Gramercy Capital Corp. Reports Third Quarter 2012 Financial Results

  Gramercy Capital Corp. Reports Third Quarter 2012 Financial Results

Business Wire

NEW YORK -- November 08, 2012

Gramercy Capital Corp. (NYSE: GKK):

THIRD QUARTER HIGHLIGHTS

  *For the quarter, the Company generated funds from operations, or FFO, of
    $1.3 million for the third quarter of 2012, an increase of $19.9 million
    from FFO of negative $(18.6) million generated in the prior quarter. On a
    fully diluted per common share basis, FFO was $0.03 for the third quarter
    of 2012 as compared to FFO of negative $(0.37) in the prior quarter. For
    the quarter, net loss to common stockholders was $(4.7) million, or
    $(0.09) per diluted common share, as compared to the net loss of $(21.5)
    million, or $(0.42) per diluted common share, for the prior quarter. The
    increase in FFO for the quarter was primarily attributable to the reversal
    of $16.4 million of provisions for loan losses in the Gramercy Finance
    segment and a $2.1 million reduction in provision for taxes which were
    partially offset by a $5.4 million litigation reserve related to the
    Gramercy Finance segment.
  *Held an investor call on September 28, 2012 to present the operational
    review of the Company’s existing assets and operations and to highlight
    the Company’s implementation of its new investment strategy of investing
    in net lease office and industrial properties.
  *Announced the acquisition of a 115-property office portfolio, or the Bank
    of America Portfolio, from an affiliate of KBS Real Estate Investment
    Trust, Inc., or KBS, in a joint venture with an affiliate of Garrison
    Investment Group, for a purchase price of $470.0 million in cash plus the
    issuance of six million shares of the Company’s common stock, valued at
    $15.0 million at the execution date of the purchase agreement. The
    acquisition is expected to close at the end of November 2012.
  *Entered into a contract to acquire two Class A industrial properties
    located near Indianapolis, Indiana totaling approximately 540,000 square
    feet for a purchase price of approximately $27.2 million.
  *Entered into a letter of intent to buy a portfolio of industrial buildings
    totaling approximately 1,000,000 square feet. The initial cap rate is
    expected to be in excess of 8.5%. However, there is no assurance that the
    transaction will be consummated on the terms described or at all.
  *Engaged Wells Fargo Securities LLC to assist in the potential sale of CDO
    management contracts, CDO securities and CDO equity.
  *Invested $19.0 million in the origination of the KBS mezzanine loan which
    KBS will pay off with the proceeds of the Bank of America Portfolio
    acquisition. The KBS mezzanine loan accounted for the decrease in
    unrestricted corporate cash of $175.2 million at quarter end, as compared
    to approximately $192.6 million reported in the prior quarter. In
    addition, as of September 30, 2012, the Company holds an aggregate of
    $45.4 million of par value Class A-1, A-2 and B securities previously
    issued by the Company’s collateralized debt obligations, or CDOs, that are
    available for re-issuance. The fair value of the repurchased CDO bonds was
    approximately $36.2 million and the amount owed from the CDOs to the
    Company for servicing advances is approximately $10.2 million as of
    September 30, 2012.

SUMMARY

Gramercy Capital Corp. (NYSE: GKK) today reported FFO of $1.3 million, or
$0.03 per diluted common share, and net loss available to common stockholders
of $(4.7) million, or $(0.09) per diluted common share for the quarter ended
September 30, 2012. The Company generated total revenues of $29.5 million
during the third quarter, an increase of $0.6 million from $28.9 million
generated during the prior quarter. At September 30, 2012, the Company owned
approximately $919.0 million of loan investments, $891.7 million of commercial
mortgage–backed real estate securities, or CMBS, $175.2 million of
unrestricted cash, $85.7 million of commercial real estate and $164.7 million
in other assets. As of September 30, 2012, approximately 41.1% of the
Company’s assets were comprised of debt investments, 39.9% of CMBS, 7.8% of
unrestricted cash, 3.8% of commercial real estate and 7.4% of other assets.

The Company’s businesses are organized into two business segments supported by
a corporate balance sheet with a strong liquidity position and no recourse
debt obligations.

The Company’s commercial real estate finance business, which operates under
the name Gramercy Finance, currently manages approximately $1.8 billion of
whole loans, bridge loans, subordinate interests in whole loans, mezzanine
loans, preferred equity, CMBS, and other real estate related securities which
are financed primarily through three non-recourse CDOs. The Company has
announced that it is pursuing the sale of this business line in order to focus
on the business of net lease investment, to increase its liquidity and capital
availability and to decrease its cost structure.

The Company’s property management and investment business, which operates
under the name Gramercy Realty, currently manages approximately $1.9 billion
of commercial properties leased primarily to regulated financial institutions
and affiliated users throughout the United States for KBS.

