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Note 9 - Fair Value of Financial Instruments
 3 Months Ended
Mar. 31, 2017
Notes to Financial Statements  
Fair Value Disclosures [Text Block]
9.
Fair Value of Financial Instruments
 
GAAP requires the measurement of certain financial instruments at fair value on a recurring basis. In addition, GAAP requires the measure of other financial instruments and balances at fair value on a non-recurring basis (e.g., carrying value of impaired real estate and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a
three
-tiered approach. Fair value measurements are classified and disclosed in
one
of the following
three
categories:
 
 
 
Level
1:
     unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;
 
 
•
Level
2: quoted
prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and
 
 
•
Level
3:
 prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable.
 
When available, the Company utilizes quoted market prices from an independent
third
-party source to determine fair value and classifies such items in Level
1
or Level
2.
In instances where the market for a financial instrument is not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not be relevant and could require the Company to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent
third
party
may
rely more on models with inputs based on information available only to that independent
third
party. When the Company determines the market for a financial instrument owned by the Company to be illiquid or when market transactions for similar instruments do not appear orderly, the Company uses several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and establishes a fair value by assigning weights to the various valuation sources.
 
Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases,
may
not be realized in an immediate settlement of the instrument.
 
The financial assets and liabilities in the consolidated balance sheets include cash and cash equivalents, restricted cash, receivables, accounts payable and accrued expenses, including interest rate caps, and mortgages. The carrying amount of cash and cash equivalents, restricted cash, receivables, and accounts payable and accrued expenses reported in the consolidated balance sheets approximates fair value due to the short-term nature of these instruments. The fair value of mortgages, which is classified as Level
2,
is estimated by discounting the contractual cash flows of each debt instrument to their present value using adjusted market interest rates.
 
The carrying amount and fair value of the mortgage notes payable were as follows:
 
 
 
March 31,
2017
 
 
December 31,
2016
 
   
(unaudited)
          
Carrying amount (excluding unamortized debt issuance costs)
  $
764,348
     $
764,593
  
Fair value
   $
751,016
     $
749,324
  
 
The Company purchased interest rate caps in connection with the mortgage loans on
November
9,
2016
with LIBOR strike prices of
2.00%.
The interest rate caps have an aggregate notional value of
$410
million and expire coterminous with the related debt. Their fair value, which is classified as Level
2,
is estimated using market inputs and credit valuation inputs. These instruments were not designated as hedges and accordingly their changes in fair value are recognized in earnings. The fair value of these instruments is
$271
and
$409
at
March
31,
2017
and
December
31,
2016,
respectively, and the change in fair value of
$137
and
$9
is included in interest expense for the
three
months ended
March
31,
2017
and
2016,
respectively.
 
Disclosures about fair value of financial instruments were based on pertinent information available as of
March
31,
2017
and
December
31,
2016.
Although the Company is not aware of any factors that would significantly affect the reasonable fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and current estimates of fair value
may
differ significantly from the amounts presented herein.