2. Fair Value

Griffin applies the provisions of ASC 820, which establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value, as follows:

Level 1 applies to assets or liabilities for which there are quoted market prices in active markets for identical assets or liabilities. Griffin’s available-for-sale securities were considered Level 1 within the fair value hierarchy prior to their sale in fiscal 2017 (see Note 9).

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, such as quoted prices for similar assets or liabilities in active markets; quoted prices for assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. Level 2 assets and liabilities include Griffin's interest rate swap agreements (see Note 5). These inputs are readily available in public markets or can be derived from information available in publicly quoted markets, therefore, Griffin has categorized these derivative instruments as Level 2 within the fair value hierarchy. Level 2 assets also include Griffin’s short-term investments in repurchase agreements with Webster Bank (see Note 1). The repurchase agreements with Webster Bank are carried at their resell amounts, which approximates fair value due to their short-term nature.

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. On October 25, 2019, Griffin closed on the acquisition of 7466 Chancellor Drive (“7466 Chancellor”), an approximately 100,000 square foot industrial/warehouse building in Orlando, Florida (see Note 3). The purchase was treated as an asset acquisition in accordance with ASC 805 and all assets acquired were recorded at their fair values. The fair values of the real estate assets acquired were based on both publicly available data and unobservable inputs. The fair values of the intangible assets acquired, comprised of the value of the in-place lease and the associated tenant relationship, were based on unobservable inputs. Griffin derived the fair values of the intangible assets based on a discounted cash flow analysis using assumptions that included the rental rate of the in-place lease, the commission percentage expected to be paid on the subsequent leasing of the vacant space and the likelihood that the tenant will renew its lease.

During fiscal 2019, Griffin did not transfer any assets or liabilities in or out of Levels 1 and 2. The following are Griffin’s financial assets and liabilities carried at fair value and measured at fair value on a recurring basis:


	November 30, 2019
	Quoted Prices in		Significant		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Interest rate swap asset	$	—	$	—	$	—
Interest rate swap liabilities	$	—	$	4,052	$	—


	November 30, 2018
	Quoted Prices in		Significant		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Interest rate swap assets	$	—	$	3,157	$	—
Interest rate swap liabilities	$	—	$	56	$	—

The carrying and estimated fair values of Griffin’s financial instruments are as follows:


	Fair Value	November 30, 2019				November 30, 2018
	Hierarchy	Carrying		Estimated		Carrying		Estimated
	Level	Value		Fair Value		Value		Fair Value
Financial assets:
Cash and cash equivalents	1	$	5,874	$	5,874	$	8,592	$	8,592
Short-term investments	2	$	1,011	$	1,011	$	17,000	$	17,000
Interest rate swap assets	2	$	—	$	—	$	3,157	$	3,157
Financial liabilities:
Mortgage and construction loans, net of debt issuance costs	2	$	142,575	$	145,235	$	145,052	$	144,712
Revolving lines of credit	2	$	5,875	$	5,875	$	—	$	—
Interest rate swap liabilities	2	$	4,052	$	4,052	$	56	$	56

The amounts included in the consolidated financial statements for cash and cash equivalents, short-term investments, leasing receivables from tenants and accounts payable and accrued liabilities approximate their fair values because of the short-term maturities of these instruments. The amount included in the consolidated financial statements for the revolving lines of credit approximate their fair values because of their variable interest rates. The fair values of the mortgage and construction loans, net of debt issuance costs, are estimated based on current rates offered to Griffin for similar debt of the same remaining maturities and, additionally, Griffin considers its credit worthiness in determining the fair value of its mortgage and construction loans. The fair values of the interest rate swaps (used for purposes other than trading) are determined based on discounted cash flow models that incorporate the cash flows of the derivatives as well as the current OIS Rate and swap curve along with other market data, taking into account current interest rates and the credit worthiness of the counterparty for assets and the credit worthiness of Griffin for liabilities.

The fair value of Griffin’s nonfinancial assets for the acquisition of 7466 Chancellor in fiscal 2019 of $10,168 are considered Level 3 in the fair value hierarchy. There were no liabilities assumed in connection with this acquisition. These assets were initially recorded at fair value and will not be re-measured at fair value on a recurring basis.