Edgar Filing: ISTAR FINANCIAL INC

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

Filed by the Registrant /X/

Filed by a Party other than the Registrant / /

Check the appropriate box:
/ / Preliminary Proxy Statement
/ / CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED
BY RULE 14A-6(E)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-12

iSTAR FINANCIAL INC.
----------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------

/ / Fee paid previously with preliminary materials.

Check box if any part of the fee is offset as provided by
/ / Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.

(1) Amount Previously Paid:
------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------

ISTAR FINANCIAL INC.
1114 Avenue of the Americas
27th Floor
New York, New York 10036

April 21, 2003

Dear Shareholder:

We cordially invite you to attend our 2003 annual meeting of shareholders.
We will hold the meeting at the Sofitel Hotel, 45 West 44th Street, New York,
New York on June 3, 2003 at 8:30 a.m. local time.

At the annual meeting, we will ask our shareholders to:

(1) elect four directors to the Board of Directors;

(2) consider and vote upon a proposal to amend our charter to eliminate the
staggered board feature and instead provide that each member of our
Board of Directors will be subject to annual reelection;

(3) consider and vote upon a proposal to approve the iStar Financial
Executive and Director High Performance Unit Program; and

(4) consider and vote upon a proposal to ratify the appointment of
PricewaterhouseCoopers LLP as our independent public accountants for the
year ending December 31, 2003.

The attached Proxy Statement contains details of the proposals to be voted
on at the annual meeting and other important matters. We encourage you to read
the Proxy Statement carefully.

YOUR BOARD OF DIRECTORS HAS CONCLUDED THAT THE ELECTION OF THE FOUR NOMINEES
AS DIRECTORS, THE AMENDMENT TO OUR CHARTER TO ELIMINATE THE STAGGERED BOARD
FEATURE, THE APPROVAL OF THE EXECUTIVE AND DIRECTOR HIGH PERFORMANCE UNIT
PROGRAM AND THE RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS
OUR INDEPENDENT PUBLIC ACCOUNTANTS ARE IN iSTAR FINANCIAL'S BEST INTERESTS AND
THE BEST INTERESTS OF OUR SHAREHOLDERS. THE BOARD OF DIRECTORS RECOMMENDS THAT
YOU VOTE FOR APPROVAL OF THESE PROPOSALS.

We cordially invite all shareholders 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,

[SIGNATURE]

Jay Sugarman
Chairman of the Board and
Chief Executive Officer

ISTAR FINANCIAL INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

NOTICE IS HEREBY GIVEN that the annual meeting of shareholders of iStar
Financial Inc., a Maryland corporation, will be held at the Sofitel Hotel, 45
West 44th Street, New York, New York on June 3, 2003 at 8:30 a.m. local time,
for the following purposes as further described in the accompanying proxy
statement:

1. To elect to the Board of Directors four members to hold office until the
annual meeting of shareholders held in 2005 or, if proposal number 2 is
approved, 2004. The nominees to the Board of Directors are the following: Jay
Sugarman, Willis Andersen, Jr., John G. McDonald and Jeffrey A. Weber.

2. To consider and vote upon a proposal to amend our charter to eliminate
the staggered board feature and instead provide that each member of our Board of
Directors will be subject to annual reelection.

3. To consider and vote upon a proposal to approve and adopt the iStar
Financial Executive and Director High Performance Unit Program.

4. To consider and vote upon a proposal to ratify the appointment of
PricewaterhouseCoopers LLP as our independent accountants for the fiscal year
ending December 31, 2003.

5. To transact such other business as may properly come before the annual
meeting or any postponement or adjournment of the meeting.

The Board of Directors has fixed April 10, 2003 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 of the meeting. Holders of
record of our common stock, High Performance common stock, 9.375% Series B
Cumulative Redeemable Preferred Stock, 9.20% Series C Cumulative Redeemable
Preferred Stock and 8.00% Series D Cumulative Redeemable Preferred Stock at the
close of business on that day will be entitled to vote at the annual meeting.

By Order of the Board of Directors

[SIGNATURE]

Geoffrey Dugan
Assistant Secretary
New York, New York
April 21, 2003

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

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.
--------------------------------------------------------------------------------

ISTAR FINANCIAL INC.
1114 AVENUE OF THE AMERICAS
27TH FLOOR
NEW YORK, NEW YORK 10036

PROXY STATEMENT

ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 3, 2003

We are sending this proxy statement to holders of our common stock and
holders of our Series B, C and D preferred stock on or about April 21, 2003 in
connection with the solicitation by our Board of Directors of proxies to be
voted at our 2003 Annual Meeting of Shareholders or at any postponement or
adjournment of the meeting. Our common stock includes both our regular common
stock and our High Performance common stock.

This proxy statement is accompanied by a copy of our Annual Report to
Shareholders for the year ended December 31, 2002.

ABOUT THE MEETING

WHO IS ENTITLED TO VOTE AT THE MEETING?

Only holders of record of our common stock and our Series B, C and D
preferred stock at the close of business on April 10, 2003 are entitled to
receive notice of and to vote at the annual meeting or at any postponement or
adjournment of the meeting. On the record date, there were 99,162,995 issued and
outstanding shares of common stock, 2,000,000 issued and outstanding shares of
Series B preferred stock, 1,300,000 issued and outstanding shares of Series C
preferred stock and 4,000,000 issued and outstanding shares of Series D
preferred stock.

WHAT CONSTITUTES A QUORUM?

The presence, either in person or by proxy, of the holders of a majority of
the voting power of the outstanding common stock and Series B, C and D preferred
stock, considered as a single class, on the record date is necessary to
constitute a quorum at the annual meeting.

WHAT ARE THE VOTING RIGHTS OF SHAREHOLDERS AND WHAT VOTE IS NEEDED TO
APPROVE EACH PROPOSAL?

Each shareholder is entitled to one vote for each share of regular common
stock registered in the shareholder's name on the record date and 0.25 votes for
each share of High Performance common stock and Series B, C and D preferred
stock registered in the shareholder's name on the record date. A plurality vote
of the voting power of the outstanding common stock, Series B preferred stock,
Series C preferred stock and Series D preferred stock, all voting as one class,
is required for the election of directors. An affirmative vote of a majority of
the outstanding voting power of our common stock, Series B preferred stock,
Series C preferred stock and Series D preferred stock, all voting as one class,
is required to approve the proposed charter amendment. An affirmative vote of a
majority of the votes cast at the meeting by holders of our common stock,
Series B preferred stock, Series C preferred stock and Series D preferred stock,
all voting as one class, is required for the approval and ratification of each
other matter.

HOW IS MY VOTE COUNTED?

If you properly execute a proxy in the accompanying form, and if we receive
it prior to voting at the annual meeting, the shares that the proxy represents
will be voted in the manner specified on the proxy. If no specification is made,
the common stock or preferred stock will be voted FOR the proposals and as
recommended by the Board of Directors with regard to all other matters in its
discretion.

Votes cast by proxy or in person at the annual meeting will be tabulated by
the election inspectors appointed for the meeting, 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.

CAN I CHANGE MY VOTE AFTER I SUBMIT MY PROXY CARD?

If you cast a vote by proxy, you may revoke it at any time before it is
voted by giving written notice to our Secretary expressly revoking the proxy, by
signing and forwarding to us a proxy dated later, or by attending the annual
meeting and personally voting the common stock or preferred stock owned of
record by you.

WHO PAYS THE COSTS OF SOLICITING PROXIES?

We will pay the costs of soliciting proxies from our shareholders. In
addition to solicitation by mail, certain of our directors, officers and regular
employees may solicit the return of proxies by telephone, facsimile, personal
interview or otherwise without being paid additional compensation. We will also
reimburse brokerage firms and other persons representing the beneficial owners
of our shares for their reasonable expenses in forwarding proxy solicitation
material to the beneficial owners in accordance with the proxy solicitation
rules and regulations of the Securities and Exchange Commission and the New York
Stock Exchange. Georgeson Shareholder Communications has been engaged to solicit
proxies on our behalf for a fee of $8,000 plus expenses.

PROPOSAL 1:
ELECTION OF DIRECTORS

In accordance with the current provisions of our charter, our Board of
Directors consists of two classes, the Class I Directors and the Class II
Directors. We currently elect one class of directors at each annual meeting of
shareholders for a term of two years. Four Class I Directors are to be elected
at this annual meeting. The nominees are Jay Sugarman, Willis Andersen, Jr.,
John G. McDonald and Jeffrey A. Weber.

In Proposal 2 of this proxy statement, we have asked our shareholders to
consider and vote upon a proposal to amend our charter to provide that each
member of our Board of Directors will be elected annually. If Proposal 2 is
approved by our shareholders, the nominees listed above who are elected to the
Board of Directors at the 2003 annual meeting will hold office only until the
2004 annual meeting. If Proposal 2 is not approved by our shareholders, the
nominees listed above who are elected to the Board of Directors at the 2003
annual meeting will hold office until the 2005 annual meeting.

Except for Mr. Weber, all of the nominees for director are presently
directors. If a nominee becomes unavailable to serve as a director 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 Directors to replace that nominee. At
this time, the Board of Directors has no reason to believe that any nominee will
be unavailable to serve as a director if elected.

The following table sets forth the name, age and the position(s) with us (if
any) currently held by each person nominated as a director:

NAME AGE TITLE
------------------------------- -------- ------------------------------------

Jay Sugarman(1)................ 41 Chairman and Chief Executive Officer
Willis Andersen, Jr.(2)........ 71 Director
John G. McDonald(3)(4)......... 65 Director
Jeffrey A. Weber............... 38 Director

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

(1) Member of Investment Committee.

(2) Member of Audit Committee.

(3) Member of Compensation Committee.

(4) Member of Nominating and Governance Committee.

JAY SUGARMAN is Chairman of the Board and Chief Executive Officer of iStar
Financial. Mr. Sugarman has served as a director of iStar Financial (and its
predecessor) since 1996 and Chief Executive Officer since 1997. During that
time, Mr. Sugarman has built iStar Financial into one of the leading providers
of custom-tailored financial solutions to high-end private and corporate owners
of real estate in the United States, growing its market capitalization from
under $50 million to over $6 billion. Previously, Mr. Sugarman founded and was
co-general partner of Starwood Mezzanine Investors, L.P., a private investment
partnership specializing in structured real estate finance. Prior to forming
Starwood Mezzanine, Mr. Sugarman managed diversified investment funds on behalf
of the Burden family, a branch of the Vanderbilts, and the Ziff family. While in
that position, he was jointly responsible for the formation of the predecessor
entities to Starwood Capital Group L.L.C., a leading private real estate
investment firm and the formation of HBK Investments, one of the nation's
largest multi-strategy trading operations. Mr. Sugarman received his
undergraduate degree SUMMA CUM LAUDE from Princeton University, where he was
nominated for valedictorian and received the Paul Volcker Award in Economics,
and his M.B.A. with high distinction from Harvard Business School, graduating as
a Baker Scholar and recipient of the school's academic prizes for both finance
and marketing. Mr. Sugarman is a director of WCI Communities, Inc., a
residential developer in South Florida.

WILLIS ANDERSEN, JR. has served as one of our directors since
November 1999. Previously, Mr. Andersen served as a director of TriNet Corporate
Realty Trust, Inc. since June 1993. Mr. Andersen is chairman of our Audit
Committee. He is a real estate and REIT industry consultant with over 35 years
of experience as an advisor, financial consultant and principal in the real
estate industry. Mr. Andersen currently specializes in advisory work for
publicly-traded real estate companies. Mr. Andersen's real estate career has
involved work with Allied Properties Inc. of San Francisco; Bankoh Advisory
Corp. of Honolulu; RAMPAC and ICM Property Investors, Inc., which were formerly
NYSE-listed REITs, and Bedford Properties, Inc., a commercial property
investment and development firm. He is an active member of the National
Association of Real Estate Investment Trusts, and is a former governor and past
president (1980-81) of this organization. He received his B.A. from the
University of California at Berkeley.

JOHN G. MCDONALD has served as one of our directors since November 1999.
Previously, Professor McDonald served as a director of TriNet since June 1993.
Professor McDonald is chairman of our Nominating and Governance Committee. He is
the IBJ Professor of Finance in the Graduate School of Business at Stanford
University, where he has taught since 1968. Professor McDonald has taught M.B.A.
courses and executive programs in subject areas including investment management,
private equity, venture capital and corporate finance. He currently serves as a
director of Scholastic Corporation, Varian, Inc., Plum Creek Timber Co., Inc.,
Capstone Turbine Corp. and eight investment companies managed by Capital
Research & Management Company.

JEFFREY A. WEBER is the president and chief executive officer of
William A.M. Burden & Co., L.P., a private investment partnership which manages
certain assets of the Burden family. He is also the investment advisor to the
Florence V. Burden Foundation and a director of the Burden Center for the
Aging, Inc. Mr. Weber also serves as the chairman and co-portfolio manager of
The 1794 Commodore Funds. In addition, Mr. Weber is a director of Datamax
International Corporation, Logicworks and SemiTest, Inc. He is an advisory board
member of Fifth Avenue Alternative Investments LLC, a series of hedge fund
fund-of-funds managed by Bessemer Trust Company. He is also an advisory
committee member of American Securities Partners III, L.P., Bear Stearns
Merchant Banking Partners II. L.P., and Signal Equity Partners II, L.P., and
chairs the advisory board of ZM Africa Investment Fund, L.P., an OPIC-sponsored
southern African private equity firm. Prior to his current position, Mr. Weber
worked at Chemical Venture Partners, the venture capital and leverage buyout arm
of Chemical Bank, and in the corporate finance department of Drexel Burnham
Lambert Incorporated. Mr. Weber holds an M.B.A. from Harvard Business School and
a B.A. degree from Williams College.

RECOMMENDATION REGARDING THE ELECTION OF DIRECTORS

The Board of Directors recommends that you vote FOR the four named nominees
to be elected as our directors.

