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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Amendment No. 2

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Arbor Realty Trust, Inc.

333 Earle Ovington Boulevard

Frederick C. Herbst

Copies to:

         Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

         If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

         If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

         If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

         If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.    o

CALCULATION OF REGISTRATION FEE

		Proposed Maximum
		Aggregate		Amount of
Title of Securities Being Registered		Offering Price		Registration Fee
Common Stock, par value $.01 per share		$150,000,000(1)(2)		$12,398.13(3)

(1)	Includes shares that the underwriters have the option to purchase from us to cover over-allotments, if any.
(2)	Estimated solely for the purpose of computing the registration fee in accordance with Rule 457(o) of the Securities Act of 1933, as amended.
(3)	Of this amount, $11,670.23 was paid on $144,254,970 of the proposed maximum aggregate offering price amount in connection with the initial filing of this registration statement on November 13, 2003. $727.90 is being paid on the remaining $5,745,030 in connection with this filing of the registration statement.

         The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission acting, pursuant to said Section 8(a), may determine.

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The information in this prospectus is not complete and may be changed or supplemented. The securities described in this prospectus cannot be sold until the registration statement that we have filed to cover the securities has become effective under the rules of the Securities and Exchange Commission. This prospectus is not an offer to sell the securities, nor is it a solicitation of an offer to buy the securities in any jurisdiction where an offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED FEBRUARY 5, 2004

PROSPECTUS

     Arbor Realty Trust, Inc.

                             Shares of Common Stock

      This is our initial public offering. We are offering                      shares of our common stock, par value $.01 per share.

      The selling stockholders are offering                      shares of our common stock underlying units and                      shares of our common stock issued upon exercise of warrants underlying units. The units were issued and sold to the selling stockholders on July 1, 2003 in transactions exempt from the registration requirements of the Securities Act of 1933 and each unit consisted of five shares of common stock and one warrant to purchase an additional share of common stock.

      We expect the public offering price to be between $          and $          per share. There has been no organized public market for our common stock.

      We will not receive any proceeds from the sale of our common stock by the selling stockholders.

      The underwriters have an option to purchase from us up to                      additional shares of our common stock to cover over-allotment of shares.

      We intend to apply to list our common stock on the New York Stock Exchange under the symbol “          ”.

       Investing in our common stock involves risks. See “Risk Factors” beginning on page 17 for a discussion of these risks.

	•	We have a limited operating history and may not operate successfully.

	•	Historical consolidated financial statements included in this prospectus include expenses that would not have been incurred had we operated as a separate entity during the periods presented and exclude the management fees payable pursuant to the management agreement.
	•	We are substantially controlled by Arbor Commercial Mortgage and its controlling equity owner, Mr. Kaufman.
	•	We are dependent on our manager with whom we have conflicts of interest.
	•	Our directors have approved very broad investment guidelines for our manager and do not approve each investment decision made by our manager.
	•	We depend on key personnel with long standing business relationships, the loss of whom could threaten our ability to operate our business successfully.
	•	We may be unable to generate sufficient revenue from operations to pay our operating expenses and to pay dividends to our stockholders.
	•	If Arbor Commercial Mortgage ceases to be our manager, the financial institutions providing our credit facilities may not provide future financing to us.
	•	If we do not qualify as a REIT or fail to remain qualified as a REIT, we will be subject to tax as a regular corporation and could face substantial tax liability.
	•	There is no public market for our common stock, and there may be no market for our common stock after the completion of this offering.
	•	Our charter generally does not permit ownership in excess of 9.6% of our common or capital stock, and attempts to acquire our capital stock in excess of these limits are ineffective without prior approval from our board of directors.

		Per Share				Total
Public offering price		$				$
Underwriting discount		$				$
Proceeds, before expenses, to Arbor Realty Trust, Inc.		$				$
Proceeds, before expenses, to selling stockholders			—			$

      Delivery of the shares of common stock will be made on or about                     , 2004.

      Neither the Securities and Exchange Commission, any state securities commission, nor any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

      The date of this prospectus is                     , 2004

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Our Structure
Summary Risk Factors
Restrictions on Ownership of Stock
Distribution Policy
Preferred Stock
Tax Status
Conflicts of Interest
Original Offering
The Offering
Summary Selected Unaudited Consolidated Financial Information of Arbor Realty Trust, Inc. and Subsidiaries
Summary Selected Consolidated Financial Information of the Structured Finance Business of Arbor Commercial Mortgage, LLC and Subsidiaries
RISK FACTORS
	Risks Related to Our Business
	Risks Related to Conflicts of Interest
	Risks Related to Our Status as a REIT
	Risk Factors Related to the Offering
FORWARD LOOKING STATEMENTS
USE OF PROCEEDS
DISTRIBUTION POLICY
PRICE RANGE OF UNITS
SELECTED UNAUDITED CONSOLIDATED FINANCIAL INFORMATION OF ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF THE STRUCTURED FINANCE BUSINESS OF ARBOR COMMERCIAL MORTGAGE, LLC AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
	Overview
	Sources of Operating Revenues
	Gain on Sale of Loans and Real Estate and Income from Equity Affiliates
	Significant Accounting Estimates and Critical Accounting Policies
	Recently Issued Accounting Pronouncements
	Results of Operations
	Liquidity and Capital Resources
	Related Party Transactions
	Recent Developments
	Quantitative and Qualitative Disclosures about Market Risk
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE STRUCTURED FINANCE BUSINESS OF ARBOR COMMERCIAL MORTGAGE, LLC AND SUBSIDIARIES
	Overview and Basis of Presentation
	Sources of Operating Revenues
	Gain on Sale of Loans and Real Estate and Income from Equity Affiliates
	Significant Accounting Estimates and Critical Accounting Policies
	Results of Operations
	Liquidity and Capital Resources
	Related Party Transactions
	Quantitative and Qualitative Disclosures about Market Risk
ARBOR REALTY TRUST, INC.
	Industry Overview
	Our Business Strategy
	Our Investment Guidelines
	Our Investment Strategy
	Our Assets
	Arbor Commercial Mortgage’s Retained Interests in Our Investments
	Operations
	Our Asset Management Operations
	Operating Policies and Strategies
	Policies With Respect to Certain Other Activities
	Our Operating Partnership
	Competition
	Employees
	Legal Proceedings
OUR MANAGER AND THE MANAGEMENT AGREEMENT
	Manager
	Officers of Our Manager
	The Management Agreement
	Management Services
	Management Fees and Incentive Compensation
	Rights of First Refusal
	Mr. Kaufman’s Non-Competition Agreement
	Origination Period
MANAGEMENT
	Our Directors and Executive Officers
	Corporate Governance -- Board of Directors and Committees
	Executive Compensation
	Mr. Kaufman’s Non-Competition Agreement
	Stock Incentive Plan
REGISTRATION RIGHTS AND LOCK-UP AGREEMENTS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
	Conflicts of Interest with Our Manager
	Formation Transactions
	Related Party Loans and Investments
	Other Relationships and Related Transactions
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
DESCRIPTION OF STOCK
	General
	Authorized Stock
	Common Stock
	Preferred Stock
	Special Voting Preferred Stock
	Warrants
	Power to Increase Authorized Stock and Issue Additional Shares of our Common Stock and Preferred Stock
	Restrictions on Transfer
	Transfer Agent and Registrar
SECURITIES ELIGIBLE FOR FUTURE SALE
IMPORTANT PROVISIONS OF MARYLAND LAW AND OF OUR CHARTER AND BYLAWS
	The Board of Directors
	Removal of Directors
	Liability and Indemnification of Officers and Directors
	Business Combinations
	Control Share Acquisitions
	Amendment to Our Charter
	Advance Notice of Director Nominations and New Business
	Anti-Takeover Effect of Certain Provisions of Maryland Law and of Our Charter and Bylaws
OUR OPERATING PARTNERSHIP AGREEMENT
	Management
	Transferability of Interests
	Capital Contributions and Borrowings
	Redemption Rights
	Operations
	Allocations
	Distributions
	Amendments
	Exculpation and Indemnification of the General Partner
	Term
	Tax Matters
FEDERAL INCOME TAX CONSIDERATIONS
	Taxation of Arbor Realty
	Tax Aspects of Investments in Partnerships
	Taxation of Taxable U.S. Stockholders
	Other Tax Considerations
ERISA CONSIDERATIONS
SELLING STOCKHOLDERS
LEGAL MATTERS
EXPERTS
CHANGE IN ACCOUNTANTS
WHERE YOU CAN FIND MORE INFORMATION
INDEX TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE STRUCTURED FINANCE BUSINESS OF ARBOR COMMERCIAL MORTGAGE, LLC AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS OF MEZZOBRIDGE FUNDING LLC
CONTRIBUTION AGREEMENT
GUARANTY
LETTER FROM GRANT THORNTON LLP
CONSENT OF GRANT THORNTON LLP

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      You should rely only on the information contained in this prospectus. Neither we nor the underwriters have not authorized anyone to provide you with different or additional information. This prospectus does not constitute an offer to sell, or a solicitation of an offer to purchase, the securities offered by this prospectus in any jurisdiction to or from any person to whom or from whom it is unlawful to make such offer or solicitation of an offer in such jurisdiction. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front cover of this prospectus. Neither the delivery of this prospectus nor any distribution of securities pursuant to this prospectus shall, under any circumstances, create any implication that there has been no change in the information set forth in this prospectus or in our affairs since the date of this prospectus.

TABLE OF CONTENTS

			Page
PROSPECTUS SUMMARY				1
	Arbor Realty Trust, Inc.			1
	Our Structure			6
	Summary Risk Factors			7
	Restrictions on Ownership of Stock			9
	Distribution Policy			9
	Preferred Stock			9
	Tax Status			10
	Conflicts of Interest			10
	Original Offering			11
	The Offering			13
	Summary Selected Unaudited Consolidated Financial Information of Arbor Realty Trust, Inc. and Subsidiaries			14
	Summary Selected Consolidated Financial Information of the Structured Finance Business of Arbor Commercial Mortgage, LLC and Subsidiaries			15
RISK FACTORS				17
	Risks Related to Our Business			17
	Risks Related to Conflicts of Interest			25
	Risks Related to Our Status as a REIT			27
	Risk Factors Related to the Offering			30
FORWARD LOOKING STATEMENTS				35
USE OF PROCEEDS				36
DISTRIBUTION POLICY				36
CAPITALIZATION				38
DILUTION				39
PRICE RANGE OF UNITS				40
SELECTED UNAUDITED CONSOLIDATED FINANCIAL INFORMATION OF ARBOR REALTY TRUST, INC. AND SUBSIDIARIES				41
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF THE STRUCTURED FINANCE BUSINESS OF ARBOR COMMERCIAL MORTGAGE, LLC AND SUBSIDIARIES				42

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			Page
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ARBOR REALTY TRUST, INC. AND SUBSIDIARIES				44
	Overview			44
	Sources of Operating Revenues			44
	Gain on Sale of Loans and Real Estate and Income from Equity Affiliates			44
	Significant Accounting Estimates and Critical Accounting Policies			45
	Recently Issued Accounting Pronouncements			45
	Results of Operations			46
	Liquidity and Capital Resources			47
	Related Party Transactions			51
	Recent Developments			53
	Quantitative and Qualitative Disclosures about Market Risk			54
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE STRUCTURED FINANCE BUSINESS OF ARBOR COMMERCIAL MORTGAGE, LLC AND SUBSIDIARIES				55
	Overview and Basis of Presentation			55
	Sources of Operating Revenues			56
	Gain on Sale of Loans and Real Estate and Income from Equity Affiliates			56
	Significant Accounting Estimates and Critical Accounting Policies			56
	Results of Operations			58
	Liquidity and Capital Resources			64
	Related Party Transactions			64
	Quantitative and Qualitative Disclosures about Market Risk			65
ARBOR REALTY TRUST, INC				66
	Industry Overview			67
	Our Business Strategy			67
	Our Investment Guidelines			68
	Our Investment Strategy			69
	Our Assets			70
	Arbor Commercial Mortgage’s Retained Interests in Our Investments			84
	Operations			84
	Our Asset Management Operations			86
	Operating Policies and Strategies			87
	Policies With Respect to Certain Other Activities			89
	Our Operating Partnership			89
	Competition			90
	Employees			90
	Legal Proceedings			90
OUR MANAGER AND THE MANAGEMENT AGREEMENT				91
	Manager			91
	Officers of Our Manager			92
	The Management Agreement			93
	Management Services			93
	Management Fees and Incentive Compensation			96
	Rights of First Refusal			101

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			Page
	Mr. Kaufman’s Non-Competition Agreement			101
	Origination Period			102
MANAGEMENT				103
	Our Directors and Executive Officers			103
	Corporate Governance — Board of Directors and Committees			104
	Executive Compensation			106
	Mr. Kaufman’s Non-Competition Agreement			108
	Stock Incentive Plan			108
REGISTRATION RIGHTS AND LOCK-UP AGREEMENTS				110
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS				112
	Conflicts of Interest with Our Manager			112
	Formation Transactions			112
	Related Party Loans and Investments			114
	Other Relationships and Related Transactions			115
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT				116
DESCRIPTION OF STOCK				118
	General			118
	Authorized Stock			118
	Common Stock			118
	Preferred Stock			119
	Special Voting Preferred Stock			119
	Warrants			119
	Power to Increase Authorized Stock and Issue Additional Shares of our Common Stock and Preferred Stock			120
	Restrictions on Transfer			120
	Transfer Agent and Registrar			123
SECURITIES ELIGIBLE FOR FUTURE SALE				124
IMPORTANT PROVISIONS OF MARYLAND LAW AND OF OUR CHARTER AND BYLAWS				126
	The Board of Directors			126
	Removal of Directors			126
	Liability and Indemnification of Officers and Directors			126
	Business Combinations			127
	Control Share Acquisitions			128
	Amendment to Our Charter			129
	Advance Notice of Director Nominations and New Business			129
	Anti-Takeover Effect of Certain Provisions of Maryland Law and of Our Charter and Bylaws			129
OUR OPERATING PARTNERSHIP AGREEMENT				130
	Management			130
	Transferability of Interests			130
	Capital Contributions and Borrowings			131
	Redemption Rights			132
	Operations			132
	Allocations			133
	Distributions			133

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			Page
	Amendments			133
	Exculpation and Indemnification of the General Partner			134
	Term			134
	Tax Matters			134
FEDERAL INCOME TAX CONSIDERATIONS				135
	Taxation of Arbor Realty			135
	Tax Aspects of Investments in Partnerships			145
	Taxation of Taxable U.S. Stockholders			147
	Other Tax Considerations			151
ERISA CONSIDERATIONS				152
SELLING STOCKHOLDERS				154
UNDERWRITING				156
LEGAL MATTERS				159
EXPERTS				159
CHANGE IN ACCOUNTANTS				159
WHERE YOU CAN FIND MORE INFORMATION				160
INDEX TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF ARBOR REALTY TRUST, INC. AND SUBSIDIARIES				F-1
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE STRUCTURED FINANCE BUSINESS OF ARBOR COMMERCIAL MORTGAGE, LLC AND SUBSIDIARIES				F-18

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PROSPECTUS SUMMARY

      This summary highlights information more fully described elsewhere in this prospectus and contains the material terms of this offering. However, you should read this entire prospectus carefully before deciding to invest in our common stock. Unless otherwise mentioned or unless the context otherwise requires, all references in this prospectus to (a) “we,” “us,” “our,” or similar references mean Arbor Realty Trust, Inc. and its subsidiaries, including Arbor Realty Limited Partnership, our operating partnership, and (b) “Arbor Commercial Mortgage”, or “our manager” means Arbor Commercial Mortgage, LLC.

Arbor Realty Trust, Inc.

      We are a specialized real estate finance company investing in real estate related bridge and mezzanine loans, preferred equity and, in limited cases, discounted mortgage notes and other real estate related assets, which we collectively refer to as structured finance investments. Our objective is to maximize the difference between the yield on our investments and the cost of financing these investments to generate cash available for distribution, facilitate capital appreciation and maximize total return to our stockholders. We commenced operations in July 2003 and conduct substantially all of our operations through our operating partnership, Arbor Realty Limited Partnership. We intend to elect to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code and generally will not be subject to federal taxes on our income to the extent we distribute our income to our stockholders and maintain our qualification as a REIT.

      We actively pursue lending and investment opportunities with property owners and developers who need interim financing until permanent financing can be obtained. Our structured finance investments generally have maturities of two to five years, depending on the type, have extension options when appropriate, and generally require a balloon payment of principal at maturity. Our financings typically range in size from $1 million to $25 million, and historically, our manager’s spreads have ranged from 4.00% to 7.00% over 30-day LIBOR for mezzanine financings and 3.00% to 5.00% over 30-day LIBOR for bridge financings. Borrowers in the market for these types of loans include owners or developers who seek either to acquire or refurbish real estate or pay down debt and reposition a property for permanent financing. Our investment program emphasizes the following categories of real estate related activities:

	•	Bridge Financing — We offer bridge financing products to borrowers who are typically seeking short term capital to be used in an acquisition of property. The borrower has usually identified an undervalued asset that has been under-managed or is located in a recovering market. From the borrower’s perspective, shorter term bridge financing is advantageous because it allows time to improve the property value through repositioning the property without encumbering it with restrictive long term debt. The bridge loans we make are secured by first lien mortgages on the property. Borrowers usually use the proceeds of a conventional mortgage loan to repay a bridge loan.
	•	Mezzanine Financing — We offer mezzanine loans, which are loans subordinate to a conventional first mortgage loan and senior to the borrower’s equity in a transaction. Our mezzanine financing may take the form of pledges of ownership interests in entities that directly or indirectly control the real property or subordinated loans secured by second mortgages. We may also require additional collateral such as personal guarantees, letters of credit and/or additional collateral unrelated to the property.
	•	Preferred Equity Investments — We provide financing by making preferred equity investments in entities that directly or indirectly own real property. In cases where the terms of a first mortgage prohibit additional liens on the ownership entity, investments structured as preferred equity interests in the entity owning the property serve as viable financing substitutes. With preferred equity investments, we typically become a special limited partner or member in the ownership entity.
	•	Other Investments — We may engage in other investment activities, including the purchase of discounted first lien mortgage notes from other lenders and opportunistic investments including the acquisition of properties. Typically, these transactions, which may be conducted through taxable subsidiaries, are analyzed with the expectation that, upon property repositioning or renovation, they will be sold to achieve a significant return on invested capital.

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      We borrow against or leverage our investments to the extent consistent with our investment guidelines in order to increase the size of our portfolio and potential returns to our stockholders. We generate profits to the extent interest and fee income exceed interest expense, loan losses and operating expenses. We also generate profits from gains on investments.

      We are externally managed and advised by Arbor Commercial Mortgage. Our manager is a national commercial real estate finance company operating through 15 regional offices in the United States, specializing in debt and equity financing for multi-family and commercial real estate. We believe Arbor Commercial Mortgage’s experience and reputation positions it to originate attractive investment opportunities for us. Our management agreement with Arbor Commercial Mortgage was developed to capitalize on synergies with Arbor Commercial Mortgage’s origination infrastructure, existing business relationships and management expertise.

      Arbor Commercial Mortgage has granted us a right of first refusal to pursue all structured finance investment opportunities identified by Arbor Commercial Mortgage. We have agreed not to pursue, and to allow Arbor Commercial Mortgage to pursue, any real estate opportunities other than structured finance transactions. This has historically included providing and servicing multi-family and commercial mortgage loans under Fannie Mae, Federal Housing Administration and conduit commercial lending programs, which we believe will offer customer relationship synergies to our business. Our portfolio currently contains loans and investments that we originated and loans and investments that we purchased from third parties or from affiliates.

      We have a senior management team with significant industry experience. Mr. Ivan Kaufman, the chief executive officer of Arbor Commercial Mortgage, and Mr. Frederick Herbst, the chief financial officer of Arbor Commercial Mortgage, also serve as our chief executive officer and chief financial officer, respectively. Mr. Kaufman is the former co-founder and chairman of Arbor National Holdings.

Our Business Strategy

      We believe the financing of multi-family and commercial real estate offers significant growth opportunities that demand customized financing solutions.

	•	Consolidation in the financial services industry has reduced the number of companies providing multi-family and commercial real estate financing products.
	•	We believe this consolidation has led to a trend among remaining institutions to focus on larger, more standardized transactions.
	•	The growth of a market for securitized commercial real estate pools has provided a new source of financing for real estate assets.

      We believe we have the necessary levels of capital and financial flexibility to compete effectively in today’s rapidly changing market. Our borrowers, who in the past relied on banks and life insurance companies as their primary source for commercial real estate financing, have benefited from our flexible underwriting standards. This flexibility has created significant demand for our bridge, mezzanine and other forms of innovative financing.

      Our principal business objectives are to invest in bridge and mezzanine loans, preferred equity and other real estate related assets and actively manage our portfolio in order to generate cash available for distribution, facilitate capital appreciation and maximize total return to our stockholders. We believe we can achieve these objectives through the following business and growth strategies:

	•	Provide customized financing;
	•	Focus on a niche market in smaller loan balances;
	•	Execute transactions rapidly;

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	•	Manage and maintain credit quality;
	•	Use Arbor Commercial Mortgage’s relationships with existing borrowers and origination infrastructure;
	•	Offer broader products and expand customer base; and
	•	Leverage the experience of the executive officers and employees of Arbor Commercial Mortgage and us;

      Our asset management group is integrated into the underwriting and structuring process for all transactions in order to enhance the credit quality of our originations before transactions close. After closing, our asset management group’s experience in managing complex restructurings, refinancings and asset dispositions is used to improve the credit quality and yield on managed investments. We believe our asset management group’s involvement in our credit underwriting process helps to mitigate investment risk after the closing of a transaction.

Our Manager

      Arbor Commercial Mortgage is a national commercial real estate finance company founded in 1993 as a subsidiary of Arbor National Holdings, Inc., an originator and servicer of single-family residential mortgage loans. Our chief executive officer, Mr. Ivan Kaufman, is also Arbor Commercial Mortgage’s chief executive officer and its controlling equity owner, and was the co-founder, chairman and majority shareholder of Arbor National Holdings. Under Mr. Kaufman’s direction, Arbor National Holdings grew to 25 branches in 11 states and funded more than $4 billion in loans in its last full year of operations. Arbor National Holdings became a public company in 1992 and was sold to BankAmerica in 1995.

      In connection with the sale of Arbor National Holdings, Mr. Kaufman purchased its commercial mortgage lending operations and the rights to the “Arbor” name and retained a significant portion of Arbor National Holdings’ senior management team. This senior management team has guided Arbor Commercial Mortgage’s growth from a company originally capitalized with approximately $8 million of equity value, including its partnership interest in Arbor Realty Limited Partnership, to approximately $69 million of equity value as of September 30, 2003. Arbor Commercial Mortgage is now a full service provider of financial services to owners and developers of multi-family and commercial real estate properties. Arbor Commercial Mortgage has derived revenue from the origination for sale and servicing of government-sponsored and conduit mortgage loans for commercial and multi-family real estate properties as well as from the origination of structured finance loans and investments. Arbor Commercial Mortgage originated over $600 million in new loans in 2002 and is currently servicing a portfolio with a principal balance of $2.9 billion, including loans serviced for Arbor Realty Limited Partnership.

      Our primary business will be investing in structured finance loans and investments. We do not intend to originate or service government sponsored investment grade assets, but we may invest in such assets in the future.

      Arbor Commercial Mortgage’s executive officers and employees have extensive experience in originating and managing structured commercial real estate investments. The senior management team has an average of over 20 years experience in the financial services industry. Arbor Commercial Mortgage currently has 130 employees spread among its corporate headquarters in Uniondale, New York, 14 other sales offices located throughout the United States and the servicing administration office in Buffalo, NY.

      We and our operating partnership have entered into a management agreement with Arbor Commercial Mortgage pursuant to which Arbor Commercial Mortgage has agreed to provide us with structured finance investment opportunities and loan servicing as well as other services necessary to operate our business.

      We pay our manager an annual base management fee based on the equity of our operating partnership, as further discussed below. The amount of the base management fee does not depend on the performance of the services provided by our manager or the types of assets it selects for our investment, but the value of our operating partnership’s equity will be affected by the performance of these assets. We also pay our manager incentive compensation each fiscal quarter. We have paid $587,734 in base management fees to Arbor

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      The table summarizes the calculation of the base management fee, incentive compensation and other fees and expenses payable to our manager pursuant to the management agreement.

Type		Description and Method of Computation		Payable
Base management fee(1)		(1) 0.75% per annum of the first $400 million of our operating partnership’s equity,		Monthly in arrears in cash
		(2) 0.625% per annum of our operating partnership’s equity between $400 million and $800 million, and
		(3) 0.50% per annum of our operating partnership’s equity in excess of $800 million.
Incentive compensation(2)		(1) 25% of the amount by which: (a) our operating partnership’s funds from operations per operating partnership unit, adjusted for certain gains and losses, exceeds (b) the product of (x) 9.5% per annum or the Ten Year U.S. Treasury Rate plus 3.5%, whichever is greater, and (y) the weighted average of the book value of the net assets contributed by Arbor Commercial Mortgage to our operating partnership per operating partnership unit, $15 (representing the offering price per share of our common stock in the original offering)(3), the offering price per share of our common stock in any subsequent offerings and the issue price per operating partnership unit for subsequent contributions to our operating partnership, multiplied by		Each fiscal quarter, with at least 25% paid in our common stock
		(2) the weighted average of our operating partnership’s outstanding operating partnership units.
Overhead expenses		Compensation of our independent directors, legal, accounting, due diligence tasks and other services that outside professionals perform for us.		Each fiscal quarter in cash
Origination fee income(4)		An amount equal to 100% of the origination fees paid by the borrower to us with respect to each bridge loan and mezzanine loan we originate, up to 1% of the loan’s principal amount.		Upon closing of each loan
Termination fee(5)		If we terminate or elect not to renew the management agreement in order to manage our portfolio internally, we are required to pay a termination fee equal to the base management fee and incentive compensation for the 12-month period preceding the termination.		Upon termination
		If, without cause, we terminate or elect not to renew the management agreement for any other reason, including a change of control of us, we are required to pay a termination fee equal to two times the base management fee and incentive compensation paid for the 12-month period preceding the termination.

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(1)	For purposes of calculating the base management fee, our operating partnership’s equity equals the month-end value computed in accordance with generally accepted accounting principles of total partners’ equity in our operating partnership, plus or minus any unrealized gains, losses or other items that do not affect realized net income.
(2)	At least 25% of the incentive compensation paid to our manager will be in the form of shares of our common stock, subject to ownership limitations in our charter. Beginning on January 1, 2004, the incentive compensation will be measured over a full fiscal year, subject to recalculation and potential reconciliation at the end of each fiscal year. We intend to pay our manager each installment of the incentive compensation within sixty (60) days following the last day of the fiscal quarter with respect to which such incentive compensation payment is payable.

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(3)	We allocated the $75 offering price per unit to the five shares of common stock comprising each unit, resulting in an offering price of $15 per share of common stock in the original offering. We did not allocate any value to the one warrant underlying each unit because the warrants have an initial exercise price of $15 and they are not exercisable, detachable or freely tradable for an indeterminable period of time (i.e., until after the registration and listing of the common stock comprising the units on national securities exchange or The Nasdaq Stock Market).
(4)	100% of the origination fees paid by the borrower in excess of 1% of the loan’s principal amount are retained by us.
(5)	The management agreement has an initial term of two years and is renewable automatically for an additional one year period every year thereafter, unless terminated with six months’ prior written notice.

Our Corporate History

      On July 1, 2003, Arbor Commercial Mortgage, LLC contributed the majority of its structured finance portfolio to our operating partnership. These initial assets, consisting of 12 bridge loans, five mezzanine loans, five preferred equity investments and two other real estate related investments, were transferred at book value, which approximates fair value, that, at June 30, 2003, represented $213.1 million in assets financed by $169.2 million borrowed under Arbor Commercial Mortgage’s credit facilities and supported by $43.9 million in equity. Simultaneously with Arbor Commercial Mortgage’s contribution of assets, we issued and sold 1,610,000 of our units in a private offering, which we refer to as the original offering.

      In connection with its contribution of the initial assets, Arbor Commercial Mortgage arranged for us to have substantially similar credit facilities as those used by Arbor Commercial Mortgage to finance these assets. In exchange for the asset contribution, we issued to Arbor Commercial Mortgage approximately 3.1 million operating partnership units, each of which Arbor Commercial Mortgage may redeem for one share of our common stock or an equivalent amount in cash, at our election, and approximately 629,000 warrants, each of which entitles Arbor Commercial Mortgage to purchase one additional operating partnership unit at an initial exercise price of $15. The operating partnership units and warrants for additional operating partnership units issued to Arbor Commercial Mortgage were valued at approximately $43.9 million at July 1, 2003, based on the price offered to investors in our units in the original offering. Each of the approximately 3.1 million operating partnership units received by Arbor Commercial Mortgage is paired with one share of our special voting preferred stock that entitles the holder to one vote on all matters submitted to a vote of our stockholders. As operating partnership units are redeemed for shares of our common stock or cash, an equivalent number of shares of special voting preferred stock will be redeemed and cancelled. See “Description of Stock — Special Voting Preferred Stock.” As a result of Arbor Commercial Mortgage’s asset contribution and the related formation transactions, Arbor Commercial Mortgage owns approximately a 28% limited partnership interest in our operating partnership and the remaining 72% interest in our operating partnership is owned by us. After giving effect to this offering, Arbor Commercial Mortgage will own approximately a           % interest in our operating partnership and we will own the remaining           %. In addition, Arbor Commercial Mortgage has approximately 28% of the voting power of our outstanding stock (without giving effect to the exercise of Arbor Commercial Mortgage’s warrants for additional operating partnership units). After giving effect to this offering, Arbor Commercial Mortgage will have approximately           % of the voting power of outstanding stock (without giving effect to the exercise of Arbor Commercial Mortgage’s warrants for additional operating partnership units).

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Our Structure

      The following chart shows our structure after giving effect to this offering:

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(1)	Upon consummation of this offering, investors purchasing shares of our common stock in this offering will own        % of our outstanding common stock, purchasers of our units in the original offering will hold        % of our outstanding common stock and grantees of restricted stock pursuant to our stock incentive plan, including our directors, executive officers, and certain of our employees and employees of our manager will hold the remaining        %.
(2)	Holders of Class A and Class B membership interests of Arbor Commercial Mortgage have the same voting rights and are both entitled to distributions in accordance with their percentage ownership interests in the company. However, holders of Class B membership interests cannot transfer their interests or compete with Arbor Commercial Mortgage without the consent of the managing member, Arbor Management, LLC, an entity wholly owned by Mr. Ivan Kaufman and his wife.
(3)	Mr. Kaufman, the Ivan and Lisa Kaufman Family Trust, a trust created by Mr. Kaufman for the benefit of Mr. Kaufman’s family and Arbor Management collectively hold all the outstanding Class A membership interests which constitute 64% of the outstanding membership interests of Arbor Commercial Mortgage. 24% of the outstanding membership interests of Arbor Commercial Mortgage previously held by Mr. Kaufman and the Ivan Kaufman Grantor Retained Trust, of which Mr. Kaufman is a co-trustee, as Class A membership interests have been reclassified as Class B membership interests, effective as of January 1, 2003. Mr. Kaufman, together with the Kaufman entities which include the Ivan and Lisa Kaufman Family Trust, the Ivan Kaufman Grantor Retained Trust and Arbor Management, beneficially own approximately 88% of the outstanding membership interests of Arbor Commercial Mortgage. See “Security Ownership of Beneficial Owners and Management.”
(4)	Messrs. Herbst, Palmier and Weber and Messrs. Martello and Horn, two of our directors, collectively hold 5% of the outstanding membership interests in Arbor Commercial Mortgage as Class B membership interests. In addition, Mr. Martello also serves as (a) trustee of the Ivan and Lisa Kaufman Family Trust and (b) co-trustee, along with Mr. Kaufman, of the Ivan Kaufman Grantor Retained Annuity Trust.

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(5)	Arbor Commercial Mortgage holds 3,146,724 shares of our special voting preferred stock which will entitle it to        % of the voting power of our outstanding stock upon consummation of this offering. These shares of special voting preferred stock are paired with 3,146,724 operating partnership units held by Arbor Commercial Mortgage and will be redeemed upon redemption of these operating partnership units. Assuming the redemption of all Arbor Commercial Mortgage’s operating partnership units for shares of our common stock after the consummation of this offering, Arbor Commercial Mortgage would retain        % of the voting power of our outstanding stock. The        % figure does not give effect to the exercise of Arbor Commercial Mortgage’s 629,345 warrants for additional operating partnership units, each of which is exercisable for an additional partnership unit that will be paired with one share of our special voting preferred stock. Assuming Arbor Commercial Mortgage’s exercise of all warrants for additional operating partnership units paired with shares of our special voting preferred stock after the consummation of this offering, it would have a        % partnership interest in our operating partnership and        % of the voting power of our outstanding stock.
(6)	We hold our partnership interests in Arbor Realty Limited Partnership through two wholly-owned subsidiaries, Arbor Realty GPOP, Inc., the holder of a 0.1% general partner interest, and Arbor Realty LPOP, Inc., the holder of a        % limited partner interest upon consummation of this offering. Our only material subsidiaries are Arbor Realty Limited Partnership, Arbor Realty GPOP and Arbor Realty LPOP.
(7)	The        % figure does not give effect to the exercise of Arbor Commercial Mortgage’s 629,345 warrants for additional operating partnership units, each of which is exercisable for an additional partnership unit that will be paired with one share of our special voting preferred stock. Arbor Commercial Mortgage may acquire up to 3,776,069 shares of our common stock upon redemption of its operating partnership units (including 629,345 operating partnership units issuable upon exercise of warrants for additional operating partnership units) should we elect to issue shares of our common stock upon such redemption.

Summary Risk Factors

      An investment in our common stock involves a number of risks. You should consider carefully the risks discussed below and under “Risk Factors” beginning on page 17 before purchasing our common stock.

	•	We have a limited operating history and may not operate successfully.
	•	Historical consolidated financial statements included in this prospectus include expenses that would not have been incurred had we operated as a separate entity during the periods presented and exclude the management fees payable pursuant to the management agreement.
	•	We are substantially controlled by Arbor Commercial Mortgage and its controlling equity owner, Mr. Kaufman.
	•	We are dependent on our manager with whom we have conflicts of interest.
	•	Our directors have approved very broad investment guidelines for our manager and do not approve each investment decision made by our manager.
	•	Our manager has broad discretion to invest funds and may acquire structured finance assets where the investment returns are substantially below expectations or that result in net operating losses.
	•	We depend on key personnel with long standing business relationships, the loss of whom could threaten our ability to operate our business successfully.
	•	We may be unable to invest excess equity capital on acceptable terms or at all, which would adversely affect our operating results.
	•	We invest in multi-family and commercial real estate loans, which involve a greater risk of loss than single family loans.
	•	Volatility of values of multi-family and commercial properties may adversely affect our loans and investments.

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	•	We may be unable to generate sufficient revenue from operations to pay our operating expenses and to pay dividends to our stockholders.
	•	If Arbor Commercial Mortgage ceases to be our manager pursuant to the management agreement, the financial institutions providing our credit facilities may not provide future financing to us.
	•	If we do not qualify as a REIT or fail to remain qualified as a REIT, we will be subject to tax as a regular corporation and could face substantial tax liability.
	•	There is no public market for our common stock, and there may be no market for our common stock after the completion of this offering.
	•	Our charter generally does not permit ownership in excess of 9.6% of our common or capital stock, and attempts to acquire our capital stock in excess of these limits are ineffective without prior approval from our board of directors.

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Restrictions on Ownership of Stock

      In order for us to maintain our qualification as a REIT under the Code, not more than 50% (by value) of our outstanding shares of capital stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities). For the purpose of preserving our REIT qualification, our charter generally prohibits direct or indirect ownership of more than 9.6% of the outstanding shares of capital stock. Our board of directors may, however, in its discretion, exempt a person from this ownership limitation, and, as a condition to such exemption, may require a satisfactory ruling from the Internal Revenue Service, or IRS, an opinion of counsel (as to our continued REIT status) and/or certain representations and undertakings from such person.

Distribution Policy

      To maintain our qualification as a REIT, we intend to make regular quarterly distributions to our stockholders of at least 90% of our taxable income, which does not necessarily equal net income as calculated in accordance with generally accepted accounting principles. Distributions are authorized by our board of directors and declared by us based upon a variety of factors deemed relevant by our directors, and our distribution policy may change in the future. Our ability to make distributions to our stockholders depends, in part, upon our receipt of distributions from our operating partnership, Arbor Realty Limited Partnership, which may depend, in part, upon the performance of our investment portfolio, and, in turn, upon Arbor Commercial Mortgage’s management of our business. If cash available for distribution is insufficient, we may be required to borrow funds or sell assets in order to meet our REIT distribution requirements. Distributions to our stockholders are generally taxable to our stockholders as ordinary income, although a portion of these distributions may be designated by us as long term capital gain to the extent they are attributable to capital gain income recognized by us, or may constitute a return of capital to the extent they exceed our earnings and profits as determined for tax purposes.

      Our charter allows us to issue preferred stock with a preference on distributions. We currently have no intention to issue any such preferred stock with a preference on distributions but if we do, the dividend preference on the preferred stock could limit our ability to make a dividend distribution to our common stockholders.

      On November 5, 2003, we declared a dividend of $.25 per share of common stock, payable with respect to the quarter ending September 30, 2003, to stockholders of record at the close of business on November 5, 2003. We distributed this dividend on November 18, 2003. On December 19, 2003, our board of directors authorized a dividend of $.25 per share of common stock, payable with respect to the quarter ending December 31, 2003, to stockholders of record at the close of business on December 19, 2003. We declared this dividend on December 19, 2003 and distributed it on December 30, 2003.

Preferred Stock

      Pursuant to a pairing agreement that we entered into with our operating partnership and our manager, each operating partnership unit issued to Arbor Commercial Mortgage and its affiliates in connection with the contribution of the initial assets (including operating partnership units issuable upon the exercise of Arbor Commercial Mortgage’s warrants) is paired with one share of our special voting preferred stock. No operating partnership unit that is paired with a share of special voting preferred stock may be transferred unless accompanied by such special voting share. A holder of special voting preferred stock is not entitled to any regular or special dividend payments or other distributions, other than a $.01 per share liquidation preference.

      Each share of special voting preferred stock entitles the holder to one vote on all matters submitted to a vote of our stockholders. Therefore, through its ownership of the “paired” special voting preferred stock, Arbor Commercial Mortgage is currently entitled to a number of votes representing approximately 28% of the voting power of all shares entitled to vote on matters submitted to a vote of our stockholders (without giving effect to the exercise of Arbor Commercial Mortgage’s warrants). After giving effect to this offering, Arbor

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      Upon redemption of any operating partnership unit that is paired with a share of special voting preferred stock, the share of special voting preferred stock will be redeemed and cancelled by us. Other than the shares of special voting preferred stock to be issued to Arbor Commercial Mortgage upon exercise of its warrants for additional operating partnership units, we do not intend to issue operating partnership units that would be paired with shares of our special preferred voting stock in the future.

Tax Status

      We intend to elect to be treated as a REIT for federal income tax purposes. To qualify as a REIT, we must meet various tax law requirements, including, among others, requirements relating to the nature of our assets, the sources of our income, the timing and amount of distributions that we make and the composition of our stockholders. As a REIT, we generally are not subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax at regular corporate rates, and we may be precluded from qualifying as a REIT for the subsequent four taxable years following the year during which we lost our qualification. Further, even to the extent that we qualify as a REIT, we will be subject to tax at normal corporate rates on net income or capital gains not distributed to our stockholders, and we may be subject to other taxes, including payroll taxes, and state and local income, franchise, property, sales and other taxes. Moreover, we may have subsidiary entities that are subject to federal income taxation and to various other taxes. Any dividends received from us will generally, with limited exceptions, not be eligible for taxation at the preferred capital gain rates that currently apply, pursuant to recently enacted legislation, to dividends received by individuals from taxable corporations. See “Federal Income Tax Considerations.”

Conflicts of Interest

      We, our executive officers and Arbor Commercial Mortgage face conflicts of interest because of our relationships with each other. Mr. Ivan Kaufman is our chief executive officer and the chief executive officer of Arbor Commercial Mortgage. Mr. Kaufman and entities controlled by him, or the Kaufman entities, together beneficially own approximately 88% of the outstanding membership interests of Arbor Commercial Mortgage. Mr. Frederick C. Herbst is our chief financial officer and the chief financial officer of Arbor Commercial Mortgage. Mr. Herbst, two of our executive vice presidents, Messrs. Dan Palmier and Fred Weber, and two of our directors, Mr. Joseph Martello and Mr. Walter Horn, collectively, have a minority ownership interest in Arbor Commercial Mortgage. In addition, Mr. Martello serves as trustee of one of the Kaufman entities that owns a majority of the outstanding membership interests in Arbor Commercial Mortgage and co-trustee of another Kaufman entity.

      Arbor Commercial Mortgage will continue, among other activities, to originate, acquire and service multi-family and commercial mortgage loans that meet the underwriting and approval guidelines of Fannie Mae, the Federal Housing Administration and conduit commercial lending programs secured by first liens on real property. Accordingly, Messrs. Kaufman and Herbst will devote substantial amounts of their time to operating portions of Arbor Commercial Mortgage’s business that do not involve managing us. Further conflicts of interest may arise because Arbor Commercial Mortgage may also provide permanent mortgage financing to real estate concerns to which we have made temporary loans, or because Arbor Commercial Mortgage may have equity interests in real estate concerns that borrow money from us. In addition, Messrs. Palmier and Weber will continue to provide services to Arbor Commercial Mortgage as members of Arbor Commercial Mortgage’s executive committee, and may receive fees for originating loans on behalf of Arbor Commercial Mortgage.

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      Arbor Commercial Mortgage holds a 28% limited partnership interest in our operating partnership as a result of the contribution of the initial assets. After giving effect to this offering, Arbor Commercial Mortgage will own approximately a           % interest in our operating partnership and we will own the remaining           %. Arbor Commercial Mortgage also owns approximately 3.1 million shares of our special voting preferred stock that entitle it to 28% of the voting power of our outstanding stock (without giving effect to the exercise of Arbor Commercial Mortgage’s warrants). After giving effect to this offering, Arbor Commercial Mortgage will have approximately      % of the voting power of our outstanding stock (without giving effect to the exercise of Arbor Commercial Mortgage’s warrants for additional operating partnership units).

      We were formed by Arbor Commercial Mortgage and the terms of our management agreement and the contribution of the initial assets were not negotiated at arm’s length. To address some of these conflicts of interest, our charter requires that a majority of our board of directors be independent directors and that a majority of our independent directors make any determinations on our behalf with respect to the relationships or transactions that present a conflict of interest for our directors or officers. Our board of directors has adopted a specific policy that decisions concerning our management agreement, including termination, renewal and enforcement of the management agreement, or our participation in any transactions with Arbor Commercial Mortgage or its affiliates outside of the management agreement, including our ability to purchase securities and mortgage or other assets from or to sell securities and assets to Arbor Commercial Mortgage must be reviewed and approved by a majority of our independent directors. Finally, our independent directors will periodically review the general investment standards established for the manager under the management agreement.

      On July 1, 2003, we issued and sold 1,610,000 of our units, each consisting of five shares of our common stock, $.01 par value per share, and one warrant to purchase an additional share of common stock. 1,327,989 of these units were sold to JMP Securities LLC, or JMP Securities, as initial purchaser, and were simultaneously resold by JMP Securities in transactions exempt from the registration requirements of the Securities Act of 1933, as amended, to persons reasonably believed by JMP Securities to be “qualified institutional buyers” (as defined in Rule 144A under the Securities Act) and to a limited number of institutional “accredited investors” (as defined in Rule 501 under the Securities Act). The remaining 282,011 units were sold directly by us to individual accredited investors. Certain investors in the original offering included institutions and individuals affiliated with us and JMP Securities.

	Registration Rights

      In connection with the original offering, we entered into a registration rights agreement with JMP Securities. Pursuant to that agreement, we have included in a registration statement, of which this prospectus is a part,                     shares of common stock comprising the units and                     shares of common stock issued upon exercise of the warrants comprising the units originally issued and sold to the selling stockholders named in this prospectus. The registration statement is referred to as the IPO registration statement. These shares of common stock offered pursuant to this prospectus are listed under “— The Offering.”

      At the time of the original offering we also entered into a registration rights agreement with Arbor Commercial Mortgage whereby we granted Arbor Commercial Mortgage certain demand and other registration rights with respect to shares of common stock that may be issued to Arbor Commercial Mortgage upon redemption of the 3.1 million operating partnership units issued to Arbor Commercial Mortgage and issuable to Arbor Commercial Mortgage upon exercise of the 629,345 warrants for additional operating partnership units.

	Lock-Up Agreements

      In connection with the original offering, Arbor Commercial Mortgage, members of our senior management and board of directors and certain members of the senior management of Arbor Commercial Mortgage agreed not to offer, pledge, sell contract to sell, sell any option or contract to purchase or otherwise transfer or

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	•	180 days from the effective date of the IPO registration statement; and
	•	two years from the consummation of the original offering, subject to certain exceptions.

      We also agreed not to offer to sell, contract to sell, or otherwise dispose of, loan, pledge or grant any rights with respect to any shares of our common stock, any options or warrants to purchase any shares of our common stock or any securities convertible into or exercisable for any of our common stock, including our units, for a period of 180 days following the completion of the original offering, subject to certain exceptions.

      JMP Securities, at any time, and without notice, may release all or any portion of the common stock subject to the foregoing lock-up agreements.

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The Offering

Common stock we are offering		shares
Common stock offered by selling stockholders		shares of common stock comprising the units; and
		shares of common stock issued upon exercise of the warrants comprising the units.
Common stock to be outstanding after this offering		shares(1)
Offering Price		The public offering price of our common stock will be $           per share, for a total of $           million. Proceeds, before expenses, to us will be $           million, or $           per share.
		Proceeds, before expenses, to the selling stockholders will be $           million.
Use of Proceeds		We estimate that the net proceeds from our sale of                               shares of common stock in this offering, at the initial public offering price of $          per share, which is the midpoint of the range listed on the cover page of this prospectus, after deducting the underwriting discount and other estimated offering expenses, will be approximately $           million. If the underwriters exercise their over-allotment option in full, we estimate that the net proceeds, after deducting the underwriting discount and other estimated offering expenses, of the sale of common stock by us will be approximately $           million. We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders.
		We intend to use all of the net proceeds of this offering to repay indebtedness under our warehouse credit agreement and master repurchase agreements. We anticipate that we will use the additional borrowing capacity created by the repayments under these credit facilities to fund our lending business in connection with newly originated and existing loans in our portfolio as the need arises.
Proposed New York Stock Exchange Symbol		“          ”

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(1)	The number of shares outstanding after this offering excludes the over-allotment option granted to the underwriters.

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Summary Selected Unaudited Consolidated Financial Information

      The following tables present selected historical consolidated financial information for the three months ended September 30, 2003. The selected historical consolidated financial information presented below under the captions “Consolidated Statement of Operations Data” and “Consolidated Balance Sheet Data” have been derived from our unaudited, interim consolidated financial statements and include all adjustments, consisting only of normal recurring accruals, which management considers necessary for a fair presentation of the historical consolidated financial statements for such period. The information presented under the caption “Statement of Operations Data” for the three months ended September 30, 2003 is not necessarily indicative of any other interim period or of the year ended December 31, 2003. In addition, since the information presented below is only a summary and does not provide all of the information contained in our historical consolidated financial statements, including the related notes, you should read it in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Arbor Realty Trust, Inc. and Subsidiaries” and our historical consolidated financial statements, including the related notes, included elsewhere in this prospectus.

		Three Months Ended
		September 30, 2003
		(Unaudited)
Consolidated Statement of Operations Data:
Interest Income		$	4,669,990
Other income			500
Total revenue			4,670,490
Total expenses			3,183,411
Net income			1,074,587
Earnings per share, basic and diluted(1)			.13
Dividends declared per common share(2)			.25

		At September 30,
		2003
		(Unaudited)
Consolidated Balance Sheet Data:
Loans and investments, net		$	214,237,458
Related party loans, net			26,000,000
Total assets			255,389,573
Notes payable and repurchase agreements			91,913,811
Total liabilities			97,831,411
Minority interest			44,309,289
Total stockholders’ equity		$	113,248,873

		Three Months Ended
		September 30, 2003
		(Unaudited)
Other Data:
Total originations		$	39,014,922

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(1)	The warrants underlying the units issued in the original offering at $75.00 per unit have an exercise price of $15.00 per share and expire on July 1, 2005. This exercise price is equal to the price per share of common stock in the original offering and approximates the market value of our common stock at September 30, 2003. Therefore, the assumed exercise of the warrants were not considered to be dilutive for purposes of calculating diluted earnings per share.
(2)	On November 5, 2003, we declared a dividend of $.25 per share of common stock, payable with respect to the quarter ending September 30, 2003, to common stockholders of record at the close of business on November 5, 2003. We distributed this dividend on November 18, 2003.

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Summary Selected Consolidated Financial Information

      On July 1, 2003, Arbor Commercial Mortgage contributed a portfolio of structured finance investments and related liabilities to our operating partnership. In addition, certain employees of Arbor Commercial Mortgage became our employees. These assets, liabilities and employees represented a substantial portion of Arbor Commercial Mortgage’s structured finance business.

      The tables on the following page present selected historical consolidated financial information of the structured finance business of Arbor Commercial Mortgage at the dates and for the periods indicated. The structured finance business did not operate as a separate legal entity or business division or segment of Arbor Commercial Mortgage, but as an integrated part of Arbor Commercial Mortgage’s consolidated business. Accordingly, the statements of revenue and direct operating expenses do not include charges from Arbor Commercial Mortgage for corporate general and administrative expense because Arbor Commercial Mortgage considered such items to be corporate expenses and did not allocate them to individual business units. These expenses included costs for Arbor Commercial Mortgage’s executive management, corporate facilities and overhead costs, corporate accounting and treasury functions, corporate legal matters and other similar costs. The selected consolidated financial information presented under the caption “Consolidated Statement of Revenue and Direct Operating Expenses Data” for the years ended December 31, 2002, 2001 and 2000 and under the caption “Consolidated Statement of Assets and Liabilities Data” as of December 31, 2002 and 2001 have been derived from the audited consolidated financial statements of the structured finance business of Arbor Commercial Mortgage included elsewhere in this prospectus. The selected consolidated financial information presented under the caption “Consolidated Statement of Revenue and Direct Operating Expenses Data” for the years ended December 31, 1999 and 1998 and the caption “Consolidated Statement of Assets and Liabilities Data” as of December 31, 2000, 1999 and 1998 have been derived from the unaudited consolidated financial statements of the structured finance business of Arbor Commercial Mortgage.

      The selected consolidated financial information presented under the caption “Consolidated Statement of Revenue and Direct Operating Expenses Data” for the six months ended June 30, 2003 and 2002 and the nine months ended September 30, 2002 and under the caption “Consolidated Statement of Assets and Liabilities Data” at June 30, 2003 have been derived from the unaudited interim consolidated financial statements of Arbor Commercial Mortgage’s structured finance business and include all adjustments, consisting only of normal recurring accruals, which management considers necessary for a fair presentation of the historical consolidated financial information for such periods. The selected historical consolidated financial information presented under the caption “Consolidated Statement of Revenue and Direct Operating Expenses Data” for the six month period ended June 30, 2003 is not necessarily indicative of the results of any other interim period or the year ended December 31, 2003. The selected historical consolidated financial information presented under the caption “Consolidated Statement of Revenue and Direct Operating Expenses Data” for the six month period ended June 30, 2002 and the nine month period ended September 30, 2002 are not necessarily indicative of the results of any other interim period or the year ended December 31, 2002.

      The consolidated financial statements of Arbor Commercial Mortgage’s structured finance business included in this prospectus represent the consolidated financial position and results of operations of Arbor Commercial Mortgage’s structured finance business during certain periods and at certain dates when Arbor Commercial Mortgage previously held our initial assets, as well as several other structured finance investments that we did not acquire in connection with our formation transactions. See “Arbor Realty Trust, Inc.” Accordingly, the historical financial results of Arbor Commercial Mortgage’s structured finance business are not indicative of our future performance. In addition, since the information presented is only a summary and does not provide all of the information contained in the consolidated financial statements of Arbor Commercial Mortgage’s structured finance business, including related notes, you should read it in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Structured Finance Business of Arbor Commercial Mortgage, LLC and Subsidiaries” and the consolidated financial statements of Arbor Commercial Mortgage’s structured finance business, including related notes, contained elsewhere in this prospectus.

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Consolidated Statement of Revenue and Direct Operating Expenses Data:

												Nine Months
				Six Months								Ended
				Ended June 30,								September 30,				Year Ended December 31,
				2003				2002				2002				2002				2001(1)				2000(1)				1999(1)				1998(1)
				(Unaudited)								(Unaudited)
Interest Income				$	7,688,465			$	7,482,750			$	10,798,414			$	14,532,504			$	14,667,916			$	10,707,551			$	6,964,873			$	6,807,617
	Income from real estate held for sale, net of operating expenses				—				—				—				—				—				—				925,999				1,608,172
	Other income				1,552,414				553,625				572,161				1,090,106				1,668,215				652,970				2,838,639				7,064,294
Total revenue					9,240,879				8,036,375				11,370,575				15,622,610				16,336,131				11,360,521				10,729,511				15,480,083
Total direct operating expenses					5,737,688				8,344,302				10,775,555				13,639,755				10,997,800				9,227,274				7,145,469				6,589,274
Revenue in excess of direct operating expenses before gain on sale of loans and real estate and income from equity affiliates					3,503,191				(307,927	)			595,020				1,982,855				5,338,331				2,133,247				3,584,042				8,890,809
	Gain on sale of loans and real estate				1,024,268				7,006,432				7,006,432				7,470,999				3,226,648				1,880,825				1,818,299				1,898,558
		Income from equity affiliates			—				601,100				632,350				632,350				1,403,014				5,028,835				3,592,398				567,006
Revenue, gain on sale of loans and real estate and income from equity affiliates in excess of direct operating expenses					4,527,459				7,299,605				8,233,802				10,086,204				9,967,993				9,042,907				8,994,739				11,356,373

Consolidated Statement of Assets and Liabilities Data:

		At June 30,				At December 31,
		2003				2002				2001				2000				1999				1998
		(Unaudited)
Loans and investments, net		$	204,561,578			$	172,142,511			$	160,183,066			$	85,547,323			$	50,156,022			$	75,604,351
Related party loans, net			23,277,041				15,952,078				15,880,207				—				—				—
Investment in equity affiliates			3,654,573				2,586,026				2,957,072				20,506,417				23,459,586				20,092,793
Total assets			241,667,960				200,563,236				183,713,747				119,110,446				84,751,032				96,537,674
Notes payable and repurchase agreements			171,045,404				141,836,477				132,409,735				70,473,501				47,154,530				58,678,062
Total liabilities			172,686,366				144,280,806				134,086,301				72,266,700				48,025,934				59,193,306
Net assets			68,981,594				56,282,430				49,627,446				46,843,746				36,725,098				37,344,368

Other Data:

										Nine Months
		Six Months Ended June 30,								Ended				Year Ended December 31,
										September 30,
		2003				2002				2002				2002				2001				2000				1999				1998
Total originations		$	117,965,000			$	30,660,000			$	49,510,000			$	130,043,000			$	86,700,000			$	108,378,000	(2)		$	120,378,900	(2)		$	230,718,353	(2)

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(1)	In June 1998, Arbor Commercial Mortgage entered into a joint venture with SFG I, an affiliate of Nomura Asset Capital Corp., for the purpose of acquiring up to $250 million of structured finance investments. Arbor Commercial Mortgage and SFG I each made 50% of the capital contributions to the joint venture and shared profits equally. Nomura Asset Capital Corp. provided financing to the joint venture in the form of a repurchase agreement. On July 31, 2001, Arbor Commercial Mortgage purchased SFG I’s interest in this venture. This buyout was accounted for by the purchase accounting method. Prior to the purchase, net income from this venture was recorded in income from equity affiliates. The activities of the former joint venture have been included in the statements of revenue and direct operating expenses from the date of acquisition, August 2001. See the consolidated financial statements of Arbor Commercial Mortgage’s structured finance business and the related notes to the consolidated financial statements included elsewhere in this prospectus for further information.
(2)	Total originations for 1998, 1999 and 2000 include originations from Arbor Commercial Mortgage’s joint venture with SFG I discussed in footnote 1.

    Arbor Realty Trust, Inc. was incorporated in the State of Maryland in June 2003. Our principal executive offices are located at 333 Earle Ovington Boulevard, Suite 900, Uniondale, New York 11553. Our telephone number is (516) 832-8002.

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RISK FACTORS

      An investment in our common stock involves a number of risks. Before making an investment decision, you should carefully consider all of the risks described below and the other information contained in this prospectus. If any of the risks discussed in this prospectus actually occur, our business, financial condition and results of operations could be materially adversely affected. If this were to occur, the value of our common stock could decline and you may lose all or part of your investment.

Risks Related to Our Business

	We have a limited operating history and may not operate successfully.

      We were organized in June 2003 and have a limited operating history. The results of our operations depend on many factors, including the performance of the initial assets, the availability of opportunities for the acquisition of additional assets, the level and volatility of interest rates, readily accessible short and long term financing, conditions in the financial markets and economic conditions, and we may not operate successfully. We face substantial competition in acquiring suitable investments, which could adversely impact our yields.

	Historical consolidated financial statements included in this prospectus include expenses that would not have been incurred had we operated as a separate entity during the periods presented and exclude the management fees payable pursuant to the management agreement.

      The historical consolidated financial statements included in this prospectus for the three years ending December 31, 2002, the six months ending June 30, 2002 and the nine months ending September 30, 2002 relate to the structured finance business of Arbor Commercial Mortgage and may not reflect what our results of operations, financial condition and cash flows would have been had we operated as a separate, stand-alone entity during the periods presented. This historical financial information includes assets in the structured finance portfolio of Arbor Commercial Mortgage that were not contributed to us. It also includes employee compensation and benefit expenses for the costs of originations, underwriting services and the servicing of all our contributed assets that we would not have incurred had we operated as a separate entity during the periods presented because they would have been borne by Arbor Commercial Mortgage under the terms of the management agreement. This historical financial information does not include the management fees that we pay our manager.

	Historical consolidated financial statements included in this prospectus present historical financial information for the structured finance business of Arbor Commercial Mortgage which never operated as a separate business division of Arbor Commercial Mortgage during the periods presented.

      The structured finance business of Arbor Commercial Mortgage has never operated as a separate business division or segment of Arbor Commercial Mortgage. The historical consolidated financial statements of the structured finance business of Arbor Commercial Mortgage presented in this prospectus do not reflect the historical financial information of Arbor Commercial Mortgage’s entire business because it operates two business lines in addition to the structured finance business that was contributed to us. These other business lines generate revenues and expenses, which are included in Arbor Commercial Mortgage’s historical financial statements, but are not included in the historical financial information included in this prospectus. We prepared the historical consolidated financial statements included in this prospectus for the three years ending December 31, 2002, the six months ending June 30, 2002 and the nine months ending September 30, 2002 from Arbor Commercial Mortgage’s historical accounting records. The revenues, expenses, assets, liabilities and cash flows during each respective period that pertained to Arbor Commercial Mortgage’s structured finance business were allocated to us. All of these allocations are based on assumptions that management believes are reasonable under the circumstances. However, these allocations may not be indicative of the revenues, expenses, assets, liabilities and cash flows that would have existed or resulted if we had operated as a separate entity during the periods presented.

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	We may be unable to invest excess equity capital on acceptable terms or at all, which would adversely affect our operating results.

      We may not be able to identify investments that meet our investment criteria and we may not be successful in closing the investments that we identify. Unless and until we identify structured finance investments consistent with our investment criteria, any excess equity capital may be used to repay borrowings under our warehouse credit facility and repurchase agreements, which would not produce a return on capital. In addition, the investments that we acquire with our equity capital may not produce a return on capital. There can be no assurance that we will be able to identify attractive opportunities to invest our equity capital which would adversely affect our results of operations.

	We may change our investment strategy without stockholder consent, which may result in riskier investments than our current investments.

      We may change our investment strategy and guidelines at any time without the consent of our stockholders, which could result in our making investments that are different from, and possibly riskier than, the investments described in this prospectus. A change in our investment strategy or guidelines may increase our exposure to interest rate and real estate market fluctuations.

	We depend on key personnel with long standing business relationships, the loss of whom could threaten our ability to operate our business successfully.

      Our future success depends, to a significant extent, upon the continued services of our manager and our employees. In particular, the mortgage lending experience of Mr. Ivan Kaufman and Mr. Fred Weber and the extent and nature of the relationships they have developed with developers of multi-family and commercial properties and other financial institutions are critical to the success of our business. We cannot assure you of their continued employment with Arbor Commercial Mortgage or us. The loss of services of one or more members of our manager’s officers or our officers could harm our business and our prospects.

	If we cannot obtain additional financing substantially similar to the credit facilities we currently have, our growth will be limited.

      We are generally required to distribute to our stockholders at least 90% of our taxable income each year to continue to qualify as a REIT, and we must distribute all of our taxable income in order to avert any corporate income taxes on retained income. As a result, our retained earnings available to fund origination of new loans are nominal, and we rely upon the availability of additional debt or equity capital to fund these activities. Our long term ability to grow through investment in structured finance assets will be limited if we cannot obtain additional financing substantially similar to the credit facilities we currently have, including interest rates and advance rates. Market conditions may make it difficult to obtain financing on favorable terms or at all.

	If Arbor Commercial Mortgage ceases to be our manager pursuant to the management agreement, the financial institutions providing our credit facilities may not provide future financing to us.

      The financial institutions that finance our investments pursuant to our existing credit facilities require that Arbor Commercial Mortgage manage our operations pursuant to the management agreement as a condition to making advances to us under these credit facilities. Additionally, if Arbor Commercial Mortgage ceases to be our manager, each of the financial institutions under these credit facilities has the right to terminate their facility and their obligation to advance funds to us in order to finance our future investments. If Arbor Commercial Mortgage ceases to be our manager for any reason and we are not able to obtain financing under our existing credit facilities, our growth may be limited.

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	The repurchase agreements and credit facilities that we use to finance our investments may require us to provide additional collateral and may leave us without funding should our funding sources file for bankruptcy.

      Credit facilities, including repurchase agreements, involve the risk that the market value of the loans pledged or sold by us to the funding source may decline in value, in which case the lending institution may require us to provide additional collateral to pay down a portion of the funds advanced. In addition, in the event that the funding source files for bankruptcy or becomes insolvent, our loans may become subject to the bankruptcy or insolvency proceedings, thus depriving us, at least temporarily, of the benefit of these assets. Such an event could materially adversely affect our results of operations.

	Mezzanine loans involve greater risks of loss than senior loans secured by income producing properties.

      We invest in mezzanine loans that take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests of either the entity owning the property or a pledge of the ownership interests of the entity that owns the interest in the entity owning the property. These types of investments involve a higher degree of risk than long term senior mortgage lending secured by income producing real property because the investment may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of such entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan. If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt. As a result, we may not recover some or all of our investment. In addition, mezzanine loans may have higher loan to value ratios than conventional mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal.

	Preferred equity investments involve a greater risk of loss than traditional debt financing.

      We invest in preferred equity investments, which involve a higher degree of risk than traditional debt financing due to a variety of factors, including that such investments are subordinate to other loans and are not secured by property underlying the investment. Furthermore, should the issuer default on our investment, we would only be able to proceed against the partnership in which we have an interest, and not the property underlying our investment. As a result, we may not recover some or all of our investment.

	Mortgage investments that are not United States government insured and non-investment grade mortgage assets involve risk of loss.

      We originate and acquire uninsured and non-investment grade mortgage loans and mortgage assets as part of our investment strategy. Such loans and assets include mezzanine loans and bridge loans. While holding such interests, we are subject to risks of borrower defaults, bankruptcies, fraud, losses and special hazard losses that are not covered by standard hazard insurance. In the event of any default under mortgage loans held by us, we bear the risk of loss of principal and non-payment of interest and fees to the extent of any deficiency between the value of the mortgage collateral and the principal amount of the mortgage loan. To the extent we suffer such losses with respect to our investments in mortgage loans, the value of our company and the price of our common stock may be adversely affected.

	We invest in multi-family and commercial real estate loans, which involve a greater risk of loss than single family loans.

      Our investments include multi-family and commercial real estate loans that are considered to involve a higher degree of risk than single family residential lending because of a variety of factors, including generally larger loan balances, dependency for repayment on successful operation of the mortgaged property and tenant businesses operating therein, and loan terms that include amortization schedules longer than the stated maturity and provide for balloon payments at stated maturity rather than periodic principal payments. In

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	We may invest in direct ownership of real estate, the value of which may fluctuate.

      We may make investments in the direct ownership of real property. In addition, our loans held for investment are generally directly or indirectly secured by a lien on real property that, upon the occurrence of a default on the loan, could result in our acquiring ownership of the property. Investments in real property or real property related assets are subject to varying degrees of risk. The value of each property is affected significantly by its ability to generate cash flow and net income, which in turn depends on the amount of rental income that can be generated net of expenses required to be incurred with respect to the property. The rental income from these properties may be adversely affected by a number of factors, including general economic climate and local real estate conditions, an oversupply of (or a reduction in demand for) space in properties in the areas where particular properties are located and the attractiveness of particular properties to prospective tenants. Net income from properties also is affected by such factors as the cost of compliance with government regulations, including zoning and tax laws, and the potential for liability under applicable laws. Many expenditures associated with properties (such as operating expenses and capital expenditures) cannot be reduced when there is a reduction in income from the properties. Adverse changes in these factors may have a material adverse effect on the ability of our borrowers to pay their loans, as well as on the value that we can realize from properties we own or acquire.

	Risks of cost overruns and noncompletion of renovation of the properties underlying rehabilitation loans may materially adversely affect our investment.

      The renovation, refurbishment or expansion by a borrower under a mortgaged property involves risks of cost overruns and noncompletion. Estimates of the costs of improvements to bring an acquired property up to standards established for the market position intended for that property may prove inaccurate. Other risks may include rehabilitation costs exceeding original estimates, possibly making a project uneconomical, environmental risks and rehabilitation and subsequent leasing of the property not being completed on schedule. If such renovation is not completed in a timely manner, or if it costs more than expected, the borrower may experience a prolonged impairment of net operating income and may not be able to make payments on our investment.

	Participating interests may not be available and, even if obtained, may not be realized.

      In connection with the acquisition and origination of certain structured finance assets, we may obtain participating interests, or equity “kickers,” in the owner of the property that entitle us to payments based upon a development’s cash flow, profits or any increase in the value of the development that would be realized upon a refinancing or sale of the development. Competition for participating interests is dependent to a large degree upon market conditions. Participating interests are more difficult to obtain when multi-family and commercial real estate financing is available at relatively low interest rates. In the current interest rate environment, we may have greater difficulty obtaining participating interests. Participating interests are not government insured or guaranteed and are therefore subject to the general risks inherent in real estate investments. Therefore, even if we are successful in originating mortgage loans that provide for participating interests, there can be no assurance that such interests will result in additional payments to us.

	Competition in acquiring desirable investments may limit their availability, which could, in turn, negatively affect our ability to maintain our dividend distribution.

      We compete in investing in structured finance assets with numerous public and private real estate investment vehicles, such as other REITs, mortgage banks, pension funds, institutional investors and individuals. Structured finance assets are often obtained through a competitive bidding process. Many of our competitors are larger than us, have access to greater capital and other resources, have management personnel with more experience than our officers or our manager and have other advantages over us and our manager in conducting certain business and providing certain services. Competition may result in higher prices for

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	Interest rate fluctuations may adversely affect the value of our assets, net income and common stock.

      Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control. Interest rate fluctuations present a variety of risks including the risk of a mismatch between asset yields and borrowing rates, variances in the yield curve and fluctuating prepayment rates and may adversely affect our income and value of our common stock.

	Prepayment rates can increase, thus adversely affecting yields.

      The value of our assets may be affected by prepayment rates on mortgage loans. Prepayment rates on loans are influenced by changes in current interest rates and a variety of economic, geographic and other factors beyond our control, and consequently, such prepayment rates cannot be predicted with certainty. In periods of declining interest rates, prepayments on loans generally increase. If general interest rates decline as well, the proceeds of such prepayments received during such periods are likely to be reinvested by us in assets yielding less than the yields on the assets that were prepaid. In addition, the market value of the structured finance assets may, because of the risk of prepayment, benefit less than other fixed income securities from declining interest rates. Under certain interest rate and prepayment scenarios we may fail to recoup fully our cost of acquisition of certain investments. A portion of our investments require payments of deferred interest upon prepayment or maturity of the investment. This deferred interest will generally discourage a borrower from repaying an investment ahead of its scheduled maturity. We may not be able to structure future investments that contain similar deferred interest payments.

      All of the initial assets contributed by Arbor Commercial Mortgage and substantially all of the assets currently in our portfolio do not have prepayment protection. Since September 30, 2003, six of the investments contributed by Arbor Commercial Mortgage, totaling $49.3 million, were repaid in full prior to maturity.

	Refinancing our credit facilities may materially adversely affect our results of operations.

      Our loans held for investment may have maturities that are different from the maturities for the funds we borrow to finance them. If the funds we borrow mature before the loans we make, we would have to seek new financing that may not be on as favorable terms and our net income would be adversely affected.

	Changes in market conditions may adversely affect our credit facilities and repurchase agreements.

      Credit facilities, including repurchase agreements, involve the risk that the market value of the loans pledged or sold to the funding source by us may decline, in which case the lending institution may require us to provide additional collateral or pay down a portion of the funds advanced. In addition, in the event the funding source files for bankruptcy or becomes insolvent, our loans may become subject to the bankruptcy or insolvency proceedings, thus depriving us, at least temporarily, of the benefit of these assets. Such an event could materially adversely affect our business.

	In order to close transactions in a time frame that meets our customers’ needs we may perform underwriting analyses in a very short period of time, which may result in credit decisions based on limited information.

      From time to time, we gain a competitive advantage by being able to analyze and close transactions within a very short period of time. Our underwriting guidelines require a thorough analysis of many factors, including the underlying property’s financial performance and condition, geographic market assessment, experience and financial strength of the borrower and future prospects of the property within the market. If we

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	The geographic concentration of the properties underlying our investments may increase our risk of loss.

      We have not established any limit upon the geographic concentration of properties underlying our investments. As a result, properties underlying our investments may be overly concentrated in certain geographic areas, and we may experience losses as a result. As of September 30, 2003, 22%, 20%, 16%, 10% and 10% of the outstanding balance of the structured finance investments we hold had underlying properties in Florida, New York, Maryland, Nevada and New Jersey, respectively. A worsening of economic conditions in these states could have an adverse effect on our business, including reducing the demand for new financings, limiting the ability of customers to pay financed amounts and impairing the value of our collateral.

	Volatility of values of multi-family and commercial properties may adversely affect our loans and investments.

      Multi-family and commercial property values and net operating income derived from such properties are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions (such as an oversupply of housing, retail, industrial, office or other commercial space); changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; retroactive changes to building or similar codes; and increases in operating expenses (such as energy costs). In the event a property’s net operating income decreases, a borrower may have difficulty paying our loan, which could result in losses to us. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay our loans, which could also cause us to suffer losses.

	We may be unable to generate sufficient revenue from operations to pay our operating expenses and to pay dividends to our stockholders.

      As a REIT, we are generally required to distribute at least 90% of our taxable income each year to our stockholders. In order to qualify for the tax benefits accorded to REITs, we intend to pay quarterly dividends and to make distributions to our stockholders in amounts such that we distribute all or substantially all of our taxable income each year, subject to certain adjustments. However, our ability to make distributions may be adversely affected by the risk factors described in this prospectus. In the event of a downturn in our operating results and financial performance or unanticipated declines in the value of our asset portfolio, we may be unable to declare or pay quarterly dividends or make distributions to our stockholders. The timing and amount of dividends are in the sole discretion of our board of directors, which considers, among other factors, our earnings, financial condition, debt service obligations and applicable debt covenants, REIT qualification requirements and other tax considerations and capital expenditure requirements as our board may deem relevant from time to time.

      Among the factors that could adversely affect our results of operations and impair our ability to make distributions to our stockholders are:

	•	the profitability of the investment of the net proceeds of the original offering;
	•	our ability to make profitable structured finance investments;
	•	defaults in our asset portfolio or decreases in the value of our portfolio;
	•	the fact that anticipated operating expense levels may not prove accurate, as actual results may vary from estimates; and
	•	increased debt service requirements, including those resulting from higher interest rates on variable rate indebtedness.

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A change in any one of these factors could affect our ability to make distributions. If we are not able to comply with the restrictive covenants and financial ratios contained in our credit facilities, our ability to make distributions to our stockholders may also be impaired. We cannot assure you that we will be able to make distributions to our stockholders in the future or that the level of any distributions we make will increase over time.

      In addition, distributions to stockholders are generally taxable to our stockholders as ordinary income, but a portion of these distributions may be designated by us as long term capital gain to the extent they are attributable to capital gain income recognized by us, or may constitute a return of capital to the extent they exceed our earnings and profits as determined for tax purposes.

	We may need to borrow funds under our credit facilities in order to satisfy our REIT distribution requirements.

      We may need to borrow funds to meet the REIT requirement that we distribute at least 90% of our taxable income each year to our stockholders if our cash flows from operations are not sufficient to cover the distribution requirements or because there are differences in timing between the recognition of taxable income and the actual receipt of income. Our warehouse credit facility and master repurchase agreements allow us to borrow up to a maximum amount against each of our investments financed under these credit facilities. If we have not borrowed the maximum allowable amount against any of these investments, we may borrow funds under our credit facilities up to these maximum amounts in order to satisfy REIT distribution requirements.

	Failure to maintain an exemption from the Investment Company Act would adversely affect our results of operations.

      We believe that we conduct our business in a manner that allows us to avoid being regulated as an investment company under the Investment Company Act of 1940, as amended, or the Investment Company Act. Under Section 3(c) (5) (C), the Investment Company Act exempts entities that are primarily engaged in the business of purchasing or otherwise acquiring “mortgages and other liens on and interests in real estate.” The staff of the SEC has provided guidance on the availability of this exemption. Specifically, the staff’s position generally requires us to maintain at least 55% of our assets directly in qualifying real estate interests. To constitute a qualifying real estate interest under this 55% requirement, a real estate interest must meet various criteria. Loans that are secured by equity interests in the owners of real property rather than the property itself, direct equity interests in entities that own real property and certain mortgage backed securities may not qualify for purposes of the 55% requirement depending upon the type of entity. Our ownership of these equity interests, therefore, is limited by the provisions of the Investment Company Act.

	We are subject to various risks related to our use of, and dependence on, debt.

      The amount we have to pay on variable rate debt increases as interest rates increase, which may decrease cash available for distribution to stockholders. All of our outstanding debt, which as of September 30, 2003, was $91.9 million, consists of variable rate debt under the warehouse credit agreement and the master repurchase agreements that we use to finance our loans and other investments. We cannot assure you that we will be able to meet our debt service obligations. If we do not meet our debt service obligations, we risk the loss of some or all of our assets. Changes in economic conditions or our financial results or prospects could (1) result in higher interest rates on variable rate debt, (2) reduce the availability of debt financing generally or debt financing at favorable rates, (3) reduce cash available for distribution to stockholders and (4) increase the risk that we could be forced to liquidate assets to repay debt, any of which could have a material adverse affect on us.

      Our warehouse credit agreement and master repurchase agreements contain covenants which prohibit us from effecting a change in control or disposing of or encumbering assets being financed and restrict us from making any material amendment to our underwriting guidelines without approval of the lender. We are also required to maintain financial ratios under these agreements including minimum net worth, debt-to-equity and minimum liquidity ratios. If we violate these covenants in any of these agreements, we could be required to

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      In any event, financial covenants under our current or future debt obligations could impair our business strategies by limiting our ability to borrow beyond certain amounts or for certain purposes.

	We leverage our portfolio, which may adversely affect our return on our investments and may reduce cash available for distribution.

      We leverage our portfolio through borrowings, generally through the use of warehouse credit facilities and repurchase agreements. The percentage of our leverage varies depending on our ability to obtain credit facilities and the lender’s estimate of the stability of the portfolio’s cash flow. We currently have a policy limiting our leverage to 80% of the value of our assets on an aggregate basis unless approval to exceed the 80% limit is obtained from our board of directors. Our return on our investments and cash available for distribution to our stockholders may be reduced to the extent that changes in market conditions cause the cost of our financing to increase relative to the income that can be derived from the assets acquired.

      Our debt service payments reduce the net income available for distributions to stockholders. We may not be able to meet our debt service obligations and, to the extent that we cannot, we risk the loss of some or all of our assets to foreclosure or sale to satisfy our debt obligations.

      A decrease in the value of the assets may lead to a requirement that we repay certain borrowings. We may not have the funds available to satisfy such repayments.

	A general economic slowdown could have a material effect on our business.

      Periods of economic slowdown or recession may be accompanied by declines in real estate values. Delinquencies, foreclosures and losses generally increase during economic slowdowns or recessions. Because a portion of the investments we make are subordinate to other creditors, the rate of delinquencies, foreclosures and losses on our mortgage loans could be higher than those generally experienced in the mortgage lending industry. If our loans go into and remain in default, we may have to foreclose and may incur substantial losses. Because real estate investments are relatively illiquid, our ability to promptly sell one or more investments or properties underlying foreclosed investments in our portfolio may be limited. In addition, any material decline in real estate values would increase the loan to value ratio of loans that we have previously extended, weaken our collateral coverage and increase the possibility of a loss in the event of a borrower default. Any sustained period of increased delinquencies, foreclosures or losses is likely to materially and adversely affect our ability to finance loans in the future. Furthermore, certain international events have caused significant uncertainty in the global financial markets. While the long term effects of these events and their potential consequences are uncertain, they could have a material adverse effect on general economic conditions, consumer confidence and market liquidity.

	Liability relating to environmental matters may impact the value of the underlying properties.

      Under various federal, state and local laws, an owner or operator of real property may become liable for the costs of removal of certain hazardous substances released on its property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of such hazardous substances. The presence of hazardous substances may adversely affect an owner’s ability to sell real estate or borrow using real estate as collateral. To the extent that an owner of an underlying property becomes liable for removal costs, the ability of the owner to make debt payments may be reduced, which in turn may adversely affect the value of the relevant mortgage asset held by us.

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	We are substantially controlled by Arbor Commercial Mortgage and its controlling equity owner, Mr. Kaufman.

      Mr. Ivan Kaufman is our chairman and chief executive officer and the president and chief executive officer of our manager. Further, Mr. Kaufman and the Kaufman entities together beneficially own approximately 88% of the outstanding membership interests of Arbor Commercial Mortgage. Arbor Commercial Mortgage owns approximately 3.1 million operating partnership units, representing a 28% limited partnership interest in our operating partnership. After giving effect to this offering, Arbor Commercial Mortgage will own approximately a           % interest in our operating partnership and we will own the remaining           %. The operating partnership units are redeemable for approximately 3.1 million shares of our common stock. Each of the operating partnership units Arbor Commercial Mortgage owns is paired with one share of our special voting preferred stock, each of which entitle Arbor Commercial Mortgage to one vote on all matters submitted to a vote of our stockholders. Therefore, Arbor Commercial Mortgage is currently entitled to approximately 3.1 million votes, or 28% of the voting power of our outstanding stock. After giving effect to this offering, Arbor Commercial Mortgage will have approximately           % of the voting power of our outstanding stock (without giving effect to the exercise of Arbor Commercial Mortgage’s warrants for additional operating partnership units). Because of his position with us and our manager and his ability to effectively vote a substantial minority of our outstanding voting stock, Mr. Kaufman has significant influence over our policies and strategy.

	We may engage in hedging transactions that may limit our gains or result in losses.

