UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2017
March 31, 2021
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File NumberNumber: 000-55780
Terra Secured Income Fund 5, LLC
(Exact name of registrant as specified in its charter)
Delaware90-0967526
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
805 Third550 Fifth Avenue, 86th Floor
New York, New York 1002210036
(Address of principal executive offices)

(Zip Code)
(212) 753-5100
(Registrant’s telephone number, including area code)

Securities registered pursuant to section 12(b) of the Securities Exchange Act of 1934:
None
Securities registered pursuant to section 12(g) of the Securities Exchange Act of 1934:
Units of Limited Liability Company Interests

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ þNo þo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☑Smaller reporting company☑
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)
Smaller reporting company þ
Emerging growth companyþ
☑
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. þ☑

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No þ

As of NovemberMay 13, 2017,2021, the registrant had 6,697.56,637.7 units of limited liability company interests outstanding.

No market value has been computed based upon the fact that no active trading market had been established as of the date of this document.



TABLE OF CONTENTS
Page
PART I
Page
PART IItem 1.
Item 1.
Financial Statements
32
43
54
65
86
1413
Item 2.
2523
Item 3.
3836
Item 4.
3837
PART II
3937
Item 1.
3937
Item 1A.
3937
Item 2.
3937
Item 3.
3937
Item 4.
3937
Item 5.
3937
Item 6.
3938
4139






1
2



PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
Terra Secured Income Fund 5, LLC
Consolidated Statements of Financial Condition

March 31, 2021December 31, 2020
(unaudited)
Assets
Equity investment in Terra JV, LLC at fair value (cost of $229,062,384 and
   $230,915,151, respectively)		$233,997,676 $235,357,977 
Cash and cash equivalents135,654 225,214 
Other assets26,330 33,830 
Total assets$234,159,660 $235,617,021 
Liabilities and Members’ Capital
Liabilities
Accounts payable and accrued expenses$222,962 $199,602 
Total liabilities222,962 199,602 
Commitments and contingencies (Note 5)
00
Members’ capital:
Managing member0 0 
Non-managing members233,936,698 235,417,419 
Total members’ capital233,936,698 235,417,419 
Total liabilities and members’ capital$234,159,660 $235,617,021 
Net asset value per unit$35,244 $35,467 

  September 30, 2017 December 31, 2016
  (unaudited)  
Assets    
Equity investment in Terra Property Trust, Inc. at fair value — controlled (cost
   of $277,456,081 and $291,468,567, respectively)
 $277,326,857
 $290,419,317
Cash and cash equivalents 167,784
 41,520
Due from Terra Property Trust, Inc. 25,000
 —
Other assets 4,542
 7,447
Total assets $277,524,183
 $290,468,284
     
Liabilities and Members’ Capital    
Liabilities    
Accounts payable and accrued expenses $189,685
 $441,388
Due to Terra Property Trust, Inc. —
 438,249
Other liabilities 21,697
 —
Distributions payable —
 2,243
Total liabilities 211,382
 881,880
Commitments and contingencies (Note 6)
 
 
Members’ capital:    
Managing member —
 —
Non-managing members 277,312,801
 289,586,404
Total members’ capital 277,312,801
 289,586,404
Total liabilities and members’ capital $277,524,183
 $290,468,284

See notes to consolidatedunaudited financial statements.
    

2

3




Terra Secured Income Fund 5, LLC
Consolidated Statements of Operations
(Unaudited)

Three Months Ended March 31,
Three Months Ended September 30, Nine Months Ended September 30, 20212020
2017 2016 2017 2016
Investment income — controlled       
Investment incomeInvestment income
Dividend income$4,448,792
 $9,824,336
 $15,703,171
 $25,042,346
Dividend income$1,126,895 $1,264,438 
Investment income       
Other operating income111
 614
 1,064
 8,571
Other operating income20 144 
Total investment income4,448,903
 9,824,950
 15,704,235
 25,050,917
Total investment income1,126,915 1,264,582 
Operating expenses       Operating expenses
Professional fees104,100
 269,635
 431,465
 549,211
Professional fees120,135 174,099 
Merger transaction fees—
 —
 —
 388,692
Other3,448
 (38,342) 35,761
 52,954
Other385 1,449 
Total operating expenses107,548
 231,293
 467,226
 990,857
Total operating expenses120,520 175,548 
Net investment income4,341,355
 9,593,657
 15,237,009
 24,060,060
Net investment income1,006,395 1,089,034 
Net change in unrealized depreciation on
investment — controlled		428,032
 (730,673) 920,026
 (1,400,694)
Net increase in members’ capital resulting
from operations		$4,769,387
 $8,862,984
 $16,157,035
 $22,659,366
Net change in unrealized appreciation (depreciation) on investmentNet change in unrealized appreciation (depreciation) on investment492,466 (2,286,298)
Net increase (decrease) in members’ capital resulting from operationsNet increase (decrease) in members’ capital resulting from operations$1,498,861 $(1,197,264)
Per unit data:Per unit data:
Net investment income per unitNet investment income per unit$152 $164 
Net increase (decrease) in members’ capital resulting from operations per unitNet increase (decrease) in members’ capital resulting from operations per unit$226 $(180)
Weighted average units outstandingWeighted average units outstanding6,638 6,638 




See notes to consolidatedunaudited financial statements.


statements.

3
4



Terra Secured Income Fund 5, LLC
Consolidated Statements of Changes in Members’ Capital
(Unaudited)
Nine Months Ended September 30, 2017 and 2016
Managing
Member		Non-Managing MembersTotal
Balance, January 1, 20210 $235,417,419 $235,417,419 
Capital distributions0 (2,979,582)(2,979,582)
Increase in members’ capital resulting from operations:
Net investment income0 1,006,395 1,006,395 
Net change in unrealized appreciation on investment0 492,466 492,466 
Net increase in members’ capital resulting from operations0 1,498,861 1,498,861 
Balance, March 31, 2021$0 $233,936,698 $233,936,698 


Managing
Member		Non-Managing MembersTotal
Balance, January 1, 20200 $247,066,913 $247,066,913 
Capital distributions0 (7,467,271)(7,467,271)
Increase in members’ capital resulting from operations:
Net investment income0 1,089,0341,089,034 
Net change in unrealized depreciation on investment0 (2,286,298)(2,286,298)
Net decrease in members’ capital resulting from operations0 (1,197,264)(1,197,264)
Balance, March 31, 2020$0 $238,402,378 $238,402,378 
 Managing
Member		 Non-Managing Members Total
Balance, January 1, 2017$—
 $289,586,404
 $289,586,404
Capital distributions—
 (23,127,464) (23,127,464)
Capital redemptions—
 (5,303,174) (5,303,174)
Increase in members’ capital resulting from operations:     
Net investment income—
 15,237,009
 15,237,009
Net change in unrealized depreciation on investment—
 920,026
 920,026
Net increase in members’ capital resulting from operations—
 16,157,035
 16,157,035
Balance, September 30, 2017$—
 $277,312,801
 $277,312,801


 Managing
Member		 Non-Managing Members Total
Balance, January 1, 2016$—
 $122,208,698
 $122,208,698
Capital contributions from Merger—
 155,751,516
 155,751,516
Capital contributions, net of selling commissions and dealer
   manager fees of $1,277,916
—
 25,598,261
 25,598,261
Capital distributions—
 (22,949,286) (22,949,286)
Capital redemptions—
 (6,771,430) (6,771,430)
Increase in members’ capital resulting from operations:    
Net investment income—
 24,060,060
 24,060,060
Net change in unrealized depreciation on investment—
 (1,400,694) (1,400,694)
Net increase in members’ capital resulting from operations—
 22,659,366
 22,659,366
Balance, September 30, 2016$—
 $296,497,125
 $296,497,125


See notes to consolidatedunaudited financial statements.



4
5



Terra Secured Income Fund 5, LLC
Consolidated Statements of Cash Flows
(Unaudited)

Three Months Ended March 31,
20212020
Cash flows from operating activities:
Net increase (decrease) in members’ capital resulting from operations$1,498,861 $(1,197,264)
Adjustments to reconcile net increase (decrease) in members’ capital resulting
   from operations to net cash provided by operating activities:
Return of capital on investment1,852,767 6,562,736 
Net change in unrealized (appreciation) depreciation on investment(492,466)2,286,298 
Changes in operating assets and liabilities:
Decrease (increase) in other assets7,500 (4,873)
Increase in accounts payable and accrued expenses23,360 68,885 
Decrease in due to related party0 (38,000)
Net cash provided by operating activities2,890,022 7,677,782 
Cash flows from financing activities:
Distributions paid(2,979,582)(7,467,271)
Net cash used in financing activities(2,979,582)(7,467,271)
Net (decrease) increase in cash and cash equivalents(89,560)210,511 
Cash and cash equivalents at beginning of period225,214 97,937 
Cash and cash equivalents at end of period$135,654 $308,448 
Supplemental Non-Cash Disclosure:
Transfer of ownership interest in Terra Property Trust, Inc. to
   Terra JV, LLC (Note 3)
$0 $244,006,890 



See notes to unaudited financial statements.
5
 Nine Months Ended September 30,
 2017 2016
Cash flows from operating activities:   
Net increase in members’ capital resulting from operations$16,157,035
 $22,659,366
Adjustments to reconcile net increase in members’ capital resulting from
   operations to net cash provided by operating activities:
   
Purchase of common stock of Terra Property Trust, Inc.—
 (10,000,000)
Cash transferred to Terra Property Trust, Inc.—
 (5,034,571)
Return of capital on investment14,012,486
 315,730
Net change in unrealized depreciation on investment(920,026) 1,400,694
    
Changes in operating assets and liabilities:   
Interest receivable—
 351,883
Other assets898
 (129,397)
Due to Manager—
 (705,389)
Accounts payable and accrued expenses(251,702) (5,339,803)
Due to Terra Property Trust, Inc.(463,249) —
Taxes payable—
 (621,177)
Interest payable—
 (172,051)
Net cash provided by operating activities28,535,442
 2,725,285
    
Cash flows from financing activities:   
Proceeds from capital contributions, net of selling commissions and dealer
   manager fees
—
 25,598,261
Distributions paid(23,129,410) (22,949,286)
Payments for capital redemptions(5,279,768) (10,198,413)
Cash acquired in the Merger—
 3,480,981
Net cash used in financing activities(28,409,178) (4,068,457)
    
Net increase (decrease) in cash and cash equivalents126,264
 (1,343,172)
Cash and cash equivalents at beginning of period41,520
 1,862,798
Cash and cash equivalents at end of period$167,784
 $519,626
    
Supplemental Disclosure of Cash Flows Information:   
Cash paid for income taxes$—
 $681,033
Cash paid for interest$—
 $—



6



Terra Secured Income Fund 5, LLC
Consolidated StatementsSchedule of Cash FlowsInvestment
March 31, 2021 (unaudited) (Continued)and December 31, 2020


Supplemental Non-Cash Investing and Financing Activities:
In December 2015, the members approved the merger of Terra Secured Income Fund, LLC (“Terra Fund 1”), Terra Secured Income Fund 2, LLC (“Terra Fund 2”), Terra Secured Income Fund 3, LLC (“Terra Fund 3”) and Terra Secured Income Fund 4, LLC (“Terra Fund 4”) with and into subsidiaries of the Company (individually, each a “Terra Fund” and collectively, the “Terra Funds”) through a series of separate mergers effectiveOn January 1, 2016, (collectively, the “Merger”). The following table summarizes the fair values of the assets acquired and liabilities assumed in the Merger:
Total Consideration:  
Fair value of units issued $155,751,516
  155,751,516
Assets Acquired at Fair Value  
Investments, at fair value 142,768,001
Investments through participation interests, at fair value 7,771,619
Equity investment in Terra Park Green Member, LLC, at fair value 16,900,000
Restricted cash 7,119,078
Interest receivable 1,412,840
Other assets 35,695
Liabilities Assumed at Fair Value  
Obligations under participation agreements (8,154,822)
Interest reserve and other deposits held on loans (7,119,078)
Accounts payable and accrued expenses (3,113,022)
Redemption liability (3,426,983)
Due to Manager (1,343,020)
Taxes payable (232,040)
Interest payable (80,807)
Other liabilities (266,926)
Net assets acquired excluding cash 152,270,535
Cash acquired in the Merger $3,480,981
Following the Merger, the Company, contributed the consolidated portfoliothen parent of net assets of the five Terra Funds to Terra Property Trust, Inc. (“Terra Property Trust”), contributed its consolidated portfolio of net assets to Terra Property Trust pursuant to a newly-formed and wholly-owned subsidiarycontribution agreement in exchange for shares of Terra Property Trust’s common stock, par value $0.01 per share. Upon receipt of the contribution of the consolidated portfolio of net assets from the Company, Terra Property Trust commenced its operations on January 1, 2016. As discussed in Note 4, on March 2, 2020, Terra Property Trust engaged in a series of transactions pursuant to which Terra Property Trust issued an aggregate of 4,574,470.35 shares of its common stock in exchange for the commonsettlement of an aggregate of $49.8 million of participation interests in loans that Terra Property Trust owned, cash of $25.5 million and other working capital. As of both March 31, 2021 and December 31, 2020, Terra JV, LLC (“Terra JV”) held 87.4% of the issued and outstanding shares of Terra Property Trust. The following table summarizesTrust’s common stock with the fair values ofremainder held by Terra Offshore Funds REIT, LLC (“Terra Offshore REIT”), and the net assets contributed to Terra Property Trust:
Total Consideration:  
Fair value of common stock of Terra Property Trust received $288,259,804
  288,259,804
Assets Contributed at Fair Value  
Investments, at fair value 276,746,475
Investments through participation interests, at fair value 13,789,884
Equity investment in Terra Park Green Member, LLC, at fair value 16,900,000
Restricted cash 21,421,501
Interest receivable 2,382,546
Due from related parties 438,249
Other assets 35,695
Liabilities Transferred at Fair Value  
Obligations under participation agreements (24,147,097)
Interest reserve and other deposits held on loans (21,421,501)
Due to Manager (2,011,003)
Other liabilities (909,516)
Net assets transferred excluding cash 283,225,233
Cash transferred to Terra Property Trust $5,034,571

See notes to consolidated financial statements.


7


Company and Terra Secured Income Fund 5,7, LLC
Consolidated Schedule (“Terra Fund 7”) owned an 87.6% and 12.4% percentage interest, respectively, in Terra JV. Accordingly, as of Investments
September 30, 2017 (unaudited)both March 31, 2021 and December 31, 20162020, the Company indirectly beneficially owned 76.5% of the outstanding shares of common stock of Terra Property Trust through Terra JV.


    The following table presents a summary of the Company’s investment as of March 31, 2021 and December 31, 2020:
Percentage InterestMarch 31, 2021December 31, 2020
InvestmentDate AcquiredCostFair Value% of Members’ CapitalCostFair Value% of Members’ Capital
Terra JV, LLC3/2/202087.6 %$229,062,384 $233,997,676 100.0 %$230,915,151 $235,357,977 100.0 %

As of September 30, 2017both March 31, 2021 and December 31, 2016,2020, the Company’s only investment is its equity interest in a wholly-owned subsidiaryCompany indirectly beneficially owned 76.5% of the outstanding shares of common stock of Terra Property Trust. Additionally, as presented below:of both March 31, 2021 and December 31, 2020, Terra JV was jointly-controlled by the Company and Terra Fund 7.

    Number of Shares of Common Stock September 30, 2017 December 31, 2016
Investment — Controlled Date Acquired  Cost Fair Value % of Net Assets Cost Fair Value % of Net Assets
Terra Property Trust, Inc. — 100% Owned 1/1/2016 and 3/7/2016 14,912,990
 $277,456,081
 $277,326,857
 100.1% $291,468,567
 $290,419,317
 100.3%

The following table presents a schedule of loans held for investment by Terra Property Trust at 100% and the Company’s wholly-owned subsidiary, aspro-rata share of September 30, 2017:the fair value at March 31, 2021:
Portfolio CompanyCollateral LocationProperty
Type		Coupon
Rate		Current Interest RateExit FeeAcquisition DateMaturity
Date		Principal AmountAmortized
Cost
Fair
Value (1)
Pro Rata
Fair Value (2)
% (3)
Loans held for investment:
Mezzanine loans:
150 Blackstone River Road, LLCUS - MAIndustrial8.5 %8.5 %0 %9/21/20179/6/2027$7,000,000 $7,000,000 $6,995,064 $5,351,224 2.3 %
Austin H. I. Owner LLC (4)
US - TXHotel - full/
   select service		12.5 %12.5 %1.0 %9/30/201510/6/20203,890,140 3,929,042 3,637,281 2,782,520 1.2 %
High Pointe Mezzanine Investments, LLC (5)
US - SCStudent housing13.0 %13.0 %1.0 %12/27/20131/6/20243,000,000 3,189,700 2,986,866 2,284,952 1.0 %
LD Milipitas Mezz, LLC (6)
US - CAHotel - extended
   stay		LIBOR +10.25% (2.75% Floor)13.0 %1.0 %6/27/20186/27/20214,250,000 4,292,148 4,292,450 3,283,724 1.4 %
Stonewall Station Mezz LLC (5)(7)(8)
US - NCInfill land12.0% current
2.0% PIK		14.0 %1.0 %5/31/20185/20/202110,669,168 10,768,255 10,789,750 8,254,159 3.5 %
28,809,308 29,179,145 28,701,411 21,956,579 9.4 %

See notes to unaudited financial statements.

Collateral LocationPortfolio CompanyStructureProperty
Type		Coupon
Rate		Acquisition Date
Maturity
Date
Principal Amount
Amortized
Cost
Fair
Value (1)
% of Net
 Assets (2)
 Loans held for investment — non-controlled:        
US - ALASA Mgt. Holdings, LLCPreferred equity investmentMultifamily16.0%4/7/20128/1/2022$2,100,000
$2,141,204
$2,124,927
0.8%
 SVA Mgt. Holdings, LLCPreferred equity investmentMultifamily16.0%4/7/20128/1/20221,600,000
1,633,817
1,619,625
0.6%
 Total US - AL     3,700,000
3,775,021
3,744,552
1.4%
US - CAPalmer City-Core Stockton Street, LLCPreferred equity investmentHotel12.0%1/17/201412/17/20174,325,000
4,368,250
4,367,145
1.6%
 Maguire Partners-1733 Ocean, LLCFirst mortgageOfficeLIBOR+8.5%
3/7/20163/9/201852,986,912
53,494,280
53,637,569
19.3%
 
L.A. Warner Hotel Partners, LLC (3)(4)(5)
Preferred equity investmentHotel12.0%7/25/20148/4/201832,100,000
32,669,975
32,417,458
11.7%
 
TSG-Parcel 1, LLC (3)(5)(6)(7)
First mortgageLand12.0%7/10/201510/10/201718,000,000
18,180,000
18,174,048
6.6%
 
SparQ Mezz Borrower, LLC (8)
Mezzanine loanMultifamily12.0%9/29/201710/1/2020—
—
—
—%
 Total US - CA     107,411,912
108,712,505
108,596,220
39.2%
US - DE
BPG Office Partners III/IV LLC (3)(4)(5)
Mezzanine loanOffice13.5%6/5/20156/5/201810,000,000
10,091,154
10,096,628
3.6%
US - FL
1100 Biscayne Management
   Holdco, LLC (3)(5)(7)
Mezzanine loanHotel12.0% current
3.0% PIK
4/24/201510/9/201715,809,601
15,954,054
15,952,786
5.8%
 
37 Gables Member LLC (4)(5) 
Mezzanine loanMultifamily13.0%6/16/20166/16/20195,750,000
5,795,947
5,800,317
2.1%
 
Greystone Gables Holdings Member
   LLC (4)(5)
Preferred equity investmentMultifamily13.0%6/16/20166/16/2019500,000
503,995
504,375
0.2%
 
RS JZ 2700 NW2, LLC (3)(5)
First mortgageLand12.0%9/1/201612/1/201721,360,000
21,569,263
21,575,419
7.8%
 Total US - FL     43,419,601
43,823,259
43,832,897
15.9%
US - GAYMP Georgia Portfolio Mezzanine, LLCMezzanine loanMultifamily14.0%12/19/20131/6/20194,250,000
4,487,398
4,286,112
1.5%
 
OHM Atlanta Owner, LLC (5)(6)(9)
First mortgageLand12.0%6/20/20176/20/201824,500,000
24,724,490
24,724,490
8.9%
 Total US - GA     28,750,000
29,211,888
29,010,602
10.4%
US - INMuncie Mezz, LLCMezzanine loanStudent
housing		13.0%8/29/20139/6/20232,700,000
2,688,171
3,059,033
1.1%
US - MA150 Blackstone River Road, LLCMezzanine loanIndustrial8.5%9/21/20179/6/20277,000,000
7,000,000
7,000,000
2.5%
US - NC
Milestone Greensboro Holdings,
   LLC (4)(5)
Mezzanine loanHotel14.0%3/1/20133/1/20183,500,000
3,540,614
3,534,591
1.3%



8



Terra Secured Income Fund 5, LLC
Consolidated Schedule of InvestmentsInvestment (Continued)
September 30, 2017March 31, 2021 (unaudited) and December 31, 20162020


