SEC Filing | Safehold Inc.

View:

THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IS
NOT COMPLETE AND MAY BE CHANGED. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS ARE NOT AN OFFER TO SELL THESE SECURITIES AND ARE NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.

SUBJECT TO COMPLETION, DATED MARCH 3, 2003

Prospectus Supplement
(to Prospectus dated March 3, 2003)

Filed Pursuant to Rule 424(b)(5)
Reg No. 333-83646

$150,000,000

[LOGO]

% SENIOR NOTES DUE 2008

-------

This is an offering of $150,000,000 aggregate principal amount of our
% Senior Notes due 2008. The Notes will mature on March 15, 2008. We will
pay interest on the Notes on each March 15 and September 15, commencing
September 15, 2003.

We may redeem the Notes prior to their maturity at a make-whole premium. In
addition, until March 15, 2006, we may redeem up to 35% of the aggregate
principal amount of the Notes with the proceeds from certain equity offerings at
the redemption price set forth in this prospectus supplement. If we undergo a
change of control, we may be required to purchase Notes from our holders.

The Notes are our unsecured senior obligations.

The Notes are not expected to be listed on any securities exchange or
included in any quotation system.

This prospectus supplement and the related prospectus include additional
information about the terms of the Notes, including optional redemption prices
and covenants.

SEE "RISK FACTORS," WHICH BEGINS ON PAGE S-11 OF THIS PROSPECTUS SUPPLEMENT
AND ON PAGE THREE OF THE ACCOMPANYING PROSPECTUS, FOR A DISCUSSION OF CERTAIN OF
THE RISKS YOU SHOULD CONSIDER BEFORE INVESTING IN THE NOTES.

--------

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

---------

PER NOTE TOTAL
------------------- -------------------

Public Offering Price....................................... % $
Underwriting Discounts and Commissions...................... % $
Proceeds to Us (before expenses)............................ % $

- ---------

We expect that delivery of the Notes will be made in New York, New York on
or about , 2003.

DEUTSCHE BANK SECURITIES

The date of this prospectus supplement is , 2003.

CREATIVE CAPITAL SOLUTIONS AND THE ISTAR FINANCIAL LOGO ARE
REGISTERED SERVICE MARKS OF ISTAR FINANCIAL INC.
FORWARD-LOOKING STATEMENTS

We make statements in this prospectus supplement, the accompanying
prospectus and the documents we incorporate by reference that are considered
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are
usually identified by the use of words such as "will," "anticipates,"
"believes," "estimates," "expects," "projects," "plans," "intends," "should" or
similar expressions. We intend these forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained in the
Private Securities Reform Act of 1995 and are including this statement for
purposes of complying with those safe harbor provisions. These forward-looking
statements reflect our current views about our plans, strategies and prospects,
which are based on the information currently available to us and on assumptions
we have made. Although we believe that our plans, intentions and expectations as
reflected in or suggested by those forward-looking statements are reasonable, we
can give no assurance that the plans, intentions or expectations will be
achieved. We have discussed in this prospectus supplement and the accompanying
prospectus some important risks, uncertainties and contingencies which could
cause our actual results, performance or achievements to be materially different
from the forward-looking statements we make in these documents.

We assume no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. In
evaluating forward-looking statements, you should consider these risks and
uncertainties, together with the other risks described from time to time in our
reports and documents filed with the SEC, and you should not place undue
reliance on those statements.

S-ii

SUMMARY

This summary may not contain all the information that may be important to
you. You should read the entire prospectus supplement and accompanying
prospectus, as well as the documents incorporated by reference in them, before
making an investment decision. All references to "we" or "us" in this prospectus
supplement refer to iStar Financial Inc. and its consolidated subsidiaries,
unless the context indicates otherwise. Throughout this prospectus supplement we
use the terms "adjusted earnings" and "EBITDA." For the definitions of adjusted
earnings and EBITDA and for a detailed reconciliation of adjusted earnings to
net income determined in accordance with GAAP, see "Selected Financial Data."

ISTAR FINANCIAL INC.

OVERVIEW

We are the largest publicly-traded finance company focused exclusively on
the commercial real estate industry. We provide structured financing to private
and corporate owners of high-quality real estate nationwide, including senior
and junior mortgage debt, corporate net lease financing and corporate mezzanine
and subordinated capital. Our objective is to generate consistent and attractive
returns on our invested capital by providing innovative and value-added
financing solutions to our customers. We deliver customized financial products
to sophisticated real estate borrowers and corporate customers who require a
high level of creativity and service. Our ability to provide value-added
financial solutions has consistently enabled us to realize margins and returns
on capital that are more attractive than those earned by many other commercial
finance companies. As of February 28, 2003, our total enterprise value (market
value of equity plus book value of preferred stock and debt, less cash balances)
was $6.6 billion, and our annual revenue and EBITDA for the year ended
December 31, 2002 were $525.7 million and $471.4 million, respectively.

We began our business in 1993 through private investment funds formed to
take advantage of the lack of well-capitalized lenders capable of servicing the
needs of high-end customers in our markets. During our ten-year history, we have
structured or originated nearly $7.3 billion of financing commitments. To date,
we have not realized a loss of principal or interest on any lending investment
we have funded.

By capitalizing on our competitive strengths, we have delivered consistent
financial performance, developed a high-quality, diversified asset base and
established ourselves as a reliable provider of financial solutions for our
customers. We have maintained strong credit statistics and have consistently
grown our EBITDA since the quarter ended June 1998, our first quarter as a
public company. Between that quarter and the quarter ended December 31, 2002, we
grew our EBITDA from approximately $30.7 million to $125.4 million.

S-1

The graphs below show our annual EBITDA and our credit statistics since
1998, our first year as a public company.

EBITDA(1)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

In Millions

1998 1999 2000 2001 2002(3)

Adjusted Earnings $148.60 $234.90 $423.40 $436.20 $471.40

- ------------

(1) EBITDA is calculated as total revenue plus equity in earnings from joint
ventures and unconsolidated subsidiaries minus the sum of general and
administrative expenses, general and administrative -- stock-based
compensation expense, provision for loan losses, operating costs-corporate
tenant lease assets and, prior to November 4, 1999, advisory fees.

(2) Because second quarter 1998 was our first full quarter as a public company,
EBITDA for 1998 represents results for the second quarter through the
fourth quarter of 1998, annualized.

(3) Excludes a $15.0 million non-cash charge related to performance-based
vesting of restricted shares granted under our long-term incentive plan.

CREDIT STATISTICS

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

EBITDA/INTEREST EXPENSE EBITDA/FIXED CHARGES(3)

1998 2.6 2.5
1999 2.6 2.0
2000 2.4 2.0
2001 2.6 2.1
2002(2) 2.5 2.1

- ---------

(1) Because second quarter 1998 was our first full quarter as a public company,
the credit statistics for 1998 represent second through fourth quarter 1998
results annualized.

(2) Excludes a $15.0 million non-cash charge related to performance-based
vesting of restricted shares granted under our long-term incentive plan.

(3) Fixed charges is defined as the sum of interest expense and preferred stock
dividends.

S-2

COMPETITIVE STRENGTHS

We believe the following competitive strengths distinguish our business
model from other commercial finance enterprises and contribute to our ability to
generate consistent returns on our invested capital.

CREATIVE CAPITAL SOLUTIONS

We target markets where customers require a knowledgeable provider of
capital that is capable of originating customized and flexible financial
products. We provide our customers with a level of service and creativity
generally unavailable from other lenders. We do not participate in
distribution-based commercial finance businesses, such as conduit lending and
mortgage-backed securities, which are typically characterized by intense price
competition and lower profit margins.

We believe that we have a reputation in the marketplace for delivering
unique financing solutions and a high level of service to our customers in a
reliable and credible fashion. Since beginning our business in 1993, we have
provided nearly $3.1 billion in financing to customers who have sought our
expertise more than once.

As a result of our focus, we have generated consistent and attractive
returns on our asset base. The graph below shows our returns on average book
assets, after interest expense, since 1998, our first year as a public company.

RETURN ON AVERAGE BOOK ASSETS(1)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

1998(2) 1999 2000 2001 2002

Return on Average Book Assets 6.00% 6.40% 6.70% 7.10% 6.40%

- ---------

(1) We define "return on average book assets" as the sum of adjusted earnings
and preferred dividends divided by the average book value of assets
outstanding during the year.

(2) Because second quarter 1998 was our first full quarter as a public company,
return on average book assets for 1998 represents second through fourth
quarter 1998 results annualized, and our average assets during this period.

(3) Excludes a $15.0 million non-cash charge related to performance-based
vesting of restricted shares granted under our long-term incentive plan.

S-3

ASSET QUALITY AND DIVERSIFICATION

Throughout our operating history, we have focused on maintaining
diversification of our asset base by product line, asset type, obligor, property
type and geographic region. Asset diversification is a key part of our risk
management strategy. The pie charts below depict the diversification of our
asset base based upon the total gross book value of our loan and CTL assets of
approximately $5.6 billion as of December 31, 2002.

ASSET TYPE DIVERSIFICATION PROPERTY TYPE DIVERSIFICATION GEOGRAPHIC DIVERSIFICATION
- ----------------------------- ----------------------------- -----------------------------

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Corporate Tenant Leases 45%

First Mortgages 37%

Second Mortgages 5%

Corporate Partnership Loans/Other Assets 13%

Office(CTL) 27%

Industrial/R&D 15%

Apartment/Residential 5%

Conference/Entertainment 7%

Retail 4%

Other 1%

Hotel-Lending 12%

Hotel-Investment Grade CTL 5%

Mixed Use/Mixed Collateral 4%

Office(Lending) 20%

Northeast 18%

North Central 4%

Central 8%

South 12%

Southwest 2%

West 29%

Northwest 4%

Various 1%

Southeast 11%

Mid-Atlantic 11%

Secured first mortgages and corporate tenant lease assets together comprise
approximately 82% of our asset base. The weighted average "first dollar" and
"last dollar" loan-to-value ratios on our loan assets were 27.2% and 68.3%,
respectively, as of December 31, 2002. "First dollar" and "last dollar"
loan-to-value ratios represent the average beginning and ending points of our
lending exposure in the aggregate capitalization of the underlying assets or
companies that we finance.

In addition, as of December 31, 2002, 53% of our corporate tenants, based on
annual lease payments, had actual or implied investment grade credit ratings.
Our corporate tenants include the U.S. Government and well-recognized national
and international companies such as Accenture, Ltd., FedEx Corporation,
International Business Machines Corporation, Nike, Inc., Nokia Corporation,
Northrop Grumman Corporation, Verizon Communications, Inc., Volkswagen of
America and Wells Fargo Bank.

MATCH FUNDING DISCIPLINE

S-4

refinance our liabilities prior to the maturities of our assets. In addition, we
match fund interest rates with like-kind debt (I.E., fixed-rate assets are
financed with fixed-rate debt, and floating-rate assets are financed with
floating-rate debt), through the use of hedges such as interest rate swaps, or
through a combination of these strategies. This allows us to reduce the impact
of changing interest rates on our earnings. Our objective is to limit volatility
from a 100 basis point move in short-term interest rates to no more than 2.5% of
annual adjusted earnings per share. As of December 31, 2002, a 100 basis point
change in short-term interest rates would have a 1.5% impact on our fourth
quarter adjusted earnings per share.

SIGNIFICANT EQUITY BASE

We have approximately $2.0 billion of tangible book equity and a
consolidated debt-to-book equity ratio of 1.7x as of December 31, 2002. We
believe that we are one of the most strongly capitalized asset-based finance
companies. We target a consolidated debt-to-book equity ratio of 2.0x, which is
significantly lower than most other commercial finance companies. We believe
that operating within this targeted range enables us to maintain a
well-balanced, conservative and flexible capital structure. Our tax-advantaged
structure as a real estate investment trust and our ability to operate with less
overhead, as a percentage of revenues, than many other commercial finance
companies enable us to generate higher returns on our invested capital without
excessive reliance on leverage.

EXPERIENCED MANAGEMENT

The 16 members of our executive management team have an average of more than
20 years of experience in the fields of real estate finance, private investment,
capital markets, transaction structuring, risk management, legal and loan
servicing, providing us with significant expertise in the key disciplines
required for success in our business. We emphasize long-term, incentive-based
compensation, such as performance-based grants of restricted common stock,
rather than cash compensation, and none of our employees is compensated based on
the volume of investment originations. Our directors and employees directly own
approximately 5.8% of our outstanding common stock on a diluted basis, which had
a market value of approximately $164 million based upon the last reported sale
price of our common stock on February 28, 2003. Our 16-member executive
management team is supported by approximately 127 employees operating from six
primary offices nationwide.

TAX-ADVANTAGED CORPORATE STRUCTURE

Because of our focus on commercial real estate finance, we are able to
qualify as a real estate investment trust, or "REIT," under the Internal Revenue
Code. Since we are taxed as a REIT, we do not pay corporate-level taxes in most
circumstances. This tax-advantaged structure enables us to produce higher
returns on our invested capital compared to taxable finance companies, while
utilizing significantly less leverage than most taxable finance companies. The
graph below shows our returns on average common book equity since our first year
as a public company.

S-5

RETURN ON AVERAGE COMMON BOOK EQUITY(1)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

1998(2) 1999 2000 2001 2002

Return on Average Common Book Equity 12.40% 14.70% 15.80% 17.70% 18.40%

- ---------

(1) We define "return on average common book equity" as total adjusted earnings
divided by the average book value of common equity outstanding during the
year.

(2) Because second quarter 1998 was our first full quarter as a public company,
return on average common book equity for 1998 represents second through
fourth quarter 1998 results annualized.

(3) Excludes a $15.0 million non-cash charge related to performance-based
vesting of restricted shares granted under our long-term incentive plan.

S-6

OUR TARGET MARKETS AND PRODUCT LINES

We believe we are the largest dedicated participant in a $100-$150 billion
niche of the approximately $2.1 trillion commercial real estate market,
consisting of the $1.5 trillion commercial mortgage market and the $600 billion
single-user market for corporate office and industrial facilities. Our primary
product lines include structured finance, portfolio finance, corporate tenant
leasing, corporate finance and loan acquisition. Our real estate lending assets
consist of mortgages secured by real estate collateral, loans secured by equity
interests in real estate assets, and secured and unsecured loans to corporations
engaged in real estate or real estate-related businesses. Our corporate tenant
lease assets consist of office and industrial facilities that we typically
purchase from, and lease back to, a diversified group of creditworthy corporate
tenants as a form of financing for their businesses. Our leases are generally
long-term, and typically provide for all expenses at the facility to be paid by
the corporate tenant on a "triple net" basis. Under a typical net lease
agreement, the corporate customer agrees to pay a base monthly operating lease
payment and all facility operating expenses, including taxes, maintenance and
insurance.

The pie chart below shows the composition of our asset base by product line,
based on the total gross book value of our loan and CTL assets of approximately
$5.6 billion as of December 31, 2002.

PRODUCT LINE DIVERSIFICATION

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Portfolio Finance 7%
Corporate Tenant Leasing 45%
Corporate Finance 12%
Loan Acquisition 9%
Structured Finance 27%

INVESTMENT STRATEGY

Our investment strategy focuses on the origination of structured mortgage,
corporate and lease financings backed by high-quality commercial real estate
assets located in major U.S. metropolitan markets. Because we deliver the
intensive structuring expertise required by our customers, we are able to avoid
significant direct competition from other capital providers. We focus on
developing direct relationships with borrowers and corporate tenants, as opposed
to sourcing transactions through intermediaries, and offer our customers added
value in the form of specific lending expertise, flexibility, certainty and
post-closing support. We also take advantage of market anomalies in the real
estate financing markets when we believe credit is mispriced by other providers
of capital, such as the spread between lease yields and the yields on corporate
tenants' underlying credit obligations. In addition, we have developed a
disciplined process for screening potential investments prior to beginning our
formal underwriting and commitment process called the "Six Point
Methodology(sm)." We also have an intensive underwriting process in place for
all potential investments.

RISK MANAGEMENT AND RESERVES

We have comprehensive, proactive and hands-on risk management systems
centered around a fully-integrated risk management team of over 50
professionals, including dedicated

S-6

expertise in asset management, corporate credit, loan servicing, project
management and engineering. We manage our risk exposure by diversifying our
asset base and using conservative assumptions during our underwriting of
potential investments. We utilize information received from our risk management
professionals on a real-time basis to monitor the performance of our asset base
and to quickly identify and address potential credit issues.

Although we have not realized any losses of principal or interest on any
loan investments we have funded since our inception, we nonetheless maintain and
regularly evaluate financial reserves to protect against potential future
losses. In addition to our general loss reserves, we also have asset-specific
credit protection, including cash reserve accounts, cash deposits, letters of
credit and allowances for doubtful accounts supporting our loan and CTL assets.
Where appropriate, we typically require this incremental credit protection to be
funded and/or posted at the closing of a transaction in accounts in which we
have a security interest. As of December 31, 2002, accumulated loan loss
reserves and other asset-specific credit protection represented an aggregate of
approximately 6.2% of the gross book value of our loans. In aggregate, cash
deposits, letters of credit, allowances for doubtful accounts and accumulated
depreciation relating to corporate tenant lease assets represented 9.1% of the
gross book value of our corporate tenant lease assets at that date.

FINANCING STRATEGY

Our financing strategy revolves around three primary principles. First, we
maintain significantly lower leverage than other commercial finance companies
and a large tangible equity capital base. We target a consolidated debt-to-book
equity ratio of 2.0x, which is significantly lower than most other commercial
finance companies. Second, we maintain access to a broad array of capital
resources from a diverse group of lending sources, such as committed secured and
unsecured credit facilities, term loans, corporate bonds and our own proprietary
matched funding program, iStar Asset Receivables, or "STARs(sm)." In doing so,
we seek to insulate our business from potential fluctuations in the availability
of capital. Third, we seek to match fund our liabilities and assets to minimize
the risk that we have to refinance our liabilities prior to the maturities of
our assets, and to reduce the impact of changing interest rates on our earnings.

RECENT DEVELOPMENTS

Adjusted earnings for the fourth quarter of 2002 were $74.3 million on a
diluted basis, compared to $65.0 million for the fourth quarter of 2001. Net
income allocable to common shareholders for the quarter ended December 31, 2002
was $53.7 million, compared to $49.5 million for the fourth quarter of 2001. Net
investment income for the quarter ended December 31, 2002 increased to a record
$80.0 million, up 19.2% from $67.1 million for the fourth quarter of 2001. Net
investment income represents interest income, operating lease revenue and equity
in earnings from joint ventures and unconsolidated subsidiaries, less interest
expense and operating costs for corporate tenant lease assets. For a discussion
of how we compute adjusted earnings, including a reconciliation to net income,
see "Selected Financial Data" and the table below.

In the fourth quarter of 2002, we achieved a return on average book assets
of 6.1% and a return on average common book equity of 18.9%, while leverage
decreased to 1.7x book equity.

Adjusted earnings for the year ended December 31, 2002 were $281.7 million,
excluding a $15.0 million non-cash charge related to performance-based vesting
of restricted shares granted under our long-term incentive plan, compared to
$255.1 million for the same period in 2001. Net income allocable to common
shareholders for the year ended December 31, 2002 was $178.4 million, compared
to $193.0 million for the year 2001. Net investment income and total revenue
both increased to record levels of $299.8 million and $525.7 million for the
year ended

S-7

December 31, 2002, respectively, from $264.7 million and $471.1 million,
respectively, for the 2001 period.

During the fourth quarter of 2002, we closed 15 new financing commitments
for a total of $469.1 million, of which $428.2 million was funded during the
quarter. In addition, we funded $3.7 million under four pre-existing commitments
and received $196.7 million in principal repayments. In 2002, we reached record
levels for gross originations and net asset growth of $1.8 billion and
$1.2 billion, respectively.

During the fourth quarter of 2002, we issued 8.0 million shares of common
stock in a public offering, raising $202.9 million in net proceeds. We used
these proceeds to repay outstanding borrowings under our secured credit
facilities. In connection with our offering, Starwood Opportunity Fund IV, L.P.
also sold 3.5 million shares of common stock, reducing its ownership to
approximately 19.8% of our common stock on a diluted basis as of December 31,
2002.

The results for the fourth quarter 2002 and year ended December 31, 2002
described above are preliminary and unaudited.

Subsequent to year end, we extended the final maturity of one of our
$700 million secured credit facilities to January 2007 from January 2005.

On February 20, 2003, we announced that effective March 31, 2003, Spencer B.
Haber will become president and a director of iStar Strategic Capital Inc., a
wholly-owned subsidiary of iStar Financial Inc. In such capacity, Mr. Haber will
be responsible for identifying and evaluating new business expansion and
business development opportunities for the Company. Upon becoming president of
iStar Strategic Capital Inc., Mr. Haber will step down as president and director
of iStar Financial Inc.

RECONCILIATION OF ADJUSTED EARNINGS TO GAAP NET INCOME
(IN THOUSANDS)
(UNAUDITED)

THREE MONTHS
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------- ---------------------
2002 2001 2002 2001
-------- -------- --------- ---------

ADJUSTED EARNINGS:
Net income.................................................. $62,976 $58,755 $215,270 $229,912
Add: Joint venture income................................... 249 254 991 965
Add: Depreciation........................................... 12,988 9,387 48,041 35,642
Add: Joint venture depreciation and amortization............ 1,042 1,216 4,433 4,044
Add: Amortization of deferred financing costs............... 6,258 5,329 23,460 20,720
Less: Preferred dividends................................... (9,227) (9,227) (36,908) (36,908)
Less: (Gain) loss from discontinued operations.............. -- (742) (717) (1,145)
Add: Extraordinary loss - early extinguishment of debt...... -- -- 12,166 1,620
Add: Cumulative effect of a change in accounting
principle................................................. -- -- -- 282
------- ------- -------- --------
Adjusted diluted earnings allocable to common shareholders:
Before non-cash incentive compensation charge............. $74,286 $64,972 $281,686 $255,132
After non-cash incentive compensation charge.............. $74,286 $64,972 $266,736 $255,132

------------------------------

Our principal executive offices are located at 1114 Avenue of the Americas,
New York, New York 10036, and our telephone number is (212) 930-9400. Our
website is www.istarfinancial.com. The information on our website is not
considered part of this prospectus supplement or the accompanying prospectus.
Our six primary regional offices are located in Atlanta, Boston, Dallas, Denver,
Hartford and San Francisco. iStar Asset Services, our loan servicing subsidiary,
is located in Hartford, and iStar Real Estate Services, our corporate facilities
management division, is headquartered in Atlanta.

S-8

THE OFFERING

Issuer.................................... iStar Financial Inc.

Securities Offered........................ $150,000,000 principal amount of % Senior Notes due
2008.

Maturity.................................. March 15, 2008.

Interest Rate............................. % per year (calculated using a 360-day year).

Interest Payment Dates.................... Each March 15 and September 15, beginning on
September 15, 2003. Interest on the Notes being offered
by this prospectus supplement will accrue from ,
2003.

Ranking................................... The Notes are our unsecured senior obligations and rank
PARI PASSU to our existing and future unsecured senior
indebtedness and, to the extent we incur subordinated
indebtedness in the future, senior to such indebtedness.
The Notes will be effectively subordinated to all
indebtedness of our subsidiaries. As of December 31,
2002, giving pro forma effect to the issuance of the
Notes, the aggregate amount of outstanding indebtedness
of our subsidiaries would have been approximately
$3.0 billion.

Optional Redemption....................... The Notes are redeemable prior to their maturity at a
make-whole premium. See "Description of Notes--Optional
Redemption."

Optional Redemption after Equity
Offerings............................... At any time (which may be more than once) on or before
March 15, 2006, we can choose to redeem up to a total of
35% of the aggregate principal amount of Notes we issue
under the indenture for % of their face amount plus
accrued interest with money that we raise in one or more
equity offerings, as long as:

- we redeem the Notes within 60 days after
completing the equity offering; and

- at least 65% of the aggregate principal amount of
the Notes we issue under the indenture remain
outstanding.

Change of Control Offer................... If a change in control of our Company occurs, we must
give holders of the Notes the opportunity to sell us
their Notes at 101% of their face amount, plus accrued
interest.

Certain Indenture Provisions.............. The indenture governing the Notes contains covenants
limiting our and our subsidiaries' ability to:

- incur indebtedness;

- issue preferred stock of subsidiaries;

- pay dividends or make other distributions;

S-9

- repurchase equity interests or subordinated
indebtedness;

- enter into transactions with affiliates;

- merge or consolidate with another person; or

- sell, lease or otherwise dispose of all or
substantially all of our assets.

These covenants are subject to a number of important
limitations and exceptions. See "Description of
Notes--Certain Covenants."

Use of Proceeds........................... The net proceeds from the sale of the Notes, after
deducting underwriting discounts and commissions and
fees and expenses related to the offering are expected
to be approximately $ million. Approximately
$144.2 million of the proceeds will be used to retire,
through an exchange, $144.2 million principal amount of
our leasing subsidiary's remarketable notes, as
modified. We have agreed with Deutsche Bank Securities
Inc., in its capacity as remarketing agent, that it will
tender the remarketable notes to us for retirement. Any
remaining proceeds will be used by us for general
corporate purposes. See "Underwriting."

Risk Factors.............................. Investing in the Notes involves substantial risks. See
"Risk Factors" for a description of certain of the risks
you should consider before investing in the Notes.

S-10

RISK FACTORS

This section describes some, but not all, of the risks of purchasing Notes
in the offering. The prospectus to which this supplement relates also contains a
Risk Factors section beginning on page three of that prospectus. You should
carefully consider these risks, in addition to the other information contained
or incorporated by reference in this document, before purchasing Notes. In
connection with the forward-looking statements that appear in this document, you
should carefully review the factors discussed below and the cautionary
statements referred to in "Forward-Looking Statements."

WE HAVE OTHER INDEBTEDNESS

As of December 31, 2002, on a pro forma basis after giving effect to this
offering, our outstanding debt will be approximately $3.5 billion. Our ability
to make scheduled payments of principal or interest on, or to refinance, our
indebtedness depends on our future performance, which, to a certain extent, is
subject to general economic, financial, competitive and other factors beyond our
control.

THE NOTES WILL BE STRUCTURALLY SUBORDINATED TO SUBSIDIARY DEBT

The Notes are not guaranteed by any of our subsidiaries. Our subsidiaries
hold a substantial portion of our assets. After giving pro forma effect to the
offering, our subsidiaries would have had approximately $3.0 billion of
indebtedness outstanding at December 31, 2002. Creditors of a subsidiary are
entitled to be paid what is due to them before assets of the subsidiary become
available for creditors of its parent. In addition, if we were to become
insolvent, the lenders on a credit facility, under which iStar Financial and one
of its subsidiaries are co-borrowers, would receive payments from the stock of
the co-borrower subsidiary and our leasing subsidiary that has been pledged as
collateral under that facility before you receive payments.

ABILITY TO REPURCHASE NOTES UPON CHANGE OF CONTROL MAY BE LIMITED

Upon a change of control, each holder of Notes will have the right to
require us to repurchase the holder's Notes. If there were a change of control,
but we did not have sufficient funds to pay the repurchase price for all of the
Notes which were tendered, that failure would constitute an event of default
under the indenture. Therefore, a change of control at a time when we could not
pay for Notes which were tendered as a result of the change of control could
result in holders of Notes receiving substantially less than the principal
amount of the Notes.

AS A REIT, WE MUST DISTRIBUTE A PORTION OF OUR INCOME TO OUR STOCKHOLDERS

We must distribute at least 90% of our taxable net income to our
stockholders to maintain our REIT status. As a result, those earnings will not
be available to pay principal or interest on the Notes. Our taxable net income
has historically been lower than the cash flow generated by our business
activities, primarily because our taxable net income is reduced by non-cash
expenses, such as depreciation and amortization. As a result, our dividend
payout ratio as a percentage of free cash flow has generally been lower than our
payout ratio as a percentage of taxable net income. However, certain of our
credit facilities and the indenture governing the Notes permit us to distribute
up to 95% of our adjusted earnings. Our common stock dividends for the quarter
ended December 31, 2002 represented approximately 83.7% of our adjusted earnings
for that quarter.

S-11

THERE IS NO PUBLIC MARKET FOR THE NOTES

If the Notes are traded after their initial issuance, they may trade at a
discount from their initial offering price, depending upon prevailing interest
rates, the market for similar securities, our performance and certain other
factors. Historically, there has been substantial volatility in the prices of
corporate debt securities, and the price of the Notes is likely to be affected
by factors which affect the price of corporate debt securities generally. We do
not intend to apply for listing of the Notes on any securities exchange or for
inclusion of the Notes on any automated quotation system.

S-12

USE OF PROCEEDS

The net proceeds from the sale of the Notes, after deducting underwriting
discounts and commissions and fees and expenses related to the offering are
expected to be approximately $ million. Approximately $144.2 million of the
proceeds will be used to retire, through an exchange, $144.2 million principal
amount of our leasing subsidiary's remarketable notes, as modified. We have
agreed with Deutsche Bank Securities Inc., in its capacity as remarketing agent,
that it will tender the remarketable notes to us for retirement. Any remaining
proceeds will be used by us for general corporate purposes. See "Underwriting."

CAPITALIZATION

The following table sets forth our capitalization at September 30, 2002 as
adjusted to give effect to: (a) the issuance of the Notes; and (b) our public
offering of 8.0 million shares of common stock completed November 2002, the net
proceeds of which were used to pay down one of our secured revolving credit
facilities. See "Use of Proceeds." This table should be read in conjunction with
our consolidated financial statements and the notes thereto incorporated by
reference in this document.

AS OF
SEPTEMBER 30,
2002
--------------
AS ADJUSTED
--------------
(In thousands)

Long-term debt, including current maturities:
Unsecured senior notes, less discount..................... $ 618,100
Unsecured revolving credit facilities..................... --
Secured revolving credit facilities....................... 1,057,495
Secured term loans, less discount......................... 622,743
iStar Asset Receivables secured notes, less discount...... 877,770
Other debt obligations.................................... 16,282
----------
Total long-term debt.................................... $3,192,390
Shareholders' equity........................................ 2,080,497
----------
Total capitalization........................................ $5,272,887
==========

S-13

SELECTED FINANCIAL DATA

The following table sets forth our selected financial data on a consolidated
historical basis as of and for the nine months ended September 30, 2002 and
2001, and as of and for the years ended December 31, 2001, 2000 and 1999.

In November 1999, we completed a number of significant corporate
transactions which increased the size of our operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2001, which is
incorporated herein by reference. Operating results for the year ended
December 31, 1999 reflect the effects of these transactions subsequent to their
consummation.

NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
----------------------- ------------------------------------
2002 2001 2001 2000 1999
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)

OPERATING DATA:
REVENUE:
Interest Income................................. $ 187,057 $ 193,205 $ 254,119 $ 268,011 $ 209,848
Operating lease income.......................... 177,483 137,605 191.197 180,485 41,748
Other income.................................... 21,263 23,893 31,060 17,927 12,900
---------- ---------- ---------- ---------- ----------
Total revenue................................. 385,803 354,703 476,376 466,423 264,496
---------- ---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Interest expense................................ 135,935 128,796 169,974 173,741 91,159
Operating costs-corporate tenant lease assets... 9,662 9,713 12,791 12,795 2,244
Depreciation and amortization................... 35,013 26,191 35,555 34,470 10,334
General and administrative...................... 22,849 18,731 24,151 25,706 6,269
General and administrative -- stock-based
compensation.................................. 17,365 2,580 3,575 2,864 412
Provision for loan losses....................... 5,750 5,250 7,000 6,500 4,750
Advisory fees................................... -- -- -- -- 16,193
Costs incurred in acquiring former external
advisor(1).................................... -- -- -- -- 94,476
---------- ---------- ---------- ---------- ----------
Total costs and expenses...................... 226,574 191,261 253,046 256,076 225,837
---------- ---------- ---------- ---------- ----------
Net income before equity in earnings from joint
ventures and unconsolidated subsidiaries,
minority interest and other items............. 159,229 163,442 223,330 210,347 38,659
Equity in earnings from joint ventures and
unconsolidated subsidiaries................... 1,301 5,645 7,358 4,797 235
Minority interest in consolidated entities...... (122) (177) (218) (195) (41)
Income from discontinued operations............. 3,333 3,744 199 394 33
Gain from discontinued operations............... 717 403 1,145 2,948 --
Extraordinary loss on early extinguishment of
debt.......................................... (12,166) (1,620) (1,620) (705) --
Cumulative effect of change in accounting
principle(2).................................. -- (282) (282) -- --
---------- ---------- ---------- ---------- ----------
Net income...................................... $ 152,292 $ 171,155 $ 229,912 $ 217,586 $ 38,886
Preferred dividends............................. (27,681) (27,681) (36,908) (36,908) (23,843)
---------- ---------- ---------- ---------- ----------
Net income allocable to common shareholders..... $ 124,611 $ 143,474 $ 193,004 $ 180,678 $ 15,043
========== ========== ========== ========== ==========

S-14

SUPPLEMENTAL DATA:
Dividends declared on preferred shares............ $ 27,433 $ 27,433 $ 36,578 $ 36,576 $ 24,819
Dividends declared on common shares............... 112,589 157,351 213,089 205,477 116,813
Cash flows from:
Operating activities.............................. 222,837 184,397 264,835 202,715 119,625
Investing activities.............................. (878,634) (152,915) (321,100) (176,652) (143,911)
Financing activities.............................. 660,271 (39,079) 49,183 (37,719) 48,584
EBITDA(3)......................................... 346,428(4) 324,074 436,217 423,355 234,863
Ratio of EBITDA to interest expense............... 2.55x(4) 2.52x 2.57x 2.44x 2.58x
Ratio of EBITDA to combined fixed charges(5)...... 2.12x(4) 2.07x 2.11x 2.01x 2.04x
Ratio of earnings to combined fixed charges(6).... 2.24x 2.33x 2.34x 2.25x 1.43x
Ratio of earnings to combined fixed charges and
preferred stock dividends(6).................... 1.86x 1.92x 1.92x 1.85x 1.13x
Total debt to shareholders' equity(7)............. 1.8x 1.3x 1.4x 1.2x 1.1x
BALANCE SHEET DATA:
Loans and other lending investments, net.......... $2,939,769 $2,392,605 $2,377,763 $2,225,183 $2,003,506
Corporate tenant lease assets, net................ 2,174,555 1,659,637 1,781,565 1,592,087 1,654,178
Total assets...................................... 5,367,483 4,196,553 4,378,560 4,034,775 3,813,552
Debt obligations.................................. 3,387,560 2,291,774 2,495,369 2,131,967 1,901,204
Minority interest in consolidated entities........ 2,581 2,650 2,650 6,224 2,565
Shareholders' equity.............................. 1,877,545 1,821,426 1,787,778 1,787,885 1,801,343

- ------------

(1) This amount represents a non-recurring, non-cash charge of approximately
$94.5 million relating to the acquisition of our former external advisor on
November 4, 1999.

