In the normal course of our ongoing business operations, we encounter economic risk. There are three main components of economic risk: interest rate risk, credit risk and market risk. We are primarily subject to interest rate risk on our interest-bearing assets and liabilities and our CMBS investments. Credit risk is the risk of default on our operations and tenants' inability or unwillingness to make contractually required payments. Market risk includes changes in the value of our properties and related loans as well as changes in the value of our CMBS investments due to changes in interest rates or other market factors. In addition, we own investments in Europe and are subject to the risks associated with changing foreign currency exchange rates.

We are exposed to foreign currency exchange rate movements in the Euro and British Pound Sterling. We manage foreign currency exchange rate movements by generally placing both our debt obligation to the lender and the tenant's rental obligation to us in the same currency, but we are subject to foreign currency exchange rate movements to the extent of the difference in the timing and amount of the rental obligation and the debt service. We may also face challenges with repatriating cash from our foreign investments. We may encounter instances where it is difficult to repatriate cash because of jurisdictional restrictions or because repatriating cash may result in current or future tax liabilities. Realized and unrealized gains and losses recognized in earnings related to foreign currency transactions are included in Other income and (expenses) in the consolidated financial statements.

When we use derivative instruments, it is generally to reduce our exposure to fluctuations in interest rates. We have not entered, and do not plan to enter into financial instruments for trading or speculative purposes. In addition to derivative instruments that we entered into on our own behalf, we may also be a party to derivative instruments that are embedded in other contracts, and we may own common stock warrants, granted to us by lessees when structuring lease transactions, that are considered to be derivative instruments. The primary risks related to our use of derivative instruments are that a counterparty to a hedging arrangement could default on its obligation or that the credit quality of the counterparty may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction. While we seek to mitigate these risks by entering into hedging arrangements with counterparties that are large financial institutions that we deem to be creditworthy, it is possible that our hedging transactions, which are intended to limit losses, could adversely affect our earnings. Furthermore, if we terminate a hedging arrangement, we may be obligated to pay certain costs, such as transaction or breakage fees. We have established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities.

We measure derivative instruments at fair value and record them as assets or liabilities, depending on our rights or obligations under the applicable derivative contract. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. If a derivative is designated as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings or recognized in Other comprehensive income (“OCI”) until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value is immediately recognized in earnings.

The following table sets forth certain information regarding our derivative instruments (in thousands):

Derivatives Designated	Balance Sheet	Asset Derivatives Fair Value at				Liability Derivatives Fair Value at
as Hedging Instruments	Location	June 30, 2011		December 31, 2010		June 30, 2011		December 31, 2010
Interest rate cap	Other assets, net	$	326	$	733	$	-	$	-
Interest rate swap	Other assets, net		120		18		-		-
Foreign currency contracts	Other assets, net		833		-		-		-
Interest rate swap	Accounts payable,
	accrued expenses and
	other liabilities		-		-		(1,498)		(1,134)
Foreign currency contracts	Accounts payable,
	accrued expenses and
	other liabilities		-		-		-		(1,081)

Derivatives Not Designated
as Hedging Instruments
Stock warrants	Other assets, net		1,683		-		-		-
Total derivatives		$	2,962	$	751	$	(1,498)	$	(2,215)

At June 30, 2011 and December 31, 2010, we also had an embedded credit derivative that was not designated as a hedging instrument. This instrument had a fair value of zero at both June 30, 2011 and December 31, 2010.

The following tables present the impact of derivative instruments on the consolidated financial statements (in thousands):

	Amount of Gain (Loss) Recognized				Amount of Gain (Loss) Recognized
	in OCI on Derivatives (Effective Portion)				in OCI on Derivatives (Effective Portion)
	Three Months Ended June 30,				Six Months Ended June 30,
Derivatives in Cash Flow Hedging Relationships	2011		2010		2011		2010
Interest rate cap (a)	$	(306)	$	(968)	$	(253)	$	(2,132)
Interest rate swaps		(816)		(1,287)		(273)		(1,595)
Foreign currency contracts (b)		(1,764)		-		(5,479)		-
Total	$	(2,886)	$	(2,255)	$	(6,005)	$	(3,727)

(a) For both the three and six months ended June 30, 2011 and 2010, losses of $0.1 million were attributable to noncontrolling interests.

