STARWOOD FINANCIAL TRUST, S-4, 1998-05-12

STARWOOD FINANCIAL TRUST
S-4, 1998-05-12
REAL ESTATE INVESTMENT TRUSTS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

STARWOOD FINANCIAL TRUST

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
MARYLAND 6798 95-6881527*
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>

1114 AVENUE OF THE AMERICAS, 27TH FLOOR
NEW YORK, NEW YORK 10036
(212) 921-9009

(Address, including zip code, and telephone number, including area code, of
principal executive offices)

JAY SUGARMAN
1114 AVENUE OF AMERICAS, 27TH FLOOR
NEW YORK, NEW YORK 10036
(212) 930-9400

(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPY TO:
JAMES B. CARLSON, ESQ.
MAYER, BROWN & PLATT
1675 BROADWAY
NEW YORK, NEW YORK 10019
(212) 506-2500
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /

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

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

<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AMOUNT TO AGGREGATE
TITLE OF EACH CLASS OF BE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1)(2) PRICE(2)(3) REGISTRATION FEE
<S> <C> <C> <C>
Class A Shares of beneficial interest, par value $1.00
per share..............................................
Options to purchase Class A Shares....................... 54,884,133 $1,512,743,930 $446,260
</TABLE>

(1) Represents the estimated maximum number of Class A Shares to be issued in
exchange for all of the issued and outstanding shares of the registrant in
connection with its reorganization in Maryland from California or upon
options to purchase such shares.
(2) Pursuant to Rule 457(o), the registration fee is calculated based on the
maximum offering price of all of the securities listed.
(3) Pursuant to Rule 457(f), the filing fee has been computed based on the
market value of the 329,304,801 Class A Shares of Starwood Financial Trust,
the predecessor to the registrant, to be exchanged in the reorganization,
computed pursuant to Rule 457(c) using the average of the high and low
prices reported in the consolidated reporting system of such Class A Shares
as reported on the American Stock Exchange on May 5, 1998.
* I.R.S. Employer Identification Number of Starwood Financial Trust, a
California business trust, the predecessor to the registrant pursuant to the
Reorganization described herein.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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<PAGE>
STARWOOD FINANCIAL TRUST
1114 AVENUE OF THE AMERICAS
27TH FLOOR
NEW YORK, NEW YORK 10036

May , 1998

Dear Shareholder:

You are cordially invited to attend the Annual Meeting of Shareholders of
Starwood Financial Trust, a California business trust (the "Trust"), to be held
at Sheraton New York Hotel & Towers, 811 Seventh Avenue, New York, New York
10019 on June 18, 1998 at 10:30 a.m. local time (the "Annual Meeting").

At the Annual Meeting, the shareholders of the Trust (the "Shareholders")
will be asked to consider and vote on a proposal to reorganize (the
"Reorganization") the Trust under the laws of the State of Maryland through the
merger and transfer of all of the assets and liabilities of the Trust with and
into Starwood Financial Trust, a Maryland real estate investment trust
("SFT-Maryland"), a newly-formed wholly-owned subsidiary of the Trust.
SFT-Maryland will be the surviving entity with a declaration of trust
("Declaration of Trust") that differs from that of the Trust as described in the
attached Proxy Statement/ Prospectus. SFT-Maryland was formed for the purpose of
redomiciling the Trust as a Maryland real estate investment trust and acquiring
and continuing the business and operations of the Trust. In the Reorganization,
the Trust's Class A Shares, $1.00 par value ("Class A Shares") will be exchanged
for Class A Shares, $1.00 par value of SFT-Maryland ("New Class A Shares") on a
six for one basis (the "Exchange Ratio") and Class B Shares, $.01 par value
("Class B Shares") will be exchanged for Class B Shares, $.01 par value of
SFT-Maryland ("New Class B Shares") at the Exchange Ratio. Unexercised options
to purchase Class A Shares will be exchanged for new options to purchase New
Class A Shares at the Exchange Ratio. See "REORGANIZATION PROPOSAL."

The Shareholders will also be asked to elect four (4) trustees to the Board
of Trustees and to consider and vote on a proposal to ratify the appointment of
Price Waterhouse LLP as the Trust's independent public accountants for the year
ended December 31, 1998. See "ELECTION OF TRUSTEES" and "RATIFICATION OF
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS."

Details of the proposals to be voted on at the Annual Meeting and other
important matters are contained in the attached Proxy Statement/Prospectus,
which you are encouraged to read carefully.

YOUR BOARD OF TRUSTEES HAS CONCLUDED THAT THE REORGANIZATION, THE ELECTION
OF THE NOMINEES AS TRUSTEES AND THE RATIFICATION OF THE SELECTION OF PRICE
WATERHOUSE LLP AS THE TRUST'S INDEPENDENT PUBLIC ACCOUNTANTS ARE IN THE BEST
INTERESTS OF BOTH THE TRUST AND THE SHAREHOLDERS. THE BOARD OF TRUSTEES
RECOMMENDS THAT YOU VOTE FOR APPROVAL OF ALL OF THE PROPOSALS.

All Shareholders are cordially invited to attend the Annual Meeting in
person. Any Shareholder attending the Annual Meeting may vote in person even if
he or she previously returned a proxy.

Sincerely,
Barry S. Sternlicht
Chairman of the Board
<PAGE>
STARWOOD FINANCIAL TRUST
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Starwood
Financial Trust, a California business trust (the "Trust"), will be held at
Sheraton New York Hotel & Towers, 811 Seventh Avenue, New York, New York 10019
on June 18, 1998 at 10:30 a.m. local time (the "Annual Meeting"), for the
following purposes as further described in the accompanying Proxy Statement:

1. At the Annual Meeting, the shareholders of the Trust (the
"Shareholders") will be asked to consider and vote on a proposal to reorganize
(the "Reorganization") the Trust under the laws of the State of Maryland through
the merger and transfer of all of the assets and liabilities to Starwood
Financial Trust, a Maryland real estate investment trust ("SFT-Maryland"), a
newly-formed wholly-owned subsidiary of the Trust. SFT-Maryland will be the
surviving entity with a declaration of trust that differs from that of the Trust
as described in the attached Proxy Statement/Prospectus. SFT-Maryland was formed
for the purpose of redomiciling the Trust as a Maryland real estate investment
trust and acquiring and continuing the business and operations of the Trust. In
the Reorganization, the Trust's Class A Shares, $1.00 par value ("Class A
Shares") will be exchanged for Class A Shares, $1.00 par value of SFT-Maryland
("New Class A Shares") on a six for one basis (the "Exchange Ratio") and Class B
Shares, $.01 par value ("Class B Shares") will be exchanged for Class B Shares,
$.01 par value of SFT-Maryland ("New Class B Shares") at the Exchange Ratio.
Unexercised options to purchase Class A Shares will be exchanged for new options
to purchase New Class A Shares at the Exchange Ratio. See "REORGANIZATION
PROPOSAL."

2. To elect to the Board of Trustees four (4) members to hold office until
the next annual meeting of Shareholders and until their successors have been
elected and qualified. The nominees to the Board of Trustees are Jeffrey G.
Dishner, Jonathan D. Eilian, Merrick R. Kleeman and Robin Josephs. See "ELECTION
OF TRUSTEES."

3. To consider and vote upon a proposal to ratify the appointment of Price
Waterhouse LLP as the Trust's independent accountants for the fiscal year ended
December 31, 1998. See "RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC
ACCOUNTANTS."

4. To transact such other business as may properly come before the Annual
Meeting or any postponement or adjournment thereof.

The Board of Trustees has fixed May 14, 1998 as the record date for the
determination of Shareholders entitled to receive notice of and to vote at the
Annual Meeting or any postponement or adjournment thereof, and only holders of
record of Class A Shares and Class B Shares at the close of business on that day
will be entitled to vote.

By Order of the Board of Trustees

/s/ JEROME C. SILVEY
Jerome C. Silvey
Secretary of the Trust
New York, New York
May , 1998

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WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, TO ENSURE YOUR
REPRESENTATION AT THE ANNUAL MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE POSTAGE-PREPAID ENVELOPE
ENCLOSED FOR THAT PURPOSE.

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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 12, 1998
STARWOOD FINANCIAL TRUST
1114 AVENUE OF THE AMERICAS
27TH FLOOR
NEW YORK, NEW YORK 10036
--------------------------

PROXY STATEMENT/PROSPECTUS
--------------------------

ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 18, 1998

This proxy statement/prospectus (the "Proxy Statement/Prospectus") is being
sent to shareholders of Starwood Financial Trust, a California business trust
(the "Trust"), on or about May 18, 1998 in connection with the solicitation by
the Board of Trustees of the Trust (the "Board of Trustees") of proxies to be
voted at the Trust's 1998 Annual Meeting of Shareholders (the "Annual Meeting")
to be held at Sheraton New York Hotel & Towers, 811 Seventh Avenue, New York,
New York 10019 on June 18, 1998 at 10:30 a.m. local time, or at any postponement
or adjournment thereof.

At the Annual Meeting, the shareholders of the Trust (the "Shareholders")
will be asked to consider and vote on a proposal to reorganize (the
"Reorganization") the Trust under the laws of the State of Maryland through the
merger and transfer of all of the assets and liabilities of the Trust with and
into Starwood Financial Trust, a Maryland real estate investment trust
("SFT-Maryland"), a newly-formed, wholly-owned subsidiary of the Trust.
SFT-Maryland will be the surviving entity with a declaration of trust ("Maryland
Declaration of Trust") that differs from that of the Trust as described in this
Proxy Statement/Prospectus. SFT-Maryland was formed for the purpose of
redomiciling the Trust as a Maryland real estate investment trust ("REIT") and
acquiring and continuing the business and operations of the Trust. In the
Reorganization, the Trust's Class A Shares, $1.00 par value ("Class A Shares")
will be exchanged for Class A Shares, $1.00 par value of SFT-Maryland ("New
Class A Shares") on a six for one basis (the "Exchange Ratio") and Class B
Shares, $.01 par value ("Class B Shares") will be exchanged for Class B Shares,
$.01 par value of SFT-Maryland ("New Class B Shares") at the Exchange Ratio.
Unexercised options to purchase Class A Shares will be exchanged for new options
to purchase New Class A Shares at the Exchange Ratio. See "REORGANIZATION
PROPOSAL."

This Proxy Statement/Prospectus also relates to the (i) issuance of New
Class A Shares in exchange for the Class A Shares and (ii) offer and sale of up
to 54,884,133 New Class A Shares (the "Resale Shares"), of which 2,493,842 New
Class A Shares are issuable upon exercise of options to purchase New Class A
Shares, that may be sold from time to time by the selling shareholders named
herein and their successors in interest (the "Selling Shareholders"). The Trust
is registering the Resale Shares as required by the terms of the Amended and
Restated Registration Rights Agreement ("Registration Rights Agreement"), dated
as of March 18, 1998, among the Trust and certain of the Selling Shareholders.
The Resale Shares are being offered for the account of the Selling Shareholders,
and when and if sold the Trust will not receive any proceeds from the sale of
the Shares. See "SELLING SHAREHOLDERS."

The Selling Shareholders have not advised SFT-Maryland of any specific plans
for the distribution of the Resale Shares, but it is anticipated that the sale
or distribution of all or any portion of the Resale Shares offered hereby may be
effected from time to time by the Selling Shareholders directly, indirectly to
or through brokers or dealers or in a distribution by one or more underwriters
on a firm commitment or best efforts basis, on the American Stock Exchange
("AMEX"), in the over-the-counter market, on any national securities exchange on
which the Resale Shares are listed or traded, in privately negotiated
transactions, or otherwise, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. See
"PLAN OF DISTRIBUTION."

THE SECURITIES TO WHICH THIS PROXY STATEMENT/PROSPECTUS RELATE HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR BY ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

The date of this Proxy Statement/Prospectus is May , 1998.
<PAGE>
AVAILABLE INFORMATION

SFT-Maryland has filed a registration statement on Form S-4 (the
"Registration Statement") under the Securities Act of 1933, as amended
("Securities Act"), with the Securities and Exchange Commission (the
"Commission") covering the New Shares to be issued in connection with the
Reorganization and the offer and sale of the Resale Shares. As permitted by the
rules and regulations of the Commission, this Proxy Statement/Prospectus omits
certain information, exhibits and undertakings contained in the Registration
Statement. For further information pertaining to the securities offered hereby,
reference is made to the Registration Statement, including the exhibits filed as
a part thereof.

The Trust is and after the Reorganization SFT-Maryland as successor to the
Trust will continue to be, subject to the informational requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; and at its
regional offices located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and Seven World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a Web site that contains reports, proxy and
other information regarding registrants that file electronically with the
Commission. The address of the Commission's Web site is: http://www.sec.gov. The
Class A Shares are currently listed on the American Stock Exchange ("AMEX") and
such reports, proxy statements and other information concerning the Trust can be
inspected at the offices of the AMEX, 86 Trinity Place, New York, New York.

THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE WITHOUT
CHARGE (OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY
INCORPORATED BY REFERENCE THEREIN) UPON REQUEST FROM THE TRUST AT 1114 AVENUE OF
THE AMERICAS, 27TH FLOOR, NEW YORK, NEW YORK 10036, ATTENTION: LIZ SANZO,
TELEPHONE: (212) 930-9400. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY JUNE 11, 1998.

INFORMATION INCORPORATED BY REFERENCE
IN THIS PROXY STATEMENT/PROSPECTUS

The following documents filed with the Commission by the Trust pursuant to
the Exchange Act are hereby incorporated in this Proxy Statement/Prospectus by
reference:

1. Annual report on Form 10-K for the year ended December 31, 1997.

2. Quarterly report on Form 10-Q for the quarter ended March 31, 1998.

3. The description of the Trust's Class A Shares contained in the
Trust's Registration Statement on Form 8-A, dated December 27, 1988; and

4. All documents subsequently filed by the Trust pursuant to Section
13(a), 13(d), 14 or 15(d) of the Exchange Act prior to the date of the
Annual Meeting.

Any statement contained herein or in a document incorporated by reference or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Proxy Statement/Prospectus to the extent that a
statement contained in this Proxy Statement/Prospectus or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference in this Proxy Statement/Prospectus modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement/Prospectus.

2
<PAGE>
This Proxy Statement/Prospectus is accompanied by a copy of the Trust's
Annual Report on Form 10-K for the year ended December 31, 1997, Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998 and Current Report on
Form 8-K dated April 2, 1998.

NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS, OR INCORPORATED
IN IT BY REFERENCE, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS PROXY STATEMENT/PROSPECTUS,
OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION WHERE OR FROM ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER, OR SOLICITATION OF AN OFFER, OR PROXY
SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES OFFERED PURSUANT TO THIS PROXY
STATEMENT/PROSPECTUS SHALL, UNDER THE CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE TRUST SINCE THE DATE OF THIS
PROXY STATEMENT/PROSPECTUS.

3
<PAGE>
TABLE OF CONTENTS

<TABLE>
<S> <C>
ANNUAL MEETING AND VOTING.................................................................................... 1
THE TRUST.................................................................................................... 1
Recapitalization Transaction............................................................................... 7
REORGANIZATION PROPOSAL...................................................................................... 7
Overview................................................................................................... 9
Approval and Effectiveness of the Reorganization........................................................... 9
Possible Disadvantages..................................................................................... 9
No Change in the Name, Business, Management, Location of Principal Office or Income Plans of the Trust..... 10
Exchange of Share Certificates and Payment for Fractional Class A Shares................................... 10
Comparison Of Rights of Shareholders of the Trust and Shareholders of SFT-Maryland......................... 11
Certain Federal Income Tax Consequences of the Reorganization.............................................. 22
Other Tax Consequences..................................................................................... 24
Accounting Treatment of Reorganization..................................................................... 24
Board of Trustees Recommendation........................................................................... 24
DESCRIPTION OF SFT-MARYLAND SHARES........................................................................... 25
General.................................................................................................... 25
New Class A Shares and New Class B Shares.................................................................. 25
Authority to Increase or Decrease Authorized Shares........................................................ 26
Restrictions on Transfer................................................................................... 26
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE MARYLAND DECLARATION OF TRUST AND BYLAWS....................... 28
The Board of Trustees...................................................................................... 28
Removal of Trustees........................................................................................ 28
Business Combinations...................................................................................... 28
Control Share Acquisitions................................................................................. 29
Anti-Takeover Effects of Maryland Law and the Maryland Declaration of Trust and Bylaws..................... 29
Board Quorum............................................................................................... 30
Termination of SFT-Maryland................................................................................ 30
Conflicts of Interest...................................................................................... 30
FEDERAL INCOME TAX CONSEQUENCES.............................................................................. 31
Taxation of the Trust...................................................................................... 32
Taxation of Shareholders................................................................................... 37
Other Tax Considerations................................................................................... 40
ELECTION OF TRUSTEES......................................................................................... 41
Trustees and Nominees...................................................................................... 41
Information Regarding the Board of Trustees and its Committees............................................. 43
Board of Trustees and Committee Meetings................................................................... 44
Executive Officers......................................................................................... 44
Executive Officers' Compensation........................................................................... 44
SUMMARY COMPENSATION TABLE................................................................................... 44
Compensation Committee Report on Executive Compensation.................................................... 44
Compensation Committee Interlocks and Insider Participation................................................ 45
Trustees' Compensation..................................................................................... 45
Certain Relationships and Related Transactions............................................................. 46
Performance Graph.......................................................................................... 47
Recommendation Regarding the Board Election Proposal....................................................... 47
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................... 48
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS.................................................. 51
Recommendation Regarding Ratification of the Appointment of Price Waterhouse LLP........................... 51
SELLING SHAREHOLDERS......................................................................................... 51
PLAN OF DISTRIBUTION......................................................................................... 53
OTHER MATTERS................................................................................................ 53
No Appraisal or Dissenter's Rights......................................................................... 53
Shareholder Proposals for 1999 Annual Meeting.............................................................. 53
EXPERTS...................................................................................................... 54
LEGAL MATTERS................................................................................................ 54
Solicitation Procedures.................................................................................... 54
Other Matters.............................................................................................. 54
</TABLE>

Exhibit A Form of Merger and Reorganization Agreement
Exhibit B Form of Maryland Declaration of Trust
Exhibit C Form of Maryland Bylaws

4
<PAGE>
ANNUAL MEETING AND VOTING

Only holders of record of the Class A Shares and Class B Shares at the close
of business on May 14, 1998 (the "Record Date") are entitled to receive notice
of and to vote at the Annual Meeting or at any postponement or adjournment
thereof. On the Record Date, the issued and outstanding shares of the Trust were
Class A Shares and Class B Shares. The presence, either in
person or by proxy, of the holders of a majority of the outstanding Class A
Shares and a majority of the Class B Shares on the Record Date is necessary to
constitute a quorum at the Annual Meeting.

As of May , 1998, Starwood Mezzanine Investors, L.P. ("Starwood
Mezzanine"), SOFI IV SMT Holdings, L.L.C ("SOFI IV"), SAHI Partners and
Holdings, L.L.C. had the right to vote an aggregate of 312,035,844 Class A
Shares and 157,170,872 Class B Shares, representing over 99% of the total voting
interest held by Class A Shares and Class B Shares outstanding on such date.
Each of Starwood Mezzanine, SOFI IV, SAHI Partners and Holdings, L.L.C., has
indicated that it intends to vote all of the Class A Shares and Class B Shares
held by it for approval of each of the Proposals.

Class A Shares and Class B Shares represented by a proxy in the accompanying
form, if such proxy is the properly executed and is received by the Trust prior
to voting at the Annual Meeting, will be voted in the manner specified on the
proxy. If no such specification is made, the Class A Shares and Class B Shares
will be voted FOR the proposals as described herein and as recommended by the
Board of Trustees with regard to all other matters in its discretion. Any
Shareholder of the Trust who casts a vote by proxy may revoke it at any time
before it is voted by giving written notice to the Secretary of the Trust
expressly revoking the proxy, by signing and forwarding to the Trust a later
dated proxy, or by attending the Annual Meeting and personally voting the Class
A Shares or Class B Shares owned of record by such Shareholder.

In voting upon any matter which may come before the Annual Meeting, each
Shareholder is entitled to one vote for each Class A Share or Class B Share
registered in the Shareholder's name on the record date. All Shareholders of
both Class A Shares and Class B Shares shall vote together as a single class,
with a majority vote of the outstanding Class A Shares and Class B Shares
required for approval and ratification of each matter except for the
Reorganization which requires the vote of two-thirds of the outstanding Class A
Shares and Class B Shares voting together as a single class.

Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the election inspectors appointed for the meeting and who will determine whether
or not a quorum is present. The election inspectors will treat abstentions as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum but as unvoted for purposes of determining the approval of
any matter submitted to the Shareholders for a vote. If a broker indicates on
the proxy that it does not have discretionary authority as to certain shares to
vote on a particular matter, those shares will not be considered as present and
entitled to vote with respect to that matter.

The Trust will pay the cost of soliciting proxies from its Shareholders. In
addition to solicitation by mail, certain trustees, officers and regular
employees of the Trust may solicit the return of proxies by telephone,
facsimile, personal interview or otherwise without additional remuneration. The
Trust will also reimburse brokerage firms and other persons representing the
beneficial owners of Class A Shares for their reasonable expenses in forwarding
proxy solicitation material to such beneficial owners in accordance with the
proxy solicitation rules and regulations of the Commission and AMEX, on which
the Class A Shares are traded under the symbol "APT."

THE TRUST

The Trust is a California business trust that was formed in April 1988.
Prior to March 13, 1998, the Trust was known as Angeles Participating Mortgage
Trust. The Trust's capital structure consists of Class A Shares and Class B
Shares. The Class A Shares are entitled to 99% equity interest and a 67% voting

5
<PAGE>
interest in the Trust and the Class B Shares are entitled to a 1% equity
interest and a 33% voting interest in the Trust. Each of the Shares is entitled
to one vote per share.

Although the Trust did not qualify as a real estate investment trust (a
"REIT") for Federal income tax purposes for its fiscal years 1993 through 1997,
it did not incur any material tax liabilities as a result of its operations. The
Trust is eligible to and intends to make an election to be taxed as a REIT for
its taxable year beginning January 1, 1998. At present, the Trust manages a
portfolio of debt and debt like interests in real estate worth over one billion
dollars. The Trust's investment affairs are managed by Starwood Financial
Advisors, L.L.C. (the "Advisor").

The Trust is primarily engaged in the acquisition of a diversified portfolio
of debt and/or debt like interests in real estate and/or real estate related
assets including (i) originating mortgage loans and/or acquiring mortgage loans
or acquiring securities collateralized, in whole or in part, by such mortgage
loans, (ii) acquiring direct or indirect interests in short term, medium and
long-term real estate-related debt securities and mortgage interests, which may
include warrants, equity participations or similar rights incidental to a debt
investment by the Trust, (iii) making, holding and disposing of purchase money
loans with respect to assets sold by the Trust, and (iv) acquiring positions in
non-performing and sub-performing debt for the purpose of either restructuring
it as performing debt or if such efforts are unsuccessful, of obtaining shortly
thereafter primary management rights over or equity interests in the underlying
assets securing such debt.

The Trust's investment program emphasizes senior and junior commercial
mortgage loans, including mezzanine financing (i.e., capital representing the
level between 65% and 90% of property values), higher yielding senior mortgage
loans, non-performing or sub-performing loans and performing and non-performing
subordinated interests ("Subordinated Interests") in commercial mortgage-backed
securities ("CMBS"). A majority of the Trust's investments held in its portfolio
for the long-term are and will continue to be structured so that the Trust's
investment is subordinate to third party first mortgage debt but senior to the
real estate owner/operator's equity position. The Trust invests in a diverse
array of real estate-related assets and enterprises that satisfy its investment
criteria including but not limited to the following:

- MORTGAGE LOANS. The Trust provides high-yielding first mortgage loans to
borrowers in need of flexible, custom-tailored financings. These loans may
be short, medium or long-term in duration. They may include projects under
construction, redevelopment or expansion, which may ultimately be
refinanced through more traditional sources once capital improvements are
completed.

- MEZZANINE LOANS. The Trust endeavors to take advantage of current market
opportunities to provide high-yielding loans that are subordinated to
first lien mortgage loans and secured by either a mortgage lien or a
pledge of the ownership interest in the borrowing entity ("Mezzanine
Loans"). Mezzanine Loans may also take the form of a preferred equity
investment in the borrower with substantially similar terms.

- OPPORTUNISTIC LOANS AND MINORITY PARTICIPATIONS. The Trust acquires
non-performing and sub-performing debt or minority participations in such
loans at a discount for the purpose of restructuring the debt to a
performing obligation. These assets may be priced below book value or have
a deemed book value which is less than reproduction cost.

- TRIPLE NET LEASES. The Trust may acquire properties that are subject to
long-term triple net lease arrangements with tenants that the Trust
believes to be creditworthy. In many cases, the fixed stream of payment
from such positions may have similar risk/reward characteristics as the
mortgage loans to be originated by the Trust.

- SUBORDINATED INTERESTS. The Trust may acquire rated and unrated interests
in short-term, medium and long-term real estate and real estate-related
debt securities. In this regard, the Trust may

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pursue the acquisition of performing and non-performing Subordinated
Interests in CMBS including non-investment grade classes as well as
unrated classes.

The Trust is restricted from making certain types of investments as a result
of the restrictions and conflicts described below (the "Investment
Restrictions"). These restrictions may limit the flexibility of the Trust in
implementing its investment policy. Specifically, without the amendment,
termination or waiver of provisions of certain non-competition agreements
between Starwood Capital Group, L.P. and Starwood Hotels & Resorts, the Trust is
prohibited from: (i) making investments in loans collateralized by hotel assets
where it is anticipated that the underlying equity will be acquired by the debt
holder within one (1) year from the acquisition of such debt, (ii) acquiring
equity interests in hotels (other than acquisitions of warrants, equity
participations or similar rights incidental to a debt investment by the Trust or
that are acquired as a result of the exercise of remedies in respect of a loan
in which the Trust has an interest) or (iii) selling or contributing to or
acquiring any interests in Starwood Hotels & Resorts, including debt positions
or equity interests obtained by the Trust under, pursuant to or by reason of the
holding of debt positions.

The principal executive offices of the Trust are located at 1114 Avenue of
the Americas, 27th Floor, New York, New York 10036, and the Trust's telephone
number is (212) 930-9400.

RECAPITALIZATION TRANSACTION

On March 18, 1998, the Trust (i) paid $25.5 million of cash and issued
55,148,000 Class A Shares at a price of $2.50 per share to Starwood Mezzanine in
exchange for the contribution by Mezzanine to the Trust of its entire interest
in a portfolio of mortgage and partnership loans secured by residential, hotel,
office and mixed use real estate and other assets and (ii) paid $324.3 million
in cash to Starwood Opportunity Fund IV, L.P. and issued 247,074,800 Class A
Shares at a price of $2.50 per share to SOFI IV in exchange for the contribution
to the Trust of a portfolio of mortgage loans and leases secured by residential,
hotel, office and mixed use real estate and other assets, a portfolio of first
mortgage loans, cash of $17.9 million and rights under certain letters of intent
(collectively, the "Recapitalization Transaction").

In connection with the Recapitalization Transaction: (i) the Trust changed
its name from Angeles Participating Mortgage Trust to Starwood Financial Trust;
(ii) the Trust entered into an advisory agreement (the "Advisory Agreement")
with the Advisor pursuant to which the Advisor manages the investment affairs of
the Trust; (iii) the Declaration of Trust of the Trust was amended and restated
(as amended and restated the "Declaration of Trust"); (iv) all of the limited
partnership interests in APMT Limited Partnership (the "Partnership") were
exchanged for Class A Shares which left the Trust as the sole partner of the
Partnership; (v) the Partnership was dissolved and all of its assets were
distributed to the Trust; (vi) the Trust's 1996 Trustees' Share Incentive Plan
and the 1996 Share Incentive Plan were combined, amended and restated into the
Starwood Financial Trust 1996 Share Incentive Plan; (vii) the Trust entered into
several credit facilities which in the aggregate provide the Trust up to
approximately $625.0 million in new financing, with up to an additional $175.0
million available subject to the satisfaction of certain conditions, to
consummate the Recapitalization Transaction and provide funds for working
capital, new loan origination and acquisition general corporate purposes; and
(viii) certain existing agreements were amended and restated.

REORGANIZATION PROPOSAL

OVERVIEW

The Board of Trustees believes that it is in the best interest of the Trust
and the Shareholders to change the state of organization of the Trust from
California to Maryland by means of the Reorganization. Maryland law contains
provisions conducive to the operations of a REIT. Many REIT's are organized
under the laws of the State of Maryland and the Board of Trustees believes that
this fact has provided state regulatory authorities and courts in Maryland with
substantial experience in the administration and

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governance of REITs. In addition, Maryland law provides clear statutory guidance
with respect to the limited liability of Shareholders and trustees of REITs,
providing that Shareholders and in most circumstances, trustees, are not
personally liable for the obligations of the REIT.

The Reorganization will be effected through the merger and transfer of all
of the Trust's assets and liabilities with and into SFT-Maryland, a wholly owned
subsidiary of the Trust that was organized in May 1998 for the purpose of
redomiciling the Trust as a Maryland REIT and acquiring, recapitalizing and
continuing the business and operations of the Trust and the exchange of Shares
for New Shares at the Exchange Ratio. Upon consummation of the Reorganization,
the Trust will cease to exist and
SFT-Maryland will continue to operate the business of the Trust under the name
Starwood Financial Trust.

Approval of the Reorganization will also include approval of an amendment to
the Declaration of Trust specifically authorizing the merger of the Trust with
and into another entity upon approval of two-thirds of the outstanding Class A
Shares and Class B Shares voting as a single class. The amendment to the
Declaration of Trust will be effective prior to the consummation of the
Reorganization. If the Reorganization is approved, the Declaration of Trust will
be amended by adding a new section 3.2(x) which reads as follows:

[3.2 . . . The Trustees without any action or consent of the Shareholders
shall have and may exercise at any time and from time to time the following
powers and authorities which may be exercised by them in their sole judgment
and discretion and in such manner and upon such terms and conditions as they
may form time to time deem appropriate. . . ]

(x) Upon approval by vote or written consent of Shareholders holding
two-thirds of the Class A Shares and Class B Shares voting together as a
single class with each Share of record entitled to one vote per share, to
participate in any reorganization, readjustment, consolidation, merger,
dissolution, sale or purchase of assets, lease or similar proceedings of any
corporation, partnership, business trust or other organization in which the
Trust shall have an interest, including a merger of the Trust with any other
trust or corporation and in connection therewith to delegate discretionary
powers to any reorganization, protective or similar committee and to pay
assessments and other expenses in connection therewith; and

and renumbering the current Section 3.2(x) as Section 3.2(y).

Pursuant to Merger and Reorganization Agreement (the "Reorganization
Agreement"), the outstanding Class A Shares will be exchanged for New Class A
Shares at the Exchange Ratio and the outstanding Class B Shares will be
exchanged for New Class B Shares at the Exchange Ratio as soon as practical
after the Annual Meeting (the "Effective Date") and outstanding, unexercised
options to purchase Class A Shares will be exchanged for new options to purchase
New Class A Shares at the Exchange Ratio. Each certificate representing issued
and outstanding Class A Shares and Class B Shares (collectively, "Shares"), will
represent one-sixth as many New Class A Shares and one-sixth as many Class B
Shares, respectively. Options issued and outstanding will represent the right to
purchase one-sixth as many New Class A Shares. The New Class A Shares and New
Class B Shares are referred to collectively as "New Shares." The Reorganization
Agreement is Exhibit A hereto and is incorporated by reference into this Proxy
Statement/ Prospectus.

Fractional New Class A Shares will not be issued as a result of the
Reorganization. Shareholders entitled to receive fractional New Class A Shares
as a consequence of the Reorganization will, instead, receive from SFT-Maryland
a cash payment in United States dollars equal to such fraction multiplied by the
average closing price of the Class A Shares on the AMEX for the five trading
days immediately preceding the Effective Date (adjusted for the Reorganization).
Holders of Class B Shares will receive fractional shares.

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ILLUSTRATION

On the Effective Date, each Share will be exchanged for one-sixth of a
New Share. Each Shareholder who owns fewer than six Class A Shares will have
its fractional Class A Shares exchanged for the right to receive cash as set
forth below in "--Exchange of Share Certificates and Payment for Fractional
Class A Shares." The interest of such Shareholder in the Trust will thereby
be terminated, and such Shareholder will have no right to share in the
assets and future growth of SFT-Maryland as successor to the Trust. Each
Shareholder who owns six or more Class A Shares will be issued New Class A
Shares and will have a right to share in the assets and future growth of
SFT-Maryland as successor to the Trust. Such interest will be represented by
one-sixth as many New Class A Shares as such Shareholder owned before the
Reorganization, except that no fractional New Class A Shares will be issued.

A vote for the Reorganization proposal will include authorization for the
payment of cash in lieu of the issuance of fractional New Class A Shares.
Neither the par value of the Class A Shares or the Class B Shares nor any
distribution rights presently accruing to any of the holders of the Shares will
be affected by the Reorganization.

The Class A Shares are listed for trading on the AMEX, and after the
Reorganization, the New Class A Shares will continue to be listed on the AMEX
without interruption under the same symbol "APT".

APPROVAL AND EFFECTIVENESS OF THE REORGANIZATION

Pursuant to the Amended and Restated Declaration of Trust of the Trust (the
"Declaration of Trust"), the affirmative vote of two-thirds of the outstanding
Class A Shares and Class B Shares, voting as a single class, is required for
approval of the Reorganization Agreement and the other terms of the
Reorganization. The Reorganization has been approved by the Trust's Board of
Trustees, which unanimously recommends a vote in favor of the proposal. If
approved by the Shareholders, it is anticipated that the Reorganization will
become effective as soon as practicable following approval by the Shareholders.
However, pursuant to the Reorganization Agreement, the Reorganization may be
abandoned or the Reorganization Agreement may be amended by the Board of
Trustees (except that the principal terms may not be amended without Shareholder
approval) either before or after Shareholder approval has been obtained and
prior to the Effective Date if, in the opinion of the Board of Trustees of
either the Trust or SFT-Maryland, circumstances arise which make either action
advisable. Shareholders of the Trust do not have any dissenters' rights of
appraisal with respect to the Reorganization.

The discussion set forth below is qualified in its entirety by reference to
the Reorganization Agreement, the Maryland Declaration of Trust and the bylaws
of SFT-Maryland (the "Maryland Bylaws"), which will be substantially in the
forms attached hereto as Exhibits A, B and C, respectively, and to the
Declaration of Trust and the Trustees' regulations of the Trust ("Trustees
Regulations").

APPROVAL BY SHAREHOLDERS OF THE REORGANIZATION WILL CONSTITUTE APPROVAL OF
AMENDING THE DECLARATION OF TRUST TO SPECIFICALLY PROVIDE FOR THE
REORGANIZATION, THE REORGANIZATION AGREEMENT, THE TERMINATION OF THE TRUST, THE
MARYLAND DECLARATION OF TRUST AND THE MARYLAND BYLAWS.

POSSIBLE DISADVANTAGES

Despite the unanimous belief of the Board of Trustees that the
Reorganization is in the best interests of the Trust and its Shareholders, it
should be noted that California and Maryland law differ in certain respects.
Maryland law may not afford shareholders the same substantive rights as
California law. For a comparison of Shareholders' rights and the powers of
management under Maryland and California law, see "--Comparison of Rights of
Shareholders of the Trust and Shareholders of SFT-Maryland."

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NO CHANGE IN THE NAME, BUSINESS, MANAGEMENT, LOCATION OF PRINCIPAL OFFICE OR
INCOME PLANS OF THE TRUST

The Reorganization will effect a change in the legal domicile of the Trust
and other changes of a legal nature, certain of which are described in this
Proxy Statement. The Reorganization will not result in a change in the name of
the Trust. The business, management, fiscal year, location of the principal
office, assets and liabilities of the Trust will not change as a result of the
Reorganization. The individuals listed in "ELECTION OF TRUSTEES," all current
members of the Board of Trustees, will become the trustees of SFT-Maryland and
the current officers of the Trust will become officers of SFT-Maryland. All
employee benefit and share option plans of the Trust will be continued by
SFT-Maryland, and each option or right issued pursuant to any such plan will be
converted into an option or right to purchase one-sixth as many of the New Class
A Shares, at six times the price per share, upon the same terms, and subject to
the same conditions, as set forth in such plan. Shareholders should note that
approval of the Reorganization will also constitute approval of the assumption
of these plans by SFT-Maryland.

EXCHANGE OF SHARE CERTIFICATES AND PAYMENT FOR FRACTIONAL CLASS A SHARES

The exchange of Shares for New Shares will occur automatically on the
Effective Date without regard to the date certificates representing Shares are
physically surrendered for certificates representing New Shares. The Trust's
transfer agent will exchange certificates. No scrip or fractional certificates
of New Class A Shares will be issued in connection with the Reorganization.
Fractional Class B Shares will be issued. In the event that the number of New
Class A Shares to be issued to a Shareholder includes a fraction, SFT-Maryland
will pay to the Shareholder, in lieu of the issuance of fractional New Class A
Shares, a cash amount in United States dollars which will be equal to such
fraction multiplied by the average closing price of the Class A Shares on AMEX
for the five trading days immediately preceding the Effective Date (adjusted for
the Reorganization). For example, if a Shareholder owns 25 Class A Shares and
the average closing price was $30.00, the Shareholder would receive four New
Class A Shares and $5.00 in cash (1/6 multiplied by $30.00).

As soon as practicable after the Effective Date, each holder of New Shares
will be mailed transmittal forms for use in forwarding their certificates for
surrender and exchange for certificates representing the number of New Shares
such Shareholders are entitled to receive as a consequence of the
Reorganization. Each holder who surrenders certificates will receive new
certificates representing the number of New Shares to which it is entitled and
any cash payable in lieu of any fractional New Class A Shares. The transmittal
forms will be accompanied by instructions specifying other details of the
exchange.

SHAREHOLDERS SHOULD NOT SEND THEIR CERTIFICATES UNTIL THEY RECEIVE A
TRANSMITTAL FORM. NO CERTIFICATES SHOULD BE SENT DIRECTLY TO THE TRUST OR
SFT-MARYLAND.

After the Effective Date, each certificate representing Shares will, until
surrendered and exchanged as described above, be deemed, for all Trust and
SFT-Maryland purposes, to evidence ownership of the whole number and in the case
of New Class B Shares only, a fraction of, New Shares, and the right to receive
the amount of cash for any fractional New Class A Shares, into which the Shares
evidenced by such certificate have been converted, except that the holder of
such unexchanged certificates will not be entitled to receive any dividends or
other distributions payable by SFT-Maryland after the Effective Date, until the
certificates representing New Shares have been surrendered. Such dividends and
distributions, if any, will be accumulated, and at the time of the surrender of
the certificates for New Shares, all such unpaid dividends or distributions will
be paid without interest.

SFT-Maryland will pay all service charges incurred in connection with the
exchange of certificates. SFT-Maryland will obtain a new CUSIP number with
respect to the New Class A Shares.

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COMPARISON OF RIGHTS OF SHAREHOLDERS OF THE TRUST AND SHAREHOLDERS OF
SFT-MARYLAND

The Trust is organized as a business trust under the laws of the State of
California, and SFT-Maryland is organized as a REIT under the laws of the State
of Maryland. As a California business trust, the Trust is subject to the common
law of California with respect to business trusts, which is not well developed.
The Trust also is governed by the Declaration of Trust and the Trustees
Regulations. As a Maryland REIT, SFT-Maryland is governed by (i) Title 8 of the
Corporations and Associations Article of the Annotated Code of Maryland, as
amended ("Title 8"), a general statute governing Maryland REITs and dealing with
a wide variety of matters, including duties and liabilities of trustees,
liability of shareholders, extraordinary actions, such as amendments to the
declaration of trust and mergers, the election and removal of trustees, the
powers of a REIT, and rights of shareholders, (ii) the Maryland Declaration of
Trust and (iii) the Maryland Bylaws. The material differences between the
applicable California law and Title 8 and among these various documents are
summarized below. The comparison of certain rights of the Shareholders of the
Trust and the shareholders of SFT-Maryland set forth below does not purport to
be complete and is subject to and qualified in its entirety by reference to the
common law of California, Title 8, the Maryland Declaration of Trust (Exhibit B
hereto) and the Maryland Bylaws (Exhibit C hereto) and also to the Declaration
of Trust and the Trustees' Regulations, copies of which may be obtained from the
Trust by writing to the Trust at 1114 Avenue of the Americas, 27th Floor, New
York, New York, 10036 Attention: Corporate Secretary.

The Trust is a common law entity under California law and is not generally
governed by a statutory framework. The California common law is not well
developed and very few shareholder rights are addressed. As a result, the rights
of the Shareholders are governed primarily by the Declaration of Trust and the
Trustees' Regulations. The comparison below describes the California common law,
if any, with respect to the rights discussed.

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<TABLE>
<S> <C>
CALIFORNIA MARYLAND
- --------------------------------------------- ---------------------------------------------

SHAREHOLDER VOTING RIGHTS

Generally, voting rights exist under the Generally, voting rights exist under Title 8
Declaration of Trust only in the election and and the Maryland Declaration of Trust only in
removal of trustees, termination of the the election and removal of trustees,
Advisory Agreement, termination of the Trust, termination of the Advisory Agreement,
amendments to the Declaration of Trust and termination of the Trust, amendments to the
certain sales of assets. Termination of the Maryland Declaration of Trust and certain
Advisory Agreement, termination of the Trust, sales of assets. Termination of the Advisory
and certain asset sales require a two-thirds Agreement, termination of the Trust and
vote of the outstanding Shares voting as a certain asset sales require a two-thirds vote
single class. The election and removal of of the outstanding Shares voting as a single
trustees, most amendments to the Declaration class. The election and removal of trustees,
of Trust and all other matters to be voted most amendments to the Maryland Declaration
on, consented to or ratified by the of Trust and all other matters to be voted
Shareholders require a majority vote of the on, consented to or ratified by the
outstanding Shares voting as a single class. Shareholders require a majority vote of the
Amendments to provisions of the Declaration outstanding Shares voting as a single class.
of Trust setting forth a supermajority voting Amendments to provisions of the Declaration
requirement require the supermajority vote of Trust setting forth a supermajority voting
set forth in such provision to approve such requirement require the supermajority vote
amendment. set forth in such provision to approve such
amendment.

The Declaration of Trust requires 66 2/3% of Title 8 requires, with certain exceptions,
the outstanding Shares voting as a single that the holders of two-thirds of all shares
class to approve any termination of the entitled to vote on the matter must approve
Trust. A merger is not considered to be a mergers, consolidations, share exchanges,
termination of the Trust if the Trust is the transfers of all or substantially all of the
surviving entity or the purpose of the merger assets of the REIT and dissolution unless the
is primarily to change the Trust's domicile. charter provides for a different number not
Two-thirds of the outstanding Shares voting less than a majority. The Maryland
as a single class is also required to approve Declaration of Trust does not provide for a
the sale, transfer or disposition of different voting requirement than Title 8
substantially all of the Trust's assets. with respect to these matters. The Maryland
Declaration of Trust provides that a merger
is not considered to be a termination of
SFT-Maryland if SFT-Maryland is the surviving
entity or the purpose of the merger is
primarily to change SFT-Maryland's domicile.
</TABLE>

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<TABLE>
<S> <C>
CALIFORNIA MARYLAND
- --------------------------------------------- ---------------------------------------------
PRE-EMPTIVE RIGHTS

Under the Declaration of Trust, the Trustees Under the Maryland Declaration of Trust, the
are required to issue Class B Shares on a pro Trustees are required to issue New Class B
rata basis to all holders of Class B Shares Shares on a pro rata basis to all holders of
based on the number of Class B Shares held by New Class B Shares based on the number of New
each holder, so that the total number of Class B Shares held by each holder, so that
outstanding Class B Shares equals one-half of the total number of outstanding New Class B
the total number of outstanding Class A Shares equals one-half of the total number of
Shares. outstanding New Class A Shares. If New Class
B Shares have been converted into New Class A
Shares, the proportion of New Class A Shares
to New Class B Shares will be adjusted
accordingly.

CONVERSION RIGHTS

Under the Declaration of Trust, the holders Under the Maryland Declaration of Trust, the
of Class B Shares may convert the Class B holders of New Class B Shares may convert the
Shares into Class A Shares on the basis of New Class B Shares into New Class A Shares on
one Class A Share for 49 Class B Shares. the basis of one New Class A Share for 49 New
Class B Shares.

RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS

Under the Declaration of Trust, the Trustees Title 8 does not address distributions to
have the right to declare and pay dividends shareholders. The Maryland Declaration of
from any source from time to time, and shall Trust allows for the payment of dividends in
endeavor to pay distributions from net cash, cash, property or other assets, including
as defined therein. Distributions of the securities of the Trust from any source at
proceeds of a transaction not in the ordinary any time. There are no restrictions upon the
course of business are subject to certain payment of proceeds of any type of
restrictions. transaction. The Trustees are encouraged to
pay such distributions and dividends as may
be necessary for the Trust to qualify as a
REIT.

