EMPLOYMENT AGREEMENT



         THIS AGREEMENT is made as of March 31, 2001 (the "EFFECTIVE DATE") by

and between iStar Financial Inc., a Maryland corporation (together with its

successors and assigns, the "Company"), and Jay Sugarman ("EXECUTIVE").



                           W I T N E S S E T H  T H A T



         WHEREAS, Executive has been employed as Chief Executive Officer of the

Company pursuant to an employment agreement made as of May 20, 1999 between

Executive and an affiliate of the Company (the "OLD AGREEMENT"); and



         WHEREAS, the Company wishes to provide for the continued employment by

the Company of Executive, and Executive wishes to continue to serve the Company,

in the capacities and on the terms and conditions set forth in this Agreement;



         NOW, THEREFORE, Executive and the Company (the "PARTIES") hereby agree

as follows:



         1. EMPLOYMENT PERIOD. The Company shall continue to employ Executive,

and Executive shall continue to serve the Company, on the terms and conditions

set forth in this Agreement. The term of Executive's employment under this

Agreement shall be deemed to have commenced as of the Effective Date and, unless

earlier terminated in accordance with Section 5, shall continue through the

later of March 30, 2004 and the first anniversary of the last "Change of

Control" (as defined in Section 7(a)) that occurs on or before March 30, 2004

(the "INITIAL EMPLOYMENT PERIOD"). Upon the expiration of the Initial Employment

Period and upon each anniversary thereof, the term of Executive's employment

hereunder, if not previously ended, shall automatically be extended for an

additional employment period of one year, subject to earlier termination in

accordance with Section 5 (collectively, the "ADDITIONAL EMPLOYMENT PERIOD"),

unless either Party shall have given written notice to the other Party of its

decision not to extend the Initial Employment Period or to further extend the

Additional Employment Period at least ninety (90) days prior to the scheduled

expiration of the Initial Employment Period or the Additional Employment Period,

as the case may be.



         2. POSITION AND DUTIES.



            (a) During the term of his employment hereunder (the "TERM"),

Executive shall serve as Chief Executive Officer of the Company and (subject to

Executive's re-election to the Board of Directors of the Company (the "BOARD")

by the Company's shareholders) as a member of, and the Chairman of, the Board.

Executive shall have the



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authorities, duties and responsibilities that are customarily assigned to the

chief executive officer and chairman of the board of a company of the size and

nature of the Company; and shall have such other duties and responsibilities,

not inconsistent therewith, as may from time to time reasonably be assigned to

him by the Board. The Company shall use all reasonable efforts to maintain

Executive as a member of, and Chairman of, the Board, and as Chief Executive

Officer of the Company, throughout the Term. Executive agrees that upon the

termination of his employment as Chief Executive Officer of the Company, his

chairmanship of, and membership on, the Board shall immediately and

automatically terminate and he shall promptly execute any documents evidencing

such termination that the Company may reasonably request him to execute.



            (b) In his capacity as Chief Executive Officer of the Company,

Executive shall report solely and directly to the Board. All other senior

executives of the Company shall, during the Term and unless Executive otherwise

directs, report directly to Executive.



            (c) During the Term, and excluding any periods of vacation and sick

leave to which Executive is entitled, Executive shall devote substantially all

of his business time and attention to the business and affairs of the Company

and shall perform, faithfully and diligently, his duties and responsibilities

hereunder. It shall not be considered a violation of the foregoing for Executive

to: (i) serve on corporate, industry, civic, social or charitable boards or

committees or engage in charitable activities and community affairs; (ii) accept

and fulfill a reasonable number of speaking engagements; (iii) manage his own

personal investments and affairs; and/or (IV) engage in business activities,

consistent with past practice, involving one or more of Starwood Capital Group,

L.L.C., Starwood Capital Group, L.P., their affiliates, and related parties

(collectively, "STARWOOD ENTITIES"); provided that the foregoing activities do

not materially interfere with the performance of Executive's responsibilities

hereunder.