(2) Represents one-time effect of adoption of Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" as of January 1, 2001.

(3) EBITDA is calculated as total revenue plus equity in earnings from joint
ventures and unconsolidated subsidiaries minus the sum of general and
administrative expenses, general and administrative -- stock-based
compensation expense, provision for loan losses, operating costs-corporate
tenant lease assets and, prior to November 4, 1999, advisory fees. EBITDA
should be examined in conjunction with net income. See "Consolidated
Statements of Operations" in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2001. EBITDA should not be considered as an
alternative to net income (determined in accordance with GAAP) as an
indicator of our performance, or to cash flows from operating activities
(determined in accordance with GAAP) as a measure of our liquidity, nor is
EBITDA indicative of funds available to fund our cash needs or available for
distribution to shareholders. We believe that EBITDA more closely
approximates operating cash flow before interest expense and is a useful
measure for investors to consider, in conjunction with net income and other
GAAP measures, in evaluating our financial performance. This is primarily
because we are a commercial finance company that focuses on real estate
lending and corporate tenant leasing; therefore, our net income (determined
in accordance with GAAP) reflects significant non-cash depreciation expense
on corporate tenant lease assets. It should be noted that our manner of
calculating EBITDA may differ from the calculations of similarly-titled
measures by other companies.

(4) Excludes a $15.0 million non-cash charge incurred in the nine months ended
September 30, 2002 related to performance-based vesting of restricted shares
granted under our long-term incentive plan.

(5) Combined fixed charges are comprised of interest expense, capitalized
interest, amortization of loan costs and preferred stock dividend
requirements.

(6) For the purposes of calculating the ratio of earnings to fixed charges,
"earnings" consist of income from continuing operations before income taxes
and cumulative effect of changes in accounting principles plus "fixed
charges" and certain other adjustments. "Fixed charges" consist of interest
incurred on all indebtedness relating to continuing operations (including
amortization of original issue discount) and the implied interest component
of our rent obligations in the years presented. For 1999, these ratios
include the effect of a non-recurring, non-cash charge in the amount of
approximately $94.5 million relating to the November 1999 acquisition of our
former external advisor. Excluding the effect of this non-recurring,
non-cash charge, the ratio of earnings to combined fixed charges for that
period would have been 2.46x and our ratio of earnings to combined fixed
charges and preferred stock dividends would have been 1.95x.

(7) Total shareholders' equity is defined as the sum of the book value of common
equity and preferred equity.

S-15

ADJUSTED EARNINGS

Adjusted earnings represents net income computed in accordance with GAAP,
before gain (loss) from discontinued operations, extraordinary items and
cumulative effect of change in accounting principle, plus depreciation and
amortization, less preferred stock dividends, and as further adjusted as
described below. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2001.

We believe that to facilitate a clear understanding of our historical
operating results, adjusted earnings should be examined in conjunction with net
income as shown in the "Consolidated Statements of Operations" in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2001. Adjusted
earnings should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indicator of our performance, or to cash flows from
operating activities (determined in accordance with GAAP) as a measure of our
liquidity, nor is it indicative of funds available to fund our cash needs or
available for distribution to our stockholders. We believe that adjusted
earnings more closely approximates operating cash flow and is a useful measure
for investors to consider, in conjunction with net income and other GAAP
measures, in evaluating our financial performance. This is primarily because we
are a commercial finance company that focuses on real estate lending and
corporate tenant leasing; therefore, our net income (determined in accordance
with GAAP) reflects significant non-cash depreciation expense on corporate
tenant lease assets. It should be noted that our manner of calculating adjusted
earnings may differ from the calculation of similarly-titled measures by other
companies.

NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
--------------------- ---------------------------------
2002 2001 2001 2000 1999
--------- --------- --------- --------- ---------
(IN THOUSANDS)

RECONCILIATION OF ADJUSTED EARNINGS TO GAAP NET INCOME:
Net income.................................................. $152,292 $171,155 $229,912 $217,586 $ 38,886
Add: Joint venture income................................... 621 709 965 937 1,603
Add: Depreciation........................................... 35,053 26,255 35,642 34,514 11,016
Add: Joint venture depreciation and amortization............ 3,391 2,828 4,044 3,662 365
Add: Amortization of deferred financing costs............... 17,202 15,391 20,720 13,140 6,121
Less: Preferred dividends................................... (27,681) (27,681) (36,908) (36,908) (23,843)
Less: Gain from discontinued operations..................... (717) (403) (1,145) (2,948) --
Add: Extraordinary loss-early extinguishment of debt........ 12,166 1,620 1,620 705 --
Add: Cumulative effect of change in accounting principle.... -- 282 282 -- --
Less: Net income allocable to class B shares................ -- -- -- -- (826)
Add: Cost incurred in acquiring former external advisor..... -- -- -- -- 94,476(1)
-------- -------- -------- -------- --------
Adjusted diluted earnings allocable to common shareholders:
Before non-cash incentive compensation charge............. $207,277(2) $190,156 $255,132 $230,688 $127,798
======== ======== ======== ======== ========
After non-cash incentive compensation charge.............. $192,327 $190,156 $255,132 $230,688 $127,798
======== ======== ======== ======== ========
Weighted average common shares outstanding-basic............ 88,610 86,130 86,349 85,441 57,749
======== ======== ======== ======== ========
Weighted average common shares outstanding-diluted.......... 91,746 88,372 88,606 86,523 61,750
======== ======== ======== ======== ========

- ------------

(1) This amount represents a non-recurring, non-cash charge of approximately
$94.5 million relating to the acquisition of our former external advisor on
November 4, 1999.

(2) Excludes a $15.0 million non-cash charge incurred in the nine months ended
September 30, 2002 related to performance-based vesting of restricted
shares granted under our long-term incentive plan.

S-16

ISTAR FINANCIAL INC.

OVERVIEW

We are the largest publicly-traded finance company focused exclusively on
the commercial real estate industry. We provide structured financing to private
and corporate owners of high-quality real estate nationwide, including senior
and junior mortgage debt, corporate net lease financing and corporate mezzanine
and subordinated capital. Our objective is to generate consistent and attractive
returns on our invested capital by providing innovative and value-added
financing solutions to our customers. We deliver customized financial products
to sophisticated real estate borrowers and corporate customers who require a
high level of creativity and service. Our ability to provide value-added
financial solutions has consistently enabled us to realize margins and returns
on capital that are more attractive than those earned by many other commercial
real estate finance companies. As of February 28, 2003, our total enterprise
value (market value of equity plus book value of preferred stock and debt, less
cash balances) was $6.6 billion, and our annual revenue and EBITDA for the year
ended December 31, 2002 were $525.7 million and $471.4 million, respectively.

We began our business in 1993 through private investment funds formed to
take advantage of the lack of well-capitalized lenders capable of servicing the
needs of high-end customers in our markets. During our ten-year history we have
structured or originated nearly $7.3 billion of financing commitments. To date,
we have not realized a loss of principal or interest on any lending investment
we have funded.

By capitalizing on our competitive strengths, we have delivered consistent
financial performance, developed a high-quality, diversified asset base and
established ourselves as a reliable provider of financing solutions for our
customers. Our disciplined approach to our business has enabled us to adapt to
adverse economic and real estate market conditions while consistently delivering
attractive risk-adjusted returns on our invested capital. We have maintained
strong credit statistics and have consistently grown our EBITDA since the
quarter ended June 1998, our first quarter as a public company. Between that
quarter and the quarter ended December 31, 2002, we grew our EBITDA from
approximately $30.7 million to $125.4 million.

S-17

The graphs below show our annual EBITDA and our credit statistics since
1998, our first year as a public company.

EBITDA(1)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

In Millions

1998 1999 2000 2001 2002(3)

Adjusted Earnings $148.60 $234.90 $423.40 $436.20 $471.40

- ------------

(2) Because second quarter 1998 was our first full quarter as a public company,
EBITDA for 1998 represents results for the second quarter through the
fourth quarter of 1998, annualized.

(3) Excludes a $15.0 million non-cash charge related to performance-based
vesting of restricted shares granted under our long-term incentive plan.

CREDIT STATISTICS

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

EBITDA/INTEREST EXPENSE EBITDA/FIXED CHARGES(3)

1998 2.6 2.5
1999 2.6 2.0
2000 2.4 2.0
2001 2.6 2.1
2002(2) 2.5 2.1

- ------------

(1) Because second quarter 1998 was our first full quarter as a public company,
the credit statistics for 1998 represent second through fourth quarter 1998
results annualized.

(2) Excludes a $15.0 million non-cash charge related to performance-based
vesting of restricted shares granted under our long-term incentive plan.

(3) Fixed charges is defined as the sum of interest expense and preferred stock
dividends.

S-18

COMPETITIVE STRENGTHS

CREATIVE CAPITAL SOLUTIONS

We target markets where customers require a knowledgeable provider of
capital that is capable of originating customized and flexible financial
products. We provide our customers with a level of service and creativity
generally unavailable from other lenders. We do not participate in
distribution-based commercial finance businesses such as conduit lending and
mortgage-backed securities, which are typically characterized by intense price
competition and lower profit margins.

RETURN ON AVERAGE BOOK ASSETS(1)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

1998(2) 1999 2000 2001 2002

Return on Average Book Assets 6.00% 6.40% 6.70% 7.10% 6.40%

- ------------

(1) We define "return on average book assets" as the sum of adjusted earnings
and preferred dividends divided by the average book value of assets
outstanding during the year.

(3) Excludes a $15.0 million non-cash charge related to performance-based
vesting of restricted shares granted under our long-term incentive plan.

ASSET QUALITY AND DIVERSIFICATION

Throughout our operating history, we have focused on maintaining
diversification of our asset base by product line, asset type, obligor, property
type and geographic region. Asset diversification is a key part of our risk
management strategy. The pie charts below depict the diversification of our
asset base, based upon the gross book value of our loan and CTL assets of
approximately $5.6 billion as of December 31, 2002.

S-19

ASSET TYPE DIVERSIFICATION PROPERTY TYPE DIVERSIFICATION GEOGRAPHIC DIVERSIFICATION
- ----------------------------- ----------------------------- -----------------------------

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Corporate Tenant Leases 45%
First Mortgages 37%
Second Mortgages 5%
Corporate Partnership Loans/Other Assets 13%
Office(CTL) 27%
Industrial/R&D 15%
Apartment/Residential 5%
Conference/Entertainment 7%
Retail 4%
Other 1%
Hotel-Lending 12%
Hotel-Investment Grade CTL 5%
Mixed Use/Mixed Collateral 4%
Office(Lending) 20%
Northeast 18%
North Central 4%
Central 8%
South 12%
Southwest 2%
West 29%
Northwest 4%
Various 1%
Southeast 11%
Mid-Atlantic 11%

The table below reflects the diversification of our asset base as
represented by our 25 largest assets by revenue. The table shows the percentage
these assets represent of our total revenues for the three months ended
December 31, 2002.

TOP 25
ASSETS %
REVENUE
---------

PROPERTY TYPE
Office...................................................... 18%
Hotel....................................................... 8%
Retail...................................................... 4%
Residential................................................. 4%
Mixed Use................................................... 1%
Other....................................................... 7%

ASSET TYPE
Corporate Tenant Leases..................................... 19%
First Mortgages............................................. 14%
Corporate/Partnership Loans................................. 9%
Second Mortgages............................................ 0%

GEOGRAPHIC REGION
West........................................................ 10%
South....................................................... 7%
Northeast................................................... 5%
Southeast................................................... 5%
Mid-Atlantic................................................ 4%
Northwest................................................... 3%
Other....................................................... 7%

S-20

We employ an in-depth review process and grading system to monitor the
credit quality of our asset base over time. We assign to each asset a risk
rating ranging from "one," which indicates superior credit quality and
performance well above our underwriting, to "five," which indicates inferior
credit quality and performance well below our underwriting. Each newly-
originated asset is typically assigned an initial rating of "three," or average.
Based upon our fourth quarter 2002 review, the weighted average risk rating of
our loan assets and corporate tenant lease assets was 2.75 and 2.76,
respectively.

MATCH FUNDING DISCIPLINE

Our objective is to match fund our liabilities and assets with respect to
maturities and interest rates. This means that we seek to match the maturities
of our financial obligations with the maturities of our investments. Match
funding allows us to reduce the risk of having to refinance our liabilities
prior to the maturities of our assets. In addition, we match fund interest rates
with like-kind debt (I.E., fixed-rate assets are financed with fixed-rate debt,
and floating-rate assets are financed with floating-rate debt), through the use
of hedges such as interest rate swaps, or through a combination of these
strategies. This allows us to reduce the impact of changing interest rates on
our earnings. Our objective is to limit volatility from a 100 basis point move
in short-term interest rates to no more than 2.5% of annual adjusted earnings
per share. As of December 31, 2002, a 100 basis point change in short-term
interest rates would have a 1.5% impact on our fourth quarter adjusted earnings
per share.

SIGNIFICANT EQUITY BASE

We have approximately $2.0 billion of tangible book equity and a
consolidated debt-to-book equity ratio of 1.7x as of December 31, 2002. We
believe that we are one of the most strongly capitalized asset-based finance
companies. We target a consolidated debt-to-book equity ratio of 2.0x, which is
significantly lower than most other commercial finance companies. We believe
that operating within this targeted range enables us to maintain a
well-balanced, conservative and flexible capital structure. Our tax-advantaged
structure as a REIT and our ability to operate with less overhead, as a
percentage of revenues, than many other commercial finance companies enable us
to generate higher returns on our invested capital without excessive reliance on
leverage.

EXPERIENCED MANAGEMENT

The 16 members of our executive management team have an average of more than
20 years of experience in the fields of real estate finance, private investment,
capital markets, transaction structuring, risk management, legal and loan
servicing, providing us with significant expertise in the key disciplines
required for success in our business. Our culture is also highly-focused toward
on-going asset risk management. We emphasize long-term, incentive-based
compensation, such as performance based grants of restricted common stock,
rather than cash compensation, and none of our employees is compensated based on
the volume of investment originations. Our directors and employees directly own
approximately 5.8% of our outstanding common stock on a diluted basis, which had
a market value of approximately $164 million based upon the last reported sales
price of our common stock on February 28, 2003. Our 16-member

S-21

executive management team is supported by approximately 127 employees operating
from six primary offices nationwide.

TAX-ADVANTAGED CORPORATE STRUCTURE

Because of our focus on commercial real estate finance, we are able to
qualify as a REIT. Since we are taxed as a REIT, we do not pay corporate-level
taxes in most circumstances. This tax-advantaged structure enables us to produce
higher returns on our invested capital compared to taxable finance companies
while utilizing significantly less leverage than most taxable finance companies.
The graph below shows our returns on average common book equity since our first
full year as a public company.

RETURN ON AVERAGE COMMON BOOK EQUITY(1)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

1998(2) 1999 2000 2001 2002

Return on Average Common Book Equity 12.40% 14.70% 15.80% 17.70% 18.40%

- ------------

(1) We define "return on average common book equity" as total adjusted earnings
divided by the average book value of common equity outstanding during the
year.

(2) Because second quarter 1998 was our first full quarter as a public company,
return on average common book equity for 1998 represents second through
fourth quarter 1998 results annualized.

(3) Excludes a $15.0 million non-cash charge related to performance-based
vesting of restricted shares granted under our long-term incentive plan.

S-22

ASSET BASE

The table below sets forth certain financial characteristics of our asset
base as of December 31, 2002.

FINANCIAL CHARACTERISTICS OF OUR ASSET BASE

LOANS LEASES
------------- --------------
($ IN MILLIONS)

Gross Carrying Value........................................ $3,080 $2,479
Total Financing Commitments................................. $3,178 Not applicable

Number of Investments....................................... 85 114
Number of Underlying Properties............................. 514 179
Average Asset Size per Investment........................... $36.2 $21.7
Average Asset Size per Property............................. $6.0 $13.9

Weighted Average Maturity/Lease Term........................ 4.0 years 9.4 years
Average First Dollar Loan-to-Value(1)....................... 27.2% Not applicable
Average Last Dollar Loan-to-Value(2)........................ 68.3% Not applicable

Percentage Investment Grade Credits(3)...................... Not available 53%

- ------------

(1) "Average First Dollar Loan-to-Value" means the weighted average beginning
point of our lending exposure in the aggregate capitalization of the
underlying properties or companies we finance.

(2) "Average Last Dollar Loan-to-Value" means the weighted average ending point
of our lending exposure in the aggregate capitalization of the underlying
properties or companies we finance.

(3) Includes customers with implied investment grade ratings such as Cisco
Systems, Mitsubishi Electronics of America and Volkswagen of America.

OUR TARGET MARKETS AND PRODUCT LINES

We believe we are the largest dedicated participant in a $100-$150 billion
niche of the approximately $2.1 trillion commercial real estate market,
consisting of the $1.5 trillion commercial mortgage market and the $600 billion
single-user market for corporate office and industrial facilities. Our primary
product lines include structured finance, portfolio finance, corporate tenant
leasing, corporate finance and loan acquisition. Our real estate lending assets
consist of mortgages secured by real estate collateral, loans secured by equity
interests in real estate assets, and secured and unsecured loans to corporations
engaged in real estate or real estate-related businesses. Our corporate tenant
lease assets consist of office and industrial facilities that we typically
purchase from, and lease-back to, a diversified group of creditworthy corporate
tenants as a form of financing for their businesses. Our leases are generally
long-term, and typically provide for all expenses at the facility to be paid by
the corporate tenant on a "triple net" basis. Under a typical net lease
agreement, the corporate customer agrees to pay a base monthly operating lease
payment and all facility operating expenses, including taxes, maintenance and
insurance.

S-23

The pie chart below shows the composition of our asset base by product line,
based on the total gross book value of our loan and CTL assets of approximately
$5.6 billion as of December 31, 2002.

PRODUCT LINE DIVERSIFICATION

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Portfolio Finance 7%
Corporate Tenant Leasing 45%
Corporate Finance 12%
Loan Acquisition 9%
Structured Finance 27%

STRUCTURED FINANCE

We provide senior and subordinated loans that typically range in size from
$20 million to $100 million to borrowers holding high-quality real estate. These
loans may be either fixed or variable rate and are structured to meet the
specific financing needs of the borrowers, including the acquisition or
financing of large, high-quality real estate. We offer borrowers a wide range of
structured finance options, including first mortgages, second mortgages,
partnership loans, participating debt and interim facilities. Our structured
finance transactions have maturities generally ranging from three to ten years.
As of December 31, 2002, based on gross carrying values, our structured finance
assets represented 25.9% of our total asset base.

PORTFOLIO FINANCE

We provide funding to regional and national borrowers who own multiple
facilities in geographically diverse portfolios. Loans are cross-collateralized
to give us the benefit of all available collateral and underwritten to recognize
inherent portfolio diversification. Property types include multifamily, suburban
office, hotels and other property types where individual property values are
less than $20 million on average. Loan terms are structured to meet the specific
requirements of the borrower and typically range in size from $25 million to
$150 million. Our portfolio finance transactions have maturities generally
ranging from three to ten years. As of December 31, 2002, based on gross
carrying values, our portfolio finance assets represented 7.1% of our total
asset base.

CORPORATE TENANT LEASING

We provide capital to corporations and borrowers who control facilities
leased to single creditworthy tenants. Our net leased assets are generally
mission-critical headquarters or distribution facilities that are subject to
long-term leases with rated corporate tenants, and which provide for all
expenses at the property to be paid by the corporate tenant on a triple net
lease basis. Corporate tenant lease transactions have terms generally ranging
from ten to 20 years and typically range in size from $20 million to
$150 million. As of December 31, 2002, based on gross carrying values, our
corporate tenant lease assets represented 43.6% of our total asset base.

We pursue the origination of corporate tenant lease transactions by
structuring purchase/ leasebacks and by acquiring facilities subject to existing
long-term net leases. In a purchase/

S-24

leaseback transaction, we purchase the property from the corporate tenant and
lease it back to the tenant on a triple-net basis. The purchase/leaseback
structure allows the corporate customer to reinvest the proceeds from the sale
of its facilities into its core business, while we capitalize on our structured
financing expertise.

Our corporate tenant lease investments primarily represent a diversified
portfolio of mission-critical headquarters or distribution facilities subject to
net lease agreements with creditworthy corporate tenants. By "mission-critical"
we mean the tenant views our facility as being of strategic and operational
importance to its business activities. In our experience, tenants tend to first
vacate and reject leases on their non-core facilities when they experience
financial distress, but continue to occupy and remain current on their lease
payments for mission-critical facilities because these facilities are needed to
continue to run the business. The corporate tenant lease investments we target
generally involve: (1) high-quality, general-purpose real estate with residual
values that represent a discount to current market values and replacement costs;
and (2) corporate tenants that are established companies with stable core
businesses or market leaders in growing industries with investment-grade credit
strength or appropriate credit enhancements if corporate credit strength is not
sufficient.

Since acquiring our leasing subsidiary in November 1999, we have increased
the weighted average lease term of our corporate tenant lease assets from 5.6 to
9.4 years. During that time we have also executed over 17.7 million square feet
of new and renewal leases in 154 total transactions with a weighted average
lease term of 11.7 years. Throughout this leasing activity, we have emphasized
early lease renewals. Of the 4.2 million square feet of leases renewed since
June 1999, approximately 2.6 million square feet (61%) represented early
renewals where there were more than 12 months left on the primary lease term. As
of December 31, 2002, our corporate tenant lease portfolio was 96.1% leased.

As of December 31, 2002, we had more than 120 corporate customers operating
in more than 38 different Standard Industrial Classification codes, including
aerospace, energy, financial services, healthcare, hospitality, technology,
government services, manufacturing and telecommunications. These customers
include the U.S. Government and well-recognized national and international
companies, such as Accenture, Ltd., FedEx Corporation, International Business
Machines Corporation, Nike, Inc., Nokia Corporation, Northrop Grumman
Corporation, Verizon Communications, Inc., Volkswagen of America and Wells Fargo
Bank.

S-25

The pie chart below summarizes our corporate tenant lease customers by
Standard Industrial Classification code as of December 31, 2002 (by gross
carrying value).

CORPORATE TENANT LEASE PORTFOLIO BY SIC CODE

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Apparel & other Finished Prod. 1%
Rubber & Misc. Plastic Prod. 7%
Industrial/Commercial Mach. Include. Computers 10%
Electronic & Other Electrical Equip. 6%
Transportation Equipment 7%
Measuring & Analyzing Instru. 2%
Motor Freight Transportation & Warehousing 2%
Airports/Terminal Services 1%
Communications 7%
Electric, Gas & Sanitary Services 2%
Wholesale trade-Durable Goods 3%
Wholesale Trade-Non-Durable Goods 1%
Eating & Drinking Places 2%
Depository Institutions 2%
Non-Depository Institutions 3%
Insurance Carriers 3%
Insurance Agents, Brokes & Service 3%
Hotels, Rooming, Housing & Lodging 7%
Business Service 13%
Engineering, Accounting & Research Services 2%
Executive, Legislative, and General Gov't. 3%
Misc. SICs (Less than 1%) 13%

S-26

The table below illustrates our corporate tenant lease expirations as of
December 31, 2002.

LEASE EXPIRATIONS

ANNUALIZED % OF
FOURTH QUARTER ANNUALIZED
2002 EXPIRING FOURTH QUARTER
NUMBER OF OPERATING LEASE REVENUES 2002
YEAR OF LEASE EXPIRATION LEASES EXPIRING ($ IN THOUSANDS) TOTAL REVENUES
- ------------------------ --------------- ------------------------ --------------

2003.................................... 15 $ 11,873 2.1%
2004.................................... 24 20,719 3.7%
2005.................................... 19 16,909 3.0%
2006.................................... 30 30,335 5.4%
2007.................................... 24 21,124 3.8%
2008.................................... 13 11,731 2.1%
2009.................................... 17 17,748 3.2%
2010.................................... 5 7,718 1.4%
2011.................................... 5 5,175 0.9%
2012 and thereafter..................... 52 133,690 23.8%
--- -------- ----
Total................................... 204 $277,022 49.4%
=== ======== ====

CORPORATE FINANCE

We provide senior and subordinated capital to corporations engaged in real
estate or real estate-related businesses. Financings may be either secured or
unsecured and typically range in size from $20 million to $150 million. Our
corporate finance transactions have maturities generally ranging from five to
ten years. As of December 31, 2002, based on gross carrying values, our
corporate finance assets represented 12.2% of our total asset base.

LOAN ACQUISITION

We acquire whole loans and loan participations that present attractive
risk-reward opportunities. Loans are generally acquired at a small discount to
the principal balance outstanding. Loan acquisitions typically range in size
from $5 million to $100 million and are collateralized by all major property
types. Our loan acquisition transactions have maturities generally ranging from
three to ten years. As of December 31, 2002, based on gross carrying values, our
loan acquisition assets represented 9.7% of our total asset base.

S-27

OUR STRATEGY

Our objective is to generate consistent and attractive returns on our
invested capital by providing innovative and value-added financing solutions to
our customers. We believe we have established a market leadership position for
highly structured mortgage, corporate and mezzanine financing backed by
high-quality commercial real estate nationwide. We deliver customized financial
products to sophisticated real estate borrowers and corporate customers who
require a high level of creativity and service. Our ability to provide
value-added financial solutions has consistently enabled us to realize margins
and returns on capital that are more attractive than those earned by many other
commercial real estate lenders.

INVESTMENT STRATEGY

In order to accomplish our objective, we have implemented the following
investment strategy:

- We focus on the origination of structured mortgage, corporate and lease
financings backed by high-quality commercial real estate assets located in
major U.S. metropolitan markets.

- We offer sophisticated borrowers and corporate customers added value in
the form of specific lending expertise, flexibility, certainty and
post-closing support.

- We seek to develop direct relationships with borrowers and corporate
tenants as opposed to sourcing transactions through intermediaries.

- We avoid businesses in which there is significant direct competition from
other providers of capital.

- We take advantage of market anomalies in the real estate financing markets
when we believe credit is mispriced by other providers of capital, such as
the spread between lease yields and the yields on corporate tenants'
underlying credit obligations.

- We stress test potential investments for adverse economic and real estate
market conditions.

We source our investment transactions from our existing relationships with
real estate owners, through other direct relationships within the real estate
and corporate finance communities, and from other capital providers and advisors
who refer customers to us. We also utilize information obtained from our risk
management group to generate leads on potential investment opportunities. We
have completed over $3.1 billion of financing transactions with borrowers who
have sought our expertise more than once.

We discuss and analyze investment opportunities during regular weekly
meetings which are attended by all of our investment professionals, as well as
representatives from our legal, risk management and capital markets areas. We
have developed a process for screening potential investments called the Six
Point Methodology(sm). The Six Point Methodology(sm) reflects the six
fundamental criteria by which we evaluate an investment opportunity prior to
beginning our formal underwriting and commitment process.

THE SIX POINT METHODOLOGY(SM)

- First, we evaluate the source of the opportunity. We prefer opportunities
where we have a direct relationship with the customer or an intermediary
who has worked with us before, because we believe that such relationships
enable us to add more value to a transaction.

S-28

- Second, we evaluate the quality of the collateral or corporate credit, as
well as its market or industry dynamics.

- Third, we evaluate the equity or corporate sponsor, including factors such
as its reputation, financial strength and commitment to the collateral.

- Fourth, we determine whether we can implement an appropriate legal and
financial structure for the transaction given its risk profile, including
our ability to control the collateral under various circumstances.

- Fifth, we perform an alternative investment test. If we believe that we
can earn a better risk-adjusted return in a comparable asset class or
different part of the customer's capital structure, then the proposed
investment will score poorly in this category.

- Sixth, we evaluate the liquidity of the investment and our ability to
match fund the asset. A security that is too highly structured is less
desirable because it may limit our ability to obtain appropriately priced
financing for the asset, or to sell it if we ever so desire.

We have an intensive underwriting process in place for all potential
investments. This process provides for comprehensive feedback and review by all
the disciplines within our company, including investments, credit, risk
management, legal/structuring and capital markets. Participation is encouraged
from all professionals throughout the entire origination process, from the
initial consideration of the opportunity, through the Six Point Methodology(sm)
and into the preparation and distribution of a comprehensive memorandum for our
internal and Board of Directors investment committees.

Commitments of less than $30 million require the unanimous consent of our
internal investment committee, consisting of senior management representatives
from each of our key disciplines. For commitments between $30 million and
$50 million, the further approval of our Board of Directors' investment
committee is also required. All commitments of $50 million or more must be
approved by our full Board of Directors.

RISK MANAGEMENT

In addition to mitigating risk through the careful underwriting and
structuring of our investments, we further proactively manage risk by:
(1) generating, analyzing and distributing information on-line to all our
employees about our collateral and our customers on a continuous, real-time
basis; (2) holding weekly company-wide meetings to identify and address risk
management issues; (3) applying a comprehensive risk rating process;
(4) establishing loan loss reserves and asset impairment procedures; and
(5) managing our assets and liabilities through match funding. We believe these
risk management measures enable us to effectively manage our asset base and
minimize our risk of loss. More than 50 of our approximately 143 employees are
dedicated to our risk management platform.

COLLATERAL AND CUSTOMER MONITORING

We have comprehensive real-time risk management systems that enable us to
proactively monitor the performance of our asset base and to quickly identify
and address potential issues with any of our assets. Risk management
information, which is generated from numerous collateral-level controls,
extensive customer reporting requirements and on-site asset monitoring programs,
is accessible to all our employees nationwide via computer.

S-29

Our comprehensive risk management systems require the active participation
of each of our senior professionals and other employees within our regional
office infrastructure. Every employee nationwide has access, via our computer
network, to various risk management reports which provide real-time information
regarding the performance of our asset base. These reports, which are
continually updated as new customer information is received, are based on
information that is: (1) required to be provided by our customers;
(2) generated by our risk management professionals; and (3) obtained from the
public domain. Examples of risk management reports include daily payment
reports, monthly covenant reviews, monthly reserve balance reports, monthly
budget-versus-actual analyses of collateral and corporate customer performance,
leasing activity reports and quarterly risk ratings reviews. This process
ensures that risk management issues are quickly identified and that decisions
are based on the most current information available.

iStar Asset Services, or "iSAS," our rated loan servicing subsidiary, and
iStar Real Estate Services, or "iRES," our corporate tenant lease asset
management division, are critical to our asset and customer monitoring efforts.
Together, they are principally responsible for managing our asset base,
including monitoring our customers' compliance with their respective loan and
leasing agreements, collecting customer payments, and efficiently analyzing and
distributing customer performance information throughout our company on a
real-time basis. iSAS and iRES provide daily information on the performance and
condition of our asset base. iSAS is currently rated "above average" by
Standard & Poor's and CMS2- by Fitch as a master servicer. In addition to
servicing our asset base, iSAS also provides loan servicing to third-party
institutional owners of loan portfolios.

Our loan customers are required to comply with periodic covenant tests, and
typically must submit extensive collateral performance information such as
monthly operating statements and operating budgets. We also may require
customers to deposit cash into escrow accounts to cover major capital
expenditures, such as expected re-tenanting costs, and we typically require
approval rights over major decisions impacting collateral cash flows. In many
cases, collateral cash receipts must be deposited into lock-box bank accounts
that we control. We then distribute the net cash, after our debt service, to our
customers.

We furnish on-site asset management services for most of our corporate
customers, providing us with daily information regarding the condition of our
assets. In addition, we have a formal annual inspection program that ensures
that our corporate tenant lease customers are complying with their lease terms.
Customer lease payments are deposited directly into lock-box accounts managed by
our treasury group, and corporate customers are required to submit financial
statements on a regular basis to our corporate credit professionals. In
addition, our risk management group monitors the wire services for important
news on our customers, including press releases, earnings announcements, credit
ratings changes, research reports relating to our corporate customers and local
market conditions, and distributes this information via email to all of our
employees. All new corporate tenant leases must be approved by our Chief
Operating Officer who evaluates, with the assistance of our credit
professionals, the creditworthiness and appropriate security, if any, required
by us.

WEEKLY RISK MANAGEMENT MEETINGS

We hold weekly company-wide meetings to identify current issues, and conduct
monthly meetings to review actual collateral performance compared to our
customers' budgets. During the weekly meetings, our regional offices connect via
videoconference with our headquarters and we review asset-specific issues in
detail. At these meetings, we develop an action plan to resolve any issues which
arise. We also conduct systematic, asset-specific reviews of both our loan and
corporate tenant lease assets on a quarterly basis, as discussed below.

