BRT Apartments Corp. - Annual Report: 2012 (Form 10-K)

Use these links to rapidly review the document
TABLE OF CONTENTS
TABLE OF CONTENTS 2

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission file number 001-07172

BRT REALTY TRUST
(Exact name of registrant as specified in its charter)

516-466-3100
Registrant's telephone number, including area code

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

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

NONE
(Title of Class)

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No ý

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o    No ý

         Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

         Indicate by check mark whether registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes o    No ý

         The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant was approximately $58.2 million based on the last sale price of the common equity on March 31, 2012, which is the last business day of the registrant's most recently completed second quarter.

         As of November 30, 2012, the registrant had 14,053,362 Shares of Beneficial Interest outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the proxy statement for the annual meeting of shareholders of BRT Realty Trust to be filed not later than January 28, 2013 are incorporated by reference into Part III of this Form 10-K.

Table of Contents

TABLE OF CONTENTS

Form 10-K

Table of Contents

        We refer to certain mortgages as being "non-recourse (subject to standard carve-outs)." The term "standard carve-outs" refers to recourse items to an otherwise non-recourse mortgage and are customary to mortgage financing. While carve-outs vary from lender to lender and transaction to transaction, the carve-outs may include, among other things, environmental liabilities, the sale, financing or encumbrance of the property in violation of loan documents, damage to property as a result of intentional misconduct or gross negligence, failure to pay valid taxes and other claims which could create liens on property and the conversion of security deposits, insurance proceeds or condemnation awards.

        In the narrative portion of this report, information with respect to our consolidated joint ventures is generally described as if such venture was our wholly owned subsidiary and information with respect to unconsolidated joint ventures is generally separately described.

        Unless otherwise indicated or the context otherwise requires, all references to a year (e.g., 2012) refer to the applicable fiscal year ended September 30^th.

        References herein to the acquisition of multi-family properties includes the acquisition of equity interests in joint ventures or other entities that have a direct or indirect ownership interest in entities owning such properties.

Forward-Looking Statements

        This Annual Report on Form 10-K, together with other statements and information publicly disseminated by us, contains certain forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends concerning matters that are not historical facts. Forward looking statements are generally identifiable by use of words such as "may," "will," "will likely result," "shall," "should," "could," "believe," "expect," "intend," "anticipate," "estimate," "project" or similar expressions or variations thereof.

        Forward-looking statements contained in this Annual Report on Form 10-K are based on our beliefs, assumptions and expectations of our future performance taking into account all information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or within our control, and which could materially affect actual results, performance or achievements. Factors which may cause actual results to vary from our forward-looking statements include, but are not limited to:

•

factors described in this Annual Report on Form 10-K, including those set forth under the captions "Risk Factors" and "Business"



•

availability of mortgage origination and multi-family property acquisition opportunities acceptable to us;



•

national and local economic and business conditions;



•

general and local real estate property conditions;



•

defaults by borrowers in paying debt service on outstanding loans;



•

limitation of credit by institutional lenders;



•

impairment in the value of real estate property we own and real estate property securing our loans;



•

changes in Federal government policies;



•

changes in Federal, state and local governmental laws and regulations;



•

increased competition from mortgage lenders;



•

changes in interest rates; and



•

the availability of and costs associated with sources of capital and liquidity.

        We caution you not to place undue reliance on forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. Except to the extent required by applicable law or regulation, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of the filing of this Annual Report on Form 10-K or to reflect the occurrence of unanticipated events.

1

Table of Contents

PART I

Item l.    Business.

General

        We originate and hold for investment senior mortgage loans secured by commercial and multi-family real estate property in the United States and beginning in 2012, expanded our business activities by acquiring, with joint venture partners, multi-family properties.

        The loans we originate generally have relatively high yields and are short-term or bridge loans with a duration ranging from six months to one year, with up to a one year extension in certain cases. Our policy is to lend at a floating rate of interest based on a spread over the prime rate, with a stated minimum rate, though we originate fixed rate loans as circumstances dictate.

        Through November 30, 2012, we had acquired eight multi-family properties with an aggregate of 2,335 units, including three properties with an aggregate of 884 units acquired after year end. Our equity investment in these properties was approximately $42.6 million. We generally contributed 80% of the equity in each multi-family property acquisition. At September 30, 2012, the net book value of the five multi-properties acquired in 2012 was $117.5 million.

        We also own and operate various real estate assets, the most significant of which are development properties located in Newark, New Jersey. At September 30, 2012, the net book-value of such assets was $72.8 million, inclusive of the net book value of $61.8 million related to our Newark, New Jersey assets.

        We conduct our operations to qualify as a real estate investment trust, or REIT, for federal income tax purposes.

        Information regarding our loan origination and real estate segments is included in Note 15 to our consolidated financial statements and is incorporated herein by this reference.

        We were organized as a business trust under the laws of the Commonwealth of Massachusetts in June 1972. Our address is 60 Cutter Mill Road, Suite 303, Great Neck, New York 11021, telephone number 516-466-3100. Our website can be accessed at www.brtrealty.com, where copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings with the Securities and Exchange Commission, or SEC, can be obtained free of charge. These SEC filings are added to our website as soon as reasonably practicable.

Our Real Estate Lending Activities

        The following table highlights certain information regarding our real estate lending activities for the periods indicated:

        We believe that our originations in fiscal 2012 were less than in fiscal 2011 due to increased competition and reduced demand for repurchase loans (i.e., loans to borrowers purchasing their own or third party mortgage debt at a discount to the principal amount thereof). Our originations in fiscal 2011 were higher than in fiscal 2010 due to increased demand for our short-term bridge loans which we

2

Table of Contents

believe was due to a more favorable economic climate in 2011 than 2010 and increased demand for repurchase loans.

Our Loan Portfolio

        The following summarizes certain characteristics of our loan portfolio as of the dates indicated:

        Interest on our loans is payable monthly. Our loans frequently require that our borrowers pay monthly escrow amounts that are adequate to pay, when due, real estate tax installments on the properties securing our loans. We may also require and hold funds in escrow for the payment of casualty insurance premiums. At September 30, 2012, our three largest loans outstanding of approximately $13.8 million, $7.8 million and $6.3 million represented approximately 6.3%, 4.6% and 2.1%, respectively, of our total assets. There were no other loans in our portfolio that, at such date, represented more than 1.0% of our total assets.

        With respect to certain loans originated by us, the borrower funds an interest reserve out of the loan proceeds, from which all or a portion of the interest payments due to us are made for a specified period of time. It is our policy to lend at a floating rate of interest based on a spread over the prime rate, with a stated minimum interest rate, though we originate fixed rate loans as circumstances dictate. At September 30, 2012 and 2011, approximately 95% and 82%, respectively, of the principal amount of our outstanding loans had a floating rate of interest. The balance of the loans as of such dates were fixed rate mortgages.

        The following table sets forth information regarding the types of properties securing our mortgage loans outstanding at September 30, 2012, all of which are earning interest:

Our Investment Strategy

        We pursue lending opportunities with purchasers and prospective purchasers of commercial and multi-family real estate properties and property owners who require short-term financing for renovation

3

Table of Contents

or repositioning of a real estate asset. We also originate repurchase loans—such loans are generally structured as a repurchase agreement pursuant to which we purchase the mortgage and our borrower is obligated to repurchase such mortgage within a specified period.

        Our investment policy emphasizes the origination of short-term real estate loans secured by senior liens on real property. As of September 30, 2012, other than one mezzanine loan in principal amount of $2 million, our loan portfolio only consisted of first mortgage loans or pari passu participations in first mortgage loans. Our lending activities focus on operating properties such as multi-family properties, residential properties being converted to condominium ownership, office buildings, retail properties, shopping centers, mixed use buildings, hotels/motels, and industrial buildings.

        We also will, on a limited basis, provide senior loans secured by unimproved land, but generally require that the unimproved land collateralizing our loan has proper entitlements and that zoning is in place for the intended purpose. We also originate and hold for investment loans secured by improved commercial or multi-family residential property which is vacant, pending renovation or repositioning and sale or leasing of the property. We may sell senior, junior or pari passu participations in loans we originate and acquire senior, junior or pari passu participations in loans originated by others. We also invest in the securities of other REITs.

        From time-to-time we originate junior commercial loans, invest in loans as a junior participant or sell senior participations in loans we originate. When we invest in junior loans or hold junior participations, the collateral securing our loan is subordinate to the liens of senior loans or senior participations. It is possible that the amount which may be recovered by us in cases in which we hold a junior position may be less, or significantly less, than our total investment.

Our Origination Process and Underwriting Criteria

        In originating loans, we primarily rely on relationships developed by our officers and loan originators with real estate investors, commercial real estate brokers, mortgage brokers and bankers. We also advertise, use the internet and attend trade shows in order to develop relationships with potential borrowers and real estate brokers, mortgage brokers and bankers.

        When underwriting a loan, the primary focus of our analysis is the value of a property, which we evaluate by considering a number of factors, including location, current use and potential for alternative use, current and potential net operating income, if any, the local market for condominium conversion, if conversion to condominium ownership is contemplated, comparable sales prices, existing zoning regulations and intended use, if the loan is to be secured by undeveloped land, and local demographics. We also examine the experience of our potential borrower's principals in real estate ownership and management and, if applicable, real estate development.

        Loan approvals are based on a review of property information as well as other due diligence activities undertaken by us. Those activities may include a site visit to the property, an in-house property valuation, a review of the results of operations of the property (historical and projected, if any) or, in the case of an acquisition of the property by our prospective borrower, a review of projected results of operations for the property, and a review of the financial condition and a credit report and background check of the principals of the prospective borrower. We do not obtain independent property appraisals, but instead rely on our in-house activities described above. If management determines that an environmental assessment of the underlying property is necessary, then such an assessment is conducted by an experienced third-party service provider. Before a loan commitment is issued, the loan must be reviewed and approved by our loan committee. Loan approval occurs after the assent of not less than four of the seven members of our loan committee, all of whom are executive officers of ours. We generally obtain a non-refundable cash deposit for legal, travel, and other expenses from a prospective borrower prior to or at the time of issuing a loan commitment, and our loan commitments are generally issued subject to receipt by us of title documentation and title insurance, in a form satisfactory to us, for the underlying property. The approval of our board of trustees is required

4

Table of Contents

for each loan which exceeds $20 million in principal amount, and the approval of our board of trustees is also required where loans by us to one borrower exceed $50 million, in the aggregate.

