Good day, and welcome to iStar Financial’s first quarter 2008 earnings conference call. [Operator Instructions] As a reminder today’s conference is being recorded. At this time for of the remarks and introductions, I would like to turn the conference over to iStar Financial’s, Senior Vice President of Investor Relations and Marketing, Mr. Andrew Backman. Please go ahead, Sir.

Thank you, Tony, and good morning, everyone. Thank you for joining us today to review iStar Financial’s first quarter earnings report. With me today are Jay Sugarman, Chairman and Chief Executive Officer; Jay Nydick, our President; Katy Rice, our Chief Financial Officer; Nina Matis, Chief Investment Officer and General Counsel; and Jim Burns, Executive Vice President and Treasurer. This morning’s call is being webcast on our web site at istarfinancial.com in the Investor Relations section. There will be a replay of the call beginning at 12:30 pm Eastern time today. The dial-in for the replay is 1-800-475-6701 with a confirmation code of 918586. Before, I turn the call over to, Jay I would like to remind everyone that statements in this earnings which are not historical facts may be deemed forward-looking statements. Factors that could cause actual results to differ materially from iStar Financial’s expectations are detailed in our SEC reports. Now let me turn the call over to iStar’s Chairman and CEO, Jay Sugarman. Jay?

Thanks, Andy. Welcome, everyone. I want to start off with a quick recap of the first quarter highlights. Then I’m going to spend some time later adding color to a number of areas I think will be of interest. Let me start with earnings. First quarter earnings were $0.87 per share, that’s down about 6% from last year, as a result of higher loss provisions on the loan portfolio, offset by some good news in the Other Income category. Slower resolutions of non-earning assets continue to drag on earnings growth. I will comment further on that a little later. In terms of investments, we funded just under $950 million in new and existing investments; and iStar received approximately $750 million in repayment. Inside the portfolio, we actually received $1.3 billion in repayment but as you know, a portion of those repayment proceeds are contractually committed to paying down the Fremont A note. That A note is now down from about $4.2 billion at closing to $2.4 billion today. Turning to returns and return on equity, margins in return on equity looked pretty good this quarter, helped by interest rate floors kicking in on a good number of floating rate assets, and a sizable return on an equity kicker from a previous financing. ROE for the quarter was north of 20% and margins were solid in the mid-300 range in spite of the non-earning asset drag. Next on credit, we like others, adjusted our overall macroeconomic view further downward last quarter, resulting in more asset downgrades and increased reserves. The Bear Stearns situation at the end of the quarter stalled some of the progress we were making on a number of assets. And we’ve been working very hard to reassess almost every challenged asset in the portfolio. We’ll share some data on asset resolutions at the end of the call, as well. Lastly, on the capital front, we pushed very hard to pay off the Fremont interim loan well ahead of its June 30th maturity. The opportunistic sale of our timber assets created a very large gain and paid off the one-third of that loan and we very recently completed our planned CTL financing with a single institution, opting to eliminate any syndication risk or delay, and enabling us to pay off that loan in full. While it cost us a few extra dollars, we wanted to start focusing and have our investors start focusing on the drivers of future success, and put the last major debt maturity of 2008 behind us. With that overview, let me turn it over to Katy, and then follow-up with some more detailed comments later. Katy?

Thanks, Jay, and good morning, everyone. As Jay mentioned, and as you’ll see from the press release that we issued this morning, we have been busy this quarter executing the secured financing initiative and asset sales that we set in motions late last year and in the first quarter of this year. We’ve successfully generated over $1.7 billion of liquidity and will properly position us longer-term, and enable us to begin to take advantage of the new more attractive lending environment. Before I discuss some of these initiatives, let me run through the results for the quarter. As Jay mentioned, our adjusted earnings for the quarter were $117 million or $0.87 per diluted common share. Net investment income for the quarter was $186 million up 55% from the first quarter of 2007. Year-over-year increase is due to growth in the overall loan portfolio, primarily due to the addition of the Fremont assets, as well as the amortization of $28 million of the Fremont loan purchase discount recognized in the quarter. In addition, we recorded $44 million in Other Income this quarter from a profit participation related to one of our higher risk, higher return loans. This quarter, as LIBOR declined almost 190 basis points, we benefited from the LIBOR floors that we have in many of our floating rate loans. As LIBOR declined the floors kicked in. However if LIBOR increases in coming quarters, above the floor amounts, this benefit will diminish. Consistent with our expectations for slower overall asset growth new commitments for the first quarter totaled $101 million in four separate transactions, $21 million of which was funded during the quarter. However, during the quarter, we funded $921 million of pre-existing commitments and received repayments of approximately $1.3 billion. Of the $1.3 billion in principal repayments, $575 million…

