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Executives

John Klopp - CEO

Geoff Jervis - CFO

Steve Plavin - COO

Analysts

David Boardman - Wachovia

Don Fandetti - Citigroup

Rich Shane - Jefferies and Company

David Fick - Stifel Nicolaus.

Marsella Martino - KeyBanc Capital

Tayo Okusanya - UBS

Capital Trust, Inc. (CT) Q3 2007 Earnings Call November 7, 2007 10:00 AM ET

Operator

Hello, and welcome to the Capital Trust Third Quarter 2007 Results Conference Call. Before we begin, please be advised that the forward-looking statements expressed in today's call are subject to certain risks and uncertainties, including, but not limited to, the continued performance, new origination volume and the rate of repayment of the Company's and its funds, loan and investment portfolios; the continued maturity and satisfaction of the Company's portfolio assets, as well as, other risks contained in the Company's latest Form 10-K and Form 10-Q filings with the Securities and Exchange Commission.

The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. There will be a Q&A session following the conclusion of this presentation. At that time, I will provide instructions for submitting a question to management.

I will now turn the call over to John Klopp, CEO of Capital Trust. Please go ahead, sir.

John Klopp

Thank you. Good morning, everyone. Thank you for joining us once again and for your continued interest in Capital Trust. Last night, we reported our numbers for the third quarter and filed our 10-Q. During a period of continued upheaval in virtually all sectors of the financial market, Capital Trust produced steady earnings, strong credit performance and a solid balance sheet.

Geoff will run you through the detailed numbers in just a moment, but here are the headlines: Net income of $15.5 million or $0.87 per diluted share; new originations of $110 million with only $65 million for the balance sheet, substantially and purposely down from our previous pace as we dial back originations in anticipation of better opportunities that we see coming in the months ahead. More on that in a moment.

Continued credit quality across all of our portfolios with zero losses on provisions during the quarter. In an environment when downgrades seem to be ever present, we received upgrades on seven classes of our CDO III Bonds, reflecting improved credit quality and seasoning of the underlying collateral.

And in a market where liquidity is king, we added $250 million of new borrowing capacity from a new line vendor, increased the capital when one of our investment management vehicles by $100 million, and ended the quarter with more immediately available balance sheet liquidity than we have ever had.

Lastly, and of great importance to us, we paid a regular quarterly dividend of $0.80 per share against our net income of $0.87. On a cumulative basis, 2007 dividends, so far, are $2.40 per share versus year-to-date net earnings of $3.14 per share, reflecting a payout ratio of only 76%.

With new write-downs of residential and CDO exposures announced or rumored by banks and broker dealers almost everyday, it's clear that the crisis tripping the financial markets has not yet fully run its course. Closer to home, CMBS spreads have reached an all- time wide in the last week, the CMBS index is gyrating wildly and concerns are arising about the ultimate impact on commercial real estate values.

But behind the scenes, however, there is evidence that the new reality is sinking in. Banks are beginning to mark down unsold loans that they hold on their books to market clearing levels, and borrowers are beginning to accept that new loans will only be available at wider spreads, lower advance rates and tougher terms.

We believe the time to pounce will come soon, but we also believe that this is a market with disciplined asset selection. And credit underwriting will be the key to long-term success. These are the strengths that Capital Trust was built on, and we expect they will continue to serve us well going forward.

We maintained our discipline during the wild ride up in the last 18 months, and the quality of our existing book of assets reflects those sometimes painful decisions. We steered away from new issue CMBS as subordination levels formatted and underwriting standards deteriorated.

As a result, our upgrades to downgrade ratio has been 18:1 over the timeframe. In our loan book, we cautiously drove down our risk profile focusing on more Senior B notes, and today have a portfolio with a last dollar LTV of 69% capable of withstanding significant value erosion before our positions are at risk.

We avoided largely the Condo craze, choosing only those projects that we felt were in strong supply-constrained markets and keeping a close eye on rental value in our underwriting as a back stop to our exposure.

We never get comfortable with land loans, so we have only one $10 million investment, and are financing that in typical CT style; have substantial subordinate capital below us.

