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Item 1A. Risk Factors

2024-03-15 compared with 2023-03-13 · 118 added, 120 removed, 652 unchanged (27% of the section changed)

Risk Factors.

Before making an investment decision, you should carefully consider the following risk factors together with all of the other information contained in this Annual Report on Form 10-K.The risks set forth below are not the only risks we face, and we may face other risks that we have not yet identified, which we do not currently deem material or which are not yet predictable.

Before making an investment decision, you should carefully consider the following risk factors together with all of the other information contained in this Annual Report on Form 10-K.

The risks set forth below are not the only risks we face, and we may face other risks that we have not yet identified, which we do not currently deem material or which are not yet predictable.

If any of the following risks occur, our results of operations, financial condition and cash flows could be materially adversely affected.

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Accordingly, no assurance can be given as to the ability of our stockholders to sell their common stock or the price that our stockholders may obtain for their common stock.

Some of the factors that could negatively affect the market price of our common stock include:

Some of the factors that could negatively affect the fair value of our common stock include:

• our expected operating results and our ability to make distributions to our stockholders in the future;

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As a result, interest rate fluctuations and conditions in capital markets can affect the fair market value of our common stock.

For instance, if interest rates rise, it is likely that the market price of our common stock will decrease as market rates on interest-bearing securities increase.

For instance, if interest

rates rise, it is likely that the market price of our common stock will decrease as market rates on interest-bearing securities increase.

If we complete an alternative liquidity transaction by pursuing an initial public offering or listing of our shares of common stock in the future, you will be subject to additional risks.

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.

We may pursue such a liquidity transaction as early as 2023, but we cannot provide any assurance that any alternative liquidity transaction will be available to us or, if available, that we will pursue or be successful in completing any such alternative liquidity transaction.

Examples of the alternative liquidity transactions that, depending on market conditions, may be available to us include a listing of our shares of common stock on a national securities exchange, adoption of a share repurchase plan, a liquidation of our assets, a sale of our company or a strategic business combination, in each case, which may include the further in-kind distribution of our shares of common stock indirectly owned by certain of our affiliate funds to the ultimate investors in such affiliate funds.

We cannot provide any assurance that any alternative liquidity transaction will be available to us or, if available, that we will pursue or be successful in completing any such alternative liquidity transaction.

If we complete an alternative liquidity transaction that involves us becoming a publicly traded company through an initial public offering or listing of our shares of common stock on a national securities exchange, you will subject to the following additional risks:

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Sales of substantial amounts of common stock or the perception that such sales could occur may adversely affect the prevailing market price for our common stock.

Following the consummation of the BDC Merger and as of December 31, 2022, Terra JV, former shareholders of Terra BDC and Terra Offshore REIT held 70.0%, 19.9% and 10.1% of the issued and outstanding shares of the Class B Common Stock, respectively.

Our principal stockholders, which are currently controlled by affiliates of our Manager, own a significant amount of our outstanding shares of common stock, which is sufficient to approve or veto most corporate actions requiring a vote of our stockholders.

Through Terra JV, Terra Fund 5 and Terra Fund 7 beneficially own shares of our common stock representing 61.3% and 8.7% of the voting power of our outstanding shares of common stock, respectively.

In addition, the former BDC stockholders and Terra Offshore REIT owns shares of our common stock representing 19.9% and 10.1% of the voting power of our outstanding shares of common stock, respectively.

As of December 31, 2023, Terra Fund 7 and Terra Offshore REIT held approximately 8.7% and 10.1% of our issued and outstanding Class B Common Stock, respectively.

Our principal stockholders, which are currently controlled by affiliates of our Manager, own a significant amount of our outstanding shares of common stock.

Terra Fund 7 and Terra Offshore REIT hold approximately 8.7% and 10.1% of our issued and outstanding Class B Common Stock, respectively.

Our Manager also serves as manager to Terra Offshore REIT.

As a result, our Manager and its affiliates (for the period that such shares continue to be held by Terra Fund 5 and Terra Fund 7 through Terra JV, and Terra Offshore REIT and not distributed to their respective equity owners), subject to a voting agreement as described below, have significant control over matters submitted to our stockholders for approval, including:

As a result, our Manager and its affiliates (for the period that such shares continue to be held by Terra Fund 7 and Terra Offshore REIT and not distributed to their respective equity owners), subject to a voting agreement as described below, hold significant voting power over matters submitted to our stockholders for approval, including:

• the election and removal of directors;

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Our Manager is a subsidiary of Terra Capital Partners.

On April 1, 2021, Mavik, an entity controlled by Vikram S.

Uppal, our Chief Executive Officer, 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.

Terra Fund 5 and Terra Fund 7 are managed by Terra Fund Advisors, which is 51% owned by the estate of Bruce Batkin, Dan Cooperman and Simon Mildé and 49% owned by an affiliate of Axar Capital Management.

On March 2, 2020, we, Terra Fund 5, Terra JV and Terra REIT Advisors also entered into the Amended and Restated Voting Agreement (the “2020 Voting Agreement”), pursuant to which Terra Fund 5 assigned its rights and obligations under the 2020 Voting Agreement to Terra JV.

