QRR Quadra Realty TR

Quadra Realty Trust, Inc. and Subsidiaries

Notes To Consolidated Financial Statements

(Unaudited)

September 30, 2007

Quadra Realty Trust, Inc. (unless the context requires otherwise, all references to “Quadra”, “the Company”, “we”, “our” and “us” means Quadra Realty Trust, Inc. and its wholly owned subsidiaries) was organized in Maryland on September 29, 2006, as a commercial real estate finance company formed principally to invest in commercial mortgage investments and related products, including construction loans, mezzanine loans, B Notes, bridge loans, fixed and floating rate whole loans, loan participations, preferred equity and equity in commercial real estate. At December 31, 2006, we had $100 cash and $100 in capital.

On February 21, 2007, Quadra received the proceeds from the closing of its initial public offering of its common stock and commenced operations. The proceeds of the offering have been used primarily to acquire commercial real estate loans. Quadra is externally managed and advised by Hypo Real Estate Capital Corporation (“Manager”). Our Manager, in such capacity, acquires assets, originates and funds loans and performs other activities on behalf of Quadra. Concurrent with the closing of our initial public offering on February 21, 2007, Quadra acquired from our Manager a portfolio of real estate loans with a fair value, inclusive of accrued interest purchased, premium paid and up-front fees contributed by our Manager, of approximately $266 million in exchange for approximately $141 million in cash and 8,330,000 shares of restricted common stock valued at approximately $125 million.

Quadra intends to qualify as a real estate investment trust, or “REIT”, under the Internal Revenue Code commencing with our taxable year ending December 31, 2007. To maintain our tax status as a REIT, we plan to distribute to our stockholders as dividends at least 90% of our taxable income.

On January 24, 2007, Quadra formed a wholly owned subsidiary, Quadra TRS, Inc. (“TRS”). TRS has elected to be treated as a taxable REIT subsidiary. Quadra is the sole stockholder of TRS and, accordingly, we consolidate the accounts of TRS.

On January 24, 2007, Quadra formed a wholly owned subsidiary, Quadra QRS, LLC (“QRS”). QRS has not elected to be treated as a taxable entity and it is anticipated that QRS will be operated in a manner to maintain its non-taxable status. Quadra is the sole member of QRS and, accordingly, we consolidate the accounts of QRS.

On June 27, 2007, Quadra formed a wholly owned subsidiary, Quadra QRS II, LLC (“QRS II”). QRS II has not elected to be treated as a taxable entity and it is anticipated that QRS II will be operated in a manner to maintain its non-taxable status. Quadra is the sole member of QRS II and, accordingly, we consolidate the accounts of QRS II.

Basis of Quarterly Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America, or “GAAP”, for complete financial statements. In management’s opinion, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included.

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Principles of Consolidation

The consolidated financial statements include our accounts and those of our subsidiaries, which are wholly-owned or controlled by us. All significant intercompany balances and transactions have been eliminated.

Segment Reporting

Statement of Financial Accounting Standards (“SFAS”) No. 131, Disclosures about Segments of an Enterprise and Related Information establishes standards for the way that public entities report information about operating segments in their annual financial statements. We are a REIT focused on originating and acquiring loans and other investments related to real estate and currently operate in only one reportable segment.

Cash and Cash Equivalents

We consider all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.

Investment in loans

Investment in loans – held for investment: Loans held for investment are intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan up-front fees, acquisition premium, acquisition discount and acquisition costs, unless such loan or investment is deemed to be impaired.

The expense for possible credit losses in connection with investments in loans is a charge to earnings to increase the allowance for possible credit losses to the level that management estimates to be adequate considering delinquencies, loss experience and collateral quality. Specific valuation allowances will be established for impaired loans based primarily on the amount that the fair value of collateral securing a particular loan exceeds its carrying value. The fair value of the collateral may be determined by an evaluation of operating cash flow from the property during the projected holding period of the loan, and estimated sales value of the property computed by applying an expected capitalization rate to the stabilized net operating income of the specific property, less selling costs. Alternatively, for construction loans, the fair value of the collateral may be determined based on the estimated cost to complete and projected sales value of the property, less selling costs. Whichever method is used, we also consider other factors including geographic trends and project diversification, the size of the portfolio and current economic conditions. When it is probable that we will be unable to collect all amounts contractually due, the loan is considered impaired.

