Fair Value Measurement of Financial Instruments

6 Months Ended

Jun. 30, 2013

Fair Value Measurement of Financial Instruments

Fair Value Measurement of Financial Instruments

5. Fair Value Measurement of Financial Instruments

We determined the following disclosure of estimated fair values using available market information and appropriate valuation methodologies.  Considerable judgment is necessary to interpret market data and develop the related estimates of fair value.  Accordingly, the estimates presented are not necessarily indicative of the amounts that could be realized upon disposition of the financial instruments.  The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

As of June 30, 2013 and December 31, 2012, management estimated that the carrying value of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses, other liabilities, payables/receivables from related parties, and distributions payable were at amounts that reasonably approximated their fair value based on their highly liquid nature and/or short-term maturities, and the carrying value of notes receivable reasonably approximated fair value based on expected interest rates for notes to similar borrowers with similar terms and remaining maturities.

The notes payable totaling $140.5 million and $164.2 million including the loan secured by Becket House (classified as held for sale) as of June 30, 2013 and December 31, 2012, respectively, have a fair value of approximately $140.2 million and $163.8 million, respectively, based upon interest rates for mortgages with similar terms and remaining maturities that management believes we could obtain.  Interest rate swaps and caps are recorded at their respective fair values in prepaid expenses and other assets.  The fair value of the notes payable is categorized as a Level 2 basis.  The fair value is estimated using a discounted cash flow analysis valuation on the borrowing rates currently available for loans with similar terms and maturities.  The fair value of the notes payable was determined by discounting the future contractual interest and principal payments by a market rate.

The fair value estimates presented herein are based on information available to our management as of June 30, 2013 and December 31, 2012.  Although our management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these condensed consolidated financial statements since those respective dates, and current estimates of fair value may differ significantly from the amounts presented.