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Related Party Transactions | 12 Months Ended
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Dec. 31, 2024
Related Party Transactions [Abstract] |
Related Party Transactions | Related Party Transactions Promissory Note Receivable On January 24, 2024, the Company entered into a revolving promissory note receivable with Terra REIT. The promissory note receivable bears interest at the Prime Rate, as such Prime Rate is published in the Wall Street Journal, computed on the basis of the actual number of days elapsed and a year of 365 days. The promissory note does not contain current interest payment obligations in cash and instead adds such interest amount to the principal balance of the promissory note on the last day of each calendar quarter. The promissory note matures on March 31, 2027. For the year ended December 31, 2024, the Company provided funding under the promissory note receivable of $54.1 million and received repayment of $9.0 million. As of December 31, 2024, the amount outstanding under the promissory note receivable was $45.1 million. For the year ended December 31, 2024, interest income recognized on the promissory note receivable was $2.0 million, which was included in Interest income on the consolidated statements of operations and comprehensive loss. Cost Sharing Agreement On November 8, 2022, the Company entered into the Cost Sharing Agreement with Terra REIT effective October 1, 2022, pursuant to which the Company reimburses Terra REIT for its allocable portion of management and transaction fees and operating expenses incurred by Terra REIT, including fees paid by Terra REIT to the REIT Manager. The following table presents a summary of such fees and reimbursements incurred pursuant to the Cost Sharing Agreement between Terra LLC and Terra REIT:
|  |  |  | Years Ended December 31,
|  |  |  |  |  | 2024 |  | 2023
Amounts Included in the Statements of Operations
Asset management and asset servicing fees |  |  |  |  |  | $ | 1,132,525 |  |  | $ | 1,682,414 |
Operating expense reimbursement to Adviser (1) |  |  |  |  |  | 1,083,857 |  |  | 1,606,470 |
Origination, extension and disposition fees |  |  |  |  |  | 388,097 |  |  | 602,022 |
_______________ (1)Amounts were primarily compensation for time spent supporting the Company’s day-to-day operations. Terra REIT’s Management Agreement with the REIT Manager Terra REIT is the Company’s parent and sole member. The Company has entered into a cost sharing arrangement with Terra REIT pursuant to which the Company is responsible for its allocable share of Terra REIT’s expenses, including fees paid by Terra REIT to its manager, the REIT Manager. Terra REIT currently pays the following fees to the REIT 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. In the event that the term of any real estate-related loan is extended, the REIT Manager also receives an origination fee equal to the lesser of (i) 1.0% of the principal amount of the loan being extended or (ii) the amount of fee paid by the borrower in connection with such extension. Asset Management Fee. A monthly asset management fee at an annual rate equal to 1.0% of the aggregate funds under management, which includes the loan origination amount or aggregate gross acquisition cost, as applicable, for each real estate-related loan and cash held by Terra REIT. Asset Servicing Fee. A monthly asset servicing fee at an annual rate equal to 0.25% of the aggregate gross origination price or aggregate gross acquisition price for each real estate related loan then held by Terra REIT (inclusive of closing costs and expenses). Disposition Fee. A disposition fee in the amount of 1.0% of the gross sale price received by Terra REIT from the disposition of each loan, but not upon the maturity, prepayment, workout, modification or extension of a loan unless there is a corresponding fee paid by the borrower, in which case the disposition fee will be the lesser of (i) 1.0% of the principal amount of the loan and ii) the amount of the fee paid by the borrower in connection with such transaction. If Terra REIT takes ownership of a property as a result of a workout or foreclosure of a loan, Terra REIT will pay a disposition fee upon the sale of such property equal to 1.0% of the sales price. Transaction Breakup Fee. In the event that Terra REIT receive any “breakup fees,” “busted-deal fees,” termination fees, or similar fees or liquidated damages from a third-party in connection with the termination or non-consummation of any loan or disposition transaction, the REIT Manager will be entitled to receive one-half of such amounts, in addition to the reimbursement of all out-of-pocket fees and expenses incurred by the REIT Manager with respect to its evaluation and pursuit of such transactions. In addition to the fees described above, Terra REIT reimburses the REIT Manager for operating expenses incurred in connection with services provided to the operations of Terra REIT, including its allocable share of the REIT Manager’s