Investment in Real Estate

12 Months Ended

Dec. 31, 2011

Investment in Real Estate [Abstract]

Investment in Real Estate

4. Investment in Real Estate

Acquisitions

In 2009, we acquired one land parcel. The purchase price of the land parcel was approximately $208, excluding costs incurred in conjunction with the acquisition of the land parcel. We also substantially completed the development of two industrial properties comprising approximately 1.1 million square feet of GLA at a cost of approximately $41,258. We reclassed the costs of the substantially completed developments from construction in progress to building, tenant improvements and leasing commissions.

In 2010, we acquired three industrial properties comprising approximately 0.5 million square feet of GLA, including one industrial property purchased from the 2005 Development/Repositioning Joint Venture (see Note 6). The purchase price of these acquisitions totaled approximately $22,408, excluding costs incurred in conjunction with the acquisition of the industrial properties.

In 2011, we acquired one industrial property comprising approximately 0.7 million square feet of GLA in connection with the purchase of the 85% equity interest in one property from the institutional investor in the 2003 Net Lease Joint Venture (see Note 6). The gross agreed-upon fair value for the real estate was $30,625, excluding costs incurred in conjunction with the acquisition of the industrial property. The acquisition was funded through the assumption of a mortgage loan, whose carrying value approximated fair market value, in the amount of $24,417 and a cash payment of $5,277 (85% of the net fair value of the acquisition). We accounted for this transaction as a step acquisition utilizing the purchase method of accounting. Due to the change in control that occurred, we recorded a gain of approximately $689 related to the difference between our carrying value and fair value of our equity interest on the acquisition date.

Intangible Assets Subject To Amortization in the Period of Acquisition

The fair value at the date of acquisition of in-place leases, above market leases and tenant relationships recorded due to real estate properties acquired for the years ended December 31, 2011 and 2010, which is recorded as deferred leasing intangibles is as follows:

	Year Ended December 31, 2011		Year Ended December 31, 2010
In-Place Leases	$	2,511	$	1,782
Above Market Leases	$	2,883	$	239
Tenant Relationships	$	1,553	$	1,881

The weighted average life in months of in-place leases, above market leases and tenant relationships recorded at the time of acquisition as a result of the real estate properties acquired for the years ended December 31, 2011 and 2010 is as follows:

	Year Ended December 31, 2011		Year Ended December 31, 2010
In-Place Leases		56		100
Above Market Leases		56		88
Tenant Relationships		116		165

Sales and Discontinued Operations

In 2009, we sold 12 industrial properties comprising approximately 1.8 million square feet of GLA and several land parcels. Gross proceeds from the sales of the 12 industrial properties and several land parcels were approximately $90,334. The gain on sale of real estate was approximately $21,327, of which $21,014 is shown in discontinued operations. The 12 sold industrial properties meet the criteria to be included in discontinued operations. Therefore the results of operations and gain on sale of real estate for the 12 sold industrial properties are included in discontinued operations. The results of operations and gain on sale of real estate for the several land parcels that do not meet the criteria to be included in discontinued operations are included in continuing operations.

In 2010, we sold 10 industrial properties comprising approximately 1.0 million square feet of GLA and several land parcels. Gross proceeds from the sales of the 10 industrial properties and several land parcels were approximately $66,843. The gain on sale of real estate was approximately $11,388, of which $10,529 is shown in discontinued operations. The 10 sold industrial properties and one land parcel that received ground rental revenues meet the criteria to be included in discontinued operations. Therefore the results of operations and gain on sale of real estate for the 10 sold industrial properties and one land parcel that received ground rental revenues are included in discontinued operations. The results of operations and gain on sale of real estate for the several land parcels that do not meet the criteria to be included in discontinued operations are included in continuing operations.

In 2011, we sold 34 industrial properties comprising approximately 2.9 million square feet of GLA and one land parcel. Gross proceeds from the sales of the 34 industrial properties and one land parcel were approximately $81,693. Included in the 34 industrial properties sold is one industrial property totaling approximately 0.4 million square feet of GLA that we transferred title to a lender in satisfaction of a non-recourse mortgage loan (See Note 7). The gain on sale of real estate was approximately $20,184, of which $18,814 is shown in discontinued operations. The 34 sold industrial properties meet the criteria to be included in discontinued operations. Therefore the results of operations and gain on sale of real estate for the 34 sold industrial properties are included in discontinued operations. The results of operations and gain on sale of real estate for the one land parcel that does not meet the criteria to be included in discontinued operations are included in continuing operations.

At December 31, 2011, we had 38 industrial properties comprising approximately 4.3 million square feet of GLA held for sale. The results of operations of the 38 industrial properties held for sale at December 31, 2011 are included in discontinued operations. There can be no assurance that such industrial properties held for sale will be sold.

The following table discloses certain information for the years ended December 31, 2011, 2010 and 2009 regarding the industrial properties included in our discontinued operations.

	Year Ended December 31,
	2011			2010			2009
Total Revenues	$	17,929		$	23,933		$	32,697
Property Expenses		(7,816	)		(10,550	)		(13,631	)
Impairment of Real Estate		(6,060	)		(79,605	)		(1,317	)
Depreciation and Amortization		(2,035	)		(9,484	)		(15,720	)
Interest Expense		(63	)		(268	)		(653	)
Gain on Sale of Real Estate		18,814			10,529			21,014
Provision for Income Taxes		(1,246	)		—			(1,846	)
Income (Loss) from Discontinued Operations	$	19,523		$	(65,445	)	$	20,544

At December 31, 2011 and 2010, we had notes receivable outstanding of approximately $55,502 and $58,803, net of a discount of $319 and $383, respectively, which are included as a component of Prepaid Expenses and Other Assets, Net. At December 31, 2011 and 2010, the fair values of the notes receivable was $58,734 and $60,944, respectively. The fair value of our notes receivable was determined by discounting the future cash flows using the current rates at which similar loans with similar remaining maturities would be made to other borrowers. The current market rates we utilized were internally estimated; therefore, we have concluded that our determination of fair value of our notes receivable was primarily based upon Level 3 inputs, as defined below.

