WILSHIRE REAL ESTATE INVESTMENT TRUST INC, DEF 14A, 1999-08-20

WILSHIRE REAL ESTATE INVESTMENT TRUST INC
DEF 14A, 1999-08-20
REAL ESTATE INVESTMENT TRUSTS

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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )

Filed by the Registrant /X/
Filed by a Party other than the Registrant / /

Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

WILSHIRE REAL ESTATE INVESTMENT TRUST INC
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (Check the appropriate box):

/X/ No fee required.
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and 0-11.
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[LOGO]

1776 SW Madison Street
Portland, OR 97205

August 20, 1999

Dear Shareholder:

You are cordially invited to the 1999 Annual Meeting of Stockholders of
Wilshire Real Estate Investment Trust Inc., to be held on Friday, September 10,
1999 at 10:00 a.m. Pacific Time at the Multnomah Athletic Club, 1849 S.W.
Salmon, Portland, Oregon 97205.

At the meeting, in addition to the election of directors and ratification of
the selection of independent accountants, you will be asked to decide whether
the Company should elect to be taxed as a real estate investment trust, or REIT,
under U.S. tax laws. The Board of Directors believes that electing not to be
treated as a REIT will not have an adverse impact on the Company's or its
shareholders' tax positions, and may allow the Company to reduce its taxes by
utilizing net operating losses incurred in the second half of 1998. Based on
discussions with our tax advisors, such operating losses are expected to result
in net operating loss carry forwards in excess of $70 million, which can be
applied to reduce future income and thereby reduce our taxes. Because the tax
rules governing net operating loss carry forwards are extremely complex and
subject to a number of contingencies, the amount of net operating loss carry
forwards actually obtained may vary from the estimate in the prior sentence. In
addition, because the Company was forced to sell assets in response to margin
calls during the fourth quarter of 1998, it may be more difficult for the
Company to qualify as a REIT under U.S. tax rules. Specifically, the amount and
volume of sales resulting from such margin calls may result in the Company being
considered a "dealer" in real estate and ineligible for treatment as a REIT. In
the event that the Company elects to be treated as a REIT and the U.S. tax
authorities determine that the Company does not meet the REIT requirements, the
Company would become subject to federal income tax on its taxable income and
would not receive a deduction for dividends paid to shareholders. In addition,
the Company would not be able to utilize its net operating loss carry forwards
and could be subject to interest and penalties for failure to have paid taxes
for the 1998 tax year. The Board of Directors believes it to be in the best
interest of the Company and its shareholders that the Company not elect to be
taxed as a REIT and, accordingly, recommends that you vote FOR the proposal to
amend the Company's charter to permit the Company to so elect. Such election,
the consequences of which are further described in the accompanying Proxy
Statement, is likely to have a significant effect on the Company, and so I urge
you to take the time to carefully read this Proxy Statement and send in your
completed Proxy. BECAUSE A DECISION TO NOT BE TREATED AS A REIT REQUIRES THE
APPROVAL OF THE HOLDERS OF AT LEAST TWO-THIRDS OF THE COMPANY'S COMMON STOCK, IT
IS ABSOLUTELY ESSENTIAL THAT ALL SHAREHOLDERS VOTE ON THIS PROPOSAL.

In the event the shareholders approve the above-described proposal
concerning the Company's election to not be treated as a REIT, you will also be
asked at the meeting to decide whether the Company should change its name to a
name that would not suggest that the Company is a real estate investment trust.
The Board of Directors believes it is in the best interests of the Company and
its shareholders to change the Company's name to "Wilshire Real Estate
Investment Inc." and, accordingly, recommends that you vote FOR the proposal to
rename the Company.

Our Annual Report on Form 10-K for the fiscal year ended December 31, 1998,
as amended, is also enclosed. I hope you will read it carefully. Enclosed with
this letter is a Proxy authorizing officers of the Company to vote your shares
for you if you do not attend the Annual Meeting. Whether or not you are
<PAGE>
able to attend the Annual Meeting, I urge you to complete your Proxy and return
it in the enclosed addressed, postage-paid envelope, as a quorum of the
shareholders must be present at the Annual Meeting, either in person or by
Proxy.

I would appreciate your immediate attention to the mailing of this Proxy.

Yours truly,

/s/ Andrew A. Wiederhorn

Andrew A. Wiederhorn
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
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[LOGO]

1776 SW Madison Street
Portland, OR 97205

NOTICE OF ANNUAL MEETING

The 1999 Annual Meeting of Shareholders of Wilshire Real Estate Investment
Trust Inc., a Maryland corporation, will be held on Friday, September 10, 1999
at 10:00 a.m. Pacific Time at the Multnomah Athletic Club, 1849 S.W. Salmon,
Portland, Oregon 97205 for the following purposes:

1. To elect five directors to the Board of Directors;

2. To ratify the selection of Arthur Andersen LLP as independent accountants of
the Company for the fiscal year ending December 31, 1999;

3. To amend the Company's Amended and Restated Articles of Incorporation (the
"Charter") in order to enable the Company to elect not to be taxed as a real
estate investment trust under U.S. tax law;

4. To amend the Company's Charter to change the name of the Company to
"Wilshire Real Estate Investment Inc.", provided that Proposal 3 has been
approved by the shareholders; and

5. To transact such other business as may properly come before the Annual
Meeting and any and all adjournments thereof.

The Board of Directors has fixed the close of business on July 14, 1999 as
the record date for the determination of shareholders entitled to notice of and
to vote at the Annual Meeting and any and all adjournments.

IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL MEETING
REGARDLESS OF THE SIZE OF YOUR HOLDINGS, ESPECIALLY GIVEN THE IMPORTANCE OF
PROPOSAL 3. Whether or not you expect to attend the Annual Meeting, please
complete, date and sign the enclosed proxy and return it in the envelope
provided for that purpose, which does not require postage if mailed in the
United States. The proxy is revocable at any time prior to its use.

By Order of the Board of Directors,

/s/ Lawrence A. Mendelsohn

Lawrence A. Mendelsohn
PRESIDENT

August 20, 1999
<PAGE>
WILSHIRE REAL ESTATE INVESTMENT TRUST INC.
1776 SW MADISON STREET
PORTLAND, OR 97205
ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 10, 1999
------------------------

PROXY STATEMENT
------------------------

ANNUAL MEETING AND PROXY SOLICITATION INFORMATION

The accompanying proxy is solicited by the Board of Directors of Wilshire
Real Estate Investment Trust Inc., a Maryland corporation (the "Company" or
"WREIT"), for use at the 1999 Annual Meeting of Shareholders to be held at the
Multnomah Athletic Club, 1849 S.W. Salmon, Portland, Oregon 97205, on Friday,
September 10, 1999, at 10:00 a.m. Pacific Time, and at any and all adjournments
thereof (the "Annual Meeting"). The proxy may be revoked at any time before it
is voted. If no contrary instruction is received, signed proxies returned by
shareholders will be voted in accordance with the Board of Directors'
recommendations.

This Proxy Statement and accompanying proxy were first sent to shareholders
on or about August 20, 1999.

Only shareholders of record at the close of business on July 14, 1999 are
entitled to vote at the Annual Meeting. Each outstanding share of Common Stock
is entitled to one vote. The holders of a majority of the votes entitled to be
cast whether present in person or by proxy shall constitute a quorum for
purposes of the Annual Meeting. The Company's executive officers and directors
and their affiliates, as a group, will be entitled to vote at the Annual Meeting
1,874,467 shares (approximately 16.3%) of the outstanding Common Stock and
intend to vote in favor of the proposals.

The Company will pay the cost of soliciting proxies for the Annual Meeting.
Proxies may be solicited by regular employees of the Company in person, or by
mail, courier, telephone or facsimile. Arrangements also may be made with
brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation material to the beneficial owners of stock held of
record by such persons. The Company may reimburse such brokerage houses,
custodians, nominees and fiduciaries for reasonable out-of-pocket expenses
incurred by them in connection therewith. The Company has retained D.F. King &
Co., Inc. ("D.F. King") as a solicitation agent to aid in the solicitation of
proxies for the Annual Meeting. The fee of such firm is $7,000 plus
reimbursement of out-of-pocket costs and expenses. The Company's contract with
D.F. King requires D.F. King to solicit proxies from brokers, banks and other
institutional holders in compliance with all legal requirements relating to such
solicitation. The Company has agreed to indemnify D.F. King against any losses
or liabilities arising out of D.F. King's fulfillment of the contract, except
for such losses or liabilities arising out of D.F. King's own negligence or
willful misconduct.

At the Annual Meeting, shareholders will vote on the election of directors
(Proposal 1) and the ratification of the selection of independent accountants
(Proposal 2). In addition, shareholders will consider and vote upon a proposal
to amend the Company's Amended and Restated Articles of Incorporation (the
"Charter") to enable the Company to elect not to be taxed as a real estate
investment trust, or "REIT," under the Internal Revenue Code of 1986, as amended
(the "Code") (Proposal 3), and a proposal to amend the Charter to change the
name of the Company to "Wilshire Real Estate Investment Inc.", in the event
Proposal 3 is approved by the shareholders (Proposal 4).

Shareholders representing a majority of the shares of stock outstanding and
entitled to vote must be present or represented by proxy in order to constitute
a quorum to conduct business at the Annual Meeting. Under the Maryland General
Corporation Law ("MGCL"), any corporate action, other than the election of
directors, must be authorized by a majority of the votes entitled to be cast on
the matter, except
<PAGE>
as otherwise required by the MGCL or the Company's articles of incorporation
with respect to a specific proposal. With regard to the election of directors,
if a quorum is present, then the nominees receiving a plurality of the votes
cast at the Annual Meeting will be elected directors. Votes may be cast in favor
of or withheld from each nominee; votes that are withheld will be excluded
entirely from the vote and will have no effect. However, the provision of the
Company's Charter relating to the Company's election to be taxed as a REIT
cannot be amended without the affirmative vote of at least two-thirds of the
votes entitled to be cast on the matter (i.e., all outstanding shares).

Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the independent tabulator appointed for the Annual Meeting. For the purposes of
determining whether a proposal has received the requisite vote in instances
where brokers are prohibited from exercising or choose not to exercise
discretionary authority for beneficial owners who have not provided voting
instructions (so-called "broker non-votes"), those shares will not be included
in the vote totals and, therefore, will have no effect on the vote. Pursuant to
the NASD Rules of Fair Practice, brokers who hold shares in street name have the
authority, in limited circumstances, to vote on certain items when they have not
received instructions from beneficial owners. A broker will only have such
authority if (i) the broker holds the shares as executor, administrator,
guardian, trustee, or similar representative or fiduciary capacity with
authority to vote, or (ii) the broker is acting pursuant to the rules of any
national securities exchange to which the broker is also a member.

Abstentions may be specified on all proposals except the elections of
directors and will be counted as present for the purposes of the proposal for
which the abstention is noted. For purposes of determining whether a proposal
has received a majority of the votes cast, where a shareholder abstains from
voting, those shares will be counted against the proposal.

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VOTING SECURITIES AND PRINCIPAL HOLDERS

As of July 14, 1999, the Company had outstanding 11,500,000 shares of common
stock, par value $0.0001 per share (the "Common Stock"), which are the only
outstanding voting securities of the Company.

The following table sets forth, as of June 1, 1999, the beneficial ownership
of common stock with respect to (i) each person who was known by the Company to
own beneficially more than 5% of the outstanding shares of the Company's common
stock, (ii) each director and nominee for director, (iii) each executive officer
named below, and (iv) directors and executive officers as a group.

<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER(1) OWNERSHIP(2) SHARES
- -------------------------------------------------------------------------------- ------------------ -----------
<S> <C> <C>
Andrew A. Wiederhorn............................................................ 714,633(3) 6.2%
Lawrence A. Mendelsohn.......................................................... 218,338(4) 1.9
Chris Tassos.................................................................... 15,860(5) *
Bo G. Aberg..................................................................... 2,016 *
David C. Egelhoff............................................................... 16,300(6) *
Jordan D. Schnitzer............................................................. 757,320(7) 6.6
Patrick Terrell................................................................. 150,000(8) 1.3
Thomson Horstmann & Bryant, Inc................................................. 1,110,500(9) 9.7
Value Partners, Ltd............................................................. 1,000,000(10) 8.7
Wellington Management Company, LLP.............................................. 964,000(11) 8.4
Wilshire Financial Services Group Inc........................................... 990,000 8.6
Putnam Investments, Inc......................................................... 845,000(12) 7.3
DePrince, Race & Zollo, Inc..................................................... 837,173(13) 7.3
Kramer, Spellman, L.P........................................................... 708,500(14) 6.2
Jayhawk Capital Management, L.L.C............................................... 666,600(15) 5.8
Howard Amster................................................................... 567,200(16) 4.9
All executive officers and directors as a group (7 persons)..................... 1,874,467 16.3%
</TABLE>

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(1) The address for each stockholder, other than Thomson Horstmann & Bryant,
Inc., Value Partners, Ltd., Wellington Management Company, LLP, Putnam
Investments, Inc., DePrince, Race & Zollo, Inc., Kramer, Spellman, L.P. and
Howard Amster, is c/o Wilshire Real Estate Investment Trust Inc., 1776 SW
Madison Street, Portland, OR 97205. The address for Thomson Horstmann &
Bryant, Inc. is Park 80 West, Plaza One, Saddle Brook, NJ, 07663. The
address for Value Partners, Ltd. is 4514 Cole Avenue, Suite 808, Dallas, TX
75205. The address for Wellington Management Company, LLP is 75 State
Street, Boston, MA 02109. The address for Putnam Investments, Inc. is One
Post Office Square, Boston, MA 02109. The address for DePrince, Race &
Zollo, Inc. is 201 S. Orange Avenue, Suite 850, Orlando, FL 32801. The
address for Jayhawk Capital Management, L.L.C. is 8201 Mission Road, Suite
110, Prairie Village, KS 66208. The address for Kramer, Spellman, L.P. is
2050 Center Avenue, Suite 300, Fort Lee, NJ 07024. The address for Howard
Amster is 23811 Chagrin Blvd., #200, Beachwood, OH 44122.

(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Shares of Common Stock subject to
options or warrants exercisable within 60 days of June 1, 1999 are deemed
outstanding for computing the percentage beneficially owned by the person or
group holding such options or warrants, but are not deemed outstanding for
computing the percentage of any other person. Except as noted, each
shareholder has sole voting power and sole investment power with respect to
all shares beneficial owned by such shareholder.

3
<PAGE>
(3) Includes 601,001 shares of Common Stock held by Mr. Wiederhorn's spouse,
13,632 shares of Common Stock held by Mr. Wiederhorn's minor children and
100,000 shares of Common Stock held by a limited partnership controlled by
Mr. Wiederhorn's spouse.

(4) Includes 14,736 shares of Common Stock held by Mr. Mendelsohn's spouse,
143,602 shares of Common Stock held by two limited liability companies
controlled by Mr. Mendelsohn's spouse and 60,000 shares of Common Stock held
by a limited partnership controlled by Mr. Mendelsohn.

