Note 12. Fair Value of Assets and Liabilities

The table below presents certain of our assets and liabilities measured at fair value during 2012, categorized by the level of inputs used in the valuation of each asset and liability:

				Fair Value at Reporting Date Using

Description	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Recurring Fair Value Measurements:
Effective portion of interest rate contracts⁽¹⁾	$	(16,624	)	$	—	$	(16,624	)	$	—
Nonrecurring Fair Value Measurements:
Properties held for sale⁽²⁾	$	129,474		$	—	$	—		$	129,474

⁽¹⁾: The fair value of our interest rate swap contracts is determined using the net discounted cash flows of the expected 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, 2012, 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.
⁽²⁾: As of December 31, 2012, we recorded a loss on asset impairment of $2,452 for one property in our CBD Office segment, $129,802 for 31 properties in our Suburban Office segment and $36,378 for 26 properties in our Industrial & Other segment to reduce the aggregate carrying value of these properties from $298,106 to their estimated fair value less costs to sell of $129,474. We used broker information for all 58 properties (level 3 inputs) in determining the fair value of these properties. The valuation techniques and significant unobservable inputs used for our level 3 fair value measurements at December 31, 2012 were as follows:

Description	Fair Value at December 31, 2012		Valuation Techniques	Unobservable Inputs	Range

Properties held for sale on which we recognized impairment losses	$	129,474	Discounted cash flows and comparable sales	Discount rate	9% - 15%
				Exit capitalization rate	8% - 10%
				Market rent growth rate	2% - 3%

We are exposed to certain risks relating to our ongoing business operations, including the effect of changes in foreign currency exchange rates and interest rates. The only risk currently managed by using our derivative instruments is a part of our interest rate risk. Although we have not done so as of December 31, 2012 and have no present intention to do so, we may manage our Australian currency exchange exposure by borrowing in Australian dollars or using derivative instruments in the future, depending on the relative significance of our business activities in Australia at that time. We have interest rate swap agreements to manage our interest rate risk exposure on $175,000 of mortgage debt due 2019, which require interest at a spread over LIBOR. The interest rate swap agreements utilized by us qualify as cash flow hedges and effectively modify our exposure to interest rate risk by converting our floating interest rate debt to a fixed interest rate basis for this loan through December 1, 2016, thus reducing the impact of interest rate changes on future interest expense. These agreements involve the receipt of floating interest rate amounts in exchange for fixed rate interest payments over the life of the agreements without an exchange of the underlying principal amount. The fair value of our derivative instruments decreased by $828 and $8,840 during the years ended December 31, 2012 and 2011, respectively, based primarily on changes in market interest rates. As of December 31, 2012 and 2011, the fair value of these derivative instruments included in accounts payable and accrued expenses and cumulative other comprehensive income (loss) in our consolidated balance sheets totaled ($16,624) and ($15,796), respectively. We may enter additional interest rate swaps or hedge agreements to manage some of our additional interest rate risk associated with our floating rate borrowings. The table below presents the effects of our interest rate derivatives on our consolidated statements of operations and consolidated statements of comprehensive (loss) income for the years ended December 31, 2012, 2011 and 2010:

	For the Years Ended December 31,

	2012			2011			2010
Balance at beginning of year	($	15,796	)	($	6,956	)	$	2,545
Amount of loss recognized in cumulative other comprehensive income		(5,790	)		(13,804	)		(14,408	)
Amount of loss reclassified from cumulative other comprehensive income into interest expense		4,962			4,964			4,907

Unrealized loss on derivative instruments		(828	)		(8,840	)		(9,501	)

Balance at end of year	($	16,624	)	($	15,796	)	($	6,956	)

Over the next 12 months, we estimate that approximately $4,886 will be reclassified from cumulative other comprehensive income (loss) as an increase to interest expense.

In addition to the assets and liabilities described in the above table, our financial instruments include our cash and cash equivalents, rents receivable, investment in direct financing lease receivable, real estate mortgages receivable, restricted cash, revolving credit facilities, senior notes and mortgage notes payable, accounts payable and accrued expenses, rent collected in advance, security deposits and amounts due to related persons. At December 31, 2012 and 2011, the fair values of these additional financial instruments were not materially different from their carrying values, except as follows:

	December 31, 2012				December 31, 2011

	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Senior notes and mortgage notes payable	$	2,932,951	$	3,181,522	$	2,745,331	$	2,924,141

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, 2012, no single tenant of ours is responsible for more than 3% of our total rents.

We maintain derivative financial instruments, including interest rate swaps, with major financial institutions and monitor the amount of credit exposure to any one counterparty.