10-12G

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10

GENERAL FORM FOR REGISTRATION OF SECURITIES

Pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934

TERRA SECURED INCOME FUND 5, LLC

(Exact Name of Registrant as Specified in its Governing Documents)

Delaware	90-0967526
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)
805 Third Avenue, 8th Floor
New York, New York	10022
(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

(Title of Class)

WITH COPIES TO:
Jay L. Bernstein, Esq.	Rosemarie A. Thurston
Jake Farquharson, Esq.	Martin H. Dozier
Clifford Chance US LLP	Alston & Bird LLP
31 W. 52ndStreet	1201 W. Peachtree Street
New York, New York 10019	Atlanta, Georgia 30309
Tel (212) 878-8000	Tel (404) 881-7000
Fax (212) 878-8375	Fax (404) 253-8447

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” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	x
		Emerging Growth Company	x
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.			x

TABLE OF CONTENTS

		Page
ITEM 1.	BUSINESS	2
ITEM 1A.	RISK FACTORS	16
ITEM 2.	FINANCIAL INFORMATION	37
ITEM 3.	PROPERTIES	50
ITEM 4.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	50
ITEM 5.	DIRECTORS AND EXECUTIVE OFFICERS	51
ITEM 6.	EXECUTIVE COMPENSATION	55
ITEM 7.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	55
ITEM 8.	LEGAL PROCEEDINGS	58
ITEM 9.	MARKET PRICE OF DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	58
ITEM 10.	RECENT SALES OF UNREGISTERED SECURITIES	59
ITEM 11.	DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED	60
ITEM 12.	INDEMNIFICATION OF DIRECTORS AND OFFICERS	65
ITEM 13.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	65
ITEM 14.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	66
ITEM 15.	FINANCIAL STATEMENTS AND EXHIBITS	66

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FORWARD-LOOKING STATEMENTS

Various statements contained in this registration statement, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements. These forward-looking statements may include projections and estimates concerning the availability of loan origination and acquisition opportunities, the potential returns from such investment opportunities and the availability of financing. Our forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “plan,” “goal,” or other words that convey the uncertainty of future events or outcomes. The forward-looking statements in this registration statement speak only as of the date of this registration statement; we disclaim any obligation to update these statements unless required by law, and we caution you not to rely on them unduly. We have based these forward-looking statements on our current expectations and assumptions about future events. While we consider these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These and other important factors, including those discussed under “Item 1A. Risk Factors” and “Item 2. Financial Information — Management’s Discussion and Analysis of Financial Condition and Results of Operations” may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements.

The risks, contingencies and uncertainties associated with our forward-looking statements relate to, among other matters, the following:

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

· 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 acquisition of our targeted assets, including the timing of 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 result 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;

· our dependence on our Manager and the availability of its senior management team and other personnel;

· 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 our wholly owned real estate investment trust subsidiary, or our REIT subsidiary, 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, or the 1940 Act, and our REIT subsidiary to maintain its qualification as a real estate investment trust, or REIT, for U.S. federal income tax purposes; and

· the degree and nature of our competition.

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Except where the context suggests otherwise, the terms “we,” “us,” “our,” and “our Fund” refer to Terra Secured Income Fund 5, LLC, a Delaware limited liability company, together with its subsidiaries, including Terra Property Trust, Inc., our indirect wholly-owned subsidiary through which we conduct substantially all of our business and which we refer to as our “REIT subsidiary.” References in this registration statement to “Terra Fund 1” refer to Terra Secured Income Fund, LLC; references to “Terra Fund 2” refer to Terra Secured Income Fund 2, LLC; references to “Terra Fund 3” refer to Terra Secured Income Fund 3, LLC; references to “Terra Fund 4” refer to Terra Secured Income Fund 4, LLC; references to “Fund 5 International” refer to Terra Secured Income Fund 5 International; references to “Terra Fund 6” refer to Terra Income Fund 6, Inc.; references to “Terra International” refer to Terra Income Fund International; references to “Terra Fund 7” refer to Terra Secured Income Fund 7, LLC; references to the “Terra Funds” refer to Terra Fund 1, Terra Fund 2, Terra Fund 3, Terra Fund 4 and our Fund, collectively. Additionally, “units” refer to regular units of limited liability company interest in our Fund which were issued to members in Terra Funds 1 through 4 in the REIT formation transactions (as defined below) and to subscribers in the concurrent private placement and references to “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.

ITEM 1. BUSINESS

We are filing this Form 10 to register our units pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We are subject to the registration requirements of Section 12(g) of the Exchange Act because as of December 31, 2016, the aggregate value of our assets exceeded the applicable threshold and our units were held of record by 2,000 or more persons. As a result of the registration of our units pursuant to the Exchange Act, following the effectiveness of this Form 10, we will be subject to the requirements of the Exchange Act and the rules promulgated thereunder. In particular, we will be required to file Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K, and Current Reports on Form 8-K and otherwise comply with the disclosure obligations of the Exchange Act applicable to issuers filing registration statements to register a class of securities pursuant to Section 12(g) of the Exchange Act.

Overview

We are a real estate finance company that originates, structures and funds 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, which we collectively refer to as our targeted assets. 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 REIT subsidiary, 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 objectives are to (i) preserve our members’ capital contributions, (ii) realize income from our investments and (iii) make monthly distributions to our members from cash generated from investments. There can be no assurances that we will be successful in meeting our objectives.

As of December 31, 2016, through our REIT subsidiary, we held a portfolio comprising 38 investments in 15 states with an aggregate current principal balance of $326.0 million, a weighted average interest rate of 12.38%, a weighted average loan-to-value ratio of 73.45% and a weighted average remaining term to maturity of 1.39 years. The portfolio is diversified across loan products, property types and geographies.

We are managed by Terra Income Advisors, LLC, which we refer to herein as Terra Income Advisors or our Manager, a registered investment adviser under the Investment Advisers Act of 1940, as amended, or the Advisers Act. Our REIT subsidiary has entered into a management agreement with the Manager pursuant to which the Manager provides certain services to our REIT subsidiary and our REIT subsidiary pays fees associated with such services. See “Item 5. Directors and Executive Officers — Compensation to Our Manager” for additional details.

We believe there are compelling opportunities available to us in the commercial real estate loan market. Commercial real estate is a capital-intensive business that relies heavily on the availability of credit to develop, acquire, maintain and refinance commercial properties. We believe that the more conservative underwriting standards used by many large commercial banks and traditional providers of commercial real estate capital following the 2008 downturn has and will continue to constrain the lending capacity of these institutions. In the face of this constrained

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lending capacity, a large volume of commercial real estate loans originated at the market peak will mature over the next several years. The confluence of these two conditions—reduced lending by traditional lenders and an increased volume of maturing loans requiring refinancing proceeds—has created opportunities for alternative lenders such as us.

We believe that we are well positioned to capitalize on these opportunities through our relationship with the Manager and Terra Capital Partners. Our management team maintains extensive relationships within the real estate industry, including real estate developers, institutional real estate sponsors and investors, real estate funds, investment and commercial banks, private equity funds, asset originators and broker-dealers, as well as the capital and financing markets generally. We leverage the many years of experience and well-established contacts of our management team, and use these relationships for the benefit of our members.

On January 1, 2016, Terra Funds 1 through 4 merged with subsidiaries of our Fund, which in turn contributed the consolidated portfolio of net assets of the Terra Funds to our REIT subsidiary. We elected to engage in the merger transactions, which we refer to as the “REIT formation transactions,” to make our investments through our REIT subsidiary and 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 Manager intends to treat our Fund as a partnership and not as an association or “publicly traded partnership,” or PTP, taxed as a corporation for U.S. federal income tax purposes. Our REIT subsidiary has elected to be taxed as a REIT for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2016. So long as our REIT subsidiary qualifies as a REIT, it generally is not subject to U.S. federal income tax on its net taxable income to the extent that it annually distributes all of its net taxable income to its stockholders. We also operate our business in a manner that will permit us to be excluded from registration as an investment company under the 1940 Act.

The Manager and Terra Capital Partners

Our sole managing member is the Manager, Terra Income Advisors, which is registered as an investment adviser under the Advisers Act.

The Manager is a subsidiary of Terra Capital Partners, a real estate finance and investment firm that focuses on the origination and management of mezzanine and equity investments in all major property types. Terra Capital Partners was formed in 2001 and since the commencement of its operations in 2002 through December 31, 2016, has engaged in the origination and management of debt and equity investments in over 370 properties of all major property types throughout the United States. These investments have been made in 35 states and have been secured by approximately 16.3 million square feet of office properties, 3.4 million square feet of retail properties, 4.2 million square feet of industrial properties, 3,828 hotel rooms and 23,145 apartment units. The value of the properties underlying these investments was approximately $6.7 billion based on appraised values as of the closing dates. Terra Capital Partners and its affiliates have originated all the loans on approximately 331 properties with an appraised value of approximately $5.3 billion held by its previous affiliated funds and have suffered no monetary defaults or foreclosures on these loans.

Terra Capital Partners, led by its Chairman, Simon J. Mildé, and chief executive officer, Bruce D. Batkin, is owned and operated by highly experienced real estate, finance and securities professionals with an average of over 27 years’ experience in global real estate transactions. Members of the Terra Capital Partners management team have broad based, long-term relationships with major financial institutions, property owners and commercial real estate service providers. They have worked together as a team for over 12 years, building on their prior experience in commercial real estate investment, finance, development and asset management. They have held leadership roles at many of the top international real estate and investment banking firms, including Jones Lang Wootton (formerly Jones Lang LaSalle Incorporated and now JLL), Merrill Lynch, Donaldson, Lufkin and Jenrette Securities Corporation (now Credit Suisse (USA) Inc.) and ABN Amro Bank N.V.

Market Opportunity

Commercial real estate is a capital-intensive business that relies heavily on the availability of credit to develop, acquire, maintain and refinance commercial properties. The turmoil in the U.S. mortgage market that commenced in

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2008 has diminished the availability of credit for commercial real estate from traditional providers of capital to commercial real estate borrowers. Although credit availability has increased over the past several years, we believe that a more risk-averse credit culture, tighter underwriting standards, changes in the regulatory environment and the high number of existing loans on overleveraged properties, many of which were acquired at premium prices prior to the 2008 downturn, will continue to constrain the lending capacity of large commercial banks and traditional providers of capital. Many of these pre-2008 loans have ten-year terms, creating an impending “wall” of maturities that must be refinanced or repaid in the coming years. In the face of this constrained lending capacity, a large volume of commercial real estate loans originated at the market peak will mature over the next several years. The confluence of these two conditions—reduced lending by traditional lenders and an increased volume of maturing loans requiring refinancing proceeds—has created opportunities for alternative lenders such as us.

Commercial banks are estimated by the Federal Reserve to hold $1.7 trillion, or 50%, of all commercial mortgages. As a result of the economic crisis, the number of traditional commercial mortgage lenders, such as commercial banks, has declined, as has the number of new commercial mortgage originations, as indicated in the chart labeled “New Commercial Mortgage Origination in the U.S.” below. Those lenders that remain are subject to increased regulations (including the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, and the Third Basel Accord of the Basel Committee on Banking Supervision, which imposes requirements for higher bank capital charges on certain types of real estate loans) and adhere to mortgage lending practices that are more conservative than prior to the economic crisis. In addition, enhanced risk-retention requirements for commercial mortgage-backed securities, or CMBS, have increased securitization costs and limited competition from CMBS lenders. This has led to a decrease in CMBS securitizations and issuances that have failed to recover to previous levels, as indicated in the chart labeled “U.S. CMBS Issuance” below. Therefore, those financial institutions still willing to provide capital may not provide sufficient proceeds to meet borrowers’ needs, and many loans that previously would have been provided by a single lender often will require multiple lenders. This provides us, as an alternative lender, with an immediate opportunity to augment loans provided by traditional lenders with subordinated debt and preferred equity, often at lower property valuations, lower loan-to-value ratios and higher returns than prior to the economic crisis. We believe this opportunity will continue for the foreseeable future.

 

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The credit boom that preceded the economic crisis in 2008 and 2009 generated a high volume of commercial real estate loans (originated by securitized and portfolio lenders) that are scheduled to mature each year through 2017. At the same time, there have been reductions in the supply of traditional commercial real estate loans, as illustrated in the chart below labeled “Commercial Real Estate Mortgage Loan Maturities in the U.S.” We believe the reductions in the number of commercial real estate loans are due to the reductions in the value of the mortgages held by traditional lenders. The reduction of the value of these mortgages presents risks of regulatory noncompliance for these lenders, which must adhere to strict capital adequacy requirements. Borrowers’ inability to obtain financing often resulted not from the lack of creditworthiness of the borrower, but because of the constrained ability and willingness of highly regulated traditional commercial banks to lend to these borrowers, even upon favorable terms to these creditworthy borrowers. These factors, along with the failures or retrenchment of many banks and financial institutions that historically satisfied much of the demand for debt financing, as well as current lending practices and underlying standards that are more conservative than those prevailing prior to the economic crisis (despite the recovery in real estate fundamentals), have created a shortage of capital for commercial real estate loans and thus a compelling opportunity to originate attractively structured and priced commercial real estate financing. We believe that markets are likely to face a void of several hundred billion dollars over the next several years that must be filled by new sources of capital since the supply of debt from traditional lending sources is anticipated to be less than the volume necessary to refinance maturing real estate loans. Therefore, well-capitalized investors with expertise and access to deal flow will have significant opportunities to originate new loans to meet this demand and to take advantage of the lack of supply of available credit to command favorable and compelling terms.

In summary, the two primary drivers that create the favorable opportunities that we believe exist and will continue to exist in the commercial real estate loan market during the period in which we are making investments are (i) the reduced amount of credit available from traditional lending sources to commercial real estate borrowers and (ii) a consistent, historically high annual volume of commercial real estate loan maturities. Specifically:

· The availability of mortgage financing is down significantly from the peak year of 2007.

· Approximately $1.4 trillion of commercial real estate debt has matured or is set to mature from 2016 to 2019, much of which originated at the peak of the past market cycle.

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· There is and will likely continue to be a substantial shortfall between the amount of maturing debt and the amount of new first mortgage debt available.

· Therefore, a large volume of maturing commercial real estate debt will require some form of restructuring or gap financing over the next several years.

 

In addition to the opportunities available to refinance existing mortgage loans, as a result of tightened lending policies, newly originated first mortgage loans are often being underwritten at reduced loan-to-value ratios, thereby often necessitating additional equity or mezzanine financing. A loan-to-value ratio indicates the percentage of a property’s value that a lender is willing to provide in financing. Prior to the credit crisis, most traditional commercial real estate lenders required a loan-to-value ratio of approximately 65% to 75%, which meant that mezzanine loans were often used to finance a portion of the remaining capital structure, from approximately 75% to 95% of underlying property value. Today, however, mezzanine loans are often used to finance the portion of the capital structure from approximately 65% to 85% of today’s lower underlying property value, which indicates the decreased willingness of traditional commercial real estate lenders to provide credit at pre-2008 loan-to-value ratios. Therefore, mezzanine loans and preferred equity investments today are financing portions of the real estate capital structure previously funded by lower cost senior mortgage financing. We believe the opportunity to generate attractive risk-adjusted returns through investment in mezzanine loans and preferred equity investments, as well as certain first mortgage loans and bridge loans, will continue for the foreseeable future, given the prospect of impending mortgage maturities and relatively limited sources of mortgage financing.

Due to the subordinate position of many of our loans or the expected use of the proceeds of such loans to renovate or refurbish the underlying properties, we expect that borrowers will be willing to pay us interest rates that are generally above the rates charged by conventional lenders. In other words, because the types of loans that we intend to make may be perceived as riskier than conventional loans, and due to the risk aversion of many conventional lenders, we will charge interest rates that are higher than the rates charged, for example, by banks, insurance companies and securitized lenders. We may also purchase existing loans that were originated by unrelated third-party lenders.

Although the loans we intend to make may be perceived as riskier by traditional commercial real estate lenders, we believe we are able to evaluate the creditworthiness of a borrower to facilitate repayment due to our management team’s experience gained through multiple commercial real estate cycles. One of our competitive advantages relative

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to many existing real estate investment vehicles is our management team’s sale of 100% of its investment management interests in June 2007, prior to the credit crisis. Thus, neither Terra Capital Partners nor any of its affiliates is burdened by a pre-credit crisis legacy portfolio of lower-return or problem assets. In comparison, management teams with a pre-credit crisis legacy portfolio are often distracted by asset management, workouts, foreclosures and litigation. We believe this competitive advantage, along with our management team’s experience, track record, judgment and capabilities, will facilitate our ability to execute our investment strategy and benefit from the market opportunities.

As indicated in the chart below labeled ‘‘Interest Rates 2004-2016,’’ the interest rates for commercial real estate mezzanine loans have not correlated with the rates for some other credit instruments. We believe the decrease in the number of lenders of capital for commercial real estate mezzanine loans and the resulting lack of competition have helped produce the relative lack of correlation with other interest rates.

Interest Rates 2004 – 2016

 

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Our Loan Portfolio

The following tables set forth certain information with respect to our assets, as of December 31, 2016.

	Property Type	Location	Fully Committed Balance (1)(2)		Current Gross Balance		Obligations Under Participaiton Agreements		Net Investment Balance		Contractual Interest Rate (3)			Loan-to- value Ratio (4)
Mezzanine Loans
1100 Biscayne Boulevard	Hotel	Miami, FL	$	16,000,000	$	14,500,000	$	2,735,384	$	11,764,616		15.00	%		67.5	%
30 Warren Street	Multifamily	Manhattan, NY		19,050,000		15,207,664		-		15,207,664		12.00	%		69.2	%
302 East 96th Street	Multifamily	Manhattan, NY		17,050,000		4,075,585		-		4,075,585		13.00	%		71.8	%
42-50 24th Street	Land	Long Island City, NY		12,500,000		12,500,000		3,834,087		8,665,913		14.00	%		80.5	%
55 Miracle Mile	Mixed Use	Coral Gables, FL		3,400,000		3,400,000		1,078,189		2,321,811		14.00	%		79.3	%
AHF Portfolio	Multifamily	Various, TX		2,689,038		2,689,038		-		2,689,038		14.00	%		69.9	%
Ball State Student Housing Portfolio	Student Housing	Muncie, IN		2,700,000		2,700,000		-		2,700,000		13.00	%		84.8	%
Mayo Portfolio	Multifamily	Boston, MA		4,000,000		4,000,000		-		4,000,000		12.00	%		72.0	%
BPG Hotel Portfolio	Hotel	King of Prussia, PA		1,800,000		1,800,000		540,000		1,260,000		13.00	%		81.3	%
BPG Office Portfolio	Office	Wilmington, DE		10,000,000		10,000,000		3,000,000		7,000,000		13.50	%		85.9	%
Hilton Brooklyn	Hotel	Brooklyn, NY		15,000,000		15,000,000		7,500,000		7,500,000		12.00	%		78.7	%
Clemson Student Housing Portfolio	Student Housing	Clemson, SC		3,000,000		3,000,000		-		3,000,000		13.00	%		77.3	%
CSRA Credit Facility	Multi-Asset	Multi-State		1,565,850		1,565,850		-		1,565,850		13.00	%		N/A
DoubleTree by Hilton Greensboro	Hotel	Greensboro, NC		3,500,000		3,500,000		-		3,500,000		14.00	%		77.9	%
Encino Courtyard	Retail	Encino, CA		2,500,000		2,500,000		-		2,500,000		13.50	%		76.8	%
Georgia Multifamily Portfolio	Multifamily	Various, GA		4,250,000		4,250,000		-		4,250,000		14.00	%		76.7	%
Holiday Inn Midtown	Hotel	Austin, TX		3,500,000		3,500,000		1,050,000		2,450,000		12.50	%		81.8	%
Kingsport Multifamily Portfolio	Multifamily	Kingsport, TN		3,000,000		3,000,000		-		3,000,000		13.00	%		76.9	%
Museo Apartments	Multifamily	Austin, TX		4,000,000		4,000,000		-		4,000,000		12.00	%		83.5	%
Pine Tree Drive	Office	Miami Beach, FL		5,000,000		5,000,000		1,548,125		3,451,875		14.00	%		85.7	%
Portland Airport Hotel Portfolio	Hotel	Portland, OR		5,000,000		5,000,000		-		5,000,000		13.00	%		72.9	%
Ramada Resort Fort Walton Beach	Hotel	Fort Walton Beach, FL		4,500,000		4,500,000		-		4,500,000		13.00	%		68.8	%
UBS Tower	Office	Nashville, TN		6,225,000		6,225,000		-		6,225,000		15.00	%		66.2	%
Urbanea	Multifamily	Miami, FL		5,750,000		5,750,000		-		5,750,000		13.00	%		74.1	%
Mezzanie Loan Subtotal/Weighted Average			$	155,979,888	$	137,663,137	$	21,285,785	$	116,377,352		13.29	%		75.0	%
Preferred Equity
302 East 96th Street	Multifamily	Manhattan, NY	$	1,600,000	$	1,303,583	$	-	$	1,303,583		13.00	%		71.83	%
Arbor Station Apartments	Multifamily	Montgomery, AL		2,100,000		2,100,000		-		2,100,000		15.00	%		85.61	%
CSRA Credit Facility	Multi-Asset	Multi-State		12,395,108		12,395,108		-		12,395,108		13.00	%		N/A
DoubleTree by Hilton San Diego	Hotel	San Diego, CA		6,000,000		6,000,000		800,000		5,200,000		12.00	%		64.21	%
Hilton Garden Inn Fort Washigton	Hotel	Ft. Washington, PA		3,742,000		3,742,000		-		3,742,000		13.00	%		69.28	%
Marriott Warner Center	Hotel	Los Angeles, CA		22,000,000		20,000,000		3,750,000		16,250,000		13.25	%		83.91	%
Mystic Hotel	Hotel	San Francisco, CA		4,325,000		4,325,000		-		4,325,000		12.00	%		68.36	%
Stratford Apartments	Multifamily	Montgomery, AL		1,600,000		1,600,000		-		1,600,000		15.00	%		86.35	%
Urbanea	Multifamily	Miami, FL		500,000		500,000		-		500,000		13.00	%		74.15	%
Preferred Equity Subtotal/Weighted Average			$	54,262,108	$	51,965,690	$	4,550,000	$	47,415,690		13.04	%		77.13	%
First Mortgage
144 South Harrison Street	Multifamily	East Orange, NJ	$	22,639,955	$	22,639,955	$	-	$	22,639,955		12.00	%		66.39	%
1733 Ocean Avenue	Office	Santa Monica, CA		54,000,000		50,450,061		-		50,450,061		13.70	%		83.08	%
Wynwood	Land	Miami, FL		21,360,000		19,620,000		-		19,620,000		12.00	%		69.35	%
Millennium IV	Land	Conshohocken, PA		13,980,000		13,980,000		-		13,980,000		12.00	%		50.47	%
Uptown Newport	Land	Newport Beach, CA		18,000,000		18,000,000		6,800,000		11,200,000		12.00	%		59.21	%
First Mortgage Subtotal/Weighted Average			$	129,979,955	$	124,690,016	$	6,800,000	$	117,890,016		12.73	%		71.45	%
Other (5)
CSRA Credit Facility	Multi-Asset	Multi-State	$	1,539,043	$	1,539,043	$	-	$	1,539,043		13.00	%		N/A
Nelson Brothers Credit Facility	Multi-Asset	Multi-State		8,000,000		8,000,000		-		8,000,000		13.00	%		N/A
Other Subtotal/Weighted Average			$	9,539,043	$	9,539,043	$	-	$	9,539,043		13.00	%		N/A
Total/Weighted Average			$	349,760,993	$	323,857,886	$	32,635,785	$	291,222,101		13.01	%		73.74	%

(1)	Fully committed balance represents our maximum potential funding requirement.
(2)	Amount excludes paid-in-kind interest, or PIK.
(3)	Certain of our investments provide for PIK interest provisions. The interest rates presented are inclusive of the PIK interest provision.
(4)	Loan-to-value Ratio is generally based upon the fully committed balance less capital improvement reserves held by the lender and unfunded commitments divided by the associated property's appraised value at origination, unless a more recent appraisal was obtained.
(5)	Other represents the unfunded cash from two credit facilities.

	December 31, 2016
Portfolio Summary	Fixed Rate			Floating Rate(1)			Total
Number of investments		37			1			38
Principal balance	$	275,554,910		$	50,450,061		$	326,004,971
Weighted-average interest rate		12.98	%		9.19	%		12.38	%
Weighted-average remaining terms (year)(2)		1.42			1.19			1.39

(1)	This investment pays an annual interest rate of London Interbank Offered Rate, or LIBOR, plus 8.5%. LIBOR cannot be lower than 0.5%. Interest rate shown was determined using the applicable annual interest rate as of December 31, 2016.
(2)	Reflects the current maturity dates, some of which were extended subsequent to December 31, 2016 and before the issuance of the combined consolidated financial statements.

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	December 31, 2016
Asset Type	Principal		Carrying Value		% of Total
Mezzanine loans	$	139,810,222	$	142,489,036		43.1	%
First mortgages		124,690,016		125,863,391		38.0	%
Preferred equity investments		51,965,691		52,896,500		16.0	%
Other(1)		9,539,042		9,626,616		2.9	%
Total	$	326,004,971	$	330,875,543		100.0	%

(1) Other represents the unused cash from two credit facilities.

	December 31, 2016
Property Type	Principal		Carrying Value		% of Total
Hotel	$	82,726,671	$	84,133,273		25.4	%
Multifamily		83,510,933		85,021,199		25.7	%
Office		74,054,158		74,747,026		22.6	%
Land		64,380,220		64,992,725		19.6	%
Student housing		5,700,000		6,125,635		1.9	%
Mixed use		3,593,947		3,619,217		1.1	%
Other(1)		12,039,042		12,236,468		3.7	%
Total	$	326,004,971	$	330,875,543		100.0	%

(1) Other includes $2.5 million of retail properties and $9.5 million of unused cash from two credit facilities.

	December 31, 2016
Geographic Location	Principal		Carrying Value		% of Total
United States
California	$	101,275,061	$	102,699,779		31.1	%
Florida		54,484,022		54,927,914		16.6	%
New York		48,367,052		48,746,769		14.7	%
New Jersey		22,639,955		22,865,291		6.9	%
Pennsylvania		19,522,000		19,703,355		6.0	%
Texas		10,189,038		10,420,209		3.1	%
Delaware		10,000,000		10,082,308		3.1	%
Tennessee		9,877,843		10,179,485		3.1	%
Virginia		6,675,510		6,737,238		2.0	%
Arizona		5,719,598		5,772,487		1.7	%
Oregon		5,000,000		5,356,923		1.6	%
North Carolina		4,921,404		4,985,576		1.5	%
Georgia		4,250,000		4,604,941		1.4	%
Massachusetts		4,000,000		4,112,275		1.2	%
Alabama		3,844,445		3,928,742		1.2	%
Other(1)		15,239,043		15,752,251		4.8	%
Total	$	326,004,971	$	330,875,543		100.0	%

(1) Other includes $2.7 million of properties in Indiana, $3.0 million of properties in South Carolina and $9.5 million of unused cash from two credit facilities.

Objective and Strategy

Our primary investment objectives are to:

· preserve our members’ capital contributions;

· realize income from our investments; and

· make monthly distributions to our members from cash generated by investments.

We have created and maintain a portfolio of investments that we believe generates a low volatility income stream of attractive and consistent cash distributions. Our focus on originating debt and debt-like instruments emphasizes the payment of current returns to investors and the preservation of invested capital.

We may deploy modest amounts of leverage as part of our operating strategy not in excess of 30%. In addition, if the borrower in one of our mezzanine, second mortgage or subordinated mortgage loans defaults on the senior loan,

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we may incur leverage to service and/or purchase the senior loan and avoid a default on that senior loan to which our loan would be subject, or to pay miscellaneous expenses incurred in curing the default. See “— Our Financing Strategy” for additional information about our leverage strategy.

The management team of the Manager has extensive experience in originating, managing and disposing of real estate-related loans. The Manager seeks to:

· focus on the origination of new loans;

· invest in loans expected to be realized within one to five years;

· maximize current income;

· lend to creditworthy borrowers;

· lend on properties leased to high-quality tenants;

· maximize diversification by property type, geographic location, tenancy and borrower;

· source off-market transactions;

· focus on small to mid-sized loans of approximately $3 million to $20 million;

· invest in loans not exceeding 80% of the current value of the underlying property; and

· hold investments until maturity unless, in the Manager’s judgment, market conditions warrant earlier disposition.

Our Financing Strategy

We may deploy moderate amounts of leverage as part of our operating strategy, which may consist of borrowings under first mortgage financings, warehouse facilities, repurchase agreements and other credit facilities. Although we are not required to maintain any particular leverage ratio or leverage limitation, we expect that our leverage will not to exceed 30% of the value of our total assets on a portfolio basis. As of December 31, 2016, we did not have outstanding borrowings. As of December 31, 2016, our REIT subsidiary had an aggregate of approximately $66.6 million outstanding indebtedness, including borrowings under a mortgage loan with an outstanding principal amount of approximately $34 million and obligations under participation agreements with an aggregate outstanding principal amount of approximately $32.6 million. For additional information concerning our indebtedness, see “Item 2. Financial Information —Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

In addition, if the borrower in one of our mezzanine, second mortgage or subordinated mortgage loans defaults on the senior loan, we may incur leverage to service and/or purchase the senior loan and avoid a default on that senior loan to which our loan would be subject, or to pay miscellaneous expenses incurred in curing the default. We intend for the use of such leverage to be defensive and primarily to mitigate the adverse effects to us in the event of a default by the borrower under a senior loan. In such cases, we may use leverage in an amount not to exceed 60% of the balance of the defaulted loan.

Targeted Assets

Real Estate-Related Loans

We originate, acquire, fund and structure real estate-related loans, including first and second mortgage loans, mezzanine loans, bridge loans, convertible mortgages and other loans related to high-quality commercial real estate in the United States. We also acquire some equity participations in the underlying collateral of such loans. We structure, underwrite and originate most if not all of our investments. We use what we consider to be conservative underwriting criteria, and our underwriting process involves comprehensive financial, structural, operational and legal due diligence to assess the risks of investments so that we can optimize pricing and structuring. By originating loans

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directly, we are able to structure and underwrite loans that satisfy our standards, establish a direct relationship with the borrower and utilize our own documentation. Described below are some of the types of loans we own and may originate.

Mezzanine Loans. These are loans secured by ownership interests in an entity that owns commercial real estate and generally finance the acquisition, refinancing, rehabilitation or construction of commercial real estate. Mezzanine loans may be either short-term (one-to-five year) or long-term (up to 10-year) and may be fixed or floating rate. We may originate mezzanine loans backed by high-quality properties in the United States that fit our investment strategy. We may own such mezzanine loans directly or we may hold a participation in a mezzanine loan or a sub-participation in a mezzanine loan. These loans are predominantly current-pay loans (although there may be a portion of the interest that accrues) and may provide for participation in the value or cash flow appreciation of the underlying property as described below. We invest in mezzanine loans with loan-to-value ratios ranging from 60% to 80%. With the credit market disruption and resulting dearth of capital available in this part of the capital structure, we believe that the opportunities to both directly originate and to buy mezzanine loans from third-parties on favorable terms will continue to be attractive. As of December 31, 2016, we owned mezzanine loans with total principal amount of $139.8 million, which constituted 42.9% of our portfolio.

Preferred Equity Investments. These are investments in preferred membership interests in an entity that owns commercial real estate and generally finance the acquisition, refinancing, rehabilitation or construction of commercial real estate. These investments are expected to have similar characteristics to and returns as mezzanine loans. As of December 31, 2016, we owned preferred equity investments with total principal amount of $52.0 million, which constituted 15.9% of our portfolio.

Subordinated Mortgage Loans or “B-notes.” These include structurally subordinated first mortgage loans and junior participations in first mortgage loans or participations in these types of assets (commonly referred to as B-notes). Like first mortgage loans, these loans generally finance the acquisition, refinancing, rehabilitation or construction of commercial real estate. Subordinated mortgage loans or B-notes may be either short-term (one-to-five year) or long-term (up to 10-year), may be fixed or floating rate and are predominantly current-pay loans. We may originate current-pay subordinated mortgage loans or B-notes backed by high-quality properties in the United States that fit our investment strategy. We may create subordinated mortgage loans by tranching our directly originated first mortgage loans generally through syndications of senior first mortgages, or buy such assets directly from third-party originators. Due to the current credit market disruption and resulting dearth of capital available in this part of the capital structure, we believe that the opportunities to both directly originate and to buy subordinated mortgage investments from third-parties on favorable terms will continue to be attractive.

Investors in subordinated mortgage loans are compensated for the increased risk of such assets from a pricing perspective but still benefit from a lien on the related property. Investors typically receive principal and interest payments at the same time as senior debt unless a default occurs, in which case these payments are made only after any senior debt is made whole. Rights of holders of subordinated mortgage loans are usually governed by participation and other agreements that, subject to certain limitations, typically provide the holders of subordinated positions of the mortgage loan with the ability to cure certain defaults and control certain decisions of holders of senior debt secured by the same properties (or otherwise exercise the right to purchase the senior debt), which provides for additional downside protection and higher recoveries. As of December 31, 2016, we did not own B-notes.

Bridge Loans. We offer bridge financing products to borrowers who are typically seeking short-term capital to be used in an acquisition, development or refinancing of a given property. From the borrower’s perspective, shorter term bridge financing is advantageous because it allows time to improve the property value through repositioning without encumbering it with restrictive long-term debt. The terms of these loans generally do not exceed three years. Bridge loans may be structured as mezzanine loans, preferred equity or first mortgages. As of December 31, 2016, we did not own bridge loans.

First Mortgage Loans. These loans generally finance the acquisition, refinancing, rehabilitation or construction of commercial real estate. First mortgage loans may be either short-term (one-to-five year) or long-term (up to 10-year), may be fixed or floating rate and are predominantly current-pay loans. We originate current-pay first mortgage loans backed by high-quality properties in the United States that fit our investment strategy. We selectively syndicate portions of these loans, including senior or junior participations that will effectively provide permanent financing or optimize returns which may include retained origination fees.

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First mortgages provide for a higher recovery rate and lower defaults than other debt positions due to the lender’s senior position. However, such loans typically generate lower returns than subordinate debt such as mezzanine loans or B-notes. As of December 31, 2016, we owned first mortgage loans with total principal amount of $124.7 million, which constituted 38.3% of our portfolio.

Convertible Mortgages. Convertible mortgages are similar to equity participations (as described below). We may invest in or originate a convertible mortgage if the Manager concludes that we may benefit from the cash flow or any appreciation in the value of the subject property. As of December 31, 2016, we did not own convertible mortgages.

Equity Participations. In connection with our loan origination activities, we may pursue equity participation opportunities, or interests in the projects being financed, in instances when we believe that the risk-reward characteristics of the loan merit additional upside participation because of the possibility of appreciation in value of the underlying assets securing the loan. Equity participations can be paid in the form of additional interest, exit fees or warrants in the borrower. Equity participation can also take the form of a conversion feature, permitting the lender to convert a loan or preferred equity investment into equity in the borrower at a negotiated premium to the current net asset value of the borrower. We expect to be able to obtain equity participations in certain instances where the loan collateral consists of an asset that is being repositioned, expanded or improved in some fashion which is anticipated to improve future cash flow. In such case, the borrower may wish to defer some portion of the debt service or obtain higher leverage than might be merited by the pricing and leverage level based on historical performance of the underlying asset. We generate additional revenues from these equity participations as a result of excess cash flows being distributed or as appreciated properties are sold or refinanced. As of December 31, 2016, we did not own equity participations.

Other Real Estate-Related Investments. The Manager has the right to invest in other real estate-related investments, which may include CMBS or other real estate debt or equity securities, so long as such investments do not constitute more than 15% of our assets. Certain of our real estate-related loans require the borrower to make payments of principal on the fully committed principal amount of the loan regardless of whether the full loan amount is outstanding, and as of December 31, 2016 we had unused cash of $9.5 million from two such credit facilities under which we act as lender, which constituted 2.9% of our portfolio.

Investment Guidelines

Our REIT subsidiary’s board of directors has adopted investment guidelines relating to the criteria to be used by the Manager’s senior management team to evaluate specific investments as well as our overall portfolio composition. Our REIT subsidiary’s board of directors will review its compliance with the investment guidelines periodically and receive an investment report at each quarter-end in conjunction with the review of our REIT subsidiary’s quarterly results by its board of directors.

Our REIT subsidiary’s investment guidelines are as follows:

· no acquisition shall be made that would cause our REIT subsidiary to fail to qualify as a REIT;

· no acquisition shall be made that would cause our REIT subsidiary or any of its subsidiaries to be required to register as an investment company under the 1940 Act; and

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

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

Disposition Policies

The period we hold our investments in real estate-related loans varies depending on the type of asset, interest rates and other factors. The Manager has developed a well-defined exit-strategy for each investment we make. The Manager

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continually performs a hold-sell analysis on each asset in order to determine the optimal time to hold the asset and generate a strong return to our members. Economic and market conditions may influence us to hold investments for different periods of time. We may sell an asset before the end of the expected holding period if we believe that market conditions have maximized its value to us or the sale of the asset would otherwise be in our best interests. We intend to make any such dispositions in a manner consistent with our REIT subsidiary’s qualification as a REIT and our desire to avoid being subject to the “prohibited transaction” penalty tax.

Term and Liquidity

Our amended and restated operating agreement provides that our existence will continue until December 31, 2023, unless sooner terminated. However, we expect that prior to such date we will consummate a liquidity transaction, which may include an orderly liquidation of our assets or an alternative liquidity event such as a sale of our company or an IPO and listing of our REIT subsidiary’s shares of common stock on a national securities exchange. Our Manager would pursue an alternative liquidity event only if it believes such a transaction would be in the best interests of our members.

Operating and Regulatory Structure

REIT Qualification

Our REIT subsidiary has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, or the Code, commencing with its taxable year ended December 31, 2016. We believe that our REIT subsidiary has been organized and has operated in conformity with the requirements for qualification and taxation as a REIT under the Internal Revenue Code, and that its manner of operation will enable it to continue to meet the requirements for qualification and taxation as a REIT. To qualify as a REIT, it must meet on a continuing basis, through its organization and actual investment and operating results, various requirements under the Code relating to, among other things, the sources of its gross income, the composition and values of its assets, its distribution levels and the diversity of ownership of shares of its stock. If our REIT subsidiary fails to qualify as a REIT in any taxable year and does not qualify for certain statutory relief provisions, it will be subject to U.S. federal income tax at regular corporate rates and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year during which it failed to qualify as a REIT. Even if our REIT subsidiary qualifies for taxation as a REIT, it may be subject to some U.S. federal, state and local taxes on its income or property. In addition, subject to maintaining its qualification as a REIT, a portion of its business may be conducted through, and a portion of its income may be earned with respect to, its taxable REIT subsidiaries, or TRSs, should it decide to form TRSs in the future, which are subject to corporate income tax. Any distributions paid by our REIT subsidiary generally will not be eligible for taxation at the preferential U.S. federal income tax rates that currently apply to certain distributions received by individuals from taxable corporations, unless such distributions are attributable to qualified dividends received by our REIT subsidiary from a TRS, should it decide to form a TRS in the future.

1940 Act Exclusion

Neither we nor our REIT subsidiary are registered as an investment company under the 1940 Act. If we or our REIT subsidiary were obligated to register as an investment company, we or our REIT subsidiary would have to comply with a variety of substantive requirements under the 1940 Act that impose, among other things:

· limitations on our capital structure or the use of leverage;

· restrictions on specified investments;

· prohibitions on transactions with affiliates; and

· compliance with reporting, record keeping, and other rules and regulations that would significantly change our and our REIT subsidiary’s operations.

We conduct our operations so that we are not required to register as an investment company under the 1940 Act. Section 3(a)(1)(A) of the 1940 Act defines an investment company as any issuer that is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities. Section 3(a)(1)(C) of the 1940 Act

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defines an investment company as any issuer that is “engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. Excluded from the term “investment securities,” among other things, are U.S. government securities and securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exemption from the definition of investment company set forth in Section 3(c)(1) or Section 3(c)(7) of the 1940 Act. Because we are organized as a holding company and conduct our business primarily through our REIT subsidiary, the value of the “investment securities” held by us must be less than 40% of the value of our total assets on an unconsolidated basis (exclusive of U.S. government securities and cash items). In addition, we conduct our operations so that we will not be considered an investment company under Section 3(a)(1)(A) of the 1940 Act, as we are not engaged primarily nor do we hold ourselves out as being engaged primarily in the business of investing, reinvesting or trading in securities. Rather, through our REIT subsidiary, we are primarily engaged in the non-investment company businesses of our REIT subsidiary.

Our REIT subsidiary relies on the exclusion from the definition of an investment company under Section 3(c)(5)(C) of the 1940 Act, or any other exclusions available to our REIT subsidiary. Section 3(c)(5)(C) of the 1940 Act is available for entities “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” This exclusion generally requires that at least 55% of our REIT subsidiary’s portfolio must be comprised of “qualifying real estate” assets and at least 80% of our REIT subsidiary’s portfolio must be comprised of “qualifying real estate” assets and “real estate-related” assets (and no more than 20% comprised of miscellaneous assets) as determined in accordance with the 1940 Act and the rules and regulations promulgated thereunder. For purposes of the exclusion provided by Section 3(c)(5)(C) of the 1940 Act, our REIT subsidiary classifies its investments based in large measure on no-action letters issued by the SEC staff and other SEC interpretive guidance and, in the absence of SEC guidance, on our view of what constitutes a “qualifying real estate” asset and a “real estate-related” asset. These no-action positions were issued in accordance with factual situations that may be substantially different from the factual situations our REIT subsidiary may face, and a number of these no-action positions were issued more than ten years ago. Pursuant to this guidance, and depending on the characteristics of the specific investments, certain mortgage loans, participations in mortgage loans, mortgage-backed securities, mezzanine loans, joint venture investments and the equity securities of other entities may not constitute qualifying real estate assets and therefore investments in these types of assets may be limited. No assurance can be given that the SEC or its staff will concur with our classification of the assets held by our REIT subsidiary. Future revisions to the 1940 Act or further guidance from the SEC or its staff may cause us to lose our exclusion from registration or force us to re-evaluate our portfolio held through our REIT subsidiary and our investment strategy. Such changes may prevent us from operating our business successfully.

In order to maintain an exclusion from registration under the 1940 Act, we may be unable to sell assets that we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. In addition, we may have to acquire additional income or loss generating assets that we might not otherwise have acquired or may have to forgo opportunities to acquire assets that we would otherwise want to acquire and would be important to its strategy.

Although we monitor the portfolio of our REIT subsidiary periodically and prior to each acquisition and disposition, our REIT subsidiary may not be able to maintain an exclusion from registration as an investment company. If our REIT subsidiary were required to register as an investment company, but failed to do so, our REIT subsidiary would be prohibited from engaging in its business, and legal proceedings could be instituted against our REIT subsidiary. In addition, the contracts of our REIT subsidiary may be unenforceable, and a court could appoint a receiver to take control of our REIT subsidiary and liquidate its business, all of which would have an adverse effect on our business.

Emerging Growth Company Status

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

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and stockholder approval of any golden parachute payments not previously approved. A number of these exemptions are not relevant to us, and in any event we do not currently intend to take advantage of any of these exemptions.

In addition, Section 107 of the JOBS Act provides that an emerging growth company can use the extended transition period provided in Section 13(a) of the Exchange Act for complying with new or revised accounting standards. This permits an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to take advantage of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

We will remain an emerging growth company until the earliest to occur of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the date on which we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period, and (iv) the end of the year in which the 5 year anniversary of our initial public offering of our common stock occurs.

Licensing

We may be required to be licensed to originate our real estate-related loans in various jurisdictions in which we conduct our business. We believe our REIT subsidiary and its wholly owned subsidiaries are in compliance with all such material licensing requirements necessary in order to conduct our business.

Competition

We compete with REITs, numerous regional and community banks, specialty finance companies, savings and loan associations and other entities, and we expect that others may be organized in the future. The effect of the existence of additional REITs and other institutions may be increased competition for the available supply of our targeted assets suitable for purchase, which may cause the price for such assets to rise.

In the face of this competition, we expect to have access to the Manager’s professionals and their industry expertise, which may provide us with a competitive advantage in sourcing transactions and help us assess origination and acquisition risks and determine appropriate pricing for potential assets. The more conservative underwriting standards used by many large commercial banks and traditional providers of commercial real estate capital following the 2008 downturn has and, and we believe, will continue to constrain the lending capacity of these institutions. However, we may not be able to achieve our business goals or expectations due to the competitive risks that we face. For additional information concerning these competitive risks, see “Item 1A. Risk Factors — New entrants in the market for commercial loan originations and acquisitions could adversely impact our ability to originate and acquire real estate-related loans at attractive risk-adjusted returns.”

Staffing

Our sole managing member is the Manager. We conduct substantially all of our business through our REIT subsidiary, which is supervised by its board of directors consisting of three directors. Our REIT subsidiary has entered into a management agreement with the Manager pursuant to which certain services are provided by the Manager and paid for by our REIT subsidiary. The Manager is not obligated under the management agreement to dedicate any of its personnel exclusively to us, nor is it or its personnel obligated to dedicate any specific portion of its or their time to our business. Accordingly, our executive officers are not required to devote any specific amount of time to our business. We are responsible for the costs of our own employees; however, we do not currently have any employees and do not currently expect to have any employees. See “Item 5. Directors and Executive Officers.”

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ITEM 1A. RISK FACTORS

Investing in our units involves a high degree of risk. Investors should carefully consider the following risk factors and all other information contained in this registration statement before acquiring our units. If any of the following risks occur, our business, financial condition, liquidity and results of operations could be materially and adversely affected. In that case, the value of our units could decline, and members may lose some or all of their investment. Some statements in this section constitute forward-looking statements. See “Forward-Looking Statements.”

Risks Related to Our Business

Changes in national, regional or local economic, demographic or real estate market conditions may adversely affect our results of operations and returns to our investors.

We will be subject to risks incident to the ownership of real estate-related assets including: changes in national, regional or local economic, demographic or real estate market conditions; changes in supply of, or demand for, similar properties in an area; increased competition for real estate assets targeted by our investment strategy; bankruptcies, financial difficulties or lease defaults by property owners and tenants; changes in interest rates and availability of financing; and changes in government rules, regulations and fiscal policies, including changes in tax, real estate, environmental and zoning laws. Any increase in mortgage defaults in the residential market may have a negative impact on the credit markets generally as well as on economic conditions generally. We are unable to predict future changes in national, regional or local economic, demographic or real estate market conditions. These conditions, or others we cannot predict, may adversely affect our results of operations, cash flow and returns to our investors.

Our real estate-related loans may be impacted by unfavorable real estate market conditions, which could decrease the value of our investments.

The real estate-related loans we make or invest in are at risk of defaults caused by many conditions beyond its control, including local and other economic conditions affecting real estate values and interest rate levels. We do not know whether the values of the property securing the real estate-related loans will remain at the levels existing on the dates of origination of such loans. If the values of the underlying properties drop, our risks will increase and the value of its investments may decrease.

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

A portion of the real estate-related loans and other assets we originate or acquire may be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly-traded securities. The illiquidity of our assets may make it difficult for us to sell such assets if the need or desire arises. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less value than the value at which we have previously recorded our assets. As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited, which could adversely affect our results of operations and financial condition.

Our due diligence of potential real estate-related loans and other commercial real estate assets may not reveal all of the liabilities associated with such assets and may not reveal other weaknesses in our assets, which could lead to investment losses.

Before making an investment, the Manager calculates the level of risk associated with the real estate-related loans and other commercial real estate assets to be originated or acquired based on several factors which include the following: top-down reviews of both the current macroeconomic environment generally and the real estate and commercial real estate loan market specifically; detailed evaluation of the real estate industry and its sectors; bottom-up reviews of each individual investment’s attributes and risk/reward profile relative to the macroeconomic environment; and quantitative cash flow analysis and impact of the potential investment on our portfolio. In making the assessment and otherwise conducting customary due diligence, we employ standard documentation requirements and require appraisals prepared by local independent third-party appraisers selected by us. Additionally, we seek to have borrowers or sellers provide representations and warranties on loans we originate or acquire, and if we are unable to obtain representations and warranties, we factor the increased risk into the price we pay for such loans. Despite our

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review process, there can be no assurance that our due diligence process will uncover all relevant facts or that any investment will be successful.

If the Manager underestimates the credit analysis and the expected risk-adjusted return relative to other comparable investment opportunities, we may experience losses.

The Manager values our real estate-related loans based on an initial credit analysis and the investment’s expected risk-adjusted return relative to other comparable investment opportunities available to us, taking into account estimated future losses on the loans, and the estimated impact of these losses on expected future cash flows. The Manager’s loss estimates may not prove accurate, as actual results may vary from estimates. In the event that the Manager underestimates the losses relative to the price we pay for a particular investment, we may experience losses with respect to such investment.

The use of underwriting guideline exceptions in the loan origination process may result in increased delinquencies and defaults.

Although we generally underwrite loans in accordance with pre-determined loan underwriting guidelines, from time to time and in the ordinary course of business, we make exceptions to these guidelines. On a case by case basis, we may determine that a prospective borrower that does not strictly qualify under our underwriting guidelines warrants an underwriting exception, based upon compensating factors. Compensating factors may include a lower loan-to-value ratio, a higher debt coverage ratio, experience as a real estate owner or investor, higher borrower net worth or liquidity, longer length of time in business and length of time owning the property. Loans originated with exceptions may result in a higher number of delinquencies and defaults, which could have a material and adverse effect on our business, results of operations and financial condition.

Deficiencies in appraisal quality in the mortgage loan origination process may result in increased principal loss severity.

During the loan underwriting process, appraisals are generally obtained on the collateral underlying each prospective loan. The quality of these appraisals may vary widely in accuracy and consistency. The appraiser may feel pressure from the broker or lender to provide an appraisal in the amount necessary to enable the originator to make the loan, whether or not the value of the property justifies such an appraised value. Inaccurate or inflated appraisals may result in an increase in the severity of losses on the loans, which could have a material and adverse effect on our business, results of operations and financial condition.

The Manager utilizes analytical models and data in connection with the valuation of our real estate-related loans and other commercial real estate assets, and any incorrect, misleading or incomplete information used in connection therewith would subject us to potential risks.

As part of the risk management process the Manager uses detailed proprietary models, including loan level non-performing loan models, to evaluate collateral liquidation timelines and price changes by region, along with the impact of different loss mitigation plans. Additionally, the Manager uses information, models and data supplied by third-parties. Models and data are used to value potential targeted assets. In the event models and data prove to be incorrect, misleading or incomplete, any decisions made in reliance thereon expose us to potential risks. For example, by relying on incorrect models and data, especially valuation models, the Manager may be induced to buy certain targeted assets at prices that are too high, to sell certain other assets at prices that are too low or to miss favorable opportunities altogether. Similarly, any hedging based on faulty models and data may prove to be unsuccessful.

Changes in interest rates could adversely affect the demand for our target loans, the value of our loans and CMBS assets and the availability and yield on our targeted assets.

We invest in real estate-related loans and other commercial real estate assets, which are subject to changes to interest rates. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control. Rising interest rates generally reduce the demand for mortgage loans due to the higher cost of borrowing. A reduction in the volume of mortgage loans originated may affect the volume of our targeted assets available to us, which could adversely affect our ability to originate and acquire assets that satisfy our investment objectives. Rising interest rates may also cause

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our targeted assets that were issued prior to an interest rate increase to provide yields that are below prevailing market interest rates. If rising interest rates cause us to be unable to originate or acquire a sufficient volume of our targeted assets with a yield that is above our borrowing cost, our ability to satisfy our investment objectives and to generate income and make distributions may be materially and adversely affected. Conversely, if interest rates decrease, we will be adversely affected to the extent that real estate-related loans are prepaid, because we may not be able to make new loans at the previously higher interest rate.

The relationship between short-term and longer-term interest rates is often referred to as the “yield curve.” Ordinarily, short-term interest rates are lower than longer-term interest rates. If short-term interest rates rise disproportionately relative to longer-term interest rates (a flattening of the yield curve), our borrowing costs may increase more rapidly than the interest income earned on our assets. Because our loans and CMBS assets generally will bear, on average, interest based on longer-term rates than our borrowings, a flattening of the yield curve would tend to decrease our net income and the fair market value of our net assets. Additionally, to the extent cash flows from loans and CMBS assets that return scheduled and unscheduled principal are reinvested, the spread between the yields on the new loans and CMBS assets and available borrowing rates may decline, which would likely decrease our net income. It is also possible that short-term interest rates may exceed longer-term interest rates (a yield curve inversion), in which event our borrowing costs may exceed our interest income and we could incur operating losses.

The values of our loans and CMBS assets may decline without any general increase in interest rates for a number of reasons, such as increases or expected increases in defaults, or increases or expected increases in voluntary prepayments for those loans and CMBS assets that are subject to prepayment risk or widening of credit spreads.

In addition, in a period of rising interest rates, our operating results will depend in large part on the difference between the income from our assets and our financing costs. We anticipate that, in most cases, the income from such assets will respond more slowly to interest rate fluctuations than the cost of our borrowings. Consequently, changes in interest rates, particularly short-term interest rates, may significantly influence our net income. Increases in these rates will tend to decrease our net income.

Recent market conditions may make it more difficult for us to analyze potential investment opportunities or our portfolio of assets.

Our success depends, in part, on our ability to effectively analyze potential acquisition and origination opportunities in order to assess the level of risk-adjusted returns that we should expect from any particular investment. To estimate the value of a particular asset, we may use historical assumptions that may or may not be appropriate during the recent unprecedented downturn in the real estate market and general economy. To the extent that we use historical assumptions that are inappropriate under current market conditions, we may overpay for an asset or acquire an asset that we otherwise might not acquire, which could have a material and adverse effect on our results of operations and our ability to make distributions to our members.

In addition, as part of our overall portfolio risk management, we analyze interest rate changes and prepayment trends separately and collectively to assess their effects on our portfolio of assets. In conducting our analysis, we rely on certain assumptions based upon historical trends with respect to the relationship between interest rates and prepayments under normal market conditions. Recent dislocations in the mortgage market or other developments may change the way that prepayment trends respond to interest rate changes, which may adversely affect our ability to assess the market value of our portfolio of assets, implement our hedging strategies or implement techniques to reduce our prepayment rate volatility. If our estimates prove to be incorrect or our hedges do not adequately mitigate the impact of changes in interest rates or prepayments, we may incur losses that could materially and adversely affect our financial condition, results of operations and our ability to make distributions to our members.

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

New entrants in the market for commercial loan originations and acquisitions could adversely impact our ability to execute our investment strategy on terms favorable to us. In originating and acquiring our targeted assets, we may compete with other REITs, numerous regional and community banks, specialty finance companies, savings and loan associations, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, other lenders and other entities, and we expect that others may be organized in the future. The effect of the existence

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of additional REITs and other institutions may be increased competition for the available supply of assets suitable for investment by us, which may cause the price for such assets to rise, which may limit our ability to generate desired returns. Additionally, origination of our target loans by our competitors may increase the availability of such loans which may result in a reduction of interest rates on these loans. Some competitors may have a lower cost of funds and access to funding sources that may not be available to us. Many of our competitors are not subject to the operating constraints associated with REIT tax compliance or maintenance of an exemption from the 1940 Act. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of real estate-related loans and establish more relationships than us.

We cannot assure you that the competitive pressures we may face will not have a material adverse effect on our business, financial condition and results of operations. Also, as a result of this competition, desirable investments in our targeted assets may be limited in the future and we may not be able to take advantage of attractive investment opportunities from time to time, as we can provide no assurance that we will be able to identify and make investments that are consistent with our investment objectives.

The mezzanine loans in which we invest involve greater risks of loss than senior loans secured by income-producing real properties.

We invest in mezzanine loans that take the form of subordinated loans secured by second mortgages on the underlying real property or loans secured by a pledge of the ownership interests of the entity owning the real property. These types of investments involve a higher degree of risk than long-term senior mortgage lending secured by income-producing real property because the investment may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of such entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan. If a borrower defaults on our mezzanine loan or debt senior to such loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt. As a result, we may not recover some or all of our investment. In addition, mezzanine loans may have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the real property and increasing the risk of loss of principal.

Our investments in B-notes are generally subject to losses. The B-notes in which we may invest may be subject to additional risks relating to the privately negotiated structure and terms of the transaction, which may result in losses to us.

As part of our whole loan origination platform, we may retain from whole loans we originate or acquire, subordinate interests referred to as B-notes. B-notes are commercial real estate loans secured by a first mortgage on a single large commercial property or group of related properties and subordinated to a senior interest, referred to as an A-note. As a result, if a borrower defaults, there may not be sufficient funds remaining for B-note owners after payment to the A-note owners. B-notes reflect similar credit risks to comparably rated CMBS. However, since each transaction is privately negotiated, B-notes can vary in their structural characteristics and risks. For example, the rights of holders of B-notes to control the process following a borrower default may be limited in certain investments. We cannot predict the terms of each B-note investment. Significant losses related to our B-notes would result in operating losses for us and may limit our ability to make distributions.

Our loans are dependent on the ability of the commercial property owner to generate net income from operating the property, which may result in the inability of such property owner to repay a loan, as well as the risk of foreclosure.

Our loans may be secured by office, retail, mixed use, commercial or warehouse properties, and are subject to risks of delinquency, foreclosure and of loss that may be greater than similar risks associated with loans made on the security of single-family residential property. The ability of a borrower to repay a loan secured by an income-producing property typically is dependent primarily upon the successful operation of such property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced, the borrower’s ability to repay the loan may be impaired. Net operating income of an income-producing property can be adversely affected by, among other things:

· tenant mix;

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· success of tenant businesses;

· property management decisions;

· property location, condition and design;

· competition from comparable types of properties;

· changes in national, regional or local economic conditions and/or specific industry segments;

· declines in regional or local real estate values;

· declines in regional or local rental or occupancy rates;

· increases in interest rates, real estate tax rates and other operating expenses;

· costs of remediation and liabilities associated with environmental conditions;

· the potential for uninsured or underinsured property losses;

· changes in governmental laws and regulations, including fiscal policies, zoning ordinances and environmental legislation and the related costs of compliance; and

· acts of God, terrorism, social unrest and civil disturbances.

In the event of any default under a mortgage loan held directly by us, we bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the mortgage loan, which could have a material adverse effect on our cash flow from operations and limit amounts available for distribution. In the event of the bankruptcy of a mortgage loan borrower, the mortgage loan to such borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law.

Foreclosure can be an expensive and lengthy process, and foreclosing on certain properties where we directly hold the mortgage loan and the borrower’s default under the mortgage loan is continuing could result in actions that could be costly to our operations, in addition to having a substantial negative effect on our anticipated return on the foreclosed mortgage loan.

Our portfolio of assets may at times be concentrated in certain property types or secured by properties concentrated in a limited number of geographic areas, which increases our exposure to economic downturn with respect to those property types or geographic locations.

We are not required to observe specific diversification criteria. Therefore, our portfolio of assets may, at times, be concentrated in certain property types that are subject to higher risk of foreclosure, or secured by properties concentrated in a limited number of geographic locations.

Our investments (originated and acquired) are concentrated in California, Florida, New York, New Jersey and Pennsylvania, representing approximately 31.1%, 16.7%, 14.8%, 6.9% and 6.0% of our investments as of December 31, 2016, respectively. If economic conditions in these or in any other state in which we have a significant concentration of borrowers were to deteriorate, such adverse conditions could have a material and adverse effect on our business by reducing demand for new financings, limiting the ability of customers to repay existing loans and impairing the value of our real estate collateral and real estate owned properties.

To the extent that our portfolio is concentrated in any region, or by type of property, downturns relating generally to such region, type of borrower or security may result in defaults on a number of our assets within a short time period, which may reduce our net income, value of our units and accordingly reduce our ability to pay dividends.

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Loans to small businesses involve a high degree of business and financial risk, which can result in substantial losses that would adversely affect our business, results of operation and financial condition.

Our operations and activities include loans to small, privately owned businesses to purchase real estate used in their operations or by investors seeking to acquire small office, retail, mixed use or warehouse properties. Additionally, such loans are also often accompanied by personal guarantees. Often, there is little or no publicly available information about these businesses. Accordingly, we must rely on our own due diligence to obtain information in connection with our investment decisions. Our borrowers may not meet net income, cash flow and other coverage tests typically imposed by banks. A borrower’s ability to repay its loan may be adversely impacted by numerous factors, including a downturn in its industry or other negative local or more general economic conditions. Deterioration in a borrower’s financial condition and prospects may be accompanied by deterioration in the collateral for the loan. In addition, small businesses typically depend on the management talents and efforts of one person or a small group of people for their success. The loss of services of one or more of these persons could have a material and adverse impact on the operations of the small business. Small companies are typically more vulnerable to customer preferences, market conditions and economic downturns and often need additional capital to expand or compete. These factors may have an impact on loans involving such businesses. Loans to small businesses, therefore, involve a high degree of business and financial risk, which can result in substantial losses.

Our investments may include subordinated tranches of CMBS, which are subordinate in right of payment to more senior securities.

Our investments may include subordinated tranches of CMBS, which are subordinated classes of securities in a structure of securities collateralized by a pool of assets consisting primarily of commercial loans and, accordingly, are the first or among the first to bear the loss upon a restructuring or liquidation of the underlying collateral and the last to receive payment of interest and principal. Additionally, estimated fair values of these subordinated interests tend to be more sensitive to changes in economic conditions than more senior securities. As a result, such subordinated interests generally are not actively traded and may not provide holders thereof with liquid investments.

Any credit ratings assigned to our loans and CMBS assets will be subject to ongoing evaluations and revisions and we cannot assure you that those ratings will not be downgraded.

Some of our loan and CMBS assets may be rated by Moody’s Investors Service, Standard & Poor’s or Fitch Ratings. Any credit ratings on our loans and CMBS assets are subject to ongoing evaluation by credit rating agencies, and we cannot assure you that any such ratings will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant. Rating agencies may assign a lower than expected rating or reduce or withdraw, or indicate that they may reduce or withdraw, their ratings of our loans and CMBS assets in the future. In addition, we may originate or acquire assets with no rating or with below investment grade ratings. If the rating agencies take adverse action with respect to the rating of our loans and CMBS assets or if our unrated assets are illiquid, the value of these loans and CMBS assets could significantly decline, which would adversely affect the value of our investment portfolio and could result in losses upon disposition or the failure of borrowers to satisfy their debt service obligations to us.

Any disruption in the availability and/or functionality of our technology infrastructure and systems and any failure or our security measures related to these systems could adversely impact our business.

Our ability to originate and acquire real estate-related loans and manage any related interest rate risks and credit risks is critical to our success and is highly dependent upon the efficient and uninterrupted operation of our computer and communications hardware and software systems. For example, we rely on our proprietary database to track and maintain all loan performance and servicing activity data for loans in our portfolio. This data is used to manage the portfolio, track loan performance, develop and execute asset disposition strategies. In addition, this data is used to evaluate and price new investment opportunities. Some of these systems are located at our facility and some are maintained by third-party vendors. Any significant interruption in the availability and functionality of these systems could harm our business. In the event of a systems failure or interruption by our third-party vendors, we will have limited ability to affect the timing and success of systems restoration. If such interruptions continue for a prolonged period of time, it could have a material and adverse impact on our business, results of operations and financial condition.

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Our security measures may not effectively prohibit others from obtaining improper access to our information. If a person is able to circumvent our security measures, he or she could destroy or misappropriate valuable information or disrupt our operations. Any security breach could expose us to risks of data loss, litigation and liability and could seriously disrupt our operations and harm our reputation.

Cybersecurity risk and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information and/or damage to our business relationships, all of which could negatively impact our financial results.

A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our information resources. These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to our information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption. The result of these incidents may include disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance cost, litigation and damage to our relationships. As our reliance on technology has increased, so have the risks posed to our information systems both internal and those provided by the Manager, Terra Capital Partners and third-party service providers. We have implemented processes, procedures and internal controls to help mitigate cybersecurity risks and cyber intrusions, but these measures, as well as our increased awareness of the nature and extent of a risk of a cyber incident, do not guarantee that our financial results, operations or confidential information will not be negatively impacted by such an incident.

Risks Related to Regulation

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

Our loan investments may be subject to regulation by federal, state and local authorities and subject to various laws and judicial and administrative decisions. We may determine not to make or invest in real estate-related loans in any jurisdiction in which we believe we have not complied in all material respects with applicable requirements. If we decide not to make or invest in real estate-related loans in several jurisdictions, it could reduce the amount of income we would otherwise receive.

The increasing number of proposed United States federal, state and local laws may affect certain mortgage-related assets in which we invest and could materially increase our cost of doing business.

Various bankruptcy legislation has been proposed that, among other provisions, could allow judges to modify the terms of residential mortgages in bankruptcy proceedings, could hinder the ability of the servicer to foreclose promptly on defaulted mortgage loans or permit limited assignee liability for certain violations in the mortgage loan origination process, any or all of which could adversely affect our business or result in us being held responsible for violations in the mortgage loan origination process even where we were not the originator of the loan. We do not know what impact this type of legislation, which has been primarily, if not entirely, focused on residential mortgage originations, would have on the commercial loan market. We are unable to predict whether United States federal, state or local authorities, or other pertinent bodies, will enact legislation, laws, rules, regulations, handbooks, guidelines or similar provisions that will affect our business or require changes in our practices in the future, and any such changes could materially and adversely affect our cost of doing business and profitability.

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

We may be required to obtain and maintain various approvals and/or licenses from federal or state governmental authorities, government sponsored entities or similar bodies in connection with some or all of our activities. There is no assurance that we can obtain and maintain any or all of the approvals and licenses that we desire or that we will avoid experiencing significant delays in seeking such approvals and licenses. Furthermore, we may be subject to various disclosure and other requirements to obtain and maintain these approvals and licenses, and there is no assurance that we will satisfy those requirements. Our failure to obtain or maintain licenses will restrict our options and ability to engage in desired activities, and could subject us to fines, suspensions, terminations and various other adverse actions if it is determined that we have engaged without the requisite approvals or licenses in activities that

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required an approval or license, which could have a material and adverse effect on our business, results of operation and financial condition.

We cannot predict the unintended consequences and market distortions that may stem from far-ranging governmental intervention in the economic and financial system or from regulatory reform of the oversight of financial markets.

In response to the financial issues affecting the banking system and financial markets and ongoing concerns of, and threats to, commercial banks, investment banks and other financial institutions, the Emergency Economic Stabilization Act, or EESA, was enacted by the U.S. Congress in 2008. There can be no assurance that the EESA or any other U.S. Government actions will have a beneficial impact on the financial markets. To the extent the markets do not respond favorably to any such actions by the U.S. Government or such actions do not function as intended, our business may not receive the anticipated positive impact from the legislation and such result may have broad adverse market implications.

In July 2010, the U.S. Congress enacted the Dodd-Frank Act, in part to impose significant investment restrictions and capital requirements on banking entities and other organizations that are significant to U.S. financial markets. For instance, the Dodd-Frank Act has imposed significant restrictions on the proprietary trading activities of certain banking entities and subject other systemically significant organizations regulated by the U.S. Federal Reserve to increase capital requirements and quantitative limits for engaging in such activities. The Dodd-Frank Act also seeks to reform the asset-backed securitization market (including the mortgage backed securities, or MBS, market) by requiring the retention of a portion of the credit risk inherent in the pool of securitized assets and by imposing additional registration and disclosure requirements. The Dodd-Frank Act also imposes significant regulatory restrictions on the origination and securitization of commercial mortgage loans. Also, the significant changes to Regulation FB could lead to sweeping changes to commercial and residential mortgage loan securitization markets as well as to the market for the re-securitization of MBS. The Dodd-Frank Act also created a new regulator, the Consumer Financial Protection Bureau, or the CFPB, which oversees many of the core laws which regulate the mortgage industry, including the Real Estate Settlement Procedures Act and the Truth in Lending Act. While the full impact of the Dodd-Frank Act and the role of the CFPB cannot be assessed until all implementing regulations are released, the Dodd-Frank Act’s extensive requirements may have a significant effect on the financial markets, and may affect the availability or terms of financing from our lender counterparties and the availability or terms of our targeted assets, both of which may have an adverse effect on our financial condition and results of operations.

In addition, the U.S. Government, Federal Reserve, U.S. Treasury, the SEC and other governmental and regulatory bodies have taken or are considering taking other actions to address the financial crisis that began in 2007. We cannot predict whether or when such actions may occur or what effect, if any, such actions could have on our business, results of operations and financial condition. In addition, because the programs are designed, in part, to provide liquidity to restart the market for certain of our targeted assets, the establishment of these programs may result in increased competition for opportunities in our targeted assets. It is also possible that our competitors may utilize the programs which would provide them with debt and equity capital funding from the U.S. government.

Accounting rules for certain of our transactions are highly complex and involve significant judgment and assumptions, and changes in such rules, accounting interpretations or our assumptions could adversely impact our ability to timely and accurately prepare our consolidated financial statements.

We are subject to Financial Accounting Standards Board, or FASB, and interpretations that can result in significant accounting changes that could have a material and adverse impact on our results of operations and financial condition. Accounting rules for financial instruments, including the origination, acquisition and sales or securitization of mortgage loans, derivatives, investment consolidations and other aspects of our anticipated operations are highly complex and involve significant judgment and assumptions. For example, our estimates and judgments are based on a number of factors, including projected cash flows from the collateral securing our loans, the likelihood of repayment in full at the maturity of a loan, potential for a loan refinancing opportunity in the future and expected market discount rates for varying property types. These complexities could lead to a delay in the preparation of financial information and the delivery of this information to our members.

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Changes in accounting rules, interpretations or our assumptions could also undermine our ability to prepare timely and accurate financial statements, which could result in a lack of investor confidence in our financial information and could materially and adversely affect the market price of our common stock.

We may be exposed to environmental liabilities with respect to properties to which we take title, which may in turn decrease the value of the underlying properties.

In the course of our business, we may take title to real estate, and, if we do take title, we could be subject to environmental liabilities with respect to these properties. In such a circumstance, we may be held liable to a governmental entity or to third-parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or we may be required to investigate or clean up hazardous or toxic substances or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. If we ever become subject to significant environmental liabilities, our business, financial condition, liquidity, and results of operations could be materially and adversely affected. In addition, an owner or operator of real property may become liable under various federal, state and local laws, for the costs of removal of certain hazardous substances released on its property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of such hazardous substances. The presence of hazardous substances may adversely affect an owner’s ability to sell real estate or borrow using real estate as collateral. To the extent that an owner of an underlying property becomes liable for removal costs, the ability of the owner to make debt payments may be reduced, which in turn may adversely affect the value of the relevant mortgage-related assets held by us.

Insurance on the properties underlying our loans may not adequately cover all losses and uninsured losses could materially and adversely affect us.

Generally, our borrowers will be responsible for the costs of insurance coverage for the properties we lease, including for casualty, liability, fire, floods, earthquakes, extended coverage and rental or business interruption loss. However, there are certain risks, such as losses from terrorism, that are not generally insured against, or that are not generally fully insured against, because it is not deemed economically feasible or prudent to do so. In addition, changes in the cost or availability of insurance could expose us to uninsured casualty losses. Under certain circumstances insurance proceeds may not be sufficient to restore our economic position with respect to an affected property, and we could be materially and adversely affected. Furthermore, we do not have any insurance designated to limit any losses that we may incur as a result of known or unknown environmental conditions which are not caused by an insured event.

In addition, certain of the properties underlying our loans may be located in areas that are more susceptible to, and could be significantly affected by, natural disasters that could cause significant damage to the properties. If we or our borrowers experience a loss, due to such natural disasters or other relevant factors, that is uninsured or that exceeds policy limits, we could incur significant costs, which could materially and adversely affect our business, financial condition, liquidity and results of operations.

Maintenance of our 1940 Act exclusion imposes limits on our operations.

Neither we nor our REIT subsidiary are registered as an investment company under the 1940 Act. If we or our REIT subsidiary were obligated to register as an investment company, we or our REIT subsidiary would have to comply with a variety of substantive requirements under the 1940 Act that impose, among other things:

· limitations on our capital structure or the use of leverage;

· restrictions on specified investments;

· prohibitions on transactions with affiliates; and

· compliance with reporting, record keeping, and other rules and regulations that would significantly change our and our REIT subsidiary’s operations.

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We conduct our operations so that we are not required to register as an investment company under the 1940 Act. Section 3(a)(1)(A) of the 1940 Act defines an investment company as any issuer that is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities. Section 3(a)(1)(C) of the 1940 Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. Excluded from the term “investment securities,” among other things, are U.S. government securities and securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exemption from the definition of investment company set forth in Section 3(c)(1) or Section 3(c)(7) of the 1940 Act. Because we are organized as a holding company and conduct our business primarily through our REIT subsidiary, the value of the “investment securities” held by us must be less than 40% of the value of our total assets on an unconsolidated basis (exclusive of U.S. government securities and cash items). In addition, we conduct our operations so that we will not be considered an investment company under Section 3(a)(1)(A) of the 1940 Act, as we are not engaged primarily nor do we hold ourselves out as being engaged primarily in the business of investing, reinvesting or trading in securities. Rather, through our REIT subsidiary, we are primarily engaged in the non-investment company businesses of our REIT subsidiary.

Our REIT subsidiary relies on the exclusion from the definition of an investment company under Section 3(c)(5)(C) of the 1940 Act, or any other exclusions available to our REIT subsidiary. Section 3(c)(5)(C) of the 1940 Act is available for entities “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” This exclusion generally requires that at least 55% of our REIT subsidiary’s portfolio must be comprised of “qualifying real estate” assets and at least 80% of our REIT subsidiary’s portfolio must be comprised of “qualifying real estate” assets and “real estate-related” assets (and no more than 20% comprised of miscellaneous assets) as determined in accordance with the 1940 Act and the rules and regulations promulgated thereunder. For purposes of the exclusion provided by Section 3(c)(5)(C) of the 1940 Act, our REIT subsidiary classifies its investments based in large measure on no-action letters issued by the SEC staff and other SEC interpretive guidance and, in the absence of SEC guidance, on our view of what constitutes a “qualifying real estate” asset and a “real estate-related” asset. These no-action positions were issued in accordance with factual situations that may be substantially different from the factual situations our REIT subsidiary may face, and a number of these no-action positions were issued more than ten years ago. Pursuant to this guidance, and depending on the characteristics of the specific investments, certain mortgage loans, participations in mortgage loans, mortgage-backed securities, mezzanine loans, joint venture investments and the equity securities of other entities may not constitute qualifying real estate assets and therefore investments in these types of assets may be limited. No assurance can be given that the SEC or its staff will concur with our classification of the assets held by our REIT subsidiary. Future revisions to the 1940 Act or further guidance from the SEC or its staff may cause us to lose our exclusion from registration or force us to re-evaluate our portfolio held through our REIT subsidiary and our investment strategy. Such changes may prevent us from operating our business successfully.

In order to maintain an exclusion from registration under the 1940 Act, we may be unable to sell assets that we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. In addition, we may have to acquire additional income or loss generating assets that we might not otherwise have acquired or may have to forgo opportunities to acquire assets that we would otherwise want to acquire and would be important to its strategy.

Although we monitor the portfolio of our REIT subsidiary periodically and prior to each acquisition and disposition, our REIT subsidiary may not be able to maintain an exclusion from registration as an investment company. If our REIT subsidiary were required to register as an investment company, but failed to do so, our REIT subsidiary would be prohibited from engaging in its business, and legal proceedings could be instituted against our REIT subsidiary. In addition, the contracts of our REIT subsidiary may be unenforceable, and a court could appoint a receiver to take control of our REIT subsidiary and liquidate its business.

Risks Related to Our Management and Our Relationship with the Manager

We rely substantially on the management team of the Manager.

Our success depends substantially on the efforts and abilities of the management team of the Manager, including Messrs. Mildé, Batkin, Hamrick, Pinkus and Cooperman. If the Manager were to lose the benefit of the experience, efforts and abilities of any of these individuals, our operating results could suffer.

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We face certain conflicts of interest with respect to our operations.

We are subject to conflicts of interest arising out of our relationship with the Manager. We may enter into additional transactions with the Manager or its affiliates. In particular, we may invest in, or acquire, certain of our investments through joint ventures or co-investments with other affiliates or purchase assets from, sell assets to or arrange financing from or provide financing to other affiliates. Certain of these transactions will be subject to certain regulatory restrictions as a result of the 1940 Act or the conditions of an order granting exemptive relief to our affiliate, Terra Fund 6. There can be no assurance that any procedural protections will be sufficient to assure that these transactions will be made on terms that will be at least as favorable to us as those that would have been obtained in an arm’s-length transaction.

In addition, we rely on the Manager for our day-to-day operations. The Manager may be subject to conflicts of interest in making investment decisions on assets for our company as opposed to other entities that have similar investment objectives. The Manager may have different incentives in determining when to sell assets with respect to which it is entitled to fees and compensation and such determinations may not be in our best interest.

The Manager serves as manager of Fund 5 International, Terra Fund 6, Terra International, and Terra Fund 7, all of which have investment objectives that overlap with ours. In addition, future programs may be sponsored by the Manager and its affiliates and Terra Capital Markets may serve as the dealer manager for these future programs. As a result, the Manager and Terra Capital Markets may face conflicts of interest arising from potential competition with other programs for investors and investment opportunities. There may be periods during which one or more programs managed by the Manager and distributed by Terra Capital Markets will be raising capital and which might compete with us for investment capital. Such conflicts may not be resolved in our favor and our investors will not have the opportunity to evaluate the manner in which these conflicts of interest are resolved before or after making their investment.

Our officers and the officers of the Manager are also officers of other affiliates of the Manager; therefore, our officers and the officers of the Manager will face competing demands based on the allocation of investment opportunities between us and our affiliates.

We rely on our officers and the officers of the Manager, Simon J. Mildé, Bruce D. Batkin, Stephen H. Hamrick, Gregory M. Pinkus and Daniel J. Cooperman, and the other debt finance professionals of the Manager to identify suitable investments. Fund 5 International, Terra Fund 6, Terra International, and Terra Fund 7 and other funds managed by Terra Capital Partners also rely on many of these same professionals. These funds have similar investment objectives as those of our company. Many investment opportunities that are suitable for us may also be suitable for other affiliates advised by the Manager.

When our officers or the officers of the Manager identify an investment opportunity that may be suitable for us as well as an affiliated entity such as Fund 5 International, Terra Fund 6, Terra International or Terra Fund 7, they, in their sole discretion, will first evaluate the investment objectives of each program to determine if the opportunity is suitable for each program. If the proposed investment is appropriate for more than one program, the Manager will then evaluate the portfolio of each program, in terms of diversity of geography, underlying property type, tenant concentration and borrower, to determine if the investment is most suitable for one program in order to create portfolio diversification. If such analysis is not determinative, the Manager will allocate the investment to the program with uncommitted funds available for the longest period of time or, to the extent feasible, prorate the investment between the programs in accordance with uninvested funds. As a result, our officers or the officers of the Manager could direct attractive investment opportunities to other affiliated entities or investors. Such events could result in our company acquiring investments that provide less attractive returns, which would reduce the level of distributions we may be able to pay you.

The Manager, our officers and the real estate-related loan professionals assembled by the Manager will face competing demands relating to their time and this may cause our operations and our investors’ investments to suffer.

We rely on the Manager, on its officers and on real estate-related loan professionals that the Manager retains to provide services to our company for the day-to-day operation of our business. Messrs. Mildé, Batkin, Hamrick, Pinkus and Cooperman are executive officers of the Manager, Fund 5 International, Terra Fund 6, Terra International and

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Terra Fund 7. As a result of their interests in other programs, their obligations to other investors and the fact that they engage in and will continue to engage in other business activities on behalf of themselves and others, Messrs. Mildé, Batkin, Hamrick, Pinkus and Cooperman face conflicts of interest in allocating their time among our company and other Terra Capital Partners-sponsored programs and other business activities in which they are involved. Should the Manager devote insufficient time or resources to our business, our returns on our direct or indirect investments, and the value of our units, may decline.

The compensation that the Manager, or an affiliate of the Manager, receives was not determined on an arm’s-length basis and therefore may not be on the same terms as we could achieve from a third-party.

The compensation paid to the Manager and its affiliates for services they provide to us were not determined on an arm’s-length basis. We cannot assure you that a third-party who is unaffiliated with our company would not be able to provide such services to us at a lower price.