Thanks, Katy. Well, a hard question we’ve been grappling with this quarter has been figuring out exactly where the commercial real estate market is heading. I think most people in our industry agree, the answer to that question lies more in the direction of the macro-economy than in the particular supply demand fundamentals of most real estate markets. The most recent macroeconomic statistics don’t look so good. In fact I spoke at an industry conference this week and only one person out of a crowd of 200 was bullish on the near-term future. But that’s not to say there aren’t already a few signs that the market may have absorbed much of the bad news already; and if almost everyone is so convinced the future is negative, maybe it’s getting close to the time to take a contrarian view and start looking for the light at the end of the tunnel. We can talk about some of the signs we at iStar are watching, but it remains hard to have complete conviction. So for now we remain somewhat cautious and focused on grinding down the rough spots in our portfolio. I promised last quarter to share some data on problem asset resolutions and see if our $0.20 on the dollar reserve metric was feeling about right. As I mentioned in my earlier remarks, one of the frustrations in the first quarter was the impact the Bear Stearns news had on some favorable resolutions that were very close to the finish line at quarter end. We continue to work on those and hope to find resolutions sometime later in this quarter, but let’s focus on the resolutions we have completed. As Katy mentioned, seven assets from the NPL list were resolved last quarter, covering several hundred million dollars of loans. Some…

(Operator Instructions). And our first question comes from Don Fandetti with Citi. Please go ahead.

Hi, good morning. Jay, it’s good to see your liquidity position improving. As you look at your CDS spreads coming in along with other financials, what’s your sense on your ability to tap the bond market? I mean, do you feel like that window could open up for you or is it still a little premature to be thinking that way?

Hi, Don, it’s Katy. I think one of the things that most issuers have realized over the last nine months during the pretty dramatic dislocations in the credit market, is that it’s important to be opportunistic with respect to any issuances. So I think as we continue to see our credit spreads tighten to the extent we see, and I think we are starting to see, the ability to put that capital to work at appropriate returns. We will be opportunistic in tapping those markets.

Okay. And then, Jay just wanted to drill down a little bit more on the credit side. It seems like we are starting to seek more cracks in CRE. Just want to get your sense on where you are seeing the weakness and what’s the risk that maybe you are even being a little too optimistic on your provisioning?

Too optimistic in which sense?

Well, I’m meaning that you are not assuming enough loan loss provisions and that really the market is a little weaker and could get more so over the next few quarters?

Yeah. I think again one of the hard things we are struggling with is a lot of it really will come into play depending on what macroeconomic scenario you look for. If we go into a pretty hard recession, there’s definitely more downside in commercial real estate values. Although, I will tell you, I think there’s somewhat of a floor just by virtue of the fact that an enormous amount of capital has been raised, waiting on the sidelines, watching for opportunities. So I think the depth of any downturn will be moderated by the fact that, this time there is a lot of money already raised, already standing ready to buy attractive opportunities. Where in the past, normally there was a period of time where people are trying to figure out how to get that capital. So we do see potential for further downside. It’s really more related, I think, to the larger macroeconomic question out there. But we have some time to continue to build reserves as we see fit. We continue, as I said, to reassess almost every challenged asset in the portfolio. And I can give you a good case and I can give you a bad case on almost every asset. Right now we are walking probably a little closer to the bad case line. But yes, we’re not going right to the worst possible case we can imagine, but again as I said, I think we have quite a bit of time to handle any unexpected issues. And I think the timber gain just gives us the comfort to think that, on an economic basis, our on-balance sheet reserves or discounts, and that gain give us an economic cushion that should handle just about everything we see.