      We may use derivatives to hedge our liabilities and this has certain risks, including:

	•	losses on a hedge position may reduce the cash available for distribution to stockholders and such losses may exceed the amount invested in such instruments;
	•	counterparties to a hedging arrangement could default on their obligations; and
	•	we may have to pay certain costs, such as transaction fees or brokerage costs.

      Our board of directors has adopted a general policy with respect to our use of interest rate swaps, the purchase or sale of interest rate collars, caps or floors, options, mortgage derivatives and other hedging instruments in order to hedge as much of the interest rate risk as our manager determines is in the best interest of our stockholders, given the cost of such hedges and the need to maintain our status as a REIT. Our board’s policy does not set forth specific policies and procedures for the use of these instruments. We may use these hedging instruments in our risk management strategy to limit the effects of changes in interest rates on our operations. A hedge may not be effective in eliminating all of the risks inherent in any particular position. Our profitability may be adversely affected during any period as a result of the use of derivatives.

Risks Related to Conflicts of Interest

	We are dependent on our manager with whom we have conflicts of interest.

      We have only eleven employees, including Mr. Fred Weber, Mr. Daniel M. Palmier, Mr. John C. Kovarik and an eight-person asset management group, and are dependent upon our manager, Arbor Commercial Mortgage, to provide services to us that are vital to our operations. Our chairman, chief executive officer and president, Mr. Ivan Kaufman, is also the chief executive officer and president of our manager. Our chief financial officer, Mr. Frederick Herbst, is the chief financial officer of our manager and our secretary and general counsel, Mr. Walter Horn, is the general counsel of our manager. In addition, Mr. Kaufman and the Kaufman entities together beneficially own approximately 88% of the outstanding membership interests of Arbor Commercial Mortgage and Messrs. Herbst, Weber, Palmier, Martello and Horn, collectively hold a 5% ownership interest in Arbor Commercial Mortgage. Mr. Martello also serves as the trustee of one of the Kaufman entities that holds a majority of the outstanding membership interests in Arbor Commercial Mortgage and co-trustee of another Kaufman entity that owns an equity interest in our manager. Arbor Commercial Mortgage holds a 28% limited partnership interest in our operating partnership and 28% of the voting power of our outstanding stock (without giving effect to the exercise of warrants). Upon consummation

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      We may enter into transactions with Arbor Commercial Mortgage outside the terms of the management agreement with the approval of majority vote of the independent members of our board of directors. Transactions required to be approved by a majority of our independent directors include, but are not limited to, our ability to purchase securities and mortgage and other assets from Arbor Commercial Mortgage or to sell securities and assets to Arbor Commercial Mortgage. Arbor Commercial Mortgage may from time to time provide permanent mortgage loan financing to clients of ours, which will be used to refinance bridge financing provided by us. We and Arbor Commercial Mortgage may also make loans to the same borrower or to borrowers that are under common control. Additionally, our policies and those of Arbor Commercial Mortgage may require us to enter into intercreditor agreements in situations where loans are made by us and Arbor Commercial Mortgage to the same borrower.

      We have entered into a management agreement with our manager under which our manager provides us with all of the services vital to our operations other than asset management services. However, the management agreement was not negotiated at arm’s length and its terms, including fees payable, may not be as favorable to us as if it had been negotiated with an unaffiliated third party. Certain matters relating to our organization also were not approved at arm’s length and the terms of the contribution of assets to us may not be as favorable to us as if the contribution was with an unaffiliated third party.

      The results of our operations is dependent upon the availability of, and our manager’s ability to identify and capitalize on, investment opportunities. Our manager’s officers and employees are also responsible for providing the same services for Arbor Commercial Mortgage’s portfolio of investments. As a result, they may not be able to devote sufficient time to the management of our business operations.

	Conflicts of interest could arise in transactions where we lend to borrowers in which Arbor Commercial Mortgage holds an equity interest.

      Arbor Commercial Mortgage has contributed loans to us that are secured by properties in which Arbor Commercial Mortgage owns equity interests in the borrower. Every transaction that we enter into with an entity in which Arbor Commercial Mortgage holds equity interests raises a potential conflict of interest. Conflicts of interest with respect to these mortgage loans include, among others, decisions regarding (1) whether to waive defaults of such borrower, (2) whether to foreclose on a loan, and (3) whether to permit additional financing on the properties securing our investments other than financing provided by us.

	Termination of our management agreement may be costly.

      Termination of the management agreement with our manager is difficult and costly. Our management agreement may be terminated by us (1) without cause, after the initial two year period, on six months’ prior written notice and (2) with cause in the event of our manager’s uncured breach of the management agreement, if approved by a majority of our independent directors. If we terminate the management agreement without cause or elect not to renew the management agreement in connection with the decision to manage our portfolio internally, we are required to pay our manager a termination fee equal to the base management fee and the incentive compensation earned during the twelve month period preceding the termination. If we terminate the management agreement without cause (except in a case where we become internally managed) or elect not to renew the management agreement for any other reason, including a change of control of us, we are required to pay our manager a termination fee equal to two times the base management fee and the incentive compensation earned during the twelve-month period preceding the termination. If we terminate without cause and become internally managed, we are required to pay our manager a termination fee equal to the base management fee and the incentive compensation earned during the 12-month period preceding the termination. These provisions may increase the effective cost to us of terminating the management agreement, thereby adversely affecting our ability to terminate our manager without cause.

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	If our manager terminates the management agreement, we may not be able to find an adequate replacement manager.

      At any time after the initial two-year term of the management agreement, our manager may terminate the management agreement without cause or elect not to renew the agreement, without penalty (except in certain cases of a change in control of the manager during the first three years of the management agreement), on six months’ prior written notice to us. In the event of our uncured breach of the management agreement, our manager may also terminate the agreement for cause without penalty. If our manager terminates our agreement, we may not be able to find an adequate replacement manager.

	Our directors have approved very broad investment guidelines for our manager and do not approve each investment decision made by our manager.

      Our manager is authorized to follow very broad investment guidelines. Our directors will periodically review our investment guidelines and our investment portfolio. However, our board does not review each proposed investment. In addition, in conducting periodic reviews, the directors rely primarily on information provided to them by our manager. Furthermore, transactions entered into by our manager may be difficult or impossible to unwind by the time they are reviewed by the directors. Our manager has great latitude within the broad investment guidelines in determining the types of assets it may decide are proper investments for us.

	Our manager has broad discretion to invest funds and may acquire structured finance assets where the investment returns are substantially below expectations or that result in net operating losses.

      Our manager has broad discretion, within the general investment criteria established by our board of directors, to allocate the proceeds of the original offering and to determine the timing of investment of such proceeds. Such discretion could result in allocation of proceeds to assets where the investment returns are substantially below expectations or that result in net operating losses, which would materially and adversely affect our business, operations and results.

      The management compensation structure that we have agreed to with our manager may cause our manager to invest in high risk investments. Our manager is entitled to a base management fee, which is based on the equity of our operating partnership. The amount of the base management fee does not depend on the performance of the services provided by our manager or the types of assets it selects for our investment, but the value of our operating partnership’s equity will be affected by the performance of these assets. Our manager is also entitled to receive incentive compensation based in part upon our achievement of targeted levels of funds from operations. In evaluating investments and other management strategies, the opportunity to earn incentive compensation based on funds from operations may lead our manager to place undue emphasis on the maximization of funds from operations at the expense of other criteria, such as preservation of capital, in order to achieve higher incentive compensation. Investments with higher yield potential are generally riskier or more speculative. This could result in increased risk to the value of our invested portfolio.

Risks Related to Our Status as a REIT

	If we do not qualify as a REIT or fail to remain qualified as a REIT, we will be subject to tax as a regular corporation and could face substantial tax liability.

      We intend to operate so as to qualify as a REIT under the Internal Revenue Code. However, qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which only limited judicial and administrative authorities exist. Even a technical or inadvertent mistake could jeopardize our REIT status. Our continued qualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis. In particular, our ability to qualify as a REIT depends in part on the relative values of our common and special voting preferred stock, which have not been determined by independent appraisal, are susceptible to fluctuation, and could, if successfully challenged by the IRS, cause us to fail to meet the ownership requirements. In addition, our ability to satisfy the requirements to qualify as a REIT depends in part on the actions of third parties over which we have no control or only limited influence, including in cases

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      Furthermore, new tax legislation, administrative guidance or court decisions, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to qualify as a REIT. If we fail to qualify as a REIT in any tax year, then:

	•	we would be taxed as a regular domestic corporation, which, among other things, means we would be unable to deduct distributions to stockholders in computing taxable income and would be subject to federal income tax on our taxable income at regular corporate rates;
	•	any resulting tax liability could be substantial and would reduce the amount of cash available for distribution to stockholders; and
	•	unless we were entitled to relief under applicable statutory provisions, we would be disqualified from treatment as a REIT for the subsequent four taxable years following the year during which we lost our qualification, and thus, our cash available for distribution to stockholders would be reduced for each of the years during which we did not qualify as a REIT.

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

      Even if we remain qualified for taxation as a REIT, we may be subject to certain federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes, such as mortgage recording taxes. See “Federal Income Tax Considerations — Taxation of Arbor Realty — Taxation of REITs in General.” Any of these taxes would decrease cash available for distribution to our stockholders. In addition, in order to meet the REIT qualification requirements, or to avert the imposition of a 100% tax that applies to certain gains derived by a REIT from dealer property or inventory, we may hold some of our assets through taxable subsidiary corporations.

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

      To qualify as a REIT for federal income tax purposes we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our stock. We may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.

	Complying with REIT requirements may force us to liquidate otherwise attractive investments.

      To qualify as a REIT we must ensure that at the end of each calendar quarter at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, and no more than 20% of the value of our total securities can be represented by securities of one or more taxable REIT subsidiaries. If we fail to comply with these requirements at the end of any calendar quarter, we must correct such failure within 30 days after the end of the calendar quarter to avoid losing our REIT status and suffering adverse tax consequences. As a result, we may be required to liquidate otherwise attractive investments.

	Liquidation of collateral may jeopardize our REIT status.

      To continue to qualify as a REIT, we must comply with requirements regarding our assets and our sources of income. If we are compelled to liquidate our mortgage and preferred equity investments to satisfy

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	Complying with REIT requirements may force us to borrow to make distributions to stockholders.

      As a REIT, we must generally distribute at least 90% of our annual taxable income, subject to certain adjustments, to our stockholders. To the extent that we satisfy the distribution requirement, but distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under federal tax laws.

      From time to time, we may generate taxable income greater than our net income for financial reporting purposes due to, among other things, amortization of capitalized purchase premiums, or our taxable income may be greater than our cash flow available for distribution to stockholders (for example, where a borrower defers the payment of interest in cash pursuant to a contractual right or otherwise). If we do not have other funds available in these situations we could be required to borrow funds, sell investments at disadvantageous prices or find another alternative source of funds to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs or reduce our equity.

	We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common stock.

      At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended. Any of those new laws or interpretations may take effect retroactively and could adversely affect us or you as a stockholder. On May 28, 2003, The Jobs and Growth Tax Relief Reconciliation Act of 2003 was enacted, which decreases the tax rate on most dividends paid by corporations to individual investors to a maximum of 15% from current rates, and such rates are retroactive to the beginning of January 2003. REIT dividends, with limited exceptions, will not benefit from the rate reduction, because a REIT’s income generally is not subject to corporate level tax. As such, this legislation could cause shares in non-REIT corporations to be a more attractive investment to individual investors than shares in REITs and could have an adverse effect on the value of our common stock.

	Restrictions on share accumulation in REITs could discourage a change of control of us.

      In order for us to qualify as a REIT, not more than 50% of the number or value of our outstanding shares of capital stock may be owned, directly or indirectly, by five or fewer individuals during the last half of a taxable year.

      In order to prevent five or fewer individuals from acquiring more than 50% of our outstanding shares and a resulting failure to qualify as a REIT, our charter provides that, subject to certain exceptions, no person may own, or be deemed to own by virtue of the attribution provisions of the Internal Revenue Code, more than 9.6% of the aggregate value or number (whichever is more restrictive) of shares of our outstanding common stock or 9.6% by value of our outstanding capital stock. For purposes of this calculation, warrants held by such person will be deemed to have been exercised. The shares most recently acquired by a person that are in excess of these limits will not have any voting rights exercisable by such person. Any attempt to own or transfer shares of our common or preferred stock in excess of the ownership limit without the consent of the board of directors will result in the shares being automatically transferred to a charitable trust (or otherwise be void) and be deemed to have been offered for sale to us for a period subsequent to the acquisition. Any person who acquires shares in excess of these limits is obliged to immediately give written notice to us and provide us with any information we may request in order to determine the effect of the acquisition on our status as a REIT.

      While these restrictions are designed to prevent any five individuals from owning more than 50% of our shares, they could also discourage a change in control of our company. These restrictions may also deter tender offers that may be attractive to stockholders or limit the opportunity for stockholders to receive a premium for their shares if an investor makes purchases of shares to acquire a block of shares.

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

      The REIT provisions of the Internal Revenue Code may limit our ability to hedge our operations by requiring us to limit our income in each year from qualified hedges, together with any other income not generated from qualified real estate assets, to no more than 25% of our gross income. In addition, we must limit our aggregate income from nonqualified hedging transactions, from our provision of services and from other non-qualifying sources to no more than 5% of our annual gross income. As a result, we may have to limit our use of advantageous hedging techniques. This could result in greater risks associated with changes in interest rates than we would otherwise want to incur. If we were to violate the 25% or 5% limitations, we would possibly have to pay a penalty tax equal to the amount of income in excess of those limitations, multiplied by a fraction intended to reflect our profitability. If we fail to satisfy the REIT gross income tests, unless our failure was due to reasonable cause and not due to willful neglect, we could lose our REIT status for federal income tax purposes.

Risk Factors Related to the Offering

	There may not be an active market for our common stock, which may cause our common stock to trade at a discount and make it difficult to sell the common stock you purchase.

      Prior to this offering, there has been no public market for our common stock. We cannot assure you that an active trading market for our common stock will develop or be sustained after this offering. The initial public offering price for our common stock will be determined by negotiations between the underwriters and us. We cannot assure you that the initial public offering price will correspond to the price at which our common stock will trade in the public market subsequent to this offering or that the price of our shares available in the public market will reflect our actual financial performance.

      We intend to apply to list our common stock on the New York Stock Exchange. Quotation through the New York Stock Exchange would not ensure that an actual market will develop for our common stock. Accordingly, no assurance can be given as to (i) the likelihood that an actual market for our common stock will develop, (ii) the liquidity of any such market, (iii) the ability of any holder to sell shares of our common stock, or (iv) the prices that may be obtained for our common stock.

	Our charter generally does not permit ownership in excess of 9.6% of our common or capital stock, and attempts to acquire our capital stock in excess of these limits are ineffective without prior approval from our board of directors.

      For the purpose of preserving our REIT qualification, our charter generally prohibits direct or constructive ownership by any person of more than 9.6% (by value or by number of shares, whichever is more

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	Maryland takeover statutes may prevent a change of our control. This could depress our stock price.

      Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. The statute permits various exceptions, including business combinations that are exempted by the board of directors before the time that an interested stockholder becomes an interested stockholder. An interested stockholder is defined as:

	•	any person who beneficially owns 10% or more of the voting power of the corporation’s shares; or
	•	an affiliate or associate of the corporation who, at any time within the two year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation.

      A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which he otherwise would have become an interested stockholder.

      After the five year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:

	•	80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and
	•	two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder.

      The business combination statute may prevent or discourage others from trying to acquire control of us and increase the difficulty of consummating any offer, including potential acquisitions that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders. See “Important Provisions of Maryland Law and of Our Charter and Bylaws — Business Combinations” and “— Control Share Acquisitions.”

	Our staggered board and other provisions of our charter and bylaws may prevent a change in our control.

      Our board of directors is divided into three classes of directors. The current terms of the Class I, Class II and Class III directors will expire in 2004, 2005 and 2006, respectively. Directors of each class are chosen for three year terms upon the expiration of their current terms, and each year one class of directors is elected by the stockholders. The staggered terms of our directors may reduce the possibility of a tender offer or an attempt at a change in control, even though a tender offer or change in control might be in the best interest of our stockholders. In addition, our charter and bylaws also contain other provisions that may delay or prevent a transaction or a change in control that might involve a premium price for our common stock or otherwise be in

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	Future offerings of debt securities, which would be senior to our common stock upon liquidation, or equity securities, which would dilute the holdings of our existing stockholders and may be senior to our common stock for the purposes of dividend distributions or distributions upon liquidation, may adversely affect the market price of our common stock.

      In the future we may attempt to increase our capital resources by making additional offerings of debt or equity securities, including commercial paper, medium term notes, senior or subordinated notes and classes of preferred stock or common stock. Upon liquidation, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common stock. Additional equity offerings may dilute the holdings of our existing stockholders or reduce the market price of our common stock, or both. If we decide to issue preferred stock in addition to our special voting preferred stock already issued, it could have a preference on liquidating distributions or a preference on dividend payments that could limit our ability to make a dividend distribution to the holders of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future offerings reducing the market price of our common stock and diluting their stock holdings in us.

	Securities eligible for future sale may have adverse effects on our share price.

      The effect of future sales of our common stock or the availability of our common stock for future sales may affect the market price of our common stock. As of the date of this prospectus, we have 9,809,567 shares of our common stock outstanding (or authorized for issuance upon exercise of the warrants comprising our units) and 3,776,069 shares of our common stock authorized for issuance upon redemption of Arbor Commercial Mortgage’s 3,776,069 operating partnership units (including 629,345 operating partnership units issuable upon exercise of 629,345 warrants for additional operating partnership units). After giving effect to this offering, there will be           shares of common stock outstanding (or authorized for issuance upon exercise of warrants comprising our units). Of the shares of our common stock currently outstanding,            shares of common stock are being registered pursuant to the IPO registration statement of which this prospectus is a part. If Arbor Commercial Mortgage redeems its 3,776,069 operating partnership units (including 629,345 operating partnership units issuable upon exercise of 629,345 warrants for additional operating partnership units) and we elect to issue shares of our common stock upon such redemption, an additional 3,776,069 shares would be eligible for future sale. We have granted registration rights to Arbor Commercial Mortgage relating to the resale of shares of common stock that we may issue upon redemption of its operating partnership units. Furthermore, we satisfy our obligation to pay up to 25% of the incentive compensation payable to our manager under the management agreement with shares of our common stock. The issuance of common stock could cause dilution of our existing common stock and a decrease in the market price.

      We and our directors and officers will agree, with limited exceptions, for a period of             days after the date of this prospectus, and all existing holders of units (including the selling stockholders who do not sell a portion of their shares in this offering) will agree, with limited exceptions, for a period of             days after the date of this prospectus, that we and they will not, without the prior written consent of the representatives of the underwriters, directly or indirectly, offer to sell, sell or otherwise dispose of any shares of our common stock or any securities convertible into, or exercisable or exchangeable for, shares of our common or our other capital stock. Upon completion of this offering, all remaining holders of units and their transferees will have the right to require us to register their securities under the Securities Act for sale into the public markets, subject to the lock-up agreements.

	You should not rely on lock-up agreements in connection with the original offering or this offering to limit the amount of common stock sold into the market.

      We will agree with the underwriters not to offer to sell, contract to sell, or otherwise dispose of, loan, pledge or grant any rights with respect to any shares of our common stock, any options or warrants to purchase

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	We may allocate the net proceeds from this offering in ways with which you may not agree.

      Our business plan is general in nature and is subject to change based upon changing conditions and opportunities. Our management has significant flexibility in applying $           million of the total $           million in net proceeds we expect to receive in this offering ($           million if the underwriters’ over-allotment option is exercised in full). Because this portion of the net proceeds is not required to be allocated to any specific investment or transaction, you cannot determine at this time the value or propriety of our application of the proceeds, and you and other stockholders may not agree with our decisions. See “Use of Proceeds” for a more detailed description of how management intends to apply the proceeds from this offering.

	An increase in market interest rates may have an adverse effect on the market price of our common stock.

      One of the factors that investors may consider in deciding whether to buy or sell shares of our common stock is our dividend rate as a percentage of our share price relative to market interest rates. If the market price of our common stock is based primarily on the earnings and return that we derive from our investments and income with respect to our properties and our related distributions to stockholders, and not from the market value or underlying appraised value of the properties or investments themselves, then interest rate fluctuations and capital market conditions will likely affect the market price of our common stock. For instance, if market rates rise without an increase in our dividend rate, the market price of our common stock could decrease as potential investors may require a higher dividend yield on our common stock or seek other securities paying higher dividends or interest. In addition, rising interest rates would result in increased interest expense on our variable rate debt, thereby adversely affecting cash flow and our ability to service our indebtedness and pay dividends.

	Investors in this offering will suffer immediate and substantial dilution.

      The initial public offering price of our common stock is higher than the net tangible book value per share of our common stock outstanding immediately after this offering. Our net tangible book value per share as of December 31, 2003 was approximately $                    . Net tangible book value per share as of December 31, 2003 represents the amount of our total tangible assets minus our total liabilities, divided by the 8,199,567 shares of our common stock that were outstanding on December 31, 2003. Investors who purchase our common stock in this offering will pay a price per share that substantially exceeds the net tangible book value per share of our common stock. If you purchase our common stock in this offering, you will experience

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	Broad market fluctuations could negatively impact the market price of our common stock.

      The stock market has experienced extreme price and volume fluctuations that have affected the market price of many companies in industries similar or related to ours and that have been unrelated to these companies’ operating performances. These broad market fluctuations could reduce the market price of our common stock. Furthermore, our operating results and prospects may be below the expectations of public market analysts and investors or may be lower than those of companies with comparable market capitalizations, which could lead to a material decline in the market price of our common stock.

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FORWARD LOOKING STATEMENTS

      We make forward looking statements in this prospectus that are subject to risks and uncertainties. These forward looking statements include information about possible or assumed future results of our business and our financial condition, liquidity, results of operations, plans, and objectives. They also include, among other things, statements concerning anticipated revenues, income or loss, capital expenditures, dividends, capital structure, or other financial terms, as well as statements regarding the subjects that are forward looking by their nature, such as:

	•	our business strategy;
	•	completion of any pending transactions;
	•	our ability to obtain future financing arrangements;
	•	our understanding of our competition;
	•	our projected operating results;
	•	the operating results presented in the historical consolidated financial statements included in this prospectus;
	•	market trends;
	•	estimates relating to our future dividends;
	•	projected capital expenditures; and
	•	the impact of technology on our operations and business.

      The forward looking statements are based on our beliefs, assumptions, and expectations of our future performance, taking into account the information currently available to us. We do not intend to update our forward looking statements. These beliefs, assumptions, and expectations can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity, and results of operations may vary materially from those expressed in our forward looking statements. You should carefully consider this risk when you make a decision concerning an investment in our common stock.

      When we use words such as “will likely result,” “may,” “shall,” “will,” “believe,” “expect,” “anticipate,” “project,” “intend,” “estimate,” “goal,” “objective,” or similar expressions, we intend to identify forward looking statements. You should not place undue reliance on these forward looking statements. We are not obligated to publicly update or revise any forward looking statements, whether as a result of new information, future events, or otherwise.

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USE OF PROCEEDS

      We estimate that the net proceeds from our sale of                     shares of common stock in this offering, at the initial public offering price of $          per share, which is the midpoint of the range listed on the cover page of this prospectus, after deducting the underwriting discount and other estimated offering expenses, will be approximately $           million. If the underwriters exercise their over-allotment option in full, we estimate that the net proceeds, after deducting the underwriting discount and other estimated offering expenses, of the offering of common stock by us will be approximately $           million. We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders.

      We intend to use all of the net proceeds of this offering to repay indebtedness under our warehouse credit agreement and master repurchase agreements. We anticipate that we will use the additional borrowing capacity created by the repayments under these credit facilities to fund our lending business in connection with newly originated and existing loans in our portfolio as the need arises. We intend to use approximately $           million of the net proceeds of this offering to repay outstanding indebtedness under our $150 million master repurchase agreement. As of                     , $           million was outstanding under this facility that accrued interest at a rate of      %. We will use the remainder of the net proceeds, or approximately $           million, to repay outstanding indebtedness under our primary $250 million warehouse credit agreement. During the last year, we borrowed money under this facility to fund our lending business as required in connection with newly originated and existing loans in our portfolio. As of                     , $           million was outstanding under this facility that accrued interest at a rate of      %.

DISTRIBUTION POLICY

      We have made and intend to make, regular quarterly distributions to our stockholders. To qualify as a REIT we must distribute to our stockholders an amount at least equal to:

	•	90% of our REIT taxable income, determined before the deduction for dividends paid and excluding any net capital gain (which does not necessarily equal net income as calculated in accordance with generally accepted accounting principals); plus
	•	90% of the excess of our net income from foreclosure property (as defined in Section 856 of the Internal Revenue Code) over the tax imposed on such income by the Internal Revenue Code; less
	•	any excess non-cash income (as determined under the Internal Revenue Code). See “Federal Income Tax Considerations.”

      We are subject to income tax on income that is not distributed and to an excise tax to the extent that certain percentages of our income are not distributed by specified dates. See “Federal Income Tax Considerations.” Income as computed for purposes of the foregoing tax rules will not necessarily correspond to our income as determined for financial reporting purposes.

      Distributions are authorized by our board of directors and declared by us based upon a number of factors, including:

	•	actual results of operations;
	•	restrictions under Maryland law;
	•	the timing of the investment of our equity capital;
	•	the amount of funds from operations;
	•	our financial condition;
	•	debt service requirements;
	•	capital expenditure requirements;

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	•	our taxable income;
	•	the annual distribution requirements under the REIT provisions of the Internal Revenue Code;
	•	our operating expenses; and
	•	other factors our directors deem relevant.

      Our ability to make distributions to our stockholders depends upon our receipt of distributions from our operating partnership, Arbor Realty Limited Partnership, which may depend, in part, upon the performance of our investment portfolio, and, in turn, from Arbor Commercial Mortgage’s management of our business. Distributions are made in cash to the extent that cash is available for distribution. If cash available for distribution is insufficient, we may be required to borrow funds or sell assets in order to meet our REIT distribution requirements.

      Distributions to stockholders are generally taxable to our stockholders as ordinary income, although a portion of these distributions may be designated by us as long term capital gain to the extent they are attributable to capital gain income recognized by us, or may constitute a return of capital to the extent they exceed our earnings and profits as determined for tax purposes. We will furnish annually to each of our stockholders a statement setting forth distributions paid during the preceding year and their federal income tax status. For a discussion of the federal income tax treatment of our distributions, see “Federal Income Tax Considerations — Taxation of Arbor Realty” and “Federal Income Tax Considerations — Taxation of Stockholders.”

      We may not be able to generate sufficient revenue from operations to pay distributions to our stockholders. In addition, our directors may change our distribution policy in the future. See “Risk Factors.”

      Our charter allows us to issue preferred stock that could have a preference on distributions. We currently have no intention to issue any such preferred stock, but if we do, the dividend preference on the preferred stock could limit our ability to make a dividend distribution to the holders of our common stock. We have previously issued approximately 3.1 million shares of our special voting preferred stock to Arbor Commercial Mortgage which does not have any preferential dividend, except a $.01 per share liquidation preference upon a liquidation or redemption.

      On November 5, 2003, we declared a dividend of $.25 per share of common stock, payable with respect to the quarter ending September 30, 2003, to stockholders of record at the close of business on November 5, 2003. We distributed this dividend on November 18, 2003. On December 19, 2003, our board of directors authorized a dividend of $.25 per share of common stock, payable with respect to the quarter ending December 31, 2003, to stockholders of record at the close of business on December 19, 2003. We declared this dividend on December 19, 2003 and distributed it on December 30, 2003.

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CAPITALIZATION

      The following table sets forth our capitalization as of December 31, 2003, on an actual basis and as adjusted to give effect to this offering and the application of the estimated net proceeds that we expect to receive from our sale of common stock in this offering as described under “Use of Proceeds.” This table should be read together with “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Arbor Realty Trust, Inc., and Subsidiaries,” “Description of Stock” and our consolidated financial statements and related notes included elsewhere in this prospectus.

			As of December 31, 2003
			Actual				As Adjusted
			(In thousands, except per
			share data)
Cash and cash equivalents
Long term debt
Shareholder’s equity
	Preferred Stock, par value $.01 per share, 100,000,000 shares authorized; 3,146,724 shares issued and outstanding, actual and as adjusted
	Common stock, par value $.01 per share, 500,000,000 shares authorized; 9,809,567 shares issued and outstanding, actual;            shares issued and outstanding, as adjusted
	Additional paid in capital
	Total shareholders equity
Total capitalization

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DILUTION

      Our net tangible book value as of December 31, 2003 was approximately $                     million, or $          per share of our common stock. Net tangible book value per share represents the amount of our total tangible assets minus our total liabilities, divided by the 8,199,567 shares of our common stock that were outstanding on December 31, 2003. After giving effect to the sale of                                shares of our common stock in this offering at the initial public offering price of $          per share, which is the midpoint of the range listed on the cover page of this prospectus, our net tangible book value on December 31, 2003 would have been approximately $                     million, or $          per share. This represents an immediate increase in net tangible book value of $          per share to our existing stockholders and an immediate dilution of $          per share to new investors who purchase our common stock in this offering at the initial public offering price. The following table shows this immediate per share dilution:

Initial public offering price per share						$
Net tangible book value per share on December 31, 2003, before giving effect to this offering		$
Increase in net tangible book value per share attributable to this offering
Pro forma net tangible book value per share on December 31, 2003, after giving effect to this offering
Dilution in pro forma net tangible book value per share to new investors						$

      The discussion and table above exclude                                shares of our common stock subject to restricted stock awards, which are not vested.

      The following table summarizes, as of December 31, 2003, the differences between the average price per share paid by our existing stockholders and by new investors purchasing shares of common stock in this offering at the initial public offering price of $          per share, before deducting the underwriting discounts and commissions and estimated offering expenses payable by us:

Shares Purchased

Total Consideration

Average

Price Per

Number

Percent

Amount

Percent

Share

Existing stockholders

New investors

Total

      If the underwriters fully exercise their over-allotment option, the number of shares of common stock held by existing holders will be reduced to           % of the aggregate number of shares of common stock outstanding after this offering and the number of shares of common stock held by new investors will be increased to                               , or           %, of the aggregate number of shares of common stock outstanding after this offering.

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PRICE RANGE OF UNITS

      There is no established market for the units, which are not listed on any securities exchange, and trading in the units has not been quoted on any interdealer or over-the-counter bulletin board since the original offering. The units are eligible for trading in the Private Offering, Resales and Trading through Automated Linkages Market of the National Association of Securities Dealers, Inc., the PORTAL Market. As of December 24, 2003, there were approximately 143 beneficial owners of our units. This figure does not reflect the beneficial ownership of shares held in nominee name.

      The table below reflects the high and low prices of trades of our units known to us for each of the months indicated.

Month		High				Low
July 2003		$	75.250			$	69.750
August 2003			—				—
September 2003			—				—
October 2003		$	75.250			$	75.125
November 2003		$	76.000			$	76.000
December 2003			—				—
January 2004			—				—

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SELECTED UNAUDITED CONSOLIDATED FINANCIAL INFORMATION

      The following tables present selected historical consolidated financial information for the three months ended September 30, 2003 and at September 30, 2003. The selected historical consolidated financial information presented below under the captions “Consolidated Statement of Operations Data” and “Balance Sheet Data” have been derived from our unaudited, interim consolidated financial statements and include all adjustments, consisting only of normal recurring accruals, which management considers necessary for a fair presentation of the historical consolidated financial statements for such period. The information presented under the caption “Consolidated Statement of Operations Data” for the three months ended September 30, 2003 is not necessarily indicative of any other interim period or of the year ended December 31, 2003. In addition, since the information presented below is only a summary and does not provide all of the information contained in our historical consolidated financial statements, including the related notes, you should read it in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Arbor Realty Trust, Inc. and Subsidiaries” and our historical consolidated financial statements, including the related notes, included elsewhere in this prospectus.

		Three Months Ended
		September 30, 2003
		(Unaudited)
Statement of Operations Data:
Interest Income		$	4,669,990
Other income			500
Total revenue			4,670,490
Total expenses			3,183,411
Net income			1,074,587
Earnings per share, basic and diluted(1)			.13
Dividends declared per common share(2)			.25

		At September 30,
		2003
		(Unaudited)
Balance Sheet Data:
Loans and investments, net		$	214,237,458
Related party loans, net			26,000,000
Total assets			255,389,573
Notes payable and repurchase agreements			91,913,811
Total liabilities			97,831,411
Minority interest			44,309,289
Total stockholders’ equity			113,248,873

		Three Months Ended
		September 30, 2003
		(Unaudited)
Other Data:
Total originations		$	39,014,922

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(1)	The warrants underlying the units issued in the original offering at $75.00 per unit have an exercise price of $15.00 per share and expire on July 1, 2005. This exercise price is equal to the price per share of common stock in the original offering and approximates the market value of our common stock at September 30, 2003. Therefore, the assumed exercise of the warrants were not considered to be dilutive for purposes of calculating diluted earnings per share.
(2)	On November 5, 2003, we declared a dividend of $.25 per share of common stock, payable with respect to the quarter ending September 30, 2003, to stockholders of record at the close of business on November 5, 2003. We distributed this dividend on November 18, 2003.

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SELECTED CONSOLIDATED FINANCIAL INFORMATION OF THE STRUCTURED FINANCE

      On July 1, 2003, Arbor Commercial Mortgage contributed a portfolio of structured finance investments and related liabilities to our operating partnership. In addition, certain employees of Arbor Commercial Mortgage became our employees. These assets, liabilities and employees represented a substantial portion of Arbor Commercial Mortgage’s structured finance business.

      The tables on the following page present selected historical consolidated financial information of the structured finance business of Arbor Commercial Mortgage at the dates and for the periods indicated. The structured finance business did not operate as a separate legal entity or business division or segment of Arbor Commercial Mortgage but as an integrated part of Arbor Commercial Mortgage’s consolidated business. Accordingly, the statements of revenue and direct operating expenses do not include charges from Arbor Commercial Mortgage for corporate general and administrative expense because Arbor Commercial Mortgage considered such items to be corporate expenses and did not allocate them to individual business units. These expenses included costs for Arbor Commercial Mortgage’s executive management, corporate facilities and overhead costs, corporate accounting and treasury functions, corporate legal matters and other similar costs. The selected consolidated financial information presented under the caption “Consolidated Statement of Revenue and Direct Operating Expenses Data” for the years ended December 31, 2002, 2001 and 2000 and under the caption “Consolidated Statement of Assets and Liabilities Data” as of December 31, 2002 and 2001 have been derived from the audited consolidated financial statements of the structured finance business of Arbor Commercial Mortgage included elsewhere in this prospectus. The selected consolidated financial information presented under the caption “Consolidated Statement of Revenue and Direct Operating Expenses Data” for the years ended December 31, 1999 and 1998 and the caption “Consolidated Statement of Assets and Liabilities Data” as of December 31, 2000, 1999 and 1998 have been derived from the unaudited consolidated financial statements of the structured finance business of Arbor Commercial Mortgage.

      The selected consolidated financial information presented under the caption “Consolidated Statement of Revenue and Direct Operating Expenses Data” for the six months ended June 30, 2003 and 2002 and the nine months ended September 30, 2002 and under the caption “Consolidated Statement of Assets and Liabilities Data” at June 30, 2003 have been derived from the unaudited interim consolidated financial statements of Arbor Commercial Mortgage’s structured finance business and include all adjustments, consisting only of normal recurring accruals, which management considers necessary for a fair presentation of the historical consolidated financial information for such periods. The selected historical consolidated financial information presented under the caption “Consolidated Statement of Revenue and Direct Operating Expenses Data” for the six month period ended June 30, 2003 is not necessarily indicative of the results of any other interim period or the year ended December 31, 2003. The selected historical consolidated financial information presented under the caption “Consolidated Statement of Revenue and Direct Operating Expenses Data” for the six month period ended June 30, 2002 and the nine month period ended September 30, 2002 are not necessarily indicative of the results of any other interim period or the year ended December 31, 2002.

      The consolidated financial statements of Arbor Commercial Mortgage’s structured finance business included in this prospectus represent the consolidated financial position and results of operations of Arbor Commercial Mortgage’s structured finance business during certain periods and at certain dates when Arbor Commercial Mortgage previously held our initial assets, as well as several other structured finance investments that we did not acquire in connection with our formation transactions. See “Arbor Realty Trust, Inc.” Accordingly, the historical financial results of Arbor Commercial Mortgage’s structured finance business are not indicative of our future performance. In addition, since the information presented is only a summary and does not provide all of the information contained in the consolidated financial statements of Arbor Commercial Mortgage’s structured finance business, including related notes, you should read it in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Structured Finance Business of Arbor Commercial Mortgage, LLC and Subsidiaries” and the consolidated financial statements of Arbor Commercial Mortgage’s structured finance business, including related notes, contained elsewhere in this prospectus.

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Consolidated Statement of Revenue and Direct Operating Expenses Data:

											Nine Months
			Six Months Ended								Ended
			June 30,								September 30,				Year Ended December 31,
			2003				2002				2002				2002				2001(1)				2000(1)				1999(1)				1998(1)
			(Unaudited)								(Unaudited)
Interest Income			$	7,688,465			$	7,482,750			$	10,798,414			$	14,532,504			$	14,667,916			$	10,707,551			$	6,964,873			$	6,807,617
	Income from real estate held for sale, net of operating expenses			—				—				—				—				—				—				925,999				1,608,172
	Other income			1,552,414				553,625				572,161				1,090,106				1,668,215				652,970				2,838,639				7,064,294
Total revenue				9,240,879				8,036,375				11,370,575				15,622,610				16,336,131				11,360,521				10,729,511				15,480,083
Total direct operating expenses				5,737,688				8,344,302				10,775,555				13,639,755				10,997,800				9,227,274				7,145,469				6,589,274
Revenue in excess of direct operating expenses before gain on sale of loans and real estate and income from equity affiliates				3,503,191				(307,927	)			595,020				1,982,855				5,338,331				2,133,247				3,584,042				8,890,809
	Gain on sale of loans and real estate			1,024,268				7,006,432				7,006,432				7,470,999				3,226,648				1,880,825				1,818,299				1,898,558
	Income from equity affiliates			—				601,100				632,350				632,350				1,403,014				5,028,835				3,592,398				567,006
Revenue, gain on sale of loans and real estate and income from equity affiliates in excess of direct operating expenses				4,527,459				7,299,605				8,233,802				10,086,204				9,967,993				9,042,907				8,994,739				11,356,373

Consolidated Statement of Assets and Liabilities Data:

						At December 31,
		At June 30,
		2003				2002				2001				2000				1999				1998
		(Unaudited)
Loans and investments, net		$	204,561,578			$	172,142,511			$	160,183,066			$	85,547,323			$	50,156,022			$	75,604,351
Related party loans, net			23,277,041				15,952,078				15,880,207				—				—				—
Investment in equity affiliates			3,654,573				2,586,026				2,957,072				20,506,417				23,459,586				20,092,793
Total assets			241,667,960				200,563,236				183,713,747				119,110,446				84,751,032				96,537,674
Notes payable and repurchase agreements			171,045,404				141,836,477				132,409,735				70,473,501				47,154,530				58,678,062
Total liabilities			172,686,366				144,280,806				134,086,301				72,266,700				48,025,934				59,193,306
Net assets			68,981,594				56,282,430				49,627,446				46,843,746				36,725,098				37,344,368

Other Data:

		Six Months Ended								Nine Months
		June 30,								Ended				Year Ended December 31,
										September 30,
		2003				2002				2002				2002				2001				2000				1999				1998
Total originations		$	117,965,000			$	30,660,000			$	49,510,000			$	130,043,000			$	86,700,000			$	108,378,000	(2)		$	120,378,900	(2)		$	230,718,353	(2)

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(1)	In June 1998, Arbor Commercial Mortgage entered into a joint venture with SFG I, an affiliate of Nomura Asset Capital Corp., for the purpose of acquiring up to $250 million of structured finance investments. Arbor Commercial Mortgage and SFG I each made 50% of the capital contributions to the joint venture and shared profits equally. Nomura Asset Capital Corp. provided financing to the joint venture in the form of a repurchase agreement. On July 31, 2001, Arbor Commercial Mortgage purchased SFG I’s interest in this venture. This buyout was accounted for by the purchase accounting method. Prior to the purchase, net income from this venture was recorded in income from equity affiliates. The activities of the former joint venture have been included in the statements of revenue and direct operating expenses from the date of acquisition, August 2001. See the consolidated financial statements of Arbor Commercial Mortgage’s structured finance business and the related notes to the consolidated financial statements included elsewhere in this prospectus for further information.
(2)	Total originations for 1998, 1999 and 2000 include originations from Arbor Commercial Mortgage’s joint venture with SFG I discussed in footnote 1.

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MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION

      You should read the following discussion in conjunction with the sections of this prospectus entitled “Risk Factors”, “Forward-Looking Statements” and “Selected Consolidated Financial Information of Arbor Realty Trust, Inc. and Subsidiaries” and our historical consolidated financial statements, including related notes, included elsewhere in this prospectus.

Overview

      We are a Maryland corporation that was formed in June 2003 to invest in real estate related bridge and mezzanine loans, preferred equity and, in limited cases, discounted Mortgage notes and other real estate related assets. We conduct substantially all of our operations through our operating partnership.

      On July 1, 2003, Arbor Commercial Mortgage contributed $213.1 million of structured finance assets and $169.2 million of borrowings supported by $43.9 million of equity in exchange for a commensurate equity ownership in our operating partnership. In addition, certain employees of Arbor Commercial Mortgage were transferred to our operating partnership. These assets, liabilities and employees represent a substantial portion of Arbor Commercial Mortgage’s structured finance business. We are externally managed and advised by Arbor Commercial Mortgage and pay Arbor Commercial Mortgage a management fee in accordance with a management agreement. Arbor Commercial Mortgage will also originate, underwrite and service all structured finance assets on behalf of our operating partnership.

      Concurrently with Arbor Commercial Mortgage’s asset contribution, we consummated a private equity offering of units, each consisting of five shares of common stock and one warrant to purchase one share of common stock. The offering price per unit was $75, and gross proceeds from the private financing totaled $120.2 million. From the $120.2 million of gross proceeds from the original offering, we repaid $105.6 million of borrowings under our warehouse credit facility and repurchase agreements, purchased two mezzanine loans and one preferred equity investment from Arbor Commercial Mortgage for $6.7 million, paid offering expenses of $7.6 million and funded $.3 million of operating capital. Gross proceeds from the private financing combined with the concurrent equity contribution by Arbor Commercial Mortgage totaled approximately $164.1 million in equity capital. Offering expenses paid or accrued totaled $9.6 million, resulting in stockholders’ equity and minority interest of $154.5 million at our inception.

Sources of Operating Revenues

      We derive our operating revenues primarily through interest received from making real estate related bridge and mezzanine loans and preferred equity investments. For the three months ended September 30, 2003, interest represented approximately 100% of our total revenues. We provide bridge loans secured by first lien mortgages on the property to borrowers who are typically seeking short term capital to be used in an acquisition of property. The bridge loans we make typically range in size from $1 million to $25 million and have terms of up to seven years. We provide real property owners with mezzanine loans that are secured by pledges of ownership interests in entities that directly or indirectly control the real property or second mortgages. These loans typically range in size from $2 million to $15 million and have terms of up to seven years. We also make preferred equity investments in entities that directly or indirectly own real property.

      We also derive operating revenues from other income that represents miscellaneous asset management fees associated with our loans and investments portfolio. For the three months ended September 30, 2003, revenue from other income was $500.

Gain on Sale of Loans and Real Estate and Income from Equity Affiliates

      We may derive income from the gain on sale of loans and real estate. We may acquire (1) real estate for our own investment and, upon stabilization, disposition at an anticipated return and (2) real estate notes generally at a discount from lenders in situations where the borrower wishes to restructure and reposition its short term debt and the lender wishes to divest certain assets from its portfolio.

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      We may also derive income from equity affiliates relating to joint ventures that were formed with equity partners to acquire, develop and/or sell real estate assets. Such investments are recorded under the equity method. We record our share of net income from the underlying properties in which we invest through these joint ventures.

Significant Accounting Estimates and Critical Accounting Policies

      Set forth below is a summary of the accounting policies that management believes are critical to the preparation of the consolidated financial statements included in this prospectus. Certain of the accounting policies used in the preparation of these consolidated financial statements are particularly important for an understanding of the financial position and results of operations presented in the historical consolidated financial statements included in this prospectus and require the application of significant judgment by management and, as a result, are subject to a degree of uncertainty.

	Loans and Investments

      Loans held for investment are intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan origination costs and fees, unless such loan or investment is deemed to be impaired. We invest in preferred equity interests that allow us to participate in a percentage of the underlying property’s cash flows from operations and proceeds from a sale or refinancing. At the inception of each such investment, management must determine whether such investment should be accounted for as a loan, joint venture or as real estate. To date, management has determined that all such investments are properly accounted for and reported as loans.

      Specific valuation allowances are established for impaired loans based on the fair value of collateral on an individual loan basis. The fair value of the collateral is determined by an evaluation of operating cash flow from the property during the projected holding period, and estimated sales value computed by applying an expected capitalization rate to the stabilized net operating income of the specific property, less selling costs, discounted at market discount rates.

      If upon completion of the valuation, the fair value of the underlying collateral securing the impaired loan is less than the net carrying value of the loan, an allowance is created with a corresponding charge to the provision for loan losses. The allowance for each loan is maintained at a level believed adequate by management to absorb probable losses.

	Revenue Recognition

      Interest Income. Interest income is recognized on the accrual basis as it is earned. In most instances, the borrower pays an additional amount of interest at the time the loan is closed, an origination fee, and deferred interest upon maturity. This additional income, as well as any direct loan origination costs incurred, is deferred and recognized over the life of the related loan as a yield adjustment. Income recognition is suspended for loans when in the opinion of management a full recovery of income and principal becomes doubtful. Income recognition is resumed when the loan becomes contractually current and performance is demonstrated to be resumed. Several of the loans provide for accrual of interest at specified rates, which differ from current payment terms. Interest is recognized on such loans at the accrual rate subject to management’s determination that accrued interest and outstanding principal are ultimately collectible, based on the underlying collateral and operations of the borrower. If management cannot make this determination regarding collectibility, interest income is recognized only upon actual receipt.

Recently Issued Accounting Pronouncements

      In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). FIN 46 provides guidance on identifying entities for which control is achieved through means other than through voting rights (a “variable interest entities” or “VIE”), and how to determine when and which business enterprise should consolidate a VIE. In addition, FIN 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in VIE make additional disclosures.

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      In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” an interpretation of FASB Statement of Financial Accounting Standards No. 5 (“SFAS No. 5”), “Accounting for Contingencies,” Statement of Financial Accounting Standards No. 57, “Related Party Disclosures,” Statement of Financial Accounting Standards No. 107, “Disclosures about Fair Value of Financial Instruments” and rescinded FASB Interpretation No. 34, “Disclosure of Indirect Guarantees of Indebtedness of Others, an Interpretation of SFAS No. 5.” It requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee regardless of whether it receives separately identifiable consideration (i.e., a premium). The new disclosure requirements were effective December 31, 2002. The adoption of FIN 45 did not have a material impact on our consolidated financial statements, nor is it expected to have a material impact in the future.

Results of Operations

	Three Months Ended September 30, 2003

      The following table sets forth our results of operations for the three months ended September 30, 2003:

				Three Months
				Ended
				September 30, 2003
				(Unaudited)
Revenue:
	Interest income			$	4,669,990
	Other income				500
Total revenue				$	4,670,490
Expenses:
	Interest expense				721,854
	Employee compensation and benefits				446,845
		Stock based compensation			1,587,674
		Selling and administrative			133,304
		Management fee			293,734
Total expenses					3,183,411
Income before minority interest					1,487,079
Income allocated to minority interest					412,492
Net income				$	1,074,587

	Revenues

      Interest income was $4.7 million. The average balance of the loan and investment portfolio was $243.8 million during the quarter. The average yield on these assets was 7.59%.

      Other income was $500, which represents miscellaneous asset management fees associated with our loans and investments portfolio.

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	Expenses

      Interest expense was $722,000. The average balance of debt financing was $81.0 million during the quarter. The average cost of these borrowings was 3.56%. Our average leverage for the quarter was 33%, resulting in our interest margin on a levered basis being 9.61%.

      Employee compensation and benefits expense was $447,000, which represents salaries, benefits and incentive compensation for the ten employees employed by us during the quarter.

      Stock-based compensation expense was $1.6 million. This expense represents the cost of restricted stock granted to certain of our employees, executive officers and directors and certain executive officers and employees of our manager. Of the total shares granted, two-thirds of the shares granted vested immediately and the remaining one-third will vest over three years. The amount of compensation expense recorded in the quarter represents the full expense of the vested shares and a ratable portion of the expense of the unvested shares.

      Selling and administrative expense was $133,000. This amount is comprised primarily of professional fees, including legal and accounting services.

      Management fees were $294,000. This amount represents the base management fee as provided for in the management agreement with our manager. The management agreement also provides for incentive compensation; however, the requirements for incentive compensation were not satisfied and no incentive compensation was recorded in the period.

	Income Allocated to Minority Interest

      Income allocated to minority interest was $412,000. This amount represents the portion of our income allocated to our manager, which owns a 28% limited partnership interest in our operating partnership and is allocated 28% of our income.

Liquidity and Capital Resources

	Sources of Liquidity

      Liquidity is a measurement of the ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain loans and investments and other general business needs. Our primary sources of funds for liquidity consist of funds raised from our private equity offering in July 2003, borrowings under credit agreements, net cash provided by operating activities, repayments of outstanding loans and investments and the issuance of common, convertible and/or preferred equity securities.

      To maintain our status as a REIT under the Internal Revenue Code, we must distribute annually at least 90% of our taxable income. These distribution requirements limit our ability to retain earnings and thereby replenish or increase capital for operations. However, we believe that our significant capital resources and access to financing will provide us with financial flexibility and market responsiveness at levels sufficient to meet current and anticipated capital requirements, including expected new lending and investment opportunities.

      Gross proceeds from the original offering on July 1, 2003 totaled $120.2 million, which combined with Arbor Commercial Mortgage’s equity contribution of $43.9 million, resulted in total contributed capital of $164.1 million. From the $120.2 million of gross proceeds from the original offering, we repaid $105.6 million of borrowings under our warehouse credit facility and repurchase agreements, purchased two mezzanine loans and one preferred equity investment from Arbor Commercial Mortgage for $6.7 million, paid offering expenses of $7.6 million and funded $.3 million of operating capital. We paid or accrued offering expenses of $9.6 million, resulting in stockholders equity and minority interest of $154.5 million at our inception.

      We also maintain liquidity through one warehouse credit agreement and two master repurchase agreements with three different financial institutions with which Arbor Commercial Mortgage had similar

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      We have a $250.0 million warehouse credit agreement with a financial institution, dated as of July 1, 2003, with a term of three years. In the event this facility is not renewed, we have nine months to repay all outstanding advances. In addition to LIBOR-based interest obligations, this warehouse credit facility includes a profit sharing agreement, whereby the institution shares in the net interest spread of the assets financed. The profit sharing component represents the percentage of the net profits earned over the life of a loan that are payable to the lender upon repayment of the underlying investment. Net profits are based on interest income, interest expense and deferred interest payable at repayment of an investment. On September 30, 2003, the outstanding balance under this facility was $28.4 million.

      We have a $100.0 million master repurchase agreement with a second financial institution, dated as of November 18, 2002, with a one-year term, renewable annually. This repurchase agreement was assigned from Arbor Commercial Mortgage to us on July 1, 2003. In the event this facility is not renewed, we have twelve months to repay all outstanding advances. This agreement has been extended until February 14, 2004. We are currently negotiating with the financial institution to renew this facility. On September 30, 2003, the outstanding balance under this facility was $63.5 million.

      We have a $50.0 million master repurchase agreement with a third financial institution, dated as of July 1, 2003 with a term of three years. This facility has not yet been utilized.

      We have a $150.0 million master repurchase agreement with a fourth financial institution, dated as of December 23, 2003 with a term of three years. As of December 31, 2003, this facility had not been utilized. In December 2003, we entered into a temporary repurchase agreement arrangement with this financial institution to finance three mezzanine loans that were originated in December 2003. In January 2004, we transferred the financing of these three loans from the temporary facility to the $150.0 million facility.

      The warehouse credit agreement and the three master repurchase agreements require that we pay interest monthly, based on our pricing over LIBOR. The amount of our pricing over LIBOR varies depending upon the structure of the loan or investment financed pursuant to the warehouse credit agreement or the master repurchase agreement. Our pricing over LIBOR is summarized in the table on the following page.

      The warehouse credit agreement and the three master repurchase agreements require that we pay down borrowings under these facilities pro-rata as principal payments on our loans and investments are received. In addition, if upon maturity of a loan or investment we decide to grant the borrower an extension option, the financial institutions have the option to extend the borrowings or request payment in full on the outstanding borrowings of the loan or investment extended. The financial institutions also have the right to request immediate payment of any outstanding borrowings on any loan or investment that is at least 60 days delinquent.

      We believe our existing sources of funds will be adequate for purposes of meeting our short-term liquidity (within one year) and long-term liquidity needs. These liquidity needs, which are present in the short-term and long-term, include ongoing commitments to repay borrowings, fund future investments, fund operating costs and fund distributions. Our loans and investments, the majority of which have been contributed to us, are financed under existing credit facilities and their credit status is continuously monitored; therefore, these loans and investments are expected to generate a generally stable return. Our ability to meet our long-term liquidity and capital resource requirements is subject to obtaining additional debt and equity financing. If we are unable to renew our sources of financing on substantially similar terms or at all it would have an adverse effect on our business and results of operations. Any decision by our lenders and investors to enter into such transactions with us will depend upon a number of factors, such as our financial performance, compliance with the terms of our existing credit arrangements, 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 such capital commitments and the relative attractiveness of alternative investment or lending opportunities.

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      The maximum borrowing capacities, advance rates and other principal terms of our credit facilities are listed below:

		Warehouse				Repurchase				Repurchase				Repurchase
		Facility				Agreement				Agreement				Agreement
Total Facility Amount		$	250,000,000			$	100,000,000			$	50,000,000			$	150,000,000
Sublimits based on Investment Type Bridge Loan Sublimit Amount		$	125,000,000			$	75,000,000			$	50,000,000				N/A
Maximum Advance Rate(1)			85	%(2)			80	%			80	%			70%-80	%(6)
Pricing over LIBOR			2.00	%			2.00	%			1.25	%			1.75%- 2.875	%(6)
Profit Share(3)			20.0	%
Mezzanine Loans/ Preferred Equity Sublimit Amount		$	175,000,000			$	25,000,000			$	50,000,000			$	90,000,000
Maximum Advance Rate(1)			80	%(4)			65	%			75	%			55%-70	%(6)
Pricing over LIBOR			2.75	%			2.75	%			2.50	%			2.10%- 3.225	%(6)
Profit Share(3)			20.0	%
Note Acquisitions Sublimit Amount		$	125,000,000
Maximum Advance Rate(4)			80	%(5)
Pricing over LIBOR			2.50	%
Property Acquisitions Total Line		$	125,000,000
Maximum Advance Rate			80	%
Pricing over LIBOR			2.50	%
Financial Covenants:
Minimum net worth		$	115,000,000	(7)		$	45,000,000	(7)			(8)			$	75,000,000
Leverage (debt to net worth) ratio must not exceed			6 to 1				8 to 1				6 to 1				4 to 1
Minimum Liquidity(9)		$	3,000,000				N/A				N/A			$	15,000,000

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(1)	Advance rates for certain investments funded under the credit facilities are negotiated on an individual basis and may differ from the maximum advance rate listed.
(2)	Maximum loan amount advanced per bridge loan equal to $20.0 million.
(3)	Certain investments included in contribution of the initial assets are financed under prior profit sharing agreements between the financial institution and Arbor Commercial Mortgage with profit sharing percentages ranging from 20% to 45% of net interest income of the loans and investments financed.
(4)	Maximum loan amount advanced per mezzanine loan equal to $20.0 million.
(5)	Maximum loan amount advanced per acquisition equal to $20.0 million.
(6)	Advance rates and pricing over LIBOR vary due to the type of asset financed.
(7)	Minimum net worth is defined as net worth of our operating partnership.
(8)	Minimum net worth is equal to 75% of the highest level reached over the preceding twelve consecutive calendar months.

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(9)	Minimum liquidity is defined as liquid assets and available financing under the facilities.

      In addition to the financial covenants presented in the table above, our warehouse credit agreement and master repurchase agreements contain covenants that prohibit us from effecting a change in control or disposing of or encumbering assets being financed and restrict us from making any material amendment to our underwriting guidelines without approval of the lender. Furthermore, the credit facilities include various covenants not deemed to be restrictive. If we violate these covenants in any of these agreements, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. Violations of these covenants may result in our being unable to borrow unused amounts under a line of credit, even if repayment of some or all borrowings is not required. As of September 30, 2003 we are in compliance with all covenants and restrictions.

      In addition to these credit facilities, we have a participation agreement with a financial institution to finance a portion of a $16.4 million apartment bridge loan. The interest payable on the participation agreement is LIBOR plus 3.00% with a floor of 4.75% and the outstanding balance as of September 30, 2003 was approximately $12.9 million.

	Contractual Commitments

      Pursuant to our management agreement with Arbor Commercial Mortgage, we pay Arbor Commercial Mortgage an annual base management fee based on the equity of our operating partnership, as further discussed below. The amount of the base management fee does not depend on the performance of the services provided by our manager or the types of assets it selects for our investment, but the value of our operating partnership’s equity will be affected by the performance of these assets. We also pay our manager incentive compensation each fiscal quarter. We have paid $587,734 in base management fees to Arbor Commercial Mortgage for management services rendered for the six months ended December 31, 2003. Our manager did not earn incentive compensation for the quarters ended September 30, 2003 or December 31, 2003. The table below summarizes the calculation of the base management fee, incentive compensation and other fees and expenses payable to our manager pursuant to the management agreement.

Type		Description and Method of Computation		Payable
Base management fee(1)		(1) 0.75% per annum of the first $400 million of our operating partnership’s equity		Monthly in arrears in cash
		(2) 0.625% per annum of our operating partnership’s equity between $400 million and $800 million, and (3) 0.50% per annum of our operating partnership’s equity in excess of $800 million.
Incentive compensation(2)		(1) 25% of the amount by which: (a) our operating partnership’s funds from operations per operating partnership unit, adjusted for certain gains and losses, exceeds (b) the product of (x) 9.5% per annum or the Ten Year U.S. Treasury Rate plus 3.5%, whichever is greater, and (y) the weighted average of the book value of the net assets contributed by Arbor Commercial Mortgage to our operating partnership per operating partnership unit, $15 (representing the offering price per share of our common stock in the original offering), (3) the offering price per share of our common stock in any subsequent offerings and the issue price per operating partnership unit for subsequent contributions to our operating partnership, multiplied by		Each fiscal quarter, with at least 25% paid in our common stock
		(2) the weighted average of our operating partnership’s outstanding operating partnership units.
Overhead expenses		Compensation of our independent directors, legal, accounting, due diligence tasks and other services that outside professionals perform for us.		Each fiscal quarter in cash

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Type		Description and Method of Computation		Payable
Origination fee income(4)		An amount equal to 100% of the origination fees paid by the borrower to us with respect to each bridge loan and mezzanine loan we originate, up to 1% of the loan’s principal amount.		Upon closing of each loan
Termination fee(5)		If we terminate or elect not to renew the management agreement in order to manage our portfolio internally, we are required to pay a termination fee equal to the base management fee and incentive compensation for the 12-month period preceding the termination.		Upon termination
		If, without cause, we terminate or elect not to renew the management agreement for any other reason, including a change of control of us, we are required to pay a termination fee equal to two times the base management fee and incentive compensation paid for the 12-month period preceding the termination.

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(1)	For purposes of calculating the base management fee, our operating partnership’s equity equals the month-end value computed in accordance with generally accepted accounting principles of total partners’ equity in our operating partnership, plus or minus any unrealized gains, losses or other items that do not affect realized net income.
(2)	At least 25% of the incentive compensation paid to our manager will be in the form of shares of our common stock, subject to ownership limitations in our charter. Beginning on January 1, 2004, the incentive compensation will be measured over a full fiscal year, subject to recalculation and potential reconciliation at the end of each fiscal year. We intend to pay our manager each installment of the incentive compensation within sixty (60) days following the last day of the fiscal quarter with respect to which such incentive compensation payment is payable.
(3)	We allocated the $75 offering price per unit to the five shares of common stock comprising each unit, resulting in an offering price of $15 per share of common stock in the original offering. We did not allocate any value to the one warrant underlying each unit because the warrants have an initial exercise price of $15 and they are not exercisable, detachable or freely tradable for an indeterminable period of time (i.e., until after the registration and listing of the common stock comprising the units on national securities exchange or The Nasdaq Stock Market).
(4)	100% of the origination fees paid by the borrower in excess of 1% of the loan’s principal amount are retained by us.
(5)	The management agreement has an initial term of two years and is renewable automatically for an additional one year period every year thereafter, unless terminated with six months’ prior written notice.

     The incentive compensation fee will be measured annually in arrears; provided, however, Arbor Commercial Mortgage shall receive quarterly installments thereof in advance. The quarterly installments will be calculated based on the results for the period of twelve months ending on the last day of the fiscal quarter with respect to which such installment is payable. Each quarterly installment payment will be deemed to be an advance of a portion of the incentive fee payable for the year. In the event the calculated incentive compensation for the full year is an amount less than the total of the installment payments made to our manager for the year, Arbor Commercial Mortgage will refund to us the amount of such overpayment in cash. In such case, we would record a negative incentive fee expense in the quarter when such overpayment is determined.

Related Party Transactions

	Related Party Loans

      Arbor Commercial Mortgage has a 50% non-controlling interest in a joint venture, which was formed to acquire, develop and/or sell real estate assets. At September 30, 2003, Arbor Commercial Mortgage’s investments in this joint venture were approximately $2.6 million. At September 30, 2003, we had a $16.0 million bridge loan outstanding to the joint venture, which is collateralized by a first lien position on a commercial real estate property. There is a limited guarantee on the loan of 50% by our chief executive officer and 50% by the key principal of the joint venture. The loan requires monthly interest payments based on LIBOR and matures in October 2004. We have agreed to provide the borrower with additional mezzanine financing in the amount of up to $8.0 million. The mezzanine financing requires interest payments based on

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      Our $16.0 million bridge loan to the joint venture was contributed by Arbor Commercial Mortgage at book value, which approximates fair value. At the time of contribution, Arbor Commercial Mortgage also agreed to provide a limited guaranty of the loan’s principal amount based any profits realized on its retained 50% interest in the joint venture with the borrower and Arbor Commercial Mortgage’s participating interests in borrowers under three other contributed structured finance assets.

      In June 2003, Arbor Commercial Mortgage invested approximately $818,000 in exchange for a 12.5% non-controlling interest in a joint venture, which was formed to acquire, develop and/or sell real estate assets. This investment was purchased by us from Arbor Commercial Mortgage in August 2003. In addition, as of September 30, 2003, we had two mezzanine loans, secured by a second lien position in the ownership interests of the borrower and the property, to this joint venture totaling $6.0 million outstanding. The loans require monthly interest payments based on LIBOR and mature in May 2006. Interest income recorded from these loans was approximately $97,000 for the period ended September 30, 2003.

      At the time of Arbor Commercial Mortgage’s origination of three of the structured finance assets that it contributed to us on July 1, 2003 at book value, which approximates fair value, each of the property owners related to these contributed assets granted Arbor Commercial Mortgage participating interests that share in a percentage of the cash flows of the underlying properties. Upon contribution of the structured finance assets, Arbor Commercial Mortgage retained these participating interests and its 50% non-controlling interest in the joint venture to which it had made the $16.0 million bridge loan. Arbor Commercial Mortgage agreed that if any portion of the outstanding amount of any of these four contributed assets (which had an aggregate balance of $48.3 million as of September 30, 2003) is not paid at the its maturity or repurchase date, Arbor Commercial Mortgage will pay us, subject to the limitation described below, the portion of the unpaid amount of the contributed asset up to the total amount then received by Arbor Commercial Mortgage due to the realization of any profits on its retained interests associated with any other of the four contributed assets. However, Arbor Commercial Mortgage will no longer be obligated to make such payments to us when the remaining accumulated principal amount of the four contributed assets, collectively, falls below $5 million and none of the four contributed assets is in default.

	Related Party Formation Transactions

      Arbor Commercial Mortgage contributed the majority of its structured finance portfolio to our operating partnership pursuant to a contribution agreement. The contribution agreement contains representations and warranties concerning the ownership and terms of the structured finance assets it contributed and other customary matters. Arbor Commercial Mortgage has agreed to indemnify us and our operating partnership against breaches of those representations and warranties. In connection with its asset contribution Arbor Commercial Mortgage has also agreed to guaranty a portion of the principal amount of four contributed assets in which Arbor Commercial Mortgage has retained a participating interest or a joint venture interest in the borrower.

      In exchange for Arbor Commercial Mortgage’s asset contribution, we issued to Arbor Commercial Mortgage approximately 3.1 million operating partnership units, each of which Arbor Commercial Mortgage may redeem for one share of our common stock or an equivalent amount in cash, at our election, and approximately 629,000 warrants, each of which entitles Arbor Commercial Mortgage to purchase one additional operating partnership unit at an initial exercise price of $15. The operating partnership units and warrants for additional operating partnership units issued to Arbor Commercial Mortgage were valued at approximately $43.9 million at July 1, 2003, based on the price offered to investors in our units in the original

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      Each of the approximately 3.1 million operating partnership units received by Arbor Commercial Mortgage is paired with one share of our special voting preferred stock that entitles the holder to one vote on all matters submitted to a vote of our stockholders. As operating partnership units are redeemed for shares of our common stock or cash an equivalent number of shares of special voting preferred stock will be redeemed and cancelled. As a result of Arbor Commercial Mortgage asset contribution and the related formation transactions, Arbor Commercial Mortgage owns approximately a 28% limited partnership interest in our operating partnership and the remaining 72% interest in our operating partnership is owned by us. In addition, Arbor Commercial Mortgage has approximately 28% of the voting power of our outstanding stock (without giving effect to the exercise of Arbor Commercial Mortgage warrants for additional operating partnership units). Upon consummation of this offering, Arbor will hold a           % limited partnership interest in our operating partnership and           % of the voting power of our outstanding stock.

      We and our operating partnership have entered into a management agreement with Arbor Commercial Mortgage pursuant to which Arbor Commercial Mortgage has agreed to provide us with structured finance investment opportunities and loan servicing as well as other services necessary to operate our business. As discussed above in “— Contractual Commitments,” we have agreed to pay our manager an annual base management fee and incentive compensation each fiscal quarter and share with Arbor Commercial Mortgage a portion of the origination fees that we receive on loans we originate with Arbor Commercial Mortgage pursuant to this agreement.

      Under the terms of the management agreement, Arbor Commercial Mortgage is also required to provide us with a right of first refusal with respect to all structured finance identified by Arbor Commercial Mortgage or its affiliates. We have agreed not to pursue, and to allow Arbor Commercial Mortgage to pursue, any real estate opportunities other than structured finance transactions. In addition, Mr. Kaufman has entered into a non-competition agreement with us pursuant to which he has agreed not to pursue structured finance investment opportunities, except as approved by our board of directors.

      We and our operating partnership have also entered into a services agreement with Arbor Commercial Mortgage pursuant to which our asset management group provides asset management services to Arbor Commercial Mortgage. In the event the services provided by our asset management group pursuant to the agreement exceed by more than 15% per quarter the level of activity anticipated by our board of directors, we will negotiate in good faith with our manager an adjustment to our manager’s base management fee under the management agreement, to reflect the scope of the services, the quantity of serviced assets or the time required to be devoted to the services by our asset management group.

Recent Developments

      Since September 30, 2003, we have made sixteen new loans and investments totaling $243.3 million. These new investments include seven bridge loans for $96.9 million, seven mezzanine loans for $134.3 million and two preferred equity investments for $12.1 million.

      In relation to three mezzanine loans originated in December 2003, we entered into a temporary repurchase agreement arrangement with a financial institution. On December 23, 2003, we executed a $150 million repurchase agreement with a three-year term with interest based on LIBOR with this financial institution. In January 2004, the financing for the three mezzanine loans transferred to this facility.

      Since September 30, 2003, the following seven investments contributed to us by Arbor Commercial Mortgage, totaling $61.2 million, were repaid in full, including all current and deferred interest, prior to maturity: the Holiday Inn Convention Center bridge loan ($4.7 million), the Park Place Apartments preferred equity investment ($3.9 million), the Vermillion Apartments bridge loan ($18.8 million), Carlton Arms Apartments mezzanine loan ($4.0 million), the Devonshire Apartments preferred equity investment ($2.5 million), the Emerald Bay bridge loan ($15.4 million) and the Dylan Hotel bridge loan ($11.9 million).

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Quantitative and Qualitative Disclosures about Market Risk

      Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and real estate values. The primary market risks that we are exposed to are real estate risk and interest rate risk.

	Real Estate Risk

      Commercial mortgage assets may be viewed as exposing an investor to greater risk of loss that residential mortgage assets since such assets are typically secured by larger loans to fewer obligors than residential mortgage assets. Multi-family and commercial property values and net operating income derived from such properties are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors), local real estate conditions (such as an oversupply of housing, retail, industrial, office or other commercial space); changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; retroactive changes to building or similar codes; and increases in operating expenses (such and energy costs). In the event net operating income decreases, a borrower may have difficulty repaying our loans, which could result in losses to us. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay our loans, which could also cause us to suffer losses. Even when the net operating income is sufficient to cover the related property’s debt service, there can be no assurance that this will continue to be the case in the future.

	Interest Rate Risk

      Interest rate risk is highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.

      Our operating results will depend in large part on differences between the income from our assets and our borrowing costs. Most of our assets and borrowings are variable-rate instruments, based on LIBOR. The objective of this strategy is to minimize the impact of interest rate changes on our net interest income. Many of our loans and borrowings are subject to various interest rate floors. As a result, the impact of a change in interest rates may be different on our interest income than it is on our interest expense. Based on the assets and liabilities as of September 30, 2003, and assuming the balances of these assets and liabilities remain unchanged for the subsequent months, a 1% increase in LIBOR would increase our annual net income and cash flows because the principal amount of assets that would be subject to an interest rate adjustment under this scenario exceeds the amount of liabilities that would subject to an interest rate adjustment. A 1% decrease in LIBOR would also increase our annual net income and cash flows because the principal amount of assets currently subject to interest rate floors (and, therefore, would not be subject to a downward interest rate adjustment) exceeds the amount of liabilities currently subject to interest rate floors. As the size of the portfolio increases and the percentage of borrowings as a percent of assets increases, a change in interest rates may have a negative impact on our net income.

      In the event of a significant rising interest rate environment and/or economic downturn, defaults could increase and result in credit losses to us, which could adversely affect our liquidity and operating results. Further, such delinquencies or defaults could have an adverse effect on the spreads between interest-earning assets and interest-bearing liabilities.

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MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

      You should read the following discussion in conjunction with the sections of this prospectus entitled “Risk Factors”, “Forward-Looking Statements” and “Selected Consolidated Financial Information of the Structured Finance Business of Arbor Commercial Mortgage, LLC and Subsidiaries” and the historical consolidated financial statements of the structured finance business of Arbor Commercial Mortgage, including related notes, included elsewhere in this prospectus.

Overview and Basis of Presentation

      We are a Maryland corporation that was formed in June 2003 to invest in real estate related bridge and mezzanine loans, preferred equity and, in limited cases, discounted mortgage notes and other real estate related assets. We conduct substantially all of our operations through our operating partnership, Arbor Realty Limited Partnership. We intend to elect to be treated as a REIT for federal income tax purposes.

      On July 1, 2003 Arbor Commercial Mortgage contributed a portfolio of structured finance investments and related liabilities to our operating partnership. In addition, certain employees of Arbor Commercial Mortgage related to its structured finance business became our employees. These assets, liabilities and employees represented a substantial portion of Arbor Commercial Mortgage’s structured finance business, which historically invested in real estate related bridge and mezzanine loans, preferred equity and other real estate related assets.

      The structured finance business of Arbor Commercial Mortgage is not a separate legal entity and the assets and liabilities associated with Arbor Commercial Mortgage’s structured finance business are components of a larger business. We obtained the information in the consolidated financial statements included elsewhere in this prospectus from Arbor Commercial Mortgage’s consolidated historical accounting records.

      The structured finance business of Arbor Commercial Mortgage never operated as a separate business segment or division of Arbor Commercial Mortgage, but as an integrated part of Arbor Commercial Mortgage’s consolidated business. Accordingly, the statements of revenue and direct operating expenses do not include charges from Arbor Commercial Mortgage for corporate general and administrative expense because Arbor Commercial Mortgage considered such items to be corporate expenses and did not allocate them to individual business units. These expenses included costs for Arbor Commercial Mortgage’s executive management, corporate facilities and overhead costs, corporate accounting and treasury functions, corporate legal matters and other similar costs.

      The information in the statements of revenue and direct operating expenses include the revenue and direct operating expenses that relate to the structured finance business. Direct operating expenses include interest expense applicable to the funding costs of the structured finance business loans and investments, salaries and related fringe benefit costs, provision for loan losses and other expenses directly associated with revenue-generating activities. Direct operating expenses also include allocations of certain expenses, such as telephone, office equipment rental and maintenance, office supplies and marketing, which were directly associated with the structured finance business and were allocated based on headcount of the structured finance business in relation to the total headcount of Arbor Commercial Mortgage. All of these allocations are based on assumptions that management believes are reasonable under the circumstances.

      The consolidated financial statements in this prospectus do not include a statement of cash flows because the structured finance business did not maintain a separate cash balance. Other than the debt required to fund the loans and investments of the structured finance business, operating activities of the structured finance business were funded by Arbor Commercial Mortgage.

      Since the structured finance business never operated as a separate business division or segment of Arbor Commercial Mortgage, the consolidated financial statements included in this prospectus are not intended to be a complete presentation of the historical financial position, results of operations and cash flows of the structured finance business. These consolidated financial statements were prepared for inclusion in the

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Sources of Operating Revenues

      We derive our operating revenues primarily from interest received from making real estate related bridge and mezzanine loans and preferred equity investments. We provide bridge loans secured by first lien mortgages on the property to borrowers who are typically seeking short term capital to be used in an acquisition of property. The bridge loans we make typically range in size from $1 million to $25 million and have terms of up to seven years. We provide real property owners with mezzanine loans that are secured by pledges of ownership interests in entities that directly or indirectly control the real property or second mortgages. These loans typically range in size from $2 million to $15 million and have terms of up to seven years. We also make preferred equity investments in entities that directly or indirectly own real property. Interest represented 83%, 93% and 95% of total revenue for the six months ended June 30, 2003 and June 30, 2002 and for the nine months ended September 30, 2002, respectively. Interest represented 93%, 90% and 94% of total revenue for the years ended December 31, 2002, December 31, 2001 and December 31, 2000, respectively.

      We also derive operating revenue from other income that includes several types of income that are recorded upon receipt. Certain of our loans and investments provide for additional payments based on the borrower’s operating cash flow, appreciation of the underlying collateral, payments calculated based on timing of when the loan pays off and changes in interest rates. Such amounts are not readily determinable and are recorded as other income upon receipt. Other income also includes the recognition of deferred revenue on loans that prepay, asset management fees related to our loans and investment portfolio and satisfactions on impaired loans in excess of carrying values. Other income represented 17%, 7% and 5% of total revenue for the six months ended June 30, 2003 and June 30, 2002 and for the nine months ended September 30, 2003, respectively. Other income represented 7%, 10% and 6% of total revenue for the years ended December 31, 2002, December 31, 2001 and December 31, 2000, respectively.

Gain on Sale of Loans and Real Estate and Income from Equity Affiliates

      We also derive income from the gain on sale of loans and real estate. We acquire (1) real estate for our own investment and, upon stabilization, disposition at an anticipated return and (2) real estate notes generally at a discount from lenders in situations where the borrower wishes to restructure and reposition its short term debt and the lender wishes to divest certain assets from its portfolio.

      In addition, we derive income from equity affiliates relating to joint ventures that Arbor Commercial Mortgage’s structured finance business formed with equity partners to lend to, acquire, develop and/or sell real estate assets. These investments are recorded under the equity method. We record our share of net income from the underlying properties invested in through these joint ventures.

Significant Accounting Estimates and Critical Accounting Policies

      Set forth below is a summary of the accounting policies that management believes are critical to the preparation of the consolidated financial statements included in this prospectus. Certain of the accounting policies used in the preparation of these consolidated financial statements are particularly important for an understanding of the financial position and results of operations presented in the historical consolidated financial statements included in this prospectus and require the application of significant judgment by management and, as a result, are subject to a degree of uncertainty.

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	Real Estate Owned

      Real estate owned represents commercial real estate property that the structured finance business of Arbor Commercial Mortgage owns and operates. Such assets are not depreciated and are carried at the lower of cost or fair value less cost to sell. Management reviews its real estate assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

	Loans and Investments

      Loans held for investment are intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan origination costs and fees, unless such loan or investment is deemed to be impaired.

      Arbor Commercial Mortgage’s structured finance business historically invested in preferred equity interests that allowed Arbor Commercial Mortgage to participate in a percentage of the underlying property’s cash flows from operations and proceeds from a sale or refinancing. At the inception of each such investment, management must determine whether such investment should be accounted for as a loan, joint venture or as real estate. To date, management has determined that all such investments are properly accounted for and reported as loans.

      Specific valuation allowances are established for impaired loans based on the fair value of collateral on an individual loan basis. The fair value of the collateral is determined by an evaluation of operating cash flow from the property during the projected holding period, and estimated sales value computed by applying an expected capitalization rate to the stabilized net operating income of the specific property, less selling costs, discounted at market discount rates. If upon completion of the valuation, the fair value of the underlying collateral securing the impaired loan is less than the net carrying value of the loan, an allowance is created with a corresponding charge to the provision for loan losses. The allowance for each loan is maintained at a level believed adequate by management to absorb probable losses.

     Revenue Recognition

      The revenue recognition policies for Arbor Commercial Mortgage’s structured finance business are as follows:

      Interest Income. Interest income is recognized on the accrual basis as it is earned. In most instances, the borrower pays an additional amount of interest at the time the loan is closed, an origination fee, and deferred interest upon maturity of the loan. This additional income as well as any direct loan origination costs incurred, is deferred and recognized over the life of the related loan as a yield adjustment. Income recognition is suspended for loans when in the opinion of management a full recovery of income and principal becomes doubtful. Income recognition is resumed when the loan becomes contractually current and performance is demonstrated to be resumed Several of the loans provide for accrual of interest at specified rates, which differ from current payment terms. Interest is recognized on such loans at the accrual rate subject to management’s determination that accrued interest and outstanding principal are ultimately collectible, based on the underlying collateral and operations of the borrower. If management cannot make this determination regarding collectibility, interest income is recognized only upon actual receipt.

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Results of Operations

     Six Months Ended June 30, 2003 and 2002

      Revenue. The following table sets forth the components of revenue:

		Six Months Ended								Increase/
		June 30,								(Decrease)
		2003				2002				Amount				Percent
Interest income		$	7,688,465			$	7,482,750			$	205,715				3	%
Other income			1,552,414				553,625				998,789				180	%
Total Revenue		$	9,240,879			$	8,036,375			$	1,204,504				15	%

      Interest income increased $206,000, or 3%, to $7.7 million for the six months ended June 30, 2003 from $7.5 million for the six months ended June 30, 2002. This increase was primarily due to a 21% increase in the weighted average balance of loans and investment partially offset by a 15% decrease in the weighted average effective interest rate of loans and investments primarily due to a decline in market interest rates. Most of our loans and investments are variable rate instruments based on LIBOR. The negative impact to interest income as a result of the decrease in market interest rates was partially offset by interest rate floors that were in effect on many of our loans and investments.