The base management fee the Manager receives in managing our REIT subsidiary may reduce its incentive to devote its time and effort to seeking attractive assets for our portfolio because the fee is payable regardless of our performance.

Our REIT subsidiary pays the Manager a base management fee regardless of the performance of our portfolio. The Manager’s entitlement to non-performance-based compensation might reduce its incentive to devote its time and effort to seeking assets that provide attractive risk-adjusted returns for our portfolio. This in turn could hurt both our ability to make distributions and the value of our units.

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

Because the fees that our REIT subsidiary will pay to the Manager and its affiliates are based on the level of our business activity, it is not possible to predict the amounts of compensation that our REIT subsidiary will be required to pay these entities. In addition, because key employees of the Manager are given broad discretion to determine when to consummate a transaction, we will rely on these key persons to dictate the level of our business activity. Fees paid to the Manager and its affiliates reduce funds available for payment of distributions. Because we cannot predict the amount of fees due to these parties, we cannot predict how precisely such fees will impact such payments.

If the Manager causes us to enter into a transaction with an affiliate, the Manager may face conflicts of interest that would not exist if such transaction had been negotiated at arm’s-length with an independent party.

The Manager may face conflicts of interest if we enter into transactions with affiliates of the Manager. In these circumstances, the persons who serve as the Manager’s management team may have a fiduciary responsibility to us and the affiliate. Transactions between us and the Manager’s affiliates will not have the benefit of arm’s-length negotiation of the type normally conducted between unrelated parties. This conflict of interest may cause the Manager to sacrifice our best interests in favor of its affiliate, thereby causing us to enter into a transaction that is not in our best interest and that may negatively impact our performance.

The Manager and its affiliates have limited prior experience operating a REIT and therefore may have difficulty in successfully and profitably operating our business or complying with regulatory requirements, including REIT provisions of the Internal Revenue Code, which may hinder their ability to achieve our objectives or result in loss of our REIT subsidiary’s qualification as a REIT.

Prior to the completion of the REIT formation transactions, the Manager and its affiliates had no experience operating a REIT or complying with regulatory requirements, including the REIT provisions of the Internal Revenue Code. The REIT rules and regulations are highly technical and complex, and the failure to comply with the income, asset, and other limitations imposed by these rules and regulations could prevent us from qualifying as a REIT or could force us to pay unexpected taxes and penalties. The Manager and its affiliates have limited experience operating a business in compliance with the numerous technical restrictions and limitations set forth in the Internal Revenue Code or the 1940 Act applicable to REITs. We cannot assure you that the Manager or our management team will perform on our behalf as they have in their previous endeavors. The inexperience of the Manager and its affiliates described above may hinder its ability to achieve our objectives or result in loss of our REIT subsidiary’s qualification

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as a REIT or payment of taxes and penalties. As a result, we cannot assure you that we will be able to successfully operate as a REIT, execute our business strategies or comply with regulatory requirements applicable to REITs.

Risks Related to Financing and Hedging

Our REIT subsidiary’s board of directors may change our REIT subsidiary’s leverage policy without our consent.

We may deploy moderate amounts of leverage as part of our operating strategy not in excess of 30%. Depending on market conditions, such borrowings are expected to include credit facilities, repurchase agreements and securitizations. To the extent that we use leverage to finance our assets, we would expect to have a larger portfolio of loan assets, but our financing costs relating to our borrowings will reduce cash available for distributions. We may not be able to meet our financing obligations and, to the extent that we cannot, we risk the loss of some or all of our assets to liquidation or sale to satisfy such obligations. To the extent we use repurchase agreements to finance the purchase of assets, a decrease in the value of these assets may lead to margin calls which we will have to satisfy. We may not have the funds available to satisfy any such margin calls and may be forced to sell assets at significantly depressed prices due to market conditions or otherwise, which may result in losses. Any reduction in distributions may cause the value of our units to decline.

We may not be able to successfully complete securitization transactions, which could limit potential future sources of financing and could inhibit the growth of our business.

We may use credit facilities or repurchase agreements or other borrowings to finance the origination and/or structuring of real estate-related loans until a sufficient quantity of eligible assets has been accumulated, at which time we would refinance these short-term facilities or repurchase agreements through the securitization market which could include the creation of CMBS, collateralized debt obligations, or CDOs, or the private placement of loan participations or other long-term financing. If we employ this strategy, we are subject to the risk that we would not be able to obtain, during the period that our short-term financing arrangements are available, a sufficient amount of eligible assets to maximize the efficiency of a CMBS, CDO or private placement issuance. We are also subject to the risk that we are not able to obtain short-term financing arrangements or are not able to renew any short-term financing arrangements after they expire should we find it necessary to extend such short-term financing arrangements to allow more time to obtain the necessary eligible assets for a long-term financing.

The inability to consummate securitizations of our portfolio to finance our real estate-related loans on a long-term basis could require us to seek other forms of potentially less attractive financing or to liquidate assets at an inopportune time or price, which could have a material and adverse effect on our business, financial condition and results of operations.

We may be required to repurchase loans or indemnify investors if we breach representations and warranties, which could harm our earnings.

We may, on occasion, consistent with our REIT subsidiary’s qualification as a REIT and our desire to avoid being subject to the “prohibited transaction” penalty tax, sell some of our loans in the secondary market or as a part of a securitization of a portfolio of our loans. If we sell loans, we would be required to make customary representations and warranties about such loans to the loan purchaser. Our loan sale agreements may require us to repurchase or substitute loans in the event we breach a representation or warranty given to the loan purchaser. In addition, we may be required to repurchase loans as a result of borrower fraud or in the event of early payment default on a loan. Likewise, we may be required to repurchase or substitute loans if we breach a representation or warranty in connection with our securitizations, if any.

The remedies available to a purchaser of loans are generally broader than those available to us against the originating broker or correspondent. Further, if a purchaser enforces its remedies against us, we may not be able to enforce the remedies we have against the sellers. The repurchased loans typically can only be financed at a steep discount to their repurchase price, if at all. They are also typically sold at a significant discount to the unpaid principal balance, or UPB. Significant repurchase activity could harm our cash flow, results of operations, financial condition and business prospects.

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Our financing arrangements may contain financial covenants that could restrict our borrowings or subject us to additional risks.

Our financing arrangements may contain various financial and other restrictive covenants, including covenants that require us to maintain a certain interest coverage ratio and net asset value and that create a maximum balance sheet leverage ratio. If we fail to satisfy any of the financial or other restrictive covenants, or otherwise default under these agreements, the lender will have the right to accelerate repayment and terminate the facility. Accelerating repayment and terminating the facility will require immediate repayment by us of the borrowed funds, which may require us to liquidate assets at a disadvantageous time, causing us to incur further losses and adversely affecting our results of operations and financial condition, which may impair our ability to maintain our current level of distributions.

Our inability to access funding could have a material adverse effect on our results of operations, financial condition and business. We may rely on short-term financing and thus are especially exposed to changes in the availability of financing.

We expect to use borrowings, such as first mortgage financings, warehouse facilities, repurchase agreements and other credit facilities, as part of our operating strategy. Our use of financings expose us to the risk that our lenders may respond to market conditions by making it more difficult for us to renew or replace on a continuous basis our maturing short-term borrowings. If we are not able to renew our then existing short-term facilities or arrange for new financing on terms acceptable to us, or if we default on our covenants or are otherwise unable to access funds under these types of financing, we may have to curtail our asset origination activities and/or dispose of assets.

It is possible that the lenders that provide us with financing could experience changes in their ability to advance funds to us, independent of our performance or the performance of our portfolio of assets. Further, if many of our potential lenders are unwilling or unable to provide us with financing, we could be forced to sell our assets at an inopportune time when prices are depressed. In addition, if the regulatory capital requirements imposed on our lenders change, they may be required to significantly increase the cost of the financing that they provide to us. Our lenders also may revise their eligibility requirements for the types of assets they are willing to finance or the terms of such financings, based on, among other factors, the regulatory environment and their management of perceived risk, particularly with respect to assignee liability. Moreover, the amount of financing we receive under our short-term borrowing arrangements will be directly related to the lenders’ valuation of our targeted assets that cover the outstanding borrowings.

The dislocations in the mortgage sector in the financial crisis that began in 2007 have caused many lenders to tighten their lending standards, reduce their lending capacity or exit the market altogether. Further contraction among lenders, insolvency of lenders or other general market disruptions could adversely affect one or more of our potential lenders and could cause one or more of our potential lenders to be unwilling or unable to provide us with financing on attractive terms or at all. This could increase our financing costs and reduce our access to liquidity.

Repurchase agreements that we may use to finance our assets may restrict us from leveraging our assets as fully as desired, and may require us to provide additional collateral.

We may use repurchase agreements to finance our assets. If the market value of the assets pledged or sold by us under a repurchase agreement borrowing to a financing institution declines, we will normally be are required by the financing institution to pay down a portion of the funds advanced, but we may not have the funds available to do so, which could result in defaults. Repurchase agreements that we may use in the future may also require us to provide additional collateral if the market value of the assets pledged or sold by us to a financing institution declines. Posting additional collateral to support our credit will reduce our liquidity and limit our ability to leverage our assets, which could adversely affect our business. In the event we do not have sufficient liquidity to meet such requirements, financing institutions can accelerate repayment of our indebtedness, increase interest rates, liquidate our collateral or terminate our ability to borrow. Such a situation would likely result in a rapid deterioration of our financial condition and possibly necessitate a filing for bankruptcy protection.

Further, any financial institutions providing the repurchase facilities may require us to maintain a certain amount of cash that is not invested or to set aside non-leveraged assets sufficient to maintain a specified liquidity position which would allow us to satisfy our collateral obligations. As a result, we may not be able to leverage our assets as

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fully as we would choose, which could reduce our return on equity. If we are unable to meet these collateral obligations, our financial condition could deteriorate rapidly.

An increase in our borrowing costs relative to the interest we receive on our leveraged assets may adversely affect our profitability and our cash available for distribution.

As our financings mature, we will be required either to enter into new borrowings or to sell certain of our assets. An increase in short-term interest rates at the time that we seek to enter into new borrowings would reduce the spread between the returns on our assets and the cost of our borrowings. This would adversely affect the returns on our assets, which might reduce earnings and, in turn, cash available for distribution.

We may enter into hedging transactions that could expose us to contingent liabilities in the future and adversely impact our financial condition.

Subject to maintaining our REIT subsidiary’s qualification as a REIT, part of our strategy may involve entering into hedging transactions that could require us to fund cash payments in certain circumstances (such as the early termination of a hedging instrument caused by an event of default or other early termination event). The amount due would be equal to the unrealized loss of the open swap positions with the respective counterparty and could also include other fees and charges, and these economic losses will be reflected in our results of operations. We may also be required to provide margin to our counterparties to collateralize our obligations under hedging agreements. Our ability to fund these obligations will depend on the liquidity of our assets and access to capital at the time. The need to fund these obligations could adversely impact our financial condition.

If we attempt to qualify for hedge accounting treatment for any derivative instruments, but we fail to so qualify, we may suffer because losses on the derivatives that we enter into may not be offset by a change in the fair value of the related hedged transaction.

If we attempt to qualify for hedge accounting treatment for any derivative instruments, but we fail to so qualify for a number of reasons, including if we use instruments that do not meet the definition of a derivative (such as short sales), if we fail to satisfy hedge documentation and hedge effectiveness assessment requirements, or if our instruments are not highly effective, we may suffer because losses on any derivatives we hold which may not be offset by a change in the fair value of the related hedged transaction.

Risks Related to Owning Our Units

Units issued by us that you hold are not freely transferrable; thus investors may not be able to liquidate their investment.

The issuance of our units in the REIT formation transactions and the concurrent private placement were not registered under the Securities Act or the securities laws of any state. Our units were offered in reliance upon an exemption from the registration provisions of the Securities Act and state securities laws applicable only to offers and sales to investors meeting the suitability requirements set forth herein.

Each member has been required to represent that, unless waived by the Manager, he or she (i) is an “accredited investor” within the meaning of Rule 501(a) of the Securities Act at the time of acquisition of the units, (ii) acquired the units for investment and not with a view to distribution or resale, and (iii) understood that our units have not been registered under the Securities Act or any state “blue sky” or securities laws, are not freely transferable, and that such member must bear the economic risk of investment in the units for an indefinite period of time, and the units cannot be sold unless they are subsequently registered or an exemption from such registration is available and such member complies with the other applicable provisions of our amended and restated operating agreement. There is no public market for the units and members cannot expect to be able to liquidate their units in the case of an emergency. Further, the sale of the units may have adverse federal income tax consequences. Our members may not sell, assign or transfer all or a portion of their units without the prior written consent of the Manager, which consent may be withheld in the Manager’s sole and absolute discretion.

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The value you may receive upon the occurrence of an alternative liquidity transaction is uncertain, and there can be no assurance that you will receive a full return of your invested capital.

Under our amended and restated operating agreement, the Manager may cause us to consummate an alternative liquidity transaction without the approval of members. If we pursue and consummate an alternative liquidity transaction, the value you will receive upon the occurrence of such transaction will depend on the loans in the portfolio at the time of such transaction, the performance of the loans, market conditions, and other factors. There is no assurance that we will pursue or consummate an alternative liquidity transaction. In addition, if we pursue and consummate an alternative liquidity transaction, we cannot predict the value you will receive in such transaction, nor can we provide any assurance that you will receive a full return of your invested capital.

If we complete an alternative liquidity transaction by pursuing an IPO of our REIT subsidiary’s common stock in the future, you will be subject to additional risks.

Examples of the alternative liquidity transactions that may be available to us include a sale of our REIT subsidiary or an IPO and listing of our REIT subsidiary’s shares on a national securities exchange. If we complete an alternative liquidity transaction that involves our REIT subsidiary becoming a publicly traded company through an IPO or listing of our REIT subsidiary’s shares on an exchange, you will subject to the following additional risks:

Governance: It is expected that, concurrently with the closing of our REIT subsidiary’s IPO or listing, a majority of our REIT subsidiary’s directors would qualify as independent directors under NYSE or NASDAQ corporate governance rules.

Trading Value of our REIT Subsidiary’s Shares: If an alternative liquidity transaction involves our REIT subsidiary becoming a publicly traded company through an IPO or listing of our REIT subsidiary’s shares on an exchange, our REIT subsidiary’s shares will be publicly traded and investors will be able to assess the value of their shares by reference to their public trading prices.

Distributions: If an alternative liquidity event involves our REIT subsidiary becoming a publicly traded company through an IPO or listing of our REIT subsidiary on an exchange we do not expect that the distributions investors receive following any such liquidity event would be adversely impacted. Following any such transaction, our REIT subsidiary would be expected to pay regular quarterly distributions to its stockholders and would continue to be required to distribute 90% of its taxable income (excluding net capital gains) to its investors each year in order to maintain its qualification as a REIT.

Manager Compensation: If an alternative liquidity event involves our REIT subsidiary becoming a publicly traded company through an IPO or listing of our REIT subsidiary, it is expected that our REIT subsidiary will enter into a new management agreement with the Manager or an affiliate of the Manager. The base management fees, incentive distributions or other amounts that would be payable to the Manager in the case of any such transaction are expected to be market based fees determined in the case of any IPO by discussions between the Manager and the underwriters involved in the IPO. Any such fees are expected to be paid in lieu of the fees payable to the Manager by us or our REIT subsidiary. In addition, if in connection with any such alternative liquidity event or other transaction, we distribute shares of our REIT subsidiary to our members, the Manager may be entitled to receive a portion of such distributed shares based on its incentive distribution interest in our Fund, with shares of our REIT subsidiary being valued at the date of distribution at their book value (if distributed prior to an liquidity event), at the IPO price in the case of an IPO (if distributed within 60 days after such IPO) or at the trading value for such shares over the 10-trading period prior to such distribution (if distributed at any time after the expiration of such 60-day period).

Transfer Restrictions: If an alternative liquidity event involves our REIT subsidiary becoming a publicly traded company through an IPO or listing of our REIT subsidiary on an exchange, it is expected that, after the expiration of any lock-up period, our members will become the direct owners of shares of our REIT subsidiary by way of a distribution of shares of our REIT subsidiary to our members as described above. Our REIT subsidiary’s shares distributed to members will constitute restricted securities under the Securities Act and will be subject to restrictions on transfer under applicable U.S. securities laws.

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Investors’ return may be reduced as a result of the additional expense of operating as a reporting company under the Exchange Act.

We have become subject to the periodic and current reporting requirements of the Exchange Act and, upon the effectiveness of this Form 10, will become a reporting company. As a reporting company, we have to comply with a variety of substantive requirements under the Exchange Act that impose, among other things:

· preparation and filing of current reports on Form 8-K;

· preparation and filing of quarterly reports on Form 10-Q; and

· preparation and filing of annual reports on Form 10-K.

We have become subject to these reporting and other requirements even though we have not yet completed an IPO or listed our units. Compliance with the Exchange Act will increase our operating expenses, which may reduce our ability to make distributions and the value of our units.

A compulsory redemption could result in adverse tax and economic consequences for members.

The Manager may, in its sole discretion, require a compulsory redemption of all or a portion of a member’s units or Termination Units, including but not limited to cases in which the ownership of units or Termination Units would result in our assets being deemed “plan assets” for Employee Retirement Income Security Act of 1974, or ERISA, purposes, as defined under ERISA or by any regulation of the U.S. Department of Labor, or other federal agency having jurisdiction, or the units or the Termination Units have been transferred without our permission, or a member has acquired units or Termination Units otherwise than in compliance with applicable rules and regulations. Such compulsory redemption may result in adverse tax or economic consequences for the member.

Your interests may be diluted if we issue additional units in the future.

Members will not have preemptive rights to acquire any units issued by us in the future. Therefore, investors may experience dilution of their investment if we sell additional units in the future.

Our members do not have legal representation.

Pursuant to the terms of our amended and restated operating agreement, each of our members acknowledges and agrees that counsel representing us, the Manager and its affiliates does not represent and shall not be deemed under the applicable codes of professional responsibility to have represented or to be representing any or all of our members in any respect.

We may not have sufficient funds to make cash distributions.

Following the completion of the REIT formation transactions, the Manager approved an increase in the monthly distribution payable in respect of each units in respect of the first full quarterly period following the closing of the REIT formation transactions to 9.0% per annum on $50,000 per unit. In addition, the Manager approved an initial payment on each Termination Unit in respect of the first full quarterly period following the closing of the REIT formation transactions equal to 6.0% per annum on the Unreturned Invested Capital (as defined below) associated with each Termination Unit. The timing and amount of future distributions and payments will continue to be made at the sole discretion of the Manager and subject to such factors the Manager considers to be relevant, including the amount of funds available for distribution or payment, our financial condition, whether to reinvest or distribute such funds, capital expenditure and reserve requirements and general operational requirements. Because we cannot predict future cash flows or the performance of our REIT subsidiary, no assurance can be given that we will be able to continue to maintain in future periods distributions on units and payments on the Termination Units at levels approved by the Manager.

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The Termination Units do not participate in potential increases in cash distributions and are subject to risks relating to fluctuations in our book value.

Termination Units are structured so as not to participate in any potential increases in cash distributions. In addition, because the amount payable in redemption of the Termination Units is not fixed but tied into the book value attributable to the Termination Units at the end of the calendar quarter prior to their redemption, Termination Units are impacted by changes in book value and will receive a lower amount upon redemption if their allocable share of the book value declines.

Rapid changes in the values of our assets may make it more difficult for our REIT subsidiary to maintain its qualification as a REIT or our exclusion from the 1940 Act.

If the fair market value or income potential of our assets declines as a result of increased interest rates, prepayment rates, general market conditions, government actions or other factors, we may need to increase our real estate assets and income or liquidate our non-qualifying assets to maintain our REIT subsidiary’s qualification or our exclusion from the 1940 Act. If the decline in real estate asset values or income occurs quickly, this may be especially difficult to accomplish. We may have to make decisions that we otherwise would not make absent REIT and 1940 Act considerations.

Tax Risks

Tax risks in general.

An investment in us involves complex U.S. federal, state and local income tax considerations that will differ for each investor. We intend to be treated as a partnership for U.S. federal income tax purposes. Assuming that we are so treated, we will not be subject to U.S. federal income tax, and each member and each holder of Termination Units will be required to include its allocable share of the items of our income, gain, loss and deduction in computing its U.S. federal income tax liability. We may, however, be subject to state and local tax, depending on the location and scope of our activities. In addition, entities through which we may make investments, including our REIT subsidiary, may in certain circumstances be subject to U.S. federal, state, local or foreign tax.

No Internal Revenue Service ruling.

We have not sought rulings from the Internal Revenue Service with respect to any of the U.S. federal income tax considerations discussed herein. Thus, positions to be taken by the Internal Revenue Service as to tax consequences could differ from the positions taken by us.

If we were treated as a publicly traded partnership taxable as a corporation, we would be subject to U.S. federal income tax and applicable state and local taxes on our income, which would result in reduced returns to our members and holders of Termination Units.

The Manager intends to treat us as a partnership and not as an association or PTP taxed as a corporation for U.S. federal income tax purposes. No assurance can be given that the Internal Revenue Service will not challenge such classification or that a court will not sustain any such challenge.

A PTP is a partnership the interests in which are: (i) traded on an established securities market; or (ii) readily tradable on a secondary market or the substantial equivalent thereof. We may not qualify for any of the safe harbors set forth in the applicable Treasury regulations under which a partnership is not treated as a PTP. However, the Manager intends to operate us in such a manner so that we will not be classified as a PTP. Even if the Internal Revenue Service were to assert that we are a PTP, we will not be taxable as a corporation within a particular taxable year if 90% or more of our gross income is “qualifying income” for each taxable year in which we were a PTP and we were not required to register under the Investment Company Act. Qualifying income generally includes interest (other than interest generated from a financial business), dividends, real property rents, gain from the sale of assets that produce qualifying income and certain other items. Since we conduct our real estate business through our REIT subsidiary, substantially all of our income should be dividends from our REIT subsidiary, which would be qualifying income. If,

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for any reason, we were treated as an association taxable as a corporation, we would be subject to U.S. federal income tax and applicable state and local taxes on our income.

Legislative, regulatory or administrative changes could adversely affect us.

Legislative, regulatory or administrative changes could be enacted or promulgated at any time, either prospectively or with retroactive effect, and may adversely affect us.

President Trump, the House leadership and the Senate leadership all have expressed interest in passing comprehensive tax reform this year. While certain aspects of tax reform proposals have been described, proposed legislation has not yet been introduced by the leaders of the Ways and Means Committee of the U.S. House of Representatives, or the House, or the Finance Committee of the U.S. Senate, or the Senate. None of the descriptions of tax reform proposals have specifically addressed the treatment of REITs. Moreover, there is not yet agreement between the President, the House leadership and the Senate leadership about the specifics of tax reform. To date, the focus of the House plan differs significantly from the Senate plan. Accordingly, there is no assurance that comprehensive tax reform will be enacted, when any such legislation might be enacted, what specific measures will be included in any enacted tax reform language, or whether tax reform would adversely affect us, our members or our tenants.

All of the tax reform proposals share a desire to reduce maximum corporate income tax rates and reform U.S. taxation of income earned outside the United States. Lower corporate rates would be at least partially paid for by reducing or eliminating various tax benefits. Given that the same tax benefits generally apply to businesses conducted through non-corporate structures, there is also pressure on reducing the tax rates applicable to non-corporate businesses.

Some of the tax benefits identified as possibly being eliminated or reduced include various tax benefits that have been important to the real estate industry, including REITs, such as eliminating the like-kind exchange rules or the deduction of net interest expense. Loss of a deduction for net interest expense would substantially increase our REIT subsidiary's taxable income and, absent amendments to the REIT rules, our REIT subsidiary distribution obligations. In addition, it is possible that substantially reduced corporate tax rates or Senate interest in integrating taxation of shareholders and corporations could reduce or eliminate the relative attractiveness of REITs as a vehicle for owning real estate.

Our members and prospective investors in our company are urged to consult with their own tax advisors with respect to the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our units.

Income taxes of members and holders of Termination Units may exceed cash distributions.

Even if we have income or gains for U.S. federal income tax purposes, we will not be required to make distributions (or may lack sufficient cash available for distributions) to enable our members and holders of Termination Units to pay their U.S. federal, state and local taxes as a result of such income or gain allocations. For example, in order to qualify as a REIT, our REIT subsidiary must distribute at least 90% of its net income (excluding net capital gain) to its shareholders on an annual basis. Under certain circumstances, our REIT subsidiary may request that we and its other shareholders, if any, agree to a consent dividend in order to meet the annual distribution requirements or avoid paying corporate tax on any undistributed net income. When a REIT makes a consent dividend, the REIT and its stockholders are generally treated for U.S. federal income tax purposes as if the REIT distributed cash to the stockholders and the stockholders immediately re-contributed the cash to the REIT as a contribution to capital. A consent dividend would result in the recognition of income by our members and holders of Termination Units as if an actual distribution were made, but without any distribution of cash. As a result, our members and holders of

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Termination Units would be required to utilize other resources to satisfy tax liabilities and would not be able resort to distributions made by us to assist in satisfying such tax liabilities.

If our REIT subsidiary does not qualify or maintain its qualification as a REIT, it will be subject to tax as a regular corporation and could face a substantial tax liability as a result, which would result in reduced returns to our members and holders of Termination Units.

We expect to make substantially all of our investments through our REIT subsidiary. The Manager believes that it has taken and intends to continue to take such actions as are necessary or appropriate to cause our REIT subsidiary to qualify for taxation as a REIT within the meaning of the Internal Revenue Code. However, qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code for which only limited judicial and administrative authorities exist and, accordingly, may require interpretations of such provisions, which could be successfully challenged by the Internal Revenue Service. Even a technical or inadvertent mistake could jeopardize the REIT qualification of our REIT subsidiary. The continued REIT qualification of our REIT subsidiary will depend on the ability of our REIT subsidiary to satisfy certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis.

Furthermore, new tax legislation, administrative guidance or court decisions, in each instance potentially with retroactive effect, could make it difficult or impossible for our REIT subsidiary to qualify as a REIT. If our REIT subsidiary were to fail to qualify as a REIT in any taxable year, then: (i) the REIT subsidiary would be unable to deduct dividends it distributes in computing taxable income and would be subject to U.S. federal income tax on its taxable income at regular corporate rates; (ii) the REIT subsidiary would no longer be required to distribute substantially all of its taxable income to us, and (iii) unless it were entitled to relief under applicable statutory provisions, our REIT subsidiary would be disqualified from treatment as a REIT for the subsequent four taxable years following the year during which it failed to qualify.

Accordingly, our REIT subsidiary’s failure to maintain its qualification as a REIT could have an adverse effect on our income, general financial condition and ability to pay distributions.

Complying with the REIT requirements may force our REIT subsidiary to liquidate or forego otherwise attractive investments.

In order to qualify as a REIT, our REIT subsidiary annually must satisfy two gross income requirements. First, at least 75% of its gross income for each taxable year, excluding gross income from prohibited transactions and certain hedging and foreign currency transactions, must be derived from investments relating to real property or mortgages on real property, including “rents from real property,” dividends received from and gain from the disposition of shares of other REITs, interest income derived from mortgage loans secured by real property (including certain types of qualified mezzanine loans and mortgage-backed securities), and gains from the sale of real estate assets, as well as income from certain kinds of qualified temporary investments. Second, at least 95% of our REIT subsidiary’s gross income in each taxable year, excluding gross income from prohibited transactions and certain hedging and foreign currency transactions, must be derived from some combination of income that qualifies under the 75% income test described above, as well as other dividends, interest, and gain from the sale or disposition of stock or securities, which need not have any relation to real property.

Further, at the end of each calendar quarter, at least 75% of the value of our REIT subsidiary’s total assets must consist of cash, cash items, government securities, shares in other REITs and other qualifying real estate assets, including certain mortgage loans, mezzanine loans and certain kinds of mortgage-backed securities. The remainder of the REIT subsidiary’s investment in securities (other than government securities, TRS securities and securities that are qualifying real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of the REIT subsidiary’s total assets (other than government securities, TRS securities and securities that are qualifying real estate assets) can consist of the securities of any one issuer, no more than 25% (20% for taxable years beginning after December 31, 2017) of the value of the REIT subsidiary’s total assets can be represented by securities of one or more TRSs it may own, and no more than 25% of the value of our assets can consist of debt instruments issued by publicly offered REITs that are not otherwise secured by real property. If our REIT subsidiary fails to comply with these requirements at the end of any calendar quarter, it must correct the failure within

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30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing its REIT qualification and suffering adverse tax consequences.

As a result, our REIT subsidiary may be required to liquidate from its portfolio, or contribute to a TRS, should it decide to form one in the future, otherwise attractive investments, and may be unable to pursue investments that would be otherwise advantageous to it in order to satisfy the source of income or asset diversification requirements for qualifying as a REIT. These actions could have the effect of reducing the REIT subsidiary’s income and amounts available for distribution to us. Thus, compliance with the REIT requirements may hinder the REIT subsidiary’s ability to make, and, in certain cases, maintain ownership of certain attractive investments.

Risk of mezzanine loans failing to qualify as a real estate asset.

The Internal Revenue Service has issued Revenue Procedure 2003-65, which provides a safe harbor pursuant to which a mezzanine loan that is secured by interests in a partnership or other pass-through entity will be treated by the Internal Revenue Service as a real estate asset for purposes of the REIT assets tests, and interest derived from such a loan will be treated as qualifying mortgage interest for purposes of the REIT 75% and 95% income tests. Although the Revenue Procedure provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law. Our REIT subsidiary owns, and may acquire in the future, certain mezzanine loans and preferred equity investments (which it intends to treat as mezzanine loans for U.S. federal income tax purposes) that do not satisfy all of the requirements for reliance on the safe harbor set forth in the Revenue Procedure. Consequently, there can be no assurance that the Internal Revenue Service will not successfully challenge the tax treatment of such mezzanine loans as qualifying real estate assets. To the extent that such mezzanine loans do not qualify as real estate assets, the interest income from such mezzanine loans would be qualifying income for the REIT 95% gross income test, but not for the REIT 75% gross income test and such mezzanine loans would be subject to the REIT 5% and 10% asset tests, which could jeopardize our REIT subsidiary’s ability to qualify as a REIT.

Risk of the Internal Revenue Service successfully challenging our REIT subsidiary’s treatment of its preferred equity and mezzanine loan investments as debt for U.S. federal income tax purposes.

Our REIT subsidiary invests in certain real estate related investments, including mezzanine loans, first mortgage loans, and preferred equity investments. There is limited case law and administrative guidance addressing whether certain preferred equity investments or mezzanine loans will be treated as equity or debt for U.S. federal income tax purposes. Our Manager received an opinion of tax counsel regarding the treatment of the preferred equity investments acquired by our REIT subsidiary pursuant to the REIT formation transactions as debt for U.S. federal income tax purposes. Our REIT subsidiary treats the preferred equity investments which it currently holds as debt for U.S. federal income tax purposes and as mezzanine loans that qualify as real estate assets, as discussed above. No private letter rulings have been obtained on the characterization of these investments for U.S. federal income tax purposes and an opinion of counsel is not binding on the Internal Revenue Service; therefore, no assurance can be given that the Internal Revenue Service will not successfully challenge the treatment of such preferred equity investments as debt and as real estate assets. If a preferred equity investment or mezzanine loan owned by our REIT subsidiary was treated as equity for U.S. federal income tax purposes, the REIT subsidiary would be treated as owning its proportionate share of the assets and earning its proportionate share of the gross income of the partnership or limited liability company that issued the preferred equity interest. Certain of these partnerships and limited liability companies are engaged in activities, which could cause the REIT subsidiary to be considered as earning significant nonqualifying income which would likely cause the REIT subsidiary to fail to qualify as a REIT or pay a significant penalty tax to maintain its REIT qualification.

The failure of assets subject to repurchase agreements that we may enter into to qualify as real estate assets could adversely affect the ability of our REIT subsidiary to qualify as a REIT.

We may enter into financing arrangements that are structured as sale and repurchase agreements pursuant to which we nominally sell certain of our assets to a counterparty and simultaneously enter into an agreement to repurchase such assets at a later date in exchange for a purchase price. Economically, these agreements are financings that are secured by the assets sold pursuant thereto. We believe that our REIT subsidiary will be treated for REIT asset and income test purposes as the owner of the assets that are the subject of such sale and repurchase agreement notwithstanding that such agreements may transfer record ownership of the assets to the counterparty during the term of the agreement. It is possible, however, that the Internal Revenue Service could assert that our REIT subsidiary is

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not the owner of the assets during the term of the sale and repurchase agreement, in which case our REIT subsidiary could fail to qualify as a REIT.

Complying with REIT requirements may limit our ability to hedge effectively.

The REIT provisions of the Internal Revenue Code may limit our ability to hedge our assets and operations. Under these provisions, any income that we generate from transactions intended to hedge our interest rate and currency risks will generally be excluded from gross income for purposes of the 75% and 95% gross income tests if (i) the instrument (A) hedges interest rate risk or foreign currency exposure on liabilities used to carry or acquire real estate assets, (B) hedges risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the 75% or 95% gross income tests or (C) hedges an instrument described in clause (A) or (B) for a period following the extinguishment of the liability or the disposition of the asset that was previously hedged by the hedged instrument, and (ii) such instrument is properly identified under the applicable regulations promulgated by the Treasury Regulations.

Tax laws could change, which may have adverse tax consequences to an investor’s investment in us.

There may be future changes in tax laws resulting from legislative, administrative or judicial decisions, any of which may have adverse tax consequences to an investor’s investment in us. Any such change may or may not be retroactive to a time preceding its occurrence. Any such changes could have an adverse effect on an investment in us or on the market value or the resale potential of our investments. Although REITs generally receive certain tax advantages compared to entities taxed as regular corporations, it is possible that future legislation would result in a REIT having fewer tax advantages.

ITEM 2. FINANCIAL INFORMATION

Selected Financial Data

The following selected financial data as of and for the years ended December 31, 2016 and 2015 is derived from our consolidated financial statements which have been audited by KPMG LLP, our independent registered public accounting firm, as stated in their report. The consolidated financial statements as of December 31, 2016 and 2015 and for each of the years then ended, and the report thereon, are included elsewhere in the registration. The data should be read in conjunction with our consolidated financial statements and notes thereto, the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the combined consolidated financial statements of Terra Funds 1 through 4 and notes thereto, and the consolidated financial statements of Terra Property Trust, Inc. and notes thereto, included elsewhere in this registration statement.

On January 1, 2016, we engaged in the REIT formation transactions pursuant to which Terra Funds 1 through 4 merged with subsidiaries of our Fund, and we in turn contributed the consolidated portfolio of net assets of our Fund and Terra Funds 1 through 4 to our REIT subsidiary and began to conduct our business through our REIT subsidiary. Accordingly, our financial results for the year ended December 31, 2016 reflect the consummation of the REIT formation transactions and, as a result, differ in certain respects from our financial results for the year ended December 31, 2015. For a description of the impact of the REIT formation transactions on certain aspects of our business and financial results for the year ended December 31, 2016 as compared to the year ended December 31, 2015, see “— Results of Operations.”

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	As of and for the Years Ended December 31,
	2016 (1)			2015
Statement of operations data:
Investment income	$	31,674,995		$	21,278,762
Total operating expenses		1,567,003			10,405,340
Net investment income		30,107,992			10,873,422
Net increase in members’ capital resulting from operations		29,058,742			11,132,093
Per unit data:
Net asset value	$	42,423		$	42,451
Net investment income		4,344			3,797
Net increase in members’ capital resulting from operations		4,193			3,888
Capital distributions		4,418			4,250
Balance sheet data:
Total assets	$	290,468,284		$	173,357,892
Total investments		290,419,317			155,923,180
Obligations under participation agreements		—			31,918,716
Members’ capital		289,586,404			122,208,698
Other information:
Internal rate of return at year end (2)		5.43	%		0.34	%
Number of investments at year end		1			19
Loans made and purchase of other investments	$	(10,000,000	)	$	(91,623,617	)
Proceeds from repayments of investments (3)	$	6,791,237		$	52,766,226
Proceeds from obligations under participation agreements	$	—		$	21,089,785
Repayments on obligations under participation agreements	$	—		$	(11,326,707	)

(1) The financial data as of and for the year ended December 31, 2016 reflects the impact of the REIT formation transactions and the contribution of the consolidated portfolio of net assets of the Terra Funds to our REIT subsidiary.

(2) For a detailed description of our computation of internal rate of return at year end, see Note 10 to our consolidated financial statements for the years ended December 31, 2016 and 2015 included elsewhere in this registration statement.

(3) Amount for the year ended December 31, 2016 represents a return of capital.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of our financial condition and results of operations in conjunction with the audited consolidated financial statements and related notes thereto, the audited consolidated financial statements and related notes thereto of our REIT subsidiary, the audited consolidated financial statements and related notes thereto of Terra Funds 1 through 4, and the “Selected Financial Data” and “Business” sections included elsewhere in this Form 10. Our REIT subsidiary is not consolidated into our Fund as our REIT subsidiary is not an investment company. Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10, including information with respect to our plans and strategies for our business, includes forward-looking statements that involve risks and uncertainties. You should read Item 1A. “Risk Factors” and the “Cautionary Note Regarding Forward-Looking Statements” section of this Form 10 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by these forward-looking statements.

Overview

We are a real estate finance company that originates, structures and funds 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. We make substantially all of our investments and conduct substantially all of our real estate lending business through our REIT subsidiary. Our objective is to provide attractive risk-adjusted returns to our members, primarily through dividends. There can be no assurances that we will be successful in meeting our objective.

On January 1, 2016, Terra Funds 1 through 4 merged with subsidiaries of our Fund, which in turn contributed the consolidated portfolio of net assets of the Terra Funds to our REIT subsidiary. We elected to engage in the REIT formation transactions to continue our business as a REIT for U.S. federal income tax purposes, 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.

As of December 31, 2016, through our REIT subsidiary, we held a portfolio comprised of 38 investments in 15 states with an aggregate current principal balance of $326.0 million, a weighted average interest rate of 12.38%, a weighted average loan-to-value ratio of 73.40% and a weighted average remaining term to maturity of 1.39 years. For the year ended December 31, 2016, our net investment portfolio, net of obligations under participation agreements and mortgage loan payable, had an average outstanding principal balance of approximately $261.0 million and the average interest rate was approximately 13.5%. The portfolio is diversified across loan products, property types and geographies.

Factors Impacting Operating Results

Our operating results are affected by a number of factors and primarily depend on, among other things, the level of the interest income from targeted assets, the market value of our assets and the supply of, and demand for, real estate-related loans, including mezzanine loans, first 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 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

Our investments are highly illiquid and there is no assurance that we will achieve our investment objectives, including targeted returns. Due to the illiquidity of the investments, valuation of our investments may be difficult, as there generally will be no established markets for our investments.

Credit Risk

Credit risk represents the potential loss that we would incur if our borrowers failed to perform pursuant to the terms of their obligations to us. We minimize our exposure to credit risk by limiting exposure to any one individual

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borrower and any one asset class. Additionally, we employ an asset management approach and monitor 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, or DSCR, and the debt yield. We also require 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, we may not recover all of our investment.

We maintain all of our cash at financial institutions which, at times, may exceed the amount insured by the Federal Deposit Insurance Corporation.

Concentration Risk

We hold real estate-related investments through our REIT subsidiary. Thus, our investment portfolio may be subject to a more rapid change in value than would be the case if we were required to maintain a wide diversification among industries, companies and types of investments. The result of such concentration in real estate assets is that a loss in such investments could materially reduce our capital.

Liquidity Risk

Liquidity risk represents the possibility that we may not be able to sell our 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 the fair value of our interest-bearing financial instruments. With respect to our business operations, increases in interest rates, in general, may over time cause: (i) the interest expense associated with variable rate borrowings to increase; (ii) the value of real estate-related loans to decline; (iii) coupons on variable rate loans to reset, although on a delayed basis, to higher interest rates; (iv) to the extent applicable under the terms of our investments, prepayments on real estate-related loans to slow, and (v) to the extent we enter into interest rate swap agreements as part of our hedging strategy, the value of these agreements to increase.

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

Prepayment Risk

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

Use of Leverage

We may deploy moderate amounts of leverage as part of our operating strategy, which may consist of borrowings under first mortgage financings, warehouse facilities, 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.

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Critical Accounting Policies and Use of Estimates

Our consolidated financial statements are prepared in conformity with United States generally accepted accounting principles, or 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.

Revenue Recognition

Revenue is accounted for under Accounting Standards Codification, or 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 our ownership of our REIT subsidiary is recognized on the record date as declared periodically by our REIT subsidiary.

Interest Income: Interest income, which applies to our REIT subsidiary for the year ended December 31, 2016 and to our Fund for the year ended December 31, 2015, is accrued based upon the outstanding principal amount and contractual terms of the loans and preferred equity investments that we expect to collect and is accrued and recorded on a daily basis. Discounts and premiums on investments purchased are accreted or amortized over the expected life of the respective investment using the effective yield method, and are included in interest income in the consolidated statements of operations. Loan origination fees and exit fees, net of portions attributable to obligations under participation agreements, are capitalized and amortized or accreted to interest income over the life of the investment using the effective interest method. Income accrual is generally suspended for loans at the earlier of the date at which payments become 90 days past due or when, in the opinion of our Manager, recovery of income and principal becomes doubtful. Interest is then recorded on the basis of cash received until accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed.

Other Revenues: Prepayment fee income is recognized as prepayments occur. All other income is recognized when earned.

Fair Value Measurements

The fair value of financial instruments 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 were 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:

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

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

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

o 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 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.

Valuation of Obligations under Participation Agreements

For the year ended December 31, 2015, we elected the fair value option under ASC Topic 825 — Financial Instruments relating to accounting for debt obligations at their fair value for obligations under participation agreements which arose due to partial loan sales which did not meet the criteria for sale treatment under ASC Topic 860, Transfers and Servicing. We employ the yield approach valuation methodology used for the real-estate related loan investments on our obligations under participation agreements.

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, are liable for New York City Unincorporated Business Tax, or NYC UBT, and various other municipality taxes for the year ended December 31, 2015. NYC imposes UBT at a statutory rate of 4% on net income generated from ordinary business activities carried on in NYC. For the year ended December 31, 2016, none of our income was subject to NYC UBT.

We did not have any uncertain tax positions that met the recognition or measurement criteria of ASC 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 years ended December 31, 2016 and 2015, 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-date federal tax years remain subject to examination by the Internal Revenue Service.

Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update, or ASU, 2014-09, Revenue from Contracts with Customers (Topic 606), or 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. In July 2015, the FASB postponed the effective date of this new guidance from January 1, 2017 to January 1, 2018. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect

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transition method. We do not expect the adoption of ASU 2014-09 to have a material impact on our consolidated financial statements and disclosure.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, or ASU 2014-15. ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. The amendments provide a definition of the term “substantial doubt” and include principles for considering the mitigating effect of management’s plans. The amendments also require an evaluation every reporting period, including interim periods for a period of one year after the date that the financial statements are issued (or available to be issued), and certain disclosures when substantial doubt is alleviated or not alleviated. The amendments in this update are effective for reporting periods ending after December 15, 2016. We adopted ASU 2014-15 in 2016. The adoption of ASU 2014-15 did not have a material impact on our consolidated financial statements and disclosures.

In April 2015, the FASB issued ASU 2015-03, Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, or ASU 2015-03. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. ASU 2015-03 is effective for fiscal years that begin after December 15, 2015 and early adoption is permitted. We adopted ASU 2015-03 beginning January 1, 2016. The adoption of ASU 2015-03 did not have a material impact on our consolidated financial statements and disclosures.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustment, or ASU 2015-16. ASU 2015-16 requires that an acquirer recognize adjustments identified during the business combination measurement period in the reporting period in which the adjustment amounts are determined. The effects on earnings due to changes in depreciation, amortization, or other income effects as a result of the change are also recognized in the same period’s financial statements. ASU 2015-16 also requires that acquirers present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings that would have been recorded in previous reporting periods if the adjustment had been recognized as of the acquisition date. ASU 2015-16 is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years, early adoption is permitted, and prospective application is required for adjustments that are identified after the effective date of this update. We adopted ASU 2015-16 beginning January 1, 2016. The adoption of ASU 2015-03 did not 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, or 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 annual and interim periods beginning after December 15, 2017, and early adoption is not permitted for public business entities. Management is 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), or 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; for all other entities, the final lease standard will be effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. 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

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earliest comparative period presented. This ASU is not expected to have any impact on our consolidated financial statements 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, or 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. Early adoption is permitted, provided that all of the amendments are adopted in the same period. 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 November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, a Consensus of the FASB’s Emerging Issues Task Force, or ASU 2016-18. ASU 2016-18 requires that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 does not provide a definition of restricted cash or restricted cash equivalents. ASU 2016-18 is effective for public business entities for annual and interim periods beginning after December 15, 2017. For all other entities, ASU 2016-18 is effective for fiscal years beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period, and should be applied using a retrospective transition method. We are currently evaluating the impact of this change will have 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, or 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 our consolidated financial statements and disclosures.

Results of Operations

On January 1, 2016, we engaged in the REIT formation transactions pursuant to which Terra Funds 1 through 4 merged with subsidiaries of our Fund, and we in turn contributed the consolidated portfolio of net assets of our Fund and Terra Funds 1 through 4 to our REIT subsidiary and began to conduct our business through our REIT subsidiary. Accordingly, our financial results for the year ended December 31, 2016 reflect the consummation of the REIT formation transactions and, as a result, differ in certain respects from our financial results for the year ended December 31, 2015. Set forth below is a description of the impact of the REIT formation transactions on certain aspects of our business and operating results for the year ended December 31, 2016 (following the REIT formation transactions) as compared to the year ended December 31, 2015 (prior to the REIT formation transactions):

· Following the REIT formation transactions, our portfolio of assets, which is held by our REIT subsidiary, was comprised of the consolidated net assets of our Fund and Terra Funds 1 through 4. Prior to the consummation of the REIT formation transactions, our portfolio of assets did not include the net assets of Terra Funds 1 through 4.

· Prior to the REIT formation transactions, our assets largely appeared on our balance sheet as investments in our real estate related loans. However, following the REIT formation transactions, our investment in our REIT subsidiary appears as a single line item on our balance sheet, and we do not consolidate the underlying real estate related loans owned by our REIT subsidiary.

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· Prior to the REIT formation transactions, our primary source of investment income was interest income on our real estate related loans, whereas following the REIT formation transactions our investment income consists primarily of dividend income from our REIT subsidiary.

· Prior to the REIT formation transactions, our operating expenses included interest expense from obligations under participation agreements and fees and expense reimbursements paid to the Manager under the management agreement, whereas following the REIT formation transactions these expenses were instead borne by our REIT subsidiary as described below.

· Prior to the REIT formation transactions, our business was subject to the NYC UBT and other municipal taxes, whereas following the REIT formation transactions we do not expect to be subject to any such taxes.

In addition, on September 1, 2016, our REIT subsidiary entered into a management agreement with the Manager pursuant to which the Manager provides certain services to our REIT subsidiary and our REIT subsidiary pays fees associated with such services. The origination fee, asset management fee, asset servicing fee, disposition fee, and operating expenses reimbursed to the Manager that were previously paid by us are now paid by our REIT subsidiary. The only fee we are responsible for paying the Manager is the incentive distributions equal to 15% of distributions paid by us once we pay cumulative distributions to holders of units equal to the capital invested by such members, plus a preferred return ranging from 8.5% to 9.0% (depending on the historical preferred return applicable to the Terra Fund units held by such member prior to the consummation of the REIT formation transactions). Although as a result of the above and other factors, our results of operations prior to the REIT formation transactions are not necessarily comparable with our results following the completion of the transactions, we nevertheless believe that the discussion below can be meaningful to investors.

The following table presents the comparative results of our operations:

	Years Ended December 31,
	2016			2015			Change
Investment income
Dividend income	$	31,666,409		$	—		$	31,666,409
Interest income		—			19,930,213			(19,930,213	)
Prepayment fee income		—			1,134,082			(1,134,082	)
Other operating income		8,586			214,467			(205,881	)
Total investment income		31,674,995			21,278,762			10,396,233
Operating expenses								—
Interest expense from obligations under participation agreements		—			4,193,186			(4,193,186	)
Merger transaction fees		388,692			2,537,455			(2,148,763	)
Operating expenses reimbursed to the Manager		—			1,400,466			(1,400,466	)
Asset management fee		—			1,216,785			(1,216,785	)
Professional fees		1,139,749			174,718			965,031
State and local taxes		—			594,086			(594,086	)
Asset servicing fee		—			282,421			(282,421	)
Other		38,562			6,223			32,339
Total operating expenses		1,567,003			10,405,340			(8,838,337	)
Net investment income		30,107,992			10,873,422			19,234,570
Net change in unrealized (depreciation) appreciation on investments		(1,049,250	)		543,281			(1,592,531	)
Net change in unrealized appreciation on obligations under participation agreements		—			(287,213	)		287,213
Realized gain on investments		—			2,603			(2,603	)
Net realized and unrealized gain on investments		(1,049,250	)		258,671			(1,307,921	)
Net increase in members’ capital resulting from operations	$	29,058,742		$	11,132,093		$	17,926,649

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Dividend Income

2016 — For the year ended December 31, 2016, we received dividends totaling $38.5 million, or $2.58 per share, from our REIT subsidiary, of which $31.7 million was recorded as dividend income, representing the REIT subsidiary’s net operating income for the period, and $6.8 million was recorded as a return of capital.

2015 — For the year ended December 31, 2015, there were no dividends received.

Interest Income

2016 — For the year ended December 31, 2016, we did not earn any interest income as we conducted our business through our REIT subsidiary. For the same period in 2016, our REIT subsidiary recorded interest income of $38.7 million, primarily consisting of $41.0 million of contractual interest income, partially offset by $2.3 million of amortization of net purchase premiums. For the year ended December 31, 2016, the weighted-average outstanding principal balance on the gross investments of our REIT subsidiary was approximately $313.0 million and the weighted-average interest rate was approximately 12.7%. On a net basis, that is, gross investments net of obligations under participation agreements and mortgage loan payable, the weighted-average outstanding principal balance was approximately $261.0 million and the weighted-average interest rate was approximately 13.5%.

2015 — For the year ended December 31, 2015, interest income was $19.9 million, primarily consisting of $19.7 million of contractual interest income and $0.3 million of net origination fee and exit fee income. For the year ended December 31, 2015, the weighted-average outstanding principal balance on our gross investments was approximately $144.5 million and the weighted-average interest rate on the investments was approximately 13.4%. On a net basis, the weighted-average outstanding principal balance was approximately $113.4 million and the weighted-average interest rate was approximately 13.4%.

Prepayment Fee Income

Prepayment fee income represents prepayment fees charged to borrowers for the early repayment of loans.

2016 — For the year ended December 31, 2016, we did not receive any prepayment fees as we conducted our business through our REIT subsidiary. For the same period in 2016, our REIT subsidiary received prepayment fees of $4.0 million from the early repayment of three loans, including $3.6 million from one loan as the borrower repaid the loan two years before the scheduled maturity date.

2015 — For the year ended December 31, 2015, we received prepayment fees of $1.1 million from the early repayment of two loans.

Other operating income

2016 — For the year ended December 31, 2016, other operating income was immaterial.

2015 — For the year ended December 31, 2015, other operating income was $0.2 million, primarily related to loan processing fees and loan monitoring fees.

Interest Expense from Obligations under Participation Agreements

2016 — For the year ended December 31, 2016, we did not record any interest expense from obligations under participation agreements as we conducted our business through our REIT subsidiary. For the same period in 2016, our REIT subsidiary recorded $3.3 million of interest expense from obligations under participation agreements. For the year ended December 31, 2016, the average outstanding principal balance on obligations under participation agreements was approximately $24.3 million and average interest rate was approximately 13.3%.

2015 — For the year ended December 31, 2015, interest expense from obligations under participation agreement was $4.2 million. For the year ended December 31, 2015, the average outstanding principal balance on obligations under participation agreements was approximately $31.1 million and the average interest rate was approximately 13.47%.

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Merger Transaction Fees

Merger transaction fees represent fees incurred in connection with the REIT formation transactions. 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 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.

2016 — For the year ended December 31, 2016, we recorded additional merger transaction fees of $0.4 million.

2015 — For the year ended December 31, 2015, the Terra Funds recorded total merger transaction fees of $5.8 million, of which $2.5 million was allocated to us.

Operating Expenses Reimbursed to Manager

2016 — For the year ended December 31, 2016, we did not reimburse any operating expenses to the Manager as our REIT subsidiary was responsible for such payment. For the same period in 2016, our REIT subsidiary recorded $3.3 million of operating expenses reimbursed to the Manager.

2015 — Under the terms of the operating agreement with the Manager, we reimbursed the Manager for operating expenses incurred in connection with services provided to us, including our allocable share of the Manager’s overhead, such as rent, employee costs, utilities, and technology costs. Total costs reimbursed to the Manager for the year ended December 31, 2015 was $1.4 million.

Asset Management Fee

2016 — For the year ended December 31, 2016, we did not record any asset management fee to the Manager as our REIT subsidiary was responsible for paying the asset management fee. For the same period in 2016, our REIT subsidiary recorded $3.3 million of asset management fee to the Manager.

2015 — Under the terms of the operating agreement with the Manager, we paid the Manager a monthly asset management fee at an annual rate of 1% of the aggregate funds under management, which includes the aggregate gross acquisition price for each real estate-related investment and cash held by us. Total asset management fee for the year ended December 31, 2015 was $1.2 million.

Professional Fees

2016 — For the year ended December 31, 2016, professional fees were $1.1 million, primarily consisting of (i) $0.6 million of fees related to the additional SEC financial statement audit and reporting requirements in relation to the initial filing of our registration statement on Form 10; (ii) $0.2 million of fees related to the audit of our 2016 financial statements and the preparation of our 2016 income tax return; (iii) $0.2 million of transfer agent fees; and (vi) $0.1 million of additional profession fees incurred in connection with the preparation and filing of our registration statement on Form 10.

2015 — For the year ended December 31, 2015, professional fees were $0.2 million, primarily consisting of $0.1 million of audit fee and $0.1 million of transfer agent fee.

State and Local Taxes

2016 — For the year ended December 31, 2016, none of our income was subject to federal, state or local taxes because we conducted our business through our REIT subsidiary. For the same period in 2016, we believe that our REIT subsidiary satisfied all the requirements for a REIT and accordingly, no provision for income taxes was made in its consolidated financial statements.

2015 — For the year ended December 31, 2015, no provision for U.S. Federal and state income taxes was made in the consolidated financial statements, as individual members of our company were responsible for their proportionate share of the taxable income. We, however, were liable for the NYC UBT and various other municipality

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taxes. 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. The NYC UBT for the year ended December 31, 2015 was $0.6 million.

Asset Servicing Fee

2016 — For the year ended December 31, 2016, we did not record any asset servicing fee to the Manager as our REIT subsidiary was responsible for paying the asset servicing fee. For the same period in 2016, our REIT subsidiary recorded $0.8 million of asset servicing fee.

2015 — Under the terms of the operating agreement, we paid the Manager a monthly servicing fee at an annual rate of 0.25% of the aggregate gross funds under management. Total asset servicing fee for the year ended December 31, 2015 was $0.3 million.

Net Change in Unrealized Appreciation or Depreciation on Investments and Obligations under Participation Agreements

Net change in unrealized appreciation or depreciation reflects the change in the portfolio investment values during the reporting period, including any reversal of previously recorded unrealized gains or losses, when gains or losses are realized.

2016 — For the year ended December 31, 2016, we recorded a net change in unrealized depreciation on investments of $1.0 million.

2015 — For the year ended December 31, 2015, we recorded net change in unrealized appreciation on investments of $0.5 million and net change in unrealized appreciation on obligations under participation agreements of $0.3 million.

Net Increase in Members’ Capital Resulting from Operations

2016 — For the year ended December 31, 2016, the resulting net increase in members’ capital resulting from operations was $29.1 million.

2015 — For the year ended December 31, 2015, the resulting net increase in members’ capital resulting from operations was $11.1 million.

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including fund and maintain our assets and operations, making distributions to our members and other general business needs. We use significant cash to make distributions to our members. Our primary sources of cash are generally consist of cash generated from our operating results. We may also borrow under our financing sources or issue additional equity, equity-related and debt securities to fund our distributions to our members.

Cash Flows for the Years Ended December 31, 2016 and 2015

Cash Flows Provided by (Used in) Operating Activities

2016 — For the year ended December 31, 2016, cash flows provided by operating activities was $15.6 million, primarily due to net increase in members capital resulting from operations of $29.1 million and dividends received from our REIT subsidiary as a return of capital of $6.8 million. These increases in cash were partially offset by $10.0 million used to purchase shares of common stock of our REIT subsidiary, a $6.3 million decrease in net operating liabilities primarily related to the payment of merger transaction fees, and $5.0 million of cash transferred to our REIT subsidiary.

2015 — For the year ended December 31, 2015, cash flows used in operating activities was $13.7 million, primarily due to cash used to make investments of $91.6 million, partially offset with proceeds from repayments of investments of $52.8 million. We also received proceeds from obligations under participation agreements of $21.1 million and used $11.3 million to repay obligations under participation agreements. Additionally, for the year ended December 31, 2015, net increase in members’ capital resulting from operations was $11.1 million, and net operating

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liabilities increased by $5.6 million primarily related to $2.5 million of unpaid merger transaction fees and $2.7 million of deposits on investments returned to us.

Cash Flows used in Financing Activities

2016 — For the year ended December 31, 2016, net cash used in financing activities was $17.4 million, primarily due to distributions paid to members of $30.6 million and cash used for capital redemptions of $15.8 million, including $12.3 million used to redeem Terra Fund 1 and Terra Fund 2 Termination Units, partially offset by proceeds from capital contributions from the concurrent private placement, net of selling commissions and dealer manager fees, of $25.6 million and cash of $3.5 million acquired in the REIT formation transactions.

2015 — For the year ended December 31, 2015, net cash used in financing activities was $3.5 million, primarily due to distributions paid to members of $12.2 million, partially offset by proceeds from capital contributions, net of selling commissions and dealer manager fees, of $8.7 million.

Contractual Obligations and Commitments

The management agreement between our REIT subsidiary and the Manager provides for the payment of an asset management fee, asset servicing fee, origination fee, disposition fee and transaction breakup fee to our Manager, an incentive fee if our financial performance exceeds certain benchmarks, and the reimbursement of certain expenses. The asset management fee, asset servicing fee and the incentive fee are accrued and expensed during the period for which they are calculated and earned. For a more detailed discussion on the fees payable under the management agreement, see “Item 5. Directors and Executive Officers — Compensation to Our Manager.”

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.

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 December 31, 2016, we had one investment with a principal balance of approximately $50.5 million that provides for interest income indexed to London Interbank Offered Rate, or LIBOR, with a LIBOR floor of 0.5%. A decrease of 1% in LIBOR would decrease our annual interest income by approximately $0.1 million and an increase of 1% in LIBOR would increase our annual interest income by approximately $0.5 million.

We may hedge against interest rate and currency exchange rate fluctuations by using standard hedging instruments, such as interest rate swaps and caps. While hedging activities may protect 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 years ended December 31, 2016 and 2015, we did not engage in interest rate hedging activities.

Interest Rate Risk

Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control. We are subject to interest rate risk in connection with our loan assets and our related financing obligations. We may use a number of sources to finance our targeted assets. Although the Manager does not currently intend to do so, we may mitigate interest rate risk through utilization of hedging instruments, interest rate swap agreements, interest rate cap agreements, interest rate floor agreements or other financial instruments that we deem appropriate. Interest rate swap agreements are intended to serve as a hedge against future interest rate increases on our borrowings.

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Interest Rate Effect on Net Interest Income

Our operating results are impacted by differences between the income earned on our assets and our cost of any future borrowings and hedging activities. The cost of our borrowings are generally based on prevailing market interest rates. During a period of rising interest rates, our borrowing costs together with the yields on loan assets generally will increase, but may increase at differing levels, which could result in a decline in our net interest spread and net interest margin. The severity of any such decline would depend on our asset/liability composition at the time, the terms of our loans and borrowings, as well as the magnitude and duration of the interest rate increase. We seek to mitigate this risk by attempting to match the interest rate adjustment features of our loans and our borrowings.

Prepayment Risks

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

Credit Risk

We are subject to varying degrees of credit risk in connection with holding a portfolio of our targeted assets. With respect to our loan portfolio, we seek to manage credit risk by limiting exposure to any one individual borrower and any one asset class. Additionally, we employ an asset management approach and monitor the portfolio of investments, through, at a minimum, quarterly financial review of property performance including net operating income, loan-to-value, DSCR and the debt yield. We also require 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.

ITEM 3. PROPERTIES

Information related to the properties collateralizing our loans is set forth under “Item 1. Business—Our Loan Portfolio.”

ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of March 31, 2017, certain information regarding the ownership of units of our Fund by:

· the Manager;

· each of our executive officers;

· all of our executive officers as a group; and

· any person who is known by us to be the beneficial owner of more than 5% of our units.

Each listed person’s beneficial ownership includes:

· all units the investor actually owns beneficially or of record;

· all units over which the investor has or shares voting or dispositive control (such as in the capacity as a general partner of an investment fund); and

· all units the investor has the right to acquire within 60 days.

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Unless otherwise indicated, all units are owned directly, and the indicated person has sole voting and investment power. Except as indicated in the footnotes to the table below, the business address of the members listed below is the address of our principal executive office, 805 Third Avenue, 8th Floor, New York, NY 10022.

Name and Address	Number of Units Beneficially Owned		Percentage of All Units
Terra Income Advisors
Simon J. Mildé		—		—
Bruce D. Batkin		0.48		*
Gregory Pinkus		—		—
Daniel J. Cooperman		—		—
Stephen H. Hamrick(1)		6.69		*
All executive officers as a group (5 persons)		7.17		*
5% or Greater Beneficial Owners
John Sonnentag(2)		505.50		7.41	%

*	Less than 1% of the outstanding shares of our units.
(1)	Includes 1.68 units owned by Mr. Hamrick’s spouse.
(2)	Consists of: (i) 303.30 units owned by the Sonnentag Foundation Ltd. for which Mr. Sonnentag serves as President and Director and has the sole voting and investment power over these shares and (ii) 202.20 units owned by the John J. Sonnentag Living Trust for which Mr. Sonnentag serves as trustee and has sole voting and investment power.

ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS

The sole managing member of our Fund is the Manager, which is responsible for managing our business and affairs. In such capacity, the Manager controls decisions taken by us relating to our ownership of shares of common stock of our REIT subsidiary and advises us on all matters related to our operations and administration, which encompasses managing our relationship and communications with our members, managing our liquidity and the payment of monthly and liquidating distributions to our members, and preparing financial statements, tax returns and member tax statements.

Board of Directors of Our REIT Subsidiary

We do not have any directors or employees. We conduct substantially all of our business through our REIT subsidiary, which is supervised by its board of directors, comprised of three directors, pursuant to the terms and provisions of our REIT subsidiary’s bylaws and Articles of Incorporation, as amended. The name, age, position and biography of each member of our REIT subsidiary’s board of directors is set forth below:

Name	Age	Position
Simon J. Mildé	70	Chairman
Bruce D. Batkin	63	Chief Executive Officer
Gregory M. Pinkus	52	Chief Financial Officer and Chief Operating Officer

Simon J. Mildé serves as our Chairman, the Chairman of the Manager and serves as the initial Chairman of the Board of Directors of our REIT subsidiary. He has also served as Chairman of Terra Capital Advisors, LLC, or Terra Capital Advisors; Terra Capital Advisors 2, LLC, or Terra Capital Advisors 2; and Terra Income Advisors 2, LLC, or Terra Income Advisors 2, since April 2009, September 2012 and October 2016, respectively. Mr. Mildé co-founded Terra Capital Partners and has served as the Chairman of its board of directors since its formation in 2001 and its commencement of operations in 2002. He also serves as the Chairman of Terra Fund 1, Terra Fund 2, Terra Fund 3, Terra Fund 4 and Fund 5 International, Terra International and Terra Fund 7 since July 2009, May 2011, January 2012, September 2012, June 2014, October 2016 and October 2016, respectively. He has also served as Chairman of Terra Fund 6 since May 2013. He has over 40 years’ experience in global real estate finance, investment and management. Prior to founding Terra Capital Partners, Mr. Mildé was founder, CEO and Chairman of Jones Lang Wootton North America (formerly Jones Lang LaSalle Incorporated and now JLL), the second-largest commercial real estate broker in the world, from 1977 to 1994. He was also one of the founders of JLW Realty Advisors, which has grown into a $50 billion global real estate investment management business. Today, its successor company ranks as one of the largest real estate investment managers in the world. Mr. Mildé has also served as the Chairman and CEO of The Greenwich Group International, a global real estate investment banking firm, and Capital District Properties, a commercial real estate development and investment company since 1995 and 2004, respectively. He was a former member of the Royal Institution of Chartered Surveyors and was a former Governor of the Real Estate Board of New York and former member of the Advisory Board of the Real Estate Institute of New York University. Mr. Mildé attended Regent Street Tech College in London, England and the Royal Institution of Chartered Surveyors in England.

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Bruce D. Batkin serves as our Chief Executive Officer, the Chief Executive Officer of the Manager, the Chief Executive Officer, President and one of the initial directors of our REIT subsidiary. He has also served as Chief Executive Officer of Terra Capital Advisors, Terra Capital Advisors 2 and Terra Income Advisors 2 since April 2009, September 2012 and October 2016, respectively. Mr. Batkin has also served as President of Terra Fund 1 since July 2009 and as Chief Executive Officer of Terra Fund 2, Terra Fund 3, Terra Fund 4, Fund 5 International, Terra International and Terra Fund 7 since May 2011, January 2012, September 2012, June 2014, October 2016 and October 2016, respectively. He has also served as Chief Executive Officer and director of Terra Fund 6, since May 2013. As a co-founder of Terra Capital Partners, he has served as its President and Chief Executive Officer since its formation in 2001 and its commencement of operations in 2002, managing its real estate debt and equity investment programs. Mr. Batkin has over 35 years’ experience in real estate acquisition, finance, development, management and investment banking. Prior to founding Terra Capital Partners, he held senior management positions at Merrill Lynch & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation (now Credit Suisse (USA) Inc.), ABN AMRO Bank N.V. and several private real estate development partnerships. Mr. Batkin has acquired major commercial properties throughout the United States and has acted as managing partner in over $5 billion of real estate investments for domestic and foreign investors. He is a member of the Urban Land Institute, the Real Estate Academic Initiative at Harvard University, the Cornell Real Estate Council and the Committee for Economic Development. He is also a participant in the Yale CEO Summit. Mr. Batkin received a B.Arch. from Cornell University and an M.B.A. from Harvard Business School.

Gregory M. Pinkus serves as our Chief Financial Officer and Chief Operating Officer, the Chief Financial Officer and Chief Operating Officer of the Manager and serves as the Chief Financial Officer, Treasurer and Secretary and one of the initial directors of our REIT subsidiary. He has served as (i) the Chief Financial Officer of Terra Capital Advisors, Terra Capital Advisors 2 and Terra Income Advisors 2 since May 2012, September 2012 and October 2016, respectively; (ii) the Chief Operating Officer of each of Terra Capital Advisors, Terra Capital Advisors 2 and Terra Capital Partners since July 2014; (iii) the Chief Operating Officer of Terra Income Advisors 2 since October 2016; (iv) the Chief Financial Officer, and Secretary and Treasurer, of each of Terra Fund 1, Terra Fund 2 and Terra Fund 3 since May 2012 and, for Terra Fund 4, since July 2014; (v) the Chief Financial Officer, Treasurer and Secretary of Terra Fund 6 since May 2013 and Chief Operating Officer of Terra Fund 6 since July 2014; and (vi) the Chief Financial Officer and Chief Operating Officer of Fund 5 International, Terra International and Terra Fund 7 since June 2014, October 2016 and October 2016, respectively. Prior to joining Terra Capital Partners in May 2012, he served as Assistant Controller for W.P. Carey & Co. from 2006 to August 2010 and as Controller from August 2010 to May 2012. Mr. Pinkus also served as Controller and Vice President of Finance for several early-stage technology companies during the period of 1999 to 2005. Additionally, he managed large-scale information technology budgets at New York Life Insurance Company from 2003 to 2004 and oversaw an international reporting group at Bank of America from 1992 to 1996. Mr. Pinkus is a Certified Public Accountant and member of the American Institute of Certified Public Accountants. He holds a B.S. in Accounting from the Leonard N. Stern School of Business at New York University.

Compensation of the Directors of Our REIT Subsidiary

We do not pay compensation to the directors of our REIT subsidiary.

Executive Officers of the Manager

Our REIT subsidiary has entered into a management agreement with the Manager, pursuant to which the Manager provides certain services to our REIT subsidiary and our REIT subsidiary pays fees associated with such services. The Manager is responsible for managing our REIT subsidiary’s day-to-day operations and all matters affecting its business and affairs, including responsibility for determining when to buy and sell real estate-related assets. The Manager is not obligated under the management agreement to dedicate any of its personnel exclusively to us, nor is it or its personnel obligated to dedicate any specific portion of its or their time to our business. Each of the executive officers of the Manager also holds the same executive officer positions with us. The names, ages, positions and biographies of the Manager’s officers are as follows:

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Name	Age	Position
Simon J. Mildé	70	Chairman
Bruce D. Batkin	63	Chief Executive Officer
Stephen H. Hamrick	64	President
Gregory M. Pinkus	52	Chief Financial Officer and Chief Operating Officer
Daniel J. Cooperman	42	Chief Originations Officer

For biographical information regarding Messrs. Mildé, Batkin and Pinkus, see “— Board of Directors of Our REIT Subsidiary” above.

Stephen H. Hamrick serves as our President and President of the Manager. He has also been President of Terra Capital Advisors, Terra Capital Advisors 2 and Terra Income Advisors 2 since January 2011, September 2012 and October 2016, respectively, as well as the President of Terra Fund 2, Terra Fund 3, Terra Fund 4, Fund 5 International, Terra Fund 6, Terra International and Terra Fund 7 since May 2011, January 2012, September 2012, June 2014, May 2013, October 2016 and October 2016, respectively. Mr. Hamrick has over 35 years’ experience in the investment management business. Prior to joining Terra Capital Partners in January 2011, he served as President of Lightstone Value Plus REIT from 2006 to July 2010. From 2001 to 2006, he held various positions at W.P. Carey & Co., including Chairman of Carey Financial, LLC and Managing Director. From 1988 until 1994, Mr. Hamrick served as National Director of Private Investments for UBS PaineWebber, where he was also a member of that firm’s Management Council, and from 1975 until 1988, he held positions ranging from Account Executive to National Director of Private Placements at E.F. Hutton. In those roles, he was responsible for the creation and distribution of alternative investment funds comprising assets in excess of $15 billion. Mr. Hamrick also had management and offering experience with some of the earliest business development companies, or BDCs, public or private. In 1988, he became the first chairman of Mezzanine Capital Corporation, which served as the General Partner of Fiduciary Capital Partners, L.P. and Fiduciary Capital Pension Partners, L.P., or the Fiduciary Funds, funds that invested primarily in subordinated debt and related equity securities issued as the “mezzanine financing” for friendly leveraged buyouts, acquisitions and recapitalizations and, as the Administrative General Partner for Kagan Media Partners, L.P., a BDC that acquired subordinated debt instruments with equity participations in cable television systems and other media properties. Mr. Hamrick served as chairman of Mezzanine Capital Corporation, as a member of the Fiduciary Funds’ investment committee and as chairman of the General Partner of the Fiduciary Funds’ manager until 1994. Mr. Hamrick has been a Certified Financial Planner, a director of mutual fund families, a member of the NYSE MKT Listings Qualifications Panel and the Listings Panel for NASDAQ as well as Chairman of the Securities Industry Association’s Direct Investment Committee and of the Investment Program Association. Mr. Hamrick holds a B.S. in Economics and an A.B. in English from Duke University.

Daniel J. Cooperman has served as our Chief Originations Officer since January 2015, having previously served as our Managing Director of Originations until January 2015. He has also served as Chief Originations Officer of our Manager since February 2015. Mr. Cooperman has served as Chief Originations Officer of (i) each of Terra Capital Advisors and Terra Capital Advisors 2 since January 2015, having previously served as Managing Director of Originations until January 2015 of Terra Capital Advisors and Terra Capital Advisors 2 since April 2009 and September 2012, respectively; (ii) each of Terra Fund 2, Terra Fund 3, Terra Fund 4, and Fund 5 International since January 2015, having previously served as Managing Director of Originations until January 2015 of Terra Fund 1, Terra Fund 2, Terra Fund 3, Terra Fund 4 and Fund 5 International since July 2009, May 2011, January 2012, September 2012 and June 2014, respectively; (iii) Terra Fund 6 since February 2015, having previously served as Managing Director Originations from May 2013 until February 2015; and (vi) each of Terra Income Advisors 2, Terra International, and Terra Fund 7 since October 2016. Mr. Cooperman has 18 years’ experience in the acquisition, financing, leasing and asset management of commercial real estate with an aggregate value of over $5 billion. Prior to the formation of Terra Capital Partners in 2001 and its commencement of operations in 2002, Mr. Cooperman handled mortgage and mezzanine placement activities for The Greenwich Group International, LLC. Prior to joining The Greenwich Group, Mr. Cooperman worked in Chase Manhattan Bank’s Global Properties Group, where he was responsible for financial analysis and due diligence for the bank’s strategic real estate acquisitions and divestitures. Prior to that time, he was responsible for acquisitions and asset management for JGS, a Japanese conglomerate with global real estate holdings. Mr. Cooperman holds a B.S. in Finance from the University of Colorado at Boulder.

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Compensation to the Manager

Our REIT subsidiary currently pays the following fees to the Manager:

Origination 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, including any third-party expenses related to such investment. In the event that the term of any real estate-related loan is extended, the Manager also receives an origination fee equal to the lesser of (i) 1% 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 us 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 investment and cash held by us.

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

Disposition Fee. A disposition fee in the amount of 1.0% of the gross sale price received by us from the disposition of each loan, but not upon the maturity, prepayment, workout, modification or extension of a loan unless there is a corresponding fee paid by the borrower, in which case the disposition fee will be the lesser of (i) 1.0% of the principal amount of the loan and (ii) the amount of the fee paid by the borrower in connection with such transaction. If we take ownership of a property as a result of a workout or foreclosure of a loan, we will pay a disposition fee upon the sale of such property equal to 1% of the sales price.

Transaction Breakup Fee. In the event that we receive any “breakup fees,” “busted-deal fees,” termination fees, or similar fees or liquidated damages from a third-party in connection with the termination or non-consummation of any investment or disposition transaction, the Manager will be entitled to receive one-half of such amounts, in addition to the reimbursement of all out-of-pocket fees and expenses incurred by the Manager with respect to its evaluation and pursuit of such transactions.

Incentive Distribution

The Manager is entitled to receive incentive distributions equal to 15% of distributions paid by us once we pay cumulative distributions to holders of units equal to the capital invested by such members, plus a preferred return ranging from 8.5% to 9.0% (depending on the historical preferred return applicable to the Terra Fund units held by such member prior to the consummation of the REIT formation transactions). The preferred return applicable to our units sold in the private placement concurrent with the REIT formation transactions is 8.5%.

Expense Reimbursement

In addition to the fees described above, we and our REIT subsidiary reimburse the Manager and its affiliates for costs incurred by them in managing our REIT subsidiary and its portfolio of real estate-related loans.

Fiduciary Duties of the Manager

The Manager is responsible for the control and management of our business and must exercise good faith and integrity in handling our affairs. Pursuant to the management agreement between our REIT subsidiary and the Manager, the Manager has a fiduciary responsibility for the safekeeping and use of all our funds and assets, whether or not in our immediate possession and control, and may not use or permit another to use such funds or assets in any manner except for our exclusive benefit. The Terra Funds will not be commingled with the funds of any other person or entity except for operating revenues from the real estate-related assets. The Manager may employ persons or firms to carry out all or any portion of the our business and has the authority to employ contractors, architects, attorneys, accountants, engineers, appraisers or other persons or entities to assist us in management and operation. Some or all of such persons or entities may be affiliates.

Our amended and restated operating agreement provides that the Manager will not be liable to us or our members for any act or omission performed or omitted by it in good faith, but will be liable only for willful misconduct or gross

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negligence. Members may, accordingly, have a more limited right of action against the Manager than they would have absent such an exculpatory provision in our amended and restated operating agreement.

Our amended and restated operating agreement generally provides for indemnification of the Manager, its members, shareholders, affiliates, officers, partners, directors, employees, agents and assigns, by us (to the extent of our assets) for any loss or damage incurred by them in connection with our business not arising out of willful misconduct or gross negligence. In the case of a liability arising from an alleged violation of securities laws, the Manager may obtain indemnification only if (i) the Manager is successful in defending the action, (ii) the action is settled and the court specifically approves the settlement and the indemnification of such settlement, or (iii) in the opinion of our counsel, the right to indemnification has been settled by controlling precedent. It is the opinion of SEC that indemnification for liabilities arising under the Securities Act is contrary to public policy and, therefore, unenforceable.

The management agreement between us and the Manager contains similar provisions (to those discussed above) relating to the potential liability of the Manager and to its rights to indemnification.

ITEM 6. EXECUTIVE COMPENSATION

Each of our officers is an employee of the Manager. Because our management agreement provides that the Manager is responsible for managing our affairs, our officers do not receive any compensation from us for serving as our officers. Our officers, in their capacities as officers or personnel of the Manager or its affiliates, will devote such portion of their time to our affairs as is necessary to enable us to operate our business.

ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Various conflicts of interest exist in the relationship between us and the Manager and its affiliates. The Manager has sole control over our organization and operations and will resolve conflicts of interest through the exercise of its judgment. The Manager has a fiduciary responsibility for the safekeeping and use of all of our funds and assets, whether or not in our immediate possession and control, and may not use or permit another to use such funds or assets in any manner except for our exclusive benefit. In addition, our amended and restated operating agreement contains provisions designed to guard against conflicts of interest. However, our amended and restated operating agreement does not directly address each potential conflict and does not provide for any particular mechanism to fully resolve these conflicts. There is a possibility that not all conflicts will be resolved in a manner favorable to us. Potential conflicts include those set forth below.

Receipt of Fees and Other Compensation by the Manager and its Affiliates

Our REIT subsidiary will pay substantial fees to the Manager and its affiliates. Further, we and our REIT subsidiary must reimburse the Manager and its affiliates for costs incurred by them in managing our REIT subsidiary and its portfolio of real estate-related loans

Our REIT subsidiary has entered into a management agreement with the Manager pursuant to which the Manager provides certain management services to our REIT subsidiary, subject to oversight by its board of directors. The Manager’s responsibilities to our REIT subsidiary include, among others, investing in, and disposing of, assets, borrowing money, entering into contracts and agreements in connection with our REIT subsidiary’s business and purpose, providing administrative support and performing such other services as are delegated to the Manager by our REIT subsidiary’s board of directors. In performing its duties, the Manager is subject to a fiduciary responsibility for the safekeeping and use of all funds and assets of our REIT subsidiary. In consideration of its providing such services, the Manager is entitled to certain fees from our REIT subsidiary as described below. The original management agreement between Terra Capital Advisors, LLC and our REIT subsidiary was entered into on January 1, 2016. On September 1, 2016, our REIT subsidiary terminated the original management agreement and entered the current management agreement with the Manager. The current management agreement runs co-terminus with our amended and restated operating agreement, which terminates on December 31, 2023, unless sooner dissolved in accordance with the terms of our amended and restated operating agreement.

During the year ended December 31, 2016, our REIT subsidiary paid the Manager the following fees under the management agreement: $3.3 million in asset management fees, $0.8 million in asset servicing fees, $2.9 million in origination fees; $1.1 million in disposition fees, and $3.3 million of operating expense reimbursements. For additional

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details related to the fees payable under the management agreement, see “Item 5. Directors and Executive Officers — Compensation to the Manager.”

Subject to its fiduciary responsibilities and the terms of our amended and restated operating agreement, the Manager has sole discretion with respect to the terms and timing of our investments, although it is anticipated that those investments will be consistent with our investment objectives and strategy. It is further anticipated that the Manager will exercise its discretion through the management agreement with our REIT subsidiary. The agreements and arrangements, including those relating to compensation, between our REIT subsidiary and the Manager and its affiliates are not the result of arm’s-length negotiations and may create conflicts between the interests of the Manager and its affiliates, on the one hand, and us, our members and our REIT subsidiary on the other.

