Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2013 |
Accounting Policies [Abstract] | ' |
Use Of Estimates Policy [Policy Text Block] | ' |
Use of Estimates |
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The Company’s condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of the condensed consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities and contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The Company evaluates its assumptions and estimates on an ongoing basis. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. Additionally, application of the Company’s accounting policies involves exercising judgments regarding assumptions as to future uncertainties. Actual results may differ from these estimates under different assumptions or conditions. |
Basis Of Accounting Policy [Policy Text Block] | ' |
Basis of Presentation |
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The condensed consolidated financial statements of the Company included in this quarterly report include the accounts of Hines REIT, the Operating Partnership and the Operating Partnership’s wholly-owned subsidiaries as well as the related amounts of noncontrolling interests. All intercompany balances and transactions have been eliminated in consolidation. |
Equity Method Investments Policy [Policy Text Block] | ' |
The Company makes investments directly through entities that are wholly-owned by the Operating Partnership, or indirectly through other entities, such as through its investment in Hines US Core Office Fund LP (the “Core Fund”) in which it owned a 27.1% non-managing general partner interest as of both September 30, 2013 and December 31, 2012. The Company also owned a 70% interest in the Grocery-Anchored Portfolio indirectly through a joint venture with Weingarten Realty Investors (“Weingarten”) as of both September 30, 2013 and December 31, 2012. In January 2013, the Company sold its 50% interest in Distribution Park Rio, an industrial property in Rio de Janeiro, Brazil, that was held through a joint venture with a Hines affiliate. See Note 5 — Investments in Unconsolidated Entities and Note 15 — Subsequent Event for additional information regarding the Company’s investments in unconsolidated entities and the Company’s Grocery-Anchored Portfolio. |
The Company’s investments in partially-owned real estate joint ventures and partnerships are reviewed for impairment periodically. The Company will record an impairment charge if it determines that a decline in the value of an investment below its carrying value is other than temporary. The Company’s analysis will be dependent on a number of factors, including the performance of each investment, current market conditions, and its intent and ability to hold the investment to full recovery. Based on the Company’s analysis of the facts and circumstances at each reporting period, no impairment was recorded related to its investments in the Core Fund and the Grocery-Anchored Portfolio for the three and nine months ended September 30, 2013 and 2012. Further, no impairment was recorded related to the Company’s investment in Distribution Park Rio for the three and nine months ended September 30, 2012. The Company sold its investment in Distribution Park Rio in January 2013. See Note 5 — Investments in Unconsolidated Entities for additional information regarding the sale. However, if market conditions deteriorate in the future and result in lower valuations or reduced cash flows of the Company’s remaining investments, impairment charges may be recorded in future periods. |
Foreign Currency Transactions And Translations Policy[Policy Text Block] | ' |
International Operations |
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In addition to its properties in the United States, the Company has owned investments in Canada and Brazil, although the Company no longer owned any investments outside the United States as of September 30, 2013. Upon disposal of the Company’s investment in Distribution Park Rio in January 2013, it realized a loss of $0.9 million related to the currency translation adjustment which was included in the gain (loss) on sale of unconsolidated joint venture in its condensed consolidated statement of operations for the nine months ended September 30, 2013. Accumulated other comprehensive income (loss) as of September 30, 2013 is related to the remaining non-operating net assets of the disposed directly-owned properties in Brazil and Canada. |
Impairment Or Disposal Of Long Lived Assets Policy [Policy Text Block] | ' |
Impairment of Investment Property |
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Real estate assets are reviewed for impairment each reporting period if events or changes in circumstances indicate that the carrying amount of the individual property may not be recoverable. In such an event, a comparison will be made of the current and projected cash flows of each property on an undiscounted basis to the carrying amount of such property. If undiscounted cash flows are less than the carrying amount, such carrying amount would be adjusted, if necessary, to estimated fair values to reflect impairment in the value of the asset. See Note 13 — Fair Value Disclosures for additional information regarding the Company’s policy for determining fair values of its investment property. |
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During the third quarter of 2013, the Company determined that its directly-owned investment properties located in Miami, Florida and Minneapolis, Minnesota were impaired, since the projected undiscounted cash flows for these properties were less than their carrying values. Additionally, during the second quarter of 2013, the Company determined that its directly-owned investment property located in Minneapolis, Minnesota was impaired as a result of the projected undiscounted cash flows for the property being less than its carrying values. As a result, an impairment loss was recorded related to those certain properties of $30.6 million and $32.2 million for the three and nine months ended September 30, 2013, respectively. See Note 4 — Discontinued Operations for information regarding impairment recorded on the Company’s disposed properties. |
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During the second quarter of 2012, the Company determined that two of its directly-owned investment properties located in Melville, New York and Seattle, Washington were impaired, since the projected undiscounted cash flows for these properties were less than their carrying values. As a result, an impairment loss related to those certain properties of $46.1 million was recorded for the nine months ended September 30, 2012. If market conditions deteriorate or if management’s plans for certain properties change, additional impairment changes could be required in the future. See Note 13 — Fair Value Disclosures for additional information. |
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During 2012, an impairment loss totaling $12.5 million was recorded related to five of the Company’s indirectly-owned properties located in a suburban area of Sacramento, California for the nine months ended September 30, 2012. Of these five indirectly-owned properties, four of those were subsequently sold during the fourth quarter of 2012. See Note 5 — Investments in Unconsolidated Entities for additional information. |
Tenant and Other Receivables Policy [Policy Text Block] | ' |
Tenant and Other Receivables |
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Receivable balances outstanding consist primarily of base rents, tenant reimbursements and receivables attributable to straight-line rent. An allowance for the uncollectible portion of tenant and other receivables is determined based upon an analysis of the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. Tenant and other receivables are shown at cost in the condensed consolidated balance sheets, net of allowance for doubtful accounts of $5.0 million and $6.1 million at September 30, 2013 and December 31, 2012, respectively. |
Deferred Charges Policy [Policy Text Block] | ' |
Deferred Leasing Costs |
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Tenant inducement amortization was $4.2 million and $4.1 million for the three months ended September 30, 2013 and 2012, respectively, and was recorded as an offset to rental revenue. In addition, the Company recorded $1.5 million and $1.7 million as amortization expense related to other direct leasing costs for the three months ended September 30, 2013 and 2012, respectively. |
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Tenant inducement amortization was $12.8 million and $11.3 million for the nine months ended September 30, 2013 and 2012, respectively, and was recorded as an offset to rental revenue. In addition, the Company recorded $4.8 million as amortization expense related to other direct leasing costs for each of the nine months ended September 30, 2013 and 2012, respectively. |
Other Assets Policy [Policy Text Block] | ' |
Other Assets |
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Other assets included the following (in thousands): |
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| September 30, 2013 | | December 31, 2012 | | | | | | | | | | | | | | |
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Prepaid insurance | $ | 1,384 | | | $ | 972 | | | | | | | | | | | | | | | |
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Prepaid/deferred taxes | 651 | | | 1,269 | | | | | | | | | | | | | | | |
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Other | 1,049 | | | 880 | | | | | | | | | | | | | | | |
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Total | $ | 3,084 | | | $ | 3,121 | | | | | | | | | | | | | | | |
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Revenue Recognition Real Estate Transactions Policy [Policy Text Block] | ' |
Revenue Recognition |
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Rental payments are generally paid by the tenants prior to the beginning of each month. As of September 30, 2013 and December 31, 2012, the Company recorded liabilities of $6.2 million and $11.1 million, respectively, related to prepaid rental payments which were included in other liabilities in the accompanying condensed consolidated balance sheets. The Company recognizes rental revenue on a straight-line basis over the life of the lease including rent holidays, if any. Straight-line rent receivable was $40.4 million and $56.2 million as of September 30, 2013 and December 31, 2012, respectively. |
Common Stock Redemption Policy [Policy Text Block] | ' |
Redemption of Common Stock |
