TERRA INTERNATIONAL FUND 3, L.P. LIMITED PARTNERSHIP INTERESTS
U.S. $50,000,000 MAXIMUM OFFERING
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
Dated May 30, 2019
This confidential private placement memorandum (the “memorandum”) is being furnished to a limited number of prospective
investors on a confidential basis to consider an investment in limited partnership interests (the “Interests”) of Terra International Fund
3, L.P. (the “Partnership”), a recently formed Cayman Islands exempted limited partnership. Substantially all of the assets of the
Partnership will be invested in shares of common stock of its affiliate, Terra Property Trust, Inc. (“Terra Property Trust”), a Maryland
corporation that has elected to be taxed for federal income tax purposes as a real estate investment trust (a “REIT”) under the Internal
Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ended December 31, 2016. The Partnership will
invest in Terra Property Trust through Terra International Fund 3 REIT, LLC (the “REIT Subsidiary”), a recently organized Delaware
limited liability company that intends to qualify and elect to be taxed for federal income tax purposes as a REIT for its taxable year
ended December 31, 2019. For ease of reference, the Partnership together with the REIT Subsidiary and Terra Property Trust, may be
referred to herein collectively or individually, as the context may dictate, as “we,” “us,” “our,” and the “Partnership” except as otherwise
stated in this memorandum.
Terra International Fund 3 GP LLC, a recently organized Delaware limited liability company (the “General Partner”) will serve as
general partner of the Partnership and as manager of the REIT Subsidiary.
Terra REIT Advisors, LLC (the “Adviser”), a Delaware limited liability company, has been engaged to act as investment manager
of each of the Partnership, the REIT Subsidiary, and Terra Property Trust. The General Partner has delegated to the Adviser certain
advisory and management services pursuant to the investment management agreement. The Adviser is registered with the U.S. Securities
and Exchange Commission (the “SEC”) as an investment adviser under the Investment Advisers Act of 1940, as amended. The parent
company of the Adviser and the General Partner is Terra Capital Partners, LLC, a Delaware limited liability company.
We are seeking aggregate subscriptions of up to U.S. $50,000,000 (subject to increase at the sole discretion of the General Partner)
for Interests. The Interests are being offered for sale exclusively to persons that are not “United States persons” as defined in
Section 7701(a)(30) of the Code. Each investor will need to comply with the suitability requirements of his or her country of residence.
An investment in the Interests involves a substantial degree of risk. See “Risk Factors.”
No securities regulatory authority or securities commission has approved or disapproved these securities or passed upon the
adequacy or accuracy of this memorandum. Any representation to the contrary may be a criminal offense.
The Interests are subject to restrictions on transferability and resale and may not be transferred or resold except as
permitted under applicable law, pursuant to registration or exemption therefrom. Investors should be aware that they will be
required to bear the financial risks of this investment for an indefinite period of time.
Maximum Price
to Investors
Maximum Selling Commissions and
Fees(1)
Minimum Net
Proceeds
Minimum Offering ........................... $1,000,000 $50,000 $950,000
Maximum Offering .......................... $50,000,000 $2,500,000 $47,500,000
(1) We have engaged IDB Capital Corp. (“IDB”) to serve as placement agent to solicit investors for this offering, and we may
also engage one or more additional placement agents. We will pay aggregate selling commissions to IDB and any other
placement agents we may engage of up to 5.0% of the gross proceeds from the sale of our Interests, payable as follows: (i) up
to 2.0% of the gross proceeds payable at the time of such sale plus (ii) up to 1.0% of the gross proceeds payable for each of
the three years thereafter on the anniversary of the offering termination date; provided, however, that aggregate selling
commissions payable shall not exceed 5.0% of the gross proceeds of the sale of our Interests. The selling commissions may
be waived or reduced for certain categories of purchasers. See “Plan of Distribution.”
We will not sell any Interests unless we receive and accept a minimum of U.S. $1,000,000 in subscriptions by August 31, 2019. Pending
satisfaction of this condition, your subscription payments will be placed in an account held by the escrow agent, UMB Bank, N.A.
(the “Escrow Agent”), and will be held in trust for your benefit, pending release to us. If we do not meet this condition, we will return
all funds in the escrow account, without interest, and we will stop offering the Interests. We will not receive any fees or expenses out of
any funds returned to investors, and neither IDB nor any other placement agents we may engage will receive any fees related to such
returned funds.
THIS MEMORANDUM SHALL NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY,
NOR SHALL THERE BE ANY OFFER, SOLICITATION OR SALE OF THE INTERESTS IN ANY JURISDICTION IN WHICH
ii
SUCH OFFER, SOLICITATION OR SALE IS NOT AUTHORIZED OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE ANY SUCH OFFER, SOLICITATION OR SALE. THE DISTRIBUTION OF THIS MEMORANDUM AND THE OFFERING
OF INTERESTS IN CERTAIN JURISDICTIONS MAY BE RESTRICTED AND, ACCORDINGLY, PERSONS INTO WHOSE
POSSESSION THIS MEMORANDUM COMES ARE REQUIRED TO INFORM THEMSELVES ABOUT AND TO OBSERVE
SUCH RESTRICTIONS.
.
iii
TABLE OF CONTENTS
CERTAIN DEFINITIONS ............................................................................................................................. iv
FORWARD-LOOKING STATEMENTS ........................................................................................................ v
NOTICE TO INVESTORS ............................................................................................................................ vi
CAYMAN NOTICE ..................................................................................................................................... vii
WHO MAY INVEST ................................................................................................................................... viii
HOW TO SUBSCRIBE .................................................................................................................................. x
SUMMARY OF THE OFFERING .................................................................................................................. 1
INVESTMENT STRUCTURE ........................................................................................................................ 8
TERRA OVERVIEW..................................................................................................................................... 8
INVESTMENT OBJECTIVES, STRATEGIES, AND POLICIES ................................................................. 10
RISK FACTORS........................................................................................................................................... 19
THE GENERAL PARTNER, THE REIT MANAGER, THE ADVISER, AND TERRA PROPERTY TRUST 40
SUMMARY OF FEES, COMMISSIONS, AND REIMBURSEMENTS ........................................................ 45
PRIOR INVESTMENT HISTORY OF THE ADVISER AND ITS AFFILIATES ......................................... 48
CURRENT PORTFOLIO OF TERRA PROPERTY TRUST ......................................................................... 50
CONFLICTS OF INTEREST ........................................................................................................................ 55
PLAN OF DISTRIBUTION .......................................................................................................................... 60
DESCRIPTION OF OUR INTERESTS......................................................................................................... 62
VALUATION OF PARTNERSHIP ASSETS ................................................................................................ 63
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS ................................................................ 64
CAYMAN ISLANDS TAX CONSIDERATIONS ........................................................................................ 73
RESTRICTIONS ON TRANSFERABILITY ................................................................................................ 75
MUTUAL FUNDS LAW .............................................................................................................................. 75
CAYMAN ISLANDS EXEMPTED LIMITED PARTNERSHIPS.................................................................. 75
ANTI-MONEY LAUNDERING ................................................................................................................... 76
LITIGATION................................................................................................................................................ 77
COUNSEL .................................................................................................................................................... 77
REPORTS TO LIMITED PARTNERS ......................................................................................................... 77
ADDITIONAL INFORMATION .................................................................................................................. 77
iv
CERTAIN DEFINITIONS
For ease of reference, the Partnership together with the REIT Subsidiary and Terra Property Trust, may be referred
to herein collectively or individually, as the context may dictate, as “we,” “us,” “our,” and the “Partnership” except as
otherwise stated in this memorandum. Additionally the following defined terms are used in this memorandum.
• “Terra Capital Advisors” refers to Terra Capital Advisors, LLC, a subsidiary of Terra Capital Partners;
• “Terra Capital Advisors 2” refers to Terra Capital Advisors 2, LLC, a subsidiary of Terra Capital
Partners;
• “Terra Capital Markets” refers to Terra Capital Markets, LLC, an affiliate of Terra Capital Partners;
• “Terra Capital Partners” refers to Terra Capital Partners, LLC, our sponsor;
• “Terra Fund 1” refers to Terra Secured Income Fund, LLC; “Terra Fund 2” refers to Terra Secured
Income Fund 2, LLC; “Terra Fund 3” refers to Terra Secured Income Fund 3, LLC; “Terra Fund 4”
refers to Terra Secured Income Fund 4, LLC; “Terra Fund 5” refers to Terra Secured Income Fund 5,
LLC; “Fund 5 International” refers to Terra Secured Income Fund 5 International; “Terra Fund 6” refers
to Terra Income Fund 6, Inc.; “Terra International” refers to Terra Income Fund International; “Terra
Fund 7” refers to Terra Secured Income Fund 7, LLC;
• “Terra Income Advisors” refers to Terra Income Advisors, LLC, an affiliate of Terra Capital Partners;
• “Terra Income Advisors 2” refers to Terra Income Advisors 2, LLC, an affiliate of Terra Capital Partners;
• “Terra Property Trust” refers to Terra Property Trust, Inc., an affiliate of Terra Capital Partners;.
• “Terra Property Trust 2” refers to Terra Property Trust 2, Inc., a subsidiary of Terra Fund 7;
• “Adviser,” “Terra REIT Advisors” or the “REIT Manager” refers to Terra REIT Advisors, LLC, a
subsidiary of Terra Capital Partners; and
• “Interests” refer to regular units of limited partnership interest in our Partnership issued to Limited
Partners.
v
FORWARD-LOOKING STATEMENTS
Statements included in this memorandum that are not historical facts (including, but not limited to, any statements
concerning investment objectives, our other plans and objectives for future operations or economic performance or
assumptions or forecasts related thereto) are forward looking statements. These statements are only predictions. We
caution that forward looking statements are not guarantees. Actual events or our investments and results of operations
could differ materially from those expressed or implied in the forward looking statements. Forward looking statements
are typically identified by (but are not limited to) the use of terms such as “may,” “will,” “should,” “expect,” “could,”
“intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or the negative of such terms
and other comparable terminology.
The forward looking statements included in this memorandum are based upon our current expectations, plans,
estimates, assumptions and beliefs that involve numerous risks and uncertainties. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions
and future business decisions, all of which are difficult or impossible to predict accurately and many of which are
beyond our control. Although we believe that the expectations reflected in such forward looking statements are based
on reasonable assumptions, our actual results and performance could differ materially from those set forth in the
forward looking statements. Factors which could have a material adverse effect on our operations and future prospects
include, but are not limited to:
• our ability to effectively deploy the proceeds raised in this offering;
• changes in economic conditions generally;
• changes in the real estate markets, securities markets and credit markets specifically;
• interest rates; and
• the other risks described in the “Risk Factors” section of this memorandum.
Any of the assumptions underlying forward looking statements could be inaccurate. Investors are cautioned not
to place undue reliance on any forward looking statements included in this memorandum. All forward looking
statements are made as of the date of this memorandum and the risk that actual results will differ materially from the
expectations expressed in this memorandum will increase with the passage of time. Except as otherwise required by
the applicable securities laws, we undertake no obligation to update or revise any forward looking statements after the
date of this memorandum, whether as a result of new information, future events, changed circumstances or any other
reason. In light of the significant uncertainties inherent in the forward looking statements included in this
memorandum, including, without limitation, the risks described under “Risk Factors,” the inclusion of such forward
looking statements should not be regarded as a representation by us or any other person that the objectives and plans
set forth in this memorandum will be achieved.
vi
NOTICE TO INVESTORS
This memorandum has been prepared in connection with the private placement of the Interests being offered
hereby and constitutes an offer only to the proposed investor to whom this memorandum is delivered.
We are offering Interests in reliance upon exemptions from the registration requirements of the applicable
securities laws of each of Argentina, Bahamas, Belize, Brazil, British Virgin Islands, Canada, Chile, Colombia, Costa
Rica, Israel, Mexico, New Zealand, Panama, Peru, Portugal, St Kitts and Nevis, Thailand, United Kingdom, Uruguay,
and Venezuela, and any other jurisdictions as approved by the General Partner in its sole discretion. Accordingly, the
Interests will be restricted securities under the applicable securities laws of each jurisdiction as approved by the
General Partner in its sole discretion, and therefore, subject to significant restrictions on resale. No prospective investor
should purchase Interests unless such person is able to meet the relevant investor suitability requirements as set forth
in the subscription agreement, and as otherwise required by the securities laws of the relevant jurisdiction. In addition,
you may not transfer the Interests that you purchase in this offering without the prior written consent of the General
Partner, which will not be unreasonably withheld.
No person has been authorized to give any information or to make any representations other than those contained
in this memorandum and, if given or made, such information or representations must not be relied upon. This
memorandum does not constitute an offer or solicitation in any jurisdiction to any person to whom it is unlawful to
make such offer or solicitation in such jurisdiction.
Acceptance of this memorandum constitutes agreement on the part of the recipient that the information in this
memorandum is confidential and proprietary. The recipient agrees that this memorandum is confidential and is
intended solely for the recipient’s limited use and benefit in determining the recipient’s desire to invest in us. The
recipient agrees to keep this memorandum permanently confidential and not to give a copy of it to anyone other than
the recipient’s advisors solely for the purpose of advising the recipient in connection with this offering. If the recipient
of this memorandum determines not to invest in us, this memorandum must be returned to us.
Information in this memorandum is presented as of the date hereof. This memorandum may be supplemented
from time to time to set forth material subsequent events or information. Neither the delivery of this memorandum nor
any sale made hereunder shall, under any circumstances, create an implication that there has been no change in our
affairs since the date hereof.
vii
CAYMAN NOTICE
This memorandum is based on the law and practice currently in force in the Cayman Islands and is subject to
changes therein. No invitation to the public in the Cayman Islands to subscribe for any Interests in the Partnership is
permitted to be made. This memorandum should be read in conjunction with the exempted limited partnership
agreement of the Partnership (the “Limited Partnership Agreement”).
Prospective investors should not construe the contents of this memorandum or any prior or subsequent
communications as legal, tax or investment advice. Prospective investors should consult their own counsel, accountant
or business advisor as to legal, tax and related matters covering the Interests offered hereby.
We reserve the unconditional right to cancel or modify the offering, to reject subscriptions for Interests in whole
or in part and to waive conditions pertaining to the purchase of Interests. See “Plan of Distribution”.
viii
WHO MAY INVEST
The offer and sale of the Interests is being made in reliance on an exemption from the registration requirements
of the applicable securities laws of each of Argentina, Bahamas, Belize, Brazil, British Virgin Islands, Canada, Chile,
Colombia, Costa Rica, Israel, Mexico, New Zealand, Panama, Peru, Portugal, St Kitts and Nevis, Thailand, United
Kingdom, Uruguay, and Venezuela, and any other jurisdictions as may be determined by the General Partner in its sole
discretion from time to time. Accordingly, distribution of this memorandum has been strictly limited to persons who
meet the investor suitability requirements and make the representations set forth in the subscription agreement. Such
requirements represent investor minimums only. The General Partner reserves the right to declare any prospective
investor ineligible to purchase Interests based on any information that may become known or available to the General
Partner concerning the suitability of such prospective investor. In addition, the General Partner may, in its sole
discretion, reject any subscription in whole or in part for any reason or no reason.
Investor Suitability Requirements
Investment in the Interests is suitable only for persons of substantial financial means who have no need for
liquidity in their investment in the Interests. This investment will only be made available to investors who:
• subscribe for at least U.S. $100,000, unless waived in the General Partner’s sole discretion, all of which
will be due and payable upon acceptance of such investor’s subscription agreement by the General
Partner, in its sole discretion; provided, however, that the General Partner may permit investments for
an amount less than the minimum investment amount; and
• represent in writing that they meet the investor suitability requirements established by the General
Partner and as may be required under applicable law.
In order to purchase Interests, you must represent in writing that you meet, among others, all of the suitability
requirements as listed in our subscription agreement. Our subscription agreement contains, among others, the
following representations:
• You understand that an investment in the Interests involves substantial risks and you are fully cognizant
of and understand all of the risks relating to a purchase of the Interests, including, but not limited to,
those risks set forth under “Risk Factors” in this memorandum;
• Your overall commitment to investments that are not readily marketable is not disproportionate to your
individual net worth, and your investment in the Interests will not cause such overall commitment to
become excessive;
• You have adequate means of providing for your financial requirements, both current and anticipated, and
have no need for liquidity in this investment;
• You can bear and are willing to accept the economic risk of losing your entire investment;
• You are acquiring the Interests for your own account and for investment purposes only and have no
present intention, agreement or arrangement for the distribution, transfer, assignment or resale of the
Interests;
• You have such knowledge and experience in financial and business matters that you are capable of
evaluating the merits and risks of an investment in the Interests and have the ability to protect your own
interests in connection with such investment; and
• You meet the income and net worth requirements as set forth in the subscription agreement.
The investor suitability requirements listed in our subscription agreement represent minimum suitability
requirements only. Accordingly, the satisfaction of such suitability requirements by an investor will not necessarily
mean that the Interests are a suitable investment for such investor or that we will accept the investor as a limited
ix
partner. Furthermore, the General Partner may modify such requirements in its sole discretion from time to time, and
any such modification may raise the suitability requirements for investors.
x
HOW TO SUBSCRIBE
Prospective investors who would like to subscribe for Interests must first carefully read this memorandum, the
Limited Partnership Agreement and the attached appendices. If you meet the applicable suitability standards described
in “Who May Invest” and wish to purchase Interests, you must:
• complete and execute the subscription agreement attached hereto as Appendix A; and
• wire funds as described in the subscription agreement in the amount of at least U.S. $100,000.
All cash received from prospective investors prior to the acceptance of their respective subscriptions will be placed
in a non-interest bearing segregated account at a commercial banking institution or brokerage firm to be selected by
the General Partner. Cash payments will be returned as promptly as practicable to prospective investors whose
subscriptions are not accepted.
Unless otherwise agreed to by the General Partner, subscriptions are payable in full, in readily available funds in
U.S. dollars only, at least three Business Days prior to the closing date specified by the Partnership. A “Business Day”
shall be any day on which commercial banks are open for business in New York City and the Cayman Islands.
The Partnership has engaged IDB Capital Corp. (“IDB”) to serve as placement agent for the offering.
Subscriptions for Interests may be accepted or rejected in whole or in part by the General Partner in its sole
discretion for any reason or no reason. We will generally inform the subscriber within 30 days of receipt of a completed
subscription agreement whether its subscription has been accepted or rejected. If we reject a subscription, we will
promptly return the investor’s funds, without interest. We will not receive any fees or expenses out of any funds
returned to investors, and neither IDB nor any other placement agents we may engage will receive any fees related to
such returned funds.
The Interests may not be withdrawn by the investors.
Until we sell the minimum subscription amount of U.S. $1,000,000, all subscription proceeds will be sent to
UMB Bank, N.A. (the “Escrow Agent”), which will deliver your subscription agreement and supporting
documentation to Conduent Securities Services, Inc., our transfer agent and registrar (the “Administrator”). The
Escrow Agent will promptly deposit such funds, or the escrow deposit, into a designated escrow account. Upon receipt
of the escrow deposit, the escrow deposit will be held in a designated escrow account until the earlier of (1) the sale
of the minimum subscription amount of U.S. $1,000,000, (2) August 31, 2019 and (3) such earlier date as the General
Partner shall determine. The Escrow Agent will release the funds to us only after we have sold U.S. $1,000,000 in this
offering. If we have not sold the minimum offering of U.S. $1,000,000 on or before August 31, 2019, all escrow funds
will be returned to subscribers, without interest. We will not receive any fees or expenses out of any funds returned to
investors, and neither IDB nor any other placement agents we may engage will receive any fees related to such returned
funds.
1
SUMMARY OF THE OFFERING
The following summary and other information appearing in this memorandum does not purport to be complete
and is subject to, and qualified in its entirety by, reference to the more complete and detailed terms and information
set forth in the constituent documents and agreements of the Partnership (as defined below), including the exempted
limited partnership agreement of the Partnership (the “Limited Partnership Agreement”), the Partnership’s
subscription agreement (the “Subscription Agreement”) and in our other constituent documents and agreements, such
as, without limitation, the limited liability company agreement of Terra International Fund 3 REIT, LLC, the charter
and bylaws of Terra Property Trust, Inc. and our respective investment management agreements as each such
document may be amended, restated or supplemented from time to time (the “Management Agreements”). In the event
of a conflict between (a) the following summary and other information appearing in this Memorandum and (b) the
aforementioned documents, such aforementioned documents will control. Capitalized terms not otherwise defined in
this memorandum shall have the meaning given such terms in the Limited Partnership Agreement.
Terra Secured Income Fund 5, LLC (“Terra Fund 5”), a direct investor in Terra Property Trust, Inc., is required
to make public filings on the Securities and Exchange Commission (“SEC”) website. For information about Terra
Property Trust, prospective investors are urged to carefully review the SEC filings for Terra Fund 5. Prospective
investors should, however, note, that the terms of an investment in Terra Fund 5 are materially different from the terms
of an investment in the Partnership.
The Partnership Terra International Fund 3, L.P. (the “Partnership”) is a recently organized Cayman
Islands exempted limited partnership formed on May 14, 2019. Our principal
business address is 550 Fifth Avenue, 6th Floor, New York, NY 10036. The
registered office of the Partnership is at Walkers Corporate Limited, Cayman
Corporate Centre, 27 Hospital Road, George Town, Grand Cayman KY1 – 9008,
Cayman Islands.
General Partner Terra International Fund 3 GP, L.P. (the “General Partner”), a recently organized
Delaware limited partnership, is the general partner of the Partnership.
Investment Adviser Terra REIT Advisors, LLC, (the “Adviser”), a Delaware limited liability company
that is registered as an investment adviser under the Investment Advisers Act of
1940, as amended (the “Advisers Act”), will serve as adviser to the Partnership and
Terra International Fund 3 REIT, LLC (the “REIT Subsidiary”), a recently
organized Delaware limited liability company that intends to qualify and elect to be
taxed for federal income tax purposes as a real estate investment trust (a “REIT”)
under the Internal Revenue Code of 1986, as amended (the “Code”) for its taxable
year ending December 31, 2019. The Adviser currently also serves as the investment
adviser of Terra Fund 5 (and its wholly owned subsidiaries Terra Fund 1, Terra Fund
2, Terra Fund 3, and Terra Fund 4), all of which have the same investment objectives
as ours. The General Partner has delegated to the Adviser certain advisory and
management services pursuant to the Partnership’s investment management
agreement with the Adviser (the “Management Agreement”). In accordance with
the terms of the Management Agreement, and the Adviser will generally have sole
discretion to make all investment decisions concerning our business. The principal
members of the Adviser’s management team are Vikram S. Uppal, Stephen H.
Hamrick, Gregory M. Pinkus, Daniel J. Cooperman, and Michael S. Cardello. For
ease of reference, statements herein regarding reimbursement of the Adviser,
General Partner, REIT Manager, or an affiliate of the foregoing, shall refer to the
applicable reimbursement recipient(s) as the context may dictate.
Securities Offered We are seeking subscriptions of a minimum of U.S. $1,000,000 and a maximum of
U.S. $50,000,000 (subject to increase at the sole discretion of the General Partner)
for limited partnership interests (the “Interests”). Each investor must subscribe for
at least $100,000, unless waived in the General Partner’s sole discretion, all of
which will be due and payable upon acceptance of such investor’s subscription.
2
Upon acceptance of an investor’s subscription, such investor shall become a
“Limited Partner.” The Interests are not redeemable by investors.
Offering Period The Partnership intends to continue the offering until the earlier of (i) December 31,
2019, (ii) the date that all of the offered Interests have been sold or (iii) such earlier
date as the General Partner shall determine. If the offering has not been terminated
by December 31, 2019, the General Partner may extend the offering for up to two
six month periods in its sole discretion. Following the termination of the offering
period (the date of such termination, the “offering termination date”), the General
Partner may, from time to time in its sole discretion, cause the Partnership to accept
additional subscriptions, in cash or in-kind, from the General Partner, its affiliates
or entities that are sponsored by the foregoing.
Subscription Dates Interests will be offered in fully registered book-entry form. Ownership of Interests
will be reflected on the books and records of the Partnership. Interests may be
purchased at such times as the General Partner in its sole discretion may determine
(each such date, a “Subscription Date”). A “Business Day” shall be any day on
which commercial banks are open for business in New York City and the Cayman
Islands.
Estimated Use of Proceeds The Partnership will indirectly invest substantially all of its assets in shares of
common stock of its affiliate, Terra Property Trust, Inc. (“Terra Property Trust”), a
Maryland corporation that has qualified and elected to be taxed for federal income
tax purposes as a REIT. The Partnership will invest in Terra Property Trust through
the REIT Subsidiary. The Partnership will own 100% of the non-voting common
interests of the REIT Subsidiary and the General Partner will own 100% of the
voting common interests of the REIT Subsidiary. The Partnership will also make
loans to the REIT Subsidiary. The REIT Subsidiary will issue between 100 and 125
shares of nonvoting preferred interests to U.S. investors in order to satisfy the REIT
qualification requirement that a REIT have at least 100 shareholders. For ease of
reference, the Partnership together with the REIT Subsidiary and Terra Property
Trust, may be referred to herein collectively or individually, as the context may
dictate, as “we,” “us,” and “our,” and the “Partnership” except as otherwise stated
in this memorandum.
Investment Objectives The Partnership’s principal investment objectives will be to:
• preserve Limited Partners’ capital;
• realize income from the Partnership’s investment in Terra Property
Trust; and
• make regular distributions to Limited Partners from the Partnership’s
investments.
Terra Property Trust
Investment Strategies The Partnership has the same investment objectives and strategies as Terra Property
Trust, which was formed to acquire 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.
Terra Property Trust
Investment Advisor Terra REIT Advisors, LLC (the “REIT Manager”), a subsidiary of Terra Capital
Partners, serves as adviser to Terra Property Trust.
Terra Property Trust Fees Terra Property Trust currently pays the following fees to the REIT Manager
pursuant to a management agreement. Fees and expenses borne by the Terra
Property Trust will indirectly reduce the Partnership’s capital and the funds
available for payment of Partnership distributions.
3
Origination Fee. Terra Property Trust pays to the Manager an origination fee in the
amount of 1.0% of the amount funded by Terra Property Trust 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, a “TPT Asset” and collectively, “TPT Assets”), including any
third-party expenses related to such investment and any debt Terra Property Trust
uses to fund the origination, funding, structuring, or acquisition of such TPT Asset.
The origination fee is 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 Terra Property Trust is replaced with substitute collateral, Terra
Property Trust will pay an origination fee to REIT 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 Terra Property Trust by the borrower in connection
with such substitution.
Asset Management Fee. Terra Property Trust pays the REIT 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
TPT Asset and related closing costs and expenses), as well as cash then held by
Terra Property Trust.
Asset Servicing Fee. Terra Property Trust pays to the REIT Manager a monthly
asset servicing fee at an annual rate equal to 0.25% of the aggregate gross
origination price for each TPT Asset (including the amount of any debt incurred or
assumed to finance any TPT Asset, and related closing costs and expenses).
Disposition Fee. Terra Property Trust pays to the REIT Manager a 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 TPT Asset is subject) received by Terra
Property Trust from each TPT Asset sale or disposition, or each maturity,
prepayment, workout, modification, restructuring, or extension of any TPT Asset,
or any portion of or interest in any TPT Asset. The disposition fee shall be paid
concurrently with the closing of any such TPT Asset sale or disposition, or any such
maturity, prepayment, workout, modification, restructuring, or extension of any
TPT 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 TPT 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 TPT Asset and (B) the amount of such fee
paid by such borrower in connection with such transaction.
Transaction Breakup Fee. Terra Property Trust pays to the REIT Manager a
transaction breakup fee in the amount of 50.0% of any termination fees or liquidated
damages received by Terra Property Trust 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 Terra Property
Trust 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.
Partnership Incentive
Allocation Once a Limited Partner has collectively received cumulative distributions with
respect to its Interests equal to aggregate capital invested in the Interests and a 9.0%
per annum, cumulative, non-compounded pre-tax return on unreturned invested
4
capital, 15.0% of amounts otherwise distributable to such Limited Partner shall be
distributed to the General Partner (the “Incentive Allocation”).
