What changed in this filing

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Item 1. Business

2023-03-13 compared with 2022-03-11 · 93 added, 35 removed, 200 unchanged (39% of the section changed)

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Our portfolio is diversified based on location of the underlying properties, loan structure and property type.

As of December 31, 2021, our portfolio included underlying properties located in 21 markets, across nine states and includes property types such as multifamily housing, hotels, student housing, commercial offices, medical offices, mixed-use and industrial properties.

As of December 31, 2022, our portfolio included underlying properties located in 31 markets, across ten 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 believe that compelling opportunities for us will emerge as a result of the economic downturn caused by the ongoing COVID-19 pandemic.

While the COVID-19 pandemic has had a demonstrable effect on employment, the economy and the public’s morale, its impact on property values has yet to be fully realized because property values are the result of slow moving forces, including consumer behavior, supply and demand for space, availability and pricing of mortgage financing and investor demand.

As these factors become clear and commercial real estate is repriced accordingly, we believe there will be abundant opportunities available to experienced alternative lenders like us to provide financing for property acquisition, refinancing, development and redevelopment on attractive terms that reflect the new realities of the economy.

We were incorporated under the general corporation laws of the State of Maryland on December 31, 2015.

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In addition, on March 2, 2020, we issued 2,457,684.59 shares of our common stock to Terra Offshore REIT in exchange for the settlement of $32.1 million of participation interests in loans also held by us, $8.6 million in cash and other net working capital (“Issuance of Common Stock to Terra Offshore REIT”).

As of December 31, 2021, Terra JV held 87.4% of the issued and outstanding shares of our common stock with the remainder held by Terra Offshore REIT;

On October 1, 2022 (the “Closing Date”), pursuant to that certain Agreement and Plan of Merger, dated as of May 2, 2022 (the “Merger Agreement”), Terra BDC merged with and into Terra LLC, our wholly owned subsidiary, with Terra LLC continuing as the surviving entity of the merger (the “BDC Merger”) and as our wholly owned subsidiary.

The Certificate of Merger and Articles of Merger with respect to the BDC Merger were filed with the Secretary of State of the State of Delaware and State Department of Assessments and Taxation of Maryland (the “SDAT”), respectively, with an effective time and date of 12:02 a.m., Eastern Time, on the Closing Date (the “Effective Time”).

At 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 subsidiaries or Terra BDC, which shares were automatically retired and ceased to exist with no consideration paid therefor, each issued and outstanding share of Terra BDC Common Stock was automatically cancelled and retired and converted into the right to receive (i) 0.595 shares of our newly designated Class B Common Stock, 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 Stock to which such holder would otherwise be entitled by (y) $14.38.

Pursuant to the terms of the transactions described in the Merger Agreement, approximately 4,847,910 shares of Class B Common Stock were issued to former Terra BDC stockholders in connection with the BDC Merger, based on the number of outstanding shares of Terra BDC Common Stock as of the Closing Date.

Following the consummation of the BDC Merger and as of December 31, 2022, former Terra BDC stockholders owned approximately 19.9% of our common equity, Terra JV held

70.0% of the issued and outstanding shares of our common stock with the remainder of 10.1% held by Terra Offshore REIT;

and Terra Fund 5 and Terra Fund 7 owned an 87.6% and 12.4% interest, respectively, in Terra JV.

On the Closing Date, we filed with the SDAT our Articles of Amendment to the Articles of Amendment and Restatement (the “Charter Amendment”).

Pursuant to the Charter Amendment, (i) the authorized shares of our stock which we have authority to issue were 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 (“Preferred Stock”), and (ii) each share of our common stock issued and outstanding immediately prior to the Effective Time was automatically changed into one issued and outstanding share of Class B Common Stock.

The Class B Common Stock rank equally with and 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 our common stock, except as set forth below with respect to conversion.

On the date that is 180 calendar days (or, if such date is not a business day, the next business day) after the date (the “First Conversion 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 our board of directors (our “Board”), 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 our 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 our Board (the “Third Conversion Date”), 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.

