UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number: 001-32330

NORTHSTAR REALTY FINANCE CORP.

(Exact Name of Registrant as Specified in its Charter)

Maryland (State or Other Jurisdiction of Incorporation or Organization) 02-0732285 (IRS Employer Identification No.)

399 Park Avenue, 18th Floor, New York, NY 10022

(Address of Principal Executive Offices, Including Zip Code)

(212) 547-2600

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Class	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value	New York Stock Exchange
Preferred Stock, 8.75% Series A Cumulative Redeemable, $0.01 par value	New York Stock Exchange
Preferred Stock, 8.25% Series B Cumulative Redeemable, $0.01 par value	New York Stock Exchange
Preferred Stock, 8.875% Series C Cumulative Redeemable, $0.01 par value	New York Stock Exchange
Preferred Stock, 8.50% Series D Cumulative Redeemable, $0.01 par value	New York Stock Exchange
Preferred Stock, 8.75% Series E Cumulative Redeemable, $0.01 par value	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x    No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o   No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Annual Report on Form 10-K or any amendment to this Annual Report on Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x Accelerated filer o Non-accelerated filer o  (Do not check if a smaller reporting company) Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No x

The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2015, was $5,500,532,003, which does not reflect our market value after the spin-off which occurred after market close on October 31, 2015. As of February 25, 2016, the registrant had issued and outstanding 184,377,751 shares of common stock, $0.01 par value per share.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement for the registrant’s 2016 Annual Meeting of Stockholders to be filed within 120 days after the end of the registrant’s fiscal year ended December 31, 2015 are incorporated by reference into this Annual Report on Form 10-K in response to Part III, Items 10, 11, 12, 13 and 14.

NORTHSTAR REALTY FINANCE CORP.

FORM 10-K

TABLE OF CONTENTS

Index		Page
	PART I
Item 1.	Business	5
Item 1A.	Risk Factors	21
Item 1B.	Unresolved Staff Comments	64
Item 2.	Properties	64
Item 3.	Legal Proceedings	68
Item 4.	Mine Safety Disclosures	68
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	69
Item 6.	Selected Financial Data	70
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	71
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	104
Item 8.	Financial Statements and Supplementary Data	106
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	191
Item 9A.	Controls and Procedures	191
Item 9B.	Other Information	193
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	194
Item 11.	Executive Compensation	194
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	194
Item 13.	Certain Relationships and Related Transactions and Director Independence	194
Item 14.	Principal Accountant Fees and Services	194
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	195
Signatures		201

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FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “seek,” “anticipate,” “estimate,” “believe,” “could,” “project,” “predict,” “continue,” “future” or other similar words or expressions. Forward-looking statements are not guarantees of performance and are based on certain assumptions, discuss future expectations, describe plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information. Such statements include, but are not limited to, those relating to the operating performance of our investments, our liquidity and financing needs, the effects of our current strategies and investment activities, our ability to manage our portfolio following the spin-off of our asset management business and the entry into a long-term management contract with an affiliate of NorthStar Asset Management Group Inc., or NSAM, the spin-off of our European real estate business (excluding our European healthcare properties), NorthStar Realty Europe Corp., or NorthStar Europe, and our ability to raise and effectively deploy capital. Our ability to predict results or the actual effect of plans or strategies is inherently uncertain, particularly given the economic environment. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements and you should not unduly rely on these statements. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from those forward-looking statements. These factors include, but are not limited to:

• adverse domestic or international economic conditions and the impact on the commercial real estate industry;

• the effect of economic conditions on the valuation of our investments;

• volatility, disruption or uncertainty in the financial markets;

• access to debt and equity capital and our liquidity;

• our substantial use of leverage and our ability to comply with the terms of our borrowing arrangements;

• our ability to monetize our assets on favorable terms or at all;

• illiquidity of properties in our portfolio;

• the spin-off of our asset management business may not have the full strategic and financial benefits that we expect;

• the effects of becoming an externally-managed company, including our reliance on NSAM and its affiliates and sub-advisors/co-venturers in providing management services to us, the payment of substantial base management and incentive fees to our manager, the allocation of investments by NSAM among us and the manager’s other sponsored or managed companies and strategic vehicles and various conflicts of interest in our relationship with NSAM;

• a change in the ownership, board or management of NSAM;

• the effectiveness of NSAM’s portfolio management techniques and strategies;

• the spin-off of NorthStar Europe may not have the full or any strategic and financial benefits that we expect;

• whether we determine to undergo future restructurings, including internalization of our management company and/or spin-offs of additional assets and businesses in the future, our ability to complete such transactions and the impact of such transactions on our business and financial condition;

• risks associated with joint ventures, including our reliance on joint venture partners, lack of sole decision making authority and the financial condition of our joint venture partners;

• our ability to successfully integrate assets or companies acquired into our business and operations, maintain consistent standards and controls and realize the anticipated benefits of the acquisitions;

• performance of our investments relative to our expectations and the impact on our actual return on invested equity, as well as the cash provided by these investments and available for distribution;

• the impact of adverse conditions affecting a specific asset class in which we have investments, such as healthcare, hotel, manufactured housing, multi-tenant office and limited partnership interests in real estate private equity funds;

• the impact of economic conditions on the tenants/operators/residents/guests of the real property that we own as well as on the borrowers of the commercial real estate debt we originate and acquire and the commercial mortgage loans underlying the commercial mortgage-backed securities in which we invest;

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• the ability and willingness of our tenants/operators/managers and other third parties to satisfy their respective obligations to us, including in some cases their obligation to indemnify us from and against various claims and liabilities;

• any failure in our due diligence to identify all relevant facts in our underwriting process or otherwise;

• the financial weakness of tenants/operators/managers or borrowers, including defaults or bankruptcy;

• our ability to manage our costs in line with our expectations and the impact on our cash available for distribution;

• our ability to satisfy and manage our capital requirements;

• our ability to obtain mortgage financing on our real estate portfolio on favorable terms or at all;

• the impact of fluctuations in interest rates;

• our ability to comply with, as well as the impact of changes in, laws or regulations governing various aspects of our business, including in particular potential reforms in labor regulation and healthcare regulation, such as changes in reimbursement policies, rates and procedures;

• environmental and regulatory requirements, compliance costs and liabilities relating to owning and operating properties in our portfolio and to our business in general;

• effect of regulatory actions, litigation and contractual claims against us and our affiliates, including the potential settlement and litigation of such claims;

• the possibility that the net asset value of interests in certain real estate private equity funds we acquired do not necessarily reflect the fair value of such fund interests or that the actual amount of our future capital commitments underlying such fund interests varies materially from our expectations;

• the loss of our exemption from the definition of an “investment company” under the Investment Company Act of 1940, as amended;

• NSAM’s ability to hire and retain qualified personnel and potential changes to key personnel providing management services to us;

• our ability to grow and profit from our commercial real estate origination activities;

• the impact of damage to our brand and reputation resulting from internal or external causes;

• the potential failure to maintain effective internal controls and disclosure controls and procedures; and

• compliance with the rules governing real estate investment trusts.

The foregoing list of factors is not exhaustive. All forward-looking statements included in this Annual Report on Form 10-K are based on information available to us on the date hereof and we are under no duty to update any of the forward-looking statements after the date of this report to conform these statements to actual results.

Factors that could have a material adverse effect on our operations and future prospects are set forth in “Risk Factors” in this Annual Report on Form 10-K beginning on page 22. The risk factors set forth in our filings with the Securities and Exchange Commission could cause our actual results to differ significantly from those contained in any forward-looking statement contained in this report.

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PART I

Item 1. Business

References to “we,” “us” or “our” refer to NorthStar Realty Finance Corp. and its subsidiaries unless the context specifically requires otherwise.

Overview

We are a diversified commercial real estate company with 85% of our total assets invested directly or indirectly in real estate, of which 78% is invested in direct real estate. We generated 89% of our revenue from our real estate portfolio for the year endedDecember 31, 2015. We invest in multiple asset classes across commercial real estate, or CRE, that we expect will generate attractive risk-adjusted returns and may take the form of acquiring real estate, originating or acquiring senior or subordinate loans, as well as pursuing opportunistic CRE investments. We seek to generate stable cash flow for distribution to our stockholders through our diversified portfolio of commercial real estate assets and in turn build long-term franchise value. However, given recent market conditions, we are currently focused on exploring sales to generate liquidity to repurchase our common stock and reduce our leverage.

Effective June 30, 2014, we are externally managed and advised by an affiliate of NorthStar Asset Management Group Inc. (NYSE: NSAM), which together with its affiliates is referred to as NSAM. We are a Maryland corporation and completed our initial public offering in October 2004. We conduct our operations so as to continue to qualify as a real estate investment trust, or REIT, for U.S. federal income tax purposes.

Significant Developments

Strategic Initiatives

We continue to execute a series of strategic initiatives with the goal of maximizing long-term shareholder value. These initiatives include: (i) sales of all or portions of certain real estate assets; (ii) sales of all or a portion of our investments (directly or indirectly in joint ventures) owning limited partnership interests in real estate private equity funds, or PE Investments; and (iii) sales and/or accelerated repayments of our CRE debt and securities investments. Additionally, in connection with our continuous evaluation of our capital allocation strategy, we revised our dividend policy.

Proceeds from such sales initiatives, along with capital retained from our revised dividend policy, are currently expected to be used for opportunistically repurchasing our common stock, which we believe is currently trading at a significant discount to underlying net asset value and toward the repayment of a significant portion of our corporate recourse borrowing obligations which total $590 million (excluding $280 million of trust preferred securities with maturities beginning in 2035). Since the beginning of the fourth quarter 2015 through February 25, 2016, assets sold or committed to sell totaled $2.0 billion, of which net proceeds to us are expected to be approximately $930 million.

In addition, our board of directors formed a special committee and the special committee retained UBS Investment Bank as its financial advisor to explore a potential recombination transaction with NSAM. The special committee will be comprised solely of independent directors that are not on the board of directors of NSAM, including the new independent director appointed to the board of directors effective March 1, 2016. There can be no assurance that the exploration of corporate strategic initiatives will result in the identification or consummation of any strategic transaction or initiative.

Spin-off of European Real Estate Business

On October 31, 2015, we completed the spin-off of our European real estate business, or the NRE Spin-off, into a separate publicly-traded REIT, NorthStar Realty Europe Corp., or NorthStar Europe, in the form of a taxable distribution, or the NRE Distribution. In connection with the NRE Distribution, each of our common stockholders received shares of NorthStar Europe’s common stock on a one-for-six basis, before giving effect to a one-for-two reverse stock split of our common stock (this or any such reverse stock split herein referred to as the Reverse Split). We contributed to NorthStar Europe approximately $2.6 billion of European real estate, at cost (excluding our European healthcare properties), comprised of 52 properties spanning across some of Europe’s top markets, or our European Portfolio and $250 million of cash. NSAM manages NorthStar Europe pursuant to a long-term management agreement, on substantially similar terms as our management agreement with NSAM.

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Our Investments

The following table presents our investments as of December 31, 2015 and pro forma for sales and commitments to sell through February 25, 2016 (refer to the below for further discussion) (dollars in thousands):

					Pro Forma
	Amount(1)		%		Amount			%
Real Estate
Healthcare(2)	$	6,683,562	39.6	%	$	5,784,593	(3)	38.1	%
Hotel	3,425,624		20.3	%	3,425,624			22.6	%
Manufactured housing communities (held for sale)	1,753,039		10.4	%	1,753,039			11.5	%
Net lease	782,125		4.6	%	782,125			5.2	%
Multifamily (held for sale)	377,279		2.2	%	93,124		(4)	0.6	%
Multi-tenant office	176,135		1.0	%	176,135			1.2	%
Subtotal	13,197,764		78.1	%	12,014,640			79.2	%
Private equity fund investments	1,101,650		6.5	%	917,574		(5)	6.0	%
Corporate investments(6)	112,563		0.7	%	112,563			0.7	%
Total real estate	14,411,977		85.3	%	13,044,777			85.9	%
CRE Debt
First mortgage loans	286,628		1.7	%	286,628			1.9	%
Mezzanine loans	22,361		0.1	%	22,361			0.1	%
Subordinate interests	171,044		1.0	%	171,044			1.1	%
Corporate loans	35,215		0.2	%	35,215			0.2	%
Subtotal	515,248		3.0	%	515,248			3.3	%
CRE debt, held for sale	225,037		1.3	%	—		(7)	NA
CRE debt of consolidated N-Star CDOs	40,106		0.2	%	40,106			0.3	%
Other	25,096		0.1	%	16,866		(8)	0.1	%
Total CRE debt	805,487		4.6	%	572,220			3.7	%
CRE Securities
N-Star CDO bonds(9)	542,416		3.3	%	504,066			3.3	%
N-Star CDO equity	71,003		0.5	%	71,003			0.5	%
Other securities	116,681		0.7	%	68,443			0.5	%
Total CRE securities	730,100		4.5	%	643,512		(10)	4.3	%
Subtotal	15,947,564		94.4	%	14,260,509			93.9	%
Assets underlying deconsolidated CRE Debt CDOs(11)	921,185		5.6	%	921,185			6.1	%
Grand total	$	16,868,749	100.0	%	$	15,181,694		100.0	%

____________________________________________________________

(1) Based on cost for real estate investments which includes net purchase price allocation related to net intangibles, deferred costs and other assets, if any, fair value for PE Investments, carrying value for our corporate investments, principal amount for our CRE debt and securities investments and amortized cost for N-Star CDO equity. Represents 100% of all real estate assets in consolidated joint ventures.

(2) Includes $485 million of Sterling denominated real estate in the United Kingdom owned in connection with the acquisition of Griffin-American Healthcare REIT II, Inc., or Griffin-American or the Griffin-American Portfolio.

(3) In February 2016, we entered into an agreement to sell our 60% interest in a $899 million portfolio of independent living facilities, or Senior Housing Portfolio, for $535 million, subject to proration and adjustment. We expect the buyer to assume our portion of the $648 million mortgage borrowing as part of the transaction. We expect to receive approximately $150 million of net proceeds upon completion of the sale in March 2016.

(4) In February 2016, we entered in and are finalizing agreements to sell up to ten multifamily properties for a gross price of $311 million with $210 million of mortgage financing expected to be assumed as part of the transaction. We expect to receive $91 million of net proceeds and we continue to explore the sale of the remaining two properties.

(5) In February 2016, we entered into an agreement to sell substantially all of our interest in PE Investment II for proceeds of $184 million, of which $145 million was received and the remaining is expected in March 2016 upon consent from the initial seller.

(6) Represents our investments in RXR Realty LLC, or RXR Realty, Aerium Group, or Aerium, and SteelWave, LLC (formerly known as Legacy Partners Commercial LLC), or SteelWave.

(7) In February 2016, we sold or committed to sell seven loans with a total principal amount of $225 million at par, with $47 million of proceeds used to pay down our loan facility, resulting in $178 million of net proceeds.

(8) In January 2016, we sold a property in connection with a foreclosure for net proceeds of $8 million.

(9) Includes N-Star CDO bonds with a principal amount of $143 million related to CRE securities CDOs that are eliminated in consolidation.

(10) Subsequent to year end, we sold certain CRE securities for $54 million of net proceeds.

(11) Represents assets of deconsolidated N-Star CDOs and is based on the respective remittance report issued on the date nearest to December 31, 2015. This amount excludes $473 million of aggregate principal amount of N-Star CDO bonds and amortized cost of N-Star CDO equity of such deconsolidated N-Star CDOs included in CRE securities.

We have the ability to invest in a broad spectrum of commercial real estate assets and seek to provide attractive risk-adjusted returns to our stockholders. As a result, we pursue opportunistic investments across all our business lines including CRE equity and debt investments.

For financial information regarding our reportable segments, refer to Note 19. “Segment Reporting” in our accompanying consolidated financial statements included in Part II, Item 8. “Financial Statements and Supplementary Data.”

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Underwriting Process

We use a rigorous investment and underwriting process that has been developed and utilized by our senior management team leveraging their extensive commercial real estate expertise over many years and real estate cycles which focuses on some or all of the following factors designed to ensure each investment is evaluated appropriately: (i) macroeconomic conditions that may influence operating performance; (ii) fundamental analysis of underlying real estate, including tenant rosters, lease terms, zoning, necessary licensing, operating costs and the asset’s overall competitive position in its market; (iii) real estate market factors that may influence the economic performance of the investment, including leasing conditions and overall competition; (iv) the operating expertise and financial strength and reputation of a tenant, operator, partner or borrower; (v) the cash flow in place and projected to be in place over the term of the investment and potential return; (vi) the appropriateness of the business plan and estimated costs associated with tenant buildout, repositioning or capital improvements; (vii) an internal and third-party valuation of a property, investment basis relative to the competitive set and the ability to liquidate an investment through a sale or refinancing; (viii) review of third-party reports including appraisals, engineering and environmental reports; (ix) physical inspections of properties and markets; (x) the overall legal structure of the investment, contractual implications and the lenders’ rights; and (xi) the tax and accounting impact.

Real Estate

Overview

As part of our real estate strategy, we explore a variety of real estate investments, both directly and through joint ventures. Opportunities to purchase real estate have been bolstered by attractive long-term, non-recourse, non mark-to-market financing available through commercial mortgage-backed securities, or CMBS, and agency financing markets. Our portfolio is primarily comprised of healthcare, hotel, manufactured housing communities, net lease and multifamily properties. We also invest in other opportunistic real estate investments such as indirect interests in real estate through PE Investments. Our hotel and certain healthcare properties acquired operate through structures permitted by the REIT Investment Diversification and Empowerment Act of 2007, or RIDEA, where we participate directly in the operational cash flow of a property. Our real estate equity investments that operate under the RIDEA structure generate resident and hotel guest related income from short-term residential agreements and incur customary related operating expenses.

Recently, we sold or are pursuing the sale of certain real estate assets and are exploring other sales or joint ventures to further monetize certain of our real estate assets. There is no assurance we will enter into any transactions on favorable terms, or at all. Refer to the below for further discussion.

Our Portfolio

As of December 31, 2015, $14.4 billion, or 85%, of our assets were invested directly in real estate properties, indirectly through our PE Investments and in corporate interests. The following table presents our direct investments in real estate properties as of December 31, 2015 (refer to the below for further discussion) (dollars in thousands):

Type	Number of Properties	Amount(1)		% of Portfolio		Capacity		Primary Locations
Healthcare
Medical office buildings (MOB)	149	$	2,147,906	16.3	%	6.0 million	square feet	IN, TX, GA, CO, IL
Net lease
Skilled nursing facilities (SNF)(2)	107	1,351,615		10.2	%	12,550	beds	FL, PA, IL, IN, VA
Assisted living facilities (ALF)	83	862,039		6.5	%	4,330	units	UK, NC, OR, MN, IN
Hospital (HOS)	14	262,704		2.0	%	800	beds	CA, MO, TX
Senior housing-operating
Assisted living facilities - RIDEA (ALF-RIDEA)	109	1,160,329		8.8	%	6,300	units	IL, OR, OH, TX, MA, WA
Independent living facilities (held for sale)(3)	32	898,969		6.8	%	4,000	units	CA, TX, WA
Subtotal	494	6,683,562		50.6	%
Hotel	167	3,425,624		26.0	%	22,092	rooms	TX, FL, NJ, CA, VA
Manufactured housing communities (held for sale)	136	1,753,039		13.2	%	33,055	pad sites	CO, UT, FL, TX, WY, NY
Net lease
Industrial	35	379,788		2.9	%	6.1 million	square feet	CA, IL, FL, GA, MI
Office(4)	19	337,784		2.6	%	2.3 million	square feet	CA, FL, NJ, UT
Retail	10	64,553		0.5	%	467,971	square feet	NH, MA, ME
Subtotal	64	782,125		6.0	%
Multifamily (held for sale)(4)(5)	12	377,279		2.9	%	4,514	units	TN, GA, FL
Multi-tenant office	13	176,135		1.3	%	1.0 million	square feet	CO, TX, CA
Total	886	$	13,197,764	100.0	%

___________________________________________________________

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(1) Represents cost, which includes net purchase price allocation of $688 million related to net intangibles. Additionally, includes $57 million of notes receivable and $312 million of escrows and other assets.

(2) Includes three properties with a cost of $13 million owned pursuant to a RIDEA structure.

(3) In February 2016, we entered into an agreement to sell our 60% interest in this portfolio for $535 million, subject to proration and adjustment. We expect the buyer to assume our portion of the $648 million of mortgage borrowing as part of the transaction. We expect to receive approximately $150 million of net proceeds upon completion of the sale in March 2016.

(4) Includes our interest in joint ventures that own a net lease property and multifamily property of $27 million and $39 million, respectively.

(5) In February 2016, we entered in and are finalizing agreements to sell up to ten multifamily properties for a gross price of $311 million with $210 million of mortgage financing expected to be assumed as part of the transaction. We expect to receive $91 million of net proceeds and we continue to explore the sale of the remaining two properties.

Healthcare Properties

Our healthcare properties are comprised of a diverse portfolio of medical office buildings, senior housing, skilled nursing and other healthcare properties. The majority of our healthcare properties are medical office buildings and properties structured under a net lease to healthcare operators. In addition, we own senior operating facilities which include independent living facilities and properties that operate through management agreements with independent third-party operators, predominantly through RIDEA structures that permit us, through a taxable REIT subsidiary, or TRS, to have direct exposure to resident fee income and incur customary related operating expenses. In February 2016, we entered into an agreement to sell our 60% interest in the Senior Housing Portfolio for $535 million, subject to proration and adjustment. We expect the buyer to assume our portion of the $648 million mortgage borrowing. We expect to receive approximately $150 million of net proceeds upon completion of the sale in March 2016.

As of December 31, 2015, $6.7 billion, or 39.6%, of our assets were invested in healthcare properties. The following presents a summary of our healthcare portfolio and diversity across property type based on net cash flow:

			Healthcare by Property Type
Total Healthcare Portfolio	$6.7 billion
Number of facilities	494
Number of units/beds(1)	27,980
Weighted average occupancy	94	%
Weighted average lease coverage	1.6x
Weighted average lease term	8.8 years
Net cash flow related to:
Medical office buildings	25	%
Net lease	45	%
Senior operating facilities - RIDEA/ILF	30	%

___________________________________

(1) Represents number of units for ALF/ILF property types and number of beds for SNF property types.

Hotel Portfolio

Our hotel portfolio is a geographically diverse portfolio primarily comprised of extended stay hotels and premium branded select service hotels primarily located in major metropolitan markets with the majority affiliated with top hotel brands. As of December 31, 2015, $3.4 billion, or 20.3%, of our assets were invested in hotel properties.

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The following presents a summary of our hotel portfolio and diversity across geographic location based on number of rooms:

			Hotel by Geographic Location
Total Hotel Portfolio	$3.4 billion
Number of hotels	167
Number of rooms	22,092
Weighted average occupancy	75	%
Rooms by brand:
Marriott	75	%
Hilton	16	%
Starwood	4	%
Hyatt	4	%
Intercontinental	1	%

Manufactured Housing Communities

Our manufactured housing portfolio consists of communities that lease pad rental sites for placement of factory built homes located throughout the United States. The manufactured housing industry has traditionally demonstrated low cash flow volatility and steady annual rent increases, although there is no assurance that will continue to be the case. Currently, we are exploring the sale of our manufactured housing portfolio. There is no assurance we will enter into any transactions on favorable terms, if at all.

As of December 31, 2015, $1.8 billion, or 10.4%, of our assets were invested in manufactured housing communities. The following presents a summary of our manufactured housing communities portfolio and diversity across geographic location based on net cash flow:

			Manufactured Housing Communities by Geographic Location
Total Manufactured Housing Portfolio	$1.8 billion
Number of communities	136
Number of pad rental sites	33,055
Number of manufactured homes	4,081
Number of states	14
Weighted average occupancy	86	%
Net cash flow related to:
Pad rental sites	87	%
Other	13	%

Net Lease Properties

Our real estate that is net leased to corporate tenants is primarily comprised of industrial, office and retail properties. These net lease properties are typically leased to a single tenant who agrees to pay basic rent, plus all taxes, insurance, capital and operating expenses arising from the use of the leased property generally leaving us, as owner, with minimal ongoing operational or expense obligations. We may also invest in properties that are leased to tenants for which we are responsible for some of the operating expenses and capital costs. At the end of the lease term, the tenant typically has a right to renew the lease at market rates or to vacate the property with no further ongoing obligation.

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As of December 31, 2015, $782 million, or 4.6%, of our assets were invested in net lease properties, including one property owned through an unconsolidated joint venture. The following presents a summary of our net lease portfolio and diversity across geographic location based on number of properties:

			Net Lease by Geographic Location
Total Net Lease Portfolio	$782 million
Number of properties	64
Number of states	23
Total square feet	8.9 million
Weighted average occupancy	96	%
Weighted average lease term	9.2
Net cash flow related to:
Industrial	51	%
Office	40	%
Retail	9	%

Multifamily Properties

Our multifamily portfolio primarily focuses on properties located in suburban markets that we believe are well suited to capture the formation of new households. Currently, we are exploring the sale of our multifamily portfolio. In February 2016, we entered in and are finalizing agreements to sell up to ten multifamily properties for $311 million with $210 million of mortgage financing expected to be assumed as part of the transaction. We expect to receive $91 million of net proceeds and continue to explore the sale of the remaining two properties. There is no assurance we will enter into any transactions on favorable terms, if at all.

As of December 31, 2015, $377 million, or 2.2%, of our assets were invested in multifamily properties, including one property owned through an unconsolidated joint venture. The following presents a summary of our multifamily portfolio and diversity across geographic location based on net cash flow:

			Multifamily by Geographic Location
Total Multifamily Portfolio	$377 million
Number of properties	12
Number of states	6
Number of units	4,514
Weighted average occupancy	94	%

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Multi-tenant Office

We, through a joint venture with SteelWave, acquired multi-tenant office properties in the western United States. As of December 31, 2015, $176 million, or 1.0%, of our assets were invested in multi-tenant office properties. The following presents a summary of our multi-tenant office portfolio and diversity across geographic location based on cost:

			Multi-tenant Office by Geographic Location
Total Multi-tenant Office Portfolio	$176 million
Number of properties	13
Number of states	3
Total square feet	1,021,400
Weighted average occupancy	89	%

PE Investments

Our PE Investments own limited partnership interests in real estate private equity funds acquired in the secondary market and are managed by institutional-quality sponsors, which we refer to as fund interests. In February 2016, we entered into an agreement to sell substantially all of our interest in PE Investment II for proceeds of $184 million and are exploring the sale of our remaining PE Investments. As of December 31, 2015, $1.1 billion, or 6.5%, of our assets were invested in PE Investments through unconsolidated ventures or direct investments. The following tables present a summary of our PE Investments (dollars in millions):

												Underlying Fund Interests
PE Investment(1)	Initial Closing Date	Amount		Number of Funds		Number of General Partners		Initial NAV		Initial NAV as a Percentage of Cost(2)		Assets, at Cost		Implied Leverage(3)		Expected Future Funding(4)
PE Investment I(5)	February 15, 2013	$	154.0	49		26		$	802.4	66.2	%	$	17,600	43.2	%	$	2
PE Investment III	December 31, 2013	26.8		8		4		80.3		119.0	%	2,000		38.6	%	—
PE Investment IV	May 30, 2014	7.6		1		1		8.8		113.4	%	600		36.5	%	—
PE Investment V	July 1, 2014	7.7		3		1		23.0		57.8	%	700		50.2	%	—
PE Investment VI	July 30, 2014	75.3		20		12		98.3		77.5	%	8,400		45.2	%	1
PE Investment VII	August 15, 2014	30.2		14		12		65.7		79.2	%	900		48.1	%	—
PE Investment IX	October 2, 2014	129.2		11		7		232.8		135.3	%	19,100		25.6	%	2
PE Investment X	December 4, 2014	128.5		13		7		160.4		92.5	%	4,500		51.0	%	—
PE Investment XI	May 1, 2015	4.2		2		1		7.9		64.0	%	1,600		34.8	%	—
PE Investment XII	May 5, 2015	2.6		1		1		6.1		212.0	%	800		28.1	%	—
PE Investment XIII	May 22, 2015	287.4		11		5		454.8		90.5	%	2,400		48.7	%	3
PE Investment XIV	September 9, 2015	55.2		15		5		100.4		51.8	%	8,000		59.4	%	50
PE Investment XV	November 12, 2015	6.8		1		1		95.6		137.8	%	600		42.0	%	—
Subtotal		915.5		149		83		2,136.5				67,200				$	58
PE Investment II(6)	July 3, 2013	186.2		24		15		910.0		73.5	%	19,800		38.7	%	$	243	(6)
Total		$	1,101.7	173	(7)	98	(7)	$	3,046.5			$	87,000

____________________________________________________________

(1) Based on financial data reported by the underlying funds as of September 30, 2015, which is the most recent financial information from the underlying funds, except as otherwise noted.

(2) Net cost represents total funded capital less distributions received.

(3) Represents implied leverage for funds with investment-level financing, calculated as the underlying borrowing divided by assets at fair value.

(4) Includes an estimated amount of expected future contributions to funds and any deferred purchase price as of December 31, 2015.

(5) We, together with NorthStar Real Estate Income Trust, Inc., or NorthStar Income, have an ownership interest in PE Investment I of 51%, of which we own 70.5% and NorthStar Income owns 29.5%.

(6) In February 2016, we entered into an agreement to sell substantially all of our interest in PE Investment II for proceeds of $184 million, of which $145 million was received and the remaining is expected in March 2016 upon consent from the initial seller. In connection with the sale, the buyers will assume our $243 million portion of the deferred purchase price obligation of the joint venture upon receiving consent from the initial seller.

(7) Includes 28 funds and 21 general partners held across multiple PE Investments.

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	Our Proportionate Share of PE Investments
	December 31, 2015
	Three Months Ended		Year Ended		Inception to Date(2)
Income(1)	$	42.4	$	198.1	$	414.7
Return of capital	97.1		441.8		808.8
Total distributions	139.5		639.9		1,223.5
Contributions(3)	9.6		59.5		105.8
Net	$	129.9	$	580.4	$	1,117.7

__________________________________________________

(1) Recorded in equity in earnings in the consolidated statement of operations.

(2) Represents activity from the respective initial closing date through December 31, 2015.

(3) Contributions for the year endedDecember 31, 2015 includes a payment of the deferred purchase price obligation of the PE Investment II joint venture and PE Investment III.

The following presents the underlying fund interests in our PE Investments by investment type and geographic location based on NAV as of September 30, 2015:

PE Investments by Underlying Investment Type(1)	PE Investments by Underlying Geographic Location(1)

____________________________________________________________

(1) Based on individual fund financial statements and includes our remaining interest in PE Investment II, substantially all of which was sold in February 2016.

Corporate Investments

RXR Realty

In December 2013, we entered into a strategic transaction with RXR Realty, a leading real estate owner, developer and investment management company focused on high-quality real estate investments in the New York Tri-State area. The investment includes an approximate 27% equity interest in RXR Realty, which represented a carrying value of $89 million as of December 31, 2015.

Aerium

In June 2014, we acquired a 15% interest in Aerium, a pan-European real estate investment manager specializing in commercial real estate properties. The investment in Aerium represented a carrying value of $17 million as of December 31, 2015.

SteelWave

In September 2014, we entered into a debt and equity investment with SteelWave, comprised of a 40% interest in the common equity of certain entities affiliated with SteelWave. SteelWave is a leading real estate investment manager, owner and operator with a portfolio of commercial assets focused in key markets in the western United States. The investment in SteelWave represented a carrying value of $7 million as of December 31, 2015.

Commercial Real Estate Debt

Overview

Our CRE debt investment strategy is focused on originating, acquiring and asset managing CRE debt investments, including first mortgage loans, subordinate mortgage and mezzanine loans and participations in such loans and preferred equity interests.

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We emphasize direct origination of our debt investments as this allows us a greater degree of control over how they are underwritten and structured and it provides us the opportunity to syndicate senior or subordinate interests in the loan to maximize returns, if desired. Further, it facilitates a more direct relationship with our borrowers which helps us maintain a robust pipeline, provides an opportunity for us to earn origination and other fees and offers us an important advantage when considering any potential future modifications or restructurings.

The supply/demand imbalance driven by the large amount of maturing CRE loans could create an opportunity for us. Even with some increased supply by lenders, demand for debt financing is allowing investors with capital and real estate expertise, such as us, the opportunity to make investments with attractive risk/return profiles. We are currently focused on monetizing many of our CRE debt investments through sales.

We believe we have built a franchise with a reputation for providing capital to high-quality real estate owners who want a responsive and flexible balance sheet lender. Given that we are a lender who generally retains control of the loans we originate, we are able to maintain flexibility in how we structure loans to meet the needs of our borrowers. Typical CMBS and other capital markets driven lenders generally cannot provide these types of loans due to constraints within their funding structures and because of their requirement to sell the entire loan to third parties and relinquish all control. Even when we finance our investments through securitizations, we maintain a significant capital investment in our loans. Our centralized investment organization has enabled senior management to review potential new loans early in the origination process which, unlike many large institutional lenders with several levels of approval required to commit to a loan, allows us to respond quickly and provide a high degree of certainty to our borrowers that we would close a loan on terms substantially similar to those initially proposed. We believe that this level of service has enhanced our reputation in the marketplace. In addition, we believe the early and active role of senior management in our portfolio management process has been key to maximizing recoveries of invested capital from our investments and our ability to be responsive to changing market conditions.

Our Portfolio

As of December 31, 2015, $515 million, or 3.0%, of assets were invested in CRE debt, excluding CRE debt financed in consolidated N-Star CDOs, CRE debt held for sale and other CRE debt accounted for as joint ventures, consisting of 25 loans with an average investment size of $20 million and weighted average extended maturity of 5.1 years. We directly originated approximately 93% of our current portfolio of CRE debt investments (excluding debt investments acquired in connection with Griffin-American). In February 2016, we sold or committed to sell seven loans with a total principal amount of $225 million at par, with $47 million of proceeds used to pay down our loan facility, resulting in $178 million of net proceeds.

The following table presents a summary of our CRE debt investments, excluding amounts held for sale, as of December 31, 2015 (dollars in thousands):

								Weighted Average (3)						Floating Rate as % of Principal Amount
	Number(1)	Principal Amount		Carrying Value		Allocation by Investment Type(2)		Fixed Rate		Spread Over LIBOR		Yield(4)
Asset Type:
First mortgage loans	11	$	286,628	$	260,237	55.6	%	7.09	%	4.95	%	6.18	%	55.8	%
Mezzanine loans	6	22,361		18,630		4.3	%	9.04	%	4.00	%	8.39	%	39.9	%
Subordinate interests	4	171,044		169,781		33.2	%	13.04	%	5.65	%	8.72	%	59.0	%
Corporate loans	4	35,215		30,681		6.9	%	12.93	%	—		14.84	%	—
Total/Weighted average	25	$	515,248	$	479,329	100.0	%	10.51	%	5.26	%	8.12	%	52.5	%

____________________________________________________________

(1) Excludes amounts related to joint ventures and CRE debt held for sale and underlying our N-Star CDOs.

(2) Based on principal amount.

(3) Excludes an aggregate principal amount of $131 million related to three CRE debt investments that were originated prior to 2008, three non-performing loans and one first mortgage loan acquired with deteriorated credit quality.

(4) Based on initial maturity and for floating-rate debt, calculated using one-month LIBOR as of December 31, 2015 and for CRE debt with a LIBOR floor, using such floor.

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The following presents our $515 million CRE debt portfolio’s diversity across property type and geographic location based on principal amount.

Debt Investments by Property Type	Debt Investments by Geographic Location

Commercial Real Estate Securities

We historically originated or acquired CRE debt and securities investments that were predominately financed through permanent, non-recourse CDOs. We sponsored nine CDOs, three of which were primarily collateralized by CRE debt and six of which were primarily collateralized by CRE securities. In addition, we acquired the equity interests of two CRE debt focused CDOs, CSE RE 2006-A CDO, or CSE CDO, and CapLease 2005-1 CDO, or CapLease CDO. We refer to those CRE debt and securities investments that serve as collateral for N-Star CDO financing transactions as legacy CRE debt and securities, respectively. At the time of issuance of the N-Star CDOs, we retained the below investment grade bonds, which are referred to as subordinate bonds, and preferred shares and equity notes, which are referred to as equity interests. In addition, since the initial issuance of the N-Star CDOs, we repurchased CDO bonds originally issued to third parties at discounts to par. These repurchased CDO bonds and retained subordinate bonds are herein collectively referred to as N-Star CDO bonds. We own the equity interests in all of our N-Star CDO financing transactions whether or not we consolidate these transactions on our balance sheet. Substantially all of our N-Star CDO equity is invested in our CRE debt CDOs. In fact, our CRE debt CDOs have distributed regular cash flow since their inception. We do not, however, own undivided interests in any of the assets within our N-Star CDOs and all senior and junior bondholders of the CDOs have economic interests that are senior to our equity interests. In September 2015, N-Star CDO IV was liquidated and the third-party senior bondholders of N-Star CDO IV were repaid in full.

We historically consolidated these CDO financing transactions under accounting principles generally accepted in the United States, or U.S. GAAP. Our legacy CDO business is winding down, resulting in liquidation and deconsolidation of certain of our N-Star CDOs. Repurchased N-Star CDO bonds that are consolidated are not presented as an investment but rather are eliminated in our consolidated financial statements and, as a result, the interest and realization of any discount will generally not be recorded as income in our consolidated statements of operations under U.S. GAAP. All of our CRE debt CDOs were deconsolidated in 2013 and currently only N-Star securities CDOs I and IX continue to be consolidated. All N-Star CDOs are past their reinvestment period and given the nature of these transactions, these CDOs are amortizing over time as the underlying assets pay down or are sold.

Our CRE securities portfolio is predominately comprised of N-Star CDO bonds and N-Star CDO equity of our deconsolidated N-Star CDOs and includes other securities, mostly conduit CMBS, meaning each asset is a pool backed by a large number of commercial real estate loans. We have also invested in opportunistic CRE securities such as an investment in a “B-piece” CMBS. More recently, we are pursuing the sale of certain of our CRE securities. Subsequent to year end, we sold five CRE securities for $54 million of net proceeds.

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The following table presents our interest in the N-Star CDOs as of December 31, 2015 (dollars in thousands):

	Number	Amount(1)
N-Star CDO bonds(2)(3)
AAA	2	$	108,900
AA through BBB	20	273,069		(4)
Below investment grade	10	160,447
	32	542,416
N-Star CDO equity(5)	4	71,003
Total	36	$	613,419

_______________________________________________________

(1) Based on principal amount for N-Star CDO bonds and amortized cost for N-Star CDO equity.

(2) Based on original credit rating. Includes N-Star CDO bonds with a principal amount of $143 million related to our securities CDOs that are eliminated in consolidation.

(3) Unencumbered N-Star CDO bonds are owned by us, of which $408 million of principal amount were repurchased at a discount to par at a weighted average original credit rating of A / A2 and a weighted average purchase price of 39%.

(4) Subsequent to year end, we sold four N-Star CDO bonds for $27 million of net proceeds. There is no assurance we will receive the maximum amount of proceeds from sales of N-Star CDO bonds or sell on favorable terms, if at all.

(5) Represents our equity interests in the deconsolidated CRE debt N-Star CDOs.

The following table presents a summary of our deconsolidated N-Star CRE debt CDOs as of December 31, 2015 (dollars in thousands):

Issue/Acquisition Date	N-Star VI Mar-06		N-Star VIII Dec-06		CapLease Aug-11			CSE Jul-10				Total
Balance sheet as of December 31, 2015(1)
Assets, principal amount	$	258,020	$	742,333	$	122,771		$	472,354			$	1,595,478
CDO bonds, principal amount(2)	189,435		569,487		107,390			409,680				1,275,992
Net assets	$	68,585	$	172,846	$	15,381		$	62,674			$	319,486
CDO quarterly cash distributions and coverage tests(3)
Equity notes and subordinate bonds	$	272	$	4,773	$	575		$	752			$	6,372
Collateral management and other fees(4)	255		712		60			210				1,237
Interest coverage cushion at December 31, 2015 (IC)(1)	903		5,294		421			989
Overcollateralization cushion (OC)
At December 31, 2015(1)	52,524		120,568		9,815			91,152
At offering	17,412		42,193		5,987		(5)	(151,595		)	(6)

____________________________________________________________

(1) Based on remittance report issued on date nearest to December 31, 2015.

(2) Includes all outstanding CDO bonds payable to third parties and all CDO bonds owned by us.

(3) IC and OC coverage to the most constrained class.

(4) Based on cash receipts.

(5) Based on trustee report as of August 31, 2011, closest to the date of acquisition.

(6) Based on trustee report as of June 24, 2010, closest to the date of acquisition.

The following presents the diversity across property type and geographic location of the CRE debt in our deconsolidated N-Star CDOs, based on principal amount, as of December 31, 2015:

CRE Debt in N-Star CDOs by Property Type	CRE Debt in N-Star CDOs by Geographic Location

Financing Strategy

We seek to access a wide range of secured and unsecured debt and public and private equity capital sources to fund our investment activities and asset growth.

We predominantly use investment-level financing as part of our strategy to prudently leverage our investments and deliver attractive risk-adjusted returns to our stockholders. We pursue a variety of financing arrangements such as mortgage notes from the CMBS market, government-sponsored agencies, finance companies, banks and securitization financing transactions. In addition, we use corporate-level financing such as credit facilities and other term borrowings. We generally seek to limit our reliance on recourse borrowings. Borrowing levels for our CRE investments may be dependent upon the nature of the assets and the related financing that is available.

The availability of attractive long-term, non-recourse, non mark-to-market assignable financing through the CMBS and agency financing markets has bolstered opportunities to acquire real estate in the past few years. For longer duration, stable investment cash flow such as those derived from net lease assets, we tend to use fixed rate financing. For investment cash flow with greater growth potential such as hotels and healthcare under a RIDEA structure, we tend to use floating rate financing which provides prepayment flexibility and may provide a better match between underlying cash flow and potential increases in interest rates.

Our financing strategy for debt investments is to obtain match-funded borrowing at rates that provide a positive net spread. In late 2011, we began using secured term credit facilities provided by major financial institutions to partially finance CRE debt, which currently provide for up to $200 million. Additionally, we have historically demonstrated the ability to securitize our CRE debt investments and expect to continue to pursue similar transactions to finance our newly-originated debt investments that might initially be financed on our credit facilities. In November 2012 and August 2013, we, and on behalf of NorthStar Income, entered into securitized financing transactions (Securitization 2012-1 and Securitization 2013-1) with an aggregate $610 million of principal amount of bonds issued providing permanent, non-recourse, non-mark-to-market financing for newly-originated CRE debt investments of ours and NorthStar Income. In January 2015, Securitization-2012-1 with $228 million principal amount of original bonds issued was repaid in full. We will continue to seek to use the capital markets to finance any new debt investments. As of February 25, 2016, we had $25 million outstanding on our loan facility.

With respect to corporate-level financing, in August 2014, we entered into a corporate revolving credit facility, subsequently amended, or Corporate Revolver, with certain commercial bank lenders, with a total current commitment of $250 million. In September 2014, we entered into a corporate term borrowing with a commercial bank lender with respect to the establishment of term borrowings. However, given recent market conditions, we are currently focused on exploring sales to generate liquidity to repurchase our common stock and reduce such corporate recourse borrowings. Subsequent to year end, our Corporate Revolver was repaid and we expect our remaining corporate recourse borrowings to be repaid from proceeds from sales initiatives. Refer to Liquidity and Capital Resources in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion

Historically, we used CDOs to finance legacy CRE debt and securities investments. Our legacy CDO business is winding down as we invest in a broader, more diverse range of CRE assets. As a result, such legacy business is a significantly smaller portion of our business today than in the past.

Portfolio Management

NSAM performs portfolio management services on our behalf. The comprehensive portfolio management process that generally includes day-to-day oversight by the portfolio management and servicing team, regular management meetings and an exhaustive quarterly credit review process. These processes are designed to enable management to evaluate and proactively identify asset-specific credit issues and trends on a portfolio-wide basis. Nevertheless, we cannot be certain that such review will identify all issues within our portfolio due to, among other things, adverse economic conditions or events adversely affecting specific assets; therefore, potential future losses may also stem from investments that are not identified during these credit reviews. NSAM uses many methods to actively manage our credit risk to preserve our income and capital, which includes our ability to manage our assets in a manner that minimizes credit losses that could decrease income and portfolio value. For CRE equity and debt investments, frequent re-underwriting and dialogue with borrowers/tenants/operators/partners and regular inspections of our collateral and owned properties have proven to be an effective process for identifying issues early. With respect to our healthcare properties, we consider the impact of regulatory changes on operator performance and property values. During the quarterly credit review, or more frequently as necessary, investments are put on highly-monitored status and identified for possible asset impairment/loan loss reserves, as appropriate, based upon several factors, including missed or late contractual payments, significant declines in collateral performance and other data which may indicate a potential issue in our ability to recover our invested capital from an investment. The portfolio management process related to CRE debt and securities underlying our deconsolidated CDOs is limited to monitoring the CDO bonds and equity interests in such CDO financing transactions.

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Regulation

We are subject, in certain circumstances, to supervision and regulation by state, federal and international governmental authorities and are subject to various laws and judicial and administrative decisions imposing various requirements and restrictions, which, among other things:

• regulate our public disclosures, reporting obligations and capital raising activity;

• require compliance with applicable REIT rules;

• regulate credit granting activities;

• require disclosures to customers;

• govern secured transactions;

• set collection, taking title to collateral, repossession and claims-handling procedures and other trade practices;

• regulate land use and zoning;

• regulate the foreign ownership or management of real property or mortgages;

• regulate the ability of foreign persons or corporations to remove profits earned from activities within the country to the person’s or corporation’s country of origin;

• regulate tax treatment and accounting standards; and

• regulate use of derivative instruments and our ability to hedge our risks related to fluctuations in interest rates and exchange rates.

We have elected, qualified and expect to continue to qualify to be taxed as a REIT under Section 856 through 860 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. As a REIT, we must currently distribute, at a minimum, an amount equal to 90% of our taxable income. In addition, we must distribute 100% of our taxable income to avoid paying corporate federal income taxes. REITs are also subject to a number of organizational and operational requirements in order to elect and maintain REIT status. These requirements include specific share ownership tests and assets and gross income composition tests. If we fail to continue to qualify as a REIT in any taxable year, we will be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate tax rates. Even if we qualify for taxation as a REIT, we may be subject to state and local income taxes and to federal income tax and excise tax on our undistributed income. In addition, we own healthcare and hotel assets through structures permitted by RIDEA, where we participate directly in the operational cash flow of a property.

Under the Protecting Americans from Tax Hikes Act of 2015, or the PATH Act, enacted on December 18, 2015, several Internal Revenue Code provisions relating to REITs and their stockholders were revised. These new rules were enacted with varying effective dates, some of which were retroactive. Stockholders are urged to consult their tax advisors to determine the effect of the PATH Act in their particular circumstances.

We believe that we are not, and intend to conduct our operations so as not to become regulated as, an investment company under the Investment Company Act of 1940, as amended, or the Investment Company Act. We have relied, and intend to continue to rely on current interpretations of the staff of the Securities and Exchange Commission, or SEC, in an effort to continue to qualify for an exemption from registration under the Investment Company Act. For more information on the exemptions that we use refer to Item 1A. “Risk Factors - Maintenance of our Investment Company Act exemption imposes limits on our operations.”

Real estate properties owned by us and the operations of such properties are subject to various international, federal, state and local laws and regulations concerning the protection of the environment, including air and water quality, hazardous or toxic substances and health and safety. In addition, such properties are required to comply with the Americans with Disabilities Act of 1990, or the ADA, the Fair Housing Act, applicable fire and safety regulations, building codes and other land use regulations. For further information regarding environmental matters and the ADA, refer to “Environmental Matters” and “ADA” below.

Under a RIDEA structure, we are permitted to own an interest in the licensed operator of healthcare facilities through a TRS. In contrast to triple net leased assets, where we are merely a landlord, such ownership may result in increased regulatory risks associated with the operation of healthcare properties. As such, we or our operators or managers, as the case may be, are subject to numerous international, federal, state and local healthcare laws and regulations that are subject to frequent and substantial changes (sometimes applied retroactively) resulting from legislation, adoption of rules and regulations and administrative and judicial interpretations of existing laws.  Refer to “Healthcare Regulation” below.

In addition, we own hotels, which are subject to various covenants, laws, ordinances and regulations, including regulations relating to common areas. We believe each of our hotels has the necessary permits and approvals to operate its business.

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We are also subject to regulation governing mortgage lending. Although most states do not regulate commercial real estate finance, certain states impose limitations on interest rates and other charges and on certain collection practices and creditor remedies and require licensing of lenders and financiers and adequate disclosure of certain contract terms. We are also required to comply with certain provisions of the Equal Credit Opportunity Act that are applicable to CRE loans.

We are also subject to regulation with respect to certain of our loan servicing activities, such as Regulation AB, which requires certain disclosures regarding our servicing activities and compliance with servicing criteria and also requires that we deliver compliance statements.

In the judgment of management, while we do incur significant expense complying with the various regulations to which we are subject, existing statutes and regulations have not had a material adverse effect on our business. However, it is not possible to forecast the nature of future legislation, regulations, judicial decisions, orders or interpretations, nor their impact upon our future business, financial condition, results of operations or prospects.

Environmental Matters

A wide variety of federal, state and local environmental and occupational health and safety laws and regulations affect our properties. These complex federal and state statutes, and their enforcement, involve a myriad of regulations, many of which involve strict liability on the part of the potential offender. Some of these federal and state statutes may directly impact us. Under various federal, state and local environmental laws, ordinances and regulations, an owner of real property or a secured lender, such as us, may be liable for the costs of removal or remediation of hazardous or toxic substances at, under or disposed of in connection with such property, as well as other potential costs relating to hazardous or toxic substances (including government fines and damages for injuries to persons and adjacent property). The cost of any required remediation, removal, fines or personal or property damages and the owner’s or secured lender’s liability therefore could exceed or impair the value of the property, and/or the assets of the owner or secured lender. In addition, the presence of such substances, or the failure to properly dispose of or remediate such substances, may adversely affect the owner’s ability to sell or rent such property or to borrow using such property as collateral which, in turn, could reduce our revenues.

ADA

Our properties must comply with the ADA and any similar state or local laws to the extent that such properties are “public accommodations” as defined in those statutes. The ADA may require removal of barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. To date, we have not received any notices of noncompliance with the ADA that have caused us to incur substantial capital expenditures to address ADA concerns. Should barriers to access by persons with disabilities be discovered at any of our properties, we may be directly or indirectly responsible for additional costs that may be required to make facilities ADA-compliant. Noncompliance with the ADA could result in the imposition of fines or an award of damages to private litigants. The obligation to make readily achievable accommodations pursuant to the ADA is an ongoing one and we continue to assess our properties and make modifications as appropriate in this respect.

Healthcare Regulation

Overview

Assisted living, memory care, independent living, hospitals, skilled nursing facilities and other healthcare providers that operate healthcare properties in our portfolio are subject to extensive federal, state and local laws, regulations and industry standards governing their operations. Failure to comply with any of these, and other, laws could result in loss of licensure; loss of certification or accreditation; denial of reimbursement; imposition of fines; suspension or exclusion from federal and state healthcare programs; or closure of the facility. Although the properties within our portfolio may be subject to varying levels of governmental scrutiny, we expect that the healthcare industry, in general, will continue to face increased regulation and pressure in the areas of fraud and abuse, cost control and management of the provision of services, among others. We also expect that efforts by third-party payors, such as the federal Medicare program, state Medicaid programs and private insurers, to impose greater and more stringent cost controls upon operators will intensify and continue. Changes in laws, regulations, reimbursement, and enforcement activity can all have a significant effect on the operations and financial condition of our tenants, managers and operators, which in turn may adversely impact us, as set forth below and under Item 1A. “Risk Factors” in this report.

Fraud and Abuse Enforcement

Healthcare providers, including, but not limited to skilled nursing facilities and hospitals (and some senior housing facilities), are subject to federal and state laws and regulations that govern the operations and financial and other arrangements that may be entered into by healthcare providers, and prohibiting fraudulent and abusive practices by such providers. These laws include: (i) laws requiring providers to furnish only medically necessary services and submit to the government valid and accurate statements for each service; (ii) state anti-kickback laws and the Federal Anti-Kickback Statute, which generally prohibit persons from offering, providing, soliciting, or receiving remuneration to induce either the referral of an individual or the furnishing of a good or service

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for which payment may be made under a government healthcare program, such as Medicare or Medicaid; (iii) the federal physician self-referral law (commonly known as the Stark Law), which generally prohibits the submission of claims to Medicare for payment that were the result of a referral by a physician who has a financial relationship with the health service provider and analogous state laws; and (iv) the Civil Monetary Penalties Act and the Federal False Claims Act including its “whistleblower” provisions, which prohibits, among other things, the knowing presentation of a false or fraudulent claim for certain healthcare services. Additionally, certain laws, including HIPAA and the Health Reform Laws (both defined and discussed further below) have broadened the federal fraud and abuse laws to enhance both the scope (e.g. private payors) and the penalties for non-compliance with the laws.

Enforcement of healthcare fraud has increased due in large part to amendments to the Federal False Claims Act that encourages private individuals to sue on behalf of the government. Sanctions for violations of these laws, regulations, and other applicable guidance may include, but are not limited to, criminal and/or civil penalties and fines, loss of licensure, immediate termination of government payments and exclusion from government healthcare programs, any of which could have a material adverse effect on the ability of an operator to meet its financial obligations to us.

Reimbursement

Federal, state and private managed care payor reimbursement methodologies applied to healthcare providers continue to evolve.  Federal and state authorities have considered and may seek to implement new or modified reimbursement methodologies that may negatively impact healthcare property operations.  The impact of any such changes, if implemented, may result in a material adverse effect on our healthcare property operations.

Skilled Nursing Facilities and Hospitals.  Skilled nursing facilities and hospitals typically receive most of their revenues from the Medicare and Medicaid programs, with the balance representing reimbursement payments from private managed care payors, including private insurers and self-pay patients. Skilled nursing facilities and hospitals are subject to periodic pre- and post-payment reviews, and other audits by federal and state authorities.  A review or audit of a property operator’s claims could result in recoupments, denials or delay of payments in the future, each of which could have a significant negative consequence. 

Medicare Reimbursement. Medicare, a federal program, is a significant payor source for our skilled nursing facilities and hospitals. Skilled nursing facilities are reimbursed under the Medicare Skilled Nursing Facility Prospective Payment System, or SNF PPS. Hospitals are reimbursed by Medicare under prospective payment systems which vary based upon the type of hospital, geographic location and service furnished. For skilled nursing facilities and hospitals, there are risks that costs will exceed the fixed payments, and payments will be insufficient as compared to actual costs of delivering care, which could result in financial difficulties for the facilities. Recent attention on billing practices and payments and/or ongoing government pressure to reduce spending by government healthcare programs, could result in lower payments to skilled nursing facilities and/or hospitals and, as a result, may impair an operator’s ability to meet its financial obligations to us.

Medicaid Reimbursement. Medicaid is also a significant payor source for our skilled nursing facilities and hospitals. The federal and state governments share responsibility for financing Medicaid. The percentage of Medicaid dollars used for long-term care varies from state to state, due in part to different ratios of elderly population and eligibility requirements. Within certain federal guidelines, states have a fairly wide range of discretion to determine eligibility and reimbursement methodology.  Many states reimburse long-term care facilities using fixed daily rates, which are applied prospectively based on patient acuity and the historical costs incurred in providing patient care. Certain states are attempting to slow the rate of growth in Medicaid expenditures by freezing rates or restricting eligibility and benefits. In addition, federal budgetary proposals could have lower federal spending for Medicaid, potentially impacting provider Medicaid reimbursement rates.  Finally, certain states have elected not to expand their Medicaid eligibility criteria pursuant to recent healthcare reform laws, as described further below. In these states, there may be fewer individuals receiving insurance through state Medicaid programs and healthcare providers may continue to have a population of uninsured patients that require treatment. Other states that have opted to expand Medicaid may later choose to discontinue or modify that expansion. Reductions in Medicaid reimbursement rates or patient eligibility could materially affect revenues of our facilities.

Senior Housing Facilities (assisted living, independent living and memory care facilities, excluding skilled nursing facilities). While the majority of revenues received by the operators of our senior housing facilities are from private pay sources, a small portion of their revenue is received from Medicaid reimbursement. There can be no guarantee that a state Medicaid program will continue to reimburse for services at current levels or continue to be available to our residents. Rates generated at facilities will vary by payor mix, market conditions and resident acuity. Rates paid by self-pay residents are set by the facilities and are determined by local market conditions and operating costs.

Licensure, Certification and CON

Hospitals, skilled nursing, senior housing facilities and other healthcare providers that operate healthcare properties in our portfolio are subject to extensive state licensing and registration laws. The failure of our operators and tenants to maintain or renew any

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required license, certification, accreditation or regulatory approval could prevent a facility from operating in the manner intended by the operators or tenants.

Certain of our healthcare facilities are subject to a variety of state certificate of need, or CON, laws and regulations, which may restrict the ability of operators to add new properties or expand an existing facility’s size or services. In addition, CON laws may constrain the ability of an operator to transfer responsibility for operating a particular facility to a new operator. 

Healthcare Reform

The Patient Protection and Affordable Care Act of 2010, or PPCA, and the Healthcare and Education Reconciliation Act of 2010, which amends PPCA, collectively, the Health Reform Laws, and certain follow-on laws (e.g., the Improving Medicare Post-Acute Transformation, or IMPACT, Act of 2014) serve as the primary vehicle for comprehensive healthcare reform in the United States and are becoming effective through a phased approach, which began in 2010 and will conclude in 2018. The laws are intended to reduce the number of individuals in the United States without health insurance and significantly change the means by which healthcare is organized delivered and reimbursed. Healthcare reform legislation includes: (i) program integrity provisions that both create new authorities and expand existing authorities for federal and state governments to address fraud, waste and abuse in federal health programs; (ii) expanded reporting requirements and responsibilities related to property ownership and management, patient safety and care quality; and (iii) new initiatives to strengthen post-acute care services and promote relationships between acute and post-acute care providers. The inability or failure to comply with these reform laws could impact the ability of our operators to participate in federal health programs, causing revenues to decline and ultimately impact their ability to meet their financial obligations to us.

Information Privacy and Security

Healthcare providers are subject to a myriad of state and federal laws which protect the privacy and security of information. The Health Insurance Portability and Accountability Act of 1996, or HIPAA, provides for communication of health information through standard electronic transaction formats and for the privacy and security of health information. Operators also may face significant financial exposure if they fail to maintain the privacy and security of medical records and other personal health information about individuals. The Health Information Technology for Economic and Clinical Health, or HITECH Act, strengthened the HHS Secretary’s authority to impose civil monetary penalties for HIPAA violations.

For additional information regarding regulations applicable to us, refer to Item 1A. “Risk Factors.”

Competition

We are subject to increased competition in seeking CRE investments. We compete with many third parties engaged in real estate investment activities including publicly-traded REITs, non-traded REITs, insurance companies, commercial and investment banking firms, private equity funds and other investors. Some of these competitors, including other REITs and private real estate companies and funds, have substantially greater financial resources than we do. Such competitors may also enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies.

Future competition from new market entrants may limit the number of suitable investment opportunities offered to us. It may also result in higher prices, lower yields and a narrower spread over our borrowing costs, making it more difficult for us to originate or acquire new investments on attractive terms.

Employees

As of December 31, 2015, we had 25 co-employees with NSAM. Most of our employees at the time of the spin off of our historical asset management business on June 30, 2014, or NSAM Spin-off, became employees of NSAM and executive officers, employees engaged in our loan origination business at the time of the NSAM Spin-off and certain other employees became co-employees of both us and NSAM. As of December 31, 2015, NSAM had 276 employees, domestic and internationally.

Corporate Governance and Internet Address

We emphasize the importance of professional business conduct and ethics through our corporate governance initiatives. Our board of directors consists of a majority of independent directors; the audit, nominating and corporate governance and compensation committees of our board of directors are composed exclusively of independent directors. We have adopted corporate governance guidelines and a code of business conduct and ethics, which delineate our standards for our officers, directors and employees.

Our internet address is www.nrfc.com. The information on our website is not incorporated by reference in this Annual Report on Form 10-K. We make available, free of charge through a link on our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to such reports, if any, as filed or furnished with the SEC, as soon as reasonably practicable after such filing or furnishing. We also post corporate presentations on our website from time-to-time. Our website further contains our code of business conduct and ethics, code of ethics for senior financial officers, corporate governance guidelines and the charters of our audit committee, nominating and corporate governance committee and compensation committee of our board of directors. Within the time period required by the rules of the SEC and the NYSE we will post on our

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website any amendment to our code of business conduct and ethics and our code of ethics for senior financial officers as defined in the code.

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Item 1A. Risk Factors

The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us, that we currently deem immaterial or that generally apply to all businesses also may adversely impact our business. If any of the following risks occur, our business, financial condition, operating results, cash flow and liquidity could be materially adversely affected.

Risks Related to Our Business

The CRE industry has been and may continue to be adversely affected by economic conditions in the U.S. and global financial markets generally.

Our business and operations are currently dependent on the CRE industry generally, which in turn is dependent upon broad economic conditions in the United States, Europe, China and elsewhere. Recently, concerns over global economic conditions, energy and commodity prices, geopolitical issues, deflation, Federal Reserve short term rate decisions, foreign exchange rates, the availability and cost of credit, the sovereign debt crisis, the Chinese economy, the United States mortgage market and a potentially weakening real estate market in the United States have contributed to increased economic uncertainty and diminished expectations for the global economy. These factors, combined with volatile prices of oil and declining business and consumer confidence, may precipitate an economic slowdown, as well as cause extreme volatility in security prices. Global economic and political headwinds, along with global market instability and the risk of maturing commercial real estate debt that may have difficulties being refinanced, may continue to cause periodic volatility in the CRE market for some time. Adverse conditions in the CRE industry could harm our business and financial condition by, among other factors, the tightening of the credit markets, decline in the value of our real estate and continuing credit and liquidity concerns and otherwise negatively impacting our operations.

Challenging economic and financial market conditions could significantly reduce the value of our investments.

Challenging economic and financial market conditions may cause us to experience an increase in the number of CRE investments that result in losses, including tenant/operator defaults, a decrease in revenues and the value of our properties and delinquencies, all of which could adversely affect our results of operations. We may incur substantial losses and need to establish significant provision for losses or impairment.

Volatility, disruption or uncertainty in the financial markets may impair our ability to raise capital, obtain new financing or refinance existing obligations and fund real estate activities.

The global financial markets have experienced pervasive and fundamental disruptions. Market disruption, volatility or uncertainty could materially adversely impact our ability to raise capital, obtain new financing or refinance our existing obligations as they mature and fund real estate activities. In addition, market disruption, volatility or uncertainty may also expose us to increased litigation and shareholder activism. These conditions could materially disrupt our business, operations and ability to make distributions to stockholders. Market volatility could also lead to significant uncertainty in the valuation of our investments, which may result in a substantial decrease in the value of our properties. As a result, we may not be able to recover the carrying amount of such investments and the associated goodwill, if any, which may require us to recognize impairment charges in earnings.

Liquidity in the capital markets is essential to our businesses.

Liquidity is essential to our businesses. Our business may be adversely affected by disruptions in the debt and equity capital markets and institutional lending market, including a lack of access to capital or prohibitively high costs of obtaining or replacing capital, both domestically and abroad. A primary source of liquidity for us has been the equity and debt capital markets, including issuing common equity, perpetual preferred equity, trust preferred securities and exchangeable senior notes. We depend on external financing to fund the growth of our business mainly because one of the requirements of the Internal Revenue Code for a REIT is that it distributes 90% of its taxable income to its shareholders, including taxable income where we do not receive corresponding cash. Our access to equity or debt financing depends on the willingness of third parties to make equity investments in us and provide us with debt. It also depends on conditions in the capital markets generally. Companies in the real estate industry, including us, are currently experiencing, and have at times historically experienced, limited availability of capital and new capital sources may not be available on acceptable terms. A material reduction in CMBS issuances could also significantly harm liquidity in the commercial real estate market generally and our company specifically. Regulatory changes may also reduce liquidity afforded by the CMBS market, which could also harm our business. Our ability to raise capital generally could be impaired if the capital markets have a negative perception of our long-term or short-term financial prospects or the prospects for REITs and the commercial real estate market generally. Our stock performance has recently trailed that of the corresponding index, which could exacerbate any such negative perception. We cannot assure stockholders that sufficient funding or capital will be available to us in the future on terms that are acceptable to us. If we cannot obtain sufficient funding on acceptable terms, we will not be able to grow our business and may have difficulty maintaining liquidity and making distributions to stockholders, which would have a negative impact on the market price of our common stock. For information about our available sources of funds, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” in Item 7 of Part II

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of this Annual Report on Form 10-K and the notes to our consolidated financial statements in Item 8 of Part II of this Annual Report on Form 10-K.

We use significant leverage in connection with our investments, which increases the risk of loss associated with our investments and restricts our ability to engage in certain activities.

As of December 31, 2015, we had $11 billion of borrowings outstanding. We may also incur additional borrowings in the future to satisfy our capital and liquidity needs. Although the use of leverage may enhance returns and increase the number of investments that we can make, it may increase our risk of loss, impact our liquidity and restrict our ability to engage in certain activities. Our substantial borrowings, among other things, may:

• require us to dedicate a large portion of our cash flow to pay principal and interest on our borrowings, which will reduce the availability of cash flow to fund working capital, capital expenditures and other business activities;

• require us to maintain minimum unrestricted cash;

• increase our vulnerability to general adverse economic and industry conditions;

• require us to post additional reserves and other additional collateral to support our financing arrangements, which could reduce our liquidity and limit our ability to leverage our assets;

• subject us to maintaining various debt, operating income, net worth, cash flow and other covenants and financial ratios;

• limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

• restrict our operating policies and ability to make strategic acquisitions, dispositions or exploit business opportunities;

• require us to maintain a borrowing base of assets;

• place us at a competitive disadvantage compared to our competitors that have fewer borrowings;

• put us in a position that necessitates raising equity capital at a time that is unfavorable to us and dilutive to our stockholders;

• limit our ability to borrow additional funds (even when necessary to maintain adequate liquidity), dispose of assets or make distributions to stockholders; and

• increase our cost of capital.

If we fail to comply with the covenants in the instruments governing our borrowings or do not generate sufficient cash flow to service our borrowings, our liquidity may be materially and adversely affected. If we default or fail to meet certain coverage tests, we may be required to post additional collateral or we may become subject to cash sweeps or other cash management arrangements. To the extent we seek to take certain actions prohibited by our borrowings, we may be required to repay outstanding obligations, together with penalties, prior to the stated maturity. In addition, we may not satisfy certain conditions that would permit us to exercise extension options under the instruments governing our borrowings. Further, default under certain of our borrowings may subject our assets to foreclosure and/or require us to seek protection under bankruptcy laws.

We are exploring and evaluating potential avenues to monetize our assets and there can be no assurance that we will be successful in identifying, or completing, any such transaction, that any such transaction will yield additional value for us or that the process will not have an adverse impact on our business.

We are exploring potential avenues to monetize certain of our assets. Substantially all of our assets are illiquid and require significant effort to monetize. In addition, the sale of certain of our assets may require the consent of third parties outside of our control, such as consents of lenders under our borrowings or general partners in connection with the sale of certain of our PE Investments. There can be no assurance that the exploration of opportunities to monetize assets within our portfolio will result in the identification or consummation of any transaction on favorable terms or at all. In addition, we expect to incur substantial expenses associated with identifying and evaluating potential transactions. The process of exploring such transactions may be time consuming and disruptive to our business operations and, if we are unable to effectively manage the process, our business, financial condition and results of operations could be materially adversely affected. We cannot assure you that any potential transaction, if identified, evaluated and consummated, will provide greater value to our stockholders than that reflected in the current price of our common stock. If we are successful in monetizing certain of our assets through a sale or otherwise, we may be unable to reinvest the proceeds on favorable terms or at all and our return on equity could be substantially lower than it has been in the past. Further, deleveraging or reducing the size of our balance sheet may reduce our earnings but will not reduce our asset management fee payable to NSAM. Any potential transaction would be dependent upon a number of factors that may be beyond our control, including, among other factors, market conditions, industry trends, the interest of third-parties in our business and the availability of financing to potential buyers on reasonable terms.

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Because real estate investments are relatively illiquid, we may not be able to vary our portfolio in response to changes in economic and other conditions, which may result in losses to us.

Substantially all of our investments are illiquid. A variety of factors could make it difficult for us to dispose of any of our assets on acceptable terms even if a disposition is in the best interests of stockholders. We cannot predict whether we will be able to sell any property or portfolio for the price or on the terms set by us or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property or portfolio on acceptable terms. Certain of our properties, such as our healthcare properties, are special purpose properties that cannot be readily converted to general residential, retail or office use. Additionally, transfers of operations of healthcare properties are subject to regulatory approvals not required for transfers of other types of commercial operations and real estate. Certain properties may also be subject to transfer restrictions that materially restrict us from selling that property for a period of time or impose other restrictions, such as a limitation on the amount of financing that can be placed or repaid on that property. We may be required to expend cash to correct defects or to make improvements before a property can be sold, and we cannot assure that we will have cash available to correct those defects or to make those improvements. The Internal Revenue Code also places limits on our ability to sell certain properties held for fewer than two years.

We may also determine to give our tenants a right of first refusal or similar options. Similarly, borrowers under certain of our CRE debt investments may give their tenants or other persons similar rights with respect to the collateral. In addition, we own many of our investments through joint ventures and our joint venture partners may have rights that influence dispositions. Such rights could negatively affect the residual value or marketability of the property and impede our ability to sell the property or collateral.

As a result, our ability to sell investments in response to changes in economic and other conditions could be limited and such circumstances could have a material adverse effect on our liquidity. To the extent we are unable to sell any property for its book value or at all, we may be required to take a non-cash impairment charge or loss on the sale, either of which would reduce our earnings. Limitations on our ability to respond to adverse changes in the performance of our properties may have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to stockholders.

Risks Related to our Manager

NSAM’s announcement that it is exploring possible strategic alternatives to maximize NSAM stockholder value, or the NSAM Process, and our announcement that our board of directors has formed a special committee to explore a potential recombination transaction with NSAM, among other things, could have an adverse impact on our business.

On January 11, 2016, the board of directors of NSAM announced that it has engaged Goldman, Sachs & Co. as its financial advisor to assist it in the NSAM Process. The NSAM Process may be time consuming and disruptive to NSAM’s business operations, including its service to us as our manager.

As a result of the NSAM Process, NSAM could undergo a change of control involving a third party, which could result in a change to the management of our manager and its affiliates as well as a change to the board of directors of NSAM.  Consequently, we could be managed by an entity and personnel that do not have the experience and track record of NSAM and its personnel and suitable alternatives may not be available.  New management and personnel could change the manner in which our manager provides services to us and may not be as effective.  Any such change to NSAM could be disruptive to our business and operations and could have a material adverse effect on our performance.

Further, certain corporate strategic alternatives that may be available to NSAM, including a potential recombination transaction between NSAM and us, may give rise to conflicts of interest among NSAM and us, as we are dependent upon NSAM for the management of our day-to-day affairs.

On February 25, 2016, we announced that our board of directors formed a special committee to explore a potential recombination transaction with NSAM and that the special committee retained UBS Investment Bank as its financial advisor in connection therewith.

The special committee’s review and consideration of a potential recombination transaction with NSAM is ongoing and we cannot assure you that, even if the special committee determines that it is in our best interests, we will be able to undertake a recombination transaction with NSAM. Further, a change of control or merger transaction could trigger certain acceleration, vesting and payment obligations with respect to our borrowings, derivative instruments and other contractual obligations, and such obligations may be substantial. We also cannot assure you that a potential recombination with NSAM, if consummated, will provide greater value to our stockholders than our current strategy.

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Our ability to achieve our investment objectives and to pay distributions depends in substantial part upon the performance of our manager.

We rely upon NSAM to manage our day-to-day operations and our investments. Our ability to achieve our investment objectives, other than our CRE debt origination business, is dependent upon the performance of NSAM in the acquisition or disposition of investments, the determination of financing arrangements and the management of our assets and operation of our day-to-day activities under the supervision of, and subject to the policies and guidelines established by, our board of directors. If our manager performs poorly and as a result is unable to manage our investments successfully, we may be unable to achieve our investment objectives or to pay distributions to stockholders at presently contemplated levels, if at all.

Any adverse changes in NSAM’s financial health, the public perception of NSAM or our relationship with NSAM could hinder our operating performance and adversely affect our financial condition and results of operations.

Because NSAM is publicly-traded, any negative reaction by the stock market reflected in its stock price or deterioration in the public perception of NSAM could result in an adverse effect on its ability to manage our portfolio, including acquiring or disposing of assets and obtaining financing from third parties on favorable terms or at all. Recently, NSAM common stock has been highly volatile and NSAM is subject to an activist campaign, all of which could disrupt NSAM’s and potentially harm our business. In addition, NSAM depends upon the management and other fees and reimbursement of costs that it receives from us and NSAM’s other managed companies, including NorthStar Income, NorthStar Healthcare Income, Inc., or NorthStar Healthcare and NorthStar Real Estate Income II, Inc., or NorthStar Income II, collectively referred to as the NSAM Sponsored Companies, in connection with the acquisition, management and sale of assets to conduct its operations. Any adverse changes in the financial condition of NSAM, or our relationship with NSAM, could hinder NSAM’s ability to successfully support our business, which could have a material adverse effect on our financial condition and results of operations.

Failure of NSAM to effectively perform its obligations under the various agreements entered into with them, including the long-term management agreement, could have an adverse effect on our business and performance.

We engaged NSAM to provide asset management and other services to us pursuant to a long-term management agreement. Our ability to achieve our investment and business objectives and to make distributions to stockholders will depend in substantial part upon the performance of NSAM and its ability to provide us with asset management and other services. We are also dependent on other third-party service providers to whom NSAM may delegate various responsibilities. For example, NSAM has delegated certain asset management functions related to our healthcare portfolio (other than the assets held in a joint venture with affiliates of Formation Capital, LLC, or the Formation Portfolio), subject to NSAM’s responsibility and oversight, to American Healthcare Investors, LLC, or AHI. We cannot control whether and to whom NSAM delegates certain responsibilities and we may not have any direct recourse against third-party service providers. If for any reason NSAM or any other service provider is unable to perform such services at the level we anticipate, our ability to replace NSAM or any other service providers is extremely limited under the terms of our management agreement. Even if we were able to terminate our management agreement with NSAM, alternate service providers may not be readily available on acceptable terms or at all, which could adversely affect our performance and materially harm our ability to execute our business plan.

Our ability to terminate the management agreement with NSAM is limited.

The management agreement with NSAM is only terminable by us for cause. We cannot terminate the management agreement for any other reason, including if NSAM performs poorly or is unable to manage us successfully. The term “cause” is limited to specific circumstances laid out in the management agreement. Unsatisfactory financial performance does not constitute “cause” under the management agreement. In addition, we are contractually committed to NSAM’s management for an initial term of 20 years beginning June 30, 2014, with automatic renewal terms thereafter. These provisions increase our risk that NSAM may not perform well and our business could suffer. If NSAM’s performance as our manager does not meet our or our stockholders’ expectations, and we are unable to terminate the management agreement, the market price of our common stock could suffer.

NSAM’s platform may not be as scalable as we anticipate and we could face difficulties managing our business without significant new investment in personnel and infrastructure by NSAM.

Our business has grown substantially over the course of the past several years, both in volume and in scope as we have invested across diverse areas, including healthcare, manufactured housing communities, hotels, private equity investments, internationally and more. This expansion has placed significant additional demands on management and other personnel, as well as our support infrastructure. While we believe NSAM’s platform for operating our business is highly scalable and can support our recent significant growth without substantial new investment in personnel, expertise and infrastructure on a relative basis, we may be wrong in that assessment. It is possible that if the business of the other companies managed by NSAM, including the NSAM Sponsored Companies, continues to grow, NSAM will need to make significant investments in personnel, infrastructure and expertise to support that growth. In addition, service providers to whom NSAM delegates certain asset management functions may also be strained by our growth, the growth of the NSAM Sponsored Companies or other businesses that these service providers support. NSAM or its service providers may be unable to make significant investments on a timely basis or at reasonable costs

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and their failure in this regard could disrupt our business and operations. Further, during periods of economic retraction, NSAM or its service providers may be incented to reduce their personnel and costs, which could have an adverse effect on us.

Substantially all of the fees payable to NSAM are payable regardless of the performance or size of our portfolio and may fail to appropriately incentivize NSAM when managing our portfolio.

We pay NSAM an annual base management fee regardless of the performance or size of our portfolio. Consequently, we may be required to pay NSAM significant base management fees despite certain dispositions of assets, repurchases of our common stock or experiencing a net loss or a decline in the value of our portfolio. This in turn could hurt both our ability to make distributions to our stockholders and the market price of our common stock.

NSAM’s entitlement to compensation regardless of our performance might reduce its incentive to devote its time and effort to seeking assets that provide attractive risk-adjusted returns for our portfolio, particularly if other management agreements to which NSAM is a party have a performance-based fee structure. In addition, NSAM has the ability to earn incentive fees each quarter based on our cash available for distribution, or CAD, which may create an incentive for NSAM to invest in assets with higher yield potential, which are generally riskier or more speculative, or sell an asset prematurely for a gain and pay down borrowings, in an effort to increase our short-term net income and thereby increase the incentive fees to which it is entitled. Furthermore, the compensation payable to NSAM will increase as a result of future issuances of our equity securities, even if the issuances are dilutive to existing stockholders. If our interests and those of NSAM are not aligned, the execution of our business plan and our results of operations could be adversely affected, which could materially and adversely affect our ability to make distributions to our stockholders and the market price of our common stock.

The fees we pay to NSAM in connection with the origination, acquisition and management of our investments pursuant to the management agreement were not determined on an arm’s length basis; therefore, we do not have the benefit of arm’s length negotiations of the type normally conducted between unrelated parties.

The fees we pay to NSAM for services it provides for us pursuant to the management agreement were negotiated when we still were under common ownership and thus not determined on an arm’s length basis. As a result, the fees were determined without the benefit of arm’s length negotiations of the type normally conducted between unrelated parties and may be in excess of amounts that we would otherwise pay to third parties for such services; however, the final terms of the management agreement were approved by our board of directors, including a majority of the independent members thereof.

In addition to the management fees we pay to our manager, we reimburse our manager for costs and expenses incurred on our behalf, including indirect personnel and employment costs of our manager and its affiliates and these costs and expenses may be substantial.

We pay our manager substantial fees for the services it provides to us and we also have an obligation to reimburse our manager for costs and expenses it incurs and pays on our behalf.  Subject to certain limitations and exceptions, we reimburse our manager for both direct expenses as well as indirect costs, including personnel and employment costs of our manager. The costs and expenses our manager incurs on our behalf, including the compensatory costs incurred by our manager and its affiliates, can be substantial.  For the year endedDecember 31, 2015, our manager allocated $10 million in costs and expenses to us.  In addition, we are required to issue equity awards to NSAM employees at NSAM’s request under the terms of our management agreement.In connection with this obligation, we recorded $15 million of equity based compensation expense for the year ended December 31, 2015. Our manager could allocate costs and expenses to us in excess of what we anticipate and such costs and expenses could have an adverse effect on our financial performance and ability to make cash distributions to our stockholders.

If our ability to issue equity awards to employees is limited, it will require us or NSAM to award greater cash compensation in relation to previous levels of cash compensation, which will reduce our liquidity and could impact our and NSAM’s ability to retain key employees.

We have historically paid a substantial portion of our overall compensation in the form of equity awards. We or NSAM may at times have limited availability under our incentive plans to issue equity awards to our and NSAM’s employees. We may seek stockholder approval for additional equity awards and there is no assurance stockholders would grant such approval. To the extent we do not have sufficient equity awards available, we or NSAM may have to compensate our or its employees in a greater proportion of cash relative to historical periods. Because CAD excludes equity-based compensation expense, payment of higher levels of cash relative to equity awards will have a negative impact on CAD and reduce our liquidity position. Additionally, the lack of availability of equity awards could impact our and NSAM’s ability to retain employees as equity awards historically have been a significant component of our long-term incentives.

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There are conflicts of interest in our relationship with NSAM that could result in less attractive investment opportunities and higher fees.

We are subject to conflicts of interest arising out of our relationship with NSAM, its affiliates, managed entities and strategic ventures. In particular, we expect to compete for investment opportunities directly with other companies and/or accounts that NSAM or its strategic or joint venture partners manage, including with respect to origination opportunities that we source and make available to NSAM pursuant to the management agreement. Certain of NSAM’s managed companies, along with companies, funds and vehicles that are subject to a strategic relationship between NSAM and its strategic or joint venture partners (which we refer to collectively as strategic vehicles) have investment mandates and objectives that target the same investments as us. In addition, NSAM may have additional managed companies or strategic vehicles that compete directly with us for investment opportunities in the future. We have adopted an investment allocation policy with NSAM that is intended to ensure that investments are allocated fairly and appropriately among us and the other NSAM managed companies or strategic vehicles over time, but there is no assurance that NSAM will be successful in eliminating the conflicts arising from the allocation of investment opportunities. When determining the entity for which an investment opportunity would be the most suitable, the factors that NSAM may consider include, among other factors, the following:

• investment objectives, strategy and criteria;

• cash requirements and amount of funds available;

• effect of the investment on the diversification of the portfolio, including by geography, size of investment, type of investment and risk of investment;

• leverage policy and the availability of financing for the investment by each entity;

• anticipated cash flow of the asset to be acquired;

• income tax effects of the purchase;

• the size of the investment;

• cost of capital;

• risk return profiles;

• targeted distribution rates;

• anticipated future pipeline of suitable investments;

• the expected holding period of the investment and the remaining term of the NSAM managed company, if applicable;

• affiliate and/or related party considerations; and

• whether a strategic vehicle has received a special allocation (as defined in the investment allocation policy).

If, after consideration of the relevant factors, NSAM determines that an investment is equally suitable for us and one of its managed companies or strategic vehicles, the investment will be allocated among each of the applicable entities, including us, on a rotating basis. If, after an investment has been allocated to us or another entity, a subsequent event or development, such as delays in structuring or closing on the investment, makes it, in the opinion of NSAM, more appropriate for a different entity to fund the investment, NSAM may determine to place the investment with the more appropriate entity while still giving credit to the original allocation. In certain situations, NSAM may determine to allow more than one investment vehicle, including us, to co-invest in a particular investment.

There is no assurance this policy will remain in place during the entire period we are seeking investment opportunities. In addition, NSAM may sponsor additional managed companies or strategic vehicles in the future and, in connection with the creation of such managed companies or strategic vehicles, may revise these allocation procedures. The result of a revision to the allocation procedures may, among other things, be to increase the number of parties who have the right to participate in investment opportunities sourced by NSAM or us, thereby reducing the number of investment opportunities available to us.

In addition, under this policy, NSAM investment professionals may consider the investment objectives and anticipated pipeline of future investments of its managed companies or strategic vehicles. The decision of how any potential investment should be allocated among us and one of NSAM’s managed companies or strategic vehicles for which such investment may be suitable may, in many cases, be a matter of subjective judgment which will be made by NSAM. Pursuant to the investment allocation policy, NSAM may choose to allocate favorable investments to its other managed companies instead of to us. Our investment allocation policy with NSAM could produce unfavorable results for us that could harm our business.

NSAM also has acquired and may in the future acquire additional interests in third parties, such as management firms which manage certain of our properties, which may cause its interests to differ from ours. NSAM may also encourage our use of third

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parties, including those in which NSAM owns an interest, for which we pay a fee. In addition, we may enter into principal transactions with NSAM or cross-transactions with NSAM’s other managed companies or strategic vehicles. For certain cross-transactions, NSAM may receive a fee from the other managed company. There is no guaranty that any such transactions will be favorable to us. Because our interests and NSAM’s interests may not be aligned, we may face conflicts of interest that result in action or inaction that is detrimental to us.

Further, there are conflicts of interest that arise when NSAM makes expense allocation determinations, as well as in connection with any fees payable between us and NSAM.  These fees and allocation determinations are sometimes based on estimates or judgments, which may not be correct and could result in NSAM’s failure to allocate and pay certain fees and costs to us appropriately.

Our executive officers and our manager’s professionals who perform services for us face competing demands relating to their time and conflicts of interests relating to performing services on our behalf, which may cause our operations and stockholders’ investment to suffer.

We rely on NSAM’s professionals to perform services related to the operation of our business, including Messrs. Hamamoto, Tylis, Gilbert, Langer and Lieberman and Ms. Hess. Certain of these individuals are officers or directors of both NSAM and us, as well as certain other managed companies. As a result of their interests in NSAM, other managed companies and the fact that they engage in other business activities on behalf of others, NSAM’s professionals, as well as certain of our executive officers, face conflicts of interest in allocating their time among us, NSAM and other managed companies, and other business activities in which they are involved. In addition, certain management personnel performing services for NSAM, including our executive officers, own equity interests in NSAM and NSAM may grant additional equity interests in NSAM to such persons in connection with their continued services. These conflicts of interest, as well as the obligations of these individuals to other entities and investors, could result in action or inaction that is detrimental to our business, which could harm the implementation of our business strategy, our investment opportunities and the returns on our investments. If we do not successfully implement our business strategy, we may be unable to generate the cash needed to make distributions to stockholders and to maintain or increase the value of our assets.

Further, at times when there are turbulent conditions in the real estate markets or distress in the credit markets or other times when we will need focused support and assistance from NSAM, NSAM’s other managed companies may likewise require greater focus and attention, placing NSAM’s resources in high demand. In such situations, we may not receive the level of support and assistance that we may receive if we were internally managed or if NSAM did not act as a manager for other entities.

Our ability to operate our business successfully would be harmed if key personnel terminate their employment with us and/or NSAM.

Our future success depends, to a significant extent, upon the continued services of our key personnel, such as David T. Hamamoto, Albert Tylis, Daniel R. Gilbert, Jonathan Langer, Debra A. Hess and Ronald J. Lieberman, each of whom are co-employees of NSAM and us. We do not have employment agreements with any of our executive officers. If the management agreement with NSAM were to be terminated, we may lose the services of our executive officers and other NSAM investment professionals acting on our behalf. Furthermore,if any of our executive officers ceased to be employed by NSAM, such individual may also no longer serve as one of our executive officers. Any change in NSAM’s relationship with any of our executive officers may be disruptive to our business and hinder our ability to implement our business strategy. For instance, the extent and nature of the experience of our executive officers and the nature of the relationships they have developed with real estate professionals and financial institutions are critical to the success of our business. We cannot assure stockholders of their continued employment with us or NSAM. The loss of services of certain of our executive officers could harm our business and our prospects.

Both our board of directors and NSAM’s board of directors have adopted, and will likely in the future adopt, certain incentive plans to create incentives that will allow us and NSAM to retain and attract the services of key employees. These incentive plans may be tied to the performance of our common stock or NSAM’s common stock and a decline in stock price, like we have recently experienced, may result in us or NSAM being unable to motivate and retain our management and these other employees. Our inability to motivate and retain these individuals could also harm our business and our prospects. Additionally, competition for experienced real estate professionals could require NSAM or us to pay higher wages and provide additional benefits to attract qualified employees, which could result in higher compensation expenses to us.

We may not realize the anticipated benefits of our manager’s strategic partnerships and joint ventures.

NSAM may enter into strategic partnerships and joint ventures. For example, in January 2014, NSAM entered into a partnership with James F. Flaherty III, former chairman and chief executive officer of HCP, Inc. (NYSE: HCP), focused on building a preeminent healthcare real estate business. In addition, NSAM entered into joint ventures with AHI, who manages all of our healthcare assets (other than the Formation Portfolio), and Island Hospitality Group Inc., or Island, a hospitality focused real estate management firm that currently manages 160 hotel properties, representing $4.1 billion, of which 110 hotel properties are owned by us.

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NSAM may not be able to realize the anticipated benefits of these strategic partnerships and joint ventures. These strategic partnerships and/or joint ventures may also subject us to additional risks and uncertainties, as we may be dependent upon, and subject to, liability, losses or reputational damage relating to systems, control and personnel that are not under NSAM’s control. In addition, where NSAM does not have a controlling interest, such as in AHI and Island, it may not be able to take actions which are in our best interests due to a lack of full control. Furthermore, to the extent that NSAM’s partners provide services to us, such as with AHI, Island and Mr. Flaherty, certain conflicts of interests will exist. Moreover, disagreements or disputes between NSAM and its partners could result in litigation, which could potentially distract NSAM from our business.

Certain of our strategic partners and joint ventures may have overlapping interests. For example, Mr. Flaherty also acquired an interest in AHI. Any such overlapping interests may exacerbate potential conflicts or disputes.

NSAM manages our portfolio pursuant to very broad investment guidelines and our board of directors does not approve each investment and financing decision made by NSAM unless required by our investment guidelines.

NSAM is authorized to follow very broad investment guidelines established by our board of directors. Our board of directors periodically reviews our investment guidelines and our portfolio of assets but does not, and is not required to, review all of our proposed investments, except in limited circumstances as set forth in our investment guidelines. Our board of directors may also make modifications to our investment guidelines from time to time as it deems appropriate. In addition, in conducting periodic reviews or modifying our investment guidelines, our board of directors may rely primarily on information provided to them by NSAM. Furthermore, transactions entered into by NSAM on our behalf may be costly, difficult or impossible to unwind by the time they are reviewed by our board of directors. NSAM has flexibility within the broad parameters of our investment guidelines in determining the types and amounts of assets in which to invest on our behalf, including making investments that may result in returns that are substantially below expectations or result in losses, which could materially and adversely affect our business and results of operations, or may otherwise not be in the best interests of our stockholders.

NSAM’s liability is limited under the management agreement and we have agreed to indemnify NSAM against all liabilities and obligations attributable to periods prior to the NSAM Spin-off.

In connection with the NSAM Spin-off, we entered into the management agreement and various other agreements with NSAM. These agreements govern our relationship with NSAM and also provide that all liabilities and obligations attributable to periods prior to the NSAM Spin-off remain with us. NSAM maintains a fiduciary relationship with us. Under the terms of the management agreement, and subject to applicable law, NSAM, its directors, officers, employees, partners, managers, members, controlling persons and any other person or entity affiliated with NSAM are not liable to us or our subsidiaries for acts taken or omitted to be taken in accordance with and pursuant to the management agreement, except those resulting from acts of willful misfeasance or bad faith in the performance of NSAM’s duties under the management agreement. In addition, subject to applicable law, we agreed to indemnify NSAM and each of its directors, officers, employees, partners, managers, members, controlling persons and any other person or entity affiliated with NSAM from and against any claims or liabilities, including reasonable legal fees and other expenses reasonably incurred, arising out of or in connection with NSAM’s performance of its duties or obligations under the management agreement or otherwise as our manager, except where attributable to acts of willful misfeasance or bad faith in the performance of NSAM’s duties under the management agreement. If we are required to indemnify NSAM, the costs could be substantial.

NSAM is subject to extensive regulation, including as an investment adviser in the United States, as a fund services business in the Bailiwick of Jersey and under the Business Investment Act in Bermuda, which could adversely affect its ability to manage our business.

Certain of NSAM’s affiliates, including our manager, are subject to regulation as investment advisers and/or fund managers by various regulatory authorities that are charged with protecting the interests of NSAM’s managed companies, including us. Instances of criminal activity and fraud by participants in the investment management industry and disclosures of trading and other abuses by participants in the financial services industry have led the U.S. government and regulators in foreign jurisdictions to consider increasing the rules and regulations governing, and oversight of, the financial system. This activity is expected to result in continued changes to the laws and regulations governing the investment management industry and more aggressive enforcement of the existing laws and regulations. NSAM could be subject to civil liability, criminal liability, or sanction, including revocation of its registration as an investment adviser in the United States or its registration in the Bailiwick of Jersey or Bermuda, revocation of the licenses of its employees, censures, fines or temporary suspension or permanent bar from conducting business if it is found to have violated any of these laws or regulations. Any such liability or sanction could adversely affect its ability to manage our business.

NSAM must continually address conflicts between its interests and those of its managed companies, including us. In addition, the SEC, the Jersey Financial Services Commission, the Bermuda Monetary Authority and other regulators have increased their scrutiny of potential conflicts of interest. However, appropriately dealing with conflicts of interest is complex and difficult and if NSAM fails, or appears to fail, to deal appropriately with conflicts of interest, it could face litigation or regulatory proceedings or penalties, any of which could adversely affect its ability to manage our business.