(5) Includes 12,500 shares of Common Stock issuable upon the exercise of
outstanding options. The exercise price of these options is substantially in
excess of the market price of the Common Stock as of June 1, 1999.

(6) Includes 5,500 shares of Common Stock issuable upon the exercise of
outstanding options. The exercise price of these options is $16.00 per
share, which is substantially in excess of the market price of $3 17/32 per
share as of July 26, 1999.

(7) Includes 5,500 shares of Common Stock issuable upon the exercise of
outstanding options. The exercise price of these options is $16.00 per
share, which is substantially in excess of the market price of $3 17/32 per
share as of July 26, 1999. Also includes 50,000 shares of Common Stock held
by an employee benefit plan of which Mr. Schnitzer, as sole trustee, has
sole power to direct the disposition of the shares, and of which plan Mr.
Schnitzer is one of the beneficiaries. Mr. Schnitzer disclaims beneficial
ownership of the shares held by such plan except to the extent of his
pecuniary interest therein. Also includes 566,780 shares of Common Stock
held by charitable foundations of which Mr. Schnitzer is a director, with
the sole power to direct the disposition of such shares. Mr. Schnitzer
disclaims beneficial ownership of the shares held by such foundations.

(8) Includes 100,000 shares held by Mr. Terrell's spouse.

(9) Based upon information obtained from a Schedule 13G filed with the
Securities and Exchange Commission on or about January 28, 1999.

(10) Based upon information obtained from a Schedule 13G filed with the
Securities and Exchange Commission on or about March 1, 1999. The Schedule
13G was filed on behalf of Value Partners, Ltd. ("Value Partners"), a Texas
limited partnership, Ewing & Partners, a Texas general partnership and the
general partner of Value Partners, and Timothy G. Ewing, the managing
general partner of Ewing & Partners.

(11) Based upon information obtained from a Schedule 13D filed with the
Securities and Exchange Commission on or about February 9, 1999.

(12) Based upon information obtained from a Schedule 13G filed with the
Securities and Exchange Commission on or about February 11, 1999. The
Schedule 13G was filed on behalf of Putnam Investments, Inc. ("PI"), a
Massachusetts corporation and wholly-owned subsidiary of Marsh & McLennan
Companies, Inc. ("M&MC"), a Delaware corporation, Putnam Investment
Management, Inc., ("PIM"), a Massachusetts corporation, and The Putnam
Advisory Company, Inc. ("PAC"), a Massachusetts corporation, and Putnam
Capital Appreciation Fund (the "Fund"), a Massachusetts business trust, both
of which are wholly-owned by PI. Both PIM and PAC have dispository power
over the shares of Common Stock as investment managers, but each of the
Fund's trustees have voting power over the shares held by the Fund, and PIM
has shared voting power over the shares held by its institutional clients.
M&MC and PI disclaim beneficial ownership of the shares of Common Stock.

(13) Based upon information obtained from a Schedule 13G filed with the
Securities and Exchange Commission on or about February 12, 1999.

(14) Based upon information obtained from a Schedule 13G filed with the
Securities and Exchange Commission on or about February 10, 1999. The
Schedule 13G was filed on behalf of Kramer

4
<PAGE>
Spellman, L.P., a Delaware limited partnership ("KS"), and Orin S. Kramer,
in his capacity as general partner of KS and an individual holder of the
Common Stock. KS serves as a general partner to investment partnerships and
as a discretionary investment manager to managed accounts.

(15) Based upon information obtained from Schedule 13G filed with the Securities
and Exchange Commission on or about May 4, 1999. The Schedule 13G was filed
on behalf of Jayhawk Investments, L.P., a Delaware partnership, and Jayhawk
Institutional Partners, L.P.

(16) Based upon information obtained from a Schedule 13D filed with the
Securities and Exchange Commission on behalf of Howard Amster, Amster
Trading Company, Amster Trading Company Charitable Remainder Unitrusts,
Howard Amster, Tamra F. Gould Charitable Remainder Unitrust, Ramat
Securities Ltd. and Tamara F. Gould on or about March 22, 1999. Includes
333,700 shares held by Howard Amster, 56,500 shares held by Amster Trading
Company and 177,000 shares held by Howard Amster and Tamra F. Gould
Charitable Remainder Unitrust.

* Less than one percent.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires a company's directors and executive officers, and
beneficial owners of more than 10% of the common stock of such company to file
with the Securities and Exchange Commission initial reports of ownership and
periodic reports of changes in ownership of the company's securities. Due to a
processing error, a purchase of 10,000 shares of Common Stock made in August
1998 by Lawrence A. Mendelsohn, a director and officer of the Company, was
inadvertently not reported. Report of such purchase was made as soon as the
omission was discovered.

MANAGEMENT OF THE COMPANY

THE MANAGER

The business and investment affairs of the Company are managed by Wilshire
Realty Services Corporation ("WRSC"), a Delaware corporation formed for this
sole purpose and wholly-owned by Wilshire Financial Services Group Inc., an
affiliate of the Company ("WFSG"), pursuant to a management agreement, dated as
of April 6, 1998 (the "Management Agreement"). WFSG is primarily engaged in the
acquisition and servicing of pools of performing, sub-performing and
non-performing residential and commercial mortgage loans, as well as foreclosed
real estate in the United States and foreign countries. WFSG also acquires
mortgage-backed securities, originates mortgage loans and services loans for
third parties. Through its subsidiaries, WFSG provides WRSC, as the Manager,
with substantially all of the managerial and administrative services required in
connection with the operations of the Company.

Pursuant to the Management Agreement, WRSC, subject to the supervision of
WREIT's Board of Directors, consults in the formulation of operating strategies
for the Company, arranges for the acquisition of assets by the Company, arranges
for various types of financing for the Company, including repurchase agreements,
secured term loans, warehouse lines of credit, mortgage loans and the issuance
of mortgage-backed securities, monitors the performance of the Company's assets,
provides certain administrative and managerial services and is generally
responsible for the day-to-day operation of the Company.

COMPENSATION OF THE MANAGER

Pursuant to the Management Agreement, WRSC receives for its services a base
management fee of 1% per annum of the first $1.0 billion on the average invested
assets, 0.75% of the next $500 million on the average invested assets and 0.50%
on the average invested assets above $1.5 billion, payable quarterly.

5
<PAGE>
The term "average invested assets" for any period is defined in the
Management Agreement as the average of the aggregate book value of the Company's
assets, including the assets of all the Company's subsidiaries, before
depreciation or reserves for bad debts or other similar noncash reserves,
computed by taking the daily average of such values during such period.

In addition, WRSC is also eligible to receive an annual incentive fee
generally equal to 25% of the dollar amount by which the Company's funds from
operations exceeds the return on 10 year U.S. Treasury securities, plus 5% per
annum. Finally, WRSC is entitled to be reimbursed for certain reasonable
out-of-pocket expenses. The base management fees paid to WRSC in 1998 aggregated
approximately $3.2 million. No incentive fee was paid in 1998. Because WRSC is
entitled to receive incentive compensation based on the Company's returns, it
could result in WRSC recommending riskier or more speculative investments to the
Company. Further, because WRSC is entitled to receive compensation based on the
Company's assets, it could result in WRSC recommending riskier leveraging
strategies or greater growth for the Company.

The Company and WCC, and the Company and Wilshire Servicing Company UK
Limited, also entered into Loan Servicing Agreements in connection with the
initial public offering of the Company in April, 1998 for the servicing of the
Company's assets in the United States and Europe.

BOARD OF DIRECTORS

The business of the Company is managed by WRSC under the Management
Agreement, and supervised by the Board of Directors. The Board has
responsibility for establishing broad corporate policies and for the overall
performance of the Company. Two of the five directors of the Company, Andrew A.
Wiederhorn and Lawrence A. Mendelsohn, in addition to their positions as both
officers and directors of the Company, are officers and directors of WFSG and
WRSC. Due to conflicts of interest arising from the foregoing, as well as other
interrelationships set forth more fully below, the Company's Charter provides
that a majority of the Board of Directors must be unaffiliated with WFSG (the
"Independent Directors"). See "EXECUTIVE COMPENSATION--CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS." Andrew A. Wiederhorn and Lawrence A. Mendelsohn, as
officers and directors of WRSC, are involved in the operating details of the
Company on a day-to-day basis. The three Independent Directors are kept advised
of the Company's business by the directors and officers of the Manager and
officers of the Company.

A majority of the Independent Directors must approve in advance any purchase
of assets from WFSG or its affiliates or any other significant transaction not
contemplated under the Management Agreement or the servicing agreements with
certain affiliates of WFSG for the loan servicing of the Company's assets (the
"Servicing Agreements"). Although the Independent Directors review the
guidelines quarterly and monitor compliance with those guidelines, in conducting
this review, the Independent Directors rely primarily on information provided to
them by WRSC. WRSC obtains price evaluations concerning the price for
mortgage-backed securities and appraisals for real estate and loans purchased
from WRSC or its affiliates, but the Independent Directors are likely to rely
substantially on information and analysis provided by WRSC to evaluate the
Company's guidelines, compliance therewith and other matters relating to its
investments.

If the Independent Directors determine in their periodic review of
transactions that a particular transaction does not comply with the guidelines,
then the Independent Directors consider what corrective action, if any, can be
taken. If the transaction is one with WRSC or an affiliate of WRSC, then WRSC or
such affiliate is required to repurchase the asset at the purchase price to the
Company.

Moreover, if transactions are consummated that materially and adversely
deviate from the guidelines (which determination shall be made by the
Independent Directors), then the Independent Directors have the option, under
the terms of the Management Agreement, to terminate WRSC without the Company
being required to pay a termination fee. See "MANAGEMENT OF THE COMPANY--THE
MANAGER."

6
<PAGE>
All directors are elected at each annual meeting of WREIT's shareholders for
a term of one year, and hold office until their successors are elected and
qualified. All officers serve at the discretion of the Board of Directors. The
Company does not have salaried employees and is currently externally managed by
WRSC pursuant to the Management Agreement, for which the Company pays a
management fee to WRSC. The parent company of WRSC also experienced substantial
financial difficulties last year and only recently emerged from a bankruptcy
reorganization. The Company's independent directors have been considering having
the Company hire employees and become internally managed due to concerns about
WRSC's ability to perform its obligations under the Management Agreement and in
light of the Management Agreement coming up for renewal next year. Nonetheless,
it is unlikely that the Company will become internally managed or retain any
employees while it remains obligated to pay a management fee to WRSC.

COMPENSATION OF DIRECTORS

In 1998, each Independent Director was paid an annual director's fee equal
to $12,000, with no additional fee paid for the first four meetings of the Board
of Directors. Each Independent Director received a fee of $1,000 for each
additional meeting of the Board of Directors or committee thereof attended in
person by such non-employee director which is not a regularly scheduled
quarterly meeting. For meetings attended telephonically, each of the Independent
Directors received a fee of $100 per hour. All Independent Directors were
reimbursed for their costs and expenses in attending all meetings of the Board
of Directors. Each of the Independent Directors also received, on April 6, 1998,
the day of the Company's initial public offering, immediately vesting options
under the Company's non-qualified stock option plan (the "Option Plan") to
purchase 5,000 shares of Common Stock at an exercise price equal to $16.00,
which was the public offering price. In the future, newly elected Independent
Directors and other directors who are neither employees of the Company nor
Independent Directors ("Non-Employee Directors") will receive options to
purchase 5,000 shares of Common Stock at the closing price on the day that they
join the Board. In addition, on the last day of each calendar quarter, each
Independent Director and Non-Employee Director receives a non-statutory stock
option for 1,500 shares of Common Stock at an exercise price equal to 110% of
the fair market value of the Common Stock on that day. Such grants vest
one-third on each of the first three anniversaries of the grant date and expire
on the tenth anniversary of the grant date.

Compensation of the Independent Directors and the Non-Employee Directors was
determined by the shareholders of the Company prior to the initial public
offering on April 6, 1998. Affiliated Directors do not receive any retainer or
additional fees for serving as directors, nor do they receive any stock options
in respect of their service as directors.

MEETINGS OF THE BOARD OF DIRECTORS

In calendar year 1998, the Board of Directors held 21 meetings. Each of the
current directors of the Company, other than Patrick Terrell, who was appointed
to the Board on December 28, 1998 to replace Stephen Kapiloff and did not attend
any meetings in calendar year 1998, attended at least 75% of the aggregate
meetings held by the Board of Directors and by the committee on which the
director served.

COMMITTEES OF THE BOARD OF DIRECTORS

The only standing committee of the Board of Directors at present is the
Audit Committee. The entire Board of Directors functions in the capacity of the
Company's Compensation Committee. In such capacity, the Board establishes and
administers compensation policies, determines awards of restricted stock and
grants of stock options under the Company's Option Plan, monitors compensation
payable to the Manager under the Management Agreement and approves all other
compensation related matters of the Company as it determines necessary and
appropriate. Because the Company was externally managed in 1998, the Company did
not have any employees. In addition, the Affiliated Directors and the officers
of the

7
<PAGE>
Company are employees of WFSG and were not separately compensated by the Company
for their services.

The Audit Committee makes recommendations concerning the engagement of
independent public accountants, reviews with the independent public accountants
the plans and results of the audit engagement, approves professional services
provided by the independent public accountants, reviews the independence of the
independent public accountants, considers the range of audit and non-audit fees
and reviews the adequacy of the Company's internal accounting controls. Its 1998
members were David C. Egelhoff and Steven A. Kapiloff. The Audit Committee met
twice in 1998.

The Company may, from time to time, form other committees as circumstances
warrant. Such committees will have authority and responsibility as delegated by
the Board of Directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

In the absence of a standing Compensation Committee, determinations
regarding compensation are made by the full Board of Directors. Presently, the
Company has no employees and the executive officers of the Company do not
receive any compensation from the Company for their services, although there is
nothing preventing the Company from hiring employees or compensating its
employees or officers. To the extent such officers are also officers of WFSG,
they are compensated by WFSG for their services. WFSG is the parent company of
WRSC, which receives certain fees from the Company for management services it
provides the Company under the Management Agreement. See "MANAGEMENT OF THE
COMPANY-- THE MANAGER" and "--COMPENSATION OF THE MANAGER." However, the primary
purpose of such transactions is not to furnish compensation to the executive
officers of the Company.

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The following provides information about the directors and executive
officers of the Company as of July 1, 1999, including data on the business
backgrounds, and the names of public companies and other selected entities for
which they also served as directors and officers during the fiscal year ended
December 31, 1998.