S-30

RISK RATING PROCESS

We have a comprehensive risk rating process that enables us to evaluate,
monitor and pro-actively manage asset-specific credit issues and identify credit
trends on a portfolio-wide basis. We conduct a detailed credit review of each
asset on a quarterly basis, and we assign individual risk ratings to each asset
ranging from "one" to "five." Attendance is mandatory for all of our
professionals, including those in our regional offices. A "one" indicates
superior credit quality and performance well above our underwriting, a "two"
signifies better than average credit quality and performance above our
underwriting, a "three" serves as an average rating and performance in line with
our underwriting, a "four" indicates that management time and attention is
required for the asset and performance below our underwriting, and a "five"
denotes a problem asset with potential principal risk to us and performance well
below our underwriting. In addition to the ratings system, we maintain a "watch
list" of assets which are generally rated "four," but which require highly
pro-active asset management to preserve their current ratings. Each
newly-originated asset is typically assigned an initial rating of "three," or
average.

Risk ratings provide a common language and uniform framework by which we can
discuss and evaluate risk and relative levels of risk across our asset base.
This is our primary early warning system and provides us with a means of
identifying assets that warrant a greater degree of monitoring and senior
management attention. In addition, this process provides a useful forum to
identify assets or markets that may offer opportunities for new business.
Lastly, the risk ratings process serves as a basis for determining our quarterly
loan loss provision and evaluating the adequacy of our reserves.

Based upon our fourth quarter 2002 review, the weighted average risk rating
of our loan assets and corporate tenant lease assets was 2.75 and 2.76,
respectively.

WEIGHTED AVERAGE RISK RATINGS

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

STRUCTURED FINANCE ASSETS CORPORATE TENANT LEASE ASSETS

12/31/00 2.5 2.77
3/31/01 2.53 2.78
6/30/01 2.68 2.79
9/30/01 2.82 2.92
12/31/01 2.75 2.77
3/31/02 2.77 2.78
6/30/02 2.74 2.76
9/30/02 2.81 2.8
12/31/02 2.75 2.76

We consider several primary variables in determining which rating to assign
to an asset. For our loans, the seven primary risk attributes are:

- Trailing and projected collateral operating performance and debt service
coverage ratios.

- Current and estimated loan-to-value ratios.

S-31

- Local and regional economic and real estate market trends.

- Loan structure.

- Collateral condition, location and marketability.

- Borrower's source of repayment funds or ability to refinance or sell the
collateral.

- Borrower financial strength, quality of sponsorship and capital commitment
to the collateral.

For our corporate tenant leases, the five primary risk attributes are:

- Corporate tenant credit and industry dynamics.

- Remaining lease term.

- Property condition, location and marketability.

- Local and regional economic and real estate market trends.

- Our book basis in the asset.

CREDIT LOSS RESERVE POLICY AND ASSET IMPAIRMENT PROCEDURES

Our policy for establishing loan loss reserves and our asset impairment
procedures are consistent with established accounting standards. Our reserve
levels reflect our judgment of loss potential and are evaluated based upon the
quarterly risk rating review process. The overall factors in this evaluation
include:

- General economic conditions.

- General loss trends in the industry, including comprehensive, long-term
data on commercial mortgage delinquencies and loss severities tracked by
the American Council of Life Insurers and a number of academic studies.

- The size, diversity and geographic concentration of our asset base.

In addition to our general loan loss reserves, we also have asset-specific
credit protection, including cash reserve accounts, cash deposits and letters of
credit which totaled $162.4 million for our loan assets as of December 31, 2002.
Where appropriate, we typically require this incremental credit protection to be
funded and/or posted at the closing of a transaction in accounts in which we
have a security interest. As of December 31, 2002, accumulated loan loss
reserves and other asset-specific credit protection represented an aggregate of
approximately 6.2% of the gross book value of our loans.

We have never realized a loss of principal or interest on any loan
investment we have funded. As of December 31, 2002, we had only three assets on
non-accrual status with an aggregate gross book value of $11.1 million (0.20% of
the gross book value of our investments). Each of the loans on non-accrual
status remains current on its debt service payments to us.

As required under generally accepted accounting principles, we accumulate
depreciation against our CTL assets, which reduces our book basis in those
assets relative to our original purchase price. In addition, where appropriate,
we also require certain CTL customers to post additional security for their
lease obligations in the form of cash deposits and/or letters of credit. These
cash deposits and letters of credit, which serve as additional asset-specific
credit protection for our CTL assets, totaled $95.1 million as of December 31,
2002. In aggregate, cash deposits, letters of credit, allowances for doubtful
accounts and accumulated depreciation

S-32

relating to corporate tenant lease assets represented 9.1% of the gross book
value of our corporate tenant lease assets at that date.

ASSET/LIABILITY MANAGEMENT

Our objective is to match fund our liabilities and assets with respect to
maturities and interest rates. This means that we seek to match the maturities
of our financial obligations with the maturities of our investments. Match
funding allows us to reduce the risk of having to refinance our liabilities
prior to the maturity of our assets. In addition, we match fund interest rates
with like-kind debt (I.E., fixed-rate assets are financed with fixed-rate debt,
and floating-rate assets are financed with floating-rate debt), through the use
of hedges such as interest rate swaps, or through a combination of these
strategies. This allows us to reduce the impact of changing interest rates on
our earnings. Our objective is to limit volatility from a 100 basis point move
in short-term interest rates to no more than 2.5% of annual adjusted earnings
per share. As of December 31, 2002, a 100 basis point change in short-term
interest rates would have a 1.5% impact on our fourth quarter adjusted earnings
per share.

FINANCING STRATEGY

Our financing strategy revolves around three primary principles that are key
to our business model:

- Maintain significantly lower leverage than other commercial finance
companies and a large tangible equity capital base.

- Develop a deep and broad array of capital sources from a diversified group
of debt and equity providers in order to insulate our business from
potential fluctuations in the availability of capital.

- Match fund our liabilities and assets to minimize the risk that we have to
refinance our liabilities prior to the maturities of our assets and to
reduce the impact of changing interest rates on our earnings.

LOWER LEVERAGE AND A LARGE TANGIBLE EQUITY CAPITAL BASE

Our business model is premised on operating at significantly lower leverage
and maintaining a larger tangible equity capital base than many other commercial
finance companies. At December 31, 2002, our consolidated debt-to-book equity
ratio was 1.7x. We target a consolidated debt-to-book equity ratio of 2.0x, and
believe that this is the appropriate leverage level for our business model.

ACCESS TO A DEEP AND BROAD ARRAY OF RELIABLE CAPITAL SOURCES

We seek to develop a deep and broad array of reliable debt and equity
capital sources to fund our business. Accordingly, we maintain a diverse range
of short and long-term financing sources from both the secured and unsecured
lending and capital markets. We also believe that our track record as a private
and public company and our investor base, comprised of leading institutional
investors and high net worth individuals, will enable us to continue to access
the public and private equity capital markets.

As of December 31, 2002, we had $2.4 billion of committed total capacity
under our secured credit facilities. We primarily use our secured facilities to
initially fund our investments prior to seeking match funded, long-term
financing sources. Our secured facilities bear interest rates

S-33

ranging from LIBOR plus 1.40% to LIBOR plus 2.25%, and have final maturities,
including extension options, ranging from August 2003 to September 2005. In
January 2003, we extended the final maturity of one of our $700 million secured
credit facilities to January 2007 from January 2005.

At December 31, 2002, we maintained unsecured lending relationships with a
number of leading commercial banks and had $300.0 million of committed total
capacity under our unsecured facility. We primarily use our unsecured facility
for working capital purposes and as of December 31, 2002, we had no amounts
outstanding under this facility. We also had $625.0 million of long-term
corporate unsecured debt outstanding at that date.

MATCH FUNDING

We primarily execute our match funding strategy through our own proprietary
matched funding program, iStar Asset Receivables or "STARs(sm)," as well as
through term lending relationships with approximately 12 large financial
institutions. Using STARs(sm), we can access the securitized debt markets by
issuing investment-grade rated securities collateralized by pools of our
structured finance and corporate tenant lease assets. The STARs(sm)bond
maturities match the maturities of the underlying collateral, thereby
eliminating refinancing risk. We continue to service the assets in the
collateral pool through our loan servicing subsidiary, iStar Asset Services.
Because STARs(sm) is an on-balance sheet financing program, we recognize no gain
on sale in our financial statements when utilizing this vehicle.

We completed our latest STARs(sm) transaction in May 2002, and issued
approximately $900 million of investment-grade rated bonds backed by
approximately $1.1 billion of collateral. The weighted average interest rate on
the offered bonds, expressed on an all-floating rate basis, was approximately
LIBOR + 56 basis points. The proceeds from this transaction were used to repay
outstanding borrowings under our credit facilities and our first STARs(sm)
transaction.

We believe that the STARs(sm) program provides us significantly more
flexibility in managing our collateral and match funding our liabilities and
assets than other securitization structures, and that both the strong
performance of our initial STARs(sm) transaction and execution of our second
STARs(sm) transaction should positively impact future debt issuances under this
program. In addition, we view the securitized debt markets as a very reliable
source of debt capital, even when macroeconomic conditions make other lending
markets unavailable or unattractive. As of December 31, 2002, we had
$876.4 million of STARs(sm) bonds outstanding.

We also use term debt to match fund our investments, and we maintain term
lending relationships with approximately 12 major commercial banks and insurance
companies. As part of these term lending relationships, we have developed an
innovative debt facility with a commercial bank that match funds certain of our
corporate finance investments. We believe that the STARs(sm) program and our
relationships with various term lenders provide us with a reliable,
cost-effective and diverse source of capital for match funding our liabilities
and assets. As of December 31, 2002, we had 18 individual term loans with a
total outstanding balance of $698.8 million.

S-34

MANAGEMENT

The following table sets forth the names and the positions of our senior
officers:

NAME TITLE
---- -------------------------------------------------

Jay Sugarman................................. Chairman and Chief Executive Officer
Spencer B. Haber............................. President and Director
Timothy J. O'Connor.......................... Chief Operating Officer
Catherine D. Rice............................ Chief Financial Officer
Daniel S. Abrams............................. Executive Vice President--Investments
Steven R. Blomquist.......................... Executive Vice President--Investments
Roger M. Cozzi............................... Executive Vice President--Investments
Jeffrey R. Digel............................. Executive Vice President--Investments
R. Michael Dorsch, III....................... Executive Vice President--Investments
Barclay G. Jones, III........................ Executive Vice President--Investments
H. Cabot Lodge, III.......................... Executive Vice President--Investments and
Director
Michelle M. Mackay........................... Executive Vice President--Investments
Nina B. Matis................................ Executive Vice President and General Counsel
Diane Olmstead............................... Executive Vice President--Investments
Andrew C. Richardson......................... Executive Vice President--Capital Markets
Barbara Rubin................................ President--iStar Asset Services, Inc.
Jeffrey N. Brown............................. Senior Vice President--Risk Management
Chase S. Curtis, Jr.......................... Senior Vice President--Credit
Geoffrey M. Dugan............................ Senior Vice President--Human Resources and
Assistant General Counsel
Peter K. Kofoed.............................. Senior Vice President--Risk Management
John F. Kubicko.............................. Senior Vice President--Risk Management
Steven B. Sinnett............................ Senior Vice President--Compliance and Controls
Elizabeth B. Smith........................... Senior Vice President--Risk Management
William T. Stabinsky......................... Senior Vice President--Risk Management
Colette J. Tretola........................... Senior Vice President--Controller

SENIOR MANAGEMENT

JAY SUGARMAN is Chairman of the Board and Chief Executive Officer of iStar
Financial. Mr. Sugarman has served as a director of iStar Financial (and its
predecessor) since 1996 and Chief Executive Officer since 1997. During that
time, Mr. Sugarman has built iStar Financial into one of the leading providers
of custom-tailored financial solutions to high-end private and corporate owners
of real estate in the United States, growing its market capitalization from
under $50 million to over $6 billion. Previously, Mr. Sugarman founded and was
co-general partner of Starwood Mezzanine Investors, L.P., a private investment
partnership specializing in structured real estate finance. Prior to forming
Starwood Mezzanine, Mr. Sugarman managed diversified investment funds on behalf
of the Burden family, a branch of the Vanderbilts, and the Ziff family. While in
that position, he was jointly responsible for the formation of Starwood Capital
Group LLC, a leading private real estate investment firm, and the formation of
HBK Investments, one of the nation's largest multi-strategy trading operations.
Mr. Sugarman received his undergraduate degree summa cum laude from Princeton
University, where he was nominated for valedictorian and received the Paul
Volcker Award in Economics, and his M.B.A. with high distinction from

S-35

Harvard Business School, graduating as a Baker Scholar and recipient of the
school's academic prizes for both finance and marketing. Mr. Sugarman is a
director of WCI Communities, Inc., a residential developer in South Florida.

SPENCER B. HABER is President and a director of iStar Financial. Mr. Haber
has served as a director of iStar Financial since June 1999 and its President
since June 2001, having also served as Chief Financial Officer between
June 1998 and November 2002. Mr. Haber maintains oversight responsibility for
iStar Financial's capital-raising initiatives and external communications and
has primary responsibility for overall corporate business development, including
mergers and acquisitions. Mr. Haber also sits on iStar Financial's internal and
Board Investment Committees. Prior to joining iStar Financial, Mr. Haber was a
senior member of Lehman Brothers' global real estate group and was responsible
for that firm's real estate mergers and acquisitions business. In addition to
his M&A role, Mr. Haber maintained primary client coverage responsibilities in
raising equity and debt capital for a wide range of public and private
companies, participating in more than $10 billion of transactions. Before Lehman
Brothers, Mr. Haber was a member of Salomon Brothers' real estate investment
banking unit. At Salomon Brothers, Mr. Haber participated in that firm's
principal and advisory real estate activities. Prior to Salomon Brothers,
Mr. Haber worked for MIG Capital Management, a joint venture of MIG Companies, a
domestic real estate pension fund advisor, and Charterhouse Inc., a British
merchant bank. Mr. Haber holds a B.S. degree in economics summa cum laude, and
an M.B.A. from the Wharton School, where he graduated a Palmer Scholar. He is a
member of various industry associations, and sits on the board of directors of
Capital Thinking Inc., a software provider to the financial services industry.

TIMOTHY J. O'CONNOR has served as Chief Operating Officer of iStar Financial
(and its predecessor) since March 1998 and Executive Vice President since
March 2000. Mr. O'Connor is responsible for developing and managing iStar
Financial's risk management and due diligence operations, participating in the
evaluation and approval of new investments and coordinating iStar Financial's
information systems. Previously, Mr. O'Connor was a vice president of Morgan
Stanley & Co. responsible for the performance of more than $2 billion of assets
acquired by the Morgan Stanley Real Estate Funds. Prior to joining Morgan
Stanley, Mr. O'Connor was a vice president of Greystone Realty Corporation
involved in the firm's acquisition and asset management operations. Previously,
Mr. O'Connor was employed by Exxon Co. USA in its real estate and engineering
group. Mr. O'Connor is a former vice president of the New York City/ Fairfield
County chapter of the National Association of Industrial and Office Parks.
Mr. O'Connor received a B.S. degree from the United States Military Academy at
West Point and an M.B.A. from the Wharton School.

CATHERINE D. RICE has served as Chief Financial Officer of iStar Financial
since November 2002. Ms. Rice is responsible for managing all of the iStar
Financial's capital-raising initiatives, financial reporting and investor
relations activities, as well as overseeing all other finance, treasury and
accounting functions. Prior to joining iStar Financial, Ms. Rice served as
managing director in both the financial sponsors group and the real estate
investment banking group of Banc of America Securities. Prior to Bank of
America, Ms. Rice was a managing director at Lehman Brothers, where she was
responsible for the firm's West Coast real estate investment banking effort. She
spent the first ten years of her career at Merrill Lynch in its real estate
investment banking group. Ms. Rice has over 16 years of experience in the public
and private capital markets, and has been involved in over $15 billion of
capital-raising and financial advisory transactions, including public and
private debt and equity offerings, mortgage financings, merger and acquisition
assignments, leveraged buyouts, asset dispositions, debt restructurings and
rating advisory assignments. Ms. Rice received a bachelor degree from the
University of Colorado and an M.B.A from Columbia University.

S-36

DANIEL S. ABRAMS has served as an Executive Vice President--Investments of
iStar Financial since November 2001. Previously, Mr. Abrams was a founding
principal of Citadel Realty Group, LLC, a New York based boutique investment
bank specializing in advisory work and debt and equity placements for all forms
of commercial real estate properties and companies in North America and Europe.
Prior to forming Citadel, Mr. Abrams was a managing director at Donaldson,
Lufkin and Jenrette, where he was responsible for the hospitality and leisure
practice, focusing on debt originations, equity offerings and advisory
assignments to public and private companies in that area. Before DLJ,
Mr. Abrams was a managing director and the head of the Hospitality Finance Group
of Nomura Capital. While at Nomura Capital, Mr. Abrams led the financing of over
$6.5 billion in the hospitality sector and over $600 million in the office,
multifamily and retail sectors. Before joining Nomura Capital in 1993,
Mr. Abrams had been a partner at Rosenman & Colin, a major New York City law
firm. He received an LL.M. in Taxation from the New York University of Law; a JD
from the National Law Center of the George Washington University, where he was
editor-in-chief of the Law Review; and a B.S. in Economics from the Wharton
School. He has served as a member of the American Hotel & Lodging Association's
Industry Real Estate Finance Advisory Council (IREFAC) and the ULI's Hotel
Development Council.

STEVEN R. BLOMQUIST has served as Executive Vice President--Investments of
iStar Financial since January 2003. Prior to that he was Senior Vice
President--Investments since September 1998. Mr. Blomquist is responsible for
the origination and acquisition of new financings with borrowers in the Phoenix
Home Life-serviced mortgage loan portfolio and related loan correspondents. He
also shares responsibility in managing several of iStar Financial's
relationships with financial institutions and other loan correspondents.
Mr. Blomquist has over 16 years of loan origination and investment management
experience. Previously, Mr. Blomquist was executive vice president and chief
investment officer of Phoenix Realty Securities, a Phoenix Home Life subsidiary
specializing in providing real estate securities investment advisory services.
Mr. Blomquist directed the origination of over $1.5 billion of mortgage loans
and maintains strong correspondent and borrower relations. Prior to his current
position, Mr. Blomquist was responsible for the debt and equity management of a
$750 million Phoenix Home Life portfolio in the Western United States.
Mr. Blomquist is a member of the Mortgage Bankers Association, and received both
his bachelors degree and an M.B.A. from the University of Connecticut.

ROGER M. COZZI has served as an Executive Vice President--Investments of
iStar Financial since January 2002 and is co-head of our internal Investment
Committee. Since joining iStar Financial and its predecessor in 1995, Mr. Cozzi
has been responsible for the origination of structured financing transactions
and has successfully closed over $1 billion of first mortgage, mezzanine and
corporate finance investments. From 1995 to 1998, Mr. Cozzi was an investment
officer at Starwood Mezzanine Investors, L.P. and Starwood Opportunity Fund IV,
two private investment funds that specialized in structured real estate finance
and opportunistic equity investments. Prior to joining Starwood, Mr. Cozzi spent
three years at Goldman, Sachs & Co. While at Goldman Sachs, he spent two years
in the real estate department, where he focused on securitizing and selling
investment grade and non-investment grade securities backed by pools of
commercial mortgages, evaluating performing commercial mortgage loans for
potential principal investment by the Whitehall funds and consulting large
corporate tenants on lease alternatives. After two years in real estate,
Mr. Cozzi transferred into the investment management industry group, where he
worked on several merger transactions, created a conduit to lend directly to
mutual funds, and helped create a vehicle to securitize 12b-1 financing fees.
Mr. Cozzi graduated magna cum laude from the Wharton School with a Bachelor of
Science degree in Economics (with concentrations in Finance and Entrepreneurial
Management).

S-37

JEFFREY R. DIGEL has served as an Executive Vice President--Investments of
iStar Financial since March 2000 and is co-head of our internal Investment
Committee. Prior to that, he was Senior Vice President--Investments since
May 1998. Mr. Digel is responsible for the origination of new structured
financing transactions, focusing on iStar Financial's financial institution and
loan correspondent relationships. Previously, Mr. Digel was a vice
president-mortgage finance at Aetna Life Insurance Company responsible for
commercial mortgage securitizations, management of Aetna's mortgage
correspondent network, management of a $750 million real estate equity portfolio
for Aetna's pension clients and origination of new equity investments. Prior to
joining Aetna, Mr. Digel was a member of Hart Advisors, responsible for the
development and supervision of the portfolio, asset management and client
communications functions for Hart's real estate pension advisory business. In
addition, Mr. Digel is a member of the Mortgage Bankers Association and the
International Council of Shopping Centers. Mr. Digel received a B.A. degree from
Middlebury College and an M.M. from Northwestern University.

R. MICHAEL DORSCH, III has served as an Executive Vice
President--Investments of iStar Financial since March 2000, focusing on our
corporate tenant leasing business. Prior to joining iStar Financial, Mr. Dorsch
was a principal of ACRE Partners LLC, a privately held firm focused on providing
public and private corporations with highly-structured, value-added financing
solutions for their corporate real estate facilities. Mr. Dorsch was a founder
and managing partner of Corporate Realty Capital, a Boston-based real estate
investment bank from 1990 to 1997. CRC was formed as an affiliate of Corporate
Property Investors and focused on originating, structuring and financing net
lease transactions. Prior to the formation of CRC, Mr. Dorsch was a partner in a
Boston-based real estate development, ownership and management concern. From
1984 to 1986, Mr. Dorsch was a vice president of Winthrop Financial Associates,
private real estate syndication, where he structured and placed equity interests
in transactions capitalized at over $1 billion. Mr. Dorsch graduated with a
Sc.B. in Mechanical Engineering from Brown University and earned honors while
receiving an M.B.A. from Harvard Business School.

BARCLAY G. JONES, III has served as an Executive Vice President--Investments
of iStar Financial since March 2000, focusing on our corporate tenant leasing
business. Prior to joining iStar Financial, Mr. Jones was a principal of ACRE
Partners LLC, a privately held firm focused on providing public and private
corporations with highly-structured, value-added financing solutions for their
corporate real estate facilities. Prior to that, Mr. Jones served in a variety
of capacities, including vice chairman and chief acquisitions officer, for W.P.
Carey & Co., Inc. from 1982 to 1998. During that period, Mr. Jones was
responsible for originating in excess of $2 billion of sale-leaseback financings
and over $1 billion of mortgage placements. During his tenure at W.P. Carey, the
firm grew from fewer than ten employees to over 70, and from approximately
$100 million in assets to over $2.5 billion. Mr. Jones holds a B.S. degree in
economics from the Wharton School.

H. CABOT LODGE, III has served as a director and an Executive Vice
President--Investments of iStar Financial since March 2000, and maintains
primary responsibility for jointly overseeing iStar Financial's corporate tenant
lease investment activity. Prior to joining iStar Financial, Mr. Lodge was a
founder and principal of ACRE Partners LLC, a privately held firm focused on
providing public and private corporations with highly structured, value-added
financing for their corporate real estate facilities. Mr. Lodge served as
chairman of Superconducting Core Technologies, Inc., a wireless communications
company from 1995 to 1997, and prior to that was managing director and co-head
of investments for W.P. Carey & Co., Inc. from 1983 to 1995. Mr. Lodge is a
director of Meristar Hospitality Corporation, High Voltage Engineering
Corporation and TelAmerica Media, Inc. Mr. Lodge graduated with honors from
Harvard College and received his M.B.A. from Harvard Business School.

S-38

MICHELLE M. MACKAY has served as Executive Vice President--Investments of
iStar Financial since February 2003. She joined iStar Financial from UBS
Warburg, where she was an executive director of the commercial real estate and
capital markets groups and was responsible for origination, investment
negotiation, structuring, sales and proprietary account management. Prior to
joining UBS Warburg, Ms. Mackay was a vice president on the mortgage trading
desk at Chase Bank where she was responsible for establishing the commercial
mortgage-backed securities trading desk and for real estate products
distribution. Ms. Mackay holds an M.B.A. from the University of Hartford and a
B.A. from the University of Connecticut.

NINA B. MATIS has served as General Counsel of iStar Financial (and its
predecessor) since 1996 and Executive Vice President since November 1999.
Ms. Matis is responsible for legal, tax, structuring and regulatory aspects of
iStar Financial's operations and investment and financing transactions.
Ms. Matis is a partner in the law firm of KMZ Rosenman, one of our principal
outside law firms. From 1984 through 1987, Ms. Matis was an adjunct professor at
Northwestern University School of Law where she taught real estate transactions.
Ms. Matis is a director of New Plan Excel Realty Trust, Inc. and a member of the
American College of Real Estate Lawyers, Ely Chapter of Lambda Alpha
International, the Chicago Finance Exchange, the Urban Land Institute, REFF, the
Chicago Real Estate Executive Women, The Chicago Network and The Economic Club
of Chicago, and she is listed in both The Best Lawyers of America and Sterling's
Who's Who. Ms. Matis received a B.A. degree, with honors, from Smith College and
a J.D. degree from New York University School of Law.

DIANE OLMSTEAD has served as an Executive Vice President--Investments of
iStar Financial in our San Francisco office since September 2000, and is
responsible for the origination of new financing transactions. Prior to joining
us, Ms. Olmstead was executive vice president of institutional ventures for
Redbricks.com, an Internet start-up focused on the commercial real estate
market. Previously, Ms. Olmstead was a partner at Arthur Andersen where she
founded and ran the real estate capital markets (RECM) group for the western
region. The RECM group executed private equity and debt placements, portfolio
and company sales, REIT IPO advisory and M&A transactions in excess of
$4.7 billion. Ms. Olmstead is a graduate of SUNY at Buffalo with a B.A. in
English. She is a member of Urban Land Institute and National Association of
Industrial and Office Park Owners, Fisher Center For Real Estate and Urban
Economics Policy Advisory Board, Lambda Alpha and Mortgage Bankers Association.

ANDREW C. RICHARDSON has served as Executive Vice President--Capital Markets
of iStar Financial since January 2003. Prior to that, he was Senior Vice
President--Capital Markets since March 2000. He joined iStar Financial from
Salomon Smith Barney, where he was a vice president in the global real estate
and lodging investment banking group, providing merger and acquisition advisory
services and raising debt and equity capital for public and private real estate
companies. Mr. Richardson's experience at Salomon Smith Barney also included
working in its mergers and acquisitions group, advising clients in a wide range
of industries. Prior to joining Salomon Smith Barney, Mr. Richardson worked for
Ernst & Young and was a certified public accountant. Mr. Richardson holds an
M.B.A. from the University of Chicago, and a B.B.A. in accountancy from the
University of Notre Dame.

BARBARA RUBIN has served as President of iStar Asset Services, Inc., our
Hartford-based loan asset management and servicing operation since
September 1998. She has more than 20 years of real estate investment experience,
including loan and real estate equity origination, portfolio management, loan
servicing, and capital markets activities. Prior to joining iStar Financial,
Ms. Rubin was president and chief operating officer of Phoenix Realty
Securities, Inc., a real estate advisory operation which managed portfolios of
real estate securities (including mortgage loan investments and real estate
equity securities). She is currently Chair of the Connecticut Health and
Education Facilities Authority, a member of the Board of Governors of the
Mortgage

S-39

Bankers Association and a member of the Board of Commercial Mortgage Securities
Association. Ms. Rubin received a B.A. from Williams College and an M.B.A. from
the University of Connecticut.

JEFFREY N. BROWN has served as Senior Vice President--Risk Management of
iStar Financial since October 2000. Prior to that, he was Vice President--Risk
Management since November 1999. Previously, he served as a vice president at
TriNet. Mr. Brown is responsible for our East Region corporate tenant lease
assets, including lease negotiations, corporate-level customer relations, lease
compliance, portfolio-level analysis and reporting and market research
activities. Mr. Brown's prior professional experience includes director of
property management for Insignia Commercial Group (San Francisco), regional
director (West Coast) with PM Realty Group and various project/property
management positions with Eastover Corporation. Mr. Brown holds a B.S. degree
from Millsaps College, Jackson, Mississippi.

CHASE S. CURTIS, JR. has served as a Senior Vice President--Credit of iStar
Financial since June 2001, and is responsible for coordinating the initial and
on-going underwriting of corporate credit, with a particular emphasis on
corporate tenant risk assessment. He joined iStar Financial from Bank of America
following a 16-year career in credit risk management and structured corporate
finance. Immediately prior to joining iStar Financial, he was senior vice
president and chief credit officer of Bank of America Commercial Finance
responsible for its credit approvals, risk policy and risk process controls.
Prior to that, he spent three years in Hong Kong as an executive credit risk
review officer overseeing portfolio and transactional risk assessments across
Asia. Mr. Curtis holds an M.S. from the University of Arizona and he received a
B.S. degree (with high honors) from Bates College. He is a Chartered Financial
Analyst.

GEOFFREY M. DUGAN has served as Senior Vice President of iStar Financial
since January 2001, and as Assistant General Counsel and Assistant Secretary
since November 1999. Previously, he served as vice president, administration and
general counsel of TriNet, and in that capacity was responsible for corporate
and securities laws compliance matters, corporate governance matters, and legal
issues associated with administrative, human resources and employee benefit
functions, including the oversight of outside legal counsel. Prior to joining
us, Mr. Dugan was in private law practice for over 20 years, where his practice
emphasized corporate finance, securities and commercial transactions for real
estate investment trusts and other business entities. Mr. Dugan received a J.D.
from Georgetown University Law Center and a B.A. from Harvard College.
Mr. Dugan is a Member of the New York Bar and the State Bar of California.

PETER K. KOFOED has served as Senior Vice President--Risk Management of
iStar Financial since August 2001. Mr. Kofoed joined us with more than 18 years
of experience in various real estate investment and finance disciplines
including mortgage loan underwriting, equity asset management and portfolio
administration. Prior to joining us, he was the principal of a real estate
consulting firm and was associated with Aetna, CIGNA and Connecticut Mutual.
Mr. Kofoed holds an M.B.A. from the Fuqua School of Business at Duke University,
and a B.A. from Colgate University.

JOHN F. KUBICKO has served as Senior Vice President--Risk Management of
iStar Financial since January 2002, and prior to that served as Vice
President--Risk Management since April 1998. Mr. Kubicko has over 14 years of
experience in real estate investment and finance, asset management and lending.
Prior to joining iStar Financial, he was a senior associate at Greystone Realty,
where he was responsible for managing a portfolio of debt investments.
Previously, Mr. Kubicko was a loan officer at Shawmut Bank. Mr. Kubicko received
a B.S. from Sacred Heart University.

S-40

STEVEN B. SINNETT has served as Senior Vice President--Controls and
Compliance of iStar Financial since January 2002, and prior to that served as
Senior Vice President--Capital Markets since January 2001 and as Vice President
and Controller since November 1999. Mr. Sinnett is responsible for maintaining
and monitoring iStar Financial's internal financial and disclosure controls and
finance and accounting policies. He previously served as vice president,
controller of TriNet, and in that capacity was responsible for planning and
executing all aspects of financial reporting, accounting and information
technology activities. Prior to joining TriNet, he was associated with AMB
Institutional Realty Advisors Inc., Meridian Point Properties, Inc. (a real
estate investment trust) and its predecessor, and the accounting firm of Arthur
Young & Co. Mr. Sinnett received a Masters of Professional Accounting from
Georgia State University and a B.S. from the University of Florida. Mr. Sinnett
is a certified public accountant in the State of California.

ELIZABETH B. SMITH has served as Senior Vice President--Risk Management of
iStar Financial since August 1999. Ms. Smith manages our Dallas office and is
directly responsible for our Central Region corporate tenant lease assets. Prior
to joining iStar Financial, Ms. Smith was a vice president for MBL Life
Assurance Corporation, managing the rehabilitation and disposition of a
$3 billion debt and equity portfolio located throughout the United States.
Previously, Ms. Smith worked at J.E. Robert Companies, Inc., and for Sunbelt
Savings, FSB, specializing in debt and equity portfolio management. Ms. Smith
holds a B.B.A. degree from the University of Mississippi in Oxford, Mississippi.

WILLIAM T. STABINSKY has served as Senior Vice President--Risk Management
since January 2003, and prior to that served as Vice President--Risk Management
since November 1999. Mr. Stabinsky is responsible for the portfolio reporting
and analysis of the iStar Financial structured finance portfolio as well as the
asset management of numerous loans within the structured finance portfolio. He
has over 18 years of real estate experience, much of which was dedicated to
accounting, auditing and analysis of financial and operating statements. Prior
to joining iStar Financial, Mr. Stabinsky was an investment accounting manager
for Allegis Realty Investors, LLC in Hartford, Connecticut. Previously, he was
associated with Aetna and Coopers & Lybrand. Mr. Stabinsky holds an M.B.A. from
the University of Hartford, and a B.S. from Bryant College.

COLETTE J. TRETOLA has served as Senior Vice President and Controller of
iStar Financial since January 2003. Prior to that, she was Vice President and
Controller since January 1999. Mrs. Tretola is responsible for the oversight of
all accounting functions, financial reporting and budgeting. Prior to joining
iStar Financial, she was a senior accountant at Starwood Capital Group, where
she was responsible for the accounting and financial reporting for the firm's
two largest investment funds. Previously, Mrs. Tretola worked for Copley Real
Estate Advisors, where she was responsible for the accounting of four public
real estate limited partnerships. She received a B.S. degree in Business
Administration from Boston University.