        We require either a personal guarantee or a "walk-away guarantee" from the principal or principals of the borrower, in substantially all of the loans originated by us. A "walk-away guarantee" generally provides that the full guarantee of the principal or principals of the borrower terminates if the borrower conveys title to the property to us within a negotiated period of time after a loan default if the payment of mortgage interest to us, real estate taxes and other operating expenses are current. The "walk-away guarantee" is intended to provide an incentive to the principals of a borrower, in a situation where our borrower will or has defaulted, to have the collateral deeded to us in lieu of foreclosure, thereby reducing the cost of foreclosure proceedings. By complying with the terms of the "walk-away guarantee," the principals of the borrower can avoid the risk of being personally responsible for any difference between the amount owed to us and the amount we recover in a foreclosure proceeding. If we make more than one loan to a borrower, we may require that all or some of the outstanding loans to that borrower be cross-collateralized. In our judgment, the "walk-away guarantees" we have secured upon the origination of certain loans have provided us with leverage in negotiating loan paydowns from "walk away guarantors" and assisted in expediting the foreclosure process.

        Generally, our policy is to sell properties we acquire in foreclosure proceedings after completing necessary repairs and maintenance and engaging in leasing activities, if required. We may retain a property if we determine that holding it will result in a substantial increase in its market value. We may provide senior purchase money mortgage loans at competitive fixed interest rates, if necessary, in order to consummate a sale which we deem to be beneficial to us. In fiscal 2012 we provided $15.0 million of such financing and in fiscal 2011 and 2010, we did not provide any senior purchase money mortgage financing.

Loan Default

        In the event of a default by a borrower on a loan, we will, in substantially all cases, foreclose on the loan or other collateral held by us and may seek to protect our investment by, among other things, enforcing our rights against any guarantor(s) of such loan or through negotiations with the borrower or other interested parties. Once a loan becomes non-performing, we generally do not receive interest payments, thereby reducing our revenues, cash flow, net income and taxable income. Foreclosure proceedings in certain jurisdictions can take considerable time, and may extend for as long as two years. In addition, if a borrower files for protection under the United States bankruptcy laws during the foreclosure process, the delays may be longer. In a foreclosure proceeding, we will typically seek to have a receiver appointed by the court or an independent third party property manager appointed with the borrower's consent in order to preserve the property's income stream and provide for the maintenance of the property.

Our Real Estate Assets

        At September 30, 2012, we owned real estate properties with a book value of $190.3 million. These properties include:

•

multi-family properties located in the southeastern United States, with a book value of $117.8 million,



•

development sites and additional properties (vacant land, vacant buildings, retail, office and parking) with a net book value of $61.8 million located in downtown Newark, NJ, and



•

a variety of other properties with a net book value of $10.7 million, located in Daytona, Florida and the New York metropolitan area.

5

Table of Contents

Our Multi-Family Properties

        Beginning in the second quarter of fiscal 2012, we, together with joint venture partners, began to acquire multi-family properties. Through November 30, 2012, we acquired eight multi-family properties with an aggregate of 2,335 units. These are garden apartment style properties that typically provide residents with amenities, such as a clubhouse, swimming pool, laundry facilities and cable television access. All of the units at these properties are market rate and none of these properties are subject to rent control or similar requirements. The weighted average annual interest rate of the mortgage debt on our eight multi-family properties is 3.96% and the weighted average maturity of such debt is approximately eight years.

        Set forth below is selected information regarding our multi-family properties. Except as otherwise indicated, all of (i) these properties are owned by joint ventures in which we have an 80% equity interest and our joint venture partner has a 20% equity interest, (ii) these joint ventures are accounted for as consolidated subsidiaries beginning as of the investment date and (iii) the information provided is as of the investment date.

Joint Venture Arrangements

        The joint venture arrangements with our venture partners are deal specific and vary from transaction to transaction. Generally, these arrangements provide for us and our partner to receive net cash flow available for distribution in the following order of priority:

•

a preferred return of 9% to 10% on such party's unreturned capital contributions, until such preferred return has been paid in full,



•

the return in full of each party's capital contribution,

6

Table of Contents

•

30% to 35% to our partner, and the balance to us, until an internal rate of return ranging from 14% to 15% has been achieved by us, and thereafter



•

shared equally between us and our venture partner.

        In addition, these arrangements provide that under specified situations, either venture partner may require that the property be sold.

Our Acquisition Process and Underwriting Criteria

        We identify multi-family property acquisition opportunities primarily through relationships developed over time by our officers with our borrowers, real estate investors and brokers.

        Our goal is to acquire properties that will achieve stable risk adjusted total returns (i.e., operating income plus capital appreciation). In identifying opportunities that will achieve such goal, we seek acquisitions that will achieve a minimum 10% annual return on invested cash and 12% internal rate of return. We have also focused, but will not limit ourselves, to acquiring properties located in the Southeast United States. Subject to the foregoing, we are opportunistic in pursuing multi-family property acquisitions and do not mandate any specific acquisition criteria, though we take all of the following into account in evaluating an acquisition opportunity: location, size of the target market, type of multi-family property (e.g. garden apartment, mid-rise or high rise), property quality, potential for capital appreciation or recurring income, extent and nature of contemplated capital improvements and property age. We generally prefer to acquire these properties with a joint venture partner with knowledge and experience in owning and operating multi-family properties in the target market as this enhances our understanding of such market and assists us in managing our risk with respect to a particular acquisition.

        Approvals of the acquisition of multi-family property are based on a review of property information as well as other due diligence activities undertaken by us and our venture partner. Those activities include a site visit to the property and the surrounding area (i.e. the target market), consideration of economic, demographic and other factors with respect to the target market and sub-market (including the stability of its population and the potential for population growth, its economic and employment base, presence of, and barriers to entry of, alternative housing stock, the competitive positioning of the proposed acquisition and the regulatory environment (i.e. applicable rent regulation)), the potential for rent increases, the possibility of enhancing the property and the costs thereof, an inspection of a sample of units at the property, an analysis of the terms and conditions of the mortgage debt secured or to be secured by the property, a review of any independent third party appraisal and a Phase I environmental report with respect to the property, a review of historical and projected results of operations for the property prepared by us and, if applicable, our venture partner, and an assessment of our joint venture partner's, if any, knowledge and expertise with respect to the acquisition and operation of multi-family properties and the relevant market and sub-market. Before a property is acquired, the acquisition must be reviewed and approved by our investment committee. Approval occurs after the assent of not less than four of the seven members of our investment committee, all of whom are executive officers of ours. The approval of our board of trustees is required for acquisitions of any multi-family property in which our equity investment exceeds $10 million.

        Generally, the mortgage debt associated with our multi-family properties is non-recourse to (i) the joint venture that owns the property, subject to customary carve-outs and (ii) to us and our subsidiary acquiring the equity interest in such joint venture.

Property Management

        The day-to-day management of our multi-family properties is overseen by property management companies operating in the market in which the property is located. Some of these management companies are owned by our joint venture partners or their affiliates. We can terminate these management companies with the approval of our joint venture partner and generally, if the property does not achieve specified financial returns, without such partner's approval. We believe that adequate replacements for these property managers are available, if required.

7

Table of Contents

Insurance

        We generally carry all risk property insurance covering 100% of the replacement cost for each building and business interruption and rental loss insurance (covering up to 12 months of loss). On a case-by-case basis, based on an assessment of the likelihood of the risk, availability of insurance, cost of insurance and in accordance with standard market practice, we obtain earthquake, windstorm, flood, terrorism and boiler and machinery insurance. We carry comprehensive liability insurance and umbrella policies for each of our properties which provide no less than $5 million of coverage per incident. We request certain extension of coverage, valuation clauses, and deductibles in accordance to standard market practice and availability.

        Although we may carry insurance for potential losses associated with our multi-family properties, we may still incur losses due to uninsured risks, deductibles, co-payments or losses in excess of applicable insurance coverage and those losses may be material. In addition, certain insurance coverage is part of blanket policies in which a loss on an unrelated property could affect the coverage limits on a joint venture property.

Newark Joint Venture

Background

        Two of our wholly-owned subsidiaries are members of a joint venture, which we refer to as the Newark Joint Venture, with two members that are not affiliated with us. The Newark Joint Venture owns several development sites (e.g., Market Street and Teachers Village) and additional properties located in downtown Newark, NJ. The development sites are surrounded by a variety of governmental, educational, cultural and entertainment institutions and facilities. In close proximity to both development sites is Rutgers University, the New Jersey Institute of Technology, University of Medicine and Dentistry of New Jersey, Essex County College, Seton Hall Law School, the New Jersey Performing Arts Center, the Prudential Arena (home of the National Hockey League New Jersey Devils), the Essex County Court Complex, Newark's City Hall and a Federal Courthouse. These sites are within walking distance of Newark Penn Station, which provides access to Amtrak and New Jersey Transit trains and are accessible to local bus routes. The sites are served by various highways, including the Garden State Parkway, Interstate-95, Interstate-78 and Interstate-280.

        In 2007, immediately prior to the formation of the Newark Joint Venture, we held loans aggregating approximately $38 million, secured by substantially all of the properties conveyed to the Newark Joint Venture by our borrowers. We entered into loan work-out negotiations with our borrowers and, as a result of such negotiations, entered into the Newark Joint Venture. In connection with the work-out of our loans and the formation of the Newark Joint Venture, our loans were refinanced with a mortgage loan of $27 million with the balance of our loans converted into a $6.9 million preferred capital account interest and a 50.1% membership interest in the Newark Joint Venture, providing us with a separate capital account of $3.9 million. The other members caused all the properties secured by our loans, and additional properties (unencumbered by our loans) and contract rights to acquire additional properties, all located in downtown Newark, NJ, to be contributed to the Newark Joint Venture for which the other members received a 49.9% membership interest in the Newark Joint Venture (with a separate capital account of $3.9 million).

