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Fair Value Measurements

3 Months Ended

Mar. 31, 2024

A three-level valuation hierarchy exists for disclosure of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. The three levels are defined as follows:

Level 1 — quoted prices are available in active markets for identical investments as of the measurement date. We do not adjust the quoted price for these investments.

Level 2 — quoted prices are available in markets that are not active or model inputs are based on inputs that are either directly or indirectly observable as of the measurement date.

Level 3 — pricing inputs are unobservable and include instances where there is minimal, if any, market activity for the investment. These inputs require significant judgment or estimation by management or third parties when determining fair value and generally represent anything that does not meet the criteria of Levels 1 and 2. Due to the inherent uncertainty of these estimates, these values may differ materially from the values that would have been used had a ready market for these investments existed.

Certain investments that are measured at fair value using NAV per share as a practical expedient are not required to be categorized in the fair value hierarchy tables. The total fair value of these investments is included in the tables below to permit reconciliation of the fair value hierarchy to amounts presented on our condensed consolidated balance sheets. As of March 31, 2024 and December 31, 2023, none of these investments were expected to be sold at a value materially different than NAV.

Valuation of Assets Measured at Fair Value

The following table details our financial instruments measured at fair value on a recurring basis:


	March 31, 2024
	Fair Value Measurements Using:
$ in thousands	Level 1		Level 2		Level 3		NAV as a Practical Expedient		Total at Fair Value
Investments in real estate-related securities	$	4,316	$	31,459	$	—	$	—	$	35,775
Investments in commercial loans	—		—		34,680		—		34,680
Investment in affiliated fund	—		—		—		27,170		27,170
Interest rate caps	—		2,960		—		—		2,960
Interest rate swap	—		2,190		—		—		2,190
Total	$	4,316	$	36,609	$	34,680	$	27,170	$	102,775


	December 31, 2023
	Fair Value Measurements Using:
$ in thousands	Level 1		Level 2		Level 3		NAV as a Practical Expedient		Total at Fair Value
Investments in real estate-related securities	$	4,729	$	23,301	$	—	$	—	$	28,030
Investments in commercial loans	—		—		34,626		—		34,626
Investment in affiliated fund	—		—		—		27,717		27,717
Interest rate caps	—		3,320		—		—		3,320
Interest rate swap	—		1,498		—		—		1,498
Total	$	4,729	$	28,119	$	34,626	$	27,717	$	95,191

Our investments in commercial loans consist of two floating rate mezzanine loans we originated and are classified as Level 3. The commercial loans are carried at fair value based on significant unobservable inputs. The following table details our investments in commercial loans:


$ in thousands	Investments in Commercial Loans
Balance as of December 31, 2023	$	34,626

Net unrealized gain	54
Balance as of March 31, 2024	$	34,680

The following table shows the significant unobservable inputs related to the Level 3 fair value measurement of our investments in commercial loans as of March 31, 2024.

Type

Asset Class

Valuation Technique

Unobservable Input

Weighted Average Rate

Commercial loans

Industrial

Discounted cash flow

Discount rate

8.30%

The discount rate above is subject to change based on changes in economic and market conditions both current and anticipated, in addition to changes in use or timing of exit if applicable. These rates are also based on the location, type and nature of each property and related industry publications. Changes in discount 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. It is not possible for us to predict the effect of future economic or market conditions based on our estimated fair values.

Valuation of Liabilities Not Carried at Fair Value

The following table presents the carrying value and estimated fair value of our liabilities that are not carried at fair value on the consolidated balance sheets:


	March 31, 2024				December 31, 2023
$ in thousands	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value

Mortgage notes payable(1)	$	339,034	$	334,739	$	339,034	$	333,605
Total	$	339,034	$	334,739	$	339,034	$	333,605

(1)The mortgage notes payable does not include unamortized debt issuance costs.

The fair value of our borrowings is estimated by modeling the cash flows required by our debt agreements and discounting them back to present value using the appropriate discount rate. Additionally, we consider current market rates and conditions by evaluating similar borrowing agreements with comparable loan-to-value ratios and credit profiles. The inputs used in determining the fair value of our borrowings are considered Level 3.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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