S-41

NON-EMPLOYEE DIRECTORS

The following table sets forth the names and current affiliations of our
non-employee directors:

NAME AFFILIATION
---- -------------------------------------------------

Willis Andersen, Jr.......................... Real estate industry consultant

Jeffrey G. Dishner........................... Starwood Capital Group, L.L.C.--Senior Managing
Director

Andrew L. Farkas............................. Insignia Financial Group, Inc.--Chairman and
Chief Executive Officer

Madison F. Grose............................. Starwood Capital Group, L.L.C.--Senior Managing
Director and Co-General Counsel

Robert W. Holman, Jr......................... National Warehouse Investment Co.--Chairman and
Chief Executive Officer

Robin Josephs................................ Ropasada, LLC--Managing Director

Merrick R. Kleeman........................... Starwood Capital Group, L.L.C.--Senior Managing
Director

Matthew J. Lustig............................ Lazard Freres Real Estate Investors L.L.C.--
Managing Principal

William M. Matthes........................... Behrman Capital--Managing Partner

John G. McDonald............................. Stanford University--IBJ Professor of Finance in
the Graduate School of Business

Stephen B. Oresman........................... Saltash, Ltd.--Owner and President

George R. Puskar............................. Lend Lease Real Estate Investments--Former
Chairman of the Board

Barry S. Sternlicht.......................... Starwood Capital Group, L.L.C.--Founder, General
Manager, President and Chief Executive Officer
Starwood Hotels & Resorts Worldwide, Inc.--
Chairman and Chief Executive Officer

S-42

DESCRIPTION OF OTHER INDEBTEDNESS

The table below reflects our debt obligations under various arrangements
with financial institutions as of December 31, 2002. All of the indebtedness
shown below which has not subsequently been repaid is non-recourse to iStar
Financial, the parent company; except that, iStar Financial is the co-borrower
under the unsecured revolving credit facility shown below; iStar Financial is
the issuer of the 8.75% unsecured notes shown below; and iStar Financial has
provided limited guarantees of certain subsidiary borrowings. Specifically,
iStar Financial is a guarantor of the $60 million and $50 million term loans due
June 2004 and July 2006, respectively, and a guarantor of borrowings under
secured revolving credit facilities as follows: (1) up to $30 million under the
$700 million secured facility due January 2007; and (2) up to 10% of outstanding
borrowings under each of the $500 million secured facilities due August and
September, 2005. In addition, the $16.0 million of "Other debt obligations," are
fully recourse to the parent company.

We are subject to a number of covenants in our borrowing arrangements. These
covenants are both financial and non-financial in nature. Significant financial
covenants include limitations on our ability to incur indebtedness beyond
specified levels, restrictions on our ability to incur liens on assets and
limitations on the amount and type of restricted payments, such as repurchases
of its own equity securities, that we may make. Significant non-financial
covenants include a requirement in publicly-held debt securities that we offer
to repurchase those securities at a premium if we undergo a change of control.

MAXIMUM CARRYING VALUE AS OF
AMOUNT DECEMBER 31, SCHEDULED MATURITY
AVAILABLE 2002 STATED INTEREST RATES(1) DATE
-------------- -------------------- ----------------------------- --------------------
(IN THOUSANDS, UNAUDITED)

SECURED REVOLVING CREDIT
FACILITIES:
Line of credit..................... $ 700,000 $ 412,550 LIBOR + 1.75% - 2.25% March 2005(2)
Line of credit..................... 700,000 462,920 LIBOR + 1.40% - 2.15% January 2007(3)
Line of credit..................... 500,000 283,884 LIBOR + 1.50% - 1.75% August 2005(2)
Line of credit..................... 500,000 114,400 LIBOR + 1.50% - 2.25% September 2005
UNSECURED REVOLVING CREDIT
FACILITIES:
Line of credit................... 300,000 -- LIBOR + 2.125% July 2004(4)
---------- ----------
Total revolving credit
facilities..................... $2,700,000 $1,273,754
==========

SECURED TERM LOANS:
Secured by corporate tenant lease assets......... 193,000 LIBOR + 1.85% July 2006(5)
Secured by corporate tenant lease assets......... 144,114 7.44% March 2009
Secured by corporate tenant lease assets......... 95,074 6.00% - 11.38% Various through 2022
Secured by corporate lending investments......... 79,126 6.55% November 2005
Secured by corporate lending investments......... 61,537 6.41% January 2013
Secured by corporate lending investments......... 60,000 LIBOR + 2.50% June 2004(4)
Secured by corporate lending investments......... 50,000 LIBOR + 2.50% July 2006(4)
----------
Total term loans................................. 682,851
Less: debt (discount) premium.................... (236)
----------
Total secured term loans........................... 682,615

S-43

ISTAR ASSET RECEIVABLES SECURED NOTES:
STARs Series 2002-1:
Class A1......................................... 236,694 LIBOR + 0.26% June 2004(6)
Class A2......................................... 381,296 LIBOR + 0.38% December 2009(6)
Class B.......................................... 39,955 LIBOR + 0.65% April 2011(6)
Class C.......................................... 26,637 LIBOR + 0.75% May 2011(6)
Class D.......................................... 21,310 LIBOR + 0.85% January 2012(6)
Class E.......................................... 42,619 LIBOR + 1.235% January 2012(6)
Class F.......................................... 26,637 LIBOR + 1.335% January 2012(6)
Class G.......................................... 21,309 LIBOR + 1.435% January 2012(6)
Class H.......................................... 26,637 6.35% January 2012(6)
Class J.......................................... 26,637 6.35% May 2012(6)
Class K.......................................... 26,637 6.35% May 2012(6)
----------
Total iStar Asset Receivables secured notes...... 876,368
Less: debt discount.............................. (4,425)
----------
Total iStar Asset Receivables secured notes........ 871,943
UNSECURED NOTES:
6.75% Dealer Remarketable Securities(7)(8)(9).... 125,000 6.75% March 2013
7.70% Notes(7)(9)................................ 100,000 7.70% July 2017
7.95% Notes(7)(9)................................ 50,000 7.95% May 2006
8.75% Notes...................................... 350,000 8.75% August 2008
----------
Total unsecured notes............................ 625,000
Less: debt discount.............................. (11,603)
Plus: impact of pay-floating swap agreement(10).... 3,920
----------
Total unsecured notes............................ 617,317
OTHER DEBT OBLIGATIONS............................. 15,961 Various Various
----------
TOTAL DEBT OBLIGATIONS............................. $3,461,590
==========

- -------------

(1) Substantially all variable-rate debt obligations are based on 30-day LIBOR
and reprice monthly. The 30-day LIBOR on December 31, 2002 was 1.38%.

(2) Maturity date reflects a one-year "term-out" extension at our option.

(3) In January 2003, we extended the final maturity date of this facility to
January 2007.

(4) Maturity date reflects a one-year extension at our option.

(5) Maturity date reflects two one-year extensions at our option.

(6) Principal payments on these bonds are a function of the principal
repayments on loan or corporate tenant lease assets which collateralize
these obligations. The dates indicated above represent the expected date on
which the final payment would occur for such class based on the assumptions
that the loans which collateralize the obligations are not voluntarily
prepaid, the loans are paid on their effective maturity dates and no
extensions of the effective maturity dates of any of the loans are granted.
The final maturity date for the underlying indenture on class A1 is May 28,
2017 and the final maturity date for classes A2, B, C, D, E, F, G, H, J and
K is May 28, 2020.

(7) The notes are callable by us at any time for an amount equal to the total
of principal outstanding, accrued interest and the applicable make-whole
prepayment premium.

(8) On March 3, 2003, Deutsche Bank Securities Inc. purchased all of these
notes pursuant to the terms of the remarketing agreement. We have agreed
with Deutsche Bank Securities Inc. that they shall tender these notes, as
modified, as payment for a portion of the Notes issued in this offering.
See "Underwriting." We will retire the notes that are so tendered.

(9) These obligations were assumed as part of the acquisition of our leasing
subsidiary. As part of the accounting for the purchase, these fixed-rate
obligations were considered to have stated interest rates which were below
the then-prevailing market rates at which our leasing subsidiary could
issue new debt obligations and, accordingly, we ascribed a market discount
to each obligation. Such discounts are amortized as an adjustment to
interest expense using the effective interest method over the related term
of the obligations. As adjusted, the effective annual interest rates on
these obligations were 8.81%, 9.51% and 9.04% for the 6.75% Dealer
Remarketable Securities, 7.70% Notes and 7.95% Notes, respectively.

(10) On November 27, 2002, we entered into two pay-floating interest rate swaps
struck at 3.8775% and 3.81% and in the notional amounts of $100.0 million
and $50.0 million, respectively. These swaps mitigate the risk of changes
in the fair value of $150.0 million of our fixed-rate corporate bonds
attributable to changes in LIBOR. For accounting purposes, we adjust on a
quarterly basis the value of the swap to its fair value and adjust the
carrying amount of the hedged liability by an offsetting amount.

S-44

DESCRIPTION OF NOTES

The Company will issue the Notes under an indenture between itself and US
Bank Trust National Association, as Trustee (the "Trustee"), and a supplemental
indenture between itself and the Trustee (together, the "Indenture"). The
following is a summary of the material provisions of the Indenture. It does not
include all of the provisions of the Indenture. The following description of the
particular terms of the Notes supplements the description in the accompanying
prospectus of the general terms and provisions of our debt securities. To the
extent that the following description of Notes is inconsistent with that general
description in the prospectus, the following description replaces that in the
prospectus. We urge you to read the Indenture because it defines your rights.
The terms of the Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939, as amended
(the "TIA"). A copy of the form of Indenture has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. You can find
definitions of certain capitalized terms used in this description under
"--Certain Definitions." For purposes of this section, references to the
"Company" or "our" include only iStar Financial Inc. and not its Subsidiaries.

The Notes will be unsecured obligations of the Company, ranking PARI PASSU
in right of payment with all other senior unsecured obligations of the Company.

The Company will issue the Notes in fully registered form in denominations
of $1,000 and integral multiples thereof. The Trustee will initially act as
Paying Agent and Registrar for the Notes. The Notes may be presented for
registration or transfer and exchange at the offices of the Registrar. The
Company may change any Paying Agent and Registrar without notice to holders of
the Notes (the "Holders"). The Company will pay principal (and premium, if any)
on the Notes at the Trustee's corporate office in New York, New York. At the
Company's option, interest may be paid at the Trustee's corporate trust office
or by check mailed to the registered address of Holders.

PRINCIPAL, MATURITY AND INTEREST

The Notes are limited in aggregate principal amount to $150 million, but the
Company may, without consent of the Holders, "reopen" the Notes series and issue
additional Notes at any time on the same terms and conditions and with the same
CUSIP number as the Notes being issued in this offering. The Notes will mature
on March 15, 2008. Interest on the Notes will accrue at the rate of % per
annum and will be payable semiannually in cash on each March 15 and
September 15, commencing on September 15, to the persons who are registered
Holders at the close of business on the March 1 and September 1 immediately
preceding the applicable interest payment date. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from and including the date of issuance.

The Notes will not be entitled to the benefit of any mandatory sinking fund.

REDEMPTION

OPTIONAL REDEMPTION. At any time on or prior to March 15, 2008, the Notes
may be redeemed or purchased in whole but not in part at the Company's option at
a price equal to 100% of the principal amount thereof plus the Applicable
Premium as of, and accrued but unpaid interest, if any, to the date of
redemption or purchase (the "Redemption Date") (subject to the right of Holders
of record on the relevant record date to receive interest due on the relevant
interest payment date). Such redemption or purchase may be made upon notice
mailed by first-class mail to each Holder's registered address, not less than 30
nor more than 60 days prior to the Redemption Date.

S-45

"APPLICABLE PREMIUM" means, with respect to a Note at any Redemption Date,
the greater of: (1) 1.0% of the principal amount of such Note; and (2) the
excess of (a) the present value at such Redemption Date of (i) the principal
amount of such Note on March 15, 2008 plus (ii) all required remaining scheduled
interest payments due on such Note through March 15, 2008, computed using a
discount rate equal to the Treasury Rate plus 50 basis points; over (b) the
principal amount of such Note on such Redemption Date. Calculation of the
Applicable Premium will be made by the Company or on behalf of the Company by
such Person as the Company shall designate; PROVIDED, HOWEVER, that such
calculation shall not be a duty or obligation of the Trustee.

"TREASURY RATE" means, with respect to a Redemption Date, the yield to
maturity at the time of computation of United States Treasury securities with a
constant maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15(519) that has become publicly available at least two
Business Days prior to such Redemption Date (or, if such Statistical Release is
no longer published, any publicly available source of similar market data)) most
nearly equal to the period from such Redemption Date to March 15, 2008;
PROVIDED, HOWEVER, that if the period from such Redemption Date to March 15,
2008 is not equal to the constant maturity of the United States Treasury
security for which a weekly average yield is given, the Treasury Rate shall be
obtained by linear interpolation (calculated to the nearest one-twelfth of a
year) from the weekly average yields of United States Treasury securities for
which such yields are given, except that if the period from such Redemption Date
to March 15, 2008 is less than one year, the weekly average yield on actually
traded United States Treasury securities adjusted to a constant maturity of one
year shall be used.

OPTIONAL REDEMPTION UPON EQUITY OFFERINGS. At any time, or from time to
time, on or prior to March 15, 2006, the Company may, at its option, use the net
cash proceeds of one or more Equity Offerings (as defined below) to redeem up to
35% of the principal amount of the Notes issued under the Indenture at a
redemption price of % of the principal amount thereof plus accrued and
unpaid interest thereon, if any, to the date of redemption; PROVIDED that:

(1) at least 65% of the principal amount of Notes issued under the Indenture
remains outstanding immediately after any such redemption; and

(2) the Company makes such redemption not more than 60 days after the
consummation of any such Equity Offering.

"EQUITY OFFERING" means an underwritten public offering of Qualified Capital
Stock of the Company pursuant to a registration statement filed with the
Commission in accordance with the Securities Act or a private placement of
Qualified Capital Stock of the Company generating gross proceeds of at least
$25.0 million.

SELECTION AND NOTICE OF REDEMPTION

In the event that the Company chooses to redeem less than all of the Notes,
selection of the Notes for redemption will be made by the Trustee either:

(1) in compliance with the requirements of the principal national securities
exchange, if any, on which the Notes are listed; or

(2) on a PRO RATA basis, by lot or by such method as the Trustee shall deem
fair and appropriate.

No Notes of a principal amount of $1,000 or less shall be redeemed in part.
If a partial redemption is made with the proceeds of an Equity Offering, the
Trustee will select the Notes only on a PRO RATA basis or on as nearly a pro
rata basis as is practicable (subject to DTC

S-46

procedures). Notice of redemption will be mailed by first-class mail at least 30
but not more than 60 days before the redemption date to each Holder of Notes to
be redeemed at its registered address. On and after the redemption date,
interest will cease to accrue on Notes or portions thereof called for redemption
as long as the Company has deposited with the Paying Agent funds in satisfaction
of the applicable redemption price.

CHANGE OF CONTROL

Upon the occurrence of a Change of Control, each Holder will have the right
to require that the Company purchase all or a portion of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer"), at a
purchase price equal to 101% of the principal amount thereof plus accrued
interest to the date of purchase.

Within 30 days following the date upon which the Change of Control occurred,
the Company must send, by first class mail, a notice to each Holder, with a copy
to the Trustee, which notice shall govern the terms of the Change of Control
Offer. Such notice shall state, among other things, the purchase date, which
must be no earlier than 30 days nor later than 60 days from the date such notice
is mailed, other than as may be required by law (the "Change of Control Payment
Date"). Holders electing to have a Note purchased pursuant to a Change of
Control Offer will be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third business day prior to the Change of Control Payment Date.

If a Change of Control Offer is made, we cannot assure you that the Company
will have available funds sufficient to pay the Change of Control purchase price
for all the Notes that might be delivered by Holders seeking to accept the
Change of Control Offer. In the event the Company is required to purchase
outstanding Notes pursuant to a Change of Control Offer, the Company expects
that it would seek third party financing to the extent it does not have
available funds to meet its purchase obligations. However, we cannot assure you
that the Company would be able to obtain such financing.

Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control.
Restrictions in the Indenture described herein on the ability of the Company and
its Subsidiaries to incur additional Indebtedness, to grant liens on its
property and to make Restricted Payments may also make more difficult or
discourage a takeover of the Company, whether favored or opposed by the
management of the Company. Consummation of any such transaction in certain
circumstances may require redemption or repurchase of the Notes, and we cannot
assure you that the Company or the acquiring party will have sufficient
financial resources to effect such redemption or repurchase. Such restrictions
and the restrictions on transactions with Affiliates may, in certain
circumstances, make more difficult or discourage any leveraged buyout of the
Company or any of its Subsidiaries by the management of the Company. While such
restrictions cover a wide variety of arrangements that have traditionally been
used to effect highly leveraged transactions, the Indenture may not afford the
Holders protection in all circumstances from the adverse aspects of a highly
leveraged transaction, reorganization, restructuring, merger or similar
transaction.

The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities

S-47

laws and regulations and shall not be deemed to have breached its obligations
under the "Change of Control" provisions of the Indenture by virtue thereof.

CERTAIN COVENANTS

The Indenture will contain, among others, the following covenants; PROVIDED
that the Indenture will provide that the "Limitation on Liens," "Limitation on
Restricted Payments," "Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries," "Limitation on Preferred Stock of Subsidiaries,"
"Limitation of Guarantees by Subsidiaries," "Conduct of Business" and
"Limitations on Transactions with Affiliates" covenants will not be applicable
in the event, and only for so long as, the Notes are rated Investment Grade and
no Default or Event of Default has occurred and is continuing.

LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS. The Company will not,
and will not permit any of its Subsidiaries to, directly or indirectly, create,
incur, assume, guarantee, become liable, contingently or otherwise, with respect
to, or otherwise become responsible for payment of (collectively, "incur") any
Indebtedness (including, without limitation, Acquired Indebtedness) other than
Permitted Indebtedness.

Notwithstanding the foregoing, if no Default or Event of Default shall have
occurred and be continuing at the time of or as a consequence of the incurrence
of any such Indebtedness, the Company or any of its Subsidiaries may incur
Indebtedness (including, without limitation, Acquired Indebtedness), in each
case if on the date of the incurrence of such Indebtedness, after giving effect
to the incurrence thereof:

- the Consolidated Fixed Charge Coverage Ratio of the Company is greater
than 1.50 to 1.0;

- the ratio of the aggregate amount of Indebtedness outstanding on a
consolidated basis to our Consolidated Net Worth is less than 5.0 to 1.0;
and

- the ratio of the aggregate amount of Senior Recourse Indebtedness
outstanding on a consolidated basis to the sum of: (1) our Consolidated
Net Worth; and (2) the aggregate amount of the Subordinated Indebtedness
outstanding on a consolidated basis is less than 2.75 to 1.0; PROVIDED,
HOWEVER, that the aggregate principal amount of such Subordinated
Indebtedness is not in excess of our Consolidated Net Worth.

Notwithstanding the foregoing, the Company will not permit TriNet Corporate
Realty Trust, Inc. ("TriNet") or any of its Subsidiaries to incur Indebtedness
(as defined in the indenture governing TriNet's outstanding publicly held debt
securities on the Measurement Date) if, immediately after giving effect to the
incurrence of such Indebtedness and the application of the proceeds thereof, the
aggregate principal amount of all outstanding Indebtedness of TriNet and its
Subsidiaries on a consolidated basis determined in accordance with GAAP is
greater than 55% of the sum of (without duplication): (1) the Total Assets (as
defined in the indenture governing TriNet's outstanding publicly-held debt
securities on the Measurement Date) of TriNet and its Subsidiaries as of the end
of the calendar quarter covered in TriNet's Annual Report on Form 10-K or
Quarterly Report on Form 10-Q, as the case may be, most recently filed with the
Commission (or, if such filing is not permitted under the Exchange Act, with the
Trustee) prior to the incurrence of such additional Indebtedness; and (2) the
purchase price of any real estate assets or mortgages receivable acquired, and
the amount of any securities offering proceeds received (to the extent that such
proceeds were not used to acquire real estate assets or mortgages receivable or
used to reduce Indebtedness), by TriNet or any Subsidiary of TriNet since the
end of such calendar quarter, including those proceeds obtained in connection
with the incurrence of such additional Indebtedness. The above limitation shall
terminate immediately upon TriNet ceasing to exist as a Subsidiary of the
Company as a result of a merger or

S-48

consolidation of TriNet with the Company or the sale, transfer, disposition or
distribution of all or substantially all of TriNet's assets to the Company.

LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not cause
or permit any of its Subsidiaries to, directly or indirectly:

(1) declare or pay any dividend or make any distribution (other than
dividends or distributions payable in Qualified Capital Stock of the
Company) on or in respect of shares of the Company's Capital Stock to
holders of such Capital Stock;

(2) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any warrants, rights or options to purchase
or acquire shares of any class of such Capital Stock; or

(3) make any principal payment on, purchase, defease, redeem, prepay,
decrease or otherwise acquire or retire for value, prior to any scheduled
final maturity, scheduled repayment or scheduled sinking fund payment, any
Indebtedness of the Company that is subordinate or junior in right of
payment to the Notes

if at the time of such action (each, a "Restricted Payment") or immediately
after giving effect thereto,

(i) a Default or an Event of Default shall have occurred and be continuing;
or

(ii) the Company is not able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness" covenant; or

(iii) the aggregate amount of Restricted Payments (including such proposed
Restricted Payment) made subsequent to the Measurement Date (the
amount expended for such purposes, if other than in cash, being the
fair market value of such property as determined in good faith by the
Board of Directors of the Company) shall exceed the sum of:

(w) 95% of the cumulative Consolidated Adjusted Earnings (or if
cumulative Consolidated Adjusted Earnings shall be a loss, minus 100% of
such loss) of the Company earned subsequent to June 30, 2001 and on or
prior to the date the Restricted Payment occurs (the "Reference Date")
(treating such period as a single accounting period); plus

(x) 100% of the aggregate net cash proceeds received by the Company
from any Person (other than a Subsidiary of the Company) from the
issuance and sale subsequent to the Measurement Date and on or prior to
the Reference Date of Qualified Capital Stock of the Company; plus

(y) without duplication of any amounts included in
clause (iii)(x) above, 100% of the aggregate net cash proceeds of any
equity contribution received by the Company from a holder of the
Company's Capital Stock (excluding, in the case of clauses (iii)(x) and
(y), any net cash proceeds from an Equity Offering to the extent used to
redeem the Notes in compliance with the provisions set forth under
"Redemption--Optional Redemption Upon Equity Offerings").

The foregoing provisions do not prohibit:

(1) the payment of any dividend within 60 days after the date of declaration
of such dividend if the dividend would have been permitted on the date of
declaration;

S-49

(2) if no Default or Event of Default shall have occurred and be continuing,
the acquisition of any shares of Capital Stock of the Company, either
(i) solely in exchange for shares of Qualified Capital Stock of the Company or
(ii) through the application of net proceeds of a substantially concurrent sale
for cash (other than to a Subsidiary of the Company) of shares of Qualified
Capital Stock of the Company;

(3) if no Default or Event of Default shall have occurred and be continuing,
the acquisition of any Indebtedness of the Company that is subordinate or junior
in right of payment to the Notes either (i) solely in exchange for shares of
Qualified Capital Stock of the Company, or (ii) through the application of net
proceeds of a substantially concurrent sale for cash (other than to a Subsidiary
of the Company) of (a) shares of Qualified Capital Stock of the Company or
(b) Refinancing Indebtedness;

(4) so long as no Default or Event of Default shall have occurred and be
continuing, repurchases by the Company of Common Stock of the Company from
employees of the Company or any of its Subsidiaries or their authorized
representatives upon the death, disability or termination of employment of such
employees, in an aggregate amount not to exceed $500,000 in any calendar year;

(5) the declaration or payment by the Company of any dividend or
distribution that is necessary to maintain its status as a REIT under the Code
if:

(a) the Consolidated Fixed Charge Coverage Ratio of the Company is
greater than 2.0 to 1.0; and

(b) no Default or Event of Default shall have occurred and be
continuing;

(6) the payment of any dividend on Preferred Stock of the Company; and

(7) Restricted Payments in an amount not to exceed $75.0 million.

In determining the aggregate amount of Restricted Payments made subsequent
to the Measurement Date in accordance with clause (iii) of the immediately
preceding paragraph, amounts expended pursuant to clauses (1), (2) (ii), 3
(ii) (a), (4), (5) and (7) shall be included in such calculation.

LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. The Company will not, and will not cause or permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or permit to
exist or become effective any encumbrance or restriction on the ability of any
Subsidiary of the Company to:

(1) pay dividends or make any other distributions on or in respect of its
Capital Stock;

(2) make loans or advances or to pay any Indebtedness or other obligation
owed to the Company or any other Subsidiary of the Company; or

(3) transfer any of its property or assets to the Company or any other
Subsidiary of the Company,

except for such encumbrances or restrictions existing under or by reason of:

(a) applicable law;

(b) the Indenture;

(c) customary non-assignment provisions of any contract or any lease
governing a leasehold interest of any Subsidiary of the Company;

S-50

(d) any instrument governing Acquired Indebtedness, which encumbrance or
restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person or the properties or assets of the Person
so acquired;

(e) agreements existing on the Measurement Date to the extent and in the
manner such agreements are in effect on the Measurement Date;

(f) provisions of any agreement governing Indebtedness incurred in
accordance with the Indenture that impose such encumbrances or restrictions
upon the occurrence of a default or failure to meet financial covenants or
conditions under the agreement;

(g) restrictions on the transfer of assets (other than cash) held in a
Subsidiary of the Company imposed under any agreement governing Indebtedness
incurred in accordance with the Indenture;

(h) provisions of any agreement governing Indebtedness incurred in
accordance with the Indenture that require a Subsidiary to service its debt
obligations before making dividends, distributions or advancements in
respect of its Capital Stock;

(i) an agreement governing Indebtedness incurred to Refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement referred
to in clause (b), (d) or (e) above; PROVIDED, HOWEVER, that the provisions
relating to such encumbrance or restriction contained in any such
Indebtedness are not materially less favorable to the Company in any
material respect as determined by the Board of Directors of the Company in
their reasonable and good faith judgment than the provisions relating to
such encumbrance or restriction contained in agreements referred to in such
clause (b), (d) or (e).

LIMITATION ON PREFERRED STOCK OF SUBSIDIARIES. The Company will not permit
any of its Subsidiaries to issue any Preferred Stock (other than to the Company
or to a Wholly Owned Subsidiary of the Company) or permit any Person (other than
the Company or a Wholly Owned Subsidiary of the Company) to own any Preferred
Stock of any Subsidiary of the Company, other than Preferred Stock outstanding
on the Measurement Date of Subsidiaries formed to facilitate maintaining the
Company's REIT status.

LIMITATION ON LIENS. The Company will not, and will not cause or permit any
of its Subsidiaries to, directly or indirectly, create, incur, assume or permit
or suffer to exist any Liens of any kind on the assets of the Company securing
Indebtedness of the Company unless:

(1) in the case of Liens securing Indebtedness of the Company that is
expressly subordinate or junior in right of payment to the Notes, the Notes are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens; and

(2) in all other cases, the Notes are equally and ratably secured except
for:

(a) Liens existing as of the Measurement Date to the extent and in the
manner such Liens are in effect on the Measurement Date;

(b) Liens securing the Notes;

(c) Liens securing Refinancing Indebtedness that is incurred to
Refinance any Indebtedness that has been secured by a Lien permitted under
the Indenture and that has been incurred in accordance with the provisions
of the Indenture; PROVIDED, HOWEVER, that such Liens: (i) are no less
favorable to the Holders than the Liens in respect of the Indebtedness being
Refinanced; and (ii) do not extend to or cover any property or assets of the
Company not securing the Indebtedness so Refinanced; and

(d) Permitted Liens.

S-51

MAINTENANCE OF TOTAL UNENCUMBERED ASSETS. The Company and its Subsidiaries
will maintain Total Unencumbered Assets of not less than 125% of the aggregate
outstanding principal amount of the Unsecured Indebtedness of the Company and
its Subsidiaries, in each case on a consolidated basis.

MERGER, CONSOLIDATION AND SALE OF ASSETS. The Company will not, in a single
transaction or series of related transactions, consolidate or merge with or into
any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or
cause or permit any Subsidiary of the Company to sell, assign, transfer, lease,
convey or otherwise dispose of) all or substantially all of the Company's assets
(determined on a consolidated basis for the Company and the Company's
Subsidiaries) whether as an entirety or substantially as an entirety to any
Person unless:

(1) either:

(a) the Company shall be the surviving or continuing corporation; or

(b) the Person (if other than the Company) formed by such consolidation
or into which the Company is merged or the Person which acquires by sale,
assignment, transfer, lease, conveyance or other disposition the properties
and assets of the Company and of the Company's Subsidiaries substantially as
an entirety (the "Surviving Entity"):

(i) shall be a corporation organized and validly existing under the
laws of the United States or any State thereof or the District of
Columbia; and

(ii) shall expressly assume, by supplemental indenture (in form and
substance satisfactory to the Trustee), executed and delivered to
the Trustee, the due and punctual payment of the principal of, and
premium, if any, and interest on all of the Notes and the
performance of every covenant of the Notes and the Indenture on the
part of the Company to be performed or observed;

(2) immediately after giving effect to such transaction and the assumption
contemplated by clause (1)(b)(ii) above (including giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction), the Company or such
Surviving Entity, as the case may be: (a) shall have a Consolidated Net Worth
equal to or greater than the Consolidated Net Worth of the Company immediately
prior to such transaction; and (b) shall be able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
"--Limitation on Incurrence of Additional Indebtedness" covenant; PROVIDED,
HOWEVER, that this clause (2) shall not apply in the event of a transaction
between the Company and TriNet;

(3) immediately before and immediately after giving effect to such
transaction and the assumption contemplated by clause (1)(b)(ii) above
(including, without limitation, giving effect to any Indebtedness and Acquired
Indebtedness incurred or anticipated to be incurred and any Lien granted in
connection with or in respect of the transaction), no Default or Event of
Default shall have occurred or be continuing; and

(4) the Company or the Surviving Entity shall have delivered to the Trustee
an officers' certificate and an opinion of counsel, each stating that such
consolidation, merger, sale, assignment, transfer, lease, conveyance or other
disposition and, if a supplemental indenture is required in connection with such
transaction, such supplemental indenture comply with the applicable provisions
of the Indenture and that all conditions precedent in the Indenture relating to
such transaction have been satisfied.

For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Subsidiaries of the
Company the Capital Stock of which constitutes all or

S-52

substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.

The Indenture will provide that upon any consolidation or merger or any
transfer, lease, conveyance or other disposition of all or substantially all of
the assets of the Company in accordance with the foregoing, in which the Company
is not the continuing corporation, the successor Person formed by such
consolidation or into which the Company is merged or to which such transfer,
lease, conveyance or other disposition is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture and the Notes with the same effect as if such surviving entity had
been named as such.

LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. The Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly, enter into or
permit to exist any transaction or series of related transactions (including,
without limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with, or for the benefit of, any of its Affiliates
(each an "Affiliate Transaction"), other than: (1) Affiliate Transactions
permitted as described below; and (2) Affiliate Transactions on terms that are
no less favorable than those that might reasonably have been obtained in a
comparable transaction at such time on an arm's-length basis from a Person that
is not an Affiliate of the Company or such Subsidiary.

All Affiliate Transactions (and each series of related Affiliate
Transactions which are similar or part of a common plan) involving aggregate
payments or other property with a fair market value in excess of $5.0 million
shall be approved by the Board of Directors of the Company or such Subsidiary,
as the case may be, such approval to be evidenced by a Board Resolution stating
that such Board of Directors has determined that such transaction complies with
the foregoing provisions. If the Company or any Subsidiary of the Company enters
into an Affiliate Transaction (or a series of related Affiliate Transactions
related to a common plan) that involves an aggregate fair market value of more
than $10.0 million, the Company or such Subsidiary, as the case may be, shall,
prior to the consummation thereof, obtain a favorable opinion as to the fairness
of such transaction or series of related transactions to the Company or the
relevant Subsidiary, as the case may be, from a financial point of view, from an
Independent Financial Advisor and file the same with the Trustee.

The restrictions set forth in the first paragraph of this covenant shall not
apply to:

(1) reasonable fees and compensation paid to and indemnity provided on
behalf of, officers, directors, employees or consultants of the Company or
any Subsidiary of the Company as determined in good faith by the Company's
Board of Directors or senior management;

(2) transactions exclusively between or among the Company and any of its
Subsidiaries or exclusively between or among such Subsidiaries in the
ordinary course of business, provided such transactions are not otherwise
prohibited by the Indenture;

(3) transactions between the Company or one of its Subsidiaries and any
Person in which the Company or one of its Subsidiaries has made an
Investment in the ordinary course of the Company's real estate lending
business and such Person is an Affiliate solely because of such Investment;

(4) transactions between the Company or one of its Subsidiaries and any
Person in which the Company or one of its Subsidiaries holds an interest as
a joint venture partner and such Person is an Affiliate solely because of
such interest;

S-53

(5) any agreement as in effect as of the Measurement Date or any
amendment thereto or any transaction contemplated thereby (including
pursuant to any amendment thereto) in any replacement agreement thereto so
long as any such amendment or replacement agreement is not more
disadvantageous to the Holders in any material respect than the original
agreement as in effect on the Measurement Date; and

(6) Restricted Payments permitted by the Indenture.

