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Fair Value Measurements and Disclosures
 6 Months Ended
Jun. 30, 2024
Fair Value Disclosures [Abstract]  
Fair Value Measurements and Disclosures

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. These instruments are presented as Interest rate contracts in Other assets, net in our Condensed Consolidated Balance Sheets. As of June 30, 2024, we held interest rate caps with a $627.4 million notional value. These instruments were acquired for $5.7 million, and the fair value of these instruments as of June 30, 2024 and December 31, 2023 is $3.7 million and $5.2 million, respectively.

On a recurring basis, we measure at fair value our interest rate contracts. Our interest rate contracts 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 contracts 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 contracts, and any proceeds are reflected in Proceeds from interest rate contracts in our Condensed Consolidated Statements of Cash Flows.

As of June 30, 2024 and December 31, 2023, we had investments in stock of $2.1 million and $2.9 million, respectively, classified within Level 1 of the GAAP fair value hierarchy. In addition, as of June 30, 2024 and December 31, 2023, we have investments in property technology funds of $3.0 million and $2.5 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. See Note 3 for further information regarding unfunded commitments related to these investments.

The following table summarizes the fair value for our interest rate contracts, investments in stock, and our investments in real estate technology funds as of June 30, 2024 and December 31, 2023 (in thousands):

 

 

As of June 30, 2024

 

 

As of December 31, 2023

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Interest rate contracts

 

$

3,684

 

 

$

—

 

 

$

3,684

 

 

$

—

 

 

$

5,237

 

 

$

—

 

 

$

5,237

 

 

$

—

 

Investments in stock

 

 

2,149

 

 

 

2,149

 

 

 

—

 

 

 

—

 

 

 

2,868

 

 

 

2,868

 

 

 

—

 

 

 

—

 

Investments in real estate technology funds (1)

 

 

2,959

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2,508

 

 

 

—

 

 

 

—

 

 

 

—

 

Total assets

 

 

8,792

 

 

 

2,149

 

 

 

3,684

 

 

 

—

 

 

 

10,613

 

 

 

2,868

 

 

 

5,237

 

 

 

—

 

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

Nonrecurring Fair Value Measurements

During the three and six months ended June 30, 2024, we recorded a non-cash impairment charge of $47.0 million related to our passive equity investment in IQHQ. This impairment charge was derived using a third-party valuation of IQHQ, which incorporated fair value estimates of properties owned by IQHQ. The fair value estimates of the properties owned by IQHQ were determined by discounted cash flow analyses and references to market comparable data.

The cash flows utilized in such discounted cash flow analyses are comprised of projected operating results, which are based upon market conditions and future expectations. The most significant unobservable inputs utilized in determining the fair value of these assets are capitalization rates and discount rates, which ranged from 6.00% to 7.00% and 7.25% to 10.25%, respectively. Because of these inputs, we have determined that the fair value of these properties are classified within Level 3 of the fair value hierarchy.

Market comparable data utilizes comparable sales, which are subject to judgment as to comparability to the valued properties. Because these inputs are derived from observable market data, we have determined that the fair values of these properties are classified within Level 2 of the fair value hierarchy.

 

Fair Value Disclosures

We believe that the carrying value of the consolidated amounts of cash and cash equivalents and restricted cash approximated their fair value as of June 30, 2024, and December 31, 2023 and are categorized within Level 1 of the GAAP fair value hierarchy. 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 non-recourse 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 non-recourse construction loans as of June 30, 2024 and December 31, 2023 (in thousands):

 

 

As of June 30, 2024

 

 

As of December 31, 2023

 

 

Carrying Value

 

 

Fair Value

 

 

Carrying Value

 

 

Fair Value

 

Description:

 

 

 

 

 

 

 

 

 

 

 

 

Non-recourse property debt

 

$

850,730

 

 

$

793,068

 

 

$

852,502

 

 

$

807,240

 

Non-recourse construction loans

 

 

371,929

 

 

 

371,584

 

 

 

309,521

 

 

 

309,170

 

Total

 

$

1,222,659

 

 

$

1,164,652

 

 

$

1,162,023

 

 

$

1,116,410