Edgar Filing: LNR PROPERTY CORP

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended November 30, 2001

Commission file number 1-13223

LNR PROPERTY CORPORATION
(Exact name of registrant as specified in its charter)

Delaware 65-0777234
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

760 Northwest 107th Avenue, Miami, Florida 33172
(Address of principal executive offices) (Zip Code)

(305) 485-2000
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange
Title of each class on which registered

Common Stock, par value 10c per share New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: NONE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]

As of February 14, 2002, 24,545,499 shares of common stock and 9,946,869
shares of Class B common stock (which can be converted into common stock) were
outstanding. Of the total shares outstanding, 22,011,149 shares of common stock
and 209,039 shares of Class B common stock, having a combined aggregate market
value (assuming the Class B shares were converted) on that date of $727,933,359
were held by non-affiliates of the registrant.

Documents Incorporated by Reference Part of Form 10-K Into Which this
Into this Report Document is Incorporated

LNR Property Corporation Part III
2002 Proxy Statement

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PART I

THIS ANNUAL REPORT ON FORM 10-K CONTAINS INFORMATION WHICH CONSTITUTES
FORWARD LOOKING STATEMENTS. FORWARD LOOKING STATEMENTS INHERENTLY INVOLVE RISKS
AND UNCERTAINTIES. THE FACTORS, AMONG OTHERS, THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE ANTICIPATED BY THE FORWARD LOOKING STATEMENTS
INCLUDE (I) CHANGES IN DEMAND FOR COMMERCIAL REAL ESTATE NATIONALLY, IN AREAS
IN WHICH THE COMPANY OWNS PROPERTIES, OR IN AREAS IN WHICH PROPERTIES SECURING
MORTGAGES DIRECTLY OR INDIRECTLY OWNED BY THE COMPANY ARE LOCATED, (II)
INTERNATIONAL, NATIONAL OR REGIONAL BUSINESS CONDITIONS WHICH AFFECT THE
ABILITY OF MORTGAGE OBLIGORS TO PAY PRINCIPAL OR INTEREST WHEN IT IS DUE, (III)
THE CYCLICAL NATURE OF THE COMMERCIAL REAL ESTATE BUSINESS, (IV) CHANGES IN
INTEREST RATES, (V) CHANGES IN THE MARKET FOR VARIOUS TYPES OF REAL ESTATE
BASED SECURITIES, (VI) CHANGES IN AVAILABILITY OF CAPITAL OR THE TERMS ON WHICH
IT IS AVAILABLE, (VII) CHANGES IN AVAILABILITY OF QUALIFIED PERSONNEL, AND
(VIII) CHANGES IN GOVERNMENT REGULATIONS, INCLUDING, WITHOUT LIMITATION,
ENVIRONMENTAL REGULATIONS.

Item 1. Business.

Overview

LNR Property Corporation ("LNR" and, together with its subsidiaries, the
"Company") is a real estate investment, finance and management company, which
structures and makes real estate and real estate related investments and,
through its expertise in developing and managing properties and working out
underperforming and non-performing commercial loans, seeks to enhance the value
of those investments. Over the last nine years, the Company's revenues and
adjusted EBITDA (earnings before interest, taxes, depreciation and
amortization, plus cash interest received on commercial mortgage-backed
securities ("CMBS") in excess of interest income recognized and tax credits and
tax benefits from affordable housing communities) have grown at compound annual
growth rates of 28.8% and 34.7%, respectively.

The Company's real estate investment activities primarily consist of:

. Properties: acquiring, developing, managing and repositioning commercial
and multi-family residential real estate properties,

. Loans: investing in high yielding real estate loans and purchasing at a
discount portfolios of loans, backed by real estate, and

. Securities: investing in unrated and non-investment grade rated CMBS as
to which the Company has the right to be special servicer (i.e., to
oversee workouts of underperforming and non-performing loans).

The Company and its predecessors have been engaged in the development,
ownership and management of commercial and multi-family residential properties
since 1969. LNR was formed by Lennar Corporation ("Lennar") in June 1997 to
separate Lennar's real estate investment, finance and management business from
its homebuilding business. On October 31, 1997, Lennar distributed the stock of
LNR to Lennar's stockholders in a tax-free spin-off (the "Spin-off"). In
connection with the Spin-off, the Company agreed that until December 2002, it
would not engage in homebuilding or related activities (other than purchasing
securities backed by residential mortgages and providing financing to
homebuilders or land developers) and Lennar agreed that until December 2002, it
would not engage in various activities in which the Company was engaged at the
time of the Spin-off (which is most of the principal activities in which the
Company currently is engaged).

LNR will not make an investment unless it has control over the development
and implementation of the strategy for enhancing the value of the underlying
assets. LNR looks to invest where it can utilize its expertise to add value by
increasing recurring cash flows and optimizing asset values.

The Company performs extensive due diligence before making investments in
order to evaluate investment risks and opportunities and see whether it will be
able to use its skills to enhance the value of the investments. This due
diligence process is strictly adhered to across each of the Company's business
lines. While the discipline is the same for every asset, the significance of
this process is particularly evident when an acquisition

involves a large pool of assets. For example, in CMBS where a transaction often
involves over $1 billion of collateral and a pool of several hundred loans
secured by real estate properties, the Company, among other things, (i) visits
each underlying property and at least three other comparable properties in the
same sub-market; (ii) projects anticipated cash flows from the properties based
on leases in place, market information and extensive internal knowledge; (iii)
arrives at an independent value for each property; (iv) reviews all loan
documents and any third party reports such as appraisals and environmental
reports; (v) evaluates the borrower and its likely ability to make all required
loan payments; (vi) re-underwrites the loan and the expected cash flows from
the loan; (vii) models the resultant anticipated bond class cash flows; (viii)
requires the sponsor to remove from the pool individual loans which do not meet
LNR's investment standards; and (ix) formally presents findings to senior
management prior to approval of any investment. Due diligence is conducted by
trained associates who have expertise in each asset's specific market or
geography and who possess extensive workout skills.

In the past decade LNR has invested in properties, loans and securities with
an underlying real estate value of more than $100 billion. After investments
are made, LNR constantly monitors its investments and oversees the value-
enhancement process in an effort to ensure that every asset performs in
accordance with LNR's underwriting assumptions and is appropriately accounted
for. LNR undertakes a comprehensive asset and market review prior to each asset
disposition which is similar to LNR's acquisition process and attempts to
ensure that each sale is correctly priced and timed to achieve optimal values.
Careful, timely dispositions are critical to LNR's value-enhancement strategy
and its efforts to keep its assets deployed in areas that offer the greatest
opportunities.

Because of its extensive experience since the early 1990's in turning around
distressed and underperforming assets, LNR has a reputation as a leading
workout specialist. For the past decade, LNR has applied a disciplined approach
to value-enhancement and has improved the cash flows from dozens of portfolios
that it and its partners bought at significant discounts to face value. In
addition, it has worked out thousands of loans that have gone into default,
returning them to performing status, resolving them through payoffs or
enhancing the underlying foreclosed properties before sale. A combination of
experience, disciplined methodologies, state-of-the-art systems and advanced
warning through its proprietary surveillance and shadow servicing programs
enable LNR to seek to reduce risk and ultimately realize the optimal value from
its investments. The major rating agencies rate the capabilities of CMBS
special servicers and have recognized these abilities by assigning LNR their
highest ratings.

The Company adjusts its investment focus from time to time to adapt to
changes in markets and phases of the real estate cycle. The Company does not
have specific policies as to the type of real estate related assets it will
acquire, the percentage of its assets it will invest in particular types of
real estate related assets or the percentage of the interests in particular
entities it will acquire. Instead, it reviews, at least monthly, the types of
real estate related investment opportunities which may at that time be
available, the market factors which may affect various types of real estate
related investments (including the likelihood of changes in interest rates or
availability of investment capital) and other factors which may affect the
attractiveness of particular investment opportunities.

At November 30, 2001, the Company's assets consisted of:

Type of Asset Book Value Description/Comment
------------- ------------- -------------------
(In millions)

Real estate properties.. $ 761.9 Rental apartment communities, office
buildings, industrial/warehouse
facilities, hotels, retail centers and
land.

Real estate loans....... 331.5 Primarily first mortgage loans. Also
includes loans to developers and
builders, sometimes with profit
participations.

Real estate securities.. 1,215.1 Unrated and non-investment grade rated
tranches of CMBS pools acquired at
significant discounts from face value,
as to which the Company has the right
to be special servicer and can seek to
increase collections of underlying
loans.

Partnerships............ 352.1 . Real estate property partnership
investments of $226.7 million
(primarily partnerships with Lennar,
88 partnership interests in
affordable housing communities and 19
partnerships which hold single-asset
real estate properties).
. Real estate loan partnership
investments of $8.9 million
(primarily partnerships which
acquired portfolios of loans and/or
properties at discounts).
. Real estate securities partnership
investments of $116.5 million
(primarily Madison Square Company
LLC, a vehicle that invests in
primarily CMBS).

Cash and other assets... 176.0 Cash at November 30, 2001 consisted of
$6.6 million of unrestricted cash and
$82.0 million of restricted cash
comprised primarily of:
. $26.1 million of funds held in trust
for asset purchases and development
and
. $55.5 million of short-term
investment securities held as
collateral for a letter of credit
that provides credit enhancement to
tax-exempt bonds.
Other assets include accounts and notes
receivable, interest receivable,
deferred costs and other items.
--------
Total................... $2,836.6
========

Real Estate Properties

In 1969 Lennar began engaging in the development, ownership and management
of commercial and residential multi-family rental real estate. Its initial
activities of this type included owning and operating small office buildings,
local regional retail centers and other commercial and industrial facilities on
properties being developed as part of Lennar's homebuilding operations,
primarily in Florida. Gradually, this was expanded to general development,
acquisition and management of commercial and residential multi-family rental
real estate, as well as acquiring land for development and sale or leasing for
commercial uses, throughout the United States.

The management process for every real estate property the Company owns or
operates is carried out in accordance with a five-year strategic business plan,
comprehensive annual budgets, weekly asset manager meetings and monthly focus
reports. In most instances, the Company uses local experts to perform on-site
management, leasing, maintenance and development activities. Over the years,
the Company has established relationships with a large network of these experts
across the country. The Company often partners with developers to direct the
development and repositioning of the properties. In these instances, the
Company's employees closely supervise the operation of the properties and the
activities of the outside management companies and developers. At November 30,
2001, the Company's real estate property portfolio, which includes stabilized
properties and properties in various stages of development, repositioning
and/or lease-up, included:

Number of
Type Properties Square Feet/Units/Rooms
---- ---------- -----------------------

Apartment communities:
Affordable housing...... 88 11,000 units
Market-rate............. 7 2,500 units
Office buildings.......... 23 4.6 million square feet
Industrial/warehouse
facilities............... 2 1.1 million square feet
Hotels.................... 10 2,188 rooms
Retail centers............ 9 0.9 million square feet
Land:
Leased.................. 21 1.6 million square feet (39 acres)
Other................... - 480 acres

Apartment Communities

The Company's 95 apartment communities range in size from 20 to 540 units.
These apartment communities are comprised of both market-rate and affordable
housing communities. The apartment communities are geographically located as
follows:

Number of
State Properties
----- ----------

Washington.................... 19
Oregon........................ 12
California.................... 8
Nevada........................ 8
New Mexico.................... 6
Colorado...................... 5
Texas......................... 5
Virginia...................... 5
Arizona....................... 4
Florida....................... 4
Pennsylvania.................. 4
Illinois...................... 3
Montana....................... 3
South Carolina................ 2
Wisconsin..................... 2
Other......................... 5
---
95
===

During 1998, the Company entered the business of owning, developing and
syndicating multi-family and senior housing residential rental communities
which qualify for Low-Income Housing Tax Credits ("affordable housing
communities"). It did this by acquiring a group of entities, or partnership
interests in entities, known as the Affordable Housing Group ("AHG").
Initially, the Company's strategy was to retain the tax credits generated
through owning the majority of the interests in the affordable housing
communities and use those credits to reduce the Company's overall effective tax
rate. However, the demand for credits has since increased significantly and the
Company found it could generate higher returns on its investments by selling
the credits instead of holding them. Accordingly, the Company has shifted its
strategy away from owning the majority of the interests in the affordable
housing communities toward syndicating such interests. After such syndication,
the Company continues to hold a small interest (typically 1% to 10%) in these
partnerships and continues to manage the communities for which it earns fees.
As of November 30, 2001, the Company had ownership interests in approximately
11,000 affordable housing apartment units (88 communities). Approximately 89%
of the affordable housing communities were constructed by AHG or under its
supervision. AHG acquired the other affordable housing communities after they
were completed.

During 2001, the Company syndicated most of the tax credits related to 18
affordable housing communities by placing its limited partnership interests of
the entities which own the individual properties into new limited liability
companies and selling majority interests in these limited liability companies.
The Company retained small minority interests in these limited liability
companies.

Office Buildings

The Company's 23 office buildings range from one to 36 stories and have an
aggregate of 4.6 million square feet of rentable office space. Eleven of the
office buildings are in California, three are in Florida, two are in Georgia,
two are in Louisiana, two are in North Carolina, and one is in each of Texas,
Utah and Virginia.

Industrial/Warehouse Facilities

The Company's two industrial/warehouse facilities range from 309,000 square
feet to 747,000 square feet of usable floor space. These industrial facilities
are in California.

Hotels

The Company's ten hotels have or will have a total of 2,188 rooms. Four of
the hotels, representing 769 rooms, are stabilized and are managed by a
national chain. The other six hotels have not yet reached stabilized occupancy,
are under development or are being repositioned.

Retail Centers

The retail centers in the Company's portfolio include: (i) three
neighborhood retail centers (sometimes referred to as "strip centers"), with
between 30,000 square feet and 70,000 square feet of rentable store space, as
well as parking areas and public areas, (ii) five regional retail centers, with
60,000 square feet to 250,000 square feet of rentable store space, and (iii)
one single-tenant property with 85,000 square feet. Two of the neighborhood
retail centers are located in Florida and one is in Indiana. The single-tenant
property is also in Florida. Of the regional retail centers, three are in
California, one is in Arizona and one is in Louisiana.

Land

In addition to the Company's operating properties, the Company owns
commercially zoned land, 1.6 million square feet of which is leased to others
under long-term ground leases and 480 acres of which is to be used for specific
development opportunities or sold.

The Company maintains a program of liability, property loss and damage and
other insurance which covers all of the Company's properties and which the
Company believes is adequate to protect it against all reasonably foreseeable
material insurable risks.

Partnerships With Lennar

Lennar Land Partners

Before the Spin-off, Lennar and the Company transferred to a general
partnership, which is 50% owned by the Company and 50% owned by Lennar, parcels
of land or interests in land and other assets which had a total book value on
Lennar's books at October 31, 1997 of approximately $372.4 million. Although
Lennar and the Company have their own management teams and their own public
shareholders, Leonard Miller has voting control of both Lennar and the Company
and Stuart Miller, who is the Chief Executive Officer of Lennar, is Chairman of
the Board (but not the Chief Executive Officer) of the Company. In 1999,
certain assets and liabilities of this land partnership were contributed at net
book value to a second general partnership and Lennar and the Company each
received 50% general partnership interests in the second partnership. The two
partnerships are collectively referred to as Lennar Land Partners ("LLP"). The
land was originally acquired by Lennar primarily to be used for residential
home development. The parcels of land or interests in land contributed by the
Company had been contributed to the Company by Lennar so the Company could
contribute them to LLP and receive a 50% interest in LLP. From November 1, 1997
through November 30, 2001, LLP had land sale revenues of $840.8 million, of
which $419.7 million was from sales to Lennar. During that period, LLP acquired
9,760 additional home sites, primarily through partnership arrangements. At
November 30, 2001, LLP's land consisted of 14,908 potential home sites in 22
communities, of which 14 communities with 10,020 potential home sites are in
Florida, three communities with 877 potential home sites are in Texas and five
communities with 4,011 potential home sites are in California. Approximately 5%
of the land was developed and ready to be built upon, 37% of the land was in
various stages of development and 58% of the land was totally undeveloped.

When Lennar contributed land to the Company and to LLP in 1997, Lennar
retained options to purchase up to approximately 22% of the contributed land at
prices it established. Through November 1999, almost all the options relative
to the originally contributed land had either been exercised or terminated. On
November 30, 1999, Lennar obtained options from LLP to purchase an additional
6,300 home sites at prices agreed to by the Company. The agreement also
provided for additional options to Lennar as additional home sites were
developed by LLP. Since then, additional home sites became available and Lennar
obtained options relating to an additional 3,200 home sites. At November 30,
2001, Lennar had options remaining to purchase 3,400 home sites. The remaining
land is available for sale to independent homebuilders or to Lennar at prices
determined from time to time, which, as is discussed below, the Company must
approve.

LLP has agreements with Lennar under which Lennar, for a fee, administers
all day-to-day activities of LLP, including overseeing planning and development
of properties and overseeing sales of land to Lennar and other builders.

LLP is governed by an Executive Committee consisting of representatives of
Lennar and of the Company, with Lennar's representatives and the Company's
representatives each having in total one vote. This, in effect, gives each of
Lennar and the Company a veto with regard to matters presented to LLP's
Executive Committee. LNR's by-laws require that all significant decisions
relating to LLP be approved by a Board of Directors committee consisting
entirely of directors who have no relationship with Lennar.

Lennar may, but is under no obligation to, offer additional properties to
LLP. Lennar is free to acquire properties for itself without any consideration
of whether those properties might have been appropriate for LLP. The Company
is, in effect, able to veto any proposals that LLP acquire properties proposed
by Lennar. Arrangements with regard to particular properties might include, (i)
options to Lennar to purchase all or portions of properties, (ii) rights of
first refusal for Lennar to acquire lots if other builders propose to acquire
them, or (iii) buy/sell arrangements under which, if Lennar wanted to purchase
lots on which it did not have an option, it would propose a purchase price and
the Company would have the option to approve the sale to Lennar at that price
or to purchase the lots for that price (probably in order to resell them to
someone who would be willing to pay a higher price).

The Company might seek to acquire commercial portions of properties owned or
acquired by LLP or options relating to them. Lennar can, if it wants to do so,
veto acquisitions by the Company.

The Company's non-consolidated investment in LLP, accounted for by the
equity method at November 30, 2001, was $66.7 million. LLP's total assets and
liabilities on a combined 100% basis were $275.7 million and $142.3 million,
respectively, as of November 30, 2001.

The debt of LLP is non-recourse to the Company, with the exception of one
$2.5 million guarantee. However, a subsidiary of the Company, which holds the
Company's general partner interests in LLP, could be liable as a general
partner for LLP's debt. That subsidiary has essentially no assets other than
the general partner interests in LLP. Additionally, the Company provides
limited maintenance guarantees on $44.1 million of LLP debt. These limited
guarantees only apply if the partnership defaults on its loan arrangements and
the fair value of the collateral (generally land and improvements thereto) is
less than a specified multiple of the loan balance. If the Company is required
to make a payment under these guarantees to bring the fair value of the
collateral above the specified multiple of the loan balance, the payment would
be accounted for as a capital contribution to the partnership and increase the
Company's share of capital distributed upon the dissolution of the partnership.

Other Partnerships

The Company has joint ventured with Lennar Corporation in a number of other
projects which require both residential and commercial expertise. The debt on
these ventures is non-recourse to the Company. These non-consolidated
investments accounted for by the equity method include:

. The development of a mixed-use project in San Francisco which entails
both office and residential for sale product. Lennar manages the
residential development, while LNR manages the commercial development
for the venture.

. The redevelopment of two closed military facilities in California, as
the federal government moves to put these into the hands of
public/private partnerships. These facilities are being converted to
master planned communities including housing, office, retail,
entertainment, etc.

. The development and disposition of approximately 585 acres of commercial
land in Carlsbad, California, of which 429 acres remained at November
30, 2001.

LNR's total investment in all partnerships with Lennar at November 30, 2001
was $97.2 million. Total assets and liabilities of the partnerships were $357.2
million and $162.0 million, respectively, at November 30, 2001.

Real Estate Loans

High Yielding Real Estate Loans

At November 30, 2001, the Company's real estate loan portfolio consisted of:

Principal
Amount of
Type of Loan Loans
------------ --------------
(In thousands)

B-Notes..................................................... $244,033
Other first mortgage loans.................................. 69,860
Mezzanine loans............................................. 24,075
--------
Total....................................................... $337,968
========

The Company's real estate loan portfolio consists primarily of structured
junior loan participations in high-quality short- to medium-term variable-rate
real estate loans ("B-Notes"). The Company works with leading financial
institutions in underwriting and structuring these loans. The senior
participations are securitized in many cases by the financial institutions. The
Company is designated as the special servicer for both the securitizations and
the participations. The Company had $244.0 million of outstanding principal
amount of these investments at November 30, 2001, of which $204.0 million
represented participations in first mortgage loans and $40.0 million
represented participations in mezzanine loans.

Other first mortgage loans include $48.5 million of short-term, seller
financing provided by the Company on the sale of two operating properties
during 2001. In December 2001, one of these loans with a principal amount of
$24.4 million paid off early in full.

The mezzanine loans are made to developers or builders of residential
communities and owners of stabilized operating properties. These loans are
usually subordinate to construction loans or other first mortgage loans, and
often provide the Company, in addition to interest income, participations in
profits after the developers, builders or owners have achieved specified
financial targets.

The types of real estate loans and collateral held by the Company at
November 30, 2001, were as follows:

Other First Total
Mortgage Mezzanine Principal
Type of Loan B-Notes Loans Loans Amount
------------ -------- ----------- --------- ---------
(In thousands)

Office buildings...................... $ 92,398 42,543 -- 134,941
Hotels................................ 73,835 -- -- 73,835
Apartment communities................. 12,100 24,046 12,035 48,181
Mixed-use properties.................. 34,500 -- -- 34,500
Retail centers........................ 16,600 62 -- 16,662
Convention centers.................... 14,600 -- -- 14,600
Residential development and other..... -- 1,321 12,040 13,361
Industrial/warehouse facilities....... -- 1,888 -- 1,888
-------- ------ ------ -------
Total................................. $244,033 69,860 24,075 337,968
======== ====== ====== =======

The states in which the properties securing the Company's real estate loans
were located were as follows:

Other First Total
Mortgage Mezzanine Principal
State B-Notes Loans Loans Amount
----- -------- ----------- --------- ---------
(In thousands)

California............................ $ 87,434 19,846 12,040 119,320
New York.............................. 42,939 -- -- 42,939
Florida............................... 9,813 25,968 -- 35,781
Massachusetts......................... 34,500 -- -- 34,500
Georgia............................... 23,779 -- 4,000 27,779
Arizona............................... -- 24,046 -- 24,046
Texas................................. 8,909 -- 8,035 16,944
Virginia.............................. 14,600 -- -- 14,600
Tennessee............................. 11,027 -- -- 11,027
Minnesota............................. 7,310 -- -- 7,310
Ohio.................................. 2,439 -- -- 2,439
North Carolina........................ 1,283 -- -- 1,283
-------- ------ ------ -------
Total................................. $244,033 69,860 24,075 337,968
======== ====== ====== =======

The Company identifies opportunities to make commercial real estate loans
and residential development loans through relationships with other real estate
companies, financial institutions, developers and brokers.

The Company evaluates possible loans with in-house personnel, who perform
site visits and do market, demographic and financial analyses with regard to
the collateral for the loans. The Company applies guidelines, which change
from time to time depending on the type of property and market conditions,
relating to loan-to-value ratio, debt coverage and other financial ratios.
When the Company makes subordinated loans, it may apply other guidelines, but
these loans bear interest at rates that are higher than those on senior
commercial mortgage loans, and some of these loans provide the Company
participations in profits from the underlying properties.

Discounted Portfolios of Commercial Mortgage Loans

In the early 1990's, the Company acquired in partnership with financial
institutions or real estate funds, portfolios of non-performing commercial
mortgage loans and related pools of owned real estate assets in the United
States. The Company, through the partnerships, purchased and handled the
workout activities relating to over $5 billion face amount of these distressed
commercial assets.

In each of the partnerships, one of the Company's subsidiaries acts as the
managing general partner and conducts the business of the partnership. The
Company earns management fees and asset disposition fees from the partnerships
and has carried interests in cash flow and sales proceeds once the partners
have recovered their capital and achieved specified returns. The Company's
original investments ranged from 15% to 50% of the partnerships' capital and
totaled $165 million, out of a total of $684 million invested in the
partnerships. By November 30, 2001, the partnerships had distributed a total
of $1.4 billion to the partners, of which $415.4

million had been distributed to the Company. The Company also received
management and asset disposition fees totaling approximately $65.3 million. As
the U.S. real estate markets strengthened in the mid to late 1990's,
substantially fewer large real estate portfolios became available at what the
Company viewed as attractive prices. The Company has not, since August 1996,
participated in a partnership which acquired a portfolio of non-performing real
estate assets in the United States. Today, most of the assets from these
domestic portfolios have been liquidated.

Beginning in late 1997, the Company entered into several partnerships to
acquire portfolios of non-performing commercial mortgage loans in Japan. In
April 2000, the Company sold its interests in these Japanese real estate loan
portfolios at a profit.

The Company's principal activity with respect to distressed portfolios is to
manage the workout of non-performing loans, including negotiating new or
modified financing terms and foreclosing on defaulted loans. The assets
generally are held only as long as is required to enhance their value and
prepare them for sale. The Company believes its workout and property
rehabilitation skills are the principal reasons financial institutions have
sought the Company as a partner in acquiring portfolios of distressed assets
and have given the Company management control of the partnerships.

Debt financing for partnerships' acquisitions of real estate related asset
portfolios has usually been on a non-recourse basis and with no guarantees by
the Company or any other of the partners. In some cases, the lender must be
repaid in full before a partnership can make cash distributions to the Company
and its partners.

Real Estate Securities

Investments in CMBS

As a further use of its loan and real estate workout capabilities, the
Company acquires unrated and non-investment grade rated subordinated CMBS and
provides "special servicing" for the mortgage pools to which they relate. CMBS
are securities backed by loans on commercial and multi-family residential real
estate properties and possess many of the characteristics of large portfolios
of performing loans. Default risk is spread over large, diverse portfolios of
assets so that no single default has a significant effect on the overall
performance of the portfolio. Furthermore, results can be influenced by the
success of the special servicer, who attempts to ensure that all principal and
interest payments are collected. However, securities representing interests in
a CMBS pool are usually issued in series with varying levels of seniority, and
provide that no principal may be paid with regard to a series until all senior
series have been paid in full. Because of that, different series representing
interests in the same pool typically will have different credit ratings. The
Company invests only in the most junior, or nearly the most junior series,
which do not receive principal payments until much of the mortgage debt
underlying the CMBS has been paid and disbursed to holders of more senior
series.

CMBS differ from other asset-backed securities in that CMBS investors have
the ability to perform detailed due diligence on each individual component of
the underlying collateral (to determine its ability to pay off the CMBS bonds)
and the holders of the most junior series have the right to select the special
servicer responsible for ensuring that the loans perform properly. LNR only
invests when it can perform detailed due diligence on the properties securing
the mortgages in the pool being securitized and can select itself as the
special servicer. Special servicing is the business of managing and working out
the problem assets in a pool of commercial mortgage loans or other assets. For
example, when a mortgage loan in a securitized pool goes into default, the
special servicer negotiates with the borrower on behalf of the pool to resolve
the situation. The Company uses, as special servicer, essentially the same
workout skills it applies with regard to distressed asset portfolios.

Because the holders of the unrated CMBS receive everything that is collected
after the more senior levels of CMBS have been paid in full, the Company and
other holders of unrated CMBS are the principal beneficiaries of increased
collections, particularly since these bonds are purchased at significant
discounts. Therefore, ownership of the unrated CMBS gives the Company an
opportunity to profit from its special servicing activities in addition to
receiving fees for being the special servicer.

In addition to purchasing the unrated bonds the Company also purchases non-
investment grade rated securities, but again only when it is the special
servicer. Rated bonds also provide an excellent risk-adjusted return as the
Company receives a yield on these securities based on the stated interest and
accretion of the purchase discount. As an added benefit of its work as special
servicer, ratings are sometimes upgraded by the

rating agencies if the performance of the pool exceeds initial expectations.
This increases their market values and gives the Company an opportunity to
achieve gains on the sale of the securities, as well as receiving the stated
interest while it holds them. Therefore, purchases of non-investment grade
rated subordinated securities, like purchases of unrated securities, are a
means for the Company to profit from its workout skills.

Fitch IBCA, Inc. and Standard and Poor's, which rate special servicers of
CMBS on the basis of management team, organizational structure, operating
history, workout and asset disposition experience and strategies, information
systems, investor reporting capabilities and financial resources, have given
the Company their highest servicer ratings. In addition, many in the industry
recognize LNR as the premier special servicer based on its strong track record
and experience.

Competition in purchasing unrated and non-investment grade rated
subordinated CMBS during the past three years has been limited, and as a result
the Company's purchasing power has been significant. The Company attributes
this limited competition to the need for a significant infrastructure and real
estate expertise to properly and efficiently complete the detailed due
diligence required to purchase less than investment grade CMBS. In addition,
the lower rated bonds are not actively traded. Therefore, they are only
suitable for those who can afford to hold them for relatively long periods. The
limited competition for unrated and non-investment grade rated CMBS has given
LNR significant bargaining power with sponsors of CMBS, including the ability
in some instances to convince sponsors to remove from CMBS pools loans which
LNR believes are too risky.

The Company is entitled to be the special servicer with regard to 83
securitized commercial mortgage pools represented by over 11,600 underlying
loans in all 50 states. The Company has investments in subordinated CMBS
related to 73 of these pools. As of November 30, 2001, the total par amount of
the Company's directly owned portfolio was approximately $1.9 billion with an
amortized cost of approximately $0.9 billion, or approximately $1.0 billion of
discount. The Company's fixed-rate portfolio is generating a current cash
return of 16% (29% on the unrated).

Particularly in periods of falling interest rates, there often are
prepayments of mortgages underlying CMBS; however, most fixed-rate transactions
have call protections that make prepayments expensive and difficult. Because
the Company usually purchases CMBS at significant discounts from their face
amounts, prepayments, which do occur, increase the Company's yield on invested
capital.

The Company's CMBS investments are collateralized by pools of mortgage loans
on commercial and multi-family residential real estate assets located across
the country. Concentrations of credit risk with respect to these securities are
limited due to the diversity of the underlying loans across geographical areas
and diversity among property types.