AFFILIATED DIRECTORS

ANDREW A. WIEDERHORN, age 33, has been the Chairman of the Board of
Directors and Chief Executive Officer of the Company since its formation. Mr.
Wiederhorn also serves as Treasurer and Secretary. Mr. Wiederhorn is also the
Chairman of the Board of Directors, Chief Executive Officer, Secretary,
Treasurer and a director for both WRSC and WFSG. In 1987 Mr. Wiederhorn founded
Wilshire Credit Corporation ("WCC") and served as its Chief Executive Officer
until June 8, 1999, when its loan servicing operations were acquired by WCC
Inc., a newly formed subsidiary of WFSG. Mr. Wiederhorn received his B.S. degree
in Business Administration from the University of Southern California.

LAWRENCE A. MENDELSOHN, age 38, has been a director and the President of the
Company since its formation. Mr. Mendelsohn is also the President of WFSG. From
January 1992 until February 1993 Mr. Mendelsohn was Vice President, Principal
and Head of Capital Markets for Emerging Markets at Bankers Trust New York
Corporation/BT Securities Corporation. From August 1987 until January 1992, Mr.
Mendelsohn was the Vice President, Senior Options Principal and Head of
Proprietary Trading for Equities, Equity Options and Distressed Debt at J.P.
Morgan and Co./J.P. Morgan Securities. Mr. Mendelsohn received an A.B. degree in
Economics from the University of Chicago, an M.A. degree in International
Politics from the University of Texas, an M.S. degree in Business Research from
the University of Southern California and a Ph.D./ABD in Finance from the
University of Southern California.

8
<PAGE>
INDEPENDENT DIRECTORS

DAVID C. EGELHOFF, age 50, has been a director of the Company since its
formation. Mr. Egelhoff has been President of Macadam Forbes, Inc., a commercial
real estate brokerage company headquartered in Portland, Oregon since 1981. Mr.
Egelhoff is a licensed real estate broker who has extensive brokerage
experience, including transactions with REITs. He is a member of the Oregon and
National Board of Realtors and the Builders and Owners Management Association.
Mr. Egelhoff received a degree in Finance and Marketing from the University of
Wisconsin-Madison in 1971.

JORDAN D. SCHNITZER, age 48, has been a director since March 1998. Mr.
Schnitzer has been President of Jordan Schnitzer Properties, an owner and
developer of commercial and residential properties in Oregon, Washington and
California, since 1976. Mr. Schnitzer is also President of Harsch Investment
Properties, LLC, which owns and operates a portfolio of 25 properties in seven
western U.S. states. Mr. Schnitzer received his undergraduate degree in
Literature from the University of Oregon in 1973 and his J.D. from the
Northwestern School of Law of Lewis and Clark College in 1976.

PATRICK TERRELL, age 44, became a director of the Company in December 1998.
Mr. Terrell founded Leading Technology Company in 1986 and worked as the Chief
Executive Officer until he sold the company in 1992. Mr. Terrell was also
founder and Chief Executive Officer of Byte Shops Computer Stores, which he
founded in 1976 and sold to Pacific Telesis in 1985. Mr. Terrell currently
serves on the boards of B. S. Medical, United Soil Recycling, Microware, Inc.
and Lakeside Associates. Mr. Terrell attended Oregon State University prior to
forming Byte Shops computer stores in 1976. Mr. Terrell was appointed to the
Board in December 1998 to replace Steven Kapiloff, who resigned in October 1998
due to pressing work and family commitments, which left him insufficient time to
continue as a director of the Company.

OFFICERS WHO ARE NOT DIRECTORS

CHRIS TASSOS, age 41, is Executive Vice President and Chief Financial
Officer of the Company. Mr. Tassos also serves as an Executive Vice President
and Chief Financial Officer of WFSG. Mr. Tassos was Executive Vice President of
WCC until the acquisition of its loan servicing operations by WFSG on June 8,
1999 and from August 1995 until June 1997 was Senior Vice President of WCC. From
March 1992 to February 1995, he was the Chief Financial Officer and/or Senior
Vice President of Finance of Long Beach Mortgage Company (formerly Long Beach
Bank). Mr. Tassos received a B.A. degree from California State University,
Fullerton.

BO G. ABERG, age 50, is Senior Vice President in charge of European
operations for the Company. Mr. Aberg is also Senior Vice President of WFSG.
From November 1994 to September 1996, Mr. Aberg was Chief Executive Officer of
Securum Holding B.V., a Kingdom of Sweden owned work-out company in Europe. From
September 1992 to November 1994, Mr. Aberg was Chief Executive Officer of
Securum Real Estate Group, Malmo, Sweden. Mr. Aberg is a citizen of Sweden.

9
<PAGE>
EXECUTIVE COMPENSATION

COMPENSATION OF EXECUTIVE OFFICERS

The executive officers of the Company do not receive any compensation from
the Company for their services. To the extent such officers are also officers of
WFSG, they are compensated by WFSG for their services. WFSG is the parent
company of WRSC, which receives certain fees from the Company for management
services it provides the Company under the Management Agreement. See "MANAGEMENT
OF THE COMPANY--COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION."

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company granted to WRSC options under the Option Plan representing the
right to acquire 1,150,000 shares of Common Stock, at an exercise price per
share of $16.00. If the options could be exercised immediately, they would
represent 10.0% of the number of shares of Common Stock outstanding as of July
14, 1999. However, only one quarter of WRSC's shares have vested and become
exercisable. One quarter of the remaining three quarters will vest and become
exercisable on each of the next three anniversaries of the closing of the
Company's initial public offering. In addition, all of WRSC's options will vest
and become exercisable upon a change in control of the Company, as defined in
the Option Plan.

The Company, on the one hand, and WFSG and its affiliates, on the other
hand, also entered into a number of transactions in connection with the
financial turmoil occurring in the second half of last year and the resulting
restructuring of WFSG and WCC. These transactions consisted of the Company
lending money to, and borrowing money from, WFSG and its affiliates, initially
to make investments and, as the liquidity crisis deepened, to meet collateral
calls and repay borrowings. These transactions were approved by the independent
directors of the Company and WFSG and considered to be on as favorable terms as
those that could be negotiated with independent third parties. These
transactions consisted of the following:

- The Company paid a fee to WFSG for WFSG's guarantee of a loan from
Barclay's Bank to a subsidiary of the Company equal to 1% annually of the
outstanding principal of the loan. This loan was refinanced in 1999 and
the guarantee is no longer in effect.

- In August and September 1998, the Company borrowed approximately $24.4
million, bearing interest at a rate of 13% per annum, from WCC to meet
margin calls (approximately $14.6 million) and to meet its commitments to
invest in loans and properties (approximately $9.8 million).

- In September 1998, the Company borrowed approximately $13.1 million from
WMFC 1997-1 Inc., a wholly owned subsidiary of WFSG, which borrowings were
secured by mortgage loans having loan-to-value ratios up to 85% and
bearing interest at 10% per annum.

- The offset to these other borrowings on the financial statements of the
Company at the time of the transaction was an affiliate receivable from
WFSG arising principally out of funds loaned by the Company to WFSG. The
balance of this receivable was $18.4 million as of December 31, 1998 and
bore interest at a rate of 13% per annum. Subsequent to December 31, 1998,
WFSG transferred $1.4 million to the Company, reducing the balance of the
receivable to $17.0 million.

- During October 1998, in connection with borrowings by WCC (a portion of
the proceeds of which were used to finance prior loans to the Company from
WCC) WFSG and the Company jointly and severally guaranteed $35 million of
indebtedness owed by WCC to an unaffiliated third party lender. The
Company believes that the Company's guarantee of WCC's indebtedness was in
the best interests of the Company in order to help maintain WCC as a
viable servicer.

- As part of the restructuring of WFSG, as a compromise of the $17.0 million
of unsecured debt owed to the Company by WFSG as described above, the
Company agreed to convert $8.5 million of the

10
<PAGE>
debt to new common stock of the restructured WFSG and to convert the
remaining $8.5 million into a 6% promissory note payable in seven years,
as discussed below.

Moreover, the two Affiliated Directors and all of WREIT's officers are also
employed by WFSG and/or its affiliates. See "MANAGEMENT OF THE COMPANY".

The Company has in place guidelines that establish certain parameters for
its operations, including qualitative limitations on the assets that may be
acquired. These parameters include avoiding geographic concentration of assets,
seeking an appropriate portfolio composition for the Company's assets from a tax
perspective, and complying with tax and legal requirements for REIT
qualification. Such guidelines are only meant to provide general guidance and do
not provide quantitative requirements or limitations (other than with respect to
the REIT requirements). In the event that the Company does not elect to be a
real estate investment trust, the guidelines relating to REIT qualification
would no longer apply. These guidelines are to assist and instruct WRSC and to
establish restrictions applicable to transactions with affiliates of WFSG or
with unrelated third parties. A majority of the Independent Directors are asked
to approve in advance any purchase or sale of assets from or to WFSG or its
affiliates or any other significant transaction not contemplated under the
Management Agreement or the Servicing Agreements. The Company may also purchase
or sell assets from or to WFSG or its affiliates in the future, subject to the
approval of its Independent Directors.

The Independent Directors rely primarily on information provided to them by
WRSC. WRSC obtains price evaluations concerning the price for mortgage-backed
securities and appraisals for real estate and loans purchased from WRSC or its
affiliates from unaffiliated third parties, but the Independent Directors are
likely to rely substantially on information and analysis provided by WRSC to
evaluate the Company's guidelines, compliance therewith and other matters
relating to the Company's investments. Moreover, the market for unregistered or
subordinate mortgage-backed securities is illiquid, and therefore accurate
prices are difficult to estimate.

If the Independent Directors determine in their periodic review of
transactions that a particular transaction does not comply with the guidelines,
then the Independent Directors consider what corrective action, if any, can be
taken. If the transaction is one with WRSC or an affiliate of WRSC, then WRSC is
required to repurchase the asset at the purchase price to the Company.

In addition to holding approximately $9.9 million book-value ($20 million
principal amount) of WFSG's 13% Series B Notes (as of December 31, 1998), the
Company had an outstanding receivable of approximately $17.0 million from WFSG.
WFSG incurred significant losses as a result of adverse market conditions in
1998 and on March 3, 1999 filed a prepackaged plan of reorganization (the
"Restructuring Plan") with the U.S. Bankruptcy Court for the District of
Delaware as part of a voluntary bankruptcy filing under Chapter 11 of the U.S.
Bankruptcy Code. Prior to the solicitation of WFSG's Restructuring Plan, the
unofficial noteholders committee of WFSG (which did not include the Company)
negotiated a compromise and settlement of the Company's claim against WFSG in
respect of the $17.0 million receivable. The Company was represented by its
independent directors in connection with the compromise and settlement
negotiations. Under this compromise and settlement, if the Company funded the
full amount of the debtor-in-possession facility described below, the Company
would receive a new note for the full amount of the receivable which bears
interest at 6% per annum, payable monthly in arrears. The Restructuring Plan was
approved by the court on April 12, 1999 and on June 10, 1999, WFSG emerged from
bankruptcy pursuant to the Restructuring Plan. As part of the Plan, during the
quarter ended March 31, 1999, the Company agreed to provide WFSG with
debtor-in-possession financing pursuant to which the Company agreed to lend up
to $10.0 million (the "DIP Facility"). The DIP Facility bears interest at a rate
of 12% per

11
<PAGE>
annum and is secured by the stock of First Bank of Beverly Hills, FSB, WFSG's
savings bank subsidiary. The DIP Facility matures on February 29, 2004, and
repayment is made through fully amortizing principal and interest payments
commencing on February 29, 2000. Prior to February 29, 2000, only interest
payments are required. The Company loaned $5.0 million under the DIP Facility on
March 3, 1999 but did not provide WFSG with the remaining balance. Accordingly,
under the agreement negotiated by the Company's Independent Directors with WFSG
and its creditors, 50%, or approximately $8.5 million, of WFSG's obligation was
treated pari passu with the claims of WFSG's noteholders and converted, together
with approximately $21.4 million (in principal plus accrued but unpaid interest)
of WFSG's 13% Series B Notes, to 2,874,791 shares of newly issued common stock
of WFSG on June 10, 1999, the effective date of the Restructuring Plan. As of
June 10, 1999, the Company estimates the book value of such shares to be
approximately $12.3 million. Additionally, on the effective date of the
Restructuring Plan, the Company acquired approximately $8.5 million in principal
amount of WFSG's 6% Convertible PIK Notes due 2006 (the "New Notes") in exchange
for the remaining 50% of the $17.0 million intercompany receivable owed by WFSG
to the Company. The Company may elect to convert the New Notes into new common
stock of WFSG upon receipt of a notice of redemption of the New Notes by WFSG.

The following table sets forth the Company's investments in WFSG as of
December 31, 1998, which was prior to WFSG's bankruptcy filing and on June 10,
1999, which was the date of the completion of WFSG's Restructuring Plan. The
table excludes the DIP Facility, which was loaned to WFSG subsequent to December
31, 1998 and remains outstanding, and which was not affected by WFSG's
Restructuring Plan. The table values our investment in WFSG based on our pro
rata interest in the net value of WFSG as of June 30, 1999, which the Company
believes is the best current indication of the value of its investment. WFSG's
stock did not trade on June 30, 1999. The closing price of WFSG's common stock
on July 31, 1999 was $1.25 which would result in a value for the Company's
investment of $3,593,489, which is substantially less than the $12,288,926 shown
in the table under the column heading "Post Bankruptcy (As of 6/10/99)".

THE COMPANY'S INVESTMENTS IN WFSG

<TABLE>
<CAPTION>
PRE-BANKRUPTCY POST BANKRUPTCY POST BANKRUPTCY
TYPE OF INVESTMENT (AS OF 12/31/98) (AS OF 6/10/99) (AS OF 6/30/99)
- ---------------------------------------------------------------------- ---------------- --------------- ---------------
<S> <C> <C> <C>
WFSG's 13% Series B Notes............................................. $ 9,932,634(1) -- --
Receivable From WFSG.................................................. 17,000,000(1) -- --
WFSG's 6% Convertible PIK Notes....................................... -- $ 8,500,000(2) $ 5,748,392
WFSG's Common Stock................................................... -- 12,288,926(3) 3,593,489(4)
TOTAL................................................................. $26,932,634 $20,788,926 $ 9,341,881
---------------- --------------- ---------------
---------------- --------------- ---------------
</TABLE>

- ------------------------

(1) Based on the value of the 13% Series B Notes as shown on the Company's
financial statements as of December 31, 1998. The principal amount of the
13% Series B Notes held by the Company was $20 million.

(2) Based on the face amount of the 6% Convertible PIK Notes.

(3) Based on the Company's estimate of the book value of the common stock as of
June 10, 1999. As a result of concern on the part of The Nasdaq Stock Market
that the trading price for WFSG's common stock would not meet Nasdaq's
listing requirements following its reorganization, WFSG's common stock was
delisted from Nasdaq and currently trades on the OTC Bulletin Board under
the symbol "WFSG".

(4) Based on the last trade price ($1.25 per share) on July 31, 1999.

