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What changed in Terra Property Trust, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Terra Property Trust, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+236 added−250 removedSource: 10-K (2025-03-14) vs 10-K (2024-03-15)

Top changes in Terra Property Trust, Inc.'s 2024 10-K

236 paragraphs added · 250 removed · 193 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

42 edited+2 added−2 removed116 unchanged
Biggest changeSarah Schwarzschild has served as the Chief Operating Officer of our company since February 2024 and Terra Capital Partners since July 2023. Prior to joining our company, Ms. Schwarzschild served as Managing Director and Co-Head of BGO Strategic Capital Partners, a $3 billion global integrated multi-manager platform. Ms.
Biggest changePrior to joining our company, Ms. Schwarzschild served as Managing Director and Co-Head of BGO Strategic Capital Partners, a $3 billion global integrated multi-manager platform. Ms. Schwarzschild also managed BGO Strategic Capital Partners’ secondaries funds and separately managed accounts with oversight for the business’ and co-managed the business’ platform. Prior to merging with BentallGreenOak in April 2021, Ms.
From time to time, we may acquire real estate encumbering the senior loans through foreclosure, may invest in real estate related joint ventures and may directly acquire real estate properties. We may also elect to make strategic non-real estate-related investments that align with our investment objectives and criteria.
From time to time, we may acquire real estate encumbering the senior loans through foreclosure, may invest in real estate related joint ventures and may directly acquire real estate properties. We also elect to make strategic non-real estate-related investments that align with our investment objectives and criteria.
These investment guidelines may be changed from time to time by a majority of our Board without the approval of our stockholders. Disposition Policies The period we hold our investments in real estate-related loans varies depending on the type of asset, interest rates and other factors. Our Manager has developed a well-defined exit strategy for each of our investments.
These investment guidelines may be changed from time to time by a majority of our Board without the approval of our stockholders. 6 Disposition Policies The period we hold our investments in real estate-related loans varies depending on the type of asset, interest rates and other factors. Our Manager has developed a well-defined exit strategy for each of our investments.
He also served as (i) the Chief Financial Officer of Terra Capital Advisors, Terra Capital Advisors 2 and Terra Income Advisors 2 since May 2012, September 2012 and October 2016; (ii) the Chief Operating Officer of Terra Capital Advisors, Terra Capital Advisors 2 and Terra Capital Partners since July 2014; (iii) the Chief Operating Officer of Terra Income Advisors 2 since October 2016; (iv) the Chief Financial Officer of Fund 5 International, Terra International and Terra Fund 7 since June 2014, October 2016 and October 2016, respectively; (v) a director of RESOF since October 2020; and (vi) the Chief Financial Officer and Chief Operating Officer of Terra Income Advisors and the Chief Financial Officer, Treasurer and Secretary of Terra BDC from May 2013 to October 2022 and the Chief Operating Officer of Terra BDC from July 2014 to October 2022.
He also served as (i) the Chief Financial Officer of Terra Capital Advisors, LLC, Terra Capital Advisors 2, LLC and Terra Income Advisors 2 since May 2012, September 2012 and October 2016; (ii) the Chief Operating Officer of Terra Capital Advisors, LLC, Terra Capital Advisors 2, LLC and Terra Capital Partners since July 2014; (iii) the Chief Operating Officer of Terra Income Advisors 2 since October 2016; (iv) the Chief Financial Officer of Fund 5 International, Terra International and Terra Fund 7 since June 2014, October 2016 and October 2016, respectively; (v) a director of RESOF since October 2020; and (vi) the Chief Financial Officer and Chief Operating Officer of Terra Income Advisors and the Chief Financial Officer, Treasurer and Secretary of Terra BDC from May 2013 to October 2022 and the Chief Operating Officer of Terra BDC from July 2014 to October 2022.
Cooperman has served as Chief Originations Officer of (i) each of Terra Capital Advisors and Terra Capital Advisors 2 since January 2015, having previously served as Managing Director of Originations until January 2015 of Terra Capital Advisors and Terra Capital Advisors 2 since April 2009 and September 2012, respectively; (ii) Fund 5 International since January 2015, having previously served as Managing Director of Originations of Terra BDC from June 2014 to June 2014; (iii) Terra Income Advisors and Terra BDC from February 2015 to October 2022, having previously served as Managing Director of Originations from May 2013 until February 2015; and (iv) each of Terra Income Advisors 2, Terra International, and Terra Fund 7 since October 2016.
Cooperman has served as Chief Originations Officer of (i) each of Terra Capital Advisors, LLC and Terra Capital Advisors 2, LLC since January 2015, having previously served as Managing Director of Originations until January 2015 of Terra Capital Advisors, LLC and Terra Capital Advisors 2, LLC since April 2009 and September 2012, respectively; (ii) Fund 5 International since January 2015, having previously served as Managing Director of Originations of Terra BDC from June 2014 to June 2014; (iii) Terra Income Advisors and Terra BDC from February 2015 to October 2022, having previously served as Managing Director of Originations from May 2013 until February 2015; and (iv) each of Terra Income Advisors 2, Terra International, and Terra Fund 7 since October 2016.
We may also make strategic real estate equity and non-real estate-related investments that align with our investment objectives and criteria. Each of our investments was originated by Terra Capital Partners or its affiliates. Our portfolio is diversified based on location of the underlying properties, loan structure and property type.
We also make strategic real estate equity and non-real estate-related investments that align with our investment objectives and criteria. Each of our investments was originated by Terra Capital Partners or its affiliates. Our portfolio is diversified based on location of the underlying properties, loan structure and property type.
In addition, we conduct our operations so that neither we nor our subsidiaries will be considered an investment company under Section 3(a)(1)(A) of the 1940 Act, as neither we nor our subsidiaries are engaged primarily nor do we hold ourselves out as being engaged primarily in the business of investing, reinvesting or trading in securities.
In addition, we conduct our operations so that neither we nor our subsidiaries will be considered an investment company under Section 3(a)(1)(A) of the 1940 Act, as neither we nor our 7 subsidiaries are engaged primarily nor do we hold ourselves out as being engaged primarily in the business of investing, reinvesting or trading in securities.
From time to time, we may acquire operating real estate properties that meet our investment criteria. As well, we may assume control of properties acquired in connection with foreclosures or deed in lieu of foreclosure. As of December 31, 2023, we owned eight industrial buildings purchased in 2023.
From time to time, we may acquire operating real estate properties that meet our investment criteria. As well, we may assume control of properties acquired in connection with foreclosures or deed in lieu of foreclosure. As of December 31, 2024, we owned eight industrial buildings purchased in 2023.
Our Manager continually performs a hold-sell analysis on each asset in order to determine the optimal time to hold the asset and generate optimal returns 6 to our stockholders. Economic and market conditions may influence us to hold investments for longer or shorter periods of time.
Our Manager continually performs a hold-sell analysis on each asset in order to determine the optimal time to hold the asset and generate optimal returns to our stockholders. Economic and market conditions may influence us to hold investments for longer or shorter periods of time.
Non-Real Estate-Related Investments From time to time, to the extent consistent with our qualification as a REIT for so long as we elect to be taxed as a REIT, we may invest in strategic non-real estate-related investments that align with our investment objectives and criteria.
Non-Real Estate-Related Investments From time to time, to the extent consistent with our qualification as a REIT for so long as we elect to be taxed as a REIT, we invest in strategic non-real estate-related investments that align with our investment objectives and criteria.
On February 8, 2024, each of Terra Fund 5 and Terra JV were dissolved. As of December 31, 2023, Terra Fund 7 and Terra Offshore REIT held approximately 8.7% and 10.1%, respectively, of our issued and outstanding Class B Common Stock.
On February 8, 2024, each of Terra Fund 5 and Terra JV were dissolved. As of December 31, 2024, Terra Fund 7 and Terra Offshore REIT held approximately 8.7% and 10.1%, respectively, of our issued and outstanding Class B Common Stock.
Stern School of Business at New York University. Daniel J. Cooperman has served as Chief Originations Officer of our company, our Manager, and Terra Fund Advisors since January 2016, September 2017 and September 201, respectively. Mr.
Stern School of Business at New York University. Daniel J. Cooperman has served as Chief Originations Officer of our company, our Manager, and Terra Fund Advisors since January 2016, September 2017 and September 2017, respectively. Mr.
Cooperman holds a B.S. in Finance from the University of Colorado at Boulder. Available Information We are subject to the information requirements of the Exchange Act. Therefore, we file periodic reports and other information with the SEC.
Cooperman holds a B.S. in Finance from the University of Colorado at Boulder. 10 Available Information We are subject to the information requirements of the Exchange Act. Therefore, we file periodic reports and other information with the SEC.
Uppal served as the Chief Executive Officer of Terra Income Advisors and Terra BDC from April 2019 to October 2022 and as the Chairman of the board of directors and President of Terra BDC from November 2019 to October 2022. Prior to joining Terra Capital Partners, Mr.
Uppal served as the Chief Executive Officer of Terra Income Advisors and Terra BDC from April 2019 to October 2022 and as the Chairman of 9 the board of directors and President of Terra BDC from November 2019 to October 2022. Prior to joining Terra Capital Partners, Mr.
The effect of the existence of 8 additional REITs and other institutions may be increased competition for the available supply of our targeted assets suitable for purchase, which may cause the price for such assets to rise.
The effect of the existence of additional REITs and other institutions may be increased competition for the available supply of our targeted assets suitable for purchase, which may cause the price for such assets to rise.
As of December 31, 2023, we had one TRS, but the TRS had no activity and no current or deferred taxes. We will continue to file a return for the TRS until it is dissolved. 1940 Act Exclusion We are not registered as an investment company under the 1940 Act.
As of December 31, 2024, we had one TRS, but the TRS had no activity and no current or deferred taxes. We will continue to file a return for the TRS until it is dissolved. 1940 Act Exclusion We are not registered as an investment company under the 1940 Act.
As of December 31, 2023, we did not own any B-notes. Mezzanine Loans . These are loans secured by ownership interests in an entity that owns commercial real estate and that generally finance the acquisition, refinancing, rehabilitation or construction of commercial real estate.
As of December 31, 2024, we did not own any B-notes. Mezzanine Loans . These are loans secured by ownership interests in an entity that owns commercial real estate and that generally finance the acquisition, refinancing, rehabilitation or construction of commercial real estate.
We can generate additional revenues from these equity participations as a result of excess cash flows being distributed or as appreciated properties are sold or refinanced. As of December 31, 2023, we did not own any equity participations. Operating Real Estate and Real Estate Owned .
We can generate additional revenues from these equity participations as a result of excess cash flows being distributed or as appreciated properties are sold or refinanced. As of December 31, 2024, we did not own any equity participations. Operating Real Estate and Real Estate Owned .
Our Financing Strategy We have historically utilized only limited amounts of borrowings as part of our financing strategy. One of the reasons we completed the REIT Formation Transaction, as described under “—Overview,” is to expand our financing options, access to capital and capital flexibility in order to position us for future growth.
Our Financing Strategy Prior to the REIT Formation, we utilized only limited amounts of borrowings as part of our financing strategy. One of the reasons we completed the REIT Formation Transaction, as described under “—Overview,” is to expand our financing options, access to capital and capital flexibility in order to position us for future growth.
We may, to the extent consistent with our qualification as a REIT, invest in our targeted assets directly or through joint ventures. As of December 31, 2023, we owned equity interest in a limited partnership that invests in performing and non-performing mortgages, loans, mezzanines, B-notes and other credit instru ments supported by underlying commercial real estate assets.
We may, to the extent consistent with our qualification as a REIT, invest in our targeted assets directly or through joint ventures. As of December 31, 2024, we owned equity interest in a limited partnership that invests in performing and non-performing mortgages, loans, mezzanines, B-notes and other credit instru ments supported by underlying com mercial real estate assets.
We may invest in other real estate-related securities, which may include marketable securities and securitizations, so long as such securities do not constitute more than 15% of our assets. As of December 31, 2023, we owned $5.0 million in other real estate-related securities.
We may invest in other real estate-related securities, which may include marketable securities and securitizations, so long as such securities do not constitute more than 15% of our assets. As of December 31, 2024, we owned $1.0 million in other real estate-related securities.
Rather, we and our subsidiaries are primarily engaged in the non-investment company businesses. 7 We and certain of our subsidiaries may at times rely primarily on the exclusion from the definition of an investment company under Section 3(c)(5)(C) of the 1940 Act, or any other exclusions that may be available to us (other than the exclusions under Section 3(c)(1) or Section 3(c)(7)).
We and certain of our subsidiaries may at times rely primarily on the exclusion from the definition of an investment company under Section 3(c)(5)(C) of the 1940 Act, or any other exclusions that may be available to us (other than the exclusions under Section 3(c)(1) or Section 3(c)(7)).
Schwarzschild sits on the MBA Council for the Tuck School of Business and is Secretary of the board of The Mianus River Gorge Preserve and sits on the Advisory Board for INCEPTIV. Gregory M.
Schwarzschild sits on the MBA Council for the Tuck School of Business and is Secretary of the board of The Mianus River Gorge Preserve. She also sits on the board of Riley's Ways and on the Advisory Board for INCEPTIV. Gregory M.
As of December 31, 2023, our portfolio included underlying properties located in 21 markets, across nine states and includes property types such as multifamily housing, hotels, student housing, commercial offices, medical offices, mixed-use, industrial and infrastructure properties. The profile of these properties ranges from stabilized and value-added properties to pre-development and construction.
As of December 31, 2024, our portfolio included underlying properties located in 13 markets, across nine states and includes property types such as multifamily housing, student housing, commercial offices, medical offices, mixed-use and infill properties. The profile of these properties ranges from stabilized and value-added properties to pre-development and construction.
The value of the properties underlying this capital was approximately $11.9 billion based on appraised values as of the closing dates of each financing.
The value of the properties underlying this capital was approximately $12.8 billion based on appraised values as of the closing dates of each financing.
The financings provided by all vehicles managed by Terra Capital Partners from January 2004 through December 31, 2023 have been secured by approximately 13.9 million square feet of office properties, 3.7 million square feet of retail properties, 7.1 million square feet of industrial properties, 5,058 hotel rooms and 30,080 apartment units.
The financings provided by all vehicles managed by Terra Capital Partners from January 2004 through December 31, 2024 have been secured by approximately 13.9 million square feet of office properties, 3.7 million square feet of retail properties, 7.2 million square feet of industrial properties, 5,215 hotel rooms and 31,898 apartment units.
However, such loans typically generate lower returns than subordinate debt such as mezzanine loans, B-notes, or preferred equity investments. As of December 31, 2023, we owned 13 first mortgage loans with a total net principal amount of $365.5 million, which constituted 71.7% of our net loan investment portfolio.
However, such loans typically generate lower returns than subordinate debt such as mezzanine loans, B-notes, or preferred equity investments. As of December 31, 2024, we owned 8 first mortgage loans with a total net principal amount of $208.0 million, which constituted 69.5% of our net loan investment portfolio.
In connection with our loan investments, we may pursue equity participation opportunities, or interests in the projects being financed, in instances when we believe that the risk-reward characteristics of the loan merit 5 additional upside participation because of the possibility of appreciation in value of the underlying properties securing the loan.
In connection with our loan investments, we may pursue equity participation opportunities, or interests in the projects being financed, in instances when we believe that the risk-reward characteristics of the loan merit additional upside participation because of the possibility of appreciation in value of the underlying properties securing the loan. 5 Equity participations can be paid in the form of additional interest, exit fees or warrants in the borrower.
Equity participations can be paid in the form of additional interest, exit fees or warrants in the borrower. Equity participation can also take the form of a conversion feature, permitting the lender to convert a loan or preferred equity investment into equity in the borrower at a negotiated premium to the current net asset value of the borrower.