ALLOCATIONS OF DISTRIBUTIONS

Under the Declaration of Trust, distributions Under the Maryland Declaration of Trust,
shall be made 99% to the Class A Shareholders distributions shall be made 99% to the New
and 1% to the Class B Shareholders. These Class A Shareholders and 1% to the New Class
percentages shall be adjusted upon the B Shareholders. These percentages shall be
conversion of any Class B Shares into Class A adjusted upon the conversion of any New Class
Shares. B Shares into New Class A Shares.
</TABLE>

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<TABLE>
<S> <C>
CALIFORNIA MARYLAND
- --------------------------------------------- ---------------------------------------------
DISSENTING SHAREHOLDER'S APPRAISAL RIGHTS

Neither the Declaration of Trust nor the Title 8 does not provide appraisal rights to
Trustees' Regulations provide for appraisal shareholders of a REIT if the REIT's shares
rights. are listed on a national securities exchange,
such as the AMEX, on the record date for
determining those shareholders of the REIT
entitled to vote on the merger. Neither the
Maryland Declaration of Trust nor the
Maryland Bylaws provide for appraisal rights.

BOARD OF TRUSTEES

Under the Declaration of Trust, a minimum of Under the Maryland Declaration of Trust, a
the greater of (i) 33-1/3% of the Trustees minimum of the greater of (i) 33-1/3% of the
and (ii) three members of the Executive Trustees and (ii) three members of the
Committee and the Board of Trustees shall be Executive Committee and the Board of Trustees
persons not affiliated with the "Advisor" or shall be persons not affiliated with the
Starwood Capital Group, L.L.C. (together with Advisor or Starwood Capital.
its predecessors "Starwood Capital").

REMOVAL OF TRUSTEES

Pursuant to the Declaration of Trust, a Under Title 8 and the Declaration of Trust,
trustee may be removed from office for cause the shareholders of a trust may remove any
by a vote of Shareholders holding a majority trustee, with or without cause, by the
of the outstanding Class A and Class B Shares affirmative vote of a majority of all the
entitled to vote at an election of trustees. votes entitled to be cast for the election of
A trustee may also be removed with cause by trustees. A trustee may also be removed with
all of the remaining trustees. cause by all of the remaining trustees.
</TABLE>

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<TABLE>
<S> <C>
CALIFORNIA MARYLAND
- --------------------------------------------- ---------------------------------------------
VACANCIES ON THE BOARD OF TRUSTEES

The Declaration of Trust and Trustees' Title 8 does not address vacancies. The
Regulations provide that vacancies on the Maryland Declaration of Trust and Bylaws
Board of Trustees may be filled by a majority provide that a vacancy on the SFT-Maryland
of the remaining trustees or by a sole Board of Trustees may be filled by a majority
remaining trustee or by a majority of the of the remaining trustees or by a sole
holders of Class A and Class B Shares voting remaining trustee or by a majority of the
as a single class. Each trustee so elected holders of New Class A and Class B Shares
shall hold office until his successor is voting as a single class. Each trustee so
elected at an annual or a special meeting of elected shall hold office until his successor
the Shareholders. is elected at an annual or a special meeting
of the Shareholders.

The Trustees' Regulations also provide that The Bylaws also provide that the Shareholders
the Shareholders may elect a trustee or may elect a trustee or trustees at any time
trustees at any time to fill any vacancy or to fill any vacancy or vacancies not filled
vacancies not filled by the trustees. Any by the trustees. Any such election by written
such election by written consent (other than consent (other than to fill a vacancy created
to fill a vacancy created by the removal of a by the removal of a trustee) shall require
trustee) shall require the consent of holders the consent of holders a majority of the
a majority of the outstanding shares entitled outstanding shares entitled to vote.
to vote.

COMMITTEES OF BOARD OF TRUSTEES

The Declaration of Trust provides that the The Maryland Declaration of Trust provides
Board of Trustees may designate an executive that the Board of Trustees may designate an
committee consisting of at least five executive committee consisting of at least
members. The Trustees' Regulations provide five members. The Maryland Bylaws provide
that the Board of Trustees may designate that the Board of Trustees may appoint other
other committees consisting of two or more committees composed of two or more trustees
trustees. Except as expressly limited by the and may delegate to such committees any of
Declaration of Trust, such committees may the powers of the Board of Trustees, except
have all the authority and exercise such as prohibited by law. Title 8 does not
powers as the Board of Trustees may address the delegation to committees of any
determine. of the powers of the Board of Trustees.
</TABLE>

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<TABLE>
<S> <C>
CALIFORNIA MARYLAND
- --------------------------------------------- ---------------------------------------------
SPECIAL MEETINGS OF SHAREHOLDERS

The Trustees' Regulations provide that a Title 8 does not address special meetings of
special meeting of Shareholders may be called Shareholders. The Maryland Bylaws provide
by the Chairman of the Board or any two that a special meeting of Shareholders may be
trustees, or by the Secretary upon the called by the Chairman of the Board or a
written request of holders of not less than majority of the Board of Trustees, or by the
20% of the Class A Shares or 20% of the Class Secretary upon the written request of holders
B Shares entitled to vote at the meeting. of not less than 20% of the Class A Shares or
20% of the Class B Shares entitled to vote at
the meeting.

ACTIONS BY WRITTEN CONSENT OF SHAREHOLDERS

The Declaration of Trust and the Trustees' Title 8 does not address actions by written
Regulations provide that, subject to certain consent of Shareholders. The Maryland
notice requirements, any action which is Declaration of Trust provides that any action
required or permitted to be taken at a that may be taken at a shareholder meeting
meeting of Shareholders, may be taken without may be taken without a meeting if a consent
a meeting if a consent in writing, setting in writing, setting forth the action so
forth the action so taken, is signed by a taken, is signed by a sufficient proportion
sufficient proportion of Class A and Class B of New Class A and New Class B Shareholders
Shareholders as would be required for a vote as would be required for a vote at a meeting.
at a meeting.
</TABLE>

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<TABLE>
<S> <C>
CALIFORNIA MARYLAND
- --------------------------------------------- ---------------------------------------------
AMENDMENTS TO DECLARATIONS OF TRUST AND BYLAWS

The Declaration of Trust may be amended by a Under Title 8, an amendment to a declaration
majority vote of the Shares, with the Class A of trust must be approved by the Board of
Shareholders and the Class B Shareholders Trustees and the holders of two-thirds of the
voting together as a single class. However, shares entitled to vote on such matter unless
if the provision to be amended sets forth a otherwise provided in the Declaration of
greater than majority voting requirement, Trust. The Maryland Declaration of Trust
then the percentage set forth in such provides for amendments by the affirmative
provision is required to amend the provision. vote of the holders of a majority of the
The Trustees may also amend the Declaration shares entitled to vote on the matter.
of Trust without the vote or consent of However, if the provision to be amended sets
Shareholders if they deem it necessary to (i) forth a greater than majority voting
conform the Declaration of Trust to the requirement, then the percentage set forth in
requirements of the REIT provisions of the such provision is required to amend the
Code or to other applicable federal laws or provision. In addition, the Trustees, by a
regulations, (ii) clarify, supplement, two-thirds vote, may amend the Maryland
correct, or otherwise revise any provision of Declaration of Trust without the vote or
the Declaration of Trust or (iii) effect a consent of the Shareholders if they deem it
change in the domicile of the Trust or to necessary to conform it to the requirements
change the form of the Trust to a corporation of the REIT provisions of the Code.
through a merger, incorporation, sale of Title 8 does not address the amendment of
assets or similar transaction; provided that bylaws. The Maryland Bylaws provide that the
the Trustees have determined in the case of Maryland Board of Trustees has the exclusive
subclause (iii) that such amendment does not power to adopt, amend or repeal any provision
materially and adversely affect the of the Maryland Bylaws and to make new
Shareholders. However, no such amendment may bylaws.
be made by the Board of Trustees which would
change any rights with respect to any
outstanding Shares of the Trust by
diminishing or eliminating any voting rights
pertaining thereto, except with the vote or
consent of the holders of two-thirds of the
outstanding class of Shares affected and
entitled to vote thereon. The Trustees'
Regulations provide that the Board shall have
the exclusive power to adopt, alter or repeal
any provision of the Trustees' Regulations
and make new Trustees' Regulations without
the consent of the Shareholders.
</TABLE>

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<TABLE>
<S> <C>
CALIFORNIA MARYLAND
- --------------------------------------------- ---------------------------------------------

LIMIT ON SHARE OWNERSHIP

The Declaration of Trust prohibits the Title 8 does not address limits on share
ownership by any person of greater than 9.8% ownership. The Maryland Declaration of Trust
of the Class A Shares or 9.8% of the value of prohibits the ownership by any person of
the outstanding Shares, unless that person greater than 9.8% in number of the New Class
meets certain requirements or is an A Shares or 9.8% of the value of the
underwriter in a public offering. outstanding New Shares, unless that person
meets certain requirements or is an
underwriter in a public offering.

CERTAIN BUSINESS COMBINATIONS

Neither the Declaration of Trust nor the Maryland corporate law, which is referenced
Trustees' Regulations generally restrict by the Maryland Declaration of Trust and
business combinations. applicable to SFT-Maryland, restricts certain
"business combinations" (including a merger,
consolidation, share exchange, or, in certain
circumstances, an asset transfer or issuance
or reclassification of equity securities)
between a Maryland REIT and an "Interested
Stockholder" or an affiliate thereof for a
period of five years following the date that
the Stockholder became an "Interested
Stockholder." An "Interested Stockholder" is
one who (a) beneficially owns 10% or more of
a REIT's voting power after the date on which
the REIT had 100 or more beneficial owners or
(b) is an affiliate or associate of a REIT
and was the beneficial owner of 10% or more
of that REIT's voting power within the
previous 2 years and after the REIT had 100
or more beneficial owners. These provisions
of Maryland law do not apply, however, to
business combinations that are approved or
exempted by the Board of Trustees of the REIT
prior to the time that the "Interested
Stockholder" becomes an "Interested
Stockholder."

Pursuant to the Maryland Declaration of
Trust, business combinations with Starwood
Capital and/ or its affiliates are exempted
from these restrictions.
</TABLE>

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<PAGE>
<TABLE>
<S> <C>
CALIFORNIA MARYLAND
- --------------------------------------------- ---------------------------------------------
CONTROL SHARE ACQUISITIONS

The Declaration of Trust and Trustees' Maryland corporate law, which is referenced
Regulations do not contain provisions by the Maryland Declaration of Trust and
governing acquisitions of control shares. applicable to SFT-Maryland, eliminates the
voting rights of "control shares" in certain
circumstances. "Control Shares" are defined
as voting shares of stock which, if
aggregated with all other such shares of
stock previously acquired by the acquiror or
in respect of which the acquiror is able to
exercise or direct the exercise of voting
power (except solely by virtue of a revocable
proxy), would entitle the acquiror to
exercise voting power in electing trustees
within one of the following ranges of voting
power: (a) one-fifth or more but less than
one-third, (b) one-third or more but less
than a majority, or (c) a majority or more of
all voting power. Control shares do not
include shares the acquiring person is then
entitled to vote as a result of having
previously obtained shareholder approval.

A REIT may exempt certain persons from the
control share acquisition statute by
provision in its charter or bylaws.
SFT-Maryland has included such a provision in
the Maryland Declaration of Trust, exempting
Starwood Capital and its affiliates from such
restrictions.
</TABLE>

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<PAGE>
<TABLE>
<S> <C>
CALIFORNIA MARYLAND
- --------------------------------------------- ---------------------------------------------
LIMITATION OF TRUSTEES' AND OFFICERS' LIABILITY

The Declaration of Trust provides that the Pursuant to Title 8, a trustee of a REIT is
trustees and officers of the Trust shall not not personally liable for the obligations of
be personally liable to the Trust or the REIT other than for acts that constitute,
Shareholders except arising from the willful bad faith, willful misfeasance, gross
violation of the Declaration of Trust or negligence or reckless disregard of duty. To
Trustees Regulations which violation is the extent permitted by Maryland law, the
materially against the interests of the Declaration of Trust provides that no Trustee
Shareholders and results in material harm to or officer of SFT-Maryland shall be liable to
such interests, or gross negligence in the SFT-Maryland or to any Trustee for any act or
performance of duties. Further the omission of any other Trustee, Shareholder,
Declaration of Trust provides that the officer, or agent of SFT-Maryland, including
Trustees, officers, employees, and agents of the Advisor, or be held to any personal
the Trust, shall not be liable to the Trust liability whatsoever in tort, contract, or
or the Shareholders, and the Trust shall otherwise in connection with the affairs of
indemnify the Trustees, officers, employees, this Trust except only that arising from his
and agents of the Trust, against any claim or own willful violation of the provisions of
liability by or to any person other than the the Maryland Declaration of Trust or of the
Trust, in respect of any act or any failure Bylaws which violation is materially against
to act so long as such act or failure to act the interests of the Shareholders and results
was performed in a manner determined in good in material harm to such interests, or gross
faith to be within the scope of the Trustees' negligence in the performance of his duties.
authority and to be in the best interest of
the Trust, and so long as he, she, or it was
not guilty of negligence, misconduct, or a
breach of his fiduciary obligations in such
act or failure to act.

LIMITATION OF SHAREHOLDER LIABILITY

The Declaration of Trust provides that no Pursuant to Title 8 and the Maryland
Shareholder shall be subject to any personal Declaration of Trust, Shareholders of the
liability whatsoever to any person in Trust may not be held liable for the
connection with trust estate or the acts, obligations of SFT-Maryland.
obligations or affairs of the Trust.
</TABLE>

20
<PAGE>
<TABLE>
<S> <C>
CALIFORNIA MARYLAND
- --------------------------------------------- ---------------------------------------------
INDEMNIFICATION OF TRUSTEES AND OFFICERS

The Declaration of Trust indemnifies the Title 8 permits indemnification of Trustees
Trustees, officers, employees and agents of unless it is established that (i) a Trustee's
the Trust, for any act or failure determined act or omission was material and either
in good faith to be within the scope of the committed in bad faith or the result of
Trustees' authority and to be in the best active and deliberate dishonesty, (ii) the
interest of the Trust, and so long as he, she Trustee received an improper personal
or it was not guilty of negligence, benefit, or (iii) in the case of a criminal
misconduct or a breach of fiduciary proceeding, the Trustee had reason to believe
obligations. that the act or omission was unlawful. Title
The Trustees' Regulations provide that the 8 also permits indemnification against
Trustees and officers of the Trust are judgments, penalties, fines and amounts paid
indemnified and held harmless from all in settlement of a proceeding by or in the
liability arising from or related to any right of a REIT; however, indemnification is
pending or completed action to the maximum prohibited if the person seeking
extent permitted by the Declaration of Trust indemnification has been found liable to the
and California law. The Trustees' Regulations REIT in a proceeding brought by or in the
further provide that such indemnification is right of the corporation. The Maryland
not exclusive of any other rights the agents Declaration of Trust indemnifies Trustees and
of the REIT may have. officers to the fullest extent permitted
under Maryland law.

The Maryland Bylaws provide that the Trustees
and officers of the Trust are indemnified and
held harmless from all liability arising from
or related to any pending or completed action
to the maximum extent permitted by the
Maryland Declaration of Trust and Maryland
law. The Maryland Bylaws further provide that
such indemnification is not exclusive of any
other rights the agents of the corporation
may have.

INDEMNIFICATION OF SHAREHOLDERS

The Declaration of Trust indemnifies The Maryland Declaration of Trust indemnifies
Shareholders against all liabilities incurred Shareholders against all liabilities incurred
by virtue of being a Shareholder. by virtue of being a Shareholder.
</TABLE>

21
<PAGE>
<TABLE>
<S> <C>
CALIFORNIA MARYLAND
- --------------------------------------------- ---------------------------------------------
INSPECTION OF BOOKS AND RECORDS

Under California law, upon written demand for Title 8 provides a right to inspect and copy
any purpose reasonably related to the the trust's books of account and stock ledger
shareholder's interest as a Shareholder, any to persons who have been shareholders for
shareholder of a corporation may inspect and more than six months and own at least 5% of
copy the accounting books and records and any class of a REIT's outstanding shares. In
minutes of shareholder, board and committee addition, any Shareholder of a REIT has the
proceedings. A Shareholder or Shareholders right to inspect the bylaws, minutes of
(a) who hold at least 5% of the outstanding shareholders meetings, annual statements of
voting Shares or (b) who hold at least 1% of affairs and voting trust agreements and to
those voting Shares and have filed a Schedule request that the REIT provide a sworn
14A with the Securities and Exchange statement showing all stock and securities
Commission shall have an absolute right to issued and all consideration received by the
inspect and copy the record of Shareholders. REIT within the preceding twelve months.
Although California law does not address this
issue in regard to trusts, the Declaration of
Trust extends the same rights to the Trust's
Shareholders as are available to those of a
corporation under California law.

INTERESTED TRUSTEE TRANSACTIONS

Pursuant to the Declaration of Trust, certain Title 8 does not address interested trustee
contracts or transactions in which one or transactions. Pursuant to the Maryland
more of the Trustees has an interest are not Declaration of Trust, certain contracts or
void or voidable solely because of such transactions in which one or more of the
interest if the contract or transaction (a) Trustees has an interest are not void or
is approved by a majority of the trustees or voidable solely because of such interest if
by a majority of votes cast by the the contract or transaction (a) is approved
shareholders, in either case after full by a majority of the disinterested trustees
disclosure of the material facts, or (b) is or approved or ratified by a majority of
fair and reasonable to the Trust. votes cast by the shareholders, in either
case after full disclosure of the material
facts, or (b) is fair and reasonable to
SFT-Maryland.
</TABLE>

ANTI-TAKEOVER EFFECTS

The Reorganization is not intended to be an anti-takeover device and is not
expected to have a significant effect on the ownership percentages of the
Trust's current Shareholders.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION

The following summary of certain federal income tax consequences of the
Reorganization is for general information only, and does not purport to address
all aspects of such exchange and shall not be considered as tax or investment
advice. The following summary discussion is based upon the Code, applicable
Treasury regulations thereunder, and interpretations of the Code and such
regulations by the courts and the Internal Revenue Service ("IRS"), all as they
are in effect and exist as of the date hereof. There can be no assurance that
future legislative, judicial and administrative changes or interpretations will
not adversely affect the accuracy of statements and conclusions set forth
herein. Any such changes or interpretations could be applied retroactively and,
accordingly, could cause the tax consequence to vary substantially from the
consequences described below. No ruling from the IRS with respect to the matters
discussed herein has been requested, and there is no assurance that the IRS
would agree with the conclusions set forth in this discussion.

22
<PAGE>
This summary does not discuss the Federal income tax consequences of the
Reorganization that may be relevant to particular Shareholders in light of their
personal circumstances or to certain types of Shareholders (such as, banks,
insurance companies, regulated investment, personal holding companies, foreign
entities, nonresident aliens individuals, broker-dealers, tax-exempt entities
and persons who do not hold the Shares as a capital asset) who may be subject to
special treatment under the Federal income tax laws. In addition, this summary
does not discuss the Federal income tax consequences of the Reorganization that
may be relevant with respect to Shares acquired as compensation, including
Shares acquired upon the exercise of options. This summary also does not address
any tax consequences under state, local or foreign laws.

SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR
TAX CONSEQUENCES TO THEM OF PARTICIPATION IN THE REORGANIZATION, INCLUDING THE
APPLICABILITY OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, CHANGES IN APPLICABLE TAX
LAWS AND ANY PENDING OR PROPOSED LEGISLATION.

In the opinion of Mayer, Brown & Platt, counsel to the Trust, the
Reorganization will constitute a "reorganization" within the meaning of Section
368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code").
Accordingly, no gain or loss will be recognized by the holders of Class A Shares
or Class B Shares as a result of the Reorganization, except to the extent that
cash is received by such Shareholders with respect to fractional shares of New
Class A Shares, and no gain or loss will be recognized by the Trust or
SFT-Maryland. The aggregate tax basis for Federal income tax purposes of New
Class A Shares and New Class B Shares received by a Shareholder (including any
fractional shares deemed received) will be equal to the aggregate tax basis of
Class A Shares and Class B Shares exchanged by such Shareholder. If a
Shareholder acquired its Class A Shares or Class B Shares in different lots at
different prices, the basis of the New Class A Shares and New Class B Shares
received will be calculated separately with respect to each lot of Class A
Shares and Class B Shares exchanged for New Class A Shares and New Class B
Shares, provided the Shareholder takes adequate steps to identify New Class A
Shares and New Class B Shares received with respect to the different lots of
Class A Shares and Class B Shares which are exchanged.

Each Shareholder's holding period with respect to New Class A Shares or New
Class B Shares, as applicable, will include the period during which such holder
held Class A Shares or Class B Shares, as applicable, provided the Class A
Shares or Class B Shares, as applicable, were held by such holder as a capital
asset at the Effective Date.

Assuming that the payment in cash in lieu of fractional New Class A Shares
is solely for the purpose of avoiding the expense and inconvenience to the Trust
of issuing fractional shares and does not represent separately bargained-for
consideration, a Shareholder who receives a payment of cash with respect to a
fractional New Class A Share will be treated as if a fractional New Class A
Share was issued to such Shareholder and redeemed for cash in a distribution in
redemption of such fractional share. The Federal income tax consequences of such
deemed redemption will be governed by Section 302 of the Code.

Upon the hypothetical redemption of such fractional New Class A Shares, a
Shareholder will realize capital gain or loss (assuming the Class A Shares were
held as a capital asset) in an amount equal to the difference between the cash
received and such Shareholder's tax basis in its fractional Share only if the
hypothetical redemption would qualify as a sale or exchange under one of the
tests of Section 302(b) of the Code and in the case of any Shareholder who
received Class A or Class B shares as part of the Recapitalization Transaction,
any such gain or loss will be taxable as short term capital gain or loss. A
redemption of such Shareholder's New Class A Shares would qualify as a sale or
exchange under Section 302(b) of the Code if: (i) under Section 302(b)(1) of the
Code, such redemption is "not essentially equivalent to a dividend" with respect
to such Shareholder; (ii) under Section 302(b)(2) of the Code, (a) such
Shareholder's percentage ownership of New Class A Shares and New Class B Shares
outstanding

23
<PAGE>
after the redemption is less than 80% of its percentage ownership of Class A
Shares and Class B Shares outstanding before the redemption, and (b) its
percentage ownership of the voting stock of the SFT-Maryland outstanding after
the Reorganization is less than 80% of its percentage ownership of the voting
stock outstanding immediately prior to the redemption; or (iii) under Section
302(b)(3) of the Code, such Shareholder does not own any Shares of SFT-Maryland
after the redemption. The IRS has publicly ruled that a redemption of stock held
by a holder of a minimal interest in a publicly-held corporation would be
considered "not essentially equivalent to a dividend" for purposes of Section
302(b)(1) of the Code if such Shareholder exercised no control over the affairs
and such Shareholder's percentage interest in the corporation were reduced by
any amount as a result of such redemption. Under judicial decisions and IRS
published rulings, the application of these tests takes into account all
transactions which are part of a single overall plan. Thus, a Shareholder's
dispositions or acquisitions of Class A Shares, New Class A Shares, Class B
Shares or New Class B Shares that occur contemporaneously with an exchange
pursuant to the Reorganization and as part of a single plan with such exchange
should be taken into account in applying the Section 302(b) of the Code tests to
that Shareholder.

For purposes of the tests of Section 302(b) of the Code, it is necessary to
take into account not only the Class A Shares, New Class A Shares, Class B
Shares and New Class B Shares that a Shareholder actually owns, but also the
Class A Shares, New Class A Shares, Class B Shares and New Class B Shares that
such Shareholder is deemed to constructively own under Section 318 of the Code.
Generally, under Section 318 of the Code, a Shareholder is deemed constructively
to own stock actually owned, and in some cases constructively owned, by certain
related individuals and entities (including corporations in which the
Shareholder has a major interest, partnership, trusts and estates) or which such
Shareholder or such related individuals or entities may acquire by exercise of
an option, whether or not presently exercisable.

If the exchange of Class A Shares for New Class A Shares does not qualify as
a sale or exchange under Section 302 of the Code as to a particular Shareholder,
the cash payment will constitute a distribution to such Shareholder under
Section 301 of the Code and will be taxable as ordinary income to such
Shareholder to the extent of the Trust's current and accumulated earnings and
profits.

OTHER TAX CONSEQUENCES

The Trust and its Shareholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Trust and
its Shareholders may not conform to the federal income tax consequences
discussed above. Consequently, Shareholders should consult their own tax
advisors regarding the effect of state and local tax laws on their investment in
the Trust.

ACCOUNTING TREATMENT OF REORGANIZATION

For financial accounting purposes, the Reorganization will be treated as a
transfer of assets and liabilities between entities which are under common
control. Accordingly, the assets and liabilities transferred from the Trust to
SFT-Maryland will be reflected at their predecessor basis and no gain or loss
will be recognized.

BOARD OF TRUSTEES RECOMMENDATION

The Board of Trustees recommends that you vote FOR the Reorganization.

24
<PAGE>
DESCRIPTION OF SFT-MARYLAND SHARES

The following summary of the terms of the Class A Shares of SFT-Maryland is
qualified in its entirety by reference to the Title 8 and to the Maryland
Declaration of Trust and Bylaws, copies of which are exhibits hereto.

GENERAL

SFT-Maryland is authorized to issue 90,000,000 New Shares of which
60,000,000 have been designated New Class A Shares and 30,000,000 have been
designated New Class B Shares. The Board of Trustees is authorized to increase
or decrease the authorized aggregate number of New Shares and the number of
authorized shares in any class or series without shareholder approval. Upon
completion of the Reorganization approximately 52,390,000 New Class A Shares
will be issued and outstanding and approximately 26,195,000 New Class B Shares
will be issued and outstanding.

NEW CLASS A SHARES AND NEW CLASS B SHARES

All of the New Shares issued in exchange for Shares will be duly authorized,
fully paid and nonassessable. The New Class A Shares are entitled to a 99%
equity interest and a 67% voting interest in SFT-Maryland. The New Class B
Shares are entitled to a 1% equity interest and a 33% voting interest in
SFT-Maryland. Subject to the preferential rights of any other class or series of
beneficial interest and to the provisions of the Maryland Declaration of Trust
regarding the restrictions on transfer of shares, holders of New Class A and New
Class B Shares are entitled to receive dividends on such shares if, as and when
authorized and declared by the Board of Trustees out of assets legally available
therefor and to share ratably in the assets of SFT-Maryland legally available
for distribution to its shareholders in the event of its liquidation,
dissolution or winding up after payment of or adequate provision for all known
debts and liabilities of SFT-Maryland with 99% of such dividend or distribution
going to the holders of New Class A Shares and 1% going to the holders of New
Class B Shares.

Subject to the provisions of the Maryland Declaration of Trust regarding the
restrictions on transfer of shares, each outstanding New Share entities the
holder to one vote on all matters submitted to a vote of shareholders, including
the election of trustees. New Class A Shares generally vote together with New
Class B Shares as a single class. There is no cumulative voting in the election
of trustees, which means that the holders of a majority of the outstanding New
Shares, voting as a single class can elect all of the trustees then standing for
election and the holders of the remaining shares will not be able to elect any
trustees.

Except as set forth in the next two sentences, holders of New Shares have no
preference, conversion, exchange, sinking fund, redemption or appraisal rights
and have no preemptive rights to subscribe for any securities of SFT-Maryland.
The New Class B Shares are convertible into New Class A Shares at the option of
the holder at a rate of 49 New Class B Shares for one New Class A Share. In
addition, SFT-Maryland is required pursuant to the Maryland Declaration of Trust
to issue one New Class B Share for each two New Class A Shares that are issued,
subject to adjustment in the event New Class B Shares are exchanged for New
Class A Shares. The New Class B Shares are issued to the Class B Shareholders
for par on a pro rata basis.

Under Title 8, a Maryland REIT generally cannot amend its declaration of
trust or merge unless approved by the affirmative vote of shareholders holding
at least two thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be cast
on the matter) is set forth in the REIT's declaration of trust. The Maryland
Declaration of Trust provides that the affirmative vote of a majority of all
votes entitled to be cast may approve amendments to the Maryland Declaration of
Trust except for amendments to provisions that set forth a requirement of a
greater percentage vote of the shareholders which may only be amended by such
greater percentage. The Maryland Declaration of Trust also requires the vote of
a majority of the New Shares for the election or removal of trustees and the
vote of two-thirds of the New Shares to approve the termination of
SFT-Maryland's advisory agreement, a termination of SFT-Maryland (subject to
certain exceptions) and a

25
<PAGE>
sale of all or substantially all of its assets. Subject to certain exceptions,
Title 8 requires that holders of two-thirds of all shares entitled to vote on
the matter must approve mergers, consolidations, share exchanges and transfers
of all or substantially all of the assets of SFT-Maryland.

AUTHORITY TO INCREASE OR DECREASE AUTHORIZED SHARES

The Maryland Declaration of Trust authorizes the Board of Trustees, without
shareholder consent, to increase or decrease the aggregate number of New Shares
or the number of shares of any class or series SFT-Maryland is authorized to
issue, to reclassify any unissued shares and to issue New Shares or other shares
of beneficial interest which may be issued in other classes or series of classes
of shares, including preferred shares and to establish the number of shares in
each class or series and to set the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends or other distributions,
qualifications or terms or conditions of redemption for each such class or
series.

Prior to issuance of shares of each series, the Board of Trustees is
required by Title 8 and the Maryland Declaration of Trust to set, subject to the
provisions of the Maryland Declaration of Trust regarding the restrictions on
transfer of shares, the terms, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption for each such series. Thus,
the Board of Trustees may authorize the issuance of additional series and shares
of beneficial interest, and the terms and conditions of such shares with rights
that could have the effect of delaying, deferring or preventing a transaction or
a change in control of SFT-Maryland that might involve a premium price for
holders of New Shares or otherwise be in their best interest.

RESTRICTIONS ON TRANSFER

The Maryland Declaration of Trust includes certain restrictions on the
ownership and transfer of New Shares which are intended to assist SFT-Maryland
in complying with the REIT provisions of the Code. The Maryland Declaration of
Trust provides that, subject to certain specified exceptions, (i) no person or
entity (except for certain qualified pension plans) may own, or be deemed to own
by virtue of the applicable constructive ownership provisions of the Code, more
than 9.8% in number of New Class A Shares or 9.8% by value of the outstanding
New Shares (the "Ownership Limit"). The constructive ownership rules of the Code
are complex, and may cause New Shares owned actually or constructively by a
group of related individuals and/or entities to be owned constructively by one
individual or entity. As a result, the acquisition of less than 9.8% of the New
Shares (or the acquisition of an interest in an entity that owns, actually or
constructively, New Shares) by an individual or entity could, nevertheless cause
that individual, or another individual or entity, to own constructively in
excess of 9.8% of the outstanding value of New Shares and thus subject such New
Shares to the Ownership Limit. The Board of Trustees may, but in no event will
be required to, waive the Ownership Limit with respect to a particular
Shareholder if it determines that such ownership will not jeopardize
SFT-Maryland's status as a REIT. As a condition to such waiver, the Board of
Trustees may require opinions of counsel satisfactory to it and/or undertakings
or representations from the applicant with respect to preserving the REIT status
of SFT-Maryland.

The Maryland Declaration of Trust also prohibits (a) a person from actually
or constructively owning New Shares that would result in SFT-Maryland being
"closely held" under Section 856(h) of the Code or otherwise cause SFT-Maryland
to fail to qualify as a REIT and (b) any person from transferring New Shares if
such transfer would result in New Shares being owned by fewer than 100 persons.
Any person who acquires or attempts or intends to acquire New Shares that will
or may violate any of the foregoing restrictions on transferability and
ownership is required to give notice immediately to SFT-Maryland and provide
SFT-Maryland with such other information as SFT-Maryland may request in order to
determine the effect of such transfer on SFT-Maryland's status as a REIT. The
foregoing restrictions on transferability and ownership will not apply if the
Board determines that it is no longer in the best interest of SFT-Maryland to
attempt to qualify, or to continue to qualify, as a REIT.

26
<PAGE>
The Maryland Declaration of Trust provides that, if any purported transfer
of New Shares or any other event would otherwise result in any person violating
the Ownership Limit or the Maryland Declaration of Trust, then any such
purported transfer will be void ab initio and of no force or effect with respect
to the purported transferee (the "Prohibited Transferee") as to that number of
New Shares in excess of the Ownership Limit and the Prohibited Transferee shall
acquire no right or interest (or, in the case of any event other than a
purported transfer, the person or entity holding record title to any such New
Shares in excess of the Ownership Limit as the case may be (the "Prohibited
Owner") shall cease to own any right or interest) in such New Shares. Any such
New Shares described above will be transferred automatically, by operation of
law, to a trust (the "Charitable Trust"), the beneficiary of which will be a
qualified charitable organization selected by SFT-Maryland (the "Beneficiary").
Such automatic transfer shall be deemed to be effective as of the close of
business on the business day prior to the date of such violative transfer.
Within sixty days after the later of (a) the date of the transfer which resulted
in the violation and (b) the date the Board of Trustees determines in good faith
that the transfer which resulted in the violation occurred, the trustee of the
Charitable Trust (who shall be designated by SFT-Maryland and be unaffiliated
with SFT-Maryland and any Prohibited Transferee or Prohibited Owner, the
"Charitable Trustee") will be required to sell such shares to a person or entity
who could own such shares without violating the Ownership Limit and distribute
to the Prohibited Transferee an amount equal to the lesser of the price paid by
the Prohibited Transferee for such New Shares or the sales proceeds received by
the Charitable Trust for such New Shares. In the case of any New Shares in
excess of the Ownership Limit resulting from an event other than a transfer, or
from a transfer for no consideration (such as a gift), the Charitable Trustee
will be required to sell such New Shares to a qualified person or entity and
distribute to the Prohibited Owner an amount equal to the lesser of the fair
market value of such New Shares as of the date of such event or the sales
proceeds received by the Charitable Trustee for such New Shares. In either case,
any proceeds in excess of the amount distributable to the Prohibited Transferee
or Prohibited Owner, as applicable, will be distributed to the Beneficiary.
Prior to a sale of any New Shares in excess of the Ownership Limit by the
Charitable Trust, the Charitable Trustee will be entitled to receive, in trust
for the Beneficiary, all dividends and other distributions paid by SFT-Maryland
with respect to such New Shares, and also will be entitled to exercise all
voting rights with respect to such New Shares. Subject to Maryland law,
effective as of the date that such New Shares have been transferred to the
Charitable Trust, the Charitable Trustee shall have the authority (at the
Charitable Trustee's sole discretion) to vote such Shares. Any vote taken by a
Prohibited Owner prior to the discovery by SFT-Maryland that such Shares were
held in trust shall be rescinded ab initio. Any dividend or other distribution
paid to the Prohibited Transferee or Prohibited Owner (prior to the discovery by
SFT-Maryland that such New Shares had been automatically transferred to the
Charitable Trust as described above) will be required to be repaid to the
Charitable Trustee upon demand for distribution to the Beneficiary. In the event
that the transfer to SFT-Maryland as described above is not automatically
effective (for any reason) to prevent violation of the Ownership Limit, then the
Maryland Declaration of Trust provides that the transfer of the New Shares will
be void.

In addition, New Shares held in the Charitable Trust shall be deemed to have
been offered for sale to SFT-Maryland, or its designee, at a price per Share
equal to the lesser of (i) the price per share in the transaction that resulted
in such transfer to the Charitable Trust (or, in the case of a devise or gift),
the market price at the time of such devise or gift, and (ii) the market price
on the date SFT-Maryland, or its designee, accepts such offer. SFT-Maryland
shall have the right to accept such offer until 90 days after the later of (a)
the date of the transfer which resulted in the violation and (b) the date the
Board of Trustees determines in good faith that the transfer which resulted in
the violation occurred, if SFT-Maryland did not receive the required notice, but
in no event later than the date that the Charitable Trustee has sold the New
Shares held in the Charitable Trust. Upon such sale to SFT-Maryland, the
interest of the Beneficiary in the shares sold shall terminate and the
Charitable Trustee shall distribute the net proceeds of the sale to the
Prohibited Transferee or Prohibited Owner, as the case may be.

All certificates representing New Shares will bear a legend referring to the
restrictions described above.

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CERTAIN PROVISIONS OF MARYLAND LAW
AND OF THE MARYLAND DECLARATION OF TRUST AND BYLAWS

THE FOLLOWING SUMMARY OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
MARYLAND DECLARATION OF TRUST AND BYLAWS DOES NOT PURPORT TO BE COMPLETE AND IS
SUBJECT TO AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO MARYLAND LAW AND TO THE
MARYLAND DECLARATION OF TRUST AND BYLAWS, COPIES OF WHICH ARE EXHIBITS HERETO.

THE BOARD OF TRUSTEES

The Maryland Declaration of Trust provides that the number of trustees of
the Trust shall be eight and that number may be increased or decreased by the
Board of Trustees or by the Shareholders; provided that the number of trustees
shall never be less than seven, nor more than 15. Any vacancy will be filled, at
any regular meeting or at any special meeting called for that purpose, by a
majority of the remaining trustees or by the affirmative vote of a majority of
the voting shares.

The Board of Trustees is divided into two approximately equal classes. After
an interim arrangement, trustees in each class will serve for two years with
only one of the two classes being elected each year. The Class I and Class II
Trustees were initially elected at the 1997 Annual Meeting of Shareholders of
the Trust for terms of one year and two years, respectively. Class I Trustees
elected at the 1997 Annual Meeting will hold office until the 1998 Annual
Meeting of Shareholders of the Trust and, if re-elected at such meeting will be
elected as Class I Trustees of SFT-Maryland to serve until the 2000 Annual
Meeting of Shareholders of SFT-Maryland; and Class II Trustees elected at the
1997 Annual Meeting of the Trust will hold office until the 1999 Annual Meeting
of Shareholders of SFT-Maryland. At each Annual Meeting of Shareholders of
SFT-Maryland commencing with the 1999 Annual Meeting of Shareholders, Trustees
elected to succeed those in the class whose terms then expire will be elected
for two-year terms, so that the term of one class of Trustees expires each year.
Thus, Shareholders will elect approximately one-half of the Trustees at each
Annual Meeting of Shareholders and each Trustee will serve until a successor is
duly elected and qualified or until his earlier death, resignation or removal.

REMOVAL OF TRUSTEES

The Maryland Declaration of Trust provides that a trustee may be removed by
the Trustees only for cause (as defined in the Maryland Declaration of Trust)
and with or without cause by the affirmative vote of at least a majority of the
Shares.

BUSINESS COMBINATIONS

Under Maryland law, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland REIT and
any person who beneficially owns ten percent or more of the voting power of the
REIT's shares or an affiliate of the REIT who, at any time within the two-year
period prior to the date in question, was the beneficial owner of ten percent or
more of the voting power of the then-outstanding voting shares of the REIT (an
"Interested Stockholder") or an affiliate of such an Interested Stockholder are
prohibited for five years after the most recent date on which the Interested
Stockholder becomes an Interested Stockholder. Thereafter, any such business
combination must be recommended by the Board of Trustees of such REIT and
approved by the affirmative vote of at least (a) 80% of the votes entitled to be
cast by holders of outstanding voting shares of the REIT and (b) two-thirds of
the votes entitled to be cast by holders of shares of the REIT other than shares
held by the Interested Shareholder with whom (or with whose affiliate) the
business combination is to be effected, unless, among other conditions, the
REIT's shareholders receive a minimum price (as defined under Maryland law) for
their shares and the consideration is received in cash or in the same form as
previously paid by the Interested Shareholder for its shares. These provisions
of Maryland law do not apply, however, to business combinations that are
approved or exempted by the Board of Trustees of the REIT prior to the time that

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the Interested Shareholder becomes an Interested Shareholder. Certain affiliates
of Starwood Capital will beneficially own more than ten percent of
SFT-Maryland's voting shares upon consummation of the Reorganization and would,
therefore, be subject to the business combination provision of Maryland law.
However, pursuant to the statute, SFT-Maryland has exempted any business
combinations involving Starwood Capital and its affiliates and, consequently,
the five-year prohibition and the super-majority vote requirements will not
apply to business combinations between any of them and SFT-Maryland. As a
result, Starwood Capital and its affiliates may be able to enter into business
combinations with SFT-Maryland that may not be in the best interest of its
shareholders without compliance by SFT-Maryland with the super-majority vote
requirements and the other provisions of the statute.

CONTROL SHARE ACQUISITIONS

Maryland law provides that "control shares" of a Maryland REIT acquired in a
"control share acquisition" have no voting rights except to the extent approved
by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares owned by the acquiror, by officers or by trustees who are
employees of the REIT. "Control Shares" are voting shares which, if aggregated
with all other such shares previously acquired by the acquiror or in respect of
which the acquiror is able to exercise or direct the exercise of voting power
(except solely by virtue of a revocable proxy), would entitle the acquiror to
exercise voting power in electing trustees within one of the following ranges of
voting power: (i) one-fifth or more but less than one-third, (ii) one-third or
more but less than a majority, or (iii) a majority or more of all voting power.
Control shares do not include shares the acquiring person is then entitled to
vote as a result of having previously obtained shareholder approval. A "control
share acquisition" means the acquisition of control shares, subject to certain
exceptions.

A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the Board of Trustees of the REIT to call a special meeting of
shareholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the REIT may itself present
the question at any shareholders meeting.

If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then
subject to certain conditions and limitations, the REIT may redeem any or all of
the control shares (except those for which voting rights have previously been
approved) for fair value determined, without regard to the absence of voting
rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of shareholders at which the
voting rights of such shares are considered and not approved. If voting rights
for control shares are approved at a shareholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
shareholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.

The control share acquisition statute does not apply (a) to shares acquired
in a merger, consolidation or share exchange if the REIT is a party to the
transaction or (b) to acquisitions approved or exempted by the charter or bylaws
of the REIT. The Bylaws contain a provision exempting Starwood Capital and its
affiliates from the control share acquisition statute.

ANTI-TAKEOVER EFFECTS OF MARYLAND LAW AND THE MARYLAND DECLARATION OF TRUST AND
BYLAWS

The ability of the Board of Trustees to authorize and issue additional
shares of beneficial interest and to set the terms and preferences thereof, a
classified Board of Trustees, requiring approval of shareholders holding
two-thirds of the voting shares prior to certain asset transfers and prior to a
termination of SFT-Maryland's advisory agreement may be characterized as
"anti-takeover measures" and could have the

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effect of delaying, discouraging or preventing a change in control of
SFT-Maryland even if shareholders holding a majority of the voting shares
believed such change of control was in their best interests.

In addition, the business combination and control share acquisition
provisions of Title 8, and the provisions of the Maryland Declaration of Trust
on removal of trustees and the advance notice provisions of the Maryland Bylaws
described below could delay, defer or prevent a transaction or a change in
control of SFT-Maryland that might involve a premium price for holders of New
Shares or otherwise be in their best interest.

The Maryland Bylaws provide that (a) with respect to an annual meeting of
shareholders, nominations of persons for election to the Board of Trustees and
the proposal of business to be considered by shareholders may be made only (i)
pursuant to SFT-Maryland's notice of the meeting, (ii) by the Board of Trustees
or (iii) by a shareholder who is entitled to vote at the meeting and has
complied with the advance notice procedures set forth in the Maryland Bylaws and
(b) with respect to special meetings of shareholders, only the business
specified in SFT-Maryland's notice of meeting may be brought before the meeting
of shareholders and nominations of persons for election to the Board of Trustees
may be made only (i) pursuant to SFT-Maryland's notice of the meeting, (ii) by
the Board of Trustees or (iii) provided that the Board of Trustees has
determined that trustees shall be elected at such meeting, by a shareholder who
is entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the Maryland Bylaws.

BOARD QUORUM

A majority of the total number of trustees constitutes a quorum for the
transaction of business under the Maryland Declaration of Trust.

TERMINATION OF SFT-MARYLAND

The termination of SFT-Maryland must be approved at a special shareholder
meeting by the affirmative vote of the holders of not less than 66 2/3% of all
of the votes entitled to be cast on the matter. A merger of SFT-Maryland with
and into another entity is not a termination of SFT-Maryland if SFT-Maryland is
the surviving entity or if the primary purpose of the merger is to change the
domicile of SFT-Maryland. In addition, a change of SFT-Maryland from a business
trust to a corporation is not a termination.

CONFLICTS OF INTEREST

The Maryland Declaration of Trust provides that no trustee will be
prohibited from voting or taking any action as a trustee because of any actual
or apparent conflict of interest between the trustee and the Trust.

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FEDERAL INCOME TAX CONSEQUENCES

The Trust intends intends to operate in a manner that permits it to satisfy
the requirements for taxation as a REIT under the applicable provisions of the
Code. No assurance can be given, however, that such requirements will be met.
The following is a summary of the federal income tax consequences for the Trust
and its shareholders with respect to the treatment of the Trust as a REIT. The
information set forth below, to the extent that it constitutes matters of law or
legal conclusions, is based on the opinion of Mayer, Brown & Platt, counsel to
the Trust.