Where impairment is indicated, an impairment charge will be recorded as a charge to earnings based primarily upon the excess of the recorded investment amount over the net fair value of the collateral, as reduced by selling costs. As of September 30, 2007, we had no impaired loans.

Investment in loans – available for sale: Loans available for sale are aggregated by loan type and are carried at the lower of cost or fair value. We determine fair value using available market information obtained through consultation with our Manager, dealers and/or other originators of such investments as well as indications of interest from other investors in these assets. Should the fair value of our loans held for sale, aggregated by loan type, fall below their aggregate cost basis, the Company will record a charge to income. (see note 3.)

Our Manager evaluates our assets on a regular basis to determine if they continue to satisfy our investment criteria. Subject to certain restrictions, our Manager may cause us to sell our investments opportunistically and use the proceeds of any such sale for debt reduction, additional acquisitions, general liquidity, and/or working capital purposes.

In making determinations of fair value or impairment, our Manager makes significant subjective judgments and assumptions. There may be a material impact to these financial statements if our Manager’s judgment or assumptions are subsequently determined to be incorrect.

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At such time as 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, we must determine whether such investment should be accounted for as a loan, joint venture or as real estate at the inception of the investment. Quadra has not owned any preferred equity investments through September 30, 2007.

Revenue Recognition

Interest income on investments in loans is recognized over the life of the investment on the accrual basis. Loan up-front fees, acquisition premium, acquisition discount and acquisition costs are recognized over the initial term of the loan as an adjustment to yield. Anticipated exit fees, whose collection is expected, will also be recognized over the term of the loan as an adjustment to yield. Unamortized fees are recognized when the associated loan investment is repaid or sold before maturity on the date of such repayment.

Income recognition will generally be suspended for loan investments at the earlier of the date at which payments become 90 days past due or when, in our opinion, a full recovery of interest and principal becomes doubtful. Income recognition is resumed when the loan becomes contractually current and performance is demonstrated to be resumed.

We will record a reduction to profit and loss in the period that we make a determination that a reduction in the carrying value of investment in loans is appropriate due to a lower of cost or fair value determination.

Deferred Financing Costs

Deferred financing costs represent commitment fees, legal and other third party costs associated with obtaining commitments for financing that are associated with the closing of such financing. These costs are amortized over the terms of the respective agreements and the amortization is reflected as an adjustment to interest expense. Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financing transactions, which do not close, are expensed in the period in which it is determined that the financing will not close.

Stock Based Compensation Plans

We have two stock-based compensation plans, described more fully in Note 8. We account for the plans using the fair value recognition provisions of SFAS No. 123R, Accounting for Stock-Based Compensation . SFAS No. 123R requires that compensation cost for stock-based compensation is to be recognized ratably over the benefit period of the award. Because all of our stock-based compensation is issued to non-employees, the amount of compensation is to be adjusted in each subsequent reporting period based on the fair value of the award at the end of the reporting period until such time as the award has vested or the service being provided is substantially completed or, under certain circumstances, likely to be completed, whichever occurs first.

Derivative Instruments

We account for derivative instruments in accordance with SFAS No. 133, Accounting for Derivatives Instruments and Hedging Activities as amended and interpreted. In the normal course of business, we use derivative instruments to manage, or hedge, interest rate risk and the variability of cash flows to be paid with respect to liabilities. We require that hedging derivative instruments be effective in reducing the interest rate risk exposure or variability of cash flows that they are designated to hedge. This effectiveness is essential for qualifying for hedge accounting in accordance with SFAS No. 133. Some derivative instruments may be associated with an anticipated transaction. In those cases, hedge effectiveness criteria also require that it be probable that the underlying transaction will occur. Derivative instruments that meet these hedging criteria will be formally designated as hedges contemporaneously upon entering into the derivative contract.

To determine the fair value of derivative instruments, we use methods and assumptions that are based on market conditions and risks existing at each balance sheet date. For the majority of financial instruments, including most derivatives, long-term investments and long-term debt, standard market conventions and techniques such as discounted cash flow analysis, option-pricing models, replacement cost, and termination cost are likely to be used to determine fair value. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.