Madison Square Company LLC

In early April 1999, the Company entered into a venture, Madison Square
Company LLC ("Madison"), to acquire approximately $2.2 billion of high yielding
real estate related assets (primarily CMBS). The members include an affiliate
of Credit Suisse First Boston ("CSFB"), a company controlled by real estate
investor Peter Bren and Sun America Life Insurance Co. The members have total
equity commitments of $490 million, $125 million of which is provided by the
Company.

CSFB has provided a credit facility to fund up to $1.76 billion of financing
to the venture, which is non-recourse to the members.

At November 30, 2001, the Company's investment in the venture was
approximately $109.8 million, representing a 25.8% ownership interest. The
Company maintains a significant ongoing role in the venture, for which it earns
fees, both as the special servicer for the purchased CMBS transactions and as
the provider of management services. The Company also has an effective veto on
Madison's investments.

Competition

In virtually all aspects of its activities, the Company competes with a
variety of public and private real estate development companies, real estate
investment trusts, investment firms, investment funds, financial institutions
and others. The principal area of competition is for the purchase of real
estate assets and securities at prices which the Company believes will enable
it to achieve its desired risk-adjusted returns. The Company

believes that its access to investment opportunities through its relationships
and presence in markets across the country, its access to capital for these
asset classes, its ability to quickly underwrite and evaluate those
opportunities and its expertise in real estate workout and management help the
Company to compete effectively in the purchase of those types of assets. In
addition, its experience in adding value to real estate and its top rating as a
special servicer to CMBS transactions often attract firms which have access to
appealing investment opportunities but who do not have the Company's skills.

Competitive conditions relating to apartment communities, office buildings,
industrial/warehouse facilities, hotels and retail centers owned or operated by
the Company vary depending on the locations of particular properties. Most
often these facilities compete for tenants or other users based on their
locations, the facilities provided and the pricing of the leases or room rates.
Although general economic conditions weakened in 2001, occupancies remained
stable in many of the Company's markets, which helped to reduce the effects of
competition on existing properties.

The Company is not a significant national competitor with regard to any of
the properties it owns. It is a significant national participant in the market
for unrated and non-investment grade rated subordinated CMBS.

Investment Company Act

The Company intends to conduct its business at all times so as not to become
regulated as an investment company under the Investment Company Act of 1940.
Accordingly, the Company does not expect to be subject to the restrictive
provisions of the Investment Company Act. Under the Investment Company Act, an
investment company is subject to extensive, restrictive and potentially adverse
regulations relating to, among other things, operating methods, management,
capital structure, dividends, and transactions with affiliates. The Investment
Company Act exempts, among others, entities that are "primarily engaged in the
business of purchasing or otherwise acquiring mortgages and other liens on and
interests in real estate" ("Qualifying Interests"). Under the current
interpretation of the staff of the Securities and Exchange Commission, to
qualify for this exemption, the entity must maintain at least 55% of its assets
in Qualifying Interests, and maintain an additional 25% in Qualifying Interests
or other real estate related assets. The Company's investments in real estate
and mortgage loans generally constitute Qualifying Interests and the Company
believes its investments in subordinated CMBS constitute Qualifying Interests
when it has the right, as special servicer, to foreclose upon properties which
secure loans that back the CMBS and to take the other actions a special
servicer may take in connection with defaulted loans. Analysis of the Company's
assets at November 30, 2001 indicated that (i) more than 55% of its assets were
Qualifying Interests and (ii) more than 80% of its assets were Qualifying
Interests and other real estate related assets. Therefore, it qualifies for
this exemption. If, however, due to a change in the Company's assets, or a
change in the value of particular assets, the Company were to become an
investment company which is not exempt from the Investment Company Act, either
the Company would have to restructure its assets so it would not be subject to
the Investment Company Act, or the Company would have to change materially the
way it conducts its activities. Either of these changes could require the
Company to sell substantial portions of its assets at a time it might not
otherwise want to do so, and the Company could incur significant losses as a
result. Further, in order to avoid becoming subject to the requirements of the
Investment Company Act, the Company may be required at times to forego
investments it would like to make or otherwise to act in a manner other than
that which its management believes would maximize its earnings.

Regulation

Commercial properties owned by the Company or partnerships in which it
participates must comply with a variety of state and local regulations relating
to, among other things, zoning, treatment of waste, construction materials
which must be used and some aspects of building design.

In its loan workout activities, the Company sometimes is required to comply
with federal and state laws designed to protect debtors against overbearing
loan collection techniques. However, most laws of this type apply to consumer
level loans (including home mortgages), but do not apply to commercial loans.

The Company's hotels have to be licensed to conduct various aspects of their
businesses, including sales of alcoholic beverages.

Employees

At November 30, 2001, the Company had 510 full time and 7 part time
employees, of whom 10 were senior management, 72 were corporate staff, 306 were
engaged in asset acquisitions, loan workouts and rehabilitation and disposition
of properties and 129 were hotel personnel.

None of the Company's employees is represented by a union. The Company
believes its relationships with its employees are good.

Some Things Which Could Adversely Affect LNR

Virtually all of LNR's assets are interests in real estate properties or in
financial instruments which are directly or indirectly secured by real estate
properties. Because of that, there are some market-driven factors which can
significantly affect LNR, its results of operations and the value of its
assets.

LNR is sensitive to changes in interest rates.

Most financial instruments LNR owns bear interest at fixed rates, or derive
their value from mortgages or other instruments which bear interest at fixed
rates. The values of fixed-rate financial instruments are affected
significantly by changes in market interest rates (falling when market rates
are high and increasing when market rates are low). Further, the value of real
estate itself tends to be significantly affected by changes in interest rates,
increasing when interest rates are low and declining when interest rates are
high. Because LNR invests in financial instruments with an intention to hold
them at least for most of their lives, and invests in real estate properties
with the intention of holding them long enough to enhance their value by
developing or repositioning them, LNR's ability to achieve its investment goals
is not substantially affected by short-term changes in interest rates. Further,
LNR tries to prevent short-term changes in interest rates from materially
affecting its financial statements by purchasing interest rate swaps to hedge
against interest rate changes. However, relatively long lasting changes in
interest rates could significantly affect the value of LNR's assets.

LNR borrows substantial portions of the funds it invests in its assets. Most
of the borrowings bear interest at variable rates, and therefore LNR's actual
interest costs are affected by increases or decreases in market interest rates.
LNR minimizes exposure to these changes by acquiring interest rate swaps which
have the effect of converting LNR's variable-rate obligations into fixed-rate
obligations. However, LNR continues to be exposed to risks of interest rate
changes to the extent that its hedges do not cover all its borrowings or to the
extent counterparties to interest rate swaps might become unable to meet their
obligations to LNR.

LNR could be affected by changes in real estate markets.

Prices of real estate, and in particular commercial real estate, tend to
fluctuate significantly over time. To some extent this is due to changes in
interest rates. However, it can also result from changes in economic
conditions, either nationally or regionally, which affect demand for commercial
space, excess capacity created by over-building, changes in tax laws or
environmental laws and a variety of other factors. Historically, LNR has looked
upon weak real estate markets as opportunities to acquire at low cost
properties which LNR can enhance and sell when real estate markets strengthen.
However, as LNR's portfolio of real estate properties and real estate related
securities has increased, LNR has become increasingly vulnerable to the
negative effect weak real estate markets could have on the values of assets it
already holds.

Weak real estate markets also increase the likelihood of defaults on
mortgages, and make it more difficult to sell foreclosed properties for at
least the amounts owed on the mortgages they secure. An increase in the rate of
mortgage defaults could affect amounts the Company can realize on the mortgage
loans and CMBS it holds.

LNR may have difficulty obtaining financing.

Weak real estate markets not only affect the prices for which real estate
properties can be purchased or sold, but they also affect the availability of
financing for real estate investments. During weak real estate markets, lenders
are reluctant to make or to renew loans secured by real estate or real estate
related securities. Therefore, even if LNR would like to be purchasing
properties or real estate related securities during weak markets, it may have
difficulty obtaining the funds with which to do this.

LNR may have difficulty disposing of assets when it has to do so.

LNR's basic investment strategy is to hold real estate assets until what it
believes to be an optimal time to sell them. Normally, this will be during
relatively strong real estate markets. However, factors beyond LNR's control
can make it necessary for LNR to dispose of real estate properties or real
estate related securities during weak markets. For example, LNR finances many
of its CMBS purchases with reverse repurchase obligations which often require
that, if the market value of the CMBS falls below specified percentages of the
outstanding indebtedness, the Company must provide additional collateral,
reduce the loan balance or liquidate the CMBS position. Therefore, in a period
when the market value of the Company's CMBS falls significantly, LNR could be
required to pay down debt with money it needs for its business, to provide
additional collateral for the reverse repurchase obligations or to sell CMBS
at a time when it may be very inopportune for the Company to do so. Further,
markets for many types of real estate related assets are not highly liquid,
which can make it particularly difficult to realize acceptable prices when
disposing of large quantities of assets during weak markets.

Item 2. Properties.

For information about properties owned by the Company for use in its
commercial activities, see Item 1.

The Company maintains its principal executive offices at 760 Northwest
107th Avenue, Miami, Florida, in a building that was built by the Company.
During 2001, the Company sold this building to an unaffiliated third party and
concurrently entered into an operating lease to rent approximately 16,750
square feet of office space for its principal executive offices. For its Miami
operations, the Company leases additional office space in this same building.
The Company has additional office space for the rest of its operations in
various other office buildings it owns (one office) and leases (seven offices)
across the country.

Item 3. Legal Proceedings.

The Company is not subject to any legal proceedings other than suits in the
ordinary course of its business, most of which are covered by insurance. LNR
believes these suits will not, in aggregate, have a material adverse effect
upon the Company.

Item 4. Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 2001.

PART II

Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters.

The Company's common stock currently is listed on the New York Stock
Exchange under the symbol LNR. The following table sets forth the range of the
high and low closing prices reported on the New York Stock Exchange composite
tape for each period indicated.

High Low
------ ------
2001
-------------

First Quarter.............................................. $30.25 $20.63
Second Quarter............................................. $32.85 $25.50
Third Quarter.............................................. $35.26 $31.04
Fourth Quarter............................................. $33.45 $26.45

2000
-------------

First Quarter.............................................. $20.69 $16.39
Second Quarter............................................. $21.63 $18.00
Third Quarter.............................................. $21.56 $19.31
Fourth Quarter............................................. $22.44 $20.38

At February 14, 2002, there were approximately 5,000 holders of record of
the Company's common stock. During each of the four quarters in 2001 and 2000,
the Company declared and paid cash dividends of $.0125 per common share and
$.01125 per Class B common share.

Item 6. Selected Financial Data.

The following table contains selected consolidated financial information
about the Company. The selected financial data should be read in conjunction
with the consolidated financial statements, the notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Annual Report on Form 10-K.

Years Ended November 30,
--------------------------------------------------
2001 2000 1999 1998 1997
---------- --------- --------- --------- ---------
(In thousands, except per share amounts)

Results of Operations (1)
Revenues
Real estate
properties.......... $ 209,223 214,778 194,527 148,205 76,371
Real estate loans.... 54,167 81,557 46,158 44,279 51,572
Real estate
securities.......... 214,290 176,435 107,315 58,273 39,540
---------- --------- --------- --------- ---------
Total revenues..... $ 477,680 472,770 348,000 250,757 167,483
========== ========= ========= ========= =========
Adjusted EBITDA (2).... $ 344,064 337,054 254,606 193,665 126,282
Interest expense....... $ 110,494 121,487 83,909 53,850 26,584
Net earnings........... $ 135,113 115,871 95,560 73,323 44,218
Per share amounts
Earnings--basic...... $ 4.05 3.46 2.68 2.04 1.22
Earnings--diluted.... $ 3.87 3.32 2.63 2.02 1.22
Cash dividends--
common stock........ $ 0.05 0.05 0.05 0.05 0.0125(3)
Cash dividends--Class
B common stock...... $ 0.045 0.045 0.045 0.045 0.01125(3)

As of November 30,
--------------------------------------------------
2001 2000 1999 1998 1997
---------- --------- --------- --------- ---------
(In thousands, except per share amounts)

Financial Position (1)
Total assets........... $2,836,647 2,348,856 2,283,001 1,743,805 1,023,337
Assets by business
segment
Real estate
properties.......... $1,037,098 1,153,608 1,290,149 1,006,621 435,531
Real estate loans.... $ 398,614 314,162 274,694 214,494 182,302
Real estate
securities.......... $1,355,923 826,092 640,791 465,514 346,189
Total debt............. $1,417,207 1,404,374 1,403,401 1,017,199 391,171
Stockholders' equity... $1,119,169 778,444 710,332 618,979 569,088
Stockholders' equity
per share............. $ 32.54 22.75 20.18 17.39 15.75
Shares outstanding
Common stock......... 24,445 24,215 25,142 24,852 25,144
Class B common
stock............... 9,949 9,999 10,058 10,748 10,984
---------- --------- --------- --------- ---------
Total.............. 34,394 34,214 35,200 35,600 36,128
========== ========= ========= ========= =========

--------
(1) LNR Property Corporation was formed in June 1997 and spun-off from Lennar
Corporation ("Lennar") on October 31, 1997. The above information has been
prepared to reflect the Company as a separate consolidated group for the
periods presented. Results of operations for periods prior to October 31,
1997 and historical cost bases of assets and liabilities have been
extracted from Lennar's financial statements.
(2) Adjusted EBITDA is defined as earnings before interest, taxes, depreciation
and amortization, plus cash interest received on CMBS in excess of interest
income recognized and tax credits and tax benefits from affordable housing
communities.
(3) 1997 dividends reflect only the dividend declared and paid in the fourth
quarter.

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS CONTAINS INFORMATION WHICH CONSTITUTES FORWARD LOOKING
STATEMENTS. FORWARD LOOKING STATEMENTS INHERENTLY INVOLVE RISKS AND
UNCERTAINTIES. THE FACTORS, AMONG OTHERS, THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE ANTICIPATED BY THE FORWARD LOOKING STATEMENTS IN
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS INCLUDE (I) CHANGES IN DEMAND FOR COMMERCIAL REAL ESTATE NATIONALLY,
IN AREAS IN WHICH THE COMPANY OWNS PROPERTIES, OR IN AREAS IN WHICH PROPERTIES
SECURING MORTGAGES DIRECTLY OR INDIRECTLY OWNED BY THE COMPANY ARE LOCATED,
(II) INTERNATIONAL, NATIONAL OR REGIONAL BUSINESS CONDITIONS WHICH AFFECT THE
ABILITY OF MORTGAGE OBLIGORS TO PAY PRINCIPAL OR INTEREST WHEN IT IS DUE, (III)
THE CYCLICAL NATURE OF THE COMMERCIAL REAL ESTATE BUSINESS, (IV) CHANGES IN
INTEREST RATES, (V) CHANGES IN THE MARKET FOR VARIOUS TYPES OF REAL ESTATE
BASED SECURITIES, (VI) CHANGES IN AVAILABILITY OF CAPITAL OR THE TERMS ON WHICH
IT IS AVAILABLE, (VII) CHANGES IN AVAILABILITY OF QUALIFIED PERSONNEL, AND
(VIII) CHANGES IN GOVERNMENT REGULATIONS, INCLUDING, WITHOUT LIMITATION,
ENVIRONMENTAL REGULATIONS.

OVERVIEW

LNR Property Corporation (together with its subsidiaries, the "Company") is
a real estate investment, finance and management company. The Company engages
primarily in (i) acquiring, developing, managing and repositioning commercial
and multi-family residential real estate properties, (ii) investing in high
yielding real estate loans and purchasing at a discount portfolios of loans
backed by real estate and (iii) investing in unrated and non-investment grade
rated commercial mortgage-backed securities ("CMBS") as to which the Company
has the right to be special servicer (i.e., to oversee workouts of
underperforming and non-performing loans). For the following discussion, these
businesses are grouped as follows: (a) real estate properties, (b) real estate
loans, and (c) real estate securities.

Prior to October 31, 1997, Lennar Corporation ("Lennar") transferred its
real estate investment, finance and management business to the Company. On
October 31, 1997, Lennar effected a spin-off of the Company to Lennar's
stockholders by distributing to Lennar's stockholders one share of the
Company's stock for each share of Lennar stock they held.

The following is a summary of the Company's results of operations for the
years ended November 30, 2001, 2000 and 1999 after allocating among the core
business segments certain non-corporate general and administrative expenses:

2001 2000 1999
-------- ------- -------
(In thousands)

Revenues
Real estate properties........................... $209,223 214,778 194,527
Real estate loans................................ 54,167 81,557 46,158
Real estate securities........................... 214,290 176,435 107,315
-------- ------- -------
Total revenues..................................... 477,680 472,770 348,000
-------- ------- -------
Operating expenses
Real estate properties........................... 114,150 137,296 100,772
Real estate loans................................ 7,399 9,060 7,638
Real estate securities........................... 15,271 11,777 8,183
Corporate and other.............................. 24,023 25,222 16,598
-------- ------- -------
Total operating expenses........................... 160,843 183,355 133,191
-------- ------- -------
Operating earnings
Real estate properties........................... 95,073 77,482 93,755
Real estate loans................................ 46,768 72,497 38,520
Real estate securities........................... 199,019 164,658 99,132
Corporate and other.............................. (24,023) (25,222) (16,598)
-------- ------- -------
Total operating earnings........................... 316,837 289,415 214,809
-------- ------- -------
Interest expense................................... 110,494 121,487 83,909
Income tax expense................................. 71,230 52,057 35,340
-------- ------- -------
Net earnings....................................... $135,113 115,871 95,560
======== ======= =======

RESULTS OF OPERATIONS

Year ended November 30, 2001 compared to year ended November 30, 2000

Net earnings for the year ended November 30, 2001 were $135.1 million, a 17%
increase over prior year net earnings of $115.9 million. Earnings per share for
the year ended November 30, 2001 were $4.05 per share ($3.87 per share
diluted), a 17% increase over prior year earnings of $3.46 per share ($3.32 per
share diluted). The increase in earnings was primarily due to (i) an increase
in interest income and servicing fees derived from the Company's growing CMBS
portfolio, (ii) an increase in interest income from the Company's mortgage loan
portfolio, (iii) a decrease in depreciation expense primarily due to the timing
of stabilized property sales relative to new stabilized properties coming on
line in 2001 and (iv) a decrease in interest expense due primarily to lower
interest rates. These increases were partially offset by (i) a decrease in
equity in earnings of unconsolidated partnerships from both the Company's
domestic and Japanese discount loan portfolio businesses, (ii) a decrease in
property net operating income (rental income less cost of rental operations),
primarily due to the timing of stabilized property sales relative to new
properties coming on line in 2001 and (iii) an increase in general and
administrative expenses from the Company's growing business segments.

Overall, total revenues remained relatively flat, increasing 1% in 2001,
compared to 2000. This was primarily due to the timing of asset sales, reduced
interest income on variable-rate assets and a shift in the mix of the Company's
investments. Lower interest income is related to transactions that are match-
funded with variable-rate debt, and therefore had minimal impact on net
earnings. The shift in the mix of investments relates primarily to moving
investment dollars to asset classes that are currently yielding higher margins
such as loans and securities.

Operating earnings were generated from the Company's three main business
segments in the following proportions: 28% from real estate properties, 14%
from real estate loans and 58% from real estate securities. This compares with
25%, 23% and 52%, respectively, for the prior year. The shift in these
percentages from 2000 to 2001 was primarily the result of higher gains from the
sales of real estate in 2001, the gain on sale of the Company's interests in
its Japanese real estate loan portfolios in 2000 and higher earnings in 2001
from the Company's growing CMBS portfolio.

There was a $340.7 million increase in the Company's stockholders' equity at
November 30, 2001 compared with November 30, 2000. Of this increase, $135.1
million resulted from net earnings during fiscal 2001, and the remainder
resulted primarily from the unrealized appreciation recorded net of tax, when
the Company reclassified CMBS from held-to-maturity to available-for-sale.
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," requires these securities
be classified as available-for-sale because of the possibility that the Company
may sell the securities as the CMBS pools to which they relate pay down
substantially and the securities get closer to their economic maturity.
Available-for-sale securities are carried at their fair market value, rather
than their amortized cost. Unrealized changes in the fair market value of the
CMBS are recognized through stockholders' equity, net of tax, and therefore do
not directly affect the Company's consolidated statement of earnings.

Year ended November 30, 2000 compared to year ended November 30, 1999

Net earnings for the year ended November 30, 2000 were $115.9 million, a 21%
increase over prior year net earnings of $95.6 million. Earnings per share for
the year ended November 30, 2000 were $3.46 per share ($3.32 per share
diluted), a 29% increase over prior year earnings of $2.68 per share ($2.63 per
share diluted). The increase in earnings was primarily due to (i) an increase
in interest income and servicing fees derived from the Company's growing CMBS
portfolio, (ii) greater earnings from the Company's participation in Madison
Square Company LLC ("Madison"), a partnership that invests primarily in CMBS,
(iii) a gain on sale of the Company's interests in its Japanese real estate
loan portfolios and (iv) an increase in net operating income from a larger
portfolio of stabilized properties. These increases were partially offset by
(i) fewer gains on sales of real estate properties, (ii) an increase in
interest expense due to increased borrowing levels and higher interest rates
and (iii) increased depreciation and other operating expenses from the
Company's growing business segments.

Operating earnings were generated from the Company's three main business
segments in the following proportions: 25% from real estate properties, 23%
from real estate loans and 52% from real estate securities. This compares with
40%, 17% and 43%, respectively, for the prior year. The shift in these
percentages from 1999 to 2000 is primarily the result of fewer gains on sales
of real estate in 2000, the gain on sale of the Company's interests in its
Japanese real estate loan portfolios in 2000, higher earnings from the
Company's increased investments in structured junior loan participations in
short- to medium-term variable-rate real estate loans in 2000 and higher
earnings from the Company's growing CMBS portfolio in 2000.

Real Estate Properties

2001 2000 1999
---------- --------- ---------
(In thousands)

Rental income.................................. $ 111,669 139,264 95,391
Equity in earnings of unconsolidated
partnerships.................................. 25,796 30,810 31,281
Gains on sales of real estate.................. 63,535 38,522 67,187
Gains on sales of unconsolidated partnership
interests..................................... 746 3,335 -
Management fees................................ 7,477 2,847 668
---------- --------- ---------
Total revenues............................... 209,223 214,778 194,527
---------- --------- ---------
Cost of rental operations...................... 58,642 78,682 53,881
Other operating expenses (1)................... 29,998 22,052 16,685
Depreciation................................... 25,267 36,138 27,393
Minority interests............................. 243 424 2,813
---------- --------- ---------
Total operating expenses (1)................. 114,150 137,296 100,772
---------- --------- ---------
Operating earnings........................... $ 95,073 77,482 93,755
========== ========= =========
Balance sheet data:
Operating properties and equipment, net........ $ 719,662 818,486 982,230
Land held for investment....................... 42,229 52,969 126,047
Investments in unconsolidated partnerships..... 226,708 234,219 155,914
Other assets................................... 48,499 47,934 25,958
---------- --------- ---------
Total segment assets......................... $1,037,098 1,153,608 1,290,149
========== ========= =========

--------
(1) Operating expenses do not include interest expense.

Real estate properties include rental apartment communities (market-rate and
affordable housing communities, substantially all of which qualify for Low-
Income Housing Tax Credits under Section 42 of the Internal Revenue Code),
office buildings, industrial/warehouse facilities, hotels, retail centers and
land that the Company acquires and develops, redevelops or repositions. These
properties may be wholly-owned or owned through partnerships that are either
consolidated or accounted for by the equity method, and therefore reflected on
the Company's balance sheet only as an investment in unconsolidated
partnerships. Real estate properties also include the Company's 50% interest in
Lennar Land Partners ("LLP"), a non-consolidated partnership accounted for
under the equity method which is engaged in the acquisition, development and
sale of land. Total revenues from real estate properties include rental income
from operating properties, equity in earnings of unconsolidated partnerships
that own and operate real estate properties, gains on sales of properties or
those unconsolidated partnership interests, and fees earned from managing those
partnerships. Operating expenses include the direct costs of operating the real
estate properties, the related depreciation and the overhead associated with
managing the properties and some of the partnerships.

During 2001, the Company sold matured stabilized properties and concentrated
on completing the development, repositioning and lease-up of its existing
portfolio, limiting new property acquisitions. Additionally, an increasing
share of the Company's newer development and repositioning property investments
have been through partnerships, most of which are reflected as investments in
unconsolidated partnerships. This has resulted in an overall lower investment
in the property segment for the Company. Approximately 58% of the Company's
remaining property portfolio is still undergoing development or repositioning.
The majority of these properties are pre-leased, which will result in their
contributing to net operating income as these properties are completed and
tenants begin to pay rent.

Year ended November 30, 2001 compared to year ended November 30, 2000

Overall, operating earnings from real estate properties were $95.1 million
for the year ended November 30, 2001, compared to $77.5 million in 2000. This
increase was primarily due to higher gains on sales of real estate, higher
management fees and lower depreciation expense. These increases were partially
offset by a decline in property net operating income, lower equity in earnings
of unconsolidated partnerships, and higher other operating expenses.

Total rental income decreased to $111.7 million in 2001 from $139.3 million
in 2000. In 2001 and 2000, respectively, rental income consisted of $82.5
million and $75.8 million from commercial properties (office,
industrial/warehouse and retail), $2.0 million and $15.6 million from market-
rate rental apartment communities, $12.5 million and $20.2 million from
affordable housing communities, and $14.7 million and $27.7 million from hotels
and other properties. Cost of rental operations decreased to $58.6 million for
the year ended November 30, 2001 from $78.7 million in 2000. The decreases in
rental income and cost of rental operations were primarily due to the timing of
stabilized property sales relative to new stabilized properties coming on line
in 2001.

Equity in earnings of unconsolidated partnerships decreased to $25.8 million
in 2001 from $30.8 million in 2000, primarily due to lower earnings from LLP
and a decrease in partnership earnings from the Company's stabilized affordable
housing partnerships. LLP primarily sells land to homebuilders, including
Lennar, the Company's former parent company and its partner in LLP. Equity in
earnings from LLP may vary from period to period depending on the timing of
housing starts. The affordable housing partnerships typically generate pre-tax
operating losses, which are more than offset by the tax credits and benefits
which directly reduce the Company's overall income taxes. These decreases in
earnings, relating to LLP and the affordable housing partnerships, were
partially offset by partnership earnings from the sale of the properties held
by two unconsolidated single-asset partnerships.

Gains on sales of real estate increased to $63.5 million in 2001 from $38.5
million in 2000. Gains on sales of real estate in 2001 include $51.5 million
from sales of stabilized market-rate operating properties, $3.2 million from
syndications of affordable housing communities, and $8.8 million from sales of
land. Gains on sales of real estate fluctuate from period to period based on
the timing of asset sales.

Management fees increased to $7.5 million in 2001 from $2.8 million in 2000.
This increase was primarily due to developer and other fees the Company
received for managing the properties for its partners.

Other operating expenses increased to $30.0 million in 2001 from $22.1
million in 2000. This increase was due to additional personnel and
administrative costs necessary to support the growth in the overall real estate
portfolio managed by the Company, including wholly-owned real estate and real
estate owned by partnerships.

Depreciation expense decreased to $25.3 million in 2001 from $36.1 million
in 2000. Since the Company has not been replacing stabilized properties as
quickly as they have been sold, this has resulted in a lower investment in
stabilized operating properties and a corresponding lower depreciation expense.

The net book value of operating properties and equipment at November 30,
2001 and the net operating income for the year then ended with regard to
various types of properties owned by the Company were as follows:

Net
Operating NOI as a %
Net Book Occupancy Income of Net Book
Value Rate (1) (NOI) (2) Value
-------- --------- --------- -----------
(In thousands, except percentages)

Market-rate operating properties
Stabilized operating properties
Office........................... $167,737 94% $23,064 14%
Retail........................... 15,791 94% 2,209 14%
Industrial/warehouse............. 49,312 100% 6,612 13%
Ground leases.................... 11,135 100% 2,108 19%
-------- ---- ------- ---
Commercial..................... 243,975 97% 33,993 14%
Hotel.......................... 16,360 40% 1,268 8%
-------- ------- ---
260,335 35,261 14%
-------- -------
Under development or repositioning
Office........................... 256,160 6,576
Retail........................... 32,900 2,071
-------- -------
Commercial..................... 289,060 8,647
Multi-family................... 80,132 646
Hotel.......................... 29,290 732
-------- -------
398,482 10,025
-------- -------
Total market-rate operating
properties.......................... 658,817 45,286
-------- -------
Affordable housing communities
Stabilized..................... 40,659 93% 4,991
Development.................... 15,184 -
-------- -------
Total affordable housing
communities......................... 55,843 4,991
-------- -------
Furniture, fixtures and equipment.... 5,002 -
-------- -------
Total................................ $719,662 $50,277
======== =======

--------
(1) Occupancy rate at November 30, 2001.
(2) NOI for purposes of this schedule is rental income less cost of rental
operations before commissions and non-operating expenses.

As of November 30, 2001, approximately 40% of the Company's market-rate
operating properties, based on net book value, had reached stabilized occupancy
levels and were yielding in total 14% on net book value. The anticipated
improvements in the earnings of the not yet stabilized operating properties are
not expected to be recognized until future periods.

Hotel occupancy decreased from 59% at November 30, 2000 to 40% at November
30, 2001 on the Company's two wholly-owned operating hotels primarily due to
the tragic events of September 11, 2001 and general economic conditions. Both
of these factors resulted in lower levels of occupancy in 2001 by a major
customer at one of the wholly-owned operating hotels. This customer will be
occupying the hotel at 2000 levels beginning in February 2002. Occupancy at
February 28, 2002 was back to 56%.

The Company entered the business of owning, developing and syndicating
affordable housing communities in 1998. Initially the Company's strategy was to
retain the tax credits generated through owning the majority of the partnership
interests in the affordable housing communities and then using those credits to
reduce the Company's overall effective tax rate. However, the demand for
credits has since increased significantly and the Company found it could
generate higher returns on its investment by selling the credits rather than by
using them. The Company has shifted its strategy away from owning the majority
of the partnership interests in the affordable housing communities toward
syndicating those interests. After such syndications, the Company continues to
hold a small interest (typically ranging from 1% to 10%) in these partnerships
and continues to manage the communities for which it earns management fees. The
Company expects to generate fee income and gains in future years from such
syndications. As a result, the Company's

investment in affordable housing communities, as well as the amount of tax
credits it holds and utilizes to reduce its tax rate, declined in 2001. Pre-tax
operating margins for the affordable housing communities are generally lower
than for market-rate rentals. However, the Company receives its desired yield
from these investments after adding in (i) the impact of lower income taxes as
a result of the tax credits and other related tax deductions and (ii) profits
from sales of tax credits to others. The net investment in the Company's
affordable housing communities at November 30, 2001 was as follows:

(In thousands)

Operating properties......................................... $ 55,843
Investments in unconsolidated partnerships................... 70,646
Debt and other............................................... (44,170)
--------
Net investment in affordable housing communities........... $ 82,319
========

As of November 30, 2001, the Company had been awarded and held rights to
approximately $140 million in gross tax credits, with approximately 60%
relating to apartment communities that have not yet reached stabilized
occupancy levels.

