Certain statements contained herein constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as "approximates," "believes," "expects," "anticipates," "intends," "plans," "would," "may" or similar expressions in this Annual Report on Form 10-K. These forward-looking statements are subject to numerous assumptions, risks and uncertainties. Many of the factors that will determine these items are beyond our ability to control or predict. Factors that may cause actual results to differ materially from those contemplated by the forward-looking statements include, but are not limited to, those set forth under "Forward Looking Statements" and "Item 1A - Risk Factors," as well as our other filings with the SEC. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. We expressly disclaim any responsibility to update forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, investors should use caution in relying on forward-looking statements, which are based on information, judgments and estimates at the time they are made, to anticipate future results or trends.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. This section should be read in conjunction with the financial statements, footnotes thereto and other items contained elsewhere in this report.

Overview

We are a real estate investment trust engaged in the business of owning real property and real estate related assets. Our business objective is to maximize long-term shareholder value through a total return value approach to real estate investing. We seek to achieve this objective by acquiring investments with both recurring cash flow in order to sustain our dividend, along with investments that we believe to have appreciation potential. We operate in three strategic business segments: (i) operating properties; (ii) loan assets and loan securities; and (iii) REIT equity and debt securities. We acquire assets through direct ownership as well as through strategic alliances and ventures, and have entered into two significant venture arrangements. Our venture with Marc Realty, a Chicago area real estate company, is our primary vehicle for investments in the Chicago metropolitan area. In addition, since its formation in March 2006, we have acquired substantially all of our loan assets and loan securities through Concord and Lex-Win Concord, a 50%-owned joint venture with Lexington.

As of December 31, 2008, we held interests in approximately 9.7 million rentable square feet of office, retail, multi-tenant and mixed use space through our 21 wholly owned operating properties and our ventures with Marc Realty and Sealy. As of December 31, 2008 our properties were approximately 96.1% leased. Our primary sources of revenue are rental income and tenant recoveries from leases of our operating properties, interest income from our loan assets and loan securities, and interest and dividend income from our investments in REIT securities. The comparability of financial data from period to period is affected by several items including: (i) the timing of our property acquisition and leasing activities (ii) the purchases and sales of assets and investments; and (iii) results of our ventures.

The weakness in the economy since late 2007 and the subsequent disruption of the capital and credit markets throughout 2008 has affected profitability and limited the availability of financing and the ability to raise equity capital. During 2008 we focused our attention primarily on maximizing our liquidity and reducing our exposure to short-term debt, particularly at Concord. With respect to our debt exposure, each of our investment platforms and investments is essentially a stand-alone business, such that any potential problems or liabilities which might occur are limited to that specific platform or investment. Consequently, our exposure is in each case limited to our equity in that particular investment and not to us as a whole. Inclusive of extension rights, we have no secured debt maturities in 2009, with $6,002,000 of scheduled principal paydowns in 2009. The remaining balance of approximately $223,735,000 is scheduled to be paid down or mature in 2010 or later.

At December 31, 2008 we held $59,238,000 in unrestricted cash and cash equivalents and $36,700,000 in equity and debt REIT securities, including $19,731,000 attributable to Lexington common and preferred shares. In addition, we had the ability to draw up to $35,000,000 on our credit facility with KeyBank.

The weakening economy and capital and credit market deterioration has had its most immediate impact on Concord. The market in which these loan securities trade has effectively evaporated. In addition, the need for liquidity by those entities that trade loan securities has caused the current values of loan securities to have significantly decreased. As a result of these decreases, substantial other-than-temporary impairments amounting to $73,832,000 for 2008 have been recorded by Concord. Additionally, with the lack of available financing in the market, the likelihood of loan defaults has increased, with three loans held by Concord currently being in default. Accordingly, Concord has taken loan loss reserves of $31,053,000 for 2008. To the extent that the current weakness in the economy and/or the capital and credit market deterioration continues, it is possible that additional other-than-temporary impairments and loan loss reserves will be required to be recognized by Concord. Concord's activities are discussed below under the section titled "Concord and Lex-Win Concord".