Based upon the matters described below (including an Internal Revenue
Service ("IRS") closing agreement dated March 10, 1998 (discussed below))
relating to the Trust, in the opinion of Mayer, Brown & Platt, counsel to the
Trust, the Trust's existing legal organization and its actual and proposed
method of operation, as described in this Prospectus, as set forth in its
organizational documents and as represented by the Trust to Mayer, Brown &
Platt, enable it to satisfy the requirements for qualification as a REIT under
the Code in the ordinary course of its proposed operations. This opinion is
based on certain assumptions relating to the organization and operation of the
Trust, including that the Trust will be operated in the manner described in its
applicable organizational documents and in this Prospectus and that all terms
and provisions of such documents will be complied with by all parties thereto.
This opinion is also conditioned upon certain representations made by the Trust
as to certain factual matters relating to the Trust's organization and intended
or expected manner of operation. In addition, this opinion is based on the law
existing and in effect on the date hereof and the Trust's qualification and
taxation as a REIT will depend on compliance with such law existing and in
effect on the date hereof and as the same may be hereafter amended. The Trust's
qualification and taxation as a REIT will further depend upon the Trust's
ability to meet, on a continuing basis through actual operating results, asset
composition, distribution levels and diversity of share ownership, the various
qualification tests imposed under the Code discussed below. Counsel will not
review compliance with these tests on a continuing basis, and thus, no assurance
can be given that the Trust will satisfy such tests on a continuing basis.

In brief, a corporation that invests primarily in real estate interests
(including interests in mortgages on real property) and that otherwise would be
treated for federal income tax purposes as a corporation can, if its meets the
REIT provisions of the Code described below, claim a tax deduction for the
dividends it pays to its shareholders. Such a corporation generally is not taxed
on its "REIT taxable income" to the extent such income is currently distributed
to shareholders, thereby substantially eliminating the "double taxation" (I.E.,
at both the corporate and shareholder levels) that generally results from an
investment in a corporation. However, as discussed in greater detail below, such
an entity remains subject to tax in certain circumstances even if it qualifies
as a REIT. Further, if the entity were to fail to qualify as a REIT in any year,
it would not be able to deduct any portion of the dividends it paid to its
shareholders and would be subject to full federal income taxation on its
earnings, thereby significantly reducing or eliminating the cash available for
distribution to its shareholders. See "--Taxation of the Trust--General" and
"--Taxation of the Trust--Failure to Qualify."

The Board of Trustees of the Trust currently expects that the Trust will
operate in a manner that permits it to elect, and that it will timely and
effectively elect, REIT status for its taxable year ending December 31, 1998,
and in each taxable year thereafter. There can be no assurance, however, that
this belief or expectation will be fulfilled, since qualification as a REIT
depends on the Trust continuing to satisfy the numerous asset, income and
distribution tests (as described below), which in turn will be dependent in part
on the Trust's operating results.

The following summary is based on existing law, is not exhaustive of all
possible tax considerations and does not give a detailed discussion of any
state, local or foreign tax considerations, nor does it discuss all of the
aspects of federal income taxation that may be relevant to a prospective
shareholder in light of his or her particular circumstances or to certain types
of shareholders (including insurance companies, financial institutions and
broker-dealers, foreign corporations and persons who are not the citizens or
residents of the United States) subject to special treatment under the federal
income taxation laws.

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TAXATION OF THE TRUST

CLOSING AGREEMENT

The Trust recently received an IRS closing agreement, dated March 10, 1998
(i.e., a written agreement from the IRS confirming its agreement on a material
issue) that provided that the Trust is eligible to make an election under
Section 856(c)(1) of the Code to be taxed as a REIT for its taxable year ending
December 31, 1998. After determining that it may have violated certain REIT
asset requirements, the Trust sought an IRS Closing Agreement by voluntarily
disclosing to the Commissioner of Internal Revenue that the Trust may have
violated certain REIT asset requirements set forth in Section 856(c) of the Code
for its taxable years ending December 31, 1993 through December 31, 1996.

While it is a condition of REIT status that prior corporate earnings and
profits be eliminated, the Board of Trustees currently believes that the Trust
did not generate significant earnings and profits in prior taxable years during
which the Trust may not have qualified as a REIT. In addition, because the Trust
may not have qualified as a REIT in the past, if the Trust had any net
unrealized built-in gain, with respect to any asset (a "Built-In Gain Asset")
held by the Trust on January 1, 1998, and the Trust recognizes gain on the
disposition of such asset during the ensuing 10-year period, then the built-in
gain on such date will be subject to tax at the corporate tax rate.

GENERAL

In any year in which the Trust qualifies as a REIT, in general it will not
be subject to federal income tax on that portion of its REIT taxable income or
capital gain which is distributed to shareholders. The Trust may, however, be
subject to tax at normal corporate rates upon any taxable income or capital gain
not distributed. Under recently enacted legislation, to the extent that the
Trust elects to retain and pay income tax on its net long-term capital gain,
shareholders are required to include their proportionate share of the Trust's
undistributed long-term capital gain in income but receive a credit for their
share of any taxes paid on such gain by the REIT.

Notwithstanding its qualification as a REIT, the Trust may also be subject
to taxation in certain other circumstances. If the Trust should fail to satisfy
either the 75% or the 95% gross income test (each as discussed below), and
nonetheless maintains its qualification as a REIT because certain other
requirements are met, it will be subject to a 100% tax on the greater of the
amount by which the Trust fails either the 75% or the 95% test, multiplied by a
fraction intended to reflect the Trust's profitability. The Trust will also be
subject to a tax of 100% on net income from any "prohibited transaction" (as
described below), and if the Trust has (i) net income from the sale or other
disposition of "foreclosure property" which is held primarily for sale to
customers in the ordinary course of business or (ii) other non-qualifying income
from foreclosure property, it will be subject to tax on such income from
foreclosure property at the highest corporate tax rate. In addition, if the
Trust should fail to distribute during each calendar year at least the sum of
(i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT capital
gain net income for such year, and (iii) any undistributed taxable income from
prior years, the Trust would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. To the extent that
the Trust elects to retain and pay income tax on its long-term capital gain,
such retained amounts will be treated as having been distributed for purposes of
the 4% excise tax. The Trust also may be subject to the corporate alternative
minimum tax, as well as to tax in certain situations not presently contemplated.
The Trust uses the calendar year both for federal income tax purposes and for
financial reporting purposes.

In order to qualify as a REIT, the Trust must meet, among others, the
following requirements:

SHARE OWNERSHIP TESTS

The Trust's shares of beneficial interest must be held by a minimum of 100
persons for at least 335 days in each taxable year (or a proportional number of
days in any short taxable year). In addition, at all times during the second
half of each taxable year, no more than 50% in value of the outstanding shares
of beneficial interest of the Trust may be owned, directly or indirectly and
including the effects of certain

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constructive ownership rules, by five or fewer individuals, which for this
purpose includes certain tax-exempt entities. However, for purposes of this
test, any shares of beneficial interest held by a qualified domestic pension or
other retirement trust will be treated as held directly by its beneficiaries in
proportion to their actuarial interest in such trust rather than by such trust.
These share ownership requirements need not be met until the second taxable year
of the Trust for which a REIT election is made.

In order to attempt to provide compliance with the foregoing share ownership
tests, the Trust has placed certain restrictions on the transfer of its shares
of beneficial interest to prevent additional concentration of stock ownership.
Moreover, to evidence compliance with these requirements, Treasury regulations
require the Trust to maintain records which disclose the actual ownership of its
outstanding shares of beneficial interest. In fulfilling its obligations to
maintain records, the Trust must and will demand written statements each year
from the record holders of designated percentages of its shares of beneficial
interest disclosing the actual owners of such shares of beneficial interest (as
prescribed by Treasury regulations). A list of those persons failing or refusing
to comply with such demand must be maintained as part of the Trust's records. A
shareholder failing or refusing to comply with the Trust's written demand must
submit with his tax return a similar statement disclosing the actual ownership
of Trust shares of beneficial interest and certain other information. In
addition, the Trust's Declaration of Trust provides restrictions regarding the
ownership and transfer of its shares of beneficial interest that are intended to
assist the Trust in continuing to satisfy the share ownership requirements. See
"Description of SFT-- Maryland Shares--Restrictions on Transfer."

ASSET TESTS

At the close of each quarter of the Trust's taxable year, the Trust must
satisfy two tests relating to the nature of its assets (with "assets" being
determined in accordance with generally accepted accounting principles). First,
at least 75% of the value of the Trust's total assets must be represented by
interests in real property, interests in mortgages on real property, shares in
other REITs, cash, cash items, government securities, qualified temporary
investments and regular or residual interests in a REMIC, except that, if less
than 95% of the assets of a REMIC are "real estate assets" (as determined under
the Code), the Trust shall be treated as holding directly its proportionate
share of the assets of the REMIC. Second, although the remaining 25% of the
Trust's assets generally may be invested without restriction, securities in this
class may not exceed (i) in the case of securities of any one non-government
issuer, 5% of the value of the Trust's total assets or (ii) 10% of the
outstanding voting securities of any one such issuer.

Based on existing facts, the Board of Trustees intends that the Trust will
meet these tests at the applicable times in the future. If, however, the Trust
were unable to satisfy the foregoing asset tests at the applicable time, the
Trust would be required to take preventive steps by disposing of certain assets
or otherwise risk a loss of REIT status.

GROSS INCOME TESTS

There are three separate percentage tests relating to the sources of the
Trust's gross income which must have been satisfied for the Trust's 1997 taxable
year and two separate percentage tests thereafter. Under recently enacted
legislation, the 30% gross income test has been repealed and the Trust will not
be required to comply with this test beginning January 1, 1998. For the purposes
of these tests, where the Trust invests in a partnership, the Trust will be
treated as receiving its share of the income and loss of the partnership, and
the gross income of the partnership will retain the same character in the hands
of the Trust as it has in the hands of the partnership. The two tests are
separately described below:

THE 75% TEST. At least 75% of the Trust's gross income for the taxable
year must be "qualifying income." Qualifying income generally includes: (i)
rents from real property (except as modified below); (ii) interest on
obligations secured by mortgages on, or interests in, real property including
amounts included in gross income with respect to a regular or residual interest
in a REMIC, except that, if less than 95% of the assets of a REMIC are "real
estate assets" (as determined under the Code), the Trust will be treated as a
holding directly its proportionate share of assets of such REMIC; (iii) gains
from the sale or

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other disposition of interests in real property and real estate mortgages, other
than gain from property held primarily for sale to customers in the ordinary
course of the Trust's trade or business ("dealer property"); (iv) dividends or
other distributions on shares in other REITs, as well as gain from the sale of
such shares; (v) abatements and refunds of real property taxes; (vi) income from
the operation, and gain from the sale, of property acquired at or in lieu of a
foreclosure of the mortgage secured by such property ("foreclosure property");
(vii) commitment fees received for agreeing to make loans secured by mortgages
on real property or to purchase or lease real property; (viii) certain qualified
temporary investment income attributable to the investment of new capital
received by the Trust in exchange for its shares or specified debt securities
during the one-year period following the receipt of such capital.

THE 95% TEST. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of the Trust's gross income for the taxable
year must be derived from the above described qualifying income, or from
dividends, interests, or gains from the sale or other disposition of stock or
other securities that are not dealer property. Dividends and interest on any
obligations not collateralized by an interest in real property (including a
mortgage) are included for purposes of the 95% gross income test, but not for
the purposes of the 75% gross income test. In addition, payments to a REIT under
an interest rate swap, cap agreement, option, futures contract, forward rate
agreement or any similar financial instrument entered into by the REIT to hedge
its indebtedness incurred or to be incurred (and any gain from the sale or other
disposition of these instruments) are treated as qualifying income for purposes
of the 95% gross income test, but not for purposes of the 75% gross income test.

For purposes of determining whether the Trust complies with the 75% and the
95% gross income tests, gross income does not include income from prohibited
transactions. A "prohibited transaction" is a sale of dealer property (excluding
foreclosure property); however, it does not include a sale of its investments if
such investments are held by the Trust for at least four years and certain other
requirements (relating to the number of investments sold in a year, their tax
bases, and the cost of improvements made thereto) are satisfied. See "--Taxation
of the Trust--General."

In order to comply with the 75% and 95% gross income tests described above,
the Board of Trustees will monitor the investments made by the Trust with the
intent of maintaining the Trust's status as a REIT. As a result, the Board of
Trustees may limit and/or closely scrutinize certain types of investments made
by the Trust, including, among others, loans that provide for interest amounts
that are dependent in whole or in part on the income or profits of a borrower,
loans that contain interest payment provisions relating to appreciation of the
underlying property, loans that are secured by assets other than mortgages on
real property or interests in real property, and certain hedging transactions.

Under the REIT rules, any amount received or accrued, directly or
indirectly, with respect to any obligation is generally not includible as
qualifying "interest" for purposes of the 75% and 95% gross income tests if the
determination of the amount depends in whole or in part on the income or profits
of any person (whether or not derived from property secured by the obligation).
However, an amount received or accrued generally will not be excluded from the
term "interest" solely by reason of being based on a fixed percentage or
percentages of receipts or sales. In addition, an amount received or accrued
generally will not be excluded from the term "interest" solely by reason of
being based on the income or profits of a debtor if the debtor derives
substantially all of its gross income from the related property through the
leasing of substantially all of its interests in the property, to the extent the
amounts received from the debtor are attributable to amounts that would be
characterized as qualified rents from real property under the REIT rules.
Furthermore, to the extent interest under a loan is based on the cash proceeds
realized upon the sale of the property securing the loan and constitutes a
"shared appreciation provision" (as described below), income attributable to
such participation feature will be treated as gain from sale of the secured
property, which generally is treated as qualifying income for purposes of the
75% and 95% gross income tests, except as noted below.

In addition, at the time of loan acquisition or origination it might be
determined in certain cases that the Trust's investment in a loan may exceed at
the time of loan acquisition or origination the value of the real property
securing the loan or may not be secured by a mortgage on real property (E.G., a
loan secured

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by a partnership interest), which would result in part or all of the interest
income from such loan constituting qualifying income for purposes of the 95%
gross income test, but not for purposes of the 75% gross income test. It is also
possible that, in some instances, the interest income from a loan may be based
in part on the borrower's profits or net income, which generally will disqualify
the income from the loan for purposes of both the 75% and 95% gross income
tests, except as noted above.

Certain of the Trust's investments may contain the right to receive interest
based on appreciation of the underlying real property. In addition, the Trust
may acquire or originate loans in the future that have similar rights. Under the
Code, a shared appreciation provision in a mortgage is any provision which is in
connection with an obligation held by the Trust and secured by an interest in
real property (the "secured property"), and which entitles the Trust to receive
a specified portion of any gain realized on the sale or exchange of such
property (or of any gain which would be realized if the property were sold on a
specified date).

For purposes of determining whether the Trust meets the 75% income test and
95% income test and whether it derives any income from prohibited transactions,
any income derived from a shared appreciation mortgage shall be treated as gain
recognized on the sale of the secured property. For purposes of this rule, (i)
the Trust is treated as holding the secured property for the period during which
it held the shared appreciation provision (or, if shorter, for the period during
which the secured property was held by the person holding such property), and
(ii) the secured property is treated as "dealer property" (as defined in Section
1221(l) of the Code) if it would be treated as "dealer property" in the hands of
the person holding the secured property (or it would be treated as "dealer
property" if held by the Trust).

For the Trust's taxable years after 1997, if the secured property is treated
as dealer property, gain from the sale of such property could give rise to the
100% tax on gain from prohibited transactions. Since substantially all the loans
previously contributed to the Trust were acquired by purchase or contribution
rather than originated by the Trust, there is no built-in safeguard in the loan
documents to protect the Trust from the risk that the secured property will be
treated as "dealer property." Similarly, in the case of loans that are acquired
in the future rather than originated by the Trust, the same issue arises.
However, the Trust intends to include built-in safeguards in the loans it
originates in the future to minimize any risk that any secured property will be
treated as "dealer property."

The Trust may acquire investments that do not generate qualifying income for
purposes of the 75% and 95% gross income tests because such assets, for example,
generate income dependent in whole or in part on the income or profits of the
applicable borrower. However, based on the Board of Trustees' review of all of
its mortgage investments (after consultation with its counsel and accountants),
the Board of Trustees believes that, for purposes of both the 75% and 95% gross
income tests, its investments will permit the Trust to satisfy the requirements
for qualification as a REIT.

The Trust intends to enter into various hedging transactions with respect to
one or more of its assets or liabilities. While such hedging transactions could
take a variety of forms, only those payments to a REIT under the interest rate
swap, cap agreement, option, futures contract, forward rate agreement or any
similar financial instrument entered into by the REIT to hedge its indebtedness
incurred or to be incurred (and any gain from the sale or other disposition of
these instruments) are treated as qualifying income for purposes of the 95%
gross income test (but not for purposes of the 75% gross income test). The
provisions of the Code regarding the qualification of the Trust as a REIT may
thus restrict the Trust's ability to enter into certain types of hedging
transactions. The Board of Trustees will monitor the Trust's compliance with the
various REIT qualification tests imposed under the Code with respect to its
various hedging strategies on a continuing basis. However, no assurance can be
given that hedging transactions (together with other Trust operations) would
permit the Trust to satisfy these tests on an ongoing basis.

Even if the Trust fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may still qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will generally be available if: (i) the Trust's failure to comply
were due to reasonable cause and not to willful neglect; (ii) the Trust reports
the nature and amount of each item of its income included in the tests on a
schedule attached to its tax returns; and (iii) any incorrect information on the

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<PAGE>
schedule is not due to fraud with intent to evade tax. If these relief
provisions apply, however, the Trust will nonetheless be subject to a 100% tax
on the greater of the amount by which it fails either the 75% or 95% gross
income test, multiplied by a fraction intended to reflect the Trust's
profitability.

THE 30% TEST. The 30% gross income test has been repealed and the Trust
will not be required to comply with this test beginning January 1, 1998.

FORECLOSURE PROPERTY RULES. REITs generally are subject to tax at the
maximum corporate rate on any income from foreclosure property (other than
income that would generally be qualifying income for purposes of the 75% gross
income test), less expenses directly connected with the production of such
income. "Foreclosure property" is defined as any real property (including
interests in real property) and any personal property incident to such real
property (i) that is acquired by a REIT as the result of such REIT having bid on
such property at foreclosure, or having otherwise reduced such property to
ownership or possession by agreement or process of law, after there was a
default (or default was imminent) on a lease of such property or on an
indebtedness owed to the REIT that such property secured, (ii) as to which the
related loan was made or acquired by the REIT at a time when default was not
imminent or anticipated, and (iii) for which such REIT makes a proper election
to treat such property as foreclosure property. Except as provided in the
following paragraph, property shall cease to be foreclosure property with
respect to the Trust as of the close of the third taxable year following the
taxable year in which the Trust acquired such property in foreclosure. If
property is not eligible for the election to be treated as foreclosure property
("ineligible property") because, for example, the related loan was acquired by
the REIT at the time when default was imminent or anticipated, income received
with respect to such ineligible property may not be qualifying income for
purposes of the 75% or 95% gross income tests.

Any foreclosure property shall cease to be foreclosure property on the first
day (occurring on or after the day on which the Trust acquired the property in
foreclosure) on which: (x) a lease is entered into with respect to such property
which, by its terms, will not give rise to qualifying income for purposes of the
75% gross income test or any amount is received or accrued, directly or
indirectly, pursuant to a lease entered into on or after such day which does not
generate qualifying income for purposes of the 75% gross income test; (y) any
construction takes place on such property (other than completion of a building,
or completion of any other improvement, where more than 10 percent of the
construction of such building or other improvement was completed before default
became imminent); or (z) if such day is more than 90 days after the day on which
such property was acquired by the Trust and the property is used in a trade or
business which is conducted by the Trust (other than through an independent
contractor (within the meaning of Section 856(d)(3) of the Code) from whom the
Trust itself does not derive or receive any income). For example, if the Trust
were to acquire a hotel as foreclosure property and operate the hotel for more
than 90 days, the Trust would be required to operate the hotel through an
independent contractor (within the meaning of the Code) from whom the Trust
itself did not derive or receive any income (which might include income from the
hotel). Otherwise, after such 90th day, the property would cease to be
foreclosure property.

In the event that a foreclosure with respect to any of the Trust's mortgage
investments were to occur (or were anticipated to occur), the Trust intends to
manage the actual or anticipated foreclosure with the intent of assuring
qualification under the REIT asset and gross income tests including, if
appropriate, the election to treat a foreclosed upon property as foreclosure
property and to pursue the continued treatment of such property under the
foreclosure property rules.

ANNUAL DISTRIBUTION REQUIREMENTS

In order to qualify as a REIT, the Trust is required to distribute dividends
to its shareholders each year in an amount at least equal to (A) the sum of (i)
95% of the Trust's REIT taxable income (computed without regard to the dividends
received deduction and the Trust's net capital gain) and (ii) 95% of the net
income (after tax), if any, for foreclosure property, minus (B) the sum of
certain items of non-cash income. Such distributions must be paid in the taxable
year to which they relate, or in the following taxable year if declared before
the Trust timely files its tax return for such year and if paid on or before the
first regular

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<PAGE>
dividend payment after the declaration. To the extent that the Trust does not
distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its REIT taxable income, as adjusted, it will be subject to tax on
the undistributed amount at regular capital gain or ordinary corporate tax
rates, as the case may be.

The Trust intends to make timely distributions sufficient to satisfy the
annual distribution requirements described in the first sentence of the
preceding paragraph. It is possible that the Trust may not have sufficient cash
or other liquid assets to meet the 95% distribution requirement, due to timing
differences between the actual receipt of income and actual payment of expenses
on the one hand, and the inclusion of such income and deduction of such expense
in computing the Trust's REIT taxable income on the other hand; or for other
reasons. The Trust will closely monitor the relationship between its REIT
taxable income and cash flow and, if necessary, intends to borrow funds in order
to satisfy the distribution requirement. However, there can be no assurance that
such borrowing would be available at such time.

If the Trust fails to meet the 95% distribution requirement as a result of
an adjustment to the Trust's tax return by the IRS, the Trust may retroactively
cure the failure by paying a "deficiency dividend" (plus applicable penalties
and interest) within a specified period.

FAILURE TO QUALIFY

If the Trust fails to qualify for taxation as a REIT in any taxable year and
the relief provisions do not apply, the Trust will be subject to tax (including
any applicable alternative minimum tax) on its taxable income at regular
corporate rates. Distributions to shareholders in any year in which the Trust
fails to qualify as a REIT will not be deductible by the Trust, nor generally
will they be required to be made under the Code. In such event, to the extent of
current and accumulated earnings and profits, all distributions to shareholders
will be taxable as ordinary income, and subject to certain limitations in the
Code, corporate distributees may be eligible for the dividends received
deduction. Unless entitled to relief under specific statutory provisions, the
Trust also will be disqualified from re-electing taxation as a REIT for the four
taxable years following the year during which qualification was lost.

TAXATION OF SHAREHOLDERS

TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS. As long as the Trust qualifies
as a REIT, distributions made to the Trust's taxable domestic shareholders out
of current or accumulated earnings and profits (and not designated as capital
gain dividends) generally will be taxed to such shareholders as ordinary
dividend income and will not be eligible for the dividends received deduction
for corporations. Distributions of net capital gain designated by the Trust as
capital gain dividends will be taxed to such shareholders as long-term capital
gain (to the extent they do not exceed the Trust's actual net capital gain for
the fiscal year) without regard to the period for which the shareholder has held
its shares of beneficial interest of the Trust. However, corporate shareholders
may be required to treat up to 20% of capital gain dividends as ordinary income.
To the extent that the Trust makes distributions in excess of current and
accumulated earnings and profits, such distributions will be treated first as a
tax-free return of capital to the shareholder, reducing the tax basis of a
shareholder's Shares by the amount of such excess distribution (but not below
zero), with distributions in excess of the shareholder's tax basis being taxed
as capital gains (if the Shares are held by the shareholder as a capital asset).
In addition, any dividend declared by the Trust in October, November or December
of any year that is payable to a shareholder of record on a specific date in any
such month shall be treated as both paid by the Trust and received by the
shareholder on December 31 of such year, provided that the dividend is actually
paid by the Trust during January of the following calendar year. Shareholders
may not include in their individual income tax returns any net operating losses
of the Trust. Federal income tax rules may also require that certain minimum tax
adjustments and preferences be apportioned to Trust shareholders.

The Trust is permitted under the Code to elect to retain and pay income tax
on its net capital gain for any taxable year. Under the Taxpayer Relief Act of
1997 (the "1997 Act"), however, if the Trust so elects, a shareholder must
include in income such shareholder's proportionate share of the Trust's
undistributed

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<PAGE>
capital gain for the taxable year, and will be deemed to have paid such
shareholder's proportionate share of the income tax paid by the Trust with
respect to such undistributed capital gain. Such tax would be credited against
the shareholder's tax liability and subject to normal refund procedures. In
addition, each shareholder's basis in such shareholder's Shares would be
increased by the amount of undistributed capital gain (less the tax paid by the
Trust) included in the shareholder's income.

The 1997 Act also alters the taxation of capital gain income for individuals
(and for certain trusts and estates). Gain from the sale or exchange of certain
investments held for more than 18 months will be taxed at a maximum capital gain
rate of 20%. Gain from the sale or exchange of such investments held for 18
months or less, but for more than one year, will be taxed at a maximum capital
gain rate of 28%. The 1997 Act also provides a maximum rate of 25% for
"unrecaptured section 1250 gain" recognized on the sale or exchange of certain
real estate assets, introduces special rules for "qualified 5-year gain," and
makes certain other changes to prior law. On November 10, 1997, the IRS issued
Notice 97-64, which provides generally that the Trust may classify portions of
its designated capital gain dividend as (i) a 20% rate gain distribution (which
would be taxed as capital gain in the 20% group), (ii) an unrecaptured Section
1250 gain distribution (which would be taxed as capital gain in the 25% group),
or (iii) a 25% rate gain distribution (which would be taxed as capital gain in
the 25% group). If no designation is made, the entire designated capital gain
dividend will be treated as a 28% rate capital gain distribution. Notice 97-64
provides that a REIT must determine the maximum amounts that it may designate as
20% and 25% rate capital gain dividends by performing the computation required
by the Code as if the REIT were an individual whose ordinary income was subject
to a marginal tax rate of at least 28%.

In general, any loss upon a sale or exchange of Shares by a shareholder who
has held such Shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss, to the extent of
distributions from the Trust required to be treated by such shareholders as
long-term capital gains.

BACKUP WITHHOLDING. The Trust will report to its domestic shareholders and
to the IRS the amount of dividends paid for each calendar year, and the amount
of tax withheld, if any, with respect thereto. Under the backup withholding
rules, a shareholder may be subject to backup withholding at a rate of 31% with
respect to dividends paid unless such shareholder (i) is a corporation or comes
within certain other exempt categories and, when required, demonstrates this
fact or (ii) provides a taxpayer identification number, certifies as to no loss
of exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. A shareholder that does not
provide the Trust with its correct taxpayer identification number may also be
subject to penalties imposed by the IRS. Any amount paid as backup withholding
is available as a credit against the shareholder's income tax liability. In
addition, the Trust may be required to withhold a portion of capital gain
distributions made to any shareholders who fail to certify their non-foreign
status to the Trust. See "--Taxation of the Shareholders--Taxation of Foreign
Shareholders" below.

TAXATION OF TAX-EXEMPT SHAREHOLDERS. The IRS has issued a revenue ruling in
which it held that amounts distributed by a REIT to a tax-exempt employees'
pension trust do not constitute unrelated business taxable income ("UBTI").
Subject to the discussion below regarding a "pension-held REIT," based upon such
ruling and the statutory framework of the Code, distributions by the Trust to a
shareholder that is a tax-exempt entity should not constitute UBTI, provided
that the tax-exempt entity has not financed the acquisition of its shares with
"acquisition indebtedness" within the meaning of the Code, that the shares are
not otherwise used in an unrelated trade or business of the tax-exempt entity,
and that the Trust, consistent with its present intent, does not hold a residual
interest in a REMIC that is an entity or arrangement that satisfies the
standards set forth in Section 860D of the Code.

If any pension or other retirement trust that qualifies under Section 401(a)
of the Code (a "qualified pension trust") holds more than 10% by value of the
interests in a "pension-held REIT" at any time during a taxable year, a portion
of the dividends paid to the qualified pension trust by such REIT may constitute
UBTI. For these purposes, a "pension-held REIT" is defined as a REIT (i) which
would not have qualified as a REIT but for the provisions of the Code which look
through such a qualified pension trust in

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<PAGE>
determining ownership of shares of the REIT and (ii) as to which at least one
qualified pension trust holds more than 25% by value of the interests of such
REIT or one or more qualified pension trusts (each owning more than a 10%
interest by value in the REIT) hold in the aggregate more than 50% by value of
the interests in such REIT.

The Board of Trustees believes that the Trust currently does not constitute
a "pension-held REIT." However, because the Trust's shares are "publicly
traded," no assurance can be given that the Trust will not become a
"pension-held REIT" in the future.

TAXATION OF FOREIGN SHAREHOLDERS. The rules governing United States federal
income taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign shareholders (collectively, "Non-U.S.
Shareholders") are highly complex and the following is only a summary of such
rules. Prospective Non-U.S. Shareholders should consult with their own tax
advisors to determine the impact of federal, state and local income tax laws
with regard to an investment in Shares, including any reporting requirements.
The Trust will qualify as a "domestically-controlled REIT" so long as less than
50% in value of its shares of beneficial interest are held by foreign persons
(I.E., non-resident aliens, and foreign corporations, partnerships, trusts and
estates). The Trust currently anticipates that it will qualify as a
domestically-controlled REIT. Under these circumstances, gain from the sale of
Shares by a foreign person should not be subject to United States taxation,
unless such gain is effectively connected with such person's United States trade
or business or, in the case of an individual foreign person, such person is
present within the United States for more than 182 days during the taxable year.
However, notwithstanding the Trust's current anticipation that the Trust will
qualify as a domestically-controlled REIT, because the Shares will be publicly
traded no assurance can be given that the Trust will continue to so qualify.

Distributions of cash generated by the Trust's real estate operations (but
not by the sale or exchange of properties) that are paid to foreign persons
generally will be subject to United States withholding tax at a rate of 30%,
unless (i) an applicable tax treaty reduces that tax and the foreign shareholder
files with the Trust the required form evidencing such lower rate, or (ii) the
foreign shareholder files an IRS Form 4224 with the Trust claiming that the
distribution is "effectively connected" income.

Distributions of proceeds attributable to the sale or exchange of United
States real property interests by the Trust are subject to income and
withholding taxes pursuant to the Foreign Investment in Real Property Tax Act of
1980 ("FIRPTA"), and may also be subject to branch profits tax in the hands of a
shareholder which is a foreign corporation if it is not entitled to treaty
relief or exemption. For purposes of the FIRPTA rules, the term "United States
real property interest" means any interest, other than an interest solely as a
creditor in, real property located in the United States and certain other items.
An interest in real property other than an interest solely as a creditor
includes any direct or indirect right to share in the appreciation in the value,
or in the gross or net proceeds or profits generated by, the real property. In
addition, a loan to an individual or entity under the terms of which a holder of
the indebtedness has any direct or indirect right to share in the appreciation
in value of, or the gross or net proceeds or profits generated by, an interest
in real property of the debtor or of a related person is, in its entirety, an
interest in real property other than solely as a creditor. Accordingly, certain
of the Trust's real estate-related assets, including, without limitation,
Mezzanine Loans, Opportunistic Loans and Minority Participations, Triple Net
Leases, Subordinated Interests and any foreclosure property acquired by the
Trust, may be treated as United States real property interests for FIRPTA
purposes. The Trust is required by applicable Treasury regulations to withhold
35% of any distribution to a foreign person that could be designated by the
Trust as a capital gain dividend. This amount is creditable against the foreign
shareholder's FIRPTA tax liability.

The federal income taxation of foreign persons is a highly complex matter
that may be affected by other considerations. Accordingly, foreign investors in
the Trust should consult their own tax advisor regarding the income and
withholding tax considerations with respect to their investments in the Trust.

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<PAGE>
OTHER TAX CONSIDERATIONS

THE 1997 ACT. The 1997 Act, which was signed into law by President Clinton
on August 5, 1997, modified many of the provisions relating to the requirements
for qualification as, and the taxation of, a REIT. Among other things, the 1997
Act (i) permits a REIT to render a DE MINIMIS amount of impermissible services
to tenants, or in connection with the management of property, and still treat
amounts received with respect to that property as rents from real property; (ii)
permits a REIT to elect to retain and pay income tax on net long-term capital
gains (subject to a shareholder's ability to claim a credit or refund of its
share of such capital gains tax); (iii) as discussed above, repealed a rule that
required that less than 30% of a REIT's gross income be derived from gain from
the sale or other disposition of stock or securities held for less than one
year, certain real property and mortgage investments held for less than four
years, and property that is sold or disposed of in a prohibited transaction; and
(iv) treats income from all hedges that reduce the interest rate risk of REIT
liabilities, not just interest rate swaps and caps, as qualifying income under
the 95% gross income test. The changes are effective for taxable years,
beginning after the date of enactment. Thus, these changes will apply to the
Trust for its taxable year beginning January 1, 1998.

POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING TAX
CONSEQUENCES. Prospective shareholders should recognize that the present
federal income tax treatment of an investment in the Trust may be modified by
legislative, judicial or administrative action at any time and that any such
action may affect investments and commitments previously made. The rules dealing
with federal income taxation are constantly in review by persons involved in the
legislative process and by the IRS and the Treasury Department resulting in
revisions of regulations and revised interpretations of established concepts as
well as statutory changes. No assurance can be given as to the form or content
(including with respect to effective dates) of any tax legislation which may be
enacted. Revisions in federal tax laws and interpretations thereof can adversely
affect the tax consequences of an investment in the Trust.

STATE AND LOCAL TAXES. The Trust and its shareholders may be subject to
state or local taxation, and the Trust may be subject to state or local tax
withholding requirements in various jurisdictions, including those in which it
or they transact business or reside. The state and local tax treatment of the
Trust and its shareholders may not conform to the federal income tax
consequences discussed above. Consequently, prospective shareholders should
consult their own tax advisors regarding the effect of state and local tax laws
on an investment in Shares.

IT IS STRONGLY ADVISED THAT EACH PROSPECTIVE PURCHASER CONSULT WITH SUCH
PURCHASER'S TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO SUCH
PURCHASER OF THE PURCHASE, OWNERSHIP AND SALE OF SHARES IN AN ENTITY ELECTING TO
BE TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND
ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.

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<PAGE>
ELECTION OF TRUSTEES

Four Class I Trustees are to be elected at the Annual Meeting to hold office
until the 2000 Annual Meeting of Shareholders of SFT-Maryland and until their
successors are elected and qualified. These nominees, as well as the Trustees of
the Trust whose terms are not expiring at this Annual Meeting, will continue as
Trustees of SFT-Maryland after the Reorganization.

TRUSTEES AND NOMINEES

The persons named as proxy holders in the accompanying proxy card have
advised the Trust that they will vote the Shares represented by the proxies they
hold in favor of the election of the four nominees named below as Trustees of
the Board, unless and except to the extent that authority to vote for one or
more nominees is withheld in the proxies. In no case will proxies be voted for a
greater number of persons than the number of nominees for election to the Board.
All of the nominees for Trustee are presently Trustees who have been nominated
for re-election. Their current terms of office will expire on the date of the
Annual Meeting and when their successors are elected and qualified. If a nominee
becomes unavailable to serve as a Trustee for any reason, the Shares represented
by any proxy will be voted for the person, if any, who may be designated by the
Board of Trustees to replace such nominee. However, the Board of Trustees has no
reason to believe that any nominee will be unavailable to serve as a Trustee if
elected.

Each of B Holdings, L.L.C. ("BLLC"), the sole holder of Class B Shares and
SAHI Partners, Starwood Mezzanine and SOFI IV, who own an aggregate of
312,035,972 Class A Shares and 157,170,872 Class B Shares or over 99% of the
outstanding voting shares, have agreed to vote all Shares held by each for the
election of Ms. Josephs as a Trustee at the Annual Meeting. Pursuant to a
Shareholders Agreement (the "Shareholders Agreement") among the Trust, BLLC,
SAHI Partners, Mezzanine and SOFI IV during any period in which (x) the Class B
Shares remain controlled by Starwood Capital or by an entity under common
control with Starwood Capital and (y) the advisory agreement ("Advisory
Agreement") between the Trust and the Advisor has not been terminated by the
Advisor or terminated for cause by the Trust, the Trust shall use its best
efforts to cause five nominees designated by Starwood Capital or by the parties
who control Starwood Capital to be elected to the Board of Trustees and to cause
such persons to be included as the management slate of nominees to the Board of
Trustees. Further, during such period the Trust has agreed to use its best
efforts to cause such nominees or Trustees to be replaced from time to time,
with or without cause, with new persons designated by Starwood Capital or the
parties who control Starwood Capital at the request of Starwood Capital or
persons who control Starwood Capital. Finally, each of Messrs. Dishner, Eilian
and Kleeman has agreed in writing to resign as a Trustee at the request of
Starwood Capital or persons who control Starwood Capital. The Shareholders
Agreement will be assumed by SFT-Maryland in the Reorganization. No other
arrangement or understanding exists between any nominee and any other person or
persons pursuant to which any nominee was or is to be selected as a Trustee or
nominee. None of the nominees has any family relationship between them nor with
any Trustee or executive officer of the Trust. However, Messrs. Dishner, Eilian,
Kleeman, Silvey and Sugarman are employed by an entity controlled by Mr.
Sternlicht. The following table sets forth the name, age and the position(s)
with the Trust and to be held with SFT-Maryland (if any) currently held by each
person nominated as a Trustee:

<TABLE>
<CAPTION>
NAME AGE TITLE
- ----------------------------------------------------------------------------- --- ---------
<S> <C> <C>
Jeffrey G. Dishner(1)........................................................ 33 Trustee
Jonathan D. Eilian........................................................... 30 Trustee
Robin Josephs(1)(2).......................................................... 38 Trustee
Merrick R. Kleeman........................................................... 34 Trustee
</TABLE>

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

(1) Member of Audit Committee.

(2) Member of Compensation Committee.

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<PAGE>
JEFFREY G. DISHNER was elected a Trustee of the Trust in March 1998 and will
become a Trustee of
SFT-Maryland at the Effective Time. Mr. Dishner has been a Senior Vice President
of Starwood Capital since September 1994. From 1993 through September 1994, Mr.
Dishner was employed by the commercial mortgage finance group of J.P. Morgan &
Co. Mr. Dishner obtained his M.B.A. during 1991 and 1992 and was employed by JMB
Realty Corporation from 1987 through 1991. Mr. Dishner received a B.A. degree
from the Wharton School of Finance at the University of Pennsylvania and an
M.B.A. from the Amos Tuck School at Dartmouth College.

JONATHAN D. EILIAN was elected a Trustee of the Trust in March 1997 and will
become a Trustee of
SFT-Maryland at the Effective Time. Mr. Eilian has been a Managing Director or
executive officer of Starwood Capital since its formation in September 1991.
Prior to being a founding member of Starwood Capital, Mr. Eilian served as an
Associate for JMB Realty Corporation, a real estate investment firm, and for The
Palmer Group, L.P., a private investment firm specializing in corporate
acquisitions.

ROBIN JOSEPHS was elected a Trustee of the Trust in March 1998 and will
become a Trustee of the Trust at the Effective Time. Ms. Josephs currently
advises real estate ventures. Ms. Josephs served as a Vice President at Goldman
Sachs from 1986 to 1996 in various capacities. Prior to working at Goldman, Ms.
Josephs served as an analyst for Booz Allen & Hamilton in New York from 1982 to
1984. Ms. Josephs received a B.S.E. degree from the Wharton School at the
University of Pennsylvania in 1982 and an M.B.A. from Columbia University in
1986.

MERRICK R. KLEEMAN was elected a Trustee of the Trust in March 1998 and will
become a Trustee of SFT-Maryland at the Effective Time. Mr. Kleeman is a
Managing Director of Starwood Capital. Prior to joining Starwood Capital in
August 1992, Mr. Kleeman was employed by the investment banking division of
Merrill Lynch and by Coastal Management and Consultant, Inc., a real estate
investment company. Mr. Kleeman received a B.A. degree in biology from Dartmouth
College and an M.B.A. from the Harvard Business School where he was a Baker
Scholar.

The following table sets forth the name, age and the position(s) with the
Trust and SFT-Maryland (if any) currently held or to be held by each Trustee
with a term expiring at the 1999 Annual Meeting of Shareholders of SFT-Maryland:

<TABLE>
<CAPTION>
NAME AGE TITLE
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Barry S. Sternlicht........................ 37 Chairman
Jay Sugarman............................... 36 Chief Executive Officer, President and
Trustee
William Matthes(2)......................... 38 Trustee
Kneeland C. Youngblood(1)(2)............... 42 Trustee
</TABLE>

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

(1) Member of Audit Committee.

(2) Member of Compensation Committee.

BARRY S. STERNLICHT became a Trustee of the Trust in March 1994 and was
elected Chairman in September 1996. Mr. Sternlicht became Chairman and a Trustee
of SFT-Maryland at its formation in May 1998. Mr. Sternlicht was Chief Executive
Officer of the Trust from September 1996 to November 1997. Mr. Sternlicht was
Chairman of the Audit and Compensation Committee of the Trust from March 1994
until December 1995. He is founder and General Manager of Starwood Capital and
co-founder of its predecessor entities in 1991 and has been the President and
Chief Executive Officer of Starwood Capital Group, L.P. since its formation. In
addition, Mr. Sternlicht is currently the Chief Executive Officer and Chairman
of the Board of Trustees of Starwood Hotels & Resorts, Chairman of the Board of
Directors of Starwood Hotels & Resorts Worldwide, Inc., a trustee of Equity
Residential Properties Trust, a multi-family REIT and a director of U.S.
Franchise Systems. Mr. Sternlicht is on the Board of Governors of NAREIT and is
a member of the Urban Land Institute and of the National Multi-

42
<PAGE>
Family Housing Council. Mr. Sternlicht is a member of the Board of Directors of
the Council for Christian and Jewish Understanding, is a member of the Young
Presidents Organization and is on the Board of Directors of Junior Achievement
for Fairfield County, Connecticut.

JAY SUGARMAN became Chief Executive Officer of the Trust in November 1997,
President and Trustee of the Trust in September 1996 and Chief Executive
Officer, President and Trustee of SFT-Maryland at its formation in May 1998. Mr.
Sugarman is Senior Managing Director of Starwood Capital and has been President
of Mezzanine since November 1994. From 1990 through 1993, Mr. Sugarman managed a
diversified, privately owned investment fund. Earlier in his career, Mr.
Sugarman worked at First Boston Corporation and Goldman, Sachs & Co. Mr.
Sugarman is a director of Commercial Guaranty Assurance, a financial insurance
company and WCI Communities, Inc., a residential developer in South Florida. Mr.
Sugarman received a B.A. degree from Princeton University where he was nominated
for valedictorian and is a graduate of Harvard Business School, where he was a
Baker Scholar.

WILLIAM M. MATTHES was elected a Trustee in March 1998 and will become a
Trustee of SFT-Maryland at the Effective Time. Since April 1996, Mr. Matthes has
been a partner of Behrman Capital, a New York and San Francisco based private
equity investment fund with in excess of $600 million of equity capital under
management. From July 1994 to April 1996, Mr. Matthes was employed as Senior
Vice President and Chief Operating Officer of Holsted Marketing, Inc., a credit
card based direct marketing company. Mr. Matthes was a general partner of
Brentwood Associates, a private equity investment firm from 1986 to July 1994
and previously was employed as an analyst at Morgan Stanley & Co., Inc. Mr.
Matthes is a director of Condor Systems, Inc., Behrman TMNG, Inc., Holsted
Marketing, Inc. and Holsted, Inc.

KNEELAND C. YOUNGBLOOD was elected as a Trustee in March 1998 and will
become a Trustee of
SFT-Maryland at the Effective Time. Mr. Youngblood is a trustee of the United
States Enrichment Corporation, an independently run government-owned nuclear
fuel corporation scheduled for privatization in 1998. He is also a fiduciary
trustee for the $65 billion Teacher Retirement System of Texas ("TRS"), in which
capacity he has responsibility for hiring investment advisors, determining asset
allocations and formulating investment/benefit policies. As Chairman of the TRS
Real Estate Committee, he has directed a major restructuring of the TRS's
portfolio, which has assets of $1.4 billion, and is responsible for considering
and approving significant transactions within the portfolio. Mr. Youngblood is a
trustee of AMR investments, a $15 billion investment fund and a division of
American Airlines. He is currently involved in private investment and consulting
and is a member of the Council on Foreign Relations.

