0001674356--12-31 2022-03-31 2022 Q1 false 0.01 0.01 50,000,000 50,000,000——12.5 12.5 125 125 125 125 125 125 0.01 0.01 450,000,000 450,000,000 19,487,460 19,487,460 19,487,460 19,487,460 0.20 0.20 117,840,659 107,261,022 15,523,107 14,252,357 0 LIBOR LIBOR 3.85 2.23 3.85 2.23 1.45 0.1 1.45 0.1 1.74 0.10 1.74 0.1 1.965 2.015 0.10 2.465 1.315 1.80 0.865 1.50 1.365 1.50——All of the Company’s loans have a prepayment penalty provision.Maximum maturity date assumes all extension options are exercised.Participation interest is with Mavik Real Estate Special Opportunities Fund REIT, LLC, a related-party real estate investment trust managed by the Manager (Note 8). In September 2021, the Company refinanced a previously-defaulted mezzanine loan with a new first mortgage. This refinancing was accounted for as a troubled debt restructuring and the Company recognized a loss of $0.3 million on the restructuring.Participation interest is with Terra Fund 6, an affiliated fund advised by the Terra Income Advisors, an affiliate of the Company’s sponsor and Manager (Note 8).The loan participations from the Company do not qualify for sale accounting under ASC 860 and therefore, the gross amount of these loans remain in Schedule IV. See “Obligations under Participation Agreements” in Note 9 and “Transfers of Participation Interest by the Company” in Note 8 in the accompanying notes to the consolidated financial statements. 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2022

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
Commission File Number: 001-40496
Terra Property Trust, Inc.
(Exact name of registrant as specified in its charter)

Maryland |  | 81-0963486
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

550 Fifth Avenue, 6 th Floor
New York, New York 10036
(Address of principal executive offices)
(212) 753-5100
(Registrant’s telephone number, including area code)
Securities registered pursuant to section 12(b) of the Securities Exchange Act of 1934:

Title of each class |  | Trading Symbol(s) |  | Name of exchange on which registered
6.00% Notes due 2026 |  | TPTA |  | New York Stock Exchange

Securities registered pursuant to section 12(g) of the Securities Exchange Act of 1934:
Common Stock $0.01 par value per share
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ¨ | Accelerated filer | ¨
Non-accelerated filer | þ | Smaller reporting company | ☑
|  | Emerging growth company | ☑

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of May 12, 2022, the registrant had 19,487,460 shares of common stock, $0.01 par value, outstanding. No market value has been computed based upon the fact that no active trading market had been established as of the date of this document.

TABLE OF CONTENTS

|  | Page
PART I | FINANCIAL INFORMATION |
Item 1. | Consolidated Financial Statements: |
| Consolidated Balance Sheets as of March 31, 2022 (unaudited) and December 31, 2021 | 2
| Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021 (unaudited) | 3
| Consolidated Statements of Changes in Equity for the three months ended March 31, 2022 and 2021 (unaudited) | 4
| Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 (unaudited) | 5
| Notes to Consolidated Financial Statements (unaudited) | 7
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 40
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 56
Item 4. | Controls and Procedures | 58
PART II | OTHER INFORMATION |
Item 1. | Legal Proceedings | 58
Item 1A. | Risk Factors | 58
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 58
Item 3. | Defaults upon Senior Securities | 58
Item 4. | Mine Safety Disclosures | 58
Item 5. | Other Information | 58
Item 6. | Exhibits | 59
Signatures | 60

1

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
Terra Property Trust, Inc.
Consolidated Balance Sheets

| March 31, 2022 |  | December 31, 2021
| (unaudited) |  |
Assets |  |  |
Cash and cash equivalents | $ | 9,858,153 |  |  | $ | 35,783,956 |
Restricted cash | 8,058,767 |  |  | 7,411,811 |
Cash held in escrow by lender | 7,651,900 |  |  | 7,902,880 |
Marketable securities | 510,151 |  |  | 1,310,000 |
Loans held for investment, net | 545,081,696 |  |  | 457,329,582 |
Loans held for investment acquired through participation, net | 12,937,304 |  |  | 12,343,732 |
Equity investment in unconsolidated investments | 91,662,090 |  |  | 69,713,793 |
Real estate owned, net (Note 5) |  |  |
Land, building and building improvements, net | 47,908,857 |  |  | 58,325,068 |
Lease intangible assets, net | 6,145,077 |  |  | 7,451,771 |
Assets held for sale | 8,395,011 |  |  | — |
Operating lease right-of-use asset | 27,391,012 |  |  | 27,394,936 |
Interest receivable | 3,020,009 |  |  | 2,463,037 |
Due from related party | — |  |  | 2,605,639 |
Other assets | 3,976,018 |  |  | 3,505,953 |
Total assets | $ | 772,596,045 |  |  | $ | 693,542,158 |
Liabilities and Equity |  |  |
Liabilities: |  |  |
Term loan payable, net of deferred financing fees | $ | — |  |  | $ | 91,940,062 |
Unsecured notes payable, net of debt issuance cost | 82,010,107 |  |  | 81,856,799 |
Repurchase agreements payable, net of deferred financing fees | 173,698,002 |  |  | 43,974,608 |
Obligations under participation agreements (Note 7 ) | 58,587,148 |  |  | 42,232,027 |
Mortgage loan payable, net of deferred financing fees and other | 31,963,840 |  |  | 32,134,295 |
Revolving line of credit payable, net of deferred financing fees | 64,414,007 |  |  | 38,186,472 |
Secured borrowing | 37,503,542 |  |  | 34,586,129 |
Interest reserve and other deposits held on investments | 8,058,767 |  |  | 7,411,811 |
Operating lease liability | 27,391,012 |  |  | 27,394,936 |
Lease intangible liabilities, net (Note 5) | 9,426,358 |  |  | 9,709,710 |
Due to Manager (Note 7) | 3,462,062 |  |  | 2,388,317 |
Interest payable | 1,450,843 |  |  | 1,879,626 |
Accounts payable and accrued expenses | 1,581,660 |  |  | 1,264,131 |
Unearned income | 364,630 |  |  | 449,690 |
Distributions payable | 3,906 |  |  | — |
Other liabilities | 3,491,971 |  |  | 4,289,967 |
Total liabilities | 503,407,855 |  |  | 419,698,580 |
Commitments and contingencies (Note 9) |  |  |
Equity: |  |  |
Preferred stock, $0.01 par value, 50,000,000 shares authorized and none issued | — |  |  | — |
12.5% Series A Cumulative Non-Voting Preferred Stock at liquidation preference, 125 shares authorized and 125 shares issued and outstanding at March 31, 2022 December 31, 2021 | 125,000 |  |  | 125,000 |
Common stock, $0.01 par value, 450,000,000 shares authorized and 19,487,460 shares issued and outstanding at March 31, 2022 and December 31, 2021 | 194,875 |  |  | 194,875 |
Additional paid-in capital | 373,443,672 |  |  | 373,443,672 |
Accumulated deficit | (104,575,357) |  |  | (99,919,969) |
Total equity | 269,188,190 |  |  | 273,843,578 |
Total liabilities and equity | $ | 772,596,045 |  |  | $ | 693,542,158 |

See notes to unaudited consolidated financial statements.
2

Terra Property Trust, Inc.
Consolidated Statements of Operations
(Unaudited)

|  |  | Three Months Ended March 31,
|  |  | 2022 |  | 2021
Revenues |  |  |  |  |
Interest income |  |  | $ | 8,882,151 |  |  | $ | 8,120,949 |
Real estate operating revenue |  |  | 2,979,454 |  |  | 2,011,641 |
Other operating income |  |  | 250,665 |  |  | 156,662 |
|  |  | 12,112,270 |  |  | 10,289,252 |
Operating expenses |  |  |  |  |
Operating expenses reimbursed to Manager |  |  | 1,928,563 |  |  | 1,342,758 |
Asset management fee |  |  | 1,488,095 |  |  | 1,156,543 |
Asset servicing fee |  |  | 349,329 |  |  | 273,207 |
Provision for loan losses |  |  | 50,296 |  |  | 276,020 |
Real estate operating expenses |  |  | 1,217,963 |  |  | 971,315 |
Depreciation and amortization |  |  | 1,718,372 |  |  | 931,725 |
Impairment charge |  |  | 1,604,989 |  |  | — |
Professional fees |  |  | 742,518 |  |  | 520,419 |
Directors fees |  |  | 36,252 |  |  | 36,250 |
Other |  |  | 83,421 |  |  | 71,488 |
|  |  | 9,219,798 |  |  | 5,579,725 |
Operating income |  |  | 2,892,472 |  |  | 4,709,527 |
Other income and expenses |  |  |  |  |
Interest expense from obligations under participation agreements |  |  | (1,075,109) |  |  | (1,880,081) |
Interest expense on repurchase agreement payable |  |  | (755,826) |  |  | — |
Interest expense on mortgage loan payable |  |  | (518,617) |  |  | (686,150) |
Interest expense on revolving line of credit |  |  | (524,294) |  |  | (17,846) |
Interest expense on term loan payable |  |  | (164,969) |  |  | (1,672,768) |
Interest expense on unsecured notes payable |  |  | (1,430,183) |  |  | —
Interest expense on secured borrowing |  |  | (552,785) |  |  | (299,805) |
Net unrealized losses on marketable securities |  |  | (99,044) |  |  | (14,608) |
Income from equity investment in unconsolidated investments |  |  | 1,419,335 |  |  | 1,337,827 |
Realized gains on marketable securities |  |  | 51,133 |  |  | — |
|  |  | (3,650,359) |  |  | (3,233,431) |
Net (loss) income |  |  | $ | (757,887) |  |  | $ | 1,476,096 |
Series A preferred stock dividend declared |  |  | (3,906) |  |  | (3,906) |
Net (loss) income allocable to common stock |  |  | $ | (761,793) |  |  | $ | 1,472,190 |
(loss) earnings per share — basic and diluted |  |  | $ | (0.04) |  |  | $ | 0.08 |
Weighted-average shares — basic and diluted |  |  | 19,487,460 |  |  | 19,487,460 |
Distributions declared per common share |  |  | $ | 0.20 |  |  | $ | 0.20 |

See notes to unaudited consolidated financial statements.
3

Terra Property Trust, Inc.
Consolidated Statements of Changes in Equity
(Unaudited)

|  | Preferred Stock |  | 12.5% Series A Cumulative Non-Voting Preferred Stock |  | Common Stock |  | Additional Paid-in Capital |  | Accumulated Deficit |  |
|  |  |  | $0.01 Par Value |  |  |  |
|  |  | Shares |  | Amount |  | Shares |  | Amount |  |  |  | Total equity
Balance at January 1, 2022 |  | $ | — |  |  | 125 |  | $ | 125,000 |  |  | 19,487,460 |  | $ | 194,875 |  |  | $ | 373,443,672 |  |  | $ | (99,919,969) |  |  | $ | 273,843,578 |
Distributions declared on common shares ($0.20 per share) |  | — |  |  | — |  | — |  |  | — |  | — |  |  | — |  |  | (3,893,595) |  |  | (3,893,595) |
Distributions declared on preferred shares |  | — |  |  | — |  | — |  |  | — |  | — |  |  | — |  |  | (3,906) |  |  | (3,906) |
Net loss |  | — |  |  | — |  | — |  |  | — |  | — |  |  | — |  |  | (757,887) |  |  | (757,887) |
Balance at March 31, 2022 |  | $ | — |  |  | 125 |  | $ | 125,000 |  |  | 19,487,460 |  |  | $ | 194,875 |  |  | $ | 373,443,672 |  |  | $ | (104,575,357) |  |  | $ | 269,188,190 |

|  | Preferred Stock |  | 12.5% Series A Cumulative Non-Voting Preferred Stock |  | Common Stock |  | Additional Paid-in Capital |  | Accumulated Deficit |  |
|  |  |  | $0.01 Par Value |  |  |  |
|  |  | Shares |  | Amount |  | Shares |  | Amount |  |  |  | Total equity
Balance at January 1, 2021 |  | $ | — |  |  | 125 |  | $ | 125,000 |  |  | 19,487,460 |  | $ | 194,875 |  |  | $ | 373,443,672 |  |  | $ | (70,438,482) |  |  | $ | 303,325,065 |
Distributions declared on common shares ($0.20 per share) |  | — |  |  | — |  | — |  |  | — |  | — |  |  | — |  |  | (3,893,595) |  |  | (3,893,595) |
Distributions declared on preferred shares |  | — |  |  | — |  | — |  |  | — |  | — |  |  | — |  |  | (3,906) |  |  | (3,906) |
Net income |  | — |  |  | — |  | — |  |  | — |  | — |  |  | — |  |  | 1,476,096 |  |  | 1,476,096 |
Balance at March 31, 2021 |  | $ | — |  |  | 125 |  |  | $ | 125,000 |  |  | 19,487,460 |  |  | $ | 194,875 |  |  | $ | 373,443,672 |  |  | $ | (72,859,887) |  |  | $ | 300,903,660 |

See notes to unaudited consolidated financial statements.
4

Terra Property Trust, Inc.
Consolidated Statements of Cash Flows
(Unaudited)

| Three Months Ended March 31,
| 2022 |  | 2021
Cash flows from operating activities: |  |  |
Net (loss) income | $ | (757,887) |  |  | $ | 1,476,096 |
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |  |  |
Paid-in-kind interest income, net | — |  |  | (224,197) |
Depreciation and amortization | 1,718,516 |  |  | 931,725 |
Provision for loan losses | 50,296 |  |  | 276,020 |
Impairment charge | 1,604,989 |  |  | — |
Amortization of net purchase premiums on loans | 15,348 |  |  | 15,348 |
Straight-line rent adjustments | 359,056 |  |  | (12,008) |
Amortization of deferred financing costs | 520,991 |  |  | 172,692 |
Amortization of discount on unsecured notes payable | 113,147 |  |  | — |
Amortization of above- and below-market rent intangibles | (246,375) |  |  | (84,555) |
Amortization and accretion of investment-related fees, net | (195,932) |  |  | — |
Amortization of above-market rent ground lease | (32,588) |  |  | (32,588) |
Realized gains on marketable securities | (51,133) |  |  | — |
Net unrealized losses on marketable securities | 99,044 |  |  | 14,608 |
Income from equity investment in excess of distributions received | (1,119,913) |  |  | (1,337,827) |
Changes in operating assets and liabilities: |  |  |
Interest receivable | (556,972) |  |  | (472) |
Due from related party | 2,605,639 |  |  | — |
Other assets | (705,897) |  |  | (528,133) |
Due to Manager | 336,805 |  |  | 93,228 |
Unearned income | 261,193 |  |  | (391,727) |
Interest payable | (428,783) |  |  | 27,716 |
Accounts payable and accrued expenses | 317,529 |  |  | (2,146,110) |
Other liabilities | (797,996) |  |  | (6,964) |
Net cash provided by (used in) operating activities | 3,109,077 |  |  | (1,757,148) |
Cash flows from investing activities: |  |  |
Origination and purchase of loans | (88,119,821) |  |  | (14,410,706) |
Proceeds from repayments of loans | 750,000 |  |  | 31,531,804 |
Purchase of equity interests in unconsolidated investments | (21,164,384) |  |  | (12,907,725) |
Distributions in excess of net income | 336,000 |  |  | — |
Purchase of marketable securities | — |  |  | (4,979,088) |
Proceeds from sale of marketable securities | 628,715 |  |  | — |
Net cash used in investing activities | (107,569,490) |  |  | (765,715) |

5

Terra Property Trust, Inc.
Consolidated Statements of Cash Flows (Continued)
(Unaudited)

| Three Months Ended March 31,
| 2022 |  | 2021
Cash flows from financing activities: |  |  |
Repayments of obligations under participation agreements | — |  |  | (3,962,509) |
Proceeds from obligations under participation agreements | 15,863,187 |  |  | 3,520,514 |
Proceeds from borrowings under repurchase agreement | 131,949,549 |  |  | — |
Proceeds from borrowings under revolving line of credit | 26,377,654 |  |  | 8,030,611 |
Distributions paid | (3,893,595) |  |  | (3,893,595) |
Repayment of borrowings under the term loan | (93,763,471) |  |  | (2,600,000) |
Proceeds from secured borrowing | 2,850,520 |  |  | 3,751,680 |
Repayment of mortgage principal | (204,967) |  |  | (3,423,245) |
Proceeds from borrowings under the term loan | — |  |  | 1,469,656 |
Change in interest reserve and other deposits held on investments | 646,956 |  |  | (5,049,067) |
Payment of financing costs | (895,247) |  |  | (641,446) |
Net cash provided by (used in) financing activities | 78,930,586 |  |  | (2,797,401) |
Net decrease in cash, cash equivalents and restricted cash | (25,529,827) |  |  | (5,320,264) |
Cash, cash equivalents and restricted cash at beginning of period | 51,098,647 |  |  | 32,920,323 |
Cash, cash equivalents and restricted cash at end of period (Note 2) | $ | 25,568,820 |  |  | $ | 27,600,059 |

| Three Months Ended March 31,
| 2022 |  | 2021
Supplemental Disclosure of Cash Flows Information: |  |  |
Cash paid for interest | $ | 4,920,363 |  |  | $ | 4,094,327 |

See notes to unaudited consolidated financial statements.
6

Terra Property Trust, Inc.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2022
Note 1. Business
Terra Property Trust, Inc. (and, together with its consolidated subsidiaries, the “Company” or “Terra Property Trust”) was incorporated under the general corporation laws of the State of Maryland on December 31, 2015. Terra Property Trust is a real estate credit focused company that originates, structures, funds and manages commercial real estate investments, including mezzanine loans, first mortgage loans, subordinated mortgage loans and preferred equity investments. The Company’s loans finance the acquisition, construction, development or redevelopment of quality commercial real estate in the United States. The Company focuses on the origination of middle market loans in the approximately $10 million to $50 million range, to finance properties in primary and secondary markets.
On January 1, 2016, Terra Secured Income Fund 5, LLC (“Terra Fund 5”), the Company’s then parent, contributed its consolidated portfolio of net assets to the Company pursuant to a contribution agreement in exchange for shares of the Company’s common stock. Upon receipt of the contribution of the consolidated portfolio of net assets from Terra Fund 5, the Company commenced its operations on January 1, 2016. On March 2, 2020, the Company engaged in a series of transactions pursuant to which the Company issued an aggregate of 4,574,470.35 shares of its common stock in exchange for the settlement of an aggregate of $49.8 million of participation interests in loans held by the Company, cash of $25.5 million and other working capital. As of March 31, 2022, Terra JV, LLC (“Terra JV”) held 87.4% of the issued and outstanding shares of the Company’s common stock with the remainder held by Terra Offshore Funds REIT, LLC (“Terra Offshore REIT”).
The Company has elected to be taxed, and to qualify annually thereafter, as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), commencing with the taxable year ended December 31, 2016. As a REIT, the Company is not subject to federal income taxes on income and gains distributed to the stockholders as long as certain requirements are satisfied, principally relating to the nature of income and the level of distributions, as well as other factors. The Company also operates its business in a manner that permits it to maintain its exemption from registration as an “investment company” under the Investment Company Act of 1940, as amended.
The Company’s investment activities are externally managed by Terra REIT Advisors, LLC (“Terra REIT Advisors” or the “Manager”), a subsidiary of the Company’s sponsor, Terra Capital Partners, LLC (“Terra Capital Partners”), pursuant to a management agreement (the “Management Agreement”), under the oversight of the Company’s board of directors (Note 7). The Company does not currently have any employees and does not expect to have any employees. Services necessary for the Company’s business are provided by individuals who are employees of the Manager or by individuals who were contracted by the Company or by the Manager to work on behalf of the Company pursuant to the terms of the Management Agreement. On April 1, 2021, Mavik Capital Management, LP (“Mavik”), an entity controlled by Vikram S. Uppal, the Chief Executive Officer of the Company, completed a series of related transactions that resulted in all of the outstanding interests in Terra Capital Partners, being acquired by Mavik for a combination of cash and interests in Mavik (the “Recapitalization”). No amendments or other modifications were made to the Management Agreement in connection with the Recapitalization, and the Manager and its personnel continue to serve as the external manager of the Company pursuant to the terms of the Management Agreement.
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include all of the Company’s accounts and those of its consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current period presentation.
The Company consolidates entities in which it has a controlling financial interest based on either the variable interest entity (“VIE”) or voting interest model. The Company is required to first apply the VIE model to determine whether it holds a variable interest in an entity, and if so, whether the entity is a VIE. If the Company determines it does not hold a variable interest in a VIE, it then applies the voting interest model. Under the voting interest model, the Company consolidates an entity when it holds a majority voting interest in an entity.
The Company accounts for investments in which it has significant influence but not a controlling financial interest using the equity method of accounting (see Note 4).
7

Notes to Unaudited Consolidated Financial Statements
VIE Model
An entity is considered to be a VIE if any of the following conditions exist: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support, (b) the holders of the equity investment at risk, as a group, lack either the direct or indirect ability through voting rights or similar rights to make decisions that have a significant effect on the success of the entity or the obligation to absorb the entity’s expected losses or right to receive the entity’s expected residual returns, or (c) the voting rights of some equity investors are disproportionate to their obligation to absorb losses of the entity, their rights to receive returns from an entity, or both and substantially all of the entity’s activities either involve or are conducted on behalf of an investor with disproportionately few voting rights.
Under the VIE model, limited partnerships are considered a VIE unless the limited partners hold substantive kick-out or participating rights over the general partner. The Company consolidates entities that are VIEs when the Company determines it is the primary beneficiary. Generally, the primary beneficiary of a VIE is a reporting entity that has (a) the power to direct the activities that most significantly affect the VIE’s economic performance, and (b) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE.
Loans Held for Investment
The Company originates, acquires, and structures real estate-related loans generally to be held to maturity. Loans held for investment are carried at the principal amount outstanding, adjusted for the accretion of discounts on investments and exit fees, and the amortization of premiums on investments and origination fees. The Company’s preferred equity investments, which are economically similar to mezzanine loans and subordinate to any loans but senior to common equity, are accounted for as loans held for investment. Loans are carried at cost less allowance for loan losses.
Allowance for Loan Losses
The Company’s loans are typically collateralized by either the sponsors’ equity interest in the real estate properties or the underlying real estate properties. As a result, the Company regularly evaluates the extent and impact of any credit migration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower/sponsor on a loan-by-loan basis. Specifically, a property’s operating results and any cash reserves are analyzed and used to assess (i) whether cash from operations and/or reserve balances are sufficient to cover the debt service requirements currently and into the future; (ii) the ability of the borrower to refinance the loan; and/or (iii) the property’s liquidation value. The Company also evaluates the financial wherewithal of the sponsor as well as its competency in managing and operating the real estate property. In addition, the Company considers the overall economic environment, real estate sector, and geographic sub-market in which the borrower operates. Such analyses are completed and reviewed by asset management and finance personnel, who utilize various data sources, including (i) periodic financial data such as debt service coverage ratio, property occupancy, tenant profile, rental rates, operating expenses, the borrower’s exit plan, the capitalization and discount rates; (ii) site inspections; and (iii) current credit spreads and discussions with market participants.
The Manager performs a quarterly evaluation for possible impairment of the Company’s portfolio of loans. A loan is impaired if it is deemed probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan. Impairment is measured based on the present value of expected future cash flows or the fair value of the collateral if the loan is collateral dependent. Upon measurement of impairment, the Company records an allowance to reduce the carrying value of the loan with a corresponding charge to net income.
In conjunction with the quarterly evaluation of loans not considered impaired, the Manager assesses the risk factors of each loan and assigns each loan a risk rating between 1 and 5, which is an average of the numerical ratings in the following categories: (i) sponsor capability and financial condition; (ii) loan and collateral performance relative to underwriting; (iii) quality and stability of collateral cash flows and/or reserve balances; and (iv) loan to value. Based on a 5-point scale, the Company’s loans are rated “1” through “5”, from less risk to greater risk, as follows:

Risk Rating |  | Description
1 |  | Very low risk
2 |  | Low risk
3 |  | Moderate/average risk
4 |  | Higher risk
5 |  | Highest risk