Consistent with the original voting agreement dated February 8, 2018, for the period that Terra REIT Advisors remains our external manager, Terra REIT Advisors will have the right to nominate two individuals to serve as our directors and, until Terra JV no longer holds at least 10% of our outstanding shares of common stock, Terra JV will have the right to nominate one individual to serve as one of our director.

Except as otherwise required by law or the provisions of other agreements to which the parties are or may in the future become bound, the parties have agreed to vote all shares of our common stock directly or indirectly owned in favor (or against removal) of the directors properly nominated in accordance with the 2020 Voting Agreement.

Other than with respect to the election of directors, the 2020 Voting Agreement requires that Terra Fund 5 vote all shares of our common stock directly or indirectly owned by Terra Fund 5 in accordance with the recommendations made by our Board.

On October 1, 2022, we entered into a Voting Support Agreement with Terra JV and Terra Offshore REIT (the “2022 Voting Agreement”).

Pursuant to the 2022 Voting Agreement, effective as of October 1, 2022, Terra JV and Terra Offshore REIT have agreed to, at any meeting of our stockholders called for the purpose of electing directors (or by any consent in writing or by electronic transmission in lieu of any such meeting), cast all votes entitled to be cast by each of them in favor of the election of Spencer Goldenberg, Adrienne Everett and Gaurav Misra (each a “Terra BDC Designee”, and collectively, the “Terra BDC Designees”) until the earlier of (i) the first anniversary of October 1, 2022, (ii) the TPT Class B Common Stock Distributions (as defined in the 2022 Voting Agreement) or (iii) an amendment and restatement of the amended and restated management agreement between us and Terra REIT Advisors approved by the our Board, including the Terra BDC Designees.

In addition, our Manager’s and its affiliates’ voting control may discourage transactions involving a change of control of our company, including transactions in which a holder of our common stock might otherwise receive a premium for his or her shares over the then-current market price.

Mavik, an entity controlled by our Chief Executive Officer and Chief Investment Officer, is the sole member of Terra Capital Partners.

Terra Fund 7 is managed by Terra Fund Advisors,

which is 51% owned by the estate of Bruce Batkin, Dan Cooperman and Simon Mildé and 49% owned by Terra Capital Partners.

On March 2, 2020, we, Terra Fund 5, Terra JV and our Manager also entered into the Amended and Restated Voting Agreement (the “2020 Voting Agreement”).

Consistent with the original voting agreement dated February 8, 2018, for the period that Terra REIT Advisors remains our external manager, it will have the right to nominate two individuals to serve as our directors.

Except as otherwise required by law or the provisions of other agreements to which our Manager is or may in the future become bound, our Manager has agreed to vote all shares of our common stock directly or indirectly owned in favor (or against removal) of the directors properly nominated in accordance with the 2020 Voting Agreement.

Our Manager’s voting power may discourage transactions involving a change of control of our company, including transactions in which a holder of our common stock might otherwise receive a premium for his or her shares over the then-current market price.

Holders of our common stock may receive distributions on a delayed basis or distributions may decrease over time.

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GAAP”) purposes may differ materially from our REIT taxable income.

For the years ended December 31, 2022 and 2021, our Board declared total cash distributions of $0.78 and $0.88 per share, respectively, that were paid monthly in the same period in which each was declared.

For the years ended December 31, 2023 and 2022, our Board declared total cash distributions of $0.76 and $0.78 per share, respectively, which were paid monthly.

We continue to prudently evaluate our liquidity and review the rate of future distributions in light of our financial condition and the applicable minimum distribution requirements under applicable REIT tax laws and regulations.

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Inflation in the U.S.

has accelerated recently and is currently expected to continue at an elevated level in the near-to medium-term, which may have an adverse impact on the valuation of our investments.

has accelerated in recent years and is currently expected to continue at an elevated level in the near-to medium-term, which may have an adverse impact on the valuation of our investments.

Inflation in the U.S.

has accelerated recently and is currently expected to continue at an elevated level in the near-to medium-term.

Further, heightened competition for workers, supply chain issues, the relocation of foreign production and manufacturing businesses to the U.S., and rising energy and commodity prices have contributed to increasing wages and other economic inputs.

Higher inflation and rising input costs may have adverse effects on our commercial real estate-related loans, commercial real estate-related debt securities and select commercial real estate equity investments, which are subject to the

risks typically associated with real estate.

has accelerated in recent years and is currently expected to continue at an elevated level in the near-to medium-term.

While inflation in the U.S.

appears to be easing gradually, there can be no assurance that further deterioration in financial market and economic conditions will not occur.

Further, heightened competition for workers, the relocation of foreign production and manufacturing businesses to the U.S., and rising energy and commodity prices have contributed to increasing wages and other economic inputs.

Elevated inflation and input costs may have adverse effects on our commercial real estate-related loans, commercial real estate-related debt securities and select commercial real estate equity investments, which are subject to the risks typically associated with real estate.

