Impairment of Real Estate and Impairment of Unconsolidated Entities

Impairment of Real Estate

The impairments recorded during the periods presented 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 assumptions used to estimate fair value are Level 2 or 3 inputs.

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



		Year Ended		11 Months Ended		Year Ended
		December 31, 2014		December 31, 2013		January 31, 2013
		(in thousands)
B2 BKLYN	Brooklyn, New York	$	146,300	$	—	$	—
Avenue at Tower City Center (Specialty Retail Center)	Cleveland, Ohio	72,473		—		—
Office Buildings:
Terminal Tower	Cleveland, Ohio	42,208		—		—
Post Office Plaza	Cleveland, Ohio	14,378		—		—
Building J at Illinois Science and Technology Park	Skokie, Illinois	—		17,474		—
Halle Building	Cleveland, Ohio	—		—		30,200
Pacific Park Brooklyn	Brooklyn, New York	—		289,864		—
LiveWork Las Vegas	Las Vegas, Nevada	—		112,838		—
Other		1,736		1,185		460
		$	277,095	$	421,361	$	30,660

B2 BKYLN is being built using modular construction, whereby the modular units are fabricated and assembled at a nearby factory originally owned fifty-fifty between the Company and Skanska USA (the “Construction Manager”). The Construction Manager was hired under a fixed-price contract. During the three months ended September 30, 2014, the Construction Manager ceased construction and on September 23, 2014, purported to terminate the construction contract. The Company and the Construction Manager have each filed lawsuits relating primarily to the project’s delays and associated additional completion costs. During the three months ended December 31, 2014, the Company completed its evaluation of various scenarios to complete B2 BKLYN and in November 2014, terminated the construction contract for cause and purchased the Construction Manager’s entire 50% ownership interest in the factory used to construct the modular units. In December 2014, the Company engaged a new construction manager to oversee the construction of B2 BKLYN and began preparations to recommence construction of modular units. Based on current information available, including the Company’s decision to complete B2 BKLYN using modular units and to purchase the modular factory, the Company updated its impairment calculation. As a result, the Company’s estimated undiscounted cash flows no longer exceed the carrying value of the asset, requiring the Company to adjust the carrying value to its estimated fair value as of December 31, 2014. As such, the Company recorded an impairment charge of $146,300,000 during the year ended December 31, 2014.

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. During the three months ended September 30, 2014, the negotiations with the potential buyer ceased, as mutually agreeable terms could not be reached.

In December 2013, the Company signed an agreement with Greenland to form a joint venture to develop Pacific Park Brooklyn (formerly Brooklyn Atlantic Yards), a 22 acre mixed-use project in Brooklyn, New York (see Note S – Net Loss on Disposition of Partial Interest in Development Project for a discussion of the joint venture, which closed on June 30, 2014). Upon signing of the agreement, the Company determined it was likely the sale transaction would close. As a result, the Company classified the assets and liabilities as held for sale on its consolidated balance sheet as of December 31, 2013 and recorded the asset at estimated fair value less costs to sell, resulting in an impairment charge of $289,864,000 ($242,417,000, net of noncontrolling interest) during the 11 months ended December 31, 2013.

During 2013, the Company made a strategic business decision to reduce the expected level of development at LiveWork Las Vegas, a mixed-use project on a 13.5 acre parcel in Las Vegas, Nevada and consider ways to maximize the near-term value of the investment, which may include build to suit development, equity joint venture or marketing a portion of the land parcels to third parties. The change in strategy reduced the estimated hold period and expected cash flows. As a result, the Company’s estimated undiscounted cash flows no longer exceed the carrying value of the asset, requiring the Company to adjust the carrying value to its estimated fair value. As such, the Company recorded an impairment charge of $112,838,000 during the 11 months ended December 31, 2013.

During 2013, the Company made a strategic business decision to modify its redevelopment plan for Building J at Illinois Science and Technology Park. The building, currently vacant, would require a significant amount of capital in order to re-tenant and continue to hold on a long term basis. The Company has determined it is no longer willing to invest any additional capital in this building without a tenant for a substantial portion of the building or without some form of significant financial subsidy. As a result, the Company’s estimated undiscounted cash flows no longer exceed the carrying value of the asset, requiring the Company to adjust the carrying value to its estimated fair value. As such, the Company recorded an impairment charge of $17,474,000 during the 11 months ended December 31, 2013.