12
<PAGE>
Following the completion of WFSG's Restructuring Plan, the Company held
2,874,791 shares, or approximately 14.4%, of the common stock of WFSG, and filed
a Schedule 13D with the Securities and Exchange Commission indicating such
ownership. The Company's independent directors have engaged a financial advisor,
Bear Stearns & Co., Inc., to evaluate whether it should dispose of its currently
owned shares of new common stock of WFSG, maintain its current holdings, or
acquire additional shares. The Company does not currently have an intention to,
among other things, conduct any extraordinary corporate transaction, such as a
merger, reorganization or liquidation, with respect to WFSG, cause any material
change in WFSG's business or corporate structure, or change WFSG's charter or by
laws or take other actions that may impede the acquisition of control of WFSG by
any person. The Company did, however, in a letter to the independent directors
of WFSG dated May 11, 1999, express concerns as a shareholder about certain
aspects of WFSG's business, including its liquidity position, and proposed that
the New Notes and the $5.0 million outstanding under the DIP Facility be
converted into new common stock of WFSG at the rate of 70% of the book value of
WFSG (on a post-reorganization basis) per share to reduce WFSG's current debt
service obligations.

In the ordinary course of its business, the Company received cash from WCC
and an affiliate of WFSG which services the Company's European assets (the
"European Servicer") in connection with payments on the Company's assets that
were collected by such servicers, and the Company made payments to WCC and the
European Servicer of servicing fees and reimbursed them for certain expenses.
For the year ended December 31, 1998, the servicing fees and reimbursement for
expenses paid to WCC and the European Servicer were $690,722 and $500,082,
respectively. These payments were made at market rates pursuant to the Servicing
Agreements, which were entered into prior to the Company's initial public
offering following extensive negotiations with the underwriters. However, as
part of the Restructuring Plan, the loan servicing assets of WCC were acquired
(and its liabilities assumed) on June 8, 1999 by WCC Inc., a subsidiary of WFSG
newly formed for such purpose, and the Company will continue such arrangements
with such successor. During the adverse market conditions occurring in August
and September 1998, the Company borrowed approximately $24.4 million from WCC to
meet margin calls (approximately $14.6 million) and to meet its commitments to
invest in loans and properties (approximately $9.8 million). In connection with
the restructuring of WCC's debt, the Company paid $15 million to WCC, consisting
of a payment of amounts owed by the Company to WCC of $11.8 million and the
prepayment of $3.2 million of future servicing fees for a release of a guarantee
by the Company of $35 million of WCC's indebtedness and of any and all claims
against the Company relating thereto. It is the position of the Company and its
officers that, at December 31, 1998, such prepaid future servicing fees totaled
$3.2 million. However, this figure is disputed by the noteholders of WFSG, which
claim that the amount owed to WCC was approximately $900,000 higher, thereby
reducing the amount of the prepayment credit to $2.3 million. The Company
believes that this disagreement will be resolved in its favor based on
preliminary conversations with WFSG.

The Management Agreement and Servicing Agreements do not limit the right of
WRSC or WFSG to engage in business or render services to others that compete
with the Company, except that the Manager and WFSG have granted a right of first
refusal with respect to certain real estate investments. WFSG and its
subsidiaries do not invest in any such investments unless a majority of the
Independent Directors have decided that the Company should not invest in such
asset. In deciding whether to invest in such an asset, the Independent Directors
may consider, among other factors, whether the asset is well-suited for the
Company and whether the Company is financially able to take advantage of the
investment opportunity. However, WFSG and its subsidiaries have no obligation to
offer mortgage-backed securities to the Company if the mortgage loans
collateralizing such securities were owned by WFSG or one of its subsidiaries.
Moreover, WFSG has no obligation to reveal to the Company any business
opportunities to invest in real estate related assets other than real estate
assets subject to the right of first refusal. As a consequence, the opportunity
for the Company to invest in such assets is limited if such investment
opportunities are attractive to WFSG or one of its subsidiaries.

From time to time, mortgage lenders offer for sale large pools of mortgage
loans and real properties pursuant to a competitive bidding process. In such a
case, WFSG or its affiliates may choose an

13
<PAGE>
unaffiliated entity with which to submit a joint bid for the pool, as long as
WFSG or its affiliates takes title only to assets as to which it has not given
the Company the right of first refusal.

At the closing of the Company's initial public offering, WFSG purchased
990,000 shares of common stock at a price equal to the public offering price,
net of any underwriting discounts or commissions. This resulted in WFSG's
ownership of approximately 8.6% of the Company's Common Stock. WRSC also
received stock options pursuant to the Company's Stock Option Plan. WFSG is
expected to retain its shares of the Company's Common Stock for at least two
years after the initial public offering, but may dispose of its shares any time
thereafter in accordance with the provisions of Rule 144 under the Securities
Act of 1933, as amended. Notwithstanding the foregoing, if the Company
terminates the Management Agreement, WRSC may require the Company to register
for public resale any shares of Common Stock acquired by WFSG pursuant to the
Stock Option Plan.

The market in which the Company expects to purchase assets is characterized
by rapid evolution of products and services and, thus, there may in the future
be relationships between the Company, WFSG, and its affiliates in addition to
those described herein. The Company may change its policies in connection with
any of the foregoing without the approval of its stockholders, including, but
not limited to, the amount in which the Company may leverage its investments.

PERFORMANCE GRAPH

The Performance Graph shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act or under the Exchange Act, except to the extent
the Company specifically incorporates this information by reference, and shall
not otherwise be deemed filed under the Securities Act or the Exchange Act.

The following Performance Graph covers the period beginning April 6, 1998
when the Company's Common Stock was first traded on the NASDAQ Stock Market,
through December 31, 1998. The graph compares the shareholder return on the
Company's Common Stock to the Standard & Poor's 500 Stock Index ("S&P 500") and
a peer group of companies (the "PGI").

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
WREI RTI S&P 500
<S> <C> <C> <C>
April 6, 1998 100.00 100.00 100.00
April 30, 1998 96.97 99.18 100.32
May 31, 1998 99.27 95.36 98.44
June 30, 1998 102.65 86.91 102.32
July 331, 1998 101.15 81.66 101.13
Aug. 31, 1998 61.82 61.32 86.39
Sept. 30, 1998 62.12 61.00 91.78
Oct. 31, 1998 18.18 43.82 99.14
Nov. 30, 1998 20.46 49.15 105.01
Dec. 31, 1998 18.56 44.96 110.93
</TABLE>

- ------------------------

(1) Assumes all distributions to shareholders are reinvested on the payment
dates.

(2) Assumes $100 invested on April 6, 1998 in the Company's Common Stock, the
S&P 500 and the PGI.

(3) The companies included in the PGI are Ocwen Asset Investment Corp.,
Anthracite Capital, Resource Asset Investment Trust, Impac Commercial
Holdings Inc., Imperial Credit Commercial Mortgage Investment Corp. and
LASER Mortgage Management, Inc.

14
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS

The directors of the Company serve for a term of one year, and hold office
until their successors are elected and qualified. At the Annual Meeting, five
directors are to be elected for one-year terms expiring at the annual meeting in
2000. Andrew A. Wiederhorn, Lawrence A. Mendelsohn, David C. Egelhoff, Jordan D.
Schnitzer and Patrick Terrell have been nominated by the Board of Directors for
election at the Annual Meeting. The accompanying form of proxy will be voted for
the Board of Directors' nominees, except where authority to so vote is withheld.

If a nominee is unable or unwilling to serve, the shares to be voted for
such nominee which are represented by proxies will be voted for any substitute
nominee designated by the Board of Directors. The Company has no reason to
believe that any of the nominees will be unable or unwilling to serve if
elected.

The affirmative vote of a plurality of the votes of the shares of Common
Stock entitled to vote on the election of directors is required to elect a
nominee. The Board of Directors recommends a vote IN FAVOR of the nominees for
director listed above. If not otherwise specified, proxies will be voted IN
FAVOR of the nominees.

PROPOSAL NO. 2
APPOINTMENT OF INDEPENDENT ACCOUNTANTS

A resolution will be presented at the Annual Meeting to ratify the
appointment by the Board of Directors of the firm of Arthur Andersen LLP as
independent accountants, to examine the financial statements of the Company for
the year ending December 31, 1999, and to perform other appropriate accounting
services. Representatives of the firm will attend the Annual Meeting and will
have the opportunity to make a statement if they desire to do so. They will be
available to respond to appropriate questions.

The affirmative vote of a majority of the shares of Common Stock entitled to
vote is required to ratify the appointment of Arthur Andersen LLP. The Board of
Directors recommends a vote IN FAVOR of the ratification of its appointment of
Arthur Andersen LLP as independent accountants. If not otherwise specified,
proxies will be voted IN FAVOR of this proposal.

PROPOSAL NO. 3
PROPOSAL TO AMEND THE COMPANY'S CHARTER TO
ENABLE THE COMPANY TO ELECT NOT TO BE TAXED AS A REIT

INTRODUCTION

WREIT is a Nasdaq-listed company that invests primarily in real estate
related investments. The Company was incorporated on October 24, 1997. On April
6, 1998, the Company completed an initial public offering of common stock from
which the Company received net cash proceeds of approximately $167 million.

From April 6 through September 1998, the Company invested the proceeds of
its initial public offering and borrowed money against the assets it acquired,
the proceeds of which were in turn invested in more assets. By the end of the
third quarter, principally as a result of such borrowings, the Company's total
assets were approximately $1 billion and its total indebtedness was
approximately $918 million, of which approximately $346 million was in the form
of short term repurchase agreements. Repurchase agreements are secured lending
arrangements which involve the borrower selling an asset to a lender at a fixed
price with the borrower having an obligation to repurchase the asset within a
specified period (generally 30 days) at a higher price reflecting the interest
cost of the loan. If the value of the underlying asset declines, the lender may
request that the amount of the loan be reduced by cash payments from the
borrower or additional collateral be provided by the borrower (generally known
as "collateral calls"). Accordingly, in

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an environment of declining asset values, a borrower can become subject to
significant collateral calls. In addition, by the end of the third quarter, the
Company had borrowed money against substantially all of its assets and was
considering raising capital when the liquidity crisis developed.

Beginning in August 1998, and more significantly during the fourth quarter
of 1998, the Company was significantly and adversely affected by various market
factors. These factors, which are discussed further below, resulted in a
dramatic reduction in market valuations for mortgage-backed securities and
mortgage loans, as well as a reduction in the availability of borrowings for
those assets, thereby reducing the Company's liquidity. During this period, the
principal lenders on these assets--Wall Street investment banks--continually
marked these assets downward to reflect their view of market prices, which
resulted in collateral calls. Though all mortgage-backed securities declined in
value during this period (including "AAA" rated FNMA and FHLMC mortgage-backed
securities), mortgage-backed securities with lower ratings generally declined
more than mortgage-backed securities with higher ratings. As of September 30,
1998, approximately 29% of the Company's assets consisted of mortgage-backed
securities, of which 88% were below investment grade. In addition to
mortgage-backed securities, the Company's commercial and residential mortgage
loans also declined substantially in value. As of September 30, 1998,
approximately 61% of the Company's assets consisted of commercial and
residential mortgage loans.

Turmoil in the Russian financial markets, following a prolonged period of
uncertainty in Asian financial markets, caused investors to reassess their risk
tolerance. This resulted in a dramatic movement of liquidity toward less risky
assets (e.g., U.S. Treasury instruments) and away from higher risk assets,
including most non-investment grade assets and commercial and other mortgage-
and asset-backed securities. This movement toward higher quality investments
dramatically reduced available liquidity to non-investment grade assets. In
particular, the markets for mortgage-backed securities and pools of mortgage
loans experienced significant declines as Wall Street investment banks marked
these assets down--including illiquid and infrequently traded subordinate
mortgage-backed securities--to their view of the market price and lenders became
unwilling to lend against low-rated or un-rated mortgage-backed securities or
lower credit quality pools of mortgage loans. Without available funding sources,
many investors in mortgage-backed securities and pools of mortgage loans,
including several well-known hedge funds, were forced to liquidate holdings at
reduced prices. With greater sales pressure and supply outpacing demand, prices
for mortgage-backed securities and pools of mortgage loans continued to be
marked lower as more lenders made margin calls, demanding additional collateral
for their loan positions. Many companies were rapidly depleting available cash
reserves.

On October 12, 1998, another well-known hedge fund, which invested in lower
credit quality mortgage-backed securities and pools of mortgage loans, was
liquidated through an auction process precipitated by collateral calls by its
principal lender, a major Wall Street investment bank. This event triggered
further collateral calls, forcing additional companies to sell assets to cover
borrower collateral calls, and continuing the downward spiral in prices. On
October 15, 1998 the Federal Reserve lowered interest rates, largely in response
to this liquidity crisis.

In August and September of 1998, the Company received collateral calls of $
16.5 million, of which $7.3 million, $6.6 million, and $2.6 million were from
affiliates of Credit Suisse First Boston, Salomon Smith Barney and Bear Stearns,
respectively, which were generally paid in cash. In addition, in October 1998,
the Company repaid borrowings of $147.4 million, of which $124.9 million, $14.7
million, and $7.8 were from affiliates of Salomon Smith Barney Inc., Credit
Suisse First Boston Corporation and Bear Stearns & Co., Inc., respectively, from
the sale of mortgage-backed securities and loans. During the fourth quarter of
1998, the Company sold approximately $587.2 million of assets in response to the
above-described conditions to meet collateral calls by lenders and to increase
liquidity. The downward marks to market on assets and our need to sell assets to
meet these collateral calls resulted in our disposing of certain assets for
proceeds which resulted in a net loss of $56.4 million for the year ended
December 31, 1998.

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<PAGE>
INCOME TAX STATUS

The Company originally was formed with a view to qualifying as a REIT under
Sections 856 through 860 of the Code, and may seek to so qualify in the future.
Generally, a REIT is not subject to federal income taxation on that portion of
its income that qualifies as REIT taxable income, to the extent that it
distributes at least 95% of its REIT taxable income to shareholders by the due
date of the tax return and complies with certain other requirements. However, to
qualify as a REIT, the Company must first make an affirmative election to be
taxed as a REIT. As this election is not made until the time the Company files
its federal income tax return, the Company has not yet made the election to be
taxed as a REIT. Therefore, if the Company does not elect to be a REIT, it will
not be subject to the penalties for disqualification imposed upon REITs that in
previous tax years had elected REIT status. Such penalties include, without
limitation, being prohibited from again electing REIT status until the fifth
year after the election to not be taxed as a REIT.

RATIONALE FOR PROPOSED CHANGE

The significant asset sales by the Company in late 1998 and the resulting
losses have caused the Company to carefully reevaluate the Company's original
intention to qualify as a REIT, and the Board of Directors has concluded that
the Company and its shareholders will derive a greater benefit by not electing
to be a REIT at this time. As described more fully below, by not electing to be
a REIT at this time, the Company will

- gain the benefit of significant net operating loss carry forwards; and

- avoid any risk of not qualifying as a REIT.