A summary of the Company’s financial position and operations by business segment
and on a consolidated basis as of and for the three months ended September 30, 2012
is as follows:
                                                                  
                Corporate    Finance        Realty      Interco        Consolidated
                             Segment        Segment     Eliminations
Total real
estate          $ -          $ 38,255       $ 28,606    $  -           $  66,861
investments,
net
Cash and cash     173,644      -              1,573        -              175,217
equivalents
Loans and other
lending
investments and   -            1,837,841      -            (27,226)       1,810,615
commercial
mortgage-backed
securities
Repurchased
collateralized    45,367       -              -            (45,367)       -
debt obligation
bonds
Other assets     -           175,966       7,737       (83)          183,620
Total assets    $ 219,011    $ 2,052,062    $ 37,916    $  (72,676)    $  2,236,313
                                                                       
Collateralized
debt            $ -          $ 2,333,973    $ 27,226    $  (72,593)    $  2,288,606
obligations
Derivative        -            183,742        -            -              183,742
instruments
Dividends         28,647       -              -            -              28,647
payable
Other            -           23,004        5,535       (83)          28,456
liabilities
Total            28,647      2,540,719     32,761      (72,676)      2,529,451
liabilities
                                                                       
Total equity     190,364     (488,657)     5,155       -             (293,138)
(deficit)
Total
liabilities and $ 219,011    $ 2,052,062    $ 37,916    $  (72,676)    $  2,236,313
equity
(deficit)
                                                                       
Revenues:
Net interest    $ -          $ 15,948       $ -         $  -           $  15,948
income
Net rental        -            789            953          -              1,742
revenues
Management fees   -            -              8,833        -              8,833
Other revenue    -           2,962         8           -             2,970
^(1)
Total revenues   -           19,699        9,794       -             29,493
                                                                       
Expenses:
Property
operating         -            7,305          6,338        -              13,643
expenses
Impairment and    -            (1,000)        -            -              (1,000)
loan losses
Management,
general and       17,106       -              -            -              17,106
administrative
Depreciation     -           150           187         -             337
Total expenses   17,106      6,455         6,525       -             30,086
Loss from
continuing
operations      $ (17,106)   $ 13,244       $ 3,269     $  -           $  (593)
before
provision for
taxes
                                                                          
^(1) Includes
equity in net
income from
joint venture.

The Company’s GAAP book value per common share is negative $(7.25) per share,
or $(379.3) million at September 30, 2012.Of the negative book value,
approximately negative $(488.7) million, or $(9.27) per common share, is
attributable to the Company’s commercial real estate finance business,
substantially all of which is financed by the Company’s CDOs.While the assets
and liabilities in the CDOs are consolidated on the Company’s books for GAAP
purposes, the Company’s exposure to loss is limited to its investment in each
CDO.The negative book value of the commercial real estate finance business is
primarily attributable to impairments and mark-to-market adjustments made to
the loan and CMBS investments financed in the CDOs in excess of the Company’s
equity investment in each CDO.Due to the non-recourse nature of the CDOs,
ultimately, any loss in excess of the CDO liabilities outstanding will not be
realized by the Company.

NEW BUSINESS STRATEGY

Following a strategic review process which was completed in the second quarter
of 2012, the Company’s Board of Directors concluded that the most attractive
alternative available to the Company is to remain independent and to focus on
building value by deploying the Company's capital into income-producing net
leased real estate focused on office and industrial properties. On July 1,
2012, Gordon F. DuGan became the Company’s Chief Executive Officer to lead the
new business effort. An operational review of the Company's existing assets
commenced with the goal of reducing the current cost structure, further
strengthening the balance sheet and determining which legacy assets and
operations complement the new investment strategy. On September 28, 2012, the
Company held an investor call presenting the findings of the operational
review and highlighting the new go-forward business strategy for the Company.
Presentation materials for the September 28, 2012 investor presentation can be
found on the Company’s website (www.gkk.com) in the investor relations section
under “Supplemental Reports”. The Company underlined its main operational
goal, which is to develop recurring cash flows from the investment of the
Company’s cash into a portfolio of net lease investments, which are expected
to be primarily office and industrial properties, simplifying and streamlining
the business, reducing management, general and administrative costs, managing
liquidity for investment and ultimately growing the equity base of the
Company.

Commencing with the Bank of America Portfolio, which is expected to close at
the end of November 2012 and is more fully described below, investments
initially will be funded from existing financial resources. Subject to market
conditions, the Company expects to seek to raise additional debt and/or equity
capital to support further growth.

The Company also announced a plan to potentially market for sale its CDO
Management contracts, CDO securities and CDO equity, in whole, part or in
joint venture, and has engaged Wells Fargo Securities LLC to assist in the
process. The Company is pursuing a sale of the business line as a means to: 1)
focus the business on net lease investments; 2) increase its liquidity and
capital availability; and 3) decrease its cost structure.

