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Fair Value Measurements
 12 Months Ended
Dec. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurements

7.

Fair Value Measurements

Topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Topic 820 also establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

 

•

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

•

Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

•

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The following tables present the fair value of assets and liabilities measured at fair value on a recurring basis as of December 31, 2019 and 2018 (dollars in thousands):

 

 

 

As of December 31, 2019

 

 

 

Fair Value Measured and Recorded Using

 

 

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

$

6,998

 

 

$

—

 

 

$

—

 

 

$

6,998

 

Debt securities issued by U.S. federal agencies

 

 

—

 

 

 

10,639

 

 

 

—

 

 

 

10,639

 

Corporate debt securities

 

 

—

 

 

 

29,098

 

 

 

—

 

 

 

29,098

 

Asset-backed securities

 

 

—

 

 

 

5,152

 

 

 

—

 

 

 

5,152

 

Collateralized mortgage obligations

 

 

—

 

 

 

2,222

 

 

 

—

 

 

 

2,222

 

Total available for sale debt securities

 

 

6,998

 

 

 

47,111

 

 

 

—

 

 

 

54,109

 

Equity securities

 

 

51,399

 

 

 

—

 

 

 

—

 

 

 

51,399

 

Warehouse receivables

 

 

—

 

 

 

993,058

 

 

 

—

 

 

 

993,058

 

Total assets at fair value

 

$

58,397

 

 

$

1,040,169

 

 

$

—

 

 

$

1,098,566

 

 

 

 

As of December 31, 2018

 

 

 

Fair Value Measured and Recorded Using

 

 

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

$

3,138

 

 

$

—

 

 

$

—

 

 

$

3,138

 

Debt securities issued by U.S. federal agencies

 

 

—

 

 

 

11,196

 

 

 

—

 

 

 

11,196

 

Corporate debt securities

 

 

—

 

 

 

27,201

 

 

 

—

 

 

 

27,201

 

Asset-backed securities

 

 

—

 

 

 

5,017

 

 

 

—

 

 

 

5,017

 

Collateralized mortgage obligations

 

 

—

 

 

 

2,224

 

 

 

—

 

 

 

2,224

 

Total available for sale debt securities

 

 

3,138

 

 

 

45,638

 

 

 

—

 

 

 

48,776

 

Equity securities

 

 

153,762

 

 

 

—

 

 

 

—

 

 

 

153,762

 

Warehouse receivables

 

 

—

 

 

 

1,342,468

 

 

 

—

 

 

 

1,342,468

 

Total assets at fair value

 

$

156,900

 

 

$

1,388,106

 

 

$

—

 

 

$

1,545,006

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

—

 

 

$

1,070

 

 

$

—

 

 

$

1,070

 

Securities sold, not yet purchased

 

 

3,133

 

 

 

—

 

 

 

—

 

 

 

3,133

 

Total liabilities at fair value

 

$

3,133

 

 

$

1,070

 

 

$

—

 

 

$

4,203

 

 

The following non-recurring fair value measurement was recorded for the year ended December 31, 2019 (dollars in thousands):

 

 

 

Net Carrying

Value as of

 

 

Fair Value Measured and Recorded Using

 

 

Total

Impairment

Charges for

the Year Ended

 

 

 

December 31,

2019

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

December 31,

2019

 

Other intangible assets

 

$

14,753

 

 

$

—

 

 

$

—

 

 

$

14,753

 

 

$

89,787

 

 

During the year ended December 31, 2019, we recorded an intangible asset impairment of $89.8 million in our Real Estate Investments segment. Such impairment charge was included as a separate line item in the accompanying consolidated statements of operations.

This non-cash write-off resulted from a review of the anticipated cash flows and the decrease in assets under management in our public securities business driven in part by continued industry-wide shift in investor preference for passive investment programs. The fair value measurements employed for our impairment evaluation was

generally based upon a discounted cash flow approach. Inputs used in such evaluation included risk-free rates of return, estimated risk premiums as well as other economic variables.

During the year ended December 31, 2018, we recorded a gain of $100.4 million associated with remeasuring our 50% investment in a previously unconsolidated subsidiary in New England to fair value as of the date we acquired the remaining 50% controlling interest. Fair value of this investment in our unconsolidated subsidiary as of the acquisition date was $110.1 million, based upon the purchase price paid for the remaining 50% interest acquired, excluding the estimated control premium paid, which falls under Level 3 of the fair value hierarchy. Such gain was reflected in other income in our Advisory Services segment in the accompanying consolidated statements of operations for the year ended December 31, 2018.

