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

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(Amendment No.          )

1114 Avenue of the Americas, 39th Floor
New York, New York 10036
April 29, 200823, 2009

Dear Shareholder:

        We cordially invite you to attend our 20082009 annual meeting of shareholders. We will hold the meeting at the Harvard Club of New York City, 35 West 44th Street, 3rd Floor, West Room, New York, New York on Wednesday, May 28, 200827, 2009 at 9:00 a.m. local time.

        At the annual meeting, we will ask our shareholders to:

        (1)   elect seveneight directors to the Boardboard of Directors;directors;

        (2)   consider and vote upon a proposal to reauthorizeapprove the issuance of common stock equivalents to non-employee directors as part of their annual directors' compensation under the Non-Employee Directors' Deferral Plan first adopted by the Board in 2003 and approved by the shareholders in 2004;iStar Financial Inc. 2009 Long-Term Incentive Plan;

        (3)   consider and vote upon a proposal to approve a retention award in the form of performance-based restricted stock units for the chairman and chief executive officer;

        (4)   consider and vote upon a proposal to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the year ending December 31, 2008;2009; and

        (4)(5)   transact such other business as may properly come before the annual meeting or any adjournment or postponement of the meeting.

        The attached proxy statement contains details of the proposals to be voted on at the annual meeting and other important matters. We encourage you to read the proxy statement and attachments carefully.

        YOUR BOARD OF DIRECTORS HAS CONCLUDED THAT (1) THE ELECTIONEACH OF THE SEVEN NOMINEES AS DIRECTORS, (2) THE REAUTHORIZATION OF THE ISSUANCE OF COMMON STOCK EQUIVALENTS TO NON-EMPLOYEE DIRECTORS AS PART OF THEIR ANNUAL DIRECTORS' COMPENSATION UNDER THE NON-EMPLOYEE DIRECTORS' DEFERRAL PLAN, AND (3) THE RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ARETHESE PROPOSALS IS IN iSTAR FINANCIAL INC.'S BEST INTERESTS AND THE BEST INTERESTS OF OUR SHAREHOLDERS. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTEFORAPPROVAL OF THESE PROPOSALS.

        We cordially invite all shareholders to attend the annual meeting in person. Any shareholder attending the annual meeting may vote in person even if he or she previously returned a proxy.

		Sincerely,
		Jay Sugarman Chairman of the Board and Chief Executive Officer

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

        NOTICE IS HEREBY GIVEN that the annual meeting of shareholders of iStar Financial Inc., a Maryland corporation, will be held at the Harvard Club of New York City, 35 West 44th Street, 3rd Floor, West Room, New York, New York on Wednesday, May 28, 200827, 2009 at 9:00 a.m., local time, for the following purposes as further described in the accompanying proxy statement:

        1.     To elect to the Boardboard of Directors sevendirectors eight members to hold office until the next annual meeting of shareholders to be held in 2009.2010. The nominees to the Boardboard are: Glenn R. August, Robert W. Holman, Jr., Robin Josephs, John G. McDonald, George R. Puskar, Dale Anne Reiss, Jay Sugarman and Jeffrey A. Weber.

        2.     To consider and vote upon a proposal to reauthorizeapprove the issuance of common stock equivalents to non-employee directors as part of their annual directors' compensation under the Non-Employee Directors' Deferral Plan first adopted by the Board in 2003 and approved by the shareholders in 2004.iStar Financial Inc. 2009 Long-Term Incentive Plan.

        3.     To consider and vote upon a proposal to approve a retention award in the form of performance-based restricted stock units for our chairman and chief executive officer.

        4.     To consider and vote upon a proposal to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2008.2009.

        4.5.     To transact such other business as may properly come before the annual meeting or any postponement or adjournment of the meeting.

        The Boardboard has fixed April 2, 20082009 as the record date for the determination of shareholders entitled to receive notice of and to vote at the annual meeting or any postponement or adjournment of the meeting. Only holders of record of our common stock, par value $.001 per share (which includes both our regular common stock and our high performance common stock), and 8.00% Series D preferred stock at the close of business on that date will be entitled to vote at the annual meeting.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 27, 2009:

This proxy statement and the Annual Report to Shareholders on Form 10-K for
the year ended December 31, 2008 are available athttps://www.proxydocs.com/sfi.

		By Order of the Board of Directors
		Geoffrey M. Dugan General Counsel, Corporate & Secretary New York, NY April 29, 200823, 2009

        WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE POSTAGE PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 28, 2008:

This proxy statement is available atwww.istarfinancial.com/2008proxy.pdf and
our annual report to shareholders is available atwww.istarfinancial.com.

1114 Avenue of the Americas, 39th Floor
New York, New York 10036
April 23, 2009

To Our Shareholders:

        The attached proxy statement includes two proposals to be presented at the 2009 annual meeting relating to equity incentive awards that we want to highlight for our shareholders' special attention. These proposals to approve (1) a new 2009 Long-Term Incentive Plan and (2) a performance-based retention award of restricted stock units for our chairman and chief executive officer, and the other matters to be presented at the annual meeting, are described more fully in the attached proxy statement and we encourage you to read the proxy statement in its entirety. The information summarized here is qualified by reference to the discussion in the proxy statement.

The 2009 Long-Term Incentive Plan and Performance-Based Retention Award for Our Chairman and Chief Executive Officer

        Our board of directors recommends approval of the 2009 Long-Term Incentive Plan ("2009 Plan") and the performance-based retention award for our chairman and chief executive officer because it is crucial that we retain and motivate our senior leaders and key employees by granting long-term, performance-based equity incentive compensation, which is tied to achieving appropriate performance hurdles and vesting requirements in a manner that aligns the interests of management and our shareholders.

        In considering these proposals, we urge shareholders to consider the following factors:

•

We have no remaining shares available for awards under our current long-term incentive plans. The absence of an equity incentive plan will mean that, to maintain a competitive pay program, we must increase the cash compensation paid to our employees, which is contrary to our current strategic goal of preserving and enhancing our liquidity.



•

In particular, if the 2009 Plan is not approved, we are obligated to settle existing performance-based awards granted on December 19, 2008 in cash, rather than common stock, if the performance and vesting conditions of those awards are achieved.



•

We have changed the mix of compensation we pay by emphasizing performance-based equity awards in our compensation decisions. We have allocated a higher proportion of overall compensation for our executives away from annual cash bonuses and towards long-term, equity-based incentive awards. Approximately 76% of our 2008 equity incentive awards are performance-based restricted stock units, which will have value to our employees only if there is significant appreciation in the value of our common stock over the term of the awards and if the additional vesting criteria are met.



•

Long-term, performance-based equity incentive compensation, rather than cash, is the most effective means for retaining and motivating our executives and key employees, while assuring proper alignment with the interests of our shareholders.



•

The share price targets and performance conditions established under these awards represent significant appreciation in our share price over the applicable measurement periods, if they are achieved. The tables on pages 10-11 of this proxy statement illustrate the compounded annual return and total shareholder return on our common stock that would be required over the measurement periods, starting as of the dates these awards were approved by the Compensation Committee, for the share price targets or total return thresholds to be achieved.

•

Since July 1, 2008 through March 31, 2009, we have repurchased approximately 32.6 million shares of our common stock in open market transactions, which effectively offsets any dilution that would be created by issuing shares pursuant to awards under the 2009 Plan and the special performance-based retention award. The table on pages 11-12 of this proxy statement illustrates the potential dilution impact of these performance-based incentive awards.

Grants of Equity Awards

•

Our practice with respect to equity incentive awards is consistent with our overall compensation approach of emphasizing long-term, performance-based compensation, with vesting periods and/or meaningful performance conditions.



•

The service-based awards we have granted will vest over periods of three or more years.



•

The performance-based awards we have granted will vest only if performance conditions are achieved over measurement periods of up to three years and if additional service-based vesting periods of up to three years are satisfied. For all performance-based awards in which performance conditions are based on the price of our common stock, we will exclude all dates on which we have repurchased our own shares under a stock repurchase program in determining whether performance conditions have been met.



•

The aggregate value of the equity awards we granted for services during 2008 is significantly reduced from prior years. Despite the larger number of shares granted, as shown in the table below, the aggregate value of the equity awards granted for services during 2008 decreased from 2007 and 2006 due to the emphasis on granting performance-based awards (which are valued at a discount based on probabilities of achieving the performance conditions) and the significant decline in our share price.



