12.	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 at December 31, 2015 and December 31, 2014, based on their levels in the fair value hierarchy.

	As of December 31, 2015
(Amounts in thousands)	Total		Level 1		Level 2		Level 3
Real estate fund investments:
Investments in Property Funds	$	248,824	$	-	$	-	$	248,824
Investments in Alternative Investment Funds		167,614						167,614
Total real estate fund investments		416,438		-		-		416,438
Marketable securities		21,521		21,521		-		-
Total assets	$	437,959	$	21,521	$	-	$	416,438

Interest rate swap liabilities	$	93,936		-		93,936		-
Total liabilities	$	93,936	$	-	$	93,936	$	-

	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 December 31, 2015, the Property Funds had four investments. These investments are classified as Level 3. We obtain third party appraisals at least annually. 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 December 31, 2015 and 2014.

	As of December 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	7.00% - 7.50%		7.18%	6.50%-7.25%		6.83%
Terminal capitalization rates	5.00% - 6.00%		5.47%	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 December 31, 2015, the investments in the Alternative Investment Funds were comprised of mezzanine loans and senior mortgage loans. These investments 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 and discounting it back to its present value at the appropriate 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 preferred returns and credit spreads. Significant increases (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 December 31, 2015 and 2014.

As of December 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

7.32% - 14.02%

9.51%

8.50% - 14.00%

11.07%

Credit spread

2.34%

n/a

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

	Real Estate Fund Investments
	for the Year Ended December 31,
(Amounts in thousands)	2015			2014
Beginning balance	$	323,387		$	2,158,889
Purchases / Additions		170,218			258,677
Sales / Transfer of assets		(98,368	)		(2,222,176	)
Net realized gains		7,455			32,954
Previously recorded unrealized gains on exited investments		(6,584	)		-
Net unrealized gains		20,330			95,043
Ending Balance	$	416,438		$	323,387

Interest Rate Swaps

Interest rate swaps are valued by a third-party specialist. The valuation of these interest rate swaps is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the interest rate swaps and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. Interest rate swaps are classified as Level 2.

Financial Assets and Liabilities Not Measured at Fair Value

Financial assets not measured at fair value on our consolidated balance sheets consists 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 notes and mortgages payable and revolving credit facility. 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 December 31, 2015 and 2014.

	As of December 31, 2015				As of December 31, 2014
(Amounts in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash equivalents	$	118,561	$	118,561	$	401,215	$	401,215
Total Assets	$	118,561	$	118,561	$	401,215	$	401,215

	As of December 31, 2015				As of December 31, 2014
(Amounts in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Notes and mortgages payable	$	2,941,524	$	2,907,242	$	2,852,287	$	2,796,842
Revolving credit facility		20,000		20,723		-		-
Total Liabilities	$	2,961,524	$	2,927,965	$	2,852,287	$	2,796,842