Okay. And then lastly Katy, the pricing on the first mortgage on the CTL, can you give us a range or sort of how it shook out versus your expectations?

Sure, I mean one of the things that we did try to do particularly with this lender, as you know, most real estate lenders today are looking for sort of 10-year locked out capital. And given our unsecured debt strategy, I think that was less appealing to us. So this loan as a three-year loan with a lockout for only 20 months, I think was very attractive in this particular market. It is a floating rate loan with a LIBOR margin in the mid-300 range.

Okay. Thank you.

Thanks, Don.

Tony, next question.

Thank you. That will come from Omotayo Okusanya with UBS. Please go ahead.

Yes, good morning. Quick question, in regards to the guidance revision, could you walk us through what kind of biggest changes from where you were thinking versus now that caused you about a $0.40 change?

Hi, Tayo, it’s Katy.

Hi, Katy.

Really the change in guidance relates to as Jay mentioned in some of his comments. I think taking a more conservative view on the economy, the real estate market, the housing market and then really how all of that impacts our portfolio. And as we went through our risk rating process this quarter, I think we, as you can see in the results, bumped assets down a bit as we are continuing to see a bit of stress. So the range in guidance and the change in guidance, really relates to our forecasting higher reserves through the year than we had originally anticipated. That range is predicated on sort of a total for the year of about $160 million to $200 million loan loss reserves. So we’ve already taken 89 this quarter, 89.5. So that’s an estimate. Obviously, our provisioning is based very specifically on our risk rating review of each asset each quarter. And as we see changes occurring, we may adjust accordingly.

Great. Could you also talk a little bit about the cost of funding for each of your new sources of funding that you received during the quarter? I know you mentioned for the term loan, it’s about LIBOR plus somewhere in the mid-300, but what about the first mortgage loan?

Omotayo, that was actually the first mortgage loan.

So that was the first mortgage loan, okay.

The CTL financing, the $960 million was in the mid 300-range on the margins. The secured term loan that we did with our corporate securities is in the mid 200 range. It’s also a LIBOR. It’s a floating rate loan, pre-payable. And then we executed a small financing, first mortgage financing on a pool of four of our AutoStar corporate tenant leases, and that was relatively inexpensive. It was I think LIBOR plus 165. So, again, we are really trying to position these as shorter term financings, particularly the secured transactions that we’re doing, so that when credit markets become more attractive, we can repay them without experiencing significant prepayment penalties.

Great. Last question, do you have a sense of what the taxable EPS was during the quarter?

One’s are what, the what?

Your taxable EPS rather than the adjusted EPS?

The timber transaction was actually consummated in the second quarter, so that will have some of the biggest impacts to the quarterly or the annual taxable income. So that won’t show up in our first quarter.

Do you have a sense of what the first quarter estimate was, if you have an estimate?

I don’t right now.

Okay. Great, thank you.

Thanks, Tayo.

Tony, next question.

Thank you. Our next question in queue will come from Douglas Harter with Credit Suisse. Please go ahead.

Thanks. I was wondering if you could give us an update on the last call, you said you entered into a JV to start making some loans sort of where you stand with that?

Yeah, we’ve begun, I would say, putting bids out into the market on certain assets, which is the beginning of the process. We are testing I would say, the elasticity of the market to see where pricing might be. I would tell you right now, that capital we priced pretty aggressively, i.e. pretty wide and have lost a couple of deals to other parties who have been a little bit inside of us continue to search for some of the areas of the market where we think liquidity is most in short supply. And those are longer lived, I think, transaction opportunities. So right now we are in the process of trying to find the kind of things that are the best risk adjustor return opportunities. We’ll see where some of those bids and some of those transactions go, but nothing completed to date.

And can you just talk about your appetite for doing additional JV type money, now that you’ve taken some actions and you’ve shored up your liquidity for your own balance sheet, sort of how you look at those two different opportunities?

