3. REAL ESTATE INVESTMENTS

As of September 30, 2016 and December 31, 2015, the gross carrying value of the Properties were as follows (in thousands):

	September 30,		December 31,
	2016		2015
Land	$	488,580	$	513,268
Building and improvements		2,561,976		2,719,780
Tenant improvements		635,783		459,952
Operating properties		3,686,339		3,693,000
Assets held for sale - real estate investments		16,916		794,588
Total	$	3,703,255	$	4,487,588

Acquisitions

On July 1, 2016, the Company closed on the acquisition of 34.6 acres of land located in Austin, Texas known as the Garza Ranch for a gross purchase price of $20.6 million. The Company accounted for this transaction as an asset acquisition and capitalized approximately $1.9 million of acquisition related costs and closing costs as part of land held for development on its consolidated balance sheet. The acquisition was funded with $20.4 million of available corporate funds, net of prorations and other adjustments. The Company is currently under agreement to sell 9.5 acres (of the 34.6 acres) to two unaffiliated third parties. As of September 30, 2016, the land under agreement of sale did not meet the criteria to be classified as held for sale due to the Company’s continuing involvement through a completion guaranty, which requires the Company, as developer, to complete infrastructure improvements on behalf of the buyers of the land parcels.

Dispositions

The Company sold the following office properties during the nine-month period ended September 30, 2016 (dollars in thousands):

Disposition Date	Property/Portfolio Name	Location	Number of Properties	Rentable Square Feet		Sales Price		Net Proceeds on Sale		Gain (Loss) on Sale (a)
September 1, 2016	1120 Executive Plaza	Mt. Laurel, NJ	1		95,183	$	9,500	$	9,241	$	(18	)	(b)
August 2, 2016	50 East Clementon Road	Gibbsboro, NJ	1		3,080		1,100		1,011		(85	)
May 11, 2016	196/198 Van Buren Street (Herndon Metro Plaza I&II)	Herndon, VA	2		197,225		44,500		43,412		(752	)	(c)
February 5, 2016	2970 Market Street (Cira Square)	Philadelphia, PA	1		862,692		354,000		350,150		115,828
February 4, 2016	Och-Ziff Portfolio	Various (d)	58		3,924,783		398,100		353,971		(372	)	(e)
Total Dispositions			63		5,082,963	$	807,200	$	757,785	$	114,601

(a)	Gain/(Loss) on Sale is net of closing and other transaction related costs.

(b)

As of June 30, 2016, the Company determined that the sale of the property was probable and classified this property as held for sale in accordance with applicable accounting standards for long lived assets. At such date, the carrying value of the property exceeded the fair value less the anticipated costs of sale. As a result, the Company recognized a provision for impairment totaling approximately $1.8 million during the three-month period ended June 30, 2016. The fair value measurement was based on the pricing in the purchase and sale agreement. As the pricing in the purchase and sale agreement is unobservable, the Company determined that the inputs utilized to determine fair value for this property falls within Level 3 in accordance with the fair value hierarchy established by Accounting Standards Codification (ASC) Topic 820, "Fair Value Measurements and Disclosures.” The loss on sale represents additional closing costs recognized at settlement.

(c)	During the three-month period ended March 31, 2016, the Company recognized a provision for impairment totaling approximately $7.4 million on the properties. See “Held for Use Impairment” section below. The loss on sale primarily relates to additional closing costs recognized at settlement.

(d)

Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on February 10, 2016 contains a complete list of the 58 properties disposed of in the transactions with Och-Ziff Capital Management Group LLC. See Note 4, "Investment in Unconsolidated Real Estate Ventures," for further details of the transactions.

(e)	During the three-month period ended December 31, 2015, the Company recognized a provision for impairment totaling approximately $45.4 million. The loss on sale represents additional closing costs recognized at settlement.

On August 19, 2016, the Company sold two acres of undeveloped land located in Mt. Laurel, New Jersey for a sales price of $0.3 million. The Company received proceeds of $0.3 million at closing and recognized a $0.2 million gain on the sale.

