Fair Values

Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy prioritizes the inputs to be used in valuation techniques to measure fair value:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Certain of the Company's assets and liabilities are recorded at fair value either on a recurring or non-recurring basis. Assets required to be marked-to-market and reported at fair value every reporting period are classified as being valued on a recurring basis. Assets not required to be recorded at fair value every period may be recorded at fair value if a specific provision or other impairment is recorded within the period to mark the carrying value of the asset to market as of the reporting date. Such assets are classified as being valued on a non-recurring basis.

The following fair value hierarchy table summarizes the Company's assets and liabilities recorded at fair value on a recurring and non-recurring basis by the above categories ($ in thousands):



			Fair Value Using
	Total		Quoted market prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
As of June 30, 2018
Recurring basis:
Derivative assets⁽¹⁾	$	8,120	$	—	$	8,120	$	—
Derivative liabilities⁽¹⁾	1,150		—		1,150		—
Available-for-sale securities⁽¹⁾	21,840		$	—	$	—	21,840
Non-recurring basis:
Impaired real estate⁽²⁾	5,632		—		—		5,632
Impaired land and development⁽³⁾	8,873		—		—		8,873
Debt security⁽⁴⁾	77,007		—		—		77,007

As of December 31, 2017
Recurring basis:
Available-for-sale securities⁽¹⁾	$	22,842	$	—	$	—	$	22,842
Non-recurring basis:
Impaired real estate⁽⁵⁾	12,400		—		—		12,400
Impaired real estate available and held for sale⁽⁶⁾	800		—		—		800
Impaired land and development⁽⁷⁾	21,400		—		—		21,400

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(1)	The fair value of the Company's derivatives are based upon widely accepted valuation techniques utilized by a third-party specialist using observable inputs such as interest rates and contractual cash flow and are classified as Level 2. The fair value of the Company's available-for-sale securities are based upon unadjusted third-party broker quotes and are classified as Level 3.


(2)	The Company recorded an impairment on a net lease asset with a fair value of $5.6 million due to the exercise of a below-market lease renewal option related to a net lease asset.


(3)	The Company recorded an impairment on a land and development asset with a fair value of $8.9 million based on market comparable sales.


(4)	In connection with the resolution of a non-performing loan, the Company received a preferred equity position with a face value of $100.0 million that is mandatorily redeemable in five years. The Company recorded the preferred equity position at its fair value of $77.0 million based on a discount rate of 7.375%.


(5)	The Company recorded an impairment on a real estate asset with a fair value of $12.4 million based on market comparable sales.


(6)	The Company recorded an impairment on a residential real estate asset available and held for sale based on market comparable sales.


(7)	The Company recorded an impairment on a land and development asset with a fair value of $21.4 million based on a discount rate of 6% and a 10 year holding period.

The following table summarizes changes in Level 3 available-for-sale securities reported at fair value on the Company's consolidated balance sheets for the six months ended June 30, 2018 and 2017 ($ in thousands):



	2018			2017
Beginning balance	$	22,842		$	21,666
Repayments	(46		)	(10		)
Unrealized gains (losses) recorded in other comprehensive income	(956		)	566
Ending balance	$	21,840		$	22,222

Fair values of financial instruments—The Company's estimated fair values of its loans receivable and other lending investments and outstanding debt was $1.1 billion and $3.9 billion, respectively, as of June 30, 2018 and $1.3 billion and $3.7 billion, respectively, as of December 31, 2017. The Company determined that the significant inputs used to value its loans receivable and other lending investments and debt obligations fall within Level 3 of the fair value hierarchy. The carrying value of other financial instruments including cash and cash equivalents, restricted cash, accrued interest receivable and accounts payable, approximate the fair values of the instruments. Cash and cash equivalents and restricted cash values are considered Level 1 on the fair value hierarchy. The fair value of other financial instruments, including derivative assets and liabilities, is included in the fair value hierarchy table above.