2	Monetary	Multifamily	MLMI 1996-C2	Belmont Square Apts.	Pueblo	CO	1	3,099,836
CBO2	Monetary	Multifamily	MLMI 1996-C2	1212 Westheimer Apartments	Austin	TX	0	2,663,036
CBO2	Monetary	Multifamily	MLMI 1996-C2	BCM-Westheimer Court Apts.	Austin	TX	0	642,950
CBO2	Monetary	Multifamily	MLMI 1996-C2	Westheimer House	Austin	TX	8	1,071,584
CBO2	Monetary	Hotel	MLMI 1996-C2	Homestead Lodge	Charlotte	NC	12	1,740,442
CBO2	Corrected	Industrial	MLMI 1996-C2	Tiger Industrial Plaza	Phoenix	AZ	5	1,602,984
CBO2	Monetary	Hotel	MLMI 1996-C2	Shilo Inn-Salem Suites	Salem	OR	26	4,530,032
CBO2	Monetary	Hotel	MLMI 1996-C2	Shilo Inn-Tacoma	Tacoma	WA	26	5,606,639
CBO2	Monetary	Hotel	MLMI 1996-C2	Shilo Inn-Seaside Oceanfront Resort	Seaside	OR	26	7,875,796
CBO2	Monetary	Hotel	MLMI 1996-C2	Shilo Inn-Portland Airport/I-205	Portland	OR	26	12,215,352
CBO2	Monetary	Hotel	MLMI 1996-C2	Howard Johnson — Delk Road	Marietta	GA	11	2,089,278
CBO2	Monetary	Industrial	MLMI 1996-C2	Naugatuck Industrial	Naugatuck	CT	4	2,881,621
CBO2	Monetary	Hotel	MLMI 1996-C2	Horwitz-Ramada Inn — Corvallis	Corvallis	OR	12	4,890,550
CBO2	REO	Hotel	MLMI 1996-C2	Horwitz-Ramada Inn — Portland	Portland	OR	50	6,640,313
CBO2	Monetary	Hotel	MLMI 1996-C2	Ramada Inn — Seattle	Seattle	WA	10	6,774,244
CBO2	Covenant	Hotel	MLMI 1997-C1	PP-Days Inn-Cody	Cody	WY	5	1,355,380
CBO2	Monetary	Hotel	MLMI 1997-C1	Days Inn-Norfolk	Norfolk	NE	2	1,363,851
CBO2	REO	Hotel	MLMI 1997-C1	Ramada Limited — Austin	Austin	TX	11	1,164,761
CBO2	Monetary	Hotel	MLMI 1997-C1	Shilo Inn-Bend	Bend	OR	19	5,513,329
CBO2	Monetary	Hotel	MLMI 1997-C1	Shilo Inn-Coeur d'Alene	Coeur d'Alene	ID	19	4,758,873
CBO2	Monetary	Hotel	MLMI 1997-C1	Shilo Inn-Nampa	Nampa	ID	18	3,714,242
CBO2	Monetary	Hotel	MLMI 1997-C1	Shilo Inn-Tillamook	Tillamook	OR	20	4,178,522
CBO2	Monetary	Hotel	MLMI 1997-C1	Shilo Inn-Salt Lake City	Salt Lake City	UT	21	9,285,605
CBO2	Monetary	Hotel	MLMI 1997-C1	Shilo Inn-Elko	Elko	NV	22	2,852,008
CBO2	Monetary	Hotel	MLMI 1997-C1	Best Western — Federal Way Executel	Federal Way	WA	11	4,055,374
CBO2	Monetary	Multifamily	MLMI 1997-C1	Woodley Downs Apartments	Montgomery	AL	14	1,309,804
CBO2	Monetary	Hotel	MLMI 1997-C1	Quality Inn/Airport	Salt Lake City	UT	19	5,326,359
CBO2	Monetary	Hotel	MLMI 1997-C1	Best Western — Park Suites	Plano	TX	5	2,327,971
CBO2	Monetary	Hotel	MLMI 1997-C1	Comfort Inn — Plano	Plano	TX	0	1,481,437
CBO2	Monetary	Hotel	MLMI 1997-C1	Budgetel Inn — Atlanta Airport	College Park	GA	11	1,998,033
CBO2	Monetary	Multifamily	MLMI 1997-C1	Spring Ridge Apartments	Dallas	TX	5	1,437,008
CBO2	REO	Retail	MLMI 1997-C1	Apopka Square Center	Apopka	FL	34	2,071,397
CBO2	Monetary	Office	MLMI 1997-C1	Markham Building	Gulfport	MS	5	2,008,841