(b) Amounts included net losses of $2.6 million and $7.1 million recognized during the three and six months ended June 30, 2011, respectively, upon settlement of the foreign currency forward contracts.

During the three and six months ended June 30, 2011 and 2010, no gains or losses were reclassified from OCI into income related to ineffective portions of hedging relationships or to amounts excluded from effectiveness testing.

		Amount of Gain (Loss) Recognized in Income on Derivatives
Derivatives in Cash Flow	Location of Gain (Loss)	Three Months Ended		Six Months Ended
Hedging Relationships	Recognized in Income	June 30, 2011		June 30, 2011
Stock warrants	Other income and (expenses)	$	66	$	66
Total		$	66	$	66

See below for information on our purposes for entering into derivative instruments, including those not designated as hedging instruments, and for information on derivative instruments owned by unconsolidated ventures, which are excluded from the tables above.

We are exposed to the impact of interest rate changes primarily through our borrowing activities. To limit this exposure, we attempt to obtain mortgage financing on a long-term, fixed-rate basis. However, from time to time, we or our venture partners may obtain variable-rate non-recourse mortgage loans and, as a result, may enter into interest rate swap agreements or interest rate cap agreements with counterparties. Interest rate swaps, which effectively convert the variable-rate debt service obligations of the loan to a fixed rate, are agreements in which one party exchanges a stream of interest payments for a counterparty's stream of cash flow over a specific period. The notional, or face, amount on which the swaps are based is not exchanged. Interest rate caps limit the effective borrowing rate of variable-rate debt obligations while allowing participants to share in downward shifts in interest rates. Our objective in using these derivatives is to limit our exposure to interest rate movements.

The derivative instruments that we had outstanding on our consolidated ventures at June 30, 2011 were designated as cash flow hedges and are summarized as follows (dollars in thousands):

Notional

Effective

Expiration

Fair Value at

Type

Amount

Interest Rate

Date

June 30, 2011

3-Month LIBOR (a)

Interest rate cap

124,424

2.8%

3/2011

8/2014

326

3-Month LIBOR

“Pay-fixed” swap

27,202

6.6%

1/2010

12/2019

(1,389)

3-Month Euribor (b)

“Pay-fixed” swap

8,675

5.8%

7/2010

11/2017

120

1-Month LIBOR

“Pay-fixed” swap

4,200

6.0%

1/2011

1/2021

(109)

(1,052)

(a) The applicable interest rate of the related debt was 2.8%, which was below the effective interest rate of the cap at June 30, 2011. Inclusive of noncontrolling interests in the notional amount and fair value of the swap of $56.0 million and $0.1 million, respectively.

We enter into foreign currency forward contracts and put options to hedge certain of our foreign currency cash flow exposures. A foreign currency forward contract is a commitment to deliver a certain amount of currency at a certain price on a specific date in the future. A foreign currency put option is the right to sell the currency at a predetermined price. By entering into forward contracts, we are locked into a future currency exchange rate for the term of the contract. Protective put options limit our exposure to the movement in foreign currency exchange rates below a strike rate.

In December 2010, we entered into a foreign currency forward contract to sell €45.0 million and receive $59.0 million. This contract fixed the exchange rate of the Euro to $1.31047 with a maturity date in March 2011. This contract was subsequently extended to July 2011 and July 2013.

In May 2011, we entered into a series of purchased put options with a strike price of $1.30 and maturity dates ranging from June 2011 to March 2012 in order to mitigate the risk of cash inflows attributable to changes in the Euro to U.S. Dollar exchange rate below the strike rate on the put options. These put options had a total notional amount of $25.7 million, based on the exchange rate of the Euro at June 30, 2011. The June 2011 option expired on June 30, 2011 with no value.