BANK OF AMERICA PORTFOLIO ACQUISITION

In August, the Company formed a joint venture with an affiliate of Garrison
Investment Group, to acquire a 115-property office portfolio, or the Bank of
America Portfolio, from KBS, for $485.0 million ($87 per SF) including $470.0
million in cash consideration and the issuance of six million shares of the
Company’s common stock, valued at $15.0 million at the execution date of the
purchase agreement. The purchase price reflects an 8.5% cap rate. The
portfolio was previously part of the Company’s Gramercy Realty division,
beneficial ownership of which was transferred to KBS pursuant to a collateral
transfer and settlement agreement dated September 1, 2011. The portfolio
totals approximately 5.6 million rentable square feet with a total portfolio
occupancy of 88%. Approximately 81% of the portfolio is leased to Bank of
America, N.A., under an 11-year master lease. The Company’s asset strategy for
this portfolio acquisition is to sell non-core, multi-tenant assets and retain
a core net-lease portfolio of high quality assets in primary and strong
secondary markets, primarily leased to Bank of America. The purchase agreement
with KBS allowed the joint venture to market for sale non-core assets prior to
the closing of the portfolio acquisition. Currently, under contracts for sale
to third parties are a 1,000,000 square foot multi-tenant property in Chicago,
IL and a 400,000 square foot multi-tenant property in Charlotte, NC, both of
which the Company believes are expected to close simultaneously with the
portfolio acquisition. The joint venture is expected to finance the
acquisition of the portfolio with a non-recourse first mortgage loan of up to
$200.0 million provided by a large institutional lender. The loan will be
secured primarily by the core portfolio of assets expected to be retained by
the joint venture. In addition to the Company’s share of income from the
portfolio pursuant to the joint venture agreement, the Company will receive an
asset management fee for the portfolio management as well as a performance
based fee for management of the portfolio. Assuming the execution of the asset
sales and financing, the Company expects to have approximately $75.0 million
of equity invested into the joint venture, comprised of approximately $60.0
million in cash and $15.0 million in shares of the Company’s common stock.

Simultaneously with the execution of the purchase agreement for the Bank of
America Portfolio, one of our affiliates and an affiliate of Garrison
Investment Group, funded 50% as co-lenders, an approximately $39.0 million
mezzanine loan to certain affiliates of KBS and is guaranteed by KBS. The
mezzanine loan had a 1% origination fee, bears interest at 10% per annum and
has a stated maturity of April 1, 2013. The loan is deemed matured upon the
joint venture’s completion of the purchase of the Bank of America portfolio,
and any outstanding loan balance will be applied as a credit against the
purchase price at closing. As of September 30, 2012, the Company’s portion of
the mezzanine loan had an outstanding balance of $19.3 million. In October
2012, at the request of the borrower, the $6.0 million was applied in
reduction of the principal balance of the loan.

We have also agreed that, effective upon the acquisition of the Bank of
America Portfolio by the joint venture, the base management fee paid by KBS to
our affiliate to manage the former Gramercy Realty portfolio will be reduced
from $12.0 million to $9.0 million per year. Approximately $1.0 million of fee
revenues are expected to be generated from the joint venture, offsetting in
part, the decline in fee revenue from the management agreement with KBS.

INDIANAPOLIS INDUSTRIAL ACQUISITION

The Company has executed a $27.1 million ($50 per SF) purchase and sale
agreement to acquire two recently constructed Class A industrial properties
totaling 539,588 square feet located in the Indianapolis metropolitan area.
The portfolio is 100% leased to three credit tenants with a 10.2-year weighted
average lease term.

The acquisition represents an 8.4% cap rate (GAAP basis). The transaction is
subject to the Company’s due diligence and other closing conditions, and is
expected to close in the fourth quarter of 2012.

INDUSTRIAL PORTFOLIO SALE-LEASEBACK

The Company entered into a letter of intent to buy a portfolio of industrial
buildings totaling approximately 1,000,000 square feet. The initial cap rate
is expected to be in excess of 8.5%. However, there is no assurance that the
transaction will be consummated on the terms described or at all.

CORPORATE

As of September 30, 2012, the Company maintained $175.2 million of
unrestricted cash as compared to approximately $192.6 million reported as of
June 30, 2012. In addition, as of September 30, 2012, the Company held an
aggregate of $41.4 million of par value Class A-1, A-2 and B CDO securities
previously issued by the Company’s CDOs that were available for re-issuance.
The aggregate fair value of the repurchased CDO bonds was $32.9 million as of
September 30, 2012.

A substantial portion of the Company’s cash flow has been historically
generated by distributions from its CDOs within the Gramercy Finance segment.
The Company's CDOs contain minimum interest coverage and asset
overcollateralization covenants that must be satisfied for the Company to
receive cash flow on the interests in its CDOs retained by the Company and to
receive the subordinate collateral management fees. During periods when these
covenants are not satisfied for a particular CDO, cash flows from that CDO
that would otherwise be paid to the Company as a subordinate bondholder,
holder of the preferred shares and in respect of the subordinate collateral
management fee are diverted from the Company to repay principal and interest
on the senior-most outstanding CDO bonds. The Company’s 2005 CDO failed its
overcollateralization test in October 2012, the most recent distribution date,
and previously failed it overcollateralization tests at the July 2012, October
2011, April 2011 and January 2011 distribution dates. The Company’s 2006 CDO
failed its overcollateralization test at the October 2012 distribution date.
The Company’s 2007 CDO failed its overcollateralization test beginning with
the November 2009 distribution date. It is unlikely that the Company’s 2005,
2006 and 2007 CDO’s overcollateralization tests will be satisfied in the
foreseeable future. During periods when the overcollateralization tests for
the Company’s CDOs are not met, cash flows that the Company would otherwise
receive are significantly curtailed. The following chart summarizes the CDO
compliance tests as of the most recent distribution dates (October 25, 2012
for the Company’s 2005 and 2006 CDOs and August 15, 2012 for the Company’s
2007 CDO):