Equity participation can also take the form of a conversion feature, permitting the lender to convert a loan or preferred equity investment into equity in the borrower at a negotiated premium to the current net asset value of the borrower.
Generally, we invest in mezzanine loans with last dollar loan-to-value ratios ranging from 60% to 85%. As of December 31, 2023, we owned three mezzanine loans with a total net principal amount of $17.4 million, which constituted 3.4% of our net loan investment portfolio. Preferred Equity Investments .
Generally, we invest in mezzanine loans with last dollar loan-to-value ratios ranging from 60% to 85%. As of December 31, 2024, we owned two mezzanine loans with a total net principal amount of $15.0 million, which constituted 5.0% of our net loan investment portfolio. Preferred Equity Investments .
As of December 31, 2023, we used $342.9 million of senior mortgage loans as collateral for $204.9 million of borrowings under secured financing agreements. Subordinated Mortgage Loans (B-notes) . B-notes include structurally subordinated mortgage loans and junior participations in first mortgage loans or participations in these types of assets.
As of December 31, 2024, we used $208.0 million of senior mortgage loans as collateral for $123.2 million of borrowings under secured financing agreements. Subordinated Mortgage Loans (B-notes) . B-notes include structurally subordinated mortgage loans and junior participations in first mortgage loans or participations in these types of assets.
Uppal 40 Chairman of the Board of Directors, Chief Executive Officer and Chief Investment Officer Sarah Schwarzschild 43 Chief Operating Officer Gregory M. Pinkus 59 Chief Financial Officer, Treasurer and Secretary Daniel J. Cooperman 49 Chief Originations Officer Vikram S.
Uppal 41 Chairman of the Board of Directors, Chief Executive Officer and Chief Investment Officer Sarah Schwarzschild 44 Chief Operating Officer Gregory M. Pinkus 60 Chief Financial Officer, Treasurer and Secretary Daniel J. Cooperman 50 Chief Originations Officer Vikram S.
The real estate and related lease intangible assets and liabilities had a net carrying value of $129.8 million, and the mortgage loans payable encumbering the industrial buildings had an outstanding principal amount of $73.5 million. Equity Investment in Unconsolidated Investments and Joint Ventures.
The real estate and related lease intangible assets and liabilities had a net carrying value of $125.3 million, and the mortgage loans payable encumbering the industrial buildings had an outstanding principal amount of $74.4 million. Equity Interest in Unconsolidated Investments and Joint Ventures.
We will remain an “emerging growth company” until the earliest to occur of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (ii) the date on which we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three-year period, and (iv) the end of the year in which the five year anniversary of our initial public offering of our common stock occurs.
We will remain an “emerging growth company” until the earliest to occur of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (ii) the date on which we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three-year period, and (iv) the end of the year in which the five year anniversary of our initial public offering of our common stock occurs. 8 Competition We compete with other REITs, numerous regional and community banks, specialty finance companies, savings and loan associations and other entities, and we expect that others may be organized in the future.
The information on our website is not a part of, nor is it incorporated by reference into, this Annual Report on Form 10-K.
We are providing the address to our website solely for the information of investors. The information on our website is not a part of, nor is it incorporated by reference into, this Annual Report on Form 10-K.
In addition, we intend to match our use of floating rate leverage with floating rate investments. As of December 31, 2023, we had outstanding indebtedness, consisting of unsecured notes payable of $123.5 million and secured financing of $293.4 million. As of December 31, 2023, the amount remaining available under our credit facilities was $378.6 million.
In addition, we intend to match our use of floating rate leverage with floating rate investments. As of December 31, 2024, we had outstanding indebtedness, consisting of unsecured notes payable of $123.5 million and secured financing of $207.6 million.
Uppal worked at Mount Kellett Capital Management, a private 9 investment organization, and served as Co-Head of North American Real Estate Investments. Mr. Uppal holds a B.S. from the University of St. Thomas and a M.S. from Columbia University.
Uppal worked at Mount Kellett Capital Management, a private investment organization, and served as Co-Head of North American Real Estate Investments. Mr. Uppal holds a B.S. from the University of St. Thomas and a M.S. from Columbia University. Sarah Schwarzschild has served as the Chief Operating Officer of our company since February 2024 and Terra Capital Partners since July 2023.
As of December 31, 2023, we owned five preferred equity investments with a total net principal amount of $126.6 million, which constituted 24.8% of our net loan investment portfolio. Equity Participations .
As of December 31, 2024, we owned three preferred equity investments with a total net principal amount of $76.2 million, which constituted 25.5% of our net loan investment portfolio. Equity Participations .
We will provide without charge a copy of this Annual Report on Form 10-K, including financial statements and schedules, upon written request delivered to our principal executive offices. 10 We are providing the address to our website solely for the information of investors.
Stockholders may obtain copies of our filings with the SEC, free of charge from the website maintained by the SEC at www.sec.gov or from our website at www.terrapropertytrust.com. We will provide without charge a copy of this Annual Report on Form 10-K, including financial statements and schedules, upon written request delivered to our principal executive offices.
We also owned beneficial equity interests in four joint ventures that invest in real estate properties. The equity interests had a total carrying value of $37.2 million as of December 31, 2023 . Other Real Estate-Related Securities .
We also owned beneficial equity interests in five joint ventures that invest in real estate properties and opportunistic debt and equity securities, and a preferred equity investment with residual profit sharing from sale of the underlying property. The equity interests had a total carrying value o f $78.3 million as of December 31, 2024 . Other Real Estate-Related Securities .
Schwarzschild also managed BGO Strategic Capital Partners’ secondaries funds and separately managed accounts with oversight for the business’ and co-managed the business’ platform. Prior to merging with BentallGreenOak in April 2021, Ms. Schwarzschild held the same responsibilities at Metropolitan Real Estate Equity Management (“Metropolitan”), a firm wholly owned by The Carlyle Group. Prior to joining Metropolitan in 2014, Ms.
Schwarzschild held the same responsibilities at Metropolitan Real Estate Equity Management (“Metropolitan”), a firm wholly owned by The Carlyle Group. Prior to joining Metropolitan in 2014, Ms.
With our larger size and enhanced access to capital and capital flexibility, our company expects to de-emphasize our use of participation arrangements. As of December 31, 2023, we did not have any obligations under participation agreements outstanding. For additional information concerning our indebtedness, see “ Item 7.
As our access to capital and financial flexibility has grown, our use of participation agreements has diminished. As of December 31, 2024, we had obligations under one participation agreement with an aggregate outstanding principal amount of $18.0 million. For additional information concerning our indebtedness, see “ Item 7.
Removed
Competition We compete with other REITs, numerous regional and community banks, specialty finance companies, savings and loan associations and other entities, and we expect that others may be organized in the future.
Added
As of December 31, 2024, we owned $30.6 million in non-real estate-related investments, which include equity interests in non-real estate operating companies across various industries, including life insurance and equipment financing. Non-real estate-related investments may take various forms, including preferred and common equity interests in private companies and other financial assets.
Removed
Stockholders may obtain copies of our filings with the SEC, free of charge from the website maintained by the SEC at www.sec.gov or from our website at www.terrapropertytrust.com.
Added
Rather, we and our subsidiaries are primarily engaged in the non-investment company businesses.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

79 edited+17 added−14 removed353 unchanged
Biggest changeAs a result, our officers or the officers of our Manager could direct attractive investment opportunities to other affiliated entities or investors. Such events could result in our acquiring investments that provide less attractive returns, which would have a material adverse effect on our results of operations, financial condition and cash flows.
Biggest changeSuch events could result in our acquiring investments that provide less attractive returns, which would have a material adverse effect on our results of operations, financial condition and cash flows. 26 Our Manager, our officers and the investment professionals assembled by our Manager will face competing demands relating to their time and this may cause our operations and our investors’ investments to suffer.
We may make strategic non-real estate-related investments that align with our investment objectives and criteria, which may expose us to risks from a number of diverse issuers, industries, and investment forms.
We make strategic non-real estate-related investments that align with our investment objectives and criteria, which may expose us to risks from a number of diverse issuers, industries, and investment forms.
Those investment guidelines, as well as our target assets, investment strategy, financing strategy and hedging policies with respect to investments, originations, acquisitions, growth, operations, indebtedness, capitalization and distributions, may be changed at any time without notice to, or the consent of, our investors. We may make strategic non-real estate-related investments that align with our investment objectives and criteria.
Those investment guidelines, as well as our target assets, investment strategy, financing strategy and hedging policies with respect to investments, originations, acquisitions, growth, operations, indebtedness, capitalization and distributions, may be changed at any time without notice to, or the consent of, our investors. We make strategic non-real estate-related investments that align with our investment objectives and criteria.
Some of the factors that could negatively affect the fair value of our common stock include: • our expected operating results and our ability to make distributions to our stockholders in the future; • volatility in our industry, the performance of the real estate-related loans we target, interest rates and spreads, the debt or equity markets, the general economy or the real estate market specifically, whether the result of market events or otherwise; • the availability of financing on acceptable terms or at all; • events or circumstances which undermine confidence in the financial markets or otherwise have a broad impact on financial markets, such as the sudden instability or collapse of large depository institutions or other significant corporations, terrorist attacks, natural or man-made disasters or threatened or actual armed conflicts; • the availability of attractive risk-adjusted investment opportunities in real estate-related loans that satisfy our objectives and strategies; • the degree and nature of our competition; • changes in personnel of our Manager and lack of availability of qualified personnel; • unanticipated costs, delays and other difficulties in executing our long-term growth strategy; • the timing of cash flows, if any, from our investments due to the lack of liquidity of loans relative to more commonly traded securities; • an increase in interest rates; • the performance, financial condition and liquidity of our borrowers; and • legislative and regulatory changes (including changes to laws governing the taxation of REITs or the exclusion or exemption from registration as an investment company under the 1940 Act).
Some of the factors that could negatively affect the fair value of our common stock include: • our expected operating results and our ability to make distributions to our stockholders in the future; • volatility in our industry, the performance of the real estate-related loans we target, interest rates and spreads, the debt or equity markets, the general economy or the real estate market specifically, whether the result of market events or otherwise; • the availability of financing on acceptable terms or at all; • events or circumstances which undermine confidence in the financial markets or otherwise have a broad impact on financial markets, such as the sudden instability or collapse of large depository institutions or other significant corporations, terrorist attacks, natural or man-made disasters or threatened or actual armed conflicts; • the availability of attractive risk-adjusted investment opportunities in real estate-related loans that satisfy our objectives and strategies; • the degree and nature of our competition; • changes in personnel of our Manager and lack of availability of qualified personnel; • unanticipated costs, delays and other difficulties in executing our long-term growth strategy; • the timing of cash flows, if any, from our investments due to the lack of liquidity of loans relative to more commonly traded securities; • an increase in interest rates; • the performance, financial condition and liquidity of our borrowers; and 11 • legislative and regulatory changes (including changes to laws governing the taxation of REITs or the exclusion or exemption from registration as an investment company under the 1940 Act).
In particular, where we experience differences in timing between the recognition of taxable income and the actual receipt of cash, the requirement to distribute a substantial portion of our taxable income could cause us to: (i) sell assets in adverse market conditions, (ii) borrow on unfavorable terms, (iii) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or repayment of debt, (iv) make a taxable distribution of our shares as part of a distribution in which stockholders may elect to receive shares or (subject to a limit measured as a percentage of the total distribution) cash or (v) use cash reserves, in order to comply with the REIT distribution requirements and to avoid U.S. federal corporate income tax and the 4% nondeductible excise tax.
In particular, where we experience differences in timing between the recognition of taxable income and the actual receipt of cash, the requirement to distribute a substantial portion of our taxable income could cause us to: (i) sell assets in adverse market conditions, (ii) borrow on unfavorable terms, (iii) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or repayment of debt, (iv) make a taxable distribution of our shares as part of a distribution in which stockholders may elect to receive shares or (subject to a limit measured as a percentage of the total 31 distribution) cash or (v) use cash reserves, in order to comply with the REIT distribution requirements and to avoid U.S. federal corporate income tax and the 4% nondeductible excise tax.
As a result, our Manager and its affiliates (for the period that such shares continue to be held by Terra Fund 7 and Terra Offshore REIT and not distributed to their respective equity owners), subject to a voting agreement as described below, hold significant voting power over matters submitted to our stockholders for approval, including: • the election and removal of directors; and • the approval of any merger, consolidation or sale of all or substantially all of our assets.
As a result, our Manager and its affiliates (for the period that such shares continue to be held by Terra Fund 7 and Terra Offshore REIT and not distributed to 12 their respective equity owners), subject to a voting agreement as described below, hold significant voting power over matters submitted to our stockholders for approval, including: • the election and removal of directors; and • the approval of any merger, consolidation or sale of all or substantially all of our assets.
We are unable to predict whether U.S. federal, state or local authorities, or other pertinent bodies, will enact legislation, laws, rules, 21 regulations, handbooks, guidelines or similar provisions that will affect our business or require changes in our practices in the future, and any such changes could have a material adverse effect on our results of operations, financial condition and cash flows.
We are unable to predict whether U.S. federal, state or local authorities, or other pertinent bodies, will enact legislation, laws, rules, regulations, handbooks, guidelines or similar provisions that will affect our business or require changes in our practices in the future, and any such changes could have a material adverse effect on our results of operations, financial condition and cash flows.
Prospective investors are urged to consult with their tax advisors regarding the potential effects of legislative, regulatory or administrative developments on an investment in our company. 34 Your investment has various U.S. federal income tax risks. An investment in us involves complex U.S. federal, state and local income tax considerations that will differ for each investor.
Prospective investors are urged to consult with their tax advisors regarding the potential effects of legislative, regulatory or administrative developments on an investment in our company. Your investment has various U.S. federal income tax risks. An investment in us involves complex U.S. federal, state and local income tax considerations that will differ for each investor.
For instance, if interest 11 rates rise, it is likely that the market price of our common stock will decrease as market rates on interest-bearing securities increase. If we complete an alternative liquidity transaction by pursuing an initial public offering or listing of our shares of common stock in the future, you will be subject to additional risks.
For instance, if interest rates rise, it is likely that the market price of our common stock will decrease as market rates on interest-bearing securities increase. If we complete an alternative liquidity transaction by pursuing an initial public offering or listing of our shares of common stock in the future, you will be subject to additional risks.
B-notes are commercial real estate loans secured by a first mortgage on a single large 19 commercial property or group of related properties and subordinated to a senior interest, referred to as an A-note. As a result, if a borrower defaults, there may not be sufficient funds remaining for B-note owners after payment to the A-note owners.
B-notes are commercial real estate loans secured by a first mortgage on a single large commercial property or group of related properties and subordinated to a senior interest, referred to as an A-note. As a result, if a borrower defaults, there may not be sufficient funds remaining for B-note owners after payment to the A-note owners.
If any of the aforementioned occur, such event could have a material adverse effect on our results of operations, financial condition and cash flows. 15 Changes in interest rates could adversely affect the demand for our target loans, the value of our loans, CMBS and other real-estate debt or equity assets and the availability and yield on our targeted assets.
If any of the aforementioned occur, such event could have a material adverse effect on our results of operations, financial condition and cash flows. Changes in interest rates could adversely affect the demand for our target loans, the value of our loans, CMBS and other real-estate debt or equity assets and the availability and yield on our targeted assets.
We have in the past and may in the future seek to grow our business by acquiring other businesses that we believe will complement or augment our existing businesses. For example, we completed the BDC Merger in October 2022. Acquisition targets may not have a history of synergistic business operations, practices or, if applicable, investment criteria and strategies.
