NORTHSTAR REALTY FINANCE CORP. - FORM 10-Q

Attached files

file	filename
EX-32.1 - EX-32.1 - NORTHSTAR REALTY FINANCE CORP.	a2203939zex-32_1.htm
EX-31.1 - EX-31.1 - NORTHSTAR REALTY FINANCE CORP.	a2203939zex-31_1.htm
EX-32.2 - EX-32.2 - NORTHSTAR REALTY FINANCE CORP.	a2203939zex-32_2.htm
EX-10.26 - EX-10.26 - NORTHSTAR REALTY FINANCE CORP.	a2203939zex-10_26.htm
EX-31.2 - EX-31.2 - NORTHSTAR REALTY FINANCE CORP.	a2203939zex-31_2.htm

Use these links to rapidly review the document
TABLE OF CONTENTS

Table of Contents

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

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

Commission File Number: 001-32330

NORTHSTAR REALTY FINANCE CORP.
(Exact Name of Registrant as Specified in its Charter)


Maryland (State or Other Jurisdiction of Incorporation or Organization)		11-3707493 (IRS Employer Identification No.)

399 Park Avenue, 18th Floor New York, NY 10022
(Address of Principal Executive Offices, Including Zip Code)

(212) 547-2600
(Registrant's Telephone Number, Including Area Code)

Indicate by the check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o		Accelerated filer ý		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date:

The Company has one class of common stock, par value $0.01 per share, 78,608,883 shares outstanding as of May 3, 2011.

Table of Contents

NORTHSTAR REALTY FINANCE CORP.
QUARTERLY REPORT
For the Three Months Ended March 31, 2011

TABLE OF CONTENTS

Index

Part I.	Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of March 31, 2011 (unaudited) and December 31, 2010	3
	Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2011 and March 31, 2010	4
	Condensed Consolidated Statements of Stockholders' Equity as of March 31, 2011 (unaudited) and December 31, 2010	5
	Unaudited Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2011 and March 31, 2010	6
	Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and March 31, 2010	7
	Notes to the Condensed Consolidated Financial Statements (unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	50
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	69
Item 4.	Controls and Procedures	73
Part II.	Other Information	74
Item 6.	Exhibits	74
Signatures		78

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in Thousands, Except Share Data)

			March 31, 2011			December 31, 2010

			(unaudited)
ASSETS:
Cash and cash equivalents			$	192,938		$	125,439
Restricted cash (includes $207,655 and $263,314 from consolidated VIEs, respectively)				284,452			309,384
Operating real estate, net				896,838			849,499
Available for sale securities, at fair value (includes $1,856,742 and $1,668,217 from consolidated VIEs, respectively)				1,900,295			1,691,054
Real estate debt investments, net (includes $1,683,850 and $1,659,882 from consolidated VIEs, respectively)				1,793,175			1,826,239
Real estate debt investments, held-for-sale (includes $18,806 and $18,661 from consolidated VIEs, respectively)				18,806			18,662
Investments in and advances to unconsolidated ventures (includes $— and $66,959 from consolidated VIEs, respectively)				87,795			94,412
Receivables, net of allowance of $2,409 in 2011 and $2,642 in 2010 (includes net $27,993 and $26,337 from consolidated VIEs, respectively)				33,997			32,329
Unbilled rents receivable				10,306			10,404
Derivative instruments, at fair value (includes $55 and $42 from consolidated VIEs, respectively)				55			59
Deferred costs and intangible assets, net				54,679			49,811
Assets of properties held for sale (includes $5,100 and $13,141 from consolidated VIEs, respectively)				96,174			104,866
Other assets (includes $5,943 and $14,277 from consolidated VIEs, respectively)				32,152			39,833

Total assets			$	5,401,662		$	5,151,991

LIABILITIES:
Mortgage notes and loans payable				765,155			729,212
Exchangeable senior notes				249,535			126,889
Bonds payable, at fair value (includes $2,495,062 and $2,258,805 from consolidated VIEs, respectively)				2,495,062			2,258,805
Secured term loans				14,682			36,881
Liability to subsidiary trusts issuing preferred securities, at fair value				220,004			191,250
Accounts payable and accrued expenses (includes $16,356 and $15,668 from consolidated VIEs, respectively)				42,742			49,792
Escrow deposits payable (includes $42,016 and $60,163 from consolidated VIEs, respectively)				42,510			60,710
Derivative liability, at fair value (includes $174,924 and $190,993 from consolidated VIEs, respectively)				201,728			220,689
Liabilities of properties held for sale (includes $— and $131 from consolidated VIEs, respectively)				74,393			74,061
Other liabilities (includes $7,900 and $8,654 from consolidated VIEs, respectively)				26,809			31,189

Total liabilities				4,132,620			3,779,478
Contingently redeemable non-controlling interest				97,831			94,822
EQUITY:
NorthStar Realty Finance Corp. Stockholders' Equity:
8.75% Series A preferred stock, $0.01 par value, $25 liquidation preference per share, 2,400,000 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively				57,867			57,867
8.25% Series B preferred stock, $0.01 par value, $25 liquidation preference per share, 7,600,000 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively				183,505			183,505
Common stock, $0.01 par value, 500,000,000 shares authorized, 78,608,319 and 78,104,753 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively				786			781
Additional paid-in capital				740,303			723,102
Retained earnings				181,782			293,382
Accumulated other comprehensive loss				(34,344	)		(36,119	)

		Total NorthStar Realty Finance Corp. Stockholders' Equity		1,129,899			1,222,518
Non-controlling interest				41,312			55,173

	Total equity			1,171,211			1,277,691

Total liabilities and stockholders' equity			$	5,401,662		$	5,151,991

See accompanying notes to condensed consolidated financial statements

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in Thousands, Except Share and Per Share Data)

(Unaudited)

				Three Months Ended March 31, 2011			Three Months Ended March 31, 2010

Revenues and other income:
Interest income				$	97,640		$	57,575
Rental and escalation income					32,927			19,289
Commission income					918			—
Other revenue					333			2,194

			Total revenues		131,818			79,058
Expenses:
		Interest expense			33,420			32,163
		Real estate properties—operating expenses			12,497			1,601
		Asset management expenses			1,680			711
		Commission expense			717			—
		Asset management fees—related parties			—			450
		Provision for loan losses			24,500			36,316
		Provision for equity investment losses			4,482			—
General and administrative:
		Salaries and equity-based compensation(1)			12,741			16,532
		Auditing and professional fees			2,419			2,158
		Other general and administrative			4,163			4,077

			Total general and administrative		19,323			22,767
Depreciation and amortization					8,082			7,785

			Total expenses		104,701			101,793
Income/(loss) from operations					27,117			(22,735	)
Equity in (loss)/earnings of unconsolidated ventures					(2,228	)		1,349
Unrealized (loss) on investments and other					(152,218	)		(439	)
Realized gain on investments and other					20,872			1,433

Loss from continuing operations					(106,457	)		(20,392	)
Income from discontinued operations					409			289
Gain on sale from discontinued operations					5,031			—

Consolidated net loss					(101,017	)		(20,103	)
	Less: net loss allocated to the non-controlling interests				5,464			411
Preferred stock dividends					(5,231	)		(5,231	)
Contingently redeemable non-controlling interest accretion					(3,009	)		—

Net loss attributable to NorthStar Realty Finance Corp. common stockholders				$	(103,793	)	$	(24,923	)

Net (loss) per share from continuing operations (basic/diluted)					(1.40	)		(0.33	)
Income per share from discontinued operations (basic/diluted)					0.01			0.00
Gain per share on sale of discontinued operations (basic/diluted)					0.06			—

Net loss per common share attributable to NorthStar Realty Finance Corp. common stockholders (basic/diluted)				$	(1.33	)	$	(0.33	)

Weighted average number of shares of common stock:
		Basic			78,196,016			75,068,654
		Diluted			82,534,563			82,217,223

(1): The three months ended March 31, 2011 and 2010 include $2,034 and $5,058 of equity-based compensation expense, respectively. The three months ended March 31, 2010 includes $3,583 of cash compensation expense and $1,014 of equity based compensation expense relating to a separation and consulting agreement with a former executive.

See accompanying notes to condensed consolidated financial statements

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Amounts in Thousands)

	Preferred Stock at Par			Common Stock at Par		Additional Paid-in Capital			Treasury Stock		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total NorthStar Stockholders' Equity			Non-controlling Interests			Total Stockholders' Equity

Balance at December 31, 2009	$	100	74,883	$	749	$	904,077		$	—	$	(92,670	)	$	460,915		$	1,273,171		$	90,647		$	1,363,818
VIE consolidation begining balance adjustments		—	—		—		—			—		41,332			110,790			152,122			30,535			182,657
Acquisition of N-Star IX		—	—		—		—			—		—			147,626			147,626			—			147,626
Amortization of deferred compensation		—	—		—		17			—		—			—			17			16,673			16,690
Non-controlling interest contribution to joint venture		—	—		—		—			—		—			—			—			11,336			11,336
Dividend reinvestment and stock purchase plan		—	92		1		282			—		—			—			283			—			283
Stock awards/LTIP awards		—	99		1		299			—		—			—			300			—			300
Equity component of warrants		—	—		—		61			—		—			—			61			—			61
Comprehensive loss		—	—		—		—			—		15,219			—			15,219			1,290			16,509
Conversion of LTIP units		—	3,031		30		61,445			—		—			—			61,475			(61,475	)		—
Cash dividends on common stock		—	—		—		—			—		—			(30,483	)		(30,483	)		(8,299	)		(38,782	)
Cash dividends on preferred stock		—	—		—		—			—		—			(20,925	)		(20,925	)		(10,500	)		(31,425	)
Redemption of membership interest		—	—		—		(1,807	)		—		—			—			(1,807	)		1,800			(7	)
Equity in private fund																					(1,815	)		(1,815	)
Net loss		—	—		—		—			—		—			(374,541	)		(374,541	)		(15,019	)		(389,560	)

Balance at December 31, 2010	$	100	78,105	$	781	$	964,374		$	—	$	(36,119	)	$	293,382		$	1,222,518		$	55,173		$	1,277,691

Reclassification equity compensation a liability		—	—		—		—			—		—			—			—			(2,136	)		(2,136	)
Non-controlling interest contribution to joint venture		—	—		—		—			—		—			—			—			144			144
Dividend reinvestment and stock purchase plan		—	15		—		76			—		—			—			76			—			76
REO Equity valuation adjustment		—	—		—		—			—		—			—			—			—			—
Amortization of equity based compensation		—	—		—		4			—		—			—			4			2,030			2,034
Contingently redeemable non-controlling interest accretion		—	—		—		—			—		—			(3,009	)		(3,009	)		—			(3,009	)
Equity component of exchangeable notes		—	—		—		12,277			—		—			—			12,277						12,277
Amortization of OCI		—	—		—		—			—		1,775			—			1,775			99			1,874
Conversion of LTIP units		—	488		5		4,844			—		—			—			4,849			(4,849	)		—
Cash dividends on common stock		—	—		—		—			—		—			(7,807	)		(7,807	)		(1,060	)		(8,867	)
Cash dividends on preferred stock		—	—		—		—			—		—			(5,231	)		(5,231	)		(2,625	)		(7,856	)
Net loss		—	—		—		—			—		—			(95,553	)		(95,553	)		(5,464	)		(101,017	)

Balance at March 31, 2011 (unaudited)	$	100	78,608	$	786	$	981,575		$	—	$	(34,344	)	$	181,782		$	1,129,899		$	41,312		$	1,171,211

See accompanying notes to condensed consolidated financial statements

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in Thousands)

(Unaudited)

		Three Months Ended March 31, 2011			Three Months Ended March 31, 2010

Consolidated net loss		$	(101,017	)	$	(20,103	)
Unrealized loss on available for sale securities			—			(44	)
Change in fair value of derivatives			—			(857	)
Reclassification adjustment for gains included in net income			1,874			1,739

Comprehensive loss			(99,143	)		(19,265	)
	Less: Comprehensive loss attributable to non-controlling interests		(5,365	)		(316	)

Comprehensive loss attributable to NorthStar Realty Finance Corp.		$	(93,778	)	$	(18,949	)

See accompanying notes to condensed consolidated financial statements

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

(Unaudited)

		Three Months Ended March 31, 2011			Three Months Ended March 31, 2010

Cash flows from operating activities:
Net cash used in operating activities		$	(700	)	$	(3,929	)
Cash flows from investing activities:
	Improvement of operating real estate		(16	)		(402	)
	Acquisition of available for sale securities		(93,070	)		(87,355	)
	Proceeds from disposition of available for sale securities		91,310			38,884
	Available for sale securities repayments		7,433			6,240
	Originations/acquisitions of real estate debt investments		(48,814	)		(10,320	)
	Real estate debt investment repayments		53,884			24,536
	Proceeds from the sale of real estate debt investments		11,941			611
	Net proceeds from disposition of operating real estate		14,939			—
	Restricted cash used in investment activities		3,753			(1,989	)
	Deferred costs and intangible assets		(73	)		(220	)
	Investment in and advances to unconsolidated ventures		(392	)		(502	)
	Distributions from unconsolidated ventures		163			2,109

Net cash provided by (used in) investing activities			41,058			(28,408	)
Cash flows from financing activities:
	Purchase of interest rate cap		—			(243	)
	Settlement of derivative		—			(283	)
	Collateral held by swap counter party		3,000			4,749
	Mortgage notes and loan borrowings		20,920			58,200
	Mortgage notes principal repayments		(21,458	)		(52,733	)
	Proceeds from bonds		5,000			9,000
	Bond repayments		(44,480	)		(13,225	)
	Bond repurchases		(34,170	)		(218	)
	Borrowing under secured term loan		—			24,631
	Secured term loan repayment		(22,199	)		(1,345	)
	Payment of deferred financing costs		(9,692	)		(1,348	)
	Restricted cash from financing activities		12,066			352
	Proceeds from exchangeable senior notes		172,500			—
	Repurchase exchangeable senior notes		(37,698	)		—
	Proceeds from dividend reinvestment and stock purchase plan		76			89
	Dividends (common and preferred) and distributions		(13,039	)		(12,720	)
	Deferred offering costs		—			(1,100	)
	Offering costs		—			(69	)
	Distributions to non-controlling interest		(3,685	)		(3,557	)

Net cash provided by financing activities			27,141			10,180
Net (decrease) increase in cash & cash equivalents			67,499			(22,157	)
Cash and cash equivalents—beginning of period			125,439			138,928

Cash and cash equivalents—end of period		$	192,938		$	116,771

See accompanying notes to condensed consolidated financial statements

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Amount in Thousands, Except per Share Data

(Unaudited)

1. Formation and Organization

NorthStar Realty Finance Corp., a Maryland corporation (the "Company"), is a self-administered and self-managed real estate investment trust ("REIT"), which was formed in October 2003 in order to continue and expand the real estate debt, real estate securities and net lease businesses conducted by its predecessor. Substantially all of the Company's assets are held by, and it conducts its operations through, NorthStar Realty Finance Limited Partnership, a Delaware limited partnership and the operating partnership of the Company (the "Operating Partnership").

2. Summary of Significant Accounting Policies

Basis of Quarterly Presentation

The accompanying condensed consolidated financial statements and related notes of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under accounting principles generally accepted in the United States have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company's financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These financial statements should be read in conjunction with the Company's consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2010, as amended, which was filed with the Securities and Exchange Commission. Capitalized terms used herein, and not otherwise defined, are defined in the Company's December 31, 2010 consolidated financial statements included in its annual report on Form 10-K, as amended.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, and its subsidiaries, which are either majority owned or controlled by the Company or a variable interest entity ("VIE") where the Company is the primary beneficiary. All significant intercompany balances have been eliminated in consolidation.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that could affect the amounts reported in the consolidated financial statements. Actual results could differ materially from these estimates.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

2. Summary of Significant Accounting Policies (Continued)

Recently Issued Pronouncements

The Company has determined that there have been no recently issued accounting standards that will have a material impact on its condensed consolidated financial statements.

3. Variable Interest Entities

The Company has evaluated its real estate debt investments, liability to subsidiary trusts issuing preferred securities, its investments in each of its nine CDO transaction issuers, its investment in CSE RE 2006-A and its investments in securities of non-sponsored securitizations in which the Company holds the controlling class to determine whether they are a variable interest entity ("VIE"). A VIE is an entity that lacks one or more of the characteristics of a voting interest entity. For each of these investments, the Company has evaluated: (1) the sufficiency of the fair value of the entity's equity investment at risk to absorb losses; (2) whether as a group the holders of the equity investment at risk have: (a) the power, through voting rights or similar rights, to direct the activities of a legal entity that most significantly impact the entity's economic performance; (b) the obligation to absorb the expected losses of the legal entity; and (c) the right to receive the expected residual returns of the legal entity; (3) whether the voting rights of these investors are proportional to their obligations to absorb the expected losses of the entity, their rights to receive the expected returns of their equity, or both; and (4) whether substantially all of the entity's activities involve or are conducted on behalf of an investor that has disproportionately fewer voting rights. An investment that lacks one or more of the above four characteristics of a voting interest entity is considered to be a VIE.

As of March 31, 2011, the Company identified interests in 21 entities which were determined to be VIEs. The Company reassesses its initial evaluation of an entity as a VIE upon the occurrence of certain reconsideration events.

The Company is required to consolidate a VIE if the Company is deemed to be the VIEs primary beneficiary. The primary beneficiary is the party that (i) has the power to direct the activities that most significantly impact the VIE's economic performance and (ii) has the obligation to absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE.

The Company determines whether it is the primary beneficiary of a VIE by first performing a qualitative analysis to determine if it holds the power to direct the activities that most significantly impact the VIEs economic performance. This analysis includes: (i) assessing the Company's variable interests (both implicit and explicit) and any other involvements in the VIE, as well as the involvements of other variable interest holders; (ii) consideration of the VIEs purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders; (iii) identifying the activities that most significantly affect the VIE's economic performance; (iv) determining whether the Company's significant involvement in the design of an entity provided the Company with the opportunity to establish arrangements that result in the Company having the power to direct the VIEs most significant activities; and (v) determining whether the Company's level of economic interest in a VIE is indicative of the amount of power the Company holds in situations where the Company's stated power to direct the VIEs most significant activities is disproportionately less than its economic interest in the entity. The Company performs a quantitative analysis to determine if it has the obligation to

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

3. Variable Interest Entities (Continued)

absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE. For purposes of allocating a VIE's expected losses and expected residual returns to its variable interest holders, the Company calculates its share of the VIE's expected losses and expected residual returns using the specific cash flows that would be allocated to it, based on contractual arrangements and/or the Company's position in the capital structure of the VIE, under various scenarios.

Based on management's analysis, the Company is not the primary beneficiary of 11 of the identified VIEs since it (i) does not have the power to direct the activities that most significantly impact the VIE's economic performance and (ii) does not have the obligation to absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE. Accordingly, these VIEs are not consolidated into the Company's financial statements as of March 31, 2011. The Company reassesses its determination of whether it is the primary beneficiary of a VIE each reporting period.

Consolidated VIEs (the Company is the primary beneficiary)

The Company has originated, acquired and manages portfolios of commercial real estate securities and real estate debt investments, which were financed in CDO financings. The collateral securities include commercial mortgage-backed securities ("CMBS"), fixed income securities issued by REITs and CDO financings backed primarily by real estate securities. The collateral debt investments include whole loans, subordinate mortgage interests, mezzanine loans and other loans. By financing these securities with long-term debt through the issuance of CDO financings, the Company expects to generate attractive risk-adjusted equity returns and to match the term of its assets and liabilities. In connection with the Company's CDO financings, the Company has various forms of significant ongoing involvement, which may include: (i) holding senior or subordinated interests in the CDOs; (ii) asset management; and (iii) entering into derivative contracts.

In March 2011, the Company's existing investment in securities of a securitization, with a fair value of $3.6 million as of March 31, 2011, became the controlling class of a securitization, which it did not sponsor. The securitization was formed in April 2000 and the Company's investment is generally passive in nature. The ownership of more than 50% of the controlling class and the special servicer naming rights, gives the Company the power to direct the activities that impact the economic performance of the VIE. This entity should be consolidated, but the Company is unable to determine the fair value of the collateral due to lack of available information. The Company has made, and continues to make, exhaustive efforts to obtain information about this entity and has excluded it from the application of ASC 810-10 due to lack of essential information to determine the accounting required to consolidate the entity. Since the securitization was created in 2000, it is pre 2003 and the Company has therefore applied the scope exemption available in ASC 810-10-15-17(C). The Company will continue to request this information, but the master servicer is not legally obligated to provide the non-public documentation and has not provided the information related to the collateral requested by the Company.

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

3. Variable Interest Entities (Continued)

The principal amount of the assets and liabilities each is approximately $29.3 million. The bonds are non-recourse to the Company and the Company's maximum exposure to loss is its investment in the securities in the securitization of $3.6 million as of March 31, 2011.

N-Star I, II, III, IV, V, VI, VII, VIII, IX and CSE RE 2006-A are consolidated CDO financings.

The following table displays the classification and carrying amounts of assets and liabilities of consolidated VIEs as of March 31, 2011 (in thousands):

	Variable Interest Entity

	N-Star I		N-Star II		N-Star III		N-Star IV		N-Star V		N-Star VI		N-Star VII		N-Star VIII		N-Star IX		CSE RE 2006-A			Total
Assets of consolidated VIEs:
Restricted cash	$	1,960	$	624	$	2,580	$	10,241	$	6,170	$	27,767	$	2,222	$	25,201	$	30,384	$	100,506		$	207,655
Available for sale securities, at fair value		206,826		192,816		269,641		35,283		316,271		14,288		337,014		31,869		384,087		68,647			1,856,742
Real estate debt investments, net		—		—		30,874		303,270		—		310,860		19,299		641,700		45,311		332,536			1,683,850
Real estate debt investments, held-for-sale		—		—		—		—		—		—		—		—		5,396		13,410			18,806
Receivables, net of allowance		1,872		1,881		2,167		1,285		3,146		1,063		3,046		2,427		3,854		7,252			27,993
Derivative instruments, at fair value		—		—		—		—		—		—		32		—		20		3			55
Assets of properties held for sale		—		—		—		—		—		—		—		—		—		5,100			5,100
Other assets		41		20		8		731		15		2,852		24		456		241		1,555			5,943

Total assets of consolidated VIEs(1):		210,699		195,341		305,270		350,810		325,602		356,830		361,637		701,653		469,293		529,009			3,806,144
Liabilities of consolidated VIEs:
Bonds payable, at fair value		188,507		149,396		158,272		191,329		191,270		190,918		244,209		370,956		257,460		552,745			2,495,062
Accounts payable and accrued expenses		1,262		101		1,004		380		517		373		367		1,396		1,936		9,020			16,356
Escrow deposits payable		—		—		—		7,254		—		11,876		—		10,282		759		11,845			42,016
Derivative liability, at fair value		12,116		12,680		16,375		—		28,599		7,981		37,294		17,113		32,594		10,172			174,924
Other liabilities		—		—		—		—		—		—		343		—		7,557		—			7,900

Total liabilities of consolidated VIEs(2):		201,885		162,177		175,651		198,963		220,386		211,148		282,213		399,747		300,306		583,782			2,736,258

Net assets	$	8,814	$	33,164	$	129,619	$	151,847	$	105,216	$	145,682	$	79,424	$	301,906	$	168,987	$	(54,773	)	$	1,069,886

(1): Assets of each of the consolidated VIEs may only be used to settle obligations of the respective VIE.
(2): Creditors of each of the consolidated VIEs have no recourse to the general credit of the Company.