        The Newark Joint Venture is in the process of redeveloping the Teachers Village site and intends to redevelop all or a portion of the remaining sites, particularly the Market Street site, with personnel hired by the Newark Joint Venture or with development partners or sell some of its sites to developers or end users. The assets, liabilities and results of operations of the Newark Joint Venture are consolidated with our financial statements. Accordingly, the assets of the Newark Joint Venture are included in our real estate properties, and at September 30, 2012, our two loans aggregating $20.6 million to the Newark Joint Venture (which are secured by all of the real estate assets of the

8

Table of Contents

Newark Joint Venture other than the Teachers Village properties), are eliminated in consolidation and are not included in our outstanding loans. We believe that the properties owned by the Newark Joint Venture have adequate insurance coverage for their current use.

Current Property Information

        The following table sets forth, as of September 30, 2012, information regarding the properties owned by the Newark Joint Venture (dollars in thousands):

        The following table sets forth as of September 30, 2012, a schedule of the annual lease expirations of the Newark Joint Venture's real estate assets (other than in-place leases at Teachers Village pursuant to which rent is not payable until the applicable space is ready for occupancy) and the contributions to

9

Table of Contents

2013 contractual rental income provided by such leases (assumes that none of the tenants exercise renewal or cancellation options, if any):

Information and Activities Relating to Development Sites

        The Market Street site is an approximately 68,000 square foot site, currently representing approximately 303,400 rentable square feet. The site is bounded by Market Street, Campbell Street, Washington Street and University Avenue in downtown Newark, New Jersey. Potential redevelopment opportunities with respect to this site include an office complex with a retail component, a medical office complex containing offices, research laboratories and other medical related services, a retail center, corporate headquarters, university offices, classrooms and/or dormitories, or a combination of one or more of these uses. The Newark Joint Venture may redevelop this site for its own account, but will only do so if it has entered into long-term lease transactions with credit worthy lessees and has obtained satisfactory assurances that it will obtain necessary construction financing. Alternatively, the Newark Joint Venture may enter into a joint venture with a development partner or sell all or portions of the site. Although the Newark Joint Venture has conducted discussions and responded to requests for bid proposals with various parties concerning the development of portions of the site, which have included build to suit construction for potential users on a sale/leaseback or long-term lease basis and the sale of portions of the property to end users and/or developers, the Newark Joint Venture has not entered into any understandings or agreements concerning the redevelopment of all or any portion of the site and there is no assurance that it will be able to conclude any such arrangement or obtain the financing necessary to proceed with any arrangement which it may conclude.

        The Teachers Village site encompasses an area bounded by Branford Street to the north, Treat Place to the east, Hill Street to the south and Washington Street to the west, and is adjacent to Halsey Street. In 2012, the Newark Joint Venture obtained, in two phases, financing of approximately $68.5 million, which together with $25.8 million of New Markets Tax Credit net proceeds is, after payment of transaction expenses and payment of approximately $13.8 million of principal and accrued

10

Table of Contents

interest on debt (inclusive of $8 million of principal and accrued interest on debt owed to us which is eliminated in consolidation), being used to construct five buildings. These buildings will provide space for three charter schools, a day-care center, approximately 54,000 square feet of retail space and approximately 123 residential units.

        Pre-construction and construction activities are underway on five buildings at the Teachers Village site. Steel framing has been completed on two buildings being constructed, in part, for use by charter schools and it is anticipated that the exterior facades of those buildings will be enclosed during the second quarter of fiscal 2013. With respect to the remaining three buildings containing residential and retail space, site work has commenced on one building and demolition activities are underway on the remaining two buildings. It is estimated that two buildings will be ready for occupancy in Spring or Summer of 2013 and that the balance of the buildings will be ready for occupancy in the Spring of 2014.

        The $68.5 million financing obtained by the Newark Joint Venture in the two financing phases completed in 2012 carries a weighted average effective interest rate (after giving effect to an annual subsidy of $1.1 million from the United States Department of Treasury), of approximately 3.56%, a weighted average maturity of 14.66 years and is secured by the Teachers Village properties. In addition, the Newark Joint Venture guaranteed, among other things, up to $31 million in principal amount of mortgage debt, which guarantees only expire after satisfaction of performance thresholds relating to the leasing and occupancy of these facilities within specified periods, losses incurred by the lenders by reason of the borrower's bad acts (e.g., fraud or misappropriation), the failure to complete construction of the five buildings to be constructed and the carrying costs with respect to certain properties. The Newark Joint Venture has also agreed to provide indemnity with respect to specified environmental matters and to indemnify the beneficiaries of the New Markets Tax Credits for losses sustained if such credits are disallowed. We estimate that the New Markets Tax Credit indemnity obligation would not exceed $40 million (exclusive of interest and penalties) and is subject to reduction to the extent the credits are not disallowed.

        A third financing phase contemplates obtaining an additional $30 million from private and government sources (other than the Newark Joint Venture) for the construction of three buildings containing an aggregate of 82 residential units and 9,700 square feet of retail space at Teachers Village.

        No assurance can be given that sufficient financing will be obtained to complete all three phases of the Teachers Village project, that if completed, that the Teachers Village will ever be profitable for us or that the Newark Joint Venture will ever be able to develop the other properties it owns.

Terms of the Newark Joint Venture Operating Agreement

        The following is a summary of the material provisions of the amended and restated limited liability company operating agreement of the Newark Joint Venture:

        Membership Interests.    We own 50.1% of the membership interests in the Newark Joint Venture, and the other members (collectively, the "Other Member") own 49.9% of the membership interests in the Newark Joint Venture.

        Manager.    An affiliate of the other members is the manager of the Newark Joint Venture and is responsible for the day to day management activities of the Newark Joint Venture, but our consent is required for all major decisions affecting the Newark Joint Venture and its properties. We may remove the manager upon six months advance written notice or immediately upon the occurrence of certain significant events.

11

Table of Contents

        Fees to the Manager.    The Newark Joint Venture is to pay to the current manager an asset management fee and a property management fee aggregating $890,000 per annum, payable monthly in advance.

        Mandatory Capital Calls.    Members are required to make pro rata capital contributions to the Newark Joint Venture for any projected budget shortfalls.

        Buy-Sell.    Commencing on December 3, 2013 or, under specified circumstances, December 3, 2015, either member group may provide the other member group with written notice setting forth the amount they will pay to purchase all of the assets of the Newark Joint Venture. The member group which receives such notice has the option to (i) sell their membership interests in the Newark Joint Venture to the other members for their pro rata portion of the asset purchase price set forth in the written notice, or (ii) purchase the other members' membership interests in the Newark Joint Venture for their pro rata portion of the asset purchase price set forth in the written notice. If the acquirer is the Other Member, then the Other Member is required to, among other things, pay in full our mortgage and our preferred equity interest at closing.

        Right of First Refusal and Tag-along Rights.    At any time, either member group may provide the other member group with written notice setting forth the sale price at which it desires to sell all or a portion of its membership interests. The member group which received such notice may purchase the offered membership interests at the price set forth in the notice. If they do not elect to purchase the membership interest in accordance with the terms of the notice, the offering members may secure another person to purchase its offered membership interests within 180 days. The group of members which received the sale notice may tag-along in a sale to such other person and sell their pro rata portion of the membership interests.

        Distributions.    The Newark Joint Venture may not distribute any cash flow to its members until the $20.6 million balance due on our loans (which have been eliminated in consolidation) has been fully repaid, including accrued interest. Once it has been fully repaid, the cash flow of the Newark Joint Venture will generally be distributed as follows: (i) first, to each member pro rata in an amount equal to their unreturned additional capital contributions, (ii) second, to our members until we receive a 10% return on our preferred capital contributions, (iii) third, to our members until we receive an amount equal to our preferred capital contributions, and (iv) fourth, to each member pro rata until such members receive a 10% return on their additional capital contributions, (v) fifth, to the members pro rata an amount equal to their common capital contributions, and (vi) the remainder shall be distributed as follows: (a) 10% to the managing member, and (b) 90% pro rata to the other members.

Manager of the Newark Joint Venture

        The manager of the Newark Joint Venture is RBH Group LLC; its managing member and President is Ron Beit-Halachmy. Mr. Beit-Halachmy, 40 years of age, has over 18 years of experience in the real estate industry and has been involved for more than ten years in acquiring sites in Newark, New Jersey. He was the managing member of the entities which acquired all of the real property currently owned by the Newark Joint Venture. Mr. Beit-Halachmy earned a BA in Economics from the University of Wisconsin and a law degree from New York Law School.

12

Table of Contents

Financing Arrangements

Junior Subordinated Notes

        As of September 30, 2012, $37.4 million in principal amount of these notes were outstanding. These notes mature in April 2036, are redeemable at any time at our option and bear interest at the rates set forth below:

Credit Facility

        A subsidiary of ours is able, pursuant to a senior secured revolving credit facility with Capital One, National Association, to borrow up to an aggregate of $25 million to originate loans. The subsidiary may borrow (i) on an unsecured basis, $10 million for up to 90 days and (ii) on a secured basis, up to the lesser of $25 million and the borrowing base. The borrowing base is generally equal to 40% to 65% (depending on, among other things, the type of property secured by the mortgage receivables acceptable to the lender and the operating income of the related property) of such receivables. Interest accrues on the outstanding balance at the greater of (i) 4% plus LIBOR and (ii) 5.50%. The facility matures in June 2014 and, subject to the satisfaction of specified conditions, the outstanding balance may be converted at our option into an 18 month term loan. We have guaranteed our subsidiary's obligations under this facility. At September 30, 2012 and November 30, 2012, no amount was outstanding under the facility and the maximum amount we could borrow was $10 million for 90 days.