Terra Property TrustTrust’s Schedule of Loans Held for Investment as of September 30, 2017March 31, 2021 (Continued):
Portfolio CompanyCollateral LocationProperty
Type		Coupon
Rate		Current Interest RateExit FeeAcquisition DateMaturity
Date		Principal AmountAmortized
Cost
Fair
Value (1)
Pro Rata
Fair Value (2)
% (3)
Loans held for investment:
Preferred equity investments:
370 Lex Part Deux, LLC (7)(8)
US - NYOfficeLIBOR + 8.25% (2.44% Floor)10.7 %0 %12/17/20181/9/2022$55,327,153 $55,355,545 $53,455,746 $40,893,646 17.5 %
Orange Grove Property Investors, LLC (7)(8)
US - CAMultifamilyLIBOR + 8.0% (4.0% Floor)12.0 %1.0 %5/24/20186/1/202110,600,000 10,703,482 10,703,776 8,188,389 3.5 %
REEC Harlem Holdings Company, LLC (9)
US - NYMixed useLIBOR + 12.5% (no Floor)12.6 %0 %3/9/20183/9/202316,512,842 16,512,842 13,817,239 10,570,188 4.5 %
RS JZ Driggs, LLC (7)(8)(10)
US - NYMultifamily12.3 %12.3 %1.0 %5/1/20181/1/20218,981,615 9,071,429 9,026,292 6,905,113 3.0 %
The Bristol at Southport, LLC (7)(11)
US - WAMultifamily12.0 %12.0 %1.0 %9/22/20179/22/202223,500,000 23,688,144 23,664,725 18,103,515 7.7 %
114,921,610 115,331,442 110,667,778 84,660,851 36.2 %
First mortgages:
14th & Alice Street Owner, LLC (7)(11)
US - CAMultifamilyLIBOR + 5.75% (3.25% Floor)9.0 %0.5 %3/5/20193/5/202236,558,763 36,837,952 36,537,911 27,951,502 11.9 %
1389 Peachtree St, LP; 1401 Peachtree St, LP;
   1409 Peachtree St, LP (12)
US - GAOfficeLIBOR + 4.5% (no Floor)4.6 %0.5 %2/22/20192/10/202251,649,149 51,917,594 51,814,815 39,638,333 16.9 %
330 Tryon DE LLC (12)
US - NCOfficeLIBOR + 3.85% (2.51% Floor)6.4 %0.5 %2/7/20193/1/202222,800,000 22,903,897 22,892,124 17,512,475 7.5 %
870 Santa Cruz, LLCUS - CAOfficeLIBOR + 6.75% (0.5% Floor)7.3 %1.0 %12/15/202012/15/202311,867,818 11,863,875 11,979,443 9,164,274 3.9 %
AGRE DCP Palm Springs, LLC (12)(13)
US - CAHotel - full/
   select service		LIBOR +5.0% (1.80% Floor)6.8 %1.5 %12/12/20191/1/202443,222,382 43,775,181 43,864,855 33,556,614 14.4 %
MSC Fields Peachtree Retreat, LLC (12)
US - GAMultifamilyLIBOR + 3.85% (2.0% Floor)5.9 %0.5 %3/15/20194/1/202223,308,334 23,434,926 23,421,439 17,917,401 7.7 %
Patrick Henry Recovery Acquisition, LLC (12)
US - CAOfficeLIBOR + 2.95% (1.5% Floor)4.5 %0.3 %11/25/201912/1/202318,000,000 18,039,903 18,030,565 13,793,382 5.9 %
University Park Berkeley, LLC (12)(14)
US - CAMultifamilyLIBOR + 4.2% (1.50% Floor)5.7 %0.8 %2/27/20203/1/202324,709,132 24,863,082 24,877,473 19,031,267 8.1 %
Windy Hill PV Five CM, LLC (15)
US - CAOfficeLIBOR + 6.0% (2.05% Floor)8.1 %0.5 %9/20/20199/20/202231,883,812 31,936,652 30,679,466 23,469,791 10.0 %
263,999,390 265,573,062 264,098,091 202,035,039 86.3 %
Total gross loans held for investment407,730,308 410,083,649 403,467,280 308,652,469 131.9 %
Obligations under participation agreements and secured borrowing (7)(8)(11)(15)
(93,310,285)(93,596,454)(91,599,071)(70,073,289)(30.0)%
Allowance for loan losses— (4,014,778)— — — %
Net loans held for investment$314,420,023 $312,472,417 $311,868,209 $238,579,180 101.9 %
Collateral LocationPortfolio CompanyStructureProperty
Type		Coupon
Rate		Acquisition Date
Maturity
Date
Principal Amount
Amortized
Cost
Fair
Value (1)
% of Net
 Assets (2)
 Loans held for investment — non-controlled:        
US - NY
Cape Church Mezz, LLC (3)(4)(5)
Mezzanine loanMultifamily12.0%3/15/20167/15/2019$16,663,302
$16,797,445
$16,730,367
6.0 %
 
140 Schermerhorn Street Mezz LLC (5)(6)
Mezzanine loanHotel12.0%11/16/201612/1/201915,000,000
15,115,355
15,130,717
5.5 %
 575 CAD I LLCMezzanine loanLand12.0% current
2.5% PIK
1/31/20178/1/20199,280,360
9,350,309
9,352,034
3.4 %
 WWML96MEZZ, LLCMezzanine loanMultifamily13.0%12/18/201512/31/20187,687,862
7,753,121
7,767,565
2.8 %
 WWML96, LLCPreferred equity investmentMultifamily13.0%12/18/201512/31/20181,438,384
1,450,594
1,447,064
0.5 %
 Total US - NY     50,069,908
50,466,824
50,427,747
18.2 %
US - OR
Pollin Hotels PDX Mezzanine, LLC (4)(5)
Mezzanine loanHotel13.0%9/23/201310/6/20185,000,000
5,225,052
5,240,101
1.9 %
US - PA
Millennium Waterfront Associates,
   L.P.
First mortgageLand12.0%7/2/201512/29/201714,150,000
14,291,500
14,290,080
5.2 %
US - SC
High Pointe Mezzanine Investments,
   LLC (4)(5)
Mezzanine loanStudent
housing		13.0%12/27/20131/6/20243,000,000
3,396,889
3,428,790
1.2 %
US - TN
Kingsport 925-Mezz LLC (4)(5)
Mezzanine loanMultifamily13.0%1/6/201412/5/20183,000,000
3,138,451
3,120,351
1.1 %
US - TX
Northland Museo Member, LLC (4)(5)
Mezzanine loanMultifamily12.0%11/22/201312/6/20184,000,000
3,967,600
4,072,570
1.5 %
 
Austin H. I. Owner LLC (3)(5)
Mezzanine loanHotel12.5%9/30/201510/6/20203,500,000
3,523,928
3,539,140
1.3 %
 AHF-Heritage #1, LLCMezzanine loanMultifamily14.0%7/30/20128/11/20222,689,038
2,919,386
2,729,307
1.0 %
 Total US - TX     10,189,038
10,410,914
10,341,017
3.8 %
US - UT
NB Factory JV, LLC (5)(6)
Preferred equity
   investment
Student
   housing
15.0%6/29/20176/26/20203,595,670
3,595,670
3,595,670
1.2 %
US - WA
The Bristol at Southport, LLC (5)(9)
Preferred equity
   investment
Multifamily10.0% current
2.0% PIK
9/22/201710/1/202222,500,000
22,623,164
22,685,693
8.2 %
US - Various
Nelson Brothers Professional Real
   Estate, LLC (7)
FacilityVarious15.0%8/31/20161/27/20188,000,000
8,080,000
8,078,999
2.9 %
 Total loans held for investment — non-controlled:    325,986,129
330,071,076
330,082,971
119.1 %
           
 
Loan held for investment through participation interest — non-controlled (10):
       
US - PA
KOP Hotel XXXI Mezz LP (3)(5)
Participation in
mezzanine loan		Hotel13.0%11/24/201512/6/20221,800,000
1,804,562
1,820,502
0.7 %
 Total loan held for investment through participation interest — non-controlled   1,800,000
1,804,562
1,820,502
0.7 %
           
 Total gross loans held for investment     327,786,129
331,875,638
331,903,473
119.7 %
 
Obligations under participation agreements (3)(4)(6)(9)(10)
    (70,020,950)(70,992,661)(70,910,091)(25.6)%
 Net loans held for investment     $257,765,179
$260,882,977
$260,993,382
94.1 %



See notes to unaudited financial statements.

7
9



Terra Secured Income Fund 5, LLC
Consolidated Schedule of InvestmentsInvestment (Continued)
September 30, 2017March 31, 2021 (unaudited) and December 31, 20162020


Terra Property Trust’s Schedule of Loans Held for Investment as of March 31, 2021 (Continued):
___________________________
(1)Because there is no readily available market for these loans, the fair values of these loans are approved in good faith by Terra Income Advisors, LLC (the “Manager”) pursuant to Terra Property Trust’s valuation policy.
(2)Percentages are based on the fair value of the Company’s investment in Terra Property Trust of $277.3 million as of September 30, 2017.
(3)Terra Property Trust sold a portion of its interests in these loans via participation agreements to Terra Secured Income Fund 5 International, an affiliated fund advised by the Manager.
(4)Terra Property Trust sold a portion of its interests in these loans via participation agreements to Terra Income Fund International, an affiliated fund advised by the Manager.
(5)
The loan participations from Terra Property Trust do not qualify for sale accounting under Accounting Standards Codification (“ASC”) Topic 860, Transfers and Servicing, and therefore, the gross amount of these loans remain in the Consolidated Schedule of Loans Held for Investments.
(6)Terra Property Trust sold a portion of its interest in this loan through a participation agreement to Terra Income Fund 6, Inc., an affiliated fund advised by the Manager.
(7)The maturity date of this loan was extended subsequent to September 30, 2017.
(8)On September 29, 2017, Terra Property Trust entered into agreement with the borrower to provide funding commitment of up to $8.7 million. As of September 30, 2017, none of the commitment has been funded.
(9)Terra Property Trust sold a portion of its interest in this loan through a participation agreement to Terra Property Trust 2, Inc., an affiliated fund managed by a subsidiary of the Manager.
(10)Terra Property Trust purchased its interest in this loan from Terra Income Fund 6, Inc. through a participation agreement.

Operating real estate:
DescriptionAcquisition Date
Fair Value of Real Estate (1)
EncumbranceNet Investment
Pro Rata Net Investment (2)
% (3)(18)

Multi-tenant office building in Santa Monica, CA (16)
7/30/2018$57,321,799 $40,596,980 $16,724,819 $12,794,487 5.5 %
Land in Conshohocken, PA (17)
1/9/201913,395,430 0 13,395,430 10,247,504 4.4 %
$70,717,229 $40,596,980 $30,120,249 $23,041,991 9.9 %
Portfolio CompanyDividend YieldAcquisition DateMaturity DateSharesCostFair Value
Pro Rata
Fair Value (2)
% (3)
Marketable securities (19):
Common and preferred shares:
Nexpoint Real Estate Finance, Inc. - Cumulative
   Series A Preferred Shares		8.5 %7/30/20207/24/202550,000 $1,176,006 $1,305,000 $998,325 0.4 %
Blackstone Mortgage Trust, Inc. - Class A
   common shares		7.6 %3/11/2021N/A110,1003,489,396 3,413,100 2,611,022 1.1 %
Starwood Property Trust, Inc. - Common Shares7.6 %3/11/2021N/A62,0001,489,692 1,533,880 1,173,418 0.5 %
Total marketable securities$6,155,094 $6,251,980 $4,782,765 2.00 %
__________________________

(1)Because there is no readily available market for these loans, these loans were valued using significant unobservable inputs under Level 3 of the fair value hierarchy and were approved in good faith by Terra REIT Advisors, LLC (“Terra REIT Advisors”), Terra Property Trust’s manager, pursuant to Terra Property Trust’s valuation policy.
(2)Amount represents the Company’s portion, or 76.5%, of the fair value or net investment value.
(3)Percentage is based on the Company’s pro rata share of the fair value or net investment value over the Company’s total members’ capital of $233.9 million at March 31, 2021.
(4)This loan is currently in maturity default. Terra Property Trust is currently evaluating the options of recovering the principal amount, including foreclosing on the collateral. For the three months ended March 31, 2021, Terra Property Trust suspended interest income accrual of $0.1 million on this loan because recovery of such income was doubtful.
(5)Terra Property Trust entered into a forbearance agreement with the borrower to allow for more time to make the interest payment.
(6)On June 27, 2018, Terra Property Trust entered into a participation agreement with Terra Income Fund 6, Inc. to purchase a 25% interest, or $4.3 million, in a mezzanine loan.
(7)The loan participations from Terra Property Trust do not qualify for sale accounting and therefore, the gross amount of these loans remain in Terra Property Trust’s consolidated balance sheets.
(8)Terra Property Trust sold a portion of its interest in this loan through a participation agreement to Terra Income Fund 6, Inc., an affiliated fund advised by Terra Income Advisors, an affiliate of our sponsor and Terra Property Trust’s manager.

8
10



(9)For the three months ended March 31, 2021, Terra Property Trust suspended interest income accrual of $0.5 million on this loan because recovery of such income was doubtful.
(10)This loan is currently in maturity default. Terra Property Trust has exercised its rights and is facilitating the completion of construction of the asset in anticipation of lease up and disposition of the asset.
(11)Terra Property Trust sold a portion of its interest in this loan via a participation agreement to a third-party.
(12)These loans were used as collateral for $106.5 million of borrowings under a term loan payable.
(13)In March 2021, Terra Property Trust amended the loan agreement to change the spread on the interest rate to 5.0%, increased the exit fee to 1.5% and extended the maturity to January 1, 2024. Additionally, under the loan amendment, the borrower made a partial repayment of $2.6 million.
(14)In December 2020, Terra Property Trust entered into a forbearance agreement with the borrower pursuant to which interest accrues on the loan during the 90-day forbearance period from November 2020 to January 2021. In March 2021, the forbearance period was extended through August 2021.
(15)In March 2020, Terra Property Trust entered into a financing transaction where a third-party purchased an A-note position. Because the transaction does not qualify for sale accounting, the gross amount of the loan remains in the consolidated balance sheets. The liability is reflected as secured borrowing in Terra Property Trust’s consolidated balance sheets.
(16)Terra Property Trust acquired this property through foreclosure of a $54.0 million first mortgage.
(17)Terra Property Trust acquired the collateral for this loan via deed in lieu of foreclosure. The land is currently vacant.
(18)Percentage is based on Terra Property Trust’s net exposure on the property (real estate owned less encumbrance).
(19)From time to time, Terra Property Trust might invest in short-term debt and equity securities. These securities are comprised of shares of common and preferred stock and bonds.






See notes to unaudited financial statements.
9

Terra Secured Income Fund 5, LLC
Consolidated Schedule of InvestmentsInvestment (Continued)
September 30, 2017March 31, 2021 (unaudited) and December 31, 20162020
    
The following table presents a schedule of loans held for investment held by Terra Property Trust as of December 31, 2016:
2020:
Collateral LocationPortfolio CompanyStructureProperty
Type		Coupon
Rate		Acquisition Date
Maturity
Date
Principal Amount
Amortized
Cost
Fair
Value (1)
% of Net
 Assets (2)
 Loans held for investment — non-controlled:        
US - ALASA Mgt. Holdings, LLCPreferred equity investmentMultifamily15.0%4/7/20128/1/2022$2,100,000
$2,145,498
$2,120,737
0.7%
 SVA Mgt. Holdings, LLCPreferred equity investmentMultifamily15.0%4/7/20128/1/20221,600,000
1,637,463
1,615,800
0.6%
 Total US - AL     3,700,000
3,782,961
3,736,537
1.3%
US - CAPalmer City-Core Stockton Street, LLCPreferred equity investmentHotel12.0%1/17/201412/17/20174,325,000
4,368,250
4,369,096
1.5%
 
Encino Courtyard Mezzanine, LLC (3)
Mezzanine loanRetail13.5%12/19/20121/6/20232,500,000
2,609,852
2,529,828
0.9%
 Maguire Partners-1733 Ocean, LLCFirst mortgageOfficeLIBOR+8.5%
3/7/20163/9/201850,450,061
50,902,766
50,924,056
17.4%
 
L.A. Warner Hotel Partners, LLC (4)(5)
Preferred equity investmentHotel13.3%7/25/20148/4/201720,000,000
20,579,513
20,201,344
7.0%
 
SD Carmel Hotel Partners, LLC (3)(4)(5)
Preferred equity investmentHotel12.0%3/13/20151/31/20176,000,000
6,059,398
6,059,398
2.1%
 
TSG-Parcel 1, LLC (4)(5)(6)
First mortgageLand12.0%7/10/20154/10/201718,000,000
18,180,000
18,178,193
6.3%
 Total US - CA     101,275,061
102,699,779
102,261,915
35.2%
US - DE
BPG Office Partners III/IV LLC (4)(5)
Mezzanine loanOffice13.0%6/5/20156/5/201810,000,000
10,082,308
10,123,340
3.5%
US - FLBeach Resort Management, LLCMezzanine loanHotel13.0%7/16/20128/1/20174,500,000
4,518,850
4,517,228
1.6%
 
CGI Mezz 55MM, LLC (3)(4)(5)
Mezzanine loanMixed use12.0% current
2.0% PIK
8/21/20149/6/20193,593,947
3,619,217
3,610,816
1.2%
 
1100 Biscayne Management
   Holdco, LLC (4)(5)
Mezzanine loanHotel12.0% current
3.0% PIK
4/24/201510/9/201715,359,671
15,488,644
15,257,412
5.2%
 
Caton Mezz, LLC (3)(4)(5)
Mezzanine loanOffice12.0% current
2.0% PIK
7/27/20151/27/20175,160,404
5,210,404
5,189,222
1.8%
 37 Gables Member LLCMezzanine loanMultifamily13.0%6/16/20166/16/20195,750,000
5,791,644
5,797,477
2.0%
 Greystone Gables Holdings Member LLCPreferred equity investmentMultifamily13.0%6/16/20166/16/2019500,000
503,621
504,128
0.2%
 RS JZ 2700 NW2, LLCFirst mortgageLand12.0%9/1/201612/1/201719,620,000
19,795,534
19,800,927
6.8%
 Total US - FL     54,484,022
54,927,914
54,677,210
18.8%
US - GAYMP Georgia Portfolio Mezzanine, LLCMezzanine loanMultifamily14.0%12/19/20131/6/20194,250,000
4,604,941
4,387,683
1.5%
US - INMuncie Mezz, LLCMezzanine loanStudent
housing		13.0%8/29/20139/6/20232,700,000
2,683,938
3,039,674
1.0%
US - MA
Phoenix CR 2012A, LLC, Phoenix CR
   2012B, LLC, & Phoenix CR 2012C,
   LLC
Mezzanine loanMultifamily12.0%7/27/20128/11/20224,000,000
4,112,275
4,071,618
1.4%
Portfolio CompanyCollateral LocationProperty
Type		Coupon
Rate		Current Interest RateExit FeeAcquisition DateMaturity
Date		Principal AmountAmortized
Cost
Fair
Value (1)
Pro Rata
Fair Value (2)
% (3)
Loans held for investment:
Mezzanine loans:
150 Blackstone River Road, LLCUS - MAIndustrial8.5 %8.5 %0 %9/21/20179/6/2027$7,000,000 $7,000,000 $7,007,397 $5,360,659 2.3 %
Austin H. I. Owner LLC (4)
US - TXHotel12.5 %12.5 %1.0 %9/30/201510/6/20203,848,712 3,887,200 3,533,118 2,702,835 1.1 %
High Pointe Mezzanine Investments, LLC (5)
US - SCStudent housing15.0 %15.0 %1.0 %12/27/20131/6/20243,000,000 3,204,375 2,988,110 2,285,904 1.0 %
LD Milipitas Mezz, LLC (6)
US - CAHotelLIBOR +10.25% (2.75% Floor)13.0 %1.0 %6/27/20186/27/20214,250,000 4,294,053 4,293,969 3,284,886 1.4 %
Stonewall Station Mezz LLC (5)(7)(8)
US - NCInfill land12.0% current
2.0% PIK		14.0 %1.0 %5/31/20185/20/202110,442,567 10,537,512 10,472,034 8,011,106 3.4 %
28,541,279 28,923,140 28,294,628 21,645,390 9.2 %
Preferred equity investments:
370 Lex Part Deux, LLC (7)(8)
US - NYOfficeLIBOR + 8.25% (2.44% Floor)10.7 %0 %12/17/20181/9/202253,874,507 53,912,363 51,935,025 39,730,294 16.9 %
City Gardens 333 LLC (7)(8)
US - CAStudent housingLIBOR + 9.95% (2.0% Floor)12.0 %0 %4/11/20184/1/202128,303,628 28,307,408 28,276,767 21,631,727 9.2 %
Orange Grove Property Investors, LLC (7)(8)
US - CACondominiumLIBOR + 8.0% (4.0% Floor)12.0 %1.0 %5/24/20186/1/202110,600,000 10,701,924 10,707,274 8,191,065 3.5 %
REEC Harlem Holdings Company, LLCUS - NYlandLIBOR + 12.5% (no Floor)12.6 %0 %3/9/20183/9/202316,767,984 16,767,984 14,314,585 10,950,658 4.7 %
RS JZ Driggs, LLC (7)(8)(9)
US - NYMultifamily12.3 %12.3 %1.0 %5/1/20181/1/20218,544,513 8,629,929 8,612,869 6,588,845 2.8 %
The Bristol at Southport, LLC (7)(10)
US - WAMultifamily12.0 %12.0 %1.0 %9/22/20179/22/202223,500,000 23,682,536 23,670,806 18,108,167 7.6 %
141,590,632 142,002,144 137,517,326 105,200,756 44.7 %






10
11



Terra Secured Income Fund 5, LLC
Consolidated Schedule of InvestmentsInvestment (Continued)
September 30, 2017March 31, 2021 (unaudited) and December 31, 20162020