Yeah. I think if you believe in a kind of stabilized slow recovery, probably more of those ventures won’t make sense. If you believe that there is a possibility for continued deterioration and potentially larger asset transactions coming out of that deterioration, which I think we still believe is a very real possibility. The ability to team up and option capital in that kind of environment is still interesting to us. Obviously, the larger the size, the bigger the credibility of that capital pool, the more opportunities you can get yourself in front of. They tend to be very long and hard underwritings when you are doing very large transactions. And so you want to have the credibility upfront that the money is there, if in fact somebody hits your bid. So, I still think that’s something given our view that, we are not convinced that some of the positive signs we’ve seen are necessarily going to forestall a deteriorating marketplace. Then if we had a chance to team up with the right partner with a large pool of capital for those types of large-scale opportunities, we would still do that.

Great, thanks. And Katy, if you could just size the amount of interest rate floors that you have that will be kicking in and whether that all should be a bigger impact on the second quarter?

Yeah. It’s actually not an easy thing because each loan, it’s not standardized. They might have a different floor level. So it’s not as easy a number to give you. This quarter, I think it added a couple of cents. It could be up to nickel. But obviously, some of them will go away if LIBOR continues to move up.

Thank you.

Thanks. Tony, next question?

Thank you. (Operator Instructions). And we’ll take our next question in queue, that will come from the line of David Fick with Stifel Nicolaus. Please go ahead.

Good morning. Can you walk us through the assets that are going into REO from last quarter?

Sure. Seven assets are currently in REO. Three came in, in the first quarter. The seven assets that are on our REO currently have a book value of about $284 million. Five of those seven are condo conversions. One is a condo construction project. And one small asset is from our AutoStar portfolio. They range in size from sort of $5 million to $60 million. They are pretty well scattered geographically, so --

Yeah, the three that moved this quarter David were all condo conversions. One, I would consider a high-quality asset with a construction problem that a good borrower and a good mezzanine lender would have caught long ago. One, candidly, is not a very good asset and it came with a lot of sponsor recourse from a very high network, a pair of individuals that we plan to chase. And one is just a really good asset that is in a market that there is enough other new supply, rental supply being dumped on the market that it’s going to be a shame to sell it at a price today that I think is going to be well below what it was a couple of years from now. And we’re still evaluating what is the best course of action with that, but there is literally nothing wrong with the asset, it’s in a very good market. It’s just, I think rent growth, expectations have been restrained because there is enough of that product converting back to rental, high-quality product converting back to rental that people start to change their forward rent assumption growth rates. So it’s a little bit of a mix, one of the seven assets just got paid off inside our 20 point reserve metric, so we feel good about that. But this is a process and as I said one of the more disappointing things as I think, right at the end of the quarter, the Bear Stearns event scared a lot of people into rethinking where they were going to come out. And we’ve got more work to do on that portfolio.

But you’ve clearly said adequate reserves at this point to deal with all contingencies?

Yeah, I mean, I think those three we foreclosed and charged-off fairly aggressively. They were some of the deals that we probably had a better or higher thought process around the previous quarter and when we actually got in and dug in when the sponsors decided not to carry them, we found some issues that made us think. We’ve gone back and reassessed almost every challenged asset to look for the same types of issues to make sure that when we do write these things down, we’re getting them down to what we think fair value is.

Okay. A two part question. Why do a one-year term loan today, number one? And number two, what about the bond market, given fairly aggressive pricing that we have seen for other investment grade REITs like AMB and ProLogics?

Yeah, I think the buoyancy that we are seeing in the bond market is a relatively new phenomenon. I think coming in the first quarter, the bond markets were effectively closed down for anything but single A and above companies. So I think that’s a very recent phenomenon that we’re watching carefully. And I think one-year term loans; we have an option to extend it for six months. But I think as I mentioned, one of our strategies is here not to remain a secured borrower in these particular situations but, to actually pay slightly more for financings that are short-term and prepayable, so that over the coming year to two years as we hope the bond market stabilizes, we’ll be able to tap back into the unsecured markets and repay the financings that we’ve put in place with really no additional cost or prepayments.

In your secured facility on top of that, what kind of response have you had from the rating agencies?

