ASC 820 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 on a Recurring Basis

Financial assets and liabilities that are measured at fair value on our consolidated balance sheets consist of (i) marketable securities, (ii) real estate fund investments, (iii) the assets in our deferred compensation plan (for which there is a corresponding liability on our consolidated balance sheet), (iv) interest rate swaps and (v) mandatorily redeemable instruments (Series G-1 through G-4 convertible preferred units and Series D-13 cumulative redeemable preferred units). The tables below aggregate the fair values of these financial assets and liabilities by their levels in the fair value hierarchy as of September 30, 2017 and December 31, 2016, respectively.



(Amounts in thousands)	As of September 30, 2017
	Total		Level 1		Level 2		Level 3
Marketable securities	$	193,145	$	193,145	$	—	$	—
Real estate fund investments	351,750		—		—		351,750
Deferred compensation plan assets ($2,501 included in restricted cash and $103,743 in other assets)	106,244		56,960		—		49,284
Interest rate swaps (included in other assets)	20,880		—		20,880		—
Total assets	$	672,019	$	250,105	$	20,880	$	401,034

Mandatorily redeemable instruments (included in other liabilities)	$	50,561	$	50,561	$	—	$	—
Interest rate swap (included in other liabilities)	3,090		—		3,090		—
Total liabilities	$	53,651	$	50,561	$	3,090	$	—

	As of December 31, 2016
	Total		Level 1		Level 2		Level 3
Marketable securities	$	203,704	$	203,704	$	—	$	—
Real estate fund investments	462,132		—		—		462,132
Deferred compensation plan assets ($4,187 included in restricted cash and $116,996 in other assets)	121,183		63,739		—		57,444
Interest rate swaps (included in other assets)	21,816		—		21,816		—
Total assets	$	808,835	$	267,443	$	21,816	$	519,576

Mandatorily redeemable instruments (included in other liabilities)	$	50,561	$	50,561	$	—	$	—
Interest rate swap (included in other liabilities)	10,122		—		10,122		—
Total liabilities	$	60,683	$	50,561	$	10,122	$	—


13.	Fair Value Measurements - continued

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis - continued

Real Estate Fund Investments

As of September 30, 2017, we had five real estate fund investments with an aggregate fair value of $351,750,000, or $95,136,000 in excess of cost. These investments are classified as Level 3. 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 0.8 to 3.3 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 plus a projected growth factor. Similarly, estimated operating expenses and real estate taxes 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 the future cash flows (including the projected sales proceeds), using an appropriate discount rate and then reduced by the property’s outstanding debt, if any, to determine the fair value of the equity in each investment. Significant unobservable quantitative inputs used in determining the fair value of each investment include capitalization rates and discount rates. These rates are based on the location, type and nature of each property, current and anticipated market conditions, industry publications and the experience of our Acquisitions and Capital Markets departments. Significant unobservable quantitative inputs in the table below were utilized in determining the fair value of these real estate fund investments at September 30, 2017 and December 31, 2016.



	Range		Weighted Average (based on fair value of investments)
Unobservable Quantitative Input	September 30, 2017	December 31, 2016	September 30, 2017	December 31, 2016
Discount rates	10.0% to 14.9%	10.0% to 14.9%	12.5%	12.6%
Terminal capitalization rates	4.7% to 5.8%	4.3% to 5.8%	5.4%	5.3%

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. It is not possible for us to predict the effect of future economic or market conditions on our estimated fair values.

The table below summarizes the changes in the fair value of real estate fund investments that are classified as Level 3, for the three and nine months ended September 30, 2017 and 2016.



(Amounts in thousands)	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2017			2016			2017			2016
Beginning balance	$	455,692		$	524,150		$	462,132		$	574,761
Dispositions/distributions	(91,606		)	—			(91,606		)	(71,888		)
Net unrealized (loss) gain on held investments	(11,220		)	(4,764		)	(28,860		)	16,091
Net realized gains on exited investments	35,620			—			35,861			14,676
Previously recorded unrealized gains on exited investment	(36,736		)	—			(25,538		)	(14,254		)
Other, net	—			—			(239		)	—
Ending balance	$	351,750		$	519,386		$	351,750		$	519,386


13.	Fair Value Measurements - continued

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis - continued

Deferred Compensation Plan Assets

Deferred compensation plan assets that are classified as Level 3 consist of investments in limited partnerships and investment funds, which are managed by third parties. We receive quarterly financial reports from a third party administrator, which are compiled from the quarterly reports provided to them from each limited partnership and investment fund. The quarterly reports provide net asset values on a fair value basis which are audited by independent public accounting firms on an annual basis. The third party administrator does not adjust these values in determining our share of the net assets and we do not adjust these values when reported in our consolidated financial statements.

The table below summarizes the changes in the fair value of deferred compensation plan assets that are classified as Level 3, for the three and nine months ended September 30, 2017 and 2016.



(Amounts in thousands)	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2017			2016			2017			2016
Beginning balance	$	49,849		$	60,140		$	57,444		$	59,186
Purchases	2,176			1,251			3,989			3,523
Sales	(3,810		)	(3,737		)	(15,922		)	(5,888		)
Realized and unrealized gains (losses)	246			(1,055		)	2,151			(743		)
Other, net	823			316			1,622			837
Ending balance	$	49,284		$	56,915		$	49,284		$	56,915

Fair Value Measurements on a Nonrecurring Basis

Assets measured at fair value on a nonrecurring basis on our consolidated balance sheets consist of our investment in PREIT that was written-down to its estimated fair value at September 30, 2017. See Note 6 - Investments in Partially Owned Entities for details of the impairment loss related to PREIT recognized during 2017. There are no assets measured at fair value on a nonrecurring basis at December 31, 2016. The table below presents the fair value of this asset by its level in the fair value hierarchy.



(Amounts in thousands)	As of September 30, 2017
	Total		Level 1		Level 2		Level 3
Investment in PREIT	$	65,563	$	65,563	$	—	$	—


13.	Fair Value Measurements - continued

Financial Assets and Liabilities not Measured at Fair Value

Financial assets and liabilities that are not measured at fair value on our consolidated balance sheets include cash equivalents (primarily money market funds, which invest in obligations of the United States government), and our secured and unsecured debt. 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. The fair values of cash equivalents and borrowings under our unsecured revolving credit facilities and unsecured term loan are classified as Level 1. The fair values of our secured and unsecured debt are classified as Level 2. The table below summarizes the carrying amounts and fair value of these financial instruments as of September 30, 2017 and December 31, 2016.



(Amounts in thousands)		As of September 30, 2017					As of December 31, 2016
		Carrying Amount			Fair Value		Carrying Amount			Fair Value
Cash equivalents		$	1,013,282		$	1,013,282	$	1,307,105		$	1,307,105
Debt:
	Mortgages payable	$	8,204,763		$	8,223,000	$	8,206,680		$	8,163,000
	Senior unsecured notes	850,000			885,000		850,000			899,000
	Unsecured term loan	375,000			375,000		375,000			375,000
	Unsecured revolving credit facilities	—			—		115,630			116,000
	Total	$	9,429,763	⁽¹⁾	$	9,483,000	$	9,547,310	⁽¹⁾	$	9,553,000

____________________

(1) Excludes $78,162 and $100,640 of deferred financing costs, net and other as of September 30, 2017 and December 31, 2016, respectively.