Competition

        We compete for loan origination opportunities with other entities, including other mortgage REITs, specialty finance companies, public and private lending companies, pension and investment funds and others. Competitive factors in our lending activities include size of loans offered, rate, market visibility, fees, term and underwriting standards. To the extent a competitor offers a lower rate, is willing to risk more capital in a particular transaction, and/or employs more liberal underwriting standards, our origination volume and profit margins would be adversely impacted. We compete by offering rapid response time in terms of approval and closing and by offering "no prepayment penalty" loans.

        We compete to acquire real estate assets and in particular, multi-family properties, with other owners and operators of such properties including other multi-family REITs, banks, pension and investment funds, real estate developers and private real estate investors. Competition to acquire such properties is based on price and ability to secure financing on a timely basis and complete the acquisition. To the extent that a potential joint venture partner introduces us to a multi-family acquisition opportunity, we compete with other sources of equity capital to participate in such joint venture based on the financial returns we are willing to offer such potential partner and the other terms and conditions of the joint venture arrangement. We also compete for tenants at our multi-family properties—such competition depends upon various factors, including alternative housing options available in the applicable sub-market, rent, amenities provided and proximity to employment and quality of life venues.

        The Newark Joint Venture competes for funding, and in particular, tax credit allocations and financing provided by governmental and quasi-governmental sources with other real estate developers. It competes for commercial, retail, residential and educational tenants with landlords owning properties

13

Table of Contents

in Newark, New Jersey and the surrounding area and developers interested in developing facilities in Newark or the surrounding area.

        Many of our competitors possess greater financial and other resources than we possess.

Our Structure

        We share facilities, personnel and other resources with several affiliated entities including, among others, Gould Investors L.P., a master limited partnership involved primarily in the ownership and operation of a diversified portfolio of real estate assets, and One Liberty Properties, Inc., a publicly-traded equity REIT. Jeffrey A. Gould, our President and Chief Executive Officer, George Zweier, our Vice President and Chief Financial Officer, two other officers engaged in loan origination, underwriting and servicing activities, and three others engaged in underwriting and servicing activities devote substantially all of their business time to us, while our other personnel (including several officers) share their services on a part-time basis with us and other affiliated entities that share our executive offices. The allocation of expenses for the shared facilities, personnel and other resources is computed in accordance with a shared services agreement by and among us and the affiliated entities. The allocation is based on the estimated time devoted by executive, administrative and clerical personnel to the affairs of each entity that is a party to the Shared Services Agreement.

        In addition, we are party to an Advisory Agreement, as amended, between us and REIT Management Corp., our advisor. REIT Management is wholly owned by the chairman of our Board of Trustees and he and certain of our executive officers, including our President and Chief Executive Officer, receive compensation from REIT Management Corp. Pursuant to this agreement, REIT Management furnishes advisory and administrative services with respect to our business, including, without limitation, arranging and negotiating credit facilities, participating in our loan analysis and approvals, providing investment advice, providing assistance with building inspections and litigation strategy and support. In addition, in connection with non-performing loans, REIT Management, among other activities, engages in negotiations with borrowers, guarantors, and their advisors related to workouts, participates in strategic decisions relating to workouts and foreclosures and may interface with receivers, managing agents and court appointed trustees with respect to specific collateral securing our loans.

        Through December 31, 2011, REIT Management received, for the services it performed pursuant to the Advisory Agreement, an asset management fee equal to 0.6% of our invested assets and an incentive fee from borrowers of 0.5% of the total commitment amount. The Advisory Agreement was amended effective as of January 1, 2012, and as so amended, provides (i) for a stated termination date of June 30, 2014, (ii) that the minimum and maximum fees payable in a fiscal year to REIT Management are $750,000 and $4 million, respectively, subject to adjustment for any fiscal year of less than twelve months, and (iii) that we pay REIT Management the following annual fees, which are paid on a quarterly basis:

•

1.0% of the average principal amount of earning loans;



•

0.35% of the average amount of the fair market value of non-earning loans;



•

0.45% of the average book value of all real estate properties, excluding depreciation;



•

0. 25% of the average amount of the fair market value of marketable securities;



•

0.15% of the average amount of cash and cash equivalents; and



•

to the extent loans or real estate are held by joint ventures or other arrangements in which we have an interest, fees varying based on, among other things, the nature of the asset (i.e. real estate or loans), the nature of our involvement (i.e. active or passive) and the extent of our equity interests in such arrangement.

14

Table of Contents

        We believe that the Shared Services Agreement and the Advisory Agreement allow us to benefit from access to, and from the services of, a group of senior executives with significant real estate knowledge and experience.

        We also engage affiliated entities in management activities with respect to properties acquired by us in foreclosure proceedings and some of the properties owned by joint ventures in which we are an equity participant. These management activities include, among other things, rent billing and collection, property repair, maintenance and improvement, contractor negotiation, construction management and sales and leasing activities. In management's judgment, the fees paid by us to these affiliated entities are competitive with fees that would be charged for comparable services by unrelated entities.

Item 1A.    Risk Factors.

        Set forth below is a discussion of certain risks affecting our business. The categorization of risks set forth below is meant to help you better understand the risks facing our business and is not intended to limit your consideration of the possible effects of these risks to the listed categories. Any adverse effects arising from the realization of any of the risks discussed, including our financial condition and results of operation, may, and likely will, adversely affect many aspects of our business.

Risks Related to our Business

Our loan origination, property acquisition and Newark Joint Venture development activities are limited by available funds.

        At December 5, 2012, we had approximately $44 million of cash and cash equivalents, net of deposits payable, available for loan originations, the acquisition of multi-family properties, capital contributions to the Newark Joint Venture and general operations. If we pursue the acquisition of additional multi-family properties or demand for our mortgage loans increases, as to which no assurances can be given, or if we are required to contribute capital to the Newark Joint Venture, our ability to engage in these activities or make these contributions will be limited by the funds available to us. Our ability to use the credit facility is limited by the obligation to pledge collateral acceptable to the lender (and its ability to make such decisions on a timely basis) and covenants that require us to maintain certain financial ratios, including net worth and debt service coverage ratios. At December 5, 2012, the maximum amount that we could borrow under our credit facility was $10 million and such amount can only be borrowed for 90 days. Further, the credit facility may only be used for our loan origination activities—not for the Newark Joint Venture or multi-family property acquisition activities. Our loan origination, multi-family property acquisition and Newark Joint Venture development activities may be limited by the lack of available funds which will limit our revenues and operating results.

It is highly unlikely that we will declare any dividends in the next few years.

        We have not declared or paid any dividends since fiscal 2010. In order to qualify as a REIT, we are required to distribute 90% of our taxable income. At December 31, 2011, we had a tax loss carry-forward of $60.5 million. Under current tax laws, we can offset our future taxable income against our tax loss carry-forward until 2028 or until the tax loss carry-forward has been fully used, whichever occurs first. As a result, we do not expect to pay a dividend in calendar 2013 and it is unlikely that we will be required to pay a dividend for many years thereafter in order to maintain our REIT status. The non-payment of cash dividends may negatively impact the price of our common shares.

15

Table of Contents

We may not be able to compete with competitors many of which have greater financial and other resources than we possess.

        We compete with many third parties engaged in real estate lending and the ownership of multi-family properties, including other REITs, specialty finance companies, public and private lenders, investment and pension funds and other entities. The Newark Joint Venture also competes (i) with real estate developers for tax credit allocations and financing provided by governmental and quasi-governmental authorities, and (ii) for tenants, with landlords and developers with, or interested in developing, properties in Newark, New Jersey and the surrounding area. Many of these competitors have substantially greater financial and other resources than we do. Larger and more established competitors enjoy significant competitive advantages that result from, among other things, enhanced operating efficiencies and more extensive networks providing greater and more favorable access to capital, financing and tax credit allocations and more favorable lending and acquisition opportunities. Larger competitors in our multi-family activities have the ability to acquire a greater number of higher quality properties on more favorable terms and conditions and at more favorable locations. Larger competitors engaged in real estate lending are better able to diversify their loan portfolios thereby reducing the risk of loss from any one performing property or loan and are better equipped to fund larger loan requests, enhancing their appeal to prospective borrowers.

We may incur loan loss provisions and impairment charges in fiscal 2013.

        We evaluate on a quarterly basis our loan and real estate portfolios for indicators of impairment. Loan loss provisions and impairment charges reflect management's judgment of the probability and severity of loan losses and the decline in the value of real estate assets. Loan loss provisions and impairment charges may be required in the future as a result of factors beyond our control, including, among other things, changes in the economic environment and market conditions affecting the value of loan collateral and real property assets. If we are required to take loan loss provisions or impairment charges, our results of operations would be adversely impacted.

Our revenues and the value of our portfolio may be negatively affected by casualty events occurring on our properties or on properties securing our loans.

        We require our borrowers to obtain, for our benefit, all risk property insurance covering the property and any improvements to the property collateralizing our loan in an amount intended to be sufficient to provide for the cost of replacement in the event of casualty. In addition, joint ventures in which we are an equity participant carry all risk property insurance covering the property and any improvements to the property owned by the joint venture for the cost of replacement in the event of a casualty. Further, we carry insurance for such purpose on properties owned by us. However, the amount of insurance coverage maintained for any property may not be sufficient to pay the full replacement cost following a casualty event. In addition, the rent loss coverage under a policy may not extend for the full period of time that a tenant may be entitled to a rent abatement that is a result of, or that may be required to complete restoration following a casualty event. In addition, there are certain types of losses, such as those arising from earthquakes, floods, hurricanes and terrorist attacks, that may be uninsurable or that may not be economically feasible to insure. Changes in zoning, building codes and ordinances, environmental considerations and other factors may make it impossible for our borrower, a joint venture or us, as the case may be, to use insurance proceeds to replace damaged or destroyed improvements at a property. If any of these or similar events occur, the amount of coverage may not be sufficient to replace a damaged or destroyed property and/or to repay in full the amount due on loans collateralized by such property. As a result, our returns and the value of our investment may be reduced.

16

Table of Contents

In order for real estate properties to generate positive cash flow or to make real estate properties suitable for sale, we may need to make significant capital improvements and incur deferred maintenance costs to these properties.