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We use commonly used derivative products that are considered “plain vanilla” derivatives. Commonly used derivatives typically include interest rate swaps, caps, collars and floors. We expressly prohibit the use of unconventional derivative instruments and the use of derivative instruments for trading or speculative purposes. Further, we have a policy of only entering into contracts with major financial institutions based upon their credit ratings and other factors, so we do not anticipate nonperformance by any of our counterparties.

We employ swaps and may use forwards or purchased options to hedge qualifying forecasted transactions. Gains and losses related to these transactions are deferred and recognized in net income as interest expense in the same period or periods that the underlying transaction occurs, expires or is otherwise terminated.

Hedges that are reported at fair value and presented on the balance sheet could be characterized as either cash flow hedges or fair value hedges. For derivative instruments not designated as hedging instruments, the gain or loss resulting from the change in the estimated fair value of the derivative instruments will be recognized in current earnings during the period of change.

Income Taxes

We intend to elect to be taxed as a REIT, under Sections 856 through 860 of the Internal Revenue Code beginning with our taxable year ending December 31, 2007. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our taxable income to stockholders. As a REIT, we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will then be subject to federal income tax on our taxable income at regular corporate rates and we will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could have a material adverse affect our net income and net cash available for distributions to stockholders. However, we believe that we will operate in such a manner as to qualify for treatment as a REIT and we intend to operate in the foreseeable future in such a manner so that we will qualify as a REIT for federal income tax purposes. We may, however, be subject to certain state and local taxes.

Underwriting Commissions and Costs

Underwriting commissions and costs incurred in connection with our stock offering are reflected as a reduction of additional paid-in-capital.

Organization Costs

Costs incurred to organize Quadra have been expensed as incurred.

Earnings Per Share

We present basic earning per share (“EPS”) in accordance with SFAS No. 128, Earnings Per Share . We also present diluted EPS, when diluted EPS is lower than basic EPS. Basic EPS excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS 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 EPS amount.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

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Concentrations of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash investments, loan investments and interest receivable. We place our cash investments in excess of insured amounts with high quality financial institutions. We perform ongoing analysis of credit risk concentrations in our loan investment portfolio by evaluating exposure to various markets, underlying property types, investment structure, term, sponsors, tenant mix and other credit metrics. The collateral securing our loan investments are real estate properties located in the United States.

New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, Fair Value Measurements , which established a framework for calculating the fair value of assets and liabilities as required by numerous other accounting pronouncements, and expands disclosure requirements of the fair values of certain assets and liabilities. The statement is effective for us on January 1, 2008. We are currently evaluating the impact, if any, that the adoption of this statement will have on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities . This statement was issued with the intent to provide an alternative measurement treatment for certain financial assets and liabilities. The alternative measurement would permit fair value to be used for both initial and subsequent measurement, with changes in fair value recognized in earnings as those changes occur. This “Fair Value Option” would be available on an instrument by instrument basis. The effective date for this statement for us is January 1, 2008. We are currently assessing the impact, if any, that adoption of this statement will have on our consolidated financial statements.

As of September 30, 2007, we held investments in loans of approximately $653.8 million, net of unamortized upfront fees, premiums, discounts, and costs. These investments include whole loans, senior loan participations, B notes and mezzanine loans secured primarily by direct liens on real property, pledges of interest in entities owning real property, or other real estate related security interests. Our loan investments are in various geographic markets in the United States. Based on the amount drawn on our commitments, approximately 91% of our loan portfolio consisted of variable rate loans, and approximately 9% of our loan portfolio consisted of fixed rate loans. The variable rate investments carry an effective weighted average yield over LIBOR of 286 basis points based on the amounts drawn on such commitments. Our fixed rate investments carry a weighted average yield of 7.89% based on the amounts outstanding as of September 30, 2007.

We have elected to make five of our senior construction loans available for sale in order to increase our overall liquidity. As of September 30, 2007, the aggregate outstanding funded amount for the five loans available for sale was $115.0 million ($113.6 million net of unamortized fees.) Two of the loans were pledged as collateral to secure $14.3 million of advances under the Wachovia Facility (defined below). We have classified the five loans from “Investments in loans – held for investment” to “Investments in loans – available for sale”. As of the date of reclassification, September 30, 2007, the amount we computed for the aggregate fair value of the loans, using available market information obtained through consultation with our Manager including some indications of interest on the available for sale loans, was not materially different from their aggregate carrying value. Therefore, no write down of the loans has been recorded.

