Fair Value Measurements

Recurring Fair Value Measurements

We measure at fair value on a recurring basis our investments in the securitization trust that holds certain of our property debt, which we classify as available for sale, or AFS, securities, and our interest rate swaps, both of which are classified within Level 2 of the GAAP fair value hierarchy.

Our investments classified as AFS are presented within other assets in the accompanying condensed consolidated balance sheets. We hold several positions in the securitization trust that pay interest currently and we also hold the first loss position in the securitization trust, which accrues interest over the term of the investment. We are accreting the discount to the $100.9 million face value of the investments into interest income using the effective interest method over the remaining term of the investments, which, as of June 30, 2017, was approximately 3.9 years. Our amortized cost basis for these investments, which represents the original cost adjusted for interest accretion less interest payments received, was $75.1 million and $72.5 million at June 30, 2017 and December 31, 2016, respectively. We estimated the fair value of these investments to be $78.2 million and $76.1 million at June 30, 2017 and December 31, 2016, respectively.

We estimate the fair value of these investments using an income and market approach primarily with observable inputs, including yields and other information regarding similar types of investments, and adjusted for certain unobservable inputs specific to these investments. The fair value of the positions that pay interest currently typically moves in an inverse relationship with movements in interest rates. The fair value of the first loss position is primarily correlated to collateral quality and demand for similar subordinate commercial mortgage-backed securities.

Certain consolidated partnerships served by our Asset Management business have entered into interest rate swap agreements, which limit exposure to interest rate fluctuations on the partnerships’ variable-rate debt by effectively converting the interest on variable-rate debt to a fixed rate. We estimate the fair value of interest rate swaps 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.

The following table sets forth a summary of the changes in fair value of these interest rate swaps (in thousands):



	Six Months Ended June 30,
	2017			2016
Beginning balance	$	(3,175	)	$	(4,938	)
Unrealized losses included in interest expense	(23		)	(22		)
Losses on interest rate swaps reclassified into interest expense from accumulated other comprehensive loss	755			818
Unrealized losses included in equity and partners’ capital	(355		)	(1,085		)
Ending balance	$	(2,798	)	$	(5,227	)

As of June 30, 2017 and December 31, 2016, these interest rate swaps had aggregate notional amounts of $49.3 million and $49.6 million, respectively. As of June 30, 2017, these swaps had a weighted average remaining term of 3.5 years. We have designated these interest rate swaps as cash flow hedges. The fair value of these swaps is presented within accrued liabilities and other in our condensed consolidated balance sheets, and we recognize any changes in the fair value as an adjustment of accumulated other comprehensive loss within equity and partners’ capital to the extent of their effectiveness.

If the forward rates at June 30, 2017 remain constant, we estimate that during the next 12 months, we would reclassify approximately $1.2 million of the unrealized losses in accumulated other comprehensive loss into earnings. If market interest rates increase above the 3.44% weighted average fixed rate under these interest rate swaps the consolidated partnerships will benefit from net cash payments due from the counterparties to the interest rate swaps.

Fair Value Disclosures

We believe that the aggregate fair value of the consolidated amounts of cash and cash equivalents, receivables and payables approximates their aggregate carrying amounts at June 30, 2017 and December 31, 2016, due to their relatively short-term nature and high probability of realization. The estimated aggregate fair value of consolidated total indebtedness associated with our Real Estate portfolio and the non-recourse property debt of the consolidated partnerships served by our Asset Management was approximately $4.5 billion and $4.0 billion at June 30, 2017 and December 31, 2016, respectively, as compared to aggregate carrying amounts of $4.3 billion and $3.9 billion, respectively. We estimate the fair value of debt using an income and market approach, including comparison of the contractual terms to observable and unobservable inputs such as market interest rate risk spreads, contractual interest rates, remaining periods to maturity, collateral quality and loan to value ratios on similarly encumbered assets within our portfolio. We classify the fair value of debt within Level 3 of the GAAP valuation hierarchy based on the significance of certain of the unobservable inputs used to estimate their fair values.