PROPOSAL 2:
AMENDMENT OF OUR CHARTER TO ELIMINATE THE STAGGERED
TERMS OF OUR BOARD OF DIRECTORS

The Board of Directors has adopted a resolution approving, and recommending
that the shareholders authorize, an amendment to Article VI(e) and (f) of our
charter in order to eliminate the division of directors into two classes and
replace it with a single class of directors who are elected annually.

ANNEX A TO THIS PROXY STATEMENT SHOWS THE CURRENT VERSION OF ARTICLE VI(E)
AND (F) OF OUR CHARTER AND THE VERSION REFLECTING THE CHANGES THAT WOULD BE MADE
IF THIS PROPOSAL IS APPROVED BY OUR SHAREHOLDERS.

A board of directors divided into classes elected for multiple year terms is
often referred to as a "staggered board." Boards are staggered in an effort to
enhance continuity among board members. In our case, the staggered terms of our
directors ensure that only half the directors change in any one year. However,
the staggered terms may prevent, delay or make more difficult a change in
control of our Company because a potential acquiror may not want to acquire the
Company if the acquiror cannot immediately replace our Board of Directors. In
addition, the staggered terms may hinder a successful shareholder initiative
proposing an alternative slate of directors. Since the Board of Directors
believes that the benefits of having two classes of directors are outweighed by
the potential adverse effect on change of control transactions and shareholder
initiatives that may be in our shareholders' best interests, the Board of
Directors approved, and recommends that our shareholders approve, the necessary
amendments to our charter to eliminate the staggered board provisions.

If this proposal is approved by our shareholders, we will file an amendment
to our charter with the Secretary of State of Maryland as soon as is reasonably
practicable after the annual meeting. All of our directors will then be subject
to reelection at our 2004 annual meeting of shareholders and at each annual
meeting thereafter. If this proposal is not approved by our shareholders, we
will continue to operate with two classes of directors, each having a term of
two years.

RECOMMENDATION REGARDING AMENDMENT TO THE CHARTER TO ELIMINATE THE STAGGERED
BOARD FEATURE AND PROVIDE THAT EACH MEMBER OF OUR BOARD OF DIRECTORS WILL BE
SUBJECT TO ANNUAL REELECTION.

The Board of Directors recommends that you vote FOR the charter amendment.

PROPOSAL 3:
APPROVAL AND ADOPTION OF THE EXECUTIVE AND DIRECTOR
HIGH PERFORMANCE UNIT PROGRAM

In 2002, our shareholders approved the iStar Financial High Performance Unit
("HPU") Program for employees other than our Chief Executive Officer and
President. This year, we are seeking your approval to expand the program to
cover the Chief Executive Officer, the members of our Board and our President
(if such position is filled) through the initiation of the iStar Financial
Executive and Director High Performance Unit Program. The Executive and Director
HPU Program is substantially similar to the High Performance Unit Program for
employees approved by our shareholders at our 2002 annual meeting.

Equity-linked compensation has always been a key component of our overall
compensation program because we want to encourage our management and employees
to have a long-term equity stake in the Company alongside our shareholders. We
also recognize that our directors devote substantial time and attention to the
affairs of the Company, particularly in light of new regulatory requirements,
and we want to retain high caliber directors who are willing and able to devote
the time and expertise necessary to the governance of the Company. In the past,
we have awarded our directors 10,000 stock options annually or restricted shares
having an equivalent value, and we have awarded our most senior executives a
combination of stock options and restricted shares or restricted share
equivalents.

We believe that our HPU programs better align the interests of directors and
employees with the long-term interests of shareholders than options, which can
increase in value during periods of relative underperformance. In addition,
options do not adequately reflect the substantial dividend-paying nature of our
shares. The HPU programs are similar in many respects to performance-based
restricted share awards, but the HPU programs also require a substantial cash
investment from participants. The HPU programs only have material value to the
participants if we create superior returns for our shareholders. In order to
continue to better align shareholder interests with the interests of our
directors and executives and to ensure that we can continue to attract and
retain qualified directors and executives, we are proposing that you approve the
iStar Financial Executive and Director High Performance Unit Program.

To implement the Executive and Director HPU Program, our executives and our
directors will be offered the opportunity to purchase shares of our High
Performance Common Stock through a limited liability company (the "LLC"). The
purchase price will be based upon an independent valuation completed by a major
securities firm, as reviewed by our outside auditors. The participants will
purchase an interest in the LLC and the LLC will use the funds to purchase the
High Performance Common Stock from the Company. Provided that the Company
exceeds certain performance levels, the High Performance Common Stock will pay
quarterly cash distributions in the nature of common stock dividends. If
performance does not exceed those levels, then the participant's investment will
be worth virtually nothing.

There will initially be two plans within the Executive and Director HPU
Program. Each plan will have 5,000 shares of High Performance Common Stock
associated with it. The first plan (the "2005 Plan") will have a valuation date
of December 31, 2005; the second plan (the "2006 Plan") will have a valuation
date of December 31, 2006. The valuation date for each plan will be accelerated
if there is a change of control of the Company. The significance of a valuation
date is described below.

An investment in High Performance Common Stock through the LLC will have the
following characteristics:

- INITIAL PURCHASE PRICE. As of March 13, 2003, the fair market values of
the 5,000 shares of High Performance Common Stock underlying each of the
plans were approximately $470,000 for the 2005 Plan and $390,000 for the
2006 Plan. A range of assumptions were used to derive the plan values. The
midpoint figures for the primary assumptions are a volatility rate of
15.00%, a dividend growth rate of 5.00%, a discount rate of 20.00%, a
liquidity discount of 35.00%, a non-voting discount of 5.00%, and a
forfeiture discount of 15.00%. Assuming our shareholders approve the
Executive and Director HPU Program at the annual meeting, the fair market
value of the plans will be updated as necessary to reflect changes in the
fair market value that may have occurred since March 13, 2003. We expect
to establish the final purchase prices for plan units at such time as our
Compensation Committee approves the final allocation of units among plan
participants. Depending upon our total rate of return since March 13, 2003
relative to the threshold performance levels discussed below, participants
in the plans may therefore be required to pay a higher or lower purchase
price for plan units than the figures shown above.

- VALUE. Prior to the valuation date for each plan, the High Performance
Common Stock will have little intrinsic value. Each share of High
Performance Common Stock will carry 0.25 votes and pay dividends equal to
0.01 times the dividend paid on a share of our common stock, if and when
dividends are declared on our common stock. No participant will be
permitted to exchange his or her interest in the LLC for shares of the
High Performance Common Stock prior to the applicable valuation date.

- THRESHOLD PERFORMANCE LEVELS. The High Performance Common Stock will
continue to have only the nominal value described above unless, on the
applicable valuation date, the three-year total rate of return (dividends
plus share price appreciation) on a share of our common stock exceeds THE
GREATER OF: (1) 30.00%, and (2) a weighted industry index total rate of
return consisting of equal weightings of the Russell 1000 Financial Index
and the Morgan Stanley REIT Index for the three-year period. In
determining share price appreciation for purposes of calculating the total
rate of return of our common stock and of the benchmark indices, we will
compare the value of our common stock or the indices, as applicable, on
the first trading date of the relevant measurement period to the average
closing values of our common stock or the indices, as applicable, for the
last 20 trading days of the measurement period.

- EXCESS RETURN. If the total rate of return on our common stock exceeds the
threshold performance levels for a particular plan, then distributions
will be paid on the shares of High Performance Common Stock related to
that plan in the same amounts and at the same times as distributions are
paid on a number of shares of our common stock equal to the following:
7.50% of our excess total rate of return (over the higher of the two
threshold performance levels) multiplied by the weighted average market
value of our common equity capitalization during the measurement period,
all as divided by the average closing price of a share of our common stock
for the 20 trading days immediately preceding the applicable valuation
date. These distributions will be passed through to the employees who hold
interests in the LLC.

- DILUTION. Regardless of how much our total rate of return exceeds the
threshold performance levels, the dilutive impact to our shareholders
resulting from distributions on High Performance Common Stock in each plan
under the Executive and Director HPU Program will be limited to

0.50% of the number of shares of our common stock outstanding, on a fully
diluted basis, on the valuation date for each plan. This limit is in
addition to the 1.00% dilution limitation in effect for each plan in our
existing High Performance Unit program for other employees.

- RIGHT TO EXCHANGE. No participant will have the right to hold directly the
High Performance Common Stock prior to the applicable valuation date.
Until that time, all High Performance Common Stock will be held in the
LLC. From and after the applicable valuation date, a participant will have
the right to exchange his or her interests in the LLC for his or her pro
rata portion of the High Performance Common Stock.

- CONVERSION; NO PUBLIC MARKET. Even following a valuation date upon which
the threshold performance levels are achieved, the High Performance Common
Stock can never be converted into our common stock, and no organized
market is expected to develop in the High Performance Common Stock. The
shares will not be listed or traded on any exchange. Participants may
transfer High Performance Common Stock to third parties, including family
members, subject to applicable securities laws, so long as we play no role
in the transfer.

- TERMINATION. If an executive-participant leaves or is terminated for cause
before the valuation date for a plan, or if a director-participant is
found to be in material breach of the Company's Code of Conduct, the
Company will have the right, but not the obligation, to repurchase the
participant's entire interest in the plans at cost (by causing the LLC to
repurchase the employee's interest in the LLC at cost, with the Company
then repurchasing the equivalent number of shares of High Performance
Common Stock from the LLC). If an executive-participant is terminated
without cause, or if a director leaves the Company, the Company will have
the right, but not the obligation, to repurchase the employee's LLC
interests that will reach a valuation date within 12 months at fair market
value and any other LLC interests held by the employee at cost.

- CHANGE OF CONTROL. Upon a change of control of the Company that results in
an exchange by our common shareholders of their shares for cash or shares
in the acquiring company, shares of High Performance Common Stock will be
exchanged for the same consideration as will be received in the
transaction by holders of our common stock.

QUESTIONS REGARDING THE EXECUTIVE AND DIRECTOR HIGH PERFORMANCE UNIT PROGRAM

WHAT IS THE POTENTIAL EFFECT OF THE PROGRAM ON FUTURE EARNINGS PER SHARE?

If the total return on our common stock exceeds BOTH of the threshold
performance levels set for a plan, then the holders of interests in High
Performance Common Stock would be entitled to a percentage of future
distributions made by us. This would have a dilutive effect on the future
earnings per share of our common stock, and on our equity ownership after the
applicable valuation date if one assumes that the High Performance Common Stock
program did not have an offsetting incentive effect that resulted in increased
earnings. However, the maximum dilutive effect for each plan in the Executive
and Director HPU Program is limited to 0.50% of the number of shares of our
common stock outstanding, on a fully diluted basis, on the relevant valuation
date.

WHO IS ELIGIBLE TO PARTICIPATE IN THE PROGRAM?

The program will be offered to our Chief Executive Officer, President (if
any) and Directors.

WHY ARE WE USING THE RUSSELL 1000 FINANCIAL INDEX AND THE MORGAN STANLEY REIT
INDEX AS BENCHMARKS?

We are using an equal weighting of the Russell 1000 Financial Index and the
Morgan Stanley REIT Index because we believe that these indices and their
relative weighting most accurately capture the nature of our business as a
financial services company focused on the real estate industry. These

two indices are the financial services and real estate indices most widely
reported and accepted among institutional investors. We may use a different
index if we determine that these indices are no longer an appropriate basis of
comparison for the Company's total rate of return, or if either index ceases to
be reported.

HOW WILL THE TOTAL RATE OF RETURN BE MEASURED?

When we determine the "total rate of return" for any security and for any
period, we will measure the sum of the cumulative amount of dividends paid in
respect of the security for the period (assuming reinvestment of all cash
dividends), plus the appreciation in share price over the period, and divide
that total by the security price at the beginning of the measurement period.

WHAT ARE THE POTENTIAL ADVANTAGES AND DISADVANTAGES OF THE PROGRAM TO THE
COMPANY AND OUR SHAREHOLDERS?

Advantages to Shareholders:

- The proposed program aligns the interests of senior executives and
directors with those of shareholders by directly tying compensation to
superior outperformance for our shareholders on both a relative and
absolute basis.

- The cost of the plan units to the Company is nominal unless total returns
to shareholders exceed the threshold performance levels.

- The sale of plan units to participants gives them a long-term financial
stake in the Company with both upside AND downside potential, and the
units will be illiquid (no trading market; not convertible into common
stock) if they are earned.

- The program includes disincentives for senior executives to leave the
Company, in the form of a potential forfeiture to the Company of plan
units at cost.

Disadvantages to Shareholders:

- If the program is successful, there is a potential for dilution of
earnings. To address this issue, dilution will be capped at 0.50% (of
total diluted shares outstanding) for each plan.

- Although we do not believe that the sale of the new High Performance
Common Stock will have an anti-takeover effect, the High Performance
Common Stock could increase the potential cost of acquiring control of the
Company and thereby discourage an attempt to take control of the Company.
However, the Board is not aware of any attempt to take control of the
Company and the Board has not approved the sale of the new High
Performance Common Stock with the intention of discouraging any such
attempt.

- Existing tax and accounting authority does not specifically address the
proposed program; therefore, it is possible that the characterization of
the program for tax and accounting purposes could be different in the
future.

* * * * *

The tables below illustrate the value of each of the two plans under the
Executive and Director HPU Program on the relevant valuation date under
different circumstances. Each table demonstrates the value of the High
Performance Common Stock at given prices for our common stock and the total
return calculated at that price compared to the threshold performance levels.
For purposes of this illustration, the "value" of each plan is calculated by
multiplying: (1) 7.50% of the amount by which the total rate of return on our
common stock exceeds the greater of (a) 30.00% and (b) the return on our
designated indices (50.00% of each of the Russell 1000 Financial Index and
Morgan Stanley REIT Index), by (2) the weighted average market value of our
common equity capitalization over the relevant measurement period. Except as
otherwise indicated, it is assumed, for purposes of the illustration shown below
that: (1) the valuation date is December 31, 2005 for the 2005 Plan and
December 31, 2006 for the 2006 Plan, and (2) the Russell 1000 Financial Index
and the Morgan Stanley REIT Index have annual total rates of return of 13.50%.