Partnership Expenses
The Partnership will reimburse the Adviser for organization and offering expenses
in the amount of the actual expenses incurred (not to exceed 2.0% of gross offering
proceeds). The Partnership will be responsible for all other costs and expenses
relating to the Partnership’s activities, investments and ongoing business, including:
(i) all costs and expenses attributable to holding, managing and disposing of
the Partnership’s assets;
(ii) legal, accounting, auditing, consulting and other fees and expenses;
(iii) all reasonable out-of-pocket Partnership fees and expenses incurred by the
Partnership, the Adviser, or the Adviser’s partners, agents, officers and
employees relating to investment and disposition opportunities for the
Partnership, whether or not consummated;
(iv) any taxes, fees and other governmental charges levied against the
Partnership;
(v) any fees or expenses paid to third parties in connection with raising capital
for the Partnership including selling commissions payable to IDB Capital
Corp. (“IDB”) or any placement agents; and
(vi) the Partnership’s allocable share of the Adviser’s employee costs,
overhead, such as rent, , utilities and technology costs, which we estimate
will equal approximately 1.0% of the gross offering proceeds; provided,
however, that the Partnership will not reimburse the Adviser or its affiliates
for Adviser employee costs in connection with services for which the
Adviser earns any separate fees.
The Partnership will not be responsible for the payment or reimbursement of any
costs and expenses for which the Adviser has been reimbursed separately by Terra
Property Trust.
Terra Property Trust
Expenses In addition to the expenses described above, Terra Property Trust reimburses the
REIT Manager for operating expenses incurred in connection with services
provided to the operations of Terra Property Trust, including their allocable share of
the REIT Manager’s employee costs, overhead, such as rent, , utilities, and
technology costs. Fees and expenses borne by the Terra Property Trust will
indirectly reduce the Partnership’s capital and the funds available for payment of
Partnership distributions.
How to Subscribe Each investor is required to enter into a subscription agreement for its investment
in the Partnership and must send its completed subscription agreement along with
the subscription payment to the wiring information of IDB or any other placement
agents we may engage, as provided in the subscription agreement.
We will generally inform the subscriber within 30 days of receipt of a completed
subscription agreement whether its subscription has been accepted or rejected. If we
reject a subscription, we will promptly return the investor’s funds, without interest.
We will not receive any fees or expenses out of any funds returned to investors, and
IDB and any other placement agents we may engage will not receive any fees related
to such returned funds. The subscriptions to the Partnership will generally be made
in U.S. dollars.
5
Suitability The Interests are suitable only for sophisticated investors for whom an investment
in the Partnership does not constitute a complete investment program and who fully
understand, and are willing to assume, and have the financial resources to withstand,
the risks involved in our specialized investment program and to bear the potential
loss of their entire investment in the Interests.
The Interests are being offered for sale by IDB only to persons who are not “United
States persons” as defined in Section 7701(a)(30) of the Code. Each investor will
need to comply with the suitability requirements of his or her country. See
Appendix A — Subscription Agreement. The Interests may not be withdrawn by
investors.
Escrow Period Subscription proceeds will be held in the Partnership escrow account with the
Escrow Agent until the earlier of (1) the sale of the minimum offering of
U.S. $1,000,000, (2) December 31, 2019 and (3) such earlier date as the General
Partner shall determine. The Escrow Agent will release the funds to us only after we
have sold U.S. $1,000,000 in this offering. If we have not sold the minimum
offering of U.S. $1,000,000 on or before December 31, 2019, all escrow funds will
be returned to subscribers, without interest. We will not receive any fees or expenses
out of any funds returned to investors, and IDB and any other placement agents we
may engage will not receive any fees related to such returned funds.
Plan of Offering The Partnership has engaged IDB to serve as placement agent for the offering. IDB
is not required to sell any specific dollar amount of Interests. The Partnership may
engage one or more additional placement agents to solicit investors.
The Partnership will pay aggregate selling commissions of up to 5.0% of the gross
proceeds from subscriptions, payable as follows: (a) up to 2.0% of the gross
proceeds payable at the time of such sale, plus (b) up to 1.0% of the gross proceeds
payable for each of the three years thereafter on the anniversary of the offering
termination date; provided, however, that aggregate selling commissions payable
shall not exceed 5.0% of the gross proceeds of subscriptions.
Distributions Subject to the provisions in the Limited Partnership Agreement and applicable law,
it is currently anticipated that we will make quarterly distributions not later than the
end of the first full calendar quarter following the release of subscription proceeds
to the Partnership from the Escrow Agent. The General Partner may elect not to
declare and pay a distribution from time to time at its sole discretion and instead
reserve such funds, invest such funds or otherwise expend such funds for any proper
fund purpose. The availability of funds for distribution will depend on the amount
of distributions from Terra Property Trust to the REIT Subsidiary and, in turn, the
amount of distributions and debt payments from the REIT Subsidiary to the
Partnership.
Investment Terms The Interests will not be listed for trading on any securities exchange or
over-the-counter market. Because it is not anticipated that a trading market will ever
develop, investors should expect to hold their Interests for an extended period of
time.
Upon the repayment, sale or other disposition of all or substantially all of our assets
or upon the election of the General Partner, to commence the winding down,
liquidation and thereafter termination of the Partnership, a special resolution of the
Limited Partners will be sought for the purpose of placing the Partnership into
voluntary liquidation pursuant to the Limited Partnership Agreement.
The business of the Partnership includes the realization and distribution of the
Partnership’s assets to Limited Partners during a wind down of the Partnership’s
operations.
6
Term of the Partnership The term of the Partnership will end five years from the offering termination date,
subject to subsequent additional extensions of one year each, in each case as
determined at the sole discretion of the General Partner. While the General Partner’s
discretion to extend the term is not subject to limitation, it is currently expected that
the General Partner will not elect to extend the term for more than two additional
years.
An investment in the Partnership requires a long-term commitment, with no
certainty of return. The Partnership’s investments are relatively illiquid, and there
can be no assurance that the Partnership will be able to realize on such investments
in a timely manner. Dispositions of investments may require a lengthy time period
or may result in distributions in-kind to the Limited Partners.
Transfer of Interests A Limited Partner may not sell, assign or transfer all or a portion of his or her
Interests without the prior written consent of the General Partner, which will not be
unreasonably withheld. No transfers will be permitted that would cause the
Partnership to be taxed as a publicly traded partnership for U.S. federal income tax
purposes or would cause the REIT Subsidiary or Terra Property Trust to fail to
qualify as a REIT for U.S. federal income tax purposes.
Notwithstanding the general restrictions on transfers, a Limited Partner will be
allowed to transfer all or a portion of such Limited Partner’s Interests to a member
of that Limited Partner’s immediate family or a trust or other entity created or
controlled by that Limited Partner or members of that Limited Partner’s immediate
family; provided, however, that in no event may any sale, assignment or transfer be
made if it would cause certain adverse disposition events and that any sale shall at
all times comply with applicable law, including anti-money laundering standards.
See “Anti-Money Laundering” below.
Valuation of Partnership
Assets Valuation of the Partnership’s assets will be carried out annually or more frequently
as needed by the General Partner. The net asset value of the Partnership will be
equivalent to all the assets less all the liabilities of the Partnership as at the relevant
day of valuation. The net asset value per Interest is determined by dividing the value
of the assets of the Partnership attributable to the Interest less all liabilities
attributable to the Interests by the number of such Interests as at the relevant
valuation day.
Indemnification None of the Adviser, the General Partner or any of their respective affiliates will be
liable to the Partnership for any losses or damages suffered by the Partnership due
to the Adviser’s, the General Partner’s or any of their respective affiliates’ acts or
omissions, provided that the Adviser, the General Partner or such affiliates were
acting in good faith and were not guilty of willful misconduct or gross negligence.
The Partnership will indemnify the Adviser, the General Partner and their respective
affiliates from and against any losses or damages incurred by them in furtherance
of the Partnership’s business, provided that the Adviser, the General Partner or such
affiliate is not guilty of gross negligence or willful misconduct and was acting in
good faith within what it reasonably believed to be the scope of its authority.
Terra Property Trust
Investment Guidelines Terra Property Trust’s board of directors has adopted investment guidelines relating
to the criteria to be used by the REIT Manager’s senior management team to
evaluate specific investments. Terra Property Trust’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 Terra
Property Trust’s quarterly results by its board of directors.
Terra Property Trust’s investment guidelines are as follows:
7
• no acquisition shall be made that would cause Terra Property Trust to
fail to qualify as a REIT;
• no acquisition shall be made that would cause Terra Property Trust or
any of its subsidiaries to be required to register as an investment
company under the Investment Company Act of 1940, as amended
(the “1940 Act”); and
• until appropriate investments can be identified, Terra Property Trust
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 Terra
Property Trust’s intention to qualify as a REIT.
These investment guidelines may be changed from time to time by a majority of
Terra Property Trust’s board of directors without the approval of Terra Property
Trust’s stockholders.
Ownership Limitations The REIT Subsidiary expects to elect to be taxed as a REIT. One of the requirements
for qualification as a REIT is that five or fewer individuals (and certain entities
treated as individuals for this purpose) not own (or be treated as owning, taking into
account applicable attribution rules) more than 50% (by value) of the stock of the
REIT. The Limited Partnership Agreement contains restrictions on ownership of
Interests that are intended to prevent the REIT Subsidiary from failing to qualify as
a REIT. For example, if beneficial ownership of Interests would cause the REIT
Subsidiary to be closely held under the five or fewer test, ownership of sufficient
Interests would be transferred from such Limited Partners as determined by the
General Partner and in such amounts determined by the General Partner to a
charitable trust so that the REIT Subsidiary would not be closely held. Prospective
investors should review Exhibit B of the Limited Partnership Agreement.
Mutual Funds Law The Partnership does not fall within the definition of a “mutual fund” pursuant to
the Mutual Funds Law of the Cayman Islands, as amended, and therefore is not
expected to be registered with, or regulated by, the Cayman Islands Monetary
Authority.
8
INVESTMENT STRUCTURE
The following structure chart provides a general overview of the currently anticipated investment structure. The
depiction of the structure is not comprehensive and the structure itself remains subject to change. The structure chart
is provided solely for informational purposes and ease of review.
9
TERRA OVERVIEW
The Partnership is externally managed by the Adviser, which is a subsidiary of Terra Capital Partners, a real estate
finance and investment firm based in New York City that focuses primarily on the origination and management of
mezzanine loans, as well as first mortgage loans, bridge loans and preferred equity investments in all major property
types through multiple public and private pooled investment vehicles. Since its formation in 2001 and its
commencement of operations in 2002, Terra Capital Partners has been engaged in providing financing on commercial
properties of all major property types throughout the United States. In the lead up to the global financial crisis in 2007,
believing that the risks associated with commercial real estate markets had grown out of proportion to the potential
returns from such markets, Terra Capital Partners sold 100% of its interests in certain managers of pooled investment
vehicles. It was not until mid-2009, after its assessment that commercial mortgage markets would begin a period of
stabilization and growth, that Terra Capital Partners began to sponsor new investment vehicles, which included the
Terra Income Funds, to again provide debt capital to commercial real estate markets. The financings provided by all
vehicles managed by Terra Capital Partners from January 2004 through December 31, 2018 have been secured by
approximately 11.6 million square feet of office properties, 3.5 million square feet of retail properties, 3.8 million
square feet of industrial properties, 4,457 hotel rooms and 25,210 apartment units. The value of the properties
underlying this capital was approximately $7.4 billion based on appraised values as of the closing dates. In addition
to its extensive experience originating and managing debt financings, Terra Capital Partners and its affiliates have
owned and operated over six million square feet of office and industrial space between 2005 and 2007, and this
operational experience further informs its robust origination and underwriting standards and would be beneficial
should the Adviser need to foreclose on a property underlying a financing.
Terra Capital Partners
Terra Capital Partners has been wholly owned by Axar Terra LLC (“Axar”), an affiliate of Axar Capital
Management L.P. (“Axar Capital Management”) since November 30, 2018. Axar is an investment manager registered
under the Advisers Act with over $800 million in assets under management, headquartered in New York City and
founded by Andrew M. Axelrod. Axar focuses on value-oriented and opportunistic investing across the capital
structure and multiple sectors. The firm seeks attractive prices relative to intrinsic value and invests in event-driven
situations with clear catalysts and asymmetric return potential. Axar’s senior real estate team has worked together for
over five years, having previously built the $3 billion real estate business at Mount Kellett Capital Management, LP,
or Mount Kellett Capital Management. Axar has a deep network of industry relationships including institutional
investors (for both public and private investments), operators, advisers and senior lenders.
Terra Capital Partners is led by Vikram S. Uppal (Chief Executive Officer), Andrew M. Axelrod (Chairman),
Bruce D. Batkin (Vice Chairman), Simon J. Mildé (Vice Chairman), Gregory M. Pinkus (Chief Financial Officer) and
Daniel Cooperman (Chief Originations Officer). Mr. Batkin, the co-founder of Terra Capital Partners, has served as
Vice Chairman since December 1, 2018, prior to which he served as Chief Executive Officer. Mr. Uppal has served as
Chief Executive Officer since December 1, 2018 and as Chief Investment Officer since February 2018. Mr. Axelrod
assumed his current role as Chairman in February 2018. Members of the Terra Capital Partners management team
have broad based, long-term relationships with major financial institutions, property owners and commercial real
estate service providers. The entire senior management team has held leadership roles at many top international real
estate and investment banking firms, including Mount Kellett Capital Management, Jones Lang Wootton (formerly
Jones Lang LaSalle Incorporated and now JLL), Merrill Lynch, Donaldson, Lufkin and Jenrette Securities Corporation
(now Credit Suisse (USA) Inc.), ABN Amro Bank N.V. and Fortress Investment Group.
10
INVESTMENT OBJECTIVES, STRATEGIES, AND POLICIES
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 financial crisis of 2008 created a significant void for
capital in the U.S. commercial real estate industry that lasted several years and generated many opportunities for
investors like Terra Capital Partners. However, with the economy in the tenth year of the upcycle, there are record
levels of liquidity in both the equity and debt capital markets. Despite the competitive environment, two fundamental
trends have allowed Terra Capital Partners and its affiliates to remain active originators of subordinated debt. First,
the historically high volume of mortgage originations indicates an abundance of potential opportunities. Second, and
more important, the recession catalyzed a secular shift among banks to a more conservative credit culture that limits
loan proceeds available to real estate borrowers. This has created an opportunity for lenders such as Terra Capital
Partners to originate bridge loans, subordinated loans, and preferred equity investments with attractive risk-reward
profiles.
Historically High Volumes of Mortgage Originations
Commercial mortgage origination volume reached a record $549 billion in 2018, catalyzed by near-record levels
of transactions and refinancings.
U.S. Commercial Mortgage Originations ($ billions)
Source: HFF, SWF Institute, Willis Towers Watson
U.S. Commercial Real Estate Transactions (excluding Entity-Level), Total Volume ($ billions)
$-
$100
$200
$300
$400
$500
$600
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18
11
Source: RCA
Over the last five years, Terra Capital Partners and its affiliates originated many loans by taking advantage of the
“wall of maturities” of five- and ten-year loans originated at the prior market peak. Borrowers faced significant
difficulties refinancing these loans—which often had excessive leverage and/or weak structures—in the significantly
more conservative post-recession environment. This created the opportunity for Terra Capital Partners and its affiliates
to finance these projects at materially lower valuations, as they were often being sold or recapitalized at values at or
near the original loan amounts. While the supply of pre-recession loan maturities has diminished, total maturities will
remain above the historic average for the next several years. Furthermore, Terra Capital Partners and its affiliates
continue to benefit from exclusive follow-on opportunities with existing borrowers to finance additional projects.
U.S. Commercial Mortgage Maturities ($ billions)
Source: HFF, Trepp, Federal Reserve
Changes in the Senior Lender Landscape
Terra Capital Partners and its affiliates continue to benefit from the fundamental change in the composition of
senior lenders and the proceeds they are willing to provide. In the early-to-mid 2000s, CMBS and bank lenders
dominated the market for originations of loans secured by riskier projects, such as assets located in non-primary
markets and/or involving construction. These loans, which were often underwritten with loose underwriting standards,
increased the severity of the recession and led to significant financial regulations—such as the Dodd-Frank Wall Street
$-
$100
$200
$300
$400
$500
$600
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18
$-
$50
$100
$150
$200
$250
$300
$350
$400
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22
12
Reform and Consumer Protection Act (the “Dodd-Frank Act”) and the High Volatility Commercial Real Estate
regulation—that permanently altered the lending environment. CMBS and large national/international banks, which
accounted for approximately three-quarters of all U.S. commercial mortgage originations in 2007, accounted for
approximately half that figure in 2018; the decline is even more pronounced for higher-risk projects. This void has
been primarily filled by regional banks and alternative lenders, the latter of whom have accounted for approximately
13% of originations from 2017-2018 compared to 7% in 2007. Moreover, alternative lenders have captured an even
greater share of the financing for more complex or geographically diverse projects, which regional banks have often
been more restricted from pursuing.
U.S. Commercial Mortgage Origination, Lender Composition
Source: HFF
The stricter regulatory environment has also forced traditional senior lenders to tighten their underwriting
standards, largely by offering lower leverage (average loan-to-value ratios have declined by approximately 9 points
since 2007) and/or by demanding more recourse from borrowers, even if the project and market fundamentals remain
sound. This has created an attractive opportunity for alternative lenders such as Terra Capital Partners and its affiliates
to improve the risk-reward profiles of their investments by attaching lower in the capital stack, backfilling the void
left by the traditional lenders.
Loan-to-Value Ratios, U.S. Commercial Mortgages
Source: HFF, Federal Reserve, Morgan Stanley
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18
Agency Insurance Bank - Nat'l + Int'l Bank - Regional CMBS Financial + Private
50%
55%
60%
65%
70%
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18
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While equity and debt capital is flowing freely to U.S. commercial real estate on the whole, Terra believes the
capital is often being allocated inefficiently, creating compelling opportunities to finance projects with attractive risk-
reward profiles but that may be more complex (e.g., development), in non-primary markets, or with sponsors who
have less access to the capital markets. For example, cap rate spreads between major and non-major metros have
remained historically wide over the past six years, indicating strong preference for more established markets. This has
impacted the availability and pricing of debt capital, which is often able to earn yields on transactions in healthy
secondary markets that are disproportionately greater than the increase in risk.
Cap Rates, Major vs. Non-Major Metros
Source: RCA
Investment Objectives
Through the REIT Subsidiary, we will invest substantially all of our investable assets in Terra Property Trust.
Through this investment in Terra Property Trust, the Partnership’s primary investment objectives are to:
• preserve Limited Partners’ capital;
• realize income from the Partnership’s investment in Terra Property Trust; and
• make regular distributions to Limited Partners from the Partnership’s investments.
There can be no assurances that we will be successful in meeting our objectives.
Investment Strategies
Through its investment in Terra Property Trust, the Partnership intends to in intend to focus on providing
commercial real estate loans to creditworthy borrowers that generate an attractive and consistent low volatility cash
income stream. Terra Property Trust focuses on originating debt and debt-like instruments emphasizes the payment of
current returns to investors and the preservation of invested capital.
The management team of the Adviser has extensive experience in originating, managing and disposing of real
estate-related loans. Through our investment in Terra Property Trust, the Adviser seeks to:
• focus on middle market loans of approximately $3 million to $50 million;
• originate loans not exceeding 80% of the current value of the underlying property;
-%
1%
2%
3%
4%
5%
6%
7%
8%
9%
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18
Spread Major Metros Non-Major Metros
14
• focus on the origination of new loans;
• originate loans expected to be repaid within one to five years;
• maximize current income;
• lend to creditworthy borrowers;
• provide diversification by property type, geographic location, tenancy and borrower;
• source off-market transactions; and
• hold loans until maturity unless, in the Adviser’s judgment, market conditions warrant earlier
disposition.
Financing Strategy
Terra Property Trust may borrow funds (on a secured or unsecured basis) to facilitate certain investments or
otherwise in connection with its business. Forms of borrowing may include, without limitation, first mortgage
financings, credit facilities, repurchase agreements and other credit facilities.
Current and Anticipated Use of Leverage to Facilitate Certain Investments
Terra Property Trust currently makes use of leverage to facilitate certain investments and is expected to continue
doing so.
A subsidiary of Terra Property Trust entered into an uncommitted master repurchase agreement (the “Goldman
Repurchase Agreement”) with Goldman Sachs Bank USA on December 12, 2018. The Goldman Repurchase
Agreement provides for advances of up to $150 million.
Another subsidiary of Terra Property Trust is expected to enter into a credit agreement (the “IDB Credit
Agreement”) with IDB’s parent company, Israel Discount Bank of New York (“IDB Bank”) in May 2019. The IDB
Credit Agreement will provide for IDB Bank to make revolving credit loans of up to $35 million.
Targeted Assets of Terra Property Trust
Terra Property Trust originates, structures, funds, and manages commercial real estate investments, including
mezzanine loans, first mortgage loans, subordinated mortgage loans, and preferred equity investments related to high-
quality commercial real estate in the United States. Terra Property Trust may acquire equity participations in the
underlying collateral of some of such loans. The Adviser structures, underwrites, and originates most if not all of its
investments. The Adviser uses what it considers to be conservative underwriting criteria, and its underwriting process
involves comprehensive financial, structural, operational, and legal due diligence to assess the risks of investments so
that it can optimize pricing and structuring. By originating loans directly, the Adviser is able to structure and
underwrite loans that satisfy its standards, establish a direct relationship with the borrower and utilize its
documentation. Described below are some of the types of loans Terra Property Trust owns and seeks to originate with
respect to high-quality properties in the United States that meet its investment strategy. As a result of the current credit
market disruption related to the most recent recession and the decrease in capital available in this part of the capital
structure, the Adviser and its affiliates believe that the opportunities to both directly originate and to buy these types
of loans from third-parties on favorable terms will continue to be attractive.
Mezzanine Loans. These are loans secured by ownership interests in an entity that owns commercial real estate
and that generally finance the acquisition, refinancing, rehabilitation, or construction of commercial real estate.
Mezzanine loans may be either short-term (one to five) or long-term (up to 10 years) and may include fixed or floating
interest rate terms. Terra Property Trust may own mezzanine loans directly or it 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. Generally, Terra Property Trust invests in mezzanine loans
15
with last dollar loan-to-value ratios ranging from 60% to 85%. As of March 31, 2019, Terra Property Trust owned 10
mezzanine loans with a total net principal amount of $47,150,099, which constituted 15.8% of its net investment
portfolio.
Preferred Equity Investments. These investments are structured as preferred membership interests in an entity that
owns commercial real estate and generally finance the acquisition, refinancing, rehabilitation, or construction of
commercial real estate that are intended to be treated as loans secured by mortgages or real estate for U.S. federal
income tax purposes. These investments are expected to have characteristics and returns similar to mezzanine loans.
As of March 31, 2019, Terra Property Trust owned nine preferred equity investments with a total net principal amount
of $117,054,059, which constituted 39.3% of its net investment portfolio.
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) or long-term (up to 10 years),
may be fixed or floating rate and are predominantly current-pay loans. The Adviser and its affiliates originate current-
pay first mortgage loans backed by high-quality properties in the United States that fit Terra Property Trust’s
investment strategy. Certain of Terra Property Trust’s first mortgage loans finance the acquisition, rehabilitation, and
construction of infill land property and for these loans the Adviser targets a weighted average last dollar loan-to-value
of 60%. Terra Property Trust may selectively syndicate portions of its first mortgage loans, including senior or junior
participations, to provide third party financing for a portion of the loan or optimize returns which may include retained
origination fees.
First mortgage loans are expected to provide for a higher recovery rate and lower defaults than other debt positions
due to the lender’s senior position. However, such loans typically generate lower returns than subordinate debt such
as mezzanine loans, B-notes, or preferred equity investments. As of March 31, 2019, Terra Property Trust owned two
first mortgage loans with a total net principal amount of $105,100,000, which constituted 35.3% of its portfolio.
Subordinated Mortgage Loans (B-notes). B-notes include structurally subordinated mortgage loans and junior
participations in first mortgage loans or participations in these types of assets. Like first mortgage loans, these loans
generally finance the acquisition, refinancing, rehabilitation, or construction of commercial real estate. B-notes may
be either short-term (one to five) or long-term (up to 10 year), may include fixed or floating interest rate terms and are
predominantly current-pay loans. Terra Property Trust may create B-notes by tranching its directly originated first
mortgage loans generally through syndications of senior first mortgages or buy these loans directly from third-party
originators. As a result of the current credit market disruption related to the most recent recession and the decrease in
capital available in this part of the capital structure, the Adviser and its affiliates believe that the opportunities to both
directly originate and to buy these types of loans from third-parties on favorable terms will continue to be attractive.
Investors in B-notes are compensated for the increased risk of such assets from a pricing perspective but still
benefit from a mortgage 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 any such payments are made only after any senior debt
is made whole. Rights of holders of B-notes 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 March 31, 2019, Terra Property Trust did not own any B-notes.
Equity Participations. In connection with Terra Property Trust’s loan origination activities, it may pursue equity
participation opportunities, or interests in the projects being financed, in instances when it believes that the risk-reward
characteristics of the loan merit additional upside participation because of the possibility of appreciation in value of
the underlying properties 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. Terra Property Trust expects to obtain equity participations in certain instances
where the loan collateral consists of a property 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 property. Terra Property Trust can 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
16
of March 31, 2019, Terra Property Trust owned two equity participations with a total net principal amount of
$28,453,700, which constituted 9.5% of its portfolio.
Other Real Estate-Related Investments. Under the terms of the management agreement, the REIT Manager of
Terra Property Trust has the right to invest in other real estate-related investments, which may include commercial
mortgage-backed securities (“CMBS”) or other real estate debt or equity securities, so long as such investments do
not constitute more than 15% of Terra Property Trust’s assets. Certain of its 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. As of March 31, 2019, Terra Property Trust did not own any other real estate-
related investments.
Terra Property Trust Investment Guidelines
Terra Property Trust’s board of directors has adopted investment guidelines relating to the criteria to be used by
the REIT Manager’s senior management team to evaluate specific investments as well as its overall portfolio
composition. Terra Property Trust’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 Terra Property
Trust’s quarterly results by its board of directors.
Terra Property Trust’s investment guidelines are as follows:
• no acquisition shall be made that would cause Terra Property Trust to fail to qualify as a REIT;
• no acquisition shall be made that would cause Terra Property Trust 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, Terra Property Trust 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 Terra Property Trust’s intention to qualify
as a REIT.
These investment guidelines may be changed from time to time by a majority of Terra Property Trust’s board of
directors without the approval of Terra Property Trust’s stockholders.
Disposition Policies
The period Terra Property Trust holds its investments in real estate-related loans will vary depending on the type
of asset, interest rates and other factors. The REIT Manager, in determining the appropriate disposition policies for
Terra Property Trust, has developed a well-defined exit-strategy for each investment Terra Property Trust makes. The
REIT Manager 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 Limited Partners through the Partnership’s indirect investment in Terra
Property Trust. Economic and market conditions may influence Terra Property Trust to hold investments on our behalf
for different periods of time. It may sell an asset before the end of the expected holding period if the REIT Manager
believes that market conditions have maximized its value to Terra Property Trust, or the sale of the asset would
otherwise be in Terra Property Trust’s best interests. The REIT Manager intends to make any such dispositions in a
manner consistent with Terra Property Trust’s qualification as a REIT and the desire to avoid being subject to the
“prohibited transaction” penalty tax.
Term and Liquidity
The expected term of the Partnership shall be five years from the offering termination date, subject to two
extensions of one year each, to be determined at the sole discretion of the General Partner.
Operating and Regulatory Structure
REIT Qualification. Terra Property Trust has qualified and elected to be taxed as a REIT under the Code,
commencing with its taxable year ended December 31, 2016. It is believed that Terra Property Trust has been organized
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and has operated in conformity with the requirements for qualification and taxation as a REIT under the Code, and it
is currently anticipated that Terra Property Trust’s organization and expected 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 Terra Property Trust 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 re-electing taxation as a REIT for the subsequent
four taxable years following the year during which it failed to qualify as a REIT. Even if Terra Property Trust 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” should it decide to form taxable
REIT subsidiaries in the future, which are subject to corporate income tax. Any distributions paid by Terra Property
Trust 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.
1940 Act Exclusion. Neither we nor Terra Property Trust are registered as an investment company under the 1940
Act. If we or Terra Property Trust were obligated to register as an investment company, we or Terra Property Trust
would have to comply with a variety of substantive requirements under the 1940 Act that impose, among other things:
• limitations on 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 Terra Property Trust’s operations.
We intend 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(c)(1) of the 1940 Act
exempts from the definition of investment company “[a]ny issuer whose outstanding securities (other than short-term
securities) are beneficially owned by not more than one hundred persons and which is not making and does not
presently propose to make a public offering of its securities.” The SEC staff has taken the position that a non-U.S.
fund may make a private offering either within or without the United States if following the offering the non-U.S.
fund has no more than 100 beneficial owners resident in the United States. If a fund is organized outside the United
States, non-U.S. investors are not counted for purposes of determining whether the non-U.S. fund has no more than
100 beneficial owners, and only U.S. persons are counted for determining whether such non-U.S. fund has no more
than 100 beneficial owners. The Partnership intends to limit sales of its Interests solely to non-U.S. investors, and as
a result none of its Limited Partners is expected to be counted as beneficial owners for purposes of determining
compliance with Section 3(c)(1) of the 1940 Act.
