About Arbor Realty Trust

Arbor Realty Trust, Inc. and subsidiaries (Arbor) operate as a nationwide REIT and direct lender, providing loan origination and servicing for commercial real estate assets. Segments The company operates through two business segments: Structured Loan Origination and Investment Business, or ‘Structured Business’; and Agency Loan Origination and Servicing Business, or ‘Agency Business’. Structured Business Through the company’s Structured Business, the company invests in a diversified portfolio of structured finance assets in the multifamily, single-family rental (‘SFR’) and commercial real estate markets, primarily consisting of bridge loans, in addition to mezzanine loans, junior participating interests in first mortgages and preferred and direct equity. The company also invests in real estate-related joint ventures and may directly acquire real property and invest in real estate-related notes and certain mortgage-related securities. Agency Business Through the company’s Agency Business, the company originates, sells and services a range of multifamily finance products through the Federal National Mortgage Association (‘Fannie Mae’) and the Federal Home Loan Mortgage Corporation (‘Freddie Mac,’ and together with Fannie Mae, the government-sponsored enterprises, or ‘GSEs’), the Government National Mortgage Association (‘Ginnie Mae’), Federal Housing Authority (‘FHA’) and the U.S. Department of Housing and Urban Development (together with Ginnie Mae and FHA, ‘HUD’). The company retains the servicing rights and asset management responsibilities on substantially all loans the company originates and sells under the GSE and HUD programs. The company is an approved Fannie Mae Delegated Underwriting and Servicing (‘DUS’) lender nationally, a Freddie Mac Multifamily Conventional Loan lender, seller/servicer, in New York, New Jersey and Connecticut, a Freddie Mac affordable, manufactured housing, senior housing and small balance loan (‘SBL’) lender, seller/servicer, nationally and a HUD MAP and LEAN senior housing/healthcare lender nationally. The company also originates and retains the servicing rights on permanent financing loans that are generally underwritten using the guidelines of the company’s existing agency loans sold to the GSEs, which the company refers to as ‘Private Label’ loans, and originate and sell finance products through conduit/commercial mortgage-backed securities (‘CMBS’) programs. The company either sells the Private Label loans instantaneously or pool and securitizes them and sells certificates in the securitizations to third party investors, while retaining the highest risk bottom tranche certificate of the securitization (‘APL certificates’). Substantially all of the company’s operations are conducted through its operating partnership, Arbor Realty Limited Partnership (‘ARLP’), for which the company serves as the indirect general partner, and ARLP’s subsidiaries. The company is organized to qualify as a real estate investment trust (‘REIT’) for the U.S. federal income tax purposes. Certain of the company’s assets that produce non-qualifying REIT income, primarily within the Agency Business, are operated through taxable REIT subsidiaries (‘TRS’), which are part of the company’s TRS consolidated group (the ‘TRS Consolidated Group’) and are subject to the U.S. federal, state and local income taxes. The company provides a suite of comprehensive customized financing solutions to meet the various needs of borrowers. It targets borrowers whose options may be limited by conventional bank financing, have demonstrated a history of enhancing the value of the properties they operate and who may benefit from the customized financing solutions the company offers. Business Strategy The company has an annuity-based business model that drives its diversified income streams to produce consistent earnings growth and to maximize the total return to the company’s stockholders. In the company’s Structured Business, the company’s primary focus is on maximizing the interest margin on the company’s loans (yield on investments less cost to finance investments) and growing the company’s loan portfolio, which also provides a pipeline to growth in the company’s Agency/GSE servicing portfolio. In the company’s Agency Business, the company’s primary focus is growing the fees generated from the company’s origination platform and the stable earnings associated with the company’s servicing portfolio. The company employs various investment strategies, such as providing customized financing; executing transactions rapidly; and long-established relationships with GSEs. A critical component of the company’s strategy is its ability to manage the real estate risks associated with its investment portfolio. Primary Targeted Investments The company pursues short-term and long-term lending and investment opportunities and primarily targets transactions. The company’s primary focus has been, and continues to be, first mortgage lending in the highly attractive and stable multifamily real estate sector. Through the