      Cash Flow Triggers           CDO 2005-1     CDO 2006-1     CDO
                                                                     2007-1
       Overcollateralization
       ^(1)
       Current                       104.44%         95.17%          81.55%
       Limit                         117.85%         105.15%         102.05%
       Compliance margin             -13.41%         -9.98%          -20.50%
       Pass/Fail                     Fail            Fail            Fail
       Interest Coverage ^(2)                                      
       Current                       369.49%         479.91%         N/A
       Limit                         132.85%         105.15%         N/A
       Compliance margin             236.64%         374.76%         N/A
       Pass/Fail                     Pass            Pass            N/A
                                                                     
       The overcollateralization ratio divides the total principal balance of
       all collateral in the CDO by the total bonds outstanding for the
       classes senior to those retained by the Company. To the extent an asset
       is considered a defaulted security, the asset’s principal balance is
  ^(1) multiplied by the asset’s recovery rate which is determined by the
       rating agencies. For a defaulted security with a CUSIP that is actively
       traded, the lower of market value or the product of the security’s
       principal balance multiplied by the asset’s recovery rate, as
       determined by the rating agencies, is used for the
       overcollateralization ratio.
       
  ^(2) The interest coverage ratio divides interest income by interest expense
       for the classes senior to those retained by the Company.
       

Cash flows generated from the Company’s CDOs with respect to its ownership of non-investment
grade bonds, preferred equity and collateral management agreements for the 2011 and year to
date 2012 are summarized as follows:
                                                                               
Collateral Manager Fees and CDO Distributions
        CDO 2005-1                CDO 2006-1                CDO 2007-1                
        Fees      Distributions   Fees      Distributions   Fees      Distributions   Total
Total   $ 1,676   $    5,477      $ 4,452   $    29,528     $ 711     $      -        $ 41,844
2011
1Q      $ 2,399   $    3,495      $ 1,027   $    9,160      $ 172     $      -        $ 16,253
2012
2Q        3,134        1,907        965          6,311        169            -          12,486
2012
3Q        332          -            933          8,238        169            -          9,672
2012
4Q       300         -           380         -           165 (1)                 845
2012
Total   $ 6,165   $    5,402      $ 3,305   $    23,709     $ 675     $      -        $ 39,256
2012
(1) Estimated. Distribution date for CDO 2007-1 is November 15, 2012

Interest expense includes costs related to $2.3 billion of non-recourse
long-term notes issued by the three CDOs that are consolidated on the
Company’s balance sheet. Interest expense was $19.7 million for the three
months ended September 30, 2012, compared to $20.2 million for the three
months ended June 30, 2012.

Management, general and administrative expenses were $17.1 million for the
three months ended September 30, 2012, as compared to $11.9 million in the
prior quarter. The increase in management, general and administrative expenses
is primarily attributable a $5.4 million reserve recorded for estimated
litigation contingencies. Management, general and administrative expenses also
includes one-time increases in salaries and benefits expense of approximately
$1.3 million which include payments to former executives pursuant to the
expiration of employment contracts and the payment of signing bonuses for a
new management team effective July 1, 2012. In addition, management, general
and administrative expense includes approximately $1.9 million of protective
advances related to loan and other lending investments within our CDOs, and
additional professional fees and other loan enforcement costs for the pending
foreclosure of the LVH Hotel and Casino by the Company’s CDOs. Loan
enforcement costs for assets financed in our CDOs are typically advanced by
the Company and reimbursed as servicing advances once the loan is resolved.
The amount owed from the CDOs to the Company for such advances is
approximately $10.2 million as of September 30, 2012.

GRAMERCY FINANCE

Interest income is generated on the Company’s whole loans, subordinate
interests in whole loans, mezzanine loans, preferred equity interests and CMBS
within the Company’s Gramercy Finance division. For the three months ended
September 30, 2012, $27.2 million was earned on fixed rate investments and
$8.5 million was earned on floating rate investments.

Other income of $2.9 million for the three months ended September 30, 2012 is
primarily comprised of operating revenues from properties the Company owns
through foreclosure.

The Company recorded a reduction in its net provision for loan losses of
approximately negative $(16.4) million, or $(0.31) per diluted common share,
for the quarter ended September 30, 2012 which included additional provisions
of $1.5 million, offset by reversals of provisions of approximately $17.9
million due to improved credit of certain underlying collateral. By
comparison, the Company’s net provision for loan loss was approximately $6.0
million, or $0.12 per fully diluted common share, for the prior quarter. The
Company’s reserve for loan losses at September 30, 2012 was approximately
$79.2 million, or approximately 25.1% of the unpaid principal balance, in
connection with 8 separate loans with an aggregate carrying value of
approximately $238.4 million. In addition, the Company recorded non-cash
impairment charges for the three months ended September 30, 2012 of
approximately $15.4 million related to nine CMBS investments deemed to be
other-than-temporarily impaired with an aggregate carrying value of $77.5
million.