TAX BENEFITS. At March, 31, 1999, the Company had, for federal income tax
purposes, a net operating loss carry forward ("NOL") in excess of $70 million,
which could be used to offset taxable income recognized by the Company in the
future if the Company does not elect to be a REIT. Because the tax rules
governing NOLs are extremely complex and subject to a number of contingencies,
the amount of NOLs actually obtained may vary from the estimate in the prior
sentence. NOLs benefit the Company by offsetting taxable income
dollar-for-dollar by the amount of the NOLs, thereby eliminating (subject to a
relatively minor alternative minimum tax) the federal corporate tax on such
income.

RISK OF NOT QUALIFYING. In addition, because the Company was forced to sell
assets in response to margin calls during the fourth quarter of 1998, it may be
more difficult for the Company to qualify as a REIT under U.S. tax rules.
Specifically, the amount and volume of sales resulting from such margin calls
may result in the Company being considered a "dealer" in real estate and
ineligible for treatment as a REIT. Though the Company has not sought an opinion
of counsel on this issue, the Company's tax advisors have reviewed this issue
and indicated that such asset sales raise doubts as to the Company's ability to
qualify. In the event that the Company elects to be treated as a REIT and the
U.S. tax authorities determine that the Company does not meet the REIT
requirements, the Company would become subject to federal income tax on its
taxable income and would not receive a deduction for dividends paid to
shareholders. In addition, the Company would not be able to utilize its NOLs and
could be subject to interest and penalties for failure to have paid taxes for
the 1998 tax year.

OTHER IMPORTANT CONSIDERATIONS

If the Company does not elect to become a REIT, the Company would also take
the following actions:

- Change its Dividend Policy.

- Allow shareholders to vote on any decision to be a REIT in the future.

- Maintain certain ownership restrictions designed to allow future REIT
Qualification.

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- Maintain High Leverage.

- Discuss Incentive Fee with WRSC.

DIVIDEND POLICY. In order to qualify as a REIT, a company is required to
distribute at least 95% of its taxable income to its shareholders. If the
Company does not elect to become a REIT, the Company would change its dividend
policy and cease paying dividends. The Company believes that it would be in the
best interest of the Company to retain its earnings to support future growth.

SHAREHOLDERS VOTE ON FUTURE REIT ELECTION. If the shareholders approve the
Proposal to amend the Company's Charter to enable the Company to not elect to
become a REIT, the Company would also amend the Charter to allow shareholders to
vote on any future decision to become a REIT. As discussed below, the Company
may consider electing REIT status once the Company's NOLs are fully utilized or
expire. Any such decision would require the affirmative vote of the holders of a
majority of shares present and voting (in person or by proxy) at a shareholders
meeting at which a quorum is present.

OWNERSHIP RESTRICTIONS. If the shareholders approve the Proposal to amend
the Company's Charter to enable the Company to not elect to become a REIT, the
Company would nonetheless maintain the ownership restrictions (generally
limiting any shareholder to not more than 9.8% interest in the Company)
contained in the Company's Charter which are designed to maintain the Company's
ability to qualify as a REIT. The Company intends to maintain these restrictions
to ensure that the Company could qualify as a REIT in the event that the Company
elects to become a REIT in the future. These ownership restrictions also tend to
discourage a takeover or other transaction in which holders of common stock
might receive a premium over the then prevailing market price.

MAINTAIN EXTERNAL MANAGEMENT AND HIGH LEVERAGE. If the shareholders approve
the Proposal to amend the Company's Charter to enable the Company to not elect
to become a REIT, the Company is expected to maintain its policy of external
management and high leverage. The Company is currently externally managed by
WRSC pursuant to the Management Agreement, for which the Company pays a
management fee to WRSC. Though the Company's independent directors have been
considering having the Company hire employees and become internally managed due
to concerns about WRSC's ability to perform its obligations under the Management
Agreement and in light of the Management Agreement coming up for renewal next
year, it is unlikely that the Company will become internally managed or retain
any employees while it remains obligated to pay a management fee to WRSC. The
Company expects to continue to leverage its assets though the Company is
currently seeking to refinance its short term repurchase agreements with longer
term borrowings which are less susceptible to changes in the market value of the
underlying collateral. There can be no assurance that the Company can obtain any
such financing on acceptable terms.

DISCUSS INCENTIVE FEE WITH WRSC. In addition to the management fee payable
to WRSC, the Company is also obligated to pay an incentive fee based on Funds
from Operations to WRSC pursuant to the Management Agreement. Funds from
Operations is a commonly used measure for evaluating the financial performance
of REITs. The Company believes that it will not be adversely affected by
maintaining an incentive fee based on Funds from Operations if the Company does
not elect to be a REIT. Nonetheless, the Company expects to discuss this issue
with WRSC and consider more appropriate measures.

FUTURE REIT ELECTION

The Company believes that the tax characteristics of a REIT (e.g. no federal
income tax at the corporate level) may be beneficial to the Company and its
shareholders once the Company's NOLs are fully utilized or expire, and the
Company wishes to preserve its ability to elect REIT status in the future. The
Company believes that given the current level of NOLs (at least $70 million as
of March 31, 1999), the earliest year for which it might elect to be a REIT
would be 2001 taxable year. The Company believes that

18
<PAGE>
given the inherent uncertainties in projecting future earnings against which the
NOLs could be applied, any such election may occur only in later years. If the
Company does not at that point elect REIT status, the full amount of the
Company's net income would then be subject to federal income taxation.

For the reasons described above, the Board of Directors has unanimously
adopted resolutions declaring the advisability of, and submits to the
shareholders for approval, an amendment to the Charter to permit the Company to
elect not to be taxed as a REIT under Section 856 of the Code (the "Amended
Charter"). At present, Article VIII of the Charter provides that no action to
disqualify the Company as a REIT or to amend or remove the transfer restrictions
on the Company's Common Stock be taken without the approval of not less than 80%
of the Board of Directors and the holders of two-thirds of the shares of Common
Stock entitled to vote on the matter and Article IX provides that, upon the
occurrence of such approval, the transfer restrictions will terminate.

Under the provisions of the Amended Charter, the Company may elect to be
taxed as a REIT only upon the affirmative vote of 80% of the Board of Directors
and the affirmative vote of a majority of shares present (in person or by proxy)
at a shareholders meeting at which a quorum is present. Once such election has
been made, however, only the approval of at least 80% of the Board of Directors
would be required to revoke it. Further, the transfer restrictions will remain
in effect from the date of the Annual Meeting until the Company determines that
they are no longer necessary (if the Company is not a REIT) or such restrictions
are no longer required to maintain REIT status generally (if the Company has
subsequently elected REIT status). The text of the Amended Charter, marked to
show changes from the Company's current Charter, is attached as Appendix A to
this Proxy Statement.

The affirmative vote of two-thirds of the shares of Common Stock entitled to
vote on the matter is required to approve the Amended Charter. If the Amended
Charter is approved by the shareholders, it will become effective upon the
filing of a Certificate of Amendment in accordance with the MGCL. IN LIGHT OF
THE POTENTIAL ADVERSE CONSEQUENCES OF SUCH AN ELECTION AND THE BENEFITS
ASSOCIATED WITH NOT ELECTING REIT STATUS, THE BOARD OF DIRECTORS STRONGLY URGES
YOU TO VOTE IN FAVOR OF THIS PROPOSAL. If not otherwise specified, proxies will
be voted IN FAVOR of this proposal.

PROPOSAL NO. 4
PROPOSAL TO AMEND THE COMPANY'S
CHARTER TO CHANGE THE NAME OF THE CORPORATION

The Board of Directors has unanimously adopted resolutions declaring the
advisability of, and submits to the stockholders for approval, an amendment to
the Company's Charter that, in the event the Company's shareholders approve
Proposal 3, will be filed to effect Proposal 3 and to change the name of the
Company from "Wilshire Real Estate Investment Trust Inc." to "Wilshire Real
Estate Investment Inc."

If Proposal 3 is approved, upon the effectiveness of the Amended Charter,
the Company will no longer be required to elect to be a real estate investment
trust, and the Company may elect to be taxed as a corporation. The Board of
Directors therefore believes that it is in the best interests of the Company
that its name not be misleading to the public, and that it therefore be changed
to reflect the fact that the Company is not a real estate investment trust. The
Amended Charter therefore contains a provision effecting such name change.

The affirmative vote of the holders of a majority of the Common Stock
entitled to vote on the matter is required to approve the name change. If the
name change is approved by the shareholders, it will become effective upon the
filing of the Amended Charter in accordance with the MGCL. The Board of
Directors recommends a vote IN FAVOR of the name change. If not otherwise
specified, proxies will be voted IN FAVOR of this proposal.

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<PAGE>
PROPOSALS OF SHAREHOLDERS

If a shareholder notifies the Company after April 28, 2000 of an intent to
present a proposal at the Company's annual meeting in 2000, the Company will
have the right to exercise its discretionary voting authority with respect to
such proposal, if presented at the meeting, without including information
regarding such proposal in its proxy materials. Shareholders of the Corporation
wishing to include proposals in the proxy material in relation to the annual
meeting in 2000 must submit the same in writing so as to be received by the
Corporate Secretary at the principal executive offices of the Company at 1776 SW
Madison Street, Portland, OR 97205, no later than the close of business on April
28, 2000. Such proposals must also meet the other requirements of the rules of
the Securities and Exchange Commission relating to shareholders' proposals.

By order of the Board of Directors

/s/ Andrew A. Wiederhorn

Andrew A. Wiederhorn
Chairman and Chief Executive Officer

August 20, 1999

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<PAGE>
APPENDIX A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
WILSHIRE REAL ESTATE INVESTMENT TRUST INC.
(A STOCK CORPORATION)

Wilshire Real Estate Investment Trust Inc., a Maryland corporation having
its principal office in the State of Maryland in Baltimore City, Maryland
(hereinafter called the "CORPORATION"), hereby certifies to the State Department
of Assessments and Taxation of Maryland (the "SDAT") that:

FIRST: The CHARTER of the Corporation is hereby amended and restated in
its entirety as follows:

The name of the corporation (which is hereinafter called the "Corporation") is:
WILSHIRE REAL ESTATE INVESTMENT INC.

II.

The purpose for which this Corporation is formed is to transact any and all
lawful act or activity for which corporations may be organized under the General
Laws of the State of Maryland now or hereafter in force.

III.

The total number of shares of stock of all classes which the Corporation has
authority to issue is 225,000,000 shares of capital stock (par value $.0001 per
share), of which 200,000,000 shares are initially classified as "Common Stock"
and 25,000,000 shares are initially classified "Preferred Stock." The aggregate
par value of all authorized shares of stock having par value is $22,500. The
Board of Directors may classify and reclassify any unissued shares of capital
stock by setting or changing in any one or more respects the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, or terms or conditions of redemption of such shares
of capital stock.

No holder of any stock or any other securities of the Corporation, whether
now or hereafter authorized, shall have any preemptive right to subscribe for or
purchase any stock or any other securities of the Corporation, including,
without limitation: (i) any shares of any class of the Corporation; (ii) any
warrants, rights, or options to purchase any such shares; or (iii) any
securities or obligations convertible into any such shares or into warrants,
rights, or options to purchase any such shares.

The Board of Directors is hereby empowered to authorize the issuance from
time to time of shares of its stock of any class, whether now or hereafter
authorized, or securities convertible into shares of its stock of any class or
classes, whether now or hereafter authorized, for such consideration as may be
deemed advisable by the Board of Directors and without any action by the
stockholders. Also, the Preferred Stock may be issued from time to time by the
Board of Directors of the Corporation, in such series and with such preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, or other provisions as may be fixed by the Board of
Directors without any action by the stockholders.

IV.

The present address of the principal office of the Corporation in this State
is 11 East Chase Street, Suite 9E, Baltimore, Maryland 21202.
<PAGE>
V.

The name and address of the resident agent of the Corporation in this State
are CSC-Lawyers Incorporating Service Company, 11 East Chase Street, Suite 9E,
Baltimore, Maryland 21202. Said resident agent is a Maryland corporation.

VI.

A. The number of directors of the Corporation shall be five (5), which
number may be increased or decreased pursuant to the Bylaws of the Corporation;
provided that in no case shall the Board of Directors consist of less than three
(3) or more than nine (9) members unless otherwise determined from time to time
by resolution adopted by the affirmative vote of at least eighty percent (80%)
of the members of the Board of Directors; provided further that in any case the
number of directors of the Corporation shall never be less than the minimum
number permitted by the General Laws of the State of Maryland now or hereafter
in force. Any director, or the entire Board of Directors, may be removed from
office at any time, but only for cause and then only by the affirmative vote of
not less than two-thirds ( 2/3) of all the votes entitled to be cast by the
outstanding shares of capital stock of the Corporation generally in the election
of directors which are cast on the matter at any meeting of the stockholders
called for that purpose, voting together for this purpose as a single class. A
director need not be a stockholder. At each annual meeting of the stockholders,
the stockholders shall elect directors to serve a one (1) year term and until
successors are elected and qualify.

B. The following Persons are the current directors of the Corporation, to
serve until their successors are elected and qualified: Andrew Wiederhorn,
Lawrence Mendelsohn, David Egelhoff, Jordan Schnitzer and Patrick Terrell.

C. Notwithstanding anything herein to the contrary, at all times (except
during a period not to exceed sixty (60) days following the death, resignation,
incapacity, or removal from office of a director prior to expiration of the
director's term of office), a majority of the Board of Directors shall be
"Independent Directors." "Independent Director" shall mean a director who,
within the last two years, has not (i) been employed by WFSG or any of its
Affiliates, (ii) been an officer or director of WFSG or any of its Affiliates,
(iii) or whose business or employer within the last two years has not performed
services for WFSG or any of its Affiliates that annually exceeded the lesser of
(a) the dollar amount provided in Item 404(a) of Regulation S-K or (b) 10% of
the gross revenue of the entity that provided such services, or (iv) had any
material business or professional relationship with WFSG or any of its
Affiliates. "WFSG" shall mean Wilshire Financial Services Group Inc., a Delaware
corporation. "Affiliate" shall mean (i) any person directly or indirectly
owning, controlling, or holding, with power to vote ten percent or more of the
outstanding voting securities of such other person, (ii) any person ten percent
or more of whose outstanding voting securities are directly or indirectly owned,
controlled, or held, with power to vote, by such other person, (iii) any person
directly or indirectly controlling, controlled by, or under common control with
such other person, (iv) any executive officer, director, trustee or general
partner of such other person, and (v) any legal entity for which such person
acts as an executive officer, director, trustee or general partner. The term
"person" means and includes any natural person, corporation, partnership,
association, limited liability company or any other legal entity. An indirect
relationship shall include circumstances in which a person's spouse, children,
parents, siblings or mothers-, fathers-, sisters- or brothers-in-law is or has
been associated with a person.

D. To the extent permitted by applicable law, and subject to such approval
of the Independent Directors and such other conditions, if any, as may be
required by any applicable law or other applicable rule or regulation, the Board
of Directors may engage a manager to advise the Board of Directors and be
responsible for directing the day-to-day affairs of the Corporation (a
"Manager") pursuant to a written agreement (a "Management Agreement"). The
approval of any Management Agreement and the renewal or termination thereof
shall require the affirmative vote of a majority of the Independent Directors.