The Manager and its Affiliates May Compete With Us

The Manager and its affiliates may engage in real estate-related transactions on their own behalf or on behalf of other entities.

The Manager and its affiliates have, and in the future will have, legal and financial obligations with respect to its other programs that are similar to the Manager’s obligations to us. For example, affiliates of the Manager are the external managers to Fund 5 International, Terra Fund 6 and Terra Fund 7, all of which follow investment strategies that are similar to our strategy. Competition for investments among the real estate-related investment programs sponsored by the Manager and its affiliates will create a conflict of interest. In determining which program should receive an investment opportunity, the Manager will first evaluate the investment objectives of each program to determine if the opportunity is suitable for each program. If the proposed investment is appropriate for more than one program, the Manager will then evaluate the portfolio of each program, in terms of diversity of geography, underlying property type, tenant concentration and borrower, to determine if the investment is most suitable for one program in order to create portfolio diversification. If such analysis is not determinative, the Manager will allocate the investment to the program with uncommitted funds available for the longest period of time or, to the extent feasible, prorate the investment between the programs in accordance with uninvested funds.

Related Party Transactions

Related party transactions are those where we or the Manager on our behalf, transact with affiliated companies. The Manager and its affiliates are permitted to enter into certain transactions and perform certain services for us. Although those transactions will be subject to the limitations set forth in our amended and restated operating agreement, those transactions, or the potential for those transactions, could cause conflicts for the Manager with respect to performing its duties. Related party transactions will not be the result of an arm’s-length negotiation.

Allocation of the Manager’s Time

We rely on the Manager to manage our day-to-day activities and to implement our investment strategy. The Manager and certain of its affiliates are presently, and plan in the future to continue to be, involved with activities that are unrelated to us. As a result of these activities, the Manager, its employees and certain of its affiliates will have conflicts of interest in allocating their time between us and the other activities in which they are or may become involved, including the management of Fund 5 International, Terra Fund 6, Terra International and Terra Fund 7. The Manager and its employees will devote only as much of its or their time to our business as it and its employees, in their judgment, determine is reasonably required, which may be substantially less than their full time. Therefore, the Manager, its personnel and certain affiliates may experience conflicts of interest in allocating management time, services and functions among us and any other business ventures in which they or any of their key personnel, as applicable, are or may become involved. This could result in actions that are more favorable to other affiliated entities than to us.

However, we believe that the members of the Manager’s senior management and the other key debt finance professionals performing services for us on behalf of the Manager have sufficient time to fully discharge their responsibilities to us and to the other businesses in which they are involved. We believe that the Manager’s executive officers will devote the time required to manage our business and expect that the amount of time a particular executive officer or affiliate devotes to us will vary during the course of the year and depend on business activities at the given time. We expect that these executive officers and affiliates will generally devote more time to programs raising and

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investing capital than to programs that have completed their offering stages, though from time to time each program will have its unique demands. Because many of the operational aspects of Terra Capital Partners-sponsored programs are very similar, there are significant efficiencies created by the same team of individuals at the Manager providing services to multiple programs. For example, the Manager has streamlined the structure for financial reporting, internal controls and investment approval processes for the programs.

Competition and Allocation of Investment Opportunities

Employees of the Manager are simultaneously providing investment advisory or management services to other affiliated entities, including Fund 5 International, Terra Fund 6, Terra International and Terra Fund 7.

The Manager may determine it appropriate for us and one or more other investment programs managed by the Manager or any of its affiliates to participate in an investment opportunity. To the extent we are able to make co-investments with investment programs managed by the Manager or its affiliates, these co-investment opportunities may give rise to conflicts of interest or perceived conflicts of interest among us and the other participating programs. In addition, conflicts of interest or perceived conflicts of interest may also arise in determining which investment opportunities should be presented to us and other participating programs.

To mitigate these conflicts, the Manager will seek to execute such transactions on a fair and equitable basis and in accordance with its allocation policies, taking into account various factors, which may include: the source of origination of the investment opportunity; investment objectives and strategies; tax considerations; risk, diversification or investment concentration parameters; characteristics of the security; size of available investment; available liquidity and liquidity requirements; regulatory restrictions; and/or such other factors as may be relevant to a particular transaction.

Receipt of Compensation by Affiliates

The payments to the Manager and certain of its affiliates have not been determined through arm’s-length negotiations, and are payable regardless of our profitability. The Manager and its affiliates receive fees for their services, including an origination fee, asset management fee, asset servicing fee, disposition fee and transaction break-up fee. In addition, the Manager is entitled to receive incentive distributions equal to 15% of distributions paid by us once we pay cumulative distributions to holders of units equal to the capital invested by such members plus a preferred return ranging from 8.5% to 9.0%, depending on the historical preferred return applicable to their Terra Fund units. The preferred return applicable to the units sold in the private placement concurrent with the REIT formation transactions is 8.5%.

To the extent the terms of the management arrangement with the Manager are amended in the future, including if we enter into a new management agreement with the Manager or its affiliates, the terms of any such arrangement will not have been determined through arm’s-length negotiations and may be payable, in whole or in part, regardless of profitability.

Loans Involving Affiliates

We do not make any loans to the Manager or to any of its affiliates. In addition, we do not make any loans to its dealer manager, Terra Capital Markets, LLC, or any entities or individuals affiliated with its dealer manager.

Under our amended and restated operating agreement, the Manager or its affiliates may, but will have no obligation to, make loans to us to acquire assets or to pay our operating expenses. Any such loan will bear interest at the actual cost of funds to the Manager and provide for the payment of principal and any accrued but unpaid interest in accordance with the terms of the promissory note evidencing such loan, but in no event later than our dissolution. Any such loans would not be the result of arm’s-length negotiations and could create conflicts between the interests of the Manager and its affiliates on the one hand and us and our members on the other.

The Resolution of Conflicts Will Be Undertaken by Employees of the Manager and its Affiliates

In the event of a conflict between us and the Manager or the Manager’s affiliates, the conflict will be resolved by the Manager. Although the Manager has certain fiduciary responsibilities to us and to our members, a conflict of

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interest policy relating to the resolution of conflicts between us or our REIT subsidiary and the Manager and its affiliates does not exist.

No Independent Counsel

Pursuant to the terms of our amended and restated operating agreement, each of our members acknowledges and agrees that counsel representing us, the Manager and its affiliates does not represent and shall not be deemed under the applicable codes of professional responsibility to have represented or to be representing any or all of our members in any respect.

Representation in Tax Audit Proceedings

The Manager is designated as our “tax matters partner” and is authorized and directed by our amended and restated operating agreement to represent us and our members, at our expense, in connection with all examinations of our affairs by federal tax authorities, including any resulting administrative or judicial proceedings. Those proceedings may involve or affect other programs for which the Manager or its affiliates act as manager. In those situations, the positions taken by the Manager with respect to us may have differing effects on us and the other programs. Any decisions made by the Manager with respect to those matters will be made in a manner consistent with its duties to us and to our members.

Other Conflicts of Interest

We will be subject to conflicts of interest arising out of our relationship with the Manager. In the future, we may enter into additional transactions with Terra Capital Partners. In particular, we may invest in, or acquire, certain of our investments through joint ventures with Terra Capital Partners or its affiliates or purchase assets from, sell assets to or arrange financing from or provide financing to its other vehicles. Any such transactions will require approval of the Manager. There can be no assurance that any procedural protections will be sufficient to assure that these transactions will be made on terms that will be at least as favorable to us as those that would have been obtained in an arm’s-length transaction.

ITEM 8. LEGAL PROCEEDINGS

We and the Manager are not currently party to any material litigation, nor to our knowledge is any litigation threatened against us or the Manager, or any of our or the Manager’s executive officers, or any affiliates thereof, which may materially affect our operations or projected goals.

ITEM 9. MARKET PRICE OF DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

There is no established trading market for our units. As of December 31, 2016, we had 6,826.59 units outstanding held by a total of approximately 3,189 investors.

As of December 31, 2016, there were no outstanding options, warrants to purchase our units or securities convertible into our units. In addition, as of December 31, 2016, there were no units that could be sold pursuant to Rule 144 under the Securities Act or that we have agreed to register under the Securities Act for sale and there were no units that were being, or were publicly proposed to be, publicly offered by us.

Distributions

Following the completion of the REIT formation transactions, the Manager approved an increase in the monthly distribution payable in respect of each units in respect of the first full quarterly period following the closing of the REIT formation transactions to 9.0% per annum on $50,000 per unit. In addition, the Manager approved an initial payment on each Termination Unit in respect of the first full quarterly period following the closing of the REIT formation transactions equal to 6.0% per annum on the Unreturned Invested Capital (as defined in our operating agreement) associated with each Termination Unit. The timing and amount of future distributions and payments will continue to be made at the sole discretion of the Manager and subject to such factors the Manager considers to be

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relevant, including the amount of funds available for distribution or payment, our financial condition, whether to reinvest or distribute such funds, capital expenditure and reserve requirements and general operational requirements. Because we cannot predict future cash flows or the performance of our REIT subsidiary, no assurance can be given that we will be able to continue to maintain in future periods distributions on units and payments on the Termination Units at levels approved by the Manager.

The following table summarizes our distributions declared during the year ended December 31, 2016:

Distribution Date	Distributions Per Continuing Income Unit		Distributions Per Fund 1 Termination Unit		Distributions Per Fund 2 Termination Unit		Distributions Per Fund 3 Termination Unit		Distributions Per Fund 4 Termination Unit
January 29, 2016	$	375	$	240	$	248	$	240	$	247
February 29, 2016	$	375	$	240	$	248	$	240	$	247
March 31, 2016	$	375	$	240	$	248	$	240	$	247
April 29, 2016	$	375	$	188	$	248	$	240	$	247
May 31, 2016	$	375	$	97	$	248	$	240	$	247
June 30, 2016	$	375	$	—	$	248	$	240	$	247
July 29, 2016	$	375	$	—	$	248	$	240	$	247
August 31, 2016	$	375	$	—	$	248	$	240	$	247
September 30, 2016	$	375	$	—	$	248	$	240	$	247
October 31, 2016	$	375	$	—	$	248	$	240	$	247
November 30, 2016	$	375	$	—	$	173	$	240	$	247
December 30, 2016	$	375	$	—	$	89	$	240	$	247

The following table summarizes our distributions declared during the year ended December 31, 2015:

Distribution Date	Distributions Per Fund 1 Unit		Distributions Per Fund 2 Unit		Distributions Per Fund 3 Unit		Distributions Per Fund 4 Unit		Distributions Per Fund 5 Unit
January 30, 2015	$	375	$	375	$	375	$	375	$	354
February 27, 2015	$	375	$	375	$	375	$	375	$	354
March 31, 2015	$	375	$	375	$	375	$	375	$	354
April 30, 2015	$	375	$	375	$	375	$	375	$	354
May 29, 2015	$	375	$	375	$	375	$	375	$	354
June 30, 2015	$	375	$	375	$	375	$	375	$	354
July 31, 2015	$	375	$	375	$	375	$	375	$	354
August 31, 2015	$	375	$	375	$	375	$	375	$	354
September 30, 2015	$	375	$	375	$	375	$	375	$	354
October 30, 2015	$	375	$	375	$	375	$	375	$	354
November 30, 2015	$	375	$	375	$	375	$	375	$	354
December 31, 2015	$	375	$	375	$	375	$	375	$	354

ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES

On January 1, 2016 we consummated the REIT formation transactions as described in “Item 1. Business.” In connection with the REIT formation transaction, we issued 3,206.64 units to investors in Funds 1 through 4 who wished to continue their investment in our Fund (as reorganized in the REIT formation transactions) and 463.69 Termination Units to investors in Funds 1 through 4 who wished to enter the liquidity phase of their investment, in each case in exchange for their existing interests in Funds 1 through 4. We also issued 573.46 units to investors in a private placement concurrent with the REIT formation transactions at a price of $47,000 per unit, which reflects the reduced front-end load relative to the existing members’ initial investment of $50,000 per unit.

The aforementioned units and Termination Units were issued in reliance upon an exemption from registration under the federal securities laws provided by Regulation D promulgated under Section 4(a)(2) of the Securities Act and Regulation S promulgated thereunder, and from qualification under state securities laws. Each investor who received units and Termination Units has represented that it (i) is an “accredited investor” within the meaning of Rule 501(a) of the Securities Act and (ii) has acquired such securities for its own account for investment purposes only and not for resale or distribution.

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ITEM 11. DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED

Rights and Limitations of Members

The units represent our limited liability company interests and entitle their holders to participate in certain allocations and distributions. Persons who hold units are our members and are entitled to vote on certain matters. See “— Description of the Amended and Restated Operating Agreement.”

The units may not be freely assigned and are subject to restrictions on transfer by law, by regulation in the state where they are sold, and by our amended and restated operating agreement, and may be subject to restrictions on transfer imposed by lenders. It is not anticipated that a public trading market in the units will develop.

There are substantial restrictions on the transferability of the units in our amended and restated operating agreement and imposed by federal and state securities laws. Lenders may also impose additional restrictions on the transferability of units. Before selling or transferring a unit, a member must obtain the written consent of the Manager and comply with applicable requirements of federal and state securities laws and regulations, including the financial suitability requirements of such laws or regulations. It is highly unlikely that any market for the units will ever develop. You should view an investment in the units solely as a long-term investment.

In addition, our amended and restated operating agreement provides that an assignee of the units may not become a member without meeting certain conditions and without the consent of the Manager, which consent the Manager may withhold in its sole discretion. Further, no transfer will be allowed unless the Manager determines that the transfer will not cause us to be “publicly traded” for tax purposes.

The units are not registered under the Securities Act or the securities laws of any state. The units may not be transferred or resold unless they are registered under the Securities Act and registered or qualified under applicable state securities laws or unless exemptions from such registration and qualification are available.

Appropriate legends setting forth the restrictions on transfer of the units will be set out on any certificates representing units. It is currently not anticipated that certificates will be issued with respect to the units. Except as described under “—Termination Units,” the foregoing description of the rights and limitations of members also applies to the Termination Units.

Distribution of REIT Shares

At a later date, in the Manager’s sole discretion, we may elect to distribute our REIT subsidiary’s shares to our members and, as a result, our members would become the direct owners of our REIT subsidiary’s shares. If we distribute our REIT subsidiary’s shares to our members, our REIT subsidiary’s shares will be allocated among members first based on their ownership of units. Such amounts will then be adjusted to take into account the portion of such shares that are required to be distributed to the Manager in respect of its incentive interest in our Fund, with our REIT subsidiary’s shares being valued at the date of distribution at their book value (if distributed prior to a liquidity event), at the IPO price in the case of an IPO (if distributed within 60 days after the IPO) or at the trading value for such shares over the 10-trading day period prior to such distribution (if distributed at any time after the expiration of such 60-day period). We hold approximately 14.9 million shares of our REIT subsidiary pursuant to the REIT formation transactions.

Termination Units

Holders of Termination Units issued as consideration in the REIT formation transactions in respect of each Fund are entitled to receive, to the extent authorized by the Manager, in redemption of their Termination Units an amount

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equal to the book value (measured as of the quarter end prior to the redemption) attributable to such units on or before the original expected liquidation date of such Fund, provided that we have received, prior to such date, sufficient repayments of principal on our assets to cover, in the judgment of the Manager, amounts needed to fund the redemption. To the extent there is any shortfall in the principal repayments received by us to fund the redemption of Termination Units attributable to any Terra Fund, the Manager will seek to fund the redemption as soon thereafter as sufficient principal repayments are received by us. For this purpose, the book value attributable to the Termination Units, which may differ from the book value per Termination Unit calculated in accordance with U.S. GAAP, shall equal their allocable share of our assets, which will be based on the lower of unamortized cost of investments or fair market value, less our liabilities, as determined by the Manager. In determining book value attributable to the Termination Units, the Manager shall have discretion to make adjustments to book value to take into account circumstances occurring either before or after the date of determination to prevent substantial dilution or enlargement of the amounts payable to holders of Termination Units upon redemption relative to the economic interests of such holders as determined by the Manager. The amount a holder of Termination Units receives in redemption of Termination Units will be further adjusted for any redemption payments made to the holder in respect of such Termination Units. The Manager is permitted to make redemption payments in respect of Termination Units in installments over time or in one single payment.

Consistent with the original expected liquidation dates of Terra Fund 1 and Terra Fund 2, holders of Termination Units in Terra Fund 1 were liquidated in May 2016 and holders of Termination Units in Terra Fund 2 were liquidated in December 2016. Accordingly, as of December 31, 2016, an aggregate of 170.9 Termination Units remained outstanding, consisting of 120.5 Termination Units in Terra Fund 3 and 50.4 Termination Units in Terra Fund 4. The original expected liquidation dates for holders of Termination Units in Terra Fund 3 and Terra Fund 4 are September 2017 and July 2018, respectively, in each case subject to permitted extensions of up to two years. Holders of Termination Units in Terra Fund 3 and Terra Fund 4 are also authorized to receive distributions at a fixed rate of 6% per annum of the Unreturned Invested Capital (as defined in our operating agreement) attributable to such Termination Units, which was an aggregate of approximately $48,031 for holders of Termination Units in Terra Fund 3 and an aggregate of $49,456 for holders of Termination Units in Terra Fund 4, in each case as of December 31, 2016. Holders of Termination Units will not share in any increases in distributions that may be paid to holders of units in the future, but will be impacted by changes in their allocable share of our book value used to calculate the amount payable to them upon redemption of their Termination Units.

Holders of Termination Units shall have no voting rights with respect to any matter, other than with respect to a matter that is presented for vote to holders of units, which the Manager determines, in the Manager’s sole discretion, would disproportionately and adversely affect the holders of Termination Units in comparison to the holders of the units. For such matters to be approved, in addition to whatever vote is required from the holders of units, approval by holders representing a majority vote of all Termination Units voting as a single and separate class will also be required.

Description of the Amended and Restated Operating Agreement

General

The rights and obligations of our members are governed by our amended and restated operating agreement. The following is a summary of some of the material provisions of our amended and restated operating agreement and is qualified in its entirety by reference thereto. We have been formed under the Delaware Limited Liability Company Act, which we refer to as the Delaware Act. The Manager is Terra Income Advisors, LLC, a Delaware limited liability company.

Term and Dissolution

Unless sooner terminated by the Manager or by bankruptcy, insolvency, liquidation or dissolution, our existence as a legal entity will terminate on December 31, 2023.

Distributions

We make cash distributions to holders of units and the Manager out of net cash flow from operations, net disposition proceeds, and other cash available for distribution at such times as the Manager shall determine, in its sole

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discretion. The amount of cash available for distribution to members and the Manager may be reduced by distributions paid in redemption of or as a return on the Termination Units as described above under “—Termination Units.”

The Manager anticipates that distributions will continue to be made monthly on or about the 30th day of the month.

Distributions with respect to each calendar month will be distributed as follows:

· First, to the holders of units (in proportion to their ownership of Distributable Units (as defined in our amended and restated operating agreement)) until each holder has received cumulative distributions equal to their Deemed Capital Contributions, provided that the aggregate distributions with respect to any such unit shall not exceed the Deemed Capital Contribution with respect to such unit. Once cumulative distributions with respect to a unit equal the Deemed Capital Contribution with respect to such unit, then no further distributions shall be made with respect to that unit until cumulative distributions on all Distributable Units are equal to the respective Deemed Capital Contributions of those units;

· Second, to the holders of units (in proportion to their accrued but unpaid Preferred Return (as defined in our amended and restated operating agreement)) until each such holder has received cumulative distributions in an amount equal to their accrued but unpaid Preferred Return; and

· Third, 85% to the holders of units (in proportion to their ownership of units) and 15% to the Manager.

Please see our amended and restated operating agreement, filed as Exhibit 3.1 hereto, for a more complete description of our distribution provisions.

The Manager, in its sole discretion, may elect to cause us to not distribute all or any portion of any funds from time to time, and instead reserve such funds, invest such funds in one or more additional real estate-related loans, or otherwise expend such funds for any proper purpose.

Termination Units

For more information regarding the Termination Units, see “— Termination Units.”

Compensation of the Manager and Its Affiliates

The Manager provides services to our REIT subsidiary, and the fees associated with such services are paid by our REIT subsidiary pursuant to a management agreement between our REIT subsidiary and the Manager. Such fees include an origination fee, asset management fee, asset servicing fee, disposition fee and transaction break-up fee. In addition, the Manager is entitled to receive incentive distributions equal to 15% of distributions paid by us once we pay cumulative distributions to holders of units equal to the capital invested by such members plus a preferred return ranging from 8.5% to 9.0%, depending on the historical preferred return applicable to their Terra Fund units. The preferred return applicable to the units sold in the private placement concurrent with the REIT formation transactions is 8.5%.

Restrictions on Transfer of Units

The units and the Termination Units may not be freely assigned and are subject to restrictions on transfer by law, by regulation in the state where they are sold, and by our amended and restated operating agreement. Before selling or transferring a unit or a Termination Unit, a member must obtain the prior written consent of the Manager, which consent may be withheld in the Manager’s sole and absolute discretion, and comply with applicable requirements of federal and state securities laws and regulations, including the financial suitability requirements of such laws or regulations. Subject to certain restrictions, a member will be allowed, without the Manager’s consent, to transfer all or a portion of such member’s units or Termination Units to a member of that member’s immediate family or a trust or other entity created or controlled by that member or members of that member’s immediate family.

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Authority of the Manager

The Manager shall, subject to certain restrictions set forth in our amended and restated operating agreement, have full and complete authority, power and discretion to manage and control our, and our subsidiaries’, business, affairs and assets, to make all decisions regarding those matters and to perform any and all other acts or activities customary or incident to the management of our, and our subsidiaries’, business. In the course of its management, the Manager may, in its sole discretion, employ such persons, including, under certain circumstances, affiliates of the Manager, as it deems necessary for our efficient operation. In addition, the Manager may cause us to enter into a management agreement and grant to any such manager the power and discretion to manage and control the business, affairs and assets of our REIT subsidiary or its subsidiaries in consideration for such fees and expenses as specified in the management agreement, cause us to issue additional units from time to time for such consideration as the Manager shall determine, modify our amended and restated operating agreement to make any changes necessary to enable us to make an in-kind distribution of our REIT subsidiary’s shares and admit as the Manager any person or entity affiliated with the Manager.

Liabilities of Members

A member’s capital is subject to the risks of our business. Members are not permitted to take part in the management or control of our business. Assuming that we are operated in accordance with the terms of our amended and restated operating agreement, a member will not be liable for our liabilities in excess of such member’s total capital contributions and share of undistributed profits. Notwithstanding the foregoing, a member will be liable to us and our creditors for and to the extent of any distribution made to such member if such member knew at the time of the distribution that, after giving effect to such distribution, our remaining assets would not be sufficient to pay our outstanding liabilities (other than liabilities to our members on account of their interests in us).

Books and Records

At all times during our term, the Manager is required to keep true and accurate books of account of all of our financial activities. Such books of account are kept on the accrual basis of accounting. The Manager may make such elections for federal and state income tax purposes as it deems appropriate. Our fiscal year is the calendar year.

Voting Rights of Members

Although they are not permitted to take part in the management or control of our business, our members have the right to vote on certain matters as described in our amended and restated operating agreement, including the following:

· removal of the Manager upon a finding of fraud, gross negligence or willful misconduct by the Manager;

· admission of a manager, except where such new manager is an affiliate of the Manager, or election to continue our business after the Manager ceases to be the Manager when there is no remaining manager;

· amendment of certain provisions of amended and restated operating agreement, except in cases in which the Manager has sole authority to amend the amended and restated operating agreement as described therein;

· any merger or combination or roll-up of our Fund;

· dissolution and winding up of our Fund; and

· election to continue our business when there is a dissolution event.

The Manager may at any time call a meeting of our members, or may call for a vote of our members without a meeting, on matters on which our members are entitled to vote. In addition, a meeting of our members will be called by the Manager upon receipt of written request therefore by members holding more than 10% of the units entitled to vote.

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Holders of Termination Units shall have no voting rights with respect to any matter, other than with respect to a matter that is presented for vote to the holders of units, which the Manager determines, in the Manager’s sole discretion, would disproportionately and adversely affect the holders of Termination Units in comparison to the holders of the units. For such matters to be approved, in addition to whatever vote is required from the holders of units, a majority of all Termination Units voting as a single class will also be required.

Amendments

Our amended and restated operating agreement may be amended by the Manager with a majority vote of the units, except where Termination Units are entitled to vote (as described above) and, except that the Manager may amend our amended and restated operating agreement without action by our members to:

· modify the allocation provisions of our amended and restated operating agreement to comply with Section 704(b) of the Internal Revenue Code;

· add to the representations, duties, services or obligations of the Manager or its affiliates for the benefit of our members;

· cure any ambiguity or mistake, correct or supplement any provision in our amended and restated operating agreement that may be inconsistent with any other provision, or to make any other provision with respect to matters or questions arising under our amended and restated operating agreement that will not be inconsistent with the provisions of our amended and restated operating agreement;

· delete or add any provision of our amended and restated operating agreement required to be so deleted or added by the staff of the SEC or by a state “blue sky” commissioner or similar official, which addition or deletion is deemed by such commission or official to be for the benefit or protection of our members;

· amend our amended and restated operating agreement to reflect the addition or substitution of members or the reduction of the capital accounts upon the return of capital to our members;

· reconstitute our Fund under the laws of another state if beneficial;

· modify our amended and restated operating agreement to make any changes requested or required by a lender that are required to obtain financing or add or delete any such provisions after repayment of any such loans;

· minimize the adverse impact of, or comply with, any “plan assets” regulations, including the right to compulsorily redeem all or some units or Termination Units held by an investor, or to require the sale of all or any portion of any member’s units or Termination Units to one or more other members, in certain instances to avoid such adverse impact;

· modify our amended and restated operating agreement in any manner that the Manager in its sole discretion determines is useful or required in furtherance of the REIT formation transactions;

· modify our amended and restated operating agreement to make any changes necessary to enable us to make a distribution in-kind of our REIT subsidiary’s shares;

· admit as the Manager any person or entity that is an affiliate of the Manager;

· execute, acknowledge and deliver any and all instruments to effectuate the foregoing, including the execution, acknowledgment and delivery of any such instrument by the attorney-in-fact for the Manager under a special or limited power of attorney, and to take all such actions in connection therewith as the Manager shall deem necessary or appropriate with the signature of the Manager acting alone;

· change our name and/or principal place of business; and

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· decrease the rights and powers of the Manager (so long as such decrease does not impair the ability of the Manager to manage us and conduct our business affairs).

No amendment shall be adopted pursuant to the last two bullet points above without the consent of our members unless the adoption of such amendment (i) is for the benefit of and not adverse to the interests of our members; (ii) is not inconsistent with provisions of our amended and restated operating agreement pertaining to our management and administration by the Manager; and (iii) does not affect the limited liability of our members or our status as a partnership for federal income tax purposes. Further, the Manager can amend our amended and restated operating agreement to comply with any lender requirement that we be a special purpose entity.

Special Power of Attorney

Upon being admitted as our member, each member will appoint the Manager as his, her or its true and lawful attorney-in-fact who may act in such member’s stead to execute, certify, acknowledge, swear to, file and record our amended and restated operating agreement, any and all amendments to our amended and restated operating agreement, which are adopted as provided in our amended and restated operating agreement and any and all other instruments the Manager may deem necessary or desirable to effect the purposes of our amended and restated operating agreement and carry out fully its provisions.

Removal of Manager

Under the terms of our amended and restated operating agreement, the Manager may be removed for fraud, gross negligence or willful misconduct on the part of the Manager, by an affirmative vote or written consent of our members owning at least a majority of the units then outstanding (excluding any units then owned by the Manager or its affiliates).

Issuance of Additional Units

The Manager may issue additional units or Termination Units, including fractions of units or Termination Units, to existing members or any other persons for such consideration and on such terms and conditions as the Manager may determine in its sole discretion, all without the approval of our members.

Tax Elections

Under the terms of our amended and restated operating agreement, the Manager is entitled to make all decisions regarding tax matters and elections, including an election under Section 754 of the Internal Revenue Code, or a 754 election. The Manager will consider requests from purchasers upon resale of the units or Termination Units to make a 754 election on our behalf although the Manager will not be required to make such an election.

ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Our amended and restated operating agreement generally provides for indemnification of the Manager, its members, shareholders, affiliates, officers, partners, directors, employees, agents and assigns, and any of our officers, by our Fund (to the extent of its assets) for any loss or damage incurred by them in connection with our business not arising out of willful misconduct or gross negligence. In the case of a liability arising from an alleged violation of securities laws, the Manager may obtain indemnification only if (i) the Manager is successful in defending the action, (ii) the action is settled and the court specifically approves the settlement and the indemnification of such settlement, or (iii) in the opinion of our counsel, the right to indemnification has been settled by controlling precedent. It is the opinion of the SEC that indemnification for liabilities arising under the Securities Act is contrary to public policy and, therefore, unenforceable.

The management agreement executed between us and the Manager contains similar provisions to those discussed above relating to the potential liability of the Manager and to its rights to indemnification.

ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See “Index to Financial Statements” on page F-1 of this Form 10.

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ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial Statements

See “Index to Financial Statements” on page F-1 of this Form 10.

(b) Exhibits

The following exhibits are filed as part of this Form 10 or hereby incorporated by reference to exhibits previously filed with the SEC:

Exhibit No.	Description
2.1	Agreement and Plan of Merger by and among the registrant, Terra Capital Advisors, LLC, Terra Secured Income Fund Merger Sub, LLC, and Terra Secured Income Fund, dated January 1, 2016
2.2	Agreement and Plan of Merger by and among the registrant, Terra Capital Advisors, LLC, Terra Secured Income Fund Merger Sub 2, LLC, and Terra Secured Income Fund 2, LLC, dated January 1, 2016
2.3	Agreement and Plan of Merger by and among the registrant, Terra Capital Advisors, LLC, Terra Secured Income Fund Merger Sub 3, LLC, and Terra Secured Income Fund 3, LLC, dated January 1, 2016
2.4	Agreement and Plan of Merger by and among the registrant, Terra Capital Advisors, Terra Capital Advisors 2, Terra Secured Income Fund 4, LLC, and Terra Secured Income Fund 4, LLC, dated January 1, 2016
2.5	Contribution Agreement by and among Terra Secured Income Fund, LLC, Terra Secured Income Fund 2, LLC, Terra Secured Income Fund 3, LLC, Terra Secured Income Fund 4, LLC, the registrant, and Terra Property Trust, Inc., dated January 1, 2016
2.6	Amendment No. 1 to the Contribution Agreement by and among Terra Secured Income Fund, LLC, Terra Secured Income Fund 2, LLC, Terra Secured Income Fund 3, LLC, Terra Secured Income Fund 4, LLC, the registrant, and Terra Property Trust, Inc., dated December 31, 2016
3.1	Amended and Restated Limited Liability Company Agreement of the registrant, dated January 1, 2016
10.1	Management Agreement between Terra Property Trust, Inc., and Terra Income Advisors, LLC, dated September 1, 2016
21.1	Subsidiaries

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SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

	TERRA SECURED INCOME FUND 5, LLC
Date: April 28, 2017	By:	/s/ Bruce D. Batkin
	Name:	Bruce D. Batkin
	Title:	Chief Executive Officer

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Notes to Consolidated Financial Statements

Terra Secured Income Fund 5, LLC

Index to Financial Statements

	Page
Terra Secured Income Fund 5, LLC
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Financial Statements:
Consolidated Statements of Financial Condition as of December 31, 2016 and 2015	F-3
Consolidated Statements of Operations for the years ended December 31, 2016 and 2015	F-4
Consolidated Statements of Changes in Members’ Capital for the years ended December 31, 2016 and 2015	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2016 and 2015	F-6
Consolidated Schedules of Investments as of December 31, 2016 and 2015	F-8
Notes to Consolidated Financial Statements	F-13
Terra Property Trust, Inc.
Report of Independent Registered Public Accounting Firm	F-32
Consolidated Financial Statements:
Consolidated Balance Sheet as of December 31, 2016	F-33
Consolidated Statement of Operations for the year ended December 31, 2016	F-34
Consolidated Statement of Changes in Equity for the year ended December 31, 2016	F-35
Consolidated Statement of Cash Flows for the year ended December 31, 2016	F-36
Notes to Consolidated Financial Statements	F-38
Terra Secured Income Funds 1 through 4
Report of Independent Registered Public Accounting Firm	F-59
Combined Consolidated Financial Statements:
Combined Consolidated Statement of Financial Condition as of December 31, 2015	F-60
Combined Consolidated Statement of Operations for the year ended December 31, 2015	F-61
Combined Consolidated Statement of Changes in Members’ Capital for the year ended December 31, 2015	F-62
Combined Consolidated Statement of Cash Flows for the year ended December 31, 2015	F-63
Combined Consolidated Schedule of Investments as of December 31, 2015	F-64
Notes to Combined Consolidated Financial Statements	F-66

F-1

Report of Independence Registered Public Accounting Firm

The Members

Terra Secured Income Fund 5, LLC:

We have audited the accompanying consolidated statements of financial condition, including the consolidated schedule of investments of Terra Secured Income Fund 5, LLC (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations, changes in members’ capital, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Terra Secured Income Fund 5, LLC as of December 31, 2016 and 2015, and the results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

(signed) KPMG LLP

New York, New York

April 28, 2017

F-2

Terra Secured Income Fund 5, LLC

Consolidated Statements of Financial Condition

	December 31,
	2016		2015
Assets
Investments, at fair value — non-controlled (amortized cost of $133,407,773)	$	—	$	133,978,474
Equity investment in Terra Property Trust, Inc. at fair value — controlled (cost of $291,468,567)		290,419,317		—
Investments through participation interests, at fair value — non-controlled (amortized cost of $21,900,151) (Note 5)		—		21,944,706
Cash and cash equivalents		41,520		1,862,798
Restricted cash		—		14,302,423
Interest receivable		—		1,269,491
Other assets		7,447		—
Total assets		290,468,284		173,357,892
Liabilities
Obligations under participation agreements, at fair value (proceeds of $31,326,499) (Note 5)		—		31,918,716
Interest reserve and other deposits held on investments		—		14,302,423
Accounts payable and accrued expenses		441,388		2,303,978
Due to Manager		—		1,373,372
Taxes payable		—		389,137
Due to Terra Property Trust, Inc.		438,249		—
Interest payable		—		218,978
Distributions payable		2,243		—
Other liabilities		—		642,590
Total liabilities		881,880		51,149,194
Members’ capital	$	289,586,404	$	122,208,698
Commitments and contingencies (Note 8)
Components of members’ capital:
Managing member	$	—	$	—
Non-managing members		289,586,404		122,208,698
Members’ capital	$	289,586,404	$	122,208,698

See notes to consolidated financial statements.

F-3

Terra Secured Income Fund 5, LLC

Consolidated Statements of Operations

	Years Ended December 31,
	2016			2015
Investment income — non-controlled
Interest income	$	—		$	19,930,213
Prepayment fee income		—			1,134,082
Other operating income		8,586			214,467
Investment income — controlled
Dividend income		31,666,409			—
Total investment income		31,674,995			21,278,762
Operating expenses
Interest expense from obligations under participation agreements		—			4,193,186
Merger transaction fees		388,692			2,537,455
Operating expenses reimbursed to the Manager		—			1,400,466
Asset management fee		—			1,216,785
Professional fees		1,139,749			174,718
State and local taxes		—			594,086
Asset servicing fee		—			282,421
Other		38,562			6,223
Total operating expenses		1,567,003			10,405,340
Net investment income		30,107,992			10,873,422
Net change in unrealized depreciation on investments — controlled		(1,049,250	)		—
Net change in unrealized appreciation on investments — non-controlled		—			543,281
Net change in unrealized appreciation on obligations under participation agreements — non-controlled		—			(287,213	)
Realized gain on investments — non-controlled		—			2,603
Net realized and unrealized gain on investments		(1,049,250	)		258,671
Net increase in members’ capital resulting from operations	$	29,058,742		$	11,132,093

See notes to consolidated financial statements.

F-4

Terra Secured Income Fund 5, LLC

Consolidated Statements of Changes in Members’ Capital

Years Ended December 31, 2016 and 2015

	Managing Member		Non-Managing Members			Total
Balance at January 1, 2015	$	—	$	113,083,192		$	113,083,192
Capital contributions, net of selling commissions and dealer manager fees of $1,146,386		—		10,397,265			10,397,265
Offering expenses		—		(231,373	)		(231,373	)
Capital distributions		—		(12,172,479	)		(12,172,479	)
Increase in members’ capital resulting from operations:
Net investment income		—		10,873,422			10,873,422
Net change in unrealized appreciation on investments		—		543,281			543,281
Net change in unrealized appreciation on obligations under participation agreements		—		(287,213	)		(287,213	)
Realized gain on investment		—		2,603			2,603
Net increase in members’ capital resulting from operations		—		11,132,093			11,132,093
Balance, January 1, 2016		—		122,208,698			122,208,698
Capital contributions from Rights Offering, net of selling commissions and dealer manager fees of $1,277,916		—		25,597,713			25,597,713
Capital contributions from Merger		—		155,751,516			155,751,516
Capital distributions		—		(30,623,519	)		(30,623,519	)
Capital redemption		—		(12,406,746	)		(12,406,746	)
Increase in members’ capital resulting from operations:
Net investment income		—		30,107,992			30,107,992
Net change in unrealized depreciation on investments		—		(1,049,250	)		(1,049,250	)
Net increase in members’ capital resulting from operations		—		29,058,742			29,058,742
Balance, December 31, 2016	$	—	$	289,586,404		$	289,586,404

See notes to consolidated financial statements.

F-5

Terra Secured Income Fund 5, LLC

Consolidated Statements of Cash Flows

	Years Ended December 31,
	2016			2015
Cash flows from operating activities:
Net increase in members’ capital resulting from operations	$	29,058,742		$	11,132,093
Adjustments to reconcile net increase in members’ capital resulting from operations to net cash provided by (used in) operating activities:
Accretion of exit fees, net		—			34,565
Paid-in-kind interest income, net		—			(1,124,630	)
Loans made and purchase of other investments		(10,000,000	)		(91,623,617	)
Proceeds from repayments of investments		—			52,766,226
Return of capital on investment		6,791,237			—
Proceeds from obligations under participation agreements		—			21,089,785
Repayments on obligations under participation agreements		—			(11,326,707	)
Cash transferred to Terra Property Trust, Inc.		(5,034,571	)		—
Realized gain on investments		—			(2,603	)
Net change in unrealized depreciation (appreciation) on investments		1,049,250			(543,281	)
Net change in unrealized appreciation on obligations under participation agreements		—			287,213
Changes in operating assets and liabilities:
Restricted cash		—			12,063,644
Deposits on investments		—			2,740,000
Interest receivable		351,883			(304,025	)
Other assets		(7,447	)		52,085
Interest reserve and other deposits held on investments		—			(12,063,644	)
Accounts payable and accrued expenses		(5,155,443	)		2,224,843
Due to Manager		(705,389	)		311,114
Taxes payable		(621,177	)		235,486
Interest payable		(172,051	)		72,436
Other liabilities		—			285,435
Net cash provided by (used in) operating activities		15,555,034			(13,693,582	)
Cash flows from financing activities:
Distributions paid		(30,621,277	)		(12,172,479	)
Proceeds from capital contributions, net of selling commissions and dealer manager fees		25,597,713			8,686,892
Payments for capital redemptions		(15,833,729	)		—
Cash acquired in the Merger		3,480,981			—
Net cash used in financing activities		(17,376,312	)		(3,485,587	)
Net decrease in cash and cash equivalents		(1,821,278	)		(17,179,169	)
Cash and cash equivalents at beginning of year		1,862,798			19,041,967
Cash and cash equivalents at end of year	$	41,520		$	1,862,798

Supplemental Disclosure of Cash Flows Information:

	Years Ended December 31,
	2016		2015
Cash paid for interest	$	—	$	3,895,352
Cash paid for income taxes	$	616,878	$	358,600

F-6

Terra Secured Income Fund 5, LLC

Consolidated Statements of Cash Flows (Continued)

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, the “Terra Fund”) through a series of separate mergers effective January 1, 2016 (collectively, the “Merger”), see Note 3. 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 loan		(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 portfolio of net assets of the five Terra Funds to Terra Property Trust, Inc. (“Terra Property Trust”), a newly-formed and wholly-owned subsidiary of the Company, in exchange for the common shares of Terra Property Trust. The following table summarizes the fair values of 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		276,856,359
Investments through participation interests, at fair value		13,680,000
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 loan		(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.

F-7

Terra Secured Income Fund 5, LLC

Consolidated Schedule of Investments

December 31, 2016

At December 31, 2016, the Company’s only investment is its equity interest in a wholly-owned subsidiary as presented below:

Investment - Controlled	Date Acquired	Number of Shares of Common Stock		Cost		Fair Value		% of Net Assets
Terra Property Trust, Inc. - 100% Owned	1/1/2016 and 3/7/2016		14,912,990	$	291,468,567	$	290,419,317		100.3	%

The following table presents a schedule of investments held by Terra Property Trust, the Company’s wholly-owned subsidiary, as of December 31, 2016:

Collateral Location	Portfolio Company	Structure	Property Type	Interest Rate			Acquisition Date	Maturity Date	Principal Amount		Amortized Cost		Fair Value (1)		% of Net Assets (2)
	Investments — non-controlled:
US - AL	ASA Mgt. Holdings, LLC	Preferred equity investment	Multifamily		15.0	%	4/7/2012	8/1/2022	$	2,100,000	$	2,145,498	$	2,120,737		0.7	%
	SVA Mgt. Holdings, LLC	Preferred equity investment	Multifamily		15.0	%	4/7/2012	8/1/2022		1,600,000		1,637,463		1,615,800		0.6	%
	Total US - AL									3,700,000		3,782,961		3,736,537		1.3	%
US - CA	Palmer City-Core Stockton Street, LLC	Preferred equity investment	Hotel		12.0	%	1/17/2014	12/17/2017		4,325,000		4,368,250		4,369,096		1.5	%
	Encino Courtyard Mezzanine, LLC (3)	Mezzanine loan	Retail		13.5	%	12/19/2012	1/6/2023		2,500,000		2,609,852		2,529,828		0.9	%
	Maguire Partners-1733 Ocean, LLC	First mortgage	Office		LIBOR+8.5	%	3/7/2016	3/9/2018		50,450,061		50,902,766		50,924,056		17.4	%
	L.A. Warner Hotel Partners, LLC (4)(5)	Preferred equity investment	Hotel		13.3	%	7/25/2014	8/4/2017		20,000,000		20,579,513		20,201,344		7.0	%
	SD Carmel Hotel Partners, LLC (3)(4)(5)	Preferred equity investment	Hotel		12.0	%	3/13/2015	1/31/2017		6,000,000		6,059,398		6,059,398		2.1	%
	TSG-Parcel 1, LLC (4)(5)(6)	First mortgage	Land		12.0	%	7/10/2015	4/10/2017		18,000,000		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 loan	Office		13.0	%	6/5/2015	6/5/2018		10,000,000		10,082,308		10,123,340		3.5	%
US - FL	Beach Resort Management, LLC	Mezzanine loan	Hotel		13.0	%	7/16/2012	8/1/2017		4,500,000		4,518,850		4,517,228		1.6	%
	CGI Mezz 55MM, LLC (3)(4)(5)	Mezzanine loan	Mixed use		12.0% current 2.0% PIK		8/21/2014	9/6/2019		3,593,947		3,619,217		3,610,816		1.2	%
	1100 Biscayne Management Holdco, LLC (4)(5)	Mezzanine loan	Hotel		12.0% current 3.0% PIK		4/24/2015	10/9/2017		15,359,671		15,488,644		15,257,412		5.2	%
	Caton Mezz, LLC (3)(4)(5)	Mezzanine loan	Office		12.0% current 2.0% PIK		7/27/2015	1/27/2017		5,160,404		5,210,404		5,189,222		1.8	%
	37 Gables Member LLC	Mezzanine loan	Multifamily		13.0	%	6/16/2016	6/16/2019		5,750,000		5,791,644		5,797,477		2.0	%
	Greystone Gables Holdings Member LLC	Preferred equity investment	Multifamily		13.0	%	6/16/2016	6/16/2019		500,000		503,621		504,128		0.2	%
	RS JZ 2700 NW2, LLC	First mortgage	Land		12.0	%	9/1/2016	12/1/2017		19,620,000		19,795,534		19,800,927		6.8	%
	Total US - FL									54,484,022		54,927,914		54,677,210		18.8	%
US - GA	YMP Georgia Portfolio Mezzanine, LLC	Mezzanine loan	Multifamily		14.0	%	12/19/2013	1/6/2019		4,250,000		4,604,941		4,387,683		1.5	%
US - IN	Muncie Mezz, LLC	Mezzanine loan	Student housing		13.0	%	8/29/2013	9/6/2023		2,700,000		2,683,938		3,039,674		1.0	%
US - MA	Phoenix CR 2012A, LLC, Phoenix CR 2012B, LLC, & Phoenix CR 2012C, LLC	Mezzanine loan	Multifamily		12.0	%	7/27/2012	8/11/2022		4,000,000		4,112,275		4,071,618		1.4	%

F-8

Terra Secured Income Fund 5, LLC

Consolidated Schedule of Investments (Continued)

December 31, 2016

Terra Property Trust Schedule of Investments as of December 31, 2016 (Continued):

Collateral Location	Portfolio Company	Structure	Property Type	Interest Rate			Acquisition Date	Maturity Date	Principal Amount		Amortized Cost		Fair Value (1)		% of Net Assets (2)
	Investments — non-controlled:
US - NC	Milestone Greensboro Holdings, LLC	Mezzanine loan	Hotel		14.0	%	3/1/2013	3/1/2018	$	3,500,000	$	3,551,028	$	3,550,732		1.2	%
US - NJ	Essence 144 Urban Renewal, LLC	First mortgage	Multifamily		12.0	%	1/14/2015	3/14/2017		22,639,955		22,865,291		22,864,082		7.9	%
US - NY	Cape Church Mezz, LLC	Mezzanine loan	Multifamily		12.0	%	3/15/2016	7/15/2019		15,207,664		15,323,482		15,341,724		5.3	%
	140 Schermerhorn Street Mezz LLC	Mezzanine loan	Hotel		12.0	%	11/16/2016	12/1/2019		15,000,000		15,105,343		15,118,900		5.2	%
	WWML96MEZZ, LLC	Mezzanine loan	Multifamily		13.0	%	12/18/2015	12/31/2018		4,075,585		4,106,941		4,104,596		1.4	%
	WWML96, LLC	Preferred equity investment	Multifamily		13.0	%	12/18/2015	12/31/2018		1,303,583		1,313,612		1,281,507		0.4	%
	Total US - NY									35,586,832		35,849,378		35,846,727		12.3	%
US - OR	Pollin Hotels PDX Mezzanine, LLC	Mezzanine loan	Hotel		13.0	%	9/23/2013	10/6/2018		5,000,000		5,356,923		5,324,812		1.8	%
US - PA	PHL Hotel Partners, LLC	Preferred equity investment	Hotel		13.0	%	10/8/2013	11/1/2017		3,742,000		3,779,420		3,772,758		1.3	%
	Millennium Waterfront Associates, L.P.	First mortgage	Land		12.0	%	7/2/2015	1/2/2017		13,980,000		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 loan	Student housing		13.0	%	12/27/2013	1/6/2024		3,000,000		3,441,697		3,176,165		1.1	%
US - TN	Kingsport 925-Mezz LLC	Mezzanine loan	Multifamily		13.0	%	1/6/2014	12/5/2018		3,000,000		3,208,266		3,111,362		1.1	%
	315 JV, LLC (6)	Mezzanine loan	Office		12.0% current 3.0% PIK		11/15/2013	5/28/2017		6,877,843		6,971,219		6,935,693		2.4	%
	Total US - TN									9,877,843		10,179,485		10,047,055		3.5	%
US - TX	Northland Museo Member, LLC	Mezzanine loan	Multifamily		12.0	%	11/22/2013	12/6/2018		4,000,000		3,946,771		4,051,342		1.4	%
	Austin H. I. Owner LLC (4)(5)	Mezzanine loan	Hotel		12.5	%	9/30/2015	10/6/2020		3,500,000		3,521,769		3,549,105		1.2	%
	AHF-Heritage #1, LLC	Mezzanine loan	Multifamily		14.0	%	7/30/2012	8/11/2022		2,689,038		2,951,669		2,794,286		1.0	%
	Total US - TX									10,189,038		10,420,209		10,394,733		3.6	%
US - Various	Capital Square Realty Advisors, LLC	Facility	Various		13%-14	%	12/17/2013	7/29/2017		15,500,000		15,643,328		15,643,328		5.4	%
	Nelson Brothers Professional Real Estate, LLC	Facility	Various		15.0	%	8/31/2016	7/27/2017		8,000,000		8,073,342		8,073,342		2.8	%
	Total US - Various									23,500,000		23,716,670		23,716,670		8.2	%
	Total investments — non-controlled:									311,424,751		316,174,017		315,110,108		108.5	%

F-9

Terra Secured Income Fund 5, LLC

Consolidated Schedule of Investments (Continued)

December 31, 2016

Terra Property Trust Schedule of Investments as of December 31, 2016 (Continued):

Collateral Location	Portfolio Company	Structure	Property Type	Interest Rate			Acquisition Date	Maturity Date	Principal Amount			Amortized Cost			Fair Value (1)			% of Net Assets (2)
	Investments through participation interests — non-controlled (7):
US - NY	QPT 24th Street Mezz LLC (4)(5)(6)	Participation in mezzanine loan	Land		12.0% current 2.0% PIK		12/15/2015	6/15/2017		12,780,220			12,897,391			12,897,392			4.5	%
US - PA	KOP Hotel XXXI Mezz LP (4)(5)(6)	Participation in mezzanine loan	Hotel		13.0	%	11/24/2015	12/6/2022		1,800,000			1,804,135			1,847,839			0.6	%
	Total investments through participation interest — non-controlled									14,580,220			14,701,526			14,745,231			5.1	%
	Total gross investments									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 investments								$	293,369,186		$	297,889,349		$	296,950,384			102.3	%

(1) Because there is no readily available market for these investments, the fair values of these investments 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 investment was repaid in full.

(4) Terra Property Trust sold a portion of its interests in these investments 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 Accounting Standards Codification (“ASC”) Topic 860, Transfers and Servicing, and therefore, the gross amount of these loans remain in the Consolidated Schedule of Investments.

(6) Terra Property Trust sold a portion of its interest in this investment 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 investments from Terra Income Fund 6, Inc. via participation agreements.

F-10

Terra Secured Income Fund 5, LLC

Consolidated Schedule of Investments

December 31, 2015

Collateral Location	Portfolio Company	Structure	Property Type	Interest Rate			Acquisition Date	Maturity Date	Principal Amount		Amortized Cost		Fair Value (1)		% of Net Assets (2)
	Investments — non-controlled:
US - CA	Maguire Partners-1733 Ocean, LLC (3)(4)(7)	Preferred equity investment	Office		14.0	%	3/5/2014	3/6/2016	$	12,263,000	$	12,382,498	$	12,382,498		10.1	%
	L.A. Warner Hotel Partners, LLC (3)(7)	Preferred equity investment	Hotel		13.3	%	7/25/2014	8/4/2017		20,000,000		20,176,719		20,724,319		17.0	%
	SD Carmel Hotel Partners, LLC (3)(4)(7)	Preferred equity investment	Hotel		12.0	%	3/13/2015	1/31/2017		6,000,000		6,055,107		6,055,107		5.0	%
	TSG-Parcel 1, LLC (3)(5)(6)(7)	First mortgage	Land		12.0	%	7/10/2015	4/10/2017		18,000,000		18,168,860		18,168,860		14.9	%
	Steadfast Crestavilla Senior, LLC (3)(4)(7)	First mortgage	Land		12.0	%	12/11/2014	6/11/2016		11,280,000		11,390,139		11,390,139		9.3	%
	Total US - CA									67,543,000		68,173,323		68,720,923		56.3	%
US - DE	BPG Office Partners III/IV LLC	Mezzanine loan	Office		13.0	%	6/5/2015	6/5/2018		10,000,000		10,077,641		10,077,641		8.2	%
US - FL	CGI Mezz 55MM, LLC (3)(4)(7)	Mezzanine loan	Mixed use		12.0% current 2.0% PIK		8/21/2014	9/6/2019		3,504,272		3,531,334		3,533,801		2.9	%
	1100 Biscayne Management Holdco, LLC (3)(7)	Mezzanine loan	Hotel		12.0% current 3.0% PIK		4/24/2015	10/9/2017		14,831,003		14,945,482		14,945,482		12.2	%
	Caton Mezz, LLC (4)	Mezzanine loan	Office		12.0% current 2.0% PIK		7/27/2015	1/27/2017		5,044,997		5,091,100		5,091,100		4.2	%
	Total US - FL									23,380,272		23,567,916		23,570,383		19.3	%
US - GA	OHM Atlanta Member, LLC (3)(4)(7)	Mezzanine loan	Land		14.0% current 4.0% PIK		5/2/2014	5/2/2016		5,736,124		5,787,850		5,787,849		4.7	%
US - NJ	Essence 144 Urban Renewal, LLC	First mortgage	Multifamily		12.0	%	1/14/2015	3/14/2017		15,621,355		15,767,703		15,767,703		12.9	%
US - NY	WWML96MEZZ, LLC	Mezzanine loan	Multifamily		13.0	%	12/18/2015	12/31/2018		2,172,262		2,188,507		2,188,507		1.8	%
	WWML96, LLC	Preferred equity investment	Multifamily		13.0	%	12/18/2015	12/31/2018		1,150,000		1,158,600		1,158,600		0.9	%
	Total US - NY									3,322,262		3,347,107		3,347,107		2.7	%
US - TN	315 JV, LLC (6)	Mezzanine loan	Office		12.0% current 3.0% PIK		11/15/2013	5/28/2017		6,610,977		6,686,233		6,706,868		5.5	%
	Total investments — non-controlled:									132,213,990		133,407,773		133,978,474		109.6	%
	Investments through participation interests — non-controlled (8):
US - NY	QPT 24th Street Mezz LLC	Participation in mezzanine loan	Land		12.0% current 2.0% PIK		12/15/2015	6/15/2017		11,887,053		11,983,757		11,983,757		9.8	%
US - PA	KOP Hotel XXXI Mezz LP	Participation in mezzanine loan	Hotel		13.0	%	11/24/2015	12/6/2022		1,800,000		1,806,127		1,806,127		1.5	%
US - SC	SMR Hospitality II, LLC	Participation in mezzanine loan	Hotel		13.5	%	1/17/2014	2/5/2019		500,000		503,734		548,289		0.5	%
US - TX	Brass Centerview 2012, LLC	Participation in preferred equity investment	Office		15.0% current 1.5% PIK		12/14/2012	6/3/2016		3,036,080		3,065,389		3,065,389		2.5	%
US - Various	Capital Square Realty Advisors, LLC	Participation in facility	Various		13%-14	%	12/17/2013	7/29/2017		4,500,000		4,541,144		4,541,144		3.7	%
	Total investments through participation interest — non-controlled									21,723,133		21,900,151		21,944,706		18.0	%
	Total investments								$	153,937,123	$	155,307,924	$	155,923,180		127.6	%

F-11

Terra Secured Income Fund 5 LLC

Consolidated Schedule of Investments (Continue)

December 31, 2015

(1) Because there is no readily available market for these investments, the fair values of these investments are approved in good faith by the Manager pursuant to the Company’s valuation policy (see Note 6).

(2) Percentages are based on net assets of $122.2 million as of December 31, 2015.

(3) The Company sold a portion of its interests in these investments via participation agreements to Terra Secured Income Fund 5 International, an affiliated fund advised by the Manager (Note 5).

(4) This loan was repaid in full.

(5) The Company sold a portion of its interest in this investment through a participation agreement to Terra Income Fund 6, Inc., an affiliated fund advised by the Manager (Note 5).

(6) Reflects the current maturity date.

(7) The loan participations from the Company do not qualify for sale accounting under ASC 860 and therefore, the gross amount of these loans remain in the Schedule of Investments. See “Obligations under Participation Agreements” in Note 4 and “Transfers of Participation Interest by the Company” in Note 5 in the accompanying notes to the consolidated financing statements.

(8) The Company purchased its interests in these investments from Terra Income Fund 6, Inc. via participation agreements. See “Participation Interests Purchased by the Company” in Note 5 in the accompanying notes to the consolidated financial statements.

See notes to consolidated financial statements.

F-12

Terra Secured Income Fund 5, LLC

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

Note 1. Business

Terra Secured Income Fund 5, LLC (and, together with its consolidated subsidiaries, the “Company”), a Delaware limited liability company, 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 invest substantially all of the net proceeds of membership interests 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 interest rates ranging from 12% to 16% and maturities between one to ten years.

For the year ended December 31, 2015, the Company had wholly-owned subsidiaries, all of which are Delaware limited liability companies, formed for the sole purpose of originating and structuring certain preferred equity investments. These subsidiaries were consolidated into the Company’s consolidated financial statements.

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 (Note 3). Following the Merger, the Company contributed the consolidated portfolio of net assets of the five Terra Funds to Terra Property Trust, a newly-formed and wholly-owned subsidiary of the Company that intends to qualify to be taxed as a real estate investment trust (“REIT”), 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 conducing substantially all of its real estate lending business through, Terra Property Trust. The Company does not consolidate Terra Property Trust as it is not an investment company. The consolidated financial statements of Terra Property Trust as of December 31, 2016 are included elsewhere in this Form 10 to comply with rule 3-09 of Regulation S-X.

Prior to January 1, 2016, the Company’s investment activities were externally managed by Terra Capital Advisors 2, LLC pursuant to an operating agreement. Effective January 1, 2016, the Company entered into an amended and restated operating agreement with Terra Capital Advisors, LLC to manage the day to day activities of the Company (Note 5). On September 1, 2016, Terra Capital Advisors, LLC assigned its rights and obligations under the operating agreement to Terra Income Advisors, LLC, another private investment firm affiliated with the Company. The Company refers to Terra Capital Advisers 2, LLC, Terra Capital Advisors, LLC and Terra Income Advisors, LLC collectively as the 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 by individuals who were contracted by the Company or by the Manager to work on behalf of the Company pursuant to the terms of the operating agreement, as amended.

The Company will continue in existence until December 31, 2023 and expects to be terminated or to consummate an alternative liquidity transaction on or prior to the five-year anniversary of the completion of the Company’s original offering, which was January 31, 2015, unless extended for up to a maximum of two one-year extensions at the discretion of the Manager, in order to facilitate an orderly liquidation or to consummate such alternative liquidity transaction.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and include 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 period presented. All intercompany balances and transactions have been eliminated. 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”) ASC Topic 946, Financial Services - Investment Companies.

F-13

Notes to Consolidated Financial Statements

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 disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of gains (losses), income and expenses during the reporting period. Actual results could significantly differ from those estimates. The most significant estimates inherent in the preparation of the Company’s consolidated financial statements is the valuation of investments.

Equity Investment in Terra Property Trust

Equity investment in Terra Property Trust represents the Company’s equity interest in Terra Property Trust, 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 increase in unrealized appreciation (depreciation) on investments on the consolidated statements of operations. Terra Property Trust periodically pays the Company dividends, which are generally recorded as dividend income on the consolidated statements of operations. Any excess of dividends over its net income are recorded as return of capital.

Investment Transactions

The Company records investment transactions on the trade date. The Company applies a fair value accounting policy to its investments with changes in unrealized gains and losses recognized in the consolidated statements of operations. Realized gains or losses on dispositions of investments represent the difference between the carrying value based on the specific identification method, and the proceeds received from the sale or maturity (exclusive of any prepayment penalties). Realized gains and losses are recognized in the consolidated statements of operations. The amortized cost of investments represents the original cost adjusted for the accretion of discounts on investments and exit fees, and the amortizations of premiums on investments and origination fees.

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 Property Trust is recognized on the record date as declared periodically by Terra Property Trust.

Interest Income: Interest income is accrued based upon the outstanding principal amount and contractual terms of the loans and preferred equity investments that the Company expects to collect and it is accrued and recorded on a daily basis. Discounts and premiums on investments purchased are accreted or amortized over the expected life of the respective investment using the effective yield method, and are included in interest income in the consolidated statements of operations. Loan origination fees and exit fees, net of portions attributable to obligations under participation agreements, are capitalized and amortized or accreted to interest income over the life of the investment using the effective interest method. Income accrual is generally suspended for loans at the earlier of the date at which payments become 90 days past due or when, in the opinion of the Manager, recovery of income and principal becomes doubtful. Interest is then recorded on the basis of cash received until accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed.

The Company holds debt investments in its portfolio that contain paid-in-kind (“PIK”) interest provisions. The PIK interest, which represents contractually deferred interest that is added to the principal balance that is due at maturity, is recorded on the accrual basis.

Other Revenues: Prepayment fee income are recognized as prepayments occur. All other income is recognized when earned.

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.

F-14

Notes to Consolidated Financial Statements

Restricted Cash

Restricted cash represents cash held as additional collateral by the Company on behalf of the borrowers related to the investments in loans or preferred equity instruments for the purpose of such borrowers making interest and property-related operating payments. Restricted cash is not available for general corporate purposes. The related liability is recorded in “Interest reserve and other deposits held on investments” on the consolidated statements of financial condition.

Participation Interests

The Company follows the guidance in ASC 860, Transfers and Servicing, when accounting for loan participations. Such guidance requires participation interests meet certain criteria in order for the interest transaction to be recorded as a sale. Loan participations from the Company which do not qualify for sale treatment remain on the Company’s balance sheets and the proceeds are recorded as obligations under participation agreements. For the investments which participation has been granted, the interest earned on the entire loan balance is recorded within “Interest income” and the interest related to the participation interest is recorded within “Interest expense from obligations under participation agreements” in the accompanying consolidated statements of operations. See “Obligations under Participation Agreements” in Note 4 for additional information.

Fair Value of Financial Instruments

The Company adopted ASC 825-10-25-1 Financial Instruments — Fair Value Option (“ASC 825”) and elected the fair value option for its obligations under participation agreements. The Company believes that by electing the fair value option for these financial instruments, it provides consistent measurement of the assets and liabilities which relate to the partial loan sales mentioned above.

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. However, for the year ended December 31, 2015, the Company was liable for New York City Unincorporated Business Tax (the “NYC UBT”) and various other municipality taxes. 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 year ended December 31, 2016, 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 years ended December 31, 2016 and 2015, the Company did not incur any interest or penalties. Although the Company files federal and state tax returns, its major tax jurisdiction is federal. The Company’s inception-to-date federal tax years remain subject to examination by the Internal Revenue Service.

Recent Accounting Pronouncements

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. In July 2015, the FASB postponed the effective date of this new guidance from January 1, 2017 to January 1, 2018. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company does not expect the adoption of ASU 2014-09 to have a material impact on its consolidated financial statements and disclosure.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. The amendments provide a definition of the term “substantial doubt” and include principles for considering the mitigating effect of management’s plans. The amendments also require an evaluation every reporting period,

F-15

Notes to Consolidated Financial Statements

including interim periods for a period of one year after the date that the financial statements are issued (or available to be issued), and certain disclosures when substantial doubt is alleviated or not alleviated. The amendments in this update are effective for reporting periods ending after December 15, 2016. The Company adopted ASU 2014-15 in 2016. The adoption of ASU 2014-5 did not have a material impact on its consolidated financial statements and disclosures.

In April 2015, the FASB issued ASU 2015-03, Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. ASU 2015-03 is effective for fiscal years that begin after December 15, 2015 and early adoption is permitted. The Company adopted ASU 2015-03 beginning January 1, 2016. The adoption of ASU 2015-03 did not have a material impact on its consolidated financial statements and disclosures.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustment (“ASU 2015-16”). ASU 2015-16 requires that an acquirer recognize adjustments identified during the business combination measurement period in the reporting period in which the adjustment amounts are determined. The effects on earnings due to changes in depreciation, amortization, or other income effects as a result of the change are also recognized in the same period’s financial statements. ASU 2015-16 also requires that acquirers present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings that would have been recorded in previous reporting periods if the adjustment had been recognized as of the acquisition date. ASU 2015-16 is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years, early adoption is permitted, and prospective application is required for adjustments that are identified after the effective date of this update. The Company adopted ASU 2015-16 beginning January 1, 2016. The adoption of ASU 2015-16 did not have a material impact on its 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 annual and interim periods beginning after December 15, 2017, and early adoption is not permitted for public business entities. Management is currently evaluating the impact these changes will have on the Company’s 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; for all other entities, the final lease standard will be effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. 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 the Company’s consolidated financial statements 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. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition method. The Company does not expect the adoption of ASU 2016-15 to have a material impact on its consolidated financial statements and disclosure.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, a Consensus of the FASB’s Emerging Issues Task Force (“ASU 2016-18”). ASU 2016-18 requires that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 does not provide a definition of restricted cash or

F-16

Notes to Consolidated Financial Statements

restricted cash equivalents. ASU 2016-18 is effective for public business entities for annual and interim periods beginning after December 15, 2017. For all other entities, ASU 2016-18 is effective for fiscal years beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period, and should be applied using a retrospective transition method. Management is currently evaluating the impact of this change will have on the Company’s 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. 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. The combined consolidated financial statements of Terra Funds 1 through 4 are included elsewhere in this Form 10.

In the Merger, members of Terra Funds 1 through 4 (other than members the Manager was unable to establish their continuation to qualify as “accredited investors” under the Securities Act and members holding their interests through a qualified Employee Retirement Income Security Act (“ERISA”) plan) exchanged their units in their respective fund for Continuing Income Units (regular units in the Company) or 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 number of Continuing Income Units and Termination Units was allocated to each of the merging Terra Funds by dividing the exchange value for such fund by the exchange value per unit of the Company, which was $43,410, on December 31, 2015. The exchange value for each of the Terra Funds was determined based on a valuation of each of the Terra Funds’ assets and liabilities as of December 31, 2015. This exchange resulted in a taxable gain for the Terra Funds’ existing members to the extent that the value of each asset exceeds its respective tax basis, of which the full amount would generally be treated as ordinary income.

The following table presents the exchange ratio and the merger consideration for Terra Funds 1 through 4 as of December 31, 2015:

Fund	Exchange Ratio		Original Units Exchanged		Continuing Income Units		Termination Units
Terra Fund 1		0.732		606.9		283.3		161.2
Terra Fund 2		0.950		680.2		518.1		128.4
Terra Fund 3		1.041		768.0		678.7		120.5
Terra Fund 4		1.011		1,760.2		1,726.6		53.5
Total				3,815.3		3,206.7		463.6

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. Total of these fees incurred amounted to approximately $0.4 million and $5.8 million for the years ended December 31, 2016 and 2015, respectively.

The Company accounted for the Merger as a business combination under the acquisition method of accounting. After consideration of all applicable factors pursuant to the business combination accounting rules, the Company was considered the “accounting acquirer” due to various factors, including the fact that its unit members held the largest portion of the voting rights in us upon completion of the Merger.

F-17

Notes to Consolidated Financial Statements

The following table presents a summary of the assets acquired and liabilities assumed by the Company in the Merger:

Total Consideration
Fair value of units issued	$	155,751,516
	$	155,751,516
Assets Acquired
Investments, at fair value	$	142,768,001
Investments through participation interest, at fair value		7,771,619
Equity investment in Terra Park Green Member, LLC, at fair value		16,900,000
Cash and cash equivalents		3,480,981
Restricted cash		7,119,078
Interest receivable		1,412,840
Other assets		35,695
Liabilities Assumed
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	)
	$	155,751,516

Immediately after the Merger, the Company contributed the consolidated portfolio of net assets of the five Terra Funds to Terra Property Trust, a wholly-owned subsidiary of the Company that intends to qualify to be taxed as a REIT, in exchange for 14,412,990 shares of common stock of Terra Property Trust. The following table presents a summary of 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	$	276,856,359
Investments through participation interests, at fair value		13,680,000
Equity investment in Terra Park Green Member, LLC, at fair value		16,900,000
Cash and cash equivalents		5,034,571
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 loan		(21,421,501	)
Due to Manager		(2,011,003	)
Other liabilities		(909,516	)
Net assets transferred	$	288,259,804

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 Continuing Income Units at a price of $47,000 per unit (the “Rights Offering”), which reflects the reduced front-end load relative to the existing unitholders’ initial investment of $50,000 per unit. Since commencing the Rights Offering and through December 31, 2016, the Company has sold 573.5 Continuing Income Units for gross proceeds of approximately $26.9 million.

F-18

Notes to Consolidated Financial Statements

Note 4. Investments at Fair Value

Equity Investment in Terra Property Trust

The Company invests substantially all of its equity capital in the purchase of common shares of Terra Property Trust and its primary investment position is the common shares of Terra Property Trust.

The following table presents a summary of the Company’s investment at December 31, 2016:

Investment	Ownership Interest			Number of Common Shares		Cost		Fair Value		% of Net Assets
Terra Property Trust, Inc.		100	%		14,912,990	$	291,468,567	$	290,419,317		100.3	%

For the year ended December 31 2016, the Company received approximately $38.5 million of dividends from Terra Property Trust, of which $6.8 million was a return of capital.

The following table presents the activities of the Company’s investment portfolio for the year ended December 31, 2016:

Balance, January 1, 2016	$	—
Shares of Terra Property Trust common stock received in exchanged for the Company’s consolidated portfolio of assets		288,259,804
Shares of Terra Property Trust common stock purchased		10,000,000
Return of capital		(6,791,237	)
Net change in unrealized depreciation on investments		(1,049,250	)
Balance, December 31, 2016	$	290,419,317

The following tables present the summarized financial information of Terra Property Trust:

	December 31, 2016
Carrying value of investments	$	330,683,840
Other assets		53,966,401
Total assets		384,650,241
Mortgage loan and obligations under participation agreements		(66,855,038	)
Accounts payable, accrued expenses and other liabilities		(26,203,277	)
Total liabilities		(93,058,315	)
Stockholder’s equity	$	291,591,926

	Year Ended December 31, 2016
Revenues	$	48,658,934
Expenses		(18,889,177	)
Gain on sale of real estate		1,896,652
Net income	$	31,666,409

F-19

Notes to Consolidated Financial Statements

Loans and Preferred Equity Investments

As of December 31, 2015, the Company’s investment portfolio comprised of loans and preferred equity investments. The following table provides a summary of the Company’s investment portfolio as of December 31, 2015:

	December 31, 2015
Number of investments		19
Principal balance	$	153,937,123
Amortized cost	$	155,307,924
Fair value	$	155,923,180
Weighted-average interest rate		13.5	%
Weighted-average remaining terms (year) (1)		1.64

(1) Reflects the current maturity dates.

Investment Activities

The following table presents the activities of the Company’s investment portfolio for the year ended December 31, 2015:

	Loans and Preferred Equity Investments			Loans Through Participation Interests		Total
Balance, January 1, 2015	$	112,270,608		$	2,523,451	$	114,794,059
New investments		72,443,617			19,180,000		91,623,617
Principal repayments		(52,766,226	)		—		(52,766,226	)
PIK interest (1)		1,301,734			48,294		1,350,028
Accretion of exit fees, net		221,135			157,286		378,421
Net change in unrealized appreciation on investments (2)		507,606			35,675		543,281
Balance, December 31, 2015	$	133,978,474		$	21,944,706	$	155,923,180

(1) Certain investments in the Company’s portfolio contains PIK interest provisions. The PIK interest represents contractually deferred interest that is added to the principal balance. PIK interest related to obligations under participation agreements amounted to $225,398 for the year ended December 31, 2015.

(2) Net change in unrealized appreciation on obligations under participation agreements was $287,213 for the year ended December 31, 2015.

Portfolio Information

The tables below detail the types of investments in the Company’s investment portfolio, as well as the property type and geographic location of the properties securing these investments:

	December 31, 2015
Investment Structure	Principal		Amortized Cost		Fair Value		% of Total			% of Net Assets
Mezzanine loans	$	65,045,714	$	65,587,846	$	65,655,502		42.1	%		53.7	%
First mortgages		44,901,355		45,326,702		45,326,702		29.1	%		37.1	%
Preferred equity investments		42,449,080		42,838,313		43,385,913		27.8	%		35.5	%
Other (1)		1,540,974		1,555,063		1,555,063		1.0	%		1.3	%
Total	$	153,937,123	$	155,307,924	$	155,923,180		100.0	%		127.6	%

(1) Other represents the unfunded cash from a credit facility.

F-20

Notes to Consolidated Financial Statements

	December 31, 2015
Property Type	Principal		Amortized Cost		Fair Value		% of Total			% of Net Assets
Land	$	46,903,177	$	47,330,606	$	47,330,605		30.4	%		38.7	%
Hotel		43,131,003		43,487,169		44,079,324		28.3	%		36.1	%
Office		37,112,531		37,461,778		37,482,413		24.0	%		30.7	%
Multifamily		18,943,617		19,114,810		19,114,810		12.2	%		15.6	%
Mixed use		3,504,272		3,531,334		3,533,801		2.3	%		2.9	%
Retail		2,801,549		2,827,164		2,827,164		1.8	%		2.3	%
Other (1)		1,540,974		1,555,063		1,555,063		1.0	%		1.3	%
Total	$	153,937,123	$	155,307,924	$	155,923,180		100.0	%		127.6	%

_______________

(1) Other represents the unfunded cash from a credit facility.

	December 31, 2015
Geographic Location	Principal		Amortized Cost		Fair Value		% of Total			% of Net Assets
United States
California	$	67,543,000	$	68,173,323	$	68,720,923		44.1	%		56.2	%
Florida		23,380,272		23,567,916		23,570,383		15.1	%		19.3	%
New Jersey		15,621,355		15,767,703		15,767,703		10.1	%		12.9	%
New York		15,209,315		15,330,864		15,330,864		9.8	%		12.5	%
Delaware		10,000,000		10,077,641		10,077,641		6.5	%		8.2	%
Tennessee		6,610,977		6,686,233		6,706,868		4.3	%		5.5	%
Georgia		5,736,124		5,787,850		5,787,849		3.7	%		4.7	%
Texas		3,193,557		3,224,306		3,224,306		2.1	%		2.6	%
Pennsylvania		1,800,000		1,806,127		1,806,127		1.2	%		1.5	%
Ohio		1,756,295		1,772,353		1,772,353		1.1	%		1.6	%
Other (1)		3,086,228		3,113,608		3,158,163		2.0	%		2.6	%
Total	$	153,937,123	$	155,307,924	$	155,923,180		100.0	%		127.6	%

(1) Other includes $0.7 million of properties in North Carolina, $0.5 million of properties in South Carolina, $0.3 million of properties in Virginia and $1.5 million of unfunded cash from a credit facility.

Obligations Under Participation Agreements

As discussed in Note 2, the Company follows the guidance in ASC 860, when accounting for loan participations. Such guidance requires participation interests meet certain criteria in order for the interest transaction to be recorded as a sale. Loan participations from the Company which do not qualify for sale treatment remain on the Company’s balance sheets and the proceeds are recorded as obligations under participation agreements. As of December 31, 2015, the Company elected the fair value option under ASC 825, Financial Instruments relating to accounting for debt obligations at their fair value for its obligations under participation agreements which arose due to partial loan sales which did not meet the criteria for sale treatment under ASC 860. As of December 31, 2015, obligations under participation agreements had a fair value of approximately $31.9 million and the fair value of the loans that are associated with these obligations under participation agreements was approximately $93.0 million (see “Participation Agreements” in Note 5). The weighted average interest rate on the obligations under participation agreements was approximately 13.3% as of December 31, 2015.

F-21

Notes to Consolidated Financial Statements

Note 5. Related Party Transactions

Rights Offering

In connection with the Merger (Note 3), the Company offered existing members of the Terra Funds the opportunity to invest in the Company through purchase of additional Continuing Income Units. Terra Capital Markets serves as the dealer manager for the sale of the Company’s Continuing Income Units and receives 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 year ended December 31, 2016 and have been deducted from capital contributions received as selling commissions and dealer manager fees.

Consent Solicitation

As discussed in Note 3, Terra Capital Markets 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. Total of these fees amounted to approximately $5.8 million for the year ended December 31, 2015, of which $3.7 million was paid to Terra Capital Markets, $0.8 million was reimbursed to the Manager and $1.3 million was paid by the Terra Funds directly. The Company’s portion of the allocated merger transaction fees for the year ended December 31, 2015 was $2.5 million, as reflected on the consolidated statements of operations. For the year ended December 31, 2016, the Company recorded and paid another $0.4 million of merger transaction costs.

Operating Agreement

The Company entered into an operating agreement, as amended, with the Manager whereby the Manager is responsible for the Company’s day-to-day operations. The operating agreement, as amended is scheduled to terminate on December 31, 2023 unless the Company is dissolved earlier. The following table presents a summary of fees paid and costs reimbursed to the Manager in connection with providing services as the Manager to the Company that are included on the consolidated statements of operations for the year ended December 31, 2015. 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 such fees paid and costs reimbursed to the Manager.

	Year Ended December 31, 2015
Origination fee expense (1)	$	999,523
Asset management fee		1,216,785
Asset servicing fee		282,421
Operating expenses reimbursed to the Manager		1,400,466
Disposition fee (2)		364,550
Total	$	4,263,745

(1) Origination fee expense is generally offset with origination 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 and amortized to interest income over the term of the investment.

Origination Fee Expense

Pursuant to the operating agreement, the Manager or its affiliates receives an origination fee in the amount of 1% of the amount used to originate, fund, acquire or structure real estate-related loans, including any third-party expenses related to such investments. In the event that the term of any real estate-related loan held by the Company is extended, the Manager or its affiliates also receives an origination fee equal to the lesser of (i) 1% of the principal account of the loan being extended or (ii) the amount of fee paid to the Company by the borrower in connection with such extension.

F-22

Notes to Consolidated Financial Statements

Asset Management Fee

Under the terms of the operating agreement, the Manager or its affiliates provides the Company with certain investment management services in return for a management fee. The Company pays a monthly asset management fee at an annual rate of 1% of the aggregate funds under management, which includes the loan origination price or aggregate gross acquisition price, as defined in the operating agreement, for each real estate related investment and cash held by the Company.

Asset Servicing Fee

The Manager or its affiliates receives from the Company a monthly servicing fee at an annual rate of up to 0.25% of the aggregate gross origination price or acquisition price, as defined in the operating agreement, for each real estate-related loan held by the Company.

Operating Expenses

The Company reimburses the Manager for operating expenses incurred in connection with services provided to the operations of the Company, including the Company’s allocable share of the Manager’s overhead, such as rent, employee costs, utilities, and technology costs.

Disposition Fee

Pursuant to the operating agreement, the Manager or its affiliates receives a disposition fee in the amount of 1% of the gross sale price received by the Company from the disposition of any real estate-related investment, or any portion of, or interest in, any real estate-related investment. The disposition fee is paid concurrently with the closing of any such disposition of all or any portion of any real estate-related investment or any interest therein, which is the lesser of (i) 1% of the principal amount of the loan or debt-related investment prior to such transaction or (ii) the amount of the fee paid by the borrower in connection with such transaction. If the Company takes ownership of a property as a result of a workout or foreclosure of a loan, the Company will pay a disposition fee upon the sale of such property equal to 1% of the sales price.

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 consolidated portfolio of net assets of the five Terra Funds to Terra Property Trust on January 1, 2016.

Due to Manager

As of December 31, 2015, approximately $1.4 million was due to the Manager, as reflected on the consolidated statements of financial condition, primarily related to the present value of the disposition fee due to the Manager and merger transaction fees due to the Manager.

Dividend Income

As discussed in Note 4, for the year ended December 31, 2016, the Company recorded approximately $38.5 million of dividends received from Terra Property Trust, of which $6.8 million was a return of capital.

Participation Agreements

In the normal course of business, the Company may enter into participation agreements (“PAs”) with related parties, primarily other affiliated funds managed by the Terra Capital Partners or its affiliates (the “Participants”). The purpose of the PAs is to allow the Company and an affiliate to originate a specified investment when, individually, the Company does not have the liquidity to do so or to achieve a certain level of portfolio diversification. The Company may transfer portions of its investments to other Participants or it may be a Participant to an investment held by another entity. In addition, the Company sells participation interests to an affiliate not less than 90 days after the origination of an investment to allow for greater diversification within the Company’s portfolio as well as sharing investment economics with the affiliate.

