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Fair Value Disclosure | 6 Months Ended
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Jun. 30, 2021
Fair Value Disclosures [Abstract] |
Fair Value Disclosure | Fair Value Disclosure GAAP establishes a hierarchy of valuation techniques based on the observability of the inputs utilized in measuring financial instruments at fair value. Market-based or observable inputs are the preferred source of values, followed by valuation models using management's assumptions in the absence of market-based or observable inputs. The three levels of the hierarchy as noted in ASC 820, "Fair Value Measurements and Disclosures" are described below: Level I — Quoted prices in active markets for identical assets or liabilities. Level II — Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others. Level III — Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. While we anticipate that our valuation methods will be appropriate and consistent with valuation methods used by other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. We will use inputs that are current as of the measurement date, which may include periods of market dislocation, during which price transparency may be reduced. The estimated fair values of our derivative instruments are determined using a discounted cash flow analysis on the expected cash flows of each instrument. Our derivative instruments are classified as Level II in the fair value hierarchy. The fair values of foreign exchange forwards are determined by comparing the contracted forward exchange rate to the current market exchange rate. The current market exchange rates are determined by using market spot rates, forward rates and interest rate curves for the underlying countries. The fair value of our interest rate cap is determined by using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the interest rate cap. The variable interest rates used in the calculation of projected receipts on the interest rate cap are based on a third party expert's expectation of future interest rates derived from observable market interest rate curves and volatilities. The following table summarizes the levels in the fair value hierarchy into which our assets and liabilities with recurring fair value measurements were categorized as of June 30, 2021 and December 31, 2020 ($ in thousands):
| Fair Value as of June 30, 2021 |  | Fair Value as of December 31, 2020
| Level I |  | Level II |  | Level III |  | Total |  | Level I |  | Level II |  | Level III |  | Total
Recurring fair value measurements: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency forward, net | $ | — |  |  | $ | (22,894) |  |  | $ | — |  |  | $ | (22,894) |  |  | $ | — |  |  | $ | (31,375) |  |  | $ | — |  |  | $ | (31,375) |
Interest rate cap asset | — |  |  | 380 |  |  | — |  |  | 380 |  |  | — |  |  | 134 |  |  | — |  |  | 134 |
Total financial instruments | $ | — |  |  | $ | (22,514) |  |  | $ | — |  |  | $ | (22,514) |  |  | $ | — |  |  | $ | (31,241) |  |  | $ | — |  |  | $ | (31,241) |
Non-recurring Fair Value Measurements We are required to record real estate owned, a nonfinancial asset, at fair value on a non-recurring basis in accordance with GAAP. If the real estate is classified as held for sale, the fair value of our real estate owned and the related debt is determined by using the market approach, less costs to sell. The market approach utilizes the fair value of similar assets and liabilities in the marketplace as well as an internal analysis as to selling price of specific assets and liabilities, which we deem to be significant unobservable inputs. As such the fair value of real estate owned, held for sale and the related debt falls within Level III of the fair value hierarchy. During the first quarter of 2021, there was an increase in our expected costs to sell our real estate owned, held for sale and we performed a non-recurring fair value measurement. During the second quarter of 2021, the property was sold and no additional gain or loss was recorded. On May 24, 2021, we acquired legal title to a full-service luxury hotel through a deed-in-lieu of foreclosure, which is classified as real estate owned on our condensed consolidated balance sheet. We assumed the hotel’s assets and liabilities, including a $110.0 million mortgage loan. We performed a non-recurring fair value measurement on the assets and liabilities assumed as of the date we acquired legal title to the real estate. On June 29, 2021, we repaid the $110.0 million mortgage loan against the property. Refer to "Note 5 - Real Estate Owned and Related Debt" for further discussion. The following table summarizes the levels in the fair value hierarchy into which our assets and liabilities with non-recurring fair value measurements were categorized as of June 30, 2021 and December 31, 2020 ($ in thousands):
| Fair Value as of June 30, 2021 |  | Fair Value as of December 31, 2020
| Level I |  | Level II |  | Level III |  | Total |  | Level I |  | Level II |  | Level III |  | Total
Non-Recurring fair value measurements: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate owned | $ | — |  |  | $ | — |  |  | $ | 154,300 |  |  | $ | 154,300 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Real estate owned, held for sale | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 42,905 |  |  | 42,905 |
Debt related to real estate owned, held for sale | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (33,000) |  |  | (33,000) |
Net real estate owned and related debt | $ | — |  |  | $ | — |  |  | $ | 154,300 |  |  | $ | 154,300 |  |  | $ | — |  |  | $ | — |  |  | $ | 9,905 |  |  | $ | 9,905 |

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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://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=123874694&loc=d3e19207-110258 + Details
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