Inflation can negatively impact the profitability of real estate assets with long-term leases that do not provide for short-term rent increases or that provide for rent increases with a lower annual percentage increase than inflation.

Continued inflation, particularly at higher levels, may have an adverse impact on the valuation of our investments.

Continued inflation, particularly at elevated levels, may have an adverse impact on the valuation of our investments.

The lack of liquidity of our assets may adversely affect our business, including our ability to value and sell our assets.

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Pursuant to the terms of the Management Agreement, our Manager is responsible for, among other services, managing the investment and reinvestment of our assets, subject to the oversight and supervision of our Board.

We may also make strategic non-real estate-related investments that align with our investment objectives and criteria.

Our investors will not have input into investment decisions.

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Even if investment opportunities are available, there can be no assurance that the due diligence processes of our Manager will uncover all relevant facts or that any particular investment will be successful.

From time to time, before appropriate real estate-related investments can be identified, our Manager may choose to have us invest in interest-bearing, short-term investments, including money market accounts and/or funds, that are consistent with our intention to maintain our qualification as a REIT.

These short-term, non-real estate-related investments, if any, are expected to provide a lower net return than we will seek to achieve from investments in real estate-related loans and other commercial real estate assets.

From time to time, before appropriate real estate-related investments can be identified, our Manager may choose to have us invest in interest-bearing, short-term investments, including money market accounts and/or funds, among others, that align with our investment objectives and criteria and are consistent with our intention to maintain our qualification as a REIT.

These short-term, non-real estate-related investments, if any, may provide a lower net return than we seek to achieve from investments in real estate-related loans and other commercial real estate assets.

Furthermore, when our Manager does identify suitable real estate-related loans and other commercial real estate assets that are the types of assets which we target, you will be unable to influence the decision of our Manager ultimately to invest in, or refrain from investing in, such assets.

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In addition, in a period of rising interest rates, our operating results will depend in large part on the difference between the income from our assets and our financing costs.

We anticipate that, in most cases, the income from such assets will respond

more slowly to interest rate fluctuations than the cost of our borrowings.

We anticipate that, in most cases, the income from such assets will respond more slowly to interest rate fluctuations than the cost of our borrowings.

Consequently, changes in interest rates, particularly short-term interest rates, may significantly influence our net income.

Increases in these rates will tend to decrease our net income, which may have a material adverse effect on our results of operations, financial condition and cash flows.

The expected discontinuance of the London interbank offered rate (“LIBOR”) and transition to alternative reference rates may adversely impact our borrowings and assets.

The United Kingdom Financial Conduct Authority (“FCA”), which regulates LIBOR, has announced that the most commonly used tenors (overnight and one, three, six and 12 months) will cease to be published or will no longer be representative after June 30, 2023.

The FCA’s announcement coincided with the March 5, 2021 announcement of LIBOR’s administrator, the ICE Benchmark Administration Limited (“IBA”), indicating that, as a result of not having access to input data necessary to calculate LIBOR tenors relevant to us on a representative basis after June 30, 2023, IBA would have to cease

publication of such LIBOR tenors immediately after the last publication on June 30, 2023.

These announcements mean that any

of our LIBOR-based borrowings and assets that mature beyond June 30, 2023 need to be converted to alternative interest rates.

Many of our counterparties are now subject to regulatory guidance not to enter new LIBOR contracts except in limited circumstances.

The Alternative Reference Rates Committee (“ARRC”), a group of private-market participants convened by the U.S.

Federal Reserve Board and the New York Federal Reserve, has recommended the Secured Overnight Financing Rate (“SOFR”), a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities, as a more robust reference rate alternative to U.S.

dollar LIBOR.

The use of SOFR as a substitute for U.S.

dollar LIBOR is voluntary and may not be suitable for all market participants.

To approximate economic equivalence to LIBOR, SOFR can be compounded over a relevant term and a spread adjustment may be added.

There are significant differences between LIBOR and SOFR, such as LIBOR being an unsecured lending rate while SOFR is a secured lending rate, and SOFR is an overnight rate while LIBOR reflects term rates at different maturities.

If our LIBOR-based borrowings are converted to SOFR, the differences between LIBOR and SOFR, plus the recommended spread adjustment, could result in interest costs that are higher than if LIBOR remained available, which could have a material adverse effect on our results.

Although SOFR is the ARRC's recommended replacement rate, it is also possible that lenders may instead choose alternative replacement rates that may differ from LIBOR in ways similar to SOFR or in other ways that would result in higher borrowing costs for us.

It is not yet possible to predict the magnitude of LIBOR’s end on our borrowing costs given the uncertainty about which rates will replace LIBOR and the timing of actual replacement.

Market practices related to SOFR calculation conventions continue to develop and may vary, and inconsistent calculation conventions may develop among financial products.

Certain of our indebtedness, including the term loan, the repurchase agreement, the mortgage loan payable and the revolving line of credit, as well as certain of our floating rate loan assets, are, and other future financings may be, linked to LIBOR.

