1045425--3/1/2007--RAIT_Financial

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Risks Related to the Merger Combining the businesses of RAIT and Taberna may be more difficult, costly or time-consuming than we expected. Risks Related to Our Business Our organizational documents do not limit our ability to enter into new lines of businesses, and we may enter into new businesses, make future strategic investments or acquisitions or enter into joint ventures, each of which may result in additional risks and uncertainties in our business. Failure to procure adequate capital and funding would adversely affect our results. Our business requires a significant amount of cash, and if such cash is not available, our business and financial performance will be significantly harmed. Our reliance on significant amounts of debt to finance investments may subject us to an increased risk of loss, reduce our return on investments, reduce our ability to pay distributions to our shareholders and possibly result in the foreclosure of any assets subject to secured financing. Our financing arrangements contain covenants that restrict our operations, and any default under these arrangements would inhibit our ability to grow our business, increase revenue and pay distributions to our shareholders. Our hedging transactions may not completely insulate us from interest rate risk, which could cause volatility in our earnings. Our ability to use TRSs, and consequently our ability to establish fee-generating businesses and invest in CDOs, will be limited by the election made by Taberna and us, respectively, to be taxed as a REIT, which may adversely affect returns to our shareholders. We operate in a highly competitive market which may have a material adverse effect on our business, financial condition, liquidity and results of operations. We may not be able to acquire eligible securities for CDO issuances or other securitizations on favorable economic terms, and may not be able to structure CDOs and other securitizations on attractive terms. The assets acquired by our warehouse providers or financed by us using repurchase agreements may not be suitable for a future CDO transaction, which may require us to seek more costly financing for investments or to liquidate assets. The use of CDO financings with over-collateralization requirements may have a negative impact on our cash flow and may trigger certain termination provisions in the related collateral management agreements. Our CDOs and other securitizations are collateralized with loans and real estate securities, and any adverse market trends that affect these real estate securities are likely to adversely affect our CDOs and other securitizations. Representations and warranties made by us in loan sales and securitizations may subject us to liability that could result in loan losses and could harm our operating results and, therefore distributions we make to our shareholders. Loss of our management team or the ability to attract and retain key employees could harm our business. We depend on information systems and third parties. Systems failures could significantly disrupt our business, which may, in turn, impair our ability to pay distributions to our shareholders. We receive collateral management fees pursuant to collateral management agreements for services provided by our subsidiaries for acting as the collateral manager of CDOs sponsored by us. We expect to receive similar fees for future CDO transactions. If a collateral management agreement is terminated or if the securities serving as collateral for a CDO are prepaid, the collateral management fees will be reduced or eliminated. An increase in current interest rates could make our TruPS product a less attractive financing option for REITs and real estate operating companies. We depend upon C Co. and its affiliates to provide us with various services. If our shared services agreement with C Co. is terminated, we may not be able to timely replace these services on terms favorable to us. We are subject to potential conflicts of interest arising from the relationship our chief executive officer and a trustee has with C Co., its affiliates, and Alesco Financial Inc., in particular relating to the time he may devote to other matters for C Co. and Alesco Financial Inc. Our conflicts of interest policies may not successfully eliminate the influence of such conflicts. Other Regulatory and Legal Risks of Our and Taberna s Business Our reputation, business and operations could be adversely affected by regulatory compliance failures, the potential adverse effect of changes in laws and regulations applicable to our business and effects of negative publicity surrounding the CDO market or real estate industry in general. The accounting rules applicable to certain of our transactions are highly complex and require the application of significant judgment and assumptions by our management. In addition, changes in accounting interpretations or assumptions could impact our financial statements. If we fail to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, the price of our common shares may be adversely affected. Taberna may become subject to liability and incur increased expenditures as a result of its prior restatement of its unaudited consolidated financial statements. Loss of our Investment Company Act exemption would affect us adversely. Our ownership limitation may restrict business combination opportunities. Preferred shares may prevent change in control. Maryland anti-takeover statutes may restrict business combination opportunities. Risks Related to Our Investments We may not realize gains or income from investments and may realize losses. The value of our investments depends on conditions beyond our control. Most of our investments may be recorded at fair value as determined in good faith by our management and, as a result, there may be uncertainty as to the value of these investments. The lack of liquidity in our investments may make it difficult for us to sell such investments if the need arises. A prolonged