ASC 860, Transfers and Servicing, establishes accounting and reporting standards for transfers of financial assets. ASC 860-10 provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings.

F-23

Notes to Consolidated Financial Statements

The Company has determined that the participation agreements it enters into are accounted for as secured borrowings under ASC 860 (See “Participation Interests” in Note 2 and “Obligations under Participation Agreements” in Note 4).

Participation Interests Purchased by the Company

The below table lists the investment interests participated in by the Company via PAs as of December 31, 2015. In accordance with the terms of each PA, each Participant’s rights and obligations, as well as the proceeds received from the related borrower/issuer of the investment, are based upon their respective pro rata participation interest in the investment.

	Participating Interests			Principal Balance		Fair Value
QPT 24th Street Mezz LLC (1)		79.20	%	$	11,887,053	$	11,983,757
KOP Hotel XXXI Mezz LP (1)		31.03	%		1,800,000		1,806,127
SMR Hospitality II, LLC (2)		16.67	%		500,000		548,289
Brass Centerview 2012, LLC (3)		19.38	%		3,036,080		3,065,389
Capital Square Realty Advisors, LLC (4)		42.86	%		4,500,000		4,541,144
				$	21,723,133	$	21,944,706

(1) Participation through Terra Income Fund 6, Inc., an affiliated fund advised by the Manager.

(2) Participation through Terra Fund 1.

(3) Participation through Terra Fund 3.

(4) Participation through Terra Fund 2.

Transfers of Participation Interest by the Company

The following table summarizes the investments that were subject to PAs with affiliated entities as of December 31, 2015:

					Transfers Treated as Obligations Under Participation Agreements
	Principal		Fair Value		% Transferred			Principal (4)		Fair Value (4)
L.A. Warner Hotel Partners, LLC (1)(2)	$	20,000,000	$	20,724,319		56.25	%	$	11,250,000	$	11,657,429
TSG-Parcel 1, LLC (1)(3)		18,000,000		18,168,860		37.78	%		6,800,000		6,863,791
1100 Biscayne Management Holdco, LLC (1)		14,831,003		14,945,482		17.81	%		2,641,202		2,661,587
Maguire Partners-1733 Ocean, LLC (1)		12,263,000		12,382,498		30.00	%		3,678,900		3,714,749
Steadfast Crestavilla Senior, LLC (1)		11,280,000		11,390,139		30.00	%		3,384,000		3,417,042
SD Carmel Hotel Partners, LLC (1)		6,000,000		6,055,107		13.33	%		800,000		807,348
OHM Atlanta Member, LLC (1)		5,736,124		5,787,849		30.00	%		1,721,111		1,736,630
CGI Mezz 55MM, LLC (1)		3,504,272		3,533,801		30.00	%		1,051,286		1,060,140
								$	31,326,499	$	31,918,716

(1) Participant is Terra Secured Income Fund 5 International, an affiliated fund advised by the Manager.

(2) Participant is Terra Fund 2.

(3) Participant is Terra Income Fund 6, Inc.

(4) Amounts transferred may not agree to the proportionate share of the principal balance and fair value due to the rounding of percentage transferred.

These investments are held in the name of the Company, but each of the Participant’s rights and obligations, including interest income and other income (e.g., exit fee, prepayment income) and related fees/expenses (e.g., disposition fees, asset management and asset servicing fees), are based upon their respective pro rata participation interest in such participated investments, as specified in the respective PA. The Participants’ share of the investments is repayable only from the proceeds received from the related borrower/issuer of the investments and, therefore, the Participants also are subject to credit risk (i.e., risk of default by the

F-24

Notes to Consolidated Financial Statements

underlying borrower/issuer). Pursuant to the PAs with these entities, the Company receives and allocates the interest income and other related investment income to the Participants based on their respective pro rata participation interest. The Participants pay related expenses also based on their respective pro rata participation interest (i.e., asset management and asset servicing fees, disposition fees) directly to the Manager.

Note 6. Fair Value Measurements

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

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

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

Level 3 — Significant unobservable inputs are based on the best information available in the circumstances, to the extent observable inputs are not available, including the Company’s own assumptions used in determining the fair value of investments. Fair value for these investments are determined using valuation methodologies that consider a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance, and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant management judgment.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

Assets and Liabilities Reported at Fair Value

The following table summarizes the Company’s assets and liabilities carried at fair value on a recurring basis as of December 31, 2016 and 2015:

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

F-25

Notes to Consolidated Financial Statements

	December 31, 2015
	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Investments:
Loans and preferred equity investments	$	—	$	—	$	133,978,474	$	133,978,474
Investments through participation interests		—		—		21,944,706		21,944,706
Total investments	$	—	$	—	$	155,923,180	$	155,923,180
Liabilities:
Obligations under Participation Agreements	$	—	$	—	$	31,918,716	$	31,918,716

Changes in Level 3 investments for the years ended December 31, 2016 and 2015 were as follows:

	Equity Investment in Terra Property Trust
Balance, January 1, 2016	$	—
Shares of Terra Property Trust common stock received in exchanged for the Company’s consolidated portfolio of assets		288,259,804
Shares of Terra Property Trust common stock purchased		10,000,000
Return of capital		(6,791,237	)
Net change in unrealized depreciation on investments		(1,049,250	)
Balance, December 31, 2016	$	290,419,317
Net change in unrealized depreciation on investments for the period relating to those Level 3 assets that were still held by the Company at the end of the year	$	(1,049,250	)

	Loans and Preferred Equity Investments			Investments through Participation Interests		Total Investments			Obligations under Participation Agreements
Balance, January 1, 2015	$	112,270,608		$	2,523,451	$	114,794,059		$	21,535,672
Investments made and purchases		72,443,617			19,180,000		91,623,617			21,087,182
Repayments of investments		(52,766,226	)		—		(52,766,226	)		(11,326,707	)
PIK interest		1,301,734			48,294		1,350,028			225,398
Net change in unrealized appreciation on investments and obligations under participation agreements		507,606			35,675		543,281			287,213
Accretion of exit fees, net		221,135			157,286		378,421			109,958
Balance, December 31, 2015	$	133,978,474		$	21,944,706	$	155,923,180		$	31,918,716
Net change in unrealized appreciation on investments and obligations under participation agreements for the period relating to those Level 3 assets that were still held by the Company at the end of the year	$	507,606		$	35,675	$	543,281		$	287,213

Investments made and purchases represent the acquisition of new investments at cost. Repayments of investments represent principal payments received during the year.

Transfers between levels, if any, are recognized at the beginning of the period in which transfers occur. For the years ended December 31, 2016 and 2015, there were no transfers.

The Company estimated that its other financial assets and liabilities had fair values that approximated their carrying values at December 31, 2016 and 2015 due to their short-term nature.

F-26

Notes to Consolidated Financial Statements

Valuation Process for Fair Value Measurement

Market quotations are not readily available for the Company’s real estate-related investments, all of which are included in Level 3 of the fair value hierarchy, and therefore these investments are valued utilizing a yield approach, i.e. a discounted cash flow methodology to arrive at an estimate of the fair value of each respective investment in the portfolio using an estimated market yield. In following this methodology, investments are evaluated individually, and management takes into account, in determining the risk-adjusted discount rate for each of the Company’s investments, relevant factors, 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, the portfolio company’s ability to make payments, its net operating income, debt-service coverage ratio (“DSCR”), 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.

The Manager designates a valuation committee to oversee the entire valuation process of the Company’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 Company investments being valued as well as the inputs used in the proprietary valuation model. Valuations determined by the valuation committee are supported by pertinent data and, in addition to a proprietary valuation model, are based on market data, industry accepted third-party valuation models and discount rates or other methods the valuation committee deems to be appropriate.

The following tables summarize the valuation techniques and significant unobservable inputs used by the Company to value the Level 3 investments as of December 31, 2016 and 2015. The tables are not intended to be all-inclusive, but instead identify the significant unobservable inputs relevant to the determination of fair values.

					Year Ended December 31, 2016
Asset Category	Fair Value		Primary Valuation Technique	Unobservable Inputs	Minimum			Maximum			Weighted Average
Assets:
Loans and preferred equity investments	$	290,419,317	Discounted cash flow	Discount rate		9.09	%		15.96	%		12.19	%
					Year Ended December 31, 2015
Asset Category	Fair Value		Primary Valuation Technique	Unobservable Inputs	Minimum			Maximum			Weighted Average
Assets:
Loans and preferred equity investments	$	133,978,474	Discounted cash flow	Discount rate		10.90	%		17.75	%		13.04	%
Investments through participation interests		21,944,706	Discounted cash flow	Discount rate		10.15	%		14.00	%		13.65	%
Total Level 3 Assets	$	155,923,180
Liabilities:
Obligations under Participation Agreements	$	31,918,716	Discounted cash flow	Discount rate		10.90	%		17.75	%		12.51	%

Note 7. 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 investments 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 investments, valuation of the investments may be difficult, as there generally will be no established markets for these investments. As the Company’s investments were carried at fair 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 the Company would incur if the borrowers failed to perform pursuant to the terms of their obligations to the Company. Thus, the value of the underlying collateral, the creditworthiness of the borrower or other

F-27

Notes to Consolidated Financial Statements

counterparty, and the priority of the Fund’s lien on the borrower’s assets are of importance. The Company minimizes its exposure to credit risk by limiting exposure to any one individual borrower and any one asset class. Additionally, the Company 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 ratio, DSCR and the debt yield. The Company 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, the Company 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

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

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 the fair value of the Company’s interest-bearing financial instruments.

Prepayment Risk

Prepayments can either positively or adversely affect the yields on investments. 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 the Company’s control, and consequently, such prepayment rates cannot be predicted with certainty. If the Company does not collect a prepayment fee in connection with a prepayment or is unable to invest the proceeds of such prepayments received, the yield on the portfolio will decline. In addition, the Company 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 the Company may fail to recoup fully its cost of acquisition of certain investments.

Use of Leverage

As part of the Company’s investment strategy, the Company may borrow and utilize leverage. While borrowing and leverage present opportunities for increasing total return, they may have the effect of potentially creating or increasing losses.

Property Acquisitions

The Company 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 acquisition of the collateral and add cost to such actions.

There can be no assurance that the Company will be able to successfully operate, hold or maintain the collateral in accordance with the Company’s expectations.

Further, there can be 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 sale of the real estate may be less than the amount invested in the loan, and its fair value and such differences could be material.

F-28

Notes to Consolidated Financial Statements

Note 8. Commitments and Contingencies

Certain of the Company’s investments contain provisions for future fundings. These fundings amounted to approximately $18.8 million as of December 31, 2015. On January 1, 2016, these commitments were transferred to Terra Property Trust in connection with the asset contribution to Terra Property Trust.

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.

See Note 5 for a discussion of the Company’s commitments to the Manager and its affiliates.

Note 9. Members’ Capital

Capital Contributions

As of January 31, 2015, the offering period ended and the Company stopped accepting capital contributions. From January 1, 2015 through January 31, 2015, the Company sold 231.1 units and received total capital contributions of approximately $10.4 million, net of selling commissions and dealer manager fees.

As discussed in Note 3, in connection with the Merger, original membership units of Terra Funds 1 through 4 were exchanged for 3,206.7 Continuing Income Units and 463.6 Termination Units of the Company. The Company also offered existing members of the Terra Funds the opportunity to invest in the Company through the Rights Offering (Note 3). From January 1, 2016 through the end of the Rights Offering period in April 2016, the Company sold 573.5 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 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 and 85% to the holders of Continuing Income Units. The preferred return applicable to the Continuing Income Units sold in the Rights Offering is 8.5%. For the years ended December 31, 2016 and 2015, there was no carried interest.

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.

For the years ended December 31, 2016 and 2015, the Company made total capital distribution to non-manager members of $30.6 million and $12.2 million, respectively.

F-29

Notes to Consolidated Financial Statements

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 year ended December 31, 2016, 161.2 Termination Units of Terra Fund 1 and 128.4 Termination Units of Terra Fund 2 were redeemed for approximately $12.4 million. These Termination Units were redeemed at book value as defined in the amended and restated operating agreement. Additionally, the Company paid $3.4 million to members the Manager was unable to establish their continuation to qualify as “accredited investors” under the Securities Act 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 December 31, 2016:

Fund	Number of Units		Scheduled Redemption Date
Terra Fund 3		120.5	September 2017
Terra Fund 4 (1)		50.4	July 2018

(1) For the year ended December 31, 2016, 3.0 units of the Terra Fund 4 Termination Units were redeemed.

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 December 31, 2016 and 2015, no such reserve was established.

Allocation of Income (Loss)

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

Member Units

Each membership interest through the original offering was offered for a price of $50,000 per unit. As discussed in Note 3, 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 years ended December 31, 2016 and 2015:

	Managing Member		Non-Managing Members			Total
Units outstanding, January 1, 2015		—		2,647.8			2,647.8
Units admitted		—		231.1			231.1
Units outstanding, December 31, 2015		—		2,878.9			2,878.9
Units issued in the Merger		—		3,670.3			3,670.3
Units admitted through the Rights Offering		—		573.5			573.5
Termination Units redeemed		—		(292.7	)		(292.7	)
Units redeemed		—		(3.4	)		(3.4	)
Units outstanding, December 31, 2016		—		6,826.6			6,826.6

Note 10. 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 years ended December 31, 2016 and 2015. 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.

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.

F-30

Notes to Consolidated Financial Statements

The following summarizes the Company’s financial highlights for the years ended December 31, 2016 and 2015:

	Years Ended December 31,
	2016			2015
Per unit operating performance:
Net asset value per unit, beginning of year	$	42,451		$	42,708
Increase in members’ capital from operations (1):
Net investment income		4,344			3,797
Net change in unrealized (depreciation) appreciation on investments		(151	)		190
Net change in unrealized appreciation on obligations under participation agreements		—			(100	)
Realized gain on investment		—			1
Total increase in members’ capital from operations		4,193			3,888
Distributions to member (2):
Capital distributions		(4,418	)		(4,250	)
Net decrease in members’ capital resulting from distributions		(4,418	)		(4,250	)
Capital share transactions:
Other (3)		197			105
Net decrease in members’ capital resulting from capital share transactions		197			105
Net asset value per unit, end of year	$	42,423			42,451
Ratios to average net assets:
Expenses		0.54	%		5.12	%
Net investment income		10.32	%		8.95	%
IRR, beginning of year		0.34	%		(9.20	)%
IRR, end of year		5.43	%		0.34	%

(1) The per unit data was derived by using the weighted average units outstanding during the applicable periods, which were 6,931 units and 2,863 units for the years ended December 31, 2016 and 2015, 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.

Note 11. Subsequent Events

Management has evaluated subsequent events through April 28, 2017, 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.

F-31

Report of Independence Registered Public Accounting Firm

The Board of Directors

Terra Property Trust, Inc.:

We have audited the accompanying consolidated balance sheet of Terra Property Trust, Inc. (the “Company”) as of December 31, 2016, and the related consolidated statements of operations, changes in equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States) and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Terra Property Trust, Inc. as of December 31, 2016, and the results of their operations and their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

(signed) KPMG LLP

New York, New York

April 28, 2017

F-32

Terra Property Trust, Inc.

Consolidated Balance Sheet

	December 31, 2016
Assets
Loans held for investment, net	$	316,174,017
Loans held for investment acquired through participation, net (Note 6)		14,509,823
Cash and cash equivalents		26,145,449
Restricted cash		22,274,709
Cash held in escrow by lender		2,001,499
Interest receivable		2,872,601
Due from related party		438,249
Other assets		233,894
Total assets	$	384,650,241
Liabilities and Equity
Liabilities:
Mortgage loan payable, net of deferred financing costs	$	33,868,844
Obligations under participation agreements (Note 6)		32,986,194
Interest reserve and other deposits held on investments		22,274,709
Due to Manager		2,455,820
Accounts payable and accrued expenses		592,111
Interest payable		382,661
Other liabilities		497,976
Total liabilities		93,058,315
Commitments and contingencies (Note 9)
Equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized and none issued		—
12.5% Series A Cumulative Non-Voting Preferred Stock at liquidation preference, 125 shares authorized and 125 shares issued and outstanding at December 31, 2016		125,000
Common stock, $0.01 par value, 450,000,000 shares authorized and 14,912,990 shares issued and outstanding at December 31, 2016		149,130
Additional paid-in capital		298,109,424
Distributions in excess of accumulated earnings		(6,791,628	)
Total equity		291,591,926
Total liabilities and equity	$	384,650,241

See notes to consolidated financial statements.

F-33

Terra Property Trust, Inc.

Consolidated Statement of Operations

	Year Ended December 31, 2016
Revenues
Interest income	$	38,749,785
Real estate operating revenues		5,684,466
Prepayment fee income		3,970,278
Other operating income		254,405
		48,658,934
Operating expenses
Operating expenses reimbursed to Manager		3,348,629
Asset management fee		3,316,435
Real estate operating expenses		2,495,288
Third-party incentive fee		1,209,471
Professional fees		1,002,916
Asset servicing fee		798,133
Disposition fee expense		385,000
Provision for loan losses		191,703
Other		58,860
		12,806,435
Operating Income		35,852,499
Other income and expenses
Interest expense from obligations under participation agreements		(3,278,676	)
Interest expense on mortgage loan payable		(2,944,441	)
Gain on sale of real estate properties		1,896,652
Realized gain on investments		140,375
		(4,186,090	)
Net income	$	31,666,409
Preferred stock dividend declared		(391	)
Net income allocable to common stock	$	31,666,018
Earnings per share - basic and diluted	$	2.14
Weighted-average shares - basic and diluted		14,822,826
Distributions declared per common share	$	2.58

See notes to consolidated financial statements.

F-34

Terra Property Trust, Inc.

Consolidated Statement of Changes in Equity

Year Ended December 31, 2016

			12.5% Series A Cumulative Non-Voting				Common Stock				Additional			Distributions in Excess of
	Preferred		Preferred Stock				$0.01 Par Value				Paid-in			Accumulated
	Stock		Shares		Amount		Shares		Amount		Capital			Earnings			Total equity
Balance at January 1, 2016	$	—		—	$	—		—	$	—	$	—		$	—		$	—
Conversion of member units to common stock (Note 10)								14,412,990	$	144,130	$	288,115,674			—		$	288,259,804
Issuance of common stock								500,000		5,000		9,995,000			—			10,000,000
Issuance of preferred stock, net of offering costs				125	$	125,000						(1,250	)					123,750
Net income														$	31,666,409			31,666,409
Distributions declared on common shares ($2.58 per share) (1)															(38,457,646	)		(38,457,646	)
Distributions declared on preferred shares															(391	)		(391	)
Balance at December 31, 2016	$	—		125	$	125,000		14,912,990	$	149,130	$	298,109,424		$	(6,791,628	)	$	291,591,926

(1) For the year ended December 31, 2016, the Company made $12.3 million of distributions to Terra Secured Income Fund 5, LLC (“Terra Fund 5”) to pay for the redemption of Terra Secured Income Fund, LLC (“Terra Fund 1”) and Terra Secured Income Fund 2, LLC (“Terra Fund 2”) termination units. The remaining $26.2 million distribution represents the recurring distributions made from operating cash flow.

See notes to consolidated financial statements.

F-35

Terra Property Trust, Inc.

Consolidated Statement of Cash Flows

	Year Ended December 31, 2016
Cash flows from operating activities:
Net income	$	31,666,409
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of premiums on investments, net		2,257,022
Gain on sale of real estate properties		(1,896,652	)
Paid-in-kind interest income, net		(1,293,985	)
Accretion of exit fees, net		50,308
Amortization of deferred financing costs		218,017
Allowance for loan losses		191,703
Amortization of rent-related intangibles		(47,597	)
Realized gain on investments		(140,375	)
Changes in operating assets and liabilities:
Interest receivable		(490,055	)
Other assets		(313,868	)
Due to Manager		12,008
Accounts payable and accrued expenses		244,140
Interest payable		382,661
Other liabilities		(1,026,849	)
Net cash provided by operating activities		29,812,887
Cash flows from investing activities:
Investments made and purchases of other investments		(129,223,989	)
Proceeds from repayments of investments		88,567,393
Proceeds from sale of real estate properties		38,090,350
Capital expenditures on real estate properties		(616,636	)
Cash transferred in upon consolidation of Terra Park Green Members, LLC		355,204
Net cash used in investing activities		(2,827,678	)
Cash flows from financing activities:
Distributions paid		(38,458,037	)
Proceeds from mortgage debt financing		34,000,000
Repayment of mortgage principal		(20,000,000	)
Proceeds from obligations under participation agreements		17,527,043
Proceeds from issuance of common stock		10,000,000
Repayments on obligations under participation agreements		(8,810,696	)
Cash contributed by Terra Secured Income Fund 5, LLC		5,034,571
Payment of financing cost		(340,000	)
Proceeds from issuance of preferred stock		123,750
Net change in cash held in escrow by lender		83,609
Net cash used in financing activities		(839,760	)
Net increase in cash and cash equivalents		26,145,449
Cash and cash equivalents at beginning of year		—
Cash and cash equivalents at end of year	$	26,145,449

F-36

Supplemental Disclosure of Cash Flows Information:

	Year Ended December 31, 2016
Cash paid for interest	$	5,621,214
Cash paid for income taxes	$	—

Supplemental Non-Cash Investing and Financing Activities:

On January 1, 2016, Terra Fund 5, the Company’s parent company, contributed its consolidated portfolio of net assets to the Company pursuant to a contribution agreement in exchange for shares of the Company’s common stock (Note 1, Note 10). The following table summarized the fair value of assets acquired and liabilities assumed in the transaction:

Total Consideration:
Fair value of common stock of issued	$	288,259,804
		288,259,804
Assets Acquired at Fair Value
Investments, at fair value		276,856,359
Investments through participation interests, at fair value		13,680,000
Equity investment in Terra Park Green Members, LLC, at fair value		16,900,000
Restricted cash		21,421,501
Interest receivable		2,382,546
Due from related party		438,249
Other assets		35,695
Liabilities Assumed at Fair Value
Obligations under participation agreements		(24,147,097	)
Interest reserve and other deposits held on loan		(21,421,501	)
Due to Manager		(2,011,003	)
Other liabilities		(909,516	)
Net assets transferred excluding cash		283,225,233
Cash contributed by Terra Fund 5	$	5,034,571

Upon receipt of the contribution of the consolidated portfolio of net assets from Terra Fund 5, the Company consolidated the operations of a wholly-owned subsidiary, Terra Park Green Members, LLC (“Terra Park Green”), an entity that owned two commercial office building parks and the related operations (Note 4). The following table shows the impact of the consolidated balance sheet upon consolidation of Terra Park Green:

	January 1, 2016
Equity investment in Terra Park Green, at fair value	$	16,900,000
Real estate assets held for sale		35,155,662
Cash held in escrow by lender		2,085,108
Other assets		267,306
Mortgage loan payable		(20,000,000	)
Accounts payable and accrued expenses		(347,971	)
Other liabilities		(615,309	)
Cash transferred in upon consolidation of Terra Park Green	$	355,204

See notes to consolidated financial statements.

F-37

Terra Property Trust, Inc.

Notes to Consolidated Financial Statements

December 31, 2016

Note 1. Business

Terra Property Trust, Inc. (and, together with its consolidated subsidiaries, the “Company” or “Terra Property Trust”) was incorporated under the general corporation laws of the State of Maryland on December 31, 2015. 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’s investment strategy is to invest 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 interest rates ranging from 12% to 16% and maturities between one to ten years.

Effective January 1, 2016, Terra Fund 1, Terra Fund 2, Terra Secured Income Fund 3, LLC (“Terra Fund 3”) and Terra Secured Income Fund 4, LLC (“Terra Fund 4”), through a series of separate mergers, merged with and into subsidiaries of Terra Fund 5 ( collectively, the “Terra Funds”). In each merger, unitholders of each merging fund exchanged their units in Terra Funds 1 through 4 for units in Terra Fund 5 (collectively, the “Merger”). Following the Merger, Terra Fund 5 contributed the consolidated portfolio of net assets of the Terra Funds to the Company in exchange for the common shares of the Company. Upon completion of the Merger, Terra Fund 5 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, the Company. Upon receipt of the contribution of the consolidated portfolio of net assets from Terra Fund 5, the Company commenced its operations on January 1, 2016.

The Company has elected to be taxed, and to qualify annually thereafter, as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), commencing with the taxable year ended December 31, 2016. As a REIT, the Company is not subject to federal income taxes on income and gains distributed to the stockholders as long as certain requirements are satisfied, principally relating to the nature of income and the level of distributions, as well as other factors. The Company also operates its business in a manner that permits it to maintain its exclusion from registration under the Investment Company Act of 1940, as amended.

The Company’s investment activities were externally managed by Terra Capital Advisors, LLC, a private investment firm affiliated with the Company, pursuant to a management agreement (the “Management Agreement”), under the oversight of the Company’s board of directors (Note 6). On September 1, 2016, Terra Capital Advisors, LLC assigned its rights and obligations under the Management Agreement to Terra Income Advisors, LLC, another private investment firm affiliated with the Company. The Company refers to Terra Capital Advisors, LLC and Terra Income Advisors, LLC collectively as the 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 by individuals who were contracted by the Company or by the Manager to work on behalf of the Company pursuant to the terms of the Management Agreement.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and include 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 period presented. All intercompany balances and transactions have been eliminated.

Loans Held for Investment

The Company originates, acquires, and structures real estate-related loans generally to be held to maturity. The Company records investment transactions on the trade date. Loans held for investments are carried at the principal amount outstanding, adjusted for the accretion of discounts on investments and exit fees, and the amortization of premiums on investments and origination fees. The Company’s preferred equity investments, which are economically similar to mezzanine loans and subordinate to any loans but senior to common equity, are accounted for as loans held for investment. Loans that are deemed to be impaired will be carried at cost less a specific allowance for loan losses.

F-38

Notes to Consolidated Financial Statements 

Allowance for Loan Losses

The Company’s loans are typically collateralized by either the sponsors’ equity interest in the real estate properties or real estate properties. As a result, the Company regularly evaluates the extent and impact of any credit migration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower/sponsor on a loan-by-loan basis. The Manager 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, debt-service coverage ratio (“DSCR”) 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.

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

Revenue Recognition

Revenue is accounted for under Accounting Standards Codification (“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.

Interest Income: Interest income is accrued based upon the outstanding principal amount and contractual terms of the loans and preferred equity investments that the Company expects to collect and it is accrued and recorded on a daily basis. Discounts and premiums on investments purchased are accreted or amortized over the expected life of the respective loan using the effective yield method, and are included in interest income in the consolidated statement of operations. Loan origination fees and exit fees, net of portions attributable to obligations under participation agreements, are capitalized and amortized or accreted to interest income over the life of the investment using the effective interest method. Income accrual is generally suspended for loans at the earlier of the date at which payments become 90 days past due or when, in the opinion of the Manager, recovery of income and principal becomes doubtful. Interest is then recorded on the basis of cash received until accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed.

The Company holds loans in its portfolio that contain paid-in-kind (“PIK”) interest provisions. The PIK interest, which represents contractually deferred interest that is added to the principal balance that is due at maturity, is recorded on the accrual basis.

Real Estate Operating Revenues: Real estate operating revenue is derived from leasing of space to various types of tenants. The leases are for fixed terms of varying length and generally provide for annual rentals and expense reimbursements to be paid in monthly installments. Lease revenue, or rental income from leases, is recognized on a straight-line basis over the term of the respective leases. Additionally, the Company recorded above- and below-market lease intangibles in connection with the acquisition of the real estate properties. These intangible assets and liabilities are amortized to lease revenue over the remaining contractual lease term.

Other Revenues: Prepayment fee income are recognized as prepayments occur. All other income is recognized when earned.

Realized Gains or Losses

Realized gains or losses on dispositions of investments represent the difference between the carrying value based on the specific identification method, and the proceeds received from the sale or maturity (exclusive of any prepayment penalties). Realized gains and losses are recognized in the consolidated statement of operations.

F-39

Notes to Consolidated Financial Statements 

Accounting for Acquisition

In accordance with the guidance for business combinations, the Company evaluates each transaction to determine if it is an asset acquisition or business combination. If the assets acquired and liabilities assumed constitute a business, the Company accounts for the transaction as a business combination. If the assets acquired are not a business, the Company accounts for the transaction as an asset acquisition.  Under both methods, the Company recognizes identifiable assets acquired and liabilities (both specific and contingent) assumed at their fair values at the acquisition date. In addition, for transactions that are business combinations, the Company evaluates the existence of goodwill or a gain from a bargain purchase. The Company capitalizes acquisition-related costs and fees associated with asset acquisitions. The Company immediately expenses acquisition-related costs and fees associated with business combinations.

Purchase Price Allocation of Tangible Assets:  When the Company acquires properties with leases classified as operating leases, the Company allocates the purchase price to the tangible and intangible assets and liabilities acquired based on their estimated fair values. The tangible assets consist of land, buildings, and site improvements. The intangible assets and liabilities include the above- and below-market value of leases and the in-place leases, which include a value for tenant relationships. Land is typically valued utilizing the sales comparison (or market) approach. Buildings are valued, as if vacant, using the cost and/or income approach. Site improvements are valued using the cost approach. The fair value of real estate is determined primarily by reference to portfolio appraisals, which determines their values on a property level, by applying a discounted cash flow analysis to the estimated net operating income for each property in the portfolio during the remaining anticipated lease term.

Purchase Price Allocation of Intangible Assets and Liabilities:  The Company records above- and below-market lease intangible values for acquired properties based on the present value using a discount rate reflecting the risks associated with the leases acquired of the difference between (i) the contractual rents to be paid pursuant to the leases negotiated and in place at the time of acquisition of the properties and (ii) the Company’s estimate of fair market lease rates for the property or equivalent property, both of which are measured over the estimated lease term. The Company discounts the difference between the estimated market rent and contractual rent to a present value using an interest rate reflecting its current assessment of the risk associated with the lease acquired. Estimates of market rent are generally determined by the Company relying in part upon a third-party appraisal obtained in connection with the property acquisition and can include estimates of market rent increase factors, which are generally provided in the appraisal or by local real estate brokers.

The Company evaluates the specific characteristics of each tenant’s lease and any pre-existing relationship with each tenant in determining the value of in-place lease intangibles. To determine the value of in-place lease intangibles, the Company considers the following:

• estimated market rent;

• estimated carrying costs of the property during a hypothetical expected lease-up period; and

• current market conditions and costs to execute similar leases, including tenant improvement allowances and leasing commissions.

Estimated carrying costs of the property include real estate taxes, insurance, other property operating costs, and estimates of lost rentals at market rates during the market participants’ expected lease-up periods, based on assessments of specific market conditions. The Company determines these values using its estimates or by relying in part upon third-party appraisals conducted by independent appraisal firms.

Real Estate Assets Held for Sale

The Company classifies those assets that are associated with operating leases as real estate assets held for sale when the assets are being actively marketed for sale at a price that is reasonable in relation to their current fair value and the Company believes it is probable that the disposition will occur within one year. For assets classified as held for sale, the Company suspends depreciation and amortization on the related tangible assets as well as non-rent related intangible assets. The Company continues to amortize rent-related intangible assets and liabilities until the assets are sold. Real estate assets held for sale are recorded at the lower of carrying value or estimated fair value, less estimated costs to sell.

If circumstances arise that the Company previously considered unlikely and, as a result, the Company decides not to sell a property previously classified as held for sale, the Company reclassifies the property as held and used. The Company measures and records a property that is reclassified as held and used at the lower of (i) its carrying amount before the property was classified as held for sale, adjusted for any depreciation expense that would have been recognized had the property been continuously classified as held and used or (ii) the estimated fair value at the date of the subsequent decision not to sell.

F-40

Notes to Consolidated Financial Statements 

The Company recognizes gains and losses on the sale of properties when, among other criteria, it no longer has continuing involvement, the parties are bound by the terms of the contract, all consideration has been exchanged, and all conditions precedent to closing have been performed. At the time the sale is consummated, a gain or loss is recognized as the difference between the sale price, less any selling costs, and the carrying value of the property.

As of December 31, 2016, the Company had no real estate assets held for sale.

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.

Restricted Cash

Restricted cash represents cash held as additional collateral by the Company on behalf of the borrowers related to the investments in loans or preferred equity instruments for the purpose of such borrowers making interest and property-related operating payments. Restricted cash is not available for general corporate purposes. The related liability is recorded in “Interest reserve and other deposits held on investments” on the consolidated balance sheet.

Cash Held in Escrow by Lenders

Cash held in escrow by lenders represents amounts funded by the Company to an escrow account held by the lenders for debt services and tenant improvements.

Participation Interests

The Company follows the guidance in ASC 860, Transfers and Servicing (“ASC 860”), when accounting for loan participations. Such guidance requires participation interests meet certain criteria in order for the interest transaction to be recorded as a sale. Loan participations from the Company which do not qualify for sale treatment remain on the Company’s consolidated balance sheet and the proceeds are recorded as obligations under participation agreements. For the investments which participation has been granted, the interest earned on the entire loan balance is recorded within “Interest income” and the interest related to the participation interest is recorded within “Interest expense from obligations under participation agreements” in the consolidated statement of operations. See “Obligations under Participation Agreements” in Note 7 for additional information.

Fair Value Measurements

U.S. GAAP establishes market-based or observable inputs as the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs. The Company has not elected the fair value option for its financial instruments, including loans held for investment, loans held for investment acquired through participation, obligations under participation agreements and mortgage loan payable. Such financial instruments are carried at cost.

Deferred Financing Costs

Deferred financing costs represent fees and expenses incurred in connection with obtaining financing for investments. These costs are presented in the consolidated balance sheet as a direct deduction of the debt liability to which the costs pertain. These costs are amortized using the effective interest method and are included in interest expense on mortgage loan payable in the consolidated statement of operations over the life of the borrowings.

Income Taxes

The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with the taxable year ended December 31, 2016. In order to qualify as a REIT, the Company is required, among other things, to distribute at least 90% of its REIT net taxable income to the stockholders and meet certain tests regarding the nature of its income and assets. As a REIT, the Company is not subject to federal income taxes on income and gains distributed to the stockholders as long as certain requirements are satisfied, principally relating to the nature of income and the level of distributions, as well as other factors. If the Company fails to continue to qualify as a REIT in any taxable year and does not qualify for certain statutory relief provisions, the Company will be subject to U.S. federal and state income taxes at regular corporate rates (including any applicable  

F-41

Notes to Consolidated Financial Statements 

alternative minimum tax) beginning with the year in which it fails to qualify and may be precluded from being able to elect to be treated as a REIT for the Company’s four subsequent taxable years.

As of December 31, 2016, the Company has satisfied all the requirements for a REIT and accordingly, no provision for federal income taxes has been included in the consolidated financial statements for the year ended December 31, 2016.

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 statement of operations. For the year ended December 31, 2016, the Company did not incur any interest or penalties. Although the Company files federal and state tax returns, its major tax jurisdiction is federal. The Company’s inception-to-date federal tax return remains subject to examination by the Internal Revenue Service.

Earnings Per Share

The Company has a simple equity capital structure with only common stock and preferred stock outstanding. As a result, earnings per share, as presented, represents both basic and dilutive per-share amounts for the period presented in the consolidated financial statements. Income per basic share of common stock is calculated by dividing net income allocable to common stock by the weighted-average number of shares of common stock issued and outstanding during such period.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of gains (losses), income and expenses during the reporting period. Actual results could significantly differ from those estimates. The most significant estimates inherent in the preparation of the Company’s consolidated financial statements is the valuation of loans.

Segment Information

The Company’s primary business is originating, acquiring and structuring real estate-related loans related to high quality commercial real estate. The Company operates in a single segment focused on mezzanine loans, other loans and preferred equity investments.

Implications of Being an Emerging Growth Company

The Company qualifies as an emerging growth company, as that term is used in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include an exemption from the auditor attestation requirement in the assessment of the emerging growth company’s internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), for so long as the Company qualifies as an emerging growth company.

In addition, Section 7(a)(2)(B) of the Securities Act and Section 13(a) of the Exchange Act, as amended by Section 102(b) of the JOBS Act provide that an emerging growth company can take advantage of the extended transition period for complying with new or revised accounting standards. However, pursuant to Section 107 of the JOBS Act, the Company is choosing to opt out of such extended transition period, and as a result, the Company will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. The Company’s decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

The Company could remain an emerging growth company until the earlier of (i) up to five years measured from the date of the first sale of common equity securities pursuant to an effective registration statement, (ii) the last day of the first fiscal year in which the Company’s annual gross revenues are $1 billion or more, (iii) the date that the Company become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of the Company’s common stock that is held by non-affiliates exceeds $700 million as of the last business day of its most recently completed second fiscal quarter, or (iv) the date on which the Company has issued more than $1 billion in non-convertible debt during the preceding three-year period.

F-42

Notes to Consolidated Financial Statements 

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. In July 2015, the FASB postponed the effective date of this new guidance from January 1, 2017 to January 1, 2018. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company does not expect the adoption of ASU 2014-09 to have a material impact on its consolidated financial statements and disclosure.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. The amendments provide a definition of the term “substantial doubt” and include principles for considering the mitigating effect of management’s plans. The amendments also require an evaluation every reporting period, including interim periods for a period of one year after the date that the financial statements are issued (or available to be issued), and certain disclosures when substantial doubt is alleviated or not alleviated. The amendments in this update are effective for reporting periods ending after December 15, 2016. The Company adopted ASU 2014-15 in 2016. The adoption of ASU 2014-15 did not have a material impact on its consolidated financial statements and disclosures.

In February 2015, the FASB issued ASU 2015-02, Consolidation (ASC Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 significantly changes the consolidation analysis required under U.S. GAAP and ends the deferral granted to investment companies from applying the variable interest entity guidance. ASU 2015-02 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2015 and early adoption is permitted. The Company adopted ASU 2015-02 beginning January 1, 2016. The adoption of ASU 2015-02 did not have a material impact on its consolidated financial statements and disclosures.

In April 2015, the FASB issued ASU 2015-03, Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. ASU 2015-03 is effective for fiscal years that begin after December 15, 2015 and early adoption is permitted. The Company adopted ASU 2015-03 beginning January 1, 2016. The adoption of ASU 2015-03 did not have a material impact on its consolidated financial statements and disclosures.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustment (“ASU 2015-16”). ASU 2015-16 requires that an acquirer recognize adjustments identified during the business combination measurement period in the reporting period in which the adjustment amounts are determined. The effects on earnings due to changes in depreciation, amortization, or other income effects as a result of the change are also recognized in the same period’s financial statements. ASU 2015-16 also requires that acquirers present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings that would have been recorded in previous reporting periods if the adjustment had been recognized as of the acquisition date. ASU 2015-16 is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years, early adoption is permitted, and prospective application is required for adjustments that are identified after the effective date of this update. The Company adopted ASU 2015-16 beginning January 1, 2016. The adoption of ASU 2015-16 did not have a material impact on its 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; for all other entities, the final lease standard will be effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. 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

F-43

Notes to Consolidated Financial Statements 

ASU is not expected to have any impact on the Company’s consolidated financial statements as the Company does not have any lease arrangements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. This ASU is effective for annual and interim periods beginning after December 15, 2019 and early adoption is permitted for annual and interim periods beginning after December 15, 2018. Management is currently evaluating the impact of this change will have on the Company’s consolidated financial statements and disclosures.

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. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition method. The Company does not expect the adoption of ASU 2016-15 to have a material impact on its consolidated financial statements and disclosure.

In October 2016, the FASB issued ASU 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control (“ASU 2016-17”). ASU 2016-17 changes how a reporting entity that is a decision maker should consider indirect interests in a VIE held through an entity under common control. If a decision maker must evaluate whether it is the primary beneficiary of a VIE, it will only need to consider its proportionate indirect interest in the VIE held through a common control party. ASU 2016-17 amends ASU 2015-02, which the Company adopted on January 1, 2016, and which currently directs the decision maker to treat the common control party’s interest in the VIE as if the decision maker held the interest itself. ASU 2016-17 is effective for public business entities in fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted. The Company does not expect the adoption of ASU 2016-17 to have a material impact on its consolidated financial statements and disclosure.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, a Consensus of the FASB’s Emerging Issues Task Force (“ASU 2016-18”). ASU 2016-18 requires that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 does not provide a definition of restricted cash or restricted cash equivalents. ASU 2016-18 is effective for public business entities for annual and interim periods beginning after December 15, 2017. For all other entities, ASU 2016-18 is effective for fiscal years beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period, and should be applied using a retrospective transition method. Management is currently evaluating the impact of this change will have on the Company’s 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.

F-44

Notes to Consolidated Financial Statements 

Note 3. Loans Held for Investment

Portfolio Summary

The following table provides a summary of the Company’s loan portfolio as of December 31, 2016:

	December 31, 2016
	Fixed Rate			Floating Rate (1)			Total
Number of investments		37			1			38
Principal balance	$	275,363,207		$	50,450,061		$	325,813,268
Carrying value	$	279,781,074		$	50,902,766		$	330,683,840
Fair value	$	278,931,283		$	50,924,056		$	329,855,339
Weighted-average interest rate		12.98	%		9.19	%		12.38	%
Weighted-average remaining terms (year) (2)		1.42			1.19			1.39

(1) This investment pays an annual interest rate of London Interbank Offered Rate (“LIBOR”) plus 8.5% with LIBOR cannot be lower than 0.5%. Interest rate shown was determined using the applicable annual interest rate as of December 31, 2016.

(2) Reflects the current maturity dates.

Investment Activities

The following table presents the activities of the Company’s loan portfolio for the year ended December 31, 2016:

	Loans and Preferred Equity Investments			Loans Through Participation Interests			Equity Investment in Terra Park Green			Total
Balance, January 1, 2016		276,746,474			13,789,884			16,900,000			307,436,358
New investments made		128,603,230			620,759			—			129,223,989
Principal repayments received		(88,567,393	)		—			—			(88,567,393	)
PIK interest (1)		1,254,890			272,408			—			1,527,298
Net amortization of premiums on investments		(2,285,876	)		—			—			(2,285,876	)
Accretion of exit fees, net		422,692			18,475			—			441,167
Allowance for loan losses		—			(191,703	)		—			(191,703	)
Disposal of Terra Park Green (2)		—			—			(16,900,000	)		(16,900,000	)
Balance, December 31, 2016	$	316,174,017		$	14,509,823		$	—		$	330,683,840

(1) Certain investments in the Company’s portfolio contains PIK interest provisions. The PIK interest represents contractually deferred interest that is added to the principal balance. PIK interest related to obligations under participation agreements amounted to $233,313 for the years ended December 31, 2016.

(2) The Company consolidated the operations of this entity effective January 1, 2016. On November 17, 2016, Terra Park Green sold all of its real estate properties (Note 4).

F-45

Notes to Consolidated Financial Statements 

Portfolio Information

The tables below detail the types of loans in the Company’s loan portfolio, as well as the property type and geographic location of the properties securing these loans:

	December 31, 2016
Investment Structure	Principal			Carrying Value			% of Total
Mezzanine loans	$	139,810,222		$	142,489,036			43.1	%
First mortgages		124,690,016			125,863,391			38.1	%
Preferred equity investments		51,965,691			52,896,500			16.0	%
Other (1)		9,539,042			9,626,616			2.9	%
Allowance for loan losses		(191,703	)		(191,703	)		(0.1	)%
Total	$	325,813,268		$	330,683,840			100.0	%

(1) Other represents the unused cash from two credit facilities.

	December 31, 2016
Property Type	Principal			Carrying Value			% of Total
Hotel	$	82,726,671		$	84,133,273			25.4	%
Multifamily		83,510,933			85,021,199			25.7	%
Office		74,054,158			74,747,026			22.6	%
Land		64,380,220			64,992,725			19.7	%
Student housing		5,700,000			6,125,635			1.9	%
Mixed use		3,593,947			3,619,217			1.1	%
Other (1)		12,039,042			12,236,468			3.7	%
Allowance for loan losses		(191,703	)		(191,703	)		(0.1	)%
Total	$	325,813,268		$	330,683,840			100.0	%

(1) Other includes $2.5 million of retail properties and $9.5 million of unused cash from two credit facilities.

	December 31, 2016
Geographic Location	Principal			Carrying Value			% of Total
United States
California	$	101,275,061		$	102,699,779			31.2	%
Florida		54,484,022			54,927,914			16.6	%
New York		48,367,052			48,746,769			14.7	%
New Jersey		22,639,955			22,865,291			6.9	%
Pennsylvania		19,522,000			19,703,355			6.0	%
Texas		10,189,038			10,420,209			3.2	%
Delaware		10,000,000			10,082,308			3.0	%
Tennessee		9,877,843			10,179,485			3.1	%
Virginia		6,675,510			6,737,238			2.0	%
Arizona		5,719,598			5,772,487			1.7	%
Oregon		5,000,000			5,356,923			1.6	%
North Carolina		4,921,404			4,985,576			1.5	%
Georgia		4,250,000			4,604,941			1.4	%
Massachusetts		4,000,000			4,112,275			1.2	%
Alabama		3,844,445			3,928,742			1.2	%
Other (1)		15,239,043			15,752,251			4.8	%
Allowance for loan losses		(191,703	)		(191,703	)		(0.1	)%
Total	$	325,813,268		$	330,683,840			100.0	%

(1) Other includes $2.7 million of properties in Indiana, $3.0 million of properties in South Carolina and $9.5 million of unused cash from two credit facilities.

F-46

Notes to Consolidated Financial Statements 

Loan Risk Rating

As described in Note 2, the Manager evaluates the Company’s loan portfolio on a quarterly basis or more frequently as needed. In conjunction with the quarterly review of the Company’s loan portfolio, the Manager assesses the risk factors of each loan, and assigns a risk rating based on a five-point scale with “1” being the lowest risk and “5” being the greatest risk.

The following table allocates the principal balance and the carrying value of the Company’s loans based on the loan risk rating as of December 31, 2016:

	December 31, 2016
Loan Risk Rating	Number of Investments		Principal			Carrying Value			% of Total
1		34	$	288,744,751		$	293,280,104			88.6	%
2		3		24,480,000			24,698,048			7.5	%
3		0		—			—			—	%
4		1		12,780,220			12,897,391			3.9	%
5		0		—			—			—	%
		38		326,004,971			330,875,543			100.0	%
Allowance for loan losses				(191,703	)		(191,703	)
Total, net of allowance for loan losses		38	$	325,813,268		$	330,683,840			100.0	%

On a quarterly basis, the Company evaluates loans with loan risk rating of “4” and “5” for possible impairment. Based on the information collected from the management of the investment portfolio and the analysis to determine the net realizable amount, the Company did not record an allowance for credit losses for individual loans for the year ended December 31, 2016. The Company, however, recorded a general allowance for loan losses of $0.2 million for loans with loan risk rating of “4” and “5”. The following table presents the activity in the Company’s allowance for loan losses:

	Year Ended December 31, 2016
Allowance for loan losses, January 1, 2016	$	—
Provision for loan losses		191,703
Charge-offs		—
Recoveries		—
Allowance for loan losses, December 31, 2016	$	191,703

As of December 31, 2016, none of the principal balances or interest receivables of the investments were past due and there were no modifications of loans for the year ended December 31, 2016.

F-47

Notes to Consolidated Financial Statements 

Note 4. Real Estate Asset Disposition

On January 1, 2016, Terra Fund 5 contributed its consolidated portfolio of net assets, including its interest in Terra Park Green, an entity that owned a multi-tenant office portfolio comprised of two commercial office building parks and the related operations in South Carolina, to the Company (Note 10). Upon receipt of the contribution of the consolidated portfolio of net assets from Terra Fund 5, the Company consolidated the operations of Terra Park Green. The equity in Terra Park Green was allocated to assets and liabilities based on the accounting for acquisition policy described in Note 2. The following table is presented to show the impact in the balance sheet upon consolidation of Terra Park Green on January 1, 2016:

Equity investment in Terra Park Green	$	16,900,000
Real estate assets held for sale
Real estate	$	25,797,062
Above-market rent (weighted-average life - 4.7 years)		633,280
Below-market rent (weighted-average life - 8.1 years)		(1,522,358	)
In-place lease (weighted-average life - 3.4 years)		10,247,678
Total real estate assets held for sale		35,155,662
Cash and cash equivalents		355,204
Cash held in escrow by lender		2,085,108
Other assets		267,306
Mortgage loan payable		(20,000,000	)
Accounts payable and accrued expense		(347,971	)
Other liabilities		(615,309	)
	$	16,900,000

When the Company acquired the real estate properties, its intention was to sell the properties within a short holding period. As such, the properties were classified as held for sale effective January 1, 2016. On November 17, 2016, Terra Park Green sold the properties for net proceeds of $38.1 million, net of selling costs, and recognized a gain on the sale of approximately $1.9 million. In connection with the sale of the properties, Terra Park Green used a portion of the proceeds to repay a mortgage loan payable with a principal balance of $20.0 million (Note 7).

In connection with the sale of the real estate properties, Terra Park Green paid a $1.2 million incentive fee, which was based on its internal rate of return, to a third-party firm engaged to market the real estate properties for sale.

F-48

Notes to Consolidated Financial Statements 

The results of operations of Terra Park Green for the year ended December 31, 2016 are included in the consolidated financial statements of the Company and are summarized as follows:

	Year Ended December 31, 2016
Real estate operating revenues:
Lease revenue	$	5,462,820
Other operating income		221,646
Total		5,684,466
Real estate operating expenses:
Utilities		684,401
Real estate taxes		523,574
Repairs and maintenances		735,177
Management fees		165,575
Other operating expenses		386,561
Total		2,495,288
Professional fees		(112,412	)
Interest expense on mortgage loan payable		(1,169,455	)
Third-party incentive fee		(1,209,471	)
Disposition fee expense		(385,000	)
Gain on sale of real estate properties		1,896,652
Net income	$	2,209,492

Note 5. Fair Value Measurements

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

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

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

Level 3 — Significant unobservable inputs are based on the best information available in the circumstances, to the extent observable inputs are not available, including the Company’s own assumptions used in determining the fair value of investments. Fair value for these investments are determined using valuation methodologies that consider a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance, and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant management judgment.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

F-49

Notes to Consolidated Financial Statements 

Financial Instruments not Carried at Fair Value

As of December 31, 2016, the Company has not elected the fair value option for its financial instruments. The following table presents the carrying value and estimated fair value of the Company’s financial instruments that are not carried at fair value on the consolidated balance sheet:

		December 31, 2016
	Level	Principal Amount		Carrying Value		Fair Value
Investments:
Loans held for investment	3	$	311,424,751	$	316,174,017	$	315,110,108
Investments through participation interests	3		14,388,517		14,509,823		14,745,231
Total investments		$	325,813,268	$	330,683,840	$	329,855,339
Liabilities:
Obligations under participation agreements	3	$	32,635,785	$	32,986,194	$	32,904,955
Mortgage loan payable	3		34,000,000		33,868,844		34,169,187
Total liabilities		$	66,635,785	$	66,855,038	$	67,074,142

The Company estimated that its other financial assets and liabilities, not included in the table above, had fair values that approximated their carrying values at December 31, 2016 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, all of which are included in Level 3 of the fair value hierarchy, and therefore these investments are valued utilizing a yield approach, i.e. a discounted cash flow methodology to arrive at an estimate of the fair value of each respective investment in the portfolio using an estimated market yield. In following this methodology, investments are evaluated individually, and management takes into account, in determining the risk-adjusted discount rate for each of the Company’s investments, relevant factors, 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, the portfolio company’s ability to make payments, its net operating income, DSCR, 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.

The Manager designates a valuation committee to oversee the entire valuation process of the Company’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 Company investments being valued as well as the inputs used in the proprietary valuation model. Valuations determined by the valuation committee are supported by pertinent data and, in addition to a proprietary valuation model, are based on market data, industry accepted third-party valuation models and discount rates or other methods the valuation committee deems to be appropriate. Because there is no readily available market for these investments, the fair values of these investments are approved in good faith by the Manager pursuant to the Company’s valuation policy.

The following table summarizes the valuation techniques and significant unobservable inputs used by the Company to value the Level 3 investments as of December 31, 2016. The tables are not intended to be all-inclusive, but instead identify the significant unobservable inputs relevant to the determination of fair values.

F-50

Notes to Consolidated Financial Statements 

	Fair Value at				December 31, 2016
Asset Category	December 31, 2016		Primary Valuation Technique	Unobservable Inputs	Minimum			Maximum			Weighted Average
Assets:
Loans and preferred equity investments	$	315,110,108	Discounted cash flow	Discount rate		9.09	%		15.96	%		12.15	%
Investments through participation interests		14,745,231	Discounted cash flow	Discount rate		11.90	%		13.39	%		13.21	%
Total Level 3 Assets	$	329,855,339
Liabilities:
Obligations under Participation Agreements	$	32,904,955	Discounted cash flow	Discount rate		12.40	%		15.78	%		13.28	%
Mortgage loan		34,169,187	Discounted cash flow	Discount rate		3.92	%		3.92	%		3.92	%
Total Level 3 Liabilities	$	67,074,142

Note 6. Related Party Transactions

Management Agreement

On January 1, 2016, the Company entered into a Management Agreement with the Manager whereby the Manager is responsible for its day-to-day operations. The Management Agreement runs co-terminus with the amended and restated operating agreement for Terra Fund 5, which is scheduled to terminate on December 31, 2023 unless Terra Fund 5 is dissolved earlier. The following table presents a summary of fees paid and costs reimbursed to the Manager in connection with providing services to the Company that are included on the consolidated statement of operations:

	Year Ended December 31, 2016
Origination fee expense (1)	$	2,862,189
Asset management fee		3,316,435
Asset servicing fee		798,133
Operating expenses reimbursed to Manager		3,348,629
Disposition fee (2) (3)		1,081,751
Total	$	11,407,137

(1) Origination fee expense is generally offset with origination 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 statement of operations. Any excess is deferred and amortized to interest income over the term of the investment.

(3) Amount included disposition fee of $0.4 million paid to the Manager in connection with the disposition of the Terra Park Green real estate properties for which no exit fee income was recorded.

Origination Fee Expense

Pursuant to the Management Agreement, the Manager or its affiliates receives an origination fee in the amount of 1% of the amount used to originate, fund, acquire or structure real estate-related loans, including any third party expenses related to such investments. In the event that the term of any real estate-related loan held by the Company is extended, the Manager or its affiliates also receives an origination fee equal to the lesser of (i) 1% of the principal amount of the loan being extended or (ii) the amount of fee paid to the Company by the borrower in connection with such extension.

Asset Management Fee

Under the terms of the Management Agreement, the Manager or its affiliates provides the Company with certain investment management services in return for a management fee. The Company pays a monthly asset management fee at an annual rate of 1% of the aggregate funds under management, which includes the loan origination price or aggregate gross acquisition price, as defined in the Management Agreement, for each real estate related investment and cash held by the Company.

F-51

Notes to Consolidated Financial Statements

Asset Servicing Fee

The Manager or its affiliates receives from the Company a monthly servicing fee at an annual rate of 0.25% of the aggregate gross origination price or acquisition price, as defined in the Management Agreement, for each real estate-related loan held by the Company.

Operating Expenses

The Company reimburses the Manager for operating expenses incurred in connection with services provided to the operations of the Company, including the Company’s allocable share of the Manager’s overhead, such as rent, employee costs, utilities, and technology costs.

Disposition Fee

Pursuant to the Management Agreement, the Manager or its affiliates receives a disposition fee in the amount of 1% of the gross sale price received by the Company from the disposition of any real estate-related investment, or any portion of, or interest in, any real estate-related investment. The disposition fee is paid concurrently with the closing of any such disposition of all or any portion of any real estate-related investment or any interest therein, which is the lesser of (i) 1% of the principal amount of the loan or debt-related investment prior to such transaction or (ii) the amount of the fee paid by the borrower in connection with such transaction. If the Company takes ownership of a property as a result of a workout or foreclosure of a loan, the Company will pay a disposition fee upon the sale of such property equal to 1% of the sales price.

Distributions Paid

The Company’s sole common stockholder is Terra Fund 5. For the year ended December 31, 2016, the Company made distributions totaling approximately $38.5 million to Terra Fund 5 (Note 10), of which approximately $6.8 million was a return of capital.

Due from Related Party

As of December 31, 2016, approximately $0.4 million was due from Terra Fund 5, as reflected on the consolidated balance sheet, primarily related to an adjustment to the contribution of consolidated portfolio of net assets of the Terra Funds to the Company on January 1, 2016.

Due to Manager

As of December 31, 2016, approximately $2.5 million was due to the Manager, as reflected on the consolidated balance sheet, primarily related to the present value of the disposition fee due to the Manager.

Participation Agreements

In the normal course of business, the Company may enter into participation agreements (“PAs”) with related parties, primarily other affiliated funds managed by the Manager (the “Participants”). The purpose of the PAs is to allow the Company and an affiliate to originate a specified loan when, individually, the Company does not have the liquidity to do so or to achieve a certain level of portfolio diversification. The Company may transfer portions of its investments to other Participants or it may be a Participant to a loan held by another entity. In addition, the Company sells participation interests to an affiliate not less than 90 days after the origination of an investment to allow for greater diversification within the Company’s portfolio as well as sharing investment economics with the affiliate.

ASC 860, Transfers and Servicing, establishes accounting and reporting standards for transfers of financial assets. ASC 860-10 provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. The Company has determined that the participation agreements it enters into are accounted for as secured borrowings under ASC 860 (See “Participation interests” in Note 2 and “Obligations under Participation Agreements” in Note 7).

F-52

Notes to Consolidated Financial Statements

Participation Interests Purchased by the Company

The below table lists the investment interests participated in by the Company via PAs as of December 31, 2016. In accordance with the terms of each PA, each Participant’s rights and obligations, as well as the proceeds received from the related borrower/issuer of the investment, are based upon their respective pro rata participation interest in the investment.

	Participating
	Interests			Principal		Carrying Value
QPT 24th Street Mezz LLC (1)		83.33	%	$	12,780,220	$	12,897,391
KOP Hotel XXXI Mezz LP (1)		31.03	%		1,800,000		1,804,135
				$	14,580,220	$	14,701,526

(1) Participation through Terra Income Fund 6, Inc., an affiliated fund advised by the Manager. For the year ended December 31, 2016, the Company transferred a portion of this investment to Terra Secured Income Fund 5 International, an affiliated fund, through a PA. See “Transfers of Participation Interest by the Company” below for more information.

Transfers of Participation Interest by the Company

The following table summarizes the investments that were subject to PAs with affiliated entities as of December 31, 2016:

					Transfers Treated as Obligations Under Participation Agreements
	Principal		Carrying Value		% Transferred			Principal (4)		Carrying Value (4)
L.A. Warner Hotel Partners, LLC (1)	$	20,000,000	$	20,579,513		18.75	%	$	3,750,000	$	3,858,659
TSG-Parcel 1, LLC (1)		18,000,000		18,180,000		26.67	%		4,800,000		4,848,000
TSG-Parcel 1, LLC (2)		18,000,000		18,180,000		11.11	%		2,000,000		2,020,000
1100 Biscayne Management Holdco, LLC (1)		15,359,671		15,488,644		17.81	%		2,735,384		2,758,350
140 Schermerhorn Street Mezz LLC (3)		15,000,000		15,105,343		50.00	%		7,500,000		7,552,672
QPT 24th Street Mezz LLC (1)(3)		12,780,220		12,897,391		30.00	%		3,834,087		3,869,238
BPG Office Partners III/IV LLC (1)		10,000,000		10,082,308		30.00	%		3,000,000		3,024,692
SD Carmel Hotel Partners, LLC (1)		6,000,000		6,059,398		13.33	%		800,000		807,920
Caton Mezz, LLC (1)		5,160,404		5,210,404		30.00	%		1,548,125		1,563,125
CGI Mezz 55MM, LLC (1)		3,593,947		3,619,217		30.00	%		1,078,189		1,085,767
Austin H. I. Owner LLC (1)		3,500,000		3,521,769		30.00	%		1,050,000		1,056,531
KOP Hotel XXXI Mezz LP (1)(3)		1,800,000		1,804,135		30.00	%		540,000		541,240
								$	32,635,785	$	32,986,194

(1) Participant is Terra Secured Income Fund 5 International, an affiliated fund advised by the Manager.

(2) Participant is Terra Income Fund 6, Inc., an affiliated fund advised by the Manager.

(3) The Company participated into this investment through Terra Income Fund 6, Inc. For the year ended December 31, 2016, the Company transferred a portion of this investment to Terra Secured Income Fund 5 International through a PA.

(4) Amounts transferred may not agree to the proportionate share of the principal balance and fair value due to the rounding of percentage transferred.

These investments are held in the name of the Company, but each of the Participant’s rights and obligations, including interest income and other income (e.g., exit fee, prepayment income) and related fees/expenses (e.g., disposition fees, asset management and asset servicing fees), are based upon their respective pro rata participation interest in such participated investments, as specified in the respective PA. The Participants’ share of the investments is repayable only from the proceeds received from the related borrower/issuer of the investments and, therefore, the Participants also are subject to credit risk (i.e., risk of default by the underlying borrower/issuer). Pursuant to the PAs with these entities, the Company receives and allocates the interest income and other related investment income to the Participants based on their respective pro rata participation interest. The Participants pay

F-53

Notes to Consolidated Financial Statements

related expenses also based on their respective pro rata participation interest (i.e., asset management and asset servicing fees, disposition fees) directly to the Manager.

Note 7. Debt

Mortgage Loan Payable

The following table presents certain information about the Company’s mortgage loan payable at December 31, 2016:

Lender	Current Interest Rate			Maturity Date	Principal Amount		Carrying Value		Carrying Value of Investment (1)
Centennial Bank		5.91	%	March 7, 2018	$	34,000,000	$	33,868,844	$	50,902,766

(1) Amount represents the carrying value of the loan used as collateral for the mortgage loan.

Financing Activity During 2016

In March 2016, the Company obtained a $34.0 million interest-only mortgage loan with an annual interest rate of LIBOR plus 5.25% and a term of two years for a first mortgage loan the Company originated. The Company may extend the mortgage loan by a six-month period and another 18-month period subject to certain conditions provided in the loan agreement. The mortgage loan is collateralized by the first mortgage loan and the Company serves as the guarantor under the terms of the mortgage loan payable. In connection with the financing, the Company incurred financing costs of approximately $0.3 million, which is recorded as a reduction to mortgage loan payable on the consolidated balance sheet, to be amortized to interest expense using the effective interest rate method over the term of the mortgage loan.

In connection with the Merger, the Company consolidated Terra Park Green effective January 1, 2016 (Note 4). As a result, the Company assumed a $20.0 million interest-only mortgage loan with an annual interest rate of LIBOR plus 5.0%, with LIBOR capped at 2.5% but cannot be lower than 0.25%. The mortgage loan matured on March 9, 2017 and provided for a one-year extension option exercisable by the Company, subject to certain conditions. The mortgage loan was secured by the real estate properties and any intangible assets associated with the real estate properties, including an assignment of leases and rents. The Company served as the guarantor under the terms of the mortgage loan to the extent of any losses resulting from fraudulent activities. In November 2016, in connection with the sale of the real estate properties by Terra Park Green, the related $20.0 million mortgage loan payable was repaid in full.

Scheduled Debt Principal Payments

Scheduled debt principal payments during the next five calendar years following December 31, 2016 are as follows:

Years Ending December 31,	Total
2017	$	—
2018		34,000,000
2019		—
2020		—
2021		—
		34,000,000
Unamortized deferred financing costs		(131,156	)
Total	$	33,868,844

Obligations Under Participation Agreements

As discussed in Note 2, the Company follows the guidance in ASC 860 when accounting for loan participations. Such guidance requires participation interests meet certain criteria in order for the interest transaction to be recorded as a sale. Loan participations from the Company which do not qualify for sale treatment remain on the Company’s consolidated balance sheets and the proceeds are recorded as obligations under participation agreements. As of December 31, 2016, obligations under participation agreements had a carrying value of approximately $33.0 million and the carrying value of the loans that are associated with these obligations under participation agreements was approximately $112.5 million (see “Participation Agreements” in Note 6). The weighted average interest rate on the obligations under participation agreements was approximately 13.0% as of December 31, 2016.

F-54

Notes to Consolidated Financial Statements

Note 8. 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 investments 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 investments, valuation of the investments may be difficult, as there generally will be no established markets for these investments.

Credit Risk

Credit risk represents the potential loss that the Company would incur if the borrowers failed to perform pursuant to the terms of their obligations to the Company. Thus, the value of the underlying collateral, the creditworthiness of the borrower or other counterparty, and the priority of the Fund’s lien on the borrower’s assets are of importance. The Company minimizes its exposure to credit risk by limiting exposure to any one individual borrower and any one asset class. Additionally, the Company 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 ratio, DSCR and the debt yield. The Company 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, preferred equity investments and loans through participation interests 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, the Company 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

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

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 the fair value of the Company’s interest-bearing financial instruments.

Prepayment Risk

Prepayments can either positively or adversely affect the yields on investments. 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 the Company’s control, and consequently, such prepayment rates cannot be predicted with certainty. If the Company does not collect a prepayment fee in connection with a prepayment or is unable to invest the proceeds of such prepayments received, the yield on the portfolio will decline. In addition, the Company 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 the Company may fail to recoup fully its cost of acquisition of certain investments.

F-55

Notes to Consolidated Financial Statements

Use of Leverage

As part of the Company’s investment strategy, the Company may borrow and utilize leverage. While borrowing and leverage present opportunities for increasing total return, they may have the effect of potentially creating or increasing losses.

Property Acquisitions

The Company may find it necessary to take possession of collateral including, without limitation, an asset or 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 acquisition of the collateral and add cost to such actions.

There can be no assurance that the Company will be able to successfully operate, hold or maintain the collateral in accordance with the Company’s expectations.

Further, there can be 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 sale of the real estate may be less than the amount invested in the loan, and its fair value and such differences could be material.

Note 9. Commitments and Contingencies

Certain of the Company’s investments contain provisions for future fundings. These fundings amounted to approximately$25.9 million as of December 31, 2016. The Company expects to maintain sufficient cash on hand to fund such unfunded commitments.

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.

See Note 6 for a discussion of the Company’s commitments to the Manager and its affiliates.

Note 10. Equity

Earnings Per Share

The following table presents earnings per share for the year ended December 31, 2016:

	Year Ended December 31, 2016
Net income	$	31,666,409
Preferred stock dividend declared		(391	)
Net income allocable to common stock	$	31,666,018
Weighted-average shares outstanding - basic and diluted		14,822,826
Earnings per share - basic and diluted	$	2.14

F-56

Notes to Consolidated Financial Statements

Capital Contribution

On January 1, 2016, Terra Fund 5 contributed its consolidated portfolio of net assets to the Company pursuant to a contribution agreement in exchange for 14,412,990 shares of the Company’s common stock. The following table summarized the fair value of assets acquired and liabilities assumed in the transaction:

Total Consideration
Fair value of common shares issued	$	288,259,804
	$	288,259,804
Assets Acquired
Investments, at fair value	$	276,746,474
Investments through participation interests, at fair value		13,789,884
Equity investment in Terra Park Green, at fair value		16,900,000
Cash and cash equivalent		5,034,571
Restricted cash		21,421,501
Interest receivable		2,554,596
Due from related party		438,249
Other assets		35,695
		336,920,970
Liabilities Assumed
Obligations under participation agreements, at fair value		(24,147,096	)
Interest reserve and other deposits held on loans		(21,421,501	)
Due to Manager		(2,011,003	)
Accounts payable and accrued expenses		(661,434	)
Interest payable		(172,051	)
Other liabilities		(248,081	)
		(48,661,166	)
	$	288,259,804

For the year ended December 31, 2016, Terra Fund 5 purchased an additional 500,000 shares of the Company’s common stock for $10.0 million. As of December 31, 2016, the Company had 14.9 million shares of common stock issued and outstanding.

Preferred Stock

The Company’s charter gives it authority to issue 50,000,000 shares of preferred stock, $0.01 par value per share (“Preferred Stock”). The Board of Directors may classify any unissued shares of Preferred Stock and reclassify any previously classified but unissued shares of Preferred Stock of any series from time to time, into one or more classes or series of stock. As of December 31, 2016, there were no Preferred Stock issued or outstanding.

On November 30, 2016, the Board of Directors classified and designated 125 shares of Preferred Stock as a separate class of preferred stock to be known as the 12.5% Series A Redeemable Cumulative Preferred Stock, $1,000 liquidation value per share (“Series A Preferred Stock”). In December 2016, the Company sold 125 shares of the Series A Preferred Stock for $125,000. The Series A Preferred Stock pays dividends at an annual rate of 12.5% of the liquidation preference. These dividends are cumulative and payable semiannually in arrears on June 30 and December 31 of each year. In connection with the issuance of the Series A Preferred Stock, the Company incurred offering costs of $1,250.

The Series A Preferred Stock, with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Company, rank senior to common stock. The Company, at its option, may redeem the shares, with written notice, at a redemption price of $1,000 per share, plus any accrued unpaid distribution through the date of the redemption. If the shares are redeemed prior to January 1, 2019, a redemption premium of $50 per share is required. The Series A Preferred Stock generally has no voting rights. However, the Series A Preferred Stock holders’ voting is required if (i) authorization or issuance of any securities senior to the Series A Preferred Stock; (ii) an amendment to the Company’s charter that has a material adverse effect on the rights and preference of the Series A Preferred Stock; and (iii) any reclassification of the Series A Preferred Stock.

F-57

Notes to Consolidated Financial Statements

Distributions

The Company generally intends to distribute substantially all of its taxable income, which does not necessarily equal net income as calculated in accordance with U.S. GAAP, to its stockholders each year to comply with the REIT provisions of the Internal Revenue Code. All distributions will be made at the discretion of the Company’s board of directors and will depend upon its taxable income, financial condition, maintenance of REIT status, applicable law, and other factors as its board of directors deems relevant.

Currently, the Company’s sole common stockholder is Terra Fund 5. For the year ended December 31, 2016, the Company made distributions to Terra Fund 5 of $2.58 per share, or $38.5 million, of which approximately $6.8 million was a return of capital. Additionally, for the year ended December 31, 2016, the Company accrued distributions to preferred stockholders of $391.

Distributions paid to stockholders consist of ordinary income, capital gains, return of capital or a combination thereof for income tax purposes. The following table presents distributions per share, declared and paid during the year ended December 31, 2016, reported for federal tax purposes and serves as a designation of capital gain distributions, if applicable, pursuant to Section 857(b)(3)(C) of the Internal Revenue Code and Treasury Regulation § 1.857-6(e):

	Distributions Paid
	Year Ended December 31, 2016
Ordinary income	$	1.97
Return of capital		0.41
Capital gain		0.20
	$	2.58

Note 11. Subsequent Events

Management has evaluated subsequent events through April 28, 2017, 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 other than those listed below.

On January 31, 2017, the Company closed on a $14.0 million commitment to provide for a mezzanine loan, of which $6.0 million was funded at closing. This loan provides for annual interest rate at a current rate of 12.0% and PIK of 2.5%, and matures on July 31, 2019.

On February 21, 2017, the Company purchased a $50.6 million first mortgage at par. In connection with the closing of the first mortgage, the Company sold participation interests of $2.5 million to Terra Secured Income Fund 5 International and $8.4 million to Terra Income Fund 6, Inc. The first mortgage provides for annual interest rate at 9.25% and matures on June 15, 2017.

On February 16, 2017, the Company sold participation interests in ten loans with a total principal amount of $16.3 million to Terra Income Fund International for $16.7 million. These loans have a weighted average interest rate of 13.01%.

F-58

Report of Independence Registered Public Accounting Firm

The Members

Terra Secured Income Fund 5, LLC:

We have audited the accompanying combined consolidated statement of financial condition, including the combined consolidated schedule of investments of Terra Secured Income Fund, LLC, Terra Secured Income Fund 2, LLC, Terra Secured Income Fund 3, LLC and Terra Secured Income Fund 4, LLC (the “Acquired Company”) as of December 31, 2015, and the related combined consolidated statements of operations, changes in members’ capital, and cash flows for the year then ended. These combined consolidated financial statements are the responsibility of the Acquired Company’s management. Our responsibility is to express an opinion on these combined consolidated financial statements based on our audit.

We conducted our audit in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States) and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the combined consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Acquired Company as of December 31, 2015, and the results of their operations and their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

(signed) KPMG LLP

New York, New York

April 28, 2017

F-59

Terra Secured Income Funds 1 through 4

Combined Consolidated Statement of Financial Condition

	December 31, 2015
Assets
Investments, at fair value — non-controlled (amortized cost of $138,933,044)	$	142,768,001
Equity investment in Terra Park Green Members, LLC, at fair value — controlled (amortized cost of $12,544,502)		16,900,000
Investments through participation interests, at fair value — non-controlled (amortized cost of $7,566,269) (Note 4)		7,771,619
Cash and cash equivalents		3,480,981
Restricted cash		7,119,078
Interest receivable		1,412,840
Other assets		35,695
Total assets		179,488,214
Liabilities
Obligations under participation agreements, at fair value (proceeds of $8,036,080) (Note 4)		8,154,822
Interest reserve and other deposits held on investments		7,119,078
Redemption liability		3,426,982
Accounts payable and accrued expenses		3,113,022
Due to Manager		1,343,020
Taxes payable		232,040
Interest payable		80,807
Other liabilities		266,926
Total liabilities		23,736,697
Members’ capital	$	155,751,517
Commitments and contingencies (Note 7)
Components of members’ capital:
Managing member	$	—
Non-managing members		155,751,517
Members’ capital	$	155,751,517

See notes to combined consolidated financial statements.

F-60

Terra Secured Income Funds 1 through 4

Combined Consolidated Statement of Operations

	Year Ended December 31, 2015
Investment income — non-controlled
Interest income	$	20,815,542
Prepayment fee income		360,001
Other operating income		91,268
Total investment income		21,266,811
Operating expenses
Merger transaction fees		3,284,877
Operating expenses reimbursed to Manager		1,857,204
Asset management fee		1,607,108
Interest expense from obligations under participation agreements		1,186,547
State and local taxes		865,689
Professional fees		439,851
Asset servicing fee		384,502
Other		19,006
Total operating expenses		9,644,784
Net investment income		11,622,027
Net change in unrealized appreciation on investments — controlled		4,355,498
Net change in unrealized appreciation on investments — non-controlled		586,069
Net change in unrealized depreciation on obligations under participation agreements — non-controlled		27,292
Net unrealized gain on investments		4,968,859
Net increase in members’ capital resulting from operations	$	16,590,886

See notes to combined consolidated financial statements.

F-61

Terra Secured Income Funds 1 through 4

Combined Consolidated Statement of Changes in Members’ Capital

Year Ended December 31, 2015

	Managing Member			Non-Managing Members			Total
Balance at January 1, 2015	$	141,005		$	171,186,068		$	171,327,073
Capital distributions		—			(17,145,202	)		(17,145,202	)
Capital distributions - return of capital		—			(11,552,358	)		(11,552,358	)
Capital redemptions		—			(3,468,882	)		(3,468,882	)
Increase in members’ capital resulting from operations:
Net investment income		—			11,622,027			11,622,027
Net change in unrealized appreciation on investments		—			4,941,567			4,941,567
Net change in unrealized appreciation on obligations under participation agreements		—			27,292			27,292
Net increase in members’ capital resulting from operations		—			16,590,886			16,590,886
Unrealized carried interest (Note 8)		(141,005	)		141,005			—
Balance, December 31, 2015	$	—		$	155,751,517		$	155,751,517

See notes to combined consolidated financial statements.

F-62

Terra Secured Income Funds 1 through 4

Combined Consolidated Statement of Cash Flows

	Year Ended December 31, 2015
Cash flows from operating activities:
Net increase in members’ capital resulting from operations	$	16,590,886
Adjustments to reconcile net increase in members’ capital resulting from operations to net cash provided by operating activities:
Accretion of exit fees, net		15,814
Paid-in-kind interest income, net		(345,416	)
Loans made and purchase of other investments		(36,808,104	)
Proceeds from repayments of investments		43,060,199
Proceeds from obligations under participation agreements		5,500,000
Repayments on obligations under participation agreements		(2,030,217	)
Net change in unrealized appreciation on investments		(4,941,567	)
Net change in unrealized appreciation on obligations under participation agreements		(27,292	)
Changes in operating assets and liabilities:
Restricted cash		(1,914,939	)
Interest receivable		115,011
Other assets		37,833
Deposit on investment		100,000
Interest reserve and other deposits held on investments		1,914,939
Accounts payable and accrued expenses		2,870,840
Due to Manager		394,275
Taxes payable		(147,291	)
Interest payable		36,791
Other liabilities		(20,940	)
Net cash provided by operating activities		24,400,822
Cash flows from financing activities:
Distributions paid		(17,145,202	)
Distributions paid - return of capital		(11,552,358	)
Payments for capital redemptions		(41,900	)
Net cash used in financing activities		(28,739,460	)
Net decrease in cash and cash equivalents		(4,338,638	)
Cash and cash equivalents at beginning of year		7,819,619
Cash and cash equivalents at end of year	$	3,480,981

Supplemental Disclosure of Cash Flows Information:

	Year Ended December 31, 2015
Cash paid for interest	$	1,108,516
Cash paid for income taxes	$	1,012,980

See notes to combined consolidated financial statements.