We are not able to predict when LIBOR will cease to be available;

however, we expect that a significant portion of these financing arrangements and loan assets will not have matured, been prepaid or otherwise terminated prior to the time at which the IBA ceases to publish LIBOR.

It is not possible to predict all consequences of the IBA’s proposals to cease publishing LIBOR, any related regulatory actions and the expected discontinuance of the use of LIBOR as a reference rate for financial contracts.

If such debt or loan assets mature after LIBOR ceases to be published, our counterparties may disagree with us about how to calculate or replace LIBOR.

Even when robust fallback language is included, there can be no assurance that the replacement rate plus any spread adjustment will be economically equivalent to LIBOR, which could result in a higher interest rate being paid by us on our borrowings and a lower interest rate being paid to us on such assets.

Modifications to any debt, loan assets, interest rate hedging transactions or other contracts to replace LIBOR with an alternative reference rate could result in adverse tax consequences.

In addition, any resulting differences in interest rate standards among our assets and our financing arrangements may result in interest rate mismatches between our assets and the borrowings used to fund such assets.

We and other market participants have less experience understanding and modeling SOFR-based assets and liabilities than LIBOR-based assets and liabilities, increasing the difficulty of investing, hedging, and risk management.

Because the impact of LIBOR cessation is dependent on unknown future facts, the language of individual contracts, and the outcome of potential future legislation or litigation, it is not currently practical for our valuation models to account for the cessation of LIBOR.

The process of transition involves operational risks.

References to LIBOR may be embedded in computer code or models, and we may not identify and correct all of those references.

Because compounded SOFR is backward-looking rather than forward-looking, parties making or receiving LIBOR-based payments may be unable to calculate payment amounts until the day that payment is due.

Proposed mechanisms to solve the operational timing issue may result in a payment amount that does not fully reflect interest rates during the calculation period.

Potential changes, or uncertainty related to such potential changes, may also 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.

There is no guarantee that a transition from LIBOR to an alternative will not result in financial market disruptions, significant increases in benchmark rates, or borrowing costs to borrowers, any of which could have a material adverse effect on our results of operations, financial condition and our cash flows.

New entrants in the market for commercial loan originations and acquisitions could adversely impact our ability to originate and acquire real estate-related loans at attractive risk-adjusted returns.

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Therefore, our portfolio of assets may, at times, be concentrated in certain property types that are subject to higher risk of foreclosure, or secured by properties concentrated in a limited number of geographic locations.

Our loans are concentrated in California, New York, Georgia, Texas and New Jersey representing approximately 24.0%, 14.5%, 11.4%, 10.7% and 9.8%, respectively, of our net loan portfolio as of December 31, 2022.

Additionally, we own a multi-tenant office building in California.

Our loans are concentrated in California, New York, New Jersey, Georgia and Utah representing approximately 23.4%, 17.8%, 16.2%, 14.6% and 9.7%, respectively, of our net loan portfolio as of December 31, 2023.

Additionally, we own eight industrial buildings in Texas.

If economic conditions in these or in any other state in which we have a significant concentration of borrowers were to deteriorate, such adverse conditions could have a material and adverse effect on our business by reducing demand for new financings, limiting the ability of customers to repay existing loans and impairing the value of our real estate collateral and real estate owned properties.

Further, our loans are concentrated in office, industrial and multifamily property types representing approximately 27.1%, 23.3% and 16.5%, respectively, of our net loan portfolio as of December 31, 2022.

Further, our loans are concentrated in office, multifamily and industrial property types representing approximately 28.4%, 16.8% and 13.3%, respectively, of our net loan portfolio as of December 31, 2023.

As a result, a downturn in any particular industry in which we are heavily invested may significantly impact the aggregate returns we realize.

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If successful, a repeal of Proposition 13 could substantially increase the assessed values and property taxes for our customers in California which in turn could limit their ability to borrow funds.

reduce our net income, which in turn may have a material adverse effect on our results of operations, financial condition and cash flows.

To the extent that our portfolio is concentrated in any region, or by type of property, downturns relating generally to such region, type of borrower or security may result in defaults on a number of our assets within a short time period, which may reduce our net income, which in turn may have a material adverse effect on our results of operations, financial condition and cash flows.

We expect that a significant portion of the mortgage loans invested in by us may be development mortgage loans on infill land, which are speculative in nature.

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Rating agencies may assign a lower than expected rating or reduce or withdraw, or indicate that they may reduce or withdraw, their ratings of our loans and CMBS assets in the future.

In addition, we may originate or acquire assets with no

rating or with below investment grade ratings.

In addition, we may originate or acquire assets with no rating or with below investment grade ratings.

If the rating agencies take adverse action with respect to the rating of our loans and CMBS assets or if our unrated assets are illiquid, the value of these loans and CMBS assets could significantly decline, which would adversely affect the value of our investment portfolio and could result in losses upon disposition or the failure of borrowers to satisfy their debt service obligations to us.