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Risks Related to Our Investments

General

Our CRE equity, debt and mortgage loans underlying our CRE securities investments are subject to the risks typically associated with CRE.

Our CRE equity, debt and securities investments are subject to the risks typically associated with real estate, including:

• local, state, national or international economic conditions;

• real estate conditions, such as an oversupply of or a reduction in demand for real estate space in an area;

• lack of liquidity inherent in the nature of the asset;

• tenant/operator mix and the success of the tenant/operator business;

• the ability and willingness of tenants/operators/managers to maintain the financial strength and liquidity to satisfy their obligations to us and to third parties;

• reliance on tenants/operators/managers to operate their business in a sufficient manner and in compliance with their contractual arrangements with us;

• ability and cost to replace a tenant/operator/manager upon default;

• property management decisions;

• property location and conditions;

• property operating costs, including insurance premiums, real estate taxes and maintenance costs;

• the perceptions of the quality, convenience, attractiveness and safety of the properties;

• branding, marketing and operational strategies;

• competition from comparable properties;

• the occupancy rate of, and the rental rates charged at, the properties;

• the ability to collect on a timely basis all rent;

• the effects of any bankruptcies or insolvencies;

• the expense of leasing, renovation or construction;

• changes in interest rates and in the availability, cost and terms of mortgage financing;

• unknown liens being placed on the properties;

• bad acts of third parties;

• the ability to refinance mortgage notes payable related to the real estate on favorable terms, if at all;

• changes in governmental rules, regulations and fiscal policies;

• tax implications;

• changes in laws, including laws that increase operating expenses or limit rents that may be charged;

• the impact of present or future environmental legislation and compliance with environmental laws, including costs of remediation and liabilities associated with environmental conditions affecting properties;

• cost of compliance with the ADA;

• adverse changes in governmental rules and fiscal policies;

• social unrest and civil disturbances;

• acts of nature, including earthquakes, hurricanes and other natural disasters;

• terrorism;

• the potential for uninsured or underinsured property losses;

• adverse changes in state and local laws, including zoning laws; and

• other factors which are beyond our control.

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The value of each property is affected significantly by its ability to generate cash flow and net income, which in turn depends on the amount of rental or other income that can be generated net of expenses required to be incurred with respect to the property. Many expenses associated with properties (such as operating expenses and capital expenses) cannot be reduced when there is a reduction in income from the properties. These factors may have a material adverse effect on the value and the return that we can realize from our assets, as well as ability of our borrowers to pay their loans and the ability of the borrowers on the underlying loans securing our securities to pay their loans.

A prolonged economic slowdown, a lengthy or severe recession or declining real estate values could harm our investments.

Many of our investments may be susceptible to economic slowdowns or recessions, which could lead to financial losses and a decrease in revenues, earnings and assets. An economic slowdown or recession, in addition to other non-economic factors such as an excess supply of properties, could have a material negative impact on the values of our investments. Declining real estate values will reduce the value of our properties, as well as our ability to refinance our properties and use the value of our existing properties to support the purchase or investment in additional properties. Slower than expected economic growth pressured by a strained labor market, along with overall financial uncertainty, could result in lower occupancy rates and lower lease rates across many property types and may create obstacles for us to achieve our business plans. We may also be less able to pay principal and interest on our borrowings, which could cause us to lose title to properties securing our borrowings. Our CRE debt investments would be similarly impacted. Our level of new loan originations would also likely decline. In addition, borrowers may be less likely to achieve their business plans and less able to pay principal and interest on our CRE debt investments. Further, declining real estate values significantly increase the likelihood that we will incur losses on our debt investments in the event of a default because the value of our collateral may be insufficient to cover our cost. Any sustained period of increased payment delinquencies, taking title to collateral or losses could adversely affect both our CRE investments as well as our ability to originate, sell and securitize loans, which would significantly harm our revenues, results of operations, financial condition, business prospects and our ability to make distributions to stockholders.

We have in the past and expect to continue to make opportunistic investments that may involve asset classes and structures with which we have less familiarity, thereby increasing our risk of loss.

We have in the past and may in the future also determine to invest in asset classes with which we have limited or no prior experience. When investing in asset classes with which we have limited or no prior experience, we may not be successful in our diligence and underwriting efforts. We may also be unsuccessful in preserving value, especially if conditions deteriorate, and we may expose ourselves to unknown substantial risks. Furthermore, these assets could require additional management time and attention relative to assets with which we are more familiar. All of these factors increase our risk of loss.

We are subject to significant competition and we may not be able to compete successfully for investments.

We are subject to significant competition for attractive investment opportunities from other real estate investors, some of which have greater financial resources than us, including publicly-traded REITs, non-traded REITs, insurance companies, commercial and investment banking firms, private institutional funds, hedge funds, private equity funds and other investors. We have observed increased competition in 2014 and 2015 during periods when we grew our balance sheet substantially. We may not be able to compete successfully for investments. In addition, the number of entities and the amount of funds competing for suitable investments may increase. If we pay higher prices for investments or originate loans on less advantageous terms to us, our returns may be lower and the value of our assets may not increase or may decrease significantly below the amount we paid for such assets. As we reinvest capital, we may not realize risk adjusted returns that are as attractive as those we have realized in the past. If such events occur, we may experience lower returns on our investments.

We have no established investment criteria limiting the geographic concentration or investment type of our investments. If our investments are concentrated in a particular region or asset class that experiences adverse economic conditions, our investments may lose value and we may experience losses.

Our properties may be concentrated in a geographic location or in a particular asset class. These current and future investments carry the risks associated with significant geographical concentration. We have not established and do not plan to establish any investment criteria to limit our exposure to these risks for future investments. As a result, our investments may be overly concentrated in certain geographic areas or asset classes and we may experience losses as a result. A worsening of economic conditions, a natural disaster or civil disruptions in a geographic area in which our investments may be concentrated, or economic upheaval with respect to a particular asset class, could have an adverse effect on our business, including impairing the value of our properties, which in turn may limit our ability to make required payments under our financings or refinance such borrowings.

Our joint venture partners could take actions that decrease the value of an investment to us and lower our overall return.

We currently have, and may in the future enter into, joint ventures with third parties to make investments. We may also make investments in partnerships or other co-ownership arrangements or participations. For example, we currently have joint ventures with Chatham Lodging Trust with respect to hotel portfolios, RHP Properties with respect to all of our manufactured housing communities, Formation Capital and NorthStar Healthcare, with respect to the Formation Portfolio and NorthStar Healthcare with

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respect to the Griffin-American Portfolio and Senior Housing Portfolio. Such investments may involve risks not otherwise present with other methods of investment, including, for example, the following risks:

• our joint venture partner in an investment could become insolvent or bankrupt;

• fraud or other misconduct by our joint venture partners;

• we may share decision-making authority with our joint venture partner regarding certain major decisions affecting the ownership of the joint venture and the joint venture property, such as the sale of the property or the making of additional capital contributions for the benefit of the property, which may prevent us from taking actions that are opposed by our joint venture partner;

• such joint venture partner may at any time have economic or business interests or goals that are or that become in conflict with our business interests or goals, including for example the operation of the properties;

• such joint venture partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives;

• our joint venture partners may be structured differently than us for tax purposes and this could create conflicts of interest and risk to our REIT status;

• we may rely upon our joint venture partners to manage the day-to-day operations of the joint venture and underlying assets, as well as to prepare financial information for the joint venture and any failure to perform these obligations may have a negative impact our performance and results of operations;

• our joint venture partner may experience a change of control, which could result in new management of our joint venture partner with less experience or conflicting interests to ours and be disruptive to our business;

• our joint venture partners may not have sufficient personnel or appropriate levels of expertise to adequately support our initiatives; and

• the terms of our joint ventures could restrict our ability to sell or transfer our interest to a third party when we desire on advantageous terms, which could result in reduced liquidity.

Any of the above might subject us to liabilities and thus reduce our returns on our investment with that joint venture partner. In addition, disagreements or disputes between us and our joint venture partner could result in litigation, which could increase our expenses and potentially limit the time and effort our officers and directors are able to devote to our business.

Further, in some instances, we and/or our partner may have the right to trigger a buy-sell arrangement, which could cause us to sell our interest, or acquire our partner’s interest, at a time when we otherwise would not have initiated such a transaction. Our ability to acquire our partner’s interest may be limited if we do not have sufficient cash, available borrowing capacity or other capital resources. In such event, we may be forced to sell our interest in the joint venture when we would otherwise prefer to retain it.

We are subject to risks associated with capital expenditure obligations, such as declining real estate values and operating performance.

We are required to fund capital expenditures and other significant expenses for our real estate property investments. Future funding obligations subject us to significant risks, such as a decline in value of the property, cost overruns and the tenant/operator being unable to generate enough cash flow and execute its business plan in order to pay its obligations to us. We may determine that we need to fund more money than we originally anticipated in order to maximize the value of our investment even though there is no assurance additional funding would be the best course of action. Further, future funding obligations may require us to maintain higher liquidity than we might otherwise maintain and this could reduce the overall return on our investments. We could also find ourselves in a position with insufficient liquidity to fund future obligations.

We may obtain only limited warranties when we purchase a property, which will increase the risk that we may lose some or all of our invested capital in the property or rental income from the property which, in turn, could materially adversely affect our business, financial condition and results from operations and our ability to make distributions to stockholders.

The seller of a property often sells such property in an “as is” condition on a “where is” basis and “with all faults,” without any warranties of merchantability or fitness for a particular use or purpose. In addition, the related real estate purchase and sale agreements may contain only limited warranties, representations and indemnifications that will only survive for a limited period after the closing. Despite our efforts, we may fail to uncover all material risks during our diligence process. The purchase of properties with limited warranties increases the risk that we may lose some or all of our invested capital in the property, as well as the loss of rental income from that property if an issue should arise that decreases the value of that property and is not covered by the limited warranties. If any of these results occur, it may have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to stockholders.

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We may be required to indemnify purchasers of our assets against certain liabilities and obligations, which may affect our returns on dispositions.

We may be required to enter into real estate purchase and sale agreements with extensive warranties, representations and indemnifications, which may expose us to liabilities and obligations following dispositions of our assets. Despite our efforts, we may fail to identify all liabilities, which may materially impair the anticipated returns on any dispositions. Further, we may be forced to incur unexpected significant expense in connection with such liabilities and obligations, which could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to stockholders

The price we pay for acquisitions of real property and the terms of our CRE debt investments will be based on our projections of market demand, occupancy and rental income, as well as on market factors, and our return on our investment may be lower than expected if any of our projections are inaccurate.

The price we pay for real property investments and the terms of our debt investments will be based on our projections of market demand, occupancy levels, rental income, the costs of any development, redevelopment or renovation of a property, borrower expertise and other factors. In addition, increased competition in the real estate market may drive up prices for real estate assets or make loan origination terms less favorable to us. If any of our projections are inaccurate or we ascribe a higher value to assets and their value subsequently drops or fails to rise because of market factors, returns on our investment may be lower than expected and we could experience losses. This may be particularly pronounced during periods of market dislocation.

Our lease or management transactions may not result in market rates over time.

We expect substantially all of our rental and fee income to come from lease or management transactions, which may have longer terms than standard arrangements or renewal options that specify maximum rate increases. If we do not accurately judge the potential for increases in market rates, rental and fee increases under the terms may fail to result in fair market rates over time. Further, we may have no ability to terminate our lease or management transactions or adjust the rent and fees to then-prevailing market rates. For example, our triple net leases in connection with the properties acquired in the Griffin-American merger contain rent escalation provisions, which may not reflect market rates over time. As a result, our income and distributions to stockholders could be lower than they would otherwise be if we did not enter into such lease or management agreements.

A significant portion of our leases may expire in the same year.

A significant portion of the leases for our real estate investments may expire in the same year. For certain of our properties, such as manufactured housing and multifamily leases are short term in nature and therefore subject to heightened lease turnover risk. Additionally, for certain of our properties which are primarily leased to one tenant/operator, such as our net lease and certain healthcare properties, lease expirations may coincide with the maturities on the borrowing for such properties subject to such leases. As a result, we could be subject to a sudden and material change in value of our portfolio and available cash flow from such investments in the event that these leases are not renewed or in the event that we are not able to extend or refinance the mortgage notes payable on the properties that are subject to these leases.

We may not be able to relet or renew leases at the properties held by us or the properties underlying CRE debt investments on favorable terms, or at all.

The ability to relet or renew leases underlying our investments may be negatively impacted by challenging economic conditions in general or challenging market conditions in a particular region or asset class. For example, upon expiration or earlier termination of leases for space located at our properties, the space may not be relet or, if relet, the terms of the renewal or reletting (including the cost of required renovations or concessions to tenants/operators) may be less favorable than current lease terms. We may be receiving above market rental rates which will decrease upon renewal, which will adversely impact our income and could harm our ability to service our debt and operate successfully. Weak economic conditions would likely reduce tenants’/operators’ ability to make rent payments in accordance with the contractual terms of their leases and lead to early termination of leases. Furthermore, commercial space needs may contract, resulting in lower lease renewal rates and longer releasing periods when leases are not renewed. Any of these situations may result in extended periods where there is a significant decline in revenues or no revenues generated by a property. Additionally, to the extent that market rental rates are reduced, property-level cash flow would likely be negatively affected as existing leases renew at lower rates. If we are unable to relet or renew leases for all or substantially all of the space at these properties, if the rental rates upon such renewal or reletting are significantly lower than expected, or if our reserves for these purposes prove inadequate, we will experience a reduction in net income and may be required to reduce or eliminate cash distributions to stockholders.

Many of our investments are dependent upon tenants/operators successfully operating their businesses and their failure to do so could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to stockholders.

We depend on our tenants/operators to manage the day-to-day operations of our real estate properties in a manner that generates revenues sufficient to allow them to meet their obligations to us, including their obligations to pay rent, maintain certain insurance

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coverage, pay real estate taxes and maintain the properties under their operational control in a manner that does not jeopardize their operating licenses or regulatory status. The ability of our tenants/operators to fulfill their obligations to us may depend, in part, upon the overall profitability of their operations, including any other facilities, properties or businesses they may acquire or operate. The cash flow generated by the operation of our properties may not be sufficient for a tenant/operator to meet its obligations to us. In several cases, a single operator operates several of our properties and the failure of one operator could materially adversely affect many properties. Tenants/operators who are having trouble with their cash flow are more likely to expose us to unknown liens and other risks to our assets. Our financial position could be weakened and our ability to fulfill our obligations under our real estate borrowings could be limited if our tenants/operators are unable to meet their obligations to us or we fail to renew or extend our contractual relationship with any of our tenants/operators. In addition, to the extent we seek to replace a tenant/operator following a default, we may incur substantial delays and expense as a result of licensing, change-of-ownership or similar rules or other third party consents. Further, we may be required to fund certain expenses and obligations to preserve the value of our properties while they are being transitioned, as well as incur additional liabilities to indemnify the replacement tenant/operator. Once a suitable replacement tenant/operator has taken over operation of the properties, it may still take an extended period of time before the properties are fully repositioned and value restored, if at all. Any of these results could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to stockholders.

We are responsible for certain capital improvements. To the extent such capital improvements are not undertaken, the ability of our tenants/operators to manage our properties effectively and on favorable terms may be affected, which in turn could materially adversely affect our business, financial conditions and results of operations and our ability to make distributions to stockholders.

We are responsible for certain capital improvements. To the extent capital improvements are not undertaken or are deferred, occupancy rates and the amount of rental and reimbursement income generated by the facility may decline, which would negatively impact the overall value of the affected facility. This risk may be heightened during periods of economic distress. We may be forced to incur unexpected significant expense to maintain our properties, even those that are net leased. Any of these results could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to stockholders.

Lease defaults, terminations or landlord-tenant/operator disputes may reduce our income from our real estate investments.

The creditworthiness of our tenants/operators in our real estate investments has been, or could become, negatively impacted as a result of challenging economic conditions or otherwise, which could result in their inability to meet the terms of their leases. Lease defaults or terminations by one or more tenants/operators may reduce our revenues unless a default is cured or a suitable replacement tenant/operator is found promptly. In addition, disputes may arise between the landlord and tenant/operator that result in the tenant/operator withholding rent payments, possibly for an extended period. These disputes may lead to litigation or other legal procedures to secure payment of the rent withheld or to evict the tenant/operator. Upon a lease default, we may have limited remedies, be unable to accelerate lease payments and have limited or no recourse against a guarantor. Tenants/operators as well as guarantors may have limited or no ability to satisfy any judgments we may obtain. We may also have duties to mitigate our losses and we may not be successful in that regard. Any of these situations may result in extended periods during which there is a significant decline in revenues or no revenues generated by a property. If this occurred, it could adversely affect our results of operations.

The bankruptcy, insolvency or financial deterioration of any of our tenants/operators could significantly delay our ability to collect unpaid rents or require us to find new tenants/operators.

Our financial position and our ability to make distributions to stockholders may be adversely affected by financial difficulties experienced by any of our major tenants/operators, including bankruptcy, insolvency or a general downturn in the business, or in the event any of our major tenants/operators do not renew or extend their relationship with us as their lease terms expire.

We are exposed to the risk that our tenants/operators may not be able to meet their obligations to us or other third parties, which may result in their bankruptcy or insolvency. Although our leases and loans permit us to evict a tenant/operator, demand immediate repayment and pursue other remedies, bankruptcy laws afford certain rights to a party that has filed for bankruptcy or reorganization. A tenant/operator in bankruptcy may be able to restrict our ability to collect unpaid rents or interest during the bankruptcy proceeding. Furthermore, dealing with a tenant/operator’s bankruptcy or other default may divert management’s attention and cause us to incur substantial legal and other costs.

Bankruptcy laws provide that a debtor has the option to assume or reject an unexpired lease within a certain period of time of filing for bankruptcy, but generally requires such assumption or rejection to be made in its entirety. Thus, a debtor cannot choose to keep the beneficial provisions of a contract while rejecting the burdensome ones; the contract must be assumed or rejected as a whole. For example, many of our healthcare properties are currently net leased to an operator operating multiple facilities, some of which are pursuant to a single master lease. If one or more of our healthcare property operators files for bankruptcy relief, it is possible that in bankruptcy the debtor may be required to assume or reject the master lease in its entirety, rather than making the decision on a property-by-property basis, thereby preventing the debtor from assuming the better performing properties and

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terminating the master lease with respect to the poorer performing properties. However, where under applicable law a contract (even though it is contained in a single document) is determined to be divisible or severable into different agreements, or similarly, where a collection of documents is determined to constitute separate agreements instead of a single, integrated contract, then in those circumstances a debtor/trustee may be allowed to assume some of the divisible or separate agreements while rejecting the others. If the debtor has the ability, and chooses, to assume some of the divisible agreement while rejecting the other divisible agreements, or if a non-debtor tenant is unable to comply with the terms of an agreement, we may be forced to modify the agreements in ways that are unfavorable to us.

Both our tenants/operators’ and borrowers’ forms of entities may cause special risks or hinder our recovery.

Most of our tenants/operators in the real estate that we own, as well as the borrowers for our CRE debt investments and borrowers underlying our CRE securities, are legal entities rather than individuals. In addition, these entities are often “special purpose entities” that do not have significant assets beyond those involved in our investment and, at times, the assets of the entity may not be sufficient to recover our investment or damages. As a result, our risk of loss may be greater than for leases with or originators of loans made to individuals or special purpose entities. Unlike individuals involved in bankruptcies, these legal entities will generally not have personal assets and creditworthiness at stake. As a result, the default or bankruptcy of one of our tenants/operators or borrowers, or a general partner or managing member of that tenant or borrower, may impair our ability to enforce our rights and remedies under the terms of the lease agreement or the related mortgage, respectively.

Insurance may not cover all potential losses on CRE investments, which may impair the value of our assets.

We generally require that our tenants/operators, as well as the borrowers under our CRE debt investments, obtain comprehensive insurance covering the property, including liability, fire and extended coverage. We also generally obtain insurance directly on any property we acquire. We believe all of our properties are adequately insured. However, there are certain types of losses, generally of a catastrophic nature, such as earthquakes, floods and hurricanes that may be uninsurable or not economically insurable. We may not obtain, or require tenants/operators or borrowers to obtain, certain types of insurance if it is deemed commercially unreasonable. Inflation, changes in building codes and ordinances, environmental considerations and other factors also might make it infeasible to use insurance proceeds to replace a property if it is damaged or destroyed. Under such circumstances, the insurance proceeds, if any, might not be adequate to restore the economic value of the property, which might decrease the value of the property and in turn impair our investment.

We are subject to additional risks due to our international investments.

We own approximately $485 million (at cost) of healthcare real estate in the United Kingdom as of December 31, 2015. Our international investments may be affected by factors peculiar to the laws of the jurisdiction in which the property is located and these laws may expose us to risks that are different from and/or in addition to those commonly found in the United States.  We and NSAM may not be as familiar with the potential risks to our investments outside of the United States and we may incur losses as a result. These risks include:

• laws, rules and policies, including laws relating to the foreign ownership of real property or mortgages and laws relating to the ability of foreign persons or corporations to remove profits earned from activities within the country to the person's or corporation's country of origin;

• translation and transaction risks related to fluctuations in foreign currency exchange rates;

• adverse market conditions caused by inflation or other changes in national or local political and economic conditions;

• challenges of complying with foreign laws, including corporate governance, operations, taxes and litigation;

• changes in relative interest rates;

• the potential for significant U.S. tax liability upon repatriation of profits earned in foreign jurisdictions, which could result in us keeping such earnings in foreign jurisdictions, thereby limiting our liquidity;

• changes in the availability, cost and terms of borrowings resulting from varying national economic policies;

• changes in real estate and other tax rates, the tax treatment of transaction structures and other changes in operating expenses in a particular country where we have an investment;

• our REIT tax status not being respected under foreign laws, in which case any income or gains from foreign sources would likely be subject to foreign taxes, withholding taxes, transfer taxes and value added taxes;

• lack of uniform accounting standards (including availability of information in accordance with U.S. GAAP);

• changes in land use and zoning laws;

• more stringent environmental laws or changes in such laws;

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• changes in the social stability or other political, economic or diplomatic developments in or affecting a country where we have an investment;

• changes in applicable laws and regulations in the United States that affect foreign operations; and

• legal and logistical barriers to enforcing our contractual rights in other countries, including insolvency regimes, landlord/tenant rights and ability to take possession of the collateral. 

Each of these risks might adversely affect our performance and impair our ability to make distributions to our stockholders required to maintain our REIT qualification.

Compliance with the ADA, Fair Housing Act and fire, safety and other regulations may require us or our tenants/operators to make unanticipated expenditures which could adversely affect our business, financial condition and results of operations and our ability to make distributions to stockholders.

Our properties are required to comply with the ADA, which generally requires that buildings be made accessible to people with disabilities. We must also comply with the Fair Housing Act, which prohibits us and our tenants/operators from discriminating against individuals on certain bases in any of our practices if it would cause such individuals to face barriers in gaining residency in any of our facilities. In addition, our properties are required to operate in compliance with applicable fire and safety regulations, building codes and other land use regulations and licensing or certification requirements as they may be adopted by governmental agencies and bodies from time-to-time. We may be required to incur substantial costs to comply with those requirements. Changes in labor and other laws could also negatively impact us, our borrowers and our tenants/operators. For example, changes to labor-related statutes or regulations could significantly impact the cost of labor in the workforce, which would increase the costs faced by our borrowers and tenants/operators and increase their likelihood of default.

Environmental compliance costs and liabilities associated with our properties or our real estate-related investments may materially impair the value of our investments and expose us to liability.

Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property, such as us and our tenants/operators, may be liable in certain circumstances for the costs of investigation, removal or remediation of, or related releases of, certain hazardous or toxic substances, including materials containing asbestos, at, under or disposed of in connection with such property, as well as certain other potential costs relating to hazardous or toxic substances, including government fines and damages for injuries to persons and adjacent property. In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and the costs it incurs in connection with the contamination. These laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence or disposal of such substances and liability may be imposed on the owner in connection with the activities of a tenant/operator at the property. The presence of contamination or the failure to remediate contamination may adversely affect our or our tenants’/operators’ ability to sell or lease real estate, or to borrow using the real estate as collateral, which, in turn, could reduce our revenues. We, or our tenants/operators, as owner or operator of a site, may be liable under common law or otherwise to third parties for damages and injuries resulting from environmental contamination emanating from the site. The cost of any required investigation, remediation, removal, fines or personal or property damages and our or our tenants’/operators’ liability could significantly exceed the value of the property without any limits.

The scope of the indemnification our tenants/operators have agreed to provide us may be limited. For instance, some of our agreements with our tenants/operators do not require them to indemnify us for environmental liabilities arising before the tenant/operator took possession of the premises. Further, we cannot assure stockholders that any such tenant/operator would be able to fulfill its indemnification obligations. If we were deemed liable for any such environmental liabilities and were unable to seek recovery against our tenant/operator, our business, financial condition and results of operations could be materially and adversely affected.

Furthermore, we may invest in mortgage loans secured by real estate with environmental problems that materially impair the value of the real estate and the loan. Even as a lender, if we take title to collateral with environmental problems or if other circumstances arise, we could be subject to environmental liability. There are substantial risks associated with such an investment.

Risks Related to Our Investments in Healthcare Assets

As of December 31, 2015, approximately 50.6% of our real estate investments are concentrated in healthcare properties, which increases the risks related to owning healthcare real estate properties becoming more material to our business and results of operations.

We have significantly increased our ownership of healthcare real estate properties in our portfolio over recent years, which represent 50.6% of our real estate portfolio as of December 31, 2015 (based on cost). As a result of this increase in the concentration of healthcare real estate properties, our exposure to the risks inherent in investments in the healthcare sector has also increased, making us more vulnerable to a downturn or slowdown in the healthcare sector. We cannot assure you that future changes in government regulation will not adversely affect the healthcare industry, nor can we be certain that our tenants, operators and

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managers will achieve and maintain occupancy and rate levels that will enable them to satisfy their obligations to us. Any adverse changes in the regulation of the healthcare industry or the competitiveness of our tenants, operators and managers could have a more pronounced effect on us than if our investments were more diversified.

We do not control the operations of our healthcare properties and we are dependent on the tenants/operators/managers of our healthcare properties.

Our senior housing properties are typically operated by healthcare operators pursuant to net leases or by an independent third-party manager pursuant to management agreements. As a result, we are unable to directly implement strategic business decisions with respect to the daily operation and marketing of our healthcare properties.  While we have various rights as the property owner under our leases or management agreements and monitor the tenants/operators/managers’ performance, we have limited recourse under our leases or management agreements if we believe that the tenants/operators/managers are not performing adequately. Failure by tenants/operators/managers to adequately manage the risks associated with operations of healthcare properties could affect adversely our results of operations. Furthermore, if our tenants/operators/managers experience any significant financial, legal, accounting or regulatory difficulties, such difficulties could indirectly have a materially adverse effect on us.

In addition, certain of our tenants/operators/managers may operate or manage facilities for our competitors, which may cause conflicts of interests that result in actions or inaction that is detrimental to us. Furthermore, NSAM, AHI and our joint venture partners, all of whom assist in asset managing our healthcare properties, may also asset manage, or have other interests in, healthcare properties on behalf of other companies, which could result in additional conflicts of interest.

We are directly exposed to operational risks at certain of our healthcare properties, which could adversely affect our revenue and operations.

As of December 31, 2015, we operated 112 properties pursuant to management agreements, whereby we or our joint venture partner is the licensed operator of the property, if applicable, and we have direct exposure to resident fee income and related operating expenses. As a result, by contrast to our net lease properties, we are directly exposed to various operational risks with respect to these healthcare properties that may increase our costs or adversely affect our ability to generate revenues. These risks include: (i) fluctuations in occupancy, government and other third-party reimbursement, private pay rates; (ii) economic conditions; (iii) competition; (iv) federal, state, local and industry-regulated CON, licensure, certification and inspection laws, regulations and standards; (v) the availability and increases in cost of general and professional liability insurance coverage; (vi) state regulation and rights of residents related to entrance fees; and (vii) the availability and increases in the cost of labor (as a result of unionization or otherwise). Refer to “Regulation - Healthcare Regulation” included in Item 1 of this Annual Report on Form 10-K for further discussion. Any one or a combination of these factors may adversely affect our revenue and operations and our ability to make distributions to stockholders.

We rely on our managers’ personnel, expertise, technical resources and information systems, proprietary information, good faith and judgment to manage our senior housing facilities efficiently and effectively. We also rely on our managers to set appropriate resident fees and to otherwise operate our senior housing facilities in compliance with the terms of our management agreements and all applicable laws and regulations. Although we have various rights under our management agreements, including various rights to terminate and exercise remedies under those agreements, our managers’ failure, inability or unwillingness to satisfy its obligations under those agreements, to efficiently and effectively manage our properties or to provide timely and accurate accounting information with respect thereto could have a material adverse effect on us. In addition, significant changes in our managers’ senior management or equity ownership or any adverse developments in their businesses and affairs or financial condition could have a material adverse effect on us.

The healthcare industry is highly competitive and we expect it to become more competitive.

We own and manage a diversified portfolio of healthcare properties. Our tenants, operators and managers may encounter increased competition for residents and patients, including with respect to the scope and quality of care and services provided, reputation and financial condition, physical appearance of the properties, price and location. In general, regulatory and other barriers to competitive entry in the assisted living, independent living, and medical office building segments of the healthcare industry are not substantial, although there are often regulatory barriers to the development of hospitals and skilled nursing facilities. Limited barriers to entry in the senior housing and MOB industries could lead to the development of new senior housing communities or MOBs that outpaces demand. If development outpaces demand for those assets in the markets in which our properties are located, those markets may become saturated and we could experience decreased occupancy, reduced operating margins and lower profitability. Consequently, our tenants and operators may encounter increased competition which could adversely affect our revenues and earnings.

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Healthcare laws and regulations are subject to frequent change and the failure of our tenants, operators or managers to comply with these laws and regulations may materially adversely affect our business, financial condition and results of operations and our ability to make distributions to stockholders.

Our tenants, operators and managers are subject to numerous federal, state and local laws and regulations that are subject to frequent and substantial changes. The ultimate timing or effect of any changes in these laws and regulations cannot be predicted. Refer to “Regulation - Healthcare Regulation” included in Item 1 of this Annual Report on Form 10-K for further discussion. Changes in these laws and regulations could negatively affect the ability of our tenants, operators or managers to satisfy their obligations to us and our ability to make distributions to stockholders. In addition, failure to comply with the laws, requirements and regulations may materially adversely affect our business, financial condition and results of operations and our ability to make distributions to stockholders.

Failure to comply with certain healthcare laws and regulations could adversely affect the operations of our operators, tenants and managers, which could jeopardize our operators’, tenants’ and managers’ abilities to meet their obligations to us.

Our operators, tenants and managers generally are subject to varying levels of federal, state, local, and industry-regulated CON, licensure, certification and inspection laws, regulations and standards. Our operators’, tenants’ or managers’ failure to comply with any of these laws, regulations or standards could result in loss of accreditation, denial of reimbursement, imposition of fines, penalties or damages, suspension, decertification or exclusion from federal and state healthcare programs, loss of license or closure of the facility. Such actions may have an effect on our operators’ or tenants’ ability to make lease payments to us and, therefore, adversely impact us. Refer to “Regulation - Healthcare Regulation” included in Item 1 of this Annual Report on Form 10-K for further discussion.

Certain healthcare laws include criminal and civil penalties for violations that range from punitive sanctions, damage assessments, penalties, imprisonment, denial of Medicare and Medicaid payments and exclusion from the Medicare and Medicaid programs. Refer to “Regulation - Healthcare Regulation” included in Item 1 of this Annual Report on Form 10-K for further discussion. Investigation by a federal or state governmental body for violation of fraud and abuse laws or imposition of penalties with respect to any of our tenants, operators or managers could result in a failure to meet its obligations to us, which may have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to stockholders.

Our operators may be sued under a federal whistleblower statute.

Our operators who engage in business with the federal government may be sued under a federal whistleblower statute designed to combat fraud and abuse in the healthcare industry. See “Governmental Regulation-Healthcare Regulation” included in Item 1 of this Annual Report on Form 10-K. These lawsuits can involve significant monetary damages and award bounties to private plaintiffs who successfully bring these suits. If any of these lawsuits were brought against our operators, such suits combined with increased operating costs and substantial uninsured liabilities could have a material adverse effect on our operators’ liquidity, financial condition and results of operations and on their ability to satisfy their obligations under our leases, which, in turn, could have a material adverse effect on us.

Our tenants, operators and managers are faced with increased litigation and rising insurance costs that may affect their ability to meet their obligations to us.

In some states, advocacy groups have been created to monitor the quality of care at healthcare facilities and these groups have brought litigation against operators. Also, in several instances, private litigation by patients has succeeded in winning very large damage awards for alleged abuses. The effect of this litigation and potential litigation has been to materially increase the costs of monitoring and reporting quality of care compliance. In addition, the cost of liability and medical malpractice insurance has increased and may continue to increase so long as the present litigation environment affecting the operations of healthcare facilities continues. Continued cost increases could cause our tenants, operators and managers to be unable to meet their obligations to us, potentially decreasing our revenue and increasing our collection and litigation costs. Moreover, to the extent we are required to take back the affected facilities, our revenue from those facilities could be reduced or eliminated for an extended period of time.

Changes in the reimbursement rates or methods of payment from third-party payors, including the Medicare and Medicaid programs, could have a material adverse effect on certain of our tenants and operators and on us.

Certain of our tenants and operators rely on reimbursement from third-party payors, including the Medicare and Medicaid programs, for substantially all of their revenues. Federal and state legislators and regulators have adopted or proposed various cost-containment measures that would limit payments to healthcare providers and budget crises and financial shortfalls have caused states to implement or consider Medicaid rate freezes or cuts. See “Governmental Regulation-Healthcare Regulation” included in Item 1 of this Annual Report on Form 10-K. Private third-party payors also have continued their efforts to control healthcare costs. We cannot assure you that our tenants and operators who currently depend on governmental or private payor reimbursement will be adequately reimbursed for the services they provide. Significant limits by governmental and private third-party payors on the scope of services reimbursed or on reimbursement rates and fees, whether from legislation, administrative actions or private payor efforts, could have a material adverse effect on the liquidity, financial condition and results of operations of certain of our tenants

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and operators, which could affect adversely their ability to comply with the terms of our leases and have a material adverse effect on us.

License and Certificate of Need requirements affect our current operators and may delay our ability to replace an operator.

Many of our properties may require a license, registration and/or CON to operate. Failure to obtain a license, registration, or CON, or loss of a required license, registration or CON would prevent a facility from operating in the manner intended by the operators or tenants. These events could materially adversely affect our operators’ or tenants’ ability to meet their obligations to us. State and local laws also may regulate the expansion, including the addition of new beds or services or acquisition of medical equipment and the construction or renovation of healthcare facilities, by requiring a CON or other similar approval from a state agency. If we need to replace an operator, compliance with licensure and CON laws may delay the process. Refer to “Regulation - Healthcare Regulation” included in Item 1 of this Annual Report on Form 10-K for further discussion.

Economic downturns, weakness in the housing and equity markets, lowered consumer confidence and other events could adversely affect the ability of seniors to afford the entrance fees or monthly resident fees for our healthcare facilities and, in turn, materially adversely affect our business, financial condition and results of operations and our ability to make distributions to stockholders.

Costs to seniors associated with independent and assisted living services are generally not reimbursable under government reimbursement programs such as Medicare and Medicaid. Only seniors with income or assets meeting or exceeding the comparable median in the regions where our facilities are located typically will be able to afford to pay the entrance fees and monthly resident fees. Economic downturns, softness in the housing market, lower levels of consumer confidence, reductions or declining growth of government entitlement programs (such as social security benefits), stock market volatility, changes in demographics and other events could adversely affect the ability of seniors to afford the entrance fees or monthly resident fees for our healthcare facilities. If our operators are unable to retain and attract seniors with sufficient income, assets or other resources required to pay the fees associated with independent and assisted living services and other services provided by our operators at our healthcare facilities, our occupancy rates could decline, which could, in turn, materially adversely affect our business, results of operations and financial condition and our ability to make distributions to stockholders.

Because of the unique and specific improvements required for healthcare properties, we may be required to incur substantial renovation costs to make certain of our properties suitable for other operators, which could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to stockholders.

Healthcare properties are typically highly customized and may not be easily adapted to non-healthcare-related uses. The improvements generally required to conform a property to healthcare use, such as upgrading electrical, gas and plumbing infrastructure, are costly and often times operator-specific. A new or replacement operator may require different features in a property, depending on that operator’s particular operations. If a current operator is unable to pay rent and vacates a property, we may incur substantial costs to modify a property for a new operator, or for multiple operators with varying infrastructure requirements, before we are able to release the space. Consequently, our healthcare properties may not be suitable for lease to other operators or for alternative uses without significant costs or renovations, which costs may materially adversely affect our business, financial condition and results of operations and our ability to make distributions to stockholders.

If our tenants, operators or managers fail to maintain a positive reputation and cultivate new or maintain existing relationships with residents in the markets in which they operate, the occupancy percentage, payor mix and resident rates may deteriorate which could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to stockholders.

The ability of our tenants, operators and managers to obtain and maintain the overall occupancy percentage, payor mix and resident rates at our healthcare facilities depends on our tenants’, operators’ and managers’ reputation in the communities they serve and their ability to successfully market our facilities to potential residents. A large part of our tenants’, operators’ and managers’ marketing and sales effort is directed towards cultivating and maintaining legally compliant relationships with key community organizations that work with seniors, physicians and other healthcare providers in the communities where our facilities are located, whose referral practices significantly affect the choices seniors make with respect to their long-term care needs. If our tenants, operators and managers are unable to successfully cultivate and maintain strong relationships with these community organizations, physicians and other healthcare providers, occupancy rates at our facilities could decline, which could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to stockholders. Our tenants, operators and managers may mismanage our healthcare facilities, be subjected to governmental intervention, including shutting down of the facilities and be the subject of negative public news articles and other adverse attention. In such a case, our tenants’, operators’ and managers’ ability to continue functioning would be in severe jeopardy and our ability to realize value on our underlying assets could be materially adversely affected.

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The hospitals on or near whose campuses many of our MOBs are located and their affiliated health systems could fail to remain competitive or financially viable, which could adversely impact their ability to attract physicians and physician groups to our MOBs.

Our MOB operations depend on the competitiveness and financial viability of the hospitals on or near whose campuses our MOBs are located and their ability to attract physicians and other healthcare-related clients to our MOBs. The viability of these hospitals, in turn, depends on factors such as the quality and mix of healthcare services provided, competition for patients, physicians and physician groups, demographic trends in the surrounding community, market position and growth potential.  Because we rely on proximity to and affiliations with hospitals to create leasing demand in our MOBs, a hospital’s inability to remain competitive or financially viable, or to attract physicians and physician groups, could materially adversely affect our MOB operations and have a material adverse effect on us.

We may not be able to maintain or expand our relationships with our existing and future hospital and health system clients.

The success of our MOB operations depends, to a large extent, on past, current and future relationships with hospitals and their affiliated health systems. Significant amounts of time are spent in developing relationships with both new and existing clients. If NSAM or AHI fails to maintain these relationships, including through a lack of responsiveness, failure to adapt to the current market and employment of individuals with adequate experience, our reputation and relationships will be harmed and we may lose business to competitors. If our relationships with hospitals and their affiliated health systems deteriorate, or if a conflict of interest or non-compete arrangement prevents us from expanding these relationships, it may have a material adverse effect on us.

Risks Related to Our Hotel Assets

As of December 31, 2015, approximately 26.0% of our real estate investments are concentrated in hotels, which increases our exposure to risks affecting the lodging industry.

We have significantly increased our ownership of hotel properties in our portfolio, which represent 26.0% of our real estate portfolio as of December 31, 2015 (based on cost). The lodging industry is subject to changes in the travel patterns of business and leisure travelers, both of which are affected by the strength of the economy, as well as other factors. The performance of the lodging industry has traditionally been closely linked with the performance of the general economy and, specifically, growth in gross domestic product. Changes in travel patterns of both business and leisure travelers, particularly during periods of economic contraction or low levels of economic growth, may create difficulties for the industry over the long-term and adversely affect our results. The majority of our hotels are classified as upscale extended stay and select service and generally target business travelers. In periods of economic difficulties, business and leisure travelers may seek to reduce travel costs by limiting travel or seeking to reduce costs on their trips. Our results of operations and any forecast we make may be affected by, and can change based on, a variety of circumstances that affect the lodging industry, including:

• changes in the international, national, regional and local economic climate;

• changes in business and leisure travel patterns;

• increases in energy prices or airline fares or terrorist incidents, which impact the propensity of people to travel and revenues from our lodging facilities because operating costs cannot be adjusted as quickly;

• supply growth in markets where we own hotels, which may adversely affect demand at our properties;

• the attractiveness of our hotels to consumers relative to competing hotels;

• the performance of the managers of our hotels;

• outbreaks of disease and the impact on travel of natural disasters and weather;

• physical damage to our hotels as a result of earthquakes, hurricanes or other natural disasters or the income lost as a result of the damage;

• changes in room rates and increases in operating costs due to inflation, labor costs and other factors; and

• unionization of the labor force at our hotels.

A reduction in our revenue or earnings as a result of the above risks may reduce our working capital, impact our long-term business strategy and impact the value of our assets and our ability to meet certain covenants in our existing debt agreements.

We do not control our hotel operations and we are dependent on the managers of our hotels.

To maintain our status as a REIT, we are not permitted to operate any of our hotels. As a result, we have entered into management agreements with third-party managers to operate our hotel properties. For this reason, we are unable to directly implement strategic business decisions with respect to the daily operation and marketing of our hotels, such as decisions with respect to the setting of room rates, repositioning of a hotel, food and beverage pricing and certain similar matters. Although we consult with our hotel

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operators with respect to strategic business plans, the hotel operators are under no obligation to implement any of our recommendations with respect to these matters. While we monitor the hotel managers’ performance, we have limited recourse under our management agreements if we believe that the hotel managers are not performing adequately. The cash flow from our hotels may be affected adversely if our managers fail to provide quality services and amenities or if they or their affiliates fail to maintain a quality brand name. Because our management agreements are long term agreements, we also may not be able to terminate these agreements if we believe the manager is not performing adequately.

From time to time, we may have differences with the managers of our hotels over their performance and compliance with the terms of our management agreements. If we are unable to reach satisfactory results through discussions and negotiations, we may choose to litigate the dispute or submit the matter to third-party dispute resolution. Failure by our hotel managers to fully perform the duties agreed to in our management agreements or the failure of our managers to adequately manage the risks associated with hotel operations, including cyber-security risks, could affect adversely our results of operations.

In addition, our hotel managers or their affiliates manage, and in some cases own, have invested in, or provided credit support or operating guarantees to hotels that compete with our hotels, all of which may result in conflicts of interest. As a result, our hotel managers have in the past made, and may in the future make, decisions regarding competing lodging facilities that are not or would not be in our best interest.

As of December 31, 2015, Island currently manages 110 of our hotels pursuant to management agreements. Although we have various rights as the property owner under our management agreements, we rely on Island’s personnel, expertise, technical resources and information systems, proprietary information, good faith and judgment to manage our hotel operations efficiently and effectively. Any adverse developments in Island’s business and affairs or financial condition could impair its ability to manage our properties efficiently and effectively and could have a materially adverse effect on us.

We are subject to risks associated with the employment of hotel personnel, particularly with hotels that employ unionized labor.

Our third-party managers are responsible for hiring and maintaining the labor force at each of our hotels. Although we do not directly employ or manage employees at our hotels, we still are subject to many of the costs and risks generally associated with the hotel labor force, particularly at those hotels with unionized labor. From time to time, hotel operations may be disrupted as a result of strikes, lockouts, public demonstrations or other negative actions and publicity. We also may incur increased legal costs and indirect labor costs as a result of contract disputes involving our third-party managers and their labor force or other events. The resolution of labor disputes or re-negotiated labor contracts could lead to increased labor costs, a significant component of our hotel operating costs, either by increases in wages or benefits or by changes in work rules that raise hotel operating costs. As we are not the employer nor bound by any collective bargaining agreement, we do not negotiate with any labor organization, and it is the responsibility of each property’s manager to enter into such labor contracts. Our ability, if any, to have any material impact on the outcome of these negotiations is restricted by and dependent on the individual management agreement covering a specific property and we may have little ability to control the outcome of these negotiations.

In addition, changes in labor laws may negatively impact us. For example, increases in minimum wage laws and the U.S. Department of Labor’s proposed regulations expanding the scope of non-exempt employees under the Fair Labor Standards Act to increase the entitlement to overtime pay could significantly increase the cost of labor in the workforce, which would increase the operating costs of our hotel properties and may have a material adverse effect on us.

We are subject to risks associated with our ongoing need for renovations and capital improvements as well as financing these expenditures.

In order to remain competitive, our hotels have an ongoing need for renovations and other capital improvements, including replacements, from time to time, of furniture, fixtures and equipment. These capital improvements may give rise to the following risks:

• construction cost overruns and delays;

• a possible shortage of liquidity to fund capital improvements and the related possibility that financing for these capital improvements may not be available to us on affordable terms;

• the renovation investment failing to produce the returns on investment that we expect;

• disruptions in the operations of the hotel as well as in demand for the hotel while capital improvements are underway; and

• disputes with franchisors or hotel managers regarding compliance with relevant management or franchise agreements.

We may have insufficient liquidity to fund capital expenditures and, consequently, we may need to rely upon the availability of debt or equity capital to fund our investments and capital improvements. These sources of funds may not be available on reasonable terms and conditions or at all.

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Risks of operating hotels under franchise licenses, which may be terminated or not renewed, may impact our ability to make distributions to stockholders.

The continuation of our franchise licenses is subject to specified operating standards and other terms and conditions. All of the franchisors of our hotels periodically inspect our hotels to confirm adherence to their operating standards. The failure to maintain such standards or to adhere to such other terms and conditions could result in the loss or cancellation of the applicable franchise license. It is possible that a franchisor could condition the continuation of a franchise license on the completion of capital improvements that we determine are too expensive or otherwise not economically feasible in light of general economic conditions, the operating results or prospects of the affected hotel. In that event, we may elect to allow the franchise license to lapse or be terminated.

There can be no assurance that a franchisor will renew a franchise license at each option period. If a franchisor terminates a franchise license, we may be unable to obtain a suitable replacement franchise, or to successfully operate the hotel independent of a franchise license. The loss of a franchise license could have a material adverse effect upon the operations or the underlying value of the related hotel because of the loss of associated name recognition, marketing support and centralized reservation systems provided by the franchisor. Our loss of a franchise license for one or more of the hotels could have a material adverse effect on our revenues and our amounts available for distribution to shareholders.

Risks Relating to Our PE Investments

We have significant investments in real estate private equity funds and there is no assurance these investments will achieve the returns expected upon initial execution of the respective investments.

As of December 31, 2015, $1.1 billion of our assets were invested in PE Investments. In February 2016, we sold substantially all of our interest in one PE Investment for proceeds of $184 million and are exploring the sale of our remaining PE Investments. PE Investments are generally illiquid and may require the consent of each applicable portfolio fund manager as a condition to a sale. As a result, we may be unable to sell and monetize our PE Investments prior to the winding up of the underlying portfolio funds. If we do sell PE Investments before maturity, we may not achieve the anticipated returns we initially expected. We may also determine to continue to guarantee deferred purchase price in connection with any sale for a period of time or indefinitely.

The success of our PE Investments in general is subject to a variety of risks, including, without limitation, risks related to: (i) the quality of the management of the portfolio funds in which we invest and the ability of such management to successfully select investment opportunities; (ii) general economic conditions; and (iii) the ability of the portfolio funds and, if applicable, us, to liquidate investments on favorable terms or at all. Factors that could cause actual results to differ materially from our expectations include, but are not limited to, the possibility that: (a) the stated NAV does not necessarily reflect the fair value of the fund interests on such date and the current fair value could be materially different; (b) the actual amount of future capital commitments underlying all of the fund interests that will be called and funded by us could vary materially from our expectations; and (c) because, among other matters, the sponsors of the private equity funds, rather than us, will control the investments in those funds, we could lose some or all of our investment. Furthermore, the timing in which we will realize proceeds, if any, could differ materially from expectations and our actual yield could be substantially lower than our assumed yield. There can be no assurance that the management team of a portfolio fund or any successor will be able to operate the portfolio fund in accordance with our expectations or that we will be able to recover on our investments. Furthermore, certain of our PE Investments may be co-invested with other companies managed by our manager or its affiliates, which increases the likelihood that we could have conflicts of interest with that company.

We rely on unaffiliated managers to manage the assets held by the real estate private equity funds in which we invest.

The portfolio funds in which we invest are managed by professional investment managers unrelated to us. The returns we achieve depend in large part on the efforts and performance results obtained by the portfolio fund managers. We attempt to evaluate each portfolio fund based on an analysis of its investment portfolio from available information, such as the investment strategies of the portfolio fund, the existing assets in the portfolio fund and the performance history of other funds managed by its managers. Past performance may not, however, be a reliable indicator of future results, and portfolio fund managers, investment management personnel and investment strategies of any portfolio fund in which we invest may change without our consent. In addition, we are typically not in a position to exercise control or substantial influence over the portfolio funds. The actions taken by those holding a majority ownership interest in and/or control of a portfolio fund may not always be in our best interests and may have an adverse effect on our investment in such portfolio fund.

Our acquisitions of PE Investments in Secondary Transactions (as defined below) are based on available information and assumptions.

We generally will acquire PE Investments from one or more sellers who is/are existing limited partners in the portfolio funds in one or more transactions on the secondary market, or Secondary Transactions. The overall performance of PE Investments acquired in a Secondary Transaction will depend largely on the acquisition price paid for such PE Investments, which may be negotiated based on incomplete or imperfect information, including valuations provided by the portfolio fund managers, which may be based

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on interim unaudited financial statements, research, market data or other information available to the manager. Such information may prove to be incomplete or imperfect, which could adversely affect the performance of the PE Investments. Additionally, in determining the acquisition price, we will be relying on certain assumptions with respect to the investments held by the portfolio funds, projected exit dates, future operating results, market conditions, the timing and manner of dispositions and other similar considerations. Actual realized returns on PE Investments will depend on various factors, including future operating results, market conditions at the time of disposition, legal and contractual restrictions on transfer that may limit liquidity, any related transaction costs, and the timing and manner of disposition, all of which may materially differ from the assumptions on which we relied in negotiating the acquisition price.

We may agree to a deferred component of the purchase price for the acquisition of a PE Investment, which increases our leverage and may create additional risks.

We may agree with a seller for all or a portion of the purchase price for a PE Investment acquired in a Secondary Transaction to be paid by over a period of time, or a Deferred Purchase Price Acquisition, which increases our leverage by the amount of the deferred payment obligation. In addition, the terms of any Deferred Purchase Price Acquisition may require us to pay all or a portion of cash flows received from the portfolio funds to the seller to reduce the unpaid purchase price. Therefore, there may be little or no near term cash flow available to us following the PE Investment.

PE Investments acquired in Secondary Transactions may include a pool of portfolio funds that are acquired on an “all or nothing” basis.

We may have the opportunity to acquire a portfolio of portfolio funds from a seller on an "all or nothing" basis. Certain of the portfolio funds in the portfolio may be less attractive (for commercial, tax, legal or other reasons) than others, and certain of the sponsors of such portfolio funds may be more familiar to us than others, or may be more experienced or highly regarded than others. In such cases, it may not be possible for us to carve out from such purchases those investments which we consider (for commercial, tax, legal or other reasons) less attractive. In addition, because the purchaser in a Secondary Transaction generally will step into the position of the seller, we generally will not have the ability to modify or amend a portfolio fund’s constituent documents (e.g. limited partnership agreement) or otherwise negotiate the legal or economic terms of the interests being acquired. Additionally, our acquisition of portfolio funds in a Secondary Transaction will generally be subject to the consent of each portfolio fund manager and may, in some cases, be subject to rights of first refusal or similar rights by existing portfolio fund investors. In the event a portfolio fund manager withholds its consent to a transfer to us or the investors in a portfolio fund exercise any rights of first refusal to acquire all or a portion of the interests to be transferred to us, it could adversely impact the performance of the PE Investment portfolio and us.

PE Investments are short-lived assets and we may not be able to reinvest capital in comparable investments.

As of December 31, 2015, our PE Investments have a weighted average life of approximately 1.5 years based on our projections and assumptions. Because these PE Investments or short-lived, we may be unable to reinvest the distributions received from the portfolio funds in investments with similar returns, which could adversely impact our performance.

PE Investments add additional layers of fees and expenses.

We and the portfolio funds each have multiple layers of expenses and management costs that will be borne, directly or indirectly, by us. Each PE Investment generally will entail the payment of certain expenses, plus management fees and carried interest to the general partner or investment manager of each portfolio fund, which are in addition to the fees and expenses incurred directly by us. Such fees and expenses reduce our returns.

Risks Relating to Our Manufactured Housing Investments

Our investment in manufactured housing communities may not be successful.

As of December 31, 2015, our manufactured housing communities represented 13.2% of our real estate portfolio as of December 31, 2015 (based on cost), including 136 manufactured housing communities totaling approximately 33,055 pad rental sites. We are reliant, in substantial part, on the experience of a third-party operator to manage these assets on our behalf. Effectively managing these assets requires significant experience and there is no assurance that we or our third-party operator will be successful in maintaining or improving occupancy and otherwise preserving and increasing the value of these assets. Our investment in these assets may not generate the cash flow we anticipate or otherwise perform as expected. We could experience losses in these assets, which would negatively impact our operating performance and distributions to stockholders.

Economic conditions generally and in our current markets may affect our ability to generate sufficient revenue.

Market and economic conditions in our current markets generally, and specifically in metropolitan areas of our current markets, may significantly affect manufactured home occupancy or rental rates. Occupancy and rental rates, in turn, may significantly affect our revenues, and if our communities do not generate revenues sufficient to meet our operating expenses, including debt

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service and capital expenditures, our cash flow and ability to pay or refinance our debt obligations could be adversely affected. We derive significant amounts of our rental income from properties located in Colorado, Utah and Florida.

The following factors, among others, may adversely affect the revenues generated by our communities:

• the national and local economic climate which may be adversely impacted by, among other factors, plant closings and industry slowdowns;

• local real estate market conditions;

• the number of repossessed homes in a particular market;

• the perceptions by prospective tenants of the safety, convenience and attractiveness of our properties and the neighborhoods where they are located;

• zoning or other regulatory restrictions;

• competition from other available manufactured housing and alternative forms of housing (such as apartment buildings and site-built single-family homes);

• the ability of our manager to provide adequate management, maintenance and insurance;

• increased operating costs, including insurance premiums, real estate taxes, and utilities; and

• the enactment of rent control laws or laws taxing the owners of manufactured homes.

Risks Related to Our Investments in CRE Debt and Securities

The CRE debt we originate and invest in and mortgage loans underlying the CRE securities we invest in are subject to risks of delinquency, taking title to collateral, loss and bankruptcy of the borrower under the loan. If the borrower defaults, it may result in losses to us.

Our CRE debt investments are secured by commercial real estate and are subject to risks of delinquency, loss, taking title to collateral and bankruptcy of the borrower. The ability of a borrower to repay a loan secured by commercial real estate is typically dependent primarily upon the successful operation of such property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced or is not increased, depending on the borrower’s business plan, the borrower’s ability to repay the loan may be impaired. If a borrower defaults or declares bankruptcy and the underlying asset value is less than the loan amount, we will suffer a loss. In this manner, real estate values could impact the value of our CRE debt and securities investments. Therefore, our CRE debt and securities will be subject to the risks typically associated with real estate.

Additionally, we may suffer losses for a number of reasons, including the following, which could have a material adverse effect on our financial performance:

• the value of the assets securing our CRE debt investments may deteriorate over time due to factors beyond our control, which may result in a loss of principal or interest to the extent the assets collateralizing our CRE debt are insufficient to satisfy the loan.

• a borrower or guarantor may not comply with its financial covenants or may not have sufficient assets will be available to pay amounts owed to us under our CRE debt and related guarantees, particularly in periods of challenging economic and market conditions.

• Our due diligence may not reveal all of a borrower’s liabilities and may not reveal other weaknesses in its business.

• Taking title to collateral, or otherwise liquidating defaulted CRE debt investments, can be an expensive and lengthy process that could have a negative effect on the return on our investment.

• We may need to restructure loans if our borrowers are unable to meet their obligations to us, which might include lowering interest rates, extending maturities or making other concessions that may result in the loss of some or all of our investment.Further, we may be unable to restructure loans in a manner that we believe would maximize value, particularly in situations where there are multiple creditors and/or a large lender group.

The subordinate CRE debt we originate and invest in may be subject to risks relating to the structure and terms of the related transactions, as well as subordination in bankruptcy, and there may not be sufficient funds or assets remaining to satisfy our investments, which may result in losses to us.

We originate, structure and acquire subordinate CRE debt investments secured primarily by commercial properties, which may include subordinate mortgage loans, mezzanine loans and participations in such loans and preferred equity interests in borrowers who own such properties. These investments may be subordinate to other debt on commercial property and are secured by

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subordinate rights to the commercial property or by equity interests in the borrower. In addition, real properties with subordinate debt may have higher loan-to-value ratios than conventional debt, resulting in less equity in the real property and increasing the risk of loss of principal and interest. If a borrower defaults or declares bankruptcy, after senior obligations are met, there may not be sufficient funds or assets remaining to satisfy our subordinate interests. Because each transaction is privately negotiated, subordinate investments can vary in their structural characteristics and lender rights. Our rights to control the default or bankruptcy process following a default will vary from transaction to transaction. The subordinate investments that we originate and invest in may not give us the right to demand taking title to collateral as a subordinate real estate debt holder. Furthermore, the presence of intercreditor agreements may limit our ability to amend our loan documents, assign our loans, accept prepayments, exercise our remedies and control decisions made in bankruptcy proceedings relating to borrowers. Similarly, a majority of the participating lenders may be able to take actions to which we object, but by which we will be bound. Even if we have control, we may be unable to prevent a default or bankruptcy and we could suffer substantial losses. Certain transactions that we originated and invested in could be particularly difficult, time consuming and costly to work out because of their complicated structure and the diverging interests of all the various classes of debt in the capital structure of a given asset.

We may make certain CRE debt and securities investments that involve high risks.

We may make investments in certain assets that involve greater risks, such as transitional assets, non-performing assets and construction or development assets. These types of investments may involve greater risks than investments in stabilized, performing assets and make our future performance more difficult to predict. For example:

• Transitional properties are often associated with floating-rate loans and increases in a borrower’s monthly payment as a result of an increase in prevailing market interest rates may make it more difficult for the borrowers with floating-rate loans to repay the loan and could increase the risk of default of their obligations under the loan.

• Non-performing real estate assets are challenging to evaluate as they do not have a consistent stream of cash flow to support normalized debt service, lack stabilized occupancy rates and may require significant capital for repositioning. Further, strategies available to create value in a non-performing real estate investment, including development, redevelopment or lease-up of a property or negotiating a reduced payoff, may not be successful.

• Construction loans have the potential for cost overruns, the developer’s failing to meet a project delivery schedule, market downturns and the inability of a developer to sell or refinance the project at completion in accordance with its business plan and repay our CRE debt.

In addition, we may invest in subordinate, unrated or distressed mortgage loans or unrated or non-investment grade CRE securities, which typically result from increased leverage, lack of strong operating history, borrowers’ credit history, underlying cash flow from the properties and other factors. As a result, these investments typically have higher risk of default and loss, particularly during economic downturns.

We invest in CRE securities, including CMBS and other subordinate securities, which entail certain heightened risks.

We invest in a variety of CRE securities that are subordinate securities subject to the first risk of loss if any losses are realized on the underlying mortgage loans. CMBS entitle the holders thereof to receive payments that depend primarily on the cash flow from a specified pool of commercial or multifamily mortgage loans. Consequently, CMBS and other CRE securities will be adversely affected by payment defaults, delinquencies and losses on the underlying mortgage loans, which increase during times of economic stress and uncertainty. Furthermore, if the rental and leasing markets deteriorate, including by decreasing occupancy rates and decreasing market rental rates, it could reduce cash flow from the mortgage loan pools underlying our CMBS investments. The market for CRE securities is dependent upon liquidity for refinancing and may be negatively impacted by a slowdown in new issuance.

Additionally, CRE securities such as CMBS may be subject to particular risks, including lack of standardized terms and payment of all or substantially all of the principal only at maturity rather than regular amortization of principal. The value of CRE securities may change due to shifts in the market’s perception of issuers and regulatory or tax changes adversely affecting the CRE debt market as a whole. Additional risks may be presented by the type and use of a particular commercial property, as well as the general risks relating to the net operating income from and value of any commercial property. The exercise of remedies and successful realization of liquidation proceeds relating to CRE securities may be highly dependent upon the performance of the servicer or special servicer. Expenses of enforcing the underlying mortgage loan (including litigation expenses) and expenses of protecting the properties securing the loan may be substantial. Consequently, in the event of a default or loss on one or more loans contained in a securitization, we may not recover a portion or all of our investment. Ratings for CRE securities can also adversely affect their value.

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Some of our investments are carried at estimated fair value as determined by us and, as a result, there may be uncertainty as to the value of these investments.

Some of our investments are recorded at fair value but will have limited liquidity or will not be publicly traded. The fair value of these investments that have limited liquidity or are not publicly traded may not be readily determinable. We will estimate the fair value of these investments on a quarterly basis. Because such valuations are inherently uncertain, may fluctuate over short periods of time and may be based on numerous estimates and assumptions, our determinations of fair value may differ materially from the values that would have been used if a readily available market for these securities existed. If our determination regarding the fair value of these investments are materially different than the values that we ultimately realize upon their disposal, this could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to stockholders.

Provision for loan losses are difficult to estimate, particularly in a challenging economic environment.

In a challenging economic environment, we may experience an increase in provisions for loan losses and asset impairment charges, as borrowers may be unable to remain current in payments on loans and declining property values weaken our collateral. Our determination of provision for loan losses requires us to make certain estimates and judgments, which may be difficult to determine, particularly in a challenging economic environment. Our estimates and judgments are based on a number of factors, including projected cash flow from the collateral securing our CRE debt, structure, including the availability of reserves and recourse guarantees, likelihood of repayment in full at the maturity of a loan, potential for refinancing and expected market discount rates for varying property types, all of which remain uncertain and are subjective. Our estimates and judgments may not be correct, particularly during challenging economic environments, and therefore our results of operations and financial condition could be severely impacted.

Risks Related to Our Financing Strategy

We may not be able to access financing sources on attractive terms, if at all, which could adversely affect our ability to execute our business plan.

We use a variety of financing sources, including mortgage notes, credit facilities, securitization financing transactions and other term borrowings, as well as preferred equity and exchangeable senior notes. For example, as of December 31, 2015, we had $11 billion of borrowings outstanding, including $662 million recourse borrowings under credit facilities and term borrowings, $31 million recourse exchangeable notes and $9.5 billion in mortgage financings, as well as $939 million in aggregate principal amount of preferred stock.

Our ability to effectively execute our financing strategy depends on various conditions in the financing markets that are beyond our control, including liquidity, health of the CMBS markets and credit spreads. While we seek non-recourse long-term financing, such financing may not be available to us on favorable terms or at all. Furthermore, even with non-recourse financing, we typically enter into guarantees for limited bad acts, environmental matters and other conditions that could impose recourse liability on us. If our strategy is not viable, we will have to find alternative forms of financing for our assets, which may include more restrictive recourse borrowings and borrowings with higher debt service that limit our ability to engage in certain transactions and reduce our cash available for distribution to stockholders. If alternative financing is not available on favorable terms, or at all, we may have to liquidate assets at unfavorable prices to pay off such financing. Our return on our investments and distributions to stockholders may be reduced to the extent that changes in market conditions cause the cost of our financing to increase relative to the earnings that we can derive from the assets we acquire or originate.

Our credit facilities permit us to make significant borrowings, which restrict our ability to engage in certain activities and could require that we generate significant cash flow or access the capital markets to satisfy the payment and other obligations.

We may make significant borrowings under credit facilities. For example, as of December 31, 2015, we had $165 million outstanding under our Corporate Revolver with a three-year term guaranteed by substantially all of our material wholly-owned subsidiaries. We may also obtain additional facilities and increase our lines of credit on existing facilities in the future. Our credit facilities contain various affirmative and negative covenants, including, among other things, limitations on debt, liens and restricted payments, as well as financial covenants. Compliance with these covenants restrict our ability to engage in certain transactions, which could materially adversely affect our financial condition.

In addition, these borrowings may exceed our cash on hand and/or our cash flows from operating activities. Our ability to meet the payment and other obligations under our credit facilities depends on our ability to generate sufficient cash flow or access capital markets in the future. Our ability to generate cash flow or access capital markets, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors, as well as other factors that are beyond our control. We cannot assure you that our business will generate cash flow from operations, or that future borrowings will be available to us, in amounts sufficient to enable us to meet our payment obligations under our credit facilities. If we are not able to generate sufficient cash flow to service our credit facilities and other borrowing obligations, we may need to refinance or restructure our borrowings, reduce or delay capital investments, or seek to raise additional capital. There is no assurance we will be able to do any of the foregoing on

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favorable terms or at all. If we are unable to implement one or more of these alternatives, we may not be able to meet our payment obligations under our credit facilities, which could materially and adversely affect our liquidity.

We may not be able to borrow additional amounts under our credit facilities.

Certain of our borrowings may restrict our ability to incur additional indebtedness, such as our Corporate Revolver, based on the value of certain investment assets that make up a borrowing base. Such investment assets may fluctuate in value. Decreases in value would reduce our borrowing base and could prevent us from borrowing. In addition, our Corporate Revolver includes financial maintenance covenants and non-financial covenants. Breach of any such covenants would block additional borrowings under the facility. Our inability to borrow additional amounts could delay or prevent us from acquiring, financing, and completing desirable investments and could negatively affect our liquidity, which could materially and adversely affect our business. Inability to borrow could also prevent us from making distributions to our stockholders.

We are subject to risks associated with obtaining mortgage financing on our real estate, which could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to stockholders.

As of December 31, 2015, our real estate portfolio had $9.5 billion of total mortgage financing. We are subject to risks normally associated with financing, including the risks that our cash flow is insufficient to make timely payments of interest or principal, that we may be unable to refinance existing borrowings or support collateral obligations and that the terms of refinancing may not be as favorable as the terms of existing borrowing. If we are unable to refinance or extend principal payments due at maturity or pay them with proceeds from other capital transactions or the sale of the underlying property, our cash flow may not be sufficient in all years to make distributions to stockholders and to repay all maturing borrowings. Furthermore, if prevailing interest rates or other factors at the time of refinancing result in higher interest rates upon refinancing, the interest expense relating to that refinanced borrowing would increase, which could reduce our profitability, result in losses and negatively impact the amount of distributions we are able to pay to stockholders. Moreover, additional financing increases the amount of our leverage, which could negatively affect our ability to obtain additional financing in the future or make us more vulnerable in a downturn in our results of operations or the economy generally.

We use short-term borrowings to finance our investments and we may need to use such borrowings for extended periods of time to the extent we are unable to access long-term financing. This may expose us to increased risks associated with decreases in the fair value of the underlying collateral, which could have an adverse impact on our results of operations.

While we expect to seek non-recourse, non-mark-to-market, long-term financing through securitization financing transactions or other structures, such financing may be unavailable to us on favorable terms or at all. Consequently, we may be dependent on short-term financing arrangements that are not matched in duration to our financial assets. Short-term borrowing through repurchase arrangements, credit facilities and other types of borrowings may put our assets and financial condition at risk. Furthermore, the cost of borrowings may increase substantially if lenders view us as having increased credit risk during periods of market distress. Any such short-term financing may also be recourse to us, which will increase the risk of our investments. In addition, the value of assets underlying any such short-term financing may be marked-to-market periodically by the lender, including on a daily basis. If the fair value of the assets subject to such financing arrangements decline, we may be required to provide additional collateral or make cash payments to maintain the loan-to-collateral value ratio. If we are unable to provide such collateral or cash repayments, we may lose our economic interest in the underlying assets. Further, such borrowings may require us to maintain a certain amount of cash reserves or to set aside unleveraged assets sufficient to maintain a specified liquidity position that would allow us to satisfy our collateral obligations. These facilities may be restricted to financing certain types of assets, such as first mortgage loans, which could impact our asset allocation. In addition, such short-term borrowing facilities may limit the length of time that any given asset may be used as eligible collateral. As a result, we may not be able to leverage our assets as fully as we would choose, which could reduce our income generated on such assets. In the event that we are unable to meet the collateral obligations for our short-term financing arrangements, our financial condition could deteriorate rapidly.

Our performance can be negatively affected by fluctuations in interest rates and shifts in the yield curve may cause losses.

Our financial performance is influenced by changes in interest rates, in particular, as such changes may affect our floating-rate borrowings, CRE debt and CRE securities. A substantial portion of our borrowings bear interest at variable rates. For example, the financing for the acquisition of the Griffin-American Portfolio includes U.S. and U.K.-based borrowings, with a floating rate component of $1.2 billion of borrowings outstanding as of December 31, 2015, with a weighted average interest rate of one month LIBOR plus 3.15% and three-month LIBOR plus 4.25%, respectively. Additionally, our Corporate Revolver, as amended, of $250 million bears interest at a floating rate equal to LIBOR plus 3.50%. If market interest rates increase, the interest rate on our variable rate borrowings will increase and will create higher debt service requirements, which would adversely affect our cash flow and could adversely impact our results of operations. While we may enter into agreements limiting our exposure to higher debt service requirements, any such agreements may not offer complete protection from this risk.

In addition, changes in the general level of interest rates can negatively affect our net interest income, which is the difference between the interest income earned on our interest-earning assets and the interest expense incurred in connection with our interest-

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bearing borrowings and hedges. Changes in the level of interest rates also can affect, among other things, our ability to acquire CRE securities, acquire or originate CRE debt at attractive prices and enter into hedging transactions. Interest rate changes may also impact our net book value as our CRE securities and derivatives are recorded at fair value each quarter. Generally, as interest rates increase, the value of our fixed rate securities decreases, which will decrease the book value of our equity. Furthermore, shifts in the U.S. Treasury yield curve reflecting an increase in interest rates would also affect the yield required on our CRE securities and therefore their value.

Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our control.

Our interest rate risk sensitive assets, liabilities and related derivative positions are generally held for non-trading purposes. As of December 31, 2015, a hypothetical 100 basis point increase in one-month LIBOR applied to our floating-rate assets and liabilities (including derivatives) would result in a decrease in net interest income of approximately $43 million annually, of which $30 million of the change is attributable to floating rate financing of hotel and healthcare operating real estate and does not reflect the potential increase in rental cash flow associated with economic growth that may be typical in a rising interest rate environment.

In a period of rising interest rates, our interest expense could increase while the interest we earn on our fixed-rate assets or LIBOR capped floating rate assets would not change, which would adversely affect our profitability.

Our operating results depend in large part on differences between the income from our assets less our operating costs, reduced by any credit losses and financing costs. Income from our assets may respond more slowly to interest rate fluctuations than the cost of our borrowings. Consequently, changes in interest rates, particularly short-term interest rates, may adversely influence our net income. Increases in these rates may decrease our net income. Interest rate fluctuations resulting in our interest expense exceeding the income from our assets could result in losses for us and may limit our ability to make distributions to stockholders. In addition, if we need to repay existing borrowings during periods of rising interest rates, we could be required to liquidate one or more of our investments at times that may not permit realization of the maximum return on those investments, which would adversely affect our profitability.

Hedging against interest rate and currency exposure may adversely affect our earnings, limit our gains or result in losses, which could adversely affect cash available for distribution to stockholders.

We may enter into swap, cap or floor agreements or pursue other interest rate or currency hedging strategies. Our hedging activity will vary in scope based on interest rate levels, currency exposure, the type of investments held and other changing market conditions. Interest rate and/or currency hedging may fail to protect or could adversely affect us because, among other things:

• interest rate and/or currency hedging can be expensive, particularly during periods of rising and volatile interest rates;

• available interest rate and/or currency hedging may not correspond directly with the risk for which protection is sought;

• the duration of the hedge may not match the duration of the related liability or asset;

• our hedging opportunities may be limited by the treatment of income from hedging transactions under the rules determining REIT qualification;

• the credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction;

• the counterparties with which we trade may cease making markets and quoting prices in such instruments, which may render us unable to enter into an offsetting transaction with respect to an open position;

• the party owing money in the hedging transaction may default on its obligation to pay; and

• we may purchase a hedge that turns out not to be necessary, i.e., a hedge that is out of the money.

Any hedging activity we engage in may adversely affect our earnings, which could adversely affect cash available for distribution to stockholders. Therefore, while we may enter into such transactions to seek to reduce interest rate and/or currency risks, unanticipated changes in interest rates or exchange rates may result in poorer overall investment performance than if we had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged or liabilities being hedged may vary materially. Moreover, for a variety of reasons, we may not be able to establish a perfect correlation between hedging instruments and the investments being hedged. Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss.

For example, in June 2015 we entered into a $2 billion notional 10-year fixed interest rate swap in order to seek to hedge against future refinancing costs of certain of our mortgage borrowings.  This swap is currently materially out of the money and we have posted $74 million of margin as of February 25, 2016 for the benefit of our counterparty and may be subject to future margin calls. 

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If an early termination event occurs now with respect to this swap, in addition to losing the margin we have posted we would currently be required to pay approximately $160 million to our counterparty.      

Hedging instruments often are not traded on regulated exchanges, guaranteed by an exchange or its clearinghouse or regulated by any U.S. or foreign governmental authorities and involve risks and costs.

The cost of using hedging instruments increases as the period covered by the instrument lengthens and during periods of rising and volatile interest rates. We may increase our hedging activity and thus increase our hedging costs during periods when interest rates are volatile or rising and hedging costs have increased. In addition, hedging instruments involve risk since they 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. Consequently, there are no regulatory or statutory requirements with respect to record keeping, financial responsibility or segregation of customer funds and positions. Furthermore, the enforceability of agreements underlying derivative transactions may depend on compliance with applicable statutory, commodity and other regulatory requirements and, depending on the identity of the counterparty, applicable international requirements. The business failure of a hedging counterparty with whom we enter into a hedging transaction will most likely result in a default. Default by a party with whom we enter into a hedging transaction may result in the loss of unrealized profits and force us to cover our resale commitments, if any, at the then current market price. It may not always be possible to dispose of or close out a hedging position without the consent of the hedging counterparty and we may not be able to enter into an offsetting contract in order to cover our risk. We cannot assure stockholders that a liquid secondary market will exist for hedging instruments purchased or sold, and we may be required to maintain a position until exercise or expiration, which could result in losses.

Refer to the below risk factor “The direct or indirect effects of the Dodd-Frank Act, enacted in July 2010 for the purpose of stabilizing or reforming the financial markets, may have an adverse effect on our interest rate hedging activities” for a discussion of how the Dodd-Frank Wall Street Reform Act, or the Dodd-Frank Act, may affect the use of hedging instruments.

We are subject to litigation risk related to our legacy CDO business.

Each of our N-Star CDOs is governed by an indenture, collateral management agreement and other documentation. The documents are complex and collectively describe the conditions upon which we can sell assets and reinvest principal proceeds and set forth covenants and other provisions to which we and the CDOs are subject. In certain circumstances, the performance of the underlying CDO collateral has raised ambiguities in our CDO documentation. We could take a position, inadvertently or otherwise, that a court ultimately determines constitutes a breach of the underlying agreements and the results of such a determination could have a material adverse effect on our business and financial condition. We could also be subject to litigation related to our legacy CDO business in general, which could be costly to defend and distracting to management and there is no assurance that the outcome would not have a material adverse effect if any such litigation were to arise.

Our exchangeable senior notes are recourse obligations to us.

As of December 31, 2015, $31.4 million of principal amount of our exchangeable senior notes were outstanding, of which we may be required to repurchase $13.0 million, $1.0 million and $17.4 million in June 2017, June 2019 and June 2023, respectively. These amounts are full recourse obligations of our company. If we are not able to extend, refinance or repurchase these borrowings, we may not have the ability to repay these amounts when they come due. Our inability to repay any of our exchangeable senior notes could cause the acceleration of our borrowings, which would have a material adverse effect on our business.

Our exchangeable senior notes contain cross-default provisions.

The indenture agreements governing our exchangeable senior notes contain cross-default provisions whereby a default under one agreement could result in a default and acceleration of borrowings under other agreements. If a cross-default occurred, we may not be able to pay our liabilities or access capital from external sources in order to refinance our borrowings. If some or all of our borrowings default and it causes a default under other borrowings, our business, financial condition and results of operations could be materially and adversely affected.

The holders of our exchangeable senior notes may elect to exchange those notes prior to maturity and we may be required to use common stock, cash or both to satisfy our exchange obligations.

Our exchangeable senior notes may be exchanged at any time prior to maturity at the option of the holder in accordance with the terms of the applicable indenture.  In December 2013, we made a revocable election to satisfy our exchange obligations with shares of our common stock for the principal amount of the notes, as determined in accordance with the applicable indenture.  We may change our election at any time in accordance with the terms of the applicable indentures and elect to satisfy all exchanges with a combination of cash and common stock, rather than only common stock.  In 2015 to date, we exchanged an aggregate of $14 million principal amount of exchangeable senior notes and settled all such exchanges in shares of our common stock. These exchanges, as well as any additional exchanges we may effect in the future through settlement with shares of our common stock, will exacerbate the dilutive effects to our stockholders. If we determine to use only cash to exchange our notes rather than stock,

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our liquidity could be negatively impacted. If the price of our common stock rises and our distributions continue to increase, the economic incentive to exchange our notes will likely increase.

We may become liable for senior notes issued by NorthStar Europe.

In July 2015, prior to the NRE Spin-off, NorthStar Europe, then our wholly-owned subsidiary, issued $340 million principal amount of senior notes due in December 2016. We guaranteed all of NorthStar Europe’s obligations under these senior notes. While NorthStar Europe has agreed to reimburse us for any principal or interest payments on these senior notes made after the NRE Spin-off, there can be no assurance that NorthStar Europe will have sufficient funds to repay the noteholders on its own or reimburse us in the event we have to repay the noteholders.

Risks Related to Our Company

Our significant acquisition and investment activity in recent years presents certain risks to our business and operations.

We have made significant acquisitions and investments in the past few years. Our significant acquisition and investment activity presents certain risks to our business and operations, including, among other things, that:

• We may be unable to successfully integrate the assets or companies we acquired into our business and operations, maintain consistent standards, controls, policies and procedures or realize the anticipated benefits of the acquisitions and other investments within the anticipated time frame or at all;

• We, or NSAM, may be unable to effectively monitor and manage our expanded portfolio of properties, retain key employees or attract highly qualified new employees;

• Projections of estimated future revenues, costs savings or operating metrics that we develop during the due diligence and integration planning process might be inaccurate;

• Additional borrowings incurred or equity issued to finance acquisitions and investments could cause our leverage to increase or our per share financial results to decline;

• Acquisitions and other new investments could divert management’s attention from our existing assets;

• The value of acquired assets or the market price of our common stock may decline; and

• We may be unable to continue paying dividends at the current rate.

We cannot assure you that we will be able to integrate acquisitions and investments without encountering difficulties or that any such difficulties will not have a material adverse effect on us. Further, we cannot assure you that, the market will appropriately value our business and operations, which may cause the market price of our common stock to suffer.

We may undergo future restructurings, including internalization of our management company and/or spin-offs of certain of our assets, which may not be successful.

We may in the future determine to restructure our organization and/or assets, including potentially internalizing our management company and/or spinning off certain of our assets as we did with the NSAM Spin-off and the NRE Spin-off. Any such restructurings may not achieve the intended strategic and financial benefits or any benefits at all. In the event that any such restructuring does not achieve expected benefits, such restructuring could expose us to increased litigation and shareholder activism, have a negative effect on our financial condition and our ability to make distributions to stockholders.

We may be subject to the actions of activist shareholders.

We may be the subject of increased activity by activist shareholders and shareholder activism generally is increasing. Responding to shareholder activism can be costly and time-consuming, create conflicts with our manager, disrupt our operations and divert the attention of our manager from executing our business plan. Activist campaigns can create perceived uncertainties as to our future direction, strategy or leadership and may result in the loss of potential business opportunities, harm our ability to attract new investors, tenants/operators/managers and joint venture partners and cause our stock price to experience periods of volatility or stagnation. Moreover, if individuals are elected to our board of directors with a specific agenda, even though less than a majority, our ability to effectively and timely implement our current initiatives and execute on our long-term strategy may be adversely affected.

Our expenses may not decrease if our revenue decreases.

Many of the expenses associated with owning real estate, such as debt-service payments, payments to our asset manager, property taxes, insurance, utilities and, as applicable, employee wages and benefits, are relatively inflexible. They do not necessarily decrease in tandem with a reduction in revenue and may be subject to increases that are not tied to the performance of our assets or the increase in the rate of inflation generally. Additionally, certain costs may exceed the rate of inflation in any given period.

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We may be unable to offset any fixed or increased expenses. Any of our efforts to reduce operating costs also could adversely affect the future growth of our business and the value of our assets.

We are highly dependent on information systems and systems failures could significantly disrupt our business.

As a diversified CRE company, our business is highly dependent on information technology systems, including systems provided by NSAM and third parties for which we have no control. Various measures have been implemented to manage our risks related to the information technology systems, but any failure or interruption of our systems could cause delays or other problems in our activities, which could have a material adverse effect on our financial performance. Potential sources for disruption, damage or failure of our information technology systems include, without limitation, computer viruses, security breaches, human error, cyber attacks, natural disasters and defects in design.

Failure to implement effective information and cyber security policies, procedures and capabilities could disrupt our business and harm our results of operations.

We are dependent on the effectiveness of our information and cyber security policies, procedures and capabilities to protect our computer and telecommunications systems and the data that resides on or is transmitted through them. An externally caused information security incident, such as a hacker attack, virus or worm, or an internally caused issue, such as failure to control access to sensitive systems, could materially interrupt business operations or cause disclosure or modification of sensitive or confidential information and could result in material financial loss, loss of competitive position, regulatory actions, breach of contracts, reputational harm or legal liability.

Significant legal proceedings may adversely affect our results of operations or financial condition.

We may in the future be involved in litigation matters arising in the ordinary course of business and may potentially be involved in other legal proceedings, including securities class actions and regulatory and governmental investigations. We are unable to predict with certainty the eventual outcome of any litigation we may be involved in. Litigation could be more likely in connection with a change of control transaction or during periods of market dislocation or shareholder activism. Developments adverse to us in legal proceedings to which we may be subject in the future could have a material adverse effect on our financial condition, results of operations or our reputation.

We believe CAD and NOI (as defined below), each a non-GAAP measure, provides a meaningful indicator of our operating performance; however, neither CAD or NOI should be considered as an alternative to net income (loss) determined in accordance with U.S. GAAP as an indicator of operating performance.

Management uses CAD and net operating income, or NOI, to evaluate our profitability and performance of our business. CAD and NOI are each a non-GAAP financial measure. We believe that CAD is useful because it adjusts for a variety of cash (such as transaction costs, cash flow related to N-Star CDO equity interests and community fees) and non-cash items (such as depreciation and amortization, equity-based compensation, realized gain (loss) on investments, provision for loan losses, asset impairment, bad debt expense and non-cash interest income and expense items). We calculate CAD by subtracting from or adding to net income (loss) attributable to common stockholders, non-controlling interests and the following items: depreciation and amortization items including depreciation and amortization, straight-line rental income or expense (excluding amortization of rent free periods), amortization of above/below market leases, amortization of deferred financing costs, amortization of discount on financings and other and equity-based compensation; cash flow related to N-Star CDO equity interests; accretion of consolidated N-Star CDO bond discounts; non-cash net interest income in consolidated N-Star CDOs; unrealized gain (loss) from the change in fair value; realized gain (loss) on investments and other, excluding accelerated amortization related to sales of CDO bonds or other investments; provision for loan losses, net; impairment on depreciable property; bad debt expense; deferred tax benefit (expense); acquisition gains or losses; distributions and adjustments related to joint venture partners; transaction costs; foreign currency gains (losses); impairment on goodwill and other intangible assets; gains (losses) on sales; and one-time events pursuant to changes in U.S. GAAP and certain other non-recurring items. For example, CAD has been adjusted to exclude non-recurring gain (loss) from deconsolidation of certain N-Star CDOs. These items, if applicable, include any adjustments for unconsolidated ventures.

In addition, we believe NOI is a useful metric of the operating performance of our real estate portfolio in the aggregate. Portfolio results and performance metrics represent 100% for all consolidated investments and represent our ownership percentage for unconsolidated joint ventures. NOI represents total property and related revenues, adjusted for: (i) amortization of above/below market rent; (ii) straight line rent; (iii) other items such as adjustments related to joint ventures, cash flow related to community fees and non-recurring bad debt expense; and (iv) less property operating expenses. However, the usefulness of NOI is limited because it excludes general and administrative costs, interest expense, transaction costs, depreciation and amortization expense, realized gains (losses) from the sale of properties and other items under U.S. GAAP and capital expenditures and leasing costs necessary to maintain the operating performance of properties, all of which may be significant economic costs. NOI may fail to capture significant trends in these components of U.S. GAAP net income (loss) which further limits its usefulness.

Neither CAD or NOI should be considered as an alternative to net income (loss), determined in accordance with U.S. GAAP, as an indicator of operating performance. In addition, our methodology for calculating CAD and NOI involves subjective judgment

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and discretion, and may differ from the methodologies used by other comparable companies, including other REITs, when calculating the same or similar supplemental financial measures and may not be comparable with these companies. For example, our calculation of CAD per share does not take into account any potential dilution from our exchangeable senior notes or warrants outstanding, or restricted stock units subject to performance metrics not yet achieved.

Failure to meet market expectations, particularly with respect to CAD and NOI, would likely result in a decline and/or increased volatility in the market price of our common stock or other outstanding securities. Any guidance we may give regarding CAD or NOI or other measures will involve assumptions and subjective judgment and actual results may be materially different.

The use of estimates and valuations may be different from actual results, which could have a material effect on our consolidated financial statements.

We make various estimates that affect reported amounts and disclosures. Broadly, those estimates are used in measuring the fair value of certain financial instruments, establishing provision for loan losses and potential litigation liability. Market volatility may make it difficult to determine the fair value for certain assets and liabilities. Subsequent valuations, in light of factors then prevailing, may result in significant changes in the values of these financial instruments in future periods. In addition, at the time of any sales and settlements of these assets and liabilities, the price we ultimately realize will depend on the demand and liquidity in the market at that time for that particular type of asset and may be materially lower than our estimate of their current fair value. Estimates are based on available information and judgment. Therefore, actual values and results could differ from our estimates and that difference could have a material adverse effect on our consolidated financial statements.

Our distribution policy is subject to change.

Our board of directors determines an appropriate common stock distribution based upon numerous factors, including REIT qualification requirements, the amount of cash flow generated from operations, availability of existing cash balances, borrowing capacity under existing credit agreements, access to cash in the capital markets and other financing sources, our view of our ability to realize gains in the future through appreciation in the value of our assets, general economic conditions and economic conditions that more specifically impact our business or prospects. Our board of directors reviewed changes to our distribution policy on a quarterly basis in 2015 but may review such policy less frequently in the future.Following our board of directors’ review, our board of directors determined to reduce the distribution to $0.40 per share of common stock for the fourth quarter of 2015. Future distribution levels are subject to further adjustment based upon any one or more of the risk factors set forth in this Annual Report on Form 10-K, as well as other factors that our board of directors may, from time-to-time, deem relevant to consider when determining an appropriate common stock distribution and our distribution level could remain flat or decline.

We may not be able to make distributions in the future.

Our ability to generate income and to make distributions may be adversely affected by the risks described in this Annual Report on Form 10-K and any document we file with the SEC. All distributions are made at the discretion of our board of directors, subject to applicable law, and depend on our earnings, our financial condition, maintenance of our REIT qualification and such other factors as our board of directors may deem relevant from time-to-time. We may not be able to make distributions in the future or we may have to reduce our distribution rate.

Our ability to make distributions is limited by the requirements of Maryland law.

Our ability to make distributions on our common stock is limited by the laws of Maryland. Under applicable Maryland law, a Maryland corporation may not make a distribution if, after giving effect to the distribution, the corporation would not be able to pay its liabilities as the liabilities become due in the usual course of business, or generally if the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed if the corporation were dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of the stockholders whose preferential rights are superior to those receiving the distribution. Accordingly, we may not make a distribution on our common stock if, after giving effect to the distribution, we would not be able to pay our liabilities as they become due in the usual course of business or generally if our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the preferential rights upon dissolution of the holders of shares of any series of preferred stock then outstanding, if any, with preferences senior to those of our common stock.

Stockholders may experience substantial dilution.

We have in the past and may continue to undertake numerous and substantial offerings of our common stock and securities that are convertible into our common stock.  If we continue to engage in such offerings, whether through the public markets or in private placements, our existing stockholders may experience immediate and substantial dilution in their percentage ownership of our outstanding common stock. Furthermore, stockholders may experience dilution in the value of their shares depending on the terms and pricing of any new issuances and the value of our assets at such time.

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There can be no assurance that we will continue to repurchase stock or that we will repurchase stock at favorable prices.

Our board of directors has approved a stock repurchase program and may approve additional repurchase programs in the future. The amount and timing of stock repurchases are subject to capital availability and our determination that stock repurchases are in the best interest of our stockholders and are in compliance with all respective laws and our agreements applicable to the repurchase of stock. Our ability to repurchase stock will depend upon, among other factors, our cash balances and potential future capital requirements, results of operations, financial condition and other factors beyond our control that we may deem relevant. A reduction in, or the completion or expiration of, our stock repurchase program could have a negative effect on our stock price. We can provide no assurance that we will repurchase stock at favorable prices, if at all. Further, to the extent we incur borrowings to finance stock repurchases, our leverage will be increased, which increases the risk of loss associated with our business.

We may change our investment strategy without stockholder consent and make riskier investments.

We may change our investment strategy at any time without the consent of stockholders, which could result in our making investments that are different from and possibly riskier than the investments described in this Annual Report on Form 10-K. A change in our investment strategy may increase our exposure to interest rate and commercial real estate market fluctuations.

Stockholders have limited control over changes in our policies and operations, which increases the uncertainty and risks they face as stockholders.

Our board of directors determines our major policies, including our policies regarding growth, REIT qualification and distributions. Our board of directors may amend or revise these and other policies without a vote of the stockholders. We may change our investment policies without stockholder notice or consent, which could result in investments that are different than, or in different proportion than, those described in this Annual Report on Form 10-K. Under the Maryland General Corporation Law, or MGCL, and our charter, stockholders have a right to vote only on limited matters. Our board of directors’ broad discretion in setting policies and stockholders’ inability to exert control over those policies increases the uncertainty and risks stockholders face.

Risks Related to Regulatory Matters and Our REIT Tax Status

We are subject to substantial regulation, numerous contractual obligations and extensive internal policies and failure to comply with these matters could have a material adverse effect on our business, financial condition and results of operations.

We and our subsidiaries are subject to substantial regulation, numerous contractual obligations and extensive internal policies. Given our organizational structure, we are subject to regulation by the SEC, NYSE, IRS, and other federal, state, local and foreign governmental bodies and agencies. These regulations are extensive, complex and require substantial management time and attention. If we fail to comply with any of the regulations that apply to our business, we could be subjected to extensive investigations as well as substantial penalties and our business and operations could be materially adversely affected. Our lack of compliance with applicable law could result in, among other penalties, our ineligibility to contract with and receive revenue from the federal government or other governmental authorities and agencies. We also have numerous contractual obligations that we must adhere to on a continuous basis to operate our business, the default of which could have a material adverse effect on our business and financial condition. We have also established internal policies designed to ensure that we manage our business in accordance with applicable law and regulation and in accordance with our contractual obligations. While we have designed policies to appropriately operate our business, these internal policies may not be effective in all regards and, further, if we fail to comply with our internal policies, we could be subjected to additional risk and liability.

The direct or indirect effects of the Dodd-Frank Act, enacted in July 2010 for the purpose of stabilizing or reforming the financial markets, may have an adverse effect on our interest rate hedging activities.