We stuck to high-quality institutional properties owned by strong and experienced sponsors and believe that our portfolios will continue to outperform the market. We have applied that same discipline to the way we run our balance sheet and asset and liability mix.

The vast majority of our longer term fixed rate assets are match funded with CDOs, which comprise over 50% of our interest bearing liabilities. The asset that we have financed with mark-to-market repo facilities are primarily short duration credit good quarters, which experienced much lower price volatility in times of spread widening.

In addition, our repo financing takes the form of committed lines of credit from a diversified group book of lenders, most of whom have years of successful experience with Capital Trust. Those lenders are sticking with us now, just as they did in 1998. And we have always religiously maintained more than adequate liquidity to defend our book in the event of unforeseen events.

As I mentioned at the top, the true bottom-line for us is the dividend that we paid to our shareholders. We set our regular quarterly dividend at a level that we believe is comfortably supportable from recurring income generated by our business, and pay out any excess at yearend in the form of a special, perhaps it's not the best strategy to maximize share price in the short-term, but one that we think ensures sustainability over the long haul.

A good friend and great investor reminded me recently of that classic question, "What's the difference between being early and being wrong?" Answer, none. Between our balance sheet resources and our investment management capabilities we believe that Capital Trust is well positioned to exploit opportunities that result from this period of turmoil.

I'm going to keep it short today and I'll turn it over now to Geoff, so we have lots of time at the end for questions in this interesting time. Geoff?

Geoff Jervis

Thank you, John, and good morning, everyone. I'll begin with the balance sheet. Total assets of the company were $3.1 billion as at 9/30, a decline of $89 million or 3%, when compared to where we were at the end of the second quarter. And as John explained, the decline was due to our strategic decision to be a spectator during the recent market volatility.

During the period, we originated $65 million of balance sheet loans including $2 million of unfunded commitments for new fundings of $63 million. And we funded an additional $42 million of new advances on our existing portfolio. This activity was offset by repayment during the period that totaled $212 million, netting to roughly $100 million decrease in interest-earning assets for the period.

At September 30th, the entire $3 billion portfolio of interest-earning assets had a weighted average all-in effective rate of 8.04%. From a credit standpoint, the average rating of the CMBS portfolio remains BB+ and the weighted average last dollar loan to value for the loan portfolio was 69%.

Looking inside the origination numbers, new loans were comprised of $22 million of whole loans and $43 million of B Notes and mezzanine loans. The weighted average all-in effective rate on the originations was 8.19% and the average last dollar loan to value was 71%.

Looking across the entire portfolio, credit performance remains strong in all investment categories. The CMBS portfolio experienced 12 upgrades and no downgrades during the period and inside the loan portfolio all assets are performing. We booked no provision for loan losses this quarter and feel very comfortable with the quality of the portfolio.

Moving down the balance sheet, equity investments in unconsolidated subsidiaries increased to $17 million at the end of the third quarter. Activity included $5 million of fundings associated with our investment in Bracor that we upsized from an initial commitment of $15 million to $30 million during the period, offset by the continued impact of repayments on our equity co-investments at Fund III.

Inside Fund III, we expect to continue to experience repayments, and as of September 30, the Fund had only four remaining investments with total assets of $140 million, with all assets performing well.

As we have disclosed in the 10-Q, the gross promote value to us embedded in Fund III, assuming liquidation at quarter end, was $8.2 million. Collection of the Fund III promote is, of course, dependent upon, among other things, continued performance at the fund and the timing of payoff. That said, we currently expect to begin collecting Fund III promotes starting as soon as the fourth quarter of 2007 and on into 2008. Any Fund III promote will be accompanied by our expensing a portion of capitalized cost, as well as, payments to employees of their share of promotes received.

At quarter end, in addition to Fund III, we managed three other investment management vehicles, CT Large Loan, CT High-Grade and the CTX Fund. Activity in our other investment management vehicles, like the balance sheet, was relatively quite with CT High-Grade, our previously $250 million, now $350 million, High-Grade B Note and Mezzanine Loan Account, making one new investment bringing total assets in the account to $232 million at the end of the period.

