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Fair Value of Financial Assets and Liabilities | 6 Months Ended
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Jun. 30, 2019
Fair Value Disclosures [Abstract] |
Fair Value of Financial Assets and Liabilities |
(2 6) | Fair Value of Financial Assets and Liabilities
U.S. GAAP guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
| • | Level 1 measurements—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
| • | Level 2 measurements—Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.
| • | Level 3 measurements—Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
As required by U.S. GAAP guidance, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table sets forth by level within the fair value hierarchy financial assets and liabilities accounted for at fair value under U.S. GAAP guidance at June 30, 2019 and December 31, 2018 (in thousands):
|  | As of June 30, 2019 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Marketable securities |  | $ | 33,659 |  |  | $ | — |  |  | $ | — |  |  | $ | 33,659 |
Nasdaq Forwards |  |  | — |  |  |  | — |  |  |  | 48,652 |  |  |  | 48,652 |
Loans held for sale, at fair value |  |  | — |  |  |  | 818,909 |  |  |  | — |  |  |  | 818,909 |
Rate lock commitments |  |  | — |  |  |  | — |  |  |  | 21,951 |  |  |  | 21,951 |
Forwards |  |  | — |  |  |  | — |  |  |  | 2,845 |  |  |  | 2,845 |
Total assets |  | $ | 33,659 |  |  | $ | 818,909 |  |  | $ | 73,448 |  |  | $ | 926,016 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Accounts payable, accrued expenses and other liabilities—contingent consideration |  | $ | — |  |  | $ | — |  |  | $ | 38,712 |  |  | $ | 38,712 |
Rate lock commitments |  |  | — |  |  |  | — |  |  |  | 2,428 |  |  |  | 2,428 |
Forwards |  |  | — |  |  |  | — |  |  |  | 27,261 |  |  |  | 27,261 |
Total Liabilities |  | $ | — |  |  | $ | — |  |  | $ | 68,401 |  |  | $ | 68,401 |
|  | As of December 31, 2018 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Marketable securities |  | $ | 48,942 |  |  | $ | — |  |  | $ | — |  |  | $ | 48,942 |
Nasdaq Forwards |  |  | — |  |  |  | — |  |  |  | 77,619 |  |  |  | 77,619 |
Loans held for sale, at fair value |  |  | — |  |  |  | 990,864 |  |  |  | — |  |  |  | 990,864 |
Rate lock commitments |  |  | — |  |  |  | — |  |  |  | 6,732 |  |  |  | 6,732 |
Forwards |  |  | — |  |  |  | — |  |  |  | 8,177 |  |  |  | 8,177 |
Total assets |  | $ | 48,942 |  |  | $ | 990,864 |  |  | $ | 92,528 |  |  | $ | 1,132,334 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Accounts payable, accrued expenses and other liabilities—contingent consideration |  | $ | — |  |  | $ | — |  |  | $ | 32,552 |  |  | $ | 32,552 |
Rate lock commitments |  |  | — |  |  |  | — |  |  |  | 7,470 |  |  |  | 7,470 |
Forwards |  |  | — |  |  |  | — |  |  |  | 9,208 |  |  |  | 9,208 |
Total Liabilities |  | $ | — |  |  | $ | — |  |  | $ | 49,230 |  |  | $ | 49,230 |
There were no transfers among Level 1, 2 and 3 for the six months ended June 30, 2019 and the year ended December 31, 2018. Level 3 Financial Assets and Liabilities: Changes in Level 3 Nasdaq Forwards, rate lock commitments, forwards and contingent consideration measured at fair value on recurring basis for the three months ended June 30, 2019 were as follows (in thousands):
|  | Opening Balance April 1, 2019 |  |  | Total realized and unrealized gains (losses) included in Net income(1) |  |  | Issuances |  |  | Settlements |  |  | Closing Balance as of June 30, 2019 |  |  | Unrealized gains (losses) outstanding as of June 30, 2019 |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Rate Lock Commitments |  | $ | 10,210 |  |  | $ | 21,951 |  |  | $ | — |  |  | $ | (10,210 | ) |  | $ | 21,951 |  |  | $ | 21,951 |