In July 2010, the Dodd-Frank Act became law in the United States. Title VII of the Dodd-Frank Act provides for significantly increased regulation of and restrictions on derivatives markets and transactions that could affect our interest rate hedging or other risk management activities, including: (i) regulatory reporting for swaps; (ii) mandated clearing through central counterparties and execution through regulated exchanges or electronic facilities for certain swaps; and (iii) margin and collateral requirements. Although the U.S. Commodity Futures Trading Commission has not yet finalized certain requirements, many other requirements have taken effect, such as swap reporting, the mandatory clearing of certain interest rate swaps and credit default swaps and the mandatory trading of certain swaps on swap execution facilities or exchanges. While the full impact of the Dodd-Frank Act on our interest rate hedging activities cannot be assessed until implementing rules and regulations are adopted and market practice develops, the requirements of Title VII may affect our ability to enter into hedging or other risk management transactions, may increase our costs in entering into such transactions and may result in us entering into such transactions on less favorable terms than prior to effectiveness of the Dodd-Frank Act and the rules promulgated thereunder. The occurrence of any of the foregoing events may have an adverse effect on our business.

Maintenance of our Investment Company Act exemption imposes limits on our operations.

Neither we nor any of our subsidiaries intend to register as an investment company under the Investment Company Act. We intend to make investments and conduct our operations so that we are not required to register as an investment company. If we were

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obligated to register as an investment company, we would have to comply with a variety of substantive requirements under the Investment Company Act that impose, among other things:

• limitations on capital structure;

• restrictions on specified investments;

• prohibitions on transactions with affiliates; and

• compliance with reporting, recordkeeping, voting, proxy disclosure and other rules and regulations that would significantly increase our operating expenses.

Section 3(a)(1)(A) of the Investment Company Act defines an investment company as any issuer that is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities. Section 3(a)(1)(C) of the Investment Company Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S. government securities and cash) on an unconsolidated basis, which we refer to as the 40% test. Excluded from the term “investment securities,” among other things, are securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act. Because we are a holding company that conducts its businesses through subsidiaries, the securities issued by our subsidiaries that rely on the exception from the definition of investment company in Section 3(c)(1) or 3(c)(7) of the Investment Company Act, together with any other investment securities we may own directly, may not have a combined value in excess of 40% of the value of our total assets (exclusive of U.S. government securities and cash) on an unconsolidated basis. This requirement limits our ability to sell or otherwise dispose of our subsidiaries and the types of businesses in which we may engage through these subsidiaries.

We must monitor our subsidiaries’ holdings to ensure that we satisfy the 40% test. Through our wholly-owned or majority-owned subsidiaries, we will be primarily engaged in the non-investment company businesses of these subsidiaries, namely the business of purchasing or otherwise acquiring mortgages and other interests in real estate.

Most of these subsidiaries will rely on the exception from the definition of an investment company under Section 3(c)(5)(C) of the Investment Company Act, which is available for entities “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” This exemption generally requires that at least 55% of a subsidiary’s portfolio must be qualifying real estate assets and at least 80% of its portfolio must be qualifying real estate assets and real estate-related assets (and no more than 20% of miscellaneous assets). For purposes of the exclusions provided by Section 3(c)(5)(C), we will classify our investments based in large measure on no-action letters issued by the SEC staff and other SEC interpretive guidance and, in the absence of SEC guidance, on our view of what constitutes a qualifying real estate asset and a real estate-related asset. These no-action positions were issued in accordance with factual situations that may be substantially different from the factual situations we may face, and a number of these no-action positions were issued more than twenty years ago. In August 2011, the SEC issued a concept release in which it asked for comments on various aspects of Section 3(c)(5)(C), and, accordingly, the SEC or its staff may issue further guidance in the future. Future revisions to the Investment Company Act or further guidance from the SEC or its staff may force us to re-evaluate our portfolio and our investment strategy.

Certain of our other subsidiaries do not satisfy the 40% test, but instead rely on other exceptions from registration as an investment company under the Investment Company Act that either limit the types of assets these subsidiaries may purchase or the manner in which these subsidiaries may acquire and sell assets. For instance, certain of our CDOs rely on the exclusion from registration as an investment company under the Investment Company Act provided by Rule 3a-7 thereunder, which is available for certain structured financing vehicles. This exclusion limits the ability of these CDOs to sell their assets and reinvest the proceeds from asset sales.

The loss of our Investment Company Act exclusion could require us to register as an investment company or substantially change the way we conduct our business, either of which may have an adverse effect on us and the market price of our common stock.

On August 31, 2011, the SEC published a concept release (Release No. 29778, File No. S7-34-11, Companies Engaged in the Business of Acquiring Mortgages and Mortgage Related Instruments), pursuant to which it is reviewing whether certain companies that invest in mortgage-backed securities and rely on the exclusion from registration under Section 3(c)(5)(C) of the Investment Company Act, such as us, should continue to be allowed to rely on such an exclusion from registration. If the SEC takes action with respect to this exclusion, these changes could mean that certain of our CDOs and other subsidiaries could no longer rely on the Section 3(c)(5)(C) exclusion, and would have to rely on Section 3(c)(1) or 3(c)(7), which would mean that our investment in those subsidiaries would be investment securities. This could result in our failure to maintain our exclusion from registration as an investment company.

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If we fail to maintain an exclusion from registration as an investment company, either because of SEC interpretational changes or otherwise, we could, among other things, be required either: (i) to substantially change the manner in which we conduct our operations to avoid being required to register as an investment company; or (ii) to register as an investment company, either of which could have an adverse effect on us and the market price of our common stock. If we are required to register as an investment company under the Investment Company Act, we would become subject to substantial regulation with respect to our capital structure (including our ability to use leverage), management, operations, transactions with affiliated persons (as defined in the Investment Company Act), portfolio composition, including restrictions with respect to diversification and industry concentration and other matters.

Certain provisions of Maryland law may limit the ability of a third party to acquire control of us. This could depress our stock price.

Certain provisions of the MGCL may have the effect of inhibiting a third party from acquiring us or of impeding a change of control under circumstances that otherwise could provide our stockholders with the opportunity to realize a premium over the then-prevailing market price of such shares, including:

• “business combination” provisions that, subject to limitations, prohibit certain business combinations between an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our outstanding shares of voting stock or an affiliate or associate of the corporation who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding stock of the corporation) or an affiliate of any interested stockholder and us for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter imposes two super-majority stockholder voting requirements on these combinations; and

• “control share” provisions that provide that holders of “control shares” of our company (defined as voting shares of stock that, if aggregated with all other shares of stock owned or controlled by the acquirer, would entitle the acquirer to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of issued and outstanding “control shares”) have no voting rights except to the extent approved by stockholders by the affirmative vote of at least two-thirds of all of the votes entitled to be cast on the matter, excluding all interested shares.

Pursuant to the Maryland Business Combination Act, our board of directors has exempted any business combinations: (i) between us and NorthStar Capital Investment Corp. or any of its affiliates; and (ii) between us and any person, provided that any such business combination is first approved by our board of directors (including a majority of our directors who are not affiliates or associates of such person). Consequently, the five-year prohibition and the super-majority vote requirements do not apply to business combinations between us and any of them. As a result, such parties may be able to enter into business combinations with us that may not be in the best interest of stockholders, without compliance with the supermajority vote requirements and the other provisions in the statute. Our bylaws contain a provision exempting from the Maryland Control Share Acquisition Act any and all acquisitions by any person of shares of our stock. There can be no assurance that these resolutions or exemptions will not be amended or eliminated at any time in the future.

Our authorized but unissued common and preferred stock and other provisions of our charter and bylaws may prevent a change in our control.

Our charter authorizes us to issue additional authorized but unissued shares of our common stock or preferred stock and authorizes our board of directors, without stockholder approval, to amend our charter to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we have the authority to issue. In addition, our board of directors may classify or reclassify any unissued shares of common stock or preferred stock and may set the preferences, rights and other terms of the classified or reclassified shares. Our board of directors could establish a series of common stock or preferred stock that could delay or prevent a transaction or a change in control that might involve a premium price for the common stock or otherwise be in the best interest of stockholders.

Our charter and bylaws also contain other provisions that may delay or prevent a transaction or a change in control that might involve a premium price for shares of our common stock or otherwise be in the best interest of stockholders.

Maryland law also allows a corporation with a class of equity securities registered under the Exchange Act and at least three independent directors to elect to be subject, by provision in its charter or bylaws or a resolution of its board of directors and notwithstanding any contrary provision in its charter or bylaws, to a classified board, unless its charter prohibits such an election. Our charter contains a provision prohibiting such an election to classify our board of directors under this provision of Maryland law. This may make us more vulnerable to a change in control. If stockholders voted to amend this charter provision and to classify our board of directors, the staggered terms of our directors could reduce the possibility of a tender offer or an attempt at a change in control even though a tender offer or change in control might be in the best interests of stockholders.

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Our bylaws designate the Circuit Court for Baltimore City, Maryland or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division, as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to bring a claim in a judicial forum that the stockholder believes is more favorable judicial forum for disputes with us or our directors, officers, manager or agents.

Our bylaws currently provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland, or if that court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division, will be the sole and exclusive forum for: (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim for breach of a duty owed by any director, officer, manager, agent or employee of ours to us or our stockholders; (iii) any action asserting a claim against us or any director, officer, manager, agent or employee of ours arising pursuant to the MGCL, our charter or bylaws brought by or on behalf of a stockholder; or (iv) any action asserting a claim against us or any director, officer, manager, agent or employee of ours that is governed by the internal affairs doctrine. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that the stockholder believes is favorable for disputes with us or our directors, officers, manager or agents, which may discourage lawsuits against us and our directors, officers, manager or agents.

Our failure to continue to qualify as a REIT would subject us to federal income tax and reduce cash available for distribution to stockholders.

We intend to continue to operate in a manner so as to continue to qualify as a REIT for federal income tax purposes. Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which only a limited number of judicial and administrative interpretations exist. Even an inadvertent or technical mistake could jeopardize our REIT status. Our continued qualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis.

Moreover, new tax legislation, administrative guidance or court decisions, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to continue to qualify as a REIT. If we fail to continue to qualify as a REIT in any taxable year, we would be subject to federal and applicable state and local income tax on our taxable income at corporate rates. Losing our REIT status would reduce our net income available for investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer qualify for the dividends-paid deduction and we would no longer be required to make distributions. If this occurs, we might be required to borrow or liquidate some investments in order to pay the applicable tax.

If, for any reason, we failed to continue to qualify as a REIT and we were not entitled to relief under certain Internal Revenue Code provisions, we would be unable to elect REIT status for the four taxable years following the year during which we ceased to so qualify.

Complying with REIT requirements may force us to borrow funds to make distributions to stockholders or otherwise depend on external sources of capital to fund such distributions.

To continue to qualify as a REIT, we are required to distribute annually at least 90% of our taxable income, subject to certain adjustments, to stockholders. To the extent that we satisfy the distribution requirement, but distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. In addition, we may elect to retain and pay income tax on our net long-term capital gain. In that case, a stockholder would be taxed on its proportionate share of our undistributed long-term gain and would receive a credit or refund for its proportionate share of the tax we paid. A stockholder, including a tax-exempt or foreign stockholder, would have to file a federal income tax return to claim that credit or refund. Furthermore, we will be subject to a 4% nondeductible excise tax if the actual amount that we distribute to stockholders in a calendar year is less than a minimum amount specified under federal tax laws. We anticipate that distributions generally will be taxable as ordinary income, although a portion of such distributions may be designated by us as long-term capital gain to the extent attributable to capital gain income recognized by us, or may constitute a return of capital to the extent that such distribution exceeds our earnings and profits as determined for tax purposes.

From time-to-time, we may generate taxable income greater than our net income (loss) for U.S. GAAP, due to among other things, amortization of capitalized purchase premiums, fair value adjustments and reserves. In addition, our taxable income may be greater than our cash flow available for distribution to stockholders as a result of, among other things, repurchases of our outstanding debt at a discount and investments in assets that generate taxable income in advance of the corresponding cash flow from the assets (for example, if a borrower defers the payment of interest in cash pursuant to a contractual right or otherwise).

We believe that the former operating partnership of our predecessor properly elected to defer, under Section 108(i) of the Internal Revenue Code, the recognition of cancellation of indebtedness, or COD, income generated from repurchasing its debt at a discount. If the IRS successfully challenges that election, our predecessor may be treated as having failed to pay sufficient dividends to satisfy the 90% distribution requirement and/or avoid the corporate income tax and the 4% nondeductible excise tax. We may be

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required to correct any failure to meet the 90% distribution requirement by paying deficiency dividends to stockholders and an interest charge to the IRS in a later year.

If we do not have other funds available in the situations described in the preceding paragraphs, we could be required to borrow funds on unfavorable terms, sell investments at disadvantageous prices or find another alternative source of funds to make distributions sufficient to enable us to distribute enough of our taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs or reduce our equity.

Because of the distribution requirement, it is unlikely that we will be able to fund all future capital needs, including capital needs in connection with investments, from cash retained from operations. As a result, to fund future capital needs, we likely will have to rely on third-party sources of capital, including both debt and equity financing, which may or may not be available on favorable terms or at all. Our access to third‑party sources of capital will depend upon a number of factors, including the market’s perception of our growth potential and our current and potential future earnings and cash distributions and the market price of our stock.

Our TRS structure increases our overall tax liability.

We have acquired interests in multiple portfolios of hotel and healthcare properties through joint ventures, the Griffin American merger and otherwise. Some of these properties are leased to TRSs of ours, which, in turn, engage “eligible independent contractors” to operate such properties. Such an arrangement is referred to as a “RIDEA structure.” We refer to the TRS lessees in our RIDEA structures as our “TRS Lessees.” Our TRS Lessees are subject to federal, state and local income tax on their taxable income, which consists of the revenues from the hotel and healthcare properties leased by our TRS Lessees, net of the operating expenses for such properties and rent payments to us. Accordingly, although our ownership of our TRS Lessees allows us to participate in the operating income from our hotel and healthcare properties in addition to receiving rent, that operating income is fully subject to income tax. The after-tax net income of our TRS Lessees is available for distribution to us.

Our ownership of TRSs is limited and our transactions with our TRSs will cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on arm’s-length terms.

A REIT may own up to 100% of the stock of one or more TRSs. A TRS may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT, including gross operating income from hotels and healthcare properties that are operated by eligible independent contractors pursuant to management agreements. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 25% (20% for taxable years beginning after December 31, 2017) of the value of a REIT's gross assets may consist of stock or securities of one or more TRSs. In addition, the TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. The rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm's-length basis.

Our TRSs are subject to federal, foreign, state and local income tax on their taxable income and their after-tax net income is available for distribution to us but is not required to be distributed to us. We believe that the aggregate value of the stock and securities of our TRSs is and will continue to be less than 25% (20% for taxable years beginning after December 31, 2017) of the value of our total gross assets (including our TRS stock and securities). Furthermore, we will monitor the value of our respective investments in our TRSs for the purpose of ensuring compliance with TRS ownership limitations. In addition, we will scrutinize all of our transactions with our TRSs to ensure that they are entered into on arm's-length terms to avoid incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to comply with the 25% or 20% limitations discussed above or to avoid application of the 100% excise tax discussed above.

If our leases with our TRS Lessees are not respected as true leases for federal income tax purposes, we could fail to qualify as a REIT.

To qualify as a REIT, we are required to satisfy two gross income tests, pursuant to which specified percentages of our gross income must be passive income, such as rent. For the rent paid pursuant to the hotel and healthcare property leases with our TRS Lessees, which constitutes a significant portion of our gross income, to qualify for purposes of the gross income tests, the leases must be respected as true leases for federal income tax purposes and must not be treated as service contracts, joint ventures or some other type of arrangement. We have structured our leases, and intend to structure any future leases, so that the leases will be respected as true leases for federal income tax purposes, but there can be no assurance that the IRS will agree with this characterization, not challenge this treatment or that a court would not sustain such a challenge. If the leases were not respected as true leases for federal income tax purposes, we could fail to satisfy either of the two gross income tests applicable to REITs and could fail to qualify for REIT status.

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If our hotel and healthcare property managers do not qualify as “eligible independent contractors”, we could fail to qualify as a REIT.

Rent paid by a lessee that is a “related party tenant” of ours will not be qualifying income for purposes of the two gross income tests applicable to REITs. We lease all of our hotels and a substantial portion of our healthcare properties to our TRS Lessees. A TRS Lessee will not be treated as a “related party tenant” and will not be treated as directly operating a lodging facility to the extent the TRS Lessee leases properties from us that are managed by an “eligible independent contractor.” In addition, our TRS Lessees will fail to qualify as TRSs if they lease or own a lodging or healthcare facility that is not managed by an “eligible independent contractor.”

If our hotel and healthcare property managers do not qualify as “eligible independent contractors,” we would fail to qualify as a REIT. Each of the hotel and healthcare management companies that enters into a management contract with our TRS Lessees must qualify as an “eligible independent contractor” under the REIT rules in order for the rent paid to us by our TRS Lessees to be qualifying income for our REIT income test requirements and for our TRS Lessees to qualify as TRSs. Among other requirements, in order to qualify as an eligible independent contractor a manager must not own more than 35% of our outstanding shares (by value) and no person or group of persons can own more than 35% of our outstanding shares and the ownership interests of the manager, taking into account only owners of more than 5% of our shares and, with respect to ownership interests in such managers that are publicly traded, only holders of more than 5% of such ownership interests. Complex ownership attribution rules apply for purposes of these 35% thresholds. Although we intend to monitor ownership of our shares by our property managers and their owners, there can be no assurance that these ownership levels will not be exceeded.

If the NSAM Spin-off and related restructuring did not qualify as transactions that are generally tax-deferred for U.S. federal income tax purposes, we could fail to qualify as a REIT.

On June 30, 2014, we distributed to our common stockholders the common stock of NSAM, which owns our former asset management business, in the form of a tax-deferred distribution, or the Distribution. In connection with the Distribution, we received opinions of counsel to the effect that, among other things, the Distribution should be treated as a tax-deferred distribution under Section 355 of the Code. We did not seek or receive a private letter ruling from the IRS regarding the tax consequences of the Distribution. The opinions we received were based on our representations and certain assumptions. If the representations or assumptions were untrue or incomplete in any material respect, the Distribution may not be treated as a tax-deferred transaction. Moreover, the opinions we received were based on existing U.S. federal income tax law, which is subject to change, possibly on a retroactive basis, and are not binding on the IRS or any court. Accordingly, no assurance can be provided that the opinions we received will not be successfully challenged by the IRS.

If the Distribution did not qualify as a tax-deferred distribution for U.S. federal income tax purposes, we would recognize taxable gain equal to the excess of the fair market value of the NSAM common stock distributed over our adjusted tax basis in such stock. The gain from that taxable sale may cause us to fail to satisfy the 75% gross income test. Unless that failure qualifies for a statutory “REIT savings provision,” we would fail to qualify as a REIT for our 2014 taxable year and would be prohibited from electing REIT status for the following four taxable years.

Even if the Distribution otherwise qualifies as a tax-deferred distribution, it might be taxable to us under Section 355(e) of the Internal Revenue Code if 50% or more of either the total voting power or the total fair market value of our stock or the NSAM stock is acquired as part of a plan or series of related transactions that include the Distribution. If Section 355(e) of the Internal Revenue Code applies as a result of such an acquisition, we would recognize a taxable gain as described above.

We would incur adverse tax consequences if Griffin-American failed to qualify as a REIT for U.S. federal income tax purposes.

On December 3, 2014, we acquired Griffin-American via a merger. In connection with the closing of the merger, we received an opinion of counsel to the effect that Griffin-American qualified to be taxed as a REIT for U.S. federal income tax purposes through the closing date of the merger. In connection with the merger, Griffin-American ceased to exist as a separate REIT. However, if Griffin-American failed to qualify as a REIT prior to the merger, the combined company generally would succeed to or incur significant tax liabilities (including the significant tax liability that would result from the deemed sale of assets by Griffin-American pursuant to the merger). Additionally, the combined company could possibly lose its REIT qualification should the activities that disqualified Griffin-American continue after the merger.

For any taxable year that we fail to qualify as a REIT and are unable to avail ourselves of certain savings provisions set forth in the Internal Revenue Code, we would be subject to U.S. federal income tax at the regular corporate rates on all of our taxable income, whether or not we makes any distributions to our stockholders. Those taxes would reduce the amount of cash available for distribution to our stockholders or for reinvestment and would adversely affect our earnings. As a result, our failure to qualify as a REIT during any taxable year could have a material adverse effect upon us and our stockholders. Furthermore, unless certain relief provisions apply, we would not be eligible to elect REIT status again until the fifth taxable year that begins after the first year for which we failed to qualify.

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We could fail to continue to qualify as a REIT and/or pay additional taxes if the IRS recharacterizes certain of our international investments.

We have recently made, and intend to continue to make, significant property investments in international jurisdictions. We have funded our equity in such investments through the use of instruments that we believe will be treated as equity for U.S. tax purposes. If the IRS disagreed with such characterization and was successful in recharacterizing the nature of our investments in international jurisdictions, we could fail to satisfy one or more of the asset and gross income tests applicable to REITs. Additionally, if the IRS recharacterized the nature of our investments and we were to take action to prevent such REIT test failures, the actions we would take could expose us to increased taxes both internationally and in the United States.

We could be subject to increased taxes if the tax authorities in various international jurisdictions were to modify tax rules and regulations on which we have relied in structuring our international investments.

We currently receive favorable tax treatment in various international jurisdictions through tax rules, regulations, tax authority rulings, and international tax treaties. Should changes occur to these rules, regulations, rulings or treaties, we may no longer receive such benefits, and consequently, the amount of taxes we pay with respect to our international investments may increase.

We could fail to continue to qualify as a REIT if the IRS successfully challenges our treatment of our mezzanine loans and repurchase agreements.

We intend to continue to operate in a manner so as to continue to qualify as a REIT for federal income tax purposes. However, qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which only a limited number of judicial and administrative interpretations exist. If the IRS disagrees with the application of these provisions to our assets or transactions, including with respect to assets we have owned in past transactions, our REIT qualification could be jeopardized. For example, IRS Revenue Procedure 2003-65 provides a safe harbor pursuant to which a mezzanine loan, if it meets each of the requirements contained in Revenue Procedure 2003-65, will be treated by the IRS as a real estate asset for purposes of the REIT asset tests and interest derived from it will be treated as qualifying mortgage interest for purposes of the 75% income test. Although Revenue Procedure 2003-65 provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law. Moreover, our mezzanine loans typically do not meet all of the requirements for reliance on this safe harbor. We have invested, and will continue to invest, in mezzanine loans in a manner that we believe will enable us to continue to satisfy the REIT gross income and asset tests. In addition, we have entered into sale and repurchase agreements under which we nominally sold certain of our mortgage assets to a counterparty and simultaneously entered into an agreement to repurchase the sold assets. We believe that we will be treated for federal income tax purposes as the owner of the mortgage assets that are the subject of any such sale and repurchase agreement notwithstanding that we transferred record ownership of the assets to the counterparty during the term of the agreement. It is possible, however, that the IRS could assert that we did not own the mortgage assets during the term of the sale and repurchase agreement, in which case our ability to continue to qualify as a REIT could be adversely affected. Even if the IRS were to disagree with one or more of our interpretations and we were treated as having failed to satisfy one of the REIT qualification requirements, we could maintain our REIT qualification if our failure was excused under certain statutory savings provisions. However, there can be no guarantee that we would be entitled to benefit from those statutory savings provisions if we failed to satisfy one of the REIT qualification requirements, and even if we were entitled to benefit from those statutory savings provisions, we could be required to pay a penalty tax.

The failure of a mezzanine loan to qualify as a real estate asset could adversely affect our ability to continue to qualify as a REIT.

The IRS has issued Revenue Procedure 2003-65, which provides a safe harbor pursuant to which a mezzanine loan that is secured by interests in a pass-through entity will be treated by the IRS as a real estate asset for purposes of the REIT tests, and interest derived from such loan will be treated as qualifying mortgage interest for purposes of the REIT 75% gross income test. Although the Revenue Procedure provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law. We originated and acquired and will continue to originate and acquire mezzanine loans that do not satisfy all of the requirements for reliance on the safe harbor set forth in the Revenue Procedure. Consequently, there can be no assurance that the IRS will not challenge the tax treatment of such loans, which could jeopardize our ability to continue to qualify as a REIT.

Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.

Even if we remain qualified for taxation as a REIT, we may be subject to certain federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from certain activities conducted as a result of taking title to collateral, the federal alternative minimum tax and state or local income, property and transfer taxes, such as mortgage recording taxes. Any of these taxes would decrease cash available for distribution to stockholders. In addition, in order to meet the REIT qualification requirements, or to avert the imposition of a 100% tax that applies to certain gains derived by a REIT from dealer property or inventory, we may hold some of our assets through TRSs.

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Complying with REIT requirements may cause us to forego otherwise attractive opportunities or liquidate otherwise attractive investments.

To continue to qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to stockholders and the ownership of our stock. As discussed above, we may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution. Additionally, we may be unable to pursue investments that would be otherwise attractive to us in order to satisfy the source of income requirements for qualifying as a REIT.

We must also ensure that, at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified real estate assets, including certain mortgage loans and mortgage-backed securities. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets can consist of the securities of any one issuer (other than government securities and qualified real estate assets), no more than 25% (20% for taxable years beginning after December 31, 2017) of the value of our total securities can be represented by securities of one or more TRSs and no more than 25% of our assets can be represented by debt of “publicly offered REITs” that is not secured by real property or interests in real property.

If we fail to comply with these requirements at the end of any calendar quarter, we must correct such failure within 30 days after the end of the calendar quarter to avoid losing our REIT status and suffering adverse tax consequences, unless certain relief provisions apply. As a result, compliance with the REIT requirements may hinder our ability to operate solely on the basis of profit maximization and may require us to liquidate investments from our portfolio, or refrain from making, otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to stockholders.

Modification of the terms of our CRE debt investments and mortgage loans underlying our CMBS in conjunction with reductions in the value of the real property securing such loans could cause us to fail to continue to qualify as a REIT.

Our CRE debt and securities investments have been and may continue to be materially affected by a weak real estate market and economy in general. As a result, many of the terms of our CRE debt and the mortgage loans underlying our CRE securities may be modified to avoid taking title to a property and for other reasons. Under the Internal Revenue Code, if the terms of a loan are modified in a manner constituting a “significant modification,” such modification triggers a deemed exchange of the original loan for the modified loan. In general, under applicable Treasury Regulations, or the Loan-to-Value Regulation, if a loan is secured by real property and other property and the highest principal amount of the loan outstanding during a taxable year exceeds the fair market value of the real property securing the loan determined as of the date we agreed to acquire the loan or the date we significantly modified the loan, a portion of the interest income from such loan will not be qualifying income for purposes of the 75% gross income test, but will be qualifying income for purposes of the 95% gross income test. Under recently enacted legislation, if such loan is secured by both real property and personal property and the fair market value of such personal property does not exceed 15% of the total fair market value of all such property, then the personal property securing the loan will be treated as real property. Although the law is not entirely clear, a portion of the loan not attributable to real property or personal property as described in the preceding sentence will likely be a non-qualifying asset for purposes of the 75% asset test. The non-qualifying portion of such a loan would be subject to, among other requirements, the requirement that a REIT not hold securities possessing more than 10% of the total value of the outstanding securities of any one issuer, or the 10% Value Test.

IRS Revenue Procedure 2014-51 provides a safe harbor pursuant to which we will not be required to redetermine the fair market value of the real property securing a loan for purposes of the gross income and asset tests discussed above in connection with a loan modification that is: (i) occasioned by a borrower default; or (ii) made at a time when we reasonably believe that the modification to the loan will substantially reduce a significant risk of default on the original loan. No assurance can be provided that all of our loan modifications have or will qualify for the safe harbor in Revenue Procedure 2014-51. Further, it is unclear how the safe harbor in Revenue Procedure 2014-51 is affected by the recent legislative changes regarding the treatment of personal property securing a mortgage loan. Until additional guidance is issued, we intend to apply the safe harbor in Revenue Procedure 2014-51 without taking into account the legislative changes regarding the treatment of loans secured by both real property and personal property. To the extent we significantly modify loans in a manner that does not qualify for that safe harbor, we will be required to redetermine the value of the real property securing the loan at the time it was significantly modified. In determining the value of the real property securing such a loan, we generally will not obtain third-party appraisals, but rather will rely on internal valuations. No assurance can be provided that the IRS will not successfully challenge our internal valuations. If the terms of our CRE debt investments and mortgage loans underlying our CMBS are “significantly modified” in a manner that does not qualify for the safe harbor in Revenue Procedure 2014-51 and the fair market value of the real property securing such loans has decreased significantly, we could fail the 75% gross income test, the 75% asset test and/or the 10% Value Test. Unless we qualified for relief under certain Internal Revenue Code cure provisions, such failures could cause us to fail to continue to qualify as a REIT.

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Our ability to invest in distressed debt may be limited by our intention to maintain our qualification as a REIT.

We have and may in the future acquire distressed debt, including distressed first mortgage loans, subordinate interests, mezzanine loans and CMBS. In general, under the Loan-to-Value Regulation, if a loan is secured by real property and other property and the highest principal amount of the loan outstanding during a taxable year exceeds the fair market value of the real property securing the loan as of the date we agreed to acquire the loan or the date we significantly modified the loan, a portion of the interest income from such a loan will not be qualifying income for purposes of the 75% gross income test, but will be qualifying income for purposes of the 95% gross income test. Under recently enacted legislation, if such loan is secured by both real property and personal property and the fair market value of such personal property does not exceed 15% of the total fair market value of all such property, then the personal property securing the loan will be treated as real property. Although the law is not entirely clear, a portion of the loan not attributable to real property or personal property as described in the preceding sentence will also likely be a non-qualifying asset for purposes of the 75% asset test. The non-qualifying portion of such a loan would be subject to, among other requirements, the 10% Value Test. IRS Revenue Procedure 2014-51 provides a safe harbor under which the IRS has stated that it will not challenge a REIT’s treatment of a loan as being, in part, a qualifying real estate asset in an amount equal to the lesser of: (i) the fair market value of the loan on the date of the relevant quarterly REIT asset testing date; or (ii) the greater of (a) the fair market value of the real property securing the loan determined as of the date the REIT committed to acquire or originate the loan; or (b) the current value of the real property securing the loan on the date of the relevant quarterly REIT testing date. Additionally, Revenue Procedure 2014-51 states that the IRS will treat a distressed debt as producing a significant amount of non-qualifying income for the 75% gross income test. Specifically, Revenue Procedure 2014-51 indicates that interest income on distressed debt will be treated as qualifying income based on the ratio of (i) fair market value of the real property securing the debt determined as of the date we committed to acquire the debt and (ii) the face amount of the debt (and not the purchase price of the debt). It is unclear how the safe harbor in Revenue Procedure 2014-51 is affected by the recent legislative changes regarding the treatment of personal property securing a mortgage loan. Until additional guidance is issued, we intend to apply the safe harbor in Revenue Procedure 2014-51 without taking into account the legislative changes regarding the treatment of loans secured by both real property and personal property. The face amount of a distressed debt will typically exceed the fair market value of the real property securing the debt on the date we commit to acquire the debt. Because distressed debt may produce a significant amount of non-qualifying income for purposes of the 75% gross income test and a significant portion of a distressed debt may be treated as a non-qualifying asset for the REIT asset tests once the debt increases in value, we may be limited in our ability to invest in distressed debt and maintain our qualification as a REIT.

Our investments in distressed debt may produce “phantom income” that will increase the amount of taxable income we have to distribute to satisfy the REIT distribution requirement and may cause us to sell assets, borrow or make taxable distributions of debt or equity securities to satisfy that requirement.

Our acquisition of distressed debt may cause us to recognize “phantom income” (or non-cash income) for federal income tax purposes. For example, if we acquire non-publicly traded distressed debt and then significantly modify that debt, we would recognize gain on the resulting deemed exchange equal to the difference between the adjusted issue price of the distressed debt and our adjusted tax basis in the distressed debt. Because we typically acquire distressed debt at a significant discount, our adjusted tax basis in the distressed debt typically is significantly lower than the adjusted issue price of the distressed debt. Accordingly, if we significantly modify non-publicly traded distressed debt, we may recognize a substantial amount of taxable income without receiving any cash. That “phantom income” will increase the amount of taxable income we are required to distribute to satisfy the REIT distribution requirement. To satisfy that requirement, we may have to sell assets or borrow funds at inopportune times or make taxable distributions of our debt or equity securities.

Our acquisition of CRE debt or securities investments may cause us to recognize income for federal income tax purposes even though no cash payments have been received on the debt investments.

We may acquire CRE debt or securities investments in the secondary market for less than their face amount. The amount of such discount will generally be treated as a “market discount’’ for federal income tax purposes. If these debt or securities investments provide for “payment-in-kind,’’ we may recognize “original issue discount,’’ or OID, for federal income tax purposes. Moreover, we may acquire distressed debt investments that are subsequently modified by agreement with the borrower. If the amendments to the outstanding debt constitute “significant modifications’’ under the applicable Treasury Regulations, the modified debt may be considered to have been reissued to us in a debt-for-debt exchange with the borrower. In that event, if the debt is considered to be “publicly-traded’’ for federal income tax purposes, the modified debt in our hands may be considered to have been issued with OID to the extent the fair market value of the modified debt is less than the principal amount of the outstanding debt. In the event the debt is not considered to be “publicly traded’’ for federal income tax purposes, we may be required to recognize taxable income to the extent that the principal amount of the modified debt exceeds our cost of purchasing it. Also, certain loans that we originate and certain previously modified debt we acquire in the secondary market may be considered to have been issued with the OID at the time it was modified.

In general, we will be required to accrue OID on a debt instrument as taxable income in accordance with applicable federal income tax rules even though no cash payments may be received on such debt instrument.

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In the event a borrower with respect to a particular debt instrument encounters financial difficulty rendering it unable to pay stated interest as due, we may nonetheless be required to continue to recognize the unpaid interest as taxable income. Similarly, we may be required to accrue interest income with respect to subordinate mortgage-backed securities at the stated rate regardless of when their corresponding cash payments are received.

In order to meet the REIT distribution requirements, it might be necessary for us to arrange for short-term, or possibly long-term, borrowings, or to pay distributions in the form of our shares or other taxable in-kind distributions of property. We may need to borrow funds at times when the market conditions are unfavorable. Such borrowings could increase our costs and reduce the value of a stockholders’ investment. In the event in-kind distributions are made, a stockholder’s tax liabilities associated with an investment in our common stock for a given year may exceed the amount of cash we distribute to stockholders during such year.

Complying with REIT requirements may limit our ability to hedge effectively.

The REIT provisions of the Internal Revenue Code may limit our ability to hedge our operations effectively. Our aggregate gross income from non-qualifying hedges, fees and certain other non-qualifying sources cannot exceed 5% of our annual gross income. Additionally, our gross income from qualifying hedges entered into prior to July 31, 2008 constitutes non-qualifying income for purposes of the 75% gross income test. Consequently, our gross income from qualifying hedges entered into prior to July 31, 2008, along with other sources of non-qualifying income for purposes of the 75% gross income test, cannot exceed 25% of our annual gross income. As a result, we might have to limit our use of advantageous hedging techniques or implement those hedges through a TRS. Any hedging income earned by a TRS would be subject to federal, state and local income tax at regular corporate rates. This could increase the cost of our hedging activities or expose us to greater risks associated with interest rate or other changes than we would otherwise incur.

Liquidation of assets may jeopardize our REIT qualification.

To continue to qualify as a REIT, we must comply with requirements regarding our assets and our sources of income. If we are compelled to liquidate our investments to satisfy our obligations to our lenders, we may be unable to comply with these requirements, ultimately jeopardizing our qualification as a REIT, or we may be subject to a 100% prohibited transaction tax on any resulting gain if we sell assets that are treated as dealer property or inventory.

Legislative or regulatory tax changes could adversely affect us or stockholders.

At any time, the federal income tax laws can change. Laws and rules governing REITs or the administrative interpretations of those laws may be amended. Any of those new laws or interpretations may take effect retroactively and could adversely affect us or stockholders.

We may be subject to the REIT prohibited transactions tax as a result of executing on potential avenues to monetize our assets and deleverage our balance sheet, which could result in a significant federal income tax liability to us.

As discussed above, we are exploring potential strategies to monetize certain of our assets in order to deleverage our balance sheet and create liquidity for approaching maturities on borrowings and common stock repurchases. A REIT will incur a 100% tax on the net income from prohibited transactions. Generally, a prohibited transaction includes a sale or disposition of property held primarily for sale to customers in the ordinary course of a trade or business. While we believe that any dispositions of our assets pursuant to our deleveraging strategy should not be treated as prohibited transactions, and although we intend to conduct our operations so that we will not be treated as holding our properties for sale, whether a particular sale will be treated as a prohibited transaction depends on the underlying facts and circumstances and we have not sought and do not intend to seek, a ruling from the IRS on that issue. Accordingly, we cannot assure you that the IRS would not successfully assert a contrary position with respect to our dispositions. If all or a significant portion of our dispositions were treated as prohibited transactions, we would incur a significant U.S. federal income tax liability, which could have a material adverse effect on our results of operations.

The prohibited transactions tax may limit our ability to engage in transactions, including certain methods of securitizing loans, which would be treated as sales for federal income tax purposes.

A REIT’s net income from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of property, other than property that we took title to as a result of a default on a debt investment or lease and for which we make a foreclosure property election, but including loans, held primarily for sale to customers in the ordinary course of business. We might be subject to the prohibited transaction tax if we were to dispose of or securitize loans in a manner that is treated as a sale of the loans for federal income tax purposes. Therefore, in order to avoid the prohibited transactions tax, we may choose not to engage in certain sales of loans and may limit the structures we use for any securitization financing transactions even though such sales or structures might otherwise be beneficial to us.

It may be possible to reduce the impact of the prohibited transaction tax by conducting certain activities through a TRS. However, to the extent that we engage in such activities through a TRS, the income associated with such activities may be subject to a corporate income tax.

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We also will not be able to use secured financing structures that would create taxable mortgage pools, other than in a TRS.

We may recognize substantial amounts of REIT taxable income, which we would be required to distribute to stockholders, in a year in which we are not profitable under U.S. GAAP or other economic measures.

We may recognize substantial amounts of REIT taxable income in years in which we are not profitable under U.S. GAAP or other economic measures as a result of the differences between U.S. GAAP and tax accounting methods. For example, we may recognize substantial amounts of COD income for federal income tax purposes (but not for U.S. GAAP purposes) due to discount repurchases of our liabilities, which could cause our REIT taxable income to exceed our U.S. GAAP income. Additionally, we may deduct our capital losses only to the extent of our capital gains and not against our ordinary income, in computing our REIT taxable income for a given taxable year. Finally, certain of our assets and liabilities are marked-to-market for U.S. GAAP purposes but not for tax purposes, which could result in losses for U.S. GAAP purposes that are not recognized in computing our REIT taxable income. Consequently, we could recognize substantial amounts of REIT taxable income and would be required to distribute such income to stockholders in a year in which we are not profitable under U.S. GAAP or other economic measures.

We may distribute our common stock in a taxable distribution, in which case stockholders may sell shares of our common stock to pay tax on such distributions, placing downward pressure on the market price of our common stock.

We may make taxable distributions that are payable in cash and common stock. The IRS has issued private letter rulings to other REITs treating certain distributions that are paid partly in cash and partly in stock as taxable distributions that would satisfy the REIT annual distribution requirement and qualify for the dividends paid deduction for federal income tax purposes. Those rulings may be relied upon only by taxpayers to whom they were issued, but we could request a similar ruling from the IRS. In addition, the IRS issued a revenue procedure creating a temporary safe harbor that authorized publicly traded REITs to make elective cash/stock distributions, but that temporary safe harbor has expired. Accordingly, it is unclear whether and to what extent we will be able to make taxable distributions payable in cash and common stock. If we made a taxable dividend payable in cash and common stock, taxable stockholders receiving such distributions will be required to include the full amount of the dividend, which is treated as ordinary income to the extent of our current and accumulated earnings and profits, as determined for federal income tax purposes. As a result, stockholders may be required to pay income tax with respect to such distributions in excess of the cash distributions received. If a U.S. stockholder sells the common stock that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount recorded in earnings with respect to the dividend, depending on the market price of our common stock at the time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S. federal income tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in common stock. If we made a taxable dividend payable in cash and our common stock and a significant number of stockholders determine to sell shares of our common stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our common stock.

We may lose our REIT status if the IRS successfully challenges our characterization of our income from our foreign TRSs.

We have elected to treat several Cayman Islands companies, including issuers in CDO transactions, as TRSs. We will likely be required to include in our income, even without the receipt of actual distributions, earnings from our investment in the foreign TRSs. Income inclusions from equity investments in foreign corporations are technically neither actual dividends nor any of the other enumerated categories of qualifying income for the 95% gross income test. However, the IRS has issued private letter rulings to other REITs holding that income inclusions from equity investments in foreign corporations would be treated as qualifying income for purposes of the 95% gross income test. Private letter rulings may be relied upon only by the taxpayers to whom they are issued and the IRS may revoke a private letter ruling. Based on those private letter rulings and advice of counsel, we intend to treat such income inclusions as qualifying income for purposes of the 95% gross income test. Nevertheless, no assurance can be provided that the IRS would not successfully challenge our treatment of such income as qualifying income. In the event that such income was determined not to qualify for the 95% gross income test, we could be subject to a penalty tax with respect to such income to the extent it exceeds 5% of our gross income or we could fail to continue to qualify as a REIT.

If our foreign TRSs are subject to U.S. federal income tax at the entity level, it would greatly reduce the amounts those entities would have available to distribute to us and that they would have available to pay their creditors.

There is a specific exemption from federal income tax for non-U.S. corporations that restrict their activities in the United States to trading stock and securities (or any activity closely related thereto) for their own account whether such trading (or such other activity) is conducted by the corporation or its employees through a resident broker, commission agent, custodian or other agent. We intend that our foreign TRSs will rely on that exemption or otherwise operate in a manner so that they will not be subject to U.S. federal income tax on their net income at the entity level. If the IRS succeeded in challenging that tax treatment, it would greatly reduce the amount that those foreign TRSs would have available to pay to their creditors and to distribute to us.

62

The stock ownership restrictions of the Internal Revenue Code for REITs and the 9.8% stock ownership limit in our charter may inhibit market activity in our stock and restrict our business combination opportunities.

To qualify as a REIT, five or fewer individuals, as defined in the Internal Revenue Code, may not own, actually or constructively, more than 50% in value of our issued and outstanding stock at any time during the last half of a taxable year. Attribution rules in the Internal Revenue Code determine if any individual or entity actually or constructively owns our stock under this requirement. Additionally, at least 100 persons must beneficially own our stock during at least 335 days of a taxable year. To help insure that we meet these tests, our charter restricts the acquisition and ownership of shares of our stock.

Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. Unless exempted by our board of directors, no person, including entities, may own more than 9.8% of the value of our outstanding shares of stock of any class or series or more than 9.8% in value or number (whichever is more restrictive) of our outstanding shares of common stock. The board may not grant an exemption from these restrictions to any proposed transferee whose ownership in excess of 9.8% of the value of our outstanding shares would result in the termination of our status as a REIT. Despite these restrictions, it is possible that there will be five or fewer individuals who own more than 50% in value of our outstanding shares, which could cause us to fail to continue to qualify as a REIT. These restrictions on transferability and ownership will not apply, however, if our board of directors determines that it is no longer in our best interest to continue to qualify as a REIT.

These ownership limits could delay or prevent a transaction or a change in control that might involve a premium price for our common stock or otherwise be in the best interest of the stockholders.

If any portion of our dividends is attributable to excess inclusion income, then the tax liability of our tax-exempt stockholders, foreign stockholders and stockholders with net operating losses will likely increase.

In general, dividend income that a tax-exempt entity receives from us should not constitute unrelated business taxable income, or UBTI, as defined in Section 512 of the Internal Revenue Code. If we realize excess inclusion income and allocate it to stockholders, however, then this income would be fully taxable as UBTI to a tax-exempt entity under Section 512 of the Internal Revenue Code. A foreign stockholder would generally be subject to U.S. federal income tax withholding on this income without reduction pursuant to any otherwise applicable income tax treaty. U.S. stockholders would not be able to offset such income with their net operating losses.

Although the law is not entirely clear, the IRS has taken the position that we are subject to tax at the highest corporate rate on the portion of our excess inclusion income equal to the percentage of our stock held in record name by “disqualified organizations” (generally tax-exempt investors, such as certain state pension plans and charitable remainder trusts, that are not subject to the tax on unrelated business taxable income). To the extent that our stock owned by “disqualified organizations” is held in street name by a broker-dealer or other nominee, the broker-dealer or nominee would be liable for a tax at the highest corporate rate on the portion of our excess inclusion income allocable to the stock held on behalf of the “disqualified organizations.” A regulated investment company or other pass-through entity owning our stock may also be subject to tax at the highest corporate tax rate on any excess inclusion income allocated to their record name owners that are “disqualified organizations.”

Excess inclusion income could result if a REIT held a residual interest in a real estate mortgage investment conduit, or REMIC. In addition, excess inclusion income also may be generated if a REIT issues liabilities with two or more maturities and the terms of the payments of these liabilities bear a relationship to the payments that the REIT received on mortgage loans or mortgage‑backed securities securing those liabilities. In May 2012, we adopted a policy that we would not acquire any assets or enter into any financing transactions that will produce excess inclusion income for stockholders. We also projected that our existing assets and financing transactions would not produce excess inclusion income for stockholders in 2012 or any future year. Accordingly, we expect that no portion of our dividends will constitute excess inclusion income. However, we could be wrong in our analysis of historic or new investments or we could affirmatively determine to modify our excess inclusion income policy in the future. If any portion of our dividends is attributable to excess inclusion income, then the tax liability of tax-exempt stockholders, foreign stockholders, stockholders with net operating losses, regulated investment companies and other pass-through entities whose record name owners are disqualified organizations and brokers-dealers and other nominees who hold stock on behalf of disqualified organizations will very likely increase.

Our qualification as a REIT could be jeopardized as a result of our interest in joint ventures or investment funds.

We currently own, and intend to continue to acquire, limited partner or non-managing member interests in partnerships and limited liability companies that are joint ventures or investment funds. If a partnership or limited liability company in which we own an interest takes or expects to take actions that could jeopardize our qualification as a REIT or require us to pay tax, we may be forced to dispose of our interest in such entity. In addition, it is possible that a partnership or limited liability company could take an action which could cause us to fail a REIT gross income or asset test, and that we would not become aware of such action in time to dispose of our interest in the partnership or limited liability company or take other corrective action on a timely basis. In that

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case, we could fail to continue to qualify as a REIT unless we are able to qualify for a statutory REIT “savings” provision, which may require us to pay a significant penalty tax to maintain our REIT qualification.

REIT distribution requirements could adversely affect our ability to execute our business plan.

We generally must distribute annually at least 90% of our REIT taxable income (which is determined without regard to the dividends paid deduction or net capital gain for this purpose) in order to continue to qualify as a REIT. We intend to make distributions to stockholders to comply with the REIT requirements of the Internal Revenue Code and to avoid corporate income tax and the 4% excise tax. We may be required to make distributions to stockholders at times when it would be more advantageous to reinvest cash in our business or when we do not have funds readily available for distribution. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.

To maintain our REIT status, we may be forced to forgo otherwise attractive opportunities, which may delay or hinder our ability to meet our investment objectives and may reduce stockholders’ overall return.

To continue to qualify as a REIT, we must satisfy certain tests on an ongoing basis concerning, among other things, the sources of our income, nature of our assets and the amounts we distribute to stockholders. Compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits and the value of a stockholders’ investment.

Distributions paid by REITs do not qualify for the reduced tax rates that apply to other corporate distributions.

The maximum tax rate for “qualified dividends” paid by corporations to individuals is 20%. Distributions paid by REITs, however, generally continue to be taxed at the normal ordinary income rate applicable to the individual recipient (currently subject to a maximum rate of 39.6%), rather than the preferential rate applicable to qualified dividends. The more favorable rates applicable to regular corporate distributions could cause potential investors who are individuals to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay qualified distributions, which could adversely affect the value of the stock of REITs, including our common stock.

We adopted a policy that we do not currently intend to generate excess inclusion income; however, there is no assurance that we will be able to avoid generating excess inclusion income, which could cause our common stock to become ineligible for inclusion in the Russell indices.

In May 2012, we reported that we changed our policy regarding the generation of excess inclusion income, which generally passes through to our tax-exempt stockholders as UBTI. Pursuant to this new policy, we do not intend to acquire any assets or enter into any financing transactions that will produce excess inclusion income for stockholders.  We also projected that our existing assets and financing transactions would not generate excess inclusion income in 2012 or any future year.  This policy change allowed our common stock to continue to be eligible for inclusion in the Russell indices, such as the Russell 2000 Index. Russell had indicated that it would remove from eligibility any security that has historically generated UBTI and where the issuer has not taken steps to prevent the future generation of such income.  As a result of this policy, we may forgo investment opportunities that we would otherwise have considered to be attractive.  Furthermore, we could be wrong in our analysis of historic or new investments or we could affirmatively determine to modify the policy in the future, thereby generating excess inclusion income, and, consequently, UBTI, for tax-exempt stockholders.  If that is the case, certain of stockholders could suffer unanticipated adverse tax consequences.  Furthermore, in such an event, our common stock could become ineligible for inclusion in the Russell indices, which could adversely affect demand for our common stock and its price.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our properties are part of our real estate segment, except for one REO included in our real estate debt segment, and are described under Item 1. “Business - Our Investments.” The following table presents information with respect to our real estate investments as of December 31, 2015 (dollars in thousands):

Location	Capacity	Percentage Leased/Occupied	Number of Properties	Lease Expiration Date(1)	Gross Carrying Value(2) (3)		Borrowings
Healthcare
Medical Office Building	Square Feet
Alabama	147,157	93%	2	Various	$	62,398	$	33,926
Arizona	59,808	62%	1	Various	14,727		8,088
Arkansas	121,205	68%	5	Various	32,023		15,481
California	228,159	89%	4	Various	82,535		57,917
Colorado	321,100	75%	8	Various	80,396		62,576

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Location	Capacity	Percentage Leased/Occupied	Number of Properties	Lease Expiration Date(1)	Gross Carrying Value(2) (3)		Borrowings
Florida	200,870	82%	5	Various	$	72,206	$	34,804
Georgia	389,834	90%	14	Various	116,121		80,945
Hawaii	22,751	100%	1	Jun-17	9,586		8,814
Idaho	76,415	100%	1	Various	27,297		24,215
Illinois	364,864	81%	7	Various	90,991		80,395
Indiana	1,213,806	93%	33	Various	367,448		265,182
Louisiana	203,886	86%	4	Various	47,571		35,393
Michigan	137,486	87%	3	Various	39,970		33,971
Minnesota	34,531	100%	2	Mar-16	10,092		7,362
Mississippi	62,436	100%	1	Apr-25	14,573		11,500
Nevada	64,866	98%	1	Various	27,849		19,179
New Jersey	67,537	99%	1	Various	39,587		31,771
New Mexico	53,219	100%	3	Mar-19	14,659		15,905
New York	362,037	100%	6	Dec-33	156,965		154,082
North Carolina	121,939	97%	2	Various	41,862		36,878
Ohio	272,392	89%	5	Various	86,915		28,332
Oklahoma	62,383	100%	2	Jun-23	11,572		11,944
South Carolina	90,330	76%	2	Various	21,481		10,437
Tennessee	263,658	97%	5	Various	106,905		78,860
Texas	1,011,175	90%	30	Various	305,812		234,194
Washington	95,670	97%	1	Various	65,630		22,548
Total Medical Office Building	6,049,514	90%	149		1,947,171		1,404,699
Skilled Nursing Facilities(4)
Alabama	46,108	100%	1	Jan-27	9,989		9,783
Arizona	39,669	100%	1	Apr-26	18,547		11,623
California	104,744	100%	2	Aug-21	17,493		22,205
Florida	984,573	100%	22	Dec-25	272,626		180,795
Georgia	270,465	84%	7	Jan-27	132,330		108,000
Illinois	708,075	100%	10	Apr-22	141,177		81,993
Indiana	752,706	100%	19	Jun-17	115,709		95,296
Kentucky	67,706	100%	1	Mar-25	13,930		9,430
Louisiana	66,177	100%	1	Jan-27	24,389		20,341
Maryland	37,076	100%	1	Dec-20	11,060		7,235
Massachusetts	90,783	100%	3	May-28	13,462		18,485
Michigan	69,205	100%	2	Dec-20	13,109		8,576
North Carolina	67,164	100%	2	Mar-25	12,026		8,883
Oregon	119,206	100%	6	May-26	36,682		28,238
Pennsylvania	829,305	100%	11	Mar-29	232,355		203,426
Tennessee	146,132	100%	4	Nov-24	52,955		43,658
Virginia	284,339	100%	8	May-24	72,896		53,671
Washington	111,005	100%	3	May-26	16,789		15,017
Total Skilled Nursing Facilities	4,794,438	99%	104		1,207,524		926,655
Assisted Living Facilities-RIDEA
Alabama	30,109	18%	1	Dec-25	2,594		4,540
Arizona	93,477	86%	1	Dec-25	12,710		8,998
California	172,760	89%	6	Dec-22	66,617		34,109
Colorado	388,035	100%	2	Aug-31	101,974		109,903
Georgia	64,687	96%	1	Nov-19	8,361		6,911
Illinois	1,158,558	96%	22	Jun-26	216,561		181,860
Kansas	81,810	95%	1	Jan-20	13,185		5,322
Massachusetts	55,301	100%	5	May-28	12,466		10,674
Nebraska	26,683	87%	1	Nov-19	5,962		2,558
North Carolina	47,494	96%	2	Dec-25	17,562		11,132
Ohio	949,312	97%	30	May-30	220,686		201,215
Oklahoma	208,251	81%	5	Mar-20	30,757		9,469
Oregon	590,159	87%	15	Dec-25	130,922		101,278
South Carolina	58,909	83%	1	Dec-25	21,785		16,183
Tennessee	113,037	84%	2	Jun-21	26,934		15,712
Texas	748,997	84%	8	Sep-25	158,980		119,037
Washington	233,879	92%	6	Jan-25	62,518		43,801

65

Location	Capacity	Percentage Leased/Occupied	Number of Properties	Lease Expiration Date(1)	Gross Carrying Value(2) (3)		Borrowings
Total Assisted Living Facilities-RIDEA	5,021,458	91%	109		$	1,110,574	$	882,702
Assisted Living Facilities
Florida	29,677	100%	2	Dec-27	550		755
Illinois	55,498	100%	1	Dec-21	6,322		6,043
Indiana	289,071	100%	9	Jun-17	36,920		25,834
Minnesota	215,428	100%	11	Aug-24	51,566		37,800
North Carolina	229,359	100%	6	Dec-27	124,365		95,505
Oregon	549,120	100%	10	Oct-23	103,978		78,555
United Kingdom	961,915	100%	44	Sep-28	432,910		327,890
Total Assisted Living Facilities	2,330,068	100%	83		756,611		572,382
Hospitals
California	295,547	100%	5	Sep-27	109,431		112,098
Georgia	31,067	100%	1	Sep-33	19,191		14,626
Louisiana	26,423	100%	1	Jan-26	11,379		12,931
Missouri	83,858	100%	3	Sep-33	34,804		33,707
Oklahoma	37,466	100%	1	Nov-21	20,354		12,398
Texas	191,445	100%	2	Various	34,270		37,976
Utah	34,897	100%	1	Sep-33	14,942		15,595
Total Hospitals	700,703	100%	14		244,371		239,331
Total Healthcare(5)	18,896,181	94%	459		5,266,251		4,025,769
Hotels
Marriott	Rooms
Arizona	418	NA	3	NA	50,098		37,976
California	1,618	NA	12	NA	292,354		252,706
Colorado	288	NA	2	NA	51,319		47,400
Connecticut	447	NA	4	NA	46,134		35,170
Florida	1,642	NA	9	NA	232,648		184,294
Georgia	838	NA	6	NA	105,994		73,569
Illinois	339	NA	2	NA	47,584		31,839
Kentucky	176	NA	2	NA	19,373		18,680
Louisiana	225	NA	2	NA	33,108		31,148
Maine	78	NA	1	NA	11,014		10,000
Maryland	715	NA	5	NA	78,492		66,280
Massachusetts	345	NA	3	NA	65,649		53,162
Michigan	809	NA	6	NA	108,522		90,334
New Hampshire	416	NA	4	NA	56,414		43,782
New Jersey	1,402	NA	9	NA	210,952		186,208
New York	439	NA	4	NA	67,719		53,614
North Carolina	427	NA	3	NA	46,969		33,049
Ohio	441	NA	3	NA	50,414		34,464
Oklahoma	80	NA	1	NA	7,181		7,377
Pennsylvania	460	NA	4	NA	61,617		52,254
Tennessee	459	NA	3	NA	65,819		50,919
Texas	2,425	NA	20	NA	313,528		261,842
Virginia	1,473	NA	11	NA	154,440		131,108
Washington	664	NA	5	NA	137,055		123,151
Total Marriott	16,624		124		2,314,397		1,910,326
Hilton
California	382	NA	4	NA	53,381		43,237
Colorado	281	NA	2	NA	34,439		27,688
Connecticut	157	NA	1	NA	19,372		14,300
Florida	202	NA	2	NA	29,167		25,435
Georgia	136	NA	1	NA	12,795		10,110
Kentucky	173	NA	1	NA	36,707		34,075
Louisiana	115	NA	1	NA	15,095		11,476
Maryland	83	NA	1	NA	7,615		5,800
New Hampshire	247	NA	2	NA	46,681		35,306
New Jersey	142	NA	1	NA	25,732		18,216

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Location	Capacity	Percentage Leased/Occupied	Number of Properties	Lease Expiration Date(1)	Gross Carrying Value(2) (3)		Borrowings
New Mexico	151	NA	1	NA	$	27,374	$	19,582
New York	571	NA	4	NA	110,958		91,958
North Carolina	424	NA	3	NA	71,364		55,103
Ohio	86	NA	1	NA	13,354		8,835
Pennsylvania	150	NA	1	NA	17,573		15,450
Texas	173	NA	2	NA	18,778		14,140
Total Hilton	3,473		28		540,385		430,711
Starwood
Alabama	111	NA	1	NA	18,141		16,850
Florida	216	NA	1	NA	33,036		30,550
Maryland	155	NA	1	NA	11,108		9,500
New Jersey	224	NA	1	NA	39,584		31,160
North Carolina	130	NA	1	NA	20,345		19,491
Total Starwood	836		5		122,214		107,551
Hyatt
California	254	NA	2	NA	84,819		72,250
Massachusetts	157	NA	1	NA	32,753		29,055
New Jersey	116	NA	1	NA	14,510		7,680
Texas	280	NA	2	NA	34,286		28,850
Total Hyatt	807		6		166,368		137,835
Intercontinental Hotel Group
Texas	352	NA	4	NA	40,326		42,008
Total Intercontinental Hotel Group	352		4		40,326		42,008
Total Hotel	22,092		167		3,183,690		2,628,431
Net Lease
Industrial	Square Feet
Arizona	322,070	100%	1	Dec-26	21,456		13,520
California	793,562	100%	2	May-28	80,371		48,012
Colorado	57,966	100%	1	Jun-27	7,869		4,951
Florida	133,397	100%	2	Nov-23	5,098		3,293
Georgia	574,514	100%	3	Jul-25	31,513		20,418
Illinois	1,421,531	100%	6	Jul-25	58,765		34,253
Indiana	117,376	100%	1	Apr-26	2,841		2,076
Kentucky	274,002	100%	2	Mar-26	10,050		7,453
Michigan	513,261	100%	4	Aug-27	24,065		18,624
Minnesota	101,680	100%	1	Dec-24	6,116		3,950
Missouri	144,786	100%	1	Feb-31	3,709		2,471
New Jersey	99,783	100%	1	Aug-24	5,953		3,300
New York	66,100	100%	1	Jun-23	6,139		5,381
North Carolina	437,911	100%	1	Jul-30	8,439		8,323
Ohio	464,466	100%	3	Apr-25	19,021		13,635
South Carolina	365,086	100%	2	Jul-27	14,440		10,263
Texas	222,061	100%	3	Mar-31	8,742		5,902
Total Industrial	6,109,552	100%	35		314,587		205,825
Office
California	244,416	100%	3	Dec-19	37,194		25,748
Colorado	183,529	100%	1	Nov-22	38,459		30,174
Florida	68,723	100%	2	Jun-27	7,256		4,309
Georgia	54,284	100%	1	Jun-27	6,031		4,070
Indiana	333,600	100%	1	Dec-25	33,977		25,674
New Jersey	121,038	100%	1	Jul-17	22,395		15,486
Ohio	199,112	100%	1	Dec-17	33,559		—
South Carolina	165,000	100%	1	Oct-20	34,854		28,363
Utah	117,553	100%	1	Apr-17	20,837		12,646
Total Office(6)	1,487,255	100%	12		234,562		146,470
Retail

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Location	Capacity	Percentage Leased/Occupied	Number of Properties	Lease Expiration Date(1)	Gross Carrying Value(2) (3)		Borrowings
Illinois	50,000	100%	1	Jan-22	$	5,810	$	5,122
Indiana	50,000	100%	1	Aug-24	3,642		—
Kansas	48,780	100%	1	Mar-23	6,909		5,475
Maine	52,900	100%	1	Sep-23	6,687		3,240
Massachusetts	104,200	100%	2	Jan-24	11,439		8,430
New Hampshire	115,558	100%	3	Oct-21	20,314		7,483
New York	46,533	100%	1	Jan-22	3,187		3,973
Total Retail	467,971	100%	10		57,988		33,723
Total Net Lease	8,064,778	100%	57		607,137		386,018
Multi-tenant Office	Square Feet
California	228,524	100%	2	Sep-20	42,423		30,287
Colorado	669,115	82%	10	Oct-18	95,293		70,795
Texas	123,761	100%	1	Apr-18	18,578		11,906
Total Multi-tenant Office	1,021,400	89%	13		156,294		112,988
Grand Total			696		$	9,213,372	$	7,153,206
Assets of Properties Held for Sale	Pad Rental Sites/Units/Square Feet
Manufactured Housing	33,055	86%	136	NA	$	1,594,667	$	1,274,643
Senior Housing Portfolio	3,582,832	95%	32	NA	842,408		648,211
Multifamily(7)	4,016	94%	11	Various	328,267		249,709
Other(8)	521,686	29%	8	Various	86,650		56,561
Total Assets of Properties Held for Sale			187		$	2,851,992	$	2,229,124

_______________________________________________________

(1) Based on initial term and represents the weighted average lease term if more than one lease. For RIDEA facilities, the weighted average lease term of the operator is included.

(2) Represents operating real estate before accumulated depreciation as presented in our consolidated financial statements and excludes purchase price allocations related to net intangible and other assets and liabilities as of December 31, 2015. Refer to “Note 3. Operating Real Estate” of Part II, Item 8. “Financial Statements and Supplementary Data.”

(3) The grand total includes an allowance for operating real estate impairment of $4.9 million.

(4) Includes three properties with a cost of $13 million owned pursuant to the RIDEA structure.

(5) Excludes portfolio level financing of $75 million as of December 31, 2015.

(6) Excludes a joint venture with three buildings with a carrying value of $27 million. Our net lease portfolio totals 8.9 million square feet and was 96% leased, with a weighted average lease term of 9.2 years, including such joint venture as of December 31, 2015.

(7) Excludes a joint venture investment with a carrying value of $38 million. Our multifamily portfolio totals 4,514 units and was 94% leased, including such joint venture as of December 31, 2015.

(8) Includes a borrowing of $15 million related to a property held for sale in the Griffin-American Portfolio.

Item 3. Legal Proceedings

We are involved in various litigation matters arising in the ordinary course of our business. Although we are unable to predict with certainty the eventual outcome of any litigation, in the opinion of management, our current legal proceedings are not expected to have a material adverse effect on our financial position or results of operations. Refer to Note 16. “Commitments and Contingencies” in Part II, Item 8. “Financial Statements and Supplementary Data” for further disclosure regarding legal proceedings.

Item 4. Mine Safety Disclosures

None.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is listed on the NYSE under the symbol “NRF.” The following table presents the high, low and last sales prices for our common stock, adjusted for any Reverse Stock Split, as reported on the NYSE, and dividends per share with respect to the periods indicated:

Period	High		Low		Close		Dividends
2015
Fourth Quarter(1)(2)	$	25.54	$	15.60	$	17.03	$	0.40
Third Quarter(2)	$	32.48	$	23.66	$	24.70	$	0.75	(3)
Second Quarter	$	38.20	$	31.80	$	31.80	$	0.80
First Quarter	$	38.92	$	35.38	$	36.24	$	0.80
2014
Fourth Quarter	$	37.42	$	33.56	$	35.16	$	0.80
Third Quarter(2)	$	37.72	$	32.20	$	35.34	$	0.80	(3)
Second Quarter(2)	$	70.56	$	58.68	$	69.52	$	1.00
First Quarter	$	65.24	$	54.72	$	64.56	$	1.00

_______________________________________________________

(1) On February 25, 2016, we declared a dividend of $0.40 per share of common stock. This dividend will be paid on March 11, 2016 to stockholders of record as of the close of business on March 7, 2016.

(2) Both the NSAM Spin-off and NRE Spin-off resulted in a decrease in our stock price subsequent to such spin-offs.

(3) The dividend per share represents the first dividend declared subsequent to the NRE Spin-off in the fourth quarter 2015 and NSAM Spin-off in the third quarter 2014.

The following table presents our dividends declared on common stock, on a per share basis, for the years ended2015 and 2014:

Declaration Date	Dividend
2015
November 3(1)	$	0.75
August 4(2)	$	0.80
May 5(2)	$	0.80
February 25(2)	$	0.80
2014(2)
October 29	$	0.80
August 6	$	1.00
May 7	$	1.00
February 26	$	1.00

_______________________________________________________

(1) Represents the dividend subsequent to the NRE Spin-off.

(2) Adjusted for the Reverse Split effected on November 1, 2015.

Refer to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” for a discussion of our dividend policy. On February 25, 2016, the closing sales price for our common stock, as reported on the NYSE, was $12.47. As of February 25, 2016, there were 3,826 record holders of our common stock and 184,377,751 shares outstanding. This figure does not reflect the beneficial ownership of shares held in nominee name.

Recent Sales of Unregistered Securities

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table provides the information with respect to purchases made by us of our common stock during the three months ended December 31, 2015:

Period	Total Number of Shares Repurchased(1)	Average Price Paid per Share(1)		Total Number of Shares Purchased as Part of Publicly Announced Program(1)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program(2)(3)
November 1 - November 30	2,321,050	$	18.67	3,064,400	$	438,498,876
December 1 - December 31	3,405,968	$	16.58	6,470,368	$	382,025,797

__________________

(1) Adjusted for the one-for-two reverse stock split completed on November 1, 2015.

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(2) On September 29, 2015, we announced that our board of directors authorized the repurchase of up to $500 million of our outstanding common stock. The authorization expires on September 29, 2016, unless otherwise extended by our board of directors.

(3) Since announcement, we acquired 6.5 million shares for $118 million, with $382 million remaining under the authorization.

Item 6. Selected Financial Data

The information below should be read in conjunction with “Forward-Looking Statements,” Part I, Item 1A. “Risk Factors,” Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes thereto included in Item 8. “Financial Statements and Supplementary Data,” included in this Annual Report on Form 10-K.

The selected historical consolidated information presented for the five years endedDecember 31, 2015 relates to our operations and has been derived from our audited consolidated statements of operations included in this Annual Report on Form 10-K or our prior Annual Reports on Form 10-K, as amended (if applicable). The consolidated financial statements for the year endedDecember 31, 2015 include: (i) our results of operations for the two months ended December 31, 2015 which represents our results of operations following the NRE Spin-off on October 31, 2015; and (ii) our results of operations for the ten months ended October 31, 2015 which includes a carve-out of revenues and expenses attributable to NRE recorded in discontinued operations. The consolidated financial statements for the year endedDecember 31, 2014 include: (i) our results of operations for the six months ended December 31, 2014 which represents our results of operations following the NSAM Spin-off; and (ii) our results of operations for the six months ended June 30, 2014 which includes a carve-out of revenues and expenses attributable to NSAM recorded in discontinued operations. Our historical financial information for the three years endedDecember 31, 2013 was prepared on the same basis as the ten months ended October 31, 2015 and six months ended June 30, 2014. As a result, our results of operations for the years endedDecember 31, 2015 and 2014 may not be comparative to our results of operations reported for the prior period presented. In addition, we have reclassified certain amounts in our historical audited consolidated financial statements, including amounts related to certain properties reclassified as held for sale during the period. These reclassifications had no effect on our reported net income (loss) or CAD.

	Years Ended December 31,
	2015			2014			2013			2012			2011
Operating Data:	(Dollars in thousands, except per share data)
Total property and other revenues	$	1,817,436		$	679,500		$	240,847		$	114,308		$	109,402
Net interest income on debt and securities	218,805			298,139			266,357			335,496			355,921
Total expenses	2,210,001			1,062,287			370,765			240,076			289,887
Equity in earnings (losses) of unconsolidated ventures	219,077			165,053			91,726			88			(2,738		)
Income (loss) from continuing operations	(158,713		)	(276,385		)	(79,149		)	(257,718		)	(234,173		)
Income (loss) from discontinued operations	(108,554		)	(44,701		)	(8,761		)	(17,450		)	(25,551		)
Net income (loss)	(267,267		)	(321,086		)	(87,910		)	(273,089		)	(242,526		)
Net income (loss) attributable to NorthStar Realty Finance Corp. common stockholders	(327,497		)	(371,507		)	(137,453		)	(288,587		)	(263,014		)
Earnings (loss) per share:
Basic	$	(1.87	)	$	(3.79	)	$	(2.60	)	$	(9.22	)	$	(11.34	)
Diluted	$	(1.87	)	$	(3.79	)	$	(2.60	)	$	(9.22	)	$	(11.34	)
Dividends per share of common stock(1)(2)	$	2.75		$	3.60		$	3.40		$	2.64		$	1.84

___________________

(1) Adjusted for the Reverse Split completed on November 1, 2015.

(2) The dividend per share for the third and fourth quarter 2015 represents the dividends declared subsequent to the NRE Spin-off.

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	As of December 31,
	2015		2014		2013		2012		2011
Balance Sheet Data:	(Dollars in thousands)
Cash and cash equivalents	$	224,101	$	296,964	$	635,990	$	444,927	$	144,508
Operating real estate, net	8,702,259		10,212,004		2,370,183		1,390,546		1,089,449
Real estate debt investments, net	501,474		1,067,667		1,031,078		1,832,231		1,710,582
Real estate debt investments, held for sale	224,677		—		—		—		—
Investments in private equity funds, at fair value	1,101,650		962,038		586,018		—		—
Investments in unconsolidated ventures	155,737		207,777		142,340		111,025		96,143
Real estate securities, available for sale	702,110		878,514		1,052,320		1,124,668		1,473,305
Assets of properties held for sale	2,742,635		29,012		30,063		—		3,198
Total assets	15,403,045		15,178,712		6,360,050		5,513,778		5,006,437
Total borrowings	10,533,785		9,734,262		3,342,071		3,790,072		3,509,126
Total liabilities	11,187,315		10,465,056		3,662,587		4,182,914		3,966,823
Preferred stock	939,118		939,118		697,352		504,018		241,372
Total equity	4,215,730		4,713,656		2,697,463		1,330,864		1,039,614

	Years Ended December 31,
	2015			2014			2013			2012		2011
Other Data:	(Dollars in thousands)
Cash flow provided by (used in):
Operating activities	$	520,658		$	144,856		$	240,674		$	76,911	$	59,066
Investing activities	(3,006,574		)	(7,054,227		)	(2,285,153		)	51,901		383,323
Financing activities	2,417,491			6,572,518			2,235,542			171,607		(423,320		)
Effect of foreign currency translation on cash and cash equivalents	(4,438		)	(2,173		)	—			—		—

CAD for theyear endedDecember 31, 2015was$572 million. NOI for the three months endedDecember 31, 2015was$221 million.Refer to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures” for details on the calculation of CAD and NOI including a reconciliation of CAD to net income (loss) attributable to common stockholders calculated in accordance with U.S. GAAP.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included in Item 8. “Financial Statements and Supplementary Data” and risk factors in Part I, Item 1A. “Risk Factors” of this report. References to “N-Star,” “NorthStar Realty,” “we,” “us” or “our” refer to NorthStar Realty Finance Corp. and its subsidiaries unless the context specifically requires otherwise.

Introduction

We are a diversified commercial real estate company, with 85% of our total assets invested directly or indirectly in real estate, of which 78% is invested in direct real estate. We generated 89% of our revenue from our real estate portfolio for the year endedDecember 31, 2015. We invest in multiple asset classes across commercial real estate that we expect will generate attractive risk-adjusted returns and may take the form of acquiring real estate, originating or acquiring senior or subordinate loans, as well as pursuing opportunistic CRE investments. We seek to generate stable cash flow for distribution to our stockholders through our diversified portfolio of commercial real estate assets and in turn build long-term franchise value. However, given recent market conditions, we are currently focused on exploring sales to generate liquidity to repurchase our common stock and reduce our leverage.

We are a Maryland corporation and completed our initial public offering in October 2004. We conduct our operations so as to continue to qualify as a REIT for U.S. federal income tax purposes.

Significant Developments

Strategic Initiatives

We continue to execute a series of strategic initiatives with the goal of maximizing long-term shareholder value. These initiatives include: (i) sales of all or portions of certain real estate assets; (ii) sales of all or a portion of our PE Investments; and (iii) sales and/or accelerated repayments of our CRE debt and securities investments. Additionally, in connection with our continuous evaluation of our capital allocation strategy, we revised our dividend policy.

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Proceeds from such sales initiatives, along with capital retained from our revised dividend policy, are currently expected to be used for opportunistically repurchasing our common stock, which we believe is currently trading at a significant discount to underlying net asset value and toward repayment of a significant portion of our corporate recourse borrowing obligations which total $590 million (excluding $280 million of trust preferred securities with maturities beginning in 2035). Since the beginning of the fourth quarter 2015 through February 2016, assets sold or committed to sell totaled $2.0 billion, of which net proceeds to us are expected to be approximately $930 million.

In addition, our board of directors formed a special committee and the special committee retained UBS Investment Bank as its financial advisor to explore a potential recombination transaction with NSAM. The special committee will be comprised solely of independent directors that are not on the board of directors of NSAM, including the new independent director appointed to the board of directors effective March 1, 2016. There can be no assurance that the exploration of corporate strategic initiatives will result in the identification or consummation of any strategic transaction or initiative.

Spin-offs

On June 30, 2014, we completed the NSAM Spin-off in the form of a tax-free distribution. Effective upon the NSAM Spin-off, we are externally managed and advised by an affiliate of NorthStar Asset Management Group Inc. (NYSE: NSAM), which together with its affiliates is referred to as NSAM.

On October 31, 2015, we completed the NRE Spin-off of our European real estate business into a separate publicly-traded REIT in the form of a taxable distribution. In connection with the NRE Distribution, each of our common stockholders received shares of NorthStar Europe’s common stock on a one-for-six basis, before giving effect to a one-for-two Reverse Split of our common stock. We contributed to NorthStar Europe approximately $2.6 billion of European real estate, at cost (excluding our European healthcare properties), comprised of 52 properties spanning across some of Europe’s top markets and $250 million of cash. NSAM manages NorthStar Europe pursuant to a long-term management agreement, on substantially similar terms as our management agreement with NSAM.

Summary of Business

Our primary business lines are as follows:

• Real Estate - Our real estate business concentrates on various types of investments in commercial real estate located throughout the United States that includes healthcare, hotel, manufactured housing communities, net lease, multifamily and multi-tenant office properties. In addition, it includes certain healthcare properties located outside of the United States and PE Investments, diversified by property type and geography.

• Healthcare - Our healthcare properties are comprised of a diverse portfolio of medical office buildings, senior housing, skilled nursing and other healthcare properties. The majority of our healthcare properties are medical office buildings and properties structured under a net lease to healthcare operators. In addition, we own senior operating facilities, which include independent living facilities and healthcare properties that operate through management agreements with independent third-party operators, predominantly through RIDEA structures that permit us, through a TRS to have direct exposure to resident fee income and incur customary related operating expenses. In February 2016, we entered into an agreement to sell our 60% interest in the Senior Housing Portfolio for $535 million, subject to proration and adjustment. We expect the buyer to assume our portion of the $648 million of related mortgage financing. We expect to receive approximately $150 million of net proceeds upon completion of the sale in March 2016. Such asset and related liability is classified as held for sale on our consolidated balance sheet.

• Hotel - Our hotel portfolio is a geographically diverse portfolio primarily comprised of extended stay hotels and premium branded select service hotels primarily located in major metropolitan markets with the majority affiliated with top hotel brands.

• Manufactured Housing - Our manufactured housing portfolio consists of communities that lease pad rental sites for placement of factory built homes located throughout the United States. In addition, the portfolio includes manufactured homes and receivables related to the financing of homes sold to residents. Currently, we are exploring the sale of our manufactured housing portfolio and such assets and related liabilities are classified as held for sale on our consolidated balance sheet.

• Net Lease - Our net lease properties are primarily industrial, office and retail properties typically under net leases to corporate tenants.

• Multifamily - Our multifamily portfolio primarily focuses on properties located in suburban markets that are well suited to capture the formation of new households. Currently, we are exploring the sale of our multifamily portfolio and in February 2016, we entered in and are finalizing agreements to sell up to ten multifamily properties for $311 million with $210 million of related mortgage financing expected to be assumed as part of the transaction. We expect to receive

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$91 million of net proceeds and continue to explore the sale of the remaining two properties. Such assets and related liabilities are classified as held for sale on our consolidated balance sheet.

• Multi-tenant Office - We pursue the acquisition of multi-tenant office properties currently focused on the western United States.

• PE Investments - Our real estate business also includes investments (directly or indirectly in joint ventures) owning PE Investments managed by institutional quality sponsors and diversified by property type and geography. In February 2016, we sold substantially all of our interest in PE Investment II for $184 million of proceeds and are exploring the sale of our remaining PE Investments.

• Commercial Real Estate Debt - Our CRE debt business is focused on originating, acquiring and asset managing senior and subordinate debt investments secured primarily by commercial real estate and includes first mortgage loans, subordinate mortgage and mezzanine loans and participations in such loans and preferred equity interests. We may from time to time take title to collateral in connection with a CRE debt investment as real estate owned, or REO, which would be included in our CRE debt business. In February 2016, we sold or committed to sell seven debt investments with a total principal amount of $225 million at par, with $47 million of proceeds used to pay down our loan facility, resulting in $178 million of net proceeds.

• Commercial Real Estate Securities - Our CRE securities business is predominately comprised of N-Star CDO bonds and N-Star CDO equity of deconsolidated N-Star CDOs and includes other securities, mostly conduit CMBS, meaning each asset is a pool backed by a large number of commercial real estate loans. We also invested in opportunistic CRE securities such as an investment in a “B-piece” CMBS. Subsequent to year end, we sold certain CRE securities for $54 million of net proceeds.

We have the ability to invest in a broad spectrum of commercial real estate assets and seek to provide attractive risk-adjusted returns. Our ability to invest across the CRE market creates complementary and overlapping sources of investment opportunities based upon common reliance on real estate fundamentals and application of similar portfolio management skills to maximize value and to protect capital. Additionally, we have pursued opportunistic investments across all our business lines including CRE equity and debt investments. Examples of opportunistic investments include PE Investments, strategic joint ventures and repurchasing our CDO bonds at a discount to their principal amount.

In 2015, we issued aggregate capital of $1.3 billion from the issuance of common equity. In 2014, we issued aggregate net capital of $2.6 billion, including $1.3 billion from the issuance of common equity (including the remaining shares issued under a forward sale agreement in February 2015 for net proceeds of $122 million), $1.1 billion as part of the consideration for the merger of with Griffin-American and $242 million from the issuance of preferred equity.

We predominantly use investment-level financing as part of our strategy to prudently leverage our investments and deliver attractive risk-adjusted returns to our stockholders. We pursue a variety of financing arrangements such as mortgage notes from the CMBS market, government-sponsored agencies, finance companies, banks and securitization financing transactions. In addition, we use corporate-level financing such as credit facilities and other term borrowings. We generally seek to limit our reliance on recourse borrowings. Borrowing levels for our CRE investments may be dependent upon the nature of the assets and the related financing that is available.

The availability of attractive long-term, non-recourse, non mark-to-market, assignable financing through the CMBS and agency financing markets has bolstered opportunities to acquire real estate in the past few years. For longer duration, stable investment cash flow such as those derived from net lease assets, we tend to use fixed rate financing. For investment cash flow with greater growth potential such as hotels and healthcare under a RIDEA structure, we tend to use floating rate financing which provides prepayment flexibility and may provide a better match between underlying cash flow and potential increases in interest rates.

Our financing strategy for debt investments is to obtain match-funded borrowing at rates that provide a positive net spread. In late 2011, we began using secured term credit facilities provided by major financial institutions to partially finance CRE debt which currently provide for an aggregate of up to $200 million. Additionally, we have historically demonstrated the ability to securitize our CRE debt investments and expect to continue to pursue similar transactions to finance our newly-originated debt investments that might initially be financed on our credit facilities. In November 2012 and August 2013, we, and on behalf of NorthStar Income entered into securitization financing transactions with an aggregate $610 million of principal amount of bonds issued providing permanent, non-recourse, non-mark-to-market financing for newly-originated CRE debt investments of ours and NorthStar Income. We will continue to seek to use the capital markets to finance any new debt investments. In January 2015, Securitization-2012-1 with $228 million principal amount of original bonds issued was repaid in full.

With respect to corporate-level financing, in August 2014, we entered into a Corporate Revolver with certain commercial bank lenders, with a total current commitment amount of $250 million for a three-year term. In September 2014, we entered into a corporate term borrowing with a commercial bank lender with respect to the establishment of term borrowings. Subsequent to

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year end, our Corporate Revolver was repaid and we expect our remaining corporate recourse borrowings to be repaid from proceeds from sales initiatives. Refer to Liquidity and Capital Resources for further discussion.

We believe that we maintain a competitive advantage through a combination of deep industry relationships and access to market leading CRE credit underwriting and capital markets expertise which enables us to manage credit risk across our business lines as well as to structure and finance our assets efficiently. Our ability to invest across the spectrum of commercial real estate investments allows us to take advantage of complementary and overlapping sources of investment opportunities based on a common reliance on CRE fundamentals and application of similar underwriting and asset management skills as we seek to maximize stockholder value and to protect our capital. However, we are currently focused on exploring sales to generate liquidity to repurchase our common stock and reduce our leverage.

Sources of Operating Revenues and Cash Flows

We primarily generate revenue from rental and other operating income from our real estate properties and net interest income on our CRE debt and securities portfolios. Additionally, we record equity in earnings of unconsolidated ventures, including from PE Investments. Our income is primarily derived through the difference between revenue and the cost at which we are able to finance our investments. We may also acquire investments which generate attractive returns without any leverage.

Operations of our hotel portfolio are affected by seasonal patterns resulting from overall economic cycles, geographic locations, weather and customer mix at the hotels. Generally, we expect our hotel portfolio to have higher revenue, operating income and cash flow in the second and third quarters of each year and lower revenue, operating income and cash flow in the first and fourth quarters of each year.

Profitability and Performance Metrics

We calculate CAD and NOI as metrics to evaluate the profitability and performance of our business (refer to “Non-GAAP Financial Measures” for a description of these metrics).

Outlook and Recent Trends

The U.S. economy has improved, with the Federal Reserve raising the Federal Funds Rate for the first time in nine years in December 2015. Concerns remain regarding low inflation in the United States, a stronger U.S. dollar, slow global growth and international market volatility. Many other global central banks are easing monetary conditions to combat their low inflation and stagnant growth.

Our business and operations are dependent on the commercial real estate industry generally, which in turn is dependent upon broad economic conditions in the United States, Europe, China and elsewhere.  Recently, concerns over global economic conditions, energy and commodity prices, geopolitical issues, deflation, foreign exchange rates, the availability and cost of credit, the sovereign debt crisis, the Chinese economy, the U.S. mortgage market and a potentially weakening real estate market in the United States have contributed to increased economic uncertainty and diminished expectations for the global economy. These factors, combined with volatile prices of oil and declining business and consumer confidence, may precipitate an economic slowdown, as well as cause extreme volatility in security prices. The concern of a possible recession is resulting in uncertainty regarding the timing of the next Federal Reserve increase to the Federal Funds Rate.

CRE fundamentals remain relatively healthy across U.S. property types. Robust investor demand in 2014 for commercial real estate increased transaction activity and prices as rent and vacancy fundamentals improved across most property sectors and continued to improve in 2015, especially in the real estate private markets. However, property price appreciation has slowed and the markets may be in the later stage of the current real estate cycle and could lead to a recession.

Global economic and political headwinds, along with global market instability and the risk that maturing commercial real estate debt may have difficulties being refinanced, among other factors, may continue to cause periodic volatility in the commercial real estate market for some time. It is currently estimated that approximately $1.4 trillion of commercial real estate debt in the United States will mature through 2018. While there appears to be a supply of available liquidity and improved fundamentals in the commercial real estate market, we still anticipate that certain of these loans will not be able to be refinanced, potentially inhibiting growth and contracting credit.

The recent volatility in the equity markets has and may continue to diminish our capital raising activity. A return to weak economic conditions in the future, such as those of the credit crisis of 2008, could reduce a tenant’s/operator’s/resident’s/guest’s ability to make payments in accordance with the contractual terms and could weaken demand for companies to lease or occupy new space. To the extent that market rental and occupancy rates weaken, property-level cash flow could be negatively affected, and therefore, reduce our ability to make distributions to stockholders.

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Our Strategy

Our primary business objectives are to invest in commercial real estate property and other real estate assets that we expect will generate attractive risk-adjusted returns and in turn will generate stable cash flow for distribution to our stockholders. Until recently, our investment activity and uses of available cash liquidity was focused on acquiring real estate, originating or acquiring loans, as well as pursuing opportunistic CRE investments across our businesses. Opportunistic investments have included investing in real estate private equity funds, strategic joint ventures and repurchasing our N-Star CDO bonds at discounts to par.

Availability and cost of capital impacts our profitability and earnings since we would be required to raise new capital to fund a majority of this growth. Given recent market conditions, we are currently focused on exploring sales to generate liquidity to repurchase our common stock, reduce our corporate recourse borrowings and prudently manage our portfolio so it is well positioned.

Until recently, we had been actively raising capital. In 2015, we issued aggregate capital of $1.3 billion and in 2014 we issued aggregate capital of $2.6 billion (including shares issued under a forward sale agreement in February 2015 for net proceeds of $122 million). Further, we have access to other forms of corporate-level financing. In August 2014, we entered into a Corporate Revolver with certain commercial bank lenders, with a total current commitment amount of $250 million for a three-year term, subject to certain conditions. In September 2014, we entered into a corporate term borrowing with a commercial bank lender. Subsequent to year end, our Corporate Revolver was repaid and we expect our remaining corporate recourse borrowings to be repaid from proceeds from sales initiatives.

In addition, we have a loan facility of $200 million to finance the origination of CRE first mortgage loans, of which $25 million is currently outstanding. Additionally, we have historically demonstrated the ability to securitize our CRE debt investments and expect to continue to pursue similar transactions to finance our newly-originated debt investments that might initially be financed on our credit facilities. In November 2012 and August 2013, we, and on behalf of NorthStar Income, entered into securitization financing transactions with an aggregate $610 million of principal amount of bonds issued to finance debt investments on a permanent, non-recourse, non-mark-to-market basis that were previously financed on credit facilities. In January 2015, Securitization-2012-1 with $228 million principal amount of original bonds issued was repaid in full.

Critical Accounting Policies

Principles of Consolidation

Our consolidated financial statements include the accounts of NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership, or our Operating Partnership, and their consolidated subsidiaries. We consolidate variable interest entities, or VIEs, where we are the primary beneficiary and voting interest entities which are generally majority owned or otherwise controlled by us. All significant intercompany balances are eliminated in consolidation.

Variable Interest Entities

A VIE is an entity that lacks one or more of the characteristics of a voting interest entity. A VIE is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The determination of whether an entity is a VIE includes both a qualitative and quantitative analysis. We base the qualitative analysis on our review of the design of the entity, its organizational structure including decision-making ability and relevant financial agreements and the quantitative analysis on the forecasted cash flow of the entity. We reassess the initial evaluation of an entity as a VIE upon the occurrence of certain reconsideration events.

A VIE must be consolidated only by its primary beneficiary, which is defined as the party who, along with its affiliates and agents has both the: (i) power to direct the activities that most significantly impact the VIE’s economic performance; and (ii) obligation to absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE. We determine whether we are the primary beneficiary of a VIE by considering qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of its investment; the obligation or likelihood for us or other interests to provide financial support; consideration of the VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders and the similarity with and significance to our business activities and the other interests. We reassess the determination of whether we are the primary beneficiary of a VIE each reporting period. Significant judgments related to these determinations include estimates about the current and future fair value and performance of investments held by these VIEs and general market conditions.

We evaluate our CRE debt and securities, investments in unconsolidated ventures and securitization financing transactions, such as our CDOs and our liabilities to subsidiary trusts issuing preferred securities to determine whether they are a VIE. We analyze new investments and financings, as well as reconsideration events for existing investments and financings, which vary depending on type of investment or financing.

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Voting Interest Entities

A voting interest entity is an entity in which the total equity investment at risk is sufficient to enable it to finance its activities independently and the equity holders have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity. The usual condition for a controlling financial interest in a voting interest entity is ownership of a majority voting interest. If we have a majority voting interest in a voting interest entity, the entity will generally be consolidated. We do not consolidate a voting interest entity if there are substantive participating rights by other parties and/or kick-out rights by a single party or through a simple majority vote.

We perform on-going reassessments of whether entities previously evaluated under the voting interest framework have become VIEs, based on certain events, and therefore subject to the VIE consolidation framework.

Investments in Unconsolidated Ventures

A non-controlling, unconsolidated ownership interest in an entity may be accounted for using the equity method, at fair value or the cost method.

Under the equity method, the investment is adjusted each period for capital contributions and distributions and its share of the entity’s net income (loss). Capital contributions, distributions and net income (loss) of such entities are recorded in accordance with the terms of the governing documents. An allocation of net income (loss) may differ from the stated ownership percentage interest in such entity as a result of a preferred return and allocation formula, if any, as described in such governing documents.

We may account for an investment in an unconsolidated entity at fair value by electing the fair value option. We elected the fair value option for PE Investments and certain investments in unconsolidated ventures. PE Investments are recorded as investments in private equity funds, at fair value. We record the change in fair value for our share of the projected future cash flow of such investments from one period to another in equity in earnings (losses) from unconsolidated ventures in the consolidated statements of operations. Any change in fair value attributed to market related assumptions is considered unrealized gain (loss).

We may account for an investment that does not qualify for equity method accounting or for which the fair value option was not elected using the cost method if we determine the investment in the unconsolidated entity is insignificant. Under the cost method, equity in earnings is recorded as dividends are received to the extent they are not considered a return of capital, which is recorded as a reduction of cost of the investment.

Fair Value Option

The fair value option provides an election that allows a company to irrevocably elect fair value for certain financial assets and liabilities on an instrument-by-instrument basis at initial recognition. We may elect to apply the fair value option for certain investments due to the nature of the instrument. Any change in fair value for assets and liabilities for which the election is made is recognized in earnings.

Operating Real Estate

Operating real estate is carried at historical cost less accumulated depreciation. Ordinary repairs and maintenance are expensed as incurred. Major replacements and improvements which improve or extend the life of the asset are capitalized and depreciated over their useful life. Operating real estate is depreciated using the straight-line method over the estimated useful lives of the assets.

We follow the purchase method for an acquisition of operating real estate, where the purchase price is allocated to tangible assets such as land, building, tenant and land improvements and other identified intangibles, such as goodwill. Costs directly related to an acquisition deemed to be a business combination are expensed and included in transaction costs in our consolidated statements of operations. We evaluate whether REO constitutes a business and whether business combination accounting is appropriate. Any excess upon taking title to collateral between the carrying value of a loan over the estimated fair value of the property is charged to provision for loan losses.

Operating real estate, including REO, which has met the criteria to be classified as held for sale, is separately presented on the consolidated balance sheets. Such operating real estate is recorded at the lower of its carrying value or its estimated fair value less the cost to sell. Once a property is determined to be held for sale, depreciation is no longer recorded.