The tables below are for illustrative purposes only and there can be no
assurance that actual outcomes will be within the ranges used. Some of the
factors that could affect the results set forth in the table are the total
return of our common stock relative to the total return of the Russell 1000
Financial Index and the Morgan Stanley REIT Index, and the market value of our
average outstanding common equity during the relevant measurement period. These
factors may be affected by general economic conditions, capital market
conditions, interest rates, real estate market conditions and our dividend
policy.

2005 PLAN

5,000 Units High Performance Common Stock
$470,000 Cash Proceeds to Company from Initial Investment

NOMINAL
ISTAR BENCHMARK AVERAGE TOTAL OUTPERFORMANCE VALUE OF HIGH
FUTURE FINANCIAL INDICES MARKET SHAREHOLDER SHAREHOLDER PERFORMANCE
STOCK TOTAL MINIMUM TOTAL OUTPERFORMANCE CAPITALIZATION(3) RETURNS VALUE ADDED(4) UNITS(5)
PRICE RETURN(1) RETURN RETURN RETURN(2) (THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS)
------ --------- ------- --------- -------------- ----------------- ----------- -------------- -------------

$28.00 29.60% 30.00% 46.29% 0.00% $2,747,192 $ 814,751 $ 0 $ 1
30.00 36.73% 30.00% 46.29% 0.00% 2,943,420 1,010,979 0 2
32.00 43.86% 30.00% 46.29% 0.00% 3,139,648 1,207,207 0 2
34.00 51.00% 30.00% 46.29% 4.70% 3,335,876 1,403,435 149,258 11,194
36.00 58.13% 30.00% 46.29% 11.84% 3,532,104 1,599,663 383,191 17,661(6)
38.00 65.26% 30.00% 46.29% 18.97% 3,728,332 1,795,891 626,453 18,642(6)

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

(1) iStar Financial Total Return is calculated as follows: ((Future Stock
Price + 2003, 2004 and 2005 Annual Dividends)--$28.05) / $28.05 where 2003,
2004 and 2005 Annual Dividends are assumed to be $2.65, $2.78 and $2.92 per
share, respectively.

(2) Outperformance Return is the amount, if any, by which the total return of
the iStar Financial common stock over the measurement period exceeds the
greater of Minimum Return and the Benchmark Indices Total Return, which
consists of equal weightings of the Russell 1000 Financial Index and the
Morgan Stanley REIT Index during the measurement period.

(3) Assumes the market value of outstanding common equity (iStar Financial
common stock) at December 31, 2005 throughout the measurement period.

(4) "Outperformance Shareholder Value Added" is calculated by multiplying the
Outperformance Return by the average market capitalization.

(5) The "Value of High Performance Units" is calculated by multiplying the
Outperformance Shareholder Value Added by 7.5%. If Outperformance
Shareholder Return is $0, the Value of High Performance Units is calculated
by multiplying the stock price by 50 plan units. The initial investment of
HPUs will continue to be treated as contributed equity on the balance sheet
of the Company.

(6) The maximum dilution for the High Performance Units is 0.50% of the
Company's total weighted average outstanding shares of common stock on a
diluted basis.

2006 PLAN

5,000 Units High Performance Common Stock
$390,000 Cash Proceeds to Company from Initial Investment

NOMINAL
ISTAR BENCHMARK AVERAGE TOTAL OUTPERFORMANCE VALUE OF HIGH
FUTURE FINANCIAL INDICES OUT- MARKET SHAREHOLDER SHAREHOLDER PERFORMANCE
STOCK TOTAL MINIMUM TOTAL PERFORMANCE CAPITALIZATION(3) RETURNS VALUE ADDED(4) UNITS(5)
PRICE RETURN(1) RETURN RETURN RETURN(2) (THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS)
------ --------- ------- --------- ----------- ----------------- ----------- -------------- -------------

$28.00 22.57% 30.00% 46.29% 0.00% $2,747,192 $ 664,411 $ 0 $ 1
30.00 29.24% 30.00% 46.29% 0.00% 2,943,420 860,639 0 2
32.00 35.91% 30.00% 46.29% 0.00% 3,139,648 1,056,867 0 2
34.00 42.57% 30.00% 46.29% 0.00% 3,335,876 1,253,095 0 2
36.00 49.24% 30.00% 46.29% 2.95% 3,532,104 1,449,323 95,491 7,162
38.00 55.91% 30.00% 46.29% 9.62% 3,728,332 1,645,551 317,631 18,642(6)

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

(1) iStar Financial Total Return is calculated as follows: ((Future Stock
Price + 2004, 2005 and 2006 Annual Dividends)--$30.00) / $30.00 where 2004,
2005 and 2006 Annual Dividends assumed to be $2.78, $2.92 and $3.07 per
share, respectively.

(3) Assumes the market value of outstanding common equity (iStar Financial
common stock) at December 31, 2006 throughout the measurement period.

(4) "Outperformance Shareholder Value Added" is calculated by multiplying the
Outperformance Return by the average market capitalization.

(6) The maximum dilution for the High Performance Units is 0.50% of the
Company's total weighted average outstanding shares of common stock on a
diluted basis.

RECOMMENDATION REGARDING APPROVAL AND ADOPTION OF THE ISTAR FINANCIAL INC.
EXECUTIVE AND DIRECTOR HIGH PERFORMANCE UNIT PROGRAM

The Board of Directors recommended that you vote FOR approval and adoption
of the program.

PROPOSAL 4:
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors has appointed PricewaterhouseCoopers LLP as our
independent auditors for the fiscal year ending December 31, 2003, subject to
ratification by our shareholders. We expect a representative of
PricewaterhouseCoopers LLP to attend the annual meeting to make a statement, if
he or she desires, and to respond to appropriate questions.

RECOMMENDATION REGARDING RATIFICATION OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP

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

OTHER INFORMATION

REDUCTION IN BOARD SIZE

Beginning in 2001, the Nominating and Governance Committee of our Board of
Directors together with our Chairman of the Board undertook a strategic review
of the size and composition of the Board. The purpose of the review was to
consider whether changes to the number and composition of Board members should
be recommended to the full Board, in light of the Company's size, its growth
strategies, the nature of its business, the composition of its shareholder base
and its desire to operate with best practices in the area of corporate
governance. The group sought to achieve a balance between the need for the Board
to communicate and act efficiently, and the recognition that new regulatory
requirements have increased the time commitment required of directors,
particularly those directors who are members of committees. In conducting its
review, the group considered that the Company's Board meets fairly frequently to
consider investment opportunities as they arise. The group looked at the size
and composition of boards of directors of companies similar in size to the
Company and those operating in similar industries.

Following completion of its review, the Nominating and Governance Committee
along with the Chairman of the Board determined that a board size of between
seven and 11 members was appropriate for the Company and that the Board should
continue to consist of at least a majority of independent directors. The Board
would also be subject to the Company's recently-adopted corporate governance
principles. See "Corporate Governance Initiatives." The full Board of Directors
approved these recommendations. In order to give effect to these
recommendations, the following directors have agreed not to stand for reelection
or to resign voluntarily from the Board: Madison F. Grose, Spencer B. Haber, H.
Cabot Lodge III, William Matthes, Stephen B. Oresman and Barry S. Sternlicht.
The changes will be effective as of June 3, 2003, except that Mr. Haber's
resignation became effective as of March 31, 2003 concurrent with his
resignation as the Company's President.

WHO ARE THE OTHER DIRECTORS OF THE COMPANY?

The following table sets forth the name, age and the position(s) with iStar
Financial (if any) held by each continuing Class I Director whose term expires
at our 2004 annual meeting of shareholders, regardless of whether Proposal 2 is
approved:

NAME AGE TITLE
-------------------------------------------------------- -------- --------

Jeffrey G. Dishner(1)................................... 38 Director
Andrew L. Farkas........................................ 42 Director
Robert W. Holman, Jr.(2)................................ 59 Director
Robin Josephs(3)(4)..................................... 43 Director
Merrick R. Kleeman...................................... 39 Director
Matthew J. Lustig(3)(4)................................. 42 Director
George R. Puskar(1)..................................... 59 Director

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

(1) Member of Investment Committee.

(2) Member of Nominating and Governance Committee.

(3) Member of Audit Committee.

(4) Member of Compensation Committee.

JEFFREY G. DISHNER has served as one of our (and our predecessor's)
directors since March 1998. Mr. Dishner has been a managing director or senior
vice president of Starwood Capital Group, L.L.C. and its predecessors since
September 1994. From 1993 through September 1994, Mr. Dishner was employed by
the commercial mortgage finance group of J.P. Morgan & Co., and by JMB Realty

Corporation from 1987 through 1991. Mr. Dishner received a B.S. degree from the
Wharton School and a M.B.A. from the Amos Tuck School at Dartmouth College.

ANDREW L. FARKAS has served as one of our directors since May 2001.
Mr. Farkas is chairman and chief executive officer of Insignia Financial
Group, Inc., a leading international real estate services company listed on the
New York Stock Exchange under the symbol "IFS." Mr. Farkas founded the New York
City-based company in December 1990. Previously, Mr. Farkas founded Metropolitan
Asset Group, Ltd., a private real estate investment banking and merchant banking
firm. Metropolitan Asset Group specialized in securitized real estate
transactions including syndication, corporate LBOs and workouts. In 1999, New
York Magazine named Mr. Farkas one of the most influential New Yorkers for the
Millennium. Mr. Farkas graduated from Harvard University in 1982 with a B.A.
degree in econometrics.

ROBERT W. HOLMAN, JR. has served as one of our directors since
November 1999. Mr. Holman is the co-founder of TriNet Corporate Realty
Trust, Inc. (a company that we acquired in 1999), and served as its chief
executive officer, co-chairman and chairman of the board. He was chief executive
officer and chairman of TriNet's predecessor, Holman/Shidler Corporate
Capital, Inc., for ten years. Mr. Holman co-founded and was a senior executive
and director of Watkins Pacific Corporation, a multi-national conglomerate.
Additionally, Mr. Holman has served as a senior executive, director, owner or
board advisor for numerous companies in the United States, Great Britain,
Australia and Mexico in the finance, real estate, internet commerce,
construction, building materials and travel industries. Currently, he is a
director of Amerivest Properties, Inc. He holds a B.A. degree in international
economics from the University of California at Berkeley, an M.A. degree with
honors from Lancaster University in England, where he was a British Council
Fellow, and did post-graduate work at Harvard University where he was awarded a
Loeb Fellowship.

ROBIN JOSEPHS has served as one of our (and our predecessor's) directors
since March 1998. Ms. Josephs is chairperson of our Compensation Committee.
Ms. Josephs is the managing director of Ropasada, LLC, a private equity fund.
Ms. Josephs was employed by Goldman Sachs from 1986 to 1996 in various
capacities. Prior to working at Goldman, Ms. Josephs served as an analyst for
Booz Allen & Hamilton Inc. in New York from 1982 to 1984. Ms. Josephs received a
B.S. degree in economics from the Wharton School and a M.B.A. from Columbia
University.

MERRICK R. KLEEMAN has served as one of our (and our predecessor's)
directors since March 1998. Mr. Kleeman is a senior managing director of
Starwood Capital Group, L.L.C. Prior to joining Starwood Capital Group in
August 1992, Mr. Kleeman was employed by the investment banking division of
Merrill Lynch & Co. and by Coastal Management and Consultant, Inc., a real
estate investment company. He received a B.A. degree in biology from Dartmouth
College and a M.B.A. from the Harvard Business School, where he was a Baker
Scholar. Mr. Kleeman is a member of the board of trustees of Hopkins School.

MATTHEW J. LUSTIG has served as one of our directors since February 2002.
Mr. Lustig is a managing principal of Lazard Freres Real Estate Investors L.L.C.
("LFREI") and a managing director of Lazard Freres & Co. LLC, responsible for
its real estate investment, banking and strategic advisory services. Prior to
joining Lazard Freres in 1989, Mr. Lustig worked for Drexel Burnham
Lambert Inc. and Chase Manhattan Bank. Mr. Lustig received a B.S.F.S. degree
from the School of Foreign Service at Georgetown University.

GEORGE R. PUSKAR has served as one of our directors since November 1999.
Previously, Mr. Puskar served as a director of TriNet since January 1998. From
June 1997 until June 2000, Mr. Puskar served as chairman of the board of Lend
Lease Real Estate Investments (formerly known as ERE Yarmouth), the U.S. real
estate unit of Lend Lease Corporation, an international financial services and
real estate company based in Sydney, Australia. From 1988 until June 1997,
Mr. Puskar was chairman and chief executive officer of Equitable Real Estate
Investment Management, Inc., where he was responsible for directing the business
operations of a full service commercial real estate investment management
company with approximately $30 billion in assets under management. Prior to its
acquisition by Lend Lease Corporation in June 1997, Equitable Real Estate
Investment Management, Inc. operated as a subsidiary of The Equitable Life
Assurance Society of the United States. Mr. Puskar is a member of the Counselors
of Real Estate. Mr. Puskar has served as a member of the board of directors of
Carr Real Estate Investment Trust, a NYSE-listed REIT, from 1993 to 1997, and on
an advisory board at Georgia State University. Mr. Puskar has also served on the
boards of the Urban Land Institute, the International Council of Shopping
Centers, the National Council of Real Estate Fiduciaries and the National Realty
Committee, and as chairman of a campaign to endow a real estate chair at Clark
Atlanta University/Morehouse College. Mr. Puskar currently serves as the
chairman of Solutions Manufacturing, Inc., a manufacturer of electronic
components based in Rockledge, Florida, and he is active as the vice chairman of
World Team Sports, an organization that specializes in unique athletic events
with teams built around disabled athletes. Mr. Puskar received a B.A. degree
from Duquesne University.