Terra Property TrustTrust’s Schedule of Loans Held for Investment as of December 31, 20162020 (Continued):
Portfolio CompanyCollateral LocationProperty
Type		Coupon
Rate		Current Interest RateExit FeeAcquisition DateMaturity
Date		Principal AmountAmortized
Cost
Fair
Value (1)
Pro Rata
Fair Value (2)
% (3)
Loans held for investment:
First mortgages:
14th & Alice Street Owner, LLC (7)(10)
US - CAMultifamilyLIBOR + 5.75% (3.25% Floor)9.0 %0.5 %3/5/20193/5/2022$32,625,912 $32,877,544 $32,551,137 $24,901,620 10.6 %
1389 Peachtree St, LP; 1401 Peachtree St, LP;
   1409 Peachtree St, LP (11)
US - GAOfficeLIBOR + 4.5% (no Floor)4.6 %0.5 %2/22/20192/10/202250,808,453 51,068,554 50,982,247 39,001,419 16.6 %
330 Tryon DE LLC (11)
US - NCOfficeLIBOR + 3.85% (2.51% Floor)6.4 %0.5 %2/7/20193/1/202222,800,000 22,901,294 22,869,879 17,495,457 7.4 %
870 Santa Cruz, LLCUS - CAOfficeLIBOR + 6.75% (0.5% Floor)7.3 %1.0 %12/15/202012/15/202310,760,355 10,724,590 10,859,726 8,307,690 3.5 %
AGRE DCP Palm Springs, LLC (11)(12)
US - CAHotelLIBOR +4.75% (1.80% Floor)6.6 %0.5 %12/12/20191/1/202345,294,097 45,506,051 45,519,030 34,822,058 14.8 %
MSC Fields Peachtree Retreat, LLC (11)
US - GAMultifamilyLIBOR + 3.85% (2.0% Floor)5.9 %0.5 %3/15/20194/1/202223,308,334 23,437,198 23,428,860 17,923,078 7.6 %
Patrick Henry Recovery Acquisition, LLC (11)
US - CAOfficeLIBOR + 2.95% (1.5% Floor)4.5 %0.3 %11/25/201912/1/202318,000,000 18,039,456 17,994,495 13,765,789 5.8 %
University Park Berkeley, LLC (11)(13)
US - CAStudent housingLIBOR + 4.2% (1.50% Floor)5.7 %0.8 %2/27/20203/1/202323,990,786 24,131,808 24,162,710 18,484,473 7.9 %
Windy Hill PV Five CM, LLC (14)
US - CAOfficeLIBOR + 6.0% (2.05% Floor)8.1 %0.5 %9/20/20199/20/202226,454,910 26,407,494 25,227,156 19,298,774 8.2 %
254,042,847 255,093,989 253,595,240 194,000,358 82.4 %
Total gross loans held for investment424,174,758 426,019,273 419,407,194 320,846,504 136.3 %
Obligations under participation agreements and secured borrowing (7)(8)(10)(14)
(89,548,151)(89,769,560)(87,730,239)(67,113,633)(28.5)%
Allowance for loan losses— (3,738,758)— — — %
Net loans held for investment$334,626,607 $332,510,955 $331,676,955 $253,732,871 107.8 %
Collateral LocationPortfolio CompanyStructureProperty
Type		Coupon
Rate		Acquisition Date
Maturity
Date
Principal Amount
Amortized
Cost
Fair
Value (1)
% of Net
 Assets (2)
 Loans held for investment — non-controlled:        
US - NCMilestone Greensboro Holdings, LLCMezzanine loanHotel14.0%3/1/20133/1/2018$3,500,000
$3,551,028
$3,550,732
1.2%
US - NJEssence 144 Urban Renewal, LLCFirst mortgageMultifamily12.0%1/14/20153/14/201722,639,955
22,865,291
22,864,082
7.9%
US - NYCape Church Mezz, LLCMezzanine loanMultifamily12.0%3/15/20167/15/201915,207,664
15,323,482
15,341,724
5.3%
 140 Schermerhorn Street Mezz LLCMezzanine loanHotel12.0%11/16/201612/1/201915,000,000
15,105,343
15,118,900
5.2%
 WWML96MEZZ, LLCMezzanine loanMultifamily13.0%12/18/201512/31/20184,075,585
4,106,941
4,104,596
1.4%
 WWML96, LLCPreferred equity investmentMultifamily13.0%12/18/201512/31/20181,303,583
1,313,612
1,281,507
0.4%
 Total US - NY     35,586,832
35,849,378
35,846,727
12.3%
US - ORPollin Hotels PDX Mezzanine, LLCMezzanine loanHotel13.0%9/23/201310/6/20185,000,000
5,356,923
5,324,812
1.8%
US - PAPHL Hotel Partners, LLCPreferred equity investmentHotel13.0%10/8/201311/1/20173,742,000
3,779,420
3,772,758
1.3%
 Millennium Waterfront Associates, L.P.First mortgageLand12.0%7/2/20151/2/201713,980,000
14,119,800
14,118,397
4.9%
 Total US - PA     17,722,000
17,899,220
17,891,155
6.2%
US - SC
High Pointe Mezzanine
   Investments, LLC
Mezzanine loanStudent
housing		13.0%12/27/20131/6/20243,000,000
3,441,697
3,176,165
1.1%
US - TNKingsport 925-Mezz LLCMezzanine loanMultifamily13.0%1/6/201412/5/20183,000,000
3,208,266
3,111,362
1.1%
 
315 JV, LLC (6)
Mezzanine loanOffice12.0% current
3.0% PIK
11/15/20135/28/20176,877,843
6,971,219
6,935,693
2.4%
 Total US - TN     9,877,843
10,179,485
10,047,055
3.5%
US - TXNorthland Museo Member, LLCMezzanine loanMultifamily12.0%11/22/201312/6/20184,000,000
3,946,771
4,051,342
1.4%
 
Austin H. I. Owner LLC (4)(5)
Mezzanine loanHotel12.5%9/30/201510/6/20203,500,000
3,521,769
3,549,105
1.2%
 AHF-Heritage #1, LLCMezzanine loanMultifamily14.0%7/30/20128/11/20222,689,038
2,951,669
2,794,286
1.0%
 Total US - TX     10,189,038
10,420,209
10,394,733
3.6%
US - VariousCapital Square Realty Advisors, LLCFacilityVarious13%-14%
12/17/20137/29/201715,500,000
15,643,328
15,643,328
5.4%
 
Nelson Brothers Professional Real
   Estate, LLC
FacilityVarious15.0%8/31/20167/27/20178,000,000
8,073,342
8,073,342
2.8%
 Total US - Various     23,500,000
23,716,670
23,716,670
8.2%
 Total loans held for investment — non-controlled:    311,424,751
316,174,017
315,110,108
108.5%
Operating real estate:
DescriptionAcquisition DateFair Value of Real EstateEncumbranceNet Investment
Pro Rata Net Investment (2)
% (3)(17)

Multi-tenant office building in Santa Monica, CA (15)
7/30/2018$57,321,799 $44,020,225 $13,301,574 $10,175,704 4.3 %
Land in Conshohocken, PA (16)
1/9/201913,395,430 0 13,395,430 10,247,504 4.4 %
$70,717,229 $44,020,225 $26,697,004 $20,423,208 8.7 %
Portfolio CompanyInterest/Dividend RateAcquisition DateMaturity DateSharesCostFair Value
Pro Rata
Fair Value (2)
% (3)
Marketable securities (18):
Preferred shares:
Nexpoint Real Estate Finance, Inc. - Cumulative
   Series A Preferred Shares		8.50 %7/30/20207/24/202550,000 $1,176,006 $1,287,500 $984,938 0.42 %
Total marketable securities$1,176,006 $1,287,500 $984,938 0.42 %






See notes to unaudited financial statements.

11
12



Terra Secured Income Fund 5, LLC
Consolidated Schedule of InvestmentsInvestment (Continued)
September 30, 2017March 31, 2021 (unaudited) and December 31, 20162020


__________________________
(1)Because there is no readily available market for these loans, these loans were valued using significant unobservable inputs under Level 3 of the fair value hierarchy and were approved in good faith by Terra REIT Advisors, Terra Property Trust’s manager, pursuant to Terra Property Trust’s valuation policy.
(2)Amount represents the Company’s portion, or 76.5%, of the fair value or net investment value.
(3)Percentage is based on the Company’s pro rata share of the fair value or net investment value over the Company’s total members’ capital of $235.4 million at December 31, 2020.
(4)This loan is currently past due. Terra Property Trust Scheduleis currently evaluating the options of Loans Heldrecovering the principal amount, including foreclosing on the collateral.
(5)Terra Property Trust entered into a forbearance agreement with the borrower to allow for Investment asmore time to make the interest payment.
(6)On June 27, 2018, Terra Property Trust entered into a participation agreement with Terra Income Fund 6, Inc. to purchase a 25% interest, or $4.3 million, in a mezzanine loan. As of December 31, 2016 (Continued):2020, the commitment was fully funded.

(7)The loan participations from Terra Property Trust do not qualify for sale accounting and therefore, the gross amount of these loans remain in the consolidated balance sheets.
(8)Terra Property Trust sold a portion of its interest in this loan through a participation agreement to Terra Income Fund 6, Inc., an affiliated fund advised by Terra Income Advisors, an affiliate of our sponsor and Terra Property Trust’s manager.
Collateral LocationPortfolio CompanyStructureProperty
Type		Coupon
Rate		Acquisition Date
Maturity
Date
Principal Amount
Amortized
Cost
Fair
Value (1)
% of Net
 Assets (2)
 
Loans held for investment through participation interests — non-controlled (7):
       
US - NY
QPT 24th Street Mezz LLC (4)(5)
Participation in
   mezzanine loan
Land12.0% current
2.0% PIK
12/15/20156/15/201712,780,220
12,897,391
12,897,392
4.5 %
US - PA
KOP Hotel XXXI Mezz LP (4)(5)
Participation in
   mezzanine loan
Hotel13.0%11/24/201512/6/20221,800,000
1,804,135
1,847,839
0.6 %
 Total loans held for investment through participation interest — non-controlled   14,580,220
14,701,526
14,745,231
5.1 %
           
 Total gross loans held for investment     326,004,971
330,875,543
329,855,339
113.6 %
 
Obligations under participation agreements (4)(6)
    (32,635,785)(32,986,194)(32,904,955)(11.3)%
 Net loans held for investment     $293,369,186
$297,889,349
$296,950,384
102.3 %
(9)This loan is currently in maturity default. Terra Property Trust has exercised its rights and is facilitating the completion of construction of the asset in anticipation of lease up and disposition of the asset.

(10)Terra Property Trust sold a portion of its interest in this loan via a participation agreement to a third-party.
___________________________
(1)Because there is no readily available market for these loans, the fair values of these loans are approved in good faith by the Manager pursuant to Terra Property Trust’s valuation policy.
(2)Percentages are based on the fair value of the Company’s investment in Terra Property Trust of $290.4 million as of December 31, 2016.
(3)This loan was repaid in full.
(4)Terra Property Trust sold a portion of its interests in these loans via participation agreements to Terra Secured Income Fund 5 International, an affiliated fund advised by the Manager.
(5)
The loan participations from Terra Property Trust do not qualify for sale accounting under ASC Topic 860, Transfers and Servicing, and therefore, the gross amount of these loans remain in the Consolidated Schedule of Loans Held for Investments.
(6)Terra Property Trust sold a portion of its interest in this loan through a participation agreement to Terra Income Fund 6, Inc., an affiliated fund advised by the Manager.
(7)Terra Property Trust purchased its interests in these loans from Terra Income Fund 6, Inc. through participation agreements.

(11)These loans were used as collateral for $107.6 million of borrowings under a term loan payable.

(12)In July 2020, Terra Property Trust amended the loan agreement to change the interest rate to PIK 15% for the period from July 2020 through January 2021.
(13)In December 2020, Terra Property Trust entered into a forbearance agreement with the borrower pursuant to which interest is accrued on the loan during the 90-day forbearance period from November 2020 to January 2021. In connection with entering into the forbearance agreement, the spread on the interest rate was increased to 4.2% and the exit fee was increased to 0.75%.
(14)In March 2020, Terra Property Trust entered into a financing transaction where a third-party purchased an A-note position. However, the sale did not qualify for sale accounting and therefore, the gross amount of the loan remains in the consolidated balance sheets. The liability is reflected as secured borrowing in Terra Property Trust’s consolidated balance sheets.
(15)Terra Property Trust acquired this property through foreclosure of a $54.0 million first mortgage.
(16)Terra Property Trust acquired the collateral for this loan via deed in lieu of foreclosure.
(17)Percentage is based on Terra Property Trust’s net exposure on the property (real estate owned less encumbrance).
(18)From time to time, Terra Property Trust might invest in short-term debt and equity securities. These securities are comprised of shares of preferred stock and bonds.




See notes to consolidatedunaudited financial statements.



12
13

Notes to Consolidated Financial Statements (Unaudited)

Terra Secured Income Fund 5, LLC
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2021


Note 1. Business
Terra Secured Income Fund 5, LLC (and, together(the “Company”), is a real estate credit focused company that originates, structures, funds and manages high yielding commercial real estate investments, including mezzanine loans, first mortgage loans, subordinated mortgage loans and preferred equity investments throughout the United States. The Company’s loans finance the acquisition, construction, development or redevelopment of quality commercial real estate in the United States. The Company focuses on the origination of middle market loans in the approximately $10 million to $50 million range, to finance properties in primary and secondary markets. The Company believes loans of this size are subject to less competition, offer higher risk adjusted returns than larger loans with its consolidated subsidiaries, the “Company”),similar risk metrics and facilitate portfolio diversification. The Company was formed as a Delaware limited liability company on April 24, 2013 and commenced operations on August 8, 2013. The Company was formed to originate, acquire and structure real estate-related loans, including mezzanine loans, first and second mortgage loans, subordinated mortgage loans, bridge loans, preferred equity investments and other loans related to high quality commercial real estate. The Company completed its original offering on January 31, 2015 and raised approximately $142 million in gross proceeds. The Company’s investment strategy is to investmakes substantially all of its investments and conducts substantially all of its real estate lending business through Terra Property Trust, which has elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2016. The Company’s objectives are to (i) preserve its members’ capital contributions, (ii) realize income from its investments and (iii) make monthly distributions to its members from cash generated from investments. There can be no assurances that the net proceeds of membership interestsCompany will be successful in and manage a diverse portfolio of, real estate-related loans. The Company seeks to create and maintain a portfolio of investments that generates a low volatility income stream for attractive and consistent cash distributions. The real-estate loans are typically investments between $3 million and $25 million, with unlevered yields on subordinated positions and levered yields on senior positions ranging from 12% to 16% and maturities between one to ten years.meeting its objectives.


In December 2015, the members approved the merger of Terra Secured Income Fund, 1, LLC (“Terra Fund 1”), Terra Secured Income Fund 2, LLC (“Terra Fund 2”), Terra Secured Income Fund 3, LLC (“Terra Fund 3”) and Terra Secured Income Fund 4, LLC (“Terra Fund 4”) with and into subsidiaries of the Company (individually, each a “Terra Fund” and collectively, the “Terra Funds”) through a series of separate mergers effective January 1, 2016.2016 (collectively, the “Merger”). Following the Merger, the Company contributed the consolidated portfolio of net assets of the five5 Terra Funds to Terra Property Trust, a newly-formed and wholly-owned subsidiary of the Company that elected to be taxed as a real estate investment trust (“REIT”),REIT, in exchange for the shares of common sharesstock of Terra Property Trust. Upon completion of the Merger, the Company became the parent company of Terra Funds 1 through 4 and the direct and indirect sole common stockholder of, and began conducting substantially all of its real estate lending business through, Terra Property Trust.

    On March 2, 2020, Terra Fund 1, Terra Fund 2 and Terra Fund 3 merged with and into Terra Fund 4, with Terra Fund 4 continuing as the surviving company (the “Terra Fund Merger”), and the Company consolidated its holdings of shares of common stock of Terra Property Trust in Terra Fund 4. Subsequent to the Terra Fund Merger, the legal name of Terra Fund 4 was changed to Terra JV. On March 2, 2020, Terra Property Trust engaged in a series of transactions pursuant to which Terra Property Trust issued an aggregate of 4,574,470.35 shares of its common stock in exchange for the settlement of an aggregate of $49.8 million of participation interests in loans that Terra Property Trust owned, cash of $25.5 million and other working capital. As of March 31, 2021, Terra JV held 87.4% of the issued and outstanding shares of Terra Property Trust’s common stock with the remainder held by Terra Offshore REIT, and the Company and Terra Fund 7 owned an 87.6% and 12.4% percentage interest, respectively, in Terra JV (Note 4). The Company does not consolidate Terra Property Trust asJV because the Company and Terra Fund 7 share joint approval rights with respect to certain major decisions that are taken by Terra JV and Terra Property Trust is not an investment company.(Note 4).


The Company’s investment activities are externally managed by Terra IncomeFund Advisors, LLC a private investment firm affiliated with(“Terra Fund Advisors” or the Company.“Manager”). The Company does not currently have any employees and does not expect to have any employees. Services necessary for the Company’s business are provided by individuals who are employees of the Manager or its affiliates or by individuals who were contracted by the Company or by the Manager or its affiliates to work on behalf of the Company pursuant to the terms of the operating agreement, as amended.


The CompanyCompany’s amended and restated operating agreement provides that the Company’s existence will continue in existence until December 31, 2023; however,2023, unless sooner terminated. However, the Company expects that prior to be terminatedsuch date it will consummate a liquidity transaction, which may include an orderly liquidation of its assets or to consummate an alternative liquidity transaction on or prior to the five-year anniversaryevent such as a sale of the completionCompany or an initial public offering and listing of Terra Property Trust’s shares of common stock on a national securities exchange. The Manager would pursue an alternative liquidity event only if it believes such a transaction would be in the best interests of the Company’s original offering, which was January 31, 2015, unless extended for up to a maximum of two one-year extensions atmembers.

On April 1, 2021, Mavik Capital Management, LP (“Mavik”), an entity controlled by Vikram S. Uppal, the discretionChief Executive Officer of the Manager,Company, completed a series of related transactions that resulted in orderall of the outstanding interests in Terra Capital Partners, LLC, being acquired by Mavik for a combination of cash and interests in Mavik.
13

Notes to facilitate an orderly liquidation or to consummate such alternative liquidity transaction.Unaudited Financial Statements


Note 2. Summary of Significant Accounting Policies


Basis of Presentation and Principles of Consolidation


The consolidatedinterim financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S.(U.S. GAAP”) and include. The financial statements for the period from January 1, 2020 to March 1, 2020 included all of the Company’s accounts and those of its consolidated subsidiaries. The consolidated financial statements reflect all adjustments and reclassifications that, in the opinion of management, are necessary for the fair presentation of the Company’s results of operations and financial condition as of and for the periods presented. All intercompany balances and transactions havehad been eliminated. As discussed in Note 1, on March 2, 2020, the Company’s subsidiaries completed the Terra Fund Merger. As a result of the Terra Fund Merger, the Company no longer consolidates the subsidiaries. The financial statements as of March 31, 2021 and December 31, 2020 and for the period from March 2, 2020 to March 31, 2020 and the three months ended March 31, 2021 include all of the Company’s accounts only.

    The accompanying interim financial statements of the Company and related financial information have been prepared pursuant to the requirements for reporting on Form 10-Q and Articles 6 or 10 of Regulation S-X. The Company is an investment company, as defined under U.S. GAAP, and applies accounting and reporting guidance in accordance with Financial Accounting Standards Board (“FASB”) ASCAccounting Standards Codification (“ASC”) Topic 946, Financial Services -— Investment Companies.


Use of Estimates


The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosuresdisclosure of contingent assets and liabilities atas of the date of the consolidated financial statements and the reported amounts of gains (losses), incomerevenues and expenses during the reporting period.

As of March 31, 2021, the outbreak of the coronavirus (“COVID-19”) pandemic around the globe continues to adversely impact global commercial activity and has contributed to significant volatility in financial markets The COVID-19 pandemic and preventative measures taken by local, state and federal authorities to alleviate the public health crisis have had a continued and prolonged adverse impact on economic and market conditions and have caused a global economic slowdown which has had and could further have a material adverse effect on the Company’s results and financial condition. The pandemic continues to evolve, and the full impact of COVID-19 on the real estate industry, the commercial real estate market, and the credit markets generally, and consequently on the Company’s financial condition and results of operations is uncertain and cannot be predicted at the current time as it depends on several factors beyond the control of the Company including, but not limited to, (i) the uncertainty around the severity and duration of the outbreak, (ii) the effectiveness of the United States public health response, including the administration of vaccines throughout the United States (iii) the pandemic’s impact on the U.S. and global economies, (iv) the timing, scope and effectiveness of governmental responses to the pandemic, including the PPP and other programs under the CARES Act, (v) the timing and speed of economic recovery, (vi) the availability of a treatment or vaccination for COVID-19, and (vii) the negative impact on our borrowers, real estate values and cost of capital. The Company believes the estimates and assumptions underlying its financial statements are reasonable and supportable based on the information available as of March 31, 2021, however uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and the Company’s business in particular, makes any estimates and assumptions as of March 31, 2021 inherently less certain than they would be absent the current and potential impacts of COVID-19. Actual results could significantlymay ultimately differ from those estimates. The most significant estimates inherent in the preparation of the Company’s consolidated financial statements is the valuation of investments.



14
Notes to Consolidated Financial Statements (Unaudited)


Equity Investment in Terra Property TrustJV


Equity investment in Terra Property TrustJV represents the Company’s equity interest in Terra Property Trust,JV, which was initially recorded at cost. Subsequent to the asset contribution, the equity investment is reported, at each reporting date, at fair value on the consolidated statements of financial condition. Change in fair value is reported in net change in unrealized appreciation or depreciation on investment on the consolidated statements of operations.


Revenue Recognition


Revenue is accounted for under ASC 605, Revenue Recognition, which provides among other things that revenue be recognized when there is persuasive evidence an arrangement exists, delivery and services have been rendered, price is fixed and determinable and collectability is reasonably assured.

Dividend Income: Dividend income associated with the Company’s ownership of Terra JV or Terra Property Trust is recognized on the record date as declared by Terra JV or Terra Property Trust. Any excess of dividendsdistributions over Terra JV or Terra Property Trust’s cumulative taxable net income are recorded as return of capital.


Other Operating Income: All other income is recognized when earned.


14

Notes to Unaudited Financial Statements

Cash and Cash Equivalents


The Company considers all highly liquid investments, with original maturities of ninety days or less when purchased, as cash equivalents.Cash and cash equivalents are exposed to concentrations of credit risk. The Company maintains all of its cash at financial institutions which, at times, may exceed the amount insured by the Federal Deposit Insurance Corporation.
Income Taxes


No provision for U.S. federal and state income taxes has been made in the accompanying consolidated financial statements, as individual members are responsible for their proportionate share of the Company’s taxable income. The Company, however, may be liable for New York City Unincorporated Business Tax (the “NYC UBT”) and similar taxes of various other municipalities. New York City imposes the NYC UBT at a statutory rate of 4% on net income generated from ordinary business activities carried on in New York City. For the three and nine months ended September 30, 2017March 31, 2021 and 2016,2020, none of the Company’s income was subject to the NYC UBT.


Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the consolidated financial statements and tax basis assets and liabilities using enacted tax rates in effect for the year in which differences are expected to reverse. Such deferred tax assets and liabilities were not material.