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

3. Variable Interest Entities (Continued)

The Company did not provide financial support to any of its consolidated VIEs during the three months ended March 31, 2011 and 2010. At March 31, 2011, there are no explicit arrangements or implicit variable interests that could require the Company to provide financial support to any of its consolidated VIEs.

Unconsolidated VIEs (the Company is not the primary beneficiary, but has a variable interest)

Real Estate Debt Investments

The Company has identified one real estate debt investment with a principal amount of $19.4 million as a variable interest in a VIE and has determined that the Company is not the primary beneficiary of this VIE and as such the VIE should not be consolidated in the Company's consolidated financial statements. For all other real estate debt investments, the Company has determined that these investments are not VIEs and, as such, the Company has continued to account for all real estate debt investments as loans.

NorthStar Realty Finance Trusts

The Company owns all of the common stock of NorthStar Realty Finance Trusts I through VIII (collectively, the "Trusts"). The Trusts were formed to issue preferred securities. The Company determined that the holders of the trust preferred securities were the primary beneficiaries of the Trusts. As a result, the Company did not consolidate the Trusts and has accounted for the investment in the common stock of the Trusts under the equity method of accounting.

Available For Sale Securities

The Company has identified two available for sale securities with a par amount of $8.6 million as a variable interest in a VIE and has determined that the Company is not the primary beneficiary of this VIE and as such the VIE should not be consolidated in the Company's consolidated financial statements. For all other available for sale securities, the Company has determined that it does not hold a variable interest in these investments and, as such, the Company has continued to account for all available for sale securities as debt securities.

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

3. Variable Interest Entities (Continued)

The following table displays the classification, carrying amounts and maximum exposure of unconsolidated VIEs as of March 31, 2011 (in thousands):

	Variable Interest Entity

	Trusts Issuing Preferred Securities, at Fair Value			Real Estate Debt Investments		Available For Sale Securities		Total			Maximum Exposure to Loss(1)
Real estate debt investments	$	—		$	19,401	$	—	$	19,401		$	19,401
Available For Sale Securities							4,496		4,496			4,496

Total assets		—			19,401		4,496		23,897			23,897
Liability to subsidiary trusts issuing preferred securities, at fair value		220,004			—		—		220,004			N/A

Total liabilities		220,004			—		—		220,004			N/A

Net assets	$	(220,004	)	$	19,401	$	4,496	$	(196,107	)	$	23,897

(1): The Company's maximum exposure to loss at March 31, 2011, would not exceed the carrying amount of its investment.

The Company did not provide financial support to any of its unconsolidated VIEs during the three months ended March 31, 2011 and 2010. At March 31, 2011, there were no explicit arrangements or implicit variable interests that could require the Company to provide financial support to any of its unconsolidated VIEs.

4. Fair Value of Financial Instruments

Fair Value Measurements

Fair Value Hierarchy

The Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

4. Fair Value of Financial Instruments (Continued)

Financial assets and liabilities recorded on the consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:


Level 1.	Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market (examples include active exchange-traded equity securities, listed derivatives, most U.S. government and agency securities, and certain other sovereign government obligations).
Level 2.	Financial assets and liabilities whose values are based on the following:
	a)	Quoted prices for similar assets or liabilities in active markets (for example, restricted stock);
	b)	Quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds, which trade infrequently);
	c)	Pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include most over-the-counter derivatives, including interest rate and currency swaps); and
	d)	Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability (for example, certain mortgage loans).
Level 3.	Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management's own assumptions about the assumptions a market participant would use in pricing the asset or liability (examples include private equity investments, beneficial interest in securitizations and long-dated or complex derivatives, including certain foreign exchange options and long-dated options on gas and power).

Determination of Fair Value

The Company uses valuation techniques consistent with the market and income approaches to measure the fair value of its assets and liabilities. The Company's market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Company's income approach uses valuation techniques to convert future projected cash flows to a single discounted present value amount. When applying either approach, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs. The Company reviews the fair values determined by the third-party pricing models and dealer quotes and compares the results to internally generated pricing models on each asset or liability to validate reasonableness.

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

4. Fair Value of Financial Instruments (Continued)

The following is a description of the valuation techniques used to measure fair value and the general classification of these instruments pursuant to the fair value hierarchy.

Available for sale securities

When available, the fair value of available for sale securities is based on quoted prices in active markets. If quoted prices are not available, fair values are obtained from nationally-recognized pricing services, broker quotes, or other model-based valuation techniques. The fair value of Level 2 securities is based on a market approach with prices obtained from nationally-recognized pricing services. Observable inputs used to value these securities can include: reported trades, benchmark yields, issuer spreads and broker/dealer quotes. The fair value of Level 3 securities is typically based on a single broker quote or the Company's discounted cash flow analysis.

Derivative instruments

Derivatives are measured using market approach with prices obtained from nationally-recognized pricing service and are generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy.

CDO bonds payable

CDO bonds payable are measured with prices obtained from a nationally-recognized banking institution that acted as underwriter for the investment and are generally measured using pricing models with market observable inputs such as interest rates and equity index levels, with adjustments for unobservable inputs. These measurements are classified as Level 3 within the fair value hierarchy.

Liability to subsidiary trusts issuing preferred securities

Liability to subsidiary trusts issuing preferred securities is measured using a market approach with prices obtained from an experienced pricing service and is generally measured using pricing models with market observable inputs such as implied credit spreads on the Company's preferred stock and exchangeable senior notes as adjusted for unobservable inputs which reflect the differences between these other instruments and the trust preferred securities. These measurements are classified as Level 3 within the fair value hierarchy.

Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table sets forth the Company's financial

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

4. Fair Value of Financial Instruments (Continued)

assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2011, by level within the fair value hierarchy:

		Assets and Liabilities at Fair Value

		Level 1		Level 2		Level 3		Total
Assets:
Available for sale securities:
	CMBS	$	—	$	1,263,912	$	326,318	$	1,590,230
	CMBS—Interest only				—		5,211		5,211
	Third party CDO notes		—		—		52,991		52,991
	REIT debt		—		205,006		6,838		211,844
	Trust preferred securities		—		—		24,352		24,352
	Agency debentures				15,667		—		15,667
Derivative asset			—		55		—		55

	Total assets	$	—	$	1,484,640	$	415,710	$	1,900,350

Liabilities:
N-Star CDO bonds payable			—		—		2,495,062	$	2,495,062
Liability to subsidiary trusts issuing preferred securities			—		—		220,004		220,004
Derivative liability			—		201,728		—		201,728

	Total liabilities	$	—	$	201,728	$	2,715,066	$	2,916,794

The following table presents additional information about the Company's available for sale securities, corporate lending investment, bonds payable and liabilities to subsidiary trusts issuing

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

4. Fair Value of Financial Instruments (Continued)

preferred securities which are measured at fair value on a recurring basis at March 31, 2011, for which the Company has utilized Level 3 inputs to determine fair value:

			Available for Sale Securities			N-Star CDO Bonds Payable			Liability to Subsidiary Trusts Issuing Preferred Securities

Beginning balance:			$	492,576		$	2,258,805		$	191,250
	Total net transfers into/out of Level 3			(101,367	)
	Purchases, sales, issuance and settlements, net			(30,842	)		(65,851	)		—
	Total losses (realized or unrealized):
		Included in earnings		14,483			302,108			28,754
		Included in other comprehensive loss		—			—			—
	Total gains (realized or unrealized):
		Included in earnings		69,826			—			—
		Included in other comprehensive loss		—			—			—

Ending balance			$	415,710		$	2,495,062		$	220,004

The amount of total gains or (losses) for the period included in earnings attributable to the change in unrealized gains or losses relating to assets or liabilities still held at the reporting date			$	55,343		$	(302,108	)	$	(28,754	)

Fair Value Option

The Company has elected to apply the fair value option of accounting to the following financial assets and liabilities existing at the time of adoption or at the time the Company recognizes the eligible item:

•: Available for sale securities;
•: CDO and CMBS bonds payable; and
•: Liabilities to subsidiary trusts issuing preferred securities;

The Company has elected the fair value option for the above financial instruments for the purpose of consistent accounting application.

Changes in fair value for assets and liabilities for which the election is made will be recognized in earnings as they occur. The fair value option may be elected on an instrument by instrument basis at initial recognition of an asset or liability or upon an event that gives rise to a new basis of accounting

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

4. Fair Value of Financial Instruments (Continued)

for that instrument. The following table sets forth the Company's financial instruments for which the fair value option was elected:

		March 31, 2011		December 31, 2010

Financial Instruments, at Fair Value
Assets:
Available for sale securities:
	CMBS	$	1,590,230	$	1,392,099
	CMBS—Interest only		5,211		—
	Third party CDO notes		52,991		37,213
	REIT debt		211,844		236,958
	Trust preferred securities		24,352		24,784
	Agency debentures		15,667		—

	Total assets	$	1,900,295	$	1,691,054

Liabilities:
CDO bonds payable			2,495,062		2,258,805
Liability to subsidiary trusts issuing preferred securities			220,004		191,250

	Total liabilities	$	2,715,066	$	2,450,055

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

4. Fair Value of Financial Instruments (Continued)

The following table presents the difference between fair values and the aggregate contractual amounts of available for sale securities and liabilities, for which the fair value option has been elected:

		Fair Value at March 31, 2011		Amount Due Upon Maturity		Difference

Assets:
Available for sale securities:
	CMBS	$	1,590,230	$	2,803,915	$	(1,213,685	)
	CMBS—Interest only(1)		5,211		n/a		n/a
	Third party CDO notes		52,991		228,317		(175,326	)
	REIT debt		211,844		200,447		11,397
	Trust preferred securities		24,352		40,000		(15,648	)
	Agency debentures		15,667		63,000		(47,333	)

	Total assets	$	1,900,295	$	3,335,679	$	(1,440,595	)

Liabilities:
CDO bonds payable			2,495,062		4,312,748		(1,817,686	)
Liability to subsidiary trusts issuing preferred securities			220,004		280,117		(60,113	)

	Total Liabilities	$	2,715,066	$	4,592,865	$	(1,877,799	)

(1): CMBS Interest only securities have no amounts due upon maturity but have notional amounts upon which cash flows are paid and received as interest only.

For the three months ended March 31, 2011 and 2010, the Company recognized a net loss of $143.5 million and a net gain of $33.3 million, respectively, as the result of the change in fair value of financial assets and liabilities for which the fair value option was elected, which is recorded as unrealized gain (loss) on investments and other in the Company's consolidated statement of operations.

The impact of changes in instrument-specific credit spreads on N-Star bonds payable and liability to subsidiary trusts issuing preferred securities for which the fair value option was elected was a net loss of $330.9 million and a net gain of $65.6 million, respectively, for the three months ended March 31, 2011 and 2010. The Company attributes changes in the fair value of floating rate liabilities to changes in instrument-specific credit spreads. For fixed rate liabilities, the Company allocates changes in fair value between interest rate-related changes and credit spread-related changes based on changes in interest rates.

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

5. Operating Real Estate

On March 9, 2011, the Company foreclosed on a $7.2 million mezzanine loan secured by a 32 building office/flex park in Indianapolis, IN and recognized the following assets and liabilities in its condensed consolidated balance sheet (in thousands):

		March 9, 2011

		(unaudited)
ASSETS:
Cash and cash equivalents		$	79
Restricted cash			2,075
Operating real estate, net			56,639
Other assets			216

Total assets		$	59,009

LIABILITIES:
Mortgage notes and loans payable		$	36,252
Accounts payable and accrued expenses			1,251
Other liabilities			14,152

Total liabilities			51,655
	Total equity		7,354

Total liabilities and stockholders' equity		$	59,009

The Company has estimated the fair value of the assets and liabilities acquired at the date of acquisition. The Company is in the process of valuing certain intangible assets. As a result, the allocation of the purchase price is subject to refinement.

Since March 9, 2011, the Company has recognized $0.6 million of rental revenue and $0.2 million of net income related to the foreclosed property.

Supplemental Pro Forma Financial Information

The supplemental pro forma financial information set forth below is based upon the Company's historical condensed consolidated statements of operations for the three months ended March 31, 2011 and 2010, adjusted to give effect of this transaction as of January 1, 2010.

	Three Months Ended March 31, 2011			Three Months Ended March 31, 2010

Pro Forma revenues	$	133,415		$	81,096

Pro Forma net income		(103,425	)		(24,367	)

Pro Forma net income per common share—basis/diluted	$	(1.32	)	$	(0.32	)

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

5. Operating Real Estate (Continued)

The supplemental pro forma financial information is presented for informational purposes only and may not be indicative of what actual results of operations would have been had the transaction occurred January 1, 2010, nor does it purport to represent the results of future operations.

Midwest Holdings

On March 31, 2011, the Company sold its 100% common membership interest in Midwest Holdings and assigned all of its rights, title, obligations and other interests in Midwest Holdings to the purchaser and contemporaneously entered into a new lease agreement with an affiliate of the purchaser.

Dispositions—2011

In March 2011, the Company completed the sale of a leasehold interest containing approximately 17,655 square feet of retail space located in New York, NY to a private investor group for approximately $7.4 million, representing a gain of approximately $5.0 million, and the sale of a real estate owned ("REO") office building containing 142,988 square feet located in Philadelphia, PA to a private investor group for approximately $8.3 million, representing an immaterial gain.

Discontinued Operations

The CSE RE 2006-A CDO financing had, as of March 31, 2011, three foreclosed assets consisting of two parcels of land located in Arizona with a combined fair market value at the time of acquisition of approximately $1.6 million and a multifamily property located in Georgia having a fair market value at the time of acquisition of approximately $3.9 million. As of March 31, 2011, the Company recorded as held for sale the two REO parcels of land located in Arizona and the multifamily property located in Georgia.

In April 2011, the Company completed a sale of a portfolio of 18 healthcare net lease assisted living facilities located in Wisconsin to a third party investor for approximately $101.5 million. The purchaser assumed $73.5 million of mortgage debt secured by the assets in the portfolio. As a result of the sale, the Company recorded as held for sale the assets and liabilities of the portfolio as of March 31, 2011.

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

5. Operating Real Estate (Continued)

The following table summarizes income from discontinued operations and related gain on sale of discontinued operations for the three months ended March 31, 2011 and 2010:

		Three Months Ended March 31, 2011		Three Months Ended March 31, 2010

Revenue:
	Rental and escalation income	$	2,828	$	2,491
	Interest and other		40		—

	Total revenue		2,868		2,491
Expenses:
	Property operating expenses		579		168
	Interest expense		846		1,314
	Auditing and professional fees		57		—
	Other general and administrative expenses		312		7
	Depreciation and amortization		665		713

	Total expenses		2,459		2,202
Income from discontinued operations			409		289
Gain on disposition of discontinued operations			5,031		—

Total income from discontinued operations		$	5,440	$	289

The following table sets forth the major classes of assets and liabilities of properties classified as held for sale at March 31, 2011:

	March 31 2011		December 31, 2010

ASSETS:
Operating real estate—net	$	93,142	$	101,704
Deferred costs and intangible assets, net		3,032		3,162

Assets of properties held for sale		96,174		104,866

LIABILITIES:
Mortgage notes and loans payable		73,673		73,902
Accounts payable and accrued expenses		703		87
Escrow deposits payable		17		1
Other liabilities		—		71

Liabilities of properties held for sale	$	74,393	$	74,061

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

6. Available for Sale Securities

The following is a summary of the Company's available for sale securities at March 31, 2011:

March 31, 2011		Carrying Value		Cumulative Unrealized (Loss)/Gain on Investments			Fair Value(1)

CMBS		$	2,019,198	$	(428,969	)	$	1,590,230
CMBS—interest only			5,626		(415	)		5,211
Third party CDO notes			190,882		(137,891	)		52,991
REIT debt			197,271		14,574			211,844
Trust preferred securities			34,960		(10,608	)		24,352
Agency debentures			16,029		(362	)		15,667

	Total	$	2,463,966	$	(563,671	)	$	1,900,295

(1): Approximately $1.9 billion in fair value of these investments serve as collateral for the Company's consolidated CDO transactions and the balance is either financed under other borrowing facilities or unleveraged.

At March 31, 2011, the maturities of the available for sale securities ranged from two weeks to 45.3 years.

During the three months ended March 31, 2011, proceeds from the sale and redemption of available for sale securities was $91.3 million. The net realized gain on the sale and redemption of available for sale securities was $14.3 million. During the three months ended March 31, 2010, proceeds from the sale and redemption of available for sale securities was $38.9 million. The net realized gain on the sale of available for sale securities was $2.9 million.

The following is a summary of the Company's available for sale securities at December 31, 2010:

December 31, 2010		Carrying Value		Cumulative Unrealized (Loss)/Gain on Investments			Fair Value(1)

CMBS		$	2,040,582	$	(648,483	)	$	1,392,099
Third party CDO notes			174,537		(137,324	)		37,213
REIT debt			222,112		14,846			236,958
Trust preferred securities			34,917		(10,133	)		24,784

	Total	$	2,472,148	$	(781,094	)	$	1,691,054

(1): Approximately $1.7 billion in fair value of these investments served as collateral for the Company's consolidated CDO transactions and the balance was either financed under other borrowing facilities or unleveraged.

At December 31, 2010, the maturities of the available for sale securities ranged from three months to 46 years.

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

7. Real Estate Debt Investments

At March 31, 2011, the Company held the following real estate debt investments:

March 31, 2011		Principal Balances		Carrying Value(1)(2)

Whole loans, floating rate—LIBOR		$	1,535,807	$	1,053,783	58.2	%	—	%	2.75	%	—	%	70
Whole loans—floating rate—prime			100,778		13,987	0.8	%					3.31	%	3
Whole loans, fixed rate			210,703		107,571	5.9	%	5.74	%	—		—		27
Subordinate mortgage interests, floating rate			174,625		125,642	6.9	%	—		3.25	%	—		9
Subordinate mortgage interests, fixed rate			74,412		46,890	2.6	%	7.62	%	—		—		3
Mezzanine loans, floating rate			380,146		279,861	15.4	%	—		2.21	%	—		15
Mezzanine loan, fixed rate			156,690		144,767	8.0	%	5.53	%	—		—		7
Preferred—Float			17,094		17,094	0.9	%	—		4.00	%	—		1
Other loans—floating			11,237		10,587	0.6	%	—		2.50	%	—		2
Other loans—fixed			11,799		11,799	0.7	%	6.45	%	—		—		3

	Total/Weighted average	$	2,673,291	$	1,811,981	100.0	%	5.99	%	2.71	%	3.31	%	140

(1): Approximately $1.7 billion in carrying value of these investments serve as collateral for the Company's CDO financings and the remainder is unleveraged. The Company has future funding commitments, which are subject to certain conditions that borrowers must meet to qualify for such fundings, totaling $60.1 million related to these investments. The Company expects that a minimum of $57.7 million of these future fundings will be funded within the Company's existing CDO financings and require no additional capital from the Company. Assuming that all loans that have future fundings meet the terms to qualify for such funding, the Company's equity requirement on future funding requirements would be approximately $2.4 million.
(2): Includes five loans totaling $18.8 million in carrying value in real estate debt investments, held for sale.
(3): Approximately $474.9 million of the Company's real estate debt investments have a weighted-average LIBOR rate floor of 2.28%.

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

7. Real Estate Debt Investments (Continued)

At December 31, 2010, the Company held the following real estate debt investments:

December 31, 2010		Principal Balances		Carrying Value(1)(2)

Whole loans, floating rate—LIBOR		$	1,533,352	$	1,042,194	56.5	%	—	%	2.79	%	—	%	71
Whole loans—floating rate—prime			106,279		17,417	0.9	%					3.32	%	3
Whole loans, fixed rate			211,565		107,419	5.8	%	5.76	%	—		—		27
Subordinate mortgage interests, floating rate			220,444		143,153	7.8	%	—		3.06	%	—		10
Subordinate mortgage interests, fixed rate			74,443		46,805	2.5	%	7.62	%	—		—		3
Mezzanine loans, floating rate			387,183		305,901	16.6	%	—		2.76	%	—		16
Mezzanine loan, fixed rate			153,027		140,956	7.7	%	5.65	%	—		—		7
Preferred—floating			17,444		17,444	0.9	%	—		4.00	%	—		1
Other loans—floating			11,460		11,460	0.6	%	—		2.50	%	—		2
Other loans—fixed			12,152		12,152	0.7	%	6.44	%	—		—		3

	Total/Weighted average	$	2,727,349	$	1,844,901	100.0	%	6.05	%	2.82	%	3.32	%	143

(1): Approximately $1.7 billion in carrying value of these investments served as collateral for the Company's CDO financings, $44.0 million was financed under a borrowing facility and the remainder was unleveraged. The Company had future funding commitments, which were subject to certain conditions that borrowers must meet to qualify for such fundings, totaling $48.5 million related to these investments. The Company expected that a minimum of $45.5 million of these future fundings would be funded within the Company's existing CDO financings and require no additional capital from the Company. Assuming that all loans that have future fundings meet the terms to qualify for such funding, the Company's equity requirement on future funding requirements would be approximately $3.0 million.
(2): Includes five loans having $18.7 million in carrying value in real estate debt investments, held for sale.
(3): Approximately $525.2 million of the Company's real estate debt investments have a weighted-average LIBOR rate floor of 2.08%

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

7. Real Estate Debt Investments (Continued)

Contractual maturities of principal balances of real estate debt investments at March 31, 2011 are as follows:

Years Ending December 31:		Initial Maturity(1)		Maturity Including Extensions

2011		$	954,365	$	686,913
2012			749,239		458,770
2013			106,692		294,023
2014			258,496		344,350
2015			249,198		393,575
Thereafter			355,301		495,660

	Total	$	2,673,291	$	2,673,291

(1): The year ending December 31, 2011, contains seven whole loans with initial maturities prior to December 31, 2010, having an aggregate principal balance of $184.7 million and one junior participation in a first mortgage with an initial maturity prior to December 31, 2010, having a principal balance of $28.5 million, that remain outstanding as of March 31, 2011. The aggregate carrying value of these maturity-defaulted loans is $17.6 million as of March 31, 2011.