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As part of our whole loan origination platform, we may retain from whole loans we originate or acquire, subordinate interests referred to as B-notes.

B-notes are commercial real estate loans secured by a first mortgage on a single large commercial property or group of related properties and subordinated to a senior interest, referred to as an A-note.

B-notes are commercial real estate loans secured by a first mortgage on a single large

commercial property or group of related properties and subordinated to a senior interest, referred to as an A-note.

As a result, if a borrower defaults, there may not be sufficient funds remaining for B-note owners after payment to the A-note owners.

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For example, we completed the BDC Merger in October 2022.

Acquisition targets may not have a history of synergistic business operations, practices or, if applicable, investment criteria and strategies.

We may make strategic non-real estate-related investments that align with our investment objectives and criteria.

We cannot predict with certainty the benefits of such acquisitions, which often constitute multi-year endeavors.

There is risk that our acquisitions may not have the anticipated positive results, including results relating to:

correctly assessing the asset quality of the assets being acquired;

correctly assessing the asset quality of

the assets being acquired;

the total cost and time required to complete the integration successfully;

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Additionally, the operation of the acquired businesses may adversely affect our existing profitability, and we may not be able to achieve results in the future similar to those achieved by our existing business or manage growth resulting from the acquisition effectively.

We may make strategic non-real estate-related investments that align with our investment objectives and criteria, which may expose us to risks from a number of diverse issuers, industries, and investment forms.

Though our investments are primarily in real estate-related loans and other commercial real estate assets or interests, we may strategically invest in non-real estate-related investments that align with our investment objectives and criteria.

However, the underwriting process for non-real estate-related investments and the ongoing asset management and servicing of such investments is different from the investment process for real estate investments, and our Manager has not historically focused on non-real estate investing.

We may not be able to achieve the returns on any non-real estate-related investments that we achieved on our real estate-related investments.

Non-real estate-related investments are also not collateralized by real estate like our real estate investments and hence may be riskier because if the debt-like non-real estate-related investments default or do not perform, we may not have collateral to foreclose upon.

Further, non-real estate-related investments will be subject to different regulatory risks which may distract the attention of our management, and be difficult and costly to comply with.

As a result, to the extent we hold, acquire or transact in such non-real estate-related investments, we may be exposed to risks from a number of diverse issuers, industries and investment forms which may be difficult to determine and may have a material adverse effect on our financial condition and results of operations.

We are subject to environmental, social and governance (“ESG”) risks that could adversely affect our reputation, business,

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We are unable to predict whether U.S.

federal, state or local authorities, or other pertinent bodies, will enact legislation, laws, rules, regulations, handbooks, guidelines or similar provisions that will affect our business or require changes in our practices in the future, and any such changes could have a material adverse effect on our results of operations, financial condition and cash flows.

federal, state or local authorities, or other pertinent bodies, will enact legislation, laws, rules,

regulations, handbooks, guidelines or similar provisions that will affect our business or require changes in our practices in the future, and any such changes could have a material adverse effect on our results of operations, financial condition and cash flows.

Failure to obtain or maintain required approvals and/or state licenses necessary to operate our mortgage-related activities may adversely impact our investment strategy.

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Changes in accounting rules, interpretations or our assumptions could also undermine our ability to prepare timely and accurate financial statements, which could result in a lack of investor confidence in our financial information.

The Current Expected Credit Loss (“CECL”) accounting standard could result in a significant change in how we recognize

credit losses and may have a material adverse effect on our financial condition and results of operations.

In June 2016, the FASB issued an Accounting Standards Update (“ASU”), Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which replaces the current “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the CECL model.

The CECL accounting standard requires us to make certain estimates and judgements, which may be difficult to determine and may have a material adverse effect on our financial condition and results of operations.

In June 2016, the FASB issued an Accounting Standards Update (“ASU”), Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which replaces the “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the CECL model.

The new CECL standard became effective for us on January 1, 2023.

Under the CECL model, we are required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected.

Under the CECL model, we are required to present certain financial assets carried at amortized cost, such as performing loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected.

The measurement of expected credit losses is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

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GAAP, which delays recognition until it is probable a loss has been incurred.

The adoption of ASU 2016-13 resulted in an incremental reserve of approximately $4.6 million, which included reserve on future loan funding commitments.

Accordingly, the adoption of the CECL model may materially affect how we determine our allowance for credit losses and require us to increase our allowance.

If we are required to materially increase our level of allowance for credit losses for any reason, such increase could adversely affect our business, financial condition and results of operations.

Under the CECL model, if we are required to materially increase our level of allowance for credit losses for any reason, such increase could adversely affect our business, financial condition and results of operations.

We are an “emerging growth company,” and a “smaller reporting company” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies or smaller reporting companies will make an investment in us less attractive to investors.

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government securities and securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exclusion from the definition of investment company set forth in Section 3(c)(1) or Section 3(c)(7) of the 1940 Act.

The value of the “investment

securities” held by an issuer must be less than 40% of the value of such issuer’s total assets on an unconsolidated basis (exclusive of U.S.

