CEO 2003 Letter to Shareholders

To Our Shareholders:

As this is the first annual report prepared under your new management’s auspices we believe it to be the best venue to share our plans, concerns and ambitions for the Company’s future with its shareholders.

While I urge each of you to review the Company’s public filings which detail the agreements between the parties, it may be helpful to briefly summarize some of the more salient features of the recent “change of control” transaction and its ongoing impact on the Company. On December 31, 2003, FUR Investors LLC (“FUR”), an entity of which I am the sole managing member, acquired 10,000,000 shares of the Company’s common stock of which 5,000,000 shares were purchased from the public in a tender offer and 5,000,000 shares were purchased directly from the Company. Shortly thereafter, I was appointed President and CEO of the Company and long time associates of mine were appointed to the other executive offices of the Company. In connection with this “change of control”, both FUR and myself entered into a number of agreements with the Company relating to, among other things, an external advisory agreement, corporate governance obligations and an exclusive services undertaking. Among the corporate governance agreements, FUR agreed to vote its shares in favor of a destaggering of the Board of Trustees, establishment of a Board of Trustees of which four of the six Trustees would be independent of management, requiring prior independent trustee approval of all Company investments and dispositions in excess of certain levels, and composing all of the Board’s committees (i.e. audit, compensation, nominating and corporate governance) solely from among its independent trustees. The agreements further provide that FUR would be restricted in the number of common shares of the Company that it could purchase in the future in order to protect the Company’s status as a real estate investment trust (“REIT”) and that it would take no action on its own which would terminate the Company’s status as a REIT. Most importantly in my immodest view, I entered into an agreement to direct all of my future real estate investment activities, subject to limited specified exceptions, into the Company. Accordingly, as long as I am an executive officer or trustee of the Company, this Company will be the vehicle for substantially all of my real estate investment activities.

Before I discuss in what direction we intend to take the Company, perhaps I should touch briefly on who we are and our present investment perspective. Your new management team is composed of individuals whose careers have been devoted to opportunistic value real estate investing. Rather than focus on a particular property type or geographic sector, our investments are made based on our assessment that a potential investment is significantly undervalued or has greater value on a risk adjusted basis than current opportunities in the marketplace. Additionally, investments are made where we find an asset to be underperforming and believe that through an infusion of capital and improved management an appropriate return on investment can be realized. Consequently, with certain limitations, we are willing to invest in or acquire most any type of real estate asset or security. Moreover, our decision to invest is not materially affected by the nature of an investment or where that investment falls in an asset’s capital structure. We will acquire an entity which owns real estate, invest directly in the equity of a real estate asset exclusively or through a venture, or we will acquire preferred equity, mezzanine debt or, if priced appropriately, the first mortgage debt of a real estate asset. Our sole self-imposed constraint is that where we own less than 100% of the equity, we either have the means to acquire control of the investment or have a contractual mechanism in place to exit the investment for a price consistent with its fair value. In executing this strategy, we are ably assisted by our advisor, an entity owned and controlled by myself and other senior management of the Company, which together with its affiliates currently provides asset management and/or property management services for more than 300 real estate assets comprising in excess of 30,000,000 square feet of space throughout the United States. These affiliated companies permit the Company both to oversee the management of assets it acquires outright as well as those of which it may acquire control contentiously.

A number of you may find our present perspective for the United States real estate markets at first a bit baffling. On the one hand, we believe overall pricing for real estate assets has never been higher reflecting both the historically low interest rate environment and excess investor liquidity. On the other hand, for many sectors, most notably multifamily, office, and lodging, we believe that the supply of product exceeds demand at levels comparable to those of the late 80’s and early 90’s. Real rents after taking into consideration inflation, recurring and non-recurring capital expenditures and leasing commissions have fallen to pre-2000 levels. In our view, only historically low interest rates have prevented a wave of commercial real estate foreclosures from occurring. Nevertheless, the fact that interest rates are historically low and there is excessive investor liquidity serve to restrain the great opportunistic investing we enjoyed in the mid-90’s. As my daily reading of newspapers indicates, no one has yet repealed the laws of cyclicality in real estate. Consequently, I remain confident that the future will be rife with opportunity.

In view of the foregoing, our investment strategy for the near term will be to identify and invest in discrete real estate investments which satisfy our aforementioned criteria. It is unlikely we will focus on one property type or geographic market. As appropriate investment opportunities present themselves reflecting pricing at a discount to our perception of value, we will aggressively pursue them. When investments mature in value to the point where the Company is unlikely to achieve better than a market return on their then enhanced value, it is likely we will exit the investment and redeploy the capital to higher yielding opportunities. When the cycle moves into a higher interest rate and lower liquidity environment, we may focus the Company’s investment resources on one or more sectors as we have done in the past. If I knew when this would occur, I would be in the interest rate speculation business rather than the real estate business.

The two investments we have made to date demonstrate our investment strategy. Our purchase of shares in Atlantic Realty Trust is based on our belief that Atlantic Realty’s net asset value, composed of cash and one shopping center, is greater than our purchase price. Our interest in acquiring overall ownership of this company continues. The Company’s recent 12% one year loan to affiliates of NorthStar Capital Investment Company also incorporates our short-term investment strategy for deploying capital in the current interest rate market.

Those of you who have managed to bear with me through this missive, perhaps have gotten a sense of what we are striving to create: a publicly traded real estate opportunity vehicle in which management’s interests are closely aligned with those of shareholders. In so doing, we recognize that we will face significant challenges and competition in sourcing appropriate investments from larger and better capitalized real estate investment trusts and real estate opportunity funds. Further, we also acknowledge that the near term investment environment is less conducive to our type of investing than we would like. Hopefully, we will prove to be nimble and fleet of foot. Based on the foregoing, I suspect that you may have discerned that an investment in the Company may not be appropriate for the short-term investor, the investor seeking a recurring story or for the investor with a lesser tolerance for risk.

I look forward to meeting with you at our annual meeting, introducing you to our superb Board of Trustees and addressing any questions that you may have.

Michael L. Ashner
President and Chief Executive Officer