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Assets and Liabilities Measured at Fair Value on a Recurring Basis
 6 Months Ended
Jun. 30, 2019
Fair Value Disclosures [Abstract]  
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Valuation Hierarchy: The Account’s fair value measurements are grouped into three levels, as defined by the FASB. The levels are defined as follows:
•
Level 1 fair value inputs are quoted prices for identical items in active, liquid and visible markets such as stock exchanges.
•
Level 2 fair value inputs are observable information for similar items in active or inactive markets, and appropriately consider counterparty creditworthiness in the valuations.
•
Level 3 fair value inputs reflect our best estimate of inputs and assumptions market participants would use in pricing an asset or liability at the measurement date. The inputs are unobservable in the market and significant to the valuation estimate.
An investment’s categorization within the valuation hierarchy described above is based upon the lowest level of input that is significant to the fair value measurement. Limited partnership investments are excluded from the valuation hierarchy, as these investments are fair valued using their net asset value as a practical expedient since market quotations or values from independent pricing services are not readily available. See Note 1 - Organization and Significant Accounting Policies for further discussion regarding the use of a practical expedient for the valuation of limited partnerships.
The Account’s determination of fair value is based upon quoted market prices, where available. If listed prices or quotes are not available, fair value is based upon vendor-provided, evaluated prices or internally developed models that primarily use market-based or independently sourced market data, including interest rate yield curves, market spreads, and currency rates. Valuation adjustments will be made to reflect changes in credit quality, counterparty’s creditworthiness, the Account’s creditworthiness, liquidity, and other observable and unobservable inputs that are applied consistently over time.
The methods described above are considered to produce fair values that represent an estimate by management of what an unaffiliated buyer in the marketplace would pay to purchase the asset or would receive to transfer the liability. Since fair value calculations involve significant professional judgment in the application of both observable and unobservable attributes, actual realizable values or future fair values may differ from amounts reported. Furthermore, while the Account believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments, while reasonable, could result in different estimates of fair value at the reporting date. As discussed in Note 1—Organization and Significant Accounting Policies in more detail, the Account generally obtains independent third party appraisals on a quarterly basis; there may be circumstances in the interim in which the true realizable value of a property is not reflected in the Account’s daily net asset value calculation or in the Account’s periodic Consolidated Financial Statements. This disparity may be more apparent when the commercial and/or residential real estate markets experience an overall and possibly dramatic decline (or increase) in property values in a relatively short period of time between appraisals.
The following tables show the major categories of assets and liabilities measured at fair value on a recurring basis as of June 30, 2019 (unaudited) and December 31, 2018, using unadjusted quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3); and fair value using the practical expedient (millions):
Description
 
Level 1: Quoted Prices in Active Markets for Identical Assets
 
Level 2: Significant Other Observable Inputs
 
Level 3: Significant Unobservable Inputs
 
Fair Value Using Practical Expedient
 
Total at
June 30, 2019
Real estate properties
 
$
—

 
$
—

 
$
16,471.9

 
$
—

 
$
16,471.9

Real estate joint ventures
 
—

 
—

 
6,720.3

 
—

 
6,720.3

Limited partnerships
 
—

 
—

 
—

 
198.9

 
198.9

Marketable securities:
 
 
 
 
 
 
 
 
 
 
Real estate-related
 
847.2

 
—

 
—

 
—

 
847.2

Government agency notes
 
—

 
2,250.8

 
—

 
—

 
2,250.8

United States Treasury securities
 
—

 
1,948.6

 
—

 
—

 
1,948.6

Loans receivable
 
—

 
—

 
1,105.1

 
—

 
1,105.1

Total Investments at
June 30, 2019
 
$
847.2

 
$
4,199.4

 
$
24,297.3

 
$
198.9

 
$
29,542.8

Mortgage loans payable
 
$
—

 
$
—

 
$
(2,774.7
)
 
$
—

 
$
(2,774.7
)

Description
 
Level 1: Quoted Prices in Active Markets for Identical Assets
 
Level 2: Significant Other Observable Inputs
 
Level 3: Significant Unobservable Inputs
 
Fair Value Using Practical Expedient
 
Total at December 31, 2018
Real estate properties
 
$
—

 
$
—

 
$
15,531.1

 
$
—

 
$
15,531.1

Real estate joint ventures
 
—

 
—

 
6,356.6

 
—

 
6,356.6

Limited partnerships
 
—

 
—

 
—

 
175.9

 
175.9

Marketable securities:
 
