Fair Value of Assets and Liabilities

The table below presents certain of our assets and liabilities measured at fair value during 2015 and 2014, categorized by the level of inputs used in the valuation of each asset and liability (dollars in thousands):



				Fair Value at December 31, 2015 Using
				Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs			Significant Unobservable Inputs
Description	Total			(Level 1)		(Level 2)			(Level 3)

Recurring Fair Value Measurements:
Effective portion of interest rate swap contracts	$	(3,687	)	$	—	$	(3,687	)	$	—
Derivative liability	(7,219		)	—		—			(7,219		)



				Fair Value at December 31, 2014 Using
				Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs			Significant Unobservable Inputs
Description	Total			(Level 1)		(Level 2)			(Level 3)

Recurring Fair Value Measurements:
Effective portion of interest rate swap contracts	$	(7,462	)	$	—	$	(7,462	)	$	—
Derivative liability	(6,658		)	—		—			(6,658		)

Effective Portion of Interest Rate Swap Contracts

The fair value of our interest rate swap contracts is determined using the net discounted cash flows of each derivative based on the market based interest rate curve (level 2 inputs) and adjusted for our credit spread and the actual and estimated credit spreads of the counterparties (level 3 inputs). Although we have determined that the majority of the inputs used to value our derivatives fall within level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and the counterparties. As of December 31, 2015, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified as level 2 inputs in the fair value hierarchy.

Derivative Liability

On July 31, 2014, our shareholders voted to approve the reimbursement of expenses incurred by Related/Corvex (Note 17). Approximately $8.4 million was to be reimbursed only if the average closing price of our common shares was at least $26.00 (as adjusted for any share splits or share dividends) during the one year period after the date on which the reimbursement was approved by shareholders, and the remaining approximately $8.4 million will be reimbursed only if the average closing price of our common shares is at least $26.00 (as adjusted for any share splits or share dividends) during the one year period between the first and second anniversaries of the date on which the reimbursement was approved by shareholders. The average closing price of our common shares was at least $26.00 during the first one year period after the date on which the reimbursement was approved by shareholders, and in August 2015, we paid $8.4 million to Related/Corvex. The potential future reimbursement represents a derivative instrument as codified in ASC 815 Derivatives and Hedging which requires the potential future reimbursement to be recorded at fair value at each reporting date.

We recognized expense of $9.0 million for the year ended December 31, 2015, which was recorded in general and administrative expenses in our consolidated statement of operations for the year ended December 31, 2015. The valuation techniques and significant unobservable inputs used for our level 3 fair value measurement at December 31, 2015, and 2014 were as follows:



Description	Fair Value at December 31, 2015		Primary Valuation Technique	Unobservable Inputs	Rate
Derivative liability	$	7,219	Monte Carlo simulation	Risk-free rate	0.52%
				Volatility	20.0%



Description	Fair Value at December 31, 2014		Primary Valuation Technique	Unobservable Inputs	Rate
Derivative liability	$	6,658	Monte Carlo simulation	Risk-free rate	0.50%
				Volatility	20.0%

Properties Held and Used

As part of our disposition plan, and pursuant to our accounting policy, in 2015, we evaluated the recoverability of the carrying values of each of the real estate assets that comprised our portfolio and determined that due to the shortening of the expected periods of ownership as a result of the disposition plan, it was necessary to reduce the net book value of a portion of the real estate assets in our portfolio to reduce the assets to their estimated fair values. During the year ended December 31, 2015, we recorded an impairment charge of $17.2 million in accordance with our impairment analysis procedures.

In 2014, we ceased to actively market 31 properties with a combined 5.6 million square feet which we had previously classified as held for sale as of December 31, 2013, which were not under agreement for sale when our former Trustees were removed. These properties were reclassified to properties held and used in operations because they no longer meet the requirements for classification as held for sale. Operating results for these properties were reclassified from discontinued operations to continuing operations for all periods presented herein. In connection with this reclassification, we reversed previously recorded impairment losses totaling $4.8 million in 2014, which includes the elimination of estimated costs to sell.

In connection with the internalization of management, we developed a disposition plan in the fourth quarter of 2014. Through this plan, we expect to dispose of many of our assets in the coming years. Pursuant to our accounting policy, we evaluated the recoverability of the carrying values of each of the real estate assets that comprised our portfolio and determined that due to the shortening of the expected periods of ownership, as a result of the disposition plan, that it was necessary to reduce the net book value of a portion of the real estate assets in our portfolio. As a result, we recorded a loss on asset impairment for 34 properties of $167.1 million in 2014, to reflect the estimated fair values of those real estate assets in our portfolio that failed the recoverability test because the net book values exceeded their fair values. We reduced the aggregate carrying value of these properties from $581.7 million to their estimated fair value of $414.6 million, reflected in the table below.

The fair value measurements used in the evaluation of our real estate assets are considered to be Level 3 valuations within the fair value hierarchy outlined above, as there are significant unobservable inputs. Examples of inputs that were utilized in the fair value calculations include estimated holding periods, discount rates, market capitalization rates, expected lease rental rates, and third party broker information. The valuation techniques and significant unobservable inputs used for our level 3 fair value measurements at December 31, 2014 were as follows:



Description	Fair Value at December 31, 2014		Primary Valuation Techniques	Unobservable Inputs	Weighted Average(1)
Properties held and used on which we recognized impairment losses	$	414,625	Discounted cash flows	Discount rate	10.2%
				Exit capitalization rate	9.1%

(1) Calculated as a weighted average based on the fair value at December 31, 2014.

In 2014, we made the decision to cease making loan servicing payments on 225 Water Steet in Jacksonville, Florida (Note 9). As a result of the decision to discontinue making loan servicing payments on this property, we recorded a loss on asset impairment totaling $22.7 million to reduce the aggregate carrying value of this property from $42.3 million to its estimated fair value of $19.6 million. We used discounted cash flow analysis and third party broker information (level 3 inputs) in determining the fair value of this property. The valuation techniques and significant unobservable inputs used for our level 3 fair value measurements at June 30, 2014 were as follows:



Description	Fair Value at June 30, 2014		Primary Valuation Techniques	Unobservable Inputs	Rate
225 Water Street	$	19,589	Discounted cash flows	Discount rate	8%
				Exit capitalization rate	8%

Financial Instruments

In addition to the assets and liabilities described in the above table, our financial instruments include our cash and cash equivalents, real estate mortgages receivable, restricted cash, senior unsecured debt and mortgage notes payable. At December 31, 2015 and 2014, the fair value of these additional financial instruments were not materially different from their carrying values, except as follows (in thousands):



	December 31, 2015				December 31, 2014
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Senior unsecured debt and mortgage notes payable, net	$	1,710,324	$	1,749,211	$	2,207,665	$	2,263,535

The fair values of our senior notes and mortgage notes payable are based on estimates using discounted cash flow analyses and currently prevailing interest rates adjusted by credit risk spreads (level 3 inputs).

Other financial instruments that potentially subject us to concentrations of credit risk consist principally of rents receivable; however, as of December 31, 2015, no single tenant of ours is responsible for more than 4% of our total annualized rents.

Our derivative financial instruments, including interest rate swaps, are entered with major financial institutions and we monitor the amount of credit exposure to any one counterparty.