1253986--3/15/2006--ARBOR_REALTY_TRUST

related topics

{investment, property, distribution}

{loan, real, estate}

{debt, indebtedness, cash}

{tax, income, asset}

{stock, price, operating}

{personnel, key, retain}

{provision, law, control}

We depend on key personnel with long standing business relationships, the loss of whom could threaten our ability to operate our business successfully. The majority of our investments as of December 31, 2005 are mezzanine loans which are subject to a greater risk of loss than loans with a first priority lien on the underlying real estate. We invest in multi-family and commercial real estate loans, which may involve a greater risk of loss than single family real estate loans. Volatility of values of multi-family and commercial properties may adversely affect our loans and investments. We may be unable to generate sufficient revenue from operations to pay our operating expenses and to pay dividends to our stockholders. We may need to borrow funds under our credit facilities in order to satisfy our REIT distribution requirements, and a portion of our distributions may constitute a return of capital. Debt service on any borrowings for this purpose will reduce our cash available for distribution. Failure to maintain an exemption from the Investment Company Act would adversely affect our results of operations. We are substantially controlled by Arbor Commercial Mortgage and its controlling equity owner, Mr. Kaufman. Our charter as amended generally does not permit ownership in excess of 8.3% of our capital stock, and attempts to acquire our capital stock in excess of this limit are ineffective without prior approval from our board of directors. Risks Related to Conflicts of Interest We are dependent on our manager with whom we have conflicts of interest. Our directors have approved very broad investment guidelines for our manager and do not approve each investment decision made by our manager. Our manager has broad discretion to invest funds and may acquire structured finance assets where the investment returns are substantially below expectations or that result in net operating losses. Risk Related to Our Status as a REIT If we fail to remain qualified as a REIT, we will be subject to tax as a regular corporation and could face substantial tax liability.

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1253986--3/15/2006--ARBOR_REALTY_TRUST_INC