Actual maturities may differ from contractual maturities because certain borrowers have the right to prepay with or without prepayment penalties. The contractual amounts differ from the carrying amounts due to unamortized origination fees and costs and unamortized premiums and discounts being reported as part of the carrying amount of the investment. At March 31, 2011, the Company had $682.1 million of unamortized discounts and deferred fees. Maturity Including Extensions assumes that all loans with extension options will qualify for extension at initial maturity according to the conditions stipulated in the related loan agreements.

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

7. Real Estate Debt Investments (Continued)

As of March 31, 2011, the status of the Company's performing and non-performing loans(1) was as follows:

		Carrying Amount as of March 31, 2011													Carrying Amount as of December 31, 2010

		Loan Count		Performing Loans			Loan Count		Non- Performing Loans			Total(4)			Loan Count		Performing Loans			Loan Count		Non- Performing Loans			Total
Originated and Acquired Debt Investments
	Whole loans		51	$	864,354			1	$	12,500		$	876,854			52	$	892,950			1	$	12,500		$	905,450
	Subordinate mortgage interests		10		160,626			1		28,462			189,088			10		182,685			3		51,988			234,673
	Mezzanine loans		22		536,398			—		—			536,398			23		539,527			—		—			539,527
	Preferred		1		17,094			—		—			17,094			1		17,444			—		—			17,444
	Other loans		5		22,386			—		—			22,386			5		23,612			—		—			23,612

Total Originated and Acquired Debt Investments			89		1,600,858			2		40,962			1,641,820			91		1,656,218			4		64,488			1,720,706
	Provision for Loan Losses		16		(149,783	)		2		(38,782	)		(188,565	)		14		(158,417	)		2		(38,783	)		(197,200	)

Total Originated and Acquired Debt Investments, net					1,451,075					2,180			1,453,255					1,497,801					25,705			1,523,506
CSE RE 2006-A
	Whole loans(2)		41		304,010			7		15,861	(5)		319,871			38		252,347			9		30,216			282,563
	Subordinate mortgage interests(3)		1		38,855			—		—			38,855			1		38,832			—		—			38,832

CSE RE 2006-A			42		342,865			7		15,861			358,726			39		291,179			9		30,216			321,395
	Provision for Loan Losses		—		—			—		—			—			—		—			—		—			—

CSE RE 2006-A					342,865					15,861			358,726					291,179					30,216			321,395
Total Debt Investments			131		1,943,723			9		56,823			2,000,546			130		1,947,397			13		94,704			2,042,101
	Total Provision for Loan Losses		16		(149,783	)		2		(38,782	)		(188,565	)		14		(158,417	)		2		(38,783	)		(197,200	)

Total Debt Investments, net				$	1,793,940				$	18,041		$	1,811,981				$	1,788,980				$	55,921		$	1,844,901

(1): The Company designates a loan as non-performing at such time as the loan becomes 90 days delinquent on contractual debt service payments or the loan has a maturity default.
(2): CSE RE 2006-A whole loans have an aggregate outstanding principal amount of approximately $969.0 million at March 31, 2011.
(3): CSE RE 2006-A subordinate mortgage interests have an aggregate outstanding principal amount of approximately $53.1 million at March 31, 2011.
(4): Includes $18.8 million of real estate debt investments classified as held for sale.
(5): Includes $6.2 million of non-controlling interest.

The Company's maximum additional exposure to loss related to the non-performing loans is approximately $18.0 million.

Provision for Loan Losses

For the three months ended March 31, 2011, the Company recorded a $24.5 million loan loss provision relating to eight loans. For the three months ended March 31, 2010, the Company recorded a $36.3 million loan loss provision relating to eight loans and included a $0.8 million credit for a loan sold with a fair market value in excess of its carrying amount. As of March 31, 2011, loan loss reserves totaled $188.6 million.

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

7. Real Estate Debt Investments (Continued)

Activity in the allowance for loan losses on real estate debt investments for three months ended March 31, 2011, is as follows:

Loan Loss Reserve

Balance at December 31, 2010	$	197,200
Provision for loan losses		24,500
Write- off		(33,135	)

Balance at March 31, 2011	$	188,565

At March 31, 2011, the loan loss reserve is comprised of the following:

Class of Loan			Principal Amount		Carrying Amount		Loan Loss Provision

Whole loans		3	$	69,143	$	47,589	$	(21,383	)
Subordinate mortgage interests		4		96,112		31,442		(55,410	)
Mezzanine loans		11		274,289		162,310		(111,772	)

	Total	18	$	439,544	$	241,341	$	(188,565	)

The Company's commercial real estate loans are typically secured by liens on real estate properties or by interests in entities that directly own real estate properties, which serve as the primary source of cash for the payment of principal and interest. The Company differentiates the relative credit quality of its loans based upon whether the collateral is currently paying contractual debt service, and whether the Company believes it will be able to do so in the future. Those loans for which the Company expects to receive full payment of contractual principal and interest payments are categorized as "performing." The Company groups weaker credit quality loans that are currently performing, but for which it believes there is an impairment such that future collection of all principal and interest is in doubt, in a category called "performing, with credit reserves." The Company's weakest credit quality loans are generally non-performing loans ("NPL"). NPLs typically have a maturity default and/or are past due at least 90 days on their contractual debt service payments.

The following table is a summary of real estate debt investments by credit quality indicator as of each applicable balance sheet date:

Credit Quality Indicator		Carrying Amount March 31, 2011		Carrying Amount December 31, 2010

Non-performing loans		$	18,041	$	55,921
Performing loans with a credit reserve			239,162		156,287
Performing loans			1,554,778		1,632,693

	Total	$	1,811,981	$	1,844,901

At March 31, 2011, the Company had real estate debt investments with an aggregate carrying amount of $73.4 million on non-accrual status.

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

7. Real Estate Debt Investments (Continued)

At March 31, 2011, the Company's loan portfolio principal and interest aging is as follows (inclusive of its non-performing loans) (in thousands):

1 - 90 Days		90+ Days

$749		$17,629

8. Investment in and Advances to Unconsolidated Ventures

The Company has non-controlling, unconsolidated ownership interests in entities that are accounted for using the equity method. Capital contributions, distributions, and profits and losses of the real estate entities are allocated in accordance with the terms of the applicable partnership and limited liability company agreements. Such allocations may differ from the stated percentage interests, if any, in such entities as a result of preferred returns and allocation formulas as described in such agreements.

CS/Federal Venture

In February 2006, the Company, through a joint venture with an institutional investor, acquired a portfolio of three adjacent class A office/flex buildings located in Colorado Springs, Colorado for $54.3 million. The joint venture financed the transaction with two non-recourse, first mortgage loans totaling $38.0 million and the balance in cash. The loans mature on February 11, 2016 and bear fixed interest rates of 5.51% and 5.46%. The Company contributed $8.4 million for a 50% interest in the joint venture and incurred $0.3 million in costs related to its acquisition, which are capitalized to the investment account. These costs will be amortized over the useful lives of the assets held by the joint venture. The Company accounts for its investment under the equity method of accounting. At March 31, 2011 and December 31, 2010, the Company had an investment in CS/Federal of approximately $6.0 million and $6.2 million, respectively. The Company recognized equity in earnings of $0.1 million for each of the three months ended March 31, 2011 and 2010.

NorthStar Real Estate Securities Opportunity Fund

A subsidiary of the Company, as general partner of the Securities Fund, is currently in the process of determining the Securities Fund's final net asset value and expects to complete the process of dissolving the Securities Fund during the first half 2011.

At March 31, 2011 and December 31, 2010, the carrying value of the Company's investment in the Securities Fund was $0.6 million and $0.7 million, respectively, each representing a 31.2% interest in the Securities Fund.

For the three months ended March 31, 2010, the Company recognized equity in losses of $0.9 million.

LandCap Investment

On October 5, 2007, the Company entered into a joint venture with Whitehall Street Global Real Estate Limited Partnership 2007 ("Whitehall"), to form LandCap Partners, which is referred to as LandCap. LandCap was established to opportunistically invest in single family residential land through

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

8. Investment in and Advances to Unconsolidated Ventures (Continued)

land loans, lot option agreements and select land purchases. The joint venture is managed by a third party management group which has extensive experience in the single family housing sector. The Company and Whitehall agreed to provide no additional new investment capital in the LandCap joint venture. At March 31, 2011 and December 31, 2010 the Company's investment in LandCap is carried at $8.4 million and $8.8 million, respectively. At March 31, 2011 and December 31, 2010, LandCap had investments totaling $34.8 million and $34.9 million, respectively. In addition, the Company has advanced approximately $4.9 million under a loan agreement to LandCap, which bears interest at a fixed rate of 12% and is included in other assets in the consolidated balance sheets. For the three months ended March 31, 2011 and 2010, the Company recognized equity in losses of $0.4 million and $0.5 million, respectively.

Midwest Care Holdco TRS I LLC

In April 2010, pursuant to the membership redemption agreement entered into in December 2009, the Company acquired the remaining 51% membership interest in Midwest Holdings owned by Chain Bridge for $1.0 million in cash. As a result of the acquisition, the Company held 100% of the common membership interest in Midwest and controlled all major decisions. Accordingly the operations of Midwest, which were previously accounted for under the equity method, were consolidated.

The Company recognized equity in earnings of $2.4 million for the three months ended March 31, 2010.

NorthStar Income Opportunity REIT I, Inc.

On October 18, 2010, NorthStar Income Opportunity REIT I, Inc. ("NIOR"), an unconsolidated entity in which the Company has an equity investment, completed a merger with NorthStar Real Estate Income Trust, Inc. ("NSREIT"), a consolidated subsidiary of the Company and each a commercial finance REIT sponsored by the Company. NSREIT became the surviving entity of the merger. As of October 18, 2010, the Company deconsolidated, and has an equity investment in, NSREIT and accounts for its investment in NSREIT under the equity method of accounting.

NorthStar Real Estate Income Trust, Inc.

At March 31, 2011 and December 31, 2010, the Company had an investment in NSREIT, the surviving entity, of approximately $2.2 million and $1.8 million, respectively. The Company recognized equity in earnings on this investment of an immaterial amount and $0.1 million for the three months ended March 31, 2011 and 2010, respectively.

Meadowlands One, LLC

The Company owned a $109.7 million interest in Meadowlands Two, LLC, which holds 100% of Meadowlands One, LLC which is secured by a retail/entertainment complex located in East Rutherford, NJ (the "NJ Property"). During the third quarter 2010, the lender group took effective ownership of the NJ Property. The Company accounts for its 22% equity interest in the investment under the equity method of accounting. At March 31, 2011 and December 31, 2010, the carrying value of the Company's investment was approximately $66.0 million and $72.6 million, respectively. For the three months ended March 31, 2011, the Company recognized a provision for investment loss of $4.5 million and equity in losses of $2.1 million from its investment.

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

9. Borrowings

The following is a table of the Company's outstanding borrowings as of March 31, 2011 and December 31, 2010:

		Initial Stated Maturity	Interest Rate (11)

Term Loans (recourse)
	LB Term Loan(1)	2/9/2011	LIBOR + 1.50%	—	22,199
Term Loans (non-recourse)
	Term Asset Backed Securities Loan Facility	10/29/2014	2.64%	14,682	14,682

Total Credit Facilities & Term Loans				14,682	36,881
Exchangeable Senior Notes (recourse)(2)(3)		6/15/2027	7.25%	31,915	68,165
Exchangeable Senior Notes ("7.5% Notes") (recourse)(2)(4)		3/15/2031	7.50%	172,500	—
Exchangeable Senior Notes ("NNN Notes") (recourse)(2)(5)		6/15/2013	11.50%	60,750	60,750
Liability to subsidiary trusts issuing preferred securities (subordinate recourse)(6)(7)
	Trust I	3/30/2035	8.15%	41,240	41,240
	Trust II	6/30/2035	7.74%	25,780	25,780
	Trust III	1/30/2036	7.81%	41,238	41,238
	Trust IV	6/30/2036	7.95%	50,100	50,100
	Trust V	9/30/2036	3 month LIBOR 2.70%	30,100	30,100
	Trust VI	12/30/2036	3 month LIBOR 2.90%	25,100	25,100
	Trust VII	4/30/2037	3 month LIBOR 2.50%	31,459	31,475
	Trust VIII	7/30/2037	3 month LIBOR 2.70%	35,100	35,100
Mortgage notes payable (non-recourse)
	Salt Lake City	9/1/2012	5.16%	14,950	15,059
	EDS	10/8/2015	5.37%	46,014	46,218
	Executive Center(8)	1/1/2016	5.85%	51,480	51,480
	Green Pond	4/11/2016	5.68%	16,820	16,884
	Indianapolis	2/1/2017	6.06%	27,692	27,789
	Northstar Healthcare GE	5/1/2015	3 month LIBOR + 5.95%	58,200	58,200
	Northstar Healthcare—Park National	1/11/2014	5.94%	32,424	32,537

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

9. Borrowings (Continued)

		Initial Stated Maturity	Interest Rate (11)

	Northstar Healthcare—GE—WLK	1/11/2017	6.99%	159,136	159,135
	Northstar Healthcare—GE—Tusc & Harmony	1/11/2017	7.09%	7,843	7,842
	Northstar Healthcare—Harmony FNMA(9)	2/1/2017	6.39%	73,673	73,901
	Northstar Healthcare—Grove City	3/30/2016	6.00%	4,393	3,040
	Northstar Healthcare—Lancaster	3/30/2016	6.00%	6,694	6,280
	Northstar Healthcare—Marysville	3/30/2016	6.00%	5,022	5,393
	Northstar Healthcare—Washington	3/30/2016	6.00%	4,812	5,223
	Northstar Healthcare—Miller Merril	6/30/2012	7.07%	116,806	116,806
	Northstar Healthcare—ARL Mob Wachovia	5/11/2017	5.89%	3,337	3,349
	Northstar Healthcare—St Francis	9/10/2010	LIBOR + 2.00%	—	—
	Aurora	7/11/2016	6.22%	32,473	32,583
	DSG	10/11/2016	6.17%	33,194	33,325
	Keene	2/1/2016	5.85%	6,559	6,588
	Fort Wayne	1/1/2015	6.41%	3,291	3,313
	Portland	6/17/2014	7.34%	4,416	4,466
	Milpitas	3/6/2017	5.95%	21,513	21,639
	Fort Mill	4/6/2017	5.63%	27,700	27,700
	Reading	1/1/2015	5.58%	13,575	13,643
	Reading	1/1/2015	6.00%	5,000	5,000
	Alliance	12/6/2017	6.48%	23,160	23,239
	Castelton Park—A Note(10)	10/9/2010	LIBOR + 1.66%	36,252	—
Mezzanine loan payable (non-recourse)
	Fort Mill	4/6/2017	6.21%	2,399	2,482
Bonds payable (non-recourse)(6)
	N-Star I	8/1/2038	3 month LIBOR + 2.13% (average spread)	199,580	225,701
	N-Star II	6/1/2039	LIBOR + 1.33% (average spread)	192,369	197,212

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

9. Borrowings (Continued)

	Initial Stated Maturity	Interest Rate (11)	Contractual Balance at March 31, 2011		Contractual Balance at December 31, 2010

N-Star III	6/1/2040	LIBOR + 0.58% (average spread)		294,909		313,907
N-Star IV	7/1/2040	LIBOR + 0.60% (average spread)		257,849		258,769
N-Star V	9/5/2045	LIBOR + 0.53% (average spread)		434,095		434,633
N-Star VI	6/1/2041	3 month LIBOR + 0.52% (average spread)		271,698		271,698
N-Star VII	6/22/2051	LIBOR + 0.35% (average spread)		499,200		499,200
N-Star VIII	2/1/2041	LIBOR + 0.45% (average spread)		586,460		586,460
N-Star IX	8/7/2052	LIBOR + 0.40% (average spread)		701,480		744,960
CapSource	1/20/2037	3 month LIBOR + 0.42% (average spread)		875,108		916,005

			$	5,711,540	$	5,697,588

(1): The Company repaid the outstanding balance of $22.2 million on March 9, 2011.
(2): The contractual amounts may differ from the carrying value on the consolidated balance sheets due to the equity component of the debt.
(3): The holders have repurchase rights which may require the Company to repurchase the notes on June 15, 2012.
(4): The holders have repurchase rights which may require the Company to repurchase the notes on March 15, 2016.
(5): Approximately $9.9 million is held in an escrow account that is earmarked to repay the notes.
(6): Contractual amounts due may differ from the carrying value on the consolidated balance sheets due to the election of the fair value option. See Note 4.
(7): The liability to subsidiary trusts for Trusts I, II, III and IV have a fixed interest rate for the first ten years after which the interest rate will float and reset quarterly at rates ranging from LIBOR plus 2.70% to 3.25%. The Company entered into interest rate swap agreements on Trusts V, VI, VII and VIII which fix the interest rates for 10 years at 8.16%, 8.02%, 7.60% and 8.29%, respectively.

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

9. Borrowings (Continued)

(8): The Company has a limited recourse obligation with respect to this loan. The amount of such obligation will vary based upon the tenancy of the property. The Company believes such obligation will not exceed $2.5 million.
(9): Mortgage note payable is classified as a liability held for sale on the condensed consolidated balance sheet as of March 31, 2011.
(10): Mortgage note payable was obtained through foreclosure of a mezzanine loan having a principal amount of approximately $7.2 million and a maturity default as of January 15, 2011.
(11): See Note 14 regarding the Company's derivative financial instruments which are used to manage interest rate exposure.

Scheduled principal payment requirements on the Company's borrowings based on initial maturity dates are as follows as of March 31, 2011:

	Total		Mortgage and Mezzanine Loans		Secured Term Loan		Liability to Subsidiary Trusts Issuing Preferred Securities		Exchangeable Senior Notes(1)			Bonds Payable

2011	$	43,739	$	43,739	$	—	$	—	$	—		$	—
2012		173,743		141,828		—		—		31,915			—
2013		72,006		11,256		—		—		60,750	(2)		—
2014		60,908		46,226		14,682		—		—			—
2015		175,181		175,181		—		—		—			—
Thereafter		5,185,963		420,598		—		280,117		172,500			4,312,748

Total	$	5,711,540	$	838,828	$	14,682	$	280,117	$	265,165		$	4,312,748

(1): $31.9 million of the Company's 7.25% exchangeable senior notes have a final maturity date of June 15, 2027. The above table reflects the holders repurchase rights which may require the Company to repurchase the notes on June 15, 2012.
(2): $9.9 million is held in an escrow account that is earmarked to repay the Company's 11.5% exchangeable senior notes.

At March 31, 2011, the Company was in compliance with all covenants under its borrowings.

Exchangeable Senior Notes

In March 2011, the Operating Partnership issued $172.5 million of 7.50% exchangeable senior notes (the "7.50% Notes") due in 2031. The 7.50% Notes were offered in a private offering exempt from registration in reliance on Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"). The 7.50% Notes pay interest semi-annually in arrears on March 15 and September 15, at a rate of 7.50% per annum, and mature on March 15, 2031. The 7.50% Notes have an initial exchange rate representing an exchange price of $6.44 per share of the Company's common stock, subject to

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

9. Borrowings (Continued)

adjustment under certain circumstances. The 7.50% Notes are senior unsecured obligations of the Operating Partnership and may be exchangeable at any time prior to the close of business on the second business day immediately preceding the maturity date for cash or common stock of the Company, or a combination of cash and common stock of the Company, at the Company's option. The 7.50% Notes are redeemable, at the Company's option, on and after March 15, 2016. The Company may be required to repurchase the 7.50% Notes upon the occurrence of certain events. The net proceeds from the offering were approximately $164.0 million.

As of March 31, 2011 and December 31, 2010, the total carrying amount of the equity components of $249.5 million of exchangeable senior notes was $17.0 million and $4.9 million, respectively. The principal amount of the exchangeable senior notes liabilities was $265.2 million and $128.9 million as of March 31, 2011 and December 31, 2010, respectively. The unamortized discount of the liability components was $15.6 million and $2.0 million at March 31, 2011 and December 31, 2010, respectively. The net carrying amount of the liability components was $249.5 million and $126.9 million at March 31, 2011 and December 31, 2010, respectively. Interest expense for the three months ended March 31, 2011 related to the exchangeable senior notes was $4.3 million, of which $3.6 million was related to contractual interest, respectively, and $0.7 million was attributable to amortization of the debt discount and deferred financing costs. Interest expense for the three months ended March 31, 2010 related to the exchangeable senior notes was $3.4 million, of which $3.0 million was related to contractual interest, respectively, and $0.4 million was attributable to amortization of the debt discount and deferred financing costs.

Debt Repurchases

During the three months ended March 31, 2011, the Company repurchased approximately $36.3 million face amount, having a carrying amount of $35.9 million, of its 7.25% exchangeable senior notes for a total of $37.7 million and $96.3 million face amount, having a carrying amount of $26.4 million, of its N-Star CDO bonds payable for a total of $34.2 million. The Company recorded a total net realized loss of $8.4 million in connection with the repurchase of its notes and bonds for three months ended March 31, 2011.

Mortgage Note Refinancing

On March 31, 2011, the Company closed on a $20.9 million loan with General Electric Capital Corporation. The proceeds were primarily used to refinance $19.9 million of loans bearing an interest rate of 9.25% and maturing in 2015 on four of its healthcare-related net leased assets. The loan has a five-year term with a one-year interest only period and principal and interest payments thereafter. The interest rate is 90-day LIBOR + 5.95% with a 1% LIBOR floor.

Modification of Mortgage Loan

The Company owns a partially vacant net lease property located in Cincinnati, Ohio. In November 2010, the mortgage lender declared a payment default and, in December 2010, began foreclosure proceedings on the property. At March 31, 2011, the Company was in discussions with the lender to transfer the property to the lender via a deed in lieu of foreclosure. At March 31, 2011, the Company had a reserve of $5.2 million and had no additional exposure related to this property.

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

10. Related Party Transactions

Advisory Fees

The Company has agreements with each of its N-Star CDO financings and its CSE RE 2006-A CDO financing to perform certain advisory services. As of January 1, 2010, the advisory fee income related to N-Star I, N-Star II, N-Star III and N-Star V is eliminated as a result of the consolidation of the respective CDO financings. The Company earned total fees on these agreements of approximately $0.4 million for the three months ended March 31, 2010, which is recorded in other income in the condensed consolidated statement of operations.