•

The following table summarizes information regarding equity awards granted for services during the period 2006-2008. For services during 2008, we granted our year-end awards in December 2008. In prior years, year-end awards for services during the year were granted in January of the following year. For purposes of this presentation, the fair value of service-based restricted stock units is calculated by multiplying the number of units by the closing price of our common stock on the date of the award. The fair value of performance-based restricted stock units is estimated utilizing a Monte Carlo valuation model to simulate a range of possible future stock prices (see note 2 to table below).

(1)

The total equity awards granted in 2008 are comprised of the following: 10,164,000 performance-based restricted stock units granted on December 19, 2008; 3,000,000 service-based restricted stock units granted on October 9, 2008; 2,000,000 performance-based restricted stock units granted to our chairman and chief executive officer on October 9, 2008, subject to shareholder approval; and 192,000 service-based restricted stock units otherwise granted for services in 2008.

(2)

The valuation of the performance-based awards granted on December 19, 2008 of $0.31 per share was based on assumptions for a risk-free interest rate of 1.05%, expected stock price volatility of 113.13% and a $1.00 annual dividend. The valuation of the performance-based award granted on October 9, 2008 to our chairman and chief executive officer of $0.33 per share was based on assumptions for a risk-free interest rate of 1.93%, expected stock price volatility of 86.39% and a

zero annual dividend. The valuation of performance-based awards granted on January 18, 2008 (for services in 2007) of $5.06 per share was based on assumptions for a risk-free interest rate of 2.39%, expected stock price volatility of 27.46% and a zero annual dividend.

(3)

Includes awards granted in January 2008 for services in 2007 and does not include awards granted in January 2007 for services in 2006.

(4)

Includes awards granted in January 2007 for services in 2006 and does not include awards granted in January 2006 for services in 2005.

(5)

Equity awards were not granted to senior executives and other officers in 2006, as those individuals purchased units under our high performance unit (HPU) program. As described elsewhere in this proxy statement, these individuals lost all of their funds invested in the 2006 HPU program.

Conclusion

        The board of directors believes that the significant shareholder returns required in order to meet the performance hurdles of these proposed equity incentive awards, and the significant share repurchases we have made in order to offset any dilution from these awards, make the overall compensation strategy a compelling one for shareholders that significantly aligns management's long-term interests with shareholders' long-term interests and results in additional share issuances only in the event significant shareholder returns are generated.

1114 Avenue of the Americas, 39th Floor
New York, New York 10036

PROXY STATEMENT

Annual Meeting of Shareholders
To Be Held May 28, 200827, 2009

        We are sending this proxy statement to holders of our common stock, par value $.001 per share, and holders of our 8.00% Series D preferred stock on or about April 29, 200827, 2009 in connection with the solicitation by our Boardboard of Directorsdirectors of proxies to be voted at our 20082009 annual meeting of shareholders or at any postponement or adjournment of the annual meeting. Our common stock includes both our regular common stock and our high performance common stock. Our common stock is listed on the New York Stock Exchange, Inc., or the NYSE, and is traded under the symbol "SFI."

        This proxy statement is accompanied by a copy of our Annual Report to Shareholders for the year ended December 31, 2007.2008. Additional copies of the Annual Report, including our financial statements at December 31, 2007,2008, may be obtained at our website atwww.istarfinancial.com, or by contacting our Investor Relations department at (212) 930-9400, 1114 Avenue of the Americas, 39th39^th Floor, New York, NY 10036. Copies will be furnished at no additional expense. The information found on, or accessible through, our website is not incorporated into, and does not form a part of, this proxy statement or any other report or document we file with or furnish to the Securities and Exchange Commission, or the SEC.

About the Meeting

Who is entitled to vote at the meeting?

        Only holders of record of our common stock and our Series D preferred stock at the close of business on April 2, 20082009 are entitled to receive notice of and to vote at the annual meeting or at any postponement or adjournment of the meeting. On the record date, there were 136,928,065137,829,836 issued shares of common stock, 101,596,072 outstanding shares of common stock (36,233,764 shares were issued but not outstanding), 14,887.5 issued and outstanding shares of high performance common stock and 4,000,000 issued and outstanding shares of Series D preferred stock.

What constitutes a quorum?

        The presence, either in person or by proxy, of the holders of the outstanding common stock and Series D preferred stock entitled to cast a majority of all the votes entitled to be cast at the meeting, considered as a single class, on the record date is necessary to constitute a quorum at the annual meeting.

What are the voting rights of shareholders and what vote is needed to approve each proposal?

        Each shareholder is entitled to one vote for each share of regular common stock registered in the shareholder's name on the record date and 0.25 votes for each share of high performance common stock and Series D preferred stock registered in the shareholder's name on the record date.

        The vote of a plurality of all of the votes cast at a meeting at which a quorum is present by the holders of our common stock and Series D preferred stock, all voting as one class, is required for the election of directors. For purposes of the election of directors, abstentions and broker non-votes will not be counted as votes cast and will have no effect on the result of the vote, although they will be considered present for the purpose of determining the presence of a quorum. A "broker non-vote" occurs when a broker indicates on the proxy that it does not have discretionary authority as to certain

shares to vote on a particular matter and has not received voting instructions from the beneficial owner of such shares.

        The affirmative vote of a majority of the votes cast onat the proposalmeeting by the holders of our common stock and Series D preferred stock, all voting as one class, is required for the reauthorizationto approve each of the issuance of common stock equivalents2009 Long-Term Incentive Plan and the performance-based retention award to non-employee directors as part of their annual directors' compensation under the Non-Employee Directors' Deferral Plan,our chairman and chief executive officer, provided that the total vote cast on the proposal represents over 50% in interest of all securities entitled to vote on the proposal. For purposes of the vote on the reauthorizationeach of the issuance of common stock equivalentsproposals to non-employee directors,approve the 2009 Long-Term Incentive Plan and to approve the performance-based retention award to our CEO, abstentions will have the same effect as votes against the proposal and broker non-votes will have the same effect as votes against the proposal, unless holders of more than 50% in interest of all securities entitled to vote on the proposal cast votes, in which event broker non-votes will not have any effect on the result of the vote. Both abstentions and broker non-votes will be considered present for the purpose of determining the presence of a quorum.

        The affirmative vote of a majority of all of the votes cast at a meeting at which a quorum is present by the holders of our common stock and Series D preferred stock, all voting as one class, is required for the ratification of the appointment of the independent registered public accounting firm and the approval of any other matters properly presented at the meeting for shareholder approval. For purposes of the vote on the ratification of the appointment of the independent registered public accounting firm and the approval of any other matters properly presented at the meeting, abstentions and broker non-votes will not be counted as votes cast and will have no effect on the vote, although they will be considered present for the purpose of determining the presence of a quorum.

How is my vote counted?

        If you properly execute a proxy in the accompanying form, and if we receive it prior to voting at the annual meeting, the shares that the proxy represents will be voted in the manner specified on the proxy. If no specification is made, the common stock or Series D preferred stock will be voted FOR the proposals and as recommended by the Boardboard with regard to all other matters in its discretion.

        Votes cast in person or by proxy or in person at the annual meeting will be tabulated by the election inspectors appointed for the meeting, who will determine whether or not a quorum is present. If your shares are held by a broker, bank or other nominee (i.e., in "street name"), you will receive instructions from your nominee which you must follow in order to have your shares voted. Such stockholders who wish to vote in person at the meeting will need to obtain a proxy form from the broker, bank or other nominee that holds their shares of record.

Can I change my vote after I submit my proxy card?

        If you castauthorize a proxy to vote by proxy,your shares, you may revoke it at any time before it is voted by:voted:

•

by giving written notice to our Secretary expressly revoking the proxy,



•

by signing and forwarding to us a proxy dated later, or



•

by attending the annual meeting and personally voting the common stock or Series D preferred stock owned of record by you.

Who pays the costs of soliciting proxies?

        We will pay the costs of soliciting proxies from our shareholders. In addition to solicitation by mail, certain of our directors, officers and regular employees may solicit the return of proxies by telephone, facsimile, personal interview or otherwise without being paid additional compensation. We will also reimburse brokerage firms and other persons representing the beneficial owners of our shares for their reasonable expenses in forwarding proxy solicitation material to the beneficial owners in accordance with the proxy solicitation rules and regulations of the SEC and the NYSE. Georgeson Shareholder CommunicationsLaurel Hill Advisory Group has been engaged to solicit proxies on our behalf in connection with our 2009 annual meeting of shareholders and provide other advisory services for aan annual fee of $8,000$12,500 plus expenses.

PROPOSAL 1:

ELECTION OF DIRECTORS

        In accordance with the provisions of our charter, each member of our Boardboard is elected annually.