        Some of the properties we acquire may face competition from newer, more updated properties. In order to remain competitive and increase occupancy at these properties and/or make them attractive to potential tenants or purchasers, we may have to make significant capital improvements and/or incur deferred maintenance costs with respect to these properties. The cost of these improvements and deferred maintenance items may impair our financial condition and liquidity.

Our transactions with affiliated entities involve conflicts of interest.

        Entities affiliated with us and with certain of our executive officers provide services to us and on our behalf. Although our policy is to obtain terms in transactions with affiliates that are at least as favorable as those that we would receive if the transactions were entered into with unaffiliated entities, these transactions raise the potential that we may not receive terms as favorable as those that we would receive if the transactions were entered into with unaffiliated entities.

Liability relating to environmental matters may impact the value of properties that we may acquire or the properties securing our loans.

        We may be subject to environmental liabilities arising from the ownership of properties we acquire. Under various federal, state and local laws, an owner or operator of real property may become liable for the costs of removal of certain hazardous substances released on its property. These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of such hazardous substances.

        If we acquire properties, including properties acquired through foreclosure proceedings, the presence of hazardous substances on a property may adversely affect our ability to sell the property and we may incur substantial remediation costs. The discovery of material environmental liabilities attached to such properties could have a material adverse effect on our results of operations and financial condition.

        The presence of hazardous substances may adversely affect an owner's ability to sell real estate or borrow using real estate as collateral. To the extent that an owner of a property underlying one of our loans becomes liable for removal costs, the ability of the owner to make payments to us may be reduced, which in turn may adversely affect the value of the relevant mortgage asset held by us.

Senior management and other key personnel are critical to our business and our future success may depend on our ability to retain them.

        We depend on the services of Fredric H. Gould, chairman of our board of trustees, Jeffrey A. Gould, our president and chief executive officer, and other members of senior management to carry out our business and investment strategies. Although Jeffrey A. Gould devotes substantially all of his business time to our affairs, he devotes a limited amount of his business time to entities affiliated with us. In addition to Jeffrey A. Gould, only three other executive officers, Mitchell Gould, our executive vice president, Lonnie Halpern, a vice president, and George Zweier, our vice president and chief financial officer, devote all or substantially all of their business time to us. The remainder of our executive management personnel share their services on a part-time basis with entities affiliated with us and located in the same executive offices pursuant to a shared services agreement. We rely on part-time executive officers to provide certain services to us, including legal, accounting and computer services, since we do not employ full-time executive officers to handle these services. If the shared services agreement is terminated, we will have to obtain such services or hire employees to perform them. We may not be able to replace these services or hire such employees in a timely manner or on terms,

17

Table of Contents

including cost and level of expertise, that are as favorable as those we receive under the shared services agreement.

        In addition, in the future we may need to attract and retain qualified senior management and other key personnel, both on a full-time and part-time basis. The loss of the services of any of our senior management or other key personnel or our inability to recruit and retain qualified personnel in the future, could impair our ability to carry out our business and our investment strategies.

        We do not carry key man life insurance on members of our senior management.

Risks Related to our Real Estate Lending Activities

Increased competition and decreased demand for repurchase loans may result in decreased loan originations adversely affecting our business.

        As a result of increased competition and decreased demand for repurchase loans, our loans originations decreased by 24.9% from $131.3 million in 2011 to $98.6 million in 2012. If loan originations continue at a reduced level, our revenues, net income and cash flow would be negatively affected.

The geographic concentration of our loans may make our revenues and the value of the related mortgages vulnerable to adverse changes in economic conditions in the New York metropolitan and Georgia regions.

        At September 30, 2012, 39% and 37% of principal amount of our outstanding loans are secured by properties located in the New York City and Atlanta, Georgia metropolitan areas, respectively. A lack of geographical diversification makes our mortgage portfolio more sensitive to local or regional economic conditions. A significant decline in the economy of either of these regions could result in a greater risk of default compared with the default rate for loans secured by properties in other geographic locations. This could result in a reduction of our revenues and provision for loan loss allowances which might not be as acute if our loan portfolio were more geographically diverse.

Defaults on our loans may cause declines in revenues and net income.

        Defaults by our borrowers on their loans result in a decrease in interest income and may require the establishment of, or an increase in, loan loss reserves. The decrease in interest income resulting from loan defaults may be for a prolonged period of time as we seek to recover, primarily through legal proceedings, the outstanding principal balance and accrued interest due on a defaulted loan, plus the legal costs incurred in pursuing our legal remedies. Legal proceedings, which may include foreclosure actions and bankruptcy proceedings, are expensive and time consuming. The decrease in interest income, and the costs involved in pursuing our legal remedies will reduce the amount of cash available to meet our expenses. In addition, the decrease in interest income, the costs incurred by us in a defaulted loan situation and increases in loan loss reserves will have an adverse impact on our net income, taxable income and cash flow.

Financing with high loan-to-value ratios involves increased risk of loss and may adversely affect us.

        Our primary source of recovery in the event of a loan default is the real estate underlying a defaulted loan. Therefore, the value of our loan depends upon the value of the underlying real estate. The value of the underlying property is dependent on numerous factors outside of our control, including national, regional and local business and economic conditions, inflation, government economic policies and the availability of credit. A loan-to-value ratio is the ratio of the amount of our loan to the estimated market value of the property underlying a loan, as determined by our internal valuation process. The higher the loan to value ratio, the greater the risk that the amount obtainable from sale of a property will be insufficient to repay the loan in full upon default.

18

Table of Contents

We are subject to the risks associated with loan participations, such as lack of full control rights.

        Some of our investments are participating interests in loans in which we share the rights, obligations and benefits of the loan with participating lenders pursuant to a participation agreement. We may need the consent of these parties to exercise our rights under such loans, including rights with respect to amendment of loan documentation, the institution of, and control over, foreclosure actions, entering into forbearance agreements with borrowers, and sale of the underlying property upon acquisition in foreclosure. Our participant may have interests and goals that are different from ours and may desire an action or position which we oppose. As a result, we could become engaged in a dispute with a participant which may affect our ability to take action with respect to defaulted loans or disposition of the property, to our detriment.

Risks Related to the Newark Joint Venture and Real Estate Operations.

The Newark Joint Venture may have an operating loss for the foreseeable future.

        Our real estate assets include the properties owned by the Newark Joint Venture, which properties at September 30, 2012, had an aggregate book value of $61.8 million or 32% of the book value of all of our real estate assets. We anticipate that the Newark Joint Venture will operate at a loss in fiscal 2013 and for several years thereafter. If the Newark Joint Venture operates at a loss, we and our partners in the venture may be required to fund the operating losses and capital requirements by making additional capital contributions. No assurance can be given that we or our venture partners will have the resources or be willing to make such contribution and the failure to make the required contribution may have an adverse impact on us.

If we are unable to pay debt service as it become due, we may be forced to sell properties at disadvantageous terms or relinquish our rights to such properties, which would result in the loss of revenues and in a decline in the value of our real property portfolio.

        At September 30, 2012, $14.6 million in debt service (of which $8.8 million and $3.77 million relate to the Newark Joint Venture and our multi-family properties, respectively) is payable prior to the end of 2013 and $31 million of debt service (of which $12.6 million and $15 million relate to the Newark Joint Venture and our multi-family properties, respectively) is payable from 2014 through 2015. The cash flow from the properties securing the mortgage debt may be insufficient to meet required debt service payments. In particular, with respect to the $8.8 million of debt service for the Newark Joint Venture payable in 2013, the Newark Joint Venture contemplates the refinancing of approximately $2.7 million of such debt—no assurance can be given that such refinancing will be effected. Further, the anticipated rental revenues from in-place leases for the Teachers Village project are insufficient to cover all of the Newark Joint Ventures debt service obligations payable in 2014 and 2015. If efforts to generate additional rental revenues from the Teachers Village site are unsuccessful, or if the in-place lessees do not fulfill their obligations under their lease agreements, the Newark Joint Venture may be unable to meet its debt service obligation with respect to the Teachers Village properties and such properties would require additional capital from the members of the venture or may be foreclosed on by the lenders.

The Newark Joint Venture will be adversely effected if it is limited from using the facilities being constructed for purposes other than as contemplated by the applicable financing and tax credit transactions.

        The terms and conditions of the financings and tax credits provided to the Newark Joint Venture may limit the venture's ability to use the facilities being constructed in a manner other than as currently contemplated to be used. Among other things, the New Markets Tax Credits and related contractual obligations provide that if prior to the seven year recapture period, the facilities are used in a manner prohibited by such tax credit program, the credits may be disallowed. The qualified school construction

19

Table of Contents

bonds in principal amount of approximately $22.7 million at September 30, 2012 requires that the facilities (or certain portions thereof) be used for at least 19 years as public school facilities and the annual $1.1 million interest reimbursement provided by the US Treasury is subject to recapture if the facilities or portions thereof are not used for educational purposes for minimum periods. The New Jersey Urban Transit Hub tax credits program requires that certain portions of the buildings must be used for residential purposes for at least ten years and that at least 20% of the residential units be allocated for lower/middle income housing. If as a result of market or other conditions, it is determined that the contemplated uses of the facilities are not financially viable, the Newark Joint Venture will be limited in its ability to use these facilities in an alternative manner which may adversely impact our financial condition and results of operations.

We have limited experience in developing and operating development sites.

        The principal assets of our Newark Joint Venture are several development sites and two additional properties located in downtown Newark, NJ. Since we have not previously engaged in the real estate development business, we are subject to risks that differ from those to which we have been subject to historically. Although the principal of the managing member of the Newark Joint Venture (who is formerly the principal of our borrowers) is knowledgeable with respect to the local real estate market and has experience in the development of gut rehabilitation properties, this experience may not necessarily be relevant to a particular redevelopment project. As a result, to redevelop the assemblage sites, the Newark Joint Venture will have to hire personnel knowledgeable in real estate development to assist in its development, become involved with a development partner, or sell some or all of the sites to developers or potential users. There can be no assurance that the Newark Joint Venture will be successful in hiring experienced personnel, finding a development partner with skills needed to develop and/or manage the redevelopment of the sites, or that we will be able to sell some or all of the properties to developers or potential users.