Forwards |  |  | 5,964 |  |  |  | 2,845 |  |  |  | — |  |  |  | (5,964 | ) |  |  | 2,845 |  |  |  | 2,845 |
Nasdaq Forwards |  |  | 64,290 |  |  |  | (15,638 | ) |  |  | — |  |  |  | — |  |  |  | 48,652 |  |  |  | (15,638 | )
Total Assets |  | $ | 80,464 |  |  | $ | 9,158 |  |  | $ | — |  |  | $ | (16,174 | ) |  | $ | 73,448 |  |  | $ | 9,158 |
|  | Opening Balance April 1, 2019 |  |  | Total realized and unrealized (gains) losses included in Net income(1) |  |  | Issuances |  |  | Settlements |  |  | Closing Balance as of June 30, 2019 |  |  | Unrealized (gains) losses outstanding as of June 30, 2019 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Accounts payable, accrued expenses and other liabilities – contingent consideration(1) |  | $ | 31,357 |  |  | $ | (65 | ) |  | $ | 7,758 |  |  | $ | (338 | ) |  | $ | 38,712 |  |  | $ | (65 | )
Rate Lock Commitments |  |  | 5,190 |  |  |  | 2,428 |  |  |  | — |  |  |  | (5,190 | ) |  |  | 2,428 |  |  |  | 2,428 |
Forwards |  |  | 9,596 |  |  |  | 27,261 |  |  |  | — |  |  |  | (9,596 | ) |  |  | 27,261 |  |  |  | 27,261 |
Total Liabilities |  | $ | 46,143 |  |  | $ | 29,624 |  |  | $ | 7,758 |  |  | $ | (15,124 | ) |  | $ | 68,401 |  |  | $ | 29,624 |
| (1) | Realized and unrealized losses are reported in “Other income (loss), net” in Newmark’s unaudited condensed consolidated statements of operations.
Changes in Level 3 Nasdaq Forwards, rate lock commitments, forwards and contingent consideration measured at fair value on recurring basis for the three months ended June 30, 2018 were as follows (in thousands):
|  | Opening Balance as of April 1, 2018 |  |  | Total realized and unrealized gains (losses) included in Net income(1) |  |  | Issuances |  |  | Settlements |  |  | Closing Balance as of June 30, 2018 |  |  | Unrealized gains (losses) outstanding as of June 30, 2018 |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Rate Lock Commitments |  | $ | 8,750 |  |  | $ | 14,448 |  |  | $ | — |  |  | $ | (8,750 | ) |  | $ | 14,448 |  |  | $ | 14,448 |
Forwards |  |  | 9,687 |  |  |  | 16,442 |  |  |  | — |  |  |  | (9,687 | ) |  |  | 16,442 |  |  |  | 16,442 |
Nasdaq Forwards |  |  | — |  |  |  | (2,808 | ) |  |  | 21,893 |  |  |  | — |  |  |  | 19,085 |  |  |  | (2,808 | )
Total Assets |  | $ | 18,437 |  |  | $ | 28,082 |  |  | $ | 21,893 |  |  | $ | (18,437 | ) |  | $ | 49,975 |  |  | $ | 28,082 |
|  | Opening Balance as of April 1, 2018 |  |  | Total realized and unrealized (gains) losses included in Net income(1) |  |  | Issuances |  |  | Settlements |  |  | Closing Balance as of June 30, 2018 |  |  | Unrealized (gains) losses outstanding as of June 30, 2018 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Accounts payable, accrued expenses and other liabilities – contingent consideration(1) |  | $ | 23,088 |  |  | $ | 295 |  |  | $ | 688 |  |  | $ | (2,497 | ) |  | $ | 21,574 |  |  | $ | 295 |
Rate Lock Commitments |  |  | 8,980 |  |  |  | 13,945 |  |  |  | — |  |  |  | (8,980 | ) |  |  | 13,945 |  |  |  | 13,945 |
Forwards |  |  | 2,421 |  |  |  | 641 |  |  |  | — |  |  |  | (2,421 | ) |  |  | 641 |  |  |  | 641 |
Total Liabilities |  | $ | 34,489 |  |  | $ | 14,881 |  |  | $ | 688 |  |  | $ | (13,898 | ) |  | $ | 36,160 |  |  | $ | 14,881 |
| (1) | Realized and unrealized losses are reported in “Other income (loss), net” in Newmark’s unaudited condensed consolidated statements of operations.