Terra Property Trust 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 Terra Property Trust. 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 Terra Property Trust’s
portfolio must be comprised of “qualifying real estate” assets and at least 80% of Terra Property Trust’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, Terra Property Trust
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 its 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 Terra Property Trust 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
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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 its classification of the assets held by Terra Property Trust. Future revisions to the 1940 Act
or further guidance from the SEC or its staff may cause us to lose its exclusion from registration or force us to re-
evaluate its portfolio held through Terra Property Trust and its investment strategy. Such changes may prevent us from
operating its 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 the Adviser and its affiliates monitor our portfolio and that of Terra Property Trust periodically and prior
to each acquisition and disposition, we and Terra Property Trust may not be able to maintain an exclusion from
registration as an investment company. If we or Terra Property Trust were required to register as an investment
company, but failed to do so, we or Terra Property Trust would be prohibited from engaging in our businesses, and
legal proceedings could be instituted against Terra Property Trust or us. In addition, our contracts and those of Terra
Property Trust may be unenforceable, and a court could appoint a receiver to take control of Terra Property Trust or
us and liquidate our businesses, all of which would have an adverse effect on our businesses.
Licensing
Terra Property Trust may be required to be licensed to originate its real estate-related loans in various jurisdictions
in which it conducts its business. The General Partner believes Terra Property Trust and its wholly owned subsidiaries
are in compliance with all such material licensing requirements necessary in order to conduct its business.
Competition
We compete with REITs, numerous regional and community banks, specialty finance companies, savings and
loan associations and other entities, and the General Partner expects 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 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 Adviser’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 the Adviser believes, 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.
Staffing
Our sole investment, Terra Property Trust, is supervised by its board of directors consisting of eight directors.
Terra Property Trust has entered into a management agreement with the REIT Manager pursuant to which certain
services are provided by the REIT Manager and paid for by Terra Property Trust, which we will indirectly bear as a
result of our investment in Terra Property Trust. The Adviser 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. 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.
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RISK FACTORS
Investing in our Interests involves a high degree of risk. Investors should carefully consider the following risk
factors and all other information contained in this memorandum. 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 your Interests could decline, and Limited Partners 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.
Through our indirect investment in the assets held by Terra Property Trust, 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 Terra Property Trust; 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. The Adviser is unable to predict future changes in national, regional or local economic,
demographic or real estate market conditions. These conditions, or others the Adviser cannot predict, may adversely
affect our results of operations, cash flow and returns to our investors.
The real estate-related loans owned indirectly by us may be impacted by unfavorable real estate market
conditions, which could decrease the value of Terra Property Trust’s investments.
The real estate-related loans Terra Property Trust invests in are at risk of defaults caused by many conditions
beyond our control, including local and other economic conditions affecting real estate values and interest rate levels.
The Adviser does 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, Terra Property
Trust’s risks will increase and the value of our investment in it may decrease.
The lack of liquidity of the assets held by Terra Property Trust may adversely affect our business.
A portion of the real estate-related loans and other assets that Terra Property Trust acquires or originates may be
subject to legal and other restrictions on resale or will otherwise be less liquid than publicly-traded securities. The
illiquidity of these assets may make it difficult to sell such assets if the need or desire arises. In addition, if Terra
Property Trust is required to liquidate all or a portion of its portfolio quickly, we may realize significantly less value
than the previously recorded value of our investment in Terra Property Trust. As a result, Terra Property Trust’s ability
to vary its portfolio in response to changes in economic and other conditions may be relatively limited, which could
adversely affect our investment in Terra Property Trust.
The investments held indirectly by us through our investment in Terra Property Trust will be selected by the
Adviser or its affiliates and our Limited Partners will not have input into investment decisions.
The investments held indirectly by us through our investment in Terra Property Trust will be selected by the
Adviser or its affiliates and our Limited Partners will not have input into investment decisions. This will increase the
uncertainty, and thus the risk, of investing in our Interests, as Terra Property Trust may make investments with which
you may not agree. The Adviser or its affiliates intends to conduct due diligence with respect to each investment and
suitable investment opportunities may not be immediately available. The failure of the Adviser or its affiliates to find
investments that meet Terra Property Trust’s investment criteria in sufficient time or on acceptable terms could result
in unfavorable returns, could cause a material adverse effect on its business, financial condition, liquidity, results of
operations and ultimately our ability to make distributions to our Limited Partners, and could cause the value of our
Interests to decline. Even if investment opportunities are available, there can be no assurance that the due diligence
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processes of the Adviser or its affiliates will uncover all relevant facts or that any particular investment will be
successful.
From time to time, before appropriate real estate-related investments can be identified, the Adviser or its affiliates
may choose to have us invest in interest-bearing, short-term investments, including money market accounts and/or
funds. These short-term, non-real estate-related investments, if any, are expected to provide a lower net return than
Terra Property Trust will seek to achieve from investments in real estate-related loans and other commercial real estate
assets held through our investment in Terra Property Trust. Furthermore, when the Adviser or its affiliates does identify
suitable real estate-related loans and other commercial real estate assets that are the types of assets which Terra
Property Trust targets, you will be unable to influence the decision of the Adviser or its affiliates ultimately to invest
in, or refrain from investing in, such assets.
The Adviser’s or its affiliates’ 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
Terra Property Trust’s assets, which could lead to investment losses.
Before making an investment, the Adviser or its affiliates 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 the overall portfolio. In
making the assessment and otherwise conducting customary due diligence, the Adviser or its affiliates employ standard
documentation requirements and require appraisals prepared by local independent third-party appraisers selected by
us. Additionally, the Adviser or its affiliates seek to have borrowers or sellers provide representations and warranties
on loans to be originated or acquired, and if unable to obtain representations and warranties, the Adviser or its affiliates
factor the increased risk into the price paid for such loans. Despite these review process, there can be no assurance
that the due diligence process will uncover all relevant facts or that any investment will be successful.
If the Adviser or its affiliates underestimates the borrower’s credit analysis, losses may result.
The Adviser or its affiliates conducts an initial valuation on 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, taking into account estimated future losses on the loans, and the estimated impact of these losses on expected
future cash flows. The loss estimates may not prove accurate, as actual results may vary from estimates. In the event
that the Adviser or its affiliates underestimates the losses relative to the price paid for a particular investment, Terra
Property Trust may experience losses with respect to such investment, and our investment in Terra Property Trust
could be adversely impacted.
The use of underwriting guideline exceptions in the loan origination process may result in increased
delinquencies and defaults.
Although the Adviser or its affiliates generally underwrite loans in accordance with pre-determined loan
underwriting guidelines, from time to time and in the ordinary course of business, the Adviser or its affiliates will
make exceptions to these guidelines. On a case by case basis, the Adviser or its affiliates may determine that a
prospective borrower that does not strictly qualify under the 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 Terra Property Trust’s
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
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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 Adviser utilizes analytical models and data in connection with the valuation of 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 Adviser or its affiliates 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 Adviser or its affiliates 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 Adviser or its affiliates
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 Terra Property Trust’s target loans, the value
of the loans and CMBS assets held indirectly by us through our investment in Terra Property Trust and the
availability and yield on the targeted assets held by Terra Property Trust.
Terra Property Trust invests in real estate-related loans and other commercial real estate assets, which are subject
to changes in 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 targeted assets available to Terra Property Trust,
which could adversely affect its ability to originate and acquire assets that satisfy its investment objectives. Rising
interest rates may also cause the 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 Terra Property Trust to be unable to originate
or acquire a sufficient volume of targeted assets with a yield that is above its borrowing cost, its ability to satisfy its
investment objectives and to generate income and make distributions may be materially and adversely affected.
Conversely, if interest rates decrease, Terra Property Trust will be adversely affected to the extent that real estate-
related loans are prepaid to it, because it 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), Terra Property Trust’s
borrowing costs may increase more rapidly than the interest income earned on its assets. Because its loans and CMBS
assets generally will bear, on average, interest based on longer-term rates than its borrowings, a flattening of the yield
curve would tend to decrease Terra Property Trust’s net income and the fair market value of its net assets, which will
negatively impact our investment in Terra Property Trust. 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 Terra Property Trust’s net
income. It is also possible that short-term interest rates may exceed longer-term interest rates (a yield curve inversion),
in which event borrowing costs may exceed Terra Property Trust’s interest income and it could incur operating losses,
which would also negatively impact our investment in Terra Property Trust.
The values of the loans and CMBS assets held by Terra Property Trust 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, Terra Property Trust’s operating results will depend in large part
on the difference between the income from its assets and its financing costs. The Adviser and its affiliates anticipate
that, in most cases, the income from such assets will respond more slowly to interest rate fluctuations than the cost of
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borrowings. Consequently, changes in interest rates, particularly short-term interest rates, may significantly influence
Terra Property Trust’s net income and our investment in it. Increases in these rates will tend to decrease Terra Property
Trust’s net income and consequently result in a negative impact on our investment in it.
Recent market conditions may make it more difficult for the Adviser and its affiliates to analyze potential
investment opportunities or Terra Property Trust’s portfolio of assets.
Our success depends, in part, on the Adviser’s and its affiliates’ ability to effectively analyze potential acquisition
and origination opportunities for Terra Property Trust in order to assess the level of risk-adjusted returns that it should
expect from any particular investment. To estimate the value of a particular asset, the Adviser and its affiliates may
use historical assumptions that may or may not be appropriate due to the unprecedented downturn in the real estate
market and general economy that began in 2007. To the extent that the Adviser or its affiliates use historical
assumptions that are inappropriate under current market conditions, Terra Property Trust may overpay for an asset or
acquire an asset that it otherwise might not acquire, which could have a material and adverse effect on its results of
operations and ultimately our ability to make distributions to our Limited Partners.
In addition, as part of an overall portfolio risk management, the Adviser and its affiliates analyze interest rate
changes and prepayment trends separately and collectively to assess their effects on the portfolio of assets held by
Terra Property Trust. In conducting this analysis, the Adviser and its affiliates rely on certain assumptions based upon
historical trends with respect to the relationship between interest rates and prepayments under normal market
conditions. Dislocations in the mortgage market or other developments may change the way that prepayment trends
respond to interest rate changes, which may adversely affect the Adviser’s and its affiliates’ ability to assess the market
value of a portfolio of assets, implement hedging strategies or implement techniques to reduce prepayment rate
volatility. If these estimates prove to be incorrect or any hedges do not adequately mitigate the impact of changes in
interest rates or prepayments, Terra Property Trust may incur losses that could materially and adversely affect its
financial condition, results of operations and ultimately our ability to make distributions to our Limited Partners.
New entrants in the market for commercial loan originations and acquisitions could adversely impact Terra
Property Trust’s 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 Terra
Property Trust’s ability to execute its investment strategy on terms favorable to it, which would also adversely impact
our investment in Terra Property Trust. In originating and acquiring its targeted assets, Terra Property Trust 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
of\additional REITs and other institutions may be increased competition for the available supply of assets suitable for
investment by Terra Property Trust, which may cause the price for such assets to rise, which may limit its ability to
generate desired returns for us and our Limited Partners. Additionally, origination of target loans by Terra Property
Trust’s 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 Terra Property Trust. Many of its 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 its 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 Terra Property Trust.
We cannot assure you that the competitive pressures Terra Property Trust may face will not have a material adverse
effect on its business, financial condition and results of operations, and consequently on our investment in it. Also, as
a result of this competition, desirable investments meeting Terra Property Trust’s targeted assets profile may be limited
in the future and it may not be able to take advantage of attractive investment opportunities from time to time. We can
therefore provide you no assurance that Terra Property Trust will be able to identify and make investments that are
consistent with our investment objectives.
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The mezzanine loans, preferred equity and other subordinated loans in which Terra Property Trust will
invest involve greater risks of loss than senior loans secured by income-producing commercial properties.
Terra Property Trust invests 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, Terra Property Trust may not have full recourse to the assets of such entity, or the assets of the entity may not
be sufficient to satisfy the mezzanine loan held by it. If a borrower defaults on the mezzanine loan or debt senior to
such loan held by Terra Property Trust, or in the event of a borrower bankruptcy, Terra Property Trust’s mezzanine
loan will be satisfied only after the senior debt. As a result, Terra Property Trust may not recover some or all of its
investment, which would negatively impact our investment in it. 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.
Terra Property Trust’s investments in B-notes are generally subject to losses. The B-notes in which Terra
Property Trust 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 it.
As part of Terra Property Trust’s whole loan origination platform, it may retain, from whole loans it originates or
acquires, 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. In addition, Terra Property Trust’s rights to control the process following
a borrower default may be subject to the rights of A-note owners whose interests may not be aligned with it. 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 to be made by Terra Property Trust. Significant losses related to the B-notes held by Terra Property
Trust would result in operating losses for it and consequently may limit our ability to make distributions to our Limited
Partners.
Terra Property Trust’s 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.
Terra Property Trust’s 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 operating income of an income-producing property can be
adversely affected by, among other things:
• tenant mix;
• 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;
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• 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 and political unrest, armed conflict, geopolitical events and civil
disturbances.
In the event of any default under a mortgage loan held directly by Terra Property Trust and indirectly by our
investment in Terra Property Trust, 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 Terra Property Trust’s cash flow from operations and limit amounts available for distribution to our Limited
Partners. 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 Terra Property
Trust 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 its operations, in addition to having a substantial negative effect on Terra Property
Trust’s anticipated return on the foreclosed mortgage loan and consequently our investment in Terra Property Trust.
Terra Property Trust’s loan portfolio may at times be concentrated in certain property types or secured by
properties concentrated in a limited number of geographic areas, which increases its exposure to economic
downturn with respect to those property types or geographic locations.
Terra Property Trust is not required to observe specific diversification criteria. Therefore, its 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.
If economic conditions in any state in which Terra Property Trust has a significant concentration of borrowers
were to deteriorate, such adverse conditions could have a material and adverse effect on its business by reducing
demand for new financings, limiting the ability of customers to repay existing loans and impairing the value of its real
estate collateral and real estate owned properties, which would also negatively impact our investment in Terra Property
Trust.
To the extent that Terra Property Trust’s 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 its assets within
a short time period, which may reduce its net income and consequently the value of our Interests and accordingly
reduce our ability to pay distributions to our Limited Partners.
We expect that a significant portion of the mortgage loans invested in by Terra Property Trust may be
development mortgage loans on infill land, which are speculative in nature.
We expect that a significant portion of Terra Property Trust’s assets may be mortgage loans for the development
of real estate, which will initially be secured by infill land. These types of loans are speculative, because:
• until improvement, the property may not generate separate income for the borrower to make loan
payments;
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• the completion of planned development may require additional development financing by the borrower,
which may not be available; and
• there is no assurance that Terra Property Trust will be able to sell unimproved infill land promptly if it
is forced to foreclose upon it.
If in fact the land is not developed, the borrower may not be able to refinance the loan and, therefore, may not be
able to make the balloon payment when due. If a borrower defaults and Terra Property Trust forecloses on the
collateral, it may not be able to sell the collateral for the amount owed to it by the borrower. In calculating its loan-to-
value ratios for the purpose of determining maximum borrowing capacity, Terra Property Trust uses the estimated
value of the property at the time of completion of the project, which increases the risk that, if it forecloses on the
collateral before it is fully developed, Terra Property Trust may not be able to sell the collateral for the amount owed
to it by the borrower.
Loans to small businesses involve a high degree of business and financial risk, which can result in substantial
losses that would adversely affect Terra Property Trust’s business, results of operation and financial condition.
Terra Property Trust’s 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, Terra Property Trust must rely on its own due
diligence to obtain information in connection with its investment decisions. Terra Property Trust’s 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.
Terra Property Trust’s 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.
Some of the loan and CMBS assets held by Terra Property Trust and indirectly by us may be rated by Moody’s
Investors Service, by Standard & Poor’s or by Fitch Ratings. Any credit ratings on the 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 Terra Property Trust’s loans and CMBS assets in the future. In addition, Terra Property Trust 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 the loans and CMBS assets held by Terra Property Trust, or if its unrated assets are illiquid, the
value of these loans and CMBS assets could significantly decline, which would adversely affect the value of its
investment portfolio and could result in losses upon disposition or the failure of borrowers to satisfy their debt service
obligations to it.
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Any disruption in the availability and/or functionality of Terra Property Trust’s technology infrastructure and
systems and any failure or its security measures related to these systems could adversely impact its business and
our investment in it.
Terra Property Trust’s ability to originate and acquire real estate-related loans and manage any related interest
rate risks and credit risks is critical to its success and our investment in it, and is highly dependent upon the efficient
and uninterrupted operation of its computer and communications hardware and software systems. For example, Terra
Property Trust relies on its proprietary database to track and maintain all loan performance and servicing activity data
for loans in its 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 Terra Property Trust’s facility and some are maintained by third party vendors. Any significant
interruption in the availability and functionality of these systems could harm Terra Property Trust’s business and our
investment in it. In the event of a systems failure or interruption by Terra Property Trust’s third-party vendors, it will
have limited ability to affect the timing and success of systems restoration. If such interruptions continue for a
prolonged period of time, there could be a material and adverse impact on Terra Property Trust’s business, results of
operations and financial condition, and consequently our investment in it.
Terra Property Trust’s security measures may not effectively prohibit others from obtaining improper access to
its information. If a person is able to circumvent its security measures, he or she could destroy or misappropriate
valuable information or disrupt its operations. Any security breach could expose Terra Property Trust to risks of data
loss, litigation and liability and could seriously disrupt its operations and harm its reputation.
Cybersecurity risk and cyber incidents may adversely affect Terra Property Trust’s business by causing a
disruption to its operations, a compromise or corruption of its confidential information and/or damage to its
business relationships, all of which could negatively impact our investment in Terra Property Trust and our
financial results.
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability
of information resources. These incidents may be an intentional attack or an unintentional event and could involve
gaining unauthorized access to 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 Adviser, Terra Capital
Partners, its affiliates and third-party service providers. The Adviser and its affiliates have implemented processes,
procedures and internal controls to help mitigate cybersecurity risks and cyber intrusions, but these measures, as well
as 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 Terra Property Trust’s real estate-related loans may be limited by regulations.
Terra Property Trust’s loan investments may be subject to regulation by federal, state and local authorities and
subject to various laws and judicial and administrative decisions. The Adviser and its affiliates may determine not to
make or invest in real estate-related loans in any jurisdiction in which they believe Terra Property Trust has not
complied in all material respects with applicable requirements. If the Adviser or its affiliates decide not to make or
invest in real estate-related loans in several jurisdictions, it could reduce the amount of income Terra Property Trust
would otherwise receive.
The increasing number of proposed U.S. federal, state and local laws may affect certain mortgage-related
assets in which Terra Property Trust invests and could materially increase its 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 Terra Property Trust’s business and our investment in it, or result
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in Terra Property Trust being held responsible for violations in the mortgage loan origination process even where it
was 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 U.S. federal, state or local authorities, or other pertinent bodies, will enact legislation, laws, rules,
regulations, handbooks, guidelines or similar provisions that will affect Terra Property Trust’s business or require
changes in its practices in the future, and any such changes could materially and adversely affect its cost of doing
business and profitability, as well as our investment in it.
Failure to obtain or maintain required approvals and/or state licenses necessary to operate Terra Property
Trust’s mortgage-related activities may adversely impact its investment strategy.
Terra Property Trust 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 its
activities. There is no assurance that it can obtain and maintain any or all of the approvals and licenses that it desires
or that it will avoid experiencing significant delays in seeking such approvals and licenses. Furthermore, Terra Property
Trust may be subject to various disclosure and other requirements to obtain and maintain these approvals and licenses,
and there is no assurance that it will satisfy those requirements. Terra Property Trust’s failure to obtain or maintain
licenses will restrict its options and ability to engage in desired activities, and could subject it to fines, suspensions,
terminations and various other adverse actions if it is determined that it has engaged without the requisite approvals
or licenses in activities that required an approval or license, which could have a material and adverse effect on our
investment in Terra Property Trust.
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 (“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 (“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 AB 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 (“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 Terra Property Trust’s lender counterparties and the availability or terms of its
targeted assets, both of which may have an adverse effect on its financial condition and results of operations.
Terra Property Trust may be exposed to environmental liabilities with respect to properties to which it takes
title, which may in turn decrease the value of the underlying properties.
In the course of its business, Terra Property Trust may take title to real estate, and, if it does take title, it could be
subject to environmental liabilities with respect to these properties. In such a circumstance, it may be held liable to a
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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 it 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 Terra Property Trust ever becomes subject to significant environmental liabilities, its
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 Terra Property Trust.
Insurance on the properties underlying the loans held by Terra Property Trust may not adequately cover all
losses and uninsured losses could materially and adversely affect it and our investment in it.
Generally, Terra Property Trust’s borrowers will be responsible for the costs of insurance coverage for the
properties it leases, 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 Terra Property Trust to uninsured casualty
losses. Under certain circumstances insurance proceeds may not be sufficient to restore its economic position with
respect to an affected property, and it and our investment in it could be materially and adversely affected. Furthermore,
Terra Property Trust does not have any insurance designated to limit any losses that it 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 Terra Property Trust’s 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 Terra Property Trust or its borrowers experience a loss, due to such natural disasters or other relevant
factors, that is uninsured or that exceeds policy limits, it could incur significant costs, which could materially and
adversely affect our investment in it.
Maintenance of our 1940 Act exclusion imposes limits on our operations.
Neither we nor Terra Property Trust are registered as an investment company under the 1940 Act. If we or Terra
Property Trust were obligated to register as an investment company, we or Terra Property Trust would have to comply
with a variety of substantive requirements under the 1940 Act that impose, among other things:
• limitations on 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 Terra Property Trust’s operations.
We and Terra Property Trust conduct our operations, and intend to continue to 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(c)(1) of the 1940 Act exempts from the definition of investment company
“[a]ny issuer whose outstanding securities (other than short-term securities) are beneficially owned by not more than
one hundred persons and which is not making and does not presently propose to make a public offering of its
securities.” The SEC staff has taken the position that a non-U.S. fund may make a private offering either within or
without the United States if following the offering the non-U.S. fund has no more than 100 beneficial owners resident
in the United States. If a fund is organized outside the United States, non-U.S. investors are not counted for purposes
of determining whether the non-U.S. fund has no more than 100 beneficial owners, and only U.S. persons are counted
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for determining whether such non-U.S. fund has no more than 100 beneficial owners. The Partnership intends to limit
sales of its Interests solely to non-U.S. investors, and as a result none of its Limited Partners is expected to be counted
as beneficial owners for purposes of determining compliance with Section 3(c)(1) of the 1940 Act.
Terra Property Trust relies on, and certain of its subsidiaries rely 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 Terra Property
Trust and its subsidiaries (other than Section 3(c)(1) or Section 3(c)(7)). 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 Terra Property Trust’s (and any of its
subsidiaries relying on Section 3(c)(5)(C)) portfolio must be comprised of “qualifying real estate” assets and at least
80% of Terra Property Trust’s (and any of its subsidiaries’, if relying on Section 3(c)(5)(C)) 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, Terra Property Trust (and
any of its subsidiaries relying on Section 3(c)(5)(C)) 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 Terra
Property Trust’s 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 Terra Property Trust (and any of its subsidiaries relying on Section 3(c)(5) (C)) 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, preferred equity and 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 the classification of the assets held by Terra Property Trust (and
any of its subsidiaries relying on Section 3(c)(5)(C)). Future revisions to the 1940 Act or further guidance from the
SEC or its staff may cause us, Terra Property Trust, or any of its subsidiaries relying on Section 3(c)(5)(C) to lose its
or their exclusion from registration, or force us, Terra Property Trust, or any of its subsidiaries to re-evaluate its or
their portfolios and its or their investment strategy. Such changes may prevent us from operating its 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 the Adviser and its affiliates monitor our portfolio and that of Terra Property Trust and its subsidiaries
periodically and prior to each acquisition and disposition, we and Terra Property Trust or its subsidiaries may not be
able to maintain an exclusion from registration as an investment company. If we or Terra Property Trust or its
subsidiaries were required to register as an investment company, but failed to do so, we or Terra Property Trust or its
subsidiaries failing to so qualify would be prohibited from engaging in our businesses, and legal proceedings could be
instituted against us or Terra Property Trust or any of its subsidiaries failing to so qualify. In addition, our contracts
and those of Terra Property Trust or any of its subsidiaries failing to so qualify may be unenforceable, and a court
could appoint a receiver to take control of us or Terra Property Trust or any of its subsidiaries failing to so qualify and
liquidate their business.
Risks Related to Our Management and Our Relationship with the Adviser and its Affiliates
We rely entirely on the management team of the Adviser and employees of the Adviser or its affiliates for our
day-to-day operations.
We have no employees and do not intend to have employees in the future. Our success depends substantially on
the efforts and abilities of the management team of the Adviser and its affiliates, including Messrs. Axelrod, Uppal,
Hamrick, Pinkus, and Cooperman. If the Adviser of its affiliates were to lose the benefit of the experience, efforts and
abilities of any of these individuals at the expiration of their employment agreement or otherwise, our operating results
could suffer.
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The Adviser 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 Code, which may hinder their ability to achieve our objectives or result in loss of Terra Property
Trust’s qualification as a REIT.
The Adviser and its affiliates have no experience operating a REIT or complying with regulatory requirements,
including the REIT provisions of the 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 Adviser and its affiliates
have limited experience operating a business in compliance with the numerous technical restrictions and limitations
set forth in the Code or the 1940 Act applicable to REITs. We cannot assure you that the Adviser, its affiliates or its
management team will perform on our behalf as they have in their previous endeavors. The inexperience of the Adviser
and its affiliates described above may hinder its ability to achieve our objectives or result in loss of Terra Property
Trust’s qualification as a REIT, as well as the REIT Subsidiary’s qualification as a REIT, or in the 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.
In addition, the interests of the Partnership and the Limited Partners may differ from or conflict with the interests
of Terra Property Trust, the Adviser, and its affiliates.
Risks Related to Financing and Hedging
Terra Property Trust currently makes use of leverage to facilitate certain investments and its board of directors
may change its leverage policy, and/or investment strategy and guidelines, asset allocation and financing strategy,
without the consent of its common stockholders.
Terra Property Trust currently makes use of leverage to facilitate certain investments and is expected to continue
doing so. The governing documents of Terra Property Trust contain no limit on the amount of debt we may incur, and
we may significantly increase the amount of leverage we utilize at any time without approval of our Limited Partners.
Such borrowings may include, without limitation, credit facilities, repurchase agreements and securitizations. In
addition, Terra Property Trust may divide the loans it originates into senior and junior tranches and dispose of the
more senior tranches as an additional means of providing financing to its business. To the extent that Terra Property
Trust uses leverage to finance its assets, financing costs relating to borrowings will reduce cash available for
distributions to us and ultimately to our Limited Partners. Terra Property Trust may not be able to meet its financing
obligations and, to the extent that it cannot, it risks the loss of some or all of its assets to liquidation or sale to satisfy
such obligations. To the extent it uses repurchase agreements to finance the purchase of assets, a decrease in the value
of these assets may lead to margin calls which it will have to satisfy. It 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 to our Limited Partners as a result may cause the
value of our Interests to decline.
The Adviser and its affiliates are authorized to follow broad investment guidelines that have been approved by
Terra Property Trust's board of directors. Those investment guidelines, as well as Terra Property Trust’s target assets,
investment strategy, financing strategy and hedging policies with respect to investments, originations, acquisitions,
growth, operations, indebtedness, capitalization and distributions, may be changed at any time without notice to, or
the consent of, our Limited Partners or Terra Property Trust's stockholders. This could result in an investment portfolio
with a different risk profile. A change in our investment strategy may increase Terra Property Trust’s exposure to
interest rate risk, default risk and real estate market fluctuations. Furthermore, a change in Terra Property Trust’s asset
allocation could result in it making investments in asset categories different from those described in this memorandum.
These changes could materially and adversely affect our investment in Terra Property Trust.
Terra Property Trust may pursue and not be able to successfully complete securitization transactions, which
could limit potential future sources of financing and could inhibit the growth of its business.