      Other income increased $1.0 million, or 180%, to $1.6 million for the six months ended June 30, 2003 from $554,000 for the six months ended June 30, 2002. This increase was primarily attributable to (a) the partial satisfaction of an impaired loan for an amount $350,000 in excess of the loan’s carrying value resulting in the recognition of other income for this amount (b) increased funds received on paid off loans of $337,000 and (c) increased accelerated amortization of revenue of $390,000 on loans with early payoffs.

      Expenses. The following table sets forth the components of direct operating expenses:

		Six Months Ended								Increase/
		June 30,								(Decrease)
		2003				2002				Amount				Percent
Interest expense		$	3,468,275			$	3,370,777			$	97,498				3	%
Employee compensation and benefits			1,751,147				1,410,272				340,875				24	%
Selling and administrative			458,266				368,253				90,013				24	%
Provision for loan losses			60,000				3,195,000				(3,135,000	)			(98	)%
Total direct operating expenses		$	5,737,688			$	8,344,302			$	(2,606,614	)			(31	)%

      Interest expense increased $100,000, or 3%, to $3.5 million for the six months ended June 30, 2003 from $3.4 million for the six months ended June 30, 2002. This increase is primarily attributable to a 26% increase in the weighted average borrowings partially offset by a 19% decrease in the weighted average effective financing rate primarily due to a decline in market interest rates.

      Employee compensation and benefits increased $341,000, or 24%, to $1.8 million for the six months ended June 30, 2003 from $1.4 million for the six months ended June 30, 2002. This increase reflects increased staffing levels associated with the increased loan and investments opportunities.

      Selling and administrative expenses increased $90,000, or 24%, to $458,000 for the six months ended June 30, 2003 from $368,000 for the six months ended June 30, 2002. This increase was primarily attributable to operating expenses incurred in 2003 for a real estate owned asset, and increased marketing expenses associated with the growth of the lending and investment activities.

      Provision for loan losses decreased $3.1 million, or 98%, to $60,000 for the six months ended June 30, 2003 from $3.2 million for the six months ended June 30, 2002. This decrease was directly attributable to a $3.1 million provision for loan losses recorded in 2002 prior to this loan being foreclosed and reclassified to real estate owned. This provision was recorded to reflect this asset at its estimated fair value.

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      Gain on sale of loans and real estate and income from equity affiliates. The following table sets forth our gain on sale of loans and real estate and income from equity affiliates:

		Six Months Ended								Increase/
		June 30,								(Decrease)
		2003				2002				Amount				Percent
Gain on sale of loans and real estate		$	1,024,268			$	7,006,432			$	(5,982,164	)			(85	)%
Income from equity affiliates			—			$	601,100			$	(601,100	)			—

      Gain on sale of loans and real estate decreased $6.0 million, or 85%, to $1.0 million for the six months ended June 30, 2003 from $7.0 million for the six months ended June 30, 2002. This decrease was primarily attributable to a $6.8 million gain on the sale of a joint venture interest in March 2002 partially offset by a $900,000 gain on the partial liquidation of a joint venture interest in 2003.

      Income from equity affiliates for the six months ended June 30, 2002 consist of net income from a joint venture interest recognized prior to the sale of that joint venture interest in March 2002.

     Nine Months Ended September 30, 2002

      Revenues. The following table sets forth the components of revenue:

		Nine Months
		Ended
		September 30,
		2002
Interest income		$	10,798,414
Other income			572,161
Total Revenue		$	11,370,575

      Interest income was $10.8 million. The average balance of the loan and investment portfolio was $174.7 million during the period. The average yield on these assets was 8.24%.

      Other income was $572,000. This amount represents funds received on loans and investments which generate additional payments to us based on the borrower’s operating cash flow.

      Expenses. The following table sets forth the components of direct operating expenses:

		Nine Months
		Ended
		September 30,
		2002
Interest expense		$	4,832,260
Employee compensation and benefits			2,105,445
Selling and administrative			582,850
Provision for loan losses			3,255,000
Total direct operating expenses		$	10,775,555

      Interest expense was $4.8 million. The average balance of debt financing was $118.9 million during the quarter. The average cost of these borrowings was 5.42%.

      Employee compensation and benefits expense was $2.1 million, which represents salaries, benefits and incentive compensation for all employees who work directly in Arbor Commercial Mortgage’s structured finance business.

      Selling and administrative expense was $583,000. This amount is comprised primarily of professional fees directly associated with Arbor Commercial Mortgage structured finance business, operating expenses incurred for a real estate owned assets, and marketing expenses incurred directly for Arbor Commercial Mortgage’s structured finance business.

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      The provision for loan losses was $3.3 million. Of this amount $3.1 million was directly attributable to a specific loan at was being foreclosed upon and reclassified to real estate owned. This provision was recorded to reflect this asset at its estimated fair value. The remaining provision of $200,000 was established to properly reflect the book value of an impaired loan.

      Gain on sale of loans and real estate and income from equity affiliates. The following table sets forth our gain on sale of loans and real estate and income from equity affiliates:

		Nine Months
		Ended
		September 30,
		2002
Gain on sale of loans and real estate		$	7,006,432
Income from equity affiliates		$	632,350

      Gain on sale of loans and real estate was $7.0 million. This amount consists primarily of a $6.8 million gain on the sale of a joint venture interest in March 2002.

      Income from equity affiliates was $632,000. This amount consists primarily of net income from a joint venture interest recognized prior to the sale of that joint venture interest in March 2002.

     Years Ended December 31, 2002 and 2001

      Revenue. The following table sets forth the components of revenue:

		Year Ended								Increase/
		December 31,								(Decrease)
		2002				2001				Amount				Percent
Interest income		$	14,532,504			$	14,667,916			$	(135,412	)			(1	)%
Other income			1,090,106				1,668,215				(578,109	)			(35	)%
Total Revenue		$	15,622,610			$	16,336,131			$	713,521				(4	)%

      Interest income decreased $135,000, or 1%, to $14.5 million for 2002 from $14.7 million for 2001. This decrease was primarily due to a 16% decrease in the weighted average effective interest rate of loans and investments primarily due to a decline in market interest rates partially offset by a 17% increase in the weighted average balance of loans and investment. Most of our loans and investments are variable rates instruments based on LIBOR. The negative impact to interest income as a result of the decrease in market interest rates was partially offset by interest rate floors that were in effect on many of our loans and investments.

      Other income decreased $578,000, or 35%, to $1.1 million for 2002 from $1.7 million for 2001. This decrease was primarily attributable to decreased extension fees earned of $215,000 and decreased funds received on paid off loans of $361,000.

      Expenses. The following table sets forth the components of direct operating expenses:

		Year Ended								Increase/
		December 31,								(Decrease)
		2002				2001				Amount				Percent
Interest expense		$	6,586,640			$	7,029,374			$	(442,734	)			(6	)%
Employee compensation and benefits			2,827,191				2,888,603				(61,412	)			(2	)%
Selling and administrative			910,924				839,823				71,101				8	%
Provision for loan losses			3,315,000				240,000				3,075,000				1,281	%
Total direct operating expenses		$	13,639,755			$	10,997,800			$	2,641,955				24	%

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      Interest expense decreased $443,000, or 6%, to $6.6 million for 2002 from $7.0 million for 2001. This decrease is primarily attributable to a 20% decrease in the weighted average effective financing rate due to a decline in market interest rates partially offset by a 17% increase in the weighted average borrowings.

      Employee compensation and benefits remained relatively stable from 2001 to 2002.

      Selling and administrative expenses increased $71,000, or 8%, to $911,000 for 2002 from $840,000 for 2001. This increase was primarily attributable to increased legal expenses associated with the asset management and restructuring of our loans and investments portfolio.

      Provision for loan losses increased $3.1 million, or 1,281%, to $3.3 million for 2002 from $240,000 for 2001. This increase was directly attributable to a $3.1 million provision for possible loan losses recorded in 2002 prior to this loan being foreclosed on and reclassified as real estate owned. This provision was recorded to reflect this asset at its estimated fair value.

      Gain on sale of loans and real estate and income from equity affiliates. The following table sets forth our gain on sale of loans and real estate and income from equity affiliates:

		Year Ended								Increase/
		December 31,								(Decrease)
		2002				2001				Amount				Percent
Gain on sale of loans and real estate		$	7,470,999			$	3,226,648			$	4,244,351				132	%
Income from equity affiliates		$	632,350			$	1,403,014			$	(770,664	)			(55	)%

      Gain on sale of loans and real estate increased $4.2 million, or 132%, to $7.5 million for 2002 from $3.2 million for 2001. This increase was primarily attributable to a $6.8 million gain on the sale of a joint venture interest in March 2002 partially offset by a $2.2 million gain from the sale of property from a joint venture interest and a $276,000 decrease in income from the sale of foreclosed loans.

      Income from equity affiliates decreased $770,000, or 55%, to $632,000 for 2002 from $1.4 million for 2001. This decrease was primarily attributable to a $868,000 decrease in net income from joint venture interests due to dissolutions of joint ventures in 2001 and 2002, partially offset by a $97,000 increase in net income from other joint venture interest.

     Years Ended December 31, 2001 and 2000

      Revenue. The following table sets forth the components of revenue:

		Year Ended								Increase/
		December 31,								(Decrease)
		2001				2000				Amount				Percent
Interest income		$	14,667,916			$	10,707,551			$	3,960,365				37	%
Other income			1,668,215				652,970				1,015,245				155	%
Total Revenue		$	16,336,131			$	11,360,521			$	4,975,610				44	%

      Interest income increased $4.0 million, or 37%, to $14.7 million for 2001 from $10.7 million for 2000. This increase was primarily due to a 81% increase in the weighted average balance of loans and investment partially offset by a 24% decrease in the weighted average effective interest rate of loans and investments primarily due to a decline in market interest rates.

      Other income increased $1.0 million, or 155%, to $1.7 million for 2001 from $653,000 for 2000. This increase was primarily attributable to increased funds received on paid off loans of $900,000.

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      Expenses. The following table sets forth the components of direct operating expenses:

		Year Ended								Increase/
		December 31,								(Decrease)
		2001				2000				Amount				Percent
Interest expense		$	7,029,374			$	5,518,463			$	1,510,911				27	%
Employee compensation and benefits			2,888,603				3,026,324				(137,721	)			(5	)%
Selling and administrative			839,823				442,487				397,336				90	%
Provision for loan losses			240,000				240,000				—				—	%
Total direct operating expenses		$	10,997,800			$	9,227,274			$	1,770,526				19	%

      Interest expense increased $1.5 million, or 27%, to $7.0 million for 2001 from $5.5 million for 2000. This increase was primarily attributable to a 73% increase in the weighted average borrowings partially offset by a 26% decrease in the weighted average effective financing rate primarily due to a decline in market interest rates.

      Employee compensation and benefits decreased $138,000, or 5%, to $2.9 million for 2001 from $3.0 million for 2000. This decrease was primarily attributable to the streamlining of certain levels of management of Arbor Commercial Mortgage’s structured finance business.

      Selling and administrative expenses increased $397,000, or 90%, to $840,000 in 2001 from $442,000 for 2000. This increase was primarily attributable to increased legal expenses associated with the asset management and restructuring of our loans and investments portfolio.

      Provision for loan losses was stable from 2000 to 2001.

      Gain on sale of loans and real estate and income from equity affiliates. The following table sets forth our gain on sale of loans and real estate and income from equity affiliates:

		Year Ended								Increase/
		December 31,								(Decrease)
		2001				2000				Amount				Percent
Gain on sale of loans and real estate		$	3,226,648			$	1,880,825			$	1,345,823				72	%
Income from equity affiliates		$	1,403,014			$	5,028,835			$	(3,625,821	)			(72	)%

      Gain on sale of loans and real estate increased $1.3 million, or 72%, to $3.2 million for 2001 from $1.9 million for 2000. This increase was primarily attributable to a $2.2 million gain from the sale of property from a joint venture interest partially offset by reduced gains on sales of foreclosed loans of $800,000.

      Income from equity affiliates decreased $3.6 million, or 72%, to $1.4 million for 2001 from $5.0 million for 2000. This decrease was due to (a) a $3.3 million decrease in net income from a joint venture interest due to the dissolution of the joint venture interest in 2001 and (b) a $353,000 decrease in net income from other joint venture interest.

Pro Forma Effect of Arbor Commercial Mortgage’s Asset Contribution on Results of Operations

      We were formed in June 2003 to operate as a real estate investment trust and to expand the structured finance business of Arbor Commercial Mortgage. On July 1, 2003, we completed a private placement of our units, each consisting of five shares of our common stock and one warrant to purchase one share of our common stock. Gross proceeds from the private financing totaled $120.2 million. In exchange for a commensurate equity ownership in our operating subsidiary, Arbor Commercial Mortgage contributed $213.1 million of structured finance assets subject to $169.2 million of borrowings supported by $43.9 million of equity. These assets and liabilities were contributed at book value, which approximates fair value, and represent 88% of the assets and 98% of the liabilities of Arbor Commercial Mortgage’s structured finance business as of June 30, 2003. In addition, certain employees of Arbor Commercial Mortgage were transferred to us.

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      We are externally managed and advised by Arbor Commercial Mortgage and pay Arbor Commercial Mortgage a management fee in accordance with the terms of the management agreement. Arbor Commercial Mortgage also sources originations, provides underwriting services and services all structured finance assets on our behalf. As a result, the operating expenses as presented in the historical consolidated financial statements of Arbor Commercial Mortgage’s structured finance business would have been affected had we been formed at an earlier time. Employee compensation and benefits expense would have decreased by $895,811 and $1,518,890 for the six months ended June 30, 2003 and year ended December 31, 2002, respectively, because these costs would have been borne by Arbor Commercial Mortgage under terms of the management agreement. Similarly, selling and administrative expense would have decreased by $65,752 and $127,753 for the six months ended June 30, 2003 and year ended December 31, 2002, respectively.

      In accordance with the management agreement, we will pay Arbor Commercial Mortgage a management fee, composed of a base management fee and incentive compensation. The base management fee is 0.75% per annum of the first $400 million of equity. The incentive compensation is equal to 25% of the amount that our funds from operations, adjusted for certain gains and losses, divided by contributed capital, exceeds 9.5% per annum or the 10-year Treasury Rate plus 3.5%, whichever is greater.

      This pro forma information does not reflect the results of the private financing. However, gross proceeds from the private financing totaled $120.2 million, which combined with Arbor Commercial Mortgage’s equity contribution of $43.9 million, resulted in total contributed capital of $164.1 million. Offering expenses of $9.6 million were paid by us, resulting in stockholders equity and minority interest of $154.5 million at our inception.

      The pro forma consolidated financial information is limited to adjustments that are directly attributable to the original offering, expected to have a continuing impact on us and are factually supportable. These adjustments are based on the assumption that certain compensation and benefits expenses and certain selling and administrative expenses incurred by the structured finance business of Arbor Commercial Mortgage would not have been incurred if we had been in operation during the periods presented. The pro forma financial results do not include what the impact would have been had the gross proceeds from the original offering been available to the structured finance business of Arbor Commercial Mortgage during the entire period. Had these proceeds been available to the structured finance business of Arbor Commercial Mortgage during the entire period, there would have been an impact on certain revenues and expenses, including the management fees payable pursuant to the management agreement. The management fees are calculated based on such factors as funds from operations and equity of our operating partnership, each as defined in the management agreement. Such amounts represent speculative and forward-looking information that is not factually supportable.

      The financial statements of the structured finance business of Arbor Commercial Mortgage include the results of operations of the structured finance business segment of Arbor Commercial Mortgage and are not limited to the results of the structured finance assets that were transferred to Arbor Realty Trust. Accordingly, the results of certain investments in equity affiliates that were not transferred to Arbor Realty Trust have been included in the financial statements of the structured finance business of Arbor Commercial Mortgage because they were included in the structured finance business segment even though the operating results from these equity affiliates have not been material to the structured finance business segment as a whole. In addition, Arbor Commercial Mortgage retained certain transactions in its structured finance portfolio with a net book value of approximately $27.8 million, primarily because they were not deemed to be suitable investments for Arbor Realty Trust. Had these retained assets been excluded from the financial statements of the structured finance business of Arbor Commercial Mortgage, additional adjustments to the expense base would have been necessary to estimate what expenses would have been had these assets not been in the portfolio. Such adjustments would have been speculative. Lastly, operating results for assets that matured before the contribution of structured finance assets to Arbor Realty Trust, but were in the portfolio of assets of the structured finance business of Arbor Commercial Mortgage during the reporting period are also included in these statements.

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Liquidity and Capital Resources

      Liquidity is a measurement of the ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain loans and investments and other general business needs. On July 1, 2003, Arbor Commercial Mortgage contributed a portfolio of structured finance investments and related liabilities to our operating partnership. In addition, certain employees of Arbor Commercial Mortgage became our employees. These assets, liabilities and employees represented a substantial portion of the structured finance business of Arbor Commercial Mortgage.

      On July 1, 2003 we completed the original offering, resulting in gross proceeds of $120.2 million. Gross proceeds from the original offering combined with the concurrent equity contribution by Arbor Commercial Mortgage totaled approximately $164.1 in equity capital.

      Subsequent to and as a result of the original offering, substantially all of the operations of the structured finance business of Arbor Commercial Mortgage have been conducted by us. Therefore, a description of the liquidity and capital resources of the structured finance business of Arbor Commercial Mortgage is not presented. A description of our liquidity and capital resources is presented in the section of this prospectus entitled “Management’s Discussion & Analysis of Financial Condition and Results of Operations of Arbor Realty Trust, Inc. and Subsidiaries — Liquidity and Capital Resources.”

Related Party Transactions

	Related Party Loans

      Arbor Commercial Mortgage has a 50% non-controlling interest in a joint venture, which was formed to acquire, develop and/or sell real estate assets. At June 30, 2003, December 31, 2002 and 2001, Arbor Commercial Mortgage’s structured finance business’ investments in this joint venture were approximately $2.6 million, $2.3 million and $1.8 million, respectively. This investment is accounted for under the equity method. At June 30, 2003 and December 31, 2002, Arbor Commercial Mortgage had a $16.0 million bridge loan outstanding to the joint venture, which is collateralized by a first lien position on a commercial real estate property. There is a limited guarantee on the loan of 50% by the chief executive officer of Arbor Commercial Mortgage and 50% by the key principal of the joint venture. The loan requires monthly interest payments based on LIBOR and matures in October 2004. Arbor Commercial Mortgage agreed to provide the borrower with additional mezzanine financing in the amount of up to $8.0 million. The mezzanine financing requires interest payments based on LIBOR and matures in May 2006. The loan will be funded in two equal installments of $4.0 million. The funding will be drawn down as construction progresses. The interest on the first component, which was funded by Arbor Commercial Mortgage in June 2003, will be earned on the full $4.0 million, while the interest on the second component, which has yet to be funded, will be earned as the $4.0 million is drawn down. This additional financing is secured by a second mortgage lien on the property. In addition, an interest and renovation reserve totaling $2.5 million is in place to cover both the bridge and mezzanine loans. Interest income recorded from these loans was approximately $217,000, $449,000 and $148,000 for the periods ended June 30, 2003, December 31, 2002 and 2001, respectively.

      In June 2003, Arbor Commercial Mortgage invested approximately $818,000 in exchange for a 12.5% non-controlling interest in a joint venture, which was formed to acquire, develop and/or sell real estate assets. This investment is accounted for under the equity method. In June, 2003, Arbor Commercial Mortgage made two mezzanine loans secured by a second lien position in the ownership interests of the borrower and the property to this joint venture totaling $6.0 million outstanding. The loans require monthly interest payments based on LIBOR and mature in May 2006. Interest income recorded from these loans was approximately $8,000 for the period ended June 30, 2003.

	Related Party Formation Transactions

      Arbor Commercial Mortgage contributed the majority of its structured finance portfolio to our operating partnership pursuant to a contribution agreement. The contribution agreement contains representations and warranties concerning the ownership and terms of the structured finance assets it contributed and other

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      In exchange for Arbor Commercial Mortgage’s asset contribution, we issued to Arbor Commercial Mortgage approximately 3.1 million operating partnership units, each of which Arbor Commercial Mortgage may redeem for one share of our common stock or an equivalent amount in cash, at our election, and approximately 629,000 warrants, each of which entitles Arbor Commercial Mortgage to purchase one additional operating partnership unit at an initial exercise price of $15. The operating partnership units and warrants for additional operating partnership units issued to Arbor Commercial Mortgage were valued at approximately $43.9 million at July 1, 2003, based on the price offered to investors in our units in the original offering, adjusted for the initial purchaser’s discount. We have also granted Arbor Commercial Mortgage certain demand and other registration rights with respect to the shares of common stock issuable upon redemption of its operating partnership units.

      Each of the approximately 3.1 million operating partnership units received by Arbor Commercial Mortgage is paired with one share of our special voting preferred stock that entitles the holder to one vote on all matters submitted to a vote of our stockholders. As operating partnership units are redeemed for shares of our common stock or cash an equivalent number of shares of special voting preferred stock will be redeemed and cancelled. As a result of Arbor Commercial Mortgage’s asset contribution and the related formation transactions, Arbor Commercial Mortgage owns approximately a 28% limited partnership interest in our operating partnership and the remaining 72% interest in our operating partnership is owned by us. In addition, Arbor Commercial Mortgage has approximately 28% of the voting power of our outstanding stock (without giving effect to the exercise of Arbor Commercial Mortgage’s warrants for additional operating partnership units).

      We and our operating partnership have entered into a management agreement with Arbor Commercial Mortgage pursuant to which Arbor Commercial Mortgage has agreed to provide us with structured finance investment opportunities and loan servicing as well as other services necessary to operate our business. Arbor Commercial Mortgage is also required to provide us with a right of first refusal with respect to all structured finance identified by Arbor Commercial Mortgage or its affiliates. We have agreed not to pursue, and to allow Arbor Commercial Mortgage to pursue, any real estate opportunities other than structured finance transactions. As discussed above in “Management’s Discussion & Analysis of Financial Condition and Results of Operations of Arbor Realty Trust, Inc. and Subsidiaries — Liquidity and Capital Resources — Contractual Commitments,” we have agreed to pay our manager an annual base management fee and incentive compensation each fiscal quarter and share with Arbor Commercial Mortgage a portion of the origination fees that we receive on loans we originate with Arbor Commercial Mortgage pursuant to this agreement.

      We and our operating partnership have also entered into a services agreement with Arbor Commercial Mortgage pursuant to which our asset management group provides asset management services to Arbor Commercial Mortgage. In the event the services provided by our asset management group pursuant to the agreement exceed by more than 15% per quarter the level of activity anticipated by our board of directors, we will negotiate in good faith with our manager an adjustment to our manager’s base management fee under the management agreement, to reflect the scope of the services, the quantity of serviced assets or the time required to be devoted to the services by our asset management group.

Quantitative and Qualitative Disclosures about Market Risk

      Since the consummation of the original offering and the related formation transactions, substantially all of the operations of the structured finance business of Arbor Commercial Mortgage have been conducted by us. Therefore, quantitative and qualitative disclosures about market risk relating to the structured finance business of Arbor Commercial Mortgage is not presented. A description of market risks relating to our business is presented in the section of this prospectus entitled “Management’s Discussion & Analysis of Financial Condition and Results of Operations of Arbor Realty Trust, Inc. and Subsidiaries — Quantitative and Qualitative Disclosures about Market Risk.”

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ARBOR REALTY TRUST, INC.

      We are a specialized real estate finance company investing in real estate related bridge and mezzanine loans, preferred equity and, in limited cases, discounted mortgage notes and other real estate related assets, which we collectively refer to as structured finance investments. Our objective is to maximize the difference between the yield on our investments and the cost of financing these investments to generate cash available for distribution, facilitate capital appreciation and maximize total return to our stockholders. We commenced operations in July 2003 and conduct substantially all of our operations through our operating partnership, Arbor Realty Limited Partnership. We intend to elect to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code and generally will not be subject to federal taxes on our income to the extent we distribute our income to our stockholders and maintain our qualification as a REIT.

      On July 1, 2003, Arbor Commercial Mortgage contributed the majority of its structured finance portfolio to our operating partnership. These initial assets, consisting of 12 bridge loans, five mezzanine loans, five preferred equity investments and two other real estate related investments, were transferred at book value, which, at June 30, 2003, represented $213.1 million in assets financed by $169.2 million borrowed under Arbor Commercial Mortgage’s credit facilities, giving effect to notes payable equal to the financing amount available for each contributed investment under Arbor Commercial Mortgage’s credit facilities, and supported by $43.9 million in equity.

      We are externally managed and advised by Arbor Commercial Mortgage. Our manager is a national commercial real estate finance company operating through 15 regional offices in the United States, specializing in debt and equity financing for multi-family and commercial real estate. We believe Arbor Commercial Mortgage’s experience and reputation positions it to originate attractive investment opportunities for us. Our management agreement with Arbor Commercial Mortgage was developed to capitalize on synergies with Arbor Commercial Mortgage’s origination infrastructure, existing business relationships and management expertise.

      We believe the financing of multi-family and commercial real estate offers significant growth opportunities that demand customized financing solutions. Arbor Commercial Mortgage has granted us a right of first refusal to pursue all structured finance investment opportunities identified by Arbor Commercial Mortgage. Arbor Commercial Mortgage will continue to provide and service multi-family and commercial mortgage loans under Fannie Mae, Federal Housing Administration and conduit commercial lending programs, which we believe will offer customer relationship synergies to our business. Our portfolio currently contains loans and investments that we originated and loans and investments that we purchased from third parties or from affiliates.

      We have a strong senior management team with significant industry experience. Mr. Ivan Kaufman, the chief executive officer of Arbor Commercial Mortgage, and Mr. Frederick Herbst, the chief financial officer of Arbor Commercial Mortgage, also serve as our chief executive officer and chief financial officer, respectively. Mr. Fred Weber, the head of the structured finance group at Arbor Commercial Mortgage since 1999, is our executive vice president of structured finance. Mr. Daniel M. Palmier, the head of Arbor Commercial Mortgage’s asset management group since 1997, is our executive vice president of asset management, and the eight additional employees who comprised the asset management group of Arbor Commercial Mortgage have also joined us. In October 2003, we hired Mr. John C. Kovarik as our chief credit officer. Messrs. Kaufman, Weber, Palmier and Kovarik serve as members of our credit committee, which has the authority to decide whether we will invest in an individual loan or security originated by Arbor Commercial Mortgage.

      We believe the asset management group’s involvement in our credit underwriting process helps to mitigate investment risk after the closing of a transaction. The asset management group is integrated into the underwriting and structuring process for all transactions in order to enhance the credit quality of our originations before a transaction closes. After the closing of structured finance transactions, the asset management group’s experience in managing complex restructurings, refinancings and asset dispositions is used to improve the credit quality and yield on managed investments.

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      In connection with Arbor Commercial Mortgage’s contribution of the initial assets, Arbor Commercial Mortgage arranged for us to have substantially similar credit facilities as those used by Arbor Commercial Mortgage to finance these assets. In exchange for Arbor Commercial Mortgage’s asset contribution, we issued to Arbor Commercial Mortgage approximately 3.1 million operating partnership units, each of which Arbor Commercial Mortgage may redeem for one share of our common stock or an equivalent amount in cash, at our election, and approximately 629,000 warrants, each of which entitles Arbor Commercial Mortgage to purchase one additional operating partnership unit at an initial exercise price of $15. The operating partnership units and warrants for additional operating partnership units issued to Arbor Commercial Mortgage were valued at approximately $43.9 million at July 1, 2003, based on the price offered to investors in our units in the original offering, adjusted for the initial purchaser’s discount. Each of the approximately 3.1 million operating partnership units received by Arbor Commercial Mortgage is paired with one share of our special voting preferred stock that entitles the holder to one vote on all matters submitted to a vote of our stockholders. As operating partnership units are redeemed for shares of our common stock or cash an equivalent number of shares of special voting preferred stock will be redeemed and cancelled. See “Description of Stock — Special Voting Preferred Stock.” As a result of Arbor Commercial Mortgage’s asset contribution and the related formation transactions, Arbor Commercial Mortgage owns approximately a 28% limited partnership interest in our operating partnership and the remaining 72% interest in our operating partnership is owned by us. After giving effect to this offering, Arbor Commercial Mortgage will own approximately a           % interest in our operating partnership and we will own the remaining           %. In addition, Arbor Commercial Mortgage has approximately 28% of the voting power of our outstanding stock (without giving effect to the exercise of Arbor Commercial Mortgage’s warrants for additional operating partnership units). After giving effect to this offering, Arbor Commercial Mortgage will have approximately           % of the voting power of our outstanding stock (without giving effect to the exercise of Arbor Commercial Mortgage’s warrants for additional operating partnership units).

Industry Overview

      Multi-family and commercial real estate encompasses a wide spectrum of assets including multi-family, office, industrial, retail and hospitality properties. We believe the financing of multi-family and commercial real estate offers significant growth opportunities that demand customized financing solutions.

	•	Consolidation in the financial services industry has reduced the number of companies providing multi-family and commercial real estate financing products.
	•	We believe this consolidation has led to a trend among remaining institutions to focus on larger, more standardized transactions.
	•	The growth of a market for securitized commercial real estate pools has provided a new source of financing for real estate assets.

      We believe we have the necessary levels of capital and financial flexibility to compete effectively in today’s rapidly changing market. Our borrowers, who in the past relied on banks and life insurance companies as their primary source for commercial real estate financing, have benefited from our flexible underwriting standards. This flexibility has created significant demand for our bridge, mezzanine and other forms of innovative financing.

Our Business Strategy

      We capitalize on this demand by investing in a diversified portfolio of structured finance assets in the multi-family and commercial real estate market. Our principal business objectives are to invest in bridge and mezzanine loans, preferred equity and other real estate related assets and actively manage this portfolio in order to generate cash available for distribution, facilitate capital appreciation and maximize total return to our stockholders. We believe we can achieve these objectives through the following business and growth strategies:

	Provide Customized Financing. We provide financing customized to the needs of our borrowers. We target borrowers who have demonstrated a history of enhancing the value of the properties they

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	operate, but whose options may be limited by conventional bank financing and who may benefit from the sophisticated structured finance products we offer. Historically, Arbor Commercial Mortgage has attempted to provide customized loan structures and other financing alternatives to fit the characteristics and purpose of each individual borrower and its financing requirements and we employ a similar strategy.
	Focus on a Niche Market in Smaller Loan Balances. We focus on loans with principal amounts under $20 million, which many larger lending firms do not target. We can afford to invest the time and effort required to close loans with smaller principal amounts because of our relatively efficient cost structure.
	Execute Transactions Rapidly. We act quickly and decisively on proposals, provide commitments and close transactions within a few weeks and sometimes days, if required. We believe that rapid execution attracts opportunities from both borrowers and other lenders that would not otherwise be available. We believe our ability to structure flexible terms and close loans in a timely manner gives us a competitive advantage over lending firms that also serve the market for loans with principal amounts under $20 million.
	Manage and Maintain Credit Quality. A critical component of our success in the real estate finance sector is our ability to manage the real estate risk that is underwritten by our manager and us. We actively manage and maintain the credit quality of our portfolio by using the expertise of our asset management group, which has a proven track record of structuring and repositioning structured finance investments to improve the credit quality and yield on managed investments.
	Use Arbor Commercial Mortgage’s Relationships with Existing Borrowers. We capitalize on Arbor Commercial Mortgage’s reputation in the commercial real estate finance industry. Arbor Commercial Mortgage has relationships with over 125 distinct borrowers nationwide. Since Arbor Commercial Mortgage’s originators offer Arbor Commercial Mortgage’s senior mortgage loans as well as our structured finance products, we are able to benefit from Arbor Commercial Mortgage’s existing customer base and use its senior lending business as a potential refinance vehicle for our structured finance assets.
	Offer Broader Products and Expand Customer Base. We have the ability to offer a larger number of financing alternatives than Arbor Commercial Mortgage has been able to offer to its customers in the past. Our potential borrowers are able to choose from products offering longer maturities and larger principal amounts than Arbor Commercial Mortgage could previously offer.
	Leverage the Experience of Executive Officers and Employees of Arbor Commercial Mortgage and Us. Our executive officers and employees, and those of Arbor Commercial Mortgage, have extensive experience originating and managing structured commercial real estate investments. Our senior management team has on average over 20 years experience in the financial services industry. Additionally, our executive officers have prior experience in managing and operating a public company, the predecessor company to Arbor Commercial Mortgage.

Our Investment Guidelines

      Our board of directors has adopted general guidelines for our investments and borrowings to the effect that:

	•	no investment will be made that would cause us to fail to qualify as a REIT;
	•	no investment will be made that would cause us to be regulated as an investment company under the Investment Company Act;
	•	no more than 25% of our equity, determined as of the date of such investment, will be invested in any single asset;
	•	our leverage will generally not exceed 80% of the value of our assets, in the aggregate; and
	•	we will not co-invest with our manager or any of its affiliates unless (i) our co-investment is otherwise in accordance with these guidelines and (ii) the terms of such co-investment are at least as favorable to us as to our manager or such affiliate (as applicable) making such co-investment.

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      Our manager is required to seek the approval of a majority of the independent members of our board of directors before we engage in a material transaction with another entity managed by our manager. These investment guidelines may be changed by our board of directors without the approval of our stockholders.

Our Investment Strategy

      We actively pursue lending and investment opportunities with property owners and developers who need interim financing until permanent financing can be obtained. We will initially target transactions under $20 million where we believe we have competitive advantages, particularly our lower cost structure and in house capabilities. Our structured finance investments generally have maturities of two to five years, depending on type, have extension options when appropriate, and generally require a balloon payment of principal at maturity. Borrowers in the market for these types of loans include, but are not limited to, owners or developers seeking either to acquire or refurbish real estate or to pay down debt and reposition a property for permanent financing.

      We target borrowers with reputations for enhancing value, but whose options are limited by conventional bank financing and can benefit from the sophisticated financing products we offer. Loan structures vary as they are customized to fit the characteristics and purpose of the financing. Our structured finance assets are underwritten in accordance with guidelines designed to evaluate the borrower and its ability to satisfy the repayment conditions of the loan, including an analysis of the various repayment strategies available to the investment. In certain instances, especially in our mezzanine and preferred equity investments, we may underwrite investments based on a stabilized value of the underlying property.

      Our investment program emphasizes the following general categories of real estate related activities:

	Bridge Financing. We offer bridge financing products to borrowers who are typically seeking short term capital to be used in an acquisition of property. The borrower has usually identified an undervalued asset that has been under managed or is located in a recovering market. From the borrower’s perspective, shorter term bridge financing is advantageous because it allows time to improve the property value through repositioning the property without encumbering it with restrictive long term debt.
	The bridge loans we make typically range in size from $1 million to $25 million and are secured by first lien mortgages on the property. The term of the loan typically is up to five years. Historically, Arbor Commercial Mortgage’s spreads have ranged from 3.00% to 5.00% over 30-day LIBOR. Additional yield enhancements may include origination fees, deferred interest and participating interests, which are equity interests in the borrower that share in a percentage of the underlying cash flows of the property. Borrowers usually use the proceeds of a conventional mortgage to repay a bridge loan.
	Mezzanine Financing. We offer mezzanine financing in the form of loans which are subordinate to a conventional first mortgage loan and senior to the borrower’s equity in a transaction. Our mezzanine financing may take the form of pledges of ownership interests in entities that directly or indirectly control the real property or subordinated loans secured by second mortgages. We may also require additional collateral such as personal guarantees, letters of credit and/or additional collateral unrelated to the property.
	Our mezzanine loans typically range in size from $2 million to $15 million and have terms of up to seven years. Historically, Arbor Commercial Mortgage’s spreads have ranged from 4.00% to 7.00% over 30-day LIBOR, occasionally with an interest rate floor. As in the case with our bridge loans, the yield on these investments may be enhanced by prepaid and deferred interest payments, yield look-backs and participating interests.
	We intend to hold our mezzanine loans through our operating partnership or subsidiaries that are pass-through entities for tax purposes. However, we may hold some of our mezzanine loans in a taxable subsidiary corporation if necessary for REIT or other tax compliance.
	Preferred Equity Investments. We provide financing by making preferred equity investments in entities that directly or indirectly own real property. In cases where the terms of a first Mortgage prohibit

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	additional liens on the ownership entity, investments structured as preferred equity in the entity owning the property serve as viable financing substitutes. With preferred equity investments, we typically become a special limited partner or member in the ownership entity.
	Real Property Acquisitions. We may purchase existing real estate for repositioning and/or renovation and then disposition at an anticipated significant return. From time to time, we may identify real estate investment opportunities. In these situations, we may act solely on our own behalf or in partnership with other investors. Typically, these transactions are analyzed with the expectation that we will have the ability to sell the property within a one to two year time period, achieving a significant return on invested capital. In connection with these transactions, speed of execution is often the most critical component to success. We may seek to finance a portion of the acquisition price through short term financing. Repayment of the short term financing will either come from the sale of the property or conventional permanent debt.
	Note Acquisitions. We may acquire real estate notes from lenders in situations where the borrower wishes to restructure and reposition its short term debt and the lender wishes, for a variety of reasons (such as risk mitigation, portfolio diversification or other strategic reasons), to divest certain assets from its portfolio. These notes will generally be acquired at a discount. In such cases, we intend to use our management resources to resolve any dispute concerning the note or the property securing it and to identify and resolve any existing operational or any other problems at the property. We will then either restructure the debt obligation for immediate resale or sale at a later date or reposition it for permanent financing. In some instances, we may take title to the property underlying the real estate note.
	We borrow against or leverage our investments to the extent consistent with our investment guidelines in order to increase the size of our portfolio and potential returns to our stockholders. We have substantially similar credit facilities as used by Arbor Commercial Mortgage to finance the initial assets. We are currently in negotiations with the providers of the credit facilities to provide similar credit facilities and to increase the amounts available under these credit facilities, but there can be no assurance that we will be able to obtain additional financing. We may also sell participating interests in our investments.
	In order to meet the REIT qualification requirements, or to avert the imposition of a 100% tax that applies to certain gains derived by a REIT from dealer property or inventory, we may hold some of our assets through taxable subsidiary corporations. See “Federal Income Tax Considerations — Taxation of Arbor Realty.”

      We own a diversified portfolio of structured finance investments consisting principally of bridge and mezzanine loans as well as preferred equity investments. $151.9 million of $213.1 million of the loan or investment balance of the initial assets contributed by Arbor Commercial Mortgage are currently outstanding and constitute the majority of our existing portfolio. Since the commencement of our operations in July 2003, we have originated structured finance loans and investments and purchased additional loans and investments from Arbor Commercial Mortgage.

      At September 30, we had 30 loans and investments in our portfolio, totaling $241 million. These loans and investments were for 23 multi-family properties, four hotels, two commercial properties and one co-op. There are no loans that are non-performing within the portfolio. We continue to actively manage every single loan in the portfolio and believe that our strict underwriting and active asset management enable us to maintain the credit quality of our portfolio.

      The yield for our first quarter of operations ended September 30, 2003 was 7.65% on average assets of $244 million. This yield is computed by dividing the interest income earned for the quarter by the average assets during the quarter and annualizing the result. Our cost of funds for the quarter was 3.56% on average borrowings of $81 million. This cost of funds is computed by dividing the interest expense incurred during the quarter by the average borrowing during the quarter and annualizing the results. Our average equity (average assets less average borrowings) invested for the quarter was $163 million, resulting in average leverage for the

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      The table on the following page lists the principal terms of each of our investments and the financing relating to each individual investment, each as of September 30, 2003.

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OUR ASSETS

Property Information

Investment Information

Funding Information

Origination

Maturity

Interest Pay

Interest

Interest

Interest

Profit

Advance

Name

Type

Location

Balance

Date

Date

Rate Index

Rate(1)

Balance

Rate Index

Rate(2)

Share(2)

Rate

Bridge Loans:

130 West 30th

Multi-family

New York, NY

$

16,000,000

9/2001

5/2006

Libor + 2.25%

3.36%

$

15,000,000

Libor + 1.50%

2.62%

Yes

93.75

%

1025 5th Avenue

Co-op

New York, NY

1,100,000

10/2002

10/2003

18.00%

18.00%

—

—

—

No

—

Libor + 5.50%

Concord and Henry

Multi- family/office

Massachusetts

5,000,000

4/2003

4/2004

Floor 7.00% Libor + 5.00%

7.00%

4,000,000

Libor + 2.00%

3.12%

No

80.00

%

Dylan Hotel

Hotel

New York, NY

14,000,000

3/2003

3/2005

Floor 6.50% 50% of net spread less 0.50% asset

6.50%

9,800,000

Libor + 2.00%

3.12%

No

70.00

%

Less: Participation

(2,100,000

)

mgmt fee

(3.00

)%

(1.56

)%

3.50%

1.56%

Libor + 3.50%

Libor + 3.00%

Emerald Bay

Multi-family

Winter Park, FL

15,400,000

5/2003

12/2004

Floor 5.50%

5.50%

12,946,300

Floor 4.25%

4.25%

No

84.07

%

Libor + 3.00%

Grand Plaza

Multi-family

Las Vegas, NV

25,232,102

11/2002

12/2004

Floor 5.25%

5.25%

18,723,511

Libor + 2.00%

3.12%

No

74.21

%

Libor + 6.65%

Holiday Inn-Deland

Hotel

Deland, FL

4,700,000

3/2000

4/2004

Floor 12.50%

12.50%

—

Libor + 2.00%

—

Yes

—

Indiana Portfolio

Multi-family

Indiana

14,624,845

3/2003

3/2004

Libor + 4.25%

5.37%

500,000

Libor + 2.25%

3.37%

No

3.42

%

Libor + 4.00%

Palmetto Villas Apts

Multi-family

Ontario, CA

9,130,000

5/2003

4/2005

Floor 5.50%

5.50%

7,304,000

Libor + 2.00%

3.12%

No

80.00

%

Libor + 3.50%

Partners Portfolio

Multi-family

Baltimore, MD

14,200,000

4/2003

4/2006

Floor 5.00%

5.00%

—

Libor + 2.00%

—

Yes

—

Libor + 3.50%

Tropical Gardens

Multi-family

Lauderdale Lakes, FL

8,800,000

12/2002

12/2004

Floor 5.50%

5.50%

7,040,000

Libor + 2.00%

3.12%

No

80.00

%

Libor + 3.00%

Libor + 2.00%

Vermillion Apts

Multi-family

Miami Lakes, FL

18,850,000

9/2002

9/2004

Floor 5.00% Libor + 4.500%

5.00%

—

Libor Floor 2.50%

—

No

—

Walbridge Terrace

Multi-family

San Francisco, CA

6,200,000

7/2003

7/2004

Floor 6.00%

6.00%

—

Libor + 2.00%

—

No

—

Bridge Loans — Total

$

151,136,947

5.38%

$

75,313,811

3.01%

---

(1)	Interest rate excludes deferred interest component. See asset descriptions for terms.
(2)	Interest rate does not include deferred interest component due to profit sharing arrangements pursuant to our warehouse facility. See “Management’s Discussion & Analysis of Financial Condition and Results of Operations of Arbor Realty Trust, Inc. and Subsidiaries — Liquidity and Capital Resources” for a description of these profit sharing arrangements.

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Property Information

Investment Information

Funding Information

Origination

Maturity

Interest Pay

Interest

Interest

Interest

Profit

Advance

Name

Type

Location

Balance

Date

Date

Rate Index

Rate(1)

Balance

Rate Index

Rate(2)

Share(2)

Rate

Mezzanine Loans:

Pay Libor + 3.50%

80 Evergreen Avenue

Commercial

Brooklyn, NY

$

2,500,000

6/2003

5/2006

Floor Pay 5.00% Libor + 7.00%

5.00

%

—

— Libor + 2.25%

—

No

—

130 West 30th Street

Condo

New York, NY

4,000,000

6/2003

5/2006

Floor 10.00% Pay: Libor + 3.00%

10.00

%

—

Floor 1.75% Libor + 4.00%

—

Yes

—

333 E. 34th Street

Multi-family

New York, NY

10,000,000

1/2002

2/2004

Floor Pay: 8.00% Pay Libor + 3.50%

8.00

%

—

Libor Floor 2.00%

—

Yes

—

930 Flushing Avenue

Commercial

Brooklyn, NY

3,500,000

6/2003

5/2006

Floor Pay 5.00% Libor + 6.75%

5.00

%

—

—

—

No

—

Carltons Arms

Multi-family

Tampa, FL

4,000,000

11/2001

12/2003

Floor 12.00% Libor + 7.00%

12.00

%

—

Libor + 2.25% Libor + 3.00%

—

Yes

—

The Crossings

Multi-family

Glassboro, NJ

2,000,000

6/2003

6/2006

Floor 10.00% Libor + 7.00% Floor 9.00%

10.00

%

—

Floor 2.00%

—

Yes

—

James Hotel

Hotel

Arizona

2,220,491

8/2003

7/2006

Cap 10.00% Libor + 4.50% (Year 1); Libor + 6.50% (Year 2); Libor + 7.50% (Year 3)

9.00

%

—

—

—

No

—

Libor + 3.00%

Partners Portfolio

Multi-family

Baltimore, MD

4,725,569

4/2003

5/2006

Libor Floor 2.00% Libor + 5.25

6.50

%

—

Floor 2.00% Libor + 4.00%

—

Yes

—

Schron B

Multi-family

New Jersey

3,000,000

5/2003

4/2005

Floor 6.75% Libor + 5.50% (Year 1); Libor + 6.50% (Year 2); Libor + 7.50% (Year 3);

6.75

%

—

Libor Floor 2.00%

—

No

—

Libor + 2.25%

SMC Portfolio

Multi-family

Baltimore, MD

11,520,000

9/2003

9/2005

Libor Floor 2.00%

7.50

%

—

Floor 1.75%

—

Yes

—

Mezzanine Loans — Total

$

47,466,060

7.91

%

—

—

---

(1)	Interest rate excludes deferred interest component. See asset descriptions for terms.
(2)	Interest rate does not include deferred interest component due to profit sharing arrangements pursuant to our warehouse facility. See “Management’s Discussion & Analysis of Financial Condition and Results of Operations of Arbor Realty Trust, Inc. and Subsidiaries — Liquidity and Capital Resources” for a description of these profit sharing arrangements.

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Property Information

Investment Information

Funding Information

Origination

Maturity

Interest

Interest Rate

Interest

Profit

Advance

Name

Type

Location

Balance

Date

Date

Interest Pay Rate Index

Rate(1)

Balance

Index

Rate(2)

Share(2)

Rate

Preferred Equity:

Libor + 4.50%

CDS Portfolio

Multi-family

Texas

$

4,991,001

12/1998

1/2004

Floor 9.56% Libor + 4.50%

9.56%

$

—

Libor + 2.75%

—

No

—

Devonshire Apts

Multi-family

Holyoke, MA

2,500,000

1/2002

1/2005

Floor 10.00% Libor + 4.50% (Year 1); Libor + 6.50% (Year 2); Libor + 7.50% (Year 3)

13.50%

—

Libor + 2.25%

—

Yes

—

Libor + 3.00%

Dutch Village

Multi-family

Baltimore, MD

7,074,431

6/2003

11/2006

Libor Floor 2.00%

6.50%

—

Libor Floor 2.00%

—

Yes

—

Libor + 5.00%

Park Place

Multi-family

Santa Ana, CA

3,860,000

1/2002

1/2005

Floor 12.00% Libor + 5.25%

12.00%

—

Libor + 2.25%

—

Yes

—

Schron A

Multi-family

New Jersey

19,300,000

5/2003

4/2005

Floor 6.75% Libor + 6.00%

6.75%

16,600,000

Libor + 2.75%

3.87

%

No

86.01

%

Villages at Gateway

Multi-family

Denver, CO

2,800,000

2/2002

3/2004

Floor 10.00%

10.00%

—

Libor + 2.25%

—

Yes

—

Preferred Equity — Total

$

40,525,432

8.19%

$

16,600,000

3.87

Other Investments

Albion

Hotel

Miami, FL

$

1,977,245

3/2001

8/2023

7.39% Fixed

7.39%

—

—

—

No

—

Total Assets

$

241,105,684

6.34%

$

91,913,811

3.17

%

---

(1)	Interest rate excludes deferred interest component. See asset descriptions for terms.
(2)	Interest rate does not include deferred interest component due to profit sharing arrangements pursuant to our warehouse facility. See “Management’s Discussion & Analysis of Financial Condition and Results of Operations of Arbor Realty Trust, Inc. and Subsidiaries — Liquidity and Capital Resources” for a description of these profit sharing arrangements.

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      A description of the terms and characteristics of each of the investments listed in the table above follows.

Bridge Loans

      130 West 30th Street. Arbor Commercial Mortgage originated this $16.0 million bridge loan to 130 West 30th, LLC in September 2001 and contributed it to us upon the consummation of the original offering. The borrower used the proceeds to acquire an 18 story office building in New York, New York. It is currently undergoing construction to convert the building from office to residential condominiums using the Arbor Commercial Mortgage mezzanine loan proceeds purchased by us on July 1, 2003.

      The loan bears interest at a variable rate of LIBOR plus 2.25%. In connection with Arbor Commercial Mortgage providing the borrower with additional mezzanine financing in June 2003, the maturity date of this bridge loan was extended to May 31, 2006. Interest payments are due monthly, and the principal balance is due in full upon maturity. The loan is secured by a first mortgage lien on the property. There is a limited guarantee on the loan of 50% by Mr. Ivan Kaufman and 50% by the key principal of the borrower.

      The borrower has the option to extend the term of the loan for one 12 month period at no fee.

      Arbor Commercial Mortgage holds a 50% membership interest in 130 West 30th, LLC which it did not contribute to us in connection with the asset contribution. This interest is used to partially fund a loan loss guarantee by Arbor Commercial Mortgage. See “— Participating Interests in Our Investments Retained by Arbor Commercial Mortgage” below.

      1025 5th Avenue. Arbor Commercial Mortgage originated this $1.1 million bridge loan in October 2002 and contributed it to us upon the consummation of the original offering. The borrowers used the loan proceeds to renovate an apartment in a cooperative building in New York, New York.

      As of September 30, 2003, the loan bore interest at a fixed rate of 18.00% per annum and was scheduled to mature in October 2003. In October 2003, the maturity date of the loan was extended to October 2004 and the interest rate was reduced to 10.00%. Interest payments are due monthly and the principal balance is due in full upon maturity. The loan is secured by a pledge of 225 cooperative shares owned by the lessee of the apartment and the apartment lease.

      Concord Street & Henry Terrace. Arbor Commercial Mortgage originated this $5.0 million bridge loan to Henry Terrace, LLC and 100 Concord St., LLC in April 2003 and contributed it to us upon the consummation of the original offering. The borrowers used the proceeds to refinance an existing loan on a 74 unit multi-family residential property in Worcester, Massachusetts and a commercial property in Framingham, Massachusetts.

      The loan bears interest at a variable rate of LIBOR plus 5.50%, with a 7.00% floor, and matures in April 2004. Interest payments are due monthly, and the principal balance is due in full upon maturity. In addition, upon maturity or prepayment of the loan, the borrower must pay deferred interest equal to the greater of 2.00% on the original principal balance or the amount necessary to generate an aggregate annual internal rate of return of 14.00%. The loan is secured by a first mortgage lien on the properties.

      The borrower has the option to extend the term of the loan for one 6 month period at no fee if the loan has an outstanding principal balance of not more than $1.5 million at the time the extension is requested. In December 2003 the borrower made a principal payment of $2.1 million, reducing the outstanding loan balance to $2.9 million.

      Dylan Hotel. Arbor Commercial Mortgage refinanced a discounted loan between Debis Financial Services Inc. and Grand Palace Hotel at the Park LLC with a $14.0 million bridge loan to Grand Palace Hotel at the Park LLC in March 2003. Arbor Commercial Mortgage contributed this bridge loan to us upon the consummation of the original offering. The borrower is the owner of a 107 room hotel in New York, New York.

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      The loan bears interest at a variable rate of one month LIBOR plus 5.00% with a floor of 6.50%, and matures in March 2005. Interest payments are due monthly, and the principal balance is due in full upon maturity.

      In addition, upon maturity of the loan, the borrower must pay deferred interest of 1.00% on the principal repaid. The loan is secured by a first mortgage lien on the property.

      The borrower has the option to extend the term of the loan for one 12 month period for additional interest of 1.00% on the outstanding principal balance upon such extension, but only if the borrower is in compliance with certain financial covenants.

      Arbor Commercial Mortgage entered into a participation agreement with BD Hotels, LLC pursuant to which BD Hotels funded $2.1 million of the equity in the loan and is entitled to receive 50% of the net interest received by Arbor Commercial Mortgage, less a 0.50% management fee payable to Arbor Commercial Mortgage.

      In January 2004, this bridge loan, together with all interest due, was repaid in full.

      Emerald Bay Apartments. Arbor Commercial Mortgage originated this $16.4 million bridge loan to Empirian Bay LLC in May 2003 and contributed it to us upon the consummation of the original offering. The borrower used the loan proceeds to acquire and renovate a 432 unit multi family property in Winter Park, Florida. Of the total loan amount, $15.4 million has been disbursed and the remaining $1.0 million will be released as the renovations to the property are completed.

      The loan bears interest on the outstanding balance at a variable rate of LIBOR plus 3.50%, with a floor of 5.50% and matures in December 2004. Interest payments are due monthly, and the borrower must make monthly principal payments of $21,000 until June 2004 and $30,000 from July 2004 through November 2004, with the balance due upon maturity. In addition, if the loan is repaid within the first 14 months after its origination, the borrower must pay deferred interest of .50%, and if the loan is repaid after this time, the borrower must pay deferred interest of 1.00%. The loan is secured by a first mortgage lien on the property and has been unconditionally guaranteed by certain affiliates of the borrower.

      The borrower has an option to extend the term of the loan for one 6-month period for additional interest of 1.00% on the outstanding principal balance upon such extension and, if the first option is exercised, an option to extend for an additional 12-month period for additional interest of 1.00% on the outstanding principal balance upon such extension. If the initial term is extended, the borrower must pay interest monthly and make monthly principal payments of $30,000 from December 2004 to June 2005 and $75,000 from July 2005 through May 2006.

      The loan is financed with a $16.2 million participation agreement with one of our lending partners pursuant to which we have a first loss position of $1.0 million. Of this participation amount, $12.9 million is currently outstanding. The participant is paid interest at a variable rate of LIBOR plus 3.00%, with a floor of 4.25%.

      In December 2003, this bridge loan, together with all interest due, was repaid in full.

      Grand Plaza. Arbor Commercial Mortgage originated a $25.5 million bridge loan to Grand Plaza Limited Partnership in November 2002 and contributed it to us upon the consummation of the original offering. The borrower used the loan proceeds to refinance outstanding debt on a 676 unit multifamily residential property located in Las Vegas, Nevada. The current outstanding balance on the loan is approximately $25.2 million.

      The loan bears interest at a variable rate of LIBOR plus 3.00%, with a floor of 5.25%, and matures in December 2004. Interest and principal payments are due monthly. The loan is secured by a first mortgage lien on the property.

      The borrower has the option to extend the term of the loan for one 12-month period at no fee.

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      Holiday Inn Convention Center. Arbor Commercial Mortgage originated this $5.7 million bridge loan to Hospitality Associates of DeLand Florida, Ltd. in March 2000 and contributed it to us upon the consummation of the original offering. The borrower used the loan proceeds to acquire and renovate the Holiday Inn Convention Center, a 148 room hotel in DeLand, Florida, as well as fund a $1.1 million capital improvements program. In connection with the extension of the maturity date, the borrower repaid $1.0 million of the outstanding principal balance, to $4.7 million.

      The loan bears interest at a variable rate of LIBOR plus 6.65% with a floor of 12.50%, and matures in April 2004. Interest payments are due monthly, and the principal balance is due in full upon maturity. In addition, upon maturity or prepayment of the loan, the borrower must pay deferred interest of 3.00% on the principal repaid. The loan is secured by a first mortgage lien on the property, a pledge of the partnership interests of the borrower and a pledge of the membership interests of certain of the borrower’s affiliates.

      Since the loan was not paid off by July 1, 2003, the borrower was required to pay additional interest of 0.50% on the outstanding principal balance. In October 2003, this bridge loan, together with all interest due, was repaid in full.

      Indiana Portfolio. Arbor Commercial Mortgage originated a $13.75 million bridge loan to NSH Affordable Housing of Indiana, Inc. in March 2003 and contributed it to us upon the consummation of the original offering. The borrower used the loan proceeds to acquire four affordable housing multi family properties located in Evansville, Indianapolis and Marion, Indiana.

      The loan bears interest at a variable rate of one month LIBOR plus 4.25% and matures in March 2004. Interest payments are due monthly, and the principal balance is due in full upon maturity. The loan is secured by a first mortgage lien on the properties.

      Arbor Commercial Mortgage also originated a separate $1.2 million bridge loan to the same borrower to fund renovations on the four properties described above. This loan also bears interest at a variable rate of one month LIBOR plus 4.25% and matures in March 2004. Interest payments on amounts drawn on the loan are due monthly, and the principal balance is due in full upon maturity. As of December 31, 2003, the outstanding principal balance was approximately $141,000. As of September 30, 2003, the outstanding principal balance was approximately $875,000. This loan is also secured by a first mortgage lien on the properties.

      Palmetto Villas Apartments. Arbor Commercial Mortgage originated this $9.1 million bridge loan to Palmetto Villas Investors, LLC in May 2003 and contributed it to us upon the consummation of the original offering. The borrower used the loan proceeds to acquire and renovate a 134 unit multi family residential property in Ontario, California.

      The loan bears interest at a variable rate of one month LIBOR plus 4.00%, with a floor of 5.50%, and matures in April 2005. Interest payments are due monthly, and the principal balance is due in full upon maturity. In addition, upon maturity or prepayment of the loan, the borrower must pay deferred interest of 1.00% on the principal repaid. The loan is secured by a first mortgage lien on the property.

      The borrower has the option to extend the term of the loan for two 6 month periods. If the loan is extended the interest rate will increase to one month LIBOR plus 4.50%, with a floor of 6.00%. Additionally, the borrower must pay additional interest of .50% on the outstanding principal balance upon each such extension.

      Partners Portfolio Bridge Loan. Arbor Commercial Mortgage originated this $14.2 million bridge loan to SRH/ LA Chesapeake Apartments L.P., SRH/ LA Nottingham, LLC, SRH/ LA Hunter, LLC and SRH/ LA Melvin, LLC in April 2003. Arbor Commercial Mortgage contributed this bridge loan to us upon the consummation of the original offering. The borrowers used the loan proceeds to acquire this 391 unit multi family residential portfolio, consisting of three properties in Baltimore, Maryland and fund a $1.6 million capital improvement program.

      The loan bears interest at a variable rate of LIBOR plus 3.50% with a floor of 5.00%, and matures in April 2006. Interest payments are due monthly, and the principal balance is due in full upon maturity. In addition, upon maturity or prepayment of the loan, the borrowers must pay deferred interest of 1.00% on the principal

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      Tropical Gardens Apartments. Arbor Commercial Mortgage originated this $8.8 million bridge loan to NHP Tropical Gardens Limited Partnership in December 2002 and contributed it to us upon the consummation of the original offering. The borrower used the loan proceeds to acquire and renovate a 245 unit multi family residential property located in Lauderdale Lakes, Florida.

      The loan bears interest at a variable rate of LIBOR plus 3.50%, with a floor of 5.50%, and matures in December 2004. Interest payments are due monthly, and the principal balance is due in full upon maturity. In addition, upon maturity or prepayment of the loan, the borrower must pay deferred interest of 1.00% on the principal repaid. The loan is secured by a first mortgage lien on the property.

      Vermillion Apartments. Arbor Commercial Mortgage originated this $18.9 million bridge loan to SRH Vermillion Limited Partnership in September 2002 and contributed it to us upon the consummation of the original offering. The borrower used the loan proceeds to acquire a 330 unit multi family residential property located in Miami Lakes, Florida and fund a $1.3 million capital improvement program.

      The loan bears interest at a variable rate of LIBOR plus 3.00%, with a floor of 5.00%, and matures in September 2004. Interest payments are due monthly and the principal balance is due in full upon maturity. The borrower must pay 0.50% of additional interest in September 2003, and 1.00% of deferred interest upon the prepayment or maturity of the loan unless the loan is refinanced with permanent financing from Arbor Commercial Mortgage in which case, the deferred interest will be waived, and Arbor Commercial Mortgage will reduce the management fee payable by us to Arbor Commercial Mortgage by an amount equal to 50% of the deferred interest waived. The loan is secured by a first mortgage lien on the property. An affiliate of the borrower has also provided a $1.5 million guarantee contingent upon the financial performance of the property. In October 2003, this bridge loan, together with interest due, was repaid in full.

      Walbridge Terrace. We originated this $6.2 million bridge loan to Silver Lake Apartments, LLC in July 2003. The borrower used the loan proceeds to repay the existing construction loan and complete construction of this 40-unit senior housing property with 6,500 square feet of ground floor retail space in San Francisco, California.

      The loan bears a variable rate of interest of LIBOR plus 4.50%, with a 6.00% floor, and matures in July 2004. The borrower paid a 2.00% origination fee on the date the loan closed. In accordance with our management agreement with Arbor Commercial Mortgage, the first 1.00% was paid to Arbor Commercial Mortgage and we retained the remaining 1.00%. The borrower must pay 1.00% of deferred interest upon the prepayment or maturity of the loan unless the loan is refinanced with permanent financing from Arbor Commercial Mortgage in which case, the deferred interest will be waived, and Arbor Commercial Mortgage will reduce the management fee payable by us to Arbor Commercial Mortgage by an amount equal to 50% of the deferred interest waived. The loan is secured by a first mortgage lien on the property and has been unconditionally guaranteed by key principals of the borrower.

Mezzanine Loans

      80 Evergreen. Arbor Commercial Mortgage originated this $2.5 million mezzanine loan in June 2003. We purchased this loan from Arbor Commercial Mortgage effective August 1, 2003. The borrower used the loan proceeds to acquire and make repairs to a 77,680 square foot warehouse/ industrial space located in Brooklyn, New York.

      The loan bears a variable rate of interest of one-month LIBOR plus 8.00% with a floor of 9.50% and matures in May 2006. The borrower has the option to remit interest at a rate of LIBOR plus 3.50% with a 5.00% floor and to accrue the differential interest owed. Interest payments are due monthly, and the principal balance is due in full upon maturity. The loan is secured by a junior lien on the property. The loan is subordinate to a $1.6 million first mortgage lien held by a third party lender.

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      In connection with our refinancing of this mezzanine loan and the first mortgage lien in October 2003, this loan was repaid in full and replaced with a $4.8 million bridge loan made by us. The new bridge loan bears a variable rate of interest on one-month LIBOR plus 4.75% and will mature in May 2006.

      The borrower has the option to extend the term of the loan for two 12-month periods at no fee.

      130 West 30th Street. In connection with Arbor Commercial Mortgage’s refinancing of the $16.0 million bridge loan to 130 West 30th, LLC on June 19, 2003, Arbor Commercial Mortgage agreed to provide the borrower with additional mezzanine financing in the amount of up to $8.0 million. This mezzanine loan matures in May 2006. We purchased this mezzanine loan from Arbor Commercial Mortgage on July 1, 2003 with a portion of the net proceeds from the original offering.

      The additional financing will allow for the renovation/ conversion of the office building to residential condominiums. The estimated cost of the construction project is $14.0 million, and it is estimated that the project will be completed by the end of the first quarter of 2004. Additional funds to complete construction are anticipated to come from the sales of the condominium units, cash flow from the operations and partner equity contributions.

      The mezzanine financing bears interest at a variable rate of one-month LIBOR plus 7.00%, with a floor of 10.00%, and will be funded in two equal installments of $4.0 million. The two key principals will each contribute $1.0 million before either component is funded. The funding will be drawn down as construction progresses. The interest on the first component, which has been funded, will be earned on the full $4.0 million, while the interest on the second component, which had not yet been funded as of September 30, 2003, will be earned as the $4.0 million is drawn down. Currently, $1.1 million of the second component has been funded and interest is being earned on the funded amount. The unfunded portion of the second component will remain unfunded unless a specified number of condominiums have been sold. The additional financing is secured by a second mortgage lien on the property.

      333 East 34th Street. Arbor Commercial Mortgage originated this $10.0 million mezzanine loan to 333 East 34th, LLC in January 2002 and contributed it to us upon consummation of the original offering. The borrower used the loan proceeds to acquire and renovate a multi family residential building located in New York. The borrower is converting the New York rental property into condominiums.

      The loan bears a variable rate of interest of one month LIBOR plus 5.00%, with a 12.50% floor, and matures in February 2004. The borrower has the option to remit interest at a rate of LIBOR plus 3.00% with an 8.00% floor and to accrue the differential interest owed, which compounds at an annual rate of 12.50%. Interest payments are due monthly, and the principal balance is due in full upon maturity. The loan is secured by a pledge of the membership interests in the borrower, and two affiliates of the borrower have personally guaranteed the loan for up to $1.0 million. The loan is subordinate to a $31.0 million first mortgage lien held by a third party lender.

      The borrower has the option to extend the term of the loan for three, 12-month periods, the second of which requires a payment of additional interest of $300,000.

      Arbor Commercial Mortgage holds a 15% interest in the property which it did not contribute to us in connection with the asset contribution. This interest is used to partially fund a loan loss guarantee by Arbor Commercial Mortgage. See “— Participating Interests in Our Investments Retained by Arbor Commercial Mortgage” below.

      930 Flushing Avenue. Arbor Commercial Mortgage originated this $3.5 million mezzanine loan in June 2003. We purchased this loan from Arbor Commercial Mortgage effective August 1, 2003. The borrower used the loan proceeds to acquire the 300,000 square foot warehouse/ industrial space located in Brooklyn, New York.

      The loan bears a variable rate of interest of one-month LIBOR plus 8.00% with a floor of 9.50% and matures in May 2006. The borrower has the option to remit interest at a rate of LIBOR plus 3.50% with a 5.00% floor and to accrue the differential interest owed. Interest payments are due monthly, and the principal

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      The borrower has the option to extend the term of the loan for two 12-month periods for additional interest of 3.00% of the outstanding principal balance upon exercise of each extension.

      Carlton Arms Apartments. Arbor Commercial Mortgage originated this $4.0 million mezzanine loan to HRA Egypt Lake, Inc. and Carlton Arms, LLC in November 2001 and contributed it to us upon consummation of the original offering. The borrowers used the loan proceeds to refinance the existing debt on a 650 unit apartment complex located in Tampa, Florida.

      The loan bears interest at a variable rate of one month LIBOR plus 6.75%, with a floor of 12.00%, and matures in December 2003. Interest payments are due monthly and since January 2002, the borrower has made principal payments from excess cash flow, with the unpaid principal balance due in full upon maturity. In addition, upon maturity or prepayment of the loan, the borrowers must pay deferred interest of $840,000 on the principal repaid. This deferred interest has not been accrued. Upon the maturity of this loan, we will allocate a portion of the amount received to our manager pro-rata based on the time frame this loan was held by our manager prior to Arbor Commercial Mortgage’s asset contribution. The loan is secured by a pledge of the membership interests in the borrower. The loan is subordinate to an approximately $21.4 million first mortgage lien held by a third party lender. The borrowers have the option to extend the term of the loan for up to six months with no additional interest due.

      In connection with our refinancing of this $4.0 million mezzanine loan and the first mortgage lien in October 2003, this loan was repaid in full, including all deferred interest due, a portion of which we allocated to Arbor Commercial Mortgage pro rata for the timeframe it held the loan. We replaced the loan with a $27 million bridge loan made by us, which has an initial term of 24 months with one 12-month extension. The borrower must pay additional interest of 1.00% on the outstanding principal balance upon such extension. The borrower paid a 1.50% origination fee on the date the loan closed. In accordance with our management agreement with Arbor Commercial Mortgage, the first 1.00% was paid to Arbor Commercial Mortgage and we retained the remaining 0.50%. In addition, upon maturity or prepayment of the loan, the borrower must pay deferred interest of 1.50% of the principal repaid.

      The new bridge loan is bifurcated into two notes. Note A, for $21.5 million, bears a variable rate of interest of LIBOR plus 3.50% with a 5.00% floor. Note B, for $5.5 million, bears a variable rate of interest of LIBOR plus 6.50% with an 8.50% floor. Note A must be repaid before Note B may be repaid. Note B contains a first loss guaranty by the key principal for the $5.5 million loan amount.

      The Crossings Apartments. Arbor Commercial Mortgage originated this $2.0 million mezzanine loan to Audubon-Glassboro, LLC in June 2003. We purchased this loan from Arbor Commercial Mortgage on July 1, 2003 with a portion of the net proceeds from the original offering. The borrowers used the loan proceeds to acquire and renovate a 328-unit multi-family apartment complex located in Glassboro, Gloucester County, New Jersey.

      The loan bears interest at a variable rate of LIBOR plus 7.00%, with a 10.00% floor, and matures in June 2006. Interest payments are due monthly, and the unpaid principal balance is due in full upon maturity. In addition, upon maturity or prepayment of the loan, the borrower must pay deferred interest equal to the amount necessary to provide an aggregate annual internal rate of return of 13.00%. The loan is secured by a pledge of membership interest in the borrowing entity. The loan is subordinate to a $11.0 million first mortgage loan on the property held by a third party lender.

      The borrower has the option to extend the term of the loan for two 12-month periods upon payment of additional interest of $30,000, for the first extension, and $50,000, for the second extension, if the borrower is in compliance with certain financial covenants.

      James Hotel. We originated this $6.6 million mezzanine loan to James Hotel Scottsdale, LLC in August 2003. The borrower is currently using the loan proceeds to renovate this recently acquired 206-room independent hotel located in Scottsdale, Arizona.

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      The loan bears a variable rate of interest of LIBOR plus 7.00%, with a 9.00% floor and a 10.00% cap. The loan matures in July 2006. The borrower paid a 2.00% origination fee on the date the loan closed. In accordance with our management agreement with Arbor Commercial Mortgage, the first 1.00% was paid to Arbor Commercial Mortgage and we retained the remaining 1.00%. Interest payments are due monthly, and the principal balance is due in full upon maturity. In addition, upon maturity of the loan, the borrower must pay deferred interest in an amount necessary to generate an aggregate annual internal rate of return of 18.00%. The loan is secured by a pledge of the membership interests in the borrower. The loan is subordinate to a $5.0 million first mortgage lien and a $5.0 million second mortgage lien held by a third party lender.

      Of the $6.6 million loan, $2.2 million had been funded and we had retained the remaining $4.4 million in a renovation reserve account as of September 30, 2003. Currently, the $6.6 million loan has been fully funded. These funds will be disbursed as required for the renovation. For the first ninety days, interest will be earned on only the disbursed proceeds; thereafter, interest will be earned on $6.6 million.

      The borrower has the option to extend the term of the loan for one additional 12-month period for additional interest payment of 1.00% on the outstanding principal balance upon such extension.

      Partners Portfolio. Arbor Commercial Mortgage originated this $4.7 million mezzanine loan to SRH/LA Chesapeake Apartments L.P., SRH/LA Nottingham, LLC, SRH/LA Hunter, LLC and SRH/ LA Melvin, LLC in April 2003. Arbor Commercial Mortgage contributed this loan to us upon consummation of the original offering. The borrowers used the loan proceeds to acquire this 443 unit multi family residential portfolio consisting of two properties in Baltimore, Maryland.

      The loan bears interest at a variable rate of (1) in the first year, LIBOR plus 4.50%, with a floor of 6.50% (2) in the second year, LIBOR plus 6.50%, with a floor of 8.50% and (3) in the third year, LIBOR plus 7.50%, with a floor of 9.50%. The loan matures in May 2006. Interest payments are due monthly, and the principal balance is due in full upon maturity. In addition, upon maturity or prepayment of the loan, the borrowers must pay deferred interest of 1.0% on the principal repaid. The loan is secured by a pledge of partnership interests of the above entities and a pledge of the cash flows of certain affiliates of the borrower.

      Schron Portfolio B. Arbor Commercial Mortgage originated this $8.5 million mezzanine loan to Central Jersey Sub VII LLC in August 2000 and contributed it to us upon consummation of the original offering. The borrower used the loan proceeds to acquire and renovate two multi family properties in New Jersey. The loan has been modified twice, first in October 2002 in connection with the repayment of $5.5 million of outstanding principal, and in May 2003 to extend the term.

      The loan bears interest at a variable rate of LIBOR plus 5.25%, with a floor of 6.75%, and matures in April 2005. Interest payments are due monthly, and the principal balance is due in full upon maturity. The loan is secured by the ownership interests of certain affiliates of the borrower. The loan is subordinate to a first mortgage lien with a current unpaid principal balance of approximately $14.0 million.

      The borrower has the option to extend the term of the loan for three one-year periods at no fee.

      Arbor Commercial Mortgage holds an 18% interest in the properties which it did not contribute to us in connection with the asset contribution. This interest is used to partially fund a loan loss guarantee by Arbor Commercial Mortgage. See “— Participating Interests in Our Investments Retained by Arbor Commercial Mortgage” below.

      SMC Portfolio. We originated this $11.5 million mezzanine loan to various entities owned by Sawyer Realty Holdings, LLC in September 2003. The borrowers used the loan proceeds to refinance the existing mezzanine debt and make certain renovations to this 1,951-unit multi-family residential portfolio consisting of five properties in Baltimore, Maryland.

      The loan bears interest at a variable rate of (1) in the first year, LIBOR plus 5.50%, with a floor of 7.50% (2) in the second year, LIBOR plus 6.50%, with a floor of 8.50% and (3) in the third year, if it is extended, LIBOR plus 7.50%, with a floor of 9.50%. The loan matures in September 2005. Interest payments are due monthly, and the principal balance is due in full upon maturity. In addition, upon maturity or prepayment of the loan, the borrower must pay deferred interest of 1.0% on the principal repaid. The loan is secured by a

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      The borrowers have the option to extend the term of the loan for three 12-month periods, the first of which requires a payment of additional interest of 1% of the outstanding principal balance upon such extension.

Preferred Equity Investments

      CDS Texas Portfolio. Arbor Commercial Mortgage made this preferred equity investment in December 1998 and contributed it to us upon consummation of the original offering. This investment facilitated the acquisition and renovation of a nine property portfolio (Sea Breeze, Autumn Manor, Malibu, Lake Crest, Santa Fe, La Mesa, Trevino, Apache Arms and Harvard) containing 1,347 units located in Austin and El Paso, Texas. The investment was originally funded in the amount of $11.3 million. Subsequently, the property owner refinanced Lake Crest, Trevino, and Apache Arms and sold Harvard to reduce the principal balance. As of September 30, 2003, the outstanding equity balance was $5.0 million. The current outstanding equity balance is $4.3 million. The properties are also security to debt amounting to $12.8 million held by third party lenders.

      The investment bears a preferred return at a variable rate of six month LIBOR plus 4.50%, with a floor of 9.56%. The investment is required to be repurchased in January 2004 and upon such repurchase, the holder of the preferred interest is entitled to receive an additional preferred return of 2.00%.

      Devonshire Apartments. Arbor Commercial Mortgage made this $2.5 million preferred equity investment in January 2002 in Merchant Devonshire Limited Partnership, the owner of a 180-unit multi family residential property in Holyoke, Massachusetts. Arbor Commercial Mortgage contributed this investment to us upon consummation of the original offering. The investment proceeds were used in connection with the acquisition of an office building in Hartford, Connecticut for approximately $23.3 million.

      The investment bears a preferred return at a variable rate of LIBOR plus 7.50%, with a floor of 13.50%. The borrower has the option of remitting the preferred return at a pay rate of LIBOR plus 4.50% with a 10.00% floor and to accrue the differential owed. The preferred interest is required to be repurchased in January 2005, although such date may be extended for one, 12-month period without payment of a fee. The property secures a first mortgage lien with a current unpaid principal balance of approximately $5.4 million. In October 2003, this investment, together with all preferred return then due, was repaid in full.

      Dutch Village Preferred Equity. Arbor Commercial Mortgage made this $7.1 million preferred equity investment in SRH/LA Chesapeake Apartments, L.P., and Partners of Dutch, Inc. We purchased this investment from Arbor Commercial Mortgage on July 1, 2003 with a portion of the net proceeds from the original offering.

      The investment proceeds will be used to acquire a 544-unit multi-family apartment complex located in Baltimore, Maryland. The investment provides a variable rate return of (1) LIBOR plus 4.50%, with a floor of 6.50%, in the first year, (2) LIBOR plus 6.50%, with a floor of 8.50%, in the second year and (3) LIBOR plus 7.50%, with a floor of 9.50%, in the third year. Although the company in which we have made this investment is required to redeem the preferred equity investment in November 2006, this date may be extended by the company upon the exercise of three one-year extension periods. Upon the redemption, either on the redemption date or prior to such date, of the preferred equity investment, the company is required to pay an additional return of 1.00% on the original investment amount. The property is subject to a first mortgage lien with a current unpaid principal balance of $11.7 million held by a third party lender.

      Park Place Apartments. Arbor Commercial Mortgage made this $3.9 million preferred equity investment in January 2002 in Santa Ana Park Place Associates LLC, the owner of a 196 unit multi family residential building in Santa Ana, California, that also contains 7 retail units. Arbor Commercial Mortgage contributed this investment to us upon consummation of the original offering.

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      The investment proceeds were used to acquire and renovate the property. The owner has completed its improvements and currently has the property on the market. The investment bears a preferred return at a fixed rate of 16.00%, compounded monthly, although the owner has the option of remitting the preferred return at a pay rate of LIBOR plus 5.00%, with a 12.00% per annum floor and to accrue the differential owed, which compounds at an aggregate annual rate of 16.00%. The owner is required to repurchase the preferred interest in January 2005, although such date may be extended for one, 12-month period for a fee of $50,000. The property is subject to a first mortgage lien with a current unpaid principal balance of $10.7 million. As security for the investment, Santa Ana Park Place Corp. and K W Properties executed a guarantee in favor of Park Place LLC. In October 2003, this investment, together with all preferred return then due, was repaid in full.

      Schron Portfolio A. Arbor Commercial Mortgage made a $19.3 million preferred equity investment in Central Jersey Prime Holdings LLC in May 2003 and contributed it to us upon consummation of the original offering. Arbor Commercial Mortgage had originally invested in May 2000 and also had an investment with a related party which was combined with this investment in May 2003. The investment proceeds were originally used to acquire 13 multi-family properties located throughout the state of New Jersey.

      The investment bears a preferred return at a variable rate of LIBOR plus 5.25%, with a floor of 6.75%. The investment must be repurchased in April 2005, although the owner has the option to extend this obligation for three one year periods with no additional return. The properties are subject to a first Mortgage lien with a current unpaid principal balance of approximately $189.3 million.

      Arbor Commercial Mortgage holds an 18% interest in the properties which it did not transfer to us in connection with the asset contribution. This interest is used to partially fund a loan loss guarantee by Arbor Commercial Mortgage. See “— Participating Interests in Our Investments Retained by Arbor Commercial Mortgage” below.

      Villages at Gateway. Arbor Commercial Mortgage made this $4.3 million preferred equity investment in February 2002 in BP C04 Property Associates, LLC, the owner of a 764 unit multi family residential property in Denver, Colorado. Arbor Commercial Mortgage contributed this investment to us upon consummation of the original offering. The owner used the proceeds to acquire and renovate the property. The investment was originally made in two components of $1.5 million and $2.8 million, one of which was repurchased by the owner leaving $2.8 million outstanding.

      The investment bears a preferred return at a variable rate of LIBOR plus 6.00%, with a floor of 10.00%. The equity interest must be repurchased by the owner in March 2004, although the owner has the option to extend the repurchase date for one 12-month period at no additional return, followed by two six-month extensions subject to an additional return of $126,000 for the first and $140,000 for the second extension. The property secures a first mortgage lien with a current unpaid principal balance of approximately $23.4 million.