We have in the past and may in the future seek to grow our business by acquiring other businesses that we believe will complement or augment our existing businesses. For example, we completed the BDC Merger in October 2022. Acquisition 20 targets may not have a history of synergistic business operations, practices or, if applicable, investment criteria and strategies.
While we would in general ultimately have an offsetting loss deduction available to us when such interest was determined to be uncollectible, the utility of that deduction could depend on our having taxable income in that later year or thereafter. Complying with REIT requirements may limit our ability to hedge effectively.
While we would in general ultimately 33 have an offsetting loss deduction available to us when such interest was determined to be uncollectible, the utility of that deduction could depend on our having taxable income in that later year or thereafter. Complying with REIT requirements may limit our ability to hedge effectively.
There is risk that our acquisitions may not have the anticipated positive results, including results relating to: correctly assessing the asset quality of 20 the assets being acquired; the total cost and time required to complete the integration successfully; being able to profitably deploy funds acquired in an acquisition; or the overall performance of the combined entity.
There is risk that our acquisitions may not have the anticipated positive results, including results relating to: correctly assessing the asset quality of the assets being acquired; the total cost and time required to complete the integration successfully; being able to profitably deploy funds acquired in an acquisition; or the overall performance of the combined entity.
Because we cannot predict the amount of fees due our Manager, we cannot predict how precisely such fees will impact such payments. 26 If our Manager causes us to enter into a transaction with an affiliate, our Manager may face conflicts of interest that would not exist if such transaction had been negotiated at arm’s-length with an independent party.
Because we cannot predict the amount of fees due our Manager, we cannot predict how precisely such fees will impact such payments. If our Manager causes us to enter into a transaction with an affiliate, our Manager may face conflicts of interest that would not exist if such transaction had been negotiated at arm’s-length with an independent party.
In addition, although the BDC Merger was intended to be treated as a “reorganization” within the meaning 31 of Section 368(a) of the Code for U.S. federal income tax purposes, if the BDC Merger is determined not to have qualified as a reorganization, or if Terra BDC is determined to have failed to qualify as a REIT, we could be subject to additional tax liabilities.
In addition, although the BDC Merger was intended to be treated as a “reorganization” within the meaning of Section 368(a) of the Code for U.S. federal income tax purposes, if the BDC Merger is determined not to have qualified as a reorganization, or if Terra BDC is determined to have failed to qualify as a REIT, we could be subject to additional tax liabilities.
Our governing documents contain no limit on the amount of debt we may incur, and, subject to compliance with financial covenants under our borrowings, including under the term loan, the unsecured notes, the repurchase agreement and the revolving line of credit, we may significantly increase the amount of leverage we utilize at any time without approval of our stockholders.
Our governing documents contain no limit on the amount of debt we may incur, and, subject to compliance with financial covenants under our borrowings, including under the term loan, the unsecured notes, the repurchase agreement and the revolving line of credit, we may significantly increase the amount of leverage we utilize at any time without approval of 27 our stockholders.
To the extent that such mezzanine loans or preferred equity investments do not qualify as real estate assets, the interest income from such mezzanine loans or preferred equity investments would be qualifying income for the 95% gross income test, but not 32 for the 75% gross income test, and such mezzanine loans or preferred equity investments would not be qualifying assets for the 75% asset test and would be subject to the 5% and 10% asset tests, which could jeopardize our ability to qualify as a REIT.
To the extent that such mezzanine loans or preferred equity investments do not qualify as real estate assets, the interest income from such mezzanine loans or preferred equity investments would be qualifying income for the 95% gross income test, but not for the 75% gross income test, and such mezzanine loans or preferred equity investments would not be qualifying assets for the 75% asset test and would be subject to the 5% and 10% asset tests, which could jeopardize our ability to qualify as a REIT.
Such periods of increased turmoil and volatility may adversely impact liquidity in the financial markets and make financings less attractive or, in some cases, unavailable. If our financing counterparties become capital constrained, tighten their lending standards or become insolvent, they may be unable or unwilling to fulfill their commitments to us.
Such periods of increased turmoil and volatility may adversely impact liquidity in the financial markets and make financings less attractive or, in some cases, 35 unavailable. If our financing counterparties become capital constrained, tighten their lending standards or become insolvent, they may be unable or unwilling to fulfill their commitments to us.
For example, by relying on incorrect models and data, especially valuation models, our Manager may be induced to buy certain targeted assets at prices that are too high, to sell certain other assets at prices that are too low or to miss favorable opportunities altogether. Similarly, any hedging based on faulty models and data may prove to be unsuccessful.
For example, by relying on incorrect models and data, especially valuation models, our Manager may be induced to buy certain targeted assets at prices that are too high, to sell certain other 15 assets at prices that are too low or to miss favorable opportunities altogether. Similarly, any hedging based on faulty models and data may prove to be unsuccessful.
Foreclosure can be an expensive and lengthy process, and foreclosing on certain properties where we directly hold the mortgage loan and the borrower’s default under the mortgage loan is continuing could result in actions that could be costly to our operations, in addition to having a substantial negative effect on our anticipated return on the foreclosed mortgage loan.
Foreclosure can be an expensive and lengthy process, and foreclosing on certain properties where we directly hold the mortgage loan and the borrower’s default under the mortgage loan is continuing could result in actions that could be costly to 17 our operations, in addition to having a substantial negative effect on our anticipated return on the foreclosed mortgage loan.
Terra Fund 7 is managed by Terra Fund Advisors, 12 which is 51% owned by the estate of Bruce Batkin, Dan Cooperman and Simon Mildé and 49% owned by Terra Capital Partners. On March 2, 2020, we, Terra Fund 5, Terra JV and our Manager also entered into the Amended and Restated Voting Agreement (the “2020 Voting Agreement”).
Terra Fund 7 is managed by Terra Fund Advisors, which is 51% owned by the estate of Bruce Batkin, Dan Cooperman and Simon Mildé and 49% owned by Terra Capital Partners. On March 2, 2020, we, Terra Fund 5, Terra JV and our Manager also entered into the Amended and Restated Voting Agreement (the “2020 Voting Agreement”).
These changes could have a material adverse effect on our results of operations, financial condition and cash flows. 27 We may pursue and not be able to successfully complete securitization transactions, which could limit potential future sources of financing and could inhibit the growth of our business.
These changes could have a material adverse effect on our results of operations, financial condition and cash flows. We may pursue and not be able to successfully complete securitization transactions, which could limit potential future sources of financing and could inhibit the growth of our business.
Thus, compliance with the REIT requirements may hinder our ability to make, and, in certain cases, maintain ownership of certain attractive investments. These actions could have the effect of reducing our income, which could have a material adverse effect on our results of operations, financial condition and cash flows.
Thus, compliance with the REIT requirements may hinder our 32 ability to make, and, in certain cases, maintain ownership of certain attractive investments. These actions could have the effect of reducing our income, which could have a material adverse effect on our results of operations, financial condition and cash flows.
The impact of U.S. fiscal 35 and political uncertainty is inherently unpredictable and could adversely affect U.S. and global financial markets and economic conditions. These developments could cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable terms.
The impact of U.S. fiscal and political uncertainty is inherently unpredictable and could adversely affect U.S. and global financial markets and economic conditions. These developments could cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable terms.
We may determine not to make or invest in real estate-related loans in any jurisdiction in which we believe we have not complied in all material respects with applicable requirements, which reduce the amount of income we would otherwise receive. Item 1B. Unresolved Staff Comments. None.
We may determine not to make or invest in real estate-related loans in any jurisdiction in 36 which we believe we have not complied in all material respects with applicable requirements, which reduce the amount of income we would otherwise receive. Item 1B. Unresolved Staff Comments. None.
Our compliance with the annual income and quarterly asset requirements also depends upon our ability to successfully manage the composition of our 30 income and assets on an ongoing basis. Our ability to satisfy these asset tests depends upon our analysis of the characterization of our assets for U.S. federal income tax purposes and fair market values of our assets.
Our compliance with the annual income and quarterly asset requirements also depends upon our ability to successfully manage the composition of our income and assets on an ongoing basis. Our ability to satisfy these asset tests depends upon our analysis of the characterization of our assets for U.S. federal income tax purposes and fair market values of our assets.
In addition, mezzanine loans may have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the real property and increasing the risk of loss of principal. Our investments in B-notes are generally subject to losses.
In addition, mezzanine loans may have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the real property and increasing the risk of loss of principal. 19 Our investments in B-notes are generally subject to losses.
Our ability to fund these obligations will depend on the liquidity of our assets and access to capital at the time. The need to fund these obligations could have a material adverse effect on our results of operations, financial condition and cash flows.
Our ability to fund these obligations will depend on the liquidity of our assets and access 29 to capital at the time. The need to fund these obligations could have a material adverse effect on our results of operations, financial condition and cash flows.
We may make strategic non-real estate-related investments that align with our investment objectives and criteria. We cannot predict with certainty the benefits of such acquisitions, which often constitute multi-year endeavors.
We make strategic non-real estate-related investments that align with our investment objectives and criteria. We cannot predict with certainty the benefits of such acquisitions, which often constitute multi-year endeavors.
These no-action positions were issued in accordance with factual situations that may be substantially different from the factual situations we 24 may face, and a number of these no-action letters were issued more than 20 years ago.
These no-action positions were issued in accordance with factual situations that may be substantially different from the factual situations we may face, and a number of these no-action letters were issued more than 20 years ago.
Disruptions and uncertainty in the financial and banking sectors, including due to recent regional bank failures and decreased consumer confidence in the banking system, may hinder our ability to access capital on reasonable terms or at all.
Disruptions and uncertainty in the financial and banking sectors, including due to regional bank failures and decreased consumer confidence in the banking system, may hinder our ability to access capital on reasonable terms or at all.
The value of the “investment securities” held by an issuer must be less than 40% of the value of such issuer’s total assets on an unconsolidated basis (exclusive of U.S. government securities and cash items).
The value of the “investment 24 securities” held by an issuer must be less than 40% of the value of such issuer’s total assets on an unconsolidated basis (exclusive of U.S. government securities and cash items).
Moreover, the limits on our use of hedging techniques could expose us to greater risks associated 33 with changes in interest rates than we would otherwise want to bear.
Moreover, the limits on our use of hedging techniques could expose us to greater risks associated with changes in interest rates than we would otherwise want to bear.
Though our investments are primarily in real estate-related loans and other commercial real estate assets or interests, we may strategically invest in non-real estate-related investments that align with our investment objectives and criteria.
Though our investments are primarily in real estate-related loans and other commercial real estate assets or interests, we strategically invest in non-real estate-related investments that align with our investment objectives and criteria.
Prospective investors should consult with their tax advisors regarding the U.S. federal, state, local and foreign income and other tax consequences applicable to an investment in us. General Risk Factors COVID-19, or the future outbreak of other highly infectious or contagious diseases, could materially and adversely impact or disrupt our investments, business, financial condition and results of operations.
Prospective investors should consult with their tax advisors regarding the U.S. federal, state, local and foreign income and other tax consequences applicable to an investment in us. General Risk Factors The future outbreak of highly infectious or contagious diseases could materially and adversely impact or disrupt our investments, business, financial condition and results of operations.
As of December 31, 2023, Terra Fund 7 and Terra Offshore REIT held approximately 8.7% and 10.1% of our issued and outstanding Class B Common Stock, respectively. Our principal stockholders, which are currently controlled by affiliates of our Manager, own a significant amount of our outstanding shares of common stock.
As of December 31, 2024, Terra Fund 7 and Terra Offshore REIT held approximately 8.7% and 10.1% of our issued and outstanding Class B Common Stock, respectively. Our principal stockholders, which are currently controlled by affiliates of our Manager, own a significant amount of our outstanding shares of common stock.
For the years ended December 31, 2023 and 2022, our Board declared total cash distributions of $0.76 and $0.78 per share, respectively, which were paid monthly. We continue to prudently evaluate our liquidity and review the rate of future distributions in light of our financial condition and the applicable minimum distribution requirements under applicable REIT tax laws and regulations.
For the years ended December 31, 2024 and 2023, our Board declared total cash distributions of $0.76 and $0.76 per share, respectively, which were paid monthly. We continue to prudently evaluate our liquidity and review the rate of future distributions in light of our financial condition and the applicable minimum distribution requirements under applicable REIT tax laws and regulations.
These new reporting requirements will become effective for us on June 15, 2024. If we fail to comply with these new requirements, we could incur regulatory fines and our reputation, business, financial condition and results of operations could be harmed. Returns on our real estate-related loans may be limited by regulations.
These new reporting requirements became effective for us on June 15, 2024. If we fail to comply with these requirements, we could incur regulatory fines and our reputation, business, financial condition and results of operations could be harmed. Returns on our real estate-related loans may be limited by regulations.
Inflation can negatively impact the profitability of real estate assets with long-term leases that do not provide for short-term rent increases or that provide for rent increases with a lower annual percentage increase than inflation. Continued inflation, particularly at elevated levels, may have an adverse impact on the valuation of our investments.
Inflation can negatively impact the profitability of real estate assets with long-term leases that do not provide for short-term rent increases or that provide for rent increases with a lower annual percentage increase than inflation. Higher levels of inflation may have an adverse impact on the valuation of our investments.
As a result of a significant portion of our investments being in preferred equity, mezzanine loans and first mortgages secured by office, multifamily and hospitality properties located in the United States, any future local, regional, national or international outbreak of a contagious disease, including COVID-19 and its variants or any other similar diseases, will impact our investments and operating results to the extent that it reduces occupancy, increases the cost of operation or results in limited hours or necessitates the closure of such properties.
As a result of a significant portion of our investments being in preferred equity, mezzanine loans and first mortgages secured by office, multifamily and hospitality properties located in the United States, any future local, regional, national or international outbreak of a contagious disease will impact our investments and operating results to the extent that it reduces occupancy, increases the cost of operation or results in limited hours or necessitates the closure of such properties.
If we attempt to qualify for hedge accounting treatment for any derivative instruments, but we fail to so qualify for a number of reasons, including if we use instruments that do not meet the definition of a derivative (such as short sales), if we fail to satisfy hedge documentation and hedge effectiveness assessment requirements, or if our instruments are not highly effective, we may suffer because losses on any derivatives we hold which may not be offset by a change in the fair value of the related hedged transaction. 29 Risks Related to Our Organization and Structure Our rights to take action against our directors and officers are limited.
If we attempt to qualify for hedge accounting treatment for any derivative instruments, but we fail to so qualify for a number of reasons, including if we use instruments that do not meet the definition of a derivative (such as short sales), if we fail to satisfy hedge documentation and hedge effectiveness assessment requirements, or if our instruments are not highly effective, we may suffer because losses on any derivatives we hold which may not be offset by a change in the fair value of the related hedged transaction.
After we announce the expected characterization of distributions we have paid, the actual characterization (and, therefore, the rate at which holders of our common stock are taxed on the distributions they have received) could vary from our expectations, including due to errors, changes made in the course of preparing our corporate tax returns, or changes made in response to an audit by the Internal Revenue Service (the “IRS”), with the result that holders of our common stock could incur greater income tax liabilities than expected.
After we announce the expected characterization of distributions we have paid, the actual characterization (and, therefore, the rate at which holders of our common stock are taxed on the distributions they have received) could vary from our expectations, including due to errors, changes made in the course of preparing our corporate tax returns, or changes made in response to an audit by the Internal Revenue Service (the “IRS”), with the result that holders of our common stock could incur greater income tax liabilities than expected. 13 Investing in our common stock may involve a high degree of risk and may result in loss of capital invested in us.
In addition, our contracts may be unenforceable, and a court could appoint a receiver to take control of us and liquidate our business, all of which could have a material adverse effect on our results of operations, financial condition and cash flows.