Over to the right hand side of the balance sheet, total interest bearing liabilities, defined as repurchase obligations, CDOs, are unsecured credit facility and trust preferred securities were $2.3 billion at September 30, and carried a weighted average cash coupon of 5.86% and a weighted average on effective rate of 6.08%.

During the quarter, we entered into a new $250 million Master Repurchase agreement with Citigroup, bringing our total committed secured financing facilities to $1.8 billion. The new facility is designed to provide us with financing for our general loan and securities investment activity.

In addition, we extended the term of our $300 million repurchase facility with JP Morgan through October 31 of 2008, and in the last week upsized our existing credit facility with Goldman Sachs by $50 million from a $150 million to $200 million.

Our repurchase obligations continue to provide us with a revolving component of our liability structure from a diverse group of counterparties. At the end of the third quarter, our borrowing totaled $889 million against $1.8 billion of commitments from nine counterparties.

We remain comfortably in compliance with all of our facility covenants, and with $1 dollars of unutilized capacity on our repo lines, we are confident that we have the immediately available debt capacity to fund our near and midterm growth.

Our CDO liabilities at the end of the third quarter totaled $1.2 billion. This amount represents the notes that we have sold to third parties in our core balance sheet CDO transactions to date. At September 30th, the all-in cost of our CDOs was 5.75%.

All of our CDOs are performing, fully deployed, and in compliance with their respective interest coverage, over collateralization and reinvestment tax. At quarter end, total cash in our CDOs recorded as restricted cash on our balance sheet was $3.7 million.

In addition, we received upgrades on seven classes of CT CDO III from Fitch ratings. Of the 14 rated classes, seven were upgraded by one to two notches, and the remaining seven classes had their pre-existing ratings affirmed. Fitch attributed the rating action to the improved credit quality of the portfolio and seasoning of the collateral.

The final components of interest-bearing liability are $100 million unsecured credit facility with borrowings of $75 million at quarter end and a $129 million to trust preferred securities. There is no new activity in these accounts during the period.

One more item of note in liabilities is participation sold. At September 30th we had $330 million of participations sold on the balance sheet recorded as both assets, as loans receivable and liabilities as participation sold and the pass-through rate on these participations was 8.37%.

Over to the equity section, shareholders' equity was $440 million at September 30th and our book value per share was $24.84. Book value decreased during the quarter from $452 million at June 30th to $440 million at quarter end down by approximately $12 million. The major component of the change was a $40 million net decrease in the value of our interest rate swaps.

Our debt-to-equity ratio, defined as the ratio of interest-bearing liabilities to book equity remained at 5.21. We remain comfortable with our level of leverage, and as we have said in the past, these levels will migrate depending upon the types of assets we originate and the structure of liabilities that we raise.

As always, we remain committed to maintaining an index and term matched asset liability mix. At the end of the quarter we had approximately $411 million of net positive floating rate exposure on a notional basis on our balance sheet and consequently an increase in LIBOR of 100 basis points would increase annual net income by approximately $4.1 million. And conversely, a 100 basis point drop in LIBOR would decrease our earnings by that same amount.

Our liquidity position remains strong and at the end of the second quarter we had $28 million of cash, $166 million of immediately available borrowings under our repo facilities and $25 million of availability under our credit facility for total liquidity of $219 million.

Turning to the income statement, we reported net income of $15.5 million or $0.87 per share on a dilutive basis for the third quarter of 2007. Interest income for the period was $64.7 million. Interest expense totaled $43.7 million, which resulted in net interest income of $21 million.

Other items of note during the period, management and advisory fees from our funds, was $1.1 million, an increase of almost $400,000 when compare to the third quarter of 2006. And management fee from CT Large Loan, CT High-Grade and CTX Fund increased, slightly offset by the decrease in base management fees from Fund III. We expect these revenue streams to continue to grow in the coming quarters.

Servicing fee income during the third quarter of 2007 was $173,000 compared to none in the third quarter of 2006, as we recognize revenue relating to the servicing contracts acquired as part of our purchase of the healthcare origination platform in June.