INFORMATION REGARDING THE BOARD OF DIRECTORS AND ITS COMMITTEES

HOW OFTEN DID THE BOARD MEET DURING 2002?

During the fiscal year ended December 31, 2002, the Board of Directors held
12 meetings. All directors attended at least 75% of all Board meetings and
applicable committee meetings, except Andrew L. Farkas, who attended 58% of all
Board meetings.

WHAT COMMITTEES HAS THE BOARD ESTABLISHED?

The Board of Directors has standing Audit, Compensation, Nominating and
Governance and Investment Committees.

The Audit Committee

The Audit Committee is responsible for, among other things, considering the
appointment of our independent auditors, reviewing with the auditors the plan
and scope of the audit and audit fees, monitoring the adequacy of reporting and
internal controls and meeting periodically with management and our independent
auditors.

The Audit Committee is composed of Willis Andersen, Jr. (Chairman), Robin
Josephs and Matthew J. Lustig, each of whom is independent as defined by the
Audit Committee's charter and the New York Stock Exchange listing standards.
Each of Mr. Andersen and Ms. Josephs qualifies as an "audit committee financial
expert" as defined by the Securities and Exchange Commission. The Audit
Committee operates under a written charter that was originally adopted in 2001
and was amended in 2003. A copy of the charter, as amended, is included as Annex
B to this proxy statement. A copy of the charter also may be found on our
website at www.istarfinancial.com. The Audit Committee met ten times during
2002.

The Compensation Committee

The Compensation Committee is composed of Robin Josephs (Chairperson),
Matthew J. Lustig and John G. McDonald, each of whom is independent as defined
by the Compensation Committee's

charter and the New York Stock Exchange Listing Standards. Stephen B. Oresman
will serve on the Committee through June 3, 2003. The functions of the
Compensation Committee are described under the Report of Compensation Committee
contained elsewhere in this proxy statement. The Compensation Committee operates
under a written charter that was originally adopted by the Board of Directors in
2001 and was amended in 2003. A copy of the charter may be found on our website
at www.istarfinancial.com. The Compensation Committee met 14 times during 2002.

The Nominating and Governance Committee

The Nominating and Governance Committee is responsible for, among other
things, recommending to the Board of Directors individuals to serve as our
directors and officers. The Nominating and Governance Committee may also
consider nominees for election as directors made by shareholders. Additionally,
the Nominating and Governance Committee is responsible for considering and
recommending to the Board of Directors other actions relating to corporate
governance matters. John G. McDonald (Chairman) and Robert W. Holman, Jr.
currently serve on the Nominating and Governance Committee. Madison F. Grose
will serve on the committee through June 3, 2003. The Nominating and Governance
Committee operates under a written charter that was originally adopted by the
Board of Directors in 2000 and was amended in 2002. A copy of the charter may be
found on our website at www.istarfinancial.com. The Nominating and Governance
Committee met six times during 2002.

The Investment Committee

The Board of Directors has delegated to the Investment Committee the
authority to authorize investment transactions by us of between $30 million and
$50 million. Jeffrey G. Dishner, George R. Puskar and Jay Sugarman currently
serve on the Investment Committee. Barry S. Sternlicht will serve as the
Chairman of the Committee through June 3, 2003. The Investment Committee met
four times during 2002.

ARE THERE ANY SPECIAL ARRANGEMENTS UNDER WHICH MEMBERS OF OUR BOARD SERVE AS
DIRECTORS?

Except as described in this section and as described below under "Employment
Agreements," no other arrangement or understanding exists between any director
and any other person or persons pursuant to which any director was or is to be
selected as a director or nominee.

Mr. Lustig has been designated as a Board member by the holders of our
Series A preferred stock. The holders of our Series A preferred stock have the
right to designate one person as a nominee to our Board for so long as
affiliates of Lazard Freres Real Estate Investors L.L.C. own at least 50.00% of
the outstanding Series A preferred stock. SOFI-IV SMT Holdings, L.L.C. has
agreed to vote all of its common stock in favor of the Lazard designee's
election to the Board. We have agreed to use our best efforts to include the
Lazard designee on the Audit and Compensation Committees of our Board.
Mr. Lustig has agreed to resign from our Board if requested by Lazard Freres
Real Estate Investors L.L.C.

Messrs. Dishner and Kleeman have agreed in writing to resign as a director
if requested by Starwood Capital Group, L.L.C. or persons who control that
entity.

EXECUTIVE OFFICERS AND OTHER OFFICERS

WHO ARE OUR KEY OFFICERS?

Information for Jay Sugarman is contained above under the heading "Proposal
1: Election of Directors." Information with regard to some of our other key
officers is set forth below. All of our

officers serve at the pleasure of the Board of Directors and are customarily
appointed as officers at the annual meeting of the Board of Directors held
following each annual meeting of shareholders.

TIMOTHY J. O'CONNOR has served as Chief Operating Officer of iStar Financial
(and its predecessor) since March 1998 and Executive Vice President since
March 2000. Mr. O'Connor is responsible for developing and managing iStar
Financial's risk management and due diligence operations, participating in the
evaluation and approval of new investments and coordinating iStar Financial's
information systems. Previously, Mr. O'Connor was a vice president of Morgan
Stanley & Co. responsible for the performance of more than $2 billion of assets
acquired by the Morgan Stanley Real Estate Funds. Prior to joining Morgan
Stanley, Mr. O'Connor was a vice president of Greystone Realty Corporation
involved in the firm's acquisition and asset management operations. Previously,
Mr. O'Connor was employed by Exxon Co. USA in its real estate and engineering
group. Mr. O'Connor is a former vice president of the New York City/Fairfield
County chapter of the National Association of Industrial and Office Parks.
Mr. O'Connor received a B.S. degree from the United States Military Academy at
West Point and an M.B.A. from the Wharton School.

CATHERINE D. RICE has served as Chief Financial Officer of iStar Financial
since November 2002. Ms. Rice is responsible for managing all of iStar
Financial's capital-raising initiatives, financial reporting and investor
relations activities, as well as overseeing all other finance, treasury and
accounting functions. Prior to joining iStar Financial, Ms. Rice served as
managing director in both the financial sponsors group and the real estate
investment banking group of Banc of America Securities. Prior to Banc of America
Securities, Ms. Rice was a managing director at Lehman Brothers, where she was
responsible for the firm's West Coast real estate investment banking effort. She
spent the first ten years of her career at Merrill Lynch in its real estate
investment banking group. Ms. Rice has over 16 years of experience in the public
and private capital markets, and has been involved in over $15 billion of
capital-raising and financial advisory transactions, including public and
private debt and equity offerings, mortgage financings, merger and acquisition
assignments, leveraged buyouts, asset dispositions, debt restructurings and
rating advisory assignments. Ms. Rice received a B.A. degree from the University
of Colorado and an M.B.A from Columbia University.

NINA B. MATIS has served as General Counsel of iStar Financial (and its
predecessor) since 1996 and Executive Vice President since November 1999.
Ms. Matis is responsible for legal, tax, structuring and regulatory aspects of
iStar Financial's operations and investment and financing transactions.
Ms. Matis is a partner, and a member of the executive committee, of the law firm
of KMZ Rosenman, one of our principal outside law firms. From 1984 through 1987,
Ms. Matis was an adjunct professor at Northwestern University School of Law
where she taught real estate transactions. Ms. Matis is a director of New Plan
Excel Realty Trust, Inc. and a member of the American College of Real Estate
Lawyers, Ely Chapter of Lambda Alpha International, the Chicago Finance
Exchange, the Urban Land Institute, REFF, the Chicago Real Estate Executive
Women, The Chicago Network and The Economic Club of Chicago, and she is listed
in both The Best Lawyers of America and Sterling's Who's Who. Ms. Matis received
a B.A. degree, with honors, from Smith College and a J.D. degree from New York
University School of Law.

ROGER M. COZZI has served as an Executive Vice President--Investments of
iStar Financial since January 2002 and is co-head of our internal Investment
Committee. Since joining iStar Financial and its predecessor in 1995, Mr. Cozzi
has been responsible for the origination of structured financing transactions
and has successfully closed over $1 billion of first mortgage, mezzanine and
corporate finance investments. From 1995 to 1998, Mr. Cozzi was an investment
officer at Starwood Mezzanine Investors, L.P. and Starwood Opportunity Fund IV,
two private investment funds that specialized in structured real estate finance
and opportunistic equity investments. Prior to joining Starwood, Mr. Cozzi spent
three years at Goldman, Sachs & Co. While at Goldman Sachs, he spent two years
in the real estate department, where he focused on securitizing and selling
investment grade and non-investment grade securities backed by pools of
commercial mortgages, evaluating performing

commercial mortgage loans for potential principal investment by the Whitehall
funds and consulting large corporate tenants on lease alternatives. After two
years in real estate, Mr. Cozzi transferred into the investment management
industry group, where he worked on several merger transactions, created a
conduit to lend directly to mutual funds, and helped create a vehicle to
securitize 12b-1 financing fees. Mr. Cozzi graduated magna cum laude from the
Wharton School with a B.S. degree in Economics (with concentrations in Finance
and Entrepreneurial Management).

JEFFREY R. DIGEL has served as an Executive Vice President--Investments of
iStar Financial since March 2000 and is co-head of our internal Investment
Committee. Prior to that, he was Senior Vice President--Investments since
May 1998. Mr. Digel is responsible for the origination of new structured
financing transactions, focusing on iStar Financial's financial institution and
loan correspondent relationships. Previously, Mr. Digel was a vice
president-mortgage finance at Aetna Life Insurance Company responsible for
commercial mortgage securitizations, management of Aetna's mortgage
correspondent network, management of a $750 million real estate equity portfolio
for Aetna's pension clients and origination of new equity investments. Prior to
joining Aetna, Mr. Digel was a member of Hart Advisors, responsible for the
development and supervision of the portfolio, asset management and client
communications functions for Hart's real estate pension advisory business. In
addition, Mr. Digel is a member of the Mortgage Bankers Association and the
International Council of Shopping Centers. Mr. Digel received a B.A. degree from
Middlebury College and an M.M. from Northwestern University.

REPORT OF THE AUDIT COMMITTEE

In connection with our financial statements for the fiscal year ended
December 31, 2002, the Audit Committee has reviewed and discussed our audited
financial statements with management and our independent auditors. We have
discussed with the independent public accountants the matters required to be
discussed by Statement on Auditing Standards No. 61, COMMUNICATION WITH AUDIT
COMMITTEES, as amended. We have received and reviewed the written disclosures
and the letter from the independent public accountants required by Independence
Standard No. 1, INDEPENDENCE DISCUSSIONS WITH AUDIT COMMITTEES, as amended, and
have discussed with the independent public accountants their independence.

Based on the reviews and discussions referred to above, the Audit Committee
did not become aware of any material misstatements or omissions in the financial
statements referred to above and we recommended to the Board of Directors that
the financial statements be included in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2002.

SUBMITTED BY THE AUDIT COMMITTEE:

Willis Andersen, Jr. (Chairman)
Robin Josephs
Matthew J. Lustig

The above report will not be deemed to be incorporated by reference into any
filing by us under the Securities Act of 1933 or the Securities Exchange Act of
1934, except to the extent that we specifically incorporate the same by
reference.

CORPORATE GOVERNANCE INITIATIVES

We undertook a number of initiatives in 2002 and 2003 to date designed to
enhance our corporate governance practices. While we are not yet required by the
Securities and Exchange Commission or the New York Stock Exchange to have
undertaken these efforts, we believe that they are the right steps to take and
we want our shareholders to know that we are committed to adopting best
practices in the area of corporate governance. A few of our key corporate
governance initiatives are described below.

CORPORATE GOVERNANCE GUIDELINES

Our Board of Directors has approved a set of guidelines that provide the
framework for the governance of iStar Financial. The Board recognizes that there
is on-going and energetic debate about corporate governance standards and that
best practices and legal requirements will evolve over time. The Board will
review these guidelines and other aspects of governance periodically, as
necessary. Our corporate governance guidelines may be found on our website at
www.istarfinancial.com.

COMMITTEE CHARTERS

We amended our Audit, Compensation and Nominating and Governance Committee
charters in order to meet the enhanced standards proposed, but not yet formally
implemented, by the New York Stock Exchange. Copies of these new charters are
available on our website at www.istarfinancial.com.

CODE OF CONDUCT

In 2000, our Board of Directors approved and adopted a Code of Conduct. The
Code of Conduct was expanded in 2002. The Code of Conduct documents the
principles of conduct and ethics to be followed by our directors, officers and
employees. The purpose of the Code is to promote honest and ethical conduct,
compliance with applicable governmental rules and regulations, full, fair,
accurate, timely and understandable disclosure in periodic reports, prompt
internal reporting of violations of the Code, and a culture of honesty and
accountability. A copy of the Code has been provided to, and signed by, each of
our directors, officers and employees. Among its many features, the Code
describes how employees can report any matter that may be of concern to them to
a member of our Compliance Committee on an anonymous basis. A copy of our Code
of Conduct may be found on our website at www.istarfinancial.com, and has been
included as an exhibit to our Annual Report on Form 10-K for the year ended
December 31, 2002.

AUDIT COMMITTEE FINANCIAL EXPERT

The Board of Directors has determined that each of Willis Andersen, Jr.
(Chairman) and Robin Josephs, members of our Audit Committee, meets the criteria
of an audit committee financial expert, as recently adopted by the SEC.
Mr. Andersen and Ms. Josephs have agreed to serve as the Company's Audit
Committee financial experts.