            (d) Executive agrees to discharge his duties and obligations under

this Agreement in accordance with such reasonable policies, consistent with the

express terms of this Agreement, as the Company may from time to time (either

before or after the Effective Date) adopt and communicate to Executive.



            (e) During the Term, Executive's principal office, and principal

place of employment, shall be at the Company's principal executive offices in

Manhattan.



         3. COMPENSATION.



            (a) BASE SALARY. During the Term, Executive shall receive a base

salary ("BASE SALARY") at a rate of $1,000,000 per annum, subject to upward (but

not downward)





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adjustment by the Board, or its compensation committee (the "COMPENSATION

COMMITTEE"), in their sole discretion. The Base Salary shall be paid in

accordance with the Company's customary payroll practices for its senior

executives.



            (b) ANNUAL BONUS. Executive shall, to the extent provided in this

Section 3(b), be entitled to receive an annual incentive award in respect of

each fiscal year of the Company that ends during the Term. Executive's target

annual incentive award for any such year shall equal the amount of the Base

Salary earned by Executive in respect of such year, which amount shall be deemed

to be $1,000,000 for calendar year 2001. Such target annual incentive award

shall be awarded for a fiscal year if specified levels of performance are

achieved for such year, which levels the Compensation Committee shall have

established in good faith and in consultation with Executive, with performance

measured solely against one or more of the following criteria: EPS, EBITDA, loan

rating, volume of loan origination, attainment of strategy/personnel development

goals and such other objective or subjective criteria as the Compensation

Committee shall have selected in good faith and in consultation with Executive.

To the extent that the actual performance for a fiscal year, so measured, falls

short of (or exceeds) the specified levels so established, a lesser (or greater)

amount--but in no event more than 200% of the target annual incentive award

for such year--shall be awarded to the extent provided under a formula that

the Compensation Committee shall have established for such year in good faith

and in consultation with Executive. The Compensation Committee shall, in

good-faith consultation with Executive, select the performance criteria,

establish the target levels of performance, and establish the formula for awards

above and below the target level, for any fiscal year prior to the sixtieth

(60th) day of such fiscal year (except in the case of fiscal year 2001, for

which the day shall be July 15, 2001). Executive shall be paid his annual

incentive award (if any) for a fiscal year no later than the earlier of (x) the

date that other senior executives of the Company are paid their annual incentive

awards (if any) for such year and (y) the sixtieth (60th) day following the last

day of such year; provided that any amount otherwise payable for such year

pursuant to this Section 3(b) shall be reduced (but not below zero) by the

aggregate amount of all dividend equivalents received by Executive during such

year pursuant to Section 4(h), and provided further that payment may be

deferred, upon Executive's prior written election, in accordance with any

compensation deferral program of the Company then available to Executive or to

senior executives of the Company generally.



            (c) STOCK OPTION GRANT. The Company confirms that on March 2,

2001, the Company granted to Executive a ten-year option to purchase 750,000

shares of the Company's common stock ("COMMON STOCK") at an exercise price of

$19.69 per share. Concurrently with the execution of this Agreement, the

parties shall memorialize this prior option grant by entering into an

agreement in substantially the form attached hereto as Exhibit A.



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            (d) FRINGE BENEFITS.



                  (i) REIMBURSEMENT OF EXPENSES AND ADMINISTRATIVE SUPPORT. The

Company shall promptly pay or reimburse Executive, upon the presentation of

appropriate documentation of such expenses, for all reasonable travel and other

expenses incurred by Executive in the course of performing services for or on

behalf of the Company. The Company further agrees to furnish Executive with

office space, administrative support and any other assistance and accommodations

as shall be reasonably required by Executive in the performance of services for

or on behalf of the Company.



