1287701--2/28/2007--GRAMERCY_CAPITAL

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{investment, property, distribution}

{loan, real, estate}

{tax, income, asset}

{debt, indebtedness, cash}

{provision, law, control}

{competitive, industry, competition}

{system, service, information}

{loss, insurance, financial}

{stock, price, operating}

{acquisition, growth, future}

{financial, litigation, operation}

{personnel, key, retain}

{operation, natural, condition}

{cost, regulation, environmental}

{capital, credit, financial}

{condition, economic, financial}

{stock, price, share}

Risks Related to Our Management and Our Relationship with SL Green We are dependent on our Manager and its key employees and may not find a suitable replacement if our Manager terminates the management agreement or the key personnel are no longer available to us. There are conflicts of interest in our relationship with our Manager, which could result in decisions that are not in the best interest of holders of our securities. Our assets that we acquire by foreclosure or similar conveyance may be subject to purchase rights or rights of first offer in favor of SL Green, which could reduce their marketability or value. Our financial condition and results of operations depend on our ability to manage future growth effectively. Our board of directors has approved very broad investment guidelines for our Manager and does not approve each investment decision made by our Manager. We may change our investment and operational policies without stockholder consent. Risks Related to Our Business Maintenance of our Investment Company Act exemption imposes limits on our operations. 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. If GKK Manager LLC ceases to be our manager pursuant to the management agreement, financial institutions providing our repurchase facilities may not provide future financing to us. Our repurchase agreements and our CDO financing agreements may limit our ability to make investments. We may not be able to issue CDO securities on attractive terms, which may require us to seek more costly financing for our investments or to liquidate assets. 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 and our ability to distribute dividends. Lack of diversification in number of investments increases our dependence on individual investments. Interest rate fluctuations could reduce our ability to generate income on our investments. In a period of rising interest rates, our interest expense could increase while the interest we earn on our fixed-rate assets would not change, which would adversely affect our profitability. If credit spreads widen before we obtain long-term financing for our assets, the value of our assets may suffer. The repurchase agreements and credit facilities that we use to finance our investments may require us to provide additional collateral. Lenders may require us to enter into restrictive covenants relating to our operations. The use of CDO financings with coverage tests may have a negative impact on our operating results and cash flows. If we issue senior securities we will be exposed to additional restrictive covenants and limitations on our operating flexibility, which could adversely affect our ability to pay dividends. We may not be able to renew the total return swaps that we enter into, which could adversely impact our leveraging strategy. We may be required to repurchase loans that we have sold or to indemnify holders of our CDOs. Our hedging transactions may limit our gains or result in losses. We are subject to significant competition and we may not compete successfully. Rapid changes in the values of our MBS and other real estate related investments may make it more difficult for us to maintain our qualification as a REIT or exemption from the Investment Company Act. If we fail to achieve adequate operating cash flow, our ability to make distributions will be adversely affected. Terrorist attacks and other acts of violence or war may affect the market for our common stock, the industry in which we conduct our operations and our profitability. We are highly dependent on information systems and third parties, and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to pay dividends. Our business is highly dependent on communications and information systems. Any failure or interruption of our systems could cause delays or other problems in our securities trading activities, including mortgage-backed securities trading activities, which could have a material adverse effect on our operating results and negatively affect the market price of our common stock and our ability to pay dividends. Risks Related to Our Investments Some of our portfolio investments may be recorded at fair value as determined in good faith by our Manager and, as a result, there will be uncertainty as to the value of these investments. We may not realize gains or income from our investments. A prolonged economic slowdown, a lengthy or severe recession, or declining real estate values could harm our operations. We may be adversely affected by unfavorable economic changes in geographic areas where our properties are concentrated. Joint investments could be adversely affected by our lack of sole decision-making authority and reliance upon a co-venturer s financial condition. Liability relating to environmental matters may impact the value of the properties that we may acquire or underlying our investments. 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. Prepayments can adversely affect the yields on our investments. The loans we invest in and the commercial mortgage loans underlying the CMBS we invest in are subject to risks of delinquency and foreclosure. The subordinate interests in whole loans in which we invest may be subject to additional risks relating to the privately negotiated structure and terms of the transaction, which may result in losses to us. Investment in non-conforming and non-investment grade loans may involve increased risk of loss. Investments in mezzanine loans involve greater risks of loss than senior loans secured by income producing properties. Bridge loans involve a greater risk of loss than traditional mortgage loans. Preferred equity investments involve a greater risk of loss than traditional debt financing. Our investments in subordinate loans and subordinated CMBS are subject to losses. Our investments in debt securities are subject to specific risks relating to the particular issuer of the securities and to the general risks of investing in subordinated real estate securities. Our real estate investments are subject to risks particular to real property. Our real estate investments may be illiquid, which could restrict our ability to respond rapidly to changes in economic conditions. Investments in CTL properties may generate losses. We may enter into derivative contracts that could expose us to contingent liabilities in the future. Our due diligence may not reveal all of a borrower s liabilities and may not reveal other weaknesses in its business. Risks Related to Our Organization and Structure The concentration of our ownership may adversely affect the ability of investors to influence our policies. Maryland takeover statutes may prevent a change of control of our company, which could depress our stock price. Our authorized but unissued preferred stock may prevent a change in our control which could be in the shareholders best interests. Our staggered board of directors and other provisions of our charter and bylaws may prevent a change in our control. Changes in market conditions could adversely affect the market price of our common stock. An increase in market interest rates may have an adverse effect on the market price of our common stock. Risks Related to Our Taxation as a REIT Our failure to qualify as a REIT would result in higher taxes and reduced cash available for stockholders. REIT distribution requirements could adversely affect our liquidity. Complying with REIT requirements may limit our ability to hedge effectively. The stock ownership limit imposed by the Internal Revenue Code for REITs and our charter may inhibit market activity in our stock and may restrict our business combination opportunities. The tax on prohibited transactions will limit our ability to engage in transactions, including certain methods of securitizing mortgage loans, that would be treated as sales for U.S. federal income tax purposes. The taxable mortgage pool rules may limit the manner in which we effect future securitizations and may subject us to U.S. federal income tax and increase the tax liability of our stockholders. We may be unable to generate sufficient revenue from operations to pay our operating expenses and to pay distributions to our stockholders. Although our use of TRSs may be able to partially mitigate the impact of meeting the requirements necessary to maintain our qualification as a REIT, our ownership of and relationship with our TRSs will be limited and a failure to comply with the limits would jeopardize our REIT qualification and may result in the application of a 100% excise tax. Cautionary Note Regarding Forward-Looking Information

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1287701--2/28/2007--GRAMERCY_CAPITAL_CORP