Moving down to other expenses, G&A was $6.8 million for the quarter an increase of $961,000 from the third quarter of 2006. This increase is primarily the result of higher levels of employment cost, resulting from the increase in headcount associated with the healthcare platform, as well as increased professional fees.

Depreciation and amortization was only $61,000 in the third quarter, a decrease of almost $300,000 when compared to last year. Due primarily to be elimination of the depreciation expense associated with the capitalized costs that have been fully amortized from prior investment management joint ventures.

Moving further down the income statement to the income loss from equity investments, the $109,000 loss from equity investment in the third quarter resulted primarily from a net loss of a $157,000 at Bracor, representing our share of operating losses for the period from April 1, 2007 through June 30, 2007, as we report Bracor's operating results on a one fiscal quarter lag.

In both the third quarter of 2007 and 2006, we did not pay any taxes at the REIT level. However, CTIMCO, our investment management subsidiary, is a taxable REIT subsidiary and subject to taxes on its earnings. In the third quarter of 2007, CTIMCO reported an operating loss before income taxes of $2 million, which resulted in our reporting a $50,000 tax benefit.

As we've done in the past, we disclosed the impact of items that we considered non-recurring to our net income. For the period, these non-recurring items were de-minimis and the recurring income was in the mid $0.80 per share range.

In terms of dividends, our policy is to set a regular quarterly dividend at a level commensurate with the recurring income generated by our business. At the same time, in order to take full advantage of the dividends' paid deduction of a REIT. We endeavor to pay out a 100% of taxable income. In the event that taxable income exceeds our regular dividend payout rate, we will make additional distributions in the form of special dividends.

We paid a regular quarterly cash dividend of $0.80 in the third quarter, a 7 % increase year-over-year. Through the nine months, we've paid total dividends of $2.40 per share, representing a net income payout ratio of 76%.

That wraps up the financials, and at this point, I'll turn it back to John.

John Klopp

And I guess at this point, we'll turn it over to you to ask any and all questions. Carmen?

Question-and-Answer Session

Operator

(Operator Instructions) We'll take our first question from David Boardman, from Wachovia. Please go ahead.

David Boardman - Wachovia

Good morning and thank you very much for taking my question regarding investment activity within the quarter, and then you're going forward here, I mean, spread did blow out in the quarter probably continuing here, but the originations within the quarter really didn’t, kind of, witness that? Where would spread be today on the whole loan B Note mezzanine side compared to where your book currently sets?

Geoff Jervis

Okay. I think I can give you an answer, as it relates to the general trends in spread. I agree with your statement that spreads are continuing to widen. There has been some volatility with a period where it looks like spreads are flattening out over in a two or three week period, but then as the index flow outs and as the street gets more nervous with these spread widening again.

So I think the trend is still to the wider side. It's probably on the capital structure and anywhere from 50 basis points to 250 basis points wider.

David Boardman - Wachovia

Regarding your hotel portfolio concentration, I think it was the end of last quarter in the 26%, considering economic growth may be slowing down, are any concerns regarding……

Geoff Jervis

No, I think the hotels in our portfolio continue to perform well. RevPar week-by-week, month-by-month RevPar across most markets is still positive. I do think that there is a significant economic recession activity, hotel performance will be impacted, but we don't see any imminent risks in our hotel portfolio at this point.

David Boardman - Wachovia

And what’s your liquidity, I mean, you certainly seem to have a lot of dry powder to put to work whenever you are so skewed, are there any constrains or aspects of your committed facility that would possibly limit your ability to pretty much plough money into whatever you see fit?

John Klopp

Well, I would just say that obviously our repo providers have to agree on that credit that we pose to them. So I'd say that would be the constraint.

David Boardman - Wachovia

Thank you very much for taking my questions.

John Klopp

Thank you.

Operator

We'll take our next question from Don Fandetti, from Citigroup. Please go ahead.

