1241199--3/2/2009--CAPITALSOURCE

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{investment, property, distribution}

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{acquisition, growth, future}

{debt, indebtedness, cash}

{system, service, information}

{cost, contract, operation}

{control, financial, internal}

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{capital, credit, financial}

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If our lenders terminate or fail to renew any of our credit facilities, we may not be able to continue to fund our business. Required commitment reductions in our syndicated credit facility as well as mandatory redemptions of our outstanding convertible debentures may limit our ability to maintain sufficient liquidity. We must comply with various covenants and obligations under our indebtedness and our failure to do so could adversely affect our ability to operate our business, manage our portfolio or pursue certain opportunities. Our commitments to lend additional amounts to existing clients exceed our resources available to fund these commitments. Our liquidity position has been and will continue to be adversely affected as a result of our inability to complete additional term debt transactions on favorable terms or at all. Our cash flows from the interests we retain in our term debt have been, and we expect will continue to be, delayed or reduced due to the requirements of the term debt, which has impaired and could continue to impair our ability to fund our commitments under existing loans. Fluctuating interest rates could adversely affect our profit margins and ability to operate our business. Hedging instruments involve inherent risks and costs and may materially adversely affect our earnings. We may enter into derivative contracts that could expose us to future contingent liabilities. Risks Related to Our Operations We may fail to benefit from the operation of CapitalSource Bank. We may fail to maintain or raise sufficient deposits or other sources of funding at CapitalSource Bank to operate our business. We are subject to extensive government regulation and supervision which limit our flexibility and could result in adverse actions by regulatory agencies against us. The A Participation Interest may not pay down to the extent necessary to avoid losses. We have revoked our REIT election which could have adverse tax and legal implications. If it were determined that we violated REIT requirements or failed to qualify as a REIT in any given year during which we operated as a REIT, it could adversely impact our historical, current and future results of operations. The requirements of the Investment Company Act impose limits on our operations that impact the way we acquire and manage our assets and operations. Changes in the values of our assets and subsidiaries and the income produced by them have made, and may make, it more difficult for us to maintain our exemptions from the Investment Company Act. Our systems may experience an interruption or breach in security which could subject us to increased operating costs as well as litigation and other liabilities. Our controls and procedures may fail or be circumvented. Risks Related to Our Lending Activities We may not recover all amounts that are contractually owed to us by our borrowers. We make loans to other lenders and commercial real estate developers which have been disproportionately negatively impacted by the economic recession. These clients face a variety of risks relating to their underlying loans and development, construction and renovation projects, any of which may negatively impact their results of operations and impair their ability to pay principal and interest on our loans. Our concentration of loans to a limited number of clients within a particular industry or region could impair our revenues if the industry or region were to experience continued or worsening economic difficulties or changes in the regulatory environment. We make loans to privately owned small and medium-sized companies that present a greater risk of loss than loans to larger companies. We may not have all of the material information relating to a potential client at the time that we make a credit decision with respect to that potential client or at the time we advance funds to the client. As a result, we may suffer losses on loans or make advances that we would not have made if we had all of the material information. Increases in interest rates could negatively affect our clients ability to repay their loans. A client s fraud could cause us to suffer losses. Some of our clients require licenses, permits and other governmental authorizations to operate their businesses, which may be revoked or modified by applicable governmental authorities. Any revocation or modification could have a material adverse effect on the business of a client and, consequently, the value of our loan to that client. Our loans to foreign clients may involve significant risks in addition to the risks inherent in loans to U.S. clients. Because of the nature of our loans and the manner in which we disclose client and loan concentrations, it may be difficult to evaluate our risk exposure to any particular client or group of related clients. We may be unable to recognize or act upon an operational or financial problem with a client in a timely fashion so as to prevent a loss of our loan to that client. We may make errors in evaluating information reported by our clients and, as a result, we may suffer losses on loans or advances that we would not have made if we had properly evaluated the information. Our balloon loans and bullet loans may involve a greater degree of risk than other types of loans. We are limited in pursuing certain of our rights and remedies under our Term B, second lien and mezzanine loans, which may increase our risk of loss on these loans. The collateral securing a loan may not be sufficient to protect us from a partial or complete loss if we have not properly obtained or perfected a lien on such collateral or if the loan becomes non-performing, and we are required to foreclose. Our cash flow loans are not fully covered by the value of assets or collateral of the client and, consequently, if any of these loans becomes non-performing, we could suffer a loss of some or all of our value in the loan. We are not the agent for a portion of our loans and, consequently, have little or no control over how those loans are administered or controlled. We are the agent for loans in which syndicates of lenders participate and, in the event of a loss on any such loan, we could have liability to other members of the syndicate related to our management and servicing of the loan. We may purchase distressed loans at amounts that may exceed what we are able to recover on these loans. Our loans could be subject to equitable subordination by a court which would increase our risk of loss with respect to such loans. We may incur lender liability as a result of our lending activities. We have engaged in the past, and may engage in the future, in lending transactions with affiliates of our directors. Because of the conflicts of interest inherent in these transactions, their terms may not be in our shareholders best interests. If we do not obtain or maintain the necessary state licenses and approvals, we will not be allowed to acquire, fund or originate residential mortgage loans and other loans in some states, which would adversely affect our operations. We are in a competitive business and may not be able to take advantage of attractive opportunities. The mortgage loans underlying our residential mortgage investments are subject to delinquency, foreclosure and loss, which could result in losses to us. Debtor-in-possession loans may have a higher risk of default. We may not retain control over our joint venture investments, which may increase the risk of loss with respect to such investments. Risks Related to our Direct Real Estate Investments We are exposed to liabilities, including environmental liabilities, with respect to properties to which we take title. We have experienced and may continue to experience losses if the creditworthiness of our tenants leasing our healthcare properties deteriorates and they are unable to meet their obligations under our leases. The operators of our healthcare properties are faced with increased litigation, rising insurance costs and enhanced government scrutiny that may affect their ability to make payments to us. Since real estate investments are illiquid and the real estate markets are experiencing significant disruption, we may not be able to sell properties when we desire. Risks Related to our Common Stock We may issue additional shares of common stock at prices that are dilutive to our existing shareholders. We may or may not pay dividends on our common stock. Acquisitions may adversely impact our business. If a substantial number of shares available for sale are sold in a short period of time, the market price of our common stock could decline.

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1241199--3/2/2009--CAPITALSOURCE_INC