As of September 30, 2007, we held the following investments (in thousands of dollars) and all loans were performing in accordance with the principal terms of their respective loan agreements:

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Reconciliation of Drawn on commitment to Carrying value (amounts in thousands)

As of September 30, 2007, we had an aggregate of $109.5 million in loans to one group of commonly controlled borrowers.

On March 29, 2007, the Company entered into a repurchase agreement (the “Wachovia Facility”) with Wachovia Bank, NA (“Wachovia”). During the three months ended September 30, 2007, the Company drew an aggregate of $84.9 million and repaid $71.2 million under the facility. At September 30, 2007, we had $325.9 million in outstanding borrowings secured by a pledge of 15 of our investments and an aggregate of $0.9 million of accrued interest payable.

Subject to the terms and conditions thereof, the Wachovia Facility provides us funding up to an aggregate of $500 million. The Wachovia Facility, under certain conditions including the approval of Wachovia, may be increased up to an aggregate total of $750 million. The Wachovia Facility has an initial maturity date of March 27, 2010 and, at the request of Quadra and QRS, and subject to certain conditions, may be extended. Individual assets, however, must be repurchased by us within 364 days of financing. The Wachovia Facility bears interest at spreads of 0.15% to 3.00% over a one month LIBOR, and, based on Quadra’s expected investment activities and subject to concentration limitations provided for in the agreement, provides for advance rates that vary from 50% to 95% based upon the collateral provided. Wachovia has a consent right to the inclusion of investments in the Wachovia Facility. Pursuant to the Wachovia Facility, Quadra has guaranteed the obligation of QRS to Wachovia.

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The Wachovia Facility contains certain financial covenants which require Quadra on a consolidated basis to: (a) maintain minimum liquidity of at least $30 million, of which at least $15 million must consist of cash and permitted investments (as defined in the Wachovia Facility); (b) maintain minimum tangible net worth (as defined in the Wachovia Facility) of not less than $300 million plus 75% of the proceeds of Quadra’s subsequent equity issuances plus 75% of consolidated net retained earnings; (c) maintain the ratio of total liabilities to tangible net worth no greater than 5.0 to 1.0, exclusive of commercial real estate collateralized debt obligations (“CRE CDOs”) issued by wholly owned subsidiaries of Quadra; and (d) maintain a fixed charge coverage ratio of not less than 1.5 to 1. The Wachovia Facility also contains covenants that restrict Quadra from making distributions in the event of default, except that Quadra may pay distributions necessary to maintain its status as a real estate investment trust (REIT). The Wachovia Facility requires that Quadra pay down borrowings under the facility as principal payments on the loans and investments pledged to the facility are received. As of September 30, 2007, we were in compliance with all covenant requirements.

Wachovia may, from time to time, also evaluate the fair value of our assets pledged as collateral on our borrowings from them. Depending on the results of such valuations, Wachovia may require us to either reduce our outstanding borrowings under the Wachovia Facility or provide additional collateral in order to maintain a margin acceptable to Wachovia. In order to facilitate additional advances under the Wachovia Facility and to enhance Wachovia’s total collateral position, on August 31, 2007, we pledged an additional asset with an outstanding balance of $23.8 million to Wachovia.

On June 29, 2007, the Company entered into a $25 million revolving credit facility with KeyBank N.A., (“KeyBank Facility”), with an initial term of two years. The KeyBank Facility, under certain conditions, including the approval of KeyBank, may be increased to $50 million. The facility is subject to certain covenants and supported by to be identified assets with advance rates that vary from 40% to 75% of the asset value. The facility bears interest at a range of 2.25% to 3.00% over one month LIBOR, depending on the level of our leverage at any given time. The KeyBank facility provides that total outstanding borrowings under the facility may not exceed the combined borrowing base value of the assets included within the borrowing base as defined in the agreement.