INFORMATION REGARDING THE BOARD OF TRUSTEES AND ITS COMMITTEES

The Board of Trustees has delegated a portion of its authority to an Audit
Committee and a Compensation Committee. The Audit Committee makes
recommendations to the Board of Trustees concerning the selection of the Trust's
independent auditors, oversees the financial reporting process, develops and
approves plans for the annual duties of the Trustees, reviews fees charged by
the independent auditors, reviews the scope and results of the auditors' reports
and reviews and monitors the implementation of suggestions made by the
independent auditors. The Audit Committee is kept apprised by management of the
Trust's internal control procedures. Additionally, the Audit Committee reviews
and monitors non-audit services provided by the independent auditors. The
Compensation Committee oversees, reviews and approves the compensation of the
Trustees and officers of the Trust. The Compensation Committee also administers
the Trust's incentive plans. Ms. Josephs and Messrs. Dishner and Youngblood
currently serve on the Audit Committee with Mr. Youngblood serving as Chairman.
Ms. Josephs and Messrs. Matthes and Youngblood currently serve on the
Compensation Committee with Ms. Josephs serving as chairman.

43
<PAGE>
BOARD OF TRUSTEES AND COMMITTEE MEETINGS.

During the fiscal year ending December 31, 1997, the Board of Trustees held
four meetings, at which all of the Trustees participated. During 1997, there was
one meeting of the Audit and Compensation Committee, which was one committee
until March 1998.

EXECUTIVE OFFICERS

The following information relates to the executive officer of the Trust who
is not a Trustee and is not nominated as a Trustee. The officers of the Trust
serve at the pleasure of the Board of Trustees and are customarily appointed as
an officer at the annual meeting of the Board of Trustees held following each
Annual Meeting of Shareholders.

Jerome C. Silvey was elected as Chief Financial Officer of the Trust in
September 1996 and of
SFT-Maryland at its formation in May 1998. Mr. Silvey has been a Senior Vice
President and the Chief Financial Officer of Starwood Capital since August 1993
after 13 years at Price Waterhouse LLP. Mr. Silvey has overall responsibilities
for Starwood Capital's administration, MIS and finance. Mr. Silvey is a graduate
of Colgate University and received his M.B.A. from Rutgers Graduate School of
Management in 1980. He is a certified public accountant and a trustee of the
Stamford Museum.

EXECUTIVE OFFICERS' COMPENSATION

For the year ended December 31, 1997, neither Mr. Sugarman nor Mr.
Sternlicht received any compensation for services as a Chief Executive Officer
of the Trust. No other executive officer of the Trust received compensation from
the Trust during the year ended December 31, 1997.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------
<S> <C> <C> <C>
ALL OTHER
NAME AND TITLE YEAR SALARY COMPENSATION(1)
- ----------------------------------------------------------- --------- --------- ----------------
Jay Sugarman
Chief Executive Officer(2)............................... 1997 $ 0 $ 0
1996 0 0
1995 0 0

Barry S. Sternlicht,
Chief Executive Officer(2)............................... 1997 $ 0 $ 0
1996 0 9,000
1995 0 12,000
</TABLE>

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

(1) Represents Trustee fees.

(2) Mr. Sternlicht resigned as Chief Executive Officer in November 1997. Mr.
Sugarman was elected Chief Executive Officer of the Trust in November 1997.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The Compensation Committee's compensation policy is to set salaries at
levels the Compensation Committee believes will attract, retain and motivate
highly competent individuals. Additionally, the Compensation Committee generally
seeks to create a commonality of interest between the executives and the
Shareholders by linking the executive's total compensation to the performance of
the Trust. The

44
<PAGE>
Compensation Committee met once during 1997. Neither Mr. Sugarman nor Mr.
Sternlicht was compensated as Chief Executive Officer in 1997 as a result of the
lack of business conducted by the Trust in 1997. Mr. Sugarman is not expected to
receive any compensation from the Trust or SFT-Maryland in 1998.

The Compensation Committee currently intends for all compensation paid to
the Trust's executive officers to be tax deductible to the Trust pursuant to
Section 162(m) of the Code ("Section 162(m)"). Section 162(m) provides that
compensation paid to executive officers in excess of $1,000,000 cannot be
deducted by the Trust for federal income tax purposes unless, in general, such
compensation is performance based, is established by an independent committee of
trustees, is objective and the plan or agreement providing for such performance
based compensation has been approved in advance by the Shareholders. In the
future, however, if, in the judgment of the Compensation Committee, the benefits
to the Trust of a compensation program that does not satisfy the arbitrary and
inflexible conditions of Section 162(m) outweigh the costs to the Trust of
failure to satisfy these conditions, the Compensation Committee may adopt such a
program.

Robin Josephs (Chairman)
William Matthes
Kneeland C. Youngblood

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee oversees, reviews and approves the compensation
of the Trustees and officers of the Trust. Currently, Ms. Josephs and Messrs.
Matthes and Youngblood serve on the Compensation Committee, with Ms. Josephs
serving as Chairman. See "--Information Regarding Board of Trustees and Its
Committees."

TRUSTEES' COMPENSATION

Each Trustee who is not also an officer or employee of the Trust or of
Starwood Capital, currently receives a fee of $20,000 per year, which is paid
quarterly. Each unaffiliated Trustees also receives an additional fee of $1,000
for each meeting of the Board of Trustees which he or she attends in person,
$750 for each meeting of the Board of Trustees which he or she attends
telephonically, and $500 for each committee meeting which he or she attends,
either personally or telephonically. Trustees are also reimbursed for any
expenses incurred in attending such meetings or incurred as a result of other
work performed for the Trust. The Trustees who are officers or employees of the
Trust or Starwood Capital do not receive any compensation from the Trust.

Generally, under the Trust's 1996 Share Incentive Plan (the "Incentive
Plan") each individual who is first elected or continuing as a Trustee as of the
close of an Annual Meeting of Shareholders and who is not also an officer or
employee of the Trust or an affiliate (a "Non-Employee Trustee") will receive an
option to purchase 10,000 Class A Shares (1,667 New Class A Shares upon
consummation of the Reorganization). Each individual who is first elected or
appointed as a Non-Employee Trustee on a date other than the date of an Annual
Meeting of Shareholders, shall be granted an option to purchase 10,000 Class A
Shares (1,667 New Class A Shares upon consummation of the Reorganization),
reduced to reflect the portion of the period elapsed since the last grant to
Trustees. The exercise price of the shares subject to the option shall be the
fair market value of a Class A Share on the grant date. Such options shall be
fully vested and expire ten years after the grant date, without regard to
whether the Trustee ceases to be a member of the Board of Trustees prior to such
date.

The Trust and each of its Trustees and executive officers have entered into
indemnification agreements which will be assumed by SFT-Maryland. The
indemnification agreements provide that the Trust will indemnify the Trustees
and the executive officers to the fullest extent permitted by the law against
certain liabilities (including settlements) and expenses actually and reasonably
incurred by them in connection with any threatened or pending legal action,
proceeding or investigation to which any of them is, or is

45
<PAGE>
threatened to be, made a party by reason of their status as a Trustee, officer
or agent of the Trust, or serving at the request of the Trust in any other
capacity for or on behalf of the Trust; provided that such Trustee or executive
officer acted in a manner determined in good faith to be within the scope of his
authority and to be in the best interest of the Trust and so long as the Trustee
or executive officer was not guilty of gross negligence, misconduct or a breach
of his fiduciary obligations in the act or failure to act. The Trust will not
indemnify the Trustees and executive officers to the extent prohibited by the
Maryland Declaration of Trust or Title 8. If the Maryland Declaration of Trust
or Title 8 is amended with respect to removal of limitations on indemnification,
the indemnification agreements will be amended accordingly. The Trust is not
required to indemnify any Trustee or executive officer for liabilities (i) for
which he receives payment under an insurance policy, except for the excess
beyond payment under such insurance, or which could have been claimed under an
expired insurance policy, (ii) based upon or attributable to his gaining in fact
any personal profit or advantage to which he was not legally entitled, (iii)
resulting from an accounting of profits under Section 16(b) of the Exchange Act
or (iv) brought about or contributed to by his dishonesty, willful misconduct or
bad faith unless a judgment or other final adjudication adverse to the Trustee
or executive officer establishes that he was not guilty of the claimed conduct
and that the conduct was not material to the course of action so adjudicated. In
addition, the Trust has obtained trustee and officer insurance for the Trustees
and executive officers of the Trust.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On January 22, 1997, Mezzanine exercised its rights under a warrant to
acquire 5,000,000 Class A Shares for $1.00 a share and SAHI Inc. exercised its
rights under a warrant to acquire 2,500,000 Class B Shares for $.01 a share.

On March 18, 1998, the Trust (i) paid $25.5 million of cash and issued
155,148,000 Class A Shares to Mezzanine at a price of $2.50 per share in
exchange for the contribution by Mezzanine to the Trust of its entire interest
in a portfolio of mortgage and partnership loans secured by residential, hotel,
office and mixed use real estate and other assets, (ii) paid $324.3 million in
cash and issued 247,074,800 Class A Shares to SOFI IV at a price of $2.50 per
share in exchange for the contribution by SOFI IV to the Trust of its entire
interest in a portfolio of mortgage loans and leases secured by residential,
hotel, office and mixed use real estate and other assets, a portfolio of first
mortgage loans, $17.9 million of cash and the rights under certain letters of
intent, (iii) entered into the Advisory Agreement with the Advisor, (iv) granted
options to purchase 14,963,057 Class A Shares at $2.50 per share to the Advisor,
(v) issued 4,568,944 Class A Shares to Mezzanine in exchange for 4,568,944 units
in APMT Limited Partnership, (vi) entered into the Shareholders Agreement and
(vii) amended and restated an agreement granting registration rights to BLLC,
SAHI Partners, Mezzanine and SOFI IV.

Each of Messrs. Sternlicht, Sugarman, Dishner, Eilian, Kleeman and Silvey
has a direct or indirect economic interest in each of Mezzanine, SOFI IV, the
Advisor, BLLC and SAHI Partners and Messrs. Sternlicht and Eilian have direct
economic interests in SAHI, Inc. In the aggregate, Mezzanine, SOFI IV and BLLC
own over 99% of the voting interest and economic interest of the Trust.

In addition, on March 13, 1998, the Trust granted options to purchase an
aggregate of 30,000 Class A Shares to each of Ms. Josephs and Messrs. Matthews
and Youngblood at $4.9375 per share.

46
<PAGE>
PERFORMANCE GRAPH

The following graph compares the total cumulative shareholder return on the
Class A Shares from December 31, 1992 to December 31, 1997 to that of the (a)
Standard & Poor's 500 Index, and (b) NAREIT Mortgage REIT Total Return Index, an
index that included 20 companies with a market capitalization of $4.8 billion.

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1993 1994 1995 1996 1997
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
The Trust.......................... $ 100.00 $ 99.92 $ 56.21 $ 49.95 $ 174.86 $ 637.01
S&P's 500.......................... 100.00 109.99 111.43 153.13 188.29 251.13
Mortgage REITs..................... 100.00 114.55 86.71 141.70 213.78 221.95
</TABLE>

RECOMMENDATION REGARDING THE BOARD ELECTION PROPOSAL

The Board of Trustees recommends that you vote FOR the four named nominees
to be elected as the Trustees of the Trust.

47
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

The following table sets forth information as of May , 1998 with respect
to any Class A Shares owned by the Trustees and individual or group of
Shareholders known to be the beneficial owner of more than five percent (5%) of
the issued and outstanding Class A Shares. There are no other Trustees, nominees
for Trustee or officers of the Trust who beneficially own either Class A Shares
or Class B Shares.

<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL
TITLE OF CLASS NAME OF BENEFICIAL OWNER OWNERSHIP(1) PERCENT OF CLASS
- ---------------------- ----------------------------------------------- -------------------- -----------------
<S> <C> <C> <C>
Class A Shares Starwood Mezzanine Investors, L.P.(2) 64,716,944 20.6%
Class A Shares Starwood Mezzanine Holdings, L.P.(2) 64,716,944(3) 20.6%
Class A Shares Starwood Capital Group I, L.P.(2). 64,716,944(4) 20.6%
Class A Shares BSS Capital Partners, L.P.(2) 64,716,944(5) 20.6%
Class A Shares Sternlicht Holdings II, Inc.(2) 64,716,944(6) 20.6%
Class A Shares Starwood Financial Advisors, L.L.C.(2) 14,963,057(7) 4.5%
Class A Shares SOFI IV SMT Holdings, L.L.C.(2) 247,074,800 78.6%
Class A Shares Starwood Opportunity Fund IV, L.P.(2) 247,074,800(8) 78.6%
Class A Shares SOFI IV Management, L.L.C.(2) 247,074,800(9) 78.6%
Class A Shares Starwood Capital Group, L.L.C.(2) 265,398,110(10) 79.8%
Class A Shares B Holdings, L.L.C.(2) 3,360,252(11) 1.0%
Class A Shares SAHI Partners(2) 244,100 --
Class A Shares SAHI, Inc.(2) 244,100(12) --
Class A Shares SWL Acquisition Partners, L.P. (12) 244,100(13) --
Class A Shares SWL Mortgage Investors, Inc. (12) 244,100(14) --
Class A Shares Barry S. Sternlicht(2) 330,359,154(15) 99.3%
Class A Shares Robin Josephs(2) 15,000(16) --
Class A Shares William Matthes(2) 10,000(17) --
Class A Shares Kneeland C. Youngblood(2) 10,000(17) --
Class B Shares B Holdings, L.L.C.(2) 164,652,401(18) 100%
Class B Shares Starwood Capital Group, L.L.C.(2) 164,652,401(19) 100%
Class B Shares Barry S. Sternlicht(2) 164,652,401(20) 100%
Class A Shares All Executive Officers, Trustees and nominees
for Trustee as a group (8 persons) 330,394,154(21) 99.3%
Class B Shares All Executive Officers, Trustees and nominees
for Trustee as a group (8 persons) 164,652,401(22) 100%
</TABLE>

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

(1) Except as otherwise indicated and subject to applicable community property
laws and similar statutes, the person listed as beneficial owner of shares
has sole voting power and dispositive power with respect to the shares.

(2) Three Pickwick Plaza, Suite 250, Greenwich, CT 06830.

(3) Starwood Mezzanine Holdings, L.P. ("Starwood Holdings") is a general partner
of Mezzanine and as such shares voting and dispositive power of the shares
owned by Mezzanine. Starwood Holdings disclaims beneficial ownership of such
shares except to the extent of its applicable pecuniary interest therein.

(4) Starwood Capital Group I, L.P. ("Starwood Capital LP") is (a) a general
partner of Mezzanine and (b) the general partner of Starwood Holdings, which
is the other general partner of Mezzanine, and as

48
<PAGE>
such shares voting and dispositive power of the shares owned by Mezzanine.
Starwood Capital LP disclaims beneficial ownership of such shares except to
the extent of its applicable pecuniary interest therein.

(5) BSS Capital Partners, L.P. ("BSS") is the general partner of Starwood
Capital LP, which is (a) a general partner of Mezzanine and (b) the general
partner of Starwood Holdings, which is the other general partner of
Mezzanine; as such BSS shares voting and dispositive power of the shares
owned by Mezzanine. BSS disclaims beneficial ownership of such shares except
to the extent of its applicable pecuniary interest therein.

(6) Sternlicht Holdings II, Inc. is the general partner of BSS, which is the
general partner of Starwood Capital LP, which is (a) a general partner of
Mezzanine and (b) the general partner of Starwood Holdings, which is the
other general partner of Mezzanine; as such Sternlicht Holdings II, Inc.
shares voting and dispositive power of the shares owned by Mezzanine.
Sternlicht Holdings II, Inc. disclaims beneficial ownership of such shares
except to the extent of its applicable pecuniary interest therein.

(7) Represents 14,963,057 Class A Shares issuable upon exercise of outstanding
options.

(8) Starwood Opportunity Fund IV, L.P. ("SOFI LP") is the sole member and
manager of SOFI IV and as such shares voting and dispositive power of the
shares owned by SOFI IV. SOFI LP disclaims beneficial ownership of such
shares except to the extent of its applicable pecuniary interest therein.

(9) SOFI IV Management, L.L.C. is the general partner of SOFI LP, which is the
sole member and manager of SOFI IV, and as such shares voting and
dispositive power of the shares owned by SOFI IV. SOFI IV Management, L.L.C.
disclaims beneficial ownership of such shares except to the extent of its
applicable pecuniary interest therein.

(10) Starwood Capital is (a) the general manager of the Advisor, (b) the general
manager of BLLC, and (c) the general manager of SOFI IV Management, L.L.C.,
which is the general partner of SOFI LP, which is the sole member and
general manager of SOFI IV; as such Starwood Capital shares voting and
dispositive power of the 247,074,800 Class A Shares owned by SOFI IV, the
3,360,252 Class A Shares beneficially owned by BLLC and 14,963,057 Class A
Shares issuable upon exercise of options owned by the Advisor. Starwood
Capital disclaims beneficial ownership of such shares except to the extent
of its applicable pecuniary interest therein.

(11) Represents 3,207,569 Class A Shares issuable upon conversion of 157,170,872
Class B Shares and 152,684 Class A Shares issuable upon conversion of
7,481,528 Class B Shares issuable upon the exercise of options to purchase
14,963,057 Class A Shares.

(12) SAHI, Inc. is a general partner of SAHI Partners and as such shares voting
and dispositive power of the shares owned by SAHI Partners. SAHI, Inc.
disclaims beneficial ownership of such shares except to the extent of its
applicable pecuniary interest therein.

(13) SWL Acquisition Partners, L.P. ("SWL Partners") is a general partner of
SAHI Partners and as such shares voting and dispositive power of the shares
owned by SAHI Partners. SWL Partners disclaims beneficial ownership of such
shares except to the extent of its applicable pecuniary interest therein.

(14) SWL Mortgage Investors, Inc. ("SWL Investors") is the general partner of
SWL Partners, a general partner of SAHI Partners, and as such, shares voting
and dispositive power of the shares owned by SAHI Partners. SWL Investors
disclaims beneficial ownership of such shares except to the extent of its
pecuniary interest therein.

(15) Represents 64,716,944 Class A Shares beneficially owned by Sternlicht
Holdings II, Inc., of which Mr. Sternlicht is a 100% owner, 244,100 Class A
Shares beneficially owned by SAHI, Inc., of which Mr. Sternlicht is a
controlling shareholder, and 265,398,110 Class A Shares beneficially owned
by Starwood Capital, of which Mr. Sternlicht is the general manager. Mr.
Sternlicht shares voting and

49
<PAGE>
dispositive power of all of these shares. Mr. Sternlicht disclaims
beneficial ownership of such shares except to the extent of his applicable
pecuniary interest therein.

(16) Includes 10,000 Class A Shares issuable upon the exercise of outstanding
options and 5,000 Class A Shares owned by Ms. Josephs's spouse.

(17) Includes 10,000 Class A Shares issuable upon the exercise of outstanding
options.

(18) Includes 7,481,528 Class B Shares issuable upon the exercise of options to
purchase 14,963,057 Class A Shares held by the Advisor.

(19) Starwood Capital is the general manager of BLLC, and as such, shares voting
and dispositive power of the shares owned by BLLC. Starwood Capital
disclaims beneficial ownership of such shares except to the extent of its
applicable pecuniary interest therein.

(20) Barry S. Sternlicht is the general manager of Starwood Capital, which is
the general manager of BLLC, and as such, shares voting and dispositive
power of the shares owned by BLLC. Mr. Sternlicht disclaims beneficial
ownership of such shares except to the extent of his applicable pecuniary
interest therein.

(21) Represents 330,359,154 Class B Shares beneficially owned by Barry S.
Sternlicht, 15,000 Class A Shares beneficially owned by Robin Josephs,
10,000 Class A Shares beneficially owned by William Matthes and 10,000 Class
A Shares beneficially owned by Kneeland Youngblood.

(22) Represents 164,652,401 Class B Shares beneficially owned by Barry S.
Sternlicht.

50
<PAGE>
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Trustees has selected Price Waterhouse LLP as the Trust's
independent auditors for the fiscal year ending December 31, 1998, subject to
ratification by the Shareholders. Deloitte & Touche LLP served as the Trust's
independent auditors for the fiscal year ended December 31, 1996. Deloitte &
Touche LLP was not selected by the Board of Trustees to continue to serve as
independent auditors to the Trust for the fiscal year ending December 31, 1997
and was dismissed on December 19, 1997. There have been no disagreements between
the Trust and Deloitte & Touche LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures
during the last fiscal year. The Trust expects a member of Price Waterhouse LLP
to attend the Annual Meeting to make a statement, if he or she desires, and to
respond to appropriate questions.

Neither of the reports of Deloitte & Touche LLP on the Trust's financial
statements for the last two years contained an adverse opinion or disclaimer of
opinion, or was qualified or modified as to uncertainty, audit scope or
accounting principles. The decision to change accountants was recommended and
approved by the Audit and Compensation Committee.

During the Trust's two most recent fiscal years and any subsequent interim
period preceding such dismissal there were no disagreements with Deloitte &
Touche LLP on any matter of accounting principles or practices, financial
statement disclosure, auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of Deloitte & Touche LLP would have caused it to
make reference to the subject matter of the disagreement in connection with its
report.

RECOMMENDATION REGARDING RATIFICATION OF THE APPOINTMENT OF PRICE WATERHOUSE LLP

The Board of Trustees recommends that you vote FOR ratification of this
appointment.

SELLING SHAREHOLDERS

The New Class A Shares will be freely transferable under the Securities Act,
except for New Class A Shares issued to persons who may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act and
Rule 145(c) thereunder. Generally, these are persons, who are deemed to control,
be controlled by, or under common control with the Trust ("Affiliates"). The New
Class A Shares issued (or issuable) in connection with the Reorganization to
persons who constitute "underwriters" within the meaning of Section 2(11) and
Rule 145(c) may not be publicly reoffered or resold except pursuant to an
effective registration statement under the Securities Act covering the New Class
A Shares or, in certain circumstances, pursuant to Rule 145(d) or any other
applicable exemption under the Securities Act. Because the Selling Shareholders
listed in the table below may be deemed to be underwriters of the New Class A
Shares, this Proxy Statement/ Prospectus will also cover any offers or sales of
the Resale Shares by the Selling Shareholders.

It is unknown if, when, or in what amounts the Selling Shareholders may
offer the Resale Shares for sale. There is no assurance that the Selling
Shareholders will sell any or all of the Resale Shares.

<TABLE>
<CAPTION>
SHARES OWNED PRIOR TO THE OFFERING
--------------------------------------------
<S> <C> <C> <C>
NUMBER OF
NEW CLASS A PERCENTAGE OFFERED
SELLING SHAREHOLDER SHARES(1) OF CLASS SHARES BEING(1)
- --------------------------------------------------- ------------ ------------- ---------------
Starwood Mezzanine Investors, L.P.................. 10,786,157 20.6% 10,786,157
SOFI-IV SMT Holdings, L.L.C........................ 41,179,133 78.6% 41,179,133
SAHI Partners...................................... 40,683 * 40,683
Starwood Financial Advisors, L.L.C................. 2,493,842(2) 4.5% 2,493,842
</TABLE>

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

* Does not exceed 1% of the total outstanding New Class A Shares.

(1) Reflects consummation of the Reorganization and exchange of the Class A
Shares for New Class A Shares at the Exchange Ratio.

(2) Issuable upon exercisable of options to purchase New Class A Shares.

51
<PAGE>
Pursuant to the Registration Rights Agreement, SFT-Maryland, as successor to
the Trust has agreed to register the offer and sale of the Resale Shares and
indemnify certain of the Selling Shareholders and any broker or dealer to or
through whom any of the Resale Shares are sold against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"), or to contribute to payments certain of the Selling
Shareholders may be required to make in respect thereof.

Because the Selling Shareholders may offer all or some of the Resale Shares,
and because there are currently no agreements, arrangements or understandings
with respect to the sale of any of the Resale Shares that will be held by the
Selling Shareholders after completion of the offering, no estimate can be given
as to the principal amount of the Resale Shares that will be held by the Selling
Shareholders after completion of the offering.

The Selling Shareholders have not held any position or office or held any
other material relationship with the Trust or SFT-Maryland or any of its
affiliates within the past three years, other than as set forth in this section.

Mezzanine (i) acquired 5,000,000 Class A Shares for $1.00 a share on January
22, 1997 upon exercise of its rights under a warrant previously granted by the
Trust, (ii) was paid $25.5 million of cash and issued 155,148,000 Class A Shares
at a price of $2.50 per share in the Recapitalization Transaction and (iii) was
issued 4,568,944 Class A Shares to Mezzanine in exchange for 4,568,944 units in
APMT Limited Partnership on March 18, 1998.

On March 18, 1998, Starwood Opportunity Fund IV, L.P., the sole member of
SOFI IV was paid $324.3 million in cash and SOFI IV was issued 247,074,800 Class
A Shares at a price of $2.50 per share in the Recapitalization Transaction.

SAHI Inc. acquired 2,500,000 Class B Shares for $.01 a share on January 22,
1997 upon exercise of its rights under a warrant previously granted by the
Trust.

On March 18, 1998, the Trust entered into the Advisory Agreement with the
Advisor pursuant to which the Advisor manages the investment affairs of the
Trust. The Advisor is paid a base fee based on the Trust's book equity value and
an incentive fee based on the Trust's financial performance. In addition, the
Trust granted options to purchase 14,963,057 Class A Shares at $2.50 per share
to the Advisor in March 1998.

The Trust, Mezzanine, SOFI IV and SAHI Partners are parties to the
Registration Rights Agreement and the Trust, Mezzanine, SOFI IV, SAHI Partners
and certain other parties have entered into a shareholders agreement.

Each of Messrs. Sternlicht, Sugarman, Dishner, Eilian and Kleeman, each a
Trustee of the Trust and Mr. Silvey, Chief Financial Officer of the Trust, has a
direct or indirect economic interest in each of Mezzanine, SOFI IV, the Advisor
and SAHI Partners. Mr. Sugarman is also Chief Executive Officer and President of
the Trust.

The Selling Shareholder and any broker or dealer to or through whom any of
the Shares are sold may be deemed to be underwriters within the meaning of the
Securities Act with respect to the Shares offered hereby, and any profits
realized by the Selling Shareholder or such brokers or dealers may be deemed to
be underwriting commissions. Brokers' commissions and dealers' discounts, taxes
and other selling expenses to be borne by the Selling Shareholder are not
expected to exceed normal selling expenses for sale. The registration of the
Resale Shares under the Securities Act shall not be deemed an admission by the
Selling Shareholder or SFT-Maryland that the Selling Shareholder are
underwriters for purposes of the Securities Act of any Shares offered under this
Prospectus.

52
<PAGE>
PLAN OF DISTRIBUTION

The sale or distribution of all or any portion of the Resale Shares may be
effected from time to time by the Selling Shareholders directly, indirectly
through brokers or dealers or in a distribution by one or more underwriters on a
firm commitment or best efforts basis, on the AMEX, in the over-the-counter
market, on any other national securities exchange on which the New Class A
Shares are listed or traded, in privately negotiated transactions or otherwise,
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. SFT-Maryland will not receive
any of the proceeds from the sale of the Resale Shares.

The methods by which the Resale Shares may be sold or distributed include,
without limitation, (i) a block trade (which may involve crosses) in which the
broker or dealer so engaged will attempt to sell the Shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction, (ii) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this Proxy Statement
Prospectus, (iii) exchange distributions and/or secondary distributions in
accordance with the rules of the AMEX, (iv) ordinary brokerage transactions and
transactions in which the broker solicits purchasers, (v) pro rata distributions
as part of the liquidation and winding up of the affairs of the Selling
Shareholders and (vi) privately negotiated transactions. The Selling
Shareholders may from time to time deliver all or a portion of the Resale Shares
to cover a short sale or sales or upon the exercise, settlement or closing of a
call equivalent position or a put equivalent position.

Under the Securities and Exchange Act of 1934 as amended (the "Exchange
Act") and the regulations thereunder, any person engaged in a distribution of
the Shares offered by this Prospectus may not simultaneously engage in market
making activities with respect to the Class A Shares during any applicable
"cooling off" periods prior to the commencement of such distribution. In
addition, and without limiting the foregoing, the Selling Shareholders will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder including, without limitation, Rules 101, 102, 103 and
104, which provisions may limit the timing of purchases and sales of Class A
Shares by the Selling Shareholders.

There can be no assurance that the Selling Shareholders will sell any or all
of the Shares hereby registered. To the extent required, SFT-Maryland will use
its best efforts to file, during any period in which offers or sales are being
made, one or more supplements to this Proxy Statement/Prospectus to describe any
material information with respect to the plan of distribution not previously
disclosed in this Proxy Statement/Prospectus or any material change to such
information in this Proxy Statement/Prospectus.

The registration effected hereby is being effected pursuant to certain
registration rights previously granted by the Trust to certain of the Selling
Shareholders at the time of the Recapitalization. The Trust has agreed to bear
all expenses (other than underwriting discounts and commissions of any
underwriters, brokers, sellers or agents retained by the Selling Shareholders)
in connection with the registration and sale of the Resale Shares being offered
by the Selling Shareholders.

OTHER MATTERS

NO APPRAISAL OR DISSENTER'S RIGHTS

Under California law, Shareholders are not entitled to any statutory
dissenter's rights to appraisal of their Class A Shares or Class B Shares in
connection with any of the proposals.

SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING

Shareholder proposals intended to be presented at the 1998 Annual Meeting
must be sent in writing, by certified mail, return receipt requested, to the
Trust at its principal office, addressed to the Secretary of the Trust, and must
be received by the Trust no later than January 15, 1999, for inclusion in the
1999 proxy materials.

53
<PAGE>
EXPERTS

The financial statements incorporated in the Proxy Statement/Prospectus by
reference to the Annual Report on Form 10-K of the Trust as of December 31, 1997
and 1996 and for each of the three years in the period ended December 31, 1997,
have been so incorporated in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

The audited financial statements of the Starwood Mezzanine Loan Investment
Operations, Starwood Opportunity Fund IV, L.P. Loan Investment Operations and
the Schedule of Operating Revenue and Certain Expenses of the RLH Portfolio
included on pages 18-26, 28-38, and 40-43, respectively, included in the Trust's
report on Form 8-K dated April 2, 1998 have been so incorporated in reliance on
the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.

LEGAL MATTERS

Certain legal matters will be passed upon for the Trust by Mayer, Brown &
Platt.

SOLICITATION PROCEDURES

Officers and regular employees of the Trust, without extra compensation, may
solicit the return of proxies by mail, telephone, telegram or personal
interview. Certain holders of record, such as brokers, custodians and nominees,
are being requested to distribute proxy materials to beneficial owners and to
obtain such beneficial owners' instructions concerning the voting of proxies.
All of the costs relating to this Proxy Statement will be paid by the Trust.

OTHER MATTERS

The management of the Trust does not intend to bring any other matters
before the Annual Meeting and knows of no other matters that are likely to come
before the meeting. In the event any other matters properly come before the
Annual Meeting, the persons named in the accompanying proxy will vote the shares
represented by such proxy in accordance with their best judgment on such
matters.

The Trust urges you to submit your vote on the accompanying proxy card by
completing, signing, dating and returning it in the accompanying postage-paid
return envelope at your earliest convenience, whether or not you presently plan
to attend the meeting in person.

By Order of the Board of Trustees

/s/ JEROME C. SILVEY
Jerome C. Silvey
Secretary of the Trust

New York, New York
May , 1998

54
<PAGE>
(This page has been left blank intentionally.)

55
<PAGE>
EXHIBIT A

MERGER AND REORGANIZATION AGREEMENT

STARWOOD FINANCIAL TRUST
(A BUSINESS TRUST OF THE STATE OF CALIFORNIA)

WITH AND INTO

STARWOOD FINANCIAL TRUST
(A REAL ESTATE INVESTMENT TRUST OF THE STATE OF MARYLAND)

DATED AS OF JUNE , 1998

<PAGE>

THIS MERGER AND REORGANIZATION AGREEMENT (this "AGREEMENT") is made by and
among Starwood Financial Trust, a California business trust ("SFT-CALIFORNIA"),
and Starwood Financial Trust, a Maryland real estate investment trust
("SFT-MARYLAND"), and dated as of June __, 1998.

W I T N E S S E T H:

WHEREAS, the Trustees of SFT-California (the "CALIFORNIA TRUSTEES") have
determined that the business and affairs conducted by SFT-California will be
enhanced by changing the domicile and form of organization of SFT-California
from a California business trust to a Maryland real estate investment trust
pursuant to Title 8 of the Corporations and Associations Article of the
Annotated Code of Maryland (the "MARYLAND CODE") and have caused the
organization of SFT-Maryland initially as a wholly-owned subsidiary of
SFT-California with the intention that, subject to the approval of the holders
of a majority of the outstanding shares of SFT-California entitled to vote
thereon, as provided in the Amended and Restated Declaration of Trust of
SFT-California (the "CALIFORNIA DECLARATION OF TRUST"), SFT-California will
merge into SFT-Maryland and will terminate and SFT-Maryland will succeed to and
will carry on the business and affairs of SFT-California (the "Merger"), as
provided in, and on the terms and conditions and with the effects set forth in,
this Agreement;

WHEREAS, the California Trustees have been advised by counsel that a merger
of a California business trust such as SFT-California into a Maryland real
estate investment trust is specifically permitted by Section 8-501.1 of the
Maryland Code and that there is no provision of California law that prohibits
such a merger;

WHEREAS, the California Trustees and the Trustees of SFT-Maryland (the
"MARYLAND TRUSTEES") have each determined that SFT-California be merged into
SFT-Maryland with SFT-Maryland being the surviving entity, on the terms and
conditions set forth herein, all under and pursuant to the California
Declaration of Trust and the laws of the state of Maryland; and

WHEREAS, the California Trustees and the Maryland Trustees expect that the
Merger provided for herein will be treated for federal income tax purposes as a
reorganization described in Section 368(a)(1) of the Internal Revenue Code;

NOW THEREFORE:
FIRST: As used in this Agreement, the term "EFFECTIVE TIME" shall mean the
date and time of the filing with the office of the Secretary of State of the
State of Maryland of the articles of merger (the "Articles") with respect to the
Merger (a form of which is attached hereto as EXHIBIT "A"). The filing of a
copy of such Articles with the County Recorder of Los Angeles County, California
will conclusively evidence the termination of SFT-California.

SECOND: The principal place of business of SFT-Maryland and SFT-California
is located at 1114 Avenue of the Americas, New York, NY 10036.

<PAGE>

THIRD: At the Effective Time, SFT-California shall be merged with and into
SFT-Maryland, with SFT-Maryland to be a real estate investment trust organized
under and governed by the laws of the State of Maryland, and the separate legal
existence of SFT-California shall thereupon cease and all of the assets and
liabilities of SFT-California shall be transferred to SFT-Maryland.

FOURTH: At and from the Effective Time, SFT-Maryland shall succeed to all
of the rights, powers and property of SFT-California (the "TRUST PROPERTY") and
shall be liable for all the liabilities, debts and obligations of
SFT-California, in the manner of and as more fully set forth in Section
8-501.1(n) of the Maryland Code. The Articles of Merger evidencing the Merger
shall also constitute and evidence the sale, conveyance, transfer and assignment
of all Trust Property to SFT-Maryland and SFT-Maryland assumption of all of the
liabilities, debts and obligations of SFT-California, including without implied
limitation, obligations to indemnify persons who are or may be entitled to
indemnification under Article VII of the California Declaration of Trust to the
extent that such persons are entitled to indemnification under such Article.

FIFTH: The Amended and Restated Declaration of Trust (the "DECLARATION OF
TRUST") and Bylaws of SFT-Maryland shall be the constituent documents of
SFT-Maryland and thereafter may be amended as provided in the Declaration of
Trust or by law. This Agreement shall effect no amendment or other change
whatsoever to the Declaration of Trust. The trustees and officers of
SFT-California as of the Effective Time shall be the trustees and officers of
SFT-Maryland, all of whom shall hold their positions until the election and
qualification of their respective successors or until their tenure is otherwise
terminated in accordance with the Declaration of Trust.

SIXTH: The Merger was duly (a) advised by the board of trustees of
SFT-Maryland, by the adoption on May 11, 1998, of a resolution declaring that
the merger herein proposed was advisable substantially on the terms and
conditions set forth in this Agreement and directing that the proposed Agreement
be submitted for action thereon to the shareholders of SFT-Maryland and (b)
approved by the shareholders of SFT-Maryland by written consent on May 11, 1998.

SEVENTH: This Agreement and the Merger to be effected hereby were duly
adopted, approved, certified, executed, acknowledged, advised and authorized by
SFT-California in the manner and by the vote required by SFT-California's
declaration of trust.

EIGHTH: The total number of shares of beneficial interest of all classes
which SFT-California has authority to issue is unlimited.

NINTH: At the Effective Time, by reason of the Merger, all the issued and
outstanding shares of beneficial interest of SFT-California shall cease to exist
in consideration of the exchange of shares of beneficial interest of
SFT-Maryland (the "SHARE EXCHANGE"). Under the Share Exchange, one Class A
Share of SFT-Maryland shall be paid to the shareholders of SFT-California for
every six Class A Shares of SFT-California, and one Class B Share of
SFT-Maryland shall be paid to the shareholders of SFT-California for every six
Class B Shares of SFT-California. All of the certificates representing shares of
beneficial interest of SFT-California shall be automatically and without further
action by any of the parties hereto canceled as of the Effective Time.

A-2
<PAGE>

TENTH: As at and from the Effective Time, SFT-Maryland and SFT-California
shall take- such action, if any, as may be necessary to provide that all
obligations of SFT-California under the Starwood Financial Trust 1996 Long-Term
Incentive Plan (the "PLAN") shall be assumed by SFT-Maryland and all rights of
the participants under the Plan to receive grants of options and to exercise the
options and all other rights granted thereunder shall thereupon be converted
into rights to receive grants of options and to exercise the options.
Participants of the Plan shall receive the right to exercise options for one
share of SFT-Maryland for every six shares of SFT-California the participant was
granted under the Plan. All other rights granted thereunder in respect of
shares of beneficial interest of SFT-Maryland shall be on substantially
identical terms and conditions as set forth in the Plan.

ELEVENTH: The Merger shall have the effects set forth in Maryland Code.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the assets, property, rights, privileges, powers and
franchises of SFT-California shall vest in SFT-Maryland and all debts,
liabilities and duties of SFT-California shall become the debts, liabilities and
duties of SFT-Maryland.

TWELFTH: Each of SFT-California and SFT-Maryland shall execute and deliver
such further instruments and do or cause to be done such further acts as may be
necessary to effectuate and confirm the Merger. The Board of Trustees and the
officers of SFT-California and SFT-Maryland, respectively, are hereby
authorized, empowered and directed to do any and all acts and things, and to
make, execute, deliver, file and record any and all instruments, papers and
documents which shall be or become necessary, proper or convenient to carry out
or put into effect any provision of this Agreement.

THIRTEENTH: At any time before the Effective Time, this Agreement may be
terminated and the Merger may be abandoned for any reason whatsoever by the
Board of Trustees of either of SFT-California or SFT-Maryland, notwithstanding
the approval of this Agreement by the shareholders of both or either of
SFT-California and SFT-Maryland.

FOURTEENTH: The Boards of Trustees of SFT-California and SFT-Maryland may
amend this Agreement at any time prior to the filing of this Agreement (or
certificate in lieu thereof) with the Secretary of State of the State of
Maryland, provided that an amendment made subsequent to the adoption of the
Agreement by the shareholders of SFT-California and SFT-Maryland shall not: (1)
alter or change the amount or kind of shares, securities, cash, property and/or
rights to be received in exchange for or on conversion of all or any of the
shares of any class or series thereof of either SFT-California or SFT-Maryland,
(2) materially alter or change any term of the Declaration of Trust of
SFT-Maryland to be effected by the Merger, or (3) alter or change any of the
terms and conditions of this Agreement if such alteration or change would
adversely affect the holders of any class or series thereof of either
SFT-California or SFT-Maryland.

FIFTEENTH: This Agreement may be executed in any number of counterparts
and by the different parties on separate counterparts, and each such counterpart
shall be deemed to be an original but all such counterparts shall together
constitute one and the same Agreement.

A-3
<PAGE>

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.

STARWOOD FINANCIAL TRUST (California)

By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------

STARWOOD FINANCIAL TRUST (Maryland)

By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------

A-4

THE UNDERSIGNED, _____________________ of Starwood Financial Trust, a
California business trust, who executed on behalf of said business trust the
foregoing Agreement, of which this certificate is made a part, hereby
acknowledges, in the name and on behalf of said business trust, the foregoing
Agreement to be the act of said business trust and further certifies that, to
the best of his knowledge, information and belief, the matters and facts set
forth therein with respect to the approval thereof are true in all material
respects, under penalties of perjury.

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

THE UNDERSIGNED, ______________________ of Starwood Financial Trust, a
Maryland real estate investment trust, who executed on behalf of said real
estate investment trust the foregoing Agreement, of which this certificate is
made a part, hereby acknowledges, in the name and on behalf of said real estate
investment trust, the foregoing Agreement to be the act of said real estate
investment trust and further certifies that, to the best of his knowledge,
information and belief, the matters and facts set forth therein with respect to
the approval thereof are true in all material respects, under penalties of
perjury.