                  (ii) PARTICIPATION IN BENEFIT PLANS. Executive shall be

entitled to participate, during the Term, in all welfare and retirement benefit

plans, programs and arrangements that are generally available to senior

executives of the Company, including but not limited to qualified and

non-qualified pension and retirement plans, supplemental pension and retirement

plans, group hospitalization, health, medical, vision, dental care, death

benefit, disability, and post-retirement welfare plans, and other present and

future welfare and retirement benefit plans, programs and arrangements

(collectively, the "BENEFIT PLANS"), on no less favorable terms than those that

apply to other senior executives of the Company generally. Executive shall be

credited with seven years of deemed service prior to the Effective Date, as well

as with his actual service on and after the Effective Date, for purposes of

determining his entitlements and benefits under any such Benefit Plans; provide

that in the event that the grant of such deemed service would cause any of the

Benefit Plans to lose its tax qualified or tax favored status, the Executive

shall receive the after-tax cash equivalent of such benefit in lieu thereof. For

avoidance of doubt, the foregoing shall not be construed as a guaranty of, or as

an obligation on the part of the Company to provide, any future awards

(including, but not limited to, stock options, restricted stock, phantom shares,

or other performance awards) under any Company incentive plan from time to time

in effect for its senior executives or other employees.



                  (iii) LIFE INSURANCE. In addition to and without limiting the

generality of the foregoing, the Company shall promptly obtain, and thereafter

maintain, a term life insurance policy on Executive's life in the face amount of

$10,000,000, which policy shall be owned by Executive or his designee, from a

nationally-recognized insurance carrier reasonably acceptable to Executive. Upon

termination of Executive's employment with the Company for any reason, the

Company shall have no further obligation to pay premiums on such policy.



                  (iv) VACATION. During the Term, Executive shall be entitled to

four weeks' paid vacation per annum. Executive shall not be entitled to any cash

payment in respect of any unused vacation time.







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                  (v) OTHER FRINGE BENEFITS AND PERQUISITES. During the Term,

Executive shall be entitled to participate in all fringe benefits and

perquisites available to senior executives of the Company generally at levels,

and on terms and conditions, that are commensurate with his positions and

responsibilities at the Company and shall be entitled to receive such additional

fringe benefits and perquisites as the Company may, in its discretion, from time

to time provide.



         (e) OTHER RIGHTS AND BENEFITS.



                  (i) Nothing in this Agreement shall prevent or limit

Executive's continuing or future participation in any plan, program, policy or

practice provided by the Company or any of its affiliates for which Executive

may qualify (including, without limitation, any compensation deferral plan or

arrangement), nor shall anything in this Agreement limit or otherwise affect

such rights as Executive may have under any contract, agreement or arrangement

with the Company or any of its affiliates.



                  (ii) Without limiting the generality of Section 3(e)(i), the

Company agrees to cause to be amended, as of the Effective Date, the

Non-Qualified Stock Option Agreement, dated as of May 20, 1999, between Starwood

Financial Advisors, L.L.C., a predecessor of the Company ("SFA"), and Executive,

so that (A) all references to the Old Agreement in the preamble, Section 2.2 and

Section 4.8 of that Stock Option Agreement are instead references to this

Agreement (as duly amended from time to time in accordance with its terms) or

any successor thereto and (B) any termination of Executive's employment with the

Company by expiration of the then scheduled term of employment is treated under

that Stock Option Agreement as if it were a termination Without Good Reason by

Executive. The Company further agrees to treat such Stock Option Agreement as

having been so amended, whether or not such amendment is in fact made. The

Company agrees to fully and promptly indemnify Executive, on an after-tax basis,

for any failure by the Company to fulfill its obligations under this Section

3(e)(ii).



         4. PHANTOM SHARES.



            (a) GRANT OF PHANTOM SHARES. Effective as of the Effective Date, the

Company shall grant Executive 2,000,000 phantom shares (the "PHANTOM SHARES").

Each Phantom Share shall represent one share of common stock of the Company of

the class listed on the New York Stock Exchange as of the Effective Date

("COMMON STOCK"), together with any distributions of cash, securities or other

property (other than ordinary-course dividends) made or declared in respect of

such a share (or in respect of any security or property distributed, directly or

indirectly, in respect of such a share) at any time from the Effective Date

through the date on





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which such Phantom Share is settled pursuant to Section 4(f). Each Phantom Share

shall be subject to the vesting and forfeiture conditions described in Sections

4(b) through 4(e).



