Gramercy Capital Corp. Reports Third Quarter 2008 Results

Gramercy Capital Corp. (NYSE: GKK) today reported funds from operations ("FFO”) of $30.6 million, or $0.60 per diluted share, for the quarter ended September 30, 2008. The Company generated total revenues of $180 million during the third quarter of 2008, an increase of $89.8 million from $90.2 million during the same quarter of the prior year. The Company generated total revenues of $440.8 million during the first nine months of 2008, an increase of $204.1 million from $236.7 million during the same nine months of the prior year.

At September 30, 2008, the Company owned 29.0 million net rentable square feet of commercial real estate in 37 states and the District of Columbia with an aggregate asset book value of approximately $3.9 billion, in addition to $2.2 billion of loan investments, $857.4 million of commercial mortgage real estate securities investments, and $766.5 million other assets. As of September 30, 2008, approximately 50.5% of the Company’s assets were comprised of commercial property, 28.6% of debt investments, 11.0% of commercial mortgage real estate securities and 9.9% of other assets.

Gramercy Realty

Gramercy Realty’s portfolio consists of office buildings and bank branches serving primarily investment-grade rated financial institutions. During the quarter, Gramercy Realty sold 16 properties, including 11 merger designated Held for Sale properties, for an aggregate sales price of approximately $20.2 million. Through September 30, 2008, approximately 78% of the aggregate expected gross proceeds of the Held for Sale portfolio had been realized through property sales. Since September 30, 2008, the Company has closed on 9 sales with an aggregate sales price of $42.4 million, and has under contract of sale an additional 34 properties with an expected aggregate sales price of approximately $21.4 million. During the quarter, 20 new leases totaling 57,567 net rentable square feet commenced. Gramercy Realty finished the quarter at 87.7% occupancy.

Gramercy Realty’s operating property portfolio as of September 30, 2008 is summarized below:

Gramercy Realty’s top five tenants by percentage of base rent as of September 30, 2008 were:

Gramercy Finance

As of September 30, 2008, debt investments owned by Gramercy Finance had a carrying value of approximately $2.2 billion, net of loan loss reserves, unamortized fees and discounts totaling $77.7 million, and had associated unfunded commitments of $82.1 million. Commercial mortgage real estate securities investments totaled $857.4 million as of September 30, 2008, net of unamortized fees and discounts of $31.8 million. Approximately 92% of Gramercy Finance’s commercial mortgage real estate securities investments are rated AAA, and all are funded for term in Gramercy’s three CDOs.

The aggregate carrying values, allocated by investment type, and weighted average yields of Gramercy Finance’s debt and commercial mortgage real estate securities investments as of September 30, 2008 were:

Asset yields for fixed rate and floating rate debt investments as of September 30, 2008 were 8.6% and 30-day LIBOR plus 446 basis points, respectively, compared to 8.3% and 30-day LIBOR plus 398 basis points, respectively, in the previous quarter. First mortgage loans remain the majority of Gramercy Finance’s debt portfolio, standing at 63.3% at September 30, 2008, compared to 66.5% for the previous quarter. The weighted average remaining term of Gramercy Finance’s debt investment portfolio decreased slightly to 1.9 years from 2.0 years at the prior quarter, and the weighted average remaining term of Gramercy Finance’s combined debt and real estate securities portfolio decreased to 3.5 years from 3.6 years for the prior quarter.

At September 30, 2008, Gramercy Finance had five non-performing loans with a carrying value of $188.7 million, net of associated loan loss reserves of $43.1 million, as compared to a carrying value of $205.7 million, net of associated loan loss reserves of $26.1 million, at June, 30, 2008. The composition of non-performing loans is unchanged from the prior quarter. At quarter-end, six loans with an aggregate carrying value of $174.5 million were classified as sub-performing, as compared to four loans with an aggregate carrying value of $99.9 million at June 30, 2008.

Investment Activity

Gramercy Finance originated three separate debt investments during the third quarter with an aggregate unpaid principal balance of approximately $55.3 million, net of unamortized fees, discounts and unfunded commitments.

The unpaid principal balance at closing, net of unamortized fees, discounts and unfunded commitments, allocated by investment type, and the weighted average yields of the Company’s debt investments and real estate securities originated during the quarter ended September 30, 2008, were:

Gramercy Realty made no acquisitions during the quarter.

Operating Results

Gramercy Finance’s debt investments generated investment income of $60.6 million for the third quarter, including yield maintenance and prepayment penalties. Gain on extinguishment of debt totaled $11.7 million from the purchase at a discount of five investment grade CRE CDO bonds previously issued by two of the Company’s three CDOs, as compared to $0 in the prior year’s quarter. The bonds were not retired, but are reflected on the Company’s balance sheet as a reduction in the amount of CDO bonds outstanding at September 30, 2008. Gain on sale and other income for the third quarter was $5.4 million in 2008 as compared to $1.9 million in 2007.

For the third quarter, Gramercy Realty’s rental revenues and reimbursements totaled $114.0 million, and related operating expenses aggregated $49.9 million.

Interest expense of $78.6 million for the third quarter reflects interest expense on $2.7 billion of investment-grade, long-term notes issued by our three wholly-owned CDOs, $2.5 billion of mortgage notes payable, and $280.3 million of other debt.

Management and incentive fees earned by affiliates of SL Green totaled $8.0 million for the quarter. SL Green, the majority owner of Gramercy’s external manager GKK Manager LLC, remitted to the Company CDO collateral manager fees of approximately $1.3 million, and waived approximately $0.7 million of incentive fees that would have been earned in accordance with the partnership agreement of Gramercy’s operating partnership. Included among the fees to affiliates of SL Green in the third quarter of the prior year was an incentive fee of approximately $19.0 million, related to the sale of the joint venture interest in One Madison Avenue.