        All of the nominees for election as a director are presently serving as directors. If a nominee becomes unavailable to serve as a director for any reason, the shares represented by any proxy will be voted for the person, if any, who may be designated by the Boardboard to replace that nominee. At this time, the Boardboard has no reason to believe that any nominee will be unavailable to serve as a director if elected.

        All of the nominees for election as a director, other than Mr. Sugarman and Mr. August, are independent within the standards prescribed by the NYSE.

        The following table sets forth the name, age and the position(s) with us currently held by each person nominated for election as a director:

(1)

Member of Investment Committee.

(2)

Member of Audit Committee.

(3)

Member of Compensation Committee.

(4)

Member of Nominating and Governance Committee.

(5)

Lead Director.

        Jay Sugarman is our Chairman of the Boardchairman and Chief Executive Officer.chief executive officer. Mr. Sugarman has served as a director of iStar Financial Inc. (and our predecessor) since 1996 and Chief Executive Officerchief executive officer since 1997. Mr. Sugarman is a member of our Investment Committee. Having led our company since its beginning, Mr. Sugarman has built iStar Financial into one of the largest providers of investment capital to the high-end real estate and corporate markets, with almost $16 billion in assets at December 31, 2007. Previously, Mr. Sugarman founded and was co-general partner of Starwood Mezzanine Investors, L.P., a private investment partnership specializing in structured real estate finance. Prior to forming Starwood Mezzanine Investors, L.P.,iStar Financial and its predecessors, Mr. Sugarman managed diversifiedprivate investment funds on behalf of the Burden family, a branch of the Vanderbilts, and the Ziff family. While in that position, he was jointly responsible for the formation of Starwood Capital Group L.P., a private equity firm specializing in real estate investments, and the formation of HBK Investments, one of the nation's largest multi-strategy trading operations. Mr. Sugarman received his undergraduate degree summa cum laude from Princeton University, where he was nominated for valedictorian and received the Paul Volcker Award in Economics, and his M.B.A. degree with highest distinction from Harvard Business School, graduating as a Baker Scholar and recipient of the school's academic prizes for both finance and marketing.

        Glenn R. August has served as one of our directors since May 2005. Mr. August is the president and senior partner of Oak Hill Advisors, L.P. and supervises all investment, trading and operational

activities. Mr. August joined Oak Hill's predecessor in 1987 as a co-founder of Acadia Partners. Since then, he has been responsible for more than $25 billion of investments in leveraged loans, high yield bonds and distressed securities. In addition, he co-founded all of the Oak Hill leveraged securities investment partnerships. Mr. August is also a managing partner of the advisor to Oak Hill Special Opportunities Fund, an investment partnership focused on investments in distressed companies. Mr. August previously worked in the mergers and acquisitions department at Morgan Stanley in New

York and London. He earned an M.B.A. degree from Harvard Business School, where he was a Baker Scholar, and a B.S. degree from Cornell University. He currently serves on the board of directors of TeleCity Group plc, Vertex Data Science Limited, the 92nd St. Y and The Mount Sinai Children's Center Foundation.

        Robert W. Holman, Jr.has served as one of our directors since November 1999. He is chairman of our AuditCompensation Committee and a member of our Audit Committee and our Investment Committee. Mr. Holman was the co-founder of TriNet Corporate Realty Trust, Inc., or TriNet, a company that we acquired in 1999, and served as its chief executive officer, co-chairman and chairman of the board. He was chief executive officer and chairman of TriNet's predecessor, Holman/Shidler Corporate Capital, Inc., for ten years. Mr. Holman co-founded and was a senior executive and director of Watkins Pacific Corporation, a multi-national conglomerate. Additionally, Mr. Holman has served as a director of Amerivest Properties, Inc. and as a senior executive, director, owner or board advisor for numerous companies in the United States, Great Britain, Australia and Mexico in the finance, real estate, internet commerce, construction, building materials and travel industries. He holds a B.A. degree in international economics from the University of California at Berkeley, an M.A. degree with honors from Lancaster University in England, where he was a British Council Fellow, and did post-graduate work at Harvard University where he was awarded a Loeb Fellowship.

        Robin Josephs has served as one of our (and our predecessor's) directors since March 1998. Ms. Josephs is chairperson of our CompensationAudit Committee and a member of our AuditCompensation Committee and our Nominating and Governance Committee. Ms. Josephs serves as our Lead Director, with duties that include presiding at all executive sessions of the independent directors and serving as principal liaison between the Chairmanchairman and the independent directors. Ms. Josephs was a senior executive with Goldman Sachs & Co. from 1986 to 1996 in various capacities. Prior to working at Goldman Sachs & Co., Ms. Josephs served as an analyst for Booz Allen & Hamilton Inc. in New York from 1982 to 1984. From July 2005 to March 2007, Ms. Josephs was a managing director of Starwood Capital Group L.P., a private equity firm specializing in real estate investments. Prior to that, Ms. Josephs was a senior executive with Goldman Sachs & Co. from 1986 to 1996 in various capacities. She currently is on the board of directorsserves as a director of Plum Creek Timber Company, Inc. (NYSE: PCL), a real estate investment trust that provides raw materials and conducts resource management activities for the paper and forest products industry, where she also serves on both the compensation and audit committees. Ms. Josephs is a trustee of the University of Chicago Cancer Research Foundation and she co-chairs the University of Pennsylvania Reunion Gift Committee. Ms. Josephs received a B.S. degree in economics from the Wharton School and an M.B.A. degree from Columbia University.

        John G. McDonald has served as one of our directors since November 1999. Previously, Professor McDonald served as a director of TriNet since June 1993. Professor McDonald is chairman of our Nominating and Governance Committee and a member of our CompensationInvestment Committee. He is the Stanford Investors Professor of Finance in the Graduate School of Business at Stanford University, where he has taught since 1968. Professor McDonald has taught M.B.A. courses and executive programs in subject areas including investment management, private equity, venture capital and corporate finance. He currently serves as a director of Scholastic Corporation, Varian, Inc., Plum Creek Timber Company, Inc. and eightnine mutual funds managed by Capital Research and Management Company.

        George R. Puskar has served as one of our directors since November 1999. Previously, Mr. Puskar served as a director of TriNet since January 1998. Mr. Puskar is chairman of our Investment Committee

and a member of our Audit Committee and our Nominating and Governance Committee. Mr. Puskar also serves as our alternate Lead Director. From June 1997 until June 2000, Mr. Puskar served as chairman of the board of Lend Lease Real Estate Investments (formerly known as ERE Yarmouth), the U.S. real estate unit of Lend Lease Corporation, an international financial services and real estate company based in Sydney, Australia. From 1988 until June 1997, Mr. Puskar was chairman and chief executive officer of Equitable Real Estate Investment Management, Inc., where he was responsible for directing the business operations of a full service commercial real estate investment management company with approximately $30 billion in assets under management. Prior to its acquisition by Lend Lease Corporation in June 1997, Equitable Real Estate

Investment Management, Inc. operated as a subsidiary of The Equitable Life Assurance Society of the United States. Mr. Puskar is a member of the Counselors of Real Estate. Mr. Puskar currently serves as the chairman of Solutions Manufacturing, Inc., a manufacturer of electronic components based in Rockledge, Florida. Mr. Puskar has previously served as a director and member of the audit committee of New Plan Excel Realty Trust, Inc., a member of the board of directors of Carr Real Estate Investment Trust, the vice chairman of World Team Sports, an organization that specializes in unique athletic events with teams built around disabled athletes, and on an advisory board at Georgia State University. Mr. Puskar has also served on the boards of the Urban Land Institute, the International Council of Shopping Centers, the National Council of Real Estate Fiduciaries and the National Realty Committee, and as chairman of a campaign to endow a real estate chair at Clark Atlanta University/Morehouse College. Mr. Puskar received a B.A. degree from Duquesne University.

        Dale Anne Reiss has served as one of our directors since July 2008. Ms. Reiss is a member of our Audit Committee. Ms. Reiss is a senior consultant to the Global Real Estate Center of Ernst & Young LLP. Until her retirement in 2008, she served as Global and Americas Director of Real Estate at Ernst & Young LLP and was a Senior Partner there from 1995 through 2008 in various capacities. She served as a Managing Partner at Kenneth Leventhal & Company from 1985 through its merger with Ernst & Young in 1995. From 1980 to 1985, Ms. Reiss was a Senior Vice President and Controller at Urban Investment & Development Company. She is also managing director of Artemis Advisors, LLC and a member of the board of directors of Post Properties. Since 1998, Ms. Reiss has served as a Trustee of Urban Land Institute and in various ULI officer and committee leadership positions. In 2002, the New York Women Executives in Real Estate named Ms. Reiss Woman of the Year. Ms. Reiss is a Certified Public Accountant. She received a B.S. in Economics and Accounting from the Illinois Institute of Technology and an M.B.A. from the University of Chicago.

