Fair Value Measurements

12 Months Ended

Dec. 31, 2011

Fair Value Disclosures [Abstract]

Fair Value Measurements

NOTE 10 — Fair Value Measurements

We measure certain assets and liabilities in our consolidated financial statements at fair value, both on a recurring and nonrecurring basis. Certain of these fair value measurements are based on significant unobservable inputs classified within Level 3 of the valuation hierarchy defined in FASB ASC Topic 820. When a determination is made to classify a fair value measurement within Level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, Level 3 fair value measurements typically also include observable components that can be validated to observable external sources; accordingly, the changes in fair value in the table below are due in part to observable factors that are part of the valuation methodology.

The table below presents information regarding significant items measured in our consolidated financial statements at fair value on a recurring basis, consisting of investments in securities classified as available for sale (AFS), interest rate swaps (IR swaps), total rate of return swaps (TRR swaps) and debt subject to TRR swaps (TRR debt) (in thousands):

		September 30,			September 30,			September 30,			September 30,			September 30,
	Level 2						Level 3
	AFS (1)			IR swaps (2)			TRR swaps (3)			TRR debt (4)			Total
Fair value at December 31, 2009	$	––		$	(1,596	)	$	(24,307	)	$	24,307		$	(1,596	)
Unrealized gains (losses) included in earnings (5)		––			(45	)		4,765			(4,765	)		(45	)
Realized gains (losses) included in earnings		––			––			––			––			––
Unrealized gains (losses) included in equity		––			(1,105	)		––			––			(1,105	)
Fair value at December 31, 2010	$	––		$	(2,746	)	$	(19,542	)	$	19,542		$	(2,746	)
Purchases		51,534			––			––			––			51,534
Investment accretion		1,668			––			––			––			1,668
Unrealized gains (losses) included in earnings (5)		––			(48	)		13,701			(13,701	)		(48	)
Realized gains (losses) included in earnings		––			––			––			––			––
Unrealized gains (losses) included in equity		(1,509	)		(4,218	)		––			––			(5,727	)
Fair value at December 31, 2011	$	51,693		$	(7,012	)	$	(5,841	)	$	5,841		$	44,681

(1) The fair value of investments classified as AFS is estimated using an income and market approach with primarily observable inputs, including yields and other information regarding similar types of investments, and adjusted for certain unobservable inputs specific to these investments. The discount to the face value of the investments is accreted into interest income over the expected term of the investments. Our amortized cost basis for these investments, which represents the original cost adjusted for interest accretion less interest payments received, was $53.2 million at December 31, 2011. Although the amortized cost exceeded the fair value of these investments at December 31, 2011, there are no requirements for us to sell these investments prior to their maturity dates and we believe we will fully recover the investments. Accordingly, we believe the impairment in the fair value of these investments is temporary and we have not recognized any of the loss in value in earnings. Refer to Note 3 for further discussion of these investments.

(2) The fair value of interest rate swaps is estimated using an income approach with primarily observable inputs including information regarding the hedged variable cash flows and forward yield curves relating to the variable interest rates on which the hedged cash flows are based.

(3) Total rate of return swaps have contractually-defined termination values generally equal to the difference between the fair value and the counterparty’s purchased value of the underlying borrowings. We calculate the termination value, which we believe is representative of the fair value, of total rate of return swaps using a market approach by reference to estimates of the fair value of the underlying borrowings, which are discussed below, and an evaluation of potential changes in the credit quality of the counterparties to these arrangements.

(4) This represents changes in fair value of debt subject to total rate of return swaps. We estimate the fair value of debt instruments using an income and market approach, including comparison of the contractual terms to observable and unobservable inputs such as market interest rate risk spreads, collateral quality and loan-to-value ratios on similarly encumbered assets within our portfolio. These borrowings are collateralized and non-recourse to us; therefore, we believe changes in our credit rating will not materially affect a market participant’s estimate of the borrowings’ fair value.

(5) Unrealized gains (losses) for the TRR swaps and TRR debt relate to periodic revaluations of fair value, including revaluations resulting from repayment of the debt at par, and have not resulted from the settlement of a swap position as we have not historically incurred any termination payments upon settlement. These unrealized gains (losses) are included in interest expense in the accompanying consolidated statements of operations.