The Company has an agreement with NSREIT and had an agreement with NSIO REIT prior to its merger, both commercial finance REITs, to perform certain advisory services. For each of the three months ended March 31, 2011 and 2010, the Company earned $0.1 million of fees on these agreements.

Legacy Fund

The Company has two real estate debt investments with a subsidiary of Legacy Partners Realty Fund I, LLC (the "Legacy Fund"), as borrower, totaling $33.4 million in principal amount. In January 2010, the Company extended the $19.2 million loan through January 2012, with three additional one-year extension options. In June 2010 the Company modified the $14.1 million loan. The interest rate was increased to LIBOR plus 450 and extended the maturity date to April, 2013, with two one-year extension options. One of the Company's directors, Preston Butcher, is the chairman of the Board of Directors and chief executive officer and owns a significant interest in Legacy Partners Commercial, LLC, which indirectly owns an equity interest in, and owns the manager of, the Legacy Fund. The loans are included in real estate debt investments in the consolidated balance sheets.

11. Equity Based Compensation

Omnibus Stock Incentive Plan

On September 14, 2004, the Board of Directors of the Company adopted the NorthStar Realty Finance Corp. 2004 Omnibus Stock Incentive Plan (the "Stock Incentive Plan"). The Stock Incentive Plan provides for the issuance of stock- based incentive awards, including incentive stock options, non-qualified stock options, and stock appreciation rights, shares of common stock of the Company, including restricted shares, and other equity-based awards, including OP Units which are structured as profits interests ("LTIP Units") or any combination of the foregoing. The eligible participants in the Stock Incentive Plan include directors, officers and employees of the Company and, prior to October 29, 2005, employees pursuant to the shared facilities and services agreement. An aggregate of 8,933,038 shares of common stock of the Company are currently reserved and authorized for issuance under the Stock Incentive Plan, subject to equitable adjustment upon the occurrence of certain corporate events. As of March 31, 2011, the Company has issued an aggregate of 8,196,068 LTIP Units, net of forfeitures of 147,640 LTIP Units. An aggregate of 4,596,509 LTIP Units were converted to common stock and 581,669 shares of common stock were issued pursuant to the Stock Incentive Plan. Of the 8,196,068 LTIP Units, so long as the recipient continues to be an eligible recipient, 4,974,034 will vest to the individual recipient at a rate of one-twelfth of the total amount granted as of the end of each quarter, beginning with the first quarter after the date of grant ended either January 29, April 29,

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

11. Equity Based Compensation (Continued)

July 29, or October 29 for the three-year vesting period, 2,069,680 will vest over 16 consecutive quarters with the first quarter being January 29, 2008, 701,058 cliff vested on December 31, 2010, and 170,801 are subject to no vesting requirements. The Company accelerated the vesting of 280,495 LTIP Units as part of the termination agreements provided to employees. In addition, the LTIP Unit holders are entitled to dividends on the entire grant beginning on the date of the grant.

The Company has recognized compensation expense of $1.7 million and $4.7 million for the three months ended March 31, 2011 and 2010, respectively. As of March 31, 2011, there were approximately 458,725 unvested LTIP Units and 84,349 LTIP Units were forfeited during the period. The related compensation expense to be recognized over the remaining vesting period of the Omnibus Incentive Plan LTIP Unit grants is $3.1 million, provided there are no forfeitures.

In February 2011 the Company granted 370,370 LTIP Units to certain officers and employees of the Company. These LTIP Units vest to the individual recipient at a rate of one-twelfth of the total amount granted as of the end of each quarter, beginning on April 29, 2011. The Company has recognized $0.1 million in compensation expense related to these LTIP Units for the three months ended March 31, 2011.

The status of all of the LTIP Unit grants as of March 31, 2011 and December 31, 2010 is as follows:

	March 31, 2011					December 31, 2010

	LTIP Grants			Weighted Average Grant Price		LTIP Grants			Weighted Average Grant Price
Balance at beginning of year(1)		4,289		$	7.92		7,323		$	9.85
Granted		370			5.13		—			—
Converted to common stock		(489	)		6.81		(3,031	)		12.59
Forfeited		(84	)		10.67		(3	)		8.55

Ending balance(2)		4,086		$	7.74		4,289		$	7.92

(1): Reflects balance at January 1, 2011 and January 1, 2010 for the periods ended March 31, 2011 and December 31, 2010, respectively.
(2): Reflects balance at March 31, 2011 and December 31, 2010, respectively.

Incentive Compensation Plan

On July 21, 2009, the Compensation Committee of the Board of Directors (the "Committee") of the Company approved the material terms of a new Incentive Compensation Plan for the Company's executive officers and other employees (the "Plan"). Under the Plan, a potential incentive compensation pool is expected to be established each calendar year. The size of the incentive pool will be calculated as the sum of (a) 1.75% of the Company's "adjusted equity capital" and (b) 25% of the Company's adjusted funds from operations, as adjusted ("AFFO"), above a 9% return hurdle on

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

11. Equity Based Compensation (Continued)

adjusted equity capital. Payout from the incentive pool is subject to achievement of additional performance goals summarized below.

The incentive pool is expected to be divided into the following three separate incentive compensation components: (1) an annual cash bonus, tied to annual performance of the Company and paid after year end at or around completion of the year end audit; (2) a deferred cash bonus, determined based on the same year's performance, but paid 50% following the close of each of the first and second years after such incentive pool is determined, subject to the participant's continued employment through each payment date; and (3) a long-term incentive, paid at the end of a three or four-year period based on the Company's achievement of cumulative performance goals for the three or four-year period, subject to the participant's continued employment through the payment date. The Committee expects to evaluate the Plan on an annual basis and consider alternatives to the foregoing as the Committee deems appropriate and in the best interests of the Company. Performance goals for each component will be set by the Committee initially upon the adoption of the Plan and at the beginning of each subsequent calendar year for each new cycle. The goals will generally be divided into ranges of performance, each of which will correspond to a pay-out level equal to a percentage of a participant's pool allocation for such component.

In January of 2009 and 2010, an aggregate of 3,147,454 and 2,209,998 restricted stock units ("RSUs"), respectively, were allocated to executive officers of the Company under the long-term incentive component of the Plan. The RSUs are subject to the Company achieving cumulative performance hurdles or target stock prices established by the Committee for the three year periods ending December 31, 2011 and December 31, 2012. Upon the conclusion of the applicable three-year performance period, each executive officer will receive a payout, if any, equal to the value of one share of common stock at the time of such payout, inclusive of the dividends paid with respect to a share of common stock during the second and third year of the applicable three-year performance period, for each restricted stock unit actually earned (the "Long-Term Amount"). The Long-Term Amount, if any, will be paid in the form of shares of common stock or LTIP Units to the extent available under the Company's equity compensation plans or, if all or a portion of such shares or LTIP Units are not available, in cash; provided, that the amount of cash paid to any executive officer with respect to the Long-Term Amount shall not exceed certain maximum amounts set forth in the Plan.

At March 31, 2011, the Company believes that it will meet the performance hurdle established for the period ending December 31, 2011 that would entitle the recipient to 50% of the RSUs granted. The Company does not believe that it will have a sufficient amount of common stock or LTIP Units to settle these RSUs and, accordingly, believes that these RSUs will be settled in cash. The Company has already recorded $2.1 million of equity-based compensation expense relating to these RSUs based upon the fair value of the target stock price component of the Plan on the dates that the RSUs were initially allocated to the executive officers. Prior to March 31, 2011, no compensation expense has been recorded relating to the performance hurdles under the Plan. When the Company determines that the performance hurdles are likely to be achieved, the Company is required to record a catch up adjustment to compensation expense for the amount of expense that would have been recorded if recognized ratably over the performance period. In addition, a cash settlement of a share-based payment classified as an equity instrument is required to be accounted for as a repurchase of the equity

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

11. Equity Based Compensation (Continued)

instrument at its fair value. In accordance with the guidance, the Company recorded an adjustment to compensation expense of $2.9 million, based on the closing price of the Company's common shares on March 31, 2011. The award to be paid in cash is currently classified as a liability and will be re-measured each reporting period based upon the stock price at the end of the reporting period and the Company's performance expectations for the duration of the performance period.

At March 31, 2011, the Company does not currently have sufficient information to believe that the performance hurdle for the RSUs granted in 2010 are likely to be achieved and, accordingly, did not recognize compensation relating to the performance hurdles under the Plan for the performance period ending December 31, 2012. The target stock price component of the Plan for the period ending December 31, 2012 has been fair valued and the Company has recognized equity-based compensation of $0.2 million. To the extent earned, the Company expects to settle these RSUs in common stock or LTIP Units.

12. Stockholders' Equity

Dividend Reinvestment and Stock Purchase Plan

In April 2007, the Company implemented a Dividend Reinvestment and Stock Purchase Plan (the "Plan"), pursuant to which it registered with the SEC and reserved for issuance 15,000,000 shares of its common stock. Under the terms of the Plan, stockholders who participate in the Plan may purchase shares of the Company's common stock directly from it, in cash investments up to $10,000. At the Company's sole discretion, it may accept optional cash investments in excess of $10,000 per month, which may qualify for a discount from the market price of 0% to 5%. Plan participants may also automatically reinvest all or a portion of their dividends for additional shares of the Company's stock. The Company expects to use the proceeds from any dividend reinvestments or stock purchases for general corporate purposes.

During the three months ended March 31, 2011, the Company issued a total of 15,028 common shares pursuant to the Plan for a gross sales price of approximately $0.1 million. During the three months ended March 31, 2010, the Company issued a total of 23,975 common shares pursuant to the Plan for a gross sales price of approximately $0.1 million.

Dividends

On January 19, 2011, the Company declared a dividend of $0.10 per share of common stock. The dividends were paid on February 14, 2011 to the stockholders of record as of February 4, 2011.

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

12. Stockholders' Equity (Continued)

Earnings Per Share

Earnings per share for the three months ended March 31, 2011and 2010 is computed as follows (in thousands, except per share amounts):

		Three Months Ended March 31, 2011			Three Months Ended March 31, 2010

Numerator (Income)
*Basic Earnings*
Net loss attributable to NorthStar Realty Finance Corp. common stockholders		$	(103,793	)	$	(24,923	)
Effect of dilutive securities:
	Loss allocated to non-controlling interest		(5,592	)		(2,373	)

Dilutive net income/(loss) available to stockholders		$	(109,385	)	$	(27,296	)

*Basic Earnings:*
Shares available to common stockholders			78,196			75,069
Effect of dilutive securities:
OP/LTIP units			4,339			7,148

*Dilutive Shares*			82,535			82,217

Net income/(loss) per share attributable to NorthStar Realty Finance Corp. common stockholders—Basic/Diluted		$	(1.33	)	$	(0.33	)

The earnings per share calculation takes into account the conversion of LTIP Units into common shares. The LTIPS convert on a one-for-one basis into common shares and share equally in the Company's earnings. Depending on the timing of LTIP conversions and the amount of LTIPS converted, relative to the timing of the Company's earnings allocated to the LTIP non-controlling interest, and the weighting of the common shares, the LTIP conversions may result in an anti-dilutive effect on earnings per share.

13. Non-controlling Interest

Operating Partnership

Non-controlling interest represents the aggregate limited partnership interests or OP Units in the Operating Partnership held by limited partners (the "Unit Holders"). Income allocated to the non-controlling interest is based on the Unit Holders ownership percentage of the Operating Partnership. The ownership percentage is determined by dividing the numbers of OP Units held by the Unit Holders by the total number of dilutive shares. The issuance of additional shares of beneficial interest (the "Common Shares" or "Share") or OP Units changes the percentage ownership of both the Unit Holders and the Company. Since a unit is generally redeemable for cash or Shares at the option of the Company, it is deemed to be equivalent to a Share. Therefore, such transactions are treated as capital transactions and result in an allocation between shareholders' equity and non-controlling interest in the accompanying consolidated balance sheet to account for the change in the ownership of the

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

13. Non-controlling Interest (Continued)

underlying equity in the Operating Partnership. As of March 31, 2011 and December 31, 2010, non-controlling interest related to the aggregate limited partnership units of 4,086,759 and 4,292,199, represented a 4.94% and 5.21% interest in the Operating Partnership, respectively. Income/(loss) allocated to the operating partnership non-controlling interest for the three months ended March 31, 2011 and 2010 was a loss of $5.6 million and a loss of $2.4 million, respectively.

Contingently Redeemable Non-controlling Interest

In July, 2010, the Company was notified by Inland American that Inland American desires to have NRF Healthcare, LLC engage in a sale process for a portfolio of 34 senior housing properties (the "Target Portfolio") or otherwise redeem $50 million of Inland American's convertible preferred membership interest in NRF Healthcare, LLC by January 9, 2011. NRF Healthcare LLC has commenced a sale process for the Target Portfolio. If NRF Healthcare, LLC has not redeemed $50 million of the Inland American investment or sold the Target Portfolio by October 9, 2011, then Inland American may undertake a sale process for the Target Portfolio. Inland American may also undertake a sale process for all of the assets of NRF Healthcare, LLC beginning August 8, 2011, unless at least $25 million of Inland American's preferred interest has been redeemed by June 10, 2011 and, in any event, beginning August 8, 2011, all future operating cash flow in excess of debt service will be used to redeem the preferred membership interest. On July 8, 2012, if the preferred membership interest has not been redeemed in full, Inland American may sell the assets of NRF Healthcare, LLC. The Company is currently exploring alternatives with respect to its healthcare portfolio, including discussing with Inland a potential modification and extension to the terms of the preferred membership interest.

Income allocated to Inland American's non-controlling interests for the three months ended March 31, 2011 and 2010 was income of $2.6 million and $2.6 million, respectively.

Joint Ventures

A third party holds 16.7% of the equity notes of N-Star CDO I. The equity notes held by the third party are reflected as non-controlling interest in the Company's condensed consolidated financial statements.

14. Risk Management and Derivative Activities

Derivatives

Derivatives

The Company uses derivatives primarily to manage interest rate risk exposure. These derivatives are typically in the form of interest rate swap agreements and the primary objective is to minimize interest rate risks associated with the Company's investment and financing activities. The counterparties of these arrangements are major financial institutions with which the Company may also have other financial relationships. The Company is exposed to credit risk in the event of non-performance by these counterparties and it monitors their financial condition; however, the Company currently does not anticipate that any of the counterparties will fail to meet their obligations because of their high credit ratings and financial support from the U.S. Government. The objective in using interest rate derivatives is to add stability to interest expense and to manage exposure to interest rate movements.

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

14. Risk Management and Derivative Activities (Continued)

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company's variable-rate debt.

In January 2008, the Company elected the fair value option for its bonds payable and its liability to subsidiary trusts issuing preferred securities. As a result, the changes in fair value of these financial instruments are now recorded in earnings and the interest rate swap agreements associated with these debt instruments no longer qualify for hedge accounting given that the underlying debt is remeasured with changes in the fair value recorded in earnings. The unrealized gains or losses accumulated in other comprehensive income, related to these interest rate swaps, will be reclassified into earnings over the shorter of either the life of the swap or the associated debt with current mark-to-market unrealized gains or losses recorded in earnings.

Derivatives not designated as hedges are not speculative and are used to manage the Company's exposure to interest rate movements and other identified risks but do not meet strict hedge accounting requirements. For the three months ended March 31, 2011 and 2010 the Company recorded, in earnings, a mark-to-market unrealized gain of $19.0 million and an unrealized loss of $33.7 million, respectively, for the non-qualifying interest rate swaps. For the three months ended March 31, 2011 and 2010, the Company recorded a $1.9 million and a $1.4 million reclassification from accumulated other comprehensive income for the non-qualifying interest rate swaps, respectively.

The following tables summarize the Company's derivative financial instruments that were not designated as hedges in qualifying hedging relationships as of March 31, 2011 and December 31, 2010:

		Notional Amount		Fair Value Net Asset/ (Liability)			Range of Fixed LIBOR	Range of Maturity

Interest rate swaps
As of March 31, 2011	63	$	2,678,745	$	(201,673	)	0.37% - 7.00%	December 2011 - October 2019
As of December 31, 2010	64	$	2,812,409	$	(220,630	)	0.37% - 7.00%	February 2011 - October 2019

The Company had no derivative financial instruments that were designated as hedges in qualifying hedging relationships as of March 31, 2011 and December 31, 2010, respectively.

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

14. Risk Management and Derivative Activities (Continued)

The following table presents the fair value of the Company's derivative financial instruments as well as their classification on its balance sheet as of March 31, 2011 and December 31, 2010:

Tabular Disclosure of Fair Values of Derivative Instruments

	Asset Derivatives						Liability Derivatives

	As of March 31, 2011			As of December 31, 2010			As of March 31, 2011				As of December 31, 2010
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value			Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments
Interest rate products	Derivative instrument, at fair value	$	—	Derivative instrument, at fair value	$	—	Derivative liability, at fair value	$	—		Derivative liability, at fair value	$	—

Total derivatives designated as hedging instruments		$	—		$	—		$	—			$	—

Derivatives not designated as hedging instruments
Interest rate products	Derivative instrument, at fair value	$	55	Derivative instrument, at fair value	$	59	Derivative liability, at fair value	$	(201,728	)	Derivative liability, at fair value	$	(220,689	)

Total derivatives not designated as hedging instruments		$	55		$	59		$	(201,728	)		$	(220,689	)

The following tables present the effect of the Company's derivative financial instruments on its statement of operations for the three months ended March 31, 2011and 2010:

Derivatives in Cash Flow Hedging Relationships

	Location of Gain/(loss) recognized in income	Three Months Ended March 31, 2011		Three Months Ended March 31, 2010

*Interest rate products*
Amount of gain or (loss) in OCI on derivative (effective portion)	n/a	$	—	$	(857	)
Amount of gain or (loss) reclassified from accumulated OCI into income (effective portion)	Interest Expense	$	—	$	(335	)

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

14. Risk Management and Derivative Activities (Continued)

Derivatives Not Designated as Hedging Instruments

	Location of Gain/(loss) recognized in income	Three Months Ended March 31, 2011			Three Months Ended March 31, 2010

*Interest rate products*
Amount of gain or (loss) recognized in income	Unrealized gain (loss) on investment and other	$	(18,957	)	$	(33,749	)
Amount of gain or (loss) reclassified from accumulated OCI into income	Unrealized gain (loss) on investment and other	$	(1,874	)	$	(1,404	)

At March 31, 2011, the Company's counterparties hold approximately $23.7 million of cash margin as collateral against its swap contracts.

Credit Risk Concentrations

Concentrations of credit risk arise when a number of borrowers, tenants, operators or issuers related to the Company's investments are engaged in similar business activities or located in the same geographic location to be similarly affected by changes in economic conditions. The Company monitors its portfolio to identify potential concentrations of credit risks. The Company has no one borrower, tenant or operator that generates 10% or more of its total revenue. However, approximately 60.5% of the Company's rental and escalation revenue for the three months ended March 31, 2011, is generated from one tenant and one operator in the Company's healthcare net lease portfolio. The Company believes the remainder of its net lease portfolio is reasonably well diversified and does not contain any unusual concentration of credit risks.

15. Segment Reporting

The Company's real estate debt segment is focused on originating, structuring and acquiring senior and subordinate debt investments secured primarily by commercial real estate properties. The Company generates revenues from this segment by earning interest income from its debt investments and its operating expenses consist primarily of interest costs from financing the assets. This segment generates income from operations by earning a positive spread between the yield on its assets and the interest cost of its debt. The Company evaluates performance and allocates resources to this segment based upon its contribution to income from continuing operations.

The Company's operating real estate segment is focused on acquiring commercial real estate facilities located throughout the U.S. that are primarily leased under long-term triple-net leases to corporate tenants. Triple-net leases generally require the lessee to pay all costs of operating the facility, including taxes and insurance and maintenance of the facility. The Company's net-leased facilities are currently located in New York, Ohio, California, Utah, Pennsylvania, New Jersey, Indiana, Illinois, New Hampshire, Massachusetts, Kansas, Maine, South Carolina, Michigan, Colorado, North Carolina, Florida, Washington, Oregon, Wisconsin, Georgia, Oklahoma, Nebraska, Tennessee, Texas and

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

15. Segment Reporting (Continued)

Kentucky. Revenues from these assets are generated from rental income received from lessees of the facilities, and operating expenses, which include interest costs related to financing the assets, operating expenses, real estate taxes, insurance, ground rent and repairs and maintenance. The segment generates income from operations by leasing these facilities at a higher rate than the costs of owning and financing the assets.

The Company's real estate securities segment is focused on investing in a wide range of commercial real estate debt securities, including CMBS, REIT unsecured debt, credit tenant loans and unsecured subordinate securities of commercial real estate companies. The Company generates revenues from this segment by earning interest income and advisory fees from owning and managing these investments. Its operating expenses consist primarily of interest costs from financing its securities. The segment generates income from operations by earning advisory fees and a positive spread between the yield on its assets and the interest cost of its debt.