Don Fandetti - Citigroup

Hi, John. Quick question, if you look at CMBS obviously spreads of that are notably, I know is mostly liquid index. But do you think the market it wrong on that side or do think we're headed to a major correction in commercial [off takes].

John Klopp

Well I am not sure that CMBS at the moment is a particularly good indicator or a particularly correlated index to anything. There seems to be an awful lot of action in the index, people trying to get short, make bets, anticipate downturns in this business and that doesn't seem to be a good correlation with the cash market, although obviously there is some.

I think the better question is the second half of yours which is where do we see things going irrespective of CMBS and clearly there is uncertainty at this point in time as to where values really are going, given the on-going credit issues in the various different financial markets and their ultimate potential impact on the U.S. economy.

I think there is no question about it that values have backed off, but I also think that it's quite different in terms of its impact. The better quality, better product is holding value better, at least so far. The lesser quality stuff is probably falling more. But at least at this point in time underline performance, in terms of cash flows has held pretty strong, and we are cautiously optimistic about valuation going forward. Steve?

Steve Plavin

I think things is about when you look at the index, while the index trading duly reflects the perception of the quality of the first half 2007 CMBS originations, during a period of time when values were peaking and underwriting was at it's most aggressive point. So, we are not fixed half's -- of first half 2007 CMBS, but I do think the index does reflect that as well.

Don Fandetti - Citigroup

Okay, and John I think on the Q2 call you said that you did believe that the CRE CDO market would open back up, are you more positive or less positive today?

John Klopp

I don't think I'm any different in terms of the view than I was three months ago. The CRE CDO market is basically closed today to everybody. I think that has an awful lot to do with stuffs going on in other markets as opposed to commercial real estate CDO market, because if you look at the underlying performance of collateral, ours and others, it continue so far to be very, very strong.

I do not know, we do not know when that market, and how that market will reopen, but my sense is, it's going to take a while and when it comes back it's going to come back on different terms than we had before, certainly less leverage more plains and [other] structures and with the focus much more than we had in the past, on the quality of the manager, which has, I think we saw over the course of preceding year or two or so. Virtually anybody who could assemble collateral could execute a CDO. I do not see that happening going forward.

Don Fandetti - Citigroup

We have seen, I think, one other company in this space to the single buyer through the CDOs, is that an option or not necessarily for CT?

John Klopp

Geoff?

Geoff Jervis

I think that there are a lot of opportunities out there with -- unfortunately the single buyer typically may rap or so the state of that community, I think impacts that transaction going forward. But I think that there certainly are some – again, as John said, some more [vanilla] CDOs and by [vanilla] they probably will not have the same marketing aspect. They probably won't sell down as much of the liabilities, but I think CDOs will come back. I think you are going to be surprised how quickly they do. I think there a lot of ideas that are in the queue right now that people are just waiting for the opportunity to consummate these transactions.

Don Fandetti - Citigroup

Okay. Thanks for the answers.

Geoff Jervis

Thank you.

Operator

We'll take our next question from Rich Shane of Jefferies and Company. Please go ahead, your line is open.

Rich Shane - Jefferies and Company

Thanks for taking my question. A couple of different things here, it looks like there were pay downs or principal pay downs in CT Large Loan, is that correct? So it actually didn't grow during the quarter?

John Klopp

That is correct. There were pay downs across all of the portfolios, but obviously the pace of pay down has declined in this current market environment.

Rich Shane - Jefferies and Company

Okay. And is the expectation, and this ties in really to my second question, John you made the comment that there is no difference between being right or being wrong. Should we expect to be more conservative in terms of deploying CT Large Loan? We had previously assumed it was going to be fully deployed by the end of third quarter. Obviously that's not the case. Do you think you are going to be slower there as well?

John Klopp

I think short answer, yes. Steve you can give the longer answer, if you choose?

Steve Plavin

Well, I think the opportunities for large loan relates primarily the deals that have already been deals that have already been struck and identified in the market. Some of the deals are a little bit challenging given the timing of when they are originated. The LBO activity, going forward, obviously it's going to be greatly reduced. And so we don't feel lot of new opportunities coming on the pike for large loans like what we saw in the first half of the year. But we are looking at the inventory of existing deals, and when the time is ripe, we’ll probably make an investment or two in those deals.