Yeah, this is a plan that we had reviewed with the rating agencies and in fact, reviewed sort of as part of the Investor Day. I think the agencies have sort of slightly different metrics, each of them that they focus on with respect to the secured assets but if you look at a typical finance company, particularly today, their secured debt levels are very, very high. One of the benefits for us of entering the credit crunch was effectively an unencumbered balance sheet and not really having participated in a lot of secured transactions was that we had a lot of room there and to generate liquidity. So as we’ve said before, I think by and large the agencies are comfortable at the plus or minus 15% of total debt range. Many, many single A finance companies operate well in excess of those ranges. So, I think they are taking a fairly hard line with us but fortunately we had all that capacity and as you can see from this quarter, we are busy using it.

My last question is on the dividend. Obviously, probably we don’t have the option to cut it this year given again in TimberStar and your other operating income. But, the low-end of guidance, you are not fully covering the current dividend run rate, and TimberStar was a onetime thing. What about beyond this year?

Yeah, we haven’t -- you know we really don’t give any guidance for coming years until much later in the year, typically at our October call, our third quarter call. Obviously, with the downturn in the markets, and while Fremont and some of our own funding obligations are creating what we still think are fairly attractive assets on our balance sheet, we haven’t put a lot of capital to work over the last couple of quarters. So we will have to evaluate the ‘09 earnings and dividend later in the year as we get a better feel for that throughout the year.

And David as I said in my comments, it’s almost entirely dependent on untrapping a lot of the capital tied up in the NPLs. And as Katy said, getting back to a business of being an opportunistic value-driven lender in a market that should be a heck of a lot better than it’s been for several years. The first goal post here was to get past the Fremont interim loan, tied up a lot of resources in the firm. We can continue to confirm that, being a secured lender is a lot less efficient than being an unsecured borrower. And certainly, we hope that some of the steps we’ve taken, some of the strength of our balance sheet have become evident enough that we get back into that unsecured market when we see opportunities, and when we think it’s appropriate, what we have said is, that is generally longer term paper, generally call protected paper, it makes no sense to go finance in that market when there are lots of questions that people have unresolved in their minds. We think we are resolving those questions relatively, affirmatively and certainly hope that the market reflects the positive news and that there is a return to the kind of levels that make a lot of sense for our business because we’ll just tell you it’s so much more efficient for us, for our borrowers, for our customers, that that is a competitive advantage we want to put back to work.

That might be prudent for incoming investors to think about the dividend having some downside flexibility going forward, if it’s necessary?

I wouldn’t rule that out. Again, I think we have almost $80 million plus of earnings trapped in NPLs, and I don’t know what quarter exactly we’re going to unleash that earnings power back into our ongoing run rates, but you are right, we’re 320 to 360 on AEPS. I do think it’s a fair point though to say that the Timber gain isn’t just a onetime event. We took a very low single digit current return on that for several quarters since we bought it. A part of that capital gain was intended to be what made it to a 15 to 20 ROE. So over the last eight quarters, we’ve kind of been restrained on the current income AEPS number. Some of that you should give us credit for in the $250 million gain.

Absolutely. Thank you.

Thanks David. Next question Tony?

Thank you. That will come from the line of Matt Vernell with Wachovia. Please go ahead.

Good morning, everybody, just a couple of quick questions. In terms of the -- Katy, in terms of your guidance for the full year in terms of loan loss provisions, you said somewhere between $160 million and $200 million, you’ve already taken as you said $89.5 million in the first quarter. If you take another quarter like the first quarter, in the second quarter you will get pretty close to the remaining $110.5 million for the year. Could you give us a better sense as we sit here today as to how you think those provisions will play out over the course of the year?

Yes. I think that’s what’s hard to do. We really do predicate our actual provision on the results from our risk-grading process and as you guys know, we sit in this room once a quarter and literally review in depth, and particularly with respect to the more problematic assets, each asset and for those that we think may need an impairment, we think about specific reserves. We also have a general reserve model which is also based on our risk rating and the trend in fours and fives, which are more higher risk assets. So as those increase the general provision is also increasing. So it’s hard for me to give you right now kind of how exactly the remaining reserve that we think we are going to take this year will play out quarter-to-quarter. I mean if I had to guess, I’d say it would be more heavily weighted in Q2 and Q3. But we’ll have to see how things go and how the markets go, and then how specific assets go.