The terms of the KeyBank Facility include covenants that: (a) limit our maximum total indebtedness to no more than 87.5% of total assets; (b) require our fixed charge coverage ratio to be at no time less than 1.40; (c) require us to maintain minimum tangible net worth of not less than $306 million plus 75% of the net proceeds from equity offerings completed after the closing of the facility; and (d) restrict the maximum amount of our total recourse indebtedness. The covenants also restrict us from making distributions in excess of a maximum of 100% of our taxable income (exclusive of the non-cash expense associated with a one-time stock grant to our Manager), except that we may in any case pay distributions necessary to maintain our REIT status. An event of default can be triggered on our unsecured revolving credit facility if, among other things, Hypo Real Estate Capital Corporation is terminated as our Manager. As of September 30, 2007, we were in compliance with all such covenants. At September 30, 2007 the Company has not yet drawn on the facility and therefore there was no outstanding balance.

The ongoing disruption in the real estate and debt capital markets continues to negatively impact the CRE CDO market. Accordingly, we cannot foresee when the CRE CDO market will stabilize and do not believe that we will be able to successfully enter into a CRE CDO transaction on terms acceptable to us in the immediate short term. Due to the changes in market conditions, the Company is expanding its exploration of acceptable financing alternatives and adjusting the product mix of assets in which it will invest in the future. If the current loss of liquidity in both the commercial real estate sector and the CRE CDO market continues for an extended period of time, the Company may be required to further adjust its business plan.

Management Agreement

In connection with our initial public offering, we entered into a management agreement with our Manager which describes the services to be provided by our Manager and its compensation for those services. Under the management agreement, our Manager, subject to the oversight of our board of directors, is required to conduct our business affairs in conformity with the policies and the investment guidelines that are approved by our board of directors. The management agreement has an initial term expiring on June 30, 2009, and will automatically be renewed for one-year terms thereafter unless terminated by us or our Manager.

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The following table is a summary of the compensation, fees and costs payable to our Manager pursuant to our management agreement:

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Transactions with our Manager included:

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Deferred costs at September 30, 2007 consisted of the following (in thousands):

The following table illustrates the expected amortization of the foregoing cost over the next five years:

In addition, the Company has adopted the Quadra Realty Trust, Inc. Independent Directors Deferred Compensation Plan (“Deferred Plan”). Quadra’s independent directors may elect to defer their compensation pursuant to the Deferred Plan. Deferrals under the Deferred Plan are subject to SFAS No. 123R since the amount of the liability related to the deferral is based on the price of Quadra’s common stock and any future dividends paid on Quadra’s common stock.

In accordance with the Deferred Plan, four of our independent directors have elected to defer an aggregate of $82,500 in compensation for the three months ended September 30, 2007 and an aggregate of $200,750 in compensation for the period from February 21, 2007 (commencement of operations) to September 30, 2007. Therefore, for the three months ended September 30, 2007, we recorded 6,595 stock units for these deferrals in accordance with the terms of the Deferred Plan and 15,636 stock units for the period from February 21, 2007 (commencement of operations) to September 30, 2007. Further, the Deferred Plan requires that the number of stock units is adjusted by the recording of an amount of stock units per stock unit equal to the amount per share of any dividend paid on our common stock. As a result, on August 30, 2007 we recorded an additional 156 stock units to give effect to the adjustment in the number of stock units held on the dividend payment date.

In accordance with SFAS No. 123R, we adjust the recorded expense in each period relating to the change in the liability based on the closing price of the common stock at the end of the reporting period from the amounts previously recognized until such time as these deferrals are forfeited or settled in cash. Therefore, we recorded a reduction in compensation expense of $46,669 for the three months ended September 30, 2007 and $51,814 for the period from February 21, 2007 (commencement of operations) to September 30, 2007.

The following disclosures of estimated fair value were determined by our management, using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts we could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Cash equivalents, accrued interest, and accounts payable balances reasonably approximate their fair values due to the short maturities of these items.

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Our investments in loans are subject to changes in credit spreads that may have a material impact on their fair value The concerns pertaining to the deterioration of the residential mortgage market, which started earlier this year, have continued to negatively impact almost all areas of the debt capital markets including corporate bonds, asset backed securities and commercial real estate finance. The increasing volatility in the financing markets has resulted in a significant widening of the credit spreads on both commercial mortgage backed securities (“CMBS”) and CRE CDOs. It has also caused a general reduction of liquidity in the commercial real estate sector.