Terra Property Trust may use credit facilities or repurchase agreements or other borrowings to finance the
origination and/or structuring of real estate-related loans. At the point when a sufficient quantity of eligible assets has
been accumulated, Terra Property Trust may decide to refinance these short-term facilities or repurchase agreements
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through the securitization market which could include the creation of CMBS, collateralized debt obligations
(“CDOs”), or the private placement of loan participations or other long-term financing. If Terra Property Trust employs
this strategy, it is subject to the risk that it would not be able to obtain, during the period that the short-term financing
arrangements are available, a sufficient amount of eligible assets to maximize the efficiency of a CMBS, CDO or
private placement issuance. Terra Property Trust is also subject to the risk that it may be unable to obtain short-term
financing arrangements or are not able to renew any short-term financing arrangements after they expire should it 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 Terra Property Trust’s portfolio to finance its real estate-related
loans on a long-term basis could require it 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 investment in Terra
Property Trust.
Terra Property Trust may be required to repurchase loans or indemnify investors if it breaches representations
and warranties, which could harm its earnings and ultimately distributions to us and to our Limited Partners.
Terra Property Trust may, on occasion, consistent with Terra Property Trust’s qualification as a REIT and its desire
to avoid being subject to the “prohibited transaction” penalty tax, sell some of its loans in the secondary market or as
a part of a securitization of a portfolio of its loans. If it sells loans, it would be required to make customary
representations and warranties about such loans to the loan purchaser. The loan sale agreements may require it to
repurchase or substitute loans in the event it breaches a representation or warranty given to the loan purchaser. In
addition, it may be required to repurchase loans as a result of borrower fraud or in the event of early payment default
on a loan. Likewise, it may be required to repurchase or substitute loans if it breaches a representation or warranty in
connection with Terra Property Trust’s securitizations, if any.
The remedies available to a purchaser of loans are generally broader than those available to Terra Property Trust
against the originating broker or correspondent. Further, if a purchaser enforces its remedies against Terra Property
Trust, it may not be able to enforce the remedies it has 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. Significant repurchase activity could harm Terra Property Trust’s cash flow, results of
operations, financial condition and business prospects, and ultimately our investment in Terra Property Trust.
Terra Property Trust’s financing arrangements may contain financial covenants that could restrict its
borrowings or subject it to additional risks.
Terra Property Trust’s financing arrangements may contain various financial and other restrictive covenants,
including covenants that require it to maintain a certain interest coverage ratio and net asset value and that create a
maximum balance sheet leverage ratio. If Terra Property Trust fails 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 Terra
Property Trust of the borrowed funds, which may require it to liquidate assets at a disadvantageous time, causing it to
incur further losses and adversely affecting it results of operations and financial condition, which in turn may impair
our investment in Terra Property Trust and our ability to maintain our current level of distributions.
Terra Property Trust’s inability to access funding could have a material adverse effect on its results of
operations, financial condition and business, as well as our investment in Terra Property Trust. Terra Property
Trust may rely on short-term financing and thus are especially exposed to changes in the availability of financing.
Terra Property Trust may borrow funds (on a secured or unsecured basis) to facilitate its investments or otherwise
in connection with its business. The governing documents of Terra Property Trust contain no limit on the amount of
debt it may incur, and it may significantly increase the amount of leverage we utilize at any time without approval of
our Limited Partners. Terra Property Trust’s use of financings exposes it to the risk that its lenders may respond to
market conditions by making it more difficult for Terra Property Trust to renew or replace on a continuous basis its
maturing short-term borrowings. If Terra Property Trust is not able to renew its then existing short-term facilities or
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arrange for new financing on terms acceptable to it, or if it defaults on its covenants or are otherwise unable to access
funds under these types of financing, it may have to curtail its asset origination activities and/or dispose of assets.
It is possible that the lenders that provide Terra Property Trust with financing could experience changes in their
ability to advance funds to Terra Property Trust, independent of its performance or the performance of its portfolio of
assets. Further, if many of Terra Property Trust’s potential lenders are unwilling or unable to provide it with financing,
it could be forced to sell its assets at an inopportune time when prices are depressed. In addition, if the regulatory
capital requirements imposed on its lenders change, they may be required to significantly increase the cost of the
financing that they provide to Terra Property Trust. Terra Property Trust’s 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 Terra Property Trust receives under its short-term borrowing arrangements
will be directly related to the lenders’ valuation of Terra Property Trust’s 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 Terra Property
Trust’s potential lenders and could cause one or more of Terra Property Trust’s potential lenders to be unwilling or
unable to provide it with financing on attractive terms or at all. This could increase Terra Property Trust’s financing
costs and reduce its access to liquidity.
Repurchase agreements that Terra Property Trust may use to finance its assets may restrict it from leveraging
its assets as fully as desired, and may require it to provide additional collateral.
Terra Property Trust currently uses repurchase agreements to facilitate certain investments and may continue to
do so. If the market value of the assets pledged or sold by it under a repurchase agreement borrowing to a financing
institution declines, Terra Property Trust will normally be required by the financing institution to pay down a portion
of the funds advanced, but it may not have the funds available to do so, which could result in defaults. Repurchase
agreements that it may use in the future may also require it to provide additional collateral if the market value of the
assets pledged or sold by it to a financing institution declines. Posting additional collateral to support Terra Property
Trust’s credit will reduce its liquidity and limit its ability to leverage its assets, which could adversely affect its
business and ultimately our investment in Terra Property Trust. In the event Terra Property Trust does not have
sufficient liquidity to meet such requirements, financing institutions can accelerate repayment of its indebtedness,
increase interest rates, liquidate its collateral or terminate its ability to borrow. Such a situation would likely result in
a rapid deterioration of its financial condition and possibly necessitate a filing for bankruptcy protection, which would
negatively impact our investment in Terra Property Trust. In the event of Terra Property Trust’s insolvency or
bankruptcy, certain repurchase agreements may qualify for special treatment under the U.S. Bankruptcy Code, the
effect of which, among other things, would be to allow the lender under the applicable repurchase agreement to avoid
the automatic stay provisions of the U.S. Bankruptcy Code.
Further, any financial institutions providing the repurchase facilities may require Terra Property Trust 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 Terra Property Trust to satisfy its collateral obligations. As a result, Terra
Property Trust may not be able to leverage its assets as fully as it would choose, which could reduce its return on
equity. If Terra Property Trust is unable to meet these collateral obligations, its financial condition could deteriorate
rapidly, which would negatively impact our investment in Terra Property Trust.
An increase in Terra Property Trust’s borrowing costs relative to the interest it receives on its leveraged assets
may adversely affect its profitability and ultimately our cash available for distribution to our Limited Partners.
As Terra Property Trust’s financings mature, it will be required either to enter into new borrowings or to sell
certain of its assets. An increase in short-term interest rates at the time that it seeks to enter into new borrowings would
reduce the spread between the returns on its assets and the cost of its borrowings. This would adversely affect the
returns on its assets, which might reduce earnings and, in turn, cash available for distribution to our Limited Partners.
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Terra Property Trust may enter into hedging transactions that could expose it to contingent liabilities in the
future and adversely impact its financial condition and our investment in Terra Property Trust.
Subject to maintaining Terra Property Trust’s qualification as a REIT, part of its strategy may involve entering
into hedging transactions that could require it 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 Terra Property Trust’s results of
operations. Terra Property Trust may also be required to provide margin to its counterparties to collateralize its
obligations under hedging agreements. Terra Property Trust’s ability to fund these obligations will depend on the
liquidity of its assets and access to capital at the time. The need to fund these obligations could adversely impact its
financial condition and ultimately our investment in Terra Property Trust.
If Terra Property Trust attempts to qualify for hedge accounting treatment for any derivative instruments, but
it fails to so qualify, it may suffer because losses on the derivatives that it enters into may not be offset by a change
in the fair value of the related hedged transaction.
If Terra Property Trust attempts to qualify for hedge accounting treatment for any derivative instruments, but it
fails to so qualify for a number of reasons, including if it uses instruments that do not meet the definition of a derivative
(such as short sales), if it fails to satisfy hedge documentation and hedge effectiveness assessment requirements, or if
its instruments are not highly effective, it may suffer because losses on any derivatives it holds which may not be
offset by a change in the fair value of the related hedged transaction.
Risks Related to Owning Our Interests
Interests issued by us that you hold are not freely transferrable; thus investors may not be able to liquidate
their investment.
The issuance of our Interests are not expected to be registered under the U.S. Securities Act of 1933, as amended
(the “Securities Act”), or the equivalent laws of any state or other jurisdiction. Our Interests were offered in reliance
upon an exemption from the registration provisions of the Securities Act and the equivalent laws of any state or other
jurisdiction applicable only to offers and sales to investors meeting the suitability requirements set forth herein.
Each Limited Partner has been required to represent that, unless waived by the General Partner, 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 Interests,
(ii) acquired the Interests for investment and not with a view to distribution or resale, and (iii) understood that our
Interests have not been registered under the Securities Act or the equivalent laws of any state or other jurisdiction, are
not freely transferable, and that such Limited Partner must bear the economic risk of investment in the Interests for an
indefinite period of time, and the Interests cannot be sold unless they are subsequently registered or an exemption
from such registration is available and such Limited Partner complies with the other applicable provisions of our
Limited Partnership Agreement. There is no public market for the Interests and Limited Partners cannot expect to be
able to liquidate their Interests in the case of an emergency. Further, the sale of the Interests may have adverse federal
income tax consequences. Our Limited Partners may not sell, assign or transfer all or a portion of their Interests
without the prior written consent of the General Partner, which will not be unreasonably withheld.
The value you may receive upon the termination of the Partnership or Terra Property Trust or the
consummation of an alternative liquidity transaction is uncertain, and there can be no assurance that a Limited
Partner will receive a full return of its invested capital.
The REIT Manager or its affiliates may, in lieu of a liquidation of Terra Property Trust, pursue an alternative
liquidity transaction such as a merger of Terra Property Trust with another entity managed by the REIT Manager or
its affiliates or an IPO and listing of the Interests or shares of common stock of Terra Property Trust on a national
securities exchange. The Partnership or Terra Property Trust may opt to conduct an unlisted public offering of
Interests or shares of common stock, respectively, in each case pursuant to a registration statement filed and declared
effective by the SEC. The value a Limited Partner will receive upon the termination of the fund or the consummation
of any such alternative liquidity 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, many of which are beyond the control of the
34
Adviser or its affiliates. It is not possible to predict the value a Limited Partner will receive upon the termination of
the Partnership or the consummation of any such alternative liquidity transaction, nor can any assurance be given that
a Limited Partner will receive any full return of its invested capital.
In addition, an alternative liquidity event could result in a fundamental change in the nature of a Limited
Partner’s investment in the Partnership. For example, if Terra Property Trust were to consummate a merger with
another entity managed by the Adviser or its affiliates, following such transaction the Limited Partner would own
interests in, and be exposed to material adverse changes affecting, a much larger, broader range of assets than Terra
Property Trust owned individually prior to such merger. In addition, if either the Partnership or Terra Property Trust
were to consummate an IPO or listing of its Interests or shares of common stock, respectively, the value of such
Interests or shares of common stock both at the IPO and thereafter would be based on a variety of factors, including
the price at which third-party investors are willing to invest and market conditions at the time of an IPO. The price at
which any of the Interests or Terra Property Trust’s shares of common stock are sold in an IPO, and the trading price
of such common stock thereafter, could be lower or higher than the Partnership's net asset value or the net asset value
of Terra Property Trust. Furthermore, in connection with an alternative liquidity transaction, the Partnership and Terra
Property Trust may enter into new agreements, or revise existing agreements, with the Adviser and its affiliates,
including a new management agreement, which may not be negotiated on an arm's length basis. There can be no
assurance that the Adviser will pursue or consummate an alternative liquidity transaction.
No Consent to Alternative Liquidity Transaction.
Under the Limited Partnership Agreement, the General Partner may cause the Partnership to consummate an
alternative liquidity transaction, such as a merger, roll-up, consolidation, or share exchange with Terra Property Trust,
without the approval of Limited Partners. Depending on the structure and type of alternative liquidity transaction, your
Interests could be exchanged or converted into an equivalent amount of shares in Terra Property Trust, which the
General Partner would be entitled to effect without your consent or approval. For the avoidance of doubt, such
exchange or conversion may take place as an in-kind distribution of Terra Property Partnership shares or interests in
a special purpose vehicle sponsored by the Adviser or its affiliates (a “Terra SPV”) which holds such shares. As a
result, you would no longer be a Limited Partner in the Partnership and would no longer be entitled to the rights,
privileges, and preferences contained in the Limited Partnership Agreement. The alternative liquidity transaction so
pursued may therefore involve a fundamental change in the nature of your investment in Interests in the Partnership.
The rights, privileges, and preferences available under the Limited Partnership Agreement may be very different from
the rights, privileges, and preferences available to a shareholder in Terra Property Trust or an investor in a Terra SPV,
and you will not have the opportunity under the Limited Partnership Agreement to consent to or dissent from such an
alternative liquidity transaction. There can be no assurance any such alternative liquidity transaction would be
considered on terms favorable by you, or that those terms will be more advantageous than the terms of a liquidity
transaction which would require your consent.
Transfer Restrictions.
If Terra Property Trust becomes a publicly traded company through an IPO, and the General Partner determines
to pursue and consummate an alternative liquidity event in which you will receive shares of Terra Property Trust in
exchange for the Interests, substantial limitations on the transferability of the Terra Property Trust shares may remain.
For example, Terra Property Trust’s charter contains ownership limits designed to protect its status as a real estate
investment trust under federal income tax laws and to address other regulatory matters, which may limit your ability
to sell your Terra Property Trust shares on the applicable stock exchange. The Terra Property Trust share prices may
be volatile or may decrease in value and you may be unable to sell your Terra Property Trust shares in response to
such volatility or decrease.
Distributions.
If an alternative liquidity event involves Terra Property Trust becoming a publicly traded company through an
IPO or listing of Terra Property Trust 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, Terra Property Trust
would be expected to pay regular monthly distributions to its stockholders and would continue to be required to
distribute at least 90% of its taxable income (excluding net capital gains) to its investors each year in order to maintain
its qualification as a REIT.
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Alternative Liquidity Event.
If an alternative liquidity event involves Terra Property Trust becoming a publicly traded company through an
IPO or listing of Terra Property Trust, it is expected that Terra Property Trust will enter into a new management
agreement with the REIT Manager or an affiliate thereof. The base management fees, incentive distributions or other
amounts that would be payable by Terra Property Trust to the REIT 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 General Partner, the
Adviser, and the underwriters involved in the IPO. In the event that changes occur in connection with an alternative
liquidity event, the General Partner, the Adviser, and their affiliates anticipate that they will make modifications to the
structure, terms, agreements, constituent documents, fee and expense arrangements, and any other features, in each
case that the General Partner, the Adviser, and their affiliates, in their sole discretion, deem to be necessary, advisable
or incidental in order for the economics associated with the Interests to remain functionally equivalent, to the extent
practicable, to the economics associated with the Interests prior to the alternative liquidity event. Such changes may
not be negotiated on an arm’s-length basis. Notwithstanding the foregoing, the Interests will bear their pro rata share
of any special fees and expenses incurred in connection with the IPO.
In addition, if in connection with any such alternative liquidity event or other transaction, the Partnership
distributes shares of Terra Property Trust to the Limited Partners, the General Partner may be entitled to receive a
portion of such distributed shares based on its incentive distribution interest in our Partnership, with shares of Terra
Property Trust 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).
A compulsory withdrawal could result in adverse tax and economic consequences for Limited Partners.
The General Partner may, in its sole discretion, require a compulsory withdrawal of all or a portion of a Limited
Partner’s Interests in its sole discretion for any reason or no reason. Such compulsory withdrawal may result in adverse
tax or economic consequences for the Limited Partner.
Your interests may be diluted if we issue additional Interests in the future.
Limited Partners will not have preemptive rights to acquire any Interests issued by us in the future. Therefore,
investors may experience dilution of their investment if we sell additional Interests in the future.
Your interests may be diluted if Terra Property Trust issues additional shares in the future.
The Partnership will not have direct or indirect preemptive rights to acquire any shares issued by Terra Property
Trust in the future. Therefore, the Partnership, and in turn the investors, may experience dilution of their indirect
exposure to Terra Property Trust’s existing portfolio investments if Terra Property Trust sells additional shares in the
future.
In addition, following the conclusion of the offering period, the General Partner may, from time to time in its sole
discretion, cause the Partnership to accept additional subscriptions, in cash or in-kind, from the General Partner, the
Adviser, their affiliates or entities that are sponsored by the foregoing. This would also result the Partnership, and in
turn the investors, to experience dilution of their indirect exposure to Terra Property Trust’s existing portfolio
investments
Our Limited Partners do not have legal representation.
Pursuant to the terms of our Limited Partnership Agreement, each of our Limited Partners acknowledges and
agrees that counsel representing us, the General Partner, the Adviser, and their 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 Limited Partners in any respect.
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Risks Related to U.S. Federal Income Tax Consequences
The IRS could challenge the characterization of the exemption from U.S. withholding tax of that portion of
distributions constituting interest income.
The Partnership will invest substantially all of its funds in the REIT Subsidiary which in turn will invest
substantially all of its funds in Terra Property Trust. A portion of the Partnership’s investment in the REIT Subsidiary
will be made in nonvoting common stock of the REIT Subsidiary and a portion will take the form of a loan to the
REIT Subsidiary. Accordingly, the income of the Partnership is expected to consist of dividends on the non-voting
common stock of the REIT Subsidiary and interest on the loans to the REIT Subsidiary. A Limited Partner’s share of
such dividend income will be subject to a 30% U.S. withholding tax unless such Limited Partner is entitled to a lower
rate pursuant to an applicable income tax treaty. It is intended that the Partnership’s interest income will qualify for
an exemption from U.S. withholding tax, but the IRS could challenge the application of such exemption or
characterization of the loans to the REIT Subsidiary as debt and interest thereon as interest, in which case a 30% U.S.
withholding tax would apply unless such Limited Partner is entitled to a lower rate pursuant to an applicable income
tax treaty. Limited Partners are required to provide appropriate documentation (generally an appropriate US Form W-
8) to the Partnership from time to time to claim any treaty benefits and avoid withholding under the US FATCA rules.
Future legislation could adversely affect the tax treatment of an investment in the Partnership.
The present U.S. federal income tax treatment of an investment in the Partnership may be modified by legislative,
judicial or administrative action at any time and any such action may affect investments and commitments previously
made. The U.S. federal income tax rules are constantly under review by persons involved in the legislative process
and by the IRS and the Treasury Department, resulting from time to time in the adopting of new Treasury Regulations
or changes to the existing regulations, revised interpretations of established concepts, as well as statutory changes.
Any changes in the U.S. federal tax laws or interpretations thereof could adversely affect the tax treatment of an
investment in the Partnership. There can be no assurance that legislation will not be enacted that has an unfavorable
effect on an investor’s investment in the Partnership.
Risks Related to REITs
The General Partner expects to cause the REIT Subsidiary to elect to be classified as a corporation and to elect
to be taxed as a REIT. The following risk factors assume that the REIT Subsidiary elects to be taxed as a REIT.
The failure of the REIT Subsidiary to qualify as a REIT could subject the REIT Subsidiary to U.S. federal
income tax and potentially increased state and local taxes.
The U.S. federal income tax laws governing REITs are complex, and judicial and administrative interpretations
of the U.S. federal income tax laws governing REIT qualification are limited. To qualify as a REIT, the REIT
Subsidiary must meet, on an ongoing basis, various tests regarding the nature of its assets and income, the ownership
of its outstanding shares, and the amount of its distributions. Moreover, new legislation, court decisions or
administrative guidance, in each case possibly with retroactive effect, may make it more difficult or impossible for the
REIT Subsidiary to qualify as a REIT. Given the highly complex nature of the rules governing REITs, the ongoing
importance of factual determinations, and the possibility of future changes in the Partnership’s circumstances, no
assurance can be given that it will so qualify for any particular year.
If the REIT Subsidiary elects to be classified as a corporation for tax purposes but fails to qualify as a REIT in
any taxable year, and does not qualify for certain statutory relief provisions, it would be required to pay U.S. federal
income tax on its taxable income, and distributions to shareholders would not be deductible by the REIT Subsidiary
in determining its taxable income. In such a case, the REIT Subsidiary might need to borrow money or sell assets in
order to pay taxes. The REIT Subsidiary’s payment of income tax would decrease the amount of income available for
distribution to shareholders. Furthermore, if the REIT Subsidiary fails to maintain its qualification as a REIT, it would
no longer be required to distribute substantially all of its net taxable income to shareholders. In addition, unless the
REIT Subsidiary were eligible for certain statutory relief provisions, it could not re-elect to qualify as a REIT until the
fifth calendar year following the year in which it failed to qualify.
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Changes in the ownership of a Limited Partner could cause the Limited Partner’s Interest in the Partnership
to become Excess Interests.
The Limited Partnership Agreement contains restrictions on ownership of Interests that are intended to prevent
the REIT Subsidiary from failing to qualify as a REIT. For example, if beneficial ownership of Interests would cause
the REIT Subsidiary to be closely held under the five or fewer test, ownership of sufficient Interests would be
transferred from such Limited Partners as determined by the General Partner and in such amounts determined by the
General Partner to a trust for a charitable beneficiary so that the REIT Subsidiary would not be closely held.
Prospective investors should review Exhibit B of the Limited Partnership Agreement.
The REIT Subsidiary may be required to borrow funds to meet the REIT distribution requirements.
The REIT Subsidiary will be required to distribute at least 90% of its REIT taxable income each year, for this
purpose determined without regard to the dividends-paid deduction and excluding any net capital gain, and it will be
subject to regular corporate income taxes to the extent that it distributes less than 100% of its REIT taxable income
each year. In addition, the REIT Subsidiary will be subject to a 4% nondeductible excise tax on the amount, if any, by
which distributions paid by it in any calendar year are less than the sum of 85% of its ordinary income, 95% of its
capital gain net income and 100% of its undistributed income from prior years. To maintain its REIT status and avoid
the payment of income and excise taxes, the REIT Subsidiary may need to borrow funds to meet the REIT distribution
requirements. These borrowing needs could result from: (i) differences in timing between the actual receipt of cash
and inclusion of income for federal income tax purposes, (ii) the effect of non-deductible capital expenditures, (iii)
the creation of reserves, (iv) required debt amortization payments or (v) limitations on deductions of interest expense.
Failure of Terra Property Trust to qualify as a REIT would cause the REIT Subsidiary to fail to qualify as a
REIT.
If Terra Property Trust fails to qualify as a REIT in any taxable year, and does not qualify for certain statutory
relief provisions, it would be required to pay U.S. federal income tax on its taxable income, and distributions to
shareholders would not be deductible by Terra Property Trust in determining its taxable income. In addition, such
failure would cause the REIT Subsidiary to fail to qualify as a REIT.
Even if the REIT Subsidiary qualifies as a REIT, it may be required to pay certain taxes.
Even if the REIT Subsidiary qualifies for taxation as a REIT, it may be subject to certain U.S. federal, state and local
taxes on its income and assets, including taxes on any undistributed income.
Complying with the REIT requirements may force Terra Property Trust to liquidate or forego otherwise
attractive investments.
In order to qualify as a REIT, Terra Property Trust 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 its 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 Terra Property Trust 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
Terra Property Trust’s investment in securities (other than government securities, securities issued by a “taxable REIT
subsidiary,” 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
38
one issuer. In addition, in general, no more than 5% of the value of Terra Property Trust’s total assets (other than
government securities, taxable REIT subsidiary securities and securities that are qualifying real estate assets) can
consist of the securities of any one issuer, no more than 20% of the value of Terra Property Trust’s total assets can be
represented by securities of one or more taxable REIT subsidiaries 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 Terra Property Trust fails to comply with these requirements at the end of any calendar quarter, it must
correct the failure within 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, Terra Property Trust may be required to liquidate from its portfolio, or contribute to a taxable REIT
subsidiary 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 Terra Property Trust’s income
and amounts available for distribution to us. Thus, compliance with the REIT requirements may hinder Terra Property
Trust’s ability to make, and, in certain cases, maintain ownership of certain attractive investments.
Risk of the Internal Revenue Service successfully challenging Terra Property Trust’s treatment of its preferred
equity and mezzanine loan investments as debt for U.S. federal income tax purposes.
Terra Property Trust 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 and whether such preferred equity investments and mezzanine loans will be treated as real estate assets for
REIT qualification purposes. Terra Property Trust treats the mezzanine loans that it holds as real estate assets for REIT
qualification purposes and the preferred equity investments which it currently holds as debt for U.S. federal income
tax purposes and 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; therefore, no assurance can be given that
the Internal Revenue Service will not successfully challenge the treatment of such preferred equity investments and
mezzanine loans as debt and as real estate assets. If a preferred equity investment or mezzanine loan owned by Terra
Property Trust were treated as equity for U.S. federal income tax purposes, Terra Property Trust 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 or mezzanine loan. Certain of these partnerships
and limited liability companies may be engaged in activities, which could cause Terra Property Trust to be considered
as earning significant nonqualifying income which would likely cause Terra Property Trust 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 Terra Property Trust may enter into to qualify as
real estate assets could adversely affect the ability of Terra Property Trust to qualify as a REIT.
Terra Property Trust has entered into financing arrangements that are structured as sale and repurchase agreements
pursuant to which Terra Property Trust nominally sells certain of its assets to a counterparty and simultaneously enters
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 anticipate that Terra Property Trust
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 Terra Property Trust is not the owner of the assets during the term of the sale and repurchase agreement, in which
case Terra Property Trust could fail to qualify as a REIT.
Complying with REIT requirements may limit Terra Property Trust’s ability to hedge effectively.
The REIT provisions of the Internal Revenue Code may limit Terra Property Trust’s ability to hedge its assets and
operations. Under these provisions, any income that it generates from transactions intended to hedge its 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
39
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.
Dividends payable by REITs generally do not qualify for the reduced tax rates on dividend income from regular
C corporations, which could adversely affect the value of the Interests.
The maximum U.S. federal income tax rate for certain qualified dividends payable to U.S. stockholders that are
individuals, trusts and estates is 20%. For taxable years beginning after December 31, 2017 and before January 1,
2026, under the recently enacted Tax Cuts and Jobs Act of 2017 (the “Tax Cuts and Jobs Act”), non-corporate taxpayers
are subject to a 37% maximum U.S. federal income tax rate on ordinary income, and are entitled to deduct up to 20%
of certain pass-through business income, including “qualified REIT dividends” (generally, dividends received by a
REIT shareholder that are not designated as capital gain dividends or qualified dividend income), subject to certain
limitations, resulting in an effective maximum U.S. federal income tax rate of 29.6% on such income. Although the
reduced U.S. federal income tax rate applicable to qualified dividends from C corporations does not adversely affect
the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to regular corporate dividends,
together with the recently reduced 21% corporate tax rate in effect for taxable years beginning after December 31,
2017, could cause non-corporate investors to perceive investments in REITs to be relatively less attractive than
investments in non-REIT corporations that pay dividends, which could adversely affect the value of REIT shares.
Because the Partnership conducts its business primarily through Terra Property Trust, this perception could adversely
affect the value of the shares of Terra Property Trust and, indirectly, of the Interests.
Future legislation governing REITs could adversely impact the Partnership.
At any time, the U.S. federal income tax laws or regulations governing REITs or the administrative interpretations
of those laws or regulations may be changed, possibly with retroactive effect. It cannot be predicted if or when any
new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S.
federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective
or whether any such law, regulation or interpretation may take effect retroactively. The Partnership could be adversely
affected by any such change in, or any new, U.S. federal income tax law, regulation or administrative interpretation.
40
THE GENERAL PARTNER, THE REIT MANAGER, THE ADVISER, AND TERRA PROPERTY
TRUST
The General Partner
The General Partner is responsible for managing the Partnership’s business and affairs. In such capacity, the
Partnership’s General Partner or affiliate thereof controls decisions taken by the Partnership relating to our indirect
interest in common stock of Terra Property Trust, and advises us on all matters related to the Partnership’s operations
and administration, which encompasses managing the Partnership’s relationship and communications with its Limited
Partners, managing our liquidity and the payment of quarterly and liquidating distributions to our Limited Partners,
and preparing financial statements, tax returns, and Limited Partner tax statements. The General Partner has delegated
to the Adviser certain advisory and management services pursuant to the Management Agreement.
