UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

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)

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 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

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:

The Company has one class of common stock, $0.01 par value per share, 180,514,984 shares outstanding as of May 5, 2016.

NORTHSTAR REALTY FINANCE CORP.

FORM 10-Q

TABLE OF CONTENTS

Index		Page
Part I.	Financial Information	5
Item 1.	Financial Statements	5
	Consolidated Balance Sheets as of March 31, 2016 (unaudited) and December 31, 2015	5
	Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2016 and 2015	7
	Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three months ended March 31, 2016 and 2015	8
	Consolidated Statements of Equity for the three months ended March 31, 2016 (unaudited) and the year ended December 31, 2015	9
	Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2016 and 2015	10
	Notes to Consolidated Financial Statements (unaudited)	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	60
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	95
Item 4.	Controls and Procedures	97
Part II.		98
Item 1.	Legal Proceedings	98
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	98
Item 5.	Other	98
Item 6.	Exhibits	98
Signatures		103

2

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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 in accordance with the 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;

• our entering into exclusive discussions with Colony Capital, Inc. and NSAM regarding a potential tri-party business combination, as well as our ability to enter into a definitive agreement or consummate a strategic transaction, if any, and the impact of the same on our business;

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

• the effects of being 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;

3

• 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;

• 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;

• the impact of shareholder activism, if any;

• 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 Quarterly Report on Form 10-Q 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 our filings with the United States Securities and Exchange Commission, or the SEC, included in Part I, Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 under the heading “Risk Factors.” The risk factors set forth in our filings with the SEC could cause our actual results to differ significantly from those contained in any forward-looking statement contained in this report.

4

PART I. Financial Information

Item 1.    Financial Statements

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

	March 31, 2016 (Unaudited)			December 31, 2015
Assets
Cash and cash equivalents	$	450,617		$	224,101
Restricted cash	239,488			299,288
Operating real estate, net	8,627,239			8,702,259
Real estate debt investments, net (refer to Note 4)	411,568			501,474
Real estate debt investments, held for sale (refer to Note 4)	88,972			224,677
Investments in private equity funds, at fair value (refer to Note 5)	869,470			1,101,650
Investments in unconsolidated ventures (refer to Note 6)	152,624			155,737
Real estate securities, available for sale (refer to Note 7)	592,977			702,110
Receivables, net of allowance of $4,625 and $4,318 as of March 31, 2016 and December 31, 2015, respectively	113,477			66,197
Receivables, related parties	1,537			2,850
Unbilled rent receivable, net of allowance of $116 as of March 31, 2016 and December 31, 2015	52,985			46,262
Derivative assets, at fair value	22			116
Intangible assets, net	505,675			527,277
Assets of properties held for sale (refer to Note 3)	1,913,083			2,742,635
Other assets	172,135			107,768
Total assets(1)	$	14,191,869		$	15,404,401
Liabilities
Mortgage and other notes payable	$	7,167,828		$	7,164,576
Credit facilities and term borrowings	443,298			654,060
CDO bonds payable, at fair value	289,338			307,601
Exchangeable senior notes	28,574			29,038
Junior subordinated notes, at fair value	175,130			183,893
Accounts payable and accrued expenses	136,827			170,120
Due to related party (refer to Note 9)	46,450			50,903
Derivative liabilities, at fair value	218,856			103,293
Intangible liabilities, net	144,442			149,642
Liabilities of properties held for sale (refer to Note 3)	1,564,851			2,209,689
Other liabilities	160,090			165,856
Total liabilities(2)	10,375,684			11,188,671
Commitments and contingencies
Equity
NorthStar Realty Finance Corp. Stockholders’ Equity
Preferred stock, $986,640 aggregate liquidation preference as of March 31, 2016 and December 31, 2015	939,118			939,118
Common stock, $0.01 par value, 500,000,000 shares authorized, 180,491,564 and 183,239,708 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively	1,805			1,832
Additional paid-in capital	5,104,367			5,149,349
Retained earnings (accumulated deficit)	(2,530,522		)	(2,309,564		)
Accumulated other comprehensive income (loss)	(15,094		)	18,485
Total NorthStar Realty Finance Corp. stockholders’ equity	3,499,674			3,799,220
Non-controlling interests	316,511			416,510
Total equity	3,816,185			4,215,730
Total liabilities and equity	$	14,191,869		$	15,404,401

Refer to accompanying notes to consolidated financial statements.

5

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Continued)

(Dollars in Thousands)

		March 31, 2016 (Unaudited)		December 31, 2015
(1)	Assets of consolidated VIEs included in the total assets above:
	Restricted cash	$	7,574	$	11,362
	Real estate debt investments, net	22,009		22,145
	Real estate securities, available for sale	374,109		385,421
	Receivables	1,703		1,577
	Other assets	903		590
	Total assets of consolidated VIEs	$	406,298	$	421,095
(2)	Liabilities of consolidated VIEs included in the total liabilities above:
	CDO bonds payable, at fair value	$	289,338	$	307,601
	Accounts payable and accrued expenses	1,269		1,255
	Derivative liabilities, at fair value	5,069		7,321
	Other liabilities	280		575
	Total liabilities of consolidated VIEs	$	295,956	$	316,752

Refer to accompanying notes to consolidated financial statements.

6

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in Thousands, Except Per Share Data)

(Unaudited)

	Three Months Ended March 31,
	2016(1)			2015(1)
Property and other revenues
Rental and escalation income	$	191,434		$	165,041
Hotel related income	193,743			168,727
Resident fee income	72,777			63,373
Other revenue	5,440			3,483
Total property and other revenues	463,394			400,624
Net interest income
Interest income (refer to Note 9)	42,933			65,637
Interest expense on debt and securities	2,160			1,977
Net interest income on debt and securities	40,773			63,660
Expenses
Management fee, related party (refer to Note 9)	46,528			48,231
Interest expense—mortgage and corporate borrowings	124,502			113,009
Real estate properties—operating expenses	238,410			201,141
Other expenses	7,016			4,473
Transaction costs	3,215			5,585
Impairment losses	5,073			—
Provision for (reversal of) loan losses, net	7,242			483
General and administrative expenses
Salaries and related expense	1,999			3,127
Equity-based compensation expense	6,285			10,830
Other general and administrative expenses	4,984			3,246
Total general and administrative expenses	13,268			17,203
Depreciation and amortization	88,003			108,982
Total expenses	533,257			499,107
Other income (loss)
Unrealized gain (loss) on investments and other	(135,481		)	(30,574		)
Realized gain (loss) on investments and other	377			13,003
Income (loss) before equity in earnings (losses) of unconsolidated ventures and income tax benefit (expense)	(164,194		)	(52,394		)
Equity in earnings (losses) of unconsolidated ventures	44,655			53,643
Income tax benefit (expense)	(7,843		)	(1,664		)
Income (loss) from continuing operations	(127,382		)	(415		)
Income (loss) from discontinued operations (refer to Note 3)	—			(13,861		)
Net income (loss)	(127,382		)	(14,276		)
Net (income) loss attributable to non-controlling interests	3,177			3,733
Preferred stock dividends	(21,059		)	(21,059		)
Net income (loss) attributable to NorthStar Realty Finance Corp. common stockholders	$	(145,264	)	$	(31,602	)
Earnings (loss) per share:(2)
Income (loss) per share from continuing operations	$	(0.79	)	$	(0.11	)
Income (loss) per share from discontinued operations	—			(0.09		)
Basic	$	(0.79	)	$	(0.20	)
Diluted	$	(0.79	)	$	(0.20	)
Weighted average number of shares:(2)
Basic	182,808,556			154,268,233
Diluted	184,674,784			154,626,118
Dividends per share of common stock(2)	$	0.40		$	0.80

____________________

(1) The consolidated financial statements for the three months endedMarch 31, 2016 represent the Company’s results of operations following the NRE Spin-off on October 31, 2015. The three months ended March 31, 2015 include a carve-out of revenues and expenses attributable to NorthStar Europe recorded in discontinued operations.

(2) Adjusted for the one-for-two reverse stock split completed on November 1, 2015. Refer to Note 11. “Stockholders’ Equity” for additional disclosure.

Refer to accompanying notes to consolidated financial statements.

7

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in Thousands)

(Unaudited)

	Three Months Ended March 31,
	2016			2015
Net income (loss)	$	(127,382	)	$	(14,276	)
Other comprehensive income (loss):
Unrealized gain (loss) on real estate securities, available for sale, net	(33,132		)	(18,546		)
Reclassification of swap (gain) loss into interest expense—mortgage and corporate borrowings (refer to Note 14)	223			265
Foreign currency translation adjustment, net	(1,180		)	(2,356		)
Total other comprehensive income (loss)	(34,089		)	(20,637		)
Comprehensive income (loss)	(161,471		)	(34,913		)
Comprehensive (income) loss attributable to non-controlling interests	3,687			4,033
Comprehensive income (loss) attributable to NorthStar Realty Finance Corp.	$	(157,784	)	$	(30,880	)

Refer to accompanying notes to consolidated financial statements.

8

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(Dollars and Shares in Thousands)

	Preferred Stock			Common Stock					Additional Paid-in Capital			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, 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 12)	—	—		—		—			(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	—	—		—		—			(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 3)	—	—		—		—			(878,109		)	—			(14,342		)	(892,451		)	(7,450		)	(899,901		)
Dividends on common stock and equity-based awards (refer to Note 10)	—	—		—		—			—			(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
Non-controlling interests—contributions	—	—		—		—			—			—			—			—			101			101
Non-controlling interests—distributions	—	—		—		—			—			—			—			—			(6,986		)	(6,986		)
Non-controlling interest – sale of subsidiary	—	—		—		—			—			—			—			—			(88,604		)	(88,604		)
Non-controlling interests—reallocation of interest in Operating Partnership (refer to Note 12)	—	—		—		—			1,846			—			—			1,846			(1,846		)	—
Dividend reinvestment plan	—	—		4		—			46			—			—			46			—			46
Amortization of equity-based compensation	—	—		—		—			4,411			—			—			4,411			1,533			5,944
Conversion of exchangeable senior notes	—	—		73		1			503			—			—			504			—			504
Other comprehensive income (loss)	—	—		—		—			—			—			(33,579		)	(33,579		)	(510		)	(34,089		)
Retirement of shares of common stock	—	—		(3,890	)	(39		)	(49,994		)	—			—			(50,033		)	—			(50,033		)
Issuance of restricted stock, net of tax withholding	—	—		1,065		11			(1,794		)	—			—			(1,783		)	—			(1,783		)
Dividends on common stock and equity-based awards (refer to Note 10)	—	—		—		—			—			(75,694		)	—			(75,694		)	(510		)	(76,204		)
Dividends on preferred stock	—	—		—		—			—			(21,059		)	—			(21,059		)	—			(21,059		)
Net income (loss)	—	—		—		—			—			(124,205		)	—			(124,205		)	(3,177		)	(127,382		)
Balance as of March 31, 2016 (unaudited)	39,466	$	939,118	180,492		$	1,805		$	5,104,367		$	(2,530,522	)	$	(15,094	)	$	3,499,674		$	316,511		$	3,816,185

Refer to accompanying notes to consolidated financial statements.

9

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)

	Three Months Ended March 31,
	2016			2015
Cash flows from operating activities:
Net income (loss)	$	(127,382	)	$	(14,276	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Equity in (earnings) losses of PE Investments	(37,552		)	(48,186		)
Equity in (earnings) losses of unconsolidated ventures	(7,103		)	(5,457		)
Depreciation and amortization	88,003			109,726
Amortization of premium/accretion of discount on investments	(14,094		)	(19,499		)
Interest accretion on investments	(168		)	(4,071		)
Amortization of deferred financing costs	14,450			13,615
Amortization of equity-based compensation	5,944			10,296
Unrealized (gain) loss on investments and other	132,937			32,983
Realized (gain) loss on investments and other	(377		)	(14,924		)
Impairment losses	5,073			—
Distributions from PE Investments (refer to Note 5)	33,106			48,186
Distributions from unconsolidated ventures	1,848			196
Distributions from equity investments	2,808			8,685
Amortization of capitalized above/below market leases	1,460			2,660
Straight line rental income, net	(6,807		)	(8,159		)
Deferred income taxes, net	3,333			(451		)
Provision for (reversal of) loan losses, net	7,242			483
Allowance for uncollectible accounts	1,064			582
Other	—			829
Changes in assets and liabilities:
Restricted cash	(1,189		)	(661		)
Receivables	(5,765		)	17,917
Receivables, related parties	1,313			230
Other assets	(6,126		)	1,703
Accounts payable and accrued expenses	(22,961		)	(23,130		)
Due to related party	(4,453		)	(4,256		)
Other liabilities	(351		)	419
Net cash provided by (used in) operating activities	64,253			105,440
Cash flows from investing activities:
Acquisition of operating real estate	—			(95,807		)
Acquisition of manufactured homes, held for sale	(2,916		)	(1,469		)
Improvements of real estate	(44,245		)	(23,581		)
Improvements of real estate, held for sale	(3,168		)	—
Proceeds from sale of real estate	145,962			3,681
Origination of or fundings for real estate debt investments	(12,300		)	(10,777		)
Proceeds from sale of real estate debt investments	224,013			—
Repayment of real estate debt investments	3,585			104,014
Investment in PE Investments (refer to Note 5)	(1,015		)	(1,096		)
Distributions from PE Investments (refer to Note 5)	48,036			25,292
Proceeds from sale of PE Investment (refer to Note 5)	144,143			—
Investment in unconsolidated ventures	(1,337		)	—
Distributions from unconsolidated ventures	229			2,054
Proceeds from the sale of real estate securities, available for sale	53,886			60,963
Repayment of real estate securities, available for sale	10,305			4,282
Change in restricted cash	37,314			18,436
Payment of leasing costs	(956		)	(790		)
Investment deposits and pending deal costs	(243		)	(568,351		)
Other assets	2,493			(6,716		)
Net cash provided by (used in) investing activities	603,786			(489,865		)

Refer to accompanying notes to consolidated financial statements.

10

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Dollars in Thousands)

(Unaudited)

	Three Months Ended March 31,
	2016			2015
Cash flows from financing activities:
Borrowings from mortgage and other notes payable	$	59,326		$	67,254
Repayment of mortgage and other notes payable	(60,359		)	(27,727		)
Repayment of CDO bonds	(15,737		)	(16,146		)
Repayment of securitization bonds payable	—			(41,831		)
Borrowings from credit facilities	—			420,000
Repayment of credit facilities	(212,075		)	(241,877		)
Payment of financing costs	(1,819		)	(70,654		)
Purchase of derivative instruments	—			(42		)
Payment of cash collateral on derivatives	(62,318		)	—
Change in restricted cash	7,763			1,562
Net proceeds from common stock offering	—			555,455
Repurchase of common stock	(47,020		)	—
Proceeds from dividend reinvestment plan	46			38
Dividends	(96,931		)	(150,858		)
Repurchase of shares related to equity-based awards and tax withholding	(5,428		)	—
Contributions from non-controlling interests	101			11,789
Distributions to non-controlling interests	(6,986		)	(10,885		)
Net cash provided by (used in) financing activities	(441,437		)	496,078
Effect of foreign currency translation on cash and cash equivalents	(86		)	(3,414		)
Net increase (decrease) in cash and cash equivalents	226,516			108,239
Cash and cash equivalents—beginning of period	224,101			296,964
Cash and cash equivalents—end of period	$	450,617		$	405,203

Refer to accompanying notes to consolidated financial statements.

11

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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. 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.

Substantially all of the Company’s assets, directly or indirectly, are held by, and the Company conducts its operations, directly or indirectly, through NorthStar Realty Finance Limited Partnership, a Delaware limited partnership and the operating partnership of the Company (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.

Strategic Initiatives

The Company continues 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 the Company’s PE Investments; and (iii) sales and/or accelerated repayments of the Company’s CRE debt and securities investments. Additionally, in connection with the Company’s continuous evaluation of its capital allocation strategy, the Company revised its dividend policy.

Proceeds from such sales initiatives, along with capital retained from the Company’s revised dividend policy, are currently expected to be used for opportunistically repurchasing the Company’s common stock, which the Company believes is currently trading at a significant discount to underlying net asset value and toward repayment of a significant portion of the Company’s corporate recourse borrowing obligations with $425 million currently outstanding (excluding $280 million of trust preferred securities with maturities beginning in 2035).

In addition, the Company’s board of directors formed a special committee, which retained UBS Investment Bank as its financial advisor, to explore a potential recombination transaction with NSAM. The special committee is comprised solely of independent directors that are not on the board of directors of NSAM. In May 2016, the Company also announced that it had entered into exclusive discussions with NSAM and Colony Capital, Inc. (“Colony Capital”) regarding a tri-party business combination. There can be no assurance that the exploration of corporate strategic initiatives, including the Company’s discussions with NSAM and Colony Capital, will result in any definitive agreement, transaction or initiative being announced or consummated.

2. Summary of Significant Accounting Policies

Basis of Quarterly Presentation

The accompanying unaudited 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”) for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and note disclosures normally included in the consolidated financial statements prepared under U.S. GAAP have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, which was filed with the Securities and Exchange Commission (the “SEC”).

The three months endedMarch 31, 2016 include the Company’s results of operations following 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”). The three months ended March 31, 2015 include a carve-out of revenues and expenses attributable to NorthStar Europe recorded in discontinued operations. As a result, the three months ended March 31, 2016 may not be comparable to the prior period presented. Expenses also included an allocation of indirect expenses of the Company to NorthStar Europe, including salaries and other general and administrative expenses (primarily occupancy and other cost) based on an estimate had the 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.

12

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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

13

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 discontinued operations (refer to Note 3).

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.

