1332551--3/29/2006--Resource_Capital

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{loan, real, estate}

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{acquisition, growth, future}

{cost, regulation, environmental}

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Risks Related to Our Business We have a limited operating history. We may not be able to operate our business successfully or generate sufficient revenue to make distributions to our stockholders. We depend on the Manager and Resource America and may not find suitable replacements if the management agreement terminates. Termination of our management agreement is an event of default under the repurchase agreements financing our agency RMBS. The Manager and Resource America have only limited prior experience managing a REIT and we cannot assure you that their past experience will be sufficient to successfully manage our business. We must pay the Manager the base management fee regardless of the performance of our portfolio. The incentive fee we pay the Manager may induce it to make riskier investments. The Manager manages our portfolio pursuant to very broad investment guidelines and our Board of Directors does not approve each investment decision, which may result in our making riskier investments. We may change our investment strategy without stockholder consent, which may result in riskier investments than those currently targeted. Our management agreement was not negotiated at arm s-length and, as a result, may not be as favorable to us as if it had been negotiated with a third party. Termination of the management agreement by us without cause is difficult and could be costly. The Manager and Resource America may engage in activities that compete with us. Our Manager s liability is limited under the management agreement, and we have agreed to indemnify our Manager against certain liabilities. Our investment portfolio is heavily concentrated in agency RMBS and we cannot assure you that we will be successful in achieving a more diversified portfolio. We leverage our portfolio, which may reduce the return on our investments and cash available for distribution. Growth in our business operations may strain the infrastructure of the Manager and Resource America, which could increase our costs, reduce our profitability and reduce our cash available for distribution and our stock price. Failure to grow may harm our ability to achieve our investment objectives. We operate in a highly competitive market for investment opportunities, which may result in higher prices, lower yields and a narrower net interest spread for our investments, and may inhibit the growth or delay the diversification of our portfolio. Failure to procure adequate capital and funding may decrease our profitability and our ability to make distributions, reducing the market price of our common stock. We finance our investments in significant part through CDOs in which we retain the equity. CDO equity receives distributions from the CDO only if the CDO generates enough income to first pay the holders of its debt securities and its expenses. The use of CDO financings with over-collateralization requirements may reduce our cash flow. Declines in the market values of our investments may reduce periodic reported results, credit availability and our ability to make distributions. Loss of our exclusion from regulation under the Investment Company Act would require significant changes in our operations and could reduce the market price of our common stock and our ability to make distributions. Rapid changes in the values of our RMBS, CMBS or other real-estate related investments may make it more difficult for us to maintain our qualification as a REIT or exclusion from regulation under the Investment Company Act. We are highly dependent on information systems. Systems failures could significantly disrupt our business. If we issue senior securities, their terms may restrict our ability to make cash distributions, require us to obtain approval to sell our assets or otherwise restrict our operations in ways which could make it difficult to execute our investment strategy and achieve our investment objectives. 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. Risks Related to Our Investments Increases in interest rates and other factors could reduce the value of our investments, result in reduced earnings or losses and reduce our ability to pay distributions. We remain subject to losses on our mortgage portfolio despite our strategy of investing in highly-rated RMBS. We invest in RMBS backed by sub-prime residential mortgage loans which are subject to higher delinquency, foreclosure and loss rates than mid-prime or prime residential mortgage loans, which could result in losses to us. Investing in mezzanine debt and mezzanine or other subordinated tranches of CMBS, syndicated bank loans and other ABS involves greater risks of loss than senior secured debt investments. The B notes 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. Our assets likely will include trust preferred securities of financial institutions, or CDOs collateralized by these securities, which may have greater risks of loss than senior secured loans. We may invest in small- and middle-ticket equipment leases and notes which may have greater risks of default than senior secured loans. Private equity investments involve a greater risk of loss than traditional debt financing. Some of our portfolio investments will be recorded at fair value as estimated by our management and reviewed by our board of directors and, as a result, there will be uncertainty as to the value of these investments. Some of our investments may be illiquid, which may result in our realizing less than their recorded value should we need to sell such investments quickly. We enter into warehouse agreements in connection with our planned investment in the equity securities of CDOs and if the investment in the CDO is not consummated, the warehoused collateral will be sold and we must bear any loss resulting from the purchase price of the collateral exceeding the sale price. We may not be able to acquire eligible securities for a CDO issuance, or 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 have to repurchase assets that we have sold in connection with CDOs and other securitizations. An increase in our borrowing costs relative to the interest we receive on our assets may impair our profitability, and thus our cash available for distribution to our stockholders. Termination events contained in our repurchase agreements increase the possibility that we will be unable to maintain adequate capital and funding and may reduce cash available for distribution. A prolonged economic slowdown, recession or decline in real estate values could impair our investments and harm our operating results. We may be exposed to environmental liabilities with respect to properties to which we take title. We will lose money on our repurchase transactions if the counterparty to the transaction defaults on its obligation to resell the underlying security back to us at the end of the transaction term, or if the value of the underlying security has declined as of the end of the term or if we default on our obligations under the repurchase agreement. Our hedging transactions may not completely insulate us from interest rate risk and may result in poorer overall investment performance than if we had not engaged in any hedging transactions. 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 of default by the hedging counterparty and illiquidity. We may enter into hedging instruments that could expose us to unexpected losses in the future. Increased levels of prepayments on our MBS might decrease our net interest income or result in a net loss. The obligations underlying our RMBS, CMBS and B notes will be subject to delinquency, foreclosure and loss, which could result in losses to us. Our assets include syndicated bank loans, other ABS and private equity investments, which will carry higher risks of loss than our real estate-related portfolio. Our due diligence may not reveal all of an entity s liabilities and other weaknesses in its business. Risks Related to Our Organization and Structure Our charter and bylaws contain provisions that may inhibit potential acquisition bids that you and other stockholders may consider favorable, and the market price of our common stock may be lower as a result. Maryland takeover statutes may prevent a change in control of us, and the market price of our common stock may be lower as a result. Our rights and the rights of our stockholders to take action against our directors and officers are limited, which could limit your recourse in the event of actions not in your best interests. Our right to take action against the Manager is limited. Our right to take action against the Manager is limited. Our right to take action against the Manager is limited. We have not established a minimum distribution payment level and we cannot assure you of our ability to make distributions in the future. We may in the future use uninvested offering proceeds or borrowed funds to make distributions. Complying with REIT requirements may cause us to forego otherwise attractive opportunities. We may realize excess inclusion income that would increase our tax liability and that of our stockholders. Failure to qualify as a REIT would subject us to federal income tax, which would reduce the cash available for distribution to our stockholders. Failure to make required distributions would subject us to tax, which would reduce the cash available for distribution to our stockholders. If we make distributions in excess of our current and accumulated earnings and profits, they will be treated as a return of capital, which will reduce the adjusted basis of your stock. To the extent such distributions exceed your adjusted basis, you may recognize a capital gain. If we make distributions in excess of our current and accumulated earnings and profits, they will be treated as a return of capital, which will reduce the adjusted basis of your stock. To the extent such distributions exceed your adjusted basis, you may recognize a capital gain. Our ownership of and relationship with our TRS 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. Complying with REIT requirements may limit our ability to hedge effectively. 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 federal income tax purposes. Tax law changes could depress the market price of our common stock. Dividends paid by REITs do not qualify for the reduced tax rates provided for under current law. The tax treatment of income inclusions from our foreign TRSs or other corporations that are not REITs or qualified REIT subsidiaries is unclear for purposes of the gross income requirements for REITs.

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1332551--3/29/2006--Resource_Capital_Corp.