F-63

Terra Secured Income Funds 1 through 4

Combined Consolidated Schedule of Investments

December 31, 2015

Collateral Location	Portfolio Company	Structure	Property Type	Interest Rate			Acquisition Date	Maturity Date	Principal Amount		Amortized Cost		Fair Value (1)		% of Net Assets (2)
	Investments — non-controlled:
US - AL	ASA Mgt. Holdings, LLC	Preferred equity investment	Multifamily		15.0	%	4/7/2012	8/1/2022	$	2,100,000	$	2,140,417	$	2,183,418		1.4	%
	SVA Mgt. Holdings, LLC	Preferred equity investment	Multifamily		15.0	%	4/7/2012	8/1/2022		1,600,000		1,630,852		1,666,914		1.1	%
	Total US - AL									3,700,000		3,771,269		3,850,332		2.5	%
US - CA	Palmer City-Core Stockton Street, LLC (3)	Preferred equity investment	Hotel		12.0	%	1/17/2014	12/17/2017		4,325,000		4,366,961		4,366,961		2.7	%
	Encino Courtyard Mezzanine, LLC (4)	Mezzanine loan	Retail		13.5	%	12/19/2012	1/6/2023		2,500,000		2,522,764		2,638,064		1.7	%
	Total US - CA									6,825,000		6,889,725		7,005,025		4.4	%
US - FL	Beach Resort Management, LLC	Mezzanine loan	Hotel		13.0	%	7/16/2012	8/1/2017		4,500,000		4,500,000		4,551,165		2.9	%
US - GA	Millgreen Properties, LLC (4)	Mezzanine loan	Hotel		15.0	%	6/8/2012	9/8/2016		2,275,000		2,316,428		2,316,428		1.5	%
	Peachtree Pointe Interest, LLC (4)	Mezzanine loan	Office		12.0	%	10/17/2013	11/1/2016		7,500,000		7,536,382		7,536,382		4.8	%
	YMP Georgia Portfolio Mezzanine, LLC	Mezzanine loan	Multifamily		14.0	%	12/19/2013	1/6/2019		5,000,000		5,037,552		5,522,002		3.5	%
	Total US - GA									14,775,000		14,890,362		15,374,812		9.8	%
US - IN	Muncie Mezz, LLC	Mezzanine loan	Student housing		13.0	%	8/29/2013	9/6/2023		2,700,000		2,710,909		2,679,508		1.7	%
US - MA	Phoenix CR 2012A, LLC, Phoenix CR 2012B, LLC, & Phoenix CR 2012C, LLC	Mezzanine loan	Multifamily		12.0	%	7/27/2012	8/11/2022		4,000,000		4,033,766		4,142,246		2.7	%
US - NC	Milestone Greensboro Holdings, LLC	Mezzanine loan	Hotel		14.0	%	3/1/2013	3/1/2018		3,500,000		3,529,856		3,569,511		2.3	%
US - NY	1101 43rd Avenue Mezz, LLC (4)	Mezzanine loan	Hotel		13.0	%	11/16/2012	10/31/2016		4,500,000		4,538,597		4,888,247		3.1	%
US - OR	Pollin Hotels PDX Mezzanine, LLC	Mezzanine loan	Hotel		13.0	%	9/23/2013	10/6/2018		5,000,000		5,039,927		5,538,477		3.6	%
US - PA	PHL Hotel Partners, LLC (3)	Preferred equity investment	Hotel		13.0	%	10/8/2013	11/1/2017		3,742,000		3,775,817		3,775,817		2.4	%
	Millennium Waterfront Associates, L.P.	First mortgage	Land		12.0	%	7/2/2015	1/2/2017		13,980,000		14,111,501		14,111,501		9.1	%
	Total US - PA									17,722,000		17,887,318		17,887,318		11.5	%
US - SC	High Pointe Mezzanine Investments, LLC	Mezzanine loan	Student housing		13.0	%	12/27/2013	1/6/2024		3,000,000		3,013,536		3,504,666		2.3	%
	SMR Hospitality II, LLC (4)(5)(6)	Mezzanine loan	Hotel		13.5	%	1/17/2014	2/5/2019		3,000,000		3,022,402		3,289,732		2.1	%
	Total US - SC									6,000,000		6,035,938		6,794,398		4.4	%
US - TN	Kingsport 925-Mezz LLC	Mezzanine loan	Multifamily		13.0	%	1/6/2014	12/5/2018		3,000,000		3,023,071		3,304,951		2.1	%
US - TX	Northland Museo Member, LLC	Mezzanine loan	Multifamily		12.0	%	11/22/2013	12/6/2018		4,000,000		4,000,000		3,919,000		2.5	%
	Austin H. I. Owner LLC	Mezzanine loan	Hotel		12.5	%	9/30/2015	10/6/2020		3,500,000		3,519,846		3,519,847		2.3	%
	AHF-Heritage #1, LLC	Mezzanine loan	Multifamily		14.0	%	7/30/2012	8/11/2022		3,869,381		3,902,660		4,197,970		2.7	%
	Brass Centerview 2012, LLC (4)(5)(6)	Preferred equity investment	Office		15.0% current 1.5% PIK		12/14/2012	6/3/2016		16,128,652		16,279,918		16,279,919		10.5	%
	1701 TPC Mezzco, LLC (4)	Mezzanine loan	Hotel		14.5	%	7/17/2013	10/3/2016		8,700,000		8,783,879		8,787,272		5.6	%
	Total US - TX									36,198,033		36,486,303		36,704,008		23.6	%

F-64

Terra Secured Income Funds 1 through 4

Combined Consolidated Schedule of Investments (Continued)

December 31, 2015

Collateral Location	Portfolio Company	Structure	Property Type	Interest Rate			Acquisition Date	Maturity Date	Principal Amount		Amortized Cost		Fair Value (1)		% of Net  Assets (2)
	Investments — non-controlled:
US - Various	Capital Square Realty Advisors, LLC (3)(5)(6)	Facility	Various		13%-14	%	12/17/2013	7/29/2017		10,500,000		10,596,003		10,596,003		6.8	%
	Matrix Realty Group (4)	Mezzanine loan	Manufactured housing		12.5	%	8/16/2013	8/6/2018		15,000,000		15,000,000		15,882,000		10.2	%
	Total US - Various									25,500,000		25,596,003		26,478,003		17.0	%
	Total investments — non-controlled:									137,920,033		138,933,044		142,768,001		91.6	%
	Equity investment in Terra Park Green Members, LLC — controlled:
US - SC	Terra Park Green Members, LLC (7)		Office				3/2/2015	11/17/2016		12,544,502		12,544,502		16,900,000		10.9	%
	Investments through participation interests — non-controlled (8):
US - CA	L.A. Warner Hotel Partners, LLC	Participation in preferred equity investment	Hotel		13.3	%	7/25/2014	8/4/2017		7,500,000		7,566,269		7,771,619		5.0	%
	Total investments through participation interest — non-controlled									7,500,000		7,566,269		7,771,619		5.0	%
	Total investments								$	157,964,535	$	159,043,815	$	167,439,620		107.5	%

(1) Because there is no readily available market for these investments, the fair values of these investments are approved in good faith by the Manager pursuant to the Company’s valuation policy (see Note 5).

(2) Percentages are based on net assets of $155.8 million as of December 31, 2015.

(3) Reflects the current maturity date.

(4) This loan was repaid in full.

(5) The Company sold a portion of its interests in these investments via participation agreements to Terra Secured Income Fund 5, LLC (“Terra Fund 5”), an affiliated fund managed by the Manager (Note 4).

(6) The loan participations from the Company 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 Schedule of Investments. See “Obligations under Participation Agreements” in Note 3 and “Transfers of Participation Interest by the Company” in Note 4 in the accompanying notes to the combined consolidated financing statements.

(7) Terra Park Green Members, LLC (“Terra Park Green”), an entity wholly owned by the Company, owned two commercial office building parks and the related operations. For the year ended December 31, 2015, this investment made monthly distributions at an annual rate of 12%, which were recorded as a return of capital because Terra Park Green generated a net operating loss due to depreciation and amortization expense recorded for the period.

(8) The Company purchased its interests in these investments from Terra Fund 5. See “Participation Interests Purchased by the Company” in Note 4 in the accompanying notes to the combined consolidated financial statements.

See notes to combined consolidated financial statements.

F-65

Terra Secured Income Funds 1 through 4

Notes to Combined Consolidated Financial Statements

December 31, 2015

Note 1. Business

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”), which are collectively referred to as “Terra Secured Income Funds 1 through 4” or “Terra Funds 1 through 4”, (and, together with their consolidated subsidiaries, the “Company” ), are Delaware limited liability companies. The Company’s entities were 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’s investment strategy was to invest substantially all of the net proceeds of membership interests in, and manage a diverse portfolio of, real estate-related loans. The Company sought 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 investments between $3 million and $25 million, with interest rates ranging from 12% to 16% and maturities between one to ten years.

The Company has wholly owned subsidiaries, all of which are Delaware limited liability companies, formed for the sole purpose of originating and structuring certain preferred equity investments. These subsidiaries are consolidated into the Company’s combined consolidated financial statements.

Through December 31, 2015, Terra Capital Partners (“TCP”), the Company’s sponsor, through its controlled investment advisors, managed Terra Funds 1 through 4. Terra Capital Advisors, LLC was the manager for Terra Fund 1, Terra Fund 2, and Terra Fund 3, pursuant to their respective operating agreements. Terra Capital Advisors 2, LLC was the manager for Terra Fund 4 pursuant to its operating agreement. Terra Capital Advisors, LLC and Terra Capital Advisors 2, LLC are collectively referred to as the “Manager”. Through December 31, 2015, Terra Funds 1 through 4 were under common control of TCP.

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 Terra Fund 5 (together with Terra Funds 1 through 4, the “Terra Funds”) through a series of separate mergers effective January 1, 2016 (collectively, the “Merger”). Following the Merger, Terra Fund 5 contributed the consolidated portfolio of net assets of the Terra Funds to Terra Property Trust, Inc. (“Terra Property Trust”), a newly-formed and wholly-owned subsidiary of Terra Fund 5, in exchange for the common shares of Terra Property Trust. Upon completion of the Merger, Terra Fund 5 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.

Given the common control and common management that existed with respect to Terra Funds 1 through 4 for the year ended December 31, 2015, management believes that one set of combined consolidated financial statements for Terra Funds 1 through 4 provides more meaningful information compared to separate financial statements for various different entities under common control that are being combined.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Combination and Consolidation

The combined consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and include all of the Company’s accounts and those of its consolidated subsidiaries. The combined 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 period presented. All intercompany balances and transactions have been eliminated. The Company’s entities were investment companies, as defined under U.S. GAAP, and applies accounting and reporting guidance in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 946, Financial Services - Investment Companies.

For the year ended December 31, 2015, the financial statements have been prepared on the combined basis because Terra Funds 1 through 4 were operating under the common control of TCP, as TCP indirectly held a controlling interest in Terra Funds 1 through 4 based on the provisions of FASB ASC 810-10, Consolidation, prior to the adoption of FASB Accounting Standards Update (“ASU”) 2015-02. Management believes that one set of combined financial statements for Terra Funds 1 through 4 provides more meaningful information compared to separate financial statements for various different entities under common control that are being combined.

F-66

Notes to Combined Consolidated Financial Statements

Use of Estimates

The preparation of combined 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 disclosures of contingent assets and liabilities at the date of the combined consolidated financial statements and the reported amounts of gains (losses), income and expenses during the reporting period. Actual results could significantly differ from those estimates. The most significant estimates inherent in the preparation of the Company’s combined consolidated financial statements is the valuation of investments.

Equity Investment in Terra Park Green

Equity investment in Terra Park Green represents the equity interest in Terra Park Green, a wholly-owned entity that owned a multi-tenant office portfolio acquired through deed in lieu of foreclosure. The equity investment was initially recorded at cost, net of financing. Subsequent to acquisition, the equity investment was reported, at each reporting date, at fair value on the combined consolidated statement of financial condition. Changes in fair value were reported in net increase in unrealized appreciation on investments on the combined consolidated statement of operations. This equity investment made monthly distributions at an annual rate of 12%. To the extent that the underlying office portfolio generated net operating income, the distributions in the amount of the net operating income would be recorded as dividend income. Any excess of distributions over its net operating income were recorded as return of capital.

Investment Transactions

The Company records investment transactions on the trade date. The Company applies a fair value accounting policy to its investments with changes in unrealized gains and losses recognized in the combined consolidated statement of operations. Realized gains or losses on dispositions of investments represent the difference between the carrying value based on the specific identification method, and the proceeds received from the sale or maturity (exclusive of any prepayment penalties). Realized gains and losses are recognized in the combined consolidated statement of operations. The amortized cost of investments represents the original cost adjusted for the accretion of discounts on investments and exit fees, and the amortizations of premiums on investments and origination fees.

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.

Interest Income: Interest income is accrued based upon the outstanding principal amount and contractual terms of the loans and preferred equity investments that the Company expects to collect and it is accrued and recorded on a daily basis. Discounts and premiums on investments purchased are accreted or amortized over the expected life of the respective investment using the effective yield method, and are included in interest income in the combined consolidated statement of operations. Loan origination fees and exit fees, net of portions attributable to obligations under participation agreements, are capitalized and amortized or accreted to interest income over the life of the investment using the effective interest method. Income accrual is generally suspended for loans at the earlier of the date at which payments become 90 days past due or when, in the opinion of the Manager, recovery of income and principal becomes doubtful. Interest is then recorded on the basis of cash received until accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed.

The Company holds debt investments in its portfolio that contain paid-in-kind (“PIK”) interest provisions. The PIK interest, which represents contractually deferred interest that is added to the principal balance that is due at maturity, is recorded on the accrual basis.

Other Revenues: Prepayment fee income is recognized as prepayments occur. All other income is recognized when earned.

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.

F-67

Notes to Combined Consolidated Financial Statements

Restricted Cash

Restricted cash represents cash held as additional collateral by the Company on behalf of the borrowers related to the investments in loans or preferred equity instruments for the purpose of such borrowers making interest and property-related operating payments. Restricted cash is not available for general corporate purposes. The related liability is recorded in “Interest reserve and other deposits held on investments” on the combined consolidated statement of financial condition.

Participation Interests

The Company follows the guidance in ASC 860, Transfers and Servicing (“ASC 860”), when accounting for loan participations. Such guidance requires participation interests meet certain criteria in order for the interest transaction to be recorded as a sale. Loan participations from the Company which do not qualify for sale treatment remain on the Company’s balance sheets and the proceeds are recorded as obligations under participation agreements. For the investments which participation has been granted, the interest earned on the entire loan balance is recorded within “Interest income” and the interest related to the participation interest is recorded within “Interest expense from obligations under participation agreements” in the accompanying combined consolidated statement of operations. See “Obligations under Participation Agreements” in Note 4 for additional information.

Fair Value of Financial Instruments

The Company adopted ASC 825-10-25-1 Financial Instruments — Fair Value Option (“ASC 825”) and elected the fair value option for its obligations under participation agreements. The Company believes that by electing the fair value option for these financial instruments, it provides consistent measurement of the assets and liabilities which relate to the partial loan sales mentioned above.

Income Taxes

No provision for U.S. Federal and state income taxes has been made in the accompanying combined consolidated financial statements, as individual members are responsible for their proportionate share of the Company’s taxable income. The Company, however, is liable for New York City Unincorporated Business Tax (the “NYC UBT”) and various other municipality taxes for the year ended December 31, 2015. 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.

Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the 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 combined consolidated statement of operations. For the year ended December 31, 2015, the Company did not incur any interest or penalties. Although the Company files federal and state tax returns, its major tax jurisdiction is federal. The Company’s inception-to-date federal tax years remain subject to examination by the Internal Revenue Service.

Recent Accounting Pronouncements

In May 2014, the FASB issued 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. In July 2015, the FASB postponed the effective date of this new guidance from January 1, 2017 to January 1, 2018. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company does not expect the adoption of ASU 2014-09 to have a material impact on its consolidated financial statements and disclosure.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. The amendments provide a definition of the term “substantial doubt” and include principles for considering the mitigating effect of management’s plans. The amendments also require an evaluation every reporting period, including interim periods for a period of one year after the date that the financial statements are issued (or available to be issued), and certain disclosures when substantial doubt is alleviated or not alleviated. The amendments in this update are effective for

F-68

Notes to Combined Consolidated Financial Statements

reporting periods ending after December 15, 2016. The adoption of ASU 2016-15 did not have a material impact on its financial statements and disclosure.

In April 2015, the FASB issued ASU 2015-03, Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. ASU 2015-03 is effective for fiscal years that begin after December 15, 2015 and early adoption is permitted. The adoption of ASU 2016-15 did not have a material impact on its financial statements and disclosure.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustment (“ASU 2015-16”). ASU 2015-16 requires that an acquirer recognize adjustments identified during the business combination measurement period in the reporting period in which the adjustment amounts are determined. The effects on earnings due to changes in depreciation, amortization, or other income effects as a result of the change are also recognized in the same period’s financial statements. ASU 2015-16 also requires that acquirers present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings that would have been recorded in previous reporting periods if the adjustment had been recognized as of the acquisition date. ASU 2015-16 is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years, early adoption is permitted, and prospective application is required for adjustments that are identified after the effective date of this update. The adoption of ASU 2016-15 did not have a material impact on its financial statements and disclosure.

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 annual and interim periods beginning after December 15, 2017, and early adoption is not permitted for public business entities. Management is currently evaluating the impact these changes will have on the Company’s 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; for all other entities, the final lease standard will be effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. 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 the Company’s consolidated financial statements 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. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition method. The Company does not expect the adoption of ASU 2016-15 to have a material impact on its financial statements and disclosure.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, a Consensus of the FASB’s Emerging Issues Task Force (“ASU 2016-18”). ASU 2016-18 requires that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 does not provide a definition of restricted cash or restricted cash equivalents. ASU 2016-18 is effective for public business entities for annual and interim periods beginning after December 15, 2017. For all other entities, ASU 2016-18 is effective for fiscal years beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period,

F-69

Notes to Combined Consolidated Financial Statements

and should be applied using a retrospective transition method. Management is currently evaluating the impact of this change will have on the Company’s 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 financial statements and disclosures.

Note 3. Investments at Fair Value

Portfolio Summary

The following table provides a summary of the Company’s non-controlled investment portfolio as of December 31, 2015:

	December 31, 2015
Number of investments		26
Principal balance	$	145,420,033
Amortized cost	$	146,499,313
Fair value	$	150,539,620
Weighted-average interest rate		13.44	%
Weighted-average remaining terms (year) (1)		2.52

(1) Reflects the current maturity dates.

In addition, the Company, through its equity interest in Terra Park Green, purchased a multi-tenant office portfolio comprised of two commercial office building parks and the related operations in South Carolina on March 2, 2015, as part of a deed in lieu of transaction where the borrower conveyed its interest in the properties in satisfaction of the underlying loan. This investment made monthly distributions at an annual rate of 12%. For the year ended December 31, 2015, the Company received distributions totaling approximately of $1.2 million, all of which were recorded as return of capital because Terra Park Green generated a net operating loss due to depreciation and amortization expense recorded for the period. As of December 31, 2015, this investment had an unamortized cost of approximately $12.5 million and fair value of approximately $16.9 million and is reflected as “Equity investment in Terra Park Green” in the combined consolidated statement of financial condition.

Investment Activities

The following table presents the activities of the Company’s investment portfolio for the year ended December 31, 2015:

	Loans and Preferred Equity Investments			Loans Through Participation Interests		Equity Investment in Terra Park Green			Total
Balance, January 1, 2015	$	160,762,909		$	7,556,463	$	—		$	168,319,372
New investments		22,858,887			—		13,949,217			36,808,104
Principal repayments (1)		(41,655,484	)		—		(1,404,715	)		(43,060,199	)
PIK interest (2)		386,656			—		—			386,656
Accretion of exit fees, net		34,314			9,806		—			44,120
Net change in unrealized appreciation on investments (3)		380,719			205,350		4,355,498			4,941,567
Balance, December 31, 2015	$	142,768,001		$	7,771,619	$	16,900,000		$	167,439,620

F-70

Notes to Combined Consolidated Financial Statements

(1) Amount for equity investment in Terra Park Green represents a return of investment.

(2) Certain investments in the Company’s portfolio contains PIK interest provisions. The PIK interest represents contractually deferred interest that is added to the principal balance. PIK interest related to obligations under participation agreements amounted to $41,240 for the year ended December 31, 2015.

(3) Net change in unrealized depreciation on obligations under participation agreements was $27,292 for the year ended December 31, 2015.

Portfolio Information

The tables below detail the types of investments in the Company’s investment portfolio, as well as the property type and geographic location of the properties securing these investments:

	December 31, 2015
Investment Structure	Principal		Amortized Cost		Fair Value		% of Total			% of Net Assets
Mezzanine loans	$	92,448,775	$	92,999,097	$	96,754,990		57.8	%		62.1	%
Preferred equity investments		35,395,652		35,760,234		36,044,648		21.5	%		23.1	%
First mortgages		13,980,000		14,111,501		14,111,501		8.4	%		9.1	%
Equity investment in Terra Park Green		12,544,502		12,544,502		16,900,000		10.1	%		10.9	%
Other (1)		3,595,606		3,628,481		3,628,481		2.2	%		2.3	%
Total	$	157,964,535	$	159,043,815	$	167,439,620		100.0	%		107.5	%

(1) Other represents the unfunded cash from a credit facility.

	December 31, 2015
Property Type	Principal		Amortized Cost		Fair Value		% of Total			% of Net Assets
Hotel	$	50,542,000	$	50,959,982	$	52,375,076		31.3	%		33.6	%
Office		36,540,600		36,731,608		41,087,107		24.5	%		26.4	%
Multifamily		23,569,381		23,768,318		24,936,501		14.9	%		16.0	%
Manufactured housing		15,000,000		15,000,000		15,882,000		9.5	%		10.2	%
Land		13,980,000		14,111,501		14,111,501		8.4	%		9.1	%
Student housing		5,700,000		5,724,445		6,184,174		3.7	%		4.0	%
Retail		9,036,948		9,119,480		9,234,780		5.5	%		5.9	%
Other (1)		3,595,606		3,628,481		3,628,481		2.2	%		2.3	%
Total	$	157,964,535	$	159,043,815	$	167,439,620		100.0	%		107.5	%

(1) Other represents the unfunded cash from a credit facility.

F-71

Notes to Combined Consolidated Financial Statements

	December 31, 2015
Geographic Location	Principal		Amortized Cost		Fair Value		% of Total			% of Net Assets
United States
Texas	$	36,565,479	$	36,857,109	$	37,074,814		22.1	%		23.8	%
South Carolina		18,544,502		18,580,440		23,694,398		14.2	%		15.2	%
Pennsylvania		17,722,000		17,887,318		17,887,318		10.7	%		11.5	%
Georgia		14,775,000		14,890,362		15,374,812		9.2	%		9.9	%
California		14,325,000		14,455,994		14,776,644		8.8	%		9.5	%
Michigan		13,596,834		13,596,834		14,396,328		8.6	%		9.2	%
North Carolina		5,173,122		5,218,276		5,257,931		3.1	%		3.4	%
Alabama		5,103,166		5,174,435		5,336,004		3.2	%		3.4	%
Oregon		5,000,000		5,039,927		5,538,477		3.3	%		3.5	%
Florida		4,500,000		4,500,000		4,551,165		2.7	%		2.9	%
New York		4,500,000		4,538,597		4,888,247		2.9	%		3.1	%
Ohio		4,098,022		4,135,491		4,135,491		2.5	%		2.7	%
Massachusetts		4,000,000		4,033,766		4,142,246		2.5	%		2.7	%
Other		10,061,410		10,135,266		10,385,745		6.2	%		6.7	%
Total	$	157,964,535	$	159,043,815	$	167,439,620		100.0	%		107.5	%

(1) Other includes $3 million of properties in Tennessee, $2.7 million of properties in Indiana, $0.8 million of properties in Virginia and $3.6 million of unfunded cash from a credit facility.

Obligations Under Participation Agreements

As discussed in Note 2, the Company follows the guidance in ASC 860, when accounting for loan participations. Such guidance requires participation interests meet certain criteria in order for the interest transaction to be recorded as a sale. Loan participations from the Company which do not qualify for sale treatment remain on the Company’s balance sheets and the proceeds are recorded as obligations under participation agreements. As of December 31, 2015, the Company elected the fair value option under ASC 825, Financial Instruments relating to accounting for debt obligations at their fair value for its obligations under participation agreements which arose due to partial loan sales which did not meet the criteria for sale treatment under ASC 860. As of December 31, 2015, obligations under participation agreements had a fair value of approximately $8.2 million and the fair value of the loans that are associated with these obligations under participation agreements was approximately $30.2 million (see “Participation Agreements” in Note 4). The weighted average interest rate on the obligations under participation agreements was approximately 14.7% as of December 31, 2015.

Note 4. Related Party Transactions

Consent Solicitation

Terra Capital Markets 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 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. Total of these fees amounted to approximately $5.8 million for the year ended December 31, 2015, of which $3.7 million was paid to Terra Capital Markets, $0.8 million was reimbursed to the Manager and $1.3 million was paid by the Terra Funds directly. The Company’s portion of the allocated merger transaction fees for the year ended December 31, 2015 was $3.3 million, as reflected on the consolidated statements of operations.

F-72

Notes to Combined Consolidated Financial Statements

Operating Agreements

Terra Funds 1 through 4 entered into operating agreements with the Manager (collectively, the “Operating Agreements”) whereby the Manager was responsible for the Company’s day-to-day operations. The following table presents a summary of fees paid and expenses reimbursed to the Manager in connection with providing services as the Manager to the Company that are included on the combined consolidated statement of operations for the year ended December 31, 2015.

	Year Ended December 31, 2015
Origination fee expense (1)	$	303,863
Asset management fee		1,607,108
Asset servicing fee		384,502
Operating expenses reimbursed to the Manager		1,857,204
Disposition fee (2)		308,118
Total	$	4,460,795

(1) Origination fee expense is generally offset with origination 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 combined consolidated statement of operations. Any excess is deferred and amortized to interest income over the term of the investment.

Origination Fee Expense

Pursuant to the Operating Agreements, the Manager or its affiliates receives an origination fee in the amount of 1% of the amount used to originate, fund, acquire or structure real estate-related loans, including any third-party expenses related to such investments. In the event that the term of any real estate-related loan held by Terra Fund 4 is extended, the Manager or its affiliates also receives an origination fee equal to the lesser of (i) 1% of the principal account of the loan being extended or (ii) the amount of fee paid to Terra Fund 4 by the borrower in connection with such extension. For Terra Funds 1 through 3, if the term of any real estate-related loans is extended, the Manager or its affiliates receives an origination fee equal to the amount of fee paid to Terra Funds 1 through 4 by the borrower in connection with such extension.

Asset Management Fee

Under the terms of the Operating Agreements, the Manager or its affiliates provides the Company with certain investment management services in return for a management fee. The Company pays a monthly asset management fee at an annual rate of 1% of the aggregate funds under management, which includes the loan origination price or aggregate gross acquisition price, as defined in the Operating Agreements, for each real estate related investment and cash held by the Company.

Asset Servicing Fee

The Manager or its affiliates receives from the Company a monthly servicing fee at an annual rate of up to 0.25% of the aggregate gross origination price or acquisition price, as defined in the Operating Agreements, for each real estate-related loan held by the Company.

Operating Expenses

The Company reimburses the Manager for operating expenses incurred in connection with services provided to the operations of the Company, including the Company’s allocable share of the Manager’s overhead, such as rent, employee costs, utilities, and technology costs.

Disposition Fee

Pursuant to the Operating Agreements, the Manager or its affiliates receives a disposition fee in the amount of 1% of the gross sale price received by the Company from the disposition of any real estate-related investment, or any portion of, or interest in, any real estate-related investment. The disposition fee is paid concurrently with the closing of any such disposition of all or any portion of any real estate-related investment or any interest therein, which is the lesser of (i) 1% of the principal amount of the loan or debt-

F-73

Notes to Combined Consolidated Financial Statements

related investment prior to such transaction or (ii) the amount of the fee paid by the borrower in connection with such transaction. If the Company takes ownership of a property as a result of a workout or foreclosure of a loan, the Company will pay a disposition fee upon the sale of such property equal to 1% of the sales price.

Due to Manager

As of December 31, 2015, approximately $1.3 million was due to the Manager, as reflected on the combined consolidated statement of financial condition, primarily related to the present value of the disposition fee due to the Manger and merger transaction fees paid by the Manager.

Participation Agreements

In the normal course of business, the Company may enter into participation agreements (“PAs”) with related parties, primarily other affiliated funds managed by the Terra Capital Partners or its affiliates (the “Participants”). The purpose of the PAs is to allow the Company and an affiliate to originate a specified investment when, individually, the Company does not have the liquidity to do so or to achieve a certain level of portfolio diversification. The Company may transfer portions of its investments to other Participants or it may be a Participant to an investment held by another entity.

ASC 860, Transfers and Servicing, establishes accounting and reporting standards for transfers of financial assets. ASC 860-10 provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. The Company has determined that the participation agreements it enters into are accounted for as secured borrowings under ASC 860 (See “Participation Interests” in Note 2 and “Obligations under Participation Agreements” in Note 3).

Participation Interests Purchased by the Company

The below table lists the investment interests participated in by the Company via a PA as of December 31, 2015. In accordance with the terms of the PA, the Participant’s rights and obligations, as well as the proceeds received from the related borrower/issuer of the investment, are based upon its pro rata participation interest in the investment.

	Participating Interests			Principal Balance		Fair Value
L.A. Warner Hotel Partners, LLC (1)		37.50	%	$	7,500,000	$	7,771,619

(1) Participation through Terra Fund 5, an affiliated fund.

Transfers of Participation Interest by the Company

The following table summarizes the investments that were subject to PAs with affiliated entities as of December 31, 2015:

					Transfers Treated as Obligations Under Participation Agreements
	Principal		Fair Value		% Transferred			Principal (2)		Fair Value (2)
SMR Hospitality II, LLC (1)	$	3,000,000	$	3,289,732		16.67	%	$	500,000	$	548,289
Brass Centerview 2012, LLC (1)		16,128,652		16,279,919		18.82	%		3,036,080		3,065,389
Capital Square Realty Advisors, LLC (1)		10,500,000		10,596,003		42.86	%		4,500,000		4,541,144
								$	8,036,080	$	8,154,822

(1) Participant is Terra Fund 5.

(2) Amounts transferred may not agree to the proportionate share of the principal balance and fair value due to the rounding of percentage transferred.

These investments are held in the name of the Company, but each of the Participant’s rights and obligations, including interest income and other income (e.g., exit fee, prepayment income) and related fees/expenses (e.g., disposition fees, asset management and asset servicing fees), are based upon their respective pro rata participation interest in such participated investments, as specified in the respective PA. The Participants’ share of the investments is repayable only from the proceeds received from the related

F-74

Notes to Combined Consolidated Financial Statements

borrower/issuer of the investments and, therefore, the Participants also are subject to credit risk (i.e., risk of default by the underlying borrower/issuer). Pursuant to the PAs with these entities, the Company receives and allocates the interest income and other related investment income to the Participants based on their respective pro rata participation interest. The Participants pay related expenses also based on their respective pro rata participation interest (i.e., asset management and asset servicing fees, disposition fees) directly to the Manager.

Note 5. Fair Value Measurements

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

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

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

Level 3 — Significant unobservable inputs are based on the best information available in the circumstances, to the extent observable inputs are not available, including the Company’s own assumptions used in determining the fair value of investments. Fair value for these investments are determined using valuation methodologies that consider a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance, and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant management judgment.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

Assets and Liabilities Reported at Fair Value

The following table summarizes the Company’s assets and liabilities carried at fair value on a recurring basis as of December 31, 2015:

	December 31, 2015
	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Investments:
Loans and preferred equity investments	$	—	$	—	$	142,768,001	$	142,768,001
Investments through participation interests		—		—		7,771,619		7,771,619
Equity investment in Terra Park Green		—		—		16,900,000		16,900,000
Total investments	$	—	$	—	$	167,439,620	$	167,439,620
Liabilities:
Obligations under Participation Agreements	$	—	$	—	$	8,154,822	$	8,154,822

F-75

Notes to Combined Consolidated Financial Statements

Changes in Level 3 investments for the year ended December 31, 2015 were as follows:

	Loans and Preferred Equity Investments			Investments through Participation Interests		Equity Investment in Terra Park Green			Total Investments			Obligations under Participation Agreements
Balance, January 1, 2015	$	160,762,909		$	7,556,463	$	—		$	168,319,372		$	4,616,636
Investments made and purchases		22,858,887			—		13,949,217			36,808,104			5,500,000
Repayments of investments (1)		(41,655,484	)		—		(1,404,715	)		(43,060,199	)		(2,030,217	)
PIK interest		386,656			—		—			386,656			41,240
Net change in unrealized appreciation on investments and obligations under participation agreements		380,719			205,350		4,355,498			4,941,567			(27,292	)
Accretion of exit fees, net		34,314			9,806		—			44,120			54,455
Balance, December 31, 2015	$	142,768,001		$	7,771,619	$	16,900,000		$	167,439,620		$	8,154,822
Net change in unrealized appreciation on investments and obligations under participation agreements for the period relating to those Level 3 assets that were still held by the Company at the end of the year	$	853,491		$	205,350	$	4,355,498		$	5,414,339		$	35,675

(1) Amount for equity investment in Terra Park Green represents a return of capital.

Investments made and purchases represent the acquisition of new investments at cost. Repayments of investments represent principal payments received during the year.

Transfers between levels, if any, are recognized at the beginning of the period in which transfers occur. For the year ended December 31, 2015, there were no transfers.

The Company estimated that its other financial assets and liabilities had fair values that approximated their carrying values at December 31, 2015 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, all of which are included in Level 3 of the fair value hierarchy, and therefore these investments are valued utilizing a yield approach, i.e. a discounted cash flow methodology to arrive at an estimate of the fair value of each respective investment in the portfolio using an estimated market yield. In following this methodology, investments are evaluated individually, and management takes into account, in determining the risk-adjusted discount rate for each of the Company’s investments, relevant factors, 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, the portfolio company’s ability to make payments, its net operating income, debt-service coverage ratio (“DSCR”), 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.

The Manager designates a valuation committee to oversee the entire valuation process of the Company’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 Company investments being valued as well as the inputs used in the proprietary valuation model. Valuations determined by the valuation committee are supported by pertinent data and, in addition to a proprietary valuation model, are based on market data, industry accepted third-party valuation models and discount rates or other methods the valuation committee deems to be appropriate.

F-76

Notes to Combined Consolidated Financial Statements

The following tables summarize the valuation techniques and significant unobservable inputs used by the Company to value the Level 3 investments as of December 31, 2015. The tables are not intended to be all-inclusive, but instead identify the significant unobservable inputs relevant to the determination of fair values.

					Year Ended December 31, 2015
Asset Category	Fair Value		Primary Valuation Technique	Unobservable Inputs	Minimum			Maximum			Weighted Average
Assets:
Loans and preferred equity investments	$	142,768,001	Discounted cash flow	Discount rate		8.60	%		18.18	%		11.86	%
Investments through participation interests		7,771,619	Discounted cash flow	Discount rate		10.90	%		10.90	%		10.90	%
Equity investment in Terra Park Green		16,900,000	Appraised value
Total Level 3 Assets	$	167,439,620
Liabilities:
Obligations under Participation Agreements	$	8,154,822	Discounted cash flow	Discount rate		10.15	%		13.94	%		13.28	%

Note 6. 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 investments 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 investments, valuation of the investments may be difficult, as there generally will be no established markets for these investments. As the Company’s investments were carried at fair value with fair value changes recognized in the combined consolidated statement of operations, all changes in market conditions would directly affect the Company’s members’ capital.

Credit Risk

Credit risk represents the potential loss that the Company would incur if the borrowers failed to perform pursuant to the terms of their obligations to the Company. Thus, the value of the underlying collateral, the creditworthiness of the borrower or other counterparty, and the priority of the Fund’s lien on the borrower’s assets are of importance. The Company minimizes its exposure to credit risk by limiting exposure to any one individual borrower and any one asset class. Additionally, the Company 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 ratio, DSCR and the debt yield. The Company 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, the Company 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

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

F-77

Notes to Combined Consolidated Financial Statements

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 the fair value of the Company’s interest-bearing financial instruments.

Prepayment Risk

Prepayments can either positively or adversely affect the yields on investments. 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 the Company’s control, and consequently, such prepayment rates cannot be predicted with certainty. If the Company does not collect a prepayment fee in connection with a prepayment or is unable to invest the proceeds of such prepayments received, the yield on the portfolio will decline. In addition, the Company 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 the Company may fail to recoup fully its cost of acquisition of certain investments.

Use of Leverage

As part of the Company’s investment strategy, the Company may borrow and utilize leverage. While borrowing and leverage present opportunities for increasing total return, they may have the effect of potentially creating or increasing losses.

Property Acquisitions

The Company 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 acquisition of the collateral and add cost to such actions.

There can be no assurance that the Company will be able to successfully operate, hold or maintain the collateral in accordance with the Company’s expectations.

Further, there can be 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 sale of the real estate may be less than the amount invested in the loan, and its fair value and such differences could be material.

Note 7. Commitments and Contingencies

Certain of the Company’s investments contain provisions for future fundings. There were no such fundings as of December 31, 2015.

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.

See Note 4 for a discussion of the Company’s commitments to the Manager and its affiliates.

F-78

Notes to Combined Consolidated Financial Statements

Note 8. Members’ Capital

Capital Contributions

The offering periods for Terra Funds 1 through 4 have ended prior to January 1, 2015, and Terra Funds 1 through 4 stopped accepting capital contributions.

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 the non-managing members in proportion to their unit holdings until they receive a return of their initial Deemed Capital Contribution, as defined in the Operating Agreements, plus a 9.0% cumulative, non-compounded return on unreturned capital contributions, after which time distributions are made 15% to the Manager (“carried interest”) and 85% to the non-managing members. In connection with the Merger, the Manager waived its carried interest of approximately $0.1 million earned from Terra Fund 1 as of December 31, 2015.

For the year ended December 31, 2015, the Terra Funds 1 through 4 made total capital distribution to non-managing members of approximately $28.7 million, of which approximatively $11.6 million was a return of capital.

Capital Redemptions

On June 22, 2015, the Terra Fund 1 redeemed one membership unit from a non-managing member at the redemption price of $41,900.

On December 31, 2015, in connection with the consent solicitation on the Merger, and as a result of Terra Funds 1 through 4 inability to reaffirm certain investors’ accredited status, Terra Funds 1 through 4 redeemed approximately 62 membership units for a total amount of approximately $2.4 million. Also on this date, approximately 25 membership units held by qualified Employee Retirement Income Security Act plan investors were redeemed for a total amount of approximately $1.0 million. As of December 31, 2015, unfunded redemptions amounted to $3.4 million as reflected in the Redemption liability on the combined consolidated statement of financial condition.

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 December 31, 2015, no such reserve was established.

Allocation of Income (Loss)

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

Member Units

Each membership interest was offered for a price of $50,000 per unit. The following table provides a roll forward of the units outstanding of Terra Funds 1 through 4 for the year ended December 31, 2015:

	Managing Member		Non-Managing Members			Total
Units outstanding, January 1, 2015		—		3,903.7			3,903.7
Units adjusted for return of capital distribution		—		(231.0	)		(231.0	)
Units redeemed		—		(77.8	)		(77.8	)
Units outstanding, December 31, 2015		—		3,594.9			3,594.9

Note 10. 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 year ended December 31, 2015. 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.

F-79

Notes to Combined Consolidated Financial Statements

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 financial highlights presented below were calculated on a combined basis. Therefore, the computation of such ratios and returns for a member of each of Terra Funds 1 through 4 may vary from these ratios and returns. The following summarizes the Company’s financial highlights for the year ended December 31, 2015:

	Year Ended December 31, 2015
Per unit operating performance:
Net asset value per unit, beginning of year	$	43,853
Increase in members’ capital from operations (1):
Net investment income		3,051
Net change in unrealized appreciation on investments		1,297
Net change in unrealized appreciation on obligations under participation agreements		7
Total increase in members’ capital from operations		4,355
Distributions to member (2):
Capital distributions		(4,500	)
Net decrease in members’ capital resulting from distributions		(4,500	)
Capital share transactions:
Other (3)		(382	)
Net decrease in members’ capital resulting from capital share transactions		(382	)
Net asset value per unit, end of year	$	43,326
Ratios to average net assets:
Expenses		5.08	%
Net investment income		6.98	%
IRR, beginning of year		5.06	%
IRR, end of year		6.30	%

(1) The per unit data was derived by using the weighted average units outstanding during the applicable period, which was 3,810 units for the year ended December 31, 2015.

(2) The per unit data for distributions reflects the actual amount of distributions paid per share during the period.

(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.

Note 11. Subsequent Events

Management has evaluated subsequent events through April 28, 2017, the date the combined 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 combined consolidated financial statements.

F-80

EX-2.1

Exhibit 2.1

TERRA SECURED INCOME FUND 5, LLC

TERRA SECURED INCOME FUND MERGER SUB, LLC

AND

TERRA SECURED INCOME FUND, LLC

AGREEMENT AND PLAN OF MERGER

CONTENTS

Clause		Page
Article I Definitions		2
Section 1.01.	Definitions	2
Section 1.02.	Rules of Application	5
Article II The Merger		5
Section 2.01.	Effect of the Merger	5
Section 2.02.	Closing Date	5
Section 2.03.	Effect on Terra Fund Units	6
Section 2.04.	Payment of Merger Consideration	6
Section 2.05.	Treatment of Manager's interest	6
Section 2.06.	Treatment of Equity Interests of Merger Sub	6
Section 2.07.	Termination	6
Section 2.08.	Tax Treatment	7
Section 2.09.	Officers and Directors	7
Article III Conditions and Covenants		8
Section 3.01.	Conditions to the Obligations of the Combined Company and Merger Sub	8
Section 3.02.	Conditions to the Obligations of the Terra Fund	8
Section 3.03.	Covenants of the Terra Fund	8
Article IV Representations and Warranties		8
Section 4.01.	Representations and Warranties of the Terra Fund	8
Section 4.02.	Representations and Warranties of the Combined Company	10
Section 4.03.	Representations and Warranties of Merger Sub	11
Article V Indemnification		12
Section 5.01.	Indemnification	12
Section 5.02.	Method of Asserting Claims	12
Section 5.03.	Survival	13
Section 5.04.	Waiver of Claims	13
Article VI Miscellaneous		13
Section 6.01.	Entire Agreement; No Amendment	13
Section 6.02.	Certain Expenses	14

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Section 6.03.	Notices	14
Section 6.04.	No Assignment	14
Section 6.05.	Governing Law	14
Section 6.06.	Multiple Counterparts	14
Section 6.07.	Further Assurances	15
Section 6.08.	Miscellaneous	15
Section 6.09.	Invalid Provisions	15
Section 6.10.	Attorneys' Fees	15
Section 6.11.	Waiver of Jury Trial	15

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THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is dated as of January 1, 2016, by and among TERRA SECURED INCOME FUND 5, LLC, a Delaware limited liability company (the "Combined Company"), TERRA SECURED INCOME FUND MERGER SUB, LLC, a Delaware limited liability company and a wholly owned subsidiary of Combined Company (the "Merger Sub"), Terra Secured Income Fund, LLC, a Delaware limited liability company (the "Terra Fund"), and Terra Capital Advisors, LLC, a Delaware limited liability company and the manager of the Terra Fund (in such capacity, the "Terra Fund Manager") and the Combined Company (in such capacity, the "Manager").

W I T N E S S E T H:

WHEREAS , the parties to this Agreement intend that, on the terms and subject to the conditions set forth in this Agreement, the Terra Fund be merged with Merger Sub, with the Terra Fund being the surviving limited liability company in the merger (the "Merger");

WHEREAS, the value of the consideration (the "Merger Consideration") to be paid to the unitholders of the Terra Fund (the "Terra Fund Unitholders") shall equal the Exchange Value of such Terra Fund to be issued as set forth on Exhibit A to this Agreement;

WHEREAS, in the Merger, the Merger Consideration shall be paid to the Terra Fund Unitholders, as hereinafter provided, either through the issuance of regular units in the Combined Company ("Continuing Income Units") or termination units in the Combined Company ("Termination Units"), which Continuing Income Units or Termination Units shall be valued at the Exchange Value per unit of the Combined Company (or $43,410 per unit), or through the payment of cash;

WHEREAS, only Terra Fund Unitholders that the Manager has established it has a reasonable basis to believe qualify as "accredited investors" under Rule 501(a) of Regulation D under the Securities Act ("AI Terra Fund Unitholders") are eligible to receive Continuing Income Units or Termination Units in the Merger;

WHEREAS, the Terra Fund Manager has (a) determined that it is in the best interests of the Terra Fund, and declared it advisable, to enter into this Agreement; (b) directed that the Merger be submitted to the Terra Fund Unitholders for their consideration and approval; and (c) consented to, on the terms and subject to the conditions set forth in this Agreement, the Merger and the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby;

WHEREAS, the Terra Fund Unitholders representing a majority of the outstanding Terra Funds Units (as herein defined) have approved the Merger and the transactions contemplated hereby;

WHEREAS, the Terra Fund Manager has been authorized to approve any amendments to the operating agreement of the Terra Fund that the Terra Fund Manager in its sole discretion determines are useful or required in furtherance of the Merger;

WHEREAS, the Combined Company as sole member of Merger Sub has approved, and the Manager, as manager of the Combined Company, has consented to, on the terms and subject

to the conditions set forth in this Agreement, the Merger, and the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby;

WHEREAS, the member's representing a majority of the Continuing Income Units in the Combined Company have approved the Merger and the transactions contemplated hereby; and

WHEREAS, each of the parties hereto has been advised by the other parties and acknowledges that such other parties would not be entering into this Agreement without the representations, warranties and covenants which are being made and agreed to herein by each party hereto and that such parties are entering into this Agreement in reliance on such representations, warranties and other covenants;

NOW, THEREFORE, in consideration for the mutual agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01. Definitions. The following terms as used in this Agreement shall have the meanings attributed to them as set forth below. Other capitalized terms used herein shall, unless the context otherwise requires, have the meanings assigned to such terms herein.

"Act" has the meaning set forth in Section 2.01.

"Agreement" has the meaning set forth in the preamble.

"AI Terra Fund Unitholder" has the meaning set forth in the recitals.

"Authority" means a governmental body or agency having jurisdiction over a Terra Fund, the Combined Company or Merger Sub, as applicable.

"Benefit Plan Investor" is a Plan that is subject to Title I of ERISA or Section 4975 of the Code and any entity whose underlying assets are deemed to include the assets of a Plan by reason of a Plan's investment in the entity, as determined for purposes of ERISA and the Plan Assets Regulation, or otherwise.

"Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in the State of New York are authorized or required by law to close.

"Closing" and "Closing Date" have the meanings set forth in Section 2.02.

"Code" means the Internal Revenue Code of 1986, as amended, or corresponding provisions of subsequently enacted federal revenue laws.

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"Combined Company" has the meaning set forth in the preamble.

"Combined Company Material Adverse Effect" means any material adverse change in any of the assets, business, condition (financial or otherwise), results of operation or prospects of the Combined Company and its subsidiaries taken together.

"Continuing Income Units" has the meaning set forth in the recitals.

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.

"Financial Statements" has the meaning set forth in Section 4.01(e).

"Governmental Authority" means any government or agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign.

"Indemnified Parties" means the Combined Company, Merger Sub and each of their subsidiaries, equity holders, affiliates, directors, officers and employees.

"Indemnifying Party" means the Terra Fund.

"Laws" means laws, statutes, rules, regulations, codes, orders, ordinances, judgments, injunctions, decrees and policies of any Governmental Authority.

"Liabilities" means liabilities, obligations or commitments of any nature whatsoever, asserted or unasserted, known or unknown, absolute or contingent, accrued or unaccrued, matured or unmatured or otherwise.

"Liens" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), other charge or security interest or any preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement), and any obligations under capital leases having substantially the same economic effect as any of the foregoing.

"Loss" or "Losses" means any and all direct claims, losses, damages, costs, liabilities, fines, penalties and expenses, including, without limitation, any attorney's fees and disbursements, but excluding any contingent, punitive and consequential items.

"Manager" has the meaning set forth in the preamble.

"Memorandum" means the Consent Solicitation and Private Offering Memorandum dated November 13, 2015, together with any supplements thereto adopted prior to the date of this Agreement.

"Merger" has the meaning set forth in the recitals.

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"Merger Consideration" has the meaning set forth in the recitals.

"Merger Procedures" means the procedures specified in the Memorandum for determining which Terra Fund Unitholders receive Continuing Income Units, Termination Units or cash in the Merger.

"Merger Sub" has the meaning set forth in the preamble.

"Merger Sub Material Adverse Effect" means any material adverse change in any of the assets, business, condition (financial or otherwise), results of operation or prospects of Merger Sub and its subsidiaries taken together.

"Organizational Documents" means (i) the charter, articles of organization, certificate of formation or certificate of limited partnership for such Person, (ii) the bylaws, operating agreement, limited liability company agreement, or limited partnership agreement for such Person and (iii) any certificate of qualification or foreign entity registration for such Person (together with all supplements, amendments, modifications, consents and waivers related to any of the foregoing).

"Person" means any natural person, corporation, partnership, trust, unincorporated association or other legal entity.

"Plan" means (i) any "employee benefit plan" within the meaning of Section 3(3) of ERISA that is subject to Title I of ERISA and (ii) plans within the meaning of and subject to Section 4975 of the Code.

"Plan Asset Regulation" mean U.S. Department of Labor Regulation 29 C.F.R 2510.3-101 as modified by Section 3(42) of ERISA.

"Proportionate Share" means, for each Terra Fund Unitholder, a percentage determined by dividing the number of Terra Fund Units held by the Terra Fund Unitholder over the Terra Fund Units held by all Terra Fund Unitholders in the Terra Fund as of the Closing Date of the Merger.

"Securities Act" means the Securities Act of 1933, as amended.

"Termination Units" has the meaning set forth in the recitals.

"Terra Fund" has the meaning set forth in the preamble.

"Terra Fund Units" has the meaning set forth in Section 2.03.

"Terra Fund Manager" has the meaning set forth in the preamble.

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"Terra Fund Material Adverse Effect" means any material adverse change in any of the assets, business, condition (financial or otherwise), results of operation or prospects of a Terra Fund and its subsidiaries taken together.

"Terra Fund Unitholder" has the meaning set forth in the recitals.

"Treasury Regulations" means the applicable Final, Proposed, and Temporary Treasury Regulations promulgated under the provisions of the Code.

"25% Test" means less than 25% of the value (or any lower threshold determined by the Manager) of either Continuing Income Units or Termination Units (excluding any holdings by a member of the Combined Company (other than a Benefit Plan Investor) or any person that has discretionary authority or control over the assets of the Combined Company or provides investment advice for a fee, and affiliates of such persons) as determined for purposes of the Plan Asset Regulation

Section 1.02. Rules of Application. The definitions in Section 1.01 and elsewhere in this Agreement shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun used herein shall include the corresponding masculine, feminine and neuter forms. The words "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation." The words "herein," "hereof," "hereunder," and similar terms shall refer to this Agreement, unless the context otherwise requires.

ARTICLE II

THE MERGER

Section 2.01. Effect of the Merger. On the terms and subject to the conditions set forth in this Agreement, and in accordance with the Delaware Limited Liability Company Act (the "Act"), on the Closing Date, (a) the Terra Fund will merge with Merger Sub and (b) the separate existence of Merger Sub will cease and the Terra Fund will continue its existence under the Act as the surviving entity in the Merger. Without limiting the generality of the foregoing, from and after the Closing Date, all property, rights, privileges, immunities, powers, franchises, licenses and authority of the Terra Fund and Merger Sub shall vest in the Terra Fund, and all debts, liabilities, obligations, restrictions and duties of the Terra Fund and Merger Sub shall continue to be or shall become the debts, liabilities, obligations, restrictions and duties of the Terra Fund.

Section 2.02. Closing Date. Unless this Agreement is sooner terminated or extended pursuant to its terms or unless otherwise agreed to in writing by the parties hereto, the closing of the transactions contemplated by this Agreement (the "Closing") shall take place take place on the effective date of the Certificate of Merger relating to the Merger, as accepted for record by the Secretary of State of the State of Delaware, or such later date and time as the parties hereto may otherwise agree (the "Closing Date").

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Section 2.03. Effect on Terra Fund Units

(a) On the Closing Date, by virtue of the Merger and without any action on the part of Combined Company, Manager, Terra Fund Manager, Merger Sub or the Terra Fund, each outstanding unit in the Terra Fund (the "Terra Fund Unit"), shall be cancelled and retired, shall cease to exist and shall be converted automatically into the right to receive the Merger Consideration payable in respect of such Terra Fund Unit as provided in Section 2.04. Upon consummation of the Merger, each holder of a Terra Fund Unit shall no longer have any rights with respect thereto, except the right to receive such Merger Consideration in accordance with this Agreement.

Section 2.04. Payment of Merger Consideration. On the Closing Date or as soon thereafter as is reasonably practical, Combined Company shall issue and deliver to (A) each AI Terra Fund Unitholder who, in accordance with the Merger Procedures, has elected or is otherwise required to receive Continuing Income Units in the Combined Company in the Merger, a number of Continuing Income Units (or fraction thereof) in the Combined Company equal to such AI Terra Fund Unitholder's Proportionate Share of the Merger Consideration divided by the Exchange Value per unit of the Combined Company, (B) each AI Terra Fund Unitholder who, in accordance with the Merger Procedures, has elected to receive Termination Units in Combined Company in the Merger, a number of Termination Units (or fraction thereof) in the Combined Company equal to such AI Terra Fund Unitholder's Proportionate Share of the Merger Consideration divided by the Exchange Value per unit of the Combined Company, and (C) each other Terra Fund Unitholder, an amount of cash equal to such Terra Fund Unitholder's Proportionate Share of the Merger Consideration; provided, however, in the discretion of the Manager, Terra Fund Units to be exchanged for Continuing Income Units or Termination Units may, notwithstanding anything to the contrary contained herein, be instead converted into cash equal to such Terra Fund Unitholder's Proportionate Share of the Merger Consideration or exchanged for an interest in an economically equivalent side-car or co-investment vehicle, as determined in the discretion of the Manager, in order to ensure investment in the Combined Company by Benefit Plan Investors upon completion of the Merger and the concurrent private placement satisfies the 25% Test.

Section 2.05. Treatment of Manager's interest. On the Closing Date, by virtue of the Merger and without any action on the part of Combined Company, Manager, Terra Fund Manager, Merger Sub or the Terra Fund, the Manager's interest in the Terra Fund will be cancelled and be of no further force of effect.

Section 2.06. Treatment of Equity Interests of Merger Sub. On the Closing Date, by virtue of the Merger and without any action on the part of Combined Company, Manager, Terra Fund Manager, Merger Sub or the Terra Fund, all equity interests in Merger Sub will be cancelled and be of no further force of effect.

Section 2.07. Termination. Notwithstanding anything to the contrary contained herein, this Agreement may be terminated at any time prior to the Closing, as follows:

(a)       by mutual consent of all the parties;

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(b)       by the Combined Company, Manager or Merger Sub, if the Closing has not occurred by March 31, 2016;

(c)       by the Combined Company, Manager or Merger Sub if any of the conditions set forth in Section 3.01 have not been satisfied or waived by the Combined Company, Manager and Merger Sub; or

(d)       by the Terra Fund if any of the conditions set forth in Section 3.02 have not been satisfied or waived by the Terra Fund.

If the Combined Company, the Manager, Merger Sub or the Terra Fund elects to terminate this Agreement pursuant to this Section, then the Combined Company, the Manager, Merger Sub or the Terra Fund, as the case may be, shall provide written notice to the other parties of such election and the reason for terminating this Agreement and the termination of this Agreement shall be effective upon the non-issuing parties' receipt of the termination notice.

Section 2.08.  Tax Treatment.

(a)       The Combined Company and the Terra Fund intend, agree and consent to treat the Merger, for U.S. federal income tax purposes, as (i) a purchase by Combined Company of the Terra Fund Units of Terra Fund Unitholders receiving cash in the Merger, followed by (ii) a contribution by the Terra Fund of all of its assets and liabilities to the Combined Company in exchange for Continuing Income Units or Termination Units in a transaction whereby the Terra Fund shall recognize gain, but not loss, for U.S. federal income tax purposes, with any such gain recognized allocated to the AI Terra Fund Unitholders in accordance with the terms of the operating agreement of the Terra Fund, followed immediately thereafter by (iii) a distribution of such Merger Consideration to each such AI Terra Fund Unitholder in liquidation of the Terra Fund within the meaning of Treasury Regulation Section 1.708-1(b)(3), and the Terra Fund and Combined Company shall not maintain a position on its U.S. federal income tax return or otherwise that is inconsistent therewith.

(b)       The Combined Company and the Terra Fund intend, agree and consent, and each Terra Fund Unitholder receiving cash in the Merger, by receiving such cash, also intends, agrees and consents, to treat the merger whereby any Terra Fund Unitholder is receiving cash in the Merger, for U.S. federal income tax purposes, as a taxable sale by such Terra Fund Unitholder of its Terra Fund Unit in exchange for cash within the meaning of Treasury Regulation Section 1.708-1(b)(4) in which gain or loss, if any, shall be recognized, and they shall not maintain a position on its U.S. federal income tax return or otherwise that is inconsistent therewith.

Section 2.09. Officers and Directors. Unless otherwise determined by the Combined Company, the directors and officers, if any, of the Terra Fund in office or position immediately prior to the Closing shall remain in such office or position following the Closing, in each case until their respective successors are duly elected or appointed or until their earlier death, resignation or removal.

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ARTICLE III

CONDITIONS AND COVENANTS

Section 3.01. Conditions to the Obligations of the Combined Company and Merger Sub. The obligation of the Combined Company and Merger Sub to consummate the Merger shall be subject to the satisfaction or waiver by the Combined Company, Manager and Merger Sub of each of the conditions set forth below and the performance by the Terra Fund of its obligations set forth below and elsewhere in this Agreement:

(a)       Accuracy of Representations and Warranties. The representations and warranties of the Terra Fund contained in Section 4.01 shall be true and correct as of the date of this Agreement and the Closing Date; and

(b)       Terra Fund Compliance. The Terra Fund shall have fully complied with all of its obligations hereunder required to be performed on or prior to the Closing Date.

If any of the foregoing conditions have not been satisfied (or waived by the Combined Company and Merger Sub) as of the Closing Date, the Combined Company, Manager and Merger Sub shall have the right, in accordance with Section 2.07, to terminate this Agreement, and, except as expressly set forth elsewhere in this Agreement, no party hereto shall thereafter have any obligation under any provision of this Agreement.

Section 3.02. Conditions to the Obligations of the Terra Fund. The obligation of the Terra Fund to consummate the Merger shall be subject to the performance by the Combined Company and Merger Sub of their obligations set forth below and elsewhere in this Agreement:

(a)       Accuracy of Representations and Warranties. The representations and warranties of the Combined Company and Merger Sub contained in Sections 4.02 and 4.03, respectively, shall be true and correct as of the date of this Agreement and the Closing Date.

Section 3.03. Covenants of the Terra Fund.

(a)       Facilitate the Merger. From the date of this Agreement until the earlier to occur of the Closing or the termination of this Agreement in accordance with the terms set forth in Section 2.07, the Terra Fund shall not take, or agree or commit to take, any action that would reasonably be expected to, individually or in the aggregate, prevent, materially delay or materially impede the consummation of the Merger or the other transactions contemplated by this Agreement.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

Section 4.01. Representations and Warranties of the Terra Fund. The Terra Fund hereby represents and warrants to the Combined Company and Merger Sub, as of the date of this

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Agreement and the Closing Date (except to the extent that any such representation speaks as of a specific date, in which case only as of such specific date), as follows:

(a)       Existence and Power. The Terra Fund has been duly incorporated and validly exists as a limited liability company under the laws of the State of Delaware. The Terra Fund has all power and authority to enter into this Agreement, and all other documents to be executed and delivered in connection with the transactions that are the subject of this Agreement, and to perform its obligations in connection with the transactions that are the subject of this Agreement.

(b)       Authorization; No Contravention. The execution and delivery of this Agreement by the Terra Fund and the performance of its obligations hereunder have been duly authorized by all requisite corporate action, and all necessary authorizations, consents, approvals, elections and waivers have been obtained as of the Closing Date. This Agreement constitutes the valid, legal and binding obligation of such Terra Fund, enforceable against the Terra Fund in accordance with its terms, subject to bankruptcy and similar laws affecting the remedies or resources of creditors generally and principles of equity. The execution and delivery of this Agreement and the consummation of the transactions contemplated herein will not conflict with, or result in any violation of, or default (with or without notice or lapse of time or both) under, give rise to a right of termination, cancellation or acceleration of, or give any Person the right to exercise any remedy under, any contractual obligation, under: (i) any agreement, order or decree to which the Terra Fund is a party or such Person is bound or to which any of such Person's assets are subject, (ii) the Organizational Documents of Terra Fund, or (iii) any law applicable to Terra Fund. Other than the filing of Certificate of Merger in accordance with Section 2.02 hereof, no authorization, approvals or consents from, or registration, declaration or filings with, any lender, partner, member, shareholder, beneficiary, tenant, creditor, investor, Authority or other Person is required in order for the Terra Fund to execute and deliver this Agreement and consummate the transactions contemplated herein.

(c)       No Injunction. The Terra Fund is not subject to any order, writ, judgment, decree, injunction or settlement that could reasonably be expected to prevent or materially delay the Terra Fund from consummating the transactions contemplated by this Agreement.

(d)       No Consents. Except for the filing of the Certificate of Merger in accordance with Section 2.02 hereof and the actions to be taken in connection therewith, and such consents as have been obtained from Terra Fund Unitholders and the Terra Fund Manager, no consent, waiver, approval, authorization, order, license, permit or registration of, qualification, designation, declaration or filing with, any Person or Governmental Authority or under any applicable Laws is required to be obtained by Terra Fund in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby and thereby, except for those consents, waivers, approvals, authorizations, orders, licenses, permits, registrations, qualifications, designations, declarations or filings, the failure of which to obtain or to file would not, individually or in the aggregate, reasonably be expected to prevent or materially delay the Terra Fund from consummating the transactions contemplated by this Agreement or otherwise have a Terra Fund Material Adverse Effect.

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(e)       Financial Statements. The consolidated financial statements of the Terra Fund, together with related notes and schedules as of and for the year ended December 31, 2014 and as of and for the nine months ended September 30, 2015 (the "Financial Statements"), present fairly the financial position and the results of operations and cash flows of the Terra Fund, at the indicated dates and for the indicated periods. Such financial statements and related schedules have been prepared in accordance with United States generally accepted accounting principles, consistently applied throughout the periods involved, except as disclosed therein, and all adjustments necessary for a fair presentation of results for such periods have been made. The Terra Fund does not have any material liabilities or obligations, direct or contingent, not disclosed in the Financial Statements.

(f)        Tax Status. The Terra Fund has been classified as a partnership for U.S. federal income tax purposes.

(g)       Non-Foreign Status. The Terra Fund is a "United States person" (as defined in Section 7701(a)(30) of the Code).

Section 4.02. Representations and Warranties of the Combined Company. The Combined Company hereby represents and warrants to the Terra Fund, as of the date of this Agreement and the Closing Date, as follows:

(a)       Existence and Power. The Combined Company has been duly incorporated and validly exists as a limited liability company under the laws of the State of Delaware. The Combined Company has all power and authority to enter into this Agreement and all other documents to be executed and delivered in connection with the transactions that are the subject of this Agreement, and to perform its obligations in connection with the transactions that are the subject of this Agreement.

(b)       Authorization; No Contravention. The execution and delivery of this Agreement by the Combined Company and the performance of its obligations hereunder have been duly authorized by all requisite corporate action, and all necessary authorizations, consents, approvals, elections and waivers have been obtained as of the Closing Date. This Agreement constitutes the valid, legal and binding obligations of the Combined Company, enforceable against the Combined Company in accordance with its terms, subject to bankruptcy and similar laws affecting the remedies or resources of creditors generally and principles of equity. The execution and delivery of this Agreement and the consummation of the transactions contemplated herein will not conflict with, or result in any violation of, or default (with or without notice or lapse of time or both) under, give rise to a right of termination, cancellation or acceleration of, or give any Person the right to exercise any remedy under, any contractual obligation, under: (i) any agreement, order or decree to which the Combined Company is a party or such Person is bound or to which any of such Person's assets are subject, (ii) the Organizational Documents of the Combined Company, or (iii) any law applicable to the Combined Company. Other than the filing of the Certificate of Merger in accordance with Section 2.02 hereof and the actions to be taken in connection therewith, no authorization, approvals or consents from, or registration, declaration or filings with, any lender, partner, member, stockholder, beneficiary, tenant, creditor, investor, Authority or other Person is

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required in order for the Combined Company to execute and deliver this Agreement and consummate the transactions contemplated herein.

(c)       No Consents. Except for the filing of the Certificate of Merger in accordance with Section 2.02 hereof and the actions to be taken in connection therewith, and such consents as have been obtained from holders of Continuing Income Units in the Combined Company and the Manager, no consent, waiver, approval, authorization, order, license, permit or registration of, qualification, designation, declaration or filing with, any Person or Governmental Authority or under any applicable Laws is required to be obtained by the Combined Company in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby and thereby, except for those consents, waivers, approvals, authorizations, orders, licenses, permits, registrations, qualifications, designations, declarations or filings, the failure of which to obtain or to file would not, individually or in the aggregate, reasonably be expected to have a Combined Company Material Adverse Effect.

(d)       Continuing Income Units and Termination Units. The Continuing Income Units and Termination Units to be issued hereunder have been duly authorized for issuance and, upon such issuance, will be validly issued, fully paid and nonassessable.

Section 4.03. Representations and Warranties of Merger Sub. Merger Sub hereby represents and warrants to the Terra Fund, as of the date of this Agreement and the Closing Date, as follows:

(a)       Existence and Power. Merger Sub has been duly formed and validly exists as a limited liability company under the Laws of the State of Delaware. Merger Sub has all power and authority to enter into this Agreement and all other documents to be executed and delivered in connection with the transactions that are the subject of this Agreement, and to perform its obligations in connection with the transactions that are the subject of this Agreement.

(b)       Authorization; No Contravention. The execution and delivery of this Agreement by Merger Sub and the performance of its obligations hereunder have been duly authorized by all requisite limited liability company action, and all necessary authorizations, consents, approvals, elections and waivers have been obtained as of the Closing Date. This Agreement constitutes the valid, legal and binding obligations of Merger Sub, enforceable against Merger Sub in accordance with its terms, subject to bankruptcy and similar laws affecting the remedies or resources of creditors generally and principles of equity. The execution and delivery of this Agreement and the consummation of the transactions contemplated herein will not conflict with, or result in any violation of, or default (with or without notice or lapse of time or both) under, give rise to a right of termination, cancellation or acceleration of, or give any Person the right to exercise any remedy under, any contractual obligation, under: (i) any agreement, order or decree to which Merger Sub is a party or such Person is bound or to which any of such Person's assets are subject, (ii) the Organizational Documents of Merger Sub, or (iii) any law applicable to Merger Sub. Other than the filing of the Certificate of Merger in accordance with Section 2.02 hereof, no authorization, approvals or consents from, or registration, declaration or filings with, any lender, partner, member, stockholder, beneficiary, tenant, creditor, investor, Authority or other Person is required in order for

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Merger Sub to execute and deliver this Agreement and consummate the transactions contemplated herein.

(c)       No Consents. Except for the filing of the articles of Certificate of Merger, order, license, permit or registration of, qualification, designation, declaration or filing with, any Person or Governmental Authority or under any applicable Laws is required to be obtained by Merger Sub in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby and thereby, except for those consents, waivers, approvals, authorizations, orders, licenses, permits, registrations, qualifications, designations, declarations or filings, the failure of which to obtain or to file would not, individually or in the aggregate, reasonably be expected to have a Merger Sub Material Adverse Effect.

ARTICLE V

INDEMNIFICATION

Section 5.01. Indemnification. Subject to the limitations provided below, from and after the Closing Date, the Indemnifying Party agrees to indemnify, defend and hold harmless each of the Indemnified Parties from and against all Losses that are incurred or suffered by any of them based upon, arising out of, in connection with or by reason of (i) the breach of any of the representations or warranties of such Indemnifying Party or (ii) any breach by such Indemnifying Party of its obligations under this Agreement; provided, however, that, in no event shall an Indemnifying Party be liable for any claim or claims made by an Indemnified Party for a breach of any representation, warranty, or covenant under this Agreement unless the aggregate of any Losses resulting therefrom is equal to or greater than $100,000; provided, further, however, that the maximum aggregate liability of such Indemnifying Party shall in no event exceed the lesser of: (x) an amount equal to the Merger Consideration received by such Indemnifying Party and (y) $100,000.

Section 5.02. Method of Asserting Claims. All claims for indemnification by any Indemnified Party under this Article V shall be asserted and resolved as follows:

(a)       If an Indemnified Party intends to seek indemnification under this Article V, it shall promptly notify the Indemnifying Party in writing of such claim. The failure to provide such notice will not affect any rights hereunder except to the extent an Indemnifying Party is materially prejudiced thereby.

(b)       If such claim involves a claim by a third-party against the Indemnified Party, the Indemnifying Party shall, within ten days after receipt of such notice and upon notice to the Indemnified Party, assume, with counsel reasonably satisfactory to the Indemnified Party, at the sole cost and expense of the Indemnifying Party, the settlement or defense thereof (in which case any Loss associated therewith shall be the sole responsibility of the Indemnifying Party), provided that the Indemnified Party may participate in such settlement or defense through counsel chosen by it. If the Indemnified Party determines in good faith that representation by the Indemnifying Party's counsel of (i) the Indemnifying Party and (ii) the Indemnified Party may present such counsel with a conflict of interest, then the Indemnifying Party shall pay the reasonable fees and expenses of the

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Indemnified Party's counsel. Notwithstanding the foregoing, (i) the Indemnified Party may, at the sole cost and expense of the Indemnifying Party, at any time prior to the delivery of the notice referred to in the first sentence of this Section 5.02(b) by any Indemnifying Party, file any motion, answer or other pleadings or take any other action that the Indemnified Party reasonably believes to be necessary or appropriate to protect its interests, (ii) the Indemnified Party may take over the control of the defense or settlement of a third-party claim at any time if it irrevocably waives its right to indemnity under this Article V with respect to such claim and (iii) the Indemnifying Party may not, without the consent of the Indemnified Party, settle or compromise any action or consent to the entry of any judgment. So long as an Indemnifying Party is contesting any such claim in good faith, the Indemnified Party shall not pay or settle any such claim without such Indemnifying Party's consent, such consent not to be unreasonably withheld. Notwithstanding the foregoing, if the compromise or settlement of a third-party claim could reasonably be expected to adversely affect the status of any subsidiary of the Combined Company electing to be treated as a real investment trust within the meaning of Section 856 of the Code, then the Combined Company shall make such decision to compromise or settle the third-party claim without the need to obtain the other party's consent. If the Indemnifying Party is not entitled to assume the defense of the claim pursuant to the foregoing provisions or is entitled but does not contest such claim in good faith (including if it does not notify the Indemnified Party of its assumption of the defense of such claim within the ten-day period set forth above), then the Indemnified Party may conduct and control, through counsel of its own choosing and at the expense of the Indemnifying Party, the settlement or defense thereof, and the Indemnifying Party shall cooperate with it in connection therewith. The failure of the Indemnified Party to participate in, conduct or control such defense shall not relieve the Indemnifying Party of any obligation it may have hereunder. Any defense costs required to be paid by the Indemnifying Party shall be paid as incurred, promptly against delivery of invoices therefor.

Section 5.03. Survival. This Article V shall survive the Closing or the termination of the parties' obligations to consummate the transactions contemplated by this Agreement. All representations and warranties contained in this Agreement shall survive the Closing for a period of six months and shall not be deemed to be merged into or waived by the instruments of the Closing.

Section 5.04. Waiver of Claims. Deliverance of the Merger Consideration provided in this Agreement shall serve to waive all claims against the Combined Company, the Manager and Merger Sub.

ARTICLE VI

MISCELLANEOUS

Section 6.01. Entire Agreement; No Amendment. This Agreement represents the entire agreement among each of the parties hereto with respect to the subject matter hereof. It is expressly understood that no representations, warranties, guarantees or other statements shall be valid or binding upon a party unless expressly set forth in this Agreement. It is further understood that any prior agreements or understandings between the parties with respect to the subject matter hereof have merged in this Agreement, which collectively fully express all agreements of the parties hereto

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as to the subject matter hereof and supersedes all such prior agreements and understandings. This Agreement may not be amended, modified or otherwise altered except by a written agreement signed by the party hereto against whom enforcement is sought.

Section 6.02. Certain Expenses. Each party hereto will pay all of its own expenses incurred in connection with this Agreement and the transactions contemplated hereby (whether or not the Closing shall take place), including, without limitation, all costs and expenses herein stated to be borne by such party and all of its respective accounting, legal, investigatory and appraisal fees.

Section 6.03. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if personally delivered with proof of delivery thereof (any notice or communication so delivered being deemed to have been received at the time delivered), or sent by United States certified mail, return receipt requested, postage prepaid (any notice or communication so sent being deemed to have been received two Business Days after mailing in the United States), with failure or refusal to accept delivery to constitute delivery for all purposes of this Agreement, addressed to the respective parties as follows:

If to the Terra Fund, to the address listed on such Terra Fund's signature page to this Agreement.

If to the Combined Company or Merger Sub, to:

Terra Secured Income Fund 5, LLC

Attention: Gregory Pinkus

805 3^rd Avenue

New York, NY 10022

with a copy to:

Jay L. Bernstein, Esq.

Clifford Chance US LLP

31 West 52^nd Street

New York, New York 10019

Section 6.04. No Assignment. Except as provided in this Section below, neither this Agreement nor any of the rights or obligations hereunder may be assigned by any party hereto without the prior written consent of the other parties.

Section 6.05. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of laws of any jurisdiction other than those of the State of Delaware.

Section 6.06. Multiple Counterparts. This Agreement may be executed in multiple counterparts. If so executed, all of such counterparts shall constitute but one agreement, and, in proving this Agreement, it shall not be necessary to produce or account for more than one such

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counterpart. To facilitate execution of this Agreement, the parties may execute and exchange by facsimile or electronic mail PDF copies of counterparts of the signature pages.

Section 6.07. Further Assurances. From and after the date of this Agreement and after the Closing, the parties hereto shall take such further actions and execute and deliver such further documents and instruments as may be reasonably requested by the other parties and are reasonably necessary to provide to the respective parties hereto the benefits intended to be afforded hereby.

Section 6.08. Miscellaneous. The headings of the Articles and the Sections contained in this Agreement are for convenience only and shall not be taken into account in determining the meaning of any provision of this Agreement. If the last day for performance of any obligation hereunder is not a Business Day, then the deadline for such performance or the expiration of the applicable period or date shall be extended to the next Business Day. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. The Exhibit attached hereto is hereby incorporated herein and shall be deemed a part of this Agreement.

Section 6.09. Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable, this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Agreement, and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement.

Section 6.10. Attorneys' Fees. If this Agreement or the transactions contemplated herein give rise to a lawsuit, arbitration or other legal proceeding between the parties hereto, the prevailing party shall be entitled to recover its costs and reasonable attorney fees in addition to any other judgment of the court or arbitrator(s).

Section 6.11. Waiver of Jury Trial. To the fullest extent permitted by applicable law, the parties hereto waive trial by jury in any action, proceeding or counterclaim brought by any party(ies) against any other party(ies) on any matter arising out of or in any way connected with this Agreement or the relationship of the parties created hereunder.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

TERRA SECURED INCOME FUND 5, LLC
By:	Terra Capital Advisors, LLC, its manager
By:	/s/ Bruce Batkin
	Name: Bruce Batkin
	Title: Chief Executive Officer

TERRA CAPITAL ADVISORS, LLC
By:	/s/ Bruce Batkin
	Name: Bruce Batkin
	Title: Chief Executive Officer

TERRA SECURED INCOME FUND MERGER SUB, LLC

By: Terra Secured Income Fund 5, LLC, its sole member

By:	Terra Capital Advisors, LLC, its manager
By:	/s/ Bruce Batkin
	Name: Bruce Batkin
	Title: Chief Executive Officer

TERRA SECURED INCOME FUND, LLC

By:  Terra Capital Advisors, LLC, its manager

By:	/s/ Bruce Batkin
	Name: Bruce Batkin
	Title: Chief Executive Officer
	Address:	Terra Secured Income Fund, LLC
		Attn: Gregory Pinkus
		805 3rd Avenue
		New York, NY, 10022

Signature Page to Merger Agreement for

Terra Secured Income Fund, LLC

EXHIBIT A

MERGER CONSIDERATION SCHEDULE

A.       The aggregate Exchange Value of the Terra Fund as of the Closing Date of the Merger is $20,345,310.40.

B.       The Exchange Value per Terra Fund Unit in the Merger is $31,797.

C.       The Merger Consideration will be paid to Terra Fund Unitholders through the issuance of Continuing Income Units, Termiantion Units or cash (at the Exchange Value per Terra Fund Unit) as provided in this Agreement.

D.       In accordance with Section 2.04 of this Agreement and the Merger Procedures, each Terra Fund Unit exchanged in the Merger, will entitle the holder thereof to receive 0.732 Continuing Income Units or one Termination Unit or $31,797 in cash.

E.       The following table sets forth number of Continuing Income Units, Termination Units and cash to be issued to Terra Fund Unitholders in exchange for their Terra Fund Units in the Merger, except that such number of Continuing Income Units and/or Termination Units shall be reduced in accordance with Section 2.04 of this Agreement and as otherwise explained on this Exhibit A in paragraphs F and G below:

Continuing Income Units to	Termination Units to be
be Issued	Issued	Cash
334.32	170.38	$405,414

F.       As provided in Section 2.04 of this Agreement, to the extent that any holder of any Terra Fund Unit(s) does not not comply with the Merger Procedures and is otherwise determined by the Manager to be ineligible to receive Continuing Income Units in the Merger, such holder shall be receive, in exchange for such holder's Terra Fund Units, cash in lieu of Continuing Income Units, and the number of Continuing Income Units to be issued in the Merger (as shown in the above Table) shall be correspondingly reduced.

G.       As further provided in Section 2.04 of this Agreement, to the extent that the Manager in its discretion determines that, in order for investments by Benefit Plan investors upon completion of the Merger and the concurrent private placement to comply with the 25% Test, cash, in lieu of Continuing Income Units or Termination Units, is to be issued to any holder of Terra Fund Unit(s) in the Merger, such holder shall be receive, in

exchange for such holder's Terra Fund Units, cash in lieu of Continuing Income Units or Termination Units, and the number of Continuing Income Units or Termination Units, as the case may be, to be issued in the Merger (as shown in above Table) shall be correspondingly reduced.

EX-2.2

Exhibit 2.2

TERRA SECURED INCOME FUND 5, LLC

TERRA SECURED INCOME FUND 2 MERGER SUB, LLC

AND

TERRA SECURED INCOME FUND 2, LLC

AGREEMENT AND PLAN OF MERGER

CONTENTS

Clause	Page
Article I Definitions	2
Section 1.01.  Definitions	2
Section 1.02.  Rules of Application	5
Article II The Merger	5
Section 2.01.  Effect of the Merger	5
Section 2.02.  Closing Date	5
Section 2.03.  Effect on Terra Fund Units	5
Section 2.04.  Payment of Merger Consideration	6
Section 2.05.  Treatment of Manager's interest	6
Section 2.06.  Treatment of Equity Interests of Merger Sub	6
Section 2.07.  Termination	6
Section 2.08.  Tax Treatment	7
Section 2.09.  Officers and Directors	7
Article III Conditions and Covenants	8
Section 3.01.  Conditions to the Obligations of the Combined Company and Merger Sub	8
Section 3.02.  Conditions to the Obligations of the Terra Fund	8
Section 3.03.  Covenants of the Terra Fund	8
Article IV Representations and Warranties	8
Section 4.01.  Representations and Warranties of the Terra Fund	8
Section 4.02.  Representations and Warranties of the Combined Company	10
Section 4.03.  Representations and Warranties of Merger Sub	11
Article V Indemnification	12
Section 5.01.  Indemnification	12
Section 5.02.  Method of Asserting Claims	12
Section 5.03.  Survival	13
Section 5.04.  Waiver of Claims	13
Article VI Miscellaneous	13
Section 6.01.  Entire Agreement; No Amendment	13
Section 6.02.  Certain Expenses	14

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Section 6.03.  Notices	14
Section 6.04.  No Assignment	14
Section 6.05.  Governing Law	14
Section 6.06.  Multiple Counterparts	14
Section 6.07.  Further Assurances	15
Section 6.08.  Miscellaneous	15
Section 6.09.  Invalid Provisions	15
Section 6.10.  Attorneys' Fees	15
Section 6.11.  Waiver of Jury Trial	15

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THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is dated as of January 1, 2016, by and among TERRA SECURED INCOME FUND 5, LLC, a Delaware limited liability company (the "Combined Company"), TERRA SECURED INCOME FUND 2 MERGER SUB, LLC, a Delaware limited liability company and a wholly owned subsidiary of Combined Company (the "Merger Sub"), Terra Secured Income Fund 2, LLC, a Delaware limited liability company (the "Terra Fund"), and Terra Capital Advisors, LLC, a Delaware limited liability company and the manager of the Terra Fund (in such capacity, the "Terra Fund Manager") and the Combined Company (in such capacity, the "Manager").

W I T N E S S E T H:

WHEREAS, the parties to this Agreement intend that, on the terms and subject to the conditions set forth in this Agreement, the Terra Fund be merged with Merger Sub, with the Terra Fund being the surviving limited liability company in the merger (the "Merger");

WHEREAS, the value of the consideration (the "Merger Consideration") to be paid to the unitholders of the Terra Fund (the "Terra Fund Unitholders") shall equal the Exchange Value of such Terra Fund to be issued as set forth on Exhibit A to this Agreement;

WHEREAS, in the Merger, the Merger Consideration shall be paid to the Terra Fund Unitholders, as hereinafter provided, either through the issuance of regular units in the Combined Company ("Continuing Income Units") or termination units in the Combined Company ("Termination Units"), which Continuing Income Units or Termination Units shall be valued at the Exchange Value per unit of the Combined Company (or $43,410 per unit), or through the payment of cash;

WHEREAS, only Terra Fund Unitholders that the Manager has established it has a reasonable basis to believe qualify as "accredited investors" under Rule 501(a) of Regulation D under the Securities Act ("AI Terra Fund Unitholders") are eligible to receive Continuing Income Units or Termination Units in the Merger;

WHEREAS, the Terra Fund Manager has (a) determined that it is in the best interests of the Terra Fund, and declared it advisable, to enter into this Agreement; (b) directed that the Merger be submitted to the Terra Fund Unitholders for their consideration and approval; and (c) consented to, on the terms and subject to the conditions set forth in this Agreement, the Merger and the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby;

WHEREAS, the Terra Fund Unitholders representing a majority of the outstanding Terra Funds Units (as herein defined) have approved the Merger and the transactions contemplated hereby;

WHEREAS, the Terra Fund Manager has been authorized to approve any amendments to the operating agreement of the Terra Fund that the Terra Fund Manager in its sole discretion determines are useful or required in furtherance of the Merger;

WHEREAS, the Combined Company as sole member of Merger Sub has approved, and the Manager, as manager of the Combined Company, has consented to, on the terms and subject

to the conditions set forth in this Agreement, the Merger, and the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby;

WHEREAS, the member's representing a majority of the Continuing Income Units in the Combined Company have approved the Merger and the transactions contemplated hereby; and

WHEREAS, each of the parties hereto has been advised by the other parties and acknowledges that such other parties would not be entering into this Agreement without the representations, warranties and covenants which are being made and agreed to herein by each party hereto and that such parties are entering into this Agreement in reliance on such representations, warranties and other covenants;

NOW, THEREFORE, in consideration for the mutual agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01. Definitions. The following terms as used in this Agreement shall have the meanings attributed to them as set forth below. Other capitalized terms used herein shall, unless the context otherwise requires, have the meanings assigned to such terms herein.