14

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following table presents the components of accumulated OCI for the three months ended March 31, 2016 and 2015 (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, 2015	$	21,016		$	(767	)	$	(1,764	)	$	18,485
Unrealized gain (loss) on real estate securities, available for sale	(33,724		)	—			—			(33,724		)
Reclassification of unrealized (gain) loss on real estate securities, available for sale into realized gain (loss) on investments and other	592			—			—			592
Reclassification of swap (gain) loss into interest expense—mortgage and corporate borrowings (refer to Note 14)	—			223			—			223
Foreign currency translation adjustment	—			—			(1,180		)	(1,180		)
Non-controlling interests	331			(2		)	181			510
Balance as of March 31. 2016 (Unaudited)	$	(11,785	)	$	(546	)	$	(2,763	)	$	(15,094	)
Balance as of December 31, 2014	$	56,072		$	(1,694	)	$	(4,838	)	$	49,540
Unrealized gain (loss) on real estate securities, available for sale	(7,123		)	—			—			(7,123		)
Reclassification of unrealized (gain) loss on real estate securities, available for sale into realized gain (loss) on investments and other	(11,423		)	—			—			(11,423		)
Reclassification of swap (gain) loss into interest expense—mortgage and corporate borrowings (refer to Note 14)	—			265			—			265
Foreign currency translation adjustment	—			—			(2,356		)	(2,356		)
Non-controlling interests	—			—			331			331
Balance as of March 31, 2015 (Unaudited)	$	37,526		$	(1,429	)	$	(6,863	)	$	29,234

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 March 31, 2016 and December 31, 2015 (dollars in thousands):

	March 31, 2016 (Unaudited)		December 31, 2015
Capital expenditures reserves	$	131,477	$	171,712
Operating real estate escrow reserves(1)	95,934		107,399
CRE debt escrow deposits	4,503		8,815
Cash in CDOs(2)	7,574		11,362
Total	$	239,488	$	299,288

__________________________________________________

(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.

Fair Value Option

The fair value option provides an election that allows a company to irrevocably elect to record certain financial assets and liabilities at fair value 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:

15

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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. The Company records a gain (loss) on sale of real estate when title is conveyed to the buyer and the Company has no substantial economic involvement with the property. If the sales criteria for the full accrual method are not met, the Company defers some or all of the gain (loss) recognition by applying the finance, leasing, profit sharing, deposit, installment or cost recovery method, as appropriate, until the sales criteria are met.

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.

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.

Deferred Costs

Deferred costs primarily include deferred financing costs and deferred lease costs. Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining financing. Costs related to revolving credit facilities are recorded in other assets and are amortized to interest expense using the straight-line basis over the term of the facility. Costs related to other borrowings are recorded net against the carrying value of such borrowings and are amortized to interest expense using the effective interest method. Unamortized deferred financing costs are expensed when the associated facility is repaid before maturity. Costs incurred in seeking financing transactions, which do not close, are expensed in the period such financing transaction was terminated. Deferred lease costs consist of fees incurred to initiate and renew operating leases, which are amortized on a straight-line basis over the remaining lease term and are recorded to depreciation and amortization in the consolidated statements of operations.

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, below-market ground 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 identified intangibles are amortized over the remaining

16

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

lease term. Above/below-market leases are amortized into rental income, below-market ground leases are amortized into real estate properties-operating expense and in-place leases are amortized into depreciation and amortization expense.

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. The Company first assesses 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 the Company’s 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 the fair value measurement through the weighted average cost of capital that the Company uses 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 May 2014 was conducted as of October 1, 2015 and the remaining reporting units related to a portfolio acquired in December 2014 with the acquisition of Griffin-American Healthcare REIT II, Inc. (“Griffin-American” or “Griffin-American Portfolio”) and was conducted 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, the Company 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. Step two of the impairment test was completed in the first quarter 2016 and there was no change to the estimate recorded.

17

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Summary

The following tables presents identified intangibles as of March 31, 2016 and December 31, 2015 (dollars in thousands):

	March 31, 2016 (Unaudited)							December 31, 2015
	Gross Amount		Accumulated Amortization			Net		Gross Amount		Accumulated Amortization			Net
Intangible assets:
In-place leases	$	268,016	$	(73,341	)	$	194,675	$	289,124	$	(82,089	)	$	207,035
Above-market leases	262,380		(37,605		)	224,775		268,426		(35,940		)	232,486
Goodwill(1)	47,719		NA			47,719		48,635		NA			48,635
Other	40,958		(2,452		)	38,506		41,149		(2,028		)	39,121
Total	$	619,073	$	(113,398	)	$	505,675	$	647,334	$	(120,057	)	$	527,277
Intangible liabilities:
Below-market leases	$	175,008	$	(32,730	)	$	142,278	$	177,931	$	(30,462	)	$	147,469
Other(2)	2,236		(72		)	2,164		2,236		(63		)	2,173
Total	$	177,244	$	(32,802	)	$	144,442	$	180,167	$	(30,525	)	$	149,642

_______________________

(1) Represents goodwill associated with two acquisitions of healthcare portfolios that operate through the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”) structures. The first portfolio relates to a healthcare portfolio acquired in 2014 ($25.5 million) and the second relates to goodwill associated with a healthcare portfolio in the U.K. in the Griffin-American Portfolio ($48.6 million). For the year ended December 31, 2015, the Company recorded an estimated goodwill impairment of $25.5 million related to the healthcare portfolio acquired in 2014, which was finalized during the three months ended March 31, 2016. The change in goodwill for the three months ended March 31, 2016 relates to foreign currency translation.

(2) Represents the value associated with a purchase price option associated with the Griffin-American Portfolio.

Other Assets and Other Liabilities

The following table presents a summary of other assets and other liabilities as of March 31, 2016 and December 31, 2015 (dollars in thousands):

	March 31, 2016 (Unaudited)		December 31, 2015
Other assets:
Cash collateral held by derivative counterparty (refer to Note 14)	$	62,318	$	—
Investment-related reserves	45,552		47,380
Prepaid expenses	24,897		22,573
Deferred tax assets, net	24,145		24,435
Deferred costs	9,154		9,461
Due from servicer	2,399		642
Investment deposits and pending deal costs	1,411		568
Notes receivable, net	210		694
Other	2,049		2,015
Total	$	172,135	$	107,768
	March 31, 2016 (Unaudited)		December 31, 2015
Other liabilities:
Deferred tax liabilities	$	52,241	$	50,341
PE Investments deferred purchase price (refer to Note 5)	44,212		44,212
Tenant security deposits	30,192		30,327
Prepaid rent and unearned revenue	21,498		24,697
Escrow deposits payable	7,914		11,753
Other	4,033		4,526
Total	$	160,090	$	165,856

18

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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. Rental revenue recognition commences when the tenant takes possession of the leased space and the leased space is substantially ready for its intended use. 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. The Company amortizes any tenant inducements as a reduction of revenue utilizing the straight-line method over the term of the lease. 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.

In a situation in which a lease(s) associated with a significant tenant have been, or are expected to be, terminated early, the Company evaluates the remaining useful life of depreciable or amortizable assets in the asset group related to the lease that will be terminated (i.e., tenant improvements, above- and below-market lease intangibles, in-place lease value and deferred leasing costs). Based upon consideration of the facts and circumstances surrounding the termination, the Company may write-off or accelerate the depreciation and amortization associated with the asset group. Such amounts are included within depreciation and amortization 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.

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.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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.

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 or the attribution method depending if the grant is to an employee or non-employee. 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. Time-based 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 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 10), 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 as discontinued operations provided that the disposal represents a strategic shift that has (or will have) a major effect on the Company’s operations and financial results.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 taxable REIT subsidiaries (“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, 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 recorded income tax expense of $7.8 million and $1.7 million for the three months endedMarch 31, 2016 and 2015, respectively, of which $4.5 million represents a current income tax expense for three months ended March 31, 2016 and $0.2 million represents a current income tax benefit for the three months ended March 31, 2015.

Other

Refer to Note 2 of the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 for further disclosure of the Company’s significant accounting policies.

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 adopted this guidance in the first quarter 2016 and determined the Company’s Operating Partnership is considered a VIE. The Company is the primary beneficiary of the VIE, the VIE’s assets can be used for purposes other than the settlement of the VIE’s obligations and the Company’s partnership interest is considered

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

a majority voting interest. As such, this standard resulted in the identification of additional VIEs, however it did not have a material impact on the Company’s consolidated financial position or results of operations. Refer to Note 16 for further disclosure.

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.

In March 2016, the FASB issued guidance clarifying that an assessment of whether an embedded contingent put or call option is clearly and closely related to a borrowing requires only an analysis of the four-step decision sequence. Additionally, entities are not required to separately assess whether the contingency itself is clearly and closely related. Entities are required to apply the guidance to existing instruments in scope using a modified retrospective transition method as of the period of adoption. The guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those years. Early adoption is permitted. The Company is evaluating the impact, if any, that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.

In March 2016, the FASB issued guidance which eliminates the requirement for an investor to retroactively apply the equity method when its increase in ownership interest (or degree of influence) in an investee triggers equity method accounting. The update requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment become qualified for equity method accounting. The update should be applied prospectively upon their effective date to increases in the level of ownership interests or degree of influence that results in the adoption of the equity method. The guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years.  Early adoption is permitted.  The Company is evaluating the impact, if any, that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.

In March 2016, the FASB issued guidance which amends several aspects of the accounting for equity-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statements of cash flows. The guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017.  The Company is evaluating the impact, if any, 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 March 31, 2016 and December 31, 2015 (dollars in thousands):

	March 31, 2016 (Unaudited)			December 31, 2015
Land	$	1,045,465		$	1,047,620
Land improvements	148,498			148,295
Buildings and improvements	6,714,523			6,728,957
Building leasehold interests and improvements	723,578			723,573
Furniture, fixtures and equipment	359,599			346,628
Tenant improvements	161,776			165,539
Construction in progress	61,315			57,663
Subtotal	9,214,754			9,218,275
Less: Accumulated depreciation	(582,612		)	(511,113		)
Less: Allowance for operating real estate impairment	(4,903		)	(4,903		)
Operating real estate, net	$	8,627,239		$	8,702,259

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Real Estate Held for Sale

The following table summarizes the Company’s operating real estate held for sale as of March 31, 2016 (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(3)	136	$	1,495,345	$	24,015	$	1,519,360	$	1,262,057	$	—	$	1,262,057	94	%
Multifamily(4)	11	304,861		—		304,861		247,032		—		247,032		90	%
Other	8	86,273		2,589		88,862		41,482		14,280		55,762		NA
Total	155	$	1,886,479	$	26,604	$	1,913,083	$	1,550,571	$	14,280	$	1,564,851

______________________________________

(1) Includes $58.9 million of manufactured housing notes receivables previously recorded in other assets.

(2) Represents operating real estate and intangible assets, net of depreciation and amortization of $218.1 million.

(3) In May 2016, the Company entered into an agreement to sell its manufactured housing portfolio for $2.0 billion with $1.3 billion of related mortgage financing expected to be assumed as part of the transaction. The Company expects to receive $620 million of net proceeds. The Company expects the transaction to close in the second half of 2016.

(4) The Company entered into and are finalizing agreements to sell ten multifamily properties for $307 million with $210 million of mortgage financing expected to be assumed as part of the transaction. The Company expects to receive $86 million of net proceeds and continues to explore the sale of the remaining two properties, including one multifamily property accounted for as an investment in unconsolidated subsidiary (refer to Note 6).

In March 2016, the Company sold its 60% interest in the $898.7 million independent living facility portfolio (“Senior Housing Portfolio”) for $534.5 million. The Company received $149.4 million of proceeds, net of sales costs. In connection with the sale, the Company recorded a $16.7 million realized gain in the Company’s consolidated statements of operations, which represented a reversal of previously recorded accumulated depreciation and transaction costs. Refer to Note 9. Related Party Arrangements for further disclosure.

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 a taxable distribution. In connection with the NRE Spin-off, 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 (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. In connection with the NRE Spin-off, $2.8 billion of assets were transferred and $1.9 billion of liabilities were assumed by NorthStar Europe.

For the three months ended March 31, 2015, the Company recorded a $13.9 million loss included in discontinued operations in the Company’s consolidated statements of operations associated with NorthStar Europe which represented a carve-out of revenues of $1.8 million and expenses of $15.7 million, primarily related to transaction costs.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

4. Real Estate Debt Investments

The following table presents CRE debt investments as of March 31, 2016 (dollars in thousands):

								Weighted Average						Floating Rate as % of Principal Amount(3)
	Number	Principal Amount		Carrying Value		Allocation by Investment Type(3)		Fixed Rate		Spread Over LIBOR(6)		Yield(4)
Asset Type:
First mortgage loans(1)(6)	7	$	198,534	$	170,349	42.5	%	10.24	%	8.62	%	3.18	%	32.6	%
Mezzanine loans	6	22,400		18,571		4.8	%	9.05	%	4.00	%	7.24	%	39.8	%
Subordinate interests	4	170,980		169,760		36.6	%	12.67	%	5.67	%	8.87	%	58.8	%
Corporate loans	4	35,382		30,880		7.6	%	12.92	%	—	%	14.81	%	—	%
Subtotal/Weighted average(2)	21	427,296		389,560		91.5	%	11.25	%	10.69	%	6.77	%	40.8	%
CRE debt in N-Star CDOs
First mortgage loans	2	26,957		9,320		5.8	%	—	%	1.27	%	3.92	%	100.0	%
Mezzanine loans	1	11,000		10,752		2.4	%	8.00	%	—	%	8.18	%	—	%
Corporate loans	6	1,936		1,936		0.4	%	6.74	%	—	%	6.74	%	—	%
Subtotal/Weighted average	9	39,893		22,008		8.5	%	7.81	%	1.27	%	6.25	%	67.6	%
Total	30	$	467,189	$	411,568	100.0	%	11.08	%	9.42	%	6.75	%	43.1	%
Real estate debt, held for sale(5)	4	$	91,949	$	88,972	NA		—	%	6.57	%	7.23	%	100.0	%

____________________________________________________________

(1) 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. One of these three loans is a Sterling denominated loan of £66.7 million, of which £25.0 million is available to be funded as of March 31, 2016. This loan has various maturity dates depending upon the timing of advances; however, will be no later than March 2022.

(2) 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.

(3) Based on principal amount.

(4) Based on initial maturity and for floating-rate debt, calculated using one-month LIBOR as of March 31, 2016 and for CRE debt with a LIBOR floor greater than LIBOR, using such floor.

(5) One CRE debt investment served as collateral for financing transactions with a carrying value of $38.6 million for the Company’s loan facility. The remainder was unleveraged. In April 2016, the Company sold these loans and used $25.2 million of proceeds to pay down the Company’s loan facility in full, resulting in net proceeds of $64.0 million.

(6) $64.0 million principal amount (excluding CRE debt in N-Star CDOs) has a weighted average LIBOR floor of 0.95%.

The following table presents CRE debt investments as of December 31, 2015 (dollars in thousands):

								Weighted Average(5)						Floating Rate as % of Principal Amount(3)
	Number	Principal Amount		Carrying Value		Allocation by Investment Type(3)		Fixed Rate		Spread Over LIBOR(6)		Yield(7)
Asset Type:
First mortgage loans(1)	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(2)	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(7)	7	$	225,037	$	224,677	NA		13.65	%	7.41	%	10.89	%	52.5	%

____________________________________________________________

(1) 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. One is a Sterling denominated loan of £66.7 million. This loan has various maturity dates depending upon the timing of advances; however, will be no later than March 2022.

(2) 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.

(3) Based on principal amount.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(4) Excludes an aggregate principal amount of $$129.3 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.

(5) $63.9 million principal amount (excluding CRE debt in N-Star CDOs) has a weighted average LIBOR floor of 0.95%. Includes one first mortgage loan with a principal amount of $5.8 million with a spread over the prime rate.

(6) 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.

(7) In the first quarter 2016, the Company sold these seven loans and used $46.9 million of proceeds to pay down the Company’s loan facility, resulting in net proceeds of $178.2 million.

The following table presents maturities of CRE debt investments based on principal amount as of March 31, 2016 (dollars in thousands):

	Initial Maturity		Maturity Including Extensions(1)
April 1 to December 31, 2016	$	103,129	$	97,747
Years ending December 31:
2017	220		220
2018	1,716		1,716
2019	—		—
2020	—		—
Thereafter	267,753		273,135
Total(2)	$	372,818	$	372,818

____________________________________________________________

(1) Assumes that all debt with extension options will qualify for extension at such maturity according to the conditions stipulated in the governing documents.

(2) Excludes three non-performing loans (“NPLs”) with an aggregate principal amount of $94.4 million as of March 31, 2016 due to maturity defaults. In April 2016, one NPL, with a total principal amount of $52 million, was repaid at par.

As of March 31, 2016, the weighted average maturity, including extensions, of CRE debt investments was 5.5 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 March 31, 2016, the Company had $39.6 million of net unamortized discount and $1.4 million of net unamortized origination fees and costs.

Provision for Loan Losses

The following table presents activity in loan loss reserves on CRE debt investments for the three months ended March 31, 2016 and 2015 (dollars in thousands):

	Three Months Ended March 31,
	2016			2015
Beginning balance	$	7,839		$	5,599
Provision for (reversal of) loan losses, net	4,260		(1)(2)	200		(1)
Ending balance	$	12,099		$	5,799

____________________________________________________________

(1) Excludes $0.1 million of provision for loan losses relating to manufactured housing notes receivables recorded in assets of properties held for sale as of March 31, 2016 and $0.3 million recorded in other assets as of March 31, 2015.

(2) Excludes $2.9 million of provision for loan losses primarily relating to exit fees on real estate debt, 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.

26

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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):

	March 31, 2016		December 31, 2015
Credit Quality Indicator:
Loans with no loan loss reserve:
First mortgage loans	$	84,668	$	168,978
Mezzanine loans	29,323		29,305
Subordinate interests	169,759		169,781
Corporate loans	32,816		32,830
Subtotal	316,566		400,894
Other loans with a loan loss reserve/non-accrual status:
First mortgage loans(1)	4,137		4,137
Mezzanine loans(2)	—		—
Subtotal	4,137		4,137
Non-performing loans(3)	90,865		96,443
Total	$	411,568	$	501,474

____________________________________________________________

(1) Excludes one first mortgage loan acquired with deteriorated credit quality with a carrying value of $3.1 million as of March 31, 2016 and December 31, 2015.