The success of our Newark Joint Venture depends, to a large extent, on the principal of the Newark Joint Venture's manager.

        The principal of the manager of the Newark Joint Venture was responsible for acquiring all the properties owned by the Newark Joint Venture. We believe that the principal's continued involvement is important to the success of the Newark Joint Venture. The diminution or loss of his services due to disability, death or for any other reasons could have a material adverse effect on the Newark Joint Venture's business, which would result in a material adverse effect on our business.

        The Newark Joint Venture carries key man life insurance on the principal of the manager of the Newark Joint Venture in the amount of $40 million. There can be no assurance that the proceeds from such life insurance would be sufficient to compensate the Newark Joint Venture for the loss of his services, and these policies do not provide any benefits if he becomes disabled or is otherwise unable to render services to the Newark Joint Venture.

Our Newark Joint Venture is subject to risks particular to real estate development activities.

        Our Newark Joint Venture is subject to the risks associated with development activities. These risks include:

•

The inability to complete the first two phases of the Teachers Village project because the requisite funds, due to cost overruns or under estimating the funds needed, are insufficient for such purpose.



•

The inability to obtain the approximately $30 million or more needed to fund the third phase of the Teachers Village development project;

20

Table of Contents

•

The failure to obtain governmental and other approvals on a timely basis;



•

Construction, financing and other costs of developing the properties owned by the Newark Joint Venture and in particular, Teachers Village, may not be obtained or if obtained may exceed original estimates, possibly making such activities unprofitable;



•

The time required to complete the construction of Teachers Village or to lease up the completed project may be greater than originally anticipated, thereby adversely affecting the Newark Joint Venture's cash flow and liquidity;



•

Occupancy rates and rents of a completed project may be insufficient to make such project profitable; and



•

Acquire all the properties needed to develop the project to its full potential.

We may be unable to renew leases or relet space and are exposed to the risks of defaults by tenants.

        In 2012, approximately 22% of our rental revenue was generated from properties at the Newark Joint Venture. The leases at the properties owned by the Newark Joint Venture are generally short-term in nature. This has made it more difficult to find tenants for the venture's Market Street properties. If our tenants decide not to renew their leases upon their expiration, we may not be able to relet the space. Even if our tenants do renew or we are able to relet the space, the terms of renewal or reletting may be less favorable than current lease terms. If we are unable to lease vacant space, promptly renew leases or relet the space, or if the rental rates upon such initial leasing renewal or reletting are significantly lower than market or current rates, our income would be adversely affected.

        Friends of Team Academy, a charter school located at the Teacher's Village site, and Petco Animal Supplies, Inc. and Calidad Furniture Corp. VII, both of which are located in Yonkers, New York, accounted for approximately 9%, 6% and 6%, respectively, of our rental revenue in 2012. The default, financial distress or bankruptcy of any of these tenants could cause interruptions in the receipt of, or the loss of, a significant amount of rental revenue and we could incur substantial costs in enforcing our rights as landlord. Our rental income could be adversely affected if these tenants do not meet their obligations to us.

Failure of the Newark Joint Venture to comply with the requirements of the New Markets Tax Credit program may result in significant losses and impair our financial condition.

        The Newark Joint Venture entered into various arrangements to obtain funding under the New Markets Tax Credit program for the Teachers Village project and in connection therewith received approximately $25.8 million of net tax credit proceeds. New Markets Tax Credits are subject to recapture for a period of seven years as provided in the Internal Revenue Code. The Newark Joint Venture is required to comply with various regulations and contractual provisions that apply to the these credits and has indemnified the beneficiaries thereof for any loss or recapture of the benefits of such credits until the obligation to deliver tax benefits is relieved. We estimate that such indemnity obligation would not exceed approximately $40 million (exclusive of interest and penalties) and is subject to reduction to the extent the credits are not disallowed. Non-compliance with applicable requirements could result in the tax benefits not being realized by the beneficiaries which would have an adverse effect on our financial position and results of operations.

21

Table of Contents

Risks Related to our Multi-Family Property Activities

Unfavorable changes in market and economic conditions could adversely affect occupancy, rental rates, operating expenses, and the overall market value of multi-family properties we acquire.

        Conditions in markets in which we acquire multi-family properties may significantly affect occupancy, rental rates and the operating performance of such assets. The risks that may adversely affect conditions in those markets include the following:

•

industry slowdowns, plant closings and other factors that adversely affect the local economy;



•

an oversupply of, or a reduced demand for, multi-family units;



•

a decline in household formation or employment or lack of employment growth;



•

the inability or unwillingness of residents to pay rent increases;



•

rent control or rent stabilization laws, or other laws regulating housing, that could prevent us from raising rents to offset increases in operating costs; and



•

economic conditions that could cause an increase in our operating expenses, such as increases in property taxes, utilities, and routine maintenance.

We could be negatively impacted by the condition of Fannie Mae or Freddie Mac and by changes in government support for multi-family housing.

        Fannie Mae and Freddie Mac have been a major source of financing for multi-family real estate in the United States and we have used loan programs sponsored by one or more of these entities to finance certain acquisitions. Should these entities have their mandates changed or reduced, lose key personnel, be disbanded or reorganized by the government or otherwise discontinue providing liquidity for the multi-family sector, it would significantly reduce our access to debt capital and/or increase borrowing costs and could significantly limit our ability to acquire properties on acceptable terms and reduce the values realized upon property sales.

Most of our multi-family properties are located in the southeast United States, which makes us susceptible to adverse economic developments in such markets.

        In addition to general, regional and national economic conditions, the operating performance of our multi-family residential properties is impacted by the economic conditions of the specific markets in which our properties are concentrated. All of our multi-family units are located in the southeast United States—accordingly, adverse economic developments in such market could adversely impact the operations of these properties and therefore our operating results and cash flow. The concentration of properties in a limited number of markets may expose us to risks of adverse economic developments which are greater than the risks of owning properties with a more geographically diverse portfolio.

Increased competition and increased affordability of residential homes could limit our ability to retain our tenants or increase or maintain rents.

        Our multi-family properties compete with numerous housing alternatives in attracting residents, including other multi-family and single-family rental homes, as well as owner occupied single and multi-family homes. Our ability to retain tenants and increase or maintain rents could be adversely affected by the alternative housing in a particular area and, due to declining housing prices, mortgage interest rates and government programs to promote home ownership, the increasing affordability of owner occupied single and multi-family homes.

22

Table of Contents

Risks involved in conducting real estate activity through joint ventures.

        We have in the past and may in the future acquire properties in joint ventures with other persons or entities when we believe that circumstances warrant the use of such structure. Joint venture investments involve risks, including the possibility that our partner might become insolvent or otherwise refuse to make capital contributions or distributions when due; that we may be responsible to our partner for indemnifiable losses; that our partner might at any time have business goals which are inconsistent with ours; and that our partner may be in a position to take action or withhold consent contrary to our instructions or requests. Frequently, we and our partner may each have the right to trigger a buy-sell arrangement, which could cause us to sell our interest, or acquire our partner's interest, at a time when we otherwise would not have initiated such a transaction.

        In some instances, joint venture partners may have competing interests in our markets that could create conflicts of interest. Further, the Company's joint venture partners may experience financial distress, including bankruptcy, and to the extent they do not meet their obligations to us or our joint ventures with them, we may be adversely affected.

Risks Related to our Industry

Compliance with REIT requirements may hinder our ability to maximize profits.

        In order to qualify as a REIT for Federal income tax purposes, we must continually satisfy tests concerning among other things, our sources of income, the amounts we distribute to our shareholders and the ownership of securities. We may also be required to make distributions to shareholders at disadvantageous times or when we do not have funds readily available for distribution. Accordingly, compliance with REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.

        In order to qualify as a REIT, we must also ensure that at the end of each calendar quarter at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets. The remainder of our investment in securities cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of such issuer. In addition, no more than 5% of the value of our assets can consist of the securities of any one issuer, other than a qualified REIT security. If we fail to comply with these requirements, we must dispose of the portion of our assets in excess of such amounts within 30 days after the end of the calendar quarter in order to avoid losing our REIT status and suffering adverse tax consequences. This requirement could cause us to dispose of assets for consideration of less than their true value and could lead to a material adverse impact on our results of operations and financial condition.

Because Real Estate Investments Are Illiquid, We May Not Be Able to Sell Properties When Appropriate.

        Real estate investments generally cannot be sold quickly. We may not be able to reconfigure our portfolio promptly in response to economic or other conditions. This inability to reallocate our capital promptly could adversely affect our financial condition and results of operations.

Item 1B.    Unresolved Staff Comments.

        None.

23

Table of Contents

Executive Officers of Registrant

        Set forth below is a list of our executive officers whose terms will expire at our 2013 annual Board of Trustees' meeting. The business history of officers who are also Trustees will be provided in our proxy statement to be filed pursuant to Regulation 14A not later than January 28, 2013.

        Israel Rosenzweig (age 65) has been Vice Chairman of our Board of Trustees since September 2012, a Senior Vice President since April 1998. Mr. Rosenzweig has been a Vice President of Georgetown Partners, Inc., the managing general partner of Gould Investors, L.P., since May 1997. Gould Investors L.P. is primarily engaged in the ownership and operation of real estate properties held for investment. From 2000 to March 2009, he was President of GP Partners, Inc., an affiliate of Gould Investors L.P., which provided advisory services in the real estate and financial services industries to an investment advisor. He also has been a Senior Vice President of One Liberty Properties, Inc. since May 1997.

        Mitchell K. Gould (age 40), employed by us since May 1998, has been a Vice President since March 1999 and Executive Vice President since March 2007. From January 1998 until May 1998, Mr. Gould was employed by Bear Stearns Companies, Inc. where he was engaged in originating and underwriting commercial real estate loans for securitization.