Jeffrey A. Weber has served as one of our directors since June 2003. Mr. Weber is a member of our Compensation Committee and our Nominating and Governance Committee. Mr. Weber is the president of York Capital Management, LLC, an event-driven investment management firm organized in 1991 with offices in New York, Washington, D.C., London and Hong Kong and Singapore.Kong. He is currently on the board of directors of York Enhanced Strategies Fund, LLC. Prior to his current position, he was the president and chief executive officer of William A.M. Burden & Co., L.P., where his tenure spanned twelve years. Mr. Weber also worked at Chemical Venture Partners, the venture capital and leveraged buyout arm of Chemical Bank, and in the corporate finance department of Drexel Burnham Lambert Incorporated. Mr. Weber is also a director of the Carter Burden Center for the Aging, Inc. and serves on the Advisory Boardadvisory board of the Department of Medicine of Mount Sinai Medical Center. Mr. Weber holds a B.A. degree from Williams College and an M.B.A. degree from Harvard Business School.

Recommendation Regarding the Election of Directors

        The Boardboard recommends that you vote FOR the seveneight named nominees to be elected as our directors.

INTRODUCTION TO PROPOSALS 2 AND 3:

APPROVAL OF
2009 LONG-TERM INCENTIVE PLAN
AND
PERFORMANCE-BASED RETENTION AWARD
FOR CHAIRMAN AND CHIEF EXECUTIVE OFFICER

        Proposal 2 describes the 2009 Plan, a new equity incentive plan that authorizes shares of common stock needed for the performance-based restricted stock units granted on December 19, 2008 to our executives and key employees, in connection with our customary year-end compensation decisions. Proposal 3 describes a specific performance-based retention award granted on October 9, 2008 to our chairman and chief executive officer, subject to shareholder approval. Both of these proposals relate to performance-based equity incentive awards that we consider crucial to retaining and motivating our executives and key employees, while assuring proper alignment with the interests of our shareholders.

        Our board of directors recommends approval of the 2009 Plan and the performance-based retention award for our chairman and chief executive officer because the board believes that long-term, performance-based equity incentive compensation, which is tied to achieving appropriate performance hurdles and vesting requirements, is an essential part of our overall compensation program that aligns the interests of management and our shareholders.

(a)    The 2009 Plan and the December 19, 2008 Performance-Based Equity Incentive Awards

        On December 19, 2008, we granted an aggregate of 10,164,000 performance-based restricted stock units to employees, in connection with our customary year-end compensation decisions. These units will vest only if a specified price target for our common stock is achieved within three years and if the employee is employed on the subsequent vesting dates. If the 2009 Plan is not approved by shareholders, the units will be settled in cash rather than in common stock. If the 2009 Plan is approved, the share price target is achieved and the service conditions are met, we will issue a net amount of shares (after deducting applicable tax and other withholdings) on the vesting dates in settlement of these units. If the performance and additional vesting criteria are satisfied for all of the awards, a total of approximately 6.6 million shares of common stock would be issued to settle all of these units (after deducting applicable taxes and other withholdings).

        The performance and vesting conditions of these awards are as follows:

(1)

if our common stock achieves a price of $4.00 or more (average closing price over 20 consecutive trading days) prior to December 19, 2009, the units will vest in three equal installments on January 1, 2010, January 1, 2011 and January 1, 2012;



(2)

if the $4.00 share price target is not achieved in the first year, but our common stock achieves a price of $7.00 or more (average closing price over 20 consecutive trading days) prior to December 19, 2010, the units will vest in two equal installments on January 1, 2011 and January 1, 2012; and



(3)

if neither the $4.00 nor the $7.00 share price target is achieved in the first or second year, but our common stock achieves a price of $10.00 or more (average closing price over 20 consecutive trading days) prior to December 19, 2011, the units will vest in one installment on January 1, 2012.

        In approving the share price targets of these awards, our Compensation Committee considered the recent historical prices of our common stock at the time of these awards. As shown below, the share price targets established under these awards represent significant appreciation in our share price over the one-, two- and three-year measurement periods, if they are achieved.

        The following tables illustrate the compounded annual return and the total shareholder return on our common stock that would be required over the measurement periods for these share price targets to be achieved. (Note: The total shareholder return amounts in these tables assume (a) no dividends are paid during the performance periods and (b) the share price target is met on the last day of the measurement period. Any dividends paid to shareholders over the respective periods would increase the total shareholder return, as would achieving the share price target during (rather than at the end of) the measurement period.) In summary:

•

Based on the average NYSE closing price for our common stock for the 20 trading days prior to the grant date of $1.74 per share, the share price targets of these awards will only be met if shareholders have earned minimum one-year, two-year or three-year returns of 130%, 302% or 475%, respectively.

•

Based on the actual NYSE closing price for our common stock on the last trading day prior to the grant date of $2.78 per share, the share price targets of these awards will only be met if shareholders have earned minimum one-year, two-year or three-year returns of 44%, 152% or 260%, respectively.

(b)    The October 9, 2008 Performance-Based Retention Award Granted to our Chairman and CEO

        On October 9, 2008, we granted a performance-based award of 2.0 million restricted stock units to Jay Sugarman, our chairman and chief executive officer, for purposes of retention. The grant was made

subject to approval by our shareholders at the 2009 annual meeting. The units will vest in their entirety on October 9, 2011 only if Mr. Sugarman is employed by us on that dateand only if the total return on our common stock during the three-year period ending on October 9, 2011 is at least 25% per year (compounded at the end of the three-year measurement period and assuming reinvestment of dividends, if any). If this award is not approved by shareholders, it will be canceled. If the award is approved, the total return target is achieved and the service condition is met, we will issue a net amount of shares (after deducting applicable tax and other withholdings) to Mr. Sugarman on the vesting date in settlement of this award in the total amount of approximately 1.3 million shares of common stock.

        In approving the performance condition of this award, our Compensation Committee considered the recent historical prices of our common stock at the time of the award. The terms of the award calculate shareholder return based on our standard methodology, which compares the average NYSE closing price for our common stock for the 20 trading days prior to the award date to the 20-day average closing price prior to the proposed vesting date, October 9, 2011 (plus any dividends paid during the measurement period and assuming reinvestment of dividends). As shown below, the total shareholder return hurdle established under this award represents significant appreciation in our share price over the three-year measurement period, if it is achieved. In summary:

•

Based on the average NYSE closing price for the 20 trading days prior to the grant date of $3.38 per share (as provided in the award), this grant will vest only if shareholders earn a compounded annual return of a minimum 25% over three years, or a total return of 95%.

•

Compared to the actual NYSE closing price on the trading day prior to the grant date of $1.36 per share, if the total shareholder return hurdle established under this award is achieved, shareholders will have earned a compounded annual return of a minimum 69% over three years, or a total return of 384%.

(c)    Dilution Impact of the Performance-Based Equity Awards

        Our repurchases of approximately 32.6 million shares of our common stock in open market transactions from July 1, 2008 through March 31, 2008 effectively offset any dilution that would be created by issuing shares pursuant to the December 19, 2008 performance-based awards to employees and the October 9, 2008 performance-based retention award to our chairman and chief executive officer. The following table outlines total outstanding share dilution/accretion to shareholders since July 1, 2008, based on share repurchases since that date and taking into account the performance-based equity incentive awards granted on December 19, 2008 to executives and other key employees under the proposed 2009 plan and the October 9, 2008 retention award to our chairman and chief executive officer. This table is intended to show the hypothetical impact of these performance-based equity incentive awards on our outstanding shares, assuming performance conditions are achieved and the

shares vest (not taking into account other equity awards that have been or may be granted, additional share repurchases or other issuances of new shares). In summary:

•

Assuming performance targets arenot met and no shares are issued under either the December 19, 2008 year-end performance-based awards to employees or the October 9, 2008 performance-based retention award to our chairman and chief executive officer, total shares outstanding will have been reduced at December 31, 2011 by approximately 23% since July 1, 2008.



•

Assumingall performance targets are met, all employees fulfill their time vesting obligations and shares are issued upon vesting of all of the performance-based awards, total shares outstanding at December 31, 2011 will have been reduced approximately 17% since July 1, 2008.



•

Under either scenario, our open market purchases of shares of our common stock have resulted in a net reduction in our shares outstanding regardless of potential shares to be issued under these performance-based equity awards, thereby offsetting any dilutive impact of these awards to our shareholders.