During 2012, preliminary negotiations with a potential tenant to lease a majority of the Halle Building were discontinued since the Company was unwilling to invest the significant amount of capital necessary to execute the proposed lease. As a result, the Company began evaluating several long-term strategies for the building, as it had below average occupancy, had continued to lose tenants in 2012 and required significant capital investment. The strategies considered included a near-term disposition of the asset in its current state, investing significant capital to re-tenant the space and hold on a long term basis, or invest additional capital to position the asset for sale, which may have increased the sales price. The Company determined it is not likely to invest any significant additional capital and would pursue the repositioning of the asset for redevelopment through a joint venture or exploration of an outright sale. The change in strategy reduced the long-term hold probability and the Company’s estimated probability weighted undiscounted cash flows no longer exceed the carrying value of the asset requiring the Company to adjust the carrying value to its estimated fair value. As such, the Company recorded an impairment charge of $30,200,000 during the year ended January 31, 2013. During the year ended December 31, 2014, the Company sold the Halle Building (see Note T – Net Gain on Disposition of Full or Partial Interest in Rental Properties for additional information).

Impairment of Real Estate - Discontinued Operations

These impairments recorded during the periods presented represent write downs to estimated fair value due to changes in events, related to a bona fide third-party purchase offer and consideration of current market conditions and the impact of these events to the properties’ estimated future cash flows. The following table summarizes the Company’s impairment of real estate included in discontinued operations:



		Year Ended		11 Months Ended		Year Ended
		December 31, 2014		December 31, 2013		January 31, 2013
		(in thousands)
Regional Malls:
Promenade Bolingbrook	Bolingbrook, Illinois	$	—	$	54,194	$	—
Orchard Town Center	Westminster, Colorado	—		15,649		—
Investment in triple net lease retail property	Kansas City, Missouri	—		6,870		—
Investment in triple net lease retail property	Portage, Michigan	—		—		2,263
White Oak Village (Specialty Retail Center)	Richmond, Virginia	—		—		1,566
Other		—		—		425
		$	—	$	76,713	$	4,254

During 2013, the Company continued to make progress on the marketing of Promenade Bolingbrook. At December 31, 2013, discussions with a potential purchaser were ongoing and remained subject to further negotiation and applicable due diligence periods. However, based on the status of the discussions, the possibility of a sale of the asset increased and was reasonably possible. As a result, the Company reviewed and updated the impairment analysis. The estimated probability weighted undiscounted cash flows no longer exceed the carrying value of the asset requiring the Company to adjust the carrying value to its estimated fair value. As such, the Company recorded an impairment charge of $54,194,000 during the 11 months ended December 31, 2013.

Impairment of Real Estate (including Discontinued Operations) - Fair Value Information

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 year ended December 31, 2014, the 11 months ended December 31, 2013 and the year ended January 31, 2013:



	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value		Valuation Technique	Unobservable Input	Range of Input Values
	(in thousands)
December 31, 2014
Impairment of real estate	$	84,738	Discounted cash flows	Market capitalization rate	4.5% - 10.0% ⁽¹⁾
				Discount rate	6.0% - 12.0% ⁽¹⁾
Impairment of real estate	38,750		Indicative bids	Indicative bids	N/A ⁽²⁾
December 31, 2013
Impairment of real estate	$	734,240	Indicative bids	Indicative bids	N/A ⁽²⁾
Impairment of real estate	$	29,500	Comparable property market analysis	Price per square foot	$22 to $55 per square foot ⁽³⁾
January 31, 2013
Impairment of real estate	$	83,193	Indicative bids	Indicative bids	N/A ⁽²⁾
Impairment of real estate	10,500		Discounted cash flows	Discount rate	10.0%


(1)	Weighted average market capitalization and discount rates are 6.7% and 8.6%, respectively.


(2)	These fair value measurements were derived from bona fide purchase offers from third party prospective buyers, subject to the Company’s corroboration for reasonableness.


(3)	Weighted average price is $45 per square foot.

Impairment of Unconsolidated Entities

The Company recorded $3,124,000 and $390,000 of impairments of unconsolidated entities during the years ended December 31, 2014 and January 31, 2013, respectively. There were no impairments of unconsolidated entities recorded during the 11 months ended December 31, 2013.