Real Estate Debt Investments

CRE debt investments are generally intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan fees, premium and discount. CRE debt investments that are deemed to be impaired are carried at amortized cost less a loan loss reserve, if deemed appropriate, which approximates fair value. CRE debt investments where we do not have the intent to hold the loan for the foreseeable future or until its expected payoff are classified as held for sale and recorded at the lower of cost or estimated value.

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Real Estate Securities

We classify our CRE securities investments as available for sale on the acquisition date, which are carried at fair value. We have historically elected to apply the fair value option for our CRE securities investments. For those CRE securities for which the fair value option was elected, any unrealized gains (losses) from the change in fair value is recorded in unrealized gains (losses) on investments and other in the consolidated statements of operations.

We may decide to not elect the fair value option for certain CRE securities due to the nature of the particular instrument. For those CRE securities for which the fair value option was not elected, any unrealized gain (loss) from the change in fair value is recorded as a component of accumulated other comprehensive income, or OCI, in the consolidated statements of equity, to the extent impairment losses are considered temporary.

Intangible Assets and Intangible Liabilities

We record acquired identified intangibles, which includes intangible assets (such as value of the above-market leases, in-place leases, goodwill and other intangibles) and intangible liabilities (such as the value of below-market leases), based on estimated fair value. The value allocated to the above or below-market leases is amortized over the remaining lease term as a net adjustment to rental income. Other intangible assets are amortized into depreciation and amortization expense on a straight-line basis over the remaining lease term.

Goodwill represents the excess of the purchase price over the fair value of net tangible and intangible assets acquired in a business combination and is not amortized. The Company analyzes goodwill for impairment on an annual basis and whenever events or changes in circumstances indicate that the carrying value of goodwill may not be fully recoverable. We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit, related to such goodwill, is less than the carrying amount as a basis to determine whether the two-step impairment test is necessary. The first step in the impairment test compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds fair value, the second step is required to determine the amount of the impairment loss, if any, by comparing the implied fair value of the reporting unit goodwill with the carrying amount of such goodwill. The implied fair value of goodwill is derived by performing a hypothetical purchase price allocation for the reporting unit as of the measurement date, allocating the reporting unit’s estimated fair value to its net assets and identifiable intangible assets. The residual amount represents the implied fair value of goodwill. To the extent this amount is below the carrying value of goodwill, an impairment loss is recorded in the consolidated statements of operations.

Events or circumstances which could indicate a potential impairment include (but are not limited to) issues with local, state or federal governments; on-going or projected negative operating income or cash flow; a significant change in payor mix related to healthcare assets; and/or a significant change in the occupancy rate and/or rising interest rates.

A discounted cash flow model is performed based on management’s forecast of operating performance for each reporting unit to assess fair value. In addition, we look at comparable companies and representative transactions to validate management’s expectations, where possible. The inputs used in the annual test is updated for current market conditions and forecasts. The two main assumptions used in measuring goodwill impairment, include the cash flow from operations from each of our reporting units and the weighted average cost of capital. The starting point for each of the reporting unit’s cash flow from operations is the detailed annual plan. The detailed planning process takes into consideration many factors including EBITDAR, EBITDAR margins, revenue growth rate and capital spending requirements, among other items which impact the individual reporting unit projections. Cash flow beyond the specific operating plans are estimated using a terminal value calculation, which incorporate historical and forecasted financial cyclical trends for each reporting unit and considered long-term earnings growth rates. The financial and credit market volatility directly impacts our fair value measurement through our weighted average cost of capital that we use to determine the discount rate. During times of volatility, significant judgment must be applied to determine whether credit changes are a short-term or long term trend. Fair value of the reporting unit is using significant unobservable inputs or Level 3 in the fair value hierarchy. These inputs are based on internal management estimates, forecasts and judgments.

The annual impairment test for the reporting units related to a healthcare portfolio acquired in 2014 was conducted as of October 1 and the remaining reporting units related to the Griffin-American Portfolio as of December 31, 2015. Management used an independent third-party valuation party specialist to assist. Based on the step one analysis performed, management determined the fair value for all of reporting units were in excess of the respective reporting unit’s carrying value, with four exceptions, related to the healthcare portfolio acquired in 2014. As a result, we estimated the impairment loss for such reporting units to be $25.5 million and recorded an estimated preliminary impairment charge for such amount in the fourth quarter 2015.  Due to the timing and complexity of step two of the impairment test, which is required to determine the actual impairment, we were unable to finalize the amount of impairment prior to filing form 10-K for the year ended December 31, 2015. Step two of the impairment test will be completed in the first quarter 2016 and any such adjustment will be recorded.

In addition, our reporting units associated with the Griffin-American Portfolio each had calculated fair value that were between 9% and 14% in excess of the respective carrying value. We continue to monitor the cash flow for these reporting units as they each contain goodwill.

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Fair Value Measurement

The fair value of financial instruments is categorized based on the priority of the inputs to the valuation technique and categorized into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Financial assets and liabilities are recorded at fair value on our consolidated balance sheets and are categorized based on the inputs to the valuation techniques as follows:

Level 1. Quoted prices for identical assets or liabilities in an active market.

Level 2. Financial assets and liabilities whose values are based on the following:

(a) Quoted prices for similar assets or liabilities in active markets.

(b) Quoted prices for identical or similar assets or liabilities in non-active markets.

(c) Pricing models whose inputs are observable for substantially the full term of the asset or liability.

(d) Pricing models whose inputs are derived principally from or corroborated by observable market data for substantially the full term of the asset or liability.

Level 3. Prices or valuation techniques based on inputs that are both unobservable and significant to the overall fair

value measurement.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Financial assets and liabilities recorded at fair value on a recurring basis are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Financial assets and liabilities recorded at fair value on a recurring basis using Level 3 inputs was 83% of total assets and substantially all liabilities measured at fair value on a recurring basis, respectively, as of December 31, 2015. Our non-recurring financial measurements include the measurement of provision for loan losses on our CRE debt investments, impairment on operating real estate and goodwill and provision for loss on equity investments, if any. These measurements are considered Level 3 fair value measurements.

Transfers into Level 3 for CRE securities for the year endedDecember 31, 2015 totaled $24 million and principally related to the nature of the price used to estimate fair value (third-party pricing service or broker quotations) and the amount of available market data to corroborate such prices. Transfers out of Level 3 for CRE securities for the year endedDecember 31, 2015 totaled $3 million. We recognized net unrealized/realized gains and losses of $23 million related Level 3 in our consolidated statements of operations for the year endedDecember 31, 2015.

Management determines the prices are representative of fair value through a review of available data, including observable inputs, recent transactions as well as our knowledge and experience of the market.

With respect to valuation for CRE securities, we generally obtain at least one quote from a pricing service or broker. Furthermore, we may use internal pricing models to establish arm’s length prices. Generally, the quote from the pricing service is used to determine fair value for the securities. The quotes are not adjusted. The pricing service uses market-based measurements based on valuation techniques that reflect market participants’ assumptions and maximize the use of relevant observable inputs including prices for similar assets, benchmark yield curves and market corroborated inputs such as contractual terms, discount rates for similar securities and credit (such as credit support and delinquency rates). We believe such broker quote is generally based on a market transaction of comparable securities.

To determine the fair value of CRE securities, we maintain a comprehensive quarterly process that includes a valuation committee comprised of senior members of the investment and accounting teams that is designed to enable management to ensure the prices used are representative of fair value and the instruments are properly classified pursuant to the fair value hierarchy.

Initially, a member of the investment team on the valuation committee reviews the prices at quarter end to ensure current market conditions are fairly presented. The investment team is able to assess these values because they are actively engaged in the market, reviewing bid lists, recent sales and frequently have discussions with various banks and other financial institutions regarding the state of the market. We then perform a variety of analyses to ensure the quotes are in a range which we believe to be representative of fair value and to validate the quotes obtained and used in determining the ultimate value used in the financial statements. At the portfolio level, we evaluate the overall change in fair value versus the overall change in the market. We review significant changes in fair value for individual instruments, both positive and negative, from the prior period. We perform back testing on any securities sold to validate the quotes used for the prior quarter. Where multiple quotes are available, we evaluate any large variance between the high and low price. We obtain any available market data that provides insight into the price through recent or comparable security trades, multiple broker bids and other pertinent information. This data may be available through the pricing

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service or based on data directly available to us. If as part of any of these processes, we are aware of data which we believe better supports the fair value, we challenge the quote provided by either the pricing service or broker. Any discrepancy identified from our processes are reviewed and resolved. The valuation committee approves the final prices. We believe these procedures are designed to enable us to estimate fair value.

Once we determine fair value of CRE securities, we review to ensure the instrument is properly classified pursuant to the fair value hierarchy consistent with U.S. GAAP through our understanding of the valuation methodologies used by the pricing service via discussion with representatives of the pricing service and review of any documentation describing its valuation methodology.

Generally, when fair value is based on the pricing service or multiple broker quotes, we believe, based on our analysis, such quotes are based on observable inputs and are therefore classified as Level 2. Where the price is based on either a single broker quote or an internal pricing model, we generally consider such price to be based on less observable data and therefore classify such instruments as Level 3.

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

Non-financial assets and liabilities measured at fair value in the consolidated financial statements consist of real estate held for sale, which are measured on a non-recurring basis, have been determined to be Level 3 within the valuation hierarchy, where applicable, based on estimated sales price, adjusted for closing costs and expenses, determined by discounted cash flow analysis, direct capitalization analyses or a sales comparison approach if no contracts had been consummated. The discounted cash flow and direct capitalization analyses include all estimated cash inflows and outflows over a specific holding period and, where applicable, any estimated debt premiums. This cash flow is comprised of unobservable inputs which included forecasted rental revenues and expenses based upon existing in-place leases, market conditions and expectations for growth. Capitalization rate and discount rate used in these analyses were based upon observable rates that we believed to be within a reasonable range of current market rates for the respective properties.

Valuations were prepared using internally-developed valuation models. These valuations are reviewed and approved, during each reporting period, by management, as deemed necessary, including personnel from the accounting, finance and asset management and the valuations are updated as appropriate. In addition, we may engage third-party valuation experts to assist with the preparation of certain of its valuations.

All other non-financial assets and liabilities measured at fair value in the financial statements on a non-recurring basis are subject to fair value measurement and disclosure. Non-financial assets and liabilities included on our consolidated balance sheets and measured on a nonrecurring basis consist of goodwill and long-lived assets, including other acquired intangibles.

Revenue Recognition

Operating Real Estate

Rental and escalation income from operating real estate is derived from leasing of space to various types of tenants and healthcare operators. The leases are for fixed terms of varying length and generally provide for annual rentals and expense reimbursements to be paid in monthly installments. Rental income from leases is recognized on a straight-line basis over the term of the respective leases. The excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in unbilled rent receivable on our consolidated balance sheets. Escalation income represents revenue from tenant/operator leases which provide for the recovery of all or a portion of the operating expenses and real estate taxes paid by us on behalf of the respective property. This revenue is accrued in the same period as the expenses are incurred.

We generate operating income from healthcare and hotel properties permitted by RIDEA. Revenue related to healthcare properties includes resident room and care charges and other resident charges. Revenue related to operating hotel properties primarily consists of room and food and beverage sales. Revenue is recognized when such services are provided, generally defined as the date upon which a resident or guest occupies a room or uses the healthcare property or hotel services and is recorded in resident fee income for healthcare properties and hotel related income for hotel properties in the consolidated statements of operations.

Real Estate Debt Investments

Interest income is recognized on an accrual basis and any related premium, discount, origination costs and fees are amortized over the life of the investment using the effective interest method. The amortization is reflected as an adjustment to interest income in our consolidated statements of operations. The amortization of a premium or accretion of a discount is discontinued if such loan is reclassified to held for sale.

Real Estate Securities

Interest income is recognized using the effective interest method with any premium or discount amortized or accreted through earnings based on expected cash flow through the expected maturity date of the security. Changes to expected cash flow may result in a change to the yield which is then applied retrospectively for high-credit quality securities that cannot be prepaid or

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otherwise settled in such a way that the holder would not recover substantially all of the investment or prospectively for all other securities to recognize interest income.

Credit Losses and Impairment on Investments

Operating Real Estate

Our real estate portfolio is reviewed on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value of our operating real estate may be impaired or that its carrying value may not be recoverable. A property’s value is considered impaired if management’s estimate of the aggregate expected future undiscounted cash flow to be generated by the property is less than the carrying value of the property. In conducting this review, management considers U.S and global macroeconomic factors and real estate sector conditions together with investment specific and other factors. To the extent an impairment has occurred, the loss is measured as the excess of the carrying value of the property over the estimated fair value of the property and recorded in impairment losses in our consolidated statements of operations.

An allowance for a doubtful account for a tenant/operator receivable is established based on a periodic review of aged receivables resulting from estimated losses due to the inability of tenant/operator to make required rent and other payments contractually due. Additionally, we establish, on a current basis, an allowance for future tenant/operator/resident/guest credit losses on unbilled rent receivable based on an evaluation of the collectability of such amounts.

Real Estate Debt Investments

Loans are considered impaired when based on current information and events, it is probable that we will not be able to collect principal and interest amounts due according to the contractual terms. We assess the credit quality of the portfolio and adequacy of loan loss reserves on a quarterly basis or more frequently as necessary. Significant judgment of management is required in this analysis. We consider the estimated net recoverable value of the loan as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the quality and financial condition of the borrower and the competitive situation of the area where the underlying collateral is located. Because this determination is based on projections of future economic events, which are inherently subjective, the amount ultimately realized may differ materially from the carrying value as of the balance sheet date. If upon completion of the assessment, the estimated fair value of the underlying collateral is less than the net carrying value of the loan, a loan loss reserve is recorded with a corresponding charge to provision for loan losses. The loan loss reserve for each loan is maintained at a level that is determined to be adequate by management to absorb probable losses.

Income recognition is suspended for a loan at the earlier of the date at which payments become 90-days past due or when, in the opinion of management, a full recovery of income and principal becomes doubtful. When the ultimate collectability of the principal of an impaired loan is in doubt, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the principal of an impaired loan is not in doubt, contractual interest is recorded as interest income when received, under the cash basis method until an accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed. A loan is written off when it is no longer realizable and/or legally discharged.

Investments in Unconsolidated Ventures

We review our investments in unconsolidated ventures for which we did not elect the fair value option on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value may be impaired or that its carrying value may not be recoverable. An investment is considered impaired if the projected net recoverable amount over the expected holding period is less than the carrying value. In conducting this review, we consider U.S. and global macroeconomic factors, including real estate sector conditions, together with investment specific and other factors. To the extent an impairment has occurred and is considered to be other than temporary, the loss is measured as the excess of the carrying value of the investment over the estimated fair value and recorded in provision for loss on equity investment in our consolidated statements of operations.

Real Estate Securities

CRE securities for which the fair value option is elected are not evaluated for other-than-temporary impairment, or OTTI, as any change in fair value is recorded in our consolidated statements of operations. Realized losses on such securities are reclassified to realized gain (loss) on investments and other as losses occur.

CRE securities for which the fair value option is not elected are evaluated for OTTI quarterly. Impairment of a security is considered to be other-than-temporary when: (i) the holder has the intent to sell the impaired security; (ii) it is more likely than not the holder will be required to sell the security; or (iii) the holder does not expect to recover the entire amortized cost of the security. When a CRE security has been deemed to be other-than-temporarily impaired due to (i) or (ii), the security is written down to its fair value and an OTTI is recognized in the consolidated statements of operations. In the case of (iii), the security is written down to its fair value and the amount of OTTI is then bifurcated into: (a) the amount related to expected credit losses; and (b) the amount related to fair value adjustments in excess of expected credit losses. The portion of OTTI related to expected credit losses is recognized in our consolidated statements of operations. The remaining OTTI related to the valuation adjustment is recognized

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as a component of accumulated OCI in our consolidated statements of equity. The portion of OTTI recognized through earnings is accreted back to the amortized cost basis of the security through interest income, while amounts recognized through OCI are amortized over the life of the security with no impact on earnings. CRE securities which are not high-credit quality are considered to have an OTTI if the security has an unrealized loss and there has been an adverse change in expected cash flow. The amount of OTTI is then bifurcated as discussed above.

Determination of Fair Value

The following is a description of the valuation techniques used to measure fair value of assets and liabilities accounted for at fair value on a recurring basis and the general classification of these instruments pursuant to the fair value hierarchy.

Investments in Private Equity Funds

We account for PE Investments at fair value which is determined based on a valuation model using assumptions for the timing and amount of expected future cash flow for income and realization events for the underlying assets in the funds and discount rate. This fair value measurement is generally based on unobservable inputs and, as such, is classified as Level 3 of the fair value hierarchy. We are not using the NAV (practical expedient) of the underlying funds for purposes of determining fair value.

Investments in Unconsolidated Ventures

We account for certain investments in unconsolidated ventures at fair value determined based on a valuation model using assumptions for the timing and amount of expected future cash flow for income and realization events for the underlying assets and discount rate. Additionally, we account for certain CRE debt investments made in connection with certain investments in unconsolidated ventures at fair value, which is determined based on comparing the current yield to the estimated yield for newly originated loans with similar credit risk. These fair value measurements are generally based on unobservable inputs and, as such, are classified as Level 3 of the fair value hierarchy.

Real Estate Securities

N-Star CDO Bonds

The fair value of N-Star CDO bonds is determined using quotations from nationally recognized financial institutions that generally acted as underwriter for the transactions. These quotations are not adjusted and are generally based on a valuation model with observable inputs such as interest rate and other unobservable inputs for assumptions related to the timing and amount of expected future cash flow, discount rate, estimated prepayments and projected losses. The fair value of subordinate N-Star CDO bonds is determined using an internal price interpolated based on third-party prices of the more senior N-Star CDO bonds of the respective CDO. All N-Star CDO bonds are classified as Level 3 of the fair value hierarchy.

N-Star CDO Equity

The fair value of N-Star CDO equity is determined based on a valuation model using assumptions for the timing and amount of expected future cash flow for income and realization events for the underlying collateral of these CDOs and discount rate. This fair value measurement is generally based on unobservable inputs and, as such, is classified as Level 3 of the fair value hierarchy.

Other CRE Securities

Other CRE securities are generally valued using a third-party pricing service or broker quotations. These quotations are not adjusted and are based on observable inputs that can be validated, and as such, are classified as Level 2 of the fair value hierarchy. Certain CRE securities may be valued based on a single broker quote or an internal price which may have less observable pricing, and as such, would be classified as Level 3 of the fair value hierarchy. Management determines the prices are representative of fair value through a review of available data, including observable inputs, recent transactions as well as its knowledge of and experience in the market.

Derivative Instruments

Derivative instruments are valued using a third-party pricing service. These quotations are not adjusted and are generally based on valuation models with observable inputs such as interest rates and contractual cash flow, and as such, are classified as Level 2 of the fair value hierarchy. Derivative instruments are also assessed for credit valuation adjustments due to the risk of non-performance by us and derivative counterparties. Derivatives held in non-recourse CDO financing structures where, by design, the derivative contracts are senior to all the CDO bonds payable, there is no material impact of a credit valuation adjustment.

CDO Bonds Payable

CDO bonds payable are valued using quotations from nationally recognized financial institutions that generally acted as underwriter for the transactions. These quotations are not adjusted and are generally based on a valuation model with observable inputs such as interest rate and other unobservable inputs for assumptions related to the timing and amount of expected future cash flow, discount rate, estimated prepayments and projected losses. CDO bonds payable are classified as Level 3 of the fair value hierarchy.

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Junior Subordinated Notes

Junior subordinated notes are valued using quotations from nationally recognized financial institutions. These quotations are not adjusted and are generally based on a valuation model with observable inputs such as interest rate and other unobservable inputs for assumptions related to the implied credit spread of our other borrowings and the timing and amount of expected future cash flow. Junior subordinated notes are classified as Level 3 of the fair value hierarchy.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board, or FASB, issued an accounting update requiring a company to recognize as revenue the amount of consideration it expects to be entitled to in connection with the transfer of promised goods or services to customers.  The accounting standard update will replace most of the existing revenue recognition guidance currently promulgated by U.S. GAAP.  In July 2015, the FASB decided to delay the effective date of the new revenue standard by one year. The effective date of the new revenue standard for us will be January 1, 2018. We are in the process of evaluating the impact, if any, of the update on our consolidated financial position, results of operations and financial statement disclosures.

In February 2015, the FASB issued updated guidance that changes the rules regarding consolidation. The pronouncement eliminates specialized guidance for limited partnerships and similar legal entities and removes the indefinite deferral for certain investment funds. The new guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, with early adoption permitted. We will adopt the new standard on January 1, 2016 and it is not expected to have a material impact on our consolidated financial position or results of operations.

In April 2015, the FASB issued an accounting update changing the presentation of financing costs in financial statements. Under the new guidance, an entity would present these costs in the balance sheet as a direct deduction from the related liability rather than as an asset. Amortization of the costs would continue to be reported as interest expense.  The new guidance is effective for annual periods and interim periods beginning after December 15, 2015, with early adoption permitted. In the fourth quarter 2015 we adopted this guidance and the impact to the consolidated balance sheet from the reclassification of such costs was a reduction to both total assets and total liabilities of $91 million and $148 million as of December 31, 2015 and 2014, respectively.

In September 2015, the FASB issued updated guidance that eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively.  Under the new guidance, an acquirer will recognize a measurement-period adjustment during the period in which it determines the amount of the adjustment. The new guidance is effective for annual periods and interim periods beginning after December 15, 2015, with early adoption permitted. We adopted this guidance in the third quarter 2015 and it did not have a material impact on our consolidated financial position, results of operations and financial statement disclosures.

In January 2016, the FASB issued an accounting update that addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. We are currently assessing the impact of the guidance on our consolidated financial position, results of operations and financial statement disclosures.

In February 2016, the FASB issued an accounting update that requires lessees to present right-of-use assets and lease liabilities on the balance sheet.  The new guidance is to be applied using a modified retrospective approach at the beginning of the earliest comparative period in the financial statements and is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We are evaluating the impact that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.

Results of Operations

Comparison of the Year EndedDecember 31, 2015 to December 31, 2014 (dollars in thousands):

The following table represents our results of operations for the years endedDecember 31, 2015 and 2014 (dollars in thousands).

The consolidated financial statements for the year endedDecember 31, 2015 includes: (i) our results of operations for the two months ended December 31, 2015 which represents our results of operations following the NRE Spin-off on October 31, 2015; and (ii) our results of operations for the ten months ended October 31, 2015 which includes a carve-out of revenues and expenses attributable to NRE recorded in discontinued operations.

The consolidated financial statements for the year endedDecember 31, 2014 includes: (i) our results of operations for the six months ended December 31, 2014 which represents our results of operations following the NSAM Spin-off on June 30, 2014; and (ii) our results of operations for the six months ended June 30, 2014 which includes a carve-out of revenues and expenses attributable to NSAM recorded in discontinued operations. As a result, results of operations for the year endedDecember 31, 2015 may not be comparative to our results of operations reported for the prior period presented.

	Years Ended December 31,						Increase (Decrease)
	2015			2014			Amount			%
Property and other revenues
Rental and escalation income	$	732,425		$	349,951		$	382,474		109.3	%
Hotel related income	784,151			237,039			547,112			230.8	%
Resident fee income	271,394			77,516			193,878			250.1	%
Other revenue	29,466			14,994			14,472			96.5	%
Total property and other revenues	1,817,436			679,500			1,137,936			167.5	%
Net interest income
Interest income	227,483			310,116			(82,633		)	(26.6	)%
Interest expense on debt and securities	8,678			11,977			(3,299		)	(27.5	)%
Net interest income on debt and securities	218,805			298,139			(79,334		)	(26.6	)%
Expenses
Management fee, related party	198,695			82,756			115,939			140.1	%
Interest expense—mortgage and corporate borrowings	486,408			231,894			254,514			109.8	%
Real estate properties—operating expenses	915,701			318,477			597,224			187.5	%
Other expenses	26,607			8,920			17,687			198.3	%
Transaction costs	31,427			172,416			(140,989		)	(81.8	)%
Impairment losses	31,951			—			31,951			NA
Provision for (reversal of) loan losses, net	4,201			3,769			432			11.5	%
General and administrative expenses
Salaries and related expense	13,744			22,124			(8,380		)	(37.9	)%
Equity-based compensation expense	27,693			24,885			2,808			11.3	%
Other general and administrative expenses	16,658			12,357			4,301			34.8	%
Total general and administrative expenses	58,095			59,366			(1,271		)	(2.1	)%
Depreciation and amortization	456,916			184,689			272,227			147.4	%
Total expenses	2,210,001			1,062,287			1,147,714			108.0	%
Other income (loss)
Unrealized gain (loss) on investments and other	(204,112		)	(231,697		)	27,585			(11.9	)%
Realized gain (loss) on investments and other	14,407			(77,064		)	91,471			(118.7	)%
Gain (loss) from deconsolidation of N-Star CDOs	—			(31,423		)	31,423			NA
Income (loss) before equity in earnings (losses) of unconsolidated ventures and income tax benefit (expense)	(363,465		)	(424,832		)	61,367			(14.4	)%
Equity in earnings (losses) of unconsolidated ventures	219,077			165,053			54,024			32.7	%
Income tax benefit (expense)	(14,325		)	(16,606		)	2,281			(13.7	)%
Income (loss) from continuing operations	(158,713		)	(276,385		)	117,672			(42.6	)%
Income (loss) from discontinued operations	(108,554		)	(44,701		)	(63,853		)	142.8	%
Net income (loss)	$	(267,267	)	$	(321,086	)	$	53,819		(16.8	)%

Property and Other Revenues

Rental and Escalation Income

Rental and escalation income increased$382.5 million, primarily attributable to new acquisitions in 2014 and 2015 including healthcare, industrial and multi-tenant office investments ($383.8 million) and increased income from our manufactured housing and multifamily investments ($15.5 million), offset by lower income from healthcare properties transitioned to a RIDEA structure in 2015 ($11.7 million) and lower income from our net lease and remaining healthcare properties ($5.1 million), all in our real estate segment.

Hotel Related Income

Hotel related income increased$547.1 million related to new hotel acquisitions in 2014 and 2015 in our real estate segment.

Resident Fee Income

Resident fee income increased$193.9 million, primarily related to the healthcare RIDEA properties acquired in 2014 ($138.1 million) and healthcare properties transitioned to a RIDEA structure in 2015 ($55.7 million), all in our real estate segment.

Other Revenue

Other revenue increased $14.5 million primarily due to a fee ($9.5 million) in our CRE debt segment, origination fees ($3.0 million) in our corporate segment and other real estate related fees ($2.4 million) in our real estate segment, offset by a decrease in administrative fees from our deconsolidated N-Star CDOs ($0.4 million) recorded in our N-Star CDOs segment.

82

Net Interest Income

Net interest income is generated on our interest-earning assets less related interest-bearing liabilities and is primarily related to our CRE debt, securities and N-Star CDO segments and includes certain CRE debt and notes receivable investments included as part of our real estate segment. For assets financed in a CDO, also referred to as legacy investments, the N-Star CDO segments are based on the primary collateral of the CDO financing transaction and as such may include other types of investments.

The following table presents the average balance of interest-earning assets less related interest-bearing liabilities, associated interest income and expense and corresponding yield earned and incurred for the years endedDecember 31, 2015 and 2014. Amounts presented have been impacted by the timing of new investments and repayments during the periods (dollars in thousands):

	Years Ended December 31,
	2015							2014
	Average Carrying Value(1)		Interest Income/ Expense(2)		WA Yield/ Financing Cost(3)			Average Carrying Value(1)		Interest Income/ Expense(2)		WA Yield/ Financing Cost(3)
Interest-earning assets:
CRE debt investments(4)	$	883,581	$	103,313	11.69	%		$	1,195,758	$	164,902	13.79	%
CRE securities investments	879,323		124,170		14.12	%		1,045,422		145,214		13.89	%
	$	1,762,904	227,483		12.90	%		$	2,241,180	310,116		13.84	%
Interest-bearing liabilities:
CDO bonds payable	$	500,207	$	4,257	3.23	%	(5)	$	702,191	$	5,893	3.24	%	(5)
Securitization bonds payable	—		151		—	%		70,080		2,394		3.42	%
Loan facilities	70,639		4,270		6.04	%		84,721		3,690		4.36	%
	$	570,846	8,678		3.07	%		$	856,992	11,977		3.37	%
Net interest income			$	218,805						$	298,139

____________________________________________________________

(1) Based on amortized cost for CRE debt and securities investments, principal amount for CDO bonds payable, securitization bonds payable and loan facilities. All amounts are calculated based on quarterly averages. Additionally, amounts include manufactured housing notes receivables recorded in other assets based on carrying value.

(2) Includes the effect of amortization of premium or accretion of discount and deferred fees.

(3) Calculated as interest income or expense divided by average carrying value.

(4) Includes $6.3 million and $4.6 million of interest income related to manufactured housing notes receivables recorded in other assets and included in our real estate segment for the years endedDecember 31, 2015 and 2014, respectively.

(5) We use interest rate swaps in CDO financing transactions to manage interest rate risk. Weighted average financing cost includes $11.6 million and $16.9 million of net cash payments on interest rate swaps recorded in unrealized gain (loss) in our consolidated statements of operations for the years endedDecember 31, 2015 and 2014, respectively.

Interest income decreased$82.6 million, primarily attributable to decreased income on debt investments due to pay offs ($59.0 million) in our CRE debt segment and CRE securities ($34.9 million) in our N-Star CDOs segment, offset by increased income on investments in deconsolidated N-Star CDO bonds and equity notes ($5.7 million) in our CRE securities segment and increased income on debt investments and notes receivables ($5.5 million) in our real estate segment.

Interest expense decreased$3.3 million, primarily attributable to reduced interest expense primarily related to the pay off of Securitization 2012-1 ($1.7 million) in the CRE debt segment and the pay down of N-Star CDO bonds payable ($1.6 million) in our CRE securities segment.

Expenses

Management Fee, Related Party

For the year endedDecember 31, 2015, we recorded $190.0 million related to the base management fee and $8.7 million related to the incentive fee to NSAM in our corporate segment. For the six months ended December 31, 2014, we recorded $79.4 million related to the base management fee and $3.3 million related to the incentive fee to NSAM in our corporate segment.

Interest Expense—Mortgage and Corporate Borrowings

Interest expense on mortgage and corporate borrowings increased$254.5 million, primarily attributable to increased interest expense related to new mortgage and other notes payable associated with new property acquisitions in 2014 and 2015 ($264.6 million), all in our real estate segment, and increased interest expense on our corporate borrowings ($26.2 million), offset by decreased interest expense on the senior notes that were repaid in September 2014 ($9.5 million), lower interest expense due to conversions of exchangeable senior notes ($13.9 million) in our corporate segment and lower interest expense from our remaining net lease and healthcare properties ($13.7 million) in our real estate segment.

83

Real Estate Properties—Operating Expenses

Real estate operating expenses primarily relate to utilities, real estate taxes, insurance and repair and maintenance expense and with respect to RIDEA properties, salaries, food and beverage and resident services. Real estate properties operating expenses increased$597.2 million, primarily attributable to new acquisitions in 2014 and 2015 comprised of healthcare, hotel, industrial and multi-tenant office investments and healthcare properties transitioned to a RIDEA structure in 2015, all in our real estate segment ($599.5 million).

Other Expenses

Other expenses primarily represents third-party asset management, audit and legal fees and other administrative related fees related to portfolio management of our real estate segment and other expenses such as legal and consulting fees for loan modifications and restructurings and other expenses associated with managing the N-Star CDOs. Other expenses increased$17.7 million related to new acquisitions in 2014 and 2015 in our real estate segment.

Transaction Costs

Transaction costs represent costs such as professional fees associated with new investments, dead deal costs and restructuring costs which are related to specific transactions. For the year endedDecember 31, 2015, transaction costs of $31.4 million primarily related to real estate acquisitions and restructurings, which includes transaction costs related to acquisitions in our healthcare, hotel and manufactured housing portfolios ($25.7 million), in our real estate segment. For the year endedDecember 31, 2014, transaction costs of $172.4 million primarily related to real estate acquisitions and restructurings, which includes transaction costs related to the merger of Griffin-American ($72.9 million), the acquisitions of our hotel portfolios ($53.8 million), acquisitions and restructurings related to our other healthcare portfolios ($30.0 million) and our other acquisitions, all in our real estate segment.

Impairment Losses

Impairment losses of $32.0 million related to impairment on goodwill of certain RIDEA healthcare properties ($25.5 million) and a healthcare RIDEA property and a net lease property ($6.4 million), all in our real estate segment.

Provision for (Reversal of) Loan Losses, Net

For the year endedDecember 31, 2015, provision for loan losses, net of $4.2 million related to five loans ($3.4 million) in our CRE debt segment and notes receivable related to our manufactured housing portfolio ($0.8 million) in our real estate segment. For the year endedDecember 31, 2014, provision for loan losses, net of $3.8 million related to two loans ($2.8 million) in our CRE debt segment and notes receivable related to our manufactured housing portfolio ($1.0 million) in our real estate segment.

General and Administrative Expenses

General and administrative expenses are principally incurred at the corporate level. General and administrative expenses decreased$1.3 million primarily attributable to the following:

Salaries and related expense decreased$8.4 million primarily due to most of our existing employees at the time of the NSAM Spin-off becoming employees of NSAM.

Equity-based compensation expense is comprised of (dollars in thousands):

	Time-Based Awards				Performance-Based Awards				Total
	Years Ended December 31,				Years Ended December 31,				Years Ended December 31,
	2015		2014		2015		2014		2015		2014
NorthStar Realty(1)	$	22,000	$	22,332	$	5,693	$	2,553	$	27,693	$	24,885
Allocation to NSAM(2)	—		6,800		—		6,945		—		13,745
Total	$	22,000	$	29,132	$	5,693	$	9,498	$	27,693	$	38,630

___________________________________________________________

(1) Includes equity-based compensation expense related to grants issued subsequent to the NSAM Spin-off by NorthStar Realty to employees of NorthStar Realty and NSAM in connection with NorthStar Realty’s obligation under the management agreement (refer to Note 10. Related Party Arrangements). In connection with this obligation, for the year ended December 31, 2015, NorthStar Realty recorded equity-based compensation expense of $13 million and $2 million of time-based awards and performance-based awards, respectively.

(2) Recorded in discontinued operations. The allocation to NSAM for 2014 is equity-based compensation expense for the six months ended June 30, 2014.

Other general and administrative expenses increased$4.3 million related to higher corporate expenses.

Depreciation and Amortization

Depreciation and amortization expense increased$272.2 million, primarily related to new acquisitions in 2014 and 2015 ($276.7 million), offset by a decrease related to our multifamily properties as they are classified as held for sale in 2015 ($2.1 million) and lower expense from our net lease and remaining healthcare properties ($1.8 million), all in our real estate segment.

84

Other Income (Loss)

Unrealized Gain (Loss) on Investments and Other

Unrealized gain (loss) on investments and other is primarily related to the non-cash change in fair value adjustments and the remaining amount is related to net cash payments on interest rate swaps. The following table presents a summary of unrealized gain (loss) on investments and other by operating segment for the years endedDecember 31, 2015 and 2014 (dollars in thousands):

	Year Ended December 31, 2015
						N-Star CDOs
	Real Estate			CRE Securities		CRE Securities			Corporate			Total
Change in fair value of:
Real estate securities, available for sale(1)	$	—		$	5,312	$	(20,122	)	$	—		$	(14,810	)
PE Investments(1)	(33,241		)	—		—			—			(33,241		)
CDO bonds payable, at fair value(1)	—			—		(29,275		)	—			(29,275		)
Junior subordinated notes, at fair value(1)	—			—		—			31,279			31,279
Derivatives, at fair value	(1,954		)	—		10,387			(95,908		)	(87,475		)
Foreign currency remeasurement(2)	(14,635		)	10		—			(3,650		)	(18,275		)
Investments in unconsolidated ventures(1)	(40,437		)	—		—			—			(40,437		)
Subtotal unrealized gain (loss)	(90,267		)	5,322		(39,010		)	(68,279		)	(192,234		)
Net cash payments on derivatives	(328		)	—		(11,550		)	—			(11,878		)
Total unrealized gain (loss) on investments and other	$	(90,595	)	$	5,322	$	(50,560	)	$	(68,279	)	$	(204,112	)

__________________________________________________________

(1) Represents financial assets and liabilities for which the fair value option was elected.

(2) Represents foreign currency remeasurement on investments, cash and deposits primarily denominated in Euros.

	Year Ended December 31, 2014
										N-Star CDOs
	Real Estate			CRE Debt			CRE Securities			CRE Securities			Corporate			Total
Change in fair value of:
Real estate securities, available for sale(1)	$	—		$	—		$	(23,814	)	$	11,490		$	—		$	(12,324	)
PE Investments(1)	32,621			—			—			—			—			32,621
CDO bonds payable, at fair value(1)	—			—			—			(217,608		)	—			(217,608		)
Junior subordinated notes, at fair value(1)	—			—			—			—			(13,969		)	(13,969		)
Derivatives, at fair value	(2,898		)	—			—			11,082			—			8,184
Foreign currency remeasurement(2)	(9,479		)	(1,310		)	—			—			(930		)	(11,719		)
Subtotal unrealized gain (loss)	20,244			(1,310		)	(23,814		)	(195,036		)	(14,899		)	(214,815		)
Net cash payments on derivatives	—			—			(232		)	(16,650		)	—			(16,882		)
Total unrealized gain (loss) on investments and other	$	20,244		$	(1,310	)	$	(24,046	)	$	(211,686	)	$	(14,899	)	$	(231,697	)

__________________________________________________________

(1) Represents financial assets and liabilities for which the fair value option was elected.

(2) Primarily represents foreign currency remeasurement on an investment denominated in Euros.

85

Realized Gain (Loss) on Investments and Other

The following table presents a summary of realized gain (loss) on investments and other by segment for the years ended December 31, 2015 and 2014 (dollars in thousands):

		Years Ended December 31,
Description	Segment	2015			2014
Conversion of exchangeable senior notes	Corporate	$	(1,308	)	$	(65,771	)
Foreign exchange	Corporate	(1,137		)	—
Sale of REO	CRE Debt	2,980			—
Sale of real estate debt	CRE Debt	—			(2,920		)
Sales/repayments from N-Star CDO bonds(1)	CRE Securities	13,333			9,571
Liquidation of N-Star CDO IV	CRE Securities	9,437			—
Sales of N-Star CDO securities	N-Star CDOs - CRE securities	(8,677		)	2,742
Repurchase of N-Star CDO bonds	N-Star CDOs - CRE securities	(3,859		)	(13,927		)
Healthcare and net lease property related	Real Estate	3,198			(3,659		)
Mortgage payoff of a net lease property	Real Estate	2,074			—
Sale of manufactured homes	Real Estate	(1,709		)	(3,893		)
Other	Various	75			793
Total		$	14,407		$	(77,064	)

_________________________________________________________

(1) Represents cash accelerated amortization on N-Star CDO bonds.

Gain (Loss) from Deconsolidation of N-Star CDOs

For the year endedDecember 31, 2014, the loss of $31.4 million is related to the deconsolidation of N-Star CDOs III and V, which was predominately due to the reversal of prior unrealized gains on CDO bonds payable recorded in prior periods due to the election of the fair value option.

Equity in Earnings (Losses) of Unconsolidated Ventures and Income Tax Benefit (Expense)

Equity in Earnings (Losses) of Unconsolidated Ventures

The following table presents a summary of our equity in earnings (losses) of unconsolidated ventures, substantially all of which is generated from investments in our real estate segment, for the years endedDecember 31, 2015 and 2014 (dollars in thousands):

	Years Ended December 31,
	2015		2014		Increase (Decrease)
PE Investments	$	198,159	$	150,801	$	47,358
Investment in RXR Realty	16,037		8,003		8,034
Other unconsolidated ventures	4,881		6,249		(1,368		)
Total	$	219,077	$	165,053	$	54,024

Income Tax Benefit (Expense)

Income tax expense for the year endedDecember 31, 2015 represents a net expense of $14.3 million primarily related to a provision for income tax for our PE Investments ($15.0 million), hotel properties ($4.7 million), our corporate interests in RXR Realty and SteelWave ($10.8 million) and other various real estate investments ($0.3 million), offset by a net benefit for our RIDEA healthcare properties ($16.5 million), all in our real estate segment. Income tax expense for the year endedDecember 31, 2014 represents a net expense of $16.6 million primarily related to a provision for income tax for our PE Investments ($16.8 million) and other various real estate investments ($1.6 million), offset by the effect of net operating loss carryforward related to our hotel and healthcare portfolios operating under a RIDEA structure ($1.8 million).

86

Discontinued Operations

Income (Loss) from Discontinued Operations

Discontinued operations primarily represents activity related to NorthStar Europe and NSAM prior to their respective spin-offs. NSAM’s revenues exclude the effect of any fees that it would have earned in connection with the management agreement with us (dollars in thousands):

	Years Ended December 31,						Increase (Decrease)
	2015			2014			Amount				%
NSAM
Total revenues	$	—		$	56,013		$	(56,013	)	(1)	(100.0	)%
Total expenses	—			63,216			(63,216		)	(1)	(100.0	)%
NSAM income (loss) in discontinued operations	—			(7,203		)	7,203				(100.0	)%
NRE
Total revenues	89,600			1,647			$	87,953		(4)	5,340.2	%
Total expenses(2)(3)	205,406			38,050			167,356			(4)	439.8	%
Unrealized gain (loss) on investments and other	(10,812		)	—			(10,812		)		NA
Realized gain (loss) on investments and other	5			(170		)	175				(102.9	)%
Income (loss) before income tax benefit (expense) provision	(126,613		)	(36,573		)	(90,040		)		246.2	%
Income tax benefit (expense)	18,070			—			18,070				NA
NRE income (loss) in discontinued operations	(108,543		)	(36,573		)	(71,970		)		NA
Income (loss) from operating real estate discontinued operations	(11		)	(925		)	914				(98.8	)%
Total income (loss) from discontinued operations	$	(108,554	)	$	(44,701	)	$	(63,853	)		142.8	%

___________________________________________________________

(1) Represents revenues and expenses for the six months ended June 30, 2014 prior to the NSAM Spin-off.

(2) Includes $109.4 million and $31.7 million of transaction costs related to acquisitions for the years endedDecember 31, 2015 and 2014, respectively.

(3) Includes $42.4 million and $0.5 million of depreciation and amortization for the years endedDecember 31, 2015 and 2014, respectively.

(4) The increase is a result of the acquisition of three European portfolios in 2015.

Comparison of the Year EndedDecember 31, 2014 to December 31, 2013 (dollars in thousands):

The following table represents our results of operations for the years endedDecember 31, 2014 and 2013 (dollars in thousands).

The consolidated financial statements for the year endedDecember 31, 2014 includes: (i) our results of operations for the six months ended December 31, 2014 which represents our results of operations following the NSAM Spin-off on June 30, 2014; and (ii) our results of operations for the six months ended June 30, 2014 which includes a carve-out of revenues and expenses attributable to NSAM recorded in discontinued operations. As a result, results of operations for the year endedDecember 31, 2014 may not be comparative to our results of operations reported for the prior period presented.

87

	Years Ended December 31,						Increase (Decrease)
	2014			2013			Amount			%
Property and other revenues
Rental and escalation income	$	349,951		$	235,124		$	114,827		48.8	%
Hotel related income	237,039			—			237,039			NA
Resident fee income	77,516			—			77,516			NA
Other revenue	14,994			5,723			9,271			162.0	%
Total property and other revenues	679,500			240,847			438,653			182.1	%
Net interest income
Interest income	310,116			303,989			6,127			2.0	%
Interest expense on debt and securities	11,977			37,632			(25,655		)	(68.2	)%
Net interest income on debt and securities	298,139			266,357			31,782			11.9	%
Expenses
Management fee, related party	82,756			—			82,756			NA
Interest expense—mortgage and corporate borrowings	231,894			141,027			90,867			64.4	%
Real estate properties—operating expenses	318,477			73,668			244,809			332.3	%
Other expenses	8,920			4,558			4,362			95.7	%
Transaction costs	172,416			12,464			159,952			1,283.3	%
Provision for (reversal of) loan losses, net	3,769			(8,786		)	12,555			(142.9	)%
General and administrative expenses
Salaries and related expense	22,124			26,421			(4,297		)	(16.3	)%
Equity-based compensation expense	24,885			11,784			13,101			111.2	%
Other general and administrative expenses	12,357			16,159			(3,802		)	(23.5	)%
Total general and administrative expenses	59,366			54,364			5,002			9.2	%
Depreciation and amortization	184,689			93,470			91,219			97.6	%
Total expenses	1,062,287			370,765			691,522			186.5	%
Other income (loss)
Unrealized gain (loss) on investments and other	(231,697		)	(32,677		)	(199,020		)	609.1	%
Realized gain (loss) on investments and other	(77,064		)	32,376			(109,440		)	(338.0	)%
Gain (loss) from deconsolidation of N-Star CDOs	(31,423		)	(299,802		)	268,379			(89.5	)%
Other income (loss)	—			38			(38		)	NA
Income (loss) before equity in earnings (losses) of unconsolidated ventures and income tax benefit (expense)	(424,832		)	(163,626		)	(261,206		)	159.6	%
Equity in earnings (losses) of unconsolidated ventures	165,053			91,726			73,327			79.9	%
Income tax benefit (expense)	(16,606		)	(7,249		)	(9,357		)	129.1	%
Income (loss) from continuing operations	(276,385		)	(79,149		)	(197,236		)	249.2	%
Income (loss) from discontinued operations	(44,701		)	(8,761		)	(35,940		)	410.2	%
Net income (loss)	$	(321,086	)	$	(87,910	)	$	(233,176	)	265.2	%

Property and Other Revenues

Rental and Escalation Income

Rental and escalation income increased $114.8 million, primarily attributable to new acquisitions in 2014 including healthcare, industrial and a full year related to manufactured housing and multifamily investments ($154.2 million), offset by lower income from our net lease and healthcare properties ($6.9 million), all in our real estate segment and lower income related to REOs that were deconsolidated in the N-Star CDO CRE debt segment ($32.5 million).

Hotel Related Income

We generated hotel related income of $237.0 million related to new hotel acquisitions in 2014. We did not own any hotel properties prior to 2014.

Resident Fee Income

We generated resident fee income of $77.5 million in 2014 primarily related to the healthcare RIDEA properties acquired during the year. We did not own any RIDEA properties prior to 2014.

Other Revenue

Other revenue increased $9.3 million primarily due to an increase in real estate related fees ($5.9 million) in our real estate segment and administrative fees from our deconsolidated N-Star CDOs which were eliminated in consolidation in 2013 ($3.4 million) in our N-Star CDOs segment.

88

Net Interest Income

Net interest income is generated on our interest-earning assets less related interest-bearing liabilities and is recorded as part of our CRE debt, securities and N-Star CDO segments and includes certain CRE debt and notes receivable investments included as part of our real estate segment. For assets financed in a CDO, also referred to as legacy investments, the N-Star CDO segments are based on the primary collateral of the CDO financing transaction and as such may include other types of investments.

The following table presents the average balance of interest-earning assets less related interest-bearing liabilities, associated interest income and expense and corresponding yield earned and incurred for the years endedDecember 31, 2014 and 2013. Amounts presented have been impacted by the timing of new investments and repayments during the periods (dollars in thousands):

	Years Ended December 31,
	2014							2013
	Average Carrying Value(1)		Interest Income/ Expense(2)		WA Yield/ Financing Cost(3)			Average Carrying Value(1)		Interest Income/ Expense(2)		WA Yield/ Financing Cost(3)
Interest-earning assets:
CRE debt investments(4)	$	1,195,758	$	164,902	13.79	%		$	1,547,091	$	145,427	9.40	%
CRE securities investments	1,045,422		145,214		13.89	%		1,554,922		158,562		10.20	%
	$	2,241,180	310,116		13.84	%		$	3,102,013	303,989		9.80	%
Interest-bearing liabilities:
CDO bonds payable	$	702,191	$	5,893	3.24	%	(5)	$	2,275,986	$	29,913	3.63	%	(5)
Securitization bonds payable	70,080		2,394		3.42	%		97,973		3,058		3.12	%
Loan facilities	84,721		3,690		4.36	%		69,869		4,233		6.80	%
Secured term loan	—		—		—	%		8,776		428		4.88	%
	$	856,992	11,977		3.37	%		$	2,452,604	37,632		3.71	%
Net interest income			$	298,139						$	266,357

____________________________________________________________

(1) Based on amortized cost for CRE debt and securities investments, principal amount for CDO bonds payable, securitization bonds payable and loan facilities. All amounts are calculated based on quarterly averages. Additionally, amounts include manufactured housing notes receivables recorded in other assets based on carrying value.

(2) Includes the effect of amortization of premium or accretion of discount and deferred fees.

(3) Calculated as interest income or expense divided by average carrying value.

(4) Includes $4.6 million and $0.2 million of interest income related to manufactured housing notes receivables recorded in other assets and included in our real estate segment for the years endedDecember 31, 2014 and 2013, respectively.

(5) We use interest rate swaps in CDO financing transactions to manage interest rate risk. Weighted average financing cost includes $16.9 million and $52.7 million of net cash payments on interest rate swaps recorded in unrealized gain (loss) in our consolidated statements of operations for the years endedDecember 31, 2014 and 2013, respectively.

Interest income increased $6.1 million, primarily attributable to increased income on debt investments ($96.2 million) in our CRE debt segment, debt investments and notes receivables ($4.7 million), in our real estate segment and investments in deconsolidated N-Star CDO bonds and equity notes ($42.9 million) in our CRE securities segment, offset by decreased interest income on CRE debt and securities investments ($137.8 million) in the N-Star CDOs segment primarily attributable to the deconsolidation of N-Star CDO bonds payable.

Interest expense decreased $25.7 million, primarily attributable to the deconsolidation of N-Star CDO bonds payable ($23.6 million) and reduced interest on other borrowings ($2.1 million) in the CRE debt segment.

Expenses

Management Fee, Related Party

For the six months ended December 31, 2014, we recorded $79.4 million related to the base management fee and $3.3 million related to the incentive fee to NSAM. The management contract with NSAM commenced on July 1, 2014, and as such, there were no management fees incurred for the six months ended June 30, 2014 and the year endedDecember 31, 2013.

Interest Expense—Mortgage and Corporate Borrowings

Interest expense on mortgage and corporate borrowings increased $90.9 million, primarily attributable to increased interest expense related to new mortgage and other notes payable associated with new property acquisitions ($105.7 million) in our real estate segment, our corporate borrowings ($8.5 million) and senior notes at the corporate level that were repaid at maturity ($11.5 million), offset by lower interest expense from mortgage notes on REO that were deconsolidated ($9.4 million)in our N-Star CDO CRE debt segment and lower interest expense at the corporate level primarily due to conversions of exchangeable senior notes ($25.5 million).

89

Real Estate Properties—Operating Expenses

Real estate operating expenses primarily relate to utilities, real estate taxes, insurance and repair and maintenance and with respect to RIDEA properties, salaries, food and beverage and resident services. Real estate properties operating expenses increased $244.8 million, primarily attributable to new acquisitions in 2014 comprised of healthcare, hotel and industrial properties and a full year related to manufactured housing and multifamily investments ($261.7 million), offset by lower expenses from our net lease and remaining healthcare properties ($1.9 million), all in our real estate segment and REO that were deconsolidated ($15.2 million) in our N-Star CDO CRE debt segment.

Other Expenses

Other expenses primarily represents third-party asset management, audit and legal fees and other administrative related fees related to portfolio management of our real estate segment and other expenses such as legal and consulting fees for loan modifications and restructurings and other expenses associated with managing the N-Star CDOs. Other expenses increased $4.4 million related to new acquisitions in 2014 in our real estate segment.

Transaction Costs

Transaction costs represent costs such as professional fees associated with new investments, dead deal costs and restructuring costs which are related to specific transactions. For the year endedDecember 31, 2014, transaction costs of $172.4 million primarily related to real estate acquisitions and restructurings, which includes transaction costs related to the merger of Griffin-American ($72.9 million), the acquisitions of hotel portfolios ($53.8 million), acquisitions and restructurings related to our other healthcare portfolios ($30.0 million) and our other acquisitions, all in our real estate segment. For the year endedDecember 31, 2013, transaction costs of $12.5 million related to our acquisition of manufactured housing communities ($3.5 million), multifamily properties ($3.8 million) and PE Investments ($4.2 million), all in our real estate segment.

Provision for (Reversal of) Loan Losses, Net

For the year endedDecember 31, 2014, provision for loan losses, net of $3.8 million related to two loans ($2.8 million) in our CRE debt segment and notes receivable related to our manufactured housing portfolio ($1.0 million) in our real estate segment. For the year endedDecember 31, 2013, reversal of provision for loan losses, net in our CRE debt segment of $8.8 million related to reversals of provision for loan loss of $15.1 million primarily associated with a loan loss on a mezzanine loan ($6.3 million), offset by a reversal of provision for loan loss for a mezzanine loan for which we contemporaneously took title to the collateral ($4.0 million) and a reversal of a provision for loan loss in September 2013 primarily related to a loan that paid off at par during the fourth quarter.

General and Administrative Expenses

General and administrative expenses are principally incurred at the corporate level. General and administrative expenses increased $5.0 million primarily attributable to the following:

Salaries and related expense decreased $4.3 million primarily due to most of our existing employees at the time of the NSAM Spin-off becoming employees of NSAM.

Equity-based compensation expense is comprised of (dollars in thousands):

	Time-Based Awards				Performance-Based Awards				Total
	Years Ended December 31,				Years Ended December 31,				Years Ended December 31,
	2014		2013		2014		2013		2014		2013
NorthStar Realty	$	22,332	$	8,940	$	2,553	$	2,844	$	24,885	$	11,784
Allocation to NSAM(1)	6,800		3,928		6,945		1,249		13,745		5,177
Total	$	29,132	$	12,868	$	9,498	$	4,093	$	38,630	$	16,961

__________________________________________________________

(1) Recorded in discontinued operations. The allocation to NSAM for 2014 is equity-based compensation expense for the six months ended June 30, 2014 and a full year for 2013.

Other general and administrative expenses decreased $3.8 million due to the NSAM Spin-off.

Depreciation and Amortization

Depreciation and amortization expense increased $91.2 million, primarily related to new acquisitions ($105.9 million) in our real estate segment, offset by lower expense related to REO that were deconsolidated ($14.6 million) in our N-Star CDO CRE debt segment.

90

Other Income (Loss)

Unrealized Gain (Loss) on Investments and Other

Unrealized gain (loss) on investments and other is primarily related to the non-cash change in fair value adjustments and the remaining amount is related to net cash payments on interest rate swaps. The following table presents a summary of unrealized gain (loss) on investments and other by operating segment for the years endedDecember 31, 2014 and 2013 (dollars in thousands):

	Year Ended December 31, 2014
										N-Star CDOs
	Real Estate			CRE Debt			CRE Securities			CRE Securities			Corporate			Total
Change in fair value of:
Real estate securities, available for sale(1)	$	—		$	—		$	(23,814	)	$	11,490		$	—		$	(12,324	)
PE Investments(1)	32,621			—			—			—			—			32,621
CDO bonds payable, at fair value(1)	—			—			—			(217,608		)	—			(217,608		)
Junior subordinated notes, at fair value(1)	—			—			—			—			(13,969		)	(13,969		)
Derivatives, at fair value	(2,898		)	—			—			11,082			—			8,184
Foreign currency remeasurement(2)	(9,479		)	(1,310		)	—			—			(930		)	(11,719		)
Subtotal unrealized gain (loss)	20,244			(1,310		)	(23,814		)	(195,036		)	(14,899		)	(214,815		)
Net cash payments on derivatives	—			—			(232		)	(16,650		)	—			(16,882		)
Total unrealized gain (loss) on investments and other	$	20,244		$	(1,310	)	$	(24,046	)	$	(211,686	)	$	(14,899	)	$	(231,697	)

__________________________________________________________

(1) Represents financial assets and liabilities for which the fair value option was elected.

(2) Represents foreign currency remeasurement on investments, cash and deposits primarily denominated in Euros.

	Year Ended December 31, 2013
					N-Star CDOs
	CRE Debt		CRE Securities		CRE Debt			CRE Securities			Corporate			Total
Change in fair value of:
Real estate securities, available for sale(1)	$	—	$	3,916	$	(2,407	)	$	93,171		$	—		$	94,680
CDO bonds payable, at fair value(1)	—		—		—			(106,626		)	—			(106,626		)
Junior subordinated notes, at fair value(1)	—		—		—			—			(4,030		)	(4,030		)
Derivatives, at fair value	—		—		—			33,730			—			33,730
Foreign currency remeasurement(2)	2,300		—		—			—			—			2,300
Subtotal unrealized gain (loss)	2,300		3,916		(2,407		)	20,275			(4,030		)	20,054
Net cash payments on derivatives	—		—		(10,285		)	(42,446		)	—			(52,731		)
Total unrealized gain (loss) on investments and other	$	2,300	$	3,916	$	(12,692	)	$	(22,171	)	$	(4,030	)	$	(32,677	)

__________________________________________________________

(1) Represents financial assets and liabilities for which the fair value option was elected.

(2) Primarily represents foreign currency remeasurement on an investment denominated in Euros.

Realized Gain (Loss) on Investments and Other

The following table presents a summary of realized gain (loss) on investments and other by segment for the years endedDecember 31, 2014 and 2013 (dollars in thousands):

		Years Ended December 31,
Description	Segment	2014			2013
Conversion of exchangeable senior notes	Corporate	$	(65,771	)	$	(10,918	)
Sale of real estate debt	CRE Debt	(2,920		)	(1,769		)
Sales/repayments from N-Star CDO bonds(1)	CRE Securities	9,571			—
Sales of N-Star CDO securities	N-Star CDO CRE debt	—			(1,421		)
Sales of N-Star CDO securities	N-Star CDO CRE securities	2,742			39,240
Liquidation of N-Star CDO II	N-Star CDO CRE securities	—			7,020
Repurchase of N-Star CDO bonds	N-Star CDO CRE securities	(13,927		)	(12,360		)
Healthcare and net lease property related	Real Estate	(3,659		)	—
Sale of manufactured homes	Real Estate	(3,893		)	(879		)
Sale of timeshare units	Real Estate	—			12,215
Other	Various	793			1,248
Total		$	(77,064	)	$	32,376

_________________________________________________________

(1) Represents cash accelerated amortization on N-Star CDO bonds.

91

Gain (Loss) from Deconsolidation of N-Star CDOs

For the year endedDecember 31, 2014, the loss of $31.4 million is related to the deconsolidation of N-Star CDOs III and V, which was predominately due to the reversal of prior unrealized gains on CDO bonds payable recorded in prior periods due to the election of the fair value option. For the year endedDecember 31, 2013, the loss of $299.8 million is related to the deconsolidation of N-Star CDOs IV, VI, VII and VIII, the CapLease CDO and the CSE CDO, which was predominately due to the reversal of the unrealized gains on the CDO liabilities that were recorded in prior periods due to the election of the fair value option.

Equity in Earnings (Losses) of Unconsolidated Ventures and Income Tax Benefit (Expense)

Equity in Earnings (Losses) of Unconsolidated Ventures

The following table presents a summary of our equity in earnings (losses) of unconsolidated ventures, substantially all of which is generated from investments in our real estate segment, for the years endedDecember 31, 2014 and 2013 (dollars in thousands):

	Years Ended December 31,
	2014		2013		Increase (Decrease)
PE Investments	$	150,801	$	88,842	$	61,959
Investment in RXR Realty	8,003		—		8,003
Other unconsolidated ventures	6,249		2,884		3,365
Total	$	165,053	$	91,726	$	73,327

Income Tax Benefit (Expense)

Income tax expense for the year endedDecember 31, 2014 represents a net expense of $16.6 million primarily related to a provision for income tax for our PE Investments ($16.8 million) and other various real estate investments ($1.6 million), offset by the effect of net operating loss carryforward related to our hotel and healthcare portfolios operating under a RIDEA structure ($1.8 million), all in our real estate segment. Income tax expense for the year endedDecember 31, 2013 represents income tax of $7.2 million related to a provision for income tax on our PE Investments ($6.2 million) and a sales tax of timeshare units ($1.0 million), both in our real estate segment.

Discontinued Operations

Income (Loss) from Discontinued Operations

Discontinued operations primarily represents activity related to NorthStar Europe and NSAM prior to their respective spin-offs. NSAM’s revenues exclude the effect of any fees that it would have earned in connection with the management agreement with us (dollars in thousands):

	Years Ended December 31,						Increase (Decrease)
	2014			2013			Amount				%
NSAM
Total revenues	$	56,013		$	89,938		$	(33,925	)	(1)	(37.7	)%
Total expenses	63,216			90,343			(27,127		)	(1)	(30.0	)%
NSAM income (loss) in discontinued operations	(7,203		)	(405		)	(6,798		)		NM
NRE
Total revenues	1,647			—			1,647				NA
Total expenses	38,050			—			38,050			(2)	NA
Realized gain (loss) on investments and other	(170		)	—			(170		)		NA
NRE income (loss) in discontinued operations	(36,573		)	—			(36,573		)		NA
Income (loss) from operating real estate discontinued operations	(925		)	(8,356		)	7,431				(88.9	)%
Total income (loss) from discontinued operations	$	(44,701	)	$	(8,761	)	$	(35,940	)		410.2	%

___________________________________________________________

(1) The decrease is a result of the year endedDecember 31, 2014 representing only six months of total revenues and expenses of NSAM prior to the NSAM Spin-off on June 30, 2014, compared to a full year of activity of NSAM for the year endedDecember 31, 2013.

(2) Includes $31.7 million of transaction costs related to acquisitions for the year endedDecember 31, 2014.

92

Liquidity and Capital Resources

We require capital to fund our operating expenses and investment activities, including the repurchase of our common stock. Our capital sources may include cash flow from operations, net proceeds from asset repayments and sales, borrowings under credit facilities, financings secured by our assets such as mortgage notes, securitization financing transactions, long-term senior and subordinate corporate capital such as revolving credit facilities, senior term loans, senior notes, senior exchangeable notes, trust preferred securities, perpetual preferred stock and common stock. For instance, we are currently exploring the sale of certain real estate, CRE debt and securities, and subsequent to year end, have sold or committed to sell $2.0 billion of assets to generate liquidity to repurchase our common stock and reduce our leverage. Proceeds from these sales initiatives, along with capital retained from our revised dividend policy, are currently expected to be used for repurchasing our common stock, which we believe is currently trading at a large discount to underlying net asset value and toward the repayment of all of our corporate recourse borrowing obligations which total $590 million (excluding $280 million of trust preferred securities with maturities beginning in 2035).

In addition, in connection with the NSAM Spin-off, we entered into a revolving credit agreement with NSAM pursuant to which we make available, on an “as available basis,” up to $250 million of financing to NSAM subject to certain conditions (refer to Related Party Arrangements). The terms of the NSAM revolving credit facility contain various representations, warranties, covenants and conditions, including the condition that our obligation to advance proceeds to NSAM is dependent upon us and its affiliates having at least $100 million of either unrestricted cash and cash equivalents or amounts available under committed lines of credit, after taking into account the amount NSAM seeks to draw under the facility. In addition, in connection with the NRE Spin-off, we provided NorthStar Europe with an initial capitalization of $250 million.

We seek to meet our long-term liquidity requirements, including the repayment of borrowings and our investment funding needs, through existing cash resources, issuance of debt or equity capital, return of capital from investments and the liquidation or refinancing of assets. Nonetheless, our ability to meet a long-term (beyond one year) liquidity requirement may be subject to obtaining additional debt and equity financing. Any decision by our lenders and investors to provide us with financing will depend upon a number of factors, such as our compliance with the terms of our existing credit arrangements, our financial performance, industry or market trends, the general availability of and rates applicable to financing transactions, such lenders’ and investors’ resources and policies concerning the terms under which they make capital commitments and the relative attractiveness of alternative investment or lending opportunities.

As a REIT, we are required to distribute at least 90% of our annual REIT taxable income to our stockholders, including taxable income where we do not receive corresponding cash, and we intend to distribute all or substantially all of our REIT taxable income in order to comply with the REIT distribution requirements of the Internal Revenue Code and to avoid federal income tax and the non-deductible excise tax. On a quarterly basis, our board of directors determines an appropriate common stock dividend based upon numerous factors, including CAD, REIT qualification requirements, availability of existing cash balances, borrowing capacity under existing credit agreements, access to cash in the capital markets and other financing sources, our view of our ability to realize gains in the future through appreciation in the value of our assets, general economic conditions and economic conditions that more specifically impact our business or prospects. Future dividend levels are subject to adjustment based upon our evaluation of the factors described above, as well as other factors that our board of directors may, from time-to-time, deem relevant to consider when determining an appropriate common stock dividend.

We currently believe that our existing sources of funds should be adequate for purposes of meeting our short-term liquidity needs. Unrestricted cash as of February 23, 2016 was approximately $476 million.

Capital Raise

In 2015, we issued aggregate capital of $1.3 billion from the issuance of common equity.

Securitization Financing Transactions

We have historically demonstrated the ability to securitize our CRE debt investments and expect to continue to pursue similar transactions to finance our newly-originated debt investments that might initially be financed on our credit facilities. In 2012 and 2013 we, and on behalf of NorthStar Income, entered into two securitization financing transactions with an aggregate $610 million of principal amount of bonds issued providing permanent, non-recourse, non-mark-to-market financing for CRE debt investments of ours and NorthStar Income’s. In January 2015, Securitization-2012-1 with $228 million principal amount of original bonds issued was repaid in full.

Corporate Borrowings

In August 2014, we entered into our Corporate Revolver with certain commercial bank lenders, with a total current amount of $250 million for a three year term. Additionally, in September 2014, we entered into a corporate term arrangement with respect to the establishment of term borrowings. Subsequent to year end, our Corporate Revolver was repaid and we expect our remaining corporate recourse borrowings to be repaid from proceeds from sales initiatives.

93

Loan Facility

With respect to investment-level financing, we maintain a loan facility that provides up to $200 million to finance the origination of first mortgage loans and senior loan participations secured by commercial real estate. The interest rate and advance rate depend on asset type and characteristic. Subsequent to year end, the maturity date for the facility was extended for one year with final maturity in March 2018. As of February 25, 2016, we had $25 million outstanding under our loan facility.

Our loan facility contains representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of this type. We are currently in compliance with all of our financial covenants under our loan facility.

Exchangeable Senior Notes

For the year endedDecember 31, 2015, holders exchanged $14 million principal amount of our 5.375% Exchangeable Senior Notes for an aggregate 0.9 million shares of our common stock, after giving effect to the Reverse Split. As of February 25, 2016, we had $31 million in principal amount of exchangeable senior notes outstanding.

Cash Flows

The following presents a summary of our consolidated statements of cash flows for the years endedDecember 31, 2015, 2014 and 2013 (dollars in thousands).

The consolidated cash flows for the year endedDecember 31, 2015 includes: (i) our cash flow for the two months ended December 31, 2015, including our cash flow following the NRE Spin-off on October 31, 2015; and (ii) our cash flow for the ten months ended October 31, 2015, attributable to revenues and expenses of NorthStar Europe recorded in discontinued operations.

The consolidated cash flows for the year endedDecember 31, 2014 includes: (i) our cash flow for the six months ended December 31, 2014, including our cash flow following the NSAM Spin-off on June 30, 2014; and (ii) our cash flow for the six months ended June 30, 2014, attributable to revenues and expenses of NSAM recorded in discontinued operations.

As a result, cash flows for the year endedDecember 31, 2015 may not be comparative to our cash flows reported for the prior periods presented.

	Years Ended December 31,
Cash flow provided by (used in):	2015			2014			2013
Operating activities	$	520,658		$	144,856		$	240,674
Investing activities	(3,006,574		)	(7,054,227		)	(2,285,153		)
Financing activities	2,417,491			6,572,518			2,235,542
Effect of foreign currency translation on cash and cash equivalents	(4,438		)	(2,173		)	—
Net increase (decrease) in cash and cash equivalents	$	(72,863	)	$	(339,026	)	$	191,063

Year EndedDecember 31, 2015 Compared to December 31, 2014

Net cash provided by operating activities was $521 million for the year endedDecember 31, 2015 compared to $145 million for the year endedDecember 31, 2014. The increase was primarily due to new investment activity.

Net cash used in investing activities was $3.0 billion for the year endedDecember 31, 2015 compared to $7.1 billion for the year endedDecember 31, 2014. The decrease in net cash used was primarily due to less acquisitions in 2015 as compared to 2014. 2015 includes European real estate acquired and subsequently spun off as part of the NRE Spin-off.

Net cash provided by financing activities was $2.4 billion for the year endedDecember 31, 2015 compared to $6.6 billion for the year endedDecember 31, 2014. The primary cash inflows for the year endedDecember 31, 2015 was $1.3 billion of net new capital, $2.1 billion of net new borrowings, $340 million of proceeds from NRE Senior Notes, now the primary obligation of NorthStar Europe, and $88 million of net contributions from non-controlling interests, offset by $644 million for the payment of dividends, $360 million distributed to NorthStar Europe in connection with the NRE Spin-off, $105 million for the payment of financing costs, $116 million for the repurchase of our common stock and $116 million for net repurchase/repayment of CDO bonds. The primary cash inflows for the year endedDecember 31, 2014 was $1.4 billion of net new capital, $6.2 billion of net new borrowings and $227 million of net contributions from non-controlling interests, offset by $438 million for the payment of dividends, $119 million distributed to NSAM in connection with the NSAM Spin-off, $481 million for the repayment of the 2014 Senior Notes and $80 million for net repurchase/repayment of CDO bonds.

94

Year EndedDecember 31, 2014 Compared to December 31, 2013

Net cash provided by operating activities was $145 million for the year endedDecember 31, 2014 compared to $241 million for the year endedDecember 31, 2013. The decrease was primarily due to an increase in transaction costs incurred related to new real estate acquisitions.

Net cash used in investing activities was $7.1 billion for the year endedDecember 31, 2014 compared to $2.3 billion for the year endedDecember 31, 2013. The increase in net cash used was primarily due to an increase of $4.8 billion of new acquisitions of operating real estate.

Net cash provided by financing activities was $6.6 billion for the year endedDecember 31, 2014 compared to $2.2 billion for the year endedDecember 31, 2013. The primary cash inflows for the year endedDecember 31, 2014 was $1.4 billion of net new capital, $6.2 billion of net new borrowings and $227 million of net contributions from non-controlling interests, offset by $438 million for the payment of dividends, $119 million distributed to NSAM in connection with the NSAM Spin-off, $481 million for the repayment of the 2014 Senior Notes and $80 million for net repurchase/repayment of CDO bonds. The primary cash inflows for the year endedDecember 31, 2013 was $1.8 billion of net new capital and $1.2 billion of net new borrowings, offset by $542 million for net repurchase/repayment of CDO bonds, $10 million for net swap activities and $227 million for the payment of dividends.

Contractual Obligations and Commitments

The following table presents contractual obligations and commitments as of December 31, 2015 (dollars in thousands):

	Payments Due by Period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Mortgage and other notes payable	$	7,297,081	$	87,534	$	329,050	$	6,274,271	$	606,226
CDO bonds payable	436,491		—		—		—		436,491
Credit facilities and term borrowings	662,053		—		662,053		—		—
Exchangeable senior notes(1)	31,360		—		12,955		1,000		17,405
Junior subordinated notes	280,117		—		—		—		280,117
Borrowings of properties, held for sale	2,214,305		55,621		47,390		74,955		2,036,339
Operating leases(2)	148,082		4,984		10,183		10,225		122,690
Outstanding unfunded commitments(3)	9,300		1,755		7,545		—		—
PE Investments(4)	57,800		10,000		47,800		—		—
Estimated interest payments(5)	1,969,701		417,035		776,778		433,590		342,298
Total	$	13,106,290	$	576,929	$	1,893,754	$	6,794,041	$	3,841,566

_____________________

(1) The 7.25% Notes, 8.875% Notes and 5.375% Notes have a final maturity date of June 15, 2027, June 15, 2032 and June 15, 2033, respectively. The above table reflects the holders’ repurchase rights which may require us to repurchase the 7.25% Notes, 8.875% Notes and 5.375% Notes on June 15, 2017, June 15, 2019 and June 15, 2023, respectively. Each of these Notes may be exchanged at any time prior to maturity at the option of the respective holder in accordance with the terms of the applicable indenture. In 2016, through February 25, 2016, we exchanged an aggregate $0.6 million principal amount of exchangeable senior notes and settled all such exchanges in shares of our common stock.

(2) Represents ground leases on certain operating real estate.

(3) Our future funding commitments on CRE debt investments are subject to certain conditions that borrowers must meet to qualify for such fundings. Fundings are categorized by estimated funding period. Assuming that all debt and real estate investments that have future fundings meet the terms to qualify for such funding, represents our equity requirement on the remaining future funding requirements. Excludes a $2.0 million future funding commitment associated with a loan sold subsequent to year end.

(4) Includes an estimated $10 million associated with future fundings and any deferred purchase price. Such amount excludes our portion of the deferred purchase obligation of PE Investment II joint venture of $243 million. In February 2016, substantially all of our interest in PE Investment II was sold and our portion of the deferred purchase price obligation of the PE Investment II joint venture will be assumed by the buyers upon consent of the initial seller.

(5) Estimated interest payments are based on the weighted average life of the borrowing, including borrowings of assets held for sale. Applicable LIBOR benchmark plus the respective spread as of December 31, 2015 was used to estimate payments for our floating-rate liabilities.

The table above does not include the amounts payable to NSAM under the management agreement. The annualized fee payable to NSAM is approximately $186 million as of December 31, 2015. In addition, the table above does not include: (i) the revolving credit agreement with NSAM pursuant to which we make available to NSAM, on an “as available basis,” up to $250 million of financing; and (ii) our commitment to purchase shares of NSAM’s Sponsored Companies’ common stock. Refer to “Related Party Arrangements” for a further discussion.

Guarantee Agreements

We maintain certain guaranty agreements that are excluded from the table above including guarantee agreements with various hotel franchisors, pursuant to which we guaranteed the franchisees’ obligations, including payments of franchise fees and marketing fees, for the term of the agreements, which expires from 2029 to 2034. As of December 31, 2015, the aggregate amount remaining under these guarantees is $6 million.

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In July 2015, NorthStar Europe issued $340 million principal amount of 4.625% senior notes due December 2016, or NRE Senior Notes. In connection with the NRE Spin-off, the NRE Senior Notes are senior unsubordinated and unsecured primary obligations of NorthStar Europe and we continue to guarantee payments subsequent to the NRE Spin-off.

Off-Balance Sheet Arrangements

As of December 31, 2015, we had off-balance sheet arrangements with respect to retained interests in certain deconsolidated N-Star CDOs. Refer to Note 17. “Variable Interest Entities” in Item 8. “Financial Statements and Supplementary Data” for a discussion of such retained interests in such N-Star CDOs in our consolidated financial statements. In each case, our exposure to loss is limited to the carrying value of our investment.

Additionally, we have certain arrangements which do not meet the definition of off-balance sheet arrangements, but do have some of the characteristics of off-balance sheet arrangements, including certain investments in unconsolidated ventures. Refer to Note 5. “Investments in Private Equity Funds” and Note 6. “Investments in Unconsolidated Ventures” in Item 8. “Financial Statements and Supplementary Data” for a discussion of such unconsolidated ventures in our consolidated financial statements. In each case, our exposure to loss is limited to the carrying value of our investment.

Related Party Arrangements

NorthStar Asset Management Group

Management Agreement

Upon completion of the NSAM Spin-off, we entered into a management agreement with an affiliate of NSAM for an initial term of 20 years, which automatically renew for additional 20-year terms each anniversary thereafter unless earlier terminated. As asset manager, NSAM is responsible for our day-to-day operations, subject to the supervision of our board of directors. Through its global network of subsidiaries and branch offices, NSAM performs services and engages in activities relating to, among other things, investments and financing, portfolio management and other administrative services, such as accounting and investor relations, to us and our subsidiaries other than our CRE loan origination business. The management agreement with NSAM provides for a base management fee and incentive fee. The management contract with NSAM commenced on July 1, 2014, and as such, there were no management fees incurred for the six months ended June 30, 2014 and year ended December 31, 2013.

In connection with the NRE Spin-off, NorthStar Europe entered into a management agreement with NSAM with an initial term of 20 years on terms substantially consistent with the terms of our management agreement with NSAM. Our management agreement with NSAM was amended and restated in connection with the NRE Spin-off to, among other things, adjust the annual base management fee and incentive fee hurdles for the NRE Spin-off.

Base Management Fee

For the year ended December 31, 2015, we incurred $190 million related to the base management fee. For the six months ended December 31, 2014, we incurred $79 million related to the base management fee. The base management fee to NSAM will increase subsequent to December 31, 2015 by an amount equal to 1.5% per annum of the sum of:

• cumulative net proceeds of all future common equity and preferred equity issued by us;

• equity issued by us in exchange or conversion of exchangeable notes based on the stock price at the date of issuance;

• any other issuances by us of common equity, preferred equity or other forms of equity, including but not limited to limited partnership interests, or LTIP Units, in our Operating Partnership (excluding units issued to us and equity-based compensation, but including issuances related to an acquisition, investment, joint venture or partnership); and

• cumulative CAD in excess of cumulative distributions paid on common stock, LTIP units or other equity awards beginning the first full calendar quarter after the NSAM Spin-off.

Additionally, our equity interest in RXR Realty and Aerium is structured so that NSAM is entitled to the portion of distributable cash flow from each investment in excess of the $10 million minimum annual base amount.

Incentive Fee

For the year ended December 31, 2015 and the six months ended December 31, 2014, we incurred $9 million and $3 million, respectively, related to the incentive fee. The incentive fee is calculated and payable quarterly in arrears in cash, equal to:

• the product of: (a) 15% and (b) our CAD before such incentive fee, divided by the weighted average shares outstanding for the calendar quarter, when such amount is in excess of $0.68 per share and up to $0.78 per share, after giving effect to the Reverse Split and the NRE Spin-off, or the 15% Hurdle; plus

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• the product of: (a) 25% and (b) our CAD before such incentive fee, divided by the weighted average shares outstanding for the calendar quarter, when such amount is in excess of $0.78 per share, after giving effect to the Reverse Split and the NRE Spin-off, or the 25% Hurdle;

• multiplied by our weighted average shares outstanding for the calendar quarter.

In addition, NSAM may also earn an incentive fee from our healthcare investments in connection with NSAM’s Healthcare Strategic Partnership (refer to below).

Weighted average shares represents the number of shares of our common stock, LTIP Units or other equity-based awards (with some exclusions), outstanding on a daily weighted average basis. With respect to the base management fee, all equity issuances are allocated on a daily weighted average basis during the fiscal quarter of issuance. With respect to the incentive fee, such amounts will be appropriately adjusted from time to time to take into account the effect of any stock split, reverse stock split, stock dividend, reclassification, recapitalization or other similar transaction.

Additional Management Agreement Terms

If we were to spin-off any asset or business in the future, such entity would be managed by NSAM on terms substantially similar to those set forth in the management agreement between us and NSAM. The management agreement further provides that the aggregate base management fee in place immediately after any future spin-off will not be less than our aggregate base management fee in place immediately prior to such spin-off.

Our management agreement with NSAM provides that in the event of a change of control of NSAM or other event that could be deemed an assignment of the management agreement, we will consider such assignment in good faith and not unreasonably withhold, condition or delay our consent.  The management agreement further provides that we anticipate consent would be granted for an assignment or deemed assignment to a party with expertise in commercial real estate and $10 billion of assets under management.  The management agreement also provides that, notwithstanding anything in the agreement to the contrary, to the maximum extent permitted by applicable law, rules and regulations, in connection with any merger, sale of all or substantially all of the assets, change of control, reorganization, consolidation or any similar transaction of us or NSAM, directly or indirectly, the surviving entity will succeed to the terms of the management agreement. 

Payment of Costs and Expenses and Expense Allocation

We are responsible for all of our direct costs and expenses and will reimburse NSAM for costs and expenses incurred by NSAM on our behalf. In addition, NSAM may allocate indirect costs to us related to employees, occupancy and other general and administrative costs and expenses in accordance with the terms of, and subject to the limitations contained in, our management agreement with NSAM, or the G&A Allocation. Our management agreement with NSAM provides that the amount of the G&A Allocation will not exceed the following: (i) 20% of the combined total of: (a) our and NorthStar Europe’s, or the NorthStar Listed Companies’, general and administrative expenses as reported in their consolidated financial statements excluding (1) equity-based compensation expense, (2) non-recurring items, (3) fees payable to NSAM under the terms of the applicable management agreement and (4) any allocation of expenses to the NorthStar Listed Companies, or NorthStar Listed Companies’ G&A; and (b) NSAM’s general and administrative expenses as reported in its consolidated financial statements, excluding equity-based compensation expense and adding back any costs or expenses allocated to any managed company of NSAM; less (ii) the NorthStar Listed Companies’ G&A. The G&A Allocation may include our allocable share of NSAM’s compensation and benefit costs associated with dedicated or partially dedicated personnel who spend all or a portion of their time managing our affairs, based upon the percentage of time devoted by such personnel to our affairs. The G&A Allocation may also include rental and occupancy, technology, office supplies, travel and entertainment and other general and administrative costs and expenses also allocated based on the percentage of time devoted by personnel to our affairs. In addition, we will pay directly or reimburse NSAM for an allocable portion of any severance paid pursuant to any employment, consulting or similar service agreements in effect between NSAM and any of its executives, employees or other service providers.

In connection with the NRE Spin-off and the related agreements, the NorthStar Listed Companies’ obligations to reimburse NSAM for the G&A Allocation and any severance are shared among the NorthStar Listed Companies, at NSAM’s discretion, and the 20% cap on the G&A Allocation, as described above, applies on an aggregate basis to the NorthStar Listed Companies. NSAM currently determined to allocate these amounts based on assets under management.

For the year endedDecember 31, 2015 and the six months ended December 31, 2014, NSAM allocated $10 million, of which $1 million is recorded in discontinued operations related to NorthStar Europe, and $5 million, respectively, to us.

In addition, we, together with NorthStar Europe and any company spun-off from us or NorthStar Europe, will pay directly or reimburse NSAM for up to 50% of any long-term bonus or other compensation that NSAM’s compensation committee determines shall be paid and/or settled in the form of equity and/or equity-based compensation to executives, employees and service providers of NSAM during any year. Subject to this limitation and limitations contained in any applicable management agreement between NSAM and NorthStar Europe or any company spun-off from us or NorthStar Europe, the amount paid by us, NorthStar Europe

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and any company spun-off from us or NorthStar Europe will be determined by NSAM in its discretion. At the discretion of NSAM’s compensation committee, this compensation may be granted in shares of our restricted stock, restricted stock units, LTIP Units or other forms of equity compensation or stock-based awards; provided that if at any time a sufficient number of shares of our common stock are not available for issuance under our equity compensation plan, such compensation shall be paid in the form of RSUs, LTIP Units or other securities that may be settled in cash. Our equity compensation for each year may be allocated on an individual-by-individual basis at the discretion of the NSAM compensation committee and, as long as the aggregate amount of the equity compensation for such year does not exceed the limits set forth in the management agreement, the proportion of any particular individual’s equity compensation may be greater or less than 50%.

We were responsible for paying approximately 50% of the 2014 long-term bonuses earned under the NorthStar Asset Management Group Inc. Executive Incentive Bonus Plan, or NSAM Bonus Plan. Long-term bonuses were paid to executives in the form of equity-based awards of both us and NSAM, subject to performance-based and time-based vesting conditions over the four-year performance period from January 1, 2014 through December 31, 2017. The long-term bonuses paid in the form of equity-based awards of ours were adjusted for the NRE Spin-off and Reverse Split in the same manner as all other equity-based awards of ours.

Investment Opportunities

Under the management agreement, we agreed to make available to NSAM for the benefit of NSAM and its managed companies, including us, all investment opportunities that we source. NSAM agreed to fairly allocate such opportunities among NSAM’s managed companies, including us, and NSAM in accordance with an investment allocation policy. Pursuant to the management agreement, we are entitled to fair and reasonable compensation for our services in connection with any loan origination opportunities sourced by us, which may include first mortgage loans, subordinate mortgage interests, mezzanine loans and preferred equity interests, in each case relating to commercial real estate. Inception to date, we earned $3 million from NSAM for services in connection with loan origination opportunities, which represents $1 million for the year endedDecember 31, 2015 and $2 million for the six months ended December 31, 2014.

NSAM provides services with regard to such areas as payroll, human resources and employee benefits, financial systems management, treasury and cash management, accounts payable services, telecommunications services, information technology services, property management services, legal and accounting services and various other corporate services to us as it relates to our loan origination business for CRE debt.

Credit Agreement

In connection with the NSAM Spin-off, we entered into a revolving credit agreement with NSAM pursuant to which we make available to NSAM, on an “as available basis,” up to $250 million of financing with a maturity of June 30, 2019 at LIBOR plus 3.50%. The revolving credit facility is unsecured. NSAM expects to use the proceeds for general corporate purposes, including potential future acquisitions. In addition, NSAM may use the proceeds to acquire assets on behalf of its managed companies, including us, that it intends to allocate to such managed company but for which such managed company may not then have immediately available funds. The terms of the revolving credit facility contain various representations, warranties, covenants and conditions, including the condition that our obligation to advance proceeds to NSAM is dependent upon us and its affiliates having at least $100 million of either unrestricted cash and cash equivalents or amounts available under committed lines of credit, after taking into account the amount NSAM seeks to draw under the facility. As of December 31, 2015, we have not funded any amounts to NSAM in connection with this agreement.

Healthcare Strategic Joint Venture

In January 2014, NSAM entered into a long-term strategic partnership with James F. Flaherty III, former Chief Executive Officer of HCP, Inc., focused on expanding our healthcare business into a preeminent healthcare platform, or the Healthcare Strategic Partnership. In connection with the partnership, Mr. Flaherty oversees and seeks to grow both our healthcare real estate portfolio and the portfolio of NorthStar Healthcare. In connection with entering into the partnership, we granted Mr. Flaherty certain RSUs (refer to Note 11. “Equity-Based Compensation” in Item 8. “Financial Statements and Supplementary Data”). The Healthcare Strategic Partnership is entitled to incentive fees ranging from 20% to 25% above certain hurdles for new and existing healthcare real estate investments held by us. For the years endedDecember 31, 2015 and 2014, we did not incur any incentive fees related to the Healthcare Strategic Partnership.

NSAM Sponsored Companies

Prior to the NSAM Spin-off, we had agreements with each of our previously sponsored companies: NorthStar Income, NorthStar Healthcare and NorthStar Income II to manage their day-to-day operations, including identifying, originating and acquiring investments on their behalf and earning fees for our services. For the six months ended June 30, 2014, we earned $22 million of fees related to these agreements, which are recorded in discontinued operations in the consolidated statements of operations. In addition, we were entitled to certain expense allocation for costs paid on behalf of the NSAM Sponsored Companies. For the six months ended June 30, 2014, we received $14 million of reimbursement from the NSAM Sponsored Companies.

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We committed to purchase up to $10 million in shares of each of NSAM’s Sponsored Companies’ common stock during the two year period from when each offering was declared effective through the end of their respective offering period, in the event that NSAM Sponsored Companies’ distributions to its stockholders, on a quarterly basis, exceeds its modified funds from operations (as defined in accordance with the current practice guidelines issued by the Investment Program Association).

We acquired an aggregate of $15 million of shares of NorthStar Income, NorthStar Healthcare and NorthStar Income II through December 31, 2015. In addition, pursuant to the management agreement with NSAM, we committed up to $10 million to invest as distribution support consistent with past practice in each future public non-traded NSAM Sponsored Company, up to a total of five new companies per year. We have committed to invest as distribution support in the following NSAM Sponsored Companies:

• NorthStar/RXR New York Metro - In October 2015, NorthStar/RXR New York Metro Real Estate, Inc., or NorthStar/RXR New York Metro, filed an amended registration statement with the SEC, seeking to offer an additional class of common shares related to its $2 billion public offering. In December 2015, we and RXR Realty satisfied NorthStar/RXR New York Metro’s minimum offering amount as a result of the purchase of 0.2 million shares of its common stock for an aggregate $2.0 million. NSAM began raising capital for NorthStar/RXR New York Metro in the beginning of 2016.

• NorthStar Corporate Fund - In October 2015, NorthStar Corporate Income Fund, or NorthStar Corporate Fund, filed its amended registration statement on Form N-2 with the SEC seeking to raise up to $3 billion in a public offering of common stock. Subsequent to year end, NorthStar Corporate Fund was declared effective by the SEC and expects to begin raising capital in early 2016.

• NorthStar Capital Fund - In October 2015, NorthStar Real Estate Capital Income Fund filed its registration statement on Form N-2 with the SEC seeking to raise up to $3 billion in a public offering of common stock.

• NorthStar Corporate Investment - In June 2015, NorthStar Corporate Investment, Inc. confidentially submitted its amended registration statement on Form N-2 to the SEC seeking to raise up to $1 billion in a public offering of common stock.

N-Star CDOs

We earn certain collateral management fees from the N-Star CDOs primarily for administrative services. For the years endedDecember 31, 2015, 2014 and 2013, we earned $5 million, $6 million and $11 million in fee income, respectively, of which $2 million, $3 million and $10 million were eliminated in consolidation. Prior to the third quarter 2013, all amounts were eliminated in consolidation as all of the N-Star CDOs were consolidated by us.

Additionally, we earn interest income from the N-Star CDO bonds and N-Star CDO equity in deconsolidated N-Star CDOs. For the years endedDecember 31, 2015, 2014 and 2013, we earned $58 million, $72 million and $12 million, respectively, of interest income from such investments in deconsolidated N-Star CDOs.

American Healthcare Investors

In December 2014, NSAM acquired a 43% interest in AHI and James F. Flaherty III, a strategic partner of NSAM, acquired a 12% interest in AHI. AHI is a healthcare-focused real estate investment management firm that co-sponsored and advised Griffin-American, until Griffin-American was acquired by us and NorthStar Healthcare. In connection with this acquisition, AHI provides certain management and related services, including property management, to NSAM, NorthStar Healthcare and us assisting NSAM in managing the current and future healthcare assets (excluding any joint venture assets) acquired by us and, subject to certain conditions, other NSAM managed companies. For the year endedDecember 31, 2015 and from acquisition date (December 8, 2014) to December 31, 2014, we incurred $2 million and an immaterial amount, respectively, of property management fees to AHI.

Island Hospitality Management

In January 2015, NSAM acquired a 45% interest in Island. Island is a leading, independent select service hotel management company that currently manages 160 hotel properties, representing $4 billion of assets, of which 110 hotel properties are owned by us. Island provides certain asset management, property management and other services to us to assist in managing our hotel properties. Island receives a base management fee of 2.5% to 3.0% of the monthly revenue of our hotel properties it manages for us. For the period from NSAM’s acquisition date (January 9, 2015) to December 31, 2015, we incurred $17 million of base property management and other fees to Island.

NSAM purchase of common stock

In 2015, NSAM purchased 2.7 million shares of our common stock in the open market for $50 million.

Recent Sales or Commitments to Sell to NSAM Sponsored Companies

Subsequent to year end we sold or entered into agreements to sell certain assets to NSAM Sponsored Companies:

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• In February 2016, we entered into an agreement to sell substantially all of our 70% interest in PE Investment II to the existing owners of the remaining 30% interest, one a third party which purchased approximately 80% of the interest sold and the other NorthStar Income which purchased the other approximate 20% interest of the interest sold. NorthStar Income paid $37 million for its respective interest. As part of the transaction, both buyers will assume the deferred purchase price obligation, on a pro rata basis, of the PE Investment II joint venture upon receiving consent from the initial seller.

• In February 2016, we entered into an agreement to sell our 60% interest in the Senior Housing Portfolio to NorthStar Healthcare, which owns the remaining 40% interest for, $535 million, subject to proration and adjustment. NorthStar Healthcare will assume our portion of the $648 million of mortgage borrowing as part of the transaction. We expect to receive approximately $150 million of net proceeds upon completion of the sale in March 2016.

• In February 2016, we sold a 49% interest in one loan with a total principal amount of $40 million to a third party, at par, with the remaining 51% interest sold to NorthStar Income II, also at par.

• In February 2016, we sold one CRE security with a carrying value of $13 million to NorthStar Income II.