Notes:

(1)

Assumes no further share repurchases or issuance of new shares through December 2011.

(2)

Assumes performance conditions are achieved and shares vest under all awards in accordance with their terms. The potential shares outstanding at December 31, 2011 do not include the net settlement in the amount of 260,000 shares of the final installment of restricted stock units granted to our president on October 9, 2008, which are scheduled to vest on October 9, 2012.

PROPOSAL 2:

REAUTHORIZATION TO ISSUE COMMON STOCK EQUIVALENTS
TO OUR NON-EMPLOYEE DIRECTORS AS PARTAPPROVAL OF THEIR DIRECTORS'iSTAR FINANCIAL INC.
COMPENSATION UNDER THE NON-EMPLOYEE DIRECTORS' DEFERRAL2009 LONG-TERM INCENTIVE PLAN

        Our current Long-Term Incentive Plan (the "2006 Plan") was adopted in 2006 and made available a maximum of 4,550,000 shares of common stock for awards, which we expected would be sufficient to cover our equity awards for several years. However, the ongoing financial crisis and its negative impact on our business and financial results have resulted in a sharp decline in our share price. This, in turn, has led to a more rapid depletion of shares under 2006 Plan than we had anticipated in 2006 as we have tried to grant appropriately-sized awards that provide meaningful incentives to our executives and retention benefits to us. As a consequence, we have virtually no remaining shares available under the 2006 Plan.

        Approval of the 2009 Plan will enable us to settle performance-based awards granted in December 2008 using shares of our common stock rather than cash. These awards, and our executive compensation for 2008, are described in the Introduction above and in the "EXECUTIVE COMPENSATION" discussion starting at page 31 of this proxy statement.

The number of shares that may be issued (or deemed issued) in connection with awards under the 2009 Plan is 8,000,000. Shareholder approval of the 2009 Plan will ensure that we will have a sufficient number of shares to settle the performance-based awards made in December 2008 using shares of common stock rather than cash. Settlement of these awards in shares will be on a net, after-tax basis (after deducting shares for taxes and other applicable withholdings) and consequently the actual shares issued will be less than the gross amount of shares covered by the awards. In addition, shareholders are being asked to approve the 2009 Plan to ensure, for federal tax purposes, the deductibility of compensation recognized by certain participants in the 2009 Plan which may otherwise be limited by Section 162(m) of the Internal Revenue Code (the "Code"). Section 162(m) of the Code, under certain circumstances, causes compensation in excess of $1 million to an employee in a year not to be deductible to the employer.

        In addition, an additional 500,000 shares may be made available for awards under the 2009 Plan, but only to the extent that any awards granted under the Prior Plan (as defined in the 2009 Plan) are forfeited or cancelled, or expire, or are settled in cash, including the settlement of tax withholding obligations using shares.

        If the 2009 Plan is not approved and a share price target is achieved under the December 2008 performance-based restricted stock unit awards, then we are obligated to settle these awards in cash, unless prior to settlement a subsequent equity compensation plan with sufficient available shares to cover these awards is approved by our shareholders. The cash payments would be based on the average 20-day trading price of our common stock that resulted in achievement of the price target and would be paid in installments, in accordance with the same terms and on the same date(s) set forth in the description of the vesting of the units on page 9 of this proxy statement.

        We believe that it is in our best interests to settle the awards using common stock rather than cash if the performance and vesting criteria are met. Settling the awards with common stock would enable us to preserve cash. If we are able to settle the awards by delivering shares of common stock, then under U.S. GAAP we would "fix" the total compensation expense of the awards based upon their fair value on the date of shareholder approval of the 2009 Plan, and amortize the expense over the service periods associated with the awards. Conversely, if we are obligated to settle the awards in cash, applicable U.S. GAAP accounting rules would require us to reflect a variable expense to our earnings each quarter during the term of the awards, based upon the fair value of the awards at the end of the quarter.

        The performance-based restricted stock units granted on December 19, 2008 include awards granted to the following named executive officers (NEO):

        As discussed above, these awards are entirely performance-based and the board of directors believes that they strongly align the incentives of our senior management and employees with our stockholders. The board also believes that these awards should encourage the executives and employees who received them, including our named executive officers, to remain with the Company, which we believe is ain our Company's best interests.

Summary of the 2009 Plan

        The material features of the 2009 Plan are summarized below. This summary of the materialPlan's provisions of the iStar Financial Inc. Non-Employee Directors' Deferral Plan, or the Plan, originally adopted by the Board in 2003 and approved by the shareholders in 2004. This summary is qualified in its entirety by reference to the full text of the 2009 Plan, a copy of which is attached heretoto this proxy statement as Annex A,Exhibit A. To the extent that there is a conflict between this summary and the 2009 Plan, the 2009 Plan shall govern. Capitalized terms used but not defined herein shall have their meanings as amended from time to time.defined in the 2009 Plan.

In GeneralPurpose

        In 2004,The purpose of the 2009 Plan is to provide equity-based incentives as a means of attracting and retaining qualified key employees, directors, officers, advisors, consultants and other personnel and encouraging them to increase their efforts to make our business more successful whether directly or through our subsidiaries or other affiliates. Awards under the 2009 Plan may be in the form of options, restricted stock, restricted stock units (referred to in the 2009 Plan as "phantom shares"), dividend equivalent rights and other forms of equity-based or cash-based compensation. We will consider awards pursuant to the 2009 Plan in light of our overall compensation philosophy and competitive conditions in the marketplace.

Duration

        Awards may be granted under the 2009 Plan until the 10th anniversary of the date on which it is approved by our shareholders. However, the 2009 Plan may be terminated at any time prior to that date by the board. No awards have been made under the 2009 Plan prior to its approval by our shareholders, approvedother than the adoptionperformance-based restricted stock units granted on December 19, 2008, described above.

Administration

        The 2009 Plan will be administered by the Compensation Committee of our board. If no committee exists, the functions of the Plan. The original termCompensation Committee will be exercised by the board. Nevertheless, any grants to members of the Plan was three years. We are seekingCompensation Committee will be made and administered by the approval of our shareholders to continueboard rather than the Plan.Compensation Committee.

        The purposeCompensation Committee has the full authority to administer and interpret the 2009 Plan, to authorize the granting of awards, to determine the eligibility of a person to receive an award, and to determine the number of shares of common stock to be covered by each award (subject to the individual participant limitations provided in the 2009 Plan). The award agreement will contain other terms, provisions and conditions not inconsistent with the 2009 Plan, as determined by the Compensation Committee. The Compensation Committee may (subject to such considerations as may arise under Section 16 of the Exchange Act, or under other corporate, securities or tax laws) take any steps it deems appropriate, that are not inconsistent with the purposes and intent of the 2009 Plan, to establish performance-based criteria applicable to awards otherwise permitted to be granted under the 2009 Plan, and to attempt to procure shareholder approval with respect thereto, to take into account the provisions of Section 162(m) of the Code.

        The Compensation Committee, in its discretion, may delegate to our chief executive officer all or part of the Compensation Committee's authority and duties with respect to awards; however, the Compensation Committee may not delegate its authority and duties with respect to awards that have been, or will be, granted to our chief executive officer or are intended to be exempt from the limitations set forth in Section 162(m) of the Code or are granted to Section 16 officers. Any such delegation by the Compensation Committee may, in the sole discretion of the Compensation Committee, include a limitation as to the amount of awards that may be awarded during the period of the delegation and may contain guidelines as to the determination of the option exercise price, or price of other awards and the vesting criteria. The Compensation Committee may revoke or amend the terms of a delegation at any time but such action shall not invalidate any prior actions of the Compensation Committee's delegate that were consistent with the terms of the 2009 Plan.

Eligibility and Types of Awards

        Persons who are eligible to be granted awards under the 2009 Plan are key employees, directors, officers, advisors, consultants or other personnel of our Company and our subsidiaries or other persons expected to provide significant services (of a type expressly approved by the Compensation Committee as covered services for these purposes) to us or our subsidiaries, joint venture affiliates or other entities designated in the discretion of the Compensation Committee, or employees of the foregoing. The Compensation Committee generally determines eligibility for awards under the 2009 Plan.