The Company did not have any uncertain tax positions that met the recognition or measurement criteria of ASC 740-10-25, Income Taxes, nor did the Company have any unrecognized tax benefits as of the periods presented herein. The Company recognizes interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in its consolidated statements of operations. For the three and nine months ended September 30, 2017March 31, 2021 and 2016,2020, the Company did not incur any interest or penalties. Although the Company files federal and state tax returns, its primary tax jurisdiction is federal. The Company’s inception-to-date2017-2019 federal tax years remain subject to examination by the Internal Revenue Service.


Recent Accounting PronouncementsPronouncement

London Interbank Offered Rate (“LIBOR”) is a benchmark interest rate referenced in a variety of agreements that are used by all types of entities. At the end of 2021, banks will no longer be required to report certain information that is used to determine LIBOR. As a result, LIBOR could be discontinued. Other interest rates used globally could also be discontinued for similar reasons. In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services. The Company will adopt this standard on January 1, 2018 using the cumulative effect transition method. The Company is evaluating the impact of ASU 2014-09 but does not currently believe that the application of ASU 2014-09 will have a material impact on its consolidated financial statements and disclosures.

In January 2016,March 2020, the FASB issued ASU 2016-01,2020-04, Reference Rate Reform (Topic 848) — Facilitation of the Effects of Reference Rate Reform on Financial Instruments — Overall (Subtopic 825-10): RecognitionReporting (“ASU 2020-04”). The amendments in ASU 2020-04 provide optional expedients and Measurementexceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 retains many current requirements for the classification and measurement of financial instruments; however, it significantly revises an entity’s accounting related to (i) the classification and measurement of investments in equity securities and (ii) the presentation of certain fair value changes for


15
Notes to Consolidated Financial Statements (Unaudited)

financial liabilities measured at fair value. ASU 2016-01 also amends certain disclosure requirements associated with the fair value of financial instruments. This guidance is effective for the Company beginning onreference rate reform. In January 1, 2018. Management is currently
evaluating the impact these changes will have on the Company’s consolidated financial statements and disclosures.

In February 2016,2021, the FASB issued ASU 2016-02, LeasesNo. 2021-01, Reference Rate Reform (Topic 842)848), which expanded the scope of Topic 848 to include derivative instruments impacted by discounting transition (“ASU 2016-02”2021-01”). ASU 2016-02 outlines a new model for accounting by lessees, whereby their rights2020-04 and obligations under substantially all leases, existing and new, would be capitalized and recorded on the balance sheet. For lessors, however, the accounting remains largely unchanged from the current model, with the distinction between operating and financing leases retained, but updated to align with certain changes to the lessee model and the new revenue recognition standard. The new standard also replaces existing sale-leaseback guidance with a new model applicable to both lessees and lessors. Additionally, the new standard requires extensive quantitative and qualitative disclosures. ASU 2016-02 is2021-01 are effective for U.S. GAAP public companies for fiscal years beginningall entities through December 31, 2022. The expedients and exceptions provided by the amendments do not apply to contract modifications and hedging relationships entered into or evaluated after December 15, 2018, including interim periods within those fiscal years. Early application will be permitted31, 2022, except for all entities. The new standard must be adopted using a modified retrospective transitionhedging transactions as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the new guidance and provideshedging relationship. In the event LIBOR is unavailable, Terra Property Trust’s investment documents provide for certain practical expedients. Transition will require application ofa substitute index, on a basis generally consistent with market practice, intended to put the new model atTerra Property Trust in substantially the beginning ofsame economic position as LIBOR. As a result, the earliest comparative period presented. This ASU is not expected to have any impact on the Company’s consolidated financial statements and disclosures as the Company does not have any lease arrangements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, a Consensus of the FASB’s Emerging Issues Task Force (“ASU 2016-15”).  ASU 2016-15 provides guidance on how certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for annual and interim periods beginning after December 15, 2017. The guidance requires application using a retrospective transition method. The Company does not expect the reference rate reform and the adoption of ASU 2016-152020-04 and ASU 2021-01 to have a material impact on its consolidated financial statements and disclosures.disclosures

In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The Company adopted the amendments to Regulation S-X on August 1, 2017. The adoption did not have a material impact on its consolidated financial statements and disclosures.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 intends to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the current implementation guidance in Topic 805, there are three elements of a business: inputs, processes, and outputs. While an integrated set of assets and activities, collectively referred to as a “set,” that is a business usually has outputs, outputs are not required to be present. ASU 2017-01 provides a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. ASU 2017-01 will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. Management is currently evaluating the impact of this change will have on the Company’s consolidated financial statements and
disclosures.

Note 3. Investment and Fair Value


Equity Investment in Terra Property TrustJV


The Company investsinvested substantially all of its equity capital in the purchase of shares of common stock of Terra Property Trust. On March 2, 2020, Terra Property Trust engaged in a series of transactions pursuant to which Terra Property Trust issued an aggregate of 4,574,470.35 shares of its common stock in exchange for the settlement of an aggregate of $49.8 million of participation interests in loans that Terra Property Trust owned, cash of $25.5 million and other working capital. As of both March 31, 2021 and December 31, 2020, Terra JV held 87.4% of the issued and outstanding shares of Terra Property TrustTrust’s common stock with the remainder held by Terra Offshore REIT, and its primarythe Company and Terra Fund 7 owned an 87.6% and 12.4% percentage interest, respectively, in Terra JV, and Terra JV became the Company’s only investment position is the common shares of Terra Property Trust.(Note 4).


15

Notes to Unaudited Financial Statements

The following table presentstables present a summary of the Company’s investment at September 30, 2017March 31, 2021 and December 31, 2016:2020:
March 31, 2021December 31, 2020
InvestmentCostFair Value% of Members’ CapitalCostFair Value% of Members’ Capital
87.6% interest in Terra JV, LLC$229,062,384 $233,997,676 100.0 %$230,915,151 $235,357,977 100.0 %
  September 30, 2017 December 31, 2016
Investment Cost Fair Value % of Net Assets Cost Fair Value % of Net Assets
14,912,990 common shares
   of Terra Property Trust, Inc.
 $277,456,081
 $277,326,857
 100.1% $291,468,567
 $290,419,317
 100.3%


For the three months ended September 30, 2017March 31, 2021 and 2016,2020, the Company received approximately $13.1$3.0 million and $9.6$7.8 million of dividendsdistributions from Terra JV and/or Terra Property Trust as applicable, respectively, of which $8.7$1.9 million and none were returns of capital, respectively. For the nine months ended September 30, 2017 and 2016, the Company received approximately $29.7 million and $25.4 million of dividends from Terra Property Trust, respectively, of which $14.0 million and $0.3$6.6 million were returns of capital, respectively.




16
Notes to Consolidated Financial Statements (Unaudited)


    As of both March 31, 2021 and December 31, 2020, the Company indirectly beneficially owned 76.5% (Note 4) of the outstanding shares of common stock of Terra Property Trust. The following tables present the summarized financial information of Terra Property Trust:
March 31, 2021December 31, 2020
Carrying value of loans held for investment$406,068,871 $422,280,515 
Equity investment in a limited partnership, net50,505,511 36,259,959 
Real estate owned, net72,242,825 73,178,939 
Cash, cash equivalent and restricted cash27,600,059 32,920,323 
Other assets29,380,759 23,837,445 
Total assets585,798,025 588,477,181 
Term loan payable, obligations under participation agreements, mortgage loan
   payable, revolving line of credit and secured borrowing		(245,967,816)(239,132,654)
Accounts payable, accrued expenses and other liabilities(28,798,305)(35,769,686)
Lease intangible liabilities(10,128,244)(10,249,776)
Total liabilities(284,894,365)(285,152,116)
Stockholder’s equity$300,903,660 $303,325,065 
  September 30, 2017 December 31, 2016
Carrying value of investments $331,875,638
 $330,683,840
Other assets 79,469,290
 53,966,401
Total assets 411,344,928
 384,650,241
Mortgage loan payable and obligations under participation agreements (105,051,385) (66,855,038)
Accounts payable, accrued expenses and other liabilities (28,725,822) (26,203,277)
Total liabilities (133,777,207) (93,058,315)
Stockholder’s equity $277,567,721
 $291,591,926
Three Months Ended March 31,
20212020
Revenues$10,289,252 $12,077,571 
Expenses(10,136,375)(11,188,049)
Net loss on extinguishment of obligations under participation agreements0 (319,453)
Realized gains on marketable securities0 8,894 
Unrealized losses on marketable securities(14,608)0 
Equity income from investment in a limited partnership1,337,827 $0 
Net income$1,476,096 $578,963 
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Revenues $9,651,677
 $14,408,350
 $28,197,274
 $37,395,488
Expenses (4,598,716) (4,584,017) (12,379,894) (12,493,517)
Realized gain on investments (604,169) —
 (114,209) 140,375
Net income $4,448,792
 $9,824,333
 $15,703,171
 $25,042,346


Fair Value Measurements


The Company adopted the provisions of ASC 820, Fair Value Measurement (“ASC 820”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 established a fair value hierarchy that prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment, the characteristics specific to the investment, and the state of the marketplace (including the existence and transparency of transactions between market participants). Investments with readily available, actively quoted prices or for which fair value can be measured from actively quoted prices in an orderly market will generally have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Investments measured and reported at fair value are classified and disclosed into one of the following categories based on the inputs as follows:


16

Notes to Unaudited Financial Statements

Level 1 — Quoted prices (unadjusted) in active markets for identical assets and liabilities that the Company has the ability to access.


Level 2 — Pricing inputs are other than quoted prices in active markets, including, but not limited to, quoted prices for similar assets and liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market corroborated inputs.


Level 3 — Significant unobservable inputs are based on the best information available in the circumstances, to the extent observable inputs are not available, including the Company’s own assumptions used in determining the fair value of investments. Fair value for these investments are determined using valuation methodologies that consider a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance, and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant management judgment.
       
     In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.
    


17
Notes to Consolidated Financial Statements (Unaudited)

Assets and Liabilities Reported at Fair Value


The following table summarizes the Company’s equity investment in Terra Property Trust at fair value on a recurring basis as of September 30, 2017March 31, 2021 and December 31, 2016:2020:
March 31, 2021
Fair Value Measurements
Level 1Level 2Level 3Total
Investment:
Equity investment in Terra JV$0 $0 $233,997,676 $233,997,676 
September 30, 2017December 31, 2020
Fair Value MeasurementsFair Value Measurements
Level 1 Level 2 Level 3 TotalLevel 1Level 2Level 3Total
Investment:       Investment:
Equity investment in Terra Property Trust$—
 $—
 $277,326,857
 $277,326,857
Equity investment in Terra JVEquity investment in Terra JV$0 $0 $235,357,977 $235,357,977 


 December 31, 2016
 Fair Value Measurements
 Level 1 Level 2 Level 3 Total
Investment:       
Equity investment in Terra Property Trust$—
 $—
 $290,419,317
 $290,419,317

Changes in Level 3 investment for the ninethree months ended September 30, 2017March 31, 2021 and 20162020 were as follows:
Equity Investment in Terra JVEquity Investment in Terra Property Trust
Three Months Ended March 31, 2021Period from March 2, 2020 to March 31, 2020Period from January 1, 2020 to March 1, 2020
Beginning balance$235,357,977 $0 $247,263,245 
Transfer of ownership interest in Terra Property Trust to
   Terra JV		0 244,006,890 (244,006,890)
Return of capital(1,852,767)(2,779,129)(3,783,607)
Net change in unrealized appreciation (depreciation) on investment492,466 (2,813,550)527,252 
Ending balance$233,997,676 $238,414,211 $0 
Net change in unrealized appreciation (depreciation) on investment
   for the period relating to those Level 3 assets that were still held by
   the Company		$492,466 $(2,813,550)$0 
  Equity Investment in Terra Property Trust
  Nine Months Ended September 30,
  2017 2016
Beginning balance $290,419,317
 $—
Shares of Terra Property Trust common stock received in exchange for the Company’s
   consolidated portfolio of net assets
 —
 288,259,804
Shares of Terra Property Trust common stock purchased —
 10,000,000
Return of capital (14,012,486) (315,730)
Net change in unrealized depreciation on investment 920,026
 (1,400,694)
Ending balance $277,326,857
 $296,543,380
Net change in unrealized depreciation on investment for the period relating to those
   Level 3 assets that were still held by the Company
 $920,026
 $(1,400,694)


Transfers between levels, if any, are recognized at the beginning of the period in which transfers occur. For the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, there were no transfers.

17

Notes to Unaudited Financial Statements


The Company estimated that its other financial assets and liabilities had fair values that approximated their carrying values at September 30, 2017March 31, 2021 and December 31, 20162020 due to their short-term nature.


Valuation Process for Fair Value Measurement


Market quotations are not readily available for the Company’s real estate-related investments throughinvestment in Terra Property Trust all ofor Terra JV, which areis included in Level 3 of the fair value hierarchy,hierarchy. The fair value of the Company’s sole investment takes into consideration the fair value of Terra Property Trust’s assets and therefore these investmentsliabilities which are valued utilizing a yield approach, i.e. a discounted cash flow methodology to arrive at an estimate of the fair value of each respective investment in the portfolio using an estimated market yield.methodology. In following this methodology, investmentsloans are evaluated individually, and management takes into account, in determining the risk-adjusted discount rate for each of the Company’s investments,Terra Property Trust’s loans, relevant factors, including available current market data on applicable yields of comparable debt/preferred equity instruments; market credit spreads and yield curves; the investment’s yield; covenants of the investment, including prepayment provisions,provisions; the portfolio company’s ability to make payments, its net operating income, debt-service coverage ratio (“DSCR”),ratio; construction progress reports and construction budget analysis; the nature, quality, and realizable value of any collateral (and loan-to-value ratio); and the forces that influence the local markets in which the asset (the collateral) is purchased and sold, such as capitalization rates, occupancy rates, rental rates, replacement costs and the anticipated duration of each real estate-related loan investment.loan. Valuation of Terra Property Trust’s investment in a 4.9 acre development parcel is based on the estimated selling price. The fair value of Terra Property Trust’s investment in an office building is determined using the direct capitalization method.



18
Notes to Consolidated Financial Statements (Unaudited)


The Manager designates a valuation committee to oversee the entire valuation process of the Company’sTerra Property Trust’s Level 3 investments. The valuation committee is comprised of members of the Manager’s senior management, deal and portfolio management teams, who meet on a quarterly basis, or more frequently as needed, to review the CompanyTerra Property Trust investments being valued as well as the inputs used in the proprietary valuation model. Valuations determined by the valuation committee are supported by pertinent data and, in addition to a proprietary valuation model, are based on market data, industry accepted third-party valuation modelsdata and discount rates or other methods the valuation committee deems to be appropriate.

The following tables summarize the valuation techniques and significant unobservable inputs used by the Company to value the Level 3 investments as of September 30, 2017March 31, 2021 and December 31, 2016.2020. The tables are not intended to be all-inclusive, but instead identify the significant unobservable inputs relevant to the determination of fair values.
Fair ValuePrimary Valuation TechniqueUnobservable InputsMarch 31, 2021
Asset CategoryMinimumMaximumWeighted Average
Assets:
Equity investment in Terra JV$233,997,676
Discounted cash flow (1)(2)
Discount rate (1)(2)
4.00 %20.05 %14.68 %
Fair ValuePrimary Valuation TechniqueUnobservable InputsDecember 31, 2020
Asset CategoryMinimumMaximumWeighted Average
Assets:
Equity investment in Terra JV$235,357,977 
Discounted cash flow (1)(2)
Discount rate (1)(2)
5.25 %20.05 %14.17 %
_______________
(1)Discounted cash flows and discount rates applied to Terra Property Trust’s assets and liabilities.
(2)The fair value of Terra Property Trust’s investment in an office building is determined using the direct capitalization method with a cap rate of 5.77%.

Risks and Uncertainties

    The Company’s investment in Terra Property Trust or Terra JV is highly illiquid and there is no assurance that the Company will achieve its investment objectives, including targeted returns. Terra Property Trust’s loans are highly illiquid. Due to the illiquidity of the loans, valuation of the loans may be difficult, as there generally will be no established markets for these loans.

The COVID-19 pandemic has resulted in extreme volatility in a variety of global markets, including the real estate-related debt markets. U.S. financial markets, in particular, are experiencing limited liquidity and forced selling by certain market
18

Notes to Unaudited Financial Statements

  Fair ValuePrimary Valuation Technique Unobservable Inputs September 30, 2017
Asset Category   MinimumMaximumWeighted Average
Assets:          
Equity investment in Terra Property Trust $277,326,857
 Discounted cash flow Discount rate 2.56%15.00%12.71%
participants with insufficient liquidity available to meet current obligations, which puts further downward pressure on asset prices.

As the Company’s investment is carried at fair value with fair value changes recognized in the statements of operations, any changes in fair value would directly affect the Company’s members’ capital.

  Fair ValuePrimary Valuation Technique Unobservable Inputs December 31, 2016
Asset Category   MinimumMaximumWeighted Average
Assets:          
Equity investment in Terra Property Trust $290,419,317
 Discounted cash flow Discount rate 9.09%15.96%12.19%

Note 4. Related Party Transactions

Merger

In December 2015, the members approved the merger of Terra Fund 1, Terra Fund 2, Terra Fund 3 and Terra Fund 4 with and into subsidiaries of the Company through a series of separate mergers effective January 1, 2016. Following the Merger, the Company contributed the consolidated portfolio of net assets of the five Terra Funds to Terra Property Trust in exchange for the common shares of Terra Property Trust. Upon completion of the Merger, the Company became the parent company of Terra Funds 1 through 4 and the direct and indirect sole common stockholder of, and began conducting substantially all of its real estate lending business through, Terra Property Trust.

Consent Solicitation

Terra Capital Markets, LLC (“Terra Capital Markets”), an affiliate of the manager, served as the dealer manager for the consent solicitation on the Merger, and was paid a voting advisory fee of $750 per initial unit sold to members in the Terra Funds and a dealer manager fee of 0.5% of the aggregate offering price of the units originally issued by the Terra Funds. Most of these fees were re-allowed to participating dealers. The Terra Funds also incurred costs for legal, accounting, and other professional services in connection with the consent solicitation. For the nine months ended September 30, 2016, the Company incurred $0.4 million of merger transaction costs.

Rights Offering

In connection with the Merger, the Company offered existing members of the Terra Funds the opportunity to invest in the Company through purchase of additional membership units (the “Rights Offering”). Terra Capital Markets served as the dealer manager for the sale of the Company’s membership units and received compensation of 3% in selling commission, 1% in dealer manager fees and a 1% broker dealer fee. Most of these fees are re-allowed to independent broker dealers and financial advisors. These fees amounted to approximately $1.3 million for the nine months ended September 30, 2016 and have been deducted from capital contributions received as selling commissions and dealer manager fees.


Operating Agreement


The Company entered intohas an operating agreement, as amended, with the Manager whereby the Manager is responsible for the Company’s day-to-day operations.Terra Fund Advisors. The operating agreement, as amended, is scheduled to terminate on December 31, 2023 unless the Company is dissolved earlier. Starting January 1, 2016, the Company conducts all of its real estate lending business through Terra Property Trust. As such, Terra Property Trust is responsible for management compensation paid and operating expenses reimbursed to the Managerits manager pursuant to a management agreement with the Manager.


19
Notes to Consolidated Financial Statements (Unaudited)


Due from Terra Property Trust

As of September 30, 2017, amount due from Terra Property Trust was $0.03 million, related to a professional fee invoice the Company paid on its behalf. As of December 31, 2016, there was no amount due from Terra Property Trust.

Due to Terra Property Trust

As of September 30, 2017, there was no amount due to Terra Property Trust. As of December 31, 2016, approximately $0.4 million was due to Terra Property Trust, as reflected on the consolidated statements of financial condition, primarily related to an adjustment to the contribution of the consolidated portfolio of net assets of the five Terra Funds to Terra Property Trust on January 1, 2016.manager.
    
Dividend Income
    
As discussed in Note 3, for the three months ended September 30, 2017March 31, 2021 and 2016,2020, the Company received approximately $13.1$3.0 million and $9.6$7.8 million of distributions from Terra JV and/or Terra Property Trust as applicable, respectively, of which $8.7$1.9 million and none was a return$6.6 million were returns of capital, respectively. For

TPT2 Merger

    On February 28, 2020, Terra Property Trust entered into certain Agreement and Plan of Merger (the “Merger Agreement”), by and among Terra Property Trust, Terra Property Trust 2, Inc. (“TPT2”) and Terra Fund 7, the nine months ended September 30, 2017sole stockholder of TPT2, pursuant to which TPT2 merged with and 2016,into Terra Property Trust, with Terra Property Trust continuing as the Company received approximately $29.7 millionsurviving corporation (the “TPT2 Merger”), effective March 1, 2020. In connection with the TPT2 Merger, each share of common stock, par value $0.01 per share, of TPT2 issued and $25.4 millionoutstanding immediately prior to the effective time of distributionsthe TPT2 Merger was converted into the right to receive from Terra Property Trust respectively,a number of which $14.0 million and $0.3 million was a returnshares of capital, respectively.

Note 5. Significant Risk Factors

In the normal course of business, the Company enters into transactions in various financial instruments. The Company’s financial instruments are subject to, but are not limited to, the following risks:

Market Risk

The Company’s loans through Terra Property Trust are highly illiquid and there is no assurance that the Company will achieve its investment objectives, including targeted returns. Due to the illiquidity of the loans, valuation of the loans may be difficult, as there generally will be no established markets for these loans. As the Company’s loans were carried at faircommon stock, par value with fair value changes recognized in the consolidated statements of operations, all changes in market conditions would directly affect the Company’s members’ capital.

Credit Risk

Credit risk represents the potential loss that Terra Property Trust would incur if the borrowers failed to perform pursuant to the terms of their obligations to Terra Property Trust. Thus, the value of the underlying collateral, the creditworthiness of the borrower or other counterparty, and the priority of Terra Property Trust’s lien on the borrower’s assets are of importance. Terra Property Trust minimizes its exposure to credit risk by limiting exposure to any one individual borrower and any one asset class. Additionally, Terra Property Trust employs an asset management approach and monitors the portfolio of loans, through, at a minimum, quarterly financial review of property performance including net operating income, loan-to-value ratio, DSCR and the debt yield. Terra Property Trust also requires certain borrowers to establish a cash reserve, as a form of additional collateral, for the purpose of providing for future interest or property-related operating payments.