In addition, our contracts may be unenforceable, and a court could appoint a receiver to take control of us and liquidate our business, all of which could have a material adverse effect on our results of operations, financial condition and cash flows. Changes in U.S. tax laws could adversely impact us.
Risks Related to Our Qualification as a REIT Our failure to qualify or remain qualified as a REIT would subject us to U.S. federal income tax and applicable state and local taxes, which could have a material adverse effect on our results of operations, financial condition and cash flows.
These ownership limits could have the effect of discouraging a takeover or other transaction. 30 Risks Related to Our Qualification as a REIT Our failure to qualify or remain qualified as a REIT would subject us to U.S. federal income tax and applicable state and local taxes, which could have a material adverse effect on our results of operations, financial condition and cash flows.
We may be exposed to environmental liabilities with respect to properties to which we take title, which may in turn decrease the value of the underlying properties. In the course of our business, we may take title to real estate, and, as a result, we could be subject to environmental liabilities with respect to these properties.
In the course of our business, we may take title to real estate, and, as a result, we could be subject to environmental liabilities with respect to these properties.
We are not required to observe specific diversification criteria. Therefore, our portfolio of assets may, at times, be concentrated in certain property types that are subject to higher risk of foreclosure, or secured by properties concentrated in a limited number of geographic locations.
Therefore, our portfolio of assets may, at times, be concentrated in certain property types that are subject to higher risk of foreclosure, or secured by properties concentrated in a limited number of geographic locations.
Schwarzschild and our Manager’s investment professionals. The loss of any of such individuals could have a material adverse effect on our results of operations, financial condition and cash flows We face certain conflicts of interest with respect to our operations and our relationship with our Manager and its affiliates.
The loss of any of such individuals could have a material adverse effect on our results of operations, financial condition and cash flows We face certain conflicts of interest with respect to our operations and our relationship with our Manager and its affiliates. We are subject to conflicts of interest arising out of our relationship with our Manager.
Further, our loans are concentrated in office, multifamily and industrial property types representing approximately 28.4%, 16.8% and 13.3%, respectively, of our net loan portfolio as of December 31, 2023. As a result, a downturn in any particular industry in which we are heavily invested may significantly impact the aggregate returns we realize.
Further, our loans are concentrated in office, multifamily and infill land property types representing approximately 38.9%, 20.4% and 18.8%, respectively, of our net loan portfolio as of December 31, 2024. As a result, a downturn in any particular industry in which we are heavily invested may significantly impact the aggregate returns we realize.
Any failure to make payments when due or upon acceleration could result in the foreclosure upon our assets by our lenders. 28 Our inability to access funding could have a material adverse effect on our results of operations, financial condition and cash flows.
Any failure to make payments when due or upon acceleration could result in the foreclosure upon our assets by our lenders. Our inability to access funding could have a material adverse effect on our results of operations, financial condition and cash flows. We may rely on short-term financing and thus are especially exposed to changes in the availability of financing.
Our loans are concentrated in California, New York, New Jersey, Georgia and Utah representing approximately 23.4%, 17.8%, 16.2%, 14.6% and 9.7%, respectively, of our net loan portfolio as of December 31, 2023. Additionally, we own eight industrial buildings in Texas.
Our loans are concentrated in California, New York, Arizona, Georgia and Utah representing approximately 17.7%, 25.3%, 11.2%, 10.2% and 9.4%, respectively, of our net loan portfolio as of December 31, 2024. Additionally, we own eight industrial buildings in Texas.
We also may be unable to successfully integrate the diverse company cultures, retain key personnel, apply our expertise to new competencies, or react to adverse changes in industry conditions. Acquisitions may also result in business disruptions that could cause customers to move their business to our competitors.
We also may be unable to successfully integrate the diverse company cultures, retain key personnel, apply our expertise to new competencies, or react to adverse changes in industry conditions. Acquisitions may also result in business disruptions that could impact our relationships with key counterparties, borrowers, and lending partners.
We may engage in transactions with a TRS, in which case we intend to conduct our affairs so that we will not be subject to the 100% excise tax with respect to transactions with such TRS and so that we will comply with all other requirements applicable to our ownership of TRSs.
To the extent we form a TRS, we will scrutinize all of our transactions with such TRS to ensure that they are entered into on arm’s length terms to avoid incurring the 100% excise tax. 34 We may engage in transactions with a TRS, in which case we intend to conduct our affairs so that we will not be subject to the 100% excise tax with respect to transactions with such TRS and so that we will comply with all other requirements applicable to our ownership of TRSs.
We may rely on short-term financing and thus are especially exposed to changes in the availability of financing. We currently have outstanding indebtedness and expect to use additional borrowings, such as first mortgage financings, credit facilities, senior notes, term loans and repurchase agreements, and other financings, as part of our operating strategy.
We currently have outstanding indebtedness and expect to use additional borrowings, such as first mortgage financings, credit facilities, senior notes, term loans and repurchase agreements, and other financings, as part of our operating strategy.
Covenants in our debt agreements may restrict our operating activities and adversely affect our financial condition, operating results and cash flows. Our debt agreements contain various financial and operating covenants, including, among other things, certain coverage ratios and limitations on our ability to incur secured and unsecured debt.
Our debt agreements contain various financial and operating covenants, including, among other things, certain coverage ratios and limitations on our ability to incur secured and unsecured debt.
To the extent that an owner of an underlying property becomes liable for removal costs, the ability of the owner to make debt payments may be reduced, which in turn may adversely affect the value of the relevant mortgage-related assets held by us. 23 Insurance on the properties underlying our loans may not adequately cover all losses and uninsured losses could materially and adversely affect us.
To the extent that an owner of an underlying property becomes liable for removal costs, the ability of the owner to make debt payments may be reduced, which in turn may adversely affect the value of the relevant mortgage-related assets held by us.
Also, as a result of this competition, desirable investments in our targeted assets may be limited in the future and we may not be able to take advantage of attractive investment opportunities from time to time, as we can provide no assurance that we will be able to identify and make investments that are consistent with our investment objectives. 16 Our loans are dependent on the ability of the commercial property owner to generate net income from operating the property, which may result in the inability of such property owner to repay a loan, as well as the risk of foreclosure.
Also, as a result of this competition, desirable investments in our targeted assets 16 may be limited in the future and we may not be able to take advantage of attractive investment opportunities from time to time, as we can provide no assurance that we will be able to identify and make investments that are consistent with our investment objectives.
Even if investment opportunities are available, there can be no assurance that the due diligence processes of our Manager will uncover all relevant facts or that any particular investment will be successful. 14 From time to time, before appropriate real estate-related investments can be identified, our Manager may choose to have us invest in interest-bearing, short-term investments, including money market accounts and/or funds, among others, that align with our investment objectives and criteria and are consistent with our intention to maintain our qualification as a REIT.
From time to time, before appropriate real estate-related investments can be identified, our Manager may choose to have us invest in interest-bearing, short-term investments, including money market accounts and/or funds, among others, that align with our investment objectives and criteria and are consistent with our intention to maintain our qualification as a REIT.
We rely on our officers and the officers of our Manager, including Messrs. Uppal, Pinkus and Cooperman, Ms. Schwarzschild and the other investment professionals of our Manager to identify suitable investments. Certain other companies managed by our Manager or its affiliates also rely on many of these same professionals. These funds have similar investment objectives as we do.
Schwarzschild and the other investment professionals of our Manager to identify suitable investments. Certain other companies managed by our Manager or its affiliates also rely on many of these same professionals. These funds have similar investment objectives as we do. Many investment opportunities that are suitable for us may also be suitable for other affiliates advised by our Manager.
Our charter limits the liability of our present and former directors and officers to us for money damages to the maximum extent permitted under Maryland law.
Risks Related to Our Organization and Structure Our rights to take action against our directors and officers are limited. Our charter limits the liability of our present and former directors and officers to us for money damages to the maximum extent permitted under Maryland law.
To the extent we take advantage of some or all of the reduced reporting requirements applicable to emerging growth companies or smaller reporting companies, an investment in our company may be less attractive to investors.
To the extent we take advantage of some or all of the reduced reporting requirements applicable to emerging growth companies or smaller reporting companies, an investment in our company may be less attractive to investors. 23 We may be exposed to environmental liabilities with respect to properties to which we take title, which may in turn decrease the value of the underlying properties.
Risks Related to Our Management and Our Relationship With Our Manager We rely entirely on the management team and employees of our Manager for our day-to-day operations. We have no employees and do not intend to have employees in the future.
We have no employees and do not intend to have employees in the future. We rely entirely on the management team and employees of our Manager for our day-to-day operations, and our Manager has significant discretion as to the implementation of our operating policies and strategies.
Generally, our borrowers will be responsible for the costs of insurance coverage for the properties we lease, including for casualty, liability, fire, floods, earthquakes, extended coverage and rental or business interruption loss.
Insurance on the properties underlying our loans may not adequately cover all losses and uninsured losses could materially and adversely affect us. Generally, our borrowers will be responsible for the costs of insurance coverage for the properties we lease, including for casualty, liability, fire, floods, earthquakes, extended coverage and rental or business interruption loss.
Such conflicts may not be resolved in our favor and our investors will not have the opportunity to evaluate the manner in which these conflicts of interest are resolved before or after making their investment. 25 Our officers and the officers of our Manager are also officers of other affiliates of our Manager; therefore, our officers and the officers of our Manager will face competing demands based on the allocation of investment opportunities between us and our affiliates.
Such conflicts may not be resolved in our favor and our investors will not have the opportunity to evaluate the manner in which these conflicts of interest are resolved before or after making their investment.
These conditions, or others we cannot predict, may adversely affect our results of operations, our financial position, the value of our assets and our cash flows.
These conditions, or others we cannot predict, may adversely affect our results of operations, our financial position, the value of our assets and our cash flows. Periods of higher inflation in the U.S. may have an adverse impact on the valuation of our investments.
The repurchased loans typically can only be financed at a steep discount to their repurchase price, if at all. They are also typically sold at a significant discount to the unpaid principal balance (“UPB”). Significant repurchase activity could have a material adverse effect on our results of operations, financial condition and cash flows.
The repurchased loans typically can only be financed at a steep discount to their repurchase price, if at all. They are also typically sold at a significant discount to the unpaid principal balance (“UPB”).
We are subject to conflicts of interest arising out of our relationship with our Manager. We may enter into additional transactions with our Manager, its affiliates, or entities managed by our Manager or its affiliates.
We may enter into additional transactions with our Manager, its affiliates, or entities managed by our Manager or its affiliates.
Our originations or acquisitions may be highly speculative and aggressive, and therefore an investment in our shares of common stock may not be suitable for someone with lower risk tolerance. 13 Risks Related to Our Business Changes in national, regional or local economic, demographic or real estate market conditions may adversely affect our results of operations, our financial position, the value of our assets and our cash flows.
Risks Related to Our Business Changes in national, regional or local economic, demographic or real estate market conditions may adversely affect our results of operations, our financial position, the value of our assets and our cash flows.
The CECL accounting standard requires us to make certain estimates and judgements, which may be difficult to determine and may have a material adverse effect on our financial condition and results of operations.
Changes in accounting rules, interpretations or our assumptions could also undermine our ability to prepare timely and accurate financial statements, which could result in a lack of investor confidence in our financial information. 22 The CECL accounting standard requires us to make certain estimates and judgements, which may be difficult to determine and may have a material adverse effect on our financial condition and results of operations.
Risks Related to Regulation The increasing number of proposed U.S. federal, state and local laws may affect certain mortgage-related assets in which we invest and could materially increase our cost of doing business.
If we fail to adapt to or comply with regulatory requirements or investor or stakeholder ESG standards, our reputation, ability to do business with certain partners, access to capital, operations and earnings could be adversely affected. 21 Risks Related to Regulation The increasing number of proposed U.S. federal, state and local laws may affect certain mortgage-related assets in which we invest and could materially increase our cost of doing business.
Under the CECL model, if we are required to materially increase our level of allowance for credit losses for any reason, such increase could adversely affect our business, financial condition and results of operations. 22 We are an “emerging growth company,” and a “smaller reporting company” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies or smaller reporting companies will make an investment in us less attractive to investors.
We are an “emerging growth company,” and a “smaller reporting company” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies or smaller reporting companies will make an investment in us less attractive to investors.
Currently, there are no universal standards for such scores or ratings, but ESG evaluations are increasingly being integrated into investment analysis. Views about ESG matters are diverse and rapidly changing, and companies are facing increasing scrutiny from regulators, investors, and other stakeholders related to their ESG practices and disclosure.
Views about ESG matters are diverse and rapidly changing, and companies are facing increasing scrutiny from regulators, investors, and other stakeholders related to their ESG practices and disclosure.
If property securing or underlying loans become real estate owned as a result of foreclosure, we bear the risk of not being able to sell the property and recovering our investment and of being exposed to the risks attendant to the ownership of real property. 17 Our loan portfolio may at times be concentrated in certain property types or secured by properties concentrated in a limited number of geographic areas, which increases our exposure to economic downturn with respect to those property types or geographic locations.
If property securing or underlying loans become real estate owned as a result of foreclosure, we bear the risk of not being able to sell the property and recovering our investment and of being exposed to the risks attendant to the ownership of real property.
Investing in our common stock may involve a high degree of risk and may result in loss of capital invested in us. Our investment strategy and our originations may result in a high amount of risk when compared to alternative strategies and volatility or loss of principal.
Our investment strategy and our originations may result in a high amount of risk when compared to alternative strategies and volatility or loss of principal. Our originations or acquisitions may be highly speculative and aggressive, and therefore an investment in our shares of common stock may not be suitable for someone with lower risk tolerance.
These complexities could lead to a delay in the preparation of financial information and the delivery of this information to our investors. Changes in accounting rules, interpretations or our assumptions could also undermine our ability to prepare timely and accurate financial statements, which could result in a lack of investor confidence in our financial information.
These complexities could lead to a delay in the preparation of financial information and the delivery of this information to our investors.
This differs significantly from the “incurred loss” model required under current U.S. GAAP, which delays recognition until it is probable a loss has been incurred.
This differs significantly from the “incurred loss” model required under current U.S. GAAP, which delays recognition until it is probable a loss has been incurred. Under the CECL model, if we are required to materially increase our level of allowance for credit losses for any reason, such increase could adversely affect our business, financial condition and results of operations.
We rely entirely on the management team and employees of our Manager for our day-to-day operations, and our Manager has significant discretion as to the implementation of our operating policies and strategies. Our success depends substantially on the efforts and abilities of the management team of our Manager, including Messrs. Uppal, Pinkus and Cooperman, Ms.
Our success depends substantially on the efforts and abilities of the management team of our Manager, including Messrs. Uppal, Pinkus and Cooperman, Ms. Schwarzschild and our Manager’s investment professionals.
While inflation in the U.S. appears to be easing gradually, there can be no assurance that further deterioration in financial market and economic conditions will not occur. Further, heightened competition for workers, the relocation of foreign production and manufacturing businesses to the U.S., and rising energy and commodity prices have contributed to increasing wages and other economic inputs.
Many factors, including heightened competition for workers, supply chain issues, the relocation of foreign production and manufacturing businesses to the U.S., increased tariffs and rising energy and commodity prices could lead to increasing wages and other economic inputs and result in higher than normal inflation.
We are subject to environmental, social and governance (“ESG”) risks that could adversely affect our reputation, business, operations and earnings. Certain organizations that provide corporate risk information to investors and shareholders have developed scores and ratings to evaluate companies based upon various ESG metrics.
