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Related Party Transactions | 3 Months Ended
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Mar. 31, 2022
Related Party Transactions [Abstract] |
Related Party Transactions | 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 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. 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. 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 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 |

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- Definition The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -SubTopic 10 -Section 50 -Paragraph 1 -Subparagraph (d) -URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39549-107864 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -SubTopic 10 -Section 50 -Paragraph 1 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39549-107864 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -SubTopic 10 -Section 50 -Paragraph 1 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39549-107864 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -URI http://asc.fasb.org/topic&trid=2122745 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39691-107864 + Details
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