Mezzanine loans and preferred equity investments are subordinate to senior mortgage loans and, therefore, involve a higher degree of risk. In the event of a default, mezzanine loans and preferred equity investments will be satisfied only after the senior lender’s investment is fully recovered. As a result, in the event of a default, Terra Property Trust may not recover all of its investment.

The Company maintains all of its cash at financial institutions which, at times, may exceed the amount insured by the Federal Deposit Insurance Corporation.

Concentration Risk

Terra Property Trust holds real estate related loans. Thus, the loan portfolio$0.01 per share, of Terra Property Trust may be subjectequal to a more rapid change in value than would bean exchange ratio, which was 1.2031. The exchange ratio was based on the case if Terra Property Trust maintained a wide diversification among industries, companies and types of loans. The result of such concentration in real estate assets is that a loss in such loans could materially reduce Terra Property Trust’s capital.



20
Notes to Consolidated Financial Statements (Unaudited)

Liquidity Risk

Liquidity risk represents the possibility that the Company may not be able to sell its positions at a reasonable price in times of low trading volume, high volatility and financial stress.

Interest Rate Risk

Interest rate risk represents the effect from a change in interest rates, which could result in an adverse change in therelative fair value of Terra Property Trust’s interest-bearing financial instruments.

Prepayment Risk

Prepayments can either positively or adversely affect the yields on loans. Prepayments on debt instruments, where permitted under the debt documents, are influenced byTrust and TPT2 as of December 31, 2019 as adjusted to reflect changes in current interest rates and a varietynet working capital of economic, geographic and other factors beyond Terra Property Trust’s control, and consequently, such prepayment rates cannot be predicted with certainty. Ifeach of Terra Property Trust does not collectand TPT2 during the period from January 1, 2020 through March 1, 2020, the effective time for the TPT2 Merger. For purposes of determining the respective fair values of Terra Property Trust and TPT2, the value of the loans (or participation interests therein) held by each of Terra Property Trust and TPT2 was the value of such loans (or participation interests) as set forth in the audited financial statements of Terra Property Trust as of and for the year ended December 31, 2019. As a prepayment feeresult, Terra Fund 7 received 2,116,785.76 shares of common stock of Terra Property Trust as consideration in the TPT2 Merger and subsequently contributed these shares to Terra JV. The shares of Terra Property Trust common stock issued in connection with the TPT2 Merger were issued in a prepayment or is unableprivate placement in reliance on Section 4(a)(2) under the U.S. Securities Act of 1933, as amended (the “Securities Act”), and the rules and regulations promulgated thereunder
Issuance of Common Stock to invest the proceeds of such prepayments received, the yield on the portfolio will decline.Terra Offshore REIT
    In addition, on March 2, 2020, Terra Property Trust may acquire assets at a discount or premiumentered into two separate contribution agreements, one by and if the asset does not repay when expected, the anticipated yield may be impacted. Under certain interest rate and prepayment scenarios,among Terra Property Trust, may failTerra Offshore REIT and Terra Income Fund International, and another by and among Terra Property Trust, Terra Offshore REIT and Terra Secured Income Fund 5 International, pursuant to recoup fully its costwhich Terra Property Trust issued 2,457,684.59 shares of acquisitioncommon stock of certain loans.Terra Property Trust to Terra Offshore REIT in exchange for the settlement of $32.1 million of participation interests in loans also held by Terra Property Trust, $8.6 million in cash and other working capital (“Issuance of Common Stock to Terra Offshore REIT”). The shares of common stock were issued in a private placement in reliance on Section 4(a)(2) under the Securities Act and the rules and regulations promulgated thereunder. On April 29, 2020, Terra Property Trust repurchased, at a purchase price $17.02 per share, 212,691 shares of common stock that Terra Property Trust had previously sold to Terra Offshore REIT on September 30, 2019.

19

UseNotes to Unaudited Financial Statements


Terra JV, LLC

    Prior to the completion of Leverage

As partthe TPT2 Merger and the Issuance of Common Stock to Terra Offshore REIT transactions described above, the Company owned approximately 98.6% of the issued and outstanding shares of Terra Property Trust’s investment strategy,common stock indirectly through its wholly owned subsidiary, Terra JV, of which the Company was the sole managing member, and the remaining issued and outstanding shares of Terra Property Trust’s common stock were owned by Terra Offshore REIT.

    As described above, Terra Property Trust may borrowacquired TPT2 in the TPT2 Merger and, utilize leverage. While borrowingin connection with such transaction, Terra Fund 7 contributed the shares of Terra Property Trust’s common stock received as consideration in the TPT2 Merger to Terra JV and leverage present opportunities for increasing total return, they may havebecame a co-managing member of Terra JV pursuant to the effectamended and restated operating agreement of potentially creating or increasing losses.

Property Acquisitions

Terra JV, dated March 2, 2020 (the “JV Agreement”). The JV Agreement and related stockholders agreement between Terra JV and Terra Property Trust, may find it necessary to take possession of collateral including, without limitation, an asset or a business, through a purchase or foreclosure action. Borrowers may resist mortgage foreclosure or sales actions by asserting numerous claims and defenses, which delay both repayments of existing loan investments and acquisitiondated March 2, 2020, provide for the joint approval of the collateralCompany and add costTerra Fund 7 with respect to such actions.certain major decisions that are taken by Terra JV and Terra Property Trust.


There can be no assurance that    On March 2, 2020, Terra Property Trust, the Company, Terra JV and Terra REIT Advisors also entered into the Amended and Restated Voting Agreement (the “Voting Agreement”), pursuant to which the Company assigned its rights and obligations under the Voting Agreement to Terra JV. Consistent with the original voting agreement dated February 8, 2018, for the period that Terra REIT Advisors remains the external manager of Terra Property Trust, Terra REIT Advisors will be ablehave the right to successfully operate, hold or maintain the collateral in accordance with its expectations.

Further, there can benominate two individuals to serve as directors of Terra Property Trust, until Terra JV no assurance that there will be a ready market for resale of foreclosed or acquired properties because investments in real estate generally are not liquid and holding periods are difficult to predict. In addition, there may be significant expenditures associated with holding real property, including real estate taxes and maintenance costs. The liquidation proceeds upon salelonger holds at least 10% of the real estate may be less thanoutstanding shares of Terra Property Trust’s common stock, Terra JV will have the amount investedright to nominate one individual to serve as a director of Terra Property Trust.

    As of March 31, 2021, Terra JV owns approximately 87.4% of the issued and outstanding shares of Terra Property Trust common stock with the remainder held by Terra Offshore REIT, and the Company and Terra Fund 7 own an 87.6% and 12.4% interest, respectively, in Terra JV. As a result, as of March 31, 2021, the loan, and its fair value and such differences could be material.Company indirectly beneficially owned 76.5% of Terra Property Trust's outstanding common stock through Terra JV.


Note 6.5. Commitments and Contingencies


The Company enters into contracts that contain a variety of indemnification provisions. The Company’s maximum exposure under these arrangements is unknown; however, the Company has not had prior claims or losses pursuant to these contracts. The Manager has reviewed the Company’s existing contracts and expects the risk of loss to the Company to be remote.


The Company is not currently subject to any material legal proceedings and, to the Company’s knowledge, no material legal proceedings are threatened against the Company. From time to time, the Company may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of the Company’s rights under contracts with its portfolio companies. While the outcome of any legal proceedings cannot be predicted with certainty, the Company does not expect that any such proceedings will have a material adverse effect upon its financial condition or results of operations.




21


Note 7.6. Members’ Capital


As of September 30, 2017both March 31, 2021 and December 31, 2016,2020, the Company had 6,697.56,637.7 units and 6,826.5 units outstanding, respectively.outstanding. The net asset value per unit was $41,405$35,244 and $42,423$35,467 as of September 30, 2017March 31, 2021 and December 31, 2016,2020, respectively.

Capital Contributions

As of January 31, 2015, the offering period ended and the Company stopped accepting capital contributions.

In connection with the Merger between the Terra Funds, original membership units of Terra Funds 1 through 4 were exchanged for 3,206.7 Continuing Income Units (regular units in the Company) and 463.6 Termination Units (membership interest in the Company offered to members of Terra Funds 1 through 4 who wish to enter the liquidation phase of their investments). The Company also offered existing members of the Terra Funds the opportunity to invest in the Company through the Rights Offering. For the nine months ended September 30, 2016, the Company sold 573.3 units and received capital contributions of approximately $25.6 million, net of selling commissions and dealer manager fees.


Capital Distributions


At the discretion of the Manager, the Company may make distributions from net cash flow from operations, net disposition proceeds, or other cash available for distribution. Distributions are made to holders of Continuing Income Units (regular units of limited liability company interest in the Company) in proportion to their unit holdings until they receive a return of their initial Deemed Capital Contribution, as defined in the operating agreement, plus a preferred return ranging from 8.5% to 9.0% depending on the historical preferred return applicable to their Terra Fund units, after which time distributions are made 15% to the Manager which the Company referredrefers to as the carried interest distribution, and 85% to the holders of Continuing Income Units. The preferred return applicable to the Continuing Income Units sold in the Rights Offeringoffering concurrent with the Merger is 8.5%.


In addition, holders of Termination Units receive monthly distributions at a fixed rate of 6.0% per annum of the Unreturned Invested Capital, as defined in the operating agreement.
20


Notes to Unaudited Financial Statements

For the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, the Company made total capital distributiondistributions to non-manager members of $23.1$3.0 million and $22.9$7.5 million, respectively. For the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, the Company did not make any carried interest distributions to the Manager.
Capital Redemptions

In the Merger, members of Terra Funds 1 through 4 who wished to enter the liquidation phase of their investments chose to receive Termination Units as merger consideration. These Termination Units will be redeemed on the original expected liquidation dates of the funds. For the nine months ended September 30, 2017, 121.1 Termination Units of Terra Fund 3 were redeemed for $5.0 million. For the nine months ended September 30, 2016, 161.3 Termination Units of Terra Fund 1 were redeemed for $6.8 million. These Termination Units were redeemed at book value as defined in the amended and restated operating agreement. Additionally, for the nine months ended September 30, 2017, 7.9 units of Continuing Income Units were redeemed for $0.3 million. For the nine months ended September 30, 2016, the Company also paid $3.4 million to members the Manager was unable to establish their continuation to qualify as “accredited investors” under the Securities Act of 1933, as amended, and to members holding their interests through a qualified ERISA plan to redeem their units.

The following table presents a summary of the Termination Units outstanding as of September 30, 2017:
Fund
Number of
Units
Scheduled
Redemption Date
Terra Fund 450.4
July 2018

    
At the discretion of the Manager, a reserve of 5% of cash from operations may be established in order to repurchase units from non-managing members. The Manager is under no obligation to redeem non-managing members’ units. As of September 30, 2017March 31, 2021 and December 31, 2016,2020, no such reserve was established. For the three months ended March 31, 2021 and 2020, the Company did not redeem any units.


Allocation of Income (Loss)


Profits and losses are allocated to the members in proportion to the units held in a given calendar year.




22


Member Units

Each membership interest through the original offering was offered for a price of $50,000 per unit. The membership interests in Terra Funds 1 through 4 were exchanged for units of the Company at a price of $43,410 per unit, which was the exchange value per unit of the Company on December 31, 2015, and the units in the Rights Offering was offered at a price of $47,000 per unit. The following table provides a roll forward of the units outstanding of the Company for the nine months ended September 30, 2017 and 2016:
  Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
  
Managing
Member
 Non-Managing Members Total Managing
Member		 Non-Managing Members Total
Units outstanding, beginning of period —
 6,826.5
 6,826.5
 —
 2,878.9
 2,878.9
Units issued in the Merger —
 —
 —
 —
 3,670.4
 3,670.4
Units admitted through the Rights
   Offering
 —
 —
 —
 —
 573.3
 573.3
Early redemption of Continuing
   Income Units
 —
 (7.9) (7.9) —
 —
 —
Termination Units redeemed —
 (121.1) (121.1) —
 (161.3) (161.3)
Units outstanding, end of period —
 6,697.5
 6,697.5
 —
 6,961.3
 6,961.3

Note 8.7. Financial Highlights


The financial highlights represent the per unit operating performance, return and ratios for the non-managing members’ class, taken as a whole, for the ninethree months ended September 30, 2017March 31, 2021 and 2016.2020. These financial highlights consist of the operating performance, the internal rate of return (“IRR”) since inception of the Company, and the expense and net investment income ratios which are annualized except for the non-recurring expenses.


The IRR, net of all fees and carried interest (if any), is computed based on actual dates of the cash inflows (capital contributions), outflows (capital distributions), and the ending capital at the end of the respective period (residual value) of the non-managing members’ capital account.


The following summarizes the Company’s financial highlights for the ninethree months ended September 30, 2017March 31, 2021 and 2016:2020:
Three Months Ended March 31,
20212020
Per unit operating performance:
Net asset value per unit, beginning of period$35,467 $37,222 
Increase (decrease) in members’ capital from operations (1):
Net investment income152 164 
Net change in unrealized appreciation (depreciation) on investment74 (344)
Total increase (decrease) in members’ capital from operations226 (180)
Distributions to members (2):
Capital distributions(449)(1,126)
Net decrease in members’ capital resulting from distributions(449)(1,126)
Net asset value per unit, end of period$35,244 $35,916 
Ratios to average net assets:
Expenses0.21 %0.29 %
Net investment income1.72 %1.79 %
IRR, beginning of period5.82 %6.40 %
IRR, end of period5.73 %6.08 %
_______________
(1)The per unit data was derived by using the weighted average units outstanding during the applicable periods, which were 6,638 units for both the three months ended March 31, 2021 and 2020.
(2)The per unit data for distributions reflects the actual amount of distributions paid per unit during the periods.

21
 Nine Months Ended September 30,
 2017 2016
Per unit operating performance:   
Net asset value per unit, beginning of period$42,423
 $42,451
Increase in members’ capital from operations (1):
   
Net investment income2,240
 3,469
Net change in unrealized depreciation on investment135
 (202)
Total increase in members’ capital from operations2,375
 3,267
Distributions to member (2):
   
Capital distributions(3,401) (3,309)
Net decrease in members’ capital resulting from distributions(3,401) (3,309)
Capital share transactions:   
Other (3)
8
 181
Net increase in members’ capital resulting from capital share transactions8
 181
Net asset value per unit, end of period$41,405
 $42,590




23


Notes to Unaudited Financial Statements


 Nine Months Ended September 30,
 2017 2016
Ratios to average net assets:   
Expenses (4)
0.22% 0.40%
Net investment income7.13% 10.99%
    
IRR, beginning of period5.43% 0.34%
IRR, end of period6.07% 4.91%
_______________
(1)The per unit data was derived by using the weighted average units outstanding during the applicable periods, which were 6,801 units and 6,935 units for the nine months ended September 30, 2017 and 2016, respectively.
(2)The per unit data for distributions reflects the actual amount of distributions paid per share during the periods.
(3)Represents the impact of the different unit amounts used in calculating per unit data as a result of calculating certain per unit data based upon the weighted average units outstanding during the period and certain per unit data based on the units outstanding as of a period end or transaction date.
(4)
Total expenses used for calculating the ratio included $0.4 million of merger transaction fees for the nine months ended September 30, 2016, which are non-recurring expenses.

Note 9.8. Subsequent Events


Management has evaluated subsequent events through the date the consolidated financial statements were available to be issued. Management has determined that there are no material events that would require adjustment to, or disclosure in, the Company’s consolidated financial statements.




22
24



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The information contained in this section should be read in conjunction with our unaudited consolidated financial statements and related notes thereto and other financial information included elsewhere in this quarterly report on Form 10-Q. In this report, the “Company,” “we,” “us” and “our” refer to Terra Secured Income Fund 5, LLC and its consolidated subsidiaries.LLC.

FORWARD-LOOKING STATEMENTS
We make forward-looking statements in this quarterly report on Form 10-Q within the meaning of Section 27A of the Securities Act of 1933, as amended, (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). For these statements, we claim the protections of the safe harbor for forward-looking statements contained in such Sections. The forward-looking statements contained in this quarterly report on Form 10-Q may include, but are not limited to, statements as to:

•our expected financial performance, operating results and our ability to make distributions to our members in the future;

•the potential negative impacts of COVID-19 on the global economy and the impacts of COVID-19 on our financial condition, results of operations, liquidity and capital resources and business operations;

•actions that may be taken by governmental authorities to contain the COVID-19 outbreak or to treat its impact;

•the efficacy of the vaccines or other remedies and the speed of their distribution and administration;

•the availability of attractive risk-adjusted investment opportunities in our target asset class and other real estate-related investments that satisfy our investment objectives and strategies;

•the origination or acquisition of our targeted assets, including the timing of originations or acquisitions;

•volatility in our industry, interest rates and spreads, the debt or equity markets, the general economy or the real estate market specifically, whether the results of market events or otherwise;

•changes in our investment objectives and business strategy;

•the availability of financing on acceptable terms or at all;

•the performance and financial condition of our borrowers;

•changes in interest rates and the market value of our assets;

•borrower defaults or decreased recovery rates from our borrowers;

•changes in prepayment rates on our investments;loans;

•our use of financial leverage;

•actual and potential conflicts of interest with any of the following affiliated entities: Terra IncomeFund Advisors, LLC (“Terra IncomeFund Advisors”, or the “Manager”);, Terra REIT Advisors, LLC (“Terra REIT Advisors”), Terra Income Advisors, LLC; Terra Capital Partners, LLC (“Terra Capital Partners”), our sponsor; Terra SecuredJV, LLC (“Terra JV”); Terra Income Fund LLC6, Inc. (“Terra Fund 1”6”); Terra Secured Income Fund 2, LLC (“Terra Fund 2”); Terra Secured Income Fund 3, LLC (“Terra Fund 3”); Terra Secured Income Fund 4, LLC (“Terra Fund 4”); Terra Secured Income Fund 5 International; Terra Income Fund International; Terra Secured Income Fund 7, LLC;LLC (“Terra Fund 7”); Terra Property Trust, Inc. (“Terra Property Trust”), our wholly-owned subsidiary;; Terra Property Trust 2, Inc., a subsidiary of International Fund 3, L.P. (“Terra Secured IncomeInternational 3”); Terra Offshore Funds REIT, LLC (“Terra Offshore REIT”); Mavik Real Estate Special Opportunities Fund, 7, LLC;LP (“Mavik RESOF”) (formerly known as Terra Capital Advisors, LLC; Terra Capital Advisors 2, LLC; Terra Income Advisors 2, LLC;Real Estate Credit Opportunities Fund, LP); or any of their affiliates;

•our dependence on our Manager or its affiliates and the availability of its senior management team and other personnel;

23

•liquidity transactions that may be available to us in the future, including a liquidation of our assets, a sale of our company or an initial public offering and listing of the shares of common stock of Terra Property Trust on a national securities exchange, and the timing of any such transactions;

•actions and initiatives of the U.S. federal, state and local government and changes to the U.S. federal, state and local government policies and the execution and impact of these actions, initiatives and policies;

•limitations imposed on our business and our ability to satisfy complex rules in order for us to maintain our exclusion from registration under the Investment Company Act of 1940, as amended (the “1940 Act”), and Terra Property Trust to maintain its qualification as a real estate investment trust (“REIT”) for U.S. federal income tax purposes; and

•the degree and nature of our competition.

In addition, words such as “anticipate,” “believe,” “expect” and “intend” indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-


25


lookingforward-looking statements for any reason, including the factors set forth as “Riskin “Part I — Item 1A. Risk Factors” in our registration statementannual report on Form 10.10-K for the year ended December 31, 2020 and in “Part II - Item 1A. Risk Factors” in this quarterly report on Form 10-Q. Other factors that could cause actual results to differ materially include:

•changes in the economy;

•risks associated with possible disruption in our operations or the economy generally due to terrorism or natural disasters; and

•future changes in laws or regulations and conditions in our operating areas.

We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report on Form 10-Q. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. Members are advised to consult any additional disclosures that we may make directly to members or through reports that we may file in the future with the Securities and Exchange Commission (the “SEC”“SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

Overview
    
We are a specialized real estate financecredit focused company that originates, structures, funds and manages high yielding commercial real estate loans. We focus primarily on the origination ofinvestments, including mezzanine loans, which are subordinate commercial real estate loans secured by ownership interests in the entity that owns commercial real estate. We also originate first mortgage loans, bridgesubordinated mortgage loans and preferred equity investments in each case tothroughout the United States. Our loans finance the acquisition, construction, development or redevelopment of high quality commercial real estate in the U.S.United States. We focus on the origination of middle market loans in the approximately $10 million to $50 million range, to finance properties primarily in primary and secondary markets. We believe loans of this size are subject to less competition, offer higher risk adjusted returns than larger loans with similar risk metrics and facilitate portfolio diversification. We were formed as a Delaware limited liability company on April 24, 2013 and commenced operations on August 8, 2013. We make substantially all of our investments and conduct substantially all of our real estate lending business through our wholly-owned subsidiary, Terra Property Trust.Trust, which has elected to be taxed as a REIT for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2016. Our objective isobjectives are to continue(i) preserve our members’ capital contributions, (ii) realize income from our investments and (iii) make monthly distributions to provide attractive risk-adjusted returns toour members primarily through distributions.from cash generated from investments. There can be no assurances that we will be successful in meeting our objective.objectives.


On January 1, 2016, Terra Secured Income Fund, 1, LLC (“Terra Fund 2,1”), Terra Fund Secured Income Fund 2, LLC (“Terra Fund 2”), Terra Secured Income Fund 3, LLC (“Terra Fund 3”) and Terra Secured Income Fund 4, LLC (“Terra Fund 4”) merged with and into our subsidiaries (individually, each a “Terra Fund” and collectively,(collectively, the “Terra Funds”) through a series of separate mergers (collectively, the “Merger”). Following the Merger, we contributed the consolidated portfolio of our net assets and the net assets of the Terra Funds to Terra Property Trust in exchange for all of the shares of common sharesstock of Terra Property Trust. We elected to engage in these transactions, which we refer to continueas the “REIT formation transactions,” to make our business as a REIT for U.S. federal income tax purposes,investments through Terra Property Trust and to provide our members with a more broadly diversified portfolio of assets, while at the same time providing us with enhanced access to capital and borrowings, lower operating costs and enhanced opportunities for growth.