(2) Includes one mezzanine loan with a 100% loan loss reserve with a principal amount of $3.8 million as of March 31, 2016 and December 31, 2015. Such loan is not considered a NPL as debt service is currently being received.

(3) In April 2016, one NPL, with a total principal amount of $52 million, was repaid at par.

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 March 31, 2016 and December 31, 2015 (dollars in thousands):

	March 31, 2016							December 31, 2015
	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	$	118,177	$	95,002	$	8,333	5	$	119,677	$	100,580	$	4,073
Mezzanine loans	1	3,766		—		3,766		1	3,766		—		3,766
Total	6	$	121,943	$	95,002	$	12,099	6	$	123,443	$	100,580	$	7,839

____________________________________________________________

(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 March 31, 2016 and December 31, 2015.

27

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 three months endedMarch 31, 2016 and 2015 (dollars in thousands):

	March 31, 2016					March 31, 2015
	Number	Average Carrying Value		Quarter Ended Income		Number	Average Carrying Value		Quarter Ended Income
Class of Debt:
First mortgage loans	5	$	97,791	$	2,100	2	$	2,690	$	50
Mezzanine loans	1	—		—		1	—		2
Total/weighted average	6	$	97,791	$	2,100	3	$	2,690	$	52

As of March 31, 2016, the Company had three loans past due greater than 90 days. As of March 31, 2015, the Company did not have any 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”, “PE Investment II” and “PE Investment XV”) or consolidated ventures and direct investments (“PE Investment III to XIV,” 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 variable interest entities, except for PE Investment I and II (refer to Note 16). PE Investment I and II are considered voting interest entities and 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.

The following tables summarize the Company’s PE Investments as of March 31, 2016 (dollars in millions):

PE Investment	Initial Closing Date	NAV Reference Date(1)	Number of Funds		Purchase Price		Expected Future Funding(2)
PE Investment I	February 15, 2013	June 30, 2012	49		$	282.1	$	2
PE Investment II(3)	July 3, 2013	September 30, 2012	24		5.0		3
PE Investment III	December 31, 2013	June 30, 2013	8		79.6		—
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(4)	September 9, 2015	December 31, 2014	15		50.2		50
PE Investment XV	November 12, 2015	December 31, 2014	1		60.0		12
Total			173	(5)	1,465.8		$	73

____________________________________________________________

(1) Represents the net asset value (“NAV”) date on which the Company agreed to acquire the respective PE Investment.

(2) Includes an estimated amount of expected future contributions to funds and any deferred purchase price as of March 31, 2016. 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.

(3) In February 2016, the Company sold substantially all of its interest in PE Investment II for proceeds of $184.1 million. In connection with the sale, the buyers assumed substantially all of the Company’s $243 million portion of the deferred purchase price obligation of the PE Investment II joint venture. The purchase price represents 1% of the original purchase price. Refer to Note 9. Related Party Arrangements for further disclosure.

(4) 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.

(5) The total number of funds includes 28 funds held across multiple PE Investments.

28

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

	Carrying Value				Three Months Ended March 31, 2016						Three Months Ended March 31, 2015
PE Investment(5)	March 31, 2016 (Unaudited)		December 31, 2015		Income(1)(2)		Distributions		Contributions		Income(1)(2)		Distributions		Contributions
PE Investment I(3)	$	124.0	$	154.0	$	7.6	$	33.8	$	—	$	13.9	$	17.7	$	0.6
PE Investment II(4)	2.0		186.2		0.1		0.2		—		14.0		21.6		—
PE Investment III	28.5		26.8		2.3		0.6		—		0.7		1.5		—
PE Investment IV	6.8		7.6		0.3		1.1		—		0.3		—		—
PE Investment V	6.6		7.7		0.3		1.4		—		0.5		—		—
PE Investment VI	74.2		75.3		2.0		3.2		0.1		3.4		7.4		0.1
PE Investment VII	31.3		30.2		1.5		0.4		—		2.1		1.9		—
PE Investment IX	126.6		129.2		5.3		8.0		0.1		7.4		18.0		0.2
PE Investment X	120.6		128.5		3.7		11.6		—		5.9		13.8		0.2
PE Investment XI	4.3		4.2		0.3		0.2		—		—		—		—
PE Investment XII	2.6		2.6		0.1		0.1		—		—		—		—
PE Investment XIII	289.4		287.4		9.6		8.3		0.7		—		—		—
PE Investment XIV	51.2		55.2		1.5		5.6		0.1		—		—		—
PE Investment XV	1.4		6.8		3.0		8.4		—		—		—		—
Total	$	869.5	$	1,101.7	$	37.6	$	82.9	$	1.0	$	48.2	$	81.9	$	1.1

____________________________________________________________

(1) Income is recorded gross of a current income tax expense of $4.7 million and $1.5 million, respectively, for the three months endedMarch 31, 2016 and 2015.

(2) Recorded in equity in earnings in the consolidated statements of operations.

(3) The Company recorded an unrealized loss of $3.8 million for the three months endedMarch 31, 2016, which represented a partial reversal of an unrealized gain of $32.6 million recorded for the year ended December 31, 2014.

(4) The distributions received for the three months ended March 31, 2016 excludes proceeds of $184.1 million in connection with the sale of substantially all of the Company’s interest in PE Investment II.

(5) As of March 31, 2016, cash flow is expected through June 30, 2024, with a weighted average expected remaining life of 1.4 years.

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.

29

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

PE Investment II

In June 2013, the Company, NorthStar Income and funds managed by Goldman Sachs Asset Management (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, 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 sold substantially all of its interest in PE Investment II for proceeds of $184.1 million to the other Partners. In connection with the sale, the buyers, Goldman Sachs Asset Management and NorthStar Income, each assumed substantially all of the Company’s $243 million portion of the deferred purchase price obligation of the PE Investment II joint venture.

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 13). The investments in the NSAM Retail Companies (as defined below) were accounted for under the equity method prior to the spin-off of the Company’s historical asset management business (“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 March 31, 2016 and December 31, 2015 and for the three months ended March 31, 2016 and 2015 (dollars in millions):

		Carrying Value				Equity in Earnings (Losses)
	Ownership	March 31, 2016 (Unaudited)		December 31, 2015		Three Months Ended March 31,
Investment	Interest					2016		2015
RXR Realty(1)	27%	$	93.7	$	89.3	$	6.1	$	3.5
Aerium(2)	15%	7.0		16.5		—		1.0
LandCap(3)	49%	7.7		7.7		—		0.3
SteelWave(4)	40%	7.4		6.8		0.6		0.4
CS/Federal(5)	50%	5.7		5.7		—		0.1
NSAM Retail Companies(6)	Various	15.0		14.0		0.1		0.1
NorthStar Realty Finance Trusts(7)	N/A	3.7		3.7		—		—
Multifamily Joint Venture(8)	90%	3.9		3.5		0.3		—
Office Joint Venture(9)	10%	8.5		8.5		—		—
Total		$	152.6	$	155.7	$	7.1	$	5.4

___________________________________________________________

(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 9. “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 $10.8 million for the three months ended March 31, 2016. 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 9. “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 retail company (herein collectively referred to as the “NSAM Retail 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 16 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.

(9) In June 2013, in connection with the restructuring of an existing mezzanine loan, the Company acquired a 9.99% equity interest for $8.5 million in a joint venture that owns two office buildings in Chicago.

30

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NSAM Retail Companies

The Company committed to purchase up to $10 million in shares of each of NSAM’s Retail Companies’ common stock during the period from when each offering was declared effective through the end of their respective offering period, in the event that NSAM Retail Companies’ distributions to its stockholders, on a quarterly basis, exceeds certain measures of operating performance.

The Company acquired an aggregate of $15.4 million of shares of NorthStar Income, NorthStar Healthcare and NorthStar Income II through March 31, 2016. 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 Retail Company, up to a total of five new companies per year.

As of March 31, 2016, the Company’s distribution support obligations remain outstanding for NorthStar Income II and the following other NSAM Retail Companies:

• NorthStar/RXR New York Metro Real Estate, Inc. - NorthStar/RXR New York Metro Real Estate, Inc.’s (“NorthStar/RXR New York Metro”) registration statement filed with the SEC seeks to offer up to $2 billion in a public offering of multiple classes of common stock. 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, of which$1.5 million was invested by the Company. The Company currently consolidates NorthStar/RXR New York Metro based on its majority voting interest in the entity. NSAM began raising capital for NorthStar/RXR New York Metro in the second quarter 2016.

• NorthStar Corporate Fund - NorthStar Corporate Income Fund’s (“NorthStar Corporate Fund”) registration statement on Form N-2 filed with the SEC seeks to raise up to $3 billion in a public offering of common stock. In January 2016, the Company and an affiliate of Och-Ziff Capital Management Group invested $2.0 million of seed capital into NorthStar Corporate Fund, of which $1.0 million was invested by the Company. In February 2016, NorthStar Corporate Fund was declared effective by the SEC and expects to begin raising capital in 2016.

• NorthStar Capital Fund - NorthStar Real Estate Capital Income Fund’s (“NorthStar Capital Fund”) registration statement on Form N-2 filed with the SEC seeks to raise up to $3 billion in a public offering of common stock. In March 2016, the Company invested $2.0 million of seed capital into NorthStar Capital Fund. In May 2016, NorthStar Capital Fund was declared effective by the SEC and expects to begin raising capital in 2016. The Company currently consolidates the master fund of NorthStar Capital Fund based on its majority voting interest in the entity.

• 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.

7. Real Estate Securities, Available for Sale

The following table presents CRE securities as of March 31, 2016 (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)	24	$	363,493	$	164,681	$	10,597	$	(21,885	)	$	153,393	30.8	%	2.24	%	24.23	%
N-Star CDO equity(5)(8)	4	68,128		68,128		1,168		(28,320		)	40,976		5.8	%	NA		13.11	%
CMBS and other securities(6)	13	67,060		47,689		34		(22,779		)	24,944		5.7	%	0.76	%	1.30	%
Subtotal(2)	41	498,681		280,498		11,799		(72,984		)	219,313		42.3	%	2.01	%	17.63	%
CRE securities in N-Star CDOs(5)(7)
CMBS	121	525,664		391,920		22,914		(104,563		)	310,271		44.5	%	3.39	%	9.27	%
Third-party CDO notes	7	55,190		49,728		—		(43,070		)	6,658		4.4	%	—	%	—	%
Agency debentures	8	87,172		32,133		10,350		—			42,483		7.4	%	—	%	4.57	%
Unsecured REIT debt	1	8,000		8,257		589		—			8,846		0.7	%	7.50	%	5.88	%
Trust preferred securities	2	7,225		7,225		—		(1,819		)	5,406		0.7	%	2.25	%	2.32	%
Subtotal	139	683,251		489,263		33,853		(149,452		)	373,664		57.7	%	2.72	%	7.86	%
Total	180	$	1,181,932	$	769,761	$	45,652	$	(222,436	)	$	592,977	100.0	%	2.44	%	11.42	%

____________________________________________________________

(1) Excludes $142.1 million principal amount of N-Star CDO bonds payable that are eliminated in consolidation and includes $2.4 million of N-Star CDO bonds owned in N-Star CDO IX.

(2) All securities are unleveraged.

(3) Based on amortized cost for N-Star CDO equity and principal amount for remaining securities.

31

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(4) Based on expected maturity and for floating-rate securities, calculated using the applicable LIBOR as of March 31, 2016.

(5) The fair value option was elected for these securities (refer to Note 13).

(6) The fair value option was elected for $19.4 million carrying value of these securities (refer to Note 13).

(7) Investments in the same securitization tranche held in separate CDO financing transactions are reported as separate investments.

(8) As of March 31, 2016, the weighted average remaining life of the N-Star CDO bonds and N-Star CDO equity is 1.8 years and 2.7 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 16). 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.

As of March 31, 2016, 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 March 31, 2016, contractual maturities of CRE securities investments ranged from two months to 37 years, with a weighted average expected maturity of 3.4 years.

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)	26	$	401,848	$	194,908	$	24,332	$	(2,513	)	$	216,727	31.3	%	1.98	%	22.01	%
N-Star CDO equity(5)	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		0.6	%	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.

(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 13).

(6) The fair value option was elected for $48.7 million carrying value of these securities (refer to Note 13).

(7) Investments in the same securitization tranche held in separate CDO financing transactions are reported as separate investments.

For the three months endedMarch 31, 2016, proceeds from the sale of CRE securities was $53.9 million resulting in a net realized loss of $5.6 million. The Company recognized a $9.7 million net cash gain related to acceleration of discount in connection with these sales. For the three months endedMarch 31, 2015, proceeds from the sale of CRE securities was $61.0 million resulting in a net realized gain of $10.9 million.

CRE securities investments, not held in N-Star CDOs, include 25 securities for which the fair value option was not elected. As of March 31, 2016, the aggregate carrying value of these securities was $159.0 million, representing $11.3 million of accumulated net unrealized losses included in OCI. As of March 31, 2016, the Company held 20 securities with an aggregate carrying value of $119.1 million with an unrealized loss of $21.9 million, three of which were in an unrealized loss position for a period of greater than 12 months. Based on management’s quarterly evaluation, the Company recorded OTTI of $7.0 million for the three months ended March 31, 2016, which was recorded in realized gain (loss) on investments and other in the consolidated statements of operations. As of March 31, 2016, 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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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

8. Borrowings

The following table presents borrowings as of March 31, 2016 and December 31, 2015 (dollars in thousands):

				March 31, 2016				December 31, 2015
	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%	$	3,087	$	3,082	$	3,101	$	3,097
Ohio Portfolio(16)	Non-recourse	Jan-19	LIBOR + 4.25%	19,883		19,731		19,948		19,780
Lancaster, OH(16)	Non-recourse	Jan-19	LIBOR + 4.25%	2,216		2,187		2,261		2,229
Wilkinson Portfolio(16)	Non-recourse	Jan-19	6.99%	146,299		145,730		147,076		146,447
Tuscola/Harrisburg, IL(16)	Non-recourse	Jan-19	7.09%	7,230		7,185		7,268		7,218
Formation Portfolio(5)	Non-recourse	May-19(6)/Jan-25/Feb-26	LIBOR + 4.25%(7)/4.54%/4.59%	705,344		697,963		701,819		695,060
Minnesota Portfolio(16)	Non-recourse	Nov-19	LIBOR + 3.50%	37,800		37,215		37,800		37,171
Griffin-American - U.K.(5)	Non-recourse	Dec-19(6)	LIBOR + 4.25%(7)	317,466		313,164		327,890		322,415
Griffin-American - U.S. - Fixed(5)	Non-recourse	Dec-19(6)/ Jun-25 / Dec-35	4.68%	1,763,023		1,696,616		1,763,036		1,692,098
Griffin-American - U.S. - Floating(5)	Non-recourse	Dec-19(6)	LIBOR + 3.23%(7)	854,568		822,379		854,565		820,180
Wakefield Portfolio	Non-recourse	April-20	LIBOR + 4.00%	54,576		54,140		54,694		54,228
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			4.56%(7)	4,107,622		3,995,522		4,115,588		3,996,053
Hotel
Innkeepers Portfolio(5)	Non-recourse	Jun-19(6)	LIBOR + 3.39%(7)	840,000		838,766		840,000		837,137
K Partners Portfolio(5)	Non-recourse	Aug-19(6)	LIBOR + 3.25%(7)	211,681		211,083		211,681		210,660
Courtyard Portfolio(5)	Non-recourse	Oct-19(6)	LIBOR + 3.05%(7)	512,000		510,372		512,000		509,554
Inland Portfolio(5)	Non-recourse	Nov-19(6)	LIBOR + 3.60%(7)	817,000		813,297		817,000		811,927
NE Portfolio(5)	Non-recourse	Jun-20(6)	LIBOR + 3.85%(7)	132,250		131,070		132,250		130,824
Miami Hotel Portfolio(5)	Non-recourse	Jul-20(6)	LIBOR + 3.90%(7)	115,500		114,093		115,500		113,833
Subtotal Hotel/weighted average			3.39%(7)	2,628,431		2,618,681		2,628,431		2,613,935
Net lease
Green Pond, NJ(9)	Non-recourse	Apr-16	5.68%	15,404		15,403		15,486		15,481
Aurora, CO	Non-recourse	Jul-16	6.22%	30,031		30,028		30,175		30,169
DSG Portfolio	Non-recourse	Oct-16	6.17%	30,314		30,278		30,481		30,428
Indianapolis, IN	Non-recourse	Feb-17	6.06%	25,549		25,540		25,674		25,663
Milpitas, CA	Non-recourse	Mar-17	5.95%	18,663		18,647		18,827		18,807
Fort Mill, SC	Non-recourse	Apr-17	5.63%	27,700		27,681		27,700		27,675
Fort Mill, SC - Mezzanine	Non-recourse	Apr-17	6.21%	541		541		663		663
Industrial Portfolio(5)	Non-recourse	Jul-17/Dec-17	4.21%(7)	221,125		224,109		221,125		224,635
Salt Lake City, UT	Non-recourse	Sept-17	5.16%	12,507		12,429		12,646		12,555
South Portland, ME	Non-recourse	Jul-23	LIBOR + 2.15%(7)	3,150		3,102		3,241		3,190
Subtotal Net lease/weighted average			4.91%(7)	384,984		387,758		386,018		389,266

