Property Plant and Equipment (Notes)

12 Months Ended

Dec. 31, 2019

Property, Plant and Equipment [Abstract]

Property and equipment, net consisted of the following (in thousands):



	December 31,
	2019			2018
Land and improvements	$	15,854		$	15,833
Building and improvements	47,558			46,561
Software	22,976			20,338
Office equipment and other	3,384			2,772
Construction in progress	247			—
Property and equipment, at cost	90,019			85,504
Less: Accumulated depreciation	(19,647		)	(15,701		)
Property and equipment, net	$	70,372		$	69,803

Depreciation expense related to property and equipment was $4.7 million, $4.3 million and $4.2 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Acquisition of Real Estate

In August 2018, the Company purchased a real property that houses the company headquarters located at 6100 Fourth Avenue South, Seattle, Washington. The real estate acquisition was determined to be an asset acquisition, with the purchase price allocated based on relative fair value of the assets acquired. Additionally, acquisition-related expenses were capitalized as part of the purchase price. The purchase price was $65.2 million, consisting of $55.0 million in cash, 303,030 shares of common stock with an estimated fair value of $9.6 million, and transaction costs totaling $0.6 million. The issued shares are subject to a lock-up period that continues to and includes June 25, 2020. The fair value of the issued shares was estimated as of the closing date for the real estate acquisition using the Black-Scholes option pricing model and the following assumptions:



	August 9, 2018
Assumptions	Fair Value
Risk free interest rate	2.5	%
Expected volatility	36.72	%
Expected life (years)	1.88
Expected dividend yield	—	%

The purchase price was allocated to the following assets based on estimates of their relative fair value (in thousands):



Building and improvements	$	46,379
Land and improvements	15,833
Lease-related intangible assets	2,959
Total purchase price	$	65,171

The Company assessed fair value on the date of the acquisition based on Level 3 inputs within the fair value framework, which included estimated cash flow projections that utilized appropriate discount rates, capitalization rates, renewal probability and available market information, which included market rental rates and market rent growth rates. Estimates of future cash flows were based on a number of factors including historical operating results, known and anticipated trends, and market and economic conditions.

The fair value of tangible assets of the acquired property considers the value of the property as if it were vacant. The fair value of acquired “above- and below-” market leases was based on the estimated cash flow projections utilizing discount rates that reflected the risks associated with the leases acquired. The amount recorded was based on the present value of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the extended term for any leases with below-market renewal options. Other intangible assets acquired included amounts for in-place lease values that were based on the Company’s evaluation of the specific characteristics of each tenant’s lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, market conditions and costs to execute similar leases. In estimating carrying costs, the Company included estimates of lost rents at market rates during the hypothetical expected lease-up periods, which were dependent on local market conditions. In estimating costs to execute similar leases, the Company considered leasing commissions, legal and other related costs.

The results of operations related to our ownership of the building are included in the Company’s consolidated statements of operations from the date of acquisition.