"Act" has the meaning set forth in Section 2.01.

"Agreement" has the meaning set forth in the preamble.

"AI Terra Fund Unitholder" has the meaning set forth in the recitals.

"Authority" means a governmental body or agency having jurisdiction over a Terra Fund, the Combined Company or Merger Sub, as applicable.

"Benefit Plan Investor" is a Plan that is subject to Title I of ERISA or Section 4975 of the Code and any entity whose underlying assets are deemed to include the assets of a Plan by reason of a Plan's investment in the entity, as determined for purposes of ERISA and the Plan Assets Regulation, or otherwise.

"Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in the State of New York are authorized or required by law to close.

"Closing" and "Closing Date" have the meanings set forth in Section 2.02.

"Code" means the Internal Revenue Code of 1986, as amended, or corresponding provisions of subsequently enacted federal revenue laws.

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"Combined Company" has the meaning set forth in the preamble.

"Combined Company Material Adverse Effect" means any material adverse change in any of the assets, business, condition (financial or otherwise), results of operation or prospects of the Combined Company and its subsidiaries taken together.

"Continuing Income Units" has the meaning set forth in the recitals.

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.

"Financial Statements" has the meaning set forth in Section 4.01(e).

"Governmental Authority" means any government or agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign.

"Indemnified Parties" means the Combined Company, Merger Sub and each of their subsidiaries, equity holders, affiliates, directors, officers and employees.

"Indemnifying Party" means the Terra Fund.

"Laws" means laws, statutes, rules, regulations, codes, orders, ordinances, judgments, injunctions, decrees and policies of any Governmental Authority.

"Liabilities" means liabilities, obligations or commitments of any nature whatsoever, asserted or unasserted, known or unknown, absolute or contingent, accrued or unaccrued, matured or unmatured or otherwise.

"Liens" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), other charge or security interest or any preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement), and any obligations under capital leases having substantially the same economic effect as any of the foregoing.

"Loss" or "Losses" means any and all direct claims, losses, damages, costs, liabilities, fines, penalties and expenses, including, without limitation, any attorney's fees and disbursements, but excluding any contingent, punitive and consequential items.

"Manager" has the meaning set forth in the preamble.

"Memorandum" means the Consent Solicitation and Private Offering Memorandum dated November 13, 2015, together with any supplements thereto adopted prior to the date of this Agreement.

"Merger" has the meaning set forth in the recitals.

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"Merger Consideration" has the meaning set forth in the recitals.

"Merger Procedures" means the procedures specified in the Memorandum for determining which Terra Fund Unitholders receive Continuing Income Units, Termination Units or cash in the Merger.

"Merger Sub" has the meaning set forth in the preamble.

"Merger Sub Material Adverse Effect" means any material adverse change in any of the assets, business, condition (financial or otherwise), results of operation or prospects of Merger Sub and its subsidiaries taken together.

"Organizational Documents" means (i) the charter, articles of organization, certificate of formation or certificate of limited partnership for such Person, (ii) the bylaws, operating agreement, limited liability company agreement, or limited partnership agreement for such Person and (iii) any certificate of qualification or foreign entity registration for such Person (together with all supplements, amendments, modifications, consents and waivers related to any of the foregoing).

"Person" means any natural person, corporation, partnership, trust, unincorporated association or other legal entity.

"Plan" means (i) any "employee benefit plan" within the meaning of Section 3(3) of ERISA that is subject to Title I of ERISA and (ii) plans within the meaning of and subject to Section 4975 of the Code.

"Plan Asset Regulation" mean U.S. Department of Labor Regulation 29 C.F.R 2510.3-101 as modified by Section 3(42) of ERISA.

"Proportionate Share" means, for each Terra Fund Unitholder, a percentage determined by dividing the number of Terra Fund Units held by the Terra Fund Unitholder over the Terra Fund Units held by all Terra Fund Unitholders in the Terra Fund as of the Closing Date of the Merger.

"Securities Act" means the Securities Act of 1933, as amended.

"Termination Units" has the meaning set forth in the recitals.

"Terra Fund" has the meaning set forth in the preamble.

"Terra Fund Units" has the meaning set forth in Section 2.03.

"Terra Fund Manager" has the meaning set forth in the preamble.

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"Terra Fund Material Adverse Effect" means any material adverse change in any of the assets, business, condition (financial or otherwise), results of operation or prospects of a Terra Fund and its subsidiaries taken together.

"Terra Fund Unitholder" has the meaning set forth in the recitals.

"Treasury Regulations" means the applicable Final, Proposed, and Temporary Treasury Regulations promulgated under the provisions of the Code.

"25% Test" means less than 25% of the value (or any lower threshold determined by the Manager) of either Continuing Income Units or Termination Units (excluding any holdings by a member of the Combined Company (other than a Benefit Plan Investor) or any person that has discretionary authority or control over the assets of the Combined Company or provides investment advice for a fee, and affiliates of such persons) as determined for purposes of the Plan Asset Regulation

Section 1.02. Rules of Application. The definitions in Section 1.01 and elsewhere in this Agreement shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun used herein shall include the corresponding masculine, feminine and neuter forms. The words "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation." The words "herein," "hereof," "hereunder," and similar terms shall refer to this Agreement, unless the context otherwise requires.

ARTICLE II

THE MERGER

Section 2.01.    Effect of the Merger. On the terms and subject to the conditions set forth in this Agreement, and in accordance with the Delaware Limited Liability Company Act (the "Act"), on the Closing Date, (a) the Terra Fund will merge with Merger Sub and (b) the separate existence of Merger Sub will cease and the Terra Fund will continue its existence under the Act as the surviving entity in the Merger. Without limiting the generality of the foregoing, from and after the Closing Date, all property, rights, privileges, immunities, powers, franchises, licenses and authority of the Terra Fund and Merger Sub shall vest in the Terra Fund, and all debts, liabilities, obligations, restrictions and duties of the Terra Fund and Merger Sub shall continue to be or shall become the debts, liabilities, obligations, restrictions and duties of the Terra Fund.

Section 2.02.    Closing Date. Unless this Agreement is sooner terminated or extended pursuant to its terms or unless otherwise agreed to in writing by the parties hereto, the closing of the transactions contemplated by this Agreement (the "Closing") shall take place take place on the effective date of the Certificate of Merger relating to the Merger, as accepted for record by the Secretary of State of the State of Delaware, or such later date and time as the parties hereto may otherwise agree (the "Closing Date").

Section 2.03.    Effect on Terra Fund Units

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(a)        On the Closing Date, by virtue of the Merger and without any action on the part of Combined Company, Manager, Terra Fund Manager, Merger Sub or the Terra Fund, each outstanding unit in the Terra Fund (the "Terra Fund Unit"), shall be cancelled and retired, shall cease to exist and shall be converted automatically into the right to receive the Merger Consideration payable in respect of such Terra Fund Unit as provided in Section 2.04. Upon consummation of the Merger, each holder of a Terra Fund Unit shall no longer have any rights with respect thereto, except the right to receive such Merger Consideration in accordance with this Agreement.

Section 2.04.    Payment of Merger Consideration. On the Closing Date or as soon thereafter as is reasonably practical, Combined Company shall issue and deliver to (A) each AI Terra Fund Unitholder who, in accordance with the Merger Procedures, has elected or is otherwise required to receive Continuing Income Units in the Combined Company in the Merger, a number of Continuing Income Units (or fraction thereof) in the Combined Company equal to such AI Terra Fund Unitholder's Proportionate Share of the Merger Consideration divided by the Exchange Value per unit of the Combined Company, (B) each AI Terra Fund Unitholder who, in accordance with the Merger Procedures, has elected to receive Termination Units in Combined Company in the Merger, a number of Termination Units (or fraction thereof) in the Combined Company equal to such AI Terra Fund Unitholder's Proportionate Share of the Merger Consideration divided by the Exchange Value per unit of the Combined Company, and (C) each other Terra Fund Unitholder, an amount of cash equal to such Terra Fund Unitholder's Proportionate Share of the Merger Consideration; provided, however, in the discretion of the Manager, Terra Fund Units to be exchanged for Continuing Income Units or Termination Units may, notwithstanding anything to the contrary contained herein, be instead converted into cash equal to such Terra Fund Unitholder's Proportionate Share of the Merger Consideration or exchanged for an interest in an economically equivalent side-car or co-investment vehicle, as determined in the discretion of the Manager, in order to ensure investment in the Combined Company by Benefit Plan Investors upon completion of the Merger and the concurrent private placement satisfies the 25% Test.

Section 2.05.   Treatment of Manager's interest. On the Closing Date, by virtue of the Merger and without any action on the part of Combined Company, Manager, Terra Fund Manager, Merger Sub or the Terra Fund, the Manager's interest in the Terra Fund will be cancelled and be of no further force of effect.

Section 2.06.   Treatment of Equity Interests of Merger Sub. On the Closing Date, by virtue of the Merger and without any action on the part of Combined Company, Manager, Terra Fund Manager, Merger Sub or the Terra Fund, all equity interests in Merger Sub will be cancelled and be of no further force of effect.

Section 2.07.   Termination. Notwithstanding anything to the contrary contained herein, this Agreement may be terminated at any time prior to the Closing, as follows:

(a)         by mutual consent of all the parties;

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(b)         by the Combined Company, Manager or Merger Sub, if the Closing has not occurred by March 31, 2016;

(c)         by the Combined Company, Manager or Merger Sub if any of the conditions set forth in Section 3.01 have not been satisfied or waived by the Combined Company, Manager and Merger Sub; or

(d)         by the Terra Fund if any of the conditions set forth in Section 3.02 have not been satisfied or waived by the Terra Fund.

If the Combined Company, the Manager, Merger Sub or the Terra Fund elects to terminate this Agreement pursuant to this Section, then the Combined Company, the Manager, Merger Sub or the Terra Fund, as the case may be, shall provide written notice to the other parties of such election and the reason for terminating this Agreement and the termination of this Agreement shall be effective upon the non-issuing parties' receipt of the termination notice.

Section 2.08.   Tax Treatment.

(a)         The Combined Company and the Terra Fund intend, agree and consent to treat the Merger, for U.S. federal income tax purposes, as (i) a purchase by Combined Company of the Terra Fund Units of Terra Fund Unitholders receiving cash in the Merger, followed by (ii) a contribution by the Terra Fund of all of its assets and liabilities to the Combined Company in exchange for Continuing Income Units or Termination Units in a transaction whereby the Terra Fund shall recognize gain, but not loss, for U.S. federal income tax purposes, with any such gain recognized allocated to the AI Terra Fund Unitholders in accordance with the terms of the operating agreement of the Terra Fund, followed immediately thereafter by (iii) a distribution of such Merger Consideration to each such AI Terra Fund Unitholder in liquidation of the Terra Fund within the meaning of Treasury Regulation Section 1.708-1(b)(3), and the Terra Fund and Combined Company shall not maintain a position on its U.S. federal income tax return or otherwise that is inconsistent therewith.

(b)         The Combined Company and the Terra Fund intend, agree and consent, and each Terra Fund Unitholder receiving cash in the Merger, by receiving such cash, also intends, agrees and consents, to treat the merger whereby any Terra Fund Unitholder is receiving cash in the Merger, for U.S. federal income tax purposes, as a taxable sale by such Terra Fund Unitholder of its Terra Fund Unit in exchange for cash within the meaning of Treasury Regulation Section 1.708-1(b)(4) in which gain or loss, if any, shall be recognized, and they shall not maintain a position on its U.S. federal income tax return or otherwise that is inconsistent therewith.

Section 2.09.   Officers and Directors. Unless otherwise determined by the Combined Company, the directors and officers, if any, of the Terra Fund in office or position immediately prior to the Closing shall remain in such office or position following the Closing, in each case until their respective successors are duly elected or appointed or until their earlier death, resignation or removal.

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ARTICLE III

CONDITIONS AND COVENANTS

Section 3.01.   Conditions to the Obligations of the Combined Company and Merger Sub. The obligation of the Combined Company and Merger Sub to consummate the Merger shall be subject to the satisfaction or waiver by the Combined Company, Manager and Merger Sub of each of the conditions set forth below and the performance by the Terra Fund of its obligations set forth below and elsewhere in this Agreement:

(a)        Accuracy of Representations and Warranties. The representations and warranties of the Terra Fund contained in Section 4.01 shall be true and correct as of the date of this Agreement and the Closing Date; and

(b)        Terra Fund Compliance. The Terra Fund shall have fully complied with all of its obligations hereunder required to be performed on or prior to the Closing Date.

If any of the foregoing conditions have not been satisfied (or waived by the Combined Company and Merger Sub) as of the Closing Date, the Combined Company, Manager and Merger Sub shall have the right, in accordance with Section 2.07, to terminate this Agreement, and, except as expressly set forth elsewhere in this Agreement, no party hereto shall thereafter have any obligation under any provision of this Agreement.

Section 3.02.   Conditions to the Obligations of the Terra Fund. The obligation of the Terra Fund to consummate the Merger shall be subject to the performance by the Combined Company and Merger Sub of their obligations set forth below and elsewhere in this Agreement:

(a)        Accuracy of Representations and Warranties. The representations and warranties of the Combined Company and Merger Sub contained in Sections 4.02 and 4.03, respectively, shall be true and correct as of the date of this Agreement and the Closing Date.

Section 3.03.   Covenants of the Terra Fund.

(a)        Facilitate the Merger. From the date of this Agreement until the earlier to occur of the Closing or the termination of this Agreement in accordance with the terms set forth in Section 2.07, the Terra Fund shall not take, or agree or commit to take, any action that would reasonably be expected to, individually or in the aggregate, prevent, materially delay or materially impede the consummation of the Merger or the other transactions contemplated by this Agreement.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

Section 4.01.   Representations and Warranties of the Terra Fund. The Terra Fund hereby represents and warrants to the Combined Company and Merger Sub, as of the date of this

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Agreement and the Closing Date (except to the extent that any such representation speaks as of a specific date, in which case only as of such specific date), as follows:

(a)       Existence and Power. The Terra Fund has been duly incorporated and validly exists as a limited liability company under the laws of the State of Delaware. The Terra Fund has all power and authority to enter into this Agreement, and all other documents to be executed and delivered in connection with the transactions that are the subject of this Agreement, and to perform its obligations in connection with the transactions that are the subject of this Agreement.

(b)       Authorization; No Contravention. The execution and delivery of this Agreement by the Terra Fund and the performance of its obligations hereunder have been duly authorized by all requisite corporate action, and all necessary authorizations, consents, approvals, elections and waivers have been obtained as of the Closing Date. This Agreement constitutes the valid, legal and binding obligation of such Terra Fund, enforceable against the Terra Fund in accordance with its terms, subject to bankruptcy and similar laws affecting the remedies or resources of creditors generally and principles of equity. The execution and delivery of this Agreement and the consummation of the transactions contemplated herein will not conflict with, or result in any violation of, or default (with or without notice or lapse of time or both) under, give rise to a right of termination, cancellation or acceleration of, or give any Person the right to exercise any remedy under, any contractual obligation, under: (i) any agreement, order or decree to which the Terra Fund is a party or such Person is bound or to which any of such Person's assets are subject, (ii) the Organizational Documents of Terra Fund, or (iii) any law applicable to Terra Fund. Other than the filing of Certificate of Merger in accordance with Section 2.02 hereof, no authorization, approvals or consents from, or registration, declaration or filings with, any lender, partner, member, shareholder, beneficiary, tenant, creditor, investor, Authority or other Person is required in order for the Terra Fund to execute and deliver this Agreement and consummate the transactions contemplated herein.

(c)       No Injunction. The Terra Fund is not subject to any order, writ, judgment, decree, injunction or settlement that could reasonably be expected to prevent or materially delay the Terra Fund from consummating the transactions contemplated by this Agreement.

(d)       No Consents. Except for the filing of the Certificate of Merger in accordance with Section 2.02 hereof and the actions to be taken in connection therewith, and such consents as have been obtained from Terra Fund Unitholders and the Terra Fund Manager, no consent, waiver, approval, authorization, order, license, permit or registration of, qualification, designation, declaration or filing with, any Person or Governmental Authority or under any applicable Laws is required to be obtained by Terra Fund in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby and thereby, except for those consents, waivers, approvals, authorizations, orders, licenses, permits, registrations, qualifications, designations, declarations or filings, the failure of which to obtain or to file would not, individually or in the aggregate, reasonably be expected to prevent or materially delay the Terra Fund from consummating the transactions contemplated by this Agreement or otherwise have a Terra Fund Material Adverse Effect.

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(e)       Financial Statements. The consolidated financial statements of the Terra Fund, together with related notes and schedules as of and for the year ended December 31, 2014 and as of and for the nine months ended September 30, 2015 (the "Financial Statements"), present fairly the financial position and the results of operations and cash flows of the Terra Fund, at the indicated dates and for the indicated periods. Such financial statements and related schedules have been prepared in accordance with United States generally accepted accounting principles, consistently applied throughout the periods involved, except as disclosed therein, and all adjustments necessary for a fair presentation of results for such periods have been made. The Terra Fund does not have any material liabilities or obligations, direct or contingent, not disclosed in the Financial Statements.

(f)       Tax Status. The Terra Fund has been classified as a partnership for U.S. federal income tax purposes.

(g)       Non-Foreign Status. The Terra Fund is a "United States person" (as defined in Section 7701(a)(30) of the Code).

Section 4.02.  Representations and Warranties of the Combined Company. The Combined Company hereby represents and warrants to the Terra Fund, as of the date of this Agreement and the Closing Date, as follows:

(a)       Existence and Power. The Combined Company has been duly incorporated and validly exists as a limited liability company under the laws of the State of Delaware. The Combined Company has all power and authority to enter into this Agreement and all other documents to be executed and delivered in connection with the transactions that are the subject of this Agreement, and to perform its obligations in connection with the transactions that are the subject of this Agreement.

(b)       Authorization; No Contravention. The execution and delivery of this Agreement by the Combined Company and the performance of its obligations hereunder have been duly authorized by all requisite corporate action, and all necessary authorizations, consents, approvals, elections and waivers have been obtained as of the Closing Date. This Agreement constitutes the valid, legal and binding obligations of the Combined Company, enforceable against the Combined Company in accordance with its terms, subject to bankruptcy and similar laws affecting the remedies or resources of creditors generally and principles of equity. The execution and delivery of this Agreement and the consummation of the transactions contemplated herein will not conflict with, or result in any violation of, or default (with or without notice or lapse of time or both) under, give rise to a right of termination, cancellation or acceleration of, or give any Person the right to exercise any remedy under, any contractual obligation, under: (i) any agreement, order or decree to which the Combined Company is a party or such Person is bound or to which any of such Person's assets are subject, (ii) the Organizational Documents of the Combined Company, or (iii) any law applicable to the Combined Company. Other than the filing of the Certificate of Merger in accordance with Section 2.02 hereof and the actions to be taken in connection therewith, no authorization, approvals or consents from, or registration, declaration or filings with, any lender, partner, member, stockholder, beneficiary, tenant, creditor, investor, Authority or other Person is

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required in order for the Combined Company to execute and deliver this Agreement and consummate the transactions contemplated herein.

(c)       No Consents. Except for the filing of the Certificate of Merger in accordance with Section 2.02 hereof and the actions to be taken in connection therewith, and such consents as have been obtained from holders of Continuing Income Units in the Combined Company and the Manager, no consent, waiver, approval, authorization, order, license, permit or registration of, qualification, designation, declaration or filing with, any Person or Governmental Authority or under any applicable Laws is required to be obtained by the Combined Company in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby and thereby, except for those consents, waivers, approvals, authorizations, orders, licenses, permits, registrations, qualifications, designations, declarations or filings, the failure of which to obtain or to file would not, individually or in the aggregate, reasonably be expected to have a Combined Company Material Adverse Effect.

(d)      Continuing Income Units and Termination Units. The Continuing Income Units and Termination Units to be issued hereunder have been duly authorized for issuance and, upon such issuance, will be validly issued, fully paid and nonassessable.

Section 4.03.  Representations and Warranties of Merger Sub. Merger Sub hereby represents and warrants to the Terra Fund, as of the date of this Agreement and the Closing Date, as follows:

(a)       Existence and Power. Merger Sub has been duly formed and validly exists as a limited liability company under the Laws of the State of Delaware. Merger Sub has all power and authority to enter into this Agreement and all other documents to be executed and delivered in connection with the transactions that are the subject of this Agreement, and to perform its obligations in connection with the transactions that are the subject of this Agreement.

(b)       Authorization; No Contravention. The execution and delivery of this Agreement by Merger Sub and the performance of its obligations hereunder have been duly authorized by all requisite limited liability company action, and all necessary authorizations, consents, approvals, elections and waivers have been obtained as of the Closing Date. This Agreement constitutes the valid, legal and binding obligations of Merger Sub, enforceable against Merger Sub in accordance with its terms, subject to bankruptcy and similar laws affecting the remedies or resources of creditors generally and principles of equity. The execution and delivery of this Agreement and the consummation of the transactions contemplated herein will not conflict with, or result in any violation of, or default (with or without notice or lapse of time or both) under, give rise to a right of termination, cancellation or acceleration of, or give any Person the right to exercise any remedy under, any contractual obligation, under: (i) any agreement, order or decree to which Merger Sub is a party or such Person is bound or to which any of such Person's assets are subject, (ii) the Organizational Documents of Merger Sub, or (iii) any law applicable to Merger Sub. Other than the filing of the Certificate of Merger in accordance with Section 2.02 hereof, no authorization, approvals or consents from, or registration, declaration or filings with, any lender, partner, member, stockholder, beneficiary, tenant, creditor, investor, Authority or other Person is required in order for

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Merger Sub to execute and deliver this Agreement and consummate the transactions contemplated herein.

(c)       No Consents. Except for the filing of the articles of Certificate of Merger, order, license, permit or registration of, qualification, designation, declaration or filing with, any Person or Governmental Authority or under any applicable Laws is required to be obtained by Merger Sub in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby and thereby, except for those consents, waivers, approvals, authorizations, orders, licenses, permits, registrations, qualifications, designations, declarations or filings, the failure of which to obtain or to file would not, individually or in the aggregate, reasonably be expected to have a Merger Sub Material Adverse Effect.

ARTICLE V

INDEMNIFICATION

Section 5.01.    Indemnification. Subject to the limitations provided below, from and after the Closing Date, the Indemnifying Party agrees to indemnify, defend and hold harmless each of the Indemnified Parties from and against all Losses that are incurred or suffered by any of them based upon, arising out of, in connection with or by reason of (i) the breach of any of the representations or warranties of such Indemnifying Party or (ii) any breach by such Indemnifying Party of its obligations under this Agreement; provided, however, that, in no event shall an Indemnifying Party be liable for any claim or claims made by an Indemnified Party for a breach of any representation, warranty, or covenant under this Agreement unless the aggregate of any Losses resulting therefrom is equal to or greater than $100,000; provided, further, however, that the maximum aggregate liability of such Indemnifying Party shall in no event exceed the lesser of: (x) an amount equal to the Merger Consideration received by such Indemnifying Party and (y) $100,000.

Section 5.02.  Method of Asserting Claims. All claims for indemnification by any Indemnified Party under this Article V shall be asserted and resolved as follows:

(a)       If an Indemnified Party intends to seek indemnification under this Article V, it shall promptly notify the Indemnifying Party in writing of such claim. The failure to provide such notice will not affect any rights hereunder except to the extent an Indemnifying Party is materially prejudiced thereby.

(b)       If such claim involves a claim by a third-party against the Indemnified Party, the Indemnifying Party shall, within ten days after receipt of such notice and upon notice to the Indemnified Party, assume, with counsel reasonably satisfactory to the Indemnified Party, at the sole cost and expense of the Indemnifying Party, the settlement or defense thereof (in which case any Loss associated therewith shall be the sole responsibility of the Indemnifying Party), provided that the Indemnified Party may participate in such settlement or defense through counsel chosen by it. If the Indemnified Party determines in good faith that representation by the Indemnifying Party's counsel of (i) the Indemnifying Party and (ii) the Indemnified Party may present such counsel with a conflict of interest, then the Indemnifying Party shall pay the reasonable fees and expenses of the

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Indemnified Party's counsel. Notwithstanding the foregoing, (i) the Indemnified Party may, at the sole cost and expense of the Indemnifying Party, at any time prior to the delivery of the notice referred to in the first sentence of this Section 5.02(b) by any Indemnifying Party, file any motion, answer or other pleadings or take any other action that the Indemnified Party reasonably believes to be necessary or appropriate to protect its interests, (ii) the Indemnified Party may take over the control of the defense or settlement of a third-party claim at any time if it irrevocably waives its right to indemnity under this Article V with respect to such claim and (iii) the Indemnifying Party may not, without the consent of the Indemnified Party, settle or compromise any action or consent to the entry of any judgment. So long as an Indemnifying Party is contesting any such claim in good faith, the Indemnified Party shall not pay or settle any such claim without such Indemnifying Party's consent, such consent not to be unreasonably withheld. Notwithstanding the foregoing, if the compromise or settlement of a third-party claim could reasonably be expected to adversely affect the status of any subsidiary of the Combined Company electing to be treated as a real investment trust within the meaning of Section 856 of the Code, then the Combined Company shall make such decision to compromise or settle the third-party claim without the need to obtain the other party's consent. If the Indemnifying Party is not entitled to assume the defense of the claim pursuant to the foregoing provisions or is entitled but does not contest such claim in good faith (including if it does not notify the Indemnified Party of its assumption of the defense of such claim within the ten-day period set forth above), then the Indemnified Party may conduct and control, through counsel of its own choosing and at the expense of the Indemnifying Party, the settlement or defense thereof, and the Indemnifying Party shall cooperate with it in connection therewith. The failure of the Indemnified Party to participate in, conduct or control such defense shall not relieve the Indemnifying Party of any obligation it may have hereunder. Any defense costs required to be paid by the Indemnifying Party shall be paid as incurred, promptly against delivery of invoices therefor.

Section 5.03.    Survival. This Article V shall survive the Closing or the termination of the parties' obligations to consummate the transactions contemplated by this Agreement. All representations and warranties contained in this Agreement shall survive the Closing for a period of six months and shall not be deemed to be merged into or waived by the instruments of the Closing.

Section 5.04.   Waiver of Claims. Deliverance of the Merger Consideration provided in this Agreement shall serve to waive all claims against the Combined Company, the Manager and Merger Sub.

ARTICLE VI

MISCELLANEOUS

Section 6.01.    Entire Agreement; No Amendment. This Agreement represents the entire agreement among each of the parties hereto with respect to the subject matter hereof. It is expressly understood that no representations, warranties, guarantees or other statements shall be valid or binding upon a party unless expressly set forth in this Agreement. It is further understood that any prior agreements or understandings between the parties with respect to the subject matter hereof have merged in this Agreement, which collectively fully express all agreements of the parties hereto

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as to the subject matter hereof and supersedes all such prior agreements and understandings. This Agreement may not be amended, modified or otherwise altered except by a written agreement signed by the party hereto against whom enforcement is sought.

Section 6.02.    Certain Expenses. Each party hereto will pay all of its own expenses incurred in connection with this Agreement and the transactions contemplated hereby (whether or not the Closing shall take place), including, without limitation, all costs and expenses herein stated to be borne by such party and all of its respective accounting, legal, investigatory and appraisal fees.

Section 6.03.   Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if personally delivered with proof of delivery thereof (any notice or communication so delivered being deemed to have been received at the time delivered), or sent by United States certified mail, return receipt requested, postage prepaid (any notice or communication so sent being deemed to have been received two Business Days after mailing in the United States), with failure or refusal to accept delivery to constitute delivery for all purposes of this Agreement, addressed to the respective parties as follows:

If to the Terra Fund, to the address listed on such Terra Fund's

signature page to this Agreement.

If to the Combined Company or Merger Sub, to:

Terra Secured Income Fund 5, LLC

Attention: Gregory Pinkus

805 3^rd Avenue

New York, NY 10022

with a copy to:

Jay L. Bernstein, Esq.

Clifford Chance US LLP

31 West 52^nd Street

New York, New York 10019

Section 6.04.    No Assignment. Except as provided in this Section below, neither this Agreement nor any of the rights or obligations hereunder may be assigned by any party hereto without the prior written consent of the other parties.

Section 6.05.   Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of laws of any jurisdiction other than those of the State of Delaware.

Section 6.06.   Multiple Counterparts. This Agreement may be executed in multiple counterparts. If so executed, all of such counterparts shall constitute but one agreement, and, in proving this Agreement, it shall not be necessary to produce or account for more than one such

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counterpart. To facilitate execution of this Agreement, the parties may execute and exchange by facsimile or electronic mail PDF copies of counterparts of the signature pages.

Section 6.07.    Further Assurances. From and after the date of this Agreement and after the Closing, the parties hereto shall take such further actions and execute and deliver such further documents and instruments as may be reasonably requested by the other parties and are reasonably necessary to provide to the respective parties hereto the benefits intended to be afforded hereby.

Section 6.08.   Miscellaneous. The headings of the Articles and the Sections contained in this Agreement are for convenience only and shall not be taken into account in determining the meaning of any provision of this Agreement. If the last day for performance of any obligation hereunder is not a Business Day, then the deadline for such performance or the expiration of the applicable period or date shall be extended to the next Business Day. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. The Exhibit attached hereto is hereby incorporated herein and shall be deemed a part of this Agreement.

Section 6.09.    Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable, this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Agreement, and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement.

Section 6.10.    Attorneys' Fees. If this Agreement or the transactions contemplated herein give rise to a lawsuit, arbitration or other legal proceeding between the parties hereto, the prevailing party shall be entitled to recover its costs and reasonable attorney fees in addition to any other judgment of the court or arbitrator(s).

Section 6.11.   Waiver of Jury Trial. To the fullest extent permitted by applicable law, the parties hereto waive trial by jury in any action, proceeding or counterclaim brought by any party(ies) against any other party(ies) on any matter arising out of or in any way connected with this Agreement or the relationship of the parties created hereunder.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

TERRA SECURED INCOME FUND 5, LLC
By:	Terra Capital Advisors, LLC, its manager
By:	/s/ Bruce Batkin
	Name: Bruce Batkin
	Title: Chief Executive Officer

TERRA CAPITAL ADVISORS, LLC
By:	/s/ Bruce Batkin
	Name: Bruce Batkin
	Title: Chief Executive Officer

TERRA SECURED INCOME FUND 2
MERGER SUB, LLC

By: Terra Secured Income Fund 5, LLC, its sole member

By:	Terra Capital Advisors, LLC, its manager
By:	/s/ Bruce Batkin
	Name: Bruce Batkin
	Title: Chief Executive Officer

TERRA SECURED INCOME FUND 2, LLC

By:  Terra Capital Advisors, LLC, its manager

By:	/s/ Bruce Batkin
	Name: Bruce Batkin
	Title: Chief Executive Officer
	Address:	Terra Secured Income Fund, LLC
		Attn: Gregory Pinkus
		805 3rd Avenue
		New York, NY, 10022

Signature Page to Merger Agreement for

Terra Secured Income Fund, LLC

EXHIBIT A

MERGER CONSIDERATION SCHEDULE

A.        The aggregate Exchange Value of the Terra Fund as of the Closing Date of the Merger is $28,673,072.30.

B.        The Exchange Value per Terra Fund Unit in the Merger is $41,258.

C.        The Merger Consideration will be paid to Terra Fund Unitholders through the issuance of Continuing Income Units, Termiantion Units or cash (at the Exchange Value per Terra Fund Unit) as provided in this Agreement.

D.        In accordance with Section 2.04 of this Agreement and the Merger Procedures, each Terra Fund Unit exchanged in the Merger, will entitle the holder thereof to receive 0.950 Continuing Income Units or one Termination Unit or $41,258 in cash.

E.        The following table sets forth number of Continuing Income Units, Termination Units and cash to be issued to Terra Fund Unitholders in exchange for their Terra Fund Units in the Merger, except that such number of Continuing Income Units and/or Termination Units shall be reduced in accordance with Section 2.04 of this Agreement and as otherwise explained on this Exhibit A in paragraphs F and G below:

Continuing Income Units to	Termination Units to be
be Issued	Issued	Cash
539.32	127.27	$0

F.        As provided in Section 2.04 of this Agreement, to the extent that any holder of any Terra Fund Unit(s) does not not comply with the Merger Procedures and is otherwise determined by the Manager to be ineligible to receive Continuing Income Units in the Merger, such holder shall be receive, in exchange for such holder's Terra Fund Units, cash in lieu of Continuing Income Units, and the number of Continuing Income Units to be issued in the Merger (as shown in the above Table) shall be correspondingly reduced.

G.        As further provided in Section 2.04 of this Agreement, to the extent that the Manager in its discretion determines that, in order for investments by Benefit Plan investors upon completion of the Merger and the concurrent private placement to comply with the 25% Test, cash, in lieu of Continuing Income Units or Termination Units, is to be issued to any holder of Terra Fund Unit(s) in the Merger, such holder shall be receive, in exchange for such holder's Terra Fund Units, cash in lieu of Continuing Income Units or

Termination Units, and the number of Continuing Income Units or Termination Units, as the case may be, to be issued in the Merger (as shown in above Table) shall be correspondingly reduced.

EX-2.3

Exhibit 2.3

TERRA SECURED INCOME FUND 5, LLC

TERRA SECURED INCOME FUND 3 MERGER SUB, LLC

AND

TERRA SECURED INCOME FUND 3, LLC

AGREEMENT AND PLAN OF MERGER

CONTENTS

Clause	Page
Article I Definitions	2
Section 1.01.  Definitions	2
Section 1.02.  Rules of Application	5
Article II The Merger	5
Section 2.01.  Effect of the Merger	5
Section 2.02.  Closing Date	5
Section 2.03.  Effect on Terra Fund Units	6
Section 2.04.  Payment of Merger Consideration	6
Section 2.05.  Treatment of Manager's interest	6
Section 2.06.  Treatment of Equity Interests of Merger Sub	6
Section 2.07.  Termination	6
Section 2.08.  Tax Treatment	7
Section 2.09.  Officers and Directors	7
Article III Conditions and Covenants	8
Section 3.01.  Conditions to the Obligations of the Combined Company and Merger Sub	8
Section 3.02.  Conditions to the Obligations of the Terra Fund	8
Section 3.03.  Covenants of the Terra Fund	8
Article IV Representations and Warranties	8
Section 4.01.  Representations and Warranties of the Terra Fund	8
Section 4.02.  Representations and Warranties of the Combined Company	10
Section 4.03.  Representations and Warranties of Merger Sub	11
Article V Indemnification	12
Section 5.01.  Indemnification	12
Section 5.02.  Method of Asserting Claims	12
Section 5.03.  Survival	13
Section 5.04.  Waiver of Claims	13
Article VI Miscellaneous	13
Section 6.01.  Entire Agreement; No Amendment	13
Section 6.02.  Certain Expenses	14

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Section 6.03.  Notices	14
Section 6.04.  No Assignment	14
Section 6.05.  Governing Law	14
Section 6.06.  Multiple Counterparts	14
Section 6.07.  Further Assurances	15
Section 6.08.  Miscellaneous	15
Section 6.09.  Invalid Provisions	15
Section 6.10.  Attorneys' Fees	15
Section 6.11.  Waiver of Jury Trial	15

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THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is dated as of January 1, 2016, by and among TERRA SECURED INCOME FUND 5, LLC, a Delaware limited liability company (the "Combined Company"), TERRA SECURED INCOME FUND 3 MERGER SUB, LLC, a Delaware limited liability company and a wholly owned subsidiary of Combined Company (the " Merger Sub"), Terra Secured Income Fund 3, LLC, a Delaware limited liability company (the "Terra Fund"), and Terra Capital Advisors, LLC, a Delaware limited liability company and the manager of the Terra Fund (in such capacity, the "Terra Fund Manager") and the Combined Company (in such capacity, the "Manager").

W I T N E S S E T H:

WHEREAS , the parties to this Agreement intend that, on the terms and subject to the conditions set forth in this Agreement, the Terra Fund be merged with Merger Sub, with the Terra Fund being the surviving limited liability company in the merger (the "Merger");

WHEREAS, the value of the consideration (the "Merger Consideration") to be paid to the unitholders of the Terra Fund (the "Terra Fund Unitholders") shall equal the Exchange Value of such Terra Fund to be issued as set forth on Exhibit A to this Agreement;

WHEREAS, in the Merger, the Merger Consideration shall be paid to the Terra Fund Unitholders, as hereinafter provided, either through the issuance of regular units in the Combined Company ("Continuing Income Units") or termination units in the Combined Company ("Termination Units"), which Continuing Income Units or Termination Units shall be valued at the Exchange Value per unit of the Combined Company (or $43,410 per unit), or through the payment of cash;

WHEREAS, only Terra Fund Unitholders that the Manager has established it has a reasonable basis to believe qualify as "accredited investors" under Rule 501(a) of Regulation D under the Securities Act ("AI Terra Fund Unitholders") are eligible to receive Continuing Income Units or Termination Units in the Merger;

WHEREAS, the Terra Fund Manager has (a) determined that it is in the best interests of the Terra Fund, and declared it advisable, to enter into this Agreement; (b) directed that the Merger be submitted to the Terra Fund Unitholders for their consideration and approval; and (c) consented to, on the terms and subject to the conditions set forth in this Agreement, the Merger and the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby;

WHEREAS, the Terra Fund Unitholders representing a majority of the outstanding Terra Funds Units (as herein defined) have approved the Merger and the transactions contemplated hereby;

WHEREAS, the Terra Fund Manager has been authorized to approve any amendments to the operating agreement of the Terra Fund that the Terra Fund Manager in its sole discretion determines are useful or required in furtherance of the Merger;

WHEREAS, the Combined Company as sole member of Merger Sub has approved, and the Manager, as manager of the Combined Company, has consented to, on the terms and subject

to the conditions set forth in this Agreement, the Merger, and the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby;

WHEREAS, the member's representing a majority of the Continuing Income Units in the Combined Company have approved the Merger and the transactions contemplated hereby; and

WHEREAS, each of the parties hereto has been advised by the other parties and acknowledges that such other parties would not be entering into this Agreement without the representations, warranties and covenants which are being made and agreed to herein by each party hereto and that such parties are entering into this Agreement in reliance on such representations, warranties and other covenants;

NOW, THEREFORE, in consideration for the mutual agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01. Definitions. The following terms as used in this Agreement shall have the meanings attributed to them as set forth below. Other capitalized terms used herein shall, unless the context otherwise requires, have the meanings assigned to such terms herein.

"Act" has the meaning set forth in Section 2.01.

"Agreement" has the meaning set forth in the preamble.

"AI Terra Fund Unitholder" has the meaning set forth in the recitals.

"Authority" means a governmental body or agency having jurisdiction over a Terra Fund, the Combined Company or Merger Sub, as applicable.

"Benefit Plan Investor" is a Plan that is subject to Title I of ERISA or Section 4975 of the Code and any entity whose underlying assets are deemed to include the assets of a Plan by reason of a Plan's investment in the entity, as determined for purposes of ERISA and the Plan Assets Regulation, or otherwise.

"Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in the State of New York are authorized or required by law to close.

"Closing" and "Closing Date" have the meanings set forth in Section 2.02.

"Code" means the Internal Revenue Code of 1986, as amended, or corresponding provisions of subsequently enacted federal revenue laws.

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"Combined Company" has the meaning set forth in the preamble.

"Combined Company Material Adverse Effect" means any material adverse change in any of the assets, business, condition (financial or otherwise), results of operation or prospects of the Combined Company and its subsidiaries taken together.

"Continuing Income Units" has the meaning set forth in the recitals.

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.

"Financial Statements" has the meaning set forth in Section 4.01(e).

"Governmental Authority" means any government or agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign.

"Indemnified Parties" means the Combined Company, Merger Sub and each of their subsidiaries, equity holders, affiliates, directors, officers and employees.

"Indemnifying Party" means the Terra Fund.

"Laws" means laws, statutes, rules, regulations, codes, orders, ordinances, judgments, injunctions, decrees and policies of any Governmental Authority.

"Liabilities" means liabilities, obligations or commitments of any nature whatsoever, asserted or unasserted, known or unknown, absolute or contingent, accrued or unaccrued, matured or unmatured or otherwise.

"Liens" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), other charge or security interest or any preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement), and any obligations under capital leases having substantially the same economic effect as any of the foregoing.

"Loss" or "Losses" means any and all direct claims, losses, damages, costs, liabilities, fines, penalties and expenses, including, without limitation, any attorney's fees and disbursements, but excluding any contingent, punitive and consequential items.

"Manager" has the meaning set forth in the preamble.

"Memorandum" means the Consent Solicitation and Private Offering Memorandum dated November 13, 2015, together with any supplements thereto adopted prior to the date of this Agreement.

"Merger" has the meaning set forth in the recitals.

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"Merger Consideration" has the meaning set forth in the recitals.

"Merger Procedures" means the procedures specified in the Memorandum for determining which Terra Fund Unitholders receive Continuing Income Units, Termination Units or cash in the Merger.

"Merger Sub" has the meaning set forth in the preamble.

"Merger Sub Material Adverse Effect" means any material adverse change in any of the assets, business, condition (financial or otherwise), results of operation or prospects of Merger Sub and its subsidiaries taken together.

"Organizational Documents" means (i) the charter, articles of organization, certificate of formation or certificate of limited partnership for such Person, (ii) the bylaws, operating agreement, limited liability company agreement, or limited partnership agreement for such Person and (iii) any certificate of qualification or foreign entity registration for such Person (together with all supplements, amendments, modifications, consents and waivers related to any of the foregoing).

"Person" means any natural person, corporation, partnership, trust, unincorporated association or other legal entity.

"Plan" means (i) any "employee benefit plan" within the meaning of Section 3(3) of ERISA that is subject to Title I of ERISA and (ii) plans within the meaning of and subject to Section 4975 of the Code.

"Plan Asset Regulation" mean U.S. Department of Labor Regulation 29 C.F.R 2510.3-101 as modified by Section 3(42) of ERISA.

"Proportionate Share" means, for each Terra Fund Unitholder, a percentage determined by dividing the number of Terra Fund Units held by the Terra Fund Unitholder over the Terra Fund Units held by all Terra Fund Unitholders in the Terra Fund as of the Closing Date of the Merger.

"Securities Act" means the Securities Act of 1933, as amended.

"Termination Units" has the meaning set forth in the recitals.

"Terra Fund" has the meaning set forth in the preamble.

"Terra Fund Units" has the meaning set forth in Section 2.03.

"Terra Fund Manager" has the meaning set forth in the preamble.

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"Terra Fund Material Adverse Effect" means any material adverse change in any of the assets, business, condition (financial or otherwise), results of operation or prospects of a Terra Fund and its subsidiaries taken together.

"Terra Fund Unitholder" has the meaning set forth in the recitals.

"Treasury Regulations" means the applicable Final, Proposed, and Temporary Treasury Regulations promulgated under the provisions of the Code.

"25% Test" means less than 25% of the value (or any lower threshold determined by the Manager) of either Continuing Income Units or Termination Units (excluding any holdings by a member of the Combined Company (other than a Benefit Plan Investor) or any person that has discretionary authority or control over the assets of the Combined Company or provides investment advice for a fee, and affiliates of such persons) as determined for purposes of the Plan Asset Regulation

Section 1.02. Rules of Application. The definitions in Section 1.01 and elsewhere in this Agreement shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun used herein shall include the corresponding masculine, feminine and neuter forms. The words "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation." The words "herein," "hereof," "hereunder," and similar terms shall refer to this Agreement, unless the context otherwise requires.

ARTICLE II

THE MERGER

Section 2.01.    Effect of the Merger. On the terms and subject to the conditions set forth in this Agreement, and in accordance with the Delaware Limited Liability Company Act (the "Act"), on the Closing Date, (a) the Terra Fund will merge with Merger Sub and (b) the separate existence of Merger Sub will cease and the Terra Fund will continue its existence under the Act as the surviving entity in the Merger. Without limiting the generality of the foregoing, from and after the Closing Date, all property, rights, privileges, immunities, powers, franchises, licenses and authority of the Terra Fund and Merger Sub shall vest in the Terra Fund, and all debts, liabilities, obligations, restrictions and duties of the Terra Fund and Merger Sub shall continue to be or shall become the debts, liabilities, obligations, restrictions and duties of the Terra Fund.

Section 2.02.    Closing Date. Unless this Agreement is sooner terminated or extended pursuant to its terms or unless otherwise agreed to in writing by the parties hereto, the closing of the transactions contemplated by this Agreement (the "Closing") shall take place take place on the effective date of the Certificate of Merger relating to the Merger, as accepted for record by the Secretary of State of the State of Delaware, or such later date and time as the parties hereto may otherwise agree (the "Closing Date").

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Section 2.03.    Effect on Terra Fund Units

(a)        On the Closing Date, by virtue of the Merger and without any action on the part of Combined Company, Manager, Terra Fund Manager, Merger Sub or the Terra Fund, each outstanding unit in the Terra Fund (the "Terra Fund Unit"), shall be cancelled and retired, shall cease to exist and shall be converted automatically into the right to receive the Merger Consideration payable in respect of such Terra Fund Unit as provided in Section 2.04. Upon consummation of the Merger, each holder of a Terra Fund Unit shall no longer have any rights with respect thereto, except the right to receive such Merger Consideration in accordance with this Agreement.

Section 2.04.    Payment of Merger Consideration. On the Closing Date or as soon thereafter as is reasonably practical, Combined Company shall issue and deliver to (A) each AI Terra Fund Unitholder who, in accordance with the Merger Procedures, has elected or is otherwise required to receive Continuing Income Units in the Combined Company in the Merger, a number of Continuing Income Units (or fraction thereof) in the Combined Company equal to such AI Terra Fund Unitholder's Proportionate Share of the Merger Consideration divided by the Exchange Value per unit of the Combined Company, (B) each AI Terra Fund Unitholder who, in accordance with the Merger Procedures, has elected to receive Termination Units in Combined Company in the Merger, a number of Termination Units (or fraction thereof) in the Combined Company equal to such AI Terra Fund Unitholder's Proportionate Share of the Merger Consideration divided by the Exchange Value per unit of the Combined Company, and (C) each other Terra Fund Unitholder, an amount of cash equal to such Terra Fund Unitholder's Proportionate Share of the Merger Consideration; provided, however, in the discretion of the Manager, Terra Fund Units to be exchanged for Continuing Income Units or Termination Units may, notwithstanding anything to the contrary contained herein, be instead converted into cash equal to such Terra Fund Unitholder's Proportionate Share of the Merger Consideration or exchanged for an interest in an economically equivalent side-car or co-investment vehicle, as determined in the discretion of the Manager, in order to ensure investment in the Combined Company by Benefit Plan Investors upon completion of the Merger and the concurrent private placement satisfies the 25% Test.

Section 2.05.   Treatment of Manager's interest. On the Closing Date, by virtue of the Merger and without any action on the part of Combined Company, Manager, Terra Fund Manager, Merger Sub or the Terra Fund, the Manager's interest in the Terra Fund will be cancelled and be of no further force of effect.

Section 2.06.   Treatment of Equity Interests of Merger Sub. On the Closing Date, by virtue of the Merger and without any action on the part of Combined Company, Manager, Terra Fund Manager, Merger Sub or the Terra Fund, all equity interests in Merger Sub will be cancelled and be of no further force of effect.

Section 2.07.   Termination. Notwithstanding anything to the contrary contained herein, this Agreement may be terminated at any time prior to the Closing, as follows:

(a)         by mutual consent of all the parties;

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(b)         by the Combined Company, Manager or Merger Sub, if the Closing has not occurred by March 31, 2016;

(c)         by the Combined Company, Manager or Merger Sub if any of the conditions set forth in Section 3.01 have not been satisfied or waived by the Combined Company, Manager and Merger Sub; or

(d)         by the Terra Fund if any of the conditions set forth in Section 3.02 have not been satisfied or waived by the Terra Fund.

If the Combined Company, the Manager, Merger Sub or the Terra Fund elects to terminate this Agreement pursuant to this Section, then the Combined Company, the Manager, Merger Sub or the Terra Fund, as the case may be, shall provide written notice to the other parties of such election and the reason for terminating this Agreement and the termination of this Agreement shall be effective upon the non-issuing parties' receipt of the termination notice.

Section 2.08.   Tax Treatment.

(a)         The Combined Company and the Terra Fund intend, agree and consent to treat the Merger, for U.S. federal income tax purposes, as (i) a purchase by Combined Company of the Terra Fund Units of Terra Fund Unitholders receiving cash in the Merger, followed by (ii) a contribution by the Terra Fund of all of its assets and liabilities to the Combined Company in exchange for Continuing Income Units or Termination Units in a transaction whereby the Terra Fund shall recognize gain, but not loss, for U.S. federal income tax purposes, with any such gain recognized allocated to the AI Terra Fund Unitholders in accordance with the terms of the operating agreement of the Terra Fund, followed immediately thereafter by (iii) a distribution of such Merger Consideration to each such AI Terra Fund Unitholder in liquidation of the Terra Fund within the meaning of Treasury Regulation Section 1.708-1(b)(3), and the Terra Fund and Combined Company shall not maintain a position on its U.S. federal income tax return or otherwise that is inconsistent therewith.

(b)         The Combined Company and the Terra Fund intend, agree and consent, and each Terra Fund Unitholder receiving cash in the Merger, by receiving such cash, also intends, agrees and consents, to treat the merger whereby any Terra Fund Unitholder is receiving cash in the Merger, for U.S. federal income tax purposes, as a taxable sale by such Terra Fund Unitholder of its Terra Fund Unit in exchange for cash within the meaning of Treasury Regulation Section 1.708-1(b)(4) in which gain or loss, if any, shall be recognized, and they shall not maintain a position on its U.S. federal income tax return or otherwise that is inconsistent therewith.

Section 2.09.   Officers and Directors. Unless otherwise determined by the Combined Company, the directors and officers, if any, of the Terra Fund in office or position immediately prior to the Closing shall remain in such office or position following the Closing, in each case until their respective successors are duly elected or appointed or until their earlier death, resignation or removal.

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ARTICLE III

CONDITIONS AND COVENANTS

Section 3.01.   Conditions to the Obligations of the Combined Company and Merger Sub. The obligation of the Combined Company and Merger Sub to consummate the Merger shall be subject to the satisfaction or waiver by the Combined Company, Manager and Merger Sub of each of the conditions set forth below and the performance by the Terra Fund of its obligations set forth below and elsewhere in this Agreement:

(a)        Accuracy of Representations and Warranties. The representations and warranties of the Terra Fund contained in Section 4.01 shall be true and correct as of the date of this Agreement and the Closing Date; and

(b)        Terra Fund Compliance. The Terra Fund shall have fully complied with all of its obligations hereunder required to be performed on or prior to the Closing Date.

If any of the foregoing conditions have not been satisfied (or waived by the Combined Company and Merger Sub) as of the Closing Date, the Combined Company, Manager and Merger Sub shall have the right, in accordance with Section 2.07, to terminate this Agreement, and, except as expressly set forth elsewhere in this Agreement, no party hereto shall thereafter have any obligation under any provision of this Agreement.

Section 3.02.   Conditions to the Obligations of the Terra Fund. The obligation of the Terra Fund to consummate the Merger shall be subject to the performance by the Combined Company and Merger Sub of their obligations set forth below and elsewhere in this Agreement:

(a)        Accuracy of Representations and Warranties. The representations and warranties of the Combined Company and Merger Sub contained in Sections 4.02 and 4.03, respectively, shall be true and correct as of the date of this Agreement and the Closing Date.

Section 3.03.   Covenants of the Terra Fund.

(a)        Facilitate the Merger. From the date of this Agreement until the earlier to occur of the Closing or the termination of this Agreement in accordance with the terms set forth in Section 2.07, the Terra Fund shall not take, or agree or commit to take, any action that would reasonably be expected to, individually or in the aggregate, prevent, materially delay or materially impede the consummation of the Merger or the other transactions contemplated by this Agreement.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

Section 4.01.   Representations and Warranties of the Terra Fund. The Terra Fund hereby represents and warrants to the Combined Company and Merger Sub, as of the date of this

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Agreement and the Closing Date (except to the extent that any such representation speaks as of a specific date, in which case only as of such specific date), as follows:

(a)       Existence and Power. The Terra Fund has been duly incorporated and validly exists as a limited liability company under the laws of the State of Delaware. The Terra Fund has all power and authority to enter into this Agreement, and all other documents to be executed and delivered in connection with the transactions that are the subject of this Agreement, and to perform its obligations in connection with the transactions that are the subject of this Agreement.

(b)       Authorization; No Contravention. The execution and delivery of this Agreement by the Terra Fund and the performance of its obligations hereunder have been duly authorized by all requisite corporate action, and all necessary authorizations, consents, approvals, elections and waivers have been obtained as of the Closing Date. This Agreement constitutes the valid, legal and binding obligation of such Terra Fund, enforceable against the Terra Fund in accordance with its terms, subject to bankruptcy and similar laws affecting the remedies or resources of creditors generally and principles of equity. The execution and delivery of this Agreement and the consummation of the transactions contemplated herein will not conflict with, or result in any violation of, or default (with or without notice or lapse of time or both) under, give rise to a right of termination, cancellation or acceleration of, or give any Person the right to exercise any remedy under, any contractual obligation, under: (i) any agreement, order or decree to which the Terra Fund is a party or such Person is bound or to which any of such Person's assets are subject, (ii) the Organizational Documents of Terra Fund, or (iii) any law applicable to Terra Fund. Other than the filing of Certificate of Merger in accordance with Section 2.02 hereof, no authorization, approvals or consents from, or registration, declaration or filings with, any lender, partner, member, shareholder, beneficiary, tenant, creditor, investor, Authority or other Person is required in order for the Terra Fund to execute and deliver this Agreement and consummate the transactions contemplated herein.

(c)       No Injunction. The Terra Fund is not subject to any order, writ, judgment, decree, injunction or settlement that could reasonably be expected to prevent or materially delay the Terra Fund from consummating the transactions contemplated by this Agreement.

(d)       No Consents. Except for the filing of the Certificate of Merger in accordance with Section 2.02 hereof and the actions to be taken in connection therewith, and such consents as have been obtained from Terra Fund Unitholders and the Terra Fund Manager, no consent, waiver, approval, authorization, order, license, permit or registration of, qualification, designation, declaration or filing with, any Person or Governmental Authority or under any applicable Laws is required to be obtained by Terra Fund in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby and thereby, except for those consents, waivers, approvals, authorizations, orders, licenses, permits, registrations, qualifications, designations, declarations or filings, the failure of which to obtain or to file would not, individually or in the aggregate, reasonably be expected to prevent or materially delay the Terra Fund from consummating the transactions contemplated by this Agreement or otherwise have a Terra Fund Material Adverse Effect.

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(e)       Financial Statements. The consolidated financial statements of the Terra Fund, together with related notes and schedules as of and for the year ended December 31, 2014 and as of and for the nine months ended September 30, 2015 (the "Financial Statements"), present fairly the financial position and the results of operations and cash flows of the Terra Fund, at the indicated dates and for the indicated periods. Such financial statements and related schedules have been prepared in accordance with United States generally accepted accounting principles, consistently applied throughout the periods involved, except as disclosed therein, and all adjustments necessary for a fair presentation of results for such periods have been made. The Terra Fund does not have any material liabilities or obligations, direct or contingent, not disclosed in the Financial Statements.

(f)       Tax Status. The Terra Fund has been classified as a partnership for U.S. federal income tax purposes.

(g)       Non-Foreign Status. The Terra Fund is a "United States person" (as defined in Section 7701(a)(30) of the Code).

Section 4.02.  Representations and Warranties of the Combined Company. The Combined Company hereby represents and warrants to the Terra Fund, as of the date of this Agreement and the Closing Date, as follows:

(a)       Existence and Power. The Combined Company has been duly incorporated and validly exists as a limited liability company under the laws of the State of Delaware. The Combined Company has all power and authority to enter into this Agreement and all other documents to be executed and delivered in connection with the transactions that are the subject of this Agreement, and to perform its obligations in connection with the transactions that are the subject of this Agreement.

(b)       Authorization; No Contravention. The execution and delivery of this Agreement by the Combined Company and the performance of its obligations hereunder have been duly authorized by all requisite corporate action, and all necessary authorizations, consents, approvals, elections and waivers have been obtained as of the Closing Date. This Agreement constitutes the valid, legal and binding obligations of the Combined Company, enforceable against the Combined Company in accordance with its terms, subject to bankruptcy and similar laws affecting the remedies or resources of creditors generally and principles of equity. The execution and delivery of this Agreement and the consummation of the transactions contemplated herein will not conflict with, or result in any violation of, or default (with or without notice or lapse of time or both) under, give rise to a right of termination, cancellation or acceleration of, or give any Person the right to exercise any remedy under, any contractual obligation, under: (i) any agreement, order or decree to which the Combined Company is a party or such Person is bound or to which any of such Person's assets are subject, (ii) the Organizational Documents of the Combined Company, or (iii) any law applicable to the Combined Company. Other than the filing of the Certificate of Merger in accordance with Section 2.02 hereof and the actions to be taken in connection therewith, no authorization, approvals or consents from, or registration, declaration or filings with, any lender, partner, member, stockholder, beneficiary, tenant, creditor, investor, Authority or other Person is

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required in order for the Combined Company to execute and deliver this Agreement and consummate the transactions contemplated herein.

(c)       No Consents. Except for the filing of the Certificate of Merger in accordance with Section 2.02 hereof and the actions to be taken in connection therewith, and such consents as have been obtained from holders of Continuing Income Units in the Combined Company and the Manager, no consent, waiver, approval, authorization, order, license, permit or registration of, qualification, designation, declaration or filing with, any Person or Governmental Authority or under any applicable Laws is required to be obtained by the Combined Company in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby and thereby, except for those consents, waivers, approvals, authorizations, orders, licenses, permits, registrations, qualifications, designations, declarations or filings, the failure of which to obtain or to file would not, individually or in the aggregate, reasonably be expected to have a Combined Company Material Adverse Effect.

(d)      Continuing Income Units and Termination Units. The Continuing Income Units and Termination Units to be issued hereunder have been duly authorized for issuance and, upon such issuance, will be validly issued, fully paid and nonassessable.

Section 4.03.  Representations and Warranties of Merger Sub. Merger Sub hereby represents and warrants to the Terra Fund, as of the date of this Agreement and the Closing Date, as follows:

(a)       Existence and Power. Merger Sub has been duly formed and validly exists as a limited liability company under the Laws of the State of Delaware. Merger Sub has all power and authority to enter into this Agreement and all other documents to be executed and delivered in connection with the transactions that are the subject of this Agreement, and to perform its obligations in connection with the transactions that are the subject of this Agreement.

(b)       Authorization; No Contravention. The execution and delivery of this Agreement by Merger Sub and the performance of its obligations hereunder have been duly authorized by all requisite limited liability company action, and all necessary authorizations, consents, approvals, elections and waivers have been obtained as of the Closing Date. This Agreement constitutes the valid, legal and binding obligations of Merger Sub, enforceable against Merger Sub in accordance with its terms, subject to bankruptcy and similar laws affecting the remedies or resources of creditors generally and principles of equity. The execution and delivery of this Agreement and the consummation of the transactions contemplated herein will not conflict with, or result in any violation of, or default (with or without notice or lapse of time or both) under, give rise to a right of termination, cancellation or acceleration of, or give any Person the right to exercise any remedy under, any contractual obligation, under: (i) any agreement, order or decree to which Merger Sub is a party or such Person is bound or to which any of such Person's assets are subject, (ii) the Organizational Documents of Merger Sub, or (iii) any law applicable to Merger Sub. Other than the filing of the Certificate of Merger in accordance with Section 2.02 hereof, no authorization, approvals or consents from, or registration, declaration or filings with, any lender, partner, member, stockholder, beneficiary, tenant, creditor, investor, Authority or other Person is required in order for

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Merger Sub to execute and deliver this Agreement and consummate the transactions contemplated herein.

(c)       No Consents. Except for the filing of the articles of Certificate of Merger, order, license, permit or registration of, qualification, designation, declaration or filing with, any Person or Governmental Authority or under any applicable Laws is required to be obtained by Merger Sub in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby and thereby, except for those consents, waivers, approvals, authorizations, orders, licenses, permits, registrations, qualifications, designations, declarations or filings, the failure of which to obtain or to file would not, individually or in the aggregate, reasonably be expected to have a Merger Sub Material Adverse Effect.

ARTICLE V

INDEMNIFICATION

Section 5.01.    Indemnification. Subject to the limitations provided below, from and after the Closing Date, the Indemnifying Party agrees to indemnify, defend and hold harmless each of the Indemnified Parties from and against all Losses that are incurred or suffered by any of them based upon, arising out of, in connection with or by reason of (i) the breach of any of the representations or warranties of such Indemnifying Party or (ii) any breach by such Indemnifying Party of its obligations under this Agreement; provided, however, that, in no event shall an Indemnifying Party be liable for any claim or claims made by an Indemnified Party for a breach of any representation, warranty, or covenant under this Agreement unless the aggregate of any Losses resulting therefrom is equal to or greater than $100,000; provided, further, however, that the maximum aggregate liability of such Indemnifying Party shall in no event exceed the lesser of: (x) an amount equal to the Merger Consideration received by such Indemnifying Party and (y) $100,000.

Section 5.02.  Method of Asserting Claims. All claims for indemnification by any Indemnified Party under this Article V shall be asserted and resolved as follows:

(a)       If an Indemnified Party intends to seek indemnification under this Article V, it shall promptly notify the Indemnifying Party in writing of such claim. The failure to provide such notice will not affect any rights hereunder except to the extent an Indemnifying Party is materially prejudiced thereby.

(b)       If such claim involves a claim by a third-party against the Indemnified Party, the Indemnifying Party shall, within ten days after receipt of such notice and upon notice to the Indemnified Party, assume, with counsel reasonably satisfactory to the Indemnified Party, at the sole cost and expense of the Indemnifying Party, the settlement or defense thereof (in which case any Loss associated therewith shall be the sole responsibility of the Indemnifying Party), provided that the Indemnified Party may participate in such settlement or defense through counsel chosen by it. If the Indemnified Party determines in good faith that representation by the Indemnifying Party's counsel of (i) the Indemnifying Party and (ii) the Indemnified Party may present such counsel with a conflict of interest, then the Indemnifying Party shall pay the reasonable fees and expenses of the

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Indemnified Party's counsel. Notwithstanding the foregoing, (i) the Indemnified Party may, at the sole cost and expense of the Indemnifying Party, at any time prior to the delivery of the notice referred to in the first sentence of this Section 5.02(b) by any Indemnifying Party, file any motion, answer or other pleadings or take any other action that the Indemnified Party reasonably believes to be necessary or appropriate to protect its interests, (ii) the Indemnified Party may take over the control of the defense or settlement of a third-party claim at any time if it irrevocably waives its right to indemnity under this Article V with respect to such claim and (iii) the Indemnifying Party may not, without the consent of the Indemnified Party, settle or compromise any action or consent to the entry of any judgment. So long as an Indemnifying Party is contesting any such claim in good faith, the Indemnified Party shall not pay or settle any such claim without such Indemnifying Party's consent, such consent not to be unreasonably withheld. Notwithstanding the foregoing, if the compromise or settlement of a third-party claim could reasonably be expected to adversely affect the status of any subsidiary of the Combined Company electing to be treated as a real investment trust within the meaning of Section 856 of the Code, then the Combined Company shall make such decision to compromise or settle the third-party claim without the need to obtain the other party's consent. If the Indemnifying Party is not entitled to assume the defense of the claim pursuant to the foregoing provisions or is entitled but does not contest such claim in good faith (including if it does not notify the Indemnified Party of its assumption of the defense of such claim within the ten-day period set forth above), then the Indemnified Party may conduct and control, through counsel of its own choosing and at the expense of the Indemnifying Party, the settlement or defense thereof, and the Indemnifying Party shall cooperate with it in connection therewith. The failure of the Indemnified Party to participate in, conduct or control such defense shall not relieve the Indemnifying Party of any obligation it may have hereunder. Any defense costs required to be paid by the Indemnifying Party shall be paid as incurred, promptly against delivery of invoices therefor.

Section 5.03.    Survival. This Article V shall survive the Closing or the termination of the parties' obligations to consummate the transactions contemplated by this Agreement. All representations and warranties contained in this Agreement shall survive the Closing for a period of six months and shall not be deemed to be merged into or waived by the instruments of the Closing.

Section 5.04.   Waiver of Claims. Deliverance of the Merger Consideration provided in this Agreement shall serve to waive all claims against the Combined Company, the Manager and Merger Sub.

ARTICLE VI

MISCELLANEOUS

Section 6.01.    Entire Agreement; No Amendment. This Agreement represents the entire agreement among each of the parties hereto with respect to the subject matter hereof. It is expressly understood that no representations, warranties, guarantees or other statements shall be valid or binding upon a party unless expressly set forth in this Agreement. It is further understood that any prior agreements or understandings between the parties with respect to the subject matter hereof have merged in this Agreement, which collectively fully express all agreements of the parties hereto

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as to the subject matter hereof and supersedes all such prior agreements and understandings. This Agreement may not be amended, modified or otherwise altered except by a written agreement signed by the party hereto against whom enforcement is sought.

Section 6.02.    Certain Expenses. Each party hereto will pay all of its own expenses incurred in connection with this Agreement and the transactions contemplated hereby (whether or not the Closing shall take place), including, without limitation, all costs and expenses herein stated to be borne by such party and all of its respective accounting, legal, investigatory and appraisal fees.

Section 6.03.   Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if personally delivered with proof of delivery thereof (any notice or communication so delivered being deemed to have been received at the time delivered), or sent by United States certified mail, return receipt requested, postage prepaid (any notice or communication so sent being deemed to have been received two Business Days after mailing in the United States), with failure or refusal to accept delivery to constitute delivery for all purposes of this Agreement, addressed to the respective parties as follows:

If to the Terra Fund, to the address listed on such Terra Fund's

signature page to this Agreement.

If to the Combined Company or Merger Sub, to:

Terra Secured Income Fund 5, LLC

Attention: Gregory Pinkus

805 3^rd Avenue

New York, NY 10022

with a copy to:

Jay L. Bernstein, Esq.

Clifford Chance US LLP

31 West 52^nd Street

New York, New York 10019

Section 6.04.    No Assignment. Except as provided in this Section below, neither this Agreement nor any of the rights or obligations hereunder may be assigned by any party hereto without the prior written consent of the other parties.

Section 6.05.   Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of laws of any jurisdiction other than those of the State of Delaware.

Section 6.06.   Multiple Counterparts. This Agreement may be executed in multiple counterparts. If so executed, all of such counterparts shall constitute but one agreement, and, in proving this Agreement, it shall not be necessary to produce or account for more than one such

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counterpart. To facilitate execution of this Agreement, the parties may execute and exchange by facsimile or electronic mail PDF copies of counterparts of the signature pages.

Section 6.07.    Further Assurances. From and after the date of this Agreement and after the Closing, the parties hereto shall take such further actions and execute and deliver such further documents and instruments as may be reasonably requested by the other parties and are reasonably necessary to provide to the respective parties hereto the benefits intended to be afforded hereby.

Section 6.08.   Miscellaneous. The headings of the Articles and the Sections contained in this Agreement are for convenience only and shall not be taken into account in determining the meaning of any provision of this Agreement. If the last day for performance of any obligation hereunder is not a Business Day, then the deadline for such performance or the expiration of the applicable period or date shall be extended to the next Business Day. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. The Exhibit attached hereto is hereby incorporated herein and shall be deemed a part of this Agreement.

Section 6.09.    Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable, this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Agreement, and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement.

Section 6.10.    Attorneys' Fees. If this Agreement or the transactions contemplated herein give rise to a lawsuit, arbitration or other legal proceeding between the parties hereto, the prevailing party shall be entitled to recover its costs and reasonable attorney fees in addition to any other judgment of the court or arbitrator(s).

Section 6.11.   Waiver of Jury Trial. To the fullest extent permitted by applicable law, the parties hereto waive trial by jury in any action, proceeding or counterclaim brought by any party(ies) against any other party(ies) on any matter arising out of or in any way connected with this Agreement or the relationship of the parties created hereunder.

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

TERRA SECURED INCOME FUND 5, LLC
By:	Terra Capital Advisors, LLC, its manager
By:	/s/ Bruce Batkin
	Name: Bruce Batkin
	Title: Chief Executive Officer

TERRA CAPITAL ADVISORS, LLC
By:	/s/ Bruce Batkin
	Name: Bruce Batkin
	Title: Chief Executive Officer

TERRA SECURED INCOME FUND 3 MERGER SUB, LLC

By: Terra Secured Income Fund 5, LLC, its sole member

By:	Terra Capital Advisors, LLC, its manager
By:	/s/ Bruce Batkin
	Name: Bruce Batkin
	Title: Chief Executive Officer

TERRA SECURED INCOME FUND 3, LLC

By:  Terra Capital Advisors, LLC, its manager

By:	/s/ Bruce Batkin
	Name: Bruce Batkin
	Title: Chief Executive Officer
	Address:	Terra Secured Income Fund, LLC
		Attn: Gregory Pinkus
		805 3rd Avenue
		New York, NY, 10022

Signature Page to Merger Agreement for

Terra Secured Income Fund 3, LLC

EXHIBIT A

MERGER CONSIDERATION SCHEDULE

A.        The aggregate Exchange Value of the Terra Fund as of the Closing Date of the Merger is $35,708,466.

B.        The Exchange Value per Terra Fund Unit in the Merger is $45,172.

C.        The Merger Consideration will be paid to Terra Fund Unitholders through the issuance of Continuing Income Units, Termiantion Units or cash (at the Exchange Value per Terra Fund Unit) as provided in this Agreement.

D.        In accordance with Section 2.04 of this Agreement and the Merger Procedures, each Terra Fund Unit exchanged in the Merger, will entitle the holder thereof to receive 1.041 Continuing Income Units or one Termination Unit or $45,172 in cash.

E.        The following table sets forth number of Continuing Income Units, Termination Units and cash to be issued to Terra Fund Unitholders in exchange for their Terra Fund Units in the Merger, except that such number of Continuing Income Units and/or Termination Units shall be reduced in accordance with Section 2.04 of this Agreement and as otherwise explained on this Exhibit A in paragraphs F and G below:

Continuing Income Units to	Termination Units to be
be Issued	Issued	Cash
693.01	118.78	$271,034

F.        As provided in Section 2.04 of this Agreement, to the extent that any holder of any Terra Fund Unit(s) does not not comply with the Merger Procedures and is otherwise determined by the Manager to be ineligible to receive Continuing Income Units in the Merger, such holder shall be receive, in exchange for such holder's Terra Fund Units, cash in lieu of Continuing Income Units, and the number of Continuing Income Units to be issued in the Merger (as shown in the above Table) shall be correspondingly reduced.

G.        As further provided in Section 2.04 of this Agreement, to the extent that the Manager in its discretion determines that, in order for investments by Benefit Plan investors upon completion of the Merger and the concurrent private placement to comply with the 25% Test, cash, in lieu of Continuing Income Units or Termination Units, is to be issued to any holder of Terra Fund Unit(s) in the Merger, such holder shall be receive, in exchange for such holder's Terra Fund Units, cash in lieu of Continuing Income Units or

Termination Units, and the number of Continuing Income Units or Termination Units, as the case may be, to be issued in the Merger (as shown in above Table) shall be correspondingly reduced.

EX-2.4

Exhibit 2.4

TERRA SECURED INCOME FUND 5, LLC

TERRA SECURED INCOME FUND 4 MERGER SUB, LLC

AND

TERRA SECURED INCOME FUND 4, LLC

AGREEMENT AND PLAN OF MERGER

CONTENTS

Clause	Page
Article I Definitions	2
Section 1.01.  Definitions	2
Section 1.02.  Rules of Application	5
Article II The Merger	5
Section 2.01.  Effect of the Merger	5
Section 2.02.  Closing Date	5
Section 2.03.  Effect on Terra Fund Units	6
Section 2.04.  Payment of Merger Consideration	6
Section 2.05.  Treatment of Manager's interest	6
Section 2.06.  Treatment of Equity Interests of Merger Sub	6
Section 2.07.  Termination	6
Section 2.08.  Tax Treatment	7
Section 2.09.  Officers and Directors	7
Article III Conditions and Covenants	8
Section 3.01.  Conditions to the Obligations of the Combined Company and Merger Sub	8
Section 3.02.  Conditions to the Obligations of the Terra Fund	8
Section 3.03.  Covenants of the Terra Fund	8
Article IV Representations and Warranties	8
Section 4.01.  Representations and Warranties of the Terra Fund	8
Section 4.02.  Representations and Warranties of the Combined Company	10
Section 4.03.  Representations and Warranties of Merger Sub	11
Article V Indemnification	12
Section 5.01.  Indemnification	12
Section 5.02.  Method of Asserting Claims	12
Section 5.03.  Survival	13
Section 5.04.  Waiver of Claims	13
Article VI Miscellaneous	13
Section 6.01.  Entire Agreement; No Amendment	13
Section 6.02.  Certain Expenses	14

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Section 6.03.  Notices	14
Section 6.04.  No Assignment	14
Section 6.05.  Governing Law	14
Section 6.06.  Multiple Counterparts	14
Section 6.07.  Further Assurances	15
Section 6.08.  Miscellaneous	15
Section 6.09.  Invalid Provisions	15
Section 6.10.  Attorneys' Fees	15
Section 6.11.  Waiver of Jury Trial	15

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THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is dated as of January 1, 2016, by and among TERRA SECURED INCOME FUND 5, LLC, a Delaware limited liability company (the "Combined Company"), TERRA SECURED INCOME FUND 4 MERGER SUB, LLC, a Delaware limited liability company and a wholly owned subsidiary of Combined Company (the "Merger Sub"), Terra Secured Income Fund 4, LLC, a Delaware limited liability company (the "Terra Fund"), and Terra Capital Advisors 2, LLC, a Delaware limited liability company and the manager of the Terra Fund (in such capacity, the "Terra Fund Manager") and Terra Capital Advisors, LLC, a Delaware limited liability company and the manager of the Combined Company (in such capacity, the "Manager").

W I T N E S S E T H:

WHEREAS , the parties to this Agreement intend that, on the terms and subject to the conditions set forth in this Agreement, the Terra Fund be merged with Merger Sub, with the Terra Fund being the surviving limited liability company in the merger (the "Merger");

WHEREAS, the value of the consideration (the "Merger Consideration") to be paid to the unitholders of the Terra Fund (the "Terra Fund Unitholders") shall equal the Exchange Value of such Terra Fund to be issued as set forth on Exhibit A to this Agreement;

WHEREAS, in the Merger, the Merger Consideration shall be paid to the Terra Fund Unitholders, as hereinafter provided, either through the issuance of regular units in the Combined Company ("Continuing Income Units") or termination units in the Combined Company ("Termination Units"), which Continuing Income Units or Termination Units shall be valued at the Exchange Value per unit of the Combined Company (or $43,410 per unit), or through the payment of cash;

WHEREAS, only Terra Fund Unitholders that the Manager has established it has a reasonable basis to believe qualify as "accredited investors" under Rule 501(a) of Regulation D under the Securities Act ("AI Terra Fund Unitholders") are eligible to receive Continuing Income Units or Termination Units in the Merger;

WHEREAS, the Terra Fund Manager has (a) determined that it is in the best interests of the Terra Fund, and declared it advisable, to enter into this Agreement; (b) directed that the Merger be submitted to the Terra Fund Unitholders for their consideration and approval; and (c) consented to, on the terms and subject to the conditions set forth in this Agreement, the Merger and the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby;

WHEREAS, the Terra Fund Unitholders representing a majority of the outstanding Terra Funds Units (as herein defined) have approved the Merger and the transactions contemplated hereby;

WHEREAS, the Terra Fund Manager has been authorized to approve any amendments to the operating agreement of the Terra Fund that the Terra Fund Manager in its sole discretion determines are useful or required in furtherance of the Merger;

WHEREAS, the Combined Company as sole member of Merger Sub has approved, and the Manager, as manager of the Combined Company, has consented to, on the terms and subject to the conditions set forth in this Agreement, the Merger, and the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby;

WHEREAS, the member's representing a majority of the Continuing Income Units in the Combined Company have approved the Merger and the transactions contemplated hereby; and

WHEREAS, each of the parties hereto has been advised by the other parties and acknowledges that such other parties would not be entering into this Agreement without the representations, warranties and covenants which are being made and agreed to herein by each party hereto and that such parties are entering into this Agreement in reliance on such representations, warranties and other covenants;

NOW, THEREFORE, in consideration for the mutual agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01. Definitions. The following terms as used in this Agreement shall have the meanings attributed to them as set forth below. Other capitalized terms used herein shall, unless the context otherwise requires, have the meanings assigned to such terms herein.

"Act" has the meaning set forth in Section 2.01.

"Agreement" has the meaning set forth in the preamble.

"AI Terra Fund Unitholder" has the meaning set forth in the recitals.

"Authority" means a governmental body or agency having jurisdiction over a Terra Fund, the Combined Company or Merger Sub, as applicable.

"Benefit Plan Investor" is a Plan that is subject to Title I of ERISA or Section 4975 of the Code and any entity whose underlying assets are deemed to include the assets of a Plan by reason of a Plan's investment in the entity, as determined for purposes of ERISA and the Plan Assets Regulation, or otherwise.

"Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in the State of New York are authorized or required by law to close.

"Closing" and "Closing Date" have the meanings set forth in Section 2.02.

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"Code" means the Internal Revenue Code of 1986, as amended, or corresponding provisions of subsequently enacted federal revenue laws.

"Combined Company" has the meaning set forth in the preamble.

"Combined Company Material Adverse Effect" means any material adverse change in any of the assets, business, condition (financial or otherwise), results of operation or prospects of the Combined Company and its subsidiaries taken together.

"Continuing Income Units" has the meaning set forth in the recitals.

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.

"Financial Statements" has the meaning set forth in Section 4.01(e).

"Governmental Authority" means any government or agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign.

"Indemnified Parties" means the Combined Company, Merger Sub and each of their subsidiaries, equity holders, affiliates, directors, officers and employees.

"Indemnifying Party" means the Terra Fund.

"Laws" means laws, statutes, rules, regulations, codes, orders, ordinances, judgments, injunctions, decrees and policies of any Governmental Authority.

"Liabilities" means liabilities, obligations or commitments of any nature whatsoever, asserted or unasserted, known or unknown, absolute or contingent, accrued or unaccrued, matured or unmatured or otherwise.

"Liens" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), other charge or security interest or any preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement), and any obligations under capital leases having substantially the same economic effect as any of the foregoing.

"Loss" or "Losses" means any and all direct claims, losses, damages, costs, liabilities, fines, penalties and expenses, including, without limitation, any attorney's fees and disbursements, but excluding any contingent, punitive and consequential items.

"Manager" has the meaning set forth in the preamble.

"Memorandum" means the Consent Solicitation and Private Offering Memorandum dated November 13, 2015, together with any supplements thereto adopted prior to the date of this Agreement.

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"Merger" has the meaning set forth in the recitals.

"Merger Consideration" has the meaning set forth in the recitals.

"Merger Procedures" means the procedures specified in the Memorandum for determining which Terra Fund Unitholders receive Continuing Income Units, Termination Units or cash in the Merger.

"Merger Sub" has the meaning set forth in the preamble.

"Merger Sub Material Adverse Effect" means any material adverse change in any of the assets, business, condition (financial or otherwise), results of operation or prospects of Merger Sub and its subsidiaries taken together.