Certain organizations that provide corporate risk information to investors and shareholders have developed scores and ratings to evaluate companies based upon various ESG metrics. Currently, there are no universal standards for such scores or ratings, but ESG evaluations are increasingly being integrated into investment analysis.
Removed
Inflation in the U.S. has accelerated in recent years and is currently expected to continue at an elevated level in the near-to medium-term, which may have an adverse impact on the valuation of our investments. Inflation in the U.S. has accelerated in recent years and is currently expected to continue at an elevated level in the near-to medium-term.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeOur cybersecurity measures are designed to provide a structured approach to managing cybersecurity risks for an effective, efficient, an orderly response to any Incident. 36 As a critical component of our overall risk management process, we have adopted a framework that shares existing reporting channels and governance processes to identify, assess, manage and report cybersecurity threats on an ongoing basis.
Biggest changeOur cybersecurity measures are designed to provide a structured approach to managing cybersecurity risks for an effective, efficient, an orderly response to any Incident. As a critical component of our overall risk management process, we have adopted a framework that shares existing reporting channels and governance processes to identify, assess, manage and report cybersecurity threats on an ongoing basis.
Removed
We also assess third party risks when determining the selection and oversight of applicable third-party service providers.
Added
Our Manager’s Chief Compliance Officer has 17 years of experience in regulatory compliance, risk management, and cybersecurity governance, with expertise in implementing and overseeing security policies in financial and REIT sectors. [The CSC is composed of professionals with backgrounds in information security, IT risk management, and data protection, ensuring a well-rounded approach to cybersecurity oversight.
Added
We perform due diligence in order to identify and evaluate cyber risks of third party service providers. Third party service providers processing sensitive data are contractually required to meet applicable legal and regulatory obligations to protect sensitive data against cybersecurity threats and unauthorized access to the sensitive data.
Added
Third party service providers deemed critical undergo ongoing monitoring to ensure they continue to meet their security obligations and other potential cybersecurity threats.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeOcean Avenue Santa Monica Realty LLC, Superior Court of California, Los Angeles County, Case No. 20STCV34217). Additionally, from time to time, we and individuals employed by us and our Manager may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our borrowers and investees.
Biggest changeItem 3. Legal Proceedings. From time to time, we and individuals employed by us and our Manager may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our borrowers and investees.
While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that such proceedings will have a material effect upon our financial condition or results of operations.
While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that such proceedings will have a material effect upon our financial condition or results of operations. 37 Item 4. Mine Safety Disclosures. Not applicable. PART II
Removed
Item 3. Legal Proceedings. We previously owned a multi-tenant office building that is subject to a ground lease. The ground lease provides for a new base rent every 5 years based on the greater of the annual base rent for the prior lease year or 9% of the fair market value of the land.
Removed
The next rent reset on the ground lease is scheduled for November 1, 2025. We were litigating with the landlord with respect to the appropriate method for determining the fair value of the land for purposes of setting the ground rent.
Removed
On October 19, 2023, we conveyed our interest in the property to a subsidiary of Centennial Bank by deed-in-lieu of foreclosure. Accordingly, we are no longer a party to the ground lease and have taken the necessary steps to terminate the associated litigation (styled Terra Ocean Ave., LLC v.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information There is no established trading market for our Class B Common Stock. As of March 15, 2024, we had 24,336,033 shares of Class B Common Stock outstanding held by 5,379 investors.
Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information There is no established trading market for our Class B Common Stock. As of March 13, 2025, we had 24,338,366 shares of Class B Common Stock outstanding held by 5,401 investors.
Issuer Purchases of Equity Securities There were no issuer purchases of equity securities during the year ended December 31, 2023. Item 6. [Reserved].
Issuer Purchases of Equity Securities There were no issuer purchases of equity securities during the year ended December 31, 2024. Item 6. [Reserved].
As of March 15, 2024, there were no outstanding options, warrants to purchase our common stock or securities convertible into our shares of common stock. Sales of Unregistered Equity Securities There were no sales of unregistered equity securities during the year ended December 31, 2023.
As of March 13, 2025, there were no outstanding options, warrants to purchase our common stock or securities convertible into our shares of common stock. Sales of Unregistered Equity Securities There were no sales of unregistered equity securities during the year ended December 31, 2024.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeNet Loan Portfolio Information The tables below set forth the types of loans in our loan portfolio, as well as the property type and geographic location of the properties securing these loans, on a net loan basis, which represents our proportionate share of the loans, based on our economic ownership of these loans as of: December 31, 2023 December 31, 2022 Loan Structure Principal Balance Carrying Value % of Total Principal Balance Carrying Value % of Total First mortgages $ 365,465,500 $ 368,918,890 80.9 % $ 456,408,889 $ 461,299,182 75.1 % Preferred equity investments 126,550,969 127,105,312 27.8 % 121,231,434 122,132,177 19.9 % Mezzanine loans 17,444,357 17,424,081 3.8 % 26,767,345 26,770,521 4.4 % Credit facility — — — % 28,802,833 29,080,183 4.7 % Allowance for credit losses — (56,976,025) (12.5) % — (25,471,890) (4.1) % Total $ 509,460,826 $ 456,472,258 100.0 % $ 633,210,501 $ 613,810,173 100.0 % December 31, 2023 December 31, 2022 Property Type Principal Balance Carrying Value % of Total Principal Balance Carrying Value % of Total Office $ 144,812,619 $ 144,853,769 31.7 % $ 171,611,750 $ 172,042,063 27.9 % Multifamily 85,660,082 86,210,868 18.9 % 104,589,464 105,570,432 17.2 % Industrial 67,579,869 67,612,621 14.8 % 147,796,164 148,891,742 24.3 % Mixed-use 63,096,365 63,531,806 13.9 % 64,880,450 65,838,965 10.7 % Infill land 52,839,509 54,172,663 11.9 % 48,860,291 49,565,437 8.1 % Hotel - full/select service 43,222,382 43,801,303 9.6 % 43,222,382 43,758,804 7.1 % Student housing 31,000,000 31,821,832 7.0 % 31,000,000 31,774,261 5.2 % Infrastructure 21,250,000 21,443,421 4.7 % 21,250,000 21,840,359 3.6 % Allowance for credit losses — (56,976,025) (12.5) % — (25,471,890) (4.1) % Total $ 509,460,826 $ 456,472,258 100.0 % $ 633,210,501 $ 613,810,173 100.0 % 41 December 31, 2023 December 31, 2022 Geographic Location Principal Balance Carrying Value % of Total Principal Balance Carrying Value % of Total United States California $ 119,093,246 $ 120,296,944 26.4 % $ 151,668,387 $ 153,158,967 24.9 % New York 90,483,672 90,483,672 19.8 % 91,845,479 91,877,084 14.9 % New Jersey 82,419,378 83,489,049 18.3 % 62,228,622 62,958,482 10.3 % Georgia 74,335,828 74,602,328 16.3 % 72,401,718 73,101,964 11.9 % Utah 49,250,000 50,329,949 11.0 % 49,250,000 50,698,251 8.3 % Washington 34,052,223 34,020,449 7.5 % 56,671,267 57,027,639 9.3 % Arizona 31,000,000 31,296,235 6.9 % 31,000,000 31,276,468 5.1 % North Carolina 21,826,479 21,929,657 4.8 % 43,520,028 44,041,162 7.2 % Massachusetts 7,000,000 7,000,000 1.5 % 7,000,000 7,000,000 1.1 % Texas — — — % 67,625,000 68,142,046 11.1 % Allowance for credit losses — (56,976,025) (12.5) % — (25,471,890) (4.1) % Total $ 509,460,826 $ 456,472,258 100.0 % $ 633,210,501 $ 613,810,173 100.0 % Factors Impacting Operating Results Our results of operations are affected by a number of factors and primarily depend on, among other things, the level of the interest income from targeted assets, the market value of our assets and the supply of, and demand for, real estate-related loans, including mezzanine loans, first mortgage loans, subordinated mortgage loans, preferred equity investments and other loans related to high quality commercial real estate in the United States, and the financing and other costs associated with our business.
Biggest changeAmounts are net of obligations under participation agreements and secured financing agreements. 40 Net Loan Portfolio Information The tables below set forth the types of loans in our loan portfolio, as well as the property type and geographic location of the properties securing these loans, on a net loan basis, which represents our proportionate share of the loans, based on our economic ownership of these loans as of: December 31, 2024 December 31, 2023 Loan Structure Principal Balance Carrying Value % of Total Principal Balance Carrying Value % of Total First mortgages $ 207,985,740 $ 209,496,879 81.6 % $ 365,465,500 $ 354,004,530 77.5 % Preferred equity investments 76,224,551 31,937,149 12.5 % 126,550,969 85,222,201 18.7 % Mezzanine loans 15,044,732 15,038,010 5.9 % 17,444,357 17,245,527 3.8 % Total $ 299,255,023 $ 256,472,038 100.0 % $ 509,460,826 $ 456,472,258 100.0 % December 31, 2024 December 31, 2023 Property Type Principal Balance Carrying Value % of Total Principal Balance Carrying Value % of Total Office $ 116,539,650 $ 72,991,791 28.4 % $ 144,812,619 $ 106,462,535 23.3 % Infill land 56,307,815 57,050,952 22.2 % 52,839,509 54,024,545 11.8 % Multifamily 60,969,051 60,662,514 23.7 % 85,660,082 84,417,184 18.5 % Mixed-use 30,438,507 29,890,548 11.7 % 63,096,365 47,362,653 10.4 % Student housing 28,000,000 28,910,000 11.3 % 31,000,000 31,758,493 7.0 % Industrial 7,000,000 6,966,233 2.7 % 67,579,869 67,543,553 14.8 % Hotel - full/select service — — — % 43,222,382 43,460,206 9.5 % Infrastructure — — — % 21,250,000 21,443,089 4.7 % Total $ 299,255,023 $ 256,472,038 100.0 % $ 509,460,826 $ 456,472,258 100.0 % December 31, 2024 December 31, 2023 Geographic Location Principal Balance Carrying Value % of Total Principal Balance Carrying Value % of Total United States California $ 53,006,023 $ 53,096,008 20.6 % $ 119,093,246 $ 117,955,109 25.9 % Arizona 33,407,815 33,005,952 12.9 % 31,000,000 31,151,623 6.8 % New York 75,657,255 31,536,808 12.3 % 90,483,672 49,041,668 10.7 % Georgia 30,562,858 30,586,450 11.9 % 74,335,828 62,564,770 13.8 % Utah 28,000,000 28,910,000 11.3 % 49,250,000 50,293,850 11.0 % Washington 26,894,593 26,907,157 10.5 % 34,052,223 33,908,737 7.4 % New Jersey 22,900,000 24,045,000 9.4 % 82,419,378 83,485,543 18.3 % North Carolina 21,826,479 21,418,430 8.4 % 21,826,479 21,140,026 4.6 % Massachusetts 7,000,000 6,966,233 2.7 % 7,000,000 6,930,932 1.5 % Total $ 299,255,023 $ 256,472,038 100.0 % $ 509,460,826 $ 456,472,258 100.0 % Factors Impacting Operating Results Our results of operations are affected by a number of factors and primarily depend on, among other things, the level of the interest income from targeted assets, the market value of our assets and the supply of, and demand for, real estate-related loans, including mezzanine loans, first mortgage loans, subordinated mortgage loans, preferred equity investments and other loans related to high quality commercial real estate in the United States, and the financing and other costs associated with our business.
Cash Flows Used in Investing Activities For the year ended December 31, 2023, cash flows used in investing activities were $10.0 million, primarily related to origination and purchase of loans of $78.9 million, purchase of real estate properties of $52.5 million, purchase of held-to-maturity securities of $20.0 million, purchase of marketable securities of $7.9 million, purchase of equity interests in unconsolidated investments of $7.3 million, and funding for promissory note receivable of $3.8 million, partially offset by proceeds from repayments of loans of $126.1 million, proceeds from redemption of held-to-maturity securities of $20.0 million, return of capital on unconsolidated investments of $11.3 million, and proceeds from sale of marketable equity securities of $2.4 million.
For the year ended December 31, 2023, cash flows used in investing activities were $10.0 million, primarily related to origination and purchase of loans of $78.9 million, purchase of real estate properties of $52.5 million, purchase of held-to-maturity securities of $20.0 million, purchase of marketable securities of $7.9 million, purchase of equity interests in unconsolidated investments of $7.3 million, and funding for promissory note receivable of $3.8 million, partially offset by proceeds from repayments of loans of $126.1 million, proceeds from redemption of held-to-maturity securities of $20.0 million, return of capital on unconsolidated investments of $11.3 million, and proceeds from sale of marketable equity securities of $2.4 million.
With respect to our business operations, increases in interest rates, in general, may over time cause: (i) the interest expense associated with variable rate borrowings to increase; (ii) the value of real estate and real estate-related loans to decline; (iii) coupons on variable rate loans to reset, although on a delayed basis, to higher interest rates; (iv) to the extent applicable under the terms of our investments, prepayments on real estate-related loans to slow; 42 and (v) to the extent we enter into interest rate swap agreements as part of our hedging strategy, the value of these agreements to increase.
With respect to our business operations, increases in interest rates, in general, may over time cause: (i) the interest expense associated with variable rate borrowings to increase; (ii) the value of real estate and real estate-related loans to decline; (iii) coupons on variable rate loans to reset, although on a delayed basis, to higher interest rates; (iv) to the extent applicable under the terms of our investments, prepayments on real estate-related loans to slow; and (v) to the extent we enter into interest rate swap agreements as part of our hedging strategy, the value of these agreements to increase.
Upon any termination of the Management Agreement by us as discussed above, we will pay our Manager, on the date on which such termination is effective, a termination fee in an amount equal to three times the average annual fees of all types and expense reimbursements received by or owed to our Manager pursuant to the Management Agreement during the 24-month 52 period immediately preceding such termination (the “Termination Fee”), calculated as of the end of the most recently completed monthly prior to the date of such termination.
Upon any termination of the Management Agreement by us as discussed above, we will pay our Manager, on the date on which such termination is effective, a termination fee in an amount equal to three times the average annual fees of all types and expense reimbursements received by or owed to our Manager pursuant to the Management Agreement during the 24-month period immediately preceding such termination (the “Termination Fee”), calculated as of the end of the most recently completed monthly prior to the date of such termination.
Real Estate Risk The market values of commercial and residential mortgage assets are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; retroactive changes to building or similar codes; pandemics; natural disasters; and other acts of god.
Real Estate Risk The market values of commercial and residential mortgage assets are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific 42 industry segments; construction quality, age and design; demographic factors; retroactive changes to building or similar codes; pandemics; natural disasters; and other acts of god.
Cash Flows (Used in) Provided by Financing Activities For the year ended December 31, 2023, cash flows used in financing activities were $15.5 million, primarily related to principal repayments on secured financing of $205.3 million, distributions paid of $18.6 million and payment for financing costs of $3.3 million, partially offset by proceeds from secured financing of $211.0 million.
For the year ended December 31, 2023, cash flows used in financing activities were $15.5 million, primarily related to principal repayments on secured financing of $205.3 million, distributions paid of $18.6 million and payment for financing costs of $3.3 million, partially offset by proceeds from secured financing of $211.0 million.
We use significant cash to purchase our target assets, repay principal and interest on our borrowings, make distributions to our investors and fund our operations. Our primary sources of cash generally consist of payments of principal and interest we receive on our portfolio of investments, cash generated from our operating results and unused borrowing capacity under our financing sources.
We use significant cash to purchase our target assets, repay principal and interest on our borrowings, make distributions to our investors and fund our operations. Our primary sources of cash generally consist of payments of principal 47 and interest we receive on our portfolio of investments, cash generated from our operating results and unused borrowing capacity under our financing sources.
