| Fair Value Measurements | Fair Value Measurements Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative fair value guidance establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows: Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Real Property Account for identical assets or liabilities. These generally provide the most reliable evidence and should be used to measure fair value whenever available. The Real Property Account had no Level 1 assets or liabilities. Level 2 – Fair value is based on inputs, other than Level 1 inputs, that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability through corroboration with observable market data. The Real Property Account had no Level 2 assets or liabilities. Level 3 – Fair value is based on significant unobservable inputs for the asset or liability. These inputs reflect the entity's assumptions about how market participants would price the asset or liability. The Real Property Account’s Level 3 assets consist of the investment in the Partnership, which is based on the Real Property Account’s proportionate interest of the Partnership’s fair value, which approximates the Partnership’s net asset value. Properties owned by the Partnership are illiquid and fair value is based on estimates from property appraisal reports prepared by independent real estate appraisers as discussed in the notes to the Partnership’s unaudited consolidated financial statements. All of the Real Property Account’s assets were classified as Level 3. The purpose of an appraisal is to estimate the fair value of real estate as of a specific date. The estimate of fair value of real estate is based on the conventional approaches to value, all of which require the exercise of subjective judgment. The three approaches are: (1) current cost of reproducing the real estate less deterioration and functional and economic obsolescence; (2) discounting a series of income streams and reversion at a specific yield or by directly capitalizing a single year period income estimate by an appropriate factor; and (3) value indicated by recent sales of comparable real estate in the market. In the reconciliation of these three approaches, the independent appraiser uses one or a combination of them, to come up with the approximate value for the type of real estate in the market. During the nine months ended September 30, 2015 and 2014 , there were no transfers between Level 1, Level 2, and Level 3. Note 10: Fair Value Measurements (continued) In general, the input values in the appraisal process are unobservable; therefore unless indicated otherwise, the underlying investments in the Partnership are classified as Level 3 under the fair value hierarchy. The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities. Table 1 below summarizes the assets measured at fair value on a recurring basis and their respective level in the fair value hierarchy. Table 1: ($ in 000’s) Fair value measurements at September 30, 2015 Total Level 1 Level 2 Level 3 Assets: Investment in The Prudential Variable Contract Real Property Partnership $ 104,732 $ — $ — $ 104,732 ($ in 000’s) Fair value measurements at December 31, 2014 Total Level 1 Level 2 Level 3 Assets: Investment in The Prudential Variable Contract Real Property Partnership $ 100,673 $ — $ — $ 100,673 Note 10: Fair Value Measurements (continued) Table 2 below provides a reconciliation of the beginning and ending balances for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2015 and 2014 . Table 2: ($ in 000’s) Nine Months Ended September 30, 2015 Beginning balance, January 1, 2015 $ 100,673 Net recognized and unrealized gains (losses) included in earnings (or changes in net assets) from Partnership operations 4,740 Net investment income from Partnership operations 2,311 Acquisitions, issuances, and contributions — Dispositions, settlements, and distributions (2,992 ) Ending balance, September 30, 2015 $ 104,732 Unrealized gains (losses) for the period relating to Level 3 assets still held at the reporting date $ 4,673 ($ in 000’s) Nine Months Ended September 30, 2014 Beginning balance, January 1, 2014 $ 99,791 Net recognized and unrealized gains (losses) included in earnings (or changes in net assets) from Partnership operations 2,455 Net investment income from Partnership operations 2,830 Acquisitions, issuances, and contributions — Dispositions, settlements, and distributions (6,006 ) Ending balance, September 30, 2014 $ 99,070 Unrealized gains (losses) for the period relating to Level 3 assets still held at the reporting date $ 2,455 Note 10: Fair Value Measurements (continued) Table 3 below provides a reconciliation of the beginning and ending balances for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended September 30, 2015 and 2014 . Table 3: ($ in 000’s) Three Months Ended September 30, 2015 Beginning balance, July 1, 2015 $ 100,506 Net recognized and unrealized gains (losses) included in earnings (or changes in net assets) from Partnership operations 3,447 Net investment income from Partnership operations 779 Acquisitions, issuances, and contributions — Dispositions, settlements, and distributions — Ending balance, September 30, 2015 $ 104,732 Unrealized gains (losses) for the period relating to Level 3 assets still held at the reporting date $ 3,447 ($ in 000’s) Three Months Ended September 30, 2014 Beginning balance, July 1, 2014 $ 99,306 Net recognized and unrealized gains (losses) included in earnings (or changes in net assets) from Partnership operations 1,814 Net investment income from Partnership operations 948 Acquisitions, issuances, and contributions — Dispositions, settlements, and distributions (2,998 ) Ending balance, September 30, 2014 $ 99,070 Unrealized gains (losses) for the period relating to Level 3 assets still held at the reporting date $ 1,814 |