The General Partner, pursuant to the Limited Partnership Agreement, shall, among other things:
• Have a fiduciary responsibility for the safekeeping and use of all the funds and assets of the Partnership;
• Devote such of its time and business efforts to the business of the Partnership as it shall in its discretion,
exercised in good faith, determine to be necessary to conduct the business of the Partnership;
• File and publish all certificates, statements, or other instruments required by law for formation,
qualification, and operation of the Partnership and for the conduct of its business in all appropriate
jurisdictions;
• Cause the Partnership to be protected by public liability, property damage, and other insurance
determined by the General Partner in its discretion to be appropriate to the business of the Partnership;
• At all times use its best efforts to meet applicable requirements for the Partnership to be taxed as a
partnership and not as a corporation for U.S. federal income tax purposes; and
• Amend the Limited Partnership Agreement to reflect the admission of Limited Partners not later than 90
days after the date of such admission or substitution.
Authority of the General Partner
The General Partner shall, subject to certain restrictions in the Limited Partnership Agreement, have full and
complete authority, power, and discretion to manage the Partnership’s 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 the Partnership’s business. In the course of its management, the General Partner may, in its sole
discretion, employ such persons, including, under certain circumstances, affiliates of the General Partner, as it deems
necessary for the Partnership’s efficient operation. The General Partner has significant authority to take certain actions
on behalf of the Partnership without Limited Partner consent to those actions.
The General Partner may cause the Partnership or any of its subsidiaries to enter into a management agreement
and grant any such manager the power and discretion to manage and control the business, affairs, and assets of any of
the Partnership’s subsidiaries in consideration for those fees and expenses as specified in the management agreement;
modify the Limited Partnership Agreement to make any changes necessary to enable the Partnership to make an in-
kind distribution of the Interests to any subsidiary; and admit as a manager any person or entity affiliated with the
General Partner.
The General Partner has extensive authority to act on behalf of the Partnership without consent of the
Limited Partners, and except in limited circumstances amend the Limited Partnership Agreement without
consent of the Limited Partners. Prospective investors are encouraged to read the Limited Partnership
Agreement in its entirety.
41
Executive Officers of the REIT Manager and the Adviser
The Partnership has entered into a Management Agreement with the Adviser, pursuant to which the Adviser
provides certain services to the Partnership and the Partnership pays fees associated with such services. Likewise,
Terra Property Trust has entered into a management agreement with the REIT Manager, pursuant to which the REIT
Manager provides certain services to Terra Property Trust and Terra Property Trust pays fees associated with such
services. The REIT Manager is responsible for managing Terra Property Trust’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 REIT Manager is not obligated under the management agreement to dedicate any of its personnel
exclusively to Terra Property Trust, nor is it or its personnel obligated to dedicate any specific portion of its or their
time to the business. The names, ages, positions and biographies of the officers of the REIT Manager and the Adviser
are as follows:
Name Age Position(s) Held with the REIT Manager Position(s) Held with the Adviser
Andrew M. Axelrod 36 Chairman of the Board of Directors N/A
Bruce D. Batkin 66 Vice Chairman N/A
Vikram S. Uppal 35 Chief Executive Officer Chief Executive Officer
Stephen H. Hamrick 67 President President
Gregory M. Pinkus 54 Chief Operating Officer and Chief
Financial Officer Chief Operating Officer and Chief
Financial Officer
Daniel J. Cooperman 44 Chief Originations Officer Chief Originations Officer
Andrew M. Axelrod has served as Chairman of the board of directors of Terra Property Trust, Terra Capital
Partners and the REIT Manager since February 8, 2018. Mr. Axelrod founded Axar Capital Management in April 2015
and currently serves as its Managing Partner and Portfolio Manager, and is responsible for all investment, risk and
business management functions. He has been the Chief Executive Officer and Executive Chairman of the board of
directors of Axar Acquisition Corp. since October 2016. Before founding Axar Capital Management in 2015, Mr.
Axelrod worked at Mount Kellett Capital Management, a private investment organization from 2009 to 2014. At
Mount Kellett Capital Management, he was promoted to Co-Head of North America Investments in 2011 and became
a Partner in 2013. Prior to joining Mount Kellett Capital Management, Mr. Axelrod worked at Kohlberg Kravis
Roberts & Co. L.P. from 2007 to 2008 and The Goldman Sachs Group, Inc. from 2005 to 2006. Mr. Axelrod graduated
magna cum laude with a B.S. in Economics from Duke University.
Bruce D. Batkin serves as Vice Chairman of Terra Capital Partners and Terra Property Trust, and served as the
Chief Executive Officer of the Adviser, the REIT Manager and Terra Income Advisors since inception until December
1, 2018. 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, until December 1, 2018. 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 Fund 6, Terra International and Terra Fund 7 since May 2011,
January 2012, September 2012, June 2014, March 2015, October 2016 and October 2016, respectively, until December
1, 2018. He has also served as Chief Executive Officer and director of Terra Fund 6, since May 2013. As a co-founder
and former Chief Executive Officer of Terra Capital Partners, he has served in a leadership role 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 co-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 Harvard Alumni Real Estate Board, the Cornell Real Estate
Council and the Committee for Economic Development; is on the Advisory Board of the Baker Program in Real Estate
at Cornell University; and is a participant in the semiannual Yale CEO Summit. Mr. Batkin received a Bachelor of
Architecture from Cornell University and an M.B.A. from Harvard Business School.
Vikram S. Uppal has served as Chief Executive Officer of Terra Property Trust since December 1, 2018, and as
a director and Chief Investment Officer of Terra Property Trust since February 8, 2018. He has also served as Chief
Executive Officer of Terra Property Trust, the REIT Manager, Terra Income Advisors, and Terra Fund 6 since
42
December 1, 2018, and as the Chief Investment Officer of Terra Capital Partners and the REIT Manager since February
8, 2018. Prior to joining Terra Capital Partners, Mr. Uppal was a Partner and Head of Real Estate at Axar Capital
Management since 2016. Prior to Axar, Mr. Uppal was a Managing Director on the Investment Team at Fortress
Investment Group's Credit and Real Estate Funds from 2015 to 2016. From 2013 to 2015, Mr. Uppal worked at Mount
Kellett Capital Management, a private investment organization, and served as Co-Head of North American Real Estate
Investments. Mr. Uppal holds a B.S. from the University of St. Thomas and a M.S. from Columbia University.
Stephen H. Hamrick serves as President of the Adviser and the REIT Manager. He has also served as President
of Terra Capital Advisors, Terra Capital Advisors 2 and Terra Income Advisors 2 since January 2011, September 2012
and October 2016, respectively. Mr. Hamrick has also served as President of Terra Fund 2, Terra Fund 3, Terra Fund
4, Terra Fund 5, Fund 5 International, Terra Fund 6, Terra International, Terra Fund 7, Terra Property Trust and Terra
Property Trust 2, Inc. since May 2011, January 2012, September 2012, August 2013, June 2014, May 2013, October
2016, October 2016, January 2016 and September 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 (“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.
Gregory M. Pinkus serves as the Chief Financial Officer and Chief Operating Officer of the Adviser, the REIT
Manager and Terra Income Advisors and serves as the Chief Financial Officer, Treasurer and Secretary of Terra
Property Trust. 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.
Daniel J. Cooperman has served as Chief Originations Officer of the Adviser, the REIT Manager and Terra
Income Advisors since September 2017, September 2017 and February 2015, respectively. 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
43
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 Property Trust since January 2016;
(iv) Terra Property Trust 2 since September 2016; (v) Terra Fund 6 since February 2015, having previously served as
Managing Director of 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.
Board of Directors of Terra Property Trust
We do not have any officers, directors or employees. Our sole investment, Terra Property Trust, is supervised by
its board of directors, comprised of eight directors, pursuant to the terms and provisions of Terra Property Trust’s
charter and bylaws. The name, age, position and biography of each member of Terra Property Trust’s board of directors
is set forth below:
Name
Age
Position Held:
Andrew M. Axelrod 36 Chairman of the Board of Directors
Bruce D. Batkin 66 Vice Chairman
Vikram S. Uppal 35 Chief Executive Officer and Director
Jeffrey M. Altman 46 Director
Roger H. Beless 57 Director
Michael L. Evans 67 Director
Spencer E. Goldenberg 36 Director
John S. Gregorits 63 Director
For biographical information regarding Messrs. Axelrod, Batkin and Uppal, see “Executive Officers of the REIT
Manager and the Adviser” above.
Jeffrey M. Altman has served as one of Terra Property Trust’s independent directors since October 2017. Mr.
Altman has served as a director of Terra Fund 6 since April 2016. Since July 2011, Mr. Altman has been the Managing
Director of the real estate and lodging investment banking group of Houlihan Lokey, Inc., an investment bank. From
December 1998 to May 2011, he served as Vice President and Director of Lazard Fréres & Co. LLC, where he led the
firm’s global hospitality and leisure effort. Mr. Altman was an Associate in the Merger and Acquisition Advisory
Group of Arthur Andersen LLP from June 1996 to June 1998, where he provided merger, acquisition and divestiture
advisory services to clients across a broad array of industries. Mr. Altman has advised on over $100 billion of real
estate transactions in his career and is a frequent speaker at real estate and lodging conferences. He is currently a
member of the New York Hospitality Council, the National Association of Real Estate Investment Trusts, the
International Council of Shopping Centers and the Samuel Zell and Robert Lurie Real Estate Center of the Wharton
School of the University of Pennsylvania. Mr. Altman received a B.S., magna cum laude, with a concentration in
accounting and finance, and an M.B.A., with a concentration in finance, from the John M. Olin School of Business at
Washington University.
Roger H. Beless has served as one of Terra Property Trust’s independent directors since February 2018. Since
May 2016, Mr. Beless has served as Chief Operating Officer at Street Lights Residential, where he oversees capital
markets, asset and portfolio management and acquisitions, and company operations. From June 2012 until March
2016, Mr. Beless served as Managing Director for Mount Kellett Capital Management, where he oversaw global real
estate asset management. Prior to joining Mount Kellett, Mr. Beless spent nearly 20 years with Goldman Sachs/Archon
44
Group where he held a number of positions, including co-head of US Real Estate and Chief Operating Officer for
Archon Residential, where he oversaw acquisitions, asset management, property management and dispositions. Mr.
Beless also spent four years in Tokyo, Japan where he led the startup of Goldman Sachs Realty Japan, Ltd. He currently
serves on the board of Lion Heart Children’s Academy and the advisory board of Apartment Life. Mr. Beless holds a
Bachelor’s of B.A. in Economics and Finance from Baylor University and a M.B.A from Southern Methodist
University.
Michael L. Evans has served as one of Terra Property Trust’s independent directors since October 2017. Mr.
Evans has served since 2013 as a member of the board of directors of Terra Capital Partners, where he is the audit
committee chair and a member of the valuation committee and as a director of Terra Fund 6 since March 2015. Since
December 2012, Mr. Evans has been the Managing Director of Newport Board Group, a CEO and board advisory
firm. From June 2010 to September 2011, Mr. Evans served as the Interim Country Manager and Advisory Board
Member for Concern Worldwide U.S. Inc., a non-profit humanitarian organization. From January 1977 until June
2010, Mr. Evans was with Ernst & Young, LLP, or Ernst & Young, and served as a partner since 1984. During his
nearly 34 years with Ernst & Young, he served as a tax, audit and consulting services partner, specializing in real estate
companies and publicly-traded entities. Mr. Evans currently serves on the Advisory Board of Marcus & Millichap,
Inc., the Independent Counsel Board of Prologis Targeted U.S. Logistics Fund and the board of directors of Newport
Board Group, CyArk.org and InfinteSmile.org. Mr. Evans is a licensed attorney and a C.P.A. (inactive) in California.
He is currently a contributing business writer for Forbes.com and Allbusiness.com. Mr. Evans received a B.S.B. in
accounting from the University of Minnesota, a J.D. from William Mitchell College of Law and an M.B.A. from
Golden Gate University.
Spencer E. Goldenberg has served as one of Terra Property Trust’s independent directors since February 2018.
He has served since June 2015 as Vice President of Corporate Development at Menin Hospitality. Prior to his time at
Menin, Mr. Goldenberg was employed as an accountant at the firm of Gerstle, Rosen & Goldenberg P.A. from February
2008 to June 2015. From October 2005 until February 2008, he served as a legislative aide to Florida State Senator
Gwen Margolis. Mr. Goldenberg holds an active certified public accountant's license in the state of Florida. He holds
a Bachelor of Arts in International Affairs from Florida State University.
John S. Gregorits has served as one of Terra Property Trust’s independent directors since October 2017. Mr.
Gregorits retired in 2014 from his position with the Specialized Funds Group at Prudential Real Estate Investors, or
PREI, the real estate investment management business of Prudential Financial, where he worked since 1998. Mr.
Gregorits was responsible for certain of PREI’s funds in its U.S. business, totaling approximately $10 billion in gross
assets. While at PREI, Mr. Gregorits served on the U.S. Executive Committee and Investment Committee. Before
joining PREI, Mr. Gregorits managed a variety of multi-billion dollar equity and debt portfolios on behalf of Prudential
Financial’s General Account, gaining extensive experience in portfolio and asset management, development,
acquisitions, sales, leasing, and joint venture management. His 36 years in real estate includes serving on a variety of
industry associations as well as the board of directors of several privately held companies. Mr. Gregorits holds a
Bachelor of Art in economics and psychology from Duke University and a Master of Arts in organizational behavior
from Fairleigh Dickson University.
Executive Compensation
The General Partner and the Advisor do not have any paid officers, directors or employees. Terra Property Trust
has entered into a management agreement with the REIT Manager, pursuant to which the REIT Manager provides
certain services to Terra Property Trust and Terra Property Trust pays fees associated with such services. The officers
of the Adviser and the REIT Manager do not receive any compensation from our Fund. The REIT Manager is
responsible for managing Terra Property Trust’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 REIT Manager is not
obligated under the management agreement to dedicate any of its personnel exclusively to Terra Property Trust, nor
is it or its personnel obligated to dedicate any specific portion of its or their time to the business.
Compensation of the Directors of Terra Property Trust
Terra Property Trust is responsible for the payment of any compensation to its directors.
45
SUMMARY OF FEES, COMMISSIONS, AND REIMBURSEMENTS
The following table summarizes and discloses all of the compensation and fees, including reimbursement of
expenses, to be paid by the Fund to the Adviser, the General Partner, IDB and any other placement agents the
Partnership may engage. This table also summarizes fees paid by Terra Property Trust to the REIT Manager. Fees and
expenses borne by the Terra Property Trust will be indirectly borne by our Limited Partners through our investment
in Terra Property Trust and will indirectly reduce the Partnership’s capital and the funds available for payment of
Partnership distributions. Our estimated amount that we may pay with respect to such compensation, fees and
reimbursement of expenses for a maximum offering is also set forth below.
Type of Fee and Recipient Description and Method of Computation
Estimated Amount
for Maximum Offering
Organizational and Offering Stage
Selling Commission(1) — IDB The Partnership will pay aggregate selling commissions to
IDB and any other placement agents the Partnership may
engage of up to 5.0% of the gross proceeds from
subscriptions, payable as follows: (a) up to 2.0% of the gross
proceeds payable at the time of such sale, plus (b) up to 1.0%
of the gross proceeds payable for each of the three years
thereafter on the anniversary of the offering termination
date; provided, however, that aggregate selling commissions
payable shall not exceed 5.0% of the gross proceeds of
subscriptions.
U.S. $2,500,000
Organizational and Offering
Expense Reimbursement(2) —
Adviser
The Partnership will reimburse the Adviser for organization
and offering expenses in the amount of the actual expenses
incurred (not to exceed 2.0% of gross offering proceeds).
U.S. $1,000,000
Operational Stage
Incentive Allocation —
General Partner(3)
Once a Limited Partner has received cumulative
distributions equal to aggregate capital invested in its
Interests and a 9.0% per annum, cumulative,
non-compounded pre-tax return on unreturned invested
capital, 15.0% of amounts otherwise distributable to such
Limited Partner will be paid to the General Partner as an
Incentive Allocation.
Actual amounts are
dependent upon total
returns to investors and
cannot be determined
at the present time.
Origination Fee — REIT
Manager
Terra Property Trust pays to the Manager an origination fee
in the amount of 1.0% of the amount funded by Terra
Property Trust to originate, fund, structure, or acquire TPT
Assets, including any third-party expenses related to such
investment and any debt Terra Property Trust uses to fund
the origination, funding, structuring, or acquisition of such
TPT Asset. The origination fee is 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 Terra Property Trust is replaced with substitute
collateral, Terra Property Trust will pay an origination fee to
REIT 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 Terra
Actual amounts are
dependent upon
originations of TPT
Assets and cannot be
determined at the
present time.
46
Type of Fee and Recipient Description and Method of Computation
Estimated Amount
for Maximum Offering
Property Trust by the borrower in connection with such
substitution.
Asset Management Fee —
REIT Manager
Terra Property Trust pays the REIT 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 TPT Asset
and related closing costs and expenses), as well as cash then
held by Terra Property Trust.
U.S. $465,000
Asset Servicing Fee —REIT
Manager
Terra Property Trust pays to the Manager a monthly asset
servicing fee at an annual rate equal to 0.25% of the
aggregate gross origination price for each TPT Asset
(including the amount of any debt incurred or assumed to
finance any TPT Asset, and related closing costs and
expenses).
U.S. $116,250
Transaction Breakup Fee —
REIT Manager
Terra Property Trust pays to the REIT Manager a transaction
breakup fee in the amount of 50.0% of any termination fees
or liquidated damages received by Terra Property Trust 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 Terra Property Trust 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.
Actual amounts are
dependent on whether
there are
circumstances causing
a transaction breakup
and therefore cannot
be determined at the
present time.
Operating Expenses —
Adviser
The Partnership will reimburse the Adviser for all expenses
paid or incurred by the Adviser in connection with the
services provided to the Partnership, including the
Partnership’s allocable share of the Adviser’s employee
costs and overhead, such as rent, , utilities and technology
costs, which we estimate will not exceed approximately
1.0% of gross offering proceeds; provided, however, that the
Partnership will not reimburse the Adviser or its affiliates
for Adviser employee costs in connection with services for
which the Adviser earns any separate fees. The Partnership
will reimburse the Adviser no less than monthly for any such
expenses. The Partnership will not be responsible for the
payment or reimbursement of any costs and expenses for
which the Adviser has been reimbursed separately by Terra
Property Trust.
Actual amounts are
dependent upon expens
es paid or incurred and
therefore cannot be
determined at the
present time.
Liquidity Stage
Disposition Fee — REIT
Manager
Terra Property Trust pays to the REIT Manager a 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 TPT Asset is subject) received by Terra Property
Trust from each TPT Asset sale or disposition, or each
Actual amounts are
dependent upon the
sale price received
from the disposition of
any real estate-related
47
Type of Fee and Recipient Description and Method of Computation
Estimated Amount
for Maximum Offering
maturity, prepayment, workout, modification, restructuring,
or extension of any TPT Asset, or any portion of or interest
in any TPT Asset. The disposition fee shall be paid
concurrently with the closing of any such TPT Asset sale or
disposition, or any such maturity, prepayment, workout,
modification, restructuring, or extension of any TPT 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 TPT 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 TPT Asset and (B) the amount of such fee paid
by such borrower in connection with such transaction.
loans and therefore
cannot be determined
at the present time.
(1) The selling commissions may be reduced or waived in connection with certain purchasers, including but not
limited to sales made by certain placement agents, sales through investment advisers or banks acting as trustees
or fiduciaries and sales to our affiliates.
(2) Organization and offering expenses include legal, accounting, printing and miscellaneous expenses to be paid
by us in connection with the organization and formation of the Partnership, the REIT Subsidiary and related
entities, as well as this offering.
(3) For purposes of the calculation of the Incentive Allocation, distributions will first be treated as a return of
aggregate capital invested in the Partnership and then as payment of the accrued, unpaid return on unreturned
invested capital.
48
PRIOR INVESTMENT HISTORY OF THE ADVISER AND ITS AFFILIATES
The Partnership is a recently formed Cayman Islands exempted limited partnership. The information presented in
this section represents the prior investment and asset management experience of Terra Capital Partners, an affiliate of
the Adviser, and its affiliates. Our investors will not acquire any interest in the investments or investment programs
discussed in this summary. Further, investors should not assume that they will experience comparable returns.
Experience and Background
Our Adviser, Terra REIT Advisors, LLC, is a Delaware limited liability company that is registered as an
investment adviser under the Advisers Act. The Adviser currently also serves as the manager of Terra Fund 5 (and its
wholly-owned subsidiaries Terra Fund 1, Terra Fund 2, Terra Fund 3, and Terra Fund 4). Terra Income Advisors serves
as investment adviser for Terra Fund 6, an externally managed, non-diversified, closed-end management investment
company that has elected to be treated as a business development company (“BDC”) under the 1940 Act. The REIT
Manager serves as investment adviser for Terra Property Trust.
Terra Capital Partners, the parent company of the Adviser, is a real estate finance and investment company based
in New York City, and has engaged in the origination and management of debt and equity investments in over 350
properties of all major property types throughout the United States since it was formed in 2001 and commenced
operations in 2002. These investments have been made in 34 states and have been secured by approximately 16 million
square feet of office properties, 3.4 million square feet of retail properties, 4.2 million square feet of industrial
properties, 3,425 hotel rooms and 22,109 apartment units. The value of the properties underlying these investments
was approximately $6.5 billion based on appraised values as of the closing dates. Terra Capital Partners and its
affiliates have originated all the loans, which are set forth below, held by the following investment programs and have
suffered no monetary defaults or foreclosures on these loans. As of the date of this memorandum, Terra Capital
Partners and its affiliates employed 33 persons.
Terra Capital Partners is led by its chairman, Andrew M. Axelrod, and its chief executive officer, Vikram S. Uppal,
and employs a team of highly experienced real estate, finance and securities professionals. The management of Terra
Capital Partners has broad-based, long-term relationships with major financial institutions, property owners and
commercial real estate service providers. The Terra Capital Partners legacy management personnel have worked
together as a team engaged in the business of making investments in commercial real estate loans, preferred equity
investments and certain real estate-related debt securities of private companies for approximately ten years, building
on their prior experience in commercial real estate investment, finance, development and asset management with 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 & Co., Inc., Donaldson, Lufkin and Jenrette Securities Corporation
(now Credit Suisse (USA) Inc.) and ABN Amro Bank N.V. Please see “The General Partner, the REIT Manager, the
Adviser, and Terra Property Trust” for biographical information regarding these individuals. We believe that the active
and substantial ongoing participation of Terra Capital Partners in the real estate finance market, and the depth of
experience and disciplined investment approach of its management team will allow our Adviser to successfully
execute our investment strategy.
Prior Investment Programs
The Terra Secured Income Funds
In 2009, following the collapse of the real estate-related investment markets and the capital markets generally,
Terra Capital Partners determined that the market conditions were providing significant investment opportunities for
sophisticated alternative providers of capital, such as itself, to generate favorable returns for potential investors.
Accordingly, the management of Terra Capital Partners decided to sponsor a series of private real estate income funds
to capitalize on the available investment opportunities and the favorable investment terms that it could demand from
borrowers seeking capital for commercial real estate. These private real estate funds were formed to originate,
structure, fund and acquire 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. These six Terra Secured Income Funds are Terra Secured Income Fund,
LLC, Terra Secured Income Fund 2, LLC, Terra Secured Income Fund 3, LLC, Terra Secured Income 4, LLC, Terra
49
Secured Income Fund 5, LLC and Terra Secured Income Fund 5 International. These six Terra funds collectively raised
in excess of $400 million from over 4,000 U.S. and non-U.S. investors in a series of private placement offerings.
On January 1, 2016, each of Terra Fund 1, Terra Fund 2, Terra Fund 3, and Terra Fund 4 were merged with
subsidiaries of Terra Fund 5. Terra Fund 5 elected to engage in the merger transactions in order to make its investments
through Terra Property Trust and provide its investors 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.
Terra Income Fund 6, Inc.
Terra Fund 6 is a real estate finance company that invests primarily in commercial real estate loans, and select
commercial real estate-related debt securities of private companies. Terra Fund 6 is a non-diversified, closed-end
management investment company that has elected to be regulated as a BDC under the 1940 Act, and to be taxed as a
REIT under the Code. Terra Fund 6 is externally managed by an affiliate of the Adviser, Terra Income Advisors LLC,
a private investment firm that is registered as an investment adviser with the SEC. Terra Income Advisors has been
responsible for managing the operations and investments of Terra Fund 6 since that fund’s inception.
50
CURRENT PORTFOLIO OF TERRA PROPERTY TRUST
Through the REIT Subsidiary, the Partnership will invest substantially all of its investable assets in Terra
Property Trust. The following tables set forth certain information with respect to Terra Property Trust’s assets as of
March 31, 2019.