Critical accounting policies are those that require the application of management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may 50 change in subsequent periods.
Critical accounting policies are those that require the application of management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods.
If we take ownership of a 51 property as a result of a workout or foreclosure of a loan, we will pay a disposition fee upon the sale of such property equal to 1.0% of the sales price. Transaction Breakup Fee .
If we take ownership of a property as a result of a workout or foreclosure of a loan, we will pay a disposition fee upon the sale of such property equal to 1.0% of the sales price. Transaction Breakup Fee .
At the beginning of 2016, we completed the merger of these private partnerships into a single entity as part of our plan to reorganize our business as a REIT for federal income tax purposes.
At the beginning of 2016, we completed the 38 merger of these private partnerships into a single entity as part of our plan to reorganize our business as a REIT for federal income tax purposes.
The CECL model requires the consideration of possible credit losses over the life of an instrument as opposed to estimating credit losses upon the occurrence of an actual loss event under the previous “incurred loss” methodology.
The CECL model requires the consideration of 49 possible credit losses over the life of an instrument as opposed to estimating credit losses upon the occurrence of an actual loss event under the previous “incurred loss” methodology.
There was no such gain for the year ended December 31, 2023. Loss on Disposal of Real Estate In October 2023, we conveyed our interest in an office building to the lender by deed in lieu of foreclosure and recognized a net loss on disposal of real estate of $4.2 million for the year ended December 31, 2023.
Loss on Disposal of Real Estate In October 2023, we conveyed our interest in an office building to the lender by deed in lieu of foreclosure and recognized a net loss on disposal of real estate of $4.2 million for the year ended December 31, 2023. There was no such loss for the year ended December 31, 2024.
We have chosen to incorporate a weighted average macroeconomic forecast that encompasses baseline, optimistic and pessimistic scenarios, into our allowance for credit losses on performing loans estimate during the reasonable and supportable forecast period which is currently eight quarters.
We have chosen to incorporate a weighted average macroeconomic forecast that encompasses baseline, upside and downside scenarios, into our allowance for credit losses on performing loans estimate during the reasonable and supportable forecast period which is currently eight quarters.
Impairment Charge For the year ended December 31, 2023, we recognized an impairment charge of $11.8 million on the multi-tenant office building located in California in order to reduce the carrying value of the building to its estimated fair value.
Impairment Charge For the year ended December 31, 2023, we recognized an impairment charge of $11.8 million on the multi-tenant office building located in California in order to reduce the carrying value of the building to its estimated fair value. There was no impairment charge for the year ended December 31, 2024.
These distribution requirements limit our ability to retain earnings and thereby replenish or increase capital for our business. We expect to fund approximately $22.4 million of the unfunded commitments to borrowers during the next twelve months.
These distribution requirements limit our ability to retain earnings and thereby replenish or increase capital for our business. We expect to fund approximately $18.7 million of the unfunded commitments to borrowers during the next twelve months.
Management Agreement with Terra REIT Advisors We currently pay the following fees to Terra REIT Advisors pursuant to the Management Agreement: Origination and Extension Fee . An origination fee in the amount of 1.0% of the amount used to originate, acquire, fund or structure real estate-related investments, including any third-party expenses related to such loan.
Management Agreement with our Manager We currently pay the following fees to our Manager pursuant to the Management Agreement: Origination and Extension Fee . An origination fee in the amount of 1.0% of the amount used to originate, acquire, fund or structure real estate-related investments, including any third-party expenses related to such loan.
Credit Risk Our loans and investments are subject to credit risk. The performance and value of our loans and investments depend upon the owners’ ability to operate the properties that serve as our collateral so that they produce cash flows adequate to pay interest and principal due to us.
The performance and value of our loans and investments depend upon the owners’ ability to operate the properties that serve as our collateral so that they produce cash flows adequate to pay interest and principal due to us.
Equity Investments Additionally, as of December 31, 2023 and 2022, we owned 14.9% and 27.9%, respectively, of equity interest in a limited partnership that invests primarily in performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets.
Equity Investments As of both December 31, 2024 and 2023, we owned 14.9% of equity interest in a limited partnership that invests primarily in performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets.
As of December 31, 2023, our portfolio included underlying properties located in 21 markets, across nine states and includes property types such as multifamily housing, student housing, commercial offices, medical offices, mixed-use, industrial and infrastructure properties. The profile of these properties ranges from stabilized and value-added properties to pre-development and construction.
As of December 31, 2024, our portfolio included underlying properties located in 13 markets, across nine states and includes property types such as multifamily housing, student housing, commercial offices, medical offices, mixed-use and infill properties. The profile of these properties ranges from stabilized and value-added properties to pre-development and construction.
As of December 31, 2023 and 2022, the real estate and related lease intangible assets and liabilities had a net carrying value of $129.8 million and $40.6 million, respectively, and the mortgage loans payable encumbering the real estate properties had an outstanding principal amount of $73.5 million and $29.3 million, respectively.
As of December 31, 2024 and 2023, the real estate and related lease intangible assets and liabilities had a net carrying value of $125.3 million and $129.8 million, respectively, and the mortgage loans payable encumbering the real estate properties had an outstanding principal amount of $74.4 million and $73.5 million, respectively.
As of December 31, 2023, we held a net loan portfolio (gross loans less obligations under participation agreements and secured borrowing) comprised of 21 loans in nine states with an aggregate net principal balance of $509.5 million, a weighted average coupon rate of 12.9% and a weighted average remaining term to maturity of 0.8 years.
As of December 31, 2024, we held a net loan portfolio (gross loans less obligations under participation agreements and secured borrowing) comprised of 13 loans in nine states with an aggregate net principal balance of $299.3 million, a weighted average coupon rate of 12.5% and a weighted average remaining term to maturity of 1.0 years.
(2) As of December 31, 2023 and 2022, amount included $342.9 million and $413.1 million of senior mortgages used as collateral for $204.9 million and $261.0 million of borrowings under credit facilities, respectively. (3) As of December 31, 2023 and 2022, 14 and 21 loans, respectively, are subject to a LIBOR, SOFR, or Term SOFR floor, as applicable.
(2) As of December 31, 2024 and 2023, amount included $208.0 million and $342.9 million of senior mortgages used as collateral for $123.2 million and $204.9 million of borrowings under credit facilities, respectively. (3) As of December 31, 2024 and 2023, 10 and 14 loans, respectively, are subject to a SOFR, or Term SOFR floor, as applicable.
For the year ended December 31, 2023 as compared to the year ended December 31, 2022, interest expense on secured financing increased by $13.3 million as a result of an increase in the weighted average principal amount outstanding as well as an increase in the index rate on secured financing agreements.
For the year ended December 31, 2024 as compared to the year ended December 31, 2023, interest expense on secured financing decreased by $3.1 million, as a result of a decrease in the weighted average principal amount outstanding as well as a decrease in the index rate on secured financing agreements.
Provision for Credit Losses On January 1, 2023, we adopted the provisions of ASU 2016-13, which requires entities to recognize credit losses on financial instruments based on an estimate of current expected credit losses.
Provision for Credit Losses On January 1, 2023, we adopted the provisions of Accounting Standards Update (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires entities to recognize credit losses on financial instruments based on an estimate of current expected credit losses.
Pursuant to the terms of the transactions described in the Merger Agreement, approximately 4,847,910 shares of Class B Common Stock were issued to former Terra BDC stockholders in connection with the BDC Merger, based on the number of outstanding shares of Terra BDC Common Stock as of the Closing Date.
Pursuant to the terms of the transactions described in the Merger Agreement, approximately 4,847,910 shares of our Class B Common Stock, $0.01 par value per share ("Class B Common Stock"), were issued to former Terra BDC stockholders in connection with the BDC Merger, based on the number of outstanding shares of Terra BDC Common Stock as of October 1, 2022.
On March 2, 2020, we engaged in a series of transactions pursuant to which we issued an aggregate of 4,574,470.35 shares of common stock in exchange for the settlement of an aggregate of $49.8 million of participation interests in loans held by us, cash of $25.5 million and other working capital. 38 As of December 31, 2023, Terra Fund 7 and Terra Offshore REIT held approximately 8.7% and 10.1%, respectively, of our issued and outstanding Class B Common Stock.
On March 2, 2020, we engaged in a series of transactions pursuant to which we issued an aggregate of 4,574,470.35 shares of common stock in exchange for the settlement of an aggregate of $49.8 million of participation interests in loans held by us, cash of $25.5 million and other working capital.
Coupon rates shown were determined using LIBOR of 5.47%, average SOFR of 5.34% and Term SOFR of 5.35% as of December 31, 2023, and LIBOR of 4.39%, average SOFR of 4.06% and Term SOFR of 4.36% as of December 31, 2022.
Coupon rates shown were determined using average SOFR of 4.53% and Term SOFR of 4.33% as of December 31, 2024, and average SOFR of 5.34% and Term SOFR of 5.35% as of December 31, 2023.
Real Estate Operating Expenses For the year ended December 31, 2023 as compared to the year ended December 31, 2022, real estate operating expenses increased by $0.4 million, primarily due to expenses incurred on the industrial buildings that we acquired in 2023, partially offset by a reduction in expenses due to the disposal of the office building in October 2023 and a real estate tax refund related to the overpayment of real estate tax in the prior year. 46 Depreciation and Amortization For the year ended December 31, 2023 as compared to the year ended December 31, 2022, depreciation and amortization increased by $0.4 million, primarily due to the industrial buildings that we acquired in 2023, partially offset by a reduction in depreciation and amortization due to the disposal of the office building in October 2023.
Real Estate Operating Expenses For the year ended December 31, 2024 as compared to the year ended December 31, 2023, real estate operating expenses decreased by $1.9 million, primarily due to the disposal of the office building in October 2023 which resulted in a reduction in rent expense of $1.5 million. 45 Depreciation and Amortization For the year ended December 31, 2024 as compared to the year ended December 31, 2023, depreciation and amortization increased by $0.4 million, primarily due to the five industrial buildings that we acquired in May 2023, partially offset by a reduction in depreciation and amortization related to the disposal of the office building in October 2023.
Interest from Obligations under Participation Agreements For the year ended December 31, 2023 as compared to the year ended December 31, 2022, interest expense from obligations under participation agreements decreased by $1.8 million, as a result of a decrease in the weighted average principal amount outstanding, primarily due to the release of obligations under participation agreements with Terra BDC in connection with the BDC Merger, partially offset by an increase in the index rate on the outstanding obligations under participation agreements.
Interest from Obligations under Participation Agreements For the year ended December 31, 2024 as compared to the year ended December 31, 2023, interest expense from obligations under participation agreements increased by $1.6 million, primarily as a result of an increase in the weighted average principal amount outstanding as well as an increase in the weighted average interest rate on the obligations under participation agreements.
Net Loss For the year ended December 31, 2023 as compared to the year ended December 31, 2022, the resulting net loss increased by $49.9 million. 48 Financial Condition, Liquidity and Capital Resources Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, funding and maintaining our assets and operations, making distributions to our stockholders and other general business needs.
Financial Condition, Liquidity and Capital Resources Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, funding and maintaining our assets and operations, making distributions to our stockholders and other general business needs.
For the year ended December 31, 2023 as compared to the year ended December 31, 2022, asset servicing fees increased by $0.3 million, primarily due to an increase in total assets under management resulting from loans acquired in connection with the BDC Merger.
For the year ended December 31, 2024 as compared to the year ended December 31, 2023, asset servicing fees decreased by $0.4 million, primarily due to a decrease in total assets under management resulting from the repayment of loans.
Realized (Losses) Gains On Investments, Net For the year ended December 31, 2023, we sold a portion of our investments in common stock and recognized a net loss on sale of $0.5 million. For year ended December 31, 2022, we sold our investments in common and preferred stocks and recognized a net gain on sale of $0.1 million.
For the year ended December 31, 2023, we sold a portion of our investments in common stock and recognized a net loss on sale of $0.5 million. Net Loss For the year ended December 31, 2024 as compared to the year ended December 31, 2023, the resulting net loss decreased by $19.7 million.
Interest income and borrowing costs may vary as a result of changes in interest rates, which could impact the net interest we receive on our assets. Our operating results may also be impacted by conditions in the financial markets and unanticipated credit events experienced by borrowers under our loan assets.
Interest income and borrowing costs may vary as a result of changes in interest rates, which could impact the net interest we receive on our assets.
Book Value Per Share We calculate our book value per share by dividing our net equity by the number of outstanding shares of our common stock, unless otherwise determined by our Board. Our book value per share of Class B Stock Common Stock as of December 31, 2023 and 2022 was $9.93 and $13.23, respectively.
As of December 31, 2024 and 2023, these equity investments had total carrying value of $106.8 million and $37.2 million, respectively. Book Value Per Share We calculate our book value per share by dividing our net equity by the number of outstanding shares of our common stock, unless otherwise determined by our Board.
For the year ended December 31, 2023 as compared to the year ended December 31, 2022, asset management fees increased by $1.3 million, primarily due to an increase in total assets under management primarily resulting from loans acquired in connection with the BDC Merger.
For the year ended December 31, 2024 as compared to the year ended December 31, 2023, asset management fees decreased by $1.6 million, primarily due to a decrease in total assets under management resulting from repayment of loans.
For the year ended December 31, 2023, the weighted average outstanding principal balance on obligations under participation agreements was approximately $10.0 million and the weighted average interest rate was approximately 17.4%, compared to the weighted average outstanding principal balance on obligations under participation agreements and secured borrowing of approximately $59.9 million and the weighted average interest rate was approximately 12.1% for the year ended December 31, 2022.
For the years ended December 31, 2024 and 2023, the weighted average outstanding principal balance on obligations under participation agreements was approximately $14.5 million and $10.0 million, respectively, and the weighted average interest rate was approximately 18.6% and 17.4%, respectively.
For the year ended December 31, 2023, provision for credit losses increased by $33.7 million, primarily related to the decline in fair value of collateral underlying three loans in the investment portfolio due to a decline in the macroeconomic outlook for commercial real estate.
For the year ended December 31, 2023, provision for credit losses was $45.5 million, primarily related to the decline in our estimated recoverable amount on three non-performing loans in the investment portfolio due to a decline in the macroeconomic outlook for commercial real estate.
Market Risk Our loans are highly illiquid, and there is no assurance that we will achieve our investment objectives, including targeted returns.
Market Risk Our loans are highly illiquid, and there is no assurance that we will achieve our investment objectives, including targeted returns. Due to the illiquidity of the loans, valuation of our loans may be difficult, as there generally will be no established markets for these loans.
For the year ended December 31, 2022, cash flows provided by financing activities were $34.1 million, primarily due to proceeds from secured financing of $286.6 million and proceeds from obligations under participation agreements of $29.6 million, partially offset by principal repayments on secured financing of $239.7 million, repayments of obligations under participation agreements of $22.2 million and distributions paid of $16.1 million.
Cash Flows Used in Financing Activities For the year ended December 31, 2024, cash flows used in financing activities were $99.0 million, primarily related to principal repayments on secured financing of $177.5 million, distributions paid of $18.6 million and payment for financing costs of $1.1 million, partially offset by proceeds from secured financing of $81.3 million and proceeds from obligations under participation agreements of $18.0 million.