Rich Shane - Jefferies and Company

And so, basically what you are saying is that you think that there is probably some product on dealer desks that needs to be discounted, and may be, as we get towards the end of the year, they are willing to take those marks, you might have an opportunity?

John Klopp

Yes.

Rich Shane - Jefferies and Company

Okay. And strategically, John, getting back to your comment about early versus wrong, you know, obviously you guys have maintained a lot of discipline and the comment was made that if you look every two weeks it feels like spreads have widened out, and we've reached a new level and then all of a sudden they start to widen out again. What keeps -- how do you maintain the discipline of being on the sidelines, and what's going to be the event or the catalyst, for you to say, you know, what we’ve done here and now it’s time to weigh back in?

John Klopp

Well. I don't know, if you are ever going to know that we are “done” and I think the issue is when we find transaction that we are comfortable with from a risk standpoint and which we believe have been priced at a level with returns makes sense relative to that risks and makes sense relative to how we can finance it, in other words, produce a Return on Equity that we think is commensurate then we will pull the trigger. We are beginning to find those new levels on some of the existing products.

We are beginning to see the pricing on new originations reflect that set of criteria for us. I don't think there's going to be a bell that goes off that says we're at the bottom, I think it's going to be choppier than that. But as we wade our way through this process, I think we definitely expect to find good opportunities to deploy our capital and the capital of our partners in our investment management vehicles.

Rich Shane - Jefferies and Company

And maybe the -- I'd just refine that question a little bit. Are there specific negative catalyst that you guys are looking for between now and either the end of the year or early next year, whether it's auditor effect or dealers needing the dumb product or anything like that.

John Klopp

Well, we certainly have seen year-ends, fiscal yearends for the broker-dealers calendar, for the banks be in previous years of crisis, be a catalyst, there is no question about it. Cleaning up before statement date, often in fact, taking the hits, before the statement data and then moving the inventory shortly thereafter has certainly been a pattern in the past. So yes, time does matter. And we think we're approaching those dates and there is going to be more product that issues forth and has liberated off of the current holders balance sheets.

Rich Shane - Jefferies and Company

Okay, great. That's very helpful. I appreciate you guys answering these questions.

John Klopp

Thank you.

Operator

We'll take our next question from David Fick from Stifel Nicolaus. Please go ahead.

David Fick - Stifel Nicolaus

Good morning. Stepping back for a minute, you talked about being somewhat bullish that the CDO market will return. But if you look at the majority of your capital structure today, whether it's equity or CDOs and excluding your floating rate debt, virtually none of it would be available to you on replacement basis right now. And so you couldn't build your engine this way. And I am hearing you to talk of a conservative game in terms of net asset growth, but there's no funding, and I am hearing you talk about alternative sources of or -- but no specificity there. What is really the future of the model?

Geoff Jervis

Okay, I think the future of the model goes back to the way, let just step back. First of all we do believe CDOs are going to come back. Whether or not they come back at a balance sheet is unclear. Okay, so we are 100% prepared to continue to run this business without the financing alternative that was a [acquired] as debt obligation. We ran this business from 1997 to 2004 without CDOs and we are capable of doing it for the next 10 years as well.

I think what you need to do if you would like to run a book based upon a shorter-term repo financing is, you need to have a much keener eye towards matching of index indurations and you need to have more liquidity. And I think as we mentioned at a discussion of this in the 10-Q that we expect until other alternatives make themselves available we expect to run to this book with a high level of liquidity and I think that's -- we have do know to defend your book when it is repo finance.

David Fick - Stifel Nicolaus

All right, and in terms of value what are the implications of your statement that you're going to be more cautious and sit on sidelines until you see adjustment in market levels. What you are saying I think is that cap rates have to move. And if that's the case, what does that mean for your current book?