The board of directors of each NSAM Sponsored Company, including all of the independent directors, approved each of the respective transactions after considering, among other matters, third-party pricing support.

Recent Developments

Dividends

On February 25, 2016, we declared a dividend of $0.40 per share of common stock, after giving effect to the Reverse Split. The common stock dividend will be paid on March 11, 2016 to stockholders of record as of the close of business on March 7, 2016. On January 28, 2016, we declared a dividend of $0.54688 per share of Series A preferred stock, $0.51563 per share of Series B preferred stock, $0.55469 per share of Series C preferred stock, $0.53125 per share of Series D Preferred Stock and $0.54688 per share of Series E Preferred Stock. Dividends were paid on all series of preferred stock on February 16, 2016 to stockholders of record as of the close of business on February 8, 2016.

Strategic Initiatives

On February 25, 2016, we announced that our board of directors formed a special committee and the special committee retained UBS Investment Bank as its financial advisor to explore a potential recombination transaction with NSAM. The special committee will be comprised solely of independent directors that are not on the board of directors of NSAM, including the new independent director appointed to the board of directors effective March 1, 2016. There can be no assurance that the exploration of corporate strategic initiatives will result in the identification or consummation of any strategic transaction or initiative.

Inflation

Virtually all of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence our performance significantly more than inflation does. A change in interest rates may correlate with inflation rates. Substantially all of the leases at our manufactured housing communities and multifamily properties allow for monthly or annual rent increases which provide us with the opportunity to achieve increases, where justified by the market, as each lease matures. Such types of leases generally minimize the risks of inflation on our manufactured housing communities and multifamily properties. Refer to Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” for additional details.

Non-GAAP Financial Measures

We use CAD and NOI, each a non-GAAP measure, to evaluate our profitability.

Cash Available for Distribution

We believe that CAD provides investors and management with a meaningful indicator of operating performance. We also believe that CAD is useful because it adjusts for a variety of cash (such as transaction costs, cash flow related to N-Star CDO equity interests and community fees) and non-cash items (such as depreciation and amortization, equity-based compensation, realized gain (loss) on investments, provision for loan losses, asset impairment, bad debt expense and non-cash interest income and expense items). We adjust for transaction costs because these costs are not a meaningful indicator of our recurring operating performance. For instance, these transaction costs include costs such as professional fees associated with new investments or restructuring of investments, which are expenses related to specific transactions. We adjust for the cash flow related to N-Star CDO equity interests which represents the net interest generated from the N-Star CDO equity interests. We also adjust for community fees received in cash related to our independent living healthcare portfolio which represents a component of our aggregate net return generated related to such investment. These cash flows are a component of our ongoing return on such investments, and therefore, is adjusted in CAD as it provides investors and management with a meaningful indicator of our recurring operating performance. Furthermore, CAD adjusts N-Star CDO bond discounts to record such investments on an effective yield basis over the expected weighted average

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life of the investment. N-Star CDO bond discounts relates to repurchased CDO bonds of consolidated CDO financing transactions at a discount to par. These CDO bonds typically have a low interest rate and the majority of the return is generated from repurchasing the CDO bonds at a discount to expected recovery value. Because the return generated through the accretion of the discount is a meaningful contributor to our recurring operating performance, such accretion is adjusted in CAD. The computation for the accretion of the discount under U.S. GAAP and CAD is the same. However, for CDO financing transactions that are consolidated under U.S. GAAP, the CDO bonds are not presented as an investment but rather are eliminated in our consolidated financial statements. In addition, we adjust for distributions and adjustments to joint venture partners, which represent the net return generated from our investments allocated to our non-controlling interests. For our owned hotels, our CAD calculation is equivalent to earnings before interest taxes depreciation and amortization (EBITDA), the hotel industry standard metric, which does not make an adjustment for furniture, fixtures and equipment (FF&E) reserves. CAD may fluctuate from period to period based upon a variety of factors, including, but not limited to, the timing and amount of investments, repayments and asset sales, capital raised, use of leverage, changes in the expected yield of investments and the overall conditions in commercial real estate and the economy generally. Management also believes that quarterly distributions are principally based on operating performance and our board of directors includes CAD as one of several metrics it reviews to determine quarterly distributions to stockholders.

We calculate CAD by subtracting from or adding to net income (loss) attributable to common stockholders, non-controlling interests and the following items: depreciation and amortization items including depreciation and amortization, straight-line rental income or expense (excluding amortization of rent free periods), amortization of above/below market leases, amortization of deferred financing costs, amortization of discount on financings and other and equity-based compensation; cash flow related to N-Star CDO equity interests; accretion of consolidated N-Star CDO bond discounts; non-cash net interest income in consolidated N-Star CDOs; unrealized gain (loss) from the change in fair value; realized gain (loss) on investments and other, excluding accelerated amortization related to sales of CDO bonds or other investments; provision for loan losses, net; impairment on depreciable property; bad debt expense; deferred tax benefit (expense); acquisition gains or losses; distributions and adjustments related to joint venture partners; transaction costs; foreign currency gains (losses); impairment on goodwill and other intangible assets; gains (losses) on sales; and one-time events pursuant to changes in U.S. GAAP and certain other non-recurring items. For example, CAD has been adjusted to exclude non-recurring gain (loss) from deconsolidation of certain N-Star CDOs. These items, if applicable, include any adjustments for unconsolidated ventures.

CAD should not be considered as an alternative to net income (loss) attributable to common stockholders, determined in accordance with U.S. GAAP, as an indicator of operating performance. In addition, our methodology for calculating CAD may differ from the methodologies used by other comparable companies, including other REITs, when calculating the same or similar supplemental financial measures and may not be comparable with these companies.

The following table presents a reconciliation of CAD to net income (loss) attributable to common stockholders for the three months and year endedDecember 31, 2015 (dollars in thousands):

	December 31, 2015
	Three Months Ended			Year Ended
Net income (loss) attributable to common stockholders	$	(72,282	)	$	(327,497	)
Non-controlling interests	(8,799		)	(24,008		)
Adjustments:
Depreciation and amortization items(1)	145,950			549,047
N-Star CDO bond discounts(2)	4,483			12,738
Non-cash net interest income in consolidated N-Star CDOs	(10,196		)	(40,922		)
Unrealized (gain) loss from fair value adjustments / Provision for loan losses, net	25,837			196,763
Realized (gain) loss on investments(3)	3,296			11,055
Distributions / adjustments to joint venture partners	(11,357		)	(43,717		)
Transaction costs and other(4)	39,691			92,023
Adjustments related to discontinued operations(5)	1,364			146,905
CAD	$	117,987		$	572,387

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(1) The three months ended December 31, 2015 includes depreciation and amortization of $117.6 million (including $0.2 million related to unconsolidated ventures and $0.7 million of cash flow related to community fees), straight-line rental income of $(7.0) million, amortization of above/below market leases of $2.9 million, amortization of deferred financing costs of $15.3 million, amortization of discount on financings and other of $14.0 million (primarily related to an early loan payoff and $1.2 million of net year end adjustments) and amortization of equity-based compensation of $3.0 million. The year endedDecember 31, 2015 includes depreciation and amortization of $460.0 million (including $1.5 million related to unconsolidated ventures and $1.6 million of cash flow related to community fees), straight-line rental income of $(30.0) million, amortization of above/below market leases of $11.7 million, amortization of deferred financing costs of $58.0 million, amortization of discount on financings and other of $21.7 million (primarily related to an early loan payoff) and amortization of equity-based compensation of $27.7 million.

(2) For CAD, realized discounts on CDO bonds are accreted on an effective yield basis based on expected maturity. For CDOs that were deconsolidated, CDO bond accretion is included in net income attributable to common stockholders from the date of deconsolidation.

(3) The three months ended December 31, 2015 excludes $(4.6) million related to securities in our consolidated CDOs, $0.1 million of foreign currency and $1.3 million of other real estate gains and includes $0.7 million related to the liquidation of CDO IV, $0.6 million related to losses in an unconsolidated venture and $0.3 million related to tax recovery. The year endedDecember 31, 2015 excludes $(13.2) million related to securities in our consolidated CDOs, $3.0 million related to a real estate asset sale in our consolidated CDO, $(1.1) million of foreign currency, $(1.3) million related to conversion of exchangeable notes and $1.6 million of other real estate gains and includes $13.3 million primarily related to accelerated amortization on CDO bonds, $9.4 million related to the liquidation of CDO IV, $2.1 million related to a mortgage payoff on a net lease property and $0.6 million related to losses in an unconsolidated venture.

(4) The three months ended December 31, 2015 includes $5.6 million of transaction costs, $5.6 million of cash flow related to N-Star CDO equity interests, $(5.9) million of deferred taxes, $32.0 million of impairment losses (including $25.5 million of goodwill impairment) and $2.4 million of bad debt expense. The year endedDecember 31, 2015 includes $31.4 million of transaction costs primarily related to costs associated with the acquisition of real estate, $28.3 million of cash flow related to N-Star CDO equity interests, $(6.0) million of deferred taxes, $32.0 million of impairment losses (including $25.5 million of goodwill impairment) and $6.4 million of bad debt expense and certain non-recurring items.

(5) The three months ended December 31, 2015 includes one month of activity of NorthStar Europe prior to the NRE Spin-off with an adjustment of $1.4 million to discontinued operations. The year endedDecember 31, 2015 includes ten months of activity of NorthStar Europe prior to the NRE Spin-off with an adjustment of $146.9 million to discontinued operations.

Net Operating Income (NOI)

We believe NOI is a useful metric of the operating performance of our real estate portfolio in the aggregate. Portfolio results and performance metrics represent 100% for all consolidated investments and represent our ownership percentage for unconsolidated joint ventures. Net operating income represents total property and related revenues, adjusted for: (i) amortization of above/below market rent; (ii) straight line rent; (iii) other items such as adjustments related to joint ventures, cash flow related to community fees and non-recurring bad debt expense; and (iv) less property operating expenses. However, the usefulness of NOI is limited because it excludes general and administrative costs, interest expense, transaction costs, depreciation and amortization expense, realized gains (losses) from the sale of properties and other items under U.S. GAAP and capital expenditures and leasing costs necessary to maintain the operating performance of properties, all of which may be significant economic costs. NOI may fail to capture significant trends in these components of U.S. GAAP net income (loss) which further limits its usefulness.

NOI should not be considered as an alternative to net income (loss), determined in accordance with U.S. GAAP, as an indicator of operating performance. In addition, our methodology for calculating NOI may differ from the methodologies used by other comparable companies, including other REITs, when calculating the same or similar supplemental financial measures and may not be comparable with these companies.

The following table presents a reconciliation of NOI to property and other related revenues less property operating expenses for our property types in our real estate segment the three months ended December 31, 2015 (dollars in thousands):

										Manufactured							Multi-tenant
	Total(1)			Healthcare(6)			Hotel			Housing(6)		Net Lease			Multifamily(6)		Office
Property and other revenues
Rental and escalation income	$	194,384		$	117,301		$	—		$	45,046	$	16,404		$	10,142	$	5,491
Hotel related income	189,912			—			189,912			—		—			—		—
Resident fee income	71,930			71,930			—			—		—			—		—
Other revenue(2)	4,864			917			—			2,683		516			590		158
Total property and other revenues	461,090			190,148			189,912			47,729		16,920			10,732		5,649
Real estate properties—operating expenses	241,369			85,003			128,884			18,081		2,037			4,910		2,454
Adjustments:
Interest income(3)	2,816			1,262			—			1,554		—			—		—
Equity in earnings(4)	400			—			—			—		75			325		—
Amortization and other items(5)	(1,496		)	(1,384		)	(125		)	—		(83		)	451		(355		)
NOI	$	221,441		$	105,023		$	60,903		$	31,202	$	14,875		$	6,598	$	2,840

___________________________________________________________

(1) Amounts exclude NOI related to properties in NorthStar Europe which was spun-off on October 31, 2015. NOI for the month prior to the NRE Spin-off was $12.8 million.

(2) Certain other revenue earned is not included as part of NOI, including collateral management fees for administrative services in our N-Star CDOs, that are not part of our real estate segment.

(3) Represents interest income earned from notes receivable on manufactured homes and loans in the Griffin-American Portfolio.

(4) Includes an adjustment related to our interest in an unconsolidated joint venture in a net lease and multifamily property.

102

(5) Primarily includes amortization of straight-line rental income, amortization of above/below market leases, cash flow related to community fees and non-recurring bad debt.

(6) Subsequent to December 31, 2015, we entered into agreements or committed to sell certain of our owned real estate portfolios, including a portfolio of 32 senior housing properties, up to 10 multifamily properties and retained an advisor to sell all or a portion of our manufactured housing portfolio.

103

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are primarily subject to interest rate risk and credit risk. These risks are dependent on various factors beyond our control, including monetary and fiscal policies, domestic and international economic conditions and political considerations. Our market risk sensitive assets, liabilities and related derivative positions are held for investment and not for trading purposes.

Interest Rate Risk

Changes in interest rates affect our net income, which is the difference between the income earned on our investments and the interest expense incurred in connection with our borrowings and derivatives.

Our general financing strategy has focused on the use of “match-funded” structures. This means that we seek to align the maturities of our liabilities with the maturities on our assets as closely as possible in order to manage the risks of being forced to refinance our liabilities prior to the maturities of our assets. Substantially all of our investments are financed with non-recourse mortgage notes. In addition, we seek to match the interest rate on our assets with like-kind borrowings, so fixed-rate investments are financed with fixed-rate borrowings and floating-rate assets are financed with floating-rate borrowings, directly or indirectly, through the use of interest rate swaps, caps and other financial instruments or through a combination of these strategies. For longer duration, relatively stable investment real estate cash flows such as those derived from net lease assets, we tend to use fixed rate financing. For real estate cash flows with greater growth potential such as hotels and healthcare under a RIDEA structure, we tend to use floating rate financing which provides prepayment flexibility and may provide a better match between underlying cash flow projections and potential increases in interest rates.

Our CRE debt and securities investments bear interest at either a floating or fixed rate. The interest rate on our floating-rate assets is a fixed spread over an index such as LIBOR and typically reprices every 30 days based on LIBOR in effect at the time. Given the frequent and periodic repricing of our floating-rate assets, changes in benchmark interest rates are unlikely to materially affect the value of our floating-rate portfolio. Changes in short-term rates will, however, affect income from these investments. However, some of our non-legacy CRE debt originations have LIBOR floors that are in excess of current LIBOR. We will not benefit from an increase in LIBOR until it is in excess of the floors.

As of December 31, 2015, a hypothetical 100 basis point increase in one-month LIBOR or the applicable index applied to our floating-rate assets and liabilities (and related derivatives) would result in a decrease in net income of approximately $43 million annually, of which $30 million of the change is attributable to floating rate financing of hotel and healthcare operating real estate and does not reflect the potential increase in rental cash flow associated with economic growth that may be typical in a rising interest rate environment.

A change in interest rates could affect the value of our fixed-rate CRE debt and securities investments and our real estate investments. For example, increasing interest rates could result in a higher required yield on investments, which could decrease the value on existing fixed-rate investments in order to adjust their yields to current market levels. In addition, the value of our real estate properties may be influenced by changes in interest rates and credit spreads (as discussed below) because value is typically derived by discounting expected future cash flow generated by the property using interest rates (such as the 10-year U.S. Treasury Note yield) plus a risk premium based on the property type and creditworthiness of the tenants/operators. A lower risk-free rate generally results in a lower discount rate and, therefore, a higher valuation, and vice versa; however, an increase in the risk-free rate would not impact our net income.

A change in the interest rate and credit spread may also impact our net book value as CRE securities are marked-to-market each quarter with any change in fair value reflected in unrealized gains (losses) or OCI. Generally, as interest rates increase, the value of fixed-rate securities within our CDO financing transaction, such as CMBS, decreases and as interest rates decrease, the value of these securities will increase. A change in unrealized gains (losses) do not directly affect our operating cash flow or our ability to pay a dividend to stockholders.

We use derivative instruments to manage interest rate exposure. These derivatives are typically in the form of interest rate swap or cap agreements and the primary objective is to minimize interest rate risks associated with our investments and financing activities. The counterparties of these arrangements are major financial institutions with which we may also have other financial relationships. We are exposed to credit risk in the event of non-performance by these counterparties and we monitor their financial condition. For example, in June 2015 we entered into a $2 billion notional 10-year fixed interest rate swap in order to seek to hedge against future refinancing costs of certain of our mortgage borrowings.  This swap is currently materially out of the money and we have posted $74 million of margin as of February 25, 2016 for the benefit of our counterparty and may be subject to future margin calls.  If an early termination event occurs now with respect to this swap, which could be triggered by a change of control or similar merger transaction, in addition to losing the margin we have posted we would currently be required to pay approximately $160 million to our counterparty. As of December 31, 2015, our counterparties do not hold any cash margin as collateral against our remaining derivative contracts. As of December 31, 2015, none of our derivatives qualify for hedge accounting treatment, therefore, gains (losses) resulting from their fair value measurement at the end of each reporting period are recognized as an

104

increase or decrease in unrealized gain (loss) on investments and other in our consolidated statements of operations. In addition, we are, and may in the future be, subject to additional expense based on the notional amount of the derivative and a specified spread over the applicable LIBOR. Because the fair value of these instruments can vary significantly between periods, we may experience significant fluctuations in the amount of our unrealized gain (loss) in any given period. As of December 31, 2015, a hypothetical 100 basis point increase (decrease) in the 10-year treasury forward curve applied to our interest rate swap would result in an unrealized gain (loss) of approximately $172 million.

Credit Spread Risk

The value of our fixed and floating-rate investments also changes with market credit spreads. This means that when market-demanded risk premium, or credit spread, increases, the value of our fixed- and floating-rate assets decrease and vice versa. Fixed-rate assets are valued based on a market credit spread over the rate payable on fixed rate U.S. Treasury of like maturity. This means that their value is dependent on the yield demanded on such assets by the market, based on their credit relative to U.S. Treasuries. Floating-rate CRE debt and securities investments are valued based on a market credit spread over the applicable LIBOR. Demand for a higher yield on investments results in higher or “wider” spread over the benchmark rate (usually the applicable U.S. Treasury yield) to value these assets. Under these conditions, the value of our portfolio should decrease. Conversely, if the spread used to value these assets were to decrease or “tighten,” the value of these assets should increase.

Credit Risk

We are subject to the credit risk of the tenant/operators of our properties. We seek to undertake a rigorous credit evaluation of each tenant and healthcare operator prior to acquiring properties. This analysis includes an extensive due diligence investigation of the tenant/operator’s business as well as an assessment of the strategic importance of the underlying real estate to the tenant/operator’s core business operations. Where appropriate, we may seek to augment the tenant/operator’s commitment to the facility by structuring various credit enhancement mechanisms into the underlying leases. These mechanisms could include security deposit requirements or guarantees from entities we deem creditworthy. In addition, we actively monitor lease coverage at each facility within our healthcare portfolio.

Credit risk in our CRE debt and securities investments relates to each individual borrower’s ability to make required interest and principal payments on scheduled due dates. We seek to manage credit risk through a comprehensive credit analysis prior to making an investment, actively monitoring our portfolio and the underlying credit quality, including subordination and diversification of our portfolio. Our analysis is based on a broad range of real estate, financial, economic and borrower-related factors which we believe are critical to the evaluation of credit risk inherent in a transaction.

Our CRE debt investments are collateral dependent, meaning the principal source of repayment is from a sale or refinancing of the collateral securing our debt. In the event that a borrower cannot repay our debt, we may exercise our remedies under the debt agreements, which may include taking title to collateral. We describe many of the options available to us in this situation in the “Portfolio Management” section in Item 1. “Business.” of this Annual Report on Form 10-K. To the extent the value of the collateral underlying a CRE debt investment exceeds the carrying value of the investment (including all debt senior to us) and the expense we incur in collecting the debt, we would collect 100% of our investment. To the extent the carrying value of our CRE debt investment plus all senior debt to our position exceeds the realizable value to our collateral (net of expenses), then we would incur a loss. CMBS investments are generally junior in right of payment of interest and principal to one or more senior classes but benefit from the support of one or more subordinate classes of securities or other form of credit support within a securitization transaction.

105

Item 8.    Financial Statements and Supplementary Data

The consolidated financial statements of NorthStar Realty Finance Corp. and the notes related to the foregoing consolidated financial statements, together with the independent registered public accounting firm’s reports thereon are included in this Item 8.

Index to Consolidated Financial Statements

	Page
Reports of Independent Registered Public Accounting Firm	107
Consolidated Balance Sheets as of December 31, 2015 and 2014	109
Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013	110
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2015, 2014 and 2013	111
Consolidated Statements of Equity for the years ended December 31, 2015, 2014 and 2013	112
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013	113
Notes to Consolidated Financial Statements	115
Schedule II - Valuation and Qualifying Accounts and Reserves for the years ended December 31, 2015, 2014 and 2013	171
Schedule III - Real Estate and Accumulated Depreciation as of December 31, 2015	172
Schedule IV - Mortgage Loans on Real Estate as of December 31, 2015	190

106

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

NorthStar Realty Finance Corp.

We have audited the accompanying consolidated balance sheets of NorthStar Realty Finance Corp. (a Maryland corporation) and subsidiaries (the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the three years in the period ended December 31, 2015. Our audits of the basic consolidated financial statements included the financial statement schedules listed in the index appearing under Item 15. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NorthStar Realty Finance Corp. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2015, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 29, 2016 expressed an unqualified opinion.

/s/ GRANT THORNTON LLP

New York, New York

February 29, 2016

107

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

NorthStar Realty Finance Corp.

We have audited the internal control over financial reporting of NorthStar Realty Finance Corp. (a Maryland corporation) and subsidiaries (the “Company”) as of December 31, 2015, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting (“Management’s Report”). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in the 2013 Internal Control-Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and for the year ended December 31, 2015, and our report dated February 29, 2016 expressed an unqualified opinion on those financial statements.

/s/ GRANT THORNTON LLP

New York, New York

February 29, 2016

108

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

	December 31,
	2015			2014
Assets
Cash and cash equivalents	$	224,101		$	296,964
Restricted cash	299,288			389,779
Operating real estate, net	8,702,259			10,212,004
Real estate debt investments, net (refer to Note 4)	501,474			1,067,667
Real estate debt investments, held for sale	224,677			—
Investments in private equity funds, at fair value (refer to Note 5)	1,101,650			962,038
Investments in unconsolidated ventures (refer to Note 6)	155,737			207,777
Real estate securities, available for sale (refer to Note 7)	702,110			878,514
Receivables, net of allowance of $4,318 and $2,020 as of December 31, 2015 and 2014, respectively	66,197			111,299
Receivables, related parties	2,850			2,287
Unbilled rent receivable, net of allowance of $116 and $4,037 as of December 31, 2015 and 2014, respectively	46,262			16,140
Derivative assets, at fair value	116			2,131
Intangible assets, net	527,277			659,445
Assets of properties held for sale (refer to Note 3)	2,742,635			29,012
Assets of discontinued operations (refer to Note 9)	—			158,533
Other assets	106,412			185,122
Total assets(1)	$	15,403,045		$	15,178,712
Liabilities
Mortgage and other notes payable	$	7,164,576		$	8,327,509
Credit facilities and term borrowings	652,704			718,759
CDO bonds payable, at fair value	307,601			390,068
Securitization bonds payable	—			41,746
Exchangeable senior notes	29,038			41,008
Junior subordinated notes, at fair value	183,893			215,172
Accounts payable and accrued expenses	170,120			186,836
Due to related party (refer to Note 10)	50,903			47,430
Derivative liabilities, at fair value	103,293			17,915
Intangible liabilities, net	149,642			176,528
Liabilities of properties held for sale (refer to Note 3)	2,209,689			28,962
Liabilities of discontinued operations (refer to Note 9)	—			79,512
Other liabilities	165,856			193,611
Total liabilities(2)	11,187,315			10,465,056
Commitments and contingencies
Equity
NorthStar Realty Finance Corp. Stockholders’ Equity
Preferred stock, $986,640 aggregate liquidation preference as of December 31, 2015 and 2014	939,118			939,118
Common stock, $0.01 par value, 500,000,000 shares authorized, 183,239,708 and 150,842,021 shares issued and outstanding as of December 31, 2015 and 2014, respectively(3)	1,832			1,508
Additional paid-in capital	5,149,349			4,828,928
Retained earnings (accumulated deficit)	(2,309,564		)	(1,422,399		)
Accumulated other comprehensive income (loss)	18,485			49,540
Total NorthStar Realty Finance Corp. stockholders’ equity	3,799,220			4,396,695
Non-controlling interests	416,510			316,961
Total equity	4,215,730			4,713,656
Total liabilities and equity	$	15,403,045		$	15,178,712

Refer to accompanying notes to consolidated financial statements.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Continued)

(Dollars in Thousands)

		December 31,
		2015		2014
(1)	Assets of consolidated VIEs included in the total assets above:
	Restricted cash	$	11,362	$	4,601
	Operating real estate, net	—		7,137
	Real estate debt investments, net	22,145		25,325
	Real estate securities, available for sale	385,421		463,050
	Receivables	1,577		2,304
	Other assets	590		242
	Total assets of consolidated VIEs	$	421,095	$	502,659
(2)	Liabilities of consolidated VIEs included in the total liabilities above:
	CDO bonds payable, at fair value	$	307,601	$	390,068
	Accounts payable and accrued expenses	1,255		1,761
	Derivative liabilities, at fair value	7,321		17,707
	Other liabilities	575		1,784
	Total liabilities of consolidated VIEs	$	316,752	$	411,320

_______________________________

(3) Adjusted for the one-for-two reverse stock split completed on November 1, 2015. Refer to Note 12. “Stockholders’ Equity” for additional disclosure.

Refer to accompanying notes to consolidated financial statements.

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in Thousands, Except Per Share Data)

	Years Ended December 31,
	2015(1)			2014			2013
Property and other revenues
Rental and escalation income	$	732,425		$	349,951		$	235,124
Hotel related income	784,151			237,039			—
Resident fee income	271,394			77,516			—
Other revenue	29,466			14,994			5,723
Total property and other revenues	1,817,436			679,500			240,847
Net interest income
Interest income (refer to Note 10)	227,483			310,116			303,989
Interest expense on debt and securities	8,678			11,977			37,632
Net interest income on debt and securities	218,805			298,139			266,357
Expenses
Management fee, related party (refer to Note 10)	198,695			82,756			—
Interest expense—mortgage and corporate borrowings	486,408			231,894			141,027
Real estate properties—operating expenses	915,701			318,477			73,668
Other expenses	26,607			8,920			4,558
Transaction costs	31,427			172,416			12,464
Impairment losses	31,951			—			—
Provision for (reversal of) loan losses, net	4,201			3,769			(8,786		)
General and administrative expenses
Salaries and related expense	13,744			22,124			26,421
Equity-based compensation expense(3)	27,693			24,885			11,784
Other general and administrative expenses	16,658			12,357			16,159
Total general and administrative expenses	58,095			59,366			54,364
Depreciation and amortization	456,916			184,689			93,470
Total expenses	2,210,001			1,062,287			370,765
Other income (loss)
Unrealized gain (loss) on investments and other	(204,112		)	(231,697		)	(32,677		)
Realized gain (loss) on investments and other	14,407			(77,064		)	32,376
Gain (loss) from deconsolidation of N-Star CDOs (refer to Note 17)	—			(31,423		)	(299,802		)
Other income (loss)	—			—			38
Income (loss) before equity in earnings (losses) of unconsolidated ventures and income tax benefit (expense)	(363,465		)	(424,832		)	(163,626		)
Equity in earnings (losses) of unconsolidated ventures	219,077			165,053			91,726
Income tax benefit (expense)	(14,325		)	(16,606		)	(7,249		)
Income (loss) from continuing operations	(158,713		)	(276,385		)	(79,149		)
Income (loss) from discontinued operations (refer to Note 9)(2)(3)	(108,554		)	(44,701		)	(8,761		)
Net income (loss)	(267,267		)	(321,086		)	(87,910		)
Net (income) loss attributable to non-controlling interests	24,008			22,879			5,973
Preferred stock dividends	(84,238		)	(73,300		)	(55,516		)
Net income (loss) attributable to NorthStar Realty Finance Corp. common stockholders	$	(327,497	)	$	(371,507	)	$	(137,453	)
Earnings (loss) per share:(4)
Income (loss) per share from continuing operations	$	(1.25	)	$	(3.33	)	$	(2.43	)
Income (loss) per share from discontinued operations	(0.62		)	(0.46		)	(0.17		)
Basic	$	(1.87	)	$	(3.79	)	$	(2.60	)
Diluted	$	(1.87	)	$	(3.79	)	$	(2.60	)
Weighted average number of shares:(4)
Basic	174,873,074			98,035,886			52,953,880
Diluted	176,345,121			98,995,229			55,244,584

____________________

(1) The consolidated financial statements for the year endedDecember 31, 2015 includes: (i) the Company’s results of operations for the two months ended December 31, 2015 which represents the activity following the NRE Spin-off; and (ii) the Company’s results of operations for the ten months ended October 31, 2015 which represents a carve-out of revenues and expenses attributable to NRE recorded in discontinued operations. As a result, the year endedDecember 31, 2015 may not be comparable to the prior periods presented.

(2) Refer to Note 9. “Spin-offs” for disclosure related to the Spin-offs.

(3) The six months ended June 30, 2014 and year endedDecember 31, 2013 includes $13.7 million and $5.2 million, respectively, of equity-based compensation recorded in discontinued operations.

(4) Adjusted for the one-for-two reverse stock split completed on November 1, 2015. Refer to Note 12. “Stockholders’ Equity” for additional disclosure.

Refer to accompanying notes to consolidated financial statements.

110

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in Thousands)

	Years Ended December 31,
	2015			2014			2013
Net income (loss)	$	(267,267	)	$	(321,086	)	$	(87,910	)
Other comprehensive income (loss):
Unrealized gain (loss) on real estate securities, available for sale, net	(35,218		)	58,872			(1,483		)
Reclassification of swap (gain) loss into interest expense—mortgage and corporate borrowings (refer to Note 15)	934			915			4,885
Reclassification of swap (gain) loss into gain (loss) from deconsolidation of N-Star CDOs (refer to Note 17)	—			—			15,246
Foreign currency translation adjustment, net	17,042			(5,155		)	—
Total other comprehensive income (loss)	(17,242		)	54,632			18,648
Comprehensive income (loss)	(284,509		)	(266,454		)	(69,262		)
Comprehensive (income) loss attributable to non-controlling interests	24,537			22,121			5,174
Comprehensive income (loss) attributable to NorthStar Realty Finance Corp.	$	(259,972	)	$	(244,333	)	$	(64,088	)

Refer to accompanying notes to consolidated financial statements.

111

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(Dollars and Shares in Thousands)

	Preferred Stock			Common Stock(1)					Additional Paid-in Capital(1)			Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Income (Loss)			Total NorthStar Stockholders’ Equity			Non-controlling Interests
																								Total Equity
	Shares	Amount		Shares		Amount
Balance as of December 31, 2012	21,466	$	504,018	40,902		$	409		$	1,196,358		$	(376,685	)	$	(22,179	)	$	1,301,921		$	28,943		$	1,330,864
Net proceeds from offering of common stock	—	—		33,062		331			1,305,288			—			—			1,305,619			—			1,305,619
Net proceeds from offering of preferred stock	8,000	193,334		—		—			—			—			—			193,334			—			193,334
Common stock related to transactions	—	—		—		—			17,712			—			—			17,712			—			17,712
Non-controlling interests—contributions	—	—		—		—			—			—			—			—			19,774			19,774
Non-controlling interests—distributions	—	—		—		—			—			—			—			—			(1,403		)	(1,403		)
Dividend reinvestment plan	—	—		7		—			249			—			—			249			—			249
Amortization of equity-based compensation	—	—		—		—			—			—			—			—			16,961			16,961
Equity component of exchangeable senior notes	—	—		—		—			45,740			—			—			45,740			—			45,740
Conversion of exchangeable senior notes	—	—		2,896		29			74,748			—			—			74,777			—			74,777
Other comprehensive income (loss)	—	—		—		—			—			—			17,845			17,845			803			18,648
Conversion of LTIP Units	—	—		335		3			10,127			—			—			10,130			(10,130		)	—
Dividends on common stock and equity-based awards (refer to Note 11)	—	—		—		—			—			(171,798		)	—			(171,798		)	(9,588		)	(181,386		)
Dividends on preferred stock	—	—		—		—			—			(55,516		)	—			(55,516		)	—			(55,516		)
Net income (loss)	—	—		—		—			—			(81,937		)	—			(81,937		)	(5,973		)	(87,910		)
Balance as of December 31, 2013	29,466	$	697,352	77,202		$	772		$	2,650,222		$	(685,936	)	$	(4,334	)	$	2,658,076		$	39,387		$	2,697,463
Net proceeds from offering of common stock	—	—		27,625		276			1,191,031			—			—			1,191,307			—			1,191,307
Net proceeds from offering of preferred stock	10,000	241,766		—		—			—			—			—			241,766			—			241,766
Common stock related to transactions	—	—		30,854		308			1,082,423			—			—			1,082,731			—			1,082,731
Issuance of common stock in connection with exercise of warrants	—	—		399		4			12			—			—			16			—			16
Non-controlling interests—contributions	—	—		—		—			—			—			—			—			321,455			321,455
Non-controlling interests—distributions	—	—		—		—			—			—			—			—			(13,593		)	(13,593		)
Dividend reinvestment plan	—	—		4		—			239			—			—			239			—			239
Amortization of equity-based compensation	—	—		—		—			21,053			—			—			21,053			16,322			37,375
Equity component of exchangeable senior notes	—	—		—		—			(296,382		)	—			—			(296,382		)	—			(296,382		)
Conversion of exchangeable senior notes	—	—		12,454		125			320,179			—			—			320,304			—			320,304
Other comprehensive income (loss)	—	—		—		—			—			—			53,874			53,874			758			54,632
Conversion of LTIP Units	—	—		2,304		23			18,588			—			—			18,611			(18,611		)	—
Spin-off of NSAM	—	—		—		—			(158,437		)	—			—			(158,437		)	—			(158,437		)
Dividends on common stock and equity-based awards (refer to Note 11)	—	—		—		—			—			(364,956		)	—			(364,956		)	(5,878		)	(370,834		)
Dividends on preferred stock	—	—		—		—			—			(73,300		)	—			(73,300		)	—			(73,300		)
Net income (loss)	—	—		—		—			—			(298,207		)	—			(298,207		)	(22,879		)	(321,086		)
Balance as of December 31, 2014	39,466	$	939,118	150,842		$	1,508		$	4,828,928		$	(1,422,399	)	$	49,540		$	4,396,695		$	316,961		$	4,713,656
Net proceeds from offering of common stock	—	—		38,000		380			1,325,860			—			—			1,326,240			—			1,326,240
Non-controlling interests—contributions	—	—		—		—			—			—			—			—			126,484			126,484
Non-controlling interests—distributions	—	—		—		—			—			—			—			—			(36,661		)	(36,661		)
Non-controlling interests—reallocation of interest in Operating Partnership (refer to Note 13)	—	—		—		—			(14,548		)	—			—			(14,548		)	14,548			—
Dividend reinvestment plan	—	—		7		—			194			—			—			194			—			194
Amortization of equity-based compensation	—	—		—		—			13,757			—			—			13,757			11,935			25,692
Conversion of exchangeable senior notes	—	—		829		8			13,582			—			—			13,590			—			13,590
Other comprehensive income (loss)	—	—		—		—			—			—			(16,713		)	(16,713		)	(529		)	(17,242		)
Conversion of Deferred LTIP Units to LTIP Units (refer to Note 13)	—	—		—		—			(18,730		)	—			—			(18,730		)	18,730			—
Retirement of shares of common stock	—	—		(6,470	)	(64		)	(117,983		)	—			—			(118,047		)	—			(118,047		)
Issuance of restricted stock, net of tax withholding	—	—		32		—			(3,602		)	—			—			(3,602		)	—			(3,602		)
Spin-off of NorthStar Europe (refer to Note 9)	—	—		—		—			(878,109		)	—			(14,342		)	(892,451		)	(7,450		)	(899,901		)
Dividends on common stock and equity-based awards (refer to Note 11)	—	—		—		—			—			(559,668		)	—			(559,668		)	(3,500		)	(563,168		)
Dividends on preferred stock	—	—		—		—			—			(84,238		)	—			(84,238		)	—			(84,238		)
Net income (loss)	—	—		—		—			—			(243,259		)	—			(243,259		)	(24,008		)	(267,267		)
Balance as of December 31, 2015	39,466	$	939,118	183,240		$	1,832		$	5,149,349		$	(2,309,564	)	$	18,485		$	3,799,220		$	416,510		$	4,215,730

_______________________

(1) Adjusted for the one-for-two reverse stock split completed on November 1, 2015. Refer to Note 12. “Stockholders’ Equity” for additional disclosure.

Refer to accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

	Years Ended December 31,
	2015			2014			2013
Cash flows from operating activities:
Net income (loss)	$	(267,267	)	$	(321,086	)	$	(87,910	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Equity in (earnings) losses of PE Investments	(198,159		)	(150,801		)	(88,842		)
Equity in (earnings) losses of unconsolidated ventures	(20,918		)	(14,252		)	(2,884		)
Depreciation and amortization	499,347			185,222			94,840
Amortization of premium/accretion of discount on investments	(51,247		)	(76,040		)	(58,032		)
Interest accretion on investments	(13,841		)	(22,064		)	(1,549		)
Amortization of deferred financing costs	48,411			18,400			7,393
Amortization of equity-based compensation	25,692			37,375			16,961
Unrealized (gain) loss on investments and other	202,832			214,815			(20,054		)
Realized (gain) loss on investments and other	(14,407		)	77,234			(31,414		)
(Gain) loss on deconsolidation of N-Star CDOs	—			31,423			299,802
Impairment from discontinued operations	—			555			8,613
Impairment losses	31,951			—			—
Distributions from PE Investments (refer to Note 5)	198,159			150,801			88,842
Distributions from unconsolidated ventures	7,531			3,514			4,744
Distributions from equity investments	26,469			19,453			7,028
Amortization of capitalized above/below market leases	14,015			1,189			(1,438		)
Straight line rental income, net	(34,676		)	(9,263		)	(2,713		)
Deferred income taxes, net	(27,742		)	—			—
Provision for (reversal of) loan losses, net	4,201			3,769			(8,786		)
Allowance for uncollectible accounts	5,457			10,858			1,138
Other	912			502			148
Discount received	—			3,223			7,815
Changes in assets and liabilities:
Restricted cash	(11,313		)	(83,159		)	(6,846		)
Receivables	29,632			(34,997		)	(10,912		)
Receivables, related parties	(657		)	6,323			(11,946		)
Other assets	7,147			(37,169		)	(1,041		)
Accounts payable and accrued expenses	26,931			56,284			32,860
Due to related party	1,973			47,430			—
Other liabilities	30,225			25,317			4,857
Net cash provided by (used in) operating activities	520,658			144,856			240,674
Cash flows from investing activities:
Acquisition of operating real estate	(3,367,580		)	(3,466,610		)	(1,624,959		)
Acquisition of Griffin-American, net of cash	—			(2,947,856		)	—
Improvements of operating real estate	(150,197		)	(37,955		)	(11,028		)
Proceeds from sale of operating real estate	22,487			27,630			17,687
Deferred costs and intangible assets	(4,809		)	(21,597		)	(769		)
Origination of or fundings for real estate debt investments	(72,596		)	(282,181		)	(744,209		)
Acquisition of real estate debt investments	(72,950		)	(997		)	(56,301		)
Proceeds from sale of real estate debt investments	—			28,500			106,845
Repayment on real estate debt investments	589,694			196,034			274,029
Investment in PE Investments (refer to Note 5)	(609,616		)	(557,719		)	(664,392		)
Distributions from PE Investments (refer to Note 5)	455,207			230,598			135,607
Investment in unconsolidated ventures	(4,005		)	(73,254		)	(109,218		)
Distributions from unconsolidated ventures	23,403			11,873			11,782
Acquisition of real estate securities, available for sale	(38,822		)	(36,519		)	(2,800		)
Proceeds from the sale of real estate securities, available for sale	95,664			94,763			223,992
Repayment of real estate securities, available for sale	116,410			63,902			187,622
Change in restricted cash	35,849			(201,135		)	(30,736		)
Investment deposits and pending deal costs	(13,226		)	—			—
Other assets	(11,487		)	(81,704		)	1,695
Net cash provided by (used in) investing activities	(3,006,574		)	(7,054,227		)	(2,285,153		)

Refer to accompanying notes to consolidated financial statements.

113

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Dollars in Thousands)

	Years Ended December 31,
	2015			2014			2013
Cash flows from financing activities:
Borrowings from mortgage and other notes payable	$	2,201,141		$	5,932,208		$	1,252,085
Repayment of mortgage and other notes payable	(56,711		)	(383,018		)	(21,272		)
Proceeds from CDO bonds reissuance	—			—			23,725
Repayment of CDO bonds	(90,069		)	(87,859		)	(655,575		)
Repurchase of CDO bonds	(25,531		)	(15,320		)	(44,222		)
Repayment of securitization bonds payable	(41,831		)	(40,505		)	(15,794		)
Borrowings from credit facilities	1,141,150			922,540			147,748
Repayment of credit facilities	(1,211,877		)	(259,798		)	(138,798		)
Repayment of secured term loan	—			—			(105		)
Proceeds from exchangeable senior notes	—			—			345,000
Repurchase and repayment of exchangeable senior notes	—			—			(36,710		)
Proceeds from Senior Notes	340,000			—			—
Repayment of 2014 Senior Notes	—			(481,118		)	—
Payment of financing costs	(105,445		)	(139,937		)	(28,280		)
Purchase of derivative instruments	(29,599		)	(4,159		)	(9,563		)
Settlement of derivative instruments	—			2,995			—
Change in restricted cash	1,781			22,843			134,504
Net proceeds from common stock offering	1,326,240			1,191,307			1,305,619
Repurchase of common stock	(116,046		)	—			—
Net proceeds from preferred stock offering	—			241,766			193,334
Proceeds from dividend reinvestment plan	194			239			249
Spin-off of NSAM (refer to Note 9)	—			(118,728		)	—
Spin-off of NorthStar Europe (refer to Note 9)	(360,410		)	—			—
Dividends	(643,858		)	(438,256		)	(227,314		)
Contributions from non-controlling interests	125,023			246,027			19,774
Distributions to non-controlling interests	(36,661		)	(18,709		)	(8,863		)
Net cash provided by (used in) financing activities	2,417,491			6,572,518			2,235,542
Effect of foreign currency translation on cash and cash equivalents	(4,438		)	(2,173		)	—
Net increase (decrease) in cash and cash equivalents	(72,863		)	(339,026		)	191,063
Cash and cash equivalents—beginning of period	296,964			635,990			444,927
Cash and cash equivalents—end of period	$	224,101		$	296,964		$	635,990

Refer to accompanying notes to consolidated financial statements.

114

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Business and Organization

NorthStar Realty Finance Corp. is a diversified commercial real estate company (the “Company” or “NorthStar Realty”).  The Company invests in multiple asset classes across commercial real estate (“CRE”) that it expects will generate attractive risk-adjusted returns and may take the form of acquiring real estate, originating or acquiring senior or subordinate loans, as well as pursuing opportunistic CRE investments. The Company is a Maryland corporation and completed its initial public offering in October 2004. The Company conducts its operations so as to continue to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes.

On March 13, 2015, the Company formed NorthStar Realty Finance Limited Partnership, a Delaware limited partnership and the operating partnership of the Company (the “Operating Partnership”). The Company contributed substantially all of its assets to the Operating Partnership in exchange for all of the common and preferred limited partnership interests in the Operating Partnership and the assumption of certain of the Company’s liabilities. The Operating Partnership holds, directly or indirectly, substantially all of the Company’s assets and the Company conducts its operations, directly or indirectly, through the Operating Partnership.

All references herein to the Company refer to NorthStar Realty Finance Corp. and its consolidated subsidiaries, including the Operating Partnership, collectively, unless the context otherwise requires.

Spin-offs

On June 30, 2014, the Company completed the spin-off of its historical asset management business (“NSAM Spin-off”) in the form of a tax-free distribution (the “NSAM Distribution”). Effective upon the NSAM Spin-off, the Company is externally managed and advised by an affiliate of NorthStar Asset Management Group Inc. (NYSE: NSAM), which together with its affiliates is referred to as NSAM.

On October 31, 2015, the Company completed the spin-off of its European real estate business (the “NRE Spin-off”) into a separate publicly-traded REIT, NorthStar Realty Europe Corp. (“NorthStar Europe”), in the form of a taxable distribution (the “NRE Distribution”). In connection with the NRE Distribution, each of the Company’s common stockholders received shares of NorthStar Europe’s common stock on a one-for-six basis, before giving effect to a one-for-two reverse stock split of the Company’s common stock (this or any such reverse stock split herein referred to as the “Reverse Split”). The Company contributed to NorthStar Europe approximately $2.6 billion of European real estate, at cost (excluding the Company’s European healthcare properties), comprised of 52 properties spanning across some of Europe’s top markets (“European Portfolio”) and $250 million of cash. NSAM manages NorthStar Europe pursuant to a long-term management agreement, on substantially similar terms as the Company’s management agreement with NSAM.

The NRE Spin-off and the NSAM Spin-off are herein collectively referred to as “Spin-offs.” Refer to Note 9. “Spin-offs” for further disclosure.

2. Summary of Significant Accounting Policies

Basis of Accounting

The accompanying consolidated financial statements and related notes of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).

The year endedDecember 31, 2015 includes: (i) the Company’s results of operations for the two months ended December 31, 2015 which represents the activity following the NRE Spin-off; and (ii) the Company’s results of operations for the ten months ended October 31, 2015 which includes a carve-out of revenues and expenses attributable to NRE recorded in discontinued operations. The year endedDecember 31, 2014 includes: (i) the Company’s results of operations for the six months ended December 31, 2014 which represents the activity following the NSAM Spin-off; and (ii) the Company’s results of operations for the six months ended June 30, 2014 which includes a carve-out of revenues and expenses attributable to NSAM recorded in discontinued operations. As a result, the years endedDecember 31, 2015 and 2014 may not be comparable to the prior period presented.

Periods prior to June 30, 2014 and October 31, 2015 present a carve-out of revenues and expenses presented in discontinued operations associated with NSAM and NorthStar Europe, related to the Company’s historical asset management and European real estate business. Expenses also included an allocation of indirect expenses of the Company to NSAM and NRE, including salaries, equity-based compensation and other general and administrative expenses (primarily occupancy and other cost) based on an estimate had the asset management and European real estate business been run as an independent entity. This allocation method was principally based on relative headcount and management’s knowledge of the Company’s operations.

115

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, the Operating Partnership and their consolidated subsidiaries. The Company consolidates variable interest entities (“VIE”) where the Company is the primary beneficiary and voting interest entities which are generally majority owned or otherwise controlled by the Company. All significant intercompany balances are eliminated in consolidation.

Variable Interest Entities

A VIE is an entity that lacks one or more of the characteristics of a voting interest entity. A VIE is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The determination of whether an entity is a VIE includes both a qualitative and quantitative analysis. The Company bases its qualitative analysis on its review of the design of the entity, its organizational structure including decision-making ability and relevant financial agreements and the quantitative analysis on the forecasted cash flow of the entity.

The Company reassesses its initial evaluation of an entity as a VIE upon the occurrence of certain reconsideration events.

A VIE must be consolidated only by its primary beneficiary, which is defined as the party who, along with its affiliates and agents has both the: (i) power to direct the activities that most significantly impact the VIE’s economic performance; and (ii) obligation to absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE. The Company determines whether it is the primary beneficiary of a VIE by considering qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of its investment; the obligation or likelihood for the Company or other interests to provide financial support; consideration of the VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders and the similarity with and significance to the business activities of the Company and the other interests. The Company reassesses its determination of whether it is the primary beneficiary of a VIE each reporting period. Significant judgments related to these determinations include estimates about the current and future fair value and performance of investments held by these VIEs and general market conditions.

The Company evaluates its CRE debt and securities, investments in unconsolidated ventures and securitization financing transactions, such as its collateralized debt obligations (“CDOs”) and its liabilities to subsidiary trusts issuing preferred securities (“junior subordinated notes”) to determine whether they are a VIE. The Company analyzes new investments and financings, as well as reconsideration events for existing investments and financings, which vary depending on type of investment or financing.

Voting Interest Entities

A voting interest entity is an entity in which the total equity investment at risk is sufficient to enable it to finance its activities independently and the equity holders have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity. The usual condition for a controlling financial interest in a voting interest entity is ownership of a majority voting interest. If the Company has a majority voting interest in a voting interest entity, the entity will generally be consolidated. The Company does not consolidate a voting interest entity if there are substantive participating rights by other parties and/or kick-out rights by a single party or through a simple majority vote.

The Company performs on-going reassessments of whether entities previously evaluated under the voting interest framework have become VIEs, based on certain events, and therefore subject to the VIE consolidation framework.

Investments in Unconsolidated Ventures

A non-controlling, unconsolidated ownership interest in an entity may be accounted for using the equity method, at fair value or the cost method.

Under the equity method, the investment is adjusted each period for capital contributions and distributions and its share of the entity’s net income (loss). Capital contributions, distributions and net income (loss) of such entities are recorded in accordance with the terms of the governing documents. An allocation of net income (loss) may differ from the stated ownership percentage interest in such entity as a result of a preferred return and allocation formula, if any, as described in such governing documents.

The Company may account for an investment in an unconsolidated entity at fair value by electing the fair value option. The Company elected the fair value option for its investments (directly or indirectly in joint ventures) that own limited partnership interests in real estate private equity funds (“PE Investments”) and certain investments in unconsolidated ventures (refer to Note

116

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6). The Company records the change in fair value for its share of the projected future cash flow of such investments from one period to another in equity in earnings (losses) from unconsolidated ventures in the consolidated statements of operations. Any change in fair value attributed to market related assumptions is considered unrealized gain (loss).

The Company may account for an investment that does not qualify for equity method accounting or for which the fair value option was not elected using the cost method if the Company determines the investment in the unconsolidated entity is insignificant. Under the cost method, equity in earnings is recorded as dividends are received to the extent they are not considered a return of capital, which is recorded as a reduction of cost of the investment.

Non-controlling Interests

A non-controlling interest in a consolidated subsidiary is defined as the portion of the equity (net assets) in a subsidiary not attributable, directly or indirectly, to the Company. A non-controlling interest is required to be presented as a separate component of equity on the consolidated balance sheets and presented separately as net income (loss) and other comprehensive income (loss) (“OCI”) attributable to controlling and non-controlling interests. An allocation to a non-controlling interest may differ from the stated ownership percentage interest in such entity as a result of a preferred return and allocation formula, if any, as described in such governing documents.

Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that could affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates and assumptions.

Reclassifications

Certain prior period amounts have been reclassified in the consolidated financial statements to conform to current period presentation including amounts related to certain assets held for sale (refer to Note 3) and discontinued operations (refer to Note 9).

Comprehensive Income (Loss)

The Company reports consolidated comprehensive income (loss) in separate statements following the consolidated statements of operations. Comprehensive income (loss) is defined as the change in equity resulting from net income (loss) and OCI. The components of OCI principally include: (i) unrealized gain (loss) on real estate securities available for sale for which the fair value option is not elected; (ii) the reclassification of unrealized gain (loss) on real estate securities available for sale for which the fair value option was not elected to realized gain (loss) upon sale or realized event; (iii) the reclassification of unrealized gain (loss) to interest expense on derivative instruments that are or were deemed to be effective hedges; (iv) foreign currency translation adjustment; and (v) reclassification of foreign currency translation into realized gain (loss) on investments and other upon realized event.

117

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables present the components of accumulated OCI for the years endedDecember 31, 2015, 2014 and 2013 (dollars in thousands):

Accumulated OCI	Unrealized Gain (Loss) on Available for Sale Securities			Interest Rate Swap Gain (Loss)			Foreign Currency Translation			Total
Balance as of December 31, 2012	$	(276	)	$	(21,903	)	$	—		$	(22,179	)
Unrealized gain (loss) on real estate securities, available for sale	(557		)	—			—			(557		)
Reclassification of unrealized (gain) loss on real estate securities, available for sale into realized gain (loss) on investments and other	(926		)	—			—			(926		)
Reclassification of swap (gain) loss into interest expense—mortgage and corporate borrowings (refer to Note 15)	—			4,885			—			4,885
Reclassification of swap (gain) loss into gain (loss) from deconsolidation of N-Star CDOs (refer to Note 17)	—			15,246			—			15,246
Non-controlling interests	23			(826		)	—			(803		)
Balance as of December 31, 2013	$	(1,736	)	$	(2,598	)	$	—		$	(4,334	)
Unrealized gain (loss) on real estate securities, available for sale	60,140			—			—			60,140
Reclassification of unrealized (gain) loss on real estate securities, available for sale into realized gain (loss) on investments and other	(1,268		)	—			—			(1,268		)
Reclassification of swap (gain) loss into interest expense—mortgage and corporate borrowings (refer to Note 15)	—			915			—			915
Foreign currency translation adjustment	—			—			(5,155		)	(5,155		)
Non-controlling interests	(1,064		)	(11		)	317			(758		)
Balance as of December 31, 2014	$	56,072		$	(1,694	)	$	(4,838	)	$	49,540
Unrealized gain (loss) on real estate securities, available for sale	(21,091		)	—			—			(21,091		)
Reclassification of unrealized (gain) loss on real estate securities, available for sale into realized gain (loss) on investments and other	(14,127		)	—			—			(14,127		)
Reclassification of swap (gain) loss into interest expense—mortgage and corporate borrowings (refer to Note 15)	—			934			—			934
Foreign currency translation adjustment	—			—			17,042			17,042
Reclassification of foreign currency translation upon NRE Spin-off	—			—			(14,342		)	(14,342		)
Non-controlling interests	162			(7		)	374			529
Balance as of December 31, 2015	$	21,016		$	(767	)	$	(1,764	)	$	18,485

Cash and Cash Equivalents

The Company considers all highly-liquid investments with an original maturity date of three months or less to be cash equivalents. Cash, including amounts restricted, may at times exceed the Federal Deposit Insurance Corporation deposit insurance limit of $250,000 per institution. The Company mitigates credit risk by placing cash and cash equivalents with major financial institutions. To date, the Company has not experienced any losses on cash and cash equivalents.

Restricted Cash

Restricted cash primarily consists of amounts related to operating real estate and CRE debt investments. The following table presents a summary of restricted cash as of December 31, 2015 and 2014 (dollars in thousands):

	December 31,
	2015		2014
Capital expenditures reserves	$	171,712	$	211,010
Operating real estate escrow reserves(1)	107,399		117,740
CRE debt escrow deposits	8,815		56,342
Cash in CDOs(2)	11,362		4,687
Total	$	299,288	$	389,779

__________________________________________________

(1) Primarily represents insurance, real estate tax, repair and maintenance, tenant security deposits and other escrows related to operating real estate.

(2) Represents proceeds from repayments and/or sales pending distribution.

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Fair Value Option

The fair value option provides an election that allows a company to irrevocably elect fair value for certain financial assets and liabilities on an instrument-by-instrument basis at initial recognition. The Company may elect to apply the fair value option for certain investments due to the nature of the instrument. Any change in fair value for assets and liabilities for which the election is made is recognized in earnings.

Operating Real Estate

Operating real estate is carried at historical cost less accumulated depreciation. Ordinary repairs and maintenance are expensed as incurred. Major replacements and improvements which improve or extend the life of the asset are capitalized and depreciated over their useful life. Operating real estate is depreciated using the straight-line method over the estimated useful lives of the assets, summarized as follows:

Category:	Term:
Building (fee interest)	15 to 40 years
Building improvements	Lesser of the useful life or remaining life of the building
Building leasehold interests	Lesser of 40 years or remaining term of the lease
Land improvements	10 to 30 years
Tenant improvements	Lesser of the useful life or remaining term of the lease

The Company follows the purchase method for an acquisition of operating real estate, where the purchase price is allocated to tangible assets such as land, building, tenant and land improvements and other identified intangibles, such as goodwill. Costs directly related to an acquisition deemed to be a business combination are expensed and included in transaction costs in the consolidated statements of operations. The Company evaluates whether real estate acquired in connection with a foreclosure, UCC/deed in lieu of foreclosure or a consentual modification of a loan (herein collectively referred to as taking title to collateral) (“REO”) constitutes a business and whether business combination accounting is appropriate. Any excess upon taking title to collateral between the carrying value of a loan over the estimated fair value of the property is charged to provision for loan losses.

Operating real estate, including REO, which has met the criteria to be classified as held for sale, is separately presented on the consolidated balance sheets. Such operating real estate is recorded at the lower of its carrying value or its estimated fair value less the cost to sell. Once a property is determined to be held for sale, depreciation is no longer recorded.

Minimum rental amounts due under leases are generally either subject to scheduled fixed increases or adjustments. The following table presents approximate future minimum rental income under noncancelable operating leases to be received over the next five years and thereafter as of December 31, 2015 (dollars in thousands):

Years Ending December 31:(1)
2016	$	372,196
2017	353,178
2018	329,957
2019	315,227
2020	304,540
Thereafter	1,669,031
Total	$	3,344,129

_______________________

(1) Excludes rental income from healthcare and hotel properties permitted by the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”) and manufactured housing communities, multifamily and independent living properties that are subject to short-term leases.

Real Estate Debt Investments

CRE debt investments are generally intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan fees, premium and discount. CRE debt investments that are deemed to be impaired are carried at amortized cost less a loan loss reserve, if deemed appropriate, which approximates fair value. CRE debt investments where the Company does not have the intent to hold the loan for the foreseeable future or until its expected payoff are classified as held for sale and recorded at the lower of cost or estimated value.

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Real Estate Securities

The Company classifies its CRE securities investments as available for sale on the acquisition date, which are carried at fair value. The Company historically elected to apply the fair value option for its CRE securities investments. For those CRE securities for which the fair value option was elected, any unrealized gains (losses) from the change in fair value is recorded in unrealized gains (losses) on investments and other in the consolidated statements of operations.

The Company may decide to not elect the fair value option for certain CRE securities due to the nature of the particular instrument. For those CRE securities for which the fair value option was not elected, any unrealized gain (loss) from the change in fair value is recorded as a component of accumulated OCI in the consolidated statements of equity, to the extent impairment losses are considered temporary.

Intangible Assets and Intangible Liabilities

The Company records acquired identified intangibles, which includes intangible assets (such as value of the above-market leases, in-place leases, goodwill and other intangibles) and intangible liabilities (such as the value of below-market leases), based on estimated fair value. The value allocated to the above or below-market leases is amortized over the remaining lease term as a net adjustment to rental income. Other intangible assets are amortized into depreciation and amortization expense on a straight-line basis over the remaining lease term.

Goodwill represents the excess of the purchase price over the fair value of net tangible and intangible assets acquired in a business combination and is not amortized. The Company analyzes goodwill for impairment on an annual basis and whenever events or changes in circumstances indicate that the carrying value of goodwill may not be fully recoverable. We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit, related to such goodwill, is less than the carrying amount as a basis to determine whether the two-step impairment test is necessary. The first step in the impairment test compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds fair value, the second step is required to determine the amount of the impairment loss, if any, by comparing the implied fair value of the reporting unit goodwill with the carrying amount of such goodwill. The implied fair value of goodwill is derived by performing a hypothetical purchase price allocation for the reporting unit as of the measurement date, allocating the reporting unit’s estimated fair value to its net assets and identifiable intangible assets. The residual amount represents the implied fair value of goodwill. To the extent this amount is below the carrying value of goodwill, an impairment loss is recorded in the consolidated statements of operations.

Events or circumstances which could indicate a potential impairment include (but are not limited to) issues with local, state or federal governments; on-going or projected negative operating income or cash flow; a significant change in payor mix related to healthcare assets; and/or a significant change in the occupancy rate and/or rising interest rates.

A discounted cash flow model is performed based on management’s forecast of operating performance for each reporting unit to assess fair value. In addition, the Company looks at comparable companies and representative transactions to validate management’s expectations, where possible. The inputs used in the annual test is updated for current market conditions and forecasts. The two main assumptions used in measuring goodwill impairment, include the cash flow from operations from each of our reporting units and the weighted average cost of capital. The starting point for each of the reporting unit’s cash flow from operations is the detailed annual plan. The detailed planning process takes into consideration many factors including EBITDAR, EBITDAR margins, revenue growth rate and capital spending requirements, among other items which impact the individual reporting unit projections. Cash flow beyond the specific operating plans are estimated using a terminal value calculation, which incorporate historical and forecasted financial cyclical trends for each reporting unit and considered long-term earnings growth rates. The financial and credit market volatility directly impacts our fair value measurement through our weighted average cost of capital that we use to determine the discount rate. During times of volatility, significant judgment must be applied to determine whether credit changes are a short-term or long term trend. Fair value of the reporting unit is using significant unobservable inputs or Level 3 in the fair value hierarchy. These inputs are based on internal management estimates, forecasts and judgments.

The annual impairment test for the reporting units related to a healthcare portfolio acquired in 2014 was conducted as of October 1 and the remaining reporting units related to the Griffin-American Portfolio as of December 31, 2015. Management used an independent third-party valuation party specialist to assist. Based on the step one analysis performed, management determined the fair value for all of reporting units were in excess of the respective reporting unit’s carrying value, with four exceptions, related to the healthcare portfolio acquired in 2014. As a result, we estimated the impairment loss for such reporting units to be $25.5 million and recorded an estimated preliminary impairment charge for such amount in the fourth quarter 2015. Due to the timing and complexity of step two of the impairment test, which is required to determine the actual impairment, we were unable to finalize the amount of impairment prior to filing form 10-K for the year ended December 31, 2015. Step two of the impairment test will be completed in the first quarter 2016 and any such adjustment will be recorded.

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Summary

The following tables presents identified intangibles as of December 31, 2015 and 2014 (dollars in thousands):

	December 31, 2015(1)							December 31, 2014
	Gross Amount		Accumulated Amortization			Net		Gross Amount		Accumulated Amortization			Net
Intangible assets:
In-place leases	$	289,124	$	(82,089	)	$	207,035	$	316,129	$	(49,656	)	$	266,473
Above-market leases	268,426		(35,940		)	232,486		273,522		(9,730		)	263,792
Goodwill(2)	48,635		NA			48,635		75,806		NA			75,806
Other	41,149		(2,028		)	39,121		53,724		(350		)	53,374
Total	$	647,334	$	(120,057	)	$	527,277	$	719,181	$	(59,736	)	$	659,445
Intangible liabilities:
Below-market leases	$	177,931	$	(30,462	)	$	147,469	$	184,209	$	(14,838	)	$	169,371
Other(3)	2,236		(63		)	2,173		7,157		NA			7,157
Total	$	180,167	$	(30,525	)	$	149,642	$	191,366	$	(14,838	)	$	176,528

_______________________

(1) As of December 31, 2015, the weighted average amortization period for above-market leases, below-market leases and in-place leases is 11.8 years, 13.8 years and 9.8 years, respectively.

(2) Represents goodwill associated with two acquisitions of healthcare portfolios that operate through RIDEA structures. The first portfolio relates to a healthcare portfolio acquired in 2014 ($25.5 million) and the second acquired with the acquisition of Griffin-American Healthcare REIT II, Inc. (“Griffin-American Portfolio”) ($48.6 million). For the year endedDecember 31, 2015, the Company recorded a goodwill impairment of $25.5 million related to the healthcare portfolio acquired in 2014.

(3) Represents the value associated with a purchase price option associated with the Griffin-American Portfolio.

The following table presents a rollforward of goodwill for the years ended December 31, 2015 and 2014 (dollars in thousands):

Balance as of December 31, 2013	$	—
Goodwill from acquisitions	75,806
Balance as of December 31, 2014	75,806
Goodwill from acquisitions	26,046
Disposal of goodwill(1)	(26,046		)
Impairment losses	(25,531		)
Adjustments from foreign currency translation	(1,640		)
Balance as of December 31, 2015	$	48,635

______________________________________________________

(1) Represents goodwill associated with the European Portfolio’s contributed to NorthStar Europe upon completion of the NRE Spin-off.

The Company recorded amortization of acquired above-market leases, net of acquired below-market leases of $(11.3) million, $(1.2) million and $1.4 million for the years ended December 31, 2015, 2014 and 2013, respectively. Amortization of other intangible assets was $74.1 million, $20.3 million and $15.4 million for the years ended December 31, 2015, 2014 and 2013, respectively.

The following table presents annual amortization of intangible assets and liabilities (dollars in thousands):

	Intangible Assets(1)						Intangible Liabilities(1)
Years Ending December 31:	In-place Leases, Net		Above-market Leases, Net		Other, Net(2)		Below-market Leases, Net		Other, Net
2016	$	53,017	$	27,362	$	2,925	$	15,090	$	50
2017	52,260		27,152		1,985		14,859		50
2018	50,725		26,957		1,698		14,091		50
2019	15,681		26,957		1,698		13,755		50
2020	5,942		26,832		1,698		13,697		50
Thereafter	29,410		97,226		14,874		75,977		1,923
Total	$	207,035	$	232,486	$	24,878	$	147,469	$	2,173

______________________________________________________

(1) Identified intangibles will be amortized through periods ending December 2026.

(2) Excludes $14.2 million of intangible assets related to certain healthcare properties that are not amortized.

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Other Assets and Other Liabilities

The following table presents a summary of other assets and other liabilities as of December 31, 2015 and 2014 (dollars in thousands):

	December 31,
	2015		2014
Other assets:
Investment-related reserves	$	47,380	$	24,800
Deferred tax assets(1)	24,435		7,730
Prepaid expenses	22,573		25,326
Deferred costs	8,105		5,494
Notes receivable, net(2)	694		48,932
Due from servicer	642		64,583
Investment deposits and pending deal costs	568		4,298
Other	2,015		3,959
Total	$	106,412	$	185,122
	December 31,
	2015		2014
Other liabilities:
Deferred tax liabilities	$	50,341	$	38,303
PE Investments deferred purchase price (refer to Note 5)	44,212		39,759
Tenant security deposits	30,327		27,604
Prepaid rent and unearned revenue	24,697		16,458
Escrow deposits payable	11,753		67,750
Other	4,526		3,737
Total	$	165,856	$	193,611

______________________________________________________

(1) As of December 31, 2015 and 2014, our taxable REIT subsidiaries (“TRS”) had deferred tax assets related to net operating loss carryforwards of $2.3 million and $1.7 million, respectively, which is net of a valuation allowance of $24.2 million and $10.4 million as of December 31, 2015 and 2014, respectively.

(2) The change from prior year is primarily related to $57.3 million of manufactured housing notes receivables reclassified to assets of properties held for sale as of December 31, 2015.

Revenue Recognition

Operating Real Estate

Rental and escalation income from operating real estate is derived from leasing of space to various types of tenants and healthcare operators. The leases are for fixed terms of varying length and generally provide for annual rentals and expense reimbursements to be paid in monthly installments. Rental income from leases is recognized on a straight-line basis over the term of the respective leases. The excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in unbilled rent receivable on the consolidated balance sheets. Escalation income represents revenue from tenant/operator leases which provide for the recovery of all or a portion of the operating expenses and real estate taxes paid by the Company on behalf of the respective property. This revenue is accrued in the same period as the expenses are incurred.

The Company generates operating income from healthcare and hotel properties permitted by RIDEA. Revenue related to healthcare properties includes resident room and care charges and other resident charges. Revenue related to operating hotel properties primarily consists of room and food and beverage sales. Revenue is recognized when such services are provided, generally defined as the date upon which a resident or guest occupies a room or uses the healthcare property or hotel services and is recorded in resident fee income for healthcare properties and hotel related income for hotel properties in the consolidated statements of operations.

Real Estate Debt Investments

Interest income is recognized on an accrual basis and any related premium, discount, origination costs and fees are amortized over the life of the investment using the effective interest method. The amortization is reflected as an adjustment to interest income in the consolidated statements of operations. The amortization of a premium or accretion of a discount is discontinued if such loan is reclassified to held for sale.

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Real Estate Securities

Interest income is recognized using the effective interest method with any premium or discount amortized or accreted through earnings based on expected cash flow through the expected maturity date of the security. Changes to expected cash flow may result in a change to the yield which is then applied retrospectively for high-credit quality securities that cannot be prepaid or otherwise settled in such a way that the holder would not recover substantially all of the investment or prospectively for all other securities to recognize interest income.

Credit Losses and Impairment on Investments

Operating Real Estate

The Company’s real estate portfolio is reviewed on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value of its operating real estate may be impaired or that its carrying value may not be recoverable. A property’s value is considered impaired if the Company’s estimate of the aggregate expected future undiscounted cash flow to be generated by the property is less than the carrying value of the property. In conducting this review, the Company considers U.S. and global macroeconomic factors and real estate sector conditions together with investment specific and other factors. To the extent an impairment has occurred, the loss is measured as the excess of the carrying value of the property over the estimated fair value of the property and recorded in impairment losses in the consolidated statements of operations.

An allowance for a doubtful account for a tenant/operator receivable is established based on a periodic review of aged receivables resulting from estimated losses due to the inability of tenant/operator to make required rent and other payments contractually due. Additionally, the Company establishes, on a current basis, an allowance for future tenant/operator/resident/guest credit losses on unbilled rent receivable based on an evaluation of the collectability of such amounts.

Real Estate Debt Investments

Loans are considered impaired when based on current information and events, it is probable that the Company will not be able to collect principal and interest amounts due according to the contractual terms. The Company assesses the credit quality of the portfolio and adequacy of loan loss reserves on a quarterly basis or more frequently as necessary. Significant judgment of the Company is required in this analysis. The Company considers the estimated net recoverable value of the loan as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the quality and financial condition of the borrower and the competitive situation of the area where the underlying collateral is located. Because this determination is based on projections of future economic events, which are inherently subjective, the amount ultimately realized may differ materially from the carrying value as of the balance sheet date. If upon completion of the assessment, the estimated fair value of the underlying collateral is less than the net carrying value of the loan, a loan loss reserve is recorded with a corresponding charge to provision for loan losses. The loan loss reserve for each loan is maintained at a level that is determined to be adequate by management to absorb probable losses.

Income recognition is suspended for a loan at the earlier of the date at which payments become 90-days past due or when, in the opinion of the Company, a full recovery of income and principal becomes doubtful. When the ultimate collectability of the principal of an impaired loan is in doubt, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the principal of an impaired loan is not in doubt, contractual interest is recorded as interest income when received, under the cash basis method until an accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed. A loan is written off when it is no longer realizable and/or legally discharged.

Investments in Unconsolidated Ventures

The Company reviews its investments in unconsolidated ventures for which the Company did not elect the fair value option on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value may be impaired or that its carrying value may not be recoverable. An investment is considered impaired if the projected net recoverable amount over the expected holding period is less than the carrying value. In conducting this review, the Company considers U.S. and global macroeconomic factors, including real estate sector conditions, together with investment specific and other factors. To the extent an impairment has occurred and is considered to be other than temporary, the loss is measured as the excess of the carrying value of the investment over the estimated fair value and recorded in provision for loss on equity investment in the consolidated statements of operations.

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Real Estate Securities

CRE securities for which the fair value option is elected are not evaluated for other-than-temporary impairment (“OTTI”) as any change in fair value is recorded in the consolidated statements of operations. Realized losses on such securities are reclassified to realized gain (loss) on investments and other as losses occur.

CRE securities for which the fair value option is not elected are evaluated for OTTI quarterly. Impairment of a security is considered to be other-than-temporary when: (i) the holder has the intent to sell the impaired security; (ii) it is more likely than not the holder will be required to sell the security; or (iii) the holder does not expect to recover the entire amortized cost of the security. When a CRE security has been deemed to be other-than-temporarily impaired due to (i) or (ii), the security is written down to its fair value and an OTTI is recognized in the consolidated statements of operations. In the case of (iii), the security is written down to its fair value and the amount of OTTI is then bifurcated into: (a) the amount related to expected credit losses; and (b) the amount related to fair value adjustments in excess of expected credit losses. The portion of OTTI related to expected credit losses is recognized in the consolidated statements of operations. The remaining OTTI related to the valuation adjustment is recognized as a component of accumulated OCI in the consolidated statements of equity. The portion of OTTI recognized through earnings is accreted back to the amortized cost basis of the security through interest income, while amounts recognized through OCI are amortized over the life of the security with no impact on earnings. CRE securities which are not high-credit quality are considered to have an OTTI if the security has an unrealized loss and there has been an adverse change in expected cash flow. The amount of OTTI is then bifurcated as discussed above.

Troubled Debt Restructuring

CRE debt investments modified in a troubled debt restructuring (“TDR”) are modifications granting a concession to a borrower experiencing financial difficulties where a lender agrees to terms that are more favorable to the borrower than is otherwise available in the current market. Management judgment is necessary to determine whether a loan modification is considered a TDR. Troubled debt that is fully satisfied via taking title to collateral, repossession or other transfers of assets is generally included in the definition of TDR. Loans acquired as a pool with deteriorated credit quality that have been modified are not considered a TDR.

Equity-Based Compensation

The Company accounts for equity-based compensation awards, including awards granted to co-employees, using the fair value method, which requires an estimate of fair value of the award. Awards may be based on a variety of measures such as time, performance, market or a combination thereof. For time-based awards, fair value is determined based on the stock price on the grant date. The Company recognizes compensation expense over the vesting period on a straight-line basis. For performance-based awards, fair value is determined based on the stock price at the date of grant and an estimate of the probable achievement of such measure. The Company recognizes compensation expense over the requisite service period, net of estimated forfeitures, using the accelerated attribution expense method. For market-based measures, fair value is determined using a Monte Carlo analysis under a risk-neutral premise using a risk-free interest rate. The Company recognizes compensation expense, over the requisite service period, net of estimated forfeitures, on a straight-line basis. For awards with a combination of performance or market measures, the Company estimates the fair value as if it were two separate awards. First, the Company estimates the probability of achieving the performance measure. If it is not probable the performance condition will be met, the Company records the compensation expense based on the fair value of the market measure, as described above. This expense is recorded even if the market-based measure is never met. If the performance-based measure is subsequently estimated to be achieved, the Company records compensation expense based on the performance-based measure. The Company would then record a cumulative catch-up adjustment for any additional compensation expense.

Equity-based compensation issued to non-employees is accounted for using the fair value of the award at the earlier of the performance commitment date or performance completion date. The awards are remeasured every quarter based on the stock price as of the end of the reporting period until such awards vest, if any.

Foreign Currency

Assets and liabilities denominated in a foreign currency for which the functional currency is a foreign currency are translated using the currency exchange rate in effect at the end of the period presented and the results of operations for such entities are translated into U.S. dollars using the average currency exchange rate in effect during the period. The resulting foreign currency translation adjustment is recorded as a component of accumulated OCI in the consolidated statements of equity.

Assets and liabilities denominated in a foreign currency for which the functional currency is the U.S. dollar are remeasured using the currency exchange rate in effect at the end of the period presented and the results of operations for such entities are remeasured

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

into U.S. dollars using the average currency exchange rate in effect during the period. The resulting foreign currency remeasurement adjustment is recorded in unrealized gain (loss) on investments and other in the consolidated statements of operations.

Earnings Per Share

The Company’s basic earnings per share (“EPS”) is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of common stock outstanding. Diluted EPS includes restricted stock and the potential dilution that could occur if outstanding restricted stock units (“RSUs”) or other contracts to issue common stock, assuming performance hurdles have been met, were converted to common stock (including limited partnership interests in the Operating Partnership which are structured as profits interests (“LTIP Units”) (refer to Note 11), where such exercise or conversion would result in a lower EPS. The dilutive effect of such RSUs and LTIP Units is calculated assuming all units are converted to common stock.

Discontinued Operations

Subsequent to the early adoption of the accounting standards update on the presentation of discontinued operations beginning in April 2014, the Company presents spin-offs of businesses and portfolios of properties that are sold or classified as held for sale are as discontinued operations provided that the disposal represents a strategic shift that has (or will have) a major effect on our operations and financial results.

Income Taxes

The Company has elected to be taxed as a REIT and to comply with the related provisions of the Internal Revenue Code of 1986, as amended, the (“Code”). Accordingly, the Company generally will not be subject to U.S. federal income tax to the extent of its distributions to stockholders and as long as certain asset, income and share ownership tests are met. To maintain its qualification as a REIT, the Company must annually distribute at least 90% of its REIT taxable income to its stockholders and meet certain other requirements. The Company may also be subject to certain state, local and franchise taxes. Under certain circumstances, federal income and excise taxes may be due on its undistributed taxable income. If the Company were to fail to meet these requirements, it would be subject to U.S. federal income tax, which could have a material adverse impact on its results of operations and amounts available for distributions to its stockholders. The Company believes that all of the criteria to maintain the Company’s REIT qualification have been met for the applicable periods, but there can be no assurance that these criteria will continue to be met in subsequent periods.

The Company maintains various TRSs which may be subject to U.S. federal, state and local income taxes and foreign taxes. In general, a TRS of the Company may perform non-customary services for tenants, hold assets that the REIT cannot hold directly and may engage in most real estate or non-real estate-related business. The Company has established several TRSs in jurisdictions for which no taxes are assessed on corporate earnings. However, the Company generally must include in earnings the income from these TRSs even if it has received no cash distributions. Additionally, the Company has invested in certain real estate assets in Europe, the majority of which were contributed to NorthStar Europe as part of the NRE Spin-off, for which local country level taxes will be due on earnings (or other measure) and in some cases withholding taxes for the repatriation of earnings back to the REIT. The REIT will not generally be subject to any additional U.S. taxes on the repatriation of its earnings.

Current and deferred taxes are recorded on the portion of earnings (losses) recognized by the Company with respect to its interest in TRSs and taxable foreign subsidiaries. Deferred income tax assets and liabilities are calculated based on temporary differences between the Company’s U.S. GAAP consolidated financial statements and the federal, state, local and foreign tax basis of assets and liabilities as of the consolidated balance sheet date. The Company evaluates the realizability of its deferred tax assets (e.g., net operating loss and capital loss carryforwards) and recognizes a valuation allowance if, based on the available evidence, it is more likely than not that some portion or all of its deferred tax assets will not be realized. When evaluating the realizability of its deferred tax assets, the Company considers estimates of expected future taxable income, existing and projected book/tax differences, tax planning strategies available and the general and industry specific economic outlook. This realizability analysis is inherently subjective, as it requires the Company to forecast its business and general economic environment in future periods. Changes in estimate of deferred tax asset realizability, if any, are included in provision for income tax expense included in income tax benefit (expense) in the consolidated statements of operations.

The Company has assessed its tax positions for all open tax years, which includes 2012 to 2015 and concluded there were no material uncertainties to be recognized. The Company’s accounting policy with respect to interest and penalties is to classify these amounts as a component of income tax expense, where applicable. The Company has not recognized any such amounts related to uncertain tax positions for the years ended December 31, 2015, 2014 and 2013. As of December 31, 2015, the tax years that remain subject to examination by major tax jurisdictions generally include 2012 through 2015.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company recorded an income tax expense of $14.3 million, $16.6 million and $7.2 million for the years endedDecember 31, 2015, 2014 and 2013, respectively.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting update requiring a company to recognize as revenue the amount of consideration it expects to be entitled to in connection with the transfer of promised goods or services to customers.  The accounting standard update will replace most of the existing revenue recognition guidance currently promulgated by U.S. GAAP.  In July 2015, the FASB decided to delay the effective date of the new revenue standard by one year. The effective date of the new revenue standard for the Company will be January 1, 2018. The Company is in the process of evaluating the impact, if any, of the update on its consolidated financial position, results of operations and financial statement disclosures.

In February 2015, the FASB issued updated guidance that changes the rules regarding consolidation. The pronouncement eliminates specialized guidance for limited partnerships and similar legal entities and removes the indefinite deferral for certain investment funds. The new guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, with early adoption permitted. The Company will adopt the new standard on January 1, 2016 and it is not expected to have a material impact on its consolidated financial position or results of operations.

In April 2015, the FASB issued an accounting update changing the presentation of financing costs in financial statements. Under the new guidance, an entity would present these costs in the balance sheet as a direct deduction from the related liability rather than as an asset.  Amortization of the costs would continue to be reported as interest expense.  The new guidance is effective for annual periods and interim periods beginning after December 15, 2015, with early adoption permitted. In the fourth quarter 2015, the Company adopted this guidance and the impact to the consolidated balance sheet from the reclassification of such costs was a reduction to both total assets and total liabilities of $91.2 million and $147.6 million as of December 31, 2015 and 2014, respectively.

In September 2015, the FASB issued updated guidance that eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively.  Under the new guidance, an acquirer will recognize a measurement-period adjustment during the period in which it determines the amount of the adjustment. The new guidance is effective for annual periods and interim periods beginning after December 15, 2015, with early adoption permitted. The Company adopted this guidance in the third quarter 2015 and it did not have a material impact on the Company’s consolidated financial position, results of operations and financial statement disclosures.

In January 2016, the FASB issued an accounting update that addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments.  The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company is currently assessing the impact of the guidance on the Company’s consolidated financial position, results of operations and financial statement disclosures.

In February 2016, the FASB issued an accounting update that requires lessees to present right-of-use assets and lease liabilities on the balance sheet.  The new guidance is to be applied using a modified retrospective approach at the beginning of the earliest comparative period in the financial statements and is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the impact that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.

3. Operating Real Estate

The following table presents operating real estate, net as of December 31, 2015 and 2014 (dollars in thousands):

	December 31,
	2015			2014
Land	$	1,047,620		$	1,472,667
Land improvements	148,295			1,070,507
Buildings and improvements	6,728,957			6,963,704
Building leasehold interests and improvements	723,573			591,626
Furniture, fixtures and equipment	346,628			286,340
Tenant improvements	165,539			159,159
Construction in progress	57,663			17,054
Subtotal	9,218,275			10,561,057
Less: Accumulated depreciation	(511,113		)	(349,053		)
Less: Allowance for Operating real estate impairment	(4,903		)	—
Operating real estate, net(1)	$	8,702,259		$	10,212,004

__________________

(1) As of December 31, 2015 and 2014, operating real estate was subject to $7.3 billion and $8.5 billion of mortgage notes payable, respectively.

For the years ended December 31, 2015, 2014 and 2013, depreciation expense was $382.1 million, $164.9 million and $76.1 million, respectively.

Real Estate Acquisitions

The following table summarizes the Company’s acquisitions for the year endedDecember 31, 2015, excluding acquisitions related to the European Portfolio that were spun off as part of the NRE Spin-off and certain real estate classified as held-for-sale (refer to below) (dollars in millions):

Acquisition Date	Type	Description	Name	Purchase Price(1)		Properties	Financing		Equity		Ownership Interest			Transaction Costs
February - March 2015	Office	Multi-tenant office	SteelWave Portfolio(2)	$	98.1	7	$	67.3	$	28.2	95	%		$	0.7
June 2015	Healthcare	Medical office building	Griffin-American Portfolio(3)	15.6		1	11.5		4.1		86	%	(4)	0.1
June 2015	Hotel	Upscale extended stay and premium branded select service	NE Portfolio	175.5		9	132.3		45.2		100	%		2.2
July 2015	Hotel	Upscale extended stay and premium branded select and full service	Miami Hotel Portfolio	154.2		3	115.5		38.7		100	%		1.5

______________________________________

(1) Includes escrows and reserves and excludes transaction costs.

(2) Represents an additional acquisition related to the SteelWave Portfolio.

(3) Represents an additional acquisition related to the Griffin-American Portfolio.

(4) NorthStar Healthcare Income, Inc. (“NorthStar Healthcare”), a sponsored company of NSAM, is the non-controlling interest holder of the remaining 14% of the Griffin-American Portfolio.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents the initial allocation of the purchase price of the assets acquired and the liabilities issued or assumed upon the closing of the following acquisitions: an additional acquisition related to the Griffin-American Portfolio, NE Portfolio and Miami Hotel Portfolio that continue to be subject to refinement upon receipt of all information. The table excludes 2015 acquisitions related to the European Portfolio contributed to NorthStar Europe upon completion of the NRE Spin-off, a manufactured housing portfolio and independent living facility portfolio (“Senior Housing Portfolio”) acquired, which was classified as operating real estate held for sale as of December 31, 2015 (dollars in thousands):

Assets:
Land and improvements	$	32,830
Buildings, leasehold interests and improvements	269,826
Acquired intangibles(1)	1,372
Other assets acquired	37,249
Total assets acquired	$	341,277
Liabilities:
Mortgage and other notes payable	$	255,156
Other liabilities assumed	1,628
Total liabilities	256,784
Total NorthStar Realty Finance Corp. stockholders’ equity(2)	83,894
Non-controlling interests	599
Total liabilities and equity	$	341,277

______________________________________

(1) Acquired intangibles include in-place leases and unamortized lease origination costs.

(2) Stockholders’ equity excludes transaction costs incurred in connection with the acquisitions.

For the year ended December 31, 2015, the Company recorded aggregate revenue of $42.6 million and a net loss of $0.9 million related to these acquisitions. Net loss is primarily related to transaction costs, depreciation and amortization expense.

The following table presents the final allocation of the purchase price of the assets acquired and liabilities issued and assumed upon the closing of the following portfolios (dollars in thousands):

	Griffin-American Portfolio(3)		Hotel Portfolios(4)(5)		SteelWave Portfolio(6)
Assets:
Land and improvements	$	377,135	$	159,640	$	20,718
Buildings and improvements	3,323,346		635,668		64,392
Acquired intangibles(1)	458,545		2,076		9,812
Other assets acquired	237,933		132,963		3,189
Total assets acquired	$	4,396,959	$	930,347	$	98,111
Liabilities:
Mortgage and other notes payable	$	2,919,211	$	713,676	$	67,254
Other liabilities assumed(2)	240,513		4,625		1,813
Total liabilities	3,159,724		718,301		69,067
Total NorthStar Realty Finance Corp. stockholders’ equity	1,049,818		210,721		27,559
Non-controlling interests	187,417		1,325		1,485
Total equity	1,237,235		212,046		29,044
Total liabilities and equity	$	4,396,959	$	930,347	$	98,111

______________________________________

(1) Acquired intangibles include in-place leases, above-market leases and goodwill.

(2) Other liabilities assumed include below-market lease intangibles and deferred tax liabilities.

(3) For the year endedDecember 31, 2015, the Company recorded revenue and net loss related to the Griffin-American Portfolio of $392.9 million and $59.2 million, respectively. Net loss is primarily related to depreciation and amortization expense.

(4) Includes a $259.3 million hotel portfolio acquired in August 2014 and a $681.0 million hotel portfolio acquired in September 2014.

(5) For the year endedDecember 31, 2015, the Company recorded aggregate revenue and net income of $256.7 million and $13.2 million, respectively.

(6) For the year endedDecember 31, 2015, the Company recorded aggregate revenue and net loss of $20.2 million and $2.5 million, respectively.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Real Estate Held for Sale

The following table summarizes the Company’s operating real estate held for sale as of December 31, 2015 (dollars in thousands):

		Assets						Liabilities
Description	Properties	Operating Real Estate, Net(1)		Intangible Assets, Net		Total(2)		Mortgage and Other Notes Payable, Net		Intangible Liabilities, Net		Total		WA Ownership Interest
Manufactured housing communities	136	$	1,490,284	$	24,034	$	1,514,318	$	1,262,725	$	—	$	1,262,725	94	%
Senior Housing Portfolio(3)	32	828,233		24,816		853,049		644,486		—		644,486		60	%
Multifamily(4)	11	304,172		—		304,172		247,022		—		247,022		90	%
Other	8	70,416		680		71,096		41,742		13,714		55,456		NA
Total	187	$	2,693,105	$	49,530	$	2,742,635	$	2,195,975	$	13,714	$	2,209,689

______________________________________

(1) Includes $57.3 million of manufactured housing notes receivables previously recorded in other assets.

(2) Represents operating real estate and intangible assets and liabilities, net of depreciation and amortization of $242.4 million.

(3) In February 2016, the Company entered into an agreement to sell its 60% interest in the $899 million Senior Housing Portfolio for $535 million, subject to proration and adjustment. The Company expects to receive $150 million of net proceeds upon completion of the sale in March 2016. Refer to Related Party Arrangements for further disclosure.

(4) In February 2016, the Company entered in and is finalizing agreements to sell up to ten multifamily properties for $311 million with $210 million of mortgage financing expected to be assumed as part of the transaction. The Company expects to receive $91 million of net proceeds and continues to explore the sale of the remaining two properties.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Real Estate Debt Investments

The following table presents CRE debt investments as of December 31, 2015 (dollars in thousands):

								Weighted Average (6)						Floating Rate as % of Principal Amount(5)
	Number	Principal Amount		Carrying Value		Allocation by Investment Type(5)		Fixed Rate		Spread Over LIBOR(7)		Yield(8)
Asset Type:
First mortgage loans(1)(2)	11	$	286,628	$	260,237	51.6	%	7.09	%	4.95	%	6.18	%	55.8	%
Mezzanine loans	6	22,361		18,630		4.0	%	9.04	%	4.00	%	8.39	%	39.9	%
Subordinate interests	4	171,044		169,781		30.8	%	13.04	%	5.65	%	8.72	%	59.0	%
Corporate loans	4	35,215		30,681		6.3	%	12.93	%	—		14.84	%	—
Subtotal/Weighted average(3)(4)	25	515,248		479,329		92.7	%	10.51	%	5.26	%	8.12	%	52.5	%
CRE debt in N-Star CDOs
First mortgage loans	2	26,957		9,321		4.9	%	—		1.27	%	3.10	%	100.0	%
Mezzanine loans	1	11,000		10,675		2.0	%	8.00	%	—		8.24	%	—
Corporate loans	6	2,149		2,149		0.4	%	6.74	%	—		6.74	%	—
Subtotal/Weighted average	9	40,106		22,145		7.3	%	7.79	%	1.27	%	5.70	%	67.2	%
Total	34	$	555,354	$	501,474	100.0	%	10.33	%	4.79	%	7.98	%	53.5	%
Real estate debt, held for sale(9)	7	$	225,037	$	224,677	NA		13.65	%	7.41	%	10.89	%	52.5	%

____________________________________________________________

(1) Includes a Sterling denominated loan of £66.7 million, of which £31.6 million is available to be funded as of December 31, 2015. This loan has various maturity dates depending upon the timing of advances; however, will be no later than March 2022.

(2) Includes three loans that pursuant to certain terms and conditions which may or may not be satisfied, where the Company has an option to purchase the properties securing these loans.

(3) Certain CRE debt investments serve as collateral for financing transactions including carrying value of $38.6 million for the Company’s loan facility. The remainder is unleveraged. Assuming that all loans that have future fundings meet the terms to qualify for such funding, the Company’s cash requirement on future fundings would be $9.3 million. Excludes $2.1 million future funding commitment associated with real estate debt, held for sale.

(4) In September 2015, the Company purchased four CRE debt investments for $72.9 million from N-Star CDO IV, at fair value. Refer to Note 7 for further disclosure.

(5) Based on principal amount.

(6) Excludes an aggregate principal amount of $130.9 million related to three CRE debt investments that were originated prior to 2008, three non-performing loans and one first mortgage loan acquired with deteriorated credit quality.

(7) $108.5 million principal amount (excluding CRE debt in N-Star CDOs) has a weighted average LIBOR floor of 0.82%. Includes one first mortgage loan with a principal amount of $5.8 million with a spread over the prime rate.

(8) Based on initial maturity and for floating-rate debt, calculated using one-month LIBOR as of December 31, 2015 and for CRE debt with a LIBOR floor, using such floor.

(9) In February 2016, the Company sold or committed to sell these seven loans at par, with $46.9 million of proceeds used to pay down the Company’s loan facility, resulting in net proceeds of $178.2 million.