"Organizational Documents" means (i) the charter, articles of organization, certificate of formation or certificate of limited partnership for such Person, (ii) the bylaws, operating agreement, limited liability company agreement, or limited partnership agreement for such Person and (iii) any certificate of qualification or foreign entity registration for such Person (together with all supplements, amendments, modifications, consents and waivers related to any of the foregoing).

"Person" means any natural person, corporation, partnership, trust, unincorporated association or other legal entity.

"Plan" means (i) any "employee benefit plan" within the meaning of Section 3(3) of ERISA that is subject to Title I of ERISA and (ii) plans within the meaning of and subject to Section 4975 of the Code.

"Plan Asset Regulation" mean U.S. Department of Labor Regulation 29 C.F.R 2510.3-101 as modified by Section 3(42) of ERISA.

"Proportionate Share" means, for each Terra Fund Unitholder, a percentage determined by dividing the number of Terra Fund Units held by the Terra Fund Unitholder over the Terra Fund Units held by all Terra Fund Unitholders in the Terra Fund as of the Closing Date of the Merger.

"Securities Act" means the Securities Act of 1933, as amended.

"Termination Units" has the meaning set forth in the recitals.

"Terra Fund" has the meaning set forth in the preamble.

"Terra Fund Units" has the meaning set forth in Section 2.03.

"Terra Fund Manager" has the meaning set forth in the preamble.

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"Terra Fund Material Adverse Effect" means any material adverse change in any of the assets, business, condition (financial or otherwise), results of operation or prospects of a Terra Fund and its subsidiaries taken together.

"Terra Fund Unitholder" has the meaning set forth in the recitals.

"Treasury Regulations" means the applicable Final, Proposed, and Temporary Treasury Regulations promulgated under the provisions of the Code.

"25% Test" means less than 25% of the value (or any lower threshold determined by the Manager) of either Continuing Income Units or Termination Units (excluding any holdings by a member of the Combined Company (other than a Benefit Plan Investor) or any person that has discretionary authority or control over the assets of the Combined Company or provides investment advice for a fee, and affiliates of such persons) as determined for purposes of the Plan Asset Regulation

Section 1.02. Rules of Application. The definitions in Section 1.01 and elsewhere in this Agreement shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun used herein shall include the corresponding masculine, feminine and neuter forms. The words "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation." The words "herein," "hereof," "hereunder," and similar terms shall refer to this Agreement, unless the context otherwise requires.

ARTICLE II

THE MERGER

Section 2.01.    Effect of the Merger. On the terms and subject to the conditions set forth in this Agreement, and in accordance with the Delaware Limited Liability Company Act (the "Act"), on the Closing Date, (a) the Terra Fund will merge with Merger Sub and (b) the separate existence of Merger Sub will cease and the Terra Fund will continue its existence under the Act as the surviving entity in the Merger. Without limiting the generality of the foregoing, from and after the Closing Date, all property, rights, privileges, immunities, powers, franchises, licenses and authority of the Terra Fund and Merger Sub shall vest in the Terra Fund, and all debts, liabilities, obligations, restrictions and duties of the Terra Fund and Merger Sub shall continue to be or shall become the debts, liabilities, obligations, restrictions and duties of the Terra Fund.

Section 2.02.    Closing Date. Unless this Agreement is sooner terminated or extended pursuant to its terms or unless otherwise agreed to in writing by the parties hereto, the closing of the transactions contemplated by this Agreement (the "Closing") shall take place take place on the effective date of the Certificate of Merger relating to the Merger, as accepted for record by the Secretary of State of the State of Delaware, or such later date and time as the parties hereto may otherwise agree (the "Closing Date").

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Section 2.03.    Effect on Terra Fund Units

(a)        On the Closing Date, by virtue of the Merger and without any action on the part of Combined Company, Manager, Terra Fund Manager, Merger Sub or the Terra Fund, each outstanding unit in the Terra Fund (the "Terra Fund Unit"), shall be cancelled and retired, shall cease to exist and shall be converted automatically into the right to receive the Merger Consideration payable in respect of such Terra Fund Unit as provided in Section 2.04. Upon consummation of the Merger, each holder of a Terra Fund Unit shall no longer have any rights with respect thereto, except the right to receive such Merger Consideration in accordance with this Agreement.

Section 2.04.    Payment of Merger Consideration. On the Closing Date or as soon thereafter as is reasonably practical, Combined Company shall issue and deliver to (A) each AI Terra Fund Unitholder who, in accordance with the Merger Procedures, has elected or is otherwise required to receive Continuing Income Units in the Combined Company in the Merger, a number of Continuing Income Units (or fraction thereof) in the Combined Company equal to such AI Terra Fund Unitholder's Proportionate Share of the Merger Consideration divided by the Exchange Value per unit of the Combined Company, (B) each AI Terra Fund Unitholder who, in accordance with the Merger Procedures, has elected to receive Termination Units in Combined Company in the Merger, a number of Termination Units (or fraction thereof) in the Combined Company equal to such AI Terra Fund Unitholder's Proportionate Share of the Merger Consideration divided by the Exchange Value per unit of the Combined Company, and (C) each other Terra Fund Unitholder, an amount of cash equal to such Terra Fund Unitholder's Proportionate Share of the Merger Consideration; provided, however, in the discretion of the Manager, Terra Fund Units to be exchanged for Continuing Income Units or Termination Units may, notwithstanding anything to the contrary contained herein, be instead converted into cash equal to such Terra Fund Unitholder's Proportionate Share of the Merger Consideration or exchanged for an interest in an economically equivalent side-car or co-investment vehicle, as determined in the discretion of the Manager, in order to ensure investment in the Combined Company by Benefit Plan Investors upon completion of the Merger and the concurrent private placement satisfies the 25% Test.

Section 2.05.   Treatment of Manager's interest. On the Closing Date, by virtue of the Merger and without any action on the part of Combined Company, Manager, Terra Fund Manager, Merger Sub or the Terra Fund, the Manager's interest in the Terra Fund will be cancelled and be of no further force of effect.

Section 2.06.   Treatment of Equity Interests of Merger Sub. On the Closing Date, by virtue of the Merger and without any action on the part of Combined Company, Manager, Terra Fund Manager, Merger Sub or the Terra Fund, all equity interests in Merger Sub will be cancelled and be of no further force of effect.

Section 2.07.   Termination. Notwithstanding anything to the contrary contained herein, this Agreement may be terminated at any time prior to the Closing, as follows:

(a)         by mutual consent of all the parties;

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(b)         by the Combined Company, Manager or Merger Sub, if the Closing has not occurred by March 31, 2016;

(c)         by the Combined Company, Manager or Merger Sub if any of the conditions set forth in Section 3.01 have not been satisfied or waived by the Combined Company, Manager and Merger Sub; or

(d)         by the Terra Fund if any of the conditions set forth in Section 3.02 have not been satisfied or waived by the Terra Fund.

If the Combined Company, the Manager, Merger Sub or the Terra Fund elects to terminate this Agreement pursuant to this Section, then the Combined Company, the Manager, Merger Sub or the Terra Fund, as the case may be, shall provide written notice to the other parties of such election and the reason for terminating this Agreement and the termination of this Agreement shall be effective upon the non-issuing parties' receipt of the termination notice.

Section 2.08.   Tax Treatment.

(a)         The Combined Company and the Terra Fund intend, agree and consent to treat the Merger, for U.S. federal income tax purposes, as (i) a purchase by Combined Company of the Terra Fund Units of Terra Fund Unitholders receiving cash in the Merger, followed by (ii) a contribution by the Terra Fund of all of its assets and liabilities to the Combined Company in exchange for Continuing Income Units or Termination Units in a transaction whereby the Terra Fund shall recognize gain, but not loss, for U.S. federal income tax purposes, with any such gain recognized allocated to the AI Terra Fund Unitholders in accordance with the terms of the operating agreement of the Terra Fund, followed immediately thereafter by (iii) a distribution of such Merger Consideration to each such AI Terra Fund Unitholder in liquidation of the Terra Fund within the meaning of Treasury Regulation Section 1.708-1(b)(3), and the Terra Fund and Combined Company shall not maintain a position on its U.S. federal income tax return or otherwise that is inconsistent therewith.

(b)         The Combined Company and the Terra Fund intend, agree and consent, and each Terra Fund Unitholder receiving cash in the Merger, by receiving such cash, also intends, agrees and consents, to treat the merger whereby any Terra Fund Unitholder is receiving cash in the Merger, for U.S. federal income tax purposes, as a taxable sale by such Terra Fund Unitholder of its Terra Fund Unit in exchange for cash within the meaning of Treasury Regulation Section 1.708-1(b)(4) in which gain or loss, if any, shall be recognized, and they shall not maintain a position on its U.S. federal income tax return or otherwise that is inconsistent therewith.

Section 2.09.   Officers and Directors. Unless otherwise determined by the Combined Company, the directors and officers, if any, of the Terra Fund in office or position immediately prior to the Closing shall remain in such office or position following the Closing, in each case until their respective successors are duly elected or appointed or until their earlier death, resignation or removal.

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ARTICLE III

CONDITIONS AND COVENANTS

Section 3.01.   Conditions to the Obligations of the Combined Company and Merger Sub. The obligation of the Combined Company and Merger Sub to consummate the Merger shall be subject to the satisfaction or waiver by the Combined Company, Manager and Merger Sub of each of the conditions set forth below and the performance by the Terra Fund of its obligations set forth below and elsewhere in this Agreement:

(a)        Accuracy of Representations and Warranties. The representations and warranties of the Terra Fund contained in Section 4.01 shall be true and correct as of the date of this Agreement and the Closing Date; and

(b)        Terra Fund Compliance. The Terra Fund shall have fully complied with all of its obligations hereunder required to be performed on or prior to the Closing Date.

If any of the foregoing conditions have not been satisfied (or waived by the Combined Company and Merger Sub) as of the Closing Date, the Combined Company, Manager and Merger Sub shall have the right, in accordance with Section 2.07, to terminate this Agreement, and, except as expressly set forth elsewhere in this Agreement, no party hereto shall thereafter have any obligation under any provision of this Agreement.

Section 3.02.   Conditions to the Obligations of the Terra Fund. The obligation of the Terra Fund to consummate the Merger shall be subject to the performance by the Combined Company and Merger Sub of their obligations set forth below and elsewhere in this Agreement:

(a)        Accuracy of Representations and Warranties. The representations and warranties of the Combined Company and Merger Sub contained in Sections 4.02 and 4.03, respectively, shall be true and correct as of the date of this Agreement and the Closing Date.

Section 3.03.   Covenants of the Terra Fund.

(a)        Facilitate the Merger. From the date of this Agreement until the earlier to occur of the Closing or the termination of this Agreement in accordance with the terms set forth in Section 2.07, the Terra Fund shall not take, or agree or commit to take, any action that would reasonably be expected to, individually or in the aggregate, prevent, materially delay or materially impede the consummation of the Merger or the other transactions contemplated by this Agreement.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

Section 4.01.   Representations and Warranties of the Terra Fund. The Terra Fund hereby represents and warrants to the Combined Company and Merger Sub, as of the date of this

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Agreement and the Closing Date (except to the extent that any such representation speaks as of a specific date, in which case only as of such specific date), as follows:

(a)       Existence and Power. The Terra Fund has been duly incorporated and validly exists as a limited liability company under the laws of the State of Delaware. The Terra Fund has all power and authority to enter into this Agreement, and all other documents to be executed and delivered in connection with the transactions that are the subject of this Agreement, and to perform its obligations in connection with the transactions that are the subject of this Agreement.

(b)       Authorization; No Contravention. The execution and delivery of this Agreement by the Terra Fund and the performance of its obligations hereunder have been duly authorized by all requisite corporate action, and all necessary authorizations, consents, approvals, elections and waivers have been obtained as of the Closing Date. This Agreement constitutes the valid, legal and binding obligation of such Terra Fund, enforceable against the Terra Fund in accordance with its terms, subject to bankruptcy and similar laws affecting the remedies or resources of creditors generally and principles of equity. The execution and delivery of this Agreement and the consummation of the transactions contemplated herein will not conflict with, or result in any violation of, or default (with or without notice or lapse of time or both) under, give rise to a right of termination, cancellation or acceleration of, or give any Person the right to exercise any remedy under, any contractual obligation, under: (i) any agreement, order or decree to which the Terra Fund is a party or such Person is bound or to which any of such Person's assets are subject, (ii) the Organizational Documents of Terra Fund, or (iii) any law applicable to Terra Fund. Other than the filing of Certificate of Merger in accordance with Section 2.02 hereof, no authorization, approvals or consents from, or registration, declaration or filings with, any lender, partner, member, shareholder, beneficiary, tenant, creditor, investor, Authority or other Person is required in order for the Terra Fund to execute and deliver this Agreement and consummate the transactions contemplated herein.

(c)       No Injunction. The Terra Fund is not subject to any order, writ, judgment, decree, injunction or settlement that could reasonably be expected to prevent or materially delay the Terra Fund from consummating the transactions contemplated by this Agreement.

(d)       No Consents. Except for the filing of the Certificate of Merger in accordance with Section 2.02 hereof and the actions to be taken in connection therewith, and such consents as have been obtained from Terra Fund Unitholders and the Terra Fund Manager, no consent, waiver, approval, authorization, order, license, permit or registration of, qualification, designation, declaration or filing with, any Person or Governmental Authority or under any applicable Laws is required to be obtained by Terra Fund in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby and thereby, except for those consents, waivers, approvals, authorizations, orders, licenses, permits, registrations, qualifications, designations, declarations or filings, the failure of which to obtain or to file would not, individually or in the aggregate, reasonably be expected to prevent or materially delay the Terra Fund from consummating the transactions contemplated by this Agreement or otherwise have a Terra Fund Material Adverse Effect.

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(e)       Financial Statements. The consolidated financial statements of the Terra Fund, together with related notes and schedules as of and for the year ended December 31, 2014 and as of and for the nine months ended September 30, 2015 (the "Financial Statements"), present fairly the financial position and the results of operations and cash flows of the Terra Fund, at the indicated dates and for the indicated periods. Such financial statements and related schedules have been prepared in accordance with United States generally accepted accounting principles, consistently applied throughout the periods involved, except as disclosed therein, and all adjustments necessary for a fair presentation of results for such periods have been made. The Terra Fund does not have any material liabilities or obligations, direct or contingent, not disclosed in the Financial Statements.

(f)       Tax Status. The Terra Fund has been classified as a partnership for U.S. federal income tax purposes.

(g)       Non-Foreign Status. The Terra Fund is a "United States person" (as defined in Section 7701(a)(30) of the Code).

Section 4.02.  Representations and Warranties of the Combined Company. The Combined Company hereby represents and warrants to the Terra Fund, as of the date of this Agreement and the Closing Date, as follows:

(a)       Existence and Power. The Combined Company has been duly incorporated and validly exists as a limited liability company under the laws of the State of Delaware. The Combined Company has all power and authority to enter into this Agreement and all other documents to be executed and delivered in connection with the transactions that are the subject of this Agreement, and to perform its obligations in connection with the transactions that are the subject of this Agreement.

(b)       Authorization; No Contravention. The execution and delivery of this Agreement by the Combined Company and the performance of its obligations hereunder have been duly authorized by all requisite corporate action, and all necessary authorizations, consents, approvals, elections and waivers have been obtained as of the Closing Date. This Agreement constitutes the valid, legal and binding obligations of the Combined Company, enforceable against the Combined Company in accordance with its terms, subject to bankruptcy and similar laws affecting the remedies or resources of creditors generally and principles of equity. The execution and delivery of this Agreement and the consummation of the transactions contemplated herein will not conflict with, or result in any violation of, or default (with or without notice or lapse of time or both) under, give rise to a right of termination, cancellation or acceleration of, or give any Person the right to exercise any remedy under, any contractual obligation, under: (i) any agreement, order or decree to which the Combined Company is a party or such Person is bound or to which any of such Person's assets are subject, (ii) the Organizational Documents of the Combined Company, or (iii) any law applicable to the Combined Company. Other than the filing of the Certificate of Merger in accordance with Section 2.02 hereof and the actions to be taken in connection therewith, no authorization, approvals or consents from, or registration, declaration or filings with, any lender, partner, member, stockholder, beneficiary, tenant, creditor, investor, Authority or other Person is

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required in order for the Combined Company to execute and deliver this Agreement and consummate the transactions contemplated herein.

(c)       No Consents. Except for the filing of the Certificate of Merger in accordance with Section 2.02 hereof and the actions to be taken in connection therewith, and such consents as have been obtained from holders of Continuing Income Units in the Combined Company and the Manager, no consent, waiver, approval, authorization, order, license, permit or registration of, qualification, designation, declaration or filing with, any Person or Governmental Authority or under any applicable Laws is required to be obtained by the Combined Company in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby and thereby, except for those consents, waivers, approvals, authorizations, orders, licenses, permits, registrations, qualifications, designations, declarations or filings, the failure of which to obtain or to file would not, individually or in the aggregate, reasonably be expected to have a Combined Company Material Adverse Effect.

(d)      Continuing Income Units and Termination Units. The Continuing Income Units and Termination Units to be issued hereunder have been duly authorized for issuance and, upon such issuance, will be validly issued, fully paid and nonassessable.

Section 4.03.  Representations and Warranties of Merger Sub. Merger Sub hereby represents and warrants to the Terra Fund, as of the date of this Agreement and the Closing Date, as follows:

(a)       Existence and Power. Merger Sub has been duly formed and validly exists as a limited liability company under the Laws of the State of Delaware. Merger Sub has all power and authority to enter into this Agreement and all other documents to be executed and delivered in connection with the transactions that are the subject of this Agreement, and to perform its obligations in connection with the transactions that are the subject of this Agreement.

(b)       Authorization; No Contravention. The execution and delivery of this Agreement by Merger Sub and the performance of its obligations hereunder have been duly authorized by all requisite limited liability company action, and all necessary authorizations, consents, approvals, elections and waivers have been obtained as of the Closing Date. This Agreement constitutes the valid, legal and binding obligations of Merger Sub, enforceable against Merger Sub in accordance with its terms, subject to bankruptcy and similar laws affecting the remedies or resources of creditors generally and principles of equity. The execution and delivery of this Agreement and the consummation of the transactions contemplated herein will not conflict with, or result in any violation of, or default (with or without notice or lapse of time or both) under, give rise to a right of termination, cancellation or acceleration of, or give any Person the right to exercise any remedy under, any contractual obligation, under: (i) any agreement, order or decree to which Merger Sub is a party or such Person is bound or to which any of such Person's assets are subject, (ii) the Organizational Documents of Merger Sub, or (iii) any law applicable to Merger Sub. Other than the filing of the Certificate of Merger in accordance with Section 2.02 hereof, no authorization, approvals or consents from, or registration, declaration or filings with, any lender, partner, member, stockholder, beneficiary, tenant, creditor, investor, Authority or other Person is required in order for

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Merger Sub to execute and deliver this Agreement and consummate the transactions contemplated herein.

(c)       No Consents. Except for the filing of the articles of Certificate of Merger, order, license, permit or registration of, qualification, designation, declaration or filing with, any Person or Governmental Authority or under any applicable Laws is required to be obtained by Merger Sub in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby and thereby, except for those consents, waivers, approvals, authorizations, orders, licenses, permits, registrations, qualifications, designations, declarations or filings, the failure of which to obtain or to file would not, individually or in the aggregate, reasonably be expected to have a Merger Sub Material Adverse Effect.

ARTICLE V

INDEMNIFICATION

Section 5.01.    Indemnification. Subject to the limitations provided below, from and after the Closing Date, the Indemnifying Party agrees to indemnify, defend and hold harmless each of the Indemnified Parties from and against all Losses that are incurred or suffered by any of them based upon, arising out of, in connection with or by reason of (i) the breach of any of the representations or warranties of such Indemnifying Party or (ii) any breach by such Indemnifying Party of its obligations under this Agreement; provided, however, that, in no event shall an Indemnifying Party be liable for any claim or claims made by an Indemnified Party for a breach of any representation, warranty, or covenant under this Agreement unless the aggregate of any Losses resulting therefrom is equal to or greater than $100,000; provided, further, however, that the maximum aggregate liability of such Indemnifying Party shall in no event exceed the lesser of: (x) an amount equal to the Merger Consideration received by such Indemnifying Party and (y) $100,000.

Section 5.02.  Method of Asserting Claims. All claims for indemnification by any Indemnified Party under this Article V shall be asserted and resolved as follows:

(a)       If an Indemnified Party intends to seek indemnification under this Article V, it shall promptly notify the Indemnifying Party in writing of such claim. The failure to provide such notice will not affect any rights hereunder except to the extent an Indemnifying Party is materially prejudiced thereby.

(b)       If such claim involves a claim by a third-party against the Indemnified Party, the Indemnifying Party shall, within ten days after receipt of such notice and upon notice to the Indemnified Party, assume, with counsel reasonably satisfactory to the Indemnified Party, at the sole cost and expense of the Indemnifying Party, the settlement or defense thereof (in which case any Loss associated therewith shall be the sole responsibility of the Indemnifying Party), provided that the Indemnified Party may participate in such settlement or defense through counsel chosen by it. If the Indemnified Party determines in good faith that representation by the Indemnifying Party's counsel of (i) the Indemnifying Party and (ii) the Indemnified Party may present such counsel with a conflict of interest, then the Indemnifying Party shall pay the reasonable fees and expenses of the

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Indemnified Party's counsel. Notwithstanding the foregoing, (i) the Indemnified Party may, at the sole cost and expense of the Indemnifying Party, at any time prior to the delivery of the notice referred to in the first sentence of this Section 5.02(b) by any Indemnifying Party, file any motion, answer or other pleadings or take any other action that the Indemnified Party reasonably believes to be necessary or appropriate to protect its interests, (ii) the Indemnified Party may take over the control of the defense or settlement of a third-party claim at any time if it irrevocably waives its right to indemnity under this Article V with respect to such claim and (iii) the Indemnifying Party may not, without the consent of the Indemnified Party, settle or compromise any action or consent to the entry of any judgment. So long as an Indemnifying Party is contesting any such claim in good faith, the Indemnified Party shall not pay or settle any such claim without such Indemnifying Party's consent, such consent not to be unreasonably withheld. Notwithstanding the foregoing, if the compromise or settlement of a third-party claim could reasonably be expected to adversely affect the status of any subsidiary of the Combined Company electing to be treated as a real investment trust within the meaning of Section 856 of the Code, then the Combined Company shall make such decision to compromise or settle the third-party claim without the need to obtain the other party's consent. If the Indemnifying Party is not entitled to assume the defense of the claim pursuant to the foregoing provisions or is entitled but does not contest such claim in good faith (including if it does not notify the Indemnified Party of its assumption of the defense of such claim within the ten-day period set forth above), then the Indemnified Party may conduct and control, through counsel of its own choosing and at the expense of the Indemnifying Party, the settlement or defense thereof, and the Indemnifying Party shall cooperate with it in connection therewith. The failure of the Indemnified Party to participate in, conduct or control such defense shall not relieve the Indemnifying Party of any obligation it may have hereunder. Any defense costs required to be paid by the Indemnifying Party shall be paid as incurred, promptly against delivery of invoices therefor.

Section 5.03.    Survival. This Article V shall survive the Closing or the termination of the parties' obligations to consummate the transactions contemplated by this Agreement. All representations and warranties contained in this Agreement shall survive the Closing for a period of six months and shall not be deemed to be merged into or waived by the instruments of the Closing.

Section 5.04.   Waiver of Claims. Deliverance of the Merger Consideration provided in this Agreement shall serve to waive all claims against the Combined Company, the Manager and Merger Sub.

ARTICLE VI

MISCELLANEOUS

Section 6.01.    Entire Agreement; No Amendment. This Agreement represents the entire agreement among each of the parties hereto with respect to the subject matter hereof. It is expressly understood that no representations, warranties, guarantees or other statements shall be valid or binding upon a party unless expressly set forth in this Agreement. It is further understood that any prior agreements or understandings between the parties with respect to the subject matter hereof have merged in this Agreement, which collectively fully express all agreements of the parties hereto

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as to the subject matter hereof and supersedes all such prior agreements and understandings. This Agreement may not be amended, modified or otherwise altered except by a written agreement signed by the party hereto against whom enforcement is sought.

Section 6.02.    Certain Expenses. Each party hereto will pay all of its own expenses incurred in connection with this Agreement and the transactions contemplated hereby (whether or not the Closing shall take place), including, without limitation, all costs and expenses herein stated to be borne by such party and all of its respective accounting, legal, investigatory and appraisal fees.

Section 6.03.   Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if personally delivered with proof of delivery thereof (any notice or communication so delivered being deemed to have been received at the time delivered), or sent by United States certified mail, return receipt requested, postage prepaid (any notice or communication so sent being deemed to have been received two Business Days after mailing in the United States), with failure or refusal to accept delivery to constitute delivery for all purposes of this Agreement, addressed to the respective parties as follows:

If to the Terra Fund, to the address listed on such Terra Fund's

signature page to this Agreement.

If to the Combined Company or Merger Sub, to:

Terra Secured Income Fund 5, LLC

Attention: Gregory Pinkus

805 3^rd Avenue

New York, NY 10022

with a copy to:

Jay L. Bernstein, Esq.

Clifford Chance US LLP

31 West 52^nd Street

New York, New York 10019

Section 6.04.    No Assignment. Except as provided in this Section below, neither this Agreement nor any of the rights or obligations hereunder may be assigned by any party hereto without the prior written consent of the other parties.

Section 6.05.   Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of laws of any jurisdiction other than those of the State of Delaware.

Section 6.06.   Multiple Counterparts. This Agreement may be executed in multiple counterparts. If so executed, all of such counterparts shall constitute but one agreement, and, in proving this Agreement, it shall not be necessary to produce or account for more than one such

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counterpart. To facilitate execution of this Agreement, the parties may execute and exchange by facsimile or electronic mail PDF copies of counterparts of the signature pages.

Section 6.07.    Further Assurances. From and after the date of this Agreement and after the Closing, the parties hereto shall take such further actions and execute and deliver such further documents and instruments as may be reasonably requested by the other parties and are reasonably necessary to provide to the respective parties hereto the benefits intended to be afforded hereby.

Section 6.08.   Miscellaneous. The headings of the Articles and the Sections contained in this Agreement are for convenience only and shall not be taken into account in determining the meaning of any provision of this Agreement. If the last day for performance of any obligation hereunder is not a Business Day, then the deadline for such performance or the expiration of the applicable period or date shall be extended to the next Business Day. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. The Exhibit attached hereto is hereby incorporated herein and shall be deemed a part of this Agreement.

Section 6.09.    Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable, this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Agreement, and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement.

Section 6.10.    Attorneys' Fees. If this Agreement or the transactions contemplated herein give rise to a lawsuit, arbitration or other legal proceeding between the parties hereto, the prevailing party shall be entitled to recover its costs and reasonable attorney fees in addition to any other judgment of the court or arbitrator(s).

Section 6.11.   Waiver of Jury Trial. To the fullest extent permitted by applicable law, the parties hereto waive trial by jury in any action, proceeding or counterclaim brought by any party(ies) against any other party(ies) on any matter arising out of or in any way connected with this Agreement or the relationship of the parties created hereunder.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

TERRA SECURED INCOME FUND 5, LLC
By:	Terra Capital Advisors, LLC, its manager
By:	/s/ Bruce Batkin
	Name: Bruce Batkin
	Title: Chief Executive Officer

TERRA CAPITAL ADVISORS, LLC
By:	/s/ Bruce Batkin
	Name: Bruce Batkin
	Title: Chief Executive Officer

TERRA CAPITAL ADVISORS 2, LLC
By:	/s/ Bruce Batkin
	Name: Bruce Batkin
	Title: Chief Executive Officer

TERRA SECURED INCOME FUND 4 MERGER SUB, LLC

By: Terra Secured Income Fund 5, LLC, its sole member

By:	Terra Capital Advisors, LLC, its manager
By:	/s/ Bruce Batkin
	Name: Bruce Batkin
	Title: Chief Executive Officer

Signature Page to Merger Agreement for

Terra Secured Income Fund 4, LLC

TERRA SECURED INCOME FUND 4, LLC

By:  Terra Capital Advisors, LLC, its manager

By:	/s/ Bruce Batkin
	Name: Bruce Batkin
	Title: Chief Executive Officer
	Address:	Terra Secured Income Fund, LLC
		Attn: Gregory Pinkus
		805 3 rd Avenue
		New York, NY, 10022

Signature Page to Merger Agreement for

Terra Secured Income Fund 4, LLC

EXHIBIT A

MERGER CONSIDERATION SCHEDULE

A.        The aggregate Exchange Value of the Terra Fund as of the Closing Date of the Merger is $78,027,881.40.

B.        The Exchange Value per Terra Fund Unit in the Merger is $43,901.

C.        The Merger Consideration will be paid to Terra Fund Unitholders through the issuance of Continuing Income Units, Termiantion Units or cash (at the Exchange Value per Terra Fund Unit) as provided in this Agreement.

D.       In accordance with Section 2.04 of this Agreement and the Merger Procedures, each Terra Fund Unit exchanged in the Merger, will entitle the holder thereof to receive 1.011 Continuing Income Units or one Termination Unit or $43,901 in cash.

E.       The following table sets forth number of Continuing Income Units, Termination Units and cash to be issued to Terra Fund Unitholders in exchange for their Terra Fund Units in the Merger, except that such number of Continuing Income Units and/or Termination Units shall be reduced in accordance with Section 2.04 of this Agreement and as otherwise explained on this Exhibit A in paragraphs F and G below:

Continuing Income Units to	Termination Units to be
be Issued	Issued	Cash
1740.61	45.68	$439,006

F.        As provided in Section 2.04 of this Agreement, to the extent that any holder of any Terra Fund Unit(s) does not not comply with the Merger Procedures and is otherwise determined by the Manager to be ineligible to receive Continuing Income Units in the Merger, such holder shall be receive, in exchange for such holder's Terra Fund Units, cash in lieu of Continuing Income Units, and the number of Continuing Income Units to be issued in the Merger (as shown in the above Table) shall be correspondingly reduced.

G.        As further provided in Section 2.04 of this Agreement, to the extent that the Manager in its discretion determines that, in order for investments by Benefit Plan investors upon completion of the Merger and the concurrent private placement to comply with the 25% Test, cash, in lieu of Continuing Income Units or Termination Units, is to be issued to any holder of Terra Fund Unit(s) in the Merger, such holder shall be receive, in exchange for such holder's Terra Fund Units, cash in lieu of Continuing Income Units or

Termination Units, and the number of Continuing Income Units or Termination Units, as the case may be, to be issued in the Merger (as shown in above Table) shall be correspondingly reduced.

EX-2.5

Exhibit 2.5

THIS CONTRIBUTION AGREEMENT (this "Agreement") is made and entered into as of January 1, 2016, by and among TERRA SECURED INCOME FUND, LLC, a Delaware limited liability company ("Terra Fund 1"), TERRA SECURED INCOME FUND 2, LLC, a Delaware limited liability company ("Terra Fund 2"), TERRA SECURED INCOME FUND 3, LLC, a Delaware limited liability company ("Terra Fund 3"), TERRA SECURED INCOME FUND 4, LLC, a Delaware limited liability company ("Terra Fund 4"), TERRA SECURED INCOME FUND 5, LLC, a Delaware limited liability company ("Terra Fund 5" and together with Terra Fund 1, Terra Fund 2, Terra Fund 3, and Terra Fund 4, the "Contributors"), and TERRA PROPERTY TRUST, INC., a Maryland corporation (the "REIT").

RECITALS

WHEREAS, the Contributors hold the assets and liabilities listed next to their names on Schedule 1 attached hereto (the "Assets");

WHEREAS, each of the Contributors desire to contribute all of its right, title and interest in and to the Assets to the REIT in exchange for the number of shares of the REIT's common stock, $0.01 par value per share ("Common Stock"), listed next to their names on Schedule 2 attached hereto in accordance with the terms and subject to the conditions specified in this Agreement;

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement agree as follows:

1. Contribution of Assets; Effective Date.  The Contributors agree to contribute, transfer, convey and assign to the REIT, and the REIT agrees to accept the contribution, transfer, conveyance and assignment of, the Assets, pursuant to the terms and conditions set forth in this Agreement.  On the Closing Date (as defined in Section 5(a) of this Agreement), the Contributors shall contribute, transfer, convey and assign to the REIT the Assets.

2. Consideration.  As of the Closing Date, in consideration of the contribution of the Assets, the REIT shall issue to the each of the Contributors the number of shares of Common Stock listed next to their names on Schedule 2 (the "Common Stock Consideration").

3. Tax Treatment of the Contribution.  The contribution, transfer, conveyance and assignment of the Assets by the Contributors to the REIT in exchange for the Common Stock Consideration is intended to be treated by the parties for U.S. federal income tax purposes as a contribution by Terra Fund 5 to the REIT in a tax-deferred transaction that qualifies under Section 351 of the Internal Revenue Code of 1986, as amended (the "Code"). The Contributors and the REIT agree to make the election set forth in Section 362(e)(2)(C) of the Code in connection the contribution to apply the limitation in Section 362(e)(2)(A) of the Code to the Contributors' tax basis in the Common Stock Consideration (and not the tax basis of the Assets contributed to the REIT) (the "Section 362(e)(2)(C) Election"), and the Contributors and the REIT agree to take such additional actions and execute any additional documentation as may be required to effectuate such election. The Contributors and the REIT intend for this Agreement to be a binding agreement to elect to apply Section 362(e)(2)(C) of the Code within the meaning of Treasury Regulation Section 1.362-4(d)(1)(i). The Contributors shall file a Section 362(e)(2)(C) Statement as described in Treasury Regulation Section 1.362-4(d)(3) in accordance with the procedures set forth therein.

4. Transfer Taxes.  All sales, value added, use, state or local transfer and gains taxes, registration, stamp and similar taxes imposed in connection with the transactions contemplated by this Agreement shall be borne exclusively by the REIT.

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5. Closing Date and Closing Procedures and Requirements.

(a) Closing Date.  The "Closing Date" or "Closing" of this Agreement and the completion of the acquisition of the Assets by the REIT shall be on January 1, 2016.  Closing shall take place at the offices of Clifford Chance US LLP, 31 West 52nd Street, New York, New York or at such other place as the parties hereto may agree upon.

(b) Closing Deliveries.  On the Closing Date, the REIT shall transfer the Common Stock Consideration to the Contributors pursuant to Section 2 of this Agreement.  Simultaneously with the delivery of the Common Stock Consideration, the Contributors will contribute to the REIT the Assets held by each such Contributor.

6. Successors and Assigns.  The rights and obligations created by this Agreement shall be binding upon and inure to the benefit of the parties hereto, their heirs, executors, receivers, trustees, successors and permitted assigns.

7. Governing Law.  This Agreement and all transactions contemplated hereby shall be governed by, construed and enforced in accordance with the laws of the State of Maryland, without regard to the principles of conflict of law.

8. Severability.  If any provision of this Agreement, or the application thereof, is for any reason held to any extent to be invalid or unenforceable, the remainder of this Agreement and application of such provision to other persons or circumstances will be interpreted so as reasonably to affect the intent of the parties hereto.  The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business, and other purposes of the void or unenforceable provision and to execute any amendment, consent, or agreement deemed necessary or desirable by the REIT to effect such replacement.

9. Reliance.  Each party to this Agreement acknowledges and agrees that it is not relying on tax advice or other advice from the other parties to this Agreement, and that it has or will consult with its own advisors.

10. Further Assurances.  From time to time, at any party's request, whether on or after Closing, and without further consideration, the other parties shall execute and deliver any further instruments of conveyance and take such other actions as the requesting party may reasonably require to complete more effectively the transfer of the Assets to the REIT.

11. Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

12. Entire Agreement and Amendments.  This Agreement, together with all exhibits attached hereto or referred to herein, contain all representations and the entire understanding between the parties hereto with respect to the subject matter hereof.  Any prior correspondence, memoranda or agreements are replaced in total by this Agreement and exhibits hereto.  This Agreement may only be modified or amended upon the written consent of each party hereto.

[Signature page to follow.]

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IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date first written above.

CONTRIBUTOR:
TERRA SECURED INCOME FUND, LLC
By:	Terra Capital Advisors, LLC, its Manager
By:	/s/ Bruce Batkin
	Name:  Bruce Batkin
	Title:  Chief Executive Officer
TERRA SECURED INCOME FUND 2, LLC
By:	Terra Capital Advisors, LLC, its Manager
By:	/s/ Bruce Batkin
	Name:  Bruce Batkin
	Title:  Chief Executive Officer
TERRA SECURED INCOME FUND 3, LLC
By:	Terra Capital Advisors, LLC, its Manager
By:	/s/ Bruce Batkin
	Name:  Bruce Batkin
	Title:  Chief Executive Officer
TERRA SECURED INCOME FUND 4, LLC
By:	Terra Capital Advisors, LLC, its Manager
By:	/s/ Bruce Batkin
	Name:  Bruce Batkin
	Title:  Chief Executive Officer
TERRA SECURED INCOME FUND 5, LLC
By:	Terra Capital Advisors, LLC, its Manager
By:	/s/ Bruce Batkin
	Name:  Bruce Batkin
	Title:  Chief Executive Officer
TERRA PROPERTY TRUST, INC.
By:	/s/ Bruce Batkin
	Name:  Bruce Batkin
	Title:  Chief Executive Officer

[Signature Page to Contribution Agreement]

SCHEDULE 1

Terra Fund 1		Ownership	Outstanding	Market Value
Investment	Position	Interest	Balance	of Loans
Clemson Student Housing Portfolio	Mezzanine	100%	$3,000,000	$3,490,475
Portland Airport Hotel Portfolio	Mezzanine	100%	5,000,000	5,588,149
Museo Apartments	Mezzanine	100%	4,000,000	3,945,527
Marriott Spartanburg	Mezzanine	83%	2,500,000	2,769,371
Brass San Antonio	Preferred Equity	27%	4,260,930	4,291,401
Total			$18,760,930	$20,084,923
Other Assets				$480,533
Other Liabilities				($193,310)
Other Adjustments				$5,063

Terra Fund 2		Ownership	Outstanding	Market Value
Investment	Position	Interest	Balance	of Loans
Mystic Hotel	Preferred Equity	100%	$4,325,000	$4,325,000
CSRA Credit Facility	Mezzanine	57%	6,000,000	6,000,000
Arbor Station Apartments	Preferred Equity	100%	2,100,000	2,185,883
Stratford Apartments	Preferred Equity	100%	1,600,000	1,671,010
Ramada Plaza Atlanta Downtown	Mezzanine	100%	2,275,000	2,275,000
Mayo Portfolio	Mezzanine	100%	4,000,000	4,150,839
Marriot Warner Center	Preferred Equity	38%	7,500,000	7,832,443
Total			$27,800,000	$28,440,176
Other Assets				$9,060,926
Other Liabilities				($8,880,855)
Other Adjustments				$53,038

Terra Fund 3		Ownership	Outstanding	Market Value
Investment	Position	Interest	Balance	of Loans
Ramada Resort Fort Walton Beach	Mezzanine	100%	$4,500,000	$4,606,412
AHF Portfolio	Mezzanine	100%	3,869,381	4,239,452
Z Hotel NYC	Mezzanine	78%	3,500,000	3,838,928
Brass San Antonio	Preferred Equity	55%	8,733,343	8,801,171

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Kingsport Multifamily Portfolio	Mezzanine	100%	3,000,000	3,332,046
Park Central and Park East	Equity	35%	5,915,000	5,915,000
Holiday Inn Austin	Mezzanine	100%	3,500,000	3,500,000
Total			$33,017,724	$34,233,009
Other Assets				$3,525,558
Other Liabilities				($2,128,084)
Other Adjustments				$78,139

Terra Fund 4		Ownership	Outstanding	Market Value
Investment	Position	Interest	Balance	of Loans
Z Hotel NYC	Mezzanine	22%	$1,000,000	$1,096,836
Encino Courtyard	Mezzanine	100%	2,500,000	2,664,533
DoubleTree by Hilton Greensboro	Mezzanine	100%	3,500,000	3,586,169
Sheraton Hotel and Spa	Mezzanine	100%	8,700,000	8,700,000
Matrix MHC Portfolio	Mezzanine	100%	15,000,000	16,073,639
Ball State Student Housing Portfolio	Mezzanine	100%	2,700,000	2,691,781
Hilton Garden Inn Fort Washington	Preferred Equity	100%	3,742,000	3,742,000
Peachtree Pointe	Mezzanine	100%	7,500,000	7,500,000
Georgia Multifamily Portfolio	Mezzanine	100%	5,000,000	5,570,643
Park Central and Park East	Equity	65%	10,985,000	10,985,000
Millennium IV	First Mortgage	100%	13,980,000	13,980,000
Total			$74,607,000	76,590,603
Other Assets				$4,562,015
Other Liabilities				($3,125,564)

Terra Fund 5		Ownership	Outstanding	Market Value
Investment	Position	Interest	Balance	of Loans
Marriott Spartanburg	Mezzanine	17%	$500,000	$553,874
CSRA Credit Facility	Mezzanine	43%	4,500,000	4,500,000
Brass San Antonio	Preferred Equity	19%	3,018,418	3,036,080
UBS Tower	Mezzanine	100%	6,530,638	6,665,798
1733 Ocean Ave	Preferred Equity	70%	8,584,100	8,584,100
98 14th Street	Mezzanine	70%	3,948,803	4,015,012
Marriot Warner Center	Preferred Equity	44%	8,750,000	9,137,850
55 Miracle Mile	Mezzanine	70%	2,433,960	2,504,882
Crestavilla	First Mortgage	70%	7,896,000	7,896,000
144 South Harrison St	First Mortgage	100%	15,621,355	15,621,355
DoubleTree by Hilton San Diego	Preferred Equity	87%	5,200,000	5,200,000

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1100 Biscayne Blvd	Mezzanine	82%	12,059,001	12,189,801
Pine Tree Drive	Mezzanine	100%	5,010,017	5,044,997
Uptown Newport	First Mortgage	100%	11,200,000	11,200,000
BPG Office Portfolio	Mezzanine	100%	10,000,000	10,000,000
BPG Hotel Portfolio	Mezzanine	31%	1,800,000	1,800,000
42-50 24th Street	Mezzanine	79%	11,880,000	11,880,000
East 96th Street	Mezzanine	100%	3,322,262	3,322,262
Total			$122,254,554	$123,152,012
Other Assets				$23,484,064
Other Liabilities				($22,373,304)
Other Adjustments				$708,125

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SCHEDULE 2

CONTRIBUTOR	REIT SHARES
Terra Fund 1	1,017,266
Terra Fund 2	1,433,654
Terra Fund 3	1,785,423
Terra Fund 4	3,901,394
Terra Fund 5	6,248,652

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EX-2.6

Exhibit 2.6

THIS AMENDMENT NO. 1 TO THE CONTRIBUTION AGREEMENT (this "Amendment No. 1") is made and entered into as of December 31, 2016, by and among TERRA SECURED INCOME FUND, LLC, a Delaware limited liability company ("Terra Fund 1"), TERRA SECURED INCOME FUND 2, LLC, a Delaware limited liability company ("Terra Fund 2"), TERRA SECURED INCOME FUND 3, LLC, a Delaware limited liability company ("Terra Fund 3"), TERRA SECURED INCOME FUND 4, LLC, a Delaware limited liability company ("Terra Fund 4"), TERRA SECURED INCOME FUND 5, LLC, a Delaware limited liability company ("Terra Fund 5" and together with Terra Fund 1, Terra Fund 2, Terra Fund 3, and Terra Fund 4, the "Contributors"), and TERRA PROPERTY TRUST, INC., a Maryland corporation (the "REIT").

RECITALS

WHEREAS, the Contributors entered into that certain Contribution Agreement, by and among the Contributors and the REIT, dated as of January 1, 2016 (the "Contribution Agreement") for the purpose of contributing certain assets and liabilities held by them to the REIT in exchange for the number of shares of the REIT's common stock, $0.01 par value per share, listed next to their names on Schedule 2 attached thereto, in accordance with the terms and subject to the conditions specified in the Contribution Agreement;

WHEREAS, the Contributors and the REIT desire to enter into this Amendment No. 1 to the Contribution Agreement solely for the purpose of amending Schedule 2 to the Contribution Agreement;

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Amendment No. 1, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Amendment No. 1 agree as follows:

1. Contribution of Assets; Effective Date.  Schedule 2 to the Contribution Agreement is hereby replaced in its entirety with the Schedule 2 attached to this Amendment No. 1.

2. Continuation of Contribution Agreement. Except as expressly amended by this Amendment No. 1, the Contribution Agreement shall continue in full force and effect.

3. Counterparts.  This Amendment No. 1 may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

[Signature page to follow.]

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IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 effective as of the date first written above.

CONTRIBUTOR:
TERRA SECURED INCOME FUND, LLC
By:	Terra Income Advisors, LLC, its Manager
By:	/s/ Brue Batkin
	Name:  Bruce Batkin
	Title:  Chief Executive Officer
TERRA SECURED INCOME FUND 2, LLC
By:	Terra Income Advisors, LLC, its Manager
By:	/s/ Brue Batkin
	Name:  Bruce Batkin
	Title:  Chief Executive Officer
TERRA SECURED INCOME FUND 3, LLC
By:	Terra Income Advisors, LLC, its Manager
By:	/s/ Brue Batkin
	Name:  Bruce Batkin
	Title:  Chief Executive Officer
TERRA SECURED INCOME FUND 4, LLC
By:	Terra Income Advisors, LLC, its Manager
By:	/s/ Brue Batkin
	Name:  Bruce Batkin
	Title:  Chief Executive Officer
TERRA SECURED INCOME FUND 5, LLC
By:	Terra Income Advisors, LLC, its Manager
By:	/s/ Brue Batkin
	Name:  Bruce Batkin
	Title:  Chief Executive Officer
TERRA PROPERTY TRUST, INC.
By:	/s/ Brue Batkin
	Name:  Bruce Batkin
	Title:  Chief Executive Officer

[Signature Page to Contribution Agreement]

SCHEDULE 2

CONTRIBUTOR	REIT SHARES
Terra Fund 1	1,016,710
Terra Fund 2	1,433,224
Terra Fund 3	1,782,038
Terra Fund 4	3,891,783
Terra Fund 5	6,289,234

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EX-3.1

Exhibit 3.1

OPERATING AGREEMENT OF TERRA SECURED INCOME FUND 5, LLC

AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT

OF

TERRA SECURED INCOME FUND 5, LLC

This Amended and Restated Limited Liability Company Agreement, effective as of January 1, 2016, is entered into among the undersigned parties on the following terms and conditions.

WHEREAS, the limited liability company agreement (the "Original Agreement") of Terra Secured Income Fund 5, LLC (the "Company") was made effective as of July 28, 2013;

WHEREAS, the Company issued and sold an aggregate of 2,878.9 Units in the Company to investors who have become Members of the Company;

WHEREAS, the Company, through its wholly-owned merger subsidiaries (each, individually a "Merger Subsidiary" and collectively, the "Merger Subsidiaries"), will enter into merger agreements, dated January 1, 2016 (the "Merger Agreements"), pursuant to which each 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" and, together with Terra Fund 1, Terra Fund 2 and Terra Fund 3, the "Terra Funds") will merge with a Merger Subsidiary, with, in each case, the respective Terra Fund being the surviving limited liability company in the merger (the "Mergers");

WHEREAS, the value of the consideration (the "Merger Consideration") to be paid to unitholders of the Terra Funds (the "Terra Fund Unitholders") in each Merger will be equal to the Exchange Value (as set forth in the applicable Merger Agreement) of each Terra Fund;

WHEREAS, the Merger Consideration will be paid to Terra Fund Unitholders either in cash, through the issuance of Units in the Company or, in the case of Terra Fund Unitholders electing to enter the liquidation phase of their investments in their respective Terra Funds, through the issuance of a new class of units in the Company ("Termination Units"), providing the holders of such Termination Units, on the terms described herein, with a path to liquidating their investments on or before the original expected liquidation date of their existing Terra Fund;

WHEREAS, the Units and the Termination Units to be issued in the Mergers are being valued at $43,410 per unit;

WHEREAS, the manager(s) of the Terra Funds and the Terra Fund Unitholders have approved the Mergers;

WHEREAS, the Company as sole member of each of the Merger Subsidiaries has approved the Mergers, the Merger Agreement and the consummation of the transactions contemplated thereby;

WHEREAS, upon completion of the Mergers, the Company will contribute the consolidated portfolio of Assets, subject to liabilities, of the Company and the Terra Funds to a newly organized real estate investment trust subsidiary of the Company (the "REIT") in exchange for shares of common stock in the REIT (the "REIT Shares");

WHEREAS, the Company will sell up to 1,595.7 additional Units in a concurrent private placement (the "Concurrent Private Placement") to Terra Fund Unitholders and existing Members of the Company, at a purchase price of $47,000 per newly issued Unit;

WHEREAS, the Manager and the Members have approved certain amendments to the Original Agreement to reflect that upon consummation of the Mergers, certain services (as described below) which had been provided by the Manager to the Company will instead be provided to, and the fees associated with such services will be paid by,

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the REIT pursuant to a management agreement between the REIT and the Manager (the "Management Agreement"); and

WHEREAS, in order to allow the consummation of the Mergers and the other transactions to be approved in connection with the Mergers, the Manager and the Member have approved certain amendments to the Original Agreement and the adoption of this Agreement as the limited liability company agreement of the Company, effective as of the date set forth above.

NOW THERETOFORE, in consideration of the mutual covenants set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

Unless otherwise defined herein, capitalized terms shall have the respective meanings of such terms as set forth on Exhibit A hereto.

1.          Organization.

1.1           Formation. On April 24, 2013, a Certificate of Formation was filed in the office of the Secretary of State of the State of Delaware in accordance with and pursuant to the Act. The execution, delivery and filing of the Certificate of Formation by the organizer of the Company, who is hereby designated an "authorized person" within the meaning of the Act, is hereby approved and ratified in all respects, and such organizer's powers as an authorized person have ceased, and the Manager has become the designated "authorized person" of the Company.

1.2           Adoption of Amended and Restated Limited Liability Company Agreement. On December 15, 2015, the Manager and the Members approved certain amendments to the Original Agreement and the adoption of this Agreement as the limited liability company agreement of the Company, effective as of January 1, 2016.

1.3           Name and Place of Business. The name of the Company shall be Terra Secured Income Fund 5, LLC, and its principal place of business shall be 805 Third Avenue, 8th floor, New York, New York 10022. The Manager may change such name, change such place of business or establish additional places of business of the Company as the Manager may determine to be necessary or desirable.

1.4           Business and Purpose of the Company. The Company's business and primary purpose shall be the origination, funding and structuring of 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, as well as the acquisition of some equity participations in the underlying collateral of such loans (collectively the "Assets"), to be held by the Company directly or indirectly, and such activities as are necessary or incidental in connection therewith, and any other business that may be lawfully conducted by a limited liability company pursuant to the Act.

1.5           Term. The term of the Company shall terminate on December 31, 2023, unless the Company is sooner dissolved as provided in this Agreement.

1.6           Required Filings. The Manager shall execute, acknowledge, file, record and/or publish such certificates and documents, as may be required by this Agreement or by law in connection with the formation and operation of the Company.

1.7           Registered Office and Registered Agent. The Company's initial registered office and initial registered agent shall be as provided in the Certificate of Formation. The registered office and registered agent may be changed from time to time by the Manager by filing the address of the new registered office and/or the name of the new registered agent pursuant to the Act.

1.8           Certain Transactions. Any Manager, Member, or any Affiliate, or any shareholder, officer, director, employee, partner, member, manager or any person owning an interest therein, may engage in or possess an interest in any other business or venture of any nature or description, whether or not competitive with the Company,

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including, but not limited to, the acquisition, syndication, ownership, financing, management and brokerage of assets similar to the Assets and no Manager, Member or other person or entity shall have any interest in such other business or venture by reason of their interest in the Company.

2.          Capitalization and Financing.

2.1          Members' Capital Contributions.

2.1.1        Units. The Company is hereby authorized to sell and issue an unlimited number of Units, or fractional increments thereof, and to admit the persons who acquire such Units as Members, accepting in exchange therefore such consideration as the Manager shall determine. The minimum purchase shall be one Unit, except that the Manager may, in its sole discretion, issue and sell Units to Members in fractional increments for less than the minimum purchase amount. The purchase price for any fractional Unit shall be the purchase price for such Unit multiplied by the fractional increment desired to be purchased. Additionally, the Company is hereby authorized to sell and issue Termination Units to the Terra Fund Unitholders electing to receive such Termination Units in the Mergers, as provided in the Merger Agreements. The Company will limit the sale and redemption of Units and Termination Units in a manner sufficient to prevent the assets of the Company from becoming "plan assets" as defined under Regulation 2510.3-101 of the U.S. Department of Labor, as modified by Section 3(42) of ERISA. In addition, at no time shall the Manager and any of its Affiliates own, directly or indirectly, greater than 50% of the outstanding Units.

2.1.2        Payment of Purchase Price. The purchase price of each Unit shall be paid in full in cash (or other consideration approved by the Manager in connection with the issuance of Units in the Mergers) at the time of execution of the Subscription Agreement. Payment of the purchase price for a Unit shall constitute the initial Capital Contribution.

2.1.3        Subscription Agreement. Other than in connection with the Mergers, each person desiring to acquire Units and become a Member, shall tender to the Company a Subscription Agreement for the number of Units desired, together with the correct full Subscription Payment of the Units so subscribed. The Company shall accept or reject each Subscription Agreement within 30 days after the Company receives the same (and the failure by the Company to accept a Subscription Agreement within said 30 days shall constitute a rejection thereof). Acceptance of a Subscription Agreement shall be evidenced by the execution by the Manager. The accompanying Subscription Payment shall become a Capital Contribution by such subscriber.

2.1.4        Acceptance of Subscription Agreement. After acceptance of any tendered Subscription Agreement by the Company, the accompanying Subscription Payment shall be sent directly to and retained by the Company. Investors in the Company shall be admitted into the Company on the first day of the calendar month following the month in which the Company accepts such subscriber's subscription unless admitted earlier by the Manager. All subscriptions shall be accepted or rejected by the Company within 30 days of their actual receipt by the Company. If the Manager does not respond to a subscription within such 30 day period, the potential investor shall be deemed to be rejected. If rejected, all Subscription Payments shall be returned to the subscriber.

2.1.5        Escrow Account. The Company confirms that funds previously held in the non-interest bearing escrow account ("Escrow Account") at UMB Bank, N.A. have been released to the Company.

2.1.6        Cancellation of Offering. The Company further confirms that because the conditions for the closing of the initial Offering have been completed, the Offering has not been cancelled but has closed.

2.1.7        Admission of Terra Fund Unitholders in connection with the Mergers. Upon consummation of the Mergers, each Terra Fund Unitholder who, in accordance with the procedures set forth in the Memorandum (the "Merger Procedures"), has elected or is otherwise required to receive Units in the Merger will be admitted as a Member of the Company and will hold the number of Units specified for such member in the books and records of the Company and each Terra Fund Unitholder who, in accordance with the Merger Procedures, has elected to receive Termination Units in the Company shall be admitted as a member of the Company and hold the number of Termination Units in the Company specified for such member in the books and records of the Company.

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2.1.8        Admission of a Member. To the extent required by law, the Manager shall amend this Agreement and take such other action as the Manager deems necessary or appropriate promptly after receipt of the Members' Capital Contributions to the Company to reflect the admission of those persons to the Company as Members.

2.1.9        Liabilities of Members. Except as specifically provided in this Agreement, neither the Manager nor any other Member shall be required to make any additional contributions to the Company and no Manager or Member shall be liable for the debts, liabilities, contracts, or any other obligations of the Company, by reason of being a Member or Manager of the Company, nor shall the Manager or the Members be required to lend any funds to the Company or to repay to the Company, any Member, or any creditor of the Company any portion or all of any deficit balance in a Member's Capital Account.

2.1.10     Termination Units.

(a)          The Manager is authorized to make payments to Members who hold Termination Units in an amount necessary to provide such Members with a 6% per annum cumulative, non-compounded return on such Member's Unreturned Invested Capital.

(b)          In addition, if in the judgment of the Manager, the Company has received, prior to the Applicable Termination Unit Scheduled Redemption Date, repayments of principal on its loan portfolio Assets in amounts (reduced by amounts previously paid in redemption of Termination Units under this Agreement) that equal or exceed the Book Value (calculated as of the end of the immediately preceding calendar quarter) of the Termination Units issued in the Merger involving the Terra Fund to which the Applicable Termination Unit Scheduled Redemption Date relates (the "Targeted Termination Units"), the Manager is authorized to cause the Company, on or before the Applicable Termination Unit Scheduled Redemption Date or as soon thereafter as practicable, to call the Targeted Termination Units for redemption at their Termination Unit Repurchase Price. The Manager is also authorized to cause the Company to redeem Termination Units at any time prior to their Applicable Termination Unit Scheduled Redemption Date, in whole or in part, at the Termination Unit Repurchase Price.

(c)          Any redemption of Termination Units shall be subject to the additional condition that payment of the Termination Unit Repurchase Price will not violate the Act or any credit agreement to which the Company or its subsidiaries are a party. In addition, to the extent there is any shortfall in repayments of principal by the Applicable Termination Unit Scheduled Redemption Date to the fund the redemption of Termination Units or such redemption would violate the Act or any such credit agreement, the Manager will endeavor in good faith to have the Company call the affected Termination Units for redemption in the quarterly period following the date, in the judgment of the Manager, that sufficient principal repayments have been received by the Company or violation of the Act or credit agreement is no longer at issue or as soon thereafter as practicable.

(d)          The Manager shall cause Termination Units to be redeemed by notifying Members who hold such Termination Units that their Termination Units are being or have been redeemed. Such notice shall specify the redemption date, which date shall be determined in the Manager's discretion and shall indicate whether each Termination Unit is being redeemed in whole or in part. On the redemption date, the Company shall send the Termination Unit Repurchase Price to Members whose Termination Units (or fractions thereof) are being redeemed. Upon making such payment, each redeemed Termination Unit (or fraction thereof) shall no longer be outstanding and the holders of such redeemed Termination Unit (or fraction thereof) shall have no further rights under this Agreement with respect to such Termination Unit (or redeemed fraction thereof) other the right to receive the Termination Unit Redemption Price. In causing the Company to redeem Termination Units, the Manager shall endeavor in good faith to treat the Termination Units issued in respect of each Merger in a consistent manner.

(e)          Net Income and Net Loss and, to the extent necessary, individual items of income, gain, loss or deduction for each allocation period shall be in a manner such that the Capital Accounts of each Member holding Termination Units, immediately after making such allocation, and after taking into account actual distributions made during such allocation period (and distributions with respect to such allocation period made after the end of such allocation period if the Manager is able to determine in good faith the manner in which such distributions shall be made) is, as nearly as possible, equal (proportionately) to (i) the distributions that would be made to such Member if the Company were dissolved, its affairs wound up and its assets sold for cash equal to their

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Gross Asset Value, all liabilities of the Company, including the Company's share of any liability of an entity that is treated as a partnership for U.S. federal income tax purposes in which the Company is a partner, were satisfied (limited with respect to each Nonrecourse Debt to the Gross Asset Value of the assets securing such liability) and the net assets of the Company were distributed in accordance with Section 2.1.10(c) to the Members immediately after making such allocation, minus (ii) such Member's share of Company Minimum Gain and Member Minimum Gain, computed immediately prior to the hypothetical sale of assets. Any Net Income and Net Loss or items thereof allocated pursuant to this Section 2.1.10(e) shall reduce Net Income and Net Loss allocated pursuant to Section 3.1.

2.1.11      Representations and Warranties of Members. Unless waived by the Manager, each Member by becoming a Member represents and warrants to the Company and the Manager that such Member (i) is an "Accredited Investor" within the meaning of Rule 501(a) of the Securities Act of 1933, as amended (the "Securities Act"), (ii) is acquiring the Units or Termination Units for investment and not with a view to distribution or resale, and (iii) understands the Units and Termination Units have not been registered under the Securities Act or any state "blue sky" or securities laws and are not freely transferable, such Member must bear the economic risk of investment in the Units or the Termination Units for an indefinite period of time, and the Units and Termination Units cannot be sold unless they are subsequently registered or an exemption from such registration is available and such Member complies with the other applicable provisions of this Agreement.

2.2           Member Loans. The Manager or its Affiliates may, but will have no obligation to, make loans to the Company to acquire Assets or pay Company operating expenses. Any such loan shall bear interest at the actual cost of funds to the Manager and provide for the payment of principal and any accrued but unpaid interest in accordance with the terms of the promissory note evidencing such loan, but in no event later than dissolution of the Company.

2.3           Company Loans. The Company may obtain or assume, in the sole and absolute discretion of the Manager, loans to acquire or refinance the Assets.

3.          Allocation of Tax Items.

3.1          Allocation of Net Income and Net Loss. After giving effect to the special allocations in Sections 3.2 and 3.3, Net Income and Net Loss and, to the extent necessary, individual items of income, gain, loss or deduction for each allocation period shall be in a manner such that the Capital Accounts of each Member, immediately after making such allocation, and after taking into account actual distributions made during such allocation period (and distributions with respect to such allocation period made after the end of such allocation period if the Manager is able to determine in good faith the manner in which such distributions shall be made) is, as nearly as possible, equal (proportionately) to (i) the distributions that would be made to such Member if the Company were dissolved, its affairs wound up and its assets sold for cash equal to their Gross Asset Value, all liabilities of the Company, including the Company's share of any liability of an entity that is treated as a partnership for U.S. federal income tax purposes in which the Company is a partner, were satisfied (limited with respect to each Nonrecourse Debt to the Gross Asset Value of the assets securing such liability) and the net assets of the Company were distributed in accordance with Section 4.1 to the Members immediately after making such allocation, minus (ii) such Member's share of Company Minimum Gain and Member Minimum Gain, computed immediately prior to the hypothetical sale of assets.

3.2         Regulatory Allocations.

3.2.1        Company Minimum Gain Chargeback. Notwithstanding any other provision of this Section 3, if there is a net decrease in Company Minimum Gain during any Company fiscal year, each Member shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in proportion to, and to the extent of, an amount equal to such Member's share of the net decrease in Company Minimum Gain, determined in accordance with Treasury Regulations Section 1.704-2(g)(2). This Section 3.2.1 is intended to comply with the partnership minimum gain chargeback requirement in the Treasury Regulations and shall be interpreted consistently therewith. This provision shall not apply to the extent the Member's share of net decrease in Company Minimum Gain is caused by a guaranty, refinancing, or other change in the debt instrument causing it to become partially or wholly recourse debt or Member Nonrecourse Debt, and such Member bears the economic risk of loss (within the meaning of Treasury Regulations Section 1.752-2) for the newly guaranteed,

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refinanced or otherwise changed debt or to the extent the Member contributes cash to the capital of the Company that is used to repay the Nonrecourse Debt, and the Member's share of the net decrease in Company Minimum Gain results from the repayment.

3.2.2        Member Minimum Gain Chargeback. Notwithstanding any other provision of this Section 3, except Section 3.2.1, if there is a net decrease in Member Minimum Gain, any Member with a share of that Member Minimum Gain (as determined under Treasury Regulations Section 1.704-2(i)(5)) as of the beginning of the year shall be allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Member's share of the net decrease in Member Minimum Gain, determined in accordance with Treasury Regulations Section 1.704-2(g)(2). This Section shall not apply to the extent the net decrease in Member Minimum Gain arises because the liability ceases to be Member Nonrecourse Debt due to conversion, refinancing or other change in a debt instrument that causes it to become partially or wholly a Nonrecourse Debt. This Section is intended to comply with the partner minimum gain chargeback requirements in the Treasury Regulations and shall be interpreted consistently therewith and applied with the restrictions attributable thereto.

3.2.3        Qualified Income Offset. In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or 1.704-1(b)(2)(ii)(d)(6), items of Company income and gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the Adjusted Capital Account Deficit created by such adjustment, allocation or distribution as quickly as possible.

3.2.4        Nonrecourse Deductions. Nonrecourse Deductions for any fiscal year or other period shall be allocated to the Members in proportion to their Units and each Member's share of excess Nonrecourse Debt shall be in the same proportion.

3.2.5        Member Nonrecourse Deductions. Member Nonrecourse Deductions for any fiscal year shall be allocated to the Member who bears the economic risk of loss as set forth in Treasury Regulations Section 1.752-2 with respect to the Member Nonrecourse Debt. If more than one Member bears the economic risk of loss for a Member Nonrecourse Debt, any Member Nonrecourse Deductions attributable to that Member Nonrecourse Debt shall be allocated among the Members according to the ratio in which they bear the economic risk of loss.

3.2.6        Gross Income Allocation. Net Loss shall not be allocated to any Member to the extent such allocation would cause any Member to have an Adjusted Capital Account Deficit at the end of a fiscal year. In the event any Member has an Adjusted Capital Account Deficit at the end of any fiscal year, each such Member shall be specially allocated items of Company gross income and gain in the amount of such Adjusted Capital Account Deficit as quickly as possible.

3.3           Curative Allocations. Notwithstanding any other provision of this Agreement, the Regulatory Allocations shall be taken into account in allocating items of income, gain, loss and deduction among the Members so that, to the extent possible, the net amount of such allocations of other items and the Regulatory Allocations to each Member shall be equal to the net amount that would have been allocated to each such Member if the Regulatory Allocations had not occurred.

3.4           Contributed or Revalued Property. In accordance with Code Section 704(c) and the Treasury Regulations thereunder and with Section 1.704-1(b)(2)(iv)(f)(4) and 1.704-1(b)(4)(i) of the Treasury Regulations, income, gain, loss and deduction with respect to any property contributed to the capital of the Company or property revalued on the Company's books and in the Capital Accounts shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its initial fair market value, under any permissible method selected by the Manager.

3.5           Allocation of Company Items. Except as otherwise provided herein, whenever a proportionate part of Net Income or Net Loss is allocated to a Member, every item of income, gain, loss or deduction entering into the computation of such Net Income or Net Loss, and every item of credit or tax preference related to such

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allocation and applicable to the period during which such Net Income or Net Loss was realized shall be allocated to the Member in the same proportion.

3.6           Allocation Within Period. For purposes of determining the Net Income, Net Loss, or any other items allocable to any period, Net Income, Net Loss, and any such other items shall be determined on a daily, monthly, or other basis, as determined by the Manager using any permissible method under Code Section 706 and the regulations thereunder. No new Member shall be entitled to any retroactive allocation of losses, income or expense deductions incurred by the Company. The Manager may, at its option, at the time a Member is admitted, close the Company books (as though the Company's tax year had ended) or make pro rata allocations of loss, income and expense deductions to a new Member for that portion of the Company's tax year in which a Member was admitted in accordance with the provisions of Code Section 706(d).

3.7           Power of Manager to Vary Allocations. It is the intent of the Members that each Member's share of Net Income and Net Loss be determined and allocated in accordance with the provisions of this Section 3 to the fullest extent permitted by Section 704(b) of the Code and the provisions of this Agreement shall be so interpreted. Therefore, if the Company is advised by the Company's legal counsel or accountants that the allocation provisions of this Section 3 are unlikely to be respected for federal income tax purposes, the allocation provisions of this Section 3 shall be deemed amended by the Members in the manner and to the extent determined by the Manager, on advice of accountants or legal counsel, to be in the best interest and consistent with the economic sharing of the Members set forth in this Agreement, but in no event shall such reallocation be greater than the minimum reallocation necessary so that the allocation in this Section 3 will be respected for federal income tax purposes.

3.8          Consent of Members. The allocation methods of Net Income and Net Loss are hereby expressly consented to by each Member as a condition of becoming a Member.

3.9          Withholding Obligations.

3.9.1        Tax Payment as Loan. If the Company is required (as determined in good faith by the Manager) to make a payment ("Tax Payment") with respect to any Member to discharge any legal obligation of the Company or the Manager to make payments to any governmental authority with respect to any federal, foreign, state or local tax liability of such Member arising as a result of such Member's interest in the Company, then, notwithstanding any other provision of this Agreement to the contrary, the amount of any such Tax Payment shall be deemed to be a loan by the Company to such Member, which loan shall bear interest at the Prime Rate and be payable upon demand or by offset to any Distribution which otherwise would be made to such Member.

3.9.2        Effect of Tax Payment on Distributions. If and to the extent the Company is required to make any Tax Payment with respect to any Member, or elects to make payment on any loan described in Section 3.9.1 by offset to a Distribution to a Member, either (i) such Member's proportionate share of such Distribution shall be reduced by the amount of such Tax Payment or (ii) such Member shall pay to the Company prior to such Distribution an amount of cash equal to such Tax Payment. In the event a portion of a Distribution in kind is retained by the Company pursuant to clause (i) above, such retained assets may, in the discretion of the Manager, either (A) be distributed to the other Members or (B) be sold by the Company to generate the cash necessary to satisfy such Tax Payment. If the asset is sold, then for purposes of income tax allocations only under the Agreement, any gain or loss from such sale or exchange shall be allocated to the Member to whom the Tax Payment relates. If the asset is sold at a gain and the Company is required to make any Tax Payment on such gain, the Member to whom the gain is allocated shall pay the Company prior to the due date of Tax Payment an amount of cash equal to such Tax Payment.

3.9.3        Withholding of Distributions. The Manager shall be entitled to hold back any Distribution to any Member to the extent the Manager believes in good faith that a Tax Payment will be required with respect to such Member in the future and the Manager believes that there will not be sufficient subsequent Distributions to make such Tax Payment.

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4.          Distributions.

4.1         Cash from Operations, Sale, Exchange or Refinancing. Except as otherwise provided in Section 12, Distributable Cash with respect to each calendar month shall be distributed as follows:

4.1.1        First, to the Members (in proportion to their ownership of Distributable Units) until each Member has received cumulative distributions under this Section 4.1.1 equal to their Deemed Capital Contributions, provided that the aggregate distributions under this section with respect to any Unit shall not exceed the Deemed Capital Contribution with respect to such Unit. Once cumulative distributions under this Section 4.1.1 with respect to a Unit equal the Deemed Capital Contribution with respect to such Unit, then no further distributions shall be made with respect to that Unit until cumulative distributions on all Distributable Units are equal to the respective Deemed Capital Contributions of those Units.

4.1.2        Second, to the Members (in proportion to their accrued but unpaid Preferred Return) until each Member has received cumulative Distributions under this Section 4.1.2 in an amount equal to their accrued but unpaid Preferred Return; and

4.1.3       Third, 85% to the Members (in proportion to their ownership of Units) and 15% to the Manager.

4.2         Restrictions. The Company intends to make periodic distributions of substantially all cash determined by the Manager to be distributable, subject to the following: (i) all Distributions are subject to the payment, and the maintenance of reasonable reserves for payment, of Company obligations and (ii) the Manager may, in its sole and absolute discretion, reinvest cash from the sale, repayment, exchange or refinance of such Asset in a new Asset.

5.          Compensation to the Manager and Affiliates.

5.1         Manager's and Affiliates' Compensation.

(a)           The Manager and its Affiliates shall receive compensation from the Company for services rendered or to be rendered only as specified in this Agreement, except that upon consummation of the Mergers, services that had been provided by the Manager to the Company which entitled the Manager to receive from the Company the origination fee, the monthly asset management fee, the monthly asset servicing fee, the disposition fee and the transaction breakup fee will instead be provided to the REIT and accordingly the fees associated with such services will be paid by the REIT to the Manager pursuant to the Management Agreement.

(b)           Unless otherwise provided in the applicable Memorandum, the Company will pay the following fee and reimburse the Manager or its Affiliates (to the extent not otherwise paid or reimbursed to the Manager or its Affiliates by the REIT) for organization and offering expenses up to two percent (2.0%) of the gross proceeds raised in any Offering, which expenses include the cumulative cost of actual legal, accounting, printing, and marketing expenses such as (i) salaries and direct expenses of employees and others while engaged in the Offering, (ii) participating in due diligence, training seminars and education conferences and (iii) coordinating generally the marketing process; provided, however, unless otherwise provided in the applicable Memorandum, in the event that such expenses are less than 2.0% of the gross offering proceeds, the Manager will nonetheless receive the 2.0% reimbursement payment and will retain any remaining amount as an additional fee for services rendered in connection with the Offering. Unless otherwise provided in the applicable Memorandum, if such expenses exceed 2.0% of the gross offering proceeds, the Manager will pay any such excess.

5.2          Company Expenses. The Company shall be responsible to the extent the Company incurs costs and expenses relating to the Company's activities, real estate-related asset investments and the ongoing business of the Company, including (i) all costs and expenses attributable to originating, holding, managing and disposing of the Assets, (ii) legal, accounting, auditing, consulting and other fees and expenses, (iii) all reasonable out-of-pocket fees and expenses incurred by the Company, the Manager, or the Manager's agents, officers and employees relating to investment and disposition opportunities for the Company not consummated, (iv) any taxes, fees and other

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governmental charges levied against the Company and (v) any fees and expenses paid to third parties in connection with raising capital for the Company. The Manager may use its own employees or employees of any Affiliate to provide accounting, tax, data processing, engineering, market research or other professional services to the Company that would otherwise be performed by third parties and, in such event, the Company will reimburse the cost of performing such services (but only to the extent that such services are not otherwise reimbursed to the Manager or its Affiliates by the REIT). Such reimbursements may include employment costs and related overhead expenses allocable thereto, as reasonably determined by the Manager based on the time expended by the employees who render such services, provided that no such reimbursement shall exceed the amount that would be payable by the Company if the services were provided in an arms-length transaction with an independent third party.

6.          Authority and Responsibilities of the Manager.

6.1          Management. The business and affairs of the Company and its subsidiaries shall be managed by the Manager. Except as otherwise set forth in this Agreement, the Manager shall have full and complete authority, power and discretion to manage and control the business, affairs and properties of the Company and its subsidiaries, to make all decisions regarding those matters and to perform any and all other acts or activities customary or incident to the management of the Company's, and its subsidiaries', business.

6.2          Number, Tenure and Qualifications. The Company shall have one Manager which shall be Terra Capital Advisors, LLC, a Delaware limited liability company. The Manager shall hold office until such Manager is removed, withdraws or resigns.

6.3          Manager Authority. The Manager shall have all authority, rights and powers conferred by law (subject to Section 6.4 and Section 7.2, if required) and those required or appropriate to the management of the Company's business, which, by way of illustration but not by way of limitation, shall include the right, authority and power to cause the Company, or any of its subsidiaries, to:

6.3.1       originate, fund, acquire, structure, hold, develop, operate, sell, exchange, subdivide and otherwise dispose of assets of the Company, including the Assets;

6.3.2       in its sole and absolute discretion, extend the Offering Termination Date for up to two extensions of six months each.

6.3.3       increase the maximum number of holders of Units;

6.3.4       borrow money, and, if security is required therefor, to pledge or mortgage or subject Assets to any security device, to obtain replacements of any mortgage or other security device and to prepay, in whole or in part, refinance, increase, modify, consolidate, or extend any mortgage or other security device. All of the foregoing shall be on such terms and in such amounts as the Manager, in its sole discretion, deems to be in the best interest of the Company;

6.3.5       enter into such contracts and agreements as the Manager determines to be reasonably necessary or appropriate in connection with the Company's business and purpose (including contracts with Affiliates of the Manager) and any contract of insurance that the Manager deems necessary or appropriate for the protection of the Company and the Manager, including errors and omissions insurance, for the conservation of Company assets, or for any purpose convenient or beneficial to the Company;

6.3.6       employ persons, who may be Affiliates of the Manager, in the operation and management of the business of the Company;

6.3.7       prepare or cause to be prepared reports, statements and other relevant information for distribution to the Members;

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6.3.8       open accounts and deposits and maintain funds in the name of the Company in banks, savings and loan associations, "money market" mutual funds and other instruments as the Manager may deem in its discretion to be necessary or desirable;

6.3.9       cause the Company to make or revoke any of the elections referred to in the Code (the Manager shall have no obligation to make any such elections);

6.3.10     select as its accounting year a calendar or fiscal year as may be approved by the Internal Revenue Service (the Company has initially adopted the calendar year);

6.3.11     determine the appropriate accounting method or methods to be used by the Company;

6.3.12     enter into the Merger Agreements and to take all actions determined by the Manager in its discretion to be necessary to consummate the Mergers, including the issuance of Units and Termination Units and the payment of cash consideration to the Terra Fund Unitholders in the Mergers and the execution, delivery and acknowledgement of all documents, agreements and instruments that the Manager in its sole discretion determines are useful or required in connection therewith;

6.3.13     enter into the Management Agreement;

6.3.14     in addition to any amendments otherwise authorized herein, except for amendments relating to (i) the obligations of the Members to make contributions to the Company, and (ii) permitted transfers of the Units, which although such amendments may be effectuated by the Manager, will not be effective against any Member without such Member's written consent, amend this Agreement without any action on the part of the Members by special or general power of attorney or otherwise:

(a)          to add to the representations, duties, services or obligations of the Manager or its Affiliates, for the benefit of the Members;

(b)          to cure any ambiguity or mistake, to correct or supplement any provision herein that may be inconsistent with any other provision herein, or to make any other provision with respect to matters or questions arising under this Agreement that will not be inconsistent with the provisions of this Agreement;

(c)          to delete or add any provision of this Agreement required to be so deleted or added for the benefit of the Members by the staff of the Securities and Exchange Commission or by a state "Blue Sky" Commissioner or similar official;

(d)          to amend this Agreement to reflect the addition or substitution of Members or the reduction of the Capital Accounts upon the return of capital to the Members;

(e)          to reconstitute the Company under the laws of another state if beneficial;

(f)           change the name and/or principal place of business;

(g)          decrease the rights and powers of the Manager (so long as such decrease does not impair the ability of the Manager to manage the Company and conduct its business affairs);

(h)          modify this Agreement to make any changes as requested or required by any lender or potential lender which may be required to obtain financing or to add or delete any such provisions after repayment of any such loans;

(i)           to make reasonable determinations regarding whether the continued participation of a Member would result in the assets of the Company being deemed "plan assets" for ERISA purposes, as defined under ERISA or by any regulation of the U.S. Department of Labor, or other federal agency having jurisdiction (a "Plan Asset Event"), and shall take reasonable steps to correct or cure the Plan Asset Event and, in the event that the

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Manager determines that it is not reasonably possible to correct or cure such Plan Asset Event, taking into account the overall interests of the Company and its Members, redeem any Member's Units, or require the sale of all or any portion of any Redeemed Member's Units to one or more Members, in whole or in part, at a redemption price equal to the Plan Asset Redemption Value;

(j)           to execute, acknowledge and deliver any and all instruments to effectuate the foregoing, including the execution, acknowledgment and delivery of any such instrument by the attorney-in-fact for the Manager under a special or limited power of attorney, and to take all such actions in connection therewith as the Manager shall deem necessary or appropriate with the signature of the Manager acting alone;

(k)           modify this Agreement in any manner that the Manager in its sole discretion determines is useful or required in furtherance of the Mergers;

(l)           modify this Agreement to make any changes necessary to enable the Company to make a Distribution in-kind of REIT Shares; and

(m)         admit as the Manager any person or entity assigned a Manager's interest pursuant to Section 9.4 of this Agreement.

6.3.15      require in any Company contract that the Manager shall not have any personal liability but that the person or entity contracting with the Company is to look solely to the Company and its assets for satisfaction;

6.3.16      lease personal property for use by the Company;

6.3.17      establish reserves from income in such amounts as the Manager may deem appropriate;

6.3.18      temporarily invest the proceeds from sale of Units in short-term, highly-liquid investments;

6.3.19      make secured or unsecured loans to the Company and receive interest at the rates set forth herein;

6.3.20      represent the Company and the Members as "tax matters partner" within the meaning of the Code in discussions with the Internal Revenue Service regarding the tax treatment of items of Company income, loss, deduction or credit or any other matter reflected in the Company's returns and, if deemed in the best interest of the Members, agree to final Company administrative adjustments or file a petition for a readjustment of the Company items in question with the applicable court;

6.3.21      offer and sell Units to the public through any licensed Affiliate or licensed non-Affiliate, employ licensed personnel, agents and dealers for such purpose;

6.3.22      redeem or repurchase Units on behalf of the Company;

6.3.23      hold an election for a successor Manager before its resignation, expulsion or dissolution;

6.3.24      initiate legal actions, settle legal actions and defend legal actions on behalf of the Company;

6.3.25      admit itself as a Member;

6.3.26      enter into any transaction with any partnership or venture;

6.3.27      merge or combine the Company or "roll-up" the Company into a partnership, limited liability company or other entity, subject to a Majority Vote of the Units

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6.3.28      consummate the Mergers with the Terra Funds and implement further amendments to the Original Agreement and this Agreement, that the Manager in its sole discretion determines are useful or required in furtherance of the foregoing;

6.3.29      issue additional Units from time to time for such consideration as the Manager shall determine;

6.3.30      place all or a portion of the Assets in a single purpose or bankruptcy remote entity, or otherwise structure or restructure the Company to accommodate any financing for all or a portion of the Assets;

6.3.31      perform any and all other acts which the Manager is obligated to perform hereunder;

6.3.32      appoint officers of the Company as set forth in Section 6.11 of this Agreement;

6.3.33      grant to an external manager, by entering into the Management Agreement, authority, power and discretion to manage and control the business, affairs and Assets of the REIT or its subsidiaries, to make all decisions regarding those matters and to perform any and all other acts or activities customary or incident to the management of the REIT, in consideration for such fees and expenses as specified in the Management Agreement; and

6.3.34      execute, acknowledge and deliver any and all instruments to effectuate the foregoing and all transactions and actions described in, or contemplated by, the Memorandum, and take all such actions in connection therewith as the Manager may deem necessary or appropriate. Any and all documents or instruments may be executed on behalf and in the name of the Company by the Manager.