Available Shares

        Subject to adjustment upon certain corporate transactions or events, a maximum of 8,000,000 shares of common stock may be issued (or deemed issued) under the 2009 Plan in connection with awards of stock options, shares of restricted stock, restricted stock units and phantom shares, dividend equivalent rights and other equity-based or cash-based awards. An additional 500,000 shares may be made available for awards under the 2009 Plan, but only to the extent that any awards granted under the Prior Plan (as defined in the 2009 Plan) are forfeited or cancelled, or expire, or are settled in cash, including the settlement of tax withholding obligations using shares. The maximum number of shares of common stock issuable under the 2009 Plan reflects the number of shares that may actually be issued (or deemed issued) in connection with awards under the 2009 Plan, after required settlement of tax withholding obligations. Awards granted under the 2009 Plan will be settled on a net, after-tax basis, after deducting shares for taxes and other applicable withholdings. In addition, subject to adjustment upon certain corporate transactions or events, a maximum of 4,000,000 shares of common stock may underlie awards of incentive stock options. With respect to awards intended to be exempt from the limitations set forth in Section 162(m) of the Code, the maximum number of shares of common stock that may underlie awards, including options, in any one year to any person, may not exceed 4,000,000, subject to adjustment upon certain corporate transactions or events. In the event an option or other award granted under the 2009 Plan is to align more stronglyforfeited or canceled, is settled in cash, including the interests settlement

of our non-employee directors with thosetax withholding obligations using shares of our shareholders, and generally to increase the effectiveness of our non-employee director compensation structure. Under the Plan, we provide our non-employee directors with annual grants of 2,500 common stock equivalents and permit such directors to defer a portion of their directors' fees and be credited with additional common stock equivalents or account credits. A "common stock equivalent" is a right to receive one share of our common stock, or otherwise expires or terminates, or if providedshares of common stock are delivered in full or partial payment of the exercise price in connection with an option, the shares subject to any portion of such award will again become available for the issuance of additional awards.

Stock Options

        Other than as specifically set forth under the terms of the 2009 Plan, the Compensation Committee shall determine the terms of specific options, including whether options shall constitute incentive stock options. The award agreement evidencing an award of options will specify the extent to which, and period during which, an option may be exercised after termination of employment. Generally, an option cannot be exercised after a termination of employment (or other service) to the extent it was not exercisable at the time of termination. The exercise price of an option shall be determined by the Board, a cash amount equal toCompensation Committee and reflected in the applicable award agreement, but unless otherwise determined by the Compensation Committee, in no event shall the exercise price be less than 100% of the fair market value (as determined under the Plan) of onea share of our common stock. The common stock equivalents provide our directors with the opportunity to receive their annual equity grant in a manner that will provide them with tax deferral. Except as otherwise provided by the Board, each of our non-employee directors (each, a "participant") is eligible to participate in the Plan.

        The common stock equivalents awarded under the Plan have not and will not increase the amount of awards available under our existing 2006 Long-Term Incentive Plan. The number of common stock equivalents granted under the Plan is combined with the number of equity awards granted under our 2006 Long-Term Incentive Plan, and the combined grants are subject to the overall limits of our 2006 Long-Term Incentive Plan. If our shareholders do not approve the reauthorization of common stock equivalents, we expect to resume our prior practice of issuing stock options or restricted stock awards to our Board members under our 2006 Long-Term Incentive Plan, as we did prior to 2003.

        The Plan is administered by the Board. The Board has the authority to interpret and otherwise make decisions under the Plan, and any interpretation of any provision of the Plan or other decision under the Plan made by the Board will be final, binding and conclusive. The Board may delegate any or all of its powers under the Plan to a committee of the Board.

        The Board retained the services of an independent compensation consultant to advise the Board on the terms of the Plan when the Plan was first adopted in 2003.

Certain Provisions Applicable to Annual Awards

Grants of Common Stock Equivalents

        Effective as of each annual meeting of shareholders of the Company at which directors are elected, each participant will receive an award of 2,500 common stock equivalents. These grants have been made beginning with the 2003 annual meeting of shareholders.

Vesting and Forfeiture

        Unless otherwise provided by the Board in the applicable agreement governing a participant's common stock equivalents, annual awards of common stock equivalents will vest on the date of the next following annual meeting after the date of grant.

        Annual grants of common The exercise price with respect to incentive stock equivalents willoptions may not be subject to the following vesting conditions:

(i)

If a participant does not stand for re-election at an annual meeting at our request (otherlower than a request made following a breach by the participant of our Code of Conduct100%, or Corporate Governance Principles), the vesting of all common stock equivalents held by the participant will be accelerated to the date of the annual meeting at which the participant does not stand for reelection.



(ii)

If a participant resigns of his or her own accord or otherwise ceases to serve as a non-employee director before the end of a vesting period, then the participant will retain common stock equivalents that have vested through the date of resignation and will forfeit all other common stock equivalents that have not then vested.

(iii)

If we determine that a participant has breached our Code of Conduct or Corporate Governance Principles, the participant will forfeit all common stock equivalents that have not then vested.



(iv)

The vesting of common stock equivalents will be accelerated if a participant ceases to serve as a non-employee director by reason of death or disability or upon a change of control (as defined110% in the Plan).

        In considerationcase of service on the Board, non-employee directors may from timean incentive stock option granted to time be eligible to receive as compensation an annual retainer fee, as well as fees for attending meetingsa 10% shareholder, of the Board or a committee of the Board (together referred to as "Cash Fees"). Up to 100% of such Cash Fees received by a non-employee director may be deferred under the Plan. Deferred amounts are credited to the director in an account established under the Plan at the time the Cash Fees would otherwise have been paid. With respect to these deferred amounts, earnings and losses will accrue on the balance in each director's account at the rate or rates specified from time to time by the Board. In addition, once during each twelve-month period, the non-employee director may elect to convert their account balance into common stock equivalents, and vice versa. To the extent a director elects to be credited with common stock equivalents, such account or portion thereof shall be settled as discussed below. Directors are always fully vested in any deferred Cash Fees.

Dividend Equivalent Rights

        Except as may otherwise be provided by the Board, participants will receive a dividend equivalent right in respect of any common stock equivalents awarded under the Plan, which consists of the right to receive a cash payment in an amount equal to the dividend distributions paid on a share of our common stock from time to time. Dividend equivalents will be paid currently. Instead of payment of dividend equivalent rights in cash as contemplated above, except as otherwise provided by the Board, a participant may elect to have additional common stock equivalents credited in respect of a dividend equivalent payment, in accordance with the Plan.

Settlement

Distributions in Stock or Cash

        Unless otherwise elected by the participant, vested common stock equivalents will be settled by the transfer of our common stock to the participant. A participant may alternatively elect to receive some or all of a distribution of his or her common stock equivalents in cash, based upon the fair market value of our common stock on the date of grant. The aggregate fair market value (determined as of the distribution. Any distribution electiondate the option is granted) of the shares for which any option holder may be awarded incentive stock options that become exercisable for the first time during any calendar year (under the 2009 Plan or any other stock option plan required to be taken into account under Section 422(d) of the Code) may not exceed $100,000. Each option will be exercisable for the period or periods specified in the award agreement, which will generally not exceed 10 years from the date of grant (or five years in the case of an incentive stock option granted to a 10% shareholder). The Compensation Committee shall determine the time or times at which an option may be exercised in whole or in part, and the method or methods by which, and the form or forms in which, payment of the option price with respect thereto may be made or deemed to have been made (including, without limitation, by cash, loans or third-party sale programs, or by the tender of previously-owned shares). Each option granted under the 2009 Plan will generally not be transferable except by will or the laws of descent and distribution; provided, however, that the Compensation Committee may permit other transfers. The Compensation Committee may establish a participantprogram under which participants will have phantom shares credited upon their exercise of options, rather than receiving shares at that time.

Restricted Stock

        Restricted stock is an award of common stock that is subject to changerestrictions (including, without limitation, any limitations on transferability, or the right to vote a share of restricted stock) as the Compensation Committee shall determine. Unless otherwise provided in the applicable award agreement, dividends paid on shares of restricted stock while the shares are unvested will, unless otherwise provided by the Board,Compensation Committee, be held by us until the period of forfeiture lapses, and paid to the grantee as soon as practicable after such period lapses. Restrictions on the shares will lapse in accordance with the terms of the applicable award agreement, as determined by the Compensation Committee. Unless otherwise provided in the applicable award agreement, upon a termination of employment or other service for cause or by the grantee for any reason other than death or disability, all shares of restricted stock still subject to restrictions shall be forfeited to us and we will pay an amount equal to the lesser of the amount paid by the grantee for such shares and the Boardfair market value on the date of forfeiture. It is generally expected that, upon a termination of employment or other service on account of death, disability or retirement of a grantee, or if the grantee has a termination of service by us for any reason other than cause, during the applicable period of forfeiture, then restrictions under the 2009 Plan will immediately lapse on all restricted stock granted to the applicable grantee.

