Fair Value Measurements and Disclosures

9 Months Ended

Sep. 30, 2023

Note 5 — Fair Value Measurements and Disclosures

Recurring Fair Value Measurements

From time to time we purchase interest rate swaps, caps, and other instruments to provide protection against increases in interest rates on our variable rate debt. As of September 30, 2023, we held interest rate caps with $627.4 million notional value. These instruments were acquired for $5.8 million, and the fair value of these instruments is noted in the table below.

During the nine months ended September 30, 2023, we monetized the $1.5 billion notional amount interest rate swaption, purchased in conjunction with the Mezzanine Investment to protect against future interest rate increases, for gross proceeds of $54.2 million. Proceeds from the monetization are currently invested in a short-term treasury bill, which is included in Other assets, net in our Condensed Consolidated Balance Sheets. This instrument has a carrying value and an approximate fair value of $54.3 million as of September 30, 2023.

On a recurring basis, we measure at fair value our interest rate options. Our interest rate options are classified within Level 2 of the GAAP fair value hierarchy, and we estimate their fair value using pricing models that rely on observable market information, including contractual terms, market prices, and interest rate yield curves. The fair value adjustment is included in earnings in Realized and unrealized gains (losses) on interest rate options in our Condensed Consolidated Statements of Operations. Changes in fair value are reflected as a non-cash transaction in adjustments to arrive at cash flows from operations, any upfront premium is reflected in Purchase of interest rate options, and any proceeds are reflected in Proceeds from interest rate options in our Condensed Consolidated Statements of Cash Flows.

As of September 30, 2023 and December 31, 2022, we have investments in stock of $2.3 million and $1.2 million, respectively, classified within Level 1 of the GAAP fair value hierarchy. In addition, as of September 30, 2023 and December 31, 2022, we have investments in property technology funds of $2.5 million and $3.1 million, respectively, in entities that develop technology related to the real estate industry. These investments are measured at net asset value (“NAV”) as a practical expedient.

The following table summarizes the fair value for our interest rate options, investments in stock, our investments in real estate technology funds, and our investment in a treasury bill as of September 30, 2023 and December 31, 2022 (in thousands):


	As of September 30, 2023								As of December 31, 2022
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Interest rate options	$	9,122	$	—	$	9,122	$	—	$	62,259	$	—	$	62,259	$	—
Investments in stock		2,346		2,346		—		—		1,179		1,179		—		—
Investments in real estate technology funds (1)		2,480		—		—		—		3,117		—		—		—
Investment in treasury bill		54,298		54,298		—		—		—		—		—		—

(1) Investments measured at fair value using NAV as a practical expedient are not classified in the fair value hierarchy.

Fair Value Disclosures

We believe that the carrying value of the consolidated amounts of cash and cash equivalents, restricted cash, accounts receivable and payables approximated their fair value as of September 30, 2023, and December 31, 2022, due to their relatively short-term nature and high probability of realization. We estimate the fair value of our debt using an income and market approach, including comparison of the contractual terms to observable and unobservable inputs such as market interest rate risk spreads, contractual interest rates, remaining periods to maturity, debt service coverage ratios, and loan to value ratios. We classify the fair value of our non-recourse property debt and construction loans within Level 2 of the GAAP valuation hierarchy based on the significance of certain of the unobservable inputs used to estimate their fair value.

The following table summarizes the carrying value and fair value of our non-recourse property debt, and construction loans as of September 30, 2023 and December 31, 2022 (in thousands):


	As of September 30, 2023				As of December 31, 2022
	Carrying Value		Fair Value		Carrying Value		Fair Value
Non-recourse property debt	$	876,166	$	796,035	$	938,476	$	878,804
Construction loans		258,787		258,433		126,317		125,954
Total	$	1,134,953	$	1,054,468	$	1,064,793	$	1,004,758

- 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.

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