The appropriate credit spread for a given investment is determined by a number of factors including the following: (a) type and/or structure of the loan; (b) term; (c) priority or position in the debt capital structure; (d) property type of the underlying collateral; (e) experience, creditworthiness and reputation of the borrower; (f) status of the underlying property (i.e. for a bridge loan, the status of the repositioning of the property); (g) geographical location; (h) barriers to entry for competing product; and (i) borrower equity in the product. Based on these and other relevant factors, we determined the estimated fair value of our investments as of September 30, 2007.

With regard to our twelve commercial constructions loans, which have a carrying value of approximately $312.3 million at September 30, 2007, the credit spreads on construction loans on larger high end projects to established real estate developers remain stable. Further, our Manager continues to syndicate construction loans into the marketplace at similar spreads. Accordingly, we believe that the carrying amount of our construction loans are not materially different than the fair value of such loans as of September 30, 2007.

Our remaining thirteen assets, as of September 30, 2007, consisted of: (a) six mezzanine loans with initial maturity dates ranging from May, 2008 to January, 2014 and with an aggregate carrying balance of approximately $128.6 million including one investment, a mezzanine loan secured by an ownership interest in the Equity Office Property portfolio, that was retired at par in October, 2007; (b) two bridge loans with initial maturity dates in June, 2008 and October, 2008, respectively, and an aggregate carrying balance of approximately $109.2 million; and (iii) five whole loans with initial maturity dates ranging from June, 2008 to July, 2010 and an aggregate carrying balance of approximately $107.0 million. Based on our view of the status of the real estate and debt capital markets as of September 30, 2007, we believe that the applicable credit spreads on a majority of these assets if originated in the current market environment would be greater than the credit spreads at which we currently own them. The table below presents, on an aggregate basis, the carrying value and our estimated fair value for our held for investment mezzanine loans, bridge loans and whole loans as of September 30, 2007:

Our Wachovia Facility and our KeyBank Facility bear interest based on a floating index and as such the balance presented reasonably approximates the fair value of the liability due to the variable nature of the liability. Our derivative instruments are presented at fair value in accordance with SFAS No. 133. Our computation of the fair value of the derivatives is based on the swap rate as of the last day of the quarter and computed using industry standard pricing tools.

Common Stock

Our authorized capital stock consists of 200,000,000 shares of common stock, $0.001 par value and 100,000,000 shares of preferred stock, $0.001 par value. As of September 30, 2007, there were no shares of preferred stock issued or outstanding. As of September 30, 2007, 25,722,468 shares of common stock were issued and outstanding.

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Equity Plan

We have adopted the Quadra Realty Trust, Inc. Equity Plan (“Equity Plan”), which provides for the issuance of equity-based awards, including stock options, restricted stock, restricted stock units, unrestricted stock awards and other awards based on our common stock that may be made by us to our directors and officers and to our advisors and consultants who are providing services to the Company (which may include employees of our Manager and its affiliates) as of the date of grant of the award.

An aggregate of 1,800,000 shares of our common stock were reserved for issuance under the Equity Plan, subject to adjustment. No more than 450,000 of such shares may be made subject to stock options and no more than 1,800,000 of such shares may be made subject to awards other than stock options, such as restricted stock awards, restricted stock units and other awards, which may include unrestricted grants of our common stock.

On February 21, 2007, 120,000 shares of common stock with a fair value of $1,800,000 at the date of grant were awarded to our Manager’s employees some who are Quadra officers or directors. The shares granted vest on February 21, 2010, three years from the date of grant. Pursuant to SFAS No. 123R, we recognized $50,720 and $238,370 in expense for the three months ended September 30, 2007 and for the period from February 21, 2007 (commencement of operations) to September 30, 2007, respectively. The unamortized portion of this compensation will be recognized over the remaining vesting period and the amount of the compensation adjusted to fair value at each measurement date pursuant to SFAS No. 123R.

On March 13, 2007, 411 shares were awarded to an independent director of Quadra and vested immediately. An additional 958 shares and 999 shares were awarded to the same independent director of Quadra, on April 2, 2007 and July 2, 2007, respectively, and vested immediately. With respect to these grants, we recognized $5,413, $12,492, and $12,497 in compensation expense based on our share price of $13.17 on March 13, 2007, $13.04 on March 30, 2007, and $9.53 on June 29, 2007, respectively.