        Simeon Brinberg (age 78) has been our Secretary since 1983, a Senior Vice President since 1988, and Senior Counsel since March 2006. Mr. Brinberg has been a Vice President of Georgetown Partners, Inc., the managing general partner of Gould Investors L.P., since October 1988. Since June 1989, Mr. Brinberg has been a Vice President or Senior Vice President of One Liberty Properties, Inc., a REIT engaged in the ownership of income producing real properties net leased to tenants under long term leases. Mr. Brinberg is a member of the New York Bar and was engaged in the private practice of law for approximately 30 years prior to 1988.

        David W. Kalish (age 65) has been our Senior Vice President, Finance since August 1998. Mr. Kalish was our Vice President and Chief Financial Officer from June 1990 until August 1998. He has been Chief Financial Officer of One Liberty Properties, Inc. and Georgetown Partners, Inc. since June 1990. For more than five years prior to June 1990, Mr. Kalish, a certified public accountant, was a partner of Buchbinder Tunick & Company LLP and its predecessors.

24

Table of Contents

        Mark H. Lundy (age 50) has been our General Counsel since March 2007 and a Senior Vice President since March 2005. From 1993 to March 2005 he was a Vice President. He has been the Secretary of One Liberty Properties, Inc. since June 1993 and he also serves as a Senior Vice President of One Liberty Properties, Inc. Mr. Lundy has been a Vice President of Georgetown Partners, Inc. (currently Senior Vice President) since July 1990. He is a member of the bars of New York and Washington, D.C.

        George E. Zweier (age 48) has been employed by us since June 1998 and was elected Vice President, Chief Financial Officer in August 1998. For approximately five years prior to joining us, Mr. Zweier, a certified public accountant, was an accounting officer with the Bank of Tokyo-Mitsubishi Limited in its New York office.

        Lonnie Halpern (age 37) has been employed by us since August 2005 and was elected a Vice President in March 2007. Mr. Halpern is a member of the bars of New York and Massachusetts, and was an associate at Goodwin Procter LLP, New York, N.Y. from September 2001 to March 2004 and Hogan & Hartson LLP, New York, N.Y. from April 2004 to July 2005.

        Isaac Kalish (age 37) has worked with us since 2004 and was elected our Assistant Treasurer in June 2007. In 2003 and 2004, Mr. Kalish, a certified public accountant, was employed as an accountant by Buchbinder Tunick & Co, LLP.

Item 2.    Properties.

        Our executive office is located at 60 Cutter Mill Road, Suite 303, Great Neck, New York. This office is located in a building owned by a subsidiary of Gould Investors L.P. In 2012, we paid $125,000 for the use of this space. We believe that such facilities are satisfactory for our current and projected needs.

        The information set forth under "Item 1—Business" is incorporated herein by this reference to the extent responsive to the information called for by this item.

Item 3.    Legal Proceedings.

        None.

Item 4.    Mine Safety Disclosures.

        Not applicable.

PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

        Our common shares of beneficial interest, or Common Shares, are listed on the New York Stock Exchange, or the NYSE, under the symbol "BRT." The following table shows for the periods indicated, the high and low sales prices of the Common Shares as reported in the consolidated transaction reporting system.

25

Table of Contents

        On November 30, 2012, the high and low sales prices of our Common Shares was $6.35 and $6.20, respectively.

        As of November 30, 2012, there were approximately 1,044 holders of record of our Common Shares.

        We did not pay any cash dividends in fiscal 2012 or 2011. Our tax loss carry forward at December 31, 2011, was approximately $60.5 million; therefore, we do not anticipate paying cash dividends in the near future.

Stock Performance Graph

        This graph compares the performance of our shares with the Standard & Poor's 500 Stock Index and a peer group index consisting of publicly traded mortgage REITs. The graph assumes $100 invested on September 30, 2007 and assumes the reinvestment of dividends.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among BRT Realty Trust, the S&P 500 Index, the FTSE NAREIT Mortgage REITs Index,
and the FTSE NAREIT All REITs Index

*

$100 invested on 9/30/07 in stock or index, including reinvestment of dividends.
Fiscal year ending September 30.

Issuer Purchases of Equity Securities

        In September 2011, we announced that our Board of Trustees had authorized a share buyback plan pursuant to which we may, through September 30, 2013, expend up to $2 million to repurchase our common shares. Through September 2012, we had acquired 139,507 common shares for an aggregate purchase price of $880,000. We did not repurchase any shares during the quarter ended September 30, 2012.

26

Table of Contents

Item 6.    Selected Financial Data.

        The following table, not covered by the report of the independent registered public accounting firm, sets forth selected historical financial data for each of the fiscal years indicated. This table should be read in conjunction with the detailed information and financial statements appearing elsewhere herein.

27

Table of Contents

Funds from Operations; Adjusted Funds from Operations.

        In view of our equity investments in joint ventures which have acquired multi-family properties, we disclose below funds from operations ("FFO") and adjusted funds from operations ("AFFO") because we believe that such metrics are a widely recognized and appropriate measure of the performance of an equity REIT.

        We compute FFO in accordance with the "White Paper on Funds From Operations" issued by the National Association of Real Estate Investment Trusts ("NAREIT") and NAREIT's related guidance. FFO is defined in the White Paper as net income (computed in accordance with generally accepting accounting principles), excluding gains (or losses) from sales of property, plus depreciation and amortization, plus impairment write-downs of depreciable real estate and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect funds from operations on the same basis. In computing FFO, we do not add back to net income the amortization of costs in connection with our financing activities or depreciation of non-real estate assets. Since the NAREIT White Paper only provides guidelines for computing FFO, the computation of FFO may vary from one REIT to another. We compute AFFO by deducting from FFO our straightline rent accruals and amortization of lease intangibles (including our share of our unconsolidated joint ventures).

        We believe that FFO and AFFO are useful and standard supplemental measures of the operating performance for equity REITs and are used frequently by securities analysts, investors and other interested parties in evaluating equity REITs, many of which present FFO and AFFO when reporting their operating results. FFO and AFFO are intended to exclude GAAP historical cost depreciation and amortization of real estate assets, which assures that the value of real estate assets diminish predictability over time. In fact, real estate values have historically risen and fallen with market conditions. As a result, we believe that FFO and AFFO provide a performance measure that when compared year over year, should reflect the impact to operations from trends in occupancy rates, rental rates, operating costs, interest costs and other matters without the inclusion of depreciation and amortization, providing a perspective that may not be necessarily apparent from net income. We also consider FFO and AFFO to be useful to us in evaluating potential property acquisitions.

        FFO and AFFO do not represent net income or cash flows from operations as defined by GAAP. FFO and AFFO should not be considered to be an alternative to net income as a reliable measure of our operating performance; nor should FFO and AFFO be considered an alternative to cash flows from operating, investing or financing activities (as defined by GAAP) as measures of liquidity.

        FFO and AFFO do not measure whether cash flow is sufficient to fund all of our cash needs, including principal amortization, capital improvements and distributions to stockholders. FFO and AFFO do not represent cash flows from operating, investing or financing activities as defined by GAAP.

        Management recognizes that there are limitations in the use of FFO and AFFO. In evaluating our performance, management is careful to examine GAAP measures such as net income and cash flows from operating, investing and financing activities. Management also reviews the reconciliation of net income to FFO and AFFO.

28

Table of Contents

        The table below provides a reconciliation of net income determined in accordance with GAAP to FFO and AFFO for each of the indicated years (amounts in thousands):

        The table below provides a reconciliation of net income per common share (on a diluted basis) determined in accordance with GAAP to FFO and AFFO.

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

Overview

        We are a real estate investment trust, also known as a REIT. We operate in three lines of business: real estate lending, ownership and operation of multi-family properties, and ownership and operation of other real estate assets.

        Our lending activities involves originating and holding for investment senior mortgage loans secured by commercial and multi-family real estate property in the United States. Revenues are generated from the interest income (i.e, the interest borrowers pay on our loans) and to a lesser extent, loan fee income generated on the origination and extension of loans and investment income from securities transactions.

        Our multi-family activities derive revenues primarily from tenant rental payments. We commenced these activities in 2012 as we identified a demand for equity capital in this sector. Generally, these activities involve our investment of 80% of the equity in a joint venture that acquires a multi-family property. Our multi-family property activities are complementary to our loan origination activities in that we address the funding needs of multi-family real estate investors by providing them with access to both equity capital and debt financing.

29

Table of Contents

        Our ownership and operation of other real estate assets is comprised principally of the activities of the Newark Joint Venture and to a lesser extent, the ownership and operations of various real estate assets located in New York and Florida. The Newark Joint Venture is engaged in the development of properties in downtown Newark, NJ. The properties are to be developed for educational, commercial, retail and residential use. The Newark Joint Venture is currently developing a project known as "Teachers Village"—the project currently involves five buildings, in various stages of construction and pre-construction, which are to be used for charter schools, retail space and residential units. The venture is currently unprofitable and it is anticipated that the activities will continue to be unprofitable at least until the Teacher's Village is constructed and reasonable occupancy levels achieved. The venture requires substantial third party funding (including tax credits and financing provided by governmental authorities) for its development activities—no assurance can be given that sufficient funding will be available and even if sufficient funding is obtained and construction completed, that such development activities will ever by profitable to us.

        The following table sets forth (i) the impact of these lines of business on our total revenues and net income attributable to common shareholders for the periods indicated and (ii) our total assets applicable to each segment as of the dates indicated (dollars in thousands):

        Net income attributable to common shareholders decreased by $2 million or 31.3% from $6.4 million in 2011 to $4.4 million in 2012. The decrease is primarily due to the net losses sustained in our multi-family property activities and to a lesser extent, net losses from the activities of our other real estate assets. These losses were partially offset by the increase in net income attributable to our loan and investment activities.

        Contributing to the net loss attributable to common shareholders of our multi-family activities were, among other things, property acquisition costs of $2.4 million with respect to the five multi-family properties acquired in 2012 (and in particular, costs of $1.6 million with respect to the acquisition of the Palm Beach Gardens, Florida property) and $1.3 million of non-cash depreciation and amortization expense. Depreciation and amortization expense will continue to negatively impact income—but not funds from operations—from our multi-family property segment.