overhead, such as rent, employee costs, utilities, and technology costs. Participation Agreements The Company may enter into participation agreements with related and unrelated parties, primarily other affiliated funds of the REIT Manager. The participation agreements provide the Company with the opportunity to invest along the same terms, conditions, price and rights in the specified investment. The purpose of the participation agreements is to allow the Company and an affiliate to originate a specified investment when, individually, the Company does not have the liquidity to do so or to achieve a certain level of portfolio diversification. The Company may transfer portions of its investments to other participants or it may be a participant to an investment held by another entity. ASC Topic 860, Transfers and Servicing (“ASC 860”), establishes accounting and reporting standards for transfers of financial assets. ASC 860-10 provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. The Company has determined that the participation agreements it enters into are accounted for as secured borrowings under ASC Topic 860. Participation interest purchased by the Company: The below tables list the investment interests purchased by the Company via participation agreements (each, a “PA”) as of December 31, 2024 and 2023. In accordance with the terms of each PA, each participant’s rights and obligations, including interest income and other income (e.g., exit fee and prepayment income) and related fees/expenses are based upon its respective pro-rata participation interest in such investments, as specified in the respective PA. The Company’s share of the investment is repayable only from the proceeds received from the related borrower/issuer of the investment, and therefore the Company is also subject to the credit risk (i.e., risk of default by the underlying borrower/issuer). Pursuant to each PA, the affiliated fund receives and allocates the interest income and other related investment incomes in respect of the investment to the Company. The Company paid related expenses (i.e., the base management fee) directly to Terra REIT.
|  | December 31, 2024 |  | December 31, 2023
|  | Participating Interests |  | Principal Balance |  | Carrying Value |  | Participating Interests |  | Principal Balance |  | Carrying Value
370 Lex Part Deux, LLC (1)(2) |  | 35.0 | % |  | $ | 24,491,877 |  |  | $ | 9,238,721 |  |  | 35.0 | % |  | $ | 24,491,877 |  |  | $ | 15,257,557 |
RS JZ Driggs, LLC (2)(3) |  | 50.0 | % |  | 2,843,280 |  |  | 2,573,280 |  |  | 50.0 | % |  | 2,627,373 |  |  | 2,627,373 |
Total |  |  |  | $ | 27,335,157 |  |  | $ | 11,812,001 |  |  |  |  | $ | 27,119,250 |  |  | $ | 17,884,930 |
_______________ (1)Carrying value is net of specific allowance for loan losses of $15.5 million and $9.2 million as of December 31, 2024 and December 31, 2023, respectively. (2)The loan is held in the name of Terra REIT, the Company’s parent entity. (3)The increase in principal balance as of December 31, 2024 when compared to December 31, 2023 is primarily related to legal fees incurred in connection with the Company's ongoing litigation to seek full repayment of the loan from the sponsor. Transfers of participation interests by the Company: The following table summarizes the investment that was subject to a PA with investment partnership affiliated with the REIT Manager as of December 31, 2024. There was no such investment as of December 31, 2023.
|  |  |  |  |  | December 31, 2024
|  |  |  |  |  | Transfers treated as obligations under participation agreements
|  | Principal |  | Carrying Value |  | % Transferred |  | Principal |  | Carrying Value
Asano Bankers Hill, LLC (1) |  | $ | 18,567,296 |  |  | $ | 18,575,895 |  |  | 96.9 | % |  | $ | 18,000,000 |  |  | $ | 18,173,962 |
________________ (1)Participant is a certain separately managed account, an investment partnership managed by the REIT Manager. This investment is held in the name of the Company, but the Participant’s rights and obligations, including interest income and other income (e.g., exit fee, prepayment income) and related fees/expenses (e.g., disposition fees, asset management and asset servicing fees), are based upon its pro rata participation interest in such participated investment, as specified in the participation agreement. The Participant’s share of the investment is repayable only from the proceeds received from the related borrower/issuer of the investment and, therefore, the Participant also is subject to credit risk (i.e., risk of default by the underlying borrower/issuer). Pursuant to the participation agreement with this entity, the Company receives and allocates the interest income and other related investment income to the Participant based on its pro rata participation interest. The Participant pays any expenses, including any fees to the REIT Manager, only on its pro rata participation interest, subject to the terms of the governing fee arrangements.

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