      Upon repurchase of the interests, the owner must make an additional distribution, depending upon the year of repurchase: $100,240 during the first year, $300,160 during the second year and $529,760 during the third year and beyond. This additional distribution has not been accrued. Upon receipt of this additional distribution, we will allocate a portion of the amount received to our manager pro rata based on the time frame this investment was held by our manager prior to Arbor Commercial Mortgage’s asset contribution.

Other Investments

      Albion. Upon consummation of the original offering, Arbor Commercial Mortgage contributed to us the B note of a bifurcated bridge loan that it made to Albion Associates, LTD in August 1998. The borrower used the proceeds of the original loan to acquire and renovate a 96 room hotel in Miami Beach, Florida.

      The B note, which currently has an unpaid balance of approximately $2.0 million, bears interest at a fixed rate of 7.39% is amortized over 30 years, and matures in September 2023. However, if the loan is not repaid by September 2008, the interest rate is increased by 5.00% and additional provisions regarding the allocations of the borrower’s cash flow become effective. Pursuant to an agreement with the holder of the A note, a third party lender, the B note is subordinate to the A note with respect to the right to receive payments of interest and principal. In addition, following an event of default, the B note holder is subject to a standstill whereby the

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Arbor Commercial Mortgage’s Retained Interests in Our Investments

      At the time of Arbor Commercial Mortgage’s origination of three of the assets contributed to us upon consummation of the original offering, the 333 East 34th Street and Schron B mezzanine loans and the Schron A preferred equity investment, each of the property owners related to these investments granted Arbor Commercial Mortgage participating interests that share in a percentage of the cash flows of the underlying properties. At the time Arbor Commercial Mortgage made the 130 West 30th Street bridge loan also contributed to us, Arbor Commercial Mortgage and the borrower also entered into a joint venture in which each partner contributed 50% of the capital and is equally entitled to share in the profits and losses of the venture. Upon contribution of these four investments to us, Arbor Commercial Mortgage retained its participating interests in the three investment and its interest in the joint venture with the borrower under the 130 West 30th Street bridge loan, which we refer to collectively as Arbor Commercial Mortgage’s retained interests. After each of the related investments is repaid or repurchased, Arbor Commercial Mortgage may realize value from the associated retained interests. Arbor Commercial Mortgage has agreed that if any portion of the outstanding amount of any of these four investments is not paid at the investment’s maturity or repurchase date, Arbor Commercial Mortgage will pay to us, subject to the limitation described below, the portion of the unpaid amount of the investments up to the total amount then received by Arbor Commercial Mortgage due to the realization of any retained interests associated with any other of the four investments. However, Arbor Commercial Mortgage will no longer be obligated to make such payments to us when the remaining accumulated principal amount of the four investments, collectively, falls below $5 million and none of the four investments is in default.

      The principal amount for each contributed investment protected by this payment obligation is equal to the principal balance of the investment at the time of contribution, plus the investment’s interest expense paid by us in cash since contribution, less the investment income and deferred interest or preferred return received by us in cash since contribution.

Operations

	Our Manager’s Investment Services

      Under the management agreement, Arbor Commercial Mortgage is responsible for sourcing originations, providing underwriting services and processing approvals for all loans and other investments in our portfolio. Arbor Commercial Mortgage also provides certain administrative loan servicing functions with respect to our loans and investments. We are able to capitalize on Arbor Commercial Mortgage’s well established operations and services in each of these areas as described below.

	Origination

      Our manager will source the origination of most of our investments. Arbor Commercial Mortgage serves its markets directly through its network of 14 sales offices located in Atlanta, Georgia; Bethesda, Maryland; Bloomfield Hills, Michigan; Boca Raton, Florida; Boston, Massachusetts; Chicago, Illinois; Dallas, Texas; Denver, Colorado; Los Angeles, California; Rochester, New York; San Clement, California; New York, New York; San Francisco, California; and Uniondale, New York. These offices are staffed by approximately 20 loan originators, each of which are employed by our manager, who solicit property owners, developers and mortgage loan brokers. In some instances the originators accept loan applications meeting our underwriting criteria from a select group of mortgage loan brokers. While a large portion of Arbor Commercial Mortgage’s marketing effort occurs at the branch level, Arbor Commercial Mortgage also markets its products in industry publications and targeted direct mailings. Our manager markets structured finance products as our product offerings using the same methods.

      Once potential borrowers have been identified, Arbor Commercial Mortgage determines which financing products best meet the borrower’s needs. Loan originators in every branch office are able to offer borrowers the

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	Underwriting

      Our manager’s loan originators work in conjunction with underwriters who are also employed by our manager. These underwriters have the responsibility to perform due diligence on all proposed transactions prior to loan approval and commitment. Upon receipt of each new loan application, the underwriter analyzes it in accordance with the guidelines set forth below in order to determine the loan’s conformance and suitability with respect to those guidelines. In general, Arbor Commercial Mortgage’s underwriting guidelines require it to evaluate the following:

	•	the historic and in place property revenues and expenses;
	•	the potential for near term revenue growth and opportunity for expense reduction and increased operating efficiencies; the property’s location, its attributes and competitive position within its market;
	•	the proposed ownership structure, financial strength and real estate experience of the borrower and property management; third party appraisal, environmental and engineering studies;
	•	market assessment, including property inspection, review of tenant lease files, surveys of property comparables and an analysis of area economic and demographic trends; review of an acceptable mortgagee’s title policy and an “as built” survey;
	•	construction quality of the property to determine future maintenance and capital expenditure requirements; and
	•	the requirements for any reserves, including those for immediate repairs or rehabilitation, replacement reserves, tenant improvement and leasing commission costs, real estate taxes and property casualty and liability insurance.

      Key factors considered in credit decisions include, but are not limited to, debt service coverage, loan to value ratios and property, financial and operating performance. Consideration is also given to other factors, such as additional forms of collateral and identifying likely strategies to effect repayment. Arbor Commercial Mortgage will refine its underwriting criteria based upon actual loan portfolio experience and as market conditions and investor requirements evolve.

	Investment Approval Process

      Arbor Commercial Mortgage applies its established investment approval process to all loans and other investments proposed for our portfolio before submitting each proposal to us for final approval. A written report is generated for every loan or other investment that is submitted to Arbor Commercial Mortgage’s seven member credit committee for approval. The presentation includes a description of the prospective borrower and any guarantors, the collateral and the proposed use of investment proceeds, as well as borrower and property consolidated financial statements and analysis. In addition, the presentation summarizes an analysis of borrower liquidity, net worth, cash investment, income, credit history and operating experience. If the transaction is approved by a majority of Arbor Commercial Mortgage’s credit committee, it is presented for approval to our credit committee, which consists of our chief executive officer, our chief credit officer, our executive vice president of structured finance and our executive vice president of asset management. All transactions require the approval of a majority of the members of our credit committee, including the vote of our executive vice president of structured finance.

      Following the approval of any such transaction, Arbor Commercial Mortgage’s underwriting and servicing departments, together with our asset management group, assure that all loan approval terms have been satisfied and that they conform with lending requirements established for that particular transaction. If our credit committee and independent directors reject the loan and the independent directors allow Arbor

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	Servicing

      Arbor Commercial Mortgage services our loans through its internal servicing operations. Our manager currently services an expanding portfolio, consisting of approximately 500 loans with outstanding balances of $2.7 billion through its loan administration department in Buffalo, New York. Arbor Commercial Mortgage’s loan servicing operations are designed to provide prompt customer service and accurate and timely information for account follow up, financial reporting and management review. Following the funding of an approved loan, all pertinent loan data is entered into Arbor Commercial Mortgage’s data processing system, which provides monthly billing statements, tracks payment performance and processes contractual interest rate adjustments on variable rate loans. Our manager utilizes the operations of its loan administration department to service our portfolio with the same efficiency, accuracy and promptness. Arbor Commercial Mortgage also works closely with our asset management group to ensure the appropriate level of customer service and monitoring of these loans.

Our Asset Management Operations

      Our asset management group is comprised of nine employees that comprised the asset management group at Arbor Commercial Mortgage. The experience and depth of services of the asset management group enabled Arbor Commercial Mortgage to improve the credit quality and yield of its structured finance investments. The asset management group, while at Arbor Commercial Mortgage, was responsible for managing over $2.5 billion in assets consisting of more than 500 real estate related investments for Arbor Commercial Mortgage. The asset management group has successfully managed numerous transactions, including complex restructurings, refinancings and asset dispositions. Through active participation in the financing and structuring strategies of transactions, many of these transactions have directly created value by generating excess cash flow or by enhancing asset values. Other transactions have dramatically reduced Arbor Commercial Mortgage’s financial exposure.

      The professionals that are part of this group are experienced in managing and servicing many types and classes of assets. Because each property and loan is unique, the asset management group, at the point of origination, customizes an asset management plan with the origination and underwriting teams to track the asset from origination through disposition. The asset management group is committed to effectively communicating to senior management the status of transactions against a pre-established plan, enhancing and preserving capital, as well as avoiding litigation and potential exposure. The asset management group also performs frequent site inspections, conducts meetings with borrowers and evaluates and participates in the budgeting process, financial review of operations and the asset’s renovation plans.

      Effective asset and portfolio management is essential to maximizing the performance and value of a real estate/ mortgage investment. The asset management group monitors each investment’s operating history and assesses potential financial performance to accurately evaluate and ultimately improve operations and financial viability. As an asset and portfolio manager, the asset management group focuses on increasing the productivity of on site property managers and leasing brokers as well. The asset management group also monitors local economic trends, rental and occupancy rates and property competitiveness within its market.

      Accurate identification of an investment’s current issues and each stockholder’s objectives is important in the loan workout and restructuring process. Since existing management may not have the requisite expertise to effectively implement and manage the workout process, the asset management group determines current operating and financial status of an asset or portfolio and performs liquidity analysis of properties and ownership entities and then identifies and evaluates alternatives in order to maximize the value of an investment.

      Our asset management group continues to provide its services to Arbor Commercial Mortgage on a limited basis pursuant to an asset management services agreement between Arbor Commercial Mortgage and

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Operating Policies and Strategies

      Capital and Leverage Policies. Currently, we are financing our acquisition of mortgage assets through the proceeds of the original offering and through borrowings under our credit facility. In the future, we will finance our acquisition of mortgage assets primarily by borrowing against or “leveraging” our existing portfolio and using the proceeds to acquire additional mortgage assets. We expect to incur debt such that we will maintain an equity to assets ratio of up to 20%, although the actual ratio may be lower from time to time depending on market conditions and other factors deemed relevant by our manager. Our charter and bylaws do not limit the amount of indebtedness we can incur, and the board of directors has discretion to deviate from or change our indebtedness policy at any time. However, we intend to maintain an adequate capital base to protect against various business environments in which our financing and hedging costs might exceed interest income (net of credit losses) from our investments. These conditions could occur, for example, due to credit losses or when, due to interest rate fluctuations, interest income on our investments lags behind interest rate increases in our borrowings, which are expected to be predominantly variable rate. See “Risk Factors — Risks Related to our Business.”

      Liabilities. Our investments are financed primarily at short term borrowing rates through warehouse lines of credit, repurchase agreements, loan agreements, commercial paper borrowings and other credit facilities with institutional lenders. Although we expect that commercial warehouse lines of credit and repurchase agreements will be the principal means of leveraging our investments, we may issue preferred stock or secured or unsecured notes of any maturity if it appears advantageous to do so. We have substantially similar credit facilities as those used by Arbor Commercial Mortgage to finance the initial assets. These credit facilities are further described under “Liquidity and Capital Resources — Sources of Liquidity.”

      Credit Risk Management. We are exposed to various levels of credit and special hazard risk depending on the nature of our underlying assets and the nature and level of credit enhancements supporting our assets. We originate or purchase mortgage loans that meet minimum debt service coverage standards established by us. Arbor Commercial Mortgage, as our manager, and our chief credit officer review and monitor credit risk and other risks of loss associated with each investment. In addition, Arbor Commercial Mortgage seeks to diversify our portfolio of assets to avoid undue geographic, issuer, industry and certain other types of concentrations. Our board of directors monitors the overall portfolio risk and reviews levels of provision for loss.

      Asset/ Liability Management. To the extent consistent with our election to qualify as a REIT, we follow an interest rate risk management policy intended to mitigate the negative effects of major interest rate changes. We minimize our interest rate risk from borrowings by attempting to structure the key terms of our borrowings to generally correspond to the interest rate term of our assets.

      Hedging Activities. Although Arbor Commercial Mortgage has not found it advantageous to enter into hedging transactions in the past, we may enter into such transactions in the future to protect our investment portfolio from interest rate fluctuations and other changes in market conditions. These transactions may include interest rate swaps, the purchase or sale of interest rate collars, caps or floors, options, mortgage derivatives and other hedging instruments. These instruments may be used to hedge as much of the interest rate risk as Arbor Commercial Mortgage determines is in the best interest of our stockholders, given the cost of such hedges and the need to maintain our status as a REIT. In general, income from hedging transactions does not constitute qualifying income under current law for purposes of the REIT gross income requirements. To the extent, however, that we enter into a hedging contract to reduce interest rate risk on indebtedness

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      Disposition Policies. Although there are no current plans to dispose of properties or other assets within our portfolio, Arbor Commercial Mortgage evaluates our asset portfolio on a regular basis to determine if it continues to satisfy our investment criteria. Subject to certain restrictions applicable to REITs, Arbor Commercial Mortgage may cause us to sell our investments opportunistically and use the proceeds of any such sale for debt reduction, additional acquisitions or working capital purposes.

      Equity Capital Policies. Subject to applicable law, our board of directors has the authority, without further stockholder approval, to issue additional authorized common stock and preferred stock or otherwise raise capital, including through the issuance of senior securities, in any manner and on the terms and for the consideration it deems appropriate, including in exchange for property. Our existing stockholders, including stockholders purchasing in this offering, will have no preemptive right to additional shares issued in any offering, and any offering might cause a dilution of investment. See “Description of Stock.” We may in the future issue common stock in connection with acquisitions. We also may issue units of partnership interest in our operating partnership in connection with acquisitions of property.

      We may, under certain circumstances, repurchase our common stock in private transactions with our stockholders, if those purchases are approved by our board of directors. Our board of directors has no present intention of causing us to repurchase any shares, and any action would only be taken in conformity with applicable federal and state laws and the applicable requirements for qualifying as a REIT, for so long as the board of directors concludes that we should remain a REIT.

      Conflicts of Interest Policies. We, our executive officers and Arbor Commercial Mortgage face conflicts of interests because of our relationships with each other. Mr. Ivan Kaufman is our chief executive officer and the chief executive officer of Arbor Commercial Mortgage and serves on our credit committee and Mr. Kaufman and the Kaufman entities own approximately 88% of the outstanding membership interests of Arbor Commercial Mortgage. Mr. Frederick C. Herbst is our chief financial officer and the chief financial officer of Arbor Commercial Mortgage. In addition, Mr. Herbst, two of our executive vice presidents, Mr. Fred Weber and Mr. Daniel M. Palmier, and two of our directors, Mr. Joseph Martello and Mr. Walter Horn, have minority ownership interests in Arbor Commercial Mortgage, and Mr. Martello serves as the trustee of a trust through which Mr. Kaufman owns the majority of his ownership interest in Arbor Commercial Mortgage and co-trustee of another Kaufman entity that owns an equity interest in Arbor Commercial Mortgage.

      We have implemented several policies, through board action and through the terms of our constituent documents and of our agreements with Arbor Commercial Mortgage, to help address these conflicts of interest:

	•	Our charter requires that a majority of our board of directors be independent directors and that only our independent directors make any determinations on our behalf with respect to the relationships or transactions that present a conflict of interest for our directors or officers.
	•	Our board of directors has adopted a policy that decisions concerning our management agreement with Arbor Commercial Mortgage, including termination, renewal and enforcement thereof or our participation in any transactions with Arbor Commercial Mortgage or its affiliates outside of the management agreement, including our ability to purchase securities and mortgage or other assets from or to sell securities and assets to Arbor Commercial Mortgage, must be reviewed and approved by a majority of our independent directors.
	•	Our management agreement provides that our determinations to terminate the management agreement for cause or because the management fees are unfair to us or because of a change in control of our manager will be made by a majority vote of our independent directors.

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	•	Our independent directors will periodically review the general investment standards established for Arbor Commercial Mortgage under the management agreement.
	•	Our management agreement with Arbor Commercial Mortgage provides that Arbor Commercial Mortgage may not assign duties under the management agreement, except to certain affiliates of Arbor Commercial Mortgage, without the approval of a majority of our independent directors.
	•	Our management agreement provides that decisions to approve or reject investment opportunities rejected by our credit committee that Arbor Commercial Mortgage or Mr. Kaufman wish to pursue will be made by a majority of our independent directors.

      Other Policies. We intend to operate in a manner that will not subject us to regulation under the Investment Company Act. We may invest in the securities of other issuers for the purpose of exercising control over such issuers and underwrite securities of other issuers, particularly in the course of disposing of their assets.

      Future Revisions in Policies and Strategies. Our board of directors has approved the investment guidelines and the operating policies and the strategies set forth in this prospectus. The board of directors has the power to modify or waive these policies and strategies, or amend our agreements with Arbor Commercial Mortgage, without the consent of our stockholders to the extent that the board of directors (including a majority of our independent directors) determines that such modification or waiver is in our best interest or the best interest of our stockholders. Among other factors, developments in the market that either affect the policies and strategies mentioned herein or that change our assessment of the market may cause our board of directors to revise its policies and strategies. However, if such modification or waiver involves the relationship of, or any transaction between, us and our manager or any affiliate of our manager, the approval of a majority of our independent directors is also required. We may not, however, amend our charter to change the requirement that a majority of our board consist of independent directors or the requirement that our independent directors approve related party transactions without the approval of two thirds of the votes entitled to be cast by our stockholders.

Policies With Respect to Certain Other Activities

      Reporting Policies. Generally speaking, we intend to make available to our stockholders certified annual consolidated financial statements and annual reports. After this offering, we will become subject to the information reporting requirements of the Securities Exchange Act of 1934, as amended, referred to as the Exchange Act. Pursuant to these requirements, we will file periodic reports, proxy statements and other information, including audited consolidated financial statements, with the Securities and Exchange Commission.

Our Operating Partnership

      We have organized Arbor Realty Limited Partnership, our operating partnership, as a limited partnership under the Delaware Revised Uniform Limited Partnership Act. We serve as the sole general partner of our operating partnership, and own a 72% partnership interest in our operating partnership represented by operating partnership units that we obtained in exchange for our contribution of the net proceeds of the original offering to our operating partnership. The remaining 28% partnership interest in our operating partnership is owned by Arbor Commercial Mortgage. After giving effect to this offering, Arbor Commercial Mortgage will own approximately a        % interest in our operating partnership and we will own the remaining        %. In exchange for the contribution of the initial assets to our partnership, Arbor Commercial Mortgage received approximately 3.1 million operating partnership units and 629,000 warrants, each of which entitles Arbor Commercial Mortgage to purchase one additional operating partnership unit for two years from the date of issue. Arbor Commercial Mortgage’s operating partnership units, including units issued upon exercise of the warrants, each is paired to one share of our special voting preferred stock and is redeemable, at the option of Arbor Commercial Mortgage, for cash, or at our election, our common stock, generally on a one for one basis, at any time after the earlier of (1) two years following the closing of the original offering and (2) six months (180 days) following the effectiveness of the registration statement of which this prospectus is a part.

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Competition

      Our net income depends, in large part, on our manager’s ability to originate structured finance investments with spreads over our borrowing costs. In originating these investments, our manager competes with other mortgage REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, other lenders, governmental bodies and other entities, some of which may have greater financial resources and lower costs of capital available to them. In addition, there are numerous mortgage REITs with asset acquisition objectives similar to ours, and others may be organized in the future. The effect of the existence of additional REITs may be to increase competition for the available supply of structured finance assets suitable for purchase by us. Competitive variables include market presence and visibility, size of loans offered and underwriting standards. To the extent that a competitor is willing to risk larger amounts of capital in a particular transaction or to employ more liberal underwriting standards when evaluating potential loans, our origination volume and profit margins for our investment portfolio could be impacted. Our competitors may also be willing to accept lower returns on their investments and may succeed in buying the assets that we have targeted for acquisition. Although management believes that we are well positioned to continue to compete effectively in each facet of our business, there can be no assurance that we will do so or that we will not encounter further increased competition in the future that could limit its ability to compete effectively.

Employees

      We currently have eleven employees, including Mr. Kovarik, our chief credit officer, Mr. Weber, our executive vice president of structured finance, Mr. Palmier, our executive vice president of asset management, and a eight person asset management group. Mr. Kaufman, who serves as our chief executive officer and Mr. Herbst, who serves as our chief financial officer, each of whom is a full time employee of our manager, perform the duties required pursuant to the management agreement with our manager and our bylaws.

Legal Proceedings

      We are not involved in any litigation nor, to our knowledge, is any litigation threatened against us.

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OUR MANAGER AND THE MANAGEMENT AGREEMENT

Manager

      We have chosen to be externally managed by Arbor Commercial Mortgage to take advantage of the existing business relationships, operational and risk management systems, expertise and economies of scale associated with Arbor Commercial Mortgage’s current business operations. Arbor Commercial Mortgage is a national commercial real estate finance company, which was founded in 1993 as a subsidiary of Arbor National Holdings, which was primarily an originator and servicer of single-family residential mortgage loans. Our chief executive officer, Mr. Ivan Kaufman, is also Arbor Commercial Mortgage’s chief executive officer and controlling equity owner, and was the co-founder, chairman and majority stockholder of Arbor National Holdings. Under Mr. Kaufman’s direction, Arbor National Holdings grew to 25 branches in 11 states and funded more than $4 billion in loans in its last full year of operations. Arbor National Holdings became a public company in 1992 and was sold to BankAmerica in 1995. As chairman and chief executive officer of Arbor National Holdings, Mr. Kaufman developed significant experience operating and managing a publicly traded company.

      In connection with the sale of Arbor National Holdings, Mr. Kaufman purchased its commercial mortgage lending operations and the rights to the “Arbor Commercial Mortgage” name and retained a significant portion of Arbor National Holdings’ senior management team. This senior management team has guided Arbor Commercial Mortgage’s growth from a company originally capitalized with approximately $8.0 million, to its equity value, including its partnership interest in Arbor Realty Limited Partnership, of approximately $69 million as of September 30, 2003. Arbor Commercial Mortgage is now a full service provider of financial services to owners and developers of commercial and multi-family real estate properties. Arbor Commercial Mortgage has derived revenue from the origination for sale and servicing of government-sponsored and conduit mortgage loans for commercial and multi-family real estate properties as well as from the origination of structured finance loans and investments. Arbor Commercial Mortgage originated over $600 million in new loans in 2002 and is currently servicing a portfolio with a principal balance of $2.9 billion, including loans serviced for Arbor Realty Limited Partnership.

      Our primary business will be investing in structured finance loans and investments. We do not intend to originate or service government sponsored investment grade assets, but we may invest in such assets in the future.

      Arbor Commercial Mortgage’s executive officers and employees have extensive experience in originating and managing structured commercial real estate investments. The senior management team has an average of over 20 years experience in the financial services industry. Arbor Commercial Mortgage currently has 130 employees spread among its corporate headquarters in Uniondale, New York and 15 offices located throughout the United States.

      At September 30, 2003, Mr. Kaufman and the Kaufman entities together beneficially owned approximately 88% of the outstanding membership interests in Arbor Commercial Mortgage. Our chief financial officer, our executive vice presidents of structured finance and asset management and our secretary collectively own an approximately 3.5% membership interest in Arbor Commercial Mortgage. One of our directors, Mr. Martello, owns an approximately 1.5% membership interest in Arbor Commercial Mortgage and serves as the trustee of one of the Kaufman entities that owns a majority of the outstanding membership interests in Arbor Commercial Mortgage and co-trustee of another Kaufman entity that owns an equity interest in Arbor Commercial Mortgage. In exchange for Arbor Commercial Mortgage’s contribution of the initial assets and related liabilities to our operating partnership, our operating partnership issued to Arbor Commercial Mortgage approximately 3.1 million units of limited partnership interest and 629,000 warrants to purchase additional units of limited partnership interest at an initial exercise price of $15 each, each of which are redeemable, at our election, for cash or one share of our common stock. Each of the approximately 3.1 million operating partnership units received by Arbor Commercial Mortgage, is paired with one share of our special voting preferred stock that has one vote on all matters submitted to a vote of the stockholders.

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      We have granted our non-employee executive officers and other employees of our manager who provide services to us awards of 128,500 shares of restricted stock in the aggregate, representing 1.6% of the number of shares of common stock currently outstanding. Our manager and its employees have a total beneficial ownership in our common stock of approximately 33%, taking into account (1) operating partnership units that are held of record by Arbor Commercial Mortgage and that may be acquired by Arbor Commercial Mortgage upon exercise of warrants for additional operating partnership units, (2) the restricted stock awards to certain executive officers and employees of our manager who provide services to us and (3) units purchased in the original offering by such individuals and others affiliated with our manager. Our manager is entitled to receive an annual base management fee from us and may receive incentive compensation based on certain performance criteria and certain other fees.

      The executive offices of our manager are located at 333 Earle Ovington Boulevard, Suite 900, Uniondale, New York 11553 and the telephone number of its executive offices is (516) 832-8002.

Officers of Our Manager

      The following table sets forth certain information with respect to the executive officers of our manager.

Name		Age				Position with Our Manager
Ivan Kaufman			43			Chief Executive Officer and President
Frederick C. Herbst			46			Chief Financial Officer
Ronald D. Gaither			45			Chief Operating Officer
Walter K. Horn			60			General Counsel
John Caulfield			39			Senior Vice President — Capital Markets

      Ivan Kaufman. Mr. Kaufman has served as our chairman of the board, chief executive officer and president since June 2003. Mr. Kaufman has been chief executive officer and president of Arbor Commercial Mortgage since its inception. In 1983, he co-founded Arbor National Holdings and its residential lending subsidiary, Arbor National Mortgage Inc. Under Mr. Kaufman’s direction, Arbor National Holdings grew to 25 branches in 11 states and funded more than $4 billion in loans in its last full year of operations. Arbor National Holdings became a public company in 1992 and was sold to BankAmerica in 1995. As chairman and chief executive officer of Arbor National Holdings, Mr. Kaufman developed significant experience operating and managing a publicly traded company. Mr. Kaufman was named regional “Entrepreneur of the Year” by Inc. Magazine for outstanding achievements in financial services in 1990. He was appointed to the National Advisory Board of Fannie Mae in 1994. Mr. Kaufman has also served on Fannie Mae’s regional advisory and technology boards, as well as the board of directors of the Empire State Mortgage Bankers Association.

      Frederick C. Herbst. Mr. Herbst has served as our chief financial officer since June 2003. Mr. Herbst has been chief financial officer of Arbor Commercial Mortgage since joining the company in November 1999. He is a member of Arbor Commercial Mortgage’s executive committee and is responsible for all aspects of Arbor Commercial Mortgage’s financial operations, including financial reporting, tax planning, budgeting and the appropriate utilization of Arbor Commercial Mortgage’s capital. From October 1998 until he joined Arbor Commercial Mortgage in November 1999, Mr. Herbst was chief financial officer with The Hurst Companies, Inc., where he was responsible for all financial operations, including financial reporting, budgeting and banking relationships. Previously, Mr. Herbst was controller with The Long Island Savings Bank, FSB, vice president finance with Eastern States Bankcard Association and senior manager with Ernst & Young. Mr. Herbst became a certified public accountant in 1983.

      Ronald D. Gaither. Mr. Gaither is a member of Arbor Commercial Mortgage’s executive committee and is the senior credit officer. Before joining Arbor Commercial Mortgage in March 1999, he was the chief credit officer for PNC Mortgage Corporation in Chicago. During his tenure, he served on the board of directors of PNC Mortgage Reinsurance Corporation. Mr. Gaither also served on the Affordable Housing Advisory Board with Freddie Mac. Mr. Gaither has held senior management positions with Amerin Guaranty, Prudential Home Mortgage and First Union National Bank.

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      Walter K. Horn. Mr. Horn has served as our secretary, general counsel and one of our directors since his appointment in November 2003. Mr. Horn is also a member of Arbor Commercial Mortgage’s executive committee and is responsible for providing all legal services for Arbor Commercial Mortgage. Previously, Mr. Horn was general counsel with Arbor National Holdings from 1991 until its sale in 1995 and has continued in a similar capacity with Arbor Commercial Mortgage. His experience also includes serving as general counsel with Resource One, Inc. and Long Island Trust Company.

      John Caulfield. Mr. Caulfield is a member of Arbor Commercial Mortgage’s executive committee and is responsible for all capital markets activities, including interest rate, risk management and secondary marketing activities for Arbor Commercial Mortgage. Mr. Caulfield’s responsibilities include the pricing and selling of Fannie Mae MBS/ DUS and conduit loans and managing Arbor Commercial Mortgage’s pipeline to ensure timely underwriting and funding. Before joining Arbor Commercial Mortgage in 1995, Mr. Caulfield was vice president of secondary marketing with Arbor National Holdings.

The Management Agreement

      We and our operating partnership entered into a management agreement with Arbor Commercial Mortgage, pursuant to which Arbor Commercial Mortgage has agreed to provide us with structured finance investment opportunities and loan servicing as well as other services necessary to operate our business. We employ only three executive officers and eight individuals who provide asset management services for our portfolio of investments. Our chief executive officer, chief financial officer and our secretary are not our employees. We rely to a significant extent on the facilities and resources of our manager to conduct our operations.

      The management agreement requires our manager to manage our business affairs in conformity with the policies and the general investment guidelines that are approved and monitored by our board of directors. Our manager’s management is under the direction of our board of directors.

      Our directors will periodically review the investment guidelines and our investment portfolio but do not review each proposed investment. In conducting their periodic reviews, the directors rely on information provided to them by our manager. Transactions entered into by our manager may be difficult or impossible to unwind by the time they are reviewed by the directors.

      Mr. Kaufman, our chairman and chief executive officer and Mr. Herbst, our chief financial officer, also serve as chief executive officer and chief financial officer, respectively, of our manager, and we were formed by our manager. As a result, the management agreement was not negotiated at arm’s length and its terms, including fees payable, may not be as favorable to us as if the agreement had been negotiated with an unaffiliated third party. In addition, Walter Horn, who is the general counsel of our manager, became our secretary after the original offering.

Management Services

      Pursuant to the terms of the management agreement, our manager is required to provide a dedicated management team, including a chief executive officer, chief financial officer and secretary, Messrs. Kaufman, Herbst and Horn, respectively, to provide the management services to us, the members of which team will devote such of their time to the management of us as our independent directors reasonably deem necessary and appropriate, commensurate with our level of activity from time to time.

      Our manager is responsible for our day to day operations and performs (or causes to be performed) such services and activities relating to our assets and operations as may be appropriate, including, without limitation, the services described below.

     Management Oversight

	•	Providing executive and administrative personnel, office space and office services required in rendering services to us;

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	•	Administering our day to day operations and functions necessary to our management as may be agreed upon by our manager and the board of directors, including the collection of interest, fee and other income, the payment of our debts and obligations, the payment of dividends or distributions to our stockholders and maintenance of appropriate back office infrastructure to perform such administrative functions;
	•	Serving as our consultant with respect to the periodic review of the investment criteria and parameters for our investments, borrowings and operations for the approval of our board of directors;
	•	Counseling us in connection with policy decisions to be made by our board of directors;
	•	Using commercially reasonable efforts to cause expenses incurred by us or on our behalf to be reasonable and customary and within any budgeted parameters or expense guidelines set by our board of directors from time to time;
	•	Advising us as to our capital structure and capital raising;
	•	Coordinating and managing operations of any joint venture or co-investment interests held by us and conducting all matters with the joint venture or co investment partners;
	•	Communicating on our behalf with the holders of any of our equity or debt securities as required to satisfy the reporting and other requirements of any governmental bodies or agencies or trading markets and to maintain effective relations with such holders;
	•	Handling and resolving all claims, disputes or controversies (including all litigation, arbitration, settlement or other proceedings or negotiations) in which we may be involved or to which we may be subject arising out of our day to day operations, subject to such limitations or parameters as may be imposed from time to time by our board of directors; and
	•	Evaluating and recommending to our board of directors, and engaging in potential hedging activities on our behalf, consistent with our status as a REIT and with the investment guidelines.

     Origination and Investment Expertise

	•	Building borrower relationships, originating investment opportunities with those borrowers and analyzing and underwriting possible investment opportunities for eventual submission to our credit committee;
	•	Assisting us in developing criteria for investment commitments that are specifically tailored to our investment objectives and making available to us its knowledge and experience with respect to mortgage loans, real estate and other real estate related assets; and
	•	Investing or reinvesting any money of ours, including investing in short term investments pending investment in long term asset investments.

     Regulatory Compliance

	•	Assisting us in complying with all regulatory requirements applicable to us in respect of our business activities, including preparing or causing to be prepared all consolidated financial statements required under applicable regulations and contractual undertakings and all reports and documents, if any, required under the Securities Exchange Act;
	•	Taking all necessary actions to enable us to make required tax filings and reports, including soliciting stockholders for required information to the extent provided by the REIT provisions of the Code and the Treasury Regulations promulgated thereunder;
	•	Counseling us regarding the maintenance of our status as a REIT and monitoring compliance with the various REIT qualification tests and other rules set out in the Code and the Treasury Regulations promulgated thereunder;

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	•	Causing us to retain qualified accountants and legal counsel, as applicable, to assist in developing appropriate accounting procedures, compliance procedures and testing systems with respect to financial reporting obligations and compliance with the REIT provisions of the Code and the Treasury Regulations promulgated thereunder and to conduct quarterly compliance reviews with respect thereto;
	•	Counseling us regarding the maintenance of our exemption from the Investment Company Act and monitoring compliance with the requirements for maintaining an exemption from that Act;
	•	Causing us to qualify to do business in all applicable jurisdictions and to obtain and maintain all appropriate licenses; and
	•	Using commercially reasonable efforts to cause us to comply with all other applicable laws.

      Pursuant to the management agreement, our manager does not assume any responsibility other than to render the services called for thereunder and is not responsible for any action of our board of directors in following or declining to follow our managers’ advice or recommendations. Our manager, its directors and its officers are not liable to us, any subsidiary of ours, our directors, our stockholders or any subsidiary’s stockholders for acts performed in accordance with and pursuant to the management agreement, except by reason of acts constituting bad faith, willful misconduct, gross negligence, or breach of their duties under the management agreement and except for claims by manager’s employees relating to the terms and conditions of their employment. Pursuant to the management agreement, we agree to indemnify our manager, its directors and its officers with respect to all expenses, losses, damages, liabilities, demands, charges and claims arising from acts of our manager not constituting bad faith, willful misconduct, gross negligence, or breach of duties, performed in good faith in accordance with and pursuant to the management agreement but excluding claims by the manager’s employees relating to the terms and conditions of their employment. Our manager agrees to indemnify us, our directors and officers with respect to all expenses, losses, damages, liabilities, demands, charges and claims arising from acts of our manager constituting bad faith, willful misconduct, gross negligence or breach of its duties under the management agreement and any claims by the manager’s employees relating to the terms and conditions of their employment. Our manager also carries errors and omissions and other customary insurance.

      Term. The management agreement has an initial term of two years and is renewable automatically for an additional one year period every year thereafter, unless terminated with six months’ prior written notice.

      Our Termination Rights. After the initial two-year term, we will be able to terminate the management agreement without cause for any reason upon six months’ prior written notice to Arbor Commercial Mortgage. If we terminate the management agreement without cause, or we give Arbor Commercial Mortgage notice of non-renewal, in order to manage our operations internally, we will be required to pay our manager a termination fee equal to the base management fee and the incentive compensation earned during the 12-month period preceding the termination. If, without cause, we terminate the management agreement or elect not to renew it for any other reason, including a change of control of us but excluding a change in control of our manager, we will be required to pay a termination fee equal to two times the base management fee and the incentive compensation earned during the 12-month period preceding the termination.

      Notwithstanding the paragraph above, if we provide our six month notice of termination without cause because our independent directors have determined that the management fees are unfair, then Arbor Commercial Mortgage may agree to perform its management services at the fees our independent directors determine to be fair and the management agreement will not terminate. If Arbor Commercial Mortgage does not agree to perform its management services for those fees, or if Arbor Commercial Mortgage so agrees but then gives us notice that it wishes to renegotiate the fees, then we and Arbor Commercial Mortgage must negotiate in good faith and if we cannot agree on a revised fee structure at the end of our six-month notice period, the agreement will terminate and we must pay the termination fees described above.

      We also have the right to terminate the management agreement for cause upon prior written notice to Arbor Commercial Mortgage with the approval of our board of directors including the consenting vote of a majority of our independent directors. In such a case, we would not be required to pay a termination fee. “Cause” is defined as fraud, misappropriation of funds, willful violation of the management agreement, gross

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      Arbor Commercial Mortgage’s Termination Rights. Arbor Commercial Mortgage has the right to terminate the management agreement (effective upon expiration of the cure period) upon a breach of a material term of the management agreement by us that is not timely cured. Arbor Commercial Mortgage also has the right to terminate the management agreement after the initial two-year term without cause on six months’ prior written notice to us. Except in connection with a change in control of Arbor Commercial Mortgage within the first three years as described below, Arbor Commercial Mortgage will not be obligated to pay us a termination fee if it terminates or elects not to renew the management agreement.

     Change of Control of Arbor Commercial Mortgage

      Within the initial two-year term and the first one-year renewal term of the management agreement, if:

	•	Arbor Commercial Mortgage or its successor elects not to renew or to terminate the management agreement within two years after a change in control of Arbor Commercial Mortgage or the execution of an agreement that will cause a change in control of Arbor Commercial Mortgage, or
	•	Arbor Commercial Mortgage gives us a notice of non-renewal or termination, then experiences a change of control or executes an agreement that will cause a change in control of Arbor Commercial Mortgage in one year, then Arbor Commercial Mortgage or its successor will have to pay us a fee in an amount equal to two times the base management fee and the incentive compensation earned during the 12-month period preceding the termination or non renewal notice.

		We are able to terminate the management agreement upon 30 days’ prior written notice to Arbor Commercial Mortgage, without payment of a fee, if:

	•	Mr. Kaufman is no longer chief executive officer of Arbor Commercial Mortgage, but not by reason of his death, disability or incapacity, or
	•	a change of control of Arbor Commercial Mortgage occurs.

      As defined in the management agreement, change of control of Arbor Commercial Mortgage shall not include any public offering of the capital stock of Arbor Commercial Mortgage.

      Assignment. Neither we nor Arbor Commercial Mortgage are able to assign its rights or obligations under the management agreement without the consent of the other party. However, Arbor Commercial Mortgage may, without our consent, assign the management agreement to an “affiliate” (meaning any entity controlling, controlled by or under common control with Arbor Commercial Mortgage, and “control” means the direct or indirect ownership of at least 51% of the beneficial equity interests and voting power of such entity) whose day to day business and operations are managed and supervised by Mr. Kaufman, provided that Arbor Commercial Mortgage shall be fully responsible to us for all errors or omissions of such assignee. Our manager is also be permitted to subcontract or assign certain of its duties under the management agreement to any affiliate of our manager that meets the foregoing qualification.

Management Fees and Incentive Compensation

      Since we employ only three executive officers and eight other employees, we rely to a significant extent on the facilities and resources of our manager to conduct our operations. For performing services under the management agreement, Arbor Commercial Mortgage receives a base management fee and incentive compensation calculated as described below. Our manager uses the proceeds from its base management fee in part to pay compensation to its officers and employees who, notwithstanding that some of them are also our officers, receive no direct compensation from us, other than restricted stock that may be granted pursuant to our stock incentive plan.

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      Base Management Fee. Our manager receives an annual base management fee based on the equity of our operating partnership, as further discussed below. The amount of the base management fee does not depend of the performance of the services provided by our manager or the types of assets its selects for our investment, but the value of our operating partnership’s equity will be affected by the performance of these assets. The base management fee is payable monthly in arrears in cash, calculated monthly as a percentage of our equity and equal to 0.75% per annum of the equity up to $400 million, 0.625% per annum of the equity between $400 million and $800 million and 0.50% per annum of the equity in excess of $800 million. For purposes of calculating the base management fee, the term “equity” means the month end value computed in accordance with generally accepted accounting principles of (1) total partners’ equity in our operating partnership, plus or minus (2) any unrealized gains, losses or other items that do not affect realized net income. We have paid $587,734 in base management fees to Arbor Commercial Mortgage for management services rendered for the six months ended December 31, 2003.

      Incentive Compensation. Our manager is entitled to receive incentive compensation in installments each fiscal quarter. In addition, our manager is entitled to receive incentive compensation each fiscal quarter in an annual amount equal to the product of:

	(1) 25% of the dollar amount by which:

	•	the sum of: (i) our operating partnership’s “Funds From Operations” (before the incentive compensation) per operating partnership unit (based on the weighted average number of operating partnership units outstanding, including operating partnership units issued to us equal to the number of shares of our common stock issued by us) for such quarter and (ii) gains (or losses) from debt restructuring and sales of property per operating partnership unit (based on the weighted average number of units outstanding, including operating partnership units issued to us equal to the number of shares of our common stock issued by us) for such quarter; exceeds
	•	the product of (i) the weighted average (based on shares of our common stock and operating partnership units) of (a) the per operating partnership unit book value of the net assets contributed by Arbor Commercial Mortgage, (b) the $15 offering price per share of our common stock in the original offering, (c) the offering price per share of any subsequent offerings by us of our common stock and (d) the issue price per operating partnership unit for subsequent contributions to our operating partnership (including shares of common stock issued upon exercise of warrants or options and adjusted for any prior stock dividends or distributions), and (ii) the greater of (x) 9.50% per annum and (y) the Ten Year U.S. Treasury Rate plus 3.50% per annum; multiplied by

	(2) the weighted average number of operating partnership units outstanding, including operating partnership units issued to us equal to the number of shares of our common stock issued by us.

The incentive compensation will be measured in fiscal quarters for the remainder of 2003. Our manager did not earn any incentive compensation for the quarters ended September 30, 2003 or December 31, 2003. Beginning on January 1, 2004, the incentive management fee will be measured over a full fiscal year, subject to recalculation and potential reconciliation at the end of each fiscal year.

      “Funds From Operations” as defined by National Association of Real Estate Investment Trusts means net income, computed in accordance with generally accepted accounting principals, excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and amortization on real estate assets, and after adjustments for unconsolidated partnerships and joint ventures. Funds from operations does not represent cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income as an indication of our performance or to cash flows as a measure of liquidity or ability to make distributions.

      The manager’s incentive compensation is based, in part, on the $15 offering price per share of common stock in the original offering. We allocated the $75 offering price per unit in the original offering to the five shares of common stock comprising each unit, resulting in this offering price per share. We did not allocate any value to the one warrant underlying each unit because the warrants have an initial exercise price of $15

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      As used in calculating the manager’s incentive compensation, the term “Ten Year U.S. Treasury Rate” means the arithmetic average of the weekly average yield to maturity for actively traded current coupon U.S. Treasury fixed interest rate securities (adjusted to constant maturities of 10 years) published by the Federal Reserve Board during a quarter, or, if such rate is not published by the Federal Reserve Board, any Federal Reserve Bank or agency or department of the federal government selected by us. If we determine in good faith that the Ten Year U.S. Treasury Rate cannot be calculated as provided above, then the rate shall be the arithmetic average of the per annum average yields to maturities, based upon closing asked prices on each business day during a quarter, for each actively traded marketable U.S. Treasury fixed interest rate security with a final maturity date not less than eight nor more than 12 years from the date of the closing asked prices as chosen and quoted for each business day in each such quarter in New York City by at least three recognized dealers in U.S. government securities selected by us.

      The management agreement provides that at least 25% of our manager’s incentive compensation is to be paid in shares of our common stock (subject to the ownership limitations contained in our charter) and the balance in cash. However, our manager is able to elect to receive a greater percentage of its incentive compensation in the form of our common stock. We may provide for registration rights for shares of common stock used to pay our manager’s incentive compensation. Under our management agreement, Arbor Commercial Mortgage agrees that it may not elect to receive shares of our common stock as payment of its incentive compensation, except in accordance with all applicable securities exchange rules and securities laws (including prohibitions on insider trading). In addition, Arbor Commercial Mortgage is not able to receive our stock in payment of fees, whether automatically or by Arbor Commercial Mortgage’s election, if it would cause Arbor Commercial Mortgage or Mr. Kaufman to beneficially own an amount of our common stock in violation of the ownership limitations in our charter.

      For purposes of determining the number of shares to be delivered in satisfaction of the incentive compensation to be paid with our common stock, we will value our shares at the average per share closing price based on the period of 20 days ending on and including the last day of the applicable fiscal quarter.

      In evaluating investments and other management strategies, the opportunity to earn incentive return based on Funds From Operations may lead our manager to place undue emphasis on the maximization of Funds From Operations at the expense of other criteria, such as preservation of capital, in order to achieve a higher incentive return. Investments with higher yield potential are generally riskier or more speculative. This could result in increased risk to the value of our invested portfolio.

      The following examples illustrate how we calculate our manager’s incentive compensation in accordance with the management agreement. These calculations are for illustrative purposes only and do not reflect our actual operating results.

Example 1:

Assumptions:
Adjusted Annual FFO Per OP Unit(1)			$2.00
Hurdle Rate(2)			9.50	%
Weighted Average Book Value Per OP Unit(3)			$14.70
Weighted Average OP Units Outstanding(4)			11,196,724

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Calculation of Incentive compensation:		= 25% × (Adjusted Annual FFO Per OP Unit - (Hurdle Rate × Weighted Average Book Value Per OP Unit)) × Weighted Average OP Units Outstanding
		= 25% × ($2.00 - (9.50% × $14.70)) × 11,196,724
		= 25% × ($2.00 - $1.3965) × 11,196,724
		= 25% × $0.6035 × 11,196,724
		= $1,689,306

Example 2:

Assumptions:
Adjusted Annual FFO Per OP Unit(1)			$1.00
Hurdle Rate(2)			9.50	%
Weighted Average Book Value Per OP Unit(3)			$14.70
Weighted Average OP Units Outstanding(4)			11,196,724

Calculation of Incentive compensation:		= 25% × (Adjusted Annual FFO Per OP Unit - (Hurdle Rate × Weighted Average Book Value Per OP Unit)) × Weighted Average OP Units Outstanding
		= 25% × ($1.00 - (9.50% × $14.70)) × 11,196,724
		= 25% × ($1.00 - $1.3965) × 11,196,724
		= 25% × -$0.3965 × 11,196,724
		= Negative calculation results in no incentive compensation

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(1)	“Adjusted Annual FFO per OP Unit” means our operating partnership’s funds from operations per operating partnership unit, adjusted for certain gains and losses.
(2)	“Hurdle Rate” means 9.5% per annum or the 10 year Treasury Rate plus 3.5%, whichever is greater.
(3)	“Weighted Average Book Value Per OP Unit” means the weighted average of the book value of the net assets contributed by Arbor Commercial Mortgage to Arbor Realty Limited Partnership per operating partnership unit, the offering price per share of our common equity in the original offering and subsequent offerings and the issue price per operating partnership unit for subsequent contributions to Arbor Realty Limited Partnership.
(4)	“Weighted Average OP Units Outstanding” means the weighted average of Arbor Realty Limited Partnership’s outstanding operating partnership units.

      The incentive compensation fee will be measured annually in arrears; provided, however, Arbor Commercial Mortgage shall receive quarterly installments thereof in advance. The quarterly installments will be calculated based on the results for the period of twelve months ending on the last day of the fiscal quarter with respect to which such installment is payable. Each quarterly installment payment will be deemed to be an advance of a portion of the incentive fee payable for the year. In the event the calculated incentive compensation for the full year is an amount less than the total of the installment payments made to Arbor Commercial Mortgage for the year, Arbor Commercial Mortgage will refund to us the amount of such overpayment in cash. In such case, we would record a negative incentive fee expense in the quarter when such overpayment is determined.

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	Reimbursement of Expenses

      Our manager is responsible for all costs incident to the performance of its duties under the management agreement, including compensation of our manager’s employees, rent for facilities and other “overhead” expenses.

      The expenses required to be paid by us or for which we reimburse our manager include, but are not limited to:

	•	legal, accounting and auditing fees and expenses of third parties for services rendered for us that are paid by the manager;
	•	the compensation, benefits and expenses of our independent directors and employees;
	•	travel and other out of pocket expenses of our employees in connection with the purchase, financing or sale of our investments;
	•	the costs of printing and mailing proxies and reports to stockholders;
	•	costs to obtain liability insurance to indemnify our directors and officers, the manager and its employees and directors and the underwriters;
	•	key man life insurance costs for our chief executive officer; and
	•	the compensation and expenses of our custodian and transfer agent, if any.

      We are also required to pay or reimburse our manager for all expenses incurred on behalf of us in connection with:

	•	raising of capital or the incurrence of debt,
	•	interest expenses,
	•	taxes and license fees,
	•	litigation and
	•	extraordinary or non recurring expenses.

      Expense reimbursements to our manager are be made quarterly.

      Restricted Stock Awards. We have granted to certain executive officers and employees of our manager who provide services to us 127,500 shares of restricted stock pursuant to our stock incentive plan. We have also reserved up to 35,500 shares for future grants to directors, officers and certain of our employees and certain employees of our managers. Two-thirds of the shares granted vested immediately and the remaining one-third will vest ratably over three years at a rate of 33.33% on each of the subsequent three anniversary dates of the date of grant. These restricted shares provide a means of performance based compensation in order to provide an additional incentive for our manager’s employees to enhance the value of our common stock.

      Origination Fees. With respect to each bridge loan and mezzanine loan originated during the term of the management agreement, we agreed with Arbor Commercial Mortgage that we will (1) pay Arbor Commercial Mortgage an amount equal to 100% of the origination fees paid by the borrower to us, up to 1% of the loan’s principal amount, and (2) retain 100% of the origination fees paid by the borrower in excess of 1% of the loan’s principal amount.

      Additional Interest. Under the management agreement, we receive any additional interest and other payments due upon maturity of any loan and fees paid by borrowers under bridge and mezzanine loans originated during the term of the management agreement, except that origination fees are allocated according the agreement described in the paragraph above. We have agreed with Arbor Commercial Mortgage that we are entitled to deduct from the applicable monthly installment of the base management fee due to Arbor Commercial Mortgage an amount equal to 50% of any otherwise payable additional interest due upon maturity

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Rights of First Refusal

      Arbor Commercial Mortgage and Mr. Kaufman, through his non-competition agreement with us, have granted us a right of first refusal to pursue all opportunities identified by them or their affiliates related to structured finance investments in or with respect to commercial or multi-family real estate properties that are consistent with our investment objectives and guidelines and would not adversely affect our status as a REIT. If such investment opportunities are identified, Arbor Commercial Mortgage or Mr. Kaufman, as the case may be, will give our credit committee written notice and description of the investment opportunity. Our credit committee, which will consist of Mr. Kaufman, our chief executive officer, Mr. Weber, our executive vice president of structured finance, Mr. Palmier, our executive vice president of asset management and our chief credit officer, may either accept or reject the investment opportunity by a majority vote. If the committee rejects the opportunity, then Arbor Commercial Mortgage or Mr. Kaufman, as the case may be, will be able to present the opportunity to our independent directors. If our independent directors, by majority vote, reject the opportunity and allow Arbor Commercial Mortgage or one of its affiliates to pursue it, then Arbor Commercial Mortgage or the affiliate, as the case may be, will be able to do so on the same terms offered to us. If the terms of the investment opportunity materially change so that the benefits thereof are materially beneficial to Arbor Commercial Mortgage than such terms to us would have been under the transaction described in the original offer, then Arbor Commercial Mortgage must offer the revised investment opportunity to our credit committee and, if rejected, to our independent directors, who may again accept or reject the opportunity on our behalf. Arbor Commercial Mortgage will be able to pursue the revised opportunity on the terms offered to us if our independent directors reject the revised opportunity and approve Arbor Commercial Mortgage’s pursuit of such opportunity.

      During the term of the management agreement, we have agreed not to pursue, and to allow Arbor Commercial Mortgage to pursue, among other transactions and investment opportunities, opportunities related to multi-family and commercial mortgage loans that meet the underwriting and approval guidelines of Fannie Mae, FHA and conduit commercial lending programs secured by first liens on real property.

Mr. Kaufman’s Non-Competition Agreement

      Pursuant to his non-competition agreement with us, Mr. Kaufman has also agreed that:

	•	as long as he is serving as our chief executive officer or, during the term of the management agreement and the origination period described below, an affiliate of Arbor Commercial Mortgage, he will not pursue structured finance lending opportunities (and will refer those opportunities to us), unless our independent board members affirmatively approve the pursuit by Arbor Commercial Mortgage or one of its affiliates of structured finance lending opportunities that they have rejected on our behalf, See “— Rights of First Refusal”;
	•	if he is no longer an affiliate of Arbor Commercial Mortgage and, within the first five years of the term of the management agreement, he is no longer our chief executive officer other than by reason of (1) his termination of his position for good reason, (2) our termination of him without cause, or (3) a change of control of Arbor Commercial Mortgage (which shall not be deemed to include any public offering of stock by Arbor Commercial Mortgage), he will not engage in the structured finance lending business for a period of one year after the earlier of his departure from us or the regular expiration of the one year origination period described below; and
	•	if there is a change of control of Arbor Commercial Mortgage within the first three years of the term of the management agreement, and he is no longer an affiliate of Arbor Commercial Mortgage and leaves us without good reason in that three year period, he will not engage in the structured finance lending business for one year after the date of his departure from us.

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      Mr. Kaufman’s non-competition agreement also prohibits Mr. Kaufman from soliciting our customers or employees during its term.

Origination Period

      For a period of one year following the expiration or termination of the management agreement due to our notice of non-renewal or termination without cause or our manager’s termination for cause:

	•	our manager and Mr. Kaufman agree to originate structured finance transactions for us, and
	•	we have granted them the exclusive right to provide these origination services to us.

      If we terminate the management agreement for cause (including because of a change in control of the manager), or if the manager terminates or elects not to renew the management agreement without cause, we will be able to accept origination services from others during the origination period.

      With respect to each bridge loan and mezzanine loan originated during the origination period, we have agreed with Arbor Commercial Mortgage that we will (1) pay Arbor Commercial Mortgage an amount equal to 100% of the origination fees paid by the borrower to us, up to 1% of the loan’s principal amount, and (2) retain 100% of the origination fees paid by the borrower in excess of 1% of the loan’s principal amount.

      We, Arbor Commercial Mortgage and, through his non-competition agreement, Mr. Kaufman have also agreed that (1) our right of first refusal to pursue all structured finance investment opportunities regarding commercial or multi-family real estate properties that are identified by Arbor Commercial Mortgage, Mr. Kaufman (so long as he is an affiliate of Arbor Commercial Mortgage) or their affiliates and (2) Arbor Commercial Mortgage’s right of exclusivity regarding Fannie Mae, FHA and conduit commercial lending programs will each continue to apply during the origination period.

      If such structured finance investment opportunities are identified during the origination period, Arbor Commercial Mortgage and, so long as he is an affiliate of Arbor Commercial Mortgage, Mr. Kaufman will give our credit committee written notice and description of the investment opportunity. Our credit committee will be able to either accept or reject the investment opportunity. If the committee rejects the opportunity, then Arbor Commercial Mortgage or Mr. Kaufman, as the case may be, will be able to present the opportunity to our independent directors. If our independent directors, by majority vote, reject the opportunity on behalf of us and approve Arbor Commercial Mortgage’s pursuit of that opportunity, then Arbor Commercial Mortgage may pursue the opportunity on the same terms offered to us. If the terms of the investment opportunity materially change, then Arbor Commercial Mortgage will be able to offer the revised investment opportunity to our credit committee and, if rejected, to our independent directors, who will be able to again be able to accept or reject the opportunity on behalf of us. Arbor Commercial Mortgage will be able to pursue the opportunity on the terms offered to us, if our independent directors reject the revised opportunity and approve Arbor Commercial Mortgage’s pursuit of such opportunity.

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MANAGEMENT

Our Directors and Executive Officers

      Our board of directors consists of seven directors, four of whom are independent directors. See “— Corporate Governance — Board of Directors and Committees.” Pursuant to our charter, the board of directors is divided into three classes of directors. The current terms of the Class I, Class II and Class III directors will expire in 2004, 2005 and 2006, respectively. Upon the expiration of their current terms, directors of each class will be elected to serve a term of three years and until their successors are elected and qualify each year and one class of directors will be elected by the stockholders. The following table sets forth certain information about our directors and executive officers.

Name		Age				Position with Us		Class
Ivan Kaufman			43			Chairman of the Board of Directors, Chief Executive Officer and President		Class II
Frederick C. Herbst			46			Chief Financial Officer and Treasurer
John C. Kovarik			44			Chief Credit Officer
Daniel M. Palmier			42			Executive Vice President — Asset Management
Fred Weber			42			Executive Vice President — Structured Finance
Jonathan A. Bernstein			57			Independent Director		Class I
William Helmreich			58			Independent Director		Class III
C. Michael Kojaian			42			Independent Director		Class II
Melvin F. Lazar			65			Independent Director		Class II
Walter K. Horn			60			General Counsel, Secretary and Director		Class III
Joseph Martello			48			Director		Class I

      Information for each of our executive officers and directors is set forth below. For information regarding Messrs. Kaufman, Herbst and Horn, see “Our Manager and the Management Agreement — Officers of Our Manager.”

      John C. Kovarik. Mr. Kovarik was hired to serve as our chief credit officer in October 2003. From 1997 until October 2003, Mr. Kovarik was Senior Vice President and Chief Credit Officer of RER Resources, a commercial real estate consulting, underwriting and asset management services provider based in Virginia, where he was responsible for underwriting income property secured loans and managing teams providing acquisition underwriting. Mr. Kovarik has over twenty years of experience in credit, financial analysis and commercial real estate underwriting for various types of commercial properties.

      Daniel M. Palmier. Mr. Palmier has served as our executive vice president of asset management since June 2003. He also continues to provide services to Arbor Commercial Mortgage in his capacity as a continuing member of Arbor Commercial Mortgage’s executive committee. Since 1997, he has been a member of Arbor Commercial Mortgage’s executive committee. From 1997 until the consummation of the original offering, he directed Arbor Commercial Mortgage’s asset management group, where he was responsible for asset management and formulation of value enhancement and disposition strategies of Arbor Commercial Mortgage’s debt and equity positions, with particular concentration on structured finance assets. Before joining Arbor Commercial Mortgage in 1997, Mr. Palmier was a vice president with Lehman Brothers Holdings Inc., where he was involved with asset management, restructuring, refinancing, development, leasing and disposition of commercial, retail and residential properties and mortgages. Mr. Palmier, a certified public accountant, has more than 18 years experience in various aspects of real estate management and practice.

      Fred Weber. Mr. Weber has served as our executive vice president of structured finance since June 2003. He also continues to provide services to Arbor Commercial Mortgage in his capacity as a continuing

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      Jonathan A. Bernstein. Mr. Bernstein has served as one of our directors since June 2003. Mr. Bernstein is of counsel at Pryor, Cashman, Sherman & Flynn, where he is head of the real estate department, specializing in finance and focusing on real estate investment trusts and structured financing involving real estate. Mr. Bernstein joined Pryor Cashman in 1993. He serves as an advisor to REITs and investment banks in the real estate area. Mr. Bernstein is also the vice chairman of TractManager LLC, an internet based software company, with offices in Saddle Brook, New Jersey and Chattanooga, Tennessee, specializing in contract management in the health care area.

      William Helmreich. Dr. Helmreich has served as one of our directors since June 2003. Dr. Helmreich is the founder, and since 1980, owner and president of Byron Research and Consulting, a market research firm specializing in financial research, political polling, legal consulting, and issues relating to food products and real estate. He is chairman for Academic Affairs for North Shore Hebrew Academy, a member of the Board of Transaction Inc., as well as other not for profit boards, and was, for many years, a senior vice president of Good Earth Teas.

      C. Michael Kojaian. Mr. Kojaian has served as one of our directors since June 2003. Mr. Kojaian is the chief operating officer of the Kojaian group of companies, a national multi-faceted real estate development investment and asset management organization. Before joining Kojaian in 1998, Mr. Kojaian was chairman of the Board of Grubb & Ellis, a commercial real estate advisory firm. Prior to that, Mr. Kojaian was Chairman of Dott Industries, a specialized automotive manufacturer. Mr. Kojaian is a member if the board of directors of Flagstar Bank, Grubb & Ellis and the United States President’s Export Council.

      Melvin F. Lazar. Mr. Lazar has served as one of our directors since his appointment in November 2003. Mr. Lazar is the founder of Lazar Levine & Felix LLP, certified public accountants, was managing partner from 1969 until September 2002, and is still an employee of the firm. Mr. Lazar specializes in business valuations and merger and acquisition activities. Mr. Lazar serves on the Board of Directors of Enzo Biochem, Inc., a publicly-held biotechnology company, Active Media Services, Inc., a privately-held corporate barter company, and CECO Environmental Corp., a publicly-held provider of innovative solutions to industrial ventilation and air quality problems.

      Joseph Martello. Mr. Martello has served as one of our directors since June 2003. Mr. Martello is currently chief operating officer of Arbor Commercial Mortgage Management, LLC, the managing member of Arbor Commercial Mortgage, where he is responsible for management of the investment portfolio and overseeing the day-to-day operations. From 1995 to 1999, Mr. Martello was chief financial officer of Arbor Commercial Mortgage. From 1990 to 1995, Mr. Martello was the chief financial officer of Arbor National Holdings, Inc. Prior to that, he was a senior manager with the international accounting and consulting firm of Ernst & Young for eleven years. Mr. Martello is a member of the American Institute of Certified Public Accountants and the New York State Society of Certified Public Accountants where he is a former executive member of the Board of Directors of the Suffolk County Chapter.

Corporate Governance — Board of Directors and Committees

      Our business is ultimately managed through the oversight and direction of our board of directors, which has established investment guidelines for Arbor Commercial Mortgage to follow in its day to day management

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      Our board consists of seven directors, three of whom are affiliated with Arbor Commercial Mortgage, Messrs. Kaufman, Martello and Horn, and four of whom are “independent” directors, Messrs. Bernstein, Kojaian and Lazar and Dr. Helmreich. The directors keep informed about our business at meetings of the board and its committees and through supplemental reports and communications. Our independent directors expect to meet regularly in executive sessions without the presence of our corporate officers.

      Our board has established four committees, the principal functions of which are briefly described below. Matters put to a vote at any one of our four committees must be approved by a majority of the directors on the committee who are present at a meeting at which there is a quorum or by unanimous written consent of the directors on that committee.

Audit Committee

      Our board of directors has established an audit committee, which is composed of three of our independent directors, Messrs. Bernstein, Lazar and Dr. Helmreich. Mr. Lazar serves as chairman of the audit committee. The audit committee assists the board in overseeing (1) our accounting and financial reporting processes; (2) the integrity and audits of our consolidated financial statements; (3) our compliance with legal and regulatory requirements; (4) the qualifications and independence of our independent auditors; and (5) the performance of our internal and independent auditors.

Compensation Committee

      Our board of directors has established a compensation committee, which is composed of Messrs. Bernstein and Lazar and Dr. Helmreich. Dr. Helmreich serves as chairman of the compensation committee. The principal functions of the compensation committee will be to (1) evaluate the performance of our officers, (2) review the compensation payable to our officers, (3) evaluate the performance of Arbor Commercial Mortgage, (4) review the compensation and fees payable to Arbor Commercial Mortgage under our management agreement and (5) administer the issuance of any stock issued to our employees or, the employees of Arbor Commercial Mortgage who provide services to us.

Nominating/Corporate Governance Committee

      Our board of directors has established a nominating/ corporate governance committee, which is composed of Messrs. Bernstein and Lazar and Dr. Helmreich. Dr. Helmreich serves as chairman of the nominating/ corporate governance committee. The nominating/ corporate governance committee will be responsible for seeking, considering and recommending to the board qualified candidates for election as directors and recommending a slate of nominees for election as directors at the annual meeting. It will also periodically prepare and submit to the board for adoption the committee’s selection criteria for director nominees. It will review and make recommendations on matters involving general operation of the board and our corporate governance, and annually will recommend to the board nominees for each committee of the board. In addition, the committee annually facilitates the assessment of the board of directors’ performance as a whole and of the individual directors and reports thereon to the board.

Independent Director Committee

      Our board of directors has established an independent director committee, which is composed of all of our independent directors, Messrs. Bernstein, Kojaian and Lazar and Dr. Helmreich. The independent director committee is responsible for considering and voting upon matters as to which the board of directors determines Arbor Commercial Mortgage or its affiliates (other than us or our subsidiaries) or any of our directors (other than an independent director) or officers has a conflict of interest, including the approval of transactions between us and Arbor Commercial Mortgage.

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Director Compensation

      Each of our independent directors are paid a director’s fee of $25,000 per year. Each director who serves as a committee chairman of the audit, compensation or nominating/corporate governance committee is paid an additional fee of $3,000. Each director is also paid a fee of $2,000 for each board or committee meeting that he or she attends. Each director is also paid a fee of $1,000 for each telephone board or committee meeting that he attends. In addition, we reimburse all directors for reasonable out of pocket expenses incurred in connection with their services on the board of directors.

      Our stock incentive plan provides for grants of restricted stock and other equity based awards with respect to our common stock. On July 1, 2003, Messrs. Bernstein, Kojaian, Martello and Dr. Helmreich each received 1,000 shares of our restricted common stock. Upon their appointment to the board, Messrs. Horn and Lazar each received 1,000 shares of our restricted common stock. Two-thirds of the restricted stock granted to these directors vested immediately upon the date of grant and the remaining one-third will vest ratably over three years from the date of grant at a rate of 33.33% on each of the subsequent three anniversary dates of the date of grant.

Executive Compensation

      Because our management agreement provides that our manager assumes principal responsibility for managing our affairs, certain of our executive officers, who are employees of our manager, do not receive compensation from us for serving as our executive officers. However, in their capacities as officers or employees of our manager, or its affiliates, they devote such portion of their time to our affairs as is required for the performance of the duties of our manager under the management agreement. Mr. Ivan Kaufman, our chairman of the board of directors, president and chief executive officer serves as the chairman and chief executive officer of Arbor Commercial Mortgage. Mr. Frederick C. Herbst, our chief financial officer, also serves as chief financial officer of our manager. Walter Horn, our secretary and general counsel also serves as secretary and general counsel of Arbor Commercial Mortgage. Each of Messrs. Kaufman, Herbst and Horn receive their compensation from our manager.

      On July 1, 2003, we granted Mr. Kaufman and Mr. Herbst, 120,000 shares and 4,000 shares, respectively, of restricted stock pursuant to our stock incentive plan, two-thirds of which vested immediately and the remaining one-third of which will vest ratably over three years at a rate of 33.33% on each of the subsequent three anniversary dates of the date of grant. On November 5, 2003, we granted Mr. Horn 1,000 shares of restricted stock pursuant to our stock incentive plan with the same vesting schedule. Our manager has informed us that, because the services to be performed by its officers or employees in their capacities as such is not performed exclusively for us, it cannot segregate and identify that portion of the compensation awarded to, earned by or paid to our executive officers by the manager that relates solely to their services to us.

      Three of our officers, Mr. Fred Weber, our executive vice president of structured finance, Mr. Daniel M. Palmier, our executive vice president of asset management and Mr. John C. Kovarik, our chief credit officer, are employed and paid directly by us. Each of Mr. Weber and Mr. Palmier receive annual compensation of $360,000, plus a bonus to be determined at the discretion of the compensation committee of our board of directors, which will not exceed $140,000 per year. On July 1, 2003, we granted each of Messrs. Palmier and Weber 7,000 shares of restricted stock pursuant to our stock incentive plan, two-thirds of which vested immediately and the remaining one-third of which will vest ratably over three years at a rate of 33.33% on each of the subsequent three anniversary dates of the date of grant. Mr. Kovarik receives annual compensation of $150,000 plus a bonus to be determined at the discretion of the compensation committee of our board of directors, which will not exceed $75,000 per year. We began compensating our employee executive officers at the annual rates set forth above upon the commencement of our operations on July 1, 2003.

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      The following table sets forth the total compensation amounts paid to our chief executive officer and each of our other executive officers who are directly employed by us for the year ending December 31, 2003.

																			Long-Term Compensation
																			Awards								Payouts
							Annual Compensation																Securities
Name and																			Restricted				Underlying
Principal			Year												Other Annual				Stock				Options/				LTIP				All Other
Position(a)			(b)				Salary($)(c)				Bonus($)(1)(d)				Compensation($)(2)(e)				Award(s)($)(2)(f)				SARs(#)(g)				Payouts($)(h)				Compensation($)(i)
Ivan Kaufman				2003				—							$	1,200,000			$	600,000	(3)											—
	Chief Executive
	Officer &
	President
John Kovarik				2003			$	27,885	(4)																							—
	Chief Credit
	Officer
Dan Palmier				2003			$	180,000	(5)						$	70,000			$	35,000	(6)											2,562	(7)
	Executive Vice
	President — Asset
	Management
Fred Weber				2003			$	180,000	(8)						$	70,000			$	35,000	(9)											2,603	(10)
	Executive Vice
	President —
	Structured
	Finance

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	(1)	Messrs. Kovarik, Palmier and Weber may also earn bonuses for the year ended December 31, 2003. The amounts will be determined by the compensation committee of our board of directors in February 2004 and will be disclosed after these determinations are made.
	(2)	On July 1, 2003, we granted 120,000, 7,000 and 7,000 shares of restricted stock to Messrs. Kaufman, Palmier and Weber, respectively, pursuant to our stock incentive plan. None of these executive officers paid any value for these grants of restricted shares. Dividends have been and will be paid on these restricted shares whether or not vested at the same rate and in the same manner as paid to our other common stockholders. As of the date of grant and at December 31, 2003, two-thirds of the shares granted to each of these executive officers were fully vested. The remaining one third of these restricted shares will vest ratably over three years at a rate of 33.33% on each of the subsequent three anniversary dates of the date of grant. The dollar amounts included in column (e) represent the total fair market value at the date of grant of fully vested shares of restricted stock granted to each of these executive officers. The dollar amounts included in column (f) represent the value of the shares granted to each of these executive officers pursuant to our stock incentive plan on July 1, 2003 that were not vested on the date of grant and that will vest according to the aforementioned schedule.
	(3)	The value of the unvested portion of Mr. Kaufman’s restricted stock included in this column (f) as of December 31, 2003 was $600,000.
	(4)	Mr. Kovarik was hired in October, 2003 and earns a salary of $150,000 per year. The amount given is his pro rata salary paid for the year ended December 31, 2003.
	(5)	Mr. Palmier began working for us when we commenced operations on July 1, 2003 and earns a salary of $360,000 per year. The amount given is his pro rata salary paid for the year ended December 31, 2003.
	(6)	The value of the unvested portion of Mr. Palmier’s restricted stock included in this column (f) as of December 31, 2003 was $35,000.
	(7)	Of the $2,562 total, $2,400 was granted to Mr. Palmier as a match to money invested by him in his 401(k) plan, and $162 dollars were granted in the form of basic term life insurance.
	(8)	Mr. Weber began working for us when we commenced operations on July 1, 2003 and earns a salary of $360,000 per year. The amount given is his pro rata salary paid for the year ended December 31, 2003.
	(9)	The value of the unvested portion of Mr. Weber’s restricted stock included in this column (f) as of December 31, 2003 was $35,000.

(10)	Of the $2,603 total, $2,400 was granted to Mr. Weber as a match to money invested by him in his 401(k) plan, and $203 dollars were granted in the form of basic term life insurance.

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Mr. Kaufman’s Non-Competition Agreement

      Pursuant to his non-competition agreement with us, Mr. Kaufman has also agreed:

	•	not to pursue any structured finance investment opportunities, except if our independent board members affirmatively approve the pursuit by Arbor Commercial Mortgage or one of its affiliates of structured finance opportunities that they have rejected on our behalf;
	•	if he is no longer an affiliate of Arbor Commercial Mortgage and, within the first five years of the term of the management agreement, he is no longer our chief executive officer other than by certain reasons, he will not engage in the structured finance lending business for a period of one year after the earlier of his departure from us or the regular expiration of the one year origination period; and
	•	if there is a change of control of Arbor Commercial Mortgage within the first three years of the term of the management agreement, and he is no longer an affiliate of Arbor Commercial Mortgage and leaves us without good reason in that three year period, he will not engage in the structured finance lending business for one year after the date of his departure from us.

      Mr. Kaufman’s non-competition agreement also prohibits Mr. Kaufman from soliciting our customers or employees during its term. See “Our Manager and the Management Agreement — Mr. Kaufman’s Non Competition Agreement.”

Stock Incentive Plan

      We have adopted the Arbor Realty Trust, Inc. 2003 Omnibus Stock Incentive Plan, referred to in this prospectus as the stock incentive plan, to provide incentives to attract and retain the highest qualified directors, officers, employees, advisors, consultants and other personnel, including our manager and employees of our manager. The stock incentive plan is administered by our full board of directors or a committee appointed by our board of directors.

      The stock incentive plan permits the granting of restricted stock awards. Under the stock incentive plan, 185,000 shares of common stock are reserved for issuance pursuant to restricted stock awards, subject to adjustment upon certain corporate transactions, and 147,500 restricted shares were issued upon consummation of the original offering. The initial awards were made to each of our initial directors, our chief executive officer, our chief financial officer, certain of our employees and certain employees of our manager who provide services to us. The remaining shares were reserved for issuance of restricted stock awards in the future. In addition, 1,000 restricted shares were issued to each of Messrs. Horn and Lazar upon their appointment to the board of directors.

      A restricted stock award is an award of shares of common stock that is subject to restrictions on transferability and such other restrictions, if any, as our board of directors or committee may impose at the date of grant. Of the shares subject to the initial awards, two-thirds vested immediately and one-third will vest ratably over three years at a rate of 33.33% on each of the subsequent three anniversary dates of the date of grant. Future grants of restricted stock will be subject to vesting schedules as determined by our board of directors or the committee. The restrictions may lapse separately or in combination at such times, under such circumstances, including, without limitation, a specified period of employment or the satisfaction of pre-established criteria, in such installments or otherwise, as our board of directors or a committee of our board of directors may determine. Except to the extent restricted under the award agreement relating to the restricted stock, a participant granted restricted stock has all of the rights of a stockholder, including, without limitation, the right to vote and the right to receive dividends on the restricted shares. Although dividends are paid on all restricted stock, whether or not vested, at the same rate and on the same date as on shares of our common stock, holders of restricted stock are prohibited from selling such shares until they vest.

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      Our board of directors may amend, alter or discontinue the stock incentive plan, but cannot take any action that would impair the rights of a participant without such participant’s consent. To the extent necessary and desirable, the board of directors must obtain approval of the stockholders, for any amendment that would:

	•	other than through adjustment as provided in the stock incentive plan, increase the total number of shares of our common stock reserved for issuance under the stock incentive plan; or
	•	change the class of officers, directors, employees, consultants and advisors eligible to participate in the stock incentive plan.

      Our board of directors (or a committee appointed by our board of directors to act as administrator of the stock incentive plan) may amend the terms of any award granted under the stock incentive plan, prospectively or retroactively, but, generally may not impair the rights of any participant without his or her consent.

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REGISTRATION RIGHTS AND LOCK-UP AGREEMENTS

      In accordance with a registration rights agreement that we entered into with JMP Securities in connection with the original offering, we have included in the IPO registration statement, of which this prospectus is a part,           shares of common stock comprising           units and the shares of common stock issued upon exercise of the warrants comprising the units originally issued and sold to the selling stockholders named in this prospectus. The registration rights agreement is described below. The summary of the registration rights agreement is not complete and is subject to and qualified in its entirety by reference to the registration rights agreement, a copy of which is filed as an exhibit to the registration statement of which this prospectus is a part.

      Under our registration rights agreement with JMP Securities, we agreed to file with the SEC by December 31, 2003, either a registration statement on the appropriate form under the Securities Act providing for the initial public offering of our common stock, referred to as an IPO registration statement or a registration statement on the appropriate form under the Securities Act providing for the resale pursuant to Rule 415 under the Securities Act from time to time by the holders of the securities issued and sold in the original offering, referred to as a shelf registration statement. We must use our best efforts to cause the IPO registration statement of which this prospectus is a part to become effective by December 31, 2003, but in no case later than June 30, 2004.

      We would be obligated to pay additional dividends to the holders of securities that are eligible to be registered under the registration rights agreement if:

	•	we had not filed with the Securities and Exchange Commission by December 31, 2003 either a shelf or IPO registration statement;
	•	an IPO registration statement is filed with the Securities and Exchange Commission but is not declared effective by June 30, 2004;
	•	after the earlier of the withdrawal or abandonment of the offering pursuant to the IPO registration statement, we have not filed a shelf registration statement with the SEC prior to the later of December 31, 2003 and 30 days after such withdrawal or abandonment;
	•	a sale of our common stock pursuant to an IPO registration statement has not taken place and a shelf registration statement has not been declared effective by June 30, 2004;
	•	a sale of our common stock pursuant to an IPO registration statement takes place, after which we are still obligated to file a shelf registration statement, and we do not file a shelf registration statement within 180 days after the completion of the sale of common stock under the IPO registration statement or that shelf registration is not declared effective within 80 days of its filing; or
	•	after our IPO registration statement or our shelf registration statement, as applicable, has been declared effective, it ceases to be effective or usable in connection with resales during a period in which it is required to be effective without being immediately succeeded by an additional registration statement or a post-effective amendment to our registration statement.

      We refer to each of the events listed above as a registration failure. During the first quarter immediately following a registration failure, we would be obligated to pay additional dividends at a rate of $.0625 per share of common stock representing or underlying any registrable security, escalating at the end of such quarter and at the end of each quarter thereafter by an additional $.0625 per share, up to a maximum rate of $.25 per share per quarter, until the registration failure is cured. The funds needed to pay the additional dividends are required to be allocated and distributed by us by our operating partnership out of its income. We will pay these additional dividends from additional allocations of income and distributions from our operating partnership to which we will be entitled. Pursuant to the operating partnership agreement, Arbor Commercial Mortgage, as a holder of operating partnership units will not have a right to receive any additional dividend paid as a result of a registration failure.

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      Upon an underwritten offering pursuant to an IPO registration statement filed in accordance with the registration rights agreement, holders of our units issued in the original offering will agree to the extent requested by us, or an underwriter of our securities, not to sell or otherwise transfer or dispose of any remaining units, shares of common stock or any other securities exchangeable or exercisable for our common stock (other than under such registration statement) during a lock-up period (not to exceed 30 days prior to and 180 days following that offering) to be negotiated between us and the underwriters, subject to certain exceptions and limitations.

      We agreed to use our best efforts to list the shares of common stock comprising the units and the shares of common stock issued upon exercise of the warrants comprising the units originally issued and sold to the selling stockholders named in this prospectus on The Nasdaq Stock Market unless we qualify and choose to list these securities on the New York Stock Exchange, in which case we agreed to use our best efforts to list these securities on the New York Stock Exchange. In connection with the listing of these securities, JMP Securities agreed to act as a market maker and use its reasonable efforts to engage additional market makers as may be required under the rules of The Nasdaq Stock Market or the New York Stock Exchange, as applicable, until we complete an underwritten public offering of our common stock.

      We have agreed to maintain the effectiveness of any shelf registration statement required to be filed until the first to occur of:

	•	the disposition of all offered securities under a registration statement or pursuant to Rule 144;
	•	the date on which the offered securities are saleable under Rule 144(k) under the Securities Act;
	•	the date that is two years after the effective date of the shelf registration statement; or
	•	the date on which the offered securities are sold to us.