Impairment Charges

On October 22, 2010, we amended our existing revolving credit facility (See Note 7). In conjunction with the amendment, management identified a pool of real estate assets (the “Non-Strategic Assets”) that it intended to sell. The Non-Strategic Assets originally consisted of 177 industrial properties comprising approximately 15.2 million square feet of GLA and land parcels comprising approximately 664 gross acres. At the time of the amendment, management reassessed the holding period for the Non-Strategic Assets and determined that certain of the industrial properties were impaired, and as such, the Company recorded an aggregate impairment charge of $177,005 for the year ended December 31, 2010.

At December 31, 2011, the Non-Strategic Assets consisted of 117 industrial properties comprising approximately 10.2 million square feet of GLA and land parcels comprising approximately 357 gross acres. Thirty-eight industrial properties comprising approximately 4.3 million square feet of GLA and land parcels comprising approximately 61 acres of the Non-Strategic Assets were classified as held for sale as of December 31, 2011.The net impairment charges for assets that qualify to be classified as held for sale at December 31, 2011 were calculated as the difference of the carrying value of the properties and land parcels over the fair value less costs to sell. The net impairment charges recorded during year ended December 31, 2011 are due to updated fair market values for certain of the Non-Strategic Assets whose estimated fair market values have changed since December 31, 2010. On the date an asset no longer qualifies to be classified as held for sale, the carrying value must be reestablished at the lower of the estimated fair market value of the asset or the carrying value of the asset prior to held for sale classification, adjusted for any depreciation and amortization that would have been recorded if the asset had not been classified as held for sale. Impairment has been reversed and/or catch-up depreciation and amortization has been recorded during year ended December 31, 2011, if applicable, for these assets that are no longer classified as held for sale.

In addition to the impairment recorded related to the Non-Strategic Assets, during the three months ended March 31, 2010, we recorded an impairment charge in the amount of $9,155 related to a property comprised of 0.3 million square feet of GLA located in Grand Rapids, Michigan (“Grand Rapids Property”) in connection with the negotiation of a new lease. During the year ended December 31, 2009, we recorded an impairment charge of $6,934 related to a property comprised of 0.2 million square feet of GLA located in the Inland Empire (“Inland Empire Property”) due to adverse conditions in the credit and real estate markets. The non-cash impairment charges related to the Grand Rapids Property and the Inland Empire Property were based upon the difference between the fair value of the properties and their carrying value.

During the years ended December 31, 2011, 2010 and 2009, we recorded the following net non-cash impairment charges:

	Year Ended December 31, 2011			Year Ended December 31, 2010			Year Ended December 31, 2009
Operating Properties—Held for Sale and Sold Assets	$	(6,060	)	$	(79,605	)	$	(1,317	)
Impairment—Discontinued Operations	$	(6,060	)	$	(79,605	)	$	(1,317	)
Land Parcels—Held for Sale and Sold Assets	$	5,879		$	(8,275	)	$	—
Operating Properties—Held for Use		1,614			(85,663	)		(5,617	)
Land Parcels—Held for Use		646			(12,617	)		—
Impairment—Continuing Operations	$	8,139		$	(106,555	)	$	(5,617	)
Total Net Impairment	$	2,079		$	(186,160	)	$	(6,934	)

The guidance for the fair value measurement provisions for the impairment of long lived assets recorded at fair value establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The fair market values were determined using widely accepted valuation techniques including discounted cash flow analyses on expected cash flows, internal valuations of real estate and third party offers.

For operational real estate assets, the most significant assumptions used in the discounted cash flow analyses included the discount rate, projected occupancy levels, rental rates and capital expenditures, and the future exit capitalization rate. For the valuation of land parcels, we reviewed recent comparable sales transactions, to the extent available, or if not available, we considered older comparable transactions, adjusted upward or downward to reflect management’s assumptions about current market conditions. In all cases, members of our management team that were responsible for the individual markets where the land parcels were located determined the internal valuations. Valuations based on third party offers include bona fide contract prices and letter of intent amounts, that we believe are indicative of fair value.

The following tables present information about our assets that were measured at fair value on a non-recurring basis during the years ended December 31, 2011 and 2010. The tables indicate the fair value hierarchy of the valuation techniques we utilized to determine fair value.

			Fair Value Measurements on a Non-Recurring Basis Using:
Description	Year Ended December 31, 2011		Quoted Prices in Active  Markets for Identical Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Unobservable Inputs (Level 3)		Total Impairment
Long-lived Assets Held for Sale*	$	47,817		—		—	$	47,817	$	(5,911	)
Long-lived Assets Held and Used*	$	22,090		—		—	$	22,090		(896	)
									$	(6,807	)

			Fair Value Measurements on a Non-Recurring Basis Using:
Description	Year Ended December 31, 2010		Quoted Prices in Active  Markets for Identical Assets (Level 1)		Significant  Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)		Total Impairment
Long-lived Assets Held for Sale	$	257,305		—		—	$	257,305	$	(184,834	)
Long-lived Assets Held and Used	$	3,905		—		—	$	3,905		(1,326	)
									$	(186,160	)

* Excludes industrial properties and land parcels for which an impairment reversal of $8,886 was recorded during the year ended December 31, 2011 since the related assets are recorded at carrying value, which is lower than estimated fair value at December 31, 2011.