As previously disclosed, we continue to explore alternative liquidity transactions on an opportunistic basis to maximize stockholder value.

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Our Manager, MAVIK Capital Management, LP and Terra Capital Partners

We are externally managed by our Manager, which is registered as an investment adviser under the Investment Advisers Act of 1940 (the “Advisers Act”), and is a subsidiary of Terra Capital Partners.

We are externally managed by our Manager, which is registered as an investment adviser under the Investment Advisers Act of 1940 Act, and is a subsidiary of Terra Capital Partners.

On April 1, 2021, MAVIK Capital Management, LP (“Mavik”), an entity controlled by Vikram S.

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Members of the Terra Capital Partners management team have broad based, long-term relationships with major financial institutions, property owners and commercial real estate service providers.

The entire senior management team has held leadership roles at many top international real estate and investment banking firms, including Mount Kellett Capital Management and Fortress Investment Group.

entire senior management team has held leadership roles at many top international real estate and investment banking firms, including Mount Kellett Capital Management and Fortress Investment Group.

Terra Capital Partners is a real estate credit focused investment manager based in New York City with a 19-year track record focused primarily on the origination and management of mezzanine loans, as well as first mortgage loans, bridge loans, and preferred equity investments in all major property types through multiple public and private pooled investment vehicles.

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We deploy moderate amounts of leverage as part of our operating strategy, which currently consists of unsecured notes payable, borrowings under first mortgage financings, a revolving line of credit, repurchase agreements and a term loan.

We may in the future also deploy leverage through other credit facilities and senior notes and 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 in the future also deploy leverage through other credit facilities and senior notes and 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.

In addition, we intend to match our use of floating rate leverage with floating rate investments.

As of December 31, 2021, we had outstanding indebtedness, consisting of borrowings under a mortgage loan of $32.0 million, unsecured notes payable of $85.1 million, the term loan of $93.8 million, a line of credit of $38.6 million and the repurchase agreement of $44.6 million.

As of December 31, 2021, the amount remaining available under the line of credit and the repurchase agreement was $36.4 million and $150.4 million, respectively.

Additionally, as of December 31, 2021, we had obligations under participation agreements and secured borrowing with an aggregate outstanding principal amount of $76.6 million.

As of December 31, 2022, we had outstanding indebtedness, consisting of borrowings under a mortgage loan of $29.3 million, unsecured notes payable of $123.5 million, a term loan of $25.0 million, a line of credit of $90.1 million and the repurchase agreements of $170.9 million.

As of December 31, 2022, the amount remaining available under the line of credit and the repurchase agreements was $34.9 million and $224.1 million, respectively.

Additionally, as of December 31, 2022, we had obligations under participation agreements with an aggregate outstanding principal amount of $12.6 million.

However, we do not have direct liability to a participant under the participation agreements 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).

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These loans generally pay interest on a specified due date (although there may be a portion of the interest that is deferred) and may, to the extent consistent with our qualification as a REIT, provide for participation in the value or cash flow appreciation of the underlying property as described below.

Generally, we invest in mezzanine loans with last dollar loan-to-value ratios ranging

from 60% to 85%.

As of December 31, 2021, we owned three mezzanine loans with a total net principal amount of $17.4 million, which constituted 4.3% of our net loan investment portfolio.

Generally, we invest in mezzanine loans with last dollar loan-to-value ratios ranging from 60% to 85%.

As of December 31, 2022, we owned five mezzanine loans with a total net principal amount of $26.8 million, which constituted 4.2% of our net loan investment portfolio.

Preferred Equity Investments .

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These investments are expected to have characteristics and returns similar to mezzanine loans.

As of December 31, 2021, we owned three preferred equity investments with a total net principal amount of $63.4 million, which constituted 15.7% of our net loan investment portfolio.

As of December 31, 2022, we owned five preferred equity investments with a total net principal amount of $121.2 million, which constituted 19.1% of our net loan investment portfolio.

First Mortgage Loans .