Lock-Up Agreements

      In connection with the original offering on July 1, 2003, Arbor Commercial Mortgage, members of our senior management and board of directors and certain members of the senior management of Arbor Commercial Mortgage agreed not to offer, pledge, sell contract to sell, sell any option or contract to purchase or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock, or any securities convertible into or exercisable for any of our common stock or any right to acquire our common stock, until the earlier of:

	•	180 days from the effective date of the IPO registration statement; and
	•	two years from the consummation of the original offering, subject to certain exceptions.

      JMP Securities, at any time, and without notice, may release all or any portion of the common stock subject to the foregoing lock-up agreements.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Conflicts of Interest with Our Manager

      At the consummation of the original offering, Arbor Commercial Mortgage contributed the majority of its structured finance portfolio and related liabilities to our operating partnership in exchange for 3,146,724 operating partnership units and 629,345 warrants to purchase additional operating partnership units, representing a 28% limited partnership interest in our operating partnership (without giving effect to the exercise of the warrants).

      Mr. Ivan Kaufman, our chairman and chief executive officer, is also the chief executive officer of Arbor Commercial Mortgage. Mr. Kaufman and the Kaufman entities collectively own 88% of the outstanding membership interests in Arbor Commercial Mortgage. Mr. Frederick C. Herbst, our chief financial officer, is also the chief financial officer of Arbor Commercial Mortgage. Mr. Herbst owns a 0.5% interest in Arbor Commercial Mortgage. Mr. Joseph Martello, one of our directors, currently serves as the chief operating officer of Arbor Commercial Mortgage. Mr. Martello owns a 1.3% interest in Arbor Commercial Mortgage and is also the sole trustee of the Ivan and Lisa Kaufman Family Trust for the benefit of Mr. Kaufman’s family, which owns a 59% interest in Arbor Commercial Mortgage, and a co-trustee, along with Mr. Kaufman, of the Ivan Kaufman Grantor Retained Annuity Trust which also owns an equity interest in Arbor Commercial Mortgage. Mr. Walter Horn, our secretary and general counsel and one of our directors, currently serves as the general counsel of Arbor Commercial Mortgage. Mr. Horn owns a 2.0% interest in Arbor Commercial Mortgage.

      Mr. Daniel M. Palmier, our executive vice president of asset management, directed Arbor Commercial Mortgage’s asset management group from 1997 until the consummation of the original offering. Mr. Palmier owns a 0.2% interest in Arbor Commercial Mortgage. Mr. Fred Weber, our executive vice president of structured finance, was responsible for overseeing Arbor Commercial Mortgage’s structured finance and principal transactions group from 1999 until the consummation of the original offering. Mr. Weber owns a 0.9% interest in Arbor Commercial Mortgage.

      As a result of the relationships described above, certain matters relating to our organization, some of which are discussed below, were not negotiated at arm’s length, and their terms may not be as favorable to us as if they were negotiated with an unaffiliated third party.

Formation Transactions

	Asset Contribution and Guaranty

      Arbor Commercial Mortgage contributed the majority of its structured finance portfolio to our operating partnership pursuant to a contribution agreement. The contribution agreement contains representations and warranties concerning the ownership and terms of the structured finance assets it contributed and other customary matters. Arbor Commercial Mortgage has agreed to indemnify us and our operating partnership against breaches of those representations and warranties.

      At the time of Arbor Commercial Mortgage’s origination of three investments that it contributed to us on July 1, 2003, each of the property owners granted Arbor Commercial Mortgage participating interests that share in a percentage of the cash flows of the underlying properties. Arbor Commercial Mortgage also made one of the contributed bridge loans to a joint venture in which it had a 50% non-controlling interest. Upon contribution of the structured finance assets, Arbor Commercial Mortgage retained these participating and joint venture interests. In connection with its asset contribution, Arbor Commercial Mortgage agreed that if any portion of the outstanding amount of any of these four contributed assets is not paid at the its maturity or repurchase date, Arbor Commercial Mortgage will pay us, subject to the limitation described below, the portion of the unpaid amount of the contributed asset up to the total amount then received by Arbor Commercial Mortgage due to the realization of any profits on its retained interests associated with any other of the four contributed assets. Arbor Commercial Mortgage will no longer be obligated to make such payments

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	Arbor Commercial Mortgage Registration Rights

      We have granted Arbor Commercial Mortgage shelf registration rights, or, if such rights are not available, demand registration rights with respect to shares of our common stock that may be issued upon redemption of operating partnership units. Holders of our operating partnership units are entitled to participate in primary or secondary offerings of our common stock with respect to such shares. We have also agreed to certain restrictions on the registration rights that we may grant to any other holder or prospective holder of our securities without the prior written consent of the holders of the majority of the shares of common stock and common stock equivalents representing or underlying the then outstanding securities that are registrable under the registration rights agreements.

	Special Voting Preferred Stock

      Each of the approximately 3.1 million operating partnership units received by Arbor Commercial Mortgage, as well as each operating partnership unit that may be issued upon exercise of any of the warrants, are, in each case, paired with one share of our special voting preferred stock. Each share of our special voting preferred stock entitles the holder to one vote on all matters submitted to a vote of our stockholders. Therefore, Arbor Commercial Mortgage is entitled to a number of votes representing approximately 28% of the voting power of all shares entitled to vote on matters submitted to a vote of our stockholders. After giving effect to this offering, Arbor Commercial Mortgage will have approximately           % of the voting power of our outstanding stock (without giving effect to the exercise of Arbor Commercial Mortgage’s warrants for additional operating partnership units).

	Management and Services Agreements

      We and our operating partnership have entered into a management agreement with Arbor Commercial Mortgage, pursuant to which Arbor Commercial Mortgage provides for the day to day management of our operations. Arbor Commercial Mortgage is also required to provide us with a right of first refusal with respect to all structured finance identified by Arbor Commercial Mortgage or its affiliates. We have agreed not to pursue, and to allow Arbor Commercial Mortgage to pursue, any real estate opportunities other than structured finance transactions. We are required to pay Arbor Commercial Mortgage a base management fee and an incentive management fee as well as reimburse Arbor Commercial Mortgage for certain of its expenses. We have paid $587,734 in base management fees to Arbor Commercial Mortgage for management services rendered for the six months ended December 31, 2003. Our manager did not earn any incentive compensation for the quarters ended September 30, 2003 or December 31, 2003. See “Our Manager and the Management Agreement” for more information regarding the services Arbor Commercial Mortgage provides to us and the fees we pay to Arbor Commercial Mortgage.

      We and our operating partnership have also entered into a services agreement with Arbor Commercial Mortgage pursuant to which our asset management group provides asset management services to Arbor Commercial Mortgage. In the event the services provided by our asset management group pursuant to the agreement exceed by more than 15% per quarter the level of activity anticipated by our board of directors, we will negotiate in good faith with our manager an adjustment to our manager’s base management fee under the management agreement, to reflect the scope of the services, the quantity of serviced assets or the time required to be devoted to the services by our asset management group. As of December 31, 2003, there have been no payments to us pursuant to the services agreement. See “Arbor Realty Trust, Inc. — Operations” and “— Our Asset Management Operations.”

	Non-Competition Agreement

      We have entered into a non-competition agreement with Mr. Kaufman pursuant to which he has agreed not to pursue any structured finance opportunities, unless our independent board members affirmatively

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	Benefits Participation Agreement

      We have also entered into a benefits participation agreement with Arbor Commercial Mortgage, pursuant to which our employees are able to participate in any employee benefit plans maintained by Arbor Management, LLC, Arbor Commercial Mortgage’s managing member, for the benefit of Arbor Commercial Mortgage employees. Arbor Management charges us an amount equal to its cost of providing benefits to each of our employees.

	Restricted Stock Grants under Stock Incentive Plan

      We granted 147,500 restricted shares of common stock under our stock incentive plan upon consummation of the original offering. The initial awards were made to our directors, officers and certain of our employees and certain employees of our manager who provide services to us. In addition, 1,000 restricted shares were issued to Messrs. Horn and Lazar upon their appointment to the board of directors in November 2003.

Related Party Loans and Investments

      Arbor Commercial Mortgage has a 50% non-controlling interest in a joint venture, which was formed to acquire, develop and/or sell real estate assets. We currently have a $16.0 million bridge loan outstanding to the joint venture. There is a limited guarantee on the loan of 50% by our chief executive officer and 50% by the key principal of the joint venture. We have agreed to provide the borrower with additional mezzanine financing in the amount of up to $8.0 million. Arbor Commercial Mortgage has also agreed to provide a limited guarantee of the principal amount of this bridge loan as described under “— Asset Contribution and Guaranty.”

      On July 1, 2003, we purchased two mezzanine loans, 130 West 30th Street and The Crossings, and a preferred equity investment, Dutch Village, which collectively represented $13.1 million in assets, based on the assets’ June 30, 2003 book value, from Arbor Commercial Mortgage. We used $6.7 million of the net proceeds of the original offering and assumed $6.4 million under our credit facilities in order to acquire these investments from Arbor Commercial Mortgage.

      In June 2003, Arbor Commercial Mortgage invested approximately $818,000 in exchange for a 12.5% non-controlling interest in a joint venture, which was formed to acquire, develop and/or sell real estate assets. This investment was purchased by us from Arbor Commercial Mortgage in August 2003. On August 1, 2003, we purchased these two mezzanine loans to this joint venture, 80 Evergreen and 930 Flushing Avenue, from Arbor Commercial Mortgage for $6 million in cash, which represented the assets combined book value at July 31, 2003. As of September 30, 2003, we had two mezzanine loans totaling $6.0 million outstanding.

      Arbor Commercial Mortgage contributed four investments to us that are secured by properties in which Arbor Commercial Mortgage has a participating or joint venture interest in the borrower. Every transaction entered into between us and an entity in which Arbor Commercial Mortgage holds equity interests raises a potential conflict of interest. Conflicts of interest with respect to these investments include, among others, decisions regarding (1) whether to waive defaults of such borrower, (2) whether to foreclose on the investment and (3) whether to permit additional financing on the properties securing our investments other than financing provided by us.

      Arbor Commercial Mortgage may from time to time provide permanent mortgage loan financing to clients of ours, which will be used to refinance bridge financing provided by us. We and Arbor Commercial Mortgage may also make loans to the same borrower or to borrowers that are under common control. Additionally, our policies and those of Arbor Commercial Mortgage may require us to enter into intercreditor agreements in situations where loans are made by us and Arbor Commercial Mortgage to the same borrower.

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Other Relationships and Related Transactions

      Two of our employees, Daniel M. Palmier, our executive vice president of asset management, and Fred Weber, our executive vice president of structured finance, continue to serve on Arbor Commercial Mortgage’s executive committee and provide services to Arbor Commercial Mortgage. Messrs. Palmier and Weber do not receive a salary from Arbor Commercial Mortgage, but may receive production payments from Arbor Commercial Mortgage for originating loans on its behalf.

      Arbor Management, LLC, the managing member of Arbor Commercial Mortgage, loaned Mr. Herbst and Mr. Palmier $225,000 and $800,000, respectively, for the purpose of financing a portion of each of their investments in the original offering. Arbor Management’s loan to Mr. Herbst is secured by a pledge of his .5% membership interest in Arbor Commercial Mortgage. The loan made to Mr. Palmier is secured by a pledge of the 13,350 units he purchased in the original offering. Arbor Management has also made additional loans to Mr. Herbst and Mr. Palmier in the amounts of $57,142 and $7,500, respectively, prior to the original offering. In addition, Arbor Management loaned Walter Horn, our general counsel and secretary and one of our directors, and Mr. Weber $28,857 and $157,545, respectively prior to the original offering. Arbor Management will not make any loans in the future to any of our directors, officers or employees and will not modify the terms of or extend the maturity date of any outstanding loans to our directors, executives officers and employees. The current policies and procedures of Arbor Commercial Mortgage and us do not allow for the lending of funds to any of our directors, officers or employees.

      In 2000 and 2001, Arbor Commercial Mortgage paid $65,394 and $85,000, respectively, for legal services rendered, to Pryor, Cashman, Sherman & Flynn, where Mr. Jonathan A. Bernstein, who serves as one of our directors, is of counsel.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table sets forth certain information regarding the ownership of each class of capital stock by:

	•	each of our directors;
	•	each of our executive officers;
	•	each holder of five percent or more of each class of our capital stock, as of October 8, 2003; and
	•	all of our directors and executive officers as a group.

      Unless otherwise indicated, all shares are owned directly and the indicated person has sole voting and investment power. Except as indicated in the footnotes to the table below, the business address of the stockholders listed below is the address of our principal executive office, 333 Earle Ovington Boulevard, Suite 900, Uniondale, New York 11553.

Prior to this Offering

After this Offering

Number of

Number of

Shares

Shares

Beneficially

Percent of

Beneficially

Percent of

Name

Owned(1)

Class(2)

Owned(1)

Class

Arbor Commercial Mortgage, LLC(3)

3,776,136

31.5

%

Ivan Kaufman(4)

3,898,136

32.6

%

Perry Partners, L.P.(5)

650,000

7.9

%

Watershed Capital Institutional Partners, L.P.(6)

513,000

6.3

%

Joseph Martello(7)

6,000

*

Jonathan A. Bernstein(8)

1,000

*

William Helmreich(9)

21,000

*

C. Michael Kojaian(10)

1,000

*

Frederick C. Herbst(11)

24,000

*

Daniel M. Palmier(12)

73,750

*

Fred Weber(13)

12,000

*

Walter K. Horn(14)

8,000

*

Melvin F. Lazar(15)

1,000

*

All directors and officers as a group (10 persons)

4,045,886

33.8

%

	*	Less than 1%

	(1)	Beneficial ownership is determined in accordance with the rules of the SEC and generally includes securities over which a person has voting or investment power and securities that a person has the right to acquire within 60 days of the date hereof. For purposes of the table above, we have also assumed that all units of our operating partnership, Arbor Realty Limited Partnership, held by such person or group of persons are redeemed for common stock (regardless of when such units are redeemable).

At the consummation of the original offering, Arbor Commercial Mortgage received 3,146,724 operating partnership units and warrants to purchase an additional 629,345 operating partnership units. Each of these operating partnership units held by Arbor Commercial Mortgage is paired with one share of our special voting preferred stock, which is entitled to one vote per share on all matters submitted to our stockholders. Each share of special voting preferred stock will be redeemed and cancelled by us upon the redemption of its paired operating partnership unit for shares of our common stock or cash. As this table assumes that all operating partnership units issued to Arbor Commercial Mortgage, including those issuable upon exercise of the warrants issued to Arbor Commercial Mortgage, have been redeemed for shares of our common stock, we have assumed that the shares of special voting preferred stock to be held by Arbor Commercial Mortgage have been redeemed and cancelled by us.

	(2)	Shares of common stock subject to options or warrants exercisable within 60 days of the date hereof are deemed to be outstanding for computing the percentage of the person holding such options or warrants

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		but are not deemed outstanding for computing the percentage of any other person. Shares of common stock issuable upon the redemption of operating partnership units are deemed to be outstanding for computing the percentage of the person holding such operating partnership units but are not deemed outstanding for computing the percentage of any other person.
	(3)	Includes shares of our common stock issuable upon redemption of the operating partnership units that are issuable upon exercise of warrants held by Arbor Commercial Mortgage.
	(4)	Includes shares of our common stock issuable upon redemption of the operating partnership units held by Arbor Commercial Mortgage and subject to warrants held by Arbor Commercial Mortgage. Mr. Kaufman, together with the Kaufman entities, including the Ivan and Lisa Kaufman Family Trust, the Ivan Kaufman Grantor Retained Trust and Arbor Management, beneficially own approximately 88% of the outstanding membership interests of Arbor Commercial Mortgage. Also includes 120,000 of shares of restricted common stock that we granted to Mr. Kaufman and 2,000 shares of our common stock purchased by Mr. Kaufman’s wife in the original offering.
	(5)	Based on information provide to us as of October 8, 2003. The address for Perry Partners, L.P. is 599 Lexington Avenue, New York, NY 10022.
	(6)	Based on information provide to us as of October 8, 2003. The address for Watershed Capital Institutional Partners, L.P. is 1 Maritime Plaza, Suite 2535, San Francisco, CA 94111.
	(7)	Includes 6,000 shares of our common stock, 5,000 of which Mr. Martello purchased in the original offering, and 1,000 of which were granted to him as restricted shares for his services as a director. Mr. Martello holds a 1.3% Class B membership interest in Arbor Commercial Mortgage. For purposes of the SEC beneficial ownership rules, the operating partnership units held by Arbor Commercial Mortgage are not deemed to be beneficially owned by Mr. Martello.
	(8)	The address for Mr. Bernstein is 333 Earle Ovington Boulevard, Uniondale, NY 11553.
	(9)	The address for Dr. Helmreich is 333 Earle Ovington Boulevard, Uniondale, NY 11553.

(10)	The address for Mr. Kojaian is 333 Earle Ovington Boulevard, Uniondale, NY 11553.
(11)	Includes 24,000 shares of our common stock, 20,000 of which Mr. Herbst purchased in the original offering, and 4,000 of which were granted to him as restricted shares for his services as an executive officer. Mr. Herbst holds a 0.5% Class B membership interest in Arbor Commercial Mortgage. For purposes of the SEC beneficial ownership rules, the operating partnership units held by Arbor Commercial Mortgage are not deemed to be beneficially owned by Mr. Herbst.
(12)	Includes 73,750 shares of our common stock, 66,750 of which Mr. Palmier purchased in the original offering, and 7,000 of which were granted to him as restricted shares for his services as an executive officer. Mr. Palmier holds a 0.2% Class B membership interest in Arbor Commercial Mortgage. For purposes of the SEC beneficial ownership rules, the operating partnership units held by Arbor Commercial Mortgage are not deemed to be beneficially owned by Mr. Palmier.
(13)	Includes 12,000 shares of our common stock, 5,000 of which Mr. Weber purchased in the original offering, and 7,000 of which were granted to him as restricted shares for his services as an executive officer. Mr. Weber holds a 0.9% Class B membership interest in Arbor Commercial Mortgage. For purposes of the SEC beneficial ownership rules, the operating partnership units held by Arbor Commercial Mortgage are not deemed to be beneficially owned by Mr. Weber.
(14)	Includes 8,000 shares of our common stock, 7,000 of which he purchased in the original offering, and 1,000 of which were granted to him as restricted shares for his services as a director. Mr. Horn holds a 2.0% Class B membership interest in Arbor Commercial Mortgage. For purposes of the SEC beneficial ownership rules, the operating partnership units held by Arbor Commercial Mortgage are not deemed to be beneficially owned by Mr. Horn.
(15)	The address for Mr. Lazar is 333 Earle Ovington Boulevard, Uniondale, NY 11553.

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DESCRIPTION OF STOCK

      The following is a summary of the material provisions of our stock.

General

      We were formed under the laws of the State of Maryland. Rights of our stockholders are governed by the Maryland General Corporation Law, or the MGCL, our charter and our bylaws, copies of each of which are available upon request. See “Available Information.”

Authorized Stock

      Our charter provides that we may issue up to 500 million shares of common stock, par value $.01 per share, and 100 million shares of preferred stock, par value $.01 per share. There are approximately 8.2 million shares of common stock issued and outstanding and approximately 3.1 million shares of preferred stock issued and outstanding.

      Under Maryland law, our stockholders are generally not liable for our debts or obligations.

Common Stock

      All shares of our common stock offered hereby are duly authorized and will be validly issued, fully paid and nonassessable. Subject to the preferential rights of any other class or series of stock and to the provisions of the charter regarding the restrictions on transfer of stock, holders of shares of our common stock are entitled to receive dividends on such stock when, as and if authorized by our board of directors out of funds legally available therefor and declared by us and to share ratably in the assets of our company legally available for distribution to our stockholders in the event of our liquidation, dissolution or winding up after payment of or adequate provision for all known debts and liabilities of our company, including the preferential rights on dissolution of any class or classes of preferred stock.

      Subject to the provisions of our charter regarding the restrictions on transfer of stock, each outstanding share of common stock entitles the holder to one vote on all matters submitted to the vote of stockholders, including the election of directors. There is no cumulative voting in the election of our board of directors, which means that the holders of a majority of the outstanding shares of our common stock can elect all of the directors then standing for election and the holders of the remaining shares of our common stock are not able to elect any directors.

      Holders of shares of our common stock have no preference, conversion, exchange, sinking fund, redemption or appraisal rights and have no preemptive rights to subscribe for any securities of our company. Subject to the provisions of the charter regarding the restrictions on transfer of stock, shares of our common stock have equal dividend, liquidation and other rights.

      Under the MGCL, a Maryland corporation generally cannot dissolve, amend its charter, merge, sell all or substantially all of its assets, engage in a statutory share exchange or engage in similar transactions outside the ordinary course of business unless declared advisable by the board of directors and approved by the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter unless a lesser percentage (but not less than a majority of all of the votes entitled to be cast on the matter) is set forth in the corporation’s charter. Our charter, however, provides for approval of these matters, except with respect to certain charter amendments, by an affirmative vote of stockholders entitled to cast at least a majority of the votes entitled to be cast on the matter.

      Our charter authorizes our board of directors to increase the number of shares of authorized common stock, to issue additional authorized but unissued shares of our common stock, to reclassify any unissued shares of our common stock into other classes or series of classes of stock and to establish the number of shares in each class or series and to set the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption for each such class or series without stockholder approval.

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      There are no limitations imposed on dividend payouts to stockholders in our warehouse credit agreement and our master repurchase agreements provided that such dividend payout does not cause us to violate the minimum net worth and minimum liquidity covenants contained in those agreements.

Preferred Stock

      Our charter authorizes our board of directors to increase the number of authorized shares of preferred stock, to issue additional authorized but unissued shares of our preferred stock, to classify or reclassify any unissued shares of preferred stock and to reclassify any previously classified but unissued shares of any series without stockholder approval. Prior to issuance of shares of each series, our board of directors is required by the MGCL and our charter to set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each such series. Thus, our board of directors could authorize the issuance of shares of preferred stock with terms and conditions that could have the effect of delaying, deferring or preventing a transaction or a change of control of our company that might involve a premium price for holders of our common stock or otherwise be in their best interest.

Special Voting Preferred Stock

      We, our operating partnership and our manager have entered into a pairing agreement. Pursuant to the pairing agreement, each operating partnership unit issued to Arbor Commercial Mortgage in connection with the contribution of the initial assets (including operating partnership units issuable upon the exercise of Arbor Commercial Mortgage’s warrants for additional operating partnership units) is paired with one share of our special voting preferred stock.

      A holder of special voting preferred stock is not entitled to any regular or special dividend payments or other distributions, including any dividend or other distributions declared or paid with respect to shares of our common stock or any other shares of our stock. A holder of shares of special voting preferred stock is only entitled to receive a $.01 distribution per share in the event of our liquidation, dissolution or redemption of the special voting preferred stock.

      Each share of special voting preferred stock entitles the holder to one vote on all matters submitted to a vote of our stockholders. The holders of special voting preferred stock have no separate class voting rights, except as specifically provided by our charter. We may not issue any additional shares of special voting preferred stock in the future unless such shares are paired with operating partnership units.

      Upon any redemption of an operating partnership unit that is paired with a share of special voting preferred stock in accordance with the redemption provisions of the operating partnership agreement, the share of special voting preferred stock will be redeemed by us and cancelled.

      If we complete a merger transaction in connection with which the holders of operating partnership units either continue to hold interests in our operating partnership or receive partnership interests or other securities of another operating partnership in an “umbrella partnership” REIT structure, then the holders of special voting preferred stock are generally entitled to vote separately as a class on such a merger transaction, unless they receive a voting security comparable to the special voting preferred stock.

Warrants

      The warrants comprising part of the units were issued pursuant to a warrant agreement dated as of July 1, 2003 between us and American Stock Transfer & Trust Company who acts as warrant agent. The following is a brief summary of certain provisions of the warrant agreement and does not purport to be complete and is qualified in its entirety by reference to the warrant agreement including the definitions of certain terms used below.

      Each unit consists of five shares of our common stock, par value $.01 per share, and one warrant that has an initial exercise price of $15 and entitles the holder to purchase one share of our common stock subject to certain anti-dilution adjustments. The warrants are exercisable until 5:00 p.m. New York City time on July 1,

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      The warrants, held in certificated form, may be exercised by surrendering to the warrant agent the definitive warrant certificates evidencing such warrants, with the accompanying form of election to purchase properly completed and executed, together with payment of the exercise price. Payment of the exercise price may be made (1) in the form of cash or by certified or official bank check payable to the order of us, or (2) by surrendering additional warrants or shares of common stock for cancellation to the extent we may lawfully accept shares of common stock, with the value of such shares of common stock for such purpose equal to the average trading price of the common stock during the 20 trading days preceding the date surrendered and the value of the warrants to equal the difference between such value of a share of common stock and the exercise price.

      No fractional shares of common stock will be issued upon exercise of the warrants. In lieu of any fractional shares of our common stock that would otherwise be issuable upon exercise of the warrants, we will pay the holders the equivalent cash value of the fractional warrants. The holders of the warrants have no right to vote on matters submitted to our stockholders and have no right to receive dividends. The holders of the warrants not yet exercised are not entitled to share in our assets in the event of our liquidation or dissolution, or the winding up of our affairs.

      The exercise price of the warrants will be appropriately adjusted if we (1) pay a dividend or make a distribution on our common stock in shares of our common stock or make certain other dividends or distributions on our common stock (other than cash dividends out of funds legally available therefore), (2) subdivide our outstanding shares of common stock into a greater number of shares, (3) combine our outstanding shares of common stock into a smaller number of shares or (4) issue by reclassification of our common stock any other shares of our stock.

      In the case of our consolidation or merger in which we are not the surviving entity, or our liquidation or the sale of all or substantially all of our assets to another person or entity, each warrant will thereafter be deemed exercised for the right to receive the kind and amount of shares of stock or other securities or property to which such holder would have been entitled as a result of such consolidation, merger, or sale had the warrants been exercised immediately prior thereto, less the exercise price.

Power to Increase Authorized Stock and Issue Additional Shares of our Common Stock and Preferred Stock

      Our board of directors has the power to increase the number of authorized shares of our preferred and common stock, issue additional authorized but unissued shares of our common stock or preferred stock and to classify or reclassify unissued shares of our common stock or preferred stock and thereafter to cause us to issue such classified or reclassified shares of stock without further action by our stockholders, unless stockholder consent is required by applicable law or the rules of any stock exchange or automated quotation system on which our securities may be listed or traded. We believe that this power provides us with flexibility in structuring possible future financings and acquisitions and in meeting other business needs that might arise. Although our board of directors does not intend to do so, it could authorize us to issue a class or series that could, depending upon the terms of the particular class or series, delay, defer or prevent a transaction or a change of control of our company that might involve a premium price for our stockholders or otherwise be in their best interest.

Restrictions on Transfer

      In order for us to qualify as a REIT under the Internal Revenue Code, our stock must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months (other than the first year for which an election to be a REIT has been made) or during a proportionate part of a shorter taxable year. Also, not more than 50% of the value of the outstanding shares of stock may be owned, directly or indirectly,

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      Our charter contains restrictions on the ownership and transfer of our common stock that are intended to assist us in complying with these requirements and continuing to qualify as a REIT. The relevant sections of our charter provide that subject to the exceptions described below, no person or entity may beneficially own, or be deemed to own by virtue of the applicable constructive ownership provisions of the Internal Revenue Code, more than 9.6% (by value or by number of shares, whichever is more restrictive) of the outstanding shares of our common stock or 9.6% by value of our outstanding capital stock. We refer to this restriction as the “ownership limit.” Our charter provisions further prohibit any person from beneficially or constructively owning shares of our stock that would result in us being “closely held” under Section 856(h) of the Internal Revenue Code or otherwise cause us to fail to qualify as a REIT.

      The constructive ownership rules under the Internal Revenue Code are complex and may cause stock owned actually or constructively by a group of related individuals and/ or entities to be owned constructively by one individual or entity. As a result, the acquisition of less than 9.6% of our outstanding common or capital stock (or the acquisition of an interest in an entity that owns, actually or constructively, less than 9.6% of our outstanding common or capital stock) by an individual or entity, could, nevertheless cause that individual or entity, or another individual or entity, to own constructively in excess of these limits on our outstanding stock and thereby subject the stock to the applicable ownership limit.

      Our board of directors may, in its sole discretion, waive the ownership limit with respect to a particular stockholder if it:

	•	determines that any exemption from the ownership limit will not jeopardize our status as a REIT under the Internal Revenue Code; and
	•	determines that such stockholder does not and will not own, actually or constructively, an interest in a tenant of ours (or a tenant of any entity owned in whole or in part by us) that would cause us to own, actually or constructively, more than a 9.9% interest (as set forth in Section 856 (d)(2)(B) of the Internal Revenue Code) in such tenant or that any such ownership would not cause us to fail to qualify as a REIT under the Internal Revenue Code.

      As a condition of our waiver, our board of directors may require an opinion of counsel or an IRS ruling satisfactory to our board of directors, and/ or representations or undertakings from the applicant with respect to preserving our REIT status. Additionally, the waiver of the ownership limit may not allow five or fewer stockholders to beneficially own more than 50% in value of our outstanding capital stock. Our charter provisions further prohibit:

	•	any person from beneficially or constructively owning shares of our stock that would result in us being closely held under Section 856(h) of the Internal Revenue Code or otherwise cause us to fail to qualify as a REIT; and
	•	any person from transferring shares of our stock after January 29, 2004 if such transfer would result in shares of our stock being beneficially owned by fewer than 100 persons (determined without reference to any rules of attribution).

      Any person who acquires or attempts or intends to acquire beneficial or constructive ownership of shares of our common stock that will or may violate any of the foregoing restrictions on transferability and ownership will be required to give notice immediately to us and provide us with such other information as we may request in order to determine the effect of such transfer on our status as a REIT. The foregoing provisions on transferability and ownership will not apply if our board of directors determines that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT.

      Pursuant to our charter, if any purported transfer of our stock or any other event would otherwise result in any person violating the ownership limits or such other limit as permitted by our board of directors, then any such purported transfer will be ineffective as to that number of shares in excess of the applicable ownership limit (rounded up to the nearest whole). That number of shares in excess of the ownership limit will be

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      Shares of our stock transferred to the trustee are deemed offered for sale to us, or our designee, at a price per share equal to the lesser of (1) the price paid by the purported record transferee for the shares (or, if the event that resulted in the transfer to the trust did not involve a purchase of such shares of our stock at market price, the last reported sales price reported on a national securities exchange or the Nasdaq Stock Market on the trading day immediately preceding the day of the event that resulted in the transfer of such shares of our stock to the trust if the shares are then traded) and (2) the market price on the date we, or our designee, accepts such offer. We have the right to accept such offer until the trustee has sold the shares of our common stock held in the trust pursuant to the clauses discussed below. Upon a sale to us, the interest of the charitable beneficiary in the shares sold terminates and the trustee must distribute the net proceeds of the sale to the purported record transferee and any dividends or other distributions held by the trustee with respect to such common stock will be paid to the charitable beneficiary.

      If we do not buy the shares, the trustee must, within 20 days of receiving notice from us of the transfer of shares to the trust, sell the shares to a person or entity designated by the trustee who could own the shares without violating the ownership limits or as otherwise permitted by our board of directors. After that, the trustee must distribute to the purported record transferee an amount equal to the lesser of (1) the price paid by the purported record transferee or owner for the shares (or, if the event that resulted in the transfer to the trust did not involve a purchase of such shares at market price, the last reported sales price reported on a national securities exchange or the Nasdaq Stock Market on the trading day immediately preceding the relevant date if the shares are then traded), and (2) the sales proceeds (net of commissions and other expenses of sale) received by the trust for the shares. The purported beneficial transferee or purported record transferee has no rights in the shares held by the trustee.

      The trustee shall be designated by us and shall be unaffiliated with us and with any purported record transferee or purported beneficial transferee. Prior to the sale of any excess shares by the trust, the trustee will receive, in trust for the beneficiary, all dividends and other distributions paid by us with respect to the excess shares, and may also exercise all voting rights with respect to the excess shares.

      Subject to Maryland law, effective as of the date that the shares have been transferred to the trust, the trustee shall have the authority, at the trustee’s sole discretion, to:

	•	rescind as void any vote cast by a purported record transferee prior to our discovery that the shares have been transferred to the trust; and
	•	recast the vote in accordance with the desires of the trustee acting for the benefit of the beneficiary of the trust.

      However, if we have already taken irreversible corporate action, then the trustee may not rescind or recast the vote.

      Any beneficial owner or constructive owner of shares of our stock and any person or entity (including the stockholder of record) who is holding shares of our stock for a beneficial owner must, on request, provide us with a completed questionnaire containing the information regarding their ownership of such shares, as set

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      All certificates representing shares of our stock bear a legend referring to the restrictions described above.

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

Transfer Agent and Registrar

      The transfer agent and registrar for our units, common stock and warrants is American Stock Transfer & Trust Company.

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SECURITIES ELIGIBLE FOR FUTURE SALE

      As of the date of this prospectus, we have 8,199,567 shares of our common stock outstanding, 1,610,000 shares authorized for issuance upon exercise of the warrants underlying our units for shares of common stock, and 3,776,069 shares of our common stock authorized for issuance upon redemption of operating partnership units (including 629,345 operating partnership units issuable upon exercise of 629,345 warrants for additional operating partnership units).

      In general, under Rule 144 as currently in effect, if one year has elapsed since the date of acquisition of restricted securities from us or any of our affiliates, the holder of such restricted securities can sell such securities; provided that the number of securities sold by such person within any three month period cannot exceed the greater of:

	•	1% of the total number of securities then outstanding, or
	•	the average weekly trading volume of our securities during the four calendar weeks preceding the date on which notice of the sale is filed with the SEC.

      Sales under Rule 144 also are subject to certain manner of sale provisions, notice requirements and the availability of current public information about us. If two years have elapsed since the date of acquisition of restricted securities from us or any of our affiliates and the holder is not one of our affiliates at any time during the three months preceding the proposed sale, such person can sell such securities in the public market under Rule 144(k) without regard to the volume limitations, manner of sale provisions, public information requirements or notice requirements.

      We and our directors and officers will agree, with limited exceptions, for a period of                       days after the date of this prospectus, and all remaining holders of units will agree, with limited exceptions, for a period of       days before and       days after the date of this prospectus, that we and they will not, without the prior written consent of the representatives of the underwriters, directly or indirectly, offer to sell, sell or otherwise dispose of any shares of our common stock or any securities convertible into, or exercisable or exchangeable for, shares of our common or our other capital stock. The remaining holders of units and their transferees have the right to require us to register under the Securities Act their securities for sale into the public markets, subject to the lock-up agreements. In connection with the original offering, members of our senior management and directors, Arbor Commercial Mortgage and certain members of the senior management of Arbor Commercial Mortgage have agreed with JMP Securities not to offer, pledge, sell contract to sell, sell any option or contract to purchase or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock, or any securities convertible into or exercisable for any of our common stock or any right to acquire our common stock, until the earlier of:

	•	180 days from the effective date of the IPO registration statement; and
	•	two years from the consummation of the original offering, subject to certain exceptions.

      The underwriters or JMP Securities, at any time, and without notice, may release all or any portion of the common stock subject to the foregoing lock-up agreements.

Registration Rights

      Pursuant to our registration rights agreement with JMP Securities, we granted the holders of our units issued in the original offering “piggyback” registration rights that allow these holders to include the shares of common stock comprising the units and the shares of common stock issued upon exercise of the warrants comprising the units in any public offering initiated by us, subject to cutbacks if the underwriters determine in good faith that marketing factors require a limitation on the amount of shares that may be underwritten in any such offering. We have filed an IPO registration statement, of which this prospectus forms a part, which includes           shares of common stock comprising the units and           shares of common stock issued upon exercise of the warrants comprising the units originally sold to the selling stockholders in the original offering. If the underwriters limit the number of shares of common stock proposed to be offered by the selling stockholders pursuant to this prospectus, we will be required to file a shelf registration statement within six

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	•	any shares that were proposed to be offered by the selling stockholders pursuant to this prospectus but were subject to cutbacks by the underwriters; and
	•	any shares not proposed to be included in this offering.

      Under our registration rights agreement with JMP Securities, we may suspend sales under the shelf registration statement by the stockholders holding securities issued and sold in the original offering. For a period not to exceed thirty days in any three month period or ninety days in the aggregate in any twelve month period in the event of:

	•	an underwritten offering where we are advised by the representative of the underwriters that the sale of securities pursuant to the shelf registration statement would have a material adverse effect on our underwritten offering; or
	•	pending negotiations relating to, or the consummation of, a transaction or the occurrence of an event

	•	that would require additional disclosure of material information by us in the shelf registration statement and that has not been so disclosed;
	•	as to which we have a bona fide business purpose for preserving confidentiality; or
	•	that renders us unable to comply with Securities and Exchange Commission requirements, in each case under circumstances that would make it unduly burdensome to cause the shelf registration statement to become effective or to promptly amend or supplement the shelf registration statement on a post effective basis, as applicable.

      No assurance can be given as to (1) the likelihood that an active market for our common stock will develop, (2) the liquidity of any such market, (3) the ability of the stockholders to sell our common stock or (4) the prices that stockholders may obtain for any of the shares of our common stock. No prediction can be made as to the effect, if any, that future sales of our common stock, or the availability of securities for future sale, will have on the market price-prevailing from time to time. Sales of substantial amounts of our common stock, or the perception that such sales could occur, may adversely affect prevailing market prices of the common stock. See “Risk Factors-Risk Factors Related to the Offering.”

      For a description of certain restrictions on transfers of our common stock held by certain of our stockholders, “Underwriting.”

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IMPORTANT PROVISIONS OF MARYLAND LAW AND

      The following is a summary of important provisions of the MGCL, our charter and our bylaws, copies of each of which are available upon request. See “Available Information.”

The Board of Directors

      Our bylaws provide that the number of directors of our company may be established by our board of directors but may not be fewer than the minimum number permitted under the MGCL (currently, one) nor more than nine. Any vacancy will be filled, at any regular meeting or at any special meeting called for that purpose, by a majority of the remaining directors, except that a vacancy resulting from an increase in the number of directors must be filled by a majority of our entire board of directors. In addition, our charter provides that a majority of our directors are required to be independent.

      Pursuant to our charter, the board of directors is divided into three classes of directors. The current terms of the Class I, Class II and Class III directors will expire in 2004, 2005 and 2006, respectively. Directors of each class will be nominated for three year terms upon the expiration of each three year term and each year one class of directors will be elected by the stockholders. We believe that classification of the board of directors helps to assure the continuity and stability of our business strategies and policies as determined by the board of directors. Holders of shares of our common stock have no right to cumulative voting in the election of directors. Consequently, at each annual meeting of stockholders, the holders of a majority of the shares of our common stock are able to elect all of the successors of the class of directors whose terms expire at that meeting.

      The classified board provision could have the effect of making the replacement of incumbent directors more time consuming and difficult. At least two annual meetings of stockholders, instead of one, is generally required to effect a change in a majority of our board of directors. Thus, the classified board provision could increase the likelihood that incumbent directors will retain their positions. The staggered terms of directors may delay, defer or prevent a tender offer or an attempt to change the control of us, even though the tender offer or change in control might be in the best interest of our stockholders.

Removal of Directors

      Our charter provides that a director may be removed only for cause (as defined in the charter) and only by the affirmative vote of at least two-thirds of the votes entitled to be cast in the election of directors. This provision, when coupled with the provision in our bylaws authorizing our board of directors to fill vacant directorships, precludes stockholders from removing incumbent directors except for cause and by a substantial affirmative vote and filling the vacancies created by the removal with their own nominees.

Liability and Indemnification of Officers and Directors

      Maryland law permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from (1) actual receipt of an improper benefit or profit in money, property or services or (2) active and deliberate dishonesty established by a final judgment and that is material to the cause of action. Our charter contains such a provision that eliminates directors’ and officers’ liability to the maximum extent permitted by Maryland law.

      Our charter authorizes us, to the maximum extent permitted by Maryland law, to indemnify any present or former director or officer or any individual who, while our director and at our request, serves or has served another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner or trustee, from and against any claim or liability to which that person may become subject or which that person may incur by reason of his status as a present or former director or officer of ours and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding. Our bylaws obligate us, to the maximum extent permitted by Maryland law, to indemnify any

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      Maryland law requires a corporation (unless its charter provides otherwise, which our charter does not) to indemnify a director or officer who has been successful in the defense of any proceeding to which he is made a party by reason of his service in that capacity. Maryland law permits a corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made a party by reason of their service in those or other capacities unless it is established that (a) the act or omission of the director or officer was material to the matter giving rise to the proceeding and (i) was committed in bad faith or (ii) was the result of active and deliberate dishonesty, (b) the director or officer actually received an improper personal benefit in money, property or services or (c) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. However, under Maryland law, a Maryland corporation may not indemnify for an adverse judgment in a suit by or in the right of the corporation or for a judgment of liability on the basis that personal benefit was improperly received, unless in either case a court orders indemnification and then only for expenses. In addition, Maryland law permits a corporation to advance reasonable expenses to a director or officer upon the corporation’s receipt of (a) a written affirmation by the director or officer of his good faith belief that he has met the standard of conduct necessary for indemnification by the corporation and (b) a written undertaking by him or on his behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that the standard of conduct was not met.

Business Combinations

      Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:

	•	any person who beneficially owns 10% or more of the voting power of the corporation’s shares; or
	•	an affiliate or associate of the corporation who, at any time within the two year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation.

      A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which he otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.

      After the five year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:

	•	80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and
	•	two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder.

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      These super majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares.

      The statute permits various exemptions from its provisions, including business combinations that are exempted by the board of directors before the time that the interested stockholder becomes an interested stockholder. Pursuant to the statute, our board of directors has exempted any business combinations (a) between us and Arbor Commercial Mortgage or any of its affiliates and (b) between us and any interested stockholder, provided that any such business combination is first approved by our board of directors (including a majority of our directors who are not affiliates or associates of such interested stockholder). Consequently, the five year prohibition and the super majority vote requirements do not apply to business combinations between us and any of them. As a result, such parties may be able to enter into business combinations with us that may not be in the best interest of our stockholders, without compliance with the supermajority vote requirements and the other provisions of the statute.

      The business combination statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.

Control Share Acquisitions

      Maryland law provides that control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by a vote of two thirds of the votes entitled to be cast on the matter. Shares owned by the acquiror, by officers or by directors who are employees of the corporation are excluded from shares entitled to vote on the matter. Control shares are voting shares of stock which, if aggregated with all other shares of stock owned by the acquiror or in respect of which the acquiror is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquiror to exercise voting power in electing directors within one of the following ranges of voting power:

	•	one-tenth or more but less than one third,
	•	one-third or more but less than a majority, or
	•	a majority or more of all voting power.

      Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A control share acquisition means the acquisition of control shares, subject to certain exceptions.

      A person who has made or proposes to make a control share acquisition may compel the board of directors of the corporation to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. The right to compel the calling of a special meeting is subject to the satisfaction of certain conditions, including an undertaking to pay the expenses of the meeting. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting.

      If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then the corporation may redeem for fair value any or all of the control shares, except those for which voting rights have previously been approved. The right of the corporation to redeem control shares is subject to certain conditions and limitations. Fair value is determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquiror or of any meeting of stockholders at which the voting rights of the shares are considered and not approved.

      The control share acquisition statute does not apply (a) to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction, or (b) to acquisitions approved or exempted by the charter or bylaws of the corporation.

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      Article II, Section 13 of our bylaws contains a provision exempting from the control share acquisition statute any and all acquisitions by any person of shares of our stock. This provision may be amended or eliminated at any time in the future.

Amendment to Our Charter

      Our charter generally may be amended only by the affirmative vote of the holders of not less than a majority vote of all of the votes entitled to be cast on the matter, with certain exceptions, including provisions regarding classification of our board of directors and our independent directors, that require the affirmative vote of stockholders entitled to cast not less than two-thirds of all of the votes entitled to be cast on the matter.

Advance Notice of Director Nominations and New Business

      Our bylaws provide that with respect to an annual meeting of stockholders, nominations of persons for election to our board of directors and the proposal of business to be considered by stockholders may be made only (i) pursuant to our notice of the meeting, (ii) by our board of directors or (iii) by a stockholder of record who is entitled to vote at the meeting and who has complied with the advance notice procedures of our bylaws. With respect to special meetings of stockholders, only the business specified in our notice of the meeting may be brought before the meeting. Nominations of persons for election to our board of directors at a special meeting may be made only (i) pursuant to our notice of the meeting, (ii) by the board of directors or (iii) provided that the board of directors has determined that directors will be elected at the meeting, by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice provisions of our bylaws.

Anti-Takeover Effect of Certain Provisions of Maryland Law and of Our Charter and Bylaws

      The business combination provisions and, if the applicable provision in our bylaws is rescinded, the control share acquisition provisions of Maryland law, the provisions of our charter on classification of our board of directors and removal of directors and the advance notice provisions of our bylaws could delay, defer or prevent a transaction or a change in the control of us that might involve a premium price for holders of our common stock or otherwise be in their best interest.

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OUR OPERATING PARTNERSHIP AGREEMENT

Management

      Arbor Realty Limited Partnership, our operating partnership, was formed as a Delaware limited partnership on June 24, 2003. We hold all of our interests in our operating partnership through two wholly owned subsidiaries, Arbor Realty GPOP, Inc., the general partner, and Arbor Realty LPOP, Inc., the initial limited partner. The general partner and the initial limited partner of our operating partnership entered into a partnership agreement on June 24, 2003, which was amended and restated on July 1, 2003 , and included Arbor Commercial Mortgage as an additional limited partner. Our operating partnership commenced operations on July 1, 2003. We are the sole general partner of our operating partnership, and we, along with Arbor Commercial Mortgage, are the sole limited partners. We own approximately a 72% interest in our operating partnership, and Arbor Commercial Mortgage owns the remaining interest of approximately 28%. After giving effect to this offering, Arbor Commercial Mortgage will own approximately a           % interest in our operating partnership and we will own the remaining           %. In the future, additional operating partnership units may be issued to us, to Arbor Commercial Mortgage or its affiliates, or to third parties.

      Pursuant to the partnership agreement of our operating partnership, we, as the sole general partner, generally have full, exclusive and complete responsibility and discretion in the management, operation and control of the partnership, including the ability to cause the partnership to enter into certain major transactions, including acquisitions and dispositions of loans and other assets and refinancings of existing indebtedness. No limited partners may take part in the operation, management or control of the business of our operating partnership by virtue of being a holder of operating partnership units. Pursuant to the management agreement between us and Arbor Commercial Mortgage, and subject to the oversight of our board of directors, Arbor Commercial Mortgage manages our business, including our management and operation of our operating partnership.

      We may not be removed as general partner of the partnership, except that upon our bankruptcy or dissolution, the limited partners may appoint a successor general partner to continue the partnership.

      We are not obligated to consider the interests of the limited partners separately from the interests of our stockholders in deciding whether to cause the operating partnership to take or decline to take any actions.

Transferability of Interests

      General Partner. The partnership agreement provides that we may not sell, assign, transfer, pledge or otherwise dispose of our general partner interest without the consent of the holders of a majority of the limited partnership interests, except for transfers:

	•	to a subsidiary of ours; or
	•	in connection with our merger into another entity, if the surviving entity contributes substantially all its assets to our operating partnership.

      Limited Partners. The partnership agreement prohibits the sale, assignment, transfer, pledge or disposition of all or any portion of the limited partners’ operating partnership units without our consent, which we may give or withhold in our sole discretion. However, an individual partner may transfer his operating partnership units to his immediate family or a trust for his immediate family, without our consent but subject to our right not to admit the transferee as a limited partner in our operating partnership. In addition, the partnership agreement contains other restrictions on transfer of operating partnership units if, among other things, that transfer:

	•	would require registration of the partnership units under federal or state securities laws or would require our operating partnership to become a reporting company under the Exchange Act,
	•	would cause us to fail to comply with the REIT rules under the Internal Revenue Code, or
	•	would cause us to become a publicly traded partnership under the Internal Revenue Code.

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Capital Contributions and Borrowings

      We contributed to the partnership all the net proceeds of the original offering of our units to the partnership as our initial capital contribution in exchange for a 72% interest in our operating partnership, 0.1% of which is in the form of a general partner interest, and the remaining 71.9% of which is held as a limited partner interest. Arbor Commercial Mortgage contributed the initial assets to the partnership in exchange for the remaining 28% interest in our operating partnership, which is a limited partner interest. In connection with its limited partner interest, Arbor Commercial Mortgage also received warrants to purchase additional limited partnership interests for an exercise price of $15 per operating partnership unit. Upon exercise of such warrants by Arbor Commercial Mortgage, and in the absence of any additional issuances of operating partnership units or changes in the ownership of our operating partnership, Arbor Commercial Mortgage would own approximately a 32% interest in our operating partnership.

      The partnership agreement provides that we may determine that the partnership requires additional funds and that we may:

	•	on behalf of the partnership, accept additional capital contributions from existing partners or other persons,
	•	cause the partnership to borrow funds from a financial institution or other person,
	•	borrow such funds from a lending institution or other person and subsequently lend such funds to the partnership, or
	•	directly lend funds to the operating partnership.

      Under the partnership agreement, we are obligated to contribute the proceeds of any offering of stock as additional capital to the partnership. Our operating partnership is authorized to issue partnership interests for less than fair market value if we conclude in good faith that such issuance is in both the partnership’s and our best interests. Partnership interests may be issued for less than their fair market value on the date of issuance in connection with the exercise by Arbor Commercial Mortgage of its warrants to acquire operating partnership units, or in connection with our contribution of proceeds that we receive upon the issuance of our stock pursuant to the exercise of stock options or warrants.

      While the limited partners have no preemptive right to make additional capital contributions, the partnership agreement provides that we, as general partner, may make additional capital contributions to the partnership, in exchange for additional operating partnership units or additional assets, as we determine in good faith to be desirable to further the purposes or business of the partnership. If we contribute additional capital to the partnership and receive additional partnership interests for such capital contribution, our percentage interests will be increased on a proportionate basis based on the amount of such additional capital contributions and the value of the partnership at the time of such contributions. Conversely, the percentage interests of the other limited partners will be decreased on a proportionate basis. In addition, if we contribute additional capital to the partnership and receive additional partnership interests for such capital contribution, we may revalue the assets of the partnership to their fair market value (as determined by us) and the capital accounts of the partners will be adjusted to reflect the manner in which the unrealized gain or loss inherent in such assets (that has not been reflected in the capital accounts previously) would be allocated among the partners under the terms of the partnership agreement if there were a disposition of such assets for such fair market value on the date of the revaluation. Our operating partnership could also issue operating partnership units to Arbor Commercial Mortgage or its affiliates, or to third parties, in exchange for assets contributed to or services provided for our operating partnership. Such transactions may give rise to a revaluation of the partnership’s assets and an adjustment to partners’ capital accounts.

      Our operating partnership could also issue preferred partnership interests in connection with acquisitions of assets or otherwise. Any such preferred partnership interests would have priority over common partnership interests with respect to distributions from the partnership, including the partnership interests that we own directly or through subsidiaries.

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Redemption Rights

      Under the partnership agreement, each limited partner (other than us and any of our subsidiaries that may hold limited partner interests) has the right to redeem their operating partnership units. This right may be exercised at the election of that limited partner by giving us written notice, subject to some limitations. The purchase price for each of the operating partnership units to be redeemed will equal the fair market value of one share of our common stock, calculated as the average of the daily closing prices for the ten consecutive trading days immediately preceding the date of determination, or, if no closing price is available, the fair market value as determined in good faith by the board of directors of the general partner. The purchase price for the operating partnership units may be paid in cash, or, in our discretion, by the issuance by us of a number of shares of our common stock equal to the number of operating partnership units with respect to which the rights are being exercised.

      No limited partner may exercise its redemption rights if we could not issue stock to the redeeming partner in satisfaction of the redemption (regardless of whether we would in fact do so instead of paying cash) because of the ownership limitations contained in our charter, or if the redemption would cause us to violate the REIT requirements. The relevant sections of our charter generally prohibit direct or indirect ownership of more than 9.6% (by value or by number of shares, whichever is more restrictive) of the outstanding shares of our common stock or 9.6% by value of our outstanding capital stock. Our charter provisions further prohibit any person from beneficially or constructively owning shares of our stock that would result in us being “closely held” under Section 856(h) of the Internal Revenue Code or otherwise cause us to fail to qualify as a REIT. In addition, no limited partner may exercise the redemption right:

	•	for fewer than 500 operating partnership units or, if a limited partner holds fewer than 500 operating partnership units, all of the operating partnership units held by such limited partner,
	•	unless permitted by us, more than once each fiscal quarter, or
	•	if the issuance of our common stock to satisfy the redemption would be likely to cause the acquisition of common stock by such redeeming limited partner to be “integrated” with any other distribution of common stock or limited partnership interests for purposes of complying with the Securities Act.

      Arbor Commercial Mortgage’s right to cause a redemption of operating partnership units that it holds will not be exercisable until after the earlier of (1) two years following the closing of the original offering, and (2) six months (180 days) following the effectiveness the registration statement of which this prospectus is a part.

      The aggregate number of shares of common stock issuable upon exercise of the redemption rights, including redemption rights with respect to operating partnership units that may be issued upon exercise of warrants granted to Arbor Commercial Mortgage, is approximately 3.7 million. The number of shares of common stock issuable and the cash amount payable upon exercise of the redemption rights will be adjusted to account for share splits, mergers, consolidations or similar pro rata share transactions.

Operations

      The agreement allows us to operate the operating partnership in a manner that permits us to qualify as a REIT at all times and to cause the partnership not to take any action that would cause us to incur additional federal income or excise tax liability under the Internal Revenue Code. The partnership agreement also provides that we may not conduct any business other than in connection with the management of the operating partnership’s business, our operations as a REIT and related activities and generally obligates us to own our assets through the operating partnership.

      The operating partnership must reimburse us for all amounts we spend in connection with the partnership’s business, including:

	•	expenses relating to our ownership and management of the partnership;

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	•	the management fees owing to Arbor Commercial Mortgage, and the fees or compensation owing to directors, officers and employees; and
	•	if we become a public company, the expense of our being a public company.

Allocations

      Profits and losses of our operating partnership (including depreciation and amortization deductions) for each fiscal year generally are allocated to us and the other limited partners in accordance with the respective percentage interests of the partners in the partnership. In the event, however, that the registration statement of which this prospectus forms a part is not declared effective by June 30, 2004, then the operating partnership will allocate to us, for each quarter that the condition continues, income in the amount of $0.0625 per operating partnership unit that we hold, prior to any other allocations by the partnership. Our operating partnership would have also been obligated to make such an allocation to us had we not filed the registration statement of which this prospectus forms a part by December 31, 2003. The number of operating partnership units that we hold generally corresponds to the number of shares of our common stock outstanding. All of the foregoing allocations are subject to compliance with the provisions of Internal Revenue Code sections 704(b) and 704(c) and Treasury regulations promulgated thereunder.

Distributions

      The partnership agreement provides that our operating partnership makes quarterly cash distributions in amounts determined by us in our sole discretion, to us and other limited partners, generally in accordance with the respective percentage interests of the partners in the partnership. To the extent, however, that the registration statement of which this prospectus forms a part is not declared effective by June 30, 2004, and, as a result, income is specially allocated to us by the operating partnership in the manner and amounts referenced above, then an amount equal to such special allocations will be distributed to us, and available for distribution by us to our stockholders, prior to other distributions by the operating partnership.

      Upon liquidation of the partnership, after payment of, or adequate provisions for, debts and obligations of the partnership, including any partner loans, any remaining assets of the partnership will be distributed to us and the other limited partners with positive capital accounts in accordance with the respective positive capital account balances of the partners.

Amendments

      Generally, we, as the general partner of our operating partnership, may not amend the partnership agreement without the consent of the holders of the majority of the limited partnership interest, except that without the consent of any limited partner we may amend the agreement to:

	•	add to our obligations or surrender our rights, as general partner, under the agreement for the benefit of the limited partners,
	•	reflect the issuance of additional partnership units or the admission, substitution, termination or withdrawal of partners in accordance with the partnership agreement,
	•	reflect inconsequential changes, cure any ambiguity, correct or supplement any provision not inconsistent with law or another provision of the partnership agreement, or make other changes concerning matters under the agreement not otherwise inconsistent with the law or the agreement,
	•	satisfy requirements or guidelines under federal or state law,
	•	reflect changes that are reasonably necessary for us, as general partner, to satisfy the REIT requirements or reflect the transfer of partnership interests from us, as general partner, to a subsidiary of ours,

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	•	modify the manner in which capital accounts are computed but only to the extent set forth in the operating partnership agreement in order to comply with the requirements of the Internal Revenue Code and the Treasury Regulations promulgated thereunder, or
	•	issue additional partnership interests in the operating partnership.

      We may not, without the consent of each limited partner adversely affected, make any amendment to the operating partnership agreement that would (1) convert a limited partnership interest into a general partner interest or modify the limited liability of a limited partner, (2) alter the distribution rights or the allocations described in the agreement, or (3) modify the redemption rights.

Exculpation and Indemnification of the General Partner

      The partnership agreement of our operating partnership provides that neither we, as general partner, nor any of our directors and officers are liable to the partnership or to any of its partners as a result of errors in judgment or mistakes of fact or law or of any act or omission, if we, our director or our officer acted in good faith.

      In addition, the partnership agreement requires our operating partnership to indemnify and hold us, as general partner, and our directors, officers and any other person we designate, from and against any and all claims arising from operations of the operating partnership in which any such indemnitee may be involved, or is threatened to be involved, as a party or otherwise, unless it is established that:

	•	the act or omission of the indemnitee was material to the matter giving rise to the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty,
	•	the indemnitee actually received an improper personal benefit in money, property or services, or
	•	in the case of any criminal proceeding, the indemnitee has reasonable cause to believe that the act or omission was unlawful.

      No indemnitee may subject any partner of our operating partnership to personal liability with respect to this indemnification obligation.

Term

      The partnership will continue until dissolved upon:

	•	the general partner’s bankruptcy or dissolution or withdrawal (unless the limited partners elect to continue the) or a decree of judicial dissolution under Delaware law;
	•	the sale or other disposition of all or substantially all the assets of the partnership;
	•	the redemption of all partnership units (other than those held by us or our subsidiaries); or
	•	an election by us, in our sole discretion, in our capacity as the general partner.

Tax Matters

      We are the tax matters partner of our operating partnership, and we have the authority to make tax elections under the Internal Revenue Code on behalf of the partnership.

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FEDERAL INCOME TAX CONSIDERATIONS

      The following is a summary of the material federal income tax consequences relating to the acquisition, holding and disposition of common stock of Arbor Realty. For purposes of this section under the heading “Federal Income Tax Considerations,” references to “Arbor Realty,” “we,” “our” and “us” mean only Arbor Realty Trust, Inc. and not its subsidiaries or other lower-tier entities, except as otherwise indicated. This summary is based upon the Internal Revenue Code, the regulations promulgated by the U.S. Treasury Department, rulings and other administrative pronouncements issued by the IRS and judicial decisions, all as currently in effect, and all of which are subject to differing interpretations or to change, possibly with retroactive effect. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described below. No advance ruling has been or will be sought from the IRS regarding any matter discussed in this prospectus. The summary is also based upon the assumption that the operation of Arbor Realty, and of its subsidiaries and other lower-tier and affiliated entities, will in each case be in accordance with its applicable organizational documents or partnership agreement. This summary of the material federal income tax consequences of an investment in our common stock does not purport to discuss all aspects of federal income taxation that may be relevant to a particular investor in light of its investment or tax circumstances, or to investors subject to special tax rules, such as:

	•	financial institutions;
	•	insurance companies;
	•	broker-dealers;
	•	regulated investment companies;
	•	holders who receive Arbor Realty common stock through the exercise of employee stock options or otherwise as compensation;
	•	persons holding Arbor Realty common stock as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or other integrated investment;

and, except to the extent discussed below:

	•	tax-exempt organizations; and
	•	foreign investors.

      This summary assumes that investors will hold our common stock as capital assets, which generally means as property held for investment.

      THE FEDERAL INCOME TAX TREATMENT OF HOLDERS OF ARBOR REALTY COMMON STOCK DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. IN ADDITION, THE TAX CONSEQUENCES OF HOLDING ARBOR REALTY COMMON STOCK TO ANY PARTICULAR INVESTOR WILL DEPEND ON THE INVESTOR’S PARTICULAR TAX CIRCUMSTANCES. YOU ARE URGED TO CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES TO YOU, IN LIGHT OF YOUR PARTICULAR INVESTMENT OR TAX CIRCUMSTANCES, OF ACQUIRING, HOLDING, EXCHANGING OR OTHERWISE DISPOSING OF ARBOR REALTY COMMON STOCK.

Taxation of Arbor Realty

      Arbor Realty intends to elect to be taxed as a REIT, commencing with its initial taxable year ending December 31, 2003, upon the filing of its federal income tax return for that year. We believe that we were

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      The law firm of Skadden, Arps, Slate, Meagher & Flom LLP has acted as our tax counsel in connection with our formation. We expect to receive the opinion of Skadden, Arps, Slate, Meagher & Flom LLP to the effect that commencing with Arbor Realty’s initial taxable year ended December 31, 2003, Arbor Realty was organized in conformity with the requirements for qualification as a REIT under the Internal Revenue Code, and its actual method of operation through the date hereof has enabled, and its proposed method of operation will enable, it to meet the requirements for qualification and taxation as a REIT. It must be emphasized that an opinion of counsel is expressed as of the date given, is based on various assumptions relating to the organization and operation of Arbor Realty, and is conditioned upon representations and covenants made by the management of Arbor Realty and affiliated entities regarding its organization, assets and the past, present and future conduct of its business operations. While Arbor Realty intends to operate so that it will qualify as a REIT, given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations and the possibility of future changes in the circumstances of Arbor Realty, no assurance can be given by Skadden, Arps, Slate, Meagher & Flom LLP or Arbor Realty that Arbor Realty will so qualify for any particular year. Counsel will have no obligation to advise Arbor Realty or the holders of Arbor Realty common stock of any subsequent change in the matters stated, represented or assumed, or of any subsequent change in the applicable law. You should be aware that opinions of counsel are not binding on the IRS, and no assurance can be given that the IRS will not challenge the conclusions set forth in such opinions.

      Qualification and taxation as a REIT depends on the ability of Arbor Realty to meet, on a continuing basis, through actual operating results, distribution levels, and diversity of stock ownership, various qualification requirements imposed upon REITs by the Internal Revenue Code. Compliance with these requirements will not be reviewed by Skadden, Arps, Slate, Meagher & Flom LLP subsequent to the date of its opinion, although our status as a REIT at that time will depend in part on our continued compliance with these requirements. Arbor Realty’s ability to qualify as a REIT also requires that it satisfies certain asset tests, some of which depend upon the fair market values of assets directly or indirectly owned by Arbor Realty. Such values may not be susceptible to a precise determination. Accordingly, no assurance can be given that the actual results of Arbor Realty’s operations for any taxable year satisfy such requirements for qualification and taxation as a REIT.

	Taxation of REITs in General

      As indicated above, qualification and taxation as a REIT depends upon the ability of Arbor Realty to meet, on a continuing basis, various qualification requirements imposed upon REITs by the Internal Revenue Code. The material qualification requirements are summarized below under “Requirements for Qualification — General.” While Arbor Realty intends to operate so that it qualifies as a REIT, no assurance can be given that the IRS will not challenge its qualification, or that it will be able to operate in accordance with the REIT requirements in the future. See “— Failure to Qualify” below.

      Provided that Arbor Realty qualifies as a REIT, it will generally be entitled to a deduction for dividends that it pays and therefore will not be subject to federal corporate income tax on its net income that is currently distributed to its stockholders. This treatment substantially eliminates the “double taxation” at the corporate and stockholder levels that historically has resulted from investment in a corporation. Rather, income generated by a REIT generally is taxed only at the stockholder level upon a distribution of dividends by the REIT.

      The Jobs and Growth Tax Relief Reconciliation Act of 2003 (the “Jobs and Growth Act”) was enacted in 2003. Among other provisions, the Jobs and Growth Act generally lowers the rate at which stockholders who are individuals are taxed on corporate dividends, from a maximum of 38.6% (as ordinary income) to a maximum of 15% (the same as long-term capital gains), for the 2003 through 2008 tax years, thereby substantially reducing, though not completely eliminating, the double taxation that has historically applied to corporate dividends. With limited exceptions, however, dividends received by stockholders from Arbor Realty or from other entities that are taxed as REITs will continue to be taxed at rates applicable to ordinary income,

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      Net operating losses, foreign tax credits and other tax attributes of a REIT generally do not pass through to the stockholders of the REIT, subject to special rules for certain items such as capital gains recognized by REITs. See “Taxation of Stockholders.”

      If Arbor Realty qualifies as a REIT, it will nonetheless be subject to federal tax in the following circumstances:

	•	Arbor Realty will be taxed at regular corporate rates on any undistributed income, including undistributed net capital gains.
	•	Arbor Realty may be subject to the “alternative minimum tax” on its items of tax preference, including any deductions of net operating losses.
	•	If Arbor Realty has net income from prohibited transactions, which are, in general, sales or other dispositions of property held primarily for sale to customers in the ordinary course of business, other than foreclosure property, such income will be subject to a 100% tax. See “— Prohibited Transactions,” and “— Foreclosure Property,” below.
	•	If Arbor Realty elects to treat property that it acquires in connection with a foreclosure of a mortgage loan or certain leasehold terminations as “foreclosure property,” it may thereby avoid the 100% tax on gain from a resale of that property (if the sale would otherwise constitute a prohibited transaction), but the income from the sale or operation of the property may be subject to corporate income tax at the highest applicable rate (currently 35%).
	•	If Arbor Realty fails to satisfy the 75% gross income test or the 95% gross income test, as discussed below, but nonetheless maintains its qualification as a REIT because other requirements are met, it will be subject to a 100% tax on an amount based upon the magnitude of the failure, adjusted to reflect the profit margin associated with Arbor Realty’s gross income.
	•	If Arbor Realty fails to distribute during each calendar year at least the sum of (a) 85% of its REIT ordinary income for such year, (b) 95% of its REIT capital gain net income for such year and (c) any undistributed taxable income from prior periods, Arbor Realty will be subject to a 4% excise tax on the excess of the required distribution over the sum of (i) the amounts actually distributed, plus (ii) retained amounts on which income tax is paid at the corporate level.
	•	Arbor Realty may be required to pay monetary penalties to the IRS in certain circumstances, including if it fails to meet record-keeping requirements intended to monitor its compliance with rules relating to the composition of a REIT’s stockholders, as described below in “Requirements for Qualification — General.”
	•	A 100% tax may be imposed on some items of income and expense that are directly or constructively paid between a REIT and a taxable REIT subsidiary (as described below) if and to the extent that the IRS successfully adjusts the reported amounts of these items.
	•	If Arbor Realty acquires appreciated assets from a corporation that is not a REIT (i.e., a corporation taxable under subchapter C of the Internal Revenue Code) in a transaction in which the adjusted tax basis of the assets in the hands of Arbor Realty is determined by reference to the adjusted tax basis of the assets in the hands of the subchapter C corporation, Arbor Realty may be subject to tax on such appreciation at the highest corporate income tax rate then applicable if it subsequently recognizes gain on a disposition of any such assets during the ten-year period following their acquisition from the subchapter C corporation.
	•	The earnings of Arbor Realty’s subsidiaries could be subject to federal corporate income tax to the extent that such subsidiaries are subchapter C corporations.

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      In addition, Arbor Realty and its subsidiaries may be subject to a variety of taxes, including payroll taxes and state, local and foreign income, property and other taxes on their assets and operations. Arbor Realty could also be subject to tax in situations and on transactions not presently contemplated.

	Requirements for Qualification-General

      The Internal Revenue Code defines a REIT as a corporation, trust or association:

	(1)	that is managed by one or more trustees or directors;
	(2)	the beneficial ownership of which is evidenced by transferable shares, or by transferable certificates of beneficial interest;
	(3)	that would be taxable as a domestic corporation but for the special Internal Revenue Code provisions applicable to REITs;
	(4)	that is neither a financial institution nor an insurance company subject to specific provisions of the Internal Revenue Code;
	(5)	the beneficial ownership of which is held by 100 or more persons;
	(6)	in which, during the last half of each taxable year, not more than 50% in value of the outstanding stock is owned, directly or indirectly, by five or fewer “individuals” (as defined in the Internal Revenue Code to include specified tax-exempt entities); and
	(7)	which meets other tests described below, including with respect to the nature of its income and assets.

      The Internal Revenue Code provides that conditions (1) through (4) must be met during the entire taxable year, and that condition (5) must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a shorter taxable year. Arbor Realty’s charter provides restrictions regarding the ownership and transfer of its shares, which are intended to assist in satisfying the share ownership requirements described in conditions (5) and (6) above. For purposes of condition (6), an “individual” generally includes a supplemental unemployment compensation benefit plan, a private foundation, or a portion of a trust permanently set aside or used exclusively for charitable purposes, but does not include a qualified pension plan or profit sharing trust. Arbor Realty is not required to satisfy conditions (5) and (6) for its initial taxable year ending December 31, 2003.

      To monitor compliance with the share ownership requirements, Arbor Realty is generally required to maintain records regarding the actual ownership of its shares. To do so, Arbor Realty must demand written statements each year from the record holders of specified percentages of its stock in which the record holders are to disclose the actual owners of the shares, i.e., the persons required to include in gross income the dividends paid by Arbor Realty. A list of those persons failing or refusing to comply with this demand must be maintained as part of the records of Arbor Realty. Failure by Arbor Realty to comply with these record-keeping requirements could subject it to monetary penalties. If Arbor Realty satisfies these requirements and has no reason to know that condition (6) is not satisfied, it will be deemed to have satisfied such condition. A stockholder that fails or refuses to comply with the demand is required by Treasury regulations to submit a statement with its tax return disclosing the actual ownership of the shares and other information.

      Arbor Realty’s ability to satisfy the share ownership requirements depends in part on the relative values of our common stock, special voting preferred stock, and any other classes of stock that might be issued in the future. Although Arbor Realty believes that the stockholder ownership limitations contained in its charter will enable it to meet such requirements, the relative values of its classes of stock have not been determined by independent appraisal, and no assurance can be given that despite compliance with the charter limitations, the relative values of the classes of stock would not be successfully challenged by the IRS so as to cause Arbor Realty to fail such REIT ownership requirements.

      In addition, a corporation generally may not elect to become a REIT unless its taxable year is the calendar year. Arbor Realty satisfies this requirement.

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	Effect of Subsidiary Entities

      Ownership of Partnership Interests. In the case of a REIT that is a partner in a partnership, Treasury regulations provide that the REIT is deemed to own its proportionate share of the partnership’s assets, and to earn its proportionate share of the partnership’s income, for purposes of the asset and gross income tests applicable to REITs as described below. In addition, the assets and gross income of the partnership are deemed to retain the same character in the hands of the REIT. Thus, Arbor Realty’s proportionate share, based upon its percentage capital interest, of the assets and items of income of partnerships in which it owns an equity interest (including its interest in the operating partnership and its preferred equity interests in lower-tier partnerships), are treated as assets and items of income of Arbor Realty for purposes of applying the REIT requirements described below. Consequently, to the extent that Arbor Realty directly or indirectly holds a preferred or other equity interest in a partnership, the partnership’s assets and operations may affect Arbor Realty’s ability to qualify as a REIT, even though Arbor Realty may have no control, or only limited influence, over the partnership. A summary of certain rules governing the federal income taxation of partnerships and their partners is provided below in “Tax Aspects of Investments in Partnerships.”

      Disregarded Subsidiaries. If a REIT owns a corporate subsidiary that is a “qualified REIT subsidiary,” that subsidiary is disregarded for federal income tax purposes, and all assets, liabilities and items of income, deduction and credit of the subsidiary are treated as assets, liabilities and items of income, deduction and credit of the REIT itself, including for purposes of the gross income and asset tests applicable to REITs as summarized below. A qualified REIT subsidiary is any corporation, other than a “taxable REIT subsidiary” as described below, that is wholly owned by a REIT, or by other disregarded subsidiaries, or by a combination of the two. Other entities that are wholly owned by a REIT, including single member limited liability companies, are also generally disregarded as a separate entities for federal income tax purposes, including for purposes of the REIT income and asset tests. Disregarded subsidiaries, along with partnerships in which Arbor Realty holds an equity interest, are sometimes referred to herein as “pass-through subsidiaries.”

      In the event that a disregarded subsidiary of Arbor Realty ceases to be wholly owned-for example, if any equity interest in the subsidiary is acquired by a person other than Arbor Realty or another disregarded subsidiary of Arbor Realty — the subsidiary’s separate existence would no longer be disregarded for federal income tax purposes. Instead, it would have multiple owners and would be treated as either a partnership or a taxable corporation. Such an event could, depending on the circumstances, adversely affect Arbor Realty’s ability to satisfy the various asset and gross income requirements applicable to REITs, including the requirement that REITs generally may not own, directly or indirectly, more than 10% of the securities of another corporation. See “— Asset Tests” and “— Income Tests.”

      Taxable Subsidiaries. A REIT, in general, may jointly elect with subsidiary corporations, whether or not wholly owned, to treat the subsidiary corporation as a taxable REIT subsidiary (“TRS”). The separate existence of a TRS or other taxable corporation, unlike a disregarded subsidiary as discussed above, is not ignored for federal income tax purposes. Accordingly, such an entity would generally be subject to corporate income tax on its earnings, which may reduce the cash flow generated by Arbor Realty and its subsidiaries in the aggregate, and Arbor Realty’s ability to make distributions to its stockholders.

      A REIT is not treated as holding the assets of a taxable subsidiary corporation or as receiving any income that the subsidiary earns. Rather, the stock issued by the subsidiary is an asset in the hands of the REIT, and the REIT recognizes as income, the dividends, if any, that it receives from the subsidiary. This treatment can affect the income and asset test calculations that apply to the REIT, as described below. Because a parent REIT does not include the assets and income of such subsidiary corporations in determining the parent’s compliance with the REIT requirements, such entities may be used by the parent REIT to undertake indirectly activities that the REIT rules might otherwise preclude it from doing directly or through pass-through subsidiaries (for example, activities that give rise to certain categories of income such as management fees or foreign currency gains).

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	Income Tests

      In order to maintain qualification as a REIT, Arbor Realty annually must satisfy two gross income requirements. First, at least 75% of Arbor Realty’s gross income for each taxable year, excluding gross income from sales of inventory or dealer property in “prohibited transactions,” must be derived from investments relating to real property or mortgages on real property, including “rents from real property,” dividends received from other REITs, interest income derived from mortgage loans secured by real property (including certain types of mortgage backed securities), and gains from the sale of real estate assets, as well as income from some kinds of temporary investments. Second, at least 95% of Arbor Realty’s gross income in each taxable year, excluding gross income from prohibited transactions, must be derived from some combination of income that qualifies under the 75% income test described above, as well as other dividends, interest, and gain from the sale or disposition of stock or securities, which need not have any relation to real property.

      Interest income constitutes qualifying mortgage interest for purposes of the 75% income test (as described above) to the extent that the obligation is secured by a mortgage on real property. If Arbor Realty receives interest income with respect to a mortgage loan that is secured by both real property and other property, and the highest principal amount of the loan outstanding during a taxable year exceeds the fair market value of the real property on the date that Arbor Realty acquired or originated the mortgage loan, the interest income will be apportioned between the real property and the other collateral, and Arbor Realty’s income from the arrangement will qualify for purposes of the 75% income test only to the extent that the interest is allocable to the real property. Even if a loan is not secured by real property, or is undersecured, the income that it generates may nonetheless qualify for purposes of the 95% income test.

      To the extent that the terms of a loan provide for contingent interest that is based on the cash proceeds realized upon the sale of the property securing the loan (a “shared appreciation provision”), income attributable to the participation feature will be treated as gain from sale of the underlying property, which generally will be qualifying income for purposes of both the 75% and 95% gross income tests, provided that the property is not inventory or dealer property in the hands of the borrower or the REIT.

      To the extent that a REIT derives interest income from a mortgage loan or income from the rental of real property where all or a portion of the amount of interest or rental income payable is contingent, such income generally will qualify for purposes of the gross income tests only if it is based upon the gross receipts or sales, and not the net income or profits, of the borrower or lessee. This limitation does not apply, however, where the borrower or lessee leases substantially all of its interest in the property to tenants or subtenants, to the extent that the rental income derived by the borrower or lessee, as the case may be, would qualify as rents from real property had it been earned directly by a REIT, as described below.

      Among the assets held by Arbor Realty and its subsidiaries are mezzanine loans, which are loans secured by equity interests in an entity that directly or indirectly owns real property, rather than by a direct mortgage of the real property. The IRS recently issued Revenue Procedure 2003-65, which provides a safe harbor pursuant to which a mezzanine loan, if it meets each of the requirements contained in the Revenue Procedure, will be treated by the IRS as a real estate asset for purposes of the REIT asset tests described below, and interest derived from it will be treated as qualifying mortgage interest for purposes of the REIT 75% income test. Although the Revenue Procedure provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law. While Arbor Realty and its advisors believe, on the basis of relevant regulations and IRS rulings, that its mezzanine loans qualify as real estate assets and give rise to qualifying mortgage interest for purposes of the REIT asset and income requirements, or otherwise do not adversely affect its status as a REIT, the loans do not meet all of the requirements for reliance on the safe harbor, and there can be no assurance that the IRS will not challenge the tax treatment of these loans.

      Rents received by Arbor Realty will qualify as “rents from real property” in satisfying the gross income requirements described above, only if several conditions are met, including the following. If rent is partly attributable to personal property leased in connection with a lease of real property, the portion of the total rent that is attributable to the personal property will not qualify as “rents from real property” unless it constitutes 15% or less of the total rent received under the lease. Moreover, for rents received to qualify as “rents from real property,” the REIT generally must not operate or manage the property or furnish or render services to

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      Arbor Realty may indirectly receive distributions from TRSs or other corporations that are not REITs or qualified REIT subsidiaries. These distributions will be classified as dividend income to the extent of the earnings and profits of the distributing corporation. Such distributions will generally constitute qualifying income for purposes of the 95% gross income test, but not under the 75% gross income test. Any dividends received by Arbor Realty from a REIT will be qualifying income in Arbor Realty’s hands for purposes of both the 95% and 75% income tests.

      If Arbor Realty fails to satisfy one or both of the 75% or 95% gross income tests for any taxable year, it may still qualify as a REIT for the year if it is entitled to relief under applicable provisions of the Internal Revenue Code. These relief provisions will generally be available if the failure of Arbor Realty to meet these tests was due to reasonable cause and not due to willful neglect, Arbor Realty attaches to its tax return a schedule of the sources of its income, and any incorrect information on the schedule was not due to fraud with intent to evade tax. It is not possible to state whether Arbor Realty would be entitled to the benefit of these relief provisions in all circumstances. If these relief provisions are inapplicable to a particular set of circumstances involving Arbor Realty, Arbor Realty will not qualify as a REIT. As discussed above under “Taxation of REITs in General,” even where these relief provisions apply, a tax would be imposed that is based upon the amount by which Arbor Realty fails to satisfy the particular gross income test.

	Asset Tests

      Arbor Realty, at the close of each calendar quarter, must also satisfy four tests relating to the nature of its assets. First, at least 75% of the value of the total assets of Arbor Realty must be represented by some combination of “real estate assets,” cash, cash items, U.S. government securities, and, under some circumstances, stock or debt instruments purchased with new capital. For this purpose, real estate assets include interests in real property, such as land, buildings, leasehold interests in real property, stock of other corporations that qualify as REITs, and certain kinds of mortgage backed securities and mortgage loans. Assets that do not qualify for purposes of the 75% test are subject to the additional asset tests described below.

      The second asset test is that the value of any one issuer’s securities owned by Arbor Realty may not exceed 5% of the value of Arbor Realty’s total assets. Third, Arbor Realty may not own more than 10% of any one issuer’s outstanding securities, as measured by either voting power or value. The 5% and 10% asset tests do not apply to securities of TRSs, and the 10% value test does not apply to “straight debt” having specified characteristics. Fourth, the aggregate value of all securities of TRSs held by a REIT may not exceed 20% of the value of the REIT’s total assets.