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In March 2013, the Company’s board of directors amended and restated the Company’s share redemption program to reinstate the program effective for share redemption requests received on or after April 1, 2013 at $5.75 per share, subject to the conditions and limitations described in the amended and restated share redemption program. Prior to its reinstatement, the share redemption program had been suspended by the board of directors since November 30, 2009, except with respect to redemption requests made in connection with the death or disability (as defined in the Internal Revenue Code of 1986, as amended) of a stockholder. Generally, funds available for redemption are limited to the amount of proceeds received from the Company’s dividend reinvestment plan in the prior quarter. However, the Board has the discretion to redeem shares in excess of this amount if it determines there are sufficient available funds and it is appropriate to do so as long as the total amount redeemed does not exceed the amount required to redeem 10% of the Company’s shares outstanding as of the same date in the prior calendar year. The Board determined to waive the limitation on the share redemption plan and fully honor all eligible requests received for the quarters ended June 30, 2013 and September 30, 2013 totaling $38.0 million, which was in excess of the $17.1 million received from the dividend reinvestment plan in the prior quarters. The Company has recorded liabilities of $11.5 million and $2.6 million in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets as of September 30, 2013 and December 31, 2012, respectively, related to shares tendered for redemption and approved by the board of directors, but which were not redeemed until the subsequent month. Such amounts have been included in redemption of common shares in the accompanying condensed consolidated statements of equity. |
Reclassification, Policy [Policy Text Block] | ' |
Reclassifications |
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The Company sold Williams Tower, One Wilshire and the Raytheon/DIRECTV buildings during 2013 and reclassified the results of operations for these properties into discontinued operations in the consolidated statements of operations for all periods presented. See Note 4 — Discontinued Operations for additional information. |
New Accounting Pronouncements Policy [Policy Text Block] | ' |
Recent Accounting Pronouncements |
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In December 2011, the Financial Accounting Standards Board (“FASB”) issued guidance on disclosures about offsetting assets and liabilities. This guidance results in enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either ASC 210-20-45 or ASC 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with either ASC 210-20-45 or ASC 815-10-45. The adoption of this guidance was effective for annual periods beginning on or after January 1, 2013 and interim periods within those annual periods. The adoption of this guidance did not have a material effect on the Company’s financial statements. |
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In October 2012, FASB clarified and relocated guidance in the Accounting Standards Codification (the “Codification”), corrected unintended application of guidance and made minor improvements to the Codification that are not expected to have a significant effect on current accounting practice. Amendments made to the Codification without transition guidance were effective upon issuance and amendments subject to transition guidance was effective for fiscal periods beginning after December 15, 2012. This guidance did not have a material impact on the Company’s financial statements. |
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In February 2013, FASB issued guidance to improve the transparency of reporting reclassifications out of accumulated other comprehensive income. The adoption of this guidance was effective for interim and annual periods beginning after December 15, 2012. The adoption of this guidance did not have a material impact on the Company’s financial statements. |
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In February 2013, FASB issued amendments to provide guidance on the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of obligation within the scope of this guidance is fixed at the reporting date, except for obligations addressed within existing guidance in GAAP. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company does not believe the adoption of this guidance will have a material impact on the Company’s financial statements. |
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In March 2013, FASB issued guidance on releasing cumulative translation adjustments when a reporting entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity. In addition, these amendments provide guidance on the release of cumulative translation adjustments in partial sales of equity method investments. The guidance is effective on a prospective basis for fiscal years and interim reporting periods within those years beginning after December 15, 2013. The Company does not believe the adoption of this guidance will have a material impact on the Company’s financial statements. |
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In July 2013, FASB issued amendments to the Codification to provide guidance on the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. These amendments will be effective for fiscal years, and interim periods within those years, beginning after December 31, 2013. The Company does not believe the adoption of this guidance will have a material impact on the Company’s financial statements. |