Geoff Jervis

We think that there is equity question in the deals that we have on our book towards the end, the kinds of drop in cap rates that we're anticipating, I think values have already declined, I think 5% to sort of 15%. I think it's a good range to apply across the board, obviously with every situation being unique. So, we are continuing to look at the fundamental performance of markets and collateral across all of our portfolios very intently to make sure to see if there is -- we see early signs of any erosion of performance, and if so, we make the proper defensive move.

David Fick - Stifel Nicolaus

But so far, you are seeing virtually nothing. You are not having to re-negotiate deals or grant extensions or adjust fee structure or anything?

John Klopp

No.

David Fick - Stifel Nicolaus

Okay. My last question is, I guess for Geoff, you have to hold the maturity strategy, but I am wondering if there is any potential impact that you've identified from FAS 159?

Geoff Jervis

No, I think that we have a healthy maturity -- we've elected healthy maturity for our interest bearing assets, and we expect to continue to hold these maturities. We are very comfortable with that position, and obviously, given the letter of gap, we have the intention and capability of holding the asset maturity as well.

John Klopp

And we made that decision obviously quite a long time ago.

David Fick - Stifel Nicolaus

Alright. Okay. Thanks.

Geoff Jervis

Thank you.

Operator

We'll take our next question from Marsella Martino from KeyBanc Capital. Please go ahead.

Marsella Martino - KeyBanc Capital

Good morning. As you talk about and think about originations going forward and you see opportunities out there, is there any areas in terms of like asset classes that you think, provide some good opportunities for you or anything that you'll particularly focus on?

Geoff Jervis

I don't think we’ve focused on any particular asset class here. We just try and remain very opportunistic looking for transactions, in general, which meet our risk and return profile. So we look across all of the asset classes, I mean, we have been avoiding -- as you may have noticed in John’s comments, assets related to for sale of housing land and condominiums for quite some time, and I don't know whether we are going to be the first ones to try and pick the exact [volume] of that market when they jump back and set more of category that we will be continue to be very conservative in investing it. But in terms of the other major asset classes, we think there will be opportunities in all of them, you know, in selected situations.

Marsella Martino - KeyBanc Capital

And then just one small housekeeping, I think G&A on a linked-quarter basis declined a little bit, anything there, and was last quarter kind of an anomaly?

John Klopp

No, there was nothing there. I think it was just professional fees and our accruals on those really accounted for much of the difference.

Marsella Martino - KeyBanc Capital

Okay. Great. Thank you.

Operator

Our next question comes from Tayo Okusanya from UBS. Please go ahead.

Tayo Okusanya - UBS

Yes. Good morning my question about the CRE CDO market has been answered, but in regards to the CMBS portfolio that helps the maturity, could you tell us what the fair market value of that portfolio is right now if you were to mark-to-market?

John Klopp

Yes. Actually we go through that process at least every quarter, and it is in the back of the queue in the risk disclosure chart. And the fair value at quarter end was $853 million.

Tayo Okusanya - UBS

Versus 884 which is in the book?

John Klopp

That's right. That’s a $30 million difference.

Tayo Okusanya - UBS

Great. Thank you very much.

Geoff Jervis

Thank you.

Operator

Next, we have a follow-up from David Boardman of Wachovia. Please go ahead.

David Boardman - Wachovia

Just kind of piggyback off of Don's question, we saw somebody in this space today not do a CDO, if you will, through one buyer, but kind of re-negotiate a warehouse line or repo line and have no mark-to-market feature, and it looks like maybe except higher cost of funds. I am just wondering if you could just talk about that, and is that something that you would look like and then frame up how you feel about trading higher costs for that mark-to-market valuation elimination?

John Klopp

Certainly a trade off, we would look at as it was presented to us, but in general if somebody offered me a down mark-to-market line with some reasonable increasing cost I think we would find it pretty attractive.

David Boardman - Wachovia

Fair enough. All right, have a good day.

Operator

At this time we have no further questions queued.

John Klopp

Well. Then thank you again for your interest in Capital Trust and we'll talk to you next quarter. Thanks.

Operator

Ladies and gentlemen this concludes today's teleconference. You may disconnect at any time.

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Source: Capital Trust Q3 2007 Earnings Call Transcript
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