33

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

				March 31, 2016				December 31, 2015
	Recourse vs. Non-Recourse	Final Maturity	Contractual Interest Rate(1)(2)	Principal Amount		Carrying Value(3)		Principal Amount		Carrying Value(3)
Multi-tenant Office
Legacy Properties(5)	Non-recourse	Nov-19/Feb-20(6)	LIBOR + 2.15%(7)	113,804		112,272		112,988		111,266
Subtotal Multi-tenant Office				113,804		112,272		112,988		111,266
Other
Secured borrowing	Non-recourse	May-23	LIBOR + 1.60%	53,595		53,595		54,056		54,056
Subtotal Other				53,595		53,595		54,056		54,056
Subtotal Mortgage and other notes payable(4)				7,288,436		7,167,828		7,297,081		7,164,576
Credit facilities and term borrowings:
Corporate Revolver(11)	Recourse	Aug-17	LIBOR + 3.50%(7)	—		—		165,000		165,000
Corporate Term Borrowing	Recourse	Sept-17	4.60% / 4.55%(12)	425,000		419,347		425,000		417,039
Loan Facility 1	Partial Recourse(13)	Mar-18(6)	2.95%(7)	25,188		23,951		72,053		72,021
Subtotal Credit facilities and term borrowings				450,188		443,298		662,053		654,060
CDO bonds payable:
N-Star I	Non-recourse	Aug-38	7.01%	9,426		9,379		10,869		10,814
N-Star IX	Non-recourse	Aug-52	LIBOR + 0.49%(7)	411,327		279,959		425,622		296,787
Subtotal CDO bonds payable—VIE				420,753		289,338		436,491		307,601
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		967
5.375% Notes(14)	Recourse	Jun-33	5.375%	16,805		14,652		17,405		15,116
Subtotal Exchangeable senior notes				30,760		28,574		31,360		29,038
Junior subordinated notes:
Trust I	Recourse	Mar-35	LIBOR + 3.25%(7)	41,240		27,779		41,240		29,033
Trust II	Recourse	Jun-35	LIBOR + 3.25%(7)	25,780		17,371		25,780		18,152
Trust III	Recourse	Jan-36	LIBOR + 2.83%(7)	41,238		25,646		41,238		27,003
Trust IV(15)	Recourse	Jun-36	7.95%	50,100		31,574		50,100		33,446
Trust V	Recourse	Sept-36	LIBOR + 2.70%(7)	30,100		18,114		30,100		18,978
Trust VI	Recourse	Dec-36	LIBOR + 2.90%(7)	25,100		15,602		25,100		16,348
Trust VII	Recourse	Apr-37	LIBOR + 2.50%(7)	31,459		18,079		31,459		18,960
Trust VIII	Recourse	Jul-37	LIBOR + 2.70%(7)	35,100		20,965		35,100		21,973
Subtotal Junior subordinated notes				280,117		175,130		280,117		183,893
Subtotal				8,470,254		8,104,168		8,707,102		8,339,168
Borrowings of properties, held for sale:(4)
EDS Portfolio(10)	Non-recourse	Oct-15	5.37%	41,482		41,482		41,742		41,742
Manufactured Housing Communities(10)	Non-recourse	Dec-21 - Dec-25	4.32%(7)	1,273,619		1,262,057		1,274,643		1,262,726
Multifamily(10)	Non-recourse	Apr-23 - Jul-23	4.08%(7)	249,641		247,032		249,709		247,019
Senior Housing Portfolio(10)	—	—	—	—		—		648,211		644,486
Subtotal Borrowings of properties held for sale				1,564,742		1,550,571		2,214,305		2,195,973
Grand Total				$	10,034,996	$	9,654,739	$	10,921,407	$	10,535,141

____________________________________________________________

(1) Refer to Note 14 for further disclosure regarding derivative instruments which are used to manage interest rate exposure.

(2) For borrowings with a contractual interest rate based on LIBOR, represents three-month LIBOR for the Ohio, Lancaster and 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 13) 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 March 31, 2016.

(8) Represents borrowings in N-Star CDOs.

(9) In April 2016, the mortgage matured and the Company is currently in negotiations with the lender to refinance and extend the mortgage.

(10) The manufactured housing portfolio and multifamily 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

34

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

in negotiations with the lender. In April 2016, the Company gave three properties back to the lender and is expected to give the remaining property back to the lender. In March 2016, the Company sold its 60% interest in the Senior Housing Portfolio for $534.5 million and the buyer assumed the $648.2 million of mortgage borrowing as part of the transaction. Refer to Note 9. Related Party Arrangements for further disclosure.

(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 $418.3 million as of March 31, 2016.

(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) In January 2016, 0.1 million shares of common stock were issued related to the conversion of exchangeable senior notes.

(15) Trust IV has a fixed interest rate until June 30, 2016 when the rate will change to floating and reset quarterly to three-month LIBOR plus 2.80%.

(16) As of March 31, 2016, such borrowings were not in compliance with certain covenants.  The Company received a waiver from the lenders for one quarter with respect to such defaults.

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 March 31, 2016 and December 31, 2015 (dollars in thousands):

	March 31, 2016										December 31, 2015
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	$	4,107,622	$	(51,966	)	$	(60,134	)	$	3,995,522	$	4,115,588	$	12,801	$	(132,336	)	$	3,996,053
Hotel	2,628,431		—			(9,750		)	2,618,681		2,628,431		—		(14,496		)	2,613,935
Net lease	384,984		3,752			(978		)	387,758		386,018		4,389		(1,141		)	389,266
Multi-tenant office	113,804		—			(1,532		)	112,272		112,988		—		(1,722		)	111,266
Other	53,595		—			—			53,595		54,056		—		—			54,056
Total	$	7,288,436	$	(48,214	)	$	(72,394	)	$	7,167,828	$	7,297,081	$	17,190	$	(149,695	)	$	7,164,576

The following table presents scheduled principal on borrowings, based on final maturity as of March 31, 2016 (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
April 1 to December 31, 2016	$	138,245	$	83,929	$	—	$	—	$	—	$	—	$	54,316
Years ending December 31:
2017	773,921		317,215		—		425,000		12,955		—		18,751
2018	58,710		10,423		—		25,188		—		—		23,099
2019	5,888,341		5,862,097		—		—		1,000		—		25,244
2020	377,110		350,510		—		—		—		—		26,600
Thereafter	2,798,669		664,262		420,753		—		16,805		280,117		1,416,732
Total	$	10,034,996	$	7,288,436	$	420,753	$	450,188	$	30,760	$	280,117	$	1,564,742

____________________________________________________________

(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.

As of March 31, 2016, with the exception of the covenants disclosed above, the Company was in compliance with all of its financial covenants.

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. In February 2016, the Company amended the agreement and decreased the aggregate amount of the revolving commitment to $250.0 million, subject to certain conditions. In February 2016, 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

35

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

$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.

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. 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 March 31, 2016, the Company had one loan with a carrying value of $38.6 million financed with $25.2 million on Loan Facility 1. In April 2016, the Loan Facility 1 was repaid in full upon the sale of such loan.

9. 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 renews 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 supervision and management 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.

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 three months ended March 31, 2016 and 2015, the Company incurred $46.5 million and $45.3 million, respectively, related to the base management fee. As of March 31, 2016, $46.5 million is recorded in due to related party on the consolidated balance sheets. The base management fee to NSAM could increase subsequent to March 31, 2016 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 the Company’s 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 three months ended March 31, 2016, the Company did not incur an incentive fee. For the three months ended March 31, 2015, the Company incurred $2.9 million related to the incentive fee. The incentive fee is calculated and payable quarterly in arrears in cash, equal to:

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

• 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, of any amount 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, of any amount 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 the Company’s consent.  The management agreement further provides that the Company anticipates consent would be granted for an assignment or deemed assignment to a party with expertise in commercial real estate and over $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 reimburses NSAM for costs and expenses incurred by NSAM on the Company’s 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 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, which may be allocated based on various methodologies, such as weighted average employee count or 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%

37

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 three months ended March 31, 2016, NSAM allocated $0.2 million to the Company. For the three months ended March 31, 2015, NSAM allocated $2.0 million to the Company, of which $0.8 million is recorded in discontinued operations related to NorthStar Europe.

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%.

In connection with the above obligation, the Company was responsible for paying approximately 50% of the 2015 and 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. For the three months ended March 31, 2016, the Company earned $0.2 million from NSAM, recorded in other revenue, for services in connection with loan origination opportunities.

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.

Credit Agreement

In connection with the NSAM Spin-off, 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 March 31, 2016, the Company has not funded any amounts to NSAM in connection with this agreement.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 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 10). 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 three months ended March 31, 2016 and 2015, 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 three months ended March 31, 2016 and 2015, the Company earned $1.1 million and $1.4 million in fee income, respectively, of which $0.5 million and $0.6 million were eliminated in consolidation.

Additionally, the Company earns interest income from the N-Star CDO bonds and N-Star CDO equity in deconsolidated N-Star CDOs. For the three months ended March 31, 2016 and 2015, the Company earned $11.2 million and $16.1 million, respectively, of interest income from such investments related to deconsolidated N-Star CDOs. Refer to Note 7 and Note 16 for additional disclosure regarding the N-Star CDOs.

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 until it was acquired by the Company and NorthStar Healthcare.  AHI provides certain management and related services, including property management, to NSAM, NorthStar Healthcare and the Company in order to assist 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 three months ended March 31, 2016 and 2015, the Company incurred $1.3 million of property management fees to AHI, which are recorded in real estate properties— operating expenses in the consolidated statements of operations.

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 $4.0 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 three months ended March 31, 2016 and for the period from NSAM’s acquisition date (January 9, 2015) to March 31, 2015, the Company incurred $4.1 million and $3.5 million, respectively, 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 Retail Companies

For the three months ended March 31, 2016, the Company sold or entered into agreements to sell certain assets to NSAM Retail Companies:

• In February 2016, the Company sold substantially all of its 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% of the interest sold. NorthStar Income paid $37.3 million for its respective interest. As part of the transaction, both buyers assumed the deferred purchase price obligation, on a pro rata basis, of the PE Investment II joint venture.

• 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.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

• In March 2016, the Company sold its 60% interest in the Senior Housing Portfolio to NorthStar Healthcare, which owned the remaining 40% interest, for $534.5 million. NorthStar Healthcare assumed the Company’s portion of the $648.2 million of mortgage borrowing as part of the transaction and the Company received approximately $149.4 million of net proceeds.

The board of directors of each NSAM Retail Company, including all of the independent directors, approved each of the respective transactions after considering, among other matters, third-party pricing support.

10. 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 NSAM Spin-off and NRE Spin-off, collectively referred to as 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 12), 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 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 three months endedMarch 31, 2016 and 2015.

40

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 March 31, 2016, 5,219 unvested shares of restricted stock issued under the Stock Plan were outstanding and 1,291,829 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. 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/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 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 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 and the Operating Partnership issued 334,871 LTIP Units. Under the Plan, for 2011, the Company also granted 381,449 LTIP Units to executive officers 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 March 31,

41

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

2016) 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 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 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 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 March 31, 2016) 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 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 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 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 which were subject to vesting based on continued employment through December 31, 2015. The Company also granted 137,260 Deferred LTIP Units (net of forfeitures occurring through March 31, 2016) 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.

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 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 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 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 332,988 Deferred LTIP Units (net of forfeitures occurring through March 31, 2016) 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. The grant date fair value of such RSUs was $1.70 per RSU determined using a risk-free interest rate of 0.88%. 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 525,909 restricted shares (net of forfeitures occurring through March 31, 2016) 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.

42

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 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

The following table presents equity-based compensation expense for the three months ended March 31, 2016 and 2015 (dollars in thousands):

	Time-Based Awards				Performance-Based Awards				Total
	Three Months Ended   March 31,				Three Months Ended   March 31,				Three Months Ended   March 31,
	2016		2015		2016		2015		2016		2015
Awards issued pre NSAM Spin-off	$	290	$	2,871	$	473	$	956	$	763	$	3,827
Awards issued post NSAM Spin-off	4,673		6,246		510		224		5,183		6,470
Dividends to non-employees	339		533		—		—		339		533
Total	$	5,302	$	9,650	$	983	$	1,180	$	6,285	$	10,830

The following table presents a summary of equity-based awards outstanding. The balance as of March 31, 2016 represents unvested shares of restricted stock, LTIP Units and restricted stock units outstanding, whether vested or not (grants in thousands):

	Three Months Ended March 31, 2016
	Restricted Stock		LTIP Units		Restricted Stock Units(1)	Total Grants		Weighted Average Grant Price
December 31, 2015	81		1,868		250	2,199		$	33.44
Granted	1,040		—		505	1,545		10.73
Forfeited	—		(8	)	—	(8	)	29.11
Vesting of restricted stock	(328	)	—		—	(328	)	11.25
March 31, 2016	793		1,860		755	3,408		$	25.29

____________________________________________________________

(1) Represents employee and non-employee grants subject to time-based vesting conditions.

As of March 31, 2016, equity-based compensation expense to be recognized over the remaining vesting period through August 2019 is $34.7 million, provided there are no forfeitures.

11. 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 10).

Share Repurchase

In September 2015, the Company’s board of directors authorized the repurchase of up to $500.0 million of its outstanding common stock. The authorization expires in September 2016, unless otherwise extended by the Company’s board of directors. For the three months ended March 31, 2016, the Company repurchased 3.9 million shares of its common stock for $50.0 million. From September 2015 through March 31, 2016, the Company repurchased 10.4 million shares for $168.0 million, with $332.0 million remaining under the stock repurchase plan.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 three months endedMarch 31, 2016, the Company issued 3,513 shares of its common stock pursuant to the DRP for an immaterial amount of proceeds.

Dividends

The following table presents dividends declared (on a per share basis) for the three months endedMarch 31, 2016:

Common Stock			Preferred Stock
				Dividend Per Share
Declaration Date	Dividend Per Share		Declaration Date	Series A		Series B		Series C		Series D		Series E
February 25	$	0.40	January 30	$	0.54688	$	0.51563	$	0.55469	$	0.53125	$	0.54688

Earnings Per Share

The following table presents EPS for the three months ended March 31, 2016 and 2015 (dollars and shares in thousands, except per share data):

	Three Months Ended March 31,
	2016			2015
Numerator:
Net income (loss) attributable to NorthStar Realty Finance Corp. common stockholders	$	(145,264	)	$	(31,602	)
Net income (loss) attributable to LTIP Units non-controlling interest	(1,437		)	—
Net income (loss) attributable to common stockholders and LTIP Units(1)	$	(146,701	)	$	(31,602	)
Denominator:(2)(3)
Weighted average shares of common stock	182,809			154,268
Weighted average LTIP Units(1)	1,866			358
Weighted average shares of common stock and LTIP Units(2)	184,675			154,626
Earnings (loss) per share:(3)
Basic	$	(0.79	)	$	(0.20	)
Diluted	$	(0.79	)	$	(0.20	)

____________________________________________________________

(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, restricted stock and RSUs outstanding that were not dilutive as of March 31, 2016. 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.

12. Non-controlling Interests

Operating Partnership

Non-controlling interests include the aggregate LTIP Units held by limited partners (the “Unit Holders”) in the Operating Partnership. 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. As of March 31, 2016, LTIP Units of 1,860,145 were outstanding 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 three months

44

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

endedMarch 31, 2016 was a net loss of $1.4 million. Since the Operating Partnership was not formed until March 2015, there was an immaterial amount of net income (loss) attributable to the Operating Partnership non-controlling interest for the three months ended March 31, 2015.

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 three months endedMarch 31, 2016 and 2015 was a net loss of $1.7 million and $3.7 million, respectively.

The following table presents net income (loss) attributable to the Company’s common stockholders for the three months endedMarch 31, 2016 and 2015 (dollars in thousands):

	Three Months Ended March 31,
	2016			2015
Income (loss) from continuing operations	$	(145,264	)	$	(17,751	)
Income (loss) from discontinued operations	—			(13,851		)
Net income (loss) attributable to NorthStar Realty Finance Corp. common stockholders	$	(145,264	)	$	(31,602	)

13. 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.

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 a CRE debt investment made in connection with an investment in unconsolidated venture 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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. If a credit valuation adjustment is applied to a derivative asset or liability, such fair value is classified as Level 3 of the fair value hierarchy. 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)

(Unaudited)

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 March 31, 2016 and December 31, 2015 by level within the fair value hierarchy (dollars in thousands):

	March 31, 2016
	Level 1		Level 2		Level 3			Total
Assets:
PE Investments	$	—	$	—	$	869,470		$	869,470
Investments in unconsolidated ventures(1)	—		—		116,006			116,006
Real estate securities, available for sale:
N-Star CDO bonds	—		—		153,393			153,393
N-Star CDO equity	—		—		40,976			40,976
CMBS and other securities	—		10,388		14,556			24,944
CRE securities in N-Star CDOs
CMBS	—		251,534		58,737			310,271
Third-party CDO notes	—		—		6,658			6,658
Agency debentures	—		42,483		—			42,483
Unsecured REIT debt	—		8,846		—			8,846
Trust preferred securities	—		—		5,406			5,406
Subtotal CRE securities in N-Star CDOs	—		302,863		70,801			373,664
Subtotal real estate securities, available for sale	—		313,251		279,726			592,977
Derivative assets	—		22		—			22
Total assets	$	—	$	313,273	$	1,265,202		$	1,578,475
Liabilities:
CDO bonds payable	$	—	$	—	$	289,338		$	289,338
Junior subordinated notes	—		—		175,130			175,130
Derivative liabilities	—		5,069		213,787		(2)	218,856
Total liabilities	$	—	$	5,069	$	678,255		$	683,324

_____________________________________________________________________

(1) Includes CRE debt investments made in connection with an investment in unconsolidated venture, 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)

(Unaudited)

	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 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.