 
 
 
 
 
 
 
 
 
Real estate-related
 
1,415.1

 
—

 
—

 
—

 
1,415.1

Government agency notes
 
—

 
2,050.7

 
—

 
—

 
2,050.7

United States Treasury securities
 
—

 
2,038.0

 
—

 
—

 
2,038.0

Loans receivable
 
—

 
—

 
913.0

 
—

 
913.0

Total Investments at December 31, 2018
 
$
1,415.1

 
$
4,088.7

 
$
22,800.7

 
$
175.9

 
$
28,480.4

Mortgage loans payable
 
$
—

 
$
—

 
$
(2,608.0
)
 
$
—

 
$
(2,608.0
)


The following tables show the reconciliation of the beginning and ending balances for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three and six months ended June 30, 2019 and 2018 (millions, unaudited):
 
 
Real Estate
Properties
 
Real Estate
Joint Ventures
 
Loans
Receivable
 
Total
Level 3
Investments
 
Mortgage
Loans
Payable
For the three months ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
Beginning balance April 1, 2019
 
$
15,968.6

 
$
6,420.4

 
$
967.3

 
$
23,356.3

 
$
(2,632.9
)
Total realized and unrealized gains (losses) included in changes in net assets
 
170.3

 
(20.7
)
 
(4.0
)
 
145.6

 
(36.7
)
    Purchases(1)
 
333.0

 
326.8

 
144.6

 
804.4

 
(110.0
)
    Sales
 
—

 
—

 
—

 
—

 
—

    Settlements(2)
 
—

 
(6.2
)
 
(2.8
)
 
(9.0
)
 
4.9

Ending balance June 30, 2019
 
$
16,471.9

 
$
6,720.3

 
$
1,105.1

 
$
24,297.3

 
$
(2,774.7
)
 
 
Real Estate
Properties
 
Real Estate
Joint Ventures
 
Loans
Receivable
 
Total
Level 3
Investments
 
Mortgage
Loans
Payable
For the six months ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
Beginning balance January 1, 2019
 
$
15,531.1

 
$
6,356.6

 
$
913.0

 
$
22,800.7

 
$
(2,608.0
)
Total realized and unrealized gains (losses) included in changes in net assets
 
244.2

 
(13.6
)
 
(2.8
)
 
227.8

 
(66.3
)
    Purchases(1)
 
699.7

 
383.9

 
219.0

 
1,302.6

 
(110.0
)
    Sales
 
(3.1
)
 
—

 
—

 
(3.1
)
 
—

    Settlements(2)
 
—

 
(6.6
)
 
(24.1
)
 
(30.7
)
 
9.6

Ending balance June 30, 2019
 
$
16,471.9

 
$
6,720.3

 
$
1,105.1

 
$
24,297.3

 
$
(2,774.7
)


 
 
Real Estate
Properties
 
Real Estate
Joint Ventures
 
Loans
Receivable
 
Total
Level 3
Investments
 
Mortgage
Loans
Payable
For the three months ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
Beginning balance April 1, 2018
 
$
15,906.0

 
$
5,805.6

 
$
319.0

 
$
22,030.6

 
$
(2,594.2
)
Total realized and unrealized gains included in changes in net assets
 
7.8

 
67.4

 
(0.1
)
 
75.1

 
27.5

    Purchases(1)
 
360.4

 
69.4

 
299.4

 
729.2

 
(359.9
)
    Sales
 
(231.5
)
 
—

 
—

 
(231.5
)
 
—

    Settlements(2)
 
—

 
(27.1
)
 
—

 
(27.1
)
 
35.2

Ending balance June 30, 2018
 
$
16,042.7

 
$
5,915.3

 
$
618.3

 
$
22,576.3

 
$
(2,891.4
)
 
 
Real Estate
Properties
 
Real Estate
Joint Ventures
 
Loans
Receivable
 
Total
Level 3
Investments
 
Mortgage
Loans
Payable
For the six months ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
Beginning balance January 1, 2018
 
$
15,742.7

 
$
5,860.6

 
$
298.8

 
$
21,902.1

 
$
(2,238.3
)
Total realized and unrealized gains (losses) included in changes in net assets
 