As part of the purchase of an interest in Hellweg 2 from CPA®:14 in May 2011 (Note 3), we acquired warrants from CPA®:14, which were granted by Hellweg 2 to CPA®:14 in connection with structuring the initial lease transaction, for a total cost of $0.8 million, which is based on the fair value of the warrants of $1.6 million less the assumption of a related liability of $0.8 million on the date of acquisition. These warrants give us participation rights to any distributions made by Hellweg 2. In addition, we are entitled to a cash distribution that equals to a certain percentage of the liquidity event price of Hellweg 2, should a liquidity event occur. Because these warrants are readily convertible to cash and provide for net cash settlement upon conversion, we account for them as derivative instruments.

In connection with a venture in Germany in which we and an affiliate have 67% and 33% interests, respectively, and which we consolidate, the venture obtained non-recourse mortgage financing for which the interest rate has both fixed and variable components. In connection with providing the financing, the lender entered into an interest rate swap agreement on its own behalf through which the fixed interest rate component on the financing was converted into a variable interest rate instrument. Through the venture, we have the right, at our sole discretion, to prepay this debt at any time and to participate in any realized gain or loss on the interest rate swap at that time. This participation right is deemed to be an embedded credit derivative. The derivative had an estimated fair value of $0 at both June 30, 2011 and December 31, 2010. This derivative did not generate gains or losses during the three and six months ended June 30, 2011 and 2010. In addition, an unconsolidated venture in which we acquired an interest from CPA®:14 in May 2011 (Note 6) has an embedded credit derivative similar to the one described above. Based on the valuation obtained at June 30, 2011 and including the effect of foreign currency translation, this embedded credit derivative had a fair value of less than $0.1 million and generated an unrealized loss of less than $0.1 million for both the three and six months ended June 30, 2011. Amounts provided are the total amounts attributable to the venture and do not represent our proportionate share. Changes in the fair value of the embedded credit derivative are recognized in this venture's earnings.

Amounts reported in OCI related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. At June 30, 2011, we estimate that an additional $1.8 million, inclusive of amounts attributable to noncontrolling interests of $0.3 million, will be reclassified as interest expense during the next twelve months.

Some of the agreements we have with our derivative counterparties contain certain credit contingent provisions that could result in a declaration of default against us regarding our derivative obligations if we either default or are capable of being declared in default on certain of our indebtedness. At June 30, 2011, we had not been declared in default on any of our derivative obligations. The estimated fair value of our derivatives that were in a net liability position was $0.3 million and $2.2 million at June 30, 2011 and December 31, 2010, respectively, which included accrued interest but excluded any adjustment for nonperformance risk. If we had breached any of these provisions at either June 30, 2011 or December 31, 2010, we could have been required to settle our obligations under these agreements at their aggregate termination value of $0.6 million or $2.5 million, respectively.

Concentrations of credit risk arise when a group of tenants is engaged in similar business activities or is subject to similar economic risks or conditions that could cause them to default on their lease obligations to us. We regularly monitor our portfolio to assess potential concentrations of credit risk. While we believe our portfolio is reasonably well diversified, it does contain concentrations in excess of 10%, based on the percentage of our annualized contractual minimum base rent for the second quarter of 2011, in certain areas, as shown in the table below. The percentages in the table below represent our directly-owned real estate properties and do not include our pro rata share of equity investments.

Region:					At June 30, 2011
New York					16%
California					11%
Other U.S.					41%
Total U.S.					68%
Spain					13%
Croatia					10%
Other Europe					9%
Total Europe					32%
Total					100%

Asset Type:
Warehouse/Distribution					34%
Office					32%
Industrial					14%
Retail					14%
Other					6%
Total					100%

Tenant Industry:
Retail stores					24%
Media - Printing & Publishing					21%
Other					55%
Total					100%

Partner:
New York Times Company (U.S.)					15%

In addition, we have a $40.0 million note receivable from a Chinese company that is guaranteed by the parent company based in Hong Kong, which is subject to various risks. There were no significant concentrations, individually or in the aggregate, related to our unconsolidated ventures.