Fair Value Measurements

In accordance with ASC 820, Fair Value Measurement and Disclosures, the Company defines fair value based on the price that would be received upon sale of an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:


•	Level 1 - Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.


•	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 and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The Company has estimated the fair value of its financial and non-financial instruments using available market information and valuation methodologies the Company believes to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts that would be realized upon disposition.

Recurring Measurements

For assets and liabilities measured at fair value on a recurring basis, quantitative disclosure of the fair value for each major category of assets and liabilities is presented below:



	Fair Value Measurements at December 31, 2017
	Level 1		Level 2		Level 3
Available-for-sale marketable securities	$	4,431	$	—	$	—
Real estate related bonds	—		327		—
Derivative interest rate swaps	—		1,670		—
Total assets	$	4,431	$	1,997	$	—



	Fair Value Measurements at December 31, 2016
	Level 1		Level 2		Level 3
Available-for-sale real marketable securities	$	182,570	$	—	$	—
Real estate related bonds	—		1,313		—
Derivative interest rate swaps	—		487		—
Total assets	$	182,570	$	1,800	$	—

Level 1

At December 31, 2017 and 2016, the fair value of the available for sale marketable equity securities have been estimated based upon quoted market prices. Unrealized gains or losses on investment are reflected in unrealized gain (loss) on investment securities in comprehensive income on the consolidated statements of operations and comprehensive income (loss).

Level 2

To calculate the fair value of the real estate related bonds and the derivative interest rate instruments, the Company primarily uses quoted prices for similar securities and contracts. For the real estate related bonds, the Company reviews price histories for similar market transactions. For the derivative interest rate instruments, the Company uses inputs based on data that is observed in the forward yield curve which is widely observable in the marketplace. The Company also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements which utilizes Level 3 inputs, such as estimates of current credit spreads. However, as of December 31, 2017 and 2016, the Company has assessed that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. As of December 31, 2017 and 2016, the Company had entered into interest rate swap agreements with a notional value of $150,000. The Company has designated these interest rate swaps as cash flow hedges. The Company recognizes any changes in fair value of the interest rate swaps as adjustments of accumulated comprehensive income within equity to the extent of their effectiveness.

Level 3

At December 31, 2017 and 2016, the Company had no level three recurring fair value measurements.

Non-Recurring Measurements

The following table summarizes activity for the Company’s assets measured at fair value on a non-recurring basis. The Company recognized impairment charges to reflect the investments at their estimated fair values for the years ended December 31, 2017 and 2016. The asset groups that were reflected at estimated fair value through this evaluation are:



	As of December 31, 2017				As of December 31, 2016				As of December 31, 2015
	Level 3		Impairment Loss		Level 3		Impairment Loss		Level 3		Impairment Loss
Investment properties, continuing operations	$	105,900	$	27,754	$	66,323	$	11,208	$	126,842	$	108,154
Investment properties, discontinued operations	—		—		584,358		106,514		—		—
Total			$	27,754			$	117,722			$	108,154

Investment properties, continuing operations

During the year ended December 31, 2017, the Company identified certain retail properties which may have a reduction in the expected holding period and reviewed the probability of these properties' disposition. The Company's estimated fair value relating to the investment retail properties' impairment analyses were based on purchase contracts, broker opinions of value, letters of intent and 10-year discounted cash flow models, which include estimated inflows and outflows over a specific holding period and estimated net disposition proceeds at the end of the 10-year period. The discounted cash flow models consist of observable inputs such as contractual revenues and unobservable inputs such as forecasted revenues and expenses and estimated net disposition proceeds at the end of the 10-year period. These unobservable inputs are based on market conditions and the Company’s expected growth rates. Capitalization rates ranging from 7.00% to 8.00% and discount rates ranging from 8.00% to 9.00% were utilized in the 10-year discounted cash flow model and were based upon observable rates that the Company believed to be within a reasonable range of current market rates. As a result of these analyses, the Company recorded a provision for asset impairment of $27,754 in continuing operations on six retail properties.

During the year ended December 31, 2016, the Company identified certain retail properties which may have a reduction in the expected holding period and reviewed the probability of these properties' disposition. The Company's estimated fair value relating to the investment properties' impairment analyses were based on purchase contracts and 10-year discounted cash flow model. Capitalization rates ranging from 6.00% to 7.00% and discount rates ranging from 7.00% to 8.00% were utilized in the 10-year discounted cash flow model and were based upon observable rates that the Company believed to be within a reasonable range of current market rates. As a result of these impairment analyses, the Company recorded a provision for asset impairment of $11,208 in continuing operations during the year ended December 31, 2016 on three retail properties.