The following table summarizes segment reporting for the three months ended March 31, 2011 and 2010:

		Real Estate Debt			Operating Real Estate			Real Estate Securities			Healthcare			Broker- Dealer			Unallocated(1)			Consolidated Total

March 31, 2011:
	Interest income	$	46,945		$	4		$	50,609		$	59		$	—		$	23		$	97,640
	Rental and escalation income		39			9,578			—			23,310			—			—			32,927
	Commission income		—			—			—			—			918			—			918
	Other revenue		212			4			4			46			59			8			333

			47,196			9,586			50,613			23,415			977			31			131,818
	Interest expense		(8,791	)		(5,681	)		(9,945	)		(10,538	)		(65	)		1,600			(33,420	)
	Operating expenses		—			(1,676	)		—			(10,818	)		—			(3	)		(12,497	)
	Commission expense		—			—			—			—			(717	)		—			(717	)
	Realized gain (loss)		11,938			—			10,071			(535	)		—			(602	)		20,872
	Unrealized gain (loss)		(136,655	)		—			13,072			(16	)		—			(28,619	)		(152,218	)
	Equity earning in unconsolidated venture		(2,305	)		9			(8	)		—			—			76			(2,228	)
	Impairment on operating real estate / loan loss reserves		(28,982	)		—			—			—			—			—			(28,982	)
	Depreciation & amortization		(270	)		(3,971	)		—			(3,543	)		(15	)		(283	)		(8,082	)
	G&A and other		(4,091	)		(715	)		(961	)		(1,350	)		(1,959	)		(11,927	)		(21,003	)

			(169,156	)		(12,034	)		12,229			(26,800	)		(2,756	)		(39,758	)		(238,275	)
Income from discontinued operations			(219	)		49			—			579			—			—			409
Gain on sale of discontinued operations, net of minority interest			50			4,981			—			—			—			—			5,031

Consolidated net (loss)/income			(122,129	)		2,582			62,842			(2,806	)		(1,779	)		(39,727	)		(101,017	)

Net income (loss) attributable to the non-controlling interest			6,606			(140	)		(3,399	)		152			96			2,149			5,464
Preferred stock dividends			(6,325	)		134			3,254			(145	)		(92	)		(2,057	)		(5,231	)
Contingently redeemable			(3,638	)		77			1,872			(84	)		(53	)		(1,183	)		(3,009	)

Net income (loss) attributable to NorthStar Realty Finance Corp. common stockholders		$	(125,486	)	$	2,653		$	64,569		$	(2,883	)	$	(1,828	)	$	(40,818	)	$	(103,793	)

Total Assets as of March 31, 2011		$	2,209,633		$	400,836		$	1,914,478		$	606,779		$	1,470		$	268,465		$	5,401,662

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

15. Segment Reporting (Continued)

		Real Estate Debt			Operating Real Estate			Real Estate Securities			Healthcare			Broker- Dealer			Unallocated(1)			Consolidated Total

March 31,2010:
	Interest income	$	21,391		$	5		$	36,111		$	57		$	—		$	11		$	57,575
	Rental and escalation income		38			9,310			—			9,941			—			—			19,289
	Commission income		—			—			—			—			—			—			—
	Other revenue		225			3			1,909			—			—			57			2,194

			21,654			9,318			38,020			9,998			—			68			79,058
	Interest expense		(11,213	)		(5,947	)		(7,105	)		(7,503	)		—			(395	)		(32,163	)
	Operating expenses		(3	)		(1,549	)		—			(45	)		—			(4	)		(1,601	)
	Commission expense		—			—			—			—			—			—			—
	Realized gain (loss)		(1,173	)		—			2,889			(283	)		—			—			1,433
	Unrealized gain (loss)		(1,101	)		—			25,238			—			—			(24,576	)		(439	)
	Equity earning in unconsolidated venture		(461	)		140			(912	)		2,413			—			169			1,349
	Impairment on operating real estate / loan loss reserves		(36,316	)		—			—			—			—			—			(36,316	)
	Depreciation & amortization		(4	)		(3,977	)		—			(3,502	)		(2	)		(300	)		(7,785	)
	G&A and other		(3,328	)		(487	)		(920	)		(1,392	)		(856	)		(16,945	)		(23,928	)

			(53,599	)		(11,820	)		19,190			(10,312	)		(858	)		(42,051	)		(99,450	)
Income from discontinued operations			—			60			—			229			—			—			289

Consolidated net (loss)/income			(31,945	)		(2,442	)		57,210			(85	)		(858	)		(41,983	)		(20,103	)

Net income (loss) attributable to the non-controlling interest			3,772			288			(6,755	)		(1,952	)		101			4,957			411
Preferred stock dividends			(8,313	)		(635	)		14,887			(22	)		(223	)		(10,925	)		(5,231	)

Net income (loss) attributable to NorthStar Realty Finance Corp. common stockholders		$	(36,486	)	$	(2,789	)	$	65,342		$	(2,059	)	$	(980	)	$	(47,951	)	$	(24,923	)

Total Assets as of March 31, 2010		$	2,113,427		$	441,580		$	1,251,211		$	625,362		$	—		$	96,233		$	4,527,813

(1): Corporate Investments and Other includes corporate level investments, corporate level interest income, interest expense and unallocated general & administrative expenses.

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

16. Supplemental Disclosure of Non-Cash Investing and Financing Activities

A summary of non-cash investing and financing activities for the three months ended March 31, 2011 and 2010 is presented below:

	March 31

	2011			2010
Foreclosure of operating real estate		(56,770	)
Assumption of mortgage notes and loans payable in connection with foreclosure		36,252
Reduction of real estate debt investments in connection with foreclosure		7,215
Elimination of real estate debt investments in connection with foreclosure		13,527
Increase of restricted cash in connection with foreclosure		(2,075	)
Consolidate assets of of Nstar CDO financing		—			(812,166	)
Consolidate liabilities of Nstar CDO financing		—			628,595
Consolidate non-controlling interest		—			3,216
Distribution of operating real estate to non-controlling interest		—			9,525
Distribution of mortgage notes and loans payable to non-controlling interest		—			(4,734	)
Deconsolidate of non-controlling interest		—			(1,815	)

17. Fair Value of Financial Instruments

The following disclosures of estimated fair value were determined by the Company, using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

As of March 31, 2011 and December 31, 2010, cash equivalents, accounts receivable and accounts payable, reasonably approximate their fair values due to the short-term maturities of these items. The available for sale securities are carried on the balance sheet at their estimated fair value.

For the real estate debt investments the fair value of the fixed and floating rate investments was approximated comparing yields at which the investments are held to estimated yields at which loans originated with similar credit risks or market yields at which a third party might require to purchase the investment by discounting future cash flows at such market yields. Prices were calculated assuming fully extended maturities regardless of structural or economic tests required to achieve such extended maturities. At March 31, 2011 the fair market value was $1.6 billion with a gross principal amount of $2.7 billion. At December 31, 2010, the fair market value was $1.6 billion with a gross principal amount of $2.7 billion. Of the $2.7 billion gross principal amount, approximately $997.1 million of gross principal amount in CSE RE 2006-A was recorded at a fair market value of approximately $321.4 million at December 31, 2010.

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

17. Fair Value of Financial Instruments (Continued)

For the exchangeable senior notes, the Company uses available market information, which includes quoted market prices or recent transactions, if available to estimate their fair value. At March 31, 2011, the fair market value of the 7.50% exchangeable senior notes was $158.3 million with a carrying amount of $158.2 million, the fair market value of the 7.25% exchangeable senior notes was $32.7 million with a carrying amount of $31.7 million and the fair market value of the 11.50% exchangeable senior notes was $64.4 million with a carrying amount of $59.6 million. At December 31, 2010, the fair market value of the 7.25% exchangeable senior notes was $64.4 million, with a carrying amount of $67.4 million and the fair market value of the 11.50% exchangeable senior notes was $56.8 million with a carrying amount of $59.4 million.

For fixed rate mortgage loans payable, the Company uses rates currently available to them with similar terms and remaining maturities to estimate their fair value. At March 31, 2011, the fair market value was $850.1 million with a carrying amount of $838.8 million. At December 31, 2010, the fair market value was 818.9 million with a carrying amount of $803.1 million.

As of March 31, 2011 the estimated fair value of the Company's TALFs was approximately $15.1 million with a carrying amount of $14.7 million. As of December 31, 2010 the estimated fair value of the Company's TALFs was approximately $15.3 million with a carrying amount of $14.7 million. The estimated fair value is based on interest rates available at March 31, 2011 and December 31, 2010, respectively, for issuance of debt with similar terms and remaining maturities. The estimated fair value of the Company's TALFs is not necessarily indicative of the amounts that the Company could realize in a current market exchange.

Disclosure about fair value of financial instruments is based on pertinent information available to management as of March 31, 2011 and December 31, 2010. Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.

18. Commitments and Contingencies

Chatsworth Property

One of the Company's net lease investments was comprised of three office buildings totaling 257,000 square feet located in Chatsworth, CA and was 100% leased to Washington Mutual Bank, FA, or WaMu. NRFC NNN Holdings, Inc. , or NNN, which is a subsidiary of the Company, is a defendant in a lawsuit, or the Lawsuit, filed by GECCMC 2005-CI Plummer Office Limited Partnership, or the Lender, in the Superior Court of the State of California, County of Los Angeles, relating to a loan the properties previously owned by one of the Company's subsidiaries, NRFC Sub IV, that were 100% leased, or the Lease, to WaMu. The Lawsuit alleges, among other things, that the loan provided by Lender to NRFC Sub IV became a recourse obligation of NNN due to an alleged termination of the Lease. The judge presiding over the Lawsuit granted the Lender's motion for summary judgment and, accordingly, entered a judgment against NNN in the amount of approximately $45 million, or the Judgment. NNN intends to vigorously pursue an appeal of the decision.

Table of Contents

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amount in Thousands, Except per Share Data

(Unaudited)

18. Commitments and Contingencies (Continued)

Pursuant to the guidance Accounting for Contingencies, an estimated loss from a loss contingency shall be accrued by a charge to income if two conditions are met. First, information available prior to the issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements. It is implicit in this condition that it must be probable that one or more future events will occur confirming the facts of the loss. Second, the amount of the loss can be reasonably estimated. The Company believes it is not probable that the Lawsuit will result in an unfavorable outcome and, therefore, the Company has not established an accrual relating to the Lawsuit.

In connection with filing for an appeal, pursuant to California law NNN is required to post a bond in an amount equal to one and a half times the amount of the Judgment, or the Bond. Accordingly, the Company has entered into a standard General Agreement of Indemnity with an issuer of surety bonds, or the Surety Agreement. On January 7, 2011, as part of the Surety Agreement, in connection with the issuance of the Bond, the Company posted cash collateral equal to thirty- eight percent of the amount of the Bond, or approximately $26.1 million.

19. Subsequent Events

Dividends

On May 4, 2011, the Company declared a dividend of $0.10 per share of common stock, $0.54688 per share of Series A preferred stock and $0.51563 per share of Series B preferred stock. The dividends will be paid on May 25, 2011, to the stockholders of record as of the close of business on May 18, 2011.

Debt Repurchases

During April 2011, the Company repurchased approximately $8.5 million face amount of its 7.25% exchangeable senior notes for a total of $8.8 million, $4.0 million face amount of its 11.50% exchangeable senior notes for a total of $4.3 million and $82.3 million face amount of its N-Star CDO bonds payable for a total of $34.7 million.

B-Piece Transaction

During April 2011, the Company was selected as the winning bidder of the "B-piece" in a new approximately $2 billion CMBS securitization. The Company expects the transaction to close in the second quarter of 2011 and expects, subject to obtaining certain ratings on the bonds, to utilize approximately $7 million of unrestricted cash and $20 million of restricted cash in its CDO financings as part of the transaction. The Company intends to appoint itself as special servicer in the securitization.

Healthcare Net Lease Sale

In April 2011, the Company completed the sale of a portfolio of healthcare net lease assisted living facilities for $101.5 million. The purchaser assumed $73.5 million of mortgage debt secured by the assets in the portfolio.

Table of Contents

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our financial statements and notes thereto included in this report.

Forward-Looking Statements

Certain items in this report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, among other things, the operating performance of our investments, financing needs, future market opportunities, financial condition and disclosure in Item 2. of this report—Management's Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may," "will," "should," "potential," "intend," "expect," "seek," "anticipate," "estimate," "believe," "could," "project," "predict," "continue" or other similar words or expressions. Forward-looking statements are not guarantees of performance and are based on certain assumptions, discuss future expectations, describe plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information. Our ability to predict results or the actual effect of plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from those forward looking statements. We are under no duty to update any of the forward- looking statements after the date of this report to conform these statements to actual results.

Factors that could have a material adverse effect on our operations and future prospects are set forth in "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2010, as amended, and those described from time to time in our future reports filed with the Securities and Exchange Commission. The factors set forth in the Risk Factors section could cause our actual results to differ significantly from those contained in any forward-looking statement contained in this report.

Introduction

We primarily derive revenues from interest income on the real estate debt investments that we originate with borrowers or acquire from third parties and our real estate securities in which we invest. We generate rental income from our net lease investments.

We primarily derive income on a recurring basis through the difference between the interest and rental income we are able to generate from our investments, and the cost at which we are able to obtain financing for our investments. In order to protect this difference, or "spread", we seek to match-fund our investments using secured sources of long term financing such as CDO financings, mortgage financings and long-term unsecured subordinate debt. Match-funding means that we try to obtain debt with maturities equal to our asset maturities, and borrow funds at interest rate benchmarks similar to our assets. Match-funding results in minimal impact to spread when interest rates are rising and falling and minimizes refinancing risk since our asset maturities match those of our debt. We may also acquire investments which generate attractive returns with no long-term financing. Realized gains have more recently been a significant source of income and have been primarily derived by selling assets at premiums to our carrying values. Realized gains are very dependent on market conditions; therefore, it is difficult to predict whether realized gains may be a significant part of our income in the future.

Profitability and Performance Metrics

We calculate several metrics to evaluate the profitability and performance of our business.

Table of Contents

•: Adjusted funds from operations: ("AFFO") (see "Non-GAAP Financial Measures—Funds from Operations and Adjusted Funds from Operations" for a description of this metric).
•: Credit losses are a measure of the performance of our investments and can be used to compare the credit performance of our assets to our competitors and other finance companies.
•: Assets Under Management ("AUM") growth is a key driver of our ability to grow our earnings, but is of lesser importance than other metrics such as AFFO.

Credit risk management is our ability to manage our assets in a manner that preserves principal and income and minimizes credit losses that would decrease income.

Corporate expense management influences the profitability of our business. We must balance making appropriate investments in our infrastructure and employees with the recognition that our accounting, finance, legal and risk management infrastructure does not directly generate quantifiable revenues for us. We frequently refer to general and administrative expenses, excluding stock-based compensation expense, divided by total revenues as a measure of our efficiency in managing expenses.

Availability and cost of capital will impact our profitability and earnings since we must raise new capital to fund a majority of our AUM growth.

Outlook and Recent Trends

Virtually all commercial real estate property types were adversely impacted by the recent economic recession, including core property types such as hotel, retail, office, industrial and multi-family properties. Land, condominium and other commercial property types have been more severely impacted. As a result, cash flows and values associated with properties serving as collateral for our loans are generally weaker than expected when we originated the loans. Our loan loss provisioning levels for 2009 and 2010 were higher than in the past due to the impact of these conditions. Despite weak economic conditions, during 2010 and into 2011, investor interest began returning to commercial real estate especially in urban areas having high concentrations of institutional quality real estate, and in certain asset types such as apartments and hotels that are expected to benefit quickly from recovering economic conditions. During the remainder of 2011, the degree to which commercial real estate values erode or improve within the local markets in which our real estate collateral is located will impact the level of loan losses in our asset base.

Many of our real estate loans bear interest rates based on a spread to one-month LIBOR, a floating rate index based on rates that banks charge each other to borrow. One-month LIBOR as of March 31, 2011, is 0.24%, well below its 2.93% average over the past five years. Lower LIBOR means lower debt service costs for our borrowers which have partially offset decreasing cash flows caused by the recent economic recession, and extended the life of interest reserves for those loans that require interest reserves to service debt while the collateral properties are being repositioned by our borrowers. Lower interest rates also theoretically support real estate valuations because a lower discount rate is applied to underlying future real estate cash flow assumptions in valuing a property, although the availability and cost of debt capital appears to have a much more significant impact on property values. Although investor interest in real estate has improved into 2011, much of the new capital has been directed to the highest quality, stabilized urban real estate assets and properties expected to benefit quickly from improving economic conditions. Many of our collateral properties had business plans to improve occupancy and cash flows that have not been accomplished due to the recent economic recession. Weak cash flow performance and conservative underwriting standards by current market lenders continue to cause difficulties in obtaining repayments at maturity for our loans.

For existing loans, when credit spreads widen, which was the case in 2008 and early 2009, the economic value of existing loans decreases. Although credit spreads decreased in 2010, if a lender were to originate a similar loan today, such loan would likely still carry a greater credit spread than the

Table of Contents

existing loan as a result of the recent economic recession. Even though a loan may be performing in accordance with its loan agreement and the underlying collateral has not changed, the economic value of the loan may be negatively impacted by the incremental interest foregone from the widened credit spread. Accordingly, when a lender wishes to sell or finance the loan, the reduced value of the loan will impact the total proceeds that the lender will receive.

Our real estate securities investments are also negatively impacted by weaker real estate market and economic conditions. Within the underlying loan pools, slowdown in economic conditions is reducing tenants' ability to make rent payments in accordance with the terms of their leases. Additionally, to the extent that market rental rates are reduced, property-level cash flows are negatively affected as existing leases renew at lower rates. Finally, declining occupancy rates also impact cash flow and reduce borrowers' ability to service their outstanding loans.

Real estate securities values are also influenced by credit ratings assigned to the securities by accredited rating agencies. In 2009, the rating agencies changed their ratings methodologies for all securitized asset classes, including commercial real estate, in light of questionable ratings previously assigned to residential mortgage portfolios. Combined with a poor economic outlook, their reviews have resulted in large amounts of ratings downgrade actions for CMBS in 2009, 2010 and into 2011, negatively impacting market values of CMBS and in many cases negatively impacting the CDO financing structures used by us and others to leverage these investments. To some extent, we countered the rating agency downgrades by purchasing approximately $1.2 billion of CMBS in 2009 and 2010 at a weighted average discount to par of approximately 60%.

Our net leased assets are also adversely impacted by a weaker economy. Corporate space needs contracted resulting in lower lease renewal rates and longer releasing periods when leases are not renewed. Poor economic conditions may negatively impact the creditworthiness of our tenants, which could result in their inability to meet the terms of their leases.

Our Strategy

We responded to these difficult conditions by decreasing investment activity and aggressively raising corporate capital when we observed deteriorating market conditions and we expect credit to continue to be challenging for the remainder of 2011. We currently anticipate that most of our investment activity and uses of available unrestricted cash liquidity will be focused on discounted repurchases of our previously issued debt securities, opportunistic investments and growth in our asset management portfolio.

The relative lack of supply and high demand for capital is allowing investors with cash to make investments with attractive returns compared to historical levels. For this reason, in addition to raising capital in the public markets, we are working to raise equity capital through alternative channels, especially in the non-listed REIT market. During 2010, we raised approximately $37.7 million in the non-traded REIT sector for NSREIT and its predecessor, and filed a registration statement for NorthStar Senior Care Trust, Inc. During the first quarter 2011, we raised $9.3 million, bringing the total raised to date to $40 million for our non-listed REIT effort, with executed selling agreements with broker-dealers covering an average of approximately 2,700 registered representatives for the quarter. NRF Capital Markets LLC, our wholly-owned broker dealer subsidiary, currently has executed selling agreements with broker-dealers covering more than 12,000 registered representatives and is in the due diligence phase with firms covering an additional approximately 20,000 registered representatives. There is no assurance that NRF Capital Markets, LLC will execute selling agreements with all or any of the registered representatives that are currently conducting due diligence. We are the advisor to these companies and earn management fees which vary based on the amount of assets under management and investment performance. We expect to use our broad commercial real estate investment and management platform to operate these companies and to earn management fees in return for our

Table of Contents

services, and the non-traded REIT efforts reflect our strategy of accessing alternative sources of equity capital and leveraging our existing platform to generate fee revenues.

Our Financing Structures

As of March 31, 2011, approximately $4.0 billion of our collateralized debt obligations permit reinvestment of capital proceeds, which means when the underlying assets repay or are sold we are able to reinvest the proceeds in new assets without having to repay the liabilities. Approximately $954.4 million of our funded loan commitments have their initial maturity date during the remainder of 2011; however, many of the loans contain extension options of at least one year. We also expect that a majority of the $686.9 million of loans having final maturities during the remainder of 2011 will have their maturities extended beyond 2011 with the expectation that future periods will have more attractive economic conditions and cheaper debt capital. It is therefore difficult to estimate how much capital, if any, will be generated in our CDO financings from loan repayments during the remainder of 2011.

Our CDO structures do not have corporate financial covenants but require that the underlying loans and securities meet interest coverage and collateral value coverage (as defined by the indentures) in order for us to receive regular cash flow distributions. If the tests are not met, cash flow is diverted from us to repay the liabilities until the tests are back into compliance. In some cases, our ability to reinvest can be adversely impacted if these tests are not in compliance. Ratings downgrades and defaults of CMBS and other securities can reduce the deemed value of the security in measuring collateral coverage, depending on the level of the downgrade. Also, defaults in our loans can reduce the collateral coverage of the defaulted loan in our CDO structures. As economic conditions remain weak and capital for "legacy" commercial real estate assets remains scarce, we expect credit quality in our assets to remain weak. While we have devoted a majority of our resources to managing our existing asset base, a poor economic environment and additional credit ratings downgrades will make maintaining compliance with the CDO structures more difficult, jeopardizing regular cash flow distributions to our company.

We believe that liquidity is returning to the commercial real estate finance markets and corporate capital is currently available to the stronger REITs. Approximately $20.3 billion in multi-borrower CMBS transactions were completed during 2010 and the first quarter of 2011, and many industry experts are predicting at least $30-$40 billion of total CMBS issuance in 2011. Wall Street banks have also begun to more actively provide credit to real estate lenders to originate or purchase new real estate loans. We expect that credit availability will continue to improve during the remainder of 2011, increasing opportunities for us to access attractive capital.

Risk Management

We use many methods to actively manage our asset base to preserve our income and capital. For loans and net lease assets, frequent dialogue with borrowers/tenants and inspections of our collateral and owned properties have proven to be an effective process for identifying issues early and prior to missed debt service and lease payments. Many of our loans also require borrowers to replenish cash reserves for items such as taxes, insurance and future debt service costs. Late replenishments of cash reserves also may be an early indicator there could be a problem with the borrower or collateral property. We also may negotiate modifications to loan terms if we believe such modification improves our ability to maximize principal recovery. Modifications may include changes to contractual interest rates, maturity dates and other borrower obligations. When we make a concession such as reducing an interest rate or extending a maturity date, we seek to get additional collateral and/or fees in return for the modification although as challenging real estate conditions continue, obtaining additional collateral from struggling borrowers is difficult. In some cases we may issue default notices and begin foreclosure proceedings when the borrower is not complying with the loan terms and we believe taking control of the collateral is the best course of action to protect our capital. For net leases, we may seek to obtain

Table of Contents

up-front or accelerated payment in return for an early cancelation of the lease if we believe the tenant's creditworthiness has significantly deteriorated and that taking control of the property and re-leasing it maximizes value.

In certain circumstances, we may pursue loan sales and payoffs at discounts to our book value. We may agree to discounted sales or payoffs where we believe there is an economic benefit from monetizing the asset in advance of its contractual maturity date. For example, we may accept a discounted payoff where we believe the cash proceeds can be reinvested at a much higher rate of return (including the capital loss from the payoff), where we believe there is significant risk of collateral value or cash flow erosion through maturity, or where we believe refinancing risk at maturity is very high. When evaluating sales and payoffs at discounts to book value, we also consider the impact such transactions have on our financing structures, corporate debt covenants and earnings.