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 three months endedMarch 31, 2016 (dollars in thousands):

	Three Months Ended March 31, 2016
	Assets									Liabilities(3)
	PE Investments			Investments in Unconsolidated Ventures(1)			CRE Securities			CDO Bonds Payable			Junior Subordinated Notes
January 1, 2016	$	1,101,650		$	120,392		$	381,948		$	307,601		$	183,893
Transfers into Level 3(2)	—			—			500			—			—
Transfers out of Level 3(2)	—			—			(3,775		)	—			—
Purchases / borrowings / amortization / contributions	1,015			15			10,587			—			—
Sales	(184,076		)	—			(53,886		)	—			—
Paydowns / distributions	(82,896		)	(1,641		)	(6,590		)	(15,737		)	—
Gains:
Equity in earnings of unconsolidated ventures	37,552			6,710			—			—			—
Unrealized gains included in earnings	—			1,361			4,879			(2,526		)	(8,763		)
Realized gains included in earnings	—			—			100			—			—
Unrealized gain on real estate securities, available for sale included in OCI	—			—			2,073			—			—
Losses:
Unrealized losses included in earnings	(3,775		)	(10,831		)	(7,995		)	—			—
Realized losses included in earnings	—			—			(12,935		)	—			—
Unrealized loss on real estate securities, available for sale included in OCI	—			—			(35,180		)	—			—
March 31, 2016	$	869,470		$	116,006		$	279,726		$	289,338		$	175,130
Gains (losses) included in earnings attributable to the change in unrealized gains (losses) relating to assets or liabilities still held	$	(3,775	)	$	(9,470	)	$	(3,116	)	$	2,526		$	8,763

____________________________________________________________

(1) Includes CRE debt investments made in connection with an investment in unconsolidated venture, 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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(3) Excludes one derivative instrument, which for the three months ended March 31, 2016, an unrealized loss of $117.8 million was recorded, of which $7.6 million related to a credit valuation adjustment.

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
	Assets									Liabilities(3)
	PE Investments			Investments in Unconsolidated Ventures(1)			CRE 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		)	—			—
Paydowns / 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 losses included in earnings	(33,241		)	(45,884		)	(75,523		)	29,275			—
Realized losses included in earnings	—			—			(5,886		)	3,859			—
Unrealized loss 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 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) Excludes one derivative instrument, which for the year ended December 31, 2015, an unrealized loss of $95.9 million was recorded. Such amount is net of an unrealized gain of $23.1 million related to a credit valuation adjustment.

There were no transfers, other than those identified in the tables above, during the periods ended March 31, 2016 and December 31, 2015.

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 three months ended March 31, 2016, 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	$	869,470	Discounted Cash Flow Model	Discount Rate	15%
Investments in unconsolidated ventures(1)	$	116,006	Discounted Cash Flow Model/Credit Spread	Discount Rate/Credit Spread	25%
N-Star CDO equity	$	40,976	Discounted Cash Flow Model	Discount Rate	18%

_________________________________________

(1) Includes CRE debt investments made in connection with an investment in unconsolidated venture, for which the fair value option was elected.

(2) Includes timing and amount of expected future cash flow.

49

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 on a non-recurring basis in the consolidated financial statements consist of real estate held for sale or assets for which an impairment has been recorded, such as goodwill. Such fair value measurements are generally considered 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 are based upon observable rates that the Company believes to be within a reasonable range of current market rates for the respective properties.

Valuations are 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.

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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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following table presents the fair value of financial instruments for which the fair value option was elected as of March 31, 2016 and December 31, 2015 (dollars in thousands):

	March 31, 2016		December 31, 2015
Assets:
PE Investments	$	869,470	$	1,101,650
Investments in unconsolidated ventures(1)	116,006		120,392
Real estate securities, available for sale:(2)
N-Star CDO equity	40,976		44,905
CMBS and other securities	19,377		48,711
CRE securities in N-Star CDOs
CMBS	310,271		326,511
Third-party CDO notes	6,658		6,685
Agency debentures	42,483		37,316
Unsecured REIT debt	8,846		8,976
Trust preferred securities	5,406		5,425
Subtotal CRE securities in N-Star CDOs	373,664		384,913
Subtotal real estate securities, available for sale	434,017		478,529
Total assets	$	1,419,493	$	1,700,571
Liabilities:
CDO bonds payable	$	289,338	$	307,601
Junior subordinated notes	175,130		183,893
Total liabilities	$	464,468	$	491,494

___________________________________________________________

(1) Includes CRE debt investments made in connection with certain investments in unconsolidated ventures, for which the fair value option was elected.

(2) March 31, 2016 excludes 25 CRE securities including $153.4 million of N-Star CDO bonds and $5.6 million of CRE securities, for which the fair value option was not elected. 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.

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 three months ended March 31, 2016 and 2015 (dollars in thousands):

	Three Months Ended   March 31,
	2016			2015
Assets:
Real estate securities, available for sale(1)	$	(10,222	)	$	4,512
PE Investments(1)	(3,775		)	(4,433		)
Investments in unconsolidated ventures(1)	(10,831		)	—
Foreign currency remeasurement(2)	(3,750		)	(17,543		)
Liabilities:
CDO bonds payable(1)	2,526			(9,188		)
Junior subordinated notes(1)	8,763			(2,010		)
Subtotal unrealized gain (loss), excluding derivatives	(17,289		)	(28,662		)
Derivatives	(115,648		)	1,136
Subtotal unrealized gain (loss)	(132,937		)	(27,526		)
Net cash payments on derivatives (refer to Note 14)	(2,544		)	(3,048		)
Total	$	(135,481	)	$	(30,574	)

____________________________________________________________

(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 British Pounds.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 March 31, 2016 and December 31, 2015 (dollars in thousands):

	March 31, 2016						December 31, 2015
	Principal / Notional Amount		Carrying Value		Fair Value		Principal / Notional Amount		Carrying Value		Fair Value
Financial assets:(1)
Real estate debt investments, net	$	467,189	$	411,568	$	411,815	$	555,354	$	501,474	$	594,698
Real estate debt investments, held for sale	91,949		88,972		88,972		225,037		224,677		224,677
Real estate securities, available for sale(2)	1,181,932		592,977		592,977		1,285,643		702,110		702,110
Derivative assets(2)(3)	3,894,271		22		22		4,173,872		116		116
Financial liabilities:(1)
Mortgage and other notes payable	$	7,288,436	$	7,167,828	$	7,204,160	$	7,297,081	$	7,164,576	$	7,175,374
Credit facilities and term borrowings	450,188		443,298		443,298		662,053		654,060		654,060
CDO bonds payable(2)(4)	420,753		289,338		289,338		436,491		307,601		307,601
Exchangeable senior notes	30,760		28,574		48,351		31,360		29,038		50,121
Junior subordinated notes(2)(4)	280,117		175,130		175,130		280,117		183,893		183,893
Derivative liabilities(2)(3)	2,225,750		218,856		218,856		2,225,750		103,293		103,293
Borrowings of properties held for sale	1,564,742		1,550,571		1,555,276		2,241,305		2,195,975		2,200,686

____________________________________________________________

(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 March 31, 2016 and December 31, 2015.

(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. Fair value measurements related to 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 2 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 2 of the fair value hierarchy.

52

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Credit Facilities and Term Borrowings

As of the reporting date, the Company believes the carrying value of its credit facilities and term borrowings approximate 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.

14. 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 and cap 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 March 31, 2016 and December 31, 2015 (dollars in thousands):

	Number	Notional Amount(1)		Fair Value Net Asset (Liability)				Range of Fixed LIBOR / Forward Rate	Range of Maturity
As of March 31, 2016:
Interest rate caps	11	$	3,894,271	$	22			1.26% - 5.00%	June 2016 - December 2017
Interest rate swaps - N-Star CDOs	9	207,310		(5,069		)	(2)	5.02% - 5.25%	January 2017 - July 2018
Interest rate swaps - other	2	2,003,149		(213,787		)		3.39% - 4.17%	July 2023 - December 2029
Total	22	$	6,104,730	$	(218,834	)
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	)

____________________________________________________________

(1) Excludes timing swaps with a notional amount of $28.0 million as of March 31, 2016 and December 31, 2015.

(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, 2015 relates to contractual notional amortization and the maturity of interest rate caps in the Company’s healthcare portfolio. The Company had no derivative financial instruments that were designated as hedges in qualifying hedging relationships as of March 31, 2016 and December 31, 2015.

The following table presents the fair value of derivative instruments, as well as their classification on the consolidated balance sheets, as of March 31, 2016 and December 31, 2015 (dollars in thousands):

	Balance Sheet	March 31, 2016		December 31, 2015
	Location
Interest rate caps	Derivative assets	$	22	$	116
Interest rate swaps	Derivative liabilities	$	218,856	$	103,293

53

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following table presents the effect of derivative instruments in the consolidated statements of operations for the three months ended March 31, 2016 and 2015 (dollars in thousands):

		Three Months Ended March 31,
	Statements of Operations Location	2016			2015
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	$	(115,648	)	$	1,136
Net cash payment on derivatives	Unrealized gain (loss) on investments and other	$	(2,544	)	$	(3,048	)
Amount of swap gain (loss) reclassified from OCI into earnings	Interest expense—mortgage and corporate borrowings	$	(223	)	$	(265	)

The counterparty for the corporate interest rate swap held $62.3 million of cash margin as collateral against the derivative contract as of March 31, 2016. The Company’s counterparties did not hold any cash margin as collateral against the Company’s derivative contracts as of December 31, 2015.

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 healthcare portfolio, for the three months ended March 31, 2016, Senior Lifestyle Holding Company, LLC was the healthcare operator as it related to 74.5% of the Company’s resident fee income and 10.7% 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.

15. 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, for the term of the agreements, which expires from 2029 to 2034. As of March 31, 2016, the aggregate amount remaining under these guarantees is $3.8 million.

In connection with the NRE Spin-off, the 4.635% senior stock-settlable notes issued by NorthStar Europe and due in December 2016 are senior unsubordinated and unsecured primary obligations of NorthStar Europe and the Company continues to guarantee payments subsequent to the NRE Spin-off. Subject to certain conditions, NorthStar Europe may elect to settle all or part of the principal amount of the senior notes in its common stock in lieu of cash. As of March 31, 2016, principal amount outstanding of such senior notes was $189.5 million.

16. Variable Interest Entities

As of March 31, 2016, the Company has identified certain consolidated and unconsolidated VIEs. Assets of each of the VIEs, other than the Operating Partnership, 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. The Company identified several VIEs as of March 31, 2016 which were originally consolidated under the voting interest model prior to changes in the consolidation rules under U.S. GAAP (refer to Note 2).

Consolidated VIEs

The Company’s most significant newly identified consolidated VIEs are its Operating Partnership and certain properties that have non-controlling interests. These entities are VIEs because the non-controlling interests do not have substantive kick-out or participating rights and the Company is the primary beneficiary.

N-Star CDOs

As of March 31, 2016, 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 the consolidated N-Star CDOs, 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 the consolidated N-Star CDOs for the three months endedMarch 31, 2016 and 2015.

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 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.

54

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 its remaining consolidated N-Star CDO financing transactions.

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 March 31, 2016. 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 one CMBS investment with a fair value of $0.3 million as a variable interest in a VIE, which is the controlling class of this securitization for which the Company did not sponsor. However, the Company determined at that time and continues to believe that it does not currently or potentially hold a significant interest in this CMBS and, therefore, is not the primary beneficiary.

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 March 31, 2016, 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

The Company determined all PE Investments are VIEs, with the exception of PE Investment I and II, as the non-controlling interests do not have substantive kick-out or participating rights.  As of March 31, 2016, the Company’s investment in these entities is $743.5 million and the amount of expected future contributions is $67.6 million.

55

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Summary of Unconsolidated VIEs

The following table presents the classification, carrying value and maximum exposure of unconsolidated VIEs as of March 31, 2016 (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	—			—		—		743,507		743,507		743,507
Real estate securities, available for sale:
N-Star CDO bonds	—			—		153,393		—		153,393		153,393
N-Star CDO equity	—			—		40,976		—		40,976		40,976
CMBS	—			—		339		—		339		339
Subtotal real estate securities, available for sale	—			—		194,708		—		194,708		194,708
Total assets	3,742			60,443		194,708		743,507		1,002,400		1,002,400
Junior subordinated notes, at fair value	175,130			—		—		—		175,130		NA
Total liabilities	175,130			—		—		—		175,130		NA
Net	$	(171,388	)	$	60,443	$	194,708	$	743,507	$	827,270	$	1,002,400

____________________________________________________________

(1) The Company’s maximum exposure to loss as of March 31, 2016 would not exceed the carrying value of its investment.

Other than described above as it relates to expected future fundings on PE Investments, the Company is not contractually required to provide financial support to any of its unconsolidated VIEs during the three months endedMarch 31, 2016 and 2015 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 March 31, 2016, there were no explicit arrangements or implicit variable interests that could require the Company to provide financial support to any of its unconsolidated VIEs.

17. Segment Reporting

The Company currently conducts its business through the following five segments (excluding the European real estate business which the Company spun off on October 31, 2015, which is no longer a separate operating segment), based on how management reviews and manages its business:

• Real Estate - The real estate business pursues various types of investments in commercial real estate located throughout the United States that includes healthcare, hotel, net lease 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. In addition, the Company is also invested in manufactured housing communities and multifamily properties, which the Company has recently entered into agreements to sell.

• 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 healthcare properties that operate through management agreements with independent third-party operators, predominantly through structures permitted by RIDEA that permit the Company, through a TRS, to have direct exposure to resident fee income and incur customary related operating expenses. In March 2016, the Company sold its 60% interest in a $899 million Senior Housing Portfolio for $534.5 million. The buyer assumed the Company’s portion of the $648.2 million of related mortgage financing and the Company received approximately $149.4 million of proceeds, net of sales costs.

• 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.

56

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

• 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. In May 2016, the Company entered into an agreement to sell its manufactured housing portfolio for $2.0 billion with $1.3 billion of related mortgage financing expected to be assumed as part of the transaction. The Company expects to receive $620 million of net proceeds. The Company expects the transaction to close in the second half of 2016. 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. The Company is exploring the sale of its multifamily portfolio and entered into and are finalizing agreements to sell ten multifamily properties for $307 million with $210 million of related mortgage financing expected to be assumed as part of the transaction. The Company expects to receive $86 million of net proceeds and continue to explore the sale of the remaining two properties, including one accounted for as an investment in unconsolidated subsidiary. 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 sold 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 2016, the Company sold and received repayment for 13 debt investments and a REO with a total principal amount of $383.0 million and used $72.1 million of proceeds to pay down the Company’s loan facility in full, resulting in $307.5 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 2016, the Company sold certain N-Star CDO bonds and 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 in the past. As of March 31, 2016, only N-Star securities CDOs I and IX continue to be consolidated. Refer to Note 16 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.

57

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following tables present segment reporting for the three months ended March 31, 2016 and 2015 (dollars in thousands):

Statement of Operations:											N-Star CDOs(2)
Three Months Ended March 31, 2016	Real Estate(1)				CRE Debt			CRE Securities			CRE Securities			Corporate				Consolidated Total
Rental and escalation income	$	191,434			$	—		$	—		$	—		$	—			$	191,434
Hotel related income	193,743				—			—			—			—				193,743
Resident fee income	72,777				—			—			—			—				72,777
Net interest income on debt and securities	2,584			(3)	13,032			11,490			8,464		(4)	5,203			(4)	40,773
Interest expense—mortgage and corporate borrowings	112,977				—			—			—			11,525				124,502
Income (loss) before equity in earnings (losses) and income tax benefit (expense)	8,378			(5)	6,579			(3,605		)	2,831			(178,377		)	(6)	(164,194		)
Equity in earnings (losses) of unconsolidated ventures	44,577				—			—			—			78				44,655
Income tax benefit (expense)	(7,716		)		(127		)	—			—			—				(7,843		)
Income (loss) from continuing operations	45,239				6,452			(3,605		)	2,831			(178,299		)		(127,382		)
Net income (loss)	45,239				6,452			(3,605		)	2,831			(178,299		)		(127,382		)

___________________________________

(1) Includes $8.8 million of rental and escalation income and $0.5 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. $1.1 million of collateral management fees were earned from CDO financing transactions for the three months endedMarch 31, 2016, of which $0.5 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) 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 N-Star 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) Primarily relates to depreciation and amortization of $87.8 million.

(6) Includes management fees to NSAM of $46.5 million.

Statement of Operations:										N-Star CDOs(1)
Three months ended March 31, 2015:	Real Estate				CRE Debt			CRE Securities		CRE Securities			Corporate				European Real Estate(2)				Consolidated Total
Rental and escalation income	$	164,746			$	—		$	—	$	295		$	—			$	—			$	165,041
Hotel related income	168,727				—			—		—			—				—				168,727
Resident fee income	63,373				—			—		—			—				—				63,373
Net interest income on debt and securities	2,609			(3)	30,806			17,083		10,533		(4)	2,629			(4)	—				63,660
Interest expense—mortgage and corporate borrowings	100,137				—			—		—			12,872				—				113,009
Income (loss) before equity in earnings (losses) and income tax benefit (expense)	(27,298		)	(5)	30,114			33,059		2,457			(90,726		)	(6)	—				(52,394		)
Equity in earnings (losses) of unconsolidated ventures	53,643				—			—		—			—				—				53,643
Income tax benefit (expense)	(1,642		)		(22		)	—		—			—				—				(1,664		)
Income (loss) from continuing operations	24,703				30,092			33,998		1,518			(90,726		)		—				(415		)
Income (loss) from discontinued operations	(11		)		—			—		—			—				(13,850		)	(7)	(13,861		)
Net income (loss)	24,692				30,092			33,998		1,518			(90,726		)		(13,850		)	(7)	(14,276		)

___________________________________

(1) Based on CDO financing transactions that were primarily collateralized by either CRE debt or securities and may include other types of investments. $1.4 million of collateral management fees were earned from CDO financing transactions for the three months endedMarch 31, 2015, of which $0.6 million were 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) 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 NorthStar Europe in connection with the NRE Spin-off. Amounts related to the European real estate business are reported in discontinued operations. 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 3).

(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 N-Star 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 CDO segments.

(5) Primarily relates to transaction costs and includes depreciation and amortization of $108.5 million for the three months endedMarch 31, 2015.

