4. Assets and Liabilities Measured at Fair Value

Fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy) has been established.

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets and liabilities that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability that are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Recurring Fair Value Measurements

We may use interest rate swaps and caps to manage our interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. Such analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, implied volatilities, and foreign currency exchange rates.

As of December 31, 2017, we had no derivative financial instruments. As of December 31, 2016, we had an interest rate cap associated with the debt on the Courtyard Kauai Coconut Beach Hotel which we determined had a nominal value. The interest rate cap matured in May 2017.

Derivative financial instruments, if any, are classified as assets are included in prepaid expenses and other assets on the consolidated balance sheet.

Nonrecurring Fair Value Measurements

During the year ended December 31, 2017, we recorded a $4.1 million non-cash impairment charge as a result of a measurable decrease in the fair value of 22 Exchange, one of our student housing investments, which also has a retail component. In estimating the fair value of 22 Exchange, we used management’s internal discounted cash flow analysis prepared with consideration of the local market. The discounted cash flow estimate is considered Level 3 under the fair value hierarchy described above.

The following fair value hierarchy table presents information about our assets measured at fair value on a nonrecurring basis during the year ended December 31, 2017:

Total

For the year ended December 31, 2017

Level 1

Level 2

Level 3

Fair Value

Loss

Assets

Buildings and improvements, net⁽¹⁾

—

19.0 million

(4.1 million)

(1)

We recorded non-cash impairment charge of $4.1 million during the year ended December 31, 2017 as a result of a measurable decrease in the fair value of 22 Exchange.

Quantitative Information about Level 3 Fair Value Measurements

	Fair Value
	as of		Valuation
Description	December 31, 2017		Techniques	Unobservable Input
Buildings and improvements, net⁽¹⁾			Discounted cash flow	Discount rate	8.0%
	$	19.0 million		Terminal capitalization rate	7.0%

(1)	We recorded a non-cash impairment charge of $4.1 million during the year ended December 31, 2017 on our investment in 22 Exchange, one of our student housing investments.

We did not record any impairment charges during the year ended December 31, 2016.

During the year ended December 31, 2015, we recorded a $1.4 million non-cash impairment charge as a result of a measurable decrease in the fair value of 22 Exchange, one of our student housing investments. In estimating the fair value of 22 Exchange, we used management’s internal discounted cash flow analysis prepared with consideration of the local market. The discounted cash flow estimate is considered Level 3 under the fair value hierarchy described above.

The following fair value hierarchy table presents information about our assets measured at fair value on a nonrecurring basis during the year ended December 31, 2015:

For the year ended December 31, 2015

Level 1

Level 2

Level 3

Total
Fair Value

Loss

Assets

Buildings and improvements, net(1)

—

25.0 million

(1.4 million)

(1)	We recorded a non-cash impairment charge of $1.4 million during the year ended December 31, 2015 as a result of a measurable decrease in the fair value of 22 Exchange, one of our student housing investments.

Description		Fair Value for the year ended December 31, 2015			Valuation Techniques		Unobservable Input		Range (Weighted Average)
Buildings and improvements, net⁽¹⁾		$	25.0 million		Discounted cash flow		Discount rate Terminal capitalization rate			7.5% - 8.0% 6.5% - 7.5%

(1)	Due to the local market decline in Akron, Ohio, we recorded a non-cash impairment charge of $1.4 million on our investment in 22 Exchange, a student housing property, during the year ended December 31, 2015.