LIMITATION OF GUARANTEES BY SUBSIDIARIES. The Company will not permit any
of its Subsidiaries, directly or indirectly, by way of the pledge of any
intercompany note or otherwise, to assume, guarantee or in any other manner
become liable with respect to any Indebtedness of the Company, unless, in any
such case:

(1) such Subsidiary executes and delivers a supplemental indenture to
the Indenture, providing a guarantee of payment of the Notes by such
Subsidiary; and

(2) if such assumption, guarantee or other liability of such Subsidiary
is provided in respect of Indebtedness that is expressly subordinated to the
Notes, the guarantee or other instrument provided by such Subsidiary in
respect of such subordinated Indebtedness shall be subordinated to the
Guarantee pursuant to subordination provisions no less favorable to the
Holders of the Notes than those contained in the Indenture.

Notwithstanding the foregoing, any such Guarantee by a Subsidiary of the
Notes shall provide by its terms that it shall be automatically and
unconditionally released and discharged, without any further action required on
the part of the Trustee or any Holder, upon:

(1) the unconditional release of such Subsidiary from its liability in
respect of the Indebtedness in connection with which such Guarantee was
executed and delivered pursuant to the preceding paragraph; or

(2) any sale or other disposition (by merger or otherwise) to any Person
that is not a Subsidiary of the Company of all of the Company's Capital
Stock in, or all or substantially all of the assets of, such Subsidiary;
PROVIDED that: (a) such sale or disposition of such Capital Stock or assets
is otherwise in compliance with the terms of the Indenture; and (b) such
assumption, guarantee or other liability of such Subsidiary has been
released by the holders of the other Indebtedness so guaranteed.

CONDUCT OF BUSINESS. The Company and its Subsidiaries will engage primarily
in the financing and real-estate related businesses contemplated by
Article III(b) of the Company's Amended and Restated Charter as in effect on the
Measurement Date and other activities related to or arising out of those
activities.

REPORTS TO HOLDERS. Whether or not required by the rules and regulations of
the Commission, so long as any Notes are outstanding, the Company will furnish
the Holders of Notes:

(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations
of the Company and its consolidated Subsidiaries (showing in reasonable
detail, either on the face of the financial statements or in the footnotes
thereto and in Management's Discussion and Analysis of Financial Condition
and Results of Operations, the financial condition and results of operations
of the Company and its Subsidiaries separate from the financial condition
and results of operations of the Unrestricted Subsidiaries of the Company,
if any)

S-54

and, with respect to the annual information only, a report thereon by the
Company's certified independent accounts; and

(2) all current reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports, in
each case within the time periods specified in the Commission's rules and
regulations.

In addition, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information and reports
with the Commission for public availability within the time periods specified in
the Commission's rules and regulations (unless the Commission will not accept
such a filing) and make such information available to securities analysts and
prospective investors upon request. In addition, the Company has agreed that,
for so long as any Notes remain outstanding, it will furnish to the Holders and
to securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.

EVENTS OF DEFAULT

The following events are defined in the Indenture as "Events of Default":

(1) the failure to pay interest on any Notes when the same becomes due
and payable and the default continues for a period of 30 days;

(2) the failure to pay the principal on any Notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a payment to purchase Notes tendered pursuant
to a Change of Control Offer);

(3) a default in the observance or performance of any other covenant or
agreement contained in the Indenture and such default continues for a period
of 30 days after the Company receives written notice specifying the default
(and demanding that such default be remedied) from the Trustee or the
Holders of at least 25% of the outstanding principal amount of the Notes
(except in the case of a default with respect to the "Merger, Consolidation
and Sale of Assets" covenant, which will constitute an Event of Default with
such notice requirement but without such passage of time requirement);

(4) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount of
any Indebtedness (other than Non-Recourse Indebtedness) of the Company or
any Subsidiary of the Company, or the acceleration of the final stated
maturity of any such Indebtedness (which acceleration is not rescinded,
annulled or otherwise cured within 20 days of receipt by the Company or such
Subsidiary of notice of any such acceleration) if the aggregate principal
amount of such Indebtedness, together with the principal amount of any other
such Indebtedness in default for failure to pay principal at final maturity
or which has been accelerated, aggregates $20.0 million or more at any time;

(5) one or more judgments in an aggregate amount in excess of
$20.0 million shall have been rendered against the Company or any of its
Subsidiaries and such judgments remain undischarged, unpaid or unstayed for
a period of 60 days after such judgment or judgments become final and
non-appealable (other than any judgments as to which, and only to the
extent, a reputable insurance company has acknowledged coverage of such
judgments in writing); or

(6) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries.

If an Event of Default (other than an Event of Default specified in
clause (6) above with respect to the Company) shall occur and be continuing, the
Trustee or the Holders of at least

S-55

25% in principal amount of outstanding Notes may declare the principal of and
accrued interest on all the Notes to be due and payable by notice in writing to
the Company and the Trustee specifying the respective Event of Default and that
it is a "notice of acceleration" (the "Acceleration Notice"), and the same shall
become immediately due and payable.

If an Event of Default specified in clause (6) above with respect to the
Company occurs and is continuing, then all unpaid principal of, and premium, if
any, and accrued and unpaid interest on all of the outstanding Notes shall ipso
facto become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any Holder.

The Indenture will provide that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the Holders of a majority in principal amount of the Notes may rescind and
cancel such declaration and its consequences:

(1) if the rescission would not conflict with any judgment or decree;

(2) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
the acceleration;

(3) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has become due
otherwise than by such declaration of acceleration, has been paid;

(4) if the Company has paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disbursements and advances; and

(5) in the event of the cure or waiver of an Event of Default of the
type described in clause (6) of the description above of Events of Default,
the Trustee shall have received an officers' certificate and an opinion of
counsel that such Event of Default has been cured or waived. No such
rescission shall affect any subsequent Default or impair any right
consequent thereto.

The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its consequences,
except a default in the payment of the principal of or interest on any Notes.

Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.

Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (PROVIDED that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.

LEGAL DEFEASANCE AND COVENANT DEFEASANCE

The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance"). Such Legal Defeasance means that

S-56

the Company shall be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Notes, except for:

(1) the rights of Holders to receive payments in respect of the
principal of, premium, if any, and interest on the Notes when such payments
are due;

(2) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost
or stolen Notes and the maintenance of an office or agency for payments;

(3) the rights, powers, trust, duties and immunities of the Trustee and
the Company's obligations in connection therewith; and

(4) the Legal Defeasance provisions of the Indenture.

In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company released with respect to certain covenants that
are described in the Indenture ("Covenant Defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or Event
of Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
reorganization and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.

In order to exercise either Legal Defeasance or Covenant Defeasance:

(1) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders cash in U.S. dollars, non-callable U.S.
government obligations, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest
on the Notes on the stated date for payment thereof or on the applicable
redemption date, as the case may be;

(2) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that:

(a) the Company has received from, or there has been published by,
the Internal Revenue Service a ruling; or

(b) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel shall confirm that, the Holders
will not recognize income, gain or loss for federal income tax purposes
as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred;

(3) in the case of Covenant Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred;

(4) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on the
91st day after the date of deposit;

S-57

(5) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under the Indenture or any
other material agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries
is bound;

(6) the Company shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others;

(7) the Company shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with;

(8) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that, assuming no intervening bankruptcy of the
Company between the date of deposit and the 91st day following the date of
deposit and that no Holder is an insider of the Company, after the 91st day
following the date of deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally; and

(9) certain other customary conditions precedent are satisfied.

Notwithstanding the foregoing, the opinion of counsel required by
clause (2) above with respect to a Legal Defeasance need not be delivered if all
Notes not theretofore delivered to the Trustee for cancellation (1) have become
due and payable or (2) will become due and payable on the maturity date within
one year under arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of the Company.

SATISFACTION AND DISCHARGE

The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when:

(1) either:

(a) all the Notes theretofore authenticated and delivered (except
lost, stolen or destroyed Notes that have been replaced or paid and Notes
for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the Trustee
for cancellation; or

(b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit
together with irrevocable instructions from the Company directing the
Trustee to apply such funds to the payment thereof at maturity or
redemption, as the case may be;

(2) the Company has paid all other sums payable under the Indenture by
the Company; and

S-58

(3) the Company has delivered to the Trustee an officers' certificate
and an opinion of counsel stating that all conditions precedent under the
Indenture relating to the satisfaction and discharge of the Indenture have
been complied with.

MODIFICATION OF THE INDENTURE

From time to time, the Company and the Trustee, without the consent of the
Holders, may amend the Indenture for certain specified purposes, including
curing ambiguities, defects or inconsistencies, so long as such change does not,
in the opinion of the Trustee, adversely affect the rights of any of the Holders
in any material respect. In formulating its opinion on such matters, the Trustee
will be entitled to rely on such evidence as it deems appropriate, including,
without limitation, solely on an opinion of counsel. Other modifications and
amendments of the Indenture may be made with the consent of the Holders of a
majority in principal amount of the then outstanding Notes issued under the
Indenture, except that, without the consent of each Holder affected thereby, no
amendment may:

(1) reduce the amount of Notes whose Holders must consent to an
amendment;

(2) reduce the rate of or change or have the effect of changing the time
for payment of interest, including defaulted interest, on any Notes;

(3) reduce the principal of or change or have the effect of changing the
fixed maturity of any Notes, or change the date on which any Notes may be
subject to redemption or reduce the redemption price therefor;

(4) make any Notes payable in money other than that stated in the Notes;

(5) make any change in provisions of the Indenture protecting the right
of each Holder to receive payment of principal of and interest on such Note
on or after the due date thereof or to bring suit to enforce such payment,
or permitting Holders of a majority in principal amount of Notes to waive
Defaults or Events of Default;

(6) after the Company's obligation to purchase Notes arises thereunder,
amend, change or modify in any material respect the obligation of the
Company to make and consummate a Change of Control Offer in the event of a
Change of Control or make and consummate a Net Proceeds Offer with respect
to any Asset Sale that has been consummated or, after such Change of Control
has occurred or such Asset Sale has been consummated, modify any of the
provisions or definitions with respect thereto; or

(7) modify or change any provision of the Indenture or the related
definitions affecting the subordination or ranking of the Notes in a manner
which adversely affects the Holders.

GOVERNING LAW

The Indenture will provide that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.

THE TRUSTEE

The Indenture will provide that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the Trustee
will exercise such rights and powers vested in it by the Indenture, and use the
same degree of care and skill in its exercise as a prudent man would exercise or
use under the circumstances in the conduct of his own affairs.

S-59

The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; PROVIDED that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.

CERTAIN DEFINITIONS

Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.

"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Subsidiary of the
Company or at the time it merges or consolidates with the Company or any of its
Subsidiaries or assumed in connection with the acquisition of assets from such
Person and in each case whether or not incurred by such Person in connection
with, or in anticipation or contemplation of, such Person becoming a Subsidiary
of the Company or such acquisition, merger or consolidation.

"AFFILIATE" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.

"ASSET ACQUISITION" means: (1) an Investment by the Company or any
Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Subsidiary of the Company or any Subsidiary of the Company, or
shall be merged with or into the Company or any Subsidiary of the Company; or
(2) the acquisition by the Company or any Subsidiary of the Company of the
assets of any Person (other than a Subsidiary of the Company) that constitute
all or substantially all of the assets of such Person or comprises any division
or line of business of such Person or any other properties or assets of such
Person other than in the ordinary course of business.

"ASSET SALE" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by us or any of our
Subsidiaries (including any sale and leaseback transaction) to any Person other
than us or our Wholly Owned Subsidiaries of:

(1) any Capital Stock of any of our Subsidiaries; or

(2) any of our or our Subsidiaries' other property or assets other than
sales of loan-related assets made in the ordinary course of the Company's
real estate lending business and other asset sales made in the ordinary
course of the Company's business.

"BOARD OF DIRECTORS" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.

"BOARD RESOLUTION" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have been
duly adopted by the Board of Directors of such Person and to be in full force
and effect on the date of such certification, and delivered to the Trustee.

S-60

"CAPITALIZED LEASE OBLIGATION" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.

"CAPITAL STOCK" means:

(1) with respect to any Person that is a corporation, any and all
shares, interests, participations or other equivalents (however designated
and whether or not voting) of corporate stock, including each class of
Common Stock and Preferred Stock of such Person; and

(2) with respect to any Person that is not a corporation, any and all
partnership, membership or other equity interests of such Person.

"CASH EQUIVALENTS" means:

(1) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof;

(2) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Ratings Group
("S&P") or Moody's Investors Service, Inc. ("Moody's");

(3) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's;

(4) certificates of deposit or bankers' acceptances maturing within one
year from the date of acquisition thereof issued by any bank organized under
the laws of the United States of America or any state thereof or the
District of Columbia or any U.S. branch of a foreign bank having at the date
of acquisition thereof combined capital and surplus of not less than
$250.0 million;

(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) above entered
into with any bank meeting the qualifications specified in clause (4) above;
and

(6) investments in money market funds that invest substantially all
their assets in securities of the types described in clauses (1) through
(5) above.

"CHANGE OF CONTROL" means the occurrence of one or more of the following
events:

(1) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the assets
of the Company to any Person or group of related Persons for purposes of
Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates
thereof (whether or not otherwise in compliance with the provisions of the
Indenture) other than to the Permitted Holders;

(2) the approval by the holders of Capital Stock of the Company of any
plan or proposal for the liquidation or dissolution of the Company (whether
or not otherwise in compliance with the provisions of the Indenture);

S-61

(3) any Person or Group (other than the Permitted Holders) shall become
the owner, directly or indirectly, beneficially or of record, of shares
representing more than 50% of the aggregate ordinary voting power
represented by the issued and outstanding Capital Stock of the Company;
PROVIDED, HOWEVER, that no Change of Control shall be deemed to have
occurred as a result of the sale or transfer by the Permitted Holders of
shares of Capital Stock of the Company representing more than 50% of the
aggregate ordinary voting power represented by the issued and outstanding
Capital Stock of the Company to a Person or Group, whether in one
transaction or a series of related transactions, that has an investment
grade senior unsecured credit rating from both of Moody's and S&P and the
Company's senior unsecured ratings from Moody's and S&P are the same or
better immediately following such sale or transfer as before such sale or
transfer; or

(4) the replacement of a majority of the Board of Directors of the
Company over a two-year period from the directors who constituted the Board
of Directors of the Company at the beginning of such period, and such
replacement shall not have been approved by a vote of at least a majority of
the Board of Directors of the Company then still in office who either were
members of such Board of Directors at the beginning of such period or whose
election as a member of such Board of Directors was previously so approved.

"COMMON STOCK" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the
Measurement Date or issued after the Measurement Date, and includes, without
limitation, all series and classes of such common stock.

"CONSOLIDATED ADJUSTED EARNINGS" with respect to any Person, for any period,
means the Consolidated Net Income, less dividend payments on Preferred Stock,
plus depreciation and amortization (including the Company's share of joint
venture depreciation and amortization).

"CONSOLIDATED EBITDA" means, with respect to any Person, for any period, the
sum (without duplication) of:

(1) Consolidated Net Income; and

(2) to the extent Consolidated Net Income has been reduced thereby:

(a) all income taxes of such Person and its Subsidiaries paid or
accrued in accordance with GAAP for such period (other than income taxes
attributable to extraordinary gains or losses and direct impairment
charges or the reversal of such charges on the Company's assets);

(b) Consolidated Interest Expense; and

all as determined on a consolidated basis for such Person and its Subsidiaries
in accordance with GAAP.

"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending prior to the date of the
transaction giving rise to the need to calculate the Consolidated Fixed Charge
Coverage Ratio for which financial statements are available (the "Transaction
Date") to Consolidated Fixed Charges of such Person for the Four Quarter Period.
In addition to and without limitation of the foregoing, for purposes of this
definition, "Consolidated

S-62

EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect
on a pro forma basis for the period of such calculation to:

(1) the incurrence or repayment of any Indebtedness of such Person or
any of its Subsidiaries (and the application of the proceeds thereof) giving
rise to the need to make such calculation and any incurrence or repayment of
other Indebtedness (and the application of the proceeds thereof), other than
the incurrence or repayment of Indebtedness in the ordinary course of
business for working capital purposes pursuant to working capital
facilities, occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment, as the case may be
(and the application of the proceeds thereof), occurred on the first day of
the Four Quarter Period; and

(2) any asset sales or other dispositions or any asset originations,
asset purchases, Investments and Asset Acquisitions (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Subsidiaries (including
any Person who becomes a Subsidiary as a result of the Asset Acquisition)
incurring, assuming or otherwise being liable for Acquired Indebtedness and
also including any Consolidated EBITDA (including any pro forma expense and
cost reductions calculated on a basis consistent with Regulation S-X under
the Exchange Act) attributable to the assets which are originated or
purchased, the Investments that are made and the assets that are the subject
of the Asset Acquisition or asset sale or other disposition during the Four
Quarter Period) occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such asset sale or other disposition or asset
origination, asset purchase, Investment or Asset Acquisition (including the
incurrence, assumption or liability for any such Acquired Indebtedness)
occurred on the first day of the Four Quarter Period. If such Person or any
of its Subsidiaries directly or indirectly guarantees Indebtedness of a
third Person, the preceding sentence shall give effect to the incurrence of
such guaranteed Indebtedness as if such Person or any Subsidiary of such
Person had directly incurred or otherwise assumed such guaranteed
Indebtedness.

"CONSOLIDATED FIXED CHARGES" means, with respect to any Person for any
period, the sum, without duplication, of:

(1) Consolidated Interest Expense; plus

(2) the amount of all dividend payments on any series of Preferred
Stock of such Person and, to the extent permitted under the Indenture, its
Subsidiaries (other than dividends paid in Qualified Capital Stock) paid,
accrued or scheduled to be paid or accrued during such period.

"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, the sum of, without duplication:

(1) the aggregate of the interest expense of such Person and its
Subsidiaries for such period determined on a consolidated basis in
accordance with GAAP, including without limitation: (a) any amortization of
debt discount; (b) the net costs under Interest Swap Obligations; (c) all
capitalized interest; and (d) the interest portion of any deferred payment
obligation; and

(2) to the extent not already included in clause (1), the interest
component of Capitalized Lease Obligations paid, accrued and/or scheduled to
be paid or accrued by such

S-63

Person and its Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP.

"CONSOLIDATED NET INCOME" means, with respect to any Person, for any period,
the aggregate net income (or loss) of such Person and its Subsidiaries before
the payment of dividends on Preferred Stock for such period on a consolidated
basis, determined in accordance with GAAP; PROVIDEDthat there shall be excluded
therefrom:

(1) after-tax gains and losses from Asset Sales or abandonments or
reserves relating thereto (including gains and losses from the sale of
corporate tenant lease assets);

(2) after-tax items classified as extraordinary gains or losses and
direct impairment charges or the reversal of such charges on the Company's
assets;

(3) the net income of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Subsidiary of the
referent Person or is merged or consolidated with the referent Person or any
Subsidiary of the referent Person;

(4) the net income (but not loss) of any Subsidiary of the referent
Person to the extent that the declaration of dividends or similar
distributions by that Subsidiary of that income is restricted by a contract,
operation of law or otherwise, except for such restrictions permitted by
clauses (f), (g) and (h) of the "Limitation on Dividend and Other Payment
Restrictions Affecting Subsidiaries" covenant, whether such permitted
restrictions exist on the Measurement Date or are created thereafter;

(5) the net income or loss of any other Person, other than a
Consolidated Subsidiary of the referent Person, except:

(a) to the extent (in the case of net income) of cash dividends or
distributions paid to the referent Person, or to a Wholly Owned
Subsidiary of the referent Person (other than a Subsidiary described in
clause (4) above), by such other Person; or

(b) that the referent Person's share of any net income or loss of
such other Person under the equity method of accounting for Affiliates
shall not be excluded;

(6) any restoration to income of any contingency reserve of an
extraordinary, nonrecurring or unusual nature, except to the extent that
provision for such reserve was made out of Consolidated Net Income accrued
at any time following the Measurement Date;

(7) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or not
such operations were classified as discontinued); and

(8) in the case of a successor to the referent Person by consolidation
or merger or as a transferee of the referent Person's assets, any earnings
of the successor corporation prior to such consolidation, merger or transfer
of assets.

"CONSOLIDATED NET WORTH" of any Person means the consolidated stockholders'
equity of such Person, as of the end of the last completed fiscal quarter ending
on or prior to the date of the transaction giving rise to the need to calculate
Consolidated Net Worth determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person and interests in such Person's Consolidated Subsidiaries
not owned, directly or indirectly, by such Person.

S-64

"CONSOLIDATED SUBSIDIARY" means, with respect to any Person, a Subsidiary of
such Person, the financial statements of which are consolidated with the
financial statements of such Person in accordance with GAAP.

"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Subsidiary of the Company against fluctuations in currency
values.

"DEFAULT" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.

"DISQUALIFIED CAPITAL STOCK" means that portion of any Capital Stock that,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable at the option of the holder thereof), or upon the
happening of any event (other than an event which would constitute a Change of
Control), matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the sole option of the holder
thereof (except, in each case, upon the occurrence of a Change of Control) on or
prior to the final maturity date of the Notes.

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto.

"EXISTING CREDIT AGREEMENTS" mean: (1) the Credit Agreement dated as of
July 26, 2001, between the Company, the lenders party thereto in their
capacities as lenders thereunder and Bank of America, N.A., as agent; (2) the
Amended and Restated Credit Agreement dated as of December 28, 2000 between SFI
II, Inc. and Greenwich Capital Markets, Inc., as lender; (3) the credit facility
between Deutsche Bank AG, New York Branch, and iStar DB Seller LLC, dated as of
January 11, 2001; (4) the credit facility, dated as of August 12, 1998, between
Lehman Brothers Holdings, Inc. and SFT Whole Loan A, Inc.; and (5) the Master
Repurchase Agreement dated September 30, 2002 between Goldman Sachs Mortgage
Company and iStar Finance Sub V LLC in each case, together with the related
documents thereto (including, without limitation, any security documents), in
each case as such agreements may be amended (including any amendment and
restatement thereof), supplemented or otherwise modified from time to time,
including any agreement extending the maturity of, refinancing, replacing or
otherwise restructuring (including increasing the amount of available borrowings
thereunder (PROVIDED that such increase in borrowings is permitted by the
"Limitation on Incurrence of Additional Indebtedness" covenant above) or adding
Subsidiaries of the Company as additional borrowers or guarantors thereunder)
all or any portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.

"FAIR MARKET VALUE" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company delivered to the Trustee.

"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Measurement Date.

S-65

"GUARANTOR" means: each of the Company's Subsidiaries that in the future
executes a supplemental indenture in which such Subsidiary agrees to be bound by
the terms of the Indenture as a Guarantor; PROVIDED that any Person constituting
a Guarantor as described above shall cease to constitute a Guarantor when its
respective Guarantee is released in accordance with the terms of the Indenture.

"INDEBTEDNESS" means with respect to any Person, without duplication:

(1) all Obligations of such Person for borrowed money;

(2) all Obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments;

(3) all Capitalized Lease Obligations of such Person;

(4) all Obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
Obligations under any title retention agreement (but excluding trade
accounts payable and other accrued liabilities arising in the ordinary
course of business that are not overdue by 90 days or more or are being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted);

(5) all Obligations for the reimbursement of any obligor on any letter
of credit, banker's acceptance or similar credit transaction;

(6) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (1) through (5) above and clause (8)
below;

(7) all Obligations of any other Person of the type referred to in
clauses (1) through (6) above which are secured by any lien on any property
or asset of such Person, the amount of such Obligation being deemed to be
the lesser of the fair market value of such property or asset and the amount
of the Obligation so secured;

(8) all Obligations under Currency Agreements and Interest Swap
Obligations of such Person; and

(9) all Disqualified Capital Stock issued by such Person with the
amount of Indebtedness represented by such Disqualified Capital Stock being
equal to the greater of its voluntary or involuntary liquidation preference
and its maximum fixed repurchase price, but excluding accrued dividends, if
any.

For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value shall be determined reasonably and in good
faith by the Board of Directors of the issuer of such Disqualified Capital
Stock.

"INDEPENDENT FINANCIAL ADVISOR" means a firm: (1) that does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company; and (2) that, in the judgment of the
Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.

"INTEREST SWAP OBLIGATIONS" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to

S-66

receive from time to time periodic payments calculated by applying either a
floating or a fixed rate of interest on a stated notional amount in exchange for
periodic payments made by such other Person calculated by applying a fixed or a
floating rate of interest on the same notional amount and shall include, without
limitation, interest rate swaps, caps, floors, collars and similar agreements.

"INVESTMENT" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee), or
corporate tenant lease to or capital contribution to (by means of any transfer
of cash or other property to others or any payment for property or services for
the account or use of others), or any purchase or acquisition by such Person of
any Capital Stock, bonds, notes, debentures or other securities or evidences or
Indebtedness issued by, any Person. "Investment" shall exclude extensions of
trade credit by us and our Subsidiaries on commercially reasonable terms in
accordance with our or our Subsidiaries' normal trade practices, as the case may
be.

"INVESTMENT GRADE" means a rating of the Notes by both S&P and Moody's, each
such rating being one of such agency's four highest generic rating categories
that signifies investment grade (I.E. BBB- (or the equivalent) or higher by S&P
and Baa3 (or the equivalent) or higher by Moody's); PROVIDED, in each case, such
ratings are publicly available; PROVIDED, FURTHER, that in the event Moody's or
S&P is no longer in existence for purposes of determining whether the Notes are
rated "Investment Grade," such organization may be replaced by a nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) designated by the Company, notice of which shall be given to the
Trustee.

"LIEN" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).

"MEASUREMENT DATE" means August 16, 2001.

"NON-RECOURSE INDEBTEDNESS" means any of our or any of our Subsidiaries'
Indebtedness that is:

(1) specifically advanced to finance the acquisition of investment
assets and secured only by the assets to which such Indebtedness relates
without recourse to the Company or any of its Subsidiaries (other than
subject to such customary carve-out matters for which the Company or its
Subsidiaries acts as a guarantor in connection with such Indebtedness, such
as fraud, misappropriation and misapplication, unless, until and for so long
as a claim for payment or performance has been made thereunder (which has
not been satisfied) at which time the obligations with respect to any such
customary carve-out shall not be considered Non-Recourse Indebtedness, to
the extent that such claim is a liability of the Company for GAAP purposes);

(2) advanced to any of our Subsidiaries or group of our Subsidiaries
formed for the sole purpose of acquiring or holding investment assets
against, which a loan is obtained that is made without recourse to, and with
no cross-collateralization against our or any of the Company's Subsidiaries'
other assets (other than subject to such customary carve-out matters for
which the Company or its Subsidiaries acts as a guarantor in connection with
such Indebtedness, such as fraud, misappropriation and misapplication,
unless, until and for so long as a claim for payment or performance has been
made thereunder (which has not been satisfied) at which time the obligations
with respect to any such customary carve-out shall not be considered
Non-Recourse Indebtedness, to the extent that such claim is a liability of
the Company for GAAP purposes) and upon complete or partial liquidation of

S-67

which the loan must be correspondingly completely or partially repaid, as
the case may be; or

(3) specifically advanced to finance the acquisition of real property
and secured by only the real property to which such Indebtedness relates
without recourse to the Company or any of its Subsidiaries (other than
subject to such customary carve-out matters for which the Company or its
Subsidiaries acts as a guarantor in connection with such Indebtedness, such
as fraud, misappropriation and misapplication, unless, until and for so long
as a claim for payment or performance has been made thereunder (which has
not been satisfied) at which time the obligations with respect to any such
customary carve-out shall not be considered Non-Recourse Indebtedness, to
the extent that such claim is a liability of the Company for GAAP purposes).

"OBLIGATIONS" means all obligations for principal, premium, interest,
penalties, fees, indemnification, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.

"PERMITTED HOLDER(S)" means SOFI-IV SMT Holdings, L.L.C., Starwood Capital
Group, L.L.C. and each of their respective Affiliates.

"PERMITTED INDEBTEDNESS" means, without duplication, each of the following:

(1) Indebtedness under the Notes issued in this offering and under the
Company's $350.0 million aggregate principal amount of 8 3/4% Senior Notes
due 2008 that were issued on the Measurement Date;

(2) Indebtedness incurred pursuant to the Existing Credit Agreements in
an aggregate principal amount at any time outstanding not to exceed the
maximum aggregate amount available under the Existing Credit Agreements in
existence on the Measurement Date and as in effect on the Measurement Date
reduced by any required permanent repayments (which are accompanied by a
corresponding permanent commitment reduction) thereunder;

(3) other Indebtedness of the Company and its Subsidiaries outstanding
on the Measurement Date reduced by the amount of any scheduled amortization
payments or mandatory prepayments when actually paid or permanent reductions
thereon;

(4) Interest Swap Obligations of the Company covering Indebtedness of
the Company or any of its Subsidiaries and Interest Swap Obligations of any
Subsidiary of the Company covering Indebtedness of such Subsidiary;
PROVIDED, HOWEVER, that such Interest Swap Obligations are entered into to
protect the Company and its Subsidiaries from fluctuations in interest rates
on Indebtedness incurred in accordance with the Indenture to the extent the
notional principal amount of such Interest Swap Obligation does not exceed
the principal amount of the Indebtedness to which such Interest Swap
Obligation relates;

(5) Indebtedness under Currency Agreements; PROVIDED that in the case
of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and its
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;

(6) Indebtedness of a Subsidiary of the Company to the Company or to a
Wholly Owned Subsidiary of the Company for so long as such Indebtedness is
held by the Company or a Wholly Owned Subsidiary of the Company;

S-68

(7) Indebtedness of the Company to a Wholly Owned Subsidiary of the
Company for so long as such Indebtedness is held by a Wholly Owned
Subsidiary of the Company, in each case subject to no Lien; PROVIDED that:
(a) any Indebtedness of the Company to any Wholly Owned Subsidiary of the
Company is unsecured and subordinated, pursuant to a written agreement, to
the Company's obligations under the Indenture and the Notes; and (b) if as
of any date any Person other than a Wholly Owned Subsidiary of the Company
owns or holds any such Indebtedness or any Person holds a Lien in respect of
such Indebtedness, such date shall be deemed the incurrence of Indebtedness
not constituting Permitted Indebtedness by the Company;

(8) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except in
the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business; PROVIDED, HOWEVER, that such Indebtedness is
extinguished within two business days of incurrence;

(9) Indebtedness of the Company or any of its Subsidiaries represented
by letters of credit for the account of the Company or such Subsidiary, as
the case may be, in order to provide security for workers' compensation
claims, payment obligations in connection with self-insurance or similar
requirements in the ordinary course of business;

(10) Refinancing Indebtedness; and

(11) additional Indebtedness of the Company and its Subsidiaries in an
aggregate principal amount not to exceed $15.0 million at any one time
outstanding (which amount may, but need not, be incurred in whole or in part
under the Existing Credit Agreements).

For purposes of determining compliance with the "Limitation on Incurrence of
Additional Indebtedness" covenant, in the event that an item of Indebtedness
meets the criteria of more than one of the categories of Permitted Indebtedness
described in clauses (1) through (11) above or is entitled to be incurred
pursuant to the second paragraph of such covenant, the Company shall, in its
sole discretion, classify (or later reclassify) such item of Indebtedness in any
manner that complies with this covenant. Accrual of interest, accretion or
amortization of original issue discount, the payment of interest on any
Indebtedness in the form of additional Indebtedness with the same terms, and the
payment of dividends on Disqualified Capital Stock in the form of additional
shares of the same class of Disqualified Capital Stock will not be deemed to be
an incurrence of Indebtedness or an issuance of Disqualified Capital Stock for
purposes of the "Limitations on Incurrence of Additional Indebtedness" covenant.

"PERMITTED LIENS" means the following types of Liens:

(1) Liens for taxes, assessments or governmental charges or claims
either: (a) not delinquent; or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Subsidiaries shall have set
aside on its books such reserves as may be required pursuant to GAAP;

(2) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;

(3) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business

S-69

consistent with past practice in connection therewith, or to secure the
performance of tenders, statutory obligations, surety and appeal bonds,
bids, leases, government contracts, performance and return-of-money bonds
and other similar obligations (exclusive of obligations for the payment of
borrowed money);

(4) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;

(5) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company or
any of its Subsidiaries;

(6) any interest or title of a lessor under any Capitalized Lease
Obligation; PROVIDED that such Liens do not extend to any property or assets
which is not leased property subject to such Capitalized Lease Obligation;

(7) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;

(8) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;

(9) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Subsidiaries, including rights of offset and set-off;

(10) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture; and

(11) Liens securing Indebtedness under Currency Agreements.

"PERSON" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.

"PREFERRED STOCK" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.

"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified
Capital Stock.

"REFINANCE" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.

S-70

"REFINANCING INDEBTEDNESS" means any Refinancing by the Company or any
Subsidiary of the Company of Indebtedness incurred in accordance with the
"Limitation on Incurrence of Additional Indebtedness" covenant (other than
pursuant to clauses (2), (4), (5), (6), (7), (8), (9) or (11) of the definition
of Permitted Indebtedness), in each case that does not:

(1) result in an increase in the aggregate principal amount of
Indebtedness of such Person as of the date of such proposed Refinancing
(plus the amount of any premium required to be paid under the terms of the
instrument governing such Indebtedness and plus the amount of reasonable
expenses incurred by the Company in connection with such Refinancing); or

(2) create Indebtedness with: (a) a Weighted Average Life to Maturity
that is less than the Weighted Average Life to Maturity of the Indebtedness
being Refinanced; or (b) a final maturity earlier than the final maturity of
the Indebtedness being Refinanced; PROVIDED that (i) if such Indebtedness
being Refinanced is Indebtedness of the Company, then such Refinancing
Indebtedness shall be Indebtedness solely of the Company, and (ii) if such
Indebtedness being Refinanced is subordinate or junior to the Notes, then
such Refinancing Indebtedness shall be subordinate to the Notes at least to
the same extent and in the same manner as the Indebtedness being Refinanced.

"REIT" means Real Estate Investment Trust.