Changes in Level 3 Nasdaq Forwards, rate lock commitments, forwards and contingent consideration measured at fair value on recurring basis for the six months ended June 30, 2019 were as follows (in thousands):
|  | Opening Balance as of January 1, 2019 |  |  | Total realized and unrealized gains (losses) included in Net income(1) |  |  | Issuances |  |  | Settlements |  |  | Closing Balance as of June 30, 2019 |  |  | Unrealized gains (losses) outstanding as of June 30, 2019 |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Rate Lock Commitments |  | $ | 6,732 |  |  | $ | 21,951 |  |  | $ | — |  |  | $ | (6,732 | ) |  | $ | 21,951 |  |  | $ | 21,951 |
Forwards |  |  | 8,177 |  |  |  | 2,845 |  |  |  | — |  |  |  | (8,177 | ) |  |  | 2,845 |  |  |  | 2,845 |
Nasdaq Forwards |  |  | 77,619 |  |  |  | (28,967 | ) |  |  | — |  |  |  | — |  |  |  | 48,652 |  |  |  | (28,967 | )
Total Assets |  | $ | 92,528 |  |  | $ | (4,171 | ) |  | $ | — |  |  | $ | (14,909 | ) |  | $ | 73,448 |  |  | $ | (4,171 | )
|  | Opening Balance as of January 1, 2019 |  |  | Total realized and unrealized (gains) losses included in Net income(1) |  |  | Issuances |  |  | Settlements |  |  | Closing Balance as of June 30, 2019 |  |  | Unrealized (gains) losses outstanding as of June 30, 2019 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Accounts payable, accrued expenses and other liabilities – contingent consideration(1) |  | $ | 32,552 |  |  | $ | 1,319 |  |  | $ | 7,758 |  |  | $ | (2,917 | ) |  | $ | 38,712 |  |  | $ | 1,319 |
Rate Lock Commitments |  |  | 7,470 |  |  |  | 2,428 |  |  |  | — |  |  |  | (7,470 | ) |  |  | 2,428 |  |  |  | 2,428 |
Forwards |  |  | 9,208 |  |  |  | 27,261 |  |  |  | — |  |  |  | (9,208 | ) |  |  | 27,261 |  |  |  | 27,261 |
Total Liabilities |  | $ | 49,230 |  |  | $ | 31,008 |  |  | $ | 7,758 |  |  | $ | (19,595 | ) |  | $ | 68,401 |  |  | $ | 31,008 |
| (1) | Realized and unrealized losses are reported in “Other income (loss), net” in Newmark’s unaudited condensed consolidated statements of operations.