CBO2	Monetary	Retail	MLMI 1997-C1	Holden Crossing	Greensboro	NC	4	7,335,932
CBO2	Monetary	Multifamily	MSCI 1997-WF1	King Star Apartments	Columbus	OH	5	7,656,239
CBO2	Monetary	Hotel	ASC 1996-D3	Comfort Inn — Goodyear	Goodyear	AZ	4	3,137,047
CBO2	Covenant	Healthcare	ASC 1996-D3	Santa Rita Care Center	Green Valley	AZ	0	3,442,345
CBO2	REO	Hotel	ASC 1996-D3	Hampton Inn — Memphis	Memphis	TN	14	3,436,597
CBO2	Covenant	Healthcare	ASC 1996-D3	Westwood Plaza	Westwood	CA	0	2,320,653
CBO2	Monetary	Hotel	ASC 1996-D3	Holiday Inn-Denton	Denton	TX	6	2,255,306
CBO2	REO	Healthcare	ASC 1996-D3	Medford Nursing Home	Medford	OK	24	2,304,711
CBO2	Monetary	Hotel	ASC 1996-D3	Days Inn-San Jose	San Jose	CA	2	2,063,663
CBO2	REO	Hotel	ASC 1996-D3	Country Hearth Inn — Auburn	Auburn	IN	24	1,522,387
CBO2	Monetary	Multifamily	MLMI 1997-C2	Fountains of Woodmeadow Apartments	Dallas	TX	7	5,227,797
CBO2	Monetary	Retail	MLMI 1997-C2	Franklin Township Shopping Center	Franklin Township	NJ	5	3,269,243
CBO2	Monetary	Hotel	MLMI 1997-C2	Fairfield Inn — Jacksonville	Jacksonville	FL	10	2,949,173
CBO2	Monetary	Retail	MLMI 1997-C2	Shoppes at Taylor Ranch	Albuquerque	NM	4	2,846,043
CBO2	Monetary	Hotel	MLMI 1997-C2	Days Inn Downtown — Indianapolis	Indianapolis	IN	15	2,503,868
CBO2	Monetary	Hotel	MLMI 1997-C2	Super 8 — Raleigh	Raleigh	NC	5	2,190,759
CBO2	Monetary	Hotel	MLMI 1997-C2	Days Inn — Woodlawn	Charlotte	NC	2	2,139,414
CBO2	Monetary	Industrial	MLMI 1997-C2	Wallingford Industrial	Wallingford	CT	1	2,175,067
CBO2	Monetary	Multifamily	MLMI 1997-C2	Stonywood Terrace Apartments	Philadelphia	PA	0	1,579,369
CBO2	Monetary	Hotel	MLMI 1997-C2	Days Inn — Orange	Orange	TX	3	1,271,563

CBO2	Monetary	Healthcare	FULB 1997-C2	Cypress Palms Assisted Living Center	Largo	FL	0	10,106,305
CBO2	Monetary	Healthcare	FULB 1997-C2	Sabal Palms Health Care Center	Largo	FL	0	11,928,294
CBO2	REO	Hotel	FULB 1997-C2	Sheraton Orlando North	Maitland	FL	23	16,500,837
CBO2	Monetary	Healthcare	FULB 1997-C2	Royal Palms Senior Residence	Largo	FL	0	13,845,895
CBO2	REO	Retail	FULB 1997-C2	Brandon Crossings Shopping Center	Brandon	FL	17	12,637,076
CBO2	Monetary	Other	FULB 1997-C2	FEL Facility	Farmingdale	NJ	46	6,616,422
CBO2	Monetary	Healthcare	FULB 1997-C2	CumberLand Retirement Village	Lowell	MI	9	2,274,611
CBO2	Monetary	Healthcare	FULB 1997-C2	Fountain View — Portage	Portage	MI	9	2,263,811
CBO2	Monetary	Healthcare	FULB 1997-C2	Fountain View — Fremont	Fremont	MI	9	1,132,928
CBO2	Monetary	Hotel	FULB 1997-C2	Best Western — Mystic	Mystic	CT	2	4,128,095
CBO2	Monetary	Retail	FULB 1997-C2	International Outlet Center	Orlando	FL	0	3,872,648