        Subject to the other terms of the 2009 Plan, the Compensation Committee may require,provide a specified purchase price for the restricted stock, determine the restrictions applicable to restricted stock and determine or impose other conditions to the grant of restricted stock under the 2009 Plan as it may deem appropriate.

Restricted Stock Units and Phantom Shares

        A restricted stock unit or phantom share represents a right to receive the fair market value of a share of our common stock, or, if provided by the Compensation Committee, the right to receive the fair market value of a share of our common stock in its discretion,excess of a base value established by the Compensation Committee at the time of grant. The Compensation Committee may provide in an award agreement that notwithstandingany particular unit or phantom share shall expire at the end of a participant's election, a distribution bespecified term. Units and phantom shares will vest as provided in the formapplicable award agreement. Unless otherwise determined by the Compensation Committee at the time of common stock, cash or a combination of both. Except as set forth below, unless otherwise elected by a participant, deferrals of Cash Fees from a participant's accountthe grant, units and phantom shares will be settled by a cash payment to the participant. A participant may elect to receive a distributiontransfer of his or her account solely in common stock or in a combinationshares of common stockstock. Units and cash. Any distribution election made byphantom shares will be settled with a participant is subject to change bysingle-sum distribution; however, the Board, and the BoardCompensation Committee may, require, in its discretion that, notwithstandingand under certain circumstances, permit a participant's election, thatparticipant to receive as settlement of the phantom shares installments over a distribution beperiod not to exceed 10 years. Unless otherwise provided in the form of common stock, cash or a combination of both.

Time of Distribution

        Distributions will be made to participants uponapplicable award agreement, the "regular distribution date." The regular distributionsettlement date with respect to a participantunit or phantom share is the earlier of: (1)first day of the January 1 coincidentmonth to follow the date on which the phantom share vests; provided that a grantee may elect, in accordance with or next following the earlier of: (i) the participant's ceasingprocedures to be established by the Compensation Committee, that such settlement date will follow the grantee's termination of service, or such other time as may be permitted by the Compensation Committee.

Dividend Equivalents

        A dividend equivalent is a non-employee directorright to receive (or have credited) the equivalent value (in cash or shares of common stock) of dividends declared on shares of common stock otherwise subject to an award. The Compensation Committee may provide that amounts payable with respect to dividend equivalents shall be converted into cash or additional shares of our common stock. The Compensation Committee will establish all other limitations and (ii)conditions of awards of dividend equivalents.

Other Awards

        The 2009 Plan authorizes the participant's death;making of cash awards and (2)the granting of other awards based upon the common stock (including the grant of securities convertible into our common stock and stock appreciation rights), and subject to terms and conditions established by the board.

Performance Goals

        As mentioned above, the Compensation Committee may, in its discretion, in the case of awards intended to qualify for an exception from the limitation imposed by Section 162(m) of the Code, establish one or more performance goals as a precondition to the issuance or vesting of awards, and provide, in connection with the establishment of the performance goals, for predetermined awards to those participants with respect to whom the applicable performance goals are satisfied. The performance goals shall be based upon one or more of the following criteria: pre-tax income, after tax income, net income, operating income, cash flow, earnings per share, return on equity, return on invested capital or assets, cash and/or funds available for distribution, appreciation in the fair market value of the common stock, return on investment, shareholder return, net earnings growth, stock appreciation, related return ratios, increase in revenues, net earnings, changes in the per share or aggregate market price of our common stock, number of securities sold, earnings before any one or more of the following: interest, taxes, depreciation or amortization for the applicable period, as reflected in our financial reports for the applicable period, total revenue growth, our published ranking

against its peer group of real estate investment trusts based on total shareholder return, and funds from operations.

Special Rules Upon Reorganizations, Changes in Control, Etc.

        If we are involved in a merger, consolidation, dissolution, liquidation, reorganization, exchange of shares, sale of substantially all of our assets or stock or a transaction similar thereto, or upon certain changes in our capital structure and other similar events, the Compensation Committee may make related adjustments in its discretion to outstanding awards and various 2009 Plan provisions (including, without limitation, to the number and kind of shares available under the Plan).

        Without limiting the foregoing, upon a change ofin control (as defined in the Plan), the Compensation Committee may make such adjustments as it, in its discretion, determines are necessary or appropriate in light of the change in control, but only if the Compensation Committee determines that the adjustments do not have an adverse economic impact on the participants (as determined at the time of the adjustments). A participant,

Annual Grants to Independent Directors

        At our 2008 annual meeting, our shareholders approved the reauthorization of our Non-Employee Directors' Deferral Plan under certain limited circumstanceswhich we make annual awards of common stock equivalents to our non-employee directors. The Non-Employee Directors Plan was part of our 2006 Plan and in compliance with procedures set forth inawards made under the Non-Employee Directors Plan counted against the available awards under the 2006 Plan. If the 2009 Plan is permittedadopted, we will continue to electissue common stock equivalents to receive distributions at times other thanour non-employee directors under the regular distribution date.Non-Employee Directors Plan, but they will be counted as awards under the 2009 Plan.

Amendment and Termination

        The Boardboard may amend or terminate the 2009 Plan as it shall deemdeems advisable, except that no amendmentit may not amend the 2009 Plan in any way that would adversely affect a participant with respect to amountsan award previously credited to him or hergranted unless such amendments arethe amendment is required in order to comply with applicable laws. Certain technical amendments have been madeIn addition, the board may not amend the 2009 Plan if the amendment would cause the 2009 Plan to the Planfail to comply with deferred compensation rules under Section 409Aany requirement of the Internal Revenue Code of 1986, as amended. Such amendments generally will not change the information provided herein.applicable law or regulation, unless and until such amendment is approved by our shareholders.

Certain Tax Effects of Plan ParticipationProhibition on Re-Pricing

        The following is a brief description2009 Plan provides that no option or stock appreciation right issued under the 2009 Plan may be amended to reduce the exercise price of the principaloption or stock appreciation right below the exercise price of such option or stock appreciation right on the date of grant. In addition, no option or stock appreciation right may be granted in exchange for, or in connection with, the cancellation or surrender of an option, stock appreciation right or other award having a lower exercise price.

Prohibition on Loans to Executives

        The 2009 Plan prohibits the extension of any loans by us to any officer in respect of the exercise of options or with respect to any other award granted under the Plan.

Certain U.S. Federal Income Tax Consequences

Non-Qualified Stock Options

        No income will be recognized by an option holder at the time a non-qualified stock option is granted. Ordinary income will generally be recognized by an option holder, however, at the time a

non-qualified stock option is exercised in an amount equal to the excess of the fair market value of the underlying common stock on the exercise date over the exercise price. We will generally be entitled to a deduction for federal income tax consequences under current law of participationpurposes in the Plansame amount as the amount included in ordinary income by the option holder with respect to his or her non-qualified stock option. Gain or loss on a U.S. person.subsequent sale or other disposition of the shares acquired upon the exercise of a non-qualified stock option will be measured by the difference between the amount realized on the disposition and the tax basis of such shares, and will generally be long-term or short-term capital gain depending on the holding period involved. The tax basis of the shares acquired upon the exercise of any non-qualified stock option will be equal to the sum of the exercise price of the non-qualified stock option and the amount included in income with respect to the option. Notwithstanding the foregoing, in the event that exercise of the option is permitted other than by cash payment of the exercise price, various special tax rules may apply.

Incentive Stock Options

        TheIn general, neither the grant nor the exercise of an incentive stock option will result in taxable income to an option holder or a deduction for us. To receive special tax treatment as an incentive stock option under the Code as to shares acquired upon exercise of an incentive stock option, an option holder must neither dispose of the shares within two years after the incentive stock option is granted nor within one year after the transfer of the shares to the option holder pursuant to exercise of the option. In addition, the option holder must be an employee of us or a qualified subsidiary at all times between the date of grant and the date three months (one year in the case of disability) before exercise of the option. (Special rules apply in the case of the death of the option holder.) Incentive stock option treatment under the Code generally allows the sale of shares of our common stock equivalents have been designed withreceived upon the intention thatexercise of an incentive stock option to result in any gain being treated as a capital gain to the option holder, but we will not be entitled to a tax deduction. The exercise of an incentive stock option (if the holding period rules described in this paragraph are satisfied), however, will give rise to income includable by the option holder in his or her alternative minimum taxable income for purposes of the alternative minimum tax in an amount equal to the excess of the fair market value of the stock acquired on the date of the exercise of the option over the exercise price.