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E. A majority of the Independent Directors shall approve general guidelines
("Guidelines") for the Corporation's investments, borrowings and operations, and
the Independent Directors shall conduct a quarterly review of all transactions
engaged in by the Corporation. The Independent Directors shall approve any
transactions with WFSG or any Affiliate of WFSG, in advance, to insure
compliance with the Guidelines.

F. Notwithstanding any other provisions of the Charter or the Bylaws of the
Corporation (and notwithstanding that some lesser percentage may be specified by
law, the Charter or the Bylaws of the Corporation), the provisions of this
Article VI shall not be amended, altered, changed, or repealed, and no provision
inconsistent with this Article VI shall be adopted, without the affirmative vote
of at least eighty percent (80%) of the members of the Board of Directors and by
the affirmative vote of not less than two-thirds ( 2/3) of all the votes
entitled to be cast by the outstanding shares of capital stock of the
Corporation generally in the election of directors which are cast on the matter
at any meeting of the stockholders called for that purpose, voting together for
this purpose as a single class.

VII.

A. The Corporation shall indemnify (A) its directors and officers, whether
serving the Corporation or, at its request, any other entity, to the full extent
required or permitted by the General Laws of the State of Maryland now or
hereafter in force, including the advance of expenses under the procedures and
to the full extent permitted by law and (B) other employees and agents to such
extent as shall be authorized by the Board of Directors of the Corporation or
the Corporation's Bylaws and be permitted by law. The foregoing rights of
indemnification shall not be exclusive of any other rights to which those
seeking indemnification may be entitled. The Board of Directors may take such
action as is necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve, and amend from time to time such bylaws,
resolutions, or contracts, implementing such provisions or such further
indemnification arrangements as may be permitted by law. No amendment of the
Charter of the Corporation or repeal of any of its provisions shall limit or
eliminate the right to indemnification provided hereunder with respect to acts
or omissions occurring prior to such amendment or repeal.

B. To the fullest extent permitted by Maryland statutory or decisional law,
as amended or interpreted, no director or officer of this Corporation shall be
personally liable to the Corporation or its stockholders for money damages. No
amendment of the Charter of the Corporation or repeal of any of its provisions
shall limit or eliminate the limitation on liability provided to directors and
officers hereunder with respect to any act or omission occurring prior to such
amendment or repeal.

VIII.

The Corporation shall not, without the affirmative vote of at least eighty
percent (80%) of the members of the Board of Directors and the affirmative vote
of a majority of shares present in person or represented by proxy at any meeting
of the stockholders called for that purpose at which a quorum is present, seek
to elect to be taxed as a real estate investment trust ("REIT") under Section
856 under the Internal Revenue Code of 1986, as amended from time to time (the
"Code"). However, in the event the Board of Directors and the stockholders
should so vote, (i) it shall be the duty of the Board of Directors to ensure
that the Corporation satisfies the requirements for qualification as a REIT
under the Code, including, but not limited to, the ownership of its outstanding
stock, the nature of its assets, the sources of its income, and the amount and
timing of its distributions to its stockholders, and (ii) the Board of Directors
shall take no action thereafter to disqualify the Corporation as a REIT or to
otherwise revoke the Corporation's election to be taxed as a REIT without the
affirmative vote of at least eighty percent (80%) of the members of the Board of
Directors.

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<PAGE>
IX.

A. Restrictions on Transfer.

1. Definitions. The following terms shall have the following meanings:

"Beneficial Ownership" shall mean ownership of shares of Equity Stock by
a Person who would be treated as an owner of such shares of Equity Stock either
directly or indirectly through the application of Section 544 of the Code, as
modified by Section 856(h)(1)(B) of the Code. The terms "Beneficial Owner,"
"Beneficially Owns," and "Beneficially Owned" shall have correlative meanings.

"Beneficiary" shall mean, with respect to any Trust, one or more
organizations described in each of Section 170(b)(1)(A) (other than clauses
(vii) or (viii) thereof) and Section 170(c)(2) of the Code that are named by the
Corporation as the beneficiary or beneficiaries of such Trust, in accordance
with the provisions of Section (B)(1) of Article IX hereof.

"Board of Directors" shall mean the Board of Directors of the
Corporation.

"Closing Price" on any date shall mean the average of the high bid and
low asked prices in the over-the-counter market, as reported by The Nasdaq Stock
Market, or, if such system is no longer in use, the principal other automated
quotations system that may then be in use or, if the shares of Equity Stock are
not quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the shares
of Equity Stock selected by the Board of Directors.

"Constructive Ownership" shall mean ownership of shares of Equity Stock
by a Person who would be treated as an owner of such shares of Equity Stock
either directly or indirectly through the application of Section 318 of the
Code, as modified by Section 856(d)(5) of the Code. The terms "Constructive
Owner," "Constructively Owns," and "Constructively Owned" shall have correlative
meanings.

"Disqualified Person" means (A) the United States, any State or
political subdivision thereof, any foreign government, any international
organization, or any agency or instrumentality of any of the foregoing, (B) any
organization (other than a cooperative described in Section 521 of the Code)
which is exempt from tax unless such organization is subject to the tax imposed
by Section 511 of the Code, and (C) any organization described in Section
1381(a)(2)(c) of the Code.

"Equity Stock" shall mean Preferred Stock and Common Stock of the
Corporation. The term "Equity Stock" shall include all shares of Preferred Stock
and Common Stock of the Corporation that are held as Shares-in-Trust in
accordance with the provisions of Section (B) of Article IX hereof.

"Market Price" on any date shall mean the average of the Closing Price
for the five consecutive Trading Days ending on such date.

"Non-Transfer Event" shall mean an event other than a purported Transfer
that would cause any Person to Beneficially Own or Constructively Own shares of
Equity Stock in excess of the Ownership Limit, including, but not limited to,
the granting of any option or entering into any agreement for the sale,
transfer, or other disposition of shares of Equity Stock or the sale, transfer,
assignment, or other disposition of any securities or rights convertible into or
exchangeable for shares of Equity Stock.

"Operating Partnership" shall mean Wilshire Real Estate Partnership
L.P., a Delaware limited partnership.

"Operating Partnership Agreement" shall mean the agreement of limited
partnership governing the Operating Partnership.

A-4
<PAGE>
"Ownership Limit" shall mean the restriction on ownership (or deemed
ownership by virtue of the attribution provisions of the Code) of more than 9.8%
of the number of shares or value (whichever is more restrictive) of the
outstanding Common Stock by any Person other than Wilshire Financial Services
Group Inc., a Delaware corporation ("WFSG"), or twenty percent (20%) of the
number of shares or value (whichever is more restrictive) of Common Stock by
WFSG (provided that the Board of Directors has obtained representations and
undertakings from WFSG in form and substance satisfactory to the Board of
Directors in its sole discretion as it may deem necessary or advisable in order
to determine that WFSG's Beneficial Ownership or Constructive Ownership will not
impair the Corporation's qualification to elect to be taxed as a REIT and
provided further that WFSG agrees that any actual or attempted violation of such
representations or undertakings (or other action which is contrary to the
restrictions contained in Section (A)(2) of Article IX hereof) will result in
the transfer of such Equity Stock to a Trustee in his capacity as trustee of a
Trust in accordance with Section (A)(3) of Article IX hereof) or 9.8% of the
number of shares or value (whichever is more restrictive) of the outstanding
Preferred Stock (or such other number or value of Preferred Stock as the Board
of Directors may determine in fixing the terms of the Preferred Stock). In
determining the Ownership Limit, the number and value of Common Stock and/or
Preferred Stock of the Corporation shall be determined by the Board in good
faith, which determination shall be conclusive for all purposes hereof.

"Permitted Transferee" shall mean any Person designated as a Permitted
Transferee in accordance with the provisions of Section (B)(5) of Article IX
hereof.

"Person" shall mean an individual, corporation, limited liability company,
partnership, estate, trust, a portion of a trust permanently set aside for or to
be used exclusively for the purposes described in Section 642(c) of the Code,
association, private foundation within the meaning of Section 509(a) of the
Code, joint stock company, or other entity and also includes a "group" as that
term is used for purposes of Section 13(d)(3) of the Securities Exchange Act of
1934, as amended.

"Prohibited Owner" shall mean, with respect to any purported Transfer or
Non-Transfer Event, any Person who, but for the provisions of Section (A)(3) of
Article IX hereof, would be the actual owner (within the meaning of Treasury
Regulation Section 1.857-8(b)) of shares of Equity Stock.

"Redemption Rights" shall mean the rights granted under the Operating
Partnership Agreement to the limited partners to redeem, under certain
circumstances, their limited partnership interests for shares of Common Stock
(or cash at the option of the Corporation).

"REIT Disqualification Meeting" shall mean an annual or special meeting of
the stockholders of the Corporation at which a proposal to delete provisions of
the Articles of Incorporation that require the Corporation to elect to be taxed
as a REIT is approved by the affirmative vote of not less than two-thirds ( 2/3)
of all the votes entitled to be cast by the outstanding shares of the capital
stock of the Corporation on the matter, voting together for this purpose as a
single class.

"Restriction Termination Date" shall mean (A) if the Corporation has elected
not to be taxed as a REIT, the first day after at least 80% of the Board of
Directors determines in writing that it is no longer in the best interests of
the Corporation to retain the restrictions on transfer and ownership contained
in Article IX; or (B) if the Corporation has elected to be taxed as a REIT, the
first day after (i) at least 80% of the Board of Directors determines in writing
that it is no longer in the best interests of the Corporation to retain the
restrictions on transfer and ownership contained in Article IX and (ii) such
restrictions are no longer required for the Corporation to qualify, or to
continue to qualify, as a REIT.

"Shares-in-Trust" shall mean any shares of Equity Stock designated
Shares-in-Trust pursuant to Section (A)(3) of Article IX hereof.

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"Tax Benefits" shall mean the Corporation's net operating loss
carryforwards, capital loss carryforwards and built-in losses.

"Tenant" shall mean any Person (other than an individual) from whom the
Corporation derives (or is deemed to derive for purposes of applying Section 856
of the Code to the Corporation), directly or indirectly, gross income.

"Tenant Interest" shall mean an interest, expressed as a percentage, of the
total combined voting power or total number of shares of all classes of stock of
a Tenant that is a corporation, or an interest, expressed as a percentage, of
the assets or net profits (within the meaning of Section 856(d)(2)(B) of the
Code) of a Tenant that is not a corporation.

"Trading Day" shall mean any day other than a Saturday, a Sunday, or a day
on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.

"Transfer" shall mean any sale, transfer, gift, assignment, devise, or other
disposition of shares of Equity Stock, whether voluntary or involuntary, whether
of record, constructively or beneficially, and whether by operation of law or
otherwise.

"Trust" shall mean any separate trust created pursuant to Section (A)(3) of
Article IX hereof and administered in accordance with the terms of Section (B)
of Article IX hereof, for the exclusive benefit of any Beneficiary.

"Trustee" shall mean any Person or entity unaffiliated with both the
Corporation and any Prohibited Owner, such Trustee to be designated by the
Corporation to act as trustee of any Trust, or any successor trustee thereof.

2. Restriction on Transfers.

a. Except as provided in Section (A)(7) of Article IX hereof, from the
date of A REIT DISQUALIFICATION MEETING and prior to the Restriction
Termination Date, (i) no Person shall Beneficially Own or Constructively Own
outstanding shares of Equity Stock in excess of the Ownership Limit and (ii)
any Transfer that, if effective, would result in any Person Beneficially
Owning or Constructively Owning shares of Equity Stock in excess of the
Ownership Limit shall be void AB INITIO as to the Transfer of that number of
shares of Equity Stock which would be otherwise Beneficially Owned or
Constructively Owned by such Person in excess of the Ownership Limit, and
the intended transferee shall acquire no rights in such excess shares of
Equity Stock.

b. Except as provided in Section (A)(7) of Article IX hereof, from the
date of A REIT DISQUALIFICATION MEETING and prior to the Restriction
Termination Date, any Transfer that, if effective, would result in shares of
Equity Stock being beneficially owned by fewer than 100 Persons (determined
without reference to any rules of attribution) shall be void AB INITIO as to
the Transfer of that number of shares which would be otherwise beneficially
owned (determined without reference to any rules of attribution) by the
transferee, and the intended transferee shall acquire no rights in such
shares of Equity Stock.

c. From the date of A REIT DISQUALIFICATION MEETING and prior to the
Restriction Termination Date, any Transfer of shares of Equity Stock that,
if effective, would result in the Corporation being "closely held" within
the meaning of Section 856(h) of the Code shall be void AB INITIO as to the
Transfer of that number of shares of Equity Stock which would cause the
Corporation to be "closely held" within the meaning of Section 856(h) of the
Code, and the intended transferee shall acquire no rights in such shares of
Equity Stock.

d. From the date of A REIT DISQUALIFICATION MEETING and prior to the
Restriction Termination Date, any Transfer of shares of Equity Stock that,
if effective, would cause the Corporation to Constructively Own a Tenant
Interest of ten percent (10%) or more shall be void AB INITIO as to the

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Transfer of that number of shares of Equity Stock which would cause the
Corporation to Constructively Own a Tenant Interest of ten percent (10%) or
more and the intended transferee shall acquire no rights in such excess
shares of Equity Stock.

e. From the date of A REIT DISQUALIFICATION MEETING and prior to the
Restriction Termination Date, any Transfer of shares of Equity Stock that,
if effective, would result in shares of Equity Stock being Beneficially
Owned by a Disqualified Person shall be void AB INITIO as to the Transfer of
that number of shares which would be otherwise Beneficially Owned by the
transferee, and the intended transferee shall acquire no rights in such
shares of Equity Stock.

f. It is expressly intended that the restrictions on ownership and
Transfer described in this Section (A)(2) of Article IX shall apply to the
Redemption Rights. Notwithstanding any of the provisions of the Operating
Partnership Agreement to the contrary, a partner of the Operating
Partnership shall not be entitled to effect an exchange of an interest in
the Operating Partnership for Common Stock if the Beneficial Ownership or
Constructive Ownership of Common Stock would be prohibited under the
provisions of this Article IX.