I guess in a related question, and maybe this gets back to one of the prior questions. Is there any way of giving us some sense as to how long the workout can take on some of these assets, is there any way of getting a sense? Is it two quarters is it six quarters, something like that?

Each of our assets has a unique story. I think some of them, particularly, with respect to the condo conversion. You sort of try to make decisions upfront whether you want to keep it as a condo or return it to a rental. Those can generally speaking be resolved in a couple of quarters. But sometimes there are construction issues. Some assets are just not ready to be sold in terms of maximizing value. So it’s hard to generalize.

Yes, I would caution you that it is taking longer than we had hoped. I think that’s part and parcel of a very tough liquidity environment, some hesitation on the part of buyers who have expressed a lot of interest in the assets generically. But when you try to push them to the finish line, and have them closed. There seems to be quite a bit of tiptoeing and dancing. So right now, I guess, two quarters is probably too optimistic to work through the bulk of those issues, six quarters, probably too long. So you probably range it correctly. We would hope, certainly by the time we work into 2009 that we’ve got a good portion of that list back into either capital in our hands to reinvest or borrowers who have stepped up and we’ve come up with a resolution that works for both of us. So I think the crunch period is the next three quarters. I think as we move into 2009, what will be, will be and we’ll have a pretty good handle on where we are going to come out. And that will give us a lot more comfort in giving you guidance on earnings and dividends and other things.

One last quick follow-up. Katy, where would the unsecured markets in terms of spreads have to get to for you to look at doing a three-year or a five-year unsecured deal?

Yes, I actually, I am encouraged by hearing you say three-year. I don’t know that that market is available because that’s a market that the three-year floater market has really not been reenergized even with the recent uptick and sort of buoyancy in the market. So I think most investors are looking for either 5s or 10s from issuers. It will be interesting to see how our CS and bonds trade today. I think, frankly, the repayment of the Fremont interim facility was weighing heavily on a number of bondholders’ minds. So we’re hopeful that with that put of the way, people will get refocused on the very good dynamics that we see developing in our business to put money to work. So I’m not giving you a specific answer. Obviously, we are opportunistic with respect to raising capital and if we see that market becoming more favorable we will tap into it on an opportunistic basis.

Okay, thanks very much.

Thanks, Matt. Tony, next question?

Thank you. That will come from the line of Dean Choksi with Lehman Brothers. Please go ahead.

Thanks. Can you talk about your European exposure, both on balance sheet and through the JCs is there any European loans in NPL and watchlists? And then just brief thoughts on relative value in Europe versus the U.S.?

Sure. We have about I think $700 million to $750 million of assets in Europe. There are none on the NPL or watchlist. But I think on a relative value basis, Europe seems to be moving maybe somewhat behind the U.S. in terms of a slowdown. But obviously, it’s hard to generalize as just Europe. Europe is many countries that have many different dynamics; and one of the reasons why we think it was important for us to have people over there and move cautiously is that, there are a lot of different ways to invest capital over there. We’ve chosen to do that through not only direct investing but through some joint ventures with very seasoned players over there, who can help us maneuver through the various dynamics in each of those markets.

I think it’s fair to say that we haven’t seen a lot of transaction opportunities in the first quarter. Our team is actually thinking about ways to take advantage of some of the, what I would say, dislocation that’s beginning to show up in Europe, more so on the liquidity side than the credit side just yet. One of the positives or, perversely, the negatives of that market is the senior loan market always is priced extremely tightly for borrowers who are having some issues that’s a real benefit with rates low and spreads low. We are trying to figure out how to take advantage of some of that in-place capital that is already sitting there. How do you provide some incremental capital and take advantage of maybe something that was done in the prior credit world at very tight spreads. But right now, I would say its pretty quiet over there as well. We are testing that market to see where spreads might have widened to and I would say I agree with, Katy. We haven’t seen spreads widen out dramatically over there. I think probably see better relative value in the U.S. right now.