The following table presents CRE debt investments as of December 31, 2014 (dollars in thousands):

								Weighted Average(8)						Floating Rate  as % of Principal Amount(7)
	Number	Principal Amount		Carrying Value		Allocation by Investment Type(7)		Fixed Rate		Spread Over LIBOR(9)		Yield(10)
Asset Type:
First mortgage loans(1)(2)(6)	13	$	434,671	$	313,590	36.6	%	9.51	%	6.66	%	9.34	%	57.2	%
Mezzanine loans	8	149,816		146,088		12.6	%	13.79	%	13.83	%	14.05	%	53.3	%
Subordinate interests	8	201,564		200,237		17.0	%	13.11	%	12.33	%	13.01	%	40.7	%
Corporate loans(3)(4)	8	360,343		382,427		30.3	%	12.37	%	—		12.99	%	—
Subtotal/Weighted average(5)	37	1,146,394		1,042,342		96.5	%	11.89	%	9.15	%	12.00	%	35.6	%
CRE debt in N-Star CDOs
First mortgage loans	2	26,957		11,360		2.3	%	—		1.27	%	3.08	%	100.0	%
Mezzanine loans	1	11,000		11,000		0.9	%	8.00	%	—		8.00	%	—
Corporate loans	6	2,965		2,965		0.3	%	6.74	%	—		6.74	%	—
Subtotal/Weighted average	9	40,922		25,325		3.5	%	7.73	%	1.27	%	5.64	%	65.9	%
Total	46	$	1,187,316	$	1,067,667	100.0	%	11.82	%	8.65	%	11.85	%	36.7	%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

____________________________________________________________

(1) Includes a Sterling denominated loan of £66.7 million, of which £16.1 million is outstanding as of December 31, 2014. This loan has various maturity dates depending upon the timing of advances; however, will be no later than March 2022.

(2) Includes three loans that pursuant to certain terms and conditions which may or may not be satisfied, where the Company has an option to purchase the properties securing these loans.

(3) Includes $112.0 million of preferred equity investments for which the Company elected the fair value option.

(4) Includes four revolving loans of $156.4 million, of which $60.7 million is outstanding as of December 31, 2014.

(5) Certain CRE debt investments serve as collateral for financing transactions including carrying value of $35.8 million for Securitization 2012-1 and $140.6 million for credit facilities. The remainder is unleveraged.

(6) There are no loans on non-accrual status except for one first mortgage loan acquired with deteriorated credit quality with a carrying value of $5.7 million as of December 31, 2014. Certain loans have an accrual of interest at a specified rate that may be in addition to a current rate. Such loans represent an aggregate $3.2 million carrying value where the Company does not recognize interest income on the accrual rate but does recognize interest income based on the current rate.

(7) Based on principal amount.

(8) Excludes three CRE debt investments with an aggregate principal amount of $10.7 million that were originated prior to 2008.

(9) $357.9 million principal amount (excluding CRE debt in N-Star CDOs) has a weighted average LIBOR floor of 0.84%. Includes one first mortgage loan with a principal amount of $6.2 million with a spread over prime rate.

(10) Based on initial maturity and for floating-rate debt, calculated using one-month LIBOR as of December 31, 2014 and for CRE debt with a LIBOR floor, using such floor.

The following table presents maturities of CRE debt investments based on principal amount as of December 31, 2015 (dollars in thousands):

	Initial Maturity		Maturity Including Extensions(1)
Years ending December 31:
2016	$	293,496	$	199,406
2017	251		50,376
2018	1,897		40,647
2019	—		—
2020	—		—
Thereafter	259,710		264,925
Total	$	555,354	$	555,354

____________________________________________________________

(1) Assumes that all debt with extension options will qualify for extension at such maturity according to the conditions stipulated in the governing documents.

The Company had three non-performing loans (“NPLs”) with an aggregate principal amount of $95.9 million as of December 31, 2015 due to maturity defaults.

As of December 31, 2015, the weighted average maturity, including extensions, of CRE debt investments was 4.9 years.

Actual maturities may differ from contractual maturities as certain borrowers may have the right to prepay with or without prepayment penalty. The Company may also extend certain contractual maturities in connection with loan modifications.

The principal amount of CRE debt investments differs from the carrying value primarily due to unamortized origination fees and costs, unamortized premium and discount and loan loss reserves recorded as part of the carrying value of the investment. As of December 31, 2015, the Company had $42.1 million of net unamortized discount and $1.6 million of net unamortized origination fees and costs.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Provision for Loan Losses

The following table presents activity in loan loss reserves on CRE debt investments for the years endedDecember 31, 2015, 2014, and 2013 (dollars in thousands):

	Years Ended December 31,
	2015			2014			2013
Beginning balance	$	5,599		$	2,880		$	156,699
Provision for (reversal of) loan losses, net	2,240		(1)(4)	2,719		(1)	(8,786		)	(2)
Transfers to REO	—			—			(5,623		)
Write-offs / payoffs	—			—			(20,210		)	(3)
Deconsolidation of N-Star CDOs	—			—			(119,200		)
Ending balance	$	7,839		$	5,599		$	2,880

____________________________________________________________

(1) Excludes $0.8 million of provision for loan losses relating to manufactured housing notes receivables recorded in assets of properties held for sale as of December 31, 2015 and $1.0 million recorded in other assets as of December 31, 2014.

(2) Includes $4.0 million of reversal of previously recorded provisions for loan losses.

(3) Represents a write-off of a previously recorded loan loss reserve upon payoff of a loan.

(4) Excludes $1.2 million of provision for loan losses primarily relating to exit fees on loans held for sale.

Credit Quality Monitoring

CRE debt investments are typically loans secured by direct senior priority liens on real estate properties or by interests in entities that directly own real estate properties, which serve as the primary source of cash for the payment of principal and interest. The Company evaluates its debt investments at least quarterly and differentiates the relative credit quality principally based on: (i) whether the borrower is currently paying contractual debt service in accordance with its contractual terms; and (ii) whether the Company believes the borrower will be able to perform under its contractual terms in the future, as well as the Company’s expectations as to the ultimate recovery of principal at maturity.

The Company categorizes a debt investment for which it expects to receive full payment of contractual principal and interest payments as a “loan with no loan loss reserve.” The Company categorizes a debt investment as an NPL if it is in maturity default and/or past due at least 90 days on its contractual debt service payments. The Company considers the remaining debt investments to be of weaker credit quality and categorizes such loans as “other loans with a loan loss reserve/non-accrual status.” These loans are not considered NPLs because such loans are performing in accordance with contractual terms but the loans have a loan loss reserve and/or are on non-accrual status. Even if a borrower is currently paying contractual debt service or debt service is not due in accordance with its contractual terms, the Company may still determine that the borrower may not be able to perform under its contractual terms in the future and make full payment upon maturity. The Company’s definition of an NPL may differ from that of other companies that track NPLs.

The following table presents the carrying value of CRE debt investments, by credit quality indicator, as of each applicable balance sheet date (dollars in thousands):

	December 31,
Credit Quality Indicator:	2015		2014
Loans with no loan loss reserve:
First mortgage loans	$	168,978	$	324,251
Mezzanine loans	29,305		157,089
Subordinate interests	169,781		200,236
Corporate loans	32,830		385,391
Subtotal	400,894		1,066,967
Other loans with a loan loss reserve/non-accrual status:
First mortgage loans(1)	4,137		700
Mezzanine loans(2)	—		—
Subtotal	4,137		700
Non-performing loans	96,443		—
Total	$	501,474	$	1,067,667

____________________________________________________________

(1) Excludes one first mortgage loan acquired with deteriorated credit quality with a carrying value of $3.1 million as of December 31, 2015 and two first mortgage loans acquired with deteriorated credit quality with an aggregate carrying value of $5.7 million as of December 31, 2014 and excludes manufactured housing notes receivables recorded in other assets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(2) Includes one mezzanine loan with a 100% loan loss reserve with a principal amount of $3.8 million as of December 31, 2015 and 2014, respectively. Such loan is not considered a NPL as debt service is currently being received.

Impaired Loans

The Company considers impaired loans to generally include NPLs, loans with a loan loss reserve, loans on non-accrual status (excluding loans acquired with deteriorated credit quality) and TDRs. The following table presents impaired loans as of December 31, 2015 and 2014 (dollars in thousands):

	December 31, 2015							December 31, 2014
	Number	Principal Amount(1)		Carrying Value(1)		Loan Loss Reserve		Number	Principal Amount(1)		Carrying Value(1)		Loan Loss Reserve
Class of Debt:
First mortgage loans	5	$	119,677	$	100,580	$	4,073	1	$	2,533	$	700	$	1,833
Mezzanine loans	1	3,766		—		3,766		1	3,766		—		3,766
Total	6	$	123,443	$	100,580	$	7,839	2	$	6,299	$	700	$	5,599

____________________________________________________________

(1) Principal amount differs from carrying value primarily due to unamortized origination fees and costs, unamortized premium or discount and loan loss reserves included in the carrying value of the investment. Excludes one first mortgage loan acquired with deteriorated credit quality with a carrying value of $3.1 million as of December 31, 2015 and two first mortgage loans acquired with deteriorated credit quality with an aggregate carrying value of $5.7 million as of December 31, 2014 and excludes manufactured housing notes receivables recorded in other assets.

The following table presents average carrying value of impaired loans by type and the income recorded on such loans subsequent to them being deemed impaired for the years endedDecember 31, 2015, 2014 and 2013 (dollars in thousands):

	December 31, 2015					December 31, 2014					December 31, 2013
	Number	Average Carrying Value		Year Ended Income		Number	Average Carrying Value		Year Ended Income		Number	Average Carrying Value		Year Ended Income
Class of Debt:
First mortgage loans	5	$	102,107	$	2,707	1	$	1,133	$	—	5	$	67,531	$	1,050
Mezzanine loans	1	—		8		1	377		6		7	100,109		416
Subordinate interests	—	—		—		—	—		—		1	—		3
Corporate loans	—	—		—		—	—		—		—	19,530		—
Total/weighted average	6	$	102,107	$	2,715	2	$	1,510	$	6	13	$	187,170	$	1,469

As of December 31, 2015, the Company had two loans past due greater than 90 days.

5. Investments in Private Equity Funds

The following is a description of investments in private equity funds that own PE Investments either through unconsolidated ventures (“PE Investment I” and “PE Investment II”) or consolidated ventures and direct investments (“PE Investment III to XV,” collectively “Direct PE Investments”) which are recorded as investments in private equity funds at fair value on the consolidated balance sheets. The Company elected the fair value option for PE Investments. As a result, the Company records equity in earnings (losses) based on the change in fair value for its share of the projected future cash flow from one period to another. All PE Investments are considered voting interest entities, except for two fund interests in PE Investment XIII (refer to Note 17). PE Investment I and II are not consolidated by the Company due to the substantive participating rights of the partners in joint ventures that own the interests in the real estate private equity funds. The Company does not consolidate any of the underlying real estate private equity funds owned in Direct PE Investments as it does not own a majority voting interest in any such funds or is not the primary beneficiary of such funds.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables summarize the Company’s PE Investments as of December 31, 2015 (dollars in millions):

PE Investment(1)	Initial Closing Date	NAV Reference Date(2)	Number of Funds		Purchase Price		Expected Future Funding(3)
PE Investment I	February 15, 2013	June 30, 2012	49		$	282.1	$	2
PE Investment III(4)	December 31, 2013	June 30, 2013	8		39.8		—
PE Investment IV	May 30, 2014	December 31, 2013	1		8.0		—
PE Investment V	July 1, 2014	September 30, 2013	3		12.0		—
PE Investment VI	July 30, 2014	June 30, 2014	20		90.2		1
PE Investment VII	August 15, 2014	December 31, 2013	14		54.9		—
PE Investment IX	October 2, 2014	March 31, 2014	11		217.7		2
PE Investment X	December 4, 2014	June 30, 2014	13		152.4		—
PE Investment XI	May 1, 2015	September 30, 2014	2		6.4		—
PE Investment XII	May 5, 2015	June 30, 2014	1		6.2		—
PE Investment XIII	May 22, 2015	December 31, 2014	11		441.1		3
PE Investment XIV(5)	September 9, 2015	December 31, 2014	15		50.2		50
PE Investment XV	November 12, 2015	December 31, 2014	1		60.0		—
Subtotal			149		1,421.0		$	58
PE Investment II(6)	July 3, 2013	September 30, 2012	24		353.4		$	243	(6)
Total			173	(7)	$	1,774.4

____________________________________________________________

(1) On August 19, 2014, the Company, through a subsidiary, entered into a joint venture with a third party to source and invest in real estate private equity funds. For the year endedDecember 31, 2015, PE Investment VIII has not made any investments.

(2) Represents the net asset value (“NAV”) date on which the Company agreed to acquire the respective PE Investment.

(3) Includes an estimated amount of expected future contributions to funds and any deferred purchase price as of December 31, 2015. The actual amount of future contributions underlying the fund interests that may be called and funded by the Company could vary materially from the Company’s expectations.

(4) PE Investment III paid $39.8 million to the seller for all of the fund interests, or 50% of the June 30, 2013 NAV, and paid the remaining $39.8 million, or 50% of the June 30, 2013 NAV, in December 2015 to a third party.

(5) PE Investment XIV paid $50.2 million to the seller for all of the fund interests, or 50% of the December 31, 2014 NAV, and will pay the remaining $47.8 million in equal installments one year and two years after the initial closing date, respectively. Such amount is included in other liabilities on the consolidated balance sheets.

(6) In February 2016, the Company entered into an agreement to sell substantially all of its interest in PE Investment II for proceeds of $184.1 million, of which $145.1 million was received and the remaining is expected in March 2016 upon consent from the initial seller. In connection with the sale, the buyers will assume the Company’s $243 million portion of the deferred purchase price obligation of the PE Investment II joint venture upon consent of the PE II Seller.

(7) The total number of funds includes 28 funds held across multiple PE Investments.

	Carrying Value				Year Ended December 31, 2015						Year Ended December 31, 2014
PE Investment(1)(6)	December 31, 2015		December 31, 2014		Income(2)(3)		Distributions		Contributions		Income(3)		Distributions		Contributions
PE Investment I(4)	$	154.0	$	218.6	$	46.4	$	88.7	$	2.1	$	66.1	$	97.2	$	1.1
PE Investment II(4)(5)	186.2		231.6		39.8		119.4		42.9		57.7		115.9		6.0
PE Investment III	26.8		51.0		1.9		26.3		0.2		5.7		25.6		0.3
PE Investment IV	7.6		7.8		1.3		1.5		—		0.8		0.9		—
PE Investment V	7.7		8.0		1.8		2.1		—		1.1		4.9		—
PE Investment VI	75.3		86.3		11.6		23.6		1.0		5.8		10.8		1.3
PE Investment VII	30.2		42.7		8.0		20.6		0.1		3.7		15.6		0.2
PE Investment IX	129.2		174.6		30.2		76.8		0.9		8.3		55.9		4.7
PE Investment X	128.5		141.4		20.8		34.0		0.5		1.6		12.7		0.2
PE Investment XI	4.2		—		0.7		1.4		—		—		—		—
PE Investment XII	2.6		—		0.4		4.0		0.1		—		—		—
PE Investment XIII	287.4		—		30.8		193.4		8.8		—		—		—
PE Investment XIV	55.2		—		3.1		42.7		0.4		—		—		—
PE Investment XV	6.8		—		1.3		5.4		2.5		—		—		—
Total(5)	$	1,101.7	$	962.0	$	198.1	$	639.9	$	59.5	$	150.8	$	339.5	$	13.8

____________________________________________________________

(1) On August 19, 2014, the Company, through a subsidiary, entered into a joint venture with a third party to source and invest in PE Investments. For the year endedDecember 31, 2015, PE Investment VIII has not made any investments.

(2) Income is recorded gross of a current income tax expense of $11.8 million for the year endedDecember 31, 2015.

(3) Recorded in equity in earnings on the consolidated statement of operations. The year endedDecember 31, 2014 includes a reclassification between equity in earnings and income tax expense of $16.8 million to conform with the current period presentation.

(4) The Company recorded an unrealized loss of $33.2 million for the year endedDecember 31, 2015, of which $24.4 million, represented a partial reversal of an unrealized gain of $32.6 million recorded for the year endedDecember 31, 2014.

(5) Contributions for the year endedDecember 31, 2015 represents a payment of our portion of the deferred purchase price for PE Investment II.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(6) As of December 31, 2015, cash flow is expected through June 30, 2024, with a weighted average expected remaining life of 1.5 years.

.

	Year Ended December 31, 2013
PE Investment	Income(1)		Distributions		Contributions
PE Investment I	$	58.3	$	130.2	$	20.8
PE Investment II	30.5		104.9		11.6
PE Investment III	—		9.0		0.3
Total	$	88.8	$	244.1	$	32.7

____________________________________________________________

(1) Recorded in equity in earnings in the consolidated statement of operations. The year endedDecember 31, 2013 includes a reclassification between equity in earnings and income tax expense of $6.2 million to conform with the current period presentation.

Unconsolidated PE Investments

PE Investment I

In February 2013, the Company completed the initial closing (“PE I Initial Closing”) of PE Investment I which owns a portfolio of limited partnership interests in real estate private equity funds managed by institutional-quality sponsors. Pursuant to the terms of the agreement, at the PE I Initial Closing, the full purchase price was funded, excluding future capital commitments. Accordingly, the Company funded $282.1 million and NorthStar Real Estate Income Trust, Inc. (“NorthStar Income”) (together with the Company, the “NorthStar Entities”) funded $118.0 million. The NorthStar Entities have an aggregate ownership interest in PE Investment I of 51%, of which the Company owns 70.5%. The Company assigned its rights to the remaining 29.5% to a subsidiary of NorthStar Income. Teachers Insurance and Annuity Association of America (the “Class B Partner”) contributed its interests in 49 funds subject to the transaction in exchange for all of the Class B partnership interests in PE Investment I.

PE Investment I provides for all cash distributions on a priority basis to the NorthStar Entities as follows: (i) first, 85% to the NorthStar Entities and 15% to the Class B Partner until the NorthStar Entities receive a 1.5x multiple on all of their invested capital, including amounts funded in connection with future capital commitments; (ii) second, 15% to the NorthStar Entities and 85% to the Class B Partner until the Class B Partner receives a return of its then remaining June 30, 2012 capital; and (iii) third, 51% to the NorthStar Entities and 49% to the Class B Partner. All amounts paid to and received by the NorthStar Entities are based on each partner’s proportionate interest.

The Company guaranteed all of its funding obligations that may be due and owed under PE Investment I agreements directly to PE Investment I entities. The Company and NorthStar Income each agreed to indemnify the other proportionately for any losses that may arise in connection with the funding and other obligations as set forth in the governing documents in the case of a joint default by the Company and NorthStar Income. The Company and NorthStar Income further agreed to indemnify each other for all of the losses that may arise as a result of a default that is solely caused by the Company or NorthStar Income, as the case may be.

PE Investment II

In June 2013, the Company, NorthStar Income and funds managed by Goldman Sachs Asset Management (“Vintage Funds”) (each a “Partner”) formed joint ventures and entered into an agreement with Common Pension Fund E, a common trust fund created under New Jersey law (“PE II Seller”), to acquire a portfolio of limited partnership interests in 24 real estate private equity funds managed by institutional-quality sponsors. The aggregate reported NAV acquired was $910.0 million as of September 30, 2012. In February 2016, the Company entered in an agreement to sell substantially all of its interest in PE Investment II for proceeds of $184.1 million, of which $145.1 million was received with the remaining expected in March 2016 upon consent from PE II Seller. In connection with the sale, the buyers, including NorthStar Income, will assume the Company’s $243 million portion of the deferred purchase price obligation of the PE Investment II joint venture upon receiving such consent.

6. Investments in Unconsolidated Ventures

The following is a description of investments in unconsolidated ventures. The investments in RXR Realty LLC (“RXR Realty”), Aerium Group (“Aerium”) and SteelWave, LLC (formerly known as Legacy Partners Commercial, LLC) (“SteelWave”) are accounted for at fair value due to the election of the fair value option (refer to Note 14). The investments in the NSAM Sponsored Companies (as defined below) were accounted for under the equity method prior to the NSAM Spin-off and are accounted for under the cost method subsequent to the NSAM Spin-off. All other investments in unconsolidated ventures are accounted for under the equity method.

The following table summarizes the Company’s investments in unconsolidated ventures as of December 31, 2015 and 2014 and for the years endedDecember 31, 2015, 2014 and 2013 (dollars in millions):

		Carrying Value				Equity in Earnings (Losses)
	Ownership	December 31,				Years Ended December 31,
Investment	Interest	2015		2014		2015		2014			2013
RXR Realty(1)	27%	$	89.3	$	90.0	$	16.0	$	8.0		$	—
Aerium(2)	15%	16.5		62.8		1.3		2.5			—
LandCap(3)	49%	7.7		10.8		0.8		0.7			0.5
SteelWave(4)	40%	6.8		5.0		1.9		0.4			—
CS/Federal(5)	50%	5.7		5.7		0.3		0.1			0.3
NSAM Sponsored Companies(6)	0.3% to 0.5%	14.0		11.5		0.3		0.3			0.6
NorthStar Realty Finance Trusts(7)	N/A	3.7		3.7		—		—			—
Multifamily Joint Venture(8)	90%	3.5		9.9		0.3		(0.3		)	(0.7		)
Other	Various	8.5		8.4		—		2.6			2.2
Total		$	155.7	$	207.8	$	20.9	$	14.3		$	2.9

___________________________________________________________

(1) In December 2013, the Company entered into a strategic transaction with RXR Realty, a leading real estate owner, developer and investment management company focused on high-quality real estate in the New York Tri-State area. The Company’s equity interest in RXR Realty is structured so that NSAM is entitled to certain fees in connection with RXR Realty’s investment management business.  Refer to Note 10. “Related Party Arrangements - NorthStar Asset Management Group - Management Agreement” for further disclosure.

(2) Aerium is a pan-European real estate investment manager specializing in commercial real estate properties. The Company recorded an unrealized loss on its interest in Aerium of $40.4 million for the year endedDecember 31, 2015. The Company’s equity interest in Aerium is structured so that NSAM is entitled to certain fees in connection with Aerium’s asset management business. Refer to Note 10. “Related Party Arrangements - NorthStar Asset Management Group - Management Agreement” for further disclosure.

(3) In October 2007, the Company entered into a joint venture with Whitehall Street Global Real Estate Limited Partnership 2007 (“Whitehall”) to form LandCap Partners and LandCap LoanCo. (collectively referred to as “LandCap”). The joint venture is managed by a third-party management group. The Company and Whitehall agreed to no longer provide additional new investment capital in the LandCap joint venture.

(4) In September 2014, the Company entered into an investment with SteelWave, a real estate investment manager, owner and operator with a portfolio of commercial assets focused in key markets in the western United States.

(5) CS Federal Drive, LLC (“CS/Federal”) owns three adjacent class A office/flex buildings in Colorado. The properties were acquired for $54.3 million and were financed with two separate non-recourse mortgages totaling $38.0 million and the remainder in cash. The mortgages matured on February 11, 2016 and the Company is currently in negotiations with the lender. The mortgages have a fixed interest rate of 5.51% and 5.46%, respectively.

(6) Affiliates of NSAM also manage the Company’s previously sponsored companies: NorthStar Income, NorthStar Healthcare and NorthStar Real Estate Income II, Inc. (“NorthStar Income II”) and together with any new sponsored company (herein collectively referred to as the “NSAM Sponsored Companies”).

(7) The Company owns all of the common stock of NorthStar Realty Finance Trusts I through VIII (collectively, the “Trusts”). The Trusts were formed to issue trust preferred securities. Refer to Note 17 for further disclosure.

(8) In July 2013, the Company through a joint venture with a private investor, acquired a multifamily property with 498 units, located in Philadelphia, Pennsylvania for an aggregate purchase price of $41.0 million, including all costs, escrows and reserves. The property was financed with a non-recourse mortgage note of $29.5 million and the remainder in cash. In April 2015, the property obtained additional non-recourse financing of $7.0 million. Both financings mature on July 1, 2023 and have a weighted average fixed interest rate of 3.87%. The joint venture is exploring the sale of the property.

NSAM Sponsored Companies

The Company committed to purchase up to $10 million in shares of each of NSAM’s Sponsored Companies’ common stock during the two year period from when each offering was declared effective through the end of their respective offering period, in the event that NSAM Sponsored Companies’ distributions to its stockholders, on a quarterly basis, exceeds its modified funds from operations (as defined in accordance with the current practice guidelines issued by the Investment Program Association).

In connection with the Company’s commitment to purchase shares of the NSAM Sponsored Companies, the Company acquired an aggregate of $15.2 million of shares of NorthStar Income, NorthStar Healthcare and NorthStar Income II through December 31, 2015. In addition, pursuant to the management agreement with NSAM, the Company committed up to $10 million to invest as distribution support consistent with past practice in each future public non-traded NSAM Sponsored Company, up to a total of five new companies per year.

The Company has committed to invest as distribution support in the following NSAM Sponsored Companies:

• NorthStar/RXR New York Metro Real Estate, Inc. - In October 2015, NorthStar/RXR New York Metro Real Estate, Inc. (“NorthStar/RXR New York Metro”) filed an amended registration statement with the SEC, seeking to offer an additional class of common shares related to its $2 billion public offering. In December 2015, the Company and RXR Realty satisfied NorthStar/RXR New York Metro’s minimum offering amount as a result of the purchase of 0.2 million shares of its common stock for an aggregate $2.0 million. NSAM began raising capital for NorthStar/RXR New York Metro in the beginning of 2016.

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• NorthStar Corporate Fund - In October 2015, NorthStar Corporate Income Fund (“NorthStar Corporate Fund”) filed an amended registration statement on Form N-2 with the SEC seeking to raise up to $3 billion in a public offering of common stock. Subsequent to year end, NorthStar Corporate Fund was declared effective by the SEC and expects to begin raising capital in early 2016.

• NorthStar Capital Fund - In October 2015, NorthStar Real Estate Capital Income Fund filed its registration statement on Form N-2 with the SEC seeking to raise up to $3 billion in a public offering of common stock.

• NorthStar Corporate Investment - In June 2015, NorthStar Corporate Investment, Inc. confidentially submitted an amended registration statement on Form N-2 to the SEC seeking to raise up to $1 billion in a public offering of common stock.

Summarized Financial Information

The combined balance sheets for the unconsolidated ventures, including PE Investments and excluding unconsolidated ventures accounted for under the cost method, as of December 31, 2015 and 2014 are as follows (dollars in thousands):

	As of December 31,
	2015		2014
Assets
Total assets	$	8,821,784	$	6,067,438
Liabilities and equity
Total liabilities	$	3,071,593	$	3,045,171
Equity(1)	5,750,191		3,022,267
Total liabilities and equity	$	8,821,784	$	6,067,438

________________________________________________________

(1) Includes non-controlling interest of $749.7 million and $944.7 million as of December 31, 2015 and 2014, respectively.

The combined statements of operations for the unconsolidated ventures, including PE Investments and excluding unconsolidated ventures accounted for under the cost method, from acquisition date through the three years ended December 31, 2015 are as follows (dollars in thousands):

	Years Ended December 31,
	2015(1)		2014		2013
Total revenues	$	1,287,014	$	907,519	$	322,944
Net income	781,196		443,158		180,537

___________________________________________________________

(1) Includes summarized financial information for PE Investments for the nine months ended September 30, 2015, which is the most recent financial information available from the underlying funds.

NSAM Sponsored Companies and certain PE Investments, for which the Company has elected the fair value option, are accounted for under the cost method. As of December 31, 2015 and 2014 the aggregate carrying value of such cost method investments was $234 million and $288 million, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Real Estate Securities, Available for Sale

The following table presents CRE securities as of December 31, 2015 (dollars in thousands):

						Cumulative Unrealized							Allocation by		Weighted		Weighted
	Number	Principal  Amount(3)		Amortized Cost		Gains		(Losses)			Fair Value		Investment Type(3)		Average Coupon		Average Yield(4)
Asset Type:
N-Star CDO bonds(1)(8)	26	$	401,848	$	194,908	$	24,332	$	(2,513	)	$	216,727	31.3	%	1.98	%	22.01	%
N-Star CDO equity(5)(8)	4	71,003		71,003		1,290		(27,388		)	44,905		5.5	%	NA		12.41	%
CMBS and other securities(6)	15	116,681		61,520		15,340		(21,295		)	55,565		9.1	%	2.15	%	5.52	%
Subtotal(2)	45	589,532		327,431		40,962		(51,196		)	317,197		45.9	%	2.01	%	16.83	%
CRE securities in N-Star CDOs(5)(7)
CMBS	123	538,205		398,343		31,244		(103,076		)	326,511		41.9	%	3.48	%	10.13	%
Third-party CDO notes	8	55,509		50,047		—		(43,362		)	6,685		4.4	%	0.01	%	—	%
Agency debentures	8	87,172		31,774		6,384		(842		)	37,316		6.8	%	—		4.57	%
Unsecured REIT debt	1	8,000		8,285		691		—			8,976		0.6	%	7.50	%	5.88	%
Trust preferred securities	2	7,225		7,225		—		(1,800		)	5,425		0.4	%	2.25	%	2.32	%
Subtotal	142	696,111		495,674		38,319		(149,080		)	384,913		54.1	%	2.80	%	8.56	%
Total	187	$	1,285,643	$	823,105	$	79,281	$	(200,276	)	$	702,110	100.0	%	2.46	%	11.85	%

____________________________________________________________

(1) Excludes $142.9 million principal amount of N-Star CDO bonds payable that are eliminated in consolidation.

(2) All securities are unleveraged. Subsequent to year end, the Company sold certain N-Star CDO bonds and CRE securities for $53.9 million of net proceeds.

(3) Based on amortized cost for N-Star CDO equity and principal amount for remaining securities.

(4) Based on expected maturity and for floating-rate securities, calculated using the applicable LIBOR as of December 31, 2015.

(5) The fair value option was elected for these securities (refer to Note 14).

(6) The fair value option was elected for $48.7 million carrying value of these securities (refer to Note 14).

(7) Investments in the same securitization tranche held in separate CDO financing transactions are reported as separate investments.

(8) As of December 31, 2015, excluding the sales of N-Star CDO bonds subsequent to year end, the weighted average remaining life of the N-Star CDO bonds and N-Star CDO equity is 2.0 years and 3.2 years, respectively.

The Company sponsored nine CDOs, three of which were primarily collateralized by CRE debt and six of which were primarily collateralized by CRE securities. The Company acquired equity interests of two CRE debt focused CDOs, the CSE RE 2006-A CDO (“CSE CDO”) and the CapLease 2005-1 CDO (“CapLease CDO”) sponsored by third parties. These CDOs are collectively referred to as the N-Star CDOs and their assets are referred to as legacy investments. All N-Star CDOs are considered VIEs (refer to Note 17). At the time of issuance of the sponsored CDOs, the Company retained the below investment grade bonds, which are referred to as subordinate bonds, and preferred shares and equity notes, which are referred to as equity interests. In addition, the Company repurchased CDO bonds originally issued to third parties at discounts to par. These repurchased CDO bonds and retained subordinate bonds are herein collectively referred to as N-Star CDO bonds.

In September 2015, N-Star CDO IV was liquidated and the third-party senior bondholders of N-Star CDO IV were re-paid in full. In connection with the liquidation, the Company purchased one CMBS for $5.8 million from N-Star CDO IV at fair value. Additionally, the Company received $41.0 million from its equity interest in N-Star CDO IV, resulting in a net realized gain of $9.4 million, a portion of which related to equity distributions that would have been received had N-Star CDO IV not been liquidated.

As of December 31, 2015, the Company’s CRE securities portfolio is comprised of N-Star CDO bonds and N-Star CDO equity and other securities which are predominantly conduit commercial mortgage-backed securities (“CMBS”), meaning each asset is a pool backed by a large number of commercial real estate loans. As a result, this portfolio is typically well-diversified by collateral type and geography. As of December 31, 2015, excluding the sales of CRE securities subsequent to year end, contractual maturities of CRE securities investments ranged from five months to 37 years, with a weighted average expected maturity of 3.6 years.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents CRE securities as of December 31, 2014 (dollars in thousands):

						Cumulative Unrealized							Allocation by		Weighted		Weighted
	Number	Principal Amount(3)		Amortized Cost		Gains		Losses			Fair Value		Investment Type(3)		Average Coupon		Average Yield(4)
Asset Type:
N-Star CDO bonds(1)	32	$	461,974	$	205,463	$	58,116	$	(1,270	)	$	262,309	30.1	%	1.83	%	24.13	%
N-Star CDO equity(5)	5	137,143		137,143		522		(35,198		)	102,467		8.9	%	NA		18.21	%
CMBS and other securities(6)	15	119,089		64,616		12,241		(24,934		)	51,923		7.8	%	2.48	%	5.51	%
Subtotal(2)	52	718,206		407,222		70,879		(61,402		)	416,699		46.8	%	1.97	%	19.18	%
CRE securities in N-Star CDOs(5)(7)
CMBS	144	636,035		458,186		50,432		(125,751		)	382,867		41.5	%	3.69	%	9.96	%
Third-party CDO notes	10	76,253		68,821		—		(45,603		)	23,218		5.1	%	0.26	%	1.32	%
Agency debentures	8	87,172		30,371		10,164		(6		)	40,529		5.7	%	—		4.56	%
Unsecured REIT debt	1	8,000		8,396		955		—			9,351		0.5	%	7.50	%	5.88	%
Trust preferred securities	2	7,225		7,225		—		(1,373		)	5,850		0.4	%	2.25	%	2.32	%
Subtotal	165	814,685		572,999		61,551		(172,733		)	461,815		53.2	%	3.00	%	8.48	%
Total	217	$	1,532,891	$	980,221	$	132,430	$	(234,135	)	$	878,514	100.0	%	2.57	%	12.92	%

_________________________________________________________

(1) Excludes $108.0 million principal amount of N-Star CDO bonds payable that are eliminated in consolidation.

(2) All securities are unleveraged.

(3) Based on amortized cost for N-Star CDO equity and principal amount for remaining securities.

(4) Based on expected maturity and for floating-rate securities, calculated using the applicable LIBOR as of December 31, 2014.

(5) The fair value option was elected for these securities (refer to Note 14).

(6) The fair value option was elected for $42.6 million carrying value of these securities (refer to Note 14).

(7) Investments in the same securitization tranche held in separate CDO financing transactions are reported as separate investments.

For the year endedDecember 31, 2015, proceeds from the sale of CRE securities was $95.7 million resulting in a net realized gain of $14.1 million. For the year endedDecember 31, 2014, proceeds from the sale of CRE securities was $94.8 million resulting in a net realized gain of $22.4 million. For the year endedDecember 31, 2013, proceeds from the sale of CRE securities was $224.0 million resulting in a net realized gain of $35.4 million, which includes proceeds related to the liquidation of N-Star CDO II.

CRE securities investments, not held in N-Star CDOs, include 28 securities for which the fair value option was not elected. As of December 31, 2015, the aggregate carrying value of these securities was $223.7 million, representing $21.9 million of accumulated net unrealized gains included in OCI. As of December 31, 2015, the Company held 23 securities with an aggregate carrying value of $111.9 million with an unrealized loss of $2.5 million, one of which was in an unrealized loss position for a period of greater than 12 months. Based on management’s quarterly evaluation, the Company recorded OTTI of $4.0 million and $1.6 million for the years endedDecember 31, 2015 and 2014, which was recorded in realized gain (loss) on investments and other in the consolidated statements of operations. As of December 31, 2015, the Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell these securities prior to recovery of its amortized cost basis, which may be at maturity.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Borrowings

The following table presents borrowings as of December 31, 2015 and 2014 (dollars in thousands):

				December 31, 2015				December 31, 2014
	Recourse vs. Non-Recourse	Final Maturity	Contractual Interest Rate(1)(2)	Principal Amount		Carrying Value(3)		Principal Amount		Carrying Value(3)
Mortgage and other notes payable:(4)
Healthcare
East Arlington, TX	Non-recourse	May-17	5.89%	$	3,101	$	3,101	$	3,157	$	3,149
Ohio Portfolio	Non-recourse	Jan-19	LIBOR + 5.00%	19,948		18,848		20,230		19,999
Lancaster, OH	Non-recourse	Jan-19	LIBOR + 5.00%	2,261		2,261		2,442		2,396
Wilkinson Portfolio	Non-recourse	Jan-19	6.99%	147,076		147,076		150,024		149,147
Tuscola/Harrisburg, IL	Non-recourse	Jan-19	7.09%	7,268		7,268		7,412		7,342
Formation Portfolio(5)	Non-recourse	May-19(6)/Jan-25	LIBOR + 4.25%(7)/4.54%	701,819		695,060		705,608		692,935
Minnesota Portfolio	Non-recourse	Nov-19	LIBOR + 3.50%	37,800		37,800		37,800		36,990
Griffin-American - U.K.(5)	Non-recourse	Dec-19(6)	LIBOR + 4.25%(7)	327,890		327,890		348,588		348,588
Griffin-American - U.S. - Fixed(5)	Non-recourse	Dec-19(6)/ Jun-25 / Dec-35	4.68%	1,763,036		1,652,238		1,750,000		1,678,706
Griffin-American - U.S. - Floating(5)	Non-recourse	Dec-19(6)	LIBOR + 3.15%(7)	854,565		854,565		868,797		868,797
Wakefield Portfolio	Non-recourse	April-20	LIBOR + 4.00%	54,694		53,816		54,751		54,675
Healthcare Preferred(8)	Non-recourse	Jul-21	LIBOR + 7.75%	75,000		75,000		75,000		75,000
Indiana Portfolio(8)	Non-recourse	Sept-21	LIBOR + 4.50%	121,130		121,130		121,130		121,130
Subtotal Healthcare/weighted average			4.53%(7)	4,115,588		3,996,053		4,144,939		4,058,854
Hotel
Innkeepers Portfolio(5)	Non-recourse	Jun-19(6)	LIBOR + 3.39%(7)	840,000		837,137		840,000		830,322
K Partners Portfolio(5)	Non-recourse	Aug-19(6)	LIBOR + 3.25%(7)	211,681		210,660		211,681		208,905
Courtyard Portfolio(5)	Non-recourse	Oct-19(6)	LIBOR + 3.05%(7)	512,000		509,554		512,000		506,292
Inland Portfolio(5)	Non-recourse	Nov-19(6)	LIBOR + 3.60%(7)	817,000		811,927		817,000		806,287
NE Portfolio(5)	Non-recourse	Jun-20(6)	LIBOR + 3.85%(7)	132,250		130,824		—		—
Miami Hotel Portfolio(5)	Non-recourse	Jul-20(6)	LIBOR + 3.90%(7)	115,500		113,833		—		—
Subtotal Hotel/weighted average			3.73%(7)	2,628,431		2,613,935		2,380,681		2,351,806
Manufactured housing communities
Manufactured Housing Portfolio 3	—	—	—	—		—		297,428		296,856
Manufactured Housing Portfolio 1	—	—	—	—		—		236,900		233,096
Manufactured Housing Portfolio 2	—	—	—	—		—		639,909		631,874
Subtotal Manufactured housing communities				—		—		1,174,237		1,161,826
Net lease
Fort Wayne, IN	—	—	—	—		—		2,909		2,869
Columbus, OH	—	—	—	—		—		21,934		21,910
Keene, NH	—	—	—	—		—		6,105		6,090
EDS Portfolio	—	—	—	—		—		42,738		42,675
Green Pond, NJ	Non-recourse	Apr-16	5.68%	15,486		15,481		15,799		15,778
Aurora, CO	Non-recourse	Jul-16	6.22%	30,175		30,169		30,720		30,702
DSG Portfolio	Non-recourse	Oct-16	6.17%	30,481		30,428		31,126		31,006
Indianapolis, IN	Non-recourse	Feb-17	6.06%	25,674		25,663		26,151		26,129
Milpitas, CA	Non-recourse	Mar-17	5.95%	18,827		18,807		19,459		19,420
Fort Mill, SC	Non-recourse	Apr-17	5.63%	27,700		27,675		27,700		27,655
Fort Mill, SC - Mezzanine	Non-recourse	Apr-17	6.21%	663		663		1,079		1,079
Industrial Portfolio(5)	Non-recourse	Jul-17/Dec-17	4.21%(7)	221,125		224,635		221,131		226,746
Salt Lake City, UT	Non-recourse	Sept-17	5.16%	12,646		12,555		13,181		13,037
South Portland, ME	Non-recourse	Jul-23	LIBOR + 2.15%(7)	3,241		3,190		3,597		3,534
Subtotal Net lease/weighted average			4.91%(7)	386,018		389,266		463,629		468,630

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

				December 31, 2015				December 31, 2014
	Recourse vs. Non-Recourse	Final Maturity	Contractual Interest Rate(1)(2)	Principal Amount		Carrying Value(3)		Principal Amount		Carrying Value(3)
Multifamily(9)
Memphis, TN	—	—	—	—		—		39,600		39,040
Southeast Portfolio	—	—	—	—		—		158,417		156,751
Scottsdale, AZ	—	—	—	—		—		46,538		45,905
Subtotal Multifamily				—		—		244,555		241,696
Multi-tenant Office
Legacy Properties(5)	Non-recourse	Nov-19/Feb-20(6)	LIBOR + 2.15%(7)	112,988		111,266		45,584		44,697
Subtotal Multi-tenant Office				112,988		111,266		45,584		44,697
Other
Secured borrowing	Non-recourse	May-23	LIBOR + 1.60%	54,056		54,056		—		—
Subtotal Other				54,056		54,056		—		—
Subtotal Mortgage and other notes payable(4)				7,297,081		7,164,576		8,453,625		8,327,509
Credit facilities and term borrowings:(10)
Corporate Revolver(11)	Recourse	Aug-17	LIBOR + 3.50%(7)	165,000		165,000		215,000		215,000
Corporate Term Borrowing	Recourse	Sept-17	4.60% / 4.55%(12)	425,000		417,039		425,000		412,717
Loan Facility	—	—	—	—		—		14,850		14,527
Loan Facility 1	Partial Recourse(13)	Mar-18(6)	2.95%(7)	72,053		70,665		77,930		76,515
Subtotal Credit facilities and term borrowings				662,053		652,704		732,780		718,759
CDO bonds payable:
N-Star I	Non-recourse	Aug-38	7.01%	10,869		10,814		15,020		14,504
N-Star IX	Non-recourse	Aug-52	LIBOR + 0.48%(7)	425,622		296,787		545,939		375,564
Subtotal CDO bonds payable—VIE				436,491		307,601		560,959		390,068
Securitization bonds payable:
Securitization 2012-1	—	—	—	—		—		41,831		41,746
Subtotal Securitization financing transaction				—		—		41,831		41,746
Exchangeable senior notes:
7.25% Notes	Recourse	Jun-27	7.25%	12,955		12,955		12,955		12,955
8.875% Notes	Recourse	Jun-32	8.875%	1,000		967		1,000		947
5.375% Notes	Recourse	Jun-33	5.375%	17,405		15,116		31,633		27,106
Subtotal Exchangeable senior notes				31,360		29,038		45,588		41,008
Junior subordinated notes:(14)
Trust I	Recourse	Mar-35	LIBOR + 3.25%(7)	41,240		29,033		41,240		32,992
Trust II	Recourse	Jun-35	LIBOR + 3.25%(7)	25,780		18,152		25,780		20,753
Trust III	Recourse	Jan-36	7.81%	41,238		27,003		41,238		32,784
Trust IV	Recourse	Jun-36	7.95%	50,100		33,446		50,100		39,830
Trust V	Recourse	Sept-36	LIBOR + 2.70%(7)	30,100		18,978		30,100		21,823
Trust VI	Recourse	Dec-36	LIBOR + 2.90%(7)	25,100		16,348		25,100		18,700
Trust VII	Recourse	Apr-37	LIBOR + 2.50%(7)	31,459		18,960		31,459		22,492
Trust VIII	Recourse	Jul-37	LIBOR + 2.70%(7)	35,100		21,973		35,100		25,798
Subtotal Junior subordinated notes				280,117		183,893		280,117		215,172
Subtotal				8,707,102		8,337,812		10,114,900		9,734,262
Borrowings of properties, held for sale:(4)
EDS Portfolio(9)	Non-recourse	Oct-15	5.37%	41,742		41,742		—		—
Manufactured Housing Communities(9)	Non-recourse	Dec-21 - Dec-25	4.32%(7)	1,274,643		1,262,726		—		—
Multifamily(9)	Non-recourse	Apr-23 - Jul-23	4.08%(7)	249,709		247,019		—		—
Senior Housing Portfolio(9)	Non-recourse	May-25	4.17%	648,211		644,486		—		—
Subtotal Borrowings of properties, held for sale				2,214,305		2,195,973		—		—
Grand Total				$	10,921,407	$	10,533,785	$	10,114,900	$	9,734,262

____________________________________________________________

(1) Refer to Note 15 for further disclosure regarding derivative instruments which are used to manage interest rate exposure.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(2) For borrowings with a contractual interest rate based on LIBOR, represents three-month LIBOR for the Wakefield Portfolio and one-month LIBOR for the other borrowings.

(3) Carrying value represents fair value with respect to CDO bonds payable and junior subordinated notes due to the election of the fair value option (refer to Note 14) and amortized cost, net of deferred financing costs for the other borrowings.

(4) Mortgage and other notes payable are subject to customary non-recourse carveouts.

(5) An aggregate principal amount of $6.6 billion is comprised of 22 senior mortgage notes totaling $5.1 billion and 16 mezzanine mortgage notes totaling $1.5 billion.

(6) Represents final maturity taking into consideration the Company’s extension options.

(7) Contractual interest rate represents a weighted average. For borrowings with variable interest rates, the weighted average includes the current LIBOR as of December 31, 2015.

(8) Represents borrowings in N-Star CDOs.

(9) The Company’s EDS Portfolio, manufactured housing portfolios, multifamily portfolio and Senior Housing Portfolio are classified as held for sale and associated borrowings are expected to be assumed by a buyer, and therefore, classified as liabilities of assets held for sale. In October 2015, the mortgage matured for the EDS Portfolio and the Company is currently in negotiations with the lender and is expected to give the property back to the lender.

(10) The difference between principal amount and carrying value, if any, represents deferred financing costs.

(11) Secured by collateral relating to a borrowing base comprised primarily of unlevered CRE debt, net lease and securities investments with a carrying value of $666.6 million as of December 31, 2015.

(12) Represents the respective fixed rate applicable to each borrowing under the Corporate Term Borrowing.

(13) Recourse solely with respect to certain types of loans as defined in the governing documents.

(14) Junior subordinated notes Trust II had a fixed interest rate through December 31, 2015 when it changed to floating rate. Trusts III and IV have a fixed interest rate until January 30, 2016 and June 30, 2016, respectively, when the rate will change to floating and reset quarterly to three-month LIBOR plus 2.83% to 2.80%, respectively.

The following table presents a reconciliation of principal amount to carrying value of the Company’s mortgage and other notes payable by asset class as of December 31, 2015 and 2014 (dollars in thousands):

	December 31, 2015									December 31, 2014
Asset Class:	Principal Amount		Discount (Premium), Net		Deferred Financing Costs, Net			Carrying Value		Principal Amount		Discount (Premium), Net			Deferred Financing Costs, Net			Carrying Value
Healthcare	$	4,115,588	$	12,801	$	(132,336	)	$	3,996,053	$	4,144,939	$	(4,650	)	$	(81,435	)	$	4,058,854
Hotel	2,628,431		—		(14,496		)	2,613,935		2,380,681		—			(28,875		)	2,351,806
Manufactured housing	—		—		—			—		1,174,237		2,288			(14,699		)	1,161,826
Net lease	386,018		4,389		(1,141		)	389,266		463,629		6,940			(1,939		)	468,630
Multifamily	—		—		—			—		244,555		—			(2,859		)	241,696
Multi-tenant office	112,988		—		(1,722		)	111,266		45,584		—			(887		)	44,697
Other	54,056		—		—			54,056		—		—			—			—
Total	$	7,297,081	$	17,190	$	(149,695	)	$	7,164,576	$	8,453,625	$	4,578		$	(130,694	)	$	8,327,509

The following table presents scheduled principal on borrowings, based on final maturity as of December 31, 2015 (dollars in thousands):

	Total		Mortgage and Other Notes Payable		CDO Bonds Payable		Credit Facilities and Term Borrowings		Exchangeable Senior Notes(1)		Junior Subordinated Notes		Borrowings of Properties, Held for Sale
Years ending December 31:
2016	$	143,155	$	87,534	$	—	$	—	$	—	$	—	$	55,621
2017	926,647		317,896		—		590,000		—		—		18,751
2018	124,801		11,154		—		72,053		12,955		—		28,639
2019	5,960,320		5,923,761		—		—		—		—		36,559
2020	389,906		350,510		—		—		1,000		—		38,396
Thereafter	3,376,578		606,226		436,491		—		17,405		280,117		2,036,339
Total	$	10,921,407	$	7,297,081	$	436,491	$	662,053	$	31,360	$	280,117	$	2,214,305

____________________________________________________________

(1) The 7.25% Notes, 8.875% Notes and 5.375% Notes have a final maturity date of June 15, 2027, June 15, 2032 and June 15, 2033, respectively. The above table reflects the holders’ repurchase rights which may require the Company to repurchase the 7.25% Notes, 8.875% Notes and 5.375% Notes on June 15, 2017, June 15, 2019 and June 15, 2023, respectively.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Credit Facilities and Term Borrowings

Corporate Borrowings

In August 2014, the Company obtained a corporate revolving credit facility (as amended, the “Corporate Revolver”) with certain commercial bank lenders, with a three-year term. The Corporate Revolver is secured by collateral relating to a borrowing base and guarantees by certain subsidiaries of the Company. In May 2015, the Company amended and restated the Corporate Revolver to substitute the Operating Partnership as the borrower, with the Company becoming a guarantor. The Operating Partnership must maintain at least $25.0 million of minimum liquidity based on the sum of unrestricted cash or cash equivalents and undrawn availability during the term of the Corporate Revolver. In February 2016, the Company amended the agreement and decreased the aggregate amount of the revolving commitment to $250 million, subject to certain conditions. Subsequent to year end, the Corporate Revolver was repaid and there is currently no outstanding balance.

In September 2014, the Company entered into a corporate term borrowing agreement (as amended, the “Corporate Term Borrowing”) with a commercial bank lender to establish term borrowings. In March 2015, the Company amended and restated the Corporate Term Borrowing to substitute the Operating Partnership as the borrower, with the Company becoming a guarantor. Borrowings may be prepaid at any time subject to customary breakage costs. In September and December 2014, the Company entered into a credit agreement providing for a term borrowing under the Corporate Term Borrowing in a principal amount of $275.0 million and $150.0 million, respectively, with a fixed interest rate of 4.60% and 4.55%, respectively, with each maturing on September 19, 2017. There is no available financing remaining under the Corporate Term Borrowing.

The Corporate Revolver and the Corporate Term Borrowing and related agreements contain representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of these types. As of December 31, 2015, the Company was in compliance with all of its financial covenants.

Loan Facility

In March 2013, a subsidiary of the Company entered into a master repurchase agreement (“Loan Facility 1”) of $200.0 million to finance first mortgage loans and senior interests secured by commercial real estate. In connection with Loan Facility 1, the Company entered into a guaranty agreement under which the Company guaranteed certain of the obligations under Loan Facility 1. Loan Facility 1 and related agreements contain representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of these types. More specifically, the Company must maintain at least $20.0 million in unrestricted cash or cash equivalents at all times during the term of Loan Facility 1. In addition, the Company has agreed to guarantee certain customary obligations under Loan Facility 1 if the Company or an affiliate of the Company engage in certain customary bad acts. As of December 31, 2015, the Company was in compliance with all of its financial covenants.

Currently, the Company has $38.8 million carrying value of loans financed with $25.2 million on Loan Facility 1.

During the initial term, Loan Facility 1 acts as a revolving credit facility that can be paid down as assets repay or are sold and re-drawn upon for new investments.

Senior Notes

In March 2014, $172.5 million principal amount of the 7.50% Notes were exchanged for $481.1 million principal amount of senior notes that matured on September 30, 2014 (the “2014 Senior Notes”). In connection with this exchange, the Company recorded a loss of $22.4 million in realized gain (loss) on investments and other in the consolidated statements of operations. On September 30, 2014, the Company repaid the 2014 Senior Notes in cash, including interest, in the amount of $488.3 million.

In July 2015, NorthStar Europe issued $340 million principal amount of 4.625% senior notes due December 2016 (“NRE Senior Notes”). The Company received aggregate net proceeds of $331 million, after deducting the underwriters’ discount and other expenses. NorthStar Europe loaned the Company the net proceeds from the issuance of the NRE Senior Notes, which were used for general corporate purposes, including, among other things, the funding of acquisitions, including the Trianon Tower and the repayment of the Company’s borrowings. The NRE Senior Notes are senior unsubordinated and unsecured obligations of NorthStar Europe and were deemed repaid upon completion of the NRE Spin-off. The Company and the Operating Partnership continue to guarantee payments on the NRE Senior Notes subsequent to the NRE Spin-off.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Exchangeable Senior Notes

In 2007, the Company issued $172.5 million of 7.25% exchangeable senior notes (“7.25% Notes”) which were offered in accordance with Rule 144A under the Securities Act of 1933, as amended (“Rule 144A”), of which $13.0 million remains outstanding as of December 31, 2015. The 7.25% Notes may be exchangeable upon the occurrence of specified events, and at any time on or after June 15, 2017, and prior to the close of business on the second business day immediately preceding the maturity date, into cash or common stock of the Company, or a combination thereof, if any, at the Company’s option. The exchange price as of December 31, 2015 was $24.14 per share.

In 2012, the Company issued $82.0 million of 8.875% exchangeable senior notes (“8.875% Notes”) which were offered in accordance with Rule 144A, of which $1.0 million remains outstanding as of December 31, 2015. The 8.875% Notes may be exchangeable upon the occurrence of specified events, and at any time on or after June 15, 2019, and prior to the close of business on the second business day immediately preceding the maturity date, into cash or common stock of the Company, or a combination thereof, if any, at the Company’s option. The exchange price as of December 31, 2015 was $8.10 per share.

In 2013, the Company issued $345.0 million of 5.375% exchangeable senior notes (“5.375% Notes”) which were offered in accordance with Rule 144A, of which $17.4 million remains outstanding as of December 31, 2015. The 5.375% Notes may be exchangeable upon the occurrence of specified events, and at any time on or after June 15, 2023, and prior to the close of business on the second business day immediately preceding the maturity date, into cash or common stock of the Company, or a combination thereof, if any, at the Company’s option. The exchange price as of December 31, 2015 was $13.67 per share. In 2015, $14.2 million principal amount of 5.375% Notes were exchanged for 0.8 million shares of common stock, after giving effect to the Reverse Split. In connection with these conversions, the Company recorded a loss of $1.3 million in realized gain (loss) on investments and other in the consolidated statements of operations for the year endedDecember 31, 2015. In January 2016, $0.6 million principal amount of the 5.375% Notes were exchanged for 0.1 million shares of common stock.

All of the Company’s outstanding exchangeable senior notes contain unconditional guarantees by the Company on an unsecured and unsubordinated basis.

The following table presents the components of outstanding exchangeable senior notes as of December 31, 2015 and 2014 (dollars in thousands):

	December 31, 2015							December 31, 2014
	Principal Amount		Unamortized Discount(1)			Carrying Value		Principal Amount		Unamortized Discount			Carrying Value
7.25% Notes	$	12,955	$	—		$	12,955	$	12,955	$	—		$	12,955
8.875% Notes	1,000		(33		)	967		1,000		(53		)	947
5.375% Notes	17,405		(2,289		)	15,116		31,633		(4,527		)	27,106
Total	$	31,360	$	(2,322	)	$	29,038	$	45,588	$	(4,580	)	$	41,008

______________________

(1) The remaining amortization period for the 8.875% Notes and 5.375% Notes is 3.5 years and 7.5 years, respectively.

As of December 31, 2015 and 2014, the aggregate carrying value of the equity components of the exchangeable senior notes is $13.5 million and $23.7 million, respectively, which is recorded as a component of additional paid-in capital. The following table presents the components of interest expense related to outstanding exchangeable senior notes for the years endedDecember 31, 2015, 2014 and 2013 (dollars in thousands):

	Interest and Amortization Expense
Years Ended	Interest Expense		Amortization Expense(1)		Total Interest Expense
2015	$	1,998	$	275	$	2,273
2014	15,812		7,542		23,354
2013	32,475		8,416		40,891

_________________________

(1) The effective interest rate of the 8.875% Notes and 5.375% Notes was 9.8% and 6.5% for the year endedDecember 31, 2015, respectively.

9. Spin-offs

Spin-off of Asset Management Business

Upon completion of the NSAM Spin-off, the asset management business of the Company is owned and operated by NSAM and the Company is externally managed by an affiliate of NSAM through a management contract with an initial term of 20 years.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Subsequent to the NSAM Spin-off, the Company continues to operate its CRE debt origination business. Most of the employees of the Company at the time of the NSAM Spin-off became employees of NSAM and executive officers, employees engaged in the Company’s loan origination business at the time of the NSAM Spin-off and certain other employees became co-employees of both the Company and NSAM. In connection with the NSAM Spin-off, the advisory agreements between the Company and each of the NSAM Sponsored Companies were terminated and affiliates of NSAM entered into new advisory agreements with each of the NSAM Sponsored Companies on substantially the same terms as those in effect at the time of the NSAM Spin-off. 

Spin-off of European Real Estate Business

On October 31, 2015, the Company completed the NRE Spin-off into a separate publicly-traded REIT, NorthStar Europe, in the form of the NRE Distribution. In connection with the NRE Distribution, each of the Company’s common stockholders received shares of NorthStar Europe’s common stock on a one-for-six basis, before giving effect to the Reverse Split. The Company contributed to NorthStar Europe approximately $2.6 billion of European real estate, at cost (excluding the Company’s European healthcare properties), comprised of 52 properties spanning across some of Europe’s top markets and $250 million of cash. NSAM manages NorthStar Europe pursuant to a long-term management agreement, on substantially similar terms as the Company’s management agreement with NSAM.

In connection with the NRE Spin-off, $2.8 billion of assets were transferred and $1.9 billion of liabilities were assumed by NRE. Such transaction costs were expensed by NRE upon completion of the spin-off and included legal, accounting, tax and other professional services and relocation and start-up costs. As of December 31, 2014, the carrying value of the assets and liabilities classified as assets and liabilities of discontinued operations related to NorthStar Europe and consisted of the following (dollars in thousands):

Assets
Operating real estate, net	$	89,288
Investment related deposits	58,647
Other assets	10,598
Total assets	$	158,533
Liabilities
Mortgage and other notes payable	$	75,562
Other liabilities	3,950
Total liabilities	79,512
Equity
NorthStar Europe stockholders’ equity	77,812
Non-controlling interests	1,209
Total equity	79,021
Total liabilities and equity	$	158,533

Summary

The following table presents a carve-out of revenues and expenses associated with NSAM and NRE and included in discontinued operations in the Company’s consolidated statements of operations (dollars in thousands):

	Years Ended December 31,
NSAM	2015(1)			2014(2)			2013(2)
Total revenues(3)	$	—		$	56,013		$	89,938
Total expenses(4)	—			63,216			90,343
NSAM income (loss) in discontinued operations	—			(7,203		)	(405		)
NorthStar Europe
Total revenues	89,600			1,647			—
Total expenses(5)(6)	205,406			38,050			—
Unrealized gain (loss) on investments and other	(10,812		)	—			—
Realized gain (loss) on investments and other	5			(170		)	—
Income (loss) before income tax benefit (expense) provision	(126,613		)	(36,573		)	—
Income tax benefit (expense)	18,070			—			—
NRE income (loss) in discontinued operations	(108,543		)	(36,573		)	—
Income (loss) from operating real estate in discontinued operations(6)	(11		)	(925		)	(8,356		)
Total income (loss) from discontinued operations	$	(108,554	)	$	(44,701	)	$	(8,761	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

___________________________________

(1) Represents ten months of total revenues and expenses of NorthStar Europe included in discontinued operations prior to the NRE Spin-off on October 31, 2015.

(2) Represents six months of total revenues and expenses of NSAM included in discontinued operations prior to the NSAM Spin-off on June 30, 2014 and a full year of activity for 2013.

(3) Includes asset management and other fee income from NSAM Sponsored Companies earned prior to the NSAM Spin-off and selling commissions and dealer manager fees earned by selling equity in the NSAM Sponsored Companies through NorthStar Securities. Additionally, revenues exclude the effect of any fees that NSAM began earning in connection with the management agreement with the Company upon completion of the NSAM Spin-off.

(4) Includes an allocation of indirect expenses of the Company to NSAM related to managing the NSAM Sponsored Companies and owning NorthStar Securities, including salaries, equity-based compensation and other general and administrative expenses (primarily occupancy and other costs) based on an estimate had the asset management business been run as an independent entity.

(5) Includes $109.5 million and $27.5 million of transaction costs related to acquisitions for the years endedDecember 31, 2015 and 2014, respectively.

(6) Includes $42.4 million and $0.5 million of depreciation and amortization for the years endedDecember 31, 2015 and 2014, respectively.

(7) Represents an asset held for sale as of December 31, 2014 which was given back to the lender in 2015.

The following table presents certain data for operating real estate of discontinued operations related to NorthStar Europe and NSAM (dollars in thousands):

	Years Ended December 31,
	2015(1)			2014			2013
Depreciation and amortization	$	42,431		$	1,378		$	1,390
Amortization of equity-based compensation(1)	—			13,745			5,177
Unrealized gain (loss) on investments and other	(10,812		)	—			—
Realized gain (loss) on investments and other	5			(170		)	—
Acquisition of operating real estate	1,873,607			94,169			—
Improvements of operating real estate	1,286			82			—

___________________________________

(1) Represents an allocation to NSAM prior to the NSAM Spin-off for the six months ended June 30, 2014 and a full year for 2013.

10. Related Party Arrangements

NorthStar Asset Management Group

Management Agreement

Upon completion of the NSAM Spin-off, the Company entered into a management agreement with an affiliate of NSAM for an initial term of 20 years, which automatically renew for additional 20-year terms each anniversary thereafter unless earlier terminated. As asset manager, NSAM is responsible for the Company’s day-to-day operations, subject to the supervision of the Company’s board of directors. Through its global network of subsidiaries and branch offices, NSAM performs services and engages in activities relating to, among other things, investments and financing, portfolio management and other administrative services, such as accounting and investor relations, to the Company and its subsidiaries other than the Company’s CRE loan origination business. The management agreement with NSAM provides for a base management fee and incentive fee. The management contract with NSAM commenced on July 1, 2014, and as such, there were no management fees incurred for the six months ended June 30, 2014 and year endedDecember 31, 2013.

In connection with the NRE Spin-off, NorthStar Europe entered into a management agreement with NSAM with an initial term of 20 years on terms substantially consistent with the terms of the Company’s management agreement with NSAM. The Company’s management agreement with NSAM was amended and restated in connection with the NRE Spin-off to, among other things, adjust the annual base management fee and incentive fee hurdles for the NRE Spin-off.

Base Management Fee

For the year endedDecember 31, 2015, the Company incurred $190.0 million related to the base management fee. As of December 31, 2015, $47.4 million is recorded in due to related party on the consolidated balance sheets. For the six months ended December 31, 2014, the Company incurred $79.4 million related to the base management fee. The base management fee to NSAM will increase subsequent to December 31, 2015 by an amount equal to 1.5% per annum of the sum of:

• cumulative net proceeds of all future common equity and preferred equity issued by the Company;

• equity issued by the Company in exchange or conversion of exchangeable notes based on the stock price at the date of issuance;

• any other issuances by the Company of common equity, preferred equity or other forms of equity, including but not limited to LTIP Units in our Operating Partnership(excluding units issued to the Company and equity-based compensation, but including issuances related to an acquisition, investment, joint venture or partnership); and

• cumulative cash available for distribution (“CAD”) of the Company in excess of cumulative distributions paid on common stock, LTIP units or other equity awards beginning the first full calendar quarter after the NSAM Spin-off.

Additionally, the Company’s equity interest in RXR Realty and Aerium is structured so that NSAM is entitled to the portion of distributable cash flow from each investment in excess of the $10 million minimum annual base amount.

Incentive Fee

For the year endedDecember 31, 2015 and the six months ended December 31, 2014, the Company incurred $8.7 million and $3.3 million, respectively, related to the incentive fee. The incentive fee is calculated and payable quarterly in arrears in cash, equal to:

• the product of: (a) 15% and (b) the Company’s CAD before such incentive fee, divided by the weighted average shares outstanding for the calendar quarter, when such amount is in excess of $0.68 per share and up to $0.78 per share, after giving effect to the Reverse Split and the NRE Spin-off (“15% Hurdle”); plus

• the product of: (a) 25% and (b) the Company’s CAD before such incentive fee, divided by the weighted average shares outstanding for the calendar quarter, when such amount is in excess of $0.78 per share, after giving effect to the Reverse Split and the NRE Spin-off (“25% Hurdle”);

• multiplied by the Company’s weighted average shares outstanding for the calendar quarter.

In addition, NSAM may also earn an incentive fee from the Company’s healthcare investments in connection with NSAM’s Healthcare Strategic Partnership (refer to below).

Weighted average shares represents the number of shares of the Company’s common stock, LTIP Units or other equity-based awards (with some exclusions), outstanding on a daily weighted average basis. With respect to the base management fee, all equity issuances are allocated on a daily weighted average basis during the fiscal quarter of issuance. With respect to the incentive fee, such amounts will be appropriately adjusted from time to time to take into account the effect of any stock split, reverse stock split, stock dividend, reclassification, recapitalization or other similar transaction.

Additional Management Agreement Terms

If the Company were to spin-off any asset or business in the future, such entity would be managed by NSAM on terms substantially similar to those set forth in the management agreement between the Company and NSAM. The management agreement further provides that the aggregate base management fee in place immediately after any future spin-off will not be less than the aggregate base management fee in place at the Company immediately prior to such spin-off.

The Company’s management agreement with NSAM provides that in the event of a change of control of NSAM or other event that could be deemed an assignment of the management agreement, the Company will consider such assignment in good faith and not unreasonably withhold, condition or delay our consent.  The management agreement further provides that the Company anticipate consent would be granted for an assignment or deemed assignment to a party with expertise in commercial real estate and $10 billion of assets under management.  The management agreement also provides that, notwithstanding anything in the agreement to the contrary, to the maximum extent permitted by applicable law, rules and regulations, in connection with any merger, sale of all or substantially all of the assets, change of control, reorganization, consolidation or any similar transaction of us or NSAM, directly or indirectly, the surviving entity will succeed to the terms of the management agreement.

Payment of Costs and Expenses and Expense Allocation

The Company is responsible for all of its direct costs and expenses and will reimburse NSAM for costs and expenses incurred by NSAM on its behalf. In addition, NSAM may allocate indirect costs to the Company related to employees, occupancy and other general and administrative costs and expenses in accordance with the terms of, and subject to the limitations contained in, the Company’s management agreement with NSAM (the “G&A Allocation”).  The Company’s management agreement with NSAM provides that the amount of the G&A Allocation will not exceed the following: (i) 20% of the combined total of: (a) the Company’s and NorthStar Europe’s (the “NorthStar Listed Companies”) general and administrative expenses as reported in their consolidated financial statements excluding (1) equity-based compensation expense, (2) non-recurring items, (3) fees payable to NSAM under the terms of the applicable management agreement and (4) any allocation of expenses to the NorthStar Listed Companies (“NorthStar Listed Companies’ G&A”); and (b) NSAM’s general and administrative expenses as reported in its consolidated financial

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statements, excluding equity-based compensation expense and adding back any costs or expenses allocated to any managed company of NSAM; less (ii) the NorthStar Listed Companies’ G&A. The G&A Allocation may include the Company’s allocable share of NSAM’s compensation and benefit costs associated with dedicated or partially dedicated personnel who spend all or a portion of their time managing the Company’s affairs, based upon the percentage of time devoted by such personnel to the Company’s affairs. The G&A Allocation may also include rental and occupancy, technology, office supplies, travel and entertainment and other general and administrative costs and expenses also allocated based on the percentage of time devoted by personnel to the Company’s affairs. In addition, the Company will pay directly or reimburse NSAM for an allocable portion of any severance paid pursuant to any employment, consulting or similar service agreements in effect between NSAM and any of its executives, employees or other service providers.

In connection with the NRE Spin-off and the related agreements, the NorthStar Listed Companies’ obligations to reimburse NSAM for the G&A Allocation and any severance are shared among the NorthStar Listed Companies, at NSAM’s discretion, and the 20% cap on the G&A Allocation, as described above, applies on an aggregate basis to the NorthStar Listed Companies. NSAM currently determined to allocate these amounts based on assets under management.

For the year endedDecember 31, 2015 and the six months ended December 31, 2014, NSAM allocated $10.0 million, of which $1.4 million is recorded in discontinued operations related to NorthStar Europe, and $5.2 million, respectively, to the Company. As of December 31, 2015, $6.5 million is recorded in due to related party on the consolidated balance sheets.

In addition, the Company, together with NorthStar Europe and any company spun-off from the Company or NorthStar Europe, will pay directly or reimburse NSAM for up to 50% of any long-term bonus or other compensation that NSAM’s compensation committee determines shall be paid and/or settled in the form of equity and/or equity-based compensation to executives, employees and service providers of NSAM during any year. Subject to this limitation and limitations contained in any applicable management agreement between NSAM and NorthStar Europe or any company spun-off from the Company or NorthStar Europe, the amount paid by the Company, NorthStar Europe and any company spun-off from the Company or NorthStar Europe will be determined by NSAM in its discretion. At the discretion of NSAM’s compensation committee, this compensation may be granted in shares of the Company’s restricted stock, restricted stock units, LTIP Units or other forms of equity compensation or stock-based awards; provided that if at any time a sufficient number of shares of the Company’s common stock are not available for issuance under the Company’s equity compensation plan, such compensation shall be paid in the form of RSUs, LTIP Units or other securities that may be settled in cash. The Company’s equity compensation for each year may be allocated on an individual-by-individual basis at the discretion of the NSAM compensation committee and, as long as the aggregate amount of the equity compensation for such year does not exceed the limits set forth in the management agreement, the proportion of any particular individual’s equity compensation may be greater or less than 50%.

The Company was responsible for paying approximately 50% of the 2014 long-term bonuses earned under the NorthStar Asset Management Group Inc. Executive Incentive Bonus Plan (“NSAM Bonus Plan”). Long-term bonuses were paid to executives in the form of equity-based awards of both the Company and NSAM, subject to performance-based and time-based vesting conditions over the four-year performance period from January 1, 2014 through December 31, 2017. The long-term bonuses paid in the form of equity-based awards of the Company were adjusted for the NRE Spin-off and Reverse Split in the same manner as all other equity-based awards of the Company.

Investment Opportunities

Under the management agreement, the Company agreed to make available to NSAM for the benefit of NSAM and its managed companies, including the Company, all investment opportunities sourced by the Company. NSAM agreed to fairly allocate such opportunities among NSAM’s managed companies, including the Company and NSAM in accordance with an investment allocation policy. Pursuant to the management agreement, the Company is entitled to fair and reasonable compensation for its services in connection with any loan origination opportunities sourced by the Company, which may include first mortgage loans, subordinate mortgage interests, mezzanine loans and preferred equity interests, in each case relating to commercial real estate. Inception to date, the Company earned $3.0 million from NSAM, recorded in other revenue, for services in connection with loan origination opportunities, which represents $1.4 million for the year ended December 31, 2015 and $1.6 million for the six months ended December 31, 2014.

NSAM provides services with regard to such areas as payroll, human resources and employee benefits, financial systems management, treasury and cash management, accounts payable services, telecommunications services, information technology services, property management services, legal and accounting services and various other corporate services to the Company as it relates to its loan origination business for CRE debt.

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Credit Agreement

In connection with the NSAM Distribution, the Company entered into a revolving credit agreement with NSAM pursuant to which the Company makes available to NSAM, on an “as available basis,” up to $250 million of financing with a maturity of June 30, 2019 at LIBOR plus 3.50%. The revolving credit facility is unsecured. NSAM expects to use the proceeds for general corporate purposes, including potential future acquisitions.  In addition, NSAM may use the proceeds to acquire assets on behalf of its managed companies, including the Company, that it intends to allocate to such managed company but for which such managed company may not then have immediately available funds. The terms of the revolving credit facility contain various representations, warranties, covenants and conditions, including the condition that the Company’s obligation to advance proceeds to NSAM is dependent upon the Company and its affiliates having at least $100 million of either unrestricted cash and cash equivalents or amounts available under committed lines of credit, after taking into account the amount NSAM seeks to draw under the facility. As of December 31, 2015, the Company has not funded any amounts to NSAM in connection with this agreement.

Healthcare Strategic Joint Venture

In January 2014, NSAM entered into a long-term strategic partnership with James F. Flaherty III, former Chief Executive Officer of HCP, Inc., focused on expanding the Company’s healthcare business into a preeminent healthcare platform (“Healthcare Strategic Partnership”). In connection with the partnership, Mr. Flaherty oversees and seeks to grow both the Company’s healthcare real estate portfolio and the portfolio of NorthStar Healthcare. In connection with entering into the partnership, the Company granted Mr. Flaherty certain RSUs (refer to Note 11). The Healthcare Strategic Partnership is entitled to incentive fees ranging from 20% to 25% above certain hurdles for new and existing healthcare real estate investments held by the Company. For the years endedDecember 31, 2015 and 2014, the Company did not incur any incentive fees related to the Healthcare Strategic Partnership.

N-Star CDOs

The Company earns certain collateral management fees from the N-Star CDOs primarily for administrative services. Such fees are recorded in other revenue in the consolidated statements of operations. For the years endedDecember 31, 2015, 2014 and 2013, the Company earned $5.2 million, $5.9 million and $11.1 million in fee income, respectively, of which $2.3 million, $2.6 million and $10.4 million were eliminated in consolidation. Prior to the third quarter 2013, all amounts were eliminated in consolidation as all of the N-Star CDOs were consolidated by the Company.

Additionally, the Company earns interest income from the N-Star CDO bonds and N-Star CDO equity in deconsolidated N-Star CDOs. For the years endedDecember 31, 2015, 2014 and 2013, the Company earned $57.5 million, $71.6 million and $11.7 million, respectively, of interest income from such investments in deconsolidated N-Star CDOs. Refer to Note 7 and Note 17 for additional disclosure regarding the N-Star CDOs.

Securitization 2012-1

The Company entered into an agreement with NorthStar Income that provided that both the Company and NorthStar Income receive the economic benefit and bear the economic risk associated with the investments each contributed into Securitization 2012-1, a securitization transaction entered into by the Company and NorthStar Income. In both cases, the respective retained equity interest of the Company and NorthStar Income is subordinate to interests of the investment-grade bondholders of Securitization 2012-1 and the investment-grade bondholders have no recourse to the general credit of the Company or NorthStar Income. In the event that either the Company or NorthStar Income suffer a complete loss of the retained equity interests in Securitization 2012-1, any additional losses would be borne by the remaining retained equity interests held by the Company or NorthStar Income, as the case may be, prior to the investment-grade bondholders. In January 2015, the securitization was repaid in full.

American Healthcare Investors

In December 2014, NSAM acquired a 43% interest in American Healthcare Investors LLC (“AHI”) and James F. Flaherty III, a strategic partner of NSAM, acquired a 12% interest in AHI. AHI is a healthcare-focused real estate investment management firm that co-sponsored and advised Griffin-American Healthcare REIT II, Inc. (“Griffin-American”), until Griffin-American was acquired by the Company and NorthStar Healthcare.  In connection with this acquisition, AHI provides certain management and related services, including property management, to NSAM, NorthStar Healthcare and the Company assisting NSAM in managing the current and future healthcare assets (excluding any joint venture assets) acquired by the Company and, subject to certain conditions, other NSAM managed companies. For the year endedDecember 31, 2015 and from acquisition date (December 8, 2014) to December 31, 2014, the Company incurred $1.7 million and $0.2 million, respectively, of property management fees to AHI, which are recorded in real estate properties—operating expenses in the consolidated statements of operations.

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Island Hospitality Management

In January 2015, NSAM acquired a 45% interest in Island Hospitality Management Inc. (“Island”). Island is a leading, independent select service hotel management company that currently manages 160 hotel properties, representing $4.1 billion of assets, of which 110 hotel properties are owned by the Company. Island provides certain asset management, property management and other services to the Company to assist in managing the Company’s hotel properties. Island receives a base management fee of 2.5% to 3.0% of the monthly revenue of the hotel properties it manages for the Company. For the period from NSAM’s acquisition date (January 9, 2015) to December 31, 2015, the Company incurred $16.6 million of base property management and other fees to Island, which are recorded in real estate properties—operating expenses in the consolidated statements of operations.

NSAM purchase of common stock

In 2015, NSAM purchased 2.7 million shares of the Company in the open market for $49.9 million.

Recent Sales or Commitments to Sell to NSAM Sponsored Companies

Subsequent to year end, the Company sold or entered into agreements to sell certain assets to NSAM Sponsored Companies:

• In February 2016, the Company entered into an agreement to sell substantially all of its 70% interest in PE Investment II to the existing owners of the remaining 30% interest, one the Vintage Funds which purchased approximately 80% of the interest sold and the other NorthStar Income which purchased the other approximate 20% of the interest sold. NorthStar Income paid $37.3 million for its respective interest. As part of the transaction, both buyers will assume the deferred purchase price obligation, on a pro rata basis, of the PE Investment II joint venture upon receiving consent from the PE II Seller.

• In February 2016, the Company entered into an agreement to sell its 60% interest in the Senior Housing Portfolio to NorthStar Healthcare, which owns the remaining 40% interest, for $535 million, subject to proration and adjustment. NorthStar Healthcare will assume the Company’s portion of the $648 million of mortgage borrowing as part of the transaction. The Company expects to receive approximately $150 million of net proceeds upon completion of the sale in March 2016.

• In February 2016, the Company sold a 49% interest in one loan with a total principal amount of $40.3 million to a third party, at par, with the remaining 51% interest sold to NorthStar Income II, also at par.

• In February 2016, the Company sold one CRE security with a carrying value of $12.5 million to NorthStar Income II.

The board of directors of each NSAM Sponsored Company, including all of the independent directors, approved each of the respective transactions after considering, among other matters, third-party pricing support.

11. Equity-Based Compensation

The Company has issued equity-based awards to directors, officers, employees, consultants and advisors pursuant to the NorthStar Realty Finance Corp. 2004 Omnibus Stock Incentive Plan (the “Stock Plan”) and the NorthStar Realty Executive Incentive Bonus Plan, as amended (the “Plan” and collectively the “NorthStar Realty Equity Plans”).

Prior to the NSAM Spin-off, the Company conducted substantially all of its operations and made its investments through an operating partnership which issued LTIP Units as equity-based compensation. Additionally, prior to the NSAM Spin-off, the Company completed an internal corporate reorganization whereby the Company collapsed its three tier holding company structure, including such operating partnership, into a single tier (the “Reorganization”). All of the vested and unvested equity-based awards granted by the Company prior to the NSAM Spin-off remain outstanding following the Reorganization and the NSAM Spin-off. Appropriate adjustments were made to all awards to reflect the Reorganization, the Reverse Split and the Spin-offs. Pursuant to the Reorganization, such LTIP Units were converted into an equal number of shares of common stock of the Company (refer to Note 13), which are referred to as restricted stock, and holders of such shares received an equal number of shares of NSAM’s common stock in connection with the NSAM Spin-off, all of which generally remain subject to the same vesting and other terms that applied prior to the NSAM Spin-off. In connection with the NSAM Spin-off, equity and equity-based awards relating to the Company’s common stock, such as RSUs and Deferred LTIP Units, were adjusted to also relate to an equal number of shares of NSAM’s common stock, but otherwise generally remain subject to the same vesting and other terms that applied prior to the NSAM Spin-off. Vesting conditions for outstanding awards have been adjusted to reflect the impact of NSAM in terms of employment for service based on awards and total stockholder return for performance-based awards with respect to periods after the NSAM Spin-off.

In connection with the formation of the Operating Partnership, the Operating Partnership issued LTIP Units to each holder of the Company’s outstanding Deferred LTIP Units, which were equity awards representing the right to receive either LTIP units in the

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Company’s successor operating partnership or, if such LTIP units were not available upon settlement of the award, shares of common stock of the Company, in settlement of such Deferred LTIP Units on a one for one basis in accordance with the terms of the outstanding Deferred LTIP Units. Conditioned upon minimum allocations to the capital account of the LTIP Unit for federal income tax purposes, each LTIP Unit will be convertible, at the election of the holder, into one common unit of limited partnership interest in the Operating Partnership (“OP Unit”). Each of the OP Units underlying these LTIP Units will be redeemable at the election of the OP Unit holder for: (i) cash equal to the then fair market value of one share of the Company’s common stock; or (ii) at the option of the Company in its capacity as general partner of the Operating Partnership, one share of the Company’s common stock. LTIP Units issued remain subject to the same vesting terms as the Deferred LTIP Units.

In connection with the NRE Spin-off, equity and equity-based awards relating to the Company’s common stock, such as RSUs, were adjusted to also relate to one share of NorthStar Europe common stock for each six shares of the Company’s common stock, but otherwise generally remain subject to the same vesting and other terms that applied prior to the NRE Spin-off. Appropriate adjustments were also made to all awards to reflect the Reverse Split.

Following the Spin-offs, the Company and the compensation committee of its board of directors (the “Committee”) continues to administer all awards issued under the NorthStar Realty Equity Plans but NSAM and NorthStar Europe are obligated to issue shares of their common stock or other equity awards of their subsidiaries or make cash payments in lieu thereof with respect to dividend or distribution equivalent obligations to the extent required by such awards previously issued under the NorthStar Realty Equity Plans. These awards will continue to be governed by the NorthStar Realty Equity Plans, as applicable, and shares of NSAM’s common stock or NorthStar Europe’s common stock issued pursuant to these awards will not be issued pursuant to, or reduce availability, under the NorthStar Realty Equity Plans.

All of the adjustments made in connection with the Reorganization, the Spin-offs and the Reverse Splits were deemed to be equitable adjustments pursuant to anti-dilution provisions in accordance with the terms of the NorthStar Realty Equity Plans. As a result, there was no incremental value attributed to these adjustments and these adjustments do not impact the amount recorded for equity-based compensation expense for the years endedDecember 31, 2015, 2014 and 2013.

The following summarizes the equity-based compensation plans and related expenses.

All share amounts and related information disclosed below have been retrospectively adjusted to reflect the Reverse Split.

NorthStar Realty Equity Plans

Omnibus Stock Incentive Plan

In September 2004, the board of directors of the Company adopted the Stock Plan, and such plan, as amended and restated, was further adopted by the board of directors of the Company on April 17, 2013 and approved by the stockholders on May 29, 2013. The Stock Plan provides for the issuance of stock-based incentive awards, including incentive stock options, non-qualified stock options, stock appreciation rights, shares of common stock of the Company, in the form of restricted stock and other equity-based awards such as LTIP Units or any combination of the foregoing. The eligible participants in the Stock Plan include directors, officers, employees, consultants and advisors of the Company.

As of December 31, 2015, 81,377 unvested shares of restricted stock issued under the Stock Plan were outstanding and 1,568,645 shares of common stock remained available for issuance pursuant to the Stock Plan, which includes shares reserved for issuance upon settlement of outstanding LTIP Units and RSUs, after giving effect to the Reverse Split. Holders of shares of restricted stock or LTIP Units are entitled to receive dividends or distributions with respect to the Company’s shares of restricted stock and vested and unvested LTIP Units for as long as such shares and LTIP Units remain outstanding.

Incentive Compensation Plan

In July 2009, the Committee approved the material terms of the Plan for the Company’s executive officers and other employees. Pursuant to the Plan, an incentive pool was established each calendar year through 2013. The size of the incentive pool was calculated as the sum of: (a) 1.75% of the Company’s “adjusted equity capital” for the year; and (b) 25% of the Company’s adjusted funds from operations, as adjusted, above a 9% return hurdle on adjusted equity capital. Payout from the incentive pool is or was subject to achievement of additional performance and/or time-based goals summarized below.

The portion of the incentive pool for the executive officers was divided into the following three separate incentive compensation components: (a) an annual cash bonus, tied to annual performance of the Company and paid prior to or shortly after completion of the year-end audit (“Annual Bonus”); (b) a deferred bonus, determined based on the same year’s performance, but paid 50% following the close of each of the first and second years after such incentive pool is determined, subject to the participant’s continued employment through each payment date (“Deferred Bonus”); and (c) a long-term incentive in the form of RSUs, LTIP Units and/

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or Deferred LTIP Units. RSUs are subject to the Company achieving cumulative performance hurdles and/or total stockholder return hurdles established by the Committee for a three- or four-year period, subject to the participant’s continued employment through the payment date. Upon the conclusion of the applicable performance period, each executive officer will receive a payout, if any, equal to the value of one share of common stock at the time of such payout, including the dividends paid with respect to a share of common stock following the first year of the applicable performance period, for each RSU actually earned (the “Long-Term Amount Value”). The Long-Term Amount Value, if any, other than the portion related to dividends paid, will be paid in the form of shares of common stock of the Company or LTIP Units in the Operating Partnership, to the extent available under the NorthStar Realty Equity Plans, or in cash to the extent shares of common stock of the Company or LTIP Units in the Operating Partnership are unavailable under the NorthStar Realty Equity Plans, and, pursuant to adjustments made in connection with the NSAM Spin-off and the NRE Spin-off, shares of NSAM’s common stock or LTIP Units in NSAM’s operating partnership and shares of NorthStar Europe’s common stock or LTIP Units in NorthStar Europe’s operating partnership (the “Long Term Amount Payout”). These performance-based RSUs were adjusted to refer to combined total stockholder return of the Company and NSAM with respect to periods after the NSAM Spin-off. These performance-based RSUs were again adjusted to refer to combined total stockholder return of the Company, NorthStar Europe and NSAM after the NRE Spin-off. Restricted stock or LTIP Units granted as a portion of the long-term incentive are subject to vesting based on continued employment during the performance period, but are not subject to performance-based vesting hurdles.

Under the Plan, for 2011, the Company issued 381,449 RSUs to executive officers, after giving effect to the Reverse Split, which were subject to vesting based on continued employment and achieving total stockholder return hurdles for the four-year period ended December 31, 2014. The grant date fair value was $4.32 per RSU, after giving effect to the Reverse Split, determined using a risk-free interest rate of 0.42%. As of December 31, 2014, the Company determined the performance hurdle was met which resulted in all of these RSUs vesting. To settle these RSUs, the Company issued 24,575 shares of common stock, net of the minimum statutory tax withholding requirements, on January 1, 2015, after giving effect to the Reverse Split and the Operating Partnership issued 334,871 LTIP Units, after giving effect to the Reverse Split. Under the Plan, for 2011, the Company also granted 381,449 LTIP Units to executive officers, after giving effect to the Reverse Split, which were subject to vesting in four annual installments ending on January 29, 2015, subject to the executive officer’s continued employment through the applicable vesting date, and were converted into shares of restricted stock pursuant to the Reorganization. The Company also granted 151,340 shares of restricted stock (net of forfeitures occurring through December 31, 2015), after giving effect to the Reverse Split, to certain non-executive employees, which were subject to vesting quarterly over three years beginning April 2012, subject to continued employment through the applicable vesting date.

Under the Plan, for 2012, the Company issued 352,418 RSUs to executive officers, after giving effect to the Reverse Split, which are subject to vesting based on continued employment and achieving total stockholder return hurdles for the four-year period ending December 31, 2015. The grant date fair value was $9.86 per RSU, after giving effect to the Reverse Split, determined using a risk-free interest rate of 0.44%. As of December 31, 2015, the Company determined the performance hurdle was met which resulted in all of these RSUs vesting. To settle these RSUs, the Company issued 158,191 shares of common stock, net of the minimum statutory tax withholding requirements, on January 4, 2016. Under the Plan, for 2012, the Company also granted 352,418 LTIP Units to executive officers, after giving effect to the Reverse Split, which were subject to vesting in four annual installments beginning on January 29, 2013, subject to the executive officer’s continued employment through the applicable vesting date, and were converted into shares of restricted stock pursuant to the Reorganization. The Company also granted 144,883 LTIP Units (net of forfeitures occurring through December 31, 2015), after giving effect to the Reverse Split, to certain non-executive employees which are subject to vesting quarterly over three years beginning April 2013, subject to continued employment through the applicable vesting date, and were converted into shares of restricted stock pursuant to the Reorganization.

Under the Plan, for 2013, the Company issued 250,184 RSUs to executive officers, after giving effect to the Reverse Split, which are subject to vesting based on continued employment and achieving total stockholder return hurdles for the four-year period ending December 31, 2016. The grant date fair value was $21.57 per RSU, after giving effect to the Reverse Split, determined using a risk-free interest rate of 0.63%. Under the Plan, for 2013, the Company also granted 250,184 Deferred LTIP Units to executive officers, after giving effect to the Reverse Split, which are subject to vesting in four annual installments beginning on January 29, 2014, subject to the executive officer’s continued employment through the applicable vesting date and 130,787 Deferred LTIP Units, after giving effect to the Reverse Split, which were subject to vesting based on continued employment through December 31, 2015. The Company also granted 137,330 Deferred LTIP Units (net of forfeitures occurring through December 31, 2015), after giving effect to the Reverse Split, to certain non-executive employees which were subject to vesting quarterly over three years beginning April 2014, subject to continued employment through the applicable vesting date. Such Deferred LTIP Units were subsequently settled as LTIP Units in the Operating Partnership or shares of restricted stock, which remain subject to the same vesting terms that applied to the Deferred LTIP Units.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NSAM Bonus Plan

In connection with the NSAM Bonus Plan, for 2014, approximately 31.65% of the long-term bonus was paid in Deferred LTIP Units and approximately 18.35% of the long-term bonus was paid by the Company by issuing RSUs. In connection with the long-term bonuses to be paid by the Company, in February 2015, the Company granted 519,115 Deferred LTIP Units to executive officers, after giving effect to the Reverse Split, of which 25% were vested upon grant and the remainder was subject to vesting in three equal annual installments beginning on December 31, 2015, subject to the executive officer’s continued employment through the applicable vesting dates. The Company also granted 292,438 RSUs to NSAM’s executive officers, after giving effect to the Reverse Split, subject to vesting based on continued employment and achieving total stockholder return hurdles for the four-year period ending December 31, 2017. The grant date fair value of such RSUs was $18.64 per RSU, after giving effect to the Reverse Split, determined using a risk-free interest rate of 1.00%. After the NRE Spin-off, these performance-based RSUs were adjusted to refer to combined total stockholder return of the Company and NorthStar Europe. In the first quarter 2015, the Company also granted 341,025 Deferred LTIP Units (net of forfeitures occurring through December 31, 2015), after giving effect to the Reverse Split, to certain of NSAM’s non-executive employees, with substantially similar terms to the executive awards subject to time based vesting conditions. Such Deferred LTIP Units were settled as LTIP Units in the Operating Partnership or shares of restricted stock, which remain subject to the same vesting terms that applied to the Deferred LTIP Units.

In connection with the NSAM Bonus Plan, for 2015, a portion of the long-term bonus was paid in restricted shares of common stock and a portion of the long-term bonus was paid by the Company by issuing RSUs. In connection with the 2015 long-term bonuses paid by the Company, in February 2016, the Company granted 1,006,006 restricted shares of common stock to NSAM’s executive officers, of which 25% were vested upon grant and the remainder is subject to vesting in equal installments on December 31, 2016, 2017 and 2018, subject to the recipient’s continued employment through the applicable vesting dates. In connection with the issuance of these shares, in February 2016, the Company retired 132,654 of the vested shares of common stock to satisfy the minimum statutory withholding requirements. In addition, in February 2016, the Company granted 583,261 RSUs to NSAM’s executive officers, which are subject to vesting based on the Company’s absolute total stockholder return, CAD and continued employment over the four-year period ending December 31, 2018. Following the determination of the number of these performance-based RSUs that vest, the Company will settle the vested RSUs by issuing an equal number shares of common stock (or, if shares are not then available, paying cash in an amount equal to the value of such shares) and the NSAM executives will be entitled to receive the distributions that would have been paid with respect to a share of common stock (for each RSU that vests) on or after January 1, 2015. In February 2016, the Company also granted 517,055 shares of common stock and/or RSUs to its Chief Executive Officer and certain of the Company’s and NSAM’s non-executive employees, with substantially similar terms to the executive awards subject to time-based vesting conditions.

Other Issuances

Healthcare Strategic Joint Venture

In connection with entering into the Healthcare Strategic Partnership, the Company granted Mr. Flaherty 250,000 RSUs on January 22, 2014, after giving effect to the Reverse Split, which vest on January 22, 2019, unless certain conditions are met. In connection with the Spin-offs, the RSUs granted to Mr. Flaherty were adjusted to also relate to shares of NSAM’s common stock and NorthStar Europe’s common stock. The RSUs are entitled to dividend equivalents prior to vesting and may be settled either in shares of common stock of the Company, NSAM and NorthStar Europe or in cash at the option of the Company.