        If the holding period rules noted above are not satisfied, gain recognized on the disposition of the shares acquired upon the exercise of an incentive stock option will be characterized as ordinary income. This gain will be equal to the difference between the exercise price and the fair market value of the shares at the time of exercise. (Special rules may apply to disqualifying dispositions where the amount realized is less than the value at exercise.) We will generally be entitled to a deduction equal to the amount of such gain included by an option holder as ordinary income. Any excess of the amount realized upon such disposition over the fair market value at exercise will generally be long-term or short-term capital gain depending on the holding period involved. Notwithstanding the foregoing, if exercise of the option is permitted other than by cash payment of the exercise price, various special tax rules may apply.

Restricted Stock

        Unless a holder of restricted stock makes an "83(b) election" (as discussed below), there generally will be no income tax consequences as a result of the creditinggrant of restricted stock until the restricted stock is no longer subject to a substantial risk of forfeiture or is transferable (free of the risk). Dividends paid on unvested shares, if retained by the grantee, will generally be treated as compensation income for U.S. federal income tax purposes (unless an 83(b) election has been made, as discussed below). Generally, when the restrictions are lifted, the holder will recognize ordinary income, and we will be entitled to a deduction, equal to the difference between the fair market value of the stock at that time and the amount, if any, paid by the holder for the restricted stock. Subsequently realized changes in the value

of the stock generally will be treated as long-term or short-term capital gain or loss, depending on the length of time the shares are held prior to disposition of the shares. In general terms, if a holder makes an 83(b) election (under Section 83(b) of the Code) upon the award of restricted stock, the holder will recognize ordinary income on the date of the award of restricted stock, and we will be entitled to a deduction, equal to (i) the fair market value of the restricted stock as though the stock were (A) not subject to a substantial risk of forfeiture or (B) transferable, minus (ii) the amount, if any, paid for the restricted stock. If an 83(b) election is made, there will generally be no tax consequences to the holder upon the lifting of restrictions, and all subsequent appreciation in the restricted stock generally would be eligible for capital gains treatment. In the event of a common stock equivalentforfeiture after an 83(b) election is made, no deduction or loss will be available, other than with respect to an accountamounts actually paid for the stock.

Phantom Shares and Restricted Stock Units

        It is generally expected that any phantom shares would be designed with the intention that there will be no tax consequences as a result of the granting of a phantom share until payment is made with respect to a common stock equivalent. In addition, the deferral of Cash Fees have also been designed with the intention that there be no tax consequences at the time such Cash Fees would otherwise be payable to the participant. Generally, whenphantom share. When payment is made, with respect to common stock equivalents or deferred Cash Fees, the participant willgenerally would recognize ordinary income, and we would generally be entitled to a deduction, equal to the fair market value of ourthe common stock and cash, (if applicable),as applicable, received upon payment.

Dividend Equivalents

        There generally will be no tax consequences as a result of the award of a dividend equivalent right until payment is made with respect to such dividend equivalent right. Generally, whenequivalent. When payment is made, the holder of the dividend equivalent generally will recognize ordinary income, and we will be entitled to a deduction, equal to the paymentamount received in respect of the dividend equivalent right.equivalent.

Recommendation Regarding Approval of iStar Financial Inc. 2009 Long-Term Incentive Plan

        The table below illustratesOur board of directors believes it is in the annual benefitsbest interests of our Company that willthe 2009 Plan be received by or allocatedapproved in order to eachaccommodate the settlement of the following non-employee director participants under the proposed Plan. The table is for illustrative purposes only. The dollar value of the common2008 restricted stock equivalents depends upon the fair market valueunit awards described above in shares of our common stock, whenand to provide for awards to retain and motivate employees to work for the benefit of the Company. Accordingly, the board of directors has approved and recommends that shareholders vote FOR approval of the iStar Financial Inc. 2009 Long-Term Incentive Plan.

PROPOSAL 3:

APPROVAL OF PERFORMANCE-BASED RETENTION AWARD
FOR CHAIRMAN AND CHIEF EXECUTIVE OFFICER

        On October 9, 2008, we granted a performance-based award of 2,000,000 restricted stock units to Jay Sugarman, our chairman and chief executive officer, for purposes of retention. The grant was made subject to approval by our shareholders at the 2009 annual meeting. The units will vest in their entirety on October 9, 2011 only if Mr. Sugarman is employed by us on that dateand only if a performance condition is satisfied: the total return on our common stock during the three-year period must be at least 25% per year (compounded at the end of the three year measurement period and assuming reinvestment of dividends, if any). No dividend equivalents are distributedwill be paid prior to vesting. If this award is not approved by shareholders, it will be canceled. If the participants.

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(1)

Theaward is approved, the total return target is achieved and the service condition is met, we will issue net shares (after deducting applicable tax and other withholdings) to Mr. Sugarman on the vesting date in settlement of this award in the total amount of approximately 1.3 million shares of common stock.

        This award is intended to qualify as performance-based compensation and forfeituretherefore be exempt from the $1.0 million limitation on deductible compensation under Section 162(m) of the Code. The terms of these common stock equivalents are described above in "—Vesting and Forfeiture."

Recommendation Regarding the IssuanceApproval of Common Stock Equivalents to the Non-Employee Directors as Part of Their Annual Directors' CompensationPerformance-Based Retention Award for Our Chairman and Chief Executive Officer.

        The Boardboard of directors believes that this performance-based retention award for our chairman and chief executive officer will help keep the incentives of our chairman and chief executive officer strongly aligned with our stockholders. The board also believes that this award should encourage our chairman and chief executive officer to remain with the Company, which we believe is in our Company's best interests.

        Accordingly, the board of directors has approved and recommends that youshareholders vote FOR the reauthorization to issue common stock equivalents to the non-employee directors under the Plan as partapproval of their annual directors' compensation.this performance-based retention award for our chairman and chief executive officer.

PROPOSAL 3:4:

RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

        The Boardboard has appointed PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2008,2009, subject to ratification by our shareholders. We expect a representative of PricewaterhouseCoopers LLP to attend the annual meeting to make a statement, if he or she desires, and to respond to appropriate questions.

Recommendation Regarding Ratification of Appointment of PricewaterhouseCoopers LLP

        The Boardboard recommends that you vote FOR ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2008.2009.

INFORMATION REGARDING THE BOARD OF DIRECTORS
AND ITS COMMITTEES

How Often Did the Board Meet During 2007?2008?

        During the fiscal year ended December 31, 2007,2008, the Boardboard held 2126 meetings, including meetings held in person and by telephone conference call. All directors are expected to attend a majority of the Boardboard meetings. All directors attended at least 75% of all of the Boardboard meetings and applicable committee meetings. In addition, all of the directors who were elected at the 20072008 annual meeting, except Glenn August, were present in person at that annual meeting.

What Committees Has the Board Established?

        Our Boardboard has standing Audit, Compensation, Nominating and Governance and Investment Committees. Our Boardboard may appoint special committees from time to time, as deemed necessary or appropriate.

How Does the Company Determine Director Independence?

        Our Boardboard has determined that a majority of our directors are independent. In determining director independence, the Boardboard considers all relevant facts and circumstances and the NYSE listing standards. Under the NYSE listing standards, no director qualifies as independent unless the Boardboard affirmatively determines that the director has no material relationship with the company,Company, either directly or as a partner, stockholder or officer of an organization that has a relationship with the company.Company. The Boardboard has determined that the following directors qualify as independent: Messrs. Holman, Jr., McDonald, Puskar and Weber and Ms. Josephs. The Board considered the transaction involving TimberStar Southwest Investor LLCMss. Josephs and various equity investors, including York Capital Management, LLC, as further described in "Certain Relationships and Related Transactions" on page 38, and has determined that the transaction described therein does not amount to a material relationship that prevents Mr. Weber from being independent because the value of the interest in the transaction was not material to York Capital Management, LLC. Mr. Weber is the president of York Capital Management, LLC.Reiss.

The Audit Committee

        The Audit Committee is responsible for, among other things, retaining or dismissing our independent registered public accounting firm, reviewing with the auditors the plan and scope of the audit and audit fees, monitoring the adequacy of reporting and internal controls and meeting periodically with management and our independent registered public accounting firm.

        The members of the Audit Committee are Robin Josephs (Chair), Robert W. Holman, Jr. (Chairman), Robin Josephs and George R. Puskar.Puskar and Dale Anne Reiss. The Boardboard has determined that each of the current members of the Audit Committee is independent, as defined by the Audit Committee's charter and the NYSE listing standards, and that each of the current members of the Audit Committee qualifies as an "audit committee financial expert" as defined by the SEC. In addition, the Boardboard has determined that each of