<PAGE>
EXHIBIT B

FORM OF

STARWOOD FINANCIAL TRUST

AMENDED AND RESTATED DECLARATION OF TRUST

JUNE __, 1998

<PAGE>

TABLE OF CONTENTS
-----------------

SECTION PAGE
- ------- ----

RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

DECLARATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE I
THE TRUST

1.1. Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
1.2. Resident Agent. . . . . . . . . . . . . . . . . . . . . . . . . . B-2
1.3. Nature of the Trust . . . . . . . . . . . . . . . . . . . . . . . B-2
1.4. Purpose of the Trust. . . . . . . . . . . . . . . . . . . . . . . B-2
1.5. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . B-3

ARTICLE II
THE TRUSTEES

2.1. Number, Terms of Office, Qualifications of Trustees . . . . . . . B-6
2.2. Compensation and Other Remuneration . . . . . . . . . . . . . . . B-7
2.3. Resignation, Removal and Death of Trustees. . . . . . . . . . . . B-7
2.4. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-7
2.5. Successor and Additional Trustees . . . . . . . . . . . . . . . . B-8
2.6. Actions by Trustees and Executive Committee; Quorum . . . . . . . B-8

ARTICLE III
TRUSTEES' POWERS

3.1. Power and Authority of Trustees . . . . . . . . . . . . . . . . . B-9
3.2. Specific Powers and Authorities . . . . . . . . . . . . . . . . . B-9
3.3. Trust Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . . B-15

ARTICLE IV
ADVISOR

4.1. Employment of Advisor . . . . . . . . . . . . . . . . . . . . . B-15
4.2. Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-15
4.3. Independence of Trustees and Members of Executive Committee . . B-15
4.4. Other Activities of Advisor . . . . . . . . . . . . . . . . . . B-16
4.5. Limitation on Operating Expenses. . . . . . . . . . . . . . . . B-16

i
<PAGE>

SECTION PAGE
- ------- ----

ARTICLE V
INVESTMENT POLICY

5.1. General Statement of Policy . . . . . . . . . . . . . . . . . . B-17
5.2. Other Permissible Investments . . . . . . . . . . . . . . . . . B-17
5.3. Prohibited Investments and Activities . . . . . . . . . . . . . B-18
5.4. Obligor's Default . . . . . . . . . . . . . . . . . . . . . . . B-18

ARTICLE VI
SHARES AND SHAREHOLDERS

6.1. Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-18
6.2. Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . B-19
6.3. Legal Ownership of Trust Estate . . . . . . . . . . . . . . . . B-21
6.4. Shares Deemed Personal Property . . . . . . . . . . . . . . . . B-21
6.5. Share Record; Issuance and Transferability of Shares. . . . . . B-21
6.6. Dividends or Distributions to Shareholders. . . . . . . . . . . B-22
6.7. Transfer Agent, Dividend Disbursing Agent, and Registrar. . . . B-22
6.8. Shareholders' Meeting . . . . . . . . . . . . . . . . . . . . . B-23
6.9. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-23
6.10. Reports to Shareholders. . . . . . . . . . . . . . . . . . . . B-23
6.11. Fixing Record Dates. . . . . . . . . . . . . . . . . . . . . . B-23
6.12. Notice to Shareholders . . . . . . . . . . . . . . . . . . . . B-24
6.13. Restriction on Transfer, Acquisition and Redemption of Shares. B-24
6.14. Conversion Rights. . . . . . . . . . . . . . . . . . . . . . . B-24
6.15. Treasury Shares. . . . . . . . . . . . . . . . . . . . . . . . B-25
6.16. Fractional Shares. . . . . . . . . . . . . . . . . . . . . . . B-25
6.17. Divisions and Combinations of Shares . . . . . . . . . . . . . B-26
6.18. Nonliability and Indemnification of Shareholders . . . . . . . B-26
6.19. Nonliability . . . . . . . . . . . . . . . . . . . . . . . . . B-26
6.20. Declaration and Bylaws . . . . . . . . . . . . . . . . . . . . B-26

ARTICLE VII
LIMITATION OF LIABILITY AND INDEMNIFICATION
OF TRUSTEES AND OFFICERS

7.1. Limitation of Liability . . . . . . . . . . . . . . . . . . . . B-27
7.2. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . B-27
7.3. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . B-28
7.4. Rights of Trustees and Officers to Own Shares or Other
Property and to Engage in Other Business. . . . . . . . . . B-28

ii
<PAGE>

SECTION PAGE
- ------- ----

7.5. Transactions Between the Trust and Certain Affiliates . . . . . B-29
7.6. Persons Dealing with Trustees . . . . . . . . . . . . . . . . . B-30
7.7. Administrative Powers of Trustees . . . . . . . . . . . . . . . B-30
7.8. Reliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . B-30
7.9. Trust Only. . . . . . . . . . . . . . . . . . . . . . . . . . . B-31
7.10. Restrictions of Duties and Liabilities . . . . . . . . . . . . B-31
7.11. Conflicts. . . . . . . . . . . . . . . . . . . . . . . . . . . B-31
7.12. Severability . . . . . . . . . . . . . . . . . . . . . . . . . B-31
7.13. No Impairment. . . . . . . . . . . . . . . . . . . . . . . . . B-31
7.14. References . . . . . . . . . . . . . . . . . . . . . . . . . . B-31

ARTICLE VIII
DURATION AND TERMINATION OF TRUST;
AMENDMENTS

8.1. Termination of Trust. . . . . . . . . . . . . . . . . . . . . . B-31
8.2. Duration of Trust . . . . . . . . . . . . . . . . . . . . . . . B-32

ARTICLE IX
MISCELLANEOUS

9.1. Construction. . . . . . . . . . . . . . . . . . . . . . . . . . B-32
9.2. Index and Headings for Reference Only; Gender . . . . . . . . . B-33
9.3. Filing and Recording. . . . . . . . . . . . . . . . . . . . . . B-33
9.4. Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . . B-33
9.5. Certifications. . . . . . . . . . . . . . . . . . . . . . . . . B-33
9.6. Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-34
9.7. Successors in Interest. . . . . . . . . . . . . . . . . . . . . B-34
9.8. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . B-34
9.10. Severability . . . . . . . . . . . . . . . . . . . . . . . . . B-34

ARTICLE X
AMENDMENTS

10.1. General. . . . . . . . . . . . . . . . . . . . . . . . . . . . B-35
10.2. Amendment by Trustees. . . . . . . . . . . . . . . . . . . . . B-35
10.3. Qualification Under the REIT Provisions of the Code. . . . . . B-35
10.4. Requirements of Maryland Law . . . . . . . . . . . . . . . . . B-35

iii
<PAGE>

SECTION PAGE
- ------- ----

ARTICLE XI
RESTRICTION ON TRANSFER, ACQUISITION
AND REDEMPTION OF SHARES

11.1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . .B-35
11.2. Ownership Limitation . . . . . . . . . . . . . . . . . . . . . .B-38
11.3. Excess Shares. . . . . . . . . . . . . . . . . . . . . . . . . .B-39
11.4. Prevention of Transfer . . . . . . . . . . . . . . . . . . . . .B-39
11.5. Notice to Trust. . . . . . . . . . . . . . . . . . . . . . . . .B-39
11.6. Information for Trust. . . . . . . . . . . . . . . . . . . . . .B-39
11.7. Other Action by Board. . . . . . . . . . . . . . . . . . . . . .B-40
11.8. Ambiguities. . . . . . . . . . . . . . . . . . . . . . . . . . .B-40
11.9. Modification of Existing Holder Limits . . . . . . . . . . . . .B-40
11.10. Increase or Decrease in Ownership Limit . . . . . . . . . . . .B-41
11.11. Limitations on Changes in Existing Holder and Ownership Limits.B-41
11.12. Waivers by Board. . . . . . . . . . . . . . . . . . . . . . . .B-41
11.13. Legend. . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-42
11.14. Severability. . . . . . . . . . . . . . . . . . . . . . . . . .B-42
11.15. Trust for Excess Shares . . . . . . . . . . . . . . . . . . . .B-43
11.16. Distributions on Excess Shares. . . . . . . . . . . . . . . . .B-43
11.17. Voting of Excess Shares . . . . . . . . . . . . . . . . . . . .B-43
11.18. Non-Transferability of Excess Shares. . . . . . . . . . . . . .B-43
11.19. Call by Trust on Excess Shares. . . . . . . . . . . . . . . . .B-44
11.20. Underwritten Offerings. . . . . . . . . . . . . . . . . . . . .B-44

iv
<PAGE>

STARWOOD FINANCIAL TRUST

AMENDED AND RESTATED DECLARATION OF TRUST

Starwood Financial Trust, a Maryland real estate investment trust under
Title 8 of the Corporations and Associations Article of the Annotated Code of
Maryland, desires to amend and restate its Declaration of Trust as currently in
effect and as hereinafter amended. This Amended and Restated Declaration of
Trust of Starwood Financial Trust (this "Declaration"), originally made and
entered into as of May __, 1998, is amended and restated in New York, New York
as of June __, 1998.

The following provisions are all the provisions of the Declaration
currently in effect and as hereinafter amended.

RECITALS

I. The trustees named on Schedule A hereto (the "Trustees") desire to create a
real estate investment trust under the laws of the State of Maryland.

II. The Trustees desire that this Trust qualify as a real estate investment
trust ("REIT") under Sections 856 through 860 of the Internal Revenue Code of
1986, as now in effect or hereafter amended (the "Code"), and under Title 8 of
the Corporations and Associations Article of the Annotated Code of Maryland, as
amended ("Title 8").

III. The beneficial interest in this Trust shall be divided into transferable
shares ("Shares") of one or more classes evidenced by certificates. The holders
of Shares are referred to as "Shareholders."

DECLARATION

NOW, THEREFORE, the Trustees hereby declare that they assume the duties of
Trustees hereunder.

ARTICLE I
THE TRUST

1.1. NAME. The name of the trust created by this Declaration is "Starwood
Financial Trust" (the "Trust"). So far as may be practicable, legal and
convenient and subject to the requirements of a license agreement between the
Trust and Starwood Capital Group, L.L.C., the affairs of the Trust shall be
conducted and transacted under that name, which name shall refer to the Trust
and not to the Trustees individually or personally or to the beneficiaries or
Shareholders, or to any officers, employees or agents of the Trust.

<PAGE>

Under circumstances in which the Board of Trustees (the "Board") determines
that the use of the name "Starwood Financial Trust" is not practicable, legal or
convenient, they may as appropriate use their names with suitable reference to
their trustee status, or some other suitable designation, or they may adopt
another name under which the Trust may hold property or operate in any
jurisdiction which name shall not, to the knowledge of the Board, refer to
beneficiaries or Shareholders. Legal title to all the properties subject from
time to time to this Declaration shall be transferred to, vested in and held by
the Trust in its own name, except that the Board shall have the power to cause
legal title to any property of this Trust to be held by and/or in the name of
one or more of the Trustees, or any other person as nominee, on such terms, in
such manner and with such powers as the Board may determine, provided that the
interest of the Trust therein is appropriately protected.

The Trust shall have the authority to operate under an assumed name or
names in such state or states or any political subdivision thereof where it
would not be legal, practical or convenient to operate in the name of the Trust.
The Trust shall have the authority to file such assumed name certificates or
other instruments in such places as may be required by applicable law to operate
under such assumed name or names.

1.2. RESIDENT AGENT. The name and address of the resident agent of the
Trust in the State of Maryland is The Corporation Trust Incorporated, 32 South
Street, Baltimore, Maryland 21202. The Trust may have such other offices or
places of business within or without the State of Maryland as the Board may from
time to time determine.

1.3. NATURE OF THE TRUST. The Trust is a REIT within the meaning of Title
8. The Trust is not intended to be, shall not be deemed to be and shall not be
treated as a general partnership, limited partnership, joint stock company, or
association, (but nothing herein shall preclude the Trust from being taxable as
an association under the REIT Provisions of the Code), or, except as
contemplated in Section 9.1, a corporation. Neither the Trustees nor the
Shareholders will for any purpose be, or be deemed to be treated in any way
whatsoever to be, liable or responsible hereunder as partners or joint
venturers. The Shareholders shall be beneficiaries of the Trust and their
rights shall be limited to those expressly conferred on them hereunder.

1.4. PURPOSE OF THE TRUST. The Trust shall have all the powers granted to
REITs generally by Title 8 or any successor statute and shall have such other
and further powers as are not inconsistent with and are appropriate to promote
and attain the purposes of the Trust as set forth in this Declaration. The
primary purposes of the Trust are to acquire a diversified portfolio of debt
and/or debt like interests in real estate and/or real estate related assets,
including (i) originating mortgage loans and/or acquiring mortgage loans or
acquiring securities collateralized, in whole or in part, by such mortgage
loans, as well as making equity investments in real estate and real
estate-related assets, (ii) acquiring direct or indirect interests in short
term, medium and long-term real estate-related debt securities and mortgage
interests, which may include warrants, equity participations or similar rights
incidental to a debt investment by the Trust, (iii) making, holding and
disposing of purchase money loans with respect to assets sold by the Trust, and
(iv) acquiring positions in non-performing and sub-performing debt for the

B-2
<PAGE>

purpose of either restructuring it as performing debt or if such efforts are
unsuccessful, of obtaining shortly thereafter primary management rights over or
equity interests in the underlying assets securing such debt (the "Diversified
Portfolio"). The Trust's authority with respect to the Diversified Portfolio
includes the power to acquire, hold, own, develop, redevelop, construct,
improve, maintain, operate, manage, sell, lease, rent, transfer, encumber,
mortgage, convey, exchange and otherwise dispose of all or part of the
Diversified Portfolio and the Diversified Portfolio may be held by the Trust
directly or indirectly.

Without the amendment, termination or waiver of provisions of certain
non-competition agreements between Starwood Capital Group, L.P. and Starwood
Hotels & Resorts, a publicly traded hotel real estate investment trust the
shares of which are paired and trade with those of Starwood Hotels & Resorts
Worldwide, Inc., the Trust is prohibited from: (i) making investments in loans
collateralized by hotel assets where it is anticipated that the underlying
equity will be acquired by the debt holder within one (1) year from the
acquisition of such debt, (ii) acquiring equity interests in hotels (other than
acquisitions of warrants, equity participations or similar rights incidental to
a debt investment by the Trust or that are acquired as a result of the exercise
of remedies in respect of a loan in which the Trust has an interest) or (iii)
selling or contributing to or acquiring any interests in Starwood Hotels &
Resorts, including debt positions or equity interests obtained by the Trust
under, pursuant to or by reason of the holding of debt positions.

1.5. DEFINITIONS. The following terms shall, whenever used in this
Declaration, unless the context otherwise requires, have the meanings specified
in this Section 1.5. The singular shall refer to the plural, and the masculine
gender shall be deemed to refer to the feminine and neuter, and vice versa, as
the context requires.

(a) "ADVISOR" means the Person to whom, pursuant to the Advisory
Agreement, the Trustees delegate certain control and management of the Trust and
its assets as provided in Section 4.1.

(b) "ADVISORY AGREEMENT" means the advisory agreement between the
Trust and the Advisor as described in Section 4.2.

(c) "AFFILIATE" means with respect to the Advisor, a Shareholder, or
Trustee (i) any Person directly or indirectly owning, controlling, or holding,
with power to vote, 5% or more of the outstanding voting securities of the
Advisor or such Shareholder, (ii) any Person 5% or more of whose outstanding
voting securities are directly or indirectly owned, controlled, or held, with
power to vote, by the Advisor, such Trustee, or such Shareholder, and (iii) any
officer, director, or partner of the Advisor or such Shareholder.

(d) "BYLAWS" means the bylaws of the Trust, provided for in
Section 3.3.

(e) "CLASS A SHAREHOLDERS" means, at any particular time, those
Persons who are shown as the holders of record of all Class A Shares on the
records of the Trust at such time.

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<PAGE>

(f) "CLASS B SHAREHOLDERS" means, at any particular time, those
Persons who are shown as the holders of record of all Class B Shares on the
records of the Trust at such time.

(g) "CLASS A SHARES" means the designated shares of beneficial
interest of the Trust as described in Section 6.1.

(h) "CLASS B SHARES" means the designated shares of beneficial
interest of the Trust as described in Section 6.1.

(i) "CODE" means the Internal Revenue Code of 1986, as amended from
time to time, including successor statutes thereto.

(j) "DECLARATION" means this Amended and Restated Declaration of
Trust and all amendments and modifications thereof. References in this
Declaration to "herein" and "hereunder" shall be deemed to refer to this
Declaration and shall not be limited to the particular text, article, or section
in which such words appear.

(k) "MORTGAGES" means mortgages, deeds of trust, or other security
instruments on real property or rights or interests in real property or entities
owning or controlling real property.

(l) "OPERATING EXPENSES" means the aggregate annual expenses of the
Trust of every character regarded as operating expenses in accordance with
generally accepted accounting principles, as determined by independent
accountants selected by the Trustees, exclusive of: Organization and Offering
Expenses; interest and discounts and other costs of borrowed money; taxes on
income and real property and all other taxes and assessments applicable to the
Trust and its operations; legal, auditing, underwriting, brokerage, transfer
agent's, registrar's, and indenture trustee's fees and other such fees, whether
paid to Affiliates of the Advisor or independent Persons; fees and expenses paid
to independent contractors, independent advisors, mortgage bankers, brokers, and
services, real property managers, leasing agents, consultants, on-site managers,
real estate brokers, insurance agents and brokers, other brokers and agents, and
all personnel employed by the Trust or on its behalf (including all compensation
and reimbursements of expenses, payable to the Advisor by the Trust under any
Advisory Agreement with the Trust referred to in Article IV hereof and
compensation payable to Affiliates of the Advisor) employed by or on behalf of
the Trust; costs of insurance (including Trustee's liability insurance), whether
paid to Affiliates of the Advisor or independent Persons; expenses of organizing
and terminating the Trust; all expenses connected with distributions and
communications to holders of Securities of the Trust and the other bookkeeping
and clerical work necessary in maintaining relations with holder of Securities,
including the cost of printing and mailing checks, certificates for Securities,
proxy solicitation materials, and reports to such holders; all expenses
connected with the acquisition, disposition, and ownership of the Trust Estate,
and all other investments by the Trust, including the costs of appraisal, legal
services, brokerage and sales commissions, processing and foreclosure expenses,
expenses for the maintenance, repair, and improvements of Trust assets, property
management fees and expenses

B-4
<PAGE>

for day-to-day management of Trust assets, whether paid to Affiliates of the
Advisor or other Persons; realized losses (exceeding provisions therefor) on
dispositions; and all provisions for depletion, depreciation, amortization, and
losses.

(m) "ORGANIZATION AND OFFERING EXPENSES" means those expenses
incurred in connection with the formation and registration of the Trust and in
qualifying and marketing the Shares or other Securities under applicable federal
and state law, and any other expenses actually incurred and directly related to
the qualification, registration, offer, and sale of the Shares or other
Securities, including such expenses as: (i) selling commissions; (ii) all
marketing expenses and payment made to broker-dealers as compensation or
reimbursement for all costs of reviewing the offerings, including due diligence
investigations and fees or expenses of their attorneys, accountants, and other
experts; (iii) registration fees, filing fees, and taxes; (iv) the costs of
printing, amending, supplementing, and distributing the registration statements
and prospectuses; (v) the costs of obtaining regulatory clearances of, printing,
and distributing sales materials used in connection with the offer and sale of
the Shares or other Securities; (vi) compensation of officers and employees of
the Advisor and its Affiliates while directly engaged in organizing and forming
the Trust and in qualifying, registering, and marketing the Shares or other
Securities under applicable federal and state law; (vii) reimbursements to any
selling agent, selected broker-dealers, the Advisor, and its Affiliates for
special marketing and incentive programs sponsored by those entities; (viii) the
costs related to investor and broker-dealer sales meetings; and (ix) accounting
and legal fees incurred in connection with any of the foregoing.

(n) "PERSON" means any individual, partnership, corporation,
association, trust, or other entity.

(o) "REIT PROVISIONS OF THE CODE" means Part II, Subchapter M of
Chapter 1 of Subtitle A of the Code, as now enacted or hereafter amended,
including successor statutes and regulations promulgated thereunder.

(p) "SECURITIES" means common and preferred stock in a corporation,
shares of beneficial interest in a trust or other unincorporated association,
general partner interests in a general partnership, interests in a joint
venture, general or limited partnership interests in a limited partnership,
membership interests or non-member manager interests in a limited liability
company, notes, debentures, bonds, and other evidences of indebtedness,
including Mortgages, whether secured or unsecured, and includes any options,
warrants, and rights to subscribe to or convert into any of the foregoing.

(q) "SHAREHOLDERS" means, at any particular time, the Class A
Shareholders, the Class B Shareholders, and all other holders of record of
outstanding Shares on the records of the Trust at such time.

(r) "SHARES" means the Class A Shares, the Class B Shares, and all
other shares of beneficial interest of the Trust issued as provided herein.

B-5
<PAGE>

(s) "TRUST" means the trust created by this Declaration.

(t) "TRUSTEES" means, as of any particular time, the Persons holding
such office under this Declaration at such time, whether they be the Trustees
named herein or additional or successor Trustees, but shall not include the
officers, representatives, or agents of the Trust or the Shareholders, although
nothing herein shall be deemed to preclude the Trustees from also serving as
officers, representatives, or agents of the Trust or from owning Shares.

(u) "TRUST ESTATE" means, as of any particular time, any and all
property, real, personal, or otherwise, tangible or intangible, which is held,
transferred, conveyed, or paid to the Trust or the Trustees on behalf of the
Trust and all rents, income, profits, and gains therefrom.

(v) "TRUST LOANS" means the notes, debentures, bonds, and other
evidences of indebtedness or obligations acquired or entered into by the Trust
which are secured or collateralized by personal property or fee or leasehold
interests in real estate or other assets, including, but not limited to, first
mortgage loans, junior mortgage loans, construction loans, development loans,
equipment loans, loans secured by general or limited partnership interests,
capital stock, or any other assets or form of equity interest or guarantee of
the borrower, and any other type of loan or financial arrangement, such as
providing or arranging for letters of credit, providing guarantees of
obligations to third parties, or providing commitments for Trust Loans.

ARTICLE II
THE TRUSTEES

2.1. NUMBER, TERMS OF OFFICE, QUALIFICATIONS OF TRUSTEES. The initial
number of Trustees shall be eight, but such number may be changed from time to
time by a vote of the majority of Trustees then in office or by Shareholders
voting in the manner set forth in Section 6.2(e), provided that the number of
Trustees so fixed shall not be less than seven nor more than 15. The initial
Trustees shall be the signatories hereto. Subject to the provisions of
Section 2.3, each Trustee shall hold office until the expiration of his or her
term and until the election and qualification of his or her successor. The
Trustees shall be divided into two classes of approximate equal size, which
classes are hereby designated Class I and Class II. The term of office of the
initial Class I Trustees shall expire at the 1998 Annual Meeting of
Shareholders; and the term of office of the initial Class II Trustees shall
expire at the 1999 Annual Meeting of Shareholders. For the purposes hereof, the
initial Class I and Class II Trustees shall be those Trustees so designated and
elected at the 1997 Annual Meeting of Shareholders held in March 1998.

At each Annual Meeting of Shareholders after the 1997 Annual Meeting of
Shareholders, Trustees to replace those of the class whose terms expire at such
Annual Meeting of Shareholders shall be elected to hold office until the second
succeeding annual meeting and until their respective successors shall have been
duly elected and qualified.

B-6
<PAGE>

Trustees may be re-elected indefinitely. A Trustee shall be an individual
at least 21 years of age who is not under legal disability. Such individual
shall qualify as a Trustee when he has either signed this Declaration or agreed
in writing to be bound by it. Unless otherwise required by law, no Trustee
shall be required to give bond, surety, or security in any jurisdiction for the
performance of any duties or obligations hereunder. The Trustees in their
capacity as trustees shall not be required to devote their entire time to the
business and affairs of the Trust, and it is understood that all or some of the
Trustees may be involved in, and/or shareholders, officers, directors,
representatives, agents, partners, or beneficiaries of, businesses and ventures
which may be in direct competition with the Trust.

2.2. COMPENSATION AND OTHER REMUNERATION. The Trustees shall be entitled
to receive such reasonable compensation for their services as Trustees as they
may determine from time to time. The Trustees, either directly or indirectly,
shall also be entitled to receive remuneration for services rendered to the
Trust in any other capacity. Such services may include, without limitation,
services as an officer of the Trust, legal, accounting, or other professional
services, or services as a broker, transfer agent, or underwriter, whether
performed by a Trustee or an Affiliate of a Trustee.

2.3. RESIGNATION, REMOVAL AND DEATH OF TRUSTEES. A Trustee may resign at
any time by giving written notice in recordable form to the remaining Trustees
at the principal office of the Trust. Such resignation shall take effect on the
date such notice is given or at any later time specified in the notice without
need for prior accounting. A Trustee may be removed with or without cause at a
special meeting of the Shareholders voting in the manner set forth in
Section 6.2, or with cause by all remaining Trustees. "Cause" for purposes of
this Section 2.3 shall mean a Trustee's willful violations of this Declaration
or the Bylaws which violations are materially against the interests of the
Shareholders, or gross negligence in the performance of his or her duties.

Upon the resignation or removal of any Trustee, or his or her otherwise
ceasing to be a Trustee, he or she shall execute and deliver such documents as
the remaining Trustees shall require for the conveyance of any Trust property
held in his or her name, shall account to the remaining Trustee or Trustees as
they require for all property which he or she holds as Trustee, and shall
thereupon be discharged as Trustee. Upon the incapacity or death of any
Trustee, his or her legal representative shall perform the acts set forth in the
preceding sentence, and the discharge mentioned therein shall run to such legal
representative and to the incapacitated Trustee or the estate of the deceased
Trustee as the case may be.

2.4. VACANCIES. If any or all of the Trustees ceased to be Trustees
hereunder, whether by reason of resignation, removal, incapacity, death, or
otherwise, such event shall not terminate the Trust or affect its continuity.
Until vacancies are filled, the remaining Trustee or Trustees (even though less
than seven) may exercise the powers of the Trustees hereunder. Vacancies
(including vacancies created by increases in number) may be filled by the
remaining Trustee or by vote of a majority of the remaining Trustees or by the
Shareholders voting in the manner set forth in Section 6.2(a). Any Trustee so
elected by the remaining Trustees or the Shareholders

B-7
<PAGE>

shall hold office until his successor is elected and qualified or until his or
her earlier death, resignation, retirement, disqualification or removal from
office. Newly created trusteeships or decrease in trusteeships shall be so
apportioned among the classes so as to make all classes as nearly equal in
number as is practicable. Any additional Trustee of any class elected to fill a
vacancy resulting from any increase in such class shall hold office for a term
that shall coincide with the remaining term of that class, but in no case will a
decrease in the number of Trustees shorten the term of any incumbent Trustee.
If at any time there shall be no Trustees in office, successor Trustees shall
be elected by the Shareholders as provided in Section 6.2(a).

2.5. SUCCESSOR AND ADDITIONAL TRUSTEES. The right, title, and interest of
the Trustees in and to the Trust Estate shall also vest in successor and
additional Trustees upon their acceptance of the office, and they shall
thereupon have all the rights and obligations of Trustees hereunder. Such
right, title, and interest shall vest in the Trustees whether or not
conveyancing documents have been executed and delivered pursuant to Section 2.3
or otherwise.

2.6. ACTIONS BY TRUSTEES AND EXECUTIVE COMMITTEE; QUORUM. A quorum for all
meetings of the Trustees shall be a majority of the Trustees. Unless
specifically provided otherwise in this Declaration, any action of the Trustees
may be taken at a meeting by a vote of a majority of the Trustees. Any action
taken by Trustees in accordance with the provisions of this Article II shall be
conclusive and binding on the Trust, the Trustees and the Shareholders, as an
action of all the Trustees, collectively, and of the Trust. Any agreement,
deed, mortgage, lease, or other instrument or writing executed by one or more of
the Trustees or by any authorized Person shall be valid and binding upon the
Trustees and upon the Trust; provided that such action is pursuant to
authorization of a majority of the Trustees given either at a meeting or in
writing or as provided in the Bylaws.

The Trustees may appoint a committee (the "Executive Committee") with
authority to exercise the powers of the Trustees and consisting of five or more
of the Trustees. Unless specifically provided otherwise in this Declaration,
any action of the Executive Committee may be taken at a meeting by vote of a
majority of the members of the Committee. A quorum for all meetings of the
Executive Committee shall be a majority of the members thereof. With respect to
the actions of the Trustees and the Executive Committee, Trustees who are
Affiliates of the Advisor may be counted for all quorum purposes.

Unless otherwise specifically provided in this Declaration, any action
required or permitted to be taken at any meeting of the Trustees or of the
Executive Committee may be taken without a meeting if all of the Trustees or
members of the Executive Committee, as the case may be, consent thereto in
writing. Trustees or members of the Executive Committee may participate in a
meeting of the Trustees or the Executive Committee, as the case may be, by means
of conference telephone or similar communications equipment by which all
individuals participating in the meeting can hear each other, and participation
in such meeting pursuant to this paragraph shall constitute presence in person
at such meeting for all purposes of this Declaration.

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<PAGE>

ARTICLE III
TRUSTEES' POWERS

3.1. POWER AND AUTHORITY OF TRUSTEES. The Trustees, subject only to the
specific limitations contained in this Declaration, shall have, without further
or other authorization, and free from any power or control on the part of the
Shareholders, full, absolute, and exclusive power, control, and authority (a)
over the Trust Estate and over the business and affairs of the Trust and (b) to
do all such acts and things as in their sole judgment and discretion are
necessary or incidental to, or desirable for the carrying out of, any of the
purposes of the Trust or conducting the business of the Trust. Notwithstanding
anything to the contrary in this Declaration, the Trustees shall have continuing
exclusive authority over the management of the Trust, the conduct of its affairs
and the management and disposition of Trust property, all in accordance with the
REIT Provisions of the Code. Any determination made in good faith by the
Trustees of the purposes of the Trust or the existence of any power or authority
hereunder shall be conclusive as to the Trust and its Shareholders. In
construing the provisions of this Declaration, presumption shall be in favor of
the grant of powers and authority to the Trustees. The enumeration of any
specific power or authority herein shall not be construed as limiting the
general powers or authority or any other specified power or authority conferred
herein upon the Trustees.

3.2. SPECIFIC POWERS AND AUTHORITIES. Subject only to the express
limitations contained in this Declaration and in addition to any powers and
authorities conferred by this Declaration or which the Trustees may have by
virtue of any present or future statute or rule or law, the Trustees without any
action or consent by the Shareholders shall have and may exercise at any time
and from time to time the following powers and authorities which may be
exercised by them in their sole judgment and discretion and in such manner and
upon such terms and conditions as they may from time to time deem appropriate:

(a) To retain, invest, and reinvest the capital or other funds of the
Trust in Trust Loans and real or personal property investments of any kind, and
to purchase, invest in, or otherwise acquire for cash or other property or
through the issuance of Shares or other Securities, Trust Loans and fee,
leasehold, or other participating interests in property, real, personal, or
mixed, tangible or intangible, including notes, bonds, or other obligations, all
for such consideration as they deem appropriate and without regard to whether
any such property is authorized by law for the investment of trust funds. In
connection with any such investment, purchase, or acquisition, the Trustees
shall have the power to acquire a share of rents, lease payments, or other
gross income from, or a share of the profits from, or a share in the equity or
ownership of the security for such Trust Loans; to invest in Trust Loans secured
by the pledge or transfer of Mortgages, other assets, and/or contractual
obligations; to develop, operate, pool, unitize, grant production payments out
of or lease or otherwise dispose of mineral, oil and gas properties, and rights.

(b) To possess and exercise all the rights, powers, and privileges
appertaining to the ownership of the Trust Estate and to increase the capital of
the Trust at any time by the

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<PAGE>

issuance of additional Shares or other Securities, in all cases for such
consideration and upon such terms as they deem appropriate.

(c) To sell, rent, lease, hire, exchange, release, partition, assign,
mortgage, pledge, hypothecate, grant security interests in, encumber, negotiate,
convey, transfer, or otherwise dispose of any and all of the Trust Estate by
deeds, trust deeds, assignments, bills of sale, transfers, leases, Mortgages,
financing statements, security agreements, and other instruments for any of such
purposes executed and delivered for and on behalf of the Trust or the Trustees
by one or more of the Trustees or by a duly authorized officer, employee, agent,
or any nominee of the Trust.

(d) To amend the Declaration, without Shareholders' consent, to
increase or decrease the aggregate number of Shares or the number of Shares of
any class or series, that the Trust has authority to issue. To issue Shares or
other Securities which may be subordinated to any indebtedness of the Trust and
may be convertible into Shares, including Preferred Shares in series, by
amending this Declaration, which amendment shall not require the vote of
Shareholders to the extent such amendment establishes a class or series of
Shares or Securities and/or the terms and preferences thereof, to establish from
time to time the number of Shares to be included in each such series, and to fix
the designation, powers, preferences and rights of the Shares of each such
series and the qualifications, limitations or restrictions thereof, all without
vote of or other action by the Shareholders to such Persons for such cash,
property, or other consideration (including securities issued or created by, or
interests in any Person) at such time or times and on such terms as the Trustees
may deem advisable and to list any of the Securities issued by the Trust on any
securities exchange and to purchase or otherwise acquire, hold, cancel, reissue,
sell, and transfer any of the Securities. The authority of the Board with
respect to any new Shares or Securities shall include, but not be limited to,
determination of the following:

(i) The number of Shares or Securities constituting that series
and the distinctive designation of that series;

(ii) The rate of dividend, and whether (and if so, on what terms
and conditions) dividends shall be cumulative (and if so, whether unpaid
dividends shall compound or accrue interest) or shall be payable in preference
or in any other relation to the dividends payable on any other class or classes
of Shares or any other series of Shares or Securities;

(iii) Whether that series shall have voting rights in addition to
the voting rights provided by law and, if so, the terms and extent of such
voting rights;

(iv) Whether the Shares or Securities must or may be redeemed
and, if so, the terms and conditions of such redemption (including, without
limitation, the dates upon or after which they must or may be redeemed and the
price or prices at which they must or may be redeemed, which price or prices may
be different in different circumstances or at different redemption dates);

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<PAGE>

(v) Whether the Shares shall be issued with the privilege of
conversion or exchange and, if so, the terms and conditions of such conversion
or exchange (including without limitation the price or prices or the rate or
rates of conversion or exchange or any terms for adjustment thereof);

(vi) The amounts, if any, payable upon the Shares in the event of
voluntary liquidation, dissolution or winding up of the Trust in preference of
Shares of any other class or series and whether the Shares shall be entitled to
participate generally in distributions under such circumstances;

(vii) The amounts, if any, payable under the Shares thereof in
the event of involuntary liquidation, dissolution or winding up of the Trust in
preference of shares of any other class or series and whether the Shares shall
be entitled to participate generally in distributions under such circumstances;

(viii) Sinking fund provisions, if any, for the redemption or
purchase of the Shares (the term "sinking fund" being understood to include any
similar fund, however designated); and

(ix) Any other relative rights, preferences, limitations and
powers of that series.

(e) To enter into leases, contracts, obligations, easement
agreements, party wall agreements, boundary line agreements, loan commitments of
every kind, nature, and description, guarantees, financing arrangements and
participations, and other agreements, any one of which may be for a term
extending beyond the term of office of the Trustees and beyond the possible
termination of the Trust or for a lesser term.

(f) To borrow money and give negotiable or non-negotiable instruments
therefor; to guarantee, indemnify, or act as surety with respect to payment or
performance of obligations of third parties; to enter into other obligations on
behalf of the Trust and to assign, convey, transfer, mortgage, subordinate,
pledge, grant security interests in, encumber, or hypothecate the Trust Estate
to secure any of the foregoing.

(g) To lend money, whether secured or unsecured, pursuant to Trust
Loans or otherwise.

(h) To create reserve funds for any purpose.

(i) To incur and pay out of the Trust Estate any charges or expenses,
and disburse any funds of the Trust, which charges, expenses, or disbursements
are, in the opinion of the Trustees, necessary or incidental to or desirable for
the carrying out of any of the purposes of the Trust or conducting the business
of the Trust, including, without limitation, all Organization and Offering
Expenses, Operating Expenses, payments, reimbursements, and compensation to

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the Trustees, the Advisor, and their Affiliates, taxes and other governmental
levies, charges, and assessments, of whatever kind or nature, imposed upon or
against the Trustees in connection with the Trust or the Trust Estate or upon or
against the Trust Estate or any part thereof, and for any of the purposes
herein.

(j) To deposit funds of the Trust in banks, trust companies, savings
and loan associations, and other depositories, whether or not such deposits will
draw interest, the same to be subject to withdrawal on such terms, in such
manner, and by such Person or Persons (including any one or more Trustees,
officers, agents, representatives, or the Advisor) as the Trustees may
determine.

(k) To posses and exercise all the rights, powers, and privileges
appertaining to the ownership of all or any Mortgages or Securities, issued or
created by, or interests in, any Person, forming part of the Trust Estate, to
the extent that an individual might, and, without limiting the generality of the
foregoing, to vote or give any consent, request, or notice, or waive any notice,
either in person or by proxy or power of attorney, with or without power of
substitution, to one or more Persons, which proxies and powers of attorney may
be for meetings or action generally or for any particular meeting or action and
may include the exercise of discretionary powers.

(l) To cause to be organized or assist in organizing any Person under
the laws of any jurisdiction to acquire the Trust Estate or any part or parts
thereof or to carry on any business in which the Trust shall directly or
indirectly have any interest, and to sell, rent, lease, hire, convey, negotiate,
assign, exchange, or transfer the Trust Estate or any part or parts thereof to
or with any such Person in exchange for the Securities thereof or otherwise, and
to lend money to, subscribe for the Securities of, and enter into any contracts
with, any such Person the Securities or any other interest of which the Trust
holds or is about to acquire.

(m) To enter into joint ventures, general or limited partnerships,
and any other lawful combinations or associations.

(n) To elect one of themselves as Chairman of the Board and to elect,
appoint, engage, or employ other officers for the Trust (including a Secretary,
Treasurer, and such Vice Presidents and other officers as the Trustees may
determine), who may be removed or discharged at the discretion of the Trustees,
such officers to have such powers and duties, and to serve such terms, as may be
prescribed by the Trustees or by the Bylaws; to engage or employ any Persons
(including, subject to the provisions of Sections 7.4 and 7.5, any Trustee,
officer, or employee of the Trust or any Affiliate of any of such Trustee,
officer, or employee of the Trust) as agents, representatives, or employees
(including, without limitation, real estate advisors, investment advisors,
transfer agents, registrars, underwriters, accountants, attorneys at law, real
estate agents, managers, appraisers, brokers, architects, engineers,
construction managers, general contractors, or otherwise) in one or more
capacities, and to pay compensation from the Trust for services in as many
capacities as such Persons may be so engaged or employed; and, except as
prohibited by law, to delegate any of the powers and duties of the Trustees to
any one or more

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<PAGE>

Trustees, agents, representatives, officers, employees, independent contractors,
the Advisor, or other Persons.

(o) To determine whether monies, Securities, or other assets received
by the Trust shall be charged or credited to income or capital or allocated
between income and capital, including the power to amortize or fail to amortize
any part or all of any premium or discount, to treat any part or all of the
profit resulting from the maturity or sale of any asset whether purchased at a
premium or at a discount, as income or capital, or apportion the same between
income and capital, to apportion the sales price of any asset between income and
capital, and to determine in what manner any expenses or disbursements are to be
borne as between income and capital, whether or not in the absence of the power
and authority conferred by this subsection such moneys, Securities, or other
assets would be regarded as income or as capital or such expense or disbursement
would be charged to income or to capital; to treat any dividend or other
distribution on any investment as income or capital or apportion the same
between income and capital; to provide or fail to provide reserves for
depreciation, amortization, or obsolescence in respect of all or any part of the
Trust Estate subject to depreciation, depletion, amortization, or obsolescence
in such amounts and by such methods as they shall determine; and to determine
the method or form in which the accounts and records of the Trust shall be kept
and to change from time to time such method or form.

(p) To determine from time to time, the value of all or any part of
the Trust Estate and of any services, Securities, Trust Loans, property, or
other consideration to be furnished to or acquired by the Trust, and from time
to time to revalue all or any part of the Trust Estate in accordance with such
appraisals or other information as are, in the Trustees' sole judgment,
necessary and/or satisfactory.

(q) To collect, sue for, and receive all sums of money coming due to
the Trust, and to engage in, intervene in, prosecute, join, defend, compound,
compromise, abandon, or adjust, by arbitration or otherwise, any actions, suits,
proceedings, disputes, claims, controversies, demands, or other litigation
relating to the Trust, the Trust Estate, or the Trust's affairs, to enter into
agreements therefor, whether or not any suit is commenced or claim accrued or
asserted and, in advance of any controversy, to enter into agreements regarding
arbitration, adjudication, or settlement thereof.

(r) To renew, modify, release, compromise, extend, consolidate, or
cancel, in whole or in part, any obligation to or of the Trust.

(s) To purchase and pay for out of the Trust Estate insurance
contracts and policies insuring the Trust Estate against any and all risks and
insuring the Trust and/or any or all of the Trustees, the Shareholders, or
officers against any and all claims and liabilities of every nature asserted by
any Person arising by reason of any action alleged to have been taken or omitted
by the Trust or by the Trustees, Shareholders, or officers, regardless of
whether such insurance contracts and policies are provided by Persons affiliated
with the Advisor or the Trustees.

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<PAGE>

(t) To cause legal title to any of the Trust Estate to be held by
and/or in the name of the Trustees, and/or, except as prohibited by law, in the
name of the Trust or one or more of the Trustees or any other Person, on such
terms, in such manner, and with such powers in such Person as the Trustees may
determine, and with or without disclosure that the Trust or Trustees are
interested therein.

(u) To adopt a fiscal year for the Trust, and from time to time
change such fiscal year.

(v) To adopt and use a seal (but, the use of a seal shall not be
required for the execution of instruments or obligations of the Trust).

(w) To help ensure that (i) the objectives of the Trust (including
the objectives of providing Shareholders with a pass-through investment vehicle,
as well as minimizing unrelated business taxable income for tax-exempt
Shareholders) will not be defeated by future legislation or other action, (ii)
the Trust will not be deemed to hold assets of an employee benefit plan ("Plan
Assets") for purposes of the Employee Retirement Income Security Act of 1974
("ERISA"), and (iii) the transactions contemplated hereunder will not constitute
prohibited transactions under ERISA or the Code. In order to accomplish the
foregoing, the Trustees and the Advisor have the right (upon notice to all
Shareholders but without the need to obtain the consent of any Shareholder) to
take any actions including (1) restructuring the Trust's activities and, if
deemed necessary by the Trustees and the Advisor, converting the Trust to
another type of entity (including a partnership), (2) restructuring the Trust's
activities to the extent necessary to comply with any exemption in Plan Asset
legislation or the Plan Asset regulations adopted by the Department of Labor
from time to time, including establishing a fixed percentage of Shares permitted
to be held by employee benefit plans or other tax-exempt entities, or
discontinuing sales of Securities to such investors after a given date as
necessary to obtain a prohibited transaction exemption from the Department of
Labor to comply with any exemption in the Plan Asset legislation or Plan Asset
regulations, and/or (3) terminating any offering, or compelling a dissolution
and termination of the Trust.

(x) After obtaining approval of the Shareholders as required hereby
or by Maryland law, to participate in any reorganization, readjustment,
consolidation, merger, dissolution, sale or purchase of assets, lease or similar
proceedings of any corporation, partnership or other organization in which the
Trust shall have an interest and in connection therewith to delegate
discretionary powers to any reorganization, protective or similar committee and
to pay assessments and other expenses in connection therewith.

(y) To solicit proxies of the Shareholders.

(z) After obtaining approval of the Shareholders as required hereby
or by Maryland law, to merge the Trust with or into any other trust or
corporation in accordance with the laws of the State of Maryland.

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<PAGE>

(aa) To do all other such acts and things as are incident to the
foregoing and to exercise all powers which are necessary or useful to carry on
the business of the Trust, to promote any of the purposes for which the Trust is
formed, and to carry out the provisions of this Declaration.

3.3. TRUST BYLAWS. The Trustees may make, adopt, amend, or repeal bylaws
(the "Bylaws") containing provisions relating to the business of the Trust, the
conduct of its affairs, its rights or powers, and the rights or powers of its
Shareholders, Trustees, or officers not inconsistent with law or with this
Declaration.

ARTICLE IV
ADVISOR

4.1. EMPLOYMENT OF ADVISOR. The Trustees are responsible for the general
policies of the Trust and for such general supervision of the business of the
Trust conducted by all officers, agents, employees, advisors, managers, or
independent contractors of the Trust as may be necessary to insure that such
business conforms to the provisions of this Declaration. However, the Trustees
are not and shall not be required personally to conduct the business of the
Trust and, consistent with their ultimate responsibility as stated above, the
Trustees shall have the power to appoint, employ, or contract with any Person
(including one or more of themselves, or any Affiliate of any of them) as the
Trustees may deem necessary or proper for the transaction of the business of the
Trust. The Trustees may therefore employ or contract with such Person (herein
referred to as the "Advisor"), and the Trustees may grant or delegate such
authority to the Advisor as the Trustees may in their sole discretion deem
necessary or desirable, without regard to whether such authority is normally
granted or delegated by Trustees.

The Trustees shall have the power to determine the terms and compensation
of the Advisor or any other Person whom they may employ or with whom they may
contract. The Trustees may exercise broad or other discretion in allowing the
Advisor to administer and regulate the operations of the Trust, to act as agent
for the Trust, to execute documents on behalf of the Trustees, and to make
executive decisions which conform to general policies and general principles
previously established by the Trustees.

4.2. TERM. The Trustees entered into a contract with the Advisor
("Advisory Agreement") as of March 18, 1998 which provides for an initial term
of three years and for the automatic annual extension thereafter. The Advisory
Agreement may be terminated, without penalty upon no less than 60 days' written
notice of the Advisor or by vote of a majority of the Trustees upon a
Termination Event (as defined in the Advisory Agreement) or by Shareholders
voting as set forth in Section 6.2.

4.3. INDEPENDENCE OF TRUSTEES AND MEMBERS OF EXECUTIVE COMMITTEE. A
minimum of the greater of (i) 331/3% of the total number of Trustees and (ii)
three (3) members of the Executive Committee and the Board shall be Persons who
are not Affiliates of the Advisor or

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<PAGE>

Starwood Capital Group, L.L.C.; PROVIDED, HOWEVER, that if at any time the
number of Trustees or members of the Executive Committee who are not Affiliates
of such Person becomes less than the minimum number set forth above, whether
because of the death, resignation, removal, or change in affiliation of one or
more Trustees or members of the Executive Committee or otherwise, then such
requirement shall not be applicable for a period of 90 days of such event
occurring, during which period the continuing Trustees or Trustee then in office
shall appoint, pursuant to Section 2.4, a sufficient number of other individuals
as Trustees or as members of the Executive Committee so that again a minimum of
the greater of (i) 331/3% of the total number of Trustees and (ii) three (3)
members of the Board of Trustees and the Executive Committee then in office are
not Affiliates of such Person. The Trustees shall at all times endeavor to
comply with the requirement of this Section 4.3 as to independence, but failure
so to comply with such requirement shall not affect the validity or
effectiveness of any action of the Trustees or of the Executive Committee.

4.4. OTHER ACTIVITIES OF ADVISOR. The Advisor shall not be required to
administer the Trust as its sole and exclusive function and may have other
business interests and may engage in other activities in addition to those
relating to the Trust which may be in direct competition with the Trust,
including acting as a real estate or loan broker, acting as a general partner or
manager, and rendering of advice or services of any kind to any other Person
(including, but not limited to, Affiliates of the Advisor). The Trustees may
request the Advisor and/or its Affiliates to engage in certain other activities
relating to the Trust's investments, including property management, contracting
for the construction of improvements, and the placement or brokerage of real
property, equity investments in real property, Mortgages, or other financing
arrangements; and the Advisor and/or its Affiliates may act as broker or provide
services requested by sellers, mortgagors, prospective sellers, or prospective
mortgagors to the Trust and may receive brokerage commissions and other
compensation from such sellers, mortgagors, prospective sellers, and prospective
mortgagors in addition to compensation paid to the Advisor by the Trust.

The Advisor shall be required to use its best efforts to present a
continuing and suitable investment program to the Trust which is consistent with
the investment policies and objectives of the Trust, but neither the Advisor nor
any Affiliate of the Advisor shall be obligated to present any particular
investment opportunity to the Trust even if such opportunity is of a character
which, if presented to the Trust, could be taken by the Trust, and subject to
the foregoing, each of them shall have the right to take for its own account or
to recommend to others any such particular investment opportunity. The Advisor
shall act on a basis which is fair and reasonable to the Trust and the
Shareholders in selecting from among the various investment opportunities that
come to the Advisor those investment opportunities which it presents to and
approves on behalf of the Trust. So long as there is an Advisor or other Person
performing similar functions, the Trustees shall have no responsibility to
originate investment opportunities for the Trust.