Substantially all of the Company’s debt investments and CMBS investments are
owned in one or more of the Company’s three CDOs, except for the Company’s
$19.3 million mezzanine loan to KBS in connection with the execution of the
purchase agreement for the Bank of America Portfolio by the Company’s joint
venture. As of September 30, 2012, debt investments owned by Gramercy Finance
had an aggregate carrying value of approximately $919.0 million, net of loan
loss reserves, impairments, unamortized fees and discounts totaling
approximately $107.0 million. CMBS investments had an aggregate carrying value
of approximately $891.7 million as of September 30, 2012, net of impairments,
unamortized fees, fair value adjustments and discounts of approximately $300.8
million. The Company’s CMBS investments are classified as available-for-sale
and accordingly, such CMBS investments are carried at fair value. Changes in
fair value are not necessarily indicative of current or future changes in cash
flow, which are based on actual delinquencies, defaults and sales of the
underlying collateral, and therefore are not recognized in earnings. Changes
in fair value are reflected in accumulated other comprehensive loss in the
equity section of the Condensed Consolidated Balance Sheet. The Company
continues to monitor all of its CMBS investments for other-than-temporary
impairments. The fair value adjustment for the Company’s CMBS investments as
of September 30, 2012 was approximately $(79.9) million as compared to a fair
value adjustment of $(146.4) million in the preceding quarter.

Loan prepayments, partial repayments and scheduled amortization payments in
Gramercy Finance’s portfolio aggregated $87.9 million for the three months
ended September 30, 2012. As of September 30, 2012, there are no unfunded
commitments associated with existing loans.

First mortgage loans remain the majority of Gramercy Finance’s debt portfolio,
decreasing to 82.5% at September 30, 2012, compared to 83.1% as of June 30,
2012. The weighted average remaining term of Gramercy Finance's debt
investment portfolio as of September 30, 2012 was 2.1 years compared to 2.3
years in the prior quarter. The weighted average remaining term of Gramercy
Finance's combined debt and CMBS portfolio as of September 30, 2012 was 3.1
years compared to 3.3 years in the prior quarter.

The aggregate carrying values, allocated by investment type, and weighted average
yields of Gramercy Finance’s debt and CMBS investments, as of September 30, 2012 and
December 31, 2011 were as follows (dollar amounts in thousands):

                                                                            Floating
                                        Allocation by     Fixed Rate        Rate
            Carrying Value ^(1)        Investment Type  Average Yield    Average
                                                                            Spread over
                                                                            LIBOR ^(2)
             2012        2011        2012    2011     2012    2011     2012  2011
Whole
loans,      $ 583,468     $ 689,685     63.4%    63.8%    -        -        348    331
floating                                                                    bps    bps
rate
Whole
loans,        175,642       202,209     19.1%    18.7%    8.45%    8.35%    -      -
fixed rate
Subordinate
interests
in whole      2,588         25,352      0.3%     2.3%     -        -        250    575
loans,                                                                      bps    bps
floating
rate
Subordinate
interests
in whole      93,350        89,914      10.2%    8.3%     10.30%   10.50%   -      -
loans,
fixed rate
Mezzanine
loans,        21,017        46,002      2.3%     4.3%     -        -        705    860
floating                                                                    bps    bps
rate
Mezzanine
loans,        42,897        23,847      4.7%     2.2%     10.87%   10.34%   -      -
fixed rate
Preferred
equity,       -             3,615       0.0%     0.3%     -        -        0      234
floating                                                                    bps    bps
rate
Preferred
equity,      -            1,295       0.0%     0.1%     0.00%    0.00%    -      -
fixed rate
Subtotal/                                                                   360    370
Weighted     918,962      1,081,919   100.0%   100.0%   9.30%    9.08%    bps    bps
average
CMBS,                                                                       172    96
floating      35,090        47,855      3.9%     6.2%     -        -        bps    bps
rate
CMBS, fixed  856,563      727,957     96.1%    93.8%    8.42%    8.22%    -      -
rate
Subtotal/                                                                   172    96
Weighted     891,653      775,812     100.0%   100.0%   8.42%    8.22%    bps    bps
average
Total       $ 1,810,615   $ 1,857,731   100.0%   100.0%   8.65%    8.48%    350    354
                                                                            bps    bps

(1) Loans and other lending investments are presented net of unamortized fees,
discounts reserves for loan losses, and other adjustments.

In September 2012, the Company, an affiliate of SL Green, and several other
unrelated parties, recapitalized a portfolio of office buildings located in
Southern California through the contribution of an existing preferred equity
investment to a newly formed joint venture. The investment in the joint
venture is held in the Company’s CDOs and had a carrying value of $10.4
million as of September 30, 2012.

At September 30, 2012, Gramercy Finance had one whole loan with a carrying
value of $51.4 million classified as non-performing. At September 30, 2012,
the Company had two whole loans with an aggregate carrying value of $23.3
million and one subordinate interest in a whole loan with an aggregate
carrying value of $3.0 million classified as sub-performing.

During the third quarter of 2012, Gramercy Finance made no acquisitions and
originated one loan, the KBS mezzanine loan in connection with the acquisition
of the Bank of America Portfolio from KBS.

GRAMERCY REALTY

Summarized in the table below are key property portfolio statistics for
Gramercy Realty’s owned portfolio as of September 30, 2012 and December 31,
2011:

            Number of Properties      Rentable Square Feet      Occupancy
             September     December       September     December       September   December
Properties   30,         31,            30,         31,            30,        31,
             2012          2011           2012          2011           2012        2011
Branches     31            41             209,578       261,732        32.1%       28.9%
Office       13            15             362,492       491,084        46.0%       44.7%
Buildings
Total        44            56             572,070       752,816        40.9%       39.2%

In addition to its owned portfolio, Gramercy Realty also manages approximately
$1.9 billion of real estate assets, or the KBS Portfolio, that were
transferred to affiliates of KBS Real Estate Investment Trust, Inc., or KBS,
pursuant to the Settlement Agreement executed in September 2011. The KBS
Portfolio is comprised of 514 bank branches, 273 office buildings and one land
parcel. As of September 30, 2012, the KBS Portfolio aggregated approximately
20.1 million rentable square feet.