company’s Structured Business, the company offers the following investment types: Bridge Financing. The company offers bridge financing products to borrowers who are typically seeking short-term capital to use in an acquisition of property. The borrower has usually identified an undervalued asset that has been under managed and/or is in a recovering market. From the borrower’s perspective, shorter term bridge financing is advantageous because it allows for time to improve the property value without encumbering it with restrictive, long-term debt that may not reflect optimal leverage for a non-stabilized property. The company’s bridge loans are predominantly secured by first mortgage liens on the properties. Additional yield enhancements may include origination fees, deferred interest, yield look-backs, and participating interests, which are equity interests in the borrower that share in a percentage of the underlying cash flows of the property. Borrowers typically use the proceeds of a conventional mortgage, such as the company’s GSE/agency loans, to repay a bridge loan. SFR Portfolio Financing. The company offers various financing products to borrowers who are looking to acquire conventional, workforce and affordable single-family rental housing. These borrowers are usually looking to purchase properties to hold for the long-term with permanent financing or acquire investments to develop with bridge, build-to-rent or line of credit financing options. Mezzanine Financing. The company offers mezzanine financing in the form of loans that are subordinate to a conventional first mortgage loan and senior to the borrower’s equity in a transaction. Mezzanine financing may take the form of loans secured by pledges of ownership interests in entities that directly or indirectly control the real property or subordinated loans secured by second mortgage liens on the property. The company may also require additional security, such as personal guarantees, letters of credit and/or additional collateral unrelated to the property. Similar to the company’s bridge loans, the yield on these investments may be enhanced by prepaid and deferred interest payments, yield look-backs and participating interests. The company holds a majority of its mezzanine loans through subsidiaries of the company’s operating partnership that are pass-through entities for tax purposes. Preferred Equity Investments. The company provides financing by making preferred equity investments in entities that directly or indirectly own real property. In cases where the terms of a first mortgage prohibit additional liens on the ownership entity, such as in mezzanine financing, investments structured as preferred equity in the entity owning the property serve as viable financing substitutes. With preferred equity investments, the company typically become a member in the ownership entity. Similar to the company’s bridge loans, the yield on these investments may be enhanced by prepaid and deferred interest payments, yield look-backs and participating interests. Junior Participation Financing. The company offers junior participation financing in the form of a junior participating interest in the senior debt. Junior participation financings have the same obligations, collateral and borrower as the senior debt. The junior participation interest is subordinated to the senior debt by virtue of a contractual agreement between the senior debt lender and the junior participating interest lender. Similar to the company’s bridge loans, the yield on these investments may be enhanced by prepaid and deferred interest payments, yield look-backs and participating interests. Structured Transactions. The company also periodically invests in structured transactions, which are primarily consisted of joint ventures formed to acquire, develop and/or sell real estate-related assets. These joint ventures are generally not majority owned or controlled by the company and are primarily accounted for under the equity method of accounting. Through the company’s Agency Business, the company focuses primarily on the following investment types: GSE and HUD Agency Lending. The company is one of 25 approved lenders that participate in Fannie Mae’s DUS program and one of 22 lenders approved as a Freddie Mac Multifamily Conventional Loan lender for multifamily, manufactured, student, affordable and certain seniors housing properties, one of 12 participants in the Freddie Mac SBL program and an approved HUD MAP and LEAN lender providing construction permanent loans to developers and owners of multifamily housing, affordable housing, seniors housing and healthcare facilities. The company underwrites, originates, sells and services multifamily mortgage loans across the U.S. through the GSE and HUD programs; and also originates and sells loans through the conduit markets. The company’s focus is primarily on small balance loans. Private Label. The company underwrites, originates and services 5 to 10 year fixed rate permanent financing loans underwritten using similar guidelines of the company’s existing agency