4.5. LIMITATION ON OPERATING EXPENSES. The Operating Expenses of the Trust
for any full fiscal year shall not (except as set forth herein) exceed an amount
equal to the greater of (a) 2% of the average net assets of the Trust Estate for
such year or (b) 25% of the Trust's net income for such year, determined in
accordance with generally accepted accounting principles,

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<PAGE>

before deducting any regular and incentive advisory fees, administrative fees
and expenses, and depreciation, depletion, and amortization. The Trustees shall
limit such expenses to amounts that do not exceed such limitations unless a
majority of the Trustees who are not Affiliates of the Advisor determine that
based upon such factors as they deem sufficient, a higher level of expenses is
justified. Each contract made with the Advisor under this Article IV shall
specifically provide that in the event such Trustees determine that such excess
expenses are not justified, the Advisor shall refund to the Trust promptly after
the end of any such year the amount, if any, by which the Operating Expenses so
exceed said amount; provided, that to the extent that the Operating Expenses for
any subsequent fiscal year are less than the greater of clauses (a) or (b)
above, the Trust shall reimburse the Advisor the amount(s) it previously
refunded to the Trust pursuant to this Section 4.5.

ARTICLE V
INVESTMENT POLICY

5.1. GENERAL STATEMENT OF POLICY. While the Trustees are authorized,
pursuant to Article III, to invest the Trust Estate in a wide variety of
investments, it is the present intention of the Trust that it shall be the
principal investment objective and policy of the Trust for the Trustees to
invest the Trust Estate in the Diversified Portfolio.

Investments of the Trust may be made in various combinations and may
involve participations with other Persons, including Affiliates of the Advisor
and/or Trustees. Such investments may incorporate a variety of real property
equity and financing techniques, including, without limitation, partnerships,
joint ventures, purchase and leasebacks, land purchase-leases, net lease
financings, purchase and installment salebacks, and Mortgages.

The general purpose of the Trust is to seek real estate investment trust
income as defined in the REIT Provisions of the Code consistent with the
investment objective and policy of the Trust as set forth above. The Trustees
intend to make investments in such a manner as to comply with the requirements
of the REIT Provisions of the Code with respect to the composition of the
Trust's investments and the derivation of its income; provided, however, that no
Trustee, director, officer, employee, or agent of the Trust or the Advisor shall
be liable to any Person, including any Shareholder, for any act or omission
resulting in the loss of tax benefits, or in the incurrence of tax detriments,
under the Code or for the Trust not being treated for tax purposes as a "real
estate investment trust" under the REIT Provisions of the Code. Subject to
Section 5.3 hereof and subject to such restrictions as may be necessary to
qualify the Trust as a "real estate investment trust" as defined in the REIT
Provisions of the Code, the Trustees may alter the above-declared investment
policy in light of changes in economic circumstances and other relevant factors,
and the methods of implementing the Trust's investment policies may change, in
the discretion of the Trustees as economic and other conditions change.

5.2. OTHER PERMISSIBLE INVESTMENTS. To the extent that the Trust has
assets not invested in accordance with Section 5.1, the Trustees may employ such
assets by investing them in:

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<PAGE>

(a) Obligations of, or guaranteed or insured by, the United States
Government or any agency or political subdivision thereof;

(b) Obligations of, or guarantees by, any state, territory, or
possession of the United States of America or any agency or political
subdivision thereof;

(c) Evidences of deposits in, or obligations of, banking
institutions, state and federal savings and loan associations, and savings
institutions;

(d) Real and personal property and interests therein; and

(e) Other Securities, liquid short-term investments, and property.

5.3. PROHIBITED INVESTMENTS AND ACTIVITIES. The Trustees shall not engage
in any of the following investment practices or activities:

(a) Invest in commodities, foreign currencies, or bullion except in
connection with investments in other property; and

(b) Purchase any property from or sell any property to the Advisor,
nor shall the Trust lend any funds to the Advisor.

5.4. OBLIGOR'S DEFAULT. Notwithstanding any provision in any Article of
this Declaration, when an obligor to the Trust is in default under the terms of
any obligation (including a Trust Loan) to the Trust, the Trustees or the
Advisor shall have the power to pursue any remedies permitted by law which in
their sole judgment are in the interest of the Trust, and the Trustees or the
Advisor shall have the power to receive and hold any investment and to enter
into any commitment or obligation on behalf of the Trust in connection with or
in pursuit of such remedies which, in the judgment of the Trustees or the
Advisor, is necessary or desirable for the purpose of acquiring property,
disposing of property acquired in the pursuit of such remedies or the
preservation of its investment.

ARTICLE VI
SHARES AND SHAREHOLDERS

6.1. SHARES. The units into which the beneficial interest in the Trust
will be divided shall be designated as Shares, which Shares shall initially be
of two classes, Class A Shares and Class B Shares. The Class A Shares shall
have a par value of $1.00 per Share, and the Class B Shares shall have a par
value of $.01 per Share. The certificates evidencing the Shares shall be in
such form and signed (manually or by facsimile) on behalf of the Trust in such
manner as the Trustees may from time to time prescribe or as may be prescribed
in the Bylaws in accordance with the laws of the State of Maryland. The
certificates shall be negotiable and title thereto and to the Shares represented
thereby shall be transferred by assignment and delivery thereof to the same

<PAGE>

extent and in all respects as a share certificate of a Maryland corporation.
The total number of Shares that the Trust has authority to issue is 90,000,000
of which 60,000,000 shall be designated Class A Shares and 30,000,000 shall be
designated Class B Shares. As set forth in Section 3.2(d) the Trustees may
amend the Declaration, without Shareholder consent, to increase or decrease the
aggregate number of Shares or number of Shares of any class or series, that the
Trust has authority to issue. The Shares may be issued for such consideration
as the Trustees shall determine or without consideration by way of share
dividend or share split in the discretion of the Trustees. Shares reacquired by
the Trust shall no longer be deemed outstanding and shall have no voting or
other rights unless and until reissued. Shares acquired by the Trust may be
canceled and restored to the status of authorized and unissued Shares by action
of the Trustees. All Shares shall be fully paid and non-assessable by or on
behalf of the Trust upon receipt of full consideration for which they have been
issued or without additional consideration if issued by way of share dividend or
share split. The Shares shall not entitle the holder to preference,
pre-emptive, appraisal, conversion, or exchange rights of any kind, except as
provided in Section 6.14.

The Trustees are hereby required to issue for par a sufficient number of
Class B Shares such that the total number of outstanding Class B Shares shall at
all times equal 50% the total number of outstanding Class A Shares to all
holders of Class B Shares on a pro rata basis based on the number of Class B
Shares held by such holder on the date of issuance of the Class A Shares
requiring the issuance of the Class B Shares to the extent that (a) additional
Class A Shares are issued by the Trust (provided that if and to the extent such
issuance is subject to the approval of the American Stock Exchange, Inc. or such
other exchange or market on which the Class A Shares or other securities of the
Trust are traded, then such approval shall be obtained), and (b) the Class A
Shares are subject to any stock dividend, stock split, or other recapitalization
affecting the number of Class A Shares outstanding. The additional Class B
Shares shall be issued within 60 days of the issuance of the Class A Shares and
the purchase price may be paid in cash or by delivery of a promissory note. To
the extent that the Class B Shareholders convert their Class B Shares into Class
A Shares as provided in Section 6.14 the percentage of outstanding Class B
Shares required to be maintained by this Section 6.1 shall be reduced by
multiplying such 50% by a fraction, the numerator of which is the aggregate
number of Class B Shares outstanding as of the date of determination and the
denominator of which is one-half of the total number of Class A Shares issued
and outstanding on such date.

6.2. VOTING RIGHTS. The Shareholders shall be entitled to vote only upon
the following matters:

(a) ELECTION OF TRUSTEES. Trustees shall be elected in accordance
with Section 2.1 at the annual meeting of the Shareholders to be held at such
time and place as the Bylaws shall prescribe. In any election of Trustees, the
Class A Shareholders and the Class B Shareholders shall vote together as a
single class with each Class A Share and Class B Share held of record entitled
to one vote in person or by proxy.

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<PAGE>

Any vacancy in the office of Trustees may be filled by a vote of the Class
A Shareholders and the Class B Shareholders voting together as a single class
with each Share held of record entitled to one vote in person or by proxy, or,
in the absence of any such Shareholder vote, such vacancy may be filled by the
vote of the remaining Trustees. If the number of Trustees is increased in
accordance with this Declaration, the Bylaws, or otherwise, any vacancy so
created may be filled by the existing Trustees.

(b) REMOVAL OF TRUSTEES. A Trustee may be removed with or without
cause by majority vote or written consent of the Shareholders with the Class A
Shareholders and the Class B Shareholders voting together as a single class with
each Share held of record entitled to one vote in person or by proxy. Any
vacancy created by the removal of a Trustee shall be filled as provided in
Section 6.2(a).

(c) TERMINATION OF ADVISORY AGREEMENT. The Advisory Agreement may be
terminated to the extent provided in Section 4.2 upon approval by vote or
written consent of Shareholders holding two-thirds of the Class A Shares and the
Class B Shares voting together as a single class with each Share held of record
entitled to one vote in person or by proxy.

(d) TERMINATION OF THE TRUST. The Trust may be terminated at a
meeting of the Shareholders, specially called for such purpose, upon a vote by
the Shareholders holding 66-2/3% of the Class A Shares and the Class B Shares
voting together as a single class with each Share of record entitled to one vote
in person or by proxy. A merger of the Trust with and into another entity is
not a termination of the Trust if the Trust is the surviving entity or if the
purpose of the merger is primarily to change the domicile of the Trust.
Further, a change of the Trust's form from a business trust to a corporation is
not a termination of the Trust.

(e) AMENDMENTS TO THE DECLARATION. Except as set forth in the next
sentence or Section 3.2(d) or 10.2, this Declaration can be amended upon
approval of a majority vote of the Shareholders with the Class A Shareholders
and the Class B Shareholders voting together as a single class with each Share
held of record entitled to cast one vote in person or by proxy. Notwithstanding
anything in this Declaration to the contrary, wherever any provision of this
Declaration sets forth a specific percentage of the Shares outstanding and
entitled to vote which is required for approval or ratification of any action
upon which the vote of the Shareholders is required or may be obtained, such
provision can only be amended with the approval of Shareholders holding the
specific percentage of Shares outstanding and entitled to vote which is set
forth in such provision.

(f) SALES OF ASSETS. The Trust may sell, transfer or otherwise
dispose of all or substantially all of its assets, upon a vote by the
Shareholders holding two-thirds of the Class A Shares and the Class B Shares
voting together as a single class with each Share of record entitled to one vote
in person or by proxy.

(g) OTHER MATTERS. All other matters to be voted on, consented to,
or ratified by the Shareholders shall be passed, consented to, or ratified by a
majority vote of the

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Shareholders with the Class A Shareholders and the Class B Shareholders voting
together as a single class with each Share held of record entitled to cast one
vote in person or by proxy.

Notwithstanding anything in this Article VI to the contrary, at all times
that there are no Class A Shares outstanding, the Class B Shareholders shall
have exclusive voting power on all matters upon which Shareholders are entitled
to vote pursuant to this Declaration. Wherever any provision of this
Declaration sets forth a specific percentage of the Shares outstanding and
entitled to vote which is required for approval or ratification of any action
upon which the vote of the Shareholders is required or may be obtained, such
provision shall mean such specified percentage of the votes entitled to be cast
by holders of all Shares then outstanding and entitled to vote on such action.

6.3. LEGAL OWNERSHIP OF TRUST ESTATE. The legal ownership of the Trust
Estate and the right to conduct the business of the Trust are vested exclusively
in the Trustees, and the Shareholders shall have no interest therein other than
beneficial interest in the Trust conferred by their Shares issued hereunder, and
they shall have no right to compel any partition, division, dividend, or
distribution of the Trust or any of the Trust Estate.

6.4. SHARES DEEMED PERSONAL PROPERTY. The Shares shall be personal
property and shall confer upon the holders thereof only the interest and rights
specifically set forth in this Declaration. The death, insolvency, or
incapacity of a Shareholder shall not dissolve or terminate the Trust or affect
its continuity nor give his legal representative any rights whatsoever, whether
against or in respect of other Shareholders, the Trustees, or the Trust Estate
or otherwise, except the sole right to demand and, subject to the provisions of
this Declaration, the Bylaws, and any requirements of law, to receive a new
certificate for Shares registered in the name of such legal representative, in
exchange for, and upon delivery pursuant to Section 6.5 of, the certificate held
by such Shareholder.

6.5. SHARE RECORD; ISSUANCE AND TRANSFERABILITY OF SHARES. Records shall
be kept by or on behalf of and under the direction of the Trustees, which shall
contain the names and addresses of the Shareholders, the number of Shares held
by them respectively, and the numbers of the certificates representing the
Shares, and in which there shall be recorded all transfers of Shares.
Certificates shall be issued, listed, and transferred in accordance with the
Bylaws. The Persons in whose names certificates are registered on the records
of the Trust shall be deemed the absolute owners of the Shares represented
thereby for all purposes of this Trust; but nothing herein shall be deemed to
preclude the Trustees or officers, or their agents or representatives, from
inquiring as to the actual ownership of Shares. Until a transfer is duly
effected on the records of the Trust, the Trustees shall not be affected by any
notice of such transfer, either actual or constructive. The receipt by the
Person in whose name any Shares are registered on the records of the Trust or of
the duly authorized agent of such Person, or if such Shares are so registered in
the names of more than one Person, the receipt of any one of such Persons, or of
the duly authorized agent of any of such Persons, shall be a sufficient
discharge for all dividends or distributions payable or deliverable in respect
of such Shares and from all liability to see to the application thereof.

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Subject to the provisions of Section 6.13, Shares shall be transferable on
the records of the Trust only by the record holder thereof or by his agent
thereunto duly authorized in writing upon delivery to the Trustees or a transfer
agent of the certificate or certificates therefor, properly endorsed or
accompanied by duly executed instruments of transfer and accompanied by all
necessary documentary stamps, together with such evidence of the genuineness of
each such endorsement, execution, or authorization and of other matters as may
reasonably be required by the Trustees or such transfer agent. Upon such
delivery, the transfer shall be recorded in the records of the Trust and a new
certificate for the Shares so transferred shall be issued to the transferee and
in case of transfer of only a part of the Shares represented by a certificate, a
new certificate for the balance shall be issued to the transferor. Any Person
becoming entitled to any Shares in consequences of the death of a Shareholder or
otherwise by operation of law shall be recorded as the holder of such Shares and
shall receive a new certificate therefor, but only upon delivery to the Trustees
or a transfer agent of instruments and other evidence required by the Trustees
or the transfer agent to demonstrate such entitlement, the existing certificate
for such Shares, and such necessary releases from applicable governmental
authorities. In case of the loss, mutilation, or destruction of any certificate
for Shares, the Trustees may issue or cause to be issued a replacement
certificate on such terms and subject to such rules and regulations as the
Trustees may from time to time prescribe. Nothing in this Declaration shall
impose upon the Trustees or a transfer agent a duty, or limit their rights, to
inquire into adverse claims.

6.6. DIVIDENDS OR DISTRIBUTIONS TO SHAREHOLDERS. The Trustees may from
time to time declare and pay to Shareholders such dividends or distributions in
cash, property or other assets of the Trust or in securities of the Trust or
other form, out of current or accumulated income, capital, capital gains,
principal, surplus, proceeds from the increase or refinancing of Trust
obligations, or from the disposition of portions of the Trust Estate or from any
other source as the Trustees in their discretion shall determine. The Trustees
may declare dividends or distributions as far in advance as they shall determine
in their discretion, including the advance declaration of dividends or
distributions with respect to more than one month or other period. Shareholders
shall have no right to any dividend or distribution unless and until the record
date therefor as declared by the Trustees. The Trustees shall endeavor to
authorize and pay such dividends and distributions as shall be necessary for the
Trust to qualify as a REIT under the Code (so long as such qualification, in the
opinion of the Trustees, is in the best interests of the Shareholders). All
dividends and distributions shall be distributed 99% to the Class A Shareholders
and 1% to the Class B Shareholders. To the extent that Class B Shareholders
convert their Class B Shares into Class A Shares as provided in Section 6.14,
the percentage of dividends and distributions to be distributed to the Class B
Shareholders, as well as the other distributions provided for in this Section
6.6, shall be reduced by multiplying such 1% by a fraction, the numerator of
which is the aggregate number of Class B Shares outstanding as of the record
date for any such distribution and the denominator of which is one-half of the
aggregate number of Class A Shares issued and outstanding on such date.

6.7. TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND REGISTRAR. The
Trustees shall have power to employ one or more transfer agents, dividend
disbursing agents, and registrars and to authorize them on behalf of the Trust
to keep records, to hold and disburse any dividends and

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distributions, and to have and to perform in respect of all original issues and
transfers of Shares, dividends and distributions, and reports and communications
to Shareholders, the powers and duties usually had and performed by transfer
agents, dividend disbursing agents, and registrars of a Maryland corporation.

6.8. SHAREHOLDERS' MEETING. There shall be an annual meeting of the
Shareholders at such time and place, either within or without the State of
Maryland, as the Bylaws shall prescribe at which the Trustees shall be elected
and any other proper business may be conducted. The annual meeting of
Shareholders shall be held after delivery to the Shareholders of the annual
report (set forth in Section 6.10) and within six months after the end of each
fiscal year. Special meetings of Shareholders may be called by the Chairman of
the Board, or at least two of the other Trustees and shall be called upon the
written request of Shareholders holding not less than 20% of the outstanding
Class A Shares or 20% of the outstanding Class B Shares, entitled to vote in the
manner provided in the Bylaws. If there shall be no Trustees, the officers of
the Trust shall promptly call a special meeting of the Shareholders for the
election of successor Trustees. Notice of any special meeting shall state the
purposes of the meeting. A majority of the outstanding Class A Shares and a
majority of the outstanding Class B Shares entitled to vote at any meeting
represented in person or by proxy shall constitute a quorum at any such meeting.
Whenever Shareholders are required or permitted to take any action, such action
may be taken without a meeting on written consent setting forth the action so
taken, signed by a sufficient proportion of the Class A Shareholders and Class B
Shareholders as would be required for a vote at meeting as provided in Section
6.2; PROVIDED that solicitation of such consents complies with Rule 706 of the
American Stock Exchange, Inc. as such Rule or its successor is then in effect.
The vote or consent of Shareholders shall not be required for the pledging,
hypothecating, granting security interests in, mortgaging, or encumbering of all
or any of the Trust Estate.

6.9. PROXIES. Whenever the vote or consent of Shareholders is required or
permitted under this Declaration, such vote or consent may be given either
directly by the Shareholders or by a proxy in the form prescribed in the Bylaws.
The Trustees may solicit such proxies from the Shareholders or any of them in
any matter requiring or permitting the Shareholders' vote or consent.

6.10. REPORTS TO SHAREHOLDERS. The Trust shall prepare an annual report to
the extent and in the manner required by applicable law.

6.11. FIXING RECORD DATES. The Bylaws may provide for fixing or, in the
absence of such provision, the Trustees may fix, in advance, a date as the
record date for determining the Shareholders entitled to notice of or to vote at
any meeting of the Shareholders or to express consent to any proposal without a
meeting, or for the purpose of determining Shareholders entitled to receive
payment of any dividend or distribution (whether before or after termination of
the Trust) or any annual report or other communication from the Trustees, or for
any other purpose. The record date so fixed shall be not less than ten days nor
more than 90 days prior to the date of the meeting or event for the purpose of
which it is fixed.

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6.12. NOTICE TO SHAREHOLDERS. Any notice of meeting or other notice,
communication, or report to any Shareholder shall be deemed duly delivered to
such Shareholder when such notice, communication, or report is deposited, with
postage thereon prepaid, in the United States mail, addressed to such
Shareholder at his address as it appears on the records of the Trust or is
delivered in person to such Shareholder.

6.13. RESTRICTION ON TRANSFER, ACQUISITION AND REDEMPTION OF SHARES.
ARTICLE XI contains restrictions on transfer, acquisition and redemptions of
Shares. Any issuance, redemption or transfer which would operate to disqualify
the Trust as a REIT for federal income tax purposes shall be null and void ab
initio as provided in Article XI.

6.14. CONVERSION RIGHTS. Subject to the terms and conditions of this
Section 6.14, each Class B Shareholder shall at its option be entitled to
convert the Class B Shares then issued and outstanding and held by such
Shareholder into fully paid and non-assessable Class A Shares on the basis of
one Class A Share for 49 Class B Shares. After conversion of the Class B Shares
into Class A Shares, the rights of the remaining Class B Shareholders with
respect to dividends and distributions shall be adjusted as provided in Section
6.6.

In order to exercise such conversion rights, the Class B Shareholder shall
surrender the certificate or certificates for such Class B Shares at the office
of said transfer agent (or other place as provided by the Trustees), which
certificate or certificates, if the Trustees shall so request, shall be duly
endorsed to the Trust or in blank or accompanied by proper instruments of
transfer to the Trust (such endorsements or instruments of transfer to be in
form satisfactory to the Trust), and shall give written notice to the Trust at
said office that it elects so to convert said Class B Shares in accordance with
the terms of this Section 6.14, and shall state in writing therein the name or
names in which it wishes the certificate or certificates for Class A Shares to
be registered. Every such notice of election to convert shall constitute a
binding contract between the holder of such Class B Shares and the Trust,
whereby the Class B Shareholder shall be deemed to subscribe for the amount of
Class A Shares which he shall be entitled to receive upon such conversion, and,
in satisfaction of such subscription, to deposit the Class B Shares to be
converted and to release the Trust for all liability thereunder, and thereby the
Trust shall be deemed to agree that the surrender of the certificate or
certificates therefor and the extinguishment of liability thereon shall
constitute full payment of such subscription for Class A Shares to be issued
upon such conversion.

The Trust will, as soon as practicable after such deposit of a certificate
or certificates for Class B Shares accompanied by the written notice and the
statement above prescribed, issue and deliver at the office of said transfer
agent (or other place as provided above) to the Person for whose account such
Class B Shares were so surrendered, or to his nominee or nominees, a certificate
or certificates for the number of Class A Shares to which he shall be entitled
as aforesaid. Subject to the provisions of this Section 6.14, such conversion
shall be deemed to have been made as of the date of such surrender of the Class
B Shares to be converted; and the Person or Persons entitled to receive the
Class A Shares issuable upon conversion of such Class B Shares shall be treated
for all purposes as the record holder or holders of such Class A Shares

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<PAGE>

on such date. Upon conversion of Class B Shares, the Class B Shares so
converted shall be canceled and retired by the Trust.

The issuance of certificates for Class A Shares upon conversion of Class B
Shares shall be made without charge for any stamp or other similar tax in
respect of such issuance; provided, however, that if any such certificate is to
be issued in a name other than that of the holder of the Class B Shares
converted, the Person or Persons requesting the issuance thereof shall pay to
the Trust the amount of any tax which may be payable in respect of any transfer
involved in such issuance or shall establish to the satisfaction of the Trust
that such tax has been paid or that no such tax is due.

The Trust will at all times reserve and keep available, solely for the
purpose of issuance upon conversion of the outstanding shares of Class B Shares,
such number of Class A Shares as shall be issuable upon the conversion of all
such outstanding Class B Shares; provided that nothing contained herein shall be
construed to preclude the Trust from satisfying its obligations in respect of
the conversion of the outstanding Class B Shares by delivery of Class A Shares
which are held in the treasury of the Trust. The Trust covenants that if any
Class A Shares, required to be reserved for purposes of conversion hereunder,
require registration with or approval of any governmental authority under any
federal or state law before such Class A Shares may be issued upon conversion,
the Trust will use its best efforts at its expense to cause such Class A Shares
to be duly registered or approved, as the case may be. The Trust will also at
its expense endeavor to list the Class A Shares required to be delivered upon
conversion prior to such delivery upon each national securities exchange, if
any, upon which the outstanding Class A Shares are listed at the time of such
delivery. The Trust covenants that all Class A Shares which shall be issued
upon conversion of the Class B Shares, will, upon issue, be fully paid and
non-assessable and not entitled to any preemptive rights.

6.15. TREASURY SHARES. The Trust may repurchase or otherwise acquire its
own Shares at such price or prices as may be determined by the Trustees, and for
this purpose the Trust may create and maintain such reserves as are deemed
necessary and proper. Shares issued hereunder and repurchased or otherwise
acquired for the account of the Trust shall not, so long as they belong to the
Trust, either receive dividends or distributions (except that they shall be
entitled to receive dividends or distributions payable in Shares of the Trust)
or be voted at any meeting of the Shareholders. Such Shares may, in the
discretion of the Trustees, be held in the treasury and be disposed of by the
Board at such time or times, to such party or parties and for such consideration
as the Trustees may deem appropriate or may be returned to the status of
authorized but unissued Shares in the Trust.

6.16. FRACTIONAL SHARES. The Trust may, without the consent or approval of
any Shareholder, issue fractional Shares, eliminate a fraction of a Share by
rounding up or down to a full Share, arrange for the disposition of a fraction
of a Share by the person entitled to it, or pay cash for the fair value of a
fraction of a Share.

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<PAGE>

6.17. DIVISIONS AND COMBINATIONS OF SHARES. Subject to an express
provision to the contrary in the terms of any class or series of beneficial
interest hereafter authorized, the Board shall have the power to divide or
combine the outstanding shares of any class or series of beneficial interest,
without a vote of Shareholders to the extent permitted by Maryland law provided
that, all other classes or series of beneficial interest are also similarly
divided or combined.

6.18. NONLIABILITY AND INDEMNIFICATION OF SHAREHOLDERS. To the maximum
extent permitted by Maryland law, Shareholders shall not be personally or
individually liable in any manner whatsoever for any debt, act, omission or
obligation incurred by the Trust or the Trustees and shall be under no
obligation to the Trust or its creditors with respect to such Shareholder's
Shares other than the obligation to pay to the Trust the full amount of the
consideration for which the Shares were issued or to be issued. The Shareholders
shall not be liable to assessment and the Board shall have no power to bind the
Shareholders personally. To the maximum extent permitted by Maryland law, the
Trust shall indemnify and hold each Shareholder harmless from and against all
claims and liabilities, whether they proceed to judgment or are settled or
otherwise brought to a conclusion, to which such Shareholder may become subject
by reason of his or her being or having been a Shareholder, and shall reimburse
such Shareholder for all legal and other expenses reasonably incurred by him or
her in connection with any such claim or liability. The rights accruing to a
Shareholder under this Section 6.18 shall not exclude any other right to which
such Shareholder may be lawfully entitled, nor shall anything contained herein
restrict the right of the Trust to indemnify or reimburse a Shareholder in any
appropriate situation even though not specifically provided herein; PROVIDED,
HOWEVER, that the Trust shall have no liability to reimburse Shareholders for
taxes assessed against them by reason of their ownership of Shares, nor for any
losses suffered by reason of changes in the market value of securities of the
Trust. No amendment to this Declaration increasing or enlarging the liability of
the Shareholders shall be made without the unanimous vote or written consent of
all of the Shareholders.

6.19. NONLIABILITY. The Board shall use every reasonable means to assure
that all persons having dealings with the Trust shall be informed that the
private property of the Shareholders and the Trustees shall not be subject to
claims against and obligations of the Trust to any extent whatever. The Trustees
shall cause to be inserted in every written agreement, undertaking or obligation
made or issued on behalf of the Trust, an appropriate provision to the effect
that the Shareholders and the Trustees shall not be personally liable
thereunder, and that all parties concerned shall look solely to the Trust
property for the satisfaction of any claim thereunder, and appropriate reference
shall be made to this Declaration. The omission of such a provision from any
such agreement, undertaking or obligation, or the failure to use any other means
of giving such notice, shall not, however, render the Shareholders or the
Trustees personally liable except in the case of the Trustees where such
omission results in personal liability to the Shareholders.

6.20. DECLARATION AND BYLAWS. All Shareholders are subject to the
provisions of the Declaration and the Bylaws of the Trust.

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ARTICLE VII
LIMITATION OF LIABILITY AND INDEMNIFICATION
OF TRUSTEES AND OFFICERS

7.1. LIMITATION OF LIABILITY. To the maximum extent that Maryland law in
effect from time to time permits limitation of the liability of trustees and
officers of a REIT, no trustee or officer of the Trust shall be liable to the
Trust or to any Trustee or to any Shareholder for money damages. Neither the
amendment nor the repeal of this Section 7.1, nor the adoption or amendment of
any other provision of this Declaration inconsistent with this Section 7.1,
shall apply to or affect in any respect the applicability of the preceding
sentence with respect to any act or failure to act which occurred prior to such
amendment, repeal or adoption. In addition to any Maryland statute limiting the
liability of trustees or officers of a Maryland REIT no Trustee or officer of
the Trust shall be liable to the Trust or to any Trustee for any act or omission
of any other Trustee, Shareholder, officer, or agent of the Trust, including the
Advisor, or be held to any personal liability whatsoever in tort, contract, or
otherwise in connection with the affairs of this Trust except only that arising
from his own willful violation of the provisions of this Declaration or of the
Bylaws which violation is materially against the interests of the Shareholders
and results in material harm to such interests, or gross negligence in the
performance of his duties.

7.2. INDEMNIFICATION. The Trust shall have the power to obligate itself to
indemnify each trustee, officer, employee and agent of the Trust, including the
Advisor and its Affiliates, to the fullest extent permitted by Maryland law, as
amended from time to time, in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she was a trustee, officer,
employee or agent of the Trust or is or was serving at the request of the Trust
as a director, trustee, officer, partner, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust, other enterprise or
employee benefit plan, from all claims and liabilities to which such person may
become subject by reason of service in that capacity and to pay or reimburse
reasonable expenses, as such expenses are incurred, of each officer, employee or
agent in connection with any such proceedings.

The indemnification authorized by this Section 7.2 shall include payment of
(i) reasonable attorneys' fees or other expenses incurred in settling any such
claim or liability or incurred in any finally adjudicated legal proceeding and
(ii) expenses incurred by the removal of any liens affecting any property of the
Person to be indemnified. Indemnification shall be made from assets of the
Trust, and no Shareholder shall be personally liable to any Person to be
indemnified. This Section 7.2 shall inure to the benefit of the Trustees and
their Affiliates.

For the purposes of this Article VII only, the term "Affiliates" shall
mean any Person performing services on behalf of the Trust who: (i) directly or
indirectly controls, is controlled by, or is under common control with the
Trustees; or (ii) owns or controls 10% or more of the outstanding voting
securities of the Trustees; or (iii) is an officer, director, partner, or
trustee of the Trustees; or (iv) is any company for which the Trustees act as an
officer, director, partner, or trustee.

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<PAGE>

7.3. INSURANCE. Notwithstanding any other provisions of this Declaration,
the Trust, for the purpose of providing insurance for its Trustees, officers,
employees and agents of the Trust, including the Advisor and its Affiliates
shall have the authority, without specific Shareholder approval, to enter into
insurance arrangements to protect all Trustees, officers, employees and agents
of the Trust, including the Advisor and its Affiliates of the Trust against any
and all liabilities and expenses incurred by them by reason of their being
Trustees, officers, employees and agents of the Trust, including the Advisor and
its Affiliates of the Trust, whether or not the Trust would otherwise have the
power under this Declaration or under Maryland law to indemnify such persons
against such liability. Any such insurance arrangement may be procured,
maintained or established with any insurer deemed appropriate by the Board
regardless of whether all or part of the stock or other securities thereof are
owned in whole or in part by the Trust. In the absence of fraud, the judgment of
the Board as to the terms and conditions of insurance arrangement and the
identity of the insurer shall be conclusive, and such insurance arrangement
shall not be subject to voidability, nor subject the Trustees approving such
insurance arrangement to liability on any ground, regardless of whether Trustees
participating and approving such insurance arrangement shall be beneficiaries
thereof.

7.4. RIGHTS OF TRUSTEES AND OFFICERS TO OWN SHARES OR OTHER PROPERTY AND TO
ENGAGE IN OTHER BUSINESS.

(a) Any Trustee, officer, agent, or employee of the Trust and the
Advisor may acquire, own, hold, and dispose of Securities of the Trust, for his
individual account, and may exercise all rights of a holder of such Securities
to the same extent and in the same manner as if he were not a Trustee, officer,
employee, agent, or the Advisor; have personal business interests and engage in
personal business activities, which interests and activities may include the
acquisition, syndication, holding, management, operation, or disposition, for
his own account or for the account of others, of interests in Mortgages, real
property, or other assets, even if the same compete directly with the actual
business being conducted by the Trust; subject to the provisions of Article IV,
be interested as trustee, officer, director, stockholder, partner, member,
advisor, or employee, or otherwise have a direct or indirect interest in a
Person who may be engaged to render advice or services to the Trust (as the
Advisor or otherwise) and receive compensation from such Person and any
Affiliate of such Person as well as compensation as Trustee, officer, agent, or
employee of the Trust; and, in a capacity of trustee, officer, director,
stockholder, partner, member, advisor, or employee of any Person, have business
interests and engage in business activities in addition to those relating to the
Trust, which interests and activities may include the acquisition, syndication,
holding, management, operation, or disposition, for his own account or for the
account of others, of interests in Mortgages, real property, or other assets, or
interests in Persons engaged in the mortgage or real estate business, which
interests or activities may be in direct competition with the Trust; and each
Trustee, officer, employee, and agent of the Trust shall be free of any
obligation to present to the Trust any investment opportunity which comes to him
in any capacity other than solely as Trustee, officer, employee, or agent of the
Trust, even if such opportunity is of a character which, if presented to the
Trust, could be taken by the Trust; and none of the foregoing interests or

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<PAGE>

activities (singly, or in combination) shall be deemed to conflict with or be
inconsistent with his powers, duties, and responsibilities as Trustee, officer,
agent or employee of the Trust.

(b) Nothing in this Declaration shall be deemed to;

(i) Prohibit a Trustee, officer, employee, or agent of the Trust
from acquiring or owning any amount or percentage of any class of outstanding
Securities of any publicly-owned Person whose shares are listed or traded on a
national securities exchange or in the over-the-counter market;

(ii) Prohibit a Trustee, officer, employee, or agent of the Trust
who is also engaged in rendering legal, accounting, financial advisory, or other
services from rendering such services to any Person or from acting as trustee,
director, member, advisor, officer, or representative of any such Person to whom
he renders or has rendered such services;

(iii) Require a Trustee, officer, employee, or agent of the
Trust to dispose of a personal business interest acquired, or to discontinue
personal business activities begun, whether acquired or begun before or when he
was a Trustee, officer, employee, or agent, regardless of whether such interests
or activities compete with the business of the Trust; or

(iv) Prohibit a Trustee, officer, employee, or agent of the Trust
from having personal business interests or engaging in personal business
activities regardless of whether;

(A) The Trustees (by vote or consent sufficient for such
purpose including the vote of the interested Trustee(s)) have decided that such
interests or activities should or should not be acquired or engaged in by the
Trust; or

(B) The Trust could have acquired such interests or engaged
in such activities without endangering the qualification of the Trust as a real
estate investment trust under the REIT Provisions of the Code or without
violating any provision of this Declaration or applicable law, even though any
such Person, interests, or activities are or could be in competition, in any
way, with the Trust, or any such Person is in the same or similar business as
the Trust.

7.5. TRANSACTIONS BETWEEN THE TRUST AND CERTAIN AFFILIATES. Except as
prohibited by this Declaration and in the absence of fraud, a contract, act, or
other transaction between the Trust and any other Person, or in which the Trust
is interested, shall be valid even though (i) one or more of the Trustees,
officers of the Trust, or the Advisor are Affiliates of such other Person, or
(ii) one or more of the Trustees, officers, or the Advisor, individually or
jointly with others, is a party or are parties to or directly or indirectly
interested in, or connected with, such contract, act, or transaction. Neither
any such Trustee, officer, nor the Advisor shall be under any disability from or
have any liability as a result of entering into any such contract, act, or
transaction, provided that (a) such interest or connection is disclosed or known
to the Trustees and the

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<PAGE>

Trustees authorized such contract, act, or other transaction by vote sufficient
for such purpose excluding the vote of the interested Trustee(s), or (b) such
interest or connection is disclosed or known to the Shareholders, and such
contract, act, or transaction is approved or subsequently ratified by the
Shareholders, or (c) such contract, act, or transaction is fair and reasonable
as to the Trust at the time it is authorized by the Trustees or by the
Shareholders. Notwithstanding any other provision of this Declaration,
Affiliates of the Advisor may receive compensation from, and/or a share of the
proceeds received by, borrowers in connection with Trust Loans.

7.6. PERSONS DEALING WITH TRUSTEES. No corporation, person, transfer agent
or other party shall be required to examine or investigate the trusts, terms or
conditions contained in this Declaration or otherwise applicable to the Trust;
and no such corporation, person, transfer agent or other party dealing with the
Trustees or with the Trust or Trust property and assets shall have any
obligation with respect to the application of any money or property paid or
delivered to any Trustee, or nominee, agent or representative of the Trust or
the Trustees. A certificate executed by or on behalf of the Trustees or by any
other duly authorized representative of the Trust, delivered to any person or
party dealing with the Trust or Trust property and assets, or, if relating to
real property, recorded in the deed records for the county or district in which
such real property lies, certifying as to the identity and authority of the
Trustees, agents or representatives of the Trust for the time being, or as to
any action of the Trustees or of the Trust, or of the Shareholders, or as to any
other fact affecting or relating to the Trust or this Declaration, may be
treated as conclusive evidence thereof by all persons dealing with the Trust. No
provision of this Declaration shall diminish or affect the obligation of the
Trustees and every other representative or agent of the Trust to deal fairly and
act in good faith with respect to the Trust and the Shareholders insofar as the
relationship and accounting among the parties to the Trust is concerned; but no
third party dealing with the Trust or with any Trustee, agent or representative
of the Trust shall be obliged or required to inquire into, investigate or be
responsible for the discharge and performance of such fiduciary obligation.

7.7. ADMINISTRATIVE POWERS OF TRUSTEES. The Trustees shall have power to
pay the expenses of organization and administration of the Trust, including all
legal and other expenses in connection with the preparation and carrying out of
the plan for the formation of the Trust, the acquisition of properties
thereunder and the issuance of Shares thereunder; and to employ such officers,
experts, counsel, managers, salesmen, agents, workmen, clerks and other persons
as they think best.

7.8. RELIANCE. The Trustees and officers may consult with counsel (which
may be a firm in which one or more of the Trustees or officers is or are
members) and the advice or opinion of such counsel shall be full and complete
personal protection to all of the Trustees and officers in respect of any action
taken or suffered by them in good faith and in reliance on or in accordance with
such advice or opinion. In discharging their duties, Trustees and officers,
when acting in good faith, may rely upon financial statements of the Trust
represented to them to be correct by the Managing Trustee or the Chairman of the
Board, if any, or the officer of the Trust having charge of its books of
account, or stated in a written report by an independent public accountant
fairly to present the financial position of the Trust. The Trustees may rely,
and shall be

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personally protected in acting, upon any instrument or other document believed
by them to be genuine.

7.9. TRUST ONLY. It is the intention of the Trustees to create only the
relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to
create a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in this Declaration shall be construed to make the Shareholders, either
by themselves or with the Trustees, partners or members of a joint stock
association.

7.10. RESTRICTIONS OF DUTIES AND LIABILITIES. To the extent that the
nature of this Trust (that is, a REIT) will permit, the duties and liabilities
of Trustees and officers shall in no event be greater than the duties and
liabilities of trustees and officers of a Maryland corporation. The Trustees
and officers shall in no event have any greater duties or liabilities than those
imposed by applicable laws as shall be in effect from time to time.

7.11. CONFLICTS. In the event that any provision or portion of a provision
of this Article VII is determined to be in conflict with any applicable statute,
such provision or portion thereof shall be inapplicable to the extent of such
conflict.

7.12. SEVERABILITY. In the event that any provision or portion of a
provision of this Article VII is determined to be invalid, void, illegal or
unenforceable, the remainder of the provisions of this Article VII shall
continue to be valid and enforceable and shall in no way be affected, impaired
or invalidated.

7.13. NO IMPAIRMENT. Nothing in this Article VII shall be construed to
diminish, limit or impair any rights or defenses afforded to officers or
Trustees by common law, statute, other provisions of this Declaration, the
Bylaws or otherwise, and the provisions of this Article VII shall be deemed to
be cumulative thereto.

7.14. REFERENCES. References in this Article VII to Trustees or officers
shall be deemed to refer to any person who is or was a Trustee or officer of the
Trust and any person who, while a Trustee or officer of the Trust, is or was
serving at the request of the Trust as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise.

ARTICLE VIII
DURATION AND TERMINATION OF TRUST;
AMENDMENTS

8.1. TERMINATION OF TRUST. The Trust may be terminated at any time as
provided in Section 6.2(d).

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(a) Upon termination of the Trust:

(i) The Trust shall carry on no business except for the purpose
of winding up its affairs.

(ii) The Trustees shall proceed to wind up the affairs of the
Trust and all of the powers of the Trustees under this Declaration shall
continue until the affairs of the Trust shall have been wound up, including the
power to fulfill or discharge the contracts of the Trust, collect its assets,
sell, convey, assign, exchange, transfer, or otherwise dispose of all or any
part of the remaining Trust Estate to one or more Persons at a public or private
sale for consideration which may consist in whole or in part of cash,
securities, or other property of any kind, discharge or pay its liabilities, and
do all other acts appropriate to liquidate its business.

(iii) After paying or adequately providing for the payment of
all liabilities, and upon receipt of such releases, indemnities, and refunding
agreements, as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Estate, in cash or in kind or partly each, among
the Shareholders according to their respective rights and the Advisor pursuant
to the Advisory Agreement.

(b) Upon termination of the Trust and distribution to the
Shareholders as herein provided, a majority of the Trustees shall execute and
keep among the records of the Trust an instrument in writing setting forth the
fact of such termination, and the Trustees shall thereupon be discharged from
all further liabilities and duties hereunder, and the right, title and interest
of all Shareholders shall cease and be canceled and discharged.

8.2. DURATION OF TRUST. Subject to possible earlier termination in
accordance with the provisions of this Article VIII, the duration of the Trust
shall be perpetual or, in any jurisdiction in which such duration is not
permitted, then the Trust shall terminate on the latest date permitted by the
law of such jurisdiction.

ARTICLE IX
MISCELLANEOUS

9.1. CONSTRUCTION. This Declaration shall be construed in such a manner as
to give effect to the intent and purposes of the Trust and this Declaration. If
any provisions hereof appear to be in conflict, more specific provisions shall
control over general provisions. This Declaration shall govern all of the
relationships among the Trustees and Shareholders; and each provision hereof
shall be effective for all purposes and to all persons dealing with the Trust to
the fullest extent possible under applicable law in each jurisdiction in which
the Trust shall engage in business. In defining or interpreting the powers and
duties of the Trust and the Trustees and officers, reference may be made by the
Board or officers, to the extent appropriate and not inconsistent with the Code
or Title 8, to Titles 1 through 3 of the Corporations and Associations Article
of the

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Annotated Code of Maryland. In furtherance and not in limitation of the
foregoing, in accordance with the provisions of Title 3, Subtitles 6 and 7, of
the Corporations and Associations Article of the Annotated Code of Maryland, the
Trust shall be included within the definition of "corporation" for purposes of
such provision, provided that Subtitle 6 shall not apply to a business
combination with Starwood Capital Group L.L.C. and/or its Affiliates and
Subtitle 7 shall not apply to the voting rights of Shares acquired by Starwood
Capital Group, L.L.C. and/or its Affiliates. For purposes of this Section 9.1,
an affiliate of Starwood Capital Group, L.L.C. shall mean any corporation,
proprietorship, partnership or business entity which, directly or indirectly,
owns or controls, is under common ownership or control with, or is owned or
controlled by Starwood Capital Group, L.L.C.

9.2. INDEX AND HEADINGS FOR REFERENCE ONLY; GENDER. The table of contents
and headings preceding the text, Articles and Sections hereof have been inserted
solely for convenience and reference, and shall not be construed to affect the
meaning, construction or effect of this Declaration. Whenever the context so
requires, references to the masculine gender shall include the female and neuter
genders and vice versa, and singular references shall include the plural form.

9.3. FILING AND RECORDING. This Declaration and any amendment hereto shall
be filed for record with the State Department of Assessments and Taxation of
Maryland and may also be filed or recorded in such other places as the Board
deems appropriate, but failure to file for record this Declaration or any
amendment hereto in any office other than in the State of Maryland shall not
affect or impair the validity or effectiveness of this Declaration or any
amendment hereto. An amended Declaration shall, upon filing, be conclusive
evidence of all amendments contained therein and may thereafter be referred to
in lieu of the original Declaration and the various amendments thereto.

9.4. APPLICABLE LAW. This Declaration has been executed with reference to
and its construction and interpretation shall be governed by the laws of
Maryland, and the rights of all parties and the construction and effect of every
provision hereof shall be subject to and construed according to the laws of
Maryland.