        Historically, our primary source of revenue and income has been derived from our loan origination activities. We anticipate that as a result of our multi-family property acquisitions, our primary sources of revenues and operating cash will, in the future, be generated by a combination of our multi-family and loan origination activities.

        The following highlights certain of our activities in 2012 and our financial condition at year-end:

•

we originated $98.6 million of mortgage loans in 2012 ($25.5 million, $40.6 million, $20.1 million and $12.4 million in the first, second, third and fourth fiscal quarters, respectively), and $131.3 million of mortgage loans in 2011 ($28.3 million, $60.5 million, $23.6 million and $18.9 million in the first, second, third and fourth fiscal quarters, respectively);



•

we acquired five multi-family properties with an aggregate of 1,451 units and invested equity of approximately $28.6 million in the joint ventures that acquired these properties;

30

Table of Contents

•

we have cash and cash equivalents, net of deposits payable, of approximately $76.1 million and $44 million, at September 30, 2012 and December 5, 2012, respectively;



•

interest on loans and loan fee income in 2012 declined $798,000 or 7.7% from 2011; and



•

the Newark Joint Venture obtained $68.5 million in financing, which together with New Markets Tax Credits net proceeds of approximately $25.8 million, is being used to construct five buildings at the Teacher's Village site.

        From October 1, 2012, through December 5, 2012 we (i) had loan originations, net of repayments, of approximately $20 million and (ii) invested equity of approximately $14 million in joint ventures that acquired three additional multi-family properties with an aggregate of 884 units.

Year Ended September 30, 2012 Compared to Year Ended September 30, 2011

Revenues

        The following table compares our revenues for the years indicated:

        Interest on real estate loans.    The decrease is attributable to the following factors: (i) $797,000 is due to the inclusion, during fiscal 2011, of cash basis income received primarily from non-performing loans and purchase money mortgages; and (ii) $425,000 is due to the $3.5 million decrease in the average balance of earning loans outstanding. This average balance decreased due to lower loan originations and accelerated repayments by borrowers. We believe that loan originations decreased due to competitive pressures and reduced demand for repurchase loans and that the accelerated repayments by borrowers were due to the increased availability of credit on more favorable terms. The weighted average interest rate on performing loans was 11.85% and 11.82% in 2012 and 2011, respectively.

        Loan fee income.    The increase is primarily due to higher amortization of loan fees and extension fees and accelerated amortization of loans that paid off prior to maturity.

        Rental and other revenue from real estate properties.    The increase is due to the inclusion of $5.46 million of rental income from five multi-family properties acquired in fiscal 2012. We anticipate that rental revenue will increase in fiscal 2013 as the 2012 results only includes rental revenue for a portion of such year due to the timing of these acquisitions and three multi-family properties were acquired after year end. Assuming, among other things, that rental and occupancy rates remain stable, we estimate that rental revenues in 2013 from our eight multi-family properties will increase to approximately $21.6 million. Partially offsetting the increase was the inclusion in 2011 of $77,000 of rebill income at a Newark Joint Venture property and a $188,000 decrease due to the loss of several commercial tenants at its Market Street properties. This is a development site and accordingly, leasing space at this property, which leases are short-term in nature, is difficult.

31

Table of Contents

        Recovery of previously provided allowances.    The decline is due to the inclusion in 2011 of $2.5 million from the reversal of a previously provided loan loss allowance and a $1 million recovery on a loan charged off in a prior year.

        Other income.    The increase is the result of a U.S. Treasury subsidy of $876,000 which covers approximately 90% of the interest payments with respect to qualified school construction bonds in principal amount of $22.7 million issued by the Newark Joint Venture at the end of the second quarter of 2012. We anticipate that this subsidy, in the annual amount of approximately $1.2 million, will continue until at least 2018. Partially offsetting the increase was a $160,000 decrease in investment income resulting from the sale of securities that had generated such income in 2011.

Expenses

        The following table compares our expenses for the periods indicated:

        Interest expense.    The increase is attributable to the following factors: (i) $1.39 million is due to interest expense related to $68.5 million of mortgage debt incurred in connection with the Newark Joint Venture's 2012 financings; (ii) $1.44 million is due to the mortgage debt of $89.7 million incurred in connection with the multi-family properties acquired in 2012; and (iii) $144,000 is related to interest expense and amortization of fees associated with our credit line. The increase was partially offset by a $330,000 interest expense decrease resulting from the March 2011 restructuring of our junior subordinated notes. As: (i) 2012 only includes interest expense for a portion of such year with respect to the aggregate mortgage debt of $158.2 million incurred in connection with the acquisitions of multi-family properties and the Newark Joint Venture financings; and (ii) the interest rate on the junior subordinated notes increased from 3% to 4.9% in August 2012, we estimate that interest expense in 2013 attributable to our eight multi-family properties, the Newark Joint Venture's 2012 financings and the junior subordinated notes, will increase to approximately $5.3 million, $1.8 million and $3.9 million, respectively, for an aggregate increase of approximately $11 million. Capitalized interest was $1.66 million and $775,000 in 2012 and 2011, respectively.

        Advisor's fee, related party.    The fee is calculated based on invested assets which increased because of the purchase of five multi-family properties in 2012.

        Foreclosure related professional fees.    Fees decreased due to the resolution of the foreclosure, bankruptcy and related proceedings in which we had been involved.

        Property acquisition costs.    These costs were incurred in connection with our purchase of multi-family properties. Such costs included acquisition fees, brokerage fees, and legal, due diligence and other transactional costs and expenses. There was no corresponding expense in 2011.

32

Table of Contents

        General and administrative expense.    The increase is attributable primarily to the following factors: (i) a net increase of $320,000 is due to increased professional fees resulting from, among other things, our multi-family joint venture activities; (ii) $205,000 is due to the payment of Federal alternative minimum tax resulting from our use of net operating loss carryfowards to reduce 2011 taxable income; (iii) a net increase of $186,000 is due to higher rates of employee compensation; (iv) $150,000 is due to the fees of $50,000 per quarter payable to the chairman of our board of trustees, which payment commenced January 2012; (v) $115,000 is due to the inclusion in the prior year of reversals of over-accruals relating to state franchise taxes; and (v) $70,000 is due to increased travel and related expenses. General and administrative expense is allocated among our three segments in proportion to the assets allocated to each segment as of the end of each quarter.

        Operating expenses related to real estate properties.    The increase is due to the inclusion, for a portion of 2012, of expenses related to the multi-family properties acquired in such year. We estimate that in 2013 the expense related to our eight multi-family properties will increase by approximately $8.1 million to $10.8 million.

        Depreciation and amortization.    The increase is due to the inclusion of such expense, for a portion of 2012, of the five multi-family properties we acquired in such year. We estimate that the expense for 2013 related to our eight multi-family properties will be approximately $4.6 million.

Other revenue and expense items

        The following table compares other revenue and expense items for the years indicated:

        Equity in earnings of unconsolidated joint ventures.    The increase, reflected in our other real estate asset segment, is related to a distribution from a joint venture of $864,000 in excess of its basis resulting from the refinancing of a mortgage which was recorded as income. Partially offsetting the increase was: (i) $125,000 loss from a joint venture entered into in the March 2012 quarter which is primarily the result of $193,000 of acquisition costs related to multi-family properties acquired by joint ventures that were, in the fourth quarter of 2012, included in our consolidated results of operations; and (ii) $235,000 (which reflects the write-off of $297,000 of capitalized costs) related to a joint venture that ceased loan purchasing activities in November 2011, which activities are reflected in our loan and investment segment.

        Gain on sale of available-for-sale securities.    In 2012, we sold available-for-sale equity securities with a cost basis of $3,334,000 and recognized a gain of $605,000. In 2011, we sold available-for-sale debt and equity securities with a cost basis of $6,270,000 and recognized a gain of approximately $1,319,000.

        Gain on sale of loan.    In October 2011, pursuant to a Federal Bankruptcy Court approved joint plan of reorganization, we and our loan participant sold the rights to a loan for net proceeds of approximately $23.5 million. We recognized a $3.2 million gain on the sale, representing our 50% interest in this loan. There was no corresponding gain in 2011.

33

Table of Contents

        Loss on extinguishment of debt.    In 2011, we restructured our outstanding junior subordinated notes. Pursuant to the restructuring, we repaid $5.0 million of the notes at par and reduced the interest rate on the remaining outstanding notes through the April 2036 maturity date. For financial statement purposes, this restructuring was treated as an extinguishment of debt, and accordingly, we recognized a loss of $2,138,000 which represented the unaccreted principal balance of the notes and the related unamortized costs. There was no corresponding debt extinguishment in 2012.

Discontinued operations

        In 2012, discontinued operations consisted of the gain of $792,000 on the sale of two vacant cooperative apartments. In 2011, discontinued operations consisted of the sale of two vacant cooperative apartments for a gain of $1,001,000 and a gain of $289,000 from the payoff of a loan which was accounted for as real estate for financial statement purposes. All of these properties were located in Manhattan, New York. These activities are reflected in our other real estate assets segment.

Year Ended September 30, 2011 Compared to Year Ended September 30, 2010

Revenues

        The following table compares our revenues for the years indicated:

        Interest on real estate loans.    The increase is primarily due to a $37.1 million increase in the average balance of earning loans outstanding attributable to additional loan originations, which we believe was the result of improved economic conditions. This average balance excludes $11.2 million of purchase money mortgages that were provided in prior years to facilitate the sale of our owned real estate. The interest rate on our portfolio increased from 9.83% in 2010 to 11.85% in 2011 as the result of the payoffs of the lower rate purchase money mortgages.

        Loan fee income.    The increase is due to the amortization of loan fees received on the increase in loans originated during 2011.

        Recovery of previously provided allowance.    The increase reflects the reversal of a previously provided loan loss allowance of $2.5 million allocated to a non-performing loan that was sold in the quarter ended March 31, 2011 and the recovery of $1 million on a loan charged off in a prior year.

34

Table of Contents

Expenses

        The following table compares our expenses for the years indicated: