As filed with the Securities and Exchange Commission on November 14, 2002

                                                      REGISTRATION NO. 333-83646
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                        PRE-EFFECTIVE AMENDMENT NO. 1 TO
                                    FORM S-3
                             REGISTRATION STATEMENT
                                      UNDER
                           THE SECURITIES ACT OF 1933

                              ISTAR FINANCIAL INC.
             (Exact name of Registrants as specified in its charter)


          MARYLAND                                        95-6881527
(State or other jurisdiction of                        (I.R.S. Employer
 incorporation or organization)                       Identification No.)

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

                     1114 AVENUE OF THE AMERICAS, 27TH FLOOR
                            NEW YORK, NEW YORK 10036
                                 (212) 930-9400
               (Address, including zip code, and telephone number,
        including area code, of registrant's principal executive offices)

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

                                  JAY SUGARMAN
                             CHIEF EXECUTIVE OFFICER
                              ISTAR FINANCIAL INC.
                       1114 AVENUE OF AMERICAS, 27TH FLOOR
                            NEW YORK, NEW YORK 10036
                                 (212) 930-9400
            (Name, address, including zip code, and telephone number,
                   including area code, of agent for service)

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

                                   COPIES TO:
                            KATHLEEN L. WERNER, ESQ.
                       CLIFFORD CHANCE ROGERS & WELLS LLP
                                 200 PARK AVENUE
                            NEW YORK, NEW YORK 10166
                                 (212) 878-8000

     APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.

     If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: \ \

     If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. \X\

     If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. \ \

     If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. \ \

     If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. \ \


                         CALCULATION OF REGISTRATION FEE


====================================================================================================================
                                                        Proposed Maximum       Proposed Maximum        Amount of
   Title of Each Class of             Amount to be    Aggregate Price Per     Aggregate Offering    Registration Fee
 Securities to be registered          registered             Unit               Price(3) (4)            (4)(5)
--------------------------------------------------------------------------------------------------------------------
                                                                                         
   Common Stock, Preferred
  Stock, Depositary Shares,
Debt Securities, Warrants(1)             (2)                      (2)              $500,000,000           $32,200
====================================================================================================================


(1)  Includes shares of common stock which may be issued upon conversion of the
     preferred stock or debt securities, or exercise of the warrants, which are
     being registered.
(2)  Not applicable, as provided in General Instruction II.D to Form S-3.
(3)  Estimated solely for the purpose of calculating the registration fee.
(4)  Pursuant to Rule 429 of the Securities Act of 1933, as amended, the
     prospectus contained in this Registration Statement also relates to the
     Common Stock, Preferred Stock, Depositary Shares, Debt Securities and
     Warrants of the registrant previously registered under an effective
     Registration Statement on Form S-3 (File Number 333-55396) of which
     $150,000,000 is being carried forward. The filing fee associated with the
     securities being carried forward from the earlier Registration Statement is
     $125,000.00 which was paid upon the filing of the earlier Registration
     Statement.
(5)  Previously paid.

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.


PROSPECTUS SUPPLEMENT
(TO PROSPECTUSES DATED NOVEMBER 8, 2002)

                               10,000,000 SHARES

                                   [GRAPHIC]

                                  COMMON STOCK
---------------------------------------------------------

Of the 10,000,000 shares of common stock offered by this prospectus supplement,
8,000,000 shares are being sold by iStar Financial Inc. and 2,000,000 shares are
being sold by SOFI-IV SMT Holdings, L.L.C., one of our stockholders.

Our common stock trades on the New York Stock Exchange under the symbol "SFI."
The last reported sale price of our common stock on November 5, 2002 was $28.20
per share.

INVESTING IN THE COMMON STOCK INVOLVES RISK. "RISK FACTORS" BEGIN ON PAGES THREE
AND FOUR OF THE ACCOMPANYING PROSPECTUSES.



                                                               PER SHARE        TOTAL
                                                              ------------   ------------
                                                                       
Public offering price.......................................             $              $
Underwriting discount.......................................             $              $
Proceeds to iStar Financial (before expenses)...............             $              $
Proceeds to selling stockholder (before expenses)...........             $              $


SOFI-IV SMT Holdings, L.L.C., the selling stockholder, has granted the
underwriters a 30-day option to purchase up to 1,500,000 shares on the same
terms and conditions as set forth above to cover over-allotments, if any.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus supplement or the accompanying
prospectuses. Any representation to the contrary is a criminal offense.

The common stock will be ready for delivery on or about November   , 2002.
--------------------------------------------------------------------------------

                              JOINT LEAD MANAGERS

LEHMAN BROTHERS                                              MERRILL LYNCH & CO.
SOLE BOOK-RUNNING MANAGER

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

BANC OF AMERICA SECURITIES LLC

                  BEAR, STEARNS & CO. INC.

                                    GOLDMAN, SACHS & CO.

                                                       UBS WARBURG

                                         , 2002.

                               TABLE OF CONTENTS

                             PROSPECTUS SUPPLEMENT



                                                                PAGE
                                                              --------
                                                           
Forward-Looking Statements..................................      ii
Summary.....................................................     S-1
Use of Proceeds.............................................    S-10
Capitalization..............................................    S-10
Selected Financial Data.....................................    S-11
iStar Financial Inc.........................................    S-14
Our Strategy................................................    S-24
Common Stock Price and Dividend Performance.................    S-31
Management..................................................    S-31
Selling Stockholder.........................................    S-38
Underwriting................................................    S-39
Legal Matters...............................................    S-42
Experts.....................................................    S-42

                  PROSPECTUS DATED NOVEMBER 8, 2002,
                   RELATING TO SHARES OFFERED BY US

Forward-Looking Information.................................       2
The Company.................................................       2
Risk Factors................................................       3
Ratio of Earnings to Fixed Charges..........................      10
Use of Proceeds.............................................      10
Description of Debt Securities..............................      10
Description of Warrants.....................................      13
Description of Common Stock and Preferred Stock.............      13
Description of Depositary Shares............................      16
Material Federal Income Tax Consequences....................      17
Legal Matters...............................................      29
Experts.....................................................      29
Incorporation of Certain Documents by Reference.............      29
Information We File.........................................      29

                  PROSPECTUS DATED NOVEMBER 8, 2002
        RELATING TO SHARES OFFERED BY THE SELLING STOCKHOLDER

Where You Can Find More Information.........................       2
Incorporation of Certain Documents by Reference.............       2
Forward-Looking Statements..................................       3
The Company.................................................       4
Risk Factors................................................       4
Use of Proceeds.............................................      11
Common Stock Price and Dividend Performance.................      12
Participating Securityholders...............................      12
Certain Relationships Between the Company and the
  Participating Securityholders.............................      15
Plan of Distribution........................................      16
Description of Securities to be Registered..................      18
Material Federal Income Tax Considerations..................      19
Legal Matters...............................................      31
Experts.....................................................      31


                                       i

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

    You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectuses. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus supplement, the accompanying
prospectuses and the documents incorporated by reference is accurate only as of
their respective dates. Our business, financial condition, results of operations
and prospects may have changed since those dates.

                           FORWARD-LOOKING STATEMENTS

    We make statements in this prospectus supplement, the accompanying
prospectuses and the documents we incorporate by reference that are considered
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are
usually identified by the use of words such as "will," "anticipates,"
"believes," "estimates," "expects," "projects," "plans," "intends," "should" or
similar expressions. We intend these forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained in the
Private Securities Reform Act of 1995 and are including this statement for
purposes of complying with those safe harbor provisions. These forward-looking
statements reflect our current views about our plans, strategies and prospects,
which are based on the information currently available to us and on assumptions
we have made. Although we believe that our plans, intentions and expectations as
reflected in or suggested by those forward-looking statements are reasonable, we
can give no assurance that the plans, intentions or expectations will be
achieved. We have discussed in this prospectus supplement and the accompanying
prospectuses some important risks, uncertainties and contingencies which could
cause our actual results, performance or achievements to be materially different
from the forward-looking statements we make in these documents.

    We assume no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. In
evaluating forward-looking statements, you should consider these risks and
uncertainties, together with the other risks described from time to time in our
reports and documents filed with the SEC, and you should not place undue
reliance on those statements.

                                       ii

                                    SUMMARY

    THIS SUMMARY MAY NOT CONTAIN ALL THE INFORMATION THAT MAY BE IMPORTANT TO
YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS SUPPLEMENT AND ACCOMPANYING
PROSPECTUSES, AS WELL AS THE DOCUMENTS INCORPORATED BY REFERENCE IN THEM, BEFORE
MAKING AN INVESTMENT DECISION. ALL REFERENCES TO "WE" OR "US" IN THIS PROSPECTUS
SUPPLEMENT REFER TO ISTAR FINANCIAL INC. AND ITS CONSOLIDATED SUBSIDIARIES,
UNLESS THE CONTEXT OTHERWISE REQUIRES. THROUGHOUT THIS PROSPECTUS SUPPLEMENT WE
USE THE TERM "ADJUSTED EARNINGS." FOR THE DEFINITION OF ADJUSTED EARNINGS AND
FOR A DETAILED RECONCILIATION OF ADJUSTED EARNINGS TO GAAP NET INCOME, SEE
"SELECTED FINANCIAL DATA."

                              ISTAR FINANCIAL INC.

OVERVIEW

    We are the largest publicly-traded finance company focused exclusively on
the commercial real estate industry. We provide structured financing to private
and corporate owners of high-quality real estate nationwide, including senior
and junior mortgage debt, corporate net lease financing, and corporate mezzanine
and subordinated capital. Our objective is to deliver superior risk-adjusted
returns on equity to our stockholders by providing innovative and value-added
financing solutions to our customers. We deliver customized financial products
to sophisticated real estate borrowers and corporate customers who require a
high level of creativity and service. Our ability to provide value-added
financial solutions has consistently enabled us to realize margins and returns
on capital that are more attractive than those earned by many other commercial
finance companies. As of June 30, 2002, our total enterprise value (market value
of equity plus book value of preferred stock and debt, less cash balances) was
$6.1 billion, and our annualized revenue and adjusted earnings for the quarter
ended June 30, 2002 were $528.4 million and $279.3 million, respectively.

    We began our business in 1993 through private investment funds formed to
take advantage of the lack of well-capitalized lenders capable of servicing the
needs of high-end customers in our markets. During our nine-year history, we
have structured or originated approximately $6.5 billion of financing
commitments. During this period, we have generated a realized internal rate of
return of 27.8% on the approximately $1.9 billion of investments that we have
funded and which have since been repaid. To date, we have not realized a loss of
principal or interest on any loan investment we have funded.

    Since becoming a public company in March 1998, we have also expanded our
platform by making a limited number of strategic corporate acquisitions. In
September 1998, we acquired the loan origination and servicing business of
Phoenix Home Life Insurance Company. In December 1998, we acquired the
structured finance portfolio of our largest private competitor, an affiliate of
Lazard Freres & Co. LLC. In November 1999, we acquired TriNet Corporate Realty
Trust, Inc., the then largest publicly-traded company specializing in corporate
tenant leasing for owners of office and industrial facilities. In March 2000, we
acquired American Corporate Real Estate, Inc., a leading privately-held
investment firm whose senior management team had extensive experience in the
corporate tenant leasing industry.

    By capitalizing on our competitive strengths, we have delivered consistent
financial performance, developed a high-quality, diversified asset base and
established ourselves as a reliable provider of financial solutions for our
customers. We have consistently grown our adjusted earnings and dividends since
the quarter ended June 30, 1998, our first full quarter as a public company.
Between that quarter and the quarter ended June 30, 2002, we grew our adjusted
earnings on a diluted basis by 215.8%, from approximately $22.1 million to
$69.8 million, and increased our common stock dividend by 80.0%, from $0.35 to
$0.63 per share. Based on the last reported sale price of our common stock on
November 5, 2002, our current annualized dividend yield is 8.9%.

                                      S-1

    The graph below shows our annual adjusted earnings since 1998, our first
year as a public company.

                              ADJUSTED EARNINGS(1)

                                   [GRAPHIC]

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

(1)  We generally define "adjusted earnings" as net income computed in
     accordance with GAAP, before gain (loss) from discontinued operations,
    extraordinary items and cumulative effect of change in accounting principle,
    plus depreciation and amortization, less preferred stock dividends. See
    "Selected Financial Data" for a detailed reconciliation of adjusted earnings
    to GAAP net income.

(2)  Because second quarter 1998 was our first full quarter as a public company,
     adjusted earnings for 1998 represents results for the second quarter
    through the fourth quarter of 1998, annualized.

COMPETITIVE STRENGTHS

    We believe the following competitive strengths distinguish our business
model from other commercial finance enterprises and contribute to our ability to
generate attractive risk-adjusted returns to our common stockholders.

CREATIVE CAPITAL SOLUTIONS

    We target markets where customers require a knowledgeable provider of
capital which is capable of originating customized and flexible financial
products. We provide our customers with a level of service and creativity
generally unavailable from other lenders. We do not participate in distribution-
based commercial finance businesses, such as conduit lending and mortgage-backed
securities, which are typically characterized by intense price competition and
lower profit margins.

    We believe that we have a reputation in the marketplace for delivering
unique financing solutions and a high level of service to our customers in a
reliable and credible fashion. Since beginning our business in 1993, we have
provided nearly $2.8 billion in financing to customers who have sought our
expertise more than once.

    As a result of our focus, we have generated consistent and attractive
returns on our asset base. The graph below shows our returns on average book
assets, after interest expense, since 1998, our first year as a public company.

                                      S-2

                        RETURN ON AVERAGE BOOK ASSETS(1)

                                   [GRAPHIC]

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

(1)  We define "return on average book assets" as the sum of adjusted earnings
     and preferred dividends divided by the average book value of assets
    outstanding during the year.

(2)  Because second quarter 1998 was our first full quarter as a public company,
     return on average book assets for 1998 represents second through fourth
    quarter 1998 results annualized, and our average assets during this period.

EXPERIENCED MANAGEMENT

    The 12 members of our executive management team have an average of more than
20 years of experience in the fields of real estate finance, private investment,
capital markets, transaction structuring, risk management, legal and loan
servicing, providing us with significant expertise in the key disciplines
required for success in our business. We emphasize long-term, incentive-based
compensation, such as performance-based grants of restricted common stock,
rather than cash compensation, and none of our employees is compensated based on
the volume of investment originations. Our directors and employees directly own
approximately 5.7% of our outstanding common stock on a diluted basis, which had
a market value of approximately $146 million based upon the last reported sale
price of our common stock on November 5, 2002. Our executive management team is
supported by approximately 130 employees operating from six primary offices
nationwide.

SIGNIFICANT EQUITY BASE

    We had approximately $1.9 billion of tangible book equity and a consolidated
debt-to-book equity ratio of 1.7x as of June 30, 2002. We believe that we are
one of the most strongly capitalized asset-based finance companies. We target a
maximum consolidated debt-to-book equity ratio of 2.0x, which is significantly
lower than most other commercial finance companies. We believe that operating
within this targeted range enables us to maintain a well-balanced, conservative
and flexible capital structure. Our tax-advantaged structure as a real estate
investment trust and our ability to operate with less overhead, as a percentage
of revenues, than many other commercial finance companies enhance risk-adjusted
returns on equity for our common stockholders.

STABLE AND GROWING DIVIDEND

    We have paid $9.74 per share of dividends to our common stockholders and
have grown our dividend every year since going public in 1998. We believe that
our common dividend is firmly supported by the stable cash flows generated from
our asset base and by the cushion provided by the difference between our
adjusted earnings and dividend. For the second quarter of 2002, we paid a $0.63
per share common dividend ($2.52 annualized), representing a 79.7% payout on our
basic adjusted earnings per share for that period.

                                      S-3

    The graph below shows our quarterly dividends per common share since 1998,
our first year as a public company.

                      QUARTERLY DIVIDENDS PER COMMON SHARE

                                   [GRAPHIC]

TAX-ADVANTAGED CORPORATE STRUCTURE

    Because of our focus on commercial real estate finance, we are able to
qualify as a REIT. Since we are taxed as a REIT, we do not pay corporate-level
taxes in most circumstances. This tax-advantaged structure enables us to produce
superior returns on equity for our stockholders compared to taxable finance
companies, while utilizing significantly less leverage than most taxable finance
companies. The graph below show our returns on average common book equity ratios
since our first year as a public company.

                    RETURN ON AVERAGE COMMON BOOK EQUITY(1)

                                   [GRAPHIC]

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

(1)  We define "return on average common book equity" as total adjusted earnings
     divided by the average common book value of equity outstanding during the
    year.

(2)  Because second quarter 1998 was our first full quarter as a public company,
     return on average common book equity for 1998 represents second through
    fourth quarter 1998 results annualized, and our average common book equity
    during this period.

                                      S-4

ASSET QUALITY AND DIVERSIFICATION

    Throughout our operating history, we have focused on maintaining
diversification of our asset base by product line, asset type, obligor, property
type and geographic region. Asset diversification is a key part of our risk
management strategy. The graphs below depict the diversification of our asset
base based upon the total gross book value of our assets of approximately
$5.2 billion as of June 30, 2002.

     ASSET TYPE DIVERSIFICATION     PROPERTY TYPE DIVERSIFICATION     GEOGRAPHIC
DIVERSIFICATION

                                   [GRAPHIC]

    Secured first mortgages and corporate tenant lease assets together comprise
approximately 79% of our asset base. The weighted average "first dollar" and
"last dollar" loan-to-value ratios on our loan assets were 27.3% and 68.3%,
respectively, as of June 30, 2002. "First dollar" and "last dollar"
loan-to-value ratios represent the average beginning and ending points of our
lending exposure in the aggregate capitalization of the underlying assets or
companies that we finance.

    In addition, as of June 30, 2002, 56% of our corporate tenants, based on
GAAP annual lease payments, had actual or implied investment grade credit
ratings. Our corporate tenants include the U.S. Government and leading companies
such as FedEx Corporation, International Business Machines Corporation,
Nike, Inc., Northrop Grumman Corporation, Verizon Communications, Inc. and Wells
Fargo Bank.

MATCH FUNDING DISCIPLINE

    Our objective is to match fund our liabilities and assets with respect to
maturities and interest rates. This means that we seek to match the maturities
of our financial obligations with the maturities of our investments. Match
funding allows us to reduce the risk of having to refinance our liabilities
prior to the maturities of our assets. In addition, we match fund interest rates
with like-kind debt (i.e., fixed-rate assets are financed with fixed-rate debt,
and floating-rate assets are financed with floating-rate debt), through the use
of hedges such as interest rate swaps, or through a combination of these
strategies. This allows us to reduce the impact of changing interest rates on
our earnings. Our objective is to limit volatility from a 100 basis point move
in short-term interest rates to no more than 2.5% of annual adjusted earnings
per share. As of June 30, 2002, a 100 basis point change in short-term interest
rates would have a 1.6% impact on our second quarter adjusted earnings per
share.

OUR TARGET MARKETS AND PRODUCT LINES

    We believe we are the largest dedicated participant in a $100-$150 billion
niche of the approximately $2.1 trillion commercial real estate market,
consisting of the $1.5 trillion commercial mortgage market and the $600 billion
single-user market for corporate office and industrial facilities. Our primary
product lines include structured finance, portfolio finance, corporate tenant
leasing,

                                      S-5

corporate finance and loan acquisition. Our real estate lending assets consist
of mortgages secured by real estate collateral, loans secured by equity
interests in real estate assets, and secured and unsecured loans to corporations
engaged in real estate or real estate-related businesses. Our corporate tenant
lease assets consist of office and industrial facilities that we typically
purchase from, and lease back to, a diversified group of creditworthy corporate
tenants as a form of financing for their businesses. Our leases are generally
long-term, and typically provide for all expenses at the facility to be paid by
the corporate tenant on a "triple net" basis. Under a typical net lease
agreement, the corporate customer agrees to pay a base monthly operating lease
payment and all facility operating expenses, including taxes, maintenance and
insurance.

    The graph below shows the composition of our asset base by product line,
based on the total gross book value of our assets of approximately $5.2 billion
as of June 30, 2002.

                          PRODUCT LINE DIVERSIFICATION

                                   [GRAPHIC]

INVESTMENT STRATEGY

    Our investment strategy focuses on the origination of structured mortgage,
corporate and lease financings backed by high-quality commercial real estate
assets located in major U.S. metropolitan markets. Because we deliver the
intensive structuring expertise required by our customers, we are able to avoid
significant direct competition from other capital providers. We focus on
developing direct relationships with borrowers and corporate tenants, as opposed
to sourcing transactions through intermediaries, and offer our customers added
value in the form of specific lending expertise, flexibility, certainty and
post-closing support. We also take advantage of market anomalies in the real
estate financing markets when we believe credit is mispriced by other providers
of capital, such as the spread between lease yields and the yields on corporate
tenants' underlying credit obligations. In addition, we have developed a
disciplined process for screening potential investments prior to beginning our
formal underwriting and commitment process called the "Six Point
Methodology(sm)." We also have an intensive underwriting process in place for
all potential investments.

RISK MANAGEMENT AND RESERVES

    We have comprehensive, pro-active and hands-on risk management systems
centered around a fully-integrated risk management team of over 50
professionals, including dedicated expertise in asset management, corporate
credit, loan servicing, project management and engineering. We manage our risk
exposure by diversifying our asset base and using conservative assumptions
during our underwriting of potential investments. We utilize information
received from our risk management professionals on a

                                      S-6

real-time basis to monitor the performance of our asset base and to quickly
identify and address potential credit issues.

    Although we have not realized any losses of principal or interest on any
loan investments we have funded since our inception, we nonetheless maintain and
regularly evaluate financial reserves to protect against potential future
losses. In addition to our general loss reserves, we also have asset-specific
credit protection, including cash reserve accounts, cash deposits and letters of
credit supporting our loan and CTL assets. Where appropriate, we typically
require this incremental credit protection to be funded and/or posted at the
closing of a transaction in accounts in which we have a security interest. As of
June 30, 2002, accumulated loan loss reserves and other asset-specific credit
protection represented an aggregate of approximately 6.5% of the gross book
value of our loans. In aggregate, cash deposits, letters of credit and
accumulated depreciation relating to corporate tenant lease assets represented
9.4% of the gross book value of our corporate tenant lease assets at that date.

FINANCING STRATEGY

    Our financing strategy revolves around three primary principles. First, we
maintain significantly lower leverage than other commercial finance companies
and a large tangible equity capital base. We target a maximum consolidated
debt-to-book equity ratio of 2.0x, which is significantly lower than most other
commercial finance companies. Second, we maintain access to a broad array of
capital resources from a diverse group of lending sources, such as committed
secured and unsecured credit facilities, term loans, corporate bonds and our own
proprietary matched funding program, iStar Asset Receivables, or "STARs(sm)." We
also have the ability to issue common and preferred stock in the public and
private equity markets from time to time. In doing so, we seek to insulate our
business from potential fluctuations in the availability of capital. Third, we
seek to match fund our liabilities and assets to minimize the risk that we have
to refinance our liabilities prior to the maturities of our assets, and to
reduce the impact of changing interest rates on our earnings.

                              RECENT DEVELOPMENTS

    Adjusted earnings for the third quarter 2002 were $71.3 million on a diluted
basis, excluding an $8.9 million non-cash charge related to performance-based
vesting of restricted shares under our long-term incentive plan, compared to
$64.9 million for the third quarter 2001. Net investment income for the third
quarter ended September 30, 2002 increased to a record $79.3 million, up 20.2%
from $66.0 million for the third quarter of 2001. Net investment income
represents interest, operating lease revenue and equity in earnings from joint
ventures and unconsolidated subsidiaries less interest expense and operating
costs for corporate tenant lease assets. For a discussion of how we compute
adjusted earnings, see "Selected Financial Data." Net income allocable to common
shareholders for the third quarter 2002 was $43.4 million, compared to
$48.3 million in the third quarter 2001.

    In the third quarter of 2002, we achieved a return on average book assets of
6.1% and a return on average common book equity of 19.0%, while leverage
increased slightly to 1.8x book equity.

    Adjusted earnings for the nine months ended September 30, 2002 were
$207.2 million, before the $15.0 million non-cash charge related to
performance-based vesting of restricted shares under our long-term incentive
plan, compared to $190.2 million for the same period in 2001. Net investment
income and total revenue increased to record levels of $220.2 million and
$385.8 million, respectively, for the nine months ended September 30, 2002, from
$197.9 million and $354.7 million, respectively, for the 2001 period. Net income
allocable to common shareholders for the nine months ended September 30, 2002
was $124.6 million, compared to $143.5 million for the nine months ended
September 30, 2001.

    During the third quarter of 2002, we closed eight new financing commitments
for a total of $334.5 million, of which $329.5 million was funded during the
quarter. In addition, we funded

                                      S-7

$2.5 million under five pre-existing commitments and received $233.7 million in
principal repayments. For the nine months ended September 30, 2002, we reached
record levels for gross originations and net asset growth of $1.4 billion and
$982 million, respectively.

    On September 30, 2002, we closed a new $500.0 million secured revolving
credit facility with a leading financial institution, bringing our total
committed credit facilities to $2.7 billion. At September 30, 2002, we had
$1.3 billion outstanding under our credit facilities. We expect to use the net
proceeds from this offering to pay down our credit facilities by
$213.8 million. For a further discussion of this new facility, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

    During the third quarter 2002, Fitch Ratings upgraded our senior unsecured
credit rating to BBB- from BB+. In addition, Standard & Poor's and Moody's
Investors Service raised their respective ratings outlooks for our senior
unsecured credit rating to BB+ "positive" and Ba1 "positive" for a potential
upgrade to investment grade.

    On October 1, 2002, we declared a regular quarterly cash dividend on our
common stock of $0.63 per share for the quarter ended September 30, 2002. The
third quarter dividend represents approximately 78.8% of basic adjusted earnings
for the third quarter, excluding the non-cash incentive compensation charge.