9.5. CERTIFICATIONS. Any certificates signed by a person who, according to
the records of the State Department of Assessments and Taxation of Maryland
appears to be a Trustee hereunder, shall be conclusive evidence as to the
matters so certified in favor of any person dealing with the Trust or the
Trustees or any one or more of them, and the successors or assigns of such
persons, which certificate may certify to any matter relating to the affairs of
the Trust, including but not limited to any of the following: A vacancy on the
Board; the number and identity of Trustees; this Declaration and any Amendments
thereto, or any restated Declaration and any Amendments thereto, or that there
are no Amendments to this Declaration or any restated Declaration; a

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copy of the Bylaws of the Trust or any Amendment thereto; the due authorization
of the execution of any instrument or writing; the vote at any meeting of the
Board or a committee thereof or Shareholders; the fact that the number of
Trustees present at any meeting or executing any written instrument satisfies
the requirements of this Declaration; a copy of any Bylaw adopted by the
Shareholders or the identity of any officer elected by the Board; or the
existence or nonexistence of any fact or facts which in any manner relate to the
affairs of the Trust. If this Declaration or any restated Declaration is filed
or recorded in any recording office other than the State Department of
Assessments and Taxation of Maryland, anyone dealing with real estate so located
in such jurisdiction that requires that instruments affecting the same should be
filed or recorded in such recording office may rely conclusively on any
certificate of the kind described above which is signed by a person who
according to the records of such recording office appears to be a Trustee
hereunder. In addition, the Secretary or any Assistant Secretary of the Trust or
any other officer of the Trust designated by the Bylaws or by action of the
Board may sign any certificate of the kind described in this Section 9.5, and
such certificate shall be conclusive evidence as to the matters so certified in
favor of any person dealing with the Trust, and the successors and assigns of
such person.

9.6. BYLAWS. The Bylaws of the Trust may be altered, amended or repealed,
and new Bylaws may be adopted, at any meeting of the Board by a majority vote of
the Trustees.

9.7. SUCCESSORS IN INTEREST. This Declaration and the Bylaws shall be
binding upon and inure to the benefit of the undersigned Trustees and their
successors, assigns, heirs, distributees, and legal representatives, and every
Shareholder and his successors, assigns, heirs, distributees, and legal
representatives.

9.8. COUNTERPARTS. This Declaration may be simultaneously executed in
several counterparts, each of which when so executed shall be deemed to be an
original, and such counterparts together shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.

9.9. INSPECTIONS OF RECORDS. Trust records shall be available for
inspection by Shareholders at the same time and in the same manner and to the
extent that comparable records of a Maryland corporation would be available for
inspection by stockholders under the laws of the State of Maryland. Except as
specifically provided for in this Declaration, Shareholders shall have no
greater right than stockholders of a Maryland corporation to require financial
or other information from the Trust, Trustees, or officers.

9.10. SEVERABILITY. If any provisions of this Declaration shall be held
invalid or unenforceable, such invalidity or unenforceability shall attach only
to such provisions and shall not in any manner affect or render invalid or
unenforceable any other provision of this Declaration, and this Declaration
shall be carried out as if any such invalid or unenforceable provision were not
contained herein.

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ARTICLE X
AMENDMENTS

10.1. GENERAL. The Trust reserves the right from time to time to make any
amendment to this Declaration, now or hereafter authorized by law, including any
amendment altering the terms or contract rights, as expressly set forth in this
Declaration, of any outstanding Shares.

10.2. AMENDMENT BY TRUSTEES. This Declaration may be amended by
Shareholders voting as provided in Section 6.2 or by the Trustees as provided in
Section 3.2. The Trustees, by a two-thirds vote, may also amend this
Declaration without the vote or consent of Shareholders if they deem it
necessary to conform this Declaration to the requirements of the REIT Provisions
of the Code, but the Trustees shall not be liable for failing so to do.

10.3. QUALIFICATION UNDER THE REIT PROVISIONS OF THE CODE. It is intended
that the Trust shall qualify as a "real estate investment trust" under the REIT
Provisions of the Code during such period as the Trustees shall deem it
advisable to so qualify the Trust.

10.4. REQUIREMENTS OF MARYLAND LAW. Notwithstanding anything contained in
this Declaration to the contrary, this Declaration may not be amended except as
provided in Title 8.

ARTICLE XI
RESTRICTION ON TRANSFER, ACQUISITION
AND REDEMPTION OF SHARES

11.1. DEFINITIONS. For purposes of this Article XI, the following terms
shall have the following meanings:

(a) "BENEFICIAL OWNERSHIP" shall mean ownership of Shares by a Person
who would be treated as an owner of such Shares either directly or
constructively through the application of Section 544 of the Code, as modified
by Section 856(h) of the Code. The terms "BENEFICIAL OWNER," "BENEFICIALLY
OWNS," "BENEFICIALLY OWN" and "BENEFICIALLY OWNED" shall have correlative
meanings.

(b) "CHARITABLE BENEFICIARY" shall mean an organization or
organizations described in Sections 170(b)(1)(A) and 170(c) of the Code and
identified by the Board as the beneficiary or beneficiaries of the Excess Share
Trust.

(d) "EXCESS SHARES" shall have the meaning given to it in paragraph
(a) of Section 11.3.

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(e) "EXCESS SHARE TRUST" shall mean the trust created pursuant to
Section 11.15.

(f) "EXCESS SHARE TRUSTEE" shall mean a person, who shall be
unaffiliated with the Trust, any Purported Beneficial Transferee and any
Purported Record Transferee, identified by the Board as the trustee of the
Excess Share Trust.

(g) "EXISTING HOLDER" shall mean (i) any Person who is, or would be
upon the exchange of Debt or any security of the Trust, the Beneficial Owner of
Shares in excess of the Ownership Limit both upon and immediately after June __,
1998 (the "RESTRICTION COMMENCEMENT DATE"), so long as, but only so long as,
such Person Beneficially Owns or would, upon exchange of Debt or any security of
the Trust, Beneficially Own Shares in excess of the Ownership Limit and (ii) any
Person to whom an Existing Holder Transfers, subject to the limitations provided
in this Article XI, Beneficial Ownership of Shares causing such transferee to
Beneficially Own Shares in excess of the Ownership Limit.

(h) "EXISTING HOLDER LIMIT" (i) for any Existing Holder who is an
Existing Holder by virtue of clause (i) of the definition thereof, shall mean,
initially, the percentage of the outstanding Class A or Class B Shares
Beneficially Owned (with such percentage for each class determined separately)
or which would be Beneficially Owned upon the exchange of Debt or any security
of the Trust, by such Existing Holder upon and immediately after the Restriction
Commencement Date, and, after any adjustment pursuant to Section 11.9, shall
mean such percentage of the outstanding Shares as so adjusted, and (ii) for any
Existing Holder who becomes an Existing Holder by virtue of clause (ii) of the
definition thereof, shall mean, initially, the percentage of the outstanding
Class A or Class B Shares Beneficially Owned (with such percentage for each
class determined separately) by such Existing Holder at the time that such
Existing Holder becomes an Existing Holder, but in no event shall such
percentage be greater than the lesser of (i) the Existing Holder Limit for the
Existing Holder who Transferred Beneficial Ownership of such Shares or, in the
case of more than one transferor, in no event shall such percentage be greater
than the smallest Existing Holder Limit of any transferring Existing Holder, or
(ii) the Ownership Limit if the Existing Holder is a person other than a trust
qualified under Section 401(a) of the Code and exempt from tax under Section
501(a) of the Code, and, after any adjustment pursuant to Section 11.9, shall
mean such percentage of the outstanding Shares as so adjusted. From the
Restriction Commencement Date until the Restriction Termination Date, the Trust
shall maintain and, upon request, make available to each Existing Holder, a
schedule which sets forth the then current Existing Holder Limit for each
Existing Holder.

(i) "MARKET PRICE" shall mean the last reported sales price reported
on the American Stock Exchange for a particular class of Shares on the trading
day immediately preceding the relevant date, or if not then traded on the
American Stock Exchange, the last reported sales price for such class of Shares
on the trading day immediately preceding the relevant date as reported on any
exchange or quotation system over or through which such class of Shares may be
traded, or if not then traded over or through any exchange or quotation system,

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then the market price of such class of Shares on the relevant date as determined
in good faith by the Board.

(j) "OWNERSHIP LIMIT" shall initially mean 9.8%, in number of Class A
Shares, or value of the aggregate outstanding Shares of the Trust, and after
any adjustment as set forth in Section 11.10, shall mean such percentage in
number of Class A Shares, or value of the aggregate outstanding Shares, as so
adjusted. Such number and/or value shall be determined by the Board in good
faith, which determination shall be conclusive for all purposes hereof. For
purposes of this Article XI, the value of the Class B shares shall be determined
by the Board in good faith at least quarterly at the beginning of each calendar
quarter and such determination shall be conclusive for all purposes hereof until
the earlier of (i) the beginning of the next calendar quarter or (ii) the next
determination of the value of Class B shares by the Board.

(k) "PERSON" shall mean an individual, corporation, partnership,
estate, trust (including a trust qualified under Section 401(a) or 501(c)(17) of
the Code), 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.

(l) "PURPORTED BENEFICIAL TRANSFEREE" shall mean, with respect to any
purported Transfer which results in Excess Shares, as defined below in Section
11.3, the beneficial holder of the Shares, if such Transfer had been valid under
Section 11.2.

(m) "PURPORTED RECORD TRANSFEREE" shall mean, with respect to any
purported Transfer which results in Excess Shares, as defined below in Section
11.3, the record holder of the Shares, if such Transfer had been valid under
Section 11.2.

(n) "RESTRICTION TERMINATION DATE" shall mean the first day after the
Restriction Commencement Date on which the Board determines that it is no longer
in the best interests of the Trust to attempt to, or continue to, qualify as a
real estate investment trust.

(o) "TRANSFER" shall mean any sale, transfer, gift, assignment,
devise or other disposition of Shares (including (a) the granting of any option
or entering into any agreement for the sale, transfer or other disposition of
Shares, (b) the sale, transfer, assignment or other disposition of any
securities or rights convertible into or exchangeable for Shares, but excluding
the exchange of Debt or any security of the Trust for Shares and (c) any
transfer or other disposition of any interest in Shares as a result of a change
in the marital status of the holder thereof), whether voluntary or involuntary,
whether of record, constructively or beneficially and whether by operation of
law or otherwise. The terms "TRANSFERS" and "TRANSFERRED" shall have correlative
meanings.

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11.2. OWNERSHIP LIMITATION.

(a) Except as provided in Sections 11.12 and 11.20, and subject to
paragraph (f) of this Section 11.2, from the Restriction Commencement Date until
the Restriction Termination Date, no Person (other than an Existing Holder)
shall Beneficially Own Shares in excess of the Ownership Limit and no Existing
Holder shall Beneficially Own Shares in excess of the Existing Holder Limit for
such Existing Holder.

(b) Except as provided in Sections 11.12 and 11.20, and subject to
paragraph (f) of this Section 11.2, from the Restriction Commencement Date until
the Restriction Termination Date, any Transfer that, if effective, would result
in any Person (other than an Existing Holder) Beneficially Owning Shares in
excess of the Ownership Limit shall be void AB INITIO as to the Transfer of the
Shares which would be otherwise Beneficially Owned by such Person in excess of
the Ownership Limit; and the intended transferee shall acquire no rights in such
Shares.

(c) Except as provided in Sections 11.9 and 11.12, and subject to
paragraph (f) of this Section 11.2, from the Restriction Commencement Date until
the Restriction Termination Date, any Transfer that, if effective, would result
in any Existing Holder Beneficially Owning Shares in excess of the applicable
Existing Holder Limit shall be void AB INITIO as to the Transfer of the Shares
which would be otherwise Beneficially Owned by such Existing Holder in excess of
the applicable Existing Holder Limit; and such Existing Holder shall acquire no
rights in such Shares.

(d) Subject to paragraph (f) of this Section 11.2, from the
Restriction Commencement Date until the Restriction Termination Date, any
Transfer that, if effective, would result in the Shares being beneficially owned
(as provided in Section 856(a) of the Code) by less than 100 Persons (determined
without reference to any rules of attribution) shall be void AB INITIO as to the
Transfer of Shares which would be otherwise beneficially owned (as provided in
Section 856(a) of the Code) by the transferee; and the intended transferee shall
acquire no rights in such Shares.

(e) Subject to paragraph (f) of this Section 11.2, from the
Restriction Commencement Date until the Restriction Termination Date, any
Transfer that, if effective, would result in the Trust being "closely held"
within the meaning of Section 856(h) of the Code shall be void AB INITIO as to
the Transfer of the Shares which would cause the Trust 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.

(f) Nothing contained in this Article XI shall preclude the
settlement of any transaction entered into through the facilities of the
American Stock Exchange. The fact that the settlement of any transaction is
permitted shall not negate the effect of any other provision of this Article XI
and any transferee in such a transaction shall be subject to all of the
provisions and limitations set forth in this Article XI.

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11.3. EXCESS SHARES.

(a) If, notwithstanding the other provisions contained in this
Article XI, at any time from the Restriction Commencement Date until the
Restriction Termination Date, there is a purported Transfer or other change in
the capital structure of the Trust such that any Person would Beneficially Own
Shares in excess of the applicable Ownership Limit or Existing Holder Limit (as
applicable), then, except as otherwise provided in Sections 11.9 and 11.12, and
subject to paragraph (f) of Section 11.2, the Shares Beneficially Owned in
excess of such Ownership Limit or Existing Holder Limit (rounded up to the
nearest whole Share) shall constitute "Excess Shares" and be treated as provided
in this Article XI. Such designation and treatment shall be effective as of the
close of business on the business day prior to the date of the purported
Transfer or change in capital structure.

(b) If, notwithstanding the other provisions contained in this
Article XI, at any time after the Restriction Commencement Date until the
Restriction Termination Date, there is a purported Transfer or other change in
the capital structure of the Trust which, if effective, would cause the Trust to
become "closely held" within the meaning of Section 856(h) of the Code, then the
Shares being Transferred which would cause the Trust to be "closely held" within
the meaning of Section 856(h) of the Code (rounded up to the nearest whole
Share) shall constitute "Excess Shares" and be treated as provided in this
Article XI. Such designation and treatment shall be effective as of the close
of business on the business day prior to the date of the purported Transfer or
change in capital structure (except for a change resulting from the exchange of
Units for Shares).

11.4. PREVENTION OF TRANSFER. If the Board or its designee shall at any
time determine in good faith that a Transfer has taken place in violation of
Section 11.2 or that a Person intends to acquire or has attempted to acquire
beneficial ownership (determined without reference to any rules of attribution)
or Beneficial Ownership of any Shares in violation of Section 11.2, the Board or
its designee shall take such action as it deems advisable to refuse to give
effect to or to prevent such transfer, including, but not limited to, refusing
to give effect to such Transfer on the books of the Trust or instituting
proceedings to enjoin such Transfer; PROVIDED, HOWEVER, that any Transfers or
attempted Transfers in violation of paragraph (b), (c), (d) or (e) of Section
11.2 shall automatically result in the designation and treatment described in
Section 11.3, irrespective of any action (or non-action) by the Board.

11.5. NOTICE TO TRUST. Any Person who acquires or attempts to acquire
Shares in violation of Section 11.2, or any Person who is a transferee such that
Excess Shares result under Section 11.3, shall immediately give written notice
or, in the event of a proposed or attempted Transfer, shall give at least 15
days prior written notice to the Trust of such event and shall provide to the
Trust such other information as the Trust may request in order to determine the
effect, if any, of such Transfer or attempted Transfer on the Trust's status as
a REIT.

11.6. INFORMATION FOR TRUST. From the Restriction Commencement Date and
until the Restriction Termination Date:

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(a) every Beneficial Owner of more than 5% (or such other percentage,
between 1/2 of 1% and 5%, as provided under the REIT Provisions of the Code) of
the number or value of outstanding Shares of the Trust shall upon the Trust's
written request, within 30 days after January 1 of each year, give written
notice to the Trust stating the name and address of such Beneficial Owner, the
number of Shares Beneficially Owned, and a description of how such Shares are
held. Each such Beneficial Owner shall provide to the Trust such additional
information as the Trust may reasonably request in order to determine the
effect, if any, of such Beneficial Ownership on the Trust's status as a REIT.

(b) each Person who is a Beneficial Owner of Shares and each Person
(including the Shareholder of record) who is holding Shares for a Beneficial
Owner shall provide to the Trust in writing such information with respect to
direct, indirect and constructive ownership of Shares as the Board deems
reasonably necessary to comply with the provisions of the Code applicable to a
REIT, to determine the Trust's status as a REIT, to comply with the requirements
of any taxing authority or governmental agency or to determine any such
compliance.

11.7. OTHER ACTION BY BOARD. Subject to paragraph (f) of Section 11.2,
nothing contained in this Article XI shall limit the authority of the Board to
take such other action as it deems necessary or advisable to protect the Trust
and the interests of its Shareholders by preservation of the Trust's status as a
REIT; PROVIDED, HOWEVER, that no provision of this Section 11.7 shall preclude
the settlement of any transaction entered into through the facilities of the
American Stock Exchange.

11.8. AMBIGUITIES. In the case of an ambiguity in the application of any of
the provisions of this Article XI, including any definition contained in Section
11.1, the Board shall have the power to determine the application of the
provisions of this Article XI with respect to any situation based on the facts
known to it and the Board' determination shall be conclusive for all purposes of
this Declaration..

11.9. MODIFICATION OF EXISTING HOLDER LIMITS. The Existing Holder Limits
may be modified as follows:

(a) Subject to the limitations provided in Section 11.11, the Board
may grant options which result in Beneficial Ownership of Shares by an Existing
Holder pursuant to an option plan approved by the Board and/or the Shareholders.
Any such grant shall increase the Existing Holder Limit for the affected
Existing Holder to the maximum extent possible under Section 11.11 to permit the
Beneficial Ownership of the Shares issuable upon the exercise of such option.

(b) Subject to the limitations provided in Section 11.11, an Existing
Holder may elect to participate in a dividend reinvestment plan approved by the
Board which results in Beneficial Ownership of Shares by such participating
Existing Holder. Any such participation shall increase the Existing Holder
Limit for the affected Existing Holder to the maximum extent

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possible under Section 11.11 to permit Beneficial Ownership of the Shares
acquired as a result of such participation.

(c) The Board shall reduce the Existing Holder Limit for any Existing
Holder after any Transfer permitted in this Article XI by such Existing Holder
by the percentage of the outstanding Shares so Transferred or after the lapse
(without exercise) of an option described in paragraph (a) of this Section 11.9
by the percentage of the Shares that the option, if exercised, would have
represented, but in either case no Existing Holder Limit shall be reduced to a
percentage which is less than the Ownership Limit.

11.10. INCREASE OR DECREASE IN OWNERSHIP LIMIT. Subject to the limitations
provided in Section 11.11 and Section 5.1, the Board may from time to time
increase or decrease the Ownership Limit; PROVIDED, HOWEVER, that any decrease
may only be made prospectively as to subsequent holders (other than a decrease
as a result of a retroactive change in existing law that would require a
decrease to retain REIT status, in which case such decrease shall be effective
immediately).

11.11. LIMITATIONS ON CHANGES IN EXISTING HOLDER AND OWNERSHIP LIMITS.

(a) Neither the Ownership Limit nor any Existing Holder Limit may be
increased (nor may any additional Existing Holder Limit be created) if, after
giving effect to such increase (or creation), five Beneficial Owners of Shares
(including all of the then Existing Holders) could Beneficially Own, in the
aggregate, more than 49.9% in number or value of the outstanding Shares.

(b) Prior to the modification of any Existing Holder Limit or
Ownership Limit pursuant to Section 11.9 or 11.10, the Board may require such
opinions of counsel, affidavits, undertakings or agreements as it may deem
necessary or advisable in order to determine or ensure the Trust's status as a
REIT.

11.12. WAIVERS BY BOARD.

(a) The Board, upon receipt of a ruling from the Internal Revenue
Service or an opinion of counsel or other evidence satisfactory to the Board and
upon at least 15 days written notice from a transferee prior to the proposed
Transfer which, if consummated, would result in the intended transferee owning
Shares in excess of the Ownership Limit or the Existing Holder Limit, as the
case may be, and upon such other conditions as the Board may direct, may waive
the Ownership Limit or the Existing Holder Limit, as the case may be, with
respect to such transferee.

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(b) In addition to waivers permitted under paragraph (a) above, the
Board shall waive the Ownership Limit with respect to a Person if: (i) such
Person submits to the Board information satisfactory to the Board, in its
reasonable discretion, demonstrating that such Person is not an individual for
purposes of Section 542(a)(2) of the Code (determined taking into account
Section 856(h)(3)(A) of the Code); (ii) such Person submits to the Board
information satisfactory to the Board, in its reasonable discretion,
demonstrating that no Person who is an individual for purposes of Section
542(a)(2) of the Code (determined taking into account Section 856(h)(3)(A) of
the Code) would be considered to Beneficially Own Shares in excess of the
Ownership Limit by reason of the ownership of Shares in excess of the Ownership
Limit by the Person receiving the waiver granted under this paragraph (b);
(iii) such Person submits to the Board information satisfactory to the Board, in
its reasonable discretion, demonstrating that the ownership of Shares in excess
of the Ownership Limit by the Person receiving the waiver granted under this
paragraph (b) will not result in the Trust failing to qualify as a REIT; and
(iv) such Person provides to the Board such representations and undertakings, if
any, as the Board may, in its reasonable discretion, require to ensure that the
conditions in clauses (i), (ii) and (iii) above are satisfied and will continue
to be satisfied throughout the period during which such Person owns Shares in
excess of the Ownership Limit pursuant to any waiver granted under this
paragraph (b), and such Person agrees that any violation of such representations
and undertakings or any attempted violation thereof will result in the
application of the remedies set forth in Section 11.3 with respect to Shares
held in excess of the Ownership Limit by such Person (determined without regard
to the waiver granted such Person under this paragraph (b)).

11.13. LEGEND. Each certificate for Shares shall bear substantially the
following legend:

The securities represented by this certificate are subject to
restrictions on transfer for the purpose of the Trust's
maintenance of its status as a REIT under the Internal Revenue
Code of 1986, as amended. Except as otherwise provided pursuant
to the Declaration of the Trust, no Person may Beneficially Own
Shares in excess of 9.8% (or such greater percentage as may be
determined by the Board of the Trust) of the number or value of
the outstanding Shares of the Trust (unless such Person is an
Existing Holder). Any Person who attempts or proposes to
Beneficially Own Shares in excess of the above limitations must
notify the Trust in writing at least 15 days prior to such
proposed or attempted Transfer. All capitalized terms in this
legend have the meanings defined in the Declaration of the Trust,
a copy of which, including the restrictions on transfer, will be
sent without charge to each Shareholder who so requests. If the
restrictions on transfer are violated, the securities represented
hereby shall be designated and treated as Excess Shares which
shall be held in trust by the Excess Share Trustee for the
benefit of the Charitable Beneficiary.

11.14. SEVERABILITY. If any provision of this Article XI or any application
of any such provision is determined to be void, invalid or unenforceable by any
court having jurisdiction

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<PAGE>

over the issue, the validity and enforceability of the remaining provisions
shall be affected only to the extent necessary to comply with the determination
of such court.

11.15. TRUST FOR EXCESS SHARES. Upon any purported Transfer that results in
Excess Shares pursuant to Section 11.3, such Excess Shares shall be deemed to
have been transferred to the Excess Share Trustee, as trustee of the Excess
Share Trust for the exclusive benefit of the Charitable Beneficiary. Excess
Shares so held in trust shall be issued and outstanding Shares of the Trust. The
Purported Beneficial Transferee shall have no rights in such Excess Shares
except as provided in Section 11.18.

11.16. DISTRIBUTIONS ON EXCESS SHARES. Any distributions (whether as
dividends, distributions upon liquidation, dissolution or winding up or
otherwise) on Excess Shares shall be paid to the Excess Share Trust for the
benefit of the Charitable Beneficiary. Upon liquidation, dissolution or winding
up, the Purported Record Transferee shall receive the lesser of (a) the amount
of any distribution made upon liquidation, dissolution or winding up or (b) the
price paid by the Purported Record Transferee for the Shares, or if the
Purported Record Transferee did not give value for the Shares, the Market Price
of the Shares on the day of the event causing the Shares to be held in trust.
Any such dividend paid or distribution paid to the Purported Record Transferee
in excess of the amount provided in the preceding sentence prior to the
discovery by the Trust that the Shares with respect to which the dividend or
distribution was made had been exchanged for Excess Shares shall be repaid to
the Excess Share Trust for the benefit of the Charitable Beneficiary.

11.17. VOTING OF EXCESS SHARES. The Excess Share Trustee shall be entitled
to vote the Excess Shares for the benefit of the Charitable Beneficiary on any
matter. Any vote taken by a Purported Record Transferee prior to the discovery
by the Trust that the Excess Shares were held in trust shall be rescinded AB
INITIO. The owner of the Excess Shares shall be deemed to have given an
irrevocable proxy to the Excess Share Trustee to vote the Excess Shares for the
benefit of the Charitable Beneficiary.

11.18. NON-TRANSFERABILITY OF EXCESS SHARES. Excess Shares shall be
transferable only as provided in this Section 11.18. At the direction of the
Trust, the Excess Share Trustee shall transfer the Shares held in the Excess
Share Trust to a person whose ownership of the Shares will not violate the
Ownership Limit or Existing Holder Limit. Such transfer shall be made within 60
days after the latest of (x) the date of the Transfer which resulted in such
Excess Shares and (y) the date the Board determines in good faith that a
Transfer resulting in Excess Shares has occurred, if the Trust does not receive
a notice of such Transfer pursuant to Section 11.5. If such a transfer is made,
the interest of the Charitable Beneficiary shall terminate and proceeds of the
sale shall be payable to the Purported Record Transferee and to the Charitable
Beneficiary. The Purported Record Transferee shall receive the lesser of (a) the
price paid by the Purported Record Transferee for the Shares or, if the
Purported Record Transferee did not give value for the Shares, the Market Price
of the Shares on the day of the event causing the Shares to be held in trust,
and (b) the price received by the Excess Share Trust from the sale or other
disposition of the Shares. Any proceeds in excess of the amount payable to the

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Purported Record Transferee shall be paid to the Charitable Beneficiary. Prior
to any transfer of any Excess Shares by the Excess Share Trustee, the Trust must
have waived in writing its purchase rights under Section 11.19. It is expressly
understood that the Purported Record Transferee may enforce the provisions of
this Section 11.18 against the Charitable Beneficiary.

If any of the foregoing restrictions on transfer of Excess Shares is
determined to be void, invalid or unenforceable by any court of competent
jurisdiction, then the Purported Record Transferee may be deemed, at the option
of the Trust, to have acted as an agent of the Trust in acquiring such Excess
Shares and to hold such Excess Shares on behalf of the Trust.

11.19. CALL BY TRUST ON EXCESS SHARES. Excess Shares shall be deemed to
have been offered for sale to the Trust, or its designee, at a price per Share
equal to the lesser of (a) the price per Share in the transaction that created
such Excess Shares (or, in the case of a devise, gift or other transaction in
which no value was given for such Excess Shares, the Market Price at the time of
such devise, gift or other transaction) and (b) the Market Price of the common
Shares and/or preferred Shares to which such Excess Shares relates on the date
the Trust, or its designee, accepts such offer (the "Redemption Price"). The
Trust shall have the right to accept such offer for a period of 90 days after
the later of (x) the date of the Transfer which resulted in such Excess Shares
and (y) the date the Board determines in good faith that a Transfer resulting in
Excess Shares has occurred, if the Trust does not receive a notice of such
Transfer pursuant to Section 11.5 but in no event later than a permitted
Transfer pursuant to and in compliance with the terms of Section 11.18. Unless
the Board determines that it is in the interests of the Trust to make earlier
payments of all of the amount determined as the Redemption Price per Share in
accordance with the preceding sentence, the Redemption Price may be payable at
the option of the Board at any time up to but not later than one year after the
date the Trust accepts the offer to purchase the Excess Shares. In no event
shall the Trust have an obligation to pay interest to the Purported Record
Transferee.

11.20. UNDERWRITTEN OFFERINGS. The Ownership Limit shall not apply to the
acquisition of Shares or rights, options or warrants for, or securities
convertible into, Shares by an underwriter in a public offering, provided that
the underwriter makes a timely distribution of such Shares or rights, options or
warrants for, or securities convertible into, Shares.

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<PAGE>

IN WITNESS WHEREOF, the undersigned have executed this Amended and Restated
Declaration of Trust as of the date first hereinabove set forth.

---------------------------------
Jeffrey G. Dishner

---------------------------------
Jonathan D. Eilian

---------------------------------
Robin Josephs

---------------------------------
Merrick R. Kleeman

---------------------------------
William Matthes

---------------------------------
Barry S. Sternlicht

---------------------------------
Jay Sugarman

---------------------------------
Kneeland C. Youngblood

<PAGE>

SCHEDULE A

TRUSTEES

Name Class Address
- ---- ----- -------

Jeffrey G. Disher I Starwood Capital Group, L.L.C.
Three Pickwick Plaza, Suite 250
Greenwich, CT 06830

Jonathan D. Eilian I Starwood Capital Group, L.L.C.
Three Pickwick Plaza, Suite 250
Greenwich, CT 06830

Merrick R. Kleeman I Starwood Capital Group, L.L.C.
Three Pickwick Plaza, Suite 250
Greenwich, CT 06830

Robin Josephs I

Barry S. Sternlicht II Starwood Capital Group, L.L.C.
Three Pickwick Plaza, Suite 250
Greenwich, CT 06830

Jay Sugarman II Starwood Financial Trust
1114 Avenue of the Americas
27th Floor
New York, NY 10036

William Matthes II

Kneeland Youngblood II

<PAGE>
EXHIBIT C

STARWOOD FINANCIAL TRUST
BY-LAWS

June ____, 1998

<PAGE>

STARWOOD FINANCIAL TRUST

BYLAWS

ARTICLE I
OFFICES

1.1 PRINCIPAL OFFICE. The principal office of Starwood Financial Trust
(the "Trust") shall be located at such place or places as the Board of Trustees
(the "Board") of the Trust may designate.

1.2 ADDITIONAL OFFICES. The Trust may have additional offices at such
places as the Board may from time to time determine or the business of the Trust
may require.

ARTICLE II
MEETINGS OF SHAREHOLDERS

2.1 PLACE. All meetings of shareholders shall be held at the principal
office of the Trust or at such other place within the United States as shall be
stated in the notice of the meeting.

2.2 ANNUAL MEETING. An annual meeting of shareholders for the election of
Trustees and the transaction of any business within the powers of the Trust
shall be held within a reasonable period (not less than 10 days) following
delivery of the annual report described in SECTION 6.10 of the Amended and
Restated Declaration of Trust (the "Declaration of Trust"), on such date and at
such time as the Board may prescribe beginning in 1998, but in any event such
meeting shall be held within six months after the end of each full fiscal year.

2.3 SPECIAL MEETINGS. Special meetings of shareholders may be called by
the Chairman of the Board or at least two other Trustees. Special meetings of
shareholders shall also be called by the Secretary upon the written request of
shareholders holding in the aggregate not less than twenty percent of the
outstanding Class A Shares of the Trust, $1.00 par value per share ("Class A
Shares") or Class B Shares of the Trust, $.01 par value per share ("Class B
Shares") entitled to vote at such meeting. Such request shall state the purpose
of such meeting and the matters proposed to be acted on at such meeting. The
Secretary shall inform such shareholders of the reasonably estimated cost of
preparing and mailing notice of the meeting and, upon payment to the Trust of
such costs, the Secretary shall give notice to each shareholder entitled to
notice of the meeting. Unless requested by shareholders entitled to cast a
majority of all the votes entitled to be cast at such meeting, a special meeting
need not be called to consider any matter which is substantially the same as a
matter voted on at any meeting of shareholders held during the preceding 12
months.

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2.4 NOTICE. Not less than ten nor more than 60 days before each meeting
of shareholders, the Secretary shall give to each shareholder of record entitled
to vote at such meeting and to each shareholder not entitled to vote who is
entitled to notice of such meeting written or printed notice stating the place,
date and time of the meeting and, in the case of a special meeting or as
otherwise may be required by statute, the purpose or purposes for which the
meeting is called, either personally or by mail. If mailed, such notice shall
be deemed to be given when deposited in the United States mail addressed to the
shareholder at his or her post office address as it appears on the records of
the Trust, with postage thereon prepaid.

2.5 SCOPE OF NOTICE. Subject to SECTION 2.11(a), any business of the
Trust may be transacted at an annual meeting of shareholders without being
specifically designated in the notice, except such business as is required by
statute to be stated in such notice. No business shall be transacted at a
special meeting of shareholders except as specifically designated in the notice
as provided in SECTION 2.11(b).

2.6 QUORUM. At any meeting of shareholders, the presence in person or by
proxy of persons entitled to vote a majority of the Class A Shares and a
majority of the Class B Shares at such meeting shall constitute a quorum; but
this SECTION 2.6 shall not affect any requirement under any statute or the
Declaration of Trust for the vote necessary for the adoption of any measure.
If, however, such quorum shall not be present at any meeting of shareholders,
the shareholders entitled to vote at such meeting, present in person or by
proxy, shall have power to adjourn the meeting from time to time to a date not
more than 120 days after the original record date without notice other than
announcement at the meeting. At such adjourned meeting at which a quorum shall
be present, any business may be transacted which might have been transacted at
the meeting as originally notified.

2.7 VOTING. A majority of all the votes cast at a meeting of shareholders
duly called and at which a quorum is present shall be sufficient to elect a
Trustee. Each share entitled to vote may be voted for as many individuals as
there are Trustees to be elected and for whose election the share is entitled to
be voted. There shall be no right of cumulative voting. A majority of the
votes cast at a meeting of shareholders duly called and at which a quorum is
present shall be sufficient to approve any other matter which may properly come
before the meeting, unless more than a majority of the votes cast is required by
statute or by the Declaration of Trust. Unless otherwise provided in the
Declaration of Trust, each outstanding share, regardless of class, shall be
entitled to one vote on each matter submitted to a vote at a meeting of
shareholders.

2.8 Proxies. A shareholder may vote the shares owned of record by him or
her, either in person or by proxy executed in writing by the shareholder or by
his or her duly authorized attorney in fact. Such proxy shall be filed with the
Secretary before or at the time of the meeting. No proxy shall be valid after
11 months from the date of its execution, unless otherwise provided in the
proxy. No revocation of a proxy, whether by voluntary action, death, incapacity
of the shareholder granting such proxy, or otherwise shall be effective until
written notice thereof has been received by the Trust or one of the Trustees.
At a meeting of

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shareholders all questions concerning the qualification of voters, the validity
of proxies, and the acceptance or rejection of votes, shall be decided by the
Secretary of the meeting unless inspectors of election are appointed pursuant to
SECTION 2.11, in which event such inspectors shall pass upon all questions and
shall have all other duties specified in such Section.

2.9 Voting of Shares by Certain Holders. Shares registered in the name of
a corporation, partnership, trust or other entity, if entitled to be voted, may
be voted by the president or a vice president, a general partner or trustee
thereof, as the case may be, or a proxy appointed by any of the foregoing
individuals, unless some other person who has been appointed to vote such shares
pursuant to a bylaw or a resolution of the board of directors of such
corporation or governing body of such other entity presents a certified copy of
such bylaw or resolution, in which case such person may vote such shares. Any
trustee or other fiduciary may vote shares registered in his or her name as such
fiduciary, either in person or by proxy.

Shares of the Trust directly or indirectly owned by it shall not be voted
at any meeting and shall not be counted in determining the total number of
outstanding shares entitled to be voted at any given time, unless they are held
by it in a fiduciary capacity, in which case they may be voted and shall be
counted in determining the total number of outstanding shares at any given time.

The Board may adopt by resolution a procedure by which a shareholder may
certify in writing to the Trust that any shares registered in the name of the
shareholder are held for the account of a specified person other than the
shareholder. The resolution shall set forth the class of shareholders who may
make the certification, the purpose for which the certification may be made, the
form of certification and the information to be contained in it; if the
certification is with respect to a record date or closing of the share transfer
books, the time after the record date or closing of the share transfer books
within which the certification must be received by the Trust; and any other
provisions with respect to the procedure which the Board considers necessary or
desirable. On receipt of such certification, the person specified in the
certification shall be regarded as, for the purposes set forth in the
certification, the shareholder of record of the specified shares in place of the
shareholder who makes the certification.

2.10 Inspectors. At any meeting of shareholders, the presiding officer of
the meeting may, and upon the request of any shareholder shall, appoint one or
more persons as inspectors for such meeting. Such inspectors shall ascertain
and report the number of shares represented at the meeting based on their
determination of the validity and effect of proxies, count all votes, report the
results and perform such other acts as are proper to conduct the election and
voting with impartiality and fairness to all the shareholders.

Each report of an inspector shall be in writing and signed by him or by a
majority of them if there is more than one inspector acting at such meeting. If
there is more than one inspector, the report of a majority shall be the report
of the inspectors. The report of the inspector or inspectors on the number of
shares represented at the meeting and the results of the voting shall be PRIMA
FACIE evidence thereof.

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2.11 Nominations and Shareholder Business.

(a) Annual Meetings of Shareholders.

(i) Nominations of persons for election to the Board and the
proposal of business to be considered by the shareholders may be made at an
annual meeting of shareholders (A) pursuant to the Trust's notice of meeting,
(B) by or at the direction of the Board or (C) by any shareholder of the Trust
who was a shareholder of record at the time of giving the notice provided for in
this SECTION 2.11(a), who is entitled to vote at the meeting and who complied
with the notice procedures set forth in this SECTION 2.11(a).

(ii) For nominations or other business to be properly brought
before an annual meeting by a shareholder pursuant to clause (C) of paragraph
(i) of this SECTION 2.11(a), the shareholder must have given timely notice
thereof in writing to the Secretary. To be timely, a shareholder's notice shall
be delivered to the Secretary at the principal executive offices of the Trust
not less than 60 days nor more than 90 days prior to the first anniversary of
the preceding year's annual meeting; PROVIDED, HOWEVER, that if the date of the
annual meeting is advanced by more than 30 days or delayed by more than 60 days
from such anniversary date or if the Trust has not previously held an annual
meeting, notice by the shareholder to be timely must be so delivered not more
than 90 days prior to such annual meeting nor less than 60 days prior to such
annual meeting or ten days following the day on which public announcement of the
date of such meeting is first made by the Trust. Such shareholder's notice
shall set forth (A) as to each person whom the shareholder proposes to nominate
for election or reelection as a Trustee, all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
Trustees, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a Trustee if elected), (B) as to any other
business that the shareholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such shareholder and of the beneficial owner, if any, on whose
behalf the proposal is made, and (C) as to the shareholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is
made, (1) the name and address of such shareholder, as they appear on the
Trust's books, and of such beneficial owner and (2) the class and number of
shares of the Trust which are owned beneficially and of record by such
shareholder and such beneficial owner.

(iii) Notwithstanding anything in the second sentence of
paragraph (ii) of this Section 2.11(a) to the contrary, if the number of
Trustees to be elected to the Board is increased and there is no public
announcement naming all of the nominees for Trustee or specifying the size of
the increased Board made by the Trust at least 70 days prior to the first
anniversary of the preceding year's annual meeting, a shareholder's notice
required by this SECTION 2.11(a) shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it shall
be delivered to the Secretary at the principal

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executive offices of the Trust not more than ten days following the day on which
such public announcement is first made by the Trust.

(b) Special Meetings of Shareholders. Only such business shall be
conducted at a special meeting of shareholders as shall have been brought before
the meeting pursuant to the Trust's notice of meeting. Nominations of persons
for election to the Board may be made at a special meeting of shareholders at
which Trustees are to be elected (i) pursuant to the Trust's notice of meeting,
(ii) by or at the direction of the Board or (iii) PROVIDED that the Board has
determined that Trustees shall be elected at such special meeting, by any
shareholder of the Trust who was a shareholder of record at the time of giving
of notice provided for in this Section 2.11(b), who is entitled to vote at the
meeting and who complied with the notice procedures set forth in this
SECTION 2.11(b). If the Trust calls a special meeting of shareholders for the
purpose of electing one or more Trustees to the Board, any such shareholder may
nominate a person or persons (as the case may be) for election to such position
as specified in the Trust's notice of meeting, if the shareholder's notice
required by paragraph (ii) of SECTION 2.11(a) shall be delivered to the
Secretary at the principal executive offices of the Trust not more than 90 days
prior to such meeting nor less than 60 days prior to such meeting or ten days
following the day on which public announcement of the date of the special
meeting and of the nominees proposed by the Board to be elected at such meeting
is first made by the Trust.

(i) Only such persons who are nominated in accordance with the
procedures set forth in this SECTION 2.11 shall be eligible to serve as Trustees
and only such business shall be conducted at a meeting of shareholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this SECTION 2.11. The presiding officer of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this SECTION 2.11 and, if any proposed nomination or business is not in
compliance with this SECTION 2.11, to declare that such nomination or proposal
be disregarded.

(ii) For purposes of this SECTION 2.11, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable news service or in a document publicly filed by
the Trust with the Securities and Exchange Commission.

(iii) Notwithstanding the foregoing provisions of this
SECTION 2.11, a shareholder shall also comply with all applicable requirements
of state law and of the Exchange Act and the rules and regulations thereunder
with respect to the matters set forth in this SECTION 2.11. Nothing in this
SECTION 2.11 shall be deemed to affect any rights of shareholders to request
inclusion of, nor any rights of the Trust to omit, proposals in the Trust's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.

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2.12 Informal Action by Shareholders. Any action required or permitted to
be taken at a meeting of shareholders may be taken without a meeting if a
consent in writing, setting forth such action, is signed by a sufficient
proportion of the Class A Shareholders and Class B Shareholders as would be
required to approve such action at a meeting.

2.13 Voting by Ballot. Voting on any question or in any election may be
VIVE VOCE unless the presiding officer shall order or any shareholder shall
demand that voting be by ballot.

ARTICLE III
TRUSTEES

3.1 General Powers. The business and affairs of the Trust shall be
managed under the direction of the Board. The Board shall keep a record of its
acts and proceedings, which shall form a part of the records of the Trust in the
custody of the Secretary.

3.2 Number, Term and Qualifications. At any regular meeting or at any
special meeting called for that purpose, a majority of the Trustees may
establish, increase or decrease the number of Trustees, PROVIDED that the number
thereof shall never be less than seven nor more than 15, and PROVIDED FURTHER
that the term of office of a Trustee shall not be affected by any decrease in
the number of Trustees. Each Trustee shall hold office for the term for which
he or she is elected and until his or her successor is elected and qualifies,
subject, however, to prior death, resignation or removal from office. The
initial number of Trustees is eight.

3.3 Annual and Regular Meetings. An annual meeting of the Board shall be
held immediately after and at the same place as the annual meeting of
shareholders, no notice other than this Bylaw being necessary. The Board may
provide, by resolution, the time and place, either within or without the State
of Maryland, for the holding of regular meetings of the Board without other
notice than such resolution.

3.4 Special Meetings. Special meetings of the Board may be called by or
at the request of the Chairman of the Board, the Chief Executive Officer or the
President or by a majority of the Trustees then in office. The person or
persons authorized to call special meetings of the Board may fix any place,
either within or without the State of Maryland, as the place for holding any
special meeting of the Board called by them.

3.5 Notice. Notice of any special meeting shall be given by written
notice delivered personally, transmitted by facsimile, telegraphed, couriered or
mailed to each Trustee at his or her business or residence address. Personally
delivered, facsimile transmitted or telegraphed notices shall be given at least
two days prior to the meeting. Notice by mail shall be given at least five days
prior to the meeting. If mailed, such notice shall be deemed to be given when
deposited in the United States mail properly addressed, with postage thereon
prepaid. If given by courier such notice shall be deemed given when delivered
to the courier company. If given by telegram, such notice shall be deemed to be
given when the telegram is delivered to the

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telegraph company. If given by facsimile, such notice shall be deemed to be
given upon completion of the transmission and receipt of a completed answer-back
indicating receipt. Neither the business to be transacted at, nor the purpose
of, any annual, regular or special meeting of the Board need be stated in the
notice, unless specifically required by statute or these Bylaws.

3.6 Quorum. A majority of the Trustees shall constitute a quorum for
transaction of business at any meeting of the Board, PROVIDED that, if less than
a majority of the Trustees are present at any meeting, a majority of the
Trustees present may adjourn the meeting from time to time without further
notice. The Trustees present at a meeting which has been duly called and
convened may continue to transact business until adjournment, notwithstanding
the withdrawal of enough Trustees to leave less than a quorum.

3.7 Voting. Except as otherwise provided in the Declaration of Trust, the
action of a majority of the Trustees taken at a meeting at which a quorum is
present shall be the action of the Board, unless the concurrence of a greater
proportion is required for such action by applicable statute.

3.8 Telephone Meetings. Trustees may participate in a meeting by means of
a conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time.
Participation in a meeting by these means shall constitute presence in person at
the meeting.

3.9 Informal Action by Trustees. Any action required or permitted to be
taken at any meeting of the Board may be taken without a meeting, if a consent
in writing to such action is signed by each Trustee and such written consent is
filed with the minutes of proceedings of the Board. Such action by written
consent shall have the same force and effect as a unanimous vote of such
Trustees.