economic slowdown, a recession or declining real estate values could impair our investments and harm our operating results. Our investment portfolio may have material geographic, sector and property-type concentrations. Preferred equity investments in REITs and real estate operating companies may involve a greater risk of loss than traditional debt financing and specific risks relating to particular issuers. Our investments in unsecured REIT securities are subject to the risks of investing in subordinated real estate-related securities, which may result in losses to us. Our investments in CDOs and other securitizations are exposed to greater uncertainty and risk of loss than investments in higher grade securities in these CDOs and securitizations. Prepayment rates on TruPS, mortgage loans or mortgage-backed securities could reduce the value of our investments, which could result in reduced earnings or losses and impair our ability to pay distributions to our shareholders. The mortgage loans in which we invest and the mortgage loans underlying the mortgage and asset-backed securities in which we invest are subject to delinquency, foreclosure and loss, which could result in losses to us that may result in reduced earnings or losses and negatively affect our ability to pay distributions to our shareholders. Our acquisition of investments denominated or payable in foreign currencies may affect our revenues operating margins and distributions and may also affect the book value of our assets and shareholders equity. We may enter into derivative contracts that could expose us to contingent liabilities in the future. Longer term, subordinate and non-traditional loans may be illiquid and their value may decrease. Our consolidated real estate interests are illiquid and their value may decrease. Our subordinated real estate investments such as mezzanine loans and preferred equity interests in entities owning real estate may involve increased risk of loss. Acquisitions of loans may involve increased risk of loss. Financing with high loan-to-value ratios may involve increased risk of loss. Interest rate changes may reduce the value of our investments. We may not obtain appreciation interests at the rate we seek, or at all, and we may not benefit from appreciation interests we do obtain. Appreciation interests may cause us to lose our lien priority. Usury statutes may impose interest ceilings and substantial penalties for violations. Lease expirations, lease defaults and lease terminations may adversely affect our revenue. We may need to make significant capital improvements to our properties in order to remain competitive. Uninsured and underinsured losses may affect the value of, or our return from, our real estate interests. Real estate with environmental problems may create liability for us. Compliance with Americans with Disabilities Act may reduce our ability to make distributions. Concentration of our investments increases our dependence on individual investments. Adverse developments in any arrangement with a third party that was the source of a material amount of our investments could adversely impact our growth. Quarterly results may fluctuate and may not be indicative of future quarterly performance. Our board of trustees may change our policies without shareholder consent. We or Taberna may fail to qualify as a REIT, and such failure to qualify would have significant adverse consequences on the value of our common shares. In addition, if we or Taberna fail to qualify as a REIT, such entity s dividends will not be deductible, and the entity will be subject to corporate-level tax on its net taxable income, which would reduce the cash available to make distributions. Complying with REIT requirements may cause us or Taberna to forgo otherwise attractive opportunities. Each of our and Taberna s qualifications as a REIT and exemption from U.S. federal income tax with respect to certain assets may be dependent on the issuers of the REIT securities in which we and Taberna invest maintaining their REIT qualification and the accuracy of legal opinions rendered to or statements made by the issuers of securities, including CDOs, in which we and Taberna invest. We and Taberna own interests in taxable mortgage pools, which may subject us to U.S. federal income tax, increase the tax liability of our shareholders and limit the manner in which we and Taberna effect securitizations. We or Taberna may lose our or its REIT qualification or be subject to a penalty tax if the Internal Revenue Service, or IRS, successfully challenges our or its characterization of income from foreign TRSs which are CDOs. The failure of a loan subject to a repurchase agreement to qualify as a real estate asset could adversely affect our or Taberna s ability to qualify as a REIT. We and Taberna will pay taxes. Failure to make required distributions would subject us or Taberna to tax, which would reduce the ability to pay distributions to our and its shareholders. If our or Taberna s CDOs or Taberna s subsidiaries, Taberna Bermuda or Taberna Securities UK, are subject to U.S. federal income tax at the entity level, it would greatly reduce the amounts those entities would have available to distribute to us or Taberna and pay their creditors. Our and Taberna s ownership of and relationship with TRSs will be limited, and a failure to comply with the limits would jeopardize our and its REIT qualification and may result in the application of a 100% excise tax. Compliance with REIT requirements may limit our and Taberna s ability to hedge effectively. Taberna and RAIT may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common shares. Origination fees we receive will not be REIT qualifying income. Income from certain loans may not be REIT qualifying income. Gain on disposition of assets deemed held for sale in ordinary course subject to 100% tax. A portion of the dividends we distribute may be deemed a return of capital for federal income tax purposes.

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1045425--3/1/2007--RAIT_Financial_Trust