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

    Our principal executive offices are located at 1114 Avenue of the Americas,
New York, New York 10036, and our telephone number is (212) 930-9400. Our
website is www.istarfinancial.com. Our six primary regional offices are located
in Atlanta, Boston, Dallas, Denver, Hartford and San Francisco. iStar Asset
Services, our loan servicing subsidiary, is located in Hartford, and iStar Real
Estate Services, our corporate facilities management division, is headquartered
in Atlanta.

                                      S-8

                                  THE OFFERING


                                            
Common stock offered by iStar Financial        8,000,000 shares
  Inc........................................

Common stock offered by the selling            2,000,000 shares
  stockholder................................

Shares outstanding before the offering.......  89,932,507 shares

Shares outstanding after the offering........  97,932,507 shares

Use of proceeds..............................  The proceeds from the sale of the 8,000,000
                                               shares by us will be used to repay existing
                                               indebtedness on our revolving credit
                                               facilities. We will not receive any proceeds
                                               from the sale of the 2,000,000 shares by the
                                               selling stockholder.

Risk factors.................................  See "Risk Factors" and other information
                                               contained in the accompanying prospectuses
                                               for a discussion of the factors you should
                                               carefully consider before purchasing our
                                               common stock in the offering.

NYSE symbol..................................  SFI


    The number of shares outstanding before and after the offering excludes
8,180,347 shares reserved for issuance under our long-term incentive plans, of
which options to purchase 4,640,938 shares at an average option price of $18.73
and 582,251 shares of restricted stock have been issued. The number of shares
outstanding before and after the offering also excludes 6,113,167 shares
reserved for issuance upon exercise of warrants held by affiliates of Lazard
Freres & Co. LLC that have an exercise price of $34.35 per share.

    After the offering, assuming that the underwriters' over-allotment option is
fully exercised, SOFI-IV SMT Holdings, L.L.C. will own 20,085,538 shares of
common stock, which will represent approximately 20.1% of our shares of common
stock on a diluted basis, or 20.5% based on our outstanding shares of common
stock. If the over-allotment option is not exercised, SOFI-IV SMT Holdings,
L.L.C. will own 21,585,538 shares of common stock, which will represent
approximately 21.6% of our shares of common stock on a diluted basis, or 22.0%
based on our outstanding shares of common stock.

                                      S-9

                                USE OF PROCEEDS

    We estimate that the net proceeds from this offering will be approximately
$213.8 million, after deducting underwriting discounts and commissions and
expenses of the offering. We intend to use the net proceeds to repay borrowings
outstanding under our revolving credit facilities. All of this indebtedness was
incurred during the past year for the origination of new loan and corporate
tenant lease investments, and for working capital purposes. At June 30, 2002,
the weighted average interest rate of the borrowings we will repay was 3.64%,
and the weighted average maturity was 2.7 years (including company-controlled
extension options). The amount being repaid under these credit facilities will
be available for future borrowings for the origination of new loan and corporate
tenant lease investments and for working capital purposes.

    The selling stockholder will receive all of the proceeds from the 2,000,000
shares offered by it, in addition to any proceeds that are generated from the
exercise of the over-allotment option that has been granted to the underwriters.
See "Selling Stockholder."

                                 CAPITALIZATION

    The following table sets forth our capitalization at June 30, 2002 on an
actual basis and as adjusted to give effect to this offering and the use of the
net proceeds from the offering to repay outstanding borrowings. See "Use of
Proceeds." This table should be read in conjunction with our consolidated
financial statements and the notes thereto in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2001 and our Quarterly Report on Form 10-Q
for the quarter ended June 30, 2002.



                                                                       AS OF
                                                                   JUNE 30, 2002
                                                              ------------------------
                                                                ACTUAL     AS ADJUSTED
                                                              ----------   -----------
                                                                   (IN THOUSANDS)
                                                                     
LONG-TERM DEBT, INCLUDING CURRENT MATURITIES:
  Unsecured senior notes, less discount of $13,698..........    $611,302      $611,302
  Unsecured revolving credit facilities.....................          --            --
  Secured revolving credit facilities.......................   1,217,813     1,003,993
  Secured term loans, including premium of $253.............     545,186       545,186
  iStar Asset Receivables secured notes, less discount of
    $4,559..................................................     883,236       883,236
  Other debt obligations....................................      15,283        15,283
                                                              ----------   -----------
      Total long-term debt..................................  $3,272,820    $3,059,000
SHAREHOLDERS' EQUITY:
  Series A preferred stock, $0.001 par value, liquidation
    preference $50.00 per share, 4,400 shares issued and
    outstanding.............................................           4             4
  Series B preferred stock, $0.001 par value, liquidation
    preference $25.00 per share, 2,000 shares issued and
    outstanding.............................................           2             2
  Series C preferred stock, $0.001 par value, liquidation
    preference $25.00 per share, 1,300 shares issued and
    outstanding.............................................           1             1
  Series D preferred stock, $0.001 par value, liquidation
    preference $25.00 per share, 4,000 shares issued and
    outstanding.............................................           4             4
  Common stock, $0.001 par value, 200,000 shares authorized,
    89,165 and 87,387 shares issued and outstanding.........          89            97
  Warrants and options......................................      20,346        20,346
  Additional paid-in capital................................   2,058,484     2,272,296
  Retained earnings (deficit)...............................    (149,768)     (149,768)
  Accumulated other comprehensive income....................         894           894
  Treasury stock (at cost)..................................     (40,741)      (40,741)
                                                              ----------   -----------
    Total shareholders' equity..............................  $1,889,315    $2,103,135
                                                              ----------   -----------
      Total capitalization..................................  $5,162,135    $5,162,135
                                                              ==========   ===========


                                      S-10

                            SELECTED FINANCIAL DATA

    The following table sets forth our selected financial data on a consolidated
historical basis as of and for the six months ended June 30, 2002 and 2001, and
as of and for the years ended December 31, 2001, 2000 and 1999.

    In November 1999, we completed a number of significant corporate
transactions which increased the size of our operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2001.
Operating results for the year ended December 31, 1999 reflect the effects of
these transactions subsequent to their consummation.



                                                 SIX MONTHS ENDED                   YEARS ENDED
                                                     JUNE 30,                       DECEMBER 31,
                                             ------------------------   ------------------------------------
                                                2002          2001         2001         2000         1999
                                             -----------   ----------   ----------   ----------   ----------
                                                          (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                                   
OPERATING DATA:
REVENUE:
  Interest income..........................     $120,271     $130,816     $254,119     $268,011     $209,848
  Operating lease income...................      116,279       94,016      191,197      180,485       41,748
  Other income.............................       16,441       14,703       31,060       17,927       12,900
                                             -----------   ----------   ----------   ----------   ----------
    Total revenue..........................      252,991      239,535      476,376      466,423      264,496
                                             -----------   ----------   ----------   ----------   ----------
COSTS AND EXPENSES:
  Interest expense.........................       88,464       87,655      169,974      173,741       91,159
  Operating costs-corporate tenant lease
    assets.................................        6,006        6,506       12,791       12,795        2,244
  Depreciation and amortization............       22,285       17,544       35,555       34,470       10,334
  General and administrative...............       14,761       12,600       24,151       25,706        6,269
  General and administrative--stock-based
    compensation...........................        7,820        2,060        3,575        2,864          412
  Provision for loan losses................        3,750        3,500        7,000        6,500        4,750
  Advisory fees............................           --           --           --           --       16,193
  Costs incurred in acquiring former
    external advisor(1)....................           --           --           --           --       94,476
                                             -----------   ----------   ----------   ----------   ----------
    Total costs and expenses...............      143,086      129,865      253,046      256,076      225,837
                                             -----------   ----------   ----------   ----------   ----------
  Net income before minority interest......      109,905      109,670      223,330      210,347       38,659
  Equity in earnings from joint ventures
    and unconsolidated subsidiaries........        1,216        3,688        7,358        4,797          235
  Minority interest in consolidated
    entities...............................          (81)        (136)        (218)        (195)         (41)
  Income from discontinued operations......          154          102          199          394           33
  Gain from discontinued operations........          595        1,599        1,145        2,948           --
  Extraordinary loss on early
    extinguishment of debt.................      (12,166)      (1,037)      (1,620)        (705)          --
  One-time effect of change in accounting
    principle(2)...........................           --         (282)        (282)          --           --
                                             -----------   ----------   ----------   ----------   ----------
  Net income...............................      $99,623     $113,604     $229,912     $217,586      $38,886
  Preferred dividends......................      (18,454)     (18,454)     (36,908)     (36,908)     (23,843)
                                             -----------   ----------   ----------   ----------   ----------
  Net income allocable to common
    shareholders...........................      $81,169      $95,150     $193,004     $180,678      $15,043
                                             ===========   ==========   ==========   ==========   ==========
  Dividends declared per common share(3)...        $1.26        $1.23        $2.45        $2.40        $1.86
                                             ===========   ==========   ==========   ==========   ==========

SUPPLEMENTAL DATA:
  Dividends declared on preferred shares...      $18,289      $18,289      $36,578      $36,576      $24,819
  Dividends declared on common shares......       56,063       52,651      213,089      205,477      116,813
  Cash flows from:
    Operating activities...................      151,374      115,937      264,835      202,715      119,625
    Investing activities...................     (831,045)      10,604     (321,100)    (176,652)    (143,911)
    Financing activities...................      682,339     (122,992)      49,183      (37,719)      48,584


                                      S-11




                                                 SIX MONTHS ENDED                   YEARS ENDED
                                                     JUNE 30,                       DECEMBER 31,
                                             ------------------------   ------------------------------------
                                                2002          2001         2001         2000         1999
                                             -----------   ----------   ----------   ----------   ----------
                                                                     (IN THOUSANDS)
                                                                                   
  EBITDA(4)................................      227,947(5)    218,557     436,217      423,355      234,863
  Ratio of EBITDA to interest expense......         2.58x(5)       2.49x       2.57x       2.44x        2.58x
  Ratio of EBITDA to combined fixed
    charges(6).............................         2.13x(5)       2.06x       2.11x       2.01x        2.04x
  Ratio of earnings to combined fixed
    charges(7).............................         2.30x        2.30x        2.34x        2.25x        1.43x
  Ratio of earnings to combined fixed
    charges and preferred stock
    dividends(7)...........................         1.90x        1.90x        1.92x        1.85x        1.13x
  Weighted average common shares
    outstanding-basic......................       88,193       85,958       86,349       85,441       57,749
  Weighted average common shares
    outstanding-diluted....................       90,893       87,584       88,234       86,151       60,393
  Total debt to shareholders' equity(8)....          1.7x         1.2x         1.4x         1.2x         1.1x

BALANCE SHEET DATA:
  Loans and other lending investments,
    net....................................   $2,900,597   $2,252,255   $2,377,763   $2,225,183   $2,003,506
  Corporate tenant lease assets, net.......    2,094,909    1,578,941    1,781,565    1,592,087    1,654,178
  Total assets.............................    5,270,750    4,053,350    4,378,560    4,034,775    3,813,552
  Debt obligations.........................    3,272,820    2,153,031    2,495,369    2,131,967    1,901,204
  Minority interest in consolidated
    entities...............................        2,580        2,649        2,650        6,224        2,565
  Shareholders' equity.....................    1,889,315    1,831,125    1,787,778    1,787,885    1,801,343


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

(1)  This amount represents a non-recurring, non-cash charge of approximately
      $94.5 million relating to the acquisition of our former external advisor
    on November 4, 1999.

(2)  Represents one-time effect of adoption of Statement of Financial Accounting
      Standards No. 133, "Accounting for Derivative Instruments and Hedging
    Activities" as of January 1, 2001.

(3)  We generally declare common and preferred dividends in the month subsequent
      to the end of the quarter.

(4)  EBITDA is calculated as total revenue plus equity in earnings from joint
      ventures and unconsolidated subsidiaries minus the sum of general and
    administrative expenses, general and administrative--stock-based
    compensation expense, provision for loan losses, operating costs-corporate
    tenant lease assets and, prior to November 4, 1999, advisory fees. EBITDA
    should be examined in conjunction with net income. See "Consolidated
    Statements of Operations" in our Annual Report on Form 10-K for the fiscal
    year ended December 31, 2001. EBITDA should not be considered as an
    alternative to net income (determined in accordance with GAAP) as an
    indicator of our performance, or to cash flows from operating activities
    (determined in accordance with GAAP) as a measure of our liquidity, nor is
    EBITDA indicative of funds available to fund our cash needs or available for
    distribution to shareholders. We believe that EBITDA more closely
    approximates operating cash flow and is a useful measure for investors to
    consider, in conjunction with net income and other GAAP measures, in
    evaluating our financial performance. This is primarily because we are a
    commercial finance company that focuses on real estate lending and corporate
    tenant leasing; therefore, our net income (determined in accordance with
    GAAP) reflects significant non-cash depreciation expense on corporate tenant
    lease assets. It should be noted that our manner of calculating EBITDA may
    differ from the calculations of similarly-titled measures by other
    companies.

(5)  Excludes a $6.1 million non-cash charge incurred in the quarter ended
      June 30, 2002 related to performance-based vesting of restricted shares
    granted under our long-term incentive plan.

(6)  Combined fixed charges are comprised of interest expense, capitalized
      interest, amortization of loan costs and preferred stock dividend
    requirements.

(7)  For the purposes of calculating the ratio of earnings to fixed charges,
      "earnings" consist of income from continuing operations before income
    taxes and cumulative effect of changes in accounting principles plus "fixed
    charges" and certain other adjustments. "Fixed charges" consist of interest
    incurred on all indebtedness relating to continuing operations (including
    amortization of original issue discount) and the implied interest component
    of our rent obligations in the years presented. For 1999, these ratios
    include the effect of a non-recurring, non-cash charge in the amount of
    approximately $94.5 million relating to the November 1999 acquisition of our
    former external advisor. Excluding the effect of this non-recurring,
    non-cash charge, the ratio of earnings to fixed charges for that period
    would have been 2.46x and our ratio of earnings to fixed charges and
    preferred stock dividends would have been 1.95x.

(8)  Total shareholders' equity is defined as the sum of the book value of
      common equity and preferred equity.

                                      S-12

ADJUSTED EARNINGS

    Adjusted earnings represents net income computed in accordance with GAAP,
before gain (loss) from discontinued operations, extraordinary items and
cumulative effect of change in accounting principle, plus depreciation and
amortization, less preferred stock dividends. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2001.

    We believe that to facilitate a clear understanding of the historical
operating results of our company, adjusted earnings should be examined in
conjunction with net income as shown in the "Consolidated Statements of
Operations" in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2001. Adjusted earnings should not be considered as an alternative
to net income (determined in accordance with GAAP) as an indicator of our
performance, or to cash flows from operating activities (determined in
accordance with GAAP) as a measure of our liquidity, nor is it indicative of
funds available to fund our cash needs or available for distribution to our
stockholders. We believe that adjusted earnings more closely approximates
operating cash flow and is a useful measure for investors to consider, in
conjunction with net income and other GAAP measures, in evaluating our financial
performance. This is primarily because we are a commercial finance company that
focuses on real estate lending and corporate tenant leasing; therefore, our net
income (determined in accordance with GAAP) reflects significant non-cash
depreciation expense on corporate tenant lease assets. It should be noted that
our manner of calculating adjusted earnings may differ from the calculation of
similarly-titled measures by other companies.



                                                   SIX MONTHS ENDED              YEARS ENDED
                                                       JUNE 30,                  DECEMBER 31,
                                                  -------------------   ------------------------------
                                                    2002       2001       2001       2000       1999
                                                  --------   --------   --------   --------   --------
                                                                     (IN THOUSANDS)
                                                                               
RECONCILIATION OF ADJUSTED EARNINGS TO
  GAAP NET INCOME:
Net income......................................   $99,623   $113,604   $229,912   $217,586    $38,886
Add: Joint venture income.......................       521        474        965        937      1,603
Add: Depreciation...............................    22,285     17,544     35,642     34,514     11,016
Add: Joint venture depreciation and
  amortization..................................     2,438      1,905      4,044      3,662        365
Add: Amortization of deferred financing costs...    11,751     10,432     20,720     13,140      6,121
Less: Preferred dividends.......................   (18,454)   (18,454)   (36,908)   (36,908)   (23,843)
Less: Gain from discontinued operations.........      (595)    (1,599)    (1,145)    (2,948)
Add: Extraordinary loss early extinguishment of
  debt..........................................    12,166      1,037      1,620        705         --
Add: Cumulative effect of change in accounting
  principle.....................................                  282        282         --         --
Less: Net income allocable to class B shares....        --         --         --         --       (826)
Add: Cost incurred in acquiring former external
  advisor(1)....................................        --         --         --         --     94,476
                                                  --------   --------   --------   --------   --------
Adjusted diluted earnings allocable to common
  shareholders:
    Before non-cash incentive compensation
      charge(2).................................  $135,811   $125,225   $255,132   $230,688   $127,798
                                                  ========   ========   ========   ========   ========
    After non-cash incentive compensation
      charge....................................  $129,735   $125,225   $255,132   $230,688   $127,798
                                                  ========   ========   ========   ========   ========
Weighted average common shares
  outstanding--basic............................    88,193     85,958     86,349     85,441     57,749
Weighted average common shares outstanding--
  diluted.......................................    91,263     87,957     88,606     86,523     61,750
                                                  ========   ========   ========   ========   ========


------------------------
(1)   This amount represents a non-recurring, non-cash charge of approximately
       $94.5 million relating to the acquisition of our former external advisor
     on November 4, 1999.

(2)  Excludes a $6.1 million non-cash charge incurred in the quarter ended
     June 30, 2002 related to performance-based vesting of restricted shares
    granted under our long-term incentive plan.

                                      S-13

                              ISTAR FINANCIAL INC.

OVERVIEW

    We are the largest publicly-traded finance company focused exclusively on
the commercial real estate industry. We provide structured financing to private
and corporate owners of high-quality real estate nationwide, including senior
and junior mortgage debt, corporate net lease financing, and corporate mezzanine
and subordinated capital. Our objective is to deliver superior risk-adjusted
returns on equity to our stockholders by providing innovative and value-added
financing solutions to our customers. We deliver customized financial products
to sophisticated real estate borrowers and corporate customers who require a
high level of creativity and service. Our ability to provide value-added
financial solutions has consistently enabled us to realize margins and returns
on capital that are more attractive than those earned by many other commercial
real estate finance companies.

    We began our business in 1993 through private investment funds formed to
take advantage of the lack of well-capitalized lenders capable of servicing the
needs of high-end customers in our markets. During our nine-year history, we
have structured or originated approximately $6.5 billion of financing
commitments. During this period, we have generated a realized internal rate of
return of 27.8% on the approximately $1.9 billion of investments that we have
funded and which have since been repaid. To date, we have not realized a loss of
principal or interest on any loan investment we have funded.

    Since becoming a public company in March 1998, we have also expanded our
platform by making a limited number of strategic corporate acquisitions. In
September 1998, we acquired the loan origination and servicing business of
Phoenix Home Life Insurance Company. In December 1998, we acquired the
structured finance portfolio of our largest private competitor, an affiliate of
Lazard Freres & Co. LLC. In November 1999, we acquired TriNet Corporate Realty
Trust, Inc., the then largest publicly-traded company specializing in corporate
tenant leasing for owners of office and industrial facilities. In March 2000, we
acquired American Corporate Real Estate, Inc., a leading privately-held
investment firm whose senior management team had extensive experience in the
corporate tenant leasing industry.

    By capitalizing on our competitive strengths, we have delivered consistent
financial performance, developed a high-quality, diversified asset base and
established ourselves as a reliable provider of financing solutions for our
customers. We have consistently grown our adjusted earnings and dividends since
the quarter ended June 30, 1998, our first full quarter as a public company.
Between that quarter and the quarter ended June 30, 2002, we grew our adjusted
earnings on a diluted basis by 215.8%, from approximately $22.1 million to
$69.8 million, and increased our common stock dividend by 80.0%, from $0.35 to
$0.63 per share.

    The graph below shows our annual adjusted earnings since 1998, our first
year as a public company.

                                      S-14

                              ADJUSTED EARNINGS(1)

                                   [GRAPHIC]

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

(1)  We generally define "adjusted earnings" as net income computed in
     accordance with GAAP, before gain (loss) from discontinued operations,
    extraordinary items and cumulative effect of change in accounting principle,
    plus depreciation and amortization, less preferred stock dividends. See
    "Selected Financial Data" for a detailed reconciliation of adjusted earnings
    to GAAP net income.

(2)  Because second quarter 1998 was our first full quarter as a public company,
     adjusted earnings for 1998 represents results for the second quarter
    through the fourth quarter of 1998, annualized.

COMPETITIVE STRENGTHS

    We believe the following competitive strengths distinguish our business
model from other commercial finance enterprises and contribute to our ability to
generate attractive risk-adjusted returns to our common stockholders.

CREATIVE CAPITAL SOLUTIONS

    We target markets where customers require a knowledgeable provider of
capital which is capable of originating customized and flexible financial
products. We provide our customers with a level of service and creativity
generally unavailable from other lenders. We do not participate in distribution-
based commercial finance businesses, such as conduit lending and mortgage-backed
securities, which are typically characterized by intense price competition and
lower profit margins.

    We believe that we have a reputation in the marketplace for delivering
unique financing solutions and a high level of service to our customers in a
reliable and credible fashion. Since beginning our business in 1993, we have
provided nearly $2.8 billion in financing to customers who have sought our
expertise more than once.

    As a result of our focus, we have generated consistent and attractive
returns on our asset base. The graph below shows our return on average book
assets, after interest expense, since 1998, our first year as a public company.

                                      S-15

                        RETURN ON AVERAGE BOOK ASSETS(1)

                                   [GRAPHIC]

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

(1)  We define "return on average book assets" as the sum of adjusted earnings
     and preferred dividends divided by the average book value of assets
    outstanding during the year.

(2)  Because second quarter 1998 was our first full quarter as a public company,
     return on average book assets for 1998 represents second through fourth
    quarter 1998 results annualized, and our average assets during this period.

EXPERIENCED MANAGEMENT

    The 12 members of our executive management team have an average of more than
20 years of experience in the fields of real estate finance, private investment,
capital markets, transaction structuring, risk management, legal and loan
servicing, providing us with significant expertise in the key disciplines
required for success in our business. Our culture is also highly-focused toward
on-going asset risk management. We emphasize long-term, incentive-based
compensation, such as performance-based grants of restricted common stock,
rather than cash compensation, and none of our employees is compensated based on
the volume of investment originations. Our directors and employees directly own
approximately 5.7% of our outstanding common stock on a diluted basis, which had
a market value of approximately $146 million based upon the last reported sales
price of our common stock on November 5, 2002. Our executive management team is
supported by approximately 130 employees operating from six primary offices
nationwide.

SIGNIFICANT EQUITY BASE

    We had approximately $1.9 billion of tangible book equity and a consolidated
debt-to-book equity ratio of 1.7x as of June 30, 2002. We believe that we are
one of the most strongly capitalized asset-based finance companies. Our business
model is premised on maintaining significantly lower leverage than other
traditional commercial finance companies. We target a maximum consolidated
debt-to-book equity ratio of 2.0x, which is significantly lower than most other
commercial finance companies. We believe that operating within this targeted
range enables us to maintain a well-balanced, conservative and flexible capital
structure. In addition, our tax-advantaged structure as a REIT and our ability
to operate with less overhead, as a percentage of revenues, than many other
commercial finance companies enhance risk-adjusted returns on equity for our
common stockholders.

STABLE AND GROWING DIVIDEND

    We have paid $9.74 per share of dividends to our common stockholders and
have grown our dividend every year since going public in 1998. We believe that
our common dividend is firmly supported by the stable cash flows generated from
our asset base and by the cushion provided by the difference between our
adjusted earnings and dividend. For the second quarter of 2002, we paid a

                                      S-16

$0.63 per share common dividend ($2.52 annualized), representing a 79.7% payout
on our basic adjusted earnings per share for that period.

    The graph below shows our quarterly dividends per common share since 1998,
our first year as a public company.

                      QUARTERLY DIVIDENDS PER COMMON SHARE

                                   [GRAPHIC]

TAX-ADVANTAGED CORPORATE STRUCTURE

    Because of our focus on commercial real estate finance, we are able to
qualify as a REIT. Since we are taxed as a REIT, we do not pay corporate-level
taxes in most circumstances. This tax-advantaged structure enables us to produce
superior returns on equity for our stockholders compared to taxable finance
companies while utilizing significantly less leverage than most taxable finance
companies. The graph below shows our returns on average common book equity
ratios since our first year as a public company.

                    RETURN ON AVERAGE COMMON BOOK EQUITY(1)

                                   [GRAPHIC]

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

(1)  We define "return on average common book equity" as total adjusted earnings
     divided by the average common book value of equity outstanding during the
    year.

(2)  Because second quarter 1998 was our first full quarter as a public company,
     return on average common book equity for 1998 represents second through
    fourth quarter 1998 results annualized, and our average common book equity
    during this period.

ASSET QUALITY AND DIVERSIFICATION

    Throughout our operating history, we have focused on maintaining
diversification of our asset base by product line, asset type, obligor, property
type and geographic region. Asset diversification is a key

                                      S-17

part of our risk management strategy. Our borrower and corporate tenant base
includes more than 170 customers in a wide range of industries, and our assets
are backed by over 590 underlying properties of varying types located throughout
the U.S. The graphs below depict the diversification of our asset base, based
upon the total gross book value of our assets of approximately $5.2 billion as
of June 30, 2002.

     ASSET TYPE DIVERSIFICATION     PROPERTY TYPE DIVERSIFICATION     GEOGRAPHIC
DIVERSIFICATION

                                   [GRAPHIC]

    Secured first mortgages and corporate tenant lease assets together comprise
approximately 79% of our asset base. The weighted average "first dollar" and
"last dollar" loan-to-value ratios on our loan assets were 27.3% and 68.3%,
respectively, as of June 30, 2002. "First dollar" and "last dollar"
loan-to-value ratios represent the average beginning and ending points of our
lending exposure in the aggregate capitalization of the underlying assets or
companies that we finance.