(6) Includes management fees to NSAM of $48.2 million.

(7) Primarily relates to transaction costs of $12.4 million and depreciation and amortization of $0.7 million.

58

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following table presents total assets by segment as of March 31, 2016 and December 31, 2015 (dollars in thousands):

							N-Star CDOs(1)
Total Assets	Real Estate		CRE Debt		CRE Securities		CRE Securities		Corporate		Consolidated Total
March 31, 2016	$	12,720,057	$	416,818	$	220,029	$	407,943	$	427,022	$	14,191,869
December 31, 2015	$	13,871,796	$	661,348	$	319,937	$	422,953	$	128,367	$	15,404,401

______________________________________

(1) Based on CDO financing transactions that are primarily collateralized by CRE securities and may include other types of investments.

18. Supplemental Disclosures of Non-cash Investing and Financing Activities

The following table presents non-cash investing and financing activities for the three months endedMarch 31, 2016 and 2015 (dollars in thousands):

	Three Months Ended March 31,
	2016		2015
Assumption of mortgage note payable upon sale of real estate	$	648,211	$	—
Reclassification of CRE debt investments to held for sale	88,972		—
Non-controlling interest – sale of subsidiary	88,604		—
Receivables related to sales	42,042		—
Reclassification of operating real estate, net to asset held for sale	29,209		—
Retirement of shares of common stock	5,014		—
Escrow deposit payable related to CRE debt investments	4,312		25,532
Due from servicer	2,399		46,270
Reclassification of intangible assets to asset held for sale	1,859		—
Non-controlling interests—reallocation of interest in Operating Partnership	1,846		—
Dividends payable related to RSUs	1,839		2,720
Non-cash related to PE Investments	1,806		28,829
Amounts payable relating to improvements of operating real estate	1,724		—
Conversion of exchangeable senior notes	504		11,228
Reclassification of operating real estate to intangible assets	—		35,540
Conversion of Deferred LTIP Units to LTIP Units (refer to Note 12)	—		18,730

19. Subsequent Events

Dividends

On May 4, 2016, the Company declared a dividend of $0.40 per share of common stock. The common stock dividend will be paid on May 20, 2016 to stockholders of record as of the close of business on May 16, 2016. On April 27, 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 will be paid on all series of preferred stock on May 16, 2016 to stockholders of record as of the close of business on May 9, 2016.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto included in Item 1. “Financial Statements” 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 87% of our total assets invested directly or indirectly in real estate, of which 80% is invested in direct real estate. We generated 92% of our revenue from our real estate portfolio for the three months endedMarch 31, 2016. 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 commercial real estate, or 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 real estate investment trust, or REIT, for U.S. federal income tax purposes. 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.

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 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 repayment of a significant portion of our corporate recourse borrowing obligations with $425 million currently outstanding (excluding $280 million of trust preferred securities with maturities beginning in 2035). Since the beginning of the fourth quarter 2015 through May 2016, assets sold or committed to sell totaled $4.2 billion, of which net proceeds to us received or expected to be received totaled approximately $1.7 billion.

In addition, our board of directors formed a special committee, which retained UBS Investment Bank as its financial advisor, to explore a potential recombination transaction with NSAM. The special committee is comprised solely of independent directors that are not on the board of directors of NSAM. In May 2016, we also announced that we had entered into exclusive discussions with NSAM and Colony Capital, Inc., or Colony Capital, regarding a tri-party business combination. There can be no assurance that the exploration of corporate strategic initiatives, including our discussions with NSAM and Colony Capital, will result in any definitive agreement, transaction or initiative being announced or consummated.

Summary of Business

Our primary business lines are as follows:

• Real Estate - Our real estate business pursues various types of investments in commercial real estate located throughout the United States that includes healthcare, hotel, net lease 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. In addition, we are also invested in manufactured housing communities and multifamily properties, which we have recently entered into agreements to sell.

• 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 healthcare properties that operate through management agreements with independent third-party operators, predominantly through structures permitted by the REIT Investment Diversification and Empowerment Act of 2007, or RIDEA, 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 March 2016, we sold our 60% interest in a $899 million portfolio of independent living facilities, or Senior Housing Portfolio, for $535 million. The buyer assumed our portion

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of the $648 million of related mortgage financing and we received approximately $150 million of proceeds, net of sales costs.

• 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. In May 2016, we entered into an agreement to sell our manufactured housing portfolio for $2.0 billion with $1.3 billion of related mortgage financing expected to be assumed as part of the transaction. We expect to receive $620 million of net proceeds. We expect the transaction to close in the second half of 2016. 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. We are exploring the sale of our multifamily portfolio and entered into and are finalizing agreements to sell ten multifamily properties for $307 million with $210 million of related mortgage financing expected to be assumed as part of the transaction. We expect to receive $86 million of net proceeds and continue to explore the sale of the remaining two properties, including one accounted for as an investment in unconsolidated subsidiary. 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 2016, we sold and received repayment for 13 debt investments and a REO with a total principal amount of $383 million and used $72 million of proceeds to pay down our loan facility in full, resulting in $308 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 commercial mortgage-backed securities, or CMBS, meaning each asset is a pool backed by a large number of commercial real estate loans. We also invest in opportunistic CRE securities such as an investment in a “B-piece” CMBS. In 2016, we sold certain N-Star CDO bonds and 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.

We have not been actively raising capital due to current market conditions. However, in 2015, we issued aggregate capital of $1.3 billion from the issuance of common 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.

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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 revolving credit facility, or 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. In February 2016, 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.

Our Investments

The following table presents our investments as of March 31, 2016 and pro forma for sales and commitments to sell through May 5, 2016 (refer to the below for further discussion) (dollars in thousands):

					Pro Forma
	Amount(1)		%		Amount			%
Real Estate
Healthcare(2)	$	5,797,113	37.8	%	$	5,765,419	(3)	43.9	%
Hotel	3,427,281		22.3	%	3,427,281			26.1	%
Manufactured housing communities (held for sale)	1,756,615		11.4	%	—		(4)	—	%
Net lease	783,653		5.1	%	783,653			6.0	%
Multifamily (held for sale)	377,211		2.5	%	92,634		(5)	0.7	%
Multi-tenant office	175,979		1.1	%	175,979			1.3	%
Subtotal	12,317,852		80.2	%	10,244,966			78.0	%
Private equity fund investments	872,946		5.7	%	872,946			6.6	%
Corporate investments(6)	108,162		0.7	%	108,162			0.8	%
Total real estate	13,298,960		86.6	%	11,226,074			85.4	%
CRE Debt(7)
CRE debt	427,296		2.8	%	375,296		(8)	2.9	%
CRE debt, held for sale	91,949		0.6	%	—		(9)	—	%
CRE debt of consolidated N-Star CDOs	39,893		0.3	%	39,893			0.3	%
Other	16,417		0.1	%	16,417			0.1	%
Total CRE debt	575,555		3.8	%	431,606			3.3	%
CRE Securities
N-Star CDO bonds(10)	503,201		3.3	%	503,201			3.8	%
N-Star CDO equity	68,128		0.4	%	68,128			0.5	%
Other securities	67,060		0.4	%	67,060			0.5	%
Total CRE securities	638,389		4.1	%	638,389			4.8	%
Subtotal	14,512,904		94.5	%	12,296,069			93.5	%
Assets underlying deconsolidated CRE Debt CDOs(11)	840,326		5.5	%	840,326			6.5	%
Grand total	$	15,353,230	100.0	%	$	13,136,395		100.0	%

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(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 $471 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 April 2016, a purchase option on one of our healthcare properties was exercised by the tenant.

(4) In May 2016, we entered into an agreement to sell our manufactured housing portfolio for $2.0 billion with $1.3 billion of related mortgage financing expected to be assumed as part of the transaction. We expect to receive $620 million of net proceeds. We expect the transaction to close in the second half of 2016.

(5) We entered into and are finalizing agreements to sell ten multifamily properties for $307 million with $210 million of mortgage financing expected to be assumed as part of the transaction. We expect to receive $86 million of net proceeds and we continue to explore the sale of the remaining two properties.

(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 the first quarter 2016, we sold seven debt investments with a total principal amount of $225 million at par and used $47 million of proceeds to pay down our loan facility, resulting in $178 million of net proceeds.

(8) In April 2016, one first mortgage loan, with a total principal amount of $52 million, was repaid at par.

(9) In April 2016, we sold four loans with a total principal amount of $92 million and used $25 million of proceeds to pay down our loan facility in full, resulting in $64 million of net proceeds.

(10) Includes N-Star CDO bonds with a principal amount of $142 million related to CRE securities CDOs that are eliminated in consolidation.

(11) Represents assets of deconsolidated N-Star CDOs and is based on the respective remittance report issued on the date nearest to March 31, 2016. This amount excludes $432 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 17. “Segment Reporting” in our accompanying consolidated financial statements included in Part I, Item 1. “Financial Statements.”

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 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 RIDEA structures 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.

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Our Portfolio

As of March 31, 2016, $13.3 billion, or 87%, 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 March 31, 2016 (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	$	2,139,609	17.4	%	6.0 million	square feet	IN, TX, GA, CO, IL
Net lease
Skilled nursing facilities (SNF)(2)	107	1,345,365		10.9	%	12,550	beds	FL, PA, IL, IN, VA
Assisted living facilities (ALF)	83	859,129		7.0	%	4,330	units	UK, NC, OR, MN, IN
Hospital (HOS)	14	261,686		2.1	%	800	beds	CA, MO, TX
Senior housing-operating
Assisted living facilities - RIDEA (ALF-RIDEA)	109	1,191,324		9.7	%	6,300	units	IL, OR, OH, TX, MA, WA
Subtotal	462	5,797,113		47.1	%
Hotel	167	3,427,281		27.8	%	22,092	rooms	TX, FL, NJ, CA, VA
Manufactured housing communities (held for sale)(3)	136	1,756,615		14.3	%	33,055	pad sites	CO, UT, FL, TX, WY, NY
Net lease
Industrial	35	379,799		3.1	%	6.1 million	square feet	CA, IL, FL, GA, MI
Office(4)	19	339,301		2.8	%	2.3 million	square feet	CA, FL, NJ, UT
Retail	10	64,553		0.5	%	467,971	square feet	NH, MA, ME
Subtotal	64	783,653		6.4	%
Multifamily (held for sale)(4)(5)	12	377,211		3.1	%	4,514	units	TN, GA, FL
Multi-tenant office	13	175,979		1.3	%	1.0 million	square feet	CO, TX, CA
Total	854	$	12,317,852	100.0	%

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(1) Represents cost, which includes net purchase price allocation of $643 million related to net intangibles. Additionally, includes $59 million of notes receivable and $254 million of escrows and other assets.

(2) Includes three properties with a cost of $14 million owned pursuant to a RIDEA structure.

(3) In May 2016, we entered into an agreement to sell our manufactured housing portfolio for $2.0 billion with $1.3 billion of related mortgage financing expected to be assumed as part of the transaction. We expect to receive $620 million of net proceeds. We expect the transaction to close in the second half of 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) We entered into and are finalizing agreements to sell ten multifamily properties for $307 million with $210 million of mortgage financing expected to be assumed as part of the transaction. We expect to receive $86 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 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 March 2016, we sold our 60% interest in the Senior Housing Portfolio for $535 million. The buyer assumed our portion of the $648 million mortgage borrowing and we received approximately $150 million of proceeds, net of sales costs.

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As of March 31, 2016, $5.8 billion, or 37.8%, 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	$5.8 billion
Number of facilities	462
Number of units/beds(1)	23,980
Weighted average occupancy(2)	86	%
Weighted average lease coverage	1.7x
Weighted average lease term	8.8 years
Net cash flow related to:
Medical office buildings	28	%
Net lease	51	%
Senior operating facilities - RIDEA	21	%

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

(2) Represents weighted average occupancy for ALF, SNF, and hospital property types based on number of units/beds. Percentage excludes medical office buildings, which has a weighted average occupancy of 90%, based on square footage.

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 March 31, 2016, $3.4 billion, or 22.3%, of our assets were invested in hotel properties.

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	70	%
Rooms by brand:
Marriott	75	%
Hilton	16	%
Starwood	4	%
Hyatt	4	%
Intercontinental	1	%

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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. In May 2016, we entered into an agreement to sell our manufactured housing portfolio for $2.0 billion with $1.3 billion of related mortgage financing expected to be assumed as part of the transaction. We expect to receive $620 million of net proceeds. We expect the transaction to close in the second half of 2016.

As of March 31, 2016, $1.8 billion, or 11.4%, 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	4,122
Number of states	14
Weighted average occupancy	86	%
Net cash flow related to:
Pad rental sites	92	%
Other	8	%

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 March 31, 2016, $784 million, or 5.1%, 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	$784 million
Number of properties	64
Number of states	23
Total square feet	8.9 million
Weighted average occupancy	94	%
Weighted average lease term	9.1 years
Net cash flow related to:
Industrial	55	%
Office	35	%
Retail	10	%

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. We entered into and are finalizing agreements to sell ten multifamily properties for $307 million with $210 million of mortgage financing expected to be assumed as part of the transaction. We expect to receive $86 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 March 31, 2016, $377 million, or 2.5%, 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	95	%

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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 March 31, 2016, $176 million, or 1.1%, 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	90	%

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 sold 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 March 31, 2016, $873 million, or 5.7%, 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	$	124.0	49		26		$	802.4	66.2	%	$	17,100	44.1	%	$	2
PE Investment III	December 31, 2013	28.5		8		4		80.3		119.0	%	1,800		43.6	%	—
PE Investment IV	May 30, 2014	6.8		1		1		8.8		113.4	%	500		43.6	%	—
PE Investment V	July 1, 2014	6.6		3		1		23.0		57.8	%	700		50.2	%	—
PE Investment VI	July 30, 2014	74.2		20		12		98.3		77.5	%	8,100		52.0	%	1
PE Investment VII	August 15, 2014	31.3		14		12		65.7		79.2	%	900		46.4	%	—
PE Investment IX	October 2, 2014	126.6		11		7		232.8		135.3	%	18,800		30.3	%	2
PE Investment X	December 4, 2014	120.6		13		7		160.4		92.5	%	4,400		52.2	%	—
PE Investment XI	May 1, 2015	4.3		2		1		7.9		64.0	%	1,400		34.8	%	—
PE Investment XII	May 5, 2015	2.6		1		1		6.1		212.0	%	700		28.1	%	—
PE Investment XIII	May 22, 2015	289.4		11		5		454.8		90.5	%	2,200		48.5	%	3
PE Investment XIV	September 9, 2015	51.2		15		5		100.4		51.8	%	7,900		59.9	%	50
PE Investment XV	November 12, 2015	1.4		1		1		95.6		137.8	%	500		42.0	%	12
Subtotal		867.5		149		83		2,136.5				65,000				70
PE Investment II(6)	July 3, 2013	5.4		24		15		910.0		73.5	%	19,000		37.4	%	3		(6)
Total		$	872.9	173	(7)	98	(7)	$	3,046.5			$	84,000			$	73

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(1) Based on financial data reported by the underlying funds as of December 31, 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 March 31, 2016.

(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 sold substantially all of our interest in PE Investment II for proceeds of $184 million. In connection with the sale, the buyers assumed substantially all of our $243 million portion of the deferred purchase price obligation of the joint venture.

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

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	Our Proportionate Share of PE Investments
	March 31, 2016
	Three Months Ended		Inception to Date(2)
Income(1)	$	37.6	$	452.3
Return of capital	45.3		854.1
Total distributions(3)	82.9		1,306.4
Contributions	1.0		106.8
Net	$	81.9	$	1,199.6

__________________________________________________

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

(2) Represents activity from the respective initial closing date through March 31, 2016.

(3) Excludes proceeds of $184 million in connection with the sale of substantially all of our interest in PE Investment II.

The following presents the underlying fund interests in our PE Investments by investment type and geographic location based on NAV as of December 31, 2015:

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

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(1) Based on individual fund financial statements.

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 $94 million as of March 31, 2016.

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 $7 million as of March 31, 2016.

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 March 31, 2016.

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.

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

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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 March 31, 2016, $427 million, or 2.8%, 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 20 loans with an average investment size of $20 million and weighted average extended maturity of 5.8 years. We directly originated approximately 93% of our current portfolio of CRE debt investments (excluding debt investments acquired in connection with Griffin-American).

The following table presents a summary of our CRE debt investments, excluding amounts held for sale, as of March 31, 2016 (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(5)	6	$	146,534	$	118,288	39.0	%	7.14	%	8.62	%	4.58	%	32.6	%
Mezzanine loans	6	22,400		18,571		6.0	%	9.05	%	4.00	%	7.24	%	39.8	%
Subordinate interests	4	170,980		169,760		45.6	%	12.67	%	5.67	%	8.87	%	58.8	%
Corporate loans	4	35,382		30,880		9.4	%	12.92	%	—		14.81	%	—
Total/Weighted average	20	$	375,296	$	337,499	100.0	%	10.27	%	10.69	%	7.82	%	40.8	%

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(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 $129 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 March 31, 2016 and for CRE debt with a LIBOR floor greater than LIBOR, using such floor.

(5) In April 2016, one first mortgage loan, with a total principal amount of $52 million, was repaid at par.

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The following presents our $427 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. In 2016, we sold five N-Star CDO bonds and CRE securities for $54 million of net proceeds.

The following table presents our interest in the N-Star CDOs as of March 31, 2016 (dollars in thousands):

	Number	Amount(1)
N-Star CDO bonds(2)(3)
AAA	2	$	108,900
AA through BBB	18	233,854
Below investment grade	10	160,447
	30	503,201
N-Star CDO equity(4)	4	68,128
Total	34	$	571,329

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(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 $142 million related to our securities CDOs that are eliminated in consolidation.

(3) Unencumbered N-Star CDO bonds are owned by us, of which $369 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 38%.

