1253986--3/5/2008--ARBOR_REALTY_TRUST

related topics

{investment, property, distribution}

{loan, real, estate}

{debt, indebtedness, cash}

{provision, law, control}

{tax, income, asset}

{loss, insurance, financial}

{competitive, industry, competition}

{stock, price, operating}

{capital, credit, financial}

{regulation, change, law}

{personnel, key, retain}

{control, financial, internal}

{cost, regulation, environmental}

{operation, natural, condition}

We depend on key personnel with long standing business relationships, the loss of whom could threaten our ability to operate our business successfully. The real estate investment business is highly competitive. Our success depends on our ability to compete with other providers of capital for real estate investments. We may not achieve our targeted rate of return on our investments. Our due diligence may not reveal all of a borrower s liabilities and may not reveal other weaknesses in its business. We invest in junior participation notes which may be subject to additional risks relating to the privately negotiated structure and terms of the transaction, which may result in losses to us. We invest in mezzanine loans which are subject to a greater risk of loss than loans with a first priority lien on the underlying real estate. Preferred equity investments involve a greater risk of loss than traditional debt financing. 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. Prepayment rates can increase, adversely affecting yields. We may not have control over certain of our loans and investments. The impact of any future terrorist attacks and the availability of terrorism insurance expose us to certain risks. We are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and furnish a report on our internal control over financial reporting. Failure to maintain an exemption from regulation as an investment company under the Investment Company Act would adversely affect our results of operations. Risks Related to Our Financing and Hedging Activities We may not be able to access financing sources on favorable terms, or at all, which could adversely affect our ability to execute our business plan. Investor demand for commercial real estate CDOs has been substantially curtailed. We may not be able to obtain the level of leverage necessary to optimize our return on investment. The repurchase agreements and credit facilities that we use to finance our investments may require us to provide additional collateral. Our use of leverage may create a mismatch with the duration and index of the investments that we are financing. We utilize a significant amount of debt to finance our portfolio, which may subject us to an increased risk of loss, adversely affecting the return on our investments and reducing cash available for distribution. We may guarantee some of our leverage and contingent obligations. Our secured and unsecured credit agreements may impose restrictions on our operation of the business. We may not be able to acquire suitable investments for a CDO issuance, or we may not be able to issue CDOs on attractive terms, or at all, which may require us to utilize more costly financing for our investments. We may not be able to find suitable replacement investments for CDOs with reinvestment periods. The use of CDO financings with over-collateralization and interest coverage requirements may have a negative impact on our cash flow. We may be required to repurchase loans that we have sold or to indemnify holders of our CDOs. Our loans and investments may be subject to fluctuations in interest rates which may not be adequately protected, or protected at all, by our hedging strategies. Hedging instruments often are not traded on regulated exchanges, guaranteed by an exchange or its clearing house, or regulated by any U.S. or foreign governmental authorities and involve risks and costs. We may enter into derivative contracts that could expose us to contingent liabilities in the future. Risks Related to Our Corporate and Ownership Structure We are substantially controlled by ACM and Mr. Kaufman. Our charter as amended generally does not permit ownership in excess of 7.0% 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. Our staggered board and other provisions of our charter and bylaws may prevent a change in our control. Risks Related to Conflicts of Interest with Our Manager 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. Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow. The taxable mortgage pool rules may increase the taxes that we or our stockholders may incur, and may limit the manner in which we effect future securitizations. Complying with REIT requirements may cause us to forego otherwise attractive opportunities. Complying with REIT requirements may force us to liquidate otherwise attractive investments. Liquidation of collateral may jeopardize our REIT status. 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. We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common stock. Restrictions on share accumulation in REITs could discourage a change of control of us. Complying with REIT requirements may limit our ability to hedge effectively.

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1253986--3/5/2008--ARBOR_REALTY_TRUST_INC