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First mortgage loans are expected to provide for a higher recovery rate and lower defaults than other debt positions due to the lender’s senior position.

However, such loans typically generate lower returns than subordinate debt such as mezzanine loans, B-notes, or preferred equity investments.

However, such loans typically generate lower returns than subordinate debt such as mezzanine

loans, B-notes, or preferred equity investments.

As of December 31, 2022, we owned 20 first mortgage loans with a total net principal amount of $456.4 million, which constituted 72.1% of our net loan investment portfolio.

As of December 31, 2021, we used $163.1 million of senior mortgage loans as collateral for $93.8 million of borrowings under a term loan;

$60.1 million of senior mortgage loans as collateral for $38.6 million of borrowings under a revolving line of credit and $67.4 million of senior mortgage loans as collateral for $44.6 million of borrowings under a repurchase agreement.

As of December 31, 2022, we used $413.1 million of senior mortgage loans as collateral for $261.0 million of borrowings under a revolving line of credit and two repurchase agreements.

Subordinated Mortgage Loans (B-notes) .

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We may invest in other real estate-related investments, which may include CMBS or other real estate debt or equity securities, so long as such investments do not constitute more than 15% of our assets .

of our real estate-related loans require the borrower to make payments of interest on the fully committed principal amount of the loan regardless of whether the full loan amount is outstanding.

Certain of our real estate-related loans require the borrower to make payments of interest on the fully committed principal amount of the loan regardless of whether the full loan amount is outstanding.

As of December 31, 2022, we owned a 27.9% equity interest in a limited partnership that invests in performing and non-performing mortgages, loans, mezzanines, B-notes and other credit instru ments supported by underlying commercial real estate assets.

Additionally, we owned equity interests in two joint ventures that invest in real estate properties.

Additionally, we owned beneficial equity interests in three joint ventures that invest in real estate properties.

We also owned a credit facility that is collateralized by underlying commercial real estate assets.

These equity interests had a total carrying value of $69.7 million and the credit facility had a net principal balance of $11.8 million as of December 31, 2021 .

In 2022, in connection with a mezzanine loan we originated, we entered into a residual profit sharing arrangement with the borrower.

We accounted for this arrangement as an equity investment.

These equity interests had a total carrying value of $62.5 million and the credit facility had a principal balance of $28.8 million as of December 31, 2022 .

Operating Real Estate

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In January 2019, we acquired a 4.9 acre development parcel through deed in lieu of foreclosure.

As of December 31, 2021, the office building and the development parcel had a carrying value of $56.1 million, and the mortgage loan payable encumbering the office building had a principal amount of $32.0 million.

In June 2022, the development parcel was sold.

As of December 31, 2022, the multi-tenant office building had a carrying value of $40.6 million, and the mortgage loan payable encumbering the office building had a principal amount of $29.3 million.

Investment Guidelines

Our board of directors has adopted investment guidelines, which may be amended from time to time, that set forth certain criteria for the Manger to use when evaluating specific investment opportunities as well as our overall portfolio composition.

Our board of directors will review the Manager’s compliance with the investment guidelines periodically and receive an investment report at each quarter-end in conjunction with the review of our quarterly results by our board of directors.

Our board of directors adopted the following investment guidelines:

Our Board has adopted investment guidelines, which may be amended from time to time, that set forth certain criteria for the Manger to use when evaluating specific investment opportunities as well as our overall portfolio composition.

will review the Manager’s compliance with the investment guidelines periodically and receive an investment report at each quarter-end in conjunction with the review of our quarterly results by our Board.

Our Board adopted the following investment guidelines:

• no origination or acquisition shall be made that would cause us to fail to qualify as a REIT;

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• until appropriate investments can be identified, we may invest the proceeds of our equity or debt offerings in interest-bearing, short-term investments, including money market accounts and/or funds, that are consistent with our intention to qualify as a REIT.

These investment guidelines may be changed from time to time by a majority of our board of directors without the approval of our stockholders.

These investment guidelines may be changed from time to time by a majority of our Board without the approval of our stockholders.