Year ended November 30, 2000 compared to year ended November 30, 1999

Overall, operating earnings from real estate properties were $77.5 million
for the year ended November 30, 2000, compared to $93.8 million in 1999. Net
operating income from the Company's operating properties increased 46% to $60.6
million in 2000 from $41.5 million in 1999. This increase was more than offset
by $28.7 million of lower gains on sales of real estate and an increase in
depreciation and other operating expenses.

Total rental income increased to $139.3 million for the year ended November
30, 2000 from $95.4 million in 1999. In 2000 and 1999, respectively, rental
income consisted of $75.8 million and $42.7 million from commercial properties
(office, industrial/warehouse and retail), $15.6 million and $14.1 million from
market-rate rental apartment communities, $20.2 million and $20.7 million from
affordable housing communities, and $27.7 million and $17.9 million from hotels
and other properties. The increases were primarily due to the Company's growing
stabilized operating property portfolio. Overall occupancy and rental rates
were similar in the two years for stabilized operating properties. Cost of
rental operations increased to $78.7 million for the year ended November 30,
2000 from $53.9 million in 1999 due to the Company's growing stabilized
operating property portfolio.

Gains on sales of real estate decreased to $38.5 million in 2000 from $67.2
million in the prior year. The higher gains in 1999 include a $27.6 million
gain on the sale of four market-rate apartment communities.

Management fees increased to $2.8 million in 2000 from $0.7 million in 1999.
This increase was primarily due to fees related to the affordable housing
business.

Other operating expenses increased to $22.1 million for the year ended
November 30, 2000, compared to $16.7 million in 1999. This increase was due to
additional personnel and administrative costs necessary to support the growth
in the real estate property portfolio the Company manages.

Depreciation expense increased to $36.1 million for the year ended November
30, 2000 from $27.4 million in 1999. This increase was due to the growth in the
stabilized operating property portfolio.

The net book value of operating properties and equipment at November 30,
2000 and the net operating income for the year then ended with regard to
various types of properties owned by the Company were as follows:

Net
Operating NOI as a %
Net Book Occupancy Income of Net Book
Value Rate (1) (NOI) (2) Value
-------- --------- --------- -----------
(In thousands, except percentages)

Market-rate operating properties
Stabilized operating properties
Office........................... $232,369 84% $29,855 13%
Retail........................... 32,700 91% 5,401 17%
Industrial/warehouse............. 60,482 100% 8,030 13%
Ground leases.................... 18,439 100% 2,641 14%
-------- ---- ------- ---
Commercial..................... 343,990 92% 45,927 13%
Multi-family................... 2,536 98% 397 16%
Hotel.......................... 15,661 59% 2,047 13%
-------- ------- ---
362,187 48,371 13%
-------- -------
Under development or repositioning
Office........................... 219,255 4,967
Retail........................... 29,532 658
Industrial/warehouse............. 4,227 -
-------- -------
Commercial..................... 253,014 5,625
Multi-family................... 57,364 -
Hotel.......................... 29,877 1,175
-------- -------
340,255 6,800
-------- -------
Total market-rate operating
properties.......................... 702,442 55,171
-------- -------
Affordable housing communities
Stabilized....................... 48,794 96% 5,405
Development...................... 59,874 -
-------- -------
Total affordable housing
communities......................... 108,668 5,405
-------- -------
Furniture, fixtures and equipment.... 7,376 -
-------- -------
Total................................ $818,486 $60,576
======== =======

--------
(1) Occupancy rate at November 30, 2000.
(2) NOI for purposes of this schedule is rental income less cost of rental
operations before commissions and non-operating expenses.

As of November 30, 2000, approximately 52% of the Company's market-rate
operating properties, based on net book value, had reached stabilized occupancy
levels and were yielding in total 13% on net book value.

The net investment in the Company's affordable housing communities at
November 30, 2000 was as follows:

(In thousands)

Operating properties......................................... $108,668
Investments in unconsolidated partnerships................... 67,893
Debt and other............................................... (68,187)
--------
Net investment in affordable housing communities........... $108,374
========

As of November 30, 2000, the Company had been awarded and held rights to
over $198 million in gross tax credits, with approximately 61% relating to
apartment communities that have not yet reached stabilized occupancy levels.

Real Estate Loans

2001 2000 1999
-------- ------- -------
(In thousands)

Interest income...................................... $ 45,745 36,758 18,874
Equity in earnings of unconsolidated partnerships.... 4,554 19,370 21,700
Gains on sales of unconsolidated partnership
interests........................................... - 20,336 -
Management fees...................................... 3,732 4,656 5,080
Other income......................................... 136 437 504
-------- ------- -------
Total revenues..................................... 54,167 81,557 46,158
-------- ------- -------
Operating expenses (1)............................... 5,167 6,665 5,492
Minority interests................................... 2,232 2,395 2,146
-------- ------- -------
Total operating expenses (1)....................... 7,399 9,060 7,638
-------- ------- -------
Operating earnings................................. $ 46,768 72,497 38,520
======== ======= =======
Balance sheet data:
Mortgage loans, net.................................. $331,517 243,987 152,827
Investments in unconsolidated partnerships........... 8,917 14,184 69,830
Other investments.................................... 55,504 52,274 49,991
Other assets......................................... 2,676 3,717 2,046
-------- ------- -------
Total segment assets............................... $398,614 314,162 274,694
======== ======= =======

--------
(1) Operating expenses do not include interest expense.

Real estate loans include the Company's direct investments in high yielding
loans, as well as its domestic and foreign discount loan portfolio investments,
owned primarily through unconsolidated partnerships, and related loan workout
operations. Total revenues include interest income, equity in earnings of
unconsolidated partnerships and management fees earned from those partnerships.
Operating expenses include the overhead associated with servicing the loans and
managing the partnerships.

Year ended November 30, 2001 compared to year ended November 30, 2000

Operating earnings from real estate loans were $46.8 million for the year
ended November 30, 2001, compared to $72.5 million in 2000. This decrease was
primarily due to the sale of the Company's investment interests in its Japanese
discount loan portfolios in 2000 and lower earnings from the Company's domestic
discount loan portfolio business. These decreases were partly offset by an
increase in interest income.

Interest income increased to $45.7 million for the year ended November 30,
2001 from $36.8 million in 2000. Interest income primarily includes interest
earned on investments in structured junior participations in high-quality
short- to medium-term variable-rate real estate loans ("B-Notes"). During the
year ended November 30, 2001, the Company funded seven new B-Note investments
for $124.9 million and four B-Notes with a face amount of $98.7 million paid
off in full. The Company's B-Note investments at November 30, 2001 totaled
$242.6 million, net. These investments contributed $24.8 million to interest
income in 2001, compared to $22.2 million in 2000. Interest income in 2001 also
included $4.2 million from the early payoff of a discounted mortgage loan.
These increases in interest income were partially offset by lower variable
interest rates.

For the year ended November 30, 2001, equity in earnings of unconsolidated
partnerships decreased to $4.6 million from $19.4 million in 2000. This
decrease was due to a decline in earnings from the Company's Japanese discount
loan portfolios, which were sold in April 2000, and a decline in earnings from
the Company's domestic discount loan portfolios, as expected, due to the
liquidation of most of the assets in these portfolios in prior periods.

Gains on sales of unconsolidated partnership interests in 2000 reflect the
sale of the Company's investment interests in its Japanese discount loan
portfolios.

Operating expenses decreased to $5.2 million for the year ended November 30,
2001 from $6.7 million in 2000, primarily due to the sale of the Company's
Japanese discount loan portfolios in April 2000, partially offset by increased
general and administrative expenses to support the growth in the Company's
mortgage loan portfolio.

Year ended November 30, 2000 compared to year ended November 30, 1999

Operating earnings from real estate loans increased to $72.5 million for the
year ended November 30, 2000 from $38.5 million in 1999. This increase was
primarily due to the gain on sale of the Company's interests in its Japanese
discount loan portfolios and an increase in interest income.

Interest income increased to $36.8 million for the year ended November 30,
2000 from $18.9 million in 1999. This increase was primarily due to additional
investments in B-Notes. During the year ended November 30, 2000, the Company
funded additional investments for $150.6 million, bringing the total investment
in B-Notes as of November 30, 2000 to $216.4 million. These investments
contributed $22.2 million to interest income for the year ended November 30,
2000.

For the year ended November 30, 2000, equity in earnings of unconsolidated
partnerships decreased to $19.4 million from $21.7 million in 1999. As
expected, earnings from the Company's domestic discount loan portfolios
decreased $11.3 million, contributing only $9.5 million during the year because
of the liquidation of most of the assets in the portfolios in prior years. This
decrease was partially offset by an increase in earnings from the Company's
investments in and workout of distressed Japanese discount loan portfolios
prior to their sale.

In April 2000, the Company sold its investment interests in 16 Japanese real
estate loan portfolios for $66.4 million. The sale of these investment
interests resulted in a pre-tax gain of $20.3 million.

Management fees decreased to $4.7 million for the year ended November 30,
2000 from $5.1 million in 1999, due to fewer domestic loan portfolio
resolutions.

Operating expenses increased to $6.7 million for the year ended November 30,
2000 from $5.5 million in 1999, primarily due to increased general and
administrative expenses to support the growth in the Company's mortgage loan
portfolio.

Real Estate Securities

2001 2000 1999
---------- ------- -------
(In thousands)

Interest income........... $ 135,594 110,988 87,590
Equity in earnings of
unconsolidated
partnerships............. 44,802 36,852 4,077
Gains on sales of
investment securities.... 9,717 13,134 6,056
Management and servicing
fees..................... 25,131 15,461 9,592
Other, net................ (954) - -
---------- ------- -------
Total revenues.......... 214,290 176,435 107,315
---------- ------- -------
Operating expenses (1).... 15,210 10,797 7,502
Minority interests........ 61 980 681
---------- ------- -------
Total operating expenses
(1).................... 15,271 11,777 8,183
---------- ------- -------
Operating earnings...... $ 199,019 164,658 99,132
========== ======= =======
Balance sheet data:
Investment securities..... $1,215,121 696,402 510,920
Investments in
unconsolidated
partnerships............. 116,517 105,572 90,148
Other assets.............. 24,285 24,118 39,723
---------- ------- -------
Total segment assets.... $1,355,923 826,092 640,791
========== ======= =======

--------
(1) Operating expenses do not include interest expense.

Real estate securities include unrated and non-investment grade rated
subordinated CMBS which are collateralized by pools of mortgage loans on
commercial and multi-family residential real estate properties. It also
includes the Company's investment in Madison, as well as investments in
entities in related businesses. Total revenues from real estate securities
include primarily interest income, equity in the earnings of Madison, gains on
sales of securities, servicing fees from acting as special servicer for CMBS
transactions and fees earned from managing Madison. Operating expenses include
the overhead associated with managing the investments and Madison and costs of
the special servicing responsibilities.

Year ended November 30, 2001 compared to year ended November 30, 2000

Overall operating earnings from real estate securities increased to $199.0
million for the year ended November 30, 2001 from $164.7 million in 2000.
Earnings were higher primarily due to (i) increased interest income and fees
resulting from the growth of the Company's CMBS portfolio, (ii) greater
recognition of earnings due to actual CMBS performance continuing to exceed
original expectations and (iii) increased equity in earnings from the Company's
investment in Madison. These increases were partially offset by (i) a decrease
in gains on sales of investment securities and (ii) an increase in operating
expenses.

In recording CMBS interest income, the Company recognizes excess cash flows
over the initial investment over the life of the security to achieve a level
yield. To date, this has resulted in less recognition of interest income than
the amount of interest actually received. The excess interest received is
applied to reduce the Company's CMBS investment. The Company's initial and
ongoing estimates of cash flows from CMBS investments are based on a number of
assumptions that are subject to various business and economic conditions, the
most significant of which is the timing and magnitude of credit losses on the
underlying mortgages.

The Company has already begun to receive principal payments from 13 of its
CMBS securities, and nine have matured entirely. Actual loss experience to
date, particularly for older transactions (3 to 8 years in age), is
significantly lower than originally underwritten by the Company. Therefore,
changes to original estimated yields have resulted, and the Company believes
they should continue to result, in improved earnings from these transactions.
The Company believes these improvements resulted from its success in managing
and working out the underlying loans and stable real estate fundamentals.
However, the positive experience on these older transactions will not
necessarily translate into yield improvements on newer investments.

During the year ended November 30, 2001, the Company acquired $471.1 million
face amount of fixed-rate CMBS for $214.7 million and $100.1 million face
amount of short-term floating-rate CMBS for $84.7 million. The following is a
summary of the CMBS portfolio held by the Company at November 30, 2001:

Weighted Weighted Weighted
Average Average Average
Face Interest Book % of Face Cash Book
Amount Rate Value Amount Yield (1) Yield (2)
---------- -------- ---------- --------- --------- ---------
(In thousands, except percentages)

Fixed-rate
BB rated or above........ $ 370,324 6.74% $ 262,304 70.8% 9.5% 12.3%
B rated.................. 509,884 6.56% 275,929 54.1% 11.6% 12.5%
Unrated.................. 886,048 7.01% 203,088 22.9% 29.1% 33.3%
---------- ----- ---------- ---- ---- ----
Total.................. 1,766,256 6.82% 741,321 42.0% 15.7% 18.1%
Floating-rate/short-term
BB rated or above........ 12,789 3.81% 11,329 88.6% 4.3% 9.4%
B rated.................. 22,345 8.56% 20,880 93.4% 9.2% 12.5%
Unrated.................. 108,261 12.86% 87,917 81.2% 15.8% 13.2%
---------- ----- ---------- ---- ---- ----
Total.................. 143,395 11.33% 120,126 83.8% 13.5% 12.7%
Total amortized cost....... 1,909,651 7.15% 861,447 45.1% 15.3% 17.4%
Excess of fair value
over amortized cost....... -- 353,674
---------- ----------
Total CMBS portfolio (3)... $1,909,651 $1,215,121
========== ==========

--------
(1) Cash yield is determined by annualizing the actual cash received during the
month of November 2001, and dividing the result by the book value at
November 30, 2001.
(2) Book yield is determined by annualizing the interest income for the month
of November 2001, and dividing the result by the book value at November 30,
2001.
(3) This table excludes CMBS owned through unconsolidated partnerships.

Equity in earnings of unconsolidated partnerships primarily represents the
Company's participation in Madison, which was formed in April 1999. The venture
owns approximately $1.5 billion of real estate related securities. The
Company's investment in the venture as of the end of the year was $109.8
million, representing

a 25.8% ownership interest. In addition to its investment in the venture, the
Company maintains a significant ongoing role in the venture, for which it
earns fees, both as the special servicer for the purchased CMBS transactions
and as the provider of management services. Madison contributed $44.8 million
of equity in earnings of unconsolidated partnerships to the real estate
securities line of business for the year ended November 30, 2001.

At least in part through the Company's efforts as special servicer, the
underlying collateral in the Company's CMBS pools continues to perform at much
higher levels than originally anticipated. In recognition of this improvement,
the rating agencies continue to upgrade many of the Company's bond positions,
often to investment grade from non-investment grade status. The improved
rating increases the value of the securities. As a result, in 2001, the
Company sold six CMBS investments, which had been upgraded to investment grade
for a gain of $5.0 million. These bonds were originally purchased as non-
investment grade securities at substantial discounts and were sold at or above
par.

Additionally, there are a number of CMBS pools in which the Company owns
unrated bonds that have had significant principal paydowns, leaving only a
small percentage of the bonds remaining. As a result, the Company is able to
sell some of these bonds (or the underlying loans after executing a "clean-up
call") for significant profits prior to stated maturity, maximizing the
Company's return on investment. In 2001, the Company sold all classes of bonds
it owned in one seasoned CMBS pool at close to par for a gain of $4.9 million.
Over 93% of the original pool had paid off prior to this sale, which allowed
the securitization to be terminated through a clean-up call. The underlying
loans were then sold to three financial institutions. As the Company's
portfolio continues to mature, it expects these types of transactions to
increase.

The gains on sales of investment securities in 2000 resulted from the sale
of the Company's remaining investment in the common stock of Bank United
Corporation.

Gains on sales of securities can fluctuate from period to period depending
on the timing of asset sales.

During 2001, the Company reclassified its held-to-maturity CMBS securities
to available-for-sale in accordance with the requirements of SFAS No. 115.
Although the Company has the financial ability to hold these bonds to their
stated maturities, it sometimes is advantageous for the Company to sell the
bonds as the CMBS pools to which they relate pay down significantly and the
bonds get close to economic maturity. Because the Company may choose to do
this, SFAS No. 115 requires all the Company's CMBS to be classified as
available-for-sale and also requires the bond values to be adjusted to fair
market value, net of tax, through stockholders' equity. As a result, at
November 30, 2001, all of the Company's directly owned securities were
classified as available-for-sale and their book value was written up to
include unrealized appreciation.

Management and servicing fees increased to $25.1 million for the year ended
November 30, 2001 from $15.5 million in 2000. This increase was primarily due
to the increase in the number of CMBS mortgage pools (83 at November 30, 2001
versus 65 at November 30, 2000) for which the Company acts as a special
servicer.

Operating expenses increased to $15.2 million in 2001 compared to $10.8
million in 2000, primarily due to increases in personnel and out-of-pocket
expenses directly related to the growth of the Company's CMBS portfolio.

Year ended November 30, 2000 compared to year ended November 30, 1999

Overall operating earnings from real estate securities increased to $164.7
million for the year ended November 30, 2000 from $99.1 million in 1999.
Earnings were higher primarily due to (i) increased interest income associated
with the growth of the Company's CMBS portfolio, (ii) greater recognition of
earnings due to actual CMBS performance continuing to exceed original
expectations, (iii) increased equity in earnings from the Company's
participation in Madison and (iv) the gain on sale of the Company's remaining
investment in the common stock of Bank United Corporation.

During the year ended November 30, 2000, the Company acquired $426.9 million
face amount of fixed-rate CMBS for $192.8 million and $52.5 million face amount
of short-term floating-rate CMBS for $46.7 million. The following is a summary
of the CMBS portfolio held by the Company at November 30, 2000:

Weighted Weighted Weighted
Average Average Average
Face Interest Book % of Face Cash Book
Amount Rate Value Amount Yield (1) Yield (2)
---------- -------- -------- --------- --------- ---------
(In thousands, except percentages)

Fixed-rate
BB rated or above........ $ 314,623 7.16% $227,065 72.2% 10.0% 12.9%
B rated.................. 436,173 6.60% 233,672 53.6% 12.3% 13.0%
Unrated.................. 793,645 7.17% 184,256 23.2% 30.3% 30.0%
---------- ----- -------- ---- ---- ----
Total.................. 1,544,441 7.01% 644,993 41.8% 16.7% 17.9%
Floating-rate/short-term
BB rated or above........ 12,789 7.90% 10,893 85.2% 9.3% 9.3%
Unrated.................. 39,697 11.68% 35,489 89.4% 12.6% 8.6%
---------- ----- -------- ---- ---- ----
Total.................. 52,486 10.64% 46,382 88.4% 11.8% 8.7%
Total amortized cost....... 1,596,927 7.11% 691,375 43.3% 16.3% 17.3%
Excess of fair value
over amortized cost....... -- 5,027
---------- --------
Total CMBS portfolio (3)... $1,596,927 $696,402
========== ========

--------
(1) Cash yield is determined by annualizing the actual cash received during the
month of November 2000, and dividing the result by the book value at
November 30, 2000.
(2) Book yield is determined by annualizing the interest income for the month
of November 2000, and dividing the result by the book value at November 30,
2000.
(3) This table excludes CMBS owned through unconsolidated partnerships.

Equity in earnings of unconsolidated partnerships primarily represents the
Company's participation in Madison. The Company's investment in the venture as
of the end of the year was $105.6 million, representing a 25.8% ownership
interest. Madison contributed $41.7 million of equity in earnings of
unconsolidated partnerships to the real estate securities line of business for
the year ended November 30, 2000.

The $13.1 million gain on sale of investment securities during the year
ended November 30, 2000 resulted from the sale of the Company's remaining
417,000 shares of common stock of Bank United Corporation.

Management and servicing fees increased to $15.5 million from $9.6 million
in 1999. This increase was primarily attributable to the increase in the number
of CMBS mortgage pools (65 at November 30, 2000 versus 55 at November 30, 1999)
for which the Company acts as a special servicer.

Operating expenses increased to $10.8 million in 2000 compared to $7.5
million in 1999. This increase is primarily due to increased personnel and out-
of-pocket expenses directly related to the growth of the Company's CMBS
portfolio.

Corporate, Other, Interest and Income Tax Expenses

Year ended November 30, 2001 compared to year ended November 30, 2000

Interest expense decreased to $110.5 million in 2001 from $121.5 million in
2000. This decrease was primarily due to a decrease in interest rates and, to a
lesser extent, lower borrowing levels. Weighted average borrowing rates were
6.8% at November 30, 2001, compared to 8.6% at November 30, 2000. Average
borrowing levels were $1,457.0 million in 2001 compared to $1,501.1 million in
2000. See further detail below under "Financial Condition, Liquidity and
Capital Resources."

Income tax expense increased to $71.2 million in 2001 from $52.1 million in
2000. This increase was primarily due to an increase in pre-tax earnings, and
to a lesser extent, a lower level of Low-Income Housing Tax Credits utilized.
Because the level of tax credits was lower in 2001 and pre-tax earnings
increased, the effective tax rate in 2001, including state income taxes, was
35% compared to 31% in 2000.

Year ended November 30, 2000 compared to year ended November 30, 1999

Corporate and other operating expenses increased to $25.2 million in 2000
from $16.6 million in 1999, primarily due to overall Company growth.

Interest expense increased to $121.5 million in 2000 from $83.9 million in
1999. This increase was primarily attributable to the Company's increased
borrowing levels throughout most of the year and, to a lesser extent, higher
interest rates. The increased borrowing levels were to support larger real
estate loans and CMBS portfolios. The Company's mortgage notes and other debts
payable remained relatively flat at November 30, 2000 compared to November 30,
1999, primarily due to the sale of several properties near the end of 2000.

Income tax expense increased to $52.1 million in 2000 from $35.3 million in
1999 due to an increase in pre-tax earnings. The Company's effective tax rate
was 31% in 2000 compared to 27% for 1999. The Company utilized tax credits of
$14.6 million and $14.8 million in 2000 and 1999, respectively, to reduce tax
expense. Because the level of tax credits remained essentially the same but the
pre-tax earnings increased by 28%, the effective tax rate in 2000 was higher
than in 1999.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

The Company's operating activities used $24.5 million and $35.2 million of
cash in 2001 and 2000, respectively. The decrease in cash used for operating
activities was primarily due to a lower increase in other assets and restricted
cash, offset by lower net earnings after adjusting for the effects of non-cash
items (contributions of non-cash items to cash flow are reflected in cash flow
from investing activities below).

The Company's investing activities provided $53.3 million in 2001 and used
$4.8 million in 2000. The increase in cash provided by investing activities was
primarily due to fewer acquisitions of, and less development spending on,
properties and land held for investment, increased principal collections on
mortgage loans and CMBS, increased distributions from unconsolidated
partnerships and more proceeds from the syndication of affordable housing
communities. These increases were partially offset by increased purchases of
investment securities and mortgage loans, additional investments in
unconsolidated partnerships and fewer proceeds from the sales of unconsolidated
partnership interests.

The Company's financing activities used $24.2 million in 2001 and provided
$33.4 million in 2000. The increase in cash used in financing activities was
primarily due to more net payments made under the Company's repurchase
agreements and revolving credit lines and more principal payments made on
mortgage notes and other debt. These increases in cash used were somewhat
offset by more proceeds received from borrowings under the Company's mortgage
notes and other debts payable and less purchases of treasury stock.

The Company's investment activities consist primarily of purchasing real
estate related financial instruments and commercial and multi-family
residential properties, in part with borrowed funds. The value of all financial
instruments, or the earnings from them, is affected by changes in interest
rates. However, real estate related financial instruments are particularly
sensitive to interest rate changes, because the value of the real estate which
collateralizes the instruments, as well as the purely financial aspects of the
instruments themselves, are affected by changes in interest rates. Similarly,
the cost of borrowing is affected by changes in interest rates, and the
willingness of lenders to finance purchases of real estate related financial
instruments is

affected by factors, including changes in interest rates, which affect the
value of the real estate. To a substantial extent, conditions which reduce the
value of the Company's assets increase the cost of owning them.

The Company uses interest rate swaps to reduce the extent to which it will
be affected by changes in interest rates, which affect the value of the assets
it holds or the cost of debt it has incurred (see below). However, the Company
cannot protect itself against the effect changes in interest rates, or other
occurrences which affect real estate values, may have on its ability to borrow
funds with which to finance new investments. It also cannot fully protect
itself against losses it would suffer if, because of declines in real estate
values, it were unable to realize expected returns from its real estate related
assets or to dispose of those assets for prices at least equal to its
investment in them.

The Company continues to diversify its capital structure and to manage its
debt position with a combination of short-, medium- and long-term financings
with a goal of properly matching the maturities of its debt with the expected
lives of its assets. Because the Company borrows significant sums in connection
with its activities, the Company could be adversely affected by reluctance of
lenders to make loans to companies in real estate related businesses.
Difficulty obtaining financing can reduce the Company's ability to take
advantage of investment opportunities.

At November 30, 2001, the Company had approximately $700 million of
available liquidity, which included approximately $610 million of cash and
availability under credit facilities, and approximately $90 million under
committed project level term financing. Additionally, in January 2002, the
Company entered into a new $430 million reverse repurchase obligation ("repo")
line to finance the acquisition of securities and loans. This facility matures
in January 2005 and has a one-year extension option.

The Company has a $350.0 million unsecured revolving credit facility, which
matures in July 2004 assuming a one-year extension option is exercised. At
November 30, 2001, $10.0 million was outstanding under this facility, although
the Company had issued and outstanding $42.1 million of standby letters of
credit utilizing the facility. The facility contains certain financial tests
and restrictive covenants, none of which are currently expected to restrict the
Company's activities.

The Company has various secured revolving lines of credit with an aggregate
commitment of $355.0 million, of which $175.2 million was outstanding at
November 30, 2001. These lines are collateralized by CMBS and mortgage loans
and mature through January 2006.

The Company has financed some of its purchases of CMBS under repo
facilities, which are in effect borrowings secured by the CMBS. These repo
agreements contain provisions which may require the Company to repay amounts or
post additional collateral prior to the scheduled maturity dates if the market
value of the bonds which collateralize them significantly decline. Therefore,
if the market value of the Company's CMBS falls significantly, the Company
could be required to either use cash flow the Company needs to operate and grow
the business or to sell assets at a time when it may not be most appropriate
for the Company to do so, to generate cash needed to repay amounts under repo
obligations.

At November 30, 2001, the Company had three repo facilities through which it
financed selected CMBS. The first facility had a commitment of $58.3 million,
of which $58.3 million was outstanding and is required to be paid in full by
June 2004. The second facility had a commitment of $50.0 million of which $0
million was outstanding. This facility matures in June 2002. The third facility
is a $150.0 million non-recourse facility, which matures in March 2003, and had
an outstanding balance of $101.4 million at November 30, 2001. Additionally,
the Company has received seller financing in the form of term repos for eight
specific CMBS transactions. These agreements had an aggregate commitment of
$97.8 million with an outstanding balance of $97.8 million at November 30, 2001
and expire through August 2004.

In February 2001, the Company issued $150 million of long-term unsecured
senior subordinated notes, bringing the Company's total long-term unsecured
senior subordinated notes to $450 million. The $150 million of notes bear
interest at 10.5% and are due in January 2009. The Company used the proceeds
from the issuance to pay down debt, primarily secured credit facilities, and
for general corporate purposes. The subordinated notes contain certain
financial tests and restrictive covenants, none of which are currently expected
to restrict the Company's activities.

During the second quarter of 2001, Standard and Poor's upgraded the
Company's senior unsecured credit rating to BB from BB- and the Company's
senior subordinated debt rating to B+ from B. Additionally, during 2001,
Moody's Investors Service confirmed the Company's senior credit rating at Ba2
and changed the Company's senior subordinated debt rating from B1 to Ba3.

Significant contractual obligations of the Company as of November 30, 2001
are as follows:

Payments Due by Period
-----------------------------
Less Than 1-3 4-5 After 5
Total 1 Year Years Years Years
-------- --------- ----- ----- -------
(In millions)

Contractual obligations:
Long-term debt......................... $1,417.2 100.3 456.2 364.5 496.2
Operating leases....................... 3.5 1.6 1.1 0.6 0.2
-------- ----- ----- ----- -----
Total contractual cash obligations... $1,420.7 101.9 457.3 365.1 496.4
======== ===== ===== ===== =====

At November 30, 2001, the Company had scheduled maturities on existing debt
of $100.3 million through November 30, 2002, assuming the Company takes
advantage of extensions which are exercisable at the Company's option. The
Company's ability to make scheduled payments of principal or interest on or to
refinance this indebtedness depends on its future performance, which to a
certain extent, is subject to general economic, financial, competitive and
other factors beyond the Company's control. The Company believes its borrowing
availability under existing credit facilities, its operating cash flow and
unencumbered asset values, and its ability to obtain new borrowings and/or
raise new capital, should provide the funds necessary to meet its working
capital requirements, debt service and maturities and short- and long-term
needs based upon currently anticipated levels of growth. However, limitations
on access to financing constrain the Company's ability to take advantage of
opportunities that might lead to more significant growth.

Approximately 64% of the Company's existing indebtedness bears interest at
variable rates. However, most of the Company's investments generate interest or
rental income at essentially fixed rates. The Company has entered into
derivative financial instruments to manage its interest costs and hedge against
risks associated with changing interest rates on its debt portfolio. The
Company believes its interest rate risk management policy is generally
effective. Nonetheless, the Company's profitability may be adversely affected
during particular periods as a result of changing interest rates. Additionally,
hedging transactions using derivative instruments involve risks such as
counterparty credit risk and risks regarding legal enforceability of hedging
contracts. The counterparties to the Company's arrangements are major financial
institutions with which the Company and its affiliates may also have other
financial relationships. These counterparties expose the Company to loss in the
event of their non-performance.