The following table presents a reconciliation of our loan portfolio on a weighted average basis from gross to net : Year Ended December 31, 2023 Year Ended December 31, 2022 Weighted Average Principal Amount (1) Weighted Average Coupon Rate (2) Weighted Average Principal Amount (1) Weighted Average Coupon Rate (2) Total portfolio Gross loans $ 569,511,789 12.7 % $ 550,062,087 10.7 % Obligations under participation agreements and secured borrowing (9,987,566) 17.4 % (59,931,021) 12.1 % Promissory notes payable (13,002,573) 10.7 % — — % Repurchase agreements payable (134,030,835) 8.3 % (167,507,961) 6.2 % Term loan payable — — % (10,303,678) 5.3 % Revolving line of credit payable (87,114,331) 8.7 % (47,383,467) 7.6 % Net loans (3) $ 325,376,484 15.5 % $ 264,935,960 14.0 % Senior loans Gross loans $ 443,674,795 12.2 % $ 408,607,321 9.7 % Obligations under participation agreements and secured borrowing (9,987,566) 17.4 % (24,800,580) 8.1 % Promissory notes payable (13,002,573) 10.7 % — — % Repurchase agreements payable (134,030,835) 8.3 % (167,507,962) 6.2 % Term loan payable — — % (10,303,678) 5.3 % Revolving line of credit payable (87,114,331) 8.7 % (47,383,467) 7.6 % Net loans (3) $ 199,539,490 16.2 % $ 158,611,634 14.6 % Subordinated loans (4) Gross loans $ 125,836,994 14.5 % $ 141,454,766 13.6 % Obligations under participation agreements — — % (35,130,441) 13.7 % Net loans (3) $ 125,836,994 14.5 % $ 106,324,325 13.6 % _______________ (1) Amount is calculated based on the number of days each loan is outstanding.
The following table presents a reconciliation of our loan portfolio on a weighted average basis from gross to net : Year Ended December 31, 2024 Year Ended December 31, 2023 Weighted Average Principal Amount (1) Weighted Average Coupon Rate (2) Weighted Average Principal Amount (1) Weighted Average Coupon Rate (2) Total portfolio Gross loans $ 414,141,672 12.6 % $ 569,511,789 12.7 % Obligations under participation agreements (14,450,820) 18.6 % (9,987,566) 17.4 % Secured borrowing (2,311,475) 9.9 % — — % Promissory notes payable (66,170,732) 9.8 % (13,002,573) 10.7 % Repurchase agreements payable (69,518,266) 8.1 % (134,030,835) 8.3 % Revolving line of credit payable (35,411,716) 7.7 % (87,114,331) 8.7 % Net loans (3) $ 226,278,663 15.2 % $ 325,376,484 15.5 % Senior loans Gross loans $ 314,283,363 12.5 % $ 443,674,795 12.2 % Obligations under participation agreements — — % (9,987,566) 17.4 % Secured borrowing (2,311,475) 9.9 % — — % Promissory notes payable (66,170,732) 9.8 % (13,002,573) 10.7 % Repurchase agreements payable (69,518,266) 8.1 % (134,030,835) 8.3 % Revolving line of credit payable (35,411,716) 7.7 % (87,114,331) 8.7 % Net loans (3) $ 140,871,174 17.2 % $ 199,539,490 16.2 % Subordinated loans (4) Gross loans $ 99,858,309 12.8 % $ 125,836,994 14.5 % Obligations under participation agreements (14,450,820) 18.6 % — — % Net loans (3) $ 85,407,489 11.8 % $ 125,836,994 14.5 % _______________ (1) Amount is calculated based on the number of days each loan is outstanding.
Unrealized Losses on Investments, Net For the year ended December 31, 2023, as compared to the year ended December 31, 2022, unrealized losses on investments, net increased by $0.2 million, primarily due to a decrease in the fair value of our marketable securities at period end.
Unrealized Gain (Loss) on Investments, Net For the year ended December 31, 2024, we recognized an unrealized gain on investment of $0.1 million, compared to an unrealized loss on investment of $0.3 million for the year ended December 31, 2023, primarily due to an increase in the fair value of our marketable securities as of December 31, 2024.
Portfolio Investment Activity Net Loan Portfolio For the years ended December 31, 2023 and 2022, we invested $19.2 million and $126.9 million in new and add-on investments and had $10.3 million and $33.3 million of repayments, resulting in net investments of $8.9 million and $93.6 million, respectively. Amounts are net of obligations under participation agreements and secured financing.
Portfolio Investment Activity Net Loan Portfolio For the years ended December 31, 2024 and 2023, we invested $95.8 million and $37.1 million in new and add-on investments and had $112.7 million and $29.8 million of repayments, resulting in net repayments of $16.9 million and net investments of $7.3 million, respectively.
For the year ended December 31, 2023 as compared to the year ended December 31, 2022, operating expenses reimbursed to our Manager increased by $1.2 million, primarily due to an increase in the allocation ratio resulting from an increase in total assets under management primarily due to loans acquired in connection with the BDC Merger.
For the year ended December 31, 2024 as compared to the year ended December 31, 2023, operating expenses reimbursed to our Manager decreased by $1.8 million, primarily due to a decrease in the allocation ratio as a result of a decrease in our total funds under management.
Real Estate Operating Revenue For the year ended December 31, 2023 as compared to the year ended December 31, 2022, real estate operating revenue decreased by $0.4 million, primarily due to lease termination income recognized in 2022 (there was no such lease termination income recognized in 2023), partially offset by rental income contributed by the industrial buildings acquired in 2023. 45 Prepayment Fee Income For the year ended December 31, 2023, there was no early repayment of loans and we did not recognize any prepayment fee income.
Real Estate Operating Revenue For the year ended December 31, 2024 as compared to the year ended December 31, 2023, real estate operating revenue decreased by $0.3 million, primarily due to a reduction in lease revenue resulting from the disposal of the office building in October 2023, partially offset by an increase in lease revenue contributed by the five industrial buildings acquired in May 2023. 44 Prepayment Fee Income For the year ended December 31, 2024 prepayment fee income was $0.4 million, related to the early repayment of one of our loans.
The following table presents a summary of fees paid and costs reimbursed to our Manager in connection with providing services to us: Years Ended December 31, 2023 2022 Origination and extension fee expense (1) $ 2,312,656 $ 3,189,291 Asset management fee 7,807,198 6,556,492 Asset servicing fee 1,857,765 1,560,044 Operating expenses reimbursed to Manager 9,234,357 8,076,321 Disposition fee (2) 1,451,063 890,194 Total $ 22,663,039 $ 20,272,342 _______________ (1) Origination and extension fee expense is generally offset with origination and extension fee income.
In addition to the fees described above, we reimburse our Manager for operating expenses incurred in connection with services provided to the operations of our company, including our allocable share of our Manager’s overhead, such as rent, employee costs, utilities, and technology costs. 50 The following table presents a summary of fees paid and costs reimbursed to our Manager in connection with providing services to us: Years Ended December 31, 2024 2023 Origination and extension fee expense (1) $ 1,334,709 $ 2,312,656 Asset management fee 6,207,231 7,807,198 Asset servicing fee 1,489,674 1,857,765 Operating expenses reimbursed to Manager 7,468,132 9,234,357 Disposition fee (2) 907,224 1,451,063 Total $ 17,406,970 $ 22,663,039 _______________ (1) Origination and extension fee expense is generally offset with origination and extension fee income.
Summary of Financing The table below summarizes our debt financing as of December 31, 2023: Type of Financing Maximum Amount Available Outstanding Balance Amount Remaining Available Interest Rate Maturity Date Fixed Rate: Unsecured notes payable N/A $ 85,125,000 N/A 6.00% June 2026 Unsecured notes payable N/A 38,375,000 N/A 7.00% March 2026 Property mortgages N/A 40,250,000 N/A 6.25% June 2028 $ 163,750,000 Variable Rate: Property mortgages N/A $ 33,256,885 N/A Term SOFR +3.5% (Term SOFR Floor of 3.75%) April 2027 Term loan N/A 15,000,000 N/A SOFR + 7.375% (SOFR floor of 5.0%) March 2024 Promissory notes payable N/A 63,509,518 N/A Term SOFR plus a spread ranging from 4.75% to 5.6% with a combined floor rate ranging from 9.0% to 10.9%.
Summary of Financing The table below summarizes our debt financing as of December 31, 2024: Type of Financing Maximum Amount Available Outstanding Balance Amount Remaining Available Interest Rate Maturity Date Fixed Rate: Unsecured notes payable N/A $ 85,125,000 N/A 6.00% June 2026 Unsecured notes payable N/A 38,375,000 N/A 7.00% March 2026 Property mortgages N/A 40,250,000 N/A 6.25% June 2028 Term loan payable N/A 10,000,000 N/A Interest free until 6/30/2025, after that 9.00% December 2027 $ 173,750,000 Variable Rate: Property mortgages N/A $ 34,100,000 N/A Term SOFR +3.5% (Term SOFR Floor of 3.75%) April 2027 Promissory notes payable N/A 40,694,390 N/A Term SOFR plus a spread ranging from 4.75% to 5.98% with a combined floor rate ranging from 9.0% to 11.28% March 2025 - March 2026 Secured borrowing N/A 18,000,000 N/A Term SOFR + 5%, (combined floor rate of 9.85% November 2026 Revolving line of credit (1) 16,361,111 16,361,111 — Term SOFR + 3.5% (combined floor rate of 7.0%) December 2024 Goldman Sachs Bank repurchase agreement (2) 48,188,441 48,188,441 — Term SOFR (subject to underlying loan floors on a case-by-case basis) plus a spread ranging from 2.0% to 5.00%) February 2025 $ 64,549,552 $ 157,343,942 $ — _______________ (1) In January 2025, the maturity of the facility was extended to June 30, 2025.
We expect to maintain sufficient liquidity to fund such commitments through matching these commitments with principal repayments on outstanding loans or draw downs on our credit facilities. In connection with the BDC Merger, we assumed a $25.0 million term loan.
We expect to maintain sufficient liquidity to fund such commitments through matching these commitments with principal repayments on outstanding loans or draw downs on our credit facilities. Obligation under participation agreement of $18.0 million will mature in the next twelve months. We use the proceeds from the repayment of the corresponding investment to repay the participation obligation.
For the year ended December 31, 2023 as compared to the year ended December 31, 2022, interest expense on unsecured notes payable increased by $3.0 million, as a result of an increase in the weighted average principal amount outstanding due to the assumption of unsecured notes payable in connection with the BDC Merger.
For the year ended December 31, 2024 as compared to the year ended December 31, 2023, interest expense on unsecured notes payable increased by $0.2 million, primarily due to an increase in the amortization of financing costs using the effective interest rate method.
On February 8, 2024, each of Terra Fund 5 and Terra JV were dissolved. 39 Portfolio Summary Net Loan Portfolio The following tables provide a summary of our net loan portfolio as of: December 31, 2023 Fixed Rate Floating Rate (1)(2)(3) Total Gross Loans Obligations under Participation Agreements Total Net Loans Number of loans 5 16 21 — 21 Principal balance $ 53,998,648 $ 455,462,178 $ 509,460,826 $ — $ 509,460,826 Carrying value 54,095,173 402,377,085 456,472,258 — 456,472,258 Fair value 53,435,742 403,904,207 457,339,949 — 457,339,949 Weighted average coupon rate 12.95 % 12.92 % 12.93 % — % 12.93 % Weighted-average remaining term (years) 1.18 0.70 0.77 — 0.77 December 31, 2022 Fixed Rate Floating Rate (1)(2)(3) Total Gross Loans Obligations under Participation Agreements Total Net Loans Number of loans 8 23 31 1 31 Principal balance $ 90,990,183 $ 554,805,276 $ 645,795,459 $ 12,584,958 $ 633,210,501 Carrying value 92,274,998 534,215,769 626,490,767 12,680,594 613,810,173 Fair value 90,729,098 532,416,656 623,145,754 12,680,595 610,465,159 Weighted average coupon rate 13.82 % 11.23 % 11.59 % 16.36 % 11.50 % Weighted-average remaining term (years) 1.35 1.10 1.14 1.69 1.13 _______________ (1) These loans pay a coupon rate of London Interbank Offered Rate (“LIBOR”), Secured Overnight Financing Rate (“SOFR”), or forward-looking term rate SOFR (“Term SOFR”) plus a fixed spread.
Portfolio Summary Net Loan Portfolio The following tables provide a summary of our net loan portfolio as of: December 31, 2024 Fixed Rate Floating Rate (1)(2)(3) Total Gross Loans Obligations under Participation Agreements Total Net Loans Number of loans 2 11 13 1 13 Principal balance $ 12,680,463 $ 304,574,560 $ 317,255,023 $ 18,000,000 $ 299,255,023 Carrying value 12,106,695 262,542,450 274,649,145 18,177,107 256,472,038 Fair value 11,740,671 264,796,547 276,537,218 18,254,853 258,282,365 Weighted average coupon rate (4) 8.50 % 13.18 % 13.04 % 19.53 % 12.52 % Weighted-average remaining term (years) (5) 2.68 0.84 0.91 0.10 0.99 39 December 31, 2023 Fixed Rate Floating Rate (1)(2)(3) Total Gross Loans Obligations under Participation Agreements Total Net Loans Number of loans 5 16 21 — 21 Principal balance $ 53,998,648 $ 455,462,178 $ 509,460,826 $ — $ 509,460,826 Carrying value 54,095,173 402,377,085 456,472,258 — 456,472,258 Fair value 53,435,742 403,904,207 457,339,949 — 457,339,949 Weighted average coupon rate (4) 13.03 % 13.05 % 13.05 % — % 13.05 % Weighted-average remaining term (years) (5) 1.18 0.70 0.77 — 0.77 _______________ (1) These loans pay a coupon rate of Secured Overnight Financing Rate (“SOFR”), or forward-looking term rate SOFR (“Term SOFR”) plus a fixed spread.
Our revolving line of credit with outstanding principal balance of $47.5 million was to come due on March 12, 2024 and our Goldman Sachs Bank repurchase agreement with outstanding principal balance of $75.5 million was to come due on February 18, 2024 (see “ Summary of Financing” below).
Our revolving line of credit with outstanding principal balance of $16.4 million and our Goldman Sachs Bank repurchase agreement with outstanding principal balance of $48.2 million was scheduled to mature on December 31, 2024 and February 18, 2025, respectively.
Other Operating Income For the year ended December 31, 2023 as compared to the year ended December 31, 2022, other operating income increased by $0.1 million, primarily due to an increase in dividend income recognized on marketable securities, partially offset by a decrease in application fees income on deals under application.
There was no such prepayment fee income for the year ended December 31, 2023. Other Operating Income For the year ended December 31, 2024 as compared to the year ended December 31, 2023, other operating income decreased by $0.5 million, primarily due to a decline in dividend income earned on our marketable securities.
For the year ended December 31, 2022, cash flows used in investing activities were $49.1 million, primarily related to origination and purchase of loans of $290.0 million and purchase of equity interests in unconsolidated investments of $25.5 million, partially offset by proceeds from repayments of loans of $197.5 million, proceeds from sale of interests in joint ventures of $33.7 million, cash and restricted cash acquired in connection with the BDC Merger of $24.6 million, proceeds from sale of real estate of $8.6 million and proceeds from sale of marketable securities of $1.3 million.
Cash Flows Provided by (Used in) Investing Activities For the year ended December 31, 2024, cash flows provided by investing activities were $101.6 million, primarily related to proceeds from repayment of loans of $215.1 million and promissory note receivable of $9.6 million, partially offset by origination and purchase of loans of $57.2 million, purchase of equity interests in unconsolidated investments of $65.6 million and funding for promissory note receivable of $5.0 million.
Interest Income For the year ended December 31, 2023 as compared to the year ended December 31, 2022, interest income increased by $13.5 million, primarily due to an increase in contractual interest income as a result of an increase in the weighted average principal balance of gross loans due to loans originated in 2022 and loans we acquired in connection with the BDC Merger, as well as an increase in the weighted average coupon rate due to increases in the underlying index rates.