    In addition, as of June 30, 2002, 56% of our corporate tenants, based on
GAAP annual lease payments, had actual or implied investment grade credit
ratings. Our corporate tenants include the U.S. Government and leading companies
such as Federal Express, IBM, Nike, Northrop Grumman, Verizon and Wells Fargo
Bank.

    We employ an in-depth review process and grading system to monitor the
credit quality of our asset base over time. We assign to each asset a risk
rating ranging from "one," which indicates superior credit quality, to "five,"
which indicates inferior credit quality. Each newly-originated asset is
typically assigned an initial rating of "three," or average. Based upon our
second quarter 2002 review, the weighted average risk rating of our loan assets
and corporate tenant lease assets was 2.74 and 2.76, respectively.

MATCH FUNDING DISCIPLINE

    Our objective is to match fund our liabilities and assets with respect to
maturities and interest rates. This means that we seek to match the maturities
of our financial obligations with the maturities of our investments. Match
funding allows us to reduce the risk of having to refinance our liabilities
prior to the maturities of our assets. In addition, we match fund interest rates
with like-kind debt (i.e., fixed-rate assets are financed with fixed-rate debt,
and floating-rate assets are financed with floating-rate debt), through the use
of hedges such as interest rate swaps, or through a combination of these
strategies. This allows us to reduce the impact of changing interest rates on
our earnings.

    Our objective is to limit volatility from a 100 basis point move in
short-term interest rates to no more than 2.5% of annual adjusted earnings per
share. As of June 30, 2002, a 100 basis point change in short-term interest
rates would have a 1.6% impact on our second quarter adjusted earnings per
share.

                                      S-18

ASSET BASE

    The table below sets forth certain financial characteristics of our asset
base as of June 30, 2002.

                  FINANCIAL CHARACTERISTICS OF OUR ASSET BASE



                                                                  LOANS           LEASES
                                                              -------------   --------------
                                                                     ($ IN MILLIONS)
                                                                        
Gross Carrying Value........................................         $2,926           $2,250
Total Financing Commitments.................................         $3,011   Not applicable
Number of Investments.......................................             76              111
Number of Underlying Properties.............................            416              176
Average Asset Size per Investment...........................          $38.5            $20.3
Average Asset Size per Property.............................           $7.0            $12.8
Weighted Average Maturity/Lease Term........................      4.2 years        9.6 years
Average First Dollar Loan-to-Value(1).......................          27.3%   Not applicable
Average Last Dollar Loan-to-Value(2)........................          68.3%   Not applicable
Percentage Investment Grade Credits(3)......................  Not available              56%


------------------------
(1)   "Average First Dollar Loan-to-Value" means the weighted average beginning
       point of our lending exposure in the aggregate capitalization of the
     underlying properties or companies we finance.

(2)  "Average Last Dollar Loan-to-Value" means the weighted average ending point
     of our lending exposure in the aggregate capitalization of the underlying
    properties or companies we finance.

(3)  Includes customers with implied investment grade ratings such as Cisco
     Systems, Mitsubishi Electronics of America and Volkswagen of America.

OUR TARGET MARKETS AND PRODUCT LINES

    We believe we are the largest dedicated participant in a $100-$150 billion
niche of the approximately $2.1 trillion commercial real estate market,
consisting of the $1.5 trillion commercial mortgage market and the $600 billion
single-user market for corporate office and industrial facilities. Our primary
product lines include structured finance, portfolio finance, corporate tenant
leasing, corporate finance and loan acquisition. Our real estate lending assets
consist of mortgages secured by real estate collateral, loans secured by equity
interests in real estate assets, and secured and unsecured loans to corporations
engaged in real estate or real estate-related businesses. Our corporate tenant
lease assets consist of office and industrial facilities that we typically
purchase from, and lease-back to, a diversified group of creditworthy corporate
tenants as a form of financing for their businesses. Our leases are generally
long-term, and typically provide for all expenses at the facility to be paid by
the corporate tenant on a "triple net" basis. Under a typical net lease
agreement, the corporate customer agrees to pay a base monthly operating lease
payment and all facility operating expenses, including taxes, maintenance and
insurance.

    The graph below shows the composition of our asset base by product line,
based on the total gross book value of our assets of approximately $5.2 billion
as of June 30, 2002.

                                      S-19

                          PRODUCT LINE DIVERSIFICATION

                                   [GRAPHIC]

STRUCTURED FINANCE

    We provide senior and subordinated loans that typically range in size from
$20 million to $100 million to borrowers holding high-quality real estate. These
loans may be either fixed or variable rate and are structured to meet the
specific financing needs of the borrowers, including the acquisition or
financing of large, high-quality real estate. We offer borrowers a wide range of
structured finance options, including first mortgages, second mortgages,
partnership loans, participating debt and interim facilities. Our structured
finance transactions have maturities generally ranging from three to ten years.
As of June 30, 2002, based on gross carrying values, our structured finance
assets represented 22.1% of our assets.

PORTFOLIO FINANCE

    We provide funding to regional and national borrowers who own multiple
facilities in geographically diverse portfolios. Loans are cross-collateralized
to give us the benefit of all available collateral and underwritten to recognize
inherent portfolio diversification. Property types include multifamily, suburban
office, hotels and other property types where individual property values are
less than $20 million on average. Loan terms are structured to meet the specific
requirements of the borrower and typically range in size from $25 million to
$150 million. Our portfolio finance transactions have maturities generally
ranging from three to ten years. As of June 30, 2002, based on gross carrying
values, our portfolio finance assets represented 8.7% of our assets.

CORPORATE TENANT LEASING

    We provide capital to corporations and borrowers who control facilities
leased to single creditworthy tenants. Our net leased assets are generally
mission-critical headquarters or distribution facilities that are subject to
long-term leases with rated corporate tenants, and which provide for all
expenses at the property to be paid by the corporate tenant on a triple net
lease basis. Corporate tenant lease transactions have terms generally ranging
from ten to 20 years and typically range in size from $20 million to
$150 million. As of June 30, 2002, based on gross carrying values, our corporate
tenant lease assets represented 40.7% of our assets.

    We pursue the origination of corporate tenant lease transactions by
structuring purchase/ leasebacks and by acquiring facilities subject to existing
long-term net leases. In a purchase/leaseback transaction, we purchase the
property from the corporate tenant and lease it back to the tenant on a

                                      S-20

triple-net basis. The purchase/ leaseback structure allows the corporate
customer to reinvest the proceeds from the sale of its facilities into its core
business, while we capitalize on our structured financing expertise.

    Our corporate tenant lease investments primarily represent a diversified
portfolio of mission-critical headquarters or distribution facilities subject to
net lease agreements with creditworthy corporate tenants. By "mission-critical"
we mean the tenant views our facility as being of strategic and operational
importance to its business activities. In our experience, tenants tend to first
vacate and reject leases on their non-core facilities when they experience
financial distress, but continue to occupy and remain current on their lease
payments for mission-critical facilities because these facilities are needed to
continue to run the business. The corporate tenant lease investments we target
generally involve: (1) high-quality, general-purpose real estate with residual
values that represent a discount to current market values and replacement costs;
and (2) corporate tenants that are established companies with stable core
businesses or market leaders in growing industries with investment-grade credit
strength or appropriate credit enhancements if corporate credit strength is not
sufficient.

    Since acquiring our leasing subsidiary in November 1999, we have increased
the weighted average lease term of our corporate tenant lease assets from 5.6 to
9.6 years. During that time we have also executed over 15.4 million square feet
of new and renewal leases in 125 total transactions with a weighted average
lease term of 13.5 years. Throughout this leasing activity, we have emphasized
early lease renewals. Of the 3.9 million square feet of leases renewed since
June 1999, approximately 1.8 million square feet (46%) represented early
renewals where there were more than 12 months left on the primary lease term. As
of June 30, 2002, our corporate tenant lease portfolio was 97.0% leased.

    As of June 30, 2002, we had more than 170 corporate customers operating in
more than 22 different Standard Industrial Classification codes, including
aerospace, energy, financial services, healthcare, hospitality, technology,
government services, manufacturing and telecommunications. These customers
include well-recognized national and international companies, such as
Accenture Ltd., Federal Express, IBM, Nike, Nokia Corporation, Northrop Grumman,
Verizon, Volkswagen of America and Wells Fargo Bank.

                                      S-21

    The table below summarizes our corporate tenant lease customers by Standard
Industrial Classification code as of June 30, 2002 (by gross carrying value).

                           CTL PORTFOLIO BY SIC CODE

                                   [GRAPHIC]

                                      S-22

    The table below illustrates our corporate tenant lease expirations as of
June 30, 2002.

                               LEASE EXPIRATIONS



                                                      ANNUALIZED SECOND QUARTER   % OF ANNUALIZED
                                                            2002 EXPIRING         SECOND QUARTER
                                   NUMBER OF LEASES   OPERATING LEASE REVENUES         2002
YEAR OF LEASE EXPIRATION               EXPIRING           ($ IN THOUSANDS)         TOTAL REVENUE
------------------------           ----------------   -------------------------   ---------------
                                                                         
2002.............................          9                    $4,754                  0.9%

2003.............................         18                    12,211                  2.3%

2004.............................         25                    24,039                  4.5%

2005.............................         17                    15,375                  2.9%

2006.............................         30                    29,158                  5.5%

2007.............................         22                    20,278                  3.8%

2008.............................          8                     9,436                  1.8%

2009.............................         16                    17,228                  3.3%

2010.............................          5                     6,222                  1.2%

2011.............................          4                     1,880                  0.4%

2012 and thereafter..............         36                   126,112                 23.9%
                                         ---                  --------                 ----

Total............................        190                  $266,693                 50.5%
                                         ===                  ========                 ====


CORPORATE FINANCE

    We provide senior and subordinated capital to corporations engaged in real
estate or real estate-related businesses. Financings may be either secured or
unsecured and typically range in size from $20 million to $150 million. Our
corporate finance transactions have maturities generally ranging from five to
ten years. As of June 30, 2002, based on gross carrying values, our corporate
finance assets represented 13.6% of our assets.

LOAN ACQUISITION

    We acquire whole loans and loan participations which present attractive
risk-reward opportunities. Loans are generally acquired at a small discount to
the principal balance outstanding. Loan acquisitions typically range in size
from $5 million to $100 million and are collateralized by all major property
types. Our loan acquisition transactions have maturities generally ranging from
three to ten years. As of June 20, 2002, based on gross carrying values, our
loan acquisition assets represented 9.8% of our assets.

                                      S-23

                                  OUR STRATEGY

    Our objective is to deliver superior risk-adjusted returns on equity to our
stockholders by providing innovative and value-added financing solutions to our
customers. We believe we have established a market leadership position for
highly structured mortgage, corporate and mezzanine financing backed by
high-quality commercial real estate nationwide. We deliver customized financial
products to sophisticated real estate borrowers and corporate customers who
require a high level of creativity and service. Our ability to provide
value-added financial solutions has consistently enabled us to realize margins
and returns on capital that are more attractive than those earned by many other
commercial real estate lenders.

INVESTMENT STRATEGY

    In order to accomplish our objective, we have implemented the following
investment strategy:

    - We focus on the origination of structured mortgage, corporate and lease
      financings backed by high-quality commercial real estate assets located in
      major U.S. metropolitan markets.

    - We offer sophisticated borrowers and corporate customers added value in
      the form of specific lending expertise, flexibility, certainty and
      post-closing support.

    - We seek to develop direct relationships with borrowers and corporate
      tenants as opposed to sourcing transactions through intermediaries.

    - We avoid businesses in which there is significant direct competition from
      other providers of capital.

    - We take advantage of market anomalies in the real estate financing markets
      when we believe credit is mispriced by other providers of capital, such as
      the spread between lease yields and the yields on corporate tenants'
      underlying credit obligations.

    - We stress test potential investments for adverse economic and real estate
      market conditions.

    We source our investment transactions from our existing relationships with
real estate owners, through other direct relationships within the real estate
and corporate finance communities, and from other capital providers and advisors
who refer customers to us. We also utilize information obtained from our risk
management group to generate leads on potential investment opportunities. We
have completed nearly $2.8 billion of financing transactions with borrowers who
have sought our expertise more than once.

    We discuss and analyze investment opportunities during regular weekly
meetings which are attended by all of our investment professionals, as well as
representatives from our legal, risk management and capital markets areas. We
have developed a process for screening potential investments called the Six
Point Methodology(sm). The Six Point Methodology(sm) reflects the six
fundamental criteria by which we evaluate an investment opportunity prior to
beginning our formal underwriting and commitment process.

                         THE SIX POINT METHODOLOGY(SM)

    - First, we evaluate the source of the opportunity. We prefer opportunities
      where we have a direct relationship with the customer or an intermediary
      who has worked with us before, because we believe that such relationships
      enable us to add more value to a transaction.

    - Second, we evaluate the quality of the collateral or corporate credit, as
      well as its market or industry dynamics.

                                      S-24

    - Third, we evaluate the equity or corporate sponsor, including factors such
      as its reputation, financial strength and commitment to the collateral.

    - Fourth, we determine whether we can implement an appropriate legal and
      financial structure for the transaction given its risk profile, including
      our ability to control the collateral under various circumstances.

    - Fifth, we perform an alternative investment test. If we believe that we
      can earn a better risk-adjusted return in a comparable asset class or
      different part of the customer's capital structure, then the proposed
      investment will score poorly in this category.

    - Sixth, we evaluate the liquidity of the investment and our ability to
      match fund the asset. A security that is too highly structured is less
      desirable because it may limit our ability to obtain appropriately priced
      financing for the asset, or our ability to sell it if we ever so desire.

    We have an intensive underwriting process in place for all potential
investments. This process provides for comprehensive feedback and review by all
the disciplines within our company, including investments, credit, risk
management, legal/structuring and capital markets. Participation is encouraged
from all professionals throughout the entire origination process, from the
initial consideration of the opportunity, through the Six Point Methodology(sm)
and into the preparation and distribution of a comprehensive memorandum for our
internal and Board of Directors investment committees.

    Commitments of less than $30 million require the unanimous consent of our
internal investment committee, consisting of senior management representatives
from each of our key disciplines. For commitments between $30 million and
$50 million, the further approval of our Board of Directors' investment
committee is also required. All commitments of $50 million or more must be
approved by our full Board of Directors.

RISK MANAGEMENT

    In addition to mitigating risk through the careful underwriting and
structuring of our investments, we further pro-actively manage risk by:
(1) generating, analyzing and distributing information on-line to all our
employees about our collateral and our customers on a continuous, real-time
basis; (2) holding weekly company-wide meetings to identify and address risk
management issues; (3) applying a comprehensive risk rating process;
(4) establishing loan loss reserves and asset impairment procedures; and
(5) managing our assets and liabilities through match funding. We believe these
risk management measures enable us to effectively manage our asset base and
minimize our risk of loss. More than 50 of our approximately 140 employees are
dedicated to our risk management platform.

COLLATERAL AND CUSTOMER MONITORING

    We have comprehensive real-time risk management systems that enable us to
pro-actively monitor the performance of our asset base and to quickly identify
and address potential issues with any of our assets. Risk management
information, which is generated from numerous collateral-level controls,
extensive customer reporting requirements and on-site asset monitoring programs,
is accessible to all our employees nationwide via computer.

    Our comprehensive risk management systems require the active participation
of each of our senior professionals and other employees within our regional
office infrastructure. Every employee nationwide has access, via our computer
network, to various risk management reports which provide real-time information
regarding the performance of our asset base. These reports, which are
continually updated as new customer information is received, are based on
information that is: (1) required to be provided by our customers;
(2) generated by our risk management professionals; and (3) obtained from the
public domain. Examples of risk management reports include daily payment
reports, monthly covenant reviews, monthly reserve balance reports, monthly
budget-versus-actual analyses of collateral and

                                      S-25

corporate customer performance, leasing activity reports and quarterly risk
ratings reviews. This process ensures that risk management issues are quickly
identified and that decisions are based on the most current information
available.

    iStar Asset Services, or "iSAS," our rated loan servicing subsidiary, and
iStar Real Estate Services, or "iRES," our corporate tenant lease asset
management division, are critical to our asset and customer monitoring efforts.
Together, they are principally responsible for managing our asset base,
including monitoring our customers' compliance with their respective loan and
leasing agreements, collecting customer payments, and efficiently analyzing and
distributing customer performance information throughout our company on a
real-time basis. iSAS and iRES provide daily information on the performance and
condition of our asset base. iSAS is currently rated "above average" by
Standard & Poor's and CMS3+ by Fitch as a master servicer. In addition to
servicing our asset base, iSAS also provides loan servicing to third-party
institutional owners of loan portfolios.

    Our loan customers are required to comply with periodic covenant tests, and
typically must submit extensive collateral performance information such as
monthly operating statements and operating budgets. We also may require
customers to deposit cash into escrow accounts to cover major capital
expenditures, such as expected re-tenanting costs, and we typically require
approval rights over major decisions impacting collateral cash flows. In many
cases, collateral cash receipts must be deposited into lock-box bank accounts
that we control. We then distribute the net cash, after our debt service, to our
customers.

    We furnish on-site asset management services for most of our corporate
tenant lease customers, providing us with daily information regarding the
condition of our assets. In addition, we have a formal annual inspection program
that ensures that our corporate tenant lease customers are complying with their
lease terms. Customer lease payments are deposited directly into lock-box
accounts managed by our treasury group, and corporate customers are required to
submit financial statements on a regular basis to our corporate credit
professionals. In addition, our risk management group monitors the wire services
for important news on our customers, including press releases, earnings
announcements, credit ratings changes, research reports relating to our
corporate customers and local market conditions, and distributes this
information via email to all of our employees. All new corporate tenant leases
must be approved by our Chief Operating Officer who evaluates, with the
assistance of our credit professionals, the creditworthiness and appropriate
security, if any, required by us.

WEEKLY RISK MANAGEMENT MEETINGS

    We hold weekly company-wide meetings to identify current issues, and conduct
monthly meetings to review actual collateral performance compared to our
customers' budgets. During the weekly meetings, our regional offices connect via
videoconference with our headquarters and we review asset-specific issues in
detail. At these meetings, we develop an action plan to resolve any issues which
arise. We also conduct systematic, asset-specific reviews of both our loan and
corporate tenant lease assets on a quarterly basis, as discussed below.

RISK RATING PROCESS

    We have a comprehensive risk rating process that enables us to evaluate,
monitor and pro-actively manage asset-specific credit issues and identify credit
trends on a portfolio-wide basis. We conduct a detailed credit review of each
asset on a quarterly basis, and we assign individual risk ratings to each asset
ranging from "one" to "five." Attendance is mandatory for all of our
professionals, including those in our regional offices. A "one" indicates
superior credit quality, a "two" signifies better than average credit quality, a
"three" serves as an average rating, a "four" indicates that management time and
attention is required for the asset, and a "five" denotes a problem asset with
potential principal risk to us. In addition to the ratings system, we maintain a
"watch list" of assets which are generally

                                      S-26

rated "four," but which require highly pro-active asset management to preserve
their current ratings. Each newly-originated loan asset is typically assigned an
initial rating of "three," or average.

    Risk ratings provide a common language and uniform framework by which we can
discuss and evaluate risk and relative levels of risk across our asset base.
This is our primary early warning system and provides us with a means of
identifying assets that warrant a greater degree of monitoring and senior
management attention. In addition, this process provides a useful forum to
identify assets or markets that may offer opportunities for new business.
Lastly, the risk ratings process serves as a basis for determining our quarterly
loan loss provision and evaluating the adequacy of our reserves.

    Based upon our second quarter 2002 review, the weighted average risk rating
of our loan assets and corporate tenant lease assets was 2.74 and 2.76,
respectively.

                         WEIGHTED AVERAGE RISK RATINGS

                                   [GRAPHIC]

    We consider several primary variables in determining which rating to assign
to an asset. For our loans, the seven primary risk attributes are:

    - Trailing and projected collateral operating performance and debt service
      coverage ratios.

    - Current and estimated loan-to-value ratios.

    - Local and regional economic and real estate market trends.

    - Loan structure.

    - Collateral condition, location and marketability.

    - Borrower's source of repayment funds or ability to refinance or sell the
      collateral.

    - Borrower financial strength, quality of sponsorship and capital commitment
      to the collateral.

    For our corporate tenant leases, the five primary risk attributes are:

    - Corporate tenant credit and industry dynamics.

    - Remaining lease term.

    - Property condition, location and marketability.

    - Local and regional economic and real estate market trends.

    - Our book basis in the asset.

                                      S-27

CREDIT LOSS RESERVE POLICY AND ASSET IMPAIRMENT PROCEDURES

    Our policy for establishing loan loss reserves and our asset impairment
procedures are consistent with established accounting standards. Our reserve
levels reflect our judgment of loss potential and are evaluated based upon the
quarterly risk rating review process. The overall factors in this evaluation
include:

    - General economic conditions.

    - General loss trends in the industry, including comprehensive, long-term
      data on commercial mortgage delinquencies and loss severities tracked by
      the American Council of Life Insurers and a number of academic studies.

    - The size, diversity and geographic concentration of our asset base.

    In addition to our general loan loss reserves, we also have asset-specific
credit protection, including cash reserve accounts, cash deposits and letters of
credit which totaled $165.2 million for our loan assets as of June 30, 2002.
Where appropriate, we typically require this incremental credit protection to be
funded and/or posted at the closing of a transaction in accounts in which we
have a security interest. As of June 30, 2002, accumulated loan loss reserves
and other asset-specific credit protection represented an aggregate of
approximately 6.5% of the gross book value of our loans.

    We have never realized a loss of principal or interest on any loan
investment we have funded. As of June 30, 2002, we had only two assets on
non-accrual status with an aggregate gross book value of $5.6 million (0.11% of
the gross book value of our investments). Each of the loans on non-accrual
status remains current on its debt service payments to us.

    As required under generally accepted accounting principles, we accumulate
depreciation against our CTL assets, which reduces our book basis in those
assets relative to our original purchase price. In addition, where appropriate,
we also require certain CTL customers to post additional security for their
lease obligations in the form of cash deposits and/or letters of credit. These
cash deposits and letters of credit, which serve as additional asset-specific
credit protection for our CTL assets, totaled $83.8 million as of June 30, 2002.
In aggregate, cash deposits, letters of credit and accumulated depreciation
relating to corporate tenant lease assets represented 9.4% of the gross book
value of our corporate tenant lease assets at that date.

ASSET/LIABILITY MANAGEMENT

    Our objective is to match fund our liabilities and assets with respect to
maturities and interest rates. This means that we seek to match the maturities
of our financial obligations with the maturities of our investments. Match
funding allows us to reduce the risk of having to refinance our liabilities
prior to the maturity of our assets. In addition, we match fund interest rates
with like-kind debt (i.e., fixed-rate assets are financed with fixed-rate debt,
and floating-rate assets are financed with floating-rate debt), through the use
of hedges such as interest rate swaps, or through a combination of these
strategies. This allows us to reduce the impact of changing interest rates on
our earnings. Our objective is to limit volatility from a 100 basis point move
in short-term interest rates to no more than 2.5% of annual adjusted earnings
per share. As of June 30, 2002, a 100 basis point change in short-term interest
rates would have a 1.6% impact on our second quarter adjusted earnings per
share.

FINANCING STRATEGY

    Our financing strategy revolves around three primary principles that are key
to our business model:

    - Maintain significantly lower leverage than other commercial finance
      companies and a large tangible equity capital base.

                                      S-28

    - Develop a deep and broad array of capital sources from a diversified group
      of debt and equity providers in order to insulate our business from
      potential fluctuations in the availability of capital.

    - Match fund our liabilities and assets to minimize the risk that we have to
      refinance our liabilities prior to the maturities of our assets and to
      reduce the impact of changing interest rates on our earnings.

LOWER LEVERAGE AND A LARGE TANGIBLE EQUITY CAPITAL BASE.

    Our business model is premised on operating at significantly lower leverage
and maintaining a larger tangible equity capital base than many other commercial
finance companies. At June 30, 2002, our consolidated debt-to-book equity ratio
was 1.7x. We target a maximum consolidated debt-to-book equity ratio of 2.0x,
and believe that this is the appropriate leverage level for our business model.

ACCESS TO A DEEP AND BROAD ARRAY OF RELIABLE CAPITAL SOURCES.

    We seek to develop a deep and broad array of reliable debt and equity
capital sources to fund our business. Accordingly, we maintain a diverse range
of short-and long-term financing sources from both the secured and unsecured
lending and capital markets. We also believe that our track record as a private
and public company and our investor base, comprised of leading institutional
investors and high net worth individuals, will enable us to continue to access
the public and private equity capital markets.

    As of September 30, 2002, we had $2.4 billion of committed total capacity
under our secured credit facilities. We primarily use our secured facilities to
initially fund our investments prior to seeking match funded, long-term
financing sources. Our secured facilities bear interest rates ranging from LIBOR
plus 1.40% to LIBOR plus 2.25%, and have final maturities, including extension
options, ranging from August 2003 to September 2005.

    At September 30, 2002, we maintained unsecured lending relationships with a
number of leading commercial banks and had $300.0 million of committed total
capacity under our unsecured facility. We primarily use our unsecured facility
for working capital purposes and as of September 30, 2002, we had no amounts
outstanding under this facility. We also had $625.0 million of long-term
corporate unsecured debt outstanding at that date.

MATCH FUNDING

    We primarily execute our match funding strategy through our own proprietary
matched funding program, iStar Asset Receivables or "STARs(sm)," as well as
through term lending relationships with approximately 12 large financial
institutions. Using STARs(sm), we can access the securitized debt markets by
issuing investment-grade rated securities collateralized by pools of our
structured finance and corporate tenant lease assets. The STARs(sm) bond
maturities match the maturities of the underlying collateral, thereby
eliminating refinancing risk. We continue to service the assets in the
collateral pool through our loan servicing subsidiary, iStar Asset Services.
Because STARs(sm) is an on-balance sheet financing program, we recognize no gain
on sale in our financial statements when utilizing this vehicle.

