Note 14. Fair Value of Assets and Liabilities

The table below presents certain of our assets and liabilities measured at fair value during 2013, 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⁾	$	(11,706	)	$	—	$	(11,706	)	$	—
Non-Recurring Fair Value Measurements:
Properties held for sale⁽²⁾	$	464,299		$	—	$	—		$	464,299

⁽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, 2013, 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, 2013, we recorded a net loss on asset impairment totaling $204,036 (excluding $23,086 of asset impairment recorded on properties sold during 2013) for three of our CBD properties (four buildings) and 36 of our suburban properties (89 buildings) to reduce the aggregate carrying value of these properties from $668,335 to their estimated fair value of $471,457, reflected in the table below, less costs to sell of $464,299. All of these properties were classified as held for sale as of December 31, 2013. We used third party broker information, independent appraisals and sales comparables (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, 2013 were as follows:

Description	Fair Value at December 31, 2013		Primary Valuation Techniques	Unobservable Inputs	Range (Weighted Average)

Properties held for sale on which we recognized impairment losses	$	471,457	Discounted cash flows	Discount rate	9% - 12% (10.3%)
				Exit capitalization rate	8% - 10% (8.8%)

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 we currently manage by using derivative instruments is a part of our interest rate risk. Although we have not done so as of December 31, 2013, 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 $173,247 of mortgage debt due 2019, which require interest at a premium 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 increased by $4,918 during the year ended December 31, 2013 and decreased by $828 during the year ended December 31, 2012, based primarily on changes in market interest rates. As of December 31, 2013 and 2012, the fair value of these derivative instruments included in accounts payable and accrued expenses and cumulative other comprehensive (loss) income in our consolidated balance sheets totaled ($11,706) and ($16,624), 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, 2013, 2012 and 2011:

	Year Ended December 31,

	2013			2012			2011
Balance at beginning of year	($	16,624	)	($	15,796	)	($	6,956	)
Amount of loss recognized in cumulative other comprehensive (loss) income		(103	)		(5,790	)		(13,804	)
Amount of loss reclassified from cumulative other comprehensive (loss) income into interest expense		5,021			4,962			4,964


Unrealized gain (loss) on derivative instruments		4,918			(828	)		(8,840	)


Balance at end of year	($	11,706	)	($	16,624	)	($	15,796	)

Over the next 12 months, we estimate that approximately $4,862 will be reclassified from cumulative other comprehensive income 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 facility, 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, 2013 and 2012, the fair values of these additional financial instruments, excluding mortgage debt related to properties held for sale, were not materially different from their carrying values, except as follows:

	December 31, 2013				December 31, 2012

	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Senior notes and mortgage notes payable	$	2,097,164	$	2,143,834	$	2,932,951	$	3,181,522

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, 2013, 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.