Disposition Policies

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If we fail to qualify as a REIT in any taxable year and do not qualify for certain statutory relief provisions, we will be subject to U.S.

income tax at regular corporate rates and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year during which we failed to qualify as a REIT.

federal income tax at regular corporate rates and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year during which we failed to qualify as a REIT.

Even if we qualify for taxation as a REIT, we may be subject to some U.S.

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federal income tax rates that currently apply to certain distributions received by individuals from taxable corporations, unless such distributions are attributable to dividends received by us from our TRSs, should we form a TRS in the future.

As of December 31, 2022, we had one TRS, but the TRS had no activity and no current or deferred taxes.

We will continue to file a return for the TRS until it is dissolved.

1940 Act Exclusion

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We conduct our operations so that neither we nor our subsidiaries are required to register as an investment company under the 1940 Act.

Section 3(a)(1)(A) of the 1940 defines an investment company as any issuer that is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities.

Section 3(a)(1)(A) of the 1940 Act defines an investment company as any issuer that is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities.

Section 3(a)(1)(C) of the 1940 Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of such issuer’s total assets (exclusive of U.S.

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In addition, we conduct our operations so that neither we nor our subsidiaries will be considered an investment company under Section 3(a)(1)(A) of the 1940 Act, as neither we nor our subsidiaries are engaged primarily nor do we hold ourselves out as being engaged primarily in the business of investing, reinvesting or trading in securities.

Rather, we are primarily engaged in the non-investment company businesses of our subsidiaries.

Rather, we and our subsidiaries are primarily engaged in the non-investment company businesses.

We and certain of our subsidiaries may at times rely primarily on the exclusion from the definition of an investment company under Section 3(c)(5)(C) of the 1940 Act, or any other exclusions that may be available to us (other than the exclusions under Section 3(c)(1) or Section 3(c)(7)).

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Emerging Growth Company Status

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”), and as such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

previously approved.

A number of these exemptions are not relevant to us, but we intend to take advantage of the exemption from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002.

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(ii) federal, state and local tax laws and regulations, (ii) state and local laws relating to real property;

(iv) federal, state and local environmental laws, ordinances, and regulations, and (v) various laws relating to housing, including permanent and temporary

rent control and stabilization laws, the Americans with Disabilities Act of 1990 and the Fair Housing Amendment Act of 1988, among others.

(iv) federal, state and local environmental laws, ordinances, and regulations, and (v) various laws relating to housing, including permanent and temporary rent control and stabilization laws, the Americans with Disabilities Act of 1990 and the Fair Housing Amendment Act of 1988, among others.

Compliance with the federal, state and local laws described above has not had a material, adverse effect on our business, assets, results of operations, financial condition and ability to pay distributions, and we do not believe that our existing portfolio will require us to incur material expenditures to comply with these laws and regulations.

Human Capital

We are supervised by our board of directors consisting of four directors.

We are supervised by our Board consisting of six directors.

We have entered into a management agreement (“Management Agreement”) with our Manager pursuant to which certain services are provided by our Manager and paid for by us.

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however, we do not currently have any employees and do not currently expect to have any employees.

See “Item 10.

Directors, Executive Officers and Corporate Governance” in this Annual Report on Form 10-K.

Information About our Executive Officers

The names, ages, positions and biographies of our officers are as follows:

Name Age Position(s) Held with the Company

Uppal 39 Chairman of the Board of Directors, Chief Executive Officer and Chief Investment

Pinkus 58 Chief Financial Officer, Chief Operating Officer, Treasurer and Secretary

Cooperman 48 Chief Originations Officer

Uppal has served as the Chairman of the Board of Directors since November 2021, one of our directors from February 2018 to November 2021 and as Chief Executive Officer for our company, our Manager, Terra Fund Advisors and Terra Capital Partners since December 2018 and as a director of RESOF since October 2020.

Uppal has also served as Chief Investment Officer for our company, Terra Capital Partners and our Manager since February 2018.