3. Transfer to Trust.

a. If, notwithstanding the other provisions contained in this Section
(A) of Article IX, at any time after A REIT DISQUALIFICATION MEETING and
prior to the Restriction Termination Date, there is a purported Transfer or
Non-Transfer Event such that any Person would either Beneficially Own or
Constructively Own shares of Equity Stock in excess of the Ownership Limit,
then, (i) except as otherwise provided in Section (A)(7) of Article IX
hereof, the purported transferee shall acquire no right or interest (or, in
the case of a Non-Transfer Event, the actual owner (within the meaning of
Treasury Regulation Section 1.857-8(b)) of the shares of Equity Stock
Beneficially Owned or, Constructively Owned by such Beneficial Owner or
Constructive Owner, shall cease to own any right or interest) in such number
of shares of Equity Stock which would cause such Beneficial Owner or
Constructive Owner to Beneficially Own or Constructively Own shares of
Equity Stock in excess of the Ownership Limit, (ii) such number of shares of
Equity Stock in excess of the Ownership Limit (rounded up to the nearest
whole share) shall be designated Shares-in-Trust and, in accordance with the
provisions of Section (B) of Article IX hereof, transferred automatically
and by operation of law to a Trustee in his capacity as trustee of a Trust
to be held in accordance with that Section (B) of Article IX, and (iii) the
Prohibited Owner shall submit such number of shares of Equity Stock to the
Corporation for registration in the name of the Trustee. Such transfer to a
Trustee and the designation of shares as Shares-in-Trust shall be effective
as of the close of business on the business day prior to the date of the
Transfer or Non-Transfer Event, as the case may be.

b. If, notwithstanding the other provisions contained in this Section
(A) of Article IX (after application of paragraph (a) above), at any time
after A REIT DISQUALIFICATION MEETING and prior to the Restriction
Termination Date, there is a purported Transfer or Non-Transfer Event that,
if effective, would (i) result in the shares of Equity Stock being
Beneficially Owned by fewer than 100 Persons (determined without reference
to any rules of attribution), (ii) result in the Corporation being "closely
held" within the meaning of Section 856(h) of the Code, or (iii) cause the
corporation to Constructively Own a Tenant Interest of ten percent (10%) or
more, or (iv) result in the shares of Equity Stock being Beneficially Owned
by a Disqualified Person, then (x) the purported transferee shall not
acquire any right or interest (or, in the case of a Non-Transfer Event, the
Person who, but for the provisions of this Section (A)(3), would be the
actual owner (within the meaning of Treasury Regulation Section 1.857-8(b))
of the shares of Equity Stock with respect to which such Non-Transfer Event
occurred, shall cease to own any right or interest) in such number of shares
of Equity Stock, the ownership of which by such purported transferee or
purported actual owner would (A) result in the shares of Equity Stock being
beneficially owned by fewer than 100 Persons (determined without reference
to any rules of attribution), (B) result in the Corporation being "closely
held" within the

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meaning of Section 856(h) of the Code, (C) cause the Corporation to
Constructively Own a Tenant Interest of ten percent (10%) or more or (D)
result in the shares of Equity Stock being Beneficially Owned by a
Disqualified Person, (y) such number of shares of Equity Stock (rounded up
to the nearest whole share) shall be designated Shares-in-Trust and, in
accordance with the provisions of Section (B) of Article IX hereof,
transferred automatically and by operation of law to a Trustee in his
capacity as trustee of a Trust to be held in accordance with that Section
(B) of Article IX, and (z) the Prohibited Owner shall submit such number of
shares of Equity Stock to the Corporation for registration in the name of
the Trustee. Such transfer to a Trustee in his capacity as trustee of a
Trust and the designation of shares as Shares-in-Trust shall be effective as
of the close of business on the business day prior to the date of the
Transfer or Non-Transfer Event, as the case may be.

4. Remedies for Breach. If the Corporation, or its designees, shall at any
time determine in good faith that a Transfer or Non-Transfer Event has taken
place that, if effective, would result in a violation of Section (A)(2) of
Article IX hereof or that a Person intends to acquire or has attempted to
acquire Beneficial Ownership or Constructive Ownership of any shares of Equity
Stock in violation of Section (A)(2) of Article IX hereof, the Corporation shall
take such action as it deems advisable to refuse to give effect to or to prevent
such Transfer or acquisition of Beneficial Ownership or Constructive Ownership,
including, but not limited to, causing the Corporation to redeem shares of
Equity Stock, refusing to give effect to such Transfer on the books of the
Corporation or instituting proceedings to enjoin such Transfer or acquisition.

5. Notice of Restricted Transfer. Any Person who acquires or attempts to
acquire Beneficial Ownership or Constructive Ownership of shares of Equity Stock
in violation of Section (A)(2) of Article IX hereof, or any Person who owned
shares of Equity Stock that were transferred to a Trustee in his capacity as
trustee of a Trust pursuant to the provisions of Section (A)(3) of Article IX
hereto, shall immediately give written notice to the Corporation of such event
and shall provide to the Corporation such other information as the Corporation
may request in order to determine the effect, if any, of such Transfer or
Non-Transfer Event, as the case may be, on the Corporation's status as a REIT.

6. Owners Required To Provide Information. From the date of a REIT
Disqualification Meeting and prior to the Restriction Termination Date:

a. Every Beneficial Owner or Constructive Owner of more than five
percent (5%), or such lower percentages as required pursuant to regulations
under the Code, of the outstanding shares of all classes of capital stock of
the Corporation shall, within thirty (30) days after January 1 of each year,
provide to the Corporation a written statement or affidavit stating the name
and address of such Beneficial Owner or Constructive Owner, the number of
shares of Equity Stock Beneficially Owned or Constructively Owned, and a
description of how such shares are held. Each such Beneficial Owner or
Constructive Owner shall provide to the Corporation such additional
information as the Corporation may request in order to determine the effect,
if any, of such Beneficial Ownership or Constructive Ownership on the
Corporation's status as a REIT and to ensure compliance with the
restrictions on ownership set forth in this Article IX.

b. Each Person (including the stockholder of record) who is holding
shares of Equity Stock for a Beneficial Owner or Constructive Owner shall
provide to the Corporation a written statement or affidavit stating such
information as the Corporation may request in order to determine the
Corporation's qualification to elect to be taxed as a REIT and to ensure
compliance with the Ownership Limit.

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7. Exceptions.

a. The provisions of Section (A)(2) of Article IX hereof shall not
apply to the acquisition of shares of Equity Stock by an underwriter that
participates in a public offering of such shares or securities
convertible into such shares for a period of ninety (90) days following
the purchase by such underwriter of such shares provided that the
restrictions contained in Section (A)(2) of Article IX hereof will not be
violated following the distribution by such underwriter of such shares.

b. The Board of Directors, in its sole discretion, may exempt a
Person from the restrictions set forth in Section (A)(2) of this Article
IX if:

(i) the Board of Directors obtains such representations and undertakings
from such Person as are deemed by the Board of Directors to be
reasonably necessary to ascertain that no individual's Beneficial
Ownership of shares of Equity Stock will violate the restrictions
set forth in Section (A)(2) of this Article IX or that any such
violation will not cause the Corporation to fail to qualify as a
REIT under the Code, and such Person agrees that any actual or
attempted violation of such representations or undertakings (or
other action which is contrary to the restrictions contained in
Section (A)(2) of this Article IX) will result in the transfer of
such Equity Stock to a Trustee in his capacity as trustee of a Trust
in accordance with Section (A)(3) of this Article IX; or

(ii) such Person does not own, and represents that it will not own,
actually or Constructively, a Tenant Interest that would cause the
Corporation to own, actually or Constructively, a Tenant Interest
of more than 9.8%, the Corporation obtains such other
representations and undertakings from such Person (or any other
Person who could be treated as Constructively Owning the Equity
Shares actually or Constructively Owned by such Person) as are
deemed by the Board of Directors to be reasonably necessary to
ascertain this fact and such Person agrees that any actual or
attempted violation of such representations or undertakings will
result in the transfer of such Equity Stock to a Trustee in his
capacity as trustee of a Trust in accordance with Section (A)(3) of
this Article IX. Notwithstanding the foregoing, the inability of a
Person to make the certification described in this paragraph shall
not prevent the Board of Directors, in its sole discretion, from
exempting such Person from the restrictions set forth in Section
(A)(2) of this Article IX if the Board of Directors determines that
the resulting application of Section 856(d)(2)(B) of the Code would
affect the characterization of less than 0.5% of the gross income
(as such term is used in Section 856(c)(2) of the Code) of the
Corporation in any taxable year.

c. Prior to granting any exception pursuant to Section (A)(7)(b)(i)
or (ii) of this Article IX, the Board of Directors may require a ruling
from the IRS, or an opinion of counsel, in either case in form and
substance satisfactory to the Board of Directors in its sole discretion,
as it may deem necessary or advisable in order to determine or ensure the
Corporation's qualification to elect to be taxed as a REIT or otherwise
would not affect the Corporation's qualification to elect to be taxed as
a REIT.

B. Shares-in-Trust.

1. Trust. Any shares of Equity Stock transferred to a Trustee in his
capacity as trustee of a Trust and designated Shares-in-Trust pursuant to
Section (A)(3) of Article IX hereof shall be held for the exclusive benefit
of the Beneficiary. The Corporation shall name a Beneficiary (such that the
shares of Equity Stock held in the Trust would not violate the restrictions
set forth in Section (A)(2) of Article IX hereof) for each Trust within five
(5) days after discovery of the existence thereof. Any transfer to a Trust,
and subsequent designation of shares of Equity Stock as Shares-in-Trust,
pursuant to Section (A)(3) of Article IX hereof shall be effective as of the
close of business on the business day prior to the date of the Transfer or
Non-Transfer Event that results in the transfer to the Trust.
Shares-in-Trust shall remain issued and outstanding shares of Equity Stock
of the Corporation and

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shall be entitled to the same rights and privileges on identical terms and
conditions as are all other issued and outstanding shares of Equity Stock of
the same class and series. When transferred to a Permitted Transferee in
accordance with the provisions of Section (B)(5) of Article IX hereof, such
Shares-in-Trust shall cease to be designated as Shares-in-Trust.

2. Dividend Rights. The Trust, as record holder of Shares-in-Trust,
shall be entitled to receive all dividends and distributions as may be
declared by the Board of Directors on such shares of Equity Stock and shall
hold such dividends or distributions in trust for the benefit of the
Beneficiary. The Prohibited Owner with respect to Shares-in-Trust shall be
required to repay to the Trust the amount of any dividends or distributions
received by it that (i) are attributable to any shares of Equity Stock
designated Shares-in-Trust and (ii) the record date of which was on or after
the date that such shares became Shares-in-Trust. The Corporation shall take
all measures that it determines reasonably necessary to recover the amount
of any such dividend or distribution paid to a Prohibited Owner, including,
if necessary, withholding any portion of future dividends or distributions
payable on shares of Equity Stock Beneficially Owned or Constructively Owned
by the Person who, but for the provisions of Section (A)(3) of Article IX
hereof, would Constructively Own or Beneficially Own the Shares-in-Trust;
and, as soon as reasonably practicable following the Corporation's receipt
or withholding thereof, shall pay over to the Trust for the benefit of the
Beneficiary the dividends so received or withheld, as the case may be.

3. Rights upon Liquidation. In the event of any voluntary or involuntary
liquidation, dissolution, or winding up of, or any distribution of the
assets of, the Corporation, each holder of Shares-in-Trust shall be entitled
to receive, ratably with each other holder of shares of Equity Stock of the
same class or series, that portion of the assets of the Corporation which is
available for distribution to the holders of such class and series of shares
of Equity Stock. The Trust shall distribute to the Prohibited Owner the
amounts received upon such liquidation, dissolution, or winding up, or
distribution; provided, however, that the Prohibited Owner shall not be
entitled to receive amounts pursuant to this Section (B)(3) of Article IX in
excess of, in the case of a purported Transfer in which the Prohibited Owner
paid fair market value for shares of Equity Stock and which Transfer
resulted in the transfer of the shares to the Trustee in his capacity as
trustee of a Trust, the price per share, if any, such Prohibited Owner paid
for the shares of Equity Stock and, in the case of a Non-Transfer Event or
Transfer in which the Prohibited Owner did not pay fair market value for
such shares (E.G., if the shares were received through a gift or devise) and
which Non-Transfer Event or Transfer, as the case may be, resulted in the
transfer of shares to a Trustee in his capacity as trustee of a Trust, the
price per share equal to the Market Price on the date of such Non-Transfer
Event or Transfer. Any remaining amount in such Trust shall be distributed
to the Beneficiary.

4. Voting Rights. The Trustee shall be entitled to vote all
Shares-in-Trust. Any vote by a Prohibited Owner as a holder of shares of
Equity Stock prior to the discovery by the Corporation that the shares of
Equity Stock are Shares-in-Trust shall, subject to applicable law, be
rescinded and shall be void AB INITIO with respect to such Shares-in-Trust
and the Prohibited Owner shall be deemed to have given, as of the close of
business on the business day prior to the date of the purported Transfer or
Non-Transfer Event that results in the transfer to the Trust of shares of
Equity Stock under Section (A)(3) of Article IX hereof, an irrevocable proxy
to the Trustee to vote the Shares-in-Trust in the manner in which the
Trustee, in its sole and absolute discretion, desires.

5. Designation of Permitted Transferee. The Trustee shall have the
exclusive and absolute right to designate a Permitted Transferee of any or
all Shares-in-Trust. In an orderly fashion so as not to materially adversely
affect the Market Price of the Shares-in-Trust, the Trustee shall either
sell the Shares-in-Trust using the facilities of a national stock exchange
on which the class and series of such Shares-in-Trust are then actively
traded, if any, or designate any Person as Permitted Transferee, provided,
however, that (i) the Permitted Transferee so designated purchases for
valuable consideration (whether in a public or private sale) the
Shares-in-Trust and (ii) the Permitted Transferee so designated may acquire
such Shares-in-Trust without such acquisition resulting in a transfer to a

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Trustee in his capacity as trustee of the Trust and the redesignation of
such shares of Equity Stock so acquired as Shares-in-Trust under Section
(A)(3) of Article IX hereof. Upon the sale of Shares-in-Trust by the Trustee
of a Permitted Transferee in accordance with the provisions of this Section
(B)(5) of Article IX, the Trustee shall (i) if such sale was to a Permitted
Transferee, cause to be transferred to the Permitted Transferee that number
of Shares-in-Trust acquired by the Permitted Transferee, (ii) if such sale
was to a Permitted Transferee, cause to be recorded on the books of the
Corporation that the Permitted Transferee is the holder of record of such
number of shares of Equity Stock, (iii) cause the Shares-in-Trust to be
canceled, and (iv) distribute to the Beneficiary any and all amounts held
with respect to the Shares-in-Trust after making that payment to the
Prohibited Owner pursuant to Section (B)(6) of Article IX hereof.