"SECURED INDEBTEDNESS" means any Indebtedness secured by a Lien upon the
property of the Company or any of its Subsidiaries.

"SENIOR RECOURSE INDEBTEDNESS" means all Indebtedness of the Company and its
Subsidiaries (other than Indebtedness that is Non-Recourse Indebtedness and
other than Subordinated Indebtedness).

"SIGNIFICANT SUBSIDIARY," with respect to any Person, means any Subsidiary
of such Person that satisfies the criteria for a "significant subsidiary" set
forth in Rule 1.02(w) of Regulation S-X under the Exchange Act.

"SUBORDINATED INDEBTEDNESS" means all of our and our Subsidiaries'
Indebtedness that expressly provides that such Indebtedness shall be
subordinated in right of payment to any other Indebtedness and matures or is
mandatorily redeemable pursuant to a sinking fund obligation or otherwise, or is
redeemable at the sole option of the holder thereof (except, in each case, upon
the occurrence of a Change of Control) on or after the final maturity date of
the Notes.

"SUBSIDIARY," with respect to any Person, means:

(1) any corporation of which the outstanding Capital Stock having at
least a majority of the votes entitled to be cast in the election of
directors under ordinary circumstances shall at the time be owned, directly
or indirectly, by such Person; or

(2) any other Person of which at least a majority of the voting interest
under ordinary circumstances is at the time, directly or indirectly, owned
by such Person.

"TOTAL UNENCUMBERED ASSETS" as of any date means the sum of:

(1) those Undepreciated Real Estate Assets not securing any portion of
Secured Indebtedness; and

(2) all other assets (but excluding intangibles and accounts receivable)
of the Company and its Subsidiaries not securing any portion of Secured
Indebtedness determined on a consolidated basis in accordance with GAAP.

S-71

"UNDEPRECIATED REAL ESTATE ASSETS" means, as of any date, the cost (being
the original cost to the Company or any of Subsidiaries plus capital
improvements) of real estate assets of the Company and its Subsidiaries on such
date, before depreciation and amortization of such real estate assets,
determined on a consolidated basis in accordance with GAAP.

"UNSECURED INDEBTEDNESS" means any Indebtedness of the Company or any of its
Subsidiaries that is not Secured Indebtedness.

"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing: (1) the then outstanding
aggregate principal amount of such Indebtedness into; (2) the sum of the total
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.

"WHOLLY OWNED SUBSIDIARY" of any Person means any Subsidiary of such Person
of which all the outstanding voting securities (other than in the case of a
foreign Subsidiary, directors' qualifying shares or an immaterial amount of
shares required to be owned by other Persons pursuant to applicable law) are
owned by such Person or any Wholly Owned Subsidiary of such Person.

S-72

FEDERAL INCOME TAX CONSEQUENCES

The following discussion is a summary of certain United States federal
income tax consequences expected to result from the purchase, ownership and
disposition of the Notes by holders who acquire the Notes on original issue for
cash and who hold the Notes as "capital assets" (generally, property held for
investment) within the meaning of Section 1221 of the Code. This summary is
based upon current provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), applicable Treasury regulations, judicial authority and
administrative rulings and practice, any of which may be altered with
retroactive effect thereby changing the Federal tax consequences discussed
below. There can be no assurance that the Internal Revenue Service (the "IRS")
will not take a contrary view, and no ruling from the IRS has been or is
expected to be sought.

The United States federal income tax treatment of a holder of Notes may vary
depending upon such holders particular situation. Certain holders (including,
but not limited to, certain financial institutions, partnerships or other
passthrough entities, insurance companies, broker-dealers, expatriates and
persons holding the Notes as part of a "straddle," "hedge" or "conversion
transaction") may be subject to special rules not discussed below.

PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR
TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY FEDERAL, STATE, LOCAL, FOREIGN OR
OTHER TAX LAWS OR TAX TREATIES.

As used herein, the term "U.S. Holder" means a beneficial owner of Notes
that is for United States federal income tax purposes:

- a citizen or resident of the United States;

- a corporation created or organized in or under the laws of the United
States or of any political subdivision thereof;

- an estate whose income is subject to United States federal income tax
regardless of its source;

- a trust, if both: (1) a court within the United States is able to exercise
primary supervision over the administration of the trust; and (2) one or
more United States persons have the authority to control all substantial
decisions of the trust; or

- certain trusts in existence on August 20, 1996, and treated as United
States persons prior to such date, that elect to continue to be treated as
United States persons.

As used herein, the term "Non-U.S. Holder" means a beneficial owner of Notes
that is, for United States federal tax purposes, either a nonresident alien or a
corporation, estate or trust that is not a U.S. Holder.

U.S. HOLDERS

PAYMENTS OF INTEREST. In general, interest on a Note will be taxable to a
U.S. Holder as ordinary income at the time it accrues or is received, in
accordance with the U.S. Holder's regular method of accounting for United States
federal income tax purposes.

SALE, RETIREMENT OR OTHER TAXABLE DISPOSITION. In general, a U.S. Holder of
a Note will recognize gain or loss upon the sale, retirement or other taxable
disposition of such Note in an amount equal to the difference between:

S-73

- the amount of cash and the fair market value of property received in
exchange therefor (except to the extent attributable to the payment of
accrued interest not previously taken into income, which generally will be
taxable to a U.S. Holder as ordinary income); and

- the U.S. Holder's adjusted tax basis in such Note.

A U.S. Holder's tax basis in a Note generally will be equal to the price
paid for such Note. Capital gain recognized by a non-corporate U.S. Holder from
the sale of a capital asset that has been held for more than 12 months generally
will be subject to tax at a rate not to exceed 20%, whereas capital gain
recognized by a non-corporate U.S. Holder from the sale of a capital asset held
for 12 months or less generally will be subject to tax at ordinary income tax
rates. Capital gain recognized by a corporate U.S. Holder will be subject to tax
at the ordinary income tax rates applicable to corporations regardless of the
corporation's holding period.

NON-U.S. HOLDERS

A Non-U.S. Holder will not be subject to United States federal income or
withholding tax on payments of premium (if any) or interest (including original
issue discount, if any) on a Note if such payments are not effectively connected
with the conduct of a U.S. trade or business, unless such Non-U.S. Holder owns
directly, or by attribution, 10% or more of the total combined voting power of
all classes of our stock entitled to vote or is a controlled foreign corporation
related to us, in which case such interest will be subject to a 30% withholding
tax (unless reduced or eliminated by an applicable treaty). To qualify for the
exemption from taxation (or the elimination or reduction of the applicable
withholding tax under a treaty), the last United States payor in the chain of
payment prior to payment to a Non-U.S. Holder (the "Withholding Agent") must
have received, before payment, a statement that:

- is signed by the Non-U.S. Holder under penalties of perjury;

- certifies that the Non-U.S. Holder is not a U.S. Holder; and

- provides the name and address of the Non-U.S. Holder.

The statement may be made on an IRS Form W-8BEN or a substantially similar
form, and the Non-U.S. Holder must inform the Withholding Agent of any change in
the information on the statement within 30 days of such change. If a Note is
held through a securities clearing organization or certain other financial
institutions, the beneficial owner of the Note must provide the above statement
to such organization or institution and the organization or institution must
provide to the Withholding Agent a certificate stating that such organization or
institution has been provided with a valid IRS Form W-8BEN (or substantially
similar form).

In addition, a Non-U.S. Holder generally will not be subject to Federal
income or withholding tax on any amount which constitutes gain upon retirement
or disposition of a Note, unless the gain is effectively connected with the
conduct of a trade or business in the United States by the Non-U.S. Holder or,
in the case of a Non-U.S. Holder who is an individual, the Non-U.S. Holder is
present in the United States for 183 days or more in the taxable year of the
sale and certain other conditions are met. Certain other exceptions may be
applicable, and a Non-U.S. Holder should consult its tax advisor in this regard.

If interest and other payments received by a Non-U.S. Holder with respect to
the Notes (including proceeds from a sale, retirement or other disposition of
the Notes) are effectively connected with the conduct by the Non-U.S. Holder of
a trade or business within the United States (or the Non-U.S. Holder is
otherwise subject to United States federal income taxation on a net basis with
respect to such holder's ownership of the Notes), such Non-U.S. Holder will
generally be subject to the rules described above for a U.S. Holder (subject to
any modification

S-74

provided under an applicable income tax treaty). Such Non-U.S. Holder may also
be subject to the "branch profits tax" if such holder is a corporation.

A Note will not be includable in the estate of a Non-U.S. Holder who is an
individual unless the individual owns directly, or by attribution, 10% or more
of the total combined voting power of all classes of our stock entitled to vote
or, at the time of such individual's death, payments in respect of the Note
would have been effectively connected with the conduct by such individual of a
trade or business in the United States.

BACKUP WITHHOLDING

Certain non-corporate U.S. Holders may be subject to backup withholding on
payments of principal and interest on, and the proceeds of the disposition of,
the Notes, if the U.S. Holder:

- fails to furnish on a properly completed IRS Form W-9 (or substantially
similar form) its taxpayer identification number ("TIN"), which, for an
individual, would be his or her Social Security number;

- furnishes an incorrect TIN;

- is notified by the IRS that it has failed to report payments of interest
or dividends; or

- under certain circumstances, fails to certify, under penalty of perjury,
that it has furnished a correct TIN and has not been notified by the IRS
that it is subject to backup withholding tax for failure to report
interest or dividend payments.

In addition, such payments of principal, interest and disposition proceeds
to U.S. Holders will generally be subject to information reporting. U.S. Holders
should consult their tax advisors regarding their qualification for exemption
from backup withholding and the procedure for obtaining such an exemption, if
applicable.

We must report annually to the IRS and to each Non-U.S. Holder any interest
on the Notes that is subject to withholding or that is exempt from U.S.
withholding tax pursuant to a tax treaty or the "portfolio interest" exemption.
Copies of these information returns may also be made available under the
provisions of a specific treaty or agreement to the tax authorities of the
country in which the Non-U.S. Holder resides.

Backup withholding and other information reporting generally will not apply
to payments of interest made to a Non-U.S. Holder of a Note who provides a
properly completed IRS Form W-8BEN (or a substantially similar form) or
otherwise establishes an exemption from backup withholding. Payments of
principal or the proceeds of a disposition of the Notes by or through a United
States office of a broker generally will be subject to backup withholding and
information reporting unless the Non-U.S. Holder certifies its status as a
Non-U.S. Holder under penalties of perjury (and certain other conditions are
met) or otherwise establishes an exemption. Payments of principal or the
proceeds of a disposition of the Notes by or through a foreign office of a
United States broker or foreign broker with certain relationships to the United
States generally will be subject to information reporting (but not backup
withholding) unless the broker has documentary evidence in its records that the
holder is not a U.S. person and certain other conditions are met or the holder
otherwise establishes an exemption.

Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's Federal income tax liability provided the required
information is furnished to the IRS.

S-75

UNDERWRITING

Subject to the terms and conditions set forth in the underwriting agreement
between us and Deutsche Bank Securities Inc., the underwriter will purchase from
us the entire principal amount of Notes offered by us by this prospectus
supplement at the public offering price less the underwriting discounts and
commissions set forth on the cover page of this prospectus supplement.

The underwriting agreement provides that the obligations of the underwriter
are subject to certain conditions precedent.

We have been advised by the underwriter that the underwriter proposes to
offer the Notes to the public at the public offering price set forth on the
cover page of this prospectus supplement. After commencement of the offering,
the offering price and other selling terms may be changed by the underwriter.

The Notes are not listed on any securities exchange. The underwriter has
advised us that it will act as a market-maker for the Notes. However, the
underwriter is not obligated to do so and may discontinue any market-making at
any time without notice. No assurance can be given as to the liquidity of the
trading market for the Notes.

We have agreed to indemnify the underwriter and certain controlling persons
against certain liabilities, including liabilities under the Securities Act.

The underwriter has advised us that, pursuant to Regulation M under the
Securities Exchange Act of 1934, as amended, certain persons participating in
the offering may engage in transactions, including overallotment, stabilizing
bids, syndicate covering transactions or the imposition of penalty bids, which
may have the effect of stabilizing or maintaining the market price of the Notes
at a level above that which might otherwise prevail in the open market.
Overallotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. A stabilizing bid is a bid for the purchase
of Notes on behalf of the underwriter for the purpose of fixing or maintaining
the price of the Notes. A syndicate covering transaction is the bid for or the
purchase of Notes on behalf of the underwriter to reduce a short position
incurred by the underwriter in connection with the offering. A penalty bid is an
arrangement permitting the underwriter to reclaim the selling concession
otherwise accruing to a syndicate member in connection with the offering if the
Notes originally sold by such syndicate member are purchased in a syndicate
covering transaction and therefore have not been effectively placed by such
syndicate member. The underwriter is not obligated to engage in these activities
and, if commenced, any of the activities may be discontinued at any time.

The underwriter has advised us that it does not intend to confirm sales to
any account over which it exercises discretionary authority.

The underwriter and its predecessors and affiliates have from time to time
provided, and expect to continue to provide, financial and advisory services to
us for customary fees.

On March 3, 2003, Deutsche Bank Securities Inc., acting in its capacity as
remarketing agent, purchased all of the outstanding 6.75% Dealer Remarketable
Securities of our leasing subsidiary for $125,000,000, and reset the coupon for
the remaining term pursuant to the terms of those notes. Deutsche Bank
Securities Inc. is acting as underwriter in this offering. Immediately following
the purchase, the principal amount of the notes was increased to approximately
$144.2 million and the interest rate was decreased from the previously reset
coupon to reflect the current market value of the notes, and other terms of the
notes were modified. We have agreed with Deutsche Bank Securities Inc. that it
will retain $144.2 million of net proceeds from the offering and tender to us
the entire principal amount of these modified notes. We will then

S-76

retire these modified notes. In addition, Deutsche Bank Securities Inc. will
receive a fee equal to % of the principal amount of these modified notes, in
consideration of its willingness to act as the remarketing agent and to agree to
modify the terms of such notes.

It is expected that delivery of the Notes will be made against payment
therefor on or about , 2003, which is the third business day
following the date of this prospectus supplement. We refer to this settlement
cycle as "T+3." Purchasers of Notes should be aware that the ability to settle
secondary market trades of the Notes effected on the date of pricing and the
succeeding business days may be affected by the T+3 settlement.

LEGAL MATTERS

The legality of the Notes offered by this prospectus supplement and the
accompanying prospectus will be passed upon for us by Clifford Chance US LLP,
New York, New York. Certain legal matters relating to this offering will be
passed upon for the underwriter by Cahill Gordon & Reindel, New York, New York.
Clifford Chance US LLP will rely upon the opinion of Ballard Spahr Andrews &
Ingersoll, LLP with respect to matters of Maryland law.

S-77

PROSPECTUS

ISTAR FINANCIAL INC.
COMMON STOCK
PREFERRED STOCK
DEPOSITARY SHARES
DEBT SECURITIES
AND
WARRANTS

------------------------

We may from time to time offer our common stock, preferred stock (which we
may issue in one or more series), depositary shares representing shares of
preferred stock, debt securities (which we may issue in one or more series) or
warrants entitling the holders to purchase common stock, preferred stock,
depositary shares or debt securities, at an aggregate initial offering price
which will not exceed $500,000,000. We will determine when we sell securities,
the amounts of securities we will sell and the prices and other terms on which
we will sell them. We may sell securities to or through underwriters, through
agents or directly to purchasers.

We will describe in a prospectus supplement, which we will deliver with this
prospectus, the terms of particular securities which we offer in the future. We
may describe the terms of those securities in a term sheet which will precede
the prospectus supplement.

In each prospectus supplement we will include the following information:

- The names of the underwriters or agents, if any, through which we will
sell the securities.

- The proposed amount of securities, if any, which the underwriters will
purchase.

- The compensation, if any, of those underwriters or agents.

- The initial public offering price of the securities.

- Information about securities exchanges, electronic communications networks
or automated quotation systems on which the securities will be listed or
traded.

- Any other material information about the offering and sale of the
securities.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT
THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

March 3, 2003

FORWARD-LOOKING INFORMATION

We make statements in this prospectus and the documents we incorporate by
reference that are considered "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, which are usually identified by the use of words such as
"will," "anticipates," "believes," "estimates," "expects," "projects," "plans,"
"intends," "should" or similar expressions. We intend those forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Reform Act of 1995 and are
including this statement for purposes of complying with these safe harbor
provisions. These forward-looking statements reflect our current views about our
plans, strategies and prospects, which are based on the information currently
available to us and on assumptions we have made. Although we believe that our
plans, intentions and expectations as reflected in or suggested by those
forward-looking statements are reasonable, we can give no assurance that the
plans, intentions or expectations will be achieved. We have listed below and
have discussed elsewhere in this prospectus some important risks, uncertainties
and contingencies which could cause our actual results, performances or
achievements to be materially different from the forward- looking statements we
make in this prospectus. These risks, uncertainties and contingencies include,
but are not limited to, the following:

1. The success or failure of our efforts to implement our current business
strategy.

2. Economic conditions generally and in the commercial finance and real
estate markets specifically.

3. The performance and financial condition of borrowers and corporate
customers.

4. The actions of our competitors and our ability to respond to those
actions.

5. The cost of our capital, which depends in part on our asset quality, the
nature of our relationships with our lenders and other capital
providers, our business prospects and outlook, and general market
conditions.

6. Changes in governmental regulations, tax rates and similar matters.

7. Legislative and regulatory changes (including changes to laws governing
the taxation of REITs).

8. Other factors discussed under the heading "Risk Factors" and which may
be discussed in a prospectus supplement.

THE COMPANY

We are the largest publicly traded finance company focused exclusively on
the commercial real estate industry. We provide structured financing to private
and corporate owners of real estate nationwide, including senior and junior
mortgage debt, corporate mezzanine and subordinated capital, and corporate net
lease financing. We seek to deliver superior risk-adjusted returns on equity to
our stockholders by providing innovative and value-added financing solutions to
our customers. We are taxed as a real estate investment trust.

Our principal executive offices are located at 1114 Avenue of the Americas,
New York, New York 10036, and our telephone number is (212) 930-9400. Our
website is istarfinancial.com. Our six primary regional offices are located in
Atlanta, Boston, Dallas, Denver, Hartford and San Francisco. iStar Asset
Services, our loan servicing subsidiary, is located in Hartford, and iStar Real
Estate Services, our corporate facilities management division, is headquartered
in Atlanta.

RISK FACTORS

THIS SECTION DESCRIBES THE MOST MATERIAL RISKS OF PURCHASING OUR COMMON
STOCK. YOU SHOULD CAREFULLY CONSIDER THESE RISKS, IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE, BEFORE
PURCHASING ANY OF THE SECURITIES OFFERED HEREBY. IN CONNECTION WITH THE
FORWARD-LOOKING STATEMENTS THAT APPEAR IN THIS PROSPECTUS, YOU SHOULD CAREFULLY
REVIEW THE FACTORS DISCUSSED BELOW AND THE CAUTIONARY STATEMENTS REFERRED TO IN
"FORWARD-LOOKING STATEMENTS."

WE ARE SUBJECT TO RISKS RELATING TO OUR LENDING BUSINESS.

WE MAY SUFFER A LOSS IF A BORROWER DEFAULTS ON A NON-RECOURSE LOAN OR ON A LOAN
THAT IS NOT SECURED BY UNDERLYING REAL ESTATE.

In the event of a default by a borrower on a non-recourse loan, we will only
have recourse to the real estate asset securing the loan. For this purpose, we
consider loans made to special purpose entities formed solely for the purpose of
holding and financing particular assets to be non-recourse loans. If the
underlying asset value is below the loan amount, we will suffer a loss.
Conversely, we sometimes make loan investments that are unsecured or are secured
by equity interests in the borrowing entities. These loans are subject to the
risk that other lenders may be directly secured by the real estate assets of the
borrower. In the event of a default, those secured lenders would have priority
over us with respect to the proceeds of a sale of the underlying real estate.

In the cases described above, we may lack control over the underlying asset
securing our loan or the underlying assets of the borrower prior to a default,
and, as a result, their value may be reduced by acts or omissions by owners or
managers of the assets. As of December 31, 2002, 80.1% of our loans are
non-recourse, based upon the gross carrying value of our loan assets, and 8.9%
of our total investments, based on gross carrying value, consist of loans that
are unsecured or secured by equity interests in the borrowing entity.

WE MAY SUFFER A LOSS IN THE EVENT OF A DEFAULT OR BANKRUPTCY OF A BORROWER,
PARTICULARLY IN CASES WHERE THE BORROWER HAS INCURRED DEBT THAT IS SENIOR TO OUR
LOAN.

If a borrower defaults on our loan but does not have sufficient assets to
satisfy our loan, we may suffer a loss of principal or interest. In the event of
a borrower bankruptcy, we may not have full recourse to the assets of the
borrower, or the assets of the borrower may not be sufficient to satisfy our
loan. In addition, certain of our loans are subordinate to other debt of the
borrower. If a borrower defaults on our loan or on debt senior to our loan, or
in the event of a borrower bankruptcy, our loan will be satisfied only after the
senior debt. Where debt senior to our loans exists, the presence of
intercreditor arrangements may limit our ability to amend our loan documents,
assign our loans, accept prepayments, exercise our remedies (through
"standstill" periods) and control decisions made in bankruptcy proceedings
relating to borrowers. Bankruptcy and borrower litigation can significantly
increase the time needed for us to acquire underlying collateral in the event of
a default, during which time the collateral may decline in value. In addition,
there are significant costs and delays associated with the foreclosure process.

WE ARE SUBJECT TO THE RISK THAT PROVISIONS OF OUR LOAN AGREEMENTS MAY BE
UNENFORCEABLE.

Our rights and obligations with respect to our loans are governed by written
loan agreements and related documentation. It is possible that a court could
determine that one or more provisions of a loan agreement are unenforceable,
such as a loan prepayment provision or the provisions governing our security
interest in the underlying collateral. If this were to happen with respect to a
material asset or group of assets, we could be adversely affected.

WE ARE SUBJECT TO THE RISKS ASSOCIATED WITH LOAN PARTICIPATIONS, SUCH AS LESS
THAN FULL CONTROL RIGHTS.

Some of our assets are participating interests in loans in which we share
the rights, obligations and benefits of the loan with other participating
lenders. We may need the consent of these parties to exercise our rights under
such loans, including rights with respect to amendment of loan documentation,
enforcement proceedings in the event of a default and the institution of, and
control over, foreclosure proceedings. Similarly, a majority of the participants
may be able to take actions to which we object but to which we will be bound if
our participation interest represents a minority interest. We may be adversely
affected by this lack of full control.

WE ARE SUBJECT TO RISKS RELATING TO OUR CORPORATE TENANT LEASE BUSINESS.

LEASE EXPIRATIONS, LEASE DEFAULTS AND LEASE TERMINATIONS MAY ADVERSELY AFFECT
OUR REVENUE.

Lease expirations, lease defaults and lease terminations may result in
reduced revenues if the lease payments received from replacement corporate
tenants are less than the lease payments received from the expiring, defaulting
or terminating corporate tenants. In addition, lease defaults by one or more
significant corporate tenants, lease terminations by corporate tenants following
events of casualty or takings by eminent domain, or the failure of corporate
tenants under expiring leases to elect to renew their leases, could cause us to
experience long periods with no revenue from a facility and to incur substantial
capital expenditures in order to obtain replacement corporate tenants.

As of December 31, 2002, 12.5% of our annualized total revenues for the
quarter ended December 31, 2002 were derived from our five largest corporate
tenant customers. As of December 31, 2002, the percentage of our revenues (based
on total revenues for the quarter ended December 31, 2002, annualized) that are
subject to expiring leases during each year from 2003 through 2006 is as
follows:

2003........................................................ 2.1%
2004........................................................ 3.7%
2005........................................................ 3.0%
2006........................................................ 5.4%

WE MAY NEED TO MAKE SIGNIFICANT CAPITAL IMPROVEMENTS TO OUR CORPORATE FACILITIES
IN ORDER TO REMAIN COMPETITIVE.

Our corporate facilities may face competition from newer, more updated
facilities. In order to remain competitive, we may need to make significant
capital improvements to our existing corporate facilities. In addition, in the
event we need to re-lease a corporate facility, we may need to make significant
tenant improvements, including conversions of single tenant buildings to
multi-tenant buildings. The costs of these improvements could adversely affect
our financial performance.

OUR OWNERSHIP INTERESTS IN CORPORATE FACILITIES ARE ILLIQUID, HINDERING OUR
ABILITY TO MITIGATE A LOSS.

Since our ownership interests in corporate facilities are illiquid, we may
lack the necessary flexibility to vary our investment strategy promptly to
respond to changes in market conditions. In addition, if we have to foreclose on
an asset or if we desire to sell it in an effort to recover or mitigate a loss,
we may be unable to do so at all, or only at a discount.

WE ARE SUBJECT TO RISKS RELATING TO OUR ASSET CONCENTRATION.

As of December 31, 2002, the average size of our lending and leasing
investments was $27.9 million. No single investment represented more than 3.6%
of our total revenues for the fiscal quarter ended December 31, 2002. While our
asset base is diversified by product line, asset type,

obligor, property type and geographic location, it is possible that if we suffer
losses on a portion of our larger assets, our financial performance could be
adversely impacted.

BECAUSE WE MUST DISTRIBUTE A PORTION OF OUR INCOME, WE WILL CONTINUE TO NEED
ADDITIONAL DEBT AND/OR EQUITY CAPITAL TO GROW.

We must distribute at least 90% of our taxable net income to our
stockholders to maintain our REIT status. As a result, those earnings will not
be available to fund investment activities. We have historically funded our
investments by borrowing from financial institutions and raising capital in the
public and private capital markets. We expect to continue to fund our
investments this way. If we fail to obtain funds from these sources, it could
limit our ability to grow, which could have a material adverse effect on the
value of our common stock. Our taxable net income has historically been lower
than the cash flow generated by our business activities, primarily because our
taxable net income is reduced by non-cash expenses, such as depreciation and
amortization. As a result, our dividend payout ratio as a percentage of free
cash flow has generally been lower than our payout ratio as a percentage of
taxable net income. Our common stock dividends for the quarter ended
December 31 2002 represented approximately 83.7% of our adjusted earnings for
that quarter.

OUR GROWTH IS DEPENDENT ON LEVERAGE, WHICH MAY CREATE OTHER RISKS.

Our success is dependent, in part, upon our ability to grow our assets
through the use of leverage. We currently intend to leverage iStar Financial
primarily through secured and unsecured borrowings. Our ability to obtain the
leverage necessary for execution of our business plan will ultimately depend
upon our ability to maintain interest coverage ratios meeting market
underwriting standards that will vary according to lenders' assessments of our
creditworthiness and the terms of the borrowings. As of December 31, 2002, our
debt-to-book equity ratio was 1.7x and our total debt obligations outstanding
were approximately $3.46 billion. Our charter does not limit the amount of
indebtedness which we may incur. While our publicly-announced policy is not to
exceed a debt-to-book equity ratio of 2.0x, our Board of Directors has overall
responsibility for our financing strategy, and they may change our strategy
without stockholder approval. If our Board of Directors decided to increase our
leverage, it could lead to reduced or negative cash flow and reduced liquidity.

The percentage of leverage used will vary depending on our estimate of the
stability of iStar Financial's cash flow. To the extent that changes in market
conditions cause the cost of such financing to increase relative to the income
that can be derived from the assets originated, we may reduce the amount of our
leverage.

Leverage creates an opportunity for increased net income, but at the same
time creates risks. For example, leveraging magnifies changes in our net worth.
We will incur leverage only when there is an expectation that it will enhance
returns, although there can be no assurance that our use of leverage will prove
to be beneficial. Moreover, there can be no assurance that we will be able to
meet our debt service obligations and, to the extent that we cannot, we risk the
loss of some or all of our assets or a financial loss if we are required to
liquidate assets at a commercially inopportune time.

We and our subsidiaries are parties to agreements and debt instruments that
restrict future indebtedness and the payment of dividends, including indirect
restrictions (through, for example, covenants requiring the maintenance of
specified levels of net worth and earnings to debt service ratios) and direct
restrictions. As a result, in the event of a deterioration in our financial
condition, these agreements or debt instruments could restrict our ability to
pay dividends. Moreover, if we fail to pay dividends as required by the Internal
Revenue Code, whether as a result of restrictive covenants in our debt
instruments or otherwise, we may lose our status as a REIT. For more information
regarding the consequences of loss of REIT status, please read the risk factor
entitled "We May Be Subject to Adverse Consequences if We Fail to Qualify as a
Real Estate Investment Trust."

WE UTILIZE INTEREST RATE HEDGING ARRANGEMENTS WHICH MAY ADVERSELY AFFECT OUR
BORROWING COST AND EXPOSE US TO OTHER RISKS.

We have variable rate lending assets and variable rate debt obligations.
These assets and liabilities create a natural hedge against changes in variable
interest rates. This means that as interest rates increase, we earn more on our
variable rate lending assets and pay more on our variable rate debt obligations
and, conversely, as interest rates decrease, we earn less on our variable rate
lending assets and pay less on our variable rate debt obligations. When our
variable rate debt obligations exceed our variable rate lending assets, we
utilize derivative instruments to limit the impact of changing interest rates on
our net income. We do not use derivative instruments to hedge assets or for
speculative purposes. The derivatives instruments we use are typically in the
form of interest rate swaps and interest rate caps. Interest rate swaps
effectively change variable rate debt obligations to fixed rate debt
obligations. Interest rate caps effectively limit the maximum interest rate on
variable rate debt obligations.

The primary risks from our use of derivative instruments is the risk that a
counterparty to a hedging arrangement could default on its obligation and the
risk that we may have to pay certain costs, such as transaction fees or breakage
costs, if a hedging arrangement is terminated by us. As a matter of policy, we
enter into hedging arrangements with counterparties that are large, creditworthy
financial institutions typically rated at least "A/A2" by Standard & Poor's and
Moody's Investors Service, respectively. Our hedging strategy is monitored by
our Audit Committee on behalf of our Board of Directors and may be changed by
the Board of Directors without stockholder approval.

Developing an effective strategy for dealing with movements in interest
rates is complex and no strategy can completely insulate us from risks
associated with such fluctuations. There can be no assurance that our hedging
activities will have the desired beneficial impact on our results of operations
or financial condition.

WE FACE A RISK OF LIABILITY UNDER ENVIRONMENTAL LAWS.

Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner of real estate (including, in certain
circumstances, a secured lender that succeeds to ownership or control of a
property) may become liable for the costs of removal or remediation of certain
hazardous or toxic substances at, on, under or in its property. Those laws
typically impose cleanup responsibility and liability without regard to whether
the owner or control party knew of or was responsible for the release or
presence of such hazardous or toxic substances. The costs of investigation,
remediation or removal of those substances may be substantial. The owner or
control party of a site may be subject to common law claims by third parties
based on damages and costs resulting from environmental contamination emanating
from a site. Certain environmental laws also impose liability in connection with
the handling of or exposure to asbestos-containing materials, pursuant to which
third parties may seek recovery from owners of real properties for personal
injuries associated with asbestos-containing materials. Absent succeeding to
ownership or control of real property, a secured lender is not likely to be
subject to any of these forms of environmental liability.

CERTAIN PROVISIONS IN OUR CHARTER MAY INHIBIT A CHANGE IN CONTROL.

Generally, to maintain our qualification as a REIT under the Internal
Revenue Code, not more than 50% in value of our outstanding shares of stock may
be owned, directly or indirectly, by five or fewer individuals at any time
during the last half of our taxable year. The Internal Revenue Code defines
"individuals" for purposes of the requirement described in the preceding
sentence to include some types of entities. Under our charter, no person may own
more than 9.8% of the outstanding shares of stock, with some exceptions. The
restrictions on transferability and ownership may delay, deter or prevent a
change in control or other transaction that might involve a premium price or
otherwise be in the best interest of the securityholders.

Our Board of Directors is divided into two classes. Directors of each class
are chosen for two-year staggered terms. Staggered terms of directors may reduce
the possibility of a tender offer or an attempt to change control, even though a
tender offer or change in control might be in the best interest of our
securityholders Our charter authorizes our Board of Directors:

1. To cause us to issue additional authorized but unissued shares of common
or preferred stock.

2. To classify or reclassify, in one or more series, any of our unissued
preferred shares.

3. To set the preferences, rights and other terms of any classified or
reclassified securities that we issue.

ADVERSE CHANGES IN GENERAL ECONOMIC CONDITIONS CAN ADVERSELY AFFECT OUR
BUSINESS.

Our success is dependent upon the general economic conditions in the
geographic areas in which a substantial number of our investments are located.
Adverse changes in national economic conditions or in the economic conditions of
the regions in which we conduct substantial business likely would have an
adverse effect on real estate values and, accordingly, our business.

WE MAY BE SUBJECT TO ADVERSE CONSEQUENCES IF WE FAIL TO QUALIFY AS A REAL ESTATE
INVESTMENT TRUST.

We intend to operate so as to qualify as a real estate investment trust for
federal income tax purposes. We have received an unqualified opinion of our
legal counsel, Clifford Chance US LLP, that, based on the assumptions and
representations described in "Material Federal Income Tax Consequences," our
existing legal organization and our actual and proposed method of operation,
enable us to satisfy the requirements for qualification as a real estate
investment trust under the Internal Revenue Code in the ordinary course of our
actual and proposed operations. Investors should be aware, however, that
opinions of counsel are not binding on the Internal Revenue Service or any
court. The real estate investment trust qualification opinion only represents
the view of our counsel based on their review and analysis of existing law which
includes no controlling precedents. Furthermore, both the validity of the
opinion and our qualification as a real estate investment trust will depend on
our continuing ability to meet various requirements concerning, among other
things, the ownership of our outstanding stock, the nature of our assets, the
sources of our income and the amount of our distributions to our stockholders.
See "Material Federal Income Tax Consequences--Taxation of iStar
Financial--General."