Derivatives Methods Of Accounting Nonhedging Derivatives Policy [Policy Text Block] | ' |
The Company has entered into several interest rate swap transactions with HSH Nordbank. These swap transactions were entered into as economic hedges against the variability of future interest rates on the Company’s variable interest rate borrowings with HSH Nordbank. The Company has not designated any of its derivative instruments as hedging instruments for accounting purposes. The interest rate swaps have been recorded at their estimated fair value in the accompanying condensed consolidated balance sheets and changes in the fair value were recorded in gain (loss) on derivative instruments, net in the Company’s condensed consolidated statements of operations (see Note 13 ─ Fair Value Disclosures for additional information). |
Fair Value Of Financial Instruments Policy [Policy Text Block] | ' |
Assets and Liabilities Measured at Fair Value on a Recurring Basis |
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Derivative Instruments |
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The Company records liabilities related to the fair values of its interest rate swap contracts. The valuation of these instruments is determined based on assumptions that management believes market participants would use in pricing, using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of the Company’s interest rate contracts have been determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. |
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Although the Company has determined the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparty, HSH Nordbank. In adjusting the fair values of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds and guarantees. However, as of September 30, 2013, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuations of its derivatives. As a result, the Company has determined its derivative valuations are classified in Level 2 of the fair value hierarchy. |
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The following fair value hierarchy table sets forth the Company’s interest rate swaps which are measured at fair value on a recurring basis, which equals book value, by level within the fair value hierarchy as of September 30, 2013 and December 31, 2012 (in thousands). The Company’s derivative financial instruments are recorded in interest rate swap contracts in the accompanying condensed consolidated balance sheets. The Company has not designated any of its derivative instruments as hedging instruments for accounting purposes. |
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| | | | Basis of Fair Value Measurements | | | | | |
Description | | Fair Value | | Quoted Prices In Active Markets for Identical Items (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | | | | |
September 30, 2013 | | $ | 72,924 | | | $ | — | | | $ | 72,924 | | | $ | — | | | | | | |
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December 31, 2012 | | $ | 101,211 | | | $ | — | | | $ | 101,211 | | | $ | — | | | | | | |
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Financial Instruments Fair Value Disclosures |
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Other Financial Instruments |
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As of September 30, 2013, management estimated that the fair value of notes payable, which had a carrying value of $797.1 million, was $791.1 million. As of December 31, 2012, management estimated that the fair value of notes payable, which had a carrying value of $1.3 billion, was $1.3 billion. The discount rates used approximate current lending rates for loans or groups of loans with similar maturities and credit quality, assumes the debt is outstanding through maturity and considers the debt’s collateral (if applicable). Management has utilized market information as available or present value techniques to estimate the amounts required to be disclosed. The Company has determined the majority of the inputs used to value its notes payable fall within Level 2 of the fair value hierarchy, however the credit quality adjustments associated with its fair value of notes payable utilize Level 3 inputs. However, as of September 30, 2013, the Company has assessed the significance of the impact of the credit quality adjustments on the overall valuations of its fair market value of notes payable and has determined that they are not significant. As a result, the Company has determined these financial instruments utilize Level 2 inputs. Since such amounts are estimates that are based on limited available market information for similar transactions, there can be no assurance that the disclosed values could be realized. |
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Other financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, restricted cash, distributions receivable, tenant and other receivables, accounts payable and accrued expenses, other liabilities, due to affiliates and distributions payable. The carrying value of these items reasonably approximates their fair value based on their highly-liquid nature and/or short-term maturities. Due to the short-term nature of these instruments, Level 1 and Level 2 inputs are utilized to estimate the fair value of these financial instruments. |