DISCLOSURE COMMITTEE

We created a Disclosure Committee consisting of members of our executive
management and senior staff. The Disclosure Committee meets at least quarterly.
The purpose of the Committee is to bring together representatives from our core
business lines and employees involved in the preparation of our financial
statements so that the group can discuss any issues or matters of which the
members are aware that should be considered for disclosure in our public SEC
filings. The Disclosure Committee reports to our Chief Executive Officer and, as
appropriate, to our Audit Committee. The Disclosure Committee has adopted a
written charter to memorialize the Committee's purpose and procedures. A copy of
the charter may be found on our website at www.istarfinancial.com.

EXECUTIVE COMPENSATION

REPORT OF THE COMPENSATION COMMITTEE

The Board of Directors has delegated to the Compensation Committee
responsibility for overseeing the Company's executive compensation programs. The
Compensation Committee is composed exclusively of independent directors. The
four directors whose names appear at the end of this report comprise the
Compensation Committee.

The principal responsibilities of the Committee are:

- To review management's recommendations and advise management and the Board
of Directors on broad compensation programs and policies such as salary
ranges, annual incentive bonuses and long-term incentive plans, including
equity-based compensation programs.

- To establish performance objectives for the Chief Executive Officer and
review performance objectives established for other senior executives of
the Company; and to evaluate the performance of such executives relative
to these objectives, in connection with the Committee's overall review of
executive compensation.

- To recommend to the Board of Directors the base salary, cash incentive
bonus, equity-based incentive awards and other compensation for the Chief
Executive Officer of the Company.

- To approve base salaries, cash incentive bonuses, equity-based incentive
awards and other compensation for other officers and employees of the
Company with base salaries or other fixed compensation in excess of
$200,000 per year.

- To administer the Company's Long Term Incentive Plan (the "LTIP") and HPU
programs.

- To review the adequacy of the Company's succession planning and
organization effectiveness.

- To oversee the Company's performance evaluation practices and procedures.

- To perform such other duties and responsibilities pertaining to
compensation matters as may be assigned to the Committee by the Board of
Directors or the Chairman of the Board of Directors.

WHAT PROCEDURES DOES THE COMMITTEE FOLLOW?

The Compensation Committee typically meets at the beginning of each year to
consider compensation for the Chief Executive Officer and senior management's
recommendations for compensation for other senior executives, including base
salary adjustments for the coming year and incentive bonuses and equity awards
for officers and other eligible employees for the preceding year. We also meet
periodically during the year to evaluate the performance of management relative
to objectives and to perform our other functions.

WHAT IS OUR GENERAL COMPENSATION PHILOSOPHY?

The Company's investment strategy targets specific sectors of the real
estate credit markets in which it believes it can deliver value-added, flexible
financial solutions to its customers, thereby differentiating its financial
products from those offered by other capital providers. In the Committee's view,
the Company's success depends on the talent, skills and commitment of the
Company's employees, and in particular its senior executives, in providing the
services necessary to implement this strategy. The Company's compensation
practices and programs are intended to achieve the following objectives:

- To attract, retain, motivate and reward key employees to drive achievement
of the Company's current and long-term strategic, business and financial
goals in the creation of shareholder value.

- To provide an appropriate mix of current compensation and long-term
rewards, which is properly balanced between salary and performance-based
pay and includes cash, equity compensation and other benefits.

- To align shareholder interests and employee rewards.

- To establish appropriate incentives for management and employees that are
consistent with the Company's culture and values.

In accordance with these objectives, a significant part of executive
compensation is subject to the overall performance of the Company and the total
return generated for the Company's shareholders. We believe that this approach
best enables us to achieve our objectives and satisfy the interests of our
shareholders.

One primary performance measure that we use is the total rate of return to
our shareholders, which we define as dividends paid (assuming reinvestment) plus
appreciation in the price of our common stock. This is the performance measure
that determines the value of our HPU programs and, in some cases, the restricted
shares awarded to senior executives. The following chart shows the total rate of
return for the Company from November 5, 1999 through December 31, 2002 as
compared to several key indices that we consider relevant benchmarks.
November 5, 1999 was the first full trading day after the Company completed its
acquisition (through merger) of TriNet Corporate Realty Trust, Inc., which
substantially increased the public float of the Company's common stock from
approximately 630,000 shares to approximately 29.4 million shares.

TOTAL SHAREHOLDER RETURNS
NOVEMBER 5, 1999 TO DECEMBER 31, 2002

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

iStar Financial 94.1
Russell 1000 Financial Index -14.7
Morgan Stanley REIT Index 47.9
S&P 500 -33.30

HOW DO WE COMPENSATE OUR CHIEF EXECUTIVE OFFICER?

Jay Sugarman, our Chief Executive Officer, is compensated pursuant to an
employment agreement entered into in March 2001, a copy of which has been
publicly filed with the Securities and Exchange Commission. The agreement
extends through March 30, 2004 and will be automatically renewed for successive
one year terms unless the Company or Mr. Sugarman terminates the agreement.

Under the agreement, Mr. Sugarman receives an annual base salary of
$1.0 million. He may also receive a bonus, which is targeted to be an amount
equal to Mr. Sugarman's base salary, if the Company achieves certain performance
targets set by the Compensation Committee in consultation with Mr. Sugarman. The
bonus award may be increased or reduced from the target depending upon the
degree to which the performance goals are exceeded or are not met. The bonus
amount may not exceed 200% of base salary. The bonus is reduced by the amount of
any dividends paid to Mr. Sugarman in respect of phantom units (described below)
awarded to Mr. Sugarman under his agreement that have vested. Mr. Sugarman
received $2.1 million in such dividends in 2002. Since such dividends exceeded
the maximum annual bonus amount payable under his employment agreement, no
additional bonus was paid to Mr. Sugarman for 2002.

As part of Mr. Sugarman's March 2001 employment agreement, the Company
awarded Mr. Sugarman long-term incentive compensation in the form of
2.0 million unvested phantom units, each of which notionally represents one
share of the Company's common stock. The phantom units will vest on a contingent
basis if the average closing price of the Company's common stock achieves
certain levels (ranging from $25.00 to $37.00 per share) for 60 trading days. As
of December 31, 2002, 1.0 million phantom units were contingently vested. Units
that have contingently vested do not become fully vested until March 2004,
unless certain termination or change of control events occur. Until the units
become fully vested, they are subject to forfeiture if our common stock drops
below a set floor price. Mr. Sugarman is entitled to receive dividend
equivalents on phantom units that have become contingently or fully vested. If
contingently vested phantom units become fully vested units, the Company must
deliver to Mr. Sugarman either a number of shares of common stock equal to the
number of fully vested units or an amount of cash equal to the fair market value
of that number of shares of common stock. Absent an earlier change of control or
termination of employment, we do not expect to have to deliver shares of stock
or cash to satisfy this obligation until March 2004.

In determining Mr. Sugarman's salary and bonus for 2002, the Committee set
both qualitative and quantitative performance goals for Mr. Sugarman in the
following areas:

- Financial Performance--The Committee believes that long-term, consistent
growth in the Company's earnings per share and return on equity are key
performance measures.

- Investment Origination Activity--The Committee evaluates the amount of new
investments and the quality, diversity and risk parameters of new
investments.

- Credit Quality--The Committee reviews performance with respect to the
overall credit quality of the Company's loan portfolio and credit tenant
lease portfolio, including changes to the internal risk ratings of the
portfolios, efforts to mitigate risks and measures taken to proactively
address potential credit issues.

- Balance Sheet Considerations--The Committee believes that while the
financial performance measurements described above are key, there should
be a balance between meeting those measurements and maintaining a strong
balance sheet. The Committee evaluates the amount, type and cost of
leverage maintained by the Company throughout the year. In addition, the
Committee considers the progress made toward achieving an investment-grade
senior unsecured corporate credit rating.

- Company Values and Reputation--The Committee believes that the Company's
reputation for integrity is a critically valuable asset and, accordingly,
evaluates the standards by which the Company conducts its business.

- Organizational Effectiveness and Relationship Management--In this
category, the Committee reviews relations with employees, the Board of
Directors and shareholders. The Committee also reviews the effectiveness
of the incentive compensation plans recommended by management for the
Company's employees.

The Committee concluded that the Company's management team performed
exceedingly well under unusually difficult market conditions in 2002, and that
Mr. Sugarman's leadership was central to that performance. For example, the
Committee noted that the Company's total return to shareholders in 2002 was
23.1%, solidly outperforming the Russell 1000 Financial Index total return of
(15.3%), the Morgan Stanley REIT Index total return of 3.6% and other market
indices. The Company's adjusted earnings grew by 10.4% and its return on common
book equity grew to 18.4% in 2002, while the Company's balance sheet was
strengthened. The Committee also observed that the Company originated
approximately $1.8 billion in new investments in 2002, the overall risk ratings
for the asset base were favorable and the Company continued to experience no
credit losses. Finally, the Committee evaluated the Company's relations with
employees, the Board of Directors and shareholders. In the Committee's view,
Mr. Sugarman's performance in 2002 would have merited a substantial bonus.
However, since, as noted above, Mr. Sugarman received dividends in 2002 in
respect of his contingently vested phantom units in excess of the maximum annual
bonus payable to Mr. Sugarman under his employment agreement, no additional cash
bonus payment was made to Mr. Sugarman.

HOW DO WE COMPENSATE OUR EXECUTIVES, OTHER THAN THE CHIEF EXECUTIVE OFFICER?

Salaries. Our policy is to set salaries at levels we believe will attract,
retain and motivate highly-competent individuals. In establishing base salary
levels for the Company's key executives, we consider the executive's position
and responsibility, experience, length of service with the Company, and overall
performance, as well as the compensation practices of other companies in the
markets where the Company competes for executive talent.

Bonuses. We also award bonuses to executive officers and other employees
based upon: (1) overall Company performance, (2) business segment or
departmental performance, (3) individual performance, and (4) other factors we
determine to be appropriate. Bonuses typically consist of a cash component and
an equity component. The equity component for 2002 bonuses was comprised of High
Performance Unit awards or restricted shares. Restricted share awards vest in
equal installments over three years.

Restricted Share Awards and Options. During 2002, the Company granted a
total of 403,538 shares of restricted stock to employees. Of this amount,
208,980 restricted shares were awarded to our Chief Financial Officer in
connection with her hiring, as described in more detail below. The remaining
share awards include 155,000 restricted shares that will vest on March 31, 2004
if our stock price equals or exceeds a set floor price, and 39,558 shares that
will vest in equal installments over three years. Dividends are paid on the
restricted shares as and when dividends are paid on shares of the Company's
common stock. During 2002, we did not issue any stock options to employees. The
LTIP limits the total number of shares reserved and available to be granted as
options and other equity-based awards to no more than 9.00% of the Company's
total outstanding shares of common stock, on a fully diluted basis. As of
December 31, 2002, there were approximately 1,113,162 shares available for new
awards under the LTIP.

High Performance Units. In May 2002, the Company's shareholders approved
the Company's High Performance Unit Program. The program, as more fully
described in the Company's annual proxy statement dated April 8, 2002, is a
performance-based employee compensation plan that only has material value to the
participants if the Company provides superior returns to its shareholders.
Employee participants must purchase interests in the program with their own
funds. Employee participants will receive cash distributions in the nature of
common stock dividends if the total rate of return on the Company's common stock
(share price appreciation plus dividends) exceeds certain performance levels.
There are currently four active plans within the program: the 2002 plan, the
2003 plan, the 2004 plan and the 2005 plan. Each plan has 5,000 shares of High
Performance common stock associated with it. The Company's performance for the
2002 plan, 2003 plan and 2004 plan is measured over a one-, two- and three-year
valuation period, beginning on January 1, 2002 and ending on

December 31, 2002, December 31, 2003 and December 31, 2004, respectively. The
Company's performance for the 2005 plan is measured over a one-year valuation
period, beginning on January 1, 2005 and ending on December 31, 2005. The end of
the valuation period (i.e., the "valuation date") will be accelerated if there
is a change in control of the Company. The High Performance common stock has a
nominal value unless the total rate of shareholder return for the relevant
valuation period exceeds the greater of: (1) 10.00%, 20.00%, or 30.00% for the
2002 plan, the 2003 plan and the 2004 plan, respectively, and 10.00% for the
2005 plan, and (2) a weighted industry index total rate of return consisting of
equal weightings of the Russell 1000 Financial Index and the Morgan Stanley REIT
Index for the relevant period.

The employee participants have purchased their interests in High Performance
common stock through a limited liability company at purchase prices approved by
the Company's Board of Directors. The Company's Board has established the prices
of the High Performance common stock based upon, among other things, an
independent valuation from a major securities firm. The aggregate initial
purchase prices were set in June 2002 and were approximately $2.7 million,
$1.8 million and $1.3 million for the 2002, 2003 and 2004 plans, respectively.
The aggregate initial purchase price for the 2005 plan was set in 2003 at
$0.6 million. No employee is permitted to exchange his or her interest in the
limited liability company for shares of High Performance common stock prior to
the applicable valuation date. The additional equity from the issuance of the
High Performance common stock is recorded as a separate class of stock and
disclosed within shareholders' equity. Future distributions, if any, will be
deducted from net income available for common shareholders.

The total shareholder return for the valuation period under the 2002 plan
was 21.94%, which exceeded both the fixed performance threshold of 10.00% and
the industry index return of (5.83)%. As a result of this superior performance,
the participants in the 2002 plan are entitled to receive cash distributions
equivalent to the amount of cash dividends payable on 819,254 shares of our
common stock, as and when such dividends are paid.

President. In April 2001, we entered into a three-year employment agreement
with Spencer B. Haber, who served as our President until March 31, 2003. Under
the agreement, in lieu of salary and bonus, the Company granted the executive
500,000 restricted shares. These shares became fully vested on September 30,
2002 as a result of the Company's achieving a 60.00% total shareholder rate of
return (dividends plus share price appreciation). Mr. Haber received dividends
on the share grant during the term of the agreement when we declared and paid
dividends on our common stock generally. Mr. Haber received $630,000 in
dividends on such shares during 2002.