    We completed our latest STARs(sm) transaction in May 2002, and issued
approximately $900 million of investment-grade rated bonds backed by
approximately $1.1 billion of collateral. The weighted average interest rate on
the offered bonds, expressed on an all-floating rate basis, was approximately
LIBOR + 56 basis points. The proceeds from this transaction were used to repay
outstanding borrowings under our credit facilities and our first STARs
transaction.

    We believe that the STARs(sm) program provides us significantly more
flexibility in managing our collateral and match funding our liabilities and
assets than other securitization structures, and that both the strong
performance of our initial STARs(sm) transaction and execution of our second
STARs(sm)

                                      S-29

transaction should positively impact future debt issuances under this program.
In addition, we view the securitized debt markets as a very reliable source of
debt capital, even when macroeconomic conditions make other lending markets
unavailable or unattractive. As of September 30, 2002, we had $877.8 million of
STARs(sm) bonds outstanding.

    We also use term debt to match fund our investments, and we maintain term
lending relationships with approximately 12 major commercial banks and insurance
companies. As part of these term lending relationships, we have developed an
innovative debt facility with a commercial bank that match funds certain of our
corporate finance investments. We believe that the STARs(sm) program and our
relationships with various term lenders provide us with a reliable,
cost-effective and diverse source of capital for match funding our liabilities
and assets. As of September 30, 2002, we had 17 individual term loans with a
total outstanding balance of $639.0 million.

                                      S-30

                  COMMON STOCK PRICE AND DIVIDEND PERFORMANCE

    The high and low sales prices per share and the dividends paid or declared
by us on our common stock are each set forth below for the quarters indicated.



                                                             PRICE RANGE OF OUR
                                                                COMMON STOCK
                                                             -------------------
QUARTERLY PERIOD ENDED                                         HIGH       LOW      DIVIDEND/SHARE
----------------------                                       --------   --------   --------------
                                                                          
2000:
March 31, 2000.............................................  $18.7500   $16.6250      $  0.60
June 30, 2000..............................................  $20.9375   $17.3750      $  0.60
September 30, 2000.........................................  $22.4375   $20.2500      $  0.60
December 31, 2000..........................................  $21.6250   $19.0625      $  0.60
2001:
March 31, 2001.............................................  $25.7000   $19.1875      $0.6125
June 30, 2001..............................................  $28.2000   $22.7400      $0.6125
September 30, 2001.........................................  $28.4600   $22.4900      $0.6125
December 31, 2001..........................................  $26.0500   $23.0100      $0.6125
2002:
March 31, 2002.............................................  $28.9000   $24.5900      $  0.63
June 30, 2002..............................................  $31.4500   $28.5000      $  0.63
September 30, 2002.........................................  $29.5500   $25.3000      $  0.63
Through November 5, 2002...................................  $28.4000   $25.9000


                                   MANAGEMENT

    The following table sets forth the names and the positions of our senior
officers:



NAME                                                              TITLE
----                                   ------------------------------------------------------------
                                    
Jay Sugarman.........................  Chairman and Chief Executive Officer
Spencer B. Haber.....................  President and Director
Timothy J. O'Connor..................  Chief Operating Officer
Catherine D. Rice....................  Chief Financial Officer
Daniel S. Abrams.....................  Executive Vice President--Investments
Roger M. Cozzi.......................  Executive Vice President--Investments
Jeffrey R. Digel.....................  Executive Vice President--Investments
R. Michael Dorsch, III...............  Executive Vice President--Investments
Barclay G. Jones, III................  Executive Vice President--Investments
H. Cabot Lodge, III..................  Executive Vice President--Investments and Director
Nina B. Matis........................  Executive Vice President and General Counsel
Diane Olmstead.......................  Executive Vice President--Investments
Barbara Rubin........................  President--iStar Asset Services, Inc.
Steven R. Blomquist..................  Senior Vice President--Investments
Jeffrey N. Brown.....................  Senior Vice President--Risk Management
Chase S. Curtis, Jr..................  Senior Vice President--Credit
Geoffrey M. Dugan....................  Senior Vice President--Human Resources and Assistant General
                                       Counsel
Peter K. Kofoed......................  Senior Vice President--Risk Management
John F. Kubicko......................  Senior Vice President--Risk Management
Andrew C. Richardson.................  Senior Vice President--Capital Markets
Steven B. Sinnett....................  Senior Vice President--Capital Markets
Elizabeth B. Smith...................  Senior Vice President--Risk Management


                                      S-31

SENIOR MANAGEMENT

    JAY SUGARMAN is Chairman of the Board and Chief Executive Officer of iStar
Financial. Mr. Sugarman has served as a director of iStar Financial (and its
predecessor) since 1996 and Chief Executive Officer since 1997. Under
Mr. Sugarman's leadership, iStar Financial has become a leading provider of
structured financial solutions to high-end private and corporate owners of real
estate in the United States. Previously, Mr. Sugarman was president and
co-general partner of Starwood Mezzanine Investors, L.P., a private investment
partnership specializing in structured real estate finance. Prior to forming
Starwood Mezzanine, Mr. Sugarman managed diversified investment funds on behalf
of the Burden family, a branch of the Vanderbilt family, and the Ziff family.
While in that position, he was jointly responsible for the formation of Starwood
Capital and the formation of HBK Investments, one of the nation's largest
convertible arbitrage trading operations. He received his undergraduate degree
SUMMA CUM LAUDE from Princeton University, where he was nominated for
valedictorian and received the Paul Volcker Award in Economics, and his M.B.A.
with high distinction from Harvard Business School, graduating as a Baker
Scholar and recipient of the school's academic prizes for both finance and
marketing. Mr. Sugarman is a director of WCI Communities, Inc., a residential
developer in South Florida.

    SPENCER B. HABER is President and a director of iStar Financial. Mr. Haber
has served as a director of iStar Financial since June 1999 and its President
since June 2001, having also served as Chief Financial Officer between June 1998
and November 2002. Mr. Haber maintains oversight responsibility for iStar
Financial's capital-raising initiatives and external communications and has
primary responsibility for overall corporate business development, including
mergers and acquisitions. Mr. Haber also sits on iStar Financial's internal and
Board Investment Committees. Prior to joining iStar Financial, Mr. Haber was a
senior member of Lehman Brothers' global real estate group and was responsible
for that firm's real estate mergers and acquisitions business. In addition to
his M&A role, Mr. Haber maintained primary client coverage responsibilities in
raising equity and debt capital for a wide range of public and private
companies, participating in more than $10 billion of transactions. Before Lehman
Brothers, Mr. Haber was a member of Salomon Brothers' real estate investment
banking unit. At Salomon Brothers, Mr. Haber participated in that firm's
principal and advisory real estate activities. Prior to Salomon Brothers,
Mr. Haber worked for MIG Capital Management, a joint venture of MIG Companies, a
domestic real estate pension fund advisor, and Charterhouse Inc., a British
merchant bank. Mr. Haber holds a B.S. degree in economics SUMMA CUM LAUDE, and
an M.B.A. from the Wharton School, where he graduated a Palmer Scholar. He is a
member of the Urban Land Institute, and sits on the board of directors of
Capital Thinking Inc., a software provider to the financial services industry.

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

    CATHERINE D. RICE has served as Chief Financial Officer of iStar Financial
since November 2002. Ms. Rice is responsible for managing all of the iStar
Financial's capital raising initiatives, financial reporting and investor
relations activities, as well as overseeing all other finance, treasury and

                                      S-32

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

    DANIEL S. ABRAMS has served as an Executive Vice President--Investments of
iStar Financial since November 2001. Previously, Mr. Abrams was a founding
principal of Citadel Realty Group, LLC, a New York based boutique investment
bank specializing in advisory work and debt and equity placements for all forms
of commercial real estate properties and companies in North America and Europe.
Prior to forming Citadel, Mr. Abrams was a managing director at Donaldson,
Lufkin and Jenrette, where he was responsible for the hospitality and leisure
practice, focusing on debt originations, equity offerings and advisory
assignments to public and private companies in that area. Before DLJ,
Mr. Abrams was a managing director and the head of the Hospitality Finance Group
of Nomura Capital. While at Nomura Capital, Mr. Abrams led the financing of over
$6.5 billion in the hospitality sector and over $600 million in the office,
multifamily and retail sectors. Before joining Nomura Capital in 1993,
Mr. Abrams had been a partner at Rosenman & Colin, a major New York City law
firm. He received an LL.M. in Taxation from the New York University of Law; a JD
from the National Law Center of the George Washington University, where he was
editor-in-chief of the Law Review; and a B.S. in Economics from the Wharton
School. He has served as a member of the American Hotel & Lodging Association's
Industry Real Estate Finance Advisory Council (IREFAC) and the ULI's Hotel
Development Council.

    ROGER M. COZZI has served as an Executive Vice President--Investments of
iStar Financial since January 2002 and is co-head of our internal Investment
Committee. Since joining iStar Financial and its predecessor in 1995, Mr. Cozzi
has been responsible for the origination of structured financing transactions
and has successfully closed over $1 billion of first mortgage, mezzanine and
corporate finance investments. From 1995 to 1998, Mr. Cozzi was an investment
officer at Starwood Mezzanine Investors, L.P. and Starwood Opportunity Fund IV,
two private investment funds that specialized in structured real estate finance
and opportunistic equity investments. Prior to joining Starwood, Mr. Cozzi spent
three years at Goldman, Sachs & Co. While at Goldman Sachs, he spent two years
in the real estate department, where he focused on securitizing and selling
investment grade and non-investment grade securities backed by pools of
commercial mortgages, evaluating performing commercial mortgage loans for
potential principal investment by the Whitehall funds and consulting large
corporate tenants on lease alternatives. After two years in real estate,
Mr. Cozzi transferred into the investment management industry group, where he
worked on several merger transactions, created a conduit to lend directly to
mutual funds, and helped create a vehicle to securitize 12b-1 financing fees.
Mr. Cozzi graduated magna cum laude from the Wharton School with a Bachelor of
Science degree in Economics (with concentrations in Finance and Entrepreneurial
Management).

    JEFFREY R. DIGEL has served as an Executive Vice President--Investments of
iStar Financial since March 2000 and is co-head of our internal Investment
Committee. Prior to that, he was Senior Vice President--Investments since
May 1998. Mr. Digel is responsible for the origination of new structured
financing transactions, focusing on iStar Financial's financial institution and
loan correspondent relationships. Previously, Mr. Digel was a vice
president-mortgage finance at Aetna Life Insurance Company responsible for
commercial mortgage securitizations, management of Aetna's mortgage
correspondent network, management of a $750 million real estate equity portfolio
for Aetna's pension

                                      S-33

clients and origination of new equity investments. Prior to joining Aetna,
Mr. Digel was a member of Hart Advisors, responsible for the development and
supervision of the portfolio, asset management and client communications
functions for Hart's real estate pension advisory business. In addition,
Mr. Digel is a member of the Mortgage Bankers Association and the International
Council of Shopping Centers. Mr. Digel received a B.A. degree from Middlebury
College and an M.M. from Northwestern University.

    R. MICHAEL DORSCH, III has served as an Executive Vice
President--Investments of iStar Financial since March 2000, focusing on our
corporate tenant leasing business. Prior to joining iStar Financial, Mr. Dorsch
was a principal of ACRE Partners LLC, a privately held firm focused on providing
public and private corporations with highly-structured, value-added financing
solutions for their corporate real estate facilities. Mr. Dorsch was a founder
and managing partner of Corporate Realty Capital, a Boston-based real estate
investment bank from 1990 to 1997. CRC was formed as an affiliate of Corporate
Property Investors and focused on originating, structuring and financing net
lease transactions. Prior to the formation of CRC, Mr. Dorsch was a partner in a
Boston-based real estate development, ownership and management concern. From
1984 to 1986, Mr. Dorsch was a vice president of Winthrop Financial Associates,
private real estate syndication, where he structured and placed equity interests
in transactions capitalized at over $1 billion. Mr. Dorsch graduated with a
Sc.B. in Mechanical Engineering from Brown University and earned honors while
receiving an M.B.A. from Harvard Business School.

    BARCLAY G. JONES, III has served as an Executive Vice President--Investments
of iStar Financial since March 2000, focusing on our corporate tenant leasing
business. Prior to joining iStar Financial, Mr. Jones was a principal of ACRE
Partners LLC, a privately held firm focused on providing public and private
corporations with highly-structured, value-added financing solutions for their
corporate real estate facilities. Prior to that, Mr. Jones served in a variety
of capacities, including vice chairman and chief acquisitions officer, for W.P.
Carey & Co., Inc. from 1982 to 1998. During that period, Mr. Jones was
responsible for originating in excess of $2 billion of sale-leaseback financings
and over $1 billion of mortgage placements. During his tenure at W.P. Carey, the
firm grew from fewer than ten employees to over 70, and from approximately
$100 million in assets to over $2.5 billion. Mr. Jones holds a B.S. degree in
economics from the Wharton School.

    H. CABOT LODGE, III has served as a director and an Executive Vice
President--Investments of iStar Financial since March 2000, and maintains
primary responsibility for jointly overseeing iStar Financial's corporate tenant
lease investment activity. Prior to joining iStar Financial, Mr. Lodge was a
founder and principal of ACRE Partners LLC, a privately held firm focused on
providing public and private corporations with highly structured, value-added
financing for their corporate real estate facilities. Mr. Lodge served as
chairman of Superconducting Core Technologies, Inc., a wireless communications
company from 1995 to 1997, and prior to that was managing director and co-head
of investments for W.P. Carey & Co., Inc. from 1983 to 1995. Mr. Lodge is a
director of Meristar Hospitality Corporation, High Voltage Engineering
Corporation and TelAmerica Media, Inc. Mr. Lodge graduated with honors from
Harvard College and received his M.B.A. from Harvard Business School.

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

                                      S-34

in both The Best Lawyers of America and Sterling's Who's Who. Ms. Matis received
a B.A. degree, with honors, from Smith College and a J.D. degree from New York
University School of Law.

    DIANE OLMSTEAD has served as an Executive Vice President--Investments of
iStar Financial in our San Francisco office since September 2000, and is
responsible for the origination of new financing transactions. Prior to joining
us, Ms. Olmstead was executive vice president of institutional ventures for
Redbricks.com, an Internet start-up focused on the commercial real estate
market. Previously, Ms. Olmstead was a partner at Arthur Andersen where she
founded and ran the real estate capital markets (RECM) group for the western
region. The RECM group executed private equity and debt placements, portfolio
and company sales, REIT IPO advisory and M&A transactions in excess of
$4.7 billion. Ms. Olmstead is a graduate of SUNY at Buffalo with a B.A. in
English. She is a member of Urban Land Institute and National Association of
Industrial and Office Park Owners, Fisher Center For Real Estate and Urban
Economics Policy Advisory Board, Lambda Alpha and Mortgage Bankers Association.

    BARBARA RUBIN is President of iStar Asset Services, Inc., our Hartford-based
loan asset management and servicing operation. She has more than 20 years of
real estate investment experience, including loan and real estate equity
origination, portfolio management, loan servicing, and capital markets
activities. Prior to joining iStar Financial, Ms. Rubin was president and chief
operating officer of Phoenix Realty Securities, Inc., a real estate advisory
operation which managed portfolios of real estate securities (including mortgage
loan investments and real estate equity securities). She is currently Chair of
the Connecticut Health and Education Facilities Authority, a member of the Board
of Governors of the Mortgage Bankers Association and a member of the Board of
Commercial Mortgage Securities Association. Ms. Rubin received a B.A. from
Williams College and an M.B.A. from the University of Connecticut.

    STEVEN R. BLOMQUIST has served as Senior Vice President--Investments of
iStar Financial since September 1998. Mr. Blomquist is responsible for the
origination and acquisition of new financings with borrowers in the Phoenix Home
Life-serviced mortgage loan portfolio and related loan correspondents. He also
shares responsibility in managing several of iStar Financial's relationships
with financial institutions and other loan correspondents. Mr. Blomquist has
over 16 years of loan origination and investment management experience.
Previously, Mr. Blomquist was executive vice president and chief investment
officer of Phoenix Realty Securities, a Phoenix Home Life subsidiary
specializing in providing real estate securities investment advisory services.
Mr. Blomquist directed the origination of over $1.5 billion of mortgage loans
and maintains strong correspondent and borrower relations. Prior to his current
position, Mr. Blomquist was responsible for the debt and equity management of a
$750 million Phoenix Home Life portfolio in the Western United States.
Mr. Blomquist is a member of the Mortgage Bankers Association, and received both
his bachelors degree and an M.B.A. from the University of Connecticut.

    JEFFREY N. BROWN has served as Senior Vice President--Risk Management of
iStar Financial since October 2000. Prior to that, he was Vice President--Risk
Management since November 1999. Previously, he served as a vice president at
TriNet. Mr. Brown is responsible for our East Region corporate tenant lease
assets, including lease negotiations, corporate-level customer relations, lease
compliance, portfolio-level analysis and reporting and market research
activities. Mr. Brown's prior professional experience includes director of
property management for Insignia Commercial Group (San Francisco), regional
director (West Coast) with PM Realty Group and various project/property
management positions with Eastover Corporation. Mr. Brown holds a B.S. degree
from Millsaps College, Jackson, Mississippi.

    CHASE S. CURTIS, JR.  has served as a Senior Vice President--Credit of iStar
Financial since June 2001, and is responsible for coordinating the initial and
on-going underwriting of corporate credit, with a particular emphasis on
corporate tenant risk assessment. He joined iStar Financial from Bank of

                                      S-35

America following a 16-year career in credit risk management and structured
corporate finance. Immediately prior to joining iStar Financial, he was senior
vice president and chief credit officer of Bank of America Commercial Finance
responsible for its credit approvals, risk policy and risk process controls.
Prior to that, he spent three years in Hong Kong as an executive credit risk
review officer overseeing portfolio and transactional risk assessments across
Asia. Mr. Curtis holds an M.S. from the University of Arizona and he received a
B.S. degree (with high honors) from Bates College. He is a Chartered Financial
Analyst.

    GEOFFREY M. DUGAN has served as Senior Vice President of iStar Financial
since January 2001, and as Assistant General Counsel and Assistant Secretary
since November 1999. Previously, he served as vice president, administration and
general counsel of TriNet, and in that capacity was responsible for corporate
and securities laws compliance matters, corporate governance matters, and legal
issues associated with administrative, human resources and employee benefit
functions, including the oversight of outside legal counsel. Prior to joining
us, Mr. Dugan was in private law practice for over 20 years, where his practice
emphasized corporate finance, securities and commercial transactions for real
estate investment trusts and other business entities. Mr. Dugan received a J.D.
from Georgetown University Law Center and a B.A. from Harvard College.
Mr. Dugan is a Member of the New York Bar and the State Bar of California.

    PETER K. KOFOED has served as Senior Vice President--Risk Management since
August 2001. Mr. Kofoed joined us with more than 18 years of experience in
various real estate investment disciplines including mortgage loan underwriting,
equity asset management and portfolio administration. Prior to joining us, he
was the principal of a real estate consulting firm and was associated with
Aetna, CIGNA and Connecticut Mutual. Mr. Kofoed holds an M.B.A. from the Fuqua
School of Business at Duke University, and a B.A. from Colgate University.

    JOHN F. KUBICKO has served as Senior Vice President--Risk Management since
April 1998. Mr. Kubicko has over 14 years of experience in real estate
investment, asset management and lending. Prior to joining iStar Financial, he
was a senior associate at Greystone Realty, where he was responsible for
managing a portfolio of debt investments. Previously, Mr. Kubicko was a loan
officer at Shawmut Bank. Mr. Kubicko received a B.S. from Sacred Heart
University.

    ANDREW C. RICHARDSON has served as Senior Vice President--Capital Markets
since March 2000. He joined iStar Financial from Salomon Smith Barney, where he
was a vice president in the global real estate and lodging investment banking
group, providing merger and acquisition advisory services and raising debt and
equity capital for public and private real estate companies. Mr. Richardson's
experience at Salomon Smith Barney also included working in its mergers and
acquisitions group, advising clients in a wide range of industries. Prior to
joining Salomon Smith Barney, Mr. Richardson worked for Ernst & Young and was a
certified public accountant. Mr. Richardson holds an M.B.A. from the University
of Chicago, and a B.B.A. in accountancy from the University of Notre Dame.

    STEVEN B. SINNETT has served as Senior Vice President--Capital Markets of
iStar Financial since January 2001, and prior to that served as Vice President
and Controller since November 1999. Mr. Sinnett is responsible for project
finance activities for iStar Financial and its subsidiaries. He previously
served as vice president, controller of TriNet, and in that capacity was
responsible for planning and executing all aspects of financial reporting,
accounting and information technology activities. Prior to joining TriNet, he
was associated with AMB Institutional Realty Advisors Inc., Meridian Point
Properties, Inc. (a real estate investment trust) and its predecessor, and the
accounting firm of Arthur Young & Co. Mr. Sinnett received a Masters of
Professional Accounting from Georgia State University and a B.S. from the
University of Florida. Mr. Sinnett is a certified public accountant in the State
of California.

    ELIZABETH B. SMITH has served as Senior Vice President--Risk Management of
iStar Financial since August 1999. Ms. Smith manages our Dallas office and is
directly responsible for our Central Region

                                      S-36

corporate tenant lease assets. Prior to joining iStar Financial, Ms. Smith was a
vice president for MBL Life Assurance Corporation, managing the rehabilitation
and disposition of a $3 billion debt and equity portfolio located throughout the
United States. Previously, Ms. Smith worked at J.E. Robert Companies, Inc., and
for Sunbelt Savings, FSB, specializing in debt and equity portfolio management.
Ms. Smith holds a B.B.A. degree from the University of Mississippi in Oxford,
Mississippi.

NON-EMPLOYEE DIRECTORS

    The following table sets forth the names and current affiliations of our
non-employee directors:



NAME                                                           AFFILIATION
----                                   ------------------------------------------------------------
                                    
Willis Andersen, Jr..................  Real estate industry consultant
Jeffrey G. Dishner...................  Starwood Capital Group, L.L.C.--Senior Managing Director
Andrew L. Farkas.....................  Insignia Financial Group, Inc.--Chairman and Chief Executive
                                       Officer
Madison F. Grose.....................  Starwood Capital Group, L.L.C.--Senior Managing Director and
                                       Co-General Counsel
Robert W. Holman, Jr.................  Pebble Beach Institute--Managing Director
Robin Josephs........................  Ropasada, LLC--Managing Director
Merrick R. Kleeman...................  Starwood Capital Group, L.L.C.--Senior Managing Director
Matthew J. Lustig....................  Lazard Freres Real Estate Investors L.L.C.--Managing
                                       Principal
William M. Matthes...................  Behrman Capital--Managing Partner
John G. McDonald.....................  Stanford University--IBJ Professor of Finance in the
                                       Graduate School of Business
Stephen B. Oresman...................  Saltash, Ltd.--Owner and President
George R. Puskar.....................  Lend Lease Real Estate Investments--Former Chairman of the
                                       Board
Barry S. Sternlicht..................  Starwood Capital Group, L.L.C.--Founder, General Manager,
                                       President and Chief Executive Officer
                                       Starwood Hotels & Resorts Worldwide, Inc.--Chairman and
                                       Chief Executive Officer


                                      S-37

                              SELLING STOCKHOLDER

    This prospectus supplement includes shares relating to the offer and sale
for the account of the selling stockholder described below of an aggregate of
2,000,000 shares of common stock. The following chart shows, according to our
records as of June 30, 2002, the number of shares of common stock beneficially
owned by the selling stockholder and the number of shares of common stock being
offered hereby:



                                         SHARES OF COMMON STOCK                     SHARES OF COMMON STOCK
                                      OWNED PRIOR TO THE OFFERING                OWNED AFTER THE OFFERING(1)
                                      ----------------------------    SHARES     ----------------------------
                                       NUMBER OF        PERCENTAGE     BEING      NUMBER OF        PERCENTAGE
SELLING STOCKHOLDER                      SHARES          OF CLASS     OFFERED       SHARES          OF CLASS
-------------------                   ------------      ----------   ---------   ------------      ----------
                                                                                    
SOFI-IV SMT Holdings, L.L.C.........   23,585,538          26.2%     2,000,000    21,585,538          22.0%


------------------------
(1)   If the underwriters exercise their over-allotment option, SOFI-IV SMT
       Holdings, L.L.C. will sell up to an additional 1,500,000 shares to the
     underwriters.

    SOFI-IV SMT Holdings, L.L.C. is an entity owned by Starwood Opportunity Fund
IV, L.P. Starwood Opportunity Fund IV, L.P. is an investment fund formed on
July 3, 1996. SOFI IV Management, L.L.C. is its general partner. Starwood
Opportunity Fund IV, L.P.'s initial term expires on February 27, 2005, but may
be extended by the general partner with the consent of its advisory committee
for up to two additional one-year periods.

    The selling stockholder is controlled by entities which are controlled by
Barry S. Sternlicht, one of our directors. Jay Sugarman, our Chairman and Chief
Executive Officer, and Jeffrey G. Dishner, Madison F. Grose and Merrick R.
Kleeman, each of whom is a director of iStar Financial, also have interests in
the selling stockholder or entities that control the selling stockholder.
Additional information regarding the selling stockholder may be found in
"Participating Securityholders" and "Certain Relationships Between the Company
and the Participating Securityholders" contained in the accompanying prospectus.

                                      S-38

                                  UNDERWRITING

    Subject to the terms and conditions set forth in the underwriting agreement,
dated November   , 2002, each of the underwriters named below for whom Lehman
Brothers Inc. is acting as the sole book-running manager and Merrill Lynch,
Pierce, Fenner & Smith Incorporated is acting as joint lead manager, has agreed
to purchase from us the respective number of shares opposite their names below:



                                                              NUMBER OF
UNDERWRITER                                                     SHARES
-----------                                                   ----------
                                                           
Lehman Brothers Inc.........................................
Merrill Lynch, Pierce, Fenner & Smith
          Incorporated......................................
Banc of America Securities LLC..............................
Bear, Stearns & Co. Inc.....................................
Goldman, Sachs & Co. .......................................
UBS Warburg LLC.............................................
                                                              ----------
  Total.....................................................  10,000,000
                                                              ==========


    The underwriting agreement provides that the underwriters are obligated to
purchase, subject to certain conditions, all of the shares in the offering if
any are purchased, other than those covered by the over-allotment option
described below. The conditions contained in the underwriting agreement include
the requirements that:

    - all the representations and warranties made by us to the underwriters are
      true;

    - there has been no material adverse change in our condition or in the
      financial markets; and

    - we deliver to the underwriters customary closing documents.