Summary

Equity-based compensation expense for the year endedDecember 31, 2015 represents the Company’s equity-based compensation expense following the NSAM Spin-off. Equity-based compensation expense for the year endedDecember 31, 2014 represents: (i) the Company’s expense for the six months ended December 31, 2014 following the NSAM Spin-off; and (ii) the Company’s equity-based compensation expense for the six months ended June 30, 2014 after an allocation to NSAM related to our historical asset management business had it been run as an independent entity. Equity-based compensation expense for the year endedDecember 31, 2013 is prepared on the same basis as the six months ended June 30, 2014.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents equity-based compensation expense for the years ended December 31, 2015, 2014 and 2013 (dollars in thousands):

	Time-Based Awards						Performance-Based Awards						Total
	Years Ended December 31,						Years Ended December 31,						Years Ended December 31,
	2015		2014		2013		2015		2014		2013		2015		2014			2013
NorthStar Realty(1)	$	22,000	$	22,332	$	8,940	$	5,693	$	2,553	$	2,844	$	27,693	$	24,885		$	11,784
Allocation to NSAM(2)	—		6,800		3,928		—		6,945		1,249		—		13,745			5,177
Total	$	22,000	$	29,132	$	12,868	$	5,693	$	9,498	$	4,093	$	27,693	$	38,630	(3)	$	16,961

___________________________________________________________

(1) Includes equity-based compensation expense related to grants issued subsequent to the NSAM Spin-off by NorthStar Realty to employees of NorthStar Realty and NSAM in connection with NorthStar Realty’s obligation under the management agreement (refer to Note 10. Related Party Arrangements). In connection with this obligation, for the year ended December 31, 2015, NorthStar Realty recorded equity-based compensation expense of $12.9 million and $2.0 million of time-based awards and performance-based awards, respectively.

(2) Recorded in discontinued operations. The allocation to NSAM for 2014 is for equity-based compensation expense for the six months ended June 30, 2014 and a full year for 2013.

(3) Represents $28.0 million related to the NorthStar Realty Equity Plans and $10.6 million related to the NSAM Stock Plan.

The following table presents a summary of restricted stock and LTIP Units. The balance as of December 31, 2015 represents unvested shares of restricted stock and LTIP Units that are outstanding, whether vested or not (grants in thousands):

	Year Ended December 31, 2015
	Restricted Stock(2)		LTIP Units		Total Grants		Weighted Average Grant Price(2)
January 1, 2015	343		593		936		$	37.20
Granted	7		1,289		1,296		29.71
Converted to common stock	—		(3	)	(3	)	24.82
Forfeited	(1	)	(11	)	(12	)	28.26
Vesting of restricted stock	(268	)	—		(268	)	11.45
December 31, 2015(1)	81		1,868		1,949		$	35.83

____________________________________________________________

(1) Includes 81,377 shares of restricted stock and 1,868,251 LTIP Units as of December 31, 2015, after giving effect to the Reverse Split.

(2) Amounts have been retrospectively adjusted to reflect the Reverse Split.

As of December 31, 2015, equity-based compensation expense to be recognized over the remaining vesting period through August 2019 is $24.7 million, provided there are no forfeitures.

12. Stockholders’ Equity

Reverse Split

On November 1, 2015, the Company effected a Reverse Split of its common stock with any fractional shares settled in cash. As a result of the Reverse Split, common stock was reduced by dividing the par value prior to the Reverse Split by two (including retrospective adjustment of prior periods) with a corresponding increase to additional paid-in capital. The par value per share of common stock remained unchanged.

Share and per share amounts disclosed in the Company’s consolidated financial statements and the accompanying notes have been retrospectively adjusted to reflect the Reverse Split, including common stock outstanding, earnings per share and shares or units outstanding related to equity-based compensation, where applicable (refer to Note 11).

Common Stock

In February 2015, the Company issued the remaining 3.5 million shares of common stock, after giving effect to the Reverse Split, under the forward sale agreement entered into in 2014, for net proceeds of $122.2 million.

In March 2015, the Company issued 6.0 million shares of its common stock at a public offering price of $37.30 per share, after giving effect to the Reverse Split, and received net proceeds of $217.1 million. In connection with this offering, the Company entered into a forward sale agreement with a financial institution to issue an aggregate of 28.5 million shares of its common stock, after giving effect to the Reverse Split, subject to certain conditions. As of December 31, 2015, the Company issued 28.5 million

shares of common stock under this forward sale agreement, after giving effect to the Reverse Split, for net proceeds of $986.9 million.

Preferred Stock

The following table presents classes of cumulative redeemable preferred stock issued in a public offering and outstanding as of December 31, 2015 (dollars in thousands):

	Number of Shares	Amount(1)
Series A 8.75%	2,466,689	$	59,453
Series B 8.25%	13,998,905	323,757
Series C 8.875%(2)	5,000,000	120,808
Series D 8.50%(2)	8,000,000	193,334
Series E 8.75%(2)	10,000,000	241,766
Total	39,465,594	$	939,118

__________________________________

(1) 250 million shares have been authorized and all shares have a $0.01 par value. All preferred shares have a $25 per share liquidation preference.

(2) The Series C, D and E shares are currently not callable.    

Share Repurchase

In September 2015, the Company’s board of directors authorized the repurchase of up to $500 million of its outstanding common stock. The authorization expires in September 2016, unless otherwise extended by the Company’s board of directors. As of December 31, 2015, the Company repurchased 6.5 million shares of its common stock, after giving effect to the Reverse Split, for approximately $118.0 million, with $382.0 million remaining under the stock repurchase plan.

Dividend Reinvestment Plan

In April 2007, as amended effective January 1, 2012, the Company implemented a Dividend Reinvestment Plan (the “DRP”), pursuant to which it registered with the SEC and reserved for issuance 3,569,962 shares of its common stock, after giving effect to the Reverse Split. Pursuant to the amended terms of the DRP, stockholders are able to automatically reinvest all or a portion of their dividends for additional shares of the Company’s common stock. The Company expects to use the proceeds from the DRP for general corporate purposes. For the year endedDecember 31, 2015, the Company issued 7,146 shares of its common stock, after giving effect to the Reverse Split, pursuant to the DRP for gross proceeds of $0.2 million.

Dividends

The following table presents dividends declared (on a per share basis) for the years endedDecember 31, 2015, 2014 and 2013:

Common Stock(1)				Preferred Stock
					Dividend Per Share
Declaration Date	Dividend Per Share(2)			Declaration Date	Series A		Series B		Series C		Series D		Series E
2015
February 25(2)	$	0.80		January 30	$	0.54688	$	0.51563	$	0.55469	$	0.53125	$	0.54688
May 5(2)	$	0.80		May 5	$	0.54688	$	0.51563	$	0.55469	$	0.53125	$	0.54688
August 4	$	0.80		August 4	$	0.54688	$	0.51563	$	0.55469	$	0.53125	$	0.54688
November 3	$	0.75	(3)	October 28	$	0.54688	$	0.51563	$	0.55469	$	0.53125	$	0.54688
2014
February 26	$	1.00		January 29	$	0.54688	$	0.51563	$	0.55469	$	0.53125	N/A
May 7	$	1.00		May 7	$	0.54688	$	0.51563	$	0.55469	$	0.53125	N/A
August 6	$	1.00		August 6	$	0.54688	$	0.51563	$	0.55469	$	0.53125	$	0.54688
October 29	$	0.80	(3)	October 29	$	0.54688	$	0.51563	$	0.55469	$	0.53125	$	0.54688
2013
February 13	$	0.72		February 1	$	0.54688	$	0.51563	$	0.76424	N/A		N/A
May 1	$	0.76		May 1	$	0.54688	$	0.51563	$	0.55469	$	0.20660	N/A
July 31	$	0.80		July 31	$	0.54688	$	0.51563	$	0.55469	$	0.53125	N/A
October 30	$	0.84		October 30	$	0.54688	$	0.51563	$	0.55469	$	0.53125	N/A

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

______________________

(1) For the year endedDecember 31, 2015, 99% of distributions paid were a return of capital and 1% of distributions paid were ordinary income. For the year endedDecember 31, 2014, approximately 17% of distributions paid were ordinary income and 83% was a return of capital. For the year endedDecember 31, 2013, 100% of distributions paid were a return of capital.

(2) Adjusted for the Reverse Split effected on November 1, 2015.

(3) Represents the first dividend subsequent to the NRE Spin-off.

Earnings Per Share

The following table presents EPS for the years endedDecember 31, 2015, 2014 and 2013 (dollars and shares in thousands, except per share data):

	Years Ended December 31,
	2015			2014			2013
Numerator:
Net income (loss) attributable to NorthStar Realty Finance Corp. common stockholders	$	(327,497	)	$	(371,507	)	$	(137,453	)
Net income (loss) attributable to LTIP Units non-controlling interest	(3,206		)	(5,296		)	(5,571		)
Net income (loss) attributable to common stockholders and LTIP Units(1)	$	(330,703	)	$	(376,803	)	$	(143,024	)
Denominator:(2)(3)
Weighted average shares of common stock	174,873			98,036			52,954
Weighted average LTIP Units(1)	1,472			959			2,291
Weighted average shares of common stock and LTIP Units(2)	176,345			98,995			55,245
Earnings (loss) per share:(3)
Basic	$	(1.87	)	$	(3.79	)	$	(2.60	)
Diluted	$	(1.87	)	$	(3.79	)	$	(2.60	)

____________________________________________________________

(1) The EPS calculation takes into account LTIP Units, which receive non-forfeitable dividends from the date of grant, share equally in the Company’s net income (loss) and convert on a one-for-one basis into common stock.

(2) Excludes the effect of exchangeable senior notes, shares under the forward sale agreement, restricted stock and RSUs outstanding that were not dilutive as of December 31, 2015. These instruments could potentially impact diluted EPS in future periods, depending on changes in the Company’s stock price and other factors.

(3) Adjusted for the Reverse Split effected on November 1, 2015.

13. Non-controlling Interests

Operating Partnership

Non-controlling interests include the aggregate LTIP Units held by limited partners (the “Unit Holders”) in the Operating Partnership and the Company’s former operating partnership prior to the NSAM Spin-off. Net income (loss) attributable to this non-controlling interest is based on the weighted average Unit Holders’ ownership percentage of the Operating Partnership for the respective period. The issuance of additional common stock or LTIP Units changes the percentage ownership of both the Unit Holders and the Company. Since an LTIP Unit is generally redeemable for cash or common stock at the option of the Company, it is deemed to be equivalent to common stock. Therefore, such transactions are treated as capital transactions and result in an allocation between stockholders’ equity and non-controlling interests on the accompanying consolidated balance sheets to account for the change in the ownership of the underlying equity in the Operating Partnership. On a quarterly basis, the carry value of such non-controlling interest is allocated based on the number of LTIP Units held by Unit Holders in total in proportion to the number of LTIP Units in total plus the number of shares of common stock. In connection with the formation of the Operating Partnership in March 2015, the Company recorded a non-controlling interest of $18.7 million related to LTIP Units. As of December 31, 2015, LTIP Units of 1,868,251 were outstanding, after giving effect to the Reverse Split, representing a 1.0% ownership and non-controlling interest in the Operating Partnership. Net income (loss) attributable to the Operating Partnership non-controlling interest for the year endedDecember 31, 2015 was a net loss of $3.2 million. Net income (loss) attributable to the Company’s former operating partnership non-controlling interest for the six months ended June 30, 2014 was a loss of $5.3 million. Since the Operating Partnership was not formed until March 2015, there was no allocation of net income (loss) attributable to the Operating Partnership non-controlling interest for the six months ended December 31, 2014. Net income (loss) attributable to the Operating Partnership non-controlling interest for the year endedDecember 31, 2013 was a net loss of $5.6 million.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other

Other non-controlling interests represent third-party equity interests in ventures that are consolidated with the Company’s financial statements. Net income (loss) attributable to the other non-controlling interests for the years endedDecember 31, 2015, 2014 and 2013 was a net loss of $20.8 million, $17.6 million and $0.4 million, respectively.

The following table presents net income (loss) attributable to the Company’s common stockholders for the years endedDecember 31, 2015, 2014 and 2013 (dollars in thousands):

	Years Ended December 31,
	2015			2014			2013
Income (loss) from continuing operations	$	(219,780	)	$	(327,051	)	$	(129,394	)
Income (loss) from discontinued operations	(107,717		)	(44,456		)	(8,059		)
Net income (loss) attributable to NorthStar Realty Finance Corp. common stockholders	$	(327,497	)	$	(371,507	)	$	(137,453	)

14. Fair Value

Fair Value Measurement

The fair value of financial instruments is categorized based on the priority of the inputs to the valuation technique and categorized into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Financial assets and liabilities are recorded at fair value on the consolidated balance sheets and are categorized based on the inputs to the valuation techniques as follows:

Level 1. Quoted prices for identical assets or liabilities in an active market.

Level 2. Financial assets and liabilities whose values are based on the following:

(a) Quoted prices for similar assets or liabilities in active markets.

(b) Quoted prices for identical or similar assets or liabilities in non-active markets.

(c) Pricing models whose inputs are observable for substantially the full term of the asset or liability.

(d) Pricing models whose inputs are derived principally from or corroborated by observable market data for substantially the full term of the asset or liability.

Level 3. Prices or valuation techniques based on inputs that are both unobservable and significant to the overall fair value measurement.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following is a description of the valuation techniques used to measure fair value of assets and liabilities accounted for at fair value on a recurring basis and the general classification of these instruments pursuant to the fair value hierarchy.

PE Investments

The Company accounts for PE Investments at fair value which is determined based on a valuation model using assumptions for the timing and amount of expected future cash flow for income and realization events for the underlying assets in the funds and discount rate. This fair value measurement is generally based on unobservable inputs and, as such, is classified as Level 3 of the fair value hierarchy. The Company is not using the NAV (practical expedient) of the underlying funds for purposes of determining fair value.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Investments in Unconsolidated Ventures

The Company accounts for certain investments in unconsolidated ventures at fair value determined based on a valuation model using assumptions for the timing and amount of expected future cash flow for income and realization events for the underlying assets, discount rate and foreign currency exchange rates. Additionally, the Company accounts for certain CRE debt investments made in connection with certain investments in unconsolidated ventures at fair value, which is determined based on comparing the current yield to the estimated yield for newly originated loans with similar credit risk. These fair value measurements are generally based on unobservable inputs and, as such, are classified as Level 3 of the fair value hierarchy.

Real Estate Securities

N-Star CDO Bonds

The fair value of N-Star CDO bonds is determined using quotations from nationally recognized financial institutions that generally acted as underwriter for the transactions. These quotations are not adjusted and are generally based on a valuation model with observable inputs such as interest rate and other unobservable inputs for assumptions related to the timing and amount of expected future cash flow, discount rate, estimated prepayments and projected losses. The fair value of subordinate N-Star CDO bonds is determined using an internal price interpolated based on third-party prices of the more senior N-Star CDO bonds of the respective CDO. All N-Star CDO bonds are classified as Level 3 of the fair value hierarchy.

N-Star CDO Equity

The fair value of N-Star CDO equity is determined based on a valuation model using assumptions for the timing and amount of expected future cash flow for income and realization events for the underlying collateral of these CDOs and discount rate. This fair value measurement is generally based on unobservable inputs and, as such, is classified as Level 3 of the fair value hierarchy.

Other CRE Securities

Other CRE securities are generally valued using a third-party pricing service or broker quotations. These quotations are not adjusted and are based on observable inputs that can be validated, and as such, are classified as Level 2 of the fair value hierarchy. Certain CRE securities may be valued based on a single broker quote or an internal price which may have less observable pricing, and as such, would be classified as Level 3 of the fair value hierarchy. Management determines the prices are representative of fair value through a review of available data, including observable inputs, recent transactions as well as its knowledge of and experience in the market.

Derivative Instruments

Derivative instruments are valued using a third-party pricing service. These quotations are not adjusted and are generally based on valuation models with observable inputs such as interest rates and contractual cash flow, and as such, are classified as Level 2 of the fair value hierarchy. Derivative instruments are also assessed for credit valuation adjustments due to the risk of non-performance by the Company and derivative counterparties. Derivatives held in non-recourse CDO financing structures where, by design, the derivative contracts are senior to all the CDO bonds payable, there is no material impact of a credit valuation adjustment.

CDO Bonds Payable

CDO bonds payable are valued using quotations from nationally recognized financial institutions that generally acted as underwriter for the transactions. These quotations are not adjusted and are generally based on a valuation model with observable inputs such as interest rate and other unobservable inputs for assumptions related to the timing and amount of expected future cash flow, discount rate, estimated prepayments and projected losses. CDO bonds payable are classified as Level 3 of the fair value hierarchy.

Junior Subordinated Notes

Junior subordinated notes may be valued using quotations from nationally recognized financial institutions or an internal model. A quotation from a financial institution is not adjusted. The fair value is generally based on a valuation model with observable inputs such as interest rate and other unobservable inputs for assumptions related to the implied credit spread of the Company’s other borrowings and the timing and amount of expected future cash flow. Junior subordinated notes are classified as Level 3 of the fair value hierarchy.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Financial assets and liabilities recorded at fair value on a recurring basis are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following tables present financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2015 and 2014 by level within the fair value hierarchy (dollars in thousands):

	December 31, 2015
	Level 1		Level 2		Level 3			Total
Assets:
PE Investments	$	—	$	—	$	1,101,650		$	1,101,650
Investments in unconsolidated ventures(1)	—		—		120,392			120,392
Real estate securities, available for sale:
N-Star CDO bonds	—		—		216,727			216,727
N-Star CDO equity	—		—		44,905			44,905
CMBS and other securities	—		12,318		43,247			55,565
CRE securities in N-Star CDOs
CMBS	—		261,552		64,959			326,511
Third-party CDO notes	—		—		6,685			6,685
Agency debentures	—		37,316		—			37,316
Unsecured REIT debt	—		8,976		—			8,976
Trust preferred securities	—		—		5,425			5,425
Subtotal CRE securities in N-Star CDOs	—		307,844		77,069			384,913
Subtotal real estate securities, available for sale	—		320,162		381,948			702,110
Derivative assets	—		116		—			116
Total assets	$	—	$	320,278	$	1,603,990		$	1,924,268
Liabilities:
CDO bonds payable	$	—	$	—	$	307,601		$	307,601
Junior subordinated notes	—		—		183,893			183,893
Derivative liabilities	—		7,385		95,908		(2)	103,293
Total liabilities	$	—	$	7,385	$	587,402		$	594,787

_____________________________________________________________________

(1) Includes certain CRE debt investments made in connection with certain investments in unconsolidated ventures, for which the fair value option was elected.

(2) Represents an interest rate swap entered into in the corporate segment in 2015 and includes a credit valuation adjustment.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	December 31, 2014
	Level 1		Level 2		Level 3		Total
Assets:
PE Investments	$	—	$	—	$	962,038	$	962,038
Investments in unconsolidated ventures(1)	—		—		276,437		276,437
Real estate securities, available for sale:
N-Star CDO bonds	—		—		262,309		262,309
N-Star CDO equity	—		—		102,467		102,467
CMBS and other securities	—		17,243		34,680		51,923
CRE securities in N-Star CDOs
CMBS	—		329,815		53,052		382,867
Third-party CDO notes	—		—		23,218		23,218
Agency debentures	—		40,529		—		40,529
Unsecured REIT debt	—		9,351		—		9,351
Trust preferred securities	—		—		5,850		5,850
Subtotal CRE securities in N-Star CDOs	—		379,695		82,120		461,815
Subtotal real estate securities, available for sale	—		396,938		481,576		878,514
Derivative assets	—		3,247		—		3,247
Total assets	$	—	$	400,185	$	1,720,051	$	2,120,236
Liabilities:
CDO bonds payable	$	—	$	—	$	390,068	$	390,068
Junior subordinated notes	—		—		215,172		215,172
Derivative liabilities	—		17,915		—		17,915
Total liabilities	$	—	$	17,915	$	605,240	$	623,155

_____________________________________________________________________

(1) Includes certain CRE debt investments made in connection with certain investments in unconsolidated ventures, for which the fair value option was elected.

The following table presents the changes in fair value of financial assets and liabilities which are measured at fair value on a recurring basis using Level 3 inputs to determine fair value for the year ended December 31, 2015 (dollars in thousands):

	Year Ended December 31, 2015
	PE Investments			Investments in Unconsolidated Ventures(1)			Real Estate Securities			CDO Bonds Payable			Junior Subordinated Notes
January 1, 2015	$	962,038		$	276,437		$	481,576		$	390,068		$	215,172
Transfers into Level 3(2)	—			—			24,170			—			—
Transfers out of Level 3(2)	—			—			(3,052		)	—			—
Purchases / borrowings / amortization / contributions	614,578			(4,053		)	93,477			(25,531		)	—
Sales	—			—			(77,230		)	—			—
Pay downs / distributions	(639,884		)	(125,285		)	(124,480		)	(90,070		)	—
Gains:
Equity in earnings of unconsolidated ventures	198,159			19,177			—			—			—
Unrealized gains included in earnings	—			—			81,532			—			(31,279		)
Realized gains included in earnings	—			—			22,418			—			—
Unrealized gain on real estate securities, available for sale included in OCI	—			—			1,213			—			—
Losses:
Unrealized gains (losses) included in earnings	(33,241		)	(45,884		)	(75,523		)	29,275			—
Realized gains (losses) included in earnings	—			—			(5,886		)	3,859			—
Unrealized losses on real estate securities, available for sale included in OCI	—			—			(36,267		)	—			—
December 31, 2015	$	1,101,650		$	120,392		$	381,948		$	307,601		$	183,893
Gains (losses) included in earnings attributable to the change in unrealized gains (losses) relating to assets or liabilities still held.	$	(33,241	)	$	(45,884	)	$	6,009		$	(29,275	)	$	31,279

____________________________________________________________

(1) Includes certain CRE debt investments made in connection with certain investments in unconsolidated ventures, for which the fair value option was elected.

(2) Transfers between Level 2 and Level 3 represent a fair value measurement from a third-party pricing service or broker quotations that have become more or less observable during the period. Transfers are assumed to occur at the beginning of the year.

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The following table presents the changes in fair value of financial assets and liabilities which are measured at fair value on a recurring basis using Level 3 inputs to determine fair value for the year endedDecember 31, 2014 (dollars in thousands):

	Year Ended December 31, 2014
	PE Investments				Investments in Unconsolidated Ventures(1)			Real Estate Securities			CDO Bonds Payable			Junior Subordinated Notes
January 1, 2014	$	586,018			$	192,419		$	484,840		$	384,183		$	201,203
Transfers into Level 3(2)	—				—			17,513			—			—
Transfers out of Level 3(2)	—				—			—			—			—
Purchases / borrowings / amortization / contributions	548,961				84,206			64,104			(15,320		)	—
Sales	—				—			(65,504		)	—			—
Pay downs / distributions	(339,598		)		(2,507		)	(48,511		)	(87,859		)	—
Gains:
Equity in earnings of unconsolidated ventures	134,036			(4)	10,494			—			—			—
Unrealized gains included in earnings	32,621				—			44,308			—			—
Realized gains included in earnings	—				—			15,626			—			—
Unrealized gain on real estate securities, available for sale included in OCI	—				—			61,045			—			—
Deconsolidation of N-Star CDOs(3)	—				—			873			(122,486		)	—
Losses:
Unrealized gains (losses) included in earnings	—				(8,175		)	(64,977		)	217,608			13,969
Realized gains (losses) included in earnings	—				—			(3,152		)	13,942			—
Unrealized losses on real estate securities, available for sale included in OCI	—				—			(3,519		)	—			—
Deconsolidation of N-Star CDOs(3)	—				—			(21,070		)	—			—
December 31, 2014	$	962,038			$	276,437		$	481,576		$	390,068		$	215,172
Gains (losses) included in earnings attributable to the change in unrealized gains (losses) relating to assets or liabilities still held.	$	32,621			$	(8,175	)	$	(37,487	)	$	(217,608	)	$	(13,969	)

____________________________________________________________

(1) Includes certain CRE debt investments made in connection with certain investments in unconsolidated ventures, for which the fair value option was elected.

(2) Transfers between Level 2 and Level 3 represent a fair value measurement from a third-party pricing service or broker quotations that have become more or less observable during the period. Transfers are assumed to occur at the beginning of the year.

(3) Represents amounts recorded as a result of the deconsolidation of certain N-Star CDOs. Refer to Note 17 for further disclosure.

(4) The amount for the year endedDecember 31, 2014 excludes a reclassification between equity in earnings and income tax expense of $16.8 million to conform with the current period presentation.

There were no transfers, other than those identified in the tables above, during the periods ended December 31, 2015 and 2014.

The Company relies on the third-party pricing exception with respect to the requirement to provide quantitative disclosures about significant Level 3 inputs being used to determine fair value measurements related to CRE securities (including N-Star CDO bonds), junior subordinated notes and CDO bonds payable. The Company believes such pricing service or broker quotation for such items may be based on a market transaction of comparable securities, inputs including forecasted market rates, contractual terms, observable discount rates for similar securities and credit (such as credit support and delinquency rates).

For the year ended December 31, 2015, quantitative information about the Company’s remaining Level 3 fair value measurements on a recurring basis are as follows (dollars in thousands):

	Fair Value		Valuation Technique	Key Unobservable Inputs(2)	Weighted Average
PE Investments	$	1,101,650	Discounted Cash Flow Model	Discount Rate	17%
Investments in unconsolidated ventures(1)	$	120,392	Discounted Cash Flow Model/Credit Spread	Discount Rate/Credit Spread	20%
N-Star CDO equity	$	44,905	Discounted Cash Flow Model	Discount Rate	18%

_________________________________________

(1) Includes certain CRE debt investments made in connection with certain investments in unconsolidated ventures, for which the fair value option was elected.

(2) Includes timing and amount of expected future cash flow.

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Significant increases (decreases) in any one of the inputs described above in isolation may result in a significantly different fair value for the financial assets and liabilities using such Level 3 inputs.

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

Non-financial assets and liabilities measured at fair value in the consolidated financial statements consist of real estate held for sale, which are measured on a non-recurring basis, have been determined to be Level 3 within the valuation hierarchy, where applicable, based on estimated sales price, adjusted for closing costs and expenses, determined by discounted cash flow analysis, direct capitalization analyses or a sales comparison approach if no contracts had been consummated. The discounted cash flow and direct capitalization analyses include all estimated cash inflows and outflows over a specific holding period and, where applicable, any estimated debt premiums. This cash flow is comprised of unobservable inputs which included forecasted rental revenues and expenses based upon existing in-place leases, market conditions and expectations for growth. Capitalization rate and discount rate used in these analyses were based upon observable rates that the Company believed to be within a reasonable range of current market rates for the respective properties.

Valuations were prepared using internally-developed valuation models. These valuations are reviewed and approved, during each reporting period, by management, as deemed necessary, including personnel from the accounting, finance and operations and the valuations are updated as appropriate. In addition, the Company may engage third-party valuation experts to assist with the preparation of certain of its valuations.

All other non-financial assets and liabilities measured at fair value in the financial statements on a non-recurring basis are subject to fair value measurement and disclosure. Non-financial assets and liabilities included on the consolidated balance sheets and measured on a nonrecurring basis consist of goodwill and long-lived assets, including other acquired intangibles.

Fair Value Option

The Company has historically elected to apply the fair value option for the following financial assets and liabilities existing at the time of adoption or at the time the Company recognizes the eligible item for the purpose of consistent accounting application: CRE securities financed in N-Star CDOs; CDO bonds payable; and junior subordinated notes. Given past market volatility the Company had observed that the impact of electing the fair value option would generally result in additional variability to the Company’s consolidated statements of operations which management believes is not a useful presentation for such financial assets and liabilities. Therefore, the Company more recently has not elected the fair value option for new investments in CRE securities and securitization financing transactions. The Company may elect the fair value option for certain of its financial assets or liabilities due to the nature of the instrument. In the case of PE Investments, certain investments in unconsolidated ventures (refer to Note 6) and N-Star CDO equity, the Company elected the fair value option because management believes it is a more useful presentation for such investments. The Company determined recording such investments based on the change in fair value of projected future cash flow from one period to another better represents the underlying economics of the respective investment.

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The following table presents the fair value of financial instruments for which the fair value option was elected as of December 31, 2015 and 2014 (dollars in thousands):

	December 31,
	2015		2014
Assets:
PE Investments	$	1,101,650	$	962,038
Investments in unconsolidated ventures(1)	120,392		276,437
Real estate securities, available for sale:(2)
N-Star CDO equity	44,905		102,467
CMBS and other securities	48,711		42,613
CRE securities in N-Star CDOs
CMBS	326,511		382,867
Third-party CDO notes	6,685		23,218
Agency debentures	37,316		40,529
Unsecured REIT debt	8,976		9,351
Trust preferred securities	5,425		5,850
Subtotal CRE securities in N-Star CDOs	384,913		461,815
Subtotal real estate securities, available for sale	478,529		606,895
Total assets	$	1,700,571	$	1,845,370
Liabilities:
CDO bonds payable	$	307,601	$	390,068
Junior subordinated notes	183,893		215,172
Total liabilities	$	491,494	$	605,240

___________________________________________________________

(1) Includes certain CRE debt investments made in connection with certain investments in unconsolidated ventures, for which the fair value option was elected.

(2) December 31, 2015 excludes 28 CRE securities including $216.7 million of N-Star CDO bonds and $6.9 million of CRE securities, for which the fair value option was not elected. December 31, 2014 excludes 34 CRE securities including $262.3 million of N-Star CDO bonds and $9.3 million of CRE securities, for which the fair value option was not elected.

The Company attributes the change in the fair value of floating-rate liabilities to changes in instrument-specific credit spreads. For fixed-rate liabilities, the Company attributes the change in fair value to interest rate-related and instrument-specific credit spread changes.

Change in Fair Value Recorded in the Statements of Operations

The following table presents unrealized gains (losses) on investments and other related to the change in fair value of financial assets and liabilities in the consolidated statements of operations for the years endedDecember 31, 2015, 2014 and 2013 (dollars in thousands):

	Years Ended December 31,
	2015			2014			2013
Assets:
Real estate securities, available for sale(1)	$	(14,810	)	$	(12,324	)	$	94,676
PE Investments(1)	(33,241		)	32,621			—
Investments in unconsolidated ventures(1)	(40,437		)	—			—
Foreign currency remeasurement(2)	(18,275		)	(11,719		)	2,300
Liabilities:
CDO bonds payable(1)	(29,275		)	(217,608		)	(106,622		)
Junior subordinated notes(1)	31,279			(13,969		)	(4,030		)
Subtotal unrealized gain (loss), excluding derivatives	(104,759		)	(222,999		)	(13,676		)
Derivatives	(87,475		)	8,184			33,730
Subtotal unrealized gain (loss)	(192,234		)	(214,815		)	20,054
Net cash payments on derivatives (refer to Note 15)	(11,878		)	(16,882		)	(52,731		)
Total	$	(204,112	)	$	(231,697	)	$	(32,677	)

____________________________________________________________

(1) Represents financial assets and liabilities for which the fair value option was elected.

(2) Represents foreign currency remeasurement on investments, cash and deposits primarily denominated in Euros.

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Fair Value of Financial Instruments

In addition to the above disclosures regarding financial assets or liabilities which are recorded at fair value, U.S. GAAP requires disclosure of fair value about all financial instruments. The following disclosure of estimated fair value of financial instruments was determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on estimated fair value.

The following table presents the principal amount, carrying value and fair value of certain financial assets and liabilities as of December 31, 2015 and 2014 (dollars in thousands):

	December 31, 2015						December 31, 2014
	Principal / Notional Amount		Carrying Value		Fair Value		Principal / Notional Amount		Carrying Value		Fair Value
Financial assets:(1)
Real estate debt investments, net	$	555,354	$	501,474	$	594,698	$	1,187,316	$	1,067,667	$	1,066,911
Real estate debt investments, held for sale	225,037		224,677		224,677		—		—		—
Real estate securities, available for sale(2)	1,285,643		702,110		702,110		1,532,891		878,514		878,514
Derivative assets(2)(3)	4,173,872		116		116		3,848,859		3,247		3,247
Financial liabilities:(1)
Mortgage and other notes payable	$	7,297,081	$	7,164,576	$	7,175,374	$	8,453,625	$	8,327,509	$	8,331,170
Credit facilities	662,053		652,704		652,704		732,780		718,759		718,759
CDO bonds payable(2)(4)	436,491		307,601		307,601		560,959		390,068		390,068
Securitization bonds payable	—		—		—		41,831		41,746		41,929
Exchangeable senior notes	31,360		29,038		50,121		45,588		41,008		82,443
Junior subordinated notes(2)(4)	280,117		183,893		183,893		280,117		215,172		215,172
Derivative liabilities(2)(3)	2,225,750		103,293		103,293		318,726		17,915		17,915
Borrowings of properties held for sale	2,214,305		2,195,975		2,200,686		N/A		N/A		N/A

____________________________________________________________

(1) The fair value of other financial instruments not included in this table is estimated to approximate their carrying value.

(2) Refer to “Determination of Fair Value” above for disclosures of methodologies used to determine fair value.

(3) Derivative assets and liabilities exclude timing swaps with an aggregate notional amount of $28.0 million as of December 31, 2015 and 2014.

(4) The fair value option has been elected for these liabilities.

Disclosure about fair value of financial instruments is based on pertinent information available to management as of the reporting date. Although management is not aware of any factors that would significantly affect fair value, such amounts have not been comprehensively revalued for purposes of these consolidated financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.

Real Estate Debt Investments

For CRE debt investments, fair value was approximated by comparing the current yield to the estimated yield for newly originated loans with similar credit risk or the market yield at which a third party might expect to purchase such investment. Fair value was determined assuming fully-extended maturities regardless of structural or economic tests required to achieve such extended maturities. For any CRE debt investments that are deemed impaired, carrying value approximates fair value. The fair value of CRE debt investments held for sale is determined based on the expected sales price. These fair value measurements of CRE debt are generally based on unobservable inputs and, as such, are classified as Level 3 of the fair value hierarchy.

Mortgage and Other Notes Payable

For mortgage and other notes payable, the Company primarily uses rates currently available with similar terms and remaining maturities to estimate fair value. These measurements are determined using comparable U.S. Treasury rates as of the end of the reporting period or market credit spreads over the rate payable on fixed rate U.S. Treasury of like maturities. These fair value measurements are based on observable inputs, and as such, are classified as Level 3 of the fair value hierarchy. For the borrowings of properties held for sale, the Company uses available market information, which includes quoted market prices or recent transactions, if available, to estimate their fair value and are, therefore, based on observable inputs, and as such, are classified as Level 3 of the fair value hierarchy.

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Securitization Bonds Payable

Securitization bonds payable are valued using quotations from nationally recognized financial institutions that generally acted as underwriter for the transactions. These quotations are not adjusted and are generally based on observable inputs that can be validated, and as such, are classified as Level 2 of the fair value hierarchy.

Credit Facilities

As of the reporting date, the Company believes the carrying value of its credit facilities approximates fair value. These fair value measurements are based on observable inputs, and as such, are classified as Level 2 of the fair value hierarchy.

Exchangeable Senior Notes

For the exchangeable senior notes, the Company uses available market information, which includes quoted market prices or recent transactions, if available, to estimate their fair value and are, therefore, based on observable inputs, and as such, are classified as Level 2 of the fair value hierarchy.

15. Risk Management and Derivative Activities

Derivatives

The Company uses derivative instruments primarily to manage interest rate risk and such derivatives are not considered speculative. These derivative instruments are typically in the form of interest rate swap, cap and foreign currency forward agreements and the primary objective is to minimize interest rate risks associated with investment and financing activities. The counterparties of these arrangements are major financial institutions with which the Company may also have other financial relationships. The Company is exposed to credit risk in the event of non-performance by these counterparties and it monitors their financial condition; however, the Company currently does not anticipate that any of the counterparties will fail to meet their obligations.

The following tables present derivative instruments that were not designated as hedges under U.S. GAAP as of December 31, 2015 and 2014 (dollars in thousands):

	Number	Notional Amount(1)		Fair Value Net Asset (Liability)				Range of Fixed LIBOR / Forward Rate	Range of Maturity
As of December 31, 2015:
Interest rate caps	14	$	4,173,872	$	116			2.50% - 5.00%	January 2016 - December 2017
Interest rate swaps - N-Star CDOs	9	222,510		(7,321		)	(2)	5.02% - 5.25%	January 2017 - July 2018
Interest rate swaps - other	2	2,003,240		(95,972		)		3.39% - 4.17%	July 2023 - December 2029
Total	25	$	6,399,622	$	(103,177	)
As of December 31, 2014:
Interest rate caps	21	$	3,808,234	$	2,131			2.50% - 5.00%	January 2015 - December 2017
Interest rate swaps - N-Star CDOs	10	235,929		(17,707		)	(2)	5.00% - 5.25%	June 2015 - July 2018
Interest rate swaps - other	2	82,797		(208		)		0.62% - 5.00%	January 2016 - July 2023
Total	33	$	4,126,960	$	(15,784	)

____________________________________________________________

(1) Excludes timing swaps with a notional amount of $28.0 million as of December 31, 2015 and 2014.

(2) Interest rate swaps in consolidated N-Star CDOs are liabilities and are only subject to the credit risks of the respective CDO transaction. As the interest rate swaps are senior to all the liabilities of the respective CDO and the fair value of each of the CDO’s investments exceeded the fair value of the CDO’s derivative liabilities, a credit valuation adjustment was not recorded.

The change in number and notional amount of derivative instruments from December 31, 2014 relates to derivatives entered into at the corporate level and in connection with new acquisitions, offset by contractual notional amortization and the maturity of a corporate interest rate cap and floor. The Company had no derivative financial instruments that were designated as hedges in qualifying hedging relationships as of December 31, 2015 and 2014.

The following table presents the fair value of derivative instruments, as well as their classification on the consolidated balance sheets, as of December 31, 2015 and 2014 (dollars in thousands):

	Balance Sheet	December 31,
	Location	2015		2014
Interest rate caps	Derivative assets	$	116	$	2,131
Interest rate swaps/foreign currency forwards	Derivative liabilities	$	103,293	$	17,915

The following table presents the effect of derivative instruments in the consolidated statements of operations for the years endedDecember 31, 2015, 2014 and 2013 (dollars in thousands):

		Years Ended December 31,
	Statements of Operations Location	2015			2014			2013
Amount of gain (loss) recognized in earnings (loss):
Adjustment to fair value of interest rate swaps and caps	Unrealized gain (loss) on investments and other	$	(87,475	)	$	8,184		$	33,730
Net cash payment on derivatives	Unrealized gain (loss) on investments and other	$	(11,878	)	$	(16,882	)	$	(52,731	)
Amount of swap gain (loss) reclassified from OCI into earnings	Interest expense—mortgage and corporate borrowings	$	(934	)	$	(915	)	$	(4,885	)
Reclassification of swap gain (loss) into gain (loss) from deconsolidation of N-Star CDOs (refer to Note 17)	Gain (loss) from deconsolidation of N-Star CDOs	$	—		$	—		$	(15,246	)
NorthStar Europe
Amount of gain (loss) recognized in earnings (loss):
Adjustment to fair value of interest rate swaps and caps	Income (loss) from discontinued operations	$	(8,659	)	$	—		$	—
Adjustments to fair value of foreign currency forwards	Income (loss) from discontinued operations	$	(1,933	)	$	—		$	—
Net cash payment on derivatives	Income (loss) from discontinued operations	$	(214	)	$	—		$	—

The Company’s counterparties held no cash margin as collateral against the Company’s derivative contracts as of December 31, 2015 and 2014. However, subsequent to year end, the Company posted $74.0 million of collateral related to an interest rate swap.

Risk Management

Concentrations of credit risk arise when a number of tenants, operators or issuers related to the Company’s investments are engaged in similar business activities or located in the same geographic region to be similarly affected by changes in economic conditions.  The Company monitors its portfolios to identify potential concentrations of credit risks.  With respect to the Company’s hotel portfolio, for the year ended December 31, 2015, Island and Marriott Hotel Services, Inc. accounted for 72.5% and 27.5%, respectively, of the Company’s hotel related income and 27.8% and 10.6%, respectively, of the Company’s total revenue.  In addition, with respect to the Company’s healthcare portfolio, for the year ended December 31, 2015, Senior Lifestyle Holding Company, LLC was the healthcare operator as it related to 73.2% of the Company’s resident fee income and 9.7% of the Company’s total revenue.  Otherwise, the Company has no other tenant or operator that generates 10% or more of its total revenue.  The Company believes the remainder of its portfolios are reasonably well diversified and do not contain any unusual concentrations of credit risks.

16. Commitments and Contingencies

The Company is involved in various litigation matters arising in the ordinary course of its business. Although the Company is unable to predict with certainty the eventual outcome of any litigation, in the opinion of management, the current legal proceedings are not expected to have a material adverse effect on the Company’s financial position or results of operations.

Guaranty Agreements

In connection with certain hotel acquisitions, the Company entered into guaranty agreements with various hotel franchisors, pursuant to which the Company guaranteed the franchisees’ obligations, including payments of franchise fees and marketing fees,

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for the term of the agreements, which expires from 2029 to 2034. As of December 31, 2015, the aggregate amount remaining under these guarantees is $5.5 million.

In connection with the NRE Spin-off, the NRE Senior Notes are senior unsubordinated and unsecured primary obligations of NorthStar Europe and the Company continues to guarantee payments subsequent to the NRE Spin-off.

Other

Effective January 1, 2005, the Company adopted the NorthStar Realty Limited Partnership 401(k) Retirement Plan (the “401(k) Plan”) for its employees.  Eligible employees under the 401(k) Plan may begin participation on the first day of the month after they have completed 30 days of employment.  The Company’s matching contribution is calculated as 100% of the first 3% and 50% of the next 2% of participant’s eligible earnings contributed (utilizing earnings that are not in excess of the amount established by the Internal Revenue Service).  The Company’s aggregate matching contribution for the years endedDecember 31, 2015, 2014 and 2013 was $0.1 million, $1.0 million and $0.8 million, respectively. The decrease from prior years is due to most of the Company’s existing employees at the time of the NSAM Spin-off becoming employees of NSAM.

Obligations Under Ground Leases

The following table presents minimum future rental payments under the Company’s contractual ground lease obligations for certain building leaseholds as of December 31, 2015 (dollars in thousands):

Years Ending December 31:	Total(1)
2016	$	4,984
2017	5,034
2018	5,149
2019	5,086
2020	5,139
Thereafter	122,690
Total minimum lease payments	$	148,082

__________________

(1) Represents 55 ground leases of which 20 leases ground rent are paid directly by the tenants/operators.

17. Variable Interest Entities

As of December 31, 2015, the Company has identified certain consolidated and unconsolidated VIEs. Assets of each of the VIEs may only be used to settle obligations of the respective VIE. Creditors of each of the VIEs have no recourse to the general credit of the Company.

Consolidated VIEs

N-Star CDOs

As of December 31, 2015, the Company serves as collateral manager and/or special servicer for N-Star CDOs I and IX which are primarily collateralized by CRE securities. The Company consolidates these entities as the Company has the power to direct the activities that most significantly impact the economic performance of these CDOs, and therefore, continues to be the primary beneficiary.

The Company is not contractually required to provide financial support to any of these consolidated VIEs, however, the Company, in its capacity as collateral manager and/or special servicer, may in its sole discretion provide support such as protective and other advances it deems appropriate. The Company did not provide any other financial support to any of its consolidated VIEs for the years endedDecember 31, 2015, 2014 and 2013.

Unconsolidated VIEs

N-Star CDOs

The Company delegated the collateral management rights for N-Star CDOs IV, VI and VIII and the CapLease CDO on September 30, 2013 and the CSE CDO on December 31, 2013 to a third-party collateral manager/collateral manager delegate who is entitled to a percentage of the senior and subordinate collateral management fees. The Company continues to receive fees as named collateral manager or collateral manager delegate and retained administrative responsibilities. The Company evaluated the fees paid to the third-party collateral manager/collateral manager delegate and concluded that such fees represented a variable interest

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in the deconsolidated loan CDOs and that the third party was functioning as a principal. The Company determined that the delegation of the Company’s collateral management power in the CDOs was a VIE reconsideration event and concluded that these CDOs were still VIEs as the equity investors do not have the characteristics of a controlling financial interest. The Company then reconsidered if it was the primary beneficiary of such VIEs and determined that it no longer has the power to direct the activities that most significantly impact the economic performance of these CDOs, which includes but is not limited to selling collateral, and therefore is no longer the primary beneficiary of such CDOs. As a result, the Company does not consolidate the assets and liabilities for N-Star CDOs IV, VI and VIII, CSE CDO and the CapLease CDO. In September 2015, N-Star CDO IV was liquidated.

In March 2014, the Company determined it no longer had the power to direct the activities that most significantly impact the economic performance of N-Star CDO V due to the ability of a single party to remove the Company as collateral manager as a result of an existing event of default. The Company was no longer the primary beneficiary of N-Star CDO V, and as a result, in the first quarter 2014, the Company deconsolidated the assets and liabilities of this CDO.

In May 2014, the Company determined it no longer had the power to direct the activities that most significantly impact the economic performance of N-Star CDO III due to the ability of a single party to remove the Company as collateral manager as a result of an existing event of default. The Company was no longer the primary beneficiary of N-Star CDO III, and as a result, in the second quarter 2014, the Company deconsolidated the assets and liabilities of this CDO.

Similar events of default in the future, if they occur, could cause the Company to deconsolidate additional CDO financing transactions.

For the year endedDecember 31, 2014, the deconsolidation of N-Star CDOs III and V resulted in an aggregate non-cash realized loss on deconsolidation of $31.4 million recorded in the consolidated statement of operations, which was the result of the deconsolidation of an aggregate $192.5 million of assets, $149.0 million of liabilities, net of $8.8 million of fair value of N-Star CDO bonds recorded that no longer eliminated in consolidation and the reclassification of $3.3 million of unrealized gain to loss from deconsolidation.

For the year endedDecember 31, 2013, the deconsolidation of N-Star CDOs IV, VI, VIII and CapLease CDO resulted in an aggregate non-cash realized loss on deconsolidation of $299.8 million recorded in the consolidated statement of operations, which was the result of the deconsolidation of an aggregate $1.8 billion of assets, $1.4 billion of liabilities, net of $223.7 million of fair value of N-Star CDO bonds and equity recorded that no longer eliminated in consolidation and the reclassification of $3.3 million of unrealized gain and $15.2 million of OCI swap loss to loss from deconsolidation.

Other Unconsolidated VIEs

Based on management’s analysis, the Company is not the primary beneficiary of the VIEs summarized below and as such, these VIEs are not consolidated into the Company’s financial statements as of December 31, 2015. These unconsolidated VIEs are summarized as follows:

Real Estate Debt Investments

The Company identified three CRE debt investments with an aggregate carrying value of $60.4 million as variable interests in a VIE. The Company determined that it is not the primary beneficiary of such VIEs, and as such, the VIEs are not consolidated in the Company’s financial statements. For all other CRE debt investments, the Company determined that these investments are not VIEs and, as such, the Company continues to account for all CRE debt investments as loans.

Real Estate Securities

The Company identified two CRE securities, other than investments in N-Star CDOs, with an aggregate fair value of $46.1 million as variable interests in VIEs. In connection with certain CMBS investments, the Company became the controlling class and/or was named directing certificate holder of a securitization it did not sponsor. For one of these securitizations, an affiliate of NSAM was appointed as special servicer. The special servicing business for certain securitizations was transferred to NSAM in connection with the NSAM Spin-off. The Company determined each securitization was a VIE. However, the Company determined at that time and continues to believe that it does not currently or potentially hold a significant interest in any of these securitizations and, therefore, is not the primary beneficiary.

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NorthStar Realty Finance Trusts

The Company owns all of the common stock of the Trusts. The Trusts were formed to issue trust preferred securities. The Company determined that the holders of the trust preferred securities were the primary beneficiaries of the Trusts. As a result, the Company did not consolidate the Trusts and has accounted for the investment in the common stock of the Trusts under the equity method. As of December 31, 2015, the Company’s carrying value and maximum exposure to loss related to its investment in the Trusts is $3.7 million and is recorded in investments in unconsolidated ventures on the consolidated balance sheets.

PE Investments

In May 2015, in connection with the Company’s investment in PE Investment XIII, the Company determined that two of the underlying funds are VIEs. The Company determined that the funds are a VIE as there is insufficient equity at risk in each limited partnership and the general partner in each fund has the power to direct the activities that most significantly impact the funds’ economic performance as the general partner performs such activities. As of December 31, 2015, the Company’s investment in both funds is $32.2 million. As of December 31, 2015, the amount of expected future contributions to both funds is $2.5 million.

Summary of Unconsolidated VIEs

The following table presents the classification, carrying value and maximum exposure of unconsolidated VIEs as of December 31, 2015 (dollars in thousands):

	Junior Subordinated Notes, at Fair Value			Real Estate Debt Investments, Net		Real Estate Securities, Available for Sale		PE Investments		Total		Maximum Exposure to Loss(1)
Real estate debt investments, net	$	—		$	60,443	$	—	$	—	$	60,443	$	60,443
Investments in unconsolidated ventures	3,742			—		—		—		3,742		3,742
Investments in private equity funds, at fair value	—			—		—		32,249		32,249		32,249
Real estate securities, available for sale:
N-Star CDO bonds	—			—		216,727		—		216,727		216,727
N-Star CDO equity	—			—		44,905		—		44,905		44,905
CMBS	—			—		46,074		—		46,074		46,074
Subtotal real estate securities, available for sale	—			—		307,706		—		307,706		307,706
Total assets	3,742			60,443		307,706		32,249		404,140		404,140
Junior subordinated notes, at fair value	183,893			—		—		—		183,893		NA
Total liabilities	183,893			—		—		—		183,893		NA
Net	$	(180,151	)	$	60,443	$	307,706	$	32,249	$	220,247	$	404,140

____________________________________________________________

(1) The Company’s maximum exposure to loss as of December 31, 2015 would not exceed the carrying value of its investment.

The Company is not contractually required to provide financial support to any of its unconsolidated VIEs during the years endedDecember 31, 2015, 2014 and 2013 however, the Company, in its capacity as collateral manager/collateral manager delegate and/or special servicer of the deconsolidated N-Star CDOs, may in its sole discretion provide support such as protective and other advances it deems appropriate. As of December 31, 2015, there were no explicit arrangements or implicit variable interests that could require the Company to provide financial support to any of its unconsolidated VIEs.

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18. Quarterly Financial Information (Unaudited)

The following tables presents selected quarterly information, which reflects prior period reclassifications related to discontinued operations, for the years endedDecember 31, 2015 and 2014 (dollars in thousands):

	Three Months Ended
	December 31,			September 30,			June 30,			March 31,
	2015			2015			2015			2015
Property and other revenues	$	474,355		$	486,776		$	455,728		$	400,577
Net interest income on debt and securities	38,511			59,105			57,529			63,660
Expenses	594,327			570,040			545,566			500,068
Equity in earnings (losses) of unconsolidated ventures	47,339			60,359			57,736			53,643
Income (loss) from continuing operations	(65,778		)	(91,947		)	211			(1,199		)
Income (loss) from discontinued operations	5,756			(16,760		)	(84,464		)	(13,086		)
Net income (loss)	(60,022		)	(108,616		)	(84,342		)	(14,287		)
Net income (loss) attributable to NorthStar Realty Finance Corp. common stockholders	(72,282		)	(126,111		)	(97,502		)	(31,602		)
Earnings (loss) per share:(1)(2)
Basic	$	(0.39	)	$	(0.69	)	$	(0.56	)	$	(0.20	)	(2)
Diluted	$	(0.39	)	$	(0.69	)	$	(0.56	)	$	(0.20	)	(2)

__________________

(1) The total for the year may differ from the sum of the quarters as a result of weighting.

(2) Adjusted for the Reverse Split effected on November 1, 2015.

	Three Months Ended
	December 31,			September 30,			June 30,			March 31,
	2014			2014			2014			2014
Property and other revenues	$	295,085		$	194,149		$	119,357		$	70,909
Net interest income on debt and securities	72,046			77,936			72,761			75,396
Expenses	463,494			296,515			191,711			110,567
Equity in earnings (losses) of unconsolidated ventures	55,423			41,694			33,958			33,978
Income (loss) from continuing operations	(81,991		)	(17,511		)	(59,916		)	(116,967		)
Income (loss) from discontinued operations	(28,890		)	(9,100		)	(572		)	(6,139		)
Net income (loss)	(110,881		)	(26,609		)	(60,488		)	(123,108		)
Net income (loss) attributable to NorthStar Realty Finance Corp. common stockholders	(116,453		)	(46,527		)	(73,566		)	(134,961		)
Earnings (loss) per share:(1)(2)
Basic	$	(0.93	)	$	(0.46	)	$	(0.84	)	$	(1.68	)
Diluted	$	(0.93	)	$	(0.46	)	$	(0.84	)	$	(1.68	)

_________________

(1) The total for the year may differ from the sum of the quarters as a result of weighting.

(2) Adjusted for the Reverse Split effected on November 1, 2015.

19. Segment Reporting

The Company currently conducts its business through the following five segments (excluding the asset management business and the European real estate business which the Company spun off on June 30, 2014 and October 31, 2015, respectively, which are no longer separate operating segments), based on how management reviews and manages its business:

• Real Estate - The real estate business concentrates on various types of investments in commercial real estate located throughout the United States that includes healthcare, hotel, manufactured housing communities, net lease, multifamily and multi-tenant office properties. In addition, it includes certain healthcare properties located outside of the United States and PE Investments diversified by property type and geography.

• Healthcare - The healthcare properties are comprised of a diverse portfolio of medical office buildings, senior housing, skilled nursing and other healthcare properties. The majority of the healthcare properties are medical office buildings and properties structured under a net lease to healthcare operators. In addition, the Company owns senior operating facilities which include independent living facilities and healthcare properties that operate through management agreements with independent third-party operators, predominantly through RIDEA structures that permit the Company, through a TRS, to have direct exposure to resident fee income and incur customary related operating expenses. In February 2016, the Company entered into an agreement to sell its 60% interest in a $899 million Senior Housing Portfolio for $535 million, subject to proration and adjustment. The Company expects the buyer to assume its portion of the $648 million of related mortgage financing. The Company expects to receive $150 million of net proceeds upon completion of the sale in March 2016. Such asset and related liability is classified as held for sale on the Company’s consolidated balance sheet.

• Hotel - The hotel portfolio is a geographically diverse portfolio primarily comprised of extended stay hotels and premium branded select service hotels primarily located in major metropolitan markets with the majority affiliated with top hotel brands.

• Manufactured Housing - The manufactured housing portfolio consists of communities that lease pad rental sites for placement of factory built homes located throughout the United States. In addition, the portfolio includes manufactured homes and receivables related to the financing of homes sold to residents. Currently, the Company is exploring the sale of its manufactured housing portfolio and such assets and related liabilities are classified as held for sale on the Company’s consolidated balance sheet.

• Net Lease - The net lease properties are primarily industrial, office and retail properties typically under net leases to corporate tenants.

• Multifamily - The multifamily portfolio primarily focuses on properties located in suburban markets that are well suited to capture the formation of new households. Currently, the Company is exploring the sale of its multifamily portfolio and in February 2016, the Company entered in and is finalizing agreements to sell up to ten multifamily properties for $311 million with $210 million of related mortgage financing expected to be assumed as part of the transaction. The Company expects to receive $91 million of net proceeds and continue to explore the sale of the remaining two properties. Such assets and related liabilities are classified as held for sale on the Company’s consolidated balance sheet.

• Multi-tenant Office - The Company pursues the acquisition of multi-tenant office properties currently focused on the western United States.

• PE Investments - The real estate business also includes investments (directly or indirectly in joint ventures) owning PE Investments managed by institutional quality sponsors and diversified by property type and geography. In February 2016, the Company entered into an agreement to sell substantially all of its interest in PE Investment II for $184.1 million of proceeds and is exploring the sale of its remaining PE Investments.

• Commercial Real Estate Debt - The CRE debt business is focused on originating, acquiring and asset managing senior and subordinate debt investments secured primarily by commercial real estate and includes first mortgage loans, subordinate mortgage and mezzanine loans and participations in such loans and preferred equity interests. The Company may from time to time take title to collateral in connection with a CRE debt investment as REO which would be included in the CRE debt business. In February 2016, the Company sold or committed to sell seven loans with a total principal amount of $225.0 million at par, with $46.9 million of proceeds used to pay down the Company’s loan facility, resulting in $178.2 million of net proceeds.

• Commercial Real Estate Securities - The CRE securities business is predominately comprised of N-Star CDO bonds and N-Star CDO equity of deconsolidated N-Star CDOs and includes other securities, mostly CMBS meaning each asset is a pool backed by a large number of commercial real estate loans. The Company also invests in opportunistic CRE securities such as an investment in a “B-piece” CMBS. In February 2016, the Company sold certain CRE securities for $53.9 million of net proceeds.

• N-Star CDOs -The Company historically originated or acquired CRE debt and securities investments that were predominantly financed through permanent, non-recourse CDOs. The Company’s remaining consolidated CDOs are past the reinvestment period and given the nature of these transactions, these CDOs are amortizing over time as the underlying assets pay down or are sold. The Company has been winding down its legacy CDO business and investing in a broad and diverse range of CRE assets. As a result, this distinct business is a significantly smaller portion of its business today than

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

in the past. As of December 31, 2015, only N-Star securities CDOs I and IX continue to be consolidated. Refer to Note 17 for further disclosure regarding deconsolidated N-Star CDOs. The Company continues to receive collateral management fees related to administrative responsibilities for deconsolidated N-Star CDO financing transactions, which are recorded in other revenue and included in the N-Star CDOs segment.

• Corporate - The corporate segment includes NSAM management fees incurred, corporate level interest income and interest expense and general and administrative expenses.

The Company primarily generates revenue from rental income from its real estate properties, operating income from healthcare and hotel properties permitted by the RIDEA and net interest income on the CRE debt and securities portfolios. Additionally, the Company records equity in earnings of unconsolidated ventures, including from PE Investments. The Company’s income is primarily derived through the difference between revenue and the cost at which the Company is able to finance its investments. The Company may also acquire investments which generate attractive returns without any leverage.

Prior to the NSAM Spin-off, the Company generated fee income from asset management activities. The asset management segment represents the consolidated results of operations and balance sheet of such asset management business which was transferred to NSAM in connection with the NSAM Spin-off. Amounts related to the asset management business are reported in discontinued operations and include an allocation of indirect expenses related to managing the NSAM Sponsored Companies and owning NorthStar Securities, including salaries, equity-based compensation and other general and administrative expenses (primarily occupancy and other costs) based on an estimate had the asset management business been run as an independent entity.

Prior to the NRE Spin-off, the Company generated rental and escalation income from its European properties. The European real estate segment represents the consolidated results of operations and balance sheet of such European real estate business which was transferred to NRE in connection with the NRE Spin-off. Amounts related to the European real estate business are reported in discontinued operations.

The following tables present segment reporting for the years endedDecember 31, 2015, 2014 and 2013 (dollars in thousands):

Statement of Operations:										N-Star CDOs(2)
Year Ended December 31, 2015	Real Estate(1)				CRE Debt			CRE Securities		CRE Securities			Corporate				European Real Estate(3)				Consolidated Total
Rental and escalation income	$	732,123			$	—		$	—	$	302		$	—			$	—			$	732,425
Hotel related income	784,151				—			—		—			—				—				784,151
Resident fee income	271,394				—			—		—			—				—				271,394
Net interest income on debt and securities	10,546			(4)	88,893			62,235		44,393			12,738			(5)	—				218,805
Interest expense—mortgage and corporate borrowings	433,023				—			—		—			53,385				—				486,408
Income (loss) before equity in earnings (losses) and income tax benefit (expense)	(163,974		)	(6)	86,476			85,618		(15,612		)	(355,973		)	(7)	—				(363,465		)
Equity in earnings (losses) of unconsolidated ventures	218,766				—			—		—			311				—				219,077
Income tax benefit (expense)	(13,776		)		(555		)	6		—			—				—				(14,325		)
Income (loss) from continuing operations	41,016				85,921			85,624		(15,612		)	(355,662		)		—				(158,713		)
Income (loss) from discontinued operations	(11		)		—			—		—			—				(108,543		)	(8)	(108,554		)
Net income (loss)	41,005				85,921			85,624		(15,612		)	(355,662		)		(108,543		)	(8)	(267,267		)
Balance Sheet:
December 31, 2015:
Investments in private equity funds, at fair value	1,101,650				—			—		—			—				—				1,101,650
Investments in unconsolidated ventures	129,457				8,526			—		—			17,754				—				155,737
Total Assets	13,871,796				66,527			913,402		422,953			128,367				—				15,403,045

___________________________________

(1) Includes $37.6 million of rental and escalation income and $2.3 million of net income from a portfolio of healthcare assets located in the United Kingdom.

(2) Based on CDO financing transactions that were primarily collateralized by CRE securities and may include other types of investments. $5.2 million of collateral management fees were earned from CDO financing transactions for the year endedDecember 31, 2015, of which $2.3 million was eliminated in consolidation. The eliminated amounts are recorded as other revenue in the Corporate segment and as an expense in the N-Star CDO segment.

(3) Represents the consolidated statements of operations of NRE reported in discontinued operations and includes an allocation of indirect expenses from the Company (refer to Note 9).

(4) Primarily represents interest income earned from notes receivable on manufactured homes and interest income on loans in the Griffin-American portfolio.

(5) Represents income earned from CDO bonds repurchased at a discount, recognized using the effective interest method, that is eliminated in consolidation. The corresponding interest expense is recorded in net interest income in the N-Star CDOs segment.

(6) Primarily relates to depreciation and amortization of $454.8 million.

(7) Includes management fees to NSAM of $198.7 million.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(8) Primarily relates to transaction costs of $109.5 million and depreciation and amortization of $42.4 million.

Statement of Operations:											N-Star CDOs(1)
Year Ended December 31, 2014	Real Estate				CRE Debt			CRE Securities			CRE Securities			Corporate				Asset Management(2)			European Real Estate(3)				Consolidated Total
Rental and escalation income	$	348,666			$	—		$	—		$	1,285		$	—			$	—		$	—			$	349,951
Hotel related income	237,039				—			—			—			—				—			—				237,039
Resident fee income	77,516				—			—			—			—				—			—				77,516
Net interest income on debt and securities	5,951			(4)	145,159			82,246			63,216			1,567			(5)	—			—				298,139
Interest expense—mortgage and corporate borrowings	183,042				—			—			—			48,852				—			—				231,894
Income (loss) before equity in earnings (losses) and income tax benefit (expense)	(170,495		)	(6)	139,581			101,691			(185,730		)	(309,879		)		—			—				(424,832		)
Equity in earnings (losses) of unconsolidated ventures	162,126				2,644			—			—			283				—			—				165,053
Income tax benefit (expense)	(15,904		)		(70		)	(205		)	(352		)	(75		)		—			—				(16,606		)
Income (loss) from continuing operations	(24,273		)		142,155			101,486			(186,082		)	(309,671		)		—			—				(276,385		)
Income (loss) from discontinued operations	(925		)		—			—			—			—				(7,203		)	(36,573		)	(7)	(44,701		)
Net income (loss)	(25,198		)		142,155			101,486			(186,082		)	(309,671		)		(7,203		)	(36,573		)	(7)	(321,086		)
Balance Sheet:
December 31, 2014:
Investments in private equity funds, at fair value	$	962,038			$	—		$	—		$	—		$	—			$	—		$	—			$	962,038
Investments in unconsolidated ventures	184,026				8,526			—			—			15,225				—			—				207,777
Total Assets	12,771,368				1,158,947			417,884			506,616			163,264				—			160,633				15,178,712

___________________________________

(1) Based on CDO financing transactions that were primarily collateralized by CRE securities and may include other types of investments. $5.9 million of collateral management fees were earned from CDO financing transactions for the year endedDecember 31, 2014, of which $2.6 million was eliminated in consolidation. The eliminated amounts are recorded as other revenue in the Corporate segment and as an expense in the N-Star CDO segment.

(2) Represents the consolidated statements of operations of NSAM reported in discontinued operations and includes an allocation of indirect expenses from the Company (refer to Note 9).

(3) Represents the consolidated statements of operations of NRE reported in discontinued operations and includes an allocation of indirect expenses from the Company (refer to Note 9).

(4) Primarily represents interest income earned from notes receivable on manufactured homes.

(5) Represents income earned from CDO bonds repurchased at a discount, recognized using the effective interest method, that is eliminated in consolidation. The corresponding interest expense is recorded in net interest income in the N-Star CDOs segment.

(6) Includes depreciation and amortization of $182.1 million.

(7) Primarily relates to transaction costs of $27.5 million.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Statement of Operations:									N-Star CDOs(1)
Year Ended December 31, 2013	Real Estate				CRE Debt		CRE Securities		CRE Debt			CRE Securities		Corporate				Asset Management(2)			Consolidated Total
Rental and escalation income	$	202,765			$	260	$	—	$	30,947		$	1,152	$	—			$	—		$	235,124
Net interest income on debt and securities	833			(2)	48,594		38,160		50,669			84,600		43,501			(4)	—			266,357
Interest expense—mortgage and corporate borrowings	76,388				—		—		9,876			—		54,763				—			141,027
Income (loss) before equity in earnings (losses) and income tax benefit (expense)	(5,186		)	(5)	50,632		85,236		(312,148		)	96,380		(78,540		)		—			(163,626		)
Equity in earnings (losses) of unconsolidated ventures	88,949				3,594		—		(817		)	—		—				—			91,726
Income tax benefit (expense)	(7,249		)		—		—		—			—		—				—			(7,249		)
Income (loss) from continuing operations	76,514				54,226		85,236		(312,965		)	96,380		(78,540		)		—			(79,149		)
Income (loss) from discontinued operations	(8,356		)		—		—		—			—		—				(405		)	(8,761		)
Net income (loss)	68,158				54,226		85,236		(312,965		)	96,380		(78,540		)		(405		)	(87,910		)
Balance Sheet:
December 31, 2013:
Investments in private equity funds, at fair value	$	586,018			$	—	$	—	$	—		$	—	$	—			$	—		$	586,018
Investments in unconsolidated ventures	113,735				14,222		—		—			—		14,383				—			142,340
Total Assets	3,343,402				1,211,079		413,184		—			733,528		627,148				31,709			6,360,050

___________________________________

(1) Based on CDO financing transactions that were primarily collateralized by CRE securities and may include other types of investments. $11.1 million of collateral management fees were earned from CDO financing transactions for the year endedDecember 31, 2013, of which $10.4 million was eliminated in consolidation. The eliminated amounts are recorded as other revenue in the Corporate segment and as an expense in the N-Star CDO segment.

(2) Represents the consolidated statements of operations of NSAM reported in discontinued operations and includes an allocation of indirect expenses from the Company (refer to Note 9).

(3) Primarily represents interest income earned from notes receivable on manufactured homes and interest income on loans in the Griffin-American portfolio.

(4) Represents income earned from CDO bonds repurchased at a discount, recognized using the effective interest method, that is eliminated in consolidation. The corresponding interest expense is recorded in net interest income in the N-Star CDOs segment.

(5) Includes depreciation and amortization of $75.8 million.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

20. Supplemental Disclosures of Non-cash Investing and Financing Activities

The following table presents non-cash investing and financing activities for the years endedDecember 31, 2015, 2014 and 2013 (dollars in thousands):

	Years Ended December 31,
	2015		2014		2013
Reclassification of operating real estate, net to asset held for sale	$	2,627,551	$	22,323	$	30,063
Reclassification of mortgage note payable to liabilities held for sale	2,195,975		—		28,962
Net assets distributed in spin-off of European real estate business (refer to Note 9)	539,491		—		—
Assumption of mortgage notes payable upon acquisition of operating real estate	273,023		870,871		—
Reclassification of operating real estate to intangible assets	247,602		160,511		25,497
Reclassification of CRE debt investment to held for sale	224,677		15,223		—
Reclassification of other assets to asset held for sale	57,323		—		—
Reclassification of CRE debt investment and secured borrowing (refer to Note 10)	54,056		—		—
Acquired assets and liabilities in connection with European real estate acquisitions	49,942		—		—
Reclassification of intangible assets to asset held for sale	49,530		—		—
Reclassification of deferred financing costs to mortgage notes and other payables	49,050		—		—
Deferred purchase price for PE Investment XIV (refer to Note 5)	47,808		—		—
Escrow deposit payable related to CRE debt investments	47,303		34,521		57,226
Reclassification of other liabilities to intangible liabilities	37,836		—		—
Reduction of assets and liabilities held for sale via taking title	28,962		—		—
Reclassification of other assets to operating real estate	25,577		—		—
Conversion of Deferred LTIP Units to LTIP Units (refer to Note 13)	18,730		—		—
Reclassification of escrow deposit payable to other liabilities	17,377		—		—
Non-controlling interests—reallocation of interest in Operating Partnership (refer to Note 13)	14,548		—		—
Conversion of exchangeable senior notes	13,590		320,304		74,778
Reclassification of deferred financing costs to credit facilities	9,525		—		—
Dividends payable related to RSUs	3,548		—		2,128
Retirement of shares of common stock	2,001		—		—
Contribution from non-controlling interest	1,461		75,428		—
Reclassification of deferred financing costs to exchangeable senior notes	384		—		—
Non-cash related to PE Investments	218		15,581		17,473
Issuance of common stock in connection with the merger of Griffin-American	—		1,075,930		—
Acquired assets in connection with the merger of Griffin-American	—		503,784		—
Exchangeable senior notes exchanged for Senior Notes (refer to Note 8)	—		296,382		—
Acquired liabilities in connection with the merger of Griffin-American	—		229,015		—
Reclassification of operating real estate to other assets	—		67,655		89,219
CRE debt investment payoff due from servicer	—		64,092		—
Net assets distributed in spin-off of asset management business (refer to Note 9)	—		39,709		—
Conversion of Old LTIP Units (refer to Note 11)	—		18,611		10,129
Common stock related to transactions	—		6,801		17,712
Real estate acquisition(1)	—		—		135,361
Reduction of CRE debt investments(1)	—		—		135,361
Assignment of mortgage note payable via sale	—		—		7,813
Increase in restricted cash(1)	—		—		2,730
Deferred purchase price for PE Investment III (refer to Note 5)	—		—		39,759
Reclassification of real estate debt investment to other assets	—		—		8,952
Equity component of exchangeable senior notes	—		—		45,740

___________________________________________________________

(1) Non-cash activity occurred in connection with taking title to collateral.

169

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Cash Paid for Interest and Income Taxes

For the years endedDecember 31, 2015, 2014, and 2013, cash paid for interest on outstanding borrowings was $429.0 million, $223.0 million and $158.9 million, respectively. The difference between interest expense on the consolidated statements of operations and cash paid for interest is primarily due to reclassification of losses related to derivative instruments from OCI into earnings and non-cash interest expense recorded on amortization of deferred financing costs related to borrowings. For the years endedDecember 31, 2015 and 2014, cash paid for income taxes was $26.5 million and $3.4 million, respectively. There was an immaterial amount of cash paid for income taxes for the year endedDecember 31, 2013.

21. Subsequent Events

Dividends

On February 25, 2016, the Company declared a dividend of $0.40 per share of common stock, after giving effect to the Reverse Split. The common stock dividend will be paid on March 11, 2016 to stockholders of record as of the close of business on March 7, 2016. On January 28, 2016, the Company declared a dividend of $0.54688 per share of Series A preferred stock, $0.51563 per share of Series B preferred stock, $0.55469 per share of Series C preferred stock, $0.53125 per share of Series D Preferred Stock and $0.54688 per share of Series E Preferred Stock. Dividends were paid on all series of preferred stock on February 16, 2016 to stockholders of record as of the close of business on February 8, 2016.

Strategic Initiatives

On February 25, 2016, the Company announced that its board of directors formed a special committee and the special committee retained UBS Investment Bank as its financial advisor to explore a potential recombination transaction with NSAM. The special committee will be comprised solely of independent directors that are not on the board of directors of NSAM, including the new independent director appointed to the board of directors effective March 1, 2016. There can be no assurance that the exploration of corporate strategic initiatives will result in the identification or consummation of any strategic transaction or initiative.

170

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

(Dollars in Thousands)

	Beginning Balance		Charged to Costs and Expenses				Other Charges		Deductions			Ending Balance
For the Year Ended December 31, 2015
Loan loss reserves	$	5,599	2,240			(1)(2)	—		—			$	7,839
Allowance for doubtful accounts	2,020		6,678				—		(4,380		)	4,318
Allowance for unbilled rent receivable	4,037		—				—		(3,921		)	116
	$	11,656	$	8,918			$	—	$	(8,301	)	$	12,273
For the Year Ended December 31, 2014
Loan loss reserves	$	2,880	$	2,719		(1)	$	—	$	—		$	5,599
Allowance for doubtful accounts	1,151		3,220				—		(2,351		)	2,020
Allowance for unbilled rent receivable	307		7,638				—		(3,908		)	4,037
	$	4,338	$	13,577			$	—	$	(6,259	)	$	11,656
For the Year Ended December 31, 2013
Loan loss reserves	$	156,699	$	(8,786	)		$	—	$	(145,033	)	$	2,880
Allowance for doubtful accounts	1,526		784				—		(1,159		)	1,151
Allowance for unbilled rent receivable	—		354				—		(47		)	307
	$	158,225	$	(7,648	)		$	—	$	(146,239	)	$	4,338

____________________________________________________________

(1) Excludes $0.8 million of provision for loan losses relating to manufactured housing notes receivables recorded in assets of properties held for sale for the year endedDecember 31, 2015 and $1.0 million recorded in other assets for the year endedDecember 31, 2014, respectively.

(2) Includes $1.2 million of provision for loan losses relating to loans held for sale for the year endedDecember 31, 2015.

171

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

As of December 31, 2015

(Dollars in Thousands)

Column A	Column B		Column C Initial Cost				Column D Capitalized Subsequent to Acquisition		Column E Gross Amount Carried at Close of Period						Column F				Column G	Column H
Location City, State	Encumbrances		Land		Building & Improvements		Land, Buildings & Improvements		Land		Building & Improvements		Total (5)(6)		Accumulated Depreciation		Total		Date Acquired	Life on Which Depreciation is Computed
Healthcare
Medical Office Building
Abilene, TX	$	11,430	$	986	$	18,279	$	57	$	986	$	18,336	$	19,322	$	635	$	18,687	Dec-14	39 years
Alice, TX (3)	6,199		—		6,847		21		—		6,868		6,868		324		6,544		Dec-14	39 years
Amarillo, TX	17,435		2,867		10,462		34		2,867		10,496		13,363		474		12,889		Dec-14	39 years
Austell, GA	7,362		2,464		10,346		53		2,464		10,399		12,863		435		12,428		Dec-14	39 years
Avon, IN	5,231		704		7,123		67		704		7,190		7,894		185		7,709		Dec-14	39 years
Batavia, OH (3)	9,589		—		19,664		61		—		19,725		19,725		763		18,962		Dec-14	39 years
Beachwood, OH	12,108		2,384		23,035		549		2,384		23,584		25,968		1,047		24,921		Dec-14	39 years
Benton, AR (3)	9,378		—		20,150		251		—		20,401		20,401		712		19,689		Dec-14	39 years
Bessemer, AL (3)	25,208		—		49,025		169		—		49,194		49,194		1,736		47,458		Dec-14	39 years
Bloomington, IN	5,812		634		8,310		258		634		8,568		9,202		377		8,825		Dec-14	39 years
Boynton Beach, FL (3)	—		—		10,326		288		—		10,614		10,614		402		10,212		Dec-14	39 years
Bradenton, FL (3)	12,723		—		16,855		2,391		—		19,246		19,246		636		18,610		Dec-14	39 years
Brentwood, CA	16,292		2,273		20,262		63		2,273		20,325		22,598		807		21,791		Dec-14	39 years
Brownsburg, IN	17,629		1,358		15,981		73		1,358		16,054		17,412		573		16,839		Dec-14	39 years
Bryant, AR	5,570		573		8,977		28		573		9,005		9,578		311		9,267		Dec-14	39 years
Carlsbad, NM (3)	6,800		—		7,156		22		—		7,178		7,178		328		6,850		Dec-14	39 years
Carmel, IN	22,472		1,106		42,707		275		1,106		42,982		44,088		1,473		42,615		Dec-14	39 years
Carson City, NV	19,179		1,277		26,454		118		1,277		26,572		27,849		1,085		26,764		Dec-14	39 years
Champaign, IL	4,688		1,106		7,203		22		1,106		7,225		8,331		362		7,969		Dec-14	39 years
Chillicothe, OH	—		955		24,895		78		955		24,973		25,928		1,070		24,858		Dec-14	39 years
Chula Vista, CA	22,543		5,179		27,263		971		5,179		28,234		33,413		1,011		32,402		Dec-14	39 years
Cleveland, OH	6,635		1,740		13,336		218		1,740		13,554		15,294		516		14,778		Dec-14	39 years
Columbia, SC	3,874		744		10,679		160		744		10,839		11,583		407		11,176		Dec-14	39 years
Decatur, GA	14,231		2,963		21,538		110		2,963		21,648		24,611		970		23,641		Dec-14/Jan-15	39 years
Des Plaines, IL	9,880		1,840		9,039		136		1,840		9,175		11,015		405		10,610		Dec-14	39 years
DeSoto, TX	9,414		976		9,216		29		976		9,245		10,221		406		9,815		Dec-14	39 years
East Arlington, TX	3,102		3,619		901		63		3,619		964		4,583		196		4,387		May-07	40 years
El Paso, TX (3)	9,996		—		18,462		69		—		18,531		18,531		748		17,783		Dec-14	39 years
Ennis, TX	7,265		573		7,850		25		573		7,875		8,448		258		8,190		Dec-14	39 years
Escanaba, MI (3)	13,437		—		12,462		39		—		12,501		12,501		437		12,064		Dec-14	39 years
Evansville, IN (3)	34,515		—		34,450		108		—		34,558		34,558		1,358		33,200		Dec-14	39 years
Frisco, TX	16,902		2,645		11,225		40		2,645		11,265		13,910		472		13,438		Dec-14	39 years
Greeley, CO	36,636		8,005		40,791		290		8,005		41,081		49,086		1,782		47,304		Dec-14	39 years
Hendersonville, TN	7,846		1,488		9,000		28		1,488		9,028		10,516		434		10,082		Dec-14	39 years

172

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

As of December 31, 2015

(Dollars in Thousands)

Column A	Column B		Column C Initial Cost				Column D Capitalized Subsequent to Acquisition		Column E Gross Amount Carried at Close of Period						Column F				Column G	Column H
Location City, State	Encumbrances		Land		Building & Improvements		Land, Buildings & Improvements		Land		Building & Improvements		Total (5)(6)		Accumulated Depreciation		Total		Date Acquired	Life on Which Depreciation is Computed
Highlands Ranch, CO	$	8,495	$	2,062	$	4,890	$	484	$	2,062	$	5,374	$	7,436	$	253	$	7,183	Dec-14	39 years
Hilo, HI	8,814		443		9,115		28		443		9,143		9,586		379		9,207		Dec-14	39 years
Hinsdale, IL	37,001		4,948		29,775		1,760		4,948		31,535		36,483		1,323		35,160		Dec-14	39 years
Hobbs, NM (3)	4,262		—		3,924		12		—		3,936		3,936		186		3,750		Dec-14	39 years
Hope, AR (3)	533		—		2,038		6		—		2,044		2,044		107		1,937		Dec-14	39 years
Houston, TX (3)	4,097		—		5,647		77		—		5,724		5,724		312		5,412		Dec-14	39 years
Humble, TX	11,594		332		14,996		47		332		15,043		15,375		496		14,879		Dec-14	39 years
Huntsville, AL (3)	8,718		—		13,126		78		—		13,204		13,204		572		12,632		Dec-14	39 years
Indianapolis, IN	82,160		9,334		112,857		1,641		9,334		114,498		123,832		4,674		119,158		Dec-14	39 years
Jasper, GA	14,505		2,565		14,652		70		2,565		14,722		17,287		671		16,616		Dec-14	39 years
Jersey City, NJ (3)	31,771		—		39,450		137		—		39,587		39,587		1,417		38,170		Dec-14	39 years
Johns Creek, GA	19,469		4,526		24,739		381		4,526		25,120		29,646		1,044		28,602		Dec-14	39 years
Killeen, TX	1,744		292		1,918		6		292		1,924		2,216		77		2,139		Dec-14	39 years
Knoxville, TN	58,785		3,942		75,172		235		3,942		75,407		79,349		2,583		76,766		Dec-14	39 years
Lacombe, LA	11,381		965		17,654		55		965		17,709		18,674		675		17,999		Dec-14	39 years
Lafayette, IN	36,129		3,198		43,616		143		3,198		43,759		46,957		1,703		45,254		Dec-14	39 years
Lake Charles, LA (3)	3,429		—		2,969		9		—		2,978		2,978		160		2,818		Dec-14	39 years
Las Vegas, NM (3)	4,843		—		3,534		11		—		3,545		3,545		168		3,377		Dec-14	39 years
Lawton, OK (3)	11,944		—		11,536		36		—		11,572		11,572		483		11,089		Dec-14	39 years
Lemont, IL	6,683		553		9,013		141		553		9,154		9,707		367		9,340		Dec-14	39 years
Livingston, TX (3)	6,296		—		6,139		19		—		6,158		6,158		259		5,899		Dec-14	39 years
Lufkin, TX (3)	3,962		—		3,603		11		—		3,614		3,614		185		3,429		Dec-14	39 years
Marrietta, GA	13,561		2,062		14,615		73		2,062		14,688		16,750		583		16,167		Dec-14	39 years
Memphis, TN	5,134		412		8,570		42		412		8,612		9,024		369		8,655		Dec-14	39 years
Middletown, NY	119,033		4,998		114,970		359		4,998		115,329		120,327		3,687		116,640		Dec-14	39 years
Muncie, IN	8,136		1,116		8,564		74		1,116		8,638		9,754		405		9,349		Dec-14	39 years
Munster, IN	28,126		2,967		38,565		209		2,967		38,774		41,741		1,274		40,467		Dec-14	39 years
Naperville, IL	9,938		724		8,882		32		724		8,914		9,638		360		9,278		Dec-14	39 years
New Port Richey, FL	3,681		1,126		6,805		21		1,126		6,826		7,952		292		7,660		Dec-14	39 years
Noblesville, IN	15,315		2,011		18,383		387		2,011		18,770		20,781		840		19,941		Dec-14	39 years
Novi, MI	11,623		2,011		16,418		91		2,011		16,509		18,520		684		17,836		Dec-14	39 years
Okatie, SC (3)	6,563		—		9,848		50		—		9,898		9,898		396		9,502		Dec-14	39 years
Pocatello, ID (3)	24,215		—		27,207		90		—		27,297		27,297		936		26,361		Dec-14	39 years
Raleigh, NC (3)	23,317		—		29,549		604		—		30,153		30,153		863		29,290		Dec-14	39 years
Rockhill, NY	35,049		3,007		33,526		105		3,007		33,631		36,638		977		35,661		Dec-14	39 years
Rockwall, TX	30,681		3,238		28,182		169		3,238		28,351		31,589		1,260		30,329		Dec-14	39 years

173

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

As of December 31, 2015

(Dollars in Thousands)

Column A	Column B		Column C Initial Cost				Column D Capitalized Subsequent to Acquisition		Column E Gross Amount Carried at Close of Period						Column F				Column G	Column H
Location City, State	Encumbrances		Land		Building & Improvements		Land, Buildings & Improvements		Land		Building & Improvements		Total (5)(6)		Accumulated Depreciation		Total		Date Acquired	Life on Which Depreciation is Computed
Rowlett, TX	$	3,487	$	563	$	3,753	$	12	$	563	$	3,765	$	4,328	$	184	$	4,144	Dec-14	39 years
Ruston, LA	20,583		1,277		24,565		77		1,277		24,642		25,919		1,022		24,897		Dec-14	39 years
San Angelo, TX (3)	8,282		—		12,350		55		—		12,405		12,405		576		11,829		Dec-14	39 years
San Antonio, TX	37,993		1,850		68,017		525		1,850		68,542		70,392		2,419		67,973		Dec-14	39 years
Santa Rosa, CA	19,082		5,149		21,284		91		5,149		21,375		26,524		1,045		25,479		Dec-14	39 years
Sarasota, FL	8,718		795		15,009		108		795		15,117		15,912		577		15,335		Dec-14	39 years
Sartell, MN	7,362		1,106		8,954		32		1,106		8,986		10,092		410		9,682		Dec-14	39 years
Schertz, TX	4,049		483		4,396		40		483		4,436		4,919		176		4,743		Dec-14	39 years
Shelbyville, TN (3)	7,095		—		7,981		35		—		8,016		8,016		376		7,640		Dec-14	39 years
Shenandoah, TX	12,301		1,458		17,510		481		1,458		17,991		19,449		765		18,684		Dec-14	39 years
Spokane, WA	22,548		1,297		64,127		206		1,297		64,333		65,630		2,026		63,604		Dec-14	39 years
St. John, IN	3,487		412		5,208		24		412		5,232		5,644		173		5,471		Dec-14	39 years
St. Petersburg, FL (3)	9,682		—		18,253		229		—		18,482		18,482		697		17,785		Dec-14	39 years
Stockbridge, GA	11,817		1,096		13,818		50		1,096		13,868		14,964		565		14,399		Dec-14	39 years
Sylva, NC (3)	13,561		—		11,673		36		—		11,709		11,709		433		11,276		Dec-14	39 years
Tempe, AZ (3)	8,088		—		14,597		130		—		14,727		14,727		591		14,136		Dec-14	39 years
Temple, TX	7,652		634		10,644		33		634		10,677		11,311		415		10,896		Dec-14	39 years
Texarkana, TX	7,362		583		8,829		28		583		8,857		9,440		346		9,094		Dec-14	39 years
Urbana, IL (3)	12,205		—		15,746		71		—		15,817		15,817		573		15,244		Dec-14	39 years
Vicksburg, MS (3)	11,500		—		14,528		45		—		14,573		14,573		328		14,245		Jun-15	39 years
Victoria, TX (3)	7,546		—		9,347		29		—		9,376		9,376		435		8,941		Dec-14	39 years
Warsaw, IN (3)	6,170		—		5,568		17		—		5,585		5,585		253		5,332		Dec-14	39 years
West Bloomfield, MI	8,911		1,478		7,059		412		1,478		7,471		8,949		296		8,653		Dec-14	39 years
Westminster, CO	17,445		613		23,155		106		613		23,261		23,874		1,002		22,872		Dec-14	39 years
Wharton, TX (3)	5,405		—		4,257		13		—		4,270		4,270		203		4,067		Dec-14	39 years
Total Medical Office Building	1,404,699		124,085		1,805,344		17,742		124,085		1,823,086		1,947,171		70,041		1,877,130
Skilled Nursing Facilities
Abingdon, VA	7,151		541		6,751		—		541		6,751		7,292		425		6,867		May-14	40 years
Annandale, VA	7,032		2,520		11,824		—		2,520		11,824		14,344		695		13,649		May-14	40 years
Atlanta, GA	29,446		3,359		29,943		93		3,359		30,036		33,395		928		32,467		Dec-14	39 years
Aurora, IL	12,780		1,382		20,711		120		1,382		20,831		22,213		1,070		21,143		May-14	40 years
Baltimore, MD	7,235		1,761		9,299		—		1,761		9,299		11,060		532		10,528		May-14	40 years
Bastian, VA	3,644		282		3,207		10		282		3,217		3,499		110		3,389		Dec-14	39 years
Belvidere, IL	11,302		597		22,630		823		597		23,453		24,050		1,258		22,792		May-14	40 years
Bend, OR	10,955		1,368		13,238		41		1,368		13,279		14,647		409		14,238		Dec-14	39 years

174

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

As of December 31, 2015

(Dollars in Thousands)

Column A	Column B		Column C Initial Cost				Column D Capitalized Subsequent to Acquisition		Column E Gross Amount Carried at Close of Period						Column F				Column G	Column H
Location City, State	Encumbrances		Land		Building & Improvements		Land, Buildings & Improvements		Land		Building & Improvements		Total (5)(6)		Accumulated Depreciation		Total		Date Acquired	Life on Which Depreciation is Computed
Black Mountain, NC	$	6,023	$	468	$	5,786	$	861	$	468	$	6,647	$	7,115	$	1,452	$	5,663	Jul-06	40 years
Blountstown, FL	5,111		378		5,069		908		378		5,977		6,355		1,285		5,070		Jul-06	40 years
Boetourt, VA	4,699		342		7,447		23		342		7,470		7,812		232		7,580		Dec-14	39 years
Castleton, IN	7,453		677		8,077		—		677		8,077		8,754		1,725		7,029		Jun-07	40 years
Chesterfield, IN	4,282		815		4,204		—		815		4,204		5,019		898		4,121		Jun-07	39 years
Clemmons, NC	2,860		337		4,541		33		337		4,574		4,911		932		3,979		Apr-07	40 years
Columbia City, IN	8,339		1,034		6,390		—		1,034		6,390		7,424		1,364		6,060		Jun-07	40 years
Conyers, GA	20,147		1,850		26,868		84		1,850		26,952		28,802		791		28,011		Dec-14	39 years
Covington, GA	21,019		1,478		21,611		67		1,478		21,678		23,156		660		22,496		Dec-14	39 years
Crestwood, IL	15,002		1,600		24,785		353		1,600		25,138		26,738		1,262		25,476		May-14	40 years
Dalton, MA	7,050		1,820		3,022		9		1,820		3,031		4,851		77		4,774		Dec-14	39 years
Daly City, CA	22,205		3,298		1,872		12,323		3,298		14,195		17,493		7,701		9,792		Aug-07	40 years
Decatur, IL	14,098		1,959		23,365		496		1,959		23,861		25,820		1,402		24,418		May-14	40 years
Dunkirk, IN	2,164		310		2,299		—		310		2,299		2,609		491		2,118		Jun-07	40 years
Eustis, FL	14,692		821		4,629		—		821		4,629		5,450		301		5,149		May-14	40 years
Fort Lauderdale, FL	5,470		583		5,592		—		583		5,592		6,175		297		5,878		May-14	40 years
Fort Myers, FL	4,738		1,060		12,343		19		1,060		12,362		13,422		635		12,787		May-14	40 years
Fort Wayne, IN	5,048		1,478		4,409		—		1,478		4,409		5,887		942		4,945		Jun-07	40 years
Gainesville, FL	12,409		1,099		22,002		351		1,099		22,353		23,452		1,075		22,377		May-14	40 years
Gainesville, GA	14,432		1,167		17,273		54		1,167		17,327		18,494		521		17,973		Dec-14	39 years
Grants Pass, OR	10,200		1,247		11,425		36		1,247		11,461		12,708		362		12,346		Dec-14	39 years
Hartford City, IN	721		199		1,782		—		199		1,782		1,981		380		1,601		Jun-07	40 years
Hobart, IN	5,860		1,835		5,019		—		1,835		5,019		6,854		1,072		5,782		Jun-07	40 years
Hot Springs, VA	2,973		292		3,167		10		292		3,177		3,469		109		3,360		Dec-14	39 years
Huntington, IN	5,094		646		5,037		—		646		5,037		5,683		1,075		4,608		Jun-07	40 years
Hyde Park, MA	2,092		1,130		568		2		1,130		570		1,700		11		1,689		Dec-14	39 years
Jacksonville, FL	16,778		2,640		28,470		49		2,640		28,519		31,159		1,609		29,550		May-14	40 years
Joliet, IL	16,833		1,113		24,696		449		1,113		25,145		26,258		1,215		25,043		May-14	40 years
Kissimmee, FL	5,628		1,122		16,503		—		1,122		16,503		17,625		851		16,774		May-14	40 years
LaGrange, IN	4,829		446		5,494		—		446		5,494		5,940		1,173		4,767		Jun-07	40 years
Lakeland, FL	14,595		1,477		18,811		—		1,477		18,811		20,288		1,026		19,262		May-14	40 years
Largo, FL	18,770		2,277		30,507		44		2,277		30,551		32,828		1,662		31,166		May-14	40 years
Lebanon, VA	4,507		352		4,710		15		352		4,725		5,077		153		4,924		Dec-14	39 years
Lincoln, IL	2,913		904		2,865		127		904		2,992		3,896		337		3,559		May-14	40 years
Longwood, FL	6,230		973		8,557		—		973		8,557		9,530		479		9,051		May-14	40 years
Low Moor, VA	8,918		734		10,021		31		734		10,052		10,786		319		10,467		Dec-14	39 years