Rental revenues and operating expense reimbursements are primarily comprised
of revenue earned on the portfolio of 44 properties owned by Gramercy Realty
as of September 30, 2012.

For the third quarter 2012, Gramercy Realty’s rental revenues totaled
approximately $0.6 million, as compared to prior quarter’s rental revenues of
approximately $0.6 million, inclusive of reclassification adjustments for
discontinued operations.

In addition for the third quarter 2012, Gramercy Realty earned fee revenues of
$8.8 million in property management, asset management and administrative fees
pursuant to the management agreement with an affiliate of KBS for the KBS
Portfolio. Related operating expenses for the owned and managed portfolio
aggregated approximately $6.3 million as compared to prior quarter’s operating
expenses of approximately $6.4 million, inclusive of reclassification
adjustments for discontinued operations.

DIVIDENDS

Beginning with the third quarter of 2008, the Company’s Board of Directors
elected not to pay a dividend on the Company’s common stock. The Company’s
Board of Directors also elected not to pay the Series A preferred stock
dividend of $0.50781 per share beginning with the fourth quarter of 2008. In
the early stages of the implementation of the Company’s new business strategy,
the Company will seek to maximize capital available for investment and,
therefore, expects to continue its policy of not paying dividends on its
preferred or common stock. The Company expects, however, that as the new
business strategy is implemented and sustainable cash flows grow, the Company
will re-evaluate its dividend policy with the intention of resuming dividends
to stockholders. In accordance with the provisions of the Company’s charter,
the Company may not pay any dividends on its common stock until all accrued
dividends and the dividend for the then current quarter on the Series A
preferred stock are paid in full.

COMPANY PROFILE

Gramercy Capital Corp. is a self-managed, integrated commercial real estate
investment and asset management company. The Company’s Gramercy Realty
division currently manages approximately $1.9 billion of commercial properties
leased primarily to regulated financial institutions and affiliated users
throughout the United States. The Gramercy Finance division manages
approximately $1.8 billion of whole loans, bridge loans, subordinate interests
in whole loans, mezzanine loans, preferred equity, commercial mortgage-backed
securities and other real estate securities which are financed through three
non-recourse CDOs, and whose The Company is headquartered in New York City and
has regional investment and portfolio management offices in Jenkintown,
Pennsylvania, Charlotte, North Carolina, and St. Louis, Missouri.

To review the Company’s latest news releases and other corporate documents,
please visit the Company's website at www.gkk.com or contact Investor
Relations at 212-297-1000.

CONFERENCE CALL

The Company's executive management team will host a conference call and audio
webcast on Thursday, November 8, 2012, at 2:00 PM EDT to discuss third quarter
2012 financial results.

The live call will be webcast in listen-only mode on the Company’s website at
www.gkk.com and on Thomson’s StreetEvents Network. The presentation may also
be accessed by dialing (888) 771-4371 - Domestic or (847) 585-4405 -
International, using pass code ”GRAMERCY”.

A replay of the call will be available from November 8, 2012 at 4:30 PM EDT
through November 11, 2012 at 11:59 PM EDT by dialing (888) 843-7419 - Domestic
or (630) 652-3042 - International, using pass code 4726 3729#.

DISCLAIMER

Non GAAP Financial Measures

The Company has used non-GAAP financial measures as defined by SEC Regulation
G in this press release. A reconciliation of each non-GAAP financial measure
and the comparable GAAP financial measure can be found on page 15 of this
release. (GKK-EN)

FORWARD-LOOKING INFORMATION

This press release contains forward-looking information based upon the
Company's current best judgment and expectations. Actual results could vary
from those presented herein. The risks and uncertainties associated with
forward-looking information in this release include, but are not limited to,
factors that are beyond the Company's control, including those listed in the
Company's Annual Report on Form 10-K and in the Company's Quarterly Reports on
Form 10-Q. The Company undertakes no obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. For further information, please refer to the Company's
filings with the SEC.

Selected Financial Data:

                            Gramercy Capital Corp.
       Condensed Consolidated Statements of Comprehensive Income (Loss)
       (Unaudited, dollar amounts in thousands, except per share data)

                     Three Months Ended September    Nine Months Ended September
                     30,                                30,
                                                                    
                     2012           2011                2012           2011
                                                                       
Revenues:
Interest income      $ 35,682       $ 39,185            $ 110,477      $ 119,444
Less: Interest        19,734        20,286             60,297        60,898
expense
Net interest income    15,948         18,899              50,180         58,546
Other revenues:
Management fees        8,833          1,045               26,762         1,045
Rental revenue         1,347          1,235               4,026          4,054
Operating expense      395            340                 1,120          1,098
reimbursements
Other income          2,939         12,785             6,831         35,335
Total revenues         29,462         34,304              88,919         100,078
                                                                       