COMMISSIONS AND EXPENSES

    The following table shows the underwriting fees to be paid to the
underwriters by us in connection with this offering. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares. The underwriting fee is the difference between the
public offering price and the amount the underwriters pay to us and the selling
stockholder to purchase the shares.



                                                              NO EXERCISE   FULL EXERCISE
                                                              -----------   -------------
                                                                      
Per share...................................................       $              $
Total                                                              $              $


    We estimate that the total expenses of this offering, excluding underwriting
discounts and commissions, will be approximately $500,000. SOFI-IV SMT Holdings,
L.L.C., the selling stockholder, will not bear any costs associated with this
offering.

    Some of our officers and directors have expressed interest in purchasing
shares of our common stock from the underwriters in this offering at the public
offering price. We will receive all of the proceeds from any such sales, and the
underwriters will not receive any underwriting discount with respect to such
shares.

                                      S-39

INDEMNIFICATION

    We and the selling stockholder have agreed to indemnify the underwriters
against liabilities relating to the offering, including liabilities under the
Securities Act of 1933 and liabilities arising from breaches of the
representations and warranties contained in the underwriting agreement, and to
contribute to payments that the underwriters may be required to make for these
liabilities.

OVER-ALLOTMENT OPTION

    The selling stockholder has granted the underwriters an option to purchase
up to an aggregate of 1,500,000 additional shares at the initial price to the
public less the underwriting discount set forth on the cover page of this
prospectus supplement exercisable to cover over-allotments. If such option is
exercised, each underwriter will be committed, subject to satisfaction of the
conditions specified in the underwriting agreement, to purchase a number of
additional shares proportionate to the underwriters' initial commitment as
indicated in the preceding table, and the selling stockholder will be obligated,
pursuant to the option, to sell these shares to the underwriters.

DISCOUNTS

    We have been advised by the underwriters that the underwriters propose to
offer the shares directly to the public at the offering price set forth on the
cover page of this prospectus supplement and to dealers, who may include the
underwriters, at this offering price less a concession not in excess of
$      per share. The underwriters may allow, and the dealers may reallow, a
concession not in excess of $      per share to certain brokers and dealers.
After the offering, the underwriters may change the offering price and other
selling terms.

LOCK-UP

    We will agree not to sell or transfer any shares of common stock or to
engage in certain hedging transactions with respect to the common stock for a
period of 90 days after the date of this prospectus supplement, without first
obtaining the written consent of Lehman Brothers Inc., except in certain
circumstances. The selling stockholder will agree that if it sells shares in
this offering, it will not sell or transfer any shares of common stock or engage
in certain hedging transactions with respect to its shares of common stock for a
period of 90 days after the date of this prospectus supplement. SOFI-IV SMT
Holdings, L.L.C. has pledged 22,500,000 shares of common stock owned by it under
a $150.0 million margin loan that is fully recourse to SOFI-IV SMT Holdings,
L.L.C. A portion of the shares pledged under the margin loan will be released by
the lender at or prior to the completion of the offering. In the event that
SOFI-IV SMT Holdings, L.L.C. were to default in the performance of its
obligations under the loan, the lender could foreclose upon those pledged shares
and sell them in the open market at any time.

PRICE STABILIZATION AND SHORT POSITIONS

    The representatives may engage in over-allotment transactions, stabilizing
transactions and syndicate covering transactions for the purpose of pegging,
fixing or maintaining the price of the common stock, in accordance with
Regulation M under the Securities Exchange Act of 1934.

    - Stabilizing transactions permit bids to purchase the underlying security
      so long as the stabilizing bids do not exceed a specified maximum.

    - Over-allotment transactions involve sales by the underwriters of the
      shares in excess of the number of shares the underwriters are obligated to
      purchase, which creates a syndicate short position. The short position may
      be either a covered short position or a naked short position. In a covered
      short position, the number of shares over-allotted by the underwriters is
      not greater

                                      S-40

      than the number of shares they may purchase in the over-allotment option.
      In a naked short position, the number of shares involved is greater than
      the number of shares in the over-allotment option. The underwriters may
      close out any short position by either exercising their over-allotment
      option and/or purchasing shares in the open market. Similar to other
      purchase transactions, the underwriters' purchases to cover the syndicate
      short sales may have the effect of raising or maintaining the market price
      of the shares or preventing or retarding a decline in the market price of
      the shares. As a result, the price of the shares may be higher than the
      price that might otherwise exist in the open market.

    - Syndicate covering transactions involve purchases of the shares in the
      open market after the distribution has been completed in order to cover
      syndicate short positions. In determining the source of the shares to
      close out the short position, the underwriters will consider, among other
      things, the price of shares available for purchase in the open market as
      compared to the price at which they purchase shares through the
      over-allotment option. If the underwriter sells more shares than could be
      covered by the over-allotment option, a naked short position, the position
      can only be closed out by buying shares in the open market. A naked short
      position is more likely to be created if the underwriters are concerned
      that there could be downward pressure on the price of the shares in the
      open market after pricing that could adversely affect investors who
      purchase in the offering.

    These stabilizing transactions and syndicate short covering transactions may
cause the price of our common stock to be higher than the price that might
otherwise exist in the open market. These transactions may be effected on the
New York Stock Exchange or otherwise and, if commenced, may be discontinued at
any time.

    Neither we nor any of the underwriters make any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of our common stock. In addition, neither we nor any
of the underwriters make any representation that the representatives will engage
in these stabilizing transactions or that any transaction, once commenced, will
not be discontinued without notice.

ELECTRONIC DISTRIBUTION

    A prospectus in electronic format may be made available on the Internet
sites or through other online services maintained by one or more of the
underwriters and/or selling group members participating in this offering, or by
their affiliates. In those cases, prospective investors may view offering terms
online and, depending upon the particular underwriter or selling group member,
prospective investors may be allowed to place orders online. The underwriters
may agree with us to allocate a specific number of shares for sale to online
brokerage account holders. Any such allocation for online distributions will be
made by the representatives on the same basis as other allocations.

    Other than the prospectus in electronic format, the information on any
underwriter's or selling group member's web site and any information contained
in any other web site maintained by an underwriter or selling group member is
not part of the prospectus or the registration statement of which this
prospectus forms a part, has not been approved and/or endorsed by us or any
underwriter or selling group member in its capacity as underwriter or selling
group member and should not be relied upon by investors.

OFFERS AND SALES IN CANADA

    This prospectus supplement and the accompanying prospectuses are not, and
under no circumstances are to be construed as, an advertisement or a public
offering of shares in Canada or any province or territory thereof. Any offer or
sale of shares in Canada will be made only under an exemption from the
requirements to file a prospectus supplement or prospectus with the relevant

                                      S-41

Canadian securities regulators and only by a dealer registered in accordance
with local provincial securities laws or, alternatively, pursuant to an
exemption from the dealer registration requirement in the relevant province or
territory of Canada in which such offer or sale is made.

STAMP TAXES

    Purchasers of the shares of our common stock offered by this prospectus
supplement may be required to pay stamp taxes and other charges under the laws
and practices of the country of purchase, in addition to the offering price
listed on the cover of this prospectus.

OTHER RELATIONSHIPS

    Some of the underwriters and their affiliates have engaged in, and may in
the future engage in, investment banking and other commercial dealings in the
ordinary course of business with us and the selling stockholders and their
affiliates. In addition, affiliates of each of the underwriters are lenders
under some of our credit facilities. In each case, they have received customary
fees for these transactions.

    The lender under the selling stockholder's margin loan is Bear, Stearns
Securities Corp., which is an affiliate of Bear, Stearns & Co. Inc. After the
sale of shares by the selling stockholder, the selling stockholder will repay
principal under the margin loan. Pursuant to the terms of the margin loan, Bear,
Stearns Securities Corp. has the right, under certain conditions, to require
Bank of America, N.A., an affiliate of Banc of America Securities LLC, to
purchase the margin loan, at which time the margin loan will be converted into a
term credit facility with Bank of America, N.A. Conversely, Bank of America,
N.A. has the right, under certain conditions, to require Bear, Stearns
Securities Corp. to sell the margin loan to Bank of America N.A., at which time
the margin loan will be converted into a term credit facility with Bank of
America, N.A. Accordingly, any reduction in the principal amount of the margin
loan will reduce Bank of America, N.A.'s obligations under the margin loan.

                                 LEGAL MATTERS

    The legality of the common stock offered by this prospectus supplement and
the accompanying prospectuses will be passed upon for us by Clifford Chance US
LLP, New York, New York. Certain legal matters will be passed upon for the
underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.
Clifford Chance US LLP will rely upon the opinion of Ballard Spahr Andrews &
Ingersoll, LLP with respect to matters of Maryland law. In the past, Skadden,
Arps, Slate, Meagher & Flom LLP has represented us in connection with certain
corporate matters.

                                    EXPERTS

    The financial statements incorporated in this Registration Statement by
reference to the Annual Report on Form 10-K of iStar Financial Inc. for the year
ended December 31, 2001 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

                                      S-42

PROSPECTUS

                              ISTAR FINANCIAL INC.
                                  COMMON STOCK
                                PREFERRED STOCK
                               DEPOSITARY SHARES
                                DEBT SECURITIES
                                      AND
                                    WARRANTS

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

    We may from time to time offer our common stock, preferred stock (which we
may issue in one or more series), depositary shares representing shares of
preferred stock, debt securities (which we may issue in one or more series) or
warrants entitling the holders to purchase common stock, preferred stock,
depositary shares or debt securities, at an aggregate initial offering price
which will not exceed $500,000,000. We will determine when we sell securities,
the amounts of securities we will sell and the prices and other terms on which
we will sell them. We may sell securities to or through underwriters, through
agents or directly to purchasers.

    We will describe in a prospectus supplement, which we will deliver with this
prospectus, the terms of particular securities which we offer in the future. We
may describe the terms of those securities in a term sheet which will precede
the prospectus supplement.

    In each prospectus supplement we will include the following information:

    - The names of the underwriters or agents, if any, through which we will
      sell the securities.

    - The proposed amount of securities, if any, which the underwriters will
      purchase.

    - The compensation, if any, of those underwriters or agents.

    - The initial public offering price of the securities.

    - Information about securities exchanges, electronic communications networks
      or automated quotation systems on which the securities will be listed or
      traded.

    - Any other material information about the offering and sale of the
      securities.

    NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT
THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

                                November 8, 2002

                          FORWARD-LOOKING INFORMATION

    We make statements in this prospectus and the documents we incorporate by
reference that are considered "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, which are usually identified by the use of words such as
"will," "anticipates," "believes," "estimates," "expects," "projects," "plans,"
"intends," "should" or similar expressions. We intend those forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Reform Act of 1995 and are
including this statement for purposes of complying with these safe harbor
provisions. These forward-looking statements reflect our current views about our
plans, strategies and prospects, which are based on the information currently
available to us and on assumptions we have made. Although we believe that our
plans, intentions and expectations as reflected in or suggested by those
forward-looking statements are reasonable, we can give no assurance that the
plans, intentions or expectations will be achieved. We have listed below and
have discussed elsewhere in this prospectus some important risks, uncertainties
and contingencies which could cause our actual results, performances or
achievements to be materially different from the forward- looking statements we
make in this prospectus. These risks, uncertainties and contingencies include,
but are not limited to, the following:

    1.  The success or failure of our efforts to implement our current business
       strategy.

    2.  Economic conditions generally and in the commercial finance and real
       estate markets specifically.

    3.  The performance and financial condition of borrowers and corporate
       customers.

    4.  The actions of our competitors and our ability to respond to those
       actions.

    5.  The cost of our capital, which depends in part on our asset quality, the
       nature of our relationships with our lenders and other capital providers,
       our business prospects and outlook, and general market conditions.

    6.  Changes in governmental regulations, tax rates and similar matters.

    7.  Legislative and regulatory changes (including changes to laws governing
       the taxation of REITs).

    8.  Other factors discussed under the heading "Risk Factors" and which may
       be discussed in a prospectus supplement.

    We assume no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. In
evaluating forward-looking statements, you should consider these risks and
uncertainties, together with the other risks described from time to time in our
reports and documents filed with the SEC, and you should not place undue
reliance on those statements.

                                  THE COMPANY

    We are the largest publicly traded finance company focused exclusively on
the commercial real estate industry. We provide structured financing to private
and corporate owners of real estate nationwide, including senior and junior
mortgage debt, corporate mezzanine and subordinated capital, and corporate net
lease financing. We seek to deliver superior risk-adjusted returns on equity to
our stockholders by providing innovative and value-added financing solutions to
our customers. We are taxed as a real estate investment trust.

    Our principal executive offices are located at 1114 Avenue of the Americas,
New York, New York 10036, and our telephone number is (212) 930-9400. Our
website is istarfinancial.com. Our six primary regional offices are located in
Atlanta, Boston, Dallas, Denver, Hartford and San Francisco. iStar Asset
Services, our loan servicing subsidiary, is located in Hartford, and iStar Real
Estate Services, our corporate facilities management division, is headquartered
in Atlanta.

                                       2

                                  RISK FACTORS

    THIS SECTION DESCRIBES THE MOST MATERIAL RISKS OF PURCHASING OUR COMMON
STOCK. YOU SHOULD CAREFULLY CONSIDER THESE RISKS, IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE, BEFORE
PURCHASING ANY OF THE SECURITIES OFFERED HEREBY. IN CONNECTION WITH THE
FORWARD-LOOKING STATEMENTS THAT APPEAR IN THIS PROSPECTUS, YOU SHOULD CAREFULLY
REVIEW THE FACTORS DISCUSSED BELOW AND THE CAUTIONARY STATEMENTS REFERRED TO IN
"FORWARD-LOOKING STATEMENTS."

WE ARE SUBJECT TO RISKS RELATING TO OUR LENDING BUSINESS.

WE MAY SUFFER A LOSS IF A BORROWER DEFAULTS ON A NON-RECOURSE LOAN OR ON A LOAN
THAT IS NOT SECURED BY UNDERLYING REAL ESTATE.

    In the event of a default by a borrower on a non-recourse loan, we will only
have recourse to the real estate asset securing the loan. For this purpose, we
consider loans made to special purpose entities formed solely for the purpose of
holding and financing particular assets to be non-recourse loans. If the
underlying asset value is below the loan amount, we will suffer a loss.
Conversely, we sometimes make loan investments that are unsecured or are secured
by equity interests in the borrowing entities. These loans are subject to the
risk that other lenders may be directly secured by the real estate assets of the
borrower. In the event of a default, those secured lenders would have priority
over us with respect to the proceeds of a sale of the underlying real estate.

    In the cases described above, we may lack control over the underlying asset
securing our loan or the underlying assets of the borrower prior to a default,
and, as a result, their value may be reduced by acts or omissions by owners or
managers of the assets. As of June 30, 2002, 80.6% of our loans are
non-recourse, based upon the gross carrying value of our loan assets, and 6.6%
of our total investments, based on gross carrying value, consist of loans that
are unsecured or secured by equity interests in the borrowing entity.

WE MAY SUFFER A LOSS IN THE EVENT OF A DEFAULT OR BANKRUPTCY OF A BORROWER,
PARTICULARLY IN CASES WHERE THE BORROWER HAS INCURRED DEBT THAT IS SENIOR TO OUR
LOAN.

    If a borrower defaults on our loan but does not have sufficient assets to
satisfy our loan, we may suffer a loss of principal or interest. In the event of
a borrower bankruptcy, we may not have full recourse to the assets of the
borrower, or the assets of the borrower may not be sufficient to satisfy our
loan. In addition, certain of our loans are subordinate to other debt of the
borrower. If a borrower defaults on our loan or on debt senior to our loan, or
in the event of a borrower bankruptcy, our loan will be satisfied only after the
senior debt. Where debt senior to our loans exists, the presence of
intercreditor arrangements may limit our ability to amend our loan documents,
assign our loans, accept prepayments, exercise our remedies (through
"standstill" periods) and control decisions made in bankruptcy proceedings
relating to borrowers. Bankruptcy and borrower litigation can significantly
increase the time needed for us to acquire underlying collateral in the event of
a default, during which time the collateral may decline in value. In addition,
there are significant costs and delays associated with the foreclosure process.

WE ARE SUBJECT TO THE RISK THAT PROVISIONS OF OUR LOAN AGREEMENTS MAY BE
UNENFORCEABLE.

    Our rights and obligations with respect to our loans are governed by written
loan agreements and related documentation. It is possible that a court could
determine that one or more provisions of a loan agreement are unenforceable,
such as a loan prepayment provision or the provisions governing our security
interest in the underlying collateral. If this were to happen with respect to a
material asset or group of assets, we could be adversely affected.

                                       3

WE ARE SUBJECT TO THE RISKS ASSOCIATED WITH LOAN PARTICIPATIONS, SUCH AS LESS
  THAN FULL CONTROL RIGHTS.

    Some of our assets are participating interests in loans in which we share
the rights, obligations and benefits of the loan with other participating
lenders. We may need the consent of these parties to exercise our rights under
such loans, including rights with respect to amendment of loan documentation,
enforcement proceedings in the event of a default and the institution of, and
control over, foreclosure proceedings. Similarly, a majority of the participants
may be able to take actions to which we object but to which we will be bound if
our participation interest represents a minority interest. We may be adversely
affected by this lack of full control.

WE ARE SUBJECT TO RISKS RELATING TO OUR CORPORATE TENANT LEASE BUSINESS.

LEASE EXPIRATIONS, LEASE DEFAULTS AND LEASE TERMINATIONS MAY ADVERSELY AFFECT
  OUR REVENUE.

    Lease expirations, lease defaults and lease terminations may result in
reduced revenues if the lease payments received from replacement corporate
tenants are less than the lease payments received from the expiring, defaulting
or terminating corporate tenants. In addition, lease defaults by one or more
significant corporate tenants, lease terminations by corporate tenants following
events of casualty or takings by eminent domain, or the failure of corporate
tenants under expiring leases to elect to renew their leases, could cause us to
experience long periods with no revenue from a facility and to incur substantial
capital expenditures in order to obtain replacement corporate tenants.

    As of June 30, 2002, 13.5% of our annualized total revenues for the quarter
ended June 30, 2002 were derived from our five largest corporate tenant
customers. As of June 30, 2002, the percentage of our revenues (based on total
revenues for the quarter ended June 30, 2002, annualized) that are subject to
expiring leases during each year from 2002 through 2006 is as follows:


                                                            
2002........................................................     0.9%
2003........................................................     2.3%
2004........................................................     4.5%
2005........................................................     2.9%
2006........................................................     5.5%


WE MAY NEED TO MAKE SIGNIFICANT CAPITAL IMPROVEMENTS TO OUR CORPORATE FACILITIES
IN ORDER TO REMAIN COMPETITIVE.

    Our corporate facilities may face competition from newer, more updated
facilities. In order to remain competitive, we may need to make significant
capital improvements to our existing corporate facilities. In addition, in the
event we need to re-lease a corporate facility, we may need to make significant
tenant improvements, including conversions of single tenant buildings to
multi-tenant buildings. The costs of these improvements could adversely affect
our financial performance.

OUR OWNERSHIP INTERESTS IN CORPORATE FACILITIES ARE ILLIQUID, HINDERING OUR
ABILITY TO MITIGATE A LOSS.

    Since our ownership interests in corporate facilities are illiquid, we may
lack the necessary flexibility to vary our investment strategy promptly to
respond to changes in market conditions. In addition, if we have to foreclose on
an asset or if we desire to sell it in an effort to recover or mitigate a loss,
we may be unable to do so at all, or only at a discount.

WE ARE SUBJECT TO RISKS RELATING TO OUR ASSET CONCENTRATION.

    As of June 30, 2002, the average size of our lending and leasing investments
was $27.7 million. No single investment represented more than 3.8% of our total
revenues for the fiscal quarter ended June 30, 2002. While our asset base is
diversified by product line, asset type, obligor, property type and

                                       4

geographic location, it is possible that if we suffer losses on a portion of our
larger assets, our financial performance could be adversely impacted.

BECAUSE WE MUST DISTRIBUTE A PORTION OF OUR INCOME, WE WILL CONTINUE TO NEED
ADDITIONAL DEBT AND/OR EQUITY CAPITAL TO GROW.

    We must distribute at least 90% of our taxable net income to our
stockholders to maintain our REIT status. As a result, those earnings will not
be available to fund investment activities. We have historically funded our
investments by borrowing from financial institutions and raising capital in the
public and private capital markets. We expect to continue to fund our
investments this way. If we fail to obtain funds from these sources, it could
limit our ability to grow, which could have a material adverse effect on the
value of our common stock. Our taxable net income has historically been lower
than the cash flow generated by our business activities, primarily because our
taxable net income is reduced by non-cash expenses, such as depreciation and
amortization. As a result, our dividend payout ratio as a percentage of free
cash flow has generally been lower than our payout ratio as a percentage of
taxable net income. Our common stock dividends for the quarter ended June 30,
2002 represented approximately 79.7% of our adjusted earnings for that quarter.

OUR GROWTH IS DEPENDENT ON LEVERAGE, WHICH MAY CREATE OTHER RISKS.

    Our success is dependent, in part, upon our ability to grow our assets
through the use of leverage. We currently intend to leverage iStar Financial
primarily through secured and unsecured borrowings. Our ability to obtain the
leverage necessary for execution of our business plan will ultimately depend
upon our ability to maintain interest coverage ratios meeting market
underwriting standards that will vary according to lenders' assessments of our
creditworthiness and the terms of the borrowings. As of June 30, 2002, our
debt-to-book equity ratio was 1.7x and our total debt obligations outstanding
were approximately $3.27 billion. Our charter does not limit the amount of
indebtedness which we may incur. While our publicly-announced policy is not to
exceed a debt-to-book equity ratio of 2.0x, our Board of Directors has overall
responsibility for our financing strategy, and they may change our strategy
without stockholder approval. If our Board of Directors decided to increase our
leverage, it could lead to reduced or negative cash flow and reduced liquidity.

    The percentage of leverage used will vary depending on our estimate of the
stability of iStar Financial's cash flow. To the extent that changes in market
conditions cause the cost of such financing to increase relative to the income
that can be derived from the assets originated, we may reduce the amount of our
leverage.

    Leverage creates an opportunity for increased net income, but at the same
time creates risks. For example, leveraging magnifies changes in our net worth.
We will incur leverage only when there is an expectation that it will enhance
returns, although there can be no assurance that our use of leverage will prove
to be beneficial. Moreover, there can be no assurance that we will be able to
meet our debt service obligations and, to the extent that we cannot, we risk the
loss of some or all of our assets or a financial loss if we are required to
liquidate assets at a commercially inopportune time.

    We and our subsidiaries are parties to agreements and debt instruments that
restrict future indebtedness and the payment of dividends, including indirect
restrictions (through, for example, covenants requiring the maintenance of
specified levels of net worth and earnings to debt service ratios) and direct
restrictions. As a result, in the event of a deterioration in our financial
condition, these agreements or debt instruments could restrict our ability to
pay dividends. Moreover, if we fail to pay dividends as required by the Internal
Revenue Code, whether as a result of restrictive covenants in our debt
instruments or otherwise, we may lose our status as a REIT. For more information
regarding the consequences of loss of REIT status, please read the risk factor
entitled "We May Be Subject to Adverse Consequences if We Fail to Qualify as a
Real Estate Investment Trust."

                                       5

WE UTILIZE INTEREST RATE HEDGING ARRANGEMENTS WHICH MAY ADVERSELY AFFECT OUR
BORROWING COST AND EXPOSE US TO OTHER RISKS.

    We have variable rate lending assets and variable rate debt obligations.
These assets and liabilities create a natural hedge against changes in variable
interest rates. This means that as interest rates increase, we earn more on our
variable rate lending assets and pay more on our variable rate debt obligations
and, conversely, as interest rates decrease, we earn less on our variable rate
lending assets and pay less on our variable rate debt obligations. When our
variable rate debt obligations exceed our variable rate lending assets, we
utilize derivative instruments to limit the impact of changing interest rates on
our net income. We do not use derivative instruments to hedge assets or for
speculative purposes. The derivatives instruments we use are typically in the
form of interest rate swaps and interest rate caps. Interest rate swaps
effectively change variable rate debt obligations to fixed rate debt
obligations. Interest rate caps effectively limit the maximum interest rate on
variable rate debt obligations.

    The primary risks from our use of derivative instruments is the risk that a
counterparty to a hedging arrangement could default on its obligation and the
risk that we may have to pay certain costs, such as transaction fees or breakage
costs, if a hedging arrangement is terminated by us. As a matter of policy, we
enter into hedging arrangements with counterparties that are large, creditworthy
financial institutions typically rated at least "A/A2" by Standard & Poor's and
Moody's Investors Service, respectively. Our hedging strategy is monitored by
our Audit Committee on behalf of our Board of Directors and may be changed by
the Board of Directors without stockholder approval.

    Developing an effective strategy for dealing with movements in interest
rates is complex and no strategy can completely insulate us from risks
associated with such fluctuations. There can be no assurance that our hedging
activities will have the desired beneficial impact on our results of operations
or financial condition.

WE FACE A RISK OF LIABILITY UNDER ENVIRONMENTAL LAWS.

    Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner of real estate (including, in certain
circumstances, a secured lender that succeeds to ownership or control of a
property) may become liable for the costs of removal or remediation of certain
hazardous or toxic substances at, on, under or in its property. Those laws
typically impose cleanup responsibility and liability without regard to whether
the owner or control party knew of or was responsible for the release or
presence of such hazardous or toxic substances. The costs of investigation,
remediation or removal of those substances may be substantial. The owner or
control party of a site may be subject to common law claims by third parties
based on damages and costs resulting from environmental contamination emanating
from a site. Certain environmental laws also impose liability in connection with
the handling of or exposure to asbestos-containing materials, pursuant to which
third parties may seek recovery from owners of real properties for personal
injuries associated with asbestos-containing materials. Absent succeeding to
ownership or control of real property, a secured lender is not likely to be
subject to any of these forms of environmental liability.

CERTAIN PROVISIONS IN OUR CHARTER MAY INHIBIT A CHANGE IN CONTROL.

    Generally, to maintain our qualification as a REIT under the Internal
Revenue Code, not more than 50% in value of our outstanding shares of stock may
be owned, directly or indirectly, by five or fewer individuals at any time
during the last half of our taxable year. The Internal Revenue Code defines
"individuals" for purposes of the requirement described in the preceding
sentence to include some types of entities. Under our charter, no person may own
more than 9.8% of the outstanding shares of stock, with some exceptions. The
restrictions on transferability and ownership may delay,

                                       6

deter or prevent a change in control or other transaction that might involve a
premium price or otherwise be in the best interest of the securityholders.

    Our Board of Directors is divided into two classes. Directors of each class
are chosen for two-year staggered terms. Staggered terms of directors may reduce
the possibility of a tender offer or an attempt to change control, even though a
tender offer or change in control might be in the best interest of our
securityholders Our charter authorizes our Board of Directors:

    1.  To cause us to issue additional authorized but unissued shares of common
       or preferred stock.

    2.  To classify or reclassify, in one or more series, any of our unissued
       preferred shares.

    3.  To set the preferences, rights and other terms of any classified or
       reclassified securities that we issue.

ADVERSE CHANGES IN GENERAL ECONOMIC CONDITIONS CAN ADVERSELY AFFECT OUR
  BUSINESS.

    Our success is dependent upon the general economic conditions in the
geographic areas in which a substantial number of our investments are located.
Adverse changes in national economic conditions or in the economic conditions of
the regions in which we conduct substantial business likely would have an
adverse effect on real estate values and, accordingly, our business.

WE MAY BE SUBJECT TO ADVERSE CONSEQUENCES IF WE FAIL TO QUALIFY AS A REAL ESTATE
INVESTMENT TRUST.

    We intend to operate so as to qualify as a real estate investment trust for
federal income tax purposes. We have received an unqualified opinion of our
legal counsel, Clifford Chance US LLP, that, based on the assumptions and
representations described in "Material Federal Income Tax Consequences," our
existing legal organization and our actual and proposed method of operation,
enable us to satisfy the requirements for qualification as a real estate
investment trust under the Internal Revenue Code in the ordinary course of our
actual and proposed operations. Investors should be aware, however, that
opinions of counsel are not binding on the Internal Revenue Service or any
court. The real estate investment trust qualification opinion only represents
the view of our counsel based on their review and analysis of existing law which
includes no controlling precedents. Furthermore, both the validity of the
opinion and our qualification as a real estate investment trust will depend on
our continuing ability to meet various requirements concerning, among other
things, the ownership of our outstanding stock, the nature of our assets, the
sources of our income and the amount of our distributions to our stockholders.
See "Material Federal Income Tax Consequences--Taxation of iStar
Financial--General."

    If we were to fail to qualify as a real estate investment trust for any
taxable year, we would not be allowed a deduction for distributions to our
stockholders in computing our taxable income and would be subject to federal
income tax, including any applicable minimum tax, on our taxable income at
regular corporate rates. Unless entitled to relief under certain Internal
Revenue Code provisions, we also would be disqualified from treatment as a real
estate investment trust for the four subsequent taxable years following the year
during which qualification was lost. As a result, cash available for
distribution would be reduced for each of the years involved. Furthermore, it is
possible that future economic, market, legal, tax or other considerations may
cause the Board of Directors to revoke the real estate investment trust
election. See "Material Federal Income Tax Consequences."

    Even if we qualify as a real estate investment trust for federal income tax
purposes, we may be subject to certain state and local taxes on our income and
property, and may be subject to certain federal taxes. See "Material Federal
Income Tax Consequences--Taxation of iStar Financial--General."

                                       7

TAX-EXEMPT STOCKHOLDERS MAY BE SUBJECT TO TAXATION.

    The Internal Revenue Service has issued a revenue ruling in which it held
that amounts distributed by a REIT to a tax-exempt employees' pension trust do
not constitute unrelated business taxable income ("UBTI"). In general, subject
to the discussion below regarding a "pension-held REIT" and subject to the
following sentence, based upon such ruling and the statutory framework of the
Internal Revenue Code, distributions to a stockholder of a real estate
investment trust that is a tax-exempt entity should not constitute UBTI,
provided that:

    1.  The tax-exempt entity has not financed the acquisition of its shares of
       common stock with "acquisition indebtedness" within the meaning of the
       Internal Revenue Code.

    2.  The shares of common stock are not otherwise used in an unrelated trade
       or business of the tax-exempt entity.

    3.  The real estate investment trust does not hold a residual interest in a
       real estate mortgage investment conduit ("REMIC") within the meaning of
       Section 860D of the Internal Revenue Code.

    Although we do not intend to invest a material amount of assets in REMICS,
certain taxable income produced by REMIC residual interests may cause our
stockholders to suffer certain adverse tax consequences. See "Material Federal
Income Tax Consequences."

    If any pension or other retirement trust that qualifies under
Section 401(a) of the Internal Revenue Code holds more than 10% by value of the
interests in a pension-held REIT at any time during a taxable year, a portion of
the dividends paid to the qualified pension trust by such REIT may constitute
UBTI. For these purposes, a "pension-held REIT" is defined as a REIT: (1) that
would not have qualified as a REIT but for the provisions of the Internal
Revenue Code which look through such a qualified pension trust in determining
ownership of securities of the REIT; and (2) as to which at least one qualified
pension trust holds more than 25% by value of the interests of such REIT or one
or more qualified pension trusts (each owning more than a 10% interest by value
in the REIT) hold in the aggregate more than 50% by value of the interests in
such REIT.

    We do not expect that we will be a pension-held REIT. However,
notwithstanding our current belief that we will not be a "pension-held REIT," no
assurance can be given that we will not become a pension-held REIT in the
future.

    If we were to become a pension-held REIT in the future and were to originate
investments using debt, or otherwise were to engage in a transaction resulting
in UBTI, determined as though we were a qualified pension plan, any qualified
pension plan owning 10% or more of our shares, by value, would have a portion of
its dividend income from us taxed as UBTI. Even if we were not a pension-held
REIT, certain amounts received by a stockholder that is a tax-exempt entity may
be treated as UBTI. See "Material Federal Income Tax Consequences."

SOFI-IV SMT HOLDINGS, L.L.C. IS A SIGNIFICANT STOCKHOLDER.

    SOFI-IV SMT Holdings, L.L.C. beneficially owns 26.2% of our outstanding
common stock. Four of the 16 members of our Board of Directors are employed by
an affiliate of SOFI-IV SMT Holdings, L.L.C. and own interests in SOFI-IV SMT
Holdings, L.L.C., as does our chairman and chief executive officer. As a result
of its ownership interest, SOFI-IV SMT Holdings, L.L.C. will have significant
influence over our affairs with respect to matters that require stockholder
approval, and its interest may conflict with our interests and the interests of
our other stockholders. For example, a decision by SOFI-IV SMT Holdings, L.L.C.
to sell all or a significant portion of its common stock may adversely affect
the market price of our common stock. In addition, SOFI-IV SMT Holdings, L.L.C.
might elect to vote its shares against a proposed business combination
transaction, thereby making it significantly

                                       8

more difficult to obtain the requisite stockholder approval for such a
transaction. In addition, members of our Board of Directors, including Jay
Sugarman, Barry S. Sternlicht, Jeffrey G. Dishner, Madison F. Grose and Merrick
R. Kleeman, have relationships with SOFI-IV SMT Holdings, L.L.C. and may be
faced with decisions which could create, or appear to create, potential
conflicts of interest.

FUTURE SALES OF OUR COMMON STOCK BY SOFI-IV SMT HOLDINGS, L.L.C. COULD ADVERSELY
AFFECT OUR STOCK PRICE.

    If SOFI-IV SMT Holdings, L.L.C. were to sell a substantial number of the
shares of our common stock, the prevailing market prices for our common stock
could be adversely affected. SOFI-IV SMT Holdings, L.L.C. has pledged 22,500,000
shares of common stock owned by it under a $150.0 million margin loan that is
fully recourse to SOFI-IV SMT Holdings, L.L.C. A portion of the shares pledged
under the margin loan will be released by the lender at or prior to the sale of
such shares. In the event that SOFI-IV SMT Holdings, L.L.C. were to default in
the performance of its obligations under that loan, the lender could foreclose
upon those pledged shares and sell them in the open market at any time. The
initial term of Starwood Opportunity Fund IV, L.P. (the entity which owns
SOFI-IV SMT Holdings, L.L.C.) expires on February 27, 2005, but may be extended
by the general partner with the consent of its advisory committee for up to two
additional one-year periods. Unless Starwood Opportunity Fund IV, L.P. is able
to extend its terms, it will have to begin, on February 27, 2005, distributing
its investments to its investors, selling its investments to third parties, or a
combination of the two. Any such sales or distributions could adversely affect
the prevailing market prices for our common stock.

OUR BOARD OF DIRECTORS MAY CHANGE CERTAIN OF OUR POLICIES WITHOUT STOCKHOLDER
APPROVAL.

    Our charter provides that our primary purpose is to invest in a diversified
portfolio of debt and debt-like interests in real estate and real estate related
assets, although it does not set forth specific percentages of the types of
investments we may make. Our Board of Directors determines our investment
policies, as well as our financing and conflicts of interest policies. Although
the Board of Directors has no present intention to do so, it can amend, revise
or eliminate these policies at any time and from time to time at its discretion
without a vote of the stockholders. A change in these policies could adversely
affect our financial condition or results of operations or the market price of
our common stock.

A PORTION OF THE DIVIDENDS WE DISTRIBUTE MAY BE DEEMED A RETURN OF CAPITAL FOR
FEDERAL INCOME TAX PURPOSES.

    The amount of dividends we distribute to our common stockholders in a given
quarter may not correspond to our taxable income for such quarter. Consequently,
a portion of the dividends we distribute may be deemed a return of capital for
federal income tax purposes, and will not be taxable but will reduce
stockholders' basis in the underlying common stock. For the year ended
December 31, 2001, the percentage of our dividend payments made to common
stockholders that was treated as a return of capital was 9.45%.

QUARTERLY RESULTS MAY FLUCTUATE AND MAY NOT BE INDICATIVE OF FUTURE QUARTERLY
PERFORMANCE.

    Our quarterly operating results could fluctuate; therefore, you should not
rely on past quarterly results to be indicative of our performance in future
quarters. Factors that could cause quarterly operating results to fluctuate
include, among others, variations in our investment origination volume,
variations in the timing of prepayments, the degree to which we encounter
competition in our markets and general economic conditions.

                                       9

                       RATIO OF EARNINGS TO FIXED CHARGES



                                             SIX MONTHS ENDED
                                                 JUNE 30,                      YEARS ENDED DECEMBER 31,
                                             ----------------   -------------------------------------------------------
                                                   2002           2001       2000       1999          1998       1997
                                             ----------------   --------   --------   --------      --------   --------
                                                                                             
Ratio of earnings to fixed charges and
  preferred stock dividends(1).............        1.9x           1.9x       1.9x        1.1x(2)      2.3x         NA(3)
Ratio of earnings to fixed charges(1)......        2.3x           2.3x       2.2x        1.4x(2)      2.3x         NA(3)


------------------------
(1)   For the purpose of calculating the ratio of earnings to fixed charges,
       "earnings" consist of income from continuing operations before income
     taxes and cumulative effect of changes in accounting principles plus "fixed
     charges" and certain other adjustments. "Fixed charges" consist of interest
     incurred on all indebtedness related to continuing operations (including
     amortization of original issue discount) and the implied interest component
     of our rent obligations in the years presented.

(2)  Includes the effect of a non-recurring, non-cash charge in the amount of
     approximately $94.5 million relating to our November 1999 acquisition of
    the former external advisor to our company. Excluding the effect of this
    non-recurring, non-cash charge, our ratio of earnings to fixed charges and
    preferred stock dividends for the year ended December 31, 1999 would have
    been 2.0x and our ratio of earnings to fixed charges for that period would
    have been 2.5x.

(3)  Prior to March 1998, we conducted our structured finance operations through
     two private investment partnerships. The partnerships contributed
    substantially all of their $1.1 billion of structured finance assets to our
    company's predecessor in a series of transactions in March 1998. Before that
    contribution, our company's predecessor had no significant resources or
    operations. We have not shown information for our predecessor for 1997
    because we do not believe that information is indicative of our current
    business.

                                USE OF PROCEEDS

    Except as may be set forth in a particular prospectus supplement, we will
add the net proceeds from sales of securities to our general corporate funds,
which we may use to repay indebtedness, for new investments, or for other
general corporate purposes.

                         DESCRIPTION OF DEBT SECURITIES

    We will issue the debt securities under an indenture dated as of
February 5, 2001 with State Street Bank and Trust Company, N.A., as trustee,
which we may supplement from time to time. The following paragraphs describe the
provisions of the indenture. We have filed the indenture as an exhibit to the
registration statement of which this prospectus is a part and you may inspect it
at the office of the trustee.

GENERAL

    The debt securities will be our direct, unsecured obligations and may be
either senior debt securities or subordinated debt securities. The indenture
does not limit the principal amount of debt securities that we may issue. We may
issue debt securities in one or more series. A supplemental indenture will set
forth specific terms of each series of debt securities. There will be prospectus
supplements relating to particular series of debt securities. Each prospectus
supplement will describe:

    - The title of the debt securities and whether the debt securities are
      senior or subordinated debt securities.

    - Any limit upon the aggregate principal amount of a series of debt
      securities which we may issue.

    - The date or dates on which principal of the debt securities will be
      payable and the amount of principal which will be payable.

    - The rate or rates (which may be fixed or variable) at which the debt
      securities will bear interest, if any, as well as the dates from which
      interest will accrue, the dates on which interest will be

                                       10

      payable, the persons to whom interest will be payable, if other than the
      registered holders on the record date, and the record date for the
      interest payable on any payment date.

    - The currency or currencies in which principal, premium, if any, and
      interest, if any, will be paid.

    - The place or places where principal, premium, if any, and interest, if
      any, on the debt securities will be payable and where debt securities
      which are in registered form can be presented for registration of transfer
      or exchange.

    - Any provisions regarding our right to prepay debt securities or of holders
      to require us to prepay debt securities.

    - The right, if any, of holders of the debt securities to convert them into
      common stock or other securities, including any provisions intended to
      prevent dilution of the conversion rights.

    - Any provisions requiring or permitting us to make payments to a sinking
      fund which will be used to redeem debt securities or a purchase fund which
      will be used to purchase debt securities.

    - Any index or formula used to determine the required payments of principal,
      premium, if any, or interest, if any.

    - The percentage of the principal amount of the debt securities which is
      payable if maturity of the debt securities is accelerated because of a
      default.

    - Any special or modified events of default or covenants with respect to the
      debt securities.

    - Any other material terms of the debt securities.

    The indenture does not contain any restrictions on the payment of dividends
or the repurchase of our securities or any financial covenants. However,
supplemental indentures relating to particular series of debt securities may
contain provisions of that type.

    We may issue debt securities at a discount from their stated principal
amount. A prospectus supplement may describe federal income tax considerations
and other special considerations applicable to a debt security issued with
original issue discount.

    If the principal of, premium, if any, or interest with regard to any series
of debt securities is payable in a foreign currency, we will describe in the
prospectus supplement relating to those debt securities any restrictions on
currency conversions, tax considerations or other material restrictions with
respect to that issue of debt securities.

FORM OF DEBT SECURITIES

    We may issue debt securities in certificated or uncertificated form, in
registered form with or without coupons or in bearer form with coupons, if
applicable.

    We may issue debt securities of a series in the form of one or more global
certificates evidencing all or a portion of the aggregate principal amount of
the debt securities of that series. We may deposit the global certificates with
depositaries, and the certificates may be subject to restrictions upon transfer
or upon exchange for debt securities in individually certificated form.

EVENTS OF DEFAULT AND REMEDIES

    An event of default with respect to each series of debt securities will
include:

    - Our default in payment of the principal of or premium, if any, on any debt
      securities of any series beyond any applicable grace period.

    - Our default for 30 days or a period specified in a supplemental indenture,
      which may be no period, in payment of any installment of interest due with
      regard to debt securities of any series.

                                       11

    - Our default for 60 days after notice in the observance or performance of
      any other covenants in the indenture.

    - Certain events involving our bankruptcy, insolvency or reorganization.

    Supplemental indentures relating to particular series of debt securities may
include other events of default.

    The indenture provides that the trustee may withhold notice to the holders
of any series of debt securities of any default (except a default in payment of
principal, premium, if any, or interest, if any) if the trustee considers it in
the interest of the holders of the series to do so.

    The indenture provides that if any event of default has occurred and is
continuing, the trustee or the holders of not less than 25% in principal amount
of a series of debt securities then outstanding may declare the principal of and
accrued interest, if any, on that series of debt securities to be due and
payable immediately. However, if we cure all defaults (except the failure to pay
principal, premium or interest which became due solely because of the
acceleration) and certain other conditions are met, that declaration may be
annulled and past defaults may be waived by the holders of a majority in
principal amount of the applicable series of debt securities.

    The holders of a majority of the outstanding principal amount of a series of
debt securities will have the right to direct the time, method and place of
conducting proceedings for any remedy available to the trustee, subject to
certain limitations specified in the indenture.

    A prospectus supplement will describe any additional or different events of
default which apply to any series of debt securities.

MODIFICATION OF THE INDENTURE

    We and the trustee may:

    - Without the consent of holders of debt securities, modify the indenture to
      cure errors or clarify ambiguities.

    - With the consent of the holders of not less than a majority in principal
      amount of the debt securities which are outstanding under the indenture,
      modify the indenture or the rights of the holders of the debt securities
      generally.

    - With the consent of the holders of not less than a majority in outstanding
      principal amount of any series of debt securities, modify any supplemental
      indenture relating solely to that series of debt securities or the rights
      of the holders of that series of debt securities.

    However, we may not:

    - Extend the fixed maturity of any debt securities, reduce the rate or
      extend the time for payment of interest, if any, on any debt securities,
      reduce the principal amount of any debt securities or the premium, if any,
      on any debt securities, impair or affect the right of a holder to
      institute suit for the payment of principal, premium, if any, or interest,
      if any, with regard to any debt securities, change the currency in which
      any debt securities are payable or impair the right, if any, to convert
      any debt securities into common stock or any of our other securities,
      without the consent of each holder of debt securities who will be
      affected.

    - Reduce the percentage of holders of debt securities required to consent to
      an amendment, supplement or waiver, without the consent of the holders of
      all the then outstanding debt securities or outstanding debt securities of
      the series which will be affected.

                                       12

MERGERS AND OTHER TRANSACTIONS

    We may not consolidate with or merge into any other entity, or transfer or
lease our properties and assets substantially as an entirety to another person,
unless: (1) the entity formed by the consolidation or into which we are merged,
or which acquires or leases our properties and assets substantially as an
entirety, assumes by a supplemental indenture all our obligations with regard to
outstanding debt securities and our other covenants under the indenture; and
(2) with regard to each series of debt securities, immediately after giving
effect to the transaction, no event of default, with respect to that series of
debt securities, and no event which would become an event of default, will have
occurred and be continuing.

GOVERNING LAW

    The indenture, each supplemental indenture, and the debt securities issued
under them will be governed by, and construed in accordance with, the laws of
New York.

                            DESCRIPTION OF WARRANTS

    Each issue of warrants will be the subject of a warrant agreement which will
contain the terms of the warrants. We will distribute a prospectus supplement
with regard to each issue of warrants. Each prospectus supplement will describe,
as to the warrants to which it relates:

    - The securities which may be purchased by exercising the warrants (which
      may be common stock, preferred stock, debt securities, depositary shares
      or units consisting of two or more of those types of securities).

    - The exercise price of the warrants (which may be wholly or partly payable
      in cash or wholly or partly payable with other types of consideration).

    - The period during which the warrants may be exercised.

    - Any provision adjusting the securities which may be purchased on exercise
      of the warrants and the exercise price of the warrants in order to prevent
      dilution or otherwise.

    - The place or places where warrants can be presented for exercise or for
      registration of transfer or exchange.

    - Any other material terms of the warrants.

                DESCRIPTION OF COMMON STOCK AND PREFERRED STOCK

    Our authorized capital stock consists of 200,000,000 shares of common stock,
$0.001 par value, and 30,000,000 shares of preferred stock, $0.001 par value, of
which 4,400,000 shares are designated 9.500% Series A Cumulative Redeemable
Preferred Stock, $0.001 par value, 2,300,000 shares are designated 9.375%
Series B Cumulative Redeemable Preferred Stock, $0.001 par value, 1,495,000
shares are designated 9.200% Series C Cumulative Redeemable Preferred Stock,
$0.001 par value, and 4,600,000 shares are designated 8.000% Series D Cumulative
Redeemable Preferred Stock, $0.001 par value. At December 31, 2001, 87,386,777
shares of common stock, 4,400,000 shares of Series A preferred stock, 2,000,000
shares of Series B preferred stock, 1,300,000 shares of Series C preferred
stock, and 4,000,000 shares of Series D preferred stock were outstanding.

                                       13

COMMON STOCK

    Holders of common stock will be entitled to receive distributions on common
stock if, as and when the Board of Directors authorizes and declares
distributions. However, rights to distributions may be subordinated to the
rights of holders of preferred stock, when preferred stock is issued and
outstanding. In the event of our liquidation, dissolution or winding up, each
outstanding share of common stock will entitle its holder to a proportionate
share of the assets that remain after we pay our liabilities and any
preferential distributions owed to preferred stockholders.

    Holders of the common stock are entitled to one vote for each share on all
matters submitted to a stockholder vote. Holders of the Series B preferred
stock, Series C preferred stock, and Series D preferred stock are entitled to
0.25 of a vote for each share on all matters submitted to a stockholder vote.
They will vote with the common stock as a single class. There is no cumulative
voting in the election of directors.

    Holders of shares of common stock have no preference, conversion, sinking
fund, redemption, appraisal or exchange rights or any preemptive rights to
subscribe for any of our securities. All shares of common stock have equal
dividend, distribution, liquidation and other rights.

    We may be dissolved if the Board of Directors, by resolution adopted by a
majority of the entire Board of Directors, declares the dissolution advisable
and directs that the proposed dissolution be submitted for consideration at
either an annual or special meeting of stockholders. Dissolution will occur once
it is approved by the affirmative vote of a majority of stockholders entitled to
cast votes on the matter.

    Our charter grants the Board of Directors the power to authorize the
issuance of additional authorized but unissued shares of common stock and
preferred stock. The Board of Directors may also classify or reclassify unissued
shares of common stock or preferred stock and authorize their issuance.

    Our charter also provides that, to the extent permitted by the General
Corporate Law of Maryland, the Board of Directors may, without any action by the
stockholders, amend our charter from time to time to increase or decrease the
aggregate number of shares of stock or the number of shares of stock of any
class or series that we have authority to issue.

    We believe that these powers of the Board of Directors provide increased
flexibility in structuring possible future financings and acquisitions and in
meeting other needs which might arise. Although the Board of Directors does not
intend to do so at the present time, it could authorize the issuance of a class
or series that could delay, defer or prevent a change of control or other
transaction that might involve a premium price for the common stock or otherwise
be in the best interest of the stockholders.

RESTRICTIONS ON OWNERSHIP AND TRANSFER

    To maintain our REIT qualification under the Internal Revenue Code, no group
of five or fewer individuals can own, actually or constructively, more than 50%
in value of our issued and outstanding stock at any time during the last half of
a taxable year. Additionally, at least 100 persons must beneficially own our
stock during at least 335 days of a taxable year. To help insure that we meet
these tests, our charter provides that no person other than persons who were our
shareholders as of November 3, 1999 or persons exempted by our Board of
Directors may beneficially or constructively own more than 9.8% of the number or
value of the outstanding shares of any class or series of our capital stock.

    Each person who is a beneficial or constructive owner of shares of stock and
each person, including the stockholder of record, who is holding shares of stock
for a beneficial or constructive owner must provide us in writing any
information with respect to direct, indirect and constructive ownership of
shares of stock as the Board of Directors deems reasonably necessary to comply
with the

                                       14

provisions of the Internal Revenue Code applicable to a REIT, to determine our
status as a REIT, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.

    These restrictions on ownership and transfer will not apply to our stock if
the Board of Directors determines that it is no longer in our best interests to
qualify as a REIT.

    These restrictions on ownership and transfer could delay, defer or prevent a
transaction or a change of control of us that might involve a premium price for
shares of our stock or otherwise be in the best interest of our stockholders.

PREFERRED STOCK

    We may issue preferred stock in series with any rights and preferences which
may be authorized by our board of directors. We will distribute a prospectus
supplement with regard to each series of preferred stock. Each prospectus
supplement will describe, as to the preferred stock to which it relates:

    - The title of the series.

    - Any limit upon the number of shares of the series which may be issued.

    - The preference, if any, to which holders of the series will be entitled
      upon our liquidation.

    - The date or dates on which we will be required or permitted to redeem
      shares of the series.

    - The terms, if any, on which we or holders of the series will have the
      option to cause shares of the series to be redeemed.

    - The voting rights of the holders of the preferred stock.

    - The dividends, if any, which will be payable with regard to the series
      (which may be fixed dividends or participating dividends and may be
      cumulative or non-cumulative).

    - The right, if any, of holders of the series to convert them into another
      class of our stock or securities, including provisions intended to prevent
      dilution of those conversion rights.