3.10 Vacancies. If for any reason any or all of the Trustees shall cease
to be Trustees, such event shall not affect these Bylaws or the powers of the
remaining Trustees hereunder (even if fewer than seven Trustees remain). Any
vacancy (including a vacancy created by an increase in the number of Trustees)
shall be filled, at any regular meeting or at any special meeting called for
that purpose, by a majority of the Trustees.

3.11 Removal. The shareholders may, at any time, remove any Trustee in the
manner provided in the Declaration of Trust.

3.12 Interested Trustee Transactions. Section 2-419 of the Maryland
General Corporation Law shall be available for and apply to any contract or
other transaction between the Trust and any of its Trustees or between the Trust
and any other trust, corporation, firm or other entity in which any of its
Trustees is a trustee or director or has a material financial interest.

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3.13 ADJOURNED MEETINGS. A quorum of the Trustees may adjourn any
Trustees' meeting to meet again at a stated day and hour. In the absence of a
quorum a majority of the Trustees present may adjourn from time to time to meet
again at a stated day and hour prior to the time fixed for the next regular
meeting of the Trustees. The motion for adjournment shall be lodged within the
records of the Trust. Notice of the time and place of an adjourned meeting need
not be given to any Trustee if the time and place is fixed at the meeting
adjourned.

3.14 COMPENSATION. Subject to the provisions of the Declaration of Trust,
the Trustees of the Trust shall receive reasonable compensation for their
services as determined by the Trustees from time to time.

ARTICLE IV
COMMITTEES

4.1 Audit Committee. The Board, by resolution adopted by a majority of
the Trustees, may designate two or more Trustees to constitute an Audit
Committee, to serve as such, unless the resolution designating the Audit
Committee is sooner amended or rescinded by the Board, until the next annual
meeting of the Board or until their respective successors are designated. The
Board, by resolution adopted by a majority of the Trustees, may also designate
additional Trustees as alternate members of the Audit Committee to serve as
members of the Audit Committee in the place and stead of any regular member or
members who may be unable to attend a meeting or otherwise unavailable to act as
a member of the Audit Committee. In the absence or disqualification of a member
and all alternate members who may serve in the place and stead of such member,
the member or members present at any meeting and not disqualified from voting,
whether or not such member or members constitute a quorum, may unanimously
appoint another Trustee to act at the meeting in the place of any such absent or
disqualified member. At least two members of the Audit Committee shall be
independent of management of the Trust and free from any relationship that, in
the opinion of the Board, would interfere with the exercise of independent
judgment as a member of the Audit Committee.

Except as expressly limited by the laws of the State of Maryland or the
Declaration of Trust, the Audit Committee shall have and may exercise all the
powers and authority of the Board to establish auditing procedures for the Trust
and to appoint and oversee the Trust's independent public accountants to the
fullest extent. The Audit Committee shall keep a record of its acts and
proceedings, which shall form a part of the records of the Trust in the custody
of the Secretary, and all actions of the Audit Committee shall be reported to
the Board at the next meeting of the Board.

Meetings of the Audit Committee may be called at any time by the Chairman
of the Board, the Chief Executive Officer or the President or by any two Audit
Committee members. Two days' written or telephonic notice of meetings shall be
given. A majority of the members of the Audit Committee shall constitute a
quorum for the transaction of business and, except as expressly limited by this
SECTION 4.1, the act of a majority of the members present at any meeting

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at which there is a quorum shall be the act of the Audit Committee. Except as
expressly provided in this SECTION 4.1, the Audit Committee shall fix its own
rules of procedure.

4.2 COMPENSATION COMMITTEE. The Board, by resolution adopted by a
majority of the Trustees, may designate two or more Trustees to constitute a
Compensation Committee, to serve as such, unless the resolution designating the
Compensation Committee is sooner amended or rescinded by the Board, until the
next annual meeting of the Board or until their respective successors are
designated. The Board, by resolution adopted by a majority of the Trustees, may
also designate additional Trustees as alternate members of the Compensation
Committee to serve as members of the Compensation Committee in the place and
stead of any regular member or members who may be unable to attend a meeting or
otherwise unavailable to act as a member of the Compensation Committee. In the
absence or disqualification of a member and all alternate members who may serve
in the place and stead of such member, the member or members present at any
meeting and not disqualified from voting, whether or not such member or members
constitute a quorum, may unanimously appoint another Trustee to act at the
meeting in the place of any such absent or disqualified member. Each member of
the Compensation Committee shall be a "non-employee director" within the meaning
of Rule 16b-3(b)(3)(i) promulgated under the Exchange Act.

Except as expressly limited by the laws of the State of Maryland or the
Declaration of Trust, the Compensation Committee shall have and may exercise
such powers as the Board may determine and specify by resolution. The
Compensation Committee shall keep a record of its acts and proceedings, which
shall form a part of the records of the Trust in the custody of the Secretary,
and all actions of the Compensation Committee shall be reported to the Board at
the next meeting of the Board.

Meetings of the Compensation Committee may be called at any time by the
Chairman of the Board, the Chief Executive Officer or the President or by any
two Compensation Committee members. Two days' written or telephonic notice of
meetings shall be given. A majority of the members of the Compensation
Committee shall constitute a quorum for the transaction of business and, except
as expressly limited by this SECTION 4.2, the act of a majority of the members
present at any meeting at which there is a quorum shall be the act of the
Compensation Committee. Except as expressly provided in this SECTION 4.2, the
Compensation Committee shall fix its own rules of procedure.

4.3 OTHER COMMITTEES. The Board, by resolution adopted by a majority of
the Trustees, may designate one or more other committees, each such committee to
consist of two or more Trustees. Except as expressly limited by the laws of the
State of Maryland or the Declaration of Trust, any such committee shall have and
may exercise such powers as the Board may determine and specify in the
resolution designating such committee. The Board, by resolution adopted by a
majority of the Trustees, may also designate one or more additional Trustees as
alternate members of any such committee to replace any absent or disqualified
member at any meeting of the committee, and at any time may change the
membership of any committee or amend or rescind the resolution designating the
committee. In the absence or

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disqualification of a member or alternate member of a committee, the member of
members present at any meeting and not disqualified from voting, whether or not
such member or members constitute a quorum, may unanimously appoint another
Trustee to act at the meeting in the place of any such absent or disqualified
member, provided that the Trustee so appointed meets any qualifications stated
in the resolution designating the committee. Each committee shall keep a record
of proceedings and report the same to the Board to such extent and in such form
as the Board may require. Unless otherwise provided in the resolution
designating a committee, a majority of all the members of any such committee may
select its chairman, fix its rules of procedure, fix the time and place of its
meetings and specify what notice of meetings, if any, shall be given.

4.4 TELEPHONE MEETINGS. Members of a committee of the Board may
participate in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means shall
constitute presence in person at the meeting.

4.5 INFORMAL ACTION BY COMMITTEES. Any action required or permitted to be
taken at any meeting of a committee of the Board may be taken without a meeting,
if a consent in writing to such action is signed by each member of the committee
and such written consent is filed with the minutes of proceedings of such
committee.

ARTICLE V
OFFICERS

5.1 GENERAL PROVISIONS. The officers of the Trust may include a Chief
Executive Officer, a President, a Chief Financial Officer, one or more Vice
Presidents, a Secretary, a Treasurer, one or more Assistant Secretaries and one
or more Assistant Treasurers. In addition, the Board may from time to time
appoint such other officers with such powers and duties as they shall deem
proper. The officers of the Trust shall be elected annually by the Board at the
first meeting of the Board held after each annual meeting of shareholders,
except that each of the Chief Executive Officer and the President may appoint
one or more Vice Presidents, Assistant Secretaries and Assistant Treasurers. If
the election of officers shall not be held at such meeting, such election shall
be held as soon thereafter as may be convenient. Each officer shall hold office
until his or her successor is elected and qualifies or until his or her death,
resignation or removal in the manner hereinafter provided. Any two or more
offices except President and Vice President may be held by the same person. In
its discretion, the Board may leave unfilled any office. Election of an officer
or agent shall not of itself create contract rights between the Trust and such
officer or agent.

5.2 REMOVAL AND RESIGNATION. Any officer or agent of the Trust may be
removed by the Board if in its judgment the best interests of the Trust would be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Any officer of the Trust may resign
at any time by giving written notice of his or her resignation to

C-11
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the Board, the Chairman of the Board, the Chief Executive Officer, the President
or the Secretary. Any resignation shall take effect at any time subsequent to
the time specified therein or, if the time when it shall become effective is not
specified therein, immediately upon its receipt. The acceptance of a
resignation shall not be necessary to make it effective unless otherwise stated
in the resignation. Such resignation shall be without prejudice to the contract
rights, if any, of the Trust.

5.3 VACANCIES. A vacancy in any office may be filled by the Board for the
balance of the term.

5.4 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall preside
over the meetings of the Board and of shareholders at which the Chairman of the
Board is not present and he or she shall be present. The Chief Executive
Officer shall have general responsibility for implementation of the policies of
the Trust, as determined by the Board, and for the management, supervision and
control of all of the business and affairs of the Trust. He or she may execute
any deed, mortgage, bond, contract or other instrument, except in cases where
the execution thereof shall be expressly delegated by the Board or by these
Bylaws to some other officer or agent of the Trust or shall be required by law
to be otherwise executed; and in general shall perform all duties incident to
the office of Chief Executive Officer and such other duties as may be prescribed
by the Board from time to time.

5.5 PRESIDENT. The President shall have general responsibility for
implementation of the policies of the Trust, as determined by the Board and the
Chief Executive Officer. In the absence of the Chief Executive Officer, or if
there is a vacancy in such office, the President shall perform the duties of the
Chief Executive Officer and when so acting shall have all the powers of and be
subject to all the restrictions on the Chief Executive Officer. He or she may
execute any deed, mortgage, bond, contract or other instrument, except in cases
where the execution thereof shall be expressly delegated by the Board or the
Chief Executive Officer or by these Bylaws to some other officer or agent of the
Trust or shall be required by law to be otherwise executed; and in general shall
perform all duties incident to the office of President and such other duties as
may be prescribed by the Board or the Chief Executive Officer from time to time.

5.6 CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall have
general responsibility for implementation of the policies of the Trust, as
determined by the Board and the Chief Executive Officer or the President, and
for the management, supervision and control of the financial and accounting
affairs of the Trust. In the absence of a designation of a Treasurer by the
Board, the Chief Financial Officer shall be the Treasurer of the Trust. In the
absence of the Chief Executive Officer and the President, or if there are
vacancies in such offices, the Chief Financial Officer shall perform the duties
of the Chief Executive Officer and the President and when so acting shall have
all the powers of and be subject to all the restrictions on the Chief Executive
Officer and the President. He or she may execute any deed, mortgage, bond,
contract or other instrument, except in cases where the execution thereof shall
be expressly delegated by the Board, the Chief Executive Officer or the
President or by these Bylaws to some other officer or agent of the Trust or
shall be required by law to be otherwise executed; and in general shall

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perform all duties incident to the office of Chief Financial Officer and such
other duties as may be prescribed by the Board, the Chief Executive Officer or
the President from time to time.

5.7 VICE PRESIDENTS. In the absence of the Chief Executive Officer, the
President and the Chief Financial Officer, or if there are vacancies in such
offices, the Vice President (or if there is more than one Vice President, the
Vice Presidents in the order designated at the time of their election or, in the
absence of any designation, then in the order of their election) shall perform
the duties of the Chief Executive Officer and the President and when so acting
shall have all the powers of and be subject to all the restrictions on the Chief
Executive Officer and the President; and shall perform such other duties as from
time to time may be assigned to him or her or them by the Chief Executive
Officer, the President or the Board . The Board may designate one or more Vice
Presidents as Executive Vice Presidents or as Vice Presidents for particular
areas of responsibility.

5.8 SECRETARY. The Secretary shall (a) keep the minutes of the
proceedings of the shareholders, the Board and committees of the Board in one or
more books provided for that purpose, (b) see that all notices are duly given in
accordance with the provisions of these Bylaws or as required by law, (c) be
custodian of the records and of the seal of the Trust, (d) keep a register of
the post office address of each shareholder which shall be furnished to the
Secretary by such shareholder, (e) have general charge of the share transfer
books of the Trust and (f) in general perform such other duties as from time to
time may be assigned to him or her by the Chief Executive Officer or the Board.

5.9 TREASURER. The Treasurer shall have the custody of the funds and
securities of the Trust and shall keep full and accurate accounts of receipts
and disbursements in books belonging to the Trust and shall deposit all moneys
and other valuable effects in the name and to the credit of the Trust in such
depositories as may be designated by the Board. In the absence of a designation
of a Chief Financial Officer by the Board, the Treasurer shall be the Chief
Financial Officer.

The Treasurer shall disburse the funds of the Trust as may be ordered by
the Board, taking proper vouchers for such disbursements, and shall render to
the Chief Executive Officer, the President and the Board, at the regular
meetings of the Board or whenever it may so require, an account of all his or
her transactions as Treasurer and of the financial condition of the Trust.

If required by the Board, he or she shall give the Trust a bond in such sum
and with such surety or sureties as shall be satisfactory to the Board for the
faithful performance of the duties of his or her office and for the restoration
to the Trust, in case of his or her death, resignation, retirement or removal
from office, of all books, papers, vouchers, moneys and other property of
whatever kind in his or her possession or under his or her control belonging to
the Trust.

5.10 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant
Secretaries and Assistant Treasurers, in general, shall perform such duties as
shall be assigned to them by the Secretary or Treasurer, respectively, or by the
Chief Executive Officer, the President or the

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Board. The Assistant Treasurers shall, if required by the Board, give bonds for
the faithful performance of their duties in such sums and with such surety or
sureties as shall be satisfactory to the Board.

5.11 SALARIES. The salaries and other compensation of the officers shall
be fixed from time to time by the Board and no officer shall be prevented from
receiving such salary by reason of the fact that he or she is also a Trustee.

ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS

6.1 CONTRACTS. The Chairman of the Board, the Chief Executive Officer,
the President, the Chief Financial Officer and each Vice President are each
authorized to enter into any contract and to execute and deliver any instrument
in the name of and on behalf of the Trust. The Board may authorize any officer
or agent to enter into any contract or to execute and deliver any instrument in
the name of and on behalf of the Trust, and such authority may be general or
confined to specific instances. Any agreement, deed, mortgage, lease or other
document executed by one or more of the Trustees or by an authorized person
shall be valid and binding on the Board and on the Trust when such execution is
authorized or ratified by these Bylaws or by action of the Board.

6.2 CHECKS AND DRAFTS. All checks, drafts or other orders for the payment
of money, notes or other evidences of indebtedness issued in the name of the
Trust shall be signed by the Chief Financial Officer or such officer or
officers, agent or agents of the Trust designated by the Chief Financial Officer
or in such other manner as shall from time to time be determined by the Board.

6.3 DEPOSITS. All funds of the Trust not otherwise employed shall be
deposited from time to time to the credit of the Trust in such banks, trust
companies or other depositories as the Chief Executive Officer, the President,
the Chief Financial Officer or the Board may designate.

ARTICLE VII
SHARES

7.1 CERTIFICATES. Each shareholder shall be entitled to a certificate or
certificates which shall represent and certify the number of shares of each
class held by him or her in the Trust. Each certificate shall be signed by the
Chairman, the Chief Executive Officer, the President or any Vice President and
countersigned by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer and may be sealed with the seal, if any, of the Trust. The
signatures may be either manual or facsimile. Certificates shall be
consecutively numbered; and if the Trust shall, from time to time, issue several
classes of shares, each class may have its own number series. A certificate is
valid and may be issued whether or not an officer who signed it is

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<PAGE>

still an officer when it is issued. Each certificate representing shares which
are restricted as to their transferability or voting powers, which are preferred
or limited as to their dividends or distributions or as to their allocable
portion of the assets upon liquidation or which are redeemable at the option of
the Trust, shall have a statement of such restriction, limitation, preference or
redemption provision, or a summary thereof, plainly stated on the certificate.
In lieu of such statement or summary, the Trust may set forth on the face or
back of the certificate a statement that the Trust will furnish to any
shareholder, upon request and without charge, a full statement of such
information.

7.2 TRANSFERS. Upon surrender to the Trust or the transfer agent of the
Trust of a share certificate duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, the Trust shall issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction on its books.

The Trust shall be entitled to treat the holder of record of any share as
the holder in fact thereof and, accordingly, shall not be bound to recognize any
equitable or other claim to or interest in such share on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of the State of Maryland.

Any issuance, redemption or transfer of, or restriction on, shares which
would operate to disqualify the Trust as a real estate investment trust for
Federal income tax purposes shall be void AB INITIO.

Notwithstanding the foregoing, transfers of shares of any class will be
subject in all respects to the Declaration of Trust and all of the terms and
conditions contained therein.

7.3 LOST CERTIFICATE. The Board or the Secretary (or any other officer
designated by the Board or the Secretary) may direct a new certificate to be
issued in place of any certificate previously issued by the Trust alleged to
have been lost, stolen or destroyed upon the making of an affidavit of that fact
by the person claiming the certificate to be lost, stolen or destroyed. When
authorizing the issuance of a new certificate, the Board or the Secretary (or
any other officer designated by the Board or the Secretary) may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or his or her legal
representative to advertise the same in such manner as it or he or she shall
require and/or to give bond, with sufficient surety, to the Trust to indemnify
it against any loss or claim which may arise as a result of the issuance of a
new certificate.

7.4 CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The Board may
set, in advance, a record date for the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders, or shareholders
entitled to receive payment of any dividend or distribution or the allotment of
any other rights, or in order to make a determination of shareholders for any
other proper purpose. Such date, in any case, shall not be prior to the close
of business on the day the record date is fixed and shall be not more than 90
days and, in the case

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of a meeting of shareholders, not less than ten days, before the date on which
the meeting or particular action requiring such determination of shareholders is
to be held or taken.

In lieu of fixing a record date, the Board may provide that the share
transfer books shall be closed for a stated period but not longer than 20 days.
If the share transfer books are closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders, such
books shall be closed for at least ten days before the date of such meeting.

If no record date is fixed and the share transfer books are not closed for
the determination of shareholders, (a) the record date for the determination of
shareholders entitled to notice of or to vote at a meeting of shareholders shall
be at the close of business on the day on which the notice of meeting is mailed
or the 30th day before the meeting, whichever is the closer date to the meeting,
and (b) the record date for the determination of shareholders entitled to
receive payment of a dividend or distribution or an allotment of any other
rights shall be the close of business on the day on which the resolution of the
Board declaring the dividend or distribution or allotment of rights is adopted.

When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this SECTION 7.4, such determination
shall apply to any adjournment thereof, except when (a) the determination has
been made through the closing of the transfer books and the stated period of
closing has expired or (b) the meeting is adjourned to a date more than 120 days
after the record date fixed for the original meeting, in either of which cases a
new record date shall be determined as provided above.

7.5 SHARE LEDGER. The Trust shall maintain at its principal office or at
the office of its counsel, accountants or transfer agent, an original or
duplicate share ledger containing the name and address of each shareholder and
the number of shares of each class held by such shareholder.

7.6 FRACTIONAL SHARES; ISSUANCE OF UNITS. The Board may issue fractional
shares or provide for the issuance of scrip, all on such items and under such
conditions as they may determine. Notwithstanding any other provision of the
Declaration of Trust or these Bylaws, the Board may issue units consisting of
different securities of the Trust. Any security issued in a unit shall have the
same characteristics as any identical securities issued by the Trust, except
that the Board may provide that for a specified period securities of the Trust
issued in such unit may be transferred on the books of the Trust only in such
unit.

ARTICLE VIII
ACCOUNTING YEAR

The Board shall have the power, from time to time, to fix the fiscal year
of the Trust by a duly adopted resolution.

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ARTICLE IX
DIVIDENDS AND DISTRIBUTIONS

9.1 DECLARATION. Dividends and distributions on the shares of the Trust
may be authorized and declared by the Board, subject to the provisions of law
and the Declaration of Trust. Dividends and distributions may be paid in cash,
property or other assets of the Trust or in securities of the Trust or from any
other source as the Board in its discretion shall determine, subject to the
provisions of law and the Declaration of Trust.

9.2 CONTINGENCIES. Before payment of any dividends or distributions,
there may be set aside out of any funds of the Trust available for dividends and
distributions such sum or sums as the Board may from time to time, in its
absolute discretion, think proper as a reserve fund for contingencies, for
equalizing dividends and distributions, for repairing or maintaining any
property of the Trust or for such other purpose as the Board shall determine to
be in the best interest of the Trust, and the Board may modify or abolish any
such reserve in the manner in which it was created.

ARTICLE X
INVESTMENT POLICY

Subject to the provisions of law and the Declaration of Trust, the Board
may from time to time adopt, amend, revise or terminate any policy or policies
with respect to investments by the Trust as it shall deem appropriate in its
sole discretion.

ARTICLE XI
SEAL

11.1 SEAL. The Board may authorize the adoption of a seal by the Trust.
The seal shall have inscribed thereon the name of the Trust. The Board may
authorize one or more duplicate seals and provide for the custody thereof.

11.2 AFFIXING SEAL. Whenever the Trust is required to affix its seal to a
document, it shall be sufficient to meet the requirements of any law, rule or
regulation relating to a seal to place the word "(SEAL)" adjacent to the
signature of the person authorized to execute the document on behalf of the
Trust.

ARTICLE XII
INDEMNIFICATION

12.1 INDEMNIFICATION. To the maximum extent permitted by Maryland law, as
amended from time to time, the Trust shall indemnify and hold harmless, and pay
or reimburse reasonable expenses in advance of final disposition of a proceeding
to, each Trustee and officer

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<PAGE>

from and against all claims and liabilities, whether they proceed to judgment or
are settled, in connection with any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, to
which such Trustee or officer may become subject by reason of his or her being
or having been a Trustee or officer, or by reason of any action alleged to have
been taken or omitted by him or her as Trustee or officer, and shall reimburse
him or her for all reasonable legal and other expenses incurred by him or her in
connection with any such claim or liability, including any claim or liability
arising under the provisions of federal or state securities laws. The foregoing
indemnification shall include any action alleged to have been taken or omitted
by any such Trustee or officer by reason of serving or having served at the
request of the Trust as a director, trustee, officer, partner, employee or agent
of another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise. The Trust, without requiring a
preliminary determination of the ultimate entitlement to indemnification, shall
pay or reimburse reasonable expenses, as such expenses are incurred by any
Trustee or officer in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, to which such Trustee or officer a Trustee or officer; PROVIDED
that if such payment or reimbursement is to be made prior to the final
disposition of any proceeding to which a Trustee or officer is a party, no
payment or reimbursement shall be made by the Trust unless and until the Trust
shall receive a written affirmation from such Trustee or officer of his or her
good faith belief that the standard for indemnification of a Trustee or officer
under Maryland law and as provided above has been met and a written undertaking
by such Trustee or officer to repay such amounts paid or reimbursed by the Trust
if it shall ultimately be determined that such standard for indemnification has
not been met. The rights accruing to a Trustee or officer under these
provisions shall not exclude any other right to which he or she may be lawfully
entitled, nor shall anything herein contained restrict the right of the Trust to
indemnify or reimburse such Trustee or officer in any proper cause even though
not specifically provided for herein.

12.2 EXPENSES INCLUDED. The indemnification authorized by this ARTICLE XII
shall include payment of (i) reasonable attorneys' fees or other expenses
incurred in settling any such claim or liability or incurred in any finally
adjudicated legal proceeding and (ii) expenses incurred by the removal of any
liens affecting any property of the person to be indemnified. Indemnification
shall be made from assets of the Trust, and no shareholder shall be personally
liable to any person to be indemnified. This SECTION 12.2 shall inure to the
benefit of the Trustees and their Affiliates. For purposes of this SECTION 12.2
only, the term "Affiliates" shall mean any person performing services on behalf
of the Trust who (i) directly or indirectly controls, is controlled by, or is
under common control with the Trustees; (ii) owns or controls 10% or more of
the outstanding voting securities of the Trustees or (iii) is an officer,
director, partner, or trustee of the Trustees or (iv) is any company for which
the Trustees act as an officer, director, partner or trustee.

12.3 EFFECT OF AMENDMENT. Neither the amendment nor repeal of this
Article, nor the adoption or amendment of any other provision of these Bylaws or
Declaration of Trust inconsistent with this Article, shall apply to or affect in
any respect the applicability of the

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preceding paragraph with respect to any act or failure to act which occurred
prior to such amendment, repeal or adoption.

ARTICLE XIII
WAIVER OF NOTICE

Whenever any notice is required to be given pursuant to the Declaration of
Trust or these Bylaws or pursuant to applicable law, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice. Neither the business to be transacted at nor the purpose of any
meeting need be set forth in the waiver of notice, unless specifically required
by statute. The attendance of any person at any meeting shall constitute a
waiver of notice of such meeting, except if such person attends such meeting for
the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.

ARTICLE XIV
AMENDMENT OF BYLAWS

The Board shall have the exclusive power to adopt, alter or repeal any
provision of these Bylaws and to make new Bylaws without the consent of the
shareholders.

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<PAGE>

CERTIFICATE OF SECRETARY
OF
STARWOOD FINANCIAL TRUST

I, Jerome C. Silvey, do hereby certify that:

1. I am the duly elected and acting Secretary of Starwood Financial
Trust, a Maryland real estate investment trust (the "Trust").

2. The foregoing Bylaws were validly authorized and approved by
resolutions of the Board of Directors of the Trust duly adopted on May ___,
1998, true and complete copies of which are attached hereto as Exhibit A, and
such resolutions are in full force and effect on the date hereof and have not
been amended, modified or repealed.

IN WITNESS THEREOF, I have executed this Certificate as Secretary of the
Trust this _______th day of May, 1998.

-------------------------------
Jerome C. Silvey
Secretary

<PAGE>

PROXY
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF TRUSTEES OF
STARWOOD FINANCIAL TRUST
1114 AVENUE OF THE AMERICAS, 27TH FLOOR
NEW YORK, NEW YORK 10036

PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 18, 1998. TO
VOTE AT THE ANNUAL MEETING IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE
BOARD OF TRUSTEES OF STARWOOD FINANCIAL TRUST, SIGN AND DATE THE REVERSE SIDE
OF THIS CARD WITHOUT CHECKING ANY BOX.

The undersigned holder of Class A Shares or Class B Shares of Starwood
Financial Trust (the "Trust") hereby appoints Jerome C. Silvey and Jay
Sugarman, or either of them, with full power of substitution in each, as
proxies to cast all votes which the undersigned shareholder is entitled to
cast at the Annual Meeting of Shareholders (the "Annual Meeting") to be held
on June 18, 1998, at 10:30 a.m. local time, at Sheraton New York Hotel &
Towers, 311 Seventh Avenue, New York, New York 10019 and at any
adjournments thereof, upon the following matters. The undersigned
shareholder hereby revokes any proxy or proxies heretofore given.
Capitalized terms not otherwise defined have the meanings given in the Proxy
Statement to which this Proxy relates.

- --------------------------------------------------------------------------------
FOLD AND DETACH HERE

<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Please mark
your votes as /X/
indicated in
this example

FOR all nominees listed WITHHOLD AUTHORITY
below (except as marked to vote for all nominees
For Against Abstain to the contrary below) listed below
1. A proposal to 2. The election of four
approve the / / / / / / members to the Board / / / /
Reorganization. of Trustees.

Jeffery G. Dishner Robin Josephs
Jonathan D. Eilian Merrick R. Kleeman

TO WITHHOLD AUTHORITY FOR ANY NOMINEE, STRIKE A LINE THROUGH SUCH
NOMINEE'S NAME. If a nominee becomes unavailable for election or
unable to serve as a trustee, the votes will be cast for a person
that will be designated by the Board of Trustees of the Trust.

For Against Abstain
3. A proposal to ratify the
appointment of Price Waterhouse / / / / / /
LLP as the independent auditors of
the Trust for the fiscal year
ended December 31, 1998.

4. In their discretion, the proxies are authorized to vote upon
such other matters as may properly come before the Annual
Meeting, or any adjournments thereof and which the Trust did not
know, a reasonable time before the Annual Meeting, would be
presented at the Annual Meeting or any adjournment thereof.

This proxy, when properly executed, will be voted in the manner
as directed herein by the undersigned shareholder. UNLESS
CONTRARY DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1 THROUGH 3 AND IN ACCORDANCE WITH THE UNANIMOUS
DETERMINATION OF THE BOARD OF TRUSTEES AS TO OTHER MATTERS. The
undersigned shareholder may revoke this proxy at any time before
it is voted by delivering to the Secretary of the Trust either a
written revocation of the proxy or a duly executed proxy bearing
a later date, or by appearing at the Annual Meeting and voting in
person. The undersigned shareholder hereby acknowledges receipt
of the Notice of Annual Meeting of Shareholders and Proxy
Statement.

PLEASE MARK, SIGN, DATE AND RETURN THIS CARD PROMPTLY USING THE
ENCLOSED ENVELOPE. If you receive more than one proxy card,
please sign and return ALL cards in the enclosed envelope.

Signature_________________________________ Signature_____________________________ (if held jointly) DATED:________________
Please date and sign exactly as the name appears hereon. When signing as executor, administrator, trustee, guardian,
attorney-in-fact or other fiduciary, please give title as such. When signing as corporation, please sign in full corporate
name by President or other authorized officer. If you sign for a partnership, please sign in partnership name by an
authorized person.

- ---------------------------------------------------------------------------------------------------------------------------
FOLD AND DETACH HERE
</TABLE>

<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

(a) The Maryland Declaration of Trust gives SFT-Maryland the power to
obligate itself to indemnify trustees, officers, employees and agents of
SFT-Maryland, including the Advisor and its affiliates. This indemnification may
be provided to the fullest extent under Maryland law in connection with any
proceedings against the indemnified person. Maryland law allows such
indemnification for a party's acts or omissions except where it is established
that (i) the act or omission was material to the matter giving rise to the
proceeding and it was either committed in bad faith or was the result of active
and deliberate dishonesty; or (ii) the indemnified party actually received an
improper benefit; or (iii) the proceeding is criminal and the party had
reasonable cause to believe the act or omission unlawful. The indemnification
authorized by the Declaration of Trust includes payment of (i) reasonable
attorneys' fees or other expenses incurred in settling any such claim or
liability or incurred in any finally adjudicated legal proceeding and (ii)
expenses incurred by the removal of any liens affecting any property of the
person to be indemnified.

The Bylaws provide that, to the maximum extent permitted by Maryland law, as
amended from time to time, SFT-Maryland shall indemnify and hold harmless, and
pay or reimburse reasonable expenses in advance of final disposition of a
proceeding to, each Trustee and officer from and against all claims and
liabilities, whether they proceed to judgment or are settled, in connection with
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, to which such Trustee or officer may
become subject by reason of his or her being or having been a Trustee or
officer, or by reason of any action alleged to have been taken or omitted by him
or her as Trustee or officer, and shall reimburse him or her for all reasonable
legal and other expenses incurred by him or her in connection with any such
claim or liability, including any claim or liability arising under the
provisions of federal or state securities laws. However, no Trustee or officer
is entitled to indemnification under the foregoing provisions in relation to any
matter if it is established that his or her action or omission was material to
the matter giving rise to the proceeding and was committed in bad faith or was
the result of active and deliberate dishonesty or the Trustee or officer
actually received an improper personal benefit in money, property or services
or, in the case of any criminal proceeding, the Trustee or officer had
reasonable cause to believe that the act or omission was unlawful. This
indemnification includes any action alleged to have been taken or omitted by any
such Trustee or officer by reason of serving or having served at the request of
SFT-Maryland as a director, trustee, officer, partner, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise. SFT-Maryland, without requiring a
preliminary determination of the ultimate entitlement to indemnification, shall
pay or reimburse reasonable expenses, as such expenses are incurred by any
Trustee or officer in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, to which such Trustee or officer a Trustee or officer. However,
if such payment or reimbursement is to be made prior to the final disposition of
any proceeding to which a Trustee or officer is a party, no payment or
reimbursement shall be made by SFT-Maryland unless and until SFT-Maryland
receives a written affirmation from such Trustee or officer of his or her good
faith belief that the standard for indemnification of a Trustee or officer under
California law and as provided above has been met and a written undertaking by
such Trustee or officer to repay such amounts paid or reimbursed by SFT-Maryland
if it shall ultimately be determined that such standard for indemnification has
not been met.

(b) SFT-Maryland has a Directors' and Officers' insurance policy insuring up
to $5,000,000 on any single claim with a maximum coverage of $10,000,000

(c) SFT-Maryland and each of its Trustees and executive officers have
entered into indemnification agreements which provide that SFT-Maryland will
indemnify the Trustees and the executive officers to the fullest extent
permitted by the law against certain liabilities (including settlements) and
expenses actually and reasonably incurred by them in connection with any
threatened or pending legal action, proceeding or

II-1
<PAGE>
investigation to which any of them is, or is threatened to be, made a party by
reason of their status as a Trustee, officer or agent of SFT-Maryland, or
serving at the request of SFT-Maryland in any other capacity for or on behalf of
SFT-Maryland; provided that such Trustee or executive officer acted in a manner
determined in good faith to be within the scope of his authority and to be in
the best interest of SFT-Maryland and so long as the Trustee or executive
officer was not guilty of gross negligence, misconduct or a breach of his
fiduciary obligations in the act or failure to act. SFT-Maryland will not
indemnify the Trustees and executive officers to the extent prohibited by the
California law. SFT-Maryland is not required to indemnify any Trustee or
executive officer for liabilities (i) for which he receives payment under an
insurance policy, except for the excess beyond payment under such insurance, or
which could have been claimed under an expired insurance policy, (ii) based upon
or attributable to his gaining in fact any personal profit or advantage to which
he was not legally entitled, (iii) resulting from an accounting of profits under
Section 16(b) of the Exchange Act or (iv) brought about or contributed to by his
dishonesty, willful misconduct or bad faith unless a judgment or other final
adjudication adverse to the Trustee or executive officer establishes that he was
not guilty of the claimed conduct and that the conduct was not material to the
course of action so adjudicated.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

See Exhibit Index included herewith which is incorporated herein by
reference.

ITEM 22. UNDERTAKINGS.

The undersigned registrant hereby undertakes:

(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement;

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement;

PROVIDED, HOWEVER, that paragraphs (a)(i) and (a)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8,
and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports
filed by the registrant pursuant to section 13 or section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.

(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in this registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-2
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions set forth or described in Item 15 of this
Registration Statement, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.

The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

(1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use
of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other Items of the applicable
form.

(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

II-3
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act, the Trust has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and State of New
York on the 11th day of May 1998.

STARWOOD FINANCIAL TRUST
a Maryland Real Estate Investment Trust

By /s/ JAY SUGARMAN
------------------------------------------
Jay Sugarman
President and Chief Executive Officer

II-4
<PAGE>
POWER OF ATTORNEY

Each person whose signature appears below hereby constitutes and appoints
Jay Sugarman and Roger Cozzi and each of them, the true and lawful
attorneys-in-fact and agents of the undersigned, with full power of substitution
and resubstitution, for and in the name, place and stead of the undersigned, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and hereby grants to such attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 11th day of May 1998.

SIGNATURE TITLE
- ------------------------------ --------------------------

/S/ BARRY S. STERNLICHT
- ------------------------------ Chairman and Trustee
Barry S. Sternlicht

President, Chief Executive
/s/ JAY SUGARMAN Officer and Trustee
- ------------------------------ (Principal Executive
Jay Sugarman Officer)

Secretary and Chief
/s/ JEROME C. SILVEY Financial Officer
- ------------------------------ (Principal
Jerome C. Silvey Financial and Accounting
Officer)

II-5
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------- ----------------------------------------------------------------------------------------------------
<C> <S>

2.1 Merger and Reorganization Agreement between the Trust and SFT-Maryland (included as part of Proxy
Statement/Prospectus)

2.2 Contribution Agreement, dated March 18, 1998, between the Trust and Starwood Mezzanine Investors,
L.P. and Starwood Opportunity Fund IV, L.P.(1)

3.1 Amended and Restated Declaration of Trust of SFT-Maryland as of the Effective Time (included as part
of the Proxy Statement/Prospectus)

3.2 Bylaws of SFT-Maryland as of the Effective Time (included as part of the Proxy Statement/Prospectus)

5 Opinion of Mayer, Brown & Platt as to legality

8 Opinion of Mayer, Brown & Platt as to tax matters

10.1 Amended and Restated Registration Rights Agreement, dated March 18, 1998, among the Trust, Starwood
Mezzanine Investors, L.P., SAHI Partners and SOFI IV SMT Holdings, L.L.C.(1)

10.2 Second Amended and Restated Shareholder's Agreement dated March 18, 1998 among
B Holdings, L.L.C., SAHI Partners, Starwood Mezzanine Investors, L.P.,
SOFI IV SMT Holdings, L.L.C. and the Trust.(1)

10.3 Starwood Financial Trust 1996 Share Incentive Plan(1)

10.5 Investment Advisory Agreement, dated as of March 18, 1998, between the Trust and the Advisor(1)

23.1 Consent of Price Waterhouse, LLP

23.2 Consent of Mayer, Brown & Platt (included in the opinions filed as Exhibit 5 and Exhibit 8)

24 Powers of Attorney (included on the signature page of the Registration Statement)
</TABLE>

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

* The schedules and exhibits to this agreement have not been filed pursuant to
Item 601(b)(2) of Regulation S-K. Such schedules and exhibits will be filed
supplementally upon the request of the Commission.

(1) Incorporated by reference to the Trust's Annual Report on Form 10-K for the
year ended December 31, 1997.

<PAGE>

Exhibit 5

MAYER, BROWN & PLATT
1675 BROADWAY
NEW YORK, NEW YORK 10019-5820

May 11, 1998

Starwood Financial Trust
1114 Avenue of the Americas, 27th Floor
New York, New York 10036

Ladies and Gentlemen:

We are acting as special counsel to Starwood Financial Trust, a Maryland
real estate investment trust (the "Trust") in connection with the registration
under the Securities Act of 1933, as amended, of up to 54,884,133 shares (the
"Shares") of the Trust's Class A Shares, $1.00 par value per share (the "Class A
Shares"), to be issued in connection with the reorganization of Starwood
Financial Trust, a California business trust with and into the Trust, upon the
terms and subject to the conditions set forth in the Trust's Registration
Statement on Form S-4 covering the Shares (the "Registration Statement") filed
with the Securities and Exchange Commission.

In connection therewith, we have examined the Registration Statement and
such other documents and instruments as we have deemed necessary or appropriate
for the expression of the opinions contained herein.

We have assumed the authenticity and completeness of all records,
certificates and other instruments submitted to us as originals, the conformity
to original documents of all records, certificates and other instruments
submitted to us as copies, the authenticity and completeness of the originals of
those records, certificates and other instruments submitted to us as copies and
the correctness of all statements of fact contained in all records, certificates
and other instruments that we have examined.

Based on and in reliance upon the foregoing, we are of the opinion that the
Shares proposed to be issued by the Trust have been duly and validly authorized
for issuance and are fully paid and nonassessable Class A Shares.

We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters."

Very truly yours,

/s/ Mayer, Brown & Platt
------------------------
MAYER, BROWN & PLATT

<PAGE>

Exhibit 8

May 12, 1998

Starwood Financial Trust
Three Pickwick Plaza, Suite 250
Greenwich, Connecticut 06830

Re: Status as a Real Estate Investment Trust; Treatment of the
Reorganization of Starwood Financial Trust; Information in the
Registration Statement under "FEDERAL INCOME TAX CONSEQUENCES"
and "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF
THE REORGANIZATION"
----------------------------------------------------------------

Gentlemen:

In connection with the offering of New Shares(1) of Starwood Financial
Trust a real estate investment trust organized under the laws of Maryland
("SFT-Maryland") as successor to Starwood Financial Trust, a business trust
organized under the laws of the State of California (the "Trust"), pursuant to
the Form S-4 Registration Statement filed with the Securities and Exchange
Commission on the date hereof, as amended (the "Registration Statement"), you
have requested our opinions concerning (i) the qualification of the Trust as a
real estate investment trust ("REIT") for Federal income tax purposes;
(ii) the qualification of the reorganization of the Trust through the merger
with and into SFT-Maryland, a newly formed wholly-owned subsidiary of the
Trust (the "Reorganization") as a "reorganization" within the meaning of
Section 368(a)(1) of the Code; and (iii) the information in the Registration
Statement under the headings "FEDERAL INCOME TAX CONSEQUENCES" and "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION."

In formulating our opinions, we have reviewed and relied upon (i) the
form of SFT-Maryland's Amended and Restated Declaration of Trust included as an
exhibit to the Proxy Statement/Prospectus; (ii) the Trust's Amended and
Restated Declaration of Trust, as amended to date; (iii) the form of Merger
and

___________________
(1) Unless otherwise specifically defined herein, all capitalized terms have
the meaning assigned to them in the Registration Statement.

<PAGE>

Starwood Financial Trust
May 12, 1998
Page 2

Reorganization Agreement (the "Reorganization Agreement"), included as an
exhibit to the Proxy Statement/Prospectus included in the Registration
Statement; and (iv) such other documents as we have deemed necessary or
appropriate for the purpose of rendering the opinions set forth in this letter
(collectively, the "Organizational and Other Documents"). We have also reviewed
and relied upon the statements set forth in the Registration Statement and such
provisions of law as we have deemed necessary or appropriate with respect to the
opinions expressed herein. In addition, we have relied upon (w) certain
representations made by the Trust as to certain factual matters relating to the
Trust's organization, its actual and proposed method of operation, as set forth
in an Officer's Certificate dated the date hereof; (x) certain representations
made by the Trust regarding the Reorganization; (y) the Closing Agreement, dated
as of March 10, 1998, between the Trust and the Internal Revenue Service that
provides that the Trust is eligible to make an election under Section 856(c)(1)
of the Internal Revenue Code of 1986, as amended (the "Code"), to be taxed as a
REIT for its taxable year beginning January 1, 1998 and correspondence submitted
to the Internal Revenue Service and to us in connection therewith; and (z) the
opinion of Price Waterhouse LLP concerning the Trust's eligibility to be treated
as a REIT for its taxable year beginning January 1, 1998. For purposes of our
opinions, we have not made an independent investigation of the facts set forth
in the Officer's Certificates, the Closing Agreement and aforementioned
correspondence, the opinion of Price Waterhouse LLP, the Organizational and
Other Documents, or the Registration Statement. We have, consequently, relied
upon your representations that the information presented in such documents or
otherwise furnished to us accurately and completely describes all material
facts. In rendering these opinions, we have also assumed that all terms and
provisions of the Organizational and Other Documents will be complied with by
all parties hereto and are enforceable under applicable law. No facts have come
to our attention, however, that would cause us to question the accuracy or
completeness of such facts or documents in a material way.

The opinions expressed herein are based on the Code, Treasury regulations
promulgated thereunder, and interpretations of the Code and such regulations by
the courts and the Internal Revenue Service, all as they are in effect and exist
at the date of this letter. It should be noted that statutes, regulations,
judicial decisions, and administrative interpretations are subject to change at
any time and, in some circumstances, with retroactive effect. A material change
that is made after the

<PAGE>

date hereof in any of the foregoing bases for our opinions could affect our
conclusions.

The opinions expressed herein are limited to the Federal laws of the United
States. We are not purporting to opine on any matter to the extent that it
involves the laws of any other jurisdiction.

Based upon and subject to the foregoing, it is our opinion that as of the
date hereof:

1. The Trust's existing legal organization and its actual and proposed
method of operation, as described in the Registration Statement, as set forth in
the Organizational and Other Documents and as represented by the Trust, enable
it to satisfy the requirements for qualification as a REIT under the Code.

2. The Reorganization will constitute a "reorganization" within the
meaning of Section 368(a)(1) of the Code, and

3. The statements in the Registration Statement under the headings
"FEDERAL INCOME TAX CONSEQUENCES" and "CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF THE REORGANIZATION," insofar as such statements constitute matters of law or
legal conclusions, have been reviewed by us and are correct in all material
respects.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein and under
the captions "FEDERAL INCOME TAX CONSEQUENCES" and "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE REORGANIZATION" in the Registration Statement.

Very truly yours,

MAYER, BROWN & PLATT

<PAGE>

Consent of Independent Accountants

We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Starwood
Financial Trust (the "Trust") of the following; (i) our report appearing on
page 21 of the Trust's Annual Report on Form 10-K as of and for the year
ended December 31, 1997 and (ii) our reports on the financial statements of
the Starwood Mezzanine Loan Investment Operations and SOF IV Loan Investment
Operations and the Schedule of Operating Revenue and Certain Expenses of the
RLH Portfolio which appear on page 18-26, 28-38, and 40-43, respectively, of
Starwood Financial Trust's report on Form 8-K dated April 2, 1998. We also
consent to the references to us under the heading "Experts" in such
Prospectus.

Date of Report
--------------

<S> <C>
Starwood Financial Trust...................................March 20, 1998
Starwood Mezzanine Loan Investment Operations..............March 20, 1998
SOF IV Loan Investment Operations..........................March 20, 1998
RLH Portfolio...........................................November 14, 1997

</TABLE>

PRICE WATERHOUSE LLP
New York, New York
May 12, 1998