The value of the “investment securities” held by an issuer must be less than 40% of the value of such issuer’s total assets on an unconsolidated basis (exclusive of U.S.

government securities and cash items).

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For purposes of the Section 3(c)(5)(C) exclusion, we classify our investments based in large measure on no-action letters issued by the staff of the SEC, and other SEC interpretive guidance and, in the absence of SEC guidance, on our view of what constitutes a “qualifying real estate” asset and a “real estate-related” asset.

These no-action positions were issued in accordance with factual situations that may be substantially different from the factual situations we may face, and a number of these no-action letters were issued more than 20 years ago.

These no-action positions were issued in accordance with factual situations that may be substantially different from the factual situations we

may face, and a number of these no-action letters were issued more than 20 years ago.

Pursuant to this guidance, and depending on the characteristics of the specific investments, certain mortgage loans, participations in mortgage loans, mortgage-backed securities, mezzanine loans, joint venture investments, preferred equity and the equity securities of other entities may not constitute qualifying real estate assets and therefore our investments in these types of assets may be limited.

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Our success depends substantially on the efforts and abilities of the management team of our Manager, including Messrs.

Uppal, Pinkus and Cooperman, and our Manager’s debt finance professionals.

Uppal, Pinkus and Cooperman, Ms.

Schwarzschild and our Manager’s investment professionals.

The loss of any of such individuals could have a material adverse effect on our results of operations, financial condition and cash flows

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We rely on our officers and the officers of our Manager, including Messrs.

Uppal, Pinkus and Cooperman, and the other debt finance professionals of our Manager to identify suitable investments.

Uppal, Pinkus and Cooperman, Ms.

Schwarzschild and the other investment professionals of our Manager to identify suitable investments.

Certain other companies managed by our Manager or its affiliates also rely on many of these same professionals.

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Such events could result in our acquiring investments that provide less attractive returns, which would have a material adverse effect on our results of operations, financial condition and cash flows.

Our Manager, our officers and the debt finance professionals assembled by our Manager will face competing demands relating to their time and this may cause our operations and our investors’ investments to suffer.

We will rely on our Manager, its officers and on the debt finance professionals that our Manager retains to provide services to us for the day-to-day operation of our business.

Uppal, Pinkus and Cooperman are executive officers of our Manager as well as certain other funds managed by our Manager or its affiliates.

Our Manager, our officers and the investment professionals assembled by our Manager will face competing demands relating to their time and this may cause our operations and our investors’ investments to suffer.

We will rely on our Manager, its officers and on the investment professionals that our Manager retains to provide services to us for the day-to-day operation of our business.

Uppal, Pinkus and Cooperman and Ms.

Schwarzschild are executive officers of our Manager as well as certain other funds managed by our Manager or its affiliates.

As a result of their interests in other programs, their obligations to other investors and the fact that they engage in and will continue to engage in other business activities on behalf of themselves and others, Messrs.

Uppal, Pinkus and Cooperman face conflicts of interest in allocating their time between us and other Terra Capital Partners-sponsored programs and other business activities in which they are involved.

Uppal, Pinkus and Cooperman and Ms.

Schwarzschild face conflicts of interest in allocating their time between us and other Terra Capital Partners-sponsored programs and other business activities in which they are involved.

Should our Manager devote insufficient time or resources to our business, our returns on our direct or indirect investments, may decline, which in turn could have a material adverse effect on our results of operations, financial condition and cash flows.

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Our Manager’s entitlement to the base management fee, which is not based upon performance metrics or goals, might reduce its incentive to devote its time and effort to seeking assets that provide attractive risk-adjusted returns for our portfolio.

We would be required to pay the

Manager the base management fee in a particular period even if we experienced a net loss or a decline in the value of our portfolio during that period.

We would be required to pay the Manager the base management fee in a particular period even if we experienced a net loss or a decline in the value of our portfolio during that period.

We cannot predict the amounts of compensation to be paid to the Manager.

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We may not be able to meet our financing obligations and, to the extent that we cannot, we risk the loss of some or all of our assets to liquidation or sale to satisfy such obligations.

Any reduction in our ability to make principal and

interest payments on our debt obligations, including the term loan, the unsecured notes and the revolving line of credit, may have a material adverse effect on our results of operations, financial condition and cash flows.

Any reduction in our ability to make principal and interest payments on our debt obligations, including the term loan, the unsecured notes and the revolving line of credit, may have a material adverse effect on our results of operations, financial condition and cash flows.

Our Manager is authorized to follow broad investment guidelines that have been approved by our Board.

Those investment guidelines, as well as our target assets, investment strategy, financing strategy and hedging policies with respect to investments, originations, acquisitions, growth, operations, indebtedness, capitalization and distributions, may be changed at any time without notice to, or the consent of, our investors.

This could result in a loan portfolio with a different risk profile.

A change in our investment strategy may increase our exposure to interest rate risk, default risk and real estate market fluctuations.

We may make strategic non-real estate-related investments that align with our investment objectives and criteria.