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Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis |
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Certain long-lived assets are measured at fair value on a non-recurring basis. These assets are not measured at fair value on an ongoing basis, but are subject to fair value adjustments (i.e., impairments) in certain circumstances. The fair value methodologies used to measure long-lived assets are described in Note 2 — Summary of Significant Accounting Policies — Impairment of Investment Property. The inputs associated with the valuation of long-lived assets are generally included in Level 2 or Level 3 of the fair value hierarchy, as discussed below. |
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Impairment of Investment Property |
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Investment properties are reviewed for impairment at each reporting period if events or changes in circumstances indicate that the carrying amount may not be recoverable. At September 30, 2013, the Company determined that its directly-owned investments, Airport Corporate Center and Minneapolis Office/Flex portfolio, were impaired due to a shortened expected hold period, which reduced the projected undiscounted cash flows for these investments. Also, Minneapolis Office/Flex portfolio was impaired during the quarter ended September 30, 2013 due to a reduction in market conditions. |
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Additionally, at December 31, 2012, the Company determined that its directly-owned investments, Seattle Design Center and Three Huntington Quadrangle, were impaired due to a shortened expected hold period, which reduced the projected undiscounted cash flows for these investments. Lastly, at December 31, 2012, the Company determined that its directly-owned investment, a building in its Minneapolis Office/Flex portfolio, was impaired due to a change in leasing assumptions and appraised value. |
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These changes in assumptions resulted in the net book value of the assets exceeding the projected undiscounted cash flows for these investments. As a result, these assets were written down to fair value. The following table summarizes activity for the Company’s assets measured at fair value, on a non-recurring basis, as of September 30, 2013 and December 31, 2012: |
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As of | Description | Fair Value of Assets | | Quoted Prices | | Significant | | Significant | | Impairment | |
In Active | Other | Unobservable | Loss |
Markets for | Observable | Inputs | |
Identical Items | Inputs | (Level 3) | |
(Level 1) | (Level 2) | | |
September 30, 2013 | Investment properties | $ | 135,266 | | | $ | — | | | $ | — | | | $ | 135,266 | | | $ | 32,163 | | (1) |
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December 31, 2012 | Investment properties | $ | 85,184 | | | $ | — | | | $ | — | | | $ | 85,184 | | | $ | 53,483 | | (2) |
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-1 | Excludes impairment losses on disposed assets because they are no longer held by the Company. Of this amount, $30.6 million and $32.2 million of impairment losses were recorded for the three and nine months ended September 30, 2013, respectively. | | | | | | | | | | | | | | | | | | | | |
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-2 | Of this amount, zero and $46.1 million in impairment losses were recorded for the three and nine months ended September 30, 2012. | | | | | | | | | | | | | | | | | | | | |
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The Company’s estimated fair value of investment properties was based on a comparison of recent market activity and discounted cash flow models, which include estimates of property-specific inflows and outflows over a specific holding period. Significant unobservable quantitative inputs used in determining the fair value of each investment property for the period ended September 30, 2013 include: a discount rate ranging from 5% to 9%; a capitalization rate ranging from 7.5% to 9.5%; stabilized occupancy rates ranging from 82% through 95%; and current market rental rates ranging from $4.25 per square foot to $12.50 per square foot. These inputs are based on the location, type and nature of each property, current and anticipated market conditions, and management’s knowledge and expertise in real estate. |
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The Company’s estimated fair value of the investment properties in Minneapolis, Minnesota, Melville, New York and Seattle, Washington as of December 31, 2012 was based on a comparison of recent market activity and discounted cash flow models, which include estimates of property specific inflows and outflows over a specific holding period. Significant unobservable quantitative inputs used in determining the fair value of each investment include: discount rates ranging from 8% through 13%; a capitalization rate of 8.5%; stabilized occupancy rates ranging from 82% through 93%; and current market rental rates ranging from $11.20 per square foot to $21.50 per square foot. These inputs are based on the location, type and nature of each property, current and anticipated market conditions, and management’s knowledge and expertise in real estate. |