At December 31, 2008 we determined that, as the result of current market conditions, including the changes in interest rate spreads and lack of financing available, the fair value of our equity investment in Concord was below the carrying value. Accordingly, we assessed whether this decline in value was other-than-temporary. In making this determination, we considered the length of time and extent to which the decline has occurred, the lack of indication by the credit markets as to when there will be a recovery, the expectation that Concord will not pay distributions to us in the near future and the cash position of Concord. We determined the fair value of Concord utilizing a leveraged cash flow methodology whereby cash flows were projected through 2016, the expected term of the CDO-1. Those cash flows were then modified based on changes to varying assumptions and cash flow scenarios were calculated. Each cash flow scenario was discounted at various market rates of return and a probability was assigned to each scenario. Based on the foregoing, all of which requires significant judgment, we concluded that the decline in value is other-than-temporary, and we have recognized an impairment loss of $36,543,000, which has reduced our carrying value of this investment to $73,061,000.

Capital and Credit Market Deterioration

As the capital and credit market deterioration has worsened, we have performed additional assessments to determine our exposure to bankruptcies, limited availability of financing and equity offerings, the decline in stock prices in general and REITs in particular and declining values for our loan assets and loan securities. We have further reviewed our risk associated with counterparties to our hedging instruments and credit facilities. We believe our greatest risk to operating results and liquidity is the recent unprecedented volatility in capital and credit markets, which may create additional risks in the upcoming years.

A continued weakness in the economy could further impair our ability to raise future capital through equity and debt offerings, thereby requiring us to obtain additional capital through other means. Further, the declining availability of financing has had, and will likely continue to have, an impact on our ability to finance additional acquisitions and, ultimately, the value of real estate generally. The inability of borrowers to obtain replacement financing could lead to more loan defaults and/or negotiated extensions to existing loans beyond their current expirations. In addition, tenant defaults at our operating properties and the properties underlying our portfolios could negatively impact our operating property and real estate loan asset and loan security business segments.

We have historically used the public equity markets and secured financing as our primary source of capital. We expect to continue to fund our investments through one or a combination of cash reserves, borrowings under our credit facility, property loans, or the issuance of debt or equity. In addition, as our investments mature in value to the point where we may be unlikely to achieve better than market returns, we may exit the investment and redeploy the capital to what we believe to be higher yielding opportunities.

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including commitments to repay borrowings, fund and maintain investments and other general business needs. We believe that cash flow from operations will continue to provide adequate capital to fund our operating and administrative expenses, regular debt service obligations and all dividend payments in accordance with REIT requirements in the short-term. We anticipate that cash on hand, borrowings under our credit facility and issuance of equity and debt securities, as well as other alternatives, will provide the necessary capital required for our investment activities. As a REIT, we must distribute annually at least 90% of our REIT taxable income. As a result of this dividend requirement, we, like other REITs, are unable to reinvest all of our operating cash flow and are dependent on raising capital through equity and debt issuances or forming ventures with institutional or high net worth investors to obtain funds with which to expand our business.

Our primary sources of funds include:

· the use of cash and cash equivalents;

· rents and reimbursements received from our operating properties;

· payments received under our loan assets and loan securities;

· the issuance of equity and debt securities;

· interest and dividends received from investments in REIT securities;

· cash distributions from joint ventures;

· borrowings under our credit facilities; and

· asset specific borrowings.

Cash Flows

Our level of liquidity based upon cash and cash equivalents increased by
approximately $22,584,000 during the year ended December 31, 2008.

The Trust's cash flow activities are summarized as follows (in thousands):

                                                               2008

           Net cash flow provided by operating activities   $   25,872
           Net cash flow provided by investing activities      100,483
           Net cash flow used in financing activities         (103,771 )
             Increase in cash and cash equivalents          $   22,584

Operating Activities

Cash provided by operating activities of $25,872,000 for the year ended December 31, 2008 was comprised of a net increase due to adjustments for non-cash items of $89,964,000 and a net increase due to changes in other operating assets and liabilities of $4,084,000 which were partially offset by a net loss of $68,176,000. See our discussion of our Results of Operations below for additional details on our operations.