98.3

 
91.6

 
—

 
189.9

 
55.2

    Purchases(1)
 
576.6

 
83.8

 
319.5

 
979.9

 
(745.9
)
    Sales
 
(374.9
)
 
—

 
—

 
(374.9
)
 
—

    Settlements(2)
 
—

 
(120.7
)
 
—

 
(120.7
)
 
37.6

Ending balance June 30, 2018
 
$
16,042.7

 
$
5,915.3

 
$
618.3

 
$
22,576.3

 
$
(2,891.4
)
(1) 
Includes purchases, contributions for joint ventures, capital expenditures, lending for loans receivable and assumption of mortgage loans payable.
(2) 
Includes operating income for real estate joint ventures net of distributions, principal payments and payoffs of loans receivable, and principal payments and extinguishment of mortgage loans payable.
The following table shows quantitative information about unobservable inputs related to the Level 3 fair value measurements as of June 30, 2019 (unaudited).
Type
Asset Class
Valuation
Technique(s)
Unobservable
Inputs
Range (Weighted Average)
Real Estate Properties and Joint Ventures
Office
Income Approach—Discounted Cash Flow
Discount Rate
Terminal Capitalization Rate
5.5% - 8.6% (6.6%)
4.0% - 7.5% (5.5%)
 
 
Income Approach—Direct Capitalization
Overall Capitalization Rate
3.5% - 7.0% (4.9%)
 
Industrial
Income Approach—Discounted Cash Flow
Discount Rate
Terminal Capitalization Rate
5.3% - 9.3% (6.7%)
4.3% - 8.3% (5.5%)
 
 
Income Approach—Direct Capitalization
Overall Capitalization Rate
3.9% - 7.8% (4.9%)
 
Apartment
Income Approach—Discounted Cash Flow
Discount Rate
Terminal Capitalization Rate
5.5% - 7.8% (6.4%)
3.8% - 6.8% (5.0%)
 
 
Income Approach—Direct Capitalization
Overall Capitalization Rate
3.3% - 6.0% (4.5%)
 
Retail
Income Approach—Discounted Cash Flow
Discount Rate
Terminal Capitalization Rate
5.0% - 10.7% (6.5%)
4.3% - 9.2% (5.4%)
 
 
Income Approach—Direct Capitalization
Overall Capitalization Rate
3.3% - 10.5% (4.8%)
Mortgage Loans Payable
Office and Industrial
Discounted Cash Flow
Loan to Value Ratio
Equivalency Rate
34.7% - 60.4% (47.3%)
3.5% - 5.5% (4.0%)
 
 
Net Present Value
Loan to Value Ratio
Weighted Average Cost of Capital Risk
Premium Multiple
34.7% - 60.4% (47.3%)
1.2 - 1.4 (1.3)
 
Apartment
Discounted Cash Flow
Loan to Value Ratio
Equivalency Rate
31.4% - 62.0% (48.1%)
3.4% - 4.0% (3.7%)
 
 
Net Present Value
Loan to Value Ratio
Weighted Average Cost of Capital Risk
Premium Multiple
31.4% - 62.0% (48.1%)
1.2 - 1.4 (1.3)
 
Retail
Discounted Cash Flow
Loan to Value Ratio
Equivalency Rate
32.0% - 63.3% (39.6%)
3.6% - 4.7% (4.0%)
 
 
Net Present Value
Loan to Value Ratio
Weighted Average Cost of Capital Risk
Premium Multiple
32.0% - 63.3% (39.6%)
1.2 - 1.5 (1.2)
Loans Receivable
Office, Retail and Storage
Discounted Cash Flow
Loan to Value Ratio
Equivalency Rate
69.3% - 86.2% (77.6%)
6.2% - 8.7% (7.2%)





The following table shows quantitative information about unobservable inputs related to the Level 3 fair value measurements as of June 30, 2018 (unaudited).
Type
Asset Class
Valuation
Technique(s)
Unobservable
Inputs
Range (Weighted Average)
Real Estate Properties and Joint Ventures
Office
Income Approach—Discounted Cash Flow
Discount Rate
Terminal Capitalization Rate
5.5% - 8.6% (6.6%)
4.0% - 7.5% (5.5%)
 