Our investment activities are externally managed by
24

    On March 2, 2020, Terra Fund 1, Terra Fund 2 and Terra Fund 3 merged with and into Terra Fund 4, with Terra Fund 4 continuing as the surviving company (the “Terra Fund Merger”), and we consolidated our Manager, a subsidiaryholdings of shares of common stock of Terra Capital Partners,Property Trust in Terra Fund 4. Subsequent to the Terra Fund Merger, the legal name of Terra Fund 4 was changed to Terra JV, LLC. On March 2, 2020, Terra Property Trust engaged in a real estate financeseries of transactions pursuant to which Terra Property Trust issued an aggregate of 4,574,470.35 shares of its common stock in exchange for the settlement of an aggregate of $49.8 million of participation interests in loans that Terra Property Trust owned, cash of $25.5 million and investment firm basedother working capital. On April 29, 2020, Terra Property Trust repurchased, at a purchase price of $17.02 per share, 212,691 shares of common stock that Terra Property Trust had previously sold to Terra Offshore REIT on September 30, 2019.As of March 31, 2021, Terra JV held 87.4% of the issued and outstanding shares of Terra Property Trust’s common stock with the remainder held by Terra Offshore REIT, and we and Terra Fund 7 owned an 87.6% and 12.4% percentage interest, respectively, in New York CityTerra JV. Accordingly, as of March 31, 2021, we indirectly beneficially owned 76.5% of the outstanding shares of common stock of Terra Property Trust through Terra JV.

Recent Developments

    The coronavirus (“COVID-19”) pandemic has had, and is expected to continue to have, a significant impact on local, national and global economies and has resulted in a world-wide economic slowdown. While certain economies have exhibited growth of late when compared to earlier months of 2020, the amount of economic recovery will continue to be impacted by reductions and restrictions in economic activity resulting from increased coronavirus cases. We continue to closely monitor the impact of the coronavirus pandemic on all aspects of our investments and operations. The extent to which the coronavirus pandemic may impact our investments and operations going forward will depend on future developments, which are highly uncertain and cannot be predicted with confidence. These developments include the duration of the outbreak, the impact of the global vaccination effort, any new strains of the virus that focus primarily onare resistant to available vaccines, the originationimpact of government stimulus, new information that may emerge concerning the severity of the coronavirus, and management of mezzanine loans,actions taken by federal, state and local agencies as well as firstthe general public to contain the coronavirus or treat its impact, among others.
    We believe, however, that compelling opportunities for us will emerge as a result of the economic downtown caused by the COVID-19 pandemic. While it has had a demonstrable effect on employment, the economy and the national psyche, the impact of the pandemic 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 loans, bridge loans,financing and preferred equity investments in all majorinvestor demand for property. As these factors become clear and commercial real estate is repriced accordingly, we believe there will be abundant opportunities available to experienced alternative lenders such as us to provide financing for property types.acquisition, refinancing, development and redevelopment on attractive terms that reflect the new realities of the economy. 

Portfolio Summary


The following tables provide a summary of Terra Property Trust’s net loan portfolio as of September 30, 2017March 31, 2021 and December 31, 2016:2020:
March 31, 2021
Fixed Rate
Floating
Rate (1)(2)(3)
Total Gross LoansObligations under Participation Agreements and Secured BorrowingTotal Net Loans
Number of loans6 13 19 7 19 
Principal balance$57,040,923 $350,689,385 $407,730,308 $93,310,285 $314,420,023 
Amortized cost57,157,301 348,911,570 406,068,871 93,596,454 312,472,417 
Fair value57,099,978 346,367,302 403,467,280 91,599,071 311,868,209 
Weighted average coupon rate12.07 %7.66 %8.28 %9.97 %7.78 %
Weighted-average remaining
   term (years)		1.57 1.41 1.43 0.90 1.59 
25
 September 30, 2017
 Fixed Rate 
Floating
Rate (1)
 Total Gross Loans Obligations under Participation Agreements Total Net Loans
Number of loans32
1
1
 33
 19
 33
Principal balance$274,799,217
 $52,986,912
 $327,786,129
 70,020,950
 $257,765,179
Amortized cost278,381,358
 53,494,280
 331,875,638
 70,992,661
 260,882,977
Fair value278,265,904
 53,637,569
 331,903,473
 70,910,091
 260,993,382
Weighted average coupon rate12.60% 9.73% 12.13% 12.49% 11.99%
Weighted-average remaining
   terms (year)
1.68
 0.44
 1.48
 1.26
 1.54



26



December 31, 2016December 31, 2020
Fixed Rate 
Floating
Rate (1)
 Total Gross Loans Obligations under Participation Agreements Total Net LoansFixed Rate
Floating
Rate (1)(2)(3)
Total Gross LoansObligations under Participation Agreements and Secured BorrowingTotal Net Loans
Number of loans37
 1
 38
 11
 38
Number of loans6 14 20 8 20 
Principal balance$275,554,910
 $50,450,061
 $326,004,971
 32,635,785
 $293,369,186
Principal balance$56,335,792 $367,838,966 $424,174,758 $89,548,151 $334,626,607 
Amortized cost279,781,074
 50,902,766
 330,683,840
 32,986,194
 297,697,646
Amortized cost56,464,310 365,816,205 422,280,515 89,769,560 332,510,955 
Fair value278,931,283
 50,924,056
 329,855,339
 32,904,955
 296,950,384
Fair value56,284,334 363,122,860 419,407,194 87,730,239 331,676,955 
Weighted average coupon rate12.98% 9.19% 12.38% 12.96% 12.33%Weighted average coupon rate12.17 %7.95 %8.51 %10.16 %8.07 %
Weighted-average remaining
terms (year)
1.42
 1.19
 1.39
 1.35
 1.37
Weighted-average remaining
term (years)		Weighted-average remaining
term (years)		1.78 1.44 1.48 1.08 1.59 
_______________
(1)
This loan pays an annual coupon rate of London Interbank Offered Rate (“LIBOR”) plus 8.5% with a LIBOR floor of 0.5%. Coupon rate shown was determined using the applicable annual coupon rate as of September 30, 2017 and December 31, 2016.
(1)These loans pay a coupon rate of London Interbank Offered Rate (“LIBOR”) plus a fixed spread. Coupon rate shown was determined using LIBOR of 0.11% and 0.14% as of March 31, 2021 and December 31, 2020.
(2)As of March 31, 2021 and December 31, 2020, amounts included $183.7 million and $184.2 million of senior mortgages used as collateral for $106.5 million and $107.6 million of borrowings under a term loan, respectively. As of March 31, 2021, amounts also included $11.9 million of senior mortgages used as collateral for $8.0 million of borrowings under a revolving line of credit. Borrowings under the term loan bear interest at an annual rate of LIBOR plus 4.25% with a LIBOR floor of 1.00%. Borrowings under the revolving line of credit bear interest at a minimum rate of 4.0%.
(3)As of March 31, 2021 and December 31, 2020, eleven and twelve of these loans, respectively, are subject to a LIBOR floor.

    In addition to its net loan portfolio, as of March 31, 2021 and December 31, 2020, Terra Property Trust owned 4.9 acres of adjacent land acquired via deed in lieu of foreclosure and a multi-tenant office building acquired via foreclosure. The land and building and related lease intangible assets and liabilities had a net carrying value of $62.1 million and $62.9 million as of March 31, 2021 and December 31, 2020, respectively. The mortgage loan payable encumbering the office building had an outstanding principal amount of $40.6 million and $44.0 million as of March 31, 2021 and December 31, 2020, respectively.

Additionally, as of March 31, 2021 and December 31, 2020, Terra Property Trust owned 83.5% and 90.3%, respectively, of equity interest in a limited partnership that invests in performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets. As of March 31, 2021 and December 31, 2020, the equity interest had a carrying value of $50.5 million and $36.3 million, respectively.

Portfolio Investment Activity
    For the three months ended March 31, 2021 and 2020, Terra Property Trust invested $15.5 million and $12.6 million in new investments and had $25.0 million and $10.0 million of repayments, resulting in net repayments of $9.4 million and net investments of $2.6 million, respectively. Amounts are net of obligations under participation agreements, secured borrowing, borrowings under the master repurchase agreement, the term loan and the revolving line of credit.

    In addition, in March 2020, Terra Property Trust issued 4,574,470.35 shares of common stock in exchange for the settlement of an aggregate of $49.8 million of participation interests in loans that it owned, cash of $25.5 million and other working capital. In connection with the transactions, the related participation obligations were settled.





26


Portfolio Information


The tables below detailset forth the types of loansassets in Terra Property Trust’s loan portfolio, as well as the property type and geographic location of the properties securing thesethe loans in the portfolio, on a net loan basis, which represents Terra Property Trust’s proportionate share of the loans, based on its economic ownership of these loans.
March 31, 2021December 31, 2020
Loan StructurePrincipal BalanceAmortized CostFair
Value		% of TotalPrincipal BalanceAmortized CostFair
Value		% of Total
First mortgages$212,718,851 $214,217,072 $214,067,237 48.8 %$209,660,270 $210,694,778 $210,517,299 47.9 %
Preferred equity
   investments		77,586,298 77,828,409 73,847,051 16.8 %101,019,788 101,267,732 97,472,723 22.2 %
Mezzanine loans24,114,874 24,441,714 23,953,921 5.5 %23,946,549 24,287,203 23,686,933 5.4 %
Allowance for loan
   losses		— (4,014,778)— — %— (3,738,758)— — %
Total loan
   investments		$314,420,023 312,472,417 311,868,209 71.1 %$334,626,607 332,510,955 331,676,955 75.5 %
Marketable
   securities		6,155,094 6,251,980 1.4 %1,176,006 1,287,500 0.3 %
Real estate owned62,114,581 70,717,229 16.1 %63,385,339 70,717,229 16.1 %
Equity investment
   in a limited
   partnership		50,505,511 49,919,016 11.4 %36,385,339 35,678,585 8.1 %
Total$431,247,603 $438,756,434 100.0 %$433,457,639 $439,360,269 100.0 %
  September 30, 2017 December 31, 2016
Loan Structure Principal Balance Amortized Cost Fair
Value		 % of Total Principal Balance Amortized Cost Fair
Value		 % of Total
First mortgages $106,946,912
 $107,981,096
 $108,124,338
 41.4% $117,890,016
 $118,995,391
 $119,018,338
 40.1%
Mezzanine loans 89,335,269
 90,756,354
 90,821,211
 34.8% 118,524,437
 121,037,421
 120,466,609
 40.6%
Preferred equity
   investments
 53,482,998
 54,065,527
 53,968,834
 20.7% 47,415,691
 48,229,921
 47,838,821
 16.1%
Other (1)
 8,000,000
 8,080,000
 8,078,999
 3.1% 9,539,042
 9,626,616
 9,626,616
 3.2%
Allowance for
   loan losses
 —
 —
 —
 —% —
 (191,703) —
 —%
Total $257,765,179
 $260,882,977
 $260,993,382
 100.0% $293,369,186
 $297,697,646
 $296,950,384
 100.0%

_______________
(1)Other includes $8.0 million of unused cash from a credit facility at September 30, 2017 and $9.5 million of unused cash from two credit facilities at December 31, 2016.
  September 30, 2017 December 31, 2016
Property Type Principal Balance Amortized Cost Fair
Value		 % of Total Principal Balance Amortized Cost Fair
Value		 % of Total
Multifamily $71,765,501
 $72,775,385
 $72,426,060
 27.8% $83,510,933
 $85,021,199
 $84,556,067
 28.5%
Office 57,382,912
 57,930,352
 58,076,047
 22.3% 69,506,033
 70,159,209
 70,158,868
 23.6%
Land 53,960,000
 54,486,816
 54,486,769
 20.8% 53,746,133
 54,255,486
 54,258,353
 18.2%
Hotel 53,922,152
 54,641,489
 54,562,580
 20.9% 66,351,287
 67,557,902
 67,077,247
 22.6%
Industrial 7,000,000
 7,000,000
 7,000,000
 2.7% —
 —
 —
 —%
Student housing 5,734,614
 5,968,935
 6,362,927
 2.4% 5,700,000
 6,125,635
 6,215,839
 2.1%
Mixed use —
 —
 —
 —% 2,515,758
 2,533,450
 2,527,566
 0.9%
Other (1)
 8,000,000
 8,080,000
 8,078,999
 3.1% 12,039,042
 12,236,468
 12,156,444
 4.1%
Allowance for
   loan losses
 —
 —
 —
 —% —
 (191,703) —
 —%
Total $257,765,179
 $260,882,977
 $260,993,382
 100.0% $293,369,186
 $297,697,646
 $296,950,384
 100.0%
_______________
(1)Other includes $8.0 million of unused cash from a credit facility at September 30, 2017 and $9.5 million of unused cash from two credit facilities at December 31, 2016. Other also includes $2.5 million of retail properties as of December 31, 2016.

March 31, 2021December 31, 2020
Property TypePrincipal BalanceAmortized CostFair
Value		% of TotalPrincipal BalanceAmortized CostFair
Value		% of Total
Office$150,129,899 $150,669,866 $149,342,121 34.1 %$145,560,299 $146,010,011 $144,654,237 32.9 %
Multifamily80,440,026 81,087,592 80,890,073 18.4 %103,057,678 103,678,464 103,502,170 23.5 %
Hotel - full/select
   service		47,112,522 47,704,223 47,502,136 10.8 %49,142,809 49,393,251 49,052,148 11.2 %
Mixed use16,512,842 16,512,842 13,817,239 3.1 %16,767,984 16,767,984 14,314,585 3.3 %
Industrial7,000,000 7,000,000 6,995,064 1.6 %7,000,000 7,000,000 7,007,397 1.6 %
Infill land5,974,734 6,030,824 6,042,260 1.4 %5,847,837 5,901,575 5,864,339 1.3 %
Hotel - extended
   stay		4,250,000 4,292,148 4,292,450 1.0 %4,250,000 4,294,053 4,293,969 1.0 %
Student housing3,000,000 3,189,700 2,986,866 0.7 %3,000,000 3,204,375 2,988,110 0.7 %
Allowance for loan
   losses		— (4,014,778)— — %— (3,738,758)— — %
Total loan
   investments		$314,420,023 312,472,417 311,868,209 71.1 %$334,626,607 332,510,955 331,676,955 75.5 %
Marketable
   securities		6,155,094 6,251,980 1.4 %1,176,006 $1,287,500 0.3 %
Real estate owned62,114,581 70,717,229 16.1 %63,385,339 70,717,229 16.1 %
Equity investment
   in a limited
   partnership		50,505,511 49,919,016 11.4 %36,385,339 35,678,585 8.1 %
Total$431,247,603 $438,756,434 100.0 %$433,457,639 $439,360,269 100.0 %

27
27



March 31, 2021December 31, 2020
Geographic LocationPrincipal BalanceAmortized CostFair
Value		% of TotalPrincipal BalanceAmortized CostFair
Value		% of Total
United States
California$121,331,368 $122,393,503 $122,372,064 28.0 %$143,454,602 $144,066,584 $143,989,756 32.9 %
Georgia74,957,483 75,352,520 75,236,254 17.1 %74,116,787 74,505,752 74,411,107 16.9 %
New York56,966,298 57,039,596 53,076,619 12.1 %56,058,669 56,139,234 52,378,785 11.9 %
North Carolina28,774,734 28,934,721 28,934,384 6.6 %28,647,837 28,802,869 28,734,218 6.5 %
Washington18,500,000 18,648,113 18,629,677 4.2 %18,500,000 18,643,699 18,634,464 4.2 %
Massachusetts7,000,000 7,000,000 6,995,064 1.6 %7,000,000 7,000,000 7,007,397 1.6 %
Texas3,890,140 3,929,042 3,637,281 0.8 %3,848,712 3,887,200 3,533,118 0.8 %
South Carolina3,000,000 3,189,700 2,986,866 0.7 %3,000,000 3,204,375 2,988,110 0.7 %
Allowance for loan
   losses		— (4,014,778)— — %— (3,738,758)— — %
Total loan
   investments		$314,420,023 312,472,417 311,868,209 71.1 %$334,626,607 332,510,955 331,676,955 75.5 %
Marketable
   securities		6,155,094 6,251,980 1.4 %1,176,006 1,287,500 0.3 %
Real estate owned62,114,581 70,717,229 16.1 %63,385,339 70,717,229 16.1 %
Equity investment
   in a limited
   partnership		50,505,511 49,919,016 11.4 %36,385,339 35,678,585 8.1 %
Total$431,247,603 $438,756,434 100.0 %1$433,457,639 $439,360,269 100.0 %
  September 30, 2017 December 31, 2016
Geographic Location Principal Balance Amortized Cost Fair
Value		 % of Total Principal Balance Amortized Cost Fair
Value		 % of Total
United States                
California $90,816,912
 $91,818,221
 $91,838,599
 35.2% $89,925,061
 $91,165,200
 $90,798,926
 30.5%
New York 37,805,463
 38,107,156
 38,068,216
 14.5% 37,032,965
 37,324,858
 37,315,430
 12.6%
Florida 34,529,152
 34,851,771
 34,858,786
 13.3% 49,122,324
 49,520,673
 49,320,018
 16.6%
Washington 20,250,000
 20,360,848
 20,417,124
 7.8% —
 —
 —
 —%
Pennsylvania 15,410,000
 15,554,693
 15,564,431
 6.0% 18,982,000
 19,162,115
 19,184,642
 6.5%
Georgia 15,250,000
 15,588,190
 15,386,904
 5.9% 4,250,000
 4,604,941
 4,387,683
 1.5%
Texas 7,651,038
 7,879,004
 7,764,279
 3.0% 9,139,038
 9,363,678
 9,330,002
 3.1%
Massachusetts 7,000,000
 7,000,000
 7,000,000
 2.7% 4,000,000
 4,112,275
 4,071,618
 1.4%
Delaware 4,396,000
 4,436,072
 4,438,478
 1.7% 7,000,000
 7,057,616
 7,086,338
 2.4%
Alabama 3,700,000
 3,775,021
 3,744,552
 1.4% 3,844,445
 3,928,742
 3,882,318
 1.3%
Oregon 3,140,000
 3,273,511
 3,290,784
 1.3% 5,000,000
 5,356,923
 5,324,812
 1.8%
North Carolina 2,198,000
 2,222,837
 2,219,723
 0.9% 4,921,404
 4,985,576
 4,985,280
 1.7%
Tennessee 1,884,000
 1,966,718
 1,959,580
 0.8% 9,877,843
 10,179,485
 10,047,055
 3.4%
New Jersey —
 —
 —
 —% 22,639,955
 22,865,291
 22,864,082
 7.7%
Virginia —
 —
 —
 —% 6,675,510
 6,737,238
 6,737,238
 2.3%
Arizona —
 —
 —
 —% 5,719,598
 5,772,487
 5,772,487
 1.9%
Other (1)
 13,734,614
 14,048,935
 14,441,926
 5.5% 15,239,043
 15,752,251
 15,842,455
 5.3%
Allowance for
   loan losses
 —
 —
 —
 —% —
 (191,703) —
 —%
Total $257,765,179
 $260,882,977
 $260,993,382
 100.0% $293,369,186
 $297,697,646
 $296,950,384
 100.0%
_______________
(1)Other includes $8.0 million of unused cash from a credit facility, $2.7 million of properties in Indiana, $1.9 million of properties in South Carolina and $1.1 million of properties in Utah at September 30, 2017. Other includes $9.5 million of unused cash from two credit facilities, $2.7 million of properties in Indiana and $3.0 million of properties in South Carolina at December 31, 2016.


Factors Impacting Operating Results


Our operating results of operations are affected by a number of factors and primarily depend on, among other things, the level of the interest income generated by Terra Property Trust from targeted assets, the market value of our assets and the supply of, and demand for, real estate-related loans, including mezzanine loans, first and second mortgage loans, subordinated mortgage loans, bridge loans, preferred equity investments and other loans related to high quality commercial real estate in the United States, and the financing and other costs associated with our business. Interest income and borrowing costs of Terra Property Trust may vary as a result of changes in interest rates, which could impact the net interest we receive on our assets. Our operating results may also be impacted by conditions in the financial markets and unanticipated credit events experienced by borrowers under our loan assets.


Market Risk


Terra Property Trust’s loans are highly illiquid and there is no assurance that it will achieve its investment objectives, including targeted returns. Due to the illiquidity of the loans, valuation of Terra Property Trust’s loans may be difficult, as there generally will be no established markets for these loans.


    The COVID-19 pandemic has resulted in extreme volatility in a variety of global markets, including the real estate-related debt markets. U.S. financial markets, in particular, are experiencing limited liquidity and forced selling by certain market participants with insufficient liquidity available to meet current obligations, which puts further downward pressure on asset prices.

Credit Risk


Credit risk represents the potential loss that Terra Property Trust would incur if the borrowers failed to perform pursuant to the terms of their obligations to Terra Property Trust. Terra Property Trust minimizes itsmanages exposure to credit risk by limiting exposure to any one individual borrower and any one asset class. Additionally, Terra Property Trust employs an asset management approach and monitormonitors the portfolio of loans, through, at a minimum, quarterly financial review of property performance including net operating income, loan-to-value ratio, debt service coverage ratio, and the debt yield. Terra Property Trust also requires certain borrowers to establish a cash reserve, as a form of additional collateral, for the purpose of providing for future interest or property-related operating payments.


    The performance and value of Terra Property Trust’s loans depend upon the sponsors’ ability to operate or manage the development of the respective properties that serve as collateral so that each property’s value ultimately supports the repayment

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28




of the loan balance. Mezzanine loans and preferred equity investments are subordinate to senior mortgage loans and, therefore, involve a higher degree of risk. In the event of a default, mezzanine loans and preferred equity investments will be satisfied only after the senior lender’s investment is fully recovered. As a result, in the event of a default, Terra Property Trust may not recover all of its investments.


    In addition, Terra Property Trust is exposed to the risks generally associated with the commercial real estate market, including variances in occupancy rates, capitalization rates, absorption rates, and other macroeconomic factors beyond its control. Terra Property Trust seeks to manage these risks through its underwriting and asset management processes.

    The COVID-19 pandemic has significantly impacted the commercial real estate markets, causing reduced occupancy, requests from tenants for rent deferral or abatement, and delays in construction and development projects currently planned or underway. These negative conditions may persist into the future and impair Terra Property Trust’s borrowers’ ability to pay principal and interest due to Terra Property Trust under its loan agreements.
We and Terra Property Trust maintain all of our cash at financial institutions which, at times, may exceed the amount insured by the Federal Deposit Insurance Corporation.