    - Any provisions by which we will be required or permitted to make payments
      to a sinking fund which will be used to redeem shares of the series or a
      purchase fund which will be used to purchase shares of the series.

    - Any other material terms of the series.

    Holders of shares of preferred stock will not have preemptive rights.

TRANSFER AGENT AND REGISTRAR

    The transfer agent and registrar for our common stock and preferred stock is
Equiserve Trust Company, N.A.

                                       15

                        DESCRIPTION OF DEPOSITARY SHARES

    We may issue depositary receipts representing interests in shares of
particular series of preferred stock which are called depositary shares. We will
deposit the preferred stock of a series which is the subject of depositary
shares with a depositary, which will hold that preferred stock for the benefit
of the holders of the depositary shares, in accordance with a deposit agreement
between the depositary and us. The holders of depositary shares will be entitled
to all the rights and preferences of the preferred stock to which the depositary
shares relate, including dividend, voting, conversion, redemption and
liquidation rights, to the extent of their interests in that preferred stock.

    While the deposit agreement relating to a particular series of preferred
stock may have provisions applicable solely to that series of preferred stock,
all deposit agreements relating to preferred stock we issue will include the
following provisions:

    DIVIDENDS AND OTHER DISTRIBUTIONS.  Each time we pay a cash dividend or make
any other type of cash distribution with regard to preferred stock of a series,
the depositary will distribute to the holder of record of each depositary share
relating to that series of preferred stock an amount equal to the dividend or
other distribution per depositary share the depositary receives. If there is a
distribution of property other than cash, the depositary either will distribute
the property to the holders of depositary shares in proportion to the depositary
shares held by each of them, or the depositary will, if we approve, sell the
property and distribute the net proceeds to the holders of the depositary shares
in proportion to the depositary shares held by them.

    WITHDRAWAL OF PREFERRED STOCK.  A holder of depositary shares will be
entitled to receive, upon surrender of depositary receipts representing
depositary shares, the number of whole or fractional shares of the applicable
series of preferred stock, and any money or other property, to which the
depositary shares relate.

    REDEMPTION OF DEPOSITARY SHARES.  Whenever we redeem shares of preferred
stock held by a depositary, the depositary will be required to redeem, on the
same redemption date, depositary shares constituting, in total, the number of
shares of preferred stock held by the depositary which we redeem, subject to the
depositary's receiving the redemption price of those shares of preferred stock.
If fewer than all the depositary shares relating to a series are to be redeemed,
the depositary shares to be redeemed will be selected by lot or by another
method we determine to be equitable.

    VOTING.  Any time we send a notice of meeting or other materials relating to
a meeting to the holders of a series of preferred stock to which depositary
shares relate, we will provide the depositary with sufficient copies of those
materials so they can be sent to all holders of record of the applicable
depositary shares, and the depositary will send those materials to the holders
of record of the depositary shares on the record date for the meeting. The
depositary will solicit voting instructions from holders of depositary shares
and will vote or not vote the preferred stock to which the depositary shares
relate in accordance with those instructions.

    LIQUIDATION PREFERENCE.  Upon our liquidation, dissolution or winding up,
the holder of each depositary share will be entitled to what the holder of the
depositary share would have received if the holder had owned the number of
shares (or fraction of a share) of preferred stock which is represented by the
depositary share.

    CONVERSION.  If shares of a series of preferred stock are convertible into
common stock or other of our securities or property, holders of depositary
shares relating to that series of preferred stock will, if they surrender
depositary receipts representing depositary shares and appropriate instructions
to convert them, receive the shares of common stock or other securities or
property into which the number of shares (or fractions of shares) of preferred
stock to which the depositary shares relate could at the time be converted.

                                       16

    AMENDMENT AND TERMINATION OF A DEPOSIT AGREEMENT.  We and the depositary may
amend a deposit agreement, except that an amendment which materially and
adversely affects the rights of holders of depositary shares, or would be
materially and adversely inconsistent with the rights granted to the holders of
the preferred stock to which they relate, must be approved by holders of at
least two-thirds of the outstanding depositary shares. No amendment will impair
the right of a holder of depositary shares to surrender the depositary receipts
evidencing those depositary shares and receive the preferred stock to which they
relate, except as required to comply with law. We may terminate a deposit
agreement with the consent of holders of a majority of the depositary shares to
which it relates. Upon termination of a deposit agreement, the depositary will
make the whole or fractional shares of preferred stock to which the depositary
shares issued under the deposit agreement relate available to the holders of
those depositary shares. A deposit agreement will automatically terminate if:

    - All outstanding depositary shares to which it relates have been redeemed
      or converted.

    - The depositary has made a final distribution to the holders of the
      depositary shares issued under the deposit agreement upon our liquidation,
      dissolution or winding up.

    MISCELLANEOUS.  There will be provisions: (1) requiring the depositary to
forward to holders of record of depositary shares any reports or communications
from us which the depositary receives with respect to the preferred stock to
which the depositary shares relate; (2) regarding compensation of the
depositary; (3) regarding resignation of the depositary; (4) limiting our
liability and the liability of the depositary under the deposit agreement
(usually to failure to act in good faith, gross negligence or willful
misconduct); and (5) indemnifying the depositary against certain possible
liabilities.

                    MATERIAL FEDERAL INCOME TAX CONSEQUENCES

    THE FOLLOWING IS A SUMMARY OF THE FEDERAL INCOME TAX CONSEQUENCES
ANTICIPATED TO BE MATERIAL TO AN INVESTOR IN iSTAR FINANCIAL. THIS SUMMARY IS
BASED ON CURRENT LAW. YOUR TAX CONSEQUENCES RELATED TO AN INVESTMENT IN iSTAR
FINANCIAL MAY VARY DEPENDING ON YOUR PARTICULAR SITUATION AND THIS DISCUSSION
DOES NOT PURPORT TO DISCUSS ALL ASPECTS OF TAXATION THAT MAY BE RELEVANT TO A
HOLDER OF OUR SECURITIES IN LIGHT OF HIS OR HER PERSONAL INVESTMENT OR TAX
CIRCUMSTANCES, OR TO HOLDERS OF OUR SECURITIES SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS, EXCEPT TO THE EXTENT DISCUSSED UNDER THE
HEADINGS "--TAXATION OF TAX-EXEMPT STOCKHOLDERS" AND "--TAXATION OF NON-U.S.
STOCKHOLDERS." INVESTORS SUBJECT TO SPECIAL TREATMENT INCLUDE, WITHOUT
LIMITATION, INSURANCE COMPANIES, FINANCIAL INSTITUTIONS, BROKER-DEALERS,
TAX-EXEMPT ORGANIZATIONS, INVESTORS HOLDING SECURITIES AS PART OF A CONVERSION
TRANSACTION, OR A HEDGE OR HEDGING TRANSACTION OR AS A POSITION IN A STRADDLE
FOR TAX PURPOSES, FOREIGN CORPORATIONS OR PARTNERSHIPS, AND PERSONS WHO ARE NOT
CITIZENS OR RESIDENTS OF THE UNITED STATES. IN ADDITION, THE SUMMARY BELOW DOES
NOT CONSIDER THE EFFECT OF ANY FOREIGN, STATE, LOCAL OR OTHER TAX LAWS THAT MAY
BE APPLICABLE TO YOU AS A HOLDER OF OUR SECURITIES.

    The information in this summary is based on the Internal Revenue Code of
1986, as amended, current, temporary and proposed Treasury regulations
promulgated under the Internal Revenue Code, the legislative history of the
Internal Revenue Code, current administrative interpretations and practices of
the Internal Revenue Service, and court decisions, all as of the date of this
prospectus. The administrative interpretations and practices of the Internal
Revenue Service upon which this summary is based include its practices and
policies as expressed in private letter rulings which are not binding on the
Internal Revenue Service, except with respect to the taxpayers who requested and
received such

                                       17

rulings. Future legislation, Treasury regulations, administrative
interpretations and practices, and court decisions may affect the tax
consequences contained in this summary, possibly on a retroactive basis. We have
not requested, and do not plan to request, any rulings from the Internal Revenue
Service concerning our tax treatment or the tax consequences contained in this
summary, and the statements in this prospectus are not binding on the Internal
Revenue Service or a court. Thus, we can provide no assurance that the tax
consequences contained in this summary will not be challenged by the Internal
Revenue Service or sustained by a court if challenged by the Internal Revenue
Service.

    YOU ARE URGED TO CONSULT YOUR TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES TO YOU OF: (1) THE ACQUISITION, OWNERSHIP AND SALE OR OTHER
DISPOSITION OF OUR SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES; (2) OUR ELECTION TO BE TAXED AS A REAL ESTATE INVESTMENT
TRUST FOR FEDERAL INCOME TAX PURPOSES; AND (3) POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.

TAXATION OF ISTAR FINANCIAL--GENERAL

    We have elected to be taxed as a REIT under Sections 856 through 860 of the
Internal Revenue Code, commencing with our taxable year ended December 31, 1998.
We believe that we have been organized and have operated in a manner which
allows us to qualify for taxation as a REIT under the Internal Revenue Code and
we intend to continue to be organized in this manner. Our qualification and
taxation as a REIT, however, depend upon our ability to meet, through actual
annual operating results, asset requirements, distribution levels, diversity of
stock ownership, and the various other qualification tests imposed under the
Internal Revenue Code. Accordingly, there can be no assurance that we have
operated or will continue to operate in a manner so as to qualify or remain
qualified as a REIT. See "--Failure to Qualify."

    In the opinion of Clifford Chance US LLP, commencing with our taxable year
ending December 31, 1998, iStar Financial was organized and had operated in
conformity with the requirements for qualification as a REIT, and its present
and proposed method of operation, as represented by iStar Financial, will enable
it to meet the requirements for qualification and taxation as a REIT under the
Code. It must be emphasized that this opinion is based and conditioned upon
certain assumptions and representations made by us as to factual matters
(including our representations concerning our business and properties as set
forth in this prospectus). The opinion is expressed as of its date and Clifford
Chance US LLP has no obligation to advise of any subsequent change in the
matters stated, represented or assumed or any subsequent change in the
applicable law. Moreover, such qualification and taxation as a REIT depends upon
our ability to meet, through actual annual operating results, distribution
levels and diversity of stock ownership, the various qualification tests imposed
under the Code as discussed below, the results of which will not be reviewed by
Clifford Chance US LLP. Accordingly, no assurance can be given that the actual
results of our operation for any one taxable year will satisfy such
requirements. See "--Failure to Qualify." An opinion of counsel is not binding
on the Internal Revenue Service, and no assurance can be given that the Internal
Revenue Service will not challenge our eligibility for taxation as a REIT.

    The sections of the Internal Revenue Code that relate to the qualification
and taxation of REITs are highly technical and complex. The following describes
the material aspects of the sections of the Internal Revenue Code that govern
the federal income tax treatment of a REIT and its stockholders. This summary is
qualified in its entirety by the applicable Internal Revenue Code provisions,
rules and regulations promulgated under the Internal Revenue Code, and
administrative and judicial interpretations of the Internal Revenue Code.

    Provided we qualify for taxation as a REIT, we generally will not be subject
to federal corporate income tax on our net income that is currently distributed
to our stockholders. This treatment

                                       18

substantially eliminates the "double taxation" that generally results from an
investment in a corporation. Double taxation means taxation once at the
corporate level when income is earned and once again at the stockholder level
when such income is distributed. Even if we qualify for taxation as a REIT,
however, we will be subject to federal income taxation as follows:

    - We will be required to pay tax at regular corporate rates on any
      undistributed REIT taxable income, including undistributed net capital
      gains.

    - We may be subject to the "alternative minimum tax" on items of tax
      preference, if any.

    - If we have: (1) net income from the sale or other disposition of
      "foreclosure property" which is held primarily for sale to customers in
      the ordinary course of business; or (2) other nonqualifying income from
      foreclosure property, we will be required to pay tax at the highest
      corporate rate on this income. In general, foreclosure property is
      property acquired through foreclosure after a default on a loan secured by
      the property or on a lease of the property.

    - We will be required to pay a 100% tax on any net income from prohibited
      transactions. In general, prohibited transactions are sales or other
      taxable dispositions of property, other than foreclosure property, held
      for sale to customers in the ordinary course of business.

    - If we fail to satisfy the 75% or 95% gross income tests, as described
      below, but have maintained our qualification as a REIT, we will be
      required to pay a 100% tax on an amount equal to: (1) the gross income
      attributable to the greater of the amount by which we fail the 75% or 95%
      gross income test; multiplied by (2) a fraction intended to reflect our
      profitability.

    - We will be required to pay a 4% excise tax on the amount by which our
      annual distributions to our stockholders is less than the sum of: (1) 85%
      of our ordinary income for the year; (2) 95% of our real estate investment
      trust capital gain net income for the year; and (3) any undistributed
      taxable income from prior periods.

    - If we acquire an asset from a corporation which is not a REIT in a
      transaction in which the basis of the asset in our hands is determined by
      reference to the basis of the asset in the hands of the transferor
      corporation, and we subsequently sell the asset within ten years, then
      under Treasury regulations not yet issued, we would be required to pay tax
      at the highest regular corporate tax rate on this gain to the extent:
      (1) the fair market value of the asset; exceeds (2) our adjusted tax basis
      in the asset, in each case, determined as of the date on which we acquired
      the asset. The results described in this paragraph assume that we will
      elect this treatment in lieu of an immediate tax when the asset is
      acquired.

    - We will generally be subject to tax on the portion of any "excess
      inclusion" income derived from an investment in residual interests in real
      estate mortgage investment conduits to the extent our stock is held by
      specified tax exempt organizations not subject to tax on unrelated
      business taxable income.

REQUIREMENTS FOR QUALIFICATION AS A REAL ESTATE INVESTMENT TRUST

GENERAL

    The Internal Revenue Code defines a REIT as a corporation, trust or
association:

    - that is managed by one or more trustees or directors;

    - that issues transferable shares or transferable certificates to its
      owners;

    - that would be taxable as a regular corporation, but for its election to be
      taxed as a REIT;

    - that is not a financial institution or an insurance company under the
      Internal Revenue Code;

                                       19

    - that is owned by 100 or more persons;

    - not more than 50% in value of the outstanding stock of which is owned,
      actually or constructively, by five or fewer individuals, as defined in
      the Internal Revenue Code to include some entities, during the last half
      of each year; and

    - that meets other tests, described below, regarding the nature of its
      income and assets, and the amount of its distributions.

    The Internal Revenue Code provides that conditions (1) to (4) must be met
during the entire year and that condition (5) must be met during at least
335 days of a year of twelve months, or during a proportionate part of a shorter
taxable year. Conditions (5) and (6) do not apply to the first taxable year for
which an election is made to be taxed as a REIT. For purposes of condition (6),
tax-exempt entities are generally treated as individuals, subject to a
"look-through" exception for pension funds.

    Our Charter provides for restrictions regarding ownership and transfer of
our stock. These restrictions are intended to assist us in satisfying the share
ownership requirements described in (5) and (6) above. These restrictions,
however, may not ensure that we will, in all cases, be able to satisfy the share
ownership requirements described in (5) and (6) above. If we fail to satisfy
these share ownership requirements, our status as a REIT would terminate. If,
however, we comply with the rules contained in applicable Treasury regulations
that require us to determine the actual ownership of our shares and we do not
know, or would not have known through the exercise of reasonable diligence, that
we failed to meet the requirement described in condition (6) above, we would not
be disqualified as a REIT.

    In addition, a corporation may not qualify as a REIT unless its taxable year
is the calendar year. We have and will continue to have a calendar taxable year.

OWNERSHIP OF A PARTNERSHIP INTEREST

    The Treasury regulations provide that if we are a partner in a partnership,
we will be deemed to own our proportionate share of the assets of the
partnership, and we will be deemed to be entitled to our proportionate share of
the gross income of the partnership. The character of the assets and gross
income of the partnership generally retains the same character in our hands for
purposes of satisfying the gross income and asset tests described below.

QUALIFIED REIT SUBSIDIARIES

    A "qualified REIT subsidiary" is a corporation, all of the stock of which is
owned by a REIT. Under the Internal Revenue Code, a qualified REIT subsidiary is
not treated as a separate corporation from the REIT. Rather, all of the assets,
liabilities, and items of income, deduction, and credit of the qualified REIT
subsidiary are treated as the assets, liabilities, and items of income,
deduction, and credit of the REIT for purposes of the REIT income and asset
tests described below.

INCOME TESTS

    We must meet two annual gross income requirements to qualify as a REIT.
First, each year we must derive, directly or indirectly, at least 75% of our
gross income, excluding gross income from prohibited transactions, from
investments relating to real property or mortgages on real property, including
"rents from real property" and mortgage interest, or from specified temporary
investments. Second, each year we must derive at least 95% of our gross income,
excluding gross income from prohibited transactions, from investments meeting
the 75% test described above, or from dividends, interest and gain from the sale
or disposition of stock or securities. For these purposes, the term "interest"
generally does not include any interest of which the amount received depends on
the income or profits of any person. An amount will generally not be excluded
from the term "interest," however, if such amount is based on a fixed percentage
of gross receipts or sales.

                                       20

    Any amount includable in gross income by us with respect to a regular or
residual interest in a real estate mortgage investment conduit is generally
treated as interest on an obligation secured by a mortgage on real property for
purposes of the 75% gross income test. If, however, less than 95% of the assets
of a real estate mortgage investment conduit consist of real estate assets, we
will be treated as receiving directly our proportionate share of the income of
the real estate mortgage investment conduit, which would generally include
non-qualifying income for purposes of the 75% gross income test. In addition, if
we receive interest income with respect to a mortgage loan that is secured by
both real property and other property and the principal amount of the loan
exceeds the fair market value of the real property on the date we made the
mortgage loan, interest income on the loan will be apportioned between the real
property and the other property, which apportionment would cause us to recognize
income that is not qualifying income for purposes of the 75% gross income test.

    We may make loans that have shared appreciation provisions. To the extent
interest on a loan is based on the cash proceeds from the sale or value of
property, income attributable to such provision would be treated as gain from
the sale of the secured property, which generally should qualify for purposes of
the 75% and 95% gross income tests.

    We may employ, to the extent consistent with the REIT provisions of the
Code, forms of securitization of our assets under which a "sale" of an interest
in a mortgage loan occurs, and a resulting gain or loss is recorded on our
balance sheet for accounting purposes at the time of sale. In a "sale"
securitization, only the net retained interest in the securitized mortgage loans
would remain on our balance sheet. We may elect to conduct certain of our
securitization activities, including such sales, through one or more taxable
subsidiaries, or through qualified REIT subsidiaries, formed for such purpose.
To the extent consistent with the REIT provisions of the Code, such entities
could elect to be taxed as real estate mortgage investment conduits or financial
asset securitization investment trusts.

    Lease income we receive will qualify as "rents from real property" only if
the following conditions are met:

    - the amount of lease income may not be based in whole or in part on the
      income or profits of any person. "Rents from real property" may, however,
      include lease income based on a fixed percentage of receipts or sales;

    - lease income received from a corporate tenant will not qualify as "rents
      from real property" if iStar Financial, or an actual or constructive owner
      of 10% or more of iStar Financial, actually or constructively owns 10% or
      more of such corporate tenant;

    - if lease income attributable to personal property leased in connection
      with a lease of real property is greater than 15% of the total lease
      income received under the lease, then the portion of lease income
      attributable to personal property will not qualify as "rents from real
      property"; and

    - to qualify as "rents from real property," we generally may not render
      services to corporate tenants of the property, other than through an
      independent contractor from whom we derive no revenue. We may, however,
      provide services that are "usually or customarily rendered" in connection
      with the rental of space for occupancy only and are not otherwise
      considered "rendered to the occupant" of the property. In addition, we may
      provide a DE MINIMIS amount of non-customary services. Finally, we may
      provide certain non-customary services to corporate tenants through a
      "taxable Company subsidiary," which is a taxable corporation wholly or
      partly owned by iStar Financial.

                                       21

    If we fail to satisfy one or both of the 75% or 95% gross income tests for
any year, we may still qualify as a REIT if we are entitled to relief under the
Internal Revenue Code. Generally, we may be entitled to relief if:

    - our failure to meet the gross income tests was due to reasonable cause and
      not due to willful neglect;

    - we attach a schedule of the sources of our income to our federal income
      tax return; and

    - any incorrect information on the schedule was not due to fraud with the
      intent to evade tax.

    It is not possible to state whether in all circumstances we would be
entitled to rely on these relief provisions. If these relief provisions do not
apply to a particular set of circumstances, we would not qualify as a REIT. As
discussed above in "--Taxation of iStar Financial--General," even if these
relief provisions apply, and we retain our status as a REIT, a tax would be
imposed with respect to our income that does not meet the gross income tests. We
may not always be able to maintain compliance with the gross income tests for
REIT qualification despite periodically monitoring our income.

FORECLOSURE PROPERTY

    Net income realized by us from foreclosure property would generally be
subject to tax at the maximum federal corporate tax rate (currently 35%).
Foreclosure property means real property and related personal property that:
(1) is acquired by us through foreclosure following a default on a lease of such
property or a default on indebtedness owed to us that is secured by the
property; and (2) for which we make an election to treat the property as
foreclosure property.

PROHIBITED TRANSACTION INCOME

    Any gain realized by us on the sale of any property, other than foreclosure
property, held as inventory or otherwise held primarily for sale to customers in
the ordinary course of business will be prohibited transaction income, and
subject to a 100% penalty tax. Prohibited transaction income may also adversely
affect our ability to satisfy the gross income tests for qualification as a
REIT. Whether property is held as inventory or primarily for sale to customers
in the ordinary course of a trade or business depends on all the facts and
circumstances surrounding the particular transaction. While the Treasury
regulations provide standards which, if met, would not result in prohibited
transaction income, we may not be able to meet these standards in all
circumstances.

HEDGING TRANSACTIONS

    We may enter into hedging transactions with respect to one or more of our
assets or liabilities. Our hedging transactions could take a variety of forms,
including interest rate swaps or cap agreements, options, futures contracts,
forward rate agreements, or similar financial instruments. To the extent that we
enter into hedging transactions to reduce our interest rate risk on indebtedness
incurred to acquire or carry real estate assets, any income, or gain from the
disposition of hedging transactions should be qualifying income for purposes of
the 95% gross income test, but not the 75% gross income test.

ASSET TESTS

    At the close of each quarter of each year, we also must satisfy four tests
relating to our assets. First, at least 75% of the value of our total assets
must be real estate assets, cash, cash items and government securities. For
purposes of this test, real estate assets include real estate mortgages, real
property, interests in other REITs and stock or debt instruments held for one
year or less that are purchased with the proceeds of a stock offering or a
long-term public debt offering. Second, not more than 25% of our total assets
may be represented by securities, other than those securities includable in the
75% asset class. Third, not more than 20% of the value of our total assets may
be represented by securities in one or more taxable

                                       22

REIT subsidiaries. Fourth, of the investments included in the 25% asset class,
the value of any one issuer's securities that we hold may not exceed 5% of the
value of our total assets, and we may not own more than 10% of the total vote or
value of the outstanding securities of any one issuer (other than, with respect
to the 10% value requirement, certain "straight debt" securities).

    We expect that any real property and temporary investments that we acquire
will generally be qualifying assets for purposes of the 75% asset test, except
to the extent that less than 95% of the assets of a real estate mortgage
investment conduit in which we own an interest consists of "real estate assets."
Mortgage loans will generally be qualifying assets for purposes of the 75% asset
test to the extent that the principal balance of each mortgage loan does not
exceed the value of the associated real property.

    After meeting the asset tests at the close of any quarter, we will not lose
our status as a REIT if we fail to satisfy the asset tests at the end of a later
quarter solely by reason of changes in asset values. In addition, if we fail to
satisfy the asset tests because we acquire assets during a quarter, we can cure
this failure by disposing of sufficient nonqualifying assets within 30 days
after the close of that quarter.

    We will monitor the status of the assets that we acquire for purposes of the
various asset tests and we will manage our portfolio in order to comply with
such tests.

ANNUAL DISTRIBUTION REQUIREMENTS

    To qualify as a REIT, we are required to distribute dividends, other than
capital gain dividends, to our stockholders in an amount at least equal to the
sum of: (1) 90% of our "REIT taxable income"; and (2) 90% of our after tax net
income, if any, from foreclosure property; minus (3) the sum of certain items of
non-cash income. In general,"REIT taxable income" means taxable ordinary income
without regard to the dividends paid deduction.

    We are required to distribute income in the taxable year in which it is
earned, or in the following taxable year before we timely file our tax return if
such dividend distributions are declared and paid on or before our first regular
dividend payment. Except as provided in "--Taxation of Taxable U.S.
Stockholders" below, these distributions are taxable to holders of common stock
in the year in which paid, even though these distributions relate to our prior
year for purposes of our 90% distribution requirement. To the extent that we do
not distribute all of our net capital gain or distribute at least 90%, but less
than 100% of our "REIT taxable income," we will be subject to tax at regular
corporate tax rates.

    From time to time we may not have sufficient cash or other liquid assets to
meet the above distribution requirements due to timing differences between the
actual receipt of cash and payment of expenses, and the inclusion of income and
deduction of expenses in arriving at our taxable income. If these timing
differences occur, in order to meet the REIT distribution requirements, we may
need to arrange for short-term, or possibly long-term, borrowings, or to pay
dividends in the form of taxable stock dividends.

    Under certain circumstances, we may be able to rectify a failure to meet a
distribution requirement for a year by paying "deficiency dividends" to our
stockholders in a later year, which may be included in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being subject
to tax on amounts distributed as deficiency dividends. We will be required,
however, to pay interest based upon the amount of any deduction claimed for
deficiency dividends. In addition, we will be subject to a 4% excise tax on the
excess of the required distribution over the amounts actually distributed if we
should fail to distribute each year at least the sum of 85% of our ordinary
income for the year, 90% of our capital gain income for the year, and any
undistributed taxable income from prior periods.