Securities investments generally have a more liquid market than loans and net lease assets, but we typically have very little control over restructuring decisions when there are problems with the underlying collateral. We have become a rated special servicer by S&P and Fitch and intend to appoint ourselves as special servicer in CMBS transactions where we become the controlling class holder in order to, among other things, have more control over restructurings. We manage risk in the securities portfolio by selling the asset when we can obtain a price that is attractive relative to its risk. In certain situations, we may sell an asset because there is an opportunity to reinvest the capital into a new asset with a more attractive risk/return profile.

We conduct a quarterly comprehensive credit review which is designed to enable management to evaluate and proactively manage asset-specific credit issues and identify credit trends on a portfolio-wide basis as an "early warning system." Nevertheless, we cannot be certain that our review will identify all issues within our portfolio due to, among other things, adverse economic conditions or events adversely affecting specific assets; therefore, potential future losses may also stem from assets that are not identified by our credit reviews. During the quarterly reviews, assets are put on non-performing status and identified for possible impairment based upon several factors, including missed or late contractual payments, significant declines in collateral performance, and other data which may indicate a potential issue in our ability to recover our capital from the investment.

On July 8, 2010, we acquired, as part of the CSE RE 2006-A CDO acquisition, commercial real estate loans having an aggregate $1.1 billion outstanding principal balance. The loans were recorded as of July 8, 2010, at their estimated $396.0 million fair market value. As of March 31, 2011, the CSE RE 2006-A loans had an aggregate $888.3 million outstanding principal balance and an aggregate $251.2 million carrying value. The $654.9 million acquisition discount as of March 31, 2011, acts as a built-in reserve for credit issues and recoveries less than contractual amounts related to these acquired loans. Although fair market values and any related discounts to outstanding principal balances were determined on a loan-by-loan basis and therefore cannot be allocated to other loans, we believe the overall discount provides protection to our basis for ongoing credit issues associated with this portfolio.

At March 31, 2011, we had two loans, exclusive of the CSE RE 2006-A loans, totaling $41.0 million of aggregate outstanding principal amount on non-performing status due to maturity defaults, and $38.8 million of our loan loss reserves were allocated to these loans. First mortgages represent approximately 30.5% of the gross book value of these loans (exclusive of reserves), and 69.5% of the loans are backed by land collateral. There can be no assurance that there will be acceptable outcomes under our non-performing loans and accordingly, we may, in the future, determine that more reserves are required for these loans.

During March, 2011, we foreclosed on a mezzanine loan having a principal amount of approximately $7.2 million and a maturity default as of January 15, 2011.

Table of Contents

Overall, the prolonged poor economic conditions and the scarcity of commercial real estate debt capital resulted in increasing stress levels for commercial real estate credit. A shrinking economy generally results in decreasing real estate cash flows as corporations and consumers reduce their real estate needs, travel and spending. While the overall economy has recently seen some signs of growth, generally lower property cash flows than when the existing financing was completed are causing real estate owners to continue to have difficulty refinancing their assets at maturity. Many owners are also having trouble achieving their business plans to the extent they acquired a property to reposition it or otherwise invest capital to increase the property's cash flows. Property values are generally lower today than when many of our loans were originated. Lower values make it difficult for real estate investors to sell their properties and to recoup their capital. As a result of the generally weak commercial real estate market, many lenders, including us, are concluding that extending loans at maturity, rather than foreclosure and sale, may be the most attractive path for maximizing value.

Many of our loans were made to borrowers who had a business plan to improve the collateral property and who therefore needed a flexible balance sheet lender. In many cases we required the borrowers to pre-fund reserves to cover interest and operating expenses until the property cash flows increased sufficiently to cover debt service costs. We also required the investor to refill these reserves if they became deficient due to underperformance and if the borrower wanted to exercise extension options under the loan. Despite low interest rates, we expect that in the future some of our borrowers may have difficulty servicing our debt because they cannot achieve their business plan. If any of our borrowers are unable to replenish reserves and otherwise are unable to ultimately achieve their business plans, the related loans may become non-performing. In addition, even if a borrower's business plan is achieved, current real estate valuations and the financing environment may result in a borrower being unable to recoup its invested capital and a default under the loan causing a partial or full loss of our loan principal.

Each of our loan investments, while primarily backed by commercial real estate collateral, is unique and requires customized asset management strategies for dealing with potential credit situations. The complexity of each situation depends on many factors, including the number of collateral properties, the type of property, macro and local market conditions impacting the demand, cash flow and value of the of the collateral, and the financial condition of our borrowers and their willingness to support our collateral properties. Additionally, in many cases there are multiple lenders involved with specific collateral properties and these lenders may have different objectives which influence their preferred strategy for dealing with a credit situation.

Our impairment analyses often requires that we make assumptions regarding collateral values and the timing regarding when we will receive debt service payments, including principal recovery. In a difficult environment for commercial real estate, our impairment analyses may lead us to the determination that extending and working out a loan, rather than pursuing foreclosure, is the best course of action to maximize total and long-term value. However, in situations where there are multiple creditors in large capital structures, it can be particularly difficult to assess the most likely course of action that a lender group or the borrower may take. Consequently, there could be a wide range of potential principal recovery outcomes, the timing of which can be unpredictable, based on the strategy pursued by a lender group and/or by a borrower. Our impairment analysis in each of these situations is based on our assessment of the facts and circumstances currently known to us and because these situations often involve complicated collateral and complex creditor and borrower dynamics, our assessment of recovery value may change more dramatically and quickly and without the visibility that may be available in other situations. These multiple creditor situations tend to be associated with larger loans, and NorthStar has been and continues to be involved in situations such as these, although NorthStar, as one of a group of lenders and often a lender on a subordinated basis, does not independently control the decision making. The discussion below summarizes the largest credit situations that currently meet some of the foregoing characteristics.

Table of Contents

East Rutherford, NJ Retail Construction First Mortgage Loan.

We own a 22% interest held in Meadowlands One, LLC that is secured by a retail/entertainment complex located in East Rutherford, NJ ("NJ Property"), and the lender group is in the process of seeking to recapitalize the NJ Property. While the lender group has selected a developer to complete the NJ Property, there is no assurance that a recapitalization will be completed or that a recapitalization will be completed on terms acceptable to us, which could have a material adverse effect on our business and operations.

Las Vegas, NV Casino/Hotel Mezzanine Loan.

We own an $89 million mezzanine loan (the "NV Loan") that is secured by the Hard Rock Hotel and Casino in Las Vegas, NV (the "Hard Rock"). We, along with certain of the other lenders, and the borrower and its affiliates under the NV Loan, have completed a long-term restructuring of the NV Loan. As part of the restructuring, Brookfield took ownership of the Hard Rock and entered into a seven-year loan with the existing senior lender, subject to achieving certain tests, and we will retain our $89 million mezzanine loan (or its economic equivalent), as well as an equity participation in the Hard Rock. There is no assurance that the restructured NV Loan will be successful over time. Accordingly, we may lose all of our investment, which could have a material adverse effect on our business and operations.

German Retail Portfolio Mezzanine Loan Participation

We own a €43.4 million participation in a mezzanine loan that is collateralized by a German retail portfolio that is net leased to a single tenant (the "Tenant") that filed for bankruptcy in Germany (the "German Loan"). The sale of the Tenant by the German bankruptcy administrator to Berrgruen Holdings was finalized on October 8, 2010 allowing for a restructuring of the German Loan effective as of July 20, 2010. Since the restructuring the loan has been performing, however, there can be no assurance that the German Loan will not default in the future. We are also subject to foreign currency translation gains or losses based upon the effective exchange rates at the end of each reporting period. For the period ending March 31, 2011, we recognized a foreign currency translation gain of approximately $3.7 million, which is recorded in realized gains on investments and other in the condensed consolidated statement of operations.

Critical Accounting Policies

Refer to the section of our Annual Report on Form 10-K, as amended, for the year ended December 31, 2010 entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting policies" for a full discussion of our critical accounting policies.

Recent Accounting Pronouncements

In April 2011, the FASB issued guidance requiring that in evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both of the following exist (i) the restructuring constitutes a concession and (ii) the debtor is experiencing financial difficulties. The guidance is effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. We are evaluating the effect the guidance will have on our condensed consolidated financial statements.

Table of Contents

Consolidation of Variable Interest Entities

B-Piece Transactions

We may obtain ownership of the controlling class of a securitization through our current investments in "B piece" securities or through our ownership of CMBS bonds. Ownership of the controlling class may give us the right to appoint the special servicer in the applicable CMBS securitization and certain veto rights. Having the ownership in the controlling class and the right to appoint the special servicer may require us to consolidate these CMBS securitizations, which would result in recording all the assets and liabilities of these securitizations in our balance sheet and the revenue and expenses of the securitization in our Statement of Operations.

In March 2011, our existing investment in securities of a securitization, with a fair value of $3.6 million as of March 31, 2011 became the controlling class of a securitization we did not sponsor. The securitization was formed in April 2000 and our investment is generally passive in nature. The ownership of more than 50% of the controlling class and the right to appoint the special servicer, gives us the power to direct the activities that impact the economic performance of the VIE. This entity should be consolidated, but we are unable to determine the fair value of the collateral due to lack of available information. We have made, and continue to make, exhaustive efforts to obtain information about this entity and have excluded it from the application of ASC 810-10 due to lack of essential information to determine the accounting required to consolidate the entity. Since the securitization was created in 2000, it is pre 2003 and we have therefore applied the scope exemption available in ASC 810-10-15-17(C). We will continue to request this information, but the master servicer is not legally obligated to provide us the non-public documentation and has not provided the information related to the collateral requested by us.

The principal amount of the assets and liabilities each is approximately $29.3 million. The bonds are non-recourse to us and our maximum exposure to loss is our investment in the securities in the securitization of $3.6 million as of March 31, 2011.

RESULTS OF OPERATIONS

Comparison of the Three Months Ended March 31, 2011 to the Three Months Ended March 31, 2010

Revenues

Interest Income

Interest income for the three months ended March 31, 2011 totaled $97.6 million, representing an increase of $40.0 million, or 70%, compared to $57.6 million for the three months ended March 31, 2010. For the three months ended March 31, 2011, the increase in interest income was primarily attributable to: (i) the addition of $33.2 million in interest income, of which $11.9 million was related to contractual interest, $11.8 million related to accretion of the discount on loans fully repaid and $9.5 million related to accretion of the discount on loans outstanding, as the result of the July 2010 acquisition of CSE RE 2006-A CDO financing's real estate debt investments and available for sale securities and (ii) the addition of $12.4 million in interest income as the result of the July 7, 2010 consolidation of the N-Star IX CDO financing's available for sale securities and real estate debt investments partially offset by lower average interest rates due to loan modifications and lower comparable asset balances resulting in a decrease of approximately $5.4 million in interest income.

Rental and Escalation Income

Rental and escalation income for the three months ended March 31, 2011 totaled $32.9 million, representing an increase of $13.6 million, or 71%, compared to $19.3 million for the three months ended March 31, 2010. The increase was primarily attributable to an increase of approximately

Table of Contents

$13.4 million related to the acquisition of the 51% membership interest in Midwest Holdings formerly owned by Chain Bridge, an increase of approximately $0.6 million related to an office park in Indiana as a result of its March, 2011 foreclosure and an increase in rental income of approximately $0.1 million related to a new lease at our Reading, PA property, partially offset by a decrease of $0.5 million related to lower rents and the remaining vacancy at the Cincinnati, OH property.

Commission Income

Commission income represents income earned by us for selling equity, through our broker-dealer subsidiary, for the NorthStar Real Estate Income Trust, Inc. For the three months ended March 31, 2011, we recorded $0.9 million in commission income related to these capital raising efforts. We had no such commission income for the three months ended March 31, 2010.

Other Revenue

Other revenue for the three months ended March 31, 2011 totaled $0.3 million, representing a decrease of $1.9 million, or 91%, compared to $2.2 million for the three months ended March 31, 2010. Other revenue for the three months ended March 31, 2011 consisted primarily of $0.2 million in interest income and advisory fees and $0.3 million in various other fees, such as exit fees, draw fees, and late fees. Other revenue for three months ended March 31, 2010 consisted primarily of $0.9 million in early redemption fees on debt securities available for sale, $0.4 million in advisory fees on the N-Star CDO IX financing, $0.6 million in interest income from securities owed in our CDO financings prior to consolidation and $0.2 million in other fees.

Expenses

Interest Expense

Interest expense for the three months ended March 31, 2011 totaled $33.4 million, representing an increase of $1.2 million, or 4%, compared to $32.2 million for the three months ended March 31, 2010. The increase in interest was primarily the result of: (i) the addition of $2.0 million in interest expense as the result of the July 8, 2010 acquisition of CSE RE 2006-A CDO vehicle; (ii) the addition of $1.3 million in interest expense as the result of the July 7, 2010 acquisition of the N-Star IX CDO financing from our securities fund; (iii) $2.0 million in additional interest related to refinancing of loans and modifications in our health care portfolio; (iv) $0.6 million in additional interest due to the March 2011 issuance of our 7.50% Notes; and (v) $0.6 million in additional interest due to various new investments. The increase in interest expense was partially offset by (i) $4.2 million in lower interest as a result of the June 30, 2010 repayment of the WA Secured Term Loan and Euro-note (ii) $0.6 million in lower expense due to the repurchase of related party bonds; and (i) $0.3 million lower interest on our 11.50% and 7.25% exchangeable senior notes due to 2010 repurchases.

Real Estate Properties—Operating Expenses

Real estate property operating expenses for the three months ended March 31, 2011 totaled $12.5 million, representing an increase of $10.9 million, or 681%, compared to $1.6 million for three months ended March 31, 2010. The increase was primarily attributable to $11.0 million related to our acquisition of an additional 51% membership interest in Midwest Holdings, formerly owned by Chain Bridge, partially offset by lower expenses of approximately $0.1 million due to reduced occupancy.

Asset Management Expenses

Asset management expenses for the three months ended March 31, 2011 totaled $1.6 million, representing an increase of approximately $0.9 million, or 129%, compared to $0.7 million for the three months ended March 31, 2010. Asset management expenses consist of cost incurred related to

Table of Contents

maintaining existing assets under management, such as legal and consulting fees related to loan modifications and restructurings and acquisition cost related to new investment activity. The increase in asset management expenses was primarily attributable to additional asset under management related to the acquisition of the CSE RE 2006-A CDO of $0.6 million and additional legal expenses related to existing asset management of approximately $0.3 million.

Commission Expense

Commission expense represents the portion of commission income which is paid to broker dealers with whom we have distribution agreements. For the three months ended March 31, 2011, we recorded $0.7 million in commission expense related to capital raising efforts. We had no such commission expense for the three months ended March 31, 2010.

Asset Management Fees—Related Party

We had no asset management fees-related parties for the three months ended March 31, 2011 due to the internalization of our healthcare management team. Asset management fees-related parties for the three months ended March 31, 2010 totaled $0.5 million and represented asset management fees associated with our healthcare portfolio.

Provision for Loan Losses

Provision for loan losses for the three months ended March 31, 2011 totaled $24.5 million for eight loans. The provision for loan losses as of March 31, 2011 includes $19.1 million for mezzanine loans, $5.0 million for subordinated mortgage interests and $0.4 million for first mortgage whole loans. The provision for loan losses for the three months ended March 31, 2010 included $6.1 million for first mortgage whole loans, $14.0 million for subordinated mortgage interests, $17.0 million for mezzanine loans and a $0.8 million credit for a first mortgage whole loan.

Provision for Loss on Equity Investment

Provision for Loss on Equity Investment losses for the three months ended March 31, 2011 totaled $ 4.5 million, representing a permanent impairment on our joint venture investment in the NJ Property. Our investment was permanently impaired as a result of the current recapitalization values.

General and Administrative

General and administrative expenses for the three months ended March 31, 2011 totaled $19.3 million, representing a decrease of $3.5 million, or 16%, compared to $22.8 million for the three months ended March 31, 2010. The primary components of our general and administrative expenses were the following:

Salaries and equity-based compensation for the three months ended March 31, 2011 totaled $12.7 million, representing a decrease of approximately $3.8 million, or 24%, compared to $16.5 million, for the three months ended March 31, 2010. The decrease was attributable to a $0.8 million decrease related to salaries and accrued cash incentive compensation costs and a $3.1 million decrease related to equity-based compensation. The $0.8 million decrease in salaries and accrued compensation was primarily attributable to the reversal of $1.3 million of accrued bonus related to our former chief financial officer and a 2010 one-time expense of $3.6 million relating to the separation and consulting agreement with our former chief operating officer. The decrease was offset set by $2.8 million of compensation expense related to the long-term incentive component of our incentive compensation plan and an increase of $1.3 million related to our broker-dealer subsidiary. The $3.1 million decrease in equity-based compensation expense was attributable to a 2010 one-time expense of $1.0 million relating to the separation and consulting agreement with our former chief

Table of Contents

operating officer and $2.3 million decrease in expense from equity-based awards issued under our 2004 Omnibus Stock Incentive Plan becoming fully vested.

Auditing and professional fees for the three months ended March 31, 2011 totaled $2.4 million, representing an increase of $0.3 million, or 17%, compared to $2.1 million for the three months ended March 31, 2010. The increase was primarily attributable to approximately a $0.3 million increase in legal fees for general corporate work.

Other general and administrative expenses for the three months ended March 31, 2011 totaled $4.1 million, representing an increase of approximately $0.1 million, or 3%, compared to $4.0 million for the three months ended March 31, 2010. The increase was primarily attributable to increased overhead costs relating to our Denver, Colorado office for our broker-dealer subsidiary and our Bethesda, Maryland office for our healthcare subsidiary.

Depreciation and Amortization

Depreciation and amortization expense for the three months ended March 31, 2011 totaled $8.1 million, representing an increase of $0.3 million, or 4%, compared to $7.8 million for the three months ended March 31, 2010. The increase was primarily related to an increase of $0.2 million related to an office park in Indiana as a result of its March, 2011 foreclosure and $0.1 million related to 2010 operating real estate improvements and various capital expenditures.

Equity in (Loss)/Earnings of Unconsolidated Ventures

Equity in loss/earnings for the three months ended March 31, 2011 were net losses of $2.2 million, representing a decrease of $3.5 million, compared to earnings of $1.3 million for the three months ended March 31, 2010. For the three months ended March 31, 2011, we recognized equity in losses of $2.0 million from our equity investment in the NJ Property and $0.3 million from the LandCap joint venture. The equity in loss was partially offset by equity in earnings of $0.1 million in connection with a net lease joint venture. For the three months ended March 31, 2010, we recognized equity in earnings of $2.4 million from our unconsolidated affiliated lessee formed in 2009, resulting from the termination of a lease to a third party in our healthcare real estate portfolio and $0.1 million in connection with a net lease joint venture. The equity in earnings were partially offset by equity in losses of $0.9 million from the Securities Fund (which includes both realized and unrealized gains from asset sales and mark-to-market adjustments) and $0.5 million from the LandCap joint venture.

Unrealized Loss on Investments and Other

Unrealized loss on investments and other increased by approximately $151.8 million for the three months ended March 31, 2011 to a loss of $152.2 million, compared to a loss of $0.4 million for the three months ended March 31, 2010. The unrealized loss on investments and other for 2011 consisted primarily of unrealized mark-to-market losses of $302.1 million on various issued CDO bonds payable resulting from decreasing market credit spreads increasing the values of these liabilities, and $8.7 million of unrealized losses on interest rate swap derivatives. The $8.7 million of swap losses is comprised of approximately $27.7 million of net cash payments under the swaps, and $19.0 million of mark-to-market gains. The 2011 losses also include $28.8 million of mark-to-market adjustments relating to the liability to subsidiary trusts issuing preferred securities. The unrealized losses in 2011 were partially offset by $187.4 million of unrealized gains related to positive mark-to-market adjustments on available for sale securities assets, also caused primarily by decreasing credit spreads. The unrealized gain on investments and other for the three months ended March 31, 2010 consisted primarily of $96.4 million mark-to-market adjustment gains on various available for sale securities and mark-to-market adjustment gains of $2.6 million on our corporate lending joint venture (which is an equity investment that is marked to market), partially offset by unrealized mark-to-market adjustment

Table of Contents

losses of $41.8 million on various issued CDO bonds payable, $35.2 million unrealized losses on interest rate swap derivatives no longer qualifying, or not designated as, hedging instruments and mark-to-market adjustment losses of $23.8 million on liability to subsidiary trusts issuing preferred securities.

Realized Gain on Investments and Other

The realized gain of $21.0 million for the three months ended March 31, 2011 consisted primarily of net realized gains of approximately $20.7 million on the sale of certain available for sale securities, a $10.1 million income tax refund for CSE RE 2006-A's 2009 tax filing, a gain of approximately $1.6 million on the sale of certain real estate debt investments and a net foreign currency translation gain of $3.7 million related to our Euro-denominated investment. The realized gains were partially offset by a net realized loss of approximately $8.4 million on various debt repurchases and a realized loss of approximately $6.4 million related to other-than-temporary impairments on certain available for sale securities and a realized loss of approximately $0.5 million on the sale of our membership interest in Midwest. The realized gain of $1.4 million for the three months ended March 31, 2010 consisted primarily of net realized gains of $3.3 million on the sale of certain real estate debt securities available for sale offset partially by a net foreign currency translation loss of $1.2 million related to our Euro-denominated investment, net losses of $0.4 million on the redemption of certain available for sale securities and a loss of $0.3 million on the termination of an interest rate swap in connection with the GE refinancing.

Income from Discontinued Operations

Income from discontinued operations represents the operations of properties sold or held for sale during the period. In March 2011, we completed the sale of a leasehold interest containing approximately 17,655 square feet of retail space located in New York City to a private investor group for approximately $7.4 million and the sale of an REO office building containing 142,988 square feet located in Philadelphia, PA to a private investor group for approximately $8.3 million. As of March 31, 2011, we recorded as held for sale, two REO parcels of land located in Arizona, and an REO multifamily property located in Georgia, both of which were acquired in connection with the acquisition of CSE RE 2006-A and a portfolio of 18 healthcare net lease assisted living facilities located in Wisconsin. Accordingly, income of $0.4 million and income of $0.3 million, respectively, related to the operations of these properties was reclassified to income from discontinued operations for the three months ended March 31, 2011 and 2010, respectively.

Gain on Sale from Discontinued Operations

In March 2011, we completed the sale of a leasehold interest containing approximately 17,655 square feet of retail space located in New York City to a private investor group for approximately $7.4 million, representing a gain of approximately $5.0 million and the sale of an REO office building containing 142,988 square feet located in Philadelphia, PA to a private investor group for approximately $8.3 million, representing an immaterial gain. We had no such gain on sale from discontinued operations for the three months ended March 31, 2010.

