Profile: NorthStar Realty Finance Corp. (NRF)

NorthStar Realty Finance Corp. is a real estate finance company that has focused primarily on originating, investing in and managing commercial real estate debt, commercial real estate securities and net lease properties. The Company has invested in those areas of commercial real estate finance that provided to leverage its real estate investment expertise, utilize its capital markets knowledge, and capitalize on its ability to employ financing structures. The Company conducts operations so as to qualify as a real estate investment trust, or a REIT, for federal income tax purposes.

Real Estate Debt

NorthStar Realty Finance Corp. has focused on originating, structuring and acquiring senior and subordinate debt investments secured primarily by commercial and multifamily properties, including lien mortgage loans, which are also referred to as senior mortgage loans, junior participations in lien mortgage loans, which are often referred to as B-Notes, second lien mortgage loans, mezzanine loans and preferred equity interests in borrowers who own such properties. The Company holds instruments for investment, but it sometimes syndicate or sells portions of loans to maximize risk adjusted returns, manage credit exposure and generate liquidity. During the year ended December 31, 2008, the funded loan size was $19.2 million and the Company managed 108 separate commercial real estate loans totaling $2.0 billion.

Real Estate Securities

The real estate securities business has invested in, created and managed portfolios of primarily investment grade commercial real estate debt securities, which the Company has financed by issuing term debt. Its interest in the Securities Fund was 53.1% at December 31, 2008. Its managed commercial real estate debt securities include CMBS, fixed income securities issued by REITs, credit-rated tenant loans and term debt transactions backed primarily by commercial real estate securities.

Net Lease

The Company’s net lease involves investment primarily in office, industrial, retail and healthcare related properties across the United States that are net leased long term to corporate tenants. Net lease properties are leased to a single tenant who agrees to pay rent, plus all taxes, insurance, capital and operating expenses arising from the use of the leased property. The Company generally targets properties that are located in primary or secondary markets with strong demand fundamentals, and that have a property design and location that make them suitable and attractive for alternative tenants.

LandCap Venture

During 2007, the Company entered into a joint venture with Whitehall Street Global Real Estate Limited Partnership 2007 to form LandCap Partners (LandCap). The venture made $39.1 million of investments during 2008. Our share of the investment was $16.9 million. During the second half of 2008, the Company and Whitehall directed the team to raise third party capital to fund new investment activity.

Portfolio Management

The Company monitors collateral and property-level performance of its asset base through its portfolio management group. For commercial real estate loans, the Company typically have a contractual right to regularly receive updated information from its borrowers, such as budgets, operating statements, rent rolls, major tenant lease signings, renewals, expirations and modifications. It also monitors for changes in property management, borrower's and sponsor's financial condition, timing and funding of distributions from reserves and capital accounts or future funding draws, real estate market conditions, sales of comparable and competitive properties, occupancy and asking rents at competitive properties and financial performance of major tenants. When a borrower cannot comply with its requirements according to the loan terms, it has a range to choose from, including foreclosing on the collateral in order to sell it, extending the final maturity date in return for a paydown and/or a fee, changing the interest rate or making any other modification to the loan terms which it believe maximizes long-term value and preserves capital.