At November 30, 2001, 33% of the Company's variable-rate debt had been
swapped to fixed rates and 53% was match-funded against variable-rate assets.
After considering the variable-rate debt that had been swapped or was match-
funded, 9% of the Company's debt remained variable-rate and 91% of the debt was
fixed-rate or match-funded. As of November 30, 2001, the Company estimates that
a 100 basis point change in LIBOR would impact net earnings by $0.3 million, or
less than $0.01 per share.

The weighted average interest rate on outstanding debt, after giving
consideration to the interest rate swap agreements mentioned above, was 6.8% at
November 30, 2001.

Amount of Commitment
Expiration Per Period
-----------------------------
Outstanding Less Than 1-3 4-5 After 5
Commitments 1 Year Years Years Years
----------- --------- ----- ----- -------
(In millions)

Standby letters of credit (1)....... $101.6 66.7 33.7 1.2 --
Guarantees of debt (2).............. 43.9 19.1 7.6 16.6 0.6
Limited maintenance guarantees (2).. 44.1 3.9 40.2 -- --
Performance bonds................... 37.2 20.7 2.0 -- 14.5
Affordable housing communities--
other (2).......................... 69.4 15.0 45.5 8.9 --
------ ----- ----- ---- ----
Total commercial commitments........ $296.2 125.4 129.0 26.7 15.1
====== ===== ===== ==== ====

--------
(1) Includes a $55.1 million letter of credit which is collateralized by short-
term investment securities included in the Company's restricted cash
balance at November 30, 2001.
(2) See "Unconsolidated Investments" section for further discussion.

As is customary in the real estate development business, the Company has
provided guarantees to construction lenders that construction of Company
developed properties will be completed. It is difficult to calculate the
maximum exposure on these guarantees because the amount of any obligations the
Company might incur would depend on the extent to which costs of completing
construction exceeded amounts provided by committed borrowings and capital
contributions. The Company is not currently aware of any reason to expect it
will be required to make payments under any of its outstanding completion
guarantees.

The Company's Board of Directors approved a stock repurchase plan
authorizing the Company to buy back up to 5,500,000 shares of its common stock.
In December 2000, the Company purchased 300,000 shares of its common stock,
bringing the total purchases to date under the Company's buy-back program to
3,244,100 shares. This represents 59% of the Company's repurchase authorization
and over 9% of the Company's total stock outstanding when the buy-back program
began. At November 30, 2001, the Company had authorization under its buy-back
program to purchase an additional 2,255,900 shares.

UNCONSOLIDATED INVESTMENTS

The Company frequently makes investments jointly with others, through
partnerships and joint ventures. This (i) allows LNR to further diversify its
investment portfolio, spreading risk over a wider range of investments, (ii)
provides access to transactions which are brought to the Company by other
participants, (iii) provides access to capital and (iv) involves investments
which are larger than the Company is willing to make on its own. In many
instances, the Company has a less than controlling interest in the partnership
or venture or control is shared, and therefore, accounts for its interest by
the equity method, rather than consolidating the assets and liabilities of the
partnership or venture on its balance sheet.

Typically, the Company either invests on a non-recourse basis, such as by
acquiring a limited partnership interest or an interest in a limited liability
company, or the Company acquires a general partner interest, but holds that
interest in a subsidiary which has few, if any, other assets. In those
instances, the Company's exposure to partnership liabilities is essentially
limited to the amounts the Company invests in the partnerships. However, in
some instances the Company is required to give limited guarantees of debt
incurred or other obligations undertaken by the partnerships or ventures. For
certain partnerships, typically those involving real estate property
development, the Company may commit to invest certain amounts in the future
based on the partnership's business plan.

At November 30, 2001, the Company had investments in unconsolidated
partnerships of $352.1 million. Summarized financial information on a combined
100% basis related to the Company's investments in unconsolidated partnerships
accounted for by the equity method at November 30, 2001 follows:

LNR Total Total
LNR Ownership Partnership Partnership
Investment Interest (1) Assets Liabilities
---------- ------------ ----------- -----------
(In millions, except percentages)

Properties:
Single-asset partnerships.... $ 55,101 33% - 94% $ 310,742 225,957
Partnerships with Lennar
LLP........................ 66,665 50% 275,671 142,341
Other...................... 30,559 50% 81,536 19,618
Affordable housing
communities................. 70,646 1% - 99% 565,010 382,061
Other........................ 3,737 5% - 99% 13,132 8,224
-------- ---------- ---------
226,708 1,246,091 778,201
-------- ---------- ---------
Loans:
Domestic non-performing loan
pools....................... 8,917 15% - 50% 51,291 22,755
-------- ---------- ---------
Securities:
Madison...................... 109,825 25.8% 1,464,630 1,028,797
Other........................ 6,692 69.5% 50,636 40,058
-------- ---------- ---------
116,517 1,515,266 1,068,855
-------- ---------- ---------
Total.......................... $352,142 $2,812,648 1,869,811
======== ========== =========

--------
(1) Although LNR may hold a majority financial interest in certain
partnerships, it does not consolidate those partnerships in which control
is shared or in which less than a controlling interest is held.

Single-Asset Partnerships

The Company has investments in single-asset partnerships established to
acquire, develop, reposition, manage and sell real estate assets. The Company's
investment in these partnerships as of November 30, 2001 was $55.1 million.
Assets of the partnerships as of November 30, 2001 include 238,000 square feet
of office space, 138,000 square feet of retail space, 1,389 hotel rooms, and
1,936 apartment units. Approximately 83% of these properties are not yet
stabilized. The Company's ownership interests range from 33% to 94%. Total
partnership debt at November 30, 2001 is $208.9 million, and excluding any
liability where the Company acts as general partner, only $21.7 million is with
recourse to the Company.

Partnerships with Lennar

In connection with the spin-off of the Company to stockholders of Lennar in
1997, Lennar transferred parcels of land to the Company and the Company
transferred these parcels to a general partnership in exchange for a 50%
partnership interest in this partnership. In 1999, certain assets and
liabilities of this land partnership were contributed at net book value to a
second general partnership and the Company and Lennar each received 50% general
partnership interests in the second partnership. The two partnerships are
collectively referred to as Lennar Land Partners ("LLP"). LLP is engaged in the
acquisition, development and sale of land. The land was originally acquired by
Lennar primarily to be used for residential home development. Lennar can
purchase land from LLP at prices agreed to by the Company. LLP also sells land
to unrelated developers. During 2001, LLP had land sale revenues of $175.0
million of which $104.2 million was from sales to Lennar. LNR and Lennar have
equal say on all major decisions with respect to LLP. LNR's by-laws require
that a committee of LNR directors who have no relationship with Lennar approve
all significant decisions with respect to LLP. Lennar manages the day-to-day
activities of LLP under a management agreement. LNR recorded $29.9 million of
pre-tax earnings and received $46.9 million in cash distributions from LLP in
2001.

The Company has joint ventured with Lennar in a number of other projects
which require both residential and commercial expertise. The debt on these
ventures is non-recourse to the Company. These projects include:

. The development and disposition of approximately 585 acres of commercial
land in Carlsbad, California, of which 429 acres remained at November
30, 2001.

Affordable Housing Communities

During 1998, the Company entered the business of owning, developing and
syndicating partnership interests in affordable housing communities. The
Company's ownership is between 18% and 99% in partnerships it has not yet
syndicated. The Company continues to hold a small interest (typically ranging
from 1% to 10%) in the communities it has syndicated and continues to manage
those communities for which it

earns management fees. The Company's investment in unconsolidated affordable
housing partnerships was $70.6 million at November 30, 2001. Total
unconsolidated affordable housing partnership debt was $340.4 million at
November 30, 2001, and excluding any liability where the Company acts as
general partner, only $19.7 million is with recourse to the Company.
Additionally, the Company has other commitments and contingent liabilities
related to its affordable housing investments, each of which are typical to the
affordable housing community development and management business, for the
following:

. Limited yield guarantees to investors that have acquired interests in
syndicated properties. The Company fully reserves for these limited
guarantees at the time of syndication.

. Agreements to provide additional financing to stabilized projects if
cash flow is insufficient to meet certain debt service coverage ratios.
The Company's outstanding commitments at November 30, 2001 totaled $7.9
million.

. Funding commitments on projects with tax credit applications
outstanding. If applications are approved, the Company must either find
a third-party lender or provide the funding itself. The Company's
outstanding commitments at November 30, 2001 totaled $51.3 million.

. Gap financing agreements which may obligate the Company to provide
additional financing to projects upon completion, typically when the
project's permanent financing is insufficient to pay off the
construction loan. The Company's outstanding commitments at November 30,
2001 totaled $3.8 million.

. Agreements to fund operations when certain operating cash flow levels
are not achieved. The Company's outstanding commitments at November 30,
2001 totaled $6.4 million.

. Construction completion guarantees on Company developed projects. The
Company currently expects to complete the construction of these
properties without having to make payments under the guarantees.

Domestic Non-Performing Loan Pools

In the early to mid 1990's, the Company acquired a number of portfolios of
non-performing commercial mortgage loans and related pools of owned real estate
assets in partnerships with financial institutions or other entities. In each
of these partnerships, the Company is a minority limited partner, but one of
the Company's subsidiaries acts as the managing general partner. The Company
earns management fees and asset disposition fees from the partnerships and has
carried interests in cash flow and sales proceeds once the partners have
recovered their capital and achieved specified returns. The Company's
investment in the non-performing loan pool partnerships at November 30, 2001
was $8.9 million. LNR's pre-tax earnings and distributions from these
partnerships for the year ended November 30, 2001 were $4.6 million and $5.9
million, respectively. Excluding any liability of the managing general
partners, the partnership's debt is non-recourse to the Company.

Madison

Formed in March 1999, Madison invests in real estate securities, primarily
CMBS. The Company's investment in Madison as of November 30, 2001 was $109.8
million, representing a 25.8% ownership interest. The Company maintains a
significant ongoing role in the venture for which it earns fees, both as the
special servicer for the purchased CMBS transactions and for providing services
for the management of the venture. The Company recorded $44.8 million of pre-
tax earnings and received $40.5 million in cash distributions from Madison in
2001. The debt of Madison is non-recourse to the Company.

ACCOUNTING POLICIES

In the preparation of its financial statements, the Company selects and
applies accounting principles generally accepted in the United States of
America. The application of some of these generally accepted accounting
principles requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying results. The
accounting policies that include significant estimates and assumptions are in
the areas of valuing the Company's investment securities and determining if any
are impaired, recognizing interest income on those securities and determining
if any operating properties are impaired.

As discussed in Note 12 to the consolidated financial statements, the
Company's investment securities are carried at fair value. The Company
determines the fair value through quoted market prices if available. Where
quoted market prices are not available, fair value is estimated by the Company
based on the present value of estimated future cash flows using management's
best estimate of certain key assumptions including credit losses, prepayment
rates and discount rates. Interest income on these securities is recognized on
the level yield method, using the yield that equates the future cash flows,
estimated by management as described above, to the amortized cost. To the
extent estimated future cash flows change, the yield on the security is
increased or decreased prospectively to the new yield. A loss is recognized to
the extent by which the fair value of the investment security has declined
below its amortized cost and the decline in fair value is other than a
temporary impairment. Impairment is considered to be other than temporary if
the present value of the currently estimated total cash flows related to the
security is less than the present value of the previously estimated total cash
flows of that security.

The Company also reviews its operating properties for impairment of value.
This includes considering certain indications of impairment such as significant
declines in occupancy, other significant changes in property operations,
significant deterioration in the surrounding economy or environmental problems.
If such indications are present, the Company will estimate the total future
cash flows from the property and compare the total future cash flows to the
carrying value of the property. If the total future cash flows are less than
the carrying value, the Company will adjust the carrying value down to its
estimated fair value. Fair value may be based on third-party appraisals or
management's estimate of the property's fair value.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001
as well as all purchase method combinations completed after June 30, 2001. SFAS
No. 141 also specifies criteria that intangible assets acquired in a purchase
method business combination must meet to be recognized and reported apart from
goodwill. SFAS No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually on a basis set forth in SFAS No. 142, and that
intangible assets with estimatable useful lives be amortized over their
respective estimated useful lives to their estimated residual values, and
reviewed for impairment. The Company adopted the provisions of SFAS No. 141 and
adoption has not had a material effect on the Company's results of operations
or financial position. The adoption of SFAS No. 142 is not expected to have a
material effect on the Company's results of operations or financial position as
the Company has no goodwill.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," which addresses financial accounting and reporting for legal
obligations associated with the retirement of tangible long-lived assets that
result from the acquisition, construction, development, and/or normal use of
the asset, and the associated asset retirement costs. SFAS No. 143 requires
that the fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The fair value of the liability is added to the
carrying amount of the related asset and depreciated over the life of the
asset. The liability is accreted each period through charges to operating
expense. If the obligation is settled for other than the carrying amount of the
liability, the Company will recognize a gain or loss on settlement. The Company
is required and plans to adopt the provisions of SFAS No. 143 for the quarter
ending February 28, 2003. The adoption of SFAS No. 143 is not expected to have
a material effect on the Company's results of operations or financial position.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. This statement
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" and the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30, "Reporting the
Results of Operations--Reporting the Effects of a Disposal of a Business and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for
the disposal of a segment of a business. This Statement also amends Accounting
Research Bulletin No. 51, "Consolidated Financial Statements," to eliminate the
exception to consolidation for a subsidiary for which control is likely to be
temporary. SFAS No. 144 is effective for the fiscal year ending November 30,
2003, and the interim periods within fiscal 2003, with early application
encouraged. The provisions of this Statement generally are to be applied
prospectively. The Company is currently evaluating whether the adoption of SFAS
No. 144 will have a material effect on the Company's results of operations or
financial position.

In December 2001, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") 01-6, "Accounting by Certain Entities (Including
Entities With Trade Receivables) That Lend to or Finance the Activities of
Others." This SOP clarifies that accounting and financial reporting practices
for lending and financing activities should be the same regardless of the type
of entity engaging in those activities. Changes in accounting and financial
reporting required by this SOP are to be applied prospectively and will be
effective for the fiscal year ending November 30, 2003, and the interim periods
within fiscal 2003. The Company is currently evaluating whether the adoption of
SOP 01-6 will have a material effect on the Company's results of operations or
financial position.

Item 7a. Qualitative and Quantitative Disclosures About Market Risk.

The Company's business activities contain elements of market risk. The
primary market risks the Company is subject to include: (i) exposure to changes
in demand for commercial real estate space in areas in which the Company owns
properties, or in areas in which properties securing mortgages directly or
indirectly owned by the Company are located, (ii) declines in the value of real
estate assets due to changes in real estate markets or the economy in general,
(iii) the ability of mortgagors to meet debt obligations and (iv) interest rate
risk.

The first three risk factors noted above are affected primarily by general
economic conditions and to some extent by the interest rate environment.
Because these factors are not under the Company's control, the attempts by the
Company to minimize these risks may not always be effective. The Company
attempts to manage these market risks (i) through its exhaustive underwriting
program, (ii) through hands-on management of the underlying assets and (iii) by
maintaining a portfolio of assets that is diverse by segment, geographic area
and property type. The Company will not make any investment before extensive
hands-on property level due diligence is performed. For each asset, the Company
will evaluate the local market, rental rates, vacancy rates and, if applicable,
loan and borrower characteristics. Cash flows are evaluated at the property
level and loan levels, if applicable, and downside scenario assumptions are
stressed. Before any investment is made, it must be approved by corporate
senior management through a formal process. The Company does not make passive
investments, only investing when it has control over the development and
implementation of the strategy for enhancing the value of the underlying
assets. The Company does not invest in disproportionately large assets. No
single asset owned by the Company at November 30, 2001 accounted for more than
4% of the Company's total assets.

Interest rates are highly sensitive to many factors, including governmental
monetary and tax policies, domestic and international economic and political
conditions, and other factors beyond the control of the Company. The Company
has an interest rate risk management policy with the objective of (i) managing
its interest costs and (ii) reducing the effect of unpredictable changes in
asset values related to movements in interest rates on the Company's available-
for-sale securities. As more fully discussed in Note 4 to the Company's
consolidated financial statements, the Company employs hedging strategies to
limit the effects of changes in interest rates on its operating income and cash
flows and on the value of its available-for-sale securities.

The Company's approach to managing interest rate risk is based primarily on
match funding, with the objective that variable-rate assets be primarily
financed by variable-rate liabilities and fixed-rate assets be primarily
financed by fixed-rate liabilities. Most of the Company's variable-rate assets
are financed with variable-rate debt. To the extent that the Company has fixed-
rate assets financed with variable-rate debt, the Company periodically enters
into derivative financial instruments, primarily interest rate swap agreements,
to

manage its interest costs and hedge against risks associated with changing
interest rates. At November 30, 2001, 64% of the Company's existing
consolidated indebtedness had interest at variable rates. Approximately 53% of
this debt was match-funded against variable-rate assets and 33% was swapped to
fixed-rate. As a result, at year-end, a 100 basis point change in LIBOR would
have impacted the Company's net earnings by approximately 0.2%.

To manage the risk associated with unpredictable changes in asset values
related to movements in interest rates on the Company's fixed-rate available-
for-sale securities, the Company periodically uses derivative financial
instruments, primarily interest rate swap agreements.

The Company believes its interest rate risk management policy is generally
effective. Nonetheless, the Company's profitability may be adversely affected
during particular periods as a result of changing interest rates. In addition,
hedging transactions using derivative instruments involve risks such as
counterparty credit risk and risks regarding legal enforceability of hedging
contracts. The counterparties to the Company's arrangements are lenders of the
hedged debt instruments or are major financial institutions, rated A- or
better, with which the Company and its affiliates may also have other financial
relationships. These counterparties potentially expose the Company to credit
loss in the event of non-performance.

Item 8. Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of LNR Property Corporation and
Subsidiaries:

We have audited the accompanying consolidated balance sheets of LNR Property
Corporation and subsidiaries (the "Company") as of November 30, 2001 and 2000
and the related consolidated statements of earnings, comprehensive earnings,
cash flows and stockholders' equity for each of the three years in the period
ended November 30, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of LNR
Property Corporation and subsidiaries at November 30, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended November 30, 2001, in conformity with accounting principles
generally accepted in the United States of America.

DELOITTE & TOUCHE LLP
Certified Public Accountants

Miami, Florida
January 15, 2002, except for Note 17
as to which the date is January 29, 2002

LNR PROPERTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

As of November 30,
---------------------
2001 2000
---------- ---------
(In thousands,
except per share
amounts)

Assets
Cash and cash equivalents............................... $ 6,578 1,986
Restricted cash......................................... 81,955 85,282
Investment securities:
Investment securities pledged to creditors which can
be repledged or sold by creditors.................... 719,605 497,527
Other investment securities........................... 495,516 198,875
---------- ---------
Total investment securities......................... 1,215,121 696,402

Mortgage loans, net..................................... 331,517 243,987
Operating properties and equipment, net................. 719,662 818,486
Land held for investment................................ 42,229 52,969
Investments in unconsolidated partnerships.............. 352,142 353,975
Deferred income taxes................................... -- 7,651
Other assets............................................ 87,443 88,118
---------- ---------
Total assets........................................ $2,836,647 2,348,856
========== =========
Liabilities and Stockholders' Equity
Liabilities
Accounts payable...................................... $ 20,914 15,432
Accrued expenses and other liabilities................ 174,023 121,114
Deferred income taxes................................. 79,646 --
Mortgage notes and other debts payable................ 1,417,207 1,404,374
---------- ---------
Total liabilities................................... 1,691,790 1,540,920
---------- ---------
Minority interests...................................... 25,688 29,492
Commitments and contingent liabilities (Note 15)
Stockholders' equity
Common stock, $.10 par value, 150,000 shares
authorized, 24,445 and 24,215 shares issued and
outstanding in 2001 and 2000, respectively........... 2,444 2,422
Class B common stock, $.10 par value, 40,000 shares
authorized, 9,949 and 9,999 shares issued and
outstanding in 2001and 2000, respectively............ 995 1,000
Additional paid-in capital............................ 513,977 516,516
Retained earnings..................................... 404,611 272,772
Unamortized value of restricted stock grants.......... (10,273) (13,195)
Accumulated other comprehensive earnings (loss)....... 207,415 (1,071)
---------- ---------
Total stockholders' equity.......................... 1,119,169 778,444
---------- ---------
Total liabilities and stockholders' equity.......... $2,836,647 2,348,856
========== =========

See accompanying notes to consolidated financial statements.

LNR PROPERTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

Years Ended November 30,
-------------------------
2001 2000 1999
-------- ------- -------
(In thousands, except
per share amounts)

Revenues
Rental income..................................... $111,669 139,264 95,391
Equity in earnings of unconsolidated
partnerships..................................... 75,152 87,032 57,058
Interest income................................... 181,339 147,746 106,464
Gains on sales of:
Real estate..................................... 63,535 38,522 67,187
Unconsolidated partnership interests............ 746 23,671 --
Investment securities........................... 9,717 13,134 6,056
Management and servicing fees..................... 36,340 22,964 15,340
Other, net........................................ (818) 437 504
-------- ------- -------
Total revenues................................ 477,680 472,770 348,000
-------- ------- -------
Costs and expenses
Cost of rental operations......................... 58,642 78,682 53,881
General and administrative........................ 74,398 64,736 46,277
Depreciation...................................... 25,267 36,138 27,393
Minority interests................................ 2,536 3,799 5,640
-------- ------- -------
Total costs and expenses...................... 160,843 183,355 133,191
-------- ------- -------
Operating earnings.................................. 316,837 289,415 214,809
Interest expense.................................... 110,494 121,487 83,909
-------- ------- -------
Earnings before income taxes........................ 206,343 167,928 130,900
Income taxes........................................ 71,230 52,057 35,340
-------- ------- -------
Net earnings........................................ $135,113 115,871 95,560
======== ======= =======
Earnings per share:
Basic............................................. $ 4.05 3.46 2.68
======== ======= =======
Diluted........................................... $ 3.87 3.32 2.63
======== ======= =======
Weighted average common and common equivalent shares
outstanding:
Basic............................................. 33,364 33,464 35,626
======== ======= =======
Diluted........................................... 34,916 34,875 36,279
======== ======= =======

See accompanying notes to consolidated financial statements.

LNR PROPERTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

Years Ended November 30,
--------------------------
2001 2000 1999
-------- ------- -------
(In thousands)

Net earnings....................................... $135,113 115,871 95,560
Other comprehensive earnings (loss), net of tax:
Unrealized gain (loss) on available-for-sale
securities, net and other......................... 226,491 (1,071) 10,551
Unrealized loss on derivative financial
instruments....................................... (4,859) -- --
Transition adjustment related to accounting for
derivative financial instruments and hedging
activities........................................ 4,388 -- --
Less: reclassification adjustment for gains
included in net earnings.......................... (17,534) (13,796) (4,463)
-------- ------- -------
Other comprehensive earnings (loss)................ 208,486 (14,867) 6,088
-------- ------- -------
Comprehensive earnings............................. $343,599 101,004 101,648
======== ======= =======

See accompanying notes to consolidated financial statements.

LNR PROPERTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Years Ended November 30,
----------------------------
2001 2000 1999
---------- ------- -------
(In thousands)

Common stock
Beginning balance............................... $ 2,422 2,514 2,485
Purchase of treasury stock...................... (30) (189) (50)
Restricted stock grants......................... 1 87 --
Stock option exercises.......................... 46 4 9
Stock issued by employee stock ownership plan... -- -- 1
Conversion of Class B common stock to common
stock.......................................... 5 6 69
---------- ------- -------
Balance at November 30........................ 2,444 2,422 2,514
---------- ------- -------
Class B common stock
Beginning balance............................... 1,000 1,006 1,075
Conversion of Class B common stock to common
stock.......................................... (5) (6) (69)
---------- ------- -------
Balance at November 30........................ 995 1,000 1,006
---------- ------- -------
Additional paid-in capital
Beginning balance............................... 516,516 529,042 536,259
Purchase of treasury stock...................... (4,509) (28,454) (7,515)
Restricted stock grants......................... 267 15,627 --
Stock option exercises.......................... 1,703 301 135
Stock issued by employee stock ownership plan... -- -- 163
---------- ------- -------
Balance at November 30........................ 513,977 516,516 529,042
---------- ------- -------
Retained earnings
Beginning balance............................... 272,772 163,974 71,452
Net earnings.................................... 135,113 115,871 95,560
Purchase of treasury stock...................... (1,611) (5,421) (1,310)
Cash dividends--common stock.................... (1,214) (1,202) (1,268)
Cash dividends--Class B common stock............ (449) (450) (460)
---------- ------- -------
Balance at November 30........................ 404,611 272,772 163,974
---------- ------- -------
Unamortized value of restricted stock grants
Beginning balance............................... (13,195) -- --
Restricted stock grants......................... (268) (15,714) --
Amortization.................................... 3,190 2,519 --
---------- ------- -------
Balance at November 30........................ (10,273) (13,195) --
---------- ------- -------
Accumulated other comprehensive earnings (loss)
Beginning balance............................... (1,071) 13,796 7,708
Change in accumulated other comprehensive
earnings (loss), net........................... 208,486 (14,867) 6,088
---------- ------- -------
Balance at November 30........................ 207,415 (1,071) 13,796
---------- ------- -------
Total stockholders' equity.................. $1,119,169 778,444 710,332
========== ======= =======

See accompanying notes to consolidated financial statements.

LNR PROPERTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended November 30,
-----------------------------
2001 2000 1999
--------- -------- --------
(In thousands)

Cash flows from operating activities:
Net earnings.................................. $ 135,113 115,871 95,560
Adjustments to reconcile net earnings to net
cash used in operating activities:
Depreciation................................ 25,267 36,138 27,393
Deferred income taxes....................... (24,575) 7,904 3,918
Minority interests.......................... 2,536 3,799 5,640
Accretion of discount on CMBS, mortgage
loans and other............................ (34,627) (27,549) (24,232)
Equity in earnings of unconsolidated
partnerships............................... (75,152) (87,032) (57,058)
Gains on sales of real estate............... (63,535) (38,522) (67,187)
Gains on sales of unconsolidated partnership
interests.................................. (746) (23,671) --
Gains on sales of investment securities..... (9,717) (13,134) (6,056)
Losses on hedging activities................ 954 -- --
Changes in assets and liabilities:
Increase in restricted cash............... (107) (5,677) (39,647)
Increase in other assets.................. (12,446) (43,252) (1,265)
Increase in accounts payable and accrued
liabilities.............................. 32,554 39,935 61,541
--------- -------- --------
Net cash used in operating activities... (24,481) (35,190) (1,393)
--------- -------- --------
Cash flows from investing activities:
Operating properties and equipment
Additions................................... (159,521) (339,856) (453,279)
Sales....................................... 158,445 117,418 123,081
Land held for investment
Additions................................... (5,046) (27,277) (30,124)
Sales....................................... 29,662 76,655 50,579
Investments in unconsolidated partnerships.... (84,870) (51,334) (125,594)
Proceeds from sales of unconsolidated
partnership interests........................ -- 77,990 8,023
Distributions from unconsolidated
partnerships................................. 152,102 121,472 95,593
Purchase of mortgage loans held for
investment................................... (72,062) (50,990) (27,471)
Proceeds from mortgage loans held for
investment................................... 113,413 74,806 30,885
Purchase of investment securities............. (270,884) (141,012) (73,762)
Proceeds from principal collections on and
sales of investment securities............... 103,237 84,097 49,832
Interest received on CMBS in excess of income
recognized................................... 25,192 19,085 17,834
Syndications of affordable housing
communities.................................. 63,653 34,128 38,260
--------- -------- --------
Net cash provided by (used in) investing
activities............................. 53,321 (4,818) (296,143)
--------- -------- --------
Cash flows from financing activities:
Proceeds from stock option exercises.......... 1,749 304 145
Purchase of treasury stock.................... (6,150) (34,064) (8,875)
Payment of dividends.......................... (1,663) (1,652) (1,728)
Net payments under repurchase agreements and
revolving credit lines....................... (211,704) (88,924) (106,989)
Mortgage notes and other debts payable
Proceeds from borrowings.................... 352,230 257,210 482,613
Principal payments.......................... (158,710) (99,467) (87,460)
--------- -------- --------
Net cash (used in) provided by financing
activities............................. (24,248) 33,407 277,706
--------- -------- --------
Net increase (decrease) in cash and cash
equivalents.................................. 4,592 (6,601) (19,830)
Cash and cash equivalents at beginning of
year......................................... 1,986 8,587 28,417
--------- -------- --------
Cash and cash equivalents at end of year...... $ 6,578 1,986 8,587
========= ======== ========

See accompanying notes to consolidated financial statements.

LNR PROPERTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS--CONTINUED

Years Ended November 30,
---------------------------
2001 2000 1999
-------- -------- -------
(In thousands)

Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts
capitalized..................................... $107,450 120,085 83,494
Cash paid for taxes.............................. $ 68,564 38,681 21,286
Supplemental disclosures of non-cash investing and
financing activities:
Mortgage loans received on sales of operating
properties...................................... $ 50,488 -- --
Purchases of investment securities financed by
seller.......................................... $ 28,508 98,498 119,136
Purchases of mortgage loans financed by seller... $ 73,280 113,670 56,430
Investment in unconsolidated partnership......... $ -- -- 20,788
Supplemental disclosure of non-cash transfers:
Transfer of operating properties to land held for
investment...................................... $ 5,114 -- 20,871
Transfer of land held for investment to operating
properties...................................... $ -- 31,640 24,564

Transfer of certain assets and liabilities to
investments in unconsolidated partnerships:
Investment securities.......................... $ 49,169 -- --
Operating properties........................... -- 385,711 17,962
Mortgage notes and other debts payable......... (39,490) (269,681) --
Other.......................................... (2,987) (20,068) --
-------- -------- -------
Total net transfers to investments in
unconsolidated partnerships.................. $ 6,692 95,962 17,962
======== ======== =======

See accompanying notes to consolidated financial statements.

LNR PROPERTY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Organization, Business and Significant Accounting Policies

Description of Business

LNR Property Corporation ("LNR"), a Delaware corporation, was formed in June
1997. LNR and its subsidiaries (collectively, the "Company") operate a real
estate investment, finance and management business which engages primarily in
(i) acquiring, developing, managing and repositioning commercial and multi-
family residential real estate properties, (ii) investing in high yielding real
estate loans and purchasing at a discount portfolios of loans backed by real
estate and (iii) investing in unrated and non-investment grade rated commercial
mortgage-backed securities ("CMBS") as to which the Company has the right to be
the special servicer (i.e., to oversee workouts of underperforming and non-
performing loans).