Investing Activities

Cash provided by investing activities of $100,483,000 for the year ended December 31, 2008 was comprised primarily of the following:

· $78,318,000 of proceeds received from repayment of our Fannie Mae and Freddie Mac whole pool mortgage-backed securities available for sale;

· $58,510,000 of proceeds from the sale of real estate securities (primarily from the sale of 3.5 million shares of Lexington stock in March 2008);

· $21,273,000 of proceeds from our preferred equity investments in the Marc Realty portfolio;

· $19,041,000 of return of capital distributions from our equity investments; and
· $12,635,000 of collections of loans receivable.

These contributions to investing cash flows were offset primarily by:

· $41,951,000 to purchase real estate securities;

· $24,124,000 to issue new loans receivable;

· $5,087,000 for investment in our Concord venture and $9,006,000 for investment a Sealy venture for the acquisition of a six building office complex in Atlanta, Georgia; and

· $4,973,000 for investment in our preferred equity investment in the Marc Realty portfolio.

Financing Activities

Cash used in financing activities of $103,771,000 for the year ended December 31, 2008 was comprised primarily of the following:

· $75,175,000 for repayment of borrowings under repurchase agreements relating to our Fannie Mae and Freddie Mac whole pool mortgage-backed securities;

· $70,000,000 for repayment of borrowings on our revolving line of credit;

· $30,863,000 for dividend payments on our common shares;

· $18,583,000 for the redemption of 1,024,000 Preferred Shares and $17,081,000 as a deposit for the redemption of an additional 917,105 Preferred Shares;

· $8,063,000 for mortgage loan repayments; and

· $5,127,000 to increase restricted cash held in escrow.

These decreases to financing cash flows were offset primarily by:

· $70,000,000 of proceeds from our revolving line of credit;

· $36,874,000 of proceeds from the issuance of common shares through a rights offering;

· $9,800,000 of note payable proceeds for the acquisition of available for sale securities; and

· $4,407,000 of proceeds from our Dividend Reinvestment and Stock Purchase Plan.

Significant financial transactions during 2008 and early 2009 include:

· On January 6, 2009 we acquired 917,105 of our Preferred Shares with a liquidation value of $22,928,000 for $17,081,000 in cash, representing a 25.5% discount to their liquidation value;

· On December 31, 2008 we made a $5,000,000 unsecured working capital loan to Lex-Win Concord, which was repaid in January 2009;

· On December 4, 2008 we sold a 51,000 square foot shopping center asset located in Biloxi, Mississippi for net proceeds of $2,678,000;

· Pursuant to our Dividend Reinvestment and Stock Purchase Plan, during 2008 we issued 249,638 common shares resulting in gross proceeds of $4,407,000;

· On October 28 and November 3, 2008 we acquired a total of 1,024,000 of our Preferred Shares for approximately $18,583,000 in cash, representing a 27.4% discount from their liquidation value of $25,600,000;

· On October 28, 2008 we acquired 3.5 million shares of Lexington common shares for $19,600,000 and obtained seller non-recourse financing equal to 50% of the purchase price, which financing has a term of three years, bears interest at a rate of 3-month LIBOR plus 250 basis points and requires margin calls only at such time as the loan amount equals or exceeds 57.5% of the value of the shares;

· In September 2008 our Board of Trustees approved a stock repurchase plan pursuant to which we may acquire up to 1,000,000 of our common shares. Through December 31, 2008 we have acquired 70,000 of our common shares for $930,000 in cash;

· In August 2008 Lex-Win Acquisition sold all of its shares of Piedmont Office Realty Trust for an aggregate price of $32,289,000. The Trust received a distribution of its pro-rata share of $9,041,000 in connection with the sale;

· On August 20, 2008 we acquired, through a venture with Sealy, a six building office-flex campus containing approximately 470,000 square feet in Northwest Atlanta, Georgia. The purchase price for the property was $47,000,000, inclusive of assumed debt. The venture assumed an existing $37,000,000, 6.12% first mortgage loan encumbering the property which matures in November 2016. Our initial percentage ownership in the venture is 68%;