(4) 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 March 31, 2016 (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 March 31, 2016(1)
Assets, principal amount	$	258,066	$	634,164	$	123,527		$	459,840			$	1,475,597
CDO bonds, principal amount(2)	189,169		461,315		105,775			400,114				1,156,373
Net assets	$	68,897	$	172,849	$	17,752		$	59,726			$	319,224
CDO quarterly cash distributions and coverage tests(3)
Equity notes and subordinate bonds	$	176	$	1,817	$	563		$	1,076			$	3,632
Collateral management and other fees(4)	237		671		70			196				1,174
Interest coverage cushion at March 31, 2016 (IC)(1)	800		3,718		375			1,758
Overcollateralization cushion (OC)
At March 31, 2016(1)	57,483		144,235		9,816			79,499
At offering	17,412		42,193		5,987		(5)	(151,595		)	(6)

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(1) Based on remittance report issued on date nearest to March 31, 2016.

(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 March 31, 2016:

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

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.

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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 shown improvement in 2015 and into 2016 which prompted the Federal Reserve in December 2015 to raise the Federal Funds Rate for the first time in nine years. Despite this, concerns still remain regarding low inflation in the United States, a stronger U.S. dollar, volatility in the price of oil, slow global growth and international market volatility. Many other global central banks have been easing monetary conditions to combat their own low inflation and stagnant growth and it is unclear when or if the Federal Reserve will adjust the Federal Funds Rate further.

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 the U.S. mortgage market and sustainability of continued growth in the real estate market in the United States have contributed to increased domestic economic uncertainty and the potential for a recessionary environment.

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. Private capital investment remained aggressive during this time contributing to the growth in real estate values. However, property price appreciation has slowed and there is speculation that the markets may be in the later stage of the current real estate cycle leading to potentially falling values. One factor that may, among other factors, contribute to periodic volatility in the commercial real estate market is the large amount of maturing commercial real estate debt that may have difficulties being refinanced.

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 the benefits from 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.

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.

We have not been actively raising capital due to current market conditions. However, in 2015, we issued aggregate capital of $1.3 billion. 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. In February 2016, 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. In April 2016, our loan facility was repaid. 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.

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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. In April 2016, our loan facility was repaid.

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 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. In February 2016, 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.

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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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.

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,

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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 to record certain financial assets and liabilities at fair value 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. We record a gain (loss) on sale of real estate when title is conveyed to the buyer and we have no substantial economic involvement with the property. If the sales criteria for the full accrual method are not met, we defer some or all of the gain (loss) recognition by applying the finance, leasing, profit sharing, deposit, installment or cost recovery method, as appropriate, until the sales criteria are met.

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.

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.

Deferred Costs

Deferred costs primarily include deferred financing costs and deferred lease costs. Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining financing. Costs related to revolving credit facilities are recorded in other assets and are amortized to interest expense using the straight-line basis over the term of the facility. Costs related to other borrowings are recorded net against the carrying value of such borrowings and are amortized to interest expense using the effective interest method. Unamortized deferred financing costs are expensed when the associated facility is repaid before maturity. Costs incurred in seeking financing transactions, which do not close, are expensed in the period such financing transaction was terminated. Deferred lease costs consist of fees incurred to initiate and renew operating leases, which are amortized on a straight-line basis over the remaining lease term and are recorded to depreciation and amortization in the consolidated statements of operations.

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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, below-market ground 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 identified intangibles are amortized over the remaining lease term. Above/below-market leases are amortized into rental income, below-market ground leases are amortized into real estate properties-operating expense and in-place leases are amortized into depreciation and amortization expense.

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. We analyze 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 May 2014 was conducted as of October 1, 2015 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. Step two of the impairment test was completed in the first quarter 2016 and there was no change to the estimate 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.

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:

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(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. 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 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 or assets for which an impairment has been recorded, such as goodwill. Such fair value measurements are generally considered 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

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expectations for growth. Capitalization rate and discount rate used in these analyses are based upon observable rates that we believe to be within a reasonable range of current market rates for the respective properties.

Valuations are 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, we may engage third-party valuation experts to assist with the preparation of certain of its valuations.

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. Rental revenue recognition commences when the tenant takes possession of the leased space and the leased space is substantially ready for its intended use. 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. We amortize any tenant inducements as a reduction of revenue utilizing the straight-line method over the term of the lease. 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.

In a situation in which a lease(s) associated with a significant tenant have been, or are expected to be, terminated early, we evaluate the remaining useful life of depreciable or amortizable assets in the asset group related to the lease that will be terminated (i.e., tenant improvements, above- and below-market lease intangibles, in-place lease value and deferred leasing costs). Based upon consideration of the facts and circumstances surrounding the termination, we may write-off or accelerate the depreciation and amortization associated with the asset group. Such amounts are included within depreciation and amortization 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 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.

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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 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.

Other

Refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 for a complete discussion of our critical accounting policies.

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.

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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 adopted this guidance in the first quarter 2016 and determined our Operating Partnership is considered a VIE. We are the primary beneficiary of the VIE, the VIE’s assets can be used for purposes other than the settlement of the VIE’s obligations and our partnership interest is considered a majority voting interest. As such, this standard resulted in the identification of additional VIEs, however it did not have a material impact on our consolidated financial position or results of operations.

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.

In March 2016, the FASB issued guidance clarifying that an assessment of whether an embedded contingent put or call option is clearly and closely related to a borrowing requires only an analysis of the four-step decision sequence. Additionally, entities are not required to separately assess whether the contingency itself is clearly and closely related. Entities are required to apply the guidance to existing instruments in scope using a modified retrospective transition method as of the period of adoption. The guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those years. Early adoption is permitted. We are evaluating the impact, if any, that this guidance will have on our consolidated financial position, results of operations and financial statement disclosures.

In March 2016, the FASB issued guidance which eliminates the requirement for an investor to retroactively apply the equity method when its increase in ownership interest (or degree of influence) in an investee triggers equity method accounting. The update requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment become qualified for equity method accounting. The update should be applied prospectively upon their effective date to increases in the level of ownership interests or degree of influence that results in the adoption of the equity method. The guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. We are evaluating the impact, if any, that this guidance will have on our consolidated financial position, results of operations and financial statement disclosures.

In March 2016, the FASB issued guidance which amends several aspects of the accounting for equity-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statements of cash flows. The guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. We are evaluating the impact, if any, that this guidance will have on our consolidated financial position, results of operations and financial statement disclosures.

Results of Operations

Comparison of the Three Months Ended March 31, 2016 to March 31, 2015 (dollars in thousands):

The following table represents our results of operations for the three months endedMarch 31, 2016 and 2015 (dollars in thousands).

The consolidated financial statements for the three months endedMarch 31, 2016 include our results of operations following the NRE Spin-off on October 31, 2015. The three months ended March 31, 2015 include a carve-out of revenues and expenses attributable to NorthStar Europe recorded in discontinued operations.

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	Three Months Ended March 31,						Increase (Decrease)
	2016			2015			Amount			%
Property and other revenues
Rental and escalation income	$	191,434		$	165,041		$	26,393		16.0	%
Hotel related income	193,743			168,727			25,016			14.8	%
Resident fee income	72,777			63,373			9,404			14.8	%
Other revenue	5,440			3,483			1,957			56.2	%
Total property and other revenues	463,394			400,624			62,770			15.7	%
Net interest income
Interest income	42,933			65,637			(22,704		)	(34.6	)%
Interest expense on debt and securities	2,160			1,977			183			9.3	%
Net interest income on debt and securities	40,773			63,660			(22,887		)	(36.0	)%
Expenses
Management fee, related party	46,528			48,231			(1,703		)	(3.5	)%
Interest expense—mortgage and corporate borrowings	124,502			113,009			11,493			10.2	%
Real estate properties—operating expenses	238,410			201,141			37,269			18.5	%
Other expenses	7,016			4,473			2,543			56.9	%
Transaction costs	3,215			5,585			(2,370		)	(42.4	)%
Impairment losses	5,073			—			5,073			NA
Provision for (reversal of) loan losses, net	7,242			483			6,759			1,399.4	%
General and administrative expenses
Salaries and related expense	1,999			3,127			(1,128		)	(36.1	)%
Equity-based compensation expense	6,285			10,830			(4,545		)	(42.0	)%
Other general and administrative expenses	4,984			3,246			1,738			53.5	%
Total general and administrative expenses	13,268			17,203			(3,935		)	(22.9	)%
Depreciation and amortization	88,003			108,982			(20,979		)	(19.2	)%
Total expenses	533,257			499,107			34,150			6.8	%
Other income (loss)
Unrealized gain (loss) on investments and other	(135,481		)	(30,574		)	(104,907		)	343.1	%
Realized gain (loss) on investments and other	377			13,003			(12,626		)	(97.1	)%
Income (loss) before equity in earnings (losses) of unconsolidated ventures and income tax benefit (expense)	(164,194		)	(52,394		)	(111,800		)	213.4	%
Equity in earnings (losses) of unconsolidated ventures	44,655			53,643			(8,988		)	(16.8	)%
Income tax benefit (expense)	(7,843		)	(1,664		)	(6,179		)	371.3	%
Income (loss) from continuing operations	(127,382		)	(415		)	(126,967		)	30,594.5	%
Income (loss) from discontinued operations	—			(13,861		)	13,861			(100.0	)%
Net income (loss)	$	(127,382	)	$	(14,276	)	$	(113,106	)	792.3	%

Property and Other Revenues

Rental and Escalation Income

Rental and escalation income increased$26.4 million, primarily attributable to new acquisitions in 2015 including healthcare and multi-tenant office investments ($22.1 million) and increased income from our manufactured housing and multifamily investments ($6.2 million), offset by lower income from healthcare properties transitioned to a RIDEA structure in 2015 ($1.5 million) and lower income from our net lease and remaining healthcare properties ($0.5 million), all in our real estate segment.

Hotel Related Income

Hotel related income increased$25.0 million related to two new hotel acquisitions in 2015 in our real estate segment.

Resident Fee Income

Resident fee income increased$9.4 million, primarily related to our healthcare properties which transitioned to a RIDEA structure in 2015 ($9.9 million), in our real estate segment.

Other Revenue

Other revenue increased $2.0 million primarily due to an increase in real estate related fees in our real estate segment.

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.

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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 three months endedMarch 31, 2016 and 2015. Amounts presented have been impacted by the timing of new investments, sales and repayments during the periods (dollars in thousands):

	Three Months Ended March 31,
	2016							2015
	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)	$	514,616	$	17,077	13.27	%		$	1,081,035	$	36,228	13.40	%
CRE securities investments	796,433		25,856		12.99	%		956,770		29,409		12.30	%
	$	1,311,049	42,933		13.10	%		$	2,037,805	65,637		12.88	%
Interest-bearing liabilities:
CDO bonds payable	$	428,622	$	1,124	3.42	%	(5)	$	552,887	$	1,094	3.00	%	(5)
Securitization bonds payable	—		—		—	%		20,912		151		2.88	%
Loan facilities	47,308		588		4.97	%		79,342		732		3.69	%
Secured borrowing	53,856		448		3.33	%		—		—		—	%
	$	529,786	2,160		3.55	%		$	653,141	1,977		3.08	%
Net interest income			$	40,773						$	63,660

____________________________________________________________

(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 $1.2 million and $1.8 million of interest income related to manufactured housing notes receivables recorded in other assets and included in our real estate segment for the three months endedMarch 31, 2016 and 2015, respectively.

(5) We use interest rate swaps in CDO financing transactions to manage interest rate risk. Weighted average financing cost includes $2.5 million and $3.0 million of net cash payments on interest rate swaps in our consolidated N-Star CDOs recorded in unrealized gain (loss) in our consolidated statements of operations for the three months endedMarch 31, 2016 and 2015, respectively.

Interest income decreased$22.7 million, primarily attributable to decreased income on debt investments due to pay offs and sales ($17.9 million) in our CRE debt segment and decreased income on investments in deconsolidated N-Star CDO bonds and equity notes ($4.9 million) in our CRE securities segment.

Interest expense increased$0.2 million, primarily attributable to increased interest expense related to a secured borrowing ($0.5 million), offset by lower interest expense on our loan facility ($0.3 million), both in our CRE debt segment.

Expenses

Management Fee, Related Party

For the three months endedMarch 31, 2016, we recorded $46.5 million related to the base management fee to NSAM in our corporate segment. For the three months endedMarch 31, 2015, we recorded $45.3 million related to the base management fee and $2.9 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$11.5 million, primarily attributable to increased interest expense related to new mortgage and other notes payable associated with new property acquisitions in 2015 ($13.6 million), all in our real estate segment, offset by lower interest expense on our corporate borrowings ($1.3 million), in our corporate segment.

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$37.3 million, primarily attributable to new acquisitions in 2015 comprised of healthcare, hotel and multi-tenant office investments and healthcare properties transitioned to a RIDEA structure in 2015, all in our real estate segment ($36.5 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$2.5 million primarily related to new acquisitions in 2015 in our real estate segment.

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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 three months endedMarch 31, 2016, transaction costs of $3.2 million primarily related to real estate investments, in our real estate segment. For the three months endedMarch 31, 2015, transaction costs of $5.6 million primarily related to real estate acquisitions and restructurings, which includes transaction costs related to the acquisitions and restructurings related to our healthcare portfolios ($3.6 million), our multi-tenant office acquisitions ($0.7 million) and our hotel acquisitions ($0.2 million), all in our real estate segment.

Impairment Losses

Impairment losses of $5.1 million related to impairment on a medical office building in our healthcare portfolio where the tenant exercised its purchase option, in our real estate segment.

Provision for (Reversal of) Loan Losses, Net

For the three months endedMarch 31, 2016, provision for loan losses, net of $7.2 million related to two loans ($7.1 million) in our CRE debt segment and notes receivable related to our manufactured housing portfolio ($0.1 million) in our real estate segment. For the three months endedMarch 31, 2015, provision for loan losses, net of $0.5 million primarily related to a provision for loan loss for an existing first mortgage loan.

General and Administrative Expenses

General and administrative expenses are principally incurred at the corporate level. General and administrative expenses decreased$3.9 million primarily attributable to the following:

Salaries and related expense decreased$1.1 million primarily due to NSAM allocating less expenses to us for the three months ended March 31, 2016.

Equity-based compensation expense is comprised of (dollars in thousands):    

	Time-Based Awards				Performance-Based Awards				Total
	Three Months Ended   March 31,				Three Months Ended   March 31,				Three Months Ended   March 31,
	2016		2015		2016		2015		2016		2015
Awards issued pre NSAM Spin-off	$	290	$	2,871	$	473	$	956	$	763	$	3,827
Awards issued post NSAM Spin-off	4,673		6,246		510		224		5,183		6,470
Dividends to non-employees	339		533		—		—		339		533
Total	$	5,302	$	9,650	$	983	$	1,180	$	6,285	$	10,830

Other general and administrative expenses increased$1.7 million related to higher corporate expenses.

Depreciation and Amortization

Depreciation and amortization expense decreased$21.0 million, primarily related to our manufactured housing and multifamily properties which were classified as held for sale in 2015 ($21.1 million), both in our real estate segment.

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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 three months endedMarch 31, 2016 and 2015 (dollars in thousands):

	Three Months Ended March 31, 2016
							N-Star CDOs
	Real Estate			CRE Securities			CRE Securities			Corporate			Total
Change in fair value of:
Real estate securities, available for sale(1)	$	—		$	(2,589	)	$	(7,633	)	$	—		$	(10,222	)
PE Investments(1)	(3,775		)	—			—			—			(3,775		)
CDO bonds payable, at fair value(1)	—			—			2,526			—			2,526
Junior subordinated notes, at fair value(1)	—			—			—			8,763			8,763
Derivatives, at fair value	(140		)	—			2,252			(117,760		)	(115,648		)
Foreign currency remeasurement(2)	(3,750		)	—			—			—			(3,750		)
Investments in unconsolidated ventures(1)	(10,831		)	—			—			—			(10,831		)
Subtotal unrealized gain (loss)	(18,496		)	(2,589		)	(2,855		)	(108,997		)	(132,937		)
Net cash payments on derivatives	(13		)	—			(2,531		)	—			(2,544		)
Total unrealized gain (loss) on investments and other	$	(18,509	)	$	(2,589	)	$	(5,386	)	$	(108,997	)	$	(135,481	)

__________________________________________________________

(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 British Pounds.

	Three Months Ended March 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)	$	—		$	3,118	$	1,394		$	—		$	4,512
PE Investments(1)	(4,433		)	—		—			—			(4,433		)
CDO bonds payable, at fair value(1)	—			—		(9,188		)	—			(9,188		)
Junior subordinated notes, at fair value(1)	—			—		—			(2,010		)	(2,010		)
Derivatives, at fair value	(1,070		)	—		2,206			—			1,136
Foreign currency remeasurement(2)	(15,211		)	—		—			(2,332		)	(17,543		)
Subtotal unrealized gain (loss)	(20,714		)	3,118		(5,588		)	(4,342		)	(27,526		)
Net cash payments on derivatives	(88		)	—		(2,960		)	—			(3,048		)
Total unrealized gain (loss) on investments and other	$	(20,802	)	$	3,118	$	(8,548	)	$	(4,342	)	$	(30,574	)

__________________________________________________________

(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 British Pounds.

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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 three months ended March 31, 2016 and 2015 (dollars in thousands):

		Three Months Ended March 31,
Description	Segment	2016			2015
Sale of real estate investments(1)	Real Estate	$	16,720		$	—
Sale of REO	CRE Debt	1,490			2,980
Conversion of exchangeable senior notes	Corporate	17			(1,147		)
Sale of CRE debt	CRE Debt	(1,006		)	(759		)
Other-than-temporary impairment	CRE Securities	(6,985		)	—
Sale of manufactured homes	Real Estate	(1,239		)	(175		)
Sales/repayments from N-Star CDO bonds and securities(2)	CRE Securities	(5,614		)	11,153
Mortgage payoff of a net lease property	Real Estate	—			2,074
Other	Various	(3,006		)	(1,123		)
Total		$	377		$	13,003

_________________________________________________________

(1) In March 2016, we sold our 60% interest in the Senior Housing Portfolio for $535 million.