Terra Property Trust Current Portfolio
Note: several construction loans have since stabilized, and for the purposes of these charts, have been reallocated to other strategies as follows:
1. 225 W 17th St: 86% Stabilized, 14% Value-Add (construction has been completed, and 86% of units have been sold)
2. Urbanea: 100% Value-Add (construction has been completed, and project is in lease-up)
3. Harlem Portfolio 80% Stabilized, 20% Predevelopment/Land (estimated 80% of allocated loan value has been completed and is
100% leased)
Stabilized, 20%
Value-Add, 41%
Construction, 28%
Predevelopment, 11%
By Strategy
Residential, 40%
Office, 31%
Hotel, 13%
Land, 11%
Other, 6%
By Property Type
51
TERRA PRO PERTY TRUST, CURRENT PO RTFO LIO
O verview TPT Commitment Rate Coverage Metrics
Name Property Type
Strategy
Maturity Loan Type $m % Current Total Fixed /
Floating
LTV LTC DSCR DY
Lakeside
Oakland, CA
Mixed Use
Construction
2.9 yrs Senior 36.5 12.3% 2.9% 9.0% Floating 70.7% 81.2% NA NA
370 Lexington
Manhattan, NY
Office
Value-Add
2.7 yrs Pref Equity 23.6 7.9% 10.7% 10.7% Floating 91.6% 87.0% NA NA
1100 Biscayne
Miami, FL
Hotel
Value-Add
1.6 yrs Senior 22.8 7.7% 12.9% 12.9% Floating 49.7% 46.8% NA NA
Boundary
Atlanta, GA
Office
Construction
2.9 yrs Senior 22.5 7.6% 10.6% 10.6% Floating 69.1% 73.7% NA NA
REEC Portfolio
Manhattan, NY
Mixed Use
Construction
5.0 yrs Pref Equity 20.6 6.9% 15.0% 15.0% Floating 88.5% 67.9% NA NA
NB Credit Facility
Multi-State
Student Housing
Stabilized
1.3 yrs Pref Equity 20.5 6.9% 14.0% 14.0% Floating NA NA NA NA
City Gardens
San Francisco, CA
Student Housing
Construction
2.0 yrs Pref Equity 18.2 6.1% 12.4% 12.4% Floating 66.2% 87.5% NA NA
Millennium IV
Conshohocken, PA
Infill Land
Predevelopment
NA Equity 14.9 5.0% NA NA Equity NA NA NA NA
1733 Ocean
Santa Monica, CA
Office
Value-Add
NA Equity 13.3 4.5% NA NA Equity NA NA NA NA
Bristol I
Renton, WA
Multifamily
Value-Add
3.5 yrs Pref Equity 13.0 4.4% 10.0% 12.0% Fixed 62.1% NA NA NA
East 4th Ave
San Mateo, CA
Mixed Use
Construction
1.8 yrs Pref Equity 11.2 3.8% 10.0% 12.5% Fixed 78.5% 80.1% NA NA
Uptown Newport
Newport Beach, CA
Infill Land
Predevelopment
0.8 yrs Senior 11.2 3.8% 12.5% 12.5% Floating 48.3% 67.8% NA NA
575 4th Ave
Brooklyn, NY
Condo
Construction
0.3 yrs Mezz 9.8 3.3% 12.0% 14.5% Fixed 62.2% 70.8% NA NA
150 Blackstone
Worcester, MA
Industrial
Stabilized
8.4 yrs Mezz 7.0 2.4% 8.5% 8.5% Fixed 70.0% NA 1.3x 7.2%
Peachtree Retreat
Peachtree Corners, GA
Multifamily
Value-Add
3.0 yrs Senior 6.1 2.1% 11.1% 11.1% Floating 82.9% 77.2% NA NA
330 S. Tryon
Charlotte, NC
Office
Stabilized
2.9 yrs Senior 6.0 2.0% 11.2% 11.2% Floating 76.2% 73.4% 0.9x 5.5%
SparQ
San Jose, CA
Multifamily
Construction
1.5 yrs Mezz 5.5 1.8% 12.0% 12.0% Fixed 72.5% 72.7% NA NA
EVEN Hotel
Charlotte, NC
Hotel
Construction
2.1 yrs Mezz 5.3 1.8% 12.0% 14.0% Fixed 76.7% 78.1% NA NA
Element
Milpitas, CA
Hotel
Construction
2.2 yrs Mezz 4.3 1.4% 13.0% 13.0% Floating 75.9% 71.8% NA NA
Telegraph
Berkeley, CA
Student Housing
Construction
1.6 yrs Mezz 4.2 1.4% 11.0% 11.0% Fixed 58.6% 72.8% NA NA
Driggs
Brooklyn, NY
Multifamily
Construction
1.1 yrs Pref Equity 4.1 1.4% 12.3% 12.3% Fixed 75.5% 83.0% NA NA
Urbanea
Miami, FL
Multifamily
Construction
0.7 yrs Mezz 3.9 1.3% 13.0% 13.0% Fixed 74.1% 75.9% NA NA
225 W 17 St
Manhattan, NY
Condo
Construction
0.5 yrs Mezz 2.8 0.9% 12.8% 12.8% Fixed 78.8% 75.2% NA NA
Holiday Inn Midtown
Austin, TX
Hotel
Stabilized
1.5 yrs Mezz 2.5 0.8% 12.5% 12.5% Fixed 79.6% 80.3% 1.1x 8.8%
1333 S Orange Grove
Los Angeles, CA
Condo
Construction
3.0 yrs Pref Equity 2.1 0.7% 12.0% 12.0% Floating 71.8% 87.1% NA NA
Arbor Station
Montgomery, AL
Multifamily
Stabilized
3.3 yrs Pref Equity 2.1 0.7% 16.0% 16.0% Fixed 79.9% NA 1.0x 7.7%
Clemson Student Housing
Clemson, SC
Student Housing
Stabilized
4.8 yrs Mezz 1.9 0.6% 13.0% 13.0% Fixed 72.9% 80.3% NA NA
Stratford Village
Montgomery, AL
Multifamily
Stabilized
3.3 yrs Pref Equity 1.6 0.5% 16.0% 16.0% Fixed 80.7% NA 0.9x 6.9%
TO TAL 297.5 100.0% 11.1% 12.1% 71.6% 76.2% 1.07x 7.0%
52
Terra’s Cumulative Track Record in Lending - 2009-2019
The following table lists all realized loans that have been originated by Terra Capital Partners or its affiliates from
2009 through March 31, 2019. The loans are organized by the closing date of the investment. This table contains
investments made by affiliates of Terra Capital Partners that are not currently held by the Partnership or Terra
Property Trust. You should not consider the performance of any of the following investments as indicative of our
future performance. You should not assume the recommendations made by the Adviser in the future will be
profitable or will equal the performance of the securities in this table:
TERRA CAPITAL PARTNERS, REALIZED TRACK RECO RD
O verview Economics Gross Returns (1)
Name Property Type
Strategy
Entry Exit $m LTV Ann
Coupon (2)
Fees IRR MO IC
1100 Biscayne
Miami, FL
Hotel
Value-Add
11/2017 11/2018 24.4 48.8% 16.0% 2.0% 18.6% 1.17x
Factory Student Housing
Logan, UT
Student Housing
Stabilized
06/2017 07/2018 5.0 86.3% 15.0% -% 16.6% 1.13x
98 14th Street NE
Atlanta, GA
Land
Pre-Development
06/2017 03/2019 27.5 38.0% 12.0% 2.0% 15.1% 1.22x
Fresenius Louisburg
Louisburg, NC
Office
Stabilized
01/2017 07/2017 3.7 89.0% 10.0% 2.0% 23.7% 1.07x
Brooklyn Hilton
Brooklyn, NY
Hotel
Value-Add
11/2016 01/2019 15.0 78.7% 12.0% 2.0% 14.0% 1.29x
2700 NW 2nd Ave
Miami, FL
Land
Pre-Development
09/2016 02/2018 21.4 63.7% 12.0% 2.0% 14.9% 1.19x
NB Credit Facility (3)
Various
Multi-Asset
Stabilized
07/2016 07/2018 10.1 NA 15.0% 2.0% 20.1% 1.30x
Lakeview MOB
Indianapolis, IN
Office
Stabilized
06/2016 09/2018 3.5 75.0% 13.1% -% 13.7% 1.28x
30 Warren Street
New York, NY
Condo
Construction
03/2016 01/2018 19.1 69.2% 12.0% 2.0% 14.7% 1.21x
302 East 96th Street
New York, NY
Condo
Construction
12/2015 01/2019 18.7 71.8% 13.0% 2.0% 16.2% 1.23x
42-50 24th Street (4)
Long Island City, NY
Land
Pre-Development
12/2015 07/2017 15.0 80.5% 7.4% 1.0% 4.6% 1.03x
BPG Hotel Portfolio
King of Prussia, PA
Hotel
Stabilized
11/2015 12/2018 5.8 72.1% 13.0% 1.0% 14.5% 1.41x
W 41st St
Miami Beach, FL
Office
Pre-Development
07/2015 01/2017 5.0 85.7% 14.0% 3.0% 17.6% 1.25x
BPG Office Portfolio
Wilmington, DE
Office
Stabilized
06/2015 08/2018 10.0 86.6% 13.5% 2.0% 15.4% 1.46x
1100 Biscayne
Miami, FL
Hotel
Value-Add
04/2015 11/2017 23.1 65.6% 15.4% 2.9% 18.1% 1.28x
San Diego DoubleTree
San Diego, CA
Hotel
Stabilized
03/2015 02/2017 6.0 64.2% 12.0% 2.0% 14.3% 1.26x
Park Central/East (5)
Greenville, SC
Office
Value-Add
03/2015 11/2016 13.8 NA 12.0% -% 30.9% 1.55x
144 S. Harrison Street
East Orange, NJ
Multifamily
Construction
01/2015 06/2017 24.1 66.4% 11.6% 4.5% 14.5% 1.25x
Crestavilla Land
Laguna Niguel, CA
Land
Pre-Development
12/2014 02/2016 11.3 60.5% 12.0% 3.0% 17.0% 1.18x
Marriott Edition Site
West Hollywood, CA
Land
Pre-Development
10/2014 12/2015 25.0 81.8% 12.0% 2.0% 15.6% 1.17x
55 Miracle Mile
Coral Gables, FL
Mixed Use
Stabilized
08/2014 01/2017 3.4 79.3% 14.0% 2.0% 17.8% 1.42x
Marriott Warner Center
Woodland Hills, CA
Hotel
Stabilized
07/2014 10/2018 32.1 77.4% 12.0% 3.0% 15.1% 1.44x
514 West 24th Street
New York, NY
Land
Pre-Development
07/2014 07/2015 11.4 80.9% 16.0% 2.0% 20.9% 1.20x
98 14th Street NE
Atlanta, GA
Land
Pre-Development
05/2014 05/2016 5.5 74.9% 18.0% 4.0% 22.5% 1.43x
Justison Landing
Wilmington, DE
Multifamily
Stabilized
02/2014 07/2015 9.0 84.4% 12.0% 2.0% 14.9% 1.20x
53
TERRA CAPITAL PARTNERS, REALIZED TRACK RECO RD
O verview Economics Gross Returns (1)
Name Property Type
Strategy
Entry Exit $m LTV Ann
Coupon (2)
Fees IRR MO IC
Mystic Hotel
San Francisco, CA
Hotel
Stabilized
01/2014 01/2018 4.3 68.4% 12.0% 3.0% 13.5% 1.52x
Marriott Spartanburg
Spartanburg, TN
Hotel
Stabilized
01/2014 12/2016 3.0 78.0% 13.5% 2.0% 18.7% 1.53x
Kingsport MF Portfolio
Kingsport, TN
Multifamily
Stabilized
01/2014 12/2018 3.0 76.9% 13.0% 2.0% 14.8% 1.68x
Georgia REO MF
Portfolio
Multifamily
Stabilized
12/2013 04/2018 6.5 76.7% 14.0% 2.0% 16.7% 1.55x
CSRA Credit Facility
Various
Multi-Asset
Stabilized
12/2013 07/2017 16.0 NA 13.0% 2.8% 18.2% 1.39x
Museo Apartments
Austin, TX
Multifamily
Stabilized
11/2013 12/2018 4.0 83.5% 12.0% 0.8% 13.2% 1.62x
Caton Place
Brooklyn, NY
Multifamily
Value-Add
11/2013 01/2015 12.0 52.2% 15.0% 2.0% 23.2% 1.17x
UBS Tower
Nashville, TN
Office
Value-Add
11/2013 05/2017 14.6 55.0% 15.0% 3.2% 22.1% 1.44x
Peachtree Pointe
Atlanta, GA
Office
Stabilized
10/2013 10/2016 7.5 66.9% 12.0% 1.0% 13.2% 1.38x
Hilton Garden Inn
Ft. Washington, PA
Hotel
Stabilized
10/2013 05/2017 3.7 84.7% 13.0% 4.0% 14.9% 1.51x
Portland Hotel Portfolio
Portland, OR
Hotel
Stabilized
09/2013 08/2018 5.0 78.4% 13.0% 2.5% 14.8% 1.68x
24 Hour Fitness
Ft. Worth, TX
Retail
Stabilized
09/2013 12/2013 2.2 86.2% 15.0% 4.0% 234.7% 1.20x
Bridgeview Apartments
Tampa, FL
Multifamily
Stabilized
09/2013 12/2013 6.0 87.3% 14.0% 2.0% 45.7% 1.06x
Ball State Student Housing
Muncie, IN
Student Housing
Stabilized
08/2013 04/2018 2.7 84.8% 13.0% 2.0% 23.2% 2.21x
Matrix MHC Portfolio (6)
Various
Man. Housing
Stabilized
08/2013 08/2016 15.0 78.3% 12.5% -% 21.3% 1.64x
Sheraton Hotel & Spa
Ft. Worth, TX
Hotel
Stabilized
07/2013 10/2016 8.7 74.4% 14.5% 2.0% 16.8% 1.50x
Le Saint Drive Center
Cincinnati, OH
Industrial
Value-Add
05/2013 07/2015 7.2 78.1% 13.5% 2.0% 15.7% 1.31x
DoubleTree by Hilton
Greensboro, NC
Hotel
Stabilized
03/2013 02/2018 3.5 77.9% 14.0% 2.0% 15.6% 1.73x
Seven Penn Center
Philadelphia, PA
Office
Value-Add
03/2013 12/2014 4.3 74.2% 12.5% 1.0% 18.5% 1.32x
iStorage Portfolio
Various
Industrial
Stabilized
01/2013 10/2014 5.5 76.6% 13.5% 2.0% 22.9% 1.37x
Encino Courtyard
Encino, CA
Retail
Stabilized
12/2012 02/2017 2.5 76.8% 13.5% 2.0% 15.5% 1.61x
Brass Professional Center
San Antonio, TX
Office
Value-Add
12/2012 06/2016 15.4 71.1% 16.5% 5.0% 20.4% 1.69x
Park Central/East (5)
Greenville, SC
Office
Value-Add
11/2012 03/2015 4.8 68.4% 14.0% 1.0% 15.7% 1.27x
Z Hotel NYC
Long Island City, NY
Hotel
Stabilized
11/2012 10/2016 4.5 80.4% 13.0% 2.0% 14.7% 1.54x
Carolinas Self-Storage
Portfolio
Industrial
Stabilized
11/2012 09/2015 3.3 84.9% 14.0% 2.0% 15.7% 1.42x
Cleveland Tech Center
Cleveland, OH
Industrial
Stabilized
08/2012 05/2013 8.0 70.3% 13.0% 2.0% 24.7% 1.18x
AHF Portfolio
Various
Multifamily
Stabilized
07/2012 07/2018 6.1 69.9% 14.0% 2.0% 16.9% 1.72x
Boston Mayo Portfolio
Boston, MA
Multifamily
Stabilized
07/2012 03/2017 4.0 88.9% 12.0% 2.0% 14.1% 1.63x
Ramada Beach Resort
Ft. Walton Beach, FL
Hotel
Stabilized
07/2012 07/2017 4.5 68.8% 13.0% 1.4% 14.5% 1.69x
L Street Lofts
Sacramento, CA
Multifamily
Stabilized
07/2012 02/2014 4.4 77.6% 15.0% 3.0% 22.2% 1.37x
Ramada Hotel Atlanta
Atlanta, GA
Hotel
Value-Add
06/2012 09/2016 2.3 68.7% 13.9% 4.0% 16.4% 1.65x
La Jolla on Park
Plano, TX
Multifamily
Value-Add
03/2012 08/2015 2.0 73.1% 14.0% 3.0% 15.5% 1.50x
Crestmont at Thornblade
Greenville, SC
Multifamily
Stabilized
02/2012 11/2013 2.0 80.6% 13.0% 3.0% 25.2% 1.43x
54
TERRA CAPITAL PARTNERS, REALIZED TRACK RECO RD
O verview Economics Gross Returns (1)
Name Property Type
Strategy
Entry Exit $m LTV Ann
Coupon (2)
Fees IRR MO IC
Crestmont at Thornblade
Greenville, SC
Multifamily
Stabilized
02/2012 11/2013 2.0 80.6% 13.0% 3.0% 25.2% 1.43x
Thornblade Park Apts
Greenville, SC
Multifamily
Stabilized
11/2011 11/2013 2.2 81.7% 13.0% 2.0% 21.5% 1.42x
Applebee's Portfolio
Atlanta, GA
Retail
Stabilized
10/2011 06/2012 3.5 77.7% 14.0% 2.7% 46.4% 1.24x
Windover Villas
Fredericksburg, Various
Multifamily
Stabilized
06/2011 12/2013 1.3 79.7% 13.5% 2.0% 15.5% 1.36x
Cortland Portfolio
Atlanta, GA
Multifamily
Stabilized
06/2011 08/2013 6.5 79.3% 15.0% 4.6% 22.0% 1.36x
Townsend Square Apts
Atlanta, GA
Multifamily
Stabilized
05/2011 05/2014 2.2 85.0% 13.5% 2.0% 15.4% 1.43x
Clifton Glen
Atlanta, GA
Multifamily
Stabilized
03/2011 08/2013 3.2 80.0% 18.0% 3.0% 20.6% 1.49x
Hamilton
Horn Lake, MS
Multifamily
Stabilized
03/2011 07/2012 2.6 80.3% 13.5% 2.0% 22.4% 1.29x
Clifton Ridge
Atlanta, GA
Multifamily
Stabilized
02/2011 09/2012 0.9 71.0% 18.0% 3.0% 26.4% 1.40x
Parke Lane Villas East
Santa Rosa, CA
Multifamily
Stabilized
11/2010 09/2012 2.8 70.2% 15.0% 5.3% 20.6% 1.33x
OCC/Penton
Cleveland, OH
Office
Stabilized
08/2010 07/2015 8.1 66.8% 13.0% 1.0% 14.4% 1.54x
Rialto-Capitol
Jersey City, NJ
Condo
Value-Add
06/2010 03/2011 3.5 74.3% 15.0% 3.0% 38.8% 1.18x
840 First Street
Washington, DC
Office
Stabilized
10/2009 03/2011 6.5 71.6% 15.0% 3.0% 40.7% 1.57x
TO TAL (8)
590.5 66.0% 13.2% 2.3% 18.9% 1.34x
(2) Stated interest rate for investment; for floating-rate loans, greater of contractual LIBOR floor or LIBOR rate of 249 basis points is applied
(3) Loan amount reflects $9.4m repaid; gross returns are expected and exclude $4.6m outstanding, which is reflected as separate investment
(6) Interest rate was fixed for first year at 12.6%, then declined through loan term to 12.3% by Month 60, for an avg effective yield of 12.5%
Note: Represents all investments recommended by TCP to its clients from 2009 to the date of this report; investments recommended by TCP
prior to 2009 are excluded because in 2008 TCP sold its managerial interest in any loans then outstanding, and the ultimate financial returns
from these investments are not readily available, and the results of such investments may be significantly less than the returns shown here
(4) Loan amount reflects only TCP's original mezzanine loan originated in Dec 2015; in Feb 2017, TCP exercised its option to purchase the first
mortgage as a protective advance on its position in the mezzanine loan; TCP purchased the first mortgage for par with an outstanding balance of
$50.6m; returns includes cash activity for both TCP's original mezzanine loan and purchase of first mortgage(5)
TCP's original B-Note was repaid when TCP took title to the property in Mar 2015; returns during the equity holding period are reflected as a
separate investment
(1) Include all interest payments and fees that are embedded into investment, calculated on fully-funded balance; totals averages weighted by loan
amounts
55
CONFLICTS OF INTEREST
Various conflicts of interest will arise out of the relationship between us and the Adviser and its affiliates,
including the General Partner. Subject to the overall control and oversight of the General Partner, the Adviser will
have control over our everyday operations and will resolve conflicts of interest through the exercise of its judgment.
There is a possibility that not all conflicts will be resolved in a manner favorable to us. Potential conflicts include
those set forth below.
Voting Agreement involving Terra Property Trust
On February 8, 2018, Terra Fund 5, Terra Property Trust and the REIT Manager entered into the Voting
Agreement, pursuant to which the board of directors of Terra Property Trust was increased to eight members. Simon
J. Mildé resigned from the board of directors of Terra Property Trust, leaving four existing directors (the “Existing
Directors”), including the existing three independent directors on Terra Property Trust board. The remaining members
of the board then appointed the following four individuals as additional members of Terra Property Trust board
(the “Additional Directors”): Andrew M. Axelrod (Chairman of the Board), Vikram S. Uppal, Roger H. Beless and
Spencer E. Goldenberg. The board of Terra Property Trust determined that Messrs. Beless and Goldenberg qualify as
independent directors pursuant to the rules and standards of the New York Stock Exchange and Terra Property Trust’s
corporate governance standards.
Pursuant to the terms of the Voting Agreement, until the earlier of (1) the date that is 18 months after the date of
the Voting Agreement or (2) the date that nominations for the board of Terra Property Trust are due for the 2019 annual
meeting of stockholders of Terra Property Trust (the “Initial Period”): (a) the board of Terra Property Trust will
continue to consist of eight directors, including at least five independent directors, (b) the REIT Manager will have
the right to nominate the Additional Directors to stand for reelection to Terra Property Trust board (or their
replacements) as well as to nominate one further independent director for election to Terra Property Trust board should
one of the independent Existing Directors voluntarily resign or not stand for reelection to Terra Property Trust board
during the Initial Period, and (c) Terra Fund 5 will have the right to nominate any of the Existing Directors to stand
for reelection to Terra Property Trust (or their replacements, except as provided in clause (b) above); provided that if
any departing director is an independent director, the individual nominated as a replacement director must also qualify
as an independent director.
In addition, for the period beginning on the day following the Initial Period and continuing for the period that the
REIT Manager remains the external manager of Terra Property Trust, the REIT Manager will have the right to
nominate two individuals to serve as directors of Terra Property Trust (which nominees need not be independent
directors) and for the period beginning on the day following the end of the Initial Period and ending on the date that
Terra Fund 5 no longer holds at least 10% of the outstanding shares of common stock of Terra Property Trust, Terra
Fund 5 will have the right to nominate one individual to serve as a director of Terra Property Trust (who need not be
an independent director).
Except as otherwise required by law or the provisions of other agreements to which the parties are or may in the
future become bound, the parties have agreed to vote all shares of common stock of Terra Property Trust directly or
indirectly owned in favor (or against removal) of the directors properly nominated in accordance with the Voting
Agreement. Other than with respect to the election of directors, the Voting Agreement requires that Terra Fund 5 vote
all shares of common stock of Terra Property Trust directly or indirectly owned by it in accordance with the
recommendations made by the board of Terra Property Trust.
Management Agreement
Terra Income Advisors assigned all of its rights, title and interest in and to its current external management
agreement with Terra Property Trust to the REIT Manager and immediately thereafter, the REIT Manager and Terra
Property Trust amended and restated such management agreement. Such amended and restated management
agreement has the same economic terms and is in all material respects otherwise on the same terms as the management
agreement between Terra Income Advisors and Terra Property Trust in effect immediately prior to the Axar
Transaction, except for the identity of the applicable manager.
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Receipt of Fees and Other Compensation by the Adviser and its Affiliates
Terra Property Trust pays substantial fees to the REIT Manager and its affiliates. Further, Terra Property Trust,
must reimburse the REIT Manager and its affiliates for costs incurred by them in managing Terra Property Trust and
its portfolio of real estate-related loans.
Terra Property Trust has entered into a management agreement with the REIT Manager pursuant to which the
REIT Manager provides certain management services to Terra Property Trust, subject to oversight by its board of
directors. The REIT Manager’s responsibilities to Terra Property Trust include, among others, investing in, and
disposing of, assets, borrowing money, entering into contracts and agreements in connection with Terra Property
Trust’s business and purpose, providing administrative support and performing such other services as are delegated to
the REIT Manager by Terra Property Trust’s board of directors. In performing its duties, the REIT Manager is subject
to a fiduciary responsibility for the safekeeping and use of all funds and assets of Terra Property Trust. In consideration
of its providing such services, the REIT Manager is entitled to certain fees from Terra Property Trust as described
below. The original management agreement between Terra Capital Advisors and Terra Property Trust was entered into
on January 1, 2016. On September 1, 2016, Terra Property Trust terminated the original management agreement and
entered a management agreement with Terra Income Advisors. As described above, as part of the Axar Transaction,
Terra Income Advisors assigned all of its rights, title and interest in and to its current external management agreement
with Terra Property Trust to the REIT Manager and immediately thereafter, the REIT Manager and Terra Property
Trust amended and restated such management agreement. The current management agreement runs co-terminus Terra
Fund 5’s operating agreement, which terminates on December 31, 2023.
During the years ended December 31, 2017 and 2016, Terra Property Trust paid the predecessor to the REIT
Manager the following fees under the management agreement: $3.2 million and $3.3 million in asset management fee,
respectively, $0.7 million and $0.8 million in asset servicing fees, respectively, $3.6 million and $2.9 million in
origination fees, respectively; $1.1 million and $1.1 million in disposition fees, respectively, and $3.3 million and $3.3
million of operating expense reimbursements, respectively.
Subject to its fiduciary responsibilities and the terms of our Limited Partnership Agreement and the Management
Agreement, the Adviser 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 REIT Manager will exercise its sole discretion through the management agreement with Terra
Property Trust. The agreements and arrangements, including those relating to compensation, between Terra Property
Trust and the REIT Manager and its affiliates are not the result of arm’s-length negotiations and may create conflicts
between the interests of the Adviser, the REIT Manager and their affiliates, on the one hand, and us, our Limited
Partners and Terra Property Trust on the other.
The Adviser and its Affiliates May Compete With Us
The Adviser and its affiliates may engage in real estate-related transactions on their own behalf or on behalf of
other entities.
The Adviser 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 Adviser’s obligations to us. For example, the Adviser and its affiliates are the
external managers to Fund 5 International, Terra Fund 6, Terra International 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 Adviser and its affiliates will create a conflict of interest. In determining which
program should receive an investment opportunity, the Adviser or its affiliates 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 Adviser 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
Adviser 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.
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Related Party Transactions
Related party transactions are those where we or the Adviser on our behalf, transact with affiliated companies.
The Adviser 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 Limited Partnership Agreement, those
transactions, or the potential for those transactions, could cause conflicts for the Adviser with respect to performing
its duties. Related party transactions will not be the result of an arm’s-length negotiation.
Allocation of the General Partner’s and the Adviser’s Time
We rely on the General Partner to manage our day-to-day activities and on the Adviser to implement our
investment strategy. The Adviser 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 Adviser, 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 employees of each of the General Partner and the Adviser, or their affiliates, 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 General Partner, the Adviser, their 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 Adviser’s senior management and the other key debt finance
professionals performing services for us on behalf of the Adviser have sufficient time to fully discharge their
responsibilities to us and to the other businesses in which they are involved. We believe that the Adviser’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
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 Adviser providing
services to multiple programs. For example, the Adviser 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 Adviser or its affiliates 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 Adviser may determine it appropriate for us and one or more other investment programs managed by the
Adviser 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 Adviser 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 Adviser 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 Adviser, REIT Manager, the General Partner, and certain of their affiliates have not been
determined through arm’s-length negotiations, and are payable regardless of profitability. The Adviser and the REIT
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Manager and their 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 General Partner is entitled to receive
incentive distributions.
To the extent the terms of the Management Agreement with the Adviser are amended in the future, or if Terra
Property Trust enters into a new management agreement with the REIT 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.
Certain fees that we will pay to the Adviser, the General Partner, and indirectly pay to the REIT Manager and its
affiliates as a result of our investment in Terra Property Trust, are based in part on the level of business activity, it is
not possible to predict the amounts of compensation that we or Terra Property Trust will be required to pay these
entities. In addition, because key employees of the Adviser, the General Partner, and the REIT Manager and their
affiliates 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 by us to the Adviser, the General Partner, and each of their
affiliates and, with respect to Terra Property Trust, to the REIT 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.
Terra Property Trust pays the REIT Manager a base management fee regardless of the performance of its portfolio,
which we will be indirectly responsible for paying as a result of our investment in Terra Property Trust. The General
Partner’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 Limited Partners. This in turn could hurt both our
ability to make distributions and the value of our Interests.
Loans Involving Affiliates
We do not make any loans to the General Partner, the Adviser or to any of their affiliates. In addition, we do not
make any loans to its dealer manager, Terra Capital Markets or any entities or individuals affiliated with its dealer
manager.
Under our Limited Partnership Agreement, the General Partner, the Adviser or their 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 General Partner and the Adviser 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 General Partner, the Adviser, and their affiliates on the one hand, and us and our
Limited Partners, on the other.
The Resolution of Conflicts Will Be Undertaken by Employees of the General Partner, the Adviser and their
Affiliates
In the event of a conflict between us and the Adviser or the Adviser’s affiliates, including the General Partner, the
conflict will be resolved by the General Partner to the extent permissible under applicable law. Although the Adviser
has certain fiduciary responsibilities to the Partnership and to the Limited Partners, a conflict of interest policy
specifically relating to the resolution of conflicts between the Partnership or the REIT Subsidiary, Terra Property Trust,
the REIT Manager and the Adviser and its affiliates does not exist.
The Adviser may effect client cross-transactions where the Adviser causes a transaction to be effected between
the Partnership and another account managed or advised by it or any of its affiliates when they believe such
transactions are appropriate and in accordance with applicable regulatory requirements. To the extent that a cross
transaction may be viewed as a principal transaction due to the ownership interest in the Partnership or such other
client by the Adviser or its affiliates, the Partnership will comply with the requirements of Section 206(3) of the
Advisers Act, including obtaining the requisite consent.
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No Independent Counsel
Our counsel and the Adviser’s and General Partner’s counsel in connection with this offering is the same, and it
is anticipated that such multiple representation will continue in the future. As a result, conflicts may arise in the future
and if those conflicts cannot be resolved or the consent of the respective parties obtained to the continuation to the
multiple representations after full disclosure of any such conflict, said counsel will withdraw from representing one
or more of the conflicting interests with respect to the specific matter involved. Each subscriber acknowledges and
agrees that counsel representing us, the Adviser, the General Partner, and their 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 Limited Partners in any respect. Additionally, each Limited Partner consents to us hiring counsel that is
also counsel for the Adviser, the General Partner, and their other affiliates. Subscribers seeking legal advice should
retain their own counsel and conduct any due diligence they deem appropriate to verify the accuracy of the
representations or information set forth in this memorandum.
Representation in Tax Audit Proceedings
The General Partner will be designated as our “partnership representative” and is authorized and directed by our
Limited Partnership Agreement to represent us and our Limited Partners, 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 General Partner or its affiliates act as manager.
In those situations, the positions taken by the General Partner with respect to us may have differing effects on us and
the other programs. Any decisions made by the General Partner with respect to those matters will be made in a manner
consistent with its duties to us and to our Limited Partners.
Other Conflicts of Interest
We will be subject to conflicts of interest arising out of our relationship with the Adviser and its affiliates,
including the General Partner. In the future, we may enter into additional transactions with Terra Capital Partners or
its affiliates. 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 General Partner.
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.
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PLAN OF DISTRIBUTION
General
Subject to the terms and conditions set forth in this memorandum, we are offering aggregate subscriptions of
U.S. $50,000,000 (subject to increase at the sole discretion of the General Partner) to persons are not “United States
persons” as defined in Section 7701(a)(30) of the Code. Each investor must comply with the suitability requirements
of his or her country.
The Partnership has engaged IDB to serve as placement agent for the offering. Each Investor must commit to
subscribe for at least U.S. $100,000, unless waived in the General Partner’s sole discretion, all of which will be due
and payable upon acceptance of such investor’s commitment, unless such minimum purchase requirement is
specifically waived by our General Partner. The Interests may not be withdrawn by the investors. We intend to continue
to the offering until the earlier of (i) December 31, 2019, (ii) the date that all of the offered Interests have been sold,
and (iii) such earlier date as the General Partner shall determine, If the offering is not terminated by December 31,
2019, the General Partner may extend the offering period for up to two six month periods in its sole discretion.