Liquidity and Capital Resources

We require significant capital to fund our investment activities and operating expenses. Our capital sources may include cash flow from operations, net proceeds from asset repayments and sales, borrowings under revolving credit facilities, financings secured by our assets such as first mortgage and CDO financings, long-term senior and subordinate corporate capital such as senior notes, senior notes exchangeable into common stock, trust preferred securities and perpetual preferred and common stock. As we discussed in "Outlook and Recent Trends", such capital is becoming more available, but remains somewhat constrained for legacy commercial mortgage REITs.

Table of Contents

Our total available liquidity at March 31, 2011 was approximately $284.6 million, including $192.9 million of unrestricted cash and cash equivalents and $91.7 million of uninvested and available funds in our CDO financings, which is available only for reinvestment and future funding commitments within the CDO structures. During the first quarter 2011, we repurchased $138 million face amount of our CDO bonds with a carrying amount of $39 million for $40 million of unrestricted cash, including $63 million of our CDO bonds with a carrying amount of $18 million for $19 million in unrestricted cash, which were previously financed in our N-Star CDOs. During April 2011, we repurchased $68 million of our CDO bonds for $29 million of unrestricted cash, including, $9 million of our CDO bonds for $3 million of unrestricted cash, which were previously financed in our CDOs.

As set forth in our periodic reports filed with the SEC, one of our net lease investments was comprised of three office buildings totaling 257,000 square feet located in Chatsworth, CA and was 100% leased to WaMu. NNN, which is a subsidiary of ours, is a defendant in the Lawsuit, filed by the Lender, in the Superior Court of the State of California, County of Los Angeles, relating to a loan the properties previously owned by one of our subsidiaries, NRFC Sub IV, that were 100% leased to WaMu. The Lawsuit alleges, among other things, that the loan provided by Lender to NRFC Sub IV became a recourse obligation of NNN due to an alleged termination of the Lease. The judge presiding over the Lawsuit granted the Lender's motion for summary judgment and, accordingly, entered a judgment against NNN in the amount of approximately $45 million. NNN intends to vigorously pursue an appeal of the decision. In connection with such appeal, pursuant to California law NNN is required to post a bond in an amount equal to one and a half times the amount of the Judgment (the "Bond"). Accordingly, we have entered into a standard General Agreement of Indemnity with an issuer of surety bonds (the "Surety Agreement"). On January 7, 2011, as part of the Surety Agreement, in connection with the issuance of the Bond, we posted cash collateral equal to thirty-eight percent of the amount of the Bond, or approximately $26.1 million.

On July 10, 2010, we were notified by Inland American that it desires to have NRF Healthcare, LLC engage in a sale process for a portfolio of 34 senior housing properties, or the Target Portfolio, or otherwise redeem $50 million of Inland American's convertible preferred membership interest in NRF Healthcare, LLC by January 9, 2011. NRF Healthcare LLC has commenced a sale process for the Target Portfolio. If NRF Healthcare, LLC has not redeemed $50 million of the Inland American investment or sold the Target Portfolio by October 9, 2011, then Inland American may undertake a sale process for the Target Portfolio. Inland American may also undertake a sale process for all of the assets of NRF Healthcare, LLC beginning August 8, 2011, unless at least $25 million of Inland American's preferred interest has been redeemed by June 10, 2011 and, in any event, beginning August 8, 2011, all future operating cash flow in excess of debt service will be used to redeem the preferred membership interest. On July 8, 2012, if the preferred membership interest has not been redeemed in full, Inland American may sell the assets of NRF Healthcare, LLC. We are currently exploring alternatives with respect to our healthcare portfolio, including discussing with Inland a potential modification and extension to the terms of the preferred membership interest.

As a REIT, we are required to distribute at least 90% of our annual REIT taxable income to our stockholders, including taxable income where we do not receive corresponding cash, and we intend to distribute all or substantially all of our REIT taxable income in order to comply with the REIT distribution requirements of the Internal Revenue Code and to avoid federal income tax and the non-deductible excise tax. In the past, we have maintained high unrestricted cash balances relative to the historical difference between our distributions and cash provided by operating activities. On a quarterly basis, our Board of Directors determines an appropriate common stock dividend based upon numerous factors, including AFFO, REIT qualification requirements, the amount of cash flows provided by operating activities, availability of existing cash balances, borrowing capacity under existing credit agreements, access to cash in the capital markets and other financing sources, our view of our ability to realize gains in the future through appreciation in the value of our assets, general economic

Table of Contents

conditions and economic conditions that more specifically impact our business or prospects. Although we significantly reduced the cash portion of quarterly dividends paid in 2009 and 2010 relative to prior periods, future dividend levels are subject to further adjustment based upon our evaluation of the factors described above, as well as other factors that our Board of Directors may, from time to time, deem relevant to consider when determining an appropriate common stock dividend.

We currently believe that our existing sources of funds should be adequate for purposes of meeting our short-term liquidity needs; however, our CDO financing structures require that the underlying collateral and cash flow generated by the collateral to be in excess of ratios stipulated in the related indentures. These ratios are called overcollateralization, or OC, and interest coverage, or IC, tests. The reinvestment periods, which allow us to reinvest principal payments on the underlying assets into qualifying replacement collateral and is instrumental in maintaining OC and IC ratios, for our N-Star CDO I, II, III, IV and V have expired, and, for our N-Star CDO VI, N-Star CDO VII, N-Star CDO VIII and N-Star CDO IX will expire in June 2011, June 2011, February 2012 and June 2012, respectively. Since we are or will be unable to reinvest principal in these CDOs, principal repayments will pay down the senior-most notes, which will de-lever the CDO. Following the conclusion of the reinvestment period in these CDOs, our ability to maintain the OC and IC ratios will be negatively impacted. In the event these tests are not met, cash that would normally be distributed to us would be used to amortize the senior notes until the financing is back in compliance with the tests. In the event cash flow is diverted to repay the notes, this could decrease cash available to pay our dividend and to comply with REIT requirements. Additionally, we may be required to buy assets out of our CDO financings in order to preserve cash flow. As of March 31, 2011, N-Star CDO I and N-Star CDO II were not in compliance with their OC tests. We expect that complying with OC and IC tests will continue to be difficult.

The following is a summary of our CDO cash distribution and coverage tests as of March 31, 2011:

			Cash Distributions(1)			Quarterly Interest Coverage Cushion(2)			Overcollateralization Cushion

	Primary Collateral Type		Quarter Ended March 31, 2011			March 31, 2011			March 31, 2011			At Offering
N-Star I		CMBS	$	447		$	(406	)	$	(9,800	)	$	8,687
N-Star II		CMBS		0			(122	)		(14,350	)		10,944
N-Star III		CMBS		1,776			2,714			15,067			13,610
N-Star IV		Loans		2,189			1,936			57,438			19,808
N-Star V		CMBS		803			1,167			1,680	(3)		12,940
N-Star VI		Loans		650			923			31,639			17,412
N-Star VII		CMBS		2,416			2,880			11,858			13,966
N-Star VIII		Loans		3,479			3,199			118,005			42,193
N-Star IX		CMBS		1,640			2,530			27,019			24,516
CSE RE 2006-A		Loans		0	(4)		4,759			13,510			(151,595)	(5)

Table shows cash distributions to the retained income notes. Interest coverage and overcollateralization coverage to the most constrained class.

(1): Cash distributions are exclusive of senior management fees which are not subject to the coverage tests.
(2): Quarterly interest cushion and overcollateralization cushions from remittance report issued on date nearest to March 31, 2011.
(3): As of April 2011, N-Star V's overcollateralization cushion is negative.

Table of Contents

(4): As of March 31, 2011, $7 million is held in escrow pending resolution of certain assets.
(5): Based on trustee report as of June 24, 2010 which was closest to the date of acquisition.

We have committed to purchase up to $10 million of shares of NSREIT's common stock during the two-year period following commencement of its continuous, public offering in the event that its distributions to stockholders exceeds its AFFO.

We will seek to meet our long term liquidity requirements, including the repayment of debt and our investment funding needs, through existing cash resources, opportunistic issuances of debt or equity capital, including exchangeable notes, our existing CDOs and the liquidation or refinancing of assets at maturity; nonetheless, our ability to meet a long-term (beyond one year) liquidity requirement may be subject to obtaining additional debt and equity financing. Any decision by our lenders and investors to provide us with financing will depend upon a number of factors, such as our compliance with the terms of its existing credit arrangements, our financial performance, industry or market trends, the general availability of and rates applicable to financing transactions, such lenders' and investors' resources and policies concerning the terms under which they make capital commitments and the relative attractiveness of alternative investment or lending opportunities.

Exchangeable Senior Notes

In March 2011, we issued $172.5 million of 7.50% exchangeable senior notes (the "7.50% Notes") due in 2031. The 7.50% Notes were offered in a private offering exempt from registration in reliance on Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"). The 7.50% Notes pay interest semi-annually in arrears on March 15 and September 15, at a rate of 7.50% per annum, and mature on March 15, 2031. The 7.50% Notes have an initial exchange rate representing an exchange price of $6.44 per share of our common stock, subject to adjustment under certain circumstances. The 7.50% Notes are senior unsecured obligations of ours and may be exchangeable at any time prior to the close of business on the second business day immediately preceding the maturity date for cash or common stock of ours, or a combination of cash and common stock of ours, at the our option. The 7.50% Notes are redeemable, at our option, on and after March 15, 2016. We may be required to repurchase the 7.50% Notes upon the occurrence of certain events. The net proceeds from the offering were approximately $164.0 million.

Debt Repurchases

During the three months ended March 31, 2011, we repurchased approximately $36.3 million face amount, having a carrying amount of $35.9 million, of our 7.25% exchangeable senior notes for a total of $37.7 million and $96.3 million face amount, having a carrying amount of $26.4 million, of our N-Star CDO bonds payable for a total of $34.2 million. We recorded a total net realized loss of $8.4 million in connection with the repurchase of our notes and bonds for three months ended March 31, 2011.

To qualify as a REIT, we are required to distribute annually at least 90% of our taxable income, subject to certain adjustments, to our stockholders. Certain "excess non-cash" income is not subject to the 90% distribution requirement. To the extent that we satisfy the distribution requirement, but we distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. Discounted purchases of our N-Star CDO bonds will cause us to recognize cancellation of indebtedness, or COD, income, which is "phantom" or "non-cash" income. Any COD income we recognize will generally be subject to the 90% distribution requirement, except to the extent our COD income, when combined with certain other types of non-cash income, exceeds 5% of our gross income. The excess above the 5% threshold will be treated as "excess non-cash" income. COD income recognized as a result of repurchases of our N-Star CDO bonds that are treated as "taxable REIT subsidiaries," which are N-Star CDOs I, II, V, VII and IX, will not be eligible to be

Table of Contents

treated as "excess non-cash" income. Even if we satisfy the 90% distribution requirement, we will be subject to corporate tax on any "excess non-cash" income and any other income that we do not distribute to our stockholders. As a result of the 90% distribution requirement, we may decide to forego purchases of our N-Star CDO bonds at a discount. Alternatively, we may make additional distributions to our stockholders in order to comply with the 90% distribution requirement,

Mortgage Note Refinancing

On March 31, 2011, we closed on a $20.9 million loan with General Electric Capital Corporation. The proceeds were primarily used to refinance $19.9 million of loans maturing in 2015 on four of our healthcare-related net leased assets. The loan has a five-year term with a one-year interest only period and principal and interest payments thereafter. The interest rate is 90-day LIBOR + 5.95% with a 1% LIBOR floor.

Modification of Mortgage Loan

We own a partially vacant net lease property located in Cincinnati, Ohio. In November 2010, the mortgage lender declared a payment default and, in December 2010, began foreclosure proceedings on the property. At March 31, we were in discussions with the lender to transfer the property to the lender via a deed in lieu of foreclosure. At March 31, 2011, we had a reserve of $5.2 million and had no additional exposure related to this property.

Dividend Reinvestment and Stock Purchase Plan

Effective as of April 27, 2007, we implemented a Dividend Reinvestment and Stock Purchase Plan, or the Plan, pursuant to which we registered and reserved for issuance 15,000,000 shares of our common stock. Under the terms of the Plan, stockholders who participate in the Plan may purchase shares of our common stock directly from us, in cash investments up to $10,000. At our sole discretion, we may accept optional cash investments in excess of $10,000 per month, which may qualify for a discount from the market price of 0% to 5%. Plan participants may also automatically reinvest all or a portion of their dividends for additional shares of our stock. We expect to use the proceeds from any dividend reinvestments or stock purchases for general corporate purposes.

During the three months ended March 31, 2011, we issued a total of 15,028 common shares pursuant to the Plan for a gross sales price of approximately $0.1 million. During the three months ended March 31, 2010, we issued a total of 23,975common shares pursuant to the Plan for a gross sales price of approximately $0.1 million.

Cash Flows

Three months ended March 31, 2011 compared to three months ended March 31, 2010

The net cash used in operating activities was $0.7 million for the three months ended March 31, 2011 compared to the net cash flow used in operating activities of $3.9 million for the three months ended March 31, 2010. The decrease in net cash used was primarily due to separation and consulting payments to our former chief operating officer in the first quarter of 2010, partially offset by increased overhead related to our recently formed broker-dealer subsidiary.

The net cash flow provided by investing activities was $41.1 million for the three months ended March 31, 2011 compared to the net cash used in investing activities of $28.4 million for the three months ended March 31, 2010. The primary sources of cash flow provided by investing activities in 2011 were the sale of real estate debt investments, real estate debt repayments and available for sale securities repayments, partially offset by originations and acquisitions of real estate debt investments.

Table of Contents

The primary uses of cash flow used in investing activities in 2010 were the acquisition of available for sale securities and originations of real estate debt investments.

The net cash flow provided by financing activities was $27.1 million for the three months ended March 31, 2011 compared to cash provided by financing activities of $10.2 million for the three months ended March 31, 2010. The primary sources of cash flow by financing activities were the issuance of $172.5 million of the 7.5% Notes, partially offset by debt repurchases and repayments of $138.5 million and the issuance of the $26.1 surety bond. The primary sources of cash flow by financing activities in 2010 were mortgage notes and loan borrowings.

Contractual Obligations and Commitments

As of March 31, 2011, we had the following contractual commitments and commercial obligations (dollars in thousands):

	Payments Due by Period

Contractual Obligations	Total		1 year or less		2 - 3 years		4 - 5 years		After 5 Years
Mortgage notes	$	836,429	$	43,502	$	152,386	$	220,606	$	419,935
Mezzanine loan payable		2,399		237		698		801		663
Exchangeable senior notes(1)		265,165		—		92,665		—		172,500
Bonds payable		4,312,748		—		—		—		4,312,748
Secured term loan		14,682		—		—		14,682		—
Liability to subsidiary trusts issuing preferred securities		280,117		—		—		—		280,117
Operating leases		64,567		4,331		11,331		11,221		37,684
Outstanding unfunded commitments(2)		60,081		55,081		5,000		—		—
Estimated interest payments(3)		521,887		95,193		232,684		140,836		53,174

Total contractual obligations	$	6,358,075	$	198,344	$	494,764	$	388,146	$	5,276,821

(1): $31.9 million of our 7.25% exchangeable senior notes have a final maturity date of June 15, 2027. The above table assumes the holders exercise their repurchase rights which would require us to repurchase the notes on June 15, 2012.
(2): Our future funding commitments, which are subject to certain conditions that borrowers must meet to qualify for such fundings, totaled $60.1 million, of which a minimum of $57.7 million will be funded within our existing CDO financings. Fundings are categorized by estimated funding period. Assuming that all loans that have future fundings meet the terms to qualify for such funding, our equity requirement on the remaining future funding requirements would be approximately $2.4 million over the next two years.
(3): Estimated interest payments are based on the weighted-average life of the debt. One-month LIBOR plus the respective spread as of March 31, 2011 was used to estimate payments for our floating rate debt.

As of March 31, 2011, we were in compliance with all covenants in our debt agreements.

Off Balance Sheet Arrangements

None

Table of Contents

Recent Developments

Dividends

On May 4, 2011, we declared a dividend of $0.10 per share of common stock, $0.54688 per share of Series A preferred stock and $0.51563 per share of Series B preferred stock. The dividends will be paid on May 25, 2011, to the stockholders of record as of the close of business on May 18, 2011.

Debt Repurchases

During April, 2011, we repurchased approximately $8.5 million face amount of our 7.25% exchangeable senior notes for a total of $8.8 million, $4.0 million face amount of our 11.50% exchangeable senior notes for a total of $4.3 million and $82.3 million face amount of our N-Star CDO bonds payable for a total of $34.7 million.

B-Piece Transaction

During April 2011, we were selected as the winning bidder of the "B-piece" in a new approximately $2 billion CMBS securitization. We expect the transaction to close in the second quarter of 2011 and, subject to obtaining certain ratings on the bonds, expect to utilize approximately $7 million of unrestricted cash and $20 million of restricted cash in our CDO financings as part of the transaction. NorthStar intends to appoint itself as special servicer in the securitization.

Healthcare Net Lease Sale

In April 2011, we completed the sale of a portfolio of healthcare net lease assisted living facilities for $101.5 million. The purchaser assumed $73.5 million of mortgage debt secured by the assets in the portfolio.

Inflation

Our leases for tenants of operating real estate are either:

•: net leases where the tenants are responsible for all or a significant portion of the real estate taxes, insurance and operating expenses and the leases provide for increases in rent either based on changes in the Consumer Price Index, or CPI, or pre-negotiated increases; or
•: operating leases which provide for separate escalations of real estate taxes and operating expenses over a base amount, and/or increases in the base rent based on changes in the CPI.

We believe that most inflationary increases in expenses will be offset by the expense reimbursements and contractual rent increases described above to the extent of occupancy.

We believe that the risk associated with an increase in market interest rates on the floating rate debt used to finance our investments in our CDO financings and our direct investments in real estate debt, will be largely offset by our strategy of matching the terms of our assets with the terms of our liabilities and through our use of hedging instruments.

See "Quantitative and Qualitative Disclosures About Market Risk" in Item 7A of our Annual Report on Form 10-K, as amended, for additional information on our exposure to market risk.

Non-GAAP Financial Measures

Funds from Operations and Adjusted Funds from Operations

Management believes that funds from operations, or FFO, and adjusted funds from operations, or AFFO, each of which are non-GAAP measures, are additional appropriate measures of the operating

Table of Contents

performance of a REIT and NorthStar in particular. We compute FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT, as net income or loss (computed in accordance with GAAP), excluding gains or losses from sales of depreciable properties, the cumulative effect of changes in accounting principles, real estate-related depreciation and amortization, and after adjustments for unconsolidated/uncombined partnerships and joint ventures. AFFO, as defined by NAREIT, is a computation made by analysts and investors to measure a real estate company's cash flow generated by operations.

We calculate AFFO by subtracting from (or adding) FFO:

•: normalized recurring expenditures that are capitalized by us and then amortized, but which are necessary to maintain our properties and revenue stream, e.g., leasing commissions and tenant improvement allowances;
•: an adjustment to reverse the effects of the straight-lining of rents and fair value lease revenue;
•: the amortization or accrual of various deferred costs including intangible assets and equity based compensation;
•: an adjustment to reverse the effects of unrealized gains/(losses); and
•: An adjustment to reverse the effects of acquisition gains or losses.

Our calculation of AFFO differs from the methodology used for calculating AFFO by certain other REITs and, accordingly, our AFFO may not be comparable to AFFO reported by other REITs. Our management utilizes FFO and AFFO as measures of our operating performance, and believes they are also useful to investors, because they facilitate an understanding of our operating performance after adjustment for certain non-cash expenses, such as real estate depreciation, which assumes that the value of real estate assets diminishes predictably over time and, in the case of AFFO, equity based compensation. Additionally, FFO and AFFO serve as measures of our operating performance because they facilitate evaluation of our company without the effects of selected items required in accordance with GAAP that may not necessarily be indicative of current operating performance and that may not accurately compare our operating performance between periods. Furthermore, although FFO, AFFO and other supplemental performance measures are defined in various ways throughout the REIT industry, we also believe that FFO and AFFO may provide us and our investors with an additional useful measure to compare our financial performance to certain other REITs.

Neither FFO nor AFFO is equivalent to net income or cash generated from operating activities determined in accordance with U.S. GAAP. Furthermore, FFO and AFFO do not represent amounts available for management's discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments or uncertainties. Neither FFO nor AFFO should be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flow from operating activities as a measure of our liquidity.

Table of Contents

Set forth below is a reconciliation of FFO and AFFO to net income from continuing operations before non-controlling interest for the three months ended March 31, 2011 and 2010 (in thousands):

	Three Months Ended March 31, 2011			Three Months Ended March 31, 2010

Funds from Operations:
Loss from continuing operations	$	(106,457	)	$	(20,392	)
Non-controlling interest		(128	)		(1,962	)

Consolidated net loss before non-controlling interest in operating partnership		(106,585	)		(22,354	)
Adjustments:
Preferred stock dividends		(5,231	)		(5,231	)
Depreciation and amortization		8,082			7,785
Funds from discontinued operations		1,074			987
Real estate depreciation and amortization—unconsolidated ventures		232			237

Funds from Operations	$	(102,428	)	$	(18,576	)

Adjusted Funds from Operations:
Funds from Operations	$	(102,428	)	$	(18,576	)
Straight-line rental income, net		(223	)		(546	)
Straight-line rental income, discontinued operations		—			—
Straight-line rental income and fair value lease revenue, unconsolidated ventures		(21	)		(26	)
Amortization of equity-based compensation		2,034			5,058
Amortization of above/below market leases		(214	)		(264	)
Unrealized (gains)/losses from mark-to-market adjustments		122,288			(20,158	)
Unrealized losses from mark-to-market adjustments, unconsolidated ventures		—			625
Gain from acquisitions		—			—

Adjusted Funds from Operations	$	21,436		$	(33,887	)

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Although we seek to match-fund our assets and mitigate the risk associated with future interest rate volatility, we are primarily subject to interest rate risk prior to match-funding our investments and because we maintain a net floating rate asset or liability position. To the extent we have net floating rate assets, our earnings will increase with increases in floating interest rates, and decrease with declines in floating interest rates. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.

Our interest rate risk sensitive assets, liabilities and related derivative positions are held for non-trading purposes. As of March 31, 2010, a hypothetical 100 basis point increase in interest rates applied to our variable rate assets would increase our annual interest income by approximately $28.1 million offset by an increase in our interest expense of approximately $20.5 million on our variable rate liabilities. Similarly, a hypothetical 100 basis point decrease in interest rates would decrease our annual interest income by the same net amount ($7.6 million).

