Fair Values

Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy prioritizes the inputs to be used in valuation techniques to measure fair value:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Certain of the Company's assets and liabilities are recorded at fair value either on a recurring or non-recurring basis. Assets required to be marked-to-market and reported at fair value every reporting period are classified as being valued on a recurring basis. Assets not required to be recorded at fair value every period may be recorded at fair value if a specific provision or other impairment is recorded within the period to mark the carrying value of the asset to market as of the reporting date. Such assets are classified as being valued on a non-recurring basis.

The following fair value hierarchy table summarizes the Company's assets and liabilities recorded at fair value on a recurring and non-recurring basis by the above categories ($ in thousands):



			Fair Value Using
	Total		Quoted market prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
As of September 30, 2016
Recurring basis:
Derivative assets⁽¹⁾	$	139	$	—	$	139	$	—
Derivative liabilities⁽¹⁾	768		—		768		—
Available-for-sale securities⁽¹⁾	5,780		—		—		5,780
Non-recurring basis:
Impaired loans⁽²⁾	174,899		—		—		174,899
Impaired land and development⁽³⁾	—		—		—		—

As of December 31, 2015
Recurring basis:
Derivative assets⁽¹⁾	$	1,522	$	—	$	1,522	$	—
Derivative liabilities⁽¹⁾	131		—		131		—
Available-for-sale securities⁽¹⁾	1,161		—		—		1,161
Non-recurring basis:
Impaired loans⁽⁴⁾	3,200		—		—		3,200

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(1)

The fair value of the Company's derivatives are based upon widely accepted valuation techniques utilized by a third-party specialist using observable inputs such as interest rates and contractual cash flow and are classified as Level 2. The fair value of the Company's available-for-sale securities are based upon unadjusted third-party broker quotes and are classified as Level 3. During the nine months ended September 30, 2016, the Company acquired $4.4 million of available for sale securities. There were no other material changes in Level 3 assets and there were no transfers into/out of Level 3 for the nine months ended September 30, 2016.


(2)	The Company recorded a provision for loan losses on one loan with a fair value of $144.7 million based on expected proceeds from liquidation. In addition, the Company recorded a recovery of loan losses on one loan with a fair value of $30.2 million based on market comparable sales and estimated closing costs of 4.0%.


(3)	The Company recorded an impairment of $3.8 million equal to the carrying value on a land and development asset due to the Company's expectation that it will receive no future cash flows from the asset.


(4)	The Company recorded a provision for loan losses on one loan with a fair value of $3.2 million based on a discounted cash flow analysis using a discount rate of 14.3%.

Fair values of financial instruments—The Company's estimated fair values of its loans receivable and other lending investments and outstanding debt was $1.7 billion and $4.0 billion, respectively, as of September 30, 2016 and $1.6 billion and $4.3 billion, respectively, as of December 31, 2015. The Company determined that the significant inputs used to value its loans receivable and other lending investments and debt obligations fall within Level 3 of the fair value hierarchy. The carrying value of other financial instruments including cash and cash equivalents, restricted cash, accrued interest receivable and accounts payable, approximate the fair values of the instruments. Cash and cash equivalents and restricted cash values are considered Level 1 on the fair value hierarchy. The fair value of other financial instruments, including derivative assets and liabilities, are included in the fair value hierarchy table above.