Basis of Presentation and Consolidation

The accompanying consolidated financial statements include the accounts of
LNR and its wholly-owned subsidiaries. The assets, liabilities and results of
operations of entities (both corporations and partnerships) in which LNR has a
controlling interest have been consolidated. The ownership interests of
noncontrolling owners in such entities are reflected as minority interests.
LNR's investments in partnerships (and similar entities) in which less than a
controlling interest is held or in which control is shared are accounted for by
the equity method (when significant influence can be exerted by LNR), or the
cost method. All significant intercompany transactions and balances among
consolidated entities have been eliminated.

Earnings Per Share

The Company reports earnings per share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." Under
SFAS No. 128, basic earnings per share is computed by dividing the Company's
earnings available to common stockholders for the period by the weighted
average number of common shares outstanding during the period. Diluted earnings
per share is computed by dividing the Company's earnings available to common
stockholders for the period by the weighted average number of common and common
equivalent shares outstanding during the period. Common equivalent shares
reflect the dilution that would occur if the issuance of common stock shared in
the earnings of the Company for the following: incremental common shares
issuable upon the exercise of stock options and the purchase of stock under
stock purchase plans, and unvested restricted common stock. The dilutive impact
of common stock equivalents is determined by applying the treasury stock
method. See Note 7 for the reconciliation of the numerator and denominator of
the basic and diluted earnings per share calculations for the years ended
November 30, 2001, 2000 and 1999.

Comprehensive Earnings

The Company reports its comprehensive earnings in accordance with SFAS No.
130, "Reporting Comprehensive Income," which establishes standards for
reporting and presenting comprehensive earnings and its components in a full
set of financial statements. Comprehensive earnings consist of net income and
other comprehensive earnings (losses), which are primarily unrealized gains and
losses on available-for-sale securities and derivative financial instruments.
Comprehensive earnings are presented separately in the Company's consolidated
statements of comprehensive earnings, net of taxes. The change in accumulated
other comprehensive earnings (loss) is reflected in the Company's consolidated
statements of stockholders' equity. SFAS No. 130 requires only additional
disclosures in the consolidated financial statements; it does not affect the
Company's results of operations or financial position.

Business Segments

The Company reports business segment information under the provisions of
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." This statement establishes standards for reporting information
about the Company's operating segments and related disclosures about its
products, services, geographic areas of operations and major customers. See
Note 16 which provides further information.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Due to the
short maturity period of cash equivalents, the carrying amount of these
instruments approximates fair value.

Investment Securities

Investment securities, which consist principally of CMBS, are accounted for
in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." This standard requires that debt and equity securities
be classified as either trading, available-for-sale or held-to-maturity. At
November 30, 2001 and 2000, none of the Company's securities were held for
trading purposes. Held-to-maturity securities are those securities the Company
has the ability and the intent to hold to maturity. All securities not
classified as held-to-maturity are classified by the Company as available-for-
sale.

At November 30, 2001, the Company reclassified its held-to-maturity
securities to available-for-sale. Although the Company has the financial
ability to hold these securities to their stated maturities, it is often
advantageous for the Company to sell the securities as the CMBS pools to which
they relate pay down significantly and the securities get close to economic
maturity. Because the Company may choose to do this, SFAS No. 115 requires that
all the securities be classified as available-for-sale. On the date of
transfer, these securities had an amortized cost of $160.8 million and a net
unrealized gain of $182.4 million.

Securities classified as available-for-sale are recorded at fair value.
Unrealized gains or losses, net of the related tax effects, on available-for-
sale securities are excluded from earnings and are reported in stockholders'
equity as a component of accumulated other comprehensive earnings (loss) until
realized. The cost of securities sold is based on the specific identification
method.

Securities classified as held-to-maturity at November 30, 2000, are recorded
at amortized cost, adjusted for the amortization of premiums or accretion of
discounts.

Unrealized losses that are other than temporary are recognized in earnings.
A loss is recognized to the extent by which the fair value of the investment
security has declined below its amortized cost and the decline in fair value is
other than a temporary impairment. Impairment is considered to be other than
temporary if the present value of the currently estimated total cash flows
related to the security is less than the present value of the originally
estimated total cash flows of that security.

The Company finances selected CMBS through reverse repurchase obligations
("repos") with various financial institutions. These agreements allow the
lender by contract or custom to repledge or sell the collateral. The Company is
exposed to risk of loss in the event the counterparties fail to perform under
the terms of the agreement. The counterparties to the Company's transactions
are major financial institutions. Accordingly, the Company believes its risk of
loss is limited and therefore, the Company only requires an agreement, without
requiring collateral or other security. The Company separately disclosed on the
face of its consolidated balance sheet the investment securities that are
pledged under repo agreements which allow the lender to repledge or sell the
collateral.

Transfers of investment securities are accounted for as sales, providing
that the Company has surrendered control over the transferred securities and to
the extent that the Company receives consideration other than beneficial
interests in the transferred securities.

Mortgage Loans, Net

The Company classifies all of its mortgage loans as held for investment. The
mortgage loans are carried at cost net of unaccreted discounts. These discounts
are accreted utilizing a methodology that results in a level yield.

The Company provides an allowance for credit losses for mortgage loans that
are considered to be impaired. The allowance for losses is based on
management's evaluation of various factors, including the Company's historical
loss experience, the fair value of the collateral and other factors.

Operating Properties and Equipment, Net and Land Held for Investment

Operating properties and equipment and land held for investment are recorded
at cost. Depreciation for operating properties and equipment is calculated to
amortize the cost of depreciable assets over their estimated useful lives using
the straight-line method. The range of estimated useful lives for operating
properties is 10 to 40 years and for furniture and fixtures is 2 to 5 years.

The Company accounts for long-lived assets in accordance with the provisions
of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." This statement requires that long-lived
assets be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of long-lived assets is measured by comparing the carrying
amount of an asset to the undiscounted future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
carrying amount of the asset is reduced to its fair value.

Derivative Financial Instruments

On December 1, 2000, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and
SFAS No. 138. Since the adoption of SFAS No. 133, the Company records all
derivative instruments as either an asset or liability on the balance sheet at
their fair value, and recognizes changes in the fair value in earnings unless
specified criteria are met.

The Company periodically acquires derivative financial instruments,
primarily interest rate swap agreements, to hedge unpredictable changes in
asset values related to movements in interest rates on a portion of the
Company's available-for-sale securities. These derivative instruments are
reported on the consolidated balance sheet at fair value, and changes in the
fair value of these derivative instruments are recognized in earnings. Changes
in the fair value of the hedged available-for-sale securities attributable to
movements in interest rates are also recognized in earnings. Prior to the
implementation of SFAS No. 133, gains or losses on these derivative instruments
were deferred and amortized through earnings over the remaining lives of the
securities being hedged. The deferred gains or losses were reported net of the
related tax effect in stockholders' equity as a component of accumulated other
comprehensive earnings (loss).

The Company also periodically enters into interest rate swap agreements to
manage its interest costs and hedge against risks associated with changing
interest rates on certain of its debt obligations. These derivative instruments
are reported on the consolidated balance sheet at fair value. The effective
portion of the unrealized gain or loss on these derivatives is reported in
other comprehensive earnings (loss) in the consolidated statement of
comprehensive earnings, and the ineffective portion is recognized in earnings
in the consolidated statement of earnings.

In accordance with SFAS No. 133, certain criteria must be met before an
interest rate swap or other derivative instrument is accounted for as a hedge.
This includes formal documentation at hedge inception of
(i) the hedging relationship and the Company's risk management objective and
strategy for undertaking the hedge, and (ii) an indication that the hedging
relationship is expected to be highly effective in hedging the designated risk
during the term of the hedge. Effectiveness is tested periodically, and at
least quarterly.

The Company's derivative instruments are not leveraged or held-for-trading
purposes. See Note 4 for further discussion of derivative financial instruments
and hedging activities.

Foreign Currency

The Company's foreign equity investments with a functional currency other
than U.S. dollars are translated into U.S. dollars at exchange rates in effect
at the end of each reporting period. Foreign entity revenue and expenses are
translated into U.S. dollars at the average rates that prevailed during the
period. The resulting net translation gains and losses are reported as foreign
currency translation adjustments, net of tax, in stockholders' equity as a
component of accumulated other comprehensive earnings (loss).

Revenue Recognition

In accordance with Emerging Issues Task Force Issue No. 99-20, "Recognition
of Interest Income and Impairment on Purchased and Retained Beneficial
Interests in Securitized Financial Assets," the Company estimates all cash
flows attributable to an investment security on the date the security is
acquired. The excess of these cash flows over the initial investment is
recognized as interest income over the life of the security using the effective
yield method. Changes in expected cash flows result in prospective adjustments
to interest income, in accordance with Accounting Principles Board ("APB")
Opinion No. 20.

Interest income for mortgage loans held for investment is comprised of
interest received plus the accretion of discount between the carrying value and
unpaid principal balance using a methodology that results in a level yield.

Revenues from sales of real estate (including the sales of operating
properties and land held for investment), unconsolidated partnership interests
and investment securities are recognized when a significant down payment is
received, the earnings process is complete and the collection of any remaining
receivables is reasonably assured.

Management fees are recognized in income when they are earned and
realization is reasonably assured.

In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition," which
provides guidance on the recognition, presentation and disclosure of revenue
in financial statements filed with the SEC. The Company believes that its
revenue recognition policies conform to SAB No. 101.

Income Taxes

Income taxes are accounted for in accordance with SFAS No. 109, "Accounting
for Income Taxes." Under SFAS No. 109, deferred tax assets and liabilities are
determined based on differences between the financial reporting carrying
values and tax bases of assets and liabilities, and are measured by using
enacted tax rates expected to apply to taxable income in the years in which
those differences are expected to reverse.

Stock-Based Compensation

The Company grants stock options and restricted stock to certain officers,
employees and directors. Stock options are granted for a fixed number of
shares with an exercise price not less than the fair value of the shares at
the dates of grant. The Company accounts for the stock option grants in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees." No compensation expense is recognized because all stock options
have exercise prices not less than the market value of the Company's stock on
the date of grant. The Company applies the disclosure provisions of SFAS No.
123, "Accounting for Stock-Based Compensation," and accordingly, the required
pro forma disclosures have been presented in Note 13. Upon the issuance of
restricted stock, the Company records deferred compensation expense equal to
the number of shares granted multiplied by the fair value of the stock at the
date of grant. The deferred compensation expense is amortized to earnings over
the vesting period.

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results could
differ from those estimates.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001
as well as all purchase method combinations completed after June 30, 2001.
SFAS No. 141 also specifies criteria that intangible assets acquired in a
purchase method business combination must meet to be recognized and reported
apart from goodwill. SFAS No. 142 requires that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually on a basis set forth in SFAS No. 142, and that
intangible assets with estimatable useful lives be amortized over their
respective estimated useful lives to their estimated residual values, and
reviewed for impairment. The Company adopted the provisions of SFAS No. 141
and adoption has not had a material effect on the Company's results of
operations or financial position. The adoption of SFAS No. 142 is not expected
to have a material effect on the Company's results of operations or financial
position as the Company has no goodwill.

obligation is settled for other than the carrying amount of the liability, the
Company will recognize a gain or loss on settlement. The Company is required
and plans to adopt the provisions of SFAS No. 143 for the quarter ending
February 28, 2003. The adoption of SFAS No. 143 is not expected to have a
material effect on the Company's results of operations or financial position.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. This statement
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" and the accounting and reporting
provisions of APB Opinion No. 30, "Reporting the Results of Operations--
Reporting the Effects of a Disposal of a Business and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions," for the disposal of a
segment of a business. This Statement also amends Accounting Research Bulletin
No. 51, "Consolidated Financial Statements," to eliminate the exception to
consolidation for a subsidiary for which control is likely to be temporary.
SFAS No. 144 is effective for the fiscal year ending November 30, 2003, and the
interim periods within fiscal 2003, with early application encouraged. The
provisions of this statement generally are to be applied prospectively. The
Company is currently evaluating whether the adoption of SFAS No. 144 will have
a material effect on the Company's results of operations or financial position.

Reclassifications

Certain reclassifications have been made to the prior year consolidated
financial statements to conform to the current year presentation.

2. Restricted Cash

November 30,
--------------
2001 2000
------- ------
(In thousands)

Short-term investment securities............................. $55,504 52,274
Funds held in trust for asset purchases and development...... 26,057 32,551
Tenant security deposits..................................... 394 457
------- ------
$81,955 85,282
======= ======

Short-term investment securities at November 30, 2001 and 2000 are primarily
collateral for a letter of credit which provides credit enhancement to $277.3
million of tax-exempt bonds. The bonds are secured by five high-rise Class A
apartment buildings in New York City. The Company receives interest on the
short-term investment as well as 600 basis points per year for providing the
credit enhancement.

Funds held in trust for asset purchases and development primarily represent
monies resulting from exchange transactions under Section 1031 of the Internal
Revenue Code.

3. Investment Securities

November 30,
---------------------
2001 2000
---------- ----------
(In thousands)

Available-for-sale..................................... $1,215,121 447,153
Held-to-maturity....................................... -- 249,249
---------- ----------
$1,215,121 696,402
========== ==========

Investment securities consist of investments in unrated and non-investment
grade rated portions of various issues of CMBS. In general, principal payments
on each class of security are made in the order of the stated maturities of
each class so that no payment of principal will be made on any class until all
classes having an earlier maturity date have been paid in full. Each class of
security is, in effect, subordinate to all classes with earlier maturities. The
principal repayments on a particular class are dependent upon collections on
the underlying mortgages, which are affected by prepayments, extensions and
defaults. As a result, the actual maturity of any class of securities may
differ from its stated maturity. The Company has already begun to receive
principal payments from some of its securities, and some have matured entirely.
At November 30, 2001, the stated maturities of the Company's CMBS investments
extended through 2040 and their weighted average coupon rates ranged from 3.81%
to 19.06%. The Company's potential yield, however, is substantially greater
than the coupon rates, because the Company made its CMBS investments at
substantial discounts from the face amounts.

The Company's investment securities are collateralized by pools of mortgage
loans on commercial and multi-family residential real estate assets located
across the country. Concentrations of credit risk with respect to these
securities are limited due to the diversity of the underlying loans across
geographical areas and among property types. In addition, the Company only
invests in securities when it performs significant due diligence analysis on
the real estate supporting the underlying loans and when it has the right to be
the special servicer for the entire securitization. As special servicer, the
Company impacts the performance of the securitization by using its loan workout
and asset management expertise to resolve non-performing loans.

The Company has historically classified its CMBS as available-for-sale or
held-to-maturity. Most rated CMBS were classified as available-for-sale. Most
unrated CMBS were classified as held-to-maturity as the Company had the
financial ability and intent to hold these securities to maturity. At November
30, 2001, the Company reclassified its held-to-maturity securities to
available-for-sale. Although the Company still has the financial ability to
hold these securities to their stated maturities, it is often advantageous for
the Company to sell the securities as the CMBS pools to which they relate pay
down significantly and the securities get close to economic maturity. Because
the Company may choose to sell these securities prior to stated maturity,
SFAS No. 115 requires that they be classified as available-for-sale. SFAS No.
115 also requires that securities classified as available-for-sale be recorded
at fair value with unrealized gains or losses, net of the related tax effects,
reported in stockholders' equity as a component of accumulated other
comprehensive earnings (loss) until realized. At November 30, 2001 and 2000,
the excess of fair value over amortized cost on the Company's available-for-
sale securities was $353.7 million and $5.0 million, respectively.

Total fair value of the Company's investment securities at November 30, 2001
and 2000 includes $719.6 million and $497.5 million, respectively, of
investment securities pledged to creditors which can be repledged or sold by
creditors under repo agreements. Of the $495.5 million and $198.9 million of
other investment securities at November 30, 2001 and 2000, respectively, $174.3
million and $166.2 million, respectively, have been pledged to creditors, but
the counterparty does not have the right by contract or custom to repledge the
securities.

4. Derivative Financial Instruments and Hedging Activities

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires that all derivative
instruments be recorded as either an asset or liability on the balance sheet at
their fair value, and that changes in the fair value be recognized currently in
earnings unless specified criteria are met. This statement was effective for
fiscal quarters of fiscal years beginning after June 15, 1999. SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133" extended the effective date to all
fiscal quarters of fiscal years beginning after June 15, 2000. In June 2000,
the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities--an Amendment of FASB Statement No. 133." This
statement amends the accounting and reporting standards of SFAS No. 133 for
certain derivative instruments and certain hedging activities. The Company
adopted the provisions of these standards on December 1, 2000. In accordance
with these standards, the Company records the net of all derivative instruments
as either an asset or liability on the balance sheet at their fair value. At
November 30, 2001, the Company had a net derivative liability of $29.6 million,
which is included in accrued expenses and other liabilities on the Company's
consolidated balance sheets. Periods prior to December 1, 2000 have not been
restated. The accounting for changes in the fair value of a derivative
instrument depends on whether it has been designated and qualifies as part of a
hedging relationship.

Hedging Objectives and Strategies

With regard to risk management in general, and interest rate risk in
particular, the Company's fundamental philosophy is centered on a desire to
tolerate only a relatively small amount of risk. The Company has an interest
rate risk management policy with the objective of: (i) managing its interest
costs and (ii) reducing the impact of unpredictable changes in the values of
the Company's available-for-sale securities due to movements in interest rates.
To meet these objectives, the Company employs hedging strategies to limit the
effects of changes in interest rates on its operating income and cash flows and
on the value of its available-for-sale securities.

The Company does not acquire derivative instruments for any purpose other
than cash flow and fair value hedging purposes. That is, the Company does not
speculate using derivative instruments.

The Company believes its interest rate risk management policy is generally
effective. Nonetheless, the Company's profitability may be adversely affected
during particular periods as a result of changing interest rates. In addition,
hedging transactions using derivative instruments involve risks such as
counterparty credit risk and risks regarding the legal enforceability of
hedging contracts. The counterparties to the Company's arrangements are lenders
of the hedged debt instruments or are major financial institutions, rated A- or
better, with which the Company and its affiliates may also have other financial
relationships. These counterparties potentially expose the Company to loss in
the event of their non-performance.

Cash Flow Hedging Instruments

The Company's approach to managing interest cost is based primarily on match
funding, with the objective that variable-rate assets be primarily financed by
variable-rate liabilities and fixed-rate assets be primarily financed by fixed-
rate liabilities. Management continually identifies and monitors changes in
interest rate exposures that may adversely impact expected future cash flows by
evaluating hedging opportunities. The Company maintains risk management control
systems to monitor interest rate cash flow risk attributable both to the
Company's outstanding or forecasted debt obligations and to the Company's
offsetting hedge positions. The risk management control systems involve the use
of analytical techniques, including cash flow sensitivity analyses, to estimate
the impact of changes in interest rates on the Company's future cash flows.

The Company periodically enters into derivative financial arrangements,
primarily interest rate swap agreements, to manage fluctuations in cash flows
resulting from interest rate risk. These swap agreements effectively change the
variable-rate cash flows on debt obligations to fixed-rate cash flows. Under
the terms of the interest rate swap agreements, the Company receives payments
equal to interest at variable rates on specified notional amounts and makes
payments equal to interest at fixed rates on the same notional amounts, thereby
generating variable-rate income to offset variable-rate interest obligations
and creating the equivalent of fixed-rate debt. At November 30, 2001, the
Company had 14 such interest rate swap agreements hedging changes in interest
costs with a notional amount of $294.3 million, which mature through November
2004.

The Company records the net fair value of interest rate swap agreements
designated as hedging instruments for variable-rate debt obligations as a
derivative asset or liability. Changes in the fair value of the interest rate
swap agreements are reported as unrealized gains or losses in stockholders'
equity as a component of accumulated other comprehensive earnings (loss). If a
derivative instrument is not designated as a hedge, the gain or loss resulting
from a change in fair value is recognized in earnings in the period of change.
If a derivative instrument is designated as a hedge but the derivative
instrument is not fully effective in hedging the designated risk, the
ineffectively hedged portion of the gain or loss is reported in earnings
immediately.

If the cash flow hedge is terminated, the net gain or loss remains in
accumulated other comprehensive earnings (loss), and is reclassified into
earnings in the same periods during which the cash flows on the hedged item
affect earnings. If the hedged item matures, is terminated, or is disposed of,
the corresponding hedge is either terminated or designated to a similar
instrument.

At November 30, 2001, $7.9 million of the Company's derivative liability
related to interest rate swap agreements hedging changes in interest costs, all
of which was reported as an unrealized loss, net of tax, in accumulated other
comprehensive earnings (loss). Unrealized gains and losses held in accumulated
other comprehensive earnings (loss) are reclassified to earnings in the same
period or periods that the hedged cash flows affect earnings. Within the next
twelve months, the Company estimates that it will reclassify approximately $6.6
million of this balance to earnings as interest expense.

Interest expense for the year ended November 30, 2001 includes no net gains
or losses representing cash flow hedge ineffectiveness arising from differences
between the critical terms of the interest rate swap agreements and the hedged
debt obligations, since the terms of the Company's swap agreements and debt
obligations were matched.

Fair Value Hedging Instruments

To manage the risk associated with unpredictable changes in asset values
related to the effect of movements in interest rates on the Company's fixed-
rate available-for-sale securities, the Company periodically uses derivative
financial instruments, primarily interest rate swap agreements. Under the terms
of these swap agreements, the Company receives variable interest rate payments
and makes fixed interest rate payments. At November 30, 2001, the Company had
nine such interest rate swap agreements hedging changes in asset values with a
notional amount of $291.3 million, which mature through December 2011.

The Company has designated these interest rate swap agreements as hedges of
interest rates on certain available-for-sale securities and records the fair
value of the agreements as derivative assets or liabilities. Changes in the
fair value of the interest rate swap agreements are recorded in earnings, as
are the changes in the fair value of the hedged available-for-sale securities
resulting from changes in interest rates.

If a derivative instrument designated as a fair value hedge is terminated,
changes in the value of the hedged item are reported prospectively in
accumulated other comprehensive income. If a hedged item matures or is disposed
of, the Company may designate the hedging instrument to other similar assets,
or may terminate the related portion of the hedging instrument.

The Company recorded a loss of $1.0 million for ineffectiveness of hedges
against changes in asset values during the year ended November 30, 2001. This
amount is included in other revenue, net in the consolidated statements of
earnings.

Transition

Upon the adoption of SFAS No. 133, the Company recognized $4.1 million, net
of tax benefit, of deferred hedging losses on derivative instruments. This
amount was offset by $4.1 million, net of tax expense, of realized gains
related to the hedged available-for-sale securities. Both of these amounts were
previously recorded in stockholders' equity as a component of accumulated other
comprehensive earnings (loss).

5. Mortgage Loans, Net

November 30,
------------------
2001 2000
-------- --------
(In thousands)

Mortgage loans........................................... $337,968 256,847
Allowance for losses..................................... (2,490) (2,038)
Unaccreted discounts..................................... (3,961) (10,822)
-------- --------
$331,517 243,987
======== ========

6. Operating Properties and Equipment, Net

November 30,
------------------
2001 2000
-------- --------
(In thousands)

Office buildings......................................... $451,073 478,200
Apartment communities.................................... 142,884 175,659
Retail centers........................................... 52,924 67,297
Industrial/warehouse facilities.......................... 52,033 66,978
Hotels................................................... 53,621 52,193
Other.................................................... 11,703 18,940
-------- --------
Total operating properties............................. 764,238 859,267
Furniture, fixtures and equipment........................ 19,031 18,877
-------- --------
783,269 878,144
Accumulated depreciation................................. (63,607) (59,658)
-------- --------
$719,662 818,486
======== ========

The Company leases as lessor its office, retail, industrial/warehouse and
other facilities under non-cancelable operating leases with terms in excess of
twelve months. The future minimum rental revenues under these leases subsequent
to November 30, 2001 are as follows (in millions): 2002--$65.5; 2003--$63.9;
2004--$55.9; 2005--$48.9; 2006--$44.4 and thereafter--$206.8.

7. Earnings Per Share

The following reconciles the numerator and denominator of the basic and
diluted earnings per share calculations for the years ended November 30, 2001,
2000 and 1999, respectively:

2001 2000 1999
-------------- ------------- -------------
(In thousands, except per share amounts)

Numerator
Numerator for basic and diluted earnings
per share--net earnings.................... $ 135,113 115,871 95,560
============== ============= ============
Denominator
Denominator for basic earnings per share--
weighted average shares.................... 33,364 33,464 35,626
Effect of dilutive securities
Stock option grants and stock purchase
plan..................................... 673 720 653
Restricted stock grants................... 879 691 --
-------------- ------------- ------------
Denominator for diluted earnings per share--
adjusted weighted average shares and assumed
conversions................................ 34,916 34,875 36,279
============== ============= ============
Basic earnings per share.................... $ 4.05 3.46 2.68
============== ============= ============
Diluted earnings per share.................. $ 3.87 3.32 2.63
============== ============= ============

8. Investments In Unconsolidated Partnerships

Summarized financial information on a combined 100% basis related to the
Company's partnerships accounted for by the equity method at November 30, 2001
and 2000 follows:

November 30,
--------------------
2001 2000
---------- ---------
(In thousands)

Assets
Cash............................................... $ 47,008 59,160
Portfolio investments.............................. 2,689,302 2,652,225
Other assets....................................... 76,338 55,445
---------- ---------
$2,812,648 2,766,830
========== =========
Liabilities and equity
Accounts payable and other liabilities............. $ 113,476 146,358
Notes and mortgages payable........................ 1,756,335 1,694,287
Equity of:
The Company...................................... 354,409 361,724
Others........................................... 588,428 564,461
---------- ---------
$2,812,648 2,766,830
========== =========

The equity of the Company in the partnerships' financial statements shown
above exceeds the Company's recorded investments in unconsolidated partnerships
by $2.3 million and $7.8 million at November 30, 2001 and 2000, respectively,
primarily due to unrealized appreciation in certain partnership assets. The
partnerships' portfolio investments consist primarily of CMBS, commercial and
multi-family residential real estate, mortgage loans collateralized by real
estate, land and other investments.

Years Ended November 30,
------------------------
2001 2000 1999
-------- ------- -------
(In thousands)

Revenues.......................................... $442,638 440,736 369,902
Costs and expenses................................ 236,280 196,248 138,501
-------- ------- -------
Earnings of partnerships.......................... $206,358 244,488 231,401
======== ======= =======
The Company's share of earnings................... $ 75,152 87,032 57,058
======== ======= =======

Certain amounts in the table above have been reclassified to conform to the
Company's presentation.

In connection with the spin-off of the Company to stockholders of Lennar
Corporation ("Lennar") in 1997 (the "Spin-off"), Lennar transferred parcels of
land to the Company and the Company transferred these parcels to a general
partnership in exchange for a 50% general partnership interest in this
partnership. In 1999, certain assets and liabilities of this land partnership
were contributed at net book value to a second general partnership and the
Company and Lennar each received 50% general partnership interests in the
second partnership. The two partnerships are collectively referred to as Lennar
Land Partners ("LLP"). At November 30, 2001 and 2000, the Company's investment
in LLP was $66.7 million and $78.7 million, respectively. LLP is engaged in the
acquisition, development and sale of land. LNR and Lennar have equal say on all
major decisions with respect to LLP. LNR's by-laws require that a committee of
LNR directors who have no relationship with Lennar approve all significant
decisions with respect to LLP. Lennar manages the day-to-day activities of LLP
under a management agreement. The assets, liabilities and earnings of LLP as of
and for the year ended November 30, 2001 were $275.7 million, $142.3 million
and $59.7 million, respectively.

Formed in March 1999, Madison Square Company LLC ("Madison") invests in real
estate securities, primarily CMBS. The Company's investment in Madison as of
November 30, 2001 was $109.8 million, representing a 25.8% ownership interest.
The Company maintains a significant ongoing role in the venture for which it
earns fees, both as the special servicer for the purchased CMBS transactions
and for providing services for the management of the venture. The debt of the
partnership is non-recourse to the Company. The assets, liabilities and
earnings of Madison as of and for the year ended November 30, 2001 were $1.5
billion, $1.0 billion and $141.1 million, respectively.

At November 30, 2001 and 2000, the Company's equity interests in all other
partnerships ranged from 1% to 99%. These partnerships are involved primarily
in the acquisition, development and management of commercial and multi-family
residential real estate. The Company shares in the profits and losses of these
partnerships and, in some instances, receives fees for managing the
partnerships. Lennar is a partner in some of these other partnerships. The
Company's investment in the partnerships Lennar is involved with, excluding
LLP, was $30.6 million at November 30, 2001.

9. Mortgage Notes and Other Debts Payable

November 30,
--------------------
2001 2000
---------- ---------
(In thousands)

Secured debt without recourse to the Company
Mortgage notes on operating properties and land with
fixed interest rates (2.00% to 11.00% at November 30,
2001), due through March 2034.......................... $ 71,195 97,201
Mortgage notes on operating properties and land with
floating interest rates (3.72% to 6.00% at November 30,
2001), due through December 2004....................... 116,515 171,226
Repurchase agreements with floating interest rates
(3.37% to 4.62% at November 30, 2001), secured by CMBS,
due through March 2003................................. 105,567 147,572
Term loans with floating interest rates (2.37% to 2.99%
at November 30, 2001), secured by CMBS, due through
October 2002........................................... 27,805 38,405
Secured debt with recourse to the Company
Mortgage notes on operating properties and land with
fixed interest rates................................... -- 18,233
Mortgage notes on operating properties and land with
floating interest rates (3.22% to 4.62% at November 30,
2001), due through February 2008....................... 303,303 190,001
Repurchase agreements with floating interest rates
(3.37% to 4.37% at November 30, 2001), secured by CMBS,
due through August 2004................................ 151,955 169,575
Revolving credit lines with floating interest rates
(2.87% to 4.62% at November 30, 2001), secured by CMBS
and mortgage loans, due through January 2006........... 175,230 254,640
Term loan with floating interest rate (3.37% at November
30, 2001), secured by a mortgage loan, due July 2003... 9,626 --
Unsecured debt with recourse to the Company
Revolving credit line with a floating interest rate
(4.12% at November 30, 2001), due July 2003............ 10,000 19,400
Senior subordinated debt with a fixed interest rate of
9.38%, due March 2008.................................. 199,435 199,345
Senior subordinated debt with a fixed interest rate of
10.50%, due January 2009............................... 246,576 98,776
---------- ---------
$1,417,207 1,404,374
========== =========

Information concerning the Company's more significant debt instruments is as
follows:

Secured Bank Lines

The Company, through certain subsidiaries, has four secured revolving credit
lines with an aggregate commitment of $355.0 million of which $175.2 million
was outstanding at November 30, 2001. Interest is variable and is based on a
range of LIBOR plus 75--LIBOR plus 250. The lines are collateralized by CMBS
and mortgage loans. The lines mature through January 2006. The agreements
contain certain financial tests and restrictive covenants, none of which are
currently expected to restrict the Company's activities. The Company has
guaranteed the obligations of its subsidiaries under all of these agreements.
The Company expects to refinance or extend these facilities on substantially
the same terms as the existing facilities.