This could result in a portfolio with a different risk profile.

A change in our investment strategy may increase our exposure to risks applicable to other industries.

Furthermore, a change in our asset allocation could result in our making investments in asset categories different from those described herein.

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These restrictive covenants and operating restrictions could have a material adverse effect on our operating results, cause us to lose our REIT status, restrict our ability to finance or securitize new originations and acquisitions, force us to liquidate collateral and negatively affect our financial condition and our ability to pay dividends.

We have received waivers of certain covenants in our debt agreements, but there can be no assurance we will receive similar waivers in the future.

For additional information concerning these waivers, see “ Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition, Liquidity and Capital Resources — Summary of Financing ” included in this Annual Report on Form 10-K.

The breach of any of these covenants, if not cured within any applicable cure period, could result in a default, including a cross-default, and acceleration of certain of our indebtedness.

Accelerating repayment and terminating the agreements will require immediate repayment by us of the borrowed funds, which may require us to liquidate assets at a

disadvantageous time, causing us to incur further losses and adversely affecting our results of operations and financial condition, which may impair our ability to make principal and interest payments on our debt obligations.

Accelerating repayment and terminating the agreements will require immediate repayment by us of the borrowed funds, which may require us to liquidate assets at a disadvantageous time, causing us to incur further losses and adversely affecting our results of operations and financial condition, which may impair our ability to make principal and interest payments on our debt obligations.

Any failure to make payments when due or upon acceleration could result in the foreclosure upon our assets by our lenders.

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General Risk Factors

The effects of the ongoing COVID-19 pandemic, as well as any future pandemics or similar events, and the actions taken in response thereto, may adversely affect our investments and operations.

In March 2020, the World Health Organization publicly characterized the outbreak of COVID-19 as a global pandemic.

The COVID-19 pandemic has caused, and may continue to cause, significant disruptions to the U.S.

and global economy and cause significant volatility and negative pressure in the financial markets.

During the early part of the pandemic, the U.S.

and global economy came under severe pressure due to numerous factors, including measures taken by governing authorities to prevent the spread of COVID-19, such as instituting quarantines, restrictions on travel, school closures, bans on public events and on public gatherings, “shelter in place” or “stay at home” rules, restrictions on types of business that may continue to operate, and/or restrictions on types of construction projects that may continue.

Many of such restrictions have long since been lifted, and the unprecedented global impact of the COVID-19 pandemic appears to have largely subsided.

Nevertheless, the negative impacts of COVID-19 on the U.S.

and global economy were quite severe and recovery is still in progress.

As a result of a significant portion of our investments being in preferred equity of entities that own mezzanine loans and first mortgages secured by office, multifamily and hospitality properties located in the United States, the ongoing COVID-19 pandemic will impact our investments and operating results to the extent that it reduces occupancy, increases the cost of operation or results in limited hours or necessitates the closure of such properties.

COVID-19, or the future outbreak of other highly infectious or contagious diseases, could materially and adversely impact or disrupt our investments, business, financial condition and results of operations.

As a result of a significant portion of our investments being in preferred equity, mezzanine loans and first mortgages secured by office, multifamily and hospitality properties located in the United States, any future local, regional, national or international outbreak of a contagious disease, including COVID-19 and its variants or any other similar diseases, will impact our investments and operating results to the extent that it reduces occupancy, increases the cost of operation or results in limited hours or necessitates the closure of such properties.

The borrowers under the first mortgages, mezzanine loans or preferred equity in which we invest may fail to make timely and required payments under the terms of such instruments.

In addition, quarantines, states of emergencies and other measures taken to curb the spread of the COVID-19 pandemic may negatively impact the ability of such properties to continue to obtain necessary goods and services or provide adequate staffing, which may also adversely affect our investments and operating results.

The world-wide economic downturn resulting from the COVID-19 pandemic could negatively impact our investments and operations, as well as our ability to make distributions to our stockholders and principal and interest payments on our indebtedness.

The extent to which the COVID-19 pandemic impacts our investments and operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the future rate of occurrence or mutation of COVID-19, continuation of or changes in governmental responses to the ongoing COVID-19 pandemic, and the effectiveness of responsive actions taken in the United States and other countries to contain and manage the disease.

Public and private responses to the pandemic may lead to deterioration of economic conditions, an economic downturn or a recession at a global scale, which could materially affect our performance, financial condition, results of operations and cash flows.

Any other pandemics or similar events in the future could also similarly have a material adverse effect on our investments and operations, as well as our ability to make distributions to our stockholders and principal and interest payments on our indebtedness.

In addition, quarantines, states of emergencies and other measures taken to curb the spread of any such future outbreak may negatively impact the ability of such properties to continue to obtain necessary goods and services or provide adequate staffing, which may also adversely affect our investments, business, financial condition and results of operations.

Future recessions, downturns, disruptions or instability could have a materially adverse effect on our results of operations, financial condition and cash flows.

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Deterioration of economic and market conditions in the future could negatively impact credit spreads as well as our ability to obtain financing, particularly from the debt markets, which in turn may have a material adverse effect on our results of operations, financial condition and cash flows.