Table of Contents

Real Estate Debt

We invest in real estate debt which is secured by commercial and multifamily properties, including first lien mortgage loans, junior participations in first lien mortgage loans, second lien mortgage loans, mezzanine loans, and preferred equity interests in borrowers who own such properties. We hold these instruments for investment rather than trading purposes. These investments bear interest at either a floating or fixed rate. The interest rates on our floating rate investments typically float at a fixed spread over an index such as LIBOR. These instruments typically reprice every 30 days based upon LIBOR in effect at that time. Given the frequent and periodic repricing of our floating rate investments, changes in benchmark interest rates are unlikely to materially affect the value of our floating rate portfolio. Changes in short-term rates will, however, affect earnings from our investments. Increases in LIBOR will increase the interest income received by us on our investments and therefore increase our earnings. Decreases in LIBOR have the opposite effect.

We also invest in fixed rate investments. The value of these investments may be affected by changes in long-term interest rates. To the extent that long-term interest rates increase, the value of long-term fixed rate assets is diminished. Any fixed rate real estate debt investments which we hold would be similarly impacted. We do not seek to hedge this type of risk unless the asset is leveraged as we believe the costs of such a hedging transaction over the term of such an investment would outweigh the benefits. If fixed rate real estate debt is funded with floating rate liabilities, we typically convert the floating rate to fixed through the use of interest rate swaps, caps or other hedges. Because the interest rates on our fixed rate investments are fixed through maturity of the investment, changes in interest rates do not affect the income we earn from our fixed rate investments.

The value of our fixed and floating rate real estate debt investments changes with market credit spreads. This means that when market-demanded risk premiums, or credit spreads, increase, the value of our fixed and floating rate assets decrease, and vice versa. Market credit spreads are currently much wider than existed at the time we originated a majority of our real estate debt investments. These wider market credit spreads imply that our real estate debt investments may be worth less than the amounts at which we carry these investments on our balance sheet, but because we have typically financed these investments with debt priced in a similar credit environment and intend to hold them to maturity we do not believe that intra- and inter-period changes in value caused by changing credit spreads material impacts the economics associated with our real estate debt investments.

In our real estate debt business we are also exposed to credit risk, which is the risk that the borrower under our loan agreements cannot repay its obligations to us in a timely manner. Our loans are collateral dependent, meaning the principal source of repayment is from a sale or refinancing of the collateral securing our loan. Default risk increases in weak economic conditions because collateral cash flows may be below expectations when the loan was originated. Defaults also increase when, at loan maturity, the cost of debt and equity capital is higher than when the loan was originated. In the event that a borrower cannot repay our loan, we may exercise our remedies under the loan documents, which may include a foreclosure against the collateral. We describe many of the options available to us in this situation in "Item 1 Business" of our Annual Report on Form 10-K, as amended. To the extent the value of our collateral exceeds the amount of our loan (including all debt senior to us) and the expenses we incur in collecting on our loan, we would collect 100% of our loan amount. To the extent that the amount of our loan plus all debt senior to our position exceeds the realizable value of our collateral, then we would incur a loss. We also incur credit risk in our periodically scheduled interest payments which may be interrupted as a result of the operating performance of the underlying collateral.

We seek to manage credit risk through a thorough analysis of a transaction before we make such an investment. Our analysis is based upon a broad range of real estate, financial, economic and

Table of Contents

borrower-related factors which we believe are critical to evaluating the credit risk inherent in a transaction.

We expect our investments to be denominated in U.S. dollars or, if they are denominated in another currency, to be converted back to U.S. dollars through the use of currency swaps. It may not be possible to eliminate all of the currency risk as the payment characteristics of the currency swap may not exactly match the payment characteristics of the investments.

Real Estate Securities

In our real estate securities business, we seek to mitigate credit risk through credit analysis, subordination and diversification. The CMBS we invest in are junior in right of payment of interest and principal to one or more senior classes, but benefit from the support of one or more subordinate classes of securities or other form of credit support within a securitization transaction. The senior unsecured REIT debt securities we invest in reflect comparable credit risk. Credit risk refers to each individual borrower's ability to make required interest and principal payments on the scheduled due dates. While the expected yield on these securities is sensitive to the performance of the underlying assets, the more subordinated securities and certain other features of a securitization, in the case of mortgage backed securities, and the issuer's underlying equity and subordinated debt, in the case of REIT securities, are designed to bear the first risk of default and loss. The real estate securities portfolios of our investment grade CDO financings are diversified by asset type, industry, location and issuer. We further seek to minimize credit risk by monitoring the real estate securities portfolios of our investment grade CDO financings and the underlying credit quality of their holdings.

The real estate securities underlying our investment grade CDO financings are also subject to credit spread risk. The majority of these securities are fixed rate securities, which are valued based on a market credit spread over the rate payable on fixed rate U.S. Treasuries of like maturity. In other words, their value is dependent on the yield demanded on such securities by the market, based on their credit relative to U.S. Treasuries. An excessive supply of these securities combined with reduced demand will generally cause the market to require a higher yield on these securities, resulting in the use of a higher or "wider" spread over the benchmark rate (usually the applicable U.S. Treasury security yield) to value these securities. Under these conditions, the value of our real estate securities portfolio would tend to decrease. Conversely, if the spread used to value these securities were to decrease or "tighten," the value of our real estate securities would tend to increase. Such changes in the market value of our real estate securities portfolio may affect our net equity or cash flow either directly through their impact on unrealized gains or losses on available for sale securities by diminishing our ability to realize gains on such securities, or indirectly through their impact on our ability to borrow and access capital.

Returns on our real estate securities are sensitive to interest rate volatility. If interest rates increase, the funding cost on liabilities that finance the securities portfolio will increase if these liabilities are at a floating rate or have maturities shorter than the assets.

Our general financing strategy has focused on the use of "match-funded" structures. This means that we seek to align the maturities of our debt obligations with the maturities of our investments in order to minimize the risk of being forced to refinance our liabilities prior to the maturities of our assets, as well as to reduce the impact of fluctuating interest rates on earnings. In addition, we match interest rates on our assets with like-kind debt, so that fixed rate assets are financed with fixed rate debt and floating rate assets are financed with floating rate debt, directly or through the use of interest rate swaps, caps or other financial instruments or through a combination of these strategies. Our investment grade CDO financings utilize interest rate swaps to minimize the mismatch between their fixed rate assets and floating rate liabilities.

Table of Contents

Our financing strategy is dependent on our ability to place the match-funded debt we use to finance our real estate securities at spreads that provide a positive funding spread. Match funded debt is currently very difficult to obtain, and market-demanded yields on all real estate assets have increased. Our current strategy is to use our existing CDO structures to fund new investment activity when repayment or sale proceeds are available within the financing, or to acquire securities which generate attractive returns without leverage.

Interest rate changes may also impact our net book value as our investments in debt securities are marked-to-market each quarter with changes in fair value reflected in unrealized gains/losses or other comprehensive income (a separate component of owners' equity). Generally, as interest rates increase, the value of fixed rate securities within the CDO transaction, such as CMBS, decreases and as interest rates decrease, the value of these securities will increase. Conversely, we mark our CDO liabilities to market which causes a partial offset to the income and balance sheet impact of marking the securities assets to market.

Core Net Lease and Healthcare Net Lease Properties

Our ability to manage the interest rate risk and credit risk associated with the assets we acquire is integral to the success of our net lease properties investment strategy. Although we may, in special situations, finance our purchase of net lease assets with floating rate debt, our general policy is to mitigate our exposure to rising interest rates by financing our net lease property purchases with fixed rate mortgages. We seek to match the term of fixed rate mortgages to our expected holding period for the underlying asset. Factors we consider to assess the expected holding period include, among others, the primary term of the lease as well as any extension options that may exist.

The value of our net lease real estate properties may be influenced by long-term fixed interest rates. To derive value, an investor typically forecasts expected future cash flows to be generated by the property then discounts the cash flows at a discount rate based upon a long-term fixed interest rate (such as the 10-year U.S. Treasury Note yield) plus a risk premium based on the property type and creditworthiness of the tenants. Lower risk free rates generally result in lower discount rates and therefore higher valuations and vice versa although the scarcity of financing for net lease properties and investor concerns over commercial real estate generally have recently decreased commercial real estate valuations, including valuations for net lease properties. We intend to hold our net lease properties for long periods, but the market value of the asset may fluctuate with changes in interest rates, among other things.

We are subject to the credit risk of the corporate lessee of our net lease properties. We undertake a rigorous credit evaluation of each tenant prior to acquiring net lease asset properties. This analysis includes an extensive due diligence investigation of the tenant's business as well as an assessment of the strategic importance of the underlying real estate to the tenant's core business operations. Where appropriate, we may seek to augment the tenant's commitment to the facility by structuring various credit enhancement mechanisms into the underlying leases. These mechanisms could include security deposit requirements or affiliate guarantees from entities we deem to be creditworthy.

Derivatives and Hedging Activities

We use derivatives primarily to manage interest rate risk exposure. These derivatives are typically in the form of interest rate swap agreements and the primary objective is to minimize interest rate risks associated with the our investment and financing activities. The counterparties of these arrangements are major financial institutions with which we may also have other financial relationships. We are exposed to credit risk in the event of non-performance by these counterparties and we monitor their financial condition; however, we currently do not anticipate that any of the counterparties will fail to meet their obligations because of their high credit ratings and financial support from the U.S.

Table of Contents

Government. At March 31, 2011, our counterparties hold approximately $23.7 million of cash margin as collateral against our swap contracts.

In January 2008, we elected the fair value option for our bonds payable and our liability to subsidiary trusts issuing preferred securities. As a result, the changes in fair value of these financial instruments are now recorded in earnings and the interest rate swap agreements associated with these debt instruments no longer qualify for hedge accounting given that the underlying debt is remeasured with changes in the fair value recorded in earnings. The unrealized gains or losses accumulated in other comprehensive income, related to these interest rate swaps, will be reclassified into earning over the shorter of either the life of the swap or the associated debt with current mark-to-market unrealized gains or losses recorded in earnings. For the three months ended March 31, 2011 and 2010, we recorded, in earnings, a mark-to-market unrealized gain of $19.0 million and an unrealized loss of $33.7 million, respectively, for the non-qualifying interest rate swaps. For the three months ended March 31, 2011 and 2010, we recorded a $1.9 million and a $1.4 million reclassification from accumulated other comprehensive income for the non-qualifying interest rate swaps, respectively.

The following tables summarize our derivative financial instruments that were not designated as hedges in qualifying hedging relationships as of March 31, 2011 and December 31, 2010 (in thousands):

		Notional Amount		Fair Value Net Asset/ (Liability)			Range of Fixed LIBOR	Range of Maturity

Interest rate swaps
As of March 31, 2011	63	$	2,678,745	$	(201,673	)	0.37% - 7.00%	December 2011 - October 2019
As of December 31, 2010	64	$	2,812,409	$	(220,630	)	0.37% - 7.00%	February 2011 - October 2019

We had no derivative financial instruments that were designated as hedges in qualifying hedging relationships as of March 31, 2011 and December 31, 2010, respectively.

Item 4. Controls and Procedures

As of the end of the period covered by this report, our management conducted an evaluation (as required under Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act), under the supervision and with the participation of our Chief Executive Officer and Acting Principal Financial Officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our Chief Executive Officer and Acting Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures to disclose material information otherwise required to be set forth in our periodic reports.

Internal Control over Financial Reporting

Changes in internal control over financial reporting. There have not been any changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Table of Contents

PART II. OTHER INFORMATION

Item 6. Exhibits

(a): Exhibits

Exhibit Number			Description of Exhibit

	3.1		Articles of Amendment and Restatement of NorthStar Realty Finance Corp., as filed with the State Department of Assessments and Taxation of Maryland on October 20, 2004 (incorporated by reference to Exhibit 3.1 to the NorthStar Realty Finance Corp. Registration Statement on Form S-11 (File No. 333-114675))
	3.2		Bylaws of NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 3.2 to the NorthStar Realty Finance Corp. Registration Statement on Form S-11 (File No. 333-114675))
	3.3		Amendment No. 1 to the Bylaws of NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 3.3 to the NorthStar Realty Finance Corp. Current Report on Form 8-K filed on April 27, 2005)
	3.4		Articles Supplementary Classifying NorthStar Realty Finance Corp.'s 8.75% Series A Preferred Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit 3.2 to NorthStar Realty Finance Corp.'s Registration Statement on Form 8-A, dated September 14, 2006)
	3.5		Articles Supplementary Classifying NorthStar Realty Finance Corp.'s 8.25% Series B Preferred Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit 3.2 to NorthStar Realty Finance Corp.'s Registration Statement on Form 8-A, dated February 7, 2007)
	3.6		Articles Supplementary Classifying and Designating Additional Shares of NorthStar Realty Finance Corp.'s 8.25% Series B Preferred Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit 3.6 to NorthStar Realty Finance Corp.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007)
	4.1		Registration Rights Agreement relating to the 7.25% Exchangeable Senior Notes due 2027 of NorthStar Realty Finance Limited Partnership, dated June 18, 2007 (incorporated by reference to Exhibit 4.2 to the NorthStar Realty Finance Corp. Registration Statement on Form S-3 (File No. 333-146679))
	4.2		Indenture dated as of June 18, 2007, between NorthStar Realty Finance Limited Partnership, as Issuer, NorthStar Realty Finance Corp., as Guarantor, and Wilmington Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to the NorthStar Realty Finance Corp. Current Report on Form 8-K filed on June 22, 2007)
	4.3		Registration Rights Agreement relating to the 11.50% Exchangeable Senior Notes due 2013 of NRFC NNN Holdings, LLC, dated May 28, 2008 (incorporated by reference to Exhibit 4.2 to the NorthStar Realty Finance Corp. Registration Statement on Form S-3 (File No. 333-152545))
	4.4		Indenture dated as of May 28, 2008, among NRFC NNN Holdings, LLC, as Issuer, NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership, and NRFC Sub-REIT Corp., as Guarantors, and Wilmington Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to the NorthStar Realty Finance Corp. Current Report on Form 8-K filed on May 28, 2008)

Table of Contents

Exhibit Number			Description of Exhibit

	4.5		Indenture, dated as of March 9, 2011, among NorthStar Realty Finance Limited Partnership, as Issuer, NorthStar Realty Finance Corp. and NRFC Sub-REIT Corp., as Guarantors, and Wilmington Trust FSB, as Trustee (incorporated by reference to Exhibit 4.1 to the NorthStar Realty Finance Corp. Current Report on Form 8-K filed March 9, 2011)
	4.6		Form of Note of NorthStar Realty Finance Limited Partnership (incorporated by reference to Exhibit 4.2 to the NorthStar Realty Finance Corp. Current Report on Form 8-K filed March 9, 2011)
	4.7		Form of Guarantee of NorthStar Realty Finance Corp. and NRFC Sub-REIT Corp. (incorporated by reference to Exhibit 4.3 to the NorthStar Realty Finance Corp. Current Report on Form 8-K filed March 9, 2011)
	4.8		Registration Rights Agreement, dated as of March 9, 2011, among NorthStar Realty Finance Corp. and Citigroup Global Markets Inc. and JMP Securities LLC, as representatives of the initial purchasers (incorporated by reference to Exhibit 4.4 to the NorthStar Realty Finance Corp. Current Report on Form 8-K filed March 9, 2011)
	10.1		Agreement of Limited Partnership of NorthStar Realty Finance Limited Partnership, dated as of October 19, 2004, by and among NorthStar Realty Finance Corp., as sole general partner and initial limited partner and the other limited partners a party thereto from time to time (incorporated by reference to Exhibit 10.1 to the NorthStar Realty Finance Corp. Quarterly Report on Form 10-Q for the quarter ended September 30, 2004)
	10.2		NorthStar Realty Finance Corp. 2004 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.9 to the NorthStar Realty Finance Corp. Quarterly Report on Form 10-Q for the quarter ended September 30, 2004)
	10.3		LTIP Unit Vesting Agreement under the NorthStar Realty Finance Corp. 2004 Omnibus Stock Incentive Plan among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and NRF Employee, LLC (incorporated by reference to Exhibit 10.10 to the NorthStar Realty Finance Corp. Quarterly Report on Form 10-Q for the quarter ended September 30, 2004)
	10.4		Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.7(a) to the NorthStar Realty Finance Corp. Registration Statement on Form S-11 (File No. 333-114675))
	10.5		NorthStar Realty Finance Corp. 2004 Long-Term Incentive Bonus Plan (incorporated by reference to Exhibit 10.13 to the NorthStar Realty Finance Corp. Quarterly Report on Form 10-Q for the quarter ended September 30, 2004)
	10.6		Form of Notification under NorthStar Realty Finance Corp. 2004 Long-Term Incentive Bonus Plan (incorporated by reference to Exhibit 10.14 to the NorthStar Realty Finance Corp. Quarterly Report on Form 10-Q for the quarter ended September 30, 2004)
	10.7		Form of Indemnification Agreement for directors and officers of NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.15 to the NorthStar Realty Finance Corp. Registration Statement on Form S-11 (File No. 333-114675))
	10.8		Amendment No. 1 to Agreement of Limited Partnership of NorthStar Realty Finance Limited Partnership, dated as of March 14, 2006, by and among NorthStar Realty Finance Corp., as sole general partner and initial limited partner and the other limited partners a party thereto from time to time (incorporated by reference to Exhibit 10.34 to NorthStar Realty Finance Corp.'s Annual Report on Form 10-K for the year ended December 31, 2005)

Table of Contents

Exhibit Number			Description of Exhibit

	10.9		Second Amendment to the Agreement of Limited Partnership of NorthStar Realty Finance Limited Partnership, dated as of September 14, 2006 (incorporated by reference to Exhibit 3.2 to the NorthStar Realty Finance Corp. Current Report on Form 8-K filed September 14, 2006)
	10.10		Third Amendment to the Agreement of Limited Partnership of NorthStar Realty Finance Limited Partnership, dated as of February 7, 2007 (incorporated by reference to Exhibit 3.2 to the NorthStar Realty Finance Corp. Current Report on Form 8-K filed February 9, 2007)
	10.11		Amendment No. 1 to NorthStar Realty Finance Corp. 2004 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 99.2 to the NorthStar Realty Finance Corp. Post-Effective Amendment No. 2 to Form S-8 filed on April 13, 2007)
	10.12		Amendment No. 2 to NorthStar Realty Finance Corp. 2004 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 99.3 to the NorthStar Realty Finance Corp. Post-Effective Amendment No. 3 to Form S-8 filed on June 6, 2007)
	10.13		Fourth Amendment to the Agreement of Limited Partnership of NorthStar Realty Finance Limited Partnership, dated as of May 24, 2007 (incorporated by reference to Exhibit 3.3 to the NorthStar Realty Finance Corp. Current Report on Form 8-K filed May 29, 2007)
	10.14		Executive Employment and Non-Competition Agreement, dated as of October 4, 2007, between the Company and David T. Hamamoto (incorporated by reference to Exhibit 99.1 to the NorthStar Realty Finance Corp. Current Report on Form 8-K filed October 5, 2007)
	10.15		Executive Employment and Non-Competition Agreement, dated as of October 4, 2007, between the Company and Daniel R. Gilbert (incorporated by reference to Exhibit 99.3 to the NorthStar Realty Finance Corp. Current Report on Form 8-K filed October 5, 2007)
	10.16		Executive Employment and Non-Competition Agreement, dated as of October 4, 2007, between the Company and Albert Tylis (incorporated by reference to Exhibit 99.1 to the NorthStar Realty Finance Corp. Current Report on Form 8-K filed July 27, 2009)
	10.17		Fifth Amendment to the Agreement of Limited Partnership of NorthStar Realty Finance Limited Partnership, dated as of May 29, 2008 (incorporated by reference to Exhibit 10.37 to NorthStar Realty Finance Corp.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008)
	10.18		NorthStar Realty Finance Corp. Executive Incentive Bonus Plan (incorporated by reference to Exhibit 10.31 to NorthStar Realty Finance Corp.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009)
	10.19		Form of Award Agreement (incorporated by reference to Exhibit 99.2 to the NorthStar Realty Finance Corp. Current Report on Form 8-K filed on September 11, 2009)
	10.20		Common Stock Purchase Warrant, Certificate No. W-1, dated October 28, 2009, issued to Wachovia Bank, National Association (incorporated by reference to Exhibit 10.36 to NorthStar Realty Finance Corp.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009)
	10.21		Common Stock Purchase Warrant, Certificate No. W-2, dated October 28, 2009, issued to Wachovia Bank, National Association (incorporated by reference to Exhibit 10.37 to NorthStar Realty Finance Corp.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009)

Table of Contents

		Description of Exhibit

10.22		Common Stock Purchase Warrant, Certificate No. W-3, dated October 28, 2009, issued to Wachovia Bank, National Association (incorporated by reference to Exhibit 10.38 to NorthStar Realty Finance Corp.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009)
10.23		Separation and Consulting Agreement, dated January 25, 2010, between NorthStar Realty Finance Corp. and Richard J. McCready (incorporated by reference to Exhibit 99.1 to the NorthStar Realty Finance Corp. Current Report on Form 8-K filed on January 25, 2010)
10.24		Letter Agreement, dated June 30, 2010, by Wells Fargo Bank, National Association and Wells Fargo Bank, N.A., London Branch (as successor-by-merger to Wachovia Bank, N.A. (London Branch)), as acknowledged and agreed by NorthStar Realty Finance Corp. and certain of its Affiliates and Subsidiaries (incorporated by reference to Exhibit 10.29 to NorthStar Realty Finance Corp.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010)
10.25		Common Stock Purchase Warrant, Certificate No. W-4, dated June 30, 2010, issued to Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.30 to NorthStar Realty Finance Corp.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010)
10.26	*	Amendment to the NorthStar Realty Finance Corp. Executive Incentive Bonus Plan.
31.1	*	Certification by the Chief Executive Officer pursuant to 17 CFR 240.13a-14(a)/15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	*	Certification by the Chief Financial Officer pursuant to 17 CFR 240.13a-14(a)/15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	*	Certification by the Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	*	Certification by the Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*: Filed herewith

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	NORTHSTAR REALTY FINANCE CORP.
Date: May 6, 2011	By:	/s/ DAVID T. HAMAMOTO David T. Hamamoto Chief Executive Officer
	By:	/s/ LISA MEYER Lisa Meyer Acting Principal Financial Officer

Attached files

Stock widget

Investing forum

NORTHSTAR REALTY FINANCE CORP. Reports