      Notwithstanding the general rule, as noted above, that for purposes of the REIT income and asset tests, a REIT is treated as owning its share of the underlying assets of a subsidiary partnership, if a REIT holds indebtedness issued by a partnership, the indebtedness will be subject to, and may cause a violation of the asset tests, unless it is a qualifying mortgage asset, satisfies the rules for “straight debt,” or is sufficiently small so as not to otherwise cause an asset test violation.

      Any interests held by a REIT in a real estate mortgage investment conduit, or “REMIC,” are generally treated as qualifying real estate assets, and income derived by a REIT from interests in REMICs is generally

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      Arbor Realty believes that its holdings of securities and other assets will comply with the foregoing REIT asset requirements, and it intends to monitor compliance on an ongoing basis. Independent appraisals have not been obtained, however, to support Arbor Realty’s conclusions as to the value of all of its assets. Moreover, values of some assets may not be susceptible to a precise determination, and values are subject to change in the future. Furthermore, the proper classification of an instrument as debt or equity for federal income tax purposes may be uncertain in some circumstances, which could affect the application of the REIT asset requirements. Accordingly, there can be no assurance that the IRS will not contend that Arbor Realty’s interests in subsidiaries or in the securities of other issuers will not cause a violation of the REIT asset requirements.

	Annual Distribution Requirements

      In order to qualify as a REIT, Arbor Realty is required to distribute dividends, other than capital gain dividends, to its stockholders in an amount at least equal to:

	(a)	the sum of

	(1)	90% of the “REIT taxable income” of Arbor Realty (computed without regard to the deduction for dividends paid and net capital gains of Arbor Realty), and
	(2)	90% of the net income, if any, (after tax) from foreclosure property (as described below), minus

	(b)	the sum of specified items of non-cash income.

      These distributions generally must be paid in the taxable year to which they relate, or in the following taxable year if declared before Arbor Realty timely files its tax return for the year and if paid with or before the first regular dividend payment after such declaration. In order for distributions to be counted for this purpose, and to give rise to a tax deduction by Arbor Realty, they must not be “preferential dividends.” A dividend is not a preferential dividend if it is pro rata among all outstanding shares of stock within a particular class, and is in accordance with the preferences among different classes of stock as set forth in the organizational documents.

      To the extent that Arbor Realty distributes at least 90%, but less than 100%, of its “REIT taxable income,” as adjusted, it will be subject to tax at ordinary corporate tax rates on the retained portion. Arbor Realty may elect to retain, rather than distribute, its net long-term capital gains and pay tax on such gains. In this case, Arbor Realty could elect to have its stockholders include their proportionate share of such undistributed long-term capital gains in income and receive a corresponding credit for their share of the tax paid by Arbor Realty. Stockholders of Arbor Realty would then increase the adjusted basis of their Arbor Realty stock by the difference between the designated amounts included in their long-term capital gains and the tax deemed paid with respect to their shares.

      To the extent that a REIT has any net operating losses carried forward from prior tax years, such losses may reduce the amount of distributions that it must make in order to comply with the REIT distribution requirements. Such losses, however, will generally not affect the character, in the hands of stockholders, of any

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      If Arbor Realty fails to distribute during each calendar year at least the sum of (a) 85% of its REIT ordinary income for such year, (b) 95% of its REIT capital gain net income for such year and (c) any undistributed taxable income from prior periods, Arbor Realty will be subject to a 4% excise tax on the excess of such required distribution over the sum of (x) the amounts actually distributed and (y) the amounts of income retained on which it has paid corporate income tax. Arbor Realty intends to make timely distributions so that it is not subject to the 4% excise tax.

      It is possible that Arbor Realty, from time to time, may not have sufficient cash to meet the distribution requirements due to timing differences between (a) the actual receipt of cash, including receipt of distributions from its subsidiaries, and (b) the inclusion of items in income by Arbor Realty for federal income tax purposes. Potential sources of non-cash taxable income include loans or mortgage-backed securities held by Arbor Realty as assets that are issued at a discount and require the accrual of taxable economic interest in advance of its receipt in cash, loans on which the borrower is permitted to defer cash payments of interest and distressed loans on which Arbor Realty may be required to accrue taxable interest income even though the borrower is unable to make current servicing payments in cash. In the event that such timing differences occur, in order to meet the distribution requirements, it might be necessary to arrange for short-term, or possibly long-term, borrowings, or to pay dividends in the form of taxable in kind distributions of property.

      Arbor Realty may be able to rectify a failure to meet the distribution requirements for a year by paying “deficiency dividends” to stockholders in a later year, which may be included in Arbor Realty’s deduction for dividends paid for the earlier year. In this case, Arbor Realty may be able to avoid losing its REIT status or being taxed on amounts distributed as deficiency dividends. However, Arbor Realty will be required to pay interest and a penalty based on the amount of any deduction taken for deficiency dividends.

	Failure to Qualify

      If Arbor Realty fails to qualify for taxation as a REIT in any taxable year, and the relief provisions do not apply, Arbor Realty will be subject to tax, including any applicable alternative minimum tax, on its taxable income at regular corporate rates. Distributions to stockholders in any year in which Arbor Realty is not a REIT will not be deductible by Arbor Realty, nor will they be required to be made. In this situation, to the extent of current and accumulated earnings and profits, distributions to stockholders will generally be taxable in the case of stockholders who are individuals, at preferential rates, pursuant to the Jobs and Growth Act and, subject to limitations of the Internal Revenue Code, corporate distributees may be eligible for the dividends received deduction. Unless Arbor Realty is entitled to relief under specific statutory provisions, Arbor Realty will also be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year during which qualification was lost. It is not possible to state whether, in all circumstances, Arbor Realty will be entitled to this statutory relief.

	Prohibited Transactions

      Net income derived from a prohibited transaction is subject to a 100% tax. The term “prohibited transaction” generally includes a sale or other disposition of property (other than foreclosure property) that is held primarily for sale to customers in the ordinary course of a trade or business by a REIT, by a lower-tier partnership in which the REIT holds an equity interest or by a borrower that has issued a shared appreciation mortgage or similar debt instrument to the REIT. Whether property is held “primarily for sale to customers in the ordinary course of a trade or business” depends on the particular facts and circumstances. No assurance can be given that any particular property in which Arbor Realty holds a direct or indirect interest will not be treated as property held for sale to customers, or that certain safe-harbor provisions of the Internal Revenue Code that prevent such treatment will apply. The 100% tax will not apply to gains from the sale of property that is held through a TRS or other taxable corporation, although such income will be subject to tax in the hands of the corporation at regular corporate income tax rates.

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	Foreclosure Property

      Foreclosure property is real property and any personal property incident to such real property (i) that is acquired by a REIT as the result of the REIT having bid in the property at foreclosure, or having otherwise reduced the property to ownership or possession by agreement or process of law, after there was a default (or default was imminent) on a lease of the property or a Mortgage loan held by the REIT and secured by the property, (ii) for which the related loan or lease was acquired by the REIT at a time when default was not imminent or anticipated and (iii) for which such REIT makes a proper election to treat the property as foreclosure property. REITs generally are subject to tax at the maximum corporate rate (currently 35%) on any net income from foreclosure property, including any gain from the disposition of the foreclosure property, other than income that would otherwise be qualifying income for purposes of the 75% gross income test. Any gain from the sale of property for which a foreclosure property election has been made will not be subject to the 100% tax on gains from prohibited transactions described above, even if the property would otherwise constitute inventory or dealer property in the hands of the selling REIT. Arbor Realty does not anticipate that it will receive any income from foreclosure property that is not qualifying income for purposes of the 75% gross income test, but, if Arbor Realty does receive any such income, it intends to make an election to treat the related property as foreclosure property.

	Foreign Investments

      To the extent that Arbor Realty and its subsidiaries hold or acquire any investments and, accordingly, pay taxes, in foreign countries, taxes paid by Arbor Realty in foreign jurisdictions may not be passed through to or used by, its stockholders, as a foreign tax credit or otherwise. Any foreign investments may also generate foreign currency gains and losses. Foreign currency gains are treated as income that does not qualify under the 95% or 75% income tests, unless certain technical requirements are met. No assurance can be given that these technical requirements will be met in the case of any foreign currency gains recognized by Arbor Realty directly or through pass-through subsidiaries, or that any such gains will not adversely affect Arbor Realty’s ability to satisfy the REIT qualification requirements.

	Derivatives and Hedging Transactions

      Arbor Realty and its subsidiaries may enter into hedging transactions with respect to interest rate exposure on one or more of their assets or liabilities. Any such hedging transactions could take a variety of forms, including the use of derivative instruments such as interest rate swap contracts, interest rate cap or floor contracts, futures or forward contracts and options. To the extent that Arbor Realty or a pass-through subsidiary enters into such a contract to reduce interest rate risk on indebtedness incurred to acquire or carry real estate assets, any periodic income from the instrument, or gain from the disposition of it, would be qualifying income for purposes of the REIT 95% gross income test, but not for the 75% gross income test. Recently proposed legislation, if enacted, would exclude such income from the REIT 95% gross income test altogether, treating it as neither qualifying nor non-qualifying income for purposes of that test, while not changing the treatment as non-qualifying income for purposes of the 75% income test. To the extent that Arbor Realty hedges with other types of financial instruments or in other situations (for example, hedging interest rate risk on loans held by Arbor Realty or hedges against fluctuations in the value of foreign currencies), the resultant income will be treated as income that does not qualify under the 95% or 75% income tests unless certain technical requirements are met. Proposed legislation, if enacted, would exclude from the REIT 95% income test calculation, but not from the 75% test, foreign currency gains arising from transactions to hedge risks associated with debt incurred to acquire or carry real estate assets. Arbor Realty intends to structure any hedging transactions in a manner that does not jeopardize its status as a REIT. Arbor Realty may conduct some or all of its hedging activities through a TRS or other corporate entity, the income from which may be subject to federal income tax, rather than participating in the arrangements directly or through pass-through subsidiaries. No assurance can be given, however, that Arbor Realty’s hedging activities will not give rise to income that does not qualify for purposes of either or both of the REIT income tests, and will not adversely affect Arbor Realty’s ability to satisfy the REIT qualification requirements.

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	Taxable Mortgage Pools

      An entity, or a portion of an entity, may be classified as a taxable mortgage pool (“TMP”) under the Internal Revenue Code if (1) substantially all of its assets consist of debt obligations or interests in debt obligations, (2) more than 50% of those debt obligations are real estate mortgages or interests in real estate mortgages as of specified testing dates, (3) the entity has issued debt obligations (liabilities) that have two or more maturities, and (4) the payments required to be made by the entity on its debt obligations (liabilities) “bear a relationship” to the payments to be received by the entity on the debt obligations that it holds as assets. Under regulations issued by the U.S. Treasury Department, if less than 80% of the assets of an entity (or a portion of an entity) consist of debt obligations, these debt obligations are considered not to comprise “substantially all” of its assets, and therefore the entity would not be treated as a TMP. Financing arrangements entered into, directly or indirectly, by Arbor Realty could give rise to TMPs, with the consequences as described below.

      Where an entity, or a portion of an entity, is classified as a TMP, it is generally treated as a taxable corporation for federal income tax purposes. In the case of a REIT, or a portion of a REIT, or a disregarded subsidiary of a REIT, that is a TMP, however, special rules apply. The TMP is not treated as a corporation that is subject to corporate income tax, and the TMP classification does not directly affect the tax status of the REIT. Rather, the consequences of the TMP classification would, in general, except as described below, be limited to the stockholders of the REIT. The Treasury Department has not yet issued regulations to govern the treatment of stockholders as described below. A portion of the REIT’s income from the TMP arrangement, which might be non-cash accrued income, could be treated as “excess inclusion income.” The REIT’s excess inclusion income would be allocated among its stockholders. A stockholder’s share of excess inclusion income (i) would not be allowed to be offset by any net operating losses otherwise available to the stockholder, (ii) would be subject to tax as unrelated business taxable income in the hands of most types of stockholders that are otherwise generally exempt from federal income tax, and (iii) would result in the application of U.S. federal income tax withholding at the maximum rate (30%), without reduction for any otherwise applicable income tax treaty, to the extent allocable to most types of foreign stockholders. See “Taxation of Stockholders.” To the extent that excess inclusion income were allocated to a tax-exempt stockholder of a REIT that is not subject to unrelated business income tax (such as government entities), the REIT would be taxable on this income at the highest applicable corporate tax rate (currently 35%). The manner in which excess inclusion income would be allocated among shares of different classes of stock is not clear under current law. Tax-exempt investors, foreign investors and taxpayers with net operating losses should carefully consider the tax consequences described above and are urged to consult their tax advisors.

      If a subsidiary partnership, not wholly owned by Arbor Realty directly or through one or more disregarded entities (such as the operating partnership), were a TMP, the foregoing rules would not apply. Rather, the partnership that is a TMP would be treated as a corporation for federal income tax purposes, and would potentially be subject to corporate income tax. In addition, this characterization would alter Arbor Realty’s REIT income and asset test calculations, and could adversely affect its compliance with those requirements. Arbor Realty intends to monitor the structure of any TMPs in which it has an interest to ensure that they will not adversely affect its status as a REIT.

Tax Aspects of Investments in Partnerships

	General

      Arbor Realty may hold investments through entities that are classified as partnerships for federal income tax purposes, including its interest in the operating partnership and the preferred equity interests in lower-tier partnerships. In general, partnerships are “pass-through” entities that are not subject to federal income tax. Rather, partners are allocated their proportionate shares of the items of income, gain, loss, deduction and credit of a partnership, and are potentially subject to tax on these items, without regard to whether the partners receive a distribution from the partnership. Arbor Realty will include in its income its proportionate share of these partnership items for purposes of the various REIT income tests and in the computation of its REIT taxable income. Moreover, for purposes of the REIT asset tests, Arbor Realty will include its proportionate

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      Consequently, to the extent that Arbor Realty holds a preferred or other equity interest in a partnership, the partnership’s assets and operations may affect Arbor Realty’s ability to qualify as a REIT, even though Arbor Realty may have no control, or only limited influence, over the partnership.

	Entity Classification

      The investment by Arbor Realty in partnerships involves special tax considerations, including the possibility of a challenge by the IRS of the status of any of Arbor Realty’s subsidiary partnerships as a partnership, as opposed to an association taxable as a corporation, for federal income tax purposes (for example, if the IRS were to assert that a subsidiary partnership is a TMP). See “Taxation of Arbor Realty — Taxable Mortgage Pools.” If any of these entities were treated as an association for federal income tax purposes, it would be taxable as a corporation and therefore could be subject to an entity-level tax on its income. In such a situation, the character of the assets of Arbor Realty and items of gross income of Arbor Realty would change and could preclude Arbor Realty from satisfying the REIT asset tests (particularly the tests generally preventing a REIT from owning more than 10% of the voting securities, or more than 10% of the securities by value, of a corporation) or the gross income tests as discussed in “Taxation of Arbor Realty — Asset Tests” and “— Income Tests,” and in turn could prevent Arbor Realty from qualifying as a REIT. See “Taxation of Arbor Realty — Failure to Qualify,” above, for a discussion of the effect of the failure of Arbor Realty to meet these tests for a taxable year. In addition, any change in the status of any of Arbor Realty’s subsidiary partnerships for tax purposes might be treated as a taxable event, in which case Arbor Realty could have taxable income that is subject to the REIT distribution requirements without receiving any cash.

	Tax Allocations with Respect to Partnership Properties

      Under the Internal Revenue Code and the Treasury regulations, income, gain, loss and deduction attributable to appreciated or depreciated property that is contributed to a partnership in exchange for an interest in the partnership must be allocated for tax purposes in a manner such that the contributing partner is charged with, or benefits from, the unrealized gain or unrealized loss associated with the property at the time of the contribution. The amount of the unrealized gain or unrealized loss is generally equal to the difference between the fair market value of the contributed property at the time of contribution, and the adjusted tax basis of such property at the time of contribution (a “book-tax difference”). Such allocations are solely for federal income tax purposes and do not affect the book capital accounts or other economic or legal arrangements among the partners.

      To the extent that any subsidiary partnership of Arbor Realty acquires appreciated (or depreciated) properties by way of capital contributions from its partners, allocations would need to be made in a manner consistent with these requirements. Where a partner contributes cash to a partnership at a time that the partnership holds appreciated (or depreciated) property, the Treasury regulations provide for a similar allocation of these items to the other (i.e. non-contributing) partners. These rules may apply to the contribution by Arbor Realty to any subsidiary partnerships of the cash proceeds received in offerings of its stock. As a result, partners, including Arbor Realty, in subsidiary partnerships, could be allocated greater or lesser amounts of depreciation and taxable income in respect of a partnership’s properties than would be the case if all of the partnership’s assets (including any contributed assets) had a tax basis equal to their fair market values at the time of any contributions to that partnership. This could cause Arbor Realty to recognize, over a period of time, taxable income in excess of cash flow from the partnership, which might adversely affect Arbor Realty’s ability to comply with the REIT distribution requirements discussed above.

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Taxation of Stockholders

	Taxation of Taxable U.S. Stockholders

      This section summarizes the taxation of U.S. stockholders that are not tax-exempt organizations. For these purposes, a U.S. stockholder is a holder of common stock that for U.S. federal income tax purposes is:

	•	a citizen or resident of the United States;
	•	a corporation (including an entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or of a political subdivision thereof;
	•	an estate whose income is subject to U.S. federal income taxation regardless of its source; or
	•	any trust if (1) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) it has a valid election in place to be treated as a U.S. person.

      If a partnership, including for this purpose any entity treated as a partnership for U.S. federal income tax purposes, holds common stock issued by Arbor Realty, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. An investor that is a partnership and the partners in such partnership should consult their tax advisors about the U.S. federal income tax consequences of the acquisition, ownership and disposition of common stock.

      Distributions. Provided that Arbor Realty qualifies as a REIT, distributions made to its taxable U.S. stockholders out of current or accumulated earnings and profits, and not designated as capital gain dividends, will generally be taken into account by them as ordinary income but will not be eligible for the dividends received deduction for corporations. Dividends received from REITs are generally not eligible to be taxed at the preferential qualified dividend income rates (15% maximum federal rate through 2008) applicable to individuals who receive dividends from taxable C corporations pursuant to the Jobs and Growth Act. An exception applies, however, and individual stockholders are taxed at such rates on dividends designated by and received from REITs, to the extent that the dividends are attributable to (i) income that the REIT previously retained in the prior year, and on which it was subject to corporate level tax, (ii) dividends received by the REIT from TRSs or other taxable C corporations, or (iii) income from sales of appreciated property acquired from C corporations in carryover basis transactions.

      In addition, distributions from Arbor Realty that are designated as capital gain dividends will be taxed to stockholders as long-term capital gains, to the extent that they do not exceed the actual net capital gain of Arbor Realty for the taxable year, without regard to the period for which the stockholder has held its stock. A similar treatment will apply to long-term capital gains retained by Arbor Realty, to the extent that Arbor Realty elects the application of provisions of the Internal Revenue Code that treat stockholders of a REIT as having received, for federal income tax purposes, undistributed capital gains of the REIT, while passing through to stockholders a corresponding credit for taxes paid by the REIT on such retained capital gains. Corporate stockholders may be required to treat up to 20% of some capital gain dividends as ordinary income. Long-term capital gains are generally taxable at maximum federal rates of 15% (through 2008) in the case of stockholders who are individuals, and 35% for corporations. Capital gains attributable to the sale of depreciable real property held for more than one year are subject to a 25% maximum federal income tax rate for taxpayers who are individuals, to the extent of previously claimed depreciation deductions.

      Distributions in excess of current and accumulated earnings and profits will not be taxable to a stockholder to the extent that they do not exceed the adjusted basis of the stockholder’s shares in respect of which the distributions were made, but rather, will reduce the adjusted basis of these shares. To the extent that such distributions exceed the adjusted basis of a stockholder’s shares, they will be included in income as long-term capital gain, or short-term capital gain if the shares have been held for one year or less. In addition, any dividend declared by Arbor Realty in October, November or December of any year and payable to a stockholder of record on a specified date in any such month will be treated as both paid by Arbor Realty and

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      To the extent that a REIT has available net operating losses and capital losses carried forward from prior tax years, such losses may reduce the amount of distributions that must be made in order to comply with the REIT distribution requirements. See “Taxation of Arbor Realty — Annual Distribution Requirements.” Such losses, however, are not passed through to stockholders and do not offset income of stockholders from other sources, nor do they affect the character of any distributions that are actually made by a REIT, which are generally subject to tax in the hands of stockholders to the extent that the REIT has current or accumulated earnings and profits.

      If excess inclusion income from a REMIC residual interest or taxable mortgage pool is allocated to any Arbor Realty stockholder, that income will be taxable in the hands of the stockholder and would not be offset by any net operating losses of the stockholder that would otherwise be available. See “Taxation of Arbor Realty — Taxable Mortgage Pools.”

      Dispositions of Arbor Realty Stock. In general, capital gains recognized by individuals upon the sale or disposition of shares of Arbor Realty stock will, pursuant to the Jobs and Growth Act, be subject to a maximum federal income tax rate of 15% for taxable years through 2008, if the Arbor Realty stock is held for more than one year, and will be taxed at ordinary income rates (of up to 35% through 2010) if the Arbor Realty stock is held for one year or less. Gains recognized by stockholders that are corporations are subject to federal income tax at a maximum rate of 35%, whether or not classified as long-term capital gains. Capital losses recognized by a stockholder upon the disposition of Arbor Realty stock held for more than one year at the time of disposition will be considered long-term capital losses, and are generally available only to offset capital gain income of the stockholder but not ordinary income (except in the case of individuals, who may offset up to $3,000 of ordinary income each year). In addition, any loss upon a sale or exchange of shares of Arbor Realty stock by a stockholder who has held the shares for six months or less, after applying holding period rules, will be treated as a long-term capital loss to the extent of distributions received from Arbor Realty that are required to be treated by the stockholder as long-term capital gain.

      If a stockholder recognizes a loss upon a subsequent disposition of Arbor Realty stock in an amount that exceeds a prescribed threshold, it is possible that the provisions of recently adopted Treasury regulations involving “reportable transactions” could apply, with a resulting requirement to separately disclose the loss generating transaction to the IRS. While these regulations are directed towards “tax shelters,” they are written quite broadly, and apply to transactions that would not typically be considered tax shelters. In addition, legislative proposals have been introduced in Congress, that, if enacted, would impose significant penalties for failure to comply with these requirements. You should consult your tax advisors concerning any possible disclosure obligation with respect to the receipt or disposition of Arbor Realty stock, or transactions that might be undertaken directly or indirectly by Arbor Realty. Moreover, you should be aware that Arbor Realty and other participants in transactions involving Arbor Realty (including their advisors) might be subject to disclosure or other requirements pursuant to these regulations.

     Taxation of Non-U.S. Stockholders

      The following is a summary of certain United States federal income and estate tax consequences of the ownership and disposition of Arbor Realty stock applicable to non-U.S. holders of Arbor Realty stock. The discussion is based on current law and is for general information only. It addresses only selective and not all aspects of United States federal income and estate taxation.

      Ordinary Dividends. The portion of dividends received by non-U.S. holders payable out of the earnings and profits of Arbor Realty which are not attributable to capital gains of Arbor Realty and which are not effectively connected with a U.S. trade or business of the non-U.S. holder will generally be subject to U.S. withholding tax at the rate of 30%, unless reduced by treaty. Reduced treaty rates are not available to the extent that income is excess inclusion income allocated to the foreign stockholder. See “Taxation of Arbor Realty — Taxable Mortgage Pools.”

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      In general, non-U.S. holders will not be considered to be engaged in a U.S. trade or business solely as a result of their ownership of Arbor Realty stock. In cases where the dividend income from a non-U.S. holder’s investment in Arbor Realty stock is, or is treated as, effectively connected with the non-U.S. holder’s conduct of a U.S. trade or business, the non-U.S. holder generally will be subject to U.S. tax at graduated rates, in the same manner as U.S. stockholders are taxed with respect to such dividends, and may also be subject to the 30% branch profits tax in the case of a non-U.S. holder that is a corporation.

      Non-dividend Distributions. Unless Arbor Realty stock constitutes a U.S. real property interest (a “USRPI”), distributions by Arbor Realty which are not dividends out of the earnings and profits of Arbor Realty will not be subject to U.S. income tax. If it cannot be determined at the time at which a distribution is made whether or not the distribution will exceed current and accumulated earnings and profits, the distribution will be subject to withholding at the rate applicable to dividends. However, the non-U.S. holder may seek a refund from the IRS of any amounts withheld if it is subsequently determined that the distribution was, in fact, in excess of Arbor Realty’s current and accumulated earnings and profits. If Arbor Realty stock constitutes a USRPI, as described below, distributions by Arbor Realty in excess of the sum of its earnings and profits plus the stockholder’s basis in its Arbor Realty stock will be taxed under the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”) at the rate of tax, including any applicable capital gains rates, that would apply to a U.S. stockholder of the same type (e.g., an individual or a corporation, as the case may be), and the collection of the tax will be enforced by a refundable withholding at a rate of 10% of the amount by which the distribution exceeds the stockholder’s share of Arbor Realty’s earnings and profits.

      Capital Gain Dividends. Under FIRPTA, a distribution made by Arbor Realty to a non-U.S. holder, to the extent attributable to gains from dispositions of USRPIs held by Arbor Realty directly or through pass-through subsidiaries (“USRPI capital gains”), will be considered effectively connected with a U.S. trade or business of the non-U.S. holder and will be subject to U.S. income tax at the rates applicable to U.S. individuals or corporations, without regard to whether the distribution is designated as a capital gain dividend. In addition, Arbor Realty will be required to withhold tax equal to 35% of the amount of dividends to the extent the dividends constitute USRPI capital gains. Recently proposed legislation, if enacted, would modify the tax treatment of capital gain dividends distributed by REITs to non-U.S. holders. See “Other Tax Considerations — Legislative or Other Actions Affecting REITs.” Distributions subject to FIRPTA may also be subject to a 30% branch profits tax in the hands of a non-U.S. holder that is a corporation. A distribution is not a USRPI capital gain if Arbor Realty held the underlying asset solely as a creditor, although the holding of a shared appreciation mortgage loan or similarly instrument would not be solely as a creditor. Capital gain dividends received by a non-U.S. holder from a REIT that are not USRPI capital gains are generally not subject to U.S. income or withholding tax.

      Dispositions of Arbor Realty Stock. Unless Arbor Realty stock constitutes a USRPI, a sale of the stock by a non-U.S. holder generally will not be subject to U.S. taxation under FIRPTA. The stock will not be treated as a USRPI if less than 50% of Arbor Realty’s assets throughout a prescribed testing period consist of interests in real property located within the United States, excluding, for this purpose, interests in real property solely in a capacity as a creditor.

      Even if the foregoing test is not met, Arbor Realty stock nonetheless will not constitute a USRPI if Arbor Realty is a “domestically controlled REIT.” A domestically controlled REIT is a REIT in which, at all times during a specified testing period, less than 50% in value of its shares is held directly or indirectly by non-U.S. holders. Arbor Realty believes that it is, and it expects to continue to be, a domestically controlled REIT and, therefore, the sale of Arbor Realty stock should not be subject to taxation under FIRPTA. Because Arbor Realty stock is transferable, however, no assurance can be given that Arbor Realty will be a domestically controlled REIT.

      In the event that Arbor Realty does not constitute a domestically controlled REIT, a non-U.S. holder’s sale of stock nonetheless will generally not be subject to tax under FIRPTA as a sale of a USRPI, provided that (a) the stock owned is of a class that is “regularly traded,” as defined by applicable Treasury Department regulations, on an established securities market, and (b) the selling non-U.S. holder held 5% or less of Arbor Realty’s outstanding stock of that class at all times during a specified testing period.

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      If gain on the sale of stock of Arbor Realty were subject to taxation under FIRPTA, the non-U.S. holder would be subject to the same treatment as a U.S. stockholder with respect to such gain, subject to applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals, and the purchaser of the stock could be required to withhold 10% of the purchase price and remit such amount to the IRS.

      Gain from the sale of Arbor Realty stock that would not otherwise be subject to FIRPTA will nonetheless be taxable in the United States to a non-U.S. holder in two cases: (a) if the non-U.S. holder’s investment in the Arbor Realty stock is effectively connected with a U.S. trade or business conducted by such non-U.S. holder, the non-U.S. holder will be subject to the same treatment as a U.S. stockholder with respect to such gain, or (b) if the non-U.S. holder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and has a “tax home” in the United States, the nonresident alien individual will be subject to a 30% tax on the individual’s capital gain.

      Estate Tax. Arbor Realty stock owned or treated as owned by an individual who is not a citizen or resident (as specially defined for U.S. federal estate tax purposes) of the United States at the time of death will be includable in the individual’s gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise, and may therefore be subject to U.S. federal estate tax.

     Taxation of Tax-Exempt Stockholders

      Tax-exempt entities, including qualified employee pension and profit sharing trusts and individual retirement accounts, generally are exempt from federal income taxation. However, they are subject to taxation on their unrelated business taxable income (“UBTI”). While some investments in real estate may generate UBTI, the IRS has ruled that dividend distributions from a REIT to a tax-exempt entity do not constitute UBTI. Based on that ruling, and provided that (1) a tax-exempt stockholder has not held its Arbor Realty stock as “debt financed property” within the meaning of the Internal Revenue Code (i.e. where the acquisition or holding of the property is financed through a borrowing by the tax-exempt stockholder), and (2) the Arbor Realty stock is not otherwise used in an unrelated trade or business, distributions from Arbor Realty and income from the sale of the Arbor Realty stock should not give rise to UBTI to a tax-exempt stockholder. To the extent, however, that Arbor Realty (or a part of Arbor Realty, or a disregarded subsidiary of Arbor Realty) is a TMP, or if Arbor Realty holds residual interests in a REMIC, a portion of the dividends paid to a tax-exempt stockholder that is allocable to excess inclusion income may be subject to tax as UBTI. See “Taxation of Arbor Realty — Taxable Mortgage Pools.”

      Tax-exempt stockholders that are social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans exempt from federal income taxation under sections 501(c)(7),(c)(9),(c)(17) and (c)(20) of the Internal Revenue Code, respectively, are subject to different UBTI rules, which generally will require them to characterize distributions from Arbor Realty as UBTI.

      In certain circumstances, a pension trust that owns more than 10% of Arbor Realty’s stock could be required to treat a percentage of the dividends from Arbor Realty as UBTI, if Arbor Realty is a “pension-held REIT.” Arbor Realty will not be a pension-held REIT unless either (A) one pension trust owns more than 25% of the value of Arbor Realty’s stock, or (B) a group of pension trusts, each individually holding more than 10% of the value of Arbor Realty’s stock, collectively owns more than 50% of such stock. Certain restrictions on ownership and transfer of Arbor Realty’s stock should generally prevent a tax-exempt entity from owning more than 10% of the value of Arbor Realty’s stock, or Arbor Realty from becoming a pension-held REIT.

      Tax-exempt stockholders are urged to consult their tax advisors regarding the federal, state, local and foreign tax consequences of owning Arbor Realty stock.

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Other Tax Considerations

     Legislative or Other Actions Affecting REITs

      The recently enacted Jobs and Growth Tax Relief Reconciliation Act of 2003 reduced the rates at which individuals are taxed on capital gains (a maximum rate of 15% replaces the prior maximum rate of 20%, through 2008), and gains from the stock of REITs are eligible for the reduced rates. Tax rates for individuals on dividends received from taxable C corporations were also reduced (with the maximum rate falling from 38.6% to 15% for tax years through 2008), although dividends received from REITs would generally continue to be taxed at regular ordinary income rates (now at a maximum rate of 35% through 2010). See “Taxation of Stockholders — Taxation of Taxable U.S. Stockholders — Distributions.” This change in the tax treatment of dividends could cause investors to perceive investments in REITs to be comparatively less attractive than investments in other corporations, which could adversely affect the value of the stock of REITs, including Arbor Realty.

      Recently proposed legislation would modify the tax treatment of capital gain dividends distributed by REITs to non-U.S. stockholders. See “Taxation of Stockholders — Taxation of Non-U.S. Stockholders — Capital Gain Dividends.” The proposed legislation would treat capital gain dividends received by a non-U.S. stockholder in the same manner as ordinary income dividends, provided that (1) the capital gain dividends are received with respect to a class of stock that is regularly traded on an established securities market located in the United States, and (2) the non-U.S. stockholder does not own more than 5% of that class of stock at any time during the taxable year in which the capital gain dividends are received. Another proposal would modify the effect of specified types of hedging income on the REIT 95% gross income requirement. See “Taxation of Arbor Realty — Derivatives and Hedging Transactions.” These proposals would apply to taxable years beginning after the date of enactment.

      The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. No assurance can be given as to whether, or in what form, the legislative proposals described above (or any other proposals affecting REITs or their stockholders) will be enacted. Changes to the federal tax laws and interpretations of federal tax laws could adversely affect an investment in Arbor Realty.

     State, Local and Foreign Taxes

      Arbor Realty and its subsidiaries and stockholders may be subject to state, local or foreign taxation in various jurisdictions, including those in which it or they transact business, own property or reside. Arbor Realty owns interests in properties located in a number of jurisdictions, and may be required to file tax returns in certain of those jurisdictions. The state, local or foreign tax treatment of Arbor Realty and its stockholders may not conform to the federal income tax treatment discussed above. Any foreign taxes incurred by Arbor Realty would not pass through to stockholders as a credit against their United States federal income tax liability. Prospective investors should consult their tax advisors regarding the application and effect of state, local and foreign income and other tax laws on an investment in common stock of Arbor Realty.

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ERISA CONSIDERATIONS

      The Employee Retirement Income Security Act of 1974, as amended or ERISA, and Section 4975 of the Internal Revenue Code impose certain restrictions on (a) employee benefit plans (as defined in Section 3(3) of ERISA) that are subject to Title I of ERISA, (b) plans (as defined in Section 4975(e)(1) of the Internal Revenue Code) that are subject to Section 4975 of the Internal Revenue Code, including individual retirement accounts or Keogh plans, (c) any entities whose underlying assets include plan assets by reason of such a plan’s investment in such entities, each of (a), (b) and (c), a Plan and (d) persons who have certain specified relationships to Plans (referred to as “parties in interest” under ERISA and “disqualified persons” under the Internal Revenue Code). Moreover, based on the reasoning of the United States Supreme Court in John Hancock Life Ins. Co. v. Harris Trust and Sav. Bank, 510 U.S. 86 (1993), an insurance company’s general account may be deemed to include assets of the plans investing in the general account (for example, through the purchase of an annuity contract), and such insurance company might be treated as a party in interest with respect to a plan by virtue of such investment. ERISA also imposes certain duties on persons who are fiduciaries of plans subject to ERISA, and ERISA and Section 4975 of the Internal Revenue Code prohibit certain transactions between a plan and parties in interest or disqualified persons with respect to such plan. Violations of these rules may result in the imposition of excise taxes and other penalties and liabilities under ERISA and the Internal Revenue Code.

      ERISA and Section 4975 of the Internal Revenue Code prohibit a broad range of transactions involving plan assets and parties in interest and disqualified persons, unless a statutory or administrative exemption is available. Parties in interest and disqualified persons that participate in a prohibited transaction may be subject to a penalty imposed under ERISA and/or an excise tax imposed pursuant to Section 4975 of the Internal Revenue Code, unless a statutory or administrative exemption is available. These prohibited transactions generally are set forth in Section 406 of ERISA and Section 4975 of the Internal Revenue Code.

      In addition, under Department of Labor Regulation Section 2510.3 101, 29 C.F.R. 2510.3-101 (the “Plan Assets Regulation”), the purchase with plan assets of equity interests in us would cause our assets to be deemed plan assets of the investing Plan which, in turn, would subject us and our assets to the fiduciary responsibility provisions of ERISA and the prohibited transaction provisions of ERISA and Section 4975 of the Internal Revenue Code unless an exception to this regulation is applicable.

      Prior to this offering, we have not allowed Plans (subject to ERISA or the Code) to invest in classes of our equity. As a result of this offering, we expect that the common stock offered hereby will meet the criteria for the exception under the Plan Assets Regulation that provides that an investing plan’s assets will not include any of the underlying assets of an entity if the class of “equity” interests in question are “publicly offered securities,” defined as securities that are (1) held by 100 or more investors who are independent of the issuer and each other, (2) freely transferable, and (3) either (a) part of a class of securities registered under Section 12(b) or 12(g) of the Exchange Act or (b) sold to the plan as part of an offering of securities to the public under an effective registration statement under the Securities Act and the class of securities of which that security is part is registered under the Exchange Act within the requisite time.

      It is anticipated that the shares of common stock offered hereunder will meet the criteria of “publicly offered securities” pursuant to the Plan Assets Regulation.

      Although no assurances can be given, the underwriters expect that:

	•	there will be no restrictions imposed on the transfer of interests in the shares of common stock,
	•	shares of common stock will be held by at least 100 independent investors at the conclusion of the offering, and
	•	the shares of common stock will be sold as part of an offering pursuant to an effective registration statement under the Securities Act and then will be timely registered under the Exchange Act.

      If the shares of common stock fail to meet the criteria of publicly-offered securities, our assets may be deemed to include assets of plans that are stockholders. In that event, transactions involving our assets and parties in interest or disqualified persons with respect to such plans will be prohibited under ERISA and the

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      Prospective fiduciaries of a plan considering the purchase of common stock should consult with their legal advisors concerning the impact of ERISA and the Internal Revenue Code and the potential consequences of making an investment in the certificates with respect to their specific circumstances. Each plan fiduciary should take into account, among other considerations:

	•	whether the fiduciary has the authority to make the investment,
	•	the composition of the plan’s portfolio with respect to diversification by type of asset,
	•	the plan’s funding objectives,
	•	the tax effects of the investment,
	•	whether the assets of the trust which are represented by such interests would be considered plan assets, and
	•	whether, under the general fiduciary standards of investment prudence and diversification an investment in certificates of any series is appropriate for the plan taking into account the overall investment policy of the plan and the composition of the plan’s investment portfolio.

      Any purchaser that is an insurance company using the assets of an insurance company general account should note that pursuant to Section 401(c), the Department of Labor issued final regulations (the “General Account Regulations”) providing that the assets of an insurance company general account will not be treated as “plan assets” for purposes of the fiduciary responsibility provisions of ERISA and Section 4975 of the Code to the extent such assets relate to contracts issued to employee benefit plans on or before December 31, 1998 and the insurer satisfies various conditions. The plan asset status of insurance company separate accounts is unaffected by Section 401 (c) of ERISA, and separate account assets continue to be treated as the plan assets of any such plan invested in a separate account.

      Certain employee benefit plans, such as governmental plans (as defined in Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA), are not subject to the requirements of ERISA or Section 4975 of the Code. Accordingly, assets of such plans may be invested in the offered securities without regard to the ERISA considerations described herein, subject to the provisions or other applicable federal and state law. However, any such plan that is qualified and exempt from taxation under Sections 401 (a) and 501 (a) of the Code is subject to the prohibited transaction rules set forth in Section 503 of the Code.

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SELLING STOCKHOLDERS

      The shares of common stock comprising the units and the shares of common stock issued upon exercise of the warrants comprising the units offered by the selling stockholders pursuant to this prospectus were originally issued and sold by us in the original offering on July 1, 2003. The term selling stockholders includes the holders listed below and the beneficial owners of our common stock and their transferees, pledgees, donees or other successors.

      The following table sets forth information, as of                     , 2004, with respect to the selling stockholders and shares of our common stock beneficially owned by each selling stockholder that may be offered pursuant to this prospectus.

Shares of Common Stock

Percentage of Class

Shares of Common Stock

Beneficially Owned

Beneficially Owned

Beneficially Owned

Selling Securityholder

and Offered

Before Resale

After Resale

---

	*	Represents less than 1%

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		Natural Person or Persons with
Selling Securityholder		Voting or Dispositive Power

---

*	The securityholder has informed us that there is no natural person with voting or investment power over the respective shares of common stock. In these instances, voting or dispositive power is exercised through resolution, in the case of corporations, or consensus, in the case of limited partnerships.

      Except as indicated above, none of the selling stockholders has, or within the past three years has had, any position, office or other material relationship with us or any of our predecessors or affiliates. Because the selling stockholders may, pursuant to this prospectus, offer all or some portion of the offered securities, no estimate can be given as to the amount of the securities that will be held by the selling stockholders upon termination of any such sales. In addition, the selling stockholders identified above may have sold, transferred or otherwise disposed of all or a portion of their securities since the date on which they provided the information regarding their securities, in transactions exempt from the registration requirements of the Securities Act.

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UNDERWRITING

      Subject to the terms and conditions of the underwriting agreement, we and the selling stockholders have agreed to sell to the underwriters named below, and the underwriters, for whom                               is acting as representative, have severally agreed to purchase, the respective number of shares of common stock appearing opposite their names below.

Offered by Selling Stockholders

Number of Shares

Issued Upon

Exercise

Offered by Us

Number of Shares

of Warrants

Underlying the

Underlying

Underwriters

Number of Shares

Units

the Units

Total

      The underwriters have agreed to purchase all of the shares of common stock shown in the above table if any of the shares of common stock are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated.

      The shares of common stock are offered by the underwriters, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by counsel for the underwriters and other conditions. The underwriters reserve the right to withdraw, cancel or modify the offer and to reject orders in whole or in part.

      The underwriters have advised us that they do not intend to confirm sales to any account over which they exercise discretionary authority.

Commissions and Discounts

      The underwriters have advised us that they propose to offer the shares of common stock to the public at the public offering price falling within the range listed on the cover page of this prospectus and to certain dealers at that price less a concession of not more than $          per share, of which $                    may be reallowed to other dealers. After the completion of this offering, the public offering price, concession and reallowance to dealers may be changed.

      The following table shows the public offering price, underwriting discount and proceeds, before expenses, to us and to the selling stockholders, both on a per share basis and in total, assuming either no exercise or full exercise by the underwriters of their over-allotment option.

Total

Per Share

Without Option

With Option

Public offering price

Underwriting discount

Proceeds, before expenses, to us

Proceeds, before expenses, to the selling stockholders

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      We estimate that the expenses of this offering payable by us, not including the underwriting discount, will be approximately $                     million. We have agreed under the registration rights agreement to pay the expenses of the selling stockholders.

Over-allotment Option

      We have granted to the underwriters an option, exercisable during the 30-day period after the date of this prospectus, to purchase up to a total of                               additional shares of common stock from us at the public offering price per share less the underwriting discount per share shown on the cover page of this prospectus. To the extent that the underwriters exercise this option, each of the underwriters will have a firm commitment, subject to conditions, to purchase approximately the same percentage of the additional shares that the number of shares of common stock to be purchased by that underwriter as shown in the above table represents as a percentage of the total number of shares shown in that table.

Directed Shares

      The underwriters have reserved for sale, at the initial public offering price, up to           % of the shares of common stock for our directors, officers, employees and officers and employees of Arbor Commercial Mortgage and their families, and other persons associated with us who express an interest in purchasing these shares of common stock in this offering. The number of shares available for sale to the general public in the offering will be reduced to the extent these persons purchase reserved shares. Any reserved shares not purchased by these persons will be offered by the underwriters to the general public on the same terms as the other shares offered in this offering.

Indemnity

      We and the selling stockholders have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act, or to contribute to payments that the underwriters may be required to make in respect of those liabilities.

Lock-up Agreements

      Our directors and officers will agree, with limited exceptions, for a period of       days after the date of this prospectus, and all existing holders of units, include the selling stockholders will agree, with limited exceptions, for a period of       days after the date of this prospectus, that they will not, without the prior written consent of                     , offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any of the offered securities, shares of our common stock or other capital stock or any securities convertible into, or exercisable or exchangeable for, shares of our common or our other capital stock, except that such directors, officers and stockholders will be permitted to transfer any of these securities by gift, will or intestate succession (so long as any recipient of those securities enters into a similar lock-up agreement), the selling stockholders will be permitted to distribute securities to their partners (so long as any recipient of those securities enters into a similar lock-up agreement), and the selling stockholders will be permitted to sell shares of common stock in this offering.

      In addition, we have agreed that, for a period of       days after the date of this prospectus, we will not, without the prior written consent of                     , offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or other capital stock or any securities convertible into, or exercisable or exchangeable for, shares of our common stock or other capital stock, except for:

	•	the shares of common stock being sold by us in this offering; and
	•	the issuance of shares of common stock pursuant to our stock incentive plan as in effect on the date of this prospectus.

                                    may, in its sole discretion and at any time or from time to time, without notice, release all or any portion of the shares of common stock subject to the lock-up agreements.

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Stabilization

      The representatives have advised us that, pursuant to Regulation M under the Securities Exchange Act of 1934, certain persons participating in this offering may engage in transactions, including stabilizing bids, syndicate covering transactions or the imposition of penalty bids, which may have the effect of stabilizing or maintaining the market price of our common stock at a level above that which might otherwise prevail in the open market.

	•	A “stabilizing bid” is a bid for or the purchase of the common stock on behalf of the underwriters for the purpose of fixing or maintaining the price of the common stock.
	•	A “syndicate covering transaction” is a bid for or the purchase of the common stock on behalf of the underwriters to reduce a short position incurred by the underwriters in connection with this offering.
	•	A “penalty bid” is an arrangement permitting the underwriters to reclaim the selling concession otherwise accruing to an underwriter or selling group member in connection with this offering if the common stock originally sold by that underwriter or selling group member is purchased by the underwriters in a syndicate covering transactions and has therefore not been effectively placed by that underwriter or selling group member.

      The representatives of the underwriters have advised us that these transactions may be effected on the New York Stock Exchange or otherwise. Neither we nor any of the underwriters makes any representation that the underwriters will engage in any of the transactions described above and these transactions, if commenced, may be discontinued without notice. Neither we nor any of the underwriters makes any representation or prediction as to the direction or magnitude of the effect that the transactions described above, if commenced, may have on the market price of our common stock.

Other Relationships

                          and their respective affiliates have provided commercial and investment banking services to us from time to time for which they have received customary fees and expenses. The underwriters and their affiliates may, from time to time, engage in other transactions with us and perform other services for us in the ordinary course of their business.

Pricing of this Offering

      Prior to this offering, there has been no public market for our common stock. Consequently, the initial public offering price for the shares of our common stock will be determined by negotiations among us, the selling stockholders and the underwriters. The factors to be considered in determining the initial public offering price include:

	•	prevailing market conditions;
	•	our results of operations and financial condition;
	•	financial and operating information and market valuations with respect to other companies that we and the representatives of the underwriters believe to be comparable to us;
	•	the present state of our development; and
	•	our future prospects.

      An active trading market for our common stock may not develop. It is possible that the market price of our common stock after this offering may be less than the initial public offering price. In addition, the estimated initial public offering price range appearing on the cover of this preliminary prospectus is subject to change as a result of market conditions or other factors.

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New York Stock Exchange Listing

      We intend to apply to list our common stock on the New York Stock Exchange, or NYSE, under the symbol “          .” In order to meet the requirements for listing on the NYSE, the underwriters have undertaken that the shares will be sold to ensure that NYSE distribution standards are met.

LEGAL MATTERS

      Certain legal matters will be passed upon for us by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York and Venable LLP, Baltimore, Maryland and for the underwriters by                     .

EXPERTS

      The consolidated financial statements of the Structured Finance Business of Arbor Commercial Mortgage, LLC and Subsidiaries as of December 31, 2002 and 2001, and for each of the three years in the period ended December 31, 2002 and the financial statements of Mezzobridge Funding LLC as of and for the year ended December 31, 2000, each appearing in this prospectus and registration statement have been audited by Grant Thornton LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.

CHANGE IN ACCOUNTANTS

      Grant Thornton LLP was previously the independent accounting firm engaged as the principal accountant to audit the consolidated financial statements of the Structured Finance Business of Arbor Commercial Mortgage and Subsidiaries and the financial statements of Mezzobridge Funding LLC, each of which are included in this prospectus. On December 15, 2003, we dismissed Grant Thornton LLP. On December 15, 2003, Ernst & Young LLP was selected as our independent public accountants for the fiscal year ending December 31, 2003 to audit the consolidated financial statements of the Structured Finance Business of Arbor Commercial Mortgage for the six months ended June 30, 2003 and the consolidated financial statements of Arbor Realty Trust and Subsidiaries for the period from June 24, 2003 to the year ended December 31, 2003. The decision to change accountants was recommended by the audit committee to our board of directors and approved by our board of directors.

      We were formed on June 24, 2003. Since our formation and in connection with the audit of the consolidated financial statements of the Structured Finance Business of Arbor Commercial Mortgage and Subsidiaries as of December 31, 2002 and 2001 and for each of the three years in the period ended December 31, 2002 and the financial statements of Mezzobridge Funding LLC as of and for the year ended December 31, 2000, there were no disagreements with Grant Thornton LLP on any matter of accounting principles or practices, consolidated financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused them to make reference in connection with their opinion to the subject matter of the disagreement. Also, during such periods there were no reportable events as set forth in Item 304(a)(1)(v) of Regulation S-K.

      The audit report of Grant Thornton LLP on the consolidated financial statements of the Structured Finance Business of Arbor Commercial Mortgage and Subsidiaries as of December 31, 2002 and 2001 and for each of the three years ended December 31, 2002 and the audit report of Grant Thornton LLP on the financial statements of Mezzobridge Funding LLC as of and for the year ended December 31, 2000, did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principals.

      We have provided Grant Thornton LLP with a copy of the disclosure contained under this caption “Change in Accountants” and have requested Grant Thornton LLP to furnish us a letter addressed to the Securities and Exchange Commission stating whether it agrees with the above statements. A copy of that letter, dated February 2, 2004, is filed as Exhibit 16.1 to the registration statement of which this prospectus forms a part.

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      We have engaged Ernst & Young to serve as our independent public accountants for the fiscal year ending December 31, 2003. Since our formation, we have not consulted Ernst & Young with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, or any other matters or reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.

WHERE YOU CAN FIND MORE INFORMATION

      We have filed a registration statement, of which this prospectus is a part, on Form S-11 with the Securities and Exchange Commission, or the Commission, relating to this offering. This prospectus does not contain all of the information in the registration statement and the exhibits and consolidated financial statements included with the registration statement. References in this prospectus to any of our contracts, agreements or other documents are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contracts, agreements or documents. You may read and copy the registration statement, the related exhibits and other material we file with the Commission at the Commission’s public reference room in Washington, D.C. at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You can also request copies of those documents, upon payment of a duplicating fee, by writing to the Commission. Please call the Commission at 1-800-SEC-0330 for further information on the operation of the public reference rooms. The Commission also maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file with the Commission. The website address is http://www.sec.gov. You may also request a copy of these filings, at no cost, by writing or telephoning us as follows: Arbor Realty Trust, Inc. at 333 Earle Ovington Boulevard, Suite 900, Uniondale, New York 11553, Attention: Frederick C. Herbst.

      Upon the effectiveness of the registration statement, we will be subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and, in accordance with the Exchange Act, will file reports, proxy and information statements and other information with the Commission. Such annual, quarterly and special reports, proxy and information statements and other information can be inspected and copied at the locations set forth above. We will report our consolidated financial statements on a year ended December 31. We intend to furnish our stockholders with annual reports containing consolidated financial statements audited by our independent certified public accountants and with quarterly reports containing unaudited consolidated financial statements for each of the first three quarters of each fiscal year.

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INDEX TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF

		Page
Consolidated Balance Sheet at September 30, 2003 (Unaudited)		F-2
Consolidated Statement of Operations for the Three Months Ended September 30, 2003 (Unaudited)		F-3
Consolidated Statement of Stockholders’ Equity for the Three Months Ended September 30, 2003 (Unaudited)		F-4
Consolidated Statement of Cash Flows for the Three Months Ended September 30, 2003 (Unaudited)		F-5
Notes to Consolidated Financial Statements (Unaudited)		F-6
Schedule IV — Loans and Other Lending Investments (Unaudited)		F-16

      All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

Consolidated Balance Sheet

		September 30,
		2003
		(Unaudited)
Assets:
Cash		$	10,393,612
Loans and investments, net			214,237,458
Related party loans, net			26,000,000
Investment in equity affiliates			817,542
Other assets			3,940,961
Total assets		$	255,389,573
Liabilities and Stockholders Equity:
Notes payable and repurchase agreements		$	91,913,811
Other liabilities			5,917,600
Total liabilities			97,831,411
Minority interest			44,309,289
Commitments and contingencies			—
Stockholders’ equity:
Preferred stock, $0.01 par value: 100,000,000 shares authorized; 3,146,724 shares issued and outstanding			31,467
Common stock, $0.01 par value: 500,000,000 shares authorized; 8,197,567 shares issued and outstanding			81,976
Additional paid-in capital			112,685,669
Retained earnings			1,074,587
Deferred compensation			(624,826	)
Total stockholders’ equity			113,248,873
Total liabilities and stockholders equity		$	255,389,573

See notes to consolidated financial statements.

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

			Three Months Ended
			September 30, 2003
			(Unaudited)
Revenue:
	Interest income		$	4,669,990
	Other income			500
Total revenue				4,670,490
Expenses:
	Interest expense			721,854
	Employee compensation and benefits			446,845
	Stock based compensation			1,587,674
	Selling and administrative			133,304
	Management fee			293,734
Total expenses				3,183,411
Income before minority interest				1,487,079
Income allocated to minority interest				412,492
Net income			$	1,074,587
Basic earnings per common share			$	.13
Diluted earnings per common share			$	.13

See notes to consolidated financial statements.

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders’ Equity

For the Three Months Ended September 30, 2003

						Preferred
		Preferred				Stock				Common				Common				Additional
		Stock				Par				Stock				Stock Par				Paid — in				Deferred				Retained
		Shares				Value				Shares				Value				Capital				Compensation				Earnings				Total
Balance — July 1, 2003			—			$	—				67			$	1			$	1,004			$	—			$	—			$	1,005
Issuance of preferred stock			3,146,724				31,467																								31,467
Issuance of common stock											8,197,500				81,975				110,472,165												110,554,140
Deferred compensation																			2,212,500				(2,212,500	)							—
Stock based compensation																							1,587,674								1,587,674
Net income																											1,074,587				1,074,587
Balance — September 30, 2003			3,146,724			$	31,467				8,197,567			$	81,976			$	112,685,669			$	(624,826	)		$	1,074,587			$	113,248,873

See notes to consolidated financial statements.

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

Consolidated Statement of Cash Flows

			Three Months
			Ended
			September 30,
			2003
			(Unaudited)
Operating activities:
Net income			$	1,074,587
Adjustments to reconcile net income to cash provided by operating activities
	Stock based compensation			1,587,674
	Minority interest			412,492
Changes in operating assets and liabilities:
	Other assets			(3,940,961	)
	Other liabilities			5,917,600
Net cash provided by operating activities				5,051,392
Investing activities:
	Loans and investments originated, net			(38,387,740	)
	Payoffs and paydowns of loans and investments			11,226,923
	Investments in equity affiliates			(817,542	)
Net cash used in investing activities				(27,978,359	)
Financing activities:
	Proceeds from notes payable and repurchase agreements			—
	Payoffs and paydowns of notes payable and repurchase agreements			(77,266,033	)
	Issuance of preferred stock			31,467
	Issuance of common stock			110,555,145
Net cash provided by financing activities				33,320,579
Net increase in cash				10,393,612
	Cash at beginning of period			—
	Cash at end of period		$	10,393,612
Non cash investing and financing items:
	Loans and investments, net contributed		$	213,076,639
	Notes payable and repurchase agreements contributed		$	169,179,843
Supplemental cash flow information:
	Cash used to pay interest		$	483,370

See notes to consolidated financial statements.

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 —	Description of Business and Basis of Presentation

      Arbor Realty Trust, Inc. (the “Company”) is a Maryland corporation that was formed in June 2003 to invest in real estate related bridge and mezzanine loans, preferred equity and, in limited cases, discounted mortgage notes and other real estate related assets. The Company has not invested in any discounted mortgage notes for the period presented. The Company conducts substantially all of its operations through the operating partnership, Arbor Realty Limited Partnership (“ARLP”).

      On July 1, 2003 Arbor Commercial Mortgage, LLC (ACM) contributed $213.1 million of structured finance assets and $169.2 million of borrowings supported by $43.9 million of equity in exchange for a commensurate equity ownership in ARLP. In addition, certain employees of ACM were transferred to ARLP. These assets, liabilities and employees represent a substantial portion of ACM’s structured finance business (the “SF Business”). The Company is externally managed and advised by ACM and pays ACM a management fee in accordance with a management agreement. ACM also sources originations, provides underwriting services and services all structured finance assets on behalf of ARLP.

      On July 1, 2003 the Company completed a private equity offering of units, each consisting of five shares of common stock and one warrant to purchase one share of common stock. Gross proceeds from the private financing totaled $120.2 million. Gross proceeds from the private financing combined with the concurrent equity contribution by ACM totaled approximately $164.1 million in equity capital. The Company paid offering expenses of $9.6 million resulting in stockholders’ equity and minority interest of $154.5 million at inception.

      The consolidated financial statements include the financial statements of the Company, its wholly owned subsidiaries, and partnerships or other joint ventures in which the Company holds, directly or indirectly, over fifty percent of the outstanding voting shares. When partnership voting interests are not clearly indicated, the Company reviews other factors to determine control, such as whether the Company is entitled to over 50% of the profits and losses of the partnership. Additionally, for investments in limited partnerships, the Company reviews the rights and obligations of the general partner and the limited partners to determine if in substance the general partner controls such entity. These rights and obligations include such items as whether the limited partner has the right to replace the general partner, approve the sale or refinancing of the partnership assets or approve the acquisition of additional significant partnership assets. In instances where the Company has a majority voting interest but minority partners have significant participation, such as the right to establish operating and capital decisions of the entity, the Company does not consolidate this entity. Based on this criteria, investments in partnerships or joint ventures that the Company does not control are accounted for under the equity method.

Note 2 — Summary of Significant Accounting Policies

	Use of Estimates

      The preparation of consolidated financial statements in conformity with accounting principals generally accepted in the United States of America requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

	Loans and Investments

      Loans held for investment are intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan origination costs and fees, unless such loan or investment is deemed to be impaired.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 —	Summary of Significant Accounting Policies (continued)

      The Company invests in preferred equity interests that, in some cases, allow the Company to participate in a percentage of the underlying property’s cash flows from operations and proceeds from a sale or refinancing. At the inception of each such investment, management must determine whether such investment should be accounted for as a loan, joint venture or as real estate. To date, management has determined that all such investments are properly accounted for and reported as loans.

      Specific valuation allowances are established for impaired loans based on the fair value of collateral on an individual loan basis. The fair value of the collateral is determined by an evaluation of operating cash flow from the property during the projected holding period, and estimated sales value computed by applying an expected capitalization rate to the stabilized net operating income of the specific property, less selling costs, discounted at market discount rates.

      If upon completion of the valuation, the fair value of the underlying collateral securing the impaired loan is less than the net carrying value of the loan, an allowance is created with a corresponding charge to the provision for loan losses. The allowance for each loan is maintained at a level believed adequate by management to absorb probable losses.

	Revenue Recognition

      Interest Income — Interest income is recognized on the accrual basis as it is earned. In most instances, the borrower pays an additional amount of interest at the time the loan is closed, an origination fee, and deferred interest upon maturity. This additional income, as well as any direct loan origination costs incurred, is deferred and recognized over the life of the related loan as a yield adjustment. Income recognition is suspended for loans when in the opinion of management a full recovery of income and principal becomes doubtful. Income recognition is resumed when the loan becomes contractually current and performance is demonstrated to be resumed Several of the loans provide for accrual of interest at specified rates, which differ from current payment terms. Interest is recognized on such loans at the accrual rate subject to management’s determination that accrued interest and outstanding principal are ultimately collectible, based on the underlying collateral and operations of the borrower. If management cannot make this determination regarding collectibility, interest income is recognized only upon actual receipt.

      Other income — Other income represents miscellaneous asset management fees associated with the Company’s loans and investments portfolio.

	Gain on Sale of Loans and Real Estate

      For the sale of loans and real estate, recognition occurs when all the incidence of ownership passes to the buyer.

	Income from Equity Affiliates

      The Company may invest in joint ventures that are formed to acquire, develop and/or sell real estate assets. Such investments are recorded under the equity method. The Company records its share of the net income from the underlying properties. The gain or loss on disposition of a joint venture interest is recorded as gain on sale of loans and real estate.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 —	Summary of Significant Accounting Policies (continued)

	Income Taxes

      The Company intends to elect to be taxed as a REIT and to comply with the provisions of the Internal Revenue Code with respect thereto. A REIT is generally not subject to federal income tax on that portion of its REIT taxable income (“Taxable Income”) which is distributed to its shareholders provided that at least 90% of Taxable Income is distributed and provided that certain other requirements are met. The Company intends to distribute an amount at least equal to its Taxable Income, and accordingly, there is no provision for federal income taxes. The Company may be subject to state or local income taxes in certain jurisdictions, and to certain other taxes, such as property, transfer, recording, sales, payroll and excise taxes that are not based on income.

	Earnings Per Share

      In accordance with the Statement of Financial Accounting standards No. 128 (“SFAS No. 128”), the Company presents both basic and diluted earnings per share. Basic earnings per share excludes dilution and is computed by dividing net income available to common shareholders by the weighted average number of shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, where such exercise or conversion would result in a lower earnings per share amount. In the private offering on July 1, 2003, the Company issued 1,610,000 units, each of which consists of five share of common stock and a warrant to purchase an additional share of common stock, at $75.00 per unit. The warrants to acquire 1,610,000 shares of common stock have an exercise price of $15.00 per share and expire on July 1, 2005. This exercise price is equal to the price per share of common stock in the private offering and approximates the market value of the common stock at September 30, 2003. Therefore, the assumed exercise of the warrants were not considered to be dilutive for purposes of calculating diluted earnings per share.

	Recently Issued Accounting Pronouncements

      In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). FIN 46 provides guidance on identifying entities for which control is achieved through means other than through voting rights (a “variable interest entities” or “VIE”), and how to determine when and which business enterprise should consolidate a VIE. In addition, FIN 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in VIE make additional disclosures. The transitional disclosure requirements are effective for the interim or the annual period ending after December 31, 2003. Management is in the process of evaluating all of its mezzanine loans and preferred equity investments, which may be deemed variable interest entities under the provision of FIN 46. A definitive conclusion can not be reached until the evaluation has been completed.

      In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” an interpretation of FASB Statement of Financial Accounting Standards No. 5 (“SFAS No. 5”), “Accounting for Contingencies,” Statement of Financial Accounting Standards No. 57, “Related Party Disclosures,” Statement of Financial Accounting Standards No. 107, “Disclosures about Fair Value of Financial Instruments” and rescinded FASB Interpretation No. 34, “Disclosure of Indirect Guarantees of Indebtedness of Others, an Interpretation of SFAS No. 5.” It requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee regardless of whether the Company receives separately identifiable consideration (i.e., a premium). The new disclosure require-

F-8

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 —	Summary of Significant Accounting Policies (continued)

ments were effective December 31, 2002. The adoption of FIN 45 did not have a material impact on the Company’s Consolidated Financial Statements, nor is it expected to have a material impact in the future.

Note 3 — Loans and Investments

		September 30,
		2003
Bridge loans		$	135,136,947
Mezzanine loans			56,766,060
Preferred equity investments			21,225,432
Other			1,977,245
			215,105,684
Unearned revenue			(868,226	)
Loans and investments, net		$	214,237,458

	Concentration of Borrower Risk

      The Company is subject to concentration risk in that, as of September 30, 2003, the unpaid principal balance relating to nine loans represented approximately 37% of total loans held for investment and are with three unrelated borrowers. The Company had 30 loans and investments as of September 30, 2003.

Note 4 —	Investment in Equity Affiliates

      In June 2003, ACM invested approximately $818,000 in exchange for a 12.5% non-controlling interest in a joint venture, which was formed to acquire, develop and/or sell real estate assets. This investment was purchased by the Company from ACM in August 2003. The Company accounts for this investment under the equity method. In addition, as of September 30, 2003, the Company had two mezzanine loans, secured by a second lien position in the ownership interests of the borrower and the property, to this joint venture totaling $6.0 million outstanding. The loans require monthly interest payments based on LIBOR and mature in May 2006. Interest income recorded from these loans was approximately $97,000 for the period ended September 30, 2003.

Note 5 —	Notes Payable and Repurchase Agreements

      The Company utilizes warehouse lines of credit and repurchase agreements to finance its loans and investments. Borrowings underlying these arrangements are secured by substantially all the Company’s loans and investments.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 —	Notes Payable and Repurchase Agreements (continued)

		September 30,
		2003
Structured transaction facility, financial institution, $250 million committed line, expiration June 2006, interest rate variable based on LIBOR; the weighted average note rate was 3.38%		$	28,446,301
Repurchase agreement, financial institution, $100 million committed line, expiration February 2004 interest is variable based on LIBOR; the weighted average note rate was 3.30%			63,467,510
Repurchase agreement, financial institution, $50 million committed line, expiration November 2005, interest rate variable based on LIBOR			—
Notes payable and repurchase agreements		$	91,913,811

      The $250 million structured transaction facility contains profit-sharing arrangements between the Company and the lender which provide for profit sharing percentages ranging from 20% to 45% of net interest income of the loans and investments financed. This cost is included in interest expense.

      Each of the credit facilities contains various financial covenants and restrictions, including minimum net worth and debt-to-equity ratios. The Company is in compliance with all covenants and restrictions for the period presented.

Note 6 —	Minority Interest

      On July 1, 2003 ACM contributed $213.1 million of structured finance assets and $169.2 million of borrowings supported by $43.9 million of equity in exchange for a commensurate equity ownership in ARLP, the Company’s operating partnership. This transaction was accounted for as minority interest and entitles ACM to a 28% profits interest in the Company which is recorded under the equity method.

Note 7 —	Commitments and Contingencies

	Litigation

      In the normal course of business, the Company is subject to various legal proceedings and claims, the resolution of which, in management’s opinion, will not have a material adverse effect on the financial position or the results of operations of the Company.

Note 8 —	Shareholders’ Equity

	Common Stock

      The Company’s charter provides for the issuance of up to 500 million shares of common stock, par value $.01 per share, and 100 million shares of preferred stock, par value $.01 per share.

      The Company was incorporated in June 2003 and was initially capitalized through the sale of 67 shares of common stock for $1,005.

      On July 1, 2003 the Company completed a private offering for the sale of 1,610,000 units (including an over-allotment option), each consisting of five shares of the Company’s common stock and one warrant to purchase one share of common stock, at $75 per unit, for proceeds of approximately $110.6 million, net of expenses. 8,050,000 shares of common stock were sold in the offering. In addition, the Company issued 147,500 shares of stock under the stock incentive plan as described below under “Deferred Compensation.”

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 —	Shareholders’ Equity (continued)

	Deferred Compensation

      The Company has a stock incentive plan, under which the board of directors has the authority to issue shares of stock to certain directors, officers and employees of the Company and ACM. Under the stock incentive plan, 185,000 shares of common stock were reserved for issuance pursuant to restricted stock awards, and 147,500 restricted stock awards were made upon consummation of the private offering of units on July 1, 2003. As of September 30, 2003, 147,500 shares of restricted stock were awarded and were outstanding. Of the shares awarded, two-thirds vested immediately and the remaining one-third will vest ratable over three years on the anniversary date of the initial award. Dividends will be paid on the restricted shares as dividends are paid on shares of the Company’s common stock whether or not they are vested. For accounting purposes, the Company measures the compensation costs for these shares as of the date of the grant and expenses such amounts against earnings, either at the grant date (for the portion that vest immediately) or ratably over the respective vesting periods. The Company accounts for the stock incentive plan to employees of the Company and employees of ACM under the fair value method. Fair value at the grant date was $15 per share, which was based on the selling price of the common stock offered in our private equity offering. For the three months ended September 30, 2003, compensation expense related to this plan totaled $1,587,674. Such amounts appear on the Company’s Consolidated Statement of Operations under “stock-based compensation expense.”

	Warrants

      In connection with the private offering of units by the Company on July 1, 2003, the Company issued warrants to acquire 1,610,000 shares of common stock, as adjusted for dilution, at $15 per share. These warrants expire on July 1, 2005.

	Preferred Stock

      Concurrent with the formation of the Company, ACM contributed a portfolio of structured finance investments and related debt to ARLP, the operating partnership of the Company, in exchange for 3,146,724 units of limited partnership interest in ARLP and warrants to purchase an additional 629,345 operating partnership units. Concurrently, the Company, ARLP and ACM entered into a pairing agreement. Pursuant to the pairing agreement, each operating partnership unit issued to ACM and issuable to ACM upon exercise of its warrants for additional operating partnership units in connection with the contribution of initial assets was paired with one share of the Company’s special voting preferred stock. In addition, ACM paid the Company $31,467. Each share of special voting preferred stock entitles the holder to one vote on all matters submitted to a vote of the Company’s shareholders. A holder of special voting preferred stock will not be entitled to any regular or special dividend payments or other distributions, other than a $.01 per share liquidation preference. The Company has classified and designated 5,000,000 shares of its 100,000,000 authorized shares of preferred stock as special voting preferred stock.

F-11

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9 — Fair Value of Financial Instruments

      The following table summarizes the carrying values and the estimated fair values of financial instruments as of September 30, 2003. Fair value estimates are dependent upon subjective assumptions and involve significant uncertainties resulting in variability in estimates with changes in assumptions.

		September 30, 2003
						Estimated Fair
		Carrying Value				Value
Financial assets:
Loans and investments, net		$	214,237,458			$	214,237,458
Related party loans, net			26,000,000				26,000,000
Financial liabilities:
Notes payable and repurchase agreements			91,913,811				91,913,811

      The following methods and assumptions were used by the Company in estimating the fair value of each class of financial instrument:

	Loans and investments, net: Fair values of variable-rate loans and investments with no significant change in credit risk are based on carrying values. Fair values of other loans and investments are estimated using discounted cash flow methodology, using discount rates, which, in the opinion of management, best reflect current market interest rates that would be offered for loans with similar characteristics and credit quality.
	Related party loans, net: Fair values of variable-rate loans and investments with no significant change in credit risk are based on carrying values. Fair values of other loans and investments are estimated using discounted cash flow methodology, using discount rates, which, in the opinion of management, best reflect current market interest rates that would be offered for loans with similar characteristics and credit quality.
	Notes payable and repurchase agreements: Fair values approximate the carrying values reported in the balance sheets.

Note 10 — Related Party Transactions

      Related Party Loans:

		September 30,
		2003
Bridge loans		$	16,000,000
Mezzanine loans			10,000,000
Related party loans, net		$	26,000,000

      ACM has a 50% non-controlling interest in a joint venture, which was formed to acquire, develop and/or sell real estate assets. At September 30, 2003, ACM’s investments in this joint venture were approximately $2.6 million. At September 30, 2003, the Company had a $16.0 million bridge loan outstanding to the joint venture, which is collateralized by a first lien position on a commercial real estate property. There is a limited guarantee on the loan of 50% by the chief executive officer of the Company and 50% by the key principal of the joint venture. The loan requires monthly interest payments based on LIBOR and matures in October 2004. The Company has agreed to provide the borrower with additional mezzanine financing in the amount of up to

F-12

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

$8.0 million. The mezzanine financing requires interest payments based on LIBOR and matures in May 2006. The loan will be funded in two equal installments of $4.0 million. The funding will be drawn down as construction progresses. The interest on the first component, which was funded by ACM in June 2003 and was purchased by the Company in July 2003, will be earned on the full $4.0 million, while the interest on the second component, which has yet to be funded, will be earned as the $4.0 million is drawn down. This additional financing is secured by a second mortgage lien on the property. Interest income recorded from these loans was approximately $240,000, for the period ended September 30, 2003.

      The Company’s $16.0 million bridge loan to the joint venture was contributed by ACM as one of the structured finance assets contributed to the Company on July 1, 2003 at book value, which approximates fair value. At the time of contribution, ACM also agreed to provide a limited guarantee of the loan’s principal amount based any profits realized on its retained 50% interest in the joint venture with the borrower and ACM’s participating interests in borrowers under three other contributed structured finance assets.

      In June 2003, ACM invested approximately $818,000 in exchange for a 12.5% non-controlling interest in a joint venture, which was formed to acquire, develop and/or sell real estate assets. This investment was purchased by the Company from ACM in August 2003. The Company accounts for this investment under the equity method. In addition, as of September 30, 2003, the Company had two mezzanine loans, secured by a second lien position in the ownership interests of the borrower and the property, to this joint venture totaling $6.0 million outstanding. The loans require monthly interest payments based on LIBOR and mature in May 2006. Interest income recorded from these loans was approximately $97,000 for the period ended September 30, 2003.

      At the time of ACM’s origination of three of the structured finance assets that it contributed to the Company on July 1, 2003 at book value, which approximates fair value, each of the property owners related to these contributed assets granted ACM participating interests that share in a percentage of the cash flows of the underlying properties. Upon contribution of the structured finance assets, ACM retained these participating interests and its 50% non-controlling interest in the joint venture to which it had made the $16.0 million bridge loan. ACM agreed that if any portion of the outstanding amount of any of these four contributed assets is not paid at the its maturity or repurchase date, ACM will pay to the Company, subject to the limitation described below, the portion of the unpaid amount of the contributed asset up to the total amount then received by ACM due to the realization of any profits on its retained interests associated with any other of the four contributed assets. However, ACM will no longer be obligated to make such payments to the Company when the remaining accumulated principal amount of the four contributed assets, collectively, falls below $5 million and none of the four contributed assets is in default.

Note 11 — Management Agreement

      The Company and ARLP have entered into a management agreement with ACM which has an initial term of two years with automatic one year extensions, subject to certain termination rights. After the initial two year term, the Company will be able to terminate the management agreement without cause for any reason upon six months’ prior written notice to ACM. If the Company terminates the management agreement without cause, or gives ACM notice of non-renewal, in order to manage its operations internally, the Company will be required to pay ACM a termination fee equal to the base management fee and the incentive compensation earned by ACM during the 12-month period preceding the termination. If, without cause, the Company terminates the management agreement or elects not to renew it for any other reason, the Company will be required to pay ACM a termination fee equal to two times the base management fee and the incentive compensation earned by ACM during the 12-month period preceding the termination.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The Company’s chief executive officer is also ACM’s chief executive officer and controlling equity owner. ACM has agreed to provide the Company with structured finance investment opportunities and loan servicing as well as other services necessary to operate its business. The Company’s chief executive officer, chief financial officer and general counsel and secretary are not employees of the Company. The Company relies to a significant extent on the facilities and resources of ACM to conduct its operations. The management agreement requires ACM to manage the business affairs in conformity with the policies and the general investment guidelines that are approved and monitored by the Company’s board of directors. ACM’s management of the Company is under the direction or supervision of the Company’s board of directors.

      For performing services under the management agreement, the Company will pay ACM an annual base management fee payable monthly in cash as a percentage of ARLP’s equity and equal to 0.75% per annum of the equity up to $400 million, 0.625% per annum of the equity from $400 million to $800 million and 0.5% per annum of the equity in excess of $800 million. For purposes of calculating the base management fee, equity equals the month end value computed in accordance with generally accepted accounting principles of (1) total partners’ equity in ARLP, plus or minus (2) any unrealized gains, losses or other items that do not affect realized net income.

      The Company will also pay ACM incentive compensation each fiscal quarter, calculated as (1) 25% of the amount by which (a) ARLP’s funds from operations per unit of partnership interest in ARLP, adjusted for certain gains and losses, exceeds (b) the product of (x) 9.5% per annum or the 10 year Treasury Rate plus 3.5%, whichever is greater, and (y) the weighted average of book value of the net assets contributed by ACM to ARLP per ARLP partnership unit, the offering price per share of the Company’s common equity in the private offering on July 1, 2003 and subsequent offerings and the issue price per ARLP partnership unit for subsequent contributions to ARLP, multiplied by (2) the weighted average of ARLP’s outstanding partnership units. At least 25% of this incentive compensation is paid to ACM in shares of the Company’s common stock, subject to ownership limitations in the Company’s charter. The Company has also agreed to share with ACM a portion of the origination fees that it receives on loans it originates through ACM.

      The incentive compensation will be measured annually in arrears; provided, however, ACM shall receive quarterly installments thereof in advance. The quarterly installments will be calculated based on the results for the period of twelve months ending on the last day of the fiscal quarter with respect to which such installment is payable. Each quarterly installment payment will be deemed to be an advance of a portion of the incentive fee payable for the year. In the event the calculated incentive compensation for the full year is an amount less than the total of the installment payments made to ACM for the year, ACM will refund to the Company the amount of such overpayment in cash. In such case, the Company would record a negative incentive fee expense in the quarter when such overpayment is determined. The incentive compensation fee will be accrued as it is earned. Amounts paid in stock will be expensed as incurred based on the fair value of the stock on the date paid. No incentive compensation was earned or paid in the quarter ended September 30, 2003.

      ACM is responsible for all costs incident to the performance of its duties under the management agreement, including compensation of its employees, rent for facilities and other “overhead” expenses. The Company is required to pay or reimburse ACM for all expenses incurred on behalf of the Company in connection with the raising of capital or the incurrence of debt, interest expenses, taxes and license fees, litigation and extraordinary or non recurring expenses.

F-14

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12 — Dividends

      In order to qualify as a REIT, the Company must currently distribute at least 90% of its taxable income and must distribute 100% of its taxable income in order not to be subject to corporate federal income taxes on retained income. The Company anticipates it will distribute all of its taxable income to its shareholders. Because taxable income differs from cash flow from operations due to non-cash revenues or expenses (such as depreciation), in certain circumstances, the Company may generate operating cash flow in excess of its dividends or, alternatively, may be required to borrow to make sufficient dividend payments.

      On November 5, 2003, the Company declared a dividend of $.25 per share of common stock, payable with respect to the three months ended September 30, 2003, to stockholders of record at the close of business on November 5, 2003. The Company distributed this dividend on November 18, 2003.