Chief Financial Officer. In November 2002, the Company hired Catherine D.
Rice as Chief Financial Officer. Consistent with our policy of providing
competitive compensation that aligns the interests of the employee and our
shareholders, we entered into a three-year employment agreement with Ms. Rice
which provides for a cash salary of $225,000 annually, the potential for a cash
bonus of up to $325,000 annually and restricted share awards. Ms. Rice was
awarded 108,980 shares that will vest on December 31, 2005 and which receive
dividends on a current basis. In addition, Ms. Rice received 100,000 restricted
shares which vest based upon the total rate of shareholder return (dividends
since November 6, 2002 plus share price appreciation since January 2, 2003)
achieved by the Company as of January 31, 2004. A copy of Ms. Rice's employment
agreement has been publicly filed with the Securities and Exchange Commission.

Other Benefits. Employee compensation also includes various benefits, such
as health insurance plans and profit sharing and retirement plans in which
substantially all of the Company's employees participate. At the present time,
the only plans in effect are health, life and disability insurance plans and a
401(k) plan.

HOW DO WE COMPENSATE NON-EMPLOYEE DIRECTORS?

Each director who is not an employee of the Company or Starwood Capital
Group L.L.C. currently receives an annual retainer payment of $20,000 (paid
quarterly) and meeting fees of $2,000 for Each Board meeting attended in person,
$1,000 for each Board meeting attended by telephone, $1,500 for each meeting of
a Committee for which the director serves as chairman and $1,000 for each
meeting of a Committee of which the director is a member. In addition, under the
Company's LTIP, the Company currently grants, on an annual basis, to each of its
directors, other than Messrs. Sugarman, Dishner and Kleeman, an option to buy
10,000 shares of the Company's common stock at an exercise price equal to the
market price on the date of the grant, which is usually the date of our annual
shareholders meeting, or a number of shares that is equivalent in value to
10,000 options. These compensation arrangements have not changed since the
Company became publicly owned in 1998 and the Committee has undertaken a review
of the Company's overall compensation arrangements for directors.

SUBMITTED BY THE COMPENSATION COMMITTEE:

Robin Josephs (Chairperson)
Matthew J. Lustig
John G. McDonald
Stephen B. Oresman

EXECUTIVE COMPENSATION SUMMARY TABLE

The following table sets forth the compensation awarded, earned by, or paid
to Jay Sugarman, our Chief Executive Officer, and our four other most
highly-compensated officers during the fiscal year ended December 31, 2002.

ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------------------- -----------------------------------------
SECURITIES
RESTRICTED UNDERLYING ALL OTHER
NAME AND PRINCIPAL OTHER ANNUAL STOCK OPTIONS/ COMPENSATION
POSITION YEAR SALARY ($) BONUS ($) COMPENSATION(1) AWARDS($)(2) SARS ($)
------------------ -------- ---------- ---------- ---------------- ------------ ---------- -------------

Jay Sugarman.............. 2002 $1,000,000 $ 0 $2,129,560 $ 0 0 $0
Chairman and Chief 2001 1,009,058 156,875 643,125 0 750,000 0
Executive Officer(3) 2000 225,000 750,000 6,932 0 500,000 0

Timothy J. O'Connor....... 2002 $ 220,500 $ 350,000 $ 10,276 $ 0 0 $0
Executive Vice President 2001 220,500 375,000 9,605 0 100,000 0
and Chief Operating 2000 210,000 0 7,140 385,000(4) 50,000 0
Officer

Jeffrey R. Digel.......... 2002 $ 210,000 $ 350,000 $ 10,155 $ 0 0 $0
Executive Vice President 2001 210,000 375,000 9,553 0 100,000 0
2000 200,000 0 6,760 357,500(4) 50,000 0

Roger M. Cozzi............ 2002 $ 200,000 $ 350,000 $ 7,438 $ 0 0 $0
Executive Vice President 2001 200,000 375,000 8,675 0 100,000 0
2000 150,000 0 6,790 330,000(4) 50,000 0

Catherine D. Rice......... 2002 $ 34,904 $ 0 $ 68,727 $5,912,044 0 $0
Chief Financial
Officer(5)

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

(1) Includes the Company's matching contributions to the named officer's
account in our Savings and Retirement Plan ("401(k) Plan"), additional
compensation attributable to certain life insurance and disability
insurance premiums and compensation for accrued and unused sick time, in
accordance with our general policy for all employees.

(2) At December 31, 2002, Catherine D. Rice was the only named executive
officer holding restricted shares. At that date, Ms. Rice held an aggregate
of 208,980 shares of restricted stock with an aggregate value of
approximately $5.85 million based on the closing price of our common stock
on December 31, 2002 of $28.05. As described in more detail in this proxy
statement under the heading "Executive Compensation--Report of the
Compensation Committee," and in footnote 3 below, 1.0 million of the
2.0 million phantom units awarded to Mr. Sugarman in 2001 were contingently
vested at December 31, 2002. If those units had been fully vested and
converted into shares of our common stock at that date, such shares would
have had an aggregate value of $28,050,000 based upon our closing common
stock price on that date.

(3) Pursuant to an employment agreement dated March 31, 2001, the Company
awarded Mr. Sugarman 2.0 million unvested phantom units, each of which
notionally represents one share of the Company's common stock. The phantom
units will vest on a contingent basis depending on the price of the
Company's common stock. Of these units, 1.0 million have contingently
vested as of December 31, 2002. Units that have contingently vested do not
become fully vested until March 2004, unless certain termination or change
of control events occur. Until the units become fully vested, they are
subject to forfeiture if our common stock drops below a set floor price.
Mr. Sugarman is entitled to receive dividend equivalents on phantom units
that have become contingently or fully vested. Mr. Sugarman received
aggregate payments of $2,110,500 and $643,125, respectively, as dividend
equivalents on contingently-vested units in 2002 and 2001, respectively.

(4) Pursuant to our annual incentive bonus program for 2000, an employee had
the opportunity to elect to receive 110.00% of his or her annual bonus in
the form of restricted shares of our common stock, rather than cash, based
on the fair market value of the common stock on the date of the bonus
award. The shares are fully vested, which means that the recipient has
voting rights and the rights to receive dividends in respect of the shares,
but the shares are subject to a restriction on transfer for one year from
the date of the award. The transfer restrictions on these shares have
expired. The amounts shown represent the value of shares issued to the
named officers, before taxes and other applicable withholdings, based on
the closing price of our common stock on the date of the award.

(5) On November 1, 2002, the Company entered into a three-year employment
agreement with Ms. Rice under which she will receive an annual salary of
$225,000. The salary shown above reflects amounts paid from the
commencement of that agreement to December 31, 2002. The Company also
granted Ms. Rice 208,980 contingently vested restricted shares. Of these
shares, 108,980 become vested on December 31, 2005 if Ms. Rice's employment
with the Company has not terminated before such date. The vesting of the
remaining 100,000 of these shares is a function of the total rate of return
realized by

our shareholders. The value of Ms. Rice's restricted stock awards shown in
the table was determined by multiplying the 208,980 restricted shares by
the $28.29 closing price of our common stock on the date of the award.
Dividends will be paid on the 108,980 restricted shares as dividends are
paid on shares of the Company's common stock. Ms. Rice received $68,657 in
dividends on the restricted shares during the fiscal year ended
December 31, 2002.

Spencer B. Haber, our former President, received $125,000 in salary and no
bonus in the fiscal year ended December 31, 2002. Mr. Haber was party to an
employment agreement with the Company, dated as of April 1, 2001, pursuant to
which Mr. Haber was awarded 500,000 restricted shares which became fully-vested
on September 30, 2002 as a result of the Company's achieving a 60.00% total
shareholder rate of return (dividends plus share price appreciation) for 60
consecutive days in accordance with the employment agreement. Mr. Haber received
dividends on the 500,000 shares since they were first awarded to him in 2001.
Mr. Haber received $918,750 in dividends during the fiscal year ended
December 31, 2001 and $630,000 in such dividends during the fiscal year ended
December 31, 2002.

AGGREGATE OPTION EXERCISES IN 2002 AND FISCAL YEAR-END OPTION VALUES

The following table presents information for the named officers relating to
stock option exercises during 2002 and the value of unexercised stock options at
the end of the year.

NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS AT FISCAL VALUE OF UNEXERCISED IN-
YEAR THE-MONEY OPTIONS AT
SHARES END (#) FISCAL YEAR END ($)
ACQUIRED ON VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($)(1) UNEXERCISABLE UNEXERCISABLE(2)
---- ------------- -------------- ----------------- ------------------------

Jay Sugarman................... 0 $ 0 522,849/898,595 $5,368,535/$9,135,356
Timothy J. O'Connor............ 0 $ 0 50,001/83,332 $ 465,009 /$ 743,737
Jeffrey R. Digel............... 50,001 $530,011 0/83,332 $ 0 /$ 743,737
Roger M. Cozzi................. 50,001 $450,009 0/83,332 $ 0 /$ 743,737
Catherine D. Rice.............. 0 $ 0 0 $ 0

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

(1) Based on market value of underlying securities at exercise, minus the
option exercise price.

(2) Based on market value of underlying securities on December 31, 2002, minus
the option exercise price.

STOCK OPTION/SAR GRANTS IN 2002

The named officers did not receive any stock option SAR grants during 2002.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Ms. Josephs and Messrs. Lustig, McDonald and Oresman currently serve on the
Compensation Committee, with Ms. Josephs serving as Chairperson. No member of
the Compensation Committee is or was formerly an officer or an employee of the
Company. No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of the Company's Board of Directors, nor has such
interlocking relationship existed in the past.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our directors, executive officers and persons who own more than 10.00% of a
registered class of our equity securities, to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in

ownership of common stock and other of our equity securities. Directors,
officers and greater than 10.00% shareholders are required to furnish us with
copies of all Section 16(a) forms they file.

To our knowledge, based solely on a review of the copies of such reports
furnished to us, during the fiscal year ended December 31, 2002, all
Section 16(a) filing requirements applicable to our directors, officers and
greater than 10.00% beneficial owners were met.

DIRECTORS' COMPENSATION

Messrs. Sugarman, Dishner and Kleeman do not receive any compensation from
us for their services as directors. Each other director receives a fee of
$20,000 per year, which is paid in quarterly installments, as well as an
additional fee of $2,000 for each meeting of our Board of Directors which he or
she attends in person, $1,000 for each meeting of our Board of Directors which
he or she attends telephonically, and $1,000 ($1,500 for chairperson) for each
committee meeting which he or she attends, either personally or telephonically.
Directors are also reimbursed for reasonable expenses incurred in attending
meetings or incurred as a result of other work performed for us. Each director
who is not one of our officers or employees or an officer or employee of
Starwood Capital Group is also granted annually an option to buy 10,000 shares
of our common stock at an exercise price equal to the market price on the date
of the grant, or a number of shares that is equivalent in value to 10,000
options. Such options and shares are immediately exercisable or saleable.

The Company and each of our directors and executive officers have entered
into indemnification agreements. The indemnification agreements provide that we
will indemnify the directors and the executive officers to the fullest extent
permitted by our Amended and Restated Charter and Maryland 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 threatened to be,
made a party by reason of their status as our director, officer or agent, or by
reason of their serving as a director, officer or agent of another company at
our request. We will not indemnify the directors and executive officers if it is
established that: (1) the act or omission was material to the matter giving rise
to the proceeding and was committed in bad faith or the result of active and
deliberate dishonesty, (2) the director or officer actually received an improper
personal benefit, or (3) in the case of a criminal proceeding, the director or
officer had reasonable cause to believe the act or omission was unlawful. In
addition, we will not indemnify the directors and executive officers for a
proceeding brought by a director or officer against us, except to enforce
indemnification. If an amendment to the Amended and Restated Charter or Maryland
law with respect to removal of limitations on indemnification is approved, the
indemnification agreements will be amended accordingly. We are not required to
indemnify any director or executive officer for liabilities: (1) for which he or
she has already been unconditionally reimbursed from other sources, or
(2) resulting from an accounting of profits under Section 16(b) of the
Securities Exchange Act of 1934. In addition, we have obtained director and
officer insurance for our directors and executive officers.

EMPLOYMENT AGREEMENTS

As discussed in the Report of our Compensation Committee, in March 2001, we
entered into a three-year employment agreement with Jay Sugarman, our Chairman
of the Board and Chief Executive Officer. In addition to the compensation
provisions described in the Report of Compensation Committee, the agreement also
provides that if Mr. Sugarman resigns without good reason before the later of
the term of the agreement or one year after a change of control, 50.00% (or
75.00% if we elect to extend the non-competition provisions of the agreement for
an additional year) of Mr. Sugarman's contingently vested units will become
fully vested. Mr. Sugarman will forfeit all units not fully vested if he is
terminated with cause. If Mr. Sugarman is terminated without cause, resigns for
good reason, or is terminated or resigns due to death or disability (together,
an "involuntary termination"), before the later of the term of the agreement or
one year after a change of control that occurs on or before

March 30, 2004, all of Mr. Sugarman's contingently vested units will become
fully vested and, to the extent Mr. Sugarman is terminated without cause or
resigns for good reason, any units that contingently vest within 30 days of the
termination date will also become fully vested. If events leading to a change of
control commence on or before March 30, 2004 and within 90 days of an
involuntary termination, and a related change of control actually occurs within
270 days of such commencement, then all units that have contingently vested as
of the date of the change of control will become fully vested. If Mr. Sugarman
remains employed by us through the first anniversary of a change of control that
occurs during the initial term of the agreement, all of his contingently vested
units will become fully vested.

Notwithstanding the other provisions of the agreement, if a change of
control occurs prior to March 30, 2004, then 250,000 units of any units that
contingently vest due to the change of control will be forfeited if
Mr. Sugarman does not remain employed by us through the earliest of the first
anniversary of the change of control, the occurrence of a subsequent change of
control or the involuntary termination of his employment.