(2) Represents accelerated cash amortization on N-Star CDO bonds.

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 three months ended March 31, 2016 and 2015 (dollars in thousands):

	Three Months Ended March 31,
	2016		2015		Increase (Decrease)
PE Investments	$	37,552	$	48,186	$	(10,634	)
Investment in RXR Realty	6,116		3,533		2,583
Other unconsolidated ventures	987		1,924		(937		)
Total	$	44,655	$	53,643	$	(8,988	)

Income Tax Benefit (Expense)

Income tax expense for the three months ended March 31, 2016 represents a net expense of $7.8 million, of which $4.5 million represents a current income tax expense primarily related to a provision for income tax for our PE Investments ($4.7 million) and for our RIDEA healthcare properties ($1.2 million), offset by a current income tax benefit related to our hotel properties ($1.2 million), all in our real estate segment. Income tax expense for the three months ended March 31, 2015 represents a net expense of $1.7 million primarily related to a provision for income tax for our PE Investments ($3.9 million) and healthcare properties ($0.8 million), offset by a benefit of net operating loss carryforward related to our hotel portfolios operating under a RIDEA structure ($3.1 million).

Discontinued Operations

Income (Loss) from Discontinued Operations

For the three months ended March 31, 2015, we recorded a $13.9 million loss included in discontinued operations associated with NorthStar Europe which represented a carve-out of revenues of $1.8 million and expenses of $15.7 million, primarily related to transaction costs.

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 since the beginning of the fourth quarter 2015 through May 2016, assets sold or committed to sell totaled $4.2 billion 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 with $425 million currently outstanding (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 our 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 May 5, 2016 was approximately $652 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. In February 2016, our Corporate Revolver was repaid and we expect our remaining corporate recourse borrowings to be repaid from proceeds from sales initiatives.

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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. In March 2016, the maturity date for the facility was extended for one year with final maturity in March 2018. In April 2016, our loan facility was repaid.

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 three months endedMarch 31, 2016, we issued 0.1 million shares of our common stockholders related to the conversion of exchangeable senior notes. As of May 5, 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 three months endedMarch 31, 2016 and 2015 (dollars in thousands).

The consolidated cash flows for the three months endedMarch 31, 2016 represents our cash flow following the NRE Spin-off on October 31, 2015. The consolidated cash flows for the three months endedMarch 31, 2015 includes cash flow attributable to revenues and expenses of NorthStar Europe recorded in discontinued operations.

As a result, cash flows for the three months endedMarch 31, 2016 may not be comparative to our cash flows reported for the prior period presented.

	Three Months Ended March 31,
Cash flow provided by (used in):	2016			2015
Operating activities	$	64,253		$	105,440
Investing activities	603,786			(489,865		)
Financing activities	(441,437		)	496,078
Effect of foreign currency translation on cash and cash equivalents	(86		)	(3,414		)
Net increase (decrease) in cash and cash equivalents	$	226,516		$	108,239

Three Months Ended March 31, 2016 Compared to March 31, 2015

Net cash provided by operating activities was $64 million for the three months endedMarch 31, 2016 compared to $105 million for the three months endedMarch 31, 2015. The decrease was primarily due to the NRE Spin-off and sales of other investments.

Net cash provided by investing activities was $604 million for the three months endedMarch 31, 2016 compared to net cash used in investing activities of $490 million for the three months endedMarch 31, 2015. The primary investing activities for the three months ended March 31, 2016 related to proceeds of sales of real estate, certain loans and securities and a PE Investment. The three months ended March 31, 2015 includes deposits for European real estate acquired and subsequently spun off as part of the NRE Spin-off.

Net cash used in financing activities was $441 million for the three months endedMarch 31, 2016 compared to net cash provided by financing activities of $496 million for the three months endedMarch 31, 2015. The primary cash outflows for the three months endedMarch 31, 2016 was $212 million for the repayment of our credit facilities, $97 million for the payment of dividends, $47 million for the repurchase of our common stock and $16 million for net repurchase/repayment of CDO bonds. The primary cash inflows for the three months endedMarch 31, 2015 was $555 million of net new capital, $176 million of net new borrowings, offset by $151 million for the payment of dividends, $71 million for the payment of financing costs and $16 million for net repurchase/repayment of CDO bonds.

Off-Balance Sheet Arrangements

As of March 31, 2016, we had off-balance sheet arrangements with respect to retained interests in certain deconsolidated N-Star CDOs. Refer to Note 16. “Variable Interest Entities” in Item 1. “Financial Statements” 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 1. “Financial Statements”

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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 renews 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 supervision and management 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.

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 three months ended March 31, 2016, we incurred $47 million related to the base management fee. The base management fee to NSAM could increase subsequent to March 31, 2016 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 three months ended March 31, 2016, we did not incur an 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, of any amount 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

• the product of: (a) 25% and (b) our CAD before such incentive fee, divided by the weighted average shares outstanding for the calendar quarter, of any amount 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

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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 over $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 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, which may be allocated based on various methodologies, such as weighted average employee count or 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 three months ended March 31, 2016, NSAM allocated $0.2 million 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 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%.

In connection with the above obligation, we were responsible for paying approximately 50% of the 2015 and 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.

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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. For the three months ended March 31, 2016, we earned $0.2 million from NSAM for services in connection with loan origination opportunities.

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 March 31, 2016, 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 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 10. “Equity-Based Compensation” in Item 1. “Financial Statements”). 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 three months ended March 31, 2016, we did not incur any incentive fees related to the Healthcare Strategic Partnership.

NSAM Retail 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 Retail Companies. For the six months ended June 30, 2014, we received $14 million of reimbursement from the NSAM Retail Companies.

We committed to purchase up to $10 million in shares of each of NSAM’s Retail Companies’ common stock during the period from when each offering was declared effective through the end of their respective offering period, in the event that NSAM Retail Companies’ distributions to its stockholders, on a quarterly basis, exceeds certain measures of operating performance.

We acquired an aggregate of $15 million of shares of NorthStar Income, NorthStar Healthcare and NorthStar Income II through March 31, 2016. 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 Retail Company, up to a total of five new companies per year.

As of March 31, 2016, our distribution support obligations remain outstanding for NorthStar Income II and the following other NSAM Retail Companies:

• NorthStar/RXR New York Metro - NorthStar/RXR New York Metro Real Estate, Inc., or NorthStar/RXR New York Metro’s registration statement filed with the SEC seeks to offer up to $2 billion in a public offering of multiple classes of common stock. 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, of which $1.5

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million was invested by us. We currently consolidate NorthStar/RXR New York Metro based on our majority voting interest in the entity. NSAM began raising capital for NorthStar/RXR New York Metro in the second quarter 2016.

• NorthStar Corporate Fund - NorthStar Corporate Income Fund’s, or NorthStar Corporate Fund, registration statement on Form N-2 filed with the SEC seeks to raise up to $3 billion in a public offering of common stock. In January 2016, an affiliate of Och-Ziff Capital Management Group and us invested $2 million of seed capital into NorthStar Corporate Fund, of which $1 million was invested by us. In February 2016, NorthStar Corporate Fund was declared effective by the SEC and expects to begin raising capital in 2016.

• NorthStar Capital Fund - NorthStar Real Estate Capital Income Fund’s registration statement on Form N-2 filed with the SEC seeks to raise up to $3 billion in a public offering of common stock. In March 2016, we invested $2 million of seed capital into NorthStar Capital Fund. In May 2016, NorthStar Capital Fund was declared effective by the SEC and expects to begin raising capital in 2016. We currently consolidate the master fund of NorthStar Capital Fund based on our majority voting interest in the entity.

• 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 three months ended March 31, 2016 we earned $1 million in fee income of which $0.5 million was eliminated in consolidation.

Additionally, we earn interest income from the N-Star CDO bonds and N-Star CDO equity in deconsolidated N-Star CDOs. For the three months ended March 31, 2016, we earned $11 million of interest income from such investments related to deconsolidated N-Star CDOs.

American Healthcare Investors

In December 2014, NSAM acquired a 43% interest in American Healthcare Investors LLC, or 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 in order to assist 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 three months ended March 31, 2016, we incurred $1 million of property management fees to AHI.

Island Hospitality Management

In January 2015, NSAM acquired a 45% interest in Island Hospitality Management Inc., or 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 three months ended March 31, 2016 we incurred $4 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 Retail Companies

For the three months ended March 31, 2016, we sold or entered into agreements to sell certain assets to NSAM Retail Companies:

• In February 2016, we sold 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% of the interest sold. NorthStar Income paid $37 million for its respective interest. As part of the transaction, both buyers assumed the deferred purchase price obligation, on a pro rata basis, of the PE Investment II joint venture.

• 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.

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• In March 2016, we sold our 60% interest in the Senior Housing Portfolio to NorthStar Healthcare, which owned the remaining 40% interest, for $535 million. NorthStar Healthcare assumed our portion of the $648 million of mortgage borrowing as part of the transaction and we received approximately $150 million of net proceeds.

The board of directors of each NSAM Retail 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 May 4, 2016, we declared a dividend of $0.40 per share of common stock. The common stock dividend will be paid on May 20, 2016 to stockholders of record as of the close of business on May 16, 2016. On April 27, 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 will be paid on all series of preferred stock on May 16, 2016 to stockholders of record as of the close of business on May 9, 2016.

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 3. “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, non-recurring 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 adjusted for community fees received in cash related to our former 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 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

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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; non-recurring 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 involves subjective judgment 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.

The following table presents a reconciliation of CAD to net income (loss) attributable to common stockholders for the three months ended March 31, 2016 (dollars in thousands):

Net income (loss) attributable to common stockholders	$	(145,264	)
Non-controlling interests	(3,177		)
Adjustments:
Depreciation and amortization items(1)	104,423
N-Star CDO bond discounts(2)	5,203
Non-cash net interest income in consolidated N-Star CDOs	(9,954		)
Unrealized (gain) loss from fair value adjustments / Provision for loan losses, net	140,192
Realized (gain) loss on investments(3)	11,198
Distributions / adjustments to joint venture partners	(10,063		)
Transaction costs and other(4)	14,526
CAD	$	107,084

____________________________________________________________

(1) Represents an adjustment to exclude depreciation and amortization of $88.5 million (including $0.2 million related to unconsolidated ventures and $0.3 million of cash flow related to community fees), straight-line rental income of $(6.8) million, amortization of above/below market leases of $1.5 million, amortization of deferred financing costs of $14.4 million, amortization of discount on financings and other of $0.5 million and amortization of equity-based compensation of $6.3 million.

(2) For CAD, realized discounts on N-Star CDO bonds for consolidated CDOs are accreted on an effective yield basis based on expected maturity. For deconsolidated N-Star CDOs, N-Star CDO bond accretion is already included in net income attributable to common stockholders.

(3) Represents an adjustment to exclude a $16.7 million gain related to the sale of real estate, $(15.2) million non-cash loss related to the sale of CMBS, $(7.5) million non-cash loss related to securities in our consolidated CDOs, $(0.3) million foreign currency loss, $(1.2) million loss related to the sale of manufactured homes, $(1.0) million non-cash loss related to the sale of loans, $(1.2) million loss related to the write-off of deferred financing costs and $(1.4) million of other real estate related losses and includes a $10.0 million net cash gain related to accelerated discount from sales and repayments of securities and loans and a $1.5 million net cash gain related to the sale of REO.

(4) Represents an adjustment to exclude $3.2 million of transaction costs, $3.3 million of deferred taxes, $5.1 million of impairment losses and include $2.9 million of cash flow related to N-Star CDO equity interests.

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 involves subjective judgment 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.

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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 March 31, 2016 (dollars in thousands):

										Manufactured							Multi-tenant
	Total			Healthcare(5)			Hotel			Housing(6)		Net Lease			Multifamily(6)		Office
Property and other revenues
Rental and escalation income	$	191,434		$	108,637		$	—		$	49,232	$	17,689		$	10,455	$	5,421
Hotel related income	193,743			—			193,743			—		—			—		—
Resident fee income	72,777			72,777			—			—		—			—		—
Other revenue(1)	3,064			879			47			1,376		2			605		155
Total property and other revenues	461,018			182,293			193,790			50,608		17,691			11,060		5,576
Real estate properties—operating expenses	238,410			78,346			130,489			19,394		3,118			4,800		2,263
Adjustments:
Interest income(2)	2,584			1,332			—			1,244		—			—		8
Equity in earnings(3)	263			—			—			—		11			252		—
Amortization and other items(4)	(4,085		)	(3,731		)	(10		)	—		(404		)	354		(294		)
NOI	$	221,370		$	101,548		$	63,291		$	32,458	$	14,180		$	6,866	$	3,027

___________________________________________________________

(1) 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.

(2) Primarily represents interest income earned from notes receivable on manufactured homes and loans in the Griffin-American Portfolio.

(3) Includes an adjustment related to our interest in an unconsolidated joint venture in a net lease and multifamily property.

(4) Primarily includes amortization of straight-line rental income, amortization of above/below market leases and non-recurring bad debt.

(5) In March 2016, we sold our 60% interest in a Senior Housing Portfolio. First quarter 2016 NOI includes approximately two months of operations.

(6) During 2016, we entered into agreements to sell certain of our real estate portfolios, including ten multifamily properties and our manufactured housing portfolio.

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Item 3. 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 March 31, 2016, 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 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 $67 million of margin as of May 5, 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 March 31, 2016, our counterparties do not hold any cash margin as collateral against our remaining derivative contracts. As of March 31, 2016, 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 increase or decrease in unrealized gain (loss) on investments and other in our consolidated statements of operations. In addition, we are, and

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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 March 31, 2016, 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 Part I, Item 1. “Business.” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. 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.

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Item 4. Controls and Procedures

Disclosure Controls and Procedures

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 Securities Exchange Act of 1934, as amended, or 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.

Internal Control over Financial Reporting

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.

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PART II

Item 1. 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 15. “Commitments and Contingencies” in Part I, Item 1. “Financial Statements” for further disclosure regarding legal proceedings.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides the information with respect to purchases made by us of our common stock during the three months ended March 31, 2016:

Period	Total Number of Shares Repurchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (1)
March 1 - March 31	3,889,700	$	12.85	10,360,068	$	332,031,738

__________________

(1) 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.

Item 5. Other

On May 7, 2016, affiliates of NorthStar Realty Finance Corp. (the “Company”), RHP Western Portfolio Group, LLC, American Home Portfolio Group, LLC, AMC Portfolio Group, LLC and MHC Portfolio IV, LLC (collectively, the “Sellers”), entered into an Interest Sale Agreement (the “MH Agreement”) with BSREP II MH Holdings LLC, a Delaware limited liability company and an affiliate of a real estate fund managed by Brookfield Asset Management Inc. (“Purchaser”), to sell all of the Sellers’ outstanding equity interests (the “MH Interests”) in the Company’s manufactured housing portfolio consisting of approximately 33,010 pads in 135 communities located in 13 states. The aggregate purchase price for all of the MH Interests is approximately $2.04 billion, subject to adjustment under certain circumstances as provided in the MH Agreement. In connection with its execution and delivery of the MH Agreement, Purchaser delivered a deposit of $50 million to the Sellers, which is generally non-refundable except in certain limited circumstances described in the MH Agreement. The Company currently holds approximately 94% of the MH Interests, with the remaining 6% held by other third party partners in the Sellers.

The obligations of the parties to consummate the transactions contemplated by the MH Agreement are subject to the satisfaction, at or prior to closing, of certain customary closing conditions including, but not limited to, the assumption by the Purchaser of approximately $1.27 billion of outstanding mortgage notes encumbering the manufactured housing portfolio, no monetary or material non-monetary defaults shall have occurred and be continuing under any of the assumed loans and title to each of the properties shall be free and clear of all liens, security interests, pledges or similar encumbrances, other than as expressly permitted pursuant to the MH Agreement.

The Company expects the closing of the sale of the MH Interests to occur in the second half of 2016. However, there is no assurance that the transaction will close in the timeframe contemplated or on the terms anticipated, if at all.

The foregoing description of the MH Agreement is qualified in its entirety by reference to a copy of the MH Agreement attached hereto as Exhibit 10.42 to this Quarterly Report on Form 10-Q.

Item 6. Exhibits

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)

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Exhibit Number	Description of Exhibit
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)
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)

99

Exhibit Number		Description of Exhibit
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)
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)

100

Exhibit Number	Description of Exhibit
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)
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)

101

Exhibit Number		Description of Exhibit
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 (incorporated by reference to Exhibit 10.40 to NorthStar Realty Finance Corp.’s Annual Report on Form 10-K for the year ended December 31, 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 (incorporated by reference to Exhibit 10.41 to NorthStar Realty Finance Corp.’s Annual Report on Form 10-K for the year ended December 31, 2015)
10.42	*	Interest Sale Agreement, dated as of May 6, 2016, among RHP Western Portfolio Group, LLC, American Home Portfolio Group, LLC, AMC Portfolio Group, LLC, and MHC Portfolio IV, LLC, and BSREP II MH Holdings LLC, a Delaware limited liability company
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
101	*	The following materials from the NorthStar Realty Finance Corp. Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of March 31, 2016 (unaudited) and December 31, 2015; (ii) Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2016 and 2015; (iii) Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three months ended March 31, 2016 and 2015; (iv) Consolidated Statements of Equity for the three months ended March 31, 2016 (unaudited) and year ended December 31, 2015; (v) Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2016 and 2015; and (vi) Notes to Consolidated Financial Statements (unaudited)

____________________________________________________________

* Filed herewith.

+ Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto.

102

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:	May 10, 2016		By:	/s/ JONATHAN A. LANGER
				Jonathan A. Langer
				Chief Executive Officer
			By:	/s/ DEBRA A. HESS
				Debra A. Hess
				Chief Financial Officer

103