XML 29 R17.htm IDEA: XBRL DOCUMENT v3.22.1
Fair Value
3 Months Ended
Mar. 31, 2022
Fair Value Disclosures [Abstract]  
Fair Value Fair Value
Fair Value Measurement
The fair value of financial instruments is categorized based on the priority of the inputs to the valuation technique and categorized into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
Financial assets and liabilities recorded at fair value on the consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:
Level 1.Quoted prices for identical assets or liabilities in an active market.
Level 2.Financial assets and liabilities whose values are based on the following:
a)Quoted prices for similar assets or liabilities in active markets.
b)Quoted prices for identical or similar assets or liabilities in non-active markets.
c)Pricing models whose inputs are observable for substantially the full term of the asset or liability.
d)Pricing models whose inputs are derived principally from or corroborated by observable market data for substantially the full term of the asset or liability.
Level 3.Prices or valuation techniques based on inputs that are both unobservable and significant to the overall fair value measurement.
Fair Value of Financial Instruments
U.S. GAAP requires disclosure of fair value about all financial instruments. The following disclosure of estimated fair value of financial instruments was determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on estimated fair value.
The following table presents the principal amount, carrying value and fair value of certain financial assets and liabilities (dollars in thousands):
March 31, 2022 (Unaudited)December 31, 2021
Principal AmountCarrying ValueFair ValuePrincipal AmountCarrying ValueFair Value
Financial liabilities:(1)
Mortgage and other notes payable, net$939,593 $926,598 $888,111 $943,765 $929,811 $889,485 
_______________________________________
(1)The fair value of other financial instruments not included in this table is estimated to approximate their carrying value.
Disclosure about fair value of financial instruments is based on pertinent information available to management as of the reporting date. Although management is not aware of any factors that would significantly affect fair value, such amounts have not been comprehensively revalued for purposes of these consolidated financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.
Real Estate Debt Investments, Net
The Company’s real estate debt investment’s fair value was determined by comparing the current yield to the estimated yield for newly originated loans with similar credit risk or the market yield at which a third party might expect to purchase such investment; or based on discounted cash flow projections of principal and interest expected to be collected, which includes consideration of the financial standing of the borrower or sponsor as well as operating results of the underlying collateral. The fair value measurement of the Company’s real estate debt investment was generally based on unobservable inputs, and as such, is classified as Level 3 of the fair value hierarchy. The Company had one debt investment, which was repaid in full in August 2021.
Mortgage and Other Notes Payable, Net and Line of Credit - Related Party
The Company primarily uses rates currently available with similar terms and remaining maturities to estimate fair value. These measurements are determined using comparable U.S. Treasury and LIBOR rates as of the end of the reporting period. These fair value measurements are based on observable inputs, and as such, are classified as Level 2 of the fair value hierarchy. As of March 31, 2022 and December 31, 2021, the Company did not have any outstanding borrowings under its Sponsor Line.
Derivative Instruments
For certain mortgage notes payable, the Company has interest rate caps with fair values that are de minimis as of March 31, 2022.
Nonrecurring Fair Values
The Company measures fair value of certain assets on a nonrecurring basis when events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Adjustments to fair value generally result from the application of lower of amortized cost or fair value accounting for assets held for sale or otherwise, write-down of asset values due to impairment.
The following table summarizes the fair value, measured at the time of impairment, of Level 3 assets which have been measured at fair value on a nonrecurring basis during the periods presented and the associated impairment losses (dollars in thousands):
March 31, 2022 (Unaudited)December 31, 2021
Fair ValueImpairment LossesFair ValueImpairment Losses
Operating real estate, net$— $— $11,793 $5,386 
Operating Real Estate, Net
Operating real estate that is impaired is carried at fair value at the time of impairment. Impairment was driven by various factors that impacted undiscounted future net cash flows, including declines in operating performance, market growth assumptions, and expected margins to be generated by the properties. Fair value of impaired operating real estate was estimated based upon various approaches including discounted cash flow analysis using terminal capitalization rates ranging from 6.00% to 7.75% and discount rates ranging from 7.0% to 8.75%, third party appraisals and offer prices or broker opinions of value.
Assets Held For Sale
Assets held for sale are carried at the lower of amortized cost or fair value. Assets held for sale that were written down to fair value were generally valued using either broker opinions of value, or a combination of market information, including third-party appraisals and indicative sale prices, adjusted as deemed appropriate by management to account for the inherent risk associated with specific properties. In all cases, fair value of real estate held for sale is reduced for estimated selling costs. As of March 31, 2022 and December 31, 2021, the Company did not have any assets classified as held for sale.