Expenses:
Property operating
expenses:
Real estate taxes      359            360                 1,129          1,003
Utilities              363            439                 1,229          1,425
Ground rent and
leasehold              214            142                 784            566
obligations
Property and
leasehold              3,725          -                   3,725          -
impairments
Direct billable        14             -                   50             4
expenses
Other property        8,968         (985)              26,554        7,394
operating expenses
Total property         13,643         (44)                33,471         10,392
operating expenses
                                                                       
Other-than-temporary   4,246          25,589              60,662         31,499
impairment
Portion of
impairment             11,126         (19,936)            (9,216)        (19,809)
recognized in other
comprehensive loss
Impairment on loans   -             -                  1,000         -
held for sale
Net impairment
recognized in          15,372         5,653               52,446         11,690
earnings
Depreciation and       337            315                 944            921
amortization
Management, general    17,106         9,995               35,745         23,478
and administrative
Provision for /
(recoveries of) loan  (16,372)      10,199             (7,838)       46,482
loss
Total expenses        30,086        26,118             114,768       92,963
                                                                       
Income (loss) from
continuing
operations before
equity in              (624)          8,186               (25,849)       7,115

loss from joint
venture and
provision for taxes
                                                                       
Equity in net income  31            29                 88            90
from joint venture
                                                                       
Income (loss) from
continuing
operations before
provision              (593)          8,215               (25,761)       7,205

for taxes and gain
on extinguishment of
debt
                                                                       
Gain on
extinguishment of      -              -                   -              14,526
debt
Provision for taxes   39            -                  (3,379)       (73)
                                                                       
Net income (loss)
from continuing        (554)          8,215               (29,140)       21,658
operations
                                                                       
Net income (loss)
from discontinued      (2,336)        8,754               (5,816)        16,948
operations
Gain on settlement     -              128,951             -              128,951
of debt
Net gains from        -             162                11,996        2,536
disposals
                                                                       
Net income (loss)
from discontinued     (2,336)       137,867            6,180         148,435
operations
                                                                       
Net income (loss)
attributable to        (2,890)        146,082             (22,960)       170,093
Gramercy Capital
Corp.
                                                                       
Accrued preferred     (1,790)       (1,790)            (5,370)       (5,370)
stock dividends
                                                                       
Net income (loss)
available to common  $ (4,680)      $ 144,292           $ (28,330)     $ 164,723
stockholders
                                                                       
Basic earnings per
share:
Net income (loss)
from continuing
operations, net of   $ (0.05)       $ 0.12              $ (0.67)       $ 0.33

preferred stock
dividends
Net income (loss)
from discontinued     (0.04)        2.74               0.12          2.96
operations
Net income (loss)
available to common  $ (0.09)       $ 2.86              $ (0.55)       $ 3.29
stockholders
                                                                       
Diluted earnings per
share:
Net income (loss)
from continuing
operations, net of   $ (0.05)       $ 0.02              $ (0.66)       $ 0.22

preferred stock
dividends
Net income (loss)
from discontinued     (0.04)        2.81               0.12          3.03
operations
Net income (loss)
available to common  $ (0.09)       $ 2.83              $ (0.54)       $ 3.25
stockholders
                                                                       
Basic weighted
average common        52,308,653    50,382,542         51,328,443    50,125,875
shares outstanding
                                                                       
Diluted weighted
average common
shares and common
share
equivalents           52,308,653    50,954,776         51,328,443    50,708,486
outstanding
                                                                       
Other comprehensive
income:
Unrealized gain (loss) on
available for sale securities and

derivative instruments:
Unrealized holding
gains (losses)       $ 63,455       $ (180,337)         $ 170,800      $ (256,641)
arising during
period
                                                                       
Other comprehensive   63,455        (180,337)          170,800       (256,641)
income (loss)
                                                                       
Comprehensive income
(loss) attributable
to Gramercy           60,565        (34,255)           147,840       (86,548)

Capital Corp.
                                                                       
Comprehensive income
(loss) attributable
to common            $ 58,775       $ (36,045)          $ 142,470      $ (91,918)

stockholders

                            Gramercy Capital Corp.
                    Condensed Consolidated Balance Sheets
       (Unaudited, dollar amounts in thousands, except per share data)

                                             September 30,    December 31,
                                              2012                2011
                                                                 
Assets:
Real estate investments, at cost:
Land                                          $  10,380           $  11,915
Building and improvements                        26,965              30,603
Other real estate investments                    20,318              20,318
Less: accumulated depreciation                  (2,865)            (2,722)
Total real estate investments, net               54,798              60,114
                                                                  
Cash and cash equivalents                        175,058             163,629
Restricted cash                                  90                  93
Loans and other lending investments, net         19,412              828
Investment in joint ventures                     295                 496
Assets held-for-sale, net                        -                   32,834
Tenant and other receivables, net                5,779               2,829
Derivative instruments, at fair value            -                   6
Acquired lease assets, net of accumulated        358                 477
amortization of $356 and $342
Deferred costs, net of accumulated               910                 1,961
amortization of $3,399 and $4,899
Other assets                                    5,035              4,141
Subtotal                                         261,735             267,408
                                                                  
Assets of Consolidated Variable Interest
Entities ("VIEs"):
Real estate investments, at cost:
Land                                             7,887               21,967
Building and improvements                        4,534               4,205
Less: accumulated depreciation                  (358)              (261)
Total real estate investments directly           12,063              25,911
owned
                                                                  