8

Notes to Unaudited Consolidated Financial Statements
The Company records an allowance for loan losses equal to (i) 1.5% of the aggregate carrying amount of loans rated as a “4”, plus (ii) 5% of the aggregate carrying amount of loans rated as a “5”, plus (iii) impaired loan reserves, if any.
There may be circumstances where the Company modifies a loan by granting the borrower a concession that it might not otherwise consider when a borrower is experiencing financial difficulty or is expected to experience financial difficulty in the foreseeable future. Such concessionary modifications are classified as troubled debt restructurings (“TDR”s) unless the modification solely results in a delay in a payment that is insignificant. Loans classified as TDRs are considered impaired loans for reporting and measurement purposes.
Equity Investment in Unconsolidated Investments
The Company accounts for its equity interests in unconsolidated investments under the equity method of accounting, i.e., at cost, increased or decreased by its share of earnings or losses, less distributions, plus contributions and other adjustments required by equity method accounting.
The Company evaluates its equity investment unconsolidated investments on a periodic basis to determine if there are any indicators that the value of its equity investments may be impaired and whether or not that impairment is other-than-temporary. To the extent an impairment has occurred and is determined to be other-than-temporary, the Company measures the charge as the excess of the carrying value of its investment over its estimated fair value, which is determined by calculating its share of the estimated fair market value of the underlying net assets based on the terms of the applicable partnership or joint venture agreements.
Marketable Securities
The Company from time to time invests in short term debt and equity securities. These securities are classified as available-for-sale and are carried at fair value. Changes in the fair value of equity securities are recognized in earnings. Changes in the fair value of debt securities are reported in other comprehensive income until a gain or loss on the securities is realized.
Real Estate Owned, Net
Real estate acquired is recorded at its estimated fair value at acquisition and is shown net of accumulated depreciation and impairment charges.
Acquisition of properties generally are accounted for as asset acquisitions. Under asset acquisition accounting, the costs to acquire real estate, including transaction costs, are accumulated and then allocated to individual assets and liabilities acquired based upon their relative fair value. The Company allocates the purchase price of its real estate acquisitions to land, building, tenant improvements, acquired in-place leases, intangibles for the value of any above or below market leases at fair value and to any other identified intangible assets or liabilities. The Company amortizes the value allocated to in-place leases over the remaining lease term, which is reported in depreciation and amortization expense on its consolidated statements of operations. The value allocated to above or below market leases are amortized over the remaining lease term as an adjustment to rental income.
Real estate assets are depreciated using the straight-line method over their estimated useful lives: buildings and improvements - not to exceed 40 years, and tenant improvements - shorter of the lease term or life of the asset. Ordinary repairs and maintenance which are not reimbursed by the tenants are expensed as incurred. Major replacements and betterments which improve or extend the life of the asset are capitalized and depreciated over their estimated useful life.
Management reviews the Company’s real estate for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The review of recoverability is based on estimated future cash flows and the estimated liquidation value of such real estate assets, and provide for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the real estate assets. If impaired, the real estate asset will be written down to its estimated fair value.
9

Notes to Unaudited Consolidated Financial Statements
Assets Held for Sale
The Company generally classifies real estate assets as held for sale when it has entered into a contract to sell the property, all material due diligence requirements have been satisfied, the Company received a non-refundable deposit, and it is probable that the disposition will occur within one year.
Leases
The Company determines if an arrangement is a lease at inception. Operating leases in which the Company is the lessee are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the consolidated balance sheets.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s lease typically does not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made in advance and excludes lease incentives if there were any. The Company’s lease term may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Revenue Recognition
Revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
Interest Income: Interest income is accrued based upon the outstanding principal amount and contractual terms of the loans and preferred equity investments that the Company expects to collect and it is accrued and recorded on a daily basis. Discounts and premiums on investments purchased are accreted or amortized over the expected life of the respective loan using the effective yield method, and are included in interest income in the consolidated statements of operations. Loan origination fees and exit fees, net of portions attributable to obligations under participation agreements, are capitalized and amortized or accreted to interest income over the life of the investment using the effective yield method. Income accrual is generally suspended for loans at the earlier of the date at which payments become 90 days past due or when, in the opinion of the Manager, recovery of income and principal becomes doubtful. Outstanding interest receivable is assessed for recoverability. Interest is then recorded on the basis of cash received until accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability.
The Company holds loans in its portfolio that contain paid-in-kind (“PIK”) interest provisions. The PIK interest, which represents contractually deferred interest that is added to the principal balance that is due at maturity, is recorded on the accrual basis.
Real Estate Operating Revenues: Real estate operating revenue is derived from leasing of space to various types of tenants. The leases are for fixed terms of varying length and generally provide for annual rent increases and expense reimbursements to be paid in monthly installments. Lease revenue, or rental income from leases, is recognized on a straight-line basis over the term of the respective leases. Additionally, the Company recorded above- and below-market lease intangibles, which are included in real estate owned, net, in connection with the acquisition of the real estate properties. These intangible assets and liabilities are amortized to lease revenue over the remaining contractual lease term.
Other Revenues: Prepayment fee income is recognized as prepayments occur. All other income is recognized when earned.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments, with original maturities of ninety days or less when purchased, as cash equivalents. Cash and cash equivalents are exposed to concentrations of credit risk. The Company maintains all of its cash at financial institutions which, at times, may exceed the amount insured by the Federal Deposit Insurance Corporation.
Restricted cash represents cash held as additional collateral by the Company on behalf of the borrowers related to the investments in loans or preferred equity instruments for the purpose of such borrowers making interest and property-related
10

Notes to Unaudited Consolidated Financial Statements
operating payments. Restricted cash is not available for general corporate purposes. The related liability is recorded in “Interest reserve and other deposits held on investments” on the consolidated balance sheets.
Cash held in escrow by lender represents amounts funded to an escrow account for debt services and tenant improvements.
The following table provides a reconciliation of cash, cash equivalents and restricted cash in the Company’s consolidated balance sheets to the total amount shown in its consolidated statements of cash flows:

|  | March 31,
|  | 2022 |  | 2021
Cash and cash equivalents |  | $ | 9,858,153 |  |  | $ | 18,464,161 |
Restricted cash |  | 8,058,767 |  |  | 7,096,549 |
Cash held in escrow by lender (1) |  | 7,651,900 |  |  | 2,039,349 |
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows |  | $ | 25,568,820 |  |  | $ | 27,600,059 |

_______________
(1)The Company has a cash management account with the lender to collect rental payment on the property used as collateral for a mortgage loan payable. As of March 31, 2022, approximately $3.8 million of the cash in the account was available for operational needs.
Participation Interests
Loan participations from the Company which do not qualify for sale treatment remain on the Company’s consolidated balance sheets and the proceeds are recorded as obligations under participation agreements. For the investments for which participation has been granted, the interest earned on the entire loan balance is recorded within “Interest income” and the interest related to the participation interest is recorded within “Interest expense from obligations under participation agreements” in the consolidated statements of operations. Interest expense from obligations under participation agreement is reversed when recovery of interest income on the related loan becomes doubtful. See “Obligations under Participation Agreements” in Note 8 for additional information.
Term Loan
The Company previously financed certain of its senior loans through borrowings under an indenture and credit agreement. The Company accounted for the borrowings as a term loan, which was carried at the contractual amount (cost), net of unamortized deferred financing fees. On February 18, 2022, the Company refinanced the Term Loan (as defined below) with a new repurchase agreement. See “Term Loan” in Note 8 for additional information.
Repurchase Agreements
The Company finances certain of its senior loans held for investment through repurchase transactions under master repurchase agreements. The Company accounts for the repurchase transactions as secured borrowing transactions, which are carried at their contractual amounts (cost), net of unamortized deferred financing fees. See “Repurchase Agreements” in Note 8 for additional information.
Fair Value Measurements
United States generally accepted accounting principles (“U.S. GAAP”) establishes market-based or observable inputs as the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs. The Company has not elected the fair value option for its financial instruments, including loans held for investment, loans held for investment acquired through participation, obligations under participation agreements, secured borrowing, unsecured notes, mortgage loan payable, term loan payable, repurchase agreement payment and revolving line of credit. Such financial instruments are carried at cost, less impairment, where applicable. Marketable securities are financial instruments that are reported at fair value.
11

Notes to Unaudited Consolidated Financial Statements
Deferred Financing Costs
Deferred financing costs represent fees and expenses incurred in connection with obtaining financing for investments. These costs are presented in the consolidated balance sheets as a direct deduction of the debt liability to which the costs pertain. These costs are amortized using the effective interest method and are included in interest expense on the applicable borrowings in the consolidated statements of operations over the life of the borrowings.
Income Taxes
The Company has elected to be taxed as a REIT under the Internal Revenue Code commencing with the taxable year ended December 31, 2016. In order to qualify as a REIT, the Company is required, among other things, to distribute at least 90% of its REIT net taxable income to the stockholders and meet certain tests regarding the nature of its income and assets. As a REIT, the Company is not subject to federal income taxes on income and gains distributed to the stockholders as long as certain requirements are satisfied, principally relating to the nature of income and the level of distributions, as well as other factors. If the Company fails to continue to qualify as a REIT in any taxable year and does not qualify for certain statutory relief provisions, the Company will be subject to U.S. federal and state income taxes at regular corporate rates (including any applicable alternative minimum tax for taxable years before 2018) beginning with the year in which it fails to qualify and may be precluded from being able to elect to be treated as a REIT for the Company’s four subsequent taxable years. Any gains from the sale of foreclosed properties within two years are subject to U.S. federal and state income taxes at regular corporate rates. As of March 31, 2022, the Company has satisfied all the requirements for a REIT.
The Company did not have any uncertain tax positions that met the recognition or measurement criteria of Accounting Standards Codification (“ASC”) 740-10-25, Income Taxes, nor did the Company have any unrecognized tax benefits as of the periods presented herein. The Company recognizes interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in its consolidated statements of operations. For the three months ended March 31, 2022 and 2021, the Company did not incur any interest or penalties. Although the Company files federal and state tax returns, its major tax jurisdiction is federal. The Company’s 2018-2020 federal tax returns remain subject to examination by the Internal Revenue Service.
Earnings Per Share
The Company has a simple equity capital structure with only common stock and preferred stock outstanding. As a result, earnings per share, as presented, represent both basic and dilutive per-share amounts for the periods presented in the consolidated financial statements. Income per basic share of common stock is calculated by dividing net income allocable to common stock by the weighted-average number of shares of common stock issued and outstanding during such period.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may ultimately differ from those estimates, and those differences could be material.
The coronavirus (“COVID-19”) pandemic has had a significant impact on local, national and global economies and has resulted in a world-wide economic slowdown. However, after two years into the COVID-19 pandemic, the real estate market has started to recover from the dislocation it experienced. A strong pace of vaccination along with aggressive fiscal stimulus, has improved the outlook for the real estate market. The Company continues to closely monitor the impact of the COVID-19 pandemic on all aspects of its investments and operations. The Company believes the estimates and assumptions underlying its financial statements are reasonable and supportable based on the information available as of March 31, 2022; however, the extent to which the COVID-19 pandemic may impact the Company’s investments and operations going forward will depend on future developments, which are highly uncertain and cannot be predicted with confidence. These developments include the duration of the outbreak, the impact of the global vaccination effort, any new strains of the virus that are resistant to available vaccines, the impact of government stimulus, new information that may emerge concerning the severity of the COVID-19 pandemic, and actions taken by federal, state and local agencies as well as the general public to contain the COVID-19 pandemic or treat its impact, among others. Accordingly, any estimates and assumptions as of March 31, 2022 are inherently less certain than they would be absent the current and potential impacts of the COVID-19 pandemic.
12

Notes to Unaudited Consolidated Financial Statements
Segment Information
The Company’s primary business is originating, acquiring and structuring real estate-related loans related to high quality commercial real estate. From time to time, the Company may acquire real estate encumbering the senior loans through foreclosure. However, management treats the operations of the real estate acquired through foreclosure as the continuation of the original senior loans. The Company operates in a single segment focused on mezzanine loans, other loans and preferred equity investments, and to a lesser extent, owning and managing real estate.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. In April 2019, the FASB issued additional amendments to clarify the scope of ASU 2016-13 and address issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayments, among other things. In May 2019, the FASB issued ASU 2019-05 — Targeted Transition Relief, which provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. In October 2019, the FASB decided that for smaller reporting companies, ASU 2016-13 and related amendments will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company meets the definition of a smaller reporting company under the regulation of the Securities and Exchange Commission. As such, the Company will adopt this ASU and related amendments on January 1, 2023. Management is currently evaluating the impact this change will have on the Company’s consolidated financial statements and disclosures.
London Interbank Offered Rate (“LIBOR”) is a benchmark interest rate referenced in a variety of agreements that are used by all types of entities. In July 2017, the U.K. Financial Conduct Authority, which regulates the LIBOR administrator, ICE Benchmark Administration Limited (“IBA”), announced that it would cease to compel banks to participate in setting LIBOR as a benchmark by the end of 2021, which has subsequently been delay to June 30, 2023. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) — Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The amendments in ASU 2020-04 provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848), which expanded the scope of Topic 848 to include derivative instruments impacted by discounting transition (“ASU 2021-01”). ASU 2020-04 and ASU 2021-01 are effective for all entities through December 31, 2022. The expedients and exceptions provided by the amendments do not apply to contract modifications and hedging relationships entered into or evaluated after December 31, 2022, except for hedging transactions as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. In the event LIBOR is unavailable, the Company’s investment documents provide for a substitute index, on a basis generally consistent with market practice, intended to put the Company in substantially the same economic position as LIBOR. As a result, the Company does not expect the reference rate reform and the adoption of ASU 2020-04 and ASU 2021-01 to have a material impact on its consolidated financial statements and disclosures.
Note 3. Loans Held for Investment
Portfolio Summary
The following table provides a summary of the Company’s loan portfolio as of March 31, 2022 and December 31, 2021:

| March 31, 2022 |  | December 31, 2021
| Fixed Rate |  | Floating Rate (1)(2)(3) |  | Total |  | Fixed Rate |  | Floating Rate (1)(2)(3) |  | Total
Number of loans | 7 |  |  | 18 |  |  | 25 |  |  | 6 |  |  | 15 |  |  | 21 |
Principal balance | $ | 97,914,340 |  |  | $ | 469,606,633 |  |  | $ | 567,520,973 |  |  | $ | 74,880,728 |  |  | $ | 405,270,423 |  |  | $ | 480,151,151 |
Carrying value | $ | 99,264,597 |  |  | $ | 458,754,403 |  |  | $ | 558,019,000 |  |  | $ | 75,520,212 |  |  | $ | 394,153,102 |  |  | $ | 469,673,314 |
Fair value | $ | 99,045,593 |  |  | $ | 457,961,364 |  |  | $ | 557,006,957 |  |  | $ | 75,449,410 |  |  | $ | 391,752,209 |  |  | $ | 467,201,619 |
Weighted-average coupon rate | 12.92 | % |  | 7.16 | % |  | 8.15 | % |  | 12.39 | % |  | 7.01 | % |  | 7.85 | %
Weighted-average remaining term (years) | 1.98 |  | 1.32 |  | 1.44 |  | 1.93 |  | 1.45 |  | 1.53

13

Notes to Unaudited Consolidated Financial Statements
_______________
(1)These loans pay a coupon rate of LIBOR or Secured Overnight Financing Rate (“SOFR”), as applicable, plus a fixed spread. Coupon rate shown was determined using LIBOR of 0.45% and SOFR of 0.16% as of March 31, 2022 and LIBOR of 0.10% as of December 31, 2021.
(2)As of March 31, 2022 and December 31, 2021, amount included $351.1 million and $290.6 million of senior mortgages used as collateral for $241.5 million and $176.9 million of borrowings under credit facilities, respectively (Note 8).
(3)As of March 31, 2022 and December 31, 2021, sixteen and thirteen of these loans, respectively, are subject to a LIBOR or SOFR floor, as applicable.
Lending Activities
The following table presents the activities of the Company’s loan portfolio for the three months ended March 31, 2022 and 2021:

| Loans Held for Investment |  | Loans Held for Investment through Participation Interests |  | Total
Balance, January 1, 2022 | $ | 457,329,582 |  |  | $ | 12,343,732 |  |  | $ | 469,673,314 |
New loans made | 87,538,133 |  |  | 581,688 |  |  | 88,119,821 |
Principal repayments received | (750,000) |  |  | — |  |  | (750,000) |
Net amortization of premiums on loans | (15,348) |  |  | — |  |  | (15,348) |
Accrual, payment and accretion of investment-related fees and other, net | 1,029,625 |  |  | 11,884 |  |  | 1,041,509 |
Provision for loan losses | (50,296) |  |  | — |  |  | (50,296) |
Balance, March 31, 2022 | $ | 545,081,696 |  |  | $ | 12,937,304 |  |  | $ | 558,019,000 |

| Loans Held for Investment |  | Loans Held for Investment through Participation Interests |  | Total
Balance, January 1, 2021 | $ | 417,986,462 |  |  | $ | 4,294,053 |  |  | $ | 422,280,515 |
New loans made | 14,410,706 |  |  | — |  |  | 14,410,706 |
Principal repayments received | (31,531,804) |  |  | — |  |  | (31,531,804) |
PIK interest (1) | 676,646 |  |  | — |  |  | 676,646 |
Net amortization of premiums on loans | (15,348) |  |  | — |  |  | (15,348) |
Accrual, payment and accretion of investment-related fees and other, net | 526,081 |  |  | (1,905) |  |  | 524,176 |
Provision for loan losses | (276,020) |  |  | — |  |  | (276,020) |
Balance, March 31, 2021 | $ | 401,776,723 |  |  | $ | 4,292,148 |  |  | $ | 406,068,871 |

_______________
(1)Certain loans in the Company’s portfolio contain PIK interest provisions. The PIK interest represents contractually deferred interest that is added to the principal balance. PIK interest related to obligations under participation agreements amounted $0.5 million for the three months ended March 31, 2021.
14

Notes to Unaudited Consolidated Financial Statements
Portfolio Information
The tables below detail the types of loans in the Company’s loan portfolio, as well as the property type and geographic location of the properties securing these loans as of March 31, 2022 and December 31, 2021:

|  | March 31, 2022 |  | December 31, 2021
Loan Structure |  | Principal Balance |  | Carrying Value |  | % of Total |  | Principal Balance |  | Carrying Value |  | % of Total
First mortgages |  | $ | 410,635,036 |  |  | $ | 413,619,050 |  |  | 74.1 | % |  | $ | 345,454,454 |  |  | $ | 348,101,455 |  |  | 74.0 | %
Preferred equity investments |  | 93,441,580 |  |  | 93,607,463 |  |  | 16.8 | % |  | 92,252,340 |  |  | 92,400,572 |  |  | 19.7 | %
Credit facility |  | 46,000,000 |  |  | 46,885,375 |  |  | 8.4 | % |  | 25,000,000 |  |  | 25,206,964 |  |  | 5.4 | %
Mezzanine loans |  | 17,444,357 |  |  | 17,615,889 |  |  | 3.2 | % |  | 17,444,357 |  |  | 17,622,804 |  |  | 3.8 | %
Allowance for loan losses |  | — |  |  | (13,708,777) |  |  | (2.5) | % |  | — |  |  | (13,658,481) |  |  | (2.9) | %
Total |  | $ | 567,520,973 |  |  | $ | 558,019,000 |  |  | 100.0 | % |  | $ | 480,151,151 |  |  | $ | 469,673,314 |  |  | 100.0 | %

|  | March 31, 2022 |  | December 31, 2021
Property Type |  | Principal Balance |  | Carrying Value |  | % of Total |  | Principal Balance |  | Carrying Value |  | % of Total
Office |  | $ | 229,192,520 |  |  | $ | 230,101,500 |  |  | 41.2 | % |  | $ | 221,596,870 |  |  | $ | 222,426,872 |  |  | 47.3 | %
Multifamily |  | 120,216,869 |  |  | 122,074,241 |  |  | 21.9 | % |  | 80,805,787 |  |  | 81,835,756 |  |  | 17.4 | %
Industrial |  | 67,571,608 |  |  | 67,606,537 |  |  | 12.1 | % |  | 32,000,000 |  |  | 32,206,964 |  |  | 6.9 | %
Hotel - full/select service |  | 56,918,328 |  |  | 57,520,720 |  |  | 10.3 | % |  | 56,847,381 |  |  | 57,395,682 |  |  | 12.2 | %
Infill land |  | 33,807,563 |  |  | 33,895,151 |  |  | 6.1 | % |  | 28,960,455 |  |  | 28,923,827 |  |  | 6.2 | %
Student housing |  | 31,000,000 |  |  | 31,667,292 |  |  | 5.7 | % |  | 31,000,000 |  |  | 31,565,670 |  |  | 6.7 | %
Mixed use |  | 28,814,085 |  |  | 28,862,336 |  |  | 5.2 | % |  | 28,940,658 |  |  | 28,977,024 |  |  | 6.2 | %
Allowance for loan losses |  | — |  |  | (13,708,777) |  |  | (2.5) | % |  | — |  |  | (13,658,481) |  |  | (2.9) | %
Total |  | $ | 567,520,973 |  |  | $ | 558,019,000 |  |  | 100.0 | % |  | $ | 480,151,151 |  |  | $ | 469,673,314 |  |  | 100.0 | %

|  | March 31, 2022 |  | December 31, 2021
Geographic Location |  | Principal Balance |  | Carrying Value |  | % of Total |  | Principal Balance |  | Carrying Value |  | % of Total
United States |  |  |  |  |  |  |  |  |  |  |  |
California |  | $ | 241,635,304 |  |  | $ | 243,830,108 |  |  | 43.7 | % |  | $ | 234,968,151 |  |  | $ | 237,015,597 |  |  | 50.4 | %
New York |  | 93,441,580 |  |  | 93,607,463 |  |  | 16.8 | % |  | 92,252,340 |  |  | 92,400,572 |  |  | 19.7 | %
Georgia |  | 53,970,491 |  |  | 54,221,854 |  |  | 9.7 | % |  | 53,289,288 |  |  | 53,536,884 |  |  | 11.4 | %
North Carolina |  | 45,781,188 |  |  | 46,026,460 |  |  | 8.2 | % |  | 44,492,971 |  |  | 44,704,699 |  |  | 9.5 | %
New Jersey |  | 35,571,608 |  |  | 35,391,604 |  |  | 6.3 | % |  | — |  |  | — |  |  | — | %
Utah |  | 28,000,000 |  |  | 28,529,857 |  |  | 5.1 | % |  | 28,000,000 |  |  | 28,420,056 |  |  | 6.1 | %
Washington |  | 24,424,855 |  |  | 24,487,967 |  |  | 4.4 | % |  | 3,523,401 |  |  | 3,382,683 |  |  | 0.7 | %
Pennsylvania |  | 21,000,000 |  |  | 21,670,442 |  |  | 3.9 | % |  | — |  |  | — |  |  | — | %
Texas |  | 13,695,947 |  |  | 13,824,587 |  |  | 2.5 | % |  | 13,625,000 |  |  | 13,725,690 |  |  | 2.9 | %
Massachusetts |  | 7,000,000 |  |  | 7,000,000 |  |  | 1.3 | % |  | 7,000,000 |  |  | 7,000,000 |  |  | 1.5 | %
South Carolina |  | 3,000,000 |  |  | 3,137,435 |  |  | 0.6 | % |  | 3,000,000 |  |  | 3,145,614 |  |  | 0.7 | %
Allowance for loan losses |  | — |  |  | (13,708,777) |  |  | (2.5) | % |  | — |  |  | (13,658,481) |  |  | (2.9) | %
Total |  | $ | 567,520,973 |  |  | $ | 558,019,000 |  |  | 100.0 | % |  | $ | 480,151,151 |  |  | $ | 469,673,314 |  |  | 100.0 | %