Thank you.

Thanks, Dean. Next question?

Thank you. The next question will come from Jim Shanahan with Wachovia. Please go ahead.

Thank you and good morning. After factoring in the secured financing set, have been announced year-to-date, would you be able to make some sort of pro forma estimate where the secured financing is relative to total debt and total assets? And how those ratios compared to where the ratings agencies might be comfortable?

Yes. On a pro forma basis, and you won’t see all of this in the first quarter numbers as we’ve been busy, and in the second quarter as well, and certainly with the CTL financing. It’s sort of as we had talked about, will be probably just about that 15% of total debt level plus or minus.

Okay. And closer to 10 or something in debt?

Yes.

Probably in assets really.

Yes.

Yeah. Okay. And a follow-up question, running the income statement, Katy, in Other Income there was the $44.2 million. If you went into some detail in your prepared remarks and I missed it. I apologize. But if you could provide a little bit more detail on what that was? And the $59.9 million in Other Income, if you strip that out, plus the gain on the sale of non-strategic corporate tenant lease assets, it gets to sort of a number in the mid-teens, which is more consistent with what we would expect to say absent significant volatility from prepayment penalty fees. And I’m wondering if that mid-teens run rate is something that you are comparable with given the current market environment and the decreased likelihood of prepayments?

Yes. Our other income over the past really maybe almost two years has declined somewhat because prepayments, or maybe not two years, but maybe years, prepayment penalties have basically receded. People are not really prepaying loans at this point. The large Other Income number that I did reference was about $44 million this quarter. And we sort of joke about things like this here which is it’s sort of the recurring, non-recurring sort of kicker from a loan. Probably 5%, maybe, as many as 10% of our loans have -- and typically there are the higher risk higher return loans have some features that enables us to garner either extraordinary exit fees or some sort of participation with the borrower on upside that he is getting. And we have them once a year or so, there is typically one that will be in a position to provide us with that income, and it just will happen that it was in the first quarter this year. So that was on a loan that we made in 2005.

Yeah, I guess to your point though, 15 to 20 is kind of our target. We’ve said I think a number of times in the past when it’s up towards 20 it sometimes surprises us given the low leverage we employ, a high percentage of first mortgages beyond average low loan to values in that book, the fact that a lot of our CTLs are investment-grade. You know, 20 has always been an anomaly, but as Katy said, it seems to keep recurring. We hope people understand that making 15% with relatively low leverage versus the rest of the industry is not easy. But we still believe that somewhere in that range is a good solid number. The anomaly right now again is, we have probably a $1 billion of capital sitting idle and dead. We are actually paying the cost to carry that capital and having no income associated with it. So I think rather than focused necessarily on future other income, our sites right now are focused on redeploying and recapturing some of the trapped earnings in that bucket as one of the upsides that’s embedded in the portfolio today. The other income upsides are hard to predict, they are great when they come, they tend to be somewhat lumpy; but they have been consistent enough that we’ve run closer to 20% than 15%. But I’ve got to tell you, if you tell us what our long-term target is, it’s 15 to 20, it is not 20, it’s 15 to 20. And I think as we continue to see some of the credit market dislocation impacting our cost of funds, somewhere between 15 and 20 would make me quite happy.

Okay, thanks Jay. And one more very brief follow-up if you could indulge me here. The general and administrative expenses were also somewhat elevated versus Q4, and I’d like to know, Katy, if you are comfortable giving us an estimate of how general and administrative expenses are impacting your adjusted EPS forecast for the balance of the year?

Sure. In Q4, I think the differences between Q4 and Q1 in terms of the G&A as was the bonus accrual reduction. And then, I’m sorry, your second question?

How your outlook for G&A for the balance of this year is perhaps impacting your adjusted EPS guidance?

Yeah, I mean we are continuing to look at G&A in this market, and I think we are going to adjust that according to sort of where we see the opportunities. Right now, the numbers that you see for Q1 are a pretty good run rate, there will probably be some reduction in that.

All right, thank you.

Thanks, Jim. We have time for one more question, Tony.

Thank you, Sir. That will come from the line of Omotayo Okusanya with UBS. Please go ahead.