6. Compensation to Record Holder of Shares of Equity Stock that Become
Shares-in-Trust. Any Prohibited Owner shall be entitled (following discovery
of the Shares-in-Trust and subsequent sale of such Shares-in-Trust in
accordance with Section (B)(5) of Article IX hereof or following the
acceptance of the offer to purchase such shares in accordance with Section
(B)(7) of Article IX hereof) to receive from the Trustee following the sale
or other disposition of such Shares-in-Trust the lesser of (i) in the case
of (a) a purported Transfer in which the Prohibited Owner paid fair market
value for shares of Equity Stock and which Transfer resulted in the transfer
of the shares to the Trust, the price per share, if any, such Prohibited
Owner paid for the shares of Equity Stock, or (b) a Non-Transfer Event or
Transfer in which the Prohibited Owner did not pay fair market value for
such shares (E.G., if the shares were received through a gift or devise) and
which Non-Transfer Event or Transfer, as the case may be, resulted in the
transfer of shares to the Trust, the price per share equal to the Market
Price on the date of such Non-Transfer Event or Transfer, and (ii) the price
per share received by the Trustee from the sale or other disposition of such
Shares-in-Trust in accordance with Section (B)(5) of Article IX hereof. Any
amounts received by the Trustee in respect of such Shares-in-Trust and in
excess of such amounts to be paid the Prohibited Owner pursuant to this
Section (B)(6) shall be distributed to the Beneficiary in accordance with
the provisions of Section (B)(5) of Article IX hereof. Each Beneficiary and
Prohibited Owner waive any and all claims that the may have against the
Trustee and the Trust arising out of the disposition of Shares-in-Trust,
except for claims arising to or out of the gross negligence or willful
misconduct of, or any failure to make payments in accordance with this
Section (B), by such Trustee or the Corporation.

7. Purchase Right in Shares-in-Trust. Shares-in-Trust shall be deemed to
have been offered for sale to the Corporation, or its designee, at a price
per share equal to the lesser of (i) the price per share in the transaction
that created such Shares-in-Trust (or, in the case of devise, gift or
Non-Transfer Event, the Market Price at the time of such devise, gift or
Non-Transfer Event) and (ii) the Market Price on the date the Corporation or
its designee accepts such offer. The Corporation shall have the right to
accept such offer for a period of ninety (90) days after the later of (i)
the date of the Non-Transfer Event or purported Transfer which resulted in
such Shares-in-Trust and (ii) the date the Corporation determines in good
faith that a Transfer or Non-Transfer Event resulting in Shares-in-Trust has
occurred, if the Corporation does not receive a notice of such Transfer or
Non-Transfer Event pursuant to Section (A)(5) of Article IX hereof.

C. Remedies Not Limited. Nothing contained in this Article IX shall limit
the authority of the Board of Directors to take such other action to the extent
permitted by law as it deems necessary or advisable to protect the Corporation
and the interests of its stockholders by preserving the ability of the
Corporation to elect to be taxed as a REIT or, once such election has been made,
preserving the Corporation's status as a REIT or preserving the Tax Benefits.
Without limiting the generality of the foregoing, the Board of Directors may, by
adopting a written resolution, (i) extend the Restriction Termination Date, (ii)
modify the Ownership Limit, or (iii) modify the definitions of any terms set
forth in this Article IX; provided, however, that the Board of Directors shall
not cause there to be such extension, change or modification unless it concludes
in writing that such action is reasonably necessary or advisable to preserve the
Corporation's status as a REIT or to preserve the Tax Benefits, or that the
continuation of these

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restrictions is no longer reasonably necessary for the preservation of the
Corporation's status as a REIT or the preservation of the Tax Benefits. Such
written conclusion shall be filed with the Secretary of the Corporation and
shall be mailed by the Secretary to all stockholders of this Corporation within
10 days after the date of any such conclusion.

D. The Corporation and the members of the Board of Directors shall be fully
protected in relying in good faith upon the information, opinions, reports or
statements of the chief executive officer, the chief financial officer or the
chief accounting officer of the Corporation or of the Corporation's legal
counsel, independent auditors, transfer agent, investment bankers or other
employees and agents in making the determinations and findings contemplated by
this Article IX and the members of the Board of Directors shall not be
responsible for any good faith errors made in connection therewith.

E. Ambiguity. In the case of an ambiguity in the application of any of the
provisions of this Article IX, including any definition contained in Section
(A)(1) of Article IX hereof, the Board of Directors shall have the power to
determine the application of the provisions of this Article IX with respect to
any situation based on the facts known to it.

F. Legend.

1. Each certificate for shares of Equity Stock or securities convertible
into Equity Stock shall bear the following legend:

"The securities represented by this certificate are subject to
restrictions on transfer and ownership for the purpose of the
Corporation's maintenance of its qualification to elect to be taxed
as a real estate investment trust under the Internal Revenue Code of
1986, as amended (the "Code"). No Person other than WFSG may (i)
Beneficially Own or Constructively Own in excess of 9.8% of the
number of shares or value (whichever is more restrictive) of the
outstanding Common Stock or 9.8% of the number of shares or value
(whichever is more restrictive) of the outstanding Preferred Stock
(or such other number or value of Preferred Stock as the Board may
determine in fixing the terms of the Preferred Stock), (ii)
Beneficially Own shares of Equity Stock that would result in the
shares of Equity Stock being Beneficially Owned by fewer than 100
Persons (determined without reference to any rules of attribution),
(iii) Beneficially Own shares of Equity Stock that would result in
the Corporation being "closely held" under Section 856(h) of the
Code, (iv) Constructively Own shares of Equity Stock that would cause
the Corporation to Constructively Own a Tenant Interest of 10% or
more or (v) Beneficially Owned shares of Equity Stock that would
result in the shares of Equity Stock being Beneficially Owned by (A)
the United States, any international organization, or any agency or
instrumentality of any of the foregoing, (B) any organization (other
than a cooperative described in Section 521 of the Code) which is
exempt from tax unless such organization is subject to the tax
imposed by Section 511 of the Code, and (C) any organization
described in Section 1381(a)(2)(c) of the Code. Any Person who
attempts to Beneficially Own or Constructively Own shares of Equity
Stock in excess of the above limitations must immediately notify the
Corporation in writing. Furthermore, upon the occurrence of certain
events, attempted transfers in violation of the restrictions
described above may be void AB INITIO. If the restrictions above are
violated, the shares of Equity Stock represented hereby will be
transferred automatically and by operation of law to a Trustee for
the benefit of one or more Beneficiaries and shall be designated
Shares-in-Trust and the Prohibited Owner shall acquire no rights or
interest in such shares of Equity Stock. All capitalized terms in
this legend have the meanings defined in the Corporation's Amended
and Restated Articles of Incorporation, as the same may be further
amended from time to time, a copy of which, including the
restrictions on transfer and ownership, will be sent without charge
to each stockholder who so requests."

2. The restrictions on transfer and ownership contained in this Article
IX, as amended or modified from time to time in accordance with the
provisions hereof, shall be valid and binding on all

A-12
<PAGE>
holders of shares of Equity Stock or securities convertible into Equity
Stock, regardless of whether the legend borne on the certificates
representing such shares or securities accurately reflects the restrictions
on transfer and ownership as so amended or modified.

G. Exchange of OP Units. So long as the Corporation remains the sole
stockholder of the general partner of the Operating Partnership, the Board of
Directors of the Corporation is hereby expressly vested with authority (subject
to the restrictions on ownership, transfer and redemption set forth in this
Article IX) to issue, and shall issue to the extent provided in the Operating
Partnership Agreement, Common Stock in exchange for the units into which
partnership interests of the Operating Partnership are divided (the "OP Units"),
and as the same may be adjusted, as provided in the Partnership Agreement.

H. Reservation of Shares. The Board of Directors is hereby required to
reserve and authorize for issuance a sufficient number of authorized but
unissued shares of Common Stock to permit the issuance of Common Stock in
exchange for OP Units that may be exchanged for or converted into Common Stock
as provided in the Operating Partnership Agreement.

I. Severability. If any provision of this Article IX or any application of
any such provision is determined to be invalid by any federal or state court
having jurisdiction over the issues, the validity of the remaining provisions
shall not be affected and other applications of such provision shall be affected
only to the extent necessary to comply with the determination of such court.

J. Removal of Restrictions. The restrictions on transfer contained in this
Article IX shall not be removed until the Restriction Termination Date.

K. Notwithstanding any other provisions of the Charter or the Bylaws of the
Corporation (and notwithstanding that some lesser percentage may be specified by
law, the Charter or the Bylaws of the Corporation), the provisions of this
Article IX shall not be amended, altered, changed, or repealed, and no provision
inconsistent with this Article IX shall be adopted, without the affirmative vote
of at least eighty percent (80%) of the members of the Board of Directors and by
the affirmative vote of not less than two-thirds ( 2/3) of all the votes
entitled to be cast by the outstanding shares of capital stock of the
Corporation on the matter at any meeting of the stockholders called for that
purpose, voting together for this purpose as a single class.

A. The following provisions are hereby adopted for the purpose of defining,
limiting, and regulating the powers of the Corporation and of the directors and
stockholders:

1. The Board of Directors of the Corporation shall, consistent with
applicable law, have power in its sole discretion to determine from time to
time in accordance with sound practice or other reasonable valuation methods
what constitutes annual or other net profits, earnings, surplus, or net
assets in excess of capital; to fix and vary from time to time the amount to
be reserved as working capital, or determine that retained earnings or
surplus shall remain in the hands of the Corporation; to set apart out of
any funds of the Corporation such reserve or reserves in such amount or
amounts and for such proper purpose or purposes as it shall determine and to
abolish any such reserve or any part thereof; to distribute and pay
distributions or dividends in stock, cash, or other securities or property,
out of surplus or any other funds or amounts legally available therefor, as
such times and to the stockholders of record on such dates as it may, from
time to time, determine; and to determine whether and to what extent and at
what times and places and under what conditions and regulations the books,
accounts, and documents of the Corporation, or any of them, shall be open to
the inspection of stockholders, except as otherwise provided by statute or
by the Bylaws, and, except as so provided, no stockholder shall have any
right to inspect any book, account, or document of the Corporation unless
authorized so to do by resolution of the Board of Directors.

A-13
<PAGE>
2. Notwithstanding any provision of law requiring the authorization of
any action by a greater proportion than a majority of the total number of
shares of all classes of capital stock or of the total number of shares of
any class of capital stock, such action shall be valid and effective if
authorized by the affirmative vote of the holders of a majority of the total
number of shares of all classes outstanding and entitled to vote thereon,
except as otherwise provided in the Charter.

3. Except as otherwise specifically set forth in Articles VI and IX, the
Corporation reserves the right from time to time to make any amendments of
its Charter which may now or hereafter be authorized by law, including any
amendments changing the terms or contract rights, as expressly set forth in
its Charter, of any of its outstanding stock by classification,
reclassification, or otherwise.

B. The enumeration and definition of particular powers of the Board of
Directors included in the foregoing shall in no way be limited or restricted by
reference to or inference from the terms of any other clause of this or any
other Article of the Charter of the Corporation, or construed as or deemed by
inference or otherwise in any manner to exclude or limit any powers conferred
upon the Board of Directors under the General Laws of the State of Maryland now
or hereafter in force.

XI.

The duration of the Corporation shall be perpetual.

SECOND: THIS AMENDMENT AND RESTATEMENT DOES NOT INCREASE the authorized
capital stock of the Corporation.

THIRD: THE FOREGOING AMENDMENT AND RESTATEMENT TO THE CHARTER HAS BEEN
ADVISED BY THE BOARD OF DIRECTORS AND APPROVED BY THE STOCKHOLDERS OF THE
CORPORATION.

IN WITNESS WHEREOF, Wilshire Real Estate Investment Trust Inc. has CAUSED
THESE PRESENTS to be signed in its name and on its behalf by its President and
WITNESSED by its Secretary this day of , 1999.

<TABLE>
<S> <C> <C> <C>
WITNESS: WILSHIRE REAL ESTATE INVESTMENT
TRUST INC.

By: (SEAL)
- -------------------------------------- --------------------------------------
Andrew Wiederhorn, SECRETARY Chris Tassos, EXECUTIVE VICE PRESIDENT
</TABLE>

THE UNDERSIGNED, the Executive Vice President of Wilshire Real Estate
Investment Trust Inc. (the "Corporation"), who executed on behalf of the
Corporation the foregoing Amended and Restated Articles of Incorporation, of
which this certificate is made a part, hereby acknowledges in the name and on
behalf of said Corporation the foregoing Amended and Restated Articles of
Incorporation to be the corporate act of said Corporation and hereby certifies
that to the best of his knowledge, information and belief the matters and facts
set forth therein with respect to the authorization and approval thereof are
true in all material respects under the penalties of perjury.

<TABLE>
<S> <C> <C> <C> <C> <C>
Dated: , 1999 By: (SEAL)
----------- -------------------------------------
Chris Tassos, EXECUTIVE VICE PRESIDENT
</TABLE>

A-14
<PAGE>
WILSHIRE REAL ESTATE INVESTMENT TRUST INC.
PROXY

This proxy is solicited on behalf of the Board of Directors of Wilshire Real
Estate Investment Trust Inc. for the Annual Meeting on September 10, 1999. The
undersigned appoints Andrew A. Wiederhorn and Lawrence A. Mendelsohn, and each
of them, with full power of substitution in each, the proxies of the
undersigned, to represent the undersigned and vote all shares of Wilshire Real
Estate Investment Trust Inc., Common Stock which the undersigned may be entitled
to vote at the Annual Meeting of Shareholders to be held on September 10, 1999,
and at any adjournment or postponement thereof as indicated on the reverse side.

This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. If no direction is given this proxy will
be voted FOR proposals 1, 2, 3 and 4.

1. ELECTION OF DIRECTORS
FOR all nominees listed below WITHHOLD AUTHORITY
except as marked to the to vote for all
contrary below / / nominees listed
below / /

Andrew A. Wiederhorn, Lawrence A. Mendelsohn, David Egelhoff, Jordan
Schnitzer and Patrick Terrell.

(INSTRUCTION: To withhold authority to vote for any individual nominee write
that nominee's name in the space provided below.)

- --------------------------------------------------------------------------------

2. PROPOSAL TO RATIFY THE APPOINTMENT BY THE BOARD OF DIRECTORS OF ARTHUR
ANDERSEN LLP AS INDEPENDENT ACCOUNTANTS FOR THE COMPANY FOR THE FISCAL YEAR
ENDING DECEMBER 31, 1999.

/ / FOR / / AGAINST / / ABSTAIN

3. PROPOSAL TO AMEND THE COMPANY'S CHARTER TO PERMIT THE COMPANY TO ELECT NOT
TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST UNDER THE TAX LAWS.

/ / FOR / / AGAINST / / ABSTAIN

4. PROPOSAL TO AMEND THE COMPANY'S CHARTER TO CHANGE THE NAME OF THE COMPANY TO
"WILSHIRE REAL ESTATE INVESTMENT INC.", PROVIDED THAT PROPOSAL 3 HAS BEEN
APPROVED BY THE SHAREHOLDERS.

/ / FOR / / AGAINST / / ABSTAIN
<PAGE>
5. In their discretion upon such other matters as may properly come before the
meeting.

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2, 3 AND 4.

Please sign exactly as your name appears on your stock certificates. When
shares are held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee, or guardian, please give full title as such.
If a corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
___________________________________

Signature
___________________________________

Signature if held jointly
DATED: ______________________, 1999

Please return in the enclosed postage paid envelope.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.