If we were to fail to qualify as a real estate investment trust for any
taxable year, we would not be allowed a deduction for distributions to our
stockholders in computing our taxable income and would be subject to federal
income tax, including any applicable minimum tax, on our taxable income at
regular corporate rates. Unless entitled to relief under certain Internal
Revenue Code provisions, we also would be disqualified from treatment as a real
estate investment trust for the four subsequent taxable years following the year
during which qualification was lost. As a result, cash available for
distribution would be reduced for each of the years involved. Furthermore, it is
possible that future economic, market, legal, tax or other considerations may
cause the Board of Directors to revoke the real estate investment trust
election. See "Material Federal Income Tax Consequences."

Even if we qualify as a real estate investment trust for federal income tax
purposes, we may be subject to certain state and local taxes on our income and
property, and may be subject to certain federal taxes. See "Material Federal
Income Tax Consequences--Taxation of iStar Financial--General."

TAX-EXEMPT STOCKHOLDERS MAY BE SUBJECT TO TAXATION.

The Internal Revenue Service has issued a revenue ruling in which it held
that amounts distributed by a REIT to a tax-exempt employees' pension trust do
not constitute unrelated business taxable

income ("UBTI"). In general, subject to the discussion below regarding a
"pension-held REIT" and subject to the following sentence, based upon such
ruling and the statutory framework of the Internal Revenue Code, distributions
to a stockholder of a real estate investment trust that is a tax-exempt entity
should not constitute UBTI, provided that:

1. The tax-exempt entity has not financed the acquisition of its shares of
common stock with "acquisition indebtedness" within the meaning of the
Internal Revenue Code.

2. The shares of common stock are not otherwise used in an unrelated trade
or business of the tax-exempt entity.

3. The real estate investment trust does not hold a residual interest in a
real estate mortgage investment conduit ("REMIC") within the meaning of
Section 860D of the Internal Revenue Code.

Although we do not intend to invest a material amount of assets in REMICS,
certain taxable income produced by REMIC residual interests may cause our
stockholders to suffer certain adverse tax consequences. See "Material Federal
Income Tax Consequences."

If any pension or other retirement trust that qualifies under
Section 401(a) of the Internal Revenue Code holds more than 10% by value of the
interests in a pension-held REIT at any time during a taxable year, a portion of
the dividends paid to the qualified pension trust by such REIT may constitute
UBTI. For these purposes, a "pension-held REIT" is defined as a REIT: (1) that
would not have qualified as a REIT but for the provisions of the Internal
Revenue Code which look through such a qualified pension trust in determining
ownership of securities of the REIT; and (2) as to which at least one qualified
pension trust holds more than 25% by value of the interests of such REIT or one
or more qualified pension trusts (each owning more than a 10% interest by value
in the REIT) hold in the aggregate more than 50% by value of the interests in
such REIT.

We do not expect that we will be a pension-held REIT. However,
notwithstanding our current belief that we will not be a "pension-held REIT," no
assurance can be given that we will not become a pension-held REIT in the
future.

If we were to become a pension-held REIT in the future and were to originate
investments using debt, or otherwise were to engage in a transaction resulting
in UBTI, determined as though we were a qualified pension plan, any qualified
pension plan owning 10% or more of our shares, by value, would have a portion of
its dividend income from us taxed as UBTI. Even if we were not a pension-held
REIT, certain amounts received by a stockholder that is a tax-exempt entity may
be treated as UBTI. See "Material Federal Income Tax Consequences."

SOFI-IV SMT HOLDINGS, L.L.C. IS A SIGNIFICANT STOCKHOLDER.

SOFI-IV SMT Holdings, L.L.C. beneficially owns 20.5% of our outstanding
common stock. Four of the 16 members of our Board of Directors are employed by
an affiliate of SOFI-IV SMT Holdings, L.L.C. and own interests in SOFI-IV SMT
Holdings, L.L.C., as does our chairman and chief executive officer. As a result
of its ownership interest, SOFI-IV SMT Holdings, L.L.C. will have significant
influence over our affairs with respect to matters that require stockholder
approval, and its interest may conflict with our interests and the interests of
our other stockholders. For example, a decision by SOFI-IV SMT Holdings, L.L.C.
to sell all or a significant portion of its common stock may adversely affect
the market price of our common stock. In addition, SOFI-IV SMT Holdings, L.L.C.
might elect to vote its shares against a proposed business combination
transaction, thereby making it significantly more difficult to obtain the
requisite stockholder approval for such a transaction. In addition, members of
our Board of Directors, including Jay Sugarman, Barry S. Sternlicht, Jeffrey G.
Dishner, Madison F. Grose and Merrick R. Kleeman, have relationships with
SOFI-IV SMT Holdings, L.L.C. and may be faced with decisions which could create,
or appear to create, potential conflicts of interest.

FUTURE SALES OF OUR COMMON STOCK BY SOFI-IV SMT HOLDINGS, L.L.C. COULD ADVERSELY
AFFECT OUR STOCK PRICE.

If SOFI-IV SMT Holdings, L.L.C. were to sell a substantial number of the
shares of our common stock, the prevailing market prices for our common stock
could be adversely affected. SOFI-IV SMT Holdings, L.L.C. has pledged 20,000,000
shares of common stock owned by it under a $133.3 million margin loan that is
fully recourse to SOFI-IV SMT Holdings, L.L.C. A portion of the shares pledged
under the margin loan will be released by the lender at or prior to the sale of
such shares. In the event that SOFI-IV SMT Holdings, L.L.C. were to default in
the performance of its obligations under that loan, the lender could foreclose
upon those pledged shares and sell them in the open market at any time. The
initial term of Starwood Opportunity Fund IV, L.P. (the entity which owns
SOFI-IV SMT Holdings, L.L.C.) expires on February 27, 2005, but may be extended
by the general partner with the consent of its advisory committee for up to two
additional one-year periods. Unless Starwood Opportunity Fund IV, L.P. is able
to extend its terms, it will have to begin, on February 27, 2005, distributing
its investments to its investors, selling its investments to third parties, or a
combination of the two. Any such sales or distributions could adversely affect
the prevailing market prices for our common stock.

OUR BOARD OF DIRECTORS MAY CHANGE CERTAIN OF OUR POLICIES WITHOUT STOCKHOLDER
APPROVAL.

Our charter provides that our primary purpose is to invest in a diversified
portfolio of debt and debt-like interests in real estate and real estate related
assets, although it does not set forth specific percentages of the types of
investments we may make. Our Board of Directors determines our investment
policies, as well as our financing and conflicts of interest policies. Although
the Board of Directors has no present intention to do so, it can amend, revise
or eliminate these policies at any time and from time to time at its discretion
without a vote of the stockholders. A change in these policies could adversely
affect our financial condition or results of operations or the market price of
our common stock.

A PORTION OF THE DIVIDENDS WE DISTRIBUTE MAY BE DEEMED A RETURN OF CAPITAL FOR
FEDERAL INCOME TAX PURPOSES.

The amount of dividends we distribute to our common stockholders in a given
quarter may not correspond to our taxable income for such quarter. Consequently,
a portion of the dividends we distribute may be deemed a return of capital for
federal income tax purposes, and will not be taxable but will reduce
stockholders' basis in the underlying common stock. For the year ended
December 31, 2001, the percentage of our dividend payments made to common
stockholders that was treated as a return of capital was 9.45%.

QUARTERLY RESULTS MAY FLUCTUATE AND MAY NOT BE INDICATIVE OF FUTURE QUARTERLY
PERFORMANCE.

Our quarterly operating results could fluctuate; therefore, you should not
rely on past quarterly results to be indicative of our performance in future
quarters. Factors that could cause quarterly operating results to fluctuate
include, among others, variations in our investment origination volume,
variations in the timing of prepayments, the degree to which we encounter
competition in our markets and general economic conditions.

RATIO OF EARNINGS TO FIXED CHARGES

NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------- -------------------------------------------------------
2002 2001 2000 1999 1998 1997
-------------- -------- -------- -------- -------- --------

Ratio of earnings to fixed charges and
preferred stock dividends(1)............. 1.9x 1.9x 1.9x 1.1x(2) 2.3x NA(3)
Ratio of earnings to fixed charges(1)...... 2.2x 2.3x 2.2x 1.4x(2) 2.3x NA(3)

- ------------------------------
(1) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of income from continuing operations before income taxes
and cumulative effect of changes in accounting principles plus "fixed
charges" and certain other adjustments. "Fixed charges" consist of interest
incurred on all indebtedness related to continuing operations (including
amortization of original issue discount) and the implied interest component
of our rent obligations in the years presented.

(2) Includes the effect of a non-recurring, non-cash charge in the amount of
approximately $94.5 million relating to our November 1999 acquisition of
the former external advisor to our company. Excluding the effect of this
non-recurring, non-cash charge, our ratio of earnings to fixed charges and
preferred stock dividends for the year ended December 31, 1999 would have
been 2.0x and our ratio of earnings to fixed charges for that period would
have been 2.5x.

(3) Prior to March 1998, we conducted our structured finance operations through
two private investment partnerships. The partnerships contributed
substantially all of their $1.1 billion of structured finance assets to our
company's predecessor in a series of transactions in March 1998. Before
that contribution, our company's predecessor had no significant resources
or operations. We have not shown information for our predecessor for 1997
because we do not believe that information is indicative of our current
business.

USE OF PROCEEDS

Except as may be set forth in a particular prospectus supplement, we will
add the net proceeds from sales of securities to our general corporate funds,
which we may use to repay indebtedness, for new investments, or for other
general corporate purposes.

DESCRIPTION OF DEBT SECURITIES

We will issue the debt securities under an indenture dated as of
February 5, 2001 with US Bank Trust National Association Bank and Trust Company,
N.A., as trustee, which we may supplement from time to time. The following
paragraphs describe the provisions of the indenture. We have filed the indenture
as an exhibit to the registration statement of which this prospectus is a part
and you may inspect it at the office of the trustee.

GENERAL

The debt securities will be our direct, unsecured obligations and may be
either senior debt securities or subordinated debt securities. The indenture
does not limit the principal amount of debt securities that we may issue. We may
issue debt securities in one or more series. A supplemental indenture will set
forth specific terms of each series of debt securities. There will be prospectus
supplements relating to particular series of debt securities. Each prospectus
supplement will describe:

- The title of the debt securities and whether the debt securities are
senior or subordinated debt securities.

- Any limit upon the aggregate principal amount of a series of debt
securities which we may issue.

- The date or dates on which principal of the debt securities will be
payable and the amount of principal which will be payable.

- The rate or rates (which may be fixed or variable) at which the debt
securities will bear interest, if any, as well as the dates from which
interest will accrue, the dates on which interest will be

payable, the persons to whom interest will be payable, if other than the
registered holders on the record date, and the record date for the
interest payable on any payment date.

- The currency or currencies in which principal, premium, if any, and
interest, if any, will be paid.

- The place or places where principal, premium, if any, and interest, if
any, on the debt securities will be payable and where debt securities
which are in registered form can be presented for registration of transfer
or exchange.

- Any provisions regarding our right to prepay debt securities or of holders
to require us to prepay debt securities.

- The right, if any, of holders of the debt securities to convert them into
common stock or other securities, including any provisions intended to
prevent dilution of the conversion rights.

- Any provisions requiring or permitting us to make payments to a sinking
fund which will be used to redeem debt securities or a purchase fund which
will be used to purchase debt securities.

- Any index or formula used to determine the required payments of principal,
premium, if any, or interest, if any.

- The percentage of the principal amount of the debt securities which is
payable if maturity of the debt securities is accelerated because of a
default.

- Any special or modified events of default or covenants with respect to the
debt securities.

- Any other material terms of the debt securities.

The indenture does not contain any restrictions on the payment of dividends
or the repurchase of our securities or any financial covenants. However,
supplemental indentures relating to particular series of debt securities may
contain provisions of that type.

We may issue debt securities at a discount from their stated principal
amount. A prospectus supplement may describe federal income tax considerations
and other special considerations applicable to a debt security issued with
original issue discount.

If the principal of, premium, if any, or interest with regard to any series
of debt securities is payable in a foreign currency, we will describe in the
prospectus supplement relating to those debt securities any restrictions on
currency conversions, tax considerations or other material restrictions with
respect to that issue of debt securities.

FORM OF DEBT SECURITIES

We may issue debt securities in certificated or uncertificated form, in
registered form with or without coupons or in bearer form with coupons, if
applicable.

We may issue debt securities of a series in the form of one or more global
certificates evidencing all or a portion of the aggregate principal amount of
the debt securities of that series. We may deposit the global certificates with
depositaries, and the certificates may be subject to restrictions upon transfer
or upon exchange for debt securities in individually certificated form.

EVENTS OF DEFAULT AND REMEDIES

An event of default with respect to each series of debt securities will
include:

- Our default in payment of the principal of or premium, if any, on any debt
securities of any series beyond any applicable grace period.

- Our default for 30 days or a period specified in a supplemental indenture,
which may be no period, in payment of any installment of interest due with
regard to debt securities of any series.

- Our default for 60 days after notice in the observance or performance of
any other covenants in the indenture.

- Certain events involving our bankruptcy, insolvency or reorganization.

Supplemental indentures relating to particular series of debt securities may
include other events of default.

The indenture provides that the trustee may withhold notice to the holders
of any series of debt securities of any default (except a default in payment of
principal, premium, if any, or interest, if any) if the trustee considers it in
the interest of the holders of the series to do so.

The indenture provides that if any event of default has occurred and is
continuing, the trustee or the holders of not less than 25% in principal amount
of a series of debt securities then outstanding may declare the principal of and
accrued interest, if any, on that series of debt securities to be due and
payable immediately. However, if we cure all defaults (except the failure to pay
principal, premium or interest which became due solely because of the
acceleration) and certain other conditions are met, that declaration may be
annulled and past defaults may be waived by the holders of a majority in
principal amount of the applicable series of debt securities.

The holders of a majority of the outstanding principal amount of a series of
debt securities will have the right to direct the time, method and place of
conducting proceedings for any remedy available to the trustee, subject to
certain limitations specified in the indenture.

A prospectus supplement will describe any additional or different events of
default which apply to any series of debt securities.

MODIFICATION OF THE INDENTURE

We and the trustee may:

- Without the consent of holders of debt securities, modify the indenture to
cure errors or clarify ambiguities.

- With the consent of the holders of not less than a majority in principal
amount of the debt securities which are outstanding under the indenture,
modify the indenture or the rights of the holders of the debt securities
generally.

- With the consent of the holders of not less than a majority in outstanding
principal amount of any series of debt securities, modify any supplemental
indenture relating solely to that series of debt securities or the rights
of the holders of that series of debt securities.

However, we may not:

- Extend the fixed maturity of any debt securities, reduce the rate or
extend the time for payment of interest, if any, on any debt securities,
reduce the principal amount of any debt securities or the premium, if any,
on any debt securities, impair or affect the right of a holder to
institute suit for the payment of principal, premium, if any, or interest,
if any, with regard to any debt securities, change the currency in which
any debt securities are payable or impair the right, if any, to convert
any debt securities into common stock or any of our other securities,
without the consent of each holder of debt securities who will be
affected.

- Reduce the percentage of holders of debt securities required to consent to
an amendment, supplement or waiver, without the consent of the holders of
all the then outstanding debt securities or outstanding debt securities of
the series which will be affected.

MERGERS AND OTHER TRANSACTIONS

We may not consolidate with or merge into any other entity, or transfer or
lease our properties and assets substantially as an entirety to another person,
unless: (1) the entity formed by the consolidation or into which we are merged,
or which acquires or leases our properties and assets substantially as an
entirety, assumes by a supplemental indenture all our obligations with regard to
outstanding debt securities and our other covenants under the indenture; and
(2) with regard to each series of debt securities, immediately after giving
effect to the transaction, no event of default, with respect to that series of
debt securities, and no event which would become an event of default, will have
occurred and be continuing.

GOVERNING LAW

The indenture, each supplemental indenture, and the debt securities issued
under them will be governed by, and construed in accordance with, the laws of
New York.

DESCRIPTION OF WARRANTS

Each issue of warrants will be the subject of a warrant agreement which will
contain the terms of the warrants. We will distribute a prospectus supplement
with regard to each issue of warrants. Each prospectus supplement will describe,
as to the warrants to which it relates:

- The securities which may be purchased by exercising the warrants (which
may be common stock, preferred stock, debt securities, depositary shares
or units consisting of two or more of those types of securities).

- The exercise price of the warrants (which may be wholly or partly payable
in cash or wholly or partly payable with other types of consideration).

- The period during which the warrants may be exercised.

- Any provision adjusting the securities which may be purchased on exercise
of the warrants and the exercise price of the warrants in order to prevent
dilution or otherwise.

- The place or places where warrants can be presented for exercise or for
registration of transfer or exchange.

- Any other material terms of the warrants.

DESCRIPTION OF COMMON STOCK AND PREFERRED STOCK

Our authorized capital stock consists of 200,000,000 shares of common stock,
$0.001 par value, and 30,000,000 shares of preferred stock, $0.001 par value, of
which 4,400,000 shares are designated 9.500% Series A Cumulative Redeemable
Preferred Stock, $0.001 par value, 2,300,000 shares are designated 9.375%
Series B Cumulative Redeemable Preferred Stock, $0.001 par value, 1,495,000
shares are designated 9.200% Series C Cumulative Redeemable Preferred Stock,
$0.001 par value, and 4,600,000 shares are designated 8.000% Series D Cumulative
Redeemable Preferred Stock, $0.001 par value. At December 31, 2001, 87,386,777
shares of common stock, 4,400,000 shares of Series A preferred stock, 2,000,000
shares of Series B preferred stock, 1,300,000 shares of Series C preferred
stock, and 4,000,000 shares of Series D preferred stock were outstanding.

COMMON STOCK

Holders of common stock will be entitled to receive distributions on common
stock if, as and when the Board of Directors authorizes and declares
distributions. However, rights to distributions may be subordinated to the
rights of holders of preferred stock, when preferred stock is issued and
outstanding. In the event of our liquidation, dissolution or winding up, each
outstanding share of common stock will entitle its holder to a proportionate
share of the assets that remain after we pay our liabilities and any
preferential distributions owed to preferred stockholders.

Holders of the common stock are entitled to one vote for each share on all
matters submitted to a stockholder vote. Holders of the Series B preferred
stock, Series C preferred stock, and Series D preferred stock are entitled to
0.25 of a vote for each share on all matters submitted to a stockholder vote.
They will vote with the common stock as a single class. There is no cumulative
voting in the election of directors.

Holders of shares of common stock have no preference, conversion, sinking
fund, redemption, appraisal or exchange rights or any preemptive rights to
subscribe for any of our securities. All shares of common stock have equal
dividend, distribution, liquidation and other rights.

We may be dissolved if the Board of Directors, by resolution adopted by a
majority of the entire Board of Directors, declares the dissolution advisable
and directs that the proposed dissolution be submitted for consideration at
either an annual or special meeting of stockholders. Dissolution will occur once
it is approved by the affirmative vote of a majority of stockholders entitled to
cast votes on the matter.

Our charter grants the Board of Directors the power to authorize the
issuance of additional authorized but unissued shares of common stock and
preferred stock. The Board of Directors may also classify or reclassify unissued
shares of common stock or preferred stock and authorize their issuance.

Our charter also provides that, to the extent permitted by the General
Corporate Law of Maryland, the Board of Directors may, without any action by the
stockholders, amend our charter from time to time to increase or decrease the
aggregate number of shares of stock or the number of shares of stock of any
class or series that we have authority to issue.

We believe that these powers of the Board of Directors provide increased
flexibility in structuring possible future financings and acquisitions and in
meeting other needs which might arise. Although the Board of Directors does not
intend to do so at the present time, it could authorize the issuance of a class
or series that could delay, defer or prevent a change of control or other
transaction that might involve a premium price for the common stock or otherwise
be in the best interest of the stockholders.

RESTRICTIONS ON OWNERSHIP AND TRANSFER

To maintain our REIT qualification under the Internal Revenue Code, no group
of five or fewer individuals can own, actually or constructively, more than 50%
in value of our issued and outstanding stock at any time during the last half of
a taxable year. Additionally, at least 100 persons must beneficially own our
stock during at least 335 days of a taxable year. To help insure that we meet
these tests, our charter provides that no person other than persons who were our
shareholders as of November 3, 1999 or persons exempted by our Board of
Directors may beneficially or constructively own more than 9.8% of the number or
value of the outstanding shares of any class or series of our capital stock.

Each person who is a beneficial or constructive owner of shares of stock and
each person, including the stockholder of record, who is holding shares of stock
for a beneficial or constructive owner must provide us in writing any
information with respect to direct, indirect and constructive ownership of
shares of stock as the Board of Directors deems reasonably necessary to comply
with the

provisions of the Internal Revenue Code applicable to a REIT, to determine our
status as a REIT, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.

These restrictions on ownership and transfer will not apply to our stock if
the Board of Directors determines that it is no longer in our best interests to
qualify as a REIT.

These restrictions on ownership and transfer could delay, defer or prevent a
transaction or a change of control of us that might involve a premium price for
shares of our stock or otherwise be in the best interest of our stockholders.

PREFERRED STOCK

We may issue preferred stock in series with any rights and preferences which
may be authorized by our board of directors. We will distribute a prospectus
supplement with regard to each series of preferred stock. Each prospectus
supplement will describe, as to the preferred stock to which it relates:

- The title of the series.

- Any limit upon the number of shares of the series which may be issued.

- The preference, if any, to which holders of the series will be entitled
upon our liquidation.

- The date or dates on which we will be required or permitted to redeem
shares of the series.

- The terms, if any, on which we or holders of the series will have the
option to cause shares of the series to be redeemed.

- The voting rights of the holders of the preferred stock.

- The dividends, if any, which will be payable with regard to the series
(which may be fixed dividends or participating dividends and may be
cumulative or non-cumulative).

- The right, if any, of holders of the series to convert them into another
class of our stock or securities, including provisions intended to prevent
dilution of those conversion rights.

- Any provisions by which we will be required or permitted to make payments
to a sinking fund which will be used to redeem shares of the series or a
purchase fund which will be used to purchase shares of the series.

- Any other material terms of the series.

Holders of shares of preferred stock will not have preemptive rights.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock and preferred stock is
Equiserve Trust Company, N.A.

DESCRIPTION OF DEPOSITARY SHARES

We may issue depositary receipts representing interests in shares of
particular series of preferred stock which are called depositary shares. We will
deposit the preferred stock of a series which is the subject of depositary
shares with a depositary, which will hold that preferred stock for the benefit
of the holders of the depositary shares, in accordance with a deposit agreement
between the depositary and us. The holders of depositary shares will be entitled
to all the rights and preferences of the preferred stock to which the depositary
shares relate, including dividend, voting, conversion, redemption and
liquidation rights, to the extent of their interests in that preferred stock.

While the deposit agreement relating to a particular series of preferred
stock may have provisions applicable solely to that series of preferred stock,
all deposit agreements relating to preferred stock we issue will include the
following provisions:

DIVIDENDS AND OTHER DISTRIBUTIONS. Each time we pay a cash dividend or make
any other type of cash distribution with regard to preferred stock of a series,
the depositary will distribute to the holder of record of each depositary share
relating to that series of preferred stock an amount equal to the dividend or
other distribution per depositary share the depositary receives. If there is a
distribution of property other than cash, the depositary either will distribute
the property to the holders of depositary shares in proportion to the depositary
shares held by each of them, or the depositary will, if we approve, sell the
property and distribute the net proceeds to the holders of the depositary shares
in proportion to the depositary shares held by them.

WITHDRAWAL OF PREFERRED STOCK. A holder of depositary shares will be
entitled to receive, upon surrender of depositary receipts representing
depositary shares, the number of whole or fractional shares of the applicable
series of preferred stock, and any money or other property, to which the
depositary shares relate.

REDEMPTION OF DEPOSITARY SHARES. Whenever we redeem shares of preferred
stock held by a depositary, the depositary will be required to redeem, on the
same redemption date, depositary shares constituting, in total, the number of
shares of preferred stock held by the depositary which we redeem, subject to the
depositary's receiving the redemption price of those shares of preferred stock.
If fewer than all the depositary shares relating to a series are to be redeemed,
the depositary shares to be redeemed will be selected by lot or by another
method we determine to be equitable.

VOTING. Any time we send a notice of meeting or other materials relating to
a meeting to the holders of a series of preferred stock to which depositary
shares relate, we will provide the depositary with sufficient copies of those
materials so they can be sent to all holders of record of the applicable
depositary shares, and the depositary will send those materials to the holders
of record of the depositary shares on the record date for the meeting. The
depositary will solicit voting instructions from holders of depositary shares
and will vote or not vote the preferred stock to which the depositary shares
relate in accordance with those instructions.

LIQUIDATION PREFERENCE. Upon our liquidation, dissolution or winding up,
the holder of each depositary share will be entitled to what the holder of the
depositary share would have received if the holder had owned the number of
shares (or fraction of a share) of preferred stock which is represented by the
depositary share.

CONVERSION. If shares of a series of preferred stock are convertible into
common stock or other of our securities or property, holders of depositary
shares relating to that series of preferred stock will, if they surrender
depositary receipts representing depositary shares and appropriate instructions
to convert them, receive the shares of common stock or other securities or
property into which the number of shares (or fractions of shares) of preferred
stock to which the depositary shares relate could at the time be converted.

AMENDMENT AND TERMINATION OF A DEPOSIT AGREEMENT. We and the depositary may
amend a deposit agreement, except that an amendment which materially and
adversely affects the rights of holders of depositary shares, or would be
materially and adversely inconsistent with the rights granted to the holders of
the preferred stock to which they relate, must be approved by holders of at
least two-thirds of the outstanding depositary shares. No amendment will impair
the right of a holder of depositary shares to surrender the depositary receipts
evidencing those depositary shares and receive the preferred stock to which they
relate, except as required to comply with law. We may terminate a deposit
agreement with the consent of holders of a majority of the depositary shares to
which it relates. Upon termination of a deposit agreement, the depositary will
make the whole or fractional shares of preferred stock to which the depositary
shares issued under the deposit agreement relate available to the holders of
those depositary shares. A deposit agreement will automatically terminate if:

- All outstanding depositary shares to which it relates have been redeemed
or converted.

- The depositary has made a final distribution to the holders of the
depositary shares issued under the deposit agreement upon our liquidation,
dissolution or winding up.

MISCELLANEOUS. There will be provisions: (1) requiring the depositary to
forward to holders of record of depositary shares any reports or communications
from us which the depositary receives with respect to the preferred stock to
which the depositary shares relate; (2) regarding compensation of the
depositary; (3) regarding resignation of the depositary; (4) limiting our
liability and the liability of the depositary under the deposit agreement
(usually to failure to act in good faith, gross negligence or willful
misconduct); and (5) indemnifying the depositary against certain possible
liabilities.

MATERIAL FEDERAL INCOME TAX CONSEQUENCES

THE FOLLOWING IS A SUMMARY OF THE FEDERAL INCOME TAX CONSEQUENCES
ANTICIPATED TO BE MATERIAL TO AN INVESTOR IN iSTAR FINANCIAL. THIS SUMMARY IS
BASED ON CURRENT LAW. YOUR TAX CONSEQUENCES RELATED TO AN INVESTMENT IN iSTAR
FINANCIAL MAY VARY DEPENDING ON YOUR PARTICULAR SITUATION AND THIS DISCUSSION
DOES NOT PURPORT TO DISCUSS ALL ASPECTS OF TAXATION THAT MAY BE RELEVANT TO A
HOLDER OF OUR SECURITIES IN LIGHT OF HIS OR HER PERSONAL INVESTMENT OR TAX
CIRCUMSTANCES, OR TO HOLDERS OF OUR SECURITIES SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS, EXCEPT TO THE EXTENT DISCUSSED UNDER THE
HEADINGS "--TAXATION OF TAX-EXEMPT STOCKHOLDERS" AND "--TAXATION OF NON-U.S.
STOCKHOLDERS." INVESTORS SUBJECT TO SPECIAL TREATMENT INCLUDE, WITHOUT
LIMITATION, INSURANCE COMPANIES, FINANCIAL INSTITUTIONS, BROKER-DEALERS,
TAX-EXEMPT ORGANIZATIONS, INVESTORS HOLDING SECURITIES AS PART OF A CONVERSION
TRANSACTION, OR A HEDGE OR HEDGING TRANSACTION OR AS A POSITION IN A STRADDLE
FOR TAX PURPOSES, FOREIGN CORPORATIONS OR PARTNERSHIPS, AND PERSONS WHO ARE NOT
CITIZENS OR RESIDENTS OF THE UNITED STATES. IN ADDITION, THE SUMMARY BELOW DOES
NOT CONSIDER THE EFFECT OF ANY FOREIGN, STATE, LOCAL OR OTHER TAX LAWS THAT MAY
BE APPLICABLE TO YOU AS A HOLDER OF OUR SECURITIES.

The information in this summary is based on the Internal Revenue Code of
1986, as amended, current, temporary and proposed Treasury regulations
promulgated under the Internal Revenue Code, the legislative history of the
Internal Revenue Code, current administrative interpretations and practices of
the Internal Revenue Service, and court decisions, all as of the date of this
prospectus. The administrative interpretations and practices of the Internal
Revenue Service upon which this summary is based include its practices and
policies as expressed in private letter rulings which are not binding on the
Internal Revenue Service, except with respect to the taxpayers who requested and
received such

rulings. Future legislation, Treasury regulations, administrative
interpretations and practices, and court decisions may affect the tax
consequences contained in this summary, possibly on a retroactive basis. We have
not requested, and do not plan to request, any rulings from the Internal Revenue
Service concerning our tax treatment or the tax consequences contained in this
summary, and the statements in this prospectus are not binding on the Internal
Revenue Service or a court. Thus, we can provide no assurance that the tax
consequences contained in this summary will not be challenged by the Internal
Revenue Service or sustained by a court if challenged by the Internal Revenue
Service.

YOU ARE URGED TO CONSULT YOUR TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES TO YOU OF: (1) THE ACQUISITION, OWNERSHIP AND SALE OR OTHER
DISPOSITION OF OUR SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES; (2) OUR ELECTION TO BE TAXED AS A REAL ESTATE INVESTMENT
TRUST FOR FEDERAL INCOME TAX PURPOSES; AND (3) POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.

TAXATION OF ISTAR FINANCIAL--GENERAL

We have elected to be taxed as a REIT under Sections 856 through 860 of the
Internal Revenue Code, commencing with our taxable year ended December 31, 1998.
We believe that we have been organized and have operated in a manner which
allows us to qualify for taxation as a REIT under the Internal Revenue Code and
we intend to continue to be organized in this manner. Our qualification and
taxation as a REIT, however, depend upon our ability to meet, through actual
annual operating results, asset requirements, distribution levels, diversity of
stock ownership, and the various other qualification tests imposed under the
Internal Revenue Code. Accordingly, there can be no assurance that we have
operated or will continue to operate in a manner so as to qualify or remain
qualified as a REIT. See "--Failure to Qualify."

In the opinion of Clifford Chance US LLP, commencing with our taxable year
ending December 31, 1998, iStar Financial was organized and had operated in
conformity with the requirements for qualification as a REIT, and its present
and proposed method of operation, as represented by iStar Financial, will enable
it to meet the requirements for qualification and taxation as a REIT under the
Code. It must be emphasized that this opinion is based and conditioned upon
certain assumptions and representations made by us as to factual matters
(including our representations concerning our business and properties as set
forth in this prospectus). The opinion is expressed as of its date and Clifford
Chance US LLP has no obligation to advise of any subsequent change in the
matters stated, represented or assumed or any subsequent change in the
applicable law. Moreover, such qualification and taxation as a REIT depends upon
our ability to meet, through actual annual operating results, distribution
levels and diversity of stock ownership, the various qualification tests imposed
under the Code as discussed below, the results of which will not be reviewed by
Clifford Chance US LLP. Accordingly, no assurance can be given that the actual
results of our operation for any one taxable year will satisfy such
requirements. See "--Failure to Qualify." An opinion of counsel is not binding
on the Internal Revenue Service, and no assurance can be given that the Internal
Revenue Service will not challenge our eligibility for taxation as a REIT.

The sections of the Internal Revenue Code that relate to the qualification
and taxation of REITs are highly technical and complex. The following describes
the material aspects of the sections of the Internal Revenue Code that govern
the federal income tax treatment of a REIT and its stockholders. This summary is
qualified in its entirety by the applicable Internal Revenue Code provisions,
rules and regulations promulgated under the Internal Revenue Code, and
administrative and judicial interpretations of the Internal Revenue Code.

Provided we qualify for taxation as a REIT, we generally will not be subject
to federal corporate income tax on our net income that is currently distributed
to our stockholders. This treatment

substantially eliminates the "double taxation" that generally results from an
investment in a corporation. Double taxation means taxation once at the
corporate level when income is earned and once again at the stockholder level
when such income is distributed. Even if we qualify for taxation as a REIT,
however, we will be subject to federal income taxation as follows:

- We will be required to pay tax at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital
gains.

- We may be subject to the "alternative minimum tax" on items of tax
preference, if any.

- If we have: (1) net income from the sale or other disposition of
"foreclosure property" which is held primarily for sale to customers in
the ordinary course of business; or (2) other nonqualifying income from
foreclosure property, we will be required to pay tax at the highest
corporate rate on this income. In general, foreclosure property is
property acquired through foreclosure after a default on a loan secured by
the property or on a lease of the property.