Repurchase Agreements and Term Loans

The Company, through certain subsidiaries, has entered into three reverse
repurchase obligation facilities ("repos") through which it finances selected
CMBS. The first facility had $58.3 million outstanding at November 30, 2001 and
has required maturities which reduce the balance to $53.3 million in June 2003,
$26.6 million in December 2003 and zero in June 2004. The second facility had a
total commitment of $50.0 million, with an outstanding balance of $0 at
November 30, 2001, and matures in June 2002. The third facility had a total
commitment of $150.0 million, of which $101.4 million was outstanding at
November 30, 2001, and matures in March 2003. Interest on these three
facilities is variable, depends on the rating assigned to the CMBS and is based
on a range of LIBOR plus 125--LIBOR plus 250. The Company has guaranteed the
obligations of its subsidiaries under the first two of these facilities. The
Company does not guarantee the third facility.

The Company, through certain subsidiaries, received seller financing in the
form of term repos for eight specific CMBS transactions. These agreements had
an outstanding balance of $97.8 million at November 30, 2001 and expire through
August 2004. The interest on these term repos is variable and depends on the
rating assigned to the CMBS and ranges from LIBOR plus 125--LIBOR plus 225. The
Company has guaranteed the obligations of its subsidiaries under all of these
agreements.

The Company, through certain subsidiaries, also received seller financing in
the form of term loans for three specific CMBS transactions which are non-
recourse and one specific mortgage loan transaction which has been guaranteed
by the Company. These agreements had an outstanding balance of $37.4 million at
November 30, 2001 and expire through July 2003. Interest on these term loans is
variable and ranges from LIBOR plus 25--LIBOR plus 125.

The Company expects to refinance or extend these facilities on substantially
the same terms as the existing agreements. If the Company is not able to fully
replace these repos and/or term loans, it can repay them using availability
under other existing facilities, cash flow generated from operations or asset
sales.

Unsecured Revolving Credit Facility

In July 2000, the Company and certain of its subsidiaries amended its $200
million unsecured revolving credit facility, increasing the lenders' commitment
to $330 million and extending its term, assuming the one-year extension option
is exercised, to July 2004. In April 2001, the lenders' commitment increased to
$350 million. At November 30, 2001, direct borrowings of $10.0 million were
outstanding. In addition, the Company had issued and outstanding $42.1 million
of standby letters of credit, utilizing the facility. Interest is calculated
using a range of LIBOR plus 175--LIBOR plus 325, which varies based on the
Company's leverage. At November 30, 2001, interest was LIBOR plus 200. The
agreement contains certain financial tests and restrictive covenants, none of
which are currently expected to restrict the Company's activities.

Unsecured Senior Subordinated Notes

On March 19, 1998, the Company issued $200 million principal amount of
unsecured senior subordinated notes due March 15, 2008, with a stated rate of
9.375%, payable semi-annually. The notes were issued at a discount and had an
effective interest rate of 9.445%. At November 30, 2001, the unamortized
discount on the notes was $0.6 million. The subordinated notes contain certain
financial tests and restrictive covenants, none of which are currently expected
to restrict the Company's activities.

On January 20, 1999, the Company issued $100 million principal amount of
unsecured senior subordinated notes due January 15, 2009, with a stated
interest rate of 10.5%, payable semi-annually. These notes were issued at a
discount and have an effective interest rate of 10.75%. In February 2001, the
Company issued an additional $150 million as an add-on to these existing
subordinated notes, bringing the total principal amount of unsecured senior
subordinated notes due January 15, 2009 to $250 million. The additional notes
were also issued at a discount and have an effective interest rate of 10.83%.
At November 30, 2001, the aggregate unamortized discount on these notes was
$3.4 million. These subordinated notes also contain substantially the same
financial tests and restrictive covenants as the $200 million of 9.375%
unsecured senior subordinated notes.

The aggregate principal maturities of mortgage notes and other debts payable
subsequent to November 30, 2001, assuming extensions which are exercisable at
the Company's option, are as follows (in millions): 2002--$100.3; 2003--$197.1;
2004--$259.1; 2005--$217.9; 2006--$146.6 and thereafter--$496.2. All of the
notes secured by land contain collateral release provisions.

10. Income Taxes

The provisions for income taxes consisted of the following for the years
ended November 30, 2001, 2000 and 1999:

2001 2000 1999
-------- ------- -------
(In thousands)

Current
Federal...................................... $ 69,783 50,033 40,632
Federal Low-Income Housing Tax Credits....... (11,635) (16,220) (14,097)
State........................................ 37,657 10,340 4,887
-------- ------- -------
95,805 44,153 31,422
-------- ------- -------
Deferred
Federal...................................... (3,172) 6,097 2,109
State........................................ (21,403) 1,807 1,809
-------- ------- -------
(24,575) 7,904 3,918
-------- ------- -------
Total expense.............................. $ 71,230 52,057 35,340
======== ======= =======

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of the assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The tax
effects of significant temporary differences of the Company's deferred tax
assets and liabilities at November 30, 2001 and 2000 are as follows:

November 30,
----------------
2001 2000
-------- ------
(In thousands)

Deferred tax assets
Investment securities and mortgage loans................ $ -- 64,154
Reserves and accruals................................... 31,925 27,560
Investments in unconsolidated partnerships.............. -- 2,590
Other................................................... 7,270 686
-------- ------
Total deferred tax assets............................. 39,195 94,990
-------- ------
Deferred tax liabilities
Investment securities and mortgage loans................ 40,250 --
Operating property, equipment and land.................. 15,701 52,633
Deferred income......................................... 51,748 34,706
Investments in unconsolidated partnerships.............. 11,142 --
-------- ------
Total deferred tax liabilities........................ 118,841 87,339
-------- ------
Net deferred tax asset (liability).................. $(79,646) 7,651
======== ======

Based on management's assessment, it is more likely than not that the
deferred tax assets will be realized through future taxable income.

A reconciliation of the statutory rate to the effective tax rate for the
years ended November 30, 2001, 2000 and 1999 follows:

% of Pre-tax
Income
-----------------
2001 2000 1999
---- ---- -----

Federal statutory rate.... 35.0 35.0 35.0
Low-Income Housing Tax
Credits.................. (5.6) (8.7) (11.3)
State income taxes, net of
federal income tax
benefit.................. 5.1 4.7 3.3
---- ---- -----
Effective tax rate...... 34.5 31.0 27.0
==== ==== =====

11. Minority Interests

Minority interests relate to the third party ownership interests in entities
(both corporations and partnerships) in which the Company has a controlling
interest. For financial reporting purposes, the entities' assets, liabilities
and earnings are consolidated with those of the Company, and the third parties'
interests in the entities are included in the Company's consolidated financial
statements as minority interests. The primary component of minority interests
at November 30, 2001 and 2000, representing $23.7 million and $22.4 million,
respectively, relates to the Company's interest in a partnership which provides
collateral for a letter of credit providing credit enhancement to $277.3
million of tax-exempt bonds. See Note 2.

12. Financial Instruments

The following table presents the carrying amounts and estimated fair values
of financial instruments held by the Company at November 30, 2001 and 2000,
using available market information and appropriate valuation methodologies.
Considerable judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies might have a material effect on the estimated fair
value amounts. The table excludes cash and cash equivalents, restricted cash
and accounts payable, which had fair values approximating their carrying
values.

November 30,
----------------------------------------
2001 2000
-------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- --------- --------- ---------
(In thousands)

Assets
Mortgage loans...................... $ 331,517 344,601 243,987 261,410
Investment securities available-for-
sale............................... 1,215,121 1,215,121 447,153 447,153
Investment securities held-to-
maturity........................... -- -- 249,249 327,994
Liabilities
Mortgage notes and other debts
payable............................ $1,417,207 1,427,371 1,404,374 1,383,720

The following methods and assumptions were used by the Company in estimating
fair values:

Mortgage loans: The fair values are based on discounting future cash flows
using the current interest rates at which similar loans would be made or are
estimated by the Company on the basis of financial or other information.

Investment securities available-for-sale and held-to-maturity: In 2001, the
Company classified all of its CMBS securities as available-for-sale and the
fair values of the investment securities were based on quoted market prices, or
where quoted market prices were not available, were estimated by the Company
based on discounted expected future cash flows. In 2000, the fair values of
available-for-sale securities were based on quoted market prices. The held-to-
maturity securities were valued based on acquisition price paid; however, the
Company believes higher values would have been derived for 2000 if the
valuation had been based on discounted expected future cash flows for these
bonds. The fair value of available-for-sale securities of $1,215.1 million and
$447.2 million at November 30, 2001 and 2000, respectively, includes unrealized
gains of $331.5 million and $24.8 million and unrealized losses of $4.7 million
and $19.8 million, respectively. The fair value of held-to-maturity securities
of $328.0 million at November 30, 2000 includes unrealized gains and losses of
$78.7 million and $0, respectively.

Mortgage notes and other debts payable: The fair value of fixed-rate
borrowings is based on discounting future cash flows using the Company's
incremental borrowing rate. Variable-rate borrowings are tied to market
indices, and thereby approximate fair value.

13. Capital Stock

Preferred Stock

The Company has 500,000 shares of authorized preferred stock, $10 par value.
At November 30, 2001 and 2000, no shares of preferred stock were issued or
outstanding. The preferred stock may be issued in series with any rights,
powers and preferences which may be authorized by the Company's Board of
Directors.

Common Stock

The Company has two classes of common stock. The common stockholders have
one vote for each share owned in matters requiring stockholder approval and
during the years ended 2001, 2000 and 1999 received quarterly dividends of
$.0125 per share. Class B common stockholders have ten votes for each share
owned and during the years ended 2001, 2000 and 1999 received quarterly
dividends of $.01125 per share. Class B common stock cannot be transferred,
except to family members of the current holder or trusts or entities for their
benefit or which they own. Class B common stock can be converted into common
stock at any time. Common stock cannot be converted into Class B common stock.
As of November 30, 2001, Mr. Leonard Miller, a member of the Company's Board of
Directors, owned or controlled 9.9 million shares of Class B common stock,
which represented 99% of the Class B common stock outstanding and 80% of the
voting power of both classes combined.

The Company's Board of Directors approved a stock repurchase plan
authorizing the Company to buy back up to 5,500,000 shares of its common stock.
During the years ended November 30, 2001, 2000 and 1999, the Company purchased
300,000 shares, 1,893,200 shares and 500,000 shares, respectively, under this
program, bringing the inception-to-date total number of shares the Company has
purchased under this program through November 30, 2001 to 3,244,100 shares.

Stock Option Plans

In 2000, the Company adopted the 2000 Stock Option and Restricted Stock Plan
(the "2000 Plan"). The 2000 Plan amended and restated the 1997 Stock Option
Plan (the "1997 Plan"), which was adopted in connection with the Spin-off. The
2000 Plan provides for the granting of options and restricted stock to certain
officers, employees and directors of the Company. The aggregate maximum number
of shares, approved by the stockholders, which may be exercised as options
and/or issued as restricted stock is 4,000,000.

Options granted under the 2000 Plan will expire not more than 10 years after
the date of grant, except that incentive stock options granted to a key
employee who is a 10% stockholder or a member of a 10% stockholder's family
will expire not more than five years after the date of grant. The exercise
price of each stock option granted under the 2000 Plan will be 100% of the fair
market value of the common stock on the date the stock option is granted,
except in the case of a key employee who is a 10% stockholder or a member of a
10% stockholder's family, in which case the incentive stock option price may
not be less than 110% of the fair market value of the common stock on the date
the stock option is granted, and except as to stock options granted to replace
Lennar stock options held by Lennar employees who became employees of the
Company at the Spin-off, which have exercise prices based on the exercise
prices of the Lennar stock options which they replaced.

Under the 2000 Plan, the aggregate number of shares of restricted stock
granted to an officer, employee or director in any fiscal year cannot exceed
500,000 shares. Total restricted stock granted during the years ended November
30, 2001 and 2000 was 10,000 shares and 870,000 shares, respectively, with a
weighted average fair value on date of grant of $26.84 and $18.06,
respectively, per share. During the years ended November 30, 2001 and 2000, the
Company recorded deferred compensation expense of $0.3 million and $15.7
million, respectively, as a separate component of stockholders' equity. These
deferred expenses are being amortized to earnings over a five-year vesting
period. Amortization expense related to the deferred compensation recorded
during the years ended November 30, 2001 and 2000 was $3.2 million and $2.5
million, respectively.

A summary of the Company's stock option activity under the 2000 Plan and the
1997 Plan for the years ended November 30, 2001, 2000 and 1999 is as follows:

2001 2000 1999
------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Stock Exercise Stock Exercise Stock Exercise
Options Price Options Price Options Price
--------- -------- --------- -------- --------- --------

Outstanding, beginning
of year................ 1,743,559 $18.34 1,520,803 $18.19 1,555,661 $20.19
Granted............... 167,500 $27.37 315,250 $18.95 464,240 $18.09
Forfeited............. (11,450) $27.12 (71,878) $18.54 (487,300) $24.63
Exercised............. (235,560) $ 6.79 (20,616) $14.80 (11,798) $12.29
--------- --------- ---------
Outstanding, end of
year................... 1,664,049 $20.83 1,743,559 $18.34 1,520,803 $18.19
========= ========= =========
Exercisable, end of
year................... 562,736 $19.39 504,108 $15.84 348,619 $15.74
========= ========= =========

The following table summarizes information about stock options outstanding
at November 30, 2001:

Options Outstanding Options Exercisable
----------------------------------- -----------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding at Remaining Average Outstanding at Average
Exercise November 30, Contractual Exercise November 30, Exercise
Prices 2001 Life Price 2001 Price
-------- -------------- ----------- -------- -------------- --------

$6.80-$10.20 100,295 1.79 $ 7.62 82,207 $ 7.11
$10.21-$15.31 56,435 2.53 $12.68 29,904 $12.63
$15.32-$22.98 717,819 6.01 $18.30 190,535 $18.08
$22.99-$32.08 789,500 6.41 $25.39 260,090 $25.00

The Company has elected to account for its employee stock options under APB
Opinion No. 25 and related Interpretations. No compensation expense is recorded
under APB Opinion No. 25 because the exercise price of the Company's employee
common stock options equaled the market price for the underlying common stock
on the grant date.

Under the terms of the Lennar 1991 Stock Option Plan (the "Lennar Option
Plan"), participants in the Lennar Option Plan who exercise after the Spin-off
options they held at the time of the Spin-off (and who did not amend the terms
of their options prior to the Spin-off to provide otherwise) will receive upon
exercise of Lennar stock options one share of LNR common stock for each share
of Lennar stock received. In connection with the Spin-off, the Company agreed
to deliver shares of its common stock to participants in the Lennar Option Plan
who exercise options and are entitled to LNR common stock. There were Lennar
stock options outstanding at the time of the Spin-off which could entitle the
holders to purchase up to 615,600 shares of LNR common stock. Of these options,
229,250 and 17,000 were exercised during the years ended November 30, 2001 and
2000, respectively. There were 254,250 Lennar stock options outstanding as of
November 30, 2001, under which holders would receive LNR shares upon exercise,
of which, 245,000 were exercisable. The Company does not receive any portion of
the exercise price of the Lennar stock options.

Senior Officer Stock Purchase Plan

In January 2001, the Company adopted the 2001 Senior Officers Stock Purchase
Plan (the "2001 Plan"). Under the 2001 Plan, the Board of Directors may
authorize the Company to enter into agreements with senior officers to sell
shares of the Company's common stock to the senior officers in installments
over a period of time for the market price of the common stock when the
agreements are entered into. Purchases are timed to correspond to scheduled
receipts of deferred compensation payments, but the senior officers'
obligations to purchase and pay for stock are not subject to the deferred
compensation payments' being received. The agreements bind the Company to sell
shares, and the senior officers to purchase shares, for the agreed price,
except that the agreement with a senior officer will terminate if the senior
officer ceases to be employed by the Company. The maximum number of shares the
Company may agree to sell under the 2001 Plan is 500,000. During 2001, senior
officers entered into agreements to purchase 160,535 shares during 2002 through
2006 for prices ranging from $28.30 to $31.15 per share.

The Company has elected to account for the 2001 Plan under APB Opinion No.
25 and related Interpretations. No compensation expense was recorded under APB
Opinion No. 25 because the purchase price determined for the common stock
equaled the deferred compensation payment amount which was already recorded as
compensation expense when it was earned.

"As Adjusted" Information

SFAS No. 123 requires "as adjusted" information regarding net earnings and
earnings per share to be disclosed for stock options, stock under the 2001
Plan, and restricted stock granted after fiscal year 1996. The Company
determined this information using the fair value method of that Statement. The
fair value of the 2001 Plan, the 2000 Plan and the 1997 Plan was determined at
the date of grant using the Black-Scholes option-pricing model. The weighted
average fair value per share under these plans was $11.52, $8.38 and $8.79 as
of November 30, 2001, 2000 and 1999, respectively. The significant weighted
average assumptions used for the years ended November 30, 2001, 2000 and 1999
were as follows:

Years Ended
November 30,
----------------
2001 2000 1999
---- ---- ----

Dividend yield........................................... 0.18% 0.27% 0.20%
Volatility rate.......................................... 0.45 0.46 0.50
Risk-free interest rate.................................. 4.88% 6.57% 5.69%
Expected option life (years)............................. 2-7 2-7 2-7

The estimated fair value of the stock options, stock under the 2001 Plan and
restricted stock is recognized in expense over the vesting period for "as
adjusted" disclosures. The earnings per share "as adjusted" for the effects of
SFAS No. 123 is not indicative of the effects on reported net earnings for
future years. For purposes of these calculations, the Company has excluded
shares which may be delivered to participants in the Lennar Option Plan who
exercise Lennar stock options, who are not employees and do not otherwise
receive compensation from the Company. The Company's reported "as adjusted"
information for the years ended November 30, 2001, 2000 and 1999 is as follows:

Years Ended
November 30,
-----------------------
2001 2000 1999
-------- ------- ------
(In thousands, except
per share amounts)

Net earnings....................................... $135,113 115,871 95,560
Net earnings "as adjusted"......................... $132,735 114,159 94,407
Earnings per share as reported--basic.............. $ 4.05 3.46 2.68
Earnings per share "as adjusted"--basic............ $ 3.98 3.41 2.65
Earnings per share as reported--diluted............ $ 3.87 3.32 2.63
Earnings per share "as adjusted"--diluted.......... $ 3.80 3.27 2.60

In management's opinion, valuation models do not provide a reliable single
measure of the fair value of employee stock options, stock under the 2001 Plan
and restricted stock that have vesting provisions and are not transferable. In
addition, these models require the input of highly subjective assumptions,
including expected stock price volatility.

Savings Plan

The LNR Property Corporation Savings Plan (the "Savings Plan") allows
employees to participate and make contributions to the Savings Plan which are
invested on their behalf. The Company may also make matching contributions to
the Savings Plan for the benefit of employees. Participants in the plan self
direct both salary deferral and employer matching contributions. LNR has 11
different options for participants to direct their contributions, one of which
is LNR stock. The Company records as compensation expense its contributions to
the Savings Plan. Amounts contributed by the Company to the Savings Plan during
2001, 2000 and 1999 were $0.6 million, $0.6 million and $0.3 million,
respectively.

Restrictions on Payments of Dividends

Other than as necessary to maintain the financial ratios and net worth
requirements under certain revolving credit agreements, there are no
restrictions on the payment of dividends on common stock or Class B common
stock by the Company. However, the cash dividends paid with regard to a share
of Class B common stock in a calendar year may not be more than 90% of the cash
dividends paid with regard to a share of common stock in that calendar year.

14. Related Party Transactions

A member of the LNR Board of Directors has voting control of both LNR and
Lennar. See Note 13.

Lennar is a partner with the Company in several partnerships. See Note 8.

In April 2001, the Company sold a building to an unaffiliated third party
that leased office space to Lennar and its subsidiaries. During the years ended
November 30, 2001, 2000 and 1999, the Company recorded $0.5 million, $1.2
million and $1.2 million, respectively, in rental revenue from the leases with
Lennar.

15. Commitments and Contingent Liabilities

The Company is subject to various claims, legal actions and complaints
arising in the ordinary course of business. In the opinion of management, the
disposition of these matters will not have a material adverse effect on the
financial condition, results of operations or cash flows of the Company.

The Company is subject to the usual obligations associated with entering
into contracts for the purchase, development and sale of real estate, as well
as the management of partnerships and special servicing of CMBS in the routine
conduct of its business.

The Company is committed, under various standby letters of credit or other
agreements, to provide certain guarantees which are not otherwise reflected in
the financial statements. Outstanding standby letters of credit, guarantees,
performance bonds, and other commercial commitments under these arrangements
totaled approximately $296.2 million and $180.9 million at November 30, 2001
and 2000, respectively, which include a letter of credit of $55.1 million and
$52.1 million at November 30, 2001 and 2000, respectively, which is
collateralized by short-term investment securities. See Note 2.

The Company leases certain premises and equipment under noncancelable
operating leases with terms expiring through August 2007, exclusive of renewal
option periods. The annual aggregate minimum rental commitments under these
leases are summarized as follows (in thousands): 2002--$1,550; 2003--$613;
2004--$456; 2005--$349; 2006--$246 and thereafter--$167.

16. Segment Reporting

Management assesses Company performance and allocates capital principally on
the basis of three lines of business: (i) real estate properties, (ii) real
estate loans, and (iii) real estate securities.

Real estate properties include rental apartment communities, office
buildings, industrial/warehouse facilities, hotels, retail centers and land
that the Company acquires, develops, redevelops or repositions. The Company's
primary sources of earnings from real estate properties are its rental revenue
and gains on sales of those properties. Additionally, the Company recognizes
equity in earnings of unconsolidated partnerships that own, manage and sell
real estate properties and in some cases, earns fees from managing those
partnerships. Operating expenses include the direct costs of operating the real
estate properties, the related depreciation and the overhead associated with
managing the properties and partnerships.

Real estate loans include direct lending activities in unique high yielding
situations and investments in loan portfolios acquired at a discount owned
primarily through partnerships and the related loan workout operations. The
Company's primary source of earnings from real estate loans include interest
income on loan investments, equity in earnings of unconsolidated partnerships
and management fees earned from those partnerships. Operating expenses include
the overhead associated with servicing the loans and managing the partnerships.

Real estate securities include unrated and non-investment grade rated
subordinated CMBS, which are collateralized by pools of mortgage loans on
commercial and multi-family residential real estate properties. The Company
performs "special servicing" for the loans underlying such investments. Special
servicing is the business of managing and working out the problem assets in a
pool of commercial mortgage loans. The Company's primary source of earnings
from real estate securities is the interest income earned on its CMBS
investments. Additionally, the Company recognizes equity in earnings of
unconsolidated partnerships that own CMBS. The Company also earns special
servicing fees with respect to the mortgage loans underlying the Company's and
the partnerships' CMBS, and earns management fees for managing the
partnerships. Operating expenses include the overhead associated with managing
the investments and the partnerships and costs of the special servicing
activities.

Revenues, expenses and assets are accounted for in accordance with the
accounting policies set forth in Note 1. Revenues and non-overhead expenses for
each business line are those that relate directly to those operations. Overhead
expenses, such as administrative expenses, are allocated directly to each
business line based on management's best estimates of the resources utilized in
the management and operations of each business line. Total assets are those
assets directly used in the Company's operations in each line of business.
Corporate assets consist principally of cash and cash equivalents and other
assets. There are no significant transfers between business lines.

The following tables detail the Company's financial performance by these
three lines of business for the years ended November 30, 2001, 2000 and 1999:

For the Year Ended November 30, 2001
------------------------------------------------------
Real Real
Estate Real Estate Estate Corporate
Properties Loans Securities and Other Total
---------- ----------- ---------- --------- ---------
(In thousands)

Rental income........... $ 111,669 -- -- -- 111,669
Equity in earnings of
unconsolidated
partnerships........... 25,796 4,554 44,802 -- 75,152
Interest income......... -- 45,745 135,594 -- 181,339
Gains on sales.......... 64,281 -- 9,717 -- 73,998
Management and servicing
fees................... 7,477 3,732 25,131 -- 36,340
Other, net.............. -- 136 (954) -- (818)
---------- ------- --------- ------- ---------
Total revenues........ 209,223 54,167 214,290 -- 477,680
---------- ------- --------- ------- ---------
Cost of rental
operations............. 58,642 -- -- -- 58,642
General and
administrative......... 29,998 5,167 15,210 24,023 74,398
Depreciation............ 25,267 -- -- -- 25,267
Minority interests...... 243 2,232 61 -- 2,536
---------- ------- --------- ------- ---------
Total costs and
expenses............. 114,150 7,399 15,271 24,023 160,843
---------- ------- --------- ------- ---------
Operating earnings
(loss)................. $ 95,073 46,768 199,019 (24,023) 316,837
========== ======= ========= ======= =========
Total assets............ $1,037,098 398,614 1,355,923 45,012 2,836,647
========== ======= ========= ======= =========

For the Year Ended November 30, 2000
-------------------------------------------------------
Real Estate Real Estate Real Estate Corporate
Properties Loans Securities and Other Total
----------- ----------- ----------- --------- ---------
(In thousands)

Rental income........... $ 139,264 -- -- -- 139,264
Equity in earnings of
unconsolidated
partnerships........... 30,810 19,370 36,852 -- 87,032
Interest income......... -- 36,758 110,988 -- 147,746
Gains on sales.......... 41,857 20,336 13,134 -- 75,327
Management and servicing
fees................... 2,847 4,656 15,461 -- 22,964
Other, net.............. -- 437 -- -- 437
---------- ------- ------- ------- ---------
Total revenues........ 214,778 81,557 176,435 -- 472,770
---------- ------- ------- ------- ---------
Cost of rental
operations............. 78,682 -- -- -- 78,682
General and
administrative......... 22,052 6,665 10,797 25,222 64,736
Depreciation............ 36,138 -- -- -- 36,138
Minority interests...... 424 2,395 980 -- 3,799
---------- ------- ------- ------- ---------
Total costs and
expenses............. 137,296 9,060 11,777 25,222 183,355
---------- ------- ------- ------- ---------
Operating earnings
(loss)................. $ 77,482 72,497 164,658 (25,222) 289,415
========== ======= ======= ======= =========
Total assets............ $1,153,608 314,162 826,092 54,994 2,348,856
========== ======= ======= ======= =========

For the Year Ended November 30, 1999
------------------------------------------------------
Real
Estate Real Estate Real Estate Corporate
Properties Loans Securities and Other Total
---------- ----------- ----------- --------- ---------
(In thousands)

Rental income........... $ 95,391 -- -- -- 95,391
Equity in earnings of
unconsolidated
partnerships........... 31,281 21,700 4,077 -- 57,058
Interest income......... -- 18,874 87,590 -- 106,464
Gains on sales.......... 67,187 -- 6,056 -- 73,243
Management and servicing
fees................... 668 5,080 9,592 -- 15,340
Other, net.............. -- 504 -- -- 504
---------- ------- ------- ------- ---------
Total revenues........ 194,527 46,158 107,315 -- 348,000
---------- ------- ------- ------- ---------
Cost of rental
operations............. 53,881 -- -- -- 53,881
General and
administrative......... 16,685 5,492 7,502 16,598 46,277
Depreciation............ 27,393 -- -- -- 27,393
Minority interests...... 2,813 2,146 681 -- 5,640
---------- ------- ------- ------- ---------
Total costs and
expenses............. 100,772 7,638 8,183 16,598 133,191
---------- ------- ------- ------- ---------
Operating earnings
(loss)................. $ 93,755 38,520 99,132 (16,598) 214,809
========== ======= ======= ======= =========
Total assets............ $1,290,149 274,694 640,791 77,367 2,283,001
========== ======= ======= ======= =========

All of the Company's operations and long-lived assets are geographically
located in the United States, with the exception of its equity investment in an
operating property in Japan amounting to $1.5 million and $1.7 million at
November 30, 2001 and 2000, respectively, and its equity investments in
portfolios of Japanese real estate loans, amounting to $0, $0 and $49.6 million
at November 30, 2001, 2000 and 1999, respectively. The Company sold its
interests in these Japanese loan portfolios during April 2000.

17. Subsequent Event

On January 29, 2002, the Company entered into a $430 million repo line to
finance the acquisition of securities and loans. Interest on this facility
ranges from LIBOR plus 150 to LIBOR plus 300, which varies based on the
underlying collateral. This facility matures in January 2005 and has a one-year
extension option.

18. Quarterly Data (Unaudited)

First Second Third Fourth
-------- ------- ------- -------
(In thousands, except per share
amounts)

2001
Revenues.................................. $111,292 129,997 117,368 119,023
Operating earnings........................ $ 70,398 88,622 79,282 78,535
Earnings before income taxes.............. $ 40,249 59,486 52,304 54,304
Net earnings.............................. $ 25,965 38,374 35,216 35,558
Net earnings per share--basic............. $ 0.78 1.15 1.05 1.06
Net earnings per share--diluted........... $ 0.75 1.10 1.00 1.02
2000
Revenues.................................. $ 95,262 125,404 130,342 121,762
Operating earnings........................ $ 56,211 79,688 80,025 73,491
Earnings before income taxes.............. $ 29,636 49,915 47,917 40,460
Net earnings.............................. $ 21,545 33,345 33,064 27,917
Net earnings per share--basic............. $ 0.64 1.00 0.99 0.84
Net earnings per share--diluted........... $ 0.62 0.96 0.95 0.80

Quarterly and year-to-date computations of per share amounts are made
independently. Therefore, the sum of per share amounts for the quarters may not
agree with per share amounts for the year.

Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.

Not applicable.

PART III

Item 10. Directors and Executive Officers of the Registrant.

