GASB 2015 Webinar Presentation - Final

Date: July 8, 2015
Time: 12 p.m. CT
D ti 120 i tDuration: 120 minutes
GASB Final Statement on Fair Value
Measurement and ApplicationMeasurement and Application
Presenters:
Justin Glasser, ASA, MAI, MRICS
Senior Director
Adriane Bookwalter, CPA
Director
Cushman & Wakefield
Deborah Beams
Practice Fellow
Cushman & Wakefield
Moderator:
R b t E Di t i h MAI CRE CCIM MRICSGASB Governmental Accounting Standards
Board
Marius Andreasen, CFA, MAI
Senior Managing Director
Robert E. Dietrich, MAI, CRE, CCIM MRICS
Senior Valuation Services Director
Colliers International
Senior Managing Director
Cushman & Wakefield

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Getting Started
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Slide 4

Disclaimers
The views and materials presented in this webinar represent only the opinions and views of
the presenters and/or speakers. Although the materials may have been reviewed byp p g y y
members of the Appraisal Institute, the views and opinions expressed herein are not
endorsed or approved by the Appraisal Institute as policy unless adopted by the Board of
Directors pursuant to the Bylaws of the Appraisal Institute. While substantial care has been
taken to provide accurate and current data and information, the Appraisal Institute does notp , pp
warrant the accuracy or timeliness of the data and information contained herein. Further,
any principles and conclusions presented in this webinar are subject to court decisions and
to local, state, and federal laws and regulations and any revisions of such laws and
regulations.g
This webinar is presented for educational and informational purposes only with the
understanding that the Appraisal Institute is not engaged in rendering legal, accounting, or
other professional advice or services. Nothing in these materials is to be construed as the
ff i f h d i i If t d i i i d doffering of such advice or services. If expert advice or services are required, readers are
responsible for obtaining such advice or services from appropriate professionals.
Slide 5

Robert E. Dietrich, MAI CRE CCIM MRICS
Professional and Industry Experience
Robert E. Dietrich is the Director of the Specialty Valuation Practice of Colliers
International Valuation & Advisory Services, and is located in the Newport Beach office.
Robert E. Dietrich,
MAI CRE CCIM MRICS
Mr. Dietrich has performed valuations involving a wide variety of property types ranging
from high rise offices to farms and ranches. He has appraised special purpose
properties such as port facilities, ski resorts, and others. Areas of specialization include
planned developments, subdivisions, leasehold/leased fee analyses, and project
modeling. He has appraised all types of commercial, industrial, and multi‐family
properties in the Western United States for more than 30 yearsMAI, CRE, CCIM, MRICS
Senior Director
Colliers International
865 S. Figueroa St.
Suite 3500
Los Angeles, CA 90017
properties in the Western United States for more than 30 years.
Mr. Dietrich has been designated as an expert in real estate valuation issues in courts
and has testified on over 60 occasions in State Superior Court, federal court,
Bankruptcy Court, US Tax Court, JAMS, state and county assessment appeals boards,
and others. He was selected as an independent arbitrator and has been approved as a
commercial appraiser by several nationally chartered banks and government agencies
Education, Licenses &
Certifications
 B.S. University of Arizona
 Member, Board of Directors of the Appraisal
Institute (2008 – 2012)
 President, Southern California Chapter of the
Appraisal Institute (2014)
commercial appraiser by several nationally chartered banks and government agencies.
Representative Clients
 Latham & Watkins
 Wells Fargo Bank
Representative Complex Assignments
 Compensation for inverse taking of water
 Rental value for a recreation lake in Southern California
 President, Southern California CCIM Chapter
(1997)
 Volunteer of Distinction Award, Appraisal Institute
(July 2012)
 MAI designation - Appraisal Institute
 CRE designation – Counselors of Real Estate
 CCIM designation – CCIM Institute
 MRICS designation – Royal Institution of Chartered
S
 American Ag Credit
 Metropolitan Water District
 Elsinore Valley Municipal Water District
 AEGON USA Realty Advisors
 William Lyon Homes Company
 Valuation of largest development company in California
 Valuation of largest land holding and development in Bermuda
 Valuation of 2.2 million acre cattle ranch
 Valuation of Queen Mary Seaport development
 Valuation of highest grossing retail complex in US
Slide 8
Surveyors
 Member – Lambda Alpha
 Licensed Appraiser (15 States including California,
Arizona, and Nevada)
 Tribune Company  Valuation of 18,000 acres of almond orchards in Central Valley

Deborah Beams, GASB Practice Fellow
Deborah Beams joined the GASB as a Practice Fellow in November 2012. She is on rotation from the
Dallas office of Grant Thornton LLP, where she is an Experienced Manager in the Audit practice. She has
been with Grant Thornton for ten years, during which time she primarily served clients in the state and
local government and not for profit industries Deborah was on the GASB project team that led to the
Deborah Beams, CPA
Practice Fellow
local government and not-for-profit industries. Deborah was on the GASB project team that led to the
issuance of Statement No. 72, Fair Value Measurement and Application. She currently leads the GASB
projects on Leases and External Investment Pools.
Governmental Accounting Standards Board
401 Merritt 7, P.O. Box 5116
Norwalk, CT 06856
T +1 (203) 956-5210
dbeams@gasb.org
Education Licenses & CertificationsEducation, Licenses & Certifications
 Certified Public Accountant, State of Texas
 BS and MS in Accounting from University of North Texas
 Member, American Institute of Certified Public Accountants
 Member, Texas Society of Certified Public Accountants
Slide 9

Mr. Andreasen is a Senior Managing Director and Americas Practice Leader of the Financial Reporting
Practice within the Valuation & Advisory (V&A) Group at Cushman & Wakefield. The Financial
Reporting Practice is a specialty within V&A focusing on corporate engagements involving real estate
related consulting services with a primary focus on valuation for financial reporting fair valuerelated consulting services, with a primary focus on valuation for financial reporting, fair value
measurement (ASC Topic 820) and purchase price allocations (ASC Topic 805), intangible real estate
assets, fractional/minority interests in real estate holding companies and partnerships, real estate-
related going concern enterprises and real estate investment trusts (REITs), and valuations of
investments across the capital stack including, equity, preferred equity, and mezzanine and senior
debt.
Mr Andreasen has worked on a national and international level with services provided from coast to
Marius W. Andreasen, MAI, CFA
Mr. Andreasen has worked on a national and international level, with services provided from coast to
coast in the United States, while also performing real estate valuations and consultations within
Mexico, Canada, India, Ireland, Aruba, and the Commonwealth of the Bahamas. These valuations and
consultations have been on a variety