· On August 2, 2008 we and Lexington restructured our investment in Concord, admitting Inland as a member in Concord with a redeemable 10% preferred membership interest. Inland contributed $20,000,000 to Concord and agreed to contribute up to an additional $80,000,000. Inland's contributions are to be used primarily for additional investments by Concord, and if Inland agrees, to satisfy any future margin calls or prepayments on Concord's credit facilities. In connection with its investment in Concord, Inland is entitled to receive a priority return of 10% on its contributed and unreturned capital. Inland has made additional contributions of $76,000,000 through December 31, 2008, used primarily to repay maturing debt agreements at Concord;

· Through December 2008, we and Lexington have contributed $162,500,000 to Concord, $5,087,000 of which was contributed by the Trust during 2008. For the year ended December 31, 2008 we received a distribution of $14,600,000 from Concord;

· On July 7, 2008 we made a $1,050,000 mezzanine loan on a newly acquired property in the Marc Realty portfolio. The loan bears interest at 8.5%, requires monthly payments of interest only and matures on April 18, 2012;

· In May 2008 we received net proceeds of approximately $36,874,000 in connection with the issuance of 1,768,987 common shares under a rights offering;

· In March 2008 we sold 3,500,000 Lexington common shares resulting in net proceeds of $52,849,000; and

· In January 2008 we sold our Fannie Mae and Freddie Mac whole pool mortgage-backed securities resulting in a gain on sale of $454,000 and the repayment of the then outstanding balance of the repurchase agreements for which the securities had been pledged as collateral.

Dividends

Since December 2005 we have paid regular dividends to our shareholders. In paying dividends we have always sought to have our dividends track cash flow from operations, both recurring and nonrecurring. As a result, while we intend to continue paying dividends each quarter, future dividend declarations will be at the discretion of our Board of Trustees and will depend on the actual cash flow of the Trust, its financial condition, capital requirements, the distribution requirements for REITs under the Code and such other factors as our Board of Trustees deem relevant. Subject to the foregoing, we expect to continue distributing our current cash flow after reserving normal and customary amounts thereby allowing us to maintain our capital. Toward that end, the Board of Trustees elected to reduce our dividend to $0.25 per share for the first quarter of 2009, which represents a reduction from $0.325 per share for the first quarter of 2008. This represents our existing budgeted recurring cash flow generated by assets currently owned and excludes any potential cash flow from our investment in Concord, as well as potential future cash flow generated from the investment of the substantial cash and cash equivalents on hand. We expect to continue applying these standards with respect to our dividends on a quarterly basis which could cause the dividends to increase or decrease depending on cash flow.

We paid regular quarterly dividends of $0.325 per common share and $0.40625 per Series B-1 Preferred Share for all four quarters of 2008. We declared a special dividend of $0.05 per common share in December 2008, which was paid in January 2009.

Contractual Obligations

The following table summarizes our payment obligations under contractual
obligations, including all fixed and variable rate debt obligations, except as
otherwise noted, as of December 31, 2008 (in thousands):

                                                                Payments Due by Period

                                 Total        Less than 1 Year          2-3 Years       4-5 Years       After 5 Years
Mortgage loans payable
  (principal and interest)     $ 307,123     $           43,209 (1)    $    52,258     $    53,997     $       157,659
Revolving line of credit
  (principal and interest)             -                      -                  -               -                   -
Note payable (2)                  10,658                    294             10,364               -                   -
Repurchase agreements                  -                      -                  -               -                   -
Ground lease obligations (3)           -                      -                  -               -                   -
Advisors' fee (4)                  3,171                  3,171                  -               -                   -
                               $ 320,952     $           46,674        $    62,622     $    53,997     $       157,659

(1) Balance includes a mortgage loan payable with an outstanding principal balance at December 31, 2008 of $24,983 on which we have two one-year options to extend.

(2) Note payable to Citibank made in connection with the Trust's acquisition of 3.5 million shares of Lexington common stock for $19,600,000.