Disruptions in the financial and banking sectors may adversely impact our access to capital and our cost of borrowing, which could adversely affect us, our business or our results of operations.

Disruptions and uncertainty in the financial and banking sectors, including due to recent regional bank failures and decreased consumer confidence in the banking system, may hinder our ability to access capital on reasonable terms or at all.

and global financial and banking sectors have experienced periods of increased turmoil and volatility in the recent past and may experience similar periods of disruption in the future due to factors beyond our control.

Such periods of increased turmoil and volatility may adversely impact liquidity in the financial markets and make financings less attractive or, in some cases, unavailable.

If our financing counterparties become capital constrained, tighten their lending standards or become insolvent, they may be unable or unwilling to fulfill their commitments to us.

A material disruption to the banking system and financial markets could result in liquidity issues across the sector, which could adversely impact our access to capital and our cost of borrowing and adversely affect us, our business or our results of operations.

Continued concerns over U.S.

fiscal and political policy could, among other things, lead to future downgrades of the U.S.

government’s sovereign credit rating and contribute to a U.S.

economic slowdown, which could have a material adverse effect on our business, financial condition and results of operations.

In recent years, financial markets were affected by significant uncertainty relating to the stability of U.S.

fiscal and political policy.

On August 1, 2023, Fitch Ratings Inc.

downgraded the U.S.

government’s sovereign credit rating to AA+, down one notch from its highest rating of AAA, citing the country’s growing debt obligations, deterioration in governance and political polarization.

Concerns related to political turmoil, federal borrowing and the federal budget deficit have increased the possibility of future credit rating downgrades and economic slowdowns in the U.S.

Any continuing uncertainty, together with the continuing U.S.

debt and budget deficit concerns, could contribute to a U.S.

economic slowdown.

The impact of U.S.

and political uncertainty is inherently unpredictable and could adversely affect U.S.

and global financial markets and economic conditions.

These developments could cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable terms.

Continued adverse economic conditions could have a material adverse effect on our business, financial condition and results of operations.

Cybersecurity risk and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of the security, confidentiality, or integrity of our company, employee, customer or third-party confidential information and/or damage to our reputation or business relationships, any of which could negatively impact our financial results.

Risk of a cyber incident or disruption, particularly through cyber-attacks or cyber intrusions, including by computer hackers, nation-state affiliated actors and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.

The result of these incidents may include disrupted operations, misstated or unreliable financial data, misappropriation of assets, liability for stolen assets or information, increased cybersecurity protection and insurance cost, regulatory enforcement, litigation and damage to our relationships and reputation.

These risks require continuous and likely increasing attention and other resources from us to, among other actions, identify and quantify these risks, upgrade and expand our technological capabilities, systems and processes to adequately address them.

Such attention diverts time and other resources from other activities and there is no assurance that our efforts will be effective.

Potential sources for disruption, damage or failure of our information technology systems include, without limitation, computer viruses, cyber incidents, human error, natural disasters and defects in design.

In addition, we cannot be certain that our existing cyber insurance coverage will continue to be available on acceptable terms or that our insurers will not deny coverage as to all or part of any future claim or loss.

Additionally, we rely on third-party service providers for many aspects of our business.

Notwithstanding our efforts to oversee and mitigate risks associated with our use of third-party service providers, we can provide no assurance that the networks and systems that our third-party vendors have established or use will be effective.

As our reliance on technology has increased, so have the risks posed to both our information systems and those provided by third-party service providers.

We have implemented processes, procedures and internal controls to help mitigate cybersecurity risks and cyber intrusions, but these measures, as well as our increased awareness of the nature and extent of a risk of a cyber incident, do not guarantee that our financial results, operations or confidential information will not be negatively impacted by such an incident.

Further, the SEC has recently adopted rules requiring public companies to disclose material cybersecurity incidents that they experience on a Current Report on Form 8-K within four business days of determining that a material cybersecurity incident has occurred and to disclose on an annual basis material information regarding their cybersecurity risk management, strategy and governance.

These new reporting requirements will become effective for us on June 15, 2024.

If we fail to comply with these new requirements, we could incur regulatory fines and our reputation, business, financial condition and results of operations could be harmed.

Returns on our real estate-related loans may be limited by regulations.

Our loan investments may be subject to regulation by federal, state and local authorities and subject to various laws and judicial and administrative decisions.

We may determine not to make or invest in real estate-related loans in any jurisdiction in

which we believe we have not complied in all material respects with applicable requirements, which reduce the amount of income we would otherwise receive.

Unresolved Staff Comments.

Our administrative and principal executive offices are located at 205 West 28th Street, 12th Floor, New York, New York 10001.

We believe that our office facilities are suitable and adequate for our business as it is presently conducted.

We may determine not to make or invest in real estate-related loans in any jurisdiction in which we believe we have not complied in all material respects with applicable requirements, which reduce the amount of income we would otherwise receive.

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 1A. Risk Factors