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Derivative Instruments
 3 Months Ended
Mar. 31, 2023
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. Payments from counterparties on in-the-money interest rate caps are recognized as realized gains on our consolidated statements of operations.
The following table summarizes the interest rate derivatives we entered into over the applicable periods:
Three Months Ended March 31,
Interest rate caps:(1)
20232022
Notional amount (in thousands)$54,000 $70,500 
Strike rate low end of range3.50 %3.50 %
Strike rate high end of range3.50 %3.50 %
Effective date rangeJanuary 2023February 2022
Termination date rangeJanuary 2024February 2024
Total cost of interest rate caps (in thousands)$755 $76 
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(1)    No instruments were designated as cash flow hedges.
Interest rate derivatives consisted of the following:
Interest rate caps: (1)
March 31, 2023December 31, 2022
Notional amount (in thousands)$960,500 $960,500 
Strike rate low end of range2.00 %2.00 %
Strike rate high end of range4.50 %4.50 %
Termination date rangeApril 2023 - January 2025January 2023- January 2025
Aggregate principal balance on corresponding mortgage loans (in thousands)$958,750 $959,000 
_______________
(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 reflect the fair market value of the Company’s common stock. As of March 31, 2023, 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 sheets and changes in value are reported as a component of “realized and unrealized gain (loss) on derivatives” on the condensed consolidated statements of operations. This is a Level 2 valuation technique.