9.	Fair Value Measurements

ASC 820, Fair Value Measurement and Disclosures, defines fair value and establishes a framework for measuring fair value. The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 – quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 – observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 – unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as consider counterparty credit risk in our assessment of fair value. Considerable judgment is necessary to interpret Level 2 and 3 inputs in determining the fair value of our financial and non-financial assets and liabilities. Accordingly, our fair value estimates, which are made at the end of each reporting period, may be different than the amounts that may ultimately be realized upon sale or disposition of these assets.

Financial Assets and Liabilities measured at Fair Value

Financial assets and liabilities that are measured at fair value on our consolidated balance sheets consist of (i) real estate fund investments, (ii) marketable securities (which represent the assets in our deferred compensation plan for which there is a corresponding liability on our consolidated balance sheets) and (iii) interest rate swaps. The table below aggregates the fair values of these financial assets and liabilities by their levels in the fair value hierarchy at March 31, 2015 and December 31, 2014.

	As of March 31, 2015
(Amounts in thousands)	Total		Level 1		Level 2		Level 3

Real estate fund investments:
Investments in Property Funds	$	182,610	$	-	$	-	$	182,610
Investments in Alternative Investment Funds		141,672		-		-		141,672
Total real estate fund investments		324,282		-		-		324,282
Marketable securities		21,386		21,386		-		-
Total assets	$	345,668	$	21,386	$	-	$	324,282

Interest rate swap liabilities	$	182,218		-	$	182,218		-
Total liabilities	$	182,218	$	-	$	182,218	$	-

	As of December 31, 2014
(Amounts in thousands)	Total		Level 1		Level 2		Level 3
Real estate fund investments:
Investments in Property Funds	$	183,216	$	-	$	-	$	183,216
Investments in Alternative Investment Funds		140,171						140,171
Total real estate fund investments		323,387		-		-		323,387
Marketable securities		20,159		20,159		-		-
Total assets	$	343,546	$	20,159	$	-	$	323,387

Interest rate swap liabilities	$	194,196		-	$	194,196		-
Total liabilities	$	194,196	$	-	$	194,196	$	-

Property Funds

At March 31, 2015, the Property Funds had three investments. These investments are classified as Level 3. We use a discounted cash flow valuation technique to estimate the fair value of each of these investments, which is updated quarterly by personnel responsible for the management of each investment and reviewed by senior management at each reporting period. The discounted cash flow valuation technique requires us to estimate cash flows for each investment over the anticipated holding period, which currently ranges from 1.0 to 10.0 years. Cash flows are derived from property rental revenue (base rents plus reimbursements) less operating expenses, real estate taxes and capital and other costs, plus projected sales proceeds in the year of exit. Property rental revenue is based on leases currently in place and our estimates for future leasing activity, which are based on current market rents for similar space. Similarly, estimated real estate taxes and operating expenses are based on amounts incurred in the current period plus a projected growth factor for future periods. Anticipated sales proceeds at the end of an investment’s expected holding period are determined based on the net cash flow of the investment in the year of exit, divided by a terminal capitalization rate, less estimated selling costs. The fair value of each property is calculated by discounting future cash flows (including anticipated sales proceeds), using an appropriate discount rate. The fair value of the investment is calculated by subtracting property level debt, if any, from the fair value of the property.

Significant unobservable inputs used in determining the fair value of each investment include capitalization rates and discount rates. These rates are based on, among other factors, location and type of property. Significant unobservable quantitative inputs in the table below were utilized in determining the fair value of the Property Fund investments at March 31, 2015 and December 31, 2014.

	As of March 31, 2015			As of December 31, 2014
Unobservable Quantitative Input	Range	Weighted average (based on fair value of investments)		Range	Weighted average (based on fair value of investments)
Discount rates	6.50% - 7.25%		6.83%	6.50% - 7.25%		6.83%
Terminal capitalization rates	5.50% - 6.00%		5.72%	5.50% - 6.00%		5.72%

The above inputs are subject to change based on changes in economic and market conditions and/or changes in use or timing of exit. Changes in discount rates and terminal capitalization rates result in increases, or decreases, in the fair values of these investments. The discount rates encompass, among other things, uncertainties in the valuation models with respect to terminal capitalization rates and the amount and timing of cash flows. Therefore, a change in the fair value of these investments resulting from a change in the terminal capitalization rate may be partially offset by a change in the discount rate. Significant increases (decreases) in any of these inputs in isolation would result in a significantly lower (higher) fair value, respectively.

Alternative Investment Funds

At March 31, 2015, Alternative Investment Funds had investments in a mezzanine loan and preferred equity. These instruments are classified as Level 3. Estimates of the fair value of these instruments are determined by the standard practice of modeling the contractual cash flows required under the instrument and discounting them back to their present value at the appropriate current risk adjusted interest rate. The balances are updated quarterly by a third party and reviewed by senior management at each reporting period.

Significant unobservable inputs used in determining the fair value of these investments include credit spreads and preferred returns. Significant increases or decreases in any of these inputs in isolation would result in a significantly lower (higher) fair value, respectively. Significant unobservable quantitative inputs in the table below were utilized in determining the fair value of the investments in the Alternative Investment Funds at March 31, 2015 and December 31, 2014.

As of March 31, 2015

As of December 31, 2014

Unobservable Quantitative Input

Range

Weighted average (based on fair value of investments)

Range

Weighted average (based on fair value of investments)

Preferred return

8.49% - 14.00%

11.06%

8.50% - 14.00%

11.07%

The table below summarizes the changes in the fair value of Real Estate Fund Investments that are classified as Level 3, for the three months ended March 31, 2015 and 2014.

	Real Estate Fund Investments
	For the Three Months Ended March 31,
(Amounts in thousands)	2015		2014
Beginning balance	$	323,387	$	2,158,889
Purchases		22		157,687
Net unrealized gains		873		46,167
Ending Balance	$	324,282	$	2,362,743

Interest Rate Swaps

Interest rate swaps are valued by a third-party specialist, based on a pricing model that incorporates market observable inputs for interest rate curves and unobservable inputs for credit spreads. The interest rate swaps are classified as Level 2 in the valuations hierarchy.

Financial Assets and Liabilities Not Measured at Fair Value

Financial assets not measured at fair value on the consolidated balance sheets consist of cash equivalents, and are classified as Level 1 as their carrying amount approximates their fair value, due to their short-term nature. Financial liabilities not measured at fair value include mortgages and notes payable. Estimates of the fair value of these instruments are determined by the standard practice of modeling the contractual cash flows required under the instrument and discounting them back to their present value at the appropriate current risk adjusted interest rate, which is provided by a third-party specialist. For floating rate debt, we use forward rates derived from observable market yield curves to project the expected cash flows we would be required to make under the instrument. These instruments are classified as Level 2.

The following is a summary of the carrying amounts and fair value of these financial instruments as of March 31, 2015 and December 31, 2014.

	As of March 31, 2015				As of December 31, 2014
(Amounts in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash equivalents	$	313,951	$	313,951	$	401,215	$	401,215
Total Assets	$	313,951	$	313,951	$	401,215	$	401,215


	As of March 31, 2015				As of December 31, 2014
(Amounts in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Mortgage and notes payable	$	2,852,754	$	2,782,382	$	2,852,287	$	2,796,842
Total Liabilities	$	2,852,754	$	2,782,382	$	2,852,287	$	2,796,842