Following the termination offering termination date, the General Partner may, from time to time in its sole discretion,
cause the Partnership to accept additional subscriptions, in cash or in-kind, from the General Partner, its affiliates or
entities that are sponsored by the foregoing.
Qualifications of Purchasers
An investment in the Partnership involves a high degree of risk and is suitable only for investors that have no
need for liquidity in their investments. Accordingly, we intend to limit this offering only to persons who are not “United
States persons” as defined in Section 7701(a)(30) of the Code. Each investor will need to comply with the suitability
requirements of his or her country. The Interests may not be withdrawn by the investors. Each subscriber must
represent that they meet the investor suitability requirements described under the section entitled “Who May Invest.”
A full description of the representations to be made by prospective investors can be found in our subscription
agreement. Each subscriber also may be required to provide current financial and other information to us to enable us
to determine whether such subscriber is qualified to invest in the Partnership.
Sale of the Interests
Each Limited Partner must commit to subscribe for at least U.S. $100,000, unless waived in the General Partner’s
sole discretion, all of which will be due and payable upon acceptance of such investor’s subscription commitment.
The Interests may not be withdrawn by investors. There is no assurance that the Partnership will be fully subscribed.
The General Partner reserves the right to refuse to reject subscriptions of any person and may terminate this offering
and stop accepting subscriptions at any time and for any reason.
Escrow Deposit
Subscription proceeds will be held in the Partnership escrow account with the Escrow Agent until the earlier of
(i) the sale of the minimum offering of U.S. $1,000,000 in Interests, (ii) August 31, 2019 and (iii) such earlier date as
the General Partner shall determine. The Escrow Agent will release the funds to us only after we have sold
U.S. $1,000,000 in this offering. If we have not sold the minimum offering of U.S. $1,000,000 on or before August
31, 2019, all escrow funds will be returned to subscribers, without interest. We will not receive any fees or expenses
out of any funds returned to investors, and neither IDB nor any other placement agents we may engage will receive
any fees related to such returned funds.
Marketing of Interests
We will pay aggregate selling commissions to IDB and any other placement agents we may engage of up to 5.0%
of the gross proceeds from sale of Interests, payable as follows: (i) up to 2.0% of the gross proceeds payable at the
time of such sale, plus (ii) up to 1.0% of the gross proceeds payable for each of the three years thereafter on the
anniversary of the offering termination date; provided, however, that aggregate selling commissions payable shall not
exceed 5.0% of the gross proceeds of subscriptions. The selling commissions may be waived or reduced for certain
categories of purchasers. However, to the extent required by applicable law, no selling commission or any other
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compensation will be paid in connection with Interests purchased in the offering by an investor who has engaged the
services of an individual compensated on a fee-for-service basis and prohibited from receiving such selling
commission or other compensation under applicable securities laws.
Sales Materials
In addition to this memorandum, we may make use of brochures, pamphlets and other sales literature describing
certain aspects of our business and this offering. The General Partner and its affiliates may also respond to specific
questions from IDB and any other placement agents we may engage, as well as prospective investors. Information
relating to this offering may be made available to IDB and any other placement agents we may engage for internal
use. However, this offering is made only by means of this memorandum and the documents provided herewith. The
information in the supplemental sales material does not purport to be complete and should not be considered a part of
this memorandum, or as incorporated in this memorandum by reference or as forming the basis of this offering.
Neither IDB nor any other placement agent we may engage, nor any salesman or other person has been authorized
to give any information or to make any representations other than those contained in this memorandum or in any sales
literature issued by us and referred to in this memorandum, and, if given or made, such information or representations
must not be relied upon.
Acceptance of Subscriptions
We will generally inform the subscriber within 30 days of receipt of a completed subscription agreement whether
its subscription has been accepted or rejected. If we reject a subscription, we will promptly return the investor’s funds,
without interest. We will not receive any fees or expenses out of any funds returned to investors, and neither IDB nor
any other placement agents we may engage will receive any fees related to such returned funds.
Limitation of Offering
The offer and sale of the Interests are made in reliance upon exemptions from the applicable securities laws of
each of Argentina, Bahamas, Belize, Brazil, British Virgin Islands, Canada, Chile, Colombia, Costa Rica, Israel,
Mexico, New Zealand, Panama, Peru, Portugal, St Kitts and Nevis, Thailand, United Kingdom, Uruguay, and
Venezuela, and any other jurisdictions as determined by the General Partner in its sole discretion. Accordingly,
distribution of this memorandum has been strictly limited to persons satisfying the suitability requirements described
herein, and this memorandum does not constitute an offer to sell or a solicitation of an offer to buy with respect to any
person not satisfying those requirements.
Offering Terms Subject to Modification
We reserve the unconditional right to cancel or modify the offering, to reject subscriptions in whole or in part, to
accept subscriptions for less than the minimum amount, and to waive conditions to the purchase of Interests.
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DESCRIPTION OF OUR INTERESTS
The Interests represent equity interests in the Partnership. Persons whose subscription for Interests is accepted by
the General Partner shall become Limited Partners of the Partnership and are entitled to vote on certain matters. We
will generally not issue certificates for the Interests.
The Interests may not be freely assigned and are subject to restrictions on transfer by law or by regulation in the
jurisdiction where they are sold, and may be subject to restrictions on transfer imposed by lenders. It is not anticipated
that a public trading market in the Interests will develop.
There are substantial restrictions on the transferability of the Interests imposed by applicable securities laws.
Lenders may also impose additional restrictions on the transferability of Interests. Before selling or transferring of
Interests, a Limited Partner must obtain the written consent of the General Partner, which will not be unreasonably
withheld, and comply with applicable requirements of applicable securities laws and regulations, including the
financial suitability requirements of such laws or regulations and any applicable anti-money laundering standards. See
“Anti-Money Laundering” below. It is highly unlikely that any market for the Interests will ever develop. You should
view an investment in the Interests solely as a long-term investment.
The governing documents of the Partnership will contain Ownership Restrictions that generally restrict the
beneficial and constructive ownership of the Interests in the Partnership by any person to 9.8% of such Interests. The
purpose of the Ownership Restrictions is to assist in protecting the REIT Subsidiary’s status as a REIT.
The Interests offered by this memorandum have not been registered under the applicable securities laws of each
of Argentina, Bahamas, Belize, Brazil, British Virgin Islands, Canada, Chile, Colombia, Costa Rica, Israel, Mexico,
New Zealand, Panama, Peru, Portugal, St Kitts and Nevis, Thailand, United Kingdom, Uruguay, and Venezuela, or
any applicable securities laws. The Interests may not be transferred or resold unless they are registered under the
applicable securities laws of each of Argentina, Bahamas, Belize, Brazil, British Virgin Islands, Canada, Chile,
Colombia, Costa Rica, Israel, Mexico, New Zealand, Panama, Peru, Portugal, St Kitts and Nevis, Thailand, United
Kingdom, Uruguay, and Venezuela, and any other jurisdictions as determined by the General Partner in its sole
discretion or unless exemptions from such registration and qualification are available.
Appropriate legends setting forth the restrictions on transfer of the Interests are set out in the subscription
agreement.
Conduent Securities Services, Inc., our Administrator, will act as our transfer agent and registrar and will perform
various Limited Partner services for us, including processing of subscription forms for us. The Administrator will
receive a fee from us in accordance with its customary fee schedule, and we will also reimburse the Administrator for
all reasonable out-of-pocket expenses, subject to the terms of a written agreement with the Administrator.
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VALUATION OF PARTNERSHIP ASSETS
Valuation of the Partnership’s assets will be carried out annually or more frequently as determined in the sole
discretion of the General Partner. The net asset value of the Partnership shall be equivalent to all the assets less all the
liabilities of the Partnership as at the relevant date of valuation.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of certain U.S. federal income tax consequences to non-U.S. Limited Partners
(as defined below) of an investment in the Partnership. It is not intended as a complete analysis of all possible tax
considerations in acquiring, holding and disposing of an Interest in the Partnership and, therefore, is not a substitute
for careful tax planning by each investor. No ruling from the Internal Revenue Service (the “IRS”), and no opinion
of legal counsel, has been or will be sought as to any matter discussed below.
This discussion of the federal income tax consequences of an investment in the Partnership is based upon existing
law, contained in the Code, the Treasury regulations promulgated under the Code (“Regulations”), administrative
rulings and other pronouncements, and court decisions as of the date hereof. The existing law, as currently interpreted,
is subject to change by either new legislation, or by differing interpretations of existing law in regulations,
administrative pronouncements or court decisions, any of which could, by retroactive application or otherwise,
adversely affect a Limited Partner’s investment in the Partnership.
For purposes of this discussion, a “U.S. Person” is (i) an individual who is a citizen of the United States or is
treated as a resident of the United States for U.S. federal income tax purposes, (ii) a corporation or other entity treated
as a corporation for U.S. federal income tax purposes that is created or organized in or under the laws of the United
States, any State thereof or the District of Columbia, (iii) an estate, the income of which is subject to U.S. federal
income taxation regardless of its source, or (iv) a trust that (a) is subject to the supervision of a court within the United
States and the control of one or more U.S. Persons or (b) has a valid election in effect under applicable Treasury
Regulations to be treated as a U.S. Person. A “U.S. Limited Partner” is a Limited Partner that is a U.S. Person. A “Non-
U.S. Person” is an individual, corporation, estate or trust for U.S. federal income tax purposes and is not a U.S. Person,
and a “Non-U.S. Limited Partner” is a Limited Partner that is a Non-U.S. Person. If an interest is held by an entity
treated as a partnership for U.S. federal income tax purposes, the tax treatment of a partner thereof will generally
depend on the status of the partner and the activities of the partnership. Accordingly, if a prospective investor is treated
as a partnership for U.S. federal income tax purposes, the partnership and its partners should consult their tax advisers
regarding the U.S. tax consequences of an investment in the Partnership.
PROSPECTIVE INVESTORS MUST CONSULT WITH AND RELY SOLELY ON THE ADVICE OF AN
INDEPENDENT TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES (INCLUDING NON-
U.S. TAX CONSEQUENCES) OF AN INVESTMENT IN THE PARTNERSHIP BASED ON THEIR
PARTICULAR CIRCUMSTANCES.
Treatment as a Partnership.
The Partnership expects to be treated as a partnership for federal income tax purposes. The Partnership does not
expect to be treated as a publicly traded partnership (which, under certain circumstances, is taxable as a corporation).
Accordingly, subject to the discussion below, the Partnership does not expect to pay any federal income tax. Treatment
of the Partnership as a corporation for federal income tax purposes would materially reduce the anticipated benefits
of an investment in the Partnership. The balance of this discussion assumes that the Partnership will be treated as a
partnership for tax purposes and will not be taxed as a corporation.
Possible IRS Challenges; Tax Audits
Under the U.S. rules for audits of partnerships, the Partnership (rather than the Partners) will generally be required
to pay any imputed underpayments, including interest and penalties, resulting from an adjustment to the Partnership’s
items of income, gain, loss, deduction or credit, or an adjustment to the allocation of such items among the Partners.
Such imputed underpayments will be based on the highest individual or corporate income tax rate in effect for the
year being audited, unless the Partnership is able to establish that the underpayment is allocable to a Partner that would
have otherwise been taxed at a lower rate. In some cases, the Partnership may be required to pay an imputed
underpayment with respect to items of taxable income on which a Partner has previously paid tax. The Partnership
may treat any imputed underpayments as a deemed distribution to the Partner to which such imputed underpayment
is allocable As an alternative to paying the imputed underpayment, the Partnership may elect to cause each Partner to
take into account its share of any adjustment. However, in that case, the Partners would be subject to a higher rate of
interest with respect to any underpayment than would have applied if the Partnership were subject to the
underpayment.
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Under the new audit rules, the General Partner will be appointed the Partnership’s “partnership representative”
with the authority to determine the Partnership’s response to an audit and to make all related decisions and elections.
Any actions taken by the General Partner as the Partnership’s partnership representative would be binding on both the
Partnership and the Partners. The IRS will not be required to provide notice of any audit or proceeding to any other
Partner.
Treatment of REIT Subsidiary
The General Partner expects to cause the REIT Subsidiary to elect to be classified as corporations and to elect to
be taxed as a REIT. If the REIT Subsidiary elects to be taxed as a REIT but fails to qualify as a REIT or loses its
qualification as a REIT at any time, it will face materially adverse tax consequences that would substantially reduce
the Partnerships available for distribution to the Partnership, which would reduce the funds available for distribution
by the Partnership to the Limited Partners, for each of the years involved. Qualification as a REIT involves the
application of highly technical and complex Internal Revenue Code provisions for which there are only limited judicial
and administrative interpretations. The determination of various factual matters and circumstances not entirely within
the Partnership’s control may affect the REIT Subsidiary’s ability to qualify as a REIT.
Taxation of Limited Partners on Income or Losses of the Partnership Generally
No federal income tax is payable by an entity that is treated as a partnership for federal income tax purposes.
Instead, the income of the Partnership is treated as the income of the Partners, whether or not cash is distributed to the
Partners during the taxable year.
Taxation of Non-U.S. Limited Partners
In general, the tax treatment of a Non-U.S. Limited Partner will depend on whether the Partnership is deemed to
be engaged in a U.S. trade or business and whether the Partnership earns income that is effectively connected with
such trade or business (“ECI”). The Partnership generally expects to conduct its business in a manner that would not
cause Non-U.S. Limited Partners to be treated as engaged in a U.S. trade or business.
To the extent the Partnership is not engaged in a U.S. trade or business, U.S.-source dividends (including
dividends from the REIT Subsidiary) paid to the Partnership that are allocable to a Non-U.S. Limited Partner generally
will be subject to a 30% withholding tax unless a lower rate or exemption applies pursuant to an applicable income
tax treaty. U.S.-source interest paid to the Partnership that is allocable to a Non-U.S. Limited Partner will also be
subject to a 30% withholding tax unless such interest qualifies as “portfolio interest,” another statutory exception
applies, or a lower rate or exemption applies pursuant to an applicable income tax treaty. Portfolio interest generally
includes (with certain exceptions) interest paid on registered obligations with respect to which the beneficial owner
provides a statement that it is not a U.S. Person. The portfolio interest exemption is not available with respect to
interest paid by the REIT Subsidiary to a person that owns 10% or more of the voting stock of the REIT Subsidiary
and is subject to certain other limitations. The General Partner expects that interest paid by the REIT Subsidiary to the
Partnership will qualify as portfolio interest. A Non-U.S. Limited Partner who is resident for tax purposes in a country
with respect to which the United States has an income tax treaty may be eligible for a reduced rate of withholding on
such Limited Partner’s distributive share of U.S.-source interest and dividends. Limited Partners claiming the benefits
of a tax treaty or the portfolio interest exemption are required to provide certain documentation to the Partnership.
FIRPTA. Under certain provisions of the Code commonly referred to as FIRPTA, Non-U.S. Limited Partners
generally will be taxed on their allocable share of gain derived from the disposition of “United States real property
interests” (“USRPIs”) by the Partnership, as well as gain realized on the disposition of their interest in the Partnership
to the extent attributable to the Partnership’s USRPIs. Under FIRPTA, Non-U.S. Limited Partners treat gain or loss
from dispositions of USRPIs as ECI and, therefore, are required to report such income on U.S. federal income tax
returns and pay U.S. federal income taxes at regular U.S. rates on such gain or loss. Also, such gain may be subject to
a 30% branch profits tax in the case of non-U.S. corporations and special withholding rules.
Gain realized by a Non-U.S. Limited partner upon a disposition of its Interest in the Partnership will be treated as
ECI subject to U.S. federal income tax to the extent attributable to USRPIs held by the Partnership at the time of
disposition. In addition, if (i) 50% or more of the Partnership’s gross assets consist of USRPIs and (ii) 90% or more
of the Partnership’s gross assets consist of USRPIs and cash or cash equivalents, a purchaser will be required to
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withhold from the purchase price an amount equal to 15% of the amount realized by the Non-U.S. Limited Partner,
which will include the Non-U.S. Limited Partner’s share of the Partnership’s liabilities.
The Partnership does not expect that its investments, including stock of the REIT Subsidiary, will be USRPIs.
REIT Investments. Assuming that the REIT Subsidiary elects to be taxed as a REIT, dividends from the REIT
Subsidiary that are allocable to a Non-U.S. Limited Partner and that are not attributable to gains from the sale of
USRPIs by the REIT Subsidiary (or Terra Property Trust) will be subject to U.S. federal withholding tax at a 30% rate,
unless reduced by an applicable tax treaty. To the extent REIT dividends are attributable to excess inclusion income
with respect to REMIC residual interests or taxable mortgage pools held by the REIT Subsidiary, no reduced treaty
withholding rates would apply. Dividends that are attributable to gains from the sale of USRPIs by the REIT Subsidiary
(or Terra Property Trust) will be treated as ECI. The REIT Subsidiary is not expected to hold USRPIs.
In general, gains on sale of stock of a REIT may be taxable under FIRPTA if the REIT is a U.S. real property
holding corporation. The REIT Subsidiary should not be a U.S. real property holding corporation.
Dispositions of Interests. Gain realized on the disposition (including by redemption) by a Non-U.S. Limited
Partner of its interest in the Partnership will be treated as ECI to the extent such gain is attributable to assets of the
Partnership that generate ECI or USRPIs, including for this purpose gain that is attributable to stock of a U.S. real
property holding corporation, and may be subject to U.S. withholding tax under certain circumstances. As noted above,
the stock of the REIT Subsidiary is not expected to be a USRPI. Gain that is not attributable to assets that generate
ECI or USRPIs generally would not be subject to U.S. federal income tax, except in the case of a Non-U.S. Limited
Partner that is an individual and is present in the United States for 183 days or more in the taxable year of the sale and
has a tax home for U.S. federal income tax purposes in the United States.
FATCA
Under sections of the Code, commonly referred to as “FATCA,” withholding at a rate of 30% will be required on
payments of U.S.-source dividends, interest and certain other types of income to certain foreign financial institutions
(including investment funds), unless such institution enters into an agreement with the Secretary of the Treasury
(unless alternative procedures apply pursuant to an applicable intergovernmental agreement between the United States
and the relevant foreign government) to report, on an annual basis, information with respect to shares in, and accounts
maintained by, the institution to the extent such shares or accounts are held by certain U.S. persons or by certain non-
U.S. entities that are wholly or partially owned by U.S. persons. Similarly, U.S.-source dividends, interest and certain
other types of income paid to an investor that is a passive non-financial non-U.S. entity will be subject to withholding
at a rate of 30%, unless such entity either (i) certifies to us that such entity does not have any “substantial U.S. owners”
or (ii) provides certain information regarding the entity’s “substantial U.S. owners,” which we will in turn provide to
the Secretary of the Treasury. While withholding under FATCA also would have applied to payments of gross proceeds
from the sale or other disposition of stock or debt instruments of U.S. obligors after December 31, 2018, recently
proposed Treasury Regulations eliminate FATCA withholding on payments of gross proceeds entirely. Taxpayers
generally may rely on these proposed Treasury Regulations until final Treasury Regulations are issued.
The Partnership may be required to withhold 30% of distributions to Limited Partners that are non-U.S.
partnerships or corporations unless those Limited Partners provide the Partnership with information regarding their
U.S. partners or shareholders, which information will be required to be disclosed to the United States Treasury.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX ADVISERS REGARDING FATCA
WITHHOLDING.
REIT Qualification and Taxation
As described above, the Partnership expects invest substantially all of its offering proceeds in the REIT Subsidiary,
and the REIT Subsidiary expects to elect to be taxed as a REIT. The sections of the Code and the corresponding
Treasury Regulations that relate to qualification and taxation as a REIT are highly technical and complex. The
following sets forth certain aspects of the sections of the Code that govern the U.S. federal income tax qualification
and taxation of a REIT. The rules described below apply to both the REIT Subsidiary and Terra Property Trust.
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If the REIT Subsidiary elects to be taxed as a REIT and qualifies for taxation as a REIT, it generally will not be
required to pay federal corporate income taxes on its net income that is currently distributed to its shareholders. This
treatment substantially eliminates the “double taxation” that ordinarily results from investment in a taxable C
corporation. Double taxation means taxation once at the corporate-level when income is earned and once again at the
shareholder level when the income is distributed. Entities that qualify for taxation as a REIT will, however, be required
to pay federal income tax as follows:
• A REIT will be required to pay tax at regular corporate rates on any undistributed REIT taxable income,
including undistributed net capital gains.
• If the REIT has (1) net income from the sale or other disposition of “foreclosure property” held primarily
for sale to customers in the ordinary course of business or (2) other non-qualifying income from
foreclosure property, it will be required to pay tax at the highest corporate rate on such income.
Foreclosure property generally is defined as property a REIT acquires through foreclosure or after a
default on a loan secured by the property or a lease of the property and for which an election is in effect.
• A REIT will be required to pay a 100% tax on any net income from prohibited transactions. Prohibited
transactions are, in general, sales or other taxable dispositions of property, other than foreclosure
property, held primarily for sale to customers in the ordinary course of business.
• If a REIT fails to satisfy the 75% gross income test or the 95% gross income test, as described below,
but has otherwise maintained its qualification as a REIT because certain other requirements are met, it
will be required to pay a tax equal to (1) the greater of (a) the amount by which 75% of its gross income
exceeds the amount qualifying under the 75% gross income test, and (b) the amount by which 95% of
its gross income exceeds the amount qualifying under the 95% gross income test, multiplied by (2) a
fraction intended to reflect the REIT’s profitability.
• If the REIT fails to satisfy any of the REIT asset tests (other than a de minimis failure of the 5% or 10%
asset tests), as described below, due to reasonable cause and not due to willful neglect, and it nonetheless
maintains its REIT qualification because of specified cure provisions, the REIT will be required to pay
a tax equal to the greater of $50,000 or the highest corporate tax rate multiplied by the net income
generated by the non-qualifying assets that caused it to fail such test.
• If the REIT fails to satisfy any provision of the Code that would result in its failure to qualify as a REIT
(other than a violation of the REIT gross income tests or certain violations of the asset tests described
below) and the violation is due to reasonable cause and not due to willful neglect, the REIT may retain
its REIT qualification but will be required to pay a penalty of $50,000 for each such failure.
• The REIT will be required to pay a 4% excise tax to the extent it fails to distribute during each calendar
year at least the sum of (1) 85% of its REIT ordinary income for the year, (2) 95% of its REIT capital
gain net income for the year, and (3) any undistributed taxable income from prior periods.
• If the REIT acquires any asset from a corporation which is or has been a C corporation in a transaction
in which the basis of the asset in the REIT’s hands is less than the fair market value of the asset on the
date the asset is acquired, and the REIT subsequently recognizes gain on the disposition of the asset
during the five-year period beginning on the date on which it acquired the asset, then the REIT will be
required to pay tax at the highest regular corporate tax rate on this gain to the extent of the excess of (1)
the fair market value of the asset over (2) its adjusted basis in the asset, in each case determined as of
the date on which the REIT acquired the asset. The results described in this paragraph with respect to
the recognition of gain assume that the C corporation will refrain from making an election to receive
different treatment under existing Treasury Regulations on its tax return for the year in which the REIT
acquires an asset from the C corporation.
• The REIT will be required to pay a 100% tax on any “redetermined rents,” “redetermined deductions,”
“redetermined services income” or “excess interest,” generally as a result of transactions between the
REIT and a taxable REIT subsidiary that are not compensated at arm’s-length rates.
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Share Ownership Test. After the first taxable year of the REIT, shares of a REIT must be held by a minimum of
100 persons for at least 335 days in each taxable year or a proportional number of days in any short taxable year. In
addition, at all times during the second half of each taxable year after the first taxable year of the REIT, no more than
50% in value of the shares may be owned, directly or indirectly and by applying constructive ownership rules, by five
or fewer individuals, which for this purpose includes some tax-exempt entities. The Partnership will hold all of the
outstanding non-voting common share of the REIT Subsidiary. The General Partner will own the only voting interests
of the REIT Subsidiary. The REIT Subsidiary will issue non-voting preferred interests to investors in at least an
amount necessary to satisfy the 100 investor requirement.
The governing documents of the Partnership will contain provisions (the “Ownership Restrictions”) that generally
restrict the beneficial and constructive ownership of the Interests in the Partnership to protect the REIT Subsidiary’s
status as a REIT. If any person’s ownership of interests in the Partnership would cause the REIT to fail to qualify as
a REIT, Interests will be deemed to have been transferred to an unaffiliated trustee and held in trust for the benefit of
a charitable beneficiary. A transfer of an Interest or of any direct or indirect ownership interest in a Limited Partner
may cause such person’s Interests in the Partnership to be transferred to a charitable trust.
Each Limited Partner will be required to provide to the Partnership such information as the General Partner may
reasonably request to determine the effect of such person’s ownership of interests in the Partnership on the REIT
Subsidiary’s status as a REIT for U.S. federal income tax purposes.
Ownership of Interests in a Qualified REIT Subsidiary. A REIT may own certain wholly owned subsidiaries that
are intended to be treated as “qualified REIT subsidiaries” under the Code. A corporation will qualify as a qualified
REIT subsidiary if the REIT owns 100% of the corporation’s outstanding stock (directly and/or through disregarded
subsidiaries) and it does not elect with the corporation to treat it as a “taxable REIT subsidiary,” as described below.
A qualified REIT subsidiary is not treated as a separate corporation for federal income tax purposes, and all assets,
liabilities and items of income, gain, loss, deduction and credit of a qualified REIT subsidiary are treated as assets,
liabilities and items of income, gain, loss, deduction and credit (as the case may be) of the parent REIT for all purposes
under the Code, including the REIT qualification tests. Thus, in applying the federal income tax requirements
described in this summary, any corporation in which a REIT owns a 100% interest (other than a taxable REIT
subsidiary) is ignored, and all assets, liabilities, and items of income, gain, loss, deduction and credit of such
corporation are treated as the assets, liabilities and items of income, gain, loss, deduction, and credit of the REIT. A
qualified REIT subsidiary is not required to pay federal income tax, and a REIT’s ownership of the stock of a qualified
REIT subsidiary will not violate the restrictions on ownership of securities described below under “Asset Tests.”
Ownership of Interests in Taxable REIT Subsidiaries. A taxable REIT subsidiary is a corporation other than a
REIT in which a REIT directly or indirectly holds stock, and that has made a joint election with the REIT to be treated
as a taxable REIT subsidiary. A taxable REIT subsidiary also includes any corporation, other than a REIT, with respect
to which a taxable REIT subsidiary owns securities possessing more than 35% of the total voting power or value.
Other than some activities relating to lodging and health care facilities, a taxable REIT subsidiary may generally
engage in any business, including the provision of customary or non-customary services to tenants of its parent REIT.
A taxable REIT subsidiary is subject to federal income tax as a regular C corporation. In addition, a taxable REIT
subsidiary may be prevented from deducting interest on debt funded directly or indirectly by its parent REIT if certain
tests regarding the taxable REIT subsidiary’s debt to equity ratio and interest expense are not satisfied. A REIT’s
ownership of securities of its taxable REIT subsidiaries will not be subject to the 10% or 5% asset tests described
below.
Ownership of Interests in Partnerships. Where a REIT invests in a partnership, the REIT will be deemed to own
a proportionate share of the partnership’s assets based on its interest in partnership capital, subject to special rules
relating to the 10% asset test described below. This treatment also applies with respect to the ownership of interests in
limited liability companies that are treated as partnerships for tax purposes.
Asset Tests. At the close of each calendar quarter of its taxable year, a REIT must satisfy various tests relating to
the nature of its assets. First, at least 75% of the value of the REIT’s total assets must be represented by real estate
assets, cash, cash items and government securities. For purposes of this test, the term “real estate assets” generally
means real property (including interests in real property and interests in mortgages on real property), certain MBS,
shares (or transferable certificates of beneficial interest) in other REITs, debt instruments issued by “publicly offered
REITs,” and any stock or debt instrument attributable to the investment of the proceeds of a stock offering or a public
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offering of debt with a term of at least five years, but only for the one-year period beginning on the date the REIT
receives such proceeds.
Second, not more than 25% of the value of the REIT’s total assets may be represented by securities, other than
those securities includable in the 75% asset test.