Interest Income For the year ended December 31, 2024 as compared to the year ended December 31, 2023, interest income decreased by $17.9 million, primarily due to a decrease in contractual interest income as a result of a decrease in the weighted average principal balance of performing loans as well as an increase in suspended interest income accrual on non-performing loans of $3.0 million.
Recent Developments Merger Agreements On October 1, 2022, pursuant to that certain Agreement and Plan of Merger, dated as of May 2, 2022, Terra BDC merged with and into Terra LLC, our wholly owned subsidiary, with Terra LLC continuing as the surviving entity of the merger and as our wholly owned subsidiary.
On October 1, 2022, pursuant to that certain Agreement and Plan of Merger, dated as of May 2, 2022 (the “Merger Agreement”), Terra Income Fund 6, Inc.
Due to the illiquidity of the loans, valuation of our loans may be difficult, as there generally will be no established markets for these loans. 43 Results of Operations The following table presents the comparative results of our operations: Years Ended December 31, 2023 2022 Change Revenues Interest income $ 56,140,437 $ 42,591,972 $ 13,548,465 Real estate operating revenue 11,050,716 11,451,914 (401,198) Prepayment fee income — 1,984,061 (1,984,061) Other operating income 722,881 586,499 136,382 67,914,034 56,614,446 11,299,588 Operating expenses Operating expenses reimbursed to Manager 9,234,357 8,076,321 1,158,036 Asset management fee 7,807,198 6,556,492 1,250,706 Asset servicing fee 1,857,765 1,560,044 297,721 Provision for credit losses 45,548,803 11,813,409 33,735,394 Real estate operating expenses 4,586,245 5,005,551 (419,306) Depreciation and amortization 6,968,985 6,530,595 438,390 Impairment charge 11,765,540 1,604,989 10,160,551 Professional fees 3,741,720 3,697,792 43,928 Directors’ fees 347,714 192,497 155,217 Other 539,957 747,535 (207,578) 92,398,284 45,785,225 46,613,059 Operating (loss) income (24,484,250) 10,829,221 (35,313,471) Other income and expenses Interest expense on secured financing (28,113,245) (14,793,540) (13,319,705) Interest expense on unsecured notes payable (9,643,974) (6,682,937) (2,961,037) Interest expense on obligations under participation agreements (1,353,006) (3,180,771) 1,827,765 Gain on extinguishment of participation liability 14,079,379 3,435,902 10,643,477 Unrealized losses on investments, net (316,573) (122,299) (194,274) (Loss) income from equity investment in unconsolidated investments (2,383,938) 2,731,477 (5,115,415) Gain on sale of interests in unconsolidated investments — 799,827 (799,827) Loss on disposal of real estate (4,211,153) (51,984) (4,159,169) Realized (losses) gains on investments, net (459,279) 83,411 (542,690) (32,401,789) (17,780,914) (14,620,875) Net loss $ (56,886,039) $ (6,951,693) $ (49,934,346) 44 Net Loan Portfolio In assessing the performance of our loans, we believe it is appropriate to evaluate the loans on an economic basis, that is, gross loans net of obligations under participation agreements, notes payable, term loan payable, revolving credit facility and repurchase agreements payable.
Results of Operations The following table presents the comparative results of our operations: Years Ended December 31, 2024 2023 Change Revenues Interest income $ 38,250,784 $ 56,140,437 $ (17,889,653) Real estate operating revenue 10,740,170 11,050,716 (310,546) Prepayment fee income 435,677 — 435,677 Other operating income 262,863 722,881 (460,018) 49,689,494 67,914,034 (18,224,540) Operating expenses Operating expenses reimbursed to Manager 7,468,132 9,234,357 (1,766,225) Asset management fee 6,207,231 7,807,198 (1,599,967) Asset servicing fee 1,489,674 1,857,765 (368,091) Provision for credit losses 16,627,739 45,548,803 (28,921,064) Real estate operating expenses 2,673,913 4,586,245 (1,912,332) Depreciation and amortization 7,357,295 6,968,985 388,310 Professional fees 3,012,046 3,741,720 (729,674) Directors’ fees 356,886 347,714 9,172 Other 558,638 539,957 18,681 Impairment charge — 11,765,540 (11,765,540) 45,751,554 92,398,284 (46,646,730) Operating income (loss) 3,937,940 (24,484,250) 28,422,190 Other income and expenses Interest expense on secured financing (25,052,058) (28,113,245) 3,061,187 Interest expense on unsecured notes payable (9,836,953) (9,643,974) (192,979) Interest expense on obligations under participation agreements (2,971,924) (1,353,006) (1,618,918) Unrealized gain (loss) on investments, net 100,149 (316,573) 416,722 Income (loss) from equity interest in unconsolidated investments 2,738,410 (2,383,938) 5,122,348 Loss on repayment of loan (5,629,510) — (5,629,510) Loss on disposal of real estate — (4,211,153) 4,211,153 Gain on extinguishment of debt — 14,079,379 (14,079,379) Realized loss on investments, net (446,009) (459,279) 13,270 (41,097,895) (32,401,789) (8,696,106) Net loss $ (37,159,955) $ (56,886,039) $ 19,726,084 43 Net Loan Portfolio In assessing the performance of our loans, we believe it is appropriate to evaluate the loans on an economic basis, that is, gross loans net of obligations under participation agreements, promissory notes payable, revolving credit facility, secured borrowing and repurchase agreements payable.
Other For the year ended December 31, 2023 as compared to the year ended December 31, 2022, other expenses decreased by $0.2 million, primarily as a result of a fee paid in 2022 to a third-party in connection with the sale of a parcel of land in June 2022.
Professional Fees For the year ended December 31, 2024 as compared to the year ended December 31, 2023, professional fees decreased by $0.7 million, primarily due to legal fees incurred in connection with a review of strategic alternatives for our company in 2023.
In June 2022, we sold 4.9 acres of adjacent land located in Pennsylvania for net proceeds of $8.6 million, and recognized a net loss on sale of $0.1 million for the year ended December 31, 2022.
There was no such gain for the year ended December 31, 2024 Realized Loss On Investments, Net For the year ended December 31, 2024, we sold a portion of our investments in marketable equity securities and recognized a net loss on sale of $0.4 million.
Cash Flows Provided by Operating Activities For the year ended December 31, 2023, as compared to the year ended December 31, 2022, cash flows provided by operating activities increased by $8.2 million, primarily due to an increase in net contractual interest income.
(2) In February 2025, the maturity of the facility was extended to February 18, 2027. 48 Cash Flows (Used in) Provided by Operating Activities For the year ended December 31, 2024, cash flows used in operating activities was $3.3 million, compared to cash flow from operating activities of $8.6 million for the year ended December 31, 2023.
We will pay our Manager the Termination Fee upon such termination by our Manager.
We will pay our Manager the Termination Fee upon such termination by our Manager. 51 Promissory Note Payable with Terra LLC On January 24, 2024, we, as borrower, entered into a revolving promissory note payable with Terra LLC.
Gain on Extinguishment of Participation Liability In September 2023, the counterparty to a participation agreement conveyed its interest in the obligation under participation agreement to us and we recognized a gain on extinguishment of participation liability of $10.6 million for the year ended December 31, 2023. 47 In connection with the BDC Merger, the obligations under participation agreements with Terra BDC totaling $37.0 million were effectively extinguished and we recognized a net gain of $3.4 million for the year ended December 31, 2022, representing the difference between the carrying value of the Company’s obligations under participation agreements and the fair value of Terra BDC’s investments acquired through participation agreements.
Gain on Extinguishment of Participation Liability In September 2023, an unrelated counterparty to a participation agreement conveyed its interest in the obligation under participation agreement to us and we recognized a gain on debt extinguishment of $14.1 million.
Real Estate Ownership In addition to our net loan portfolio, as of December 31, 2023, through two investments, we owned eight industrial buildings acquired in 2023; and as of December 31, 2022, we owned a multi-tenant office building acquired pursuant to a foreclosure.
(4) Excludes nonperforming loans for which recovery of interest income was not probable. (5) Represents current effective maturity as of December 31, 2024 and 2023, exclusive of any extension options available. Real Estate Ownership In addition to our net loan portfolio, we own eight industrial buildings.
Removed
At the Effective Time, except for any shares of Terra BDC Common Stock held by us or any of our wholly owned subsidiaries or Terra BDC, which shares were automatically retired and ceased to exist with no consideration paid therefor, each issued and outstanding share of Terra BDC Common Stock was automatically cancelled and retired and converted into the right to receive (i) 0.595 shares of our newly designated Class B Common Stock, and (ii) cash, without interest, in lieu of any fractional shares of Class B Common Stock otherwise issuable in an amount, rounded to the nearest whole cent, determined by multiplying (x) the fraction of a share of Class B Common Stock to which such holder would otherwise be entitled by (y) $14.38.
Added
(“Terra BDC”) merged with and into Terra Income Fund 6, LLC (“Terra LLC”), our wholly owned subsidiary, with Terra LLC continuing as the surviving entity of the merger (the “BDC Merger”) and as our wholly owned subsidiary.
Removed
Following the consummation of the BDC Merger, former Terra BDC stockholders owned approximately 19.9% of our common equity. On June 28, 2023, we announced we entered into an Agreement and Plan of Merger, dated as of June 27, 2023 (the “WMC Merger Agreement”), with Western Asset Mortgage Capital Corporation, a Delaware corporation (“WMC”).
Added
As of December 31, 2024, Terra Fund 7 and Terra Offshore REIT held approximately 8.7% and 10.1%, respectively, of our issued and outstanding Class B Common Stock. As previously disclosed, we continue to explore alternative liquidity transactions on an opportunistic basis to maximize stockholder value.
Removed
On August 8, 2023, WMC terminated the WMC Merger Agreement pursuant to its terms (the “Termination”), and we were paid a termination fee of $3.0 million.
Added
Examples of the alternative liquidity transactions that, depending on market conditions, may be available to us include a listing of our shares of common stock on a national securities exchange, adoption of a share repurchase plan, a liquidation of our assets, a sale of our company or a strategic business combination, in each case, which may include the further in-kind distribution of our shares of common stock indirectly owned by certain of our affiliate funds to the ultimate investors in such affiliate funds.
Removed
Distribution of Class B Common Stock by Terra Fund 5 Prior to undertaking the REIT Formation Transaction, the Terra Funds distributed a consent solicitation memorandum disclosing the details of the proposed transactions and received the requisite consent of investors in each of the Terra Funds to engage in the REIT Formation Transaction.
Added
We cannot provide any assurance that any alternative liquidity transaction will be available or, if available, that we will pursue or be successful in completing any such alternative liquidity transaction.
Removed
The consent solicitation memorandum disclosed that Terra Fund 5 could in the future make a distribution-in-kind to its members of shares of our company, rather than a cash distribution. The limited liability company agreement of Terra Fund 5 provides that the term of Terra Fund 5 expires on December 31, 2023.
Added
One of the potential future liquidity transactions that we continue to evaluate is a “direct listing” of its Class A Common Stock, $0.01 par value per share (“Class A Common Stock”), on a national securities exchange (i.e., a listing not involving a concurrent public offering of newly issued shares).
Removed
On December 20, 2023, Terra Fund 5 announced that effective December 29, 2023, Terra Fund 5 would distribute all its shares of Class B Common Stock to its members as part of the winding up of Terra Fund 5.
Added
If market conditions are not supportive of a direct listing that would in our view lead to a constructive trading environment for the Class A Common Stock, we will explore alternative paths to pursue our investment strategy and provide liquidity to our investors, including converting our company into a traditional “non-traded REIT.” As part of a potential conversion to a non-traded REIT, we would adopt a customary share repurchase plan pursuant to which our investors could request to have their shares of its common stock redeemed for cash.
Removed
On the Distribution Date, each member of Terra Fund 5 received 2,252.02 shares of Class B Common Stock for each unit of membership interest in Terra Fund 5 held by such member.
Added
We also beneficially own equity interests in joint ventures that invest in real estate properties, opportunistic debt and equity securities and, indirectly, together with other non-affiliated entities, non-real estate operating companies, as well as a preferred equity investment with residual profit sharing from sale of the underlying property. These investments are accounted for using the equity method of accounting.
Removed
Because Terra Fund 5 previously owned its interests in the shares of Class B Common Stock indirectly through its ownership of interests in Terra JV, prior to the Distribution Date, Terra JV first distributed the shares of Class B Common Stock to Terra Fund 5, and Terra Fund 5 then distributed those shares to its members on the Distribution Date.
Added
Our book value per share of Class B Stock Common Stock as of December 31, 2024 and 2023 was $7.63 and $9.93, respectively.
Removed
W e also beneficially owned equity interests in three joint ventures that invest in real estate properties. In 2022, in connection with a $10.0 million mezzanine loan we originated, we entered into a residual profit sharing arrangement with the borrower. We accounted for this arrangement as an equity investment.
Added
Our operating results may also be impacted by conditions in the financial markets and unanticipated credit events experienced by borrowers under our loan assets. 41 Credit Risk Our loans and investments are subject to credit risk.
Removed
In May 2023, we purchased the underlying assets and the $10.0 million mezzanine loan was settled in connection with the purchase. In November 2023, in connection with a loan restructuring, we contributed $5.0 million to another joint venture that owns a real estate property.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe following table summarizes the aggregate principal balance of variable rate investments and indebtedness as of: December 31, 2023 Variable rate investments $ 438,839,001 Variable rate debt $ 253,163,757 The following table summarizes estimated changes in net investment income on our variable rate investments and indebtedness as of December 31, 2023 assuming hypothetical increases or decreases in Term SOFR or SOFR: 1.00% Decrease 1.00% Increase Investment income from variable rate investments $ (4,517,751) $ 4,554,622 Interest expense from variable rate debt 1,913,391 (2,531,638) Net investment income from variable rate instruments $ (2,604,360) $ 2,022,984 We may hedge against interest rate fluctuations by using standard hedging instruments, such as futures, options and forward contracts.
Biggest changeAs a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. 52 The following table summarizes the aggregate principal balance of variable rate investments and indebtedness as of: December 31, 2024 Variable rate investments $ 304,574,560 Variable rate debt $ 157,343,942 The following table summarizes estimated changes in net investment income on our variable rate investments and indebtedness as of December 31, 2024 assuming hypothetical increases or decreases in Term SOFR or SOFR: 1.00% Decrease 1.00% Increase Increase (decrease) in investment income from variable rate investments $ (2,487,373) $ 3,045,746 Decrease (increase) in interest expense from variable rate debt 831,933 (1,274,517) Net increase (decrease) in investment income from variable rate instruments $ (1,655,440) $ 1,771,229 We may hedge against interest rate fluctuations by using standard hedging instruments, such as futures, options and forward contracts.
In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the underlying loans, which could also cause us to suffer losses. 54 Credit Risk We are subject to varying degrees of credit risk in connection with holding a portfolio of our target assets.
In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the underlying loans, which could also cause us to suffer losses. Credit Risk We are subject to varying degrees of credit risk in connection with holding a portfolio of our target assets.
Our Manager also requires certain borrowers to establish a cash reserve, as a form of additional collateral, for the purpose of providing for future interest or property-related operating payments.
Our Manager also requires certain borrowers to establish a cash reserve, as a form of additional collateral, for the purpose of providing for future interest or property-related operating payments. 53
While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates. For the years ended December 31, 2023 and 2022, we did not engage in interest rate hedging activities.
While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates. For the years ended December 31, 2024 and 2023, we did not engage in interest rate hedging activities that qualify for hedge accounting.
In periods of rising interest rates, our cost of funds would increase, which may reduce our net investment income. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.
In periods of rising interest rates, our cost of funds would increase, which may reduce our net investment income.

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