Changes in Level 3 Nasdaq Forwards, rate lock commitments, forwards and contingent consideration measured at fair value on recurring basis for the six months ended June 30, 2018 were as follows (in thousands):
|  | Opening Balance as of January 1, 2018 |  |  | Total realized and unrealized gains (losses) included in Net income(1) |  |  | Issuances |  |  | Settlements |  |  | Closing Balance as of June 30, 2018 |  |  | Unrealized gains (losses) outstanding as of June 30, 2018 |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Rate Lock Commitments |  | $ | 2,923 |  |  | $ | 14,448 |  |  | $ | — |  |  | $ | (2,923 | ) |  | $ | 14,448 |  |  | $ | 14,448 |
Forwards |  |  | 3,753 |  |  |  | 16,442 |  |  |  | — |  |  |  | (3,753 | ) |  |  | 16,442 |  |  |  | 16,442 |
Nasdaq Forwards |  |  | — |  |  |  | (2,808 | ) |  |  | 21,893 |  |  |  | — |  |  |  | 19,085 |  |  |  | (2,808 | )
Total Assets |  | $ | 6,676 |  |  | $ | 28,082 |  |  | $ | 21,893 |  |  | $ | (6,676 | ) |  | $ | 49,975 |  |  | $ | 28,082 |
|  | Opening Balance as of January 1, 2018 |  |  | Total realized and unrealized (gains) losses included in Net income(1) |  |  | Issuances |  |  | Settlements |  |  | Closing Balance as of June 30, 2018 |  |  | Unrealized (gains) losses outstanding as of June 30, 2018 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Accounts payable, accrued expenses and other liabilities – contingent consideration(1) |  | $ | 23,710 |  |  | $ | 432 |  |  | $ | 688 |  |  | $ | (3,256 | ) |  | $ | 21,574 |  |  | $ | 432 |
Rate Lock Commitments |  |  | 2,390 |  |  |  | 13,945 |  |  |  | — |  |  |  | (2,390 | ) |  |  | 13,945 |  |  |  | 13,945 |
Forwards |  |  | 657 |  |  |  | 641 |  |  |  | — |  |  |  | (657 | ) |  |  | 641 |  |  |  | 641 |
Total Liabilities |  | $ | 26,757 |  |  | $ | 15,018 |  |  | $ | 688 |  |  | $ | (6,303 | ) |  | $ | 36,160 |  |  | $ | 15,018 |
| (1) | Realized and unrealized losses are reported in “Other income (loss), net” in Newmark’s unaudited condensed consolidated statements of operations.
Quantitative Information About Level 3 Fair Value Measurements The following tables present quantitative information about the significant unobservable inputs utilized by Newmark in the fair value measurement of Level 3 assets and liabilities measured at fair value on a recurring basis:
June 30, 2019 |
Level 3 assets and liabilities |  | Assets |  |  | Liabilities |  |  | Significant Unobservable Inputs |  | Range |  | Weighted Average |
Accounts payable, accrued expenses and other liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration |  | $ | — |  |  | $ | 38,712 |  |  | Discount rate |  | 0.3% - 10.4% |  | 8.1% |
|  |  |  |  |  |  |  |  |  | Probability of meeting earnout and contingencies |  | 99% - 100% |  | 99.5% |
|  |  |  |  |  |  |  |  |  | Financial forecast information |  |  |  |  |  |
Derivative assets and liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Nasdaq Forwards |  | $ | 48,652 |  |  | $ | — |  |  | Volatility |  | 27.75% - 35.25% |  | 32.2% |
Forward sale contracts |  | $ | 2,845 |  |  | $ | 27,261 |  |  | Counterparty credit risk |  | N/A |  | N/A |
Rate lock commitments |  | $ | 21,951 |  |  | $ | 2,428 |  |  | Counterparty credit risk |  | N/A |  | N/A |
December 31, 2018 |
Level 3 assets and liabilities |  | Assets |  |  | Liabilities |  |  | Significant Unobservable Inputs |  | Range |  | Weighted Average |
Accounts payable, accrued expenses and other liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration |  | $ | — |  |  | $ | 32,552 |  |  | Discount rate |  | 0.3%-10.4% |  | 8.2% |
|  |  |  |  |  |  |  |  |  | Probability of meeting earnout and contingencies |  | 99%-100%(1) |  | 99.6% |
|  |  |  |  |  |  |  |  |  | Financial forecast information |  |  |  |  |  |
Derivative assets and liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Nasdaq Forwards |  | $ | 77,619 |  |  | $ | — |  |  | Volatility |  | 23.7%-34.8%(2) |  | 30.2% |
Forward sale contracts |  | $ | 8,177 |  |  | $ | 9,208 |  |  | Counterparty credit risk |  | N/A |  | N/A |
Rate lock commitments |  | $ | 6,732 |  |  | $ | 7,470 |  |  | Counterparty credit risk |  | N/A |  | N/A |
| (1) | Newmark’s estimate of contingent consideration as of June 30, 2019 and December 31, 2018 was based on the acquired business’ projected future financial performance, including revenues.
| (2) | The volatility of Newmark’s Nasdaq Forwards is primarily based on the underlying Nasdaq stock price.