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Table of Contents

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

SCHEDULE IV — LOANS AND OTHER LENDING INVESTMENTS

As of September 30, 2003

Periodic

Interest Pay

Interest

Payment

Maturity

Rate

Accrual

Prior

Face

Carrying

Type

Location

Terms

Date

Index

Rate Index

Liens

Amount

Amount

Senior Mortgages:

Multi-family

New York, NY

Interest Only

5/2006

Libor + 2.25%

N/ A

—

$

16,000,000

$

16,000,000

Co-op

New York, NY

Interest Only

10/2003

18.00%

N/ A

—

1,100,000

1,100,000

Multi-family/ Office

Massachusetts

Interest Only

4/2004

Libor + 5.50%

N/ A

—

5,000,000

5,000,000

Floor 7.00%

Hotel

New York, NY

Interest Only

3/2005

Libor + 5.00%

N/ A

—

11,900,000

11,900,000

Floor 6.50%

Multi-family

Winter Park, FL

Interest Only

12/2004

Libor + 3.50%

N/ A

—

15,400,000

15,400,000

Floor 5.50%

Multi-family

Las Vegas, NV

Principal and Interest

12/2004

Libor + 3.00% Floor 5.25%

N/ A

—

25,232,102

25,232,102

Hotel

Deland, FL

Interest Only

4/2004

Libor + 6.65%

N/ A

—

4,700,000

4,700,000

Floor 12.50%

Multi-family

Indiana

Interest Only

3/2004

Libor + 4.25%

N/ A

—

14,624,845

14,624,845

Multi-family

Ontario, CA

Interest Only

4/2005

Libor + 4.00%

N/ A

—

9,130,000

9,130,000

Floor 5.50%

Multi-family

Baltimore, MD

Interest Only

4/2006

Libor + 3.50%

N/ A

—

14,200,000

14,200,000

Floor 5.00%

Multi-family

Lauderdale Lakes, FL

Interest Only

12/2004

Libor + 3.50%

Floor 5.50%

Multi-family

Miami Lakes, FL

Interest Only

9/2004

Libor + 3.00%

N/ A

—

18,850,000

18,850,000

Floor 5.00%

Multi-family

San Francisco, CA

Interest Only

7/2004

Libor + 4.500%

N/ A

—

18,850,000

18,850,000

Floor 6.00%

Total Senior Mortgages

—

$

151,136,947

$

151,136,947

F-16

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

SCHEDULE IV — LOANS AND OTHER LENDING INVESTMENTS — (Continued)

As of September 30, 2003

Interest

Periodic

Accrual

Payment

Maturity

Interest Pay

Rate

Prior

Face

Carrying

Type

Location

Terms

Date

Rate Index

Index

Liens

Amount

Amount

Mezzanine Loans:

Commercial

Brooklyn, NY

Interest Only

5/2006

Libor + 3.50%

Libor +  8.00%

$

1,600,000

$

2,500,000

$

2,500,000

Floor 5.00%

Floor 9.50%

Condo

New York, NY

Interest Only

5/2006

Libor + 7.00%

N/ A

16,000,000

4,000,000

4,000,000

Floor 10.00%

Multi-family

New York, NY

Interest Only

2/2004

Libor + 3.00%

Libor +  5.00%

31,000,000

10,000,000

10,000,000

Floor: 8.00%

Floor 12.50%

Commercial

Brooklyn, NY

Interest Only

5/2006

Libor + 3.50%

Libor +  8.00%

7,700,000

3,500,000

3,500,000

Floor 5.00%

Floor 9.50%

Multi-family

Tampa, FL

Interest Only

12/2003

Libor + 6.75%

N/ A

21,375,000

4,000,000

Floor 12.00%

4,000,000

Multi-family

Glassboro, NJ

Interest Only

6/2006

Libor + 7.00%

N/ A

11,000,000

2,000,000

2,000,000

Floor 10.00%

Hotel

Arizona

Interest Only

7/2006

Libor + 7.00%

N/ A

10,000,000

2,220,491

2,220,491

Floor 9.00%

Cap 10.00%

Multi-family

Baltimore, MD

Interest Only

5/2006

Libor + 4.50% (Year  1);

N/ A

14,244,862

4,725,569

4,725,569

Libor + 6.50% (Year  2);

Libor + 7.50% (Year  3)

Libor Floor 2.00%

Multi-family

New Jersey

Interest Only

4/2005

Libor + 5.25%

N/ A

14,016,998

3,000,000

3,000,000

Floor 6.75%

Multi-family

Baltimore, MD

Interest Only

9/2005

Libor + 5.50% (Year  1);

N/ A

59,258,232

11,520,000

11,520,000

Libor + 6.50% (Year  2);

Libor + 7.50% (Year  3)

Libor Floor 2.00%

Total Mezzanine Loans

$

166,957,592

$

47,466,060

$

47,466,060

Preferred Equity:

Multi-family

Texas

Interest Only

1/2004

Libor + 4.50%

N/ A

$

12,776,051

$

4,991,001

$

4,991,001

Floor 9.56%

Multi-family

Holyoke, MA

Interest Only

1/2005

Libor + 4.50%

Libor +  7.50%

5,442,960

2,500,000

2,500,000

Floor: 10.00%

Floor: 13.50%

Multi-family

Baltimore, MD

Interest Only

11/2006

Libor + 4.50% (Year  1);

N/ A

11,680,502

7,074,431

7,074,431

Libor + 6.50% (Year  2);

Libor + 7.50% (Year  3)

Libor Floor 2.00%

Multi-family

Santa Ana, CA

Interest Only

1/2005

Libor + 5.00%

N/ A

10,647,537

3,860,000

3,860,000

Floor 12.00%

Multi-family

New Jersey

Interest Only

4/2005

Libor + 5.25%

N/ A

189,314,199

19,300,000

19,300,000

Floor 6.75%

Multi-family

Denver, CO

Interest Only

3/2004

Libor + 6.00%

N/ A

23,398,573

2,800,000

2,800,000

Floor 10.00%

Total Preferred Equity

$

253,249,822

$

40,525,432

$

40,525,432

Other Investments:

Hotel

Miami, FL

8/2023

7.39% Fixed

N/ A

$

10,000,000

$

1,977,245

$

1,977,245

Total Loans and investments

$

430,207,414

$

241,105,684

$

241,105,684

F-17

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Table of Contents

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE STRUCTURED FINANCE BUSINESS OF ARBOR COMMERCIAL MORTGAGE, LLC AND SUBSIDIARIES

			Page
Report of Independent Certified Public Accountants				F-18
Financial Statements:
	Consolidated Statements of Assets and Liabilities at December 31, 2002 and 2001 and at June 30, 2003 (Unaudited)			F-19
	Consolidated Statements of Revenue and Direct Operating Expenses for the Years Ended December 31, 2002, 2001 and 2000, the Six Months Ended (Unaudited) June 30, 2003 and the Nine Months Ended (Unaudited) September 30, 2002			F-20
Notes to Consolidated Financial Statements				F-21
Mezzobridge Funding LLC Financial Statements for the Year Ended and at December 31, 2000 (Audited) and related notes				F-33

F-18

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Table of Contents

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Members of
Arbor Commercial Mortgage, LLC

      We have audited the accompanying consolidated statements of assets and liabilities of the Structured Finance Business (the “SF Business”) or (the “Company”) of Arbor Commercial Mortgage, LLC and Subsidiaries (“ACM”) as of December 31, 2002 and 2001, and the related consolidated statements of revenue and direct operating expenses for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of ACM’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

      We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      The accompanying financial statements were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in the Registration Statement on Form S-11 of Arbor Realty Trust, Inc. and do not purport to be a complete presentation of the assets and liabilities or results of operations that would have resulted if the SF Business had operated as an unaffiliated independent company.

      In our opinion, the financial statements referred to above present fairly, in all material respects, the assets and liabilities of the SF Business of ACM as of December 31, 2002 and 2001, and the revenue and direct operating expense for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

Grant Thornton LLP

New York, New York

F-19

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THE STRUCTURED FINANCE BUSINESS OF ARBOR COMMERCIAL MORTGAGE, LLC

Consolidated Statements of Assets and Liabilities

						December 31,
		June 30, 2003				2002				2001
		(Unaudited)
Assets:
Loans and investments, net		$	204,561,578			$	172,142,511			$	160,183,066
Related party loans, net			23,277,041				15,952,078				15,880,207
Investment in equity affiliates			3,654,573				2,586,026				2,957,072
Real estate owned			7,542,439				7,258,931				—
Other assets			2,632,329				2,623,690				4,693,402
Total assets		$	241,667,960			$	200,563,236			$	183,713,747
Liabilities:
Notes payable and repurchase agreements		$	171,045,404			$	141,836,477			$	132,409,735
Other liabilities			1,640,962				2,444,329				1,676,566
Total liabilities			172,686,366				144,280,806				134,086,301
Commitments and contingencies			—				—				—
Net Assets		$	68,981,594			$	56,282,430			$	49,627,446

See notes to consolidated financial statements.

F-20

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THE STRUCTURED FINANCE BUSINESS OF ARBOR COMMERCIAL MORTGAGE, LLC

Consolidated Statements of Revenue and Direct Operating Expenses

			Six Months				Nine Months
			Ended				Ended
			June 30,				September 30,				Year Ended December 31,
			2003				2002				2002				2001				2000
			(Unaudited)				(Unaudited)
Revenue:
	Interest income		$	7,688,465			$	10,798,414			$	14,532,504			$	14,667,916			$	10,707,551
	Other income			1,552,414				572,161				1,090,106				1,668,215				652,970
Total revenue				9,240,879				11,370,575				15,622,610				16,336,131				11,360,521
Direct operating expenses:
	Interest expense			3,468,275				4,832,260				6,586,640				7,029,374				5,518,463
	Employee compensation and benefits			1,751,147				2,105,445				2,827,191				2,888,603				3,026,324
	Selling and administrative			458,266				582,850				910,924				839,823				442,487
	Provision for loan losses			60,000				3,255,000				3,315,000				240,000				240,000
Total direct operating expenses				5,737,688				10,775,555				13,639,755				10,997,800				9,227,274
	Revenue in excess of direct operating expenses before gain on sales of loans and real estate and income from equity affiliates			3,503,191				595,020				1,982,855				5,338,331				2,133,247
Gain on sale of loans and real estate				1,024,268				7,006,432				7,470,999				3,226,648				1,880,825
Income from equity affiliates				—				632,350				632,350				1,403,014				5,028,835
Revenue, gain on sale of loans and real estate and income from equity affiliates in excess of direct operating expenses			$	4,527,459			$	8,233,802			$	10,086,204			$	9,967,993			$	9,042,907

See notes to consolidated financial statements.

F-21

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Table of Contents

THE STRUCTURED FINANCE BUSINESS OF ARBOR COMMERCIAL MORTGAGE, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Description of Business and Basis of Presentation

      On July 1, 2003 Arbor Commercial Mortgage, LLC (“ACM”) contributed a portfolio of structured finance investments and related debt to Arbor Realty Limited Partnership (“ARLP”), the operating partnership of Arbor Realty Trust, Inc. (“ART”). In addition, certain employees of ACM were transferred to ARLP. These assets, liabilities and employees represent a substantial portion of ACM’s structured finance business (“SF Business”) or (the “Company”). Through its SF Business, ACM invests in real estate related bridge and mezzanine loans, preferred equity and other real estate related assets.

      The SF Business of Arbor Commercial Mortgage, LLC is not a legal entity and the assets and liabilities associated with the SF Business are components of a larger business. Accordingly, the information included in the accompanying consolidated financial statements has been obtained from ACM’s consolidated historical accounting records. The SF Business never operated as a separate business entity or division of ACM but rather as an integrated part of ACM’s consolidated business. Accordingly, the statements of revenue and direct operating expenses do not include charges from ACM for corporate general and administrative expense because ACM considered such items to be corporate expenses and did not allocate them to individual business units. Such expenses included costs for ACM’s executive management, corporate facilities and overhead costs, corporate accounting and treasury functions, corporate legal matters and other similar costs.

      The statements of revenue and direct operating expenses include the revenue and direct operating expenses that relate to the SF Business. Direct operating expenses include interest expense applicable to the funding costs of the SF Business loans and investments, salaries and related fringe benefit costs, provision for loan losses and other expenses directly associated with revenue-generating activities. Direct operating expenses also include allocations of certain expenses, such as telephone, office equipment rental and maintenance, office supplies and marketing, which were directly associated with the SF Business and were allocated based on headcount of the SF Business in relation to the total headcount of ACM. All of these allocations are based on assumptions that management believes are reasonable under the circumstances.

      A statement of cash flows is not presented because the SF Business did not maintain a separate cash balance. Other than the debt required to fund the loans and investments made by the SF Business, its operating activities were funded by ACM. Because the SF Business never operated as a separate business or division of ACM, the accompanying consolidated financial statements are not intended to be a complete presentation of the historical financial position, results of operations and cash flows of the SF Business. The historical operating results of the SF Business may not be indicative of the future operating results of ART. The accompanying consolidated financial statements were prepared for inclusion in the Form S-11 of ART and do not purport to reflect the assets and liabilities or results of operations that would have resulted if the SF Business had operated as an unaffiliated independent company.

      The consolidated financial statements include the financial statements of ACM, its wholly owned subsidiaries, and partnerships or other joint ventures in which ACM holds, directly or indirectly, over fifty percent of the outstanding voting shares. When partnership voting interest are not clearly indicated, ACM reviews other factors to determine control, such as whether ACM is entitled to over 50% of the profits and losses of the partnership. Additionally, for investments in limited partnerships, ACM reviews the rights and obligations of the general partner and the limited partners to determine if in substance the general partner controls such entity. These rights and obligations include such items as whether the limited partner has the right to replace the general partner, approve the sale or refinancing of the partnership assets or approve the acquisition of additional significant partnership assets. In instances where AMC has a majority voting interest but minority partners have significant participation, such as the right to establish operating and capital

F-22

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

decisions of the entity, ACM does not consolidate this entity. Based on this criteria, investments in partnerships or joint ventures that ACM does not control are accounted for under the equity method.

Note 2 — Summary of Significant Accounting Policies

	Use of Estimates

      The preparation of consolidated financial statements in conformity with accounting principals generally accepted in the United States of America requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

	Real Estate Owned

      Real estate owned represents commercial real estate property acquired through foreclosure or deed in lieu of foreclosure that the SF Business owns and operates. Such assets are classified as held for sale and not depreciated. They are carried at the lower of cost or fair value less cost to sell. The Company reviews its real estate assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

	Loans and Investments

      Loans held for investment are intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan origination costs and fees, unless such loan or investment is deemed to be impaired.

      The SF Business invests in preferred equity interests that allow the SF Business to participate in a percentage of the underlying property’s cash flows from operations and proceeds from a sale or refinancing. At the inception of each such investment, management must determine whether such investment should be accounted for as a loan, joint venture or as real estate. To date, management has determined that all such investments are properly accounted for and reported as loans.

      Specific valuation allowances are established for impaired loans based on the fair value of collateral on an individual loan basis. The fair value of the collateral is determined by an evaluation of operating cash flow from the property during the projected holding period, and estimated sales value computed by applying an expected capitalization rate to the stabilized net operating income of the specific property, less selling costs, discounted at market discount rates. If upon completion of the valuation, the fair value of the underlying collateral securing the impaired loan is less than the net carrying value of the loan, an allowance is created with a corresponding charge to the provision for loan losses. The allowance for each loan is maintained at a level believed adequate by management to absorb probable losses.

	Revenue Recognition

      The revenue recognition policies of the SF Business are as follows:

      Interest Income — Interest income is recognized on the accrual basis as it is earned. In most instances, the borrower pays an origination fee, an additional amount of interest at the time the loan is closed, and deferred interest upon maturity of the loan. This additional income, as well as any direct loan origination costs

F-23

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

incurred, is deferred and recognized over the life of the related loan as a yield adjustment. Income recognition is suspended for loans when in the opinion of management a full recovery of income and principal becomes doubtful. Income recognition is resumed when the loan becomes contractually current and performance is demonstrated to be resumed Several of the loans provide for accrual of interest at specified rates, which differ from current payment terms. Interest is recognized on such loans at the accrual rate subject to management’s determination that accrued interest and outstanding principal are ultimately collectible, based on the underlying collateral and operations of the borrower. If management cannot make this determination regarding collectibility, interest income is recognized only upon actual receipt.

      Other Income — Other income includes several types of income which are recorded upon receipt. Certain of the Company’s loans and investments provide for additional payments based on the borrower’s operating cash flow, appreciation of the underlying collateral, payments calculated based on the timing of when the loan pays off and changes in interest rates. Such amounts are not readily determinable and are recorded as other income upon receipt.

	Gain on Sale of Loans and Real Estate

      For the sale of loans and real estate, recognition occurs when all the incidence of ownership passes to the buyer.

	Income from Equity Affiliates

      The SF Business has several joint ventures that were formed to lend to, acquire, develop and/or sell real estate assets. Such investments are recorded under the equity method. The Company records its share of the net income from the underlying properties. The gain or loss on disposition of a joint venture interest is recorded as gain on sale of loans and real estate.

	Income Taxes

      No provision or benefit for income taxes has been provided in the accompanying consolidated financial statements due to the fact that the SF Business was not operated as a stand-along unit and no allocation of ACM’s income tax provision/benefit has been made to the SF Business. ACM is a limited liability company (which is taxed as a partnership), and accordingly, the taxable income or loss of ACM is included in the federal and state income tax returns of ACM’s individual members.

	Recently Issued Accounting Pronouncements

      In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). FIN 46 provides guidance on identifying entities for which control is achieved through means other than through voting rights (a “variable interest entities” or “VIE”), and how to determine when and which business enterprise should consolidate a VIE. In addition, FIN 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in VIE make additional disclosures. The transitional disclosure requirements will take effect almost immediately and are required for all consolidated financial statements initially issued after January 31, 2003. Management is in the process of evaluating all of its mezzanine loans and preferred equity investments, which may be deemed variable interest entities under the provision of FIN 46. A definitive conclusion can not be reached until the evaluation has been completed.

F-24

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” an interpretation of FASB Statement of Financial Accounting Standards No. 5 (“SFAS No. 5”), “Accounting for Contingencies,” Statement of Financial Accounting Standards No. 57, “Related Party Disclosures,” Statement of Financial Accounting Standards No. 107, “Disclosures about Fair Value of Financial Instruments” and rescinded FASB Interpretation No. 34, “Disclosure of Indirect Guarantees of Indebtedness of Others, an Interpretation of SFAS No. 5.” It requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee regardless of whether the Company receives separately identifiable consideration (i.e., a premium). The new disclosure requirements were effective December 31, 2002. The adoption of FIN 45 did not have a material impact on the Company’s Consolidated Financial Statements, nor is it expected to have a material impact in the future.

Note 3 — Selected Cash Flow Information

      A statement of cash flows is not presented because the SF Business did not maintain a separate cash balance. Other than the debt required to fund the loans and investments of the SF Business, operating activities were funded by ACM. Selected cash flow from investing and financing activities is presented below.

										December 31,
		June 30,				September 30,
		2003				2002				2002				2001				2000
		(Unaudited)				(Unaudited)
Cash flows from investing activities:
Loans and investments originated		$	(117,176,849	)		$	(58,337,833	)		$	(116,810,564	)		$	(53,165,836	)		$	(60,004,410	)
Payoffs and paydowns of loans and investments			76,106,055				73,445,047				105,608,865				62,044,959				22,982,044
Proceeds from sale of real estate held for sale			—				—				—				9,801,548				—
Purchase of joint venture interest			—				—				—				(7,619,272	)			—
Cash flows from financing activities:
Proceeds from notes payable and repurchase agreements			93,228,860				44,410,400				86,853,319				57,558,552				51,316,473
Payoffs and paydowns of notes payable and repurchase agreements			(64,019,933	)			(62,733,182	)			77,426,577				(63,111,680	)			(27,997,502	)

F-25

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 — Loans and Investments

						December 31,
		June 30,
		2003				2002				2001
		(Unaudited)
Bridge loans		$	120,784,295			$	93,789,934			$	81,947,873
Mezzanine loans			56,571,799				59,483,271				58,481,072
Preferred equity investments			20,492,643				12,530,562				5,491,001
Other			11,005,835				9,469,039				18,151,162
			208,854,572				175,272,806				164,071,108
Unearned revenue			(2,620,513	)			(1,167,814	)			(2,223,042	)
Allowance for loan losses			(1,672,481	)			(1,962,481	)			(1,665,000	)
Loans and investments, net		$	204,561,578			$	172,142,511			$	160,183,066

      In 2001 the Company had $1,665,000 in allowance for loan losses related to three bridge loans, that were deemed to be impaired. In accordance with the Company’s policy for revenue recognition, income recognition was suspended on these loans. In 2002 these loans were repaid and the total outstanding principal balance was collected. The $1,665,000 of allowance for loan losses was re -allocated to the loans that were deemed to be impaired in 2002.

      A bridge loan with a carrying value of $10,333,931 was foreclosed and reclassified as real estate owned in 2002. Prior to foreclosure, the Company in 2002 recorded a provision for loan losses of $3,075,000 to reflect this asset at its estimated fair value, excluding an estimated $300,000 of foreclosure cost. This amount was charged-off when the loan was reclassified as real estate owned. In 2003 the Company paid approximately $284,000 in foreclosure related cost, which were added to this assets carrying value.

      A bridge loan with a carrying value of $4,100,000 was deemed to be impaired in 2002 and $700,000 of allowance for loan losses was allocated to this loan to reflect this loan at its estimated fair value. In accordance with the Company’s policy for revenue recognition, income recognition has been suspended on this loan. In 2003, the Company received a $3.75 million payment from the borrower in partial satisfaction of the loan, which amount was $350,000 in excess of the loan’s carrying value. The Company reduced its allowance for loan losses and recorded other income for the excess amount received.

      A bridge loan and a mezzanine loan, secured by the same property, with a carrying value of $10,584,492 was deemed to be impaired in 2002 and $305,000 of allowance for loan losses was allocated to these loans to reflect these loans at their estimated fair values. In accordance with the Company’s policy for revenue recognition, income recognition has been suspended on these loans.

      A mezzanine loan with a carrying value of $1,728,552 was deemed to be impaired in 2002 and $660,000 of allowance for possible loan losses was allocated to this loan as well as a $300,000 provision for loan losses was recorded to reflect this loan at its estimated fair value. In accordance with the Company’s policy for revenue recognition, income recognition has been suspended on this loan.

F-26

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Allowance for Loan Losses:

						December 31,
		June 30,
		2001				2002				2001
		(Unaudited)
Beginning balance		$	1,962,481			$	1,665,000			$	1,425,000
Provision for loan losses			60,000				3,315,000				240,000
Amounts charged against allowance for loan losses			(350,000	)			(3,017,519	)			—
Ending balance		$	1,672,481			$	1,962,481			$	1,665,000

	Concentration of Borrower Risk

      The Company is subject to concentration risk in that, as of June 30, 2003, December 31, 2002 and 2001, the unpaid principal balance relating to ten, eleven and eight loans represented approximately 36%, 46% and 37% of total loans held for investment and are with four, five and three unrelated borrowers, respectively. The total number of loans and investments by the Company was 40, 36 and 34 as of June 30, 2003, December 31, 2002 and 2001, respectively.

Note 5 — Business Acquisitions and Investment in Equity Affiliates

      In June 1998, the Company entered into a joint venture, Mezzobridge Funding, LLC, with SFG I, an affiliate of Nomura Asset Capital Corp. for the purpose of acquiring up to $250 million of structured finance investments. Capital contributions and profits were shared equally by the partners. Nomura Asset Capital Corp. provided financing to the joint venture in the form of a repurchase agreement. The interest rate charged for the financing was based on LIBOR. On July 31, 2001, the Company purchased from SFG I their interest in the joint venture.

F-27

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Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      This transaction was accounted for by the purchase accounting method. The activities of the former joint venture have been included in the Company’s statements of revenue and direct operating expenses from the date of acquisition, August 2001. Summarized financial data of this joint venture is as follows:

					July 31,				December 31,
					2001				2000
					(Unaudited)
Balance sheets
	Assets
		Cash			$	1,975,408			$	1,094,142
		Loans held for investment, net				95,130,987				123,761,555
	Other receivables and deferred costs					3,320,677				3,708,390
			Total assets		$	100,427,072			$	128,564,087
	Liabilities and members’ capital
		Liabilities
			Notes payable — repurchase agreement		$	67,494,364			$	90,615,593
			Accounts payable and accrued expenses			661,198				1,133,453
			Total liabilities			68,155,562				91,749,046
	Members’ capital Arbor					16,135,755				18,407,520
		Other partner				16,135,755				18,407,521
			Total members’ capital			32,271,510				36,815,041
			Total liabilities and members’ capital		$	100,427,072			$	128,564,087

				Seven Months Ended				Year Ended
				July 31, 2001				December 31, 2000
				(Unaudited)
Statements of operations
	Interest earned			$	5,446,464			$	17,835,318
	Interest and other expenses				4,578,950				10,422,280
		Net income		$	867,514			$	7,413,038
Net income allocated to:
	Arbor			$	433,757			$	3,706,519
	Other partner				433,757				3,706,519
		Total		$	867,514			$	7,413,038

      The Company purchased the entire interest of its partner for $16,135,755, which was equal to the members’ capital of the partner on the date of purchase. The Company financed this purchase with increased debt on the existing repurchase agreement of $6,541,075 and cash of $9,594,680, of which $1,975,408 was on hand in the joint venture at the date of purchase and was distributed to the partner. In conjunction with the

F-28

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

purchase, the existing repurchase agreement was assumed by the Company. The repurchase agreement expires in November 2003.

      The Company had a 26% interest in a joint venture, which owns and operates a multi-family real estate property. At December 31, 2001 and 2000 the Company’s investment in this joint venture was approximately $900,000 and $1.2 million, respectively. During 2001 and 2000 the Company recorded net income from this joint venture of $1,022,165 and $1,267,844, respectively. In March of 2002, the Company sold its investment in the joint venture and recorded a gain of $6.8 million. The Company received net income from this joint venture of $588,600 prior to the sale in 2002.

      The Company has several other joint ventures that were formed to acquire, develop and/or sell real estate assets which the Company does not control. At June 30, 2003, December 31, 2002 and 2001, the Company’s investments in these joint ventures were approximately $3.7 million, $2.6 million and $2.1 million, respectively. The Company recorded net income from these joint ventures of $43,750 in 2002 and net losses of $52,908 in 2001.

Note 6 — Notes Payable and Repurchase Agreements

      The Company utilizes warehouse lines of credit and repurchase agreements to finance its loans and investments. Borrowings underlying these arrangements are secured by substantially all the Company’s loans and investments.

						December 31,
		June 30,
		2003				2002				2001
		(Unaudited)
Structured transaction facility, financial institution, $150 million committed line, expiration August 2004, interest rate variable based on LIBOR; the weighted average note rate was 4.13%, 4.07% and 5.50%, respectively		$	92,154,975			$	70,184,219			$	61,720,900
Repurchase agreement, financial institution, $100 million committed line, expiration December 2003 interest is variable based on LIBOR; the weighted average note rate was 3.40%, 3.42% and 4.44% respectively			75,548,867				68,267,260				66,941,689
Repurchase agreement, financial institution, $50 million committed line, expiration November 2005, interest rate variable based on LIBOR			—				—				n/a
Repurchase agreement, financial institution, uncommitted line, Interest rate variable based on LIBOR; the weighted average note rate was 3.02%, 3.35% and 3.68%, respectively			3,341,562				3,384,998				3,747,146
Notes payable and repurchase agreements		$	171,045,404			$	141,836,477			$	132,409,735

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The $150 million structured transaction facility contains profit-sharing arrangements between the Company and the lender which provide for profit sharing percentages ranging from 30% to 45% of net interest income of the loans and investments financed. This cost is included in interest expense.

      Each of the credit facilities contains various financial covenants and restrictions, including minimum net worth and debt-to-equity ratios. The Company is in compliance with all covenants and restrictions for all periods presented.

      In conjunction with ACM’s contribution of a portfolio of structured finance investments and related debt to ARLP the operating partnership of ART, the structured finance facility and the two committed repurchase agreements were assigned to ARLP pursuant to agreements with the relevant financial institutions.

Note 7 — Commitments and Contingencies

	Litigation

      In the normal course of business, the Company is subject to various legal proceedings and claims, the resolution of which, in management’s opinion, will not have a material adverse effect on the financial position or the results of operations of the Company.

Note 8 — Fair Value of Financial Instruments

      The following table summarizes the carrying values and the estimated fair values of financial instruments as of June 30, 2003, December 31, 2002 and 2001. Fair value estimates are dependent upon subjective assumptions and involve significant uncertainties resulting in variability in estimates with changes in assumptions.

		June 30, 2003								December 31, 2002								December 31, 2001
		Carrying				Estimated				Carrying				Estimated				Carrying				Estimated
		Value				Fair Value				Value				Fair Value				Value				Fair Value
		(Unaudited)
Financial assets:
Loans and investments, net		$	204,561,578			$	204,561,578			$	172,142,511			$	172,142,511			$	160,183,066			$	160,183,066
Related party loans, net			23,277,041				23,277,041				15,952,078				15,952,078				15,880,207				15,880,207
Financial liabilities:
Notes payable and repurchase agreements			171,045,404				171,045,404				141,836,477				141,836,477				132,409,735				132,409,735

      The following methods and assumptions were used by the Company in estimating the fair value of each class of financial instrument:

      Loans and investments, net: Fair values of variable-rate loans and investments with no significant change in credit risk are based on carrying values. Fair values of other loans and investments are estimated using discounted cash flow methodology, using discount rates, which, in the opinion of management, best reflect current market interest rates that would be offered for loans with similar characteristics and credit quality.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Related party loans, net: Fair values of variable-rate loans and investments with no significant change in credit risk are based on carrying values. Fair values of other loans and investments are estimated using discounted cash flow methodology, using discount rates, which, in the opinion of management, best reflect current market interest rates that would be offered for loans with similar characteristics and credit quality.

      Notes payable and repurchase agreements: Fair values approximate the carrying values reported in the balance sheets.

Note 9 — Related Party Transactions

Related Party Loans:

						December 31,
		June 30, 2003				2002				2001
		(Unaudited)
Bridge loans		$	16,000,000			$	16,000,000			$	16,000,000
Mezzanine loans			7,489,027				—				—
			23,489,027				16,000,000				16,000,000
Unearned revenue			(211,986	)			(47,922	)			(119,793	)
Related party loans, net		$	23,277,041			$	15,952,078			$	15,880,207

      The Company has a 50% non-controlling interest in a joint venture, which was formed to acquire, develop and/or sell real estate assets. At June 30, 2003, December 31, 2002 and 2001, the Company’s investments in this joint venture were approximately $2.6 million, $2.3 million and $1.8 million, respectively. The Company accounts for this investment under the equity method. At June 30, 2003 and December 31, 2002, the Company had a $16.0 million bridge loan outstanding to the joint venture, which is collateralized by a first lien position on a commercial real estate property. There is a limited guarantee on the loan of 50% by the chief executive officer of ACM and 50% by the key principal of the joint venture. The loan requires monthly interest payments based on LIBOR and matures in October 2004. In connection with the joint venture agreement the Company has agreed to provide the borrower with additional mezzanine financing in the amount of up to $8.0 million. The mezzanine financing requires interest payments based on LIBOR and matures in May 2006. The loan will be funded in two equal installments of $4.0 million. The funding will be drawn down as construction progresses. The interest on the first component, which was funded in June 2003, will be earned on the full $4.0 million, while the interest on the second component, which has yet to be funded, will be earned as the $4.0 million is drawn down. This additional financing is secured by a second mortgage lien on the property. In addition, an interest and renovation reserve totaling $2.5 million is in place to cover both the bridge and mezzanine loans. Interest income recorded from these loans was approximately $217,000, $449,000 and $148,000 for the periods ended June 30, 2003, December 31, 2002 and 2001, respectively.

      In June 2003, the Company invested approximately $818,000 in exchange for a 12.5% non-controlling interest in a joint venture, which was formed to acquire, develop and/or sell real estate assets. The Company accounts for this investment under the equity method. In June 2003, the Company funded two mezzanine loans to this joint venture totaling $6.0 million. The loans require monthly interest payments based on LIBOR and mature in May 2006. Interest income recorded from these loans was approximately $8,000 for the period ended June 30, 2003.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10 — Subsequent Events

      In June 2003 ART, a real estate investment trust was formed to invest in structured finance assets, particularly real estate related bridge and mezzanine loans, preferred equity and, in limited cases, discounted mortgage notes and other real estate related assets. On July 1, 2003 in exchange for a commensurate equity ownership in ART’s operating subsidiary ARLP, ACM contributed $213.1 million of structured finance assets and $169.2 million of borrowings supported by $43.9 million of equity. In addition, certain employees of ACM were transferred to ARLP. These assets, liabilities and employees represent the substantial portion of ACM’s SF Business.

      On July 1, 2003 ART completed a private placement of ART’s units, each consisting of five shares of common stock and one warrant to purchase one share of common stock. Gross proceeds from the private financing combined with the concurrent equity contribution by ACM totaled approximately $165 million in equity capital. ART will be externally managed and advised by ACM and will pay ACM a management fee in accordance with the management agreement. ACM will also originate, underwrite and service all structured finance assets on behalf of ARLP.

Note 11 — Unaudited Pro Forma Consolidated Financial Information

      In June, 2003 ACM formed ART, a newly organized real estate investment trust to operate and expand its SF Business. On July 1, 2003 ART completed a private placement of ART’s units, each consisting of five shares of ART’s common stock and one warrant to purchase one share of common stock. Gross proceeds from the private financing totaled $120.2 million. In exchange for a commensurate equity ownership in ART’s operating subsidiary, ARLP, ACM contributed $213.1 million of structured finance assets and $169.2 million of borrowings supported by $43.9 million of equity. These assets and liabilities were contributed at book value, which approximates market value, and represent 88% of the assets and 98% of the liabilities of the SF Business as of June 30, 2003. In addition, certain employees of ACM were transferred to ARLP.

      ART will be externally managed and advised by ACM and will pay ACM a management fee in accordance with the terms of the management agreement among ACM, ART and ARLP. ACM will also source originations, provide underwriting services and service all structured finance assets on behalf of ARLP. As a result, the operating expenses as presented in the historical consolidated financial statements would have been affected had ART been formed at an earlier time. Employee compensation and benefits expense would have decreased by $895,811 and $1,518,890 for the six months ended June 30, 2003 and year ended December 31, 2002, respectively, because these costs would have been borne by ACM under terms of the management agreement. Similarly, selling and administrative expense would have decreased by $65,752 and $127,753 for the six months ended June 30, 2003 and year ended December 31, 2002, respectively.

      In accordance with the terms of the management agreement, ACM will receive a management fee, composed of a base management fee and incentive compensation. The annual base management fee is payable monthly in cash as a percentage of ARLP’s equity and equal to 0.75% per annum of the equity up to $400 million, 0.625% per annum of the equity from $400 million to $800 million and 0.5% per annum of the equity in excess of $800 million. For purposes of calculating the base management fee, equity equals the month end value computed in accordance with generally accepted accounting principles of (1) total partners’ equity in ARLP, plus or minus (2) any unrealized gains, losses or other items that do not affect realized net income.

F-32

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      ART will also pay ACM incentive compensation each fiscal quarter, calculated as (1) 25% of the amount by which (a) ARLP’s funds from operations per unit of partnership interest in ARLP, adjusted for certain gains and losses, exceeds (b) the product of (x) 9.5% per annum or the 10 year Treasury Rate plus 3.5%, whichever is greater, and (y) the weighted average of book value of the net assets contributed by ACM to ARLP per ARLP partnership unit, the offering price per share of ART’s common equity in the private offering on July 1, 2003 and subsequent offerings and the issue price per ARLP partnership unit for subsequent contributions to ARLP, multiplied by (2) the weighted average of Arbor Realty Limited Partnership’s outstanding partnership units. At least 25% of this incentive compensation is paid to ACM in shares of ART’s common stock, subject to ownership limitations in ART’s charter. ART has also agreed to share with ACM a portion of the origination fees that it receives on loans it originates through ACM.

      The incentive compensation will be measured annually in arrears; provided, however, ACM shall receive quarterly installments thereof in advance. The quarterly installments will be calculated based on the results for the period of twelve months ending on the last day of the fiscal quarter with respect to which such installment is payable. Each quarterly installment payment will be deemed to be an advance of a portion of the incentive fee payable for the year. In the event the calculated incentive compensation for the full year is an amount less that the total of the installment payments made to ACM for the year, ACM will refund to ART the amount of such overpayment in cash. In such case, ART would record a negative incentive fee expense in the quarter when such overpayment is determined. The incentive compensation will be accrued as it is earned.

      This pro forma information does not reflect the results of the private financing. However, gross proceeds from the private financing totaled $120.2 million, which combined with ACM’s equity contribution of $43.9 million, resulted in total contributed capital of $164.1 million. Offering expenses of $9.6 million were paid by ART, resulting in stockholders equity and minority interest of ART of $154.5 million at its inception.

      The pro forma consolidated financial information is limited to adjustments that are directly attributable to the private placement, expected to have a continuing impact on ART and are factually supportable. These adjustments are based on the assumption that certain compensation and benefits expenses and certain selling and administrative expenses incurred by the SF Business would not have been incurred if ART had been in operation during the periods presented. The pro forma financial results do not include what the impact would have been had the gross proceeds from the private financing been available to the Company during the entire period. Had these proceeds been available to the Company during the entire period, there would have been an impact on certain revenues and expenses, including the management fees payable pursuant to the management agreement. The management fees are calculated based on such factors as funds from operations and the equity of ARLP, each as defined in the management agreement. Such amounts represent speculative and forward-looking information that is not factually supportable.

      The financial statements of the SF Business include the results of operations of the structured finance business segment of ACM and are not limited to the results of the structured finance assets that were transferred to ART. Accordingly, the results of certain investments in equity affiliates that were not transferred to ART have been included in the financial statements of the SF Business because they were included in the structured finance business segment even though the operating results from these equity affiliates have not been material to the structured finance business segment as a whole. In addition, ACM retained certain transactions in its structured finance portfolio with a net book value of approximately $27.8 million, primarily because they were not deemed to be suitable investments for ART. Had these retained assets been excluded from the financial statements of the SF Business, additional adjustments to the expense base would have been

F-33

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

necessary to estimate what expenses would have been had these assets not been in the portfolio. Such adjustments would have been speculative. Lastly, operating results for assets that matured before the contribution of structured finance assets to ART, but were in the portfolio of assets of the SF Business during the reporting period are also included in these statements.

F-34

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INDEX TO FINANCIAL STATEMENTS OF MEZZOBRIDGE FUNDING LLC

		Page
Report of Independent Certified Public Accountants			F-36
Balance Sheet			F-37
Statement of Operations			F-38
Statement of Members’ Capital			F-39
Statement of Cash Flows			F-40
Notes to Financial Statements			F-41

F-35

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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Members of

      We have audited the accompanying balance sheet of Mezzobridge Funding LLC (the “Company”) as of December 31, 2000, and the related statements of operations, members’ capital, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

      We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mezzobridge Funding LLC as of December 31, 2000, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Grant Thornton LLP

New York, New York

F-36

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MEZZOBRIDGE FUNDING LLC

BALANCE SHEET

Assets
		Cash and cash equivalents			$	1,094,142
	Loans held for investment, net					123,761,555
	Other receivables and deferred costs					3,708,390
		Total assets			$	128,564,087
Liabilities and members’ capital
		Note payable — repurchase agreement			$	90,615,593
	Accounts payable and accrued expenses					1,133,453
		Total liabilities				91,749,046
Commitments and contingencies
		Members’ capital				36,815,041
			Total liabilities and members’ capital		$	128,564,087

The accompanying notes are an integral part of this statement.

F-37

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Table of Contents

MEZZOBRIDGE FUNDING LLC

STATEMENT OF OPERATIONS

Revenues
		Interest earned		$	17,835,318
		Total revenues		$	17,835,318
Expenses
		Interest expense			9,472,612
	Selling, general and administrative				49,668
	Provision for possible loan losses				900,000
		Total expenses			10,422,280
		Net income		$	7,413,038

The accompanying notes are an integral part of this statement.

F-38

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MEZZOBRIDGE FUNDING LLC

STATEMENT OF MEMBERS’ CAPITAL

		Arbor
		Commercial
		Mortgage				SFG				Total
Balance — December 31, 1999		$	15,488,077			$	15,388,139			$	30,876,216
Capital contributions		$	4,811,847			$	4,811,847			$	9,623,694
Withdrawals and distributions			(5,598,923	)			(5,498,984	)			(11,097,907	)
Net income			3,706,519				3,706,519				7,413,038
Balance — December 31, 2000		$	18,407,520			$	18,407,521			$	36,815,041

The accompanying notes are an integral part of this statement.

F-39

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MEZZOBRIDGE FUNDING LLC

STATEMENT OF CASH FLOWS

Operating activities
		Net income			$	7,413,038
	Adjustments to reconcile net income to net cash provided by operating activities
			Provision for possible loan losses			900,000
		Changes in operating assets and liabilities
			Loans held for investment, net			7,189,061
			Loans held for sale, net			—
			Other receivables and deferred costs			(2,515,523	)
			Accounts payable and accrued expenses			(127,449	)
		Net cash provided by operating activities				12,859,127
Financing activities
	Decrease in note payable — repurchase agreement					(12,985,409	)
	Capital contributions by members					9,623,694
	Withdrawals and distributions to members					(11,097,907	)
		Net cash used in financing activities				(14,459,622	)
		Net decrease in cash and cash equivalents				(1,600,495	)
Cash and cash equivalents at beginning of year						2,694,637
Cash and cash equivalents at end of year					$	1,094,142
Supplemental disclosure of cash flow information:
	Cash paid during the year for interest				$	9,566,517

The accompanying notes are an integral part of this statement.

F-40

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MEZZOBRIDGE FUNDING LLC

NOTES TO FINANCIAL STATEMENTS

Note 1 —	Organization and Summary of Significant Accounting Policies

	Organization

      Mezzobridge Funding LLC (the “Company”), a Delaware limited liability company, was organized in June 1998 as a result of a joint venture agreement entered into between Arbor National Commercial Mortgage, LLC (“Arbor”), a New York limited liability company, and SFG1 (“SFG”), a Delaware business trust, whereby they would both own 50% of the Company. Capital contributions and profits are predominantly shared equally between the partners. This agreement provides for the Company to acquire up to $250 million in financing transactions with Nomura Asset Capital Corporation (“Nomura”), an affiliate of SFG, providing $200 million of financing, including $75 million for mezzanine loans, to the Company in the form of a repurchase agreement. The interest rate charged for the financing is LIBOR plus 2%. The repurchase agreement expires in June, 2001.

      The Company seeks out and funds, on a negotiated basis, high yielding lending and investment opportunities in commercial real estate through mezzanine loans, bridge loans, note acquisitions and other financing structures. The Company may also originate mortgages for sale into conduit programs.

	Use of Estimates

      The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.

	Cash and Cash Equivalents

      Cash and cash equivalents include cash on hand and in banks and short-term investments with maturities of three months or less at purchase.

	Loans Held for Investment

      Loans held for investment are collateralized by commercial real estate, which the Company intends to hold to maturity. These loans are carried at cost unless the loan is impaired. The Company measures the impairment of these loans based upon the fair value of the underlying collateral which is determined on an individual loan basis. The fair value of the collateral is determined by an evaluation of operating cash flow from the property during the projected holding period, and estimated sales value computed by applying an expected capitalization rate to the stabilized net operating income of the specific property, less selling costs, discounted at market discount rates. If upon completion of the valuations, the fair value of the underlying collateral securing the impaired loan is less than the recorded loan, an allowance is created with a corresponding charge to expense.

	Revenue Recognition

      Fees earned on loans held for investment are deferred and accreted into income as an adjustment to yield over the life of the loan. Fees earned on loans held for sale are recognized when all the incidence of ownership passes to the buyer.

F-41

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NOTES TO FINANCIAL STATEMENTS

Note 1 —	Organization and Summary of Significant Accounting Policies (continued)

	Income Taxes

      The Company is a limited liability company (which is taxed as a partnership) and, accordingly, the taxable income or loss of the Company is includable in the Federal and state income tax returns of the Company’s individual members. The Company will incur state income taxes in those states where it is not recognized as a limited liability company.

Note 2 —	Loans Held for Investment

      Loans held for investment at December 31, 2000 consist of:

Principal		$	128,210,413
Unearned discount, net			(2,458,858	)
Allowance for possible loan losses			(1,990,000	)
Loans held for investment, net		$	123,761,555

	Concentration of Borrower Risk

      The Company is subject to concentration risk in that, as of December 31, 2000, the unpaid principal balance relating to two loans represented approximately 30.2% of total loans held for investment. These loans are with two unrelated borrowers. The Company had 15 loans held for investment as of December 31, 2000.

Note 3 —	Note Payable — Repurchase Agreement

      The Company utilizes a repurchase agreement with Nomura in conjunction with its lending and investing activities. Borrowings under this agreement are secured by all of the Company’s loans held for investment.

      The repurchase agreement provides the Company with a $200 million committed line that expires June 2001 with interest variable based on LIBOR. In the event the expiration date is not extended, the repurchase agreement will remain in effect for existing loans for an additional twelve-month period. The weighted-average note rate for 2000 was 8.39%. The amount outstanding under this agreement at December 31, 2000 was $90,615,593.

      The repurchase agreement contains various financial covenants and restrictions, including minimum net worth and debt-to-equity ratios. The Company is in compliance with these covenants and restrictions.

Note 4 —	Members’ Capital

      The maximum capital contribution by Arbor and SFG under the joint venture agreement is $25 million each.

Note 5 —	Loan Servicing

      Arbor Commercial Mortgage services the Company’s commercial loan portfolio. The Company pays Arbor a fee for processing, underwriting and servicing these loans. Cash held in escrow on behalf of the Company by Arbor for certain of these mortgages at December 31, 2000 was approximately $2.3 million. These cash balances and related escrow liabilities are not reflected in the accompanying balance sheets. These escrows are maintained in separate accounts at a federally insured depository institution.

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NOTES TO FINANCIAL STATEMENTS

Note 6 —	Fair Value of Financial Instruments

      The following table summarizes the carrying values and the estimated fair values of financial instruments, as of December 31, 2000. Fair value estimates are dependent upon subjective assumptions and involve significant uncertainties resulting in variability in estimates with changes in assumptions.

							Estimated Fair
			Carrying Value				Value
Financial assets:
	Cash and cash equivalents		$	1,094,142			$	1,094,142
	Loans held for investment, net			123,761,555				123,761,555
Financial liabilities:
	Note payable — repurchase agreement		$	90,615,593			$	90,615,593

      The following methods and assumptions were used by the Company in estimating the fair value of each class of financial instrument.

      Cash and cash equivalents: Fair value approximates the carrying value reported in the balance sheets.

      Loans held for investment, net: Fair values of variable-rate loans with no significant change in credit risk are based on carrying values. Fair values of other loans are estimated using discounted cash flow methodology, using discount rates, which, in the opinion of management, best reflect current market interest rates that would be offered for loans with similar characteristics and credit quality.

      Note payable — repurchase agreement: Fair value approximates the carrying value reported in the balance sheets.

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         Prospective investors may rely only on the information contained in this prospectus. Arbor Realty Trust, Inc. has not authorized anyone to provide prospective investors with different or additional information. This prospectus is not an offer to sell nor is it seeking an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is correct only as of the date of this prospectus, regardless of the time of the delivery of this prospectus or any sale of these securities.

         Until                   , 2004, (25 days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

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TABLE OF CONTENTS

		Page
Prospectus Summary			1
Risk Factors			17
Forward Looking Statements			35
Use of Proceeds			36
Distribution Policy			36
Capitalization			38
Dilution			39
Price Range of Units			40
Selected Unaudited Consolidated Financial Information of Arbor Realty Trust, Inc. and Subsidiaries			41
Selected Consolidated Financial Information of the Structured Finance Business of Arbor Commercial Mortgage, LLC and Subsidiaries			42
Management’s Discussion & Analysis of Financial Condition and Results of Operations of Arbor Realty Trust, Inc. and Subsidiaries			44
Management’s Discussion & Analysis of Financial Condition and Results of Operations of the Structured Finance Business of Arbor Commercial Mortgage, LLC and Subsidiaries			55
Arbor Realty Trust, Inc.			66
Our Manager and the Management Agreement			91
Management			103
Registration Rights and Lock-Up Agreements			110
Certain Relationships and Related Transactions			112
Security Ownership of Certain Beneficial Owners and Management			116
Description of Stock			118
Securities Eligible For Future Sale			124
Important Provisions of Maryland Law and of Our Charter and Bylaws			126
Our Operating Partnership Agreement			130
Federal Income Tax Considerations			135
ERISA Considerations			152
Selling Stockholders			154
Underwriting			156
Legal Matters			159
Experts			159
Change in Accountants			159
Where You Can Find More Information			160
Index to the Unaudited Consolidated Financial Statements of Arbor Realty Trust, Inc. and Subsidiaries			F-1
Index to the Consolidated Financial Statements of the Structured Finance Business of Arbor Commercial Mortgage, LLC and Subsidiaries			F-18

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Arbor Realty Trust, Inc.

                         Shares of Common Stock

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PROSPECTUS

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                    , 2004

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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 31.	Other Expenses of Issuance and Distribution.

      The following table sets forth the costs and expenses expected to be incurred in connection with the sale and distribution of the securities being registered, all of which are being borne by the registrant.

Securities and Exchange Commission registration fee			$	12,398.13	*
National Association of Securities Dealers, Inc. and Blue Sky Registration Fees					*
New York Stock Exchange application and listing fee					*
Printing and engraving expenses					*
Legal Fees and Expenses					*
Accounting Fees and Expenses					*
Miscellaneous					*
	Total				*

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*	To be filed by amendment.

Item 32.	Sales to Special Parties.

      See Item 33.

Item 33.	Recent Sales of Unregistered Securities

      On June 26, 2003, in connection with the incorporation of Arbor Realty Trust, Inc. (the “Company”), the Company issued 67 shares of common stock, par value $.01 per share (the “Common Stock”) to Arbor Commercial Mortgage, LLC (“ACM”) for $1,005. Such issuance was exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof.

      On July 1, 2003 the Company sold 1,610,000 units, each unit consisting of five shares of Common Stock, and one warrant to purchase one share of Common Stock of the Company (the “Units”). Of the 1,610,000 Units sold, 1,327,989 Units (the “144A Units”) were sold to Qualified Institutional Buyers (as defined in Rule 144A under the Securities Act) in reliance on the exemption from the registration requirements of the Securities Act provided by Rule 144A under the Securities Act and to a limited number of “institutional accredited investors” (as defined in Rule 501 under the Securities Act) in reliance on the exemption from the registration requirements of the Securities Act provided by Rule 506 of Regulation D under the Securities Act. The offering price per Unit was $75. The initial purchaser of the 144A Units was JMP Securities LLC (“JMP”). The aggregate proceeds to the Company from such offering and the aggregate initial purchaser’s discount were $92,627,232.75 and $6,971,942.25, respectively.

      On July 1, 2003, the remaining 282,011 Units (the “AI Units”) were sold to certain “accredited investors” (as defined in Rule 501 under the Securities Act), including affiliates and employees of each of ACM and JMP, in reliance on the exemption from the registration requirements of the Securities Act provided by Rule 506 of Regulation D under the Securities Act. JMP acted as placement agent in connection with the sale of the AI Units. The offering price per Unit was $75, except that 104,767 of the AI Units were sold to JMP employees and certain entities affiliated with JMP at a price of $69.75 per Unit. JMP received a placement fee of $5.25 for 91,697 of the AI Units sold to certain accredited investors and $2.25 for 85,547 of the AI Units sold to accredited investors who were affiliated with the Company. JMP did not receive a placement fee with respect to the sale of the 104,767 AI Units sold to JMP employees and certain entities affiliated with JMP. The aggregate proceeds to the Company from such offering and the aggregate placement fee to JMP were $19,926,908.25 and $673,890.00, respectively.

II-1

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      On July 1, 2003, the Company issued 3,146,724 shares of the Company’s special voting preferred stock, par value $.01 per share, to ACM (the “Special Preferred Stock”) for $31,467. Such issuance was exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof.

      On July 1, 2003, the Company granted a total of 147,500 restricted shares of Common Stock, of which 120,000 restricted shares have been awarded to Mr. Ivan Kaufman, the President and Chief Executive Officer of the Company, pursuant to the Arbor Realty Trust, Inc. 2003 Omnibus Stock Incentive Plan (the “Stock Incentive Plan”). On November 5, 2003, the Company granted 1,000 restricted shares of Common Stock to each of Messrs. Horn and Lazar, directors of the Company, pursuant to the Stock Incentive Plan. For a more detailed description of the Stock Incentive Plan, see “Management — Stock Incentive Plan” in this Registration Statement. In granting the restricted shares, the Company relied upon exemptions from the registration requirements of the Securities Act set forth in Rule 506 of Regulation D under the Securities Act and Section 4(2) of the Securities Act.

      On July 1, 2003, Arbor Realty Limited Partnership, a majority owned subsidiary of the Company (“ARLP”), issued 3,146,724 units of limited partnership interest of ARLP (“Limited OP Units”) and 629,345 warrants to purchase additional Limited OP Units at an initial exercise price of $15 (the “OP Warrants”) to ACM in exchange for a contribution of $213.1 million of assets financed by $169.2 million in borrowings and supported by $43.9 million in equity. Such issuance was exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof. Each Limited OP Unit issued to ACM is paired with one share of the Special Preferred Stock issued to ACM and is redeemable for cash, or at the election of the Company, shares of Common Stock, generally on a one for one basis. Any Limited OP Units issued to ACM upon exercise of its OP Warrants will also be paired with shares of Special Preferred Stock. Upon any redemption by ACM of a Limited OP Unit for cash or Common Stock, the paired share of the Company’s Special Preferred Stock will be redeemed by the Company and cancelled.

Item 34.	Indemnification of Directors and Officers.

      Maryland law permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or services or (b) active and deliberate dishonesty established by a final judgment and which is material to the cause of action. The Company’s charter contains such a provision which eliminates directors’ and officers’ liability to the maximum extent permitted by Maryland law.

      The charter authorizes the Company, to the maximum extent permitted by Maryland law, to indemnify any present or former director or officer or any individual who, while a director of the Company and at the request of the Company, serves or has served another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner or trustee, from and against any claim or liability to which that person may become subject or which that person may incur by reason of his or her status as a present or former director or officer of the Company and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding. The bylaws obligate the Company, to the maximum extent permitted by Maryland law, to indemnify any present or former director or officer or any individual who, while a director of the Company and at the request of the Company, serves or has served another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner or trustee and who is made a party to the proceeding by reason of his service in that capacity from and against any claim or liability to which that person may become subject or which that person may incur by reason of his or her status as a present or former director or officer of the Company and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding. The charter and bylaws also permit the Company to indemnify and advance expenses to any person who served a predecessor of the Company in any of the capacities described above and any employee or agent of the Company or a predecessor of the Company.

      Maryland law requires a corporation (unless its charter provides otherwise, which the Company’s charter does not) to indemnify a director or officer who has been successful in the defense of any proceeding to which

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      Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable.

      The Company has also agreed to indemnify our directors and executive officers to the maximum extent permitted by Maryland law, and pay such persons’ expenses in defending any civil or criminal proceeding in advance of final disposition of such proceeding.

Item 35.	Treatment of Proceeds From Stock Being Registered.

N/ A

Item 36.	Financial Statements and Exhibits.

	(a)	The following financial statements are being filed as part of this Registration Statement:
	(1)	Unaudited Consolidated Financial Statements of Arbor Realty Trust, Inc. and Subsidiaries

           Consolidated Balance Sheet at September 30, 2003 (Unaudited)

           Consolidated Statement of Operations for the Three Months Ended September 30, 2003 (Unaudited)

           Consolidated Statement of Stockholders’ Equity for the Three Months Ended September 30, 2003 (Unaudited)

           Consolidated Statement of Cash Flow for the Three Months Ended September 30, 2003 (Unaudited)

           Notes to Consolidated Financial Statements (Unaudited)

           Schedule IV — Loans and Other Lending Investments (Unaudited)

	(2)	Consolidated Financial Statements of the Structured Finance Business of Arbor Commercial Mortgage, LLC and Subsidiaries

           Report of Independent Certified Public Accountants

           Consolidated Statements of Assets and Liabilities at December 31, 2002 and 2001 and at June 30, 2003 (Unaudited)

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           Consolidated Statements of Revenue and Direct Operating Expenses for the Years Ended December 31, 2002, 2001 and 2000, for the Six Months Ended June 30, 2003 (Unaudited) and for the Nine Months Ended September 30, 2002 (Unaudited)

           Notes to Consolidated Financial Statements

	(3)	Financial Statements of Mezzobridge Funding LLC

           Report of Independent Certified Public Accountants

           Balance Sheet at December 31, 2000

           Statement of Operations for the Year ended December 31, 2000

           Statement of Members’ Capital for the Year Ended December 31, 2000

Statement of Cash Flows for the Year Ended December 31, 2000

Notes to Financial Statements

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	(b)	The following is a list of exhibits filed as part of this Registration Statement.

Exhibit
Number				Description
	1.1			Form of Underwriting Agreement**
	2.1			Contribution Agreement, dated July 1, 2003, by and among Arbor Realty Trust, Inc., Arbor Commercial Mortgage, LLC and Arbor Realty Limited Partnership
	2.2			Guaranty, dated July 1, 2003, made by Arbor Commercial Mortgage, LLC and certain wholly-owned subsidiaries of Arbor Commercial Mortgage, LLC in favor of Arbor Realty Limited Partnership, ANMB Holdings, LLC and ANMB Holdings II, LLC
	2.3			Indemnity Agreement, dated July 1, 2003 by and among Arbor Realty Trust, Inc., Arbor Commercial Mortgage, LLC, Ivan Kaufman and Arbor Realty Limited Partnership*
	3.1			Articles of Incorporation of the Registrant*
	3.2			Articles Supplementary of the Registrant*
	3.3			Bylaws of the Registrant*
	4.1			Form of Certificate for Common Stock*
	4.2			Form of Global Units Certificate*
	4.3			Form of Warrant Certificate (included as Exhibit A to Exhibit 4.4)*
	4.4			Warrant Agreement, dated July 1, 2003, between Arbor Realty Trust, Inc. and American Stock Transfer & Trust Company*
	4.5			Registration Rights Agreement, dated July 1, 2003, between Arbor Realty Trust, Inc. and JMP Securities, LLC*
	5.1			Opinion of Venable LLP relating to the legality of the securities being registered**
	8.1			Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding tax matters**
	10.1			Management Agreement, dated July 1, 2003, by and among Arbor Realty Trust, Inc., Arbor Commercial Mortgage, LLC and Arbor Realty Limited Partnership*
	10.2			Services Agreement, dated July 1, 2003, by and among Arbor Realty Trust, Inc., Arbor Commercial Mortgage, LLC and Arbor Realty Limited Partnership*
	10.3			Non-Competition Agreement, dated July 1, 2003, by and among Arbor Realty Trust, Inc., Arbor Realty Limited Partnership and Ivan Kaufman*
	10.4			Amended and Restated Agreement of Limited Partnership of Arbor Realty Limited Partnership, dated July 1, 2003, by and among Arbor Commercial Mortgage, LLC, Arbor Realty Limited Partnership, Arbor Realty LPOP, Inc. and Arbor Realty GPOP, Inc.*
	10.5			Warrant Agreement, dated July 1, 2003, between Arbor Realty Limited Partnership, Arbor Realty Trust, Inc. and Arbor Commercial Mortgage Commercial Mortgage, LLC*
	10.6			Registration Rights Agreement, dated July 1, 2003, between Arbor Realty Trust, Inc. and Arbor Commercial Mortgage, LLC*
	10.7			Pairing Agreement, dated July 1, 2003, by and among Arbor Realty Trust, Inc., Arbor Commercial Mortgage, LLC Arbor Realty Limited Partnership, Arbor Realty LPOP, Inc. and Arbor Realty GPOP, Inc.*
	10.8			2003 Omnibus Stock Incentive Plan*
	10.9			Form of Restricted Stock Agreement*
	10.10			Benefits Participation Agreement, dated July 1, 2003, between Arbor Realty Trust, Inc. and Arbor Management, LLC*
	10.11			Form of Indemnification Agreement*
	10.12			Structured Facility Warehousing Credit and Security Agreement, dated July 1, 2003, between Arbor Realty Limited Partnership and Residential Funding Corporation**
	10.13			Loan Purchase and Repurchase Agreement, dated December 23, 2003, by and among Arbor Reality Funding LLC, as seller, Wachovia Bank, National Association, as purchaser, and Arbor Reality Trust, Inc., as guarantor**

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Exhibit
Number				Description
	16.1			Letter from Grant Thornton LLP, dated February 2, 2004
	21.1			Subsidiaries of the Registrant*
	23.1			Consent of Grant Thornton LLP
	23.2			Consent of Venable LLP (contained in Exhibit 5.1)**
	23.3			Consent of Skadden, Arps, Slate, Meagher & Flom LLP (contained in Exhibit 8.1)**
	24.1			Powers of attorney (included in the signature page to this Registration Statement)

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*	Previously filed.
**	To be filed by amendment.

Item 37.	Undertakings

	(a)	The undersigned registrant hereby undertakes:

      (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

      (c) The undersigned registrant hereby undertakes that:

	(i) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
	(ii) for the purposes determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

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SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-11 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on February 3, 2004.

	ARBOR REALTY TRUST, INC.

	By:	/s/ FREDERICK C. HERBST

	Name:  Frederick C. Herbst

	Title:	Chief Financial Officer and Treasurer

      Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated. Each person in so signing, also makes, constitutes and appoints Frederick C. Herbst, and Walter K. Horn and each of them acting alone, his true and lawful attorney-in-fact, with full power of substitution, to execute and cause to be filed with the Securities and Exchange Commission pursuant to the requirements of the Securities Act, any and all amendments and post-effective amendments to this Registration Statement, with exhibits thereto and other documents in connection therewith, and any related registration statement and its amendments and post-effective amendments filed pursuant to Rule 462(b) under the Act, with exhibits thereto and other documents in connection therewith, and hereby ratifies and confirms all that said attorney-in-fact or his substitute or substitutes may do or cause to be done by virtue thereof.

Signature				Title		Date
/s/ IVAN KAUFMAN Ivan Kaufman				Chairman of the Board, Chief Executive Officer and President (Principal Executive Officer)		February 3, 2004
/s/ FREDERICK C. HERBST Frederick C. Herbst				Chief Financial Officer and Treasurer (Principal Financial Officer)		February 3, 2004
/s/ JONATHAN A. BERNSTEIN Jonathan A. Bernstein				Director		February 3, 2004
/s/ WILLIAM HELMREICH William Helmreich				Director		February 3, 2004
/s/ WALTER K. HORN Walter K. Horn				Director		February 3, 2004
/s/ C. MICHAEL KOJAIAN C. Michael Kojaian				Director		February 3, 2004
/s/ MELVIN F. LAZAR Melvin F. Lazar				Director		February 3, 2004
/s/ JOSEPH MARTELLO Joseph Martello				Director		February 3, 2004

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EXHIBIT INDEX

Exhibit
Number				Description
	1.1			Form of Underwriting Agreement**
	2.1			Contribution Agreement, dated July 1, 2003, by and among Arbor Realty Trust, Inc., Arbor Commercial Mortgage, LLC and Arbor Realty Limited Partnership
	2.2			Guaranty, dated July 1, 2003, made by Arbor Commercial Mortgage, LLC and certain wholly-owned subsidiaries of Arbor Commercial Mortgage, LLC in favor of Arbor Realty Limited Partnership, ANMB Holdings, LLC and ANMB Holdings II, LLC
	2.3			Indemnity Agreement, dated July 1, 2003 by and among Arbor Realty Trust, Inc., Arbor Commercial Mortgage, LLC, Ivan Kaufman and Arbor Realty Limited Partnership*
	3.1			Articles of Incorporation of the Registrant*
	3.2			Articles Supplementary of the Registrant*
	3.3			Bylaws of the Registrant*
	4.1			Form of Certificate for Common Stock*
	4.2			Form of Global Units Certificate*
	4.3			Form of Warrant Certificate (included as Exhibit A to Exhibit 4.4)*
	4.4			Warrant Agreement, dated July 1, 2003, between Arbor Realty Trust, Inc. and American Stock Transfer & Trust Company*
	4.5			Registration Rights Agreement, dated July 1, 2003, between Arbor Realty Trust, Inc. and JMP Securities, LLC*
	5.1			Opinion of Venable LLP relating to the legality of the securities being registered**
	8.1			Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding tax matters**
	10.1			Management Agreement, dated July 1, 2003, by and among Arbor Realty Trust, Inc., Arbor Commercial Mortgage, LLC and Arbor Realty Limited Partnership*
	10.2			Services Agreement, dated July 1, 2003, by and among Arbor Realty Trust, Inc., Arbor Commercial Mortgage, LLC and Arbor Realty Limited Partnership*
	10.3			Non-Competition Agreement, dated July 1, 2003, by and among Arbor Realty Trust, Inc., Arbor Realty Limited Partnership and Ivan Kaufman*
	10.4			Amended and Restated Agreement of Limited Partnership of Arbor Realty Limited Partnership, dated July 1, 2003, by and among Arbor Commercial Mortgage, LLC, Arbor Realty Limited Partnership, Arbor Realty LPOP, Inc. and Arbor Realty GPOP, Inc.*
	10.5			Warrant Agreement, dated July 1, 2003, between Arbor Realty Limited Partnership, Arbor Realty Trust, Inc. and Arbor Commercial Mortgage Commercial Mortgage, LLC*
	10.6			Registration Rights Agreement, dated July 1, 2003, between Arbor Realty Trust, Inc. and Arbor Commercial Mortgage, LLC*
	10.7			Pairing Agreement, dated July 1, 2003, by and among Arbor Realty Trust, Inc., Arbor Commercial Mortgage, LLC Arbor Realty Limited Partnership, Arbor Realty LPOP, Inc. and Arbor Realty GPOP, Inc.*
	10.8			2003 Omnibus Stock Incentive Plan*
	10.9			Form of Restricted Stock Agreement*
	10.10			Benefits Participation Agreement, dated July 1, 2003, between Arbor Realty Trust, Inc. and Arbor Management, LLC*
	10.11			Form of Indemnification Agreement*
	10.12			Structured Facility Warehousing Credit and Security Agreement, dated July 1, 2003, between Arbor Realty Limited Partnership and Residential Funding Corporation**
	10.13			Loan Purchase and Repurchase Agreement, dated December 23, 2003, by and among Arbor Realty Funding LLC, as seller, Wachovia Bank, National Association, as purchaser, and Arbor Realty Trust, Inc., as guarantor**
	16.1			Letter from Grant Thornton LLP, dated February 2, 2004
	21.1			Subsidiaries of the Registrant*
	23.1			Consent of Grant Thornton LLP
	23.2			Consent of Venable LLP (contained in Exhibit 5.1)**

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Exhibit
Number				Description
	23.3			Consent of Skadden, Arps, Slate, Meagher & Flom LLP (contained in Exhibit 8.1)**
	24.1			Powers of attorney (included in the signature page to this Registration Statement)

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*	Previously filed.
**	To be filed by amendment.

                                                                     EXHIBIT 2.1

                                  CONTRIBUTION
                                    AGREEMENT

                  This CONTRIBUTION AGREEMENT (this "Agreement"), dated as of
July 1, 2003, is by and among Arbor Commercial Mortgage, LLC, a New York limited
liability company ("ACM"), Arbor Realty Trust, Inc., a Maryland corporation
("ART") and Arbor Realty Limited Partnership, a Delaware limited partnership
("ARLP").

                              W I T N E S S E T H:

                           WHEREAS, ACM owns (1) the bridge loans relating to
commercial and multifamily properties listed on Schedule A-1 hereto (the "Bridge
Loans"), (2) the mezzanine loans relating to commercial and multifamily
properties listed on Schedule A-2 hereto (the "Mezzanine Loans"), (3) the loans
relating to commercial and multifamily properties listed on Schedule A-3 hereto
(the "Other Loans" and together with the Bridge Loans and the Mezzanine Loans,
the "ACM Initial Assets"), (4) 100% of the membership interests of ANMB Holdings
II, LLC (the "ANMB II Membership Interests") which owns the mezzanine loan
relating to a multifamily property listed on Schedule A-4 hereto (the "Central
Jersey Mezzanine Loan" and together with the ACM Initial Assets, the "Initial
Assets"), and (5) 100% of the membership interests (the "Membership Interests")
of the entities listed on Schedule B hereto (the "Preferred Equity Holders"),
each of which have an equity interest, as listed on Schedule C hereto, in
entities owning commercial or multifamily properties (the "Preferred Equity
Interests");

                           WHEREAS, ACM desires to contribute all of the ACM
Initial Assets, the ANMB II Membership Interests and the Membership Interests
(together, the "Contributed Assets") to ARLP in exchange for 3,146,724 units of
limited partnership interest in ARLP (the "Partnership Units") and 629,345
warrants, each of which entitles ACM to purchase an additional Partnership Unit
(the "Warrants");

                           WHEREAS, ARLP desires to issue the Partnership Units
and the Warrants to ACM in exchange for the Contributed Assets; and

                           WHEREAS, ART will contribute the net proceeds of an
offering of its units, each of which consists of five shares of common stock of
ART (the "Common Stock") and a warrant to purchase an additional share of Common
Stock (the "Units"), pursuant to the Offering Memorandum, dated June 26, 2003,
to Arbor



Realty GPOP, Inc., a Delaware corporation and a wholly owned subsidiary of ART
("GPOP"), and Arbor Realty LPOP, Inc., a Delaware corporation and a wholly owned
subsidiary of ART ("LPOP"); and

                  WHEREAS, each of GPOP and LPOP will contribute the net
proceeds its receives from ART to ARLP in exchange for units of limited
partnership interest in ARLP, concurrently with ACM's contribution of the
Contributed Assets.

                           NOW, THEREFORE, in consideration for the foregoing
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:

1.       Contribution of the Contributed Assets. On the terms and subject to the
         conditions of this Agreement, ACM shall transfer, assign, convey and
         deliver to ARLP all right, title and interest in and to the Contributed
         Assets and ARLP shall issue the Partnership Units and the Warrants to
         ACM.

2.       Conditions.

a.       The obligation of ARLP to issue the Partnership Units and the Warrants
         to ACM in exchange for the Contributed Assets is subject to the
         following conditions (which may be waived by ARLP in ARLP's sole
         discretion): (i) that at the time of the Closing referred to in Section
         3, each of the representations and warranties of ACM made in this
         Agreement shall be true and correct, (ii) ACM shall have executed and
         delivered, and, if applicable, caused to be delivered, to ARLP an
         assignment, substantially in the form of Exhibit A (the "Assignment and
         Assumption") and such assignments and other instruments of conveyance,
         assignment and transfer, all in form satisfactory to ARLP, as shall be
         effective to vest in ARLP good title in and to the Contributed Assets,
         (iii) all approvals and consents to the transactions contemplated by
         this Agreement shall have been obtained from all necessary third
         parties, and (iv) to the best of ACM's knowledge, there shall be no
         material pending or threatened litigation regarding the Contributed
         Assets.

b.       The obligation of ACM to contribute the Contributed Assets to ARLP for
         the Partnership Units and the Warrants is subject to the following
         conditions (which may be waived by ACM in ACM's sole discretion): (i)
         that at the time of the Closing each of the representations and
         warranties of ARLP made in this Agreement shall be true and correct,
         and (ii) ARLP shall have executed and delivered to ACM the Assignment
         and Assumption.



3.       Closing. The closing (the "Closing") of the transfer of the Contributed
         Assets, the Partnership Units and the Warrants shall be held, at such
         time and place as the parties may mutually agree upon, on July 1, 2003.

         a.       ACM shall deliver to ARLP at the Closing (i) the Assignment
                  and Assumption, (ii) with respect to each ACM Initial Asset,
                  an endorsement by ACM of the related promissory note or notes,
                  without recourse, to ARLP, or its designee, (iii) with respect
                  to ACM's 100% membership interest in ANMB Holdings II, LLC
                  ("ANMB II"), the operating agreement evidencing the equity
                  interest of ANMB II in the entity owning the underlying
                  property and an instrument of assignment effecting the
                  transfer of such membership interests, and (iv) with respect
                  to each of ACM's 100% Membership Interests in Preferred Equity
                  Holders, the operating agreement evidencing the equity
                  interest of the applicable Preferred Equity Holder in the
                  entity owning the underlying property and an instrument of
                  assignment effecting the transfer of the Membership Interests,
                  and (v) such other instruments of transfer executed by ACM as
                  ARLP shall reasonably request, provided that ARLP shall
                  prepare any such instruments and deliver the same to ACM at
                  Closing.

         b.       ARLP shall deliver to ACM (i) a certificate or other
                  documentation evidencing 3,146,724 of its Partnership Units
                  and (ii) a certificate or other documentation evidencing
                  629,345 Warrants.

