Fair Values

Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy prioritizes the inputs to be used in valuation techniques to measure fair value:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Certain of the Company's assets and liabilities are recorded at fair value either on a recurring or non-recurring basis. Assets required to be marked-to-market and reported at fair value every reporting period are classified as being valued on a recurring basis. Assets not required to be recorded at fair value every period may be recorded at fair value if a specific provision or other impairment is recorded within the period to mark the carrying value of the asset to market as of the reporting date. Such assets are classified as being valued on a non-recurring basis.

The following fair value hierarchy table summarizes the Company's assets and liabilities recorded at fair value on a recurring and non-recurring basis by the above categories ($ in thousands):



			Fair Value Using
	Total		Quoted market prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
As of June 30, 2015
Recurring basis:
Derivative assets	$	2,204	$	—	$	2,204	$	—
Derivative liabilities	684		—		684		—
Available-for-sale securities(1)	1,100		—		—		1,100
Non-recurring basis:
Impaired loans(2)	32,200		—		—		32,200
Impaired real estate(3)	1,215		—		—		1,215

As of December 31, 2014
Recurring basis:
Derivative assets	$	6,361	$	—	$	6,361	$	—
Derivative liabilities	478		—		478		—
Available-for-sale securities	7,906		7,906		—		—
Non-recurring basis:
Impaired loans(4)	37,169		—		—		37,169
Impaired real estate(5)	7,102		—		—		7,102

Explanatory Notes:

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(1)	The fair value of the Company's available-for-sale securities are based upon third-party broker quotes.


(2)	The Company recorded a provision for loan losses on one loan with a fair value of $24.2 million based on the expected proceeds to be received from the borrower. The Company also recorded a provision for loan losses on one loan with a fair value of $8.0 million based on a discount rate of 12.6% using discounted cash flows over a six month term.


(3)	The Company recorded impairment on one real estate asset with a fair value of $1.2 million based on a discount rate of 11% using discounted cash flows over a six year hold period.

(4)

The Company recorded a recovery of loan losses on one loan with a fair value of $8.5 million based on the loan's remaining term of 1.5 years and interest rate of 4.7% using discounted cash flow analysis. The Company also recorded a provision for loan losses on one loan with a fair value of $5.2 million based on an appraisal. In addition, the Company recorded a provision for loan losses on one loan, collateralized by a land asset, with a fair value of $23.5 million based upon a foreclosure sale agreement. The land asset was acquired by an unconsolidated entity in which the Company is a partner.


(5)	The Company recorded impairment on one real estate asset with a fair value of $7.1 million based on a discount rate of 15.0% using discounted cash flows over a 10 year lease term.

Fair values of financial instruments—The Company's estimated fair values of its loans receivable and other lending investments, debt obligations, and loan participations payable were $1.6 billion, $4.3 billion, and $0.1 billion, respectively, as of June 30, 2015 and $1.4 billion, $4.1 billion, and $0.0 billion, respectively, as of December 31, 2014. The Company determined that the significant inputs used to value its loans receivable and other lending investments and debt obligations fall within Level 3 of the fair value hierarchy. The carrying value of other financial instruments including cash and cash equivalents, restricted cash, accrued interest receivable and accounts payable, approximate the fair values of the instruments. Cash and cash equivalents and restricted cash values are considered Level 1 on the fair value hierarchy. The fair value of other financial instruments, including derivative assets and liabilities, are included in the fair value hierarchy table above.