Impairment of Real Estate and Impairment of Unconsolidated Entities

Impairment of Real Estate

The Company reviews its real estate for impairment whenever events or changes indicate that its carrying value may not be recoverable. In order to determine whether the carrying costs are recoverable from estimated future undiscounted cash flows, the Company uses various assumptions that include future net operating income, estimated holding periods, risk of foreclosure and estimated cash proceeds received upon the disposition of the asset. If the carrying costs are not recoverable, the Company records an impairment charge to reduce the carrying value to estimated fair value. The assumptions used to estimate fair value are Level 2 or 3 inputs. The Company’s assumptions are based on current information. If the conditions deteriorate or if the Company’s plans regarding its assets change, additional impairment charges may occur in the future.

The impairments recorded during the three and six months ended June 30, 2014 and 2013 represent write-downs to estimated fair value due to a change in events, such as a change in strategy for certain assets, bona fide third-party purchase offers or changes in certain assumptions, including estimated holding periods and current market conditions and the impact of these assumptions to the properties’ estimated future cash flows.

The following table summarizes the Company’s impairment of real estate included in continuing operations:



		Three Months Ended June 30,				Six Months Ended June 30,
		2014		2013		2014		2013
		(in thousands)
Avenue at Tower City Center (Specialty Retail Center)	Cleveland, Ohio	$	72,473	$	—	$	72,473	$	—
Office Buildings:
Terminal Tower	Cleveland, Ohio	42,208		—		42,208		—
Post Office Plaza	Cleveland, Ohio	14,378		—		14,378		—
Other		770		1,175		770		1,175
		$	129,829	$	1,175	$	129,829	$	1,175

The Company continues to execute its strategy of focusing on core products located in core markets. In executing this strategy, the Company began serious negotiations for the sale of several operating assets in Cleveland, Ohio during the three months ended June 30, 2014. At June 30, 2014, discussions with a potential purchaser were at various stages for each of the assets and remained subject to further negotiation and applicable due diligence periods. Based on the advanced status of the discussions, the Company reviewed and adjusted the estimated holding periods of each applicable asset and in each case increased the likelihood of a near term sale. As a result, the estimated probability weighted undiscounted cash flows no longer exceed the carrying value of certain assets, requiring the Company to adjust the carrying value of those assets as described in the above table, to their estimated fair value. As such, the Company recorded impairment charges of $129,829,000 during the three and six months ended June 30, 2014.

The following table presents quantitative information about the significant unobservable inputs used to determine the fair value of the impairment of real estate for the six months ended June 30, 2014 and 2013:



	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value of Real Estate		Valuation Technique	Unobservable Input	Range of Input Values
	(in thousands)
June 30, 2014
Impairment of real estate	$	44,200	Discounted Cash Flows	Market Capitalization Rate	8.0% - 10.0%
				Discount Rate	10.5% - 12.0%
Impairment of real estate	$	34,750	Indicative Bids	Indicative Bids	N/A ⁽¹⁾
June 30, 2013
Impairment of real estate	$	1,700	Indicative Bids	Indicative Bids	N/A ⁽¹⁾


(1)	This fair value measurement was derived from a bona fide purchase offer from third party prospective buyers, subject to the Company's corroboration for reasonableness.

Impairment of Unconsolidated Entities

The Company reviews its portfolio of unconsolidated entities for other-than-temporary impairments whenever events or changes indicate its carrying value in the investments may be in excess of fair value. An equity method investment’s value is impaired if management’s estimate of its fair value is less than the carrying value and the difference is deemed to be other-than-temporary. In estimating fair value, the Company uses varying assumptions that may include comparable sale prices, market discount rates, market capitalization rates and estimated future discounted cash flows specific to the geographic region and property type, all of which are considered Level 3 inputs. For recently opened properties, assumptions also include the timing of initial property lease up. In the event initial property lease up assumptions differ from actual results, estimated future discounted cash flows may vary, resulting in impairment charges in future periods. There were no impairments of unconsolidated entities recorded during the three and six months ended June 30, 2014 and 2013.