Marketing, general and administrative expense was $5.1 million, an increase from the third quarter of the prior year, primarily due to the AFR acquisitions and increased legal costs incurred in connection with non-performing loans. This expense category, when measured as a percentage of total expenses, declined to 2.7% at September 30, 2008 from 4.7% for the quarter ended September 30, 2007.

In the third quarter of 2007, the Company recognized a gain of $73.2 million, net of incentive fees, from the sale of its joint venture interest in One Madison Avenue to SL Green Realty Corp. Incentive fees were paid to GKK Manager LLC, an affiliate of SL Green Realty Corp., in connection with this transaction.

Liquidity and Funding

The Company’s liquidity at September 30, 2008 included $95.2 million of cash and $79.5 million of cash in its three CDOs. Additionally, the Company had unused borrowing commitments under its secured and unsecured credit facilities of $248.2 million. In July 2008, the Company and Wachovia Securities entered into new credit facilities that established a $115.7 million term loan secured by collateral assets previously financed with Wachovia under a prior credit facility, established a $100 million revolving credit facility for new investment activity, with an extended maturity of July 2011 and a credit spread of 242.5 basis points. The agreements with Wachovia eliminated exposure to spread-based mark-to-market risk. In August 2008, the Company and Goldman Sachs Mortgage Company amended an existing repurchase facility to reduce borrowing capacity from $400 million to $200 million, and extended the maturity from September 2009 to December 2010. In September 2008, the Company repaid an $88.5 million first mortgage loan from Deutsche Bank to the Company scheduled to mature in March 2009, and secured by certain Gramercy Realty properties. The repayment was funded through two of the Company’s CRE CDOs, and is eliminated in the Company’s consolidated financial statements. The Company recorded costs related to repayment of $0.8 million, which is recorded against other income. Consequently, other than principal amortization under existing debt, the Company has no debt maturities in 2008 and only one final debt maturity in 2009 of $53.7 million.

The Company’s debt maturities based on fully-extended scheduled maturities are:

Loan prepayments, partial repayments, and scheduled amortization payments were $156.4 million during the quarter. The Company sold one loan during the quarter with an outstanding principal balance of $7.0 million and an unfunded commitment of $5.7 million. Unfunded commitments associated with existing loans declined to $82.1 million from $101.9 million as June 30, 2008. Additionally, the Company sold 16 properties acquired from AFR for an aggregate gross sales price of approximately $20.2 million.

Dividends

The Board of Directors of Gramercy approved a quarterly dividend of $0.50781 per share of its Series A Preferred Stock for the period July 1, 2008 through September 30, 2008. The dividends were paid on October 15, 2008 to preferred stockholders of record at the close of business on October 10, 2008. The Board of Directors elected to not pay for the third quarter of 2008 the dividend to common shares, which was previously $0.63 per share, and will revisit the Company’s dividend policy at year-end. Based on current estimates of taxable income, the Company believes its cumulative distributions to-date in 2008 will satisfy the Company’s tax requirements.

Supplemental Information

The Supplemental Package outlining third quarter 2008 financial results will be available prior to the conference call on the Company's website.

Company Profile

Gramercy Capital Corp. is an integrated commercial real estate finance and property investment company operating in two complementary areas: Gramercy Finance, which focuses on the direct origination and acquisition of whole loans, subordinate interests in whole loans, mezzanine loans, preferred equity, CMBS and other real estate securities; and Gramercy Realty, which focuses on the acquisition and management of commercial properties net leased primarily to regulated financial institutions and affiliated users throughout the United States. Gramercy is externally-managed by GKK Manager LLC, which is a majority-owned subsidiary of SL Green Realty Corp. (NYSE: SLG). Gramercy is headquartered in New York City, and has regional investment and portfolio management offices in Los Angeles, California, Jenkintown, Pennsylvania, and Charlotte, North Carolina.

Conference Call

The Company will host a conference call and audio web cast on October 30, 2008 at 2.00 p.m. EST to discuss the third quarter 2008 financial results.

The live call will be webcast in listen-only mode on Gramercy’s web site at www.gramercycapitalcorp.com and on Thomson’s StreetEvents Network. The presentation may also be accessed by dialing 866-314-4865 Domestic or 617-213-8050 International, using pass code "Gramercy”.

A replay of the call will be available from October 30, 2008 4:00 p.m. through, November 5, 2008 by dialing 888-286-8010 Domestic or 617-801-6888 International, using pass code 73281150.

To review Gramercy's latest news releases and other corporate documents, please visit Gramercy’s website at www.gramercycapitalcorp.com or contact Investor Relations at 212-297-1000.

Disclaimer

Non-GAAP Financial Measures

During the quarterly conference call, the Company may discuss non-GAAP financial measures as defined by SEC Regulation G. In addition, the Company has used non-GAAP financial measures in this press release. A reconciliation of each non-GAAP financial measure and the comparable GAAP financial measure (net income) can be found on page 15 of this release.

Forward-looking Information

This press release contains forward-looking information based upon the Company's current best judgment and expectations. Actual results could vary from those presented herein. The risks and uncertainties associated with forward-looking information in this release include the strength of the commercial finance and real estate property markets, and the banking industry specifically, competitive market conditions, unanticipated administrative costs, general and local economic conditions, interest rates, capital and credit market conditions, bankruptcies and defaults of borrowers or tenants in our properties or properties securing the Company's debt investments, difficulties encountered in integrating American Financial Realty Trust into the Company, compliance with financial covenants, management changes, and other factors including those listed in our Annual Report on Form 10-K, which are beyond the Company's control. We undertake no obligation to publicly update or revise any of the forward-looking information. For further information, please refer to the Company's filings with the Securities and Exchange Commission.

Selected Financial Data