Yes, thanks for taking my follow-on question. Jay and Katy, just going back to the resolution of the seven nodes on NPL this quarter, I know kind of net-net way you look at that charge-off on that portfolio versus the reserves. You said, it kind of comes out to about 13% or so versus the 20% you have in regards to reserves for your overall portfolio. But for the three particular loans that had the charge-offs, could you give us a little bit more detail in regards to anything you saw in those portfolios that may have surprised you, for you to have such high levels of charge-offs on just those three specific loans?

Omotayo, I think you are referring to the charge-off from taking three assets from NPL to REO.

That’s correct.

So those assets had already been reserved and all the charge-off represented is obviously the reversal of that reserve.

Exactly.

Yeah, but I -- see your point, I think David asked the same question sort of which is, those deals -- we give you a story on each one of them. Probably the biggest surprise when we took one of them back was a relatively smart operator and a relatively smart mezzanine lender, both made significant structural mistakes that we’re having to go in and correct. That is always a real disappointment. We have a great construction team. They can only catch so much. That was a particular case where even if you thought it’s actually quite a good market long-term, it has a little short-term issue but very constrained supply, really a product that is needed in the market and these guys totally blew it. And so that one I think was the biggest surprise, probably going to lose the most money on that one with the biggest charge-off. Another one is outside the [DT] market, it’s a good rental property, there is nothing wrong with it, it’s just fine. If we wanted to sit on that and hold it at multi-family rates of return, we will definitely get back full principal. Our view is, we’re probably going to take the charge-off and sell it at today’s multi-family value with probably occupancies and rents a little lower than they will be two years from now. But that’s the right decision for a company like ours. The third one is a bad piece of real estate that we just want to stop the music on, we have a very large recourse component to that. All three of those deals were three-month deals, so some of the documentation is quite good and some of the borrowers are, we think, just poking us in the eye, when in fact, they should just pay their recourse and move on. They are not going to be able to wriggle out of it. So, those are cases where I think, we believe if the keys are in our hands, we will create more value and we will go chase the recourse. I mean, if we get the full recourse back, we’ve over reserved and over charged-off that deal. But we are trying to pick, again, what we think fair realizable values are. And while we think we’ll recover meaningful amounts of recourse in most of our deals, it’s rare that you recover every dollar. So, I think at this point we are continuing to grind away at that portfolio. Again, anything over 20 points is what I consider a bad resolution. Anything under 20 points is a good resolution. On whole, we kind of feel like there is as many good resolutions as bad and that gives us comfort that certainly 20 points feels about right, but even if it’s 25, I think we’ve got enough economic cushions through some of the gains we’ve seen to say, maybe it’s time to start resolving stuff so we have a clean 2009 to operate from.

Great, thank you.

Thanks Omtayo.

Thank you. And Mr. Backman, we have no further questions.

Thank you. Jay, any final comments?

I guess, I’ll just say this; we recently passed our 10th anniversary as a public company. We kind of look forward to the next three years of being somewhat back to our roots, being opportunistic in the capital structure, being value-driven, looking at real replacement costs; again taking some contrarian views where we think the best risk-adjusted returns are. We spent the last three years really dancing away from all of this new capital. Some of the things we’ve done have worked out great, alike Timber, some haven’t worked out so well. But I’d just say we are looking very much forward to a much more rational market and having ability to use some of our competitive advantages. So hopefully in the coming quarters we’ll be able to focus more on some of those opportunities and we’ll keep working a way at it.

Great. Thanks Jay and thanks Katy. And thanks to everybody for joining us this morning. As always if you should have additional questions on today’s earnings release or call, please feel free to contact me at Jason directly here in New York. Tony, can you please give the conference replay instructions one more time?

Thank you. And ladies and gentlemen, this conference will be available for replay after 12:30 PM Eastern Time today through May 16, 2008, at midnight. You may access the AT&T teleconference replay system at anytime by dialing 1-800-475-6701 and entering the access code of 918586. International participants may dial 3203653844. Those numbers again are 1-800-475-6701 and 3203653844 using the access code of 918586. That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.