Information about the Company's directors is incorporated by reference to
the definitive proxy statement, which will be filed with the Securities and
Exchange Commission not later than March 30, 2002 (120 days after the end of
the Company's fiscal year). The following individuals were LNR's executive
officers at the date of this report:

Year of
Name/Position Age Election
------------- --- --------

Stuart A. Miller.............................................. 44 1997
Chairman of the Board and Director
Steven J. Saiontz............................................. 43 1997
Chief Executive Officer and Director
Jeffrey P. Krasnoff........................................... 46 1997
President and Director
Shelly Rubin.................................................. 39 1997
Vice President and Chief Financial Officer
Zena M. Dickstein............................................. 44 2000
General Counsel and Secretary
Robert Cherry................................................. 39 1997
Vice President
Steven I. Engel............................................... 55 1997
Vice President
Mark A. Griffith.............................................. 45 1997
Vice President
David G. Levin................................................ 46 1997
Vice President
Ronald E. Schrager............................................ 40 1997
Vice President
David O. Team................................................. 41 1997
Vice President
Steven N. Bjerke.............................................. 40 2000
Corporate Controller
Margaret A. Jordan............................................ 50 1997
Treasurer

Stuart A. Miller is the Company's Chairman of the Board. Mr. Miller became
the Chairman of the Board of LNR when the Company was formed in June 1997. Mr.
Miller has been the President and Chief Executive Officer of Lennar since April
1997. For more than five years prior to April 1997, Mr. Miller was a vice
president of Lennar and held various executive positions with Lennar
subsidiaries, including being the president of its principal homebuilding
subsidiary from December 1991 to April 1997 and the president of its principal
real estate investment and management division (the predecessor to a
substantial portion of the Company's business) from April 1995 to April 1997.
Mr. Miller is currently a Director of Lennar and is a Director of the Union
Bank of Florida. He is the son of Leonard Miller (co-founder and Chairman of
the Board of Lennar) and the brother-in-law of Steven J. Saiontz.

Steven J. Saiontz is the Company's Chief Executive Officer. Mr. Saiontz
became LNR's Chief Executive Officer and a Director when the Company was formed
in June 1997. For more than five years prior to that, he was the president of
Lennar Financial Services, Inc., a wholly-owned subsidiary of Lennar. Mr.
Saiontz is currently a Director of Lennar. He is the brother-in-law of Stuart
A. Miller and the son-in-law of Leonard Miller.

Jeffrey P. Krasnoff is the Company's President. Mr. Krasnoff became LNR's
President when the Company was formed in June 1997 and became a Director in
December 1997. From 1987 until June 1997, he was a vice president of Lennar.
From 1990 until he became the President of LNR, Mr. Krasnoff was involved
almost entirely in Lennar's real estate investment and management division (the
predecessor to a substantial portion of the Company's business).

Shelly Rubin is a Vice President and the Chief Financial Officer of LNR. She
became a Vice President and Chief Financial Officer when the Company was formed
in June 1997. From May 1994 until June 1997, she was the principal financial
officer of Lennar's real estate investment and management division (the
predecessor to a substantial portion of the Company's business). From 1991
until May 1994, Ms. Rubin was employed by Burger King Corporation as the
controller for its real estate division.

Zena M. Dickstein is the Company's General Counsel and Secretary. She
assumed this position when she joined the Company in June 2000. From 1987 to
June 2000, Ms. Dickstein was at the law firm of Steel Hector and Davis LLP
where she was Deputy Chair of the firm's real estate department, headed the
firm's commercial leasing and real estate health care teams and served on
various management committees of the law firm.

Robert Cherry is a Vice President of LNR, responsible for sourcing,
evaluating, structuring and financing new investments in CMBS, mezzanine debt
and preferred equity securities. From March 1995 until June 1997, Mr. Cherry
had similar responsibilities for Lennar's real estate investment and management
division (the predecessor to a substantial portion of the Company's business).
From March 1994 until February 1995, he was a vice president of G. Soros Realty
Advisors/Quantum North America Realty Fund. Prior to that he was a senior
analyst with Moody's Investor Service and an associate with Sullivan &
Cromwell.

Steven I. Engel is a Vice President of LNR, responsible for managing the
Japan office. From 1992 until June 1997, Mr. Engel primarily was responsible
for the special servicing of the CMBS portfolio for Lennar's real estate
investment and management division (the predecessor to a substantial portion of
the Company's business). From 1987 to 1992, Mr. Engel was a real estate
developer and attorney.

Mark A. Griffith is a Vice President, responsible for managing LNR's Eastern
Regional Division. From February 1990 until June 1997, Mr. Griffith had similar
responsibilities for Lennar's real estate investment and management division
(the predecessor to a substantial portion of the Company's business).

David G. Levin is a Vice President, responsible for sourcing and evaluating
new investment opportunities. From February 1992 until early 1997, Mr. Levin
was responsible for managing the Miami Division of Lennar's real estate
investment and management division (the predecessor to a substantial portion of
the Company's business), which was at that time primarily focused on
partnerships with the Morgan Stanley Real Estate Fund. Prior to that he had
various positions with commercial real estate firms including managing director
of Bear Stearns Real Estate Group.

Ronald E. Schrager is a Vice President, responsible for managing the Real
Estate Finance and Servicing Division of LNR, which is primarily focused on
CMBS special servicing. Beginning in August 1992, he held several positions in
Lennar's real estate investment and management division (the predecessor to a
substantial portion of the Company's business), managing various areas. Prior
to that he served as a vice president of Chemical Bank's Real Estate Finance
Group.

David O. Team is a Vice President, responsible for the Company's Western
Regional Division and Lennar Affordable Communities. He became responsible for
the Lennar Affordable Communities in January 2002. Mr. Team has been
responsible for the Company's Western Regional Division since June 1997. From
April 1996 until June 1997, Mr. Team had similar responsibilities for Lennar's
real estate investment and management division (the predecessor to a
substantial portion of the Company's business). From 1994 to 1996, Mr. Team was
the owner and president of Windward Realty Group, a real estate development
firm. From 1992 to 1993, he was a senior vice president with American Real
Estate Group.

Steven N. Bjerke is the Company's Controller. He assumed this position in
January 2000. Mr. Bjerke joined LNR in April 1999 as Vice President of
Strategic Planning. From February 1990 to March 1999, Mr. Bjerke was employed
by Ryder System, Inc., where he held various positions in the accounting and
finance functions, most recently as group director of planning for Ryder's
truck leasing and rental division.

Margaret A. Jordan is the Company's Treasurer. She also served as Secretary
of LNR from January 2000 to June 2000. Ms. Jordan has been the Treasurer of LNR
since joining the Company in September 1997. From February 1993 to August 1997,
Ms. Jordan worked as an independent contractor and financial consultant to real
estate businesses. From June 1987 to January 1993, Ms. Jordan was employed by
Atlantic Gulf Communities Corporation, serving as assistant treasurer and then
senior vice president and treasurer.

Item 11. Executive Compensation.

The information required by Item 11 is incorporated by reference from the
Company's 2002 Proxy Statement, which will be filed with the Securities and
Exchange Commission not later than March 30, 2002 (120 days after the end of
the Company's fiscal year).

Item 12. Security Ownership of Certain Beneficial Owners and Management.

The information required by Item 12 is incorporated by reference from the
Company's 2002 Proxy Statement, which will be filed with the Securities and
Exchange Commission not later than March 30, 2002 (120 days after the end of
the Company's fiscal year).

Item 13. Certain Relationships and Related Transactions.

The information required by Item 13 is incorporated by reference from the
Company's 2002 Proxy Statement, which will be filed with the Securities and
Exchange Commission not later than March 30, 2002 (120 days after the end of
the Company's fiscal year).

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(A) 1. Financial Statements--The Company's Financial Statements are included in
Item 8

Page
Number
------

Combined financial statements of Lennar Land Partners and
Lennar Land Partners II as of November 30, 2001 and 2000 and
for the years ended November 30, 2001, 2000 and 1999.......... 73

Financial statements of Madison Square Company LLC as of
December 31, 2001 and 2000 and for the years ended December
31, 2001 and 2000 and the period from March 25, 1999 (date of
inception) through December 31, 1999.......................... 84

2. Consolidated Financial Statement Schedules

Report of Independent Auditors................................. 92

Schedule II--Valuation and Qualifying Accounts................. 93

Schedule III--Real Estate and Accumulated Depreciation......... 94

Schedule IV--Mortgage Loans on Real Estate..................... 95

(B) 1. Report on Form 8-K

None

3.1 Certificate of Incorporation and Amendment.*
3.2 By-laws.*
10.1 Separation and Distribution Agreement between the Company and
Lennar Corporation, dated June 10, 1997.*
10.2 LNR Property Corporation Employee Stock Ownership/401(k) Plan.*
10.3 Shared Facilities Agreement between LNR Property Corporation
and Lennar Corporation.*
10.4 Partnership Agreement by and between Lennar Land Partners Sub,
Inc. and LNR Land Partners Sub, Inc.*
10.5 Reverse Repurchase Agreement dated as of June 7, 1996, between
CS First Boston (Hong Kong) Limited and Lennar Financial
Services, Lennar MBS, Inc., Lennar Securities Holdings, Inc.,
and LFS Asset Corp.*
10.6 Amended and Restated Credit Agreement dated as of October 4,
1999, by and between LNR Florida Funding, Inc., and German
American Capital Corporation.*
10.7 LNR Property Corporation Savings Plan.*
10.8 Partnership Agreement by and between Lennar Land Partners Sub
II, Inc. and LNR Land Partners Sub II, Inc.*
10.9 Second Amended and Restated Revolving Credit Agreement dated as
of July 14, 2000, between LNR Property Corporation and certain
subsidiaries, the lenders and Bank of America, N.A., as
administrative agent, U.S. Bank, National Association, as
syndication agent, Fleet National Bank, as documentation agent
and Guaranty Federal Bank, F.S.B., as managing agent with Bank
of America Securities LLC, as sole lead arranger and sole book
manager.*
10.10 Supplement and Amendment to Annex 1-A of the Master Repurchase
Agreement dated August 17, 2000 and the Master Repurchase
Agreement dated as of March 31, 2000 between Bear Stearns
International Limited and LNR CMBS Holding Corp.*
10.11 Second Supplemental Indenture dated as of February 8, 2001,
between LNR Property Corporation and US Bank Trust National
Association, as successor trustee (relating to LNR's 10 1/2%
Senior Subordinated Notes Due 2009.) (Incorporated by reference
from Exhibit to Current Report on Form 8-K filed February 15,
2001.)*

10.12 LNR Property Corporation 2000 Stock Option and Restricted Stock Plan.*
10.13 LNR Property Corporation 2001 Senior Officers Stock Purchase Plan.
11.1 Statement Regarding Computation of Earnings Per Share.
21.1 List of Subsidiaries.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Ernst & Young LLP.

--------
* Previously filed.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

LNR PROPERTY CORPORATION

BY: /s/ STEVEN J. SAIONTZ
----------------------------
Steven J. Saiontz
Chief Executive Officer and
Director
(Principal Executive Officer)

February 28, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated:

Name and Signature Title Date

/s/ STUART A. MILLER Chairman of the Board and February 28, 2002
---------------------------- Director
Stuart A. Miller

/s/ STEVEN J. SAIONTZ Chief Executive Officer and February 28, 2002
---------------------------- Director (Principal Executive
Steven J. Saiontz Officer)

/s/ JEFFREY P. KRASNOFF President and Director February 28, 2002
----------------------------
Jeffrey P. Krasnoff

/s/ SHELLY RUBIN Vice President and Chief February 28, 2002
--------------------------- Financial Officer (Principal
Shelly Rubin Financial Officer)

/s/ STEVEN N. BJERKE Corporate Controller February 28, 2002
---------------------------- (Principal Accounting
Steven N. Bjerke Officer)

/s/ BRIAN L. BILZIN Director February 28, 2002
----------------------------
Brian L. Bilzin

/s/ CHARLES E. COBB, JR. Director February 28, 2002
----------------------------
Charles E. Cobb, Jr.

/s/ EDWARD THADDEUS FOOTE II Director February 28, 2002
----------------------------
Edward Thaddeus Foote II

/s/ STEPHEN E. FRANK Director February 28, 2002
----------------------------
Stephen E. Frank

/s/ CONNIE MACK Director February 28, 2002
----------------------------
Connie Mack

/s/ LEONARD MILLER Director February 28, 2002
----------------------------
Leonard Miller

REPORT OF INDEPENDENT AUDITORS

To the Partners of Lennar Land Partners and Lennar Land Partners II:

We have audited the accompanying combined balance sheets of Lennar Land
Partners and Lennar Land Partners II, both of which are general partnerships
under common ownership and common management, (collectively, the
"Partnerships") as of November 30, 2001 and 2000 and the related combined
statements of operations, partners' capital and cash flows for each of the
three years in the period ended November 30, 2001. These combined financial
statements are the responsibility of the Partnerships' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Lennar Land
Partners and Lennar Land Partners II at November 30, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended November 30, 2001 in conformity with accounting principles
generally accepted in the United States of America.

DELOITTE & TOUCHE LLP
Certified Public Accountants

Miami, Florida
January 9, 2002
(February 28, 2002 as to Note 7)

Lennar Land Partners and Lennar Land Partners II

Combined Balance Sheets

November 30, 2001 and 2000

2001 2000
------------- -----------

Assets
Cash................................................ $ 8,741,553 14,695,398
Land held for development and sale.................. 176,632,519 218,171,259
Operating properties and equipment, net............. 45,912,207 45,622,856
Investments in unconsolidated partnerships.......... 19,429,154 23,177,423
Due from affiliate.................................. 363,059 --
Other assets........................................ 24,592,377 18,498,526
------------- -----------
$ 275,670,869 320,165,462
============= ===========

Liabilities and Partners' Capital
Accounts payable and other liabilities.............. $ 17,780,962 22,859,353
Deferred revenue.................................... 24,890,000 23,060,000
Due to affiliate.................................... -- 1,825,560
Mortgage notes and other debts payable.............. 99,670,339 115,038,341
------------- -----------
Total liabilities................................... 142,341,301 162,783,254
Partners' capital................................... 133,329,568 157,382,208
------------- -----------
$ 275,670,869 320,165,462
============= ===========

See accompanying notes to combined financial statements.

Lennar Land Partners and Lennar Land Partners II

Combined Statements of Operations

For the Years Ended November 30, 2001, 2000 and 1999

2001 2000 1999
------------- ----------- -----------

Revenues
Land sales:
Affiliate homesite sales.............. $ 104,200,973 112,273,630 109,327,044
Third party homesite sales............ 52,608,001 87,647,803 91,212,830
Third party acreage sales............. 18,147,508 15,353,949 17,965,220
------------- ----------- -----------
Total land sales.................... 174,956,482 215,275,382 218,505,094
Equity in earnings of unconsolidated
partnerships........................... 21,794,025 21,217,611 18,160,134
Club operations......................... 4,555,486 3,428,590 3,027,448
Amortization of negative goodwill....... -- -- 1,351,112
Other................................... 11,104,010 16,565,496 10,409,582
------------- ----------- -----------
Total revenues...................... 212,410,003 256,487,079 251,453,370
------------- ----------- -----------
Costs and Expenses
Cost of land sales:
Affiliate homesite sales.............. 68,583,764 72,700,370 77,415,895
Third party homesite sales............ 44,351,416 68,911,101 77,552,825
Third party acreage sales............. 7,551,654 7,935,841 11,265,515
------------- ----------- -----------
Total cost of land sales............ 120,486,834 149,547,312 166,234,235
Selling, general and administrative..... 19,088,403 27,861,492 13,012,117
Management fees paid to affiliate....... 5,410,639 6,503,557 6,000,000
Club operations......................... 7,712,767 3,258,268 3,061,932
------------- ----------- -----------
Total costs and expenses............ 152,698,643 187,170,629 188,308,284
------------- ----------- -----------
Net Income ............................. $ 59,711,360 69,316,450 63,145,086
============= =========== ===========

See accompanying notes to combined financial statements.

Lennar Land Partners and Lennar Land Partners II

Combined Statements of Partners' Capital

For the Years ended November 30, 2001, 2000 and 1999

Lennar Land LNR Land
Partners Sub, Inc. Partners Sub, Inc.
and Lennar and LNR
Land Partners Sub Land Partners Sub
II, Inc. II, Inc. Total
------------------ ------------------ ------------

Balance at November 30, 1998..................... $ 99,653,025 99,653,025 199,306,050
Net income....................................... 31,572,543 31,572,543 63,145,086
Distributions.................................... (16,292,689) (16,292,689) (32,585,378)
------------ ----------- ------------
Balance at November 30, 1999..................... 114,932,879 114,932,879 229,865,758
Net income....................................... 34,658,225 34,658,225 69,316,450
Contributions.................................... 2,000,000 2,000,000 4,000,000
Distributions.................................... (72,900,000) (72,900,000) (145,800,000)
------------ ----------- ------------
Balance at November 30, 2000..................... 78,691,104 78,691,104 157,382,208
Net income....................................... 29,855,680 29,855,680 59,711,360
Contributions.................................... 5,000,000 5,000,000 10,000,000
Distributions.................................... (46,882,000) (46,882,000) (93,764,000)
------------ ----------- ------------
Balance at November 30, 2001..................... $ 66,664,784 66,664,784 133,329,568
============ =========== ============

See accompanying notes to combined financial statements.

Lennar Land Partners and Lennar Land Partners II

Combined Statements of Cash Flows

For the Years Ended November 30, 2001, 2000 and 1999

2001 2000 1999
------------ ------------ -----------

Cash flows from operating activities:
Net income.............................................. $ 59,711,360 69,316,450 63,145,086
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization, net.................... 2,285,458 1,084,423 (970,692)
Equity in earnings of unconsolidated partnerships..... (21,794,025) (21,217,611) (18,160,134)
Gain on sales of operating properties and equipment... -- (6,782,226) --
Changes in assets and liabilities:
Decrease in land held for development and sale...... 40,618,197 36,885,909 56,675,913
(Increase) decrease in other assets................. (6,093,851) 2,128,506 2,271,709
Decrease in accounts payable and other liabilities.. (5,078,391) (437,298) (22,830,010)
Increase in deferred revenue........................ 1,830,000 17,850,000 5,210,000
Increase (decrease) in due from / to affiliate...... (2,188,619) 1,270,496 (553,128)
------------ ------------ -----------
Net cash provided by operating activities........... 69,290,129 100,098,649 84,788,744
------------ ------------ -----------
Cash flows from investing activities:
Operating properties and equipment:
Additions............................................. (1,654,266) (13,649,216) (1,460,753)
Proceeds from sales................................... -- 12,251,730 --
Investments in unconsolidated partnerships.............. (3,000,000) -- (50,847,716)
Distributions from unconsolidated partnerships.......... 28,542,294 23,823,709 49,055,656
------------ ------------ -----------
Net cash provided by (used in) investing
activities......................................... 23,888,028 22,426,223 (3,252,813)
------------ ------------ -----------
Cash flows from financing activities:
Net (repayments) borrowings under revolving credit
facilities............................................. (7,561,597) 68,963,236 (9,070,153)
Mortgage notes and other debts payable:
Proceeds from borrowings.............................. -- -- 117,643,531
Principal payments.................................... (7,806,405) (173,134,454) (34,758,035)
Decrease (increase) in restricted cash.................. -- 90,000,000 (90,000,000)
Contributions received from partners.................... 10,000,000 4,000,000 --
Distributions to partners............................... (93,764,000) (145,800,000) (32,585,378)
------------ ------------ -----------
Net cash used in financing activities............... (99,132,002) (155,971,218) (48,770,035)
------------ ------------ -----------
Net (decrease) increase in cash......................... (5,953,845) (33,446,346) 32,765,896
Cash at beginning of year............................... 14,695,398 48,141,744 15,375,848
------------ ------------ -----------
Cash at end of year..................................... $ 8,741,553 14,695,398 48,141,744
============ ============ ===========
Supplemental disclosures of non-cash investing
and financing activities:
Consolidation of entity previously accounted for under
the equity method--assets and liabilities recorded:
Land held for development and sale.................. $ -- -- 83,132,482
Mortgage notes and other debts payable.............. -- -- (39,000,000)
Other, net.......................................... -- -- (2,387,513)
Investments in unconsolidated partnerships.......... -- -- (41,744,969)
------------ ------------ -----------
$ -- -- --
============ ============ ===========

See accompanying notes to combined financial statements.

Lennar Land Partners and Lennar Land Partners II

Notes to Combined Financial Statements

1. Organization and Summary of Significant Accounting Policies

Description of Organization and Operations

Lennar Land Partners ("LLP") is a Florida general partnership which was
formed at the close of business on October 31, 1997 through the contribution of
assets and related liabilities by Lennar Land Partners Sub, Inc. ("Lennar Sub
I"), a wholly-owned subsidiary of Lennar Corporation ("Lennar"), and by LNR
Land Partners Sub, Inc. ("LNR Sub I"), a wholly-owned subsidiary of LNR
Property Corporation ("LNR"). All amounts were recorded by LLP at the carrying
value of the partners. Lennar Sub I and LNR Sub I each received 50% partnership
interests in LLP.

In July 1999, certain assets and liabilities of LLP were contributed at net
book value to a second general partnership, Lennar Land Partners II ("LLP II").
Lennar, through Lennar Land Partners Sub II, Inc. ("Lennar Sub II"), and LNR,
through LNR Land Partners Sub II, Inc. ("LNR Sub II"), each received 50%
partnership interests in LLP II.

Lennar Sub I is the managing general partner of LLP and Lennar Sub II is the
managing general partner of LLP II.

LLP and LLP II (the "Partnerships") are under common ownership and
management and are engaged in the acquisition, development and sale of land.
Additionally, the Partnerships own and operate recreational facilities in
several of the communities they develop. The Partnerships also invest in
partnerships (and similar entities) which acquire, develop and sell land and,
in certain instances, also build and sell homes.

Basis of Combination

The accompanying combined financial statements include the accounts of the
Partnerships, their wholly-owned subsidiaries and partnerships (and similar
entities) in which a controlling interest is held. The Partnerships'
investments in unconsolidated partnerships (and similar entities) in which less
than a controlling interest is held are accounted for by the equity method.
Controlling interest is determined based on a number of factors, which include
the Partnerships' ownership interest and participation in the management of the
partnerships. All significant intercompany transactions and balances have been
eliminated.

In 1999, the Partnerships obtained a controlling interest in one of its
partnerships which was being accounted for by the equity method. At such time,
the Partnerships began consolidating the assets and liabilities of the entity.
The effect of consolidating this entity is included in the combined statements
of cash flows under supplemental disclosures of non-cash investing and
financing activities.

Use of Estimates

Revenue Recognition

Revenues from land sales are recognized when a significant down payment is
received, the earnings process is complete and the collection of any remaining
receivables is reasonably assured.

Cash

The Partnerships consider all highly liquid investments purchased with
maturities of three months or less to be cash equivalents.

Lennar Land Partners and Lennar Land Partners II

Notes to Combined Financial Statements (continued)

Land Held for Development and Sale

The cost of land held for development and sale includes direct and indirect
costs, capitalized interest and property taxes. The cost of land, major
infrastructure, amenities and other common costs are apportioned among the
parcels within a real estate community. Land is carried at cost, unless the
land within a community is determined to be impaired, in which case the
impaired land will be written down to fair value. Statement of Financial
Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of, requires that long-
lived assets be evaluated for impairment based on undiscounted future cash
flows of the assets. Write-downs of land deemed to be impaired will be recorded
as adjustments to the cost basis of the respective land. As of November 30,
2001 and 2000, there were no assets considered impaired under the provisions of
this statement.

Interest and Real Estate Taxes

Interest and real estate taxes attributable to land and operating properties
are capitalized while they are being actively developed. During 2001, 2000 and
1999, interest costs of $8,130,259, $10,472,188 and $6,585,214, respectively,
were incurred and $7,483,362, $9,048,037 and $6,328,383, respectively, were
capitalized.

Operating Properties and Equipment

Operating properties and equipment are recorded at cost and are depreciated
over their estimated useful lives using the straight-line method. The estimated
useful life for operating properties is 39 years and for equipment is 2 to 15
years.

Other Assets

Other assets are comprised primarily of notes and accounts receivable
related to land sales and prepaid impact fees. At November 30, 2001 and 2000,
other assets included notes receivable of $16,362,216 and $10,157,589,
respectively.

Negative Goodwill

At the formation of LLP, certain assets and the related negative goodwill
were contributed. The negative goodwill was amortized over the lives of the
assets acquired that gave rise to the negative goodwill. Negative goodwill was
fully amortized at November 30, 1999.

Income Taxes

No provision for income taxes has been included in the combined financial
statements of the Partnerships since the payment of such taxes is the
obligation of the partners.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires all business combinations initiated after June
30, 2001 to be accounted for using the purchase method and requires acquired
intangible assets to be recognized as assets apart from goodwill if certain
criteria are met. The Partnerships are required to adopt SFAS No. 141 for all
future acquisitions.

SFAS No. 142 no longer requires or permits the amortization of goodwill and
indefinite-lived assets. Instead, these assets must be reviewed annually (or
more frequently under certain conditions) for impairment in accordance with
this statement. This impairment test uses a fair value approach rather than the
undiscounted cash flows approach previously required by SFAS No. 121,
Accounting for the Impairment of Long-Lived

Lennar Land Partners and Lennar Land Partners II

Notes to Combined Financial Statements (continued)

Assets and for Long-Lived Assets to Be Disposed Of. The Partnerships adopted
SFAS No. 142 on December 1, 2001. Management does not currently believe that
the implementation of SFAS No. 142 will have a material impact on the
Partnerships' financial condition or results of operations.

In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. SFAS No. 144 provides accounting guidance for
financial accounting and reporting for impairment or disposal of long-lived
assets. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 144 is
effective for the Partnerships in fiscal 2003. Management does not currently
believe that the implementation of SFAS No. 144 will have a material impact on
the Partnerships' financial position or results of operations.

Reclassifications

Certain prior year amounts have been reclassified to conform with the 2001
presentation.

2. Land Held for Development and Sale

Land held for development and sale consists of individual homesites and land
parcels for sale to homebuilders, including Lennar. These properties are
located in Florida, California and Texas. Land parcels are in various stages of
development at November 30, 2001 and 2000.

3. Operating Properties and Equipment

Operating properties and equipment at November 30, 2001 and 2000 consisted
of the following:

2001 2000
------------ ----------

Community recreational facilities.................. $ 46,253,872 43,598,589
Sales center....................................... 1,890,549 1,890,549
------------ ----------
Total land and buildings......................... 48,144,421 45,489,138
Furniture, fixtures and equipment.................. 3,573,698 3,064,197
------------ ----------
51,718,119 48,553,335
Accumulated depreciation........................... (5,805,912) (2,930,479)
------------ ----------
$ 45,912,207 45,622,856
============ ==========

4. Investments in Unconsolidated Partnerships

Summarized condensed financial information on a combined 100% basis related
to the Partnerships' investments in unconsolidated partnerships and similar
entities accounted for by the equity method as of November 30, 2001 and 2000
and for the years ended November 30, 2001, 2000 and 1999 was as follows:

2001 2000
------------- -----------

Assets:
Cash.................................................. $ 17,473,967 11,676,310
Real estate inventories............................... 95,688,831 105,959,116
Other assets.......................................... 2,823,056 3,819,111
------------- -----------
$ 115,985,854 121,454,537
============= ===========
Liabilities and equity:
Accounts payable and other liabilities................ $ 22,799,082 18,380,492
Notes and mortgages payable........................... 52,654,776 55,066,610
Equity of:
The Partnerships.................................... 19,429,154 23,177,423
Others.............................................. 21,102,842 24,830,012
------------- -----------
$ 115,985,854 121,454,537
============= ===========

Lennar Land Partners and Lennar Land Partners II

Notes to Combined Financial Statements (continued)

2001 2000 1999
------------ ----------- -----------

Revenues................................. $122,006,340 139,289,132 210,032,897
Costs and expenses....................... 79,085,923 104,852,299 171,286,026
------------ ----------- -----------
Net earnings of unconsolidated
partnerships............................ $ 42,920,417 34,436,833 38,746,871
============ =========== ===========
The Partnerships' share of net earnings.. $ 21,794,025 21,217,611 18,160,134
============ =========== ===========

At November 30, 2001 and 2000, the Partnerships' equity interests in these
partnerships ranged from 36% to 50%. The partnerships follow accounting
principles generally accepted in the United States of America. These
partnerships are primarily involved in the acquisition, development and sale of
residential land. The Partnerships share in the profits and losses of these
partnerships and, when appointed the manager of the partnerships, receive fees
for the management of the assets. The outstanding debt of these partnerships is
not guaranteed by the Partnerships. However, both Lennar and LNR provide
guarantees on the debt of one of the partnerships (see Note 8).

5. Accounts Payable and Other Liabilities

Accounts payable and other liabilities at November 30, 2001 and 2000
consisted of the following:

2001 2000
------------ ----------

Accounts payable....................................... $ 5,555,714 5,978,564
Accrued impact fees.................................... 2,830,573 2,830,573
Deferred income........................................ 1,983,227 2,400,339
Accrued property taxes................................. 1,492,090 1,573,865
Other liabilities...................................... 5,919,358 10,076,012
------------ ----------
$ 17,780,962 22,859,353
============ ==========

6. Deferred Revenue

The Partnerships entered into a Club Option Agreement whereby the
Partnerships granted to a private equity membership club (the "Club") the right
and option to purchase certain recreational facilities (the "Club Facilities").
Pursuant to the Club Option Agreement, all membership contributions received by
the Club are paid to the Partnerships as a non-refundable option deposit and
shall be applied toward the purchase price of the Club Facilities. Deferred
revenue of $24,890,000 and $23,060,000 had been collected as of November 30,
2001 and 2000, respectively.

7. Mortgage Notes and Other Debts Payable

Mortgage notes and other debts payable at November 30, 2001 and 2000
consisted of the following:

2001 2000
------------ -----------

Revolving credit facilities with floating interest
rates
(ranging from 4.8% to 6.0% at November 30, 2001),
secured by certain real estate, due through 2004..... $ 99,670,339 96,670,992
Revolving credit facility with a floating interest
rate,
secured by certain real estate, paid in 2001......... -- 10,560,944
Mortgage notes on land, with a fixed interest rate,
secured by certain real estate, paid in 2001......... -- 7,656,405
Unsecured notes payable, paid in 2001................. -- 150,000
------------ -----------
$ 99,670,339 115,038,341
============ ===========

Lennar Land Partners and Lennar Land Partners II

Notes to Combined Financial Statements (continued)

At November 30, 2001 and 2000, the Partnerships had outstanding borrowings
of $46,920,339 and $56,670,992, respectively, under a $75,000,000 revolving
credit facility with a financial institution. This credit facility is used to
acquire land, finance land development and for other general purposes,
including distributions to partners. This credit facility matured on February
28, 2002 and was extended for one year at the request of the Partnerships and
with the consent of the financial institution. Borrowings under this credit
facility are limited by certain borrowing base calculations and are
collateralized by real estate in the borrowing base. Interest is payable
monthly and is tied to the Prime Rate. The interest rate was 5.0% at November
30, 2001.