On January 15, 2016, the Company sold 120 acres of undeveloped land located in Berks County Pennsylvania for a sales price of $0.9 million. The land was classified as held for sale as of December 31, 2015. The carrying value of the land exceeded the fair value less the anticipated costs of sale as of December 31, 2015, therefore the Company recognized an impairment loss of $0.3 million during the three-month period ended December 31, 2015. There was no gain or loss recognized on the sale during 2016.

The sales of the office properties and land referenced above do not represent a strategic shift that has a major effect on the Company's operations and financial results. The operating results of these properties remain classified within continuing operations for all periods presented.

Held for Use Impairment

During the three-month period ended September 30, 2016, the Company evaluated the recoverability of the carrying value of its properties that triggered assessment. Based on the analysis, no impairment charges were identified.

During the three-month period ended June 30, 2016, the Company evaluated the recoverability of the carrying value of its properties that triggered assessment under the undiscounted cash flow model. Based on the analysis, it was determined that due to the reduction in management’s intended hold period of a property located in the Metropolitan D.C. segment, the Company would not recover the carrying value of that property. Accordingly, the Company recorded an impairment charge on the property of $3.9 million at June 30, 2016, reducing the aggregate carrying value of the property from $37.4 million to its estimated fair value of $33.5 million. The Company measured this impairment based on a discounted cash flow analysis, using a hold period of 10 years and residual capitalization rate and discount rate of 7.75% and 8.25%, respectively. The results were compared to indicative pricing in the market. The assumptions used to determine fair value under the income approach are Level 3 inputs in accordance with the fair value hierarchy established by Accounting Standards Codification (ASC) Topic 820, “Fair Value Measurements and Disclosures”.

During the three-month period ended March 31, 2016, the Company evaluated the recoverability of the carrying value of the properties that triggered assessment under the undiscounted cash flow model. Based on the analysis, it was determined that due to a reduction in management’s intended hold period, the Company would not recover the carrying value of two properties located in its Metropolitan D.C. segment. Accordingly, the Company recorded an impairment charge of $7.4 million at March 31, 2016 reducing the aggregate carrying values of these properties from $51.9 million to their estimated fair values of $44.5 million. The Company measured these impairments based on a discounted cash flow analysis, using a hold period of 10 years and residual capitalization rates and discount rates of 7.0%. The results were compared to indicative pricing in the market. The assumptions used to determine fair value under the income approach are Level 3 inputs in accordance with the fair value hierarchy established by Accounting Standards Codification (ASC) Topic 820, “Fair Value Measurements and Disclosures”.

Held for Sale

The following is a summary of properties classified as held for sale but which did not meet the criteria to be classified within discontinued operations at September 30, 2016 (in thousands):

	Held for Sale Properties Included in Continuing Operations
	September 30, 2016
	620, 640 and 660 Allendale Road			Oakland Lot B			Total
ASSETS HELD FOR SALE
Real estate investments:
Operating properties	$	12,550		$	4,366		$	16,916
Accumulated depreciation		(4,520	)		(4	)		(4,524	)
Operating real estate investments, net		8,030			4,362			12,392
Construction-in-progress		212			-			212
Total real estate investments, net		8,242			4,362			12,604
Other assets		-			-			-
Total assets held for sale, net	$	8,242		$	4,362		$	12,604

LIABILITIES HELD FOR SALE
Other liabilities	$	49		$	-		$	49
Total liabilities held for sale	$	49		$	-		$	49

As the fair value less anticipated costs to sell exceeded the carrying value for each of the properties included in the above table no impairment loss was recorded. The fair value measurements are based on pricing in the purchase and sale agreements for each of the properties. As the pricing in the purchase and sales agreements are unobservable, the Company determined that the input utilized to determine fair value for these properties falls within Level 3 in accordance with the fair value hierarchy established by Accounting Standards Codification (ASC) Topic 820, “Fair Value Measurements and Disclosures”.

The sales of the office properties and land referenced above as held for sale do not represent a strategic shift that has a major effect on the Company's operations and financial results. The operating results of these properties remain classified within continuing operations for all periods presented.