loans sold to the GSEs. The company either sells the Private Label loans instantaneously or pool and securitizes them and sells certain certificates in the securitizations to third party investors, while retaining the APL certificates. SFR Fixed Rate. The company underwrites, originates and services long-term permanent fixed rate loans on SFR properties. The loans are subsequently sold to third party investors while retaining mortgage servicing. The company retains the servicing rights and asset management responsibilities on substantially all Agency Business loans. Other Investment Opportunities Real Property. The company obtains real estate by foreclosure, through partial or full settlement of mortgage debt related to the company’s loans. The company may identify such assets and initiate an asset-specific plan to maximize the value of the investment, which may include appointing a third party property manager, renovating the property, leasing or increasing occupancy, or selling the asset. As such, these transactions may require the use of additional capital prior to completion of the specific plan. Debt Securities. The company invests in bond securities, such as those issued by Freddie Mac SBL securitizations from loans originated under the Freddie Mac SBL program and APL certificates. These securities are generally carried at cost and are often purchased at a discount to their face value, which is accreted into interest income, if deemed collectable, over the expected remaining life of the related security as a yield adjustment. Agency Business Lending and Servicing One of the Agency Business’s primary sources of revenue are the gains and fees recognized from the origination and sale of mortgage loans. The company’s Private Label loans are either sold instantaneously or pooled and securitized, or sold, generally within 180 days of loan origination. The company also retains the mortgage servicing rights (‘MSRs’) on substantially all loans the company originates. Operations The following describes the company’s lending and investment process for both the company’s Structured and Agency Businesses. Origination. The company has a network of sales and support offices in California, Florida, Indiana, Maryland, Massachusetts, Michigan, New Jersey, New York and Pennsylvania that staff 26 loan originators who solicit property owners, developers, and mortgage loan brokers. In some instances, the originators accept loan applications, which meet the company’s underwriting criteria from a select group of mortgage loan brokers. Once potential borrowers have been identified, the company determines which of its financing products best meet the borrower’s needs. Loan originators in every sales office can offer borrowers the full array of finance products for both the Structured and Agency businesses. After identifying a suitable product, the company works with the borrower to prepare a loan application. Upon completion by the borrower, the application is forwarded to the company’s underwriters for due diligence. Servicing. The company services all loans and investments through the company’s internal loan servicing department in Tonawanda, New York. The company’s loan servicing operations are designed to provide prompt customer service and accurate and timely information for account follow up, financial reporting and management review. Following the funding of an approved loan, all pertinent loan data is entered into the company’s data processing system, which provides monthly billing statements, tracks payment performance and processes contractual interest rate adjustments on variable rate loans. The servicing group works closely with the company’s asset management group to ensure the appropriate level of customer service and monitoring of loans. For most loans serviced under the Fannie Mae DUS program, the company is required to advance, in the event of a borrower failing to pay, the principal and interest payments and tax and insurance escrow amounts associated with a loan for four months. The company is reimbursed by Fannie Mae for these advances, which may be used to offset any losses incurred under the company’s risk-sharing obligations once the loan and the related loss share is settled. Federal and State Regulation of Commercial Real Estate Lending Activities The company is required to comply with certain provisions of, among other statutes and regulations, the USA PATRIOT Act, regulations promulgated by the U.S. Department of the Treasury’s Office of Foreign Asset Control and other federal and state securities laws and regulations. Tax Status The company has elected to be taxed as a real estate investment trust (REIT) under the Internal Revenue Code of 1986, as amended. As a result, the company is not subject to Federal or State income taxation at the corporate level to the extent it distributes annually approximately 90% of its REIT taxable income to its shareholders and satisfies certain other requirements. History Arbor Realty Trust, Inc., a Maryland corporation, was founded in 2003. The company was incorporated in 2003.