Valuation Processes - Level 3 Measurements Both the rate lock commitments to borrowers and the forward sale contracts to investors are derivatives and, accordingly, are marked to fair value through Newmark’s unaudited condensed consolidated statements of operations. The fair value of Newmark’s rate lock commitments to borrowers and loans held for sale and the related input levels includes, as applicable:
| • | The assumed gain/loss of the expected loan sale to the investor, net of employee benefits;
| • | The expected net future cash flows associate with servicing the loan;
| • | The effects of interest rate movements between the date of the rate lock and the balance sheet date; and
| • | The nonperformance risk of both the counterparty and Newmark.
The fair value of Newmark’s forward sales contracts to investors considers effects of interest rate movements between the trade date and the balance sheet date. The market price changes are multiplied by the notional amount of the forward sales contracts to measure the fair value. The fair value of Newmark’s rate lock commitments and forward sale contracts is adjusted to reflect the risk that the agreement will not be fulfilled. Newmark’s exposure to nonperformance in rate lock and forward sale contracts is represented by the contractual amount of those instruments. Given the credit quality of Newmark’s counterparties, the short duration of rate lock commitments and forward sales contracts, and Newmark’s historical experience with the agreements, management does not believe the risk of nonperformance by Newmark’s counterparties to be significant. The Nasdaq Forwards are derivatives and, accordingly, are marked to fair value through Newmark’s unaudited condensed consolidated statements of operations. The fair value of the Nasdaq Forwards is determined utilizing the following inputs, as applicable:
| • | The underlying number of shares and the related strike price;
| • | The maturity date; and
| • | The implied volatility of Nasdaq’s stock price.
The fair value of Newmark’s Nasdaq Forwards considers the effects of Nasdaq’s stock price volatility between the balance sheet date and the maturity date. The fair value is determined through the use of a Black-Scholes put option valuation model. Information About Uncertainty of Level 3 Fair Value Measurements The significant unobservable inputs used in the fair value of Newmark’s contingent consideration are the discount rate and forecasted financial information. Significant increases (decreases) in the discount rate would have resulted in a significantly lower (higher) fair value measurement. Significant increases (decreases) in the forecasted financial information would have resulted in a significantly higher (lower) fair value measurement. As of June 30, 2019 and December 31, 2018, the present value of expected payments related to Newmark’s contingent consideration was $34.2 million and $32.6 million, respectively (See Note 31 — Commitments and Contingencies). The undiscounted value of the payments, assuming that all contingencies are met, would be $40.2 million and $39.6 million, respectively. Valuations for contingent consideration, Nasdaq Forwards, forward sales contracts, and rate lock commitments are conducted by Newmark. Each reporting period, Newmark updates unobservable inputs. Newmark has a formal process to review changes in fair value for satisfactory explanation. Fair Value Measurements on a Non-Recurring Basis Pursuant to the new recognition and measurement guidance for equity investments, effective January 1, 2018, equity investments carried under the measurement alternative are remeasured at fair value on a non-recurring basis to reflect observable transactions which occurred during the period. Newmark applied the measurement alternative to equity securities with the fair value of approximately $57.5 million, which were included in “Other assets” in Newmark’s unaudited condensed consolidated balance sheets as of June 30, 2019 and December 31, 2018. These investments are classified within Level 2 in the fair value hierarchy, because their estimated fair value is based on valuation methods using the observable transaction price at the transaction date.

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- 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. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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