At September 30, 2007, 122,368 shares of our common stock had been granted under the Equity Plan. As of September 30, 2007, there were 1,677,632 shares available for issuance under the Equity Plan.

Equity Grants

Schedule of Non Vested Shares

All non vested shares are scheduled to vest during the year ending December 31, 2010.

Manager Equity Plan

We have adopted the Quadra Realty Trust, Inc. Manager Equity Plan (“Manager Equity Plan”), which provides for the issuance of equity-based awards, including stock options, restricted stock, restricted stock units, unrestricted stock awards and other awards based on our common stock that may be made by us to our Manager. Our Manager may make awards to its employees and employees of its affiliates which are in the form of or based on the shares of our common stock acquired by our Manager under the Manager Equity Plan, in which case our Manager will make all determinations concerning the eligible employees of our Manager and its affiliates who may receive awards, which form the awards will take, and the terms and conditions of the awards.

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An aggregate of 700,000 shares of our common stock were reserved for issuance under the Manager Equity Plan, subject to adjustment. No more than 175,000 shares may be made subject to stock options and no more than 700,000 shares may be made subject to awards other than stock options, such as restricted stock awards, restricted stock units and other awards, which may include unrestricted grants of our common stock.

On February 21, 2007, upon completion of Quadra’s initial public offering of its common stock, we granted to our Manager 600,000 fully vested shares of our common stock under the Manager Equity Plan. These shares are subject to our Manager’s right to demand registration of the shares for resale pursuant to a registration rights agreement. Further, the registration rights agreement requires us to register, upon request, any or all of the 600,000 shares for resale in the event we register any other shares of our common stock for sale. The registration rights are limited under certain conditions including lock-up agreements, hold back provisions and underwriter’s opinion with respect to the affect of the registration of the shares on the market for Quadra shares. Because these shares vested immediately, their fair value of $9 million at the date of grant was expensed at issuance.

At September 30, 2007, 100,000 shares remained available for issuance under the Manager Equity Plan.

Earnings per share for the three months ended September 30, 2007, and for the period from February 21, 2007 (commencement of operations) to September 30, 2007, are computed as follows (unaudited and amounts in thousands except share and per share amounts):

Many of our investments in loans have commitment amounts in excess of the amount that we have funded to date on such loans. At September 30, 2007, we were obligated to provide approximately an additional $366.5 million of incremental proceeds at the request of the borrowers as long as such borrowers are in compliance with their respective loan agreements. It is projected that such incremental proceeds will be requested by December, 2009. See Note 3 “Investments in Loans” for a table of our loan commitments and the amount of our outstanding fundings at September 30, 2007.

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

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The following table presents the Company’s derivative liabilities and the related notional balance as of September 30, 2007:

The unrealized loss on interest rate swap agreements relating to cash flow hedges was $1.39 million with 1.36 million of that amount recorded in accumulated other comprehensive income for the three months ended September 30, 2007. The unrealized loss on interest rate swap agreements relating to cash flow hedges was $1.70 million with $1.67 million of that amount recorded in accumulated other comprehensive income for the period from February 21, 2007 (commencement of operations) to September 30, 2007. The aggregate change in unrealized loss on the cash flow hedges is reported as a net change in accumulated other comprehensive income in the consolidated statement of Stockholders’ Equity and Comprehensive Income. We have designated $54.1 million of variable cash flow expense under our borrowings, including the Wachovia Facility, to be hedged by the interest rate swaps.

The Company believes that amount of the unrealized loss as of September 30, 2007 that may be reclassified from accumulated other comprehensive income to income or expense for the twelve months ended September 30, 2008 is estimated to be $4,913.

In October, 2007 we received an $8.5 million pay off of the remaining outstanding balance in our investment in the Equity Office Properties loan.

On November 9, 2007, our Board of Directors declared a $0.13 per share dividend payable to stockholders of record as of November 20, 2007 and payable in cash on November 30, 2007.

Also on November 9, 2007, we sold a $25 million commitment with outstanding fundings of approximately $19 million thereby generating cash proceeds of approximately $19 million and reducing future commitments by approximately $6 million. We will record a nominal gain with respect to the sale.

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