Third, except for securities that are treated as real estate assets and securities of any “qualified REIT subsidiaries”
and “taxable REIT subsidiaries,” the value of any one issuer’s securities may not exceed 5% of the value of the REIT’s
total assets, and the REIT may not own more than 10% of the total vote or value of the outstanding securities of any
one issuer. Solely for purposes of the 10% value test, however, certain securities including, but not limited to “straight
debt” securities having specified characteristics, loans to an individual or an estate, obligations to pay rents from real
property and securities issued by a REIT, are disregarded as securities. In addition, solely for purposes of the 10%
value test, the determination of the REIT’s interest in the assets of a partnership or limited liability company in which
it owns an interest will be based on the REIT’s proportionate interest in any securities issued by the partnership or
limited liability company, excluding for this purpose certain securities described in the Code.
Fourth, not more than 20% of the value of the REIT’s total assets may be represented by the securities of one or
more taxable REIT subsidiaries.
Fifth, not more than 25% of the value of the REIT’s total assets may be represented by debt instruments issued
by “publicly offered REITs” that would not otherwise qualify as real estate assets.
The asset tests described above must be satisfied at the close of each calendar quarter of the REIT’s taxable year.
After initially meeting the asset tests at the close of any quarter, a REIT will not lose its status as a REIT for failure to
satisfy the asset tests at the end of a later quarter solely by reason of changes in asset values unless the REIT acquires
securities in the applicable issuer, increases its ownership of securities of such issuer (including as a result of increasing
its interest in other partnerships and limited liability companies which own such securities), or acquires other assets.
If the REIT fails to satisfy an asset test because it acquires securities or other property during a quarter, including as a
result of an increase in its interest in a subsidiary partnership, the REIT may cure this failure by disposing of sufficient
non-qualifying assets within 30 days after the close of that quarter.
Certain relief provisions may be available if the REIT discovers a failure to satisfy the asset tests described above
after the 30-day cure period. Under these provisions, the REIT will be deemed to have met the 5% and 10% asset tests
if the value of its non-qualifying assets (1) does not exceed the lesser of (a) 1% of the total value of its assets at the
end of the applicable quarter or (b) $10,000,000, and (2) the REIT disposes of the non-qualifying assets or otherwise
satisfy such asset tests within (a) six months after the last day of the quarter in which the failure to satisfy the asset
tests is discovered or (b) the period of time prescribed by Treasury Regulations to be issued. For violations of any of
the asset tests due to reasonable cause and not due to willful neglect and that are, in the case of the 5% and 10% asset
tests, in excess of the de minimis exception described above, the REIT may avoid disqualification as a REIT after the
30-day cure period by taking steps including (1) the disposition of sufficient non-qualifying assets, or the taking of
other actions, which allow the REIT to meet the asset tests within (a) six months after the last day of the quarter in
which the failure to satisfy the asset tests is discovered or (b) the period of time prescribed by Treasury Regulations
to be issued and (2) disclosing certain information to the IRS. In such case, the REIT will be required to pay a tax
equal to the greater of (a) $50,000 or (b) the highest corporate tax rate multiplied by the net income generated by the
non-qualifying assets.
Gross Income Tests. A REIT must satisfy two gross income requirements annually to maintain its qualification as
a REIT. First, in each taxable year, the REIT must derive directly or indirectly at least 75% of its gross income,
excluding gross income from prohibited transactions, certain hedging transactions, and certain foreign currency gains,
from (a) investments relating to real property or mortgages on real property, including “rents from real property” and,
in certain circumstances, interest, including interest with respect to certain MBS, or (b) some types of temporary
investments. Second, in each taxable year, the REIT must derive at least 95% of its gross income, excluding gross
income from prohibited transactions, certain hedging transactions, and certain foreign currency gains, from the real
property investments described above, dividends, interest and gain from the sale or disposition of stock or securities,
or from any combination of the foregoing.
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The term “interest,” as defined for purposes of both gross income tests, generally excludes any amount that is
based in whole or in part on the income or profits of any person; however, it generally includes the following: (i) an
amount that is received or accrued based on a fixed percentage or percentages of receipts or sales, and (ii) an amount
that is based on the income or profits of a debtor, as long as the debtor derives substantially all of its income from the
real property securing the debt by leasing substantially all of its interest in the property, and only to the extent that the
amounts received by the debtor would be qualifying “rents from real property” if received directly by a REIT.
Interest on debt secured by mortgages on real property or on interests in real property (including, for this purpose,
prepayment penalties, loan assumption fees and late payment charges that are not compensation for services) generally
is qualifying income for purposes of the 75% gross income test. However, if the highest principal amount of a loan
outstanding during a taxable year exceeds the fair market value of the real property securing the loan as of the date
the REIT agreed to originate or acquire the loan and the value of personal property securing the loan exceeds 15% of
the value of all property securing the loan, a portion of the interest income from such loan will not be qualifying
income for purposes of the 75% gross income test but will be qualifying income for purposes of the 95% gross income
test. The portion of the interest income that will not be qualifying income for purposes of the 75% gross income test
will be equal to the portion of the principal amount of the loan that is not secured by real property—that is, the amount
by which the loan exceeds the value of the real estate that is security for the loan.
A REIT may make or acquire mezzanine loans that are secured by equity interests in a pass-through entity that
directly or indirectly owns real property, rather than a direct mortgage on the real property. Revenue Procedure 2003-
65 provides a safe harbor pursuant to which a mezzanine loan, if it meets each of the requirements contained in the
Revenue Procedure, will be treated by the IRS as a real estate asset for purposes of the REIT asset tests (described
below), and interest derived from it will be treated as qualifying mortgage interest for purposes of the 75% gross
income test. Although the Revenue Procedure provides a safe harbor on which taxpayers may rely, it does not prescribe
rules of substantive tax law. Any mezzanine loans that Terra Property Trust makes or acquires may not meet all of the
requirements for reliance on this safe harbor. Hence, there can be no assurance that the IRS will not challenge the
qualification of such assets as real estate assets for purposes of the REIT asset tests (described below) or the interest
generated by these loans as qualifying income under the 75% gross income test.
Income from a “hedging transaction” entered into in the normal course of a REIT’s business primarily to manage
risk of (1) interest rate changes or fluctuations with respect to borrowings made or to be made by the REIT to acquire
or carry real estate assets, or (2) currency fluctuations with respect to an item of qualifying income under the 75% or
95% gross income test or to hedge an existing hedging position after a portion of the hedged indebtedness or property
has been disposed of, if clearly identified as a hedging transaction as specified in the Code, will not constitute gross
income and thus will be exempt from the 95% gross income test and from the 75% gross income test. To the extent
that a REIT does not properly identify such transactions as hedges, it hedges other risks or it hedges with other types
of financial instruments, the income from those transactions is not likely to be treated as qualifying income for
purposes of either gross income test.
If a REIT fails to satisfy one or both of the 75% or 95% gross income tests for any taxable year, the REIT may
nevertheless qualify as a REIT for the year if it is entitled to relief under certain provisions of the Code. A REIT
generally may make use of the relief provisions if following its identification of the failure to meet the 75% or 95%
gross income tests for any taxable year, the REIT files a schedule with the IRS setting forth each item of its gross
income for purposes of the 75% or 95% gross income tests for such taxable year in accordance with Treasury
Regulations to be issued, and the failure to meet these tests was due to reasonable cause and not due to willful neglect.
It is not possible, however, to state whether in all circumstances the REIT Subsidiary or Terra Property Trust
would be entitled to the benefit of these relief provisions. For example, if it fails to satisfy the gross income tests
because non-qualifying income that it intentionally accrues or receives exceeds the limits on non-qualifying income,
the IRS could conclude that its failure to satisfy the tests was not due to reasonable cause. If these relief provisions do
not apply to a particular set of circumstances, the REIT will not qualify as a REIT. Even if these relief provisions
apply, and it retains its status as a REIT, a tax would be imposed with respect to the REIT’s non-qualifying income.
Annual Distribution Requirements. To maintain its qualification as a REIT, a REIT is required to distribute
dividends, other than capital gain dividends, to its shareholders in an amount at least equal to the sum of:
• 90% of its “REIT taxable income,” and
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• 90% of its after-tax net income, if any, from foreclosure property, minus
• the excess of the sum of certain items of non-cash income over 5% of its “REIT taxable income.”
For these purposes, “REIT taxable income” is computed without regard to the dividends-paid deduction and net
capital gain. In addition, for purposes of this test, non-cash income means income attributable to leveled stepped rents,
original issue discount on purchase money debt, cancellation of indebtedness or a like-kind exchange that is later
determined to be taxable.
It is possible that the REIT Subsidiary, from time to time, may not have sufficient cash to meet the distribution
requirements due to timing differences between (1) the actual receipt of cash, including receipt of distributions from
its subsidiaries and (2) the inclusion of items in income by us for U.S. federal income tax purposes. For example, we
may acquire assets, including debt instruments requiring us to accrue OID or recognize market discount income that
generate taxable income in excess of economic income or in advance of the receipt of corresponding cash flow. In
addition, we may be required under the terms of certain indebtedness to use cash received from interest payments to
make principal payments on such indebtedness. Under the Tax Cuts and Jobs Act, a REIT may be required to take
certain amounts in income no later than the time such amounts are reflected on certain financial statements. The
application of this rule may require the accrual of income with respect to debt instruments or mortgage-backed
securities, such as original issue discount, earlier than would be the case under the general tax rules, although the
precise application of this rule is unclear at this time.
A REIT generally must pay, or be treated as paying, the distributions described above in the taxable year to which
they relate. At its election, a distribution will be treated as paid in a taxable year if it is declared before the REIT timely
files its tax return for such year and paid on or before the first regular dividend payment after such declaration, provided
such payment is made during the twelve-month period following the close of such year. These distributions generally
are taxable to the REIT’s shareholders, other than tax-exempt entities, in the year in which paid. This is so even though
these distributions relate to the prior year for purposes of the 90% distribution requirement. The amount distributed
must not be preferential — i.e., every shareholder of the class of stock to which a distribution is made must be treated
the same as every other shareholder of that class, and no class of stock may be treated other than according to its
dividend rights as a class. To the extent that a REIT does not distribute all of its net capital gain, or distribute at least
90%, but less than 100%, of its “REIT taxable income,” as adjusted, the REIT will be required to pay tax on the
undistributed amount at regular corporate tax rates.
Under some circumstances, a REIT may be able to rectify an inadvertent failure to meet the 90% distribution
requirements for a year by paying “deficiency dividends” to its shareholders in a later year, which may be included in
the REIT’s deduction for dividends paid for the earlier year. Thus, the REIT may be able to avoid being taxed on
amounts distributed as deficiency dividends, subject to the 4% excise tax described below. However, the REIT will be
required to pay interest to the IRS based upon the amount of any deduction claimed for deficiency dividends.
Furthermore, the REIT will be required to pay a 4% excise tax to the extent it fails to distribute during each
calendar year at least the sum of 85% of its REIT ordinary income for such year, 95% of its REIT capital gain net
income for the year and any undistributed taxable income from prior periods. Any ordinary income and net capital
gain on which this excise tax is imposed for any year is treated as an amount distributed during that year for purposes
of calculating such tax.
For purposes of the 90% distribution requirements and 4% excise tax described above, distributions declared
during the last three months of the taxable year, payable to shareholders of record on a specified date during such
period and paid during January of the following year, will be treated as paid by the REIT and received by its
shareholders on December 31 of the year in which they are declared.
Failure to Qualify. If a REIT fails to qualify for taxation as a REIT in any taxable year and relief provisions did
not apply, it would be subject to tax on its taxable income at regular corporate rates. Distributions by the REIT in any
year in which the REIT fails to qualify as a REIT would not be deductible by the REIT, nor generally would
distributions be required to be made by the REIT under the Code. Unless entitled to relief under specific statutory
provisions, a REIT also would be disqualified from reelecting taxation as a REIT for the four taxable years following
the year during which REIT qualification was lost.
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Possible Legislative or Other Actions Affecting Tax Aspects
The present U.S. federal income tax treatment of an investment in the Partnership may be modified by legislative,
judicial or administrative action at any time, and any such action may affect the treatment of such investment. The
U.S. federal income tax rules are constantly under review by persons involved in the legislative process and by the
IRS and U.S. Treasury Department, resulting from time to time in the adoption of new Treasury Regulations or changes
to existing regulations, revised interpretations of established concepts, as well as statutory changes. Any changes in
the U.S. federal tax laws or interpretations thereof could adversely affect the tax treatment of an investment in the
Partnership.
* * *
LIMITED PARTNERS MUST CONSULT THEIR OWN ADVISERS REGARDING THE POSSIBLE
APPLICABILITY OF NON-US TAXES IN THE JURISDICTIONS IN WHICH SUCH LIMITED PARTNER
IS TAX RESIDENT OR OTHERWISE MAINTAINS A TAXABLE PRESENCE TO AN INVESTMENT IN
THE PARTNERSHIP. THE FOREGOING SUMMARY IS NOT INTENDED AS A SUBSTITUTE FOR
PROFESSIONAL TAX ADVICE, NOR DOES IT PURPORT TO BE A COMPLETE DISCUSSION OF ALL
TAX CONSEQUENCES THAT COULD APPLY TO THIS INVESTMENT.
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CAYMAN ISLANDS TAX CONSIDERATIONS
The following is a summary of certain Cayman Islands tax consequences to persons who purchase partnership
interests in the partnership. The discussion is based upon applicable law of the Cayman Islands and on the advice of
Walkers, Cayman Islands counsel. The discussion does not address all of the tax consequences that may be relevant
to a particular partner. Prospective investors must consult their own tax advisers as to the Cayman Islands tax
consequences of acquiring, holding and disposing of partnership interests, as well as the effects of tax laws of the
jurisdictions of which they are citizens, residents or domiciliaries or in which they conduct business.
Taxation of the Partnership
There is, at present, no direct taxation in the Cayman Islands and interest, distributions and gains payable to the
Partnership will be received free of all Cayman Islands taxes. The Partnership is registered as an "exempted limited
partnership" pursuant to the Exempted Limited Partnership Law (as amended) (the "ELP Law"). The Partnership has
applied for, and expects to receive an undertaking from the Government of the Cayman Islands to the effect that, for
a period of 50 years from the date of the undertaking, no law that thereafter is enacted in the Cayman Islands imposing
any tax to be levied on profits or income or gains or appreciations, shall apply to the Partnership, or to any partner
thereof, in respect of the operations or assets of the Partnership or the partnership interest of a partner therein.
AEOI means one or more of the following, as the context requires:
1. sections 1471 to 1474 of the US Internal Revenue Code of 1986 and any associated legislation, regulations
or guidance, commonly referred to as the US Foreign Account Tax Compliance Act ("FATCA"), the
Common Reporting Standard ("CRS") issued by the Organisation for Economic Cooperation and
Development, or similar legislation, regulations or guidance enacted in any other jurisdiction which seeks
to implement equivalent tax reporting and/or withholding tax regimes;
2. any intergovernmental agreement, treaty or any other arrangement between the Cayman Islands and the US
or any other jurisdiction (including between any government bodies in each relevant jurisdiction), entered
into to facilitate, implement, comply with or supplement the legislation, regulations or guidance described
in paragraph (1); and
3. any legislation, regulations or guidance implemented in the Cayman Islands to give effect to the matters
outlined in the preceding paragraphs.
On November 29, 2013, the Cayman Islands government entered into an inter-governmental agreement with
the US (the "US IGA") in connection with the implementation of FATCA. The US IGA is intended to result in
the automatic exchange of tax information under FATCA. The two governments have also signed a Tax
Information Exchange Agreement which outlines the legal channels through which tax information will
automatically be exchanged.
On July 4, 2014, the Cayman Islands government issued the Tax Information Authority (International Tax
Compliance) (United States of America) Regulations (as amended) (the "US FATCA Regulations") to accompany the
Tax Information Authority Law (as amended) (the "TIA Law"). The US FATCA Regulations implement the provisions
of the US IGA. The US FATCA Regulations provide for the identification of and reporting on certain direct and
indirect US investors who are US citizens, and impact the Partnership and its investors.
Investors in the Partnership will be required to provide identifying information to the Partnership in order for the
Partnership to correctly classify the investor for the purposes of US FATCA, and should note that in the event an
investor does not supply such information on request, such investor may be classified as a 'US Reportable Account'
and information pertaining to such investor (and its holding in the Partnership) may be passed to the Cayman Islands
Tax Information Authority or its delegate (the "TIA"), who may then provide it to the United States Internal Revenue
Service (the "IRS"). Each investor should also note that any information provided to the Partnership which identifies
its direct or indirect ownership of an interest in the Partnership may be reported to the TIA and/or the IRS.
On 29 October 2014, the Cayman Islands along with 50 other jurisdictions signed a Multilateral Competent
Authority Agreement to demonstrate its commitment to implement the CRS. Local regulations, which require due
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diligence to be undertaken on new and pre-existing accounts, were enacted on 16 October 2015 and 19 December
2016 with reporting on such accounts commencing during 2017. More than 100 countries have since agreed to
implement the CRS, which imposes similar reporting and other obligations as the US IGA with respect to investors
who are tax resident in other signatory jurisdictions. The Partnership will be required to report to the TIA on an annual
basis, with account information being disseminated by the TIA to tax authorities around the globe. The Cayman
Islands government may also enter into additional agreements with other countries in the future, and additional
countries may adopt CRS, which will likely further increase the reporting and/or withholding obligations of the
Partnership.
Each investor acknowledges that the Partnership may take such action as it considers necessary in relation
to such investor's holding or redemption proceeds to ensure that any withholding tax payable by the Partnership,
and any related costs, interest, penalties and other losses and liabilities suffered by the Partnership or any other
investor, or any agent, delegate, employee, director, officer, manager, member or affiliate of any of the foregoing
persons pursuant to AEOI, arising from such investor's failure to provide the requested information to the
Partnership, is economically borne by such investor.
Consequences for Investors as a result of AEOI
The Partnership may take such action as it considers necessary in relation to an investor's holding or redemption
proceeds, as a result of relevant legislation and regulations, including but not limited to, AEOI. Such actions may
include, but are not limited to the following:
1. The disclosure by the Partnership or such other service provider or delegate of the Partnership, of certain
information relating to an investor to the TIA or equivalent authority and any other foreign government
body as required by AEOI. Such information may include, without limitation, confidential information
such as financial information concerning an investor's investment in the Partnership, and any information
relating to any shareholders, principals, partners, beneficial owners (direct or indirect) or controlling
persons (direct or indirect) of such investor.
The Partnership may compulsorily redeem any partnership interests held by an investor in accordance with the
terms of this memorandum and may deduct relevant amounts from a recalcitrant investor so that any withholding tax
payable by the Partnership or any related costs, debts, expenses, obligations or liabilities (whether internal or external
to the Partnership) are recovered from such investor(s) whose action or inaction (directly or indirectly) gave rise or
contributed to such taxes, costs or liabilities. Failure by an investor to assist the Partnership in meeting its obligations
pursuant to AEOI may therefore result in pecuniary loss to such investor.
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RESTRICTIONS ON TRANSFERABILITY
Applicable securities laws may impose substantial restrictions on the transferability of Interests. Before selling or
transferring any Interests, a Limited Partner must obtain the written consent of our General Partner, which will not be
unreasonably withheld, and comply with applicable requirements of applicable securities laws and regulations,
including the financial suitability requirements of such laws or regulations and any applicable anti-money laundering
standards. See “Anti-Money Laundering” below. It is highly unlikely that any market for Interests will develop and
prospective investors should view the Interests solely as a long-term investment.
An assignee of Interests may not become a substitute Limited Partner without meeting certain conditions and
without consent to such substitution by the General Partner, which will not be unreasonably withheld. If an assignee
is not admitted to our Partnership as a substitute Limited Partner, such assignee will have no right to vote on
Partnership matters, will have no right to information relating to our business and will have no right to participate in
the management of our business and affairs. Such assignee is only entitled to receive the share of profits and
distributions, and return of contributions, to which a Limited Partner would otherwise be entitled.
The Interests offered by this memorandum have not been registered under the applicable securities laws of each
of Argentina, Bahamas, Belize, Brazil, British Virgin Islands, Canada, Chile, Colombia, Costa Rica, Israel, Mexico,
New Zealand, Panama, Peru, Portugal, St Kitts and Nevis, Thailand, United Kingdom, Uruguay, and Venezuela, nor
any other jurisdictions. The Interests may not be resold unless they are registered under of the applicable securities
laws of each of Argentina, Bahamas, Belize, Brazil, British Virgin Islands, Canada, Chile, Colombia, Costa Rica,
Israel, Mexico, New Zealand, Panama, Peru, Portugal, St Kitts and Nevis, Thailand, United Kingdom, Uruguay, and
Venezuela, and any other jurisdictions as approved by the General Partner in its sole discretion or unless exemptions
from such registration and qualification are available.
MUTUAL FUNDS LAW
The Partnership “is not required to register or be regulated as a mutual fund” under the Mutual Funds Law (as
amended) of the Cayman Islands. Neither the Cayman Islands Monetary Authority nor any other governmental
authority in the Cayman Islands has passed judgment upon or approved the terms or merits of this document. There
is no investment compensation scheme available to investors in the Cayman Islands.
CAYMAN ISLANDS EXEMPTED LIMITED PARTNERSHIPS
The Partnership is to be constituted as a Cayman Islands exempted limited partnership under the ELP Law. A
Cayman Islands exempted limited partnership is constituted by the signing of the relevant partnership agreement and
its registration with the Registrar of Exempted Limited Partnerships in the Cayman Islands.
Notwithstanding registration, an exempted limited partnership is not a separate legal person distinct from its
partners. Under Cayman Islands law, any rights or property of every description of the exempted limited partnership,
including all choses in action and any right to make capital calls and receive the proceeds thereof that is conveyed to
or vested in or held on behalf of any one or more of the general partners or which is conveyed into or vested in the
name of the exempted limited partnership shall be held or deemed to be held by the general partner and if more than
one then by the general partners jointly, upon trust as an asset of the exempted limited partnership in accordance with
the terms of the partnership agreement. Similarly, any debt or obligation incurred by a general partner in the conduct
of the business of an exempted limited partnership shall be a debt or obligation of the exempted limited partnership.
Registration under the ELP Law entails that the partnership becomes subject to, and the limited partners therein are
afforded the limited liability and other benefits of, the ELP Law.
The business of an exempted limited partnership will be conducted by its general partner(s) who will be liable for
all debts and obligations of the exempted limited partnership to the extent the partnership’s assets are inadequate. As
a general matter, a limited partner of an exempted limited partnership will not be liable for the debts and obligations
of the exempted limited partnership save (i) as expressed in the partnership agreement or as otherwise agreed, (ii) if
such limited partner becomes involved in the conduct of the partnership’s business and holds himself out as a general
partner to third parties or (iii) if such limited partner is obliged pursuant to section 34 of the ELP Law to return a
distribution made to it where the exempted limited partnership is insolvent and the limited partner has actual
knowledge of the insolvency.
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ANTI-MONEY LAUNDERING
Cayman Islands
As part of the Partnership’s responsibility for the prevention of money laundering, the Partnership (including its
affiliates, subsidiaries or associates) will require a detailed verification of the applicant’s identity and the source of
payment. Depending on the circumstances of each application, a detailed verification might not be required where:
1. the applicant is a relevant financial business required to comply with the Anti-Money Laundering
Regulations, (as amended ; or is a majority-owned subsidiary of such a business; or
2. the applicant is acting in the course of a business in relation to which a regulatory authority exercises
regulatory functions and which is in a country listed by the Cayman Islands Anti-Money Laundering
Steering Committee (“Equivalent Jurisdiction”) or is a majority-owned subsidiary of such an applicant; or
3. the applicant is a central or local government organization, statutory body or agency of government in the
Cayman Islands or an Equivalent Jurisdiction; or
4. the applicant is a company that is listed on a recognized stock exchange and subject to disclosure
requirements which impose requirements to ensure adequate transparency of beneficial ownership, or is a
majority-owned subsidiary of such a company; or
5. the applicant is a pension fund for a professional association, trade union or is acting on behalf of
employees of an entity referred to in sub-paragraphs (1) to (4); or
6. the application is made through an intermediary which falls within one of sub-paragraphs (1) to (5). In this
situation the Partnership may rely on a written assurance from the intermediary which confirms (i) that the
requisite identification and verification procedures on the applicant for business and its beneficial owners
have been carried out; (ii) the nature and intended purpose of the business relationship; (iii) that the
intermediary has identified the source of funds of the applicant for business; and (iv) that the intermediary
shall make available copies of any identification and verification data or information and relevant
documents.
Alternatively, if the subscription payment is remitted from an account (or joint account) held in the applicant’s
name at a bank in the Cayman Islands or a bank regulated in an Equivalent Jurisdiction, a detailed verification might
not be required at the time of subscription. In this situation the Partnership may require evidence identifying the branch
or office of the bank from which the monies have been transferred, verify that the account is in the name of the
applicant and retain a written record of such details. However, a detailed verification will need to be carried out prior
to any redemption.
The Partnership reserves the right to request such information as is necessary to verify the identity of an applicant.
In the event of delay or failure by the applicant to produce any information required for verification purposes, will
refuse to accept the application and the subscription monies relating thereto.
If any person who is resident in the Cayman Islands has a suspicion that a payment to the Partnership (by way of
subscription or otherwise) contains the proceeds of criminal conduct that person is required to report such suspicion
pursuant to the Proceeds of Crime Law (as amended).
By subscribing, applicants consent to the disclosure by the Partnership of any information about them to
regulators and others upon request in connection with money laundering and similar matters both in the Cayman
Islands and in other jurisdictions.
Other Jurisdictions
The Partnership will comply with applicable U.S. anti-money laundering regulations. In addition, many
jurisdictions are in the process of changing or creating anti-money laundering, embargo and trade sanctions, or similar
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laws, regulations, requirements (whether or not with force of law) or regulatory policies and many financial
intermediaries are in the process of changing or creating responsive disclosure and compliance policies (collectively
“Requirements”) and the Partnership could be requested or required to obtain certain assurances from applicants
subscribing for partnership interests, disclose information pertaining to them to governmental, regulatory or other
authorities or to financial intermediaries or engage in due diligence or take other related actions in the future. It is the
Partnership’s policy to comply with Requirements to which it is or may become subject to and to interpret them
broadly in favor of disclosure. Each applicant will be required to agree in the Subscription Agreement, and will be
deemed to have agreed by reason of owning any Partnership interests, that it will provide additional information or
take such other actions as may be necessary or advisable for the Partnership (in the sole judgment of the Partnership)
to comply with any Requirements, related legal process or appropriate requests (whether formal or informal) or
otherwise. Each applicant by executing the Subscription Agreement consents, and by owning partnership interests is
deemed to have consented, to disclosure by the Partnership and its agents to relevant third parties of information
pertaining to it in respect of Requirements or information requests related thereto. Failure to honor any such request
may result in redemption by the Partnership or a forced sale to another investor of such applicant’s partnership
interests.
LITIGATION
None of we, the General Partner, the Adviser, or any of their affiliates is currently party to any material litigation,
nor to our knowledge is any litigation threatened against any of us, any of its management or any affiliate, which may
materially affect our operations or projected goals.
Subscribers seeking legal advice should retain their own counsel and conduct any due diligence they deem
appropriate to verify the accuracy of the representations or information set forth in this memorandum.
COUNSEL
Alston & Bird LLP serves as counsel to the Partnership and the General Partner. Alston & Bird LLP will not be
representing investors in the Partnership. Walkers serves as counsel to the Partnership and the General Partner as to
matters of Cayman Islands law. Walkers will not be representing investors in the Partnership.
REPORTS TO LIMITED PARTNERS
Limited Partners will be entitled to receive from us:
• an audited year-end balance sheet, income statement and a statement of changes in financial position
(all prepared in accordance with U.S. generally accepted accounting principles (“GAAP”)), as soon
as such statements become available, which is expected to be 90 days after the end of each fiscal
year;
• unaudited quarterly statements regarding our performance, cash distribution information and other
material information (also prepared in accordance with GAAP) as soon as such statements become
available, which is expected to be 45 days after the close of each of our fiscal quarters; and
• such other information as the General Partner may elect to distribute from time to time.
ADDITIONAL INFORMATION
Investors and their advisors are invited to review, at the General Partner’s offices, or at a mutually agreed upon
location at any reasonable hour and after reasonable prior notice, any materials reasonably available to the General
Partner and its management relating to our business, this offering, any information set forth in this memorandum or
any other matter deemed by the investor to be material to a decision to invest in the Partnership.
The General Partner will answer all inquiries from investors and their advisors concerning these matters and will
afford investors and their advisors the opportunities to obtain any additional information (to the extent the General
Partner possesses such information or can acquire it without unreasonable effort or expense) necessary to verify the
accuracy of the information set forth in this memorandum.