                                       23

RECORDKEEPING REQUIREMENTS

    We are required to maintain records and request on an annual basis
information from specified stockholders. This requirement is designed to
disclose the actual ownership of our outstanding stock.

FAILURE TO QUALIFY

    If we fail to qualify for taxation as a REIT in any taxable year, and the
relief provisions of the Internal Revenue Code described above do not apply, we
will be subject to tax, including any applicable alternative minimum tax, and
possibly increased state and local taxes, on our taxable income at regular
corporate rates. Such taxation would reduce the cash available for distribution
by us to our stockholders. Distributions to our stockholders in any year in
which we fail to qualify as a REIT will not be deductible by us and we will not
be required to distribute any amounts to our stockholders. If we fail to qualify
as a REIT, distributions to our stockholders will be subject to tax as ordinary
income to the extent of our current and accumulated earnings and profits and,
subject to certain limitations of the Internal Revenue Code, corporate
stockholders may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, we would also be
disqualified from taxation as a REIT for the four taxable years following the
year during which we lost our qualification. It is not possible to state whether
in all circumstances we would be entitled to statutory relief.

TAXATION OF TAXABLE U.S. STOCKHOLDERS

    When we use the term "U.S. stockholders," we mean a holder of shares of our
stock who is, for United States federal income tax purposes:

    - a citizen or resident of the United States;

    - a corporation, partnership, or other entity created or organized in or
      under the laws of the United States or of any state thereof or in the
      District of Columbia, unless Treasury regulations provide otherwise;

    - an estate the income of which is subject to United States federal income
      taxation regardless of its source; or

    - a trust whose administration is subject to the primary supervision of a
      United States court and which has one or more United States persons who
      have the authority to control all substantial decisions of the trust.

DISTRIBUTIONS GENERALLY

    Distributions out of our current or accumulated earnings and profits, other
than capital gain dividends will be taxable to our U.S. stockholders as ordinary
income. Provided we qualify as a REIT, our dividends will not be eligible for
the dividends received deduction generally available to U.S. stockholders that
are corporations.

    To the extent that we make distributions in excess of our current and
accumulated earnings and profits, these distributions will be treated as a
tax-free return of capital to each U.S. stockholder, and will reduce the
adjusted tax basis which each U.S. stockholder has in its shares of stock by the
amount of the distribution, but not below zero. Return of capital distributions
in excess of a U.S. stockholder's adjusted tax basis in its shares will be
taxable as capital gain, provided that the shares have been held as capital
assets, and will be taxable as long-term capital gain if the shares have been
held for more than one year. Dividends we declare in October, November, or
December of any year and pay to a stockholder of record on a specified date in
any of those months will be treated as both paid by us and received by the
stockholder on December 31 of that year, provided we pay the dividend in January
of the following year. Stockholders may not include in their own income tax
returns any of our net operating losses or capital losses.

                                       24

CAPITAL GAIN DISTRIBUTIONS

    Distributions designated as net capital gain dividends will be taxable to
our U.S. stockholders as capital gain income. Such capital gain income will be
taxable to non-corporate U.S. stockholders at a maximum rate of 20% or 25% based
on the characteristics of the asset we sold that produced the gain. U.S.
stockholders that are corporations may be required to treat up to 20% of certain
capital gain dividends as ordinary income.

RETENTION OF NET CAPITAL GAINS

    We may elect to retain, rather than distribute as a capital gain dividend,
our net capital gains. If we make this election, we would pay tax on such
retained capital gains. In such a case, our stockholders would generally:

    - include their proportionate share of our undistributed net capital gains
      in their taxable income;

    - receive a credit for their proportionate share of the tax paid by us; and

    - increase the adjusted basis of their stock by the difference between the
      amount of their capital gain and their share of the tax paid by us.

PASSIVE ACTIVITY LOSSES AND INVESTMENT INTEREST LIMITATIONS

    Distributions we make and gain arising from the sale or exchange by a U.S.
stockholder of our shares will not be treated as passive activity income. As a
result, U.S. stockholders will not be able to apply any "passive losses" against
income or gain relating to our stock. Distributions we make, to the extent they
do not constitute a return of capital, generally will be treated as investment
income for purposes of computing the investment interest limitation.

DISPOSITIONS OF STOCK

    If you are a U.S. stockholder and you sell or dispose of your shares of
stock, you will recognize gain or loss for federal income tax purposes in an
amount equal to the difference between the amount of cash and the fair market
value of any property you receive on the sale or other disposition and your
adjusted tax basis in the shares of stock. This gain or loss will be capital
gain or loss if you have held the stock as a capital asset, and will be
long-term capital gain or loss if you have held the stock for more than one
year. In general, if you are a U.S. stockholder and you recognize loss upon the
sale or other disposition of stock that you have held for six months or less,
the loss you recognize will be treated as a long-term capital loss to the extent
you received distributions from us which were required to be treated as
long-term capital gains.

BACKUP WITHHOLDING

    We report to our U.S. stockholders and the Internal Revenue Service the
amount of dividends paid during each calendar year, and the amount of any tax
withheld. Under the backup withholding rules, a stockholder may be subject to
backup withholding with respect to dividends paid unless the holder is a
corporation or comes within other exempt categories and, when required,
demonstrates this fact, or provides a taxpayer identification number or social
security number, certifies as to no loss of exemption from backup withholding,
and otherwise complies with applicable requirements of the backup withholding
rules. A U.S. stockholder that does not provide us with his correct taxpayer
identification number or social security number may also be subject to penalties
imposed by the Internal Revenue Service. Backup withholding is not an additional
tax. Any amount paid as backup withholding will be creditable against the
stockholder's income tax liability. In addition, we may be required to withhold
a portion of capital gain distributions to any stockholders who fail to certify
their non-foreign status.

                                       25

TAXATION OF TAX-EXEMPT STOCKHOLDERS

    The Internal Revenue Service has ruled that amounts distributed as dividends
by a REIT do not constitute unrelated business taxable income when received by a
tax-exempt entity. Based on that ruling, provided that a tax-exempt stockholder
has not held its shares as "debt financed property" within the meaning of the
Internal Revenue Code and the shares are not otherwise used in a unrelated trade
or business, dividend income on our stock and income from the sale of our stock
should not be unrelated business taxable income to a tax-exempt stockholder.
Generally, debt financed property is property, the acquisition or holding of
which was financed through a borrowing by the tax-exempt stockholder.

    For tax-exempt stockholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Sections
501(c)(7), (c)(9), (c)(17) and (c)(20) of the Internal Revenue Code,
respectively, income from an investment in our shares will constitute unrelated
business taxable income unless the organization is able to claim properly a
deduction for amounts set aside or placed in reserve for certain purposes so as
to offset the income generated by its investment in our shares. These
prospective investors should consult their tax advisors concerning these "set
aside" and reserve requirements.

    Notwithstanding the above, however, a portion of the dividends paid by a
"pension-held REIT" may be treated as unrelated business taxable income as to
any pension trust which:

    - is described in Section 401(a) of the Internal Revenue Code;

    - is tax-exempt under Section 501(a) of the Internal Revenue Code; and

    - holds more than 10%, by value, of the interests in the REIT.

    Tax-exempt pension funds that are described in Section 401(a) of the
Internal Revenue Code are referred to below as "qualified trusts."

    A REIT is a "pension held REIT" if:

    - it would not have qualified as a REIT but for the fact that
      Section 856(h)(3) of the Internal Revenue Code provides that stock owned
      by a qualified trust is treated, for purposes of the 5/50 rule, as owned
      by the beneficiaries of the trust, rather than by the trust itself; and

    - either at least one qualified trust holds more than 25%, by value, of the
      interests in the REIT, or one or more qualified trusts, each of which owns
      more than 10%, by value, of the interests in the REIT, holds in the
      aggregate more than 50%, by value, of the interests in the REIT.

    The percentage of any REIT dividend treated as unrelated business taxable
income is equal to the ratio of:

    - the unrelated business taxable income earned by the REIT, treating the
      REIT as if it were a qualified trust and therefore subject to tax on
      unrelated business taxable income, to

    - the total gross income of the REIT.

    A DE MINIMIS exception applies where the percentage is less than 5% for any
year. As a result of the limitations on the transfer and ownership of stock
contained in our Charter, we do not expect to be classified as a "pension-held
REIT."

    EXCESS INCLUSION INCOME:

    A portion of our net income attributable to assets financed through our
STARs(SM) program (and, therefore, a portion of the dividends payable by us) may
be treated as Excess Inclusion income from a REMIC residual interest, which may
constitute unrelated business taxable income to a tax-exempt stockholder. These
amounts have historically been immaterial and we expect that they will be

                                       26

immaterial in the future. Prospective stockholders should consult their own tax
advisors regarding the federal income tax consequences to them of incurring
Excess Inclusion income.

TAXATION OF NON-U.S. STOCKHOLDERS

    The rules governing federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
stockholders (collectively, "Non-U.S. stockholders") are complex and no attempt
will be made herein to provide more than a summary of such rules.

    PROSPECTIVE NON-U.S. STOCKHOLDERS SHOULD CONSULT THEIR TAX ADVISORS TO
DETERMINE THE IMPACT OF FOREIGN, FEDERAL, STATE, AND LOCAL INCOME TAX LAWS WITH
REGARD TO AN INVESTMENT IN OUR SECURITIES AND OF OUR ELECTION TO BE TAXED AS A
REAL ESTATE INVESTMENT TRUST INCLUDING ANY REPORTING REQUIREMENTS.

    Distributions to Non-U.S. stockholders that are not attributable to gain
from sales or exchanges by us of U.S. real property interests and are not
designated by us as capital gain dividends or retained capital gains will be
treated as dividends of ordinary income to the extent that they are made out of
our current or accumulated earnings and profits. Such distributions will
generally be subject to a withholding tax equal to 30% of the distribution
unless an applicable tax treaty reduces or eliminates that tax. However, if
income from an investment in our stock is treated as effectively connected with
the Non-U.S. stockholder's conduct of a U.S. trade or business, the Non-U.S.
stockholder generally will be subject to federal income tax at graduated rates,
in the same manner as U.S. stockholders are taxed with respect to such
distributions (and also may be subject to the 30% branch profits tax in the case
of a Non-U.S. stockholder that is a corporation). We expect to withhold U.S.
income tax at the rate of 30% on the gross amount of any distributions made to a
Non-U.S. stockholder unless: (1) a lower treaty rate applies and any required
form, such as IRS Form W-8BEN, evidencing eligibility for that reduced rate is
filed by the Non-U.S. stockholder with us; or (2) the Non-U.S. stockholder files
an IRS Form W-8ECI with us claiming that the distribution is effectively
connected income.

    Any portion of the dividends paid to Non-U.S. stockholders that is treated
as excess inclusion income from a real estate mortgage investment conduit will
not be eligible for exemption from the 30% withholding tax or a reduced treaty
rate. In addition, if Treasury regulations are issued allocating our excess
inclusion income from non-real estate mortgage investment conduits among our
stockholders, some percentage of the our dividends would not be eligible for
exemption from the 30% withholding tax or a reduced treaty withholding tax rate
in the hands of Non-U.S. stockholders.

    Distributions in excess of our current and accumulated earnings and profits
will not be taxable to a stockholder to the extent that such distributions do
not exceed the adjusted basis of the stockholder's stock, but rather will reduce
the adjusted basis of such shares. To the extent that distributions in excess of
current and accumulated earnings and profits exceed the adjusted basis of a
Non-U.S. stockholder's stock, such distributions will give rise to tax liability
if the Non-U.S. stockholder would otherwise be subject to tax on any gain from
the sale or disposition of its stock, as described below. Because it generally
cannot be determined at the time a distribution is made whether or not such
distribution will be in excess of current and accumulated earnings and profits,
the entire amount of any distribution normally will be subject to withholding at
the same rate as a dividend. However, amounts so withheld are refundable to the
extent it is subsequently determined that such distribution was, in fact, in
excess of our current and accumulated earnings and profits. We are also required
to withhold 10% of any distribution in excess of our current and accumulated
earnings and profits. Consequently, although we intend to withhold at a rate of
30% on the entire amount of any distribution, to the extent that we do not do
so, any portion of a distribution not subject to withholding at a rate of 30%
will be subject to withholding at a rate of 10%.

    For any year in which we qualify as a REIT, distributions that are
attributable to gain from sales or exchanges of a U.S. real property interest,
which includes certain interests in real property, but

                                       27

generally does not include mortgage loans, will be taxed to a Non-U.S.
stockholder under the provisions of the Foreign Investment in Real Property Tax
Act of 1980 ("FIRPTA"). Under FIRPTA, distributions attributable to gain from
sales of U.S. real property interests are taxed to a Non-U.S. stockholder as if
such gain were effectively connected with a U.S. business. Non-U.S. stockholders
thus would be taxed at the normal capital gain rates applicable to U.S.
stockholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals).
Distributions subject to FIRPTA also may be subject to the 30% branch profits
tax in the hands of a Non-U.S. stockholder that is a corporation. We are
required to withhold 35% of any distribution that is designated by us as a U.S.
real property capital gains dividend. The amount withheld is creditable against
the Non-U.S. stockholder's FIRPTA tax liability.

    Gain recognized by a Non-U.S. stockholder upon a sale of our stock generally
will not be taxed under FIRPTA if we are a "domestically controlled REIT," which
is a REIT in which at all times during a specified testing period less than 50%
in value of the stock was held directly or indirectly by Non-U.S. persons.
Although we currently believe that we are a "domestically controlled REIT,"
because our stock is publicly traded, no assurance can be given that we are or
will remain a "domestically controlled REIT." Even if we do not qualify as a
"domestically controlled REIT," a Non-U.S. stockholder that owns, actually or
constructively, 5% or less of our stock throughout a specified testing period
will not recognize taxable gain on the sale of his stock under FIRPTA if the
shares are traded on an established securities market. If we did not qualify as
a domestically controlled REIT and a Non-U.S. stockholder does not qualify for
the above exception, amounts realized by such Non-U.S. stockholder upon a sale
of our stock generally would be subject to withholding under FIRPTA at a rate of
10%.

    Gain not subject to FIRPTA will be taxable to a Non-U.S. stockholder if:
(1) the Non-U.S. stockholder's investment in the stock is effectively connected
with a U.S. trade or business, in which case the Non-U.S. stockholder will be
subject to the same treatment as U.S. stockholders with respect to such gain; or
(2) the Non-U.S. stockholder is a nonresident alien individual who was present
in the U.S. for 183 days or more during the taxable year and other conditions
are met, in which case the nonresident alien individual will be subject to a 30%
tax on the individual's capital gains. If the gain on the sale of the stock were
to be subject to taxation under FIRPTA, the Non-U.S. stockholder would be
subject to the same treatment as U.S. stockholders with respect to such gain
(subject to applicable alternative minimum tax, a special alternative minimum
tax in the case of nonresident alien individuals, and the possible application
of the 30% branch profits tax in the case of Non-U.S. corporations).

STATE, LOCAL AND FOREIGN TAXATION

    We may be required to pay state, local and foreign taxes in various state,
local and foreign jurisdictions, including those in which we transact business
or make investments, and our stockholders may be required to pay state, local
and foreign taxes in various state, local and foreign jurisdictions, including
those in which they reside. Our state, local and foreign tax treatment may not
conform to the federal income tax consequences summarized above. In addition,
your state, local and foreign tax treatment may not conform to the federal
income tax consequences summarized above. Consequently, you should consult your
tax advisor regarding the effect of state, local and foreign tax laws on an
investment in our securities.

POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS

    The rules dealing with federal income taxation are constantly under review
by persons involved in the legislative process and by the Internal Revenue
Service and the U.S. Treasury Department. Changes to the tax law, which may have
retroactive application, could adversely affect us and our investors. It cannot
be predicted whether, when, in what forms, or with what effective dates, the tax
law applicable to us or our investors will be changed.

                                       28

                                 LEGAL MATTERS

    Clifford Chance US LLP, 200 Park Avenue, New York, New York 10166, will pass
upon the validity of the securities we are offering by this prospectus. If the
validity of any securities is also passed upon by counsel for the underwriters
of an offering of those securities, that counsel will be named in the prospectus
supplement relating to that offering.

                                    EXPERTS

    The financial statements incorporated in this prospectus by reference to the
Annual Report on Form 10-K for the year ended December 31, 2001 have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

                INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

    We are incorporating by reference in this prospectus the following documents
which we have previously filed with the Securities and Exchange Commission under
the File Number 1-10150:

    (1) Annual Report on Form 10-K for fiscal year ended December 31, 2001.

    (2) Current Report on Form 8-K dated August 14, 2002.

    (3) Quarterly Reports on Form 10-Q for the quarters ended March 31, 2002 and
       June 30, 2002.

    (4) Definitive Proxy Statement dated April 12, 2002.

    (5) The description of the shares of common stock contained in the
       Registration Statement on Form 8-A on October 5, 1999.

    Whenever after the date of this prospectus we file reports or documents
under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
as amended, those reports and documents will be deemed to be part of this
prospectus from the time they are filed. If anything in a report or document we
file after the date of this prospectus changes anything in it, this prospectus
will be deemed to be changed by that subsequently filed report or document
beginning on the date the report or document is filed.

    We will provide to each person to whom a copy of this prospectus is
delivered a copy of any or all of the information that has been incorporated by
reference in this prospectus, but not delivered with this prospectus. We will
provide this information at no cost to the requestor upon written or oral
request addressed to iStar Financial Inc., 1114 Avenue of the Americas, New
York, New York 10036, attention: Investor Relations Department (Telephone:
(212) 930-9400).

                              INFORMATION WE FILE

    We file annual, quarterly and current reports, proxy statements and other
materials with the SEC. The public may read and copy any materials we file with
the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site that contains reports, proxy and information
statements and other information regarding issuers (including us) that file
electronically with the SEC. The address of that site is http://www.sec.gov.

    Reports, proxy statements and other information we file also can be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.

                                       29

                               10,000,000 SHARES

                                   [GRAPHIC]

                                  COMMON STOCK

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

                             PROSPECTUS SUPPLEMENT
                                          , 2002

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

                                LEHMAN BROTHERS

                              MERRILL LYNCH & CO.

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

                         BANC OF AMERICA SECURITIES LLC

                            BEAR, STEARNS & CO. INC.

                              GOLDMAN, SACHS & CO.

                                  UBS WARBURG



                                    PART II


         Item 14. Other Expenses of Issuance and Distribution.

         The following table sets forth the estimated expenses in connection
with the issuance and distribution of the securities being registered, other
than underwriting discounts and commissions:




                                                                 
Registration fee - Securities and Exchange Commission.............. $32,200
Accounting fees and expenses....................................... $10,000(1)
Legal fees and expenses............................................ $15,000(1)
Trustees' fees and expenses........................................ $10,000(1)
Miscellaneous......................................................  $2,800
Total.............................................................. $70,000


----------
(1)  Does not include expenses of preparing prospectus supplements and other
     expenses relating to offerings of particular securities.


     Item 15. Indemnification of Directors and Officers.

     As permitted by the General Corporation Law of the State of Maryland, our
Amended and Restated Charter provides that an officer, director, employee or
agent of our company is entitled to be indemnified for the expenses, judgments,
fines and amounts paid in settlement actually and reasonably incurred by him by
reason of any action, suit or proceeding brought against him by virtue of his
acting as such officer, director, employee or agent, provided he acted in good
faith or in a manner he reasonably believed to be in or not opposed to the best
interests of our company and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful, except that in any
action or suit by or in the right of our company that person shall be
indemnified only for the expenses actually and reasonably incurred by him and,
if that person shall have been adjudged to be liable for negligence or
misconduct, he shall not be indemnified unless and only to the extent that a
court of appropriate jurisdiction shall determine that such indemnification is
fair and reasonable.

     Item 16. Exhibits.

     4.   Form of Indenture, dated as of February 5, 2001 between the Company
          and State Street Bank and Trust Company, N.A., incorporated by
          reference from Registration Statement No. 333-55396.*

     5.   Opinion of Counsel

     12.  Statements of computation of ratios of earnings to fixed charges*

     23.  Consents

          (1) Clifford Chance US LLP (counsel) - included in Exhibit 5

          (2) PricewaterhouseCoopers LLP (accountants)

     24.  Power of Attorney included on signature page

     25.  Statement of Eligibility and Qualification on Form T-1 of Trustee
          under the Indenture

                                      II-1

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


     Item 17. Undertakings.

     The undersigned registrant hereby undertakes:

     (1)  To file, during any period in which offers or sales are being made, a
          post-effective amendment to this registration statement:

               (a) To include any prospectus required by Section 10(a)(3) of the
          Securities Act,

               (b) To reflect in the prospectus any facts or events arising
          after the effective date of this registration statement (or the most
          recent post-effective amendment thereof) which, individually or in the
          aggregate, represent a fundamental change in the information set forth
          in this registration statement. Notwithstanding the foregoing, any
          increase or decrease in volume of securities offered (if the total
          dollar value of securities offered would not exceed that which was
          registered) and any deviation from the low or high end of the
          estimated maximum offering range may be reflected in the form of
          prospectus filed with the Commission pursuant to Rule 424(b) if, in
          the aggregate, the changes in volume and price represent no more than
          a 20% change in the maximum aggregate offering price set forth in the
          "Calculation of Registration Fee" table in the effective registration
          statement, and

               (c) To include any material information with respect to the plan
          of distribution not previously disclosed in this registration
          statement or any material change to such information in the
          registration statement;

provided, however, that the undertakings set forth in paragraphs (a) and (b)
above shall not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by iStar Financial pursuant to Section 13 or Section 15(d) of the Exchange
Act that are incorporated by reference in this registration statement.

     (2)  That, for the purpose of determining any liability under the
          Securities Act, each such post-effective amendment will be deemed to
          be a new registration statement relating to the securities offered
          therein, and the offering of such securities at that time will be
          deemed to be the initial bona fide offering thereof.

     (3)  To remove from registration by means of a post-effective amendment any
          of the securities being registered which remain unsold at the
          termination of the offering.

     (4)  That, for purposes of determining any liability under the Securities
          Act, each filing of iStar Financial's annual report pursuant to
          Section 13(a) or Section 15(d) of the Exchange Act that is
          incorporated by reference in this registration statement will be
          deemed to be a new registration statement relating to the securities
          offered herein, and the offering of such securities at that time will
          be deemed to be the initial bona fide offering thereof.

                                      II-2




     (5)  That, (a) for purposes of determining any liability under the
          Securities Act, the information omitted from the form of prospectus
          filed as part of this registration statement in reliance upon Rule
          430A and contained in a form of prospectus filed by the Registrant
          pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
          shall be deemed to be part of this registration statement as of the
          time it was declared effective, and (b) for the purpose of determining
          any liability under the Securities Act, each post-effective amendment
          that contains a form of prospectus shall be deemed to be a new
          registration statement relating to the securities offered therein, and
          the offering of such securities at that time shall be deemed to be the
          initial bona fide offering thereof.

     The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act of 1939 in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Trust Indenture Act of 1939.

Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of iStar Financial
pursuant to the foregoing provisions, or otherwise, iStar Financial has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by iStar Financial of expenses incurred or
paid by a director, officer or controlling person of iStar Financial in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, iStar Financial will, unless in the opinion of counsel for iStar
Financial the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.

                                      II-3







                                   SIGNATURES

     Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to be
signed on its behalf by the undersigned, thereunto duly authorized in the city
of New York, State of New York, on November 14, 2002.

                                iSTAR FINANCIAL INC.

                                By: /s/ JAY SUGARMAN
                                    -----------------------------------------
                                     Name: Jay Sugarman
                                     Title: Chief Executive Officer

                                By: /s/ SPENCER B. HABER
                                    ----------------------------------------
                                     Name:  Spencer B. Haber
                                     Title: President



                                      II-4





     Pursuant to the requirements of the Securities Act, this amendment has been
signed by the following persons in the capacities and on the dates indicated.





                  NAME                                         TITLE                                  DATE

                                                                                        

 /s/ Jay Sugarman *                        Chairman of the Board and Chief Executive           November 14, 2002
------------------------------------------    Officer
              Jay Sugarman

 /s/ Spencer B. Haber *                    President, Chief Financial Officer and              November 14, 2002
------------------------------------------    Director
            Spencer B. Haber

 /s/ Willis Andersen, Jr. *                Director                                            November 14, 2002
------------------------------------------
          Willis Andersen, Jr.

 /s/ Jeffrey G. Dishner *                  Director                                            November 14, 2002
------------------------------------------
           Jeffrey G. Dishner

/s/ Andrew L. Farkas *                     Director                                            November 14, 2002
------------------------------------------
            Andrew L. Farkas

/s/ Madison F. Grose *                     Director                                            November 14, 2002
------------------------------------------
            Madison F. Grose

/s/ Robert W. Holman, Jr. *                Director                                            November 14, 2002
------------------------------------------
          Robert W. Holman, Jr.

/s/ Robin Josephs *                        Director                                            November 14, 2002
------------------------------------------
              Robin Josephs

/s/ Merrick R. Kleeman *                   Director                                            November 14, 2002
------------------------------------------
           Merrick R. Kleeman

/s/ H. Cabot Lodge *                       Executive Vice President--Investments                November 14, 2002
------------------------------------------
             H. Cabot Lodge                and Director

/s/ Matthew J. Lustig *                    Director                                            November 14, 2002
------------------------------------------
            Matthew J. Lustig

/s/ William M. Matthes *                   Director                                            November 14, 2002
------------------------------------------
           William M. Matthes

/s/ John G. McDonald *                     Director                                            November 14, 2002
------------------------------------------
            John G. McDonald

/s/ Stephen B. Oresman *                   Director                                            November 14, 2002
------------------------------------------
           Stephen B. Oresman




/s/ George R. Puskar *                     Director                                            November 14, 2002
------------------------------------------
            George R. Puskar

/s/ Barry S. Sternlicht *                  Director                                            November 14, 2002
------------------------------------------
           Barry S. Sternlicht



* /S/ JAY SUGARMAN, Attorney-in-fact                                                           November 14, 2002
  ----------------