CBO2	Monetary	Multifamily	FULB 1997-C2	Nassau Eden Club Apartments	Cincinnati	OH	3	3,353,081
CBO2	Monetary	Hotel	FULB 1997-C2	Holiday Inn — Dalton	Dalton	GA	5	3,031,578
CBO2	Monetary	Hotel	FULB 1997-C2	Best Western — Keene	Keene	NH	0	2,510,530
CBO2	Monetary	Multifamily	FULB 1997-C2	Apple Creek	Kansas City	MO	9	2,567,142
CBO2	Monetary	Hotel	FULB 1997-C2	Ramada Inn — Bedford	Bedford	MA	2	2,352,741
CBO2	REO	Multifamily	FULB 1997-C2	Westgate Hills	Jackson	MS	26	2,469,306
CBO2	Monetary	Multifamily	FULB 1997-C2	Crestwood Apartments	Kansas City	KS	2	1,679,147
CBO2	Monetary	Multifamily	MCFI 1997-MC2	Forest Creek Crossing Apartments	Marietta	GA	2	4,220,315
CBO2	Monetary	Multifamily	MCFI 1997-MC2	Logan Place Apartments	Huntsville	TX	2	2,802,643
CBO2	Monetary	Retail	MCFI 1997-MC2	Victorville Valley Retail Center	Victorville	CA	6	9,095,237
CBO2	Monetary	Retail	MCFI 1997-MC2	USA Outlet Center	Opelika	AL	2	4,117,650
CBO2	Monetary	Hotel	MCFI 1997-MC2	Residence Inn Brookfield	Brookfield	WI	0	6,397,506
CBO2	REO	Hotel	MCFI 1997-MC2	Sioux City Holiday Inn	Sioux City	IA	22	2,282,268
CBO2	Monetary	Hotel	CMAC 1997-ML1	Shilo Inn-Lincoln City	Lincoln City	OR	26	16,427,568
CBO2	Monetary	Hotel	CMAC 1997-ML1	Shilo Inn-Newport	Newport	OR	26	11,995,458
CBO2	Monetary	Hotel	CMAC 1997-ML1	Shilo Inn-Portland/Beaverton	Portland	OR	26	6,067,751
CBO2	Monetary	Hotel	CMAC 1997-ML1	Shilo Inn-Idaho Falls	Idaho Falls	ID	26	5,402,408
CBO2	Monetary	Hotel	CMAC 1997-ML1	Shilo Inn-Yuma	Yuma	AZ	26	4,788,671
CBO2	Monetary	Hotel	CMAC 1997-ML1	Shilo Inn-Richland	Richland	WA	26	4,067,760
CBO2	Monetary	Hotel	CMAC 1997-ML1	Shilo Inn-Boise/Riverside	Boise	ID	26	3,217,469
CBO2	Monetary	Hotel	CMAC 1997-ML1	Shilo Inn-The Dalles	The Dalles	OR	26	3,011,603
CBO2	Monetary	Hotel	CMAC 1997-ML1	Shilo Inn-Warrenton	Warrenton	OR	26	3,171,711
CBO2	Monetary	Hotel	CMAC 1997-ML1	Shilo Inn-Washington Square	Tigard	OR	26	2,747,656
CBO2	Monetary	Hotel	CMAC 1997-ML1	Shilo Inn-Spokane	Spokane	WA	26	3,406,161
CBO2	Monetary	Hotel	CMAC 1997-ML1	Shilo Inn-Oakhurst	Oakhurst	CA	26	2,223,209
CBO2	Monetary	Hotel	CMAC 1997-ML1	Shilo Inn-Pomona	Pomona	CA	26	2,305,766
CBO2	Monetary	Hotel	CMAC 1997-ML1	Shilo Inn-Casper	Casper	WY	26	2,317,894
CBO2	Monetary	Hotel	CMAC 1997-ML1	Shilo Inn-Nampa Boulevard	Nampa	ID	26	1,397,764
CBO2	Monetary	Hotel	CMAC 1997-ML1	Shilo Inn-Grants Pass	Grants Pass	OR	26	970,922
CBO2	Monetary	Hotel	CMAC 1997-ML1	Shilo Inn-Delano	Delano	CA	26	380,878
CBO2	Monetary	Hotel	MSCI 1998-WF1	Holiday Inn Boston Logan Airport	Boston	MA	9	25,383,381
CBO2	Monetary	Multifamily	MSCI 1998-WF1	Waterford at Clear Lake	Webster	TX	2	10,762,849
CBO2	Monetary	Hotel	MSCI 1998-WF1	Ramada Hilltop	Natchez	MS	2	4,256,697