(3) The underlying lease agreements require the tenant to pay the ground rent expense.

(4) Base management fee based upon the terms of the Advisory Agreement, as amended in 2009, with no effect given to equity issuances after December 31, 2008 or to incentive fee compensation to FUR Advisors. No amounts have been included for subsequent renewal periods of the advisory agreement.

We carry comprehensive liability and all risk property insurance: (i) fire; (ii) flood; (iii) extended coverage; (iv) "acts of terrorism," as defined in the Terrorism Risk Insurance Act of 2002; and (v) rental loss insurance with respect to our operating properties where coverage is not provided by our net lease tenants. Under the terms of our net leases, the tenant is obligated to maintain adequate insurance coverage.

Our debt instruments, consisting of mortgage loans secured by our operating properties (which are generally non-recourse to us) contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage under these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. Further, if lenders insist on greater coverage than we are able to obtain at reasonable costs, it could adversely affect our ability to finance and/or refinance our properties and expand our portfolio.

Results of Operations

Our results are discussed below by business segment:

† Operating Properties - our wholly and partially owned operating properties;

† Loan Assets and Loan Securities - our activities related to senior and mezzanine real estate loans as well as commercial mortgage-backed securities;

† REIT Securities - our activities related to the ownership of equity and debt securities in other real estate companies; and

† Non-segment specific results are discussed under Corporate - includes interest on cash reserves, general and administrative expenses and other non-segment specific income and expense items.

The following table summarizes our year end assets by business segment (in thousands):

                                                        2008          2007

        Operating properties                          $ 286,780     $ 293,241
        Loan assets and loan securities                 146,560       320,671
        REIT securities                                  36,796        71,353
        Other (including cash and cash equivalents)     107,958        60,182
        Total Assets                                  $ 578,094     $ 745,447

Total assets decreased $167,353,000, or 22.5%, from $745,447,000 at December 31, 2007 to $578,094,000 at December 31, 2008. The decrease was due primarily to a decrease of $174,111,000 in loan assets and loan securities during the period, which includes our Fannie Mae and Freddie Mac whole pool mortgage backed securities and a decrease in REIT securities. In February 2008 we sold all of our Fannie Mae and Freddie Mac whole pool mortgage backed securities resulting in a decrease in loan assets and loan securities of $78,141,000. In addition, the carrying value of our equity investment in Concord decreased by $82,400,000, of which $30,207,000 was due to other-than-temporary impairment and loan loss charges recorded at Concord, and $36,543,000 was due to an other-than-temporary impairment charge recorded on our investment in Concord. The results of operations and changes in financial position for the Trust and Concord are discussed below.

The following table summarizes our results by business segment for the years ended December 31(in thousands):

                                                       2008          2007          2006

Operating properties                                 $   2,749     $   3,663     $   6,684
Loan assets and loan securities                        (67,770 )      19,114        12,893
REIT securities                                          1,346        (5,073 )      35,268
Corporate expenses                                      (5,986 )     (15,641 )      (9,255 )
(Loss) income from continuing operations before
minority interest                                    $ (69,661 )   $   2,063     $  45,590

Comparison 2008 to 2007 (in thousands):

Operating Properties

                                                         2008          2007

       Rents and reimbursements                        $  43,342     $  40,485
       Operating expenses                                 (7,407 )      (5,851 )
       Real estate taxes                                  (2,549 )      (2,139 )
       Impairment loss on investments in real estate      (2,100 )           -
       Loss on extinguishment of debt                          -          (369 )
       Equity in loss of Sealy Northwest Atlanta            (409 )        (470 )
       Equity in loss of Sealy Newmarket                    (250 )           -
       Equity in loss of Sealy Airpark Nashville          (1,023 )        (936 )
       Operating income                                   29,604        30,720

       Depreciation expense                              (12,094 )     (12,688 )
       Interest expense                                  (14,761 )     (14,369 )
       Net income                                      $   2,749     $   3,663

Operating income from our operating properties decreased by $1,116,000 over the . . .