- We will be required to pay a 100% tax on any net income from prohibited
transactions. In general, prohibited transactions are sales or other
taxable dispositions of property, other than foreclosure property, held
for sale to customers in the ordinary course of business.

- If we fail to satisfy the 75% or 95% gross income tests, as described
below, but have maintained our qualification as a REIT, we will be
required to pay a 100% tax on an amount equal to: (1) the gross income
attributable to the greater of the amount by which we fail the 75% or 95%
gross income test; multiplied by (2) a fraction intended to reflect our
profitability.

- We will be required to pay a 4% excise tax on the amount by which our
annual distributions to our stockholders is less than the sum of: (1) 85%
of our ordinary income for the year; (2) 95% of our real estate investment
trust capital gain net income for the year; and (3) any undistributed
taxable income from prior periods.

- If we acquire an asset from a corporation which is not a REIT in a
transaction in which the basis of the asset in our hands is determined by
reference to the basis of the asset in the hands of the transferor
corporation, and we subsequently sell the asset within ten years, then
under Treasury regulations not yet issued, we would be required to pay tax
at the highest regular corporate tax rate on this gain to the extent:
(1) the fair market value of the asset; exceeds (2) our adjusted tax basis
in the asset, in each case, determined as of the date on which we acquired
the asset. The results described in this paragraph assume that we will
elect this treatment in lieu of an immediate tax when the asset is
acquired.

- We will generally be subject to tax on the portion of any "excess
inclusion" income derived from an investment in residual interests in real
estate mortgage investment conduits to the extent our stock is held by
specified tax exempt organizations not subject to tax on unrelated
business taxable income.

REQUIREMENTS FOR QUALIFICATION AS A REAL ESTATE INVESTMENT TRUST

GENERAL

The Internal Revenue Code defines a REIT as a corporation, trust or
association:

- that is managed by one or more trustees or directors;

- that issues transferable shares or transferable certificates to its
owners;

- that would be taxable as a regular corporation, but for its election to be
taxed as a REIT;

- that is not a financial institution or an insurance company under the
Internal Revenue Code;

- that is owned by 100 or more persons;

- not more than 50% in value of the outstanding stock of which is owned,
actually or constructively, by five or fewer individuals, as defined in
the Internal Revenue Code to include some entities, during the last half
of each year; and

- that meets other tests, described below, regarding the nature of its
income and assets, and the amount of its distributions.

The Internal Revenue Code provides that conditions (1) to (4) must be met
during the entire year and that condition (5) must be met during at least
335 days of a year of twelve months, or during a proportionate part of a shorter
taxable year. Conditions (5) and (6) do not apply to the first taxable year for
which an election is made to be taxed as a REIT. For purposes of condition (6),
tax-exempt entities are generally treated as individuals, subject to a
"look-through" exception for pension funds.

Our Charter provides for restrictions regarding ownership and transfer of
our stock. These restrictions are intended to assist us in satisfying the share
ownership requirements described in (5) and (6) above. These restrictions,
however, may not ensure that we will, in all cases, be able to satisfy the share
ownership requirements described in (5) and (6) above. If we fail to satisfy
these share ownership requirements, our status as a REIT would terminate. If,
however, we comply with the rules contained in applicable Treasury regulations
that require us to determine the actual ownership of our shares and we do not
know, or would not have known through the exercise of reasonable diligence, that
we failed to meet the requirement described in condition (6) above, we would not
be disqualified as a REIT.

In addition, a corporation may not qualify as a REIT unless its taxable year
is the calendar year. We have and will continue to have a calendar taxable year.

OWNERSHIP OF A PARTNERSHIP INTEREST

The Treasury regulations provide that if we are a partner in a partnership,
we will be deemed to own our proportionate share of the assets of the
partnership, and we will be deemed to be entitled to our proportionate share of
the gross income of the partnership. The character of the assets and gross
income of the partnership generally retains the same character in our hands for
purposes of satisfying the gross income and asset tests described below.

QUALIFIED REIT SUBSIDIARIES

A "qualified REIT subsidiary" is a corporation, all of the stock of which is
owned by a REIT. Under the Internal Revenue Code, a qualified REIT subsidiary is
not treated as a separate corporation from the REIT. Rather, all of the assets,
liabilities, and items of income, deduction, and credit of the qualified REIT
subsidiary are treated as the assets, liabilities, and items of income,
deduction, and credit of the REIT for purposes of the REIT income and asset
tests described below.

INCOME TESTS

We must meet two annual gross income requirements to qualify as a REIT.
First, each year we must derive, directly or indirectly, at least 75% of our
gross income, excluding gross income from prohibited transactions, from
investments relating to real property or mortgages on real property, including
"rents from real property" and mortgage interest, or from specified temporary
investments. Second, each year we must derive at least 95% of our gross income,
excluding gross income from prohibited transactions, from investments meeting
the 75% test described above, or from dividends, interest and gain from the sale
or disposition of stock or securities. For these purposes, the term "interest"
generally does not include any interest of which the amount received depends on
the income or profits of any person. An amount will generally not be excluded
from the term "interest," however, if such amount is based on a fixed percentage
of gross receipts or sales.

Any amount includable in gross income by us with respect to a regular or
residual interest in a real estate mortgage investment conduit is generally
treated as interest on an obligation secured by a mortgage on real property for
purposes of the 75% gross income test. If, however, less than 95% of the assets
of a real estate mortgage investment conduit consist of real estate assets, we
will be treated as receiving directly our proportionate share of the income of
the real estate mortgage investment conduit, which would generally include
non-qualifying income for purposes of the 75% gross income test. In addition, if
we receive interest income with respect to a mortgage loan that is secured by
both real property and other property and the principal amount of the loan
exceeds the fair market value of the real property on the date we made the
mortgage loan, interest income on the loan will be apportioned between the real
property and the other property, which apportionment would cause us to recognize
income that is not qualifying income for purposes of the 75% gross income test.

We may make loans that have shared appreciation provisions. To the extent
interest on a loan is based on the cash proceeds from the sale or value of
property, income attributable to such provision would be treated as gain from
the sale of the secured property, which generally should qualify for purposes of
the 75% and 95% gross income tests.

We may employ, to the extent consistent with the REIT provisions of the
Code, forms of securitization of our assets under which a "sale" of an interest
in a mortgage loan occurs, and a resulting gain or loss is recorded on our
balance sheet for accounting purposes at the time of sale. In a "sale"
securitization, only the net retained interest in the securitized mortgage loans
would remain on our balance sheet. We may elect to conduct certain of our
securitization activities, including such sales, through one or more taxable
subsidiaries, or through qualified REIT subsidiaries, formed for such purpose.
To the extent consistent with the REIT provisions of the Code, such entities
could elect to be taxed as real estate mortgage investment conduits or financial
asset securitization investment trusts.

Lease income we receive will qualify as "rents from real property" only if
the following conditions are met:

- the amount of lease income may not be based in whole or in part on the
income or profits of any person. "Rents from real property" may, however,
include lease income based on a fixed percentage of receipts or sales;

- lease income received from a corporate tenant will not qualify as "rents
from real property" if iStar Financial, or an actual or constructive owner
of 10% or more of iStar Financial, actually or constructively owns 10% or
more of such corporate tenant;

- if lease income attributable to personal property leased in connection
with a lease of real property is greater than 15% of the total lease
income received under the lease, then the portion of lease income
attributable to personal property will not qualify as "rents from real
property"; and

- to qualify as "rents from real property," we generally may not render
services to corporate tenants of the property, other than through an
independent contractor from whom we derive no revenue. We may, however,
provide services that are "usually or customarily rendered" in connection
with the rental of space for occupancy only and are not otherwise
considered "rendered to the occupant" of the property. In addition, we may
provide a DE MINIMIS amount of non-customary services. Finally, we may
provide certain non-customary services to corporate tenants through a
"taxable Company subsidiary," which is a taxable corporation wholly or
partly owned by iStar Financial.

If we fail to satisfy one or both of the 75% or 95% gross income tests for
any year, we may still qualify as a REIT if we are entitled to relief under the
Internal Revenue Code. Generally, we may be entitled to relief if:

- our failure to meet the gross income tests was due to reasonable cause and
not due to willful neglect;

- we attach a schedule of the sources of our income to our federal income
tax return; and

- any incorrect information on the schedule was not due to fraud with the
intent to evade tax.

It is not possible to state whether in all circumstances we would be
entitled to rely on these relief provisions. If these relief provisions do not
apply to a particular set of circumstances, we would not qualify as a REIT. As
discussed above in "--Taxation of iStar Financial--General," even if these
relief provisions apply, and we retain our status as a REIT, a tax would be
imposed with respect to our income that does not meet the gross income tests. We
may not always be able to maintain compliance with the gross income tests for
REIT qualification despite periodically monitoring our income.

FORECLOSURE PROPERTY

Net income realized by us from foreclosure property would generally be
subject to tax at the maximum federal corporate tax rate (currently 35%).
Foreclosure property means real property and related personal property that:
(1) is acquired by us through foreclosure following a default on a lease of such
property or a default on indebtedness owed to us that is secured by the
property; and (2) for which we make an election to treat the property as
foreclosure property.

PROHIBITED TRANSACTION INCOME

Any gain realized by us on the sale of any property, other than foreclosure
property, held as inventory or otherwise held primarily for sale to customers in
the ordinary course of business will be prohibited transaction income, and
subject to a 100% penalty tax. Prohibited transaction income may also adversely
affect our ability to satisfy the gross income tests for qualification as a
REIT. Whether property is held as inventory or primarily for sale to customers
in the ordinary course of a trade or business depends on all the facts and
circumstances surrounding the particular transaction. While the Treasury
regulations provide standards which, if met, would not result in prohibited
transaction income, we may not be able to meet these standards in all
circumstances.

HEDGING TRANSACTIONS

We may enter into hedging transactions with respect to one or more of our
assets or liabilities. Our hedging transactions could take a variety of forms,
including interest rate swaps or cap agreements, options, futures contracts,
forward rate agreements, or similar financial instruments. To the extent that we
enter into hedging transactions to reduce our interest rate risk on indebtedness
incurred to acquire or carry real estate assets, any income, or gain from the
disposition of hedging transactions should be qualifying income for purposes of
the 95% gross income test, but not the 75% gross income test.

ASSET TESTS

At the close of each quarter of each year, we also must satisfy four tests
relating to our assets. First, at least 75% of the value of our total assets
must be real estate assets, cash, cash items and government securities. For
purposes of this test, real estate assets include real estate mortgages, real
property, interests in other REITs and stock or debt instruments held for one
year or less that are purchased with the proceeds of a stock offering or a
long-term public debt offering. Second, not more than 25% of our total assets
may be represented by securities, other than those securities includable in the
75% asset class. Third, not more than 20% of the value of our total assets may
be represented by securities in one or more taxable

REIT subsidiaries. Fourth, of the investments included in the 25% asset class,
the value of any one issuer's securities that we hold may not exceed 5% of the
value of our total assets, and we may not own more than 10% of the total vote or
value of the outstanding securities of any one issuer (other than, with respect
to the 10% value requirement, certain "straight debt" securities).

We expect that any real property and temporary investments that we acquire
will generally be qualifying assets for purposes of the 75% asset test, except
to the extent that less than 95% of the assets of a real estate mortgage
investment conduit in which we own an interest consists of "real estate assets."
Mortgage loans will generally be qualifying assets for purposes of the 75% asset
test to the extent that the principal balance of each mortgage loan does not
exceed the value of the associated real property.

After meeting the asset tests at the close of any quarter, we will not lose
our status as a REIT if we fail to satisfy the asset tests at the end of a later
quarter solely by reason of changes in asset values. In addition, if we fail to
satisfy the asset tests because we acquire assets during a quarter, we can cure
this failure by disposing of sufficient nonqualifying assets within 30 days
after the close of that quarter.

We will monitor the status of the assets that we acquire for purposes of the
various asset tests and we will manage our portfolio in order to comply with
such tests.

ANNUAL DISTRIBUTION REQUIREMENTS

To qualify as a REIT, we are required to distribute dividends, other than
capital gain dividends, to our stockholders in an amount at least equal to the
sum of: (1) 90% of our "REIT taxable income"; and (2) 90% of our after tax net
income, if any, from foreclosure property; minus (3) the sum of certain items of
non-cash income. In general,"REIT taxable income" means taxable ordinary income
without regard to the dividends paid deduction.

We are required to distribute income in the taxable year in which it is
earned, or in the following taxable year before we timely file our tax return if
such dividend distributions are declared and paid on or before our first regular
dividend payment. Except as provided in "--Taxation of Taxable U.S.
Stockholders" below, these distributions are taxable to holders of common stock
in the year in which paid, even though these distributions relate to our prior
year for purposes of our 90% distribution requirement. To the extent that we do
not distribute all of our net capital gain or distribute at least 90%, but less
than 100% of our "REIT taxable income," we will be subject to tax at regular
corporate tax rates.

From time to time we may not have sufficient cash or other liquid assets to
meet the above distribution requirements due to timing differences between the
actual receipt of cash and payment of expenses, and the inclusion of income and
deduction of expenses in arriving at our taxable income. If these timing
differences occur, in order to meet the REIT distribution requirements, we may
need to arrange for short-term, or possibly long-term, borrowings, or to pay
dividends in the form of taxable stock dividends.

Under certain circumstances, we may be able to rectify a failure to meet a
distribution requirement for a year by paying "deficiency dividends" to our
stockholders in a later year, which may be included in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being subject
to tax on amounts distributed as deficiency dividends. We will be required,
however, to pay interest based upon the amount of any deduction claimed for
deficiency dividends. In addition, we will be subject to a 4% excise tax on the
excess of the required distribution over the amounts actually distributed if we
should fail to distribute each year at least the sum of 85% of our ordinary
income for the year, 90% of our capital gain income for the year, and any
undistributed taxable income from prior periods.

RECORDKEEPING REQUIREMENTS

We are required to maintain records and request on an annual basis
information from specified stockholders. This requirement is designed to
disclose the actual ownership of our outstanding stock.

FAILURE TO QUALIFY

If we fail to qualify for taxation as a REIT in any taxable year, and the
relief provisions of the Internal Revenue Code described above do not apply, we
will be subject to tax, including any applicable alternative minimum tax, and
possibly increased state and local taxes, on our taxable income at regular
corporate rates. Such taxation would reduce the cash available for distribution
by us to our stockholders. Distributions to our stockholders in any year in
which we fail to qualify as a REIT will not be deductible by us and we will not
be required to distribute any amounts to our stockholders. If we fail to qualify
as a REIT, distributions to our stockholders will be subject to tax as ordinary
income to the extent of our current and accumulated earnings and profits and,
subject to certain limitations of the Internal Revenue Code, corporate
stockholders may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, we would also be
disqualified from taxation as a REIT for the four taxable years following the
year during which we lost our qualification. It is not possible to state whether
in all circumstances we would be entitled to statutory relief.

TAXATION OF TAXABLE U.S. STOCKHOLDERS

When we use the term "U.S. stockholders," we mean a holder of shares of our
stock who is, for United States federal income tax purposes:

- a citizen or resident of the United States;

- a corporation, partnership, or other entity created or organized in or
under the laws of the United States or of any state thereof or in the
District of Columbia, unless Treasury regulations provide otherwise;

- an estate the income of which is subject to United States federal income
taxation regardless of its source; or

- a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States persons who
have the authority to control all substantial decisions of the trust.

DISTRIBUTIONS GENERALLY

Distributions out of our current or accumulated earnings and profits, other
than capital gain dividends will be taxable to our U.S. stockholders as ordinary
income. Provided we qualify as a REIT, our dividends will not be eligible for
the dividends received deduction generally available to U.S. stockholders that
are corporations.

To the extent that we make distributions in excess of our current and
accumulated earnings and profits, these distributions will be treated as a
tax-free return of capital to each U.S. stockholder, and will reduce the
adjusted tax basis which each U.S. stockholder has in its shares of stock by the
amount of the distribution, but not below zero. Return of capital distributions
in excess of a U.S. stockholder's adjusted tax basis in its shares will be
taxable as capital gain, provided that the shares have been held as capital
assets, and will be taxable as long-term capital gain if the shares have been
held for more than one year. Dividends we declare in October, November, or
December of any year and pay to a stockholder of record on a specified date in
any of those months will be treated as both paid by us and received by the
stockholder on December 31 of that year, provided we pay the dividend in January
of the following year. Stockholders may not include in their own income tax
returns any of our net operating losses or capital losses.

CAPITAL GAIN DISTRIBUTIONS

Distributions designated as net capital gain dividends will be taxable to
our U.S. stockholders as capital gain income. Such capital gain income will be
taxable to non-corporate U.S. stockholders at a maximum rate of 20% or 25% based
on the characteristics of the asset we sold that produced the gain. U.S.
stockholders that are corporations may be required to treat up to 20% of certain
capital gain dividends as ordinary income.

RETENTION OF NET CAPITAL GAINS

We may elect to retain, rather than distribute as a capital gain dividend,
our net capital gains. If we make this election, we would pay tax on such
retained capital gains. In such a case, our stockholders would generally:

- include their proportionate share of our undistributed net capital gains
in their taxable income;

- receive a credit for their proportionate share of the tax paid by us; and

- increase the adjusted basis of their stock by the difference between the
amount of their capital gain and their share of the tax paid by us.

PASSIVE ACTIVITY LOSSES AND INVESTMENT INTEREST LIMITATIONS

Distributions we make and gain arising from the sale or exchange by a U.S.
stockholder of our shares will not be treated as passive activity income. As a
result, U.S. stockholders will not be able to apply any "passive losses" against
income or gain relating to our stock. Distributions we make, to the extent they
do not constitute a return of capital, generally will be treated as investment
income for purposes of computing the investment interest limitation.

DISPOSITIONS OF STOCK

If you are a U.S. stockholder and you sell or dispose of your shares of
stock, you will recognize gain or loss for federal income tax purposes in an
amount equal to the difference between the amount of cash and the fair market
value of any property you receive on the sale or other disposition and your
adjusted tax basis in the shares of stock. This gain or loss will be capital
gain or loss if you have held the stock as a capital asset, and will be
long-term capital gain or loss if you have held the stock for more than one
year. In general, if you are a U.S. stockholder and you recognize loss upon the
sale or other disposition of stock that you have held for six months or less,
the loss you recognize will be treated as a long-term capital loss to the extent
you received distributions from us which were required to be treated as
long-term capital gains.

BACKUP WITHHOLDING

We report to our U.S. stockholders and the Internal Revenue Service the
amount of dividends paid during each calendar year, and the amount of any tax
withheld. Under the backup withholding rules, a stockholder may be subject to
backup withholding with respect to dividends paid unless the holder is a
corporation or comes within other exempt categories and, when required,
demonstrates this fact, or provides a taxpayer identification number or social
security number, certifies as to no loss of exemption from backup withholding,
and otherwise complies with applicable requirements of the backup withholding
rules. A U.S. stockholder that does not provide us with his correct taxpayer
identification number or social security number may also be subject to penalties
imposed by the Internal Revenue Service. Backup withholding is not an additional
tax. Any amount paid as backup withholding will be creditable against the
stockholder's income tax liability. In addition, we may be required to withhold
a portion of capital gain distributions to any stockholders who fail to certify
their non-foreign status.

TAXATION OF TAX-EXEMPT STOCKHOLDERS

The Internal Revenue Service has ruled that amounts distributed as dividends
by a REIT do not constitute unrelated business taxable income when received by a
tax-exempt entity. Based on that ruling, provided that a tax-exempt stockholder
has not held its shares as "debt financed property" within the meaning of the
Internal Revenue Code and the shares are not otherwise used in a unrelated trade
or business, dividend income on our stock and income from the sale of our stock
should not be unrelated business taxable income to a tax-exempt stockholder.
Generally, debt financed property is property, the acquisition or holding of
which was financed through a borrowing by the tax-exempt stockholder.

For tax-exempt stockholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Sections
501(c)(7), (c)(9), (c)(17) and (c)(20) of the Internal Revenue Code,
respectively, income from an investment in our shares will constitute unrelated
business taxable income unless the organization is able to claim properly a
deduction for amounts set aside or placed in reserve for certain purposes so as
to offset the income generated by its investment in our shares. These
prospective investors should consult their tax advisors concerning these "set
aside" and reserve requirements.

Notwithstanding the above, however, a portion of the dividends paid by a
"pension-held REIT" may be treated as unrelated business taxable income as to
any pension trust which:

- is described in Section 401(a) of the Internal Revenue Code;

- is tax-exempt under Section 501(a) of the Internal Revenue Code; and

- holds more than 10%, by value, of the interests in the REIT.

Tax-exempt pension funds that are described in Section 401(a) of the
Internal Revenue Code are referred to below as "qualified trusts."

A REIT is a "pension held REIT" if:

- it would not have qualified as a REIT but for the fact that
Section 856(h)(3) of the Internal Revenue Code provides that stock owned
by a qualified trust is treated, for purposes of the 5/50 rule, as owned
by the beneficiaries of the trust, rather than by the trust itself; and

- either at least one qualified trust holds more than 25%, by value, of the
interests in the REIT, or one or more qualified trusts, each of which owns
more than 10%, by value, of the interests in the REIT, holds in the
aggregate more than 50%, by value, of the interests in the REIT.

The percentage of any REIT dividend treated as unrelated business taxable
income is equal to the ratio of:

- the unrelated business taxable income earned by the REIT, treating the
REIT as if it were a qualified trust and therefore subject to tax on
unrelated business taxable income, to

- the total gross income of the REIT.

A DE MINIMIS exception applies where the percentage is less than 5% for any
year. As a result of the limitations on the transfer and ownership of stock
contained in our Charter, we do not expect to be classified as a "pension-held
REIT."

EXCESS INCLUSION INCOME:

A portion of our net income attributable to assets financed through our
STARs(SM) program (and, therefore, a portion of the dividends payable by us) may
be treated as Excess Inclusion income from a REMIC residual interest, which may
constitute unrelated business taxable income to a tax-exempt stockholder. These
amounts have historically been immaterial and we expect that they will be

immaterial in the future. Prospective stockholders should consult their own tax
advisors regarding the federal income tax consequences to them of incurring
Excess Inclusion income.

TAXATION OF NON-U.S. STOCKHOLDERS

The rules governing federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
stockholders (collectively, "Non-U.S. stockholders") are complex and no attempt
will be made herein to provide more than a summary of such rules.

PROSPECTIVE NON-U.S. STOCKHOLDERS SHOULD CONSULT THEIR TAX ADVISORS TO
DETERMINE THE IMPACT OF FOREIGN, FEDERAL, STATE, AND LOCAL INCOME TAX LAWS WITH
REGARD TO AN INVESTMENT IN OUR SECURITIES AND OF OUR ELECTION TO BE TAXED AS A
REAL ESTATE INVESTMENT TRUST INCLUDING ANY REPORTING REQUIREMENTS.

Distributions to Non-U.S. stockholders that are not attributable to gain
from sales or exchanges by us of U.S. real property interests and are not
designated by us as capital gain dividends or retained capital gains will be
treated as dividends of ordinary income to the extent that they are made out of
our current or accumulated earnings and profits. Such distributions will
generally be subject to a withholding tax equal to 30% of the distribution
unless an applicable tax treaty reduces or eliminates that tax. However, if
income from an investment in our stock is treated as effectively connected with
the Non-U.S. stockholder's conduct of a U.S. trade or business, the Non-U.S.
stockholder generally will be subject to federal income tax at graduated rates,
in the same manner as U.S. stockholders are taxed with respect to such
distributions (and also may be subject to the 30% branch profits tax in the case
of a Non-U.S. stockholder that is a corporation). We expect to withhold U.S.
income tax at the rate of 30% on the gross amount of any distributions made to a
Non-U.S. stockholder unless: (1) a lower treaty rate applies and any required
form, such as IRS Form W-8BEN, evidencing eligibility for that reduced rate is
filed by the Non-U.S. stockholder with us; or (2) the Non-U.S. stockholder files
an IRS Form W-8ECI with us claiming that the distribution is effectively
connected income.

Any portion of the dividends paid to Non-U.S. stockholders that is treated
as excess inclusion income from a real estate mortgage investment conduit will
not be eligible for exemption from the 30% withholding tax or a reduced treaty
rate. In addition, if Treasury regulations are issued allocating our excess
inclusion income from non-real estate mortgage investment conduits among our
stockholders, some percentage of the our dividends would not be eligible for
exemption from the 30% withholding tax or a reduced treaty withholding tax rate
in the hands of Non-U.S. stockholders.

Distributions in excess of our current and accumulated earnings and profits
will not be taxable to a stockholder to the extent that such distributions do
not exceed the adjusted basis of the stockholder's stock, but rather will reduce
the adjusted basis of such shares. To the extent that distributions in excess of
current and accumulated earnings and profits exceed the adjusted basis of a
Non-U.S. stockholder's stock, such distributions will give rise to tax liability
if the Non-U.S. stockholder would otherwise be subject to tax on any gain from
the sale or disposition of its stock, as described below. Because it generally
cannot be determined at the time a distribution is made whether or not such
distribution will be in excess of current and accumulated earnings and profits,
the entire amount of any distribution normally will be subject to withholding at
the same rate as a dividend. However, amounts so withheld are refundable to the
extent it is subsequently determined that such distribution was, in fact, in
excess of our current and accumulated earnings and profits. We are also required
to withhold 10% of any distribution in excess of our current and accumulated
earnings and profits. Consequently, although we intend to withhold at a rate of
30% on the entire amount of any distribution, to the extent that we do not do
so, any portion of a distribution not subject to withholding at a rate of 30%
will be subject to withholding at a rate of 10%.

For any year in which we qualify as a REIT, distributions that are
attributable to gain from sales or exchanges of a U.S. real property interest,
which includes certain interests in real property, but

generally does not include mortgage loans, will be taxed to a Non-U.S.
stockholder under the provisions of the Foreign Investment in Real Property Tax
Act of 1980 ("FIRPTA"). Under FIRPTA, distributions attributable to gain from
sales of U.S. real property interests are taxed to a Non-U.S. stockholder as if
such gain were effectively connected with a U.S. business. Non-U.S. stockholders
thus would be taxed at the normal capital gain rates applicable to U.S.
stockholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals).
Distributions subject to FIRPTA also may be subject to the 30% branch profits
tax in the hands of a Non-U.S. stockholder that is a corporation. We are
required to withhold 35% of any distribution that is designated by us as a U.S.
real property capital gains dividend. The amount withheld is creditable against
the Non-U.S. stockholder's FIRPTA tax liability.

Gain recognized by a Non-U.S. stockholder upon a sale of our stock generally
will not be taxed under FIRPTA if we are a "domestically controlled REIT," which
is a REIT in which at all times during a specified testing period less than 50%
in value of the stock was held directly or indirectly by Non-U.S. persons.
Although we currently believe that we are a "domestically controlled REIT,"
because our stock is publicly traded, no assurance can be given that we are or
will remain a "domestically controlled REIT." Even if we do not qualify as a
"domestically controlled REIT," a Non-U.S. stockholder that owns, actually or
constructively, 5% or less of our stock throughout a specified testing period
will not recognize taxable gain on the sale of his stock under FIRPTA if the
shares are traded on an established securities market. If we did not qualify as
a domestically controlled REIT and a Non-U.S. stockholder does not qualify for
the above exception, amounts realized by such Non-U.S. stockholder upon a sale
of our stock generally would be subject to withholding under FIRPTA at a rate of
10%.

Gain not subject to FIRPTA will be taxable to a Non-U.S. stockholder if:
(1) the Non-U.S. stockholder's investment in the stock is effectively connected
with a U.S. trade or business, in which case the Non-U.S. stockholder will be
subject to the same treatment as U.S. stockholders with respect to such gain; or
(2) the Non-U.S. stockholder is a nonresident alien individual who was present
in the U.S. for 183 days or more during the taxable year and other conditions
are met, in which case the nonresident alien individual will be subject to a 30%
tax on the individual's capital gains. If the gain on the sale of the stock were
to be subject to taxation under FIRPTA, the Non-U.S. stockholder would be
subject to the same treatment as U.S. stockholders with respect to such gain
(subject to applicable alternative minimum tax, a special alternative minimum
tax in the case of nonresident alien individuals, and the possible application
of the 30% branch profits tax in the case of Non-U.S. corporations).

STATE, LOCAL AND FOREIGN TAXATION

We may be required to pay state, local and foreign taxes in various state,
local and foreign jurisdictions, including those in which we transact business
or make investments, and our stockholders may be required to pay state, local
and foreign taxes in various state, local and foreign jurisdictions, including
those in which they reside. Our state, local and foreign tax treatment may not
conform to the federal income tax consequences summarized above. In addition,
your state, local and foreign tax treatment may not conform to the federal
income tax consequences summarized above. Consequently, you should consult your
tax advisor regarding the effect of state, local and foreign tax laws on an
investment in our securities.

POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS

The rules dealing with federal income taxation are constantly under review
by persons involved in the legislative process and by the Internal Revenue
Service and the U.S. Treasury Department. Changes to the tax law, which may have
retroactive application, could adversely affect us and our investors. It cannot
be predicted whether, when, in what forms, or with what effective dates, the tax
law applicable to us or our investors will be changed.

LEGAL MATTERS

Clifford Chance US LLP, 200 Park Avenue, New York, New York 10166, will pass
upon the validity of the securities we are offering by this prospectus. If the
validity of any securities is also passed upon by counsel for the underwriters
of an offering of those securities, that counsel will be named in the prospectus
supplement relating to that offering.

EXPERTS

The financial statements incorporated in this prospectus by reference to the
Annual Report on Form 10-K for the year ended December 31, 2001 have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

We are incorporating by reference in this prospectus the following documents
which we have previously filed with the Securities and Exchange Commission under
the File Number 1-10150:

(1) Annual Report on Form 10-K for fiscal year ended December 31, 2001, as
amended by the Form 10-K/A dated July 19, 2002.

(2) Current Reports on Form 8-K dated May 20, 2002, August 14, 2002,
November 12, 2002 and November 14, 2002.

(3) Quarterly Reports on Form 10-Q for the quarters ended March 31, 2002,
June 30, 2002 and September 30, 2002.

(4) Definitive Proxy Statement dated April 12, 2002.

(5) The description of the shares of common stock contained in the
Registration Statement on Form 8-A on October 5, 1999.

Whenever after the date of this prospectus we file reports or documents
under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
as amended, those reports and documents will be deemed to be part of this
prospectus from the time they are filed. If anything in a report or document we
file after the date of this prospectus changes anything in it, this prospectus
will be deemed to be changed by that subsequently filed report or document
beginning on the date the report or document is filed.

We will provide to each person to whom a copy of this prospectus is
delivered a copy of any or all of the information that has been incorporated by
reference in this prospectus, but not delivered with this prospectus. We will
provide this information at no cost to the requestor upon written or oral
request addressed to iStar Financial Inc., 1114 Avenue of the Americas, New
York, New York 10036, attention: Investor Relations Department (Telephone:
(212) 930-9400).

INFORMATION WE FILE

We file annual, quarterly and current reports, proxy statements and other
materials with the SEC. The public may read and copy any materials we file with
the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site that contains reports, proxy and information
statements and other information regarding issuers (including us) that file
electronically with the SEC. The address of that site is http://www.sec.gov.

Reports, proxy statements and other information we file also can be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.

- ------------------------------------------

WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING TO YOU OTHER THAN THE INFORMATION CONTAINED IN
THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. YOU MUST NOT RELY ON
UNAUTHORIZED INFORMATION OR REPRESENTATIONS.

THIS PROSPECTUS SUPPLEMENT DOES NOT OFFER TO SELL OR ASK FOR OFFERS TO BUY
ANY OF THE SECURITIES IN ANY JURISDICTION WHERE IT IS UNLAWFUL, WHERE THE PERSON
MAKING THE OFFER IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON WHO CANNOT LEGALLY
BE OFFERED THE SECURITIES.

THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS CURRENT ONLY AS OF THE DATE
ON ITS COVER, AND MAY CHANGE AFTER THAT DATE. FOR ANY TIME AFTER THE COVER DATE
OF THIS PROSPECTUS SUPPLEMENT, WE DO NOT REPRESENT THAT OUR AFFAIRS ARE THE SAME
AS DESCRIBED OR THAT THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS CORRECT,
NOR DO WE IMPLY THOSE THINGS BY DELIVERING THIS PROSPECTUS SUPPLEMENT OR SELLING
SECURITIES TO YOU.
----------

TABLE OF CONTENTS

PAGE
--------

PROSPECTUS SUPPLEMENT
Forward-Looking Statements.............. S-ii
Summary................................. S-1
Risk Factors............................ S-11
Use of Proceeds......................... S-13
Capitalization.......................... S-13
Selected Financial Data................. S-14
iStar Financial Inc..................... S-17
Our Strategy............................ S-28
Management.............................. S-35
Description of Other Indebtedness....... S-43
Description of Notes.................... S-45
Federal Income Tax Consequences......... S-73
Underwriting............................ S-76
Legal Matters........................... S-77

PROSPECTUS
Forward-Looking Information............. 2
The Company............................. 2
Risk Factors............................ 3
Ratio of Earnings to Fixed Charges...... 10
Use of Proceeds......................... 10
Description of Debt Securities.......... 10
Description of Warrants................. 13
Description of Common Stock and
Preferred Stock....................... 13
Description of Depositary Shares........ 16
Material Federal Income Tax
Consequences.......................... 17
Legal Matters........................... 29
Experts................................. 29
Incorporation of Certain Documents by
Reference............................. 29
Information We File..................... 29

[LOGO]

$150,000,000

% SENIOR NOTES DUE 2008

DEUTSCHE BANK SECURITIES

PROSPECTUS SUPPLEMENT

, 2003