CBO2	Monetary	Retail	MSCI 1998-WF1	K-Mart	Kissimmee	FL	7	3,010,754
CBO2	Covenant	Industrial	MSCI 1998-WF1	Lapham Drive	Modesto	CA	1	2,932,745
CBO2	Monetary	Other	MSCI 1998-WF1	Council Rock Greens Office Complex	Rochester	NY	19	2,588,611
CBO2	Monetary	Retail	MSCI 1998-WF1	Eagle Country Market	Princeton	IL	4	2,021,595
CBO2	Monetary	Retail	JPMC 1998-C6	Costco Center	Honolulu	HI	6	25,799,506
CBO2	Monetary	Office	JPMC 1998-C6	Parkridge Three	Reston	VA	7	14,327,262
CBO2	Monetary	Hotel	JPMC 1998-C6	Benjamin Franklin Hotel	San Mateo	CA	4	9,003,416
CBO2	Monetary	Industrial	JPMC 1998-C6	Alford Refrigerated Warehouses	Dallas	TX	24	6,965,698
NASC 1998-D6	Monetary	Hotel	NASC 1998-D6	Hampton Inn — Greensboro	Greensboro	NC	0	4,893,800
NASC 1998-D6	Monetary	Hotel	NASC 1998-D6	Hampton Inn — Albuquerque	Albuquerque	NM	0	4,126,350
NASC 1998-D6	Monetary	Hotel	NASC 1998-D6	Hampton Inn — Roswell	Roswell	GA	0	3,967,748
NASC 1998-D6	Monetary	Hotel	NASC 1998-D6	Hampton Inn — Greenville	Greenville	SC	0	3,792,869
NASC 1998-D6	Monetary	Hotel	NASC 1998-D6	Hampton Inn — San Antonio	San Antonio	TX	0	2,722,776
NASC 1998-D6	Monetary	Hotel	NASC 1998-D6	Hampton Inn — Eden Prairie	Eden Prairie	MN	0	2,432,305

NASC 1998-D6	Monetary	Hotel	NASC 1998-D6	Hampton Inn — Amarillo	Amarillo	TX	0	2,344,599
NASC 1998-D6	Monetary	Hotel	NASC 1998-D6	Hampton Inn — Spartanburg	Spartanburg	SC	0	1,591,199
NASC 1998-D6	Monetary	Hotel	NASC 1998-D6	Hampton Inn — Syracuse	East Syracuse	NY	0	1,587,618
NASC 1998-D6	Monetary	Office	NASC 1998-D6	Commerce Point	Arlington Heights	IL	9	17,379,191
NASC 1998-D6	Monetary	Retail	NASC 1998-D6	Best Buy — City of Industry	City of Industry	CA	0	9,011,421
NASC 1998-D6	Monetary	Retail	NASC 1998-D6	Best Buy — Beaver Creek	Beaver Creek	OH	0	3,889,139
NASC 1998-D6	Monetary	Retail	NASC 1998-D6	After Six	Philadelphia	PA	17	10,347,480
NASC 1998-D6	Monetary	Retail	NASC 1998-D6	Pennrose Mall	Reidsville	NC	4	4,431,963
NASC 1998-D6	Monetary	Retail	NASC 1998-D6	Cornerstone Plaza	Maryville	TN	4	2,913,648
NASC 1998-D6	Monetary	Retail	NASC 1998-D6	Crestview	Crestview	FL	4	1,538,147
NASC 1998-D6	Monetary	Retail	NASC 1998-D6	Rock Springs Ford	Rock Springs	WY	4	309,629
NASC 1998-D6	Monetary	Retail	NASC 1998-D6	Grocer Supply	Ft. Worth	TX	4	290,043
NASC 1998-D6	Monetary	Office	NASC 1998-D6	*Lancaster Mills	Clinton	MA	20	8,201,137
NASC 1998-D6	Corrected	Retail	NASC 1998-D6	Tower Center	Sacremento	CA	0	2,265,724
NASC 1998-D6	Monetary	Hotel	NASC 1998-D6	Quality Inn Orlando Airport	Orlando	FL	4	2,163,281
NASC 1998-D6	Monetary	Multifamily	NASC 1998-D6	Fryers Creek Apts	Temple	TX	0	1,508,352
NASC 1998-D6	Monetary	Multifamily	NASC 1998-D6	Garden Place Apartments	Temple	TX	0	432,244