If Mr. Sugarman's employment is terminated without cause or if he resigns
within 90 days after the first anniversary of a change of control, we will pay
him a lump sum of $2.0 million. If Mr. Sugarman resigns for good reason, we will
pay him a lump sum of $5.0 million. If Mr. Sugarman remains employed by us
through the first anniversary of a change of control that occurs on or before
March 30, 2004, or if an involuntary termination occurs in connection with, or
within the year following, a change of control, Mr. Sugarman will be entitled to
a retention payment if less than 17.50% of his units have contingently vested on
or before the change of control date. The amount of the retention payment will
equal: (1) if no units have vested, the product of the excess of the change of
control price over $19.69, multiplied by 2.0 million, or (2) if 17.50% of the
units have vested, 50.00% of the amount described in clause (1).

We have agreed to pay Mr. Sugarman amounts necessary to cover the excise tax
obligations, if any, resulting from a change of control. In addition, during the
term of Mr. Sugarman's agreement, we have agreed to nominate him to serve as our
Chairman of the Board of Directors and Chief Executive Officer. Mr. Sugarman has
agreed that, during the term of his employment and for 12 months (or 24 months
under certain circumstances) thereafter, he will not engage in a business that
directly and materially competes with us, and he will not solicit any of our
borrowers, lenders or employees.

In November 2002, we entered into a three-year employment agreement with
Catherine D. Rice, our Chief Financial Officer. In addition to the compensation
provisions described in our Report of Compensation Committee, the agreement
provides that if Ms. Rice's employment is terminated without cause or if she
resigns for good reason, we will continue to pay her base salary and benefits,
including medical insurance coverage, for one year following the date of her
termination. In addition, the vesting of 108,980 restricted shares awarded to
Ms. Rice will accelerate if her employment is terminated by us without cause, or
if she terminates her employment for good reason. Upon the occurrence of a
change of control event, the vesting of 108,980 restricted shares will
accelerate and an additional 100,000 restricted shares will vest if certain
total shareholder rate of return thresholds have been satisfied at the time of
the change of control. We have agreed to pay Ms. Rice amounts necessary to cover
the excise tax obligations attributable to the vesting of 108,980 restricted
shares, if any, resulting from a change of control. Ms. Rice will be subject to
a one-year non-compete clause following the term of her employment, unless she
has been terminated without cause or has resigned for good reason.

PERFORMANCE GRAPH

The following graph compares the total cumulative shareholder returns on our
common stock from November 5, 1999 to December 31, 2002 to that of: (1) the
Russell 1000 Financial Services Index (the "Russell Index"), a
capitalization-weighted index of 1,000 companies that provide financial
services, and (2) the Standard & Poor's 500 Index (the "S&P 500"). November 5,
1999 was the first full trading day after we acquired (through merger) TriNet
Corporate Realty Trust, Inc. Immediately prior to the TriNet transaction,
approximately 630,000 shares of our common stock were available for trading as
part of our public float, compared to approximately 29.4 million in our public
float immediately following the TriNet acquisition. Because of the significant
effect of this transaction on the liquidity of our stock, the Company believes
that an analysis of the market for our common stock prior to that transaction is
not applicable.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

11/5/99 12/31/99 12/31/00 12/31/01 12/31/02

SFI 100 85.88 113.96 156.3 194.07
Russell 1000 Fin. Serv. 100 93.26 117.76 102 85.34
S&P 500 Index 100 107.44 97.66 87.03 66.69

ACCOUNTING FEES AND SERVICES

Fees paid to PricewaterhouseCoopers LLP, our independent auditors, during
the last two fiscal years were as follows:

Audit Fees: The aggregate fees in the fiscal years ending December 31, 2002 and
December 31, 2001, for professional services rendered by PricewaterhouseCoopers
LLP in connection with its audit of the Company's consolidated financial
statements and the separate financial reporting for the Company's leasing
subsidiary and its limited reviews of the unaudited consolidated interim
financial statements for each of these entities, were approximately $589,650 and
$515,535, respectively.

Audit-Related Fees: The aggregate fees in the fiscal years ending December 31,
2002 and December 31, 2001 for assurance and related services rendered by
PricewaterhouseCoopers LLP that are reasonably related to the performance of the
audit or review of the Company's and the Company's leasing subsidiary's
financial statements and are not disclosed under "Audit Fees" above, were
approximately $559,475 and $397,925, respectively. These services included the
issuance of consents and comfort letters for filings initiated by the Company
(e.g., a shelf registration and related debt offering), mortgage servicing
compliance reports, audits of wholly-owned consolidated secured financing
subsidiaries, due diligence reviews of assets for our STARs(SM) securitization
program and the Company's pro rata portion of fees for audits of unconsolidated
joint ventures.

Tax Fees: The aggregate fees in the fiscal years ending December 31, 2002 and
December 31, 2001 for professional services rendered by PricewaterhouseCoopers
LLP for tax compliance, tax advice and tax planning were approximately $605,467
and $393,750, respectively. These services included income tax compliance and
related tax services.

Financial Information Systems Design and Implementation Fees: During the years
ended December 31, 2002 and December 31, 2001, PricewaterhouseCoopers LLP
rendered no professional services to the Company, its subsidiaries or joint
ventures in connection with the design and implementation of financial
information systems.

The Company's Audit Committee is responsible for retaining and terminating
the Company's independent auditors (subject, if applicable, to shareholder
ratification) and for approving the performance of any non-audit services by the
independent auditors. In addition, the Audit Committee is responsible for
reviewing and evaluating the qualifications, performance and independence of the
lead partner of the independent auditors and for presenting its conclusions with
respect to the independent auditors to the full Board of Directors.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information available to us as of
March 24, 2003 with respect to any common stock owned by our continuing
directors and executive officers, and any individual or group of shareholders
known to be the beneficial owner of more than 5.00% of the issued and
outstanding common stock. This table reflects options that are exercisable
within 60 days of the date of this proxy statement. There are no other of our
directors, nominees for director or executive officers who beneficially own
common stock.

COMMON STOCK % OF BASIC COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED STOCK OUTSTANDING
--------------------------------------- ------------------ -----------------

Jay Sugarman(2)....................................... 2,272,850(3) 2.30%
Willis Andersen, Jr.(4)............................... 36,799(5) *
Jeffrey G. Dishner(6)................................. 207,613(7) *
Andrew L. Farkas(2)................................... 20,000(8) *
Robert W. Holman, Jr.(4).............................. 559,832(9) *
Robin Josephs(2)...................................... 32,699(10) *
Merrick R. Kleeman(6)................................. 477,354(11) *
John G. McDonald(4)................................... 86,800(12) *
George R. Puskar(4)................................... 58,650(13) *
SOFI-IV SMT Holdings, L.L.C. and affiliates(6)........ 20,085,538(14) 20.37%
Lazard Freres Real Estate Fund II L.P.(15)............ 3,031,519(16) 3.02%
Lazard Freres Real Estate Offshore Fund II L.P.(17)... 1,916,999(16) 1.91%
LF Offshore Investment L.P.(17)....................... 1,164,647(16) 1.16%
Matthew J. Lustig(18)................................. 0(18) *
Jeffrey A. Weber(2)................................... 0 *
All executive officers, directors and nominees for
director as a group (11 persons)**.................. 23,838,135 24.17%

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

* Less than 1.00%.

** Includes 20,085,538 shares held by SOFI-IV SMT Holdings, L.L.C., as to which
beneficial ownership is disclaimed. If these shares were excluded, the
percentage of common stock outstanding owned by all executive officers,
directors and nominees for director as a group would have been 3.81%.

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

(2) iStar Financial Inc., 1114 Avenue of the Americas, 27th Floor, New York, NY
10036.

(3) Includes 1,171,925 shares of common stock subject to options that are
exercisable by Mr. Sugarman within 60 days.

(4) iStar Financial Inc., One Embarcadero Center, San Francisco, CA 94111.

(5) Includes 24,600 shares of common stock subject to options that are
exercisable by Mr. Andersen within 60 days.

(6) 591 West Putnam, Greenwich, CT 06830.

(7) Includes 84,528 shares of common stock subject to options that are
exercisable by Mr. Dishner within 60 days.

(8) 20,000 of these options are exercisable by Mr. Farkas within 60 days.

(9) Includes 216,300 shares of common stock subject to options that are
exercisable by Mr. Holman within 60 days.

(10) Includes 25,094 shares of common stock issuable upon the exercise of
outstanding options and 305 shares of common stock owned by Ms. Josephs'
spouse.

(11) Includes 57,982 shares of common stock subject to options that are
exercisable by Mr. Kleeman within 60 days.

(12) Includes 66,800 shares of common stock subject to options that are
exercisable by Mr. McDonald within 60 days.

(13) Includes 43,800 shares of common stock subject to options that are
exercisable by Mr. Puskar within 60 days.

(14) Starwood Opportunity Fund IV, L.P. is a private investment fund whose
investors include pension funds and other accredited investors. Starwood
Opportunity Fund IV, L.P. is the sole member and manager of SOFI-IV SMT
Holdings, L.L.C. SOFI IV Management, L.L.C. is the general partner of
Starwood Opportunity Fund IV, L.P. Starwood Capital Group, L.L.C. is the
general manager of SOFI IV Management, L.L.C. Barry S. Sternlicht, a former
director, controls Starwood Capital Group, L.L.C. Each of these entities and
Mr. Sternlicht share voting and dispositive power of the shares of common
stock owned by SOFI-IV SMT Holdings, L.L.C. Each of Starwood Opportunity
Fund IV, L.P., SOFI-IV Management, L.L.C. and Starwood Capital Group, L.L.C.
and Mr. Sternlicht disclaims beneficial ownership of such shares except to
the extent of its pecuniary interest in them.

(15) 30 Rockefeller Center, New York, New York 10020.

(16) The common stock deemed to be beneficially owned by these holders reflects
the shares of common stock that may be acquired by them upon exercise of
warrants. The following information has been provided in a Schedule 13D
filed with the Securities and Exchange Commission. Lazard Freres Real Estate
Investors L.L.C. ("LFREI"), as the sole general partner of Lazard Freres
Real Estate Fund II L.P. ("Onshore"), and Lazard Freres & Co. L.L.C.
("LFC"), as the managing member of LFREI, may be deemed to beneficially own
the warrants and the shares of common stock that Onshore may acquire upon
exercise of its warrants. LFC disclaims beneficial ownership of the warrants
and such shares of common stock. LFREI is also the investment adviser to
Lazard Freres Real Estate Offshore Fund II L.P. ("Offshore I") and LF
Offshore Investment, L.P. ("Offshore II"), but has no right to bind them or
otherwise direct their actions. LFREI disclaims beneficial ownership of the
warrants and shares of common stock that Offshore I or Offshore II may
acquire upon exercise of their respective warrants. LF Real Estate Investors
Company ("LFREIC"), as the sole general partner of Offshore I and Offshore
II, may be deemed to beneficially own the warrants and the shares of common
stock that Offshore I and Offshore II may acquire upon exercise of their
respective warrants.

(17) c/o Maples & Calder, Attorneys-at-Law, Ugland House, P.O. Box 309, George
Town, Grand Cayman, Cayman Islands, British West Indies.

(18) Mr. Lustig is a managing principal of LFREI and a Managing Director of LFC.
LFC is the managing member of LFREI. LFREI is the sole general partner of
Onshore. Onshore beneficially owns 2,975,400 of our shares that may be
acquired upon exercise of warrants. Mr. Lustig disclaims any and all
beneficial ownership of the shares except to the extent of his indirect
pecuniary interest as an officer and director of LFREI and LFC.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

HIGH PERFORMANCE UNIT PROGRAM

In May 2002, our shareholders approved the iStar Financial High Performance
Unit Program. The program, as more fully described in our annual proxy statement
dated April 8, 2002, is a performance-based employee compensation plan that only
has material value to the participants if we provide superior returns to our
shareholders. The program entitles the employee participants to receive cash
distributions in the nature of common stock dividends if the total rate of
return on our common stock (dividends plus share price appreciation) exceeds
certain performance levels.

In 2002, we issued 5,000 shares of High Performance common stock for each of
the plans through 2005. Forty-three of our employees currently participate in
the High Performance Unit Program. The employees paid an aggregate of
approximately $2.7 million, $1.8 million, $1.3 million and $0.6 million for the
shares of the 2002 plan, 2003 plan, 2004 plan and 2005 plan, respectively.
Employees participating in the program include H. Cabot Lodge III, our Executive
Vice President-Investments and a director, Catherine D. Rice, our Chief
Financial Officer, Timothy J. O'Connor, our Chief Operating Officer, and Nina B.
Matis, our General Counsel. Jay Sugarman, our Chief Executive Officer, does not
participate in the program.

As of April 21, 2003, only the 2002 plan had reached its valuation date. The
total shareholder return for the valuation period under the 2002 plan was
21.94%, which exceeded both the fixed performance threshold of 10.00% and the
industry index return of (5.83)%. As a result of this superior performance, the
employees that are participants in the 2002 plan are entitled to receive cash
distributions equivalent to the amount of cash dividends payable on 819,254
shares of our common

stock, as and when such dividends are paid. We have the right, but not the
obligation, to repurchase at cost 50.00% of the interests earned by an employee
in the 2002 plan if the employee breaches certain non-competition,
non-solicitation and confidentiality covenants through January 1, 2005. We will
pay dividends on the 2002 plan shares in the same amount per share and on the
same distribution dates that we pay dividends on our common stock.

OTHER RELATIONSHIPS

Messrs. Dishner and Kleeman are employed by an affiliate of Starwood Capital
Group, L.L.C. Starwood Capital Group, L.L.C. is the indirect general manager of
the sole member/manager of SOFI-IV SMT Holdings, L.L.C. Messrs. Dishner,
Kleeman, Sugarman and Weber own indirect interests in SOFI-IV SMT Holdings,
L.L.C., which owns approximately 19.84% of our common stock on a diluted basis.