The table below presents information regarding amounts measured at fair value in our consolidated financial statements on a nonrecurring basis during the years ended December 31, 2011, 2010 and 2009, all of which were based, in part, on significant unobservable inputs classified within Level 3 of the valuation hierarchy (in thousands):

		September 30,		September 30,			September 30,		September 30,			September 30,		September 30,
	2011					2010					2009
	Fair Value Measure- ments		Total gain (loss)			Fair Value Measure- ments		Total gain (loss)			Fair Value Measure- ments		Total gain (loss)
Real estate (impairment losses) (1)(3)	$	91,144	$	(17,017	)	$	62,111	$	(12,043	)		425,345	$	(48,542	)
Real estate (newly consolidated) (2)(3)		––		––			117,083		1,104			10,798		—
Property debt (newly consolidated) (2)(4)		––		––			83,890		—			2,031		—
Investment in Casden Properties LLC (5)		––		––			––		—			10,000		(20,740	)

(1) During the years ended December 31, 2011, 2010 and 2009, we reduced the aggregate carrying amounts of $108.2 million, $74.2 million and $473.9 million, respectively, to their estimated fair value for real estate assets classified as held for use, or to their estimated fair value, less estimated costs to sell, for real estate assets classified as held for sale. These impairment losses recognized generally resulted from a reduction in the estimated holding period for these assets. In periods prior to classification as held for sale, we evaluated the recoverability of the carrying amounts based on an analysis of the undiscounted cash flows over the anticipated expected holding period.

(2) In connection with our adoption of revised accounting guidance regarding consolidation of VIEs and reconsideration events during the year ended December 31, 2010, we consolidated 17 partnerships at fair value. With the exception of such partnerships’ investments in real estate properties and related non-recourse property debt obligations, we determined the carrying amounts of the related assets and liabilities approximated their fair values. The difference between our recorded investments in such partnerships and the fair value of the assets and liabilities recognized in consolidation resulted in an adjustment of consolidated equity (allocated between Aimco and noncontrolling interests) for those partnerships consolidated in connection with our adoption of the revised accounting guidance for VIEs. For the partnerships we consolidated at fair value due to reconsideration events during the year ended December 31, 2010, the difference between our recorded investments in such partnerships and the fair value of the assets, liabilities and noncontrolling interests recognized upon consolidation resulted in our recognition of a gain, which is included in gain on disposition of unconsolidated real estate and other in our consolidated statement of operations for the year ended December 31, 2010.

(3) We estimate the fair value of real estate using income and market valuation techniques using information such as broker estimates, purchase prices for recent transactions on comparable assets and net operating income capitalization analyses using observable and unobservable inputs such as capitalization rates, asset quality grading, geographic location analysis, and local supply and demand observations.

(4) Refer to the recurring fair value measurements table for an explanation of the valuation techniques we use to estimate the fair value of debt.

(5) As a result of a decline in land values in southern California, we determined our recorded investment in Casden Properties LLC was not fully recoverable, and accordingly recognized an impairment loss ($12.4 million net of tax) during the year ended December 31, 2009 to reduce the investment to its estimated fair value. The investment in Casden Properties LLC is included in other assets in our consolidated balance sheets. We estimated the fair value of this investment by estimating the fair value of the real estate assets owned by the entity, using similar valuation techniques to those described in the recurring fair value measurements table, then performing a hypothetical liquidation analysis for the entity to determine the estimated fair value of our interest.

We believe that the aggregate fair value of our cash and cash equivalents, receivables, payables and short-term debt approximates their aggregate carrying amounts at December 31, 2011 and 2010, due to their relatively short-term nature and high probability of realization. The estimated aggregate fair value of our notes receivable (including notes receivable from unconsolidated real estate partnerships, which we classify within other assets in our consolidated balance sheets) was approximately $107.9 million and $116.0 million at December 31, 2011 and 2010, respectively, as compared to their carrying amounts of $117.9 million and $127.6 million, respectively. The estimated aggregate fair value of our consolidated debt (including amounts reported in liabilities related to assets held for sale) was approximately $5.4 billion and $5.6 billion at December 31, 2011 and 2010, respectively, as compared to aggregate carrying amounts of $5.2 billion and $5.5 billion, respectively.

In May 2011, the FASB issued Accounting Standards Update 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, or ASU 2011-04. ASU 2011-04 amended Topic 820, Fair Value Measurements and Disclosures, to converge the fair value measurement guidance in accounting principles generally accepted in the United States of America, or GAAP, and International Financial Reporting Standards. The amendments, which primarily require additional fair value disclosures, are to be applied prospectively for annual periods beginning after December 15, 2011. We do not expect our adoption of ASU 2011-04 to have a material effect on our consolidated financial statements.