During the year ended December 31, 2015, the Company identified certain properties which may have a reduction in the expected holding period and reviewed the probability of these properties' disposition. The Company's estimated fair value relating to the investment properties' impairment analyses were based on purchase contracts and 10-year discounted cash flow model. Capitalization rates ranging from 7.50% to 8.75% and discount rates ranging from 8.00% to 10.75% were utilized in the 10-year discounted cash flow model and were based upon observable rates that the Company believed to be within a reasonable range of current market rates. As a result of these impairment analyses, the Company recorded a provision for asset impairment of $15,987 in continuing operations during the year ended December 31, 2015 on two retail properties. In addition, during 2015, the Company completed the Railyards Transaction. See joint venture disclosure in "Note 5. Investment in Consolidated and Unconsolidated Entities". The Company’s estimated fair value relating to the asset's impairment analysis was based on a third party independent appraisal obtained as of September 30, 2015. The appraisal utilized a twelve-year discounted cash flow model, which included inflows and outflows over a specific holding period. The cash flows consist of unobservable inputs such as forecasted revenues and expenses. These unobservable inputs are based on market conditions and expected growth rates. A discount rate of 14% was utilized in the model and was based upon observable rates within a reasonable range of current market rates. It was determined the Railyards was impaired and was written down to estimated fair value. The Company recorded an impairment charge of $92,167 related to the Railyards Transaction during the year ended December 31, 2015.

Investment properties, discontinued operations

In connection with the Highlands spin-off in 2016, the Company evaluated Highlands as a disposal group for impairment. The Company's estimated fair value relating to the disposal group's impairment analysis was based on 10-year discounted cash flow models, which included contractual inflows and outflows over a specific holding period. The cash flows consisted of observable inputs such as contractual revenues and unobservable inputs forecasted revenues and expenses. These unobservable inputs were based on market conditions and the Company's expected growth rates. As of the spin-off date, capitalization rates ranging from 6.75% to 10.00% and discount rates ranging from 7.75% to 15.25% were utilized in the model and were based upon observable rates that the Company believed to be within a reasonable range of current market rates. Based on this analysis, the Company recorded an impairment related to the Highlands spin-off of $76,583 in discontinued operations for the year ended December 31, 2016 as the net book value of the disposal group exceeded its estimated fair value.

During the year ended December 31, 2016, the Company identified one non-core office property with a reduced expected holding period based on a review of the probability of the property's disposition. The Company's estimated fair value relating to this property's impairment analysis was based on a ten-year undiscounted cash flow model. Capitalization rates ranging from 6.75% to 7.00% and discount rates ranging from 7.00% to 8.00% were utilized in the model and were based upon observable market rates that the Company believed to be within a reasonable range. As a result of this analysis, the Company recorded a provision for asset impairment of $29,931 on this non-core office property, resulting in a total provision for asset impairment of $106,514 in discontinued operations for the year ended December 31, 2016.

During the years ended December 31, 2017 and 2015, there was no provision for asset impairment recorded in discontinued operations.

Financial Instruments Not Measured at Fair Value

The table below represents the estimated fair value of financial instruments presented at carrying values in the consolidated financial statements as of December 31, 2017 and 2016.



	December 31, 2017				December 31, 2016
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Mortgages payable	$	370,804	$	372,962	$	434,746	$	435,513
Line of credit and term loan	$	300,000	$	299,770	$	300,000	$	299,741

The Company estimated the fair value of its mortgages payable using a weighted average effective market interest rate of 4.20% as of December 31, 2017 compared to 5.07% as of December 31, 2016.

The fair value estimate of the line of credit and term loan approximates the carrying value due to limited market volatility in pricing. The assumptions reflect the terms currently available on similar borrowing terms to borrowers with credit profiles similar to the Company's. As a result, the Company used a weighted average interest rate of 3.48% as of December 31, 2017 compared to 3.15% as of December 31, 2016 to estimate the fair value of its line of credit and term loan. The Company has determined that its debt instrument valuations are classified in Level 2 of the fair value hierarchy.