Cash and cash equivalents                        159                 96
Restricted cash                                  69,813              34,122
Loans and other lending investments, net         899,550             1,081,091
Commercial mortgage-backed securities -          891,653             775,812
available for sale
Investment in joint ventures                     10,438              -
Assets held-for-sale, net                        18,514              10,131
Derivative instruments, at fair value            205                 913
Accrued interest                                 26,032              28,660
                                                                
Deferred costs, net of accumulated               6,597               9,086
amortization of $33,915 and $31,498
Other assets                                    39,554             25,100
Subtotal                                        1,974,578          1,990,922
                                                                  
Total assets                                  $  2,236,313        $  2,258,330

                            Gramercy Capital Corp.
                    Condensed Consolidated Balance Sheets
       (Unaudited, dollar amounts in thousands, except per share data)

                                           September 30,     December 31,
                                           2012                  2012
Liabilities and Equity (Deficit):
Liabilities:
Accounts payable and accrued expenses      $ 9,275               $ 14,992
Dividends payable                            28,647                23,276
Deferred revenue                             2,232                 2,392
Below-market lease liabilities, net of
accumulated amortization of                  1,745                 1,905

$1,349 and $1,189
Liabilities related to assets                -                     1,459
held-for-sale
Other liabilities                           590                  627
Subtotal                                     42,489                44,651
                                                                 
Non-Recourse Liabilities of Consolidated
VIEs:
Collateralized debt obligations              2,288,606             2,468,810
Accounts payable and accrued expenses        9,723                 4,554
Accrued interest payable                     3,548                 3,729
Deferred revenue                             85                    88
Liabilities related to assets                186                   249
held-for-sale
Derivative instruments, at fair value        183,742               175,915
Other liabilities                           1,072                764
Subtotal                                    2,486,962            2,654,109
                                                                 
Total liabilities                           2,529,451            2,698,760
                                                                 
Commitments and contingencies                -                     -
                                                                 
Equity (Deficit):
Common stock, par value $0.001,
100,000,000 shares authorized,

54,629,487 and 51,086,266 shares issued      52                    50
and outstanding at

September 30, 2012 and December 31, 2011,
respectively.
Series A cumulative redeemable preferred
stock, par value $0.001,

liquidation preference $88,146, 4,600,000
shares authorized,                           85,235                85,235

3,525,822 shares issued and outstanding at
September 30, 2012

and December 31, 2011.
Additional paid-in-capital                   1,085,420             1,080,600
Accumulated other comprehensive loss         (270,139)             (440,939)
Accumulated deficit                         (1,194,609)          (1,166,279)
Total Gramercy Capital Corp.                 (294,041)             (441,333)
stockholders' equity (deficit)
Non-controlling interest                    903                  903
Total equity (deficit)                      (293,138)            (440,430)
Total liabilities and equity (deficit)     $ 2,236,313           $ 2,258,330

                            Gramercy Capital Corp.
                 Reconciliation of Non-GAAP Financial Measure
       (Unaudited, dollar amounts in thousands, except per share data)

                          Three months ended       Nine months ended
                            September 30,               September 30,
                             2012      2011           2012       2011
Net income (loss)
available to common         $ (4,680)   $ 144,292       $ (28,330)   $ 164,723
stockholders
Add:
Depreciation and              1,192       18,274          4,246        58,862
amortization
FFO adjustments for           67          737             201          2,929
joint ventures
Non-cash impairment of        5,706       -               8,345        1,282
real estate investments
Less:
Non real estate
depreciation and              (948)       (1,807)         (3,464)      (5,437)
amortization
Gain on sale of real         -          (163)          (11,996)    (2,537)
estate
Funds from operations       $ 1,337     $ 161,333       $ (30,998)   $ 219,822
                                                                     
Funds from operations       $ 0.03      $ 3.20          $ (0.60)     $ 4.39
per share - basic
                                                                     
Funds from operations       $ 0.03      $ 3.17          $ (0.60)     $ 4.34
per share - diluted

The revised White Paper on FFO approved by the Board of Governors of the
National Association of Real Estate Investment Trusts, or NAREIT, defines FFO
as net income (loss) (determined in accordance with GAAP), excluding
impairment write-downs of investments in depreciable real estate and
investments in in-substance real estate investments, gains or losses from debt
restructurings and sales of depreciable operating properties, plus real
estate-related depreciation and amortization (excluding amortization of
deferred financing costs), less distributions to non-controlling interests and
gains/losses from discontinued operations and after adjustments for
unconsolidated partnerships and joint ventures. FFO does not represent cash
generated from operating activities in accordance with GAAP and should not be
considered as an alternative to net income (determined in accordance with
GAAP), as an indication of our financial performance, or to cash flow from
operating activities (determined in accordance with GAAP) as a measure of our
liquidity, nor is it entirely indicative of funds available to fund our cash
needs, including our ability to make cash distributions. Our calculation of
FFO may be different from the calculation used by other companies and,
therefore, comparability may be limited.

Contact:

Gramercy Capital Corp.
Jon W. Clark, 212-297-1000
Chief Financial Officer
-Or-
Emily Pai, 212-297-1000
Investor Relations
 
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