At November 30, 2001 and 2000, the Partnerships had outstanding borrowings
of $52,750,000 and $40,000,000, respectively, pursuant to a revolving line of
credit agreement with a financial institution. This credit facility provides
for borrowings of up to $55,000,000, subject to certain borrowing base
limitations and is collateralized by real estate. The maximum commitment under
this credit facility is scheduled to be reduced by $10,000,000, $30,000,000 and
$15,000,000 in fiscal 2002, 2003 and 2004, respectively. Interest is payable
monthly and is based on LIBOR. The weighted average interest rate at November
30, 2001 was 5.4%. Lennar and LNR provide limited maintenance guarantees on
this obligation.

The minimum aggregate principal maturities of mortgage notes and other debts
payable subsequent to November 30, 2001 are as follows: 2002--$54,670,339,
2003--$30,000,000 and 2004--$15,000,000. The Partnerships' debt arrangements
contain certain financial covenants. At November 30, 2001, the Partnerships
were in compliance with these covenants.

8. Related Party Transactions

Lennar is paid a monthly fee for managing the day-to-day operations of the
Partnerships. As manager, Lennar is also entitled to reimbursement for all out-
of-pocket expenses directly incurred in its capacity as manager (the "Direct
Expenses") including, but not limited to, costs and expenses of employees
(salary, bonus and benefits), contractors, agents, professional fees,
telephone, travel, productions and reproductions of documents and postage. In
addition to the Direct Expenses, Lennar shares some of its employees,
contractors, agents, facilities and equipment and other expenses with the
Partnerships (the "Indirect Expenses"). The reimbursement for the Indirect
Expenses is reflected as management fees paid to affiliate in the combined
statements of operations. The Partnerships reimbursed Lennar $1,228,873,
$2,835,875 and $1,534,164 for Direct Expenses in 2001, 2000 and 1999,
respectively, and $5,410,639, $6,503,557 and $6,000,000 for Indirect Expenses
in 2001, 2000 and 1999, respectively. Additionally, during 2001, an agreement
was entered into whereby Lennar is the general contractor for homes being built
and sold by the Partnerships and receives a fee for the general contractor
services. In 2001, such fee received by Lennar was $784,000.

The Partnerships, in the ordinary course of business, sell land to Lennar.
During 2001, these land sales amounted to $104,200,973 in revenues and
generated gains totaling $35,617,209. During 2000, these land sales amounted to
$112,273,630 in revenues and generated gains totaling $39,573,260. During 1999,
these land sales amounted to $109,327,044 in revenues and generated gains
totaling $31,911,149. The Partnerships believe amounts paid by Lennar for land
sales approximate amounts that would have been paid by independent third
parties.

At November 30, 2001, Lennar and LNR provided limited maintenance guarantees
on certain indebtedness totaling $52,750,000 of the Partnerships' debt.
Additionally, both Lennar and LNR provided a 50% limited maintenance guarantee
on $35,500,000 of the debt of one of the Partnerships' unconsolidated
partnerships and a 50% payment guarantee on $4,900,000 of the debt of one of
the Partnerships' unconsolidated partnerships. At November 30, 2001, Lennar
provided a payment guarantee on $3,000,000 of the debt of one of the
Partnerships' partnerships. During 2000 and 1999, the Partnerships paid the
partners guarantee fees totaling $33,554 and $283,721, respectively. No
guarantee fees were paid to the partners in 2001.

During 1999, the Partnerships entered into a transaction with Lennar that
was accounted for as a nonmonetary exchange of similar assets. The net assets
received in the transaction were recorded by the Partnerships at the net book
value of the assets given up of $42,173,384.

Lennar Land Partners and Lennar Land Partners II

Notes to Combined Financial Statements (continued)

Lennar funds the deficits of the community recreational facilities of the
Partnerships' non-master planned communities. During 2001, 2000 and 1999, the
Partnerships received deficit funding from Lennar of $296,575, $508,109 and
$521,198, respectively, which has been recorded as a reduction to costs and
expenses of club operations in the combined statements of operations.

At November 30, 2001, Lennar owed the Partnerships $363,059 for advances,
Indirect Expenses and Direct Expenses. At November 30, 2000, the Partnerships
owed Lennar $1,825,560 for advances, Indirect Expenses and Direct Expenses.

9. Commitments and Contingent Liabilities

The Partnerships are subject to the usual obligations associated with
entering into contracts for the purchase, development and sale of real estate
in the routine conduct of its business.

The Partnerships are parties to various claims, legal actions and complaints
arising in the ordinary course of business. In the opinion of management, the
disposition of these matters will not have a material adverse effect on the
financial condition or results of operations of the Partnerships.

Through an arrangement with Lennar as managing partner, the Partnerships are
committed, under various letters of credits, to perform certain development
activities and provide certain guarantees in the normal course of business.
Outstanding letters of credit under this arrangement totaled approximately
$7,000,000 at November 30, 2001.

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Members of
Madison Square Company LLC

We have audited the accompanying balance sheets of Madison Square Company LLC
(the Company) as of December 31, 2001 and 2000, and the related statements of
income, members' equity, and cash flows for each of the two years in the period
ended December 31, 2001 and the period from March 25, 1999 (date of inception)
through December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Madison Square Company LLC at
December 31, 2001 and 2000, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 2001 and the
period from March 25, 1999 (date of inception) through December 31, 1999, in
conformity with accounting principles generally accepted in the United States.

Ernst & Young LLP

January 8, 2002
Miami, Florida

Madison Square Company LLC

Balance Sheets

December 31
--------------------
2001 2000
---------- ---------
(In thousands)

Assets
Cash and cash equivalents.............................. $ 5,010 2,153
Investment securities.................................. 1,466,049 1,526,984
Other assets........................................... 41 127
---------- ---------
Total assets........................................... $1,471,100 1,529,264
========== =========
Liabilities and members' equity
Accounts payable and accrued expenses.................. $ 3,060 5,132
Loan payable to affiliate.............................. 1,024,102 1,098,705
---------- ---------
Total liabilities...................................... 1,027,162 1,103,837
Members' equity........................................ 443,938 425,427
---------- ---------
Total liabilities and members' equity.................. $1,471,100 1,529,264
========== =========

See accompanying notes to financial statements.

Madison Square Company LLC

Statements of Income

For the
period from
March 25, 1999
(date
Years ended of inception)
December 31, through
---------------- December 31,
2001 2000 1999
-------- ------- ----------------
(In thousands)

Revenues:
Interest income.......................... $186,712 227,342 121, 053
Other income............................. 18,790 19,863 4,886
-------- ------- ---------
Total revenues............................. 205,502 247,205 125,939
======== ======= =========
Expenses:
General and administrative expenses...... 9,666 9,604 9,611
Interest expense......................... 57,386 91,061 53,522
-------- ------- ---------
Total expenses............................. 67,052 100,665 63,133
-------- ------- ---------
Net income................................. $138,450 146,540 62,806
======== ======= =========

See accompanying notes to financial statements.

Madison Square Company LLC

Statements of Members' Equity

Years ended December 31, 2001 and 2000 and the period
from March 25, 1999 (date of inception) through December 31, 1999

Madison Madison LNR Best SunAmerica
Square Square Madison Property Life Total
Management Equity, Square, Fund, BPF Insurance BPF/LNR Members'
LLC Inc. Inc. L.P. LLC Co. Partnership Equity
---------- ------- ------- -------- ------- ---------- ----------- ---------
(In thousands)

Initial members'
contributions.......... $ 444 95,427 63,073 63,073 -- -- -- 222,017
Contributions from
members............... 191 40,963 27,075 23,394 3,681 37,504 -- 132,808
Assignment of member
interest.............. -- -- -- (93,787) 93,787 -- -- --
Distributions to
members............... (50) (10,789) (7,130) (4,486) (2,644) (328) -- (25,427)
Net income............. 122 26,302 17,385 11,806 5,579 1,612 -- 62,806
------- ------- ------- -------- ------- -------- --- ---------
Balance at December 31,
1999................... 707 151,903 100,403 -- 100,403 38,788 -- 392,204
Distributions to
members............... (3,188) (40,302) (30,138) -- (30,138) (9,551) -- (113,317)
Net income............. 3,248 53,264 38,703 -- 38,703 12,622 -- 146,540
------- ------- ------- -------- ------- -------- --- ---------
Balance at December 31,
2000................... 767 164,865 108,968 -- 108,968 41,859 -- 425,427
Distributions to
members............... (1,709) (44,836) (31,384) -- (31,384) (10,626) -- (119,939)
Net income............. 1,742 52,057 36,157 -- 36,157 12,337 -- 138,450
------- ------- ------- -------- ------- -------- --- ---------
Balance at December 31,
2001................... $ 800 172,086 113,741 -- 113,741 43,570 -- 443,938
======= ======= ======= ======== ======= ======== === =========

See accompanying notes to financial statements.

Madison Square Company LLC

Statements of Cash Flows

For the
period from
March 25,
1999 (date
of
Years ended inception)
December 31, through
-------------------- December 31,
2001 2000 1999
--------- --------- ------------
(In thousands)

Operating activities
Net income................................................. $ 138,450 146,540 62,806
Adjustments to reconcile net income to net cash provided by
operating activities:
Accretion of discount, net............................... (28,179) (12,088) 16,320
Changes in operating assets and liabilities:
Decrease (increase) in other assets.................... 86 90 (217)
(Decrease) increase in accounts payable and accrued
expenses.............................................. (2,072) (643) 5,775
--------- --------- -----------
Net cash provided by operating activities.................. 108,285 133,899 84,684
Investing activities
Purchase of investment securities.......................... -- -- (1,750,052)
Principal repayments from investment securities............ 89,114 140,821 78,015
--------- --------- -----------
Net cash provided by (used in) investing activities........ 89,114 140,821 (1,672,037)
Financing activities
Proceeds from loan payable to affiliate.................... -- -- 1,400,042
Principal payments on loan payable to affiliate............ (74,603) (164,440) (136,897)
Cash contributions from members............................ -- -- 354,825
Cash distributions to members.............................. (119,939) (113,317) (25,427)
--------- --------- -----------
Net cash (used in) provided by financing activities........ (194,542) (277,757) 1,592,543
--------- --------- -----------
Net increase (decrease) in cash and cash equivalents....... 2,857 (3,037) 5,190
Cash and cash equivalents at beginning of period........... 2,153 5,190 --
--------- --------- -----------
Cash and cash equivalents at end of period................. $ 5,010 2,153 5,190
========= ========= ===========

See accompanying notes to financial statements.

Madison Square Company LLC

Notes to Financial Statements

December 31, 2001

1. Organization and Nature of Business

Madison Square Company LLC (Company), a Delaware limited liability company,
was formed on March 25, 1999, for the purpose of investing in unrated and
noninvestment grade rated commercial mortgage backed securities (CMBS), as
further discussed in Notes 2 and 3.

The Company's members currently consist of BPF/LNR Partnership (BPF/LNR), a
non-equity managing member, and as nonmanaging members, Madison Square
Management LLC (Madison), a 0.1815% member, Madison Square Equity, Inc.
(Madison Equity), a 39.0084% member, LNR Madison Square, Inc. (LNR), a
25.78285% member, BPF LLC (BPF LLC), a 25.78285% member, and SunAmerica Life
Insurance Co. (SunAmerica), a 9.2444% member.

The original members of the Company were Madison, as managing member, and as
non-managing members, Madison Equity, LNR, and Best Property Fund, L.P. (BPF).
On July 1, 1999, effective as of March 25, 1999, BPF transferred to LNR an
interest in the Company relating to a capital commitment in the amount of $25
million and a related capital contribution in the amount of $12.6 million,
causing BPF and LNR to have equal members' interest of 28.4091%. Effective
October 20, 1999, BPF assigned its interest to BPF LLC. On November 3, 1999,
BPF/LNR was admitted as a non-equity member and replaced Madison as the
managing member. SunAmerica was admitted as a member on November 4, 1999, after
purchasing its interest from the then existing members. Lastly, on November 22,
1999, the members' ownership percentages were equalized to achieve the target
ownership percentages as if all capital commitments were fully funded. Going
forward, the ownership percentages that currently exist will remain constant
and any additional capital contributions will be made in those proportions.

The Operating Agreement sets forth the basis for capital contributions,
allocations and distributions to the members including allocations of profits
and losses, special allocations for tax purposes and distributions of cash flow
from the Company.

The Company will cease to exist on March 31, 2004, unless sooner terminated
or further extended pursuant to the provisions in the Operating Agreement.

2. Summary of Significant Accounting Policies

Cash and Cash Equivalents

For purposes of the statements of cash flow, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents. Concentrations of credit risk and market
risk associated with cash and cash equivalents are considered low due to the
credit quality of the issuers of the financial instruments held by the Company
and due to their short duration to maturity.

Investment Securities

Investment securities, which consist of investments in rated and unrated
portions of various issues of CMBS and a participating whole loan pool, are
accounted for in accordance with Statement of Financial Accounting Standards
No. 115 (FAS 115), Accounting for Certain Investments in Debt and Equity
Securities. FAS 115 requires that debt and equity securities that have
determinable fair values be classified as available-for-sale unless they are
classified as held-to-maturity or trading. Securities classified as held-to-
maturity are carried at amortized cost because they are purchased with the
intent and ability to hold to maturity. At December 31, 2001 and 2000, all
investment securities held by the Company are classified as held-to-maturity.

Interest Income Recognition

In accordance with Financial Accounting Standards Statement No. 91, Non-
Refundable Fees and Costs Associated with Originating or Acquiring Loans and
Initial Direct Costs of Leases, and EITF 99-20, Recognition of Interest Income
and Impairment on Purchased and Retained Beneficial Interests in Securitized
Financial Assets, the Company recognizes interest income on its CMBS using the
effective interest method, which results in a level yield over the projected
life of the investments. Changes in estimated yields are due to revisions in
estimates of future credit losses, losses incurred and actual prepayment
speeds. Changes in estimated yields are accounted for prospectively. During
2001, 2000 and 1999, the Company recognized income based upon yields ranging
from approximately 5.1% to 44.5%, 11.3% to 34.3% and 9.6% to 34.3%,
respectively, with a weighted average yield of 13.7%, 14.9% and 12.7%,
respectively.

Madison Square Company LLC

Notes to Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

Income Tax Matters

The accompanying financial statements include no provision for income taxes,
since pursuant to the provisions of the applicable federal, state, and local
taxing authorities, each item of income, gain, loss, deduction or credit is
reportable by the members.

Reclassifications

Certain items in the 1999 and 2000 financial statements have been
reclassified to conform to the 2001 presentation.

3. Investment Securities

Investment securities are stated at amortized cost which represents actual
cost adjusted for discount accretion using the effective interest method.
Investment securities, which are held-to-maturity, consists of the following
(in thousands):

December 31
---------------------
2001 2000
---------- ---------

Certificate face value........................... $1,933,347 2,037,435
Purchase discount, net........................... (467,298) (510,451)
---------- ---------
$1,466,049 1,526,984
========== =========

In general, principal payments on each class of security are made in the
order of the stated maturities of each class so that no payment of principal
will be made on any class until all classes having an earlier maturity date
have been paid in full. Each security is, in effect, subordinate to other
securities of classes with earlier maturities. The principal repayments on a
particular class are dependent upon collections on the underlying mortgages,
affected by prepayments and extensions, and as a result, the actual maturity of
any class of securities may differ from its stated maturity. In addition, the
Company has an investment in a participating whole loan pool and has been
receiving principal payments from this investment. At December 31, 2001, the
Company's investment securities, with stated maturities through 2023, have
coupon rates ranging from 4.76% to 8.31%.

The investments represent securities that are collateralized by pools of
mortgage loans on commercial real estate assets located across the country.
Concentrations of credit risk with respect to these securities are limited due
to the diversity of the underlying loans across geographical areas and
diversity among property types. In addition, the Company only invests in these
securities when one of its affiliates performs significant due diligence
analysis on the real estate supporting the underlying loans and when it has the
right to select an affiliate as special servicer for the entire securitization.
The special servicer impacts the performance of the securitization by using its
loan workout and asset management expertise to resolve nonperforming loans.

4. Loan Payable to Affiliate

The purchases of the investments were partially financed by loans under the
Company's credit facility of $1.76 billion from Credit Suisse First Boston
Mortgage Capital, LLC (CSFB), an affiliate of Madison and Madison Equity.
Interest is payable at a rate per annum equal to the sum of the adjusted LIBOR
plus 125 basis points during the original term of the facility (3.18% and 7.94%
at December 31, 2001 and 2000, respectively).

Madison Square Company LLC

Notes to Financial Statements (continued)

4. Loan Payable to Affiliate (continued)

The loans are collateralized by substantially all of the assets of the Company
and have an original maturity of March 31, 2002. The Credit Agreement provides
for two one-year extensions. Upon each extension, the underlying interest rate
will increase by 100 basis points. On December 13, 2001, the Company provided
CSFB with the first extension notice pursuant to the Credit Agreement. The
extended maturity will now be March 31, 2003. The Company has the option to
prepay the loans at any time prior to the maturity date without penalty. The
Credit Agreement allowed for additional borrowings through March 31, 2000. As
of December 31, 2001, the Company had no available borrowings under the Credit
Agreement.

Pursuant to the Credit Agreement, the borrower is required to make interest
and principal payments on a monthly basis. Principal payments are made as
defined in the Credit Agreement. Interest payments made to CSFB totaled $59.2
million, $91.4 million and $50.3 million for the years ended December 31, 2001
and 2000 and for the period from March 25, 1999 (date of inception) through
December 31, 1999, respectively.

5. Related Party Transactions

Management Fees

From March 25, 1999 to November 2, 1999, the Operating Agreement provided
for management fees to be paid to the Managing Company Group, as defined, which
included Terra Management LLC (Terra), an affiliate of Madison and Madison
Equity. A portion of the management fee was then distributed to Lennar
Partners, Inc. (LPI), an affiliate of LNR, for services rendered in connection
with the Administration and Servicing Agreement. Effective November 3, 1999,
the Operating Agreement was amended to provide for payment of the management
fees to the managing partnership, BPF/LNR, which distributes a portion of the
fee to LPI and Terra. The remainder of the fee is distributed to BPF LLC and
LNR, the partners of BPF/LNR.

The management fee is calculated as 1.5%, per annum, of the Net Cash Flow
Value, as defined, payable on a quarterly basis in arrears. During 2001, 2000
and 1999, the Company incurred management fees of approximately $6.8 million,
$7.0 million and $3.7 million, respectively. At December 31, 2001 and 2000,
included in accounts payable and accrued expenses is approximately $1.7 million
and $1.8 million, respectively, related to this fee.

Other

During 2001, 2000 and 1999, the Company reimbursed affiliates approximately
$2.2 million, $2.0 million and $911,000, respectively, for certain overhead
expenses including payroll, rent and other administrative expenses.

6. Fair Value of Financial Instruments

Statement of Financial Standards No. 107, Disclosures about Fair Value of
Financial Instruments (FAS 107), requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet,
for which it is practical to estimate that value. In cases where quoted market
prices are not available, fair values are based on estimates using present
value of expected future cash flows or other valuation techniques. These
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates could not be substantiated by comparison to independent
markets and, in many cases, may not be realized in immediate settlement of the
instrument.

At December 31, 2001 and 2000, the carrying amounts of cash and cash
equivalents, investment securities and loan payable to affiliate approximate
fair value. Cash and cash equivalents approximate fair value due to their short
duration to maturity. The fair value of investment securities was based on
quoted market prices, where available. If such prices were not available, the
fair market value was calculated by discounting the estimated future cash flows
at a rate that approximates current market. The loan payable to affiliate
approximates fair value as it is primarily tied to market rates of interest.

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders
of LNR Property Corporation and Subsidiaries:

We have audited the consolidated financial statements of LNR Property
Corporation and subsidiaries (the "Company") as of November 30, 2001 and 2000,
and for each of the three years in the period ended November 30, 2001, and have
issued our report thereon dated January 15, 2002, except for Note 17 as to
which the date is January 29, 2002; such report is included elsewhere in this
Form 10-K. Our audits also included the financial statement schedules of the
Company, listed in Item 14. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.

DELOITTE & TOUCHE LLP
Certified Public Accountants

Miami, Florida
January 15, 2002

LNR PROPERTY CORPORATION AND SUBSIDIARIES

Schedule II
Valuation and Qualifying Accounts
Years Ended November 30, 2001, 2000, and 1999

Additions
-------------------
Charged
to Costs Charged
Beginning and to Other Ending
Description Balance Expenses Accounts (Deductions) Balance
----------- ---------- --------- --------- ------------ ---------

Year ended November 30,
2001
Allowances deducted
from assets to which
they apply:
Allowances for
doubtful accounts
and notes
receivable......... $1,555,000 1,718,000 224,000 (1,156,000) 2,341,000
========== ========= ========= ========== =========
Deferred income and
unaccreted
discounts.......... $4,183,000 -- 1,455,000 (1,677,000)(A) 3,961,000
========== ========= ========= ========== =========
Loan loss reserve... $2,038,000 -- 588,000 (136,000) 2,490,000
========== ========= ========= ========== =========
Year ended November 30,
2000
Allowances deducted
from assets to which
they apply:
Allowances for
doubtful accounts
and notes
receivable......... $ 597,000 958,000 -- -- 1,555,000
========== ========= ========= ========== =========
Deferred income and
unaccreted
discounts.......... $5,360,000 -- -- (1,177,000)(A) 4,183,000
========== ========= ========= ========== =========
Loan loss reserve... $2,038,000 -- -- -- 2,038,000
========== ========= ========= ========== =========
Year ended November 30,
1999
Allowances deducted
from assets to which
they apply:
Allowances for
doubtful accounts
and notes
receivable......... $ 117,000 662,000 153,000 (335,000) 597,000
========== ========= ========= ========== =========
Deferred income and
unaccreted
discounts.......... $6,451,000 -- -- (1,091,000)(A) 5,360,000
========== ========= ========= ========== =========
Loan loss reserve... $2,948,000 -- -- (910,000) 2,038,000
========== ========= ========= ========== =========

--------
Notes:
(A) Includes accretion of discounts.

LNR PROPERTY CORPORATION AND SUBSIDIARIES

Schedule III
Real Estate and Accumulated Depreciation (D)(E)
Year ended November 30, 2001

Costs Capitalized
Subsequent to Gross Amount at Which
Initial Cost to Company Acquisition Carried at Close of Period
------------------------- ------------------------ --------------------------------------
Building and Carrying
Description Encumbrances Land Improvements Improvements Costs Land(A) Buildings(A) Total(C)
------------------ ------------ ------------ ------------ ------------ ----------- ------------ ------------ ------------

Rental
office property--
GA.............. $ 52,500,000 $ 5,238,000 $ 20,020,000 $ 37,274,000 $ 2,525,000 $ 5,238,000 $ 59,819,000 $ 65,057,000
NC.............. 33,698,000 4,480,000 40,320,000 491,000 -- 4,480,000 $ 40,811,000 45,291,000
FL.............. 22,200,000 7,721,000 31,180,000 3,456,000 -- 7,721,000 $ 34,636,000 42,357,000
CA.............. 72,379,000 16,654,000 15,104,000 71,443,000 4,202,000 16,654,000 $ 90,749,000 107,403,000
apartment
property--
VA.............. 37,745,000 5,915,000 1,538,000 46,667,000 5,948,000 5,915,000 $ 54,153,000 60,068,000
Other
miscellaneous
properties which
are individually
less than 5%
of total.......... 272,491,000 84,688,000 146,479,000 200,307,000 12,588,000 84,688,000 359,374,000 444,062,000
------------ ------------ ------------ ------------ ----------- ------------ ------------ ------------
$491,013,000 $124,696,000 $254,641,000 $359,638,000 $25,263,000 $124,696,000 $639,542,000 $764,238,000
============ ============ ============ ============ =========== ============ ============ ============

Date of
Accumulated Completion of Date
Description Depreciation(B) Construction Acquired
------------------- --------------- ------------- --------

Rental
office property--
GA.............. $ 6,636,000 1999 1996
Completed
NC.............. 1,700,000 when acquired 2000
Completed
FL.............. 2,486,000 when acquired 1999
Under
CA.............. 8,592,000 Construction 1998
apartment
property--
VA.............. 778,000 2001 1997
Other
miscellaneous
properties which
are individually
less than 5%
of total.......... 29,386,000 Various Various
---------------
$49,578,000
===============

Notes:
(A) Includes related improvements and capitalized carrying costs.
(B) Depreciation is calculated using the straight-line method over the
estimated useful lives which vary from 10 to 40 years.
(C) The aggregate gross cost of the listed property for Federal income tax
purposes was $724,877,560 at November 30, 2001.
(D) The listed real estate includes operating properties completed or under
construction.
(E) Reference is made to Notes 1, 6 and 10 of the consolidated financial
statements.
(F) The changes in the total cost of real estate properties and accumulated
depreciation for the three years ended November 30, 2001 are as follows (in
thousands):

2001 2000 1999
--------- --------- ---------

Cost:
Balance at beginning of year.............. $ 859,267 1,005,652 746,748
Additions, at cost........................ 159,040 335,239 446,922
Cost of real estate sold.................. (238,873) (152,016) (169,642)
Transfers................................. (15,196) (329,608) (18,376)
--------- --------- ---------
Balance at end of year.................. $ 764,238 859,267 1,005,652
========= ========= =========
Accumulated depreciation:
Balance at beginning of year.............. $ 47,826 39,192 39,943
Depreciation and amortization charged
against earnings......................... 20,837 27,850 24,637
Depreciation on real estate sold.......... (17,674) (8,663) (22,441)
Transfers................................. (1,411) (10,553) (2,947)
--------- --------- ---------
Balance at end of year.................. $ 49,578 47,826 39,192
========= ========= =========

LNR PROPERTY CORPORATION AND SUBSIDIARIES

Schedule IV
Mortgage Loans on Real Estate
November 30, 2001

Principal
Amount of
Loans
Subject to
Carrying Delinquent
Final Principal Amount of Principal
Maturity Prior Amount of Mortgages or
Description Interest Rate Date Periodic Payment Terms Liens Mortgages (A)(B)(C) Interest
----------- -------------- --------- ---------------------- ----- ------------ ----------- ----------

B-Notes secured by real estate:
Office building/Retail center-
TX, GA, MN................... Libor + 650 2003 Interest Only $ 39,998,000 39,998,000
Office building--CA........... Libor + 671 2003 Interest Only 35,000,000 34,069,000
Mixed use--MA................. Libor + 675 2004 Interest Only 34,500,000 34,500,000
Hotel--FL, CA & NY............ Libor + 750 2002 Interest Only 30,000,000 30,000,000
Hotel--NY..................... Libor + 700 2002 Interest Only 21,000,000 21,000,000
Retail center--CA............. Libor + 750 2003 Interest Only 15,000,000 15,000,000
Convention center--VA......... Libor + 700 2003 Interest Only 14,600,000 14,600,000
Hotel--FL, CA, TN, OH, NC &
NY........................... Libor + 555 2003 Interest Only 12,835,000 12,835,000
Apartment communities--CA..... Libor + 625 2002 Interest Only 12,100,000 12,100,000
Hotel--TN..................... Libor + 700 2004 Interest Only 10,000,000 9,900,000
Office building--CA........... Libor + 530 2004 Interest Only 10,000,000 9,575,000
Office building--NY........... Libor + 580 2002 Interest Only 9,000,000 9,000,000
------------ -----------
244,033,000 242,577,000
------------ -----------
Other loans secured by real
estate:
Apartment communities--AZ..... 6.50% 2002 Interest Only 24,046,000 24,046,000
Office building--FL........... Libor + 200 2002 Principal and Interest 24,404,000 24,404,000
Office building--CA........... 7.25% 2003 Varying Payment 16,139,000 14,531,000
Other......................... 6.00% - 11.75% 2002-2011 Various 5,271,000 4,374,000
------------ -----------
69,860,000 67,355,000
------------ -----------
Second mortgage notes secured
by real estate:
Apartment communities--TX..... Prime + 550 2004 Varying Payment 4,710,000 4,710,000
Apartment communities--GA..... 12.00% 2002 Interest Only 4,000,000 4,000,000
Residential development--CA... 13.00% 2001 Varying Payment 3,545,000 3,545,000 3,545,000
Apartment communities--TX..... Prime + 550 2004 Varying Payment 3,325,000 3,325,000
Residential development--CA... 22.00% 2003 Varying Payment 2,787,000 2,787,000
Residential development--CA... 22.00% 2002 Varying Payment 2,144,000 2,144,000
Residential development--CA... 22.00% 2003 Varying Payment 1,977,000 1,977,000
Residential development--CA... 10.50% 2004 Varying Payment 1,587,000 1,587,000
------------ ----------- ---------
24,075,000 24,075,000 3,545,000
------------ ----------- ---------
337,968,000 334,007,000
Loan Loss Reserve.............................................................. (2,490,000)
------------ ----------- ---------
$337,968,000 331,517,000 3,545,000
============ =========== =========

-------
Notes:
(A) For Federal income tax purposes, the aggregate basis of the listed
mortgages was $336,127,000 at November 30, 2001.
(B) Carrying amounts are net of unaccreted discounts.
(C) The changes in the carrying amounts of mortgages for the years ended
November 30, 2001, 2000 and 1999 are as follows:

2001 2000 1999
------------- ----------- -----------

Balance at beginning of year.......... $ 243,987,000 152,827,000 97,855,000
Additions (deductions):
New mortgage loans, net.............. 195,830,000 164,655,000 83,901,000
Collections of principal............. (113,413,000) (74,806,000) (30,885,000)
Accretion of discount................ 5,290,000 1,177,000 1,091,000
Change in loan loss reserve.......... (452,000) -- 910,000
Other................................ 275,000 134,000 (45,000)
------------- ----------- -----------
Balance at end of year................ $ 331,517,000 243,987,000 152,827,000
============= =========== ===========

EXHIBIT INDEX

Exhibit
Number Description
------- -----------

10.13 LNR Property Corporation 2001 Senior Officers Stock Purchase Plan.

11.1 Statement Regarding Computation of Earnings Per Share.

21.1 List of Subsidiaries.

23.1 Consent of Deloitte & Touche LLP.

23.2 Consent of Deloitte & Touche LLP.

23.3 Consent of Ernst & Young LLP.