175

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

As of December 31, 2015

(Dollars in Thousands)

Column A	Column B		Column C Initial Cost				Column D Capitalized Subsequent to Acquisition			Column E Gross Amount Carried at Close of Period						Column F				Column G	Column H
Location City, State	Encumbrances		Land		Building & Improvements		Land, Buildings & Improvements			Land		Building & Improvements		Total (5)(6)		Accumulated Depreciation		Total		Date Acquired	Life on Which Depreciation is Computed
McMinnville, TN	$	5,141	$	1,078	$	7,235	$	—		$	1,078	$	7,235	$	8,313	$	470	$	7,843	May-14	40 years
Memphis, TN	14,723		1,539		15,274		48			1,539		15,322		16,861		469		16,392		Dec-14	39 years
Middletown, IN	3,831		184		4,750		—			184		4,750		4,934		1,014		3,920		Jun-07	40 years
Midlothian, VA	14,747		1,770		18,788		59			1,770		18,847		20,617		570		20,047		Dec-14	39 years
Millington, TN	15,207		503		16,324		51			503		16,375		16,878		492		16,386		Dec-14	39 years
Milton, PA	9,685		1,418		9,954		38			1,418		9,992		11,410		326		11,084		Dec-14	39 years
Mobile, AL	9,783		382		9,577		30			382		9,607		9,989		310		9,679		Dec-14	39 years
Morris, IL	3,833		568		9,103		(2,682		)	568		6,421		6,989		1,637		5,352		May-06	40 years
Mt. Sterling, KY	9,430		996		12,561		373			996		12,934		13,930		2,699		11,231		Feb-07	40 years
Niles, MI	4,572		498		6,667		—			498		6,667		7,165		449		6,716		May-14	40 years
North Bend, WA	2,267		734		833		3			734		836		1,570		45		1,525		Dec-14	39 years
Olympia, WA	2,550		362		2,152		7			362		2,159		2,521		70		2,451		Dec-14	39 years
Ormond Beach, FL	11,743		2,072		15,817		—			2,072		15,817		17,889		990		16,899		May-14	40 years
Palm Harbor, FL	14,465		1,011		13,994		63			1,011		14,057		15,068		764		14,304		May-14	40 years
Peru, IN	4,507		502		7,135		—			502		7,135		7,637		1,523		6,114		Jun-07	40 years
Philadelphia, PA	147,260		4,939		165,954		519			4,939		166,473		171,412		5,005		166,407		Dec-14	39 years
Pittsfield, MA	9,343		2,620		4,278		13			2,620		4,291		6,911		112		6,799		Dec-14	39 years
Prineville, OR	944		563		1,406		4			563		1,410		1,973		58		1,915		Dec-14	39 years
Redmond, OR	6,139		543		6,790		21			543		6,811		7,354		212		7,142		Dec-14	39 years
Rockport, IN	2,119		619		2,092		—			619		2,092		2,711		446		2,265		Jun-07	40 years
Royersford, PA	41,002		20,164		23,921		75			20,164		23,996		44,160		838		43,322		Dec-14	39 years
Rushville, IN	5,401		310		5,858		—			310		5,858		6,168		1,251		4,917		Jun-07	40 years
Sarasota, FL	9,355		1,406		15,946		8			1,406		15,954		17,360		883		16,477		May-14	40 years
Shreveport, LA	20,341		945		23,371		73			945		23,444		24,389		737		23,652		Dec-14	39 years
Snellville, GA	22,956		2,876		25,527		80			2,876		25,607		28,483		766		27,717		Dec-14	39 years
Soddy Daisy, TN	8,587		947		9,956		—			947		9,956		10,903		629		10,274		May-14	40 years
St. Petersburg, FL	12,290		1,489		11,266		—			1,489		11,266		12,755		701		12,054		May-14	40 years
Sterling, IL	5,232		129		6,229		(1,145		)	129		5,084		5,213		1,399		3,814		May-06	40 years
Sullivan, IN	5,344		1,794		4,469		—			1,794		4,469		6,263		953		5,310		Jun-07	40 years
Syracuse, IN	4,733		125		4,564		—			125		4,564		4,689		975		3,714		Jun-07	40 years
Tacoma, WA	10,200		1,901		10,763		34			1,901		10,797		12,698		362		12,336		Dec-14	39 years
Tampa, FL	11,270		1,892		20,724		—			1,892		20,724		22,616		1,163		21,453		May-14	40 years
Three Rivers, MI	4,004		590		5,354		—			590		5,354		5,944		416		5,528		May-14	40 years
Tipton, IN	9,944		1,102		10,836		(26		)	1,102		10,810		11,912		2,129		9,783		Jun-07	40 years
Vero Beach, FL	6,555		672		7,531		—			672		7,531		8,203		407		7,796		Jun-07	40 years
Wabash, IN	6,311		2,511		5,024		—			2,511		5,024		7,535		1,072		6,463		Jun-07	40 years

176

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

As of December 31, 2015

(Dollars in Thousands)

Column A	Column B		Column C Initial Cost				Column D Capitalized Subsequent to Acquisition		Column E Gross Amount Carried at Close of Period						Column F				Column G	Column H
Location City, State	Encumbrances		Land		Building & Improvements		Land, Buildings & Improvements		Land		Building & Improvements		Total (5)(6)		Accumulated Depreciation		Total		Date Acquired	Life on Which Depreciation is Computed
Wakarusa, IN	$	9,316	$	289	$	13,420	$	—	$	289	$	13,420	$	13,709	$	2,866	$	10,843	Jun-07	40 years
Watsontown, PA	5,479		684		4,626		63		684		4,689		5,373		170		5,203		Dec-14	39 years
West Melbourne, FL	10,696		1,659		10,792		—		1,659		10,792		12,451		701		11,750		May-14	40 years
Yuma, AZ	11,623		875		17,617		55		875		17,672		18,547		542		18,005		Dec-14	39 years
Total Skilled Nursing Facilities	926,655		117,032		1,075,297		15,195		117,032		1,090,492		1,207,524		77,924		1,129,600
Assisted Living Facilities - RIDEA
Albany, OR	10,400		510		13,149		24		510		13,173		13,683		617		13,066		May-14	40 years
Baker City, OR	4,697		510		8,195		207		510		8,402		8,912		464		8,448		May-14	40 years
Battle Ground, WA	9,525		740		12,503		32		740		12,535		13,275		634		12,641		May-14	40 years
Bremerton, WA	4,562		964		8,171		874		964		9,045		10,009		2,064		7,945		Jan-07	40 years
Carrollton, GA	6,911		816		4,220		3,325		816		7,545		8,361		1,426		6,935		May-14	40 years
Casa Grande, AZ	8,998		420		11,907		383		420		12,290		12,710		698		12,012		May-14	40 years
Cedar Park, TX	6,140		1,230		3,318		112		1,230		3,430		4,660		230		4,430		Jan-07	40 years
Charleston, IL	3,939		485		6,211		752		485		6,963		7,448		1,570		5,878		Jan-07/Dec-14	40 years
Cincinnati, OH	179,005		14,623		166,505		1,358		14,623		167,863		182,486		8,260		174,226		Jan-07	40 years
Clinton, OK	691		225		3,513		627		225		4,140		4,365		1,153		3,212		May-14	40 years
College Place, WA	7,575		580		9,823		154		580		9,977		10,557		478		10,079		Dec-14	39 years
Colorado Springs, CO	80,783		9,451		62,289		194		9,451		62,483		71,934		1,731		70,203		May-14	40 years
Corpus Christi, TX	15,150		2,269		17,396		365		2,269		17,761		20,030		954		19,076		Dec-14	39 years
Dalton, MA	10,674		1,210		10,988		268		1,210		11,256		12,466		306		12,160		May-07	40 years
Effingham, IL	9,135		811		9,684		410		811		10,094		10,905		1,579		9,326		Jan-07/Dec-14	40 years
Elk City, OK	4,700		143		6,721		1,062		143		7,783		7,926		1,828		6,098		Jan-07	40 years
Eugene, OR	12,640		840		14,813		148		840		14,961		15,801		745		15,056		May-14	40 years
Fairfield, IL	4,976		153		7,898		101		153		7,999		8,152		1,809		6,343		Jan-07	40 years
Fullerton, CA	7,464		5,422		9,436		456		5,422		9,892		15,314		2,305		13,009		Jan-07	40 years
Garden Grove, CA	6,704		6,975		5,927		286		6,975		6,213		13,188		1,483		11,705		Jan-07	40 years
Grants Pass, OR	7,520		490		6,900		31		490		6,931		7,421		410		7,011		May-14	40 years
Greenville, IL	8,420		220		9,387		29		220		9,416		9,636		258		9,378		Dec-14	39 years
Grove City, OH	4,890		613		6,882		1,259		613		8,141		8,754		1,628		7,126		Jun-07	40 years
Harrisburg, IL	2,808		191		5,059		73		191		5,132		5,323		1,138		4,185		Jun-07	40 years
Hood River, OR	9,360		390		11,113		79		390		11,192		11,582		590		10,992		May-14	40 years
Junction City, OR	4,531		840		5,984		230		840		6,214		7,054		366		6,688		May-14	40 years
Kingfisher, OK	1,106		128		5,497		309		128		5,806		5,934		1,456		4,478		Jan-07	40 years
La Grande, OR	7,272		430		9,635		306		430		9,941		10,371		531		9,840		May-14	40 years
La Vista, NE	2,558		562		4,966		434		562		5,400		5,962		1,254		4,708		Jan-07	40 years

177

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

As of December 31, 2015

(Dollars in Thousands)

Column A	Column B		Column C Initial Cost				Column D Capitalized Subsequent to Acquisition			Column E Gross Amount Carried at Close of Period						Column F				Column G	Column H
Location City, State	Encumbrances		Land		Building & Improvements		Land, Buildings & Improvements			Land		Building & Improvements		Total (5)(6)		Accumulated Depreciation		Total		Date Acquired	Life on Which Depreciation is Computed
Lake Wylie, SC	$	16,183	$	1,210	$	19,856	$	719		$	1,210	$	20,575	$	21,785	$	1,012	$	20,773	May-14	40 years
Lancaster, OH	8,429		1,014		11,874		1,654			1,014		13,528		14,542		2,373		12,169		Jun-07/Jan-12	40 years
League City, TX	16,607		2,539		20,426		231			2,539		20,657		23,196		1,064		22,132		May-14	40 years
Lincolnwood, IL	72,879		4,970		78,805		246			4,970		79,051		84,021		2,186		81,835		Dec-14	39 years
Mahomet, IL	7,177		290		6,779		21			290		6,800		7,090		187		6,903		Dec-14	39 years
Marysville, OH	4,501		2,218		5,015		495			2,218		5,510		7,728		1,309		6,419		Jun-07	40 years
Mattoon, IL	9,261		437		14,405		695			437		15,100		15,537		3,368		12,169		Jan-07	40 years
McMinnville, OR	10,715		650		11,686		188			650		11,874		12,524		649		11,875		May-14	40 years
Memphis, TN	15,712		5,791		19,902		1,241			5,791		21,143		26,934		3,910		23,024		Jan 07/Dec 14	40 years
Mobile, AL	4,540		510		6,848		(4,764		)	510		2,084		2,594		388		2,206		May-14	40 years
Mt. Zion, IL	5,187		290		2,305		7			290		2,312		2,602		61		2,541		Dec-14	39 years
Northglenn, CO	29,120		1,530		28,245		265			1,530		28,510		30,040		1,396		28,644		May-14	40 years
Oklahoma City, OK	1,451		757		5,184		364			757		5,548		6,305		1,445		4,860		Jan-07	40 years
Olney, IL	8,086		166		8,316		480			166		8,796		8,962		1,992		6,970		Jan-07	40 years
Paris, IL	6,082		187		6,797		81			187		6,878		7,065		1,538		5,527		Jan-07	40 years
Port Orchard, WA	6,539		790		8,763		183			790		8,946		9,736		426		9,310		May-14	40 years
Raleigh, NC	11,132		1,000		16,416		146			1,000		16,562		17,562		832		16,730		May-14	40 years
Rantoul, IL	6,289		151		5,377		374			151		5,751		5,902		1,291		4,611		Jan-07	40 years
Robinson, IL	4,285		219		4,746		118			219		4,864		5,083		1,133		3,950		Jan-07	40 years
Rockford, IL	4,907		1,101		4,814		98			1,101		4,912		6,013		1,128		4,885		Jan-07	40 years
Rogue River, OR	4,373		590		5,310		116			590		5,426		6,016		303		5,713		May-14	40 years
Roseburg, OR	25,142		2,160		23,626		219			2,160		23,845		26,005		1,146		24,859		May-14	40 years
Round Rock, TX	22,578		2,570		28,717		168			2,570		28,885		31,455		1,418		30,037		May-14	40 years
Sacramento, CA	11,474		1,570		18,259		18			1,570		18,277		19,847		893		18,954		May-14	40 years
Santa Ana, CA	3,525		2,281		7,046		238			2,281		7,284		9,565		1,722		7,843		Jan-07	40 years
Seaside, OR	605		720		3,526		215			720		3,741		4,461		261		4,200		May-14	40 years
Staunton, IL	9,248		180		8,433		26			180		8,459		8,639		231		8,408		Dec-14	39 years
Stephenville, TX	2,972		507		6,459		420			507		6,879		7,386		1,612		5,774		Jan-07	40 years
Sugar Land, TX	29,693		2,240		31,010		284			2,240		31,294		33,534		1,503		32,031		May-14	40 years
Sycamore, IL	8,155		816		9,897		182			816		10,079		10,895		2,274		8,621		Jan-07	40 years
Temple, TX	15,564		2,260		20,149		1,369			2,260		21,518		23,778		1,072		22,706		May-14	40 years
Tuscola, IL	4,460		237		4,616		293			237		4,909		5,146		1,158		3,988		Jan-07	40 years
Tyler, TX	10,333		2,020		12,719		202			2,020		12,921		14,941		747		14,194		May-14	40 years
Ukiah, CA	4,942		990		7,637		76			990		7,713		8,703		417		8,286		May-14	40 years
Vandalia, IL	6,566		82		7,969		91			82		8,060		8,142		1,804		6,338		Jan-07	40 years
Washington Court House, OH	4,390		341		5,169		1,666			341		6,835		7,176		1,301		5,875		Jun-07	40 years

178

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

As of December 31, 2015

(Dollars in Thousands)

Column A	Column B		Column C Initial Cost				Column D Capitalized Subsequent to Acquisition		Column E Gross Amount Carried at Close of Period						Column F				Column G	Column H
Location City, State	Encumbrances		Land		Building & Improvements		Land, Buildings & Improvements		Land		Building & Improvements		Total (5)(6)		Accumulated Depreciation		Total		Date Acquired	Life on Which Depreciation is Computed
Weatherford, OK	$	1,521	$	229	$	5,600	$	398	$	229	$	5,998	$	6,227	$	1,540	$	4,687	Jan-07	40 years
Wenatchee, WA	15,600		1,340		17,486		115		1,340		17,601		18,941		891		18,050		May-14	40 years
Wichita, KS	5,322		2,282		10,478		425		2,282		10,903		13,185		2,153		11,032		Dec-07	40 years
Woodburn, OR	4,023		310		6,619		163		310		6,782		7,092		340		6,752		May-14	40 years
Total Assisted Living Facilities - RIDEA	882,702		101,786		985,374		23,414		101,786		1,008,788		1,110,574		88,439		1,022,135
Assisted Living Facilities(1)
Alexandria, MN	1,653		260		2,200		—		260		2,200		2,460		168		2,292		Jun-13	40 years
Ascot, UK	16,341		2,286		19,289		—		2,286		19,289		21,575		537		21,038		Dec-14	39 years
Auchtermuchty, UK	2,580		333		3,074		—		333		3,074		3,407		86		3,321		Dec-14	39 years
Baxter, MN	1,868		220		2,786		77		220		2,863		3,083		211		2,872		Jun-13	40 years
Bend, OR	26,569		2,676		36,595		14		2,676		36,609		39,285		1,792		37,493		Dec-14	39 years
Bishops Hull, UK	5,451		1,262		5,935		—		1,262		5,935		7,197		165		7,032		Dec-14	39 years
Braintree, UK	1,953		554		2,024		—		554		2,024		2,578		57		2,521		Dec-14	39 years
Bromley, UK	4,059		1,247		4,112		—		1,247		4,112		5,359		115		5,244		Dec-14	39 years
Camberely, UK	2,902		2,663		1,168		—		2,663		1,168		3,831		33		3,798		Dec-14	39 years
Chippenham, UK	5,478		1,778		5,454		—		1,778		5,454		7,232		152		7,080		Dec-14	39 years
Chipping Campden, UK	10,058		1,732		11,548		—		1,732		11,548		13,280		321		12,959		Dec-14	39 years
Chobham, UK	14,325		2,309		16,604		—		2,309		16,604		18,913		462		18,451		Dec-14	39 years
Cloquet, MN	2,587		170		4,021		62		170		4,083		4,253		289		3,964		Jun-13	40 years
Corvallis, OR	6,800		744		6,338		20		744		6,358		7,102		198		6,904		Dec-14	39 years
Cranleigh, UK	9,599		2,694		9,979		—		2,694		9,979		12,673		278		12,395		Dec-14	39 years
Denham, UK	8,555		1,801		7,761		1,732		1,801		9,493		11,294		232		11,062		Dec-14	39 years
Detroit Lakes, MN	4,528		290		4,174		144		290		4,318		4,608		334		4,274		Jun-13	40 years
Dorking, UK	5,946		1,478		6,372		—		1,478		6,372		7,850		178		7,672		Dec-14	39 years
Duluth, MN	15,450		1,300		16,791		—		1,300		16,791		18,091		1,172		16,919		Jun-13	40 years
Durham, NC	20,728		2,434		23,631		74		2,434		23,705		26,139		692		25,447		Dec-14	39 years
Eustis, FL (3)	412		—		—		—		—		—		—		—		—		May-14	40 years
Farleigh Common, UK	15,889		2,328		18,651		—		2,328		18,651		20,979		519		20,460		Dec-14	39 years
Farmoor, UK	15,898		1,778		15,700		3,512		1,778		19,212		20,990		437		20,553		Dec-14	39 years
Fayetteville, NC	11,527		1,187		9,598		30		1,187		9,628		10,815		297		10,518		Dec-14	39 years
Fishcross, UK	8,069		2,155		8,499		—		2,155		8,499		10,654		237		10,417		Dec-14	39 years
Fuguay-Varina, NC	16,079		1,126		19,556		61		1,126		19,617		20,743		576		20,167		Dec-14	39 years
Grand Rapids, MN	1,509		160		3,849		71		160		3,920		4,080		278		3,802		Jun-13	40 years
Haywards Heath, UK	9,350		1,455		10,890		—		1,455		10,890		12,345		303		12,042		Dec-14	39 years
Hulcott, UK	5,344		1,559		4,481		1,016		1,559		5,497		7,056		137		6,919		Dec-14	39 years

179

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

As of December 31, 2015

(Dollars in Thousands)

Column A	Column B		Column C Initial Cost				Column D Capitalized Subsequent to Acquisition		Column E Gross Amount Carried at Close of Period						Column F				Column G	Column H
Location City, State	Encumbrances		Land		Building & Improvements		Land, Buildings & Improvements		Land		Building & Improvements		Total (5)(6)		Accumulated Depreciation		Total		Date Acquired	Life on Which Depreciation is Computed
Indianapolis, IN	$	2,463	$	210	$	2,511	$	—	$	210	$	2,511	$	2,721	$	536	$	2,185	Jun-07	40 years
Kincardine, UK	3,483		748		3,850		—		748		3,850		4,598		108		4,490		Dec-14	39 years
Kingston upon Thames, UK	24,504		3,502		28,850		—		3,502		28,850		32,352		802		31,550		Dec-14	39 years
Kissimmee, FL	343		337		213		—		337		213		550		14		536		May-14	40 years
Knightdale, NC	15,304		2,223		16,717		52		2,223		16,769		18,992		496		18,496		Dec-14	39 years
La Grande, OR	9,642		1,420		10,968		—		1,420		10,968		12,388		647		11,741		May-14	40 years
LaGrange, IN	490		47		584		—		47		584		631		125		506		Jun-07	40 years
Lebanon, OR	11,043		1,358		14,557		—		1,358		14,557		15,915		765		15,150		May-14	40 years
Leven, UK	3,324		499		3,890		—		499		3,890		4,389		109		4,280		Dec-14	39 years
Lewes, UK	4,444		1,085		4,099		684		1,085		4,783		5,868		121		5,747		Dec-14	39 years
Lightwater, UK	3,639		1,578		3,227		—		1,578		3,227		4,805		90		4,715		Dec-14	39 years
Lincolnton, NC	16,079		1,076		21,591		67		1,076		21,658		22,734		633		22,101		Dec-14	39 years
Liss, UK	4,691		1,501		4,693		—		1,501		4,693		6,194		132		6,062		Dec-14	39 years
Merstham, UK	10,086		2,001		11,315		—		2,001		11,315		13,316		315		13,001		Dec-14	39 years
Monroe, NC	15,788		1,348		23,521		73		1,348		23,594		24,942		689		24,253		Dec-14	39 years
Mooresville, IN	4,282		631		4,187		—		631		4,187		4,818		894		3,924		Jun-07	40 years
Mountain Iron, MN	2,803		175		3,651		70		175		3,721		3,896		266		3,630		Jun-13	40 years
Nuffield, UK	4,636		1,617		4,504		—		1,617		4,504		6,121		126		5,995		Dec-14	39 years
Nuneaton, UK	5,089		1,801		4,918		—		1,801		4,918		6,719		137		6,582		Dec-14	39 years
Oregon City, OR	12,507		1,633		16,058		—		1,633		16,058		17,691		817		16,874		May-14	40 years
Park Rapids, MN	1,725		50		2,683		142		50		2,825		2,875		209		2,666		Jun-13	40 years
Plymouth, IN	3,471		128		5,538		—		128		5,538		5,666		1,182		4,484		Jun-07	40 years
Portage, IN	4,958		1,438		7,988		—		1,438		7,988		9,426		1,706		7,720		Jun-07	40 years
Prineville, OR	4,816		231		4,901		15		231		4,916		5,147		158		4,989		Dec-14	39 years
Proctor, MN	5,677		300		7,920		—		300		7,920		8,220		537		7,683		Jun-13	40 years
Redmond, OR	3,589		241		2,208		7		241		2,215		2,456		82		2,374		Dec-14	39 years
Rendlesham, UK	12,035		3,344		12,545		—		3,344		12,545		15,889		353		15,536		Dec-14	39 years
Rushville, IN	729		62		1,177		—		62		1,177		1,239		251		988		Jun-07	40 years
Salem, OR	3,589		503		3,480		11		503		3,491		3,994		113		3,881		Dec-14	39 years
Sauchie, UK	7,512		1,584		8,333		—		1,584		8,333		9,917		233		9,684		Dec-14	39 years
Scarning, UK	5,036		1,872		4,777		—		1,872		4,777		6,649		134		6,515		Dec-14	39 years
Sevenoaks, UK	6,200		1,458		6,728		—		1,458		6,728		8,186		188		7,998		Dec-14	39 years
Shipton-Under-Wychwood, UK	11,799		2,309		13,269		—		2,309		13,269		15,578		370		15,208		Dec-14	39 years
Sompting, UK	2,635		1,261		2,218		—		1,261		2,218		3,479		62		3,417		Dec-14	39 years
Sonning Common, UK	17,811		2,479		21,037		—		2,479		21,037		23,516		585		22,931		Dec-14	39 years
St George, UK	5,649		2,771		4,687		—		2,771		4,687		7,458		131		7,327		Dec-14	39 years

180

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

As of December 31, 2015

(Dollars in Thousands)

Column A	Column B		Column C Initial Cost				Column D Capitalized Subsequent to Acquisition		Column E Gross Amount Carried at Close of Period						Column F				Column G	Column H
Location City, State	Encumbrances		Land		Building & Improvements		Land, Buildings & Improvements		Land		Building & Improvements		Total (5)(6)		Accumulated Depreciation		Total		Date Acquired	Life on Which Depreciation is Computed
St Peter, UK	$	12,254	$	3,502	$	12,676	$	—	$	3,502	$	12,676	$	16,178	$	354	$	15,824	Dec-14	39 years
Sullivan, IN	966		596		441		—		596		441		1,037		95		942		Jun-07	39 years
Swansea, IL	6,043		527		5,737		58		527		5,795		6,322		430		5,892		May-14	40 years
Teddington, UK	16,998		539		21,904		—		539		21,904		22,443		610		21,833		Dec-14	39 years
Tunbridge Wells, UK	5,460		1,455		5,754		—		1,455		5,754		7,209		160		7,049		Dec-14	39 years
Wakarusa, IN	5,996		153		7,111		—		153		7,111		7,264		1,518		5,746		Jun-07	40 years
Warsaw, IN	2,479		396		3,722		—		396		3,722		4,118		795		3,323		Jun-07	40 years
Wimborne, UK	5,798		2,251		5,404		—		2,251		5,404		7,655		152		7,503		Dec-14	39 years
Winshill, UK	6,942		1,617		7,550		—		1,617		7,550		9,167		210		8,957		Dec-14	39 years
Wootton Bassett, UK	5,141		2,166		4,621		—		2,166		4,621		6,787		129		6,658		Dec-14	39 years
Yelverton, UK	927		231		993		—		231		993		1,224		28		1,196		Dec-14	39 years
Total Assisted Living Facilities	572,382		98,233		650,386		7,992		98,233		658,378		756,611		28,853		727,758
Hospitals
Athens, GA	14,626		1,830		17,307		54		1,830		17,361		19,191		500		18,691		Dec-14	39 years
Cape Girardeau, MO	9,783		674		12,034		38		674		12,072		12,746		349		12,397		Dec-14	39 years
Columbia, MO	12,979		1,328		10,921		34		1,328		10,955		12,283		302		11,981		Dec-14	39 years
Gardena, CA	55,387		5,824		55,652		175		5,824		55,827		61,651		1,664		59,987		Dec-14	39 years
Houston, TX	23,649		2,253		18,972		257		2,253		19,229		21,482		558		20,924		Dec-14	39 years
Humble, TX	14,327		613		12,137		38		613		12,175		12,788		377		12,411		Dec-14	39 years
Joplin, MO	10,945		1,056		8,692		27		1,056		8,719		9,775		244		9,531		Dec-14	39 years
Lafayette, LA	12,931		1,408		9,940		31		1,408		9,971		11,379		277		11,102		Dec-14	39 years
Los Angeles, CA	29,275		4,636		28,008		87		4,636		28,095		32,731		852		31,879		Dec-14	39 years
Murray, UT	15,595		1,720		13,181		41		1,720		13,222		14,942		374		14,568		Dec-14	39 years
Muskogee, OK	12,398		483		19,809		62		483		19,871		20,354		559		19,795		Dec-14	39 years
Norwalk, CA	27,436		4,083		10,932		34		4,083		10,966		15,049		364		14,685		Dec-14	39 years
Total Hospitals	239,331		25,908		217,585		878		25,908		218,463		244,371		6,420		237,951
Total Healthcare(2)	4,025,769		467,044		4,733,986		65,221		467,044		4,799,207		5,266,251		271,677		4,994,574
Hotels
Addison, TX	29,900		3,927		28,185		1,424		3,927		29,609		33,536		2,245		31,291		Jun-14	40 years
Albany, NY	27,324		4,918		25,824		198		4,918		26,022		30,940		1,034		29,906		Nov-14	40 years
Albuquerque, NM	19,582		1,753		23,792		1,829		1,753		25,621		27,374		923		26,451		Nov-14	40 years
Altamonte Springs, FL	8,000		2,352		5,776		932		2,352		6,708		9,060		875		8,185		Jun-14	15 years
Ann Arbor, MI	28,782		4,088		26,376		344		4,088		26,720		30,808		1,075		29,733		Nov-14	40 years
Annapolis Junction, MD	15,028		1,613		13,343		844		1,613		14,187		15,800		565		15,235		Nov-14	40 years

181

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

As of December 31, 2015

(Dollars in Thousands)

Column A	Column B		Column C Initial Cost				Column D Capitalized Subsequent to Acquisition		Column E Gross Amount Carried at Close of Period						Column F				Column G	Column H
Location City, State	Encumbrances		Land		Building & Improvements		Land, Buildings & Improvements		Land		Building & Improvements		Total (5)(6)		Accumulated Depreciation		Total		Date Acquired	Life on Which Depreciation is Computed
Ardmore, OK	$	7,377	$	409	$	6,558	$	214	$	409	$	6,772	$	7,181	$	444	$	6,737	Aug-14	40 years
Arlington, TX	29,301		3,280		32,111		385		3,280		32,496		35,776		2,112		33,664		Jun-14/Sep-14	40 years
Atlanta, GA	33,802		7,445		38,990		4,415		7,445		43,405		50,850		2,819		48,031		Jun-14/Sep-14	40 years
Atlantic City, NJ	16,670		2,792		13,327		2,718		2,792		16,045		18,837		1,017		17,820		Jun-14	40 years
Augusta, GA	15,103		2,080		16,711		128		2,080		16,839		18,919		1,016		17,903		Sep-14	40 years
Baton Rouge, LA	11,476		1,574		12,953		568		1,574		13,521		15,095		572		14,523		Nov-14	40 years
Bellevue, WA	28,100		6,460		24,885		35		6,460		24,920		31,380		3,023		28,357		Jun-14	15 years
Belmont, CA	45,200		10,555		39,920		2,562		10,555		42,482		53,037		2,682		50,355		Jun-14	40 years
Binghamton, NY	7,060		1,408		7,423		278		1,408		7,701		9,109		682		8,427		Jun-14	15 years
Blue Ash, OH	14,139		2,311		20,168		134		2,311		20,302		22,613		1,195		21,418		Sep-14	40 years
Bothell, WA	20,620		4,058		20,025		21		4,058		20,046		24,104		2,488		21,616		Jun-14	15 years
Brentwood, TN	17,915		2,656		20,147		174		2,656		20,321		22,977		1,176		21,801		Sep-14	40 years
Brownsville, TX	10,474		624		10,969		700		624		11,669		12,293		482		11,811		Nov-14	40 years
Buena Park, CA	19,763		9,187		13,026		101		9,187		13,127		22,314		760		21,554		Sep-14	40 years
Campbell, CA	20,450		5,531		16,547		122		5,531		16,669		22,200		1,752		20,448		Jun-14	40 years
Cary, NC	18,398		1,552		22,537		2,159		1,552		24,696		26,248		975		25,273		Nov-14	40 years
Chapel Hill, NC	19,491		1,508		18,756		81		1,508		18,837		20,345		694		19,651		Nov-14	40 years
Charlotte, NC	11,649		1,107		18,512		188		1,107		18,700		19,807		1,080		18,727		Sep-14	40 years
Cherry Hill, NJ	12,560		2,665		10,380		994		2,665		11,374		14,039		1,628		12,411		Jun-14	15 years
Colorado Springs, CO	27,688		2,835		27,865		3,739		2,835		31,604		34,439		1,232		33,207		Nov-14	40 years
Columbia, MD	5,800		1,191		6,134		290		1,191		6,424		7,615		444		7,171		Jun-14	40 years
Columbus, GA	4,745		1,396		7,470		219		1,396		7,689		9,085		545		8,540		Sep-14	40 years
Columbus, OH	10,604		1,805		12,684		180		1,805		12,864		14,669		775		13,894		Sep-14	40 years
Cotulla, TX	6,762		365		8,344		670		365		9,014		9,379		580		8,799		Aug-14	40 years
Cranbury, NJ	14,573		1,836		16,831		418		1,836		17,249		19,085		683		18,402		Nov-14	40 years
Dallas, TX	12,660		1,030		12,187		1,554		1,030		13,741		14,771		570		14,201		Nov-14	40 years
Danbury, CT	8,015		1,231		9,601		65		1,231		9,666		10,897		425		10,472		Nov-14	40 years
Dearborn, MI	13,496		1,856		15,297		141		1,856		15,438		17,294		992		16,302		Sep-14	40 years
Denton, TX	6,148		1,176		6,638		1,925		1,176		8,563		9,739		528		9,211		Aug-14	40 years
Denver, CO	47,400		9,258		41,619		442		9,258		42,061		51,319		5,225		46,094		Jun-14	15 years
Doral, FL	17,754		4,024		21,217		197		4,024		21,414		25,438		1,254		24,184		Sep-14	40 years
Dublin, OH	9,721		2,492		10,419		221		2,492		10,640		13,132		712		12,420		Sep-14	40 years
Duluth, GA	10,110		1,024		11,109		662		1,024		11,771		12,795		497		12,298		Nov-14	40 years
El Paso, TX	20,492		2,063		18,740		1,172		2,063		19,912		21,975		1,192		20,783		Aug-14	40 years
El Segundo, CA	27,050		5,041		24,161		2,578		5,041		26,739		31,780		1,687		30,093		Jun-14	40 years
Elizabeth, NJ	43,719		3,242		47,287		1,544		3,242		48,831		52,073		1,910		50,163		Nov-14	40 years

182

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

As of December 31, 2015

(Dollars in Thousands)

Column A	Column B		Column C Initial Cost				Column D Capitalized Subsequent to Acquisition		Column E Gross Amount Carried at Close of Period						Column F				Column G	Column H
Location City, State	Encumbrances		Land		Building & Improvements		Land, Buildings & Improvements		Land		Building & Improvements		Total (5)(6)		Accumulated Depreciation		Total		Date Acquired	Life on Which Depreciation is Computed
Elmsford, NY	$	21,860	$	2,855	$	17,619	$	415	$	2,855	$	18,034	$	20,889	$	712	$	20,177	Nov-14	40 years
Fairfax, VA	9,801		3,982		7,745		865		3,982		8,610		12,592		391		12,201		Sep-14	40 years
Federal Way, WA	26,231		1,633		24,493		365		1,633		24,858		26,491		898		25,593		Nov-14	40 years
Fort Lauderdale, FL (3)	9,450		—		10,537		542		—		11,079		11,079		731		10,348		Jun-14	40 years
Fort Walton Beach, FL	30,550		6,414		24,996		1,626		6,414		26,622		33,036		2,202		30,834		Jun-14	40 years
Fort Worth, TX	6,011		675		5,907		92		675		5,999		6,674		282		6,392		Nov-14	40 years
Foxborough, MA	18,566		2,103		17,843		6		2,103		17,849		19,952		401		19,551		Jun-15	40 years
Franklin, MA	15,905		1,967		17,873		—		1,967		17,873		19,840		421		19,419		Jun-15	40 years
Fremont, CA	35,608		9,347		26,948		174		9,347		27,122		36,469		2,443		34,026		Jun-14/Sep-14	15-40 years
Gaithersburg, MD	20,800		2,708		19,670		2,373		2,708		22,043		24,751		1,824		22,927		Jun-14	40 years
Hampton, VA	2,720		910		6,279		132		910		6,411		7,321		386		6,935		Sep-14	40 years
Harlingen, TX	14,846		3,291		12,868		1,633		3,291		14,501		17,792		593		17,199		Nov-14	40 years
Harrisburg, PA	14,700		2,429		13,025		396		2,429		13,421		15,850		1,674		14,176		Jun-14	15 years
Hauppauge, NY	13,662		911		14,855		657		911		15,512		16,423		610		15,813		Nov-14	40 years
Herndon, VA	14,380		2,849		12,626		66		2,849		12,692		15,541		807		14,734		Sep-14	40 years
Homewood, AL	16,850		971		16,808		362		971		17,170		18,141		611		17,530		Nov-14	40 years
Horsham, PA	6,770		1,359		5,766		1,608		1,359		7,374		8,733		673		8,060		Jun-14	40 years
Houma, LA	23,361		1,591		22,599		532		1,591		23,131		24,722		1,647		23,075		Aug-14	40 years
Houston, TX	59,112		10,474		55,814		1,096		10,474		56,910		67,384		2,418		64,966		Nov-14	40 years
Hunt Valley, MD	13,577		3,000		11,291		153		3,000		11,444		14,444		644		13,800		Sep-14	40 years
Irving, TX	27,823		3,348		31,182		1,225		3,348		32,407		35,755		1,704		34,051		Sep-14/Nov-14	40 years
Islandia, NY	15,450		3,387		13,672		1,109		3,387		14,781		18,168		1,106		17,062		Jun-14	40 years
Keene, NH	12,314		1,560		12,429		7		1,560		12,436		13,996		257		13,739		Jun-15	40 years
Lafayette, LA	7,787		563		6,883		940		563		7,823		8,386		395		7,991		Aug-14	40 years
Lancaster, CA	22,131		2,508		21,683		2,813		2,508		24,496		27,004		1,200		25,804		Aug-14	40 years
Landover, MD	6,431		1,918		10,342		106		1,918		10,448		12,366		604		11,762		Sep-14	40 years
Laredo, TX	10,656		583		10,786		190		583		10,976		11,559		526		11,033		Aug-14	40 years
Las Colinas, TX	18,250		2,589		16,592		3,537		2,589		20,129		22,718		1,469		21,249		Jun-14	40 years
Lebanon, NJ	18,216		2,486		17,993		68		2,486		18,061		20,547		693		19,854		Nov-14	40 years
Lexington, KY	8,080		1,299		6,328		513		1,299		6,841		8,140		855		7,285		Jun-14	15 years
Livonia, MI	16,240		2,075		14,668		79		2,075		14,747		16,822		1,063		15,759		Jun-14	40 years
Los Alamitos, CA	25,503		4,279		29,207		436		4,279		29,643		33,922		1,083		32,839		Nov-14	40 years
Louisville, KY	44,675		7,259		39,904		777		7,259		40,681		47,940		3,102		44,838		Jun-14	15-40 years
Lubbock, TX	9,016		1,135		7,235		702		1,135		7,937		9,072		427		8,645		Aug-14	40 years
Lynnwood, WA	19,600		1,877		20,301		172		1,877		20,473		22,350		2,488		19,862		Jun-14	15 years

183

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

As of December 31, 2015

(Dollars in Thousands)

Column A	Column B		Column C Initial Cost				Column D Capitalized Subsequent to Acquisition		Column E Gross Amount Carried at Close of Period						Column F				Column G	Column H
Location City, State	Encumbrances		Land		Building & Improvements		Land, Buildings & Improvements		Land		Building & Improvements		Total (5)(6)		Accumulated Depreciation		Total		Date Acquired	Life on Which Depreciation is Computed
Manchester, NH	$	49,356	$	8,081	$	57,724	$	90	$	8,081	$	57,814	$	65,895	$	1,368	$	64,527	Jun-15	40 years
Mansfield, TX	13,935		2,132		13,098		1,129		2,132		14,227		16,359		869		15,490		Aug-14	40 years
Medford, MA	29,055		2,632		28,588		1,533		2,632		30,121		32,753		1,058		31,695		Nov-14	40 years
Memphis, TN	11,327		2,291		10,423		383		2,291		10,806		13,097		727		12,370		Sep-14	40 years
Miami, FL (3)	115,500		—		142,500		138		—		142,638		142,638		2,502		140,136		Jul-15	40 years
Montvale, NJ	34,075		8,247		27,879		210		8,247		28,089		36,336		1,866		34,470		Jun-14	40 years
Morristown, NJ	31,160		13,471		25,665		448		13,471		26,113		39,584		2,020		37,564		Jun-14	40 years
Morrisville, NC	21,768		4,024		21,790		1,288		4,024		23,078		27,102		890		26,212		Nov-14	40 years
Mount Laurel, NJ	7,680		2,304		8,734		3,472		2,304		12,206		14,510		749		13,761		Jun-14	40 years
Naperville, IL	9,319		2,276		14,876		340		2,276		15,216		17,492		885		16,607		Sep-14	40 years
Naples, FL	11,500		2,301		9,842		375		2,301		10,217		12,518		753		11,765		Jun-14	40 years
Nashville, TN	21,677		3,518		25,965		262		3,518		26,227		29,745		1,038		28,707		Nov-14	40 years
Norcross, GA	10,600		1,740		10,603		522		1,740		11,125		12,865		930		11,935		Jun-14	40 years
Ontario, CA	22,850		5,419		31,910		267		5,419		32,177		37,596		3,981		33,615		Jun-14	15 years
Palmdale, CA	6,557		918		7,790		1,106		918		8,896		9,814		648		9,166		Aug-14	40 years
Phoenix, AZ	13,657		4,531		13,213		112		4,531		13,325		17,856		853		17,003		Sep-14	40 years
Pismo Beach, CA	14,549		6,221		9,986		357		6,221		10,343		16,564		727		15,837		Aug-14	40 years
Pleasanton, CA	24,503		5,837		15,656		79		5,837		15,735		21,572		924		20,648		Sep-14	40 years
Portland, ME	10,000		1,344		9,595		75		1,344		9,670		11,014		768		10,246		Jun-14	40 years
Portsmouth, NH	17,418		2,530		20,629		46		2,530		20,675		23,205		503		22,702		Jun-15	40 years
Poughkeepsie, NY	20,038		1,326		24,698		126		1,326		24,824		26,150		921		25,229		Nov-14	40 years
Princeton, NJ	18,216		2,457		21,727		1,548		2,457		23,275		25,732		873		24,859		Nov-14	40 years
Raleigh, NC	10,926		2,476		13,294		106		2,476		13,400		15,876		837		15,039		Sep-14	40 years
Rancho Cordova, CA	10,122		3,381		9,373		141		3,381		9,514		12,895		546		12,349		Sep-14	40 years
Richmond, VA	40,543		5,212		35,592		2,731		5,212		38,323		43,535		2,837		40,698		Jun-14/Nov-14	15-40 years
Roanoke, VA	27,324		7,543		28,174		297		7,543		28,471		36,014		1,127		34,887		Nov-14	40 years
Rockville, MD	19,944		4,286		17,387		566		4,286		17,953		22,239		1,111		21,128		Jun-14/Sep-14	40 years
Rosemont, IL	22,520		3,755		22,336		4,001		3,755		26,337		30,092		1,996		28,096		Jun-14	40 years
Saddle River, NJ	30,000		5,069		26,842		132		5,069		26,974		32,043		1,937		30,106		Jun-14	40 years
San Angelo, TX	26,645		844		17,308		2,798		844		20,106		20,950		1,150		19,800		Aug-14	40 years
San Antonio, TX	44,809		8,199		49,087		3,899		8,199		52,986		61,185		3,617		57,568		Aug-14	40 years
San Bruno, CA (3)	32,134		—		36,355		122		—		36,477		36,477		1,708		34,769		Sep-14	40 years
San Jose, CA	32,250		7,955		30,077		5		7,955		30,082		38,037		1,992		36,045		Jun-14	15 years
Santa Ana, CA	21,530		5,253		15,253		97		5,253		15,350		20,603		910		19,693		Sep-14	40 years
Savannah, GA	9,319		2,058		11,839		378		2,058		12,217		14,275		808		13,467		Sep-14	40 years

184

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

As of December 31, 2015

(Dollars in Thousands)

Column A	Column B		Column C Initial Cost				Column D Capitalized Subsequent to Acquisition		Column E Gross Amount Carried at Close of Period						Column F				Column G	Column H
Location City, State	Encumbrances		Land		Building & Improvements		Land, Buildings & Improvements		Land		Building & Improvements		Total (5)(6)		Accumulated Depreciation		Total		Date Acquired	Life on Which Depreciation is Computed
Shelton, CT	$	7,240	$	1,424	$	6,002	$	1,120	$	1,424	$	7,122	$	8,546	$	888	$	7,658	Jun-14	15 years
Solon, OH	8,835		495		11,007		1,852		495		12,859		13,354		484		12,870		Nov-14	40 years
Somerset, NJ	16,395		1,757		15,867		368		1,757		16,235		17,992		639		17,353		Nov-14	40 years
Tallahassee, FL	16,630		2,326		18,870		103		2,326		18,973		21,299		1,165		20,134		Sep-14	40 years
Tampa, FL	13,935		2,111		14,207		331		2,111		14,538		16,649		540		16,109		Nov-14	40 years
Tarrytown, NY	12,854		5,167		10,604		266		5,167		10,870		16,037		676		15,361		Sep-14	40 years
Troy, MI	21,453		2,936		25,469		1,107		2,936		26,576		29,512		2,401		27,111		Jun-14/Sep-14	15-40 years
Tucson, AZ	24,319		3,245		27,132		1,865		3,245		28,997		32,242		1,176		31,066		Nov-14	40 years
Tukwila, WA	28,600		5,750		26,863		117		5,750		26,980		32,730		3,275		29,455		Jun-14	15 years
Twentynine Palms, CA	7,992		632		9,044		593		632		9,637		10,269		548		9,721		Aug-14	40 years
Vienna, VA	31,241		3,295		28,045		142		3,295		28,187		31,482		1,141		30,341		Nov-14	40 years
Virginia Beach, VA	5,099		1,862		6,017		76		1,862		6,093		7,955		386		7,569		Sep-14	40 years
Warren, MI	10,363		1,510		12,387		189		1,510		12,576		14,086		813		13,273		Sep-14	40 years
Wayne, PA	19,763		3,811		20,444		149		3,811		20,593		24,404		1,159		23,245		Sep-14	40 years
West Homestead, PA	11,021		797		11,695		138		797		11,833		12,630		463		12,167		Nov-14	40 years
West Melbourne, FL	8,034		2,052		8,688		359		2,052		9,047		11,099		572		10,527		Sep-14	40 years
West Palm Beach, FL	8,926		1,021		9,030		1,984		1,021		11,014		12,035		455		11,580		Nov-14	40 years
Westbury, NY	27,324		10,196		30,132		633		10,196		30,765		40,961		1,109		39,852		Nov-14	40 years
Willow Grove, PA	15,450		2,658		13,599		1,316		2,658		14,915		17,573		1,067		16,506		Jun-14	40 years
Wilmington, NC	25,412		2,238		25,907		1,155		2,238		27,062		29,300		1,141		28,159		Nov-14	40 years
Windsor, CT	34,215		5,946		38,944		1,173		5,946		40,117		46,063		2,741		43,322		Jun-14/Nov-14	15-40 years
Worcester, MA	18,691		2,502		23,347		9		2,502		23,356		25,858		540		25,318		Jun-15	40 years
Total Hotels	2,628,431		427,415		2,648,719		107,556		427,415		2,756,275		3,183,690		159,713		3,023,977
Net Lease
Industrial
Arvada, CO	4,951		879		6,990		—		879		6,990		7,869		264		7,605		Aug-14	40 years
Aurora & Twinsburg, OH	5,360		1,139		6,665		—		1,139		6,665		7,804		253		7,551		Aug-14	40 years
Bedford Park, IL	6,552		2,459		7,438		—		2,459		7,438		9,897		281		9,616		Aug-14	40 years
Charleston, SC	4,421		665		5,332		—		665		5,332		5,997		205		5,792		Aug-14	40 years
Chicago, IL	17,882		8,745		20,798		—		8,745		20,798		29,543		796		28,747		Aug-14	40 years

185

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

As of December 31, 2015

(Dollars in Thousands)

Column A	Column B		Column C Initial Cost				Column D Capitalized Subsequent to Acquisition		Column E Gross Amount Carried at Close of Period						Column F				Column G	Column H
Location City, State	Encumbrances		Land		Building & Improvements		Land, Buildings & Improvements		Land		Building & Improvements		Total (5)(6)		Accumulated Depreciation		Total		Date Acquired	Life on Which Depreciation is Computed
Cleveland, OH	$	5,819	$	503	$	7,390	$	—	$	503	$	7,390	$	7,893	$	262	$	7,631	Aug-14	40 years
Compton, CA	19,182		12,623		18,510		—		12,623		18,510		31,133		657		30,476		Aug-14	40 years
Corpus Christi, TX	600		274		639		—		274		639		913		32		881		Aug-14	40 years
Decatur, GA	7,933		1,123		11,414		—		1,123		11,414		12,537		437		12,100		Aug-14	40 years
Easley, SC	5,842		744		7,699		—		744		7,699		8,443		340		8,103		Aug-14	40 years
Eden Prairie, MN	3,950		1,542		4,574		—		1,542		4,574		6,116		204		5,912		Aug-14	40 years
Ferndale, MI	1,940		182		2,464		—		182		2,464		2,646		93		2,553		Aug-14	40 years
Fraser, MI	2,812		563		3,245		—		563		3,245		3,808		144		3,664		Aug-14	40 years
Gladewater, TX	1,222		221		1,446		—		221		1,446		1,667		62		1,605		Aug-14	40 years
Louisville, KY	5,202		1,300		5,484		—		1,300		5,484		6,784		224		6,560		Aug-14	40 years
Mayfield, KY	2,251		124		3,142		—		124		3,142		3,266		136		3,130		Aug-14	40 years
New Boston, MI	9,064		1,175		9,767		1,657		1,175		11,424		12,599		382		12,217		Aug-14	40 years
Norcross, GA	5,852		1,945		7,198		—		1,945		7,198		9,143		363		8,780		Aug-14	40 years
North Richland Hills, TX	4,080		987		5,175		—		987		5,175		6,162		192		5,970		Aug-14	40 years
North Vernon, IN	2,076		253		2,588		—		253		2,588		2,841		125		2,716		Aug-14	40 years
Phoenix, AZ	13,520		2,713		18,743		—		2,713		18,743		21,456		681		20,775		Aug-14	40 years
Plant City, FL	2,205		1,210		2,359		—		1,210		2,359		3,569		113		3,456		Aug-14	40 years
Rochester, NY	5,381		651		5,488		—		651		5,488		6,139		234		5,905		Aug-14	40 years
Schiller Park, IL	2,146		2,654		3,452		—		2,654		3,452		6,106		148		5,958		Aug-14	40 years
South Holland, IL	7,673		2,503		10,716		—		2,503		10,716		13,219		441		12,778		Aug-14	40 years
St. Louis, MO	2,471		938		2,771		—		938		2,771		3,709		103		3,606		Aug-14	40 years
Stone Mountain, GA	6,633		867		8,966		—		867		8,966		9,833		340		9,493		Aug-14	40 years
Strongsville, OH	2,456		313		3,011		—		313		3,011		3,324		114		3,210		Aug-14	40 years
Tallahassee, FL	1,088		199		1,330		—		199		1,330		1,529		58		1,471		Aug-14	40 years
Thorofare, NJ	3,300		1,034		4,919		—		1,034		4,919		5,953		177		5,776		Aug-14	40 years
Vernon, CA	28,830		29,906		19,332		—		29,906		19,332		49,238		707		48,531		Aug-14	40 years
Warren, MI	4,808		661		4,351		—		661		4,351		5,012		180		4,832		Aug-14	40 years
Winston-Salem, NC	8,323		1,641		6,798		—		1,641		6,798		8,439		257		8,182		Aug-14	40 years
Subtotal Industrial	205,825		82,736		230,194		1,657		82,736		231,851		314,587		9,005		305,582
Office
Aurora, CO	30,174		2,650		35,786		23		2,650		35,809		38,459		9,092		29,367		Jul-06	40 years
Columbus, OH	—		4,375		29,184		—		4,375		29,184		33,559		7,144		26,415		Nov-07	40 years
Fort Mill, SC	28,363		3,300		31,554		—		3,300		31,554		34,854		7,894		26,960		Mar-07	40 years
Indianapolis, IN	25,674		1,670		32,307		—		1,670		32,307		33,977		9,340		24,637		Mar-06	40 years
Milpitas, CA	18,827		16,799		8,847		—		16,799		8,847		25,646		3,164		22,482		Feb-07	40 years

186

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

As of December 31, 2015

(Dollars in Thousands)

Column A	Column B		Column C Initial Cost				Column D Capitalized Subsequent to Acquisition		Column E Gross Amount Carried at Close of Period						Column F				Column G	Column H
Location City, State	Encumbrances		Land		Building & Improvements		Land, Buildings & Improvements		Land		Building & Improvements		Total (5)(6)		Accumulated Depreciation		Total		Date Acquired	Life on Which Depreciation is Computed
Ocala, FL	$	1,627	$	565	$	2,868	$	—	$	565	$	2,868	$	3,433	$	143	$	3,290	Aug-14	40 years
Pensacola, FL	2,682		1,132		2,691		—		1,132		2,691		3,823		131		3,692		Aug-14	40 years
Rockaway, NJ	15,486		6,118		15,664		613		6,118		16,277		22,395		4,753		17,642		Mar-06	40 years
Salt Lake City, UT	12,646		672		19,740		425		672		20,165		20,837		6,590		14,247		Aug-05	40 years
Savannah, GA	4,070		509		5,522		—		509		5,522		6,031		226		5,805		Aug-14	40 years
West Sacramento, CA	6,921		1,115		10,433		—		1,115		10,433		11,548		443		11,105		Aug-14	40 years
Subtotal Office	146,470		38,905		194,596		1,061		38,905		195,657		234,562		48,920		185,642
Retail
Bloomingdale, IL (3)	5,122		—		5,810		—		—		5,810		5,810		1,637		4,173		Sep-06	40 years
Concord, NH	7,483		2,145		9,216		—		2,145		9,216		11,361		2,641		8,720		Sep-06	40 years
Fort Wayne, IN (3)	—		—		3,642		—		—		3,642		3,642		1,103		2,539		Sep-06	40 years
Keene, NH	—		3,033		5,920		—		3,033		5,920		8,953		1,648		7,305		Sep-06	40 years
Melville, NY (3)	3,973		—		3,187		—		—		3,187		3,187		1,008		2,179		Sep-06	40 years
Millbury, MA (3)	4,223		—		5,994		—		—		5,994		5,994		1,507		4,487		Sep-06	40 years
North Attleboro, MA (3)	4,207		—		5,445		—		—		5,445		5,445		1,529		3,916		Sep-06	40 years
South Portland, ME (3)	3,240		—		6,687		—		—		6,687		6,687		2,705		3,982		Sep-06	40 years
Wichita, KS	5,475		1,325		5,584		—		1,325		5,584		6,909		1,511		5,398		Sep-06	40 years
Subtotal Retail	33,723		6,503		51,485		—		6,503		51,485		57,988		15,289		42,699
Total Net Lease	386,018		128,144		476,275		2,718		128,144		478,993		607,137		73,214		533,923
Multi-tenant Office
Austin, TX	11,906		1,808		16,268		502		1,808		16,770		18,578		817		17,761		Oct-14	40 years
Boulder, CO	11,591		3,155		13,331		2,931		3,155		16,262		19,417		1,884		17,533		Sep-14	40 years
Broomfield, CO	3,721		1,122		3,036		41		1,122		3,077		4,199		298		3,901		Feb-15	40 years
Denver, CO	13,503		1,113		16,851		1,960		1,113		18,811		19,924		163		19,761		Sep-14	40 years
Englewood, CO	21,833		3,317		23,286		581		3,317		23,867		27,184		869		26,315		Feb-15	40 years
Greenwood Village, CO	7,724		1,742		8,749		222		1,742		8,971		10,713		495		10,218		Feb-15	40 years
Lakewood, CO	4,372		686		4,814		275		686		5,089		5,775		222		5,553		Feb-15	40 years
Louisville, CO	8,051		1,027		6,957		97		1,027		7,054		8,081		370		7,711		Feb-15	40 years
San Diego, CA	8,584		1,751		10,047		66		1,751		10,113		11,864		600		11,264		Nov-14	40 years
Thousand Oaks, CA	21,703		9,296		21,079		184		9,296		21,263		30,559		791		29,768		Mar-15	40 years
Total Multi-tenant Office	112,988		25,017		124,418		6,859		25,017		131,277		156,294		6,509		149,785
Grand Total	$	7,153,206	$	1,047,620	$	7,983,398	$	182,354	$	1,047,620	$	8,165,752	$	9,213,372	$	511,113	$	8,702,259

187

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

As of December 31, 2015

(Dollars in Thousands)

Column A	Column B		Column C Initial Cost				Column D Capitalized Subsequent to Acquisition		Column E Gross Amount Carried at Close of Period						Column F				Column G	Column H
Location City, State	Encumbrances		Land		Building & Improvements		Land, Buildings & Improvements		Land		Building & Improvements		Total (5)(6)		Accumulated Depreciation		Total		Date Acquired	Life on Which Depreciation is Computed
Assets Held for Sale
Manufactured Housing	$	1,274,643	$	427,833	$	1,128,594	$	38,240	$	427,833	$	1,166,834	$	1,594,667	$	161,707	$	1,432,960	Dec-12/Oct-15	10-30 years
Senior Housing Portfolio	648,211		87,380		751,700		3,328		87,380		755,028		842,408		14,175		828,233		May-15	40 years
Multifamily	249,709		45,089		267,769		15,409		45,089		283,178		328,267		24,095		304,172		Apr-13/Jun-13	10-30 years
Other (4)	56,561		14,999		71,391		260		14,999		71,651		86,650		16,234		70,416		Sept-05/Dec-14	40 years
Total Assets Held for Sale	$	2,229,124	$	575,301	$	2,219,454	$	57,237	$	575,301	$	2,276,691	$	2,851,992	$	216,211	$	2,635,781

__________________________________________

(1) Initial cost for U.K. properties includes foreign currency translation as of December 31, 2015.

(2) Excludes portfolio level financing of $75 million.

(3) Represents a leasehold interest in the property. All other properties are fee interest.

(4) Includes borrowings of $15 million related to properties held for sale in the Griffin American portfolio,

(5) Aggregate cost for federal income tax purposes is $12.4 billion as of December 31, 2015.

(6) The grand total includes an allowance for operating real estate impairment of $4.9 million.

188

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)

As of December 31, 2015

(Dollars in Thousands)

The following table presents changes in the Company’s operating real estate portfolio for the years ended December 31, 2015, 2014 and 2013 (dollars in thousands):

	2015			2014			2013
Beginning balance	$	10,561,057		$	2,561,180		$	1,538,489
Property acquisitions	3,459,006			8,057,261			1,598,837
Transfers to held for sale	(2,843,762		)	—			(29,097		)
Improvements	150,197			37,955			11,706
Retirements and disposals	(24,179		)	(5,531		)	—
Deconsolidation of N-Star CDOs	—			—			(558,755		)
NRE Spin-off	(2,073,357		)	(89,808		)	—
Foreign currency translation	(10,687		)	—			—
Allowance for impairment	(4,903		)	—			—
Ending balance	$	9,213,372		$	10,561,057		$	2,561,180

The following table presents changes in accumulated depreciation for the years ended December 31, 2015, 2014 and 2013 (dollars in thousands):

	2015			2014			2013
Beginning balance	$	349,053		$	190,997		$	147,943
Depreciation expense	408,825			164,924			76,127
Assets held for sale	(216,212		)	—			(7,387		)
Retirements and disposals	(489		)	(6,347		)	(1,370		)
Deconsolidation of N-Star CDOs	—			—			(24,316		)
NRE Spin-off	(26,420		)	(521		)	—
Foreign currency translation	(3,644		)	—			—
Ending balance	$	511,113		$	349,053		$	190,997

189

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

December 31, 2015

(Dollars in Thousands)

Asset Type(10)	Location / Description(1)	Number	Interest Rate		Maturity Date(3)	Periodic Payment Terms(4)	Prior Liens(5)		Principal Amount		Carrying Value(6)(7)(8)		Principal Amount of Loans Subject to Delinquent Principal or Interest(9)
			Floating(2)	Fixed
First mortgage loans:
First Mortgage - A	Texas / Multifamily	1	—	15.00%	15-Oct	I/O	$	—	$	53,500	$	53,500	$	53,500
First Mortgage - B	California / Office	1	6.90%	—	16-Oct	I/O	—		38,750		38,882		—
First Mortgage - C	Miami / Land	1	15.00%	—	15-Jun	I/O	—		38,190		38,763		38,190
First Mortgage - D	UK / Healthcare	1	—	7.50%	22-Mar	I/O	—		49,415		49,415		—
First Mortgage - E	NY, NJ, CT / Multifamily	1	4.00%	—	16-Jan	I/O	—		28,920		28,920		—
Other first mortgage loans	Various / Various	8	0.00% to 6.00%	0.00% to 7.25%	15-Mar - 16-Dec	—	—		104,810		60,078		4,180
Subtotal first mortgage loans:		13					—		313,585		269,558		95,870
Mezzanine loans:
Other mezzanine loans	Various / Various	7	0.19% to 4.00%	0.00% to 13.00%	16-Jun - 23-Feb	—	1,141,689		33,361		29,305		—
Subtotal mezzanine loans		7					1,141,689		33,361		29,305		—
Subordinate interests
Subordinate interests - A	New York / Hotel	1	—	13.11%	23-May	I/O	—		61,750		60,926		—
Subordinate interests - B	New York / Hotel	1	6.00%	—	23-May	I/O	—		100,986		100,559		—
Other subordinate interests	Various / Various	2	2.00%	8.65% to 11.50%	16-Feb - 23-May	—	—		8,308		8,296		—
Subtotal subordinate interests		4					—		171,044		169,781		—
Corporate loans
Other term loans	Various / Various	10	—	6.36% to 13.00%	16-Jun - 29-Sept	—	—		37,364		32,830		—
Subtotal corporate loans		10					—		37,364		32,830		—
Subtotal CRE debt							1,141,689		555,354		501,474		95,870
Held for sale loans
Held for sale - A	Pennsylvania / Office	1	7.25%	—	16-Sept	I/O	—		61,500		61,263		—
Held for sale - B	New York / Industrial	1	12.22%	—	17-Jun	I/O	45,906		27,000		27,000		—
Held for sale - C	Various / Hotel	1	—	13.20%	16-Jul	I/O	62,117		54,350		54,350		—
Held for sale - D	New York / Land	1	—	14.00%	17-Oct	I/O	148,550		40,250		40,250		—
Other held for sale loans	Various / Various	3	4.00% to 5.50%	14.50%	16-Jul - 21-Apr	—	23,204		41,937		41,814		—
Subtotal CRE debt held for sale		7					279,777		225,037		224,677		—
Total		41					$	1,421,466	$	780,391	$	726,151	$	95,870

_________________________

(1) Description of property types include condo, hotel, industrial, land, multifamily, office, retail and other.

(2) Certain floating rate loans are subject to LIBOR floors ranging from 0.25% to 1.25%. Includes one first mortgage loan with a principal amount of $5.8 million with a spread over prime rate. All other floating rate loans are based on one-month LIBOR.

(3) Represents initial maturity.

(4) I/O = interest only.

(5) The first mortgage loans on these properties are not held by the Company. Accordingly, the amounts of the prior liens at December 31, 2015 are estimated.

(6) Individual loans each have a carrying value greater than 3% of total loans. All other loans each have a carrying value less than 3%of total loans.

(7) There is a $2.2 million of loan loss reserve on two first mortgage loans and $1.2 million of provision for loan losses primarily related to exit fees on loans held for sale. Excludes $0.8 million of provision for loan losses relating to manufactured housing notes receivables recorded in assets of properties held for sale.

(8) For Federal income tax purposes, the aggregate cost of investments in mortgage loans on real estate is the carrying amount, as disclosed in the schedule.

(9) There are three loans that have principal or interest delinquencies greater than 90 days.

(10) Includes certain loans financed in consolidated N-Star CDOs.

190

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SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE (Continued)

December 31, 2015

(Dollars in Thousands)

Reconciliation of Carrying Value of CRE Debt:

	Years Ended December 31,
	2015			2014			2013
Beginning balance	$	1,067,667		$	1,031,078		$	1,832,231
Additions:
Principal amount of new loans and additional funding on existing loans	199,602			323,215			806,138
Interest accretion	13,775			21,103			1,284
Acquisition cost (fees) on new loans	—			(600		)	(4,032		)
Premium (discount) on new loans	—			(7,078		)	16,116
Amortization of acquisition costs, fees, premiums and discounts	(13,780		)	11,193			28,480
Deductions:
Collection of principal	534,478			279,272			274,354
Deconsolidation of CDOs (refer to Note 17)	—			9,709			1,134,713
Provision for (reversal of) loan losses, net	3,435			2,719			(8,786		)
Transfers to affiliates	—			—			115,797
Taking title to collateral	—			—			135,361
Transfer to held for sale	224,677			15,223			—
Unrealized (gain) loss on foreign currency remeasurement	2,442			2,084			(2,300		)
Realized loss on foreign currency remeasurement	758			2,237			—
Ending balance	$	501,474		$	1,067,667		$	1,031,078

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Attached as exhibits to this Annual Report on Form 10-K are certifications of the Company’s Chief Executive Officer and Chief Financial Officer, which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This “Controls and Procedures” section includes information concerning the controls and procedures evaluation referred to in the certifications. Item 8. of this Annual Report on Form 10-K sets forth the report of Grant Thornton LLP, the Company’s independent registered public accounting firm, regarding its audit of the Company’s internal control over financial reporting set forth below in this section. This section should be read in conjunction with the certifications and the Grant Thornton LLP report for a more complete understanding of the topics presented.

Disclosure Controls and Procedures

The management of the Company established and maintains disclosure controls and procedures that are designed to ensure that material information relating to the Company and its subsidiaries required to be disclosed in the reports that are filed or submitted under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

As of the end of the period covered by this report, management conducted an evaluation as required under Rules 13a-15(b) and 15d-15(b) under the Exchange Act under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).

Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures to disclose material information otherwise required to be set forth in the Company’s periodic reports.

191

Internal Control over Financial Reporting

(a) Management’s annual report on internal control over financial reporting.

Management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company carried out an evaluation of the effectiveness of its internal control over financial reporting as of December 31, 2015 based on the “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2013 framework).

Based upon this evaluation, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2015.

(b) Attestation report of the registered public accounting firm.

The Company’s independent registered public accounting firm, Grant Thornton LLP, independently assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015. Grant Thornton LLP has issued an attestation report, which is included in Item 8. “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

(c) Changes in internal control over financial reporting.

There have not been any changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

The Company’s management, including the Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures or the Company’s internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

192

Item 9B. Other Information

Credit Facility Amendment

In connection with the Company’s share repurchase program, on February 23, 2016, the Company and certain of its subsidiaries, in their capacity as guarantors, amended the Amended and Restated Credit and Guaranty Agreement (as amended, the “Credit Facility”), dated as of May 5, 2015, with Deutsche Bank Securities Inc., as the Sole Lead Arranger and Sole Bookrunner, Deutsche Bank AG New York Branch, as the Administrative Agent and Collateral Agent, and several other commercial bank lenders party thereto, pursuant to the Second Amendment to the Amended and Restated Credit and Guaranty Agreement (the “Second Amendment”). The Second Amendment adds an exception to the restriction on restricted junior payments (including payment of dividends) to allow up to $400 million of such payments to be made by the Company, so long as such payments are made by December 31, 2016, no default shall be continuing, no loans are outstanding both immediately before and after giving effect to such payments, no proceeds of any loans are used to make any such payments and the Company is in compliance with the financial covenants set forth in the Credit Facility. The Second Amendment also adds mandatory prepayment events based on the receipt of net proceeds from certain asset sales, issuances of equity and incurrences of indebtedness. The Second Amendment requires as a condition to any borrowing that the Total Indebtedness to Total Assets Ratio not exceed 65%, but also further extends the time period for the step-down of the maximum Total Indebtedness to Total Assets Ratio financial covenant from 70% to 65%, which was initially extended on September 28, 2015 pursuant to the Limited Consent and First Amendment to the Amended and Restated Credit and Guaranty Agreement (which amended certain financial covenants and provided lender consent for the divestiture of properties in connection with the spin-off of NorthStar Realty Europe Corp.). In connection with the execution of the Second Amendment, the aggregate amount of the revolving commitments under the Credit Facility was reduced to $250 million.

The foregoing descriptions of the Limited Consent and First Amendment to the Amended and Restated Credit and Guaranty Agreement and the Second Amendment do not purport to be complete and are qualified in their entirety by reference to the full text of such agreements, which are included as Exhibits 10.40 and 10.41 hereto, respectively, and are incorporated by reference herein.

Independent Director Appointment

On February 24, 2016, the Company’s board of directors (the “Board”) elected Mr. Gregory Rush, effective on March 1, 2016, as an independent director of the Board. Concurrently with the effectiveness of the foregoing election, the size of the Board will be increased from six to seven members, until the 2016 annual meeting of stockholders of the Company, at which point the size of the Board will be reduced back to six directors who will stand for election. Concurrently with his election to the Board, Mr. Rush will be appointed to serve on the special committee of the Board, which was formed to explore a potential recombination transaction with NorthStar Asset Management Group Inc.

Mr. Rush, age 45, serves as Managing Member of Rush Capital Partners LLC (“RCP”), an investment firm he founded in September 2015 that is focused on value-add and opportunistic real estate investments in the United States and Europe. Prior to founding RCP, Mr. Rush was a Partner, Managing Director and Member of the Investment Committee at Dune Real Estate Partners, LP (“Dune”), an investment firm focused on managing a series of real estate private equity funds. Prior to joining Dune in 2005, Mr. Rush was an Executive Director in Morgan Stanley's Real Estate Investment Banking Group, which he joined in 2000. Prior to Morgan Stanley, Mr. Rush spent three years in the Real Estate Investment Banking department of Merrill Lynch. From 1993 to 1995, Mr. Rush was a financial analyst with Vornado Realty Trust, a publicly traded real estate investment trust. Mr. Rush is a Full Member of the Urban Land Institute and serves as a Vice Chair on Urban Development and Mixed Use Council (Green Flight). Mr. Rush holds a Bachelor of Arts from the University of Pennsylvania and a Master of Business Administration (with Distinction) from the Leonard N. Stern School of Business at New York University.

There are no understandings or arrangements between Mr. Rush and any other person pursuant to which Mr. Rush was elected as a director. There are no transactions regarding Mr. Rush that are required to be disclosed pursuant to Item 404(a) of Regulation S-K.

Mr. Rush does not currently participate in any material plan, contract or arrangement with the Company but will be entitled to receive ordinary non-employee director compensation. Non-employee director compensation currently consists of an initial grant of equity valued at $140,000 on the date of appointment, an annual grant of equity valued at $140,000 that is issuable following the Company’s annual meeting and annual base cash compensation of $100,000. Mr. Rush will also enter into the Company’s form of indemnification agreement for directors.

193

PART III

Item 10. Directors, Executive Officers and Corporate Governance*

Certain information relating to the Company’s code of business conduct and ethics and code of ethics for senior financial officers (as defined in the code) is included in Part I, Item 1. “Business” of this Annual Report on Form 10-K.

Item 11. Executive Compensation*

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*

Item 13. Certain Relationships and Related Transactions and Director Independence*

Item 14. Principal Accountant Fees and Services*

__________________________

* The information that is required by Items 10, 11, 12, 13 and 14 (other than the information included in this Annual Report on Form 10-K) is incorporated herein by reference from the definitive proxy statement relating to the 2016 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, no later than 120 days after the end of the Company’s fiscal year endedDecember 31, 2015.

194

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) 1. Consolidated Financial Statements and (a) 2. Financial Statement Schedules are included in Part II, Item 8. “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K:

Reports of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2015 and 2014

Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013

Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2015, 2014 and 2013

Consolidated Statements of Equity for the years ended December 31, 2015, 2014 and 2013

Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013

Notes to the Consolidated Financial Statements

Schedule II-Valuation and Qualifying Accounts and Reserves

Schedule III-Real Estate and Accumulated Depreciation as of December 31, 2015

Schedule IV-Mortgage Loans on Real Estate as of December 31, 2015

195

(a) 3. Exhibit Index:

Exhibit Number	Description of Exhibit
2.1	Agreement and Plan of Merger, dated as of August 5, 2014, by and among NorthStar Realty Finance Corp., NRF Healthcare Subsidiary, LLC, NRF OP Healthcare Subsidiary, LLC, Griffin-American Healthcare REIT II Holdings, LP and Griffin-American Healthcare REIT II, Inc. (incorporated by reference to Exhibit 2.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on August 5, 2014).
3.1	Articles of Restatement of NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 3.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on August 7, 2014)
3.2	Articles of Amendment to the Charter of NorthStar Realty Finance Corp., dated October 30, 2015 and effective November 1, 2015(incorporated by reference to Exhibit 3.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on November 2, 2015)
3.3	Articles of Amendment to the Charter of NorthStar Realty Finance Corp., dated October 30, 2015 and effective November 1, 2015(incorporated by reference to Exhibit 3.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on November 2, 2015)
3.4	Amended and Restated Bylaws of NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 3.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
4.1	Registration Rights Agreement relating to the 7.25% Exchangeable Senior Notes due 2027 of NorthStar Realty Finance Limited Partnership, dated June 18, 2007 (incorporated by reference to Exhibit 4.2 to NorthStar Realty Finance Corp.’s Registration Statement on Form S-3 (File No. 333-146679))
4.2	Indenture dated as of June 18, 2007, among NorthStar Realty Finance Limited Partnership, as Issuer, NorthStar Realty Finance Corp., as Guarantor, and Wilmington Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on June 22, 2007)
4.3	Supplemental Indenture dated as of June 30, 2014, relating to the 7.25% Exchangeable Senior Notes, by and among NorthStar Realty Finance Corp., NRFC Sub-REIT Corp. (renamed NorthStar Realty Finance Corp.) and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.9 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
4.4	Second Supplemental Indenture, relating to the 7.25% Exchangeable Senior Notes, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust Company, further supplementing the Indenture, dated as of June 18, 2007 and supplemented by the first Supplemental Indenture thereto dated June 30, 2014, by and among NorthStar Realty Finance Corp. and Wilmington Trust Company (incorporated by reference to Exhibit 4.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.5	Registration Rights Agreement relating to the 8.875% Exchangeable Senior Notes due 2032 of NorthStar Realty Finance Limited Partnership, dated as of June 12, 2012 (incorporated by reference to Exhibit 4.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed June 12, 2012)
4.6	Indenture dated as of June 12, 2012, among NorthStar Realty Finance Limited Partnership, as Issuer, NorthStar Realty Finance Corp. and NRFC Sub-REIT Corp., as Guarantors, and Wilmington Trust, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed June 12, 2012)
4.7	Supplemental Indenture, relating to the 8.875% Exchangeable Senior Notes, dated as of June 30, 2014, by and among NorthStar Realty Finance Corp., NRFC Sub-REIT Corp. (renamed NorthStar Realty Finance Corp.) and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.6 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
4.8	Second Supplemental Indenture, relating to the 8.875% Exchangeable Senior Notes, dated as of March 13, 2015 and supplemented on June 30, 2014, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust, National Association, further supplementing the Indenture, dated as of June 12, 2012 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, by and among NorthStar Realty Finance Corp. and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.9	Registration Rights Agreement relating to the 5.375% Exchangeable Senior Notes due 2033 of NorthStar Realty Finance Limited Partnership, dated as of June 19, 2013 (incorporated by reference to Exhibit 4.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed June 19, 2013)
4.10	Indenture, dated as of June 19, 2013, among NorthStar Realty Finance Limited Partnership, as Issuer, NorthStar Realty Finance Corp. and NRFC Sub-REIT Corp., as Guarantors, and Wilmington Trust, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed June 19, 2013)
4.11	Supplemental Indenture dated as of June 30, 2014, relating to the 5.375% Exchangeable Senior Notes, by and among NorthStar Realty Finance Corp., NRFC Sub-REIT Corp. (renamed NorthStar Realty Finance Corp.) and Wilmington Trust, National Association (incorporated by referent to Exhibit 4.3 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
4.12	Second Supplemental Indenture, relating to the 5.375% Exchangeable Senior Notes, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust, National Association, further supplementing the Indenture, dated as of June 19, 2013 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, by and among NorthStar Realty Finance Corp. and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.3 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.13	Indenture, dated as of March 31, 2014, between NorthStar Realty Finance Corp. and Wilmington Trust, National Association, as Trustee (including the Form of Security) (incorporated by reference to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed March 31, 2014)
4.14	Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and The Bank of New York Mellon Trust Company, N.A., further supplementing the Indenture, dated as of April 12, 2005 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and The Bank of New York Mellon Trust Company, N.A. (as successor trustee to JPMorgan Chase Bank, National Association) (incorporated by reference to Exhibit 4.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.15	Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and The Bank of New York Mellon Trust Company, N.A., further supplementing the Indenture, dated as of May 25, 2005 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and The Bank of New York Mellon Trust Company, N.A. (as successor trustee to JPMorgan Chase Bank, National Association) (incorporated by reference to Exhibit 4.5 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)

196

Exhibit Number		Description of Exhibit
4.16		Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and The Bank of New York Mellon Trust Company, N.A., further supplementing the Indenture, dated as of November 22, 2005 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and The Bank of New York Mellon Trust Company, N.A. (as successor trustee to JPMorgan Chase Bank, National Association) (incorporated by reference to Exhibit 4.6 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.17		Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust Company, further supplementing the Indenture, dated as of March 10, 2006 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and Wilmington Trust Company (incorporated by reference to Exhibit 4.7 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.18		Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust Company, further supplementing the Indenture, dated as of August 1, 2006 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and Wilmington Trust Company (incorporated by reference to Exhibit 4.8 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.19		Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust Company, further supplementing the Indenture, dated as of October 6, 2006 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and Wilmington Trust Company (incorporated by reference to Exhibit 4.9 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.20		Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust Company, further supplementing the Indenture, dated as of March 30, 2007 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and Wilmington Trust Company (incorporated by reference to Exhibit 4.10 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.21		Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust Company, further supplementing the Indenture, dated as of June 7, 2007 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and Wilmington Trust Company (incorporated by reference to Exhibit 4.11 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.22		Indenture, dated as of July 1, 2015, by and among NorthStar Realty Europe Corp., NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2015)
4.23		Form of Note of NorthStar Realty Europe Corp. (incorporated by reference to Exhibit 4.2, which is included in Exhibit 4.1, to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2015)
4.24		Form of Guarantee of NorthStar Realty Finance Corp. and NorthStar Realty Finance Limited Partnership (incorporated by reference to Exhibit 4.3, which is included in Exhibit 4.1, to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2015)
		Certain Instruments defining the rights of holders of long-term debt securities of the Registrant and its subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. The Registrant hereby undertakes to furnish to the SEC, upon request, copies of any such instruments.
10.1	+	NorthStar Realty Finance Corp. Executive Incentive Bonus Plan (incorporated by reference to Exhibit 10.31 to NorthStar Realty Finance Corp.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009)
10.2	+	Amendment to the NorthStar Realty Finance Corp. Executive Incentive Bonus Plan (incorporated by reference to Exhibit 10.26 to NorthStar Realty Finance Corp.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011)
10.3	+	Form of Amended and Restated Indemnification Agreement for directors and officers of NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.25 to NorthStar Realty Finance Corp.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011)
10.4		Subscription Agreement dated as of December 10, 2012, by and among NRFC PE Fund Investor LLC, NRFC Inception, LP, Inception GP, LLC, Teachers Insurance and Annuity Association of America and NRFC PE Fund GP, LLC, portions of which have been omitted pursuant to a request for confidential treatment (incorporated by reference to Exhibit 10.23 to Amendment No. 1 to NorthStar Realty Finance Corp.’s Annual Report on Form 10-K/A for the year ended December 31, 2013)
10.5	+	Amendment to the NorthStar Realty Finance Corp. Executive Incentive Bonus Plan (incorporated by reference to Exhibit 10.30 to NorthStar Realty Finance Corp.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013)
10.6		Purchase and Sale Agreement, effective as of February 15, 2013 among NRFC MH II Holdings, LLC. ARC Real Estate Holdings, LLC and certain of its affiliates (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K/A filed May 6, 2013)
10.7		Amendment to Purchase and Sale Agreement, made as of March 27, 2013 among NRFC MH II Holdings, LLC, ARC Real Estate Holdings, LLC and certain of its affiliates (incorporated by reference to Exhibit 10.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K/A filed May 6, 2013)

197

Exhibit Number		Description of Exhibit
10.8		Master Repurchase Agreement, dated as of March 11, 2013, by and among NRFC DB Loan, LLC, as master seller, and Deutsche Bank AG, Cayman Islands Branch, as buyer (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed March 12, 2013)
10.9		Limited Guaranty, dated as of March 11, 2013, executed and delivered by NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and NRFC Sub-REIT Corp. to Deutsche Bank AG, Cayman Islands Branch (incorporated by reference to Exhibit 10.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed March 12, 2013)
10.10	+	Second Amended and Restated 2004 Omnibus Stock Incentive Plan of NorthStar Realty Finance Corp. (incorporated by reference to Appendix A to NorthStar Realty Finance Corp.’s Definitive Proxy Statement on Schedule 14A filed April 19, 2013)
10.11		Agreement of Purchase and Sale, dated as of June 12, 2013, by and between Project Shore JV I, LLC and Project Shore JV II, LLC, as Buyers, and Common Pensions Fund E, as Seller (incorporated by reference to Exhibit 10.36 to NorthStar Realty Finance Corp.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013)
10.12		Portfolio Acquisition Agreement and Interest Purchase and Sale Agreement dated as of March 14, 2014, by and among Seller (as defined therein) Eclipse Health Holdings-T, LLC, as Purchaser, Formation Capital Asset Management III LLC and Safanad, Inc., as Stakeholder Representatives and Madison Title Agency, LLC, as Escrow Agent (solely for the purposes of Sections 4(b), 11(l) and 34(c)) (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed March 17, 2014)
10.13		Limited Liability Company Agreement of Eclipse Investment, LLC, dated as of May 7, 2014, by and between FC Eclipse Investment, LLC and Eclipse Health Holdings-T, LLC (incorporated by reference to Exhibit A to the Portfolio Acquisition Agreement and Interest Purchase and Sale Agreement filed as Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed March 17, 2014)
10.14		Separation Agreement, dated June 30, 2014, between NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
10.15		Amended and Restated Asset Management Agreement, dated as of October 31, 2015, between NSAM J-NRF Ltd and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on November 2, 2015)
10.16		Loan Origination Services Agreement, dated June 30, 2014, between NSAM US LLC and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.3 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
10.17		Tax Disaffiliation Agreement, dated June 30, 2014, between NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
10.18		Employee Matters Agreement, dated June 30, 2014, between NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.5 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
10.19		Contribution Agreement, dated June 30, 2014, between NorthStar Asset Management Group Inc. and NRFC Sub-REIT Corp. (renamed NorthStar Realty Finance Corp.) (incorporated by reference to Exhibit 10.6 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
10.20		Credit Agreement, dated June 30, 2014, between NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.7 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
10.21		Amended and Restated Agreement of Limited Partnership of NorthStar Realty Finance Limited Partnership (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
10.22		Debt Commitment Letter, dated as of August 5, 2014, by and among NorthStar Realty Finance Corp., Citigroup Global Markets Inc., JPMorgan Chase Bank, National Association, Barclays Bank plc, and Column Financial, Inc. (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on August 5, 2014)
10.23		Confirmation of Registered Forward Transaction, dated September 3, 2014, by and among NorthStar Realty Finance Corp., Deutsche Bank Securities Inc. and Deutsche Bank AG, London Branch, including the First Amendment thereto dated September 4, 2014(incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on September 9, 2014)
10.24		Asset Purchase Agreement, dated as of September 17, 2014, by and among Inland American Real Estate Trust, Inc., as Parent, IHP I Owner JV, LLC, as Buyer I, IHP West Homestead (PA) Owner LLC, as Buyer II, and NorthStar Realty Finance Corp., as Buyer Parent (solely for the purposes of Article V, Section 10.11 and Article X as it relates to Article V and Section 10.11) (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on September 23, 2014)
10.25		Amended and Restated Facility Agreement, dated as of March 13, 2015, by and among NorthStar Realty Finance Limited Partnership, NorthStar Realty Finance Corp. and UBS AG Stamford Branch (incorporated by reference to Exhibit 10.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
10.26		Form of Credit Agreement, by and among NorthStar Realty Finance Limited Partnership, as borrower, NorthStar Realty Finance Corp., as guarantor, the various lenders party thereto from time to time and UBS AG Stamford Branch, as administrative agent (incorporated by reference to Exhibit 10.3 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
10.27		Loan Agreement dated as of December 3, 2014, among the Borrowers party thereto, as borrowers, and Citigroup Global Markets Realty Corp., JPMorgan Chase Bank, National Association, Barclays Bank PLC and Column Financial, Inc., as lenders (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on December 9, 2014)
10.28		Facility Agreement, dated as of December 3, 2014, among GA HC REIT II CH U.K. Senior Housing Portfolio Limited (as Original Borrower upon its accession in accordance with the terms thereof), the Original Borrower and certain of its subsidiaries (as Original Guarantors upon their accession in accordance with the terms thereof), NorthStar Realty Healthcare, LLC (as Indemnitor) and arranged by Credit Suisse AG, London Branch (as Mandated Lead Arranger and Original Lender), with Elavon Financial Services Limited as Agent, and U.S. Bank Trustees Limited as Security Agent (incorporated by reference to Exhibit 10.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on December 9, 2014)

198

Exhibit Number		Description of Exhibit
10.29		Mezzanine A Loan Agreement dated as of December 3, 2014, among HC Mezz 1-T, LLC, Glenwood Owner MB1-T, LLC, Glenwood Ops MB2-T, LLC, MA Owner MB1-T, LLC, MA Ops MB2-T, LLC, CCRC Owner MB1-T, LLC and CCRC Ops MB2-T, LLC, as borrowers, and Citigroup Global Markets Realty Corp., JPMorgan Chase Bank, National Association, Barclays Bank PLC and Column Financial, Inc., as lenders (incorporated by reference to Exhibit 10.3 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on December 9, 2014)
10.30		Mezzanine B Loan Agreement dated as of December 3, 2014, among HC Mezz 2-T, LLC, Glenwood Owner MB2-T, LLC, Glenwood Ops MB3-T, LLC, MA Owner MB2-T, LLC, MA Ops MB3-T, LLC, CCRC Owner MB2-T, LLC and CCRC Ops MB3-T, LLC, as borrowers, and Citigroup Global Markets Realty Corp., JPMorgan Chase Bank, National Association, Barclays Bank PLC and Column Financial, Inc., as lenders (incorporated by reference to Exhibit 10.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on December 9, 2014)
10.31		Mezzanine C Loan Agreement dated as of December 3, 2014, among HC Mezz 3-T, LLC, Glenwood Owner MB3-T, LLC, Glenwood Ops MB4-T, LLC, MA Owner MB3-T, LLC, MA Ops MB4-T, LLC, CCRC Owner MB3-T, LLC and CCRC Ops MB4-T, LLC, as borrowers, and Citigroup Global Markets Realty Corp., JPMorgan Chase Bank, National Association, Barclays Bank PLC and Column Financial, Inc., as lenders (incorporated by reference to Exhibit 10.5 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on December 9, 2014)
10.32		Umbrella Agreement, dated December 22, 2014, by and among Prime Holdco C-T, S.à r.l., Prime GER Drehbahn - T S.à r.l., Prime GER Valentinskamp - T S.à r.l. and Trias Pool II A - T S.à r.l., as Buyers, and SEB Investment GmbH (“SEB”), SEB Investment GmbH, Filiale di Milano, SEB Investment GmbH, French Branch SEB Investment GmbH, Altair Issy S.A.S. and Balni bvba (SPRL), as Sellers (incorporated by reference to Exhibit 10.32 to NorthStar Realty Finance Corp.’s Annual Report on Form 10-K for the year ended December 31, 2014)
10.33		Umbrella Sale and Purchase Agreement, dated as of February 16, 2015, between SEB Investment GmbH, SEB Investment GmbH, Filiale di Milano, SEB Investment GmbH, French Branch SEB Investment GmbH, Altair Issy S.A.S. and Balni bvba (SPRL), collectively as the Sellers, and certain subsidiaries of the Company listed therein, as Buyers (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on February 20, 2015)
10.34		Confirmation of Registered Forward Transaction, dated March 2, 2015, by and among the Company, the Forward Seller and the Forward Counterparty, including the First Amendment thereto dated March 3, 2015 (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 6, 2015)
10.35		Amended and Restated Credit and Guaranty Agreement, dated as of May 5, 2015, by and among NorthStar Realty Finance Limited Partnership, as borrower, NorthStar Realty Finance Corp., as parent guarantor, certain subsidiaries of parent guarantor, as guarantors, the various lenders party thereto from time to time, Deutsche Bank AG New York Branch, as administrative agent and collateral agent, and Deutsche Bank Securities Inc., as sole lead arranger and sole bookrunner (incorporated by reference to Exhibit 10.34 to NorthStar Realty Finance Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015)
10.36		Second Amendment to Registered Forward Transaction, dated August 31, 2015, by and among the Company, the Forward Seller and the Forward Counterparty (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on September 1, 2015)
10.37		First Amendment to the Amended and Restated Agreement of Limited Partnership of NorthStar Realty Finance Limited Partnership, dated as of November 1, 2015 (incorporated by reference to Exhibit 10.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on November 2, 2015)
10.38		Separation Agreement, dated as of October 31, 2015, between NorthStar Realty Finance Corp. and NorthStar Realty Europe Corp.(incorporated by reference to Exhibit 10.3 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on November 2, 2015)
10.39		Contribution Agreement, dated as of October 31, 2015, between NorthStar Realty Finance Corp. and NorthStar Realty Europe Corp. (incorporated by reference to Exhibit 10.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on November 2, 2015)
10.40*		Limited Consent and First Amendment to Amended and Restated Credit and Guaranty Agreement, dated as of September 28, 2015, by and among NorthStar Realty Finance Limited Partnership, as borrower, NorthStar Realty Finance Corp., as parent guarantor, and certain subsidiaries of NorthStar Realty Finance Corp., as guarantors, and Deutsche Bank AG New York Branch, as administrative agent, with the consent of the requisite lenders, with reference to that certain Amended and Restated Credit and Guaranty Agreement, dated as of May 5, 2015
10.41*		Second Amendment to Amended and Restated Credit and Guaranty Agreement, dated as of February 23, 2016, by and among NorthStar Realty Finance Limited Partnership, as borrower, NorthStar Realty Finance Corp., as parent guarantor, and certain subsidiaries of NorthStar Realty Finance Corp., as guarantors, and Deutsche Bank AG New York Branch, as administrative agent, with the consent of the requisite lenders, with reference to that certain Amended and Restated Credit and Guaranty Agreement, dated as of May 5, 2015
12.1	*	Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
21.1	*	Significant Subsidiaries of the Registrant
23.1	*	Consent of Grant Thornton LLP
24.1	*	Power of Attorney (see the Power of Attorney in the signature page hereto)
31.1	*	Certification by the Chief Executive Officer pursuant to 17 CFR 240.13a-14(a)/15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	*	Certification by the Chief Financial Officer pursuant to 17 CFR 240.13a-14(a)/15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	*	Certification by the Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	*	Certification by the Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

199

Exhibit Number		Description of Exhibit
101	*	The following materials from the NorthStar Realty Finance Corp. Annual Report on Form 10-K for the year ended December 31, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2015 and 2014; (ii) Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013; (iii) Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2015, 2014 and 2013; (iv) Consolidated Statements of Equity for the years ended December 31, 2015, 2014 and 2013; (v) Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013; and (vi) Notes to Consolidated Financial Statements

____________________________________________________________

* Filed herewith.

+ Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto.

200

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		NorthStar Realty Finance Corp.
Date:	February 29, 2016	By:	/s/ JONATHAN A. LANGER
			Name: Jonathan A. Langer
			Title: Chief Executive Officer and President

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Debra A. Hess and Ronald Lieberman and each of them severally, her or his true and lawful attorney-in-fact with power of substitution and re-substitution to sign in her or his name, place and stead, in any and all capacities, to do any and all things and execute any and all instruments that such attorney may deem necessary or advisable under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the U.S. Securities and Exchange Commission in connection with this Annual Report on Form 10-K and any and all amendments hereto, as fully for all intents and purposes as she or he might or could do in person, and hereby ratifies and confirms all said attorneys-in-fact and agents, each acting alone, and her or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below on behalf of the Registrant in the capacities and on the dates indicated.

Signature	Title	Date
/s/ DAVID T. HAMAMOTO	Chairman	February 29, 2016
David T. Hamamoto
/s/ JONATHAN A. LANGER	Chief Executive Officer and President	February 29, 2016
Jonathan A. Langer	(Principal Executive Officer)
/s/ DEBRA A. HESS	Chief Financial Officer	February 29, 2016
Debra A. Hess	(Principal Financial Officer and Principal Accounting Officer)
/s/ JUDITH A. HANNAWAY	Director	February 29, 2016
Judith A. Hannaway
/s/ WESLEY D. MINAMI	Director	February 29, 2016
Wesley D. Minami
/s/ LOUIS J. PAGLIA	Director	February 29, 2016
Louis J. Paglia
/s/ CHARLES W. SCHOENHERR	Director	February 29, 2016
Charles W. Schoenherr
/s/ ALBERT TYLIS	Director	February 29, 2016
Albert Tylis

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