iStar Evolution >> Lines Of Business

Lending Business

The lending business is primarily comprised of senior and subordinated loans that typically range in size from $20 million to $150 million and have maturities generally ranging from three to ten years. These loans may be either fixed rate (based on the U.S. Treasury rate plus a spread) or variable rate (based on LIBOR plus a spread) and are structured to meet the specific financing needs of the borrowers.

We also provide senior and subordinated capital to corporations engaged in real estate or real estate related businesses. These financings may be either secured or unsecured, typically range in size from $20 million to $150 million and have maturities generally ranging from five to ten years. As part of the lending business, the Company also acquires whole loans and loan participations which present attractive risk-reward opportunities. Acquired loan positions typically range in size from $20 million to $100 million.

As of September 30, 2006, 79% of the Company’s loans were first mortgages, participations in first mortgages and senior debt.

Corporate Tenant Lease Business

iStar pursues the origination of Corporate Tenant Lease (CTL) transactions by structuring purchase/leasebacks and by acquiring facilities subject to existing long-term net leases. In a typical purchase/leaseback transaction, iStar purchases a corporation’s facility and leases it back to that corporation subject to a long-term net lease. This structure allows the corporate customer to reinvest the proceeds from the sale of its facilities into its core business, while iStar capitalizes on its structured financing expertise.

iStar’s net leased assets are generally mission-critical headquarters or distribution facilities that are subject to long-term leases with public companies, many of which are rated corporate credits and many of which provide for most expenses at the facility to be paid by the corporate customer on a triple net lease basis.

iStar typically seeks general-purpose real estate with residual values that represent a discount to current market values and replacement costs. Under a typical net lease agreement, the corporate customer agrees to pay a base monthly operating lease payment and all facility operating expenses (including taxes, maintenance and insurance).

iStar generally seeks corporate customers with the following characteristics:

Established companies with stable core
businesses or market leaders in growing
industries

Investment-grade credit strength or appropriate
credit enhancements if corporate credit strength
is not sufficient on a stand-alone basis

Commitment to the facility as a mission-critical
asset to their on-going businesses

Lease Expiration profile

CTLs usually have terms of 15 to 20 years, and generally range in size from $20 million to $150 million. As of September 30, 2006 CTL represented 35% of the total investment base. 74% of CTL customers are public or subsidiaries of public companies and 34% of the customers are investment grade or implied investment grade. As of September 30, 2006 iStar had 121 individual CTL investments in 38 different SIC codes.

AutoStar

In 2004, after several years of research and analysis, iStar launched its AutoStar platform, with the goal of becoming a leading player in providing real estate financing and sale / leaseback capital to the automotive retailing sector.

The auto dealer industry is a $50 billion real estate market with over 22,000 automotive dealers nationwide. Many of the top 1000 auto dealers are high-end customers with significant enterprise value who have large capital requirements including capital-intensive imaging upgrade campaigns from most of the major automakers.

Targeting large dealers with quality real estate and solid operations, iStar has leveraged its core loan and corporate tenant lease expertise to better serve a customer base where there is a marked absence of qualified, full-service providers.

TimberStar

In 2005, iStar, through its subsidiary TimberStar, entered the timber market with the acquisition of 337,000 acres of timber assets in Northern Maine. TimberStar seeks to acquire a geographically diverse portfolio of timberlands that generate attractive cash-on-cash yields and capital appreciation. It is focused on creating partnerships with high-quality customers through long-term supply agreements. Properly structured, iStar believes that a timber portfolio can have similar long-term return characteristics to its core corporate tenant lease assets.

To capitalize on what it believes are attractive opportunities in this market, iStar partnered with two industry veterans who have extensive knowledge of the timber industry. In addition to the assets acquired in 2005, iStar recently led the acquisition of approximately 900,000 acres of forestland and related assets in Arkansas, Louisiana and Texas for approximately $1.19 billion. After commiting to the transaction, iStar recieved significant interest from a number of equity sponsors, and elected to partner with several world-class private investors and reduce its equity investment substantially.

iStar Europe Limited

With many of its top customers beginning to invest abroad, iStar established a subsidiary in London, England, to focus on European real estate and corporate market opportunities. This subsidiary will assist the Company in identifying attractive opportunities, targeting a wide variety of investment areas including junior debt, opportunistic senior debt and corporate sale/leaseback opportunities. The expansion into Europe will be built on the same high level of service as iStar’s U.S. platform, providing custom-tailored, customer-focused financing solutions. To date, the Company has completed transactions in France, Germany and the United Kingdom.

Oak Hill Advisors

While iStar had already built a strong in-house corporate credit group to support its existing lending and sale/leaseback businesses, it became clear in 2004 that iStar’s growth was going to outstrip its in-house resources.

Recognizing the value of teaming iStar’s leading real estate platform with a recognized leader in the corporate credit markets, iStar acquired a substantial minority interest in Oak Hill Advisors, L.P. in 2005.

Oak Hill Advisors has invested over $55 billion in corporate credits and currently manages approximately $7.5 billion of corporate credit for large institutions and high-net-worth families worldwide. With a team of 80 people, including 20 corporate credit specialists in New York, Fort Worth and London, Oak Hill Advisors allows iStar to further build its superior information platform, increase deal flow and strengthen its entry into the European markets.

Oak Hill Advisors met the extensive criteria iStar set out for the right partner in corporate credit. The senior management team brings motivation, an outstanding reputation and a level of integrity that clearly complement iStar’s core values. Oak Hill Advisors’ corporate culture and investment philosophy are nearly identical to that of iStar’s, making the relationship a key component of iStar’s growth strategy.

We believe Oak Hill Advisors’ long-standing strategic relationship with Robert M .Bass and the other Oak Hill investment partnerships extends iStar’s reach with one of the leading investment platforms in the country. Our goal is to have at our fingertips a deep and highly knowledgeable network of experts in a variety of fields via our Oak Hill Advisors relationship, and the capability to better capture opportunities that fall in the crossover between the corporate finance and real estate arenas. This investment has enhanced our underwriting capabilities and improved our deal flow in a wide range of investment sectors.