 
Income Approach—Direct Capitalization
Overall Capitalization Rate
3.8% - 7.0% (4.9%)
 
Industrial
Income Approach—Discounted Cash Flow
Discount Rate
Terminal Capitalization Rate
5.5% - 8.9% (6.8%)
4.5% - 8.3% (5.6%)
 
 
Income Approach—Direct Capitalization
Overall Capitalization Rate
4.0% - 7.5% (5.0%)
 
Apartment
Income Approach—Discounted Cash Flow
Discount Rate
Terminal Capitalization Rate
5.3% - 7.8% (6.3%)
3.5% - 6.3% (4.8%)
 
 
Income Approach—Direct Capitalization
Overall Capitalization Rate
3.3% - 5.8% (4.4%)
 
Retail
Income Approach—Discounted Cash Flow
Discount Rate
Terminal Capitalization Rate
5.0% - 10.5% (6.4%)
4.3% - 8.8% (5.2%)
 
 
Income Approach—Direct Capitalization
Overall Capitalization Rate
3.8% - 10.5% (4.6%)
Mortgage Loans Payable
Office and Industrial
Discounted Cash Flow
Loan to Value Ratio
Equivalency Rate
37.5% - 69.2% (48.3%)
4.2% - 5.8% (4.4%)
 
 
Net Present Value
Loan to Value Ratio
Weighted Average Cost of Capital Risk
Premium Multiple
37.5% - 69.2% (48.3%)
1.2 - 1.4 (1.3)
 
Apartment
Discounted Cash Flow
Loan to Value Ratio
Equivalency Rate
26.3% - 64.7% (43.4%)
3.8% - 4.3% (4.0%)
 
 
Net Present Value
Loan to Value Ratio
Weighted Average Cost of Capital Risk
Premium Multiple
26.3% - 64.7% (43.4%)
1.1 - 1.4 (1.3)
 
Retail
Discounted Cash Flow
Loan to Value Ratio
Equivalency Rate
17.7% - 51.4% (32.6%)
4.0% - 5.3% (4.3%)
 
 
Net Present Value
Loan to Value Ratio
Weighted Average Cost of Capital Risk
Premium Multiple
17.7% - 51.4% (32.6%)
1.1 - 1.3 (1.2)
Loans Receivable
Office, Retail and Storage
Discounted Cash Flow
Loan to Value Ratio
Equivalency Rate
60.2% - 79.2% (75.1%)
4.2% - 8.3% (6.2%)


Real Estate Properties and Joint Ventures: The significant unobservable inputs used in the fair value measurement of the Account’s real estate property and joint venture investments are the selection of certain investment rates (Discount Rate, Terminal Capitalization Rate, and Overall Capitalization Rate). Significant increases (decreases) in any of those inputs in isolation would result in significantly lower (higher) fair value measurements, respectively.
Mortgage Loans Payable: The significant unobservable inputs used in the fair value measurement of the Account’s mortgage loans payable are the loan to value ratios and the selection of certain credit spreads and weighted average cost of capital risk premiums. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value, respectively.
Loans Receivable: The significant unobservable inputs used in the fair value measurement of the Account’s loans receivable are the loan to value ratios and the selection of certain credit spreads. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value, respectively.
During the six months ended June 30, 2019 and 2018, there were no transfers between Levels 1, 2 or 3.
The amount of total net unrealized gains (losses) included in changes in net assets attributable to the change in net unrealized gains (losses) relating to Level 3 investments and mortgage loans payable using significant unobservable inputs still held as of the reporting date is as follows (millions, unaudited):
 
Real Estate
Properties
 
Real Estate
Joint
Ventures
 
Loans
Receivable
 
Total
Level 3
Investments
 
Mortgage
Loans
Payable
For the three months ended June 30, 2019
$
170.3

 
$
(14.7
)
 
$
(4.0
)
 
$
151.6

 
$
(36.7
)
For the six months ended June 30, 2019
$
244.2

 
$
(12.2
)
 
$
(2.8
)
 
$
229.2

 
$
(66.3
)
For the three months ended June 30, 2018
$
16.1

 
$
67.4

 
$
(0.1
)
 
$
83.4

 
$
27.5

For the six months ended June 30, 2018
$
110.7

 
$
91.6

 
$
—

 
$
202.3

 
$
55.2