Concentration Risk


Terra Property Trust holds real estate-related loans. Thus, its loan portfolio may be subject to a more rapid change in value than would be the case if it were required to maintain a wide diversification among industries, companies and types of loans. The result of such concentration in real estate assets is that a loss in such loans could materially reduce Terra Property Trust’s capital.


Liquidity Risk


Liquidity risk represents the possibility that we may not be able to sell, directly or indirectly, our positionsequity interest in Terra Property Trust or Terra JV at a reasonable price in times of low trading volume, high volatility and financial stress.


Interest Rate Risk


Interest rate risk represents the effect from a change in interest rates, which could result in an adverse change in the fair value of our interest-bearing financial instruments. With respect to Terra Property Trust’s business operations, increases in interest rates, in general, may over time cause: (i) the interest expense associated with variable rate borrowings to increase; (ii) the value of real estate-related loans to decline; (iii) coupons on variable rate loans to reset, although on a delayed basis, to higher interest rates; (iv) to the extent applicable under the terms of Terra Property Trust’s investments, prepayments on real estate-related loans to slow, and (v) to the extent we enter into interest rate swap agreements as part of Terra Property Trust’s hedging strategy, the value of these agreements to increase.

    Conversely, decreases in interest rates, in general, may over time cause: (i) the interest expense associated with variable rate borrowings to decrease; (ii) the value of real estate-related loans to increase; (iii) coupons on variable rate real estate-related loans to reset, although on a delayed basis, to lower interest rates (iv) to the extent applicable under the terms of Terra Property Trust’s investments, prepayments on real estate-related loans to increase, and (v) to the extent Terra Property Trust enters into interest rate swap agreements as part of its hedging strategy, the value of these agreements to decrease.


Prepayment Risk


Prepayments can either positively or adversely affect the yields on Terra Property Trust’s loans. Prepayments on debt instruments, where permitted under the debt documents, are influenced by changes in current interest rates and a variety of economic, geographic and other factors beyond our control, and consequently, such prepayment rates cannot be predicted with certainty. If Terra Property Trust does not collect a prepayment fee in connection with a prepayment or are unable to invest the proceeds of such prepayments received, the yield on the portfolio will decline. In addition, Terra Property Trust may acquire assets at a discount or premium and if the asset does not repay when expected, the anticipated yield may be impacted. Under certain interest rate and prepayment scenarios Terra Property Trust may fail to recoup fully its cost of acquisition of certain loans.


29

Extension Risk

    Extension risk is the risk that Terra Property Trust’s assets will be repaid at a slower rate than anticipated and generally increases when interest rates rise. In which case, to the extent Terra Property Trust has financed the acquisition of an asset, Terra Property Trust may have to finance its asset at potentially higher costs without the ability to reinvest principal into higher yielding securities because borrowers prepay their mortgages at a slower pace than originally expected, adversely impacting its net interest spread, and thus its net interest income.

Real Estate Risk

    The market values of commercial and residential mortgage assets are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; retroactive changes to building or similar codes; pandemics; natural disasters and other acts of god. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the underlying loans, which could also cause Terra Property Trust to suffer losses. Market volatility has been particularly heightened due to the COVID-19 global pandemic. COVID-19 has disrupted economic activities and could have a continued significant adverse effect on economic and market conditions including limited lending from financial institutions, depressed asset values, and limited market liquidity.

Use of Leverage


Terra Property Trust may deploydeploys moderate amounts of leverage as part of ourits operating strategy, which may consist of borrowings under first mortgage financings, warehouse facilities, term loans, repurchase agreements and other credit facilities. While borrowing and leverage present opportunities for increasing total return, they may have the effect of potentially creating or increasing losses.




29


Results of Operations
The following table presents the comparative results of our operations for the three and nine months ended September 30, 2017March 31, 2021 and 2016:2020:
Three Months Ended March 31,
20212020Change
Investment income
Dividend income$1,126,895 $1,264,438 $(137,543)
Other operating income20 144 (124)
Total investment income1,126,915 1,264,582 (137,667)
Operating expenses
Professional fees120,135 174,099 (53,964)
Other385 1,449 (1,064)
Total operating expenses120,520 175,548 (55,028)
Net investment income1,006,395 1,089,034 (82,639)
Net change in unrealized appreciation (depreciation) on investment492,466 (2,286,298)2,778,764 
Net increase (decrease) in members’ capital resulting from operations$1,498,861 $(1,197,264)$2,696,125 
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 Change 2017 2016 Change
Investment income           
Dividend income$4,448,792
 $9,824,336
 $(5,375,544) $15,703,171
 $25,042,346
 $(9,339,175)
Other operating income111
 614
 (503) 1,064
 8,571
 (7,507)
Total investment income4,448,903
 9,824,950
 (5,376,047) 15,704,235
 25,050,917
 (9,346,682)
Operating expenses           
Professional fees104,100
 269,635
 (165,535) 431,465
 549,211
 (117,746)
Merger transaction fees—
 —
 —
 —
 388,692
 (388,692)
Other3,448
 (38,342) 41,790
 35,761
 52,954
 (17,193)
Total operating expenses107,548
 231,293
 (123,745) 467,226
 990,857
 (523,631)
Net investment income4,341,355
 9,593,657
 (5,252,302) 15,237,009
 24,060,060
 (8,823,051)
Net change in unrealized
   depreciation on investment
428,032
 (730,673) 1,158,705
 920,026
 (1,400,694) 2,320,720
Net increase in members’
   capital resulting from
   operations
$4,769,387
 $8,862,984
 $(4,093,597) $16,157,035
 $22,659,366
 $(6,502,331)


Dividend Income


Dividend income associated with our indirect ownership of Terra Property Trust primarily represents our proportionate share of Terra Property Trust’s net income for the period. Any excess of distributions received from Terra Property Trust over its net income is recorded as return of capital. As of both March 31, 2021 and December 31, 2020, we indirectly beneficially owned 76.5% through Terra JV of the outstanding shares of common stock of Terra Property Trust.


For the three months ended September 30, 2017March 31, 2021 and 2016,2020, we received distributions of $13.1$3.0 million and $9.6$7.8 million, respectively, or $0.88$0.20 and $0.65$0.53 per share, respectively, from Terra Property Trust, of which $4.4$1.1 million and $9.6$1.3 million was recorded as dividend income respectively, representing Terra Property Trust’s net income for the periods presented, and $8.7$1.9 million and none was recorded as return of capital, respectively. The $5.4 million decrease in Terra Property Trust’s net income was primarily due to (i) $3.6 million of prepayment fee income received from one loan during the three months ended September 30, 2016 as the borrower repaid the loan two years before the scheduled maturity date; (ii) a decrease in net interest income of 0.8 million as a result of lower weighted average principal balance and lower weighted average coupon rate; and (iii) operating income of $0.5 million for three months ended September 30, 2016 from Terra Park Green Members, LLC (“Terra Park Green”), a wholly-owned subsidiary of Terra Property Trust that owned two commercial office building parks and the related operations, which was subsequently sold in November 2016. The $8.7 million increase in return of capital was primarily due to the decrease in Terra Property Trust’s net income as well as additional cash needed to redeem Terra Fund 3’s Termination Units.

For the nine months ended September 30, 2017 and 2016, we received distributions of $29.7 million and $25.4 million, respectively, or $1.99 and $1.71 per share, respectively, from Terra Property Trust, of which $15.7 million and $25.0 million was recorded as dividend income, respectively, representing Terra Property Trust’s net income for the periods presented, and $14.0 million and $0.3$6.6 million was recorded as return of capital, respectively. The $9.3 million decrease

30

For the three months ended March 31, 2021 as compared to the same period in 2020, Terra Property Trust’s net income wasincreased by $0.9 million, primarily due to (i) $3.6equity income from Terra Property Trust’s equity investment in a limited partnership of $1.3 million and a decrease in provision for loan losses of prepayment fee income received from one loan during the three months ended September 30, 2016 as the borrower repaid the loan two years before the scheduled maturity date; (ii)$0.9 million, partially offset by a decrease in net interest income of 3.7$1.1 million as a result of lowera decrease in the weighted average principal balance,interest rate on net investments driven by new loan originations having lower weighted average coupon rate andrates than those of the suspension of $1.2 million of net interest income accrual on two loans as discussed in “Annualized Net Effective Yield” below; and (iii) operating income of $1.5 million for nine months ended September 30, 2016 from Terra Park Green which was subsequently sold in November 2016. The $13.7 million increase in return of capital was primarily due to the decrease in Terra Property Trust’s net income as well as additional cash needed to redeem Terra Fund 3’s Termination Units.that were repaid.



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Net Loan Portfolio
    
In assessing the performance of Terra Property Trust’s loans, we believe it is appropriate to evaluate the loans on an economic basis, that is, gross loans net of obligations under participation agreements and mortgagesecured borrowing, term loan payable, revolving line of credit and repurchase agreement payable.

     The following tables present a reconciliation of Terra Property Trust’s loan portfolio from a gross basis to a net basis for the three and nine months ended September 30, 2017March 31, 2021 and 2016:2020:
  Three Months Ended September 30, 2017 Three Months Ended September 30, 2016
  Weighted Average Principal Amount Weighted Average Coupon Rate Weighted Average Principal Amount Weighted Average Coupon Rate
Gross loans $314,920,884
 12.1% $318,263,084
 12.5%
Obligations under participation
   agreements
 (68,234,833) 12.5% (24,792,000) 13.2%
Mortgage loan payable (34,000,000) 5.7% (34,000,000) 5.8%
Net loans $212,686,051
 
      13.0% (1)
 $259,471,084
 
   13.3% (1)

  Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
  Weighted Average Principal Amount Weighted Average Coupon Rate Weighted Average Principal Amount Weighted Average Coupon Rate
Gross loans $338,889,294
 12.0% $309,970,724
 12.8%
Obligations under participation
   agreements
 (52,385,371) 12.4% (22,848,289) 13.4%
Mortgage loan payable (36,928,955) 5.7% (30,435,055) 5.8%
Net loans $249,574,968
 
   12.8% (1)
 $256,687,380
 
    13.6% (1)
Three Months Ended March 31, 2021Three Months Ended March 31, 2020
Weighted Average Principal Amount (1)
Weighted Average Coupon Rate (2)
Weighted Average Principal Amount (1)
Weighted Average Coupon Rate (2)
Total portfolio
Gross loans$408,985,092 8.4 %$388,164,960 9.5 %
Obligations under participation agreements
   and secured borrowing		(88,594,532)10.1 %(88,056,951)11.7 %
Repurchase agreement payable—— %(94,465,741)4.0 %
Term loan payable(107,776,898)5.3 %— — %
Revolving line of credit(1,745,785)4.0 %— — %
Net loans (3)
$210,867,877 9.3 %$205,642,268 11.1 %
Senior loans
Gross loans255,124,6346.4 %189,925,0276.9 %
Obligations under participation agreements
   and secured borrowing		(45,478,823)8.6 %(17,680,599)10.6 %
Repurchase agreement payable—— %(94,465,741)4.0 %
Term loan payable(107,776,898)5.3 %— — %
Revolving line of credit(1,745,785)4.0 %— — %
Net loans (3)
$100,123,128 6.6 %$77,778,687 9.7 %
Subordinated loans (4)
Gross loans153,860,45811.7 %198,239,93312.0 %
Obligations under participation agreements(43,115,709)11.6 %(70,376,352)12.0 %
Net loans (3)
$110,744,749 11.7 %$127,863,581 12.0 %
_______________
(1)Represents net interest income over the period calculated using the weighted average coupon rate and weighted average principal amount shown on the table (interest income on the loans less interest expense) divided by the weighted average principal amount of the net loans during the period.

(1)Amount is calculated based on the number of days each loan is outstanding.
(2)Amount is calculated based on the underlying principal amount of each loan.
(3)The weighted average coupon rate represents net interest income over the period calculated using the weighted average coupon rate and weighted average principal amount shown on the table (interest income on the loans less interest expense) divided by the weighted average principal amount of the net loans during the period.
(4)Subordinated loans include mezzanine loans, preferred equity investments and credit facilities.

For the three and nine months ended September 30, 2017March 31, 2021 as compared to the same periodsperiod in 2016,2020, the decrease in weighted average coupon rate was primarily due to an increase in investments in senior loans, which are typically larger principal-balance loans payinga higher volume of loan originations with lower levels of interest reflecting the lower perceived risk due to their senior position in the borrower's capital structure as compared to investments in subordinated loans, as well as the new subordinated loans we originated and purchased during the current periods have coupon rates that are lower than those of the maturing subordinated loans.rates.

Annualized Net Effective Yield
The following table presents a calculation of Terra Property Trust’s annualized net effective yield on its net loan portfolio for the periods presented:
  Three Months Ended September 30,
  2017 2016 Change
Interest income $9,598,478
 $9,245,815
 $352,663
Interest expense — obligations under participation agreements (2,001,349) (839,996) (1,161,353)
Interest expense — mortgage loan payable (625,477) (503,466) (122,011)
Net interest income $6,971,652
 $7,902,353
 $(930,701)
       
Weighted average carrying value of gross loans $320,242,875
 $325,305,778
 $(5,062,903)
Weighted average carrying value of obligations under
  participation agreements
 (69,032,326) (25,292,536) (43,739,790)
Weighted average carrying value of mortgage loan payable (33,921,185) (33,736,918) (184,267)
Weighted average carrying value of net loans $217,289,364
 $266,276,324
 $(48,986,960)
       
Annualized net effective yield (1)
 12.7% 12.7% —%


31



  Three Months Ended September 30,
  2017 2016 Change
Senior loans      
Weighted average carrying value of net loans $84,784,385
 $71,433,279
 $13,351,106
Annualized net effective yield (1)
 11.4% 12.7% (1.3)%
Subordinated loans      
Weighted average carrying value of net loans $132,504,979
 $194,843,045
 $(62,338,066)
Annualized net effective yield (1)
 13.4% 12.6% 0.8 %

  Nine Months Ended September 30,
  2017 2016 Change
Interest income $27,721,062
 $29,008,206
 $(1,287,144)
Interest expense — obligations under participation agreements (4,712,165) (2,321,418) (2,390,747)
Interest expense — mortgage loan payable (2,021,006) (1,174,968) (846,038)
Net interest income $20,987,891
 $25,511,820
 $(4,523,929)
       
Weighted average carrying value of gross loans $345,427,543
 $318,048,375
 $27,379,168
Weighted average carrying value of obligations under
  participation agreements
 (56,230,271) (23,284,885) (32,945,386)
Weighted average carrying value of mortgage loan payable (36,737,795) (26,701,336) (10,036,459)
Weighted average carrying value of net loans $252,459,477
 $268,062,154
 $(15,602,677)
       
Annualized net effective yield (1)
 11.4% 12.8% (1.4)%
       
Senior loans      
Weighted average carrying value of net loans $104,279,060
 $61,575,436
 $42,703,624
Annualized net effective yield (1)
 9.2% 13.0% (3.8)%
Subordinated loans      
Weighted average carrying value of net loans $148,180,417
 $206,486,718
 $(58,306,301)
Annualized net effective yield (1)
 12.8% 12.6% 0.2 %
_______________
(1)Represents the annualized net interest income divided by the weighted average carrying value of net loans during the period. We do not annualize one-time transaction fee income and expenses such as net origination fee income or expenses and net exit fee income or expenses.

The following table presents the components of the annualized net effective yield on Terra Property Trust’s net loan portfolio:
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 Change 2017 2016 Change
Net contractual interest income (1)
 12.7 % 13.3 % (0.6)% 12.5 % 13.5 % (1.0)%
Non-collection of interest income, net (2)
 — % — % — % (0.5)% — % (0.5)%
Amortization of net purchase premium (3)
 (0.1)% (0.6)% 0.5 % (0.5)% (0.7)% 0.2 %
Net transaction fee income (expense) 0.1 % — % 0.1 % (0.1)% — % (0.1)%
Total 12.7 % 12.7 % — % 11.4 % 12.8 % (1.4)%
_______________


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(1)The decrease was primarily due to a decrease in weighted average coupon rate (see “Net Loan Portfolio” above).
(2)The increase was primarily due to a decrease in amortization of net purchase premium as a result of the majority of the net purchase premium recognized in connection with the Merger in 2016 became substantially amortized.
(3)During the nine months ended September 30, 2017, Terra Property Trust did not receive interest income payment of $1.2 million, net of interest expense on obligations under participation agreements, on a senior loan and a subordinated loan. In July 2017, the principal balances of these two loans were repaid in full.


Professional Fees


For the three and nine months ended September 30, 2017March 31, 2021 as compared to the same periodsperiod in 2016,2020, professional fees decreased by $0.2 million and $0.1 million respectively, primarily due to professional fees incurredas a result of a decrease in 2016 related to the additional SEC financial statement audit and reporting requirements in relation to the initial filingcost of our registration statement on Form 10.compliance.


Merger Transaction Fees
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Merger transaction fees represent fees incurred in connection with the Merger. Terra Capital Markets, LLC, an affiliate of our Manager, served as the dealer manager for the consent solicitation and was paid a voting advisory fee of $750 per initial unit sold to members of the Terra Funds and a dealer manager fee of 0.5% of the aggregate offering price of the units originally issued by the Terra Funds. Most of these fees were re-allowed to participating dealers. The Terra Funds also incurred costs for legal, accounting, and other professional services in connection with the consent solicitation.

For the three and nine months ended September 30, 2017 and the three months ended September 30, 2016, there were no merger transaction fees recorded. For the nine months ended September 30, 2016, we recorded additional merger transaction fees of $0.4 million.
Net Change in Unrealized DepreciationAppreciation (Depreciation) on Investment


Net change in unrealized appreciation or depreciation on investment reflects the change in Terra Property Trust’s net loan portfoliofair value during the reporting period, including any reversal of previously recorded unrealized gains or losses, when gains or losses are realized.period. There may be fluctuations in unrealized gains and losses of the underlying portfolio as loans within the portfolio approach their respective maturity dates and fair value premiums are amortized or discounts are accreted to each loan’s respective collectible value.dates. In addition, the unrealized gains or losses in the portfolio may fluctuate over time due to changes in the market yields or carrying value adjustments such as the amortization or accretion of premiums, discounts, origination fees, and exit fees.yields.


2017 — For the three and nine months ended September 30, 2017,March 31, 2021, we recorded a decreasean increase in unrealized depreciationappreciation on investment of $0.4$0.5 million, and $0.9 million, respectively, primarily due to the amortization ofas a substantial portionresult of the net purchase premiums recognized in connection withrecovery of the Merger in 2016, which reduced the carryingfair value of the loans.   

2016 — For the three and nine months ended September 30, 2016, we recordedTerra Property Trust’s investments, compared to an increase in unrealized depreciation on investment of $0.7$2.3 million and $1.4 million, respectively, primarilyrecorded for the same period in 2020, as a result of the widening credit spreads partially offset by decreases in underlying index rates due to amortization of fair value premiums on loans within the portfolio as they neared their respective maturity dates, which reducedmacro-economic conditions impacted by the fair value of the loans.COVID-19 pandemic.


Net Increase (Decrease) in Members’ Capital Resulting from Operations


For the three and nine months ended September 30, 2017 as compared toMarch 31, 2021, the same periods in 2016, the resulting net increase in members’ capital resultsresulting from operations decreased by $4.1was $1.5 million, and $6.5compared to the net decrease in members’ capital resulting from operations of $1.2 million respectively.for the same period in 2020.


Financial Condition, Liquidity and Capital Resources


Liquidity is a measure of our ability to meet potential cash requirements, including funding and maintaining our assets and operations, making distributions to our members and other general business needs. Our primary cash requirements for the next twelve months are making the discretionary recurring distributions to our members and, to a lesser extent, redeeming Terra Fund 4 Termination Units for approximately $2.1 million. “Termination Units” refer to the membership interest in our fund that were issued to members of Terra Funds 1 through 4 who chose to enter the liquidation phase of their investments.members. We expect to use cash distributions received from Terra Property Trust to meet such cash requirements. Distributions are made at the discretion of Terra Property Trust’s expected loanboard and liability maturities duringwill depend upon, among other things, its actual results of operations and liquidity.

A total of $66.3 million of Terra Property Trust’s obligations under participation agreements will mature in the next twelve months include the sole mortgage loan payable with a principal amount of $34.0 million which matures in March 2018, assuming no extensions, and obligations under participation agreements totaling $43.6 million. The first mortgage loan held by Terra Property Trust has a coupon rate of LIBOR plus 8.5%, the borrowings under the mortgage loan incurred to finance the asset bear interest at an annual rate of LIBOR plus 5.25%, and the weighted average net interest spread


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between the yield on the first mortgage loan and the cost of funds under the mortgage loan payable was 2.26% for the nine months ended September 30, 2017. Terra Property Trust expects to use the proceeds from the repayment of the corresponding investments to repay the mortgage loan payable and participation obligations. Additionally, Terra Property Trust expects to fund approximately $27.4$53.4 million of the unfunded commitments to borrowers during the next twelve months. Terra Property Trust expects to maintain sufficient cash on hand to fund such commitmentcommitments through matching these commitments with principal repayments on outstanding loans. Additionally, Terra Property Trust had $40.6 million of borrowings outstanding under a mortgage loan payable that bear interest at an annual rate of LIBOR plus 3.85% with a LIBOR floor of 2.23%, that is collateralized by an office building. The mortgage loan payable matures on September 27, 2022. Terra Property Trust may also issue additional equity, equity-related and debt securities to fund its investment strategies. Terra Property Trust may issue these securities to unaffiliated third parties or to vehicles advised by affiliates of Terra Capital Partners or third parties. As part of its capital raising transactions, Terra Property Trust may grant to one or more of these vehicles certain control rights over its activities including rights to approve major decisions it takes as part of its business.

