Fair Value of Financial Instruments

GAAP requires the measurement of certain financial instruments at fair value on a recurring basis. In addition, GAAP requires the measure of other financial instruments and balances at fair value on a non-recurring basis (e.g., carrying value of impaired real estate and long-lived assets). Fair value is defined as 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 GAAP fair value framework uses a

three

-tiered approach. Fair value measurements are classified and disclosed in

one

of the following

three

categories:

•

Level

unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;

•

Level

quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are

not

active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

•

Level

prices or valuation techniques where little or

market data is available that require inputs that are both significant to the fair value measurement and unobservable.

When available, the Company utilizes quoted market prices from an independent

third

-party source to determine fair value and classifies such items in Level

or Level

In instances where the market for a financial instrument is

not

active, regardless of the availability of a nonbinding quoted market price, observable inputs might

not

be relevant and could require the Company to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent

third

party

may

rely more on models with inputs based on information available only to that independent

third

party. When the Company determines the market for a financial instrument owned by the Company to be illiquid or when market transactions for similar instruments do

not

appear orderly, the Company uses several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and establishes a fair value by assigning weights to the various valuation sources.

Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases,

may

not

be realized in an immediate settlement of the instrument.

The financial assets and liabilities in the consolidated balance sheets include cash and cash equivalents, restricted cash, receivables, interest rate caps, accounts payable and accrued liabilities, and notes payable. The carrying amount of cash and cash equivalents, restricted cash, receivables, and accounts payable and accrued liabilities reported in the consolidated balance sheets approximates fair value due to the short-term nature of these instruments. The fair value of notes payable, which are classified as Level

is estimated by discounting the contractual cash flows of each debt instrument to their present value using adjusted market interest rates.

The carrying amount and estimated fair value of the notes payable are as follows:

	December 31, 2018		December 31, 2017

Carrying amount (excluding unamortized debt issuance costs)	$	925,613	$	855,116
Estimated fair value	$	927,561	$	839,753

The Company purchased interest rate caps in connection with the Tribeca House loans obtained on

November 9, 2016,

the loans obtained for the

107

Columbia Heights acquisition and the

250

Livingston Street loan obtained on

December 6, 2018.

April 27, 2018,

the Company terminated the Tribeca House instrument for net proceeds of

$385.

The fair value of the interest rate caps, which are classified as Level

is estimated using market inputs and credit valuation inputs.

The estimated fair values of the interest rate caps are as follows:

Notional Amount		Related Property Loans	Maturity Date	Strike Rate		Estimated Fair Value at December 31, 2018		Estimated Fair Value at December 31, 2017
	$410,000	Tribeca House	December 15, 2018		2.0%		—	$	148
	$73,700	107 Columbia Heights	May 9, 2020		3.0%	$	24		34
	$75,000	250 Livingston Street	December 15, 2020		4.0%		—		—
Total fair value of derivative instruments included in prepaid expenses and other assets						$	24	$	182

These interest rate caps were

not

designated as hedges; accordingly, changes in fair value of the Tribeca House and

250

Livingston Street instruments are recognized in earnings, and changes in fair value of the

107

Columbia Heights instrument are recognized in real estate under development. (Increases) decreases in fair value of the Tribeca House and

250

Livingston Street instruments of $(

208

$261

and $(

139

) for the years ended

December 31, 2018,

2017

and

2016,

respectively, are included in interest expense. Decreases in fair value of the

107

Columbia Heights instrument of

$10

and

$99

for the years ended

December 31, 2018

and

2017,

respectively, are recognized in interest expense and capitalized to real estate under development.

The above disclosures regarding fair value of financial instruments are based on pertinent information available as of

December 31, 2018,

2017

and

2016,

respectively. Although the Company is

not

aware of any factors that would significantly affect the reasonableness of the estimated fair value amounts, such amounts have

not

been comprehensively revalued for purposes of these financial statements since those dates, and current estimates of fair value

may

differ significantly from the amounts presented herein.