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Derivative Instruments
 6 Months Ended
Jun. 30, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments Derivative Instruments
Interest Rate Derivatives—We are exposed to risks arising from our business operations, economic conditions and financial markets. To manage these risks, we primarily use interest rate derivatives to hedge our debt and our cash flows, which include interest rate caps. All derivatives are recorded at fair value.
The following table summarizes the interest rate derivatives we entered into over the applicable periods:
Six Months Ended June 30,
Interest rate caps:(1)
20222021
Notional amount (in thousands)$556,500 $679,000 
Strike rate low end of range3.50 %0.75 %
Strike rate high end of range4.00 %4.00 %
Effective date rangeFebruary 2022 - May 2022 January 2021 - May 2021
Termination date rangeMay 2023 - February 2024September 2021 - June 2022
Total cost of interest rate caps (in thousands)$1,145 $79 
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(1)    No instruments were designated as cash flow hedges.
Interest rate derivatives consisted of the following:
Interest rate caps: (1)
June 30, 2022December 31, 2021
Notional amount (in thousands)$860,500 $882,500 
Strike rate low end of range2.00 %0.75 %
Strike rate high end of range4.00 %4.00 %
Termination date rangeAugust 2022 - August 2024February 2022 - August 2024
Aggregate principal balance on corresponding mortgage loans (in thousands)$859,500 $857,000 
_______________
(1)No instruments were designated as cash flow hedges.
Warrants—On August 5, 2021, as part of the consideration paid to acquire the Mr. C Beverly Hills Hotel and five adjacent luxury residences, the Company issued 500,000 warrants for the purchase of Braemar common stock with a $6.00 strike price on or after August 5, 2021 until August 5, 2024. The holder can choose to exercise the warrant by cash or by net issue exercise, in which event the Company shall issue to the holder a number of warrant shares which reflects the fair market value of the Company’s common stock. As of June 30, 2022, no warrants have been exercised.
The initial fair value of the warrant was calculated using a Black-Scholes option pricing model with the following assumptions: three-year contractual term; 97.93% volatility; 0% dividend rate; and a risk-free interest rate of 0.38%. The estimated fair value of the warrants was approximately $1.5 million on the date of issuance. The warrants are re-valued at each reporting period with the change in fair value recorded through earnings.
In applying the guidance in ASC 815, it was determined that the warrants should be classified as a liability as a result of certain settlement provisions. The warrants are included in derivative liabilities on the condensed consolidated balance sheet and changes in value are reported as a component of unrealized gain (loss) on derivatives on the condensed consolidated statements of operations. This is a Level 2 valuation technique.