Uppal served as the Chief Executive Officer of Terra Income Advisors and Terra BDC from April 2019 to October 2022 and as the Chairman of the board of directors and President of Terra BDC from November 2019 to October 2022.

Prior to joining Terra Capital Partners, Mr.

Uppal was a Partner and Head of Real Estate at Axar Capital Management since 2016.

Prior to Axar Capital Management, Mr.

Uppal was a Managing Director on the Investment Team at Fortress Investment Group's Credit and Real Estate Funds from 2015 to 2016.

From 2012 to 2015, Mr.

Uppal worked at Mount Kellett Capital Management, a private investment organization, and served as Co-Head of North American Real Estate Investments.

Uppal holds a B.S.

from the University of St.

Thomas and a M.S.

from Columbia University.

Pinkus has served as the Chief Financial Officer, Chief Operating Officer, Treasurer and Secretary of our company and the Chief Financial Officer and Chief Operating Officer of our Manager, and Terra Fund Advisors since January 2016, October 2017, and October 2017, respectively.

He has served as (i) the Chief Financial Officer of Terra Capital Advisors, Terra Capital Advisors 2 and Terra Income Advisors 2 since May 2012, September 2012 and October 2016;

(ii) the Chief Operating Officer of Terra Capital Advisors, Terra Capital Advisors 2 and Terra Capital Partners since July 2014;

(iii) the Chief Operating Officer of Terra Income Advisors 2 since October 2016;

(iv) the Chief Financial Officer of Fund 5 International, Terra International and Terra Fund 7 since June 2014, October 2016 and October 2016, respectively;

(v) a director of RESOF since October 2020;

and (vi) the Chief Financial Officer and Chief Operating Officer of Terra Income Advisors and the Chief Financial Officer, Treasurer and Secretary of Terra BDC from May 2013 to October 2022 and the Chief Operating Officer of Terra BDC from July 2014 to October 2022.

Prior to joining Terra Capital Partners in May 2012, he served as Assistant Controller for W.P.

from 2006 to August 2010 and as Controller from August 2010 to May 2012.

Pinkus also served as Controller and Vice President of Finance for several early-stage technology companies during the period of 1999 to 2005.

Additionally, he managed large-scale information technology budgets at New York Life Insurance Company from 2003 to 2004 and oversaw an international reporting group at Bank of America from 1992 to 1996.

Pinkus is a Certified Public Accountant and member of the American Institute of Certified Public Accountants.

He holds a B.S.

in Accounting from the Leonard N.

Stern School of Business at New York University.

Cooperman has served as Chief Originations Officer of our company, our Manager, and Terra Fund Advisors since January 2016, September 2017 and September 201, respectively.

Cooperman has served as Chief Originations Officer of (i) each of Terra Capital Advisors and Terra Capital Advisors 2 since January 2015, having previously served as Managing Director of Originations until January 2015 of Terra Capital Advisors and Terra Capital Advisors 2 since April 2009 and September 2012, respectively;

(ii) Fund 5 International since January 2015, having previously served as Managing Director of Originations of Terra BDC from June 2014 to June 2014;

(iii) Terra Income Advisors and Terra BDC from February 2015 to October 2022, having previously served as Managing Director of Originations from May 2013 until February 2015;

and (iv) each of Terra Income Advisors 2, Terra International, and Terra Fund 7 since October 2016.

Cooperman has 18 years’ experience in the acquisition, financing, leasing and asset management of commercial real estate with an aggregate value of over $5 billion.

Prior to the formation of Terra Capital Partners in 2001 and its commencement of operations in 2002, Mr.

Cooperman handled mortgage and mezzanine placement activities for The Greenwich Group International, LLC.

Prior to joining The Greenwich Group, Mr.

Cooperman worked in Chase Manhattan Bank’s Global Properties Group, where he was responsible for financial analysis and due diligence for the bank’s strategic real estate acquisitions and divestitures.

Prior to that time, he was responsible for acquisitions and asset management for JGS, a Japanese conglomerate with global real estate holdings.

Cooperman holds a B.S.

in Finance from the University of Colorado at Boulder.

Available Information

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business