EXCHANGE AGREEMENT

THIS EXCHANGE AGREEMENT , dated as of October 15, 2009 (this “ Agreement ”), is entered into by and among GKK CAPITAL LP, a Delaware limited partnership (the “ Company ”), GRAMERCY INVESTMENT QRS CORP., a Delaware corporation (“ QRS ”), TABERNA CAPITAL MANAGEMENT, LLC, a Delaware limited liability company (“ Taberna ”), TABERNA PREFERRED FUNDING II, LTD. (“ Taberna II ”), TABERNA PREFERRED FUNDING V, LTD. (“ Taberna V ”), TABERNA PREFERRED FUNDING VII, LTD. (“ Taberna VII ”) and TABERNA PREFERRED FUNDING VIII, LTD. (“ Taberna VIII ”, and together with Taberna II, Taberna V and Taberna VII, collectively, the “ Holders ”).

RECITALS:

A.            Reference is made to that certain Junior Subordinated Indenture, dated as of January 30, 2009, between the Company and The Bank of New York Mellon Trust Company, National Association (“ BNYM ”), as Trustee (the “ Trustee ”), as amended by that certain Supplemental Indenture, dated as of October 14, 2009 (collectively, the “ Indenture ”), pursuant to which the Company issued, inter alia, the following junior subordinated notes (collectively, the “ Gramercy Notes ”):

(i) Junior Subordinated Note due 2035 in the original principal amount of $37,500,000 issued by the Company to Taberna II (“ Note 1 ”).

(ii) Junior Subordinated Note due 2035 in the original principal amount of $25,000,000 issued by the Company to Taberna V (“ Note 4 ”).

(iii) Junior Subordinated Note due 2035 in the original principal amount of $10,000,000 issued by the Company to Taberna VII (“ Note 5 ”).

(iv) Junior Subordinated Note due 2035 in the original principal amount of $25,000,000 issued by the Company to Taberna VIII (“ Note 6 ”).

B.            QRS is the owner of certain CRE CDO notes from GKKRE 2005-1, GKKRE 2006-1 and GKKRE 2007-1 set forth on Schedule I hereto (the “ Replacement Securities ”).

C.            On the terms and subject to the conditions set forth in this Agreement, the Company, QRS, Taberna and the Holders have agreed to exchange the Gramercy Notes for the Replacement Securities.

NOW, THEREFORE , in consideration of the mutual agreements and subject to the terms and conditions herein set forth, the parties hereto agree as follows:

1.             Definitions .

“ Bankruptcy Code ” means the Bankruptcy Reform Act of 1978, 11 U.S.C. §§101 et seq., as amended.

“ Benefit Plan ” means an “employee benefit plan” (as defined in ERISA) that is subject to Title I of ERISA, a “plan” as defined in Section 4975 of the Code or any entity whose assets include (for purposes of U.S. Department of Labor Regulations Section 2510.3-101 or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) the assets of any such “employee benefit plan” or “plan.”

“ BNYM ” has the meaning set forth in the Recitals.

“ CDO Trustee ” has the meaning set forth in Section 2(b)(i).

“ Closing Date ” has the meaning set forth in Section 2(b).

“ Closing Room ” has the meaning set forth in Section 2(b).

“ Code ” means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated under it.

“ Company ” has the meaning set forth in the introductory paragraph hereof.

“ Company Counsel ” has the meaning set forth in Section 3(b).

“ Equity Interests ” means with respect to any Person (a) if such Person is a partnership, the partnership interests (general or limited) in a partnership, (b) if such Person is a limited liability company, the membership interests in a limited liability company and (c) if such Person is a corporation, the shares or stock interests (both common stock and preferred stock) in a corporation.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated under it.

“ Exchange ” has the meaning set forth in Section 2(b).

“ Exchange Act ” has the meaning set forth in Section 4(i).

“ Governmental Entities ” has the meaning set forth in Section 4(n).

“ Gramercy Notes ” has the meaning set forth in the Recitals.

“ Holders ” has the meaning set forth in the introductory paragraph hereof.

“ Indemnified Party ” has the meaning set forth in Section 9(a).

“ Indemnified Parties ” shall have the correlative meaning.

“ Indenture ” has the meaning set forth in the Recitals.

“ Investment Company Act ” has the meaning set forth in Section 4(i).

“ Lien ” has the meaning set forth in Section 4(n).

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“ Material Adverse Effect ” means a material adverse effect on the condition (financial or otherwise), earnings, business, liabilities or assets of the Company, QRS or any of their respective subsidiaries taken as a whole.

“ Note 1 ” has the meaning set forth in the Recitals.

“ Note 4 ” has the meaning set forth in the Recitals.

“ Note 5 ” has the meaning set forth in the Recitals.

“ Note 6 ” has the meaning set forth in the Recitals.

“ Operative Documents ” means this Agreement and the Replacement Securities.