There were no significant non-recurring fair value measurements recorded during the year ended December 31, 2017.

The fair values of the warehouse receivables are primarily calculated based on already locked in purchase prices. At December 31, 2019 and 2018, all of the warehouse receivables included in the accompanying consolidated balance sheets were either under commitment to be purchased by Freddie Mac or had confirmed forward trade commitments for the issuance and purchase of Fannie Mae or Ginnie Mae mortgage backed securities that will be secured by the underlying loans (See Notes 2 and 5). These assets are classified as Level 2 in the fair value hierarchy as a substantial majority of inputs are readily observable.

Fair value measurements for our available for sale debt securities are obtained from independent pricing services which utilize observable market data that may include quoted market prices, dealer quotes, market spreads, cash flows, the U.S. treasury yield curve, trading levels, market consensus prepayment speeds, credit information and the instrument's terms and conditions.

The equity securities and securities sold, not yet purchased are primarily in the U.S. and are generally valued at the last reported sales price on the day of valuation or, if no sales occurred on the valuation date, at the mean of the bid and asked prices on such date.

FASB ASC Topic 825, “Financial Instruments” requires disclosure of fair value information about financial instruments, whether or not recognized in the accompanying consolidated balance sheets. Our financial instruments are as follows:  

 

•

Cash and Cash Equivalents and Restricted Cash – These balances include cash and cash equivalents as well as restricted cash with maturities of less than three months. The carrying amount approximates fair value due to the short-term maturities of these instruments.

 

•

Receivables, less Allowance for Doubtful Accounts – Due to their short-term nature, fair value approximates carrying value.

 

•

Warehouse Receivables – These balances are carried at fair value. The primary source of value is either a contractual purchase commitment from Freddie Mac or a confirmed forward trade commitment for the issuance and purchase of a Fannie Mae or Ginnie Mae MBS (see Notes 2 and 5).

 

•

Available For Sale Debt Securities – These investments are carried at their fair value.

 

•

Equity Securities – These investments are carried at their fair value.

 

•

Securities Sold, not yet Purchased – These liabilities are carried at their fair value.

 

•

Short-Term Borrowings – This balance primarily represents outstanding amounts under our warehouse lines of credit of our wholly-owned subsidiary, CBRE Capital Markets. Due to the short-term nature and variable interest rates of these instruments, fair value approximates carrying value (see Notes 5 and 11).

 

•

Senior Term Loans – Based upon information from third-party banks (which falls within Level 2 of the fair value hierarchy), the estimated fair value of our senior term loans was approximately $745.5 million and $757.0 million at December 31, 2019 and 2018, respectively. Their actual carrying value, net of

 

unamortized debt issuance costs, totaled $744.6 million and $751.3 million at December 31, 2019 and 2018, respectively (see Note 11).

 

•

Interest Rate Swaps – These liabilities are carried at their fair value as calculated by using widely-accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative (see Note 11).

 

•

Senior Notes – Based on dealers’ quotes (which falls within Level 2 of the fair value hierarchy), the estimated fair values of our 4.875% senior notes and 5.25% senior notes were $670.7 million and $478.3 million, respectively, at December 31, 2019 and $616.4 million and $443.7 million, respectively, at December 31, 2018. The actual carrying value of our 4.875% senior notes and 5.25% senior notes, net of unamortized debt issuance costs as well as unamortized discount or premium, if applicable, totaled $593.6 million and $423.0 million, respectively, at December 31, 2019 and $592.8 million and $422.7 million, respectively, at December 31, 2018.

 

•

Notes Payable on Real Estate – As of December 31, 2019 and 2018, the carrying value of our notes payable on real estate, net of unamortized debt issuance costs, was $13.1 million and $6.3 million, respectively. These notes payable were not recourse to CBRE Group, Inc., except for being recourse to the single-purpose entities that held the real estate assets and were the primary obligors on the notes payable. These borrowings have either fixed interest rates or floating interest rates at spreads added to a market index. Although it is possible that certain portions of our notes payable on real estate may have fair values that differ from their carrying values, based on the terms of such loans as compared to current market conditions, or other factors specific to the borrower entity, we do not believe that the fair value of our notes payable is significantly different than their carrying value.