6.4          Restrictions on Manager's Authority. Neither the Manager nor any of its Affiliates shall have authority, without a Majority Vote of the Units, to:

6.4.1      enter into contracts with the Company that would bind the Company after the expulsion, Event of Insolvency, or other cessation to exist of the Manager, or to continue the business of the Company after the occurrence of such event;

6.4.2       use or permit any other person to use Company funds or assets in any manner except for the exclusive benefit of the Company;

6.4.3       alter the primary purpose of the Company;

6.4.4       receive from the Company a rebate or give-up or participate in any reciprocal business arrangements which would enable it or any Affiliate to do so;

6.4.5       admit another person or entity as the Manager, except with the consent of the Members as provided in this Agreement; provided that the consent of the Members is not required for the admission of any person or entity as the Manager pursuant to Section 9.4 and 6.3.14(l) of this Agreement;

6.4.6       subject to Section 4.2, reinvest Cash from Operations in any additional Assets;

6.4.7       commingle the Company funds with those of any other person or entity, except for (i) the temporary deposit of funds in a bank checking account for the sole purpose of making Distributions immediately thereafter to the Members and the Manager or (ii) funds attributable to the Assets and held for use in the management of the operations of the Assets; or

6.4.8        directly or indirectly pay or award any finder's fees, commissions or other compensation to any person engaged by a potential investor for investment advice as an inducement to such advisor to advise the purchaser regarding the purchase of Units; provided, however, that the Manager shall not be prohibited from paying

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underwriting or marketing commissions, or finder's or referral fees to registered broker-dealers or other properly licensed persons for their services in marketing Units.

6.5          Responsibilities of the Manager. The Manager shall:

6.5.1       have a fiduciary responsibility for the safekeeping and use of all the funds and assets of the Company;

6.5.2       devote such of its time and business efforts to the business of the Company as it shall in its discretion, exercised in good faith, determine to be necessary to conduct the business of the Company;

6.5.3       file and publish all certificates, statements, or other instruments required by law for formation, qualification and operation of the Company and for the conduct of its business in all appropriate jurisdictions;

6.5.4       cause the Company to be protected by public liability, property damage and other insurance determined by the Manager in its discretion to be appropriate to the business of the Company;

6.5.5       at all times use its best efforts to meet applicable requirements for the Company to be taxed as a partnership and not as an association taxable as a corporation; and

6.5.6       amend this Agreement to reflect the admission of Members not later than 90 days after the date of admission or substitution.

6.6         Administration of Company. So long as it is the Manager and the provisions of this Agreement for compensation and reimbursement of expenses of the Manager are observed, and except to the extent specified in the Management Agreement, the Manager shall have the responsibility of providing continuing administrative and executive support, advice, consultation, analysis and supervision with respect to the functions of the Company, including decisions regarding the sale or refinancing or other disposition of the Assets, and compliance with federal, state and local regulatory requirements and procedures. In this regard, the Manager may retain the services of such Affiliates or unaffiliated parties as the Manager may deem appropriate to provide management and financial consultation and advice, and may enter into agreements for the management and operation of Company assets.

6.7          Tax Matters Member. The Members hereby appoint the Manager to act as the "tax matters partner" within the meaning of the Code.

6.8          Indemnification of Manager and Officers.

6.8.1       The Manager, its members, manager, Affiliates, officers, directors, employees, agents and assigns and any officers of the Company, shall not be liable for, and shall be indemnified and held harmless (to the extent of the Company's assets) from, any loss or damage incurred by them, the Company or the Members in connection with the business of the Company, including costs and reasonable attorneys' fees and any amounts expended in the settlement of any claims of loss or damage resulting from any act or omission performed or omitted in good faith, which shall not constitute gross negligence or willful misconduct, pursuant to the authority granted, to promote the interests of the Company. Moreover, neither the Manager nor any officer of the Company shall be liable to the Company or the Members because any taxing authorities disallow or adjust any deductions or credits in the Company income tax returns.

6.8.2       Notwithstanding Section 6.8.1, the Company shall not indemnify any Manager, or member, director, officer or other employee thereof, for liability imposed or expenses incurred in connection with any claim arising out of a violation of the Securities Act, or any other federal or state securities law, with respect to the offer and sale of the Units. Indemnification will be allowed for settlements and related expenses in lawsuits alleging securities law violations, and for expenses incurred in successfully defending such lawsuits, provided that (i) the Manager is successful in defending the action, (ii) the indemnification is specifically approved by the court of law which shall have been advised as to the current position of the Securities and Exchange Commission (as to any

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claim involving allegations that the Securities Act was violated) or the applicable state authority (as to any claim involving allegations that the applicable state's securities laws were violated) or (iii) in the opinion of counsel for the Company, the right to indemnification has been settled by controlling precedent.

6.9           No Personal Liability for Return of Capital. The Manager shall not be personally liable or responsible for the return or repayment of all or any portion of the Capital Contribution of any Member or any loan made by any Member to the Company, it being expressly understood that any such return of capital or repayment of any loan shall be made solely from the assets, which shall not include any right of contribution from any Member, of the Company.

6.10         Authority as to Third Persons.

6.10.1      No third party dealing with the Company shall be required to investigate the authority of the Manager or secure the approval or confirmation by any Member of any act of the Manager in connection with the Company business. No purchaser of any property or interest owned by the Company shall be required to determine the right to sell or the authority of the Manager to sign and deliver any instrument of transfer on behalf of the Company or to see to the application or distribution of revenues or proceeds paid or credited in connection therewith.

6.10.2      The Manager shall have full authority to execute on behalf of the Company any and all agreements, contracts, conveyances, deeds, mortgages and other instruments, and the execution thereof by the Manager, executing on behalf of the Company, shall be the only execution necessary to bind the Company thereto. No signature of any Member shall be required.

6.10.3      The Manager shall have the right by separate instrument or document to authorize one or more individuals or entities to execute leases and lease-related documents on behalf of the Company and any leases and documents executed by such agent shall be binding upon the Company as if executed by the Manager.

6.11        Officers. The Company may or may not have officers. In the event the Company elects to designate officers, the provisions of this Section 6.11 shall control. In the event that no officers are designated, all of the power and authority of the officers shall be vested in the Manager.

6.11.1      Positions. Any officers of the Company shall be appointed by the Manager and shall consist of at least a Chief Executive Officer, Chairman, President, Secretary and Treasurer. The Manager may also designate one or more Vice Presidents. Any number of offices may be held by the same person. The officers shall exercise such powers and perform such duties as specified in this Agreement and as shall be determined or modified from time to time by the Manager. The salaries of the officers and agents of the Company shall be fixed by or in the manner prescribed by the Manager. The officers of the Company shall hold their office until their successors are chosen and qualified. Any officer may be removed at any time, with or without cause, by the Manager. Any vacancy occurring in any office of the Company shall be filled by the Manager.

6.11.2      Chief Executive Officer. The Chief Executive Officer of the Company and shall be responsible for the implementation of the policies of the Company as determined by the Manager and for the general and active management of the business of the Company and shall see that all orders and resolutions of the Manager or Members are carried into effect. He or she may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation or shall be required by law to be otherwise executed; and in general shall perform all duties incident to the office of chief executive officer and such other duties as may be prescribed by the Board of Directors from time

6.11.3      Chairman. The Chairman shall preside at all meetings of the Members and, in the absence of a chief executive officer, the Chairman shall in general supervise and control all of the business and affairs of the Company and be responsible for the general and active management of the business of the Company and shall see that all orders and resolutions of the Manager or Members are carried into effect. The Chairman or any

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other officer authorized by the Chairman or the Manager shall execute all bonds, mortgages and other contracts, except as required by law or as expressly reserved by the Manager.

6.11.4      Vice President. In the absence of the Chief Executive Officer or Chairman or in the event of the Chief Executive Officer's and the Chairman's inability to act, the Vice President, if any, shall perform the duties of the Chief Executive Officer and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer.

6.11.5      Secretary. The Secretary shall be responsible for filing legal documents and maintaining records for the Company. The Secretary shall attend all meetings of the Manager or Members and record all proceedings of the meetings of the Manager or Members in a book to be kept for that purpose. The Secretary, at the instruction of the Manager, shall give, or shall cause to be given, notice of all meetings of the Manager or Members, if any, and shall perform such other duties as may be prescribed by the Manager.

6.11.6      Treasurer. The Treasurer shall have the custody of the Company funds and securities and shall keep full and accurate accounts of receipts and disbursements in the books belonging to the Company and shall deposit all moneys and other valuable effects in the name and to the credit of the Company in such depositories as may be designated by the Manager. The Treasurer shall disburse the funds of the Company as may be ordered by the Manager, taking proper vouchers for such disbursements, and shall render to the Manager an account of all of the Treasurer's transactions and of the financial condition of the Company.

7.          Rights, Authority and Voting of the Members.

7.1           Members Are Not Agents. Pursuant to Section 6, the management of the Company is vested in the Manager. No Member, acting solely in the capacity of a Member, is an agent of the Company nor can any Member in such capacity bind or execute any instrument on behalf of the Company.

7.2           Voting by a Member. Members who own Units shall be entitled to cast one vote for each Unit they own. Except as otherwise specifically provided in this Agreement, Members who own Units shall have the right to vote only upon the following matters:

7.2.1        removal of the Manager as provided in this Agreement;

7.2.2        except as set forth in Section 9.4 of this Agreement, admission or election of a substitute Manager, or election to continue the business of the Company by Majority Vote of the Units after the Manager ceases to be the Manager when there is no remaining Manager;

7.2.3        amendment of this Agreement, except in cases in which the Manager has sole authority to amend this Agreement as described herein;

7.2.4        any merger or combination of the Company or roll-up of the Company by Majority Vote of the Units;

7.2.5        dissolution and winding up of the Company as set forth in Section 12.1;

7.2.6        the sale of all or substantially all of the assets of the Company by Majority Vote of the Units; and

7.2.7        election to continue the business of the Company by Majority Vote of the Units when there is a Dissolution Event.

7.3         Member Vote; Consent of Manager. Except as required pursuant to Sections 8.1, 8.2, 8.3, 8.4, 9.1, 9.1.3 and 9.1.4, which provisions shall only require a Majority Vote of the Units and not the consent of the Manager, or as specifically provided in this Agreement, matters upon which the Members may vote shall require a Majority Vote of the Units and the consent of the Manager to pass and become effective.

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7.4          Meetings of the Members. The Manager may at any time call for a meeting of the Members, or for a vote without a meeting, on matters on which the Members are entitled to vote and shall call for such a meeting (but not a vote without a meeting) following receipt of a written request therefor of Members holding more than 10% of the Units entitled to vote as of the record date. Within 20 days after receipt of such request, the Manager shall notify all Members of record on the record date of the Company meeting.

7.4.1        Notice. Written notice of each meeting shall be given to each Member entitled to vote, either personally or by mail or other means of written communication, charges prepaid, addressed to such Member at his address appearing on the books of the Company or given by him to the Company for the purpose of notice or, if no such address appears or is given, at the principal executive office of the Company, or by publication of notice at least once in a newspaper of general circulation in the county in which such office is located. All such notices shall be sent not less than 10, nor more than 60, days before such meeting. The notice shall specify the place, date and hour of the meeting and the general nature of business to be transacted, and no other business shall be transacted at the meeting.

7.4.2        Adjourned Meeting and Notice Thereof. When a Members' meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Company may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 45 days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Member of record entitled to vote at the meeting.

7.4.3        Quorum. The presence in person or by proxy of the persons entitled to vote a majority of the Units shall constitute a quorum for the transaction of business. The Members present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough Members to leave less than a quorum, if any action taken (other than adjournment) is approved by at least the affirmative vote of a majority of the Units present in person or by proxy or such greater vote as may be required by this Agreement or by law. In the absence of a quorum, any meeting of Members may be adjourned from time to time by a Majority Vote of the Units represented either in person or by proxy, but no other business may be transacted, except as provided above.

7.4.4        Consent of Absentees. The transactions of any meeting of Members, however called and noticed and wherever held, are as valid as though they occurred at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signs a written waiver of notice, or a consent to the holding of the meeting or an approval of the minutes thereof. All waivers, consents and approvals shall be filed with the Company records or made a part of the minutes of the meeting.

7.4.5        Action Without Meeting. Except as otherwise provided in this Agreement, any action which may be taken at any meeting of the Members may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by Members having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all entitled to vote thereon were present and voted. In the event the Members are requested to consent on a matter without a meeting, each Member shall be given not less than 10, nor more than 60, days' notice. In the event the Manager or Members representing more than 10% of the Units request a meeting for the purpose of discussing or voting on the matter, the notice of a meeting shall be given in the same manner as required by Section 7.4.1 and no action shall be taken until the meeting is held. Unless delayed as a result of the preceding sentence, any action taken without a meeting will be effective 5 business days after the required minimum number of voters has signed the consent; however, the action will be effective immediately if the Manager and Members representing at least 90% of the Units have signed the consent.

7.4.6        Record Dates. For purposes of determining the Members entitled to notice of any meeting or to vote or entitled to receive any Distributions or to exercise any rights in respect of any other lawful matter, the Manager (or Members representing more than 10% of the Units if the meeting is being called at their request) may fix in advance a record date, which is not more than 60 nor less than 10 days prior to the date of the meeting nor more than 60 days prior to any other action. If no record date is fixed:

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(a)           the record date for determining Members entitled to notice of or to vote at a meeting of Members shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held;

(b)           the record date for determining Members entitled to give consent to Company action in writing without a meeting shall be the day on which the first written consent is given;

(c)           the record date for determining Members for any other purpose shall be at the close of business on the day on which the Manager adopts it or the 60th day prior to the date of the other action, whichever is later; and

(d)           a determination of Members of record entitled to notice of or to vote at a meeting of Members shall apply to any adjournment of the meeting unless the Manager, or the Members who requested the meeting fix a new record date for the adjourned meeting, but the Manager, or such Members, shall fix a new record date if the meeting is adjourned for more than 45 days from the date set for the original meeting.

7.4.7       Proxies. Every person entitled to vote or execute consents shall have the right to do so either in person or by one or more agents authorized by a written proxy executed by such person or his duly authorized agent and filed with the Manager. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy continues in full force and effect until revoked as specified or unless it states that it is irrevocable. A proxy that states that it is irrevocable is irrevocable for the period specified therein.

7.4.8       Chairman of Meeting. The Manager may select any person to preside as Chairman of any meeting of the Members, and if such person shall be absent from the meeting or fail or be unable to preside, the Manager may name any other person in substitution therefor as Chairman. The Chairman of the meeting shall designate a secretary for such meeting, who shall take and keep or cause to be taken and kept minutes of the proceedings thereof. The conduct of all Members' meetings shall at all times be within the discretion of the Chairman of the meeting and shall be conducted under such rules as he may prescribe. The Chairman shall have the right and power to adjourn any meeting at any time, without a vote of the Units present in person or represented by proxy, if the Chairman shall determine such action to be in the best interests of the Company.

7.4.9       Inspectors of Election. In advance of any meeting of Members, the Manager may appoint any persons other than nominees for Manager or other office as an Inspector of Election to act at the meeting and any adjournment thereof. If an Inspector of Election is not so appointed or if any such person fails to appear or refuses to act, the Chairman of any such meeting may, and on the request of any Member or his proxy shall, make such appointment at the meeting. The Inspector of Election shall determine the number of Units outstanding and the voting power of each, the Units represented at the meeting, the existence of a quorum, the authenticity, validity and effect of proxies, receive votes, ballots or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result and do such acts as may be proper to conduct the election or vote with fairness to all Members.

7.4.10       Record Date and Closing Company Books. When a record date is fixed, only Members of record on that date are entitled to notice of and to vote at the meeting or to receive a Distribution, allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any Units on the books of the Company after the record date.

7.5           Rights of Members. No Member shall have the right or power to: (i) withdraw or reduce his contribution to the capital of the Company, except as a result of the dissolution and termination of the Company or as otherwise provided in this Agreement or by law; (ii) bring an action for partition against the Company; or (iii) demand or receive property other than cash in return for such Member's Capital Contribution. Except as provided in this Agreement, no Member shall have priority over any other Member either as to the return of Capital Contributions or as to allocations of the Net Income, Net Loss or Distributions of the Company. Other than upon the termination and dissolution of the Company as provided by this Agreement, there has been no time agreed upon when the contribution of each Member is to be returned.

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7.6           Restrictions on the Member. No Member shall:

7.6.1       disclose to any non-Member, other than their lawyers, accountants or consultants, and/or commercially exploit any of the Company's business practices, trade secrets or any other information not generally known to the business community;

7.6.2       do any other act or deed with the intention of harming the business operations of the Company; or

7.6.3       do any act contrary to the Agreement.

7.7           Return of Capital of Member. In accordance with the Act, a Member may, under certain circumstances, be required to return to the Company, for the benefit of the Company's creditors, amounts previously distributed to the Member. If any court of competent jurisdiction holds that any Member is obligated to make any such payment, such obligation shall be the obligation of such Member and not of the Company, the Manager or any other Member.

7.8           Rights of holders of Termination Units. Holders of Termination Units shall have no voting rights with respect to any matters presented for vote to Members pursuant to this Agreement; provided that, if any matter, other than matters in respect of which the Manager exercises sole authority, is presented for vote to Members and the Manager determines, in the Manager's sole discretion, that an affirmative or negative vote on such matter, would disproportionately and adversely affect the holders of Termination Units, a Majority Vote of the Units and a Majority Vote of the Termination Units, with holders of each of Units and Termination Units voting as a separate class, will be required to approve such matter.

8.          Resignation, Withdrawal or Removal of the Manager.

8.1           Resignation or Withdrawal of Manager. Subject to Section 9, the Manager shall not resign or withdraw as the Manager or do any act that would require its resignation or withdrawal without a Majority Vote of the Units.

8.2           Removal. The Manager may only be removed by a Majority Vote of the Units for fraud, gross negligence or willful misconduct.

8.3           Purchase of Manager's Interest. Upon the removal of the Manager pursuant to Section 8.2 or its termination, resignation or withdrawal, such Manager's (i) interest in the Distributions and allocations of Net Income and Net Loss set forth in this Agreement and (ii) its interest in its right to the earned but unpaid fees and other compensation remaining to be paid under this Agreement, shall be purchased by the Company for a purchase price equal to the aggregate fair market value of the Manager's interest determined according to the provisions of Section 8.4. The purchase price of such interest shall be paid by the Company to the Manager in cash within 60 days of the determination of the fair market value.

8.4           Purchase Price of the Manager's Interest. The fair market value of the Manager's interest to be purchased by the Company pursuant to Section 8.3 shall be determined by agreement between the Manager and the Company, which agreement is subject to approval by a Majority Vote of the Units. For this purpose, the fair market value of the interest of the terminated Manager shall be computed as the present value of the future amount which could reasonably be expected to be realized by such Manager upon the sale of the Assets in the ordinary course of business at the time of removal. If the Manager and the Company cannot agree upon the fair market value of such Company interest within 30 days, the fair market value thereof shall be determined by appraisal, the Company and the terminated Manager each to choose one appraiser and the two appraisers so chosen to choose a third appraiser. The decision of a majority of the appraisers as to the fair market value of such Company interest shall be final and binding and may be enforced by legal proceedings. The terminated Manager and the Company shall each compensate the appraiser appointed by it and the compensation of the third appraiser shall be borne equally by such parties. Notwithstanding the above, for purposes of this determination, the purchase price shall be reduced by any

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damages caused by the Manager prior to such removal that occur as a result of the Manager's gross negligence, willful misconduct or fraud.

9.          Assignment of the Manager's Interest.

9.1           Permitted Assignments. Except as otherwise provided in Section 9.4 and elsewhere in this Agreement, the Manager may not sell, assign, hypothecate, encumber or otherwise transfer any part or all of its interest in the Company except with the consent of a Majority Vote of the Units. If the Members consent to the transfer, the interest may only be sold to the proposed transferee within the time period approved by the Members or within 90 days of such consent on the proposed terms and price, if later. All costs of the transfer, including reasonable attorneys' fees (if any), shall be borne by the transferring Manager.

9.1.1       Assignment or Transfer of Interest. Any assignment or transfer of the Manager's interest provided for by this Agreement can be an assignment or transfer of all of its interest or any portion or part of its interest.

9.1.2       Transfer of All or Part of Interest. Any transfer of all or a part of any Manager's interest may be made only pursuant to the terms and conditions contained in this Section 9.

9.1.3       Method. Any such assignment shall be by a written instrument of assignment, the terms of which are not in contravention of any of the provisions of this Agreement, and which has been duly executed by the assignee of such Manager's interest and accepted by the Members pursuant to a Majority Vote of the Units.

9.1.4       Execution and Delivery. The assignor and assignee shall have executed, acknowledged, and delivered such other instruments as the Members pursuant to a Majority Vote of the Units, may deem necessary or desirable to effect such substitution of any such proposed transfer, and which shall include the written acceptance and adoption by the assignee of the provisions of this Agreement.

9.2           Substitute Manager. Upon acceptance by the Members of an assignment by the Manager, any assignee of such Manager's interest in compliance with this Section 9 shall be substituted as the Manager.

9.3           Transfer in Violation Not Recognized. Any assignment, sale, exchange or other transfer in contravention of the provisions of this Section 9 shall be void and ineffectual and shall not bind or be recognized by the Company.

9.4           Assignment of Manager's Interest to Affiliates of the Manager. Notwithstanding any provision to the contrary in this Section 9, the Manager may transfer any part or all of its interest in the Company to any person or entity that is an Affiliate of the Manager, without the consent of the Members.

10.         Assignment of Units.

10.1         Permitted Assignments. A Member may not sell, assign, or transfer all or a portion of its Units or Termination Units unless the following requirements are satisfied:

10.1.1      the Manager consents in writing to the transfer, which consent may be withheld in the Manager's sole and absolute discretion;

10.1.2      no Member shall transfer, assign or convey or offer to transfer, assign or convey all or any portion of a Unit or a Termination Unit to any person who does not possess the financial qualifications required of all persons who become Members, as described in the Memorandum;

10.1.3       no Member shall have the right to transfer any Unit or Termination Unit to any minor or to any person who, for any reason, lacks the capacity to contract for himself under applicable law. Such limitations shall not, however, restrict the right of any Member to transfer any one or more Units or Termination Units to a custodian or a trustee for a minor or other person who lacks such contractual capacity;

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10.1.4      the Manager must determine that such transfer will not jeopardize the applicability of the exemptions from the registration requirements under the Securities Act or under state securities laws relied upon by the Company and Manager in offering and selling the Units or Termination Units or otherwise violate any federal or state securities laws;

10.1.5      any such transfer shall be by a written instrument of assignment, the terms of which are not in contravention of any of the provisions of this Agreement, and which has been duly executed by the assignor of such Units or Termination Units and accepted by the Manager in writing. Upon such acceptance by the Manager, such an assignee shall take Units or Termination Units subject to all terms of this Agreement and shall become a Member;

10.1.6     a transfer fee shall be paid by the transferring Member in such amount as may be required by the Manager to cover all reasonable expenses, including attorneys' fees, connected with such assignment;

10.1.7     the transfer will not result in qualified benefit plans owning 25% or more of the Units or Termination Units;

10.1.8     the transfer will not cause a default with respect to any financing obtained by the Company; and

10.1.9     the Manager must determine that the transfer will not cause the Company to be taxed as an association taxable as a corporation.

10.2         Consent of Members. By executing or adopting this Agreement, each Member hereby consents to the admission of additional or Substituted Members, upon consent of the Manager and in compliance with this Agreement.

10.3         Transfer Subject to Law. No assignment, sale, transfer, exchange or other disposition of any Units or Termination Units may be made except in compliance with the applicable governmental laws and regulations, including state and federal securities laws.

10.4         Transfer in Violation Not Recognized. Any assignment, sale, exchange or other transfer in contravention of the provisions of this Section 10 shall be void and ineffectual and shall not bind or be recognized by the Company. If for any reason whatsoever the Company is required (notwithstanding the preceding sentence) to recognize any assignment, sale, exchange or other transfer of Units or Termination Units in contravention of the provisions of this Section 10, the Company shall have an option to acquire such interest for the Redemption Value. The option granted to the Company pursuant to this paragraph may be exercised pro rata by all Members electing to join in the exercise if not exercised by the Company.

10.5         Repurchase of Units. After a period of one year following the Offering Termination Date, the Company shall have the right, in the sole discretion of the Manager, to use funds held in a repurchase reserve to purchase Units ("Repurchase Reserve") upon written request of a Member. The establishment of a Repurchase Reserve is in the sole discretion of the Manager, and if established, the Repurchase Reserve may be terminated and/or reestablished at any time in the sole discretion of the Manager. The Company will not repurchase any Units held by the Manager or its Affiliates.

10.5.1     Amount. In no event shall the Repurchase Reserve exceed 5.0% of the Cash from Operations in any fiscal year.

10.5.2     Process. A Member wishing to have his Units repurchased must mail or deliver a written request to the Company (executed by the trustee or authorized agent in the case of a retirement plan) indicating his desire to have such Units repurchased. Such requests will be considered by the Manager in the order in which they are received.

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10.5.3     Notice. In the event that the Manager decides to honor a request, the Manager will notify the requesting Member in writing of such fact and of the effective date of the repurchase transaction (which shall be not less than 60 nor more than 75 calendar days following the receipt of the written request by the Company) and will forward to such Member the documents necessary to effect such repurchase transaction.

10.5.4     Documents. Fully executed documents to effect the repurchase transaction must be returned to the Company at least 30 days prior to the effective date of the repurchase transaction.

10.5.5     Purchase Price. The purchase price for repurchased Units will be equal to 85% of the fair market value on the date of purchase of the Units until three years from the Offering Termination Date and 90% of the fair market value of the Units on the date of purchase thereafter. Fair market value shall be determined by the Manager based upon an estimate of the amount on the date of purchase the Members would receive if the Company's investments were sold for their estimated value and if such proceeds were distributed in liquidation of the Company.

10.5.6     Limitations. Only amounts then held in the Repurchase Reserve may be used to repurchase Units under this Section 10.5.

10.5.7     Repurchase. Upon receipt of the required documentation, the Company will, on the effective date of the repurchase transaction, repurchase the Units, provided that if sufficient amounts are not then available in the Repurchase Reserve to repurchase all of such Units, only a portion of such Units will be repurchased. Units repurchased by the Company pursuant to this Section 10.5 shall be promptly canceled.

10.5.8     Insufficient Funds. In the event that insufficient funds are available in the Repurchase Reserve to repurchase all of such Units, the Member will be deemed to have priority for subsequent Company repurchases over Members who subsequently request repurchases.

10.5.9     Restrictions. Repurchases of Units out of the Repurchase Reserve shall be subject to the restrictions set forth in Section 10.1.

10.5.10   Additional Restrictions. In addition to the restrictions set forth in Section 10.1, the Company shall not purchase any Units unless the Manager determines that such repurchase and any other contemplated repurchases will not cause the Company to be taxed as an association taxable as a corporation.

10.5.11   No Repurchase of Units of Manager or Affiliates. In no event shall Units owned by the Manager or its Affiliates be repurchased by the Company.

11.         Books, Records, Accounting and Reports.

11.1        Records, Audits and Reports. The Company shall maintain at its principal office the Company's records and accounts of all operations and expenditures of the Company including the following:

11.1.1     a current list in alphabetical order of the full name and last known business or resident address of each Member and the Manager, together with the Capital Contribution and the share in profits and losses of each Member;

11.1.2     a copy of the Certificate of Formation and all amendments thereto, together with any powers of attorney pursuant to which the Certificate of Formation or any amendments thereto were executed;

11.1.3     copies of the Company's Federal, state and local income tax or information returns and reports, if any, for the six most recent taxable years;

11.1.4     copies of this Agreement and any amendments thereto together with any powers of attorney pursuant to which any written accounting or any amendments thereto were executed;

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11.1.5     copies of any financial statements of the Company, if any, for the six most recent years; and

11.1.6     the Company's books and records as they relate to the internal affairs of the Company for at least the current and past four fiscal years.

11.2       Delivery to Members and Inspection. Each Member, or its representative designated in writing, has the right, upon reasonable written request for purposes related to the interest of that person as a Member, which purposes are set forth in the written request, to receive from the Company:

11.2.1     true and full information regarding the status of the business and financial condition of the Company;

11.2.2     promptly after becoming available, a copy of the Company's federal, state and local income tax returns for each year;

11.2.3     a current list of the name and last known business, residence or mailing address of each Member and the Manager;

11.2.4     a copy of this Agreement and the Certificate of Formation and all amendments thereto, together with executed copies of any written powers of attorney pursuant to which this Agreement and any certificate and all amendments thereto have been executed; and

11.2.5     true and full information regarding the amount of cash and description and statement of the agreed value of any property or services contributed by each Member and which each Member has agreed to contribute in the future and the date on which each became a Member.

11.3         Financial Statements. The Company will also prepare and transmit to the Members (i) approximately 90 days after the end of each fiscal year of the Company, an audited year-end balance sheet, income statement and a statement of changes in financial position, all of which (except the cash flow statement) will be prepared in accordance with generally accepted accounting principles, (ii) approximately 45 days after the end of each fiscal quarter of the Company, an unaudited quarterly balance sheet, income statement and a statement of changes in financial position, all of which (except the cash flow statement) will be prepared in accordance with generally accepted accounting principles and (iii) such other information as is deemed reasonably necessary by the Manager to advise the Members of the affairs of the Company.

11.4         Tax Information. The Manager shall cause the Company, at the Company's expense, to prepare and timely file income tax returns for the Company with the appropriate authorities and shall cause all Company information necessary in the preparation of the Members' individual income tax returns to be distributed to the Members not later than 75 days after the end of the Company's fiscal year. The Manager shall also distribute a copy of the Company's tax return to a Member, if requested by such Member.

12.         Termination and Dissolution of the Company.

12.1         Termination of Company. The Company shall be dissolved, shall terminate and its assets shall be disposed of, and its affairs wound up upon the earliest to occur of the following:

12.1.1     the sale or other disposition of all or substantially all of the Assets of the Company, unless the Manager, in its sole discretion, determines to reinvest all or a portion of the proceeds from such sale or disposition pursuant to Section 4.2;

12.1.2     the election of the Manager to dissolve, liquidate and terminate the Company; or

12.1.3     the judicial dissolution of the Company.

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12.2       Certificate of Cancellation. As soon as possible following the occurrence of any of the events specified in Section 12.1, the Manager who has not wrongfully dissolved the Company or, if none, the Members, shall execute a Certificate of Cancellation in such form as shall be required by the Act.

12.3       Liquidation of Assets. Upon a dissolution and termination of the Company, the Manager (or in case there is no Manager, the Members or person designated by a Majority Vote of the Units) shall take full account of the Company assets and liabilities, shall liquidate the assets as promptly as is consistent with obtaining the fair market value thereof and shall apply and distribute the proceeds therefrom in the following order:

12.3.1     to the payment of creditors of the Company, other than Members who are creditors, but excluding secured creditors whose obligations will be assumed or otherwise transferred on liquidation of Company assets, and then to the payment of Members who are creditors of the Company;

12.3.2     to the setting up of any reserves as required by law for any liabilities or obligations of the Company, provided, however, that said reserves shall be deposited with a bank or trust company in escrow at interest for the purpose of disbursing such reserves for the payment of any of the aforementioned contingencies and, at the expiration of a reasonable period, for the purpose of distributing the balance remaining in accordance with remaining provisions of this Section 12.3; and

12.3.3     to the Members in proportion to their positive Capital Account balances as of the date of such liquidating Distribution, after giving effect to all Capital Contributions, Distributions and allocations for all periods.

12.4       Distributions Upon Dissolution. Each Member shall look solely to the assets of the Company for all Distributions and its Capital Contributions, and shall have no recourse therefor (upon dissolution or otherwise) against any Manager or any other Member.

13.         Special and Limited Power of Attorney.

13.1       Power of Attorney. The Manager shall at all times during the term of the Company have a special and limited power of attorney as the attorney-in-fact for each Member, with power and authority to act in the name and on behalf of each such Member to execute, acknowledge, and swear to in the execution, acknowledgment and filing of documents which are not inconsistent with the provisions of this Agreement and which may include, by way of illustration but not by limitation, the following:

13.1.1     this Agreement, as well as any amendments to the foregoing which, under the laws of the State of Delaware or the laws of any other state, are required to be filed or which the Manager shall deem it advisable to file;

13.1.2     any other instrument or document that may be required to be filed by the Company under the laws of any state or by any governmental agency or which the Manager shall deem it advisable to file;

13.1.3     any instrument or document that may be required to effect the continuation of the Company, the admission of Substituted Members or the dissolution and termination of the Company (provided such continuation, admission or dissolution and termination are in accordance with the terms of this Agreement);

13.1.4     any contract for purchase or sale of assets, and any deed, deed of trust, mortgage, or other instrument of conveyance or encumbrance, with respect to the Company's assets; and

13.1.5     any and all other instruments as the Manager may deem necessary or desirable to effect the purposes of this Agreement and carry out fully its provisions, including, but not limited to, those in Section 16.

13.2       Provision of Power of Attorney. The special and limited power of attorney of the Manager:

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13.2.1     is a special power of attorney coupled with the interest of the Manager in the Company, and its assets, is irrevocable, shall survive the death, incapacity, termination or dissolution of the granting Member and is limited to those matters herein set forth;

13.2.2     may be exercised by the Manager by and through one or more of the officers of the Manager for each of the Members by the signature of the Manager acting as attorney-in-fact for all of the Members, together with a list of all Members executing such instrument by their attorney-in-fact or by such other method as may be required or requested in connection with the recording or filing of any instrument or other document so executed; and

13.2.3     shall survive an assignment by a Member of all or any portion of his Units except that, where the assignee of the Units owned by the Member has been approved by the Manager for admission to the Company as a Substituted Member, the special power of attorney shall survive such assignment for the sole purpose of enabling the Manager to execute, acknowledge and file any instrument or document necessary to effect such substitution.

13.3         Notice to Members. The Manager shall promptly furnish to a Member a copy of any amendment to the Operating Agreement executed by the Manager pursuant to a power of attorney from the Member.

14.         Relationship of This Agreement to the Act. Many of the terms of this Agreement are intended to alter or extend provisions of the Act as they may apply to the Company or the Members. Any failure of this Agreement to mention or specify the relationship of such terms to provisions of the Act that may affect the scope or application of such terms shall not be construed to mean that any of such terms is not intended to be a limited liability company agreement provision authorized or permitted by the Act or which in whole or in part alters, extends or supplants provisions of the Act as may be allowed thereby.

15.         Amendment of Agreement.

15.1         Admission of Member. Amendments to this Agreement for the admission of any Member or Substitute Member shall not, if in accordance with the terms of this Agreement, require the consent of any Member.

15.2         Amendments with Consent of Members. In addition to any amendments otherwise authorized herein, this Agreement may be amended by the Manager with a Majority Vote of the Units.

15.3         Amendments Without Consent of the Members. In addition to the Amendments authorized pursuant to Section 6.3.14 or otherwise authorized herein, the Manager may amend this Agreement, without the consent of any of the Members, to (i) change the name and/or principal place of business of the Company, (ii) increase the maximum number of holders of Units, or (iii) decrease the rights and powers of the Manager (so long as such decrease does not impair the ability of the Manager to manage the Company and conduct its business and affairs); provided, however, that no amendment shall be adopted pursuant to this Section 15.3 unless the adoption thereof (A) is for the benefit of or not adverse to the interests of the Members, (B) is not inconsistent with the provisions of this Agreement pertaining to the management and administration of the Company by the Manager, and (C) does not affect the limited liability of the Members or the status of the Company as a partnership for federal income tax purposes. Further, the Manager shall be allowed to amend this Agreement without the consent of any of the Members to comply with any terms or modifications required by any lender to make this Agreement comply with any special purpose entity requirements or otherwise.

15.4         Execution and Recording of Amendments. Any amendment to this Agreement shall be executed by the Manager, in its capacity as Manager and as attorney-in-fact for the Members pursuant to the power of attorney contained in Section 13. After the execution of such amendment, the Manager shall also prepare and record or file any certificate or other document which may be required to be recorded or filed with respect to such amendment, either under the Act or under the laws of any other jurisdiction in which the Company holds any Asset or otherwise does business.

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16.         Miscellaneous.

16.1         Counterparts. This Agreement may be executed in any number of counterparts, and all so executed shall constitute one Agreement, binding on all of the parties hereto, notwithstanding that all of the parties are not signatory to the original or the same counterpart.

16.2         Successors and Assigns. The terms and provisions of this Agreement shall be binding upon and shall inure to the benefit of the successors and assigns of the respective Members.

16.3         Severability. In the event any sentence or Section of this Agreement is declared by a court of competent jurisdiction to be void, such sentence or Section shall be deemed severed from the remainder of this Agreement and the balance of this Agreement shall remain in full force and effect.

16.4         Notices. All notices under this Agreement shall be in writing and shall be given to the Member entitled thereto, by personal service or by mail, posted to the address maintained by the Company for such person or at such other address as he may specify in writing.

16.5         Manager's Address. The name and address of the Manager is as follows:

Terra Capital Advisors, LLC

805 Third Avenue

8th Floor

New York, New York 10022

16.6         Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware.

16.7         Captions. Section titles or captions contained in this Agreement are inserted only as a matter of convenience and reference. Such titles and captions in no way define, limit, extend or describe the scope of this Agreement nor the intent of any provisions hereof.

16.8         Gender. Whenever required by the context hereof, the singular shall include the plural, and vice versa, the masculine gender shall include the feminine and neuter genders, and vice versa.

16.9         Time. Time is of the essence with respect to this Agreement.

16.10         Additional Documents. Each Member, upon the request of the Manager, shall perform any further acts and execute and deliver any documents which may be reasonably necessary to carry out the provisions of this Agreement, including, but not limited to, providing acknowledgment before a Notary Public of any signature made by a Member.

16.11         Descriptions. All descriptions referred to in this Agreement are expressly incorporated herein by reference as if set forth in full, whether or not attached hereto.

16.12         Binding Arbitration. Any controversy arising out of or related to this Agreement or the breach thereof or an investment in the Units shall be settled by arbitration in New York, New York, in accordance with the rules of The American Arbitration Association, and judgment entered upon the award rendered may be enforced by appropriate judicial action. The arbitration panel shall consist of one member, which shall be the mediator if mediation has occurred or shall be a person agreed to by each party to the dispute within 30 days following notice by one party that he desires that a matter be arbitrated. If there was no mediation and the parties are unable within such 30-day period to agree upon an arbitrator, then the panel shall be one arbitrator selected by the regional office of The American Arbitration Association in New York, New York, which arbitrator shall be experienced in the area of real estate and limited liability companies and who shall be knowledgeable with respect to the subject matter area of the dispute. The losing party shall bear any fees and expenses of the arbitrator, other tribunal fees and expenses, reasonable attorney's fees of both parties, any costs of producing witnesses and any other reasonable costs or

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expenses incurred by him or the prevailing party or such costs shall be allocated by the arbitrator. The arbitration panel shall render a decision within 30 days following the close of presentation by the parties of their cases and any rebuttal. The parties shall agree within 30 days following selection of the arbitrator to any prehearing procedures or further procedures necessary for the arbitration to proceed, including interrogatories or other discovery; provided, in any event each Member shall be entitled to discovery.

16.13       Venue. Any Action relating to or arising out of this Agreement shall be brought only in a court of competent jurisdiction located in New York, New York.

16.14       Partition. The Members agree that the assets of the Company are not and will not be suitable for partition. Accordingly, each of the Members hereby irrevocably waives any and all rights that he may have, or may obtain, to maintain any action for partition of any of the assets of the Company.

16.15       Integrated and Binding Agreement. This Agreement contains the entire understanding and agreement among the Members with respect to the subject matter hereof, and there are no other agreements, understandings, representations or warranties among the Members other than those set forth herein except the Subscription Documents. This Agreement may be amended only as provided in this Agreement.

16.16       Legal Counsel. Each Member acknowledges and agrees that counsel representing the Company, the Manager and its Affiliates does not represent and shall not be deemed under the applicable codes of professional responsibility to have represented or to be representing any or all of the Members, other than the Manager, in any respect. In addition, each Member consents to the Manager hiring counsel for the Company which is also counsel to the Manager.

16.17       Title to Company Assets. All Assets owned by the Company shall be owned by the Company as an entity and, insofar as permitted by applicable law, no Member shall have any ownership interest in any Company Assets in its individual name or right, and each Member's membership interest shall be personal property for all purposes.

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IN WITNESS WHEREOF, the undersigned have set their hands to this Agreement as of the date first set forth in the preamble.

MANAGER:

TERRA CAPITAL ADVISORS, LLC,

a Delaware limited liability company

By:	/s/ Bruce Batkin
	Name: Bruce Batkin
	Title: Chief Executive Officer

MEMBERS:

TERRA CAPITAL ADVISORS, LLC,

a Delaware limited liability company, as attorney in fact for the Members

By:	/s/ Bruce Batkin
	Name: Bruce Batkin
	Title: Chief Executive Officer

[Signature Page to Amended and Restated LLC Agreement of Terra Secured Income Fund 5, LLC] 

EXHIBIT A

DEFINITIONS

"Act" shall mean the Delaware Limited Liability Company Act, as the same may be amended from time to time.

"Adjusted Capital Account Deficit" shall mean, with respect to any Member, the deficit balance, if any, in such Member's Capital Account as of the end of the relevant fiscal year, after giving effect to the following adjustments:

(a)          such Capital Account shall be increased to reflect the amounts, if any, which such Member is obligated to restore to the Company or is treated or deemed to be obligated to restore pursuant to Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and

(b)          such Capital Account shall be reduced to reflect any items described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).

The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

"Affiliate" shall mean: (i) any person directly or indirectly controlling, controlled by or under common control with another person; (ii) a person owning or controlling 10% or more of the outstanding voting securities of such other person; (iii) any officer, director or partner of such other person; and (iv) if such other person is an officer, director or partner, any company for which such person acts in any capacity. The term "person" shall include any natural person, corporation, partnership, trust, unincorporated association or other legal entity.

"Agreement" shall mean this Limited Liability Company Agreement, as amended from time to time.

"Applicable Termination Unit Scheduled Termination Date" shall mean the scheduled termination date indicated beside each Terra Fund below:

Terra Fund	Scheduled Termination Date
Terra Fund 1	May 31, 2016
Terra Fund 2	December 31, 2016
Terra Fund 3	September 30, 2017
Terra Fund 4	July 31, 2018

"Assets" shall have the meaning set forth in Section 1.4 hereof.

"Book Value" means, with respect to any Termination Unit as of the applicable date of determination, the allocable share represented by such Termination of all Company assets, which will be based on the lower of unamortized cost of investments or fair market value, less all Company liabilities, as determined by the Manager. In determining Book Value, the Manager shall have discretion to make adjustments to Book Value to take into account circumstances occurring either before or after the date of determination to prevent substantial dilution or enlargement of the amounts payable to holders of Termination Units upon redemption relative to the economic interests of such holders as determined by the Manager.

"Capital Account" means with respect to any Member, the Capital Account maintained for such Member in accordance with the following provisions:

(a)          to each Member's Capital Account there shall be credited such Member's Capital Contributions, such Members' distributive share of Net Income and any items in the nature of income or gain which are specially allocated pursuant to Section 3.2 or 3.3 hereof, and the amount of any Company liabilities assumed by such Member or which are secured by any asset distributed to such Member;

(b)          to each Member's Capital Account there shall be debited the amount of cash and the Gross Asset Value of any asset distributed to such Member pursuant to any provision of this Agreement, such Member's distributive share of Net Loss and any items in the nature of expenses or losses which are specially allocated pursuant to Section 3.2 or 3.3 hereof, and the amount of any liabilities of such Member assumed by the Company or which are secured by any property contributed by such Member to the Company;

(c)          subject to the provisions of this Agreement, in the event any interest in the Company is transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred interest; and

(d)          in determining the amount of any liability for purposes of clauses (a) and (b) of this definition, there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Treasury Regulations.

The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Treasury Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Treasury Regulations. The Manager may modify the manner in which Capital Accounts are computed to the extent the Manager reasonably determines that such modification is necessary in order to comply with such Treasury Regulations, provided that such modification is not likely to have a material effect on the amounts distributable to a Member hereunder upon the dissolution of the Company in accordance with Section 12.3.

"Capital Contribution" shall mean with respect to each Existing Member the gross amount invested in the Company by such Member and shall be equal in amount to the cash purchase price paid by such Member for the Units sold to him by the Company. "Capital Contribution" with respect to each Member acquiring Units in connection with the Concurrent Private Placement shall mean the gross amount invested in the Company by such Member and shall be equal in amount to the cash purchase price paid by such Member for the Units sold to him by the Company. "Capital Contribution" with respect to each Member acquiring Units in a Merger shall mean the gross amount invested in the Company by such Member and shall be equal to the allocable share of Exchange Value applied to the interest in the relevant Terra Fund exchanged for such Unit in the Merger. "Capital Contribution" with respect to each Member acquiring Termination Units in a Merger shall mean the gross amount invested in the Company by such Member and shall be equal to its Book Value at the time of the Merger. In the plural, "Capital Contributions" shall mean the aggregate amount invested by all of the Members in the Company and shall equal, in total, the sum of the amount attributable to the purchase of Units, Termination Units and the contributions of the Manager.

"Capital Proceeds" shall mean the cash proceeds from a sale or refinancing of an Asset, less all related Company Expenses, reserves and reinvestments.

"Cash from Operations" shall mean the net cash realized by the Company from all sources, including, but not limited to, the operations of the Company including the sale, financing, refinancing or other disposition of the Assets after payment of all cash expenditures of the Company, including, but not limited to, all operating expenses including all fees payable to the Manager or Affiliates, all payments of principal and interest on indebtedness, expenses for repairs and maintenance, capital improvements and replacements, and such reserves and retentions as the Manager reasonably determines to be necessary and desirable in connection with Company operations with its then existing assets and any anticipated acquisitions.

"Certificate of Formation" shall mean the Certificate of Formation of the Company as filed with the Secretary of State of the State of Delaware as the same may be amended or restated from time to time.

"Code" shall mean the Internal Revenue Code of 1986, as amended, or corresponding provisions of subsequently enacted federal revenue laws.

"Company" shall mean Terra Secured Income Fund 5, LLC, together with any subsidiaries.

"Company Expenses" shall have the meaning set forth in Section 5.2.

"Company Minimum Gain" shall mean "partnership minimum gain" as set forth in Treasury Regulations Sections 1.704-2(d).

"Concurrent Private Placement" shall have the meaning set forth in the recitals. The Concurrent Private Placement is an Offering, as such term is defined herein.

"Deemed Capital Contribution" shall mean with respect to each Existing Member an amount equal to $50,000 multiplied by the number of Units (including fractional Units) sold to such Member by the Company. In the plural, "Deemed Capital Contributions" shall mean with respect to the Existing Members an amount equal to $50,000 multiplied by the number of Units (including fractional Units) sold to all such Members by the Company. "Deemed Capital Contribution" with respect to each Unit acquired in connection with the Concurrent Private Placement or in the Mergers shall be equal to the per Unit average Unreturned Capital Contributions of Existing Members as of the date of the closing of the Concurrent Private Placement or the Mergers, as applicable. Member's Deemed Capital Contributions shall be calculated separately, as determined by the Manager, to account for such Member's holdings of multiple Units and/or multiple Termination Units.

"Depreciation" shall mean, for each fiscal year or other period, an amount equal to the depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such year or other period, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis, provided, however, that if the federal income tax depreciation, amortization or other cost recovery deduction for such year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Manager.

"Dissolution Event" shall mean with respect to the Manager one or more of the following: the death, insanity, withdrawal, retirement, resignation, expulsion, Event of Insolvency or dissolution (unless reconstituted by the Manager) of the Manager unless the Members consent to continue the business of the Company pursuant to Section 7.2.7.

"Disposition Fee" shall have the meaning set forth in Section 5.1.

"Distributable Cash" shall mean Cash from Operations, sale, exchange or refinance and Capital Contributions determined by the Manager to be available for Distribution to the Members.

"Distributable Unit" shall mean a Unit on which cumulative distributions pursuant to Section 4.1 are less than the Deemed Capital Contribution with respect to that Unit.

"Distribution" shall mean any money or other property transferred without consideration (other than repurchased Units) to Members with respect to their Units in the Company but shall not include any payments to the Manager pursuant to Section 5.

"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended.

"Escrow Account" shall have the meaning set forth in Section 2.1.5.

"Event of Insolvency" shall occur when an order for relief against the Manager is entered under Chapter 7 of the federal bankruptcy law or (i) the Manager: (A) makes a general assignment for the benefit of creditors, (B) files a voluntary petition under the federal bankruptcy law, (C) files a petition or answer seeking for that Manager a reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation, (D) files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the Manager in any proceeding of this nature or (E) seeks, consents to, or acquiesces in the appointment of a trustee, receiver, or liquidator of that Manager or of all or a substantial part of that Manager's properties or (ii) the expiration of 60 days after either (A) the commencement of any proceeding against the Manager seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation, if the proceeding has not been dismissed or (B) the appointment without the Manager's consent or acquiescence of a trustee, receiver or liquidator of the Manager or of all or any substantial part of the Manager's properties, if the appointment has not been vacated or stayed (or if within 60 days after the expiration of any such stay, the appointment is not vacated).

"Existing Members" shall mean the Members of the Company who were admitted prior to the date of the admission of new Members in connection with the Mergers and the Concurrent Private Placement and shall refer to such Members in their capacity as the holders of such Units.

"Gross Asset Value" means, with respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows:

(a)          the initial Gross Asset Value of any asset contributed by a Member to the Company shall be the fair market value of such asset, as determined by the contributing Member and the Company;

(b)          the Gross Asset Value of each asset shall be adjusted to equal its gross fair market value, as determined by the Manager, as of the following times: (i) the acquisition of an additional interest in the Company by any new or existing Member either in exchange for more than a de minimis Capital Contribution; (ii) the acquisition of an interest in the Company (other than a de minimis interest) as consideration for the provision of services to or for the benefit of the Company by any new or existing Member or by any new Member in anticipation of being a Member; (iii) the distribution by the Company to a Member of more than a de minimis amount of an asset; and (iv) the liquidation of the Company within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g); provided, however, that if Gross Asset Values are adjusted as provided herein the Member's Capital Accounts shall be restated in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(f) and that adjustments pursuant to clauses (i) - (iii) above shall be made only if the Manager reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company;

(c)          the Gross Asset Value of any asset distributed to any Member shall be its fair market value as determined by the Member and the Company on the date of distribution; and

(d)          the Gross Asset Value of any asset shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such asset pursuant to Code Section 734(b) or Code Section 743(b) but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m); provided, however, that Gross Asset Values shall not be adjusted pursuant to this clause (d) of this definition to the extent the Manager determines that an adjustment pursuant to clause (b) of this definition is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to clause (d) of this definition.

If the Gross Asset Value of an asset has been determined or adjusted pursuant to clauses (a), (b) or (d) of this definition, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Net Income and Net Loss.

"Liquidation" shall mean, in respect to the Company, the earlier of the date upon which the Company is terminated under Section 708(b)(1) of the Code or the date upon which the Company ceases to be a going concern (even though it may exist for purposes of winding up its affairs, paying its debts and distributing any remaining balance to its Members) and, in respect to a Member where the Company is not in Liquidation, means the date upon which occurs the termination of the Member's entire interest in the Company by means of a distribution or the making of the last of a series of Distributions (whether or not made in more than one year) to the Member by the Company.

"Majority Vote of the Units" shall mean the vote of more than 50% of the Units entitled to vote. Members shall be entitled to cast one vote for each Unit they own and a fractional vote for each fractional Unit they own.

"Majority Vote of the Termination Units" shall mean the vote of more than 50% of the Termination Units entitled to vote pursuant to Section 7.8 of this Agreement. Holders of Termination Units shall be entitled to cast one vote for each Termination Unit they own and a fractional vote for each fractional Termination Unit they own

"Manager" shall mean Terra Capital Advisors, LLC. The term "Manager" shall also refer to any successor or additional Manager who is admitted to the Company as the Manager.

"Management Agreement" shall have the meaning set forth in the recitals.

"Member" shall mean the Manager and any other holder of a Unit or Termination Unit who is admitted to the Company as a Member.

"Member Minimum Gain" shall mean "partner nonrecourse debt minimum gain" as determined under Treasury Regulations Section 1.704-2(i)(3).

"Member Nonrecourse Debt" shall mean "partner nonrecourse debt" as set forth in Treasury Regulations Section 1.704-2(b)(4).

"Member Nonrecourse Deductions" shall mean the Member's percentage of "partner nonrecourse deductions," and the amount thereof shall be, as set forth in Treasury Regulations Section 1.704-2(i).

"Memorandum" shall mean a Confidential Private Placement Memorandum pertaining to the Offering made to Existing Members, as well as the Consent Solicitation and Private Placement Memorandum being used to solicit the consent of Terra Fund Unitholders and Members to the Mergers and related transactions and for the Concurrent Private Placement.

"Merger" shall have the meaning set forth in the recitals.

"Merger Agreements" shall have the meaning set forth in the recitals.

"Merger Consideration" shall have the meaning set forth in the recitals.

"Merger Procedures" shall have the meaning set forth in Section 2.1.7.

"Merger Subsidiaries" shall have the meaning set forth in the recitals.

"Net Income" or "Net Loss" shall mean, for each fiscal year or other period, an amount equal to the Company's taxable income or loss for such year or period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments:

(a)         any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Net Income or Net Loss pursuant to this definition shall be added to such taxable income or loss;

(b)          any expenditures of the Company described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Net Income or Net Loss pursuant to this definition, shall be subtracted from such taxable income or loss;

(c)          in the event the Gross Asset Value of any Company asset is adjusted pursuant to clauses (b) or (c) of that definition, the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Net Income or Net Loss;

(d)          gain or loss resulting from any disposition of any asset with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the asset disposed of, notwithstanding that the adjusted tax basis of such asset differs from its Gross Asset Value;

(e)           in lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such fiscal year or other period, computed in accordance with the definition of Depreciation herein; and

(f)           notwithstanding any other provision of this definition, any items which are specially allocated pursuant to Section 3.2 or 3.3 hereof shall not be taken into account in computing Net Income or Net Loss.

"Nonrecourse Debt" shall have the meaning set forth in Treasury Regulations Section 1.704-2(b)(3).

"Nonrecourse Deductions" shall have the meaning, and the amount thereof shall be, as set forth in Treasury Regulations Section 1.704-2(c).

"Offering" shall mean an offering and sale of Units pursuant to the terms set forth in the applicable Memorandum.

"Offering Termination Date" shall mean January 31, 2015.

"Plan Asset Event" shall have the meaning set forth in Section 6.3.14(i).

"Preferred Return" shall mean, with respect to each Existing Member, an eight and a half percent (8.5%) per annum cumulative, non-compounded return on such Member's Unreturned Capital Contributions over the time period in question. "Preferred Return" shall mean, with respect to each Unit issued in the Mergers, a nine percent (9.0%) per annum cumulative, non-compounded return on the Member's Unreturned Capital Contributions relating to such Unit over the time period in question, plus an additional amount equal to the average per Unit accrued but unpaid Preferred Return of Existing Members as of the date of the closing of the Mergers. "Preferred Return" shall mean, with respect to each Unit issued in the Concurrent Private Placement, an eight and a half percent (8.5%) per annum cumulative, non-compounded return on such Member's Unreturned Capital Contributions over the time period, plus an additional amount equal to the difference between the $47,000 purchase price per Unit in the Concurrent Private Placement and the per Unit average Unreturned Capital Contributions of Existing Members as of the date of the closing of the Concurrent Private Placement.

"Prime Rate" shall mean the reference rate announced from time-to-time by The Wall Street Journal, and changes in the Prime Rate shall be deemed to occur on the date that changes in such rate are announced.

"Pro Rata Portion" shall mean an amount equal to the amount such Redeemed Member would have received in respect of the redeemed Unit had such Unit not been redeemed.

"Redeemed Member" shall mean a Member whose Unit(s) are redeemed by the Company pursuant to Sections 6.3.14(i), 10.4

"Redemption Effective Date" shall mean the date upon which the Manager determines to redeem a Redeemed Member's Units.

"Redemption Value" shall mean, with respect to a Redeemed Member's Unit, the fair market value of such Unit as of the applicable Redemption Effective Date, as determined in good faith by the Manager. In making such determination of fair market value, the Manager shall assume a hypothetical sale of all of the assets of the Company on the applicable date in a commercially reasonable manner and the satisfaction of Company liabilities and hypothetical distribution of the proceeds of such sale, net of estimated closing costs, as reasonably determined by the Manager pursuant to this Agreement. If the Redeemed Member disagrees with the Manager's determination of the Redemption Value of the applicable Unit in the Company, such Redeemed Member shall negotiate in good faith to resolve such disagreement, and if such Redeemed Member continues to disagree after negotiations are held, either side may request that an independent evaluator (who must be reasonably acceptable to the other party) be retained, whose valuation shall be final and binding on the Company and the Redeemed Member, and such valuation shall be deemed the Redemption Value. The Plan Asset Redemption Value, if paid by the Company, shall be paid to such Redeemed Member in cash by applying the Pro Rata Portion from amounts that would otherwise be Distributable Cash and Capital Proceeds to the Plan Asset Redemption Value until the Plan Asset Redemption Value has been fully paid. The Company will bear the cost of the independent evaluator.

"Regulatory Allocations" shall mean the allocations set forth in Section 3.2.

"REIT" shall have the meaning set forth in the recitals.

"REIT Shares" shall have the meaning set forth in the recitals.

"Repurchase Reserve" shall have the meaning set forth in Section 10.5.

"Securities Act" means the Securities Act of 1933, as amended.

"Subscription Agreement" shall mean the agreement, in the form attached to the Memorandum, by which each person desiring to purchase additional units and, if not currently a Member, become a Member shall evidence (i) the number of Units which such person wishes to acquire, (ii) such person's agreement to become a party to, and be bound by the provisions of, this Agreement and (iii) certain representations regarding the person's finances and investment intent.

"Subscription Payment" shall mean the cash payment that must accompany each subscription for Units sold through the Offering.

"Substituted Member" shall mean any person admitted as a substituted Member pursuant to Section 10 of this Agreement.

"Targeted Termination Units" shall have the meaning set forth in 2.1.10(b) hereof.

"Tax Payment" shall have the meaning set forth in Section 3.9.1 hereof.

"Termination Unit" shall represent an interest in the Company entitling the owner of the Termination Unit if admitted as a Member to the respective voting and other rights afforded to a Member holding a Termination Unit, and affording to such Member a share in Net Income, Net Loss and Distributions in each case as provided for in this Agreement. Termination Units shall not be considered Units for any purpose under this Agreement, other than Section 3.2.4. Termination Units shall only have the rights applicable to Termination Units as specified in this Agreement.

"Termination Unit Repurchase Price" shall mean the Book Value applicable to the Termination Unit or portion thereof being redeemed, calculated as of the end of the most recently completed calendar quarter prior to the date the Termination Unit Repurchase Price is paid but adjusted for any redemption payments made to the holder in respect of such Termination Unit.

"Terra Fund 1" shall refer to Terra Secured Income Fund, LLC.

"Terra Fund 2" shall refer to Terra Secured Income Fund 2, LLC.

"Terra Fund 3" shall refer to Terra Secured Income Fund 3, LLC.

"Terra Fund 4" shall refer to Terra Secured Income Fund 4, LLC.

"Terra Funds" shall have the meaning set forth in the recitals.

"Terra Fund Unitholders" shall have the meaning set forth in the recitals.

"Treasury Regulations" shall mean the applicable Final, Proposed, and Temporary Treasury Regulations promulgated under the provisions of the Internal Revenue Code of 1986, as amended.

"Unit" shall represent an interest in the Company entitling the owner of the Unit if admitted as a Member to the respective voting and other rights afforded to a Member holding a Unit, and affording to such Member a share in Net Income, Net Loss and Distributions as provided for in this Agreement. Termination Units shall not be considered Units for any purpose under this Agreement, other than Section 3.2.4. Termination Units shall only have the rights applicable to Termination Units as specified in this Agreement.

"Unreturned Capital Contributions" shall mean an amount equal to such Member's aggregate Deemed Capital Contributions less cumulative Distributions to date made to such Member pursuant to Section 4.1.1. Each Member's Unreturned Capital Contributions shall be calculated separately, as determined by the Manager, to account for such Member's holdings of multiple Units and/or Termination Units.

"Unreturned Invested Capital" shall mean, in respect of any Termination Unit, the Deemed Capital Contributions (or the equivalent) made by the Terra Fund Unitholders who received the Termination Unit in the Mergers, less the cumulative stated distributions of principal attributable to such Termination Unit, less any amounts paid in redemption of such Termination Unit after its issuance.

EX-10.1

Exhibit 10.1

MANAGEMENT AGREEMENT

BETWEEN

TERRA PROPERTY TRUST, INC.

AND

TERRA INCOME ADVISORS, LLC

This Management Agreement (this “Agreement”) is made as of this 1^st day of September, 2016 (the “Effective Date”), by and between TERRA PROPERTY TRUST, INC., a Maryland corporation (the “Company”) and TERRA INCOME ADVISORS, LLC, a Delaware limited liability company (the “Manager”).

WHEREAS, the Company is a Maryland corporation that intends to qualify as a REIT and is a subsidiary of Terra Secured Income Fund 5, LLC (the “Parent”);

WHEREAS, the Manager provides management services to the Parent, pursuant to the terms of the Amended and Restated Limited Liability Company Agreement of the Parent, dated January 1, 2016, as amended from time to time (the “Parent Operating Agreement”);

WHEREAS, the Company and the Manager have agreed that certain of such management services, as described in this Agreement, are to be provided exclusively to the Company and not to the Parent and the fees associated with such services are to be paid exclusively by the Company and not by the Parent; and

WHEREAS, the Parent and the Manager are entering into this Agreement in order to reflect their agreement relating to the provision of such services to the Company and the payment by the Company of such fees to the Manager.

NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the parties hereby agree as follows:

1.    Duties of the Manager.

(a)    Retention of Manager. The Company hereby employs the Manager to act as the adviser to the Company and to manage the investment and reinvestment of the Assets (as hereinafter defined) of the Company, subject to the supervision of the board of directors of the Company (the “Board”), for the period and upon the terms set forth herein:

(i)          in accordance with the investment objectives, policies and restrictions that are set forth in the Consent Solicitation Statement and Private Placement Memorandum of the Parent, dated as of November 13, 2015 (the “Private Placement Memorandum”)', and

(ii)         in accordance with all other applicable federal and state laws, rules and regulations, and the Company’s Articles of Incorporation (the “Articles”) and bylaws (the “Bylaws”), in each case as amended from time to time;

(b)   Responsibilities of Manager. Without limiting the generality of the foregoing, the Manager shall, during the term and subject to the provisions of this Agreement, cause the Company to:

(i)          originate, fund, acquire, structure, hold, develop, operate, sell, exchange, subdivide and otherwise dispose of assets of the Company;

(ii)         borrow money, and, if security is required therefor, to pledge or mortgage or subject assets of the Company to any security device, to obtain replacements of any mortgage or other security device and to prepay, in whole or in part, refinance, increase, modify, consolidate, or extend any mortgage or other security device;

(iii)        enter into such contracts and agreements as the Manager determines to be reasonably necessary or appropriate in connection with the Company’s business and purpose (including contracts with affiliates of the Manager) and any contract of insurance that the Manager deems necessary or appropriate for the protection of the Company and the Manager, including errors and omissions insurance, for the conservation of Company assets, or for any purpose convenient or beneficial to the Company;

(iv)        prepare or cause to be prepared reports, statements and other relevant information for distribution to the Parent;

(v)         open accounts and deposits and maintain funds in the name of the Company in banks, savings and loan associations, “money market” mutual funds and other instruments as the Manager may deem in its discretion to be necessary or desirable;

(vi)        lease personal property for use by the Company;

(vii)       temporarily invest the proceeds from sale of shares of common stock of the Company (the “Shares”) in short-term, highly-liquid investments;

(viii)      make secured or unsecured loans to the Company and receive interest on such loans;

(ix)         place all or a portion of the assets of the Company in a single purpose or bankruptcy remote entity, or otherwise structure or restructure the Company to accommodate any financing for all or a portion of the assets of the Company; and

(x)          perform such other services as shall be delegated to the Manager by the Board.

(c)    Power and Authority. To facilitate the Manager’s performance of these undertakings, but subject to the restrictions contained herein, the Company hereby delegates to the Manager, and the Manager hereby accepts, the power and authority on behalf of the Company to effectuate its investment decisions for the Company, including the execution and delivery of all documents relating to the Company’s investments and the placing of orders for other purchase or sale transactions on behalf of the Company.

(d)    Administrative Services. So long as it is the Manager and the provisions of this Agreement for compensation and reimbursement of expenses of the Manager are observed, the Manager shall have the responsibility of providing continuing administrative and executive support, advice, consultation, analysis and supervision with respect to the functions of the Company, including decisions regarding the sale or refinancing or other disposition of the assets of the Company, and compliance with federal, state and local regulatory requirements and procedures. In this regard, the Manager may retain the services of such affiliates of the Manager or unaffiliated parties as the Manager may deem appropriate to provide management and financial consultation and advice, and may enter into agreements for the management and operation of the assets of the Company.

(e)    Acceptance of Engagement. The Manager hereby accepts such engagement and agrees during the term hereof to render the services described herein for the compensation provided herein, subject to the limitations contained herein.

(g)    Independent Contractor Status. The Manager shall, for all purposes herein provided, be deemed to be an independent contractor and, except as expressly provided or authorized herein, shall have no authority to act for or represent the Company in any way or otherwise be deemed an agent of the Company.

(h)    Record Retention. Subject to review by, and the overall control of, the Board, the Manager shall keep and preserve books and records relevant to the provision of its management services to the Company.

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2.    Responsibilities of the Manager.

(a)    In rendering such services, the Manager shall

(i)          have a fiduciary responsibility for the safekeeping and use of all the funds and assets of the Company;

(ii)         devote such of its time and business efforts to the business of the Company as it shall in its discretion, exercised in good faith, determine to be necessary to conduct the business of the Company;

(iii)        file and publish all certificates, statements, or other instruments required by law for formation, qualification and operation of the Company and for the conduct of its business in all appropriate jurisdictions;

(iv)        cause the Company to be protected by public liability, property damage and other insurance determined by the Manager in its discretion to be appropriate to the business of the Company;

(v)         at all times use its best efforts to meet applicable requirements for the Company to be taxed as a REIT for federal income tax purposes; and

(vi)        observe the covenants applicable to the Manager under the Parent Operating Agreement.

(b)   During the term of this Agreement and so long as the provisions of this Agreement for compensation and reimbursement of expenses of the Manager are observed, the Manager shall have responsibility of providing continuing administrative and executive support, advice, consultation, analysis and supervision with respect to the functions of the Company, including decisions regarding the sale or refinancing or other disposition of the Assets, and compliance with federal, state and local regulatory requirements and procedures. In this regard, the Manager may retain the services of such affiliates or unaffiliated parties as the Manager may deem appropriate to provide management and financial consultation and advice, and may enter into agreements for the management and operation of Company Assets.

3.    Compensation of the Manager.

(a)    Fees to the Manager. The Company agrees to pay, and the Manager agrees to accept, as compensation for the services provided by the Manager hereunder the following fees:

(i)          Origination Fee. The Company will pay to the Manager an origination fee (the “Origination Fee’’) in the amount of 1.0% of the amount funded by the Company to originate, fund, structure, or acquire real estate-related loans, including first and second mortgage loans, mezzanine loans, bridge loans, convertible mortgages, and other loans related to high quality real estate, as well as the acquisition of any equity participations in the underlying collateral of such loans, and also including any acquisition of real estate directly (each, an “Asset” and collectively, “Assets”), including any third-party expenses related to such investment and any debt the Company uses to fund the origination, funding, structuring, or acquisition of such Asset. The Origination Fee will be reduced by the amount of any origination or equivalent fee paid by a borrower. In the event that the collateral backing any real estate-related loan held by the Company is replaced with substitute collateral, the Company will pay an Origination Fee to the Manager equal to the lesser of (A) 1.0% of the principal amount of the loan backed by the substitute collateral and (B) the amount of the fee paid to the Company by the borrower in connection with such substitution.

(ii)         Asset Management Fee. The Company will pay the Manager a monthly asset management fee at an annual rate equal to 1.0% of the aggregate funds under management (including the amount of any debt incurred or assumed to finance any Asset and related closing costs and expenses), as well as cash then held by the Company.

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(iii)        Asset Servicing Fee. The Company will pay to the Manager a monthly asset servicing fee at an annual rate equal to 0.25% of the aggregate gross origination price for each Asset (including the amount of any debt incurred or assumed to finance any Asset, and related closing costs and expenses).

(iv)        Disposition Fee. The Company will pay to the Manager a disposition fee (the “Disposition Fee”) in the amount of 1.0% of the gross sale price (including any portion of the sale price applied to any indebtedness to which the Asset is subject) received by the Company from each Asset sale or disposition, or each maturity, prepayment, workout, modification, restructuring, or extension of any Asset, or any portion of or interest in any Asset. The Disposition Fee shall be paid concurrently with the closing of any such Asset sale or disposition, or any such maturity, prepayment, workout, modification, restructuring, or extension of any Asset or any interest thereon. No Disposition Fee shall be payable in the event of any maturity, prepayment, workout, modification, restructuring, or extension of an Asset unless the borrower thereunder has paid or is obligated to pay a corresponding fee, in which case the Disposition Fee will be the lesser of (A) 1.0% of the original principal amount of the Asset and (B) the amount of such fee paid by such borrower in connection with such transaction.

(v)         Breakup Fee. A transaction breakup fee (the “Breakup Fee”) in the amount of 50.0% of any termination fees or liquidated damages received by the Company from a third party as a result of (A) a failure of any investment or disposition transaction to be consummated, (B) the failure of such third party to perform its obligations and covenants to the Company in connection with an investment or disposition transaction, (C) the failure of such third party to satisfy any conditions precedent to consummation of an investment or disposition transaction or (D) the termination of any contract related to an investment or disposition transaction.

(vi)        Company Expenses. The Company shall be responsible for all costs and expenses relating to the Company's activities, real estate-related asset investments and the ongoing business of the Company, including (A) all costs and expenses attributable to originating, holding, managing and disposing of the Assets, (B) legal, accounting, auditing, consulting and other fees and expenses, (C) all reasonable out-of-pocket fees and expenses incurred by the Company, the Manager, or the Manager’s agents, officers and employees relating to investment and disposition opportunities for the Company not consummated, (D) any taxes, fees and other governmental charges levied against the Company and (E) any fees and expenses paid to third parties in connection with raising capital for the Company. The Manager may use its own employees or employees of any Affiliate of the Manager to provide accounting, tax, data processing, engineering, market research or other professional services to the Company that would otherwise be performed by third parties and, in such event, the Company will reimburse the cost of performing such services. Such reimbursements may include employment costs and related overhead expenses allocable thereto, as reasonably determined by the Manager based on the time expended by the employees who render such services, provided that no such reimbursement shall exceed the amount that would be payable by the Company if the services were provided in an arms-length transaction with an independent third party. An “Affiliate” of the Manager shall mean any person directly or indirectly controlling, controlled by or under common control with the Manager; a person owning or controlling 10.0% or more of the outstanding voting securities of the Manager; any officer, director or partner of the Manager; and if such person is an officer, director or partner of the Manager, any company for which such person acts in any capacity.

(b)   Reimbursements. The Company will reimburse the Manager for organization and offering expenses up to 2.0% of the gross proceeds raised in any offering of Shares, which expenses include the cumulative cost of actual legal, accounting, printing, and marketing expenses such as (i) salaries and direct expenses of employees and others while engaged in an offering, (ii) participating in due diligence, training seminars and education conferences and (iii)        coordinating generally the marketing process To avoid duplication of reimbursements payable by the Parent under the Parent Operating Agreement and to the Manager under this Agreement, no fee will be payable to the Manager hereunder for Shares issued to the Parent in connection with an offering of interests in the Parent where the proceeds from such issuance are then invested by the Parent in Shares.

(c)   Waiver or Deferral of Fees. The Manager shall have the right to elect to temporarily or permanently waive or defer all or a portion of the fees listed in Sections 3(a) and 3(b) above that would otherwise be paid to it. Prior to

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the payment of any fee to the Manager, the Company shall obtain written instructions from the Manager with respect to any waiver or deferral of any portion of such fees. Any portion of a deferred fee payable to the Manager and not paid over to the Manager with respect to any month, calendar quarter or year shall be deferred without interest and may be paid over in any such other month prior to the occurrence of termination of this Agreement, as the Manager may determine upon written notice to the Company. Any of the fees payable to the Manager under this Agreement for any partial month or calendar quarter shall be appropriately prorated.

4.    Covenants of the Manager.

(a)    Record Retention. Subject to review by, and the overall control of, the Board, the Manager shall keep and preserve books and records relevant to the provision of its management services to the Company.

(b)    Reports. The Manager shall, upon written request of the Board, provide reports on the Company’s business.

5.    Other Activities of the Manager.

The services of the Manager to the Company are not exclusive, and the Manager may engage in any other business or render similar or different services to others including the direct or indirect sponsorship or management of other investment based accounts or commingled pools of capital, however structured, having investment objectives similar to those of the Company, so long as its services to the Company hereunder are not impaired thereby, and nothing in this Agreement shall limit or restrict the right of any manager, partner, member (including its members and the owners of its members), officer or employee of the Manager to engage in any other business or to devote his or her time and attention in part to any other business, whether of a similar or dissimilar nature, or to receive any fees or compensation in connection therewith (including fees for serving as a director of, or providing consulting services to, one or more of the Company’s portfolio companies, subject to applicable law). The Manager assumes no responsibility under this Agreement other than to render the services called for hereunder. It is understood that directors, officers, employees and stockholders of the Company are or may become interested in the Manager and its affiliates, as directors, officers, employees, partners, stockholders, members, managers or otherwise, and that the Manager and directors, officers, employees, partners, stockholders, members and managers of the Manager and its affiliates are or may become similarly interested in the Company as stockholders or otherwise.

6.    Responsibility of Dual Directors, Officers and Employees.

If any person who is a manager, partner, member, officer or employee of the Manager is or becomes a director, officer or employee of the Company and acts as such in any business of the Company, then such manager, partner, member, officer or employee of the Manager shall be deemed to be acting in such capacity solely for the Company, and not as a manager, partner, member, officer or employee of the Manager or under the control or direction of the Manager, even if paid by the Manager.

7.    Indemnification: Limitation of Liability.

(a)   Indemnification. The Manager, its members, manager, Affiliates, officers, directors, employees, agents and assigns and any officers of the Company, shall not be liable for, and shall be indemnified and held harmless (to the extent of the Company’s assets) from, any loss or damage incurred by them, the Company or its shareholders in connection with the business of the Company, including costs and reasonable attorneys’ fees and any amounts expended in the settlement of any claims of loss or damage resulting from any act or omission performed or omitted in good faith, which shall not constitute gross negligence or willful misconduct, pursuant to the authority granted, to promote the interests of the Company. Moreover, neither the Manager nor any officer of the Company shall be liable to the Company or to any shareholder of the Company because any taxing authorities disallow or adjust any deductions or credits in the Company income tax returns.

(b)   Limitation of Liability. Notwithstanding Section 7(a), the Company shall not indemnify any Manager, or member, director, officer or other employee thereof, for liability imposed or expenses incurred in connection with any claim arising out of a violation of the Securities Act, or any other federal or state securities law, with respect to the offer and sale of Shares of the Company. Indemnification will be allowed for settlements and related expenses in

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lawsuits alleging securities law violations, and for expenses incurred in successfully defending such lawsuits, provided that (i) the Manager is successful in defending the action, (ii) the indemnification is specifically approved by the court of law which shall have been advised as to the current position of the Securities and Exchange Commission (as to any claim involving allegations that the Securities Act was violated) or the applicable state authority (as to any claim involving allegations that the applicable state’s securities laws were violated) or (iii) in the opinion of counsel for the Company, the right to indemnification has been settled by controlling precedent.

8.    Term.

This Agreement shall become effective as of the Effective Date and shall run co-terminus with the Parent Operating Agreement.

9.    Commingling of Funds.

The Manager covenants that it shall not permit or cause to be permitted the Company’s funds to be commingled with the corporations of any other entity.

10.  Notices.

Any notice under this Agreement shall be given in writing, addressed and delivered or mailed, postage prepaid, to the other party at its principal office.

11.  Amendments.

This Agreement may be amended in writing by mutual consent of the parties hereto.

12.  Counterparts.

This Agreement may be executed in counterparts, each of which shall be deemed to be an original copy and all of which together shall constitute one and the same instrument binding on all parties hereto, notwithstanding that all parties shall not have signed the same counterpart.

13.  Entire Agreement: Governing Law.

This Agreement contains the entire agreement of the parties and supersedes all prior agreements, understandings and arrangements with respect to the subject matter hereof. Notwithstanding the place where this Agreement may be executed by any of the parties hereto, this Agreement shall be construed in accordance with the laws of the State of New York.

[Signatures appear on the following page.]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date set forth above.

COMPANY:
TERRA PROPERTY TRUST, INC., a Delaware limited
limited liability company
By:	/s/ Bruce D. Batkin
Name:	Bruce D. Batkin
Title:	Authorized Signatory
MANAGER:
TERRA INCOME ADVISORS, LLC, a Delaware
limited liability company
By:	/s/ Bruce D. Batkin
Name:	Bruce D. Batkin
Title:	Chief Executive Officer

[Signature page to Management Agreement]

EX-21.1

Exhibit 21.1

Terra Secured Income Fund 5, LLC

Subsidiaries

Name of Subsidiary	Ownetrship	State of Incorporation
Palmer City - Core Stockton Street, LLC	100%	Delaware
Terra 37 Avenue LLC	100%	Delaware
Terra 514W24 LLC	100%	Delaware
Terra Arbor-Stratford, LLC	100%	Delaware
Terra East 96, LLC	100%	Delaware
Terra Hotel Garden,Llc	100%	Delaware
Terra Ocean Ave, LLC	100%	Delaware
Terra Ocean Ave, LLC	100%	New York
Terra ParkGreen Member, LLC	100%	Delaware
Terra ParkGreen, LLC	100%	Delaware
Terra ParkGreen, LLC	100%	Delaware
Terra ParkGreen, LLC	100%	New York
Terra Property Trust, Inc.	100%	New York
Terra Property Trust, Inc.	100%	Maryland
Terra SD Hospitality LLC	100%	Delaware
Terra Secured Income Fund 2 Merger Sub, LLC	100%	Delaware
Terra Secured Income Fund 2, LLC	100%	Delaware
Terra Secured Income Fund 3 Merger Sub, LLC	100%	Delaware
Terra Secured Income Fund 3, LLC	100%	Delaware
Terra Secured Income Fund 4 Merger Sub, LLC	100%	Delaware
Terra Secured Income Fund 4, LLC	100%	Delaware
Terra Secured Income Fund 5, LLC	100%	Delaware
Terra Secured Income Fund Merger Sub, LLC	100%	Delaware
Terra Secured Income Fund, LLC	100%	Delaware
Terra Warner Center LLC	100%	Delaware