4.       Representations and Warranties of ACM.

a.       ACM hereby represents and warrants to ARLP and ART, as follows:

i.       ACM is a limited liability company duly organized, validly existing and
         in good standing under the laws of the State of New York;

ii.      ACM has the full power and authority to enter into and consummate all
         transactions contemplated by this Agreement, has duly authorized the
         execution, delivery and performance of this Agreement, and has duly
         executed and delivered this Agreement;

iii.     This Agreement, assuming due authorization, execution and delivery by
         ARLP and ART, constitutes a valid, legal and binding obligation of ACM,
         enforceable against ACM in accordance with the terms hereof, subject to
         (A) applicable bankruptcy insolvency, reorganization, moratorium and
         other laws affecting the enforcement of creditors' rights generally,
         (B) general principles of equity, regardless of whether such
         enforcement is considered in a proceeding in equity or at law and (C)
         public



         policy considerations underlying the securities laws, to the extent
         that such public policy considerations limit the enforceability of the
         provisions of this Agreement that purport to provide indemnification
         for securities laws liabilities;

iv.      The execution and delivery by ACM of this Agreement and its
         performance of, and compliance with, the terms of this Agreement will
         not conflict with or constitute a breach, violation, or default under
         (A) its certificate of formation or operating agreement, (B) any law,
         any order or decree of any court or arbiter, or any order, regulation
         or demand of any federal, state or local government or regulatory
         authority, which violation is likely to affect materially and
         adversely either the ability of ACM to perform its obligations under
         this Agreement or the financial condition of ACM or (C) any indenture,
         loan or credit agreement, or any other agreement, contract,
         instrument, mortgage, lien, lease, permit, authorization, order, writ,
         judgment, injunction or decree to which ACM is a party or by which any
         Contributed Asset is bound or affected, except for such conflicts with
         (1) certain provisions of (a) the operating agreement of ACM, dated as
         of January 1, 2003, and (b) the operating agreement of the sole
         managing member of ACM, Arbor Management, LLC, each of which have been
         validly waived by each of the members thereto, (2) (a) the First
         Amended and Restated Warehousing Credit, Term Loan and Security
         Agreement (Structured Facility and Servicing Secured Facility), dated
         as of April 1, 2003 (the "Warehousing Credit Facility"), by and
         between Residential Funding Corporation ("RFC") and ACM, (b) the
         Master Repurchase Agreement, dated as of November 18, 2002 (the
         "Nomura Repurchase Agreement"), by and between Nomura Credit and
         Capital, Inc. ("Nomura") and ACM, and (c) the Master Repurchase
         Agreement, dated as of November 1, 2002 (the "Bear Stearns Repurchase
         Agreement"), by and between Bear Stearns Funding Inc. ("Bear
         Stearns") and ACM, for which each of RFC, Nomura and Bear Stearns,
         respectively, have consented to the transactions contemplated by this
         Agreement and (3) the Recognition Agreement, dated as of November 14,
         2001, by and between Fremont Investors and Loan ("Fremont") and ACM,
         for which Fremont has given its consent with further assurances to
         the transactions contemplated by this Agreement;the consummation of
         the transactions contemplated by this Agreement will not result in the
         cancellation, modification or termination of, or the acceleration of,
         or the creation of any charges, claims, conditions, security
         interests, hypothecations, encumbrances, mortgages, liens or pledges
         (collectively, "Liens") on the Contributed Assets pursuant to any
         agreement, license, lease understanding, contract, indenture,
         mortgage, instrument, promise, undertaking or other commitment or
         obligation ("Contracts") under which ACM or any Contributed Asset
         subject to or bound, except for (x) the termination of the Liens




         of RFC, Nomura and Bear Stearns pursuant to the Warehousing Credit
         Facility, the Nomura Repurchase Agreement and the Bear Stearns
         Repurchase Agreement, respectively, on the Contributed Assets and (y)
         the creation of the Liens of RFC, Nomura and Bear Stearns on the
         Contributed Assets by the execution of the (i) Assignment and
         Assumption Agreement, to be dated as of July 1, 2003, by and between
         ACM and ARLP with respect to the Nomura Repurchase Agreement, (ii)
         Structured Facility Warehousing Credit and Security Agreement, to be
         dated as of July 1, 2003, by and between RFC and ARLP, and (iii) the
         Master Repurchase Agreement, to be dated as of July 1, 2003, by and
         between Bear Stearns and ARLP, respectively;


v.       In selecting the ACM Initial Assets, the ANMB II Membership Interests
         and the Membership Interests for pledge pursuant hereto, no selection
         procedure was employed by ACM that was intended to adversely affect the
         interests of ARLP;

vi.      Except as disclosed by ACM to ARLP and ART in writing and accepted in
         writing by ARLP and ART, ACM has not dealt with any person that may be
         entitled to any commission or compensation in connection with the
         transfer of the Contributed Assets. ACM or Obligor has paid any and all
         amounts due to any such person, and ARLP shall have no responsibility
         for any payments due any such person;


vii.     There are no Contracts, and ACM will not enter into Contracts, with any
         other person or entity to sell, transfer, assign or in any manner
         create a Lien on, the Contributed Assets, except for the right, title,
         interest, lien and security interest of (A) RFC under the Warehousing
         Credit Facility, (B) Nomura under the Nomura Repurchase Agreement, (C)
         Bear Stearns under the Bear Stearns Repurchase Agreement, or to not
         sell, transfer or assign the Contributed Assets to ARLP;


viii.    No consents, other than those that have been obtained or obtained with
         further assurances, are required for the transfer of the Contributed
         Assets in accordance with the terms of this Agreement; and





ix.      Each Contributed Asset was created in accordance with, and complies
         with the requirements of, the internal procedures of ACM, including,
         without limitation, ACM's underwriting policies procedures and
         standards.

b.       With respect to the Bridge Loans listed on Schedule A-1 hereto (except
         for the 1025 5th Avenue Bridge Loan), the Mezzanine Loans listed on
         Schedule A-2 hereto, the Albion Loan (as defined on Schedule A-3
         hereto) and the Central Jersey Mezzanine Loan, ACM represents and
         warrants to ART and ARLP that:

i.       ACM is in possession of a file relating to each of the Initial Assets
         which contains (1) each of the documents required to evidence ACM's
         interest in the Initial Asset (including all promissory notes, security
         agreements, guarantees and other agreements that evidence or secure
         such Initial Assets) and (2) when applicable, certain other documents
         relating to the underlying property (the "Initial Asset File");


ii.      Immediately prior to the assignment of each Contributed Asset to ARLP,
         ACM was the sole legal, beneficial and equitable owner of each
         Contributed Asset, except for the right, title, interest, lien and
         security interest of (A) RFC under the Warehousing Credit Facility, (B)
         Nomura under the Nomura Repurchase Agreement, (C) Bear Stearns under
         the Bear Stearns Repurchase Agreement; and ACM transferred each
         Contributed Asset to ARLP free and clear of any Lien, except for the
         Liens described in this Section 4(b)(ii); in the event that ARLP's
         interest in a Bridge Loan is deemed to be a security interest, such
         security interest is valid, perfected and of first priority; in the
         event that ARLP's interest in a Mezzanine Loan is deemed to be a
         security interest, such security interest is valid, perfected and is a
         first priority lien on the pledged ownership interest related to the
         Mezzanine Loan;


iii.     Neither the notes relating to the Initial Assets (the "Initial Asset
         Notes") nor the Initial Assets are subject to any right of rescission,
         set-off, counterclaim or defense, including the defense of usury, nor
         will the operation of any term of the Initial Asset Notes or the
         Initial Assets, nor the exercise of any right thereunder, render the
         Initial Asset Notes or Initial Assets unenforceable, in whole or in
         part, except to the extent enforcement may be limited by (A) applicable
         bankruptcy, insolvency, and other similar laws affecting creditor's
         rights generally, or (B) general equitable principals, regardless of
         whether the issue of enforceability is considered in a proceeding in
         equity or at law, or subject to any right of rescission, set-off,
         counterclaim or







         defense, including the defense of usury and no such right of
         rescission, set-off, counterclaim or defense has been asserted;

iv.      Up to and including the Closing, all payments required to be made with
         respect to an Initial Asset under the terms of the related Initial
         Asset Note have been made before the end of any grace or cure period
         for such payment. ACM has not advanced funds, or induced, solicited or
         received any advance of funds from a party other than the obligor on
         the related Initial Asset Note (the "Obligor"), directly or indirectly,
         for the payment of any amount required by the Initial Asset Note. There
         has been no delinquency beyond the end of any applicable period of
         grace in any payment by the Obligor under the terms of any Initial
         Asset Note;

v.       The Initial Asset Note relating to each Initial Asset has been endorsed
         to ARLP in a form and in a manner sufficient to convey to ARLP all
         right, title and interest therein of ACM in all relevant jurisdictions,
         except to the extent that a recording or other filing is required to
         transfer such Initial Asset;

vi.      To the best of ACM's knowledge, based upon an opinion of Obligor's
         counsel, each Initial Asset at origination did not violate any
         applicable federal, state or local law;

vii.     With respect to each Initial Asset that relates to a property that is
         secured by a mortgage in favor of ACM (each a "Mortgaged Property"), a
         title insurance policy insuring the lien created by such mortgage was
         effective on the date of ACM's financing of such Initial Asset, such
         policy is valid and remains in full force and effect, and, to the best
         of ACM's knowledge each such policy was issued by a title insurer
         qualified to do business in the jurisdiction where the applicable
         Mortgaged Property is located, which policy insures either ACM or the
         original holder of the Initial Asset as to the Lien of the Initial
         Asset; no claims have been made under such title insurance policy and
         no prior holder of the applicable Initial Asset, including ACM, has
         done, by act or omission, anything that would impair the coverage of
         such title insurance policy;

viii.    To the best of ACM's knowledge based upon its review of the related
         title insurance policy, each mortgage related to a Mortgaged Property
         (A) is properly recorded (or, if the mortgage related to such Mortgaged
         Property was created within 30 days prior to the date of this Agreement
         and is not yet recorded, the mortgage relating to such Mortgaged
         Property has been submitted for recording, is in form and substance
         acceptable for recording and, when properly recorded, will be
         sufficient under the laws of the jurisdiction wherein the Mortgaged
         Property is located to reflect record of the Lien of such Mortgaged
         Property) and the mortgage relating to the Mortgaged Property is a
         valid, continuing and enforceable lien (subject only to the matters



         described in the next sentence) on the Mortgaged Property, including
         all improvements on the Mortgaged Property owned by the Obligor, all
         other fixtures on the Mortgaged Property owned by the Obligor and all
         additions, alterations and replacements made at any time with respect
         to the foregoing, and (B) provides for an assignment of leases and
         rents from the Mortgaged Property, or, if the related Initial Asset
         does not so provide, a separate assignment of mortgage was executed by
         the Obligor, was properly recorded (or, if such mortgage was created
         within 30 days prior to the date this Agreement and is not yet
         recorded, such mortgage has been submitted for recording, is in form
         and substance acceptable for recording and, when properly recorded,
         will be sufficient under the laws of the jurisdiction wherein the
         Mortgaged Property is located to reflect record of the Lien of such
         assignment) and creates a valid, existing and enforceable lien and
         security interest on the leases and rents from the related Mortgaged
         Property and other property described therein. The Lien on each
         Mortgaged Property is subject only to (1) the Lien of current real
         property taxes not yet due and payable, (2) covenants, conditions and
         restrictions, rights of way, easements and other matters of public
         record as of the date of recording that are acceptable to mortgage
         lending institutions generally, are specifically referred to in
         lender's title insurance policy delivered to ACM and are taken into
         account in determining, or do not materially adversely affect, the
         appraisal value of the Mortgaged Property, and (3) other matters to
         which like properties are commonly subject that do not materially
         interfere with the benefits of the security intended to be provided by
         such Initial Asset or the use, enjoyment, value or marketability of the
         related Mortgaged Property;

ix.      In the case of a Mortgaged Property, the security agreement, chattel
         mortgage or equivalent document delivered in connection with the
         Mortgaged Property establishes and creates a valid, continuing and
         enforceable Lien and security interest in all furniture, fixtures and
         equipment on or used in connection with the related Mortgaged Property
         and other property described therein. Either a Uniform Commercial Code
         financing statement has been filed and/or recorded in all places
         necessary to perfect a valid security interest in the personal property
         subject to the Lien of the Mortgaged Property or any separate security
         agreement, chattel mortgage or equivalent document or, in the case of a
         Mortgaged Property created within 30 days prior to the date of this
         Agreement, ACM has a right to file a Uniform Commercial Code financing
         statement with respect to the personal property subject to the Lien of
         such Mortgaged Property or any separate security agreement, chattel
         mortgage or equivalent document and upon such recordation and/or filing
         thereof in all necessary places, ACM will have a perfected and valid
         security interest in such personal property;

x.       There are no delinquent taxes or assessment liens against any Mortgaged
         Property;



xi.      There are no mechanics' liens or initiation of a mechanics' lien
         affecting any Mortgaged Property, except those (A) that are insured
         against by a title insurance policy, (B) that are subordinate to the
         Lien of the related Initial Asset, if applicable or (C) the payments
         required for such work, labor or materials are not yet due and payable,
         or if due and payable and unpaid are the subject of a good faith
         contest;

xii.     To the best of ACM's knowledge based on the appraisal or engineering
         report produced at the origination of the Initial Asset, except to the
         extent that it was contemplated at the time of the origination of the
         Initial Asset that repairs, restorations and improvements would be made
         to the underlying property, each related property is in good repair and
         free of structural defects, damage, waste and defects in any
         mechanical, electrical, plumbing and safety systems therein that would
         materially and adversely affect the value of such related property, and
         there is no proceeding pending for the total or partial condemnation
         thereof. Except to the extent that it was contemplated at the time of
         the origination of the Initial Asset that repairs, renovations and
         improvements would be made to the building system and the related
         property, as applicable all building systems are in good working order
         subject to ordinary wear and tear. ACM inspected the related property
         in connection with the origination of the related to the Initial
         Assets;

xiii.    There is no material default, breach, violation or event of
         acceleration existing under the Initial Asset or the Initial Asset Note
         and no event that, with the passage of time, or with notice and the
         expiration of any grace or cure period, would constitute a material
         default, breach, violation or event of acceleration thereunder;

xiv.     Each Initial Asset and related Initial Asset Note is the legal, valid
         and binding obligation of the maker thereof, enforceable in accordance
         with its terms, subject to (A) applicable bankruptcy, insolvency,
         reorganization, moratorium and other laws affecting the enforcement of
         creditors' rights generally, and (B) general principles of equity,
         regardless of whether such enforcement is considered in a proceeding in
         equity or at law. All parties to each Initial Asset had legal capacity
         to execute such Initial Asset and related Initial Asset Note, and each
         Initial Asset has been duly and properly executed by such parties and
         constitutes a legal, valid and binding obligation of each party
         thereto, subject to (A) applicable bankruptcy, insolvency,
         reorganization, moratorium and other laws affecting the enforcement of
         creditors' rights generally, and (B) general principles of equity,
         regardless of whether such enforcement is considered in a proceeding in
         equity or at law;

xv.      Each Initial Asset contains customary and enforceable provisions that
         render the rights and remedies of the holder thereof adequate for the
         practical realization



         against the applicable collateral securing the Initial Asset (the
         "Collateral") of the benefits of the security intended to be provided
         thereby;

xvi.     With respect to each Initial Asset constituting a deed of trust, a
         trustee, duly qualified under applicable law to serve as such, has been
         properly designated and currently so serves and is named in such
         Initial Asset, and no fees or expenses are or will become payable to
         the trustee under the deed of trust, except in connection with a
         trustee's sale after default by the Obligor;

xvii.    The improvements upon each property related to an Initial Asset are
         covered by a valid and existing hazard insurance policy with a
         generally acceptable carrier, which policy provides for fire, extended
         coverage and such other hazards as are customary in the area where the
         property related to an Initial Asset is located representing coverage
         not less than the outstanding principal balance of the related Initial
         Asset or the minimum amount required to compensate for damage or loss
         of the improvements thereon on a replacement cost basis, whichever is
         less. Such insurance policies contain a standard mortgagee clause
         naming, in the case of an Initial Asset, ACM and its successors in
         interest as mortgagee, and ACM has received no notice that any premiums
         due and payable thereon have not been paid; the related Initial Asset
         obligates the Obligor to maintain all such insurance at the Obligor's
         cost and expense, and upon the Obligor's failure to do so, authorizes
         the holder of such Initial Asset to obtain and maintain such insurance
         at the Obligor's cost and expense and to seek reimbursement therefor
         from the Obligor;

xviii.   If a property related to an Initial Asset is in an area identified in
         the Federal Register by the Federal Emergency Management Agency as
         having special flood hazards and if required by law, a flood insurance
         policy in a form meeting the requirements of the current guidelines of
         the Flood Insurance Administration is in effect with respect to such
         property with a generally acceptable carrier in an amount representing
         coverage not less than the least of (A) the outstanding principal
         balance of the related Initial Asset, (B) the minimum amount required
         to compensate for damages or loss on a replacement cost basis or (C)
         the maximum amount of insurance that is available under the Flood
         Disaster Protection Act of 1973;

xix.     When applicable, the Initial Asset File contains an appraisal of the
         property relating to the Initial Asset made and signed, prior to the
         approval of the application for the Initial Asset, by an appraiser,
         duly appointed by ACM, who had no interest, direct or indirect, in the
         property or in any Initial Asset made by the approval or disapproval of
         the Initial Asset, who, based on a review of the appraisal, was
         state-licensed or state certified (if required under the laws of the
         state in which the related property is located) at the time the
         appraisal was conducted and signed, who, to the knowledge



         of ACM, is a member of and has a professional designation from a
         nationally recognized appraisal organization. Such appraisal states
         that the appraiser examined the property;

xx.      To the best of ACM's knowledge, no material misrepresentation, fraud or
         similar occurrence with respect to an Initial Asset has taken place on
         the part of any person involved in the origination of the Initial Asset
         or in the application of any insurance in relation to such Initial
         Asset;

xxi.     To the best of ACM's knowledge, if one or more commercial tenants lease
         a portion of a property related to a Initial Asset, each such tenant is
         conducting business only in that portion of such property covered by
         its space lease, except where improvements are being made to such
         space, all tenant improvements to be completed by Obligor under a lease
         have been completed, and the payment of rent under each lease has
         commenced. To the best of ACM's knowledge, no residential space lease,
         occupancy agreement or license agreement contains an option to
         purchase, right of first refusal to purchase, or any other similar
         provision that adversely affects the Initial Asset or that might
         adversely affect the rights of ARLP. Except as set forth on Schedule
         4(b)(xxi) hereto, no commercial space lease, occupancy agreement or
         license agreement contains an option to purchase, right of first
         refusal to purchase, or any other similar provision that adversely
         affects the Initial Asset or that might adversely affect the rights of
         ARLP. To ACM's actual knowledge, each property related to an Initial
         Asset is not subject to any lease other than the space leases described
         in the rent roll related to the Initial Asset, and no person has any
         possessory interest in, or right to occupy, such property except under
         and pursuant to such a space lease. Each such material space lease,
         occupancy agreement or license agreement is subordinate to the Initial
         Asset either pursuant to its terms or a recorded subordination
         agreement and contains a customary provision for termination for cause;

xxii.    To the best of ACM's knowledge, each property related to an Initial
         Asset is in all material respects in material compliance with and
         lawfully used, operated and occupied under applicable zoning and
         building laws or regulations, and ACM has not received notification
         from any governmental authority that any such property fails to comply
         with such laws or regulations, is being used, operated or occupied
         unlawfully or has failed to obtain or maintain any inspection, license
         or certificates material to the operation of such property;

xxiii.   To the best of ACM's knowledge, all material inspections, licenses and
         certificates required to be made or issued with respect to all occupied
         portions of the property related to an Initial Asset, with respect to
         the use and occupancy of the same,



         including, but not limited to, certificates of occupancy and fire
         underwriting certificates, have been made or obtained from the
         appropriate authorities and the property is lawfully occupied under
         applicable law;

xxiv.    All of the material improvements that were included for the purpose of
         determining the appraisal value of a Mortgaged Property lie wholly
         within the boundaries and building restriction lines of such property,
         and no significant improvements on adjoining properties encroach upon
         the Mortgaged Property;

xxv.     When applicable, the related Initial Asset File contains a report (the
         "Assessment Report") of an environmental assessment made with respect
         to each property related to an Initial Asset by an independent
         qualified environmental professional who had no interest, direct or
         indirect, in such property or in any Initial Asset secured thereby, and
         whose compensation was not affected by the approval or disapproval of
         the Initial Asset. To the best of ACM's knowledge and except as
         disclosed in the Assessment Report in the Initial Asset File, each
         related property is in material compliance with all environmental laws,
         ordinances, rules, regulations and orders of federal, state or
         governmental authorities relating thereto.

xxvi.    To the best of ACM's knowledge and except as disclosed in the
         Assessment Report in the Initial Asset File, each related property of
         an Initial Asset is free from contamination from any hazardous
         materials and no hazardous materials have been used, stored or
         otherwise handled in any manner on, in from or affecting any related
         property except in compliance with all environmental laws. Neither ACM
         nor, to the best knowledge of ACM, any Obligor has received
         notification from any federal, state or other governmental authority
         relating to any hazardous materials on or affecting the related
         property or to any potential or known liability under any environmental
         law arising from the ownership or operation of a related property. For
         the purposes of this subsection, the term "hazardous materials" shall
         include, without limitation, gasoline, petroleum products, explosives,
         radioactive materials, polychlorinated biphenyls or related or similar
         materials, asbestos or any material containing asbestos, lead,
         lead-based paint, area formaldehyde insulation and any other substance
         or material as may be defined as a hazardous or toxic substance by any
         federal, state or local environmental law, ordinance, rule, regulation
         or order, including, without limitation, the Comprehensive
         Environmental Response, Compensation, and Liability Act, the Clean Air
         Act, the Clean Water Act, the Resource Conservation and Recovery Act,
         the Toxic Substances Control Act and any regulations promulgated
         pursuant thereto;

xxvii.   To the best of ACM's knowledge, there are no actions, suits or
         proceedings before any court, administrative agency or arbitrator
         concerning an Initial Asset or the



         related Collateral that might materially and adversely affect (1) title
         to such Initial Asset, (2) the validity or enforceability thereof, (3)
         the value of the Collateral as security for the Initial Asset or (4)
         the marketability of such Collateral;

xxviii.  Except for Partners Portfolio Mezzanine Loan (as defined on Schedule
         A-2 hereto), none of the Initial Assets is cross-collateralized with
         any Initial Asset other than another Initial Asset;

xxix.    Each Initial Asset does not by its terms permit the repayment thereof
         for an amount less than the outstanding principal balance thereof plus
         accrued interest;

xxx.     No Obligor is, to ACM's actual knowledge, a debtor in any state or
         federal bankruptcy or insolvency proceeding;

xxxi.    With respect to each Initial Asset that is a Mezzanine Loan:

(1)      The first mortgage related to the Initial Asset permits such Mezzanine
         Loan and the related first mortgage lender has consented to the rights
         of the lender under the Mezzanine Loan, if such consent is required to
         be obtained pursuant to the documents securing the loan;

(2)      With the exception of 333 East 34th Street Mezzanine Loan and Partners
         Portfolio Mezzanine Loan (each as defined on Schedule A-2 hereto), each
         Mezzanine Loan is directly secured by the pledge (the "Pledge
         Agreement") of all of the equity interest in the related Obligor. Each
         Pledge Agreement has been duly authorized, executed and delivered by
         each of the parties thereto and is a legal, valid and binding
         obligation of each of the parties thereto, subject to (A) applicable
         bankruptcy, insolvency, reorganization, moratorium and other laws
         affecting the enforcement of creditors' rights generally and (B)
         general principles of equity, regardless of whether such enforcement is
         considered a proceeding in equity or at law; and

(3)      Each related Pledge Agreement creates a valid, first priority security
         interest in the entire equity interest in the related mortgagor.

xxxii.   With respect to each Preferred Equity Holder:

(1)      Each Preferred Equity Holder is duly formed, validity existing and in
         good standing under the laws of their respective jurisdiction of
         formation;

(2)      Each Preferred Equity Interest owned by each Preferred Equity Holder is
         owned by such Preferred Equity Holder free and clear of any and all
         Liens, except for the right, title, interest, lien and security
         interest of (A) RFC



         under the Warehousing Credit Facility, (B) Nomura under the Nomura
         Repurchase Agreement, and (C) Bear Stearns under the Bear Stearns
         Repurchase Agreement; and


(3)      Each Preferred Equity Holder is entitled to receive preferred
         distributions under and in accordance with the terms of the operating
         agreement for the entity in which such Preferred Equity Holder holds
         such Preferred Equity Interest.

xxxiii.  No Preferred Equity Holder has (A) made a general assignment for the
         benefit of creditors, (B) filed any voluntary petition in bankruptcy or
         suffered the filing of any involuntary petition by its creditors, (C)
         suffered the appointment of a receiver to take possession of all, or
         substantially all, of its assets, (D) suffered the attachment or other
         judicial seizure of all, or substantially all, of its assets, (E)
         admitted in writing its inability to pay its debts as they come due, or
         (F) made an offer of settlement, extension or composition to its
         creditors generally.

xxxiv.   Each Preferred Equity Holder and each entity controlled directly or
         indirectly by a Preferred Equity Holder (collectively the "Entities")
         is, and at all times during its existence has been, a partnership or
         limited liability company classified as a partnership (rather than an
         association or a publicly traded partnership taxable as a corporation)
         for federal income tax purposes, except for any Entity with respect to
         which an election to be treated as a taxable REIT subsidiary ("TRS")
         has been or will be made effective for all periods following the
         Closing, or which has been or will be contributed to a TRS. To the best
         of ACM's knowledge, each Entity has timely, including extensions, filed
         all material tax returns required to be filed by it and has timely,
         including extensions, paid all material taxes required to be paid by it
         and none of the tax returns filed by any of the Entities is the subject
         of a pending or ongoing audit, and no federal, state, location or
         foreign taxing authority has asserted any material tax deficiency or
         other assessment in writing against any Entity or any property of any
         Entity.

5.       Representations and Warranties of ARLP. ARLP hereby represents and
         warrants to ACM as follows:

a.       ARLP is duly organized, validly existing and in good standing under the
         laws of the State of Delaware;






b.       ARLP has the full power and authority to enter into and consummate all
         transactions contemplated by this Agreement, has duly authorized the
         execution, delivery and performance of this Agreement and has duly
         executed and delivered this Agreement;

c.       This Agreement, assuming due authorization, execution and delivery by
         ACM, constitutes a valid, legal and binding obligation of ARLP,
         enforceable against ARLP in accordance with the terms hereof, subject
         to (A) applicable bankruptcy, insolvency, reorganization, moratorium
         and other laws affecting the enforcement of creditors' rights
         generally, (B) general principles of equity, regardless of whether such
         enforcement is considered in a proceeding in equity or at law and (C)
         public policy considerations underlying the securities laws, to the
         extent that such public policy considerations limit the enforceability
         of the provisions of this Agreement that purport to provide
         indemnification for securities laws liabilities; and

d.       ARLP is not in violation of, and its execution and delivery of this
         Agreement and its performance of, and compliance with, the terms of
         this Agreement will not constitute a violation of, any law, any order
         or decree of any court or arbiter, or any order, regulation or demand
         of any federal, state or local governmental or regulatory authority,
         which violation, in ARLP 's good faith and reasonable judgment, is
         likely to affect materially and adversely either the ability of ARLP to
         perform its obligations under this Agreement or the financial condition
         of ARLP.

6.       Investment Representations and Warranties. ACM hereby represents and
         warrants to ART and ARLP as follows:

a.       The Partnership Units and the Warrants to be acquired by ACM are being
         acquired for ACM's own account with the present intention of holding
         such interests for purposes of investment, and ACM has no intention of
         selling such interests in a public distribution, and the Partnership
         Units and the Warrants will not be disposed of in contravention of the
         Securities Act of 1933, as amended (the "Act"), or any applicable state
         securities laws. No other person will have any direct or indirect
         (other than through the ownership of a direct or indirect interest in
         ACM) beneficial interest in or right to the Partnership Units or
         Warrants purchased hereunder;

b.       ACM understands that the Partnership Units and Warrants have not been
         registered under the Act or any state securities laws by reason of
         specific exemptions under the provisions thereof, the availability of
         which depend in part upon the bona fide nature of ACM's investment
         intent and upon the accuracy of ACM's representations made in this
         Section 6. ACM understands that the Partnership Units and the Warrants
         have not been approved or disapproved by the Securities and Exchange
         Commission or by any other federal or state agency. ACM understands
         that ARLP is relying upon the



         representations and agreements contained in this Section 6 for the
         purpose of determining whether this transaction meets the requirements
         for such exemptions under the Act and any state securities laws;

c.       ACM understands that the Partnership Units and Warrants are "restricted
         securities" under the applicable federal securities laws and that the
         Securities Act and the rules of the Securities and Exchange Commission
         provide in substance that ACM may dispose of the Partnership Units and
         the Warrants only pursuant to an effective registration statement under
         the Securities Act or an exemption therefrom, and ACM understands that
         ARLP has no current obligation or intention to register the Partnership
         Units or the Warrants. ACM also understands that no public market
         exists for any of the securities issued by ARLP and that ARLP has no
         obligation to ensure that a broad public market will exist for
         securities of ARLP. Accordingly, ACM understands that under the rules
         of the Securities and Exchange Commission, ACM may only dispose of the
         Partnership Units and the Warrants in transactions that are exempt from
         registration under the Act. As a consequence of all of the foregoing,
         ACM understands that it must bear the economic risk of the investment
         in the Partnership Units and the Warrants for an indefinite period of
         time;

d.       ACM is an "accredited investor "as that term is defined in Rule 501(a)
         under the Act. ACM was not formed solely for making an investment in
         the Partnership Units or Warrants. ACM acknowledges that an investment
         in the Partnership Units and the Warrants is not recommended for
         investors who have any need for a current return on this investment or
         who cannot bear the risk of losing their entire investment. ACM
         acknowledges that: (i) it has adequate means of providing for its
         current needs and has no need for liquidity in this investment; (ii) it
         is able to bear the economic risk of this investment; (iii) it is able
         to hold the Partnership Units and the Warrants indefinitely; and (iv)
         it is able to afford a complete loss of this investment;

e.       ACM either (i) has a preexisting personal or business relationship with
         ARLP or (ii) by reason of its business or financial experience, or by
         reason of the business or financial experience of its financial advisor
         who is unaffiliated with and who is not compensated, directly or
         indirectly, by ARLP or any affiliate or selling agent of ARLP, ACM is
         capable of evaluating the risks and merits of an investment in the
         Partnership Units and the Warrants and of protecting its own interests
         in connection with the investment and investment commitment pursuant to
         this Agreement; and

f.       ACM has been given the opportunity to perform its own due diligence,
         investigation of the business, operations, assets, liabilities and
         financial condition of ARLP, including access to the records and books
         of ARLP. ACM has had an opportunity to



         ask questions of and receive answers from ARLP concerning the business
         and assets of ARLP in a manner deemed appropriate by ACM.

7.       Survival of Representations, Warranties and Covenants. All
         representations, warranties and covenants contained in this Agreement
         shall survive the Closing. Upon discovery by any of the parties hereto
         of a breach of any of the representations and warranties set forth in
         Sections 4, 5 and 6 that materially and adversely affects the interests
         of the other parties hereto, the party discovering such breach shall
         give prompt written notice to the other party hereto.

8.       Indemnity.

a.       ACM hereby agrees to indemnify and hold ART and ARLP harmless from and
         against any and all damage, expense, loss, cost, claim or liability
         (each a "Claim") suffered or incurred by ART and ARLP as a result of
         any untruth or inaccuracy in any of the representations or warranties
         made by ACM in Sections 4 and 6 of this Agreement;

b.       Scope of Indemnity. Notwithstanding anything to the contrary otherwise
         provided in this Agreement:

i.       No indemnity shall be available under Section 8(a) until the
         indemnifiable Claims against ACM exceed the total amount of $200,000,
         except in the case of Claims arising under breaches of any
         representations or warranties in Section 4(a)(ii), Section 4(b)(ii),
         Section 4(b)(x), Section 4(b)(xxxii), Section 4(b)(xxxiv) or Section 6
         (for purposes of determining whether the $200,000 threshold amount has
         been met, any qualification or limitation of a representation or
         warranty by reference to the materiality of matters stated herein
         having or not having a material adverse effect or words of similar
         effect shall be disregarded);

ii.      Except in the case of fraud, the indemnification set forth in Section
         8(a) shall be limited to an amount equal to the value of the
         Partnership Units received by ACM on the date hereof;

iii.     The indemnification set forth in Section 8(a) shall only extend to any
         Claim of which written notice has been given within twelve months
         following the Closing, except with respect to Claims arising under (A)
         Section 4(b)(xxv) and Section 4(b)(xxvi), for which written notice has
         been given within thirty-six months following the Closing, (B) Section
         4(b)(x) and Section 4(b)(xxxiv), for which written notice has been
         given within the applicable statute of limitations following the
         Closing, and (C) Section 4b(ii), Section 4(b)(xxxii) and Section 6; and



c.       Notice to ACM. Each of ART and ARLP shall give prompt written notice to
         ACM as to the assertion of any Claim, or the commencement of any Claim.
         The omission of either of ART or ARLP to notify ACM of any such Claim
         shall not relieve ACM from any liability in respect of such Claim that
         it may have to either of ART or ARLP on account of this Agreement nor
         shall it relieve ACM from any other liability that it may have to
         either of ART or ARLP, provided, however, that ACM shall be relieved of
         liability to the extent that the failure so to notify (a) shall have
         caused prejudice to the defense of such claim, or (b) shall have
         increased the costs or liability of ACM by reason of the inability or
         failure of ACM (because of the lack of prompt notice from either of ART
         or ARLP) to be involved in any investigations or negotiations regarding
         any such claim. In case any such claim shall be asserted or commenced
         against either of ART or ARLP and it shall notify ACM thereof, ACM
         shall be entitled to participate in the negotiation or administration
         thereof and, to the extent it may wish, to assume the defense thereof
         with counsel reasonably satisfactory to the party against which such
         Claim was initially asserted or commenced, and, after notice from ACM
         to the party against which such Claim was initially asserted or
         commenced of its election so to assume the defense thereof, which
         notice shall be given within 15 days of its receipt of such notice from
         the party against which such Claim was initially asserted or commenced,
         ACM will not be liable to the party against which such Claim was
         initially asserted or commenced hereunder for any legal or other
         expenses subsequently incurred by the party against which such Claim
         was initially asserted or commenced in connection with the defense
         thereof other than reasonable costs of investigation. ACM shall not
         settle any claim without the written consent of the party against which
         such Claim was initially asserted or commenced, which consent shall not
         be unreasonably withheld or delayed.

9.       Covenants.

         ACM hereby agrees to provide ARLP with a limited guaranty with respect
         to the 130 West 30th Street Bridge Loan (as defined on Schedule A-1
         hereto), 333 East 34th Street Mezzanine Loan and the Central Jersey
         Mezzanine Loan (each as defined on Schedule A-2 hereto) and the
         Preferred Equity Interest held by ANMB Holdings, LLC (as described on
         Schedule C hereto), pursuant to a Guaranty, made by ACM in favor of
         ARLP, substantially in the form of Exhibit B;

10.      Specific Performance. ACM and ARLP acknowledge that damages would be an
         inadequate remedy for any breach of the provisions of this Agreement
         and agree that the obligations of the parties hereunder shall be
         specifically enforceable.



11.      Expenses. Whether or not the Closing occurs, all costs and expenses
         incurred in connection with this Agreement and the transactions
         contemplated hereby shall be paid by ACM.

12.      Further Assurances. From time to time following the Closing, ACM shall
         execute and deliver, or cause to be executed and delivered, to ARLP
         such other documents or instruments of conveyance and transfer as ARLP
         may reasonably request or as may be otherwise necessary to more
         effectively convey and transfer to, and vest in, ARLP, the ACM Initial
         Assets, the ANMB II Membership Interests, the Membership Interests and
         the Liabilities, or in order to fully effectuate and to implement the
         purposes, terms and provisions of this Agreement. To the extent that
         hereafter ACM receives any payments in respect of the Initial Assets or
         the Membership Interests on or after the date of the Closing, ACM shall
         forward the same to ARLP within five (5) business days.

13.      Entire Agreement: No Other Representations. Except as expressly agreed
         in a separate writing signed by the parties hereto on or after the date
         of this Agreement, this Agreement constitutes the entire agreement, and
         supersedes all other prior agreements and understandings, both written
         and oral, between the parties, with respect to the subject matter
         hereof. Except as set forth herein, ACM makes no representation,
         express or implied, with respect to the Initial Assets or the
         Membership Interests or the enforceability, collectability, suitability
         or value thereof.

14.      Severability. The provisions of this Agreement shall be deemed
         severable and the invalidity or unenforceability of any provision shall
         not affect the validity or enforceability of the other provisions
         hereof. If any provision of this Agreement, or the application thereof
         to any person or entity or any circumstance, is invalid or
         unenforceable (a) a suitable and equitable provision shall be
         substituted therefor in order to carry out, so far as may be valid and
         enforceable, the intent and purpose of such invalid or unenforceable
         provision and (b) the remainder of this Agreement and the application
         of such provision to other persons or entities or circumstances shall
         not be affected by such invalidity or unenforceability, nor shall such
         invalidity or unenforceability affect the validity or enforceability of
         such provision, or the application thereof, in any other jurisdiction.

15.      Interpretation. The section references and headings herein are for
         convenience of reference only, do not constitute part of this Agreement
         and shall not be deemed to limit or otherwise affect any of the
         provisions hereof.

16.      Successors and Assigns. This Agreement shall be binding upon and inure
         to the benefit of the parties hereto and their successors and assigns.
         ARLP shall have the



         right to assign its rights under this agreement as respects any ACM
         Initial Asset, the ANMB II Membership Interests or any of the
         Membership Interests to any purchaser of such ACM Initial Asset the
         ANMB II Membership Interests or any of the Membership Interests Nothing
         in this Agreement, expressed or implied, is intended or shall be
         construed to confer upon any person or entity other than the parties
         and their successors and assigns any right, remedy or claim under or by
         reason of this Agreement.

17.      Counterparts. This Agreement may be executed in one or more
         counterparts, each of which shall be deemed to be an original but all
         of which shall constitute one instrument.

18.      Choice of Law. THIS AGREEMENT AND THE RIGHTS OF THE PARTIES HEREUNDER
         SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE
         STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES GOVERNING CONFLICTS OF
         LAWS.



                           IN WITNESS WHEREOF, the parties hereto have executed
         this Agreement as of the date first above written.

                                         ARBOR COMMERCIAL MORTGAGE, LLC

                                         By: /s/ Frederick C. Herbst
                                             ---------------------------
                                             Name: Frederick C. Herbst
                                             Title: Chief Financial Officer

                                         ARBOR REALTY TRUST, INC.

                                         By: /s/ Frederick C. Herbst
                                             ---------------------------
                                             Name: Frederick C. Herbst
                                             Title: Chief Financial Officer

                                         ARBOR REALTY LIMITED PARTNERSHIP

                                         By: Arbor Realty GPOP, Inc.,
                                             its General Partner

                                             By: /s/ Frederick C. Herbst
                                                 -----------------------------
                                                 Name: Frederick C. Herbst
                                                 Title: Secretary and Treasurer



                                  SCHEDULE A-1

                                  BRIDGE LOANS

"1025 5th Avenue Bridge Loan" means the bridge loan evidenced by the Promissory
Note, dated as of October 10, 2002, by Adam C. Hochfelder and Amy M. Hochfelder
in favor of Arbor Commercial Mortgage, LLC.

"130 West 30th Street Bridge Loan" means the bridge loan evidenced by the
Amended, Consolidated and Restated Promissory Note, dated as of September 20,
2001 by 130 West 30th, LLC in favor of Arbor Commercial Mortgage, LLC.

"Concord and Henry Bridge Loan" means the bridge loan evidenced by the
Promissory Note, dated April 3, 2003, by Henry Terrace, LLC and 100 Concord St.,
LLC in favor of Arbor Commercial Mortgage, LLC.

"Dylan Hotel Bridge Loan" means the bridge loan evidenced by the Amended and
Restated Mortgage Note, dated as of March 31, 2003, by Grand Palace Hotel at the
Park LLC in favor of Arbor Commercial Mortgage, LLC, subject to all right, title
and interest of BD Hotels, LLC ("BD") to a certain amount of the principal and
interest payments due on Dylan Hotel Bridge Loan and such other rights, title
and interests of BD with respect to the Dylan Hotel Bridge Loan, each as granted
by ACM to BD pursuant to the Participation Agreement, dated as of April 8, 2003
between Arbor Commercial Mortgage, LLC and BD.


"Emerald Bay Bridge Loan" means the bridge loan evidenced by the Promissory
Note, dated as of May 14, 2003, by Empirian Bay LLC in favor of Arbor Commercial
Mortgage, LLC, subject to all right, title and interest of RFC to a certain
amount of the principal and interest payments due on Emerald Bay Bridge Loan and
such other rights, title and interests of RFC with respect to the Emerald Bay
Bridge Loan, each as granted by ACM to RFC pursuant to the Participation
Agreement, dated as of May 14, 2003 between Arbor Commercial Mortgage, LLC and
RFC.


"Grand Plaza Bridge Loan" means the bridge loan evidenced by the Promissory
Note, dated as of November 27, 2002, by Grand Plaza Limited Partnership in favor
of Arbor Commercial Mortgage, LLC.

"Holiday Inn - Deland Bridge Loan" means the bridge loan evidenced by the
Promissory Note, dated as of March 31, 2000 by Hospitality Associates of Deland
Florida, Ltd., in favor of Arbor National Commercial Mortgage, LLC.






"NHP Bridge Loan" means the bridge loan evidenced by the Promissory Note, dated
as of February 27, 2003, by NSH Affordable Housing of Indiana, Inc. in favor of
Arbor Commercial Mortgage, LLC.

"Palmetto Villas Bridge Loan" means the bridge loan evidence by the Promissory
Note, dated as of May 7, 2003, by Palmetto Villas Investors, LLC in favor of
Arbor Commercial Mortgage, LLC.

"Partners Portfolio Bridge Loan" means the bridge loan evidenced by the
Promissory Note with respect to Tranch A, dated as of April 30, 2003, by SRH/LA
Chesapeake Apartments, L.P., SRH/LA Nottingham, LLC, SRH/LA Hunter, LLC, SRH/LA
Melvin, LLC in favor of Arbor Commercial Mortgage, LLC.

"Tropical Gardens Bridge Loan" means the bridge loan evidenced by the Promissory
Note, dated as of December 20, 2002, by NHP Tropical Gardens Limited Partnership
in favor of Arbor Commercial Mortgage, LLC.

"Vermillion Apartments Bridge Loan" means the bridge loan evidenced by the
Promissory Note, dated as of September 24, 2002, by SRH Vermillion Limited
Partnership in favor of Arbor Commercial Mortgage, LLC.



                                  SCHEDULE A-2

                                 MEZZANINE LOANS

"333 East 34th Street Mezzanine Loan" means the mezzanine loan evidenced by the
Promissory Note by 333 East 34th, LLC, dated as of January 9, 2002, in favor of
Arbor Commercial Mortgage, LLC.

"Carlton Arms Mezzanine Loan" means the mezzanine loan evidenced by the
Promissory Note, dated as of November 14, 2001, by Carlton Arms, LLC and HRA
Egypt Lake, Inc. in favor of Arbor Commercial Mortgage, LLC.

"Partners Portfolio Mezzanine Loan" means the mezzanine loan evidenced by the
Promissory Note with respect to Tranch B, dated as of April 30, 2003, by SRH/LA
Chesapeake Apartments, L.P., SRH/LA Nottingham, LLC, SRH/LA Hunter, LLC, SRH/LA
Melvin, LLC in favor of Arbor Commercial Mortgage, LLC.

"Turtle Creek Apartments Mezzanine Loan" means the mezzanine loan evidenced by
the Promissory Note, dated as of October 7, 2002, by Turtle Creek Development,
L.P. in favor of Arbor Commercial Mortgage, LLC.



                                  SCHEDULE A-3

                                   OTHER LOANS

"Albion Loan" means the loan evidenced by the Severed Promissory Note B, dated
as of March 14, 2001, by Albion Associates, Ltd. in favor of Mezzobridge Funding
LLC, and assigned to Arbor Commercial Mortgage LLC as of July 31, 2001.

"Ornstein Loan" means the loan evidenced by the Multifamily Note, dated as of
August 31, 1995, by and between Ornstein 215-217 East 86 LLC and Arbor National
Commercial Mortgage Corporation.



                                  SCHEDULE A-4

"Central Jersey Mezzanine Loan" means the mezzanine loan evidenced by the
Promissory Note made as of August 1, 2002 by Central Jersey Sub VI LLC and
Central Jersey Sub VII LLC in favor of ANMB II, as amended by (1) the
Modification of Promissory Note and Other Loan Documents and Assumption and
Reaffirmation, made as of October 31, 2002, by and among Central Jersey Sub VII
LLC, Central Jersey Sub VIII LLC, Central Jersey Prime III LLC, Livingston
Terrace L.L.C., Highland Montgomery L.L.C., Rubin Schron, David Lichtenstein,
Joseph Tabak and Jersey Central Management, L.L.C. and ANMB II and (2) the
Second Modification of Promissory Note and Other Loan Documents and
Reaffirmation, dated as of May 9, 2003, by and among Central Jersey Sub VII LLC,
Central Jersey Sub VIII LLC, Central Jersey Prime III LLC, Livingston Terrace
L.L.C., Highland Montgomery L.L.C., Rubin Schron, David Lichtenstein, Joseph
Tabak and Jersey Central Management, L.L.C. and ANMB II.



                                   SCHEDULE B

                            PREFERRED EQUITY HOLDERS

1.       ANMB Holdings, LLC, a wholly-owned subsidiary of ACM and the holder of
         100% of the preferred interests in Central Jersey Prime Holdings LLC,
         pursuant to the Limited Liability Company Agreement of Central Jersey
         Prime Holdings LLC, dated as of May 9, 2003, by and among Central
         Jersey LLC, ANMB Holdings, LLC, Arbor National CJ LLC, TRAC Central
         Jersey LLC and CAM Jersey LLC.

2.       Arbor Park Place LLC, a wholly-owned subsidiary of ACM and holder of
         18% of the membership interest in Santa Ana Park Place Associates LLC,
         pursuant to the Operating Agreement of Santa Ana Park Place Associates
         LLC, dated as of January 8, 2002, by and among Santa Ana Park Place
         Corp., Hanover Financial Company and Arbor Park Place LLC.

3.       Arbor Devonshire, LLC, a wholly-owned subsidiary of ACM and holder of
         100% of the preferred interests of Merchant Devonshire Limited
         Partnership, pursuant to the Amended and Restated Limited Partnership
         Agreement of Merchant Devonshire Limited Partnership, dated as of
         December 23, 1998 (the "Devonshire LP Agreement"), by and among Third
         Merchant Investors Corp., Arbor Devonshire, LLC and First Merchants
         Group Limited Partnership, as amended by Amendment No. 1 to the
         Devonshire LP Agreement, dated as of May 30, 2000, Amendment No. 2 to
         the Devonshire LP Agreement, dated as of January 1, 2002 and Amendment
         No. 3 to the Devonshire LP Agreement, dated as of January 1, 2003.

4.       Arbor Texas CDS, LLC, a wholly-owned subsidiary of ACM and holder of
         100% of the Class C Partnership Units of CDS-Texas Investors, L.P.,
         pursuant to the Amended and Restated Agreement of Limited Partnership
         of CDS-Texas Investors, L.P., dated as of January 1, 2003, by and among
         Daniel R. Stanger, Christian V. Young, Dean A. Allara, Skyline Property
         Associates II, L.P. and Arbor Texas CDS, LLC.

5.       ACM Gateway, LLC, a wholly-owned subsidiary of ACM and holder of 100%
         of the preferred interests of BP-CO 4 Property Associates, LLC,
         pursuant to the Limited Liability Company Agreement of BP-CO 4 Property
         Associates, LLC, dated as of February 8, 2002, by and among BP Villages
         Management, Inc, ACM Gateway, LLC and other junior members.



                                   SCHEDULE C

                           PREFERRED EQUITY INTERESTS

1.       100% of the preferred interests, held by Arbor Devonshire, LLC, a
         wholly owned subsidiary, of Merchant Devonshire Limited Partnership as
         evidenced by the Amended and Restated Limited Partnership Agreement of
         Merchant Devonshire Limited Partnership, entered into as of January 17,
         2002, by and among Third Merchant Investors Corp., Arbor Devonshire LLC
         and First Merchants Group Limited Partnership.

2.       100% of the Class C Partnership Units of CDS-Texas Investors, L.P.,
         held by Arbor Texas CDS, LLC, a wholly owned subsidiary, as evidenced
         by the Amended and Restated Agreement of Limited Partnership of
         CDS-Texas Investors, L.P., by and among Daniel R. Stanger, Christian V.
         Young, Dean A. Allara, Skyline Property Associates II, L.P. and Arbor
         Texas CDS, LLC.

3.       100% of the preferred interests of Central Jersey Prime Holdings, LLC,
         held by ANMB Holdings, LLC, as evidenced by the Limited Liability
         Company Agreement of Central Jersey Prime Holdings, LLC, dated as of
         May 9, 2003, by and among Central Jersey LLC, ANMB Holdings, LLC, Arbor
         National CJ LLC, TRAC Central Jersey LLC and CAM Jersey LLC.

4.       18% of the membership interests in Santa Ana Park Place Associates LLC,
         held by Arbor Park Place, LLC, and evidenced by the Operating Agreement
         of Santa Ana Park Place Associates LLC, dated as of January 8, 2002, by
         and among Santa Ana Park Place Corp., Hanover Financial Company and
         Arbor Park Place LLC;

5.       100% of the preferred interests of BP-CO 4 Property Associates, LLC
         held by ACM Gateway, LLC and evidenced by the Limited Liability Company
         Agreement of BP-CO 4 Property Associates, LLC, effective as of February
         8, 2002, by and among BP Villages Management, Inc, ACM Gateway, LLC and
         other junior members.



                                                              SCHEDULE 4(b)(XXI)

         None.



                                                                       EXHIBIT A

                       ASSIGNMENT AND ASSUMPTION AGREEMENT

         This ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as July 1, 2003, is
executed and delivered, by and between Arbor Commercial Mortgage, LLC, a
Delaware limited liability company ("ACM") and Arbor Realty Limited Partnership,
a Delaware limited partnership ("ARLP"), pursuant to that certain Contribution
Agreement dated as of July 1, 2003 (the "Contribution Agreement"), by and among
ACM, Arbor Realty Trust, Inc., a Maryland corporation ("ART") and ARLP.

                                    RECITALS

         WHEREAS, pursuant to the Contribution Agreement, ARLP has agreed to
transfer the Partnership Units and the Warrants to ACM in exchange for the
Contributed Assets, upon the terms and conditions specified in the Contribution
Agreement.

         Capitalized terms used herein but not otherwise defined herein shall
have the meanings ascribed thereto in the Contribution Agreement.

         NOW, THEREFORE, in consideration of the promises contained in the
Contribution Agreement and for other good and valuable consideration, ARLP and
ACM agree as follows:

1.   ACM does hereby transfer, convey, assign and deliver to ARLP, and ARLP
     hereby accepts from ACM, all of the rights, title and interests of ACM in,
     to and under the ACM Initial Assets (including all promissory notes,
     security agreements, guarantees and other agreements that evidence or
     secure such ACM Initial Assets), in each case to have and hold unto ARLP,
     its successors and assigns forever.

2.   ACM does hereby transfer, convey, assign and deliver to ARLP, and ARLP
     hereby accepts from ACM, (a) 100% of the Membership Interests of each of
     the Preferred Equity Holders of the Preferred Equity Interests and (b) 100%
     of the ANMB II Membership Interests, in each case to have and hold unto
     ARLP, its successors and assigns forever.

3.   ARLP hereby assumes all of the liabilities and agrees to perform any and
     all duties and obligations of ACM under the documents that evidence or
     otherwise



     govern the rights and obligations of ACM with respect to the liabilities
     and under any agreement referred to paragraph 1, with respect to the ACM
     Initial Assets.

4.   The terms and provisions of this Assignment and Assumption Agreement shall
     be binding upon and inure to the benefit of the parties and their
     respective successors and assigns.

5.   This Assignment and Assumption Agreement shall be governed by and construed
     in accordance with the laws of the State of New York without giving effect
     to principles governing conflicts of laws.



IN WITNESS WHEREOF, each of ARLP and ACM have caused this Assignment and
Assumption Agreement to be duly executed and attested to by its officer hereunto
duly authorized as of the day and year first above written.

                                       ARBOR COMMERCIAL MORTGAGE, LLC

                                       By: _________________________
                                       Name: Frederick C. Herbst
                                       Title: Chief Financial Officer

                                       ARBOR REALTY LIMITED PARTNERSHIP

                                       By: Arbor Realty GPOP, Inc.,
                                           its General Partner

                                           By: _________________________
                                               Name: Frederick C. Herbst
                                               Title: Secretary and Treasurer



                                                                       EXHIBIT B

                                    GUARANTY

                  This GUARANTY (this "Guaranty"), dated as of July 1, 2003, is
by Arbor Commercial Mortgage, LLC, a New York limited liability company ("ACM"),
ACM 34th Street, LLC, a Delaware limited liability company and a wholly-owned
subsidiary of ACM ("ACM 34th"), Arbor 30th LLC, a New York limited liability
company and a wholly-owned subsidiary of ACM ("Arbor 30th"), Arbor National CJ
LLC, a New York limited liability company and a wholly-owned subsidiary of ACM
("CJ") and Arbor National CJ II, LLC, a New York limited liability company and a
wholly-owned subsidiary of ACM ("CJ II", and together with ACM 34th, Arbor 30th
and CJ, the "Subsidiary Guarantors"), in favor of Arbor Realty Limited
Partnership, a Delaware limited partnership ("ARLP"), ANMB Holdings, LLC, a New
York limited liability company ("ANMB") and ANMB Holdings II, LLC, a New York
limited liability company ("ANMB II").

                               W I T N E S S E T H

                  WHEREAS, pursuant to the terms of that certain contribution
agreement (the "Contribution Agreement"), dated as of July 1, 2003 (the
"Contribution Date"), by and among ACM, Arbor Realty Trust, Inc., a Maryland
corporation ("ART") and ARLP (capitalized terms used but not defined herein have
the meanings assigned to them in the Contribution Agreement), ACM has agreed to
contribute (i) the ACM Initial Assets, (ii) ACM's membership interests in ANMB
II, the original lender under the Central Jersey Mezzanine Loan, and (iii) the
Membership Interests of the Preferred Equity Holders of the Preferred Equity
Investments to ARLP, collectively, in exchange for the Partnership Units and the
Warrants;

         WHEREAS, each of the 333 East 34th Street Mezzanine Loan, the 130 West
30th Street Bridge Loan and the Central Jersey Mezzanine Loan (collectively, the
"Guaranteed Loans") are Initial Assets;

         WHEREAS, ANMB is a Preferred Equity Holder in that it holds 100% of the
preferred interests of Central Jersey Prime Holdings, LLC (the "Guaranteed
Preferred Equity Investment" and together with the Guaranteed Loans, the
"Guaranteed Investments");



         WHEREAS, ACM 34th holds a 15% Percentage Interest (as defined in the
Operating Agreement of 333 East 34th, LLC) in 333 East 34th, LLC, the borrower
under the 333 East 34th Street Mezzanine Loan;

         WHEREAS, Arbor 30th holds a 50% Percentage Interest (as defined in the
Operating Agreement of 130 West 30th, LLC) in 130 West 30th, LLC, the borrower
under the 130 West 30th Street Bridge Loan;

         WHEREAS, CJ II holds a 18% Sharing Percentage (as defined in the
Operating Agreement of Central Jersey Prime III LLC) in Central Jersey Prime III
LLC, the managing member of the borrower under the Central Jersey Mezzanine
Loan;

         WHEREAS, CJ holds a 18% Junior Interest (as defined in the Operating
Agreement of Central Jersey Prime Holdings LLC) in Central Jersey Prime Holdings
LLC; and

                  WHEREAS, ACM and the Subsidiary Guarantors (together, the
"Guarantors") desire to provide ARLP, ANMB and ANMB II with a limited guaranty
of (i) the repayment of a certain portion of the principal balance of each of
the Guaranteed Loans and (ii) the repurchase of a certain portion of the
preferred capital contribution of ANMB in Central Jersey Prime Holdings LLC.

                  NOW, THEREFORE, in consideration of the foregoing and the
covenants and obligations set forth in this Guaranty, the parties hereto agree
as follows:

1.       Definitions. The following terms, as used in this Guaranty, shall have
         the following meanings (unless otherwise expressly provided herein):

         "130 West 30th Street Note" means the Amended, Consolidated and
         Restated Promissory Note made as of September 20, 2001 by 130 West
         30th, LLC in favor of ACM.

         "130 West 30th Operating Agreement" means the Operating Agreement of
         130 West 30th, LLC, dated as of September 20, 2001, by and between H.J.
         Development, LLC and Arbor 30th.

         "333 East 34th Street Note" means the Promissory Note made as of
         January 9, 2002 by 333 East 34th, LLC in favor of ACM.



         "333 East 34th Operating Agreement" means the Operating Agreement of
         333 East 34th, LLC, dated as of June 19, 2001, by and among ACM 34th,
         East 34th Street Management, LLC and 333 East 34th Street, LLC.

         "Central Jersey Mezzanine Operating Agreement" means the Operating
         Agreement of Central Jersey Prime III LLC, dated as of July 12, 2000,
         by and among Central Jersey LLC, ANMB II, TRAC Central Jersey II LLC
         and CJ II, as amended by the Amendment to Operating Agreement, dated as
         of August 1, 2002 and the Amendment to Operating Agreement, dated as of
         May 9, 2003.

         "Central Jersey Note" means the Promissory Note made as of August 1,
         2002 by Central Jersey Sub VI LLC and Central Jersey Sub VII LLC in
         favor of ANMB II, as amended by (1) the Modification of Promissory Note
         and Other Loan Documents and Assumption and Reaffirmation, made as of
         October 31, 2002, by and among Central Jersey Sub VII LLC, ANMB II and
         the other parties thereto and (2) the Second Modification of Promissory
         Note and Other Loan Documents and Reaffirmation, made as of May 9,
         2003, by and among Central Jersey Sub VII LLC, ANMB II and the other
         parties thereto.

         "Central Jersey Preferred Operating Agreement" means the Limited
         Liability Company Agreement of Central Jersey Prime Holdings LLC, dated
         as of May 9, 2003, by and among Central Jersey LLC, ANMB, CJ and TRAC
         Central Jersey LLC.

         "Guaranteed Loan Principal Balance" means:

         (a)      with respect to the 130 West 30th Street Bridge Loan, the
         outstanding principal balance of the 130 West 30th Street Bridge Loan
         as of the Contribution Date, namely $16,000,000.00, plus (a) any
         Interest Expense relating to the 130 West 30th Street Bridge Loan paid
         by ARLP subsequent to the Contribution Date, minus (b) the aggregate of
         the following amounts received by ARLP subsequent to the Contribution
         Date in accordance with the terms of the 130 West 30th Street Note: (i)
         interest payments on the unpaid principal balance of the 130 West 30th
         Street Bridge Loan, and (ii) Late Charges (as defined Section 1.3 of
         the 130 West 30th Street Note);

         (b)      with respect to the 333 East 34th Street Mezzanine Loan, the
         outstanding principal balance of the 333 East 34th Street Mezzanine
         Loan as of the Contribution Date, namely $10,000,000.00, plus (a) any
         Interest Expense relating to the 333 East 34th Street Mezzanine Loan
         paid by ARLP



         subsequent to the Contribution Date, minus (b) the aggregate of the
         following amounts received by ARLP subsequent to the Contribution Date
         in accordance with the terms of the 333 East 34th Street Note: (i)
         interest payments on the unpaid principal balance of the 333 East 34th
         Street Mezzanine Loan, (ii) Late Charges (as defined Section 1.9 of the
         333 East 34th Street Note), and (iii) Extension Fees (as defined
         Section 2.7 of the 130 West 30th Street Note); and

         (c)      with respect to the Central Jersey Mezzanine Loan, the
         outstanding principal balance of the Central Jersey Mezzanine Loan as
         of the Contribution Date, namely $3,000,000.00, plus (a) any Interest
         Expense relating to the Central Jersey Mezzanine Loan paid by ANMB II
         (or ARLP, if applicable) subsequent to the Contribution Date, minus (b)
         the aggregate of the following amounts received by ANMB II (or ARLP, if
         applicable) subsequent to the Contribution Date in accordance with the
         terms of the Central Jersey Note: (i) interest payments on the unpaid
         principal balance of the Central Jersey Mezzanine Loan, and (ii) any
         Exit Fees (as defined in the Central Jersey Note).

         "Guaranteed Preferred Capital Contribution" means the Unreturned
         Preferred Capital Contribution (as defined in the Central Jersey
         Preferred Operating Agreement) as of the Contribution Date, namely
         $19,300,000.00, plus (a) any Interest Expense relating to the Central
         Jersey Preferred Equity Investment paid by ARLP (or ANMB, if
         applicable) subsequent to the Contribution Date, minus (b) the
         aggregate of the following amounts received by ANMB subsequent to the
         Contribution Date: (i) any Capital Proceeds or Net Cash Receipts (as
         each such term is defined in the Central Jersey Preferred Operating
         Agreement) and (ii) any Preferred Return (as defined in the Central
         Jersey Preferred Operating Agreement).

         "Interest Expense" means any interest payments made by ARLP after the
         Contribution Date with respect to any of the Guaranteed Investments
         pursuant to (a) the Assignment and Assumption Agreement, dated as of
         July 1, 2003, by and between ACM and ARLP relating to the Nomura
         Repurchase Agreement, (b) the Structured Facility Warehousing Credit
         and Security Agreement, dated as of July 1, 2003, by and between RFC
         and ARLP, (c) the Master Repurchase Agreement, dated as of July 1,
         2003, by and between Bear Stearns Funding, Inc. and ARLP, or (d) any
         other warehouse facility, repurchase agreement, credit agreement or
         other


         agreement entered into by ARLP which provides financing for the
         Guaranteed Investments.

         "Subsidiary Guarantors' Aggregate Return" means the total of the
         following amounts received prior to and including the Termination Date:

         (a)      any "net cash flow" (as such term is defined in the 130 West
         30th Operating Agreement) distributed to Arbor 30th pursuant to Section
         8 of the 130 West 30th Operating Agreement, subject to the terms and
         provisions of the 130 West 30th Operating Agreement, plus

         (b)      any Cash Available for Distribution (as defined in the 333
         East 34th Operating Agreement) distributed to ACM 34th pursuant to
         Article IV of the 333 East 34th Operating Agreement, subject to the
         terms and provisions of the 333 East 34th Operating Agreement, plus

         (c)      any Capital Proceeds and Net Cash Receipts (as each such term
         is defined in the Central Jersey Preferred Operating Agreement)
         distributed to CJ pursuant to Article 5 of the Central Jersey Preferred
         Operating Agreement, subject to the terms and provisions of the Central
         Jersey Preferred Operating Agreement, plus

         (d)      any Available Cash or Capital Proceeds (as each such term is
         defined in the Central Jersey Mezzanine Operating Agreement) or Special
         Tax Distributions (as described in Section 8.9 of the Central Jersey
         Mezzanine Operating Agreement) distributed to CJ II pursuant to Article
         8 of the Central Jersey Mezzanine Operating Agreement, subject to the
         terms and provisions of the Central Jersey Mezzanine Operating
         Agreement.

2.       Guaranty.

         (a)      Subject to the limitations set forth in Section 3 hereof, if
         any portion of the Guaranteed Loan Principal Balance of any of the
         Guaranteed Loans is not paid to ARLP or ANMB II, as applicable, at the
         applicable Guaranteed Loan's maturity date in accordance with the terms
         of the note and other loan documents relating to such Guaranteed Loan
         (the "Unpaid Guaranteed Loan Principal Balance"), the Guarantors,
         jointly and severally, hereby agree to pay to ARLP or ANMB II, as
         applicable, the portion of the Unpaid Guaranteed Loan Principal Balance
         of such Guaranteed Loan that is equal to or less than the Subsidiary
         Guarantors' Aggregate Return.



         (b)      Subject to the limitations set forth in Section 3 hereof, if
         any portion of the Guaranteed Preferred Capital Contribution is not
         paid to ANMB (or ARLP, if applicable) at the Required Purchase Date (as
         defined in the Central Jersey Preferred Operating Agreement) in
         accordance with Section 11.3 of the Central Jersey Preferred Operating
         Agreement (the "Unpaid Guaranteed Preferred Capital Contribution"), the
         Guarantors, jointly and severally, hereby agree to pay to ANMB (or
         ARLP, if applicable) the portion of the Unpaid Guaranteed Preferred
         Capital Contribution that is equal to or less than the Subsidiary
         Guarantors' Aggregate Return.

         (c)      As an Unpaid Guaranteed Loan Principal Balance or the Unpaid
         Guaranteed Preferred Capital Contribution becomes due and payable from
         time to time by the Guarantors pursuant to Section 2(a) and Section
         2(b), respectively, ARLP shall deliver to ACM, within 10 business days
         of such amounts becoming due, written notice stating the amount of such
         Unpaid Guaranteed Loan Principal Balance or Unpaid Guaranteed Preferred
         Capital Contribution, as applicable. To the extent that the Subsidiary
         Guarantors' Aggregate Return as of the date such notice is received is
         greater than or equal to the amount stated in such notice, the
         Guarantors shall disburse the Unpaid Guaranteed Loan Principal Balance
         or Unpaid Guaranteed Preferred Capital Contribution, as applicable, to
         ARLP, ANMB II or ANMB, as applicable, within 10 business days of
         receipt of such notice. To the extent that the Subsidiary Guarantors'
         Aggregate Return as of the date such notice is received is less than
         the amount stated in such notice, such Unpaid Guaranteed Loan Principal
         Balance or Unpaid Guaranteed Preferred Capital Contribution, as
         applicable, shall remain due and payable by the Guarantors, and, as
         amounts constituting Subsidiary Guarantors' Aggregate Return are
         received by the Guarantors, such amounts shall be disbursed to ARLP,
         ANMB II or ANMB, as applicable, within five business days following
         their receipt, until all Unpaid Guaranteed Loan Principal Balances or
         the Unpaid Guaranteed Preferred Capital Contribution, as applicable,
         has been fully paid.

3.       Termination. This Guaranty will be terminated and the Guarantors will
         no longer be obligated to pay any further amounts to ARLP or ANMB II,
         as applicable, in respect of any of the Guaranteed Loans or to pay any
         further amounts to ANMB in respect of the Guaranteed Preferred Equity
         Investment on the date on which all of the following conditions are met
         (the "Termination Date"):



         (a) the remaining aggregate Unpaid Guaranteed Loan Principal Balance of
             the Guaranteed Loans, plus the remaining Unpaid Guaranteed
             Preferred Capital Contribution, is less than $5,000,000,

         (b) no Event of Default (as such term is defined in note and the loan
             documents relating to each of the Guaranteed Loans) with respect to
             any Guaranteed Loan has occurred and is continuing, and

         (c) no Trigger Event (as defined in the Central Jersey Preferred
             Operating Agreement) has occurred and is continuing.

4.       Notice of Receipt of Returns. ACM shall provide written notice to ARLP
         within 15 business days of the end of each fiscal quarter of all
         amounts that constitute Subsidiary Guarantors' Aggregate Return
         received by the Guarantors during the preceding quarter.

5.       Governing Law. This Guaranty shall be governed by and construed in
         accordance with the laws of the State of New York.

6.       Severability. If any provision of this Guaranty or the application of
         any such provision to any person or circumstances shall be held invalid
         by a court of competent jurisdiction, the remainder of this Guaranty,
         including the remainder of the provision held invalid, or the
         application of such provision to persons or circumstances other than
         those as to which it is held invalid, shall not be affected thereby.

7.       Counterparts. This Guaranty may be executed in one or more
         counterparts, each of which shall be deemed to be an original, but all
         of which together shall constitute one and the same instrument.

8.       Headings. All section headings herein are for convenience of reference
         and are not part of this Guaranty, and no construction or interference
         shall be derived therefrom.



                  IN WITNESS WHEREOF, the parties hereto has executed this
Guaranty as of the date first above written.

                                            ARBOR COMMERCIAL MORTGAGE, LLC

                                            By: _____________________________
                                            Name: Frederick C. Herbst
                                            Title: Chief Financial Officer



                                            ARBOR 30th, LLC

                                            By: _____________________________
                                                Name:
                                                Title:

                                            ACM 34th STREET LLC

                                            By: _____________________________
                                                Name:
                                                Title:

                                            ARBOR NATIONAL CJ LLC

                                            By: _____________________________
                                                Name:
                                                Title:

                                            ARBOR NATIONAL CJ II, LLC

                                            By: _____________________________
                                                Name:
                                                Title:



Acknowledged and Accepted by:

ARBOR REALTY LIMITED PARTNERSHIP

         By: ARBOR REALTY GPOP, INC.,
         its General Partner

         By: _______________________________
             Name: Frederick C. Herbst
             Title: Treasurer and Secretary



ANMB HOLDINGS, LLC

By: ARBOR REALTY LIMITED PARTNERSHIP,
    its sole member

    By: ARBOR REALTY GPOP, INC.,
        its General Partner

        By: ________________________
            Name: Frederick C. Herbst
            Title: Treasurer and Secretary

ANMB HOLDINGS II, LLC

By: ARBOR REALTY LIMITED PARTNERSHIP,
    its sole member

    By: ARBOR REALTY GPOP, INC.,
        its General Partner

        By: ________________________
            Name: Frederick C. Herbst
            Title: Treasurer and Secretary

                                                                     EXHIBIT 2.2

                                    GUARANTY

                  This GUARANTY (this "Guaranty"), dated as of July 1, 2003, is
by Arbor Commercial Mortgage, LLC, a New York limited liability company ("ACM"),
ACM 34th Street, LLC, a Delaware limited liability company and a wholly-owned
subsidiary of ACM ("ACM 34th"), Arbor 30th LLC, a New York limited liability
company and a wholly-owned subsidiary of ACM ("Arbor 30th"), Arbor National CJ
LLC, a New York limited liability company and a wholly-owned subsidiary of ACM
("CJ") and Arbor National CJ II, LLC, a New York limited liability company and a
wholly-owned subsidiary of ACM ("CJ II", and together with ACM 34th, Arbor 30th
and CJ, the "Subsidiary Guarantors"), in favor of Arbor Realty Limited
Partnership, a Delaware limited partnership ("ARLP"), ANMB Holdings, LLC, a New
York limited liability company ("ANMB") and ANMB Holdings II, LLC, a New York
limited liability company ("ANMB II").

                               W I T N E S S E T H

                  WHEREAS, pursuant to the terms of that certain contribution
agreement (the "Contribution Agreement"), dated as of July 1, 2003 (the
"Contribution Date"), by and among ACM, Arbor Realty Trust, Inc., a Maryland
corporation ("ART") and ARLP (capitalized terms used but not defined herein have
the meanings assigned to them in the Contribution Agreement), ACM has agreed to
contribute (i) the ACM Initial Assets, (ii) ACM's membership interests in ANMB
II, the original lender under the Central Jersey Mezzanine Loan, and (iii) the
Membership Interests of the Preferred Equity Holders of the Preferred Equity
Investments to ARLP, collectively, in exchange for the Partnership Units and the
Warrants;

         WHEREAS, each of the 333 East 34th Street Mezzanine Loan, the 130 West
30th Street Bridge Loan and the Central Jersey Mezzanine Loan (collectively, the
"Guaranteed Loans") are Initial Assets;

         WHEREAS, ANMB is a Preferred Equity Holder in that it holds 100% of the
preferred interests of Central Jersey Prime Holdings, LLC (the "Guaranteed
Preferred Equity Investment" and together with the Guaranteed Loans, the
"Guaranteed Investments");

         WHEREAS, ACM 34th holds a 15% Percentage Interest (as defined in the
Operating Agreement of 333 East 34th, LLC) in 333 East 34th, LLC, the borrower
under the 333 East 34th Street Mezzanine Loan;

         WHEREAS, Arbor 30th holds a 50% Percentage Interest (as defined in the
Operating Agreement of 130 West 30th, LLC) in 130 West 30th, LLC, the borrower
under the 130 West 30th Street Bridge Loan;

The material marked [*] has been omitted pursuant to a request for confidential
treatment by Arbor Realty Trust, Inc. and has been filed separately with the
Securities and Exchange Commission.


         WHEREAS, CJ II holds a 18% Sharing Percentage (as defined in the
Operating Agreement of Central Jersey Prime III LLC) in Central Jersey Prime III
LLC, the managing member of the borrower under the Central Jersey Mezzanine
Loan;

         WHEREAS, CJ holds a 18% Junior Interest (as defined in the Operating
Agreement of Central Jersey Prime Holdings LLC) in Central Jersey Prime Holdings
LLC; and

                  WHEREAS, ACM and the Subsidiary Guarantors (together, the
"Guarantors") desire to provide ARLP, ANMB and ANMB II with a limited guaranty
of (i) the repayment of a certain portion of the principal balance of each of
the Guaranteed Loans and (ii) the repurchase of a certain portion of the
preferred capital contribution of ANMB in Central Jersey Prime Holdings LLC.

                  NOW, THEREFORE, in consideration of the foregoing and the
covenants and obligations set forth in this Guaranty, the parties hereto agree
as follows:

1.       Definitions. The following terms, as used in this Guaranty, shall have
         the following meanings (unless otherwise expressly provided herein):

         "130 West 30th Street Note" means the Amended, Consolidated and
         Restated Promissory Note made as of September 20, 2001 by 130 West
         30th, LLC in favor of ACM.

         "130 West 30th Operating Agreement" means the Operating Agreement of
         130 West 30th, LLC, dated as of September 20, 2001, by and between H.J.
         Development, LLC and Arbor 30th.

         "333 East 34th Street Note" means the Promissory Note made as of
         January 9, 2002 by 333 East 34th, LLC in favor of ACM.

         "333 East 34th Operating Agreement" means the Operating Agreement of
         333 East 34th, LLC, dated as of June 19, 2001, by and among ACM 34th,
         East 34th Street Management, LLC and 333 East 34th Street, LLC.

         "Central Jersey Mezzanine Operating Agreement" means the Operating
         Agreement of Central Jersey Prime III LLC, dated as of July 12, 2000,
         by and among Central Jersey LLC, ANMB II, TRAC Central Jersey II LLC
         and CJ II, as amended by the Amendment to Operating Agreement, dated as
         of August 1, 2002 and the Amendment to Operating Agreement, dated as of
         May 9, 2003.

         "Central Jersey Note" means the Promissory Note made as of August 1,
         2002 by Central Jersey Sub VI LLC and Central Jersey Sub VII LLC in
         favor of ANMB II, as amended by (1) the Modification of Promissory Note
         and Other Loan Documents and Assumption and Reaffirmation, made as of
         October 31, 2002, by and among Central Jersey Sub VII LLC, ANMB II and
         the other parties thereto and (2) the Second Modification of Promissory
         Note and Other Loan Documents



         and Reaffirmation, made as of May 9, 2003, by and among Central Jersey
         Sub VII LLC, ANMB II and the other parties thereto.

         "Central Jersey Preferred Operating Agreement" means the Limited
         Liability Company Agreement of Central Jersey Prime Holdings LLC, dated
         as of May 9, 2003, by and among Central Jersey LLC, ANMB, CJ and TRAC
         Central Jersey LLC.

         "Guaranteed Loan Principal Balance" means:

         (a)      with respect to the 130 West 30th Street Bridge Loan, the
         outstanding principal balance of the 130 West 30th Street Bridge Loan
         as of the Contribution Date, namely $16,000,000.00, plus (a) any
         Interest Expense relating to the 130 West 30th Street Bridge Loan paid
         by ARLP subsequent to the Contribution Date, minus (b) the aggregate of
         the following amounts received by ARLP subsequent to the Contribution
         Date in accordance with the terms of the 130 West 30th Street Note: (i)
         interest payments on the unpaid principal balance of the 130 West 30th
         Street Bridge Loan, and (ii) Late Charges (as defined Section 1.3 of
         the 130 West 30th Street Note);

         (b)      with respect to the 333 East 34th Street Mezzanine Loan, the
         outstanding principal balance of the 333 East 34th Street Mezzanine
         Loan as of the Contribution Date, namely $10,000,000.00, plus (a) any
         Interest Expense relating to the 333 East 34th Street Mezzanine Loan
         paid by ARLP subsequent to the Contribution Date, minus (b) the
         aggregate of the following amounts received by ARLP subsequent to the
         Contribution Date in accordance with the terms of the 333 East 34th
         Street Note: (i) interest payments on the unpaid principal balance of
         the 333 East 34th Street Mezzanine Loan, (ii) Late Charges (as defined
         Section 1.9 of the 333 East 34th Street Note), and (iii) Extension Fees
         (as defined Section 2.7 of the 130 West 30th Street Note); and

         (c)      with respect to the Central Jersey Mezzanine Loan, the
         outstanding principal balance of the Central Jersey Mezzanine Loan as
         of the Contribution Date, namely $3,000,000.00, plus (a) any Interest
         Expense relating to the Central Jersey Mezzanine Loan paid by ANMB II
         (or ARLP, if applicable) subsequent to the Contribution Date, minus (b)
         the aggregate of the following amounts received by ANMB II (or ARLP, if
         applicable) subsequent to the Contribution Date in accordance with the
         terms of the Central Jersey Note: (i) interest payments on the unpaid
         principal balance of the Central Jersey Mezzanine Loan, and (ii) any
         Exit Fees (as defined in the Central Jersey Note).

         "Guaranteed Preferred Capital Contribution" means the Unreturned
         Preferred Capital Contribution (as defined in the Central Jersey
         Preferred Operating Agreement) as of the Contribution Date, namely
         $19,300,000.00, plus (a) any Interest Expense relating to the Central
         Jersey Preferred Equity Investment paid by ARLP (or ANMB, if
         applicable) subsequent to the Contribution Date, minus (b) the
         aggregate of the following amounts received by ANMB subsequent to the



         Contribution Date: (i) any Capital Proceeds or Net Cash Receipts (as
         each such term is defined in the Central Jersey Preferred Operating
         Agreement) and (ii) any Preferred Return (as defined in the Central
         Jersey Preferred Operating Agreement).


         "Interest Expense" means any interest payments made by ARLP after the
         Contribution Date with respect to any of the Guaranteed Investments
         pursuant to (a) the Assignment and Assumption Agreement, dated as of
         July 1, 2003, by and between ACM and ARLP relating to the Nomura
         Repurchase Agreement, (b) the Structured Facility Warehousing Credit
         and Security Agreement, dated as of July 1, 2003, by and between RFC
         and ARLP, (c) the Master Repurchase Agreement, dated as of July 1,
         2003, by and between Bear Stearns Funding, Inc. and ARLP, or (d) any
         other warehouse facility, repurchase agreement, credit agreement or
         other agreement entered into by ARLP which provides financing for the
         Guaranteed Investments.


         "Subsidiary Guarantors' Aggregate Return" means the total of the
following amounts received prior to and including the Termination Date:

         (a)      any "net cash flow" (as such term is defined in the 130 West
         30th Operating Agreement) distributed to Arbor 30th pursuant to Section
         8 of the 130 West 30th Operating Agreement, subject to the terms and
         provisions of the 130 West 30th Operating Agreement, plus

         (b)      any Cash Available for Distribution (as defined in the 333
         East 34th Operating Agreement) distributed to ACM 34th pursuant to
         Article IV of the 333 East 34th Operating Agreement, subject to the
         terms and provisions of the 333 East 34th Operating Agreement, plus

         (c)      any Capital Proceeds and Net Cash Receipts (as each such term
         is defined in the Central Jersey Preferred Operating Agreement)
         distributed to CJ pursuant to Article 5 of the Central Jersey Preferred
         Operating Agreement, subject to the terms and provisions of the Central
         Jersey Preferred Operating Agreement, plus

         (d)      any Available Cash or Capital Proceeds (as each such term is
         defined in the Central Jersey Mezzanine Operating Agreement) or Special
         Tax Distributions (as described in Section 8.9 of the Central Jersey
         Mezzanine Operating Agreement) distributed to CJ II pursuant to Article
         8 of the Central Jersey Mezzanine Operating Agreement, subject to the
         terms and provisions of the Central Jersey Mezzanine Operating
         Agreement.

2.       Guaranty.

         (a)      Subject to the limitations set forth in Section 3 hereof, if
         any portion of the Guaranteed Loan Principal Balance of any of the
         Guaranteed Loans is not paid to






         ARLP or ANMB II, as applicable, at the applicable Guaranteed Loan's
         maturity date in accordance with the terms of the note and other loan
         documents relating to such Guaranteed Loan (the "Unpaid Guaranteed Loan
         Principal Balance"), the Guarantors, jointly and severally, hereby
         agree to pay to ARLP or ANMB II, as applicable, the portion of the
         Unpaid Guaranteed Loan Principal Balance of such Guaranteed Loan that
         is equal to or less than the Subsidiary Guarantors' Aggregate Return.

         (b)      Subject to the limitations set forth in Section 3 hereof, if
         any portion of the Guaranteed Preferred Capital Contribution is not
         paid to ANMB (or ARLP, if applicable) at the Required Purchase Date (as
         defined in the Central Jersey Preferred Operating Agreement) in
         accordance with Section 11.3 of the Central Jersey Preferred Operating
         Agreement (the "Unpaid Guaranteed Preferred Capital Contribution"), the
         Guarantors, jointly and severally, hereby agree to pay to ANMB (or
         ARLP, if applicable) the portion of the Unpaid Guaranteed Preferred
         Capital Contribution that is equal to or less than the Subsidiary
         Guarantors' Aggregate Return.

         (c)      As an Unpaid Guaranteed Loan Principal Balance or the Unpaid
         Guaranteed Preferred Capital Contribution becomes due and payable from
         time to time by the Guarantors pursuant to Section 2(a) and Section
         2(b), respectively, ARLP shall deliver to ACM, within 10 business days
         of such amounts becoming due, written notice stating the amount of such
         Unpaid Guaranteed Loan Principal Balance or Unpaid Guaranteed Preferred
         Capital Contribution, as applicable. To the extent that the Subsidiary
         Guarantors' Aggregate Return as of the date such notice is received is
         greater than or equal to the amount stated in such notice, the
         Guarantors shall disburse the Unpaid Guaranteed Loan Principal Balance
         or Unpaid Guaranteed Preferred Capital Contribution, as applicable, to
         ARLP, ANMB II or ANMB, as applicable, within 10 business days of
         receipt of such notice. To the extent that the Subsidiary Guarantors'
         Aggregate Return as of the date such notice is received is less than
         the amount stated in such notice, such Unpaid Guaranteed Loan Principal
         Balance or Unpaid Guaranteed Preferred Capital Contribution, as
         applicable, shall remain due and payable by the Guarantors, and, as
         amounts constituting Subsidiary Guarantors' Aggregate Return are
         received by the Guarantors, such amounts shall be disbursed to ARLP,
         ANMB II or ANMB, as applicable, within five business days following
         their receipt, until all Unpaid Guaranteed Loan Principal Balances or
         the Unpaid Guaranteed Preferred Capital Contribution, as applicable,
         has been fully paid.

3.       Termination. This Guaranty will be terminated and the Guarantors will
         no longer be obligated to pay any further amounts to ARLP or ANMB II,
         as applicable, in respect of any of the Guaranteed Loans or to pay any
         further amounts to ANMB in respect of the Guaranteed Preferred Equity
         Investment on the date on which all of the following conditions are met
         (the "Termination Date"):



         (a) the remaining aggregate Unpaid Guaranteed Loan Principal Balance of
             the Guaranteed Loans, plus the remaining Unpaid Guaranteed
             Preferred Capital Contribution, is less than $5,000,000,

         (b) no Event of Default (as such term is defined in note and the loan
             documents relating to each of the Guaranteed Loans) with respect to
             any Guaranteed Loan has occurred and is continuing, and

         (c) no Trigger Event (as defined in the Central Jersey Preferred
             Operating Agreement) has occurred and is continuing.

4.       Notice of Receipt of Returns. ACM shall provide written notice to ARLP
         within 15 business days of the end of each fiscal quarter of all
         amounts that constitute Subsidiary Guarantors' Aggregate Return
         received by the Guarantors during the preceding quarter.

5.       Governing Law. This Guaranty shall be governed by and construed in
         accordance with the laws of the State of New York.

6.       Severability. If any provision of this Guaranty or the application of
         any such provision to any person or circumstances shall be held invalid
         by a court of competent jurisdiction, the remainder of this Guaranty,
         including the remainder of the provision held invalid, or the
         application of such provision to persons or circumstances other than
         those as to which it is held invalid, shall not be affected thereby.

7.       Counterparts. This Guaranty may be executed in one or more
         counterparts, each of which shall be deemed to be an original, but all
         of which together shall constitute one and the same instrument.

8.       Headings. All section headings herein are for convenience of reference
         and are not part of this Guaranty, and no construction or interference
         shall be derived therefrom.



                  IN WITNESS WHEREOF, the parties hereto has executed this
Guaranty as of the date first above written.

                                            ARBOR COMMERCIAL MORTGAGE, LLC

                                            By: /s/ Frederick C. Herbst
                                                --------------------------
                                                Name: Frederick C. Herbst
                                                Title: Chief Financial Officer



                                            ARBOR 30th, LLC

                                            By: Arbor Commercial Mortgagte, LLC

                                            By: /s/ Guy R. Milone, Jr.
                                                --------------------------
                                                Name: Guy R. Milone, Jr.
                                                Title: Associate General
                                                Counsel/Member

                                            ACM 34th STREET LLC

                                            By: Arbor Commercial Mortgagte, LLC

                                            By: /s/ Guy R. Milone, Jr.
                                                --------------------------
                                                Name: Guy R. Milone, Jr.
                                                Title: Associate General
                                                Counsel/Member

                                            ARBOR NATIONAL CJ LLC

                                            By: /s/ Valerie Sganga
                                                --------------------------
                                                Name: Valerie Sganga
                                                Title: Authorized Signatory

                                            ARBOR NATIONAL CJ II, LLC

                                            By: /s/ Alissa M. Omelas
                                                --------------------------
                                                Name: Alissa M. Omelas
                                                Title: Authorized Signatory



Acknowledged and Accepted by:

ARBOR REALTY LIMITED PARTNERSHIP

By: ARBOR REALTY GPOP, INC.,
    its General Partner

    By: /s/ Frederick C. Herbst
        --------------------------
        Name: Frederick C. Herbst
        Title: Treasurer and Secretary



ANMB HOLDINGS, LLC

By: ARBOR REALTY LIMITED PARTNERSHIP,
    its sole member

    By: ARBOR REALTY GPOP, INC.,
        its General Partner

        By: /s/ Frederick C. Herbst
            -------------------------------
            Name: Frederick C. Herbst
            Title: Treasurer and Secretary

ANMB HOLDINGS II, LLC

By: ARBOR REALTY LIMITED PARTNERSHIP,
    its sole member

    By: ARBOR REALTY GPOP, INC.,
        its General Partner

        By: /s/ Frederick C. Herbst
            --------------------------------
            Name: Frederick C. Herbst
            Title: Treasurer and Secretary

                                                                    Exhibit 16.1

February 2, 2004

Securities and Exchange Commission
Washington, D.C. 20549

Re: Arbor Realty Trust, Inc.
Registration No. 333-110472

Dear Sir or Madam:

We have read the section entitled "Change in Accountants" in Amendment No. 2 of
the registration statement on Form S-11 of Arbor Realty Trust, Inc.
(Registration No. 333-110472) and agree with the statements concerning Grant
Thornton LLP contained therein.

Very truly yours,

/s/ Grant Thornton LLP

GRANT THORNTON LLP

                                                                    Exhibit 23.1

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our report dated October 23, 2003, accompanying the consolidated
financial statements and schedule of the Structured Finance Business of Arbor
Commercial Mortgage, LLC and Subsidiaries and our report dated February 2, 2001,
accompanying the financial statements of Mezzobridge Funding LLC contained in
Amendment No. 2 to the Registration Statement on Form S-11 (File No. 333-110472)
of Arbor Realty Trust, Inc. We consent to the use of the aforementioned reports
in the Registration Statement and to the use of our name as it appears under the
caption "Experts."

/s/ Grant Thornton LLP

New York, New York
February 2,2004