15

Notes to Unaudited Consolidated Financial Statements
Loan Risk Rating
As described in Note 2, the Manager evaluates the Company’s loan portfolio on a quarterly basis or more frequently as needed. In conjunction with the quarterly review of the Company’s loan portfolio, the Manager assesses the risk factors of each loan, and assigns a risk rating based on a five-point scale with “1” being the lowest risk and “5” being the greatest risk.
The following table allocates the principal balance and the carrying value of the Company’s loans based on the loan risk rating as of March 31, 2022 and December 31, 2021:

|  | March 31, 2022 |  | December 31, 2021
Loan Risk Rating |  | Number of Loans |  | Principal Balance |  | Carrying Value |  | % of Total |  | Number of Loans |  | Principal Balance |  | Carrying Value |  | % of Total
1 |  | — |  |  | $ | — |  |  | $ | — |  |  | — | % |  | — |  |  | $ | — |  |  | $ | — |  |  | — | %
2 |  | 2 |  |  | 25,000,000 |  |  | 25,041,590 |  |  | 4.4 | % |  | 2 |  |  | 25,000,000 |  |  | 25,041,124 |  |  | 5.2 | %
3 |  | 19 |  |  | 435,383,446 |  |  | 439,254,137 |  |  | 76.8 | % |  | 15 |  |  | 349,273,811 |  |  | 352,164,409 |  |  | 72.9 | %
4 |  | 1 |  |  | 60,583,057 |  |  | 60,583,057 |  |  | 10.6 | % |  | 1 |  |  | 60,012,639 |  |  | 60,012,639 |  |  | 12.4 | %
5 |  | — |  |  | — |  |  | — |  |  | — | % |  | — |  |  | — |  |  | — |  |  | — | %
Other (1) |  | 3 |  |  | 46,554,470 |  |  | 46,848,993 |  |  | 8.2 | % |  | 3 |  |  | 45,864,701 |  |  | 46,113,623 |  |  | 9.5 | %
|  | 25 |  |  | $ | 567,520,973 |  |  | 571,727,777 |  |  | 100.0 | % |  | 21 |  |  | $ | 480,151,151 |  |  | 483,331,795 |  |  | 100.0 | %
Allowance for loan losses |  | (13,708,777) |  |  |  |  |  |  |  |  | (13,658,481) |  |  |
Total, net of allowance for loan losses |  | $ | 558,019,000 |  |  |  |  |  |  |  |  | $ | 469,673,314 |  |  |

_______________
(1)Because these loans have an event of default, they are removed from the pool of loans on which a general allowance is calculated and are evaluated for collectability individually. As of both March 31, 2022 and December 31, 2021, the specific allowance for loan losses on these loans were $12.8 million, as a result of a decline in the fair value of the respective collateral.
As of March 31, 2022, the Company had one loan with a loan risk rating of “4” and no loans with a loan risk rating of “5” and recorded general allowance for loan losses of $0.01 million for the three months ended March 31, 2022. As of March 31, 2021, the Company had three loans with a loan risk rating of “4” and one loan with a loan risk rating of “5” and recorded general allowance for loan losses of $0.04 million for the three months ended March 31, 2021. Additionally, as of March 31, 2022 and 2021, the Company had three and one loans, respectively, deemed impaired and recorded specific allowance for loan losses of $0.04 million and $0.2 million, respectively, as a result of a decline in the value of the underlying collateral.
The following table presents the activity in the Company’s allowance for loan losses for the three months ended March 31, 2022 and 2021:

|  | Three Months Ended March 31,
|  | 2022 |  | 2021
Allowance for loan losses, beginning of period |  | $ | 13,658,481 |  |  | $ | 3,738,758 |
Provision for loan losses |  | 50,296 |  |  | 276,020 |
Charge-offs |  | — |  |  | — |
Recoveries |  | — |  |  | — |
Allowance for loan losses, end of period |  | $ | 13,708,777 |  |  | $ | 4,014,778 |

As of both March 31, 2022 and December 31, 2021, the Company had one loan that was in maturity default. Additionally, for the three months ended March 31, 2022 and 2021, the Company suspended interest income accrual of $1.1 million and $0.7 million on two loans, respectively, because recovery of such income was doubtful.
Troubled Debt Restructuring
As of March 31, 2022 and December 31, 2021, the Company had a recorded investment in troubled debt restructuring of $13.7 million.
Due to financial difficulty resulting from the COVID-19 pandemic, a borrower defaulted on interest payments in May 2020 on a $3.5 million mezzanine loan, and the Company subsequently suspended the interest accrual. The Company purchased the
16

Notes to Unaudited Consolidated Financial Statements
senior loan from a third-party lender on September 3, 2021 in order to facilitate a refinancing. Subsequently on September 23, 2021, the senior and mezzanine loans were refinanced and the Company issued a new senior loan with a committed amount of $14.7 million, of which $13.6 million was funded at closing. The concession granted in the refinancing was the forgiveness of principal and accrued interest of $1.3 million on the mezzanine loan, of which $1.0 million was previously recorded as an allowance for loan losses, in addition to $0.4 million of nonaccrual interest. The Company classified the refinancing as a TDR as it met all the conditions to be considered a TDR pursuant to ASC 310-40.
The following table summarizes the recorded investment of TDR as of the date of restructuring:

Number of loans modified |  | 1 |  |
Pre-modified recorded carrying value |  | $ | 18,503,470 |  |  |
Post-modified recorded carrying value (1) |  | $ | 13,625,000 |  |  |

_______________
(1)As of March 31, 2022, the principal balance of this loan was $13.7 million and the carrying value of this loan, which includes the present value of the exit fee, was $13.8 million. There is no allowance for loan losses recorded for this new senior loan.
Once classified as a TDR, the new senior loan is classified as an impaired loan until it is extinguished and the carrying value is evaluated at each reporting date for collectability based on the fair value of the underlying collateral. Since the fair value of the collateral is greater than the carrying value of the new senior loan, no specific allowance was recorded as of March 31, 2022. For the three months ended March 31, 2022, interest income from the new senior loan was $0.3 million. In April 2022, this loan was repaid in full.
Note 4. Equity Investment in Unconsolidated Investments
The Company owns interests in a limited partnership and three joint ventures. The Company accounts for its interests in these investments under the equity method of accounting (Note 2). The Company classifies distributions received from equity method investments using the cumulative earnings approach. Distributions received are considered returns on the investment and classified as cash inflows from operating activities. If, however, the investor’s cumulative distributions received, less distributions received in prior periods determined to be returns of investment, exceeds cumulative equity in earnings recognized, the excess is considered a return of investment and is classified as cash inflows from investing activities.
Equity Investment in a Limited Partnership
On August 3, 2020, the Company entered into a subscription agreement with Mavik Real Estate Special Opportunities Fund, LP (“RESOF”) whereby the Company committed to fund up to $50.0 million to purchase a limited partnership interest in RESOF. RESOF’s primary investment objective is to generate attractive risk-adjusted returns by purchasing performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets. RESOF may also opportunistically originate high-yield mortgages or loans in real estate special situations including rescue financings, bridge loans, restructurings and bankruptcies (including debtor-in-possession loans). The general partner of RESOF is Mavik Real Estate Special Opportunities Fund GP, LLC, which is a subsidiary of the Company’s sponsor, Terra Capital Partners. As of March 31, 2022 and December 31, 2021, the unfunded commitment was $16.4 million and $15.1 million, respectively.
The Company evaluated its equity interest in RESOF and determined it does not have a controlling financial interest and is not the primary beneficiary. Accordingly, the equity interest in RESOF is accounted for as an equity method investment. As of March 31, 2022 and December 31, 2021, the Company owned 44.2% and 50.0% of the equity interest in RESOF, respectively. As of March 31, 2022 and December 31, 2021, the carrying value of the Company’s investment in RESOF was $40.2 million and $40.5 million, respectively. For both the three months ended March 31, 2022 and 2021, the Company recorded equity income from RESOF of $1.3 million and did not receive any distributions from RESOF.
In connection with the equity investment in RESOF, the Company paid origination fees to the Manager totaling $0.5 million, to be amortized to equity income on a straight-line basis over the life of RESOF.
17

Notes to Unaudited Consolidated Financial Statements
The following tables present summarized financial information of the Company’s equity investment in RESOF. Amounts provided are the total amounts attributable to the investment and do not represent the Company’s proportionate share:

|  | March 31, 2022 |  | December 31, 2021
Investments at fair value (cost of $117,829,371 and $107,261,022, respectively) |  | $ | 119,003,881 |  |  | $ | 108,359,898 |
Other assets |  | 15,892,206 |  |  | 5,484,087 |
Total assets |  | 134,896,087 |  |  | 113,843,985 |
Revolving line of credit, net of financing costs |  | 16,834,326 |  |  | 14,909,717 |
Obligations under participation agreement (proceeds of $15,523,107 and $14,252,357, respectively) |  | 15,637,326 |  |  | 14,351,617 |
Other liabilities |  | 13,361,069 |  |  | 5,296,603 |
Total liabilities |  | 45,832,721 |  |  | 34,557,937 |
Partners’ capital |  | $ | 89,063,366 |  |  | $ | 79,286,048 |

|  |  | Three Months Ended March 31,
|  |  | 2022 |  | 2021
Total investment income |  |  | $ | 4,844,664 |  |  | $ | 2,042,100 |
Total expenses |  |  | 1,293,316 |  |  | 471,212 |
Net investment income |  |  | 3,551,348 |  |  | 1,570,888 |
Unrealized appreciation on investments |  |  | 69,051 |  |  | 53,697 |
Net increase in partners' capital resulting from operations |  |  | $ | 3,620,399 |  |  | $ | 1,624,585 |

Equity Investment in Joint Ventures
As of March 31, 2022, the Company owned equity interests in three joint ventures that invest in real estate properties. The Company evaluated its equity interests in the joint ventures and determined it does not have a controlling financial interest and is not the primary beneficiary. Accordingly, the equity interests in the joint ventures are accounted for as equity method investments. The following table presents the Company’s ownership interests in its equity investments in the joint ventures and their respective carrying values:

|  |  |  | Ownership Interest at March 31, 2022 |  | Carrying Value at
Entity |  | Co-owner |  |  | March 31, 2022 |  | December 31, 2021
LEL Arlington JV LLC |  | Third party |  | 80% |  | $ | 23,962,388 |  |  | $ | 23,949,044 |
LEL NW 49th JV LLC |  | Third party |  | 80% |  | 4,838,353 |  |  | 5,306,467 |
TCG Corinthian FL Portfolio JV LLV (1) |  | Third Party |  | 90% |  | 22,615,435 |  |  | — |
|  |  |  |  |  | $ | 51,416,176 |  |  | $ | 29,255,511 |

_______________
(1)This investment was purchased in March 2022.
18

Notes to Unaudited Consolidated Financial Statements
The following tables present estimated combined summarized financial information of the Company’s equity investment in the joint ventures. Amounts provided are the total amounts attributable to the joint ventures and do not represent the Company’s proportionate share:

|  | March 31, 2022 |  | December 31, 2021
Net investments in real estate |  | $ | 198,906,122 |  |  | $ | 115,636,424 |
Other assets |  | 9,730,764 |  |  | 4,856,249 |
Total assets |  | 208,636,886 |  |  | 120,492,673 |
Mortgage loan payable |  | 145,641,352 |  |  | 83,445,235 |
Other liabilities |  | 1,887,030 |  |  | 1,305,572 |
Total liabilities |  | 147,528,382 |  |  | 84,750,807 |
Members’ capital |  | $ | 61,108,504 |  |  | $ | 35,741,866 |

|  |  | Three Months Ended March 31,
|  |  | 2022 |  | 2021
Revenues |  |  | $ | 2,450,438 |  |  | $ | — |
Operating expenses |  |  | (816,681) |  |  | — |
Depreciation expense |  |  | (690,831) |  |  | $ | — |
Interest expense |  |  | (1,085,561) |  |  | $ | — |
Unrealized gains |  |  | 235,511 |  |  | $ | — |
Net income |  |  | $ | 92,876 |  |  | $ | — |

For the three months ended March 31, 2022, the Company recorded equity income from the joint ventures of $0.1 million and received distributions from the joint ventures of $0.3 million. There was no such equity income or loss recorded or distributions received for the three months ended March 31, 2021. In connection with these investments, the Company paid origination fee to the Manager totaling $0.5 million, to be amortized to equity income over the life of the respective joint venture.
Note 5. Real Estate Owned, Net
Real Estate Activities
2022 — For the three months ended March 31, 2022, the Company recorded an impairment charge of $1.6 million on the 4.9 acres of adjacent land located in Pennsylvania to reduce the carrying value of the land to its estimated fair value, which is based on the selling price in the Agreement of Sale. The sale is expected to close in the second quarter of 2022. As the asset satisfied all the requirements to be classified as held-for-sale, on March 31, 2022, the Company reclassified the land from Real estate owned to Assets held for sale on the consolidated balance sheets.
2021 — In September 2021, the Company signed a new lease for the vacant space in the office building. The lease commences on December 1, 2021 and has term of 10 years with an option to extend the lease for 5 years. Additionally, the lease provides for a fixed rental payment plus a percentage rent that is based on 6% of the gross sales of the tenant’s business. The lease also provides a 3% increase in rental payment every year.
In November 2021, the Company received notice from a tenant of their intention to terminate its lease effective November 30, 2022. In connection with the lease termination, the Company received a termination fee of $3.1 million, to be amortized to income over the remaining life of the lease.
In December 2021, the Company recorded an impairment charge of $3.4 million on the 4.9 acres of adjacent land in order to reduce the carrying value of the land to its estimated fair value, which is the estimated selling price less the cost of sale.
19

Notes to Unaudited Consolidated Financial Statements
Real Estate Owned, Net
Real estate owned is comprised of 4.9 acres of adjacent land located in Pennsylvania and a multi-tenant office building, with lease intangible assets and liabilities, located in California. The following table presents the components of real estate owned, net:

| March 31, 2022 |  | December 31, 2021
| Cost |  | Accumulated Depreciation/Amortization |  | Net |  | Cost |  | Accumulated Depreciation/Amortization |  | Net
Real estate: |  |  |  |  |  |  |  |  |  |  |
Land (1) | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 10,000,000 |  |  | $ | — |  |  | $ | 10,000,000 |
Building and building improvements | 51,725,969 |  |  | (4,741,596) |  |  | 46,984,373 |  |  | 51,725,969 |  |  | (4,418,305) |  |  | 47,307,664 |
Tenant improvements | 1,854,640 |  |  | (1,016,689) |  |  | 837,951 |  |  | 1,854,640 |  |  | (947,369) |  |  | 907,271 |
Furniture and fixtures | 236,000 |  |  | (149,467) |  |  | 86,533 |  |  | 236,000 |  |  | (125,867) |  |  | 110,133 |
Total real estate | 53,816,609 |  |  | (5,907,752) |  |  | 47,908,857 |  |  | 63,816,609 |  |  | (5,491,541) |  |  | 58,325,068 |
Lease intangible assets: |  |  |  |  |  |  |  |  |  |  |
In-place lease | 14,982,538 |  |  | (8,929,631) |  |  | 6,052,907 |  |  | 14,982,538 |  |  | (7,627,326) |  |  | 7,355,212 |
Above-market rent | 156,542 |  |  | (64,372) |  |  | 92,170 |  |  | 156,542 |  |  | (59,983) |  |  | 96,559 |
Total intangible assets | 15,139,080 |  |  | (8,994,003) |  |  | 6,145,077 |  |  | 15,139,080 |  |  | (7,687,309) |  |  | 7,451,771 |
Lease intangible liabilities: |  |  |  |  |  |  |  |  |  |
Below-market rent | (2,754,922) |  |  | 1,746,889 |  |  | (1,008,033) |  |  | (2,754,922) |  |  | 1,496,125 |  |  | (1,258,797) |
Above-market ground lease | (8,896,270) |  |  | 477,945 |  |  | (8,418,325) |  |  | (8,896,270) |  |  | 445,357 |  |  | (8,450,913) |
Total intangible liabilities | (11,651,192) |  |  | 2,224,834 |  |  | (9,426,358) |  |  | (11,651,192) |  |  | 1,941,482 |  |  | (9,709,710) |
Total real estate | $ | 57,304,497 |  |  | $ | (12,676,921) |  |  | $ | 44,627,576 |  |  | $ | 67,304,497 |  |  | $ | (11,237,368) |  |  | $ | 56,067,129 |

_______________
(1)The land was reclassified as held-for-sale as of March 31, 2022.
Real Estate Operating Revenues and Expenses
The following table presents the components of real estate operating revenues and expenses that are included in the consolidated statements of operations:

|  |  | Three Months Ended March 31,
|  |  | 2022 |  | 2021
Real estate operating revenues: |  |  |  |  |
Lease revenue |  |  | $ | 1,754,561 |  |  | $ | 1,805,874 |
Other operating income |  |  | 1,224,893 |  |  | 205,767 |
Total |  |  | $ | 2,979,454 |  |  | $ | 2,011,641 |
Real estate operating expenses: |  |  |  |  |
Utilities |  |  | $ | 45,334 |  |  | $ | 33,992 |
Real estate taxes |  |  | 346,432 |  |  | 346,354 |
Repairs and maintenances |  |  | 157,416 |  |  | 145,246 |
Management fees |  |  | 67,868 |  |  | 61,325 |
Lease expense, including amortization of above-market ground lease (1) |  |  | 487,163 |  |  | 283,538 |
Other operating expenses |  |  | 113,750 |  |  | 100,860 |
Total |  |  | $ | 1,217,963 |  |  | $ | 971,315 |

_______________
20

Notes to Unaudited Consolidated Financial Statements
(1)As discussed in “Leases” below, the multi-tenant office building is subject to a ground lease, for which the rent resets every five years. The last rent reset was on November 1, 2020. Based on information available to the Company as of November 1, 2020, including the fact that there was a global pandemic with a potentially significant negative impact on real estate values, the Company estimated the value of the land was no greater than the value on the date of foreclosure and continued to accrue and pay rent at the then-existing rate. On June 2, 2021, the third-party appraisal process was completed, resulting in an increase of the annual base rent to $2.1 million from $1.3 million. The increase in base rent was retroactive back to November 1, 2020. The Company accounted for the change in base rent as a change in accounting estimate; as a result, the increase in rent from November 2020 through March 2021 was recorded in the period in which the change occurred, which is June 2021. Had the new base rent been recorded on November 1, 2020, lease expense including amortization of above-market ground lease would have been $0.5 million for the three months ended March 31, 2021 and total real estate operating expenses would have been $1.2 million for the three months ended March 31, 2021.
Leases
As of March 31, 2022, the Company owned a multi-tenant office building that was leased to four tenants. In addition, the office building is subject to a ground lease whereby the Company is the lessee (or a tenant) to the ground lease. The ground lease had a remaining lease term of 64.6 years as of March 31, 2022, and 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. The next rent reset on the ground lease is scheduled for November 1, 2025. The Company is currently 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 – Terra Ocean Ave., LLC v. Ocean Avenue Santa Monica Realty LLC, Superior Court of California, Los Angeles County, Case No. 20STCV34217. The Company believes this determination should be based on comparable sales, while the landlord insists that the rent under the ground lease itself is also relevant. The Company’s position has prevailed in all three of the prior arbitrations to reset the ground rent. Since future rent reset determinations under the ground lease cannot be known at this time, the Company did not include any potential future rent increases in calculating the present value of future rent payments. The Company intends vigorously to pursue the litigation. While the Company believes its arguments will likely prevail, the outcome of the legal proceeding cannot be predicted with certainty. If the landlord prevails, the future rent reset determinations could result in significantly higher ground rent, which would likely result in a significant diminution in the value of the Company’s interest in the ground lease and the office building.
Scheduled Future Minimum Rent Income
Scheduled future minimum rents, exclusive of renewals and expenses paid by tenants, under non-cancelable operating leases at March 31, 2022 are as follows:

Years Ending December 31, |  | Total
2022 (April 1 through December 31) |  | $ | 5,357,817 |
2023 |  | 4,235,538 |
2024 |  | 4,380,043 |
2025 |  | 792,925 |
2026 |  | 816,724 |
2027 |  | 598,943 |
Thereafter |  | 1,815,497 |
Total |  | $ | 17,997,487 |

21

Notes to Unaudited Consolidated Financial Statements
Scheduled Annual Net Amortization of Intangibles
Based on the intangible assets and liabilities recorded at March 31, 2022, scheduled annual net amortization of intangibles for each of the next five calendar years and thereafter is as follows:

Years Ending December 31, |  | Net Decrease in Real Estate Operating Revenue (1) |  | Increase in Depreciation and Amortization (1) |  | Decrease in Rent Expense (1) |  | Total
2022 (April 1 through December 31) |  | $ | (680,178) |  |  | $ | 3,654,609 |  |  | $ | (97,761) |  |  | $ | 2,876,670 |
2023 |  | (139,056) |  |  | 1,093,878 |  |  | (130,348) |  |  | 824,474 |
2024 |  | (139,056) |  |  | 1,093,878 |  |  | (130,348) |  |  | 824,474 |
2025 |  | 17,556 |  |  | 87,121 |  |  | (130,348) |  |  | (25,671) |
2026 |  | 17,556 |  |  | 87,121 |  |  | (130,348) |  |  | (25,671) |
2027 |  | 7,315 |  |  | 36,300 |  |  | (130,348) |  |  | (86,733) |
Thereafter |  | — |  |  | — |  |  | (7,668,824) |  |  | (7,668,824) |
Total |  | $ | (915,863) |  |  | $ | 6,052,907 |  |  | $ | (8,418,325) |  |  | $ | (3,281,281) |

_______________
(1)Amortization of below-market rent and above-market rent intangibles is recorded as an adjustment to lease revenues; amortization of in-place lease intangibles is included in depreciation and amortization; and amortization of above-market ground lease is recorded as a reduction to rent expense.
Supplemental Ground Lease Disclosures
Supplemental balance sheet information related to the ground lease was as follows:

| March 31, 2022 |  | December 31, 2021
Operating lease |  |  |
Operating lease right-of-use asset | $ | 27,391,012 |  |  | $ | 27,394,936 |
Operating lease liability | $ | 27,391,012 |  |  | $ | 27,394,936 |
Weighted average remaining lease term — operating lease (years) | 64.6 |  | 64.8
Weighted average discount rate — operating lease | 7.6 | % |  | 7.6 | %

The component of lease expense for the ground lease was as follows:

|  |  | Three Months Ended March 31,
|  |  | 2022 |  | 2021
Operating lease cost (1) |  |  | $ | 519,750 |  |  | $ | 316,125 |

_______________
(1)The increase in operating lease cost was a result of the ground rent reset described above.
Supplemental non-cash information related to the ground lease was as follows:

|  | Three Months Ended March 31,
|  | 2022 |  | 2021
Cash paid for amounts included in the measurement of lease liability: |  |  |  |
Operating cash flows from an operating lease |  | $ | 519,750 |  |  | $ | 316,125 |
Right-of-use asset obtained in exchange for lease obligations: |  |  |  |
Operating lease |  | $ | 519,750 |  |  | $ | 316,125 |

22

Notes to Unaudited Consolidated Financial Statements
Maturities of operating lease liability are as follows:

Years Ending December 31, |  | Operating Lease
2022 (April 1 through December 31) |  | $ | 1,559,250 |
2023 |  | 2,079,000 |
2024 |  | 2,079,000 |
2025 |  | 2,079,000 |
2026 |  | 2,079,000 |
2027 |  | 2,079,000 |
Thereafter |  | 122,227,875 |
Total lease payments |  | 134,182,125 |
Less: Imputed interest |  | (106,791,113) |
Total |  | $ | 27,391,012 |

Note 6. Fair Value Measurements
The Company adopted the provisions of ASC 820, Fair Value Measurement (“ASC 820”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 established a fair value hierarchy that prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment, the characteristics specific to the investment, and the state of the marketplace (including the existence and transparency of transactions between market participants). Investments with readily available, actively quoted prices or for which fair value can be measured from actively quoted prices in an orderly market will generally have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Investments measured and reported at fair value are classified and disclosed into one of the following categories based on the inputs as follows:
Level 1 — Quoted prices (unadjusted) in active markets for identical assets and liabilities that the Company has the ability to access.
Level 2 — Pricing inputs are other than quoted prices in active markets, including, but not limited to, quoted prices for similar assets and liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market corroborated inputs.
Level 3 — Significant unobservable inputs are based on the best information available in the circumstances, to the extent observable inputs are not available, including the Company’s own assumptions used in determining the fair value of investments. Fair value for these investments are determined using valuation methodologies that consider a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance, and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant management judgment.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.
As of March 31, 2022 and December 31, 2021, the Company has not elected the fair value option for its financial instruments, including loans held for investment, loans held for investment acquired through participation, obligations under participation agreements, secured borrowing, term loan payable, repurchase agreement payable, mortgage loan payable and revolving line of credit. Such financial instruments are carried at cost, less impairment or less net deferred costs, where applicable. Marketable securities are financial instruments that are reported at fair value.
23