In January 2003, the Company provided $31.5 million of first mortgage
financing on arms' length terms to a third-party borrower. Troon Golf, in which
an affiliate of Starwood Capital Group, L.L.C. holds a non-controlling interest,
has an operating lease on the underlying property. The operating lease is junior
in priority to the Company's investment. In accordance with the Company's
policies, this transaction was approved by both the Company's internal
investment committee and the Investment Committee of its Board of Directors,
with all interested parties abstaining.

In February 2003, the Company provided $20.0 million of mezzanine financing
on arms' length terms to a third-party borrower. An affiliate of Starwood
Capital Group, L.L.C. holds a minority interest in a lessee of the underlying
properties. In accordance with the Company's policies, this transaction was
approved by the Company's internal investment committee, with all interested
parties abstaining.

Affiliates of Starwood Capital Group, L.L.C. and our Chief Executive Officer
agreed to reimburse the Company for the value of restricted shares awarded to
our former President under his employment agreement with the Company in excess
of 350,000 shares. As of December 31, 2002, our Chief Executive Officer
fulfilled his reimbursement obligation through the delivery of shares of our
common stock owned by him. The affiliates of Starwood Capital Group, L.L.C. have
paid the Company approximately $506,000 in cash. The approximately $1.9 million
balance of the reimbursement obligations of such affiliates is due on or before
March 31, 2004 and may be satisfied through the delivery of cash or shares.

OTHER MATTERS

WHEN ARE SHAREHOLDER PROPOSALS DUE FOR THE 2004 ANNUAL MEETING?

Shareholder proposals intended to be presented at the 2004 annual meeting
must be sent in writing, by certified mail, return receipt requested, to us at
our principal office, addressed to our Secretary, and must be received by us no
later than January 1, 2004, for inclusion in the 2004 proxy materials.

ARE THERE ANY OTHER MATTERS COMING BEFORE THE 2003 ANNUAL MEETING?

Our management 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 Company 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 Directors

[GRAPHIC]

Geoffrey Dugan
Assistant Secretary
New York, New York
April 21, 2003

ANNEX A

CURRENT VERSION OF ARTICLE VI(E) AND (F) OF THE AMENDED AND RESTATED CHARTER OF
ISTAR FINANCIAL:

(e) The Directors shall be divided into two classes as follows:

(i) the term of office of Class I Directors shall be until the annual
meeting of Stockholders held in the year 2000 and until their successors
shall be elected and have qualified and thereafter shall be for two years
and until their successors shall be elected and have qualified; and

(ii) the term of office of Class II Directors shall be until the annual
meeting of Stockholders held in the year 2001 and until their successors
shall be elected and have qualified and thereafter shall be for two years
and until their successors shall be elected, and have qualified.

If the number of Directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain or attain, is possible, the
equality of the number of Directors in each class.

(f) The names of the individuals who now serve as Directors of the
Corporation and until their successors are elected and qualify are as follows:

(i) The following persons shall serve as Class I Directors:

Jeffrey G. Dishner
Jonathan Eilian
Robin Josephs
Merrick R. Kleeman
Madison F. Grose

(ii) The following persons shall serve as Class II Directors:

Barry S. Sternlicht
Jay Sugarman
William M. Mathes
Kneeland C. Youngblood
Spencer B. Haber

PROPOSED AMENDED VERSION OF ARTICLE VI(E) AND (F) OF THE AMENDED AND RESTATED
CHARTER OF ISTAR FINANCIAL:

(e) There shall be one class of Directors. Directors shall be elected at
the annual meeting of the Stockholders, except as otherwise provided in this
Charter or the Bylaws. Each Director elected shall hold office until the next
annual meeting of the Stockholders and until his or her successor is elected and
qualified or until his or her earlier resignation or removal.

(f) Intentionally left blank.

A-1

ANNEX B
AUDIT COMMITTEE
CHARTER

PURPOSES:

The purposes of the Audit Committee (the "Committee") of the Board of
Directors ("Board") of iStar Financial Inc. (the "Company") are as follows:

A. To assist Board oversight of (1) the integrity of the Company's
financial statements, (2) the Company's compliance with legal and regulatory
requirements, (3) the independent auditor's qualifications and independence, and
(4) the performance of the independent auditors and the Company's internal audit
function.

B. To prepare the report of the Committee for inclusion in the Company's
annual proxy statement, in accordance with applicable rules and regulations of
the Securities and Exchange Commission ("SEC").

MEMBERSHIP:

The Committee shall be comprised of three (3) or more members of the Board.
The Committee shall be organized in compliance with standards established by the
New York Stock Exchange, Inc. ("NYSE") from time to time and applicable SEC
rules. The Board shall appoint members of the Committee for one-year terms and
members shall serve at the pleasure of the Board. The Board shall designate one
of the Committee members to serve as chairman of the Committee. No member of the
Committee may receive any compensation from the Company other than director's
fees. Committee members shall have the following qualifications:

A. Each member of the Committee shall be "independent" as determined by the
Board in its business judgment in accordance with standards established by the
NYSE from time to time.

B. Each member of the Committee shall be "financially literate" (or become
so within a reasonable time after his or her appointment to the Committee), as
such qualification is interpreted by the Board in its business judgment in
accordance with standards established by the NYSE from time to time.

C. At least one member of the Committee shall have "accounting or related
financial management expertise," as such qualification is interpreted by the
Board in its business judgment in accordance with standards established by the
NYSE from time to time.

D. At least one member of the Committee shall have such other attributes
relating to financial expertise as the Board determines in its business judgment
satisfy standards set forth in rules and regulations established by the SEC from
time to time.

DUTIES AND RESPONSIBILITIES:

The Committee has the following duties and responsibilities:

A. To retain and terminate the Company's independent auditors (subject, if
applicable, to shareholder ratification).

B. At least annually, to obtain and review a report by the independent
auditors describing (1) the auditing firm's internal quality-control procedures,
(2) any material issues raised by the most recent internal quality-control
review, or peer review, of the auditing firm, or by any inquiry or investigation

B-1

by governmental or professional authorities, within the preceding five years,
respecting one or more independent audits carried out by the auditing firm, and
any steps taken to deal with any such issues, and (3) all relationships between
the independent auditor and the Company.

C. To review and evaluate the qualifications, performance and independence
of the lead partner of the independent auditors and present the Committee's
conclusions with respect to the independent auditors to the full Board.

D. To ensure that the lead audit partner does not serve in that capacity
for more than five years and consider whether the audit firm itself should be
changed periodically.

E. To discuss the annual audited financial statements and quarterly
financial statements with management and the independent auditor, including the
Company's disclosures under "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

F. To receive reports from the Company's Chief Executive Officer and Chief
Financial Officer of (i) all significant deficiencies in the design or operation
of internal controls which could adversely affect the Company's ability to
record, process, summarize and report financial data and identify any material
weakness in internal controls, and (ii) any fraud, whether or not material, that
involves management or other employees who have a significant role in the
Company's internal controls.

G. To review analyses prepared by management and/or the independent
auditors setting forth significant financial reporting issues and judgments made
in connection with the preparation of the Company's financial statements,
including analyses of the effects of alternative GAAP methods on the Company's
financial statements; the effect of regulatory and accounting initiatives, as
well as off-balance sheet structures on the financial statements of the Company;
and earnings press releases (paying particular attention to any use of "pro
forma," or "adjusted" non-GAAP, information), as well as financial information
and earnings guidance provided to analysts and rating agencies.

H. To review any accounting adjustments that were noted or proposed by the
auditor but were "passed" (including similar adjustments that were passed
because individually they were not material); any communications between the
audit team and the audit firm's national office respecting auditing or
accounting issues presented by the engagement; and any "management" or "internal
control" letter issued, or proposed to be issued, by the auditing firm to the
Company.

I. To review and approve the Company's hedging policy and execution of
hedging transactions.

J. To review and approve the Company's credit loss reserve policy and
establishment of reserves on a quarterly basis.

K. On behalf of the Board of Directors, to authorize transactions in which
the Company or any subsidiary incurs indebtedness (for this purpose, a guarantee
by the Company or any subsidiary of the financial obligations of another person
shall be deemed to be an incurrence of indebtedness), or refinances any
indebtedness, in an amount greater than $30 million but less than $50 million in
any transaction or series of related transactions.

L. On behalf of the Board of Directors, to authorize such other capital
markets transactions or other transactions, and such other matters, as the Board
may request.

M. As appropriate, to obtain advice and assistance from outside legal,
accounting or other advisors.

N. To discuss policies with respect to risk assessment and risk management.

O. To review the adequacy of management information systems, internal
accounting and financial controls.

B-2

P. To meet separately, on a periodic basis, with Company personnel
responsible for the internal audit function and with independent auditors.

Q. To review with the independent auditor any audit problems or
difficulties and management's response.

R. To establish policies regarding hiring employees or former employees of
the independent auditors.

S. To review annually internal and external audits, if any, of employees
benefit plans and pension plans of the Company (including subsidiaries).

T. To review annually adequacy of the Company's insurance.

U. To review annually adequacy of protection of technology, including
physical security, patent and trademark program and proprietary information.

V. To review annually the policies and procedures relating to compliance
with legal and regulatory requirements and the Company's compliance therewith.

W. To report regularly to the Board.

PERFORMANCE EVALUATION REPORT:

The Committee will provide to the Board an annual performance evaluation of
the Committee, including an assessment of the performance of the Committee based
on the duties and responsibilities set forth in this charter and such other
matters as the Committee may determine. The evaluation to the Board may take the
form of an oral report by the Committee chairman or any other member of the
Committee designated by the Committee to make the report.

DELEGATION TO SUBCOMMITTEE:

The Committee may, in its discretion, delegate all or a portion of its
duties and responsibilities to a subcommittee of the Committee.

RESOURCES AND AUTHORITY OF THE COMMITTEE:

The Committee will be given the resources and authority appropriate to
discharge its duties and responsibilities, including the authority to retain
counsel and other experts or consultants. The Committee has the sole authority
to approve all audit engagement fees and terms, as well as significant non-audit
engagements with the independent auditors. The Company will provide appropriate
funding, as determined by the Committee, in its capacity as a committee of the
Board, for payment of compensation (a) to the public accounting firm employed to
audit the Company's financial statements and (b) to any advisors employed by the
Committee.

MINUTES:

Minutes will be kept of each meeting of the Committee and will be available
to each member of the Board. Any action of the Committee (other than actions for
which the Committee has sole authority as set forth herein) shall be subject to
revision, modification, rescission, or alteration by the Board, provided that no
rights of third parties shall be affected by any such revision, modification,
rescission, or alteration.

AMENDMENTS:

This Audit Committee Charter may be amended in whole or in part with the
approval of a majority of the Board.

B-3

PROXY

THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF
iSTAR FINANCIAL INC.
1114 AVENUE OF THE AMERICAS, 27TH FLOOR
NEW YORK, NEW YORK 10036

PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 3, 2003. TO VOTE
AT THE ANNUAL MEETING IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF
DIRECTORS OF iSTAR FINANCIAL INC., SIGN AND DATE THE REVERSE SIDE OF THIS CARD
WITHOUT CHECKING ANY BOX.

The undersigned holder of shares of common stock, 9.375% Series B Cumulative
Redeemable Preferred Stock, 9.20% Series C Cumulative Redeemable Preferred Stock
and/or 8.00% Series D Cumulative Redeemable Preferred Stock of iStar Financial
Inc., a Maryland corporation (the "Company"), hereby appoints Jay Sugarman and
Catherine D. Rice, or either of them, with full power of substitution in each,
to attend and to cast all votes which the undersigned shareholder is entitled to
cast at the annual meeting of shareholders to be held on June 3, 2003, at 8:30
a.m. local time, at The Sofitel Hotel, 45 West 44th Street, New York, New York,
10036 and at any adjournments or postponements thereof, and otherwise to
represent the undersigned at the meeting with all powers possessed by the
undersigned if personally present at the meeting, upon the following matters.
The undersigned shareholder hereby revokes any proxy or proxies heretofore given
with respect to such meeting. Capitalized terms not otherwise defined have the
meanings given in the proxy statement to which this proxy relates.

SEE REVERSE
SIDE

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

[ISTAR FINANCIAL LOGO]

/X/ PLEASE MARK YOUR 5763
VOTES AS IN THIS
EXAMPLE.

TO WITHHOLD AUTHORITY FOR ANY NOMINEE, STRIKE A LINE THROUGH SUCH NOMINEE'S NAME
OR WRITE SUCH NOMINEE'S NAME IN THE SPACE INDICATED. If a nominee becomes
unavailable for election or unable to serve as a Director, the votes will be
cast for a person that will be designated by the Board of Directors of the
Company.

1. The election of four members of the Board of Directors.

Nominees: Jay Sugarman, Willis Andersen, Jr., John G. McDonald
and Jeffrey A. Weber

FOR / / WITHHELD / /

For, except vote withheld from the following nominee(s):

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

2. Amendment of charter to eliminate staggered board feature and to provide for
annual election of directors

FOR / / AGAINST / / ABSTAIN / /

3. Approval and adoption of the iStar Financial Inc. Executive and Director High
Performance Unit Program.

FOR / / AGAINST / / ABSTAIN / /

4. Ratification of the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants for the fiscal year ending December 31, 2003.

FOR / / AGAINST / / ABSTAIN / /

In their discretion, the proxies are authorized to vote and otherwise represent
the undersigned on any other matter that may properly come before the annual
meeting, or any adjournments or postponements thereof.

This proxy, when properly executed, will be voted in the manner as directed
herein by the undersigned shareholder. IF THIS PROXY IS EXECUTED BUT NO
INSTRUCTION IS GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4 AND
IN THE DISCRETION OF THE PROXY HOLDER ON ANY OTHER MATTER THAT MAY PROPERLY COME
BEFORE THE MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF. The undersigned
shareholder may revoke this proxy at any time before it is voted by delivering
to the Secretary of the Company 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.

Please sign exactly as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.

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

-----------------------------------------------
SIGNATURE(S) DATE

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