Fair Value of Assets and Liabilities

The table below presents certain of our assets and liabilities measured at fair value during 2014 and 2013, categorized by the level of inputs used in the valuation of each asset and liability:



				Fair Value at December 31, 2014 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	$	(7,462	)	$	—	$	(7,462	)	$	—
Derivative liability	$	(6,658	)	$	—	$	—		$	(6,658	)



				Fair Value at December 31, 2013 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	$	(11,706	)	$	—	$	(11,706	)	$	—

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, 2014, 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 19). 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 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 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. The valuation techniques and significant unobservable inputs used for our level 3 fair value measurement at December 31, 2014 were as follows:



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

Properties Held and Used

In 2014, we ceased to actively market two CBD properties and 29 suburban properties with a combined 5,641,450 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, 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%

For the period ended December 31, 2013, we recorded a net loss on asset impairment totaling $204.0 million (excluding $23.1 million of asset impairment recorded on properties sold during 2013) for 39 of our properties to reduce the aggregate carrying value of these properties from $668.3 million to their estimated fair value of $471.5 million, reflected in the table below, less costs to sell of $7.2 million, for a net of $464.3 million. 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	Weighted Average
Properties held for sale on which we recognized impairment losses	$	471,457	Discounted cash flows	Discount rate	10.3%
				Exit capitalization rate	8.8%

Financial Instruments

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, 2014 and 2013, 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 (in thousands):



	December 31, 2014				December 31, 2013
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Revolving credit facility, senior unsecured debt and mortgage notes payable, net	$	2,207,665	$	2,263,535	$	3,005,410	$	3,037,649

The fair values of our revolving credit facility, 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, 2014, no single tenant of ours is responsible for more than 3% of our total rents.

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