“ Person ” means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, company, limited liability company, trust, unincorporated association or government, or any agency or political subdivision thereof, or any other entity of whatever nature.

“ QRS ” has the meaning set forth in the introductory paragraph hereof.

“ Regulation D ” has the meaning set forth in Section 4(g).

“ Repayment Event ” has the meaning set forth in Section 4(n).

“ Replacement Securities ” has the meaning set forth in the Recitals.

“ Rule 144A(d)(3) ” has the meaning set forth in Section 4(i).

“ Securities Act ” means the Securities Act of 1933, 15 U.S.C. §§77a et seq., as amended, and the rules and regulations promulgated under it.

“ Taberna ” has the meaning set forth in the introductory paragraph hereof.

“ Taberna II ” has the meaning set forth in the introductory paragraph hereof.

“ Taberna V ” has the meaning set forth in the introductory paragraph hereof.

“ Taberna VII ” has the meaning set forth in the introductory paragraph hereof.

“ Taberna VIII ” has the meaning set forth in the introductory paragraph hereof.

“ Taberna Transferred Rights ” means any and all of the Holders’ right, title, and interest in, to and under the Gramercy Notes, together with the following:

(i)            the Indenture;

(ii)           all amounts payable to the Holders under the Gramercy Notes or the Indenture, excluding, however, amounts payable on account of interest for the period

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commencing on the most recent interest payment date under the Gramercy Notes and continuing through and including the Closing Date;

(iii)          all claims (including “claims” as defined in Bankruptcy Code §101(5)), suits, causes of action, and any other right of the Holders, whether known or unknown, against the Company, QRS or any of their respective affiliates, agents, representatives, contractors, advisors, or any other entity that in any way is based upon, arises out of or is related to any of the foregoing, including all claims (including contract claims, tort claims, malpractice claims, and claims under any law governing the exchange of, purchase and sale of, or indentures for, securities), suits, causes of action, and any other right of the Holders against any attorney, accountant, financial advisor, or other entity arising under or in connection with the Gramercy Notes or the Indenture or the transactions related thereto or contemplated thereby;

(iv)          all cash, securities, or other property, and all setoffs and recoupments, to be received, applied, or effected by or for the account of the Holders under the Gramercy Notes, other than fees, costs and expenses payable to Taberna or the Holders hereunder and all cash, securities, interest, dividends, and other property that may be exchanged for, or distributed or collected with respect to, any of the foregoing; and

(v)           all proceeds of the foregoing.

“ Trustee ” has the meaning set forth in the Recitals.

2.             Exchange of the Gramercy Notes for the Replacement Securities.

(a)           QRS agrees to deliver the Replacement Securities to the Holders and has requested that the Holders accept such Replacement Securities in exchange for the Gramercy Notes, and the Holders hereby accept the Replacement Securities in exchange for the Gramercy Notes upon the terms and conditions set forth herein.

(b)           The closing of the exchange contemplated herein shall occur at the offices of Dechert LLP in New York, New York (the “ Closing Room ”), or such other place as the parties hereto and the Trustee shall agree, at 11:00 a.m. New York time, on October 15, 2009 or such later date as the parties may agree (such date and time of delivery the “ Closing Date ”). The parties hereto hereby agree that the exchange (the “ Exchange ”) will occur in accordance with the following requirements:

(i)            Taberna (as collateral manager for each of the Holders) shall have delivered issuer orders instructing each trustee (in each such capacity, a “ CDO Trustee ”) under the applicable indenture pursuant to which such CDO Trustee serves as trustee for the holder of the Gramercy Notes to exchange the applicable Gramercy Notes for the applicable Replacement Securities and to deliver the applicable Gramercy Notes to the Trustee for reissuance in the name of the Company.

(ii)           The Gramercy Notes shall have been delivered to the Closing Room, copies of which shall have previously been made available for inspection, if so requested.

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(iii)          QRS shall have transferred the Replacement Securities to each applicable CDO Trustee via the Depository Trust Company to hold for the benefit of each Holder as set forth in Schedule II .

(iv)          The Trustee shall have obtained the Gramercy Notes and shall, upon receipt of all necessary transfer documentation, promptly thereafter, reissue them in the name of the Company.

(v)           Simultaneously with the occurrence of the events described in subsections (iii) and (iv) hereof, (A) the Holders of the Gramercy Notes irrevocably transfer, assign, grant and convey the related Taberna Transferred Rights to the Company and the Company accepts the Gramercy Notes and the Taberna Transferred Rights and (B) each Holder shall be entitled to all of the rights, title and interest of a Holder of the Replacement Securities, in accordance with their respective ownership interests, under the terms of the Replacement Securities and any other Operative Document.

(vi)          Taberna shall have paid to the Trustee all of such party’s legal fees, costs and other expenses in connection with the Exchange, and the Company shall have paid all other accr