            (b) CONTINGENT VESTING. The Phantom Shares shall become contingently

vested (but shall remain subject to forfeiture until becoming fully vested

pursuant to Section 4(d)) ("CONTINGENTLY VESTED") as follows:



                  (i) seventeen and one half percent (17.5%) of the Phantom

Shares (I.E., 350,000 Phantom Shares) shall become Contingently Vested on the

first date, no less than sixty (60) calendar days after the Effective Date, on

which the "Sixty-Day Average Closing Price" (as defined in Section 4(c)) or

"Change of Control Price" (as defined in Section 4(c)) is $25.00 or higher;



                  (ii) an additional thirty-two and one-half percent (32.5%) of

the Phantom Shares (I.E., an additional 650,000 Phantom Shares) shall become

Contingently Vested on the first date, no less than sixty (60) calendar days

after the Effective Date, on which the Sixty-Day Average Closing Price or Change

of Control Price is $30.00 or higher;



                  (iii) an additional thirty percent (30%) of the Phantom Shares

(I.E., an additional 600,000 Phantom Shares) shall become Contingently Vested on

the first date, no less than sixty (60) calendar days after the Effective Date,

on which the Sixty-Day Average Closing Price or Change of Control Price is

$34.00 or higher; and



                  (iv) the remaining twenty percent (20%) of the Phantom Shares

(I.E., the remaining 400,000 Phantom Shares) shall become Contingently Vested on

the first date, no less than sixty (60) calendar days after the Effective Date,

on which the Sixty-Day Average Closing Price or Change of Control Price is

$37.00 or higher.



            (c) CERTAIN DEFINITIONS. For purposes of this Agreement, the

following terms shall have the following meanings:



                  (i) "SIXTY-DAY AVERAGE CLOSING PRICE" of a security as of a

specified date shall mean, if such security is publicly traded in the United

States on a national securities exchange or national market system as of such

date, then the average of the closing prices for such security, at the end of

regular trading on the national security exchange or national market system on

which such security is then principally traded in the United States, on each day

on which regular trading of such security shall have occurred during the sixty

(60) calendar day period that ends with the specified date, and otherwise shall

mean "Fair Market Value" (as defined in Section 4(c)(iii)) of such security as

of such date;







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                  (ii) "CHANGE OF CONTROL PRICE" of a security shall mean, if

such security is publicly traded on a national securities exchange or national

market system in the United States immediately prior to the occurrence of a

Change of Control, then the closing price for such security, at the end of

regular trading on the national security exchange or national market system on

which such security is principally traded in the United States, on the most

recent day prior to the Change in Control on which regular trading of such

security shall have occurred, and otherwise shall mean Fair Market Value of such

security as of the occurrence of a Change of Control; and



                  (iii) "FAIR MARKET VALUE" shall mean (x) when used with

respect to a security as of a specified date, the fair market value of such

security on such date, assuming a market consisting of willing and amply-funded

strategic buyers for all outstanding securities of the issuer and determined

without discount for lack of liquidity, lack of control, minority status,

contractual restrictions, or similar factors and (y) when used with respect to

any other property, fair market value as of such date assuming a market

consisting of willing and amply-funded buyers and without discount for lack of

liquidity, contractual restrictions or similar factors.



            (d) FULL VESTING. Contingently Vested Phantom Shares that have not

previously become fully vested, and no longer subject to any risk of forfeiture,

("FULLY VESTED") shall become Fully Vested as follows:



                  (i) If Executive remains employed with the Company through

March 30, 2004, then all of the Phantom Shares that are Contingently Vested as

of such date shall become Fully Vested on such date if and only if the Sixty-Day

Average Closing Price equals or exceeds $12.50 as of such date.



                  (ii) If Executive's employment with the Company is terminated

by the Company for Cause in accordance with this Agreement, no Phantom Shares

shall become Fully Vested on or after the "Date of Termination" (as defined in

Section 5(e)).



                  (iii) If Executive's employment with the Company is terminated

Without Good Reason by Executive on or before the later of (x) March 30, 2004

and (y) the first anniversary of the last Change of Control that occurs on or

before such date, then fifty percent (50%) of the Phantom Shares that are

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