    On September 3, 2020, Terra Property Trust entered into an indenture and credit agreement that provides for a floating rate term loan of $103.0 million, $3.6 million of additional future advances, and may provide up to $11.6 million of additional future discretionary advances, in connection with certain outstanding funding commitments under mortgage assets owned by Terra Property Trust and financed under the indenture and credit agreement. The floating rate loan bears interest at a rate equal to LIBOR plus 4.25% with a LIBOR floor of 1.0%, and matures on March 14, 2025. As of March 31, 2021, the amount outstanding under the indenture and credit agreement was $106.5 million.
    On March 12, 2021, Terra Property Trust entered into a Business Loan and Security Agreement (the “Revolving Line of Credit”) to provide for advances up to the lesser of $75.0 million or the amount determined by the borrowing base, which is based on the eligible assets pledged to the lender. Borrowings under the Revolving Line of Credit bear interest at an annual rate of LIBOR + 3.25% with a combined floor of 4.0% per annum. The Revolving Line of Credit matures on March 12, 2023 with an annual 12-month extension available at the Company’s option, which are subject to certain conditions. As of March 31, 2021, the Revolving Line of Credit had an outstanding balance of $8.0 million.

Cash Flows Provided by Operating Activities


20172021 — For the ninethree months ended September 30, 2017,March 31, 2021, cash flows provided by operating activities were $28.5$2.9 million, primarily due to $29.7$3.0 million of dividends received from Terra JV, of which $1.9 million was recorded as a return of capital.

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2020— For the three months ended March 31, 2020, cash flows provided by operating activities were $7.7 million, primarily due to $7.8 million of dividends received from Terra Property Trust, of which $14.0$6.6 million was recorded as a return of capital.

2016— For the nine months ended September 30, 2016, cash flows provided by operating activities were $2.7 million, primarily due to $25.4 million of dividends received from Terra Property Trust, of which $0.3 million was recorded as a return of capital, partially offset by (i) $10.0 million used to purchase shares of common stock of Terra Property Trust; (ii) the payment of $5.3 million related to merger transaction fees that were accrued; (iii) $5.0 million of cash transferred to Terra Property Trust in connection with the Merger; (iv) $0.7 million reimbursed to the Manager for merger transaction fees paid; and (v) a $0.6 million of state and local tax paid in connection with the filing of the 2015 tax returns.


Cash Flows used in Financing Activities


20172021 — For the ninethree months ended September 30, 2017,March 31, 2021, cash flows used in financing activities were $3.0 million primarily related to distributions paid to members.

2020— For the three months ended March 31, 2020, cash flows used in financing activities was $28.4 million, consisting of distributions paid to members of $23.1 million and cash of $5.3 million used to primarily redeem Terra Fund 3 Termination Units.

2016— For the nine months ended September 30, 2016, cash flows used in financing activities was $4.1$7.5 million, primarily duerelated to distributions paid to members of $22.9 million and cash used for capital redemptions of $10.2 million, of which $6.8 million was used to redeem Terra Fund 1 Termination Units and $3.4 million was paid to other redeeming members. These cash outflows were partially offset by $25.6 million of proceeds from capital contributions from the offering concurrent with the Merger, net of selling commissions and dealer manager fees, and cash of $3.5 million acquired in the Merger.


Critical Accounting Policies and Use of Estimates


Our consolidated financial statements are prepared in conformity with United States generally accepted accounting principles (“U.S. GAAP”), which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Critical accounting policies are those that require the application of management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. In preparing the consolidated financial statements, management has utilized available information, including industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. As we execute our expected operating plans, we will describe additional critical accounting policies in the notes to our future consolidated financial statements in addition to those discussed below.

Allowance for Loan Losses

Terra Property Trust’s investments are typically collateralized by either the sponsors’ equity interest in real estate properties or real estate properties. As a result, Terra Property Trust regularly evaluates the extent and impact of any credit migration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower/sponsor on a loan by loan basis. The Manager employs an asset management approach and monitors the portfolio of investments, through, at a minimum, quarterly financial review of property performance including net operating income, loan-to-value, debt-service coverage ratio and the debt yield, supplemented by occasional site visits to evaluate the assets. The Manager also requires certain borrowers to establish a cash reserve, as a form of additional collateral, for the purpose of providing for future interest or property-related operating payments. The information gathered by way of the asset management process is sufficient in assessing collectability.



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Using the information gathered by way of the asset management process, the Manager performs a quarterly, or more frequently as needed, review of Terra Property Trust’s portfolio of investments. In conjunction with this review, the Manager assesses the risk factors of each investment and assigns each investment a risk rating. Based on a 5-point scale, Terra Property Trust’s investments are rated “1” through “5”, from less risk to greater risk. For investments with a risk rating of “4” and “5”, the Manager assesses each investment for collectability. This includes the ability to realize the full amount of principal and interest in the event that Terra Property Trust needs to exercise its rights under the terms of the agreement and/or any other contemplated workout or modification. To the extent the net realizable amount analysis indicates the principal amount of the recorded investment as of the reporting date is in jeopardy, an appropriate allowance for loan losses will be recorded. Additionally, Terra Property Trust records a general allowance for loan losses equal to 1.5% of the aggregate principal amount of loans rated as a “4” and 5% of the aggregate principal amount of loans rated as a “5”. Loans on which a specific allowance is recorded are removed from the pool of loans on which a general allowance is calculated.


Fair Value Measurements


The fair value of financial instrumentsour investment is categorized based on the priority of the inputs to the valuation technique and categorized into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.


Our financial assets and liabilities wereinvestment was recorded at fair value on our consolidated statements of assets and liabilities and were categorized based on the inputs valuation techniques as follows:


•Level 1. Quoted prices for identical assets or liabilities in an active market.


•Level 2. Financial assets and liabilities whose values are based on the following:


◦Quoted prices for similar assets or liabilities in active markets.


◦Quoted prices for identical or similar assets or liabilities in non-active markets.


◦Pricing models whose inputs are observable for substantially the full term of the asset or liability.


◦Pricing models whose inputs are derived principally from or corroborated by observable market data for
substantially full term of the asset or liability.


•Level 3. Prices or valuation techniques based on inputs that are both unobservable and significant to the overall fair value measurement.


Unobservable inputs reflect our assumptions about the factors that market participants would use in pricing an asset or liability, and would be based on the best information available.


Any changes to the valuation methodology will be reviewed by management to ensure the changes are appropriate. As markets and products develop and the pricing for certain products becomes more transparent, we will continue to refine our
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valuation methodologies. The methods used may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we anticipate that our valuation methods will be appropriate and consistent with other market participants, the use of different methodologies, or assumptions, to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. We will use inputs that are current as of the measurement date, which may include periods of market dislocation, during which price transparency may be reduced.


Income Taxes


No provision for U.S. federal and state income taxes has been made in the accompanying consolidated financial statements, as individual members are responsible for their proportionate share of our taxable income. We, however, may be liable for New York City Unincorporated Business Tax (the “NYC UBT”) and similar taxes of various other municipalities. New York City imposes the NYC UBT at a statutory rate of 4% on net income generated from ordinary business activities carried on in New York City. For the three and nine months ended September 30, 2017March 31, 2021 and 2016,2020, none of our income was subject to the NYC UBT.




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We did not have any uncertain tax positions that met the recognition or measurement criteria of Accounting Standards Codification 740-10-25, Income Taxes, nor did we have any unrecognized tax benefits as of the periods presented herein. We recognize interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in our consolidated statements of operations. For the three and nine months ended September 30, 2017March 31, 2021 and 2016,2020, we did not incur any interest or penalties. Although we file federal and state tax returns, our major tax jurisdiction is federal. Our inception-to-date2015-2019 federal tax years remain subject to examination by the Internal Revenue Service.


Contractual Obligations of Terra Property Trust
Our wholly-owned subsidiary,
    The following table provides a summary of Terra Property Trust’s contractual obligations at March 31, 2021:
TotalLess than
1 year		1-3 years3-5 yearsMore than 5 years
Obligations under participation
   agreements — principal (1)
$71,276,756 $66,276,756 $5,000,000 $— $— 
Secured borrowing — principal (1)
22,033,529 — 22,033,529 — — 
Mortgage loan payable — principal (2)
40,596,980 801,547 39,795,433 — — 
Term loan payable — principal (3)
106,454,107 — 44,614,424 61,839,683 — 
Revolving Line of Credit payable —
   principal (4)
8,030,611 — 8,030,611 — — 
Interest on borrowings (5)
33,582,806 15,913,261 15,171,799 2,497,746 — 
Unfunded lending commitments (6)
55,545,829 53,402,223 2,143,606 — — 
Ground lease commitment (7)
82,877,438 1,264,500 2,529,000 2,529,000 76,554,938 
$420,398,056 $137,658,287 $139,318,402 $66,866,429 $76,554,938 
___________________________
(1)In the normal course of business, Terra Property Trust enters into participation agreements with related parties, and to a lesser extent, unrelated parties, whereby Terra Property Trust transfers a portion of the loans to them. Additionally, Terra Property Trust may sell a portion of a loan to a third-party. These loan participations and sale do not qualify for sale treatment. As such, the loans remain on Terra Property Trust’s consolidated balance sheets and the proceeds are recorded as obligations under participation agreements or secured borrowing, as applicable. Similarly, interest earned on the entire loan balance is recorded within “Interest income” and the interest related to the participation interest or sold interest is recorded within “Interest expense on obligations under participation agreements” or “Interest expense on secured borrowing”, as applicable, in the consolidated statements of operations. Terra Property Trust has no direct liability to a participant under its participation agreements with respect to the underlying loan, and the participants’ share of the loan is repayable only from the proceeds received from the related borrower/issuer of the loans.
(2)Amount excludes unamortized origination and exit fees of $0.1 million.
(3)Amount excludes unamortized deferred financing costs of $2.2 million.
(4)Amount excludes unamortized deferred financing costs of $0.6 million.
(5)Interest was calculated using the applicable annual variable interest rate and balance outstanding at March 31, 2021. Amount represents interest expense through maturity plus exit fee as applicable.
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(6)Certain of Terra Property Trust’s loans provide for a commitment to fund the borrower at a future date. As of March 31, 2021, Terra Property Trust had seven of such loans with total funding commitments of $256.0 million, of which $200.5 million had been funded.
(7)Represents rental obligation under the ground lease, inclusive of imputed interest, for Terra Property Trust’s office building that it acquired through foreclosure.

The table above does not include Terra Property Trust’s commitment under a subscription agreement with Mavik RESOF to fund up to $50.0 million to purchase the limited partnership interests in Mavik RESOF as the subscription agreement does not have fixed or determinable payments. As of March 31, 2021, the unfunded commitment was $1.3 million.

Management Agreement with Terra REIT Advisors

    Terra Property Trust currently pays the following fees to the ManagerTerra REIT Advisors pursuant to a management agreement:


Origination and Extension Fee. An origination fee in the amount of 1.0% of the amount used to originate, acquire, fund, acquire or structure real estate-related loans,investments, including any third-party expenses related to such loan. In the event that the term of any real estate-related loan is extended, the ManagerTerra REIT Advisors also receives an originationextension fee equal to the lesser of (i) 1.0% of the principal amount of the loan being extended or (ii) the amount of fee paid by the borrower in connection with such extension. The origination fee is offset by the amount of any origination fee received by Terra Property Trust from borrowers.


Asset Management Fee. A monthly asset management fee at an annual rate equal to 1.0% of the aggregate funds under management, which includes the loan origination amount or aggregate gross acquisition cost, as applicable, for each real estate-related loan and cash held by Terra Property Trust.


Asset Servicing Fee. A monthly asset servicing fee at an annual rate equal to 0.25% of the aggregate gross origination price or aggregate gross acquisition price for each real estate related loan then held by Terra Property Trust (inclusive of closing costs and expenses).


Disposition Fee. A disposition fee in the amount of 1.0% of the gross sale price received by usTerra Property Trust from the disposition of each loan, but not upon the maturity, prepayment, workout, modification or extension of a loan unless there is a corresponding fee paid by the borrower, in which case the disposition fee will be the lesser of (i) 1.0% of the principal amount of the loan and (ii) the amount of the fee paid by the borrower in connection with such transaction. If Terra Property Trust takes ownership of a property as a result of a workout or foreclosure of a loan, Terra Property Trust will pay a disposition fee upon the sale of such property equal to 1.0% of the sales price.


Transaction Breakup Fee. In the event that Terra Property Trust 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 ManagerTerra REIT Advisors 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 ManagerTerra REIT Advisors with respect to its evaluation and pursuit of such transactions.


In addition to the fees described above, Terra Property Trust reimburses the ManagerTerra REIT Advisors for operating expenses incurred in connection with services provided to the operations of Terra Property Trust, including Terra Property Trust’s allocable share of the Manager’sTerra REIT Advisors’ overhead, such as rent, employee costs, utilities, and technology costs.


The following table presents a summary of fees paid and costs reimbursed to the Managerpredecessor to Terra REIT Advisors and Terra REIT Advisors in the aggregate in connection with providing services to Terra Property Trust:
Three Months Ended March 31,
 Three Months Ended September 30, Nine Months Ended September 30,20212020
 2017 2016 2017 2016
Origination fee expense (1)
 $624,255
 $734,706
 $2,381,562
 $2,396,149
Origination and extension fee expense (1)
Origination and extension fee expense (1)
$345,384 $437,617 
Asset management fee 785,748
 948,372
 2,397,595
 2,482,315
Asset management fee1,156,543 1,029,533 
Asset servicing fee 152,047
 227,101
 529,535
 602,662
Asset servicing fee273,207 234,208 
Operating expenses reimbursed to Manager 725,197
 838,287
 2,425,699
 2,516,849
Operating expenses reimbursed to Manager1,342,758 1,367,189 
Disposition fee (2)
 197,614
 44,879
 798,333
 451,980
Disposition fee (2)
250,988 75,520 
Total $2,484,861
 $2,793,345
 $8,532,724
 $8,449,955
Total$3,368,880 $3,144,067 
_______________
(1)
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(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 investment.
(2)Disposition fee is generally offset with exit fee income on the consolidated statements of operations. Any excess is deferred


36


and amortized to interest income over the term of the investment.loan.

(2)Disposition fee is generally offset with exit fee income and included in interest income on the consolidated statements of operations.

Off-Balance Sheet Arrangements


Other than contractual commitments and other legal contingencies incurred in the normal course of our business, we do not have any off-balance sheet financings or liabilities.
Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services. We will adopt this standard on January 1, 2018 using the cumulative effect transition method. We are evaluating the impact of ASU 2014-09 but do not currently believe that the adoption of ASU 2014-09 will have a material impact on our consolidated financial statements and disclosures.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 retains many current requirements for the classification and measurement of financial instruments; however, it significantly revises an entity’s accounting related to (i) the classification and measurement of investments in equity securities and (ii) the presentation of certain fair value changes for financial liabilities measured at fair value. ASU 2016-01 also amends certain disclosure requirements associated with the fair value of financial instruments. This guidance is effective for us beginning on January 1, 2018. We are currently evaluating the impact these changes will have on our consolidated financial statements and disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 outlines a new model for accounting by lessees, whereby their rights and obligations under substantially all leases, existing and new, would be capitalized and recorded on the balance sheet. For lessors, however, the accounting remains largely unchanged from the current model, with the distinction between operating and financing leases retained, but updated to align with certain changes to the lessee model and the new revenue recognition standard. The new standard also replaces existing sale-leaseback guidance with a new model applicable to both lessees and lessors. Additionally, the new standard requires extensive quantitative and qualitative disclosures. ASU 2016-02 is effective for U.S. GAAP public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application will be permitted for all entities. The new standard must be adopted using a modified retrospective transition of the new guidance and provides for certain practical expedients. Transition will require application of the new model at the beginning of the earliest comparative period presented. This ASU is not expected to have any impact on our consolidated financial statements and disclosures as we do not have any lease arrangements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, a Consensus of the FASB’s Emerging Issues Task Force (“ASU 2016-15”). ASU 2016-15 provides guidance on how certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for annual and interim periods beginning after December 15, 2017. The guidance requires application using a retrospective transition method. We do not expect the adoption of ASU 2016-15 to have a material impact on our consolidated financial statements and disclosure.

In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X was August 1, 2017. We adopted the amendments to Regulation S-X on August 1, 2017. The adoption did not have a material impact on our consolidated financial statements and disclosures.    
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 intends to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the current implementation guidance in Topic 805, there are three elements of a business: inputs, processes, and outputs. While an integrated set of assets and activities, collectively referred to as a “set,” that is a business usually has outputs, outputs are not required to be present. ASU 2017-01 provides a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. ASU 2017-01 will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the impact these changes will have on our consolidated financial statements and disclosures.


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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We may be subject to financial market risks, including changes in interest rates. To the extent that we borrow money to make investments, our net investment income will be dependent upon the difference between the rate at which we borrow funds and the rate at which we invest these funds. In periods of rising interest rates, our cost of funds would increase, which may reduce our net investment income. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.
As of September 30, 2017,March 31, 2021, Terra Property Trust had one investment13 investments with aan aggregate principal balance of approximately $53.0$271.4 million, net of obligations under participation agreements, that providesprovide for interest income indexedat an annual rate of LIBOR plus a spread, 11 of which are subject to LIBOR, with a LIBOR floorfloor. A decrease of 0.5%.100 basis points in LIBOR would decrease Terra Property Trust’s annual interest income, net of interest expense on participation agreements, by approximately $0.1 million, and an increase of 100 basis points in LIBOR would increase Terra Property Trust’s annual interest income, net of interest expense on participation agreements, by approximately $0.8 million.

    Additionally, Terra Property Trust had approximately $34.0$40.6 million of borrowings outstanding under a mortgage loan payable that bear interest at an annual rate of LIBOR plus 5.25%.3.85% with a LIBOR floor of 2.23%, that is collateralized by an office building; and $106.5 million of borrowings outstanding under an indenture and credit facility that bear interest at an annual rate of LIBOR plus 4.25% with a LIBOR floor of 1.0% collateralized by $183.7 million of first mortgages. A decrease of 1%100 basis points in LIBOR had no impact on Terra Property Trust’s total annual interest expense because the debts are protected by LIBOR floors and an increase of 100 basis points in LIBOR would decrease ourincrease Terra Property Trust’s annual net interest expense by approximately $0.03 million$0.1 million.

    At the end of 2021, banks will no longer be required to report information that is used to determine LIBOR. As a result, LIBOR could be discontinued. The Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions convened by the U.S. Federal Reserve, has recommended Secured Overnight Financing Rate (“SOFR”) as a more robust reference rate alternative to U.S. dollar LIBOR. SOFR is calculated based on overnight transactions under repurchase agreements, backed by Treasury securities. SOFR is observed and backward looking, which stands in contrast with LIBOR under the current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members. Given that SOFR is a secured rate backed by government securities, it will be a rate that does not take into account bank credit risk (as is the case with LIBOR). SOFR is therefore likely to be lower than LIBOR and is less likely to correlate with the funding costs of financial institutions. Whether or not SOFR attains market traction as a LIBOR replacement tool remains in question. As such, the future of LIBOR at this time is uncertain.

    Potential changes, or uncertainty related to such potential changes, may adversely affect the market for LIBOR-based loans, including Terra Property Trust’s portfolio of LIBOR-indexed, floating-rate loans, or the cost of its 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 1%the LIBOR-indexed, floating-rate loans in Terra Property Trust’s portfolio, or the cost of its borrowings. In the event LIBOR would increase our annual net interest income by approximately $0.2 million.is unavailable, Terra Property Trust’s investment documents provide for a substitute index, on a basis generally consistent with market practice, intended to put us in substantially the same economic position as LIBOR.


We may hedge against interest rate and currency exchange rate fluctuations by using standard hedging instruments, such as futures, options and forward contracts, subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates. For the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, we did not engage in interest rate hedging activities.


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In addition, we may have risks regarding portfolio valuation. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Fair Value Measurements.”Measurements” in this quarterly report on Form 10-Q.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including ourthe chief executive officer and chief financial officer of our Manager (performing functions equivalent to those a principal executive officer and principal financial officer of our company would perform if we had any officers), of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2017.March 31, 2021. Based on that evaluation, ourthe chief executive officer and chief financial officer of our Manager concluded that our disclosure controls and procedures were effective to provide reasonable assurance that we would meet our disclosure obligations. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute assurance that it will detect or uncover failures within our company to disclose material information otherwise required to be set forth in our periodic reports.
Changes in Internal Control Over Financial Reporting

During the most recent fiscal quarter, there was no change in our internal controls over financial reporting, as defined under
Rule 13a-15(f) under the Exchange Act, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.



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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.
Neither we, Terra Property Trust, Terra JV nor Terra Income Advisorsour Manager is currently subject to any material legal proceedings, nor, to our knowledge, are material legal proceedings threatened against us, Terra Property Trust, Terra JV or Terra Income Advisors.our Manager. From time to time, we, Terra Property Trust, Terra JV and individuals employed by Terra Income Advisorsour Manager or its affiliates may be a party to certain legal proceedings in the ordinary course of business. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.

Item 1A. Risk Factors.
There have been no material changes from the risk factors set forth in our Annual Report on Form 10-K for the amendment no. 2 to Form 10 filed on July 24, 2017.year ended December 31, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not applicable.

Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Not applicable.None.

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Item 6.  Exhibits.
The following exhibits are filed with this report. Documents other than those designated as being filed herewith are incorporated herein by reference.
Exhibit No.Description and Method of Filing
2.1
2.2
2.3
2.4
2.5


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Exhibit No.2.6Description and Method of Filing
2.6
3.12.7
3.1
31.1*
31.2*
32**
101.INS**Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH**XBRL Taxonomy Extension Schema Document
101.CAL**XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB**XBRL Taxonomy Extension Label Linkbase Document
101.PRE**XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF**104Cover Page Interactive Data File Included as Exhibit 101 (embedded within the Inline XBRL Taxonomy Extension Definition Linkbase Documentdocument)
_______________
* Filed herewith.
** Furnished herewith.

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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Quarterly Report on Form10-Qreport to be signed on its behalf by the undersigned in the capacities indicated* thereunto duly authorized.


Date: NovemberMay 13, 2017
2021
TERRA SECURED INCOME FUND 5, LLC
By:/s/ Bruce D. BatkinVikram S. Uppal
Bruce D. BatkinVikram S. Uppal
Chief Executive Officer
(Principal Executive Officer)
By:/s/ Gregory M. Pinkus
Gregory M. Pinkus
Chief Financial Officer and Chief Operating Officer,
Treasurer and Secretary
(Principal Financial and Accounting Officer)

___________

*  The registrant is a limited liability company managed by Terra Fund Advisors, LLC, its sole and managing member and the persons are signing in their respective capacities as officers of Terra Fund Advisors, LLC.



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