Notes to Unaudited Consolidated Financial Statements
Financial Instruments Carried at Fair Value on a Recurring Basis
From time to time, the Company may invest in short-term debt and equity securities which are classified as available-for-sale securities, which are presented at fair value on the consolidated balance sheet. Changes in the fair value of equity securities are recognized in earnings. Changes in the fair value of debt securities are reported in other comprehensive income until the securities are realized.
The following tables present fair value measurements of marketable securities, by major class, as of March 31, 2022 and December 31, 2021, according to the fair value hierarchy:

|  | March 31, 2022
|  | Fair Value Measurements
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Marketable Securities: |  |  |  |  |  |  |  |
Equity securities |  | $ | 510,151 |  |  | $ | — |  |  | $ | — |  |  | $ | 510,151 |
Total |  | $ | 510,151 |  |  | $ | — |  |  | $ | — |  |  | $ | 510,151 |

|  | December 31, 2021
|  | Fair Value Measurements
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Marketable Securities: |  |  |  |  |  |  |  |
Equity securities |  | $ | 1,310,000 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,310,000 |
Total |  | $ | 1,310,000 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,310,000 |

The following table presents the activities of the marketable securities for the periods presented.

|  | Three Months Ended March 31,
|  | 2022 |  | 2021
Beginning balance |  | $ | 1,310,000 |  |  | $ | 1,287,500 |
Purchases |  | — |  |  | 4,979,088 |
Proceeds from sale |  | (628,715) |  |  | — |
Unsettled sale |  | (123,223) |  |  | — |
Reclassification of net realized gains on marketable securities into earnings |  | 51,133 |  |  | — |
Unrealized losses on marketable securities |  | (99,044) |  |  | (14,608) |
Ending balance |  | $ | 510,151 |  |  | $ | 6,251,980 |

24

Notes to Unaudited Consolidated Financial Statements
Financial Instruments Not Carried at Fair Value
The following table presents the carrying value, which represents the principal amount outstanding, adjusted for the accretion of purchase discounts on loans and exit fees, and the amortization of purchase premiums on loans and origination fees, and estimated fair value of the Company’s financial instruments that are not carried at fair value on the consolidated balance sheets:

|  |  | March 31, 2022 |  | December 31, 2021
| Level |  | Principal Amount |  | Carrying Value |  | Fair Value |  | Principal Amount |  | Carrying Value |  | Fair Value
Loans: |  |  |  |  |  |  |  |  |  |  |  |  |
Loans held for investment | 3 |  | $ | 554,631,920 |  |  | $ | 558,790,473 |  |  | $ | 544,060,026 |  |  | $ | 467,843,785 |  |  | $ | 470,988,063 |  |  | $ | 454,840,551 |
Loans held for investment acquired through participation | 3 |  | 12,889,053 |  |  | 12,937,304 |  |  | 12,946,931 |  |  | 12,307,366 |  |  | 12,343,732 |  |  | 12,361,068 |
Allowance for loan losses |  |  | — |  |  | (13,708,777) |  |  | — |  |  | — |  |  | (13,658,481) |  |  | — |
Total loans |  |  | $ | 567,520,973 |  |  | $ | 558,019,000 |  |  | $ | 557,006,957 |  |  | $ | 480,151,151 |  |  | $ | 469,673,314 |  |  | $ | 467,201,619 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |
Term loan payable | 3 |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 93,763,470 |  |  | $ | 91,940,062 |  |  | $ | 94,344,595 |
Unsecured notes payable | 1 |  | 85,125,000 |  |  | 82,010,107 |  |  | 84,239,700 |  |  | 85,125,000 |  |  | 81,856,799 |  |  | 85,210,125 |
Repurchase agreement payable | 3 |  | 176,519,149 |  |  | 173,698,002 |  |  | 176,519,149 |  |  | 44,569,600 |  |  | 43,974,608 |  |  | 44,569,600 |
Obligations under participation agreements | 3 |  | 57,911,481 |  |  | 58,587,148 |  |  | 57,974,834 |  |  | 42,048,294 |  |  | 42,232,027 |  |  | 41,475,060 |
Mortgage loan payable | 3 |  | 31,757,725 |  |  | 31,963,840 |  |  | 31,989,884 |  |  | 31,962,692 |  |  | 32,134,295 |  |  | 32,192,785 |
Secured borrowing | 3 |  | 37,371,625 |  |  | 37,503,542 |  |  | 37,508,341 |  |  | 34,521,104 |  |  | 34,586,129 |  |  | 34,425,029 |
Revolving line of credit payable | 3 |  | 64,953,549 |  |  | 64,414,007 |  |  | 64,953,549 |  |  | 38,575,895 |  |  | 38,186,472 |  |  | 38,575,895 |
Total liabilities |  |  | $ | 453,638,529 |  |  | $ | 448,176,646 |  |  | $ | 453,185,457 |  |  | $ | 370,566,055 |  |  | $ | 364,910,392 |  |  | $ | 370,793,089 |

The Company estimated that its other financial assets and liabilities, not included in the tables above, had fair values that approximated their carrying values at both March 31, 2022 and December 31, 2021 due to their short-term nature.
Valuation Process for Fair Value Measurement
The fair value of the Company’s investment in equity securities and its unsecured notes payable is determined based on quoted prices in an active market and is classified as Level 1 of the fair value hierarchy.
Market quotations are not readily available for the Company’s real estate-related loan investments, all of which are included in Level 3 of the fair value hierarchy, and therefore these investments are valued utilizing a yield approach, i.e. a discounted cash flow methodology to arrive at an estimate of the fair value of each respective investment in the portfolio using an estimated market yield. In following this methodology, investments are evaluated individually, and management takes into account, in determining the risk-adjusted discount rate for each of the Company’s investments, relevant factors, which may include available current market data on applicable yields of comparable debt/preferred equity instruments; market credit spreads and yield curves; the investment’s yield; covenants of the investment, including prepayment provisions; the portfolio company’s ability to make payments, net operating income and debt-service coverage ratio; construction progress reports and construction budget analysis; the nature, quality and realizable value of any collateral (and loan-to-value ratio); the forces that influence the local markets in which the asset (the collateral) is purchased and sold, such as capitalization rates, occupancy rates, rental rates and replacement costs; and the anticipated duration of each real estate-related loan investment.
The Manager designates a valuation committee to oversee the entire valuation process of the Company’s Level 3 loans. The valuation committee is comprised of members of the Manager’s senior management, deal and portfolio management teams, who meet on a quarterly basis, or more frequently as needed, to review the Company investments being valued as well as the inputs used in the proprietary valuation model. Valuations determined by the valuation committee are supported by pertinent data and, in addition to a proprietary valuation model, are based on market data, industry accepted third-party valuation models and discount rates or other methods the valuation committee deems to be appropriate. Because there is no readily available
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Notes to Unaudited Consolidated Financial Statements
market for these investments, the fair values of these investments are approved in good faith by the Manager pursuant to the Company’s valuation policy.
The fair values of the Company’s mortgage loan payable, secured borrowing, term loan payable and revolving line of credit are determined by discounting the contractual cash flows at the interest rate the Company estimates such arrangements would bear if executed in the current market.
The following table summarizes the valuation techniques and significant unobservable inputs used by the Company to value the Level 3 loans as of March 31, 2022 and December 31, 2021. The tables are not intended to be all-inclusive, but instead identify the significant unobservable inputs relevant to the determination of fair values.

|  | Fair Value at March 31, 2022 | Primary Valuation Technique |  | Unobservable Inputs |  | March 31, 2022
Asset Category |  |  |  | Minimum | Maximum | Weighted Average
Assets: |  |  |  |  |  |  |  |  |  |
Loans held for investment, net |  | $ | 544,060,026 |  |  | Discounted cash flow |  | Discount rate |  | 4.14 | % | 15.00 | % | 8.30 | %
Loans held for investment acquired through participation, net |  | 12,946,931 |  |  | Discounted cash flow |  | Discount rate |  | 8.45 | % | 15.00 | % | 12.33 | %
Total Level 3 Assets |  | $ | 557,006,957 |  |  |  |  |  |  |  |  |
Liabilities: |  |  |  |  |  |  |  |  |  |
Repurchase agreement payable |  | 176,519,149 |  |  | Discounted cash flow |  | Discount rate |  | 1.90 | % | 3.12 | % | 2.54 | %
Obligations under participation agreements |  | 57,974,834 |  |  | Discounted cash flow |  | Discount rate |  | 14.60 | % | 15.00 | % | 14.83 | %
Mortgage loan payable |  | 31,989,884 |  |  | Discounted cash flow |  | Discount rate |  | 6.08 | % | 6.08 | % | 6.08 | %
Secured borrowing |  | 37,508,341 |  |  | Discounted cash flow |  | Discount rate |  | 5.89 | % | 5.89 | % | 5.89 | %
Revolving line of credit |  | 64,953,549 |  |  | Discounted cash flow |  | Discount rate |  | 4.00 | % | 4.00 | % | 4.00 | %
Total Level 3 Liabilities |  | $ | 368,945,757 |  |  |  |  |  |  |  |  |

|  | Fair Value at December 31, 2021 | Primary Valuation Technique |  | Unobservable Inputs |  | December 31, 2021
Asset Category |  |  |  | Minimum | Maximum | Weighted Average
Assets: |  |  |  |  |  |  |  |  |  |
Loans held for investment, net |  | $ | 454,840,551 |  |  | Discounted cash flow |  | Discount rate |  | 3.89 | % | 15.00 | % | 8.11 | %
Loans held for investment acquired through participation, net |  | 12,361,068 |  |  | Discounted cash flow |  | Discount rate |  | 8.25 | % | 15.00 | % | 12.33 | %
Total Level 3 Assets |  | $ | 467,201,619 |  |  |  |  |  |  |  |  |
Liabilities: |  |  |  |  |  |  |  |  |  |
Term loan payable |  | $ | 94,344,595 |  |  | Discounted cash flow |  | Discount rate |  | 4.00 | % | 4.00 | % | 4.00 | %
Repurchase agreement payable |  | 44,569,600 |  |  | Discounted cash flow |  | Discount rate |  | 2.45 | % | 2.74 | % | 2.57 | %
Obligations under participation agreements |  | 41,475,060 |  |  | Discounted cash flow |  | Discount rate |  | 12.37 | % | 15.00 | % | 14.31 | %
Mortgage loan payable |  | 32,192,785 |  |  | Discounted cash flow |  | Discount rate |  | 6.08 | % | 6.08 | % | 6.08 | %
Secured borrowing |  | 34,425,029 |  |  | Discounted cash flow |  | Discount rate |  | 6.64 | % | 6.64 | % | 6.64 | %
Revolving line of credit |  | 38,575,895 |  |  | Discounted cash flow |  | Discount rate |  | 4.00 | % | 4.00 | % | 4.00 | %
Total Level 3 Liabilities |  | $ | 285,582,964 |  |  |  |  |  |  |  |  |

Note 7. Related Party Transactions
Management Agreement
The Company entered into the Management Agreement with the Manager whereby the Manager is responsible for its day-to-day operations. The Management Agreement runs co-terminus with the amended and restated operating agreement for Terra Fund 5, which is scheduled to terminate on December 31, 2023 unless Terra Fund 5 is dissolved earlier. The following table presents a summary of fees paid and costs reimbursed to the Manager in connection with providing services to the Company
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that are included on the consolidated statements of operations:

|  |  | Three Months Ended March 31,
|  |  | 2022 |  | 2021
Origination and extension fee expense (1)(2) |  |  | $ | 686,365 |  |  | $ | 345,384 |
Asset management fee |  |  | 1,488,095 |  |  | 1,156,543 |
Asset servicing fee |  |  | 349,329 |  |  | 273,207 |
Operating expenses reimbursed to Manager |  |  | 1,928,563 |  |  | 1,342,758 |
Disposition fee (3) |  |  | — |  |  | 250,988 |
Total |  |  | $ | 4,452,352 |  |  | $ | 3,368,880 |

_______________
(1)Origination and extension fee expense is generally offset with origination and extension fee income. Any excess is deferred and amortized to interest income over the term of the loan.
(2)Amount for the three months ended March 31, 2022 excluded $0.2 million of origination fee paid to the Manager in connection with the Company’s equity investment in an unconsolidated investment. This origination fee was capitalized to the carrying value of the unconsolidated investment as a transaction cost.
(3)Disposition fee is generally offset with exit fee income and included in interest income on the consolidated statements of operations.
Origination and Extension Fee Expense
Pursuant to the Management Agreement, the Manager or its affiliates receives an origination fee in the amount of 1% of the amount used to originate, fund, acquire or structure real estate-related investments, including any third-party expenses related to such loans. In the event that the term of any real estate-related loan held by the Company is extended, the Manager also receives an extension fee equal to the lesser of (i) 1% of the principal amount of the loan being extended or (ii) the amount of fee paid to the Company by the borrower in connection with such extension.
Asset Management Fee
Under the terms of the Management Agreement, the Manager or its affiliates provides the Company with certain investment management services in return for a management fee. The Company pays a monthly asset management fee at an annual rate of 1% of the aggregate funds under management, which includes the loan origination price or aggregate gross acquisition price, as defined in the Management Agreement, for each real estate related loan and cash held by the Company.
Asset Servicing Fee
The Manager or its affiliates receives from the Company a monthly servicing fee at an annual rate of 0.25% of the aggregate gross origination price or acquisition price, as defined in the Management Agreement, for each real estate-related loan held by the Company.
Transaction Breakup Fee
In the event that the Company receives 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 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 Manager with respect to its evaluation and pursuit of such transactions. As of March 31, 2022 and December 31, 2021, the Company has not received any breakup fees.
Operating Expenses
The Company reimburses the Manager for operating expenses incurred in connection with services provided to the operations of the Company, including the Company’s allocable share of the Manager’s overhead, such as rent, employee costs, utilities, and technology costs.
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Disposition Fee
Pursuant to the Management Agreement, the Manager or its affiliates receives a disposition fee in the amount of 1% of the gross sale price received by the Company from the disposition of any real estate-related loan, or any portion of, or interest in, any real estate-related loan. The disposition fee is paid concurrently with the closing of any such disposition of all or any portion of any real estate-related loan or any interest therein, which is the lesser of (i) 1% of the principal amount of the loan or debt-related loan prior to such transaction or (ii) the amount of the fee paid by the borrower in connection with such transaction. If the Company takes ownership of a property as a result of a workout or foreclosure of a loan, the Company will pay a disposition fee upon the sale of such property equal to 1% of the sales price.
Distributions Paid
For the three months ended March 31, 2022 and 2021, the Company made distributions to Terra JV and Terra Offshore REIT totaling $3.9 million and $3.9 million, respectively, of which $2.9 million and $2.4 million were returns of capital, respectively (Note 10).
Due to Manager
As of March 31, 2022 and December 31, 2021, approximately $3.5 million and $2.4 million was due to the Manager, respectively, as reflected on the consolidated balance sheets, primarily related to the present value of the disposition fees on individual loans due to the Manager.
Due from Related Party
As of March 31, 2022, there was no amount due from related party. As of December 31, 2021, amount due from a related party was $2.6 million , primarily related to the reserve funding on a loan that was held by an affiliate. The reserve funding was transferred to the Company in February 2022.
Mavik Real Estate Special Opportunities Fund, LP
On August 3, 2020, the Company entered into a subscription agreement with RESOF whereby the Company committed to fund up to $50.0 million to purchase limited partnership interests in RESOF. For more information on this investment, please see Note 4.
Participation Agreements
In the normal course of business, the Company may enter into participation agreements with related parties, primarily other affiliated funds managed by the Manager, and to a lesser extent, unrelated parties (the “Participants”). The purpose of the participation agreements is to allow the Company and an affiliate to originate a specified loan 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 a loan held by another entity.
ASC 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 860 (See “Participation interests” in Note 2 and “Obligations under Participation Agreements” in (Note 8).
Participation Interests Purchased by the Company
From time to time, the Company may purchase investments from affiliates pursuant to participation agreements. In accordance with the terms of each participation agreement, each Participant’s rights and obligations, as well as the proceeds received from the related borrower/issuer of the loan, are based upon their respective pro rata participation interest in the loan.
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The table below lists the participation interests purchased by the Company pursuant to participation agreements as of March 31, 2022 and December 31, 2021.

|  | March 31, 2022
|  | Participating Interests |  | Principal Balance |  | Carrying Value
Hillsborough Owners LLC (1) |  | 30.00% |  | $ | 5,444,696 |  |  | $ | 5,458,850 |
UNJ Sole Member, LLC (2) |  | 40.80% |  | 7,444,357 |  |  | 7,478,454 |
|  |  |  | $ | 12,889,053 |  |  | $ | 12,937,304 |

|  | December 31, 2021
|  | Participating Interests |  | Principal Balance |  | Carrying Value
Hillsborough Owners LLC (1) |  | 30.00% |  | $ | 4,863,009 |  |  | $ | 4,866,542 |
UNJ Sole Member, LLC (2) |  | 40.80% |  | 7,444,357 |  |  | 7,477,190 |
|  |  |  | $ | 12,307,366 |  |  | $ | 12,343,732 |

________________
(1)The loan is held in the name of Terra Income Fund 6, Inc., an affiliated fund advised by Terra Income Advisors, LLC, an affiliate of the Company’s sponsor and Manager.
(2)The loan is held in the name of Mavik Real Estate Special Opportunities Fund REIT, LLC, a related-party REIT managed by the Manager.
Transfers of Participation Interest by the Company
The following tables summarize the loans that were subject to participation agreements with affiliated entities and third-parties as of March 31, 2022 and December 31, 2021:

|  |  |  |  | Transfers Treated as Obligations Under Participation Agreements as of March 31, 2022
| Principal Balance |  | Carrying Value |  | % Transferred |  | Principal Balance |  | Carrying Value
370 Lex Part Deux, LLC (1) | $ | 60,583,057 |  |  | $ | 60,583,057 |  |  | 35.00 | % |  | $ | 21,204,070 |  |  | $ | 21,204,068 |
Post Brothers Holdings LLC (1) | 21,000,000 |  |  | 21,670,442 |  |  | 71.43 | % |  | 15,000,000 |  |  | 15,478,888 |
RS JZ Driggs, LLC (1) | 16,933,491 |  |  | 17,099,374 |  |  | 50.00 | % |  | 8,469,911 |  |  | 8,552,884 |
William A. Shopoff & Cindy I. Shopoff (1) | 25,000,000 |  |  | 25,214,933 |  |  | 52.95 | % |  | 13,237,500 |  |  | 13,351,308 |
| $ | 123,516,548 |  |  | $ | 124,567,806 |  |  |  |  | $ | 57,911,481 |  |  | $ | 58,587,148 |

|  |  |  |  | Transfers Treated as Obligations Under Participation Agreements as of December 31, 2021
| Principal Balance |  | Carrying Value |  | % Transferred |  | Principal Balance |  | Carrying Value
370 Lex Part Deux, LLC (1) | $ | 60,012,639 |  |  | $ | 60,012,639 |  |  | 35.00 | % |  | $ | 21,004,424 |  |  | $ | 21,004,423 |
RS JZ Driggs, LLC (1) | 15,606,409 |  |  | 15,754,641 |  |  | 50.00 | % |  | 7,806,370 |  |  | 7,880,516 |
William A. Shopoff & Cindy I. Shopoff (1) | 25,000,000 |  |  | 25,206,964 |  |  | 52.95 | % |  | 13,237,500 |  |  | 13,347,088 |
| $ | 100,619,048 |  |  | $ | 100,974,244 |  |  |  |  | $ | 42,048,294 |  |  | $ | 42,232,027 |

________________
(1)Participant is Terra Income Fund 6, Inc.
These investments are held in the name of the Company, but each of 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 their respective pro rata participation interest in such participated investments, as specified in the respective participation agreement. The Participants’ share of the investments is repayable only from the proceeds received from the related borrower/issuer of the investments and, therefore, the Participants also are subject
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to credit risk (i.e., risk of default by the underlying borrower/issuer). Pursuant to the participation agreements with these entities, the Company receives and allocates the interest income and other related investment income to the Participants based on their respective pro rata participation interest. The Participants pay any expenses, including any fees to the Manager, only on their respective pro rata participation interest, subject to the terms of the respective governing fee arrangements.
Secured Borrowing
In March 2020, the Company entered into a financing transaction where a third-party purchased an A-note position. However, the sale of the A-note position did not qualify for sale accounting under ASC 860 and therefore, the gross amount of the loan remains in the consolidated balance sheets and the proceeds from the sale on the portion transferred are recorded as secured borrowing. Interest earned on the entire loan balance is recorded within “Interest income” and the interest related to the transferred interest is recorded within “Interest expense on secured borrowing” in the consolidated statements of operations.
The following table summarizes the loan that was transferred to a third-party that was accounted for as secured borrowing as of March 31, 2022 and December 31, 2021:

|  |  |  |  | Transfers Treated as Secured Borrowing as of March 31, 2022
| Principal Balance |  | Carrying Value |  | % Transferred |  | Principal Balance |  | Carrying Value
Windy Hill PV Five CM, LLC | $ | 54,078,939 |  |  | $ | 54,416,729 |  |  | 69.11 | % |  | $ | 37,371,625 |  |  | $ | 37,503,542 |
| $ | 54,078,939 |  |  | $ | 54,416,729 |  |  |  |  | $ | 37,371,625 |  |  | $ | 37,503,542 |

|  |  |  |  | Transfers Treated as Secured Borrowing as of December 31, 2021
| Principal Balance |  | Carrying Value |  | % Transferred |  | Principal Balance |  | Carrying Value
Windy Hill PV Five CM, LLC | $ | 49,954,068 |  |  | $ | 50,264,568 |  |  | 69.11 | % |  | $ | 34,521,104 |  |  | $ | 34,586,129 |
| $ | 49,954,068 |  |  | $ | 50,264,568 |  |  |  |  | $ | 34,521,104 |  |  | $ | 34,586,129 |

Note 8. Debt
Unsecured Notes Payable
On June 10, 2021, the Company issued $78.5 million in aggregate principal amount of its 6.00% notes due 2026 (the “initial note”), for net proceeds of $76.0 million after deducting underwriting commissions of $2.5 million, but before offering expenses payable by the Company. On June 25, 2021, the underwriters partially exercised their option to purchase an additional $6.6 million of the notes for net proceeds of $6.4 million (the “additional notes” and, together with the initial notes, the “notes”), after deducting underwriting commissions of $0.2 million, but before offering expenses payable by us, which closed on June 29, 2021. Interest on the notes is paid quarterly in arrears every March 30, June 30, September 30 and December 30, at a fixed rate of 6.00% per year, beginning September 30, 2021. The notes mature on June 30, 2026, unless redeemed earlier by the Company. The notes may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after June 10, 2023.
In connection with the issuance of the notes, the Company entered into (i) an Indenture, dated June 10, 2021 (the “Base Indenture”), by and between the Company and U.S. Bank National Association, as trustee (the “Trustee”), and (ii) the First Supplemental Indenture thereto, dated June 10, 2021 (the “Supplemental Indenture” and, collectively with the Base Indenture, the “Indenture”), by and between the Company and the Trustee. The Indenture contains certain covenants that, among other things, limit the ability of the Company, subject to exceptions, to make distributions in excess of 90% of the Company’s taxable income, incur indebtedness (as defined in the Indenture) or purchase shares of the Company’s capital stock unless the Company has an asset coverage ratio (as defined in the Indenture) of at least 150% after giving effect to such transaction. The Indenture also provides for customary events of default which, if any of them occurs, would permit or require the principal of and accrued interest on the notes to become or to be declared due and payable. As of March 31, 2022 and December 31, 2021, the Company was in compliance with the covenants included in the Indenture.
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The table below presents detailed information regarding the unsecured notes payable at March 31, 2022 and December 31, 2021:

|  | March 31, 2022 |  | December 31, 2021
|  | Principal Balance |  | Carrying Value (1) |  | Fair Value |  | Principal Balance |  | Carrying Value (1) |  | Fair Value
Unsecured notes payable |  | $ | 85,125,000 |  |  | $ | 82,010,107 |  |  | $ | 84,239,700 |  |  | $ | 85,125,000 |  |  | $ | 81,856,799 |  |  | $ | 85,210,125 |

_______________
(1)Amount is net of unamortized issue discount of $2.3 million and $2.4 million, and unamortized deferred financing costs of $0.8 million and $0.9 million as of March 31, 2022 and December 31, 2021, respectively.
Revolving Line of Credit
On March 12, 2021, Terra Mortgage Portfolio II, LLC, an indirect wholly-owned subsidiary of the Company, entered into a Business Loan and Security Agreement (the “Revolving Line of Credit”) with Western Alliance Bank (“WAB”) to provide for advances up to the lesser of $75.0 million or the amount determined by the borrowing base, which is based on the eligible assets pledged to the lender. Borrowings under the Revolving Line of Credit bear interest at an annual rate of LIBOR + 3.25% with a combined floor of 4.0% per annum. The Revolving Line of Credit was scheduled to mature on March 12, 2023. On January 4, 2022, the Company amended the Revolving Line of Credit to increase the maximum amount available to $125.0 million and extended the maturity date of the facility to March 12, 2024 with an annual 12-month extension available at the Company’s option, which are subject to certain conditions.
In connection with the Revolving Line of Credit, the Company entered into a limited guaranty (the “Guaranty”) in favor of WAB, pursuant to which the Company will guarantee the payment of up to 25% of the amount outstanding under the Revolving Line of Credit. Under the Revolving Line of Credit and the Guaranty, the Company will be required to maintain (i) a minimum total net worth of $250.0 million; (ii) a $3.5 million quarterly operating profit, as defined within the agreement; and (iii) a ratio of total debt to total net worth of no more than 2.50 to 1.00. As of March 31, 2022 and December 31, 2021, the Company was in compliance with these covenants.
The Revolving Line of Credit contains terms, conditions, covenants, and representations and warranties that are customary and typical for a transaction of this nature. The Revolving Line of Credit contains various affirmative and negative covenants, including maintenance of a debt to total net worth ratio and limitations on the incurrence of liens and indebtedness, loans, distributions, change of management and ownership, changes in the nature of business and transactions with affiliates.
The Revolving Line of Credit also includes customary events of default, including a cross-default provision applicable to debt obligations of Terra Mortgage Portfolio II, LLC or the Company. The occurrence of an event of default may result in termination of the Revolving Line of Credit and acceleration of amounts due under the Revolving Line of Credit.
In connection with the closing of the Revolving Line of Credit, the Company also incurred financing fees of $0.6 million, to be amortized to interest expense over the life of the Revolving Line of Credit.
The following tables present detailed information with respect to each borrowing under the Revolving Line of Credit as of March 31, 2022 and December 31, 2021 :

| March 31, 2022
| Borrowing Base |  | Borrowings Under the Revolving Line of Credit
| Principal Amount |  | Carrying Value |  | Fair Value |
870 Santa Cruz, LLC | $ | 19,760,033 |  |  | $ | 19,934,619 |  |  | $ | 19,993,943 |  |  | $ | 13,832,023 |
606 Fayetteville LLC and 401 E. Lakewood LLC | 17,536,492 |  |  | 17,663,959 |  |  | 17,690,666 |  |  | 10,521,896 |
AAESUF Property LLC | 16,800,000 |  |  | 16,849,956 |  |  | 17,456,207 |  |  | 9,240,000 |
AARSHW Property LLC | 18,771,608 |  |  | 18,541,648 |  |  | 18,911,932 |  |  | 13,156,108 |
Austin H. I. Borrower LLC | 13,695,947 |  |  | 13,824,587 |  |  | 13,832,906 |  |  | 8,172,000 |
D-G Acquistion #6, LLC and D-G Quimisa, LLC | 8,846,216 |  |  | 8,854,524 |  |  | 8,886,221 |  |  | 6,192,351 |
The Lux Washington, LLC | 7,424,855 |  |  | 7,376,668 |  |  | 7,489,172 |  |  | 3,839,171 |
| $ | 102,835,151 |  |  | $ | 103,045,961 |  |  | $ | 104,261,047 |  |  | $ | 64,953,549 |

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| December 31, 2021
| Borrowing Base |  | Borrowings Under the Revolving Line of Credit
| Principal Amount |  | Carrying Value |  | Fair Value |
870 Santa Cruz, LLC | $ | 17,540,875 |  |  | $ | 17,669,303 |  |  | $ | 17,781,285 |  |  | $ | 12,278,613 |
606 Fayetteville LLC and 401 E. Lakewood LLC | 16,829,962 |  |  | 16,935,803 |  |  | 16,974,601 |  |  | 10,312,187 |
Austin H. I. Borrower LLC | 13,625,000 |  |  | 13,725,690 |  |  | 13,735,569 |  |  | 7,493,750 |
D-G Acquistion #6, LLC and D-G Quimisa, LLC | 8,607,092 |  |  | 8,605,341 |  |  | 8,645,413 |  |  | 6,024,965 |
The Lux Washington, LLC | 3,523,401 |  |  | 3,382,683 |  |  | 3,553,330 |  |  | 2,466,380 |
| $ | 60,126,330 |  |  | $ | 60,318,820 |  |  | $ | 60,690,198 |  |  | $ | 38,575,895 |

For the three months ended March 31, 2022 and 2021, the Company received proceeds from the Revolving Line of Credit of $26.4 million and $8.0 million, respectively, and did not make any repayments.
Term Loan
On September 3, 2020, Terra Mortgage Capital I, LLC (the “Issuer”), a special-purpose indirect wholly-owned subsidiary of the Company, entered into an Indenture and Credit Agreement (the “Indenture and Credit Agreement”) with Goldman Sachs Bank USA, as initial lender (“Goldman”) and Wells Fargo Bank, National Association, as the trustee, custodian, collateral agent, loan agent and note administrator (“Wells Fargo”). The Indenture and Credit Agreement provided for (A) the borrowing by the Issuer from Goldman of approximately $103.0 million under a floating rate loan (the “Term Loan”) and (B) the issuance by the Issuer to Terra Mortgage Portfolio I, LLC (the “Class B Holder”) of an aggregate of approximately $76.7 million principal amount of Class B Income Notes due 2025 (the “Class B Notes” and, together with the Term Loan, the “Debt”). The stated maturity date of the Debt was March 14, 2025. On February 18, 2022, the Company refinanced the Term Loan with a new repurchase agreement (see “Goldman Master Repurchase Agreement” below). The Term Loan bore interest at a variable rate initially equal to LIBOR (the “Benchmark Rate”) (but not less than 1.0% per annum), plus a margin of 4.25% per annum (plus 0.50% on and after the payment date in October 2022, plus 0.25% on and after the payment date in October 2023), payable each month, on the day specified in the Indenture and Credit Agreement beginning in September 2020 (each a “Payment Date”). The Company accounted for the step-up in interest rate using the effective interest rate method. In connection with the refinancing, the Company reversed the previously accrued step-up interest of $0.4 million.
In connection with the Indenture and Credit Agreement, the Company entered into a non-recourse carveout Guaranty (the “Guaranty”) in favor of Goldman, pursuant to which the Company guaranteed the payment of certain losses, damages, costs, expenses, and other obligations incurred by Goldman in connection with the occurrence of fraud, intentional misrepresentation, or willful misconduct by the Issuer, Class B Holder or the Company, and certain other occurrences including breaches of certain provisions under the Indenture and Credit Agreement. The Company also guaranteed the payment of the aggregate outstanding amount of the Term Loan upon the occurrence of certain bankruptcy events. Under the Guaranty, the Company was required to maintain (a) a minimum tangible net worth in an amount not less than seventy-five percent (75%) of its tangible net worth as of September 3, 2020, (b) a minimum liquidity of $10 million, and (c) an EBITDA to interest expense ratio of not less than 1.5 to 1.0. Failure to satisfy such maintenance covenants would constitute an event of default under the Indenture and Credit Agreement. On February 18, 2022, the Company refinanced the Term Loan with a new repurchase agreement and expects continued covenant compliance under the terms of the new repurchase agreement.
The following tables present detailed information with respect to each borrowing under the Term Loan as of December 31, 2021:

| December 31, 2021
| Mortgage Assets |  | Borrowings Under the Term Loan (1)(2)
| Principal Amount |  | Carrying Value |  | Fair Value |
330 Tryon DE LLC | $ | 22,800,000 |  |  | $ | 22,902,354 |  |  | $ | 22,594,654 |  |  | $ | 13,680,000 |
1389 Peachtree St, LP; 1401 Peachtree St, LP; and 1409 Peachtree St, LP | 53,289,288 |  |  | 53,536,884 |  |  | 52,031,363 |  |  | 31,283,661 |
AGRE DCP Palm Springs, LLC | 43,222,381 |  |  | 43,669,992 |  |  | 43,829,842 |  |  | 23,146,265 |
Patrick Henry Recovery Acquisition, LLC | 18,000,000 |  |  | 18,041,124 |  |  | 18,055,377 |  |  | 10,800,000 |
University Park Berkeley, LLC | 25,815,378 |  |  | 25,991,962 |  |  | 26,015,500 |  |  | 14,853,544 |
| $ | 163,127,047 |  |  | $ | 164,142,316 |  |  | $ | 162,526,736 |  |  | $ | 93,763,470 |

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For the three months ended March 31, 2022 and 2021, the Company made repayments on the Term Loan of $93.8 million and $2.6 million, respectively, and received proceeds from borrowings under the Term Loan of $0 and $1.5 million, respectively.
Repurchase Agreements
UBS Master Repurchase Agreement
On November 8, 2021, Terra Mortgage Capital III, LLC (the “Seller”), a special-purpose indirect wholly-owned subsidiary of the Company, entered into an Uncommitted Master Repurchase Agreement (the “UBS Master Repurchase Agreement”) with UBS AG ( the “Buyer”). The UBS Master Repurchase Agreement provides for advances of up to $195 million in the aggregate, which the Company expects to use to finance certain secured performing commercial real estate loans, including senior mortgage loans, where the underlying mortgaged properties consist of value-added assets with loan-to-value ratio between 65% and 80% that are typically yielding between 2.5% and 5.0%.
Advances under the UBS Master Repurchase Agreement accrue interest at a per annum pricing rate equal to the sum of (i) the 30-day LIBOR or Term SOFR if LIBOR is not available and (ii) the applicable spread, which ranges from 1.60% to 2.25%, and have a maturity date of November 7, 2024. The actual terms of financing for each asset will be determined at the time of financing in accordance with the UBS Master Repurchase Agreement. Subject to satisfaction of certain conditions, the Seller may extend the maturity date of the UBS Master Repurchase Agreement annually thereafter on mutually agreeable terms. In connection with the UBS Master Repurchase Agreement, the Company incurred deferred financing costs of $0.6 million, which are being amortized to interest expense over the term of the facility.
The UBS Master Repurchase Agreement contains margin call provisions that provide the Buyer with certain rights in the event of a decline in the credit of the underlying assets purchased under the UBS Master Repurchase Agreement. Upon the occurrence of a margin deficit event, the Buyer may require the Seller to make a payment to reduce the purchase price to eliminate any margin deficit.
In connection with the UBS Master Repurchase Agreement, the Company entered into a Guarantee Agreement in favor of the Buyer (the “UBS Guarantee Agreement”), pursuant to which the Company will guarantee the payment of up to 25% of the amount outstanding under the UBS Master Repurchase Agreement. The UBS Master Repurchase Agreement and the UBS Guarantee Agreement contain various representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of these types. In addition, the UBS Guarantee Agreement contains financial covenants, which require the Company to maintain: (i) cash liquidity of at least the greater of $5 million or 5% of the then-current outstanding amount under the UBS Master Repurchase Agreement; (ii) total liquidity of at least the greater of $15 million or 10% of the then-current outstanding amount under the UBS Master Repurchase Agreement (iii) tangible net worth at an amount equal to or greater than $215.7 million plus 75% of new capital contributions thereafter; (iv) an EBITDA to interest expense ratio of not less than 1.50 to 1.00; and (v) a total indebtedness to tangible net worth ratio of not more than 3.50 to 1.00. In March 2022, the Company amended the UBS Guarantee Agreement to reduce the EBITDA to interest expense ratio of not less than 1.25 to 1.00, and as of March 31, 2022 and December 31, 2021, the Company was in compliance with these covenants.
The following table presents detailed information with respect to each borrowing under the UBS Master Repurchase Agreement as of March 31, 2022 and December 31, 2021:

| March 31, 2022
| Collateral |  | Borrowings Under Master Repurchase Agreement
| Principal Amount |  | Carrying Value |  | Fair Value |  | Borrowing Date |  | Principal Amount |  | Interest Rate
14th & Alice Street Owner, LLC | $ | 39,468,000 |  |  | $ | 40,197,784 |  |  | $ | 40,222,586 |  |  | 11/8/2021 |  | $ | 25,599,600 |  |  | LIBOR+1.45% (LIBOR floor of 0.1%)
NB Factory TIC 1, LLC | 28,000,000 |  |  | 28,529,857 |  |  | 28,861,172 |  |  | 11/8/2021 |  | 18,970,000 |  |  | LIBOR+1.74% (LIBOR floor of 0.1%)
Grandview’s Madison Place, LLC | 17,000,000 |  |  | 17,111,299 |  |  | 17,111,299 |  |  | 3/7/2022 |  | 13,600,000 |  |  | Term SOFR + 1.965%
| $ | 84,468,000 |  |  | $ | 85,838,940 |  |  | $ | 86,195,057 |  |  |  |  | $ | 58,169,600 |  |  |

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| December 31, 2021
| Collateral |  | Borrowings Under Master Repurchase Agreement
| Principal Amount |  | Carrying Value |  | Fair Value |  | Borrowing Date |  | Principal Amount |  | Interest Rate
14th & Alice Street Owner, LLC | $ | 39,384,000 |  |  | $ | 40,089,153 |  |  | $ | 40,130,448 |  |  | 11/8/2021 |  | $ | 25,599,600 |  |  | LIBOR+1.45% (LIBOR floor of 0.1%)
NB Factory TIC 1, LLC | 28,000,000 |  |  | 28,420,056 |  |  | 28,851,547 |  |  | 11/8/2021 |  | 18,970,000 |  |  | LIBOR+1.74% (LIBOR floor of 0.1%)
| $ | 67,384,000 |  |  | $ | 68,509,209 |  |  | $ | 68,981,995 |  |  |  |  | $ | 44,569,600 |  |  |

For the three months ended March 31, 2022, the Company borrowed $13.6 million under the UBS Master Repurchase Agreement for the financing of a new investment, and did not make any repayments.
Goldman Master Repurchase Agreement
On February 18, 2022, Terra Mortgage Capital I, LLC (the “GS Seller”), a special-purpose indirect wholly-owned subsidiary of the Company, entered into an Uncommitted Master Repurchase and Securities Contract Agreement (the “Repurchase Agreement”) with Goldman Sachs Bank USA ( the “GS Buyer”). The Repurchase Agreement provides for advances of up to $200.0 million in the aggregate, which the Company expects to use to finance the originations of certain secured performing commercial real estate loans and the acquisitions of certain secured non-performing commercial real estate loans. The Repurchase Agreement replaced the Term Loan, at which time all Mortgage Assets under the Term Loan were assigned as purchased assets under the Repurchase Agreement.
Advances under the Repurchase Agreement accrue interest at a per annum pricing rate equal to the sum of (i) Term SOFR (subject to underlying loan floors on a case-by-case basis) and (ii) the applicable spread, which ranges from 1.75% to 3.00%, and have a maturity date of February 18, 2024. The actual terms of financing for each asset will be determined at the time of financing in accordance with the Repurchase Agreement. Subject to satisfaction of certain conditions, the GS Seller may extend the maturity date of the Repurchase Agreement for another 12-month term. In connection with the Repurchase Agreement, the Company incurred financing costs of $0.6 million, which are being amortized to interest expense over the term of the facility. Additionally, because the Repurchase Agreement was accounted for as a loan modification of the Term Loan, the remaining unamortized deferred financing fees of $1.7 million under the Term Loan were carried over to the Repurchase Agreement to be amortized over the life of the Repurchase Agreement.
The Repurchase Agreement contains margin call provisions that provide the GS Buyer with certain rights in the event of a decline in debt yield, loan-to-value ratio, and value of the underlying loans purchased under the Repurchase Agreement. Upon the occurrence of a margin deficit event, the GS Buyer may require the GS Seller to make a payment to reduce the purchase price to eliminate any margin deficit.
In connection with the Repurchase Agreement, the Company entered into a Guarantee Agreement in favor of the GS Buyer (the “Guarantee Agreement”), pursuant to which the Company will guarantee the obligations of the GS Seller under the Repurchase Agreement. Subject to certain exceptions, the maximum liability under the Repurchase Agreement will not exceed 25% of the then currently outstanding repurchase obligations for performing loans and 50% of the then currently outstanding repurchase obligations for non-performing loans under the Repurchase Agreement.
The Repurchase Agreement and the Guarantee Agreement contain various representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of these types. In addition, the Guarantee Agreement contains financial covenants, which require the Company to maintain: (i) cash liquidity of at least the greater of $5 million or 5% of the then-current outstanding amount under the Repurchase Agreement; (ii) total liquidity in an amount equal to or greater than the lesser of $15 million or 10% of the then-current outstanding amount under the Repurchase Agreement (iii) tangible net worth at an amount no less than 75% of that at closing; (iv) an EBITDA to adjusted interest expense ratio of not less than 1.50 to 1.00; and (v) a total indebtedness to tangible net worth ratio of not more than 3.00 to 1.00. as of March 31, 2022, the Company was in compliance with these covenants.
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The following table presents detailed information with respect to each borrowing under the Repurchase Agreement as of March 31, 2022:

| March 31, 2022
| Collateral |  | Borrowings Under Repurchase Agreement
| Principal Amount |  | Carrying Value |  | Fair Value |  | Borrowing Date |  | Principal Amount |  | Interest Rate
330 Tryon DE LLC | $ | 22,800,000 |  |  | $ | 22,903,651 |  |  | $ | 22,638,331 |  |  | 2/18/2022 |  | $ | 18,240,000 |  |  | Term SOFR +2.015% (0.10% floor)
1389 Peachtree St, LP; 1401 Peachtree St, LP; and 1409 Peachtree St, LP | 53,970,491 |  |  | 54,221,854 |  |  | 53,083,178 |  |  | 2/18/2022 |  | 40,285,866 |  |  | Term SOFR + 2.465%
AGRE DCP Palm Springs, LLC | 43,222,381 |  |  | 43,696,133 |  |  | 43,738,712 |  |  | 2/18/2022 |  | 28,094,548 |  |  | Term SOFR + 1.315% (1.80% floor)
Patrick Henry Recovery Acquisition, LLC | 18,000,000 |  |  | 18,041,590 |  |  | 18,049,540 |  |  | 2/18/2022 |  | 14,400,000 |  |  | Term SOFR +0.865% (1.50% floor)
University Park Berkeley, LLC | 25,815,378 |  |  | 25,995,342 |  |  | 26,008,381 |  |  | 2/18/2022 |  | 17,329,135 |  |  | Term SOFR + 1.365% (1.50% floor)
| $ | 163,808,250 |  |  | $ | 164,858,570 |  |  | $ | 163,518,142 |  |  |  |  | $ | 118,349,549 |  |  |

For the three months ended March 31, 2022, the Company borrowed $118.3 million under the Repurchase Agreement and did not make any repayments.
Mortgage Loan Payable
As of March 31, 2022, the Company had a $31.8 million mortgage loan payable collateralized by a multi-tenant office building that the Company acquired through foreclosure. The following table presents certain information about the mortgage loan payable as of March 31, 2022 and December 31, 2021:

|  |  |  |  |  | March 31, 2022 |  | December 31, 2021
Lender |  | Current Interest Rate |  | Maturity Date |  | Principal Amount |  | Carrying Value |  | Carrying Value of Collateral |  | Principal Amount |  | Carrying Value |  | Carrying Value of Collateral
Centennial Bank |  | LIBOR + 3.85% (LIBOR Floor of 2.23%) |  | September 27, 2022 |  | $ | 31,757,725 |  |  | $ | 31,963,840 |  |  | $ | 44,627,576 |  |  | $ | 31,962,692 |  |  | $ | 32,134,295 |  |  | $ | 46,067,129 |

Scheduled Debt Principal Payments
Scheduled debt principal payments for each of the five calendar years following March 31, 2022 are as follows:

Years Ending December 31, |  | Total
2022 (April 1 to December 31) |  | $ | 31,757,725 |
2023 |  | — |
2024 |  | 241,472,698 |
2025 |  | — |
2026 |  | 85,125,000 |
2027 |  | — |
Thereafter |  | — |
|  | 358,355,423 |
Unamortized deferred financing costs |  | (6,269,467) |
Total |  | $ | 352,085,956 |

At March 31, 2022 and December 31, 2021, the unamortized deferred debt issuance costs were $6.3 million and $5.9 million, respectively.
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Obligations Under Participation Agreements and Secured Borrowing
As discussed in Note 2, the Company follows the guidance in ASC 860 when accounting for loan participations and loans sold. Such guidance requires the transferred interests meet certain criteria in order for the transaction to be recorded as a sale. Loan participations and loans transferred from the Company which do not qualify for sale treatment remain on the Company’s consolidated balance sheets and the proceeds are recorded as obligations under participation agreements or secured borrowing, as applicable. As of March 31, 2022 and December 31, 2021, obligations under participation agreements had a carrying value of approximately $58.6 million and $42.2 million, respectively, and the carrying value of the loans that are associated with these obligations under participation agreements was approximately $124.6 million and $101.0 million, respectively, (see “Participation Agreements” in Note 7). Additionally, as of March 31, 2022 and December 31, 2021, secured borrowing had a carrying value of approximately $37.5 million and $34.6 million, and the carrying value of the loan that is associated with the secured borrowing was $54.4 million and $50.3 million, respectively. The weighted-average interest rate on the obligations under participation agreements and secured borrowing was approximately 11.1% and 10.4% as of March 31, 2022 and December 31, 2021, respectively.
Note 9. Commitments and Contingencies
Impact of COVID-19
While the impact of the COVID-19 pandemic on the global economy generally, and the Company’s business in particular, continues to evolve, as of March 31, 2022, no contingencies have been recorded on the Company’s consolidated balance sheet as a result of the COVID-19 pandemic. As the pandemic continues, it may have long-term impacts on the Company’s financial condition, results of operations, and cash flows. Refer to Note 2 for further discussion of COVID-19.
Unfunded Commitments on Loans Held for Investment
Certain of the Company’s loans contain provisions for future fundings, which are subject to the borrower meeting certain performance-related metrics that are monitored by the Company. These fundings amounted to approximately $101.2 million and $71.8 million as of March 31, 2022 and December 31, 2021, respectively. The Company expects to maintain sufficient cash on hand to fund such commitments through matching these commitments with principal repayments on outstanding loans or draw downs on credit facilities.
Unfunded Investment Commitment
As discussed in Note 4, on August 3, 2020, the Company entered into a subscription agreement with RESOF whereby the Company committed to fund up to $50.0 million to purchase limited partnership interests in RESOF. As of March 31, 2022 and December 31, 2021, the unfunded investment commitment was $16.4 million and $15.1 million, respectively.
Other
The Company enters into contracts that contain a variety of indemnification provisions. The Company’s maximum exposure under these arrangements is unknown; however, the Company has not had prior claims or losses pursuant to these contracts. The Manager has reviewed the Company’s existing contracts and expects the risk of loss to the Company to be remote.
From time to time, the Company and the Manager may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of the Company’s rights under contracts with its portfolio companies. Additionally, as described above under “Note 5. Real Estate Owned, Net—Real Estate Operating Revenue and Expenses,” as of March 31, 2022, the Company 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. The next rent reset on the ground lease is scheduled for November 1, 2025. The Company is currently 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 – Terra Ocean Ave., LLC v. Ocean Avenue Santa Monica Realty LLC, Superior Court of California, Los Angeles County, Case No. 20STCV34217. The Company believes this determination should be based on comparable sales, while the landlord insists that the rent under the ground lease itself is also relevant. The Company’s position has prevailed in all three of the prior arbitrations to reset the ground rent. Since future rent reset determinations under the ground lease cannot be known at this time, the Company did not include any potential future rent increases in calculating the present value of future rent payments. The Company intends vigorously to pursue the litigation. While the Company believes its arguments will likely prevail, the outcome of the legal proceeding cannot be predicted with certainty. If the landlord
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prevails, the future rent reset determinations could result in significantly higher ground rent, which would likely result in a significant diminution in the value of the Company’s interest in the ground lease and the office building.
See Note 7 for a discussion of the Company’s commitments to the Manager.
Note 10. Equity
Earnings Per Share
The following table presents earnings per share for the three months ended March 31, 2022 and 2021:

|  |  | Three Months Ended March 31,
|  |  | 2022 |  | 2021
Net (loss) income |  |  | $ | (757,887) |  |  | $ | 1,476,096 |
Series A preferred stock dividend declared |  |  | (3,906) |  |  | (3,906) |
Net (loss) income allocable to common stock |  |  | $ | (761,793) |  |  | $ | 1,472,190 |
Weighted-average shares outstanding - basic and diluted |  |  | 19,487,460 |  |  | 19,487,460 |
(Loss) earnings per share - basic and diluted |  |  | $ | (0.04) |  |  | $ | 0.08 |

Preferred Stock Classes
Preferred Stock
The Company’s charter gives it authority to issue 50,000,000 shares of preferred stock, $0.01 par value per share (“Preferred Stock”). The Company’s board of directors may classify any unissued shares of Preferred Stock and reclassify any previously classified but unissued shares of Preferred Stock of any series from time to time, into one or more classes or series of stock. As of March 31, 2022 and December 31, 2021, there were no Preferred Stock issued or outstanding.
Series A Preferred Stock
On November 30, 2016, the Company’s board of directors classified and designated 125 shares of preferred stock as a separate class of preferred stock to be known as the 12.5% Series A Redeemable Cumulative Preferred Stock, $1,000 liquidation value per share (“Series A Preferred Stock”). In December 2016, the Company sold 125 shares of the Series A Preferred Stock for $125,000. The Series A Preferred Stock pays dividends at an annual rate of 12.5% of the liquidation preference. These dividends are cumulative and payable semi-annually in arrears on June 30 and December 31 of each year.
The Series A Preferred Stock, with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Company, rank senior to common stock. The Company, at its option, may redeem the shares, with written notice, at a redemption price of $1,000 per share, plus any accrued unpaid distribution through the date of the redemption. The Series A Preferred Stock carries a redemption premium of $50 per share if redeemed prior to January 1, 2019. The Series A Preferred Stock generally has no voting rights. However, the Series A Preferred Stock holders’ voting is required if (i) authorization or issuance of any securities senior to the Series A Preferred Stock; (ii) an amendment to the Company’s charter that has a material adverse effect on the rights and preference of the Series A Preferred Stock; and (iii) any reclassification of the Series A Preferred Stock.
Common Stock
As of March 31, 2022, Terra JV held 87.4% of the issued and outstanding shares of the Company’s common stock with the remainder held by Terra Offshore REIT. As of March 31, 2022, Terra Fund 5 and Terra Secured Income Fund 7, LLC (“Terra Fund 7”) owned an 87.6% and 12.4% interest in Terra JV, respectively, and Terra Secured Income Fund 5 International and Terra Income Fund International owned a 51.6% and 48.4% interest in Terra Offshore REIT, respectively.
Distributions
The Company generally intends to distribute substantially all of its taxable income, which does not necessarily equal net income as calculated in accordance with U.S. GAAP, to its stockholders each year to comply with the REIT provisions of the Internal Revenue Code. All distributions will be made at the discretion of the Company’s board of directors and will depend
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upon its taxable income, financial condition, maintenance of REIT status, applicable law, and other factors as its board of directors deems relevant.
For the three months ended March 31, 2022 and 2021, the Company made distributions to Terra JV and Terra Offshore REIT totaling $3.9 million and $3.9 million, of which $2.9 million and $2.4 million were returns of capital, respectively. Additionally, for each of the three months ended March 31, 2022 and 2021, the Company made distributions to preferred stockholders of $3,906.
Note 11. Subsequent Events
Management has evaluated subsequent events through the date the consolidated financial statements were available to be issued. Management has determined that there are no material events other than the one described below that would require adjustment to, or disclosure in, the Company’s consolidated financial statements.
On May 2, 2022, the Company, Terra Income Fund 6, Inc. (“Terra BDC”), Terra Merger Sub, LLC, a wholly owned subsidiary of the Company (“Merger Sub”), Terra Income Advisors, LLC and the Manager, entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which, subject to the terms and conditions therein, Terra BDC will be merged with and into Merger Sub, with Merger Sub surviving as a wholly owned subsidiary of the Company (such surviving company, the “Surviving Company” and such transaction, the “Merger”).
Pursuant to the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), except for any shares of common stock, par value $0.001 per share, of Terra BDC (“Terra BDC Common Stock”) held by the Company or any wholly owned subsidiary of the Company or Terra BDC, which will be automatically retired and cease to exist with no consideration paid therefor, each issued and outstanding share of Terra BDC Common Stock will be automatically cancelled and retired and converted into the right to receive (i) 0.595 shares (as such number may be adjusted in accordance with the Merger Agreement, the “Exchange Ratio”) of the newly designated Class B Common Stock, par value $0.01 per share, of the Company (“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 to which such holder would otherwise be entitled by (y) $14.38.
Prior to the Effective Time, the Company will file with the State Department of Assessments and Taxation of Maryland Articles of Amendment to the Articles of Amendment and Restatement of the Company (the “Charter Amendment”). Pursuant to the Charter Amendment, (i) the authorized shares of stock which the Company has authority to issue will be increased from 500,000,000 to 950,000,000, consisting of 450,000,000 shares of Class A Common Stock, $0.01 par value per share (“Class A Common Stock”), 450,000,000 shares of Class B Common Stock, and 50,000,000 shares of Preferred Stock, $0.01 par value per share, and (ii) each share of the Company’s common stock issued and outstanding immediately prior to the Effective Time will be automatically changed into one issued and outstanding share of Class B Common Stock.
Except with respect to conversion, each share of Class B Common Stock will have identical preferences, rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, and terms and conditions of redemption as each other share of the Company’s common stock. On the date that is 180 calendar days (or, if such date is not a business day, the next business day) after the date of initial listing of shares of Class A Common Stock for trading on a national securities exchange or such earlier date as approved by the Board (the “First Conversion Date”), one-third of the issued and outstanding shares of Class B Common Stock will automatically and without any action on the part of the holder thereof convert into an equal number of shares of Class A Common Stock. On the date that is 365 calendar days (or, if such date is not a business day, the next business day) after the date of initial listing of shares of Class A Common Stock for trading on a national securities exchange or such earlier date following the First Conversion Date as approved by the Board (the “Second Conversion Date”), one-half of the issued and outstanding shares of Class B Common Stock will automatically and without any action on the part of the holder thereof convert into an equal number of shares of Class A Common Stock. On the date that is 545 calendar days (or, if such date is not a business day, the next business day) after the date of initial listing of shares of Class A Common Stock for trading on a national securities exchange or such earlier date following the Second Conversion Date as approved by the Board, all of the issued and outstanding shares of Class B Common Stock will automatically and without any action on the part of the holder thereof convert into an equal number of shares of Class A Common Stock.
Pursuant to the Merger Agreement, the Company has agreed to take all necessary corporate action so that upon and after the Effective Time, the size of the Board is increased from three to six, and three individuals designated by Terra BDC (the “Terra BDC Designees”) are elected to the Board. If a Terra BDC Designee is not able or willing to serve on the Board as of the Effective Time, Terra BDC will select a replacement within a reasonable period of time prior to the Effective Time, and the Board will elect such replacement as a member of the Board as of the Effective Time.
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The Merger is expected to close during the third quarter of 2022, subject to the required approvals by Terra BDC’s stockholders and other customary closing conditions. There can be no assurances that the Merger will close.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The information contained in this section should be read in conjunction with our unaudited consolidated financial statements and related notes thereto and other financial information included elsewhere in this quarterly report on Form 10-Q. In this report, “we,” “us” and “our” refer to Terra Property Trust, Inc. (and, together with its consolidated subsidiaries, the “Company” or “Terra Property Trust”).
FORWARD-LOOKING STATEMENTS
We make forward-looking statements in this quarterly report on Form 10-Q within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). For these statements, we claim the protections of the safe harbor for forward-looking statements contained in such Sections. The forward-looking statements contained in this quarterly report on Form 10-Q may include, but are not limited to, statements as to:
•our expected financial performance, operating results and our ability to make distributions to our stockholders in the future;
•the potential negative impacts of the coronavirus (“COVID-19”) pandemic on the global economy and the impacts of the COVID-19 pandemic on our financial condition, results of operations, liquidity and capital resources and business operations;
•actions that may be taken by governmental authorities to contain the COVID-19 pandemic or to treat its impact;
•the availability of attractive risk-adjusted investment opportunities in our target asset class and other real estate-related investments that satisfy our objectives and strategies;
•the origination or acquisition of our targeted assets, including the timing of originations or acquisitions;
•volatility in our industry, interest rates and spreads, the debt or equity markets, the general economy or the real estate market specifically, whether the results of market events or otherwise;
•changes in our investment objectives and business strategy;
•the availability of financing on acceptable terms or at all;
•the performance and financial condition of our borrowers;
•changes in interest rates and the market value of our assets;
•borrower defaults or decreased recovery rates from our borrowers;
•changes in prepayment rates on our loans;
•our use of financial leverage;
•actual and potential conflicts of interest with any of the following affiliated entities: Terra Fund Advisors, LLC, Terra REIT Advisors, LLC (“Terra REIT Advisors” or the “Manager”), Terra Income Advisors, LLC; Terra Capital Partners, LLC (“Terra Capital Partners”), our sponsor; Terra Secured Income Fund 5, LLC (“Terra Fund 5”); Terra JV, LLC (“Terra JV”); Terra Income Fund 6, Inc. (“Terra Fund 6” or “Terra BDC”); Terra Secured Income Fund 5 International; Terra Income Fund International; Terra Secured Income Fund 7, LLC (“Terra Fund 7”); Terra Offshore Funds REIT, LLC (“Terra Offshore REIT”); Mavik Real Estate Special Opportunities Fund, LP (“RESOF”); or any of their affiliates;
•our dependence on our Manager or its affiliates and the availability of its senior management team and other personnel;
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•liquidity transactions that may be available to us in the future, including a liquidation of our assets, a sale of our company, a listing of our shares of common stock on a national securities exchange, or an adoption of a share repurchase plan or a strategic business combination, in each case, which may include the distribution of our common stock indirectly owned by certain Terra Funds to the ultimate investors in the Terra Funds, and the timing of any such transactions;
•our ability to complete the contemplated acquisition of Terra BDC and achieve the expected synergies, cost savings and other benefits from the acquisition of Terra BDC;
•risks associated with achieving expected synergies, cost savings and other benefits from acquisitions, including the contemplated acquisition of Terra BDC, and our increased scale;
•actions and initiatives of the U.S. federal, state and local government and changes to the U.S. federal, state and local government policies and the execution and impact of these actions, initiatives and policies;
•limitations imposed on our business and our ability to satisfy complex rules in order for us to maintain our exemption from registration as an “investment company” under the Investment Company Act of 1940, as amended (the “1940 Act”), and to maintain our qualification as a real estate investment trust (“REIT”) for U.S. federal income tax purposes; and
•the degree and nature of our competition.
In addition, words such as “anticipate,” “believe,” “expect” and “intend” indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Part I — Item 1A. Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2021 and in “Part II — Item 1A. Risk Factors” in this quarterly report on Form 10-Q. Other factors that could cause actual results to differ materially include:
•changes in the economy;
•risks associated with possible disruption in our operations or the economy generally due to acts of war or other military conflicts (including the recent outbreak of hostilities between Russia and Ukraine), terrorism or natural disasters; and
•future changes in laws or regulations and conditions in our operating areas.
We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report on Form 10-Q. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. Stockholders are advised to consult any additional disclosures that we may make directly to stockholders or through reports that we may file in the future with the Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
Overview
We are a real estate credit focused company that originates, structures, funds and manages commercial real estate credit investments, including mezzanine loans, first mortgage loans, subordinated mortgage loans and preferred equity investments throughout the United States, which we collectively refer to as our targeted assets. Our loans finance the acquisition, construction, development or redevelopment of quality commercial real estate in the United States. We focus on the origination of middle market loans in the approximately $10 million to $50 million range, to finance properties primarily in primary and secondary markets. We believe loans in this size range are subject to less competition, offer higher risk adjusted returns than larger loans with similar risk metrics and facilitate portfolio diversification. Our investment objective is to provide attractive risk-adjusted returns to our stockholders, primarily through regular distributions. There can be no assurances that we will be successful in meeting our investment objective.
As of March 31, 2022, we held a net loan portfolio (gross loans less obligations under participation agreements and secured borrowing) comprised of 25 loans in 11 states with an aggregate net principal balance of $472.2 million, a weighted average
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coupon rate of 7.6%, a weighted average loan-to-value ratio of 72.4% and a weighted average remaining term to maturity of 1.5 years.
Each of our loans 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. As of March 31, 2022, our portfolio included underlying properties located in 25 markets, across 11 states and includes property types such as multifamily housing, hotels, student housing, commercial offices, medical offices, mixed-use and industrial properties. The profile of these properties ranges from stabilized and value-added properties to pre-development and construction. Our loans are structured across mezzanine debt, first mortgages, preferred equity investments and credit facilities.
We were incorporated under the general corporation laws of the State of Maryland on December 31, 2015. Through December 31, 2015, our business was conducted through a series of predecessor private partnerships. 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. Following the REIT formation transaction, Terra Fund 5 contributed the consolidated portfolio of net assets of the Terra Funds to our company in exchange for all of the shares of our 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. As of March 31, 2022, Terra JV held 87.4% of the issued and outstanding shares of our common stock with the remainder held by Terra Offshore REIT.
We have elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2016. So long as we qualify as a REIT, we generally are not subject to U.S. federal income tax on our net taxable income to the extent that we annually distribute all of our net taxable income to our stockholders.
Recent Developments
Terra BDC Merger
As previously disclosed, we continue to explore alternative liquidity transactions on an opportunistic basis to maximize stockholder value. 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 in-kind distribution of our shares of common stock indirectly owned by certain Terra Funds to the ultimate investors in the Terra Funds.
On May 2, 2022, we, Terra BDC, Terra Merger Sub, LLC, our wholly owned subsidiary (“Merger Sub”), Terra Income Advisors, LLC and the Manager, entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which, subject to the terms and conditions therein, Terra BDC will be merged with and into Merger Sub, with Merger Sub surviving as our wholly owned subsidiary (such surviving company, the “Surviving Company” and such transaction, the “Merger”).
Pursuant to the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), except for any shares of common stock, par value $0.001 per share, of Terra BDC (“Terra BDC Common Stock”) held by us or any of our wholly owned subsidiary or Terra BDC, which will be automatically retired and cease to exist with no consideration paid therefor, each issued and outstanding share of Terra BDC Common Stock will be automatically cancelled and retired and converted into the right to receive (i) 0.595 shares (as such number may be adjusted in accordance with the Merger Agreement, the “Exchange Ratio”) of our newly designated Class B Common Stock, par value $0.01 per share (“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 to which such holder would otherwise be entitled by (y) $14.38.
Prior to the Effective Time, we will file with the State Department of Assessments and Taxation of Maryland our Articles of Amendment to the Articles of Amendment and Restatement (the “Charter Amendment”). Pursuant to the Charter Amendment, (i) the authorized shares of stock which we have authority to issue will be increased from 500,000,000 to 950,000,000, consisting of 450,000,000 shares of Class A Common Stock, $0.01 par value per share (“Class A Common Stock”), 450,000,000 shares of Class B Common Stock, and 50,000,000 shares of Preferred Stock, $0.01 par value per share, and (ii) each share of our common stock issued and outstanding immediately prior to the Effective Time will be automatically changed into one issued and outstanding share of Class B Common Stock.
Except with respect to the conversion, each share of Class B Common Stock will have identical preferences, rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, and terms and conditions of redemption
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as each other share of our common stock. On the date that is 180 calendar days (or, if such date is not a business day, the next business day) after the date of initial listing of shares of Class A Common Stock for trading on a national securities exchange or such earlier date as approved by the Board (the “First Conversion Date”), one-third of the issued and outstanding shares of Class B Common Stock will automatically and without any action on the part of the holder thereof convert into an equal number of shares of Class A Common Stock. On the date that is 365 calendar days (or, if such date is not a business day, the next business day) after the date of initial listing of shares of Class A Common Stock for trading on a national securities exchange or such earlier date following the First Conversion Date as approved by the Board (the “Second Conversion Date”), one-half of the issued and outstanding shares of Class B Common Stock will automatically and without any action on the part of the holder thereof convert into an equal number of shares of Class A Common Stock. On the date that is 545 calendar days (or, if such date is not a business day, the next business day) after the date of initial listing of shares of Class A Common Stock for trading on a national securities exchange or such earlier date following the Second Conversion Date as approved by the Board, all of the issued and outstanding shares of Class B Common Stock will automatically and without any action on the part of the holder thereof convert into an equal number of shares of Class A Common Stock.
Pursuant to the Merger Agreement, we have agreed to take all necessary corporate action so that upon and after the Effective Time, the size of the Board is increased from three to six, and three individuals designated by Terra BDC (the “Terra BDC Designees”) are elected to the Board. If a Terra BDC Designee is not able or willing to serve on the Board as of the Effective Time, Terra BDC will select a replacement within a reasonable period of time prior to the Effective Time, and the Board will elect such replacement as a member of the Board as of the Effective Time.
The Merger is expected to close during the third quarter of 2022, subject to the required approvals by Terra BDC’s stockholders and other customary closing conditions. We cannot provide any assurance that the Merger or any alternative liquidity transaction will be available to us or, if available, that we will pursue or be successful in completing any such transaction.
COVID-19 Pandemic
The COVID-19 pandemic has evolved from its emergence in early 2020, so has its global impact. Governments and businesses have also instituted vaccine mandates and testing requirements for employees. While vaccine availability and uptake has increased, the longer-term macro-economic effects on global supply chains, inflation, labor shortages and wage increases continue to impact many industries, including the collateral underlying certain of our loans. Moreover, with the potential for new strains of COVID-19 to emerge, governments and businesses may re-impose aggressive measures, such as quarantines and restrictions on travel, to help slow its spread in the future. For this reason, among others, as the COVID-19 pandemic continues, the potential global impacts are uncertain and difficult to assess.
Portfolio Summary
The following tables provide a summary of our net loan portfolio as of March 31, 2022 and December 31, 2021:

| March 31, 2022
| Fixed Rate |  | Floating Rate (1)(2)(3) |  | Total Gross Loans |  | Obligations under Participation Agreements and Secured Borrowing |  | Total Net Loans
Number of loans | 7 |  |  | 18 |  |  | 25 |  |  | 5 |  |  | 25 |
Principal balance | $ | 97,914,340 |  |  | $ | 469,606,633 |  |  | $ | 567,520,973 |  |  | $ | 95,283,106 |  |  | $ | 472,237,867 |
Amortized cost | 99,264,597 |  |  | 458,754,403 |  |  | 558,019,000 |  |  | 96,090,690 |  |  | 461,928,310 |
Fair value | 99,045,593 |  |  | 457,961,364 |  |  | 557,006,957 |  |  | 95,483,175 |  |  | 461,523,782 |
Weighted average coupon rate | 12.92 | % |  | 7.16 | % |  | 8.15 | % |  | 11.07 | % |  | 7.56 | %
Weighted-average remaining term (years) | 1.98 |  |  | 1.32 |  |  | 1.44 |  |  | 0.97 |  |  | 1.53 |

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| December 31, 2021
| Fixed Rate |  | Floating Rate (1)(2)(3) |  | Total Gross Loans |  | Obligations under Participation Agreements and Secured Borrowing |  | Total Net Loans
Number of loans | 6 |  |  | 15 |  |  | 21 |  |  | 4 |  |  | 21 |
Principal balance | $ | 74,880,728 |  |  | $ | 405,270,423 |  |  | $ | 480,151,151 |  |  | $ | 76,569,398 |  |  | $ | 403,581,753 |
Amortized cost | 75,520,212 |  |  | 394,153,102 |  |  | 469,673,314 |  |  | 76,818,156 |  |  | 392,855,158 |
Fair value | 75,449,410 |  |  | 391,752,209 |  |  | 467,201,619 |  |  | 75,900,089 |  |  | 391,301,530 |
Weighted average coupon rate | 12.39 | % |  | 7.01 | % |  | 7.85 | % |  | 10.40 | % |  | 7.37 | %
Weighted-average remaining term (years) | 1.93 |  |  | 1.45 |  |  | 1.53 |  |  | 0.82 |  |  | 1.66 |

_______________
(1)These loans pay a coupon rate of London Interbank Offered Rate (“LIBOR”) or Secured Overnight Financing Rate (“SOFR”) plus a fixed spread. Coupon rate shown was determined using LIBOR of 0.45% and SOFR of 0.16% as of March 31, 2022 and LIBOR of 0.10% as of December 31, 2021.
(2)As of March 31, 2022 and December 31, 2021, amount included $351.1 million and $290.6 million of senior mortgages used as collateral for $241.5 million and $176.9 million of borrowings under credit facilities, respectively.
(3)As of March 31, 2022 and December 31, 2021, sixteen and thirteen of these loans, respectively, are subject to a LIBOR or SOFR floor, as applicable.
In addition to our net loan portfolio, as of March 31, 2022 and December 31, 2021, we owned 4.9 acres of adjacent land acquired pursuant to a deed in lieu of foreclosure and a multi-tenant office building acquired pursuant to a foreclosure. The land and building and related lease intangible assets and liabilities had a net carrying value of $53.0 million and $56.1 million as of March 31, 2022 and December 31, 2021, respectively. The mortgage loan payable encumbering the office building had an outstanding principal amount of $31.8 million and $32.0 million as of March 31, 2022 and December 31, 2021, respectively.
Additionally, as of March 31, 2022 and December 31, 2021, we owned 44.2% and 50.0%, 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. During 2022 and 2021, we purchased equity interests in three joint ventures. As of March 31, 2022 and December 31, 2021, these equity interests had total carrying value of $91.7 million and $69.7 million, respectively.
Portfolio Investment Activity
For the three months ended March 31, 2022 and 2021, we invested $26.0 million and $15.5 million in new and add-on investments and had $1.4 million and $25.0 million of repayments, resulting in net investments of $24.6 million and net repayments of $9.5 million, respectively. Amounts are net of obligations under participation agreements, secured borrowing, borrowings under the master repurchase agreement, the term loan, the repurchase agreements and the revolving line of credit.
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.

|  | March 31, 2022 |  | December 31, 2021
Loan Structure |  | Principal Balance |  | Carrying Value |  | % of Total |  | Principal Balance |  | Carrying Value |  | % of Total
First mortgages |  | $ | 373,263,411 |  |  | $ | 376,115,508 |  |  | 81.5 | % |  | $ | 310,933,350 |  |  | $ | 313,515,326 |  |  | 79.8 | %
Preferred equity investments |  | 63,767,599 |  |  | 63,850,511 |  |  | 13.8 | % |  | 63,441,546 |  |  | 63,515,633 |  |  | 16.2 | %
Mezzanine loans |  | 17,444,357 |  |  | 17,615,889 |  |  | 3.8 | % |  | 17,444,357 |  |  | 17,622,804 |  |  | 4.5 | %
Credit facility |  | 17,762,500 |  |  | 18,055,179 |  |  | 3.9 | % |  | 11,762,500 |  |  | 11,859,876 |  |  | 3.0 | %
Allowance for loan losses |  | — |  |  | (13,708,777) |  |  | (3.0) | % |  | — |  |  | (13,658,481) |  |  | (3.5) | %
Total |  | $ | 472,237,867 |  |  | $ | 461,928,310 |  |  | 100.0 | % |  | $ | 403,581,753 |  |  | $ | 392,855,158 |  |  | 100.0 | %

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|  | March 31, 2022 |  | December 31, 2021
Property Type |  | Principal Balance |  | Carrying Value |  | % of Total |  | Principal Balance |  | Carrying Value |  | % of Total
Office |  | $ | 170,616,825 |  |  | $ | 171,393,890 |  |  | 37.2 | % |  | $ | 166,071,342 |  |  | $ | 166,836,320 |  |  | 42.5 | %
Multifamily |  | 96,746,958 |  |  | 98,042,469 |  |  | 21.2 | % |  | 72,999,417 |  |  | 73,955,240 |  |  | 18.8 | %
Hotel - full/select service |  | 56,918,328 |  |  | 57,520,720 |  |  | 12.5 | % |  | 56,847,381 |  |  | 57,395,682 |  |  | 14.6 | %
Industrial |  | 54,334,108 |  |  | 54,255,229 |  |  | 11.7 | % |  | 18,762,500 |  |  | 18,859,876 |  |  | 4.8 | %
Infill land |  | 33,807,563 |  |  | 33,895,151 |  |  | 7.3 | % |  | 28,960,455 |  |  | 28,923,827 |  |  | 7.4 | %
Student housing |  | 31,000,000 |  |  | 31,667,292 |  |  | 6.9 | % |  | 31,000,000 |  |  | 31,565,670 |  |  | 8.0 | %
Mixed use |  | 28,814,085 |  |  | 28,862,336 |  |  | 6.2 | % |  | 28,940,658 |  |  | 28,977,024 |  |  | 7.4 | %
Allowance for loan losses |  | — |  |  | (13,708,777) |  |  | (3.0) | % |  | — |  |  | (13,658,481) |  |  | (3.5) | %
Total |  | $ | 472,237,867 |  |  | $ | 461,928,310 |  |  | 100.0 | % |  | $ | 403,581,753 |  |  | $ | 392,855,158 |  |  | 100.0 | %

|  | March 31, 2022 |  | December 31, 2021
Geographic Location |  | Principal Balance |  | Carrying Value |  | % of Total |  | Principal Balance |  | Carrying Value |  | % of Total
United States |  |  |  |  |  |  |  |  |  |  |  |
California |  | $ | 191,026,179 |  |  | $ | 192,975,258 |  |  | 41.8 | % |  | $ | 187,209,547 |  |  | $ | 189,082,380 |  |  | 48.1 | %
New York |  | 63,767,599 |  |  | 63,850,511 |  |  | 13.8 | % |  | 63,441,546 |  |  | 63,515,633 |  |  | 16.2 | %
Georgia |  | 53,970,491 |  |  | 54,221,854 |  |  | 11.7 | % |  | 53,289,288 |  |  | 53,536,884 |  |  | 13.6 | %
North Carolina |  | 45,781,188 |  |  | 46,026,460 |  |  | 10.0 | % |  | 44,492,971 |  |  | 44,704,699 |  |  | 11.4 | %
New Jersey |  | 35,571,608 |  |  | 35,391,604 |  |  | 7.7 | % |  | — |  |  | — |  |  | — | %
Utah |  | 28,000,000 |  |  | 28,529,857 |  |  | 6.2 | % |  | 28,000,000 |  |  | 28,420,056 |  |  | 7.2 | %
Washington |  | 24,424,855 |  |  | 24,487,967 |  |  | 5.3 | % |  | 3,523,401 |  |  | 3,382,683 |  |  | 0.9 | %
Texas |  | 13,695,947 |  |  | 13,824,587 |  |  | 3.0 | % |  | 13,625,000 |  |  | 13,725,690 |  |  | 3.5 | %
Massachusetts |  | 7,000,000 |  |  | 7,000,000 |  |  | 1.5 | % |  | 7,000,000 |  |  | 7,000,000 |  |  | 1.8 | %
Pennsylvania |  | 6,000,000 |  |  | 6,191,554 |  |  | 1.3 | % |  | — |  |  | — |  |  | — | %
South Carolina |  | 3,000,000 |  |  | 3,137,435 |  |  | 0.7 | % |  | 3,000,000 |  |  | 3,145,614 |  |  | 0.8 | %
Allowance for loan losses |  | — |  |  | (13,708,777) |  |  | (3.0) | % |  | — |  |  | (13,658,481) |  |  | (3.5) | %
Total |  | $ | 472,237,867 |  |  | $ | 461,928,310 |  |  | 100.0 | % |  | $ | 403,581,753 |  |  | $ | 392,855,158 |  |  | 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. 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.
Credit Risk
Credit risk represents the potential loss that we would incur if our borrowers failed to perform pursuant to the terms of their obligations to us. With respect to our loan portfolio, we seek to manage credit risk by limiting exposure to any one individual borrower and any one asset class.
Additionally, our Manager employs an asset management approach and monitors the portfolio of investments through, at a minimum, quarterly financial review of property performance including net operating income, loan-to-value, debt service coverage ratio and the debt yield. Our Manager also requires certain borrowers to establish an interest reserve, as a form of additional collateral, for the purpose of providing for future interest or property-related operating payments.
The performance and value of our loans depends upon the sponsors’ ability to operate or manage the development of the respective properties that serve as collateral so that each property’s value ultimately supports the repayment of the loan balance.
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Mezzanine loans and preferred equity investments are subordinate to senior mortgage loans and, therefore, involve a higher degree of risk. In the event of a default, mezzanine loans and preferred equity investments will be satisfied only after the senior lender’s investment is fully recovered. As a result, in the event of a default, we may not recover all of our investments.
In addition, we are exposed to the risks generally associated with the commercial real estate market, including variances in occupancy rates, capitalization rates, absorption rates, and other macroeconomic factors beyond our control. We seek to manage these risks through our Manager's underwriting and asset management processes.
The COVID-19 pandemic has significantly impacted the commercial real estate markets, causing reduced occupancy, requests from tenants for rent deferral or abatement, and delays in construction and development projects currently planned or underway. While the economy has improved significantly, macroeconomic trends associated with COVID-19 pandemic have persisted and could continue to persist and impair our borrowers’ ability to pay principal and interest due to us under our loan agreements.
We maintain all of our cash at financial institutions which, at times, may exceed the amount insured by the Federal Deposit Insurance Corporation.
Concentration Risk
We hold real estate-related loans. Thus, our loan portfolio may be subject to a more rapid change in value than would be the case if it were required to maintain a wide diversification among industries, companies and types of loans. The result of such concentration in real estate assets is that a loss in such loans could materially reduce our capital.
Interest Rate Risk
Interest rate risk represents the effect from a change in interest rates, which could result in an adverse change in the fair value of our interest-bearing financial instruments. 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-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.
Conversely, decreases in interest rates, in general, may over time cause: (i) the interest expense associated with variable rate borrowings to decrease; (ii) the value of real estate-related loans to increase; (iii) coupons on variable rate real estate-related loans to reset, although on a delayed basis, to lower interest rates; (iv) to the extent applicable under the terms of our investments, prepayments on real estate-related loans to increase; and (v) to the extent we enter into interest rate swap agreements as part of our hedging strategy, the value of these agreements to decrease.
Prepayment Risk
Prepayments can either positively or adversely affect the yields on our loans. Prepayments on debt instruments, where permitted under the debt documents, are influenced by changes in current interest rates and a variety of economic, geographic and other factors beyond our control, and consequently, such prepayment rates cannot be predicted with certainty. If we do not collect a prepayment fee in connection with a prepayment or are unable to invest the proceeds of such prepayments received, the yield on the portfolio will decline. In addition, we may acquire assets at a discount or premium and if the asset does not repay when expected, the anticipated yield may be impacted. Under certain interest rate and prepayment scenarios we may fail to recoup fully our cost of acquisition of certain loans.
Extension Risk
Extension risk is the risk that our assets will be repaid at a slower rate than anticipated and generally increases when interest rates rise. In which case, to the extent we have financed the acquisition of an asset, we may have to finance our asset at potentially higher costs without the ability to reinvest principal into higher yielding securities because borrowers prepay their mortgages at a slower pace than originally expected, adversely impacting our net interest spread, and thus our net interest income.
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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. 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.
Use of Leverage
We deploy moderate amounts of leverage as part of our operating strategy, which may consist of borrowings under first mortgage financings, warehouse facilities, term loans, repurchase agreements and other credit facilities. While borrowing and leverage present opportunities for increasing total return, they may have the effect of potentially creating or increasing losses.
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.
Results of Operations
The following table presents the comparative results of our operations for the three months ended March 31, 2022 and 2021:

|  |  |  | Three Months Ended March 31,
|  |  |  |  |  |  |  | 2022 |  | 2021 |  | Change
Revenues |  |  |  |  |  |  |  |  |  |  |  |
Interest income |  |  |  |  |  |  |  | $ | 8,882,151 |  |  | $ | 8,120,949 |  |  | $ | 761,202 |
Real estate operating revenue |  |  |  |  |  |  |  | 2,979,454 |  |  | 2,011,641 |  |  | 967,813 |
Other operating income |  |  |  |  |  |  |  | 250,665 |  |  | 156,662 |  |  | 94,003 |
|  |  |  |  |  |  |  | 12,112,270 |  |  | 10,289,252 |  |  | 1,823,018 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |
Operating expenses reimbursed to Manager |  |  |  |  |  |  |  | 1,928,563 |  |  | 1,342,758 |  |  | 585,805 |
Asset management fee |  |  |  |  |  |  |  | 1,488,095 |  |  | 1,156,543 |  |  | 331,552 |
Asset servicing fee |  |  |  |  |  |  |  | 349,329 |  |  | 273,207 |  |  | 76,122 |
Provision for loan losses |  |  |  |  |  |  |  | 50,296 |  |  | 276,020 |  |  | (225,724) |
Real estate operating expenses |  |  |  |  |  |  |  | 1,217,963 |  |  | 971,315 |  |  | 246,648 |
Depreciation and amortization |  |  |  |  |  |  |  | 1,718,372 |  |  | 931,725 |  |  | 786,647 |
Impairment charge |  |  |  |  |  |  |  | 1,604,989 |  |  | — |  |  | 1,604,989 |
Professional fees |  |  |  |  |  |  |  | 742,518 |  |  | 520,419 |  |  | 222,099 |
Directors fees |  |  |  |  |  |  |  | 36,252 |  |  | 36,250 |  |  | 2 |
Other |  |  |  |  |  |  |  | 83,421 |  |  | 71,488 |  |  | 11,933 |
|  |  |  |  |  |  |  | 9,219,798 |  |  | 5,579,725 |  |  | 3,640,073 |
Operating income |  |  |  |  |  |  |  | 2,892,472 |  |  | 4,709,527 |  |  | (1,817,055) |

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|  |  |  | Three Months Ended March 31,
|  |  |  |  |  |  |  | 2022 |  | 2021 |  | Change
Other income and expenses |  |  |  |  |  |  |  |  |  |  |  |
Interest expense from obligations under participation agreements |  |  |  |  |  |  |  | (1,075,109) |  |  | (1,880,081) |  |  | 804,972 |
Interest expense on repurchase agreement payable |  |  |  |  |  |  |  | (755,826) |  |  | — |  |  | (755,826) |
Interest expense on mortgage loan payable |  |  |  |  |  |  |  | (518,617) |  |  | (686,150) |  |  | 167,533 |
Interest expense on revolving line of credit |  |  |  |  |  |  |  | (524,294) |  |  | (17,846) |  |  | (506,448) |
Interest expense on term loan payable |  |  |  |  |  |  |  | (164,969) |  |  | (1,672,768) |  |  | 1,507,799 |
Interest expense on secured borrowing |  |  |  |  |  |  |  | (552,785) |  |  | (299,805) |  |  | (252,980) |
Interest expense on unsecured notes payable |  |  |  |  |  |  |  | (1,430,183) |  |  | — |  |  | (1,430,183) |
Net unrealized losses on marketable securities |  |  |  |  |  |  |  | (99,044) |  |  | (14,608) |  |  | (84,436) |
Income from equity investment in unconsolidated investments |  |  |  |  |  |  |  | 1,419,335 |  |  | 1,337,827 |  |  | 81,508 |
Realized gains on marketable securities |  |  |  |  |  |  |  | 51,133 |  |  | — |  |  | 51,133 |
|  |  |  |  |  |  |  | (3,650,359) |  |  | (3,233,431) |  |  | (416,928) |
Net (loss) income |  |  |  |  |  |  |  | $ | (757,887) |  |  | $ | 1,476,096 |  |  | $ | (2,233,983) |

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, term loan payable, revolving credit facility and repurchase agreement payable.
The following tables presents a reconciliation of our loan portfolio from a gross basis to net basis for the three months ended March 31, 2022 and 2021:

|  | Three Months Ended March 31, 2022 |  | Three Months Ended March 31, 2021
|  | Weighted Average Principal Amount (1) |  | Weighted Average Coupon Rate (2) |  | Weighted Average Principal Amount (1) |  | Weighted Average Coupon Rate (2)
Total portfolio |  |  |  |  |  |  |  |
Gross loans |  | $ | 506,206,479 |  |  | 7.7 | % |  | $ | 408,985,092 |  |  | 8.4 | %
Obligations under participation agreements and secured borrowing |  | (79,023,662) |  | 10.4 | % |  | (88,594,532) |  | 10.1 | %
Repurchase agreement payable |  | (102,225,409) |  |  | 2.5 | % |  | — |  | — | %
Term loan payable |  | (42,140,886) |  |  | 5.3 | % |  | (107,776,898) |  |  | 5.3 | %
Revolving line of credit |  | (44,891,269) |  |  | 4.0 | % |  | (1,745,785) |  |  | 4.0 | %
Net loans (3) |  | $ | 237,925,253 |  |  | 10.2 | % |  | $ | 210,867,877 |  |  | 9.3 | %
Senior loans |  |  |  |  |  |  |  |
Gross loans |  | 304,278,978 |  | 6.2 | % |  | 255,124,634 |  | 6.4 | %
Obligations under participation agreements and secured borrowing |  | (49,397,683) |  | 9.9 | % |  | (45,478,823) |  | 8.6 | %
Repurchase agreement payable |  | (102,225,409) |  |  | 2.5 | % |  | — |  | — | %
Term loan payable |  | (42,140,886) |  |  | 5.3 | % |  | (107,776,898) |  | 5.3 | %
Revolving line of credit |  | (44,891,269) |  |  | 4.0 | % |  | (1,745,785) |  |  | 4.0 | %
Net loans (3) |  | $ | 65,623,731 |  |  | 11.3 | % |  | $ | 100,123,128 |  |  | 6.6 | %
Subordinated loans (4) |  |  |  |  |  |  |  |
Gross loans |  | 201,927,501 |  | 9.6 | % |  | 153,860,458 |  | 11.7 | %
Obligations under participation agreements |  | (29,625,979) |  | 11.2 | % |  | (43,115,709) |  | 11.6 | %
Net loans (3) |  | $ | 172,301,522 |  |  | 9.3 | % |  | $ | 110,744,749 |  |  | 11.7 | %

_______________
(1)Amount is calculated based on the number of days each loan is outstanding.
(2)Amount is calculated based on the underlying principal amount of each loan.
(3)The weighted average coupon rate represents net interest income over the period calculated using the weighted average coupon rate and weighted average principal amount shown on the table (interest income on the loans less interest expense) divided by the weighted average principal amount of the net loans during the period.
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(4)Subordinated loans include mezzanine loans, preferred equity investments and credit facilities.
Interest Income
For the three months ended March 31, 2022 as compared to the same period in 2021, interest income increased by $0.8 million, primarily due to an increase in contractual interest income as a result an increase in the weighted average principal balance of gross loans, partially offset by a decrease in the weighted average coupon rate on gross loans.
Real Estate Operating Revenue
For the three months ended March 31, 2022 as compared to the same period in 2021, real estate operating revenue increased by $1.0 million, as a result of lease termination income recognized in the first quarter of 2022 in connection with a termination notice received in November 2021.
Other Operating Income
For the three months ended March 31, 2022 as compared to the same period in 2021, other operating income increased by $0.1 million, as a result of an increase in application fees income on deals under application.
Operating Expenses Reimbursed to Manager
Under the terms of a management agreement (the (“Management Agreement”) with our Manager, we reimburse the Manager for operating expenses incurred in connection with services provided to us, including our allowable share of the Manager’s overhead, such as rent, employee costs, utilities and technology costs.
For the three months ended March 31, 2022 as compared to the same period in 2021, operating expenses reimbursed to the Manager increased by $0.6 million as a result of an increase in the allocation ratio resulting from an increase in total assets under management.
Asset Management Fee
Under the terms of the Management Agreement with the Manager, we paid the Manager a monthly asset management fee at an annual rate of 1% of the aggregate funds under management, which included the aggregate gross acquisition price, net of participation interest sold to affiliates, for each real estate-related investment and cash held by us.
For the three months ended March 31, 2022 as compared to the same period in 2021, asset management fees increased by $0.3 million, primarily due to an increase in total assets under management.
Asset Servicing Fee
Under the terms of the Management Agreement with the Manager, we paid the Manager a monthly servicing fee at an annual rate of 0.25% of the aggregate gross origination price or acquisition price for each real estate-related loan held by us.
For each of the three months ended March 31, 2022 as compared to the same period in 2021, asset servicing fees increased by $0.1 million, primarily due to an increase in total assets under management.
Provision for Loan Losses
The Manager performs a quarterly evaluation for possible impairment of our portfolio of loans. We record an allowance for loan losses equal to (i) 1.5% of the aggregate carrying amount of loans rated as a “4”, plus (ii) 5% of the aggregate carrying amount of loans rated as a “5”, plus (iii) impaired loan reserves, if any.
As of March 31, 2022, we had one loan with a loan risk rating of “4” and no loans with a loan risk rating of “5” and recorded general allowance for loan losses of $0.01 million for the three months ended March 31, 2022. As of March 31, 2021, we had three loans with a loan risk rating of “4,” (Higher risk) and one loan with a loan risk rating of “5,” (Highest risk) and recorded general allowance for loan losses of $0.03 million for the three months ended March 31, 2021. Additionally, as of March 31, 2022 and 2021, we had three and one loans deemed impaired and recorded specific allowance for loan losses of $0.04 million and $0.2 million, respectively, as a result of a decline in the value of the underlying collateral.
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Real Estate Operating Expenses
For the three months ended March 31, 2022 as compared to the same period in 2021, real estate operating expenses increased by $0.2 million, primarily due to an increase in ground rent expense on the multi-tenant office building resulting from a rent reset.
A component of Real estate operating expenses is Lease expense, including amortization of above-market ground lease. As of March 31, 2022, we 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. The next rent reset on the ground lease is scheduled for November 1, 2025. We are currently 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 – Terra Ocean Ave., LLC v. Ocean Avenue Santa Monica Realty LLC, Superior Court of California, Los Angeles County, Case No. 20STCV34217. We believe this determination should be based on comparable sales, while the landlord insists that the rent under the ground lease itself is also relevant. Our position has prevailed in all three of the prior arbitrations to reset the ground rent. We intend vigorously to pursue the litigation. While we believe our arguments will likely prevail, the outcome of the legal proceeding cannot be predicted with certainty. If the landlord prevails, the future rent reset determinations could result in significantly higher ground rent, which would likely result in a significant diminution in the value of our interest in the ground lease and the office building.
Depreciation and Amortization
For the three months ended March 31, 2022 as compared to the same period in 2021, depreciation and amortization increased by $0.8 million, primarily due to a lease termination notice received in November 2021, at which time we accelerated the amortization of lease intangibles.
Impairment Charge
For the three months ended March 31, 2022, we recorded an impairment charge of $1.6 million on the development land in order to reduce the carrying value of the land to its estimated fair value, which is the estimated selling price less the cost of sale. The development land is currently classified as held for sale. There was no impairment charge recorded for the three months ended March 31, 2021.
Professional Fees
For the three months ended March 31, 2022 as compared to the same period in 2021, professional fees increased by $0.2 million, primarily due to legal fees incurred in connection with a loan refinancing in 2022 which we accounted for as a loan modification.
Interest Expense from Obligations under Participation Agreements
For the three months ended March 31, 2022 as compared to the same period in 2021, interest expense from obligations under participation agreements decreased by $0.8 million, primarily due to a decrease in weighted average principal amount outstanding on obligations under participation agreements.
Interest Expense on Repurchase Agreement Payable
On November 8, 2021, we entered into a master repurchase agreement that provides for advances of up to $195 million which we expect to use to finance certain secured performing commercial real estate loans, including senior mortgage loans. Additionally, on February 18, 2022, we entered into another master repurchase agreement that provides for advances of up to $200 million, which we expect to use to finance the originations of certain secured performing commercial real estate loans and the acquisitions of certain secured non-performing commercial real estate loans.
For the three months ended March 31, 2022, interest expense on repurchase agreement payable was $0.8 million. There was no interest expense on repurchase agreement payable for the three months ended March 31, 2021.
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Interest Expense on Mortgage Loan Payable
For the three months ended March 31, 2022 as compared to the same period in 2021, interest expense on mortgage loan payable decreased by $0.2 million, as a result of a decrease in the weighted average principal amount outstanding on mortgage loan payable.
Interest Expense on Revolving Line of Credit
On March 12, 2021, we entered into a Business Loan and Security Agreement (the “revolving line of credit”) to provide for advances up to the lesser of $75.0 million or the amount determined by the borrowing base, which is based on the eligible assets pledged to the lender. On January 4, 2022, we amended the revolving line of credit to increase the maximum amount available to $125.0 million.
For the three months ended March 31, 2022 as compared to the same period in 2021, interest expense on revolving line of credit increased by $0.5 million, due to an increase in weighted average principal amount outstanding on the revolving line of credit.
Interest Expense on Term Loan Payable
On September 3, 2020, we entered into an indenture and credit agreement that provided for a floating rate loan of $103.0 million, $3.6 million of additional future advances, and up to $11.6 million of additional future discretionary advances, in connection with certain outstanding funding commitments under the mortgage assets owned by us and financed under the indenture and credit agreement. The loan bore interest at LIBOR plus 4.25% with a LIBOR floor of 1.0%. On February 18, 2022, we refinanced this loan with a new repurchase agreement.
For the three months ended March 31, 2022 as compared to the same period in 2021, interest expense on term loan payable decreased by $1.5 million, as a result of a decrease in the weighted average principal amount outstanding on term loan payable. Additionally, in connection with the refinancing, we reversed the previously accrued step-up interest of $0.4 million during the three months ended March 31, 2022.
Interest Expense on Secured Borrowing
In March 2020, we entered into a financing transaction where a third-party purchased an A-note position. However, the sale of the A-note position did not qualify for sale accounting treatment and therefore, the gross amount of the loan remains in the consolidated balance sheets. The portion that was sold is reflected as secured borrowing in the consolidated balance sheet, and the associated interest is reflected as interest expense on secured borrowing in the consolidated statements of operations.
For the three months ended March 31, 2022 as compared to the same period in 2021, interest expense on secured borrowing increased by $0.3 million, as a result of an increase in the weighted average principal amount outstanding.
Interest Expense on Unsecured Notes Payable
In June 2021, we issued $85.1 million in aggregate principal amount of 6.00% notes due 2026, for net proceeds of $82.5 million after deducting underwriting commissions of $2.7 million, but before offering expenses payable by us.
For the three months ended March 31, 2022, interest expense on unsecured notes payable was $1.4 million. There was no such interest expense for the three months ended March 31, 2021 because the notes were not yet issued.
Net Unrealized Losses on Marketable Securities
For the three months ended March 31, 2022 as compared to the same period in 2021, net unrealized losses on marketable securities increased by $0.1 million, as result of a decrease in the price of the marketable securities.
Income from Equity Investment in Unconsolidated Investments
In August 2020, we entered into a subscription agreement with RESOF, an affiliate managed by our Manager, whereby we committed to fund up to $50.0 million to purchase partnership interest in RESOF. RESOF’s primary investment objective is to generate attractive risk-adjusted returns by purchasing performing and non-performing mortgages, loans, mezzanines and other
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credit instruments supported by underlying commercial real estate assets. RESOF may also opportunistically originate high-yield mortgages or loans in real estate special situations including rescue financings, bridge loans, restructurings and bankruptcies (including debtor-in-possession loans). As of March 31, 2022 and December 31, 2021, we owned 44.2% and 50.0% of the equity interest in RESOF, respectively.
In the fourth quarter of 2021, we purchased 80% equity interests in two joint ventures with one owns a 1.4 million square feet industrial facility located in Arlington, Texas and the other one owns a 147,000 square feet warehouse facility located in Miami, Florida. Additionally, in the first quarter of 2022, we purchased a 90% equity interest in a joint venture that owns a three-property 371-unit multifamily facilities in South Florida. We account for our equity interests in these investments using the equity method of accounting.
For the three months ended March 31, 2022, we recognized income from equity investment in unconsolidated investments of $1.4 million, which consisted of equity income from RESOF of $1.3 million and equity income from the joint ventures of $0.1 million. For the three months ended March 31, 2021, we recognized income from equity investment in unconsolidated investments of $1.3 million on our investment in RESOF.
Realized Gains on Marketable Securities
For the three months ended March 31, 2022, we sold marketable securities and recognized realized gains on marketable securities of $0.1 million. For the three months ended March 31, 2021, we did not sell any marketable securities and did not recognize any realized gains or losses on marketable securities.
Net (Loss) Income
For the three months ended March 31, 2022, the resulting net loss was $0.8 million, compared the resulting net income of $1.5 million for the same period in 2021.
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. 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 deploy moderate amounts of leverage as part of our operating strategy and use a number of sources to finance our target assets, including our senior notes, term loan, repurchase agreement and revolving line of credit. We may use other sources to finance our target assets, including bank financing and arranged financing facilities with domestic or international financing providers. In addition, we may divide the loans we originate into senior and junior tranches and dispose of the more senior tranches as an additional means of providing financing to our business.
We may also issue additional equity, equity-related and debt securities to fund our investment strategies. We may issue these securities to unaffiliated third parties or to vehicles advised by affiliates of Terra Capital Partners or third parties. As part of our capital raising transactions, we may grant to one or more of these vehicles certain control rights over our activities including rights to approve major decisions we take as part of our business. In order to qualify as a REIT, we must distribute to our stockholders, each calendar year, at least 90% of our REIT taxable income (including certain items of non-cash income), determined without regard to the deduction for dividends paid and excluding net capital gain. These distribution requirements limit our ability to retain earnings and thereby replenish or increase capital for our business.
Obligations under participation agreements totaling $44.7 million and secured borrowing of $37.4 million will mature in the next twelve months. We expect to use the proceeds from the repayment of the corresponding investments to repay the participation obligations. Additionally, we expect to fund approximately $72.0 million of the unfunded commitments to borrowers during the next twelve months. We expect to maintain sufficient cash on hand to fund such commitments through matching these commitments with principal repayments on outstanding loans or draw downs on our credit facilities. Additionally, we had $31.8 million of borrowings outstanding under a mortgage loan payable that bear interest at an annual rate of LIBOR plus 3.85% with a LIBOR floor of 2.23%, that is collateralized by an office building. The mortgage loan payable matures on September 27, 2022. We expect to refinance the mortgage loan payable before it matures.
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Summary of Financing
The table below summarizes our debt financing as of March 31, 2022:

Type of Financing |  | Maximum Amount Available |  | Outstanding Balance |  | Amount Remaining Available |  | Interest Rate |  | Maturity Date
Fixed Rate: |  |  |  |  |  |  |  |  |  |
Senior unsecured notes |  | N/A |  | $ | 85,125,000 |  |  | N/A |  | 6.00% |  | 6/30/2026
|  |  |  | $ | 85,125,000 |  |  |  |  |  |  |
Variable Rate: |  |  |  |  |  |  |  |  |  |
Mortgage loan payable |  | N/A |  | $ | 31,757,725 |  |  | N/A |  | LIBOR plus 3.85% with a LIBOR floor of 2.23% |  | 9/27/2022
Line of credit |  | $ | 125,000,000 |  |  | 64,953,549 |  |  | $ | 60,046,451 |  |  | LIBOR plus 3.25% with a combined floor of 4.0% |  | 3/12/2024
UBS repurchase agreement |  | 195,000,000 |  |  | 58,169,600 |  |  | 136,830,400 |  |  | LIBOR or Term SOFR if LIBOR is not available plus a spread ranging from 1.60% to 2.25% |  | 11/7/2024
GS repurchase agreement |  | 200,000,000 |  |  | 118,349,549 |  |  | 81,650,451 |  |  | Term SOFR (subject to underlying loan floors on a case-by-case basis) plus a spread ranging from 1.75% to 3.00%) |  | 2/18/2024
|  | $ | 520,000,000 |  |  | $ | 273,230,423 |  |  | $ | 278,527,302 |  |  |  |  |

Cash Flows From Operating Activities
For the three months ended March 31, 2022 as compared to the same period in 2021, cash flows from operating activities increased by $4.9 million, primarily due to an increase in contractual interest income. Additionally, cash flows from operating activities increased due to payment made in 2021 for real estate tax on our operating real estate.
Cash Flows Used In Investing Activities
For the three months ended March 31, 2022, cash flows used in investing activities were $107.6 million, primarily related to origination and purchase of loans of $88.1 million and purchase of equity interests in unconsolidated investments of $21.2 million.
For the three months ended March 31, 2021, cash flows used in investing activities were $0.8 million, primarily related to origination and purchase of loans of $14.4 million, purchase of partnership interest in a limited partnership of $12.9 million and purchase of marketable securities of $5.0 million, partially offset by proceeds from repayments of loans of $31.5 million.
Cash Flows From Financing Activities
For the three months ended March 31, 2022, cash flows from financing activities were $78.9 million, primarily due to proceeds from borrowings under the revolving line of credit and repurchase agreements of $158.3 million and proceeds from obligations under participation agreements and secured borrowing of $18.7 million. These cash inflows were partially offset by repayments on borrowings under the term loan of $93.8 million and distributions paid of $3.9 million.
For the three months ended March 31, 2021, cash flows used in financing activities were $2.8 million, primarily due to repayments on obligations under participation agreements of $4.0 million, distributions paid of $3.9 million, payment of mortgage principal of $3.4 million and a decrease in interest reserve and other deposits hold on investments of $5.0 million, partially offset by proceeds from borrowing under the revolving line of credit of $8.0 million, proceeds from obligations under participation agreements and secured borrowing of $7.3 million. Additionally, we received proceeds of borrowings under the term loan of $1.5 million and made repayment on borrowings under the term loan of $2.6 million. We also made payment for deferred financing costs of $0.6 million in connection with obtaining the revolving line of credit.
Critical Accounting Policies and Use of Estimates
Our consolidated financial statements are prepared in conformity with United States generally accepted accounting principles (“U.S. GAAP”), which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the
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reporting 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. In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. In preparing the consolidated financial statements, management has utilized available information, including industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. As we execute our expected operating plans, we will describe additional critical accounting policies in the notes to our future consolidated financial statements in addition to those discussed below.
Allowance for Loan Losses
Our loans are typically collateralized by either the sponsors’ equity interest in the real estate properties or the underlying real estate properties. As a result, we regularly evaluate the extent and impact of any credit migration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower/sponsor on a loan-by-loan basis. Specifically, a property’s operating results and any cash reserves are analyzed and used to assess (i) whether cash from operations and/or reserve balances are sufficient to cover the debt service requirements currently and into the future; (ii) the ability of the borrower to refinance the loan; and/or (iii) the property’s liquidation value. We also evaluate the financial wherewithal of the sponsor as well as its competency in managing and operating the real estate property. In addition, we consider the overall economic environment, real estate sector, and geographic submarket in which the borrower operates. Such analyses are completed and reviewed by asset management and finance personnel, who utilize various data sources, including (i) periodic financial data such as debt service coverage ratio, property occupancy, tenant profile, rental rates, operating expenses, the borrower’s exit plan, the capitalization and discount rates; (ii) site inspections; and (iii) current credit spreads and discussions with market participants.
Our Manager performs a quarterly evaluation for possible impairment of our portfolio of loans. A loan is impaired if it is deemed probable that we will not be able to collect all amounts due according to the contractual terms of the loan. Impairment is measured based on the present value of expected future cash flows or the fair value of the collateral if the loan is collateral dependent. Upon measurement of impairment, we record an allowance to reduce the carrying value of the loan with a corresponding charge to net income.
In conjunction with the quarterly evaluation of loans not considered impaired, our Manager assesses the risk factors of each loan and assigns each loan a risk rating between 1 (very low risk) and 5 (highest risk), which is an average of the numerical ratings in the following categories: (i) sponsor capability and financial conditions; (ii) loan and collateral performance relative to underwriting; (iii) quality and stability of collateral cash flows and/or reserve balances; and (iv) loan to value. We record an allowance for loan losses equal to (i) 1.5% of the aggregate carrying amount of loans rated as a “4,” (Higher risk), plus (ii) 5% of the aggregate carrying amount of loans rated as a “5,” (Highest risk) plus (iii) impaired loan reserves, if any.
There may be circumstances where we modify a loan by granting the borrower a concession that we might not otherwise consider when a borrower is experiencing financial difficulty or is expected to experience financial difficulty in the foreseeable future. Such concessionary modifications are classified as troubled debt restructurings (“TDRs”), unless the modification solely results in a delay in a payment that is insignificant. Loans classified as TDRs are considered impaired loans for reporting and measurement purposes.
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. In the event that the term of any real estate-related loan is extended, our 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 us.
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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 us (inclusive of closing costs and expenses).
Disposition Fee. A disposition fee in the amount of 1.0% of the gross sale price received by our company 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 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. In the event that we 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, our 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 our Manager with respect to its evaluation and pursuit of such transactions.
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.
The following table presents a summary of fees paid and costs reimbursed to our Manager in connection with providing services to us:

|  |  |  | Three Months Ended March 31,
|  |  |  |  |  | 2022 |  | 2021
Origination and extension fee expense (1)(2) |  |  |  |  |  | $ | 686,365 |  |  | $ | 345,384 |
Asset management fee |  |  |  |  |  | 1,488,095 |  |  | 1,156,543 |
Asset servicing fee |  |  |  |  |  | 349,329 |  |  | 273,207 |
Operating expenses reimbursed to Manager |  |  |  |  |  | 1,928,563 |  |  | 1,342,758 |
Disposition fee (3) |  |  |  |  |  | — |  |  | 250,988 |
Total |  |  |  |  |  | $ | 4,452,352 |  |  | $ | 3,368,880 |

_______________
(1)Origination and extension fee expense is generally offset with origination and extension fee income. Any excess is deferred and amortized to interest income over the term of the loan.
(2)Amount for the three months ended March 31, 2022 excluded $0.2 million of origination fee paid to the Manager in connection with our equity investment in an unconsolidated investment. This origination fee was capitalized to the carrying value of the unconsolidated investment as a transaction cost.
(3)Disposition fee is generally offset with exit fee income and included in interest income on the consolidated statements of operations.
Participation Agreements and Secured Borrowing
We have further diversified our exposure to loans and borrowers by entering into participation agreements whereby we transferred a portion of certain of our loans on a pari passu basis to related parties, primarily other affiliated funds managed by our Manager or its affiliates, and to a lesser extent, unrelated parties. We have also sold a portion of a loan to a third-party that did not qualify for sale accounting.
As of March 31, 2022, the principal balance of our participation obligations totaled $57.9 million, all of which were participation obligations to Terra Fund 6. Additionally, as of March 31, 2022, the principal balance of our secured borrowing was $37.4 million.
Terra Fund 6 is managed by Terra Income Advisors, LLC, an affiliate of our Manager. If we enter into participation agreements in the future, we generally expect to enter into such agreements only at the time of origination of the investment. Our Manager may experience conflicts in allocating investments as a result of differing compensation arrangements of the Manager and its affiliates and Terra Fund 6.
The loans that are subject to participation agreements are held in our name, but each of the participant’s rights and obligations, including with respect to interest income and other income (e.g., exit fee, prepayment income) and related fees/
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expenses (e.g., disposition fees, asset management and asset servicing fees), are based upon their respective pro rata participation interest in such participated investments, as specified in the respective participation agreements. We do not have direct liability to a participant with respect to the underlying loan and the participants’ share of the investments is repayable only from the proceeds received from the related borrower/issuer of the investments and, therefore, the participants also are subject to credit risk (i.e., risk of default by the underlying borrower/issuer).
Pursuant to the participation agreement with these entities, we receive and allocate the interest income and other related investment income to the participants based on their respective pro rata participation interest. The affiliated fund participant pays related expenses also based on their respective pro rata participation interest (i.e., asset management and asset servicing fees, disposition fees) directly to our Manager, as per the terms of each respective affiliate’s management agreement.
Other than for U.S. federal income tax purposes, our loan participations do not qualify for sale treatment. As such, the investments remain on our combined consolidated balance sheets and the proceeds are recorded as obligations under participation agreements. Similarly, interest earned on the entire loan balance is recorded within “Interest income” and the interest related to the participation interest is recorded within “Interest expense from obligations under participation agreements” in the consolidated statements of operations.
For the three months ended March 31, 2022, the weighted average outstanding principal balance on obligations under participation agreements was approximately $79.0 million and the weighted average interest rate was approximately 10.4%, compared to weighted average outstanding principal balance of approximately $88.6 million and weighted average interest rate of approximately 10.1% for the three months ended March 31, 2021.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We may be subject to financial market risks, including changes in interest rates. To the extent that we borrow money to make investments, our net investment income will be dependent upon the difference between the rate at which we borrow funds and the rate at which we invest these funds. 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.
As of March 31, 2022, we had 15 investments with an aggregate principal balance of $358.5 million, net of obligations under participation agreements and secured borrowing, that provide for interest income at an annual rate of LIBOR plus a spread, 13 of which are subject to a LIBOR floor. A decrease of 100 basis points in LIBOR would decrease our annual interest income, net of interest expense on participation agreements, by approximately $0.6 million, and an increase of 100 basis points in LIBOR would increase our annual interest income, net of interest expense on participation agreements, by approximately $2.1 million. Additionally, we had three investments with an aggregate principal balance of $52.6 million that provide for interest income at an annual rate of SOFR plus a spread, all of which were subject to a SOFR floor. A decrease of 100 basis points in SOFR would decrease our annual interest income by $0.04 million, and an increase of 100 basis points would increase our annual interest income by $0.5 million.
Additionally, as of March 31, 2022, we had $31.8 million of borrowings outstanding under a mortgage loan payable that bear interest at an annual rate of LIBOR plus a spread that is collateralized by an office building; a revolving line of credit with an outstanding balance of $65.0 million that bears interest at an annual rate of LIBOR plus a spread that is collateralized by $102.8 million of first mortgages; a repurchase agreement with an outstanding balance of $58.2 million that bears interest at an annual rate of LIBOR or Term SOFR, as applicable, plus a spread that is collateralized by $84.5 million of first mortgages; and another repurchase agreement with an outstanding balance of $118.3 million that bears interest at an annual rate of Term SOFR plus a spread that is collateralized by $163.8 million of first mortgages. A decrease of 100 basis points in LIBOR and Term SOFR would decrease our annual interest expense by approximately $0.4 million, and an increase of 100 basis points in LIBOR and Term SOFR would increase our annual interest expense by approximately $1.6 million.
In July 2017, the U.K. Financial Conduct Authority, which regulates the LIBOR administrator, IBA, announced that it would cease to compel banks to participate in setting LIBOR as a benchmark by the end of 2021, which has subsequently been delayed to June 30, 2023. The Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions convened by the U.S. Federal Reserve, has recommended SOFR as a more robust reference rate alternative to U.S. dollar LIBOR. SOFR is calculated based on overnight transactions under repurchase agreements, backed by Treasury securities. SOFR is observed and backward looking, which stands in contrast with LIBOR under the current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members. Given that SOFR is a secured rate backed by government securities, it will be a rate that does not take into account bank credit risk (as is the case with LIBOR). SOFR is therefore likely to be lower than LIBOR and is less likely to correlate with the funding costs of
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financial institutions. Whether or not SOFR attains market traction as a LIBOR replacement tool remains in question. As such, the future of LIBOR at this time is uncertain.
Potential changes, or uncertainty related to such potential changes, may adversely affect the market for LIBOR-based loans, including our portfolio of LIBOR-indexed, floating-rate loans, or the cost of our borrowings. In addition, changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market for LIBOR-based loans, including the value of the LIBOR-indexed, floating-rate loans in our portfolio, or the cost of our borrowings. In the event LIBOR is unavailable, our investment documents provide for a substitute index, on a basis generally consistent with market practice, intended to put us in substantially the same economic position as LIBOR.
We may hedge against interest rate fluctuations by using standard hedging instruments, such as futures, options and forward contracts, subject to the requirements of the 1940 Act. 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 three months ended March 31, 2022 and 2021, we did not engage in interest rate hedging activities.
Prepayment Risks
Prepayments can either positively or adversely affect the yields on our loans. Prepayments on debt instruments, where permitted under the debt documents, are influenced by changes in current interest rates and a variety of economic, geographic and other factors beyond our control, and consequently, such prepayment rates cannot be predicted with certainty. If we do not collect a prepayment fee in connection with a prepayment or are unable to invest the proceeds of such prepayments received, the yield on the portfolio will decline. In addition, we may acquire assets at a discount or premium and if the asset does not repay when expected, the anticipated yield may be impacted. Under certain interest rate and prepayment scenarios we may fail to recoup fully our cost of acquisition of certain loans.
Extension Risk
Extension risk is the risk that our assets will be repaid at a slower rate than anticipated and generally increases when interest rates rise. In which case, to the extent we have financed the acquisition of an asset, we may have to finance our asset at potentially higher costs without the ability to reinvest principal into higher yielding securities because borrowers prepay their mortgages at a slower pace than originally expected, adversely impacting our net interest spread, and thus our net interest income.
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. 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. With respect to our loan portfolio, we seek to manage credit risk by limiting exposure to any one individual borrower and any one asset class.
Additionally, our Manager employs an asset management approach and monitors the portfolio of investments through, at a minimum, quarterly financial review of property performance including net operating income, loan-to-value, debt service coverage ratio and the debt yield. 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.
The COVID-19 pandemic has significantly impacted the commercial real estate markets, causing reduced occupancy, requests from tenants for rent deferral or abatement, and delays in construction and development projects currently planned or underway. While the economy has improved significantly, macroeconomic trends associated with COVID-19 pandemic have persisted and could continue to persist and impair our borrowers’ ability to pay principal and interest due to us under our loan agreements.
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Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2022. Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that we would meet our disclosure obligations. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports.
Changes in Internal Control Over Financial Reporting
During the most recent fiscal quarter, there was no change in our internal controls over financial reporting, as defined under
Rule 13a-15(f) under the Exchange Act, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
PART II
Item 1. Legal Proceedings.
From time to time, we 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 portfolio companies. Additionally, as of March 31, 2022, we 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. The next rent reset on the ground lease is scheduled for November 1, 2025. We are currently 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 – Terra Ocean Ave., LLC v. Ocean Avenue Santa Monica Realty LLC, Superior Court of California, Los Angeles County, Case No. 20STCV34217. We believe this determination should be based on comparable sales, while the landlord insists that the rent under the ground lease itself is also relevant. Our position has prevailed in all three of the prior arbitrations to reset the ground rent. We intend vigorously to pursue the litigation. While we believe our arguments will likely prevail, the outcome of the legal proceeding cannot be predicted with certainty. If the landlord prevails, the future rent reset determinations could result in significantly higher ground rent, which would likely result in a significant diminution in the value of our interest in the ground lease and the office building.
Item 1A. Risk Factors.
There have been no material changes from the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
The following exhibits are filed with this report. Documents other than those designated as being filed herewith are incorporated herein by reference.

Exhibit No. |  | Description and Method of Filing
2.1 |  | Contribution Agreement by and among Terra Secured Income Fund, LLC, Terra Secured Income Fund 2, LLC, Terra Secured Income Fund 3, LLC, Terra Secured Income Fund 4, LLC, the registrant, and Terra Property Trust, Inc., dated January 1, 2016 (incorporated by reference to Exhibit 2.1 to the Registration Statement on Form 10 (File No. 000-56117) filed with the SEC on November 6, 2019).
2.2 |  | Amendment No. 1 to the Contribution Agreement by and among Terra Secured Income Fund, LLC, Terra Secured Income Fund 2, LLC, Terra Secured Income Fund 3, LLC, Terra Secured Income Fund 4, LLC, the registrant, and Terra Property Trust, Inc., dated December 31, 2016 (incorporated by reference to Exhibit 2.2 to the Registration Statement on Form 10 (File No. 000-56117) filed with the SEC on November 6, 2019).
2.3 |  | Agreement and Plan of Merger, dated February 28, 2020, by and among Terra Property Trust, Inc., Terra Property Trust 2, Inc. and Terra Secured Income Fund 7, LLC (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K (File No. 000-56117) filed with the SEC on March 5, 2020).
3.1 |  | Amended and Restated Bylaws of Terra Property Trust, Inc. (incorporated by reference to Exhibit 3.1 to the Registration Statement on Amendment No.1 to Form 10 (File No. 000-56117) filed with the SEC on December 16, 2019).
3.2 |  | Articles of Amendment and Restatement of Terra Property Trust, Inc. (incorporated by reference to Exhibit 3.2 to the Registration Statement on Amendment No.1 to Form 10 (File No. 000-56117) filed with the SEC on December 16, 2019).
3.3 |  | Articles of Supplementary of Terra Property Trust, Inc. Designating 12.5% Services A Redeemable Cumulative Preferred Stock (incorporated by reference to Exhibit 3.3 to the Registration Statement on Amendment No.1 to Form 10 (File No. 000-56117) filed with the SEC on December 16, 2019).
4.2 |  | Indenture, dated June 10, 2021, by and between Terra Property Trust, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 8-A (File No. 001-40496) filed with the SEC on June 14, 2021).
4.3 |  | First Supplemental Indenture, dated June 10, 2021, by and between Terra Property Trust, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form 8-A (File No. 001-40496) filed with the SEC on June 14, 2021).
4.4 |  | Form of Global Note representing the notes (included in Exhibit 4.2).

10.1 |  | Second Amendment to Loan Documents dated as of January 4, 2022, by and amount Terra Mortgage Portfolio II, LLC, as Borrower, Terra Property Trust, Inc., as Guarantor, and Western Alliance Bank, as Lender (incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K (File No 001-40496) filed with the SEC on March 11, 2022).
10.2 |  | Uncommitted Master Repurchase and Securities Contract Agreement dated as of February 18, 2022, by and amount Terra Mortgage Capital I, LLC, as Seller, Goldman Sach s Bank USA, as Buyer (incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K (File No 001-40496) filed with the SEC on March 11, 2022).
10.3 |  | Guarantee Agreement dated as of February 18, 2022, by and amount Terra Property Trust, Inc., as Guarantor, in favor of Goldman Sach s Bank USA, as Buyer (incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K (File No 001-40496) filed with the SEC on March 11, 2022).
31.1* |  | Certification of Chief Executive Officer pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* |  | Certification of Chief Financial Officer pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32** |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS** |  | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH** |  | Inline XBRL Taxonomy Extension Schema Document
101.CAL** |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB** |  | Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE** |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 |  | Cover Page Interactive Data File Included as Exhibit 101 (embedded within the Inline XBRL document)

* Filed herewith.
** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 12, 2022

| TERRA PROPERTY TRUST, INC.
| By: | /s/ Vikram S. Uppal
|  | Vikram S. Uppal
|  | Chief Executive Officer
|  | (Principal Executive Officer)
| By: | /s/ Gregory M. Pinkus
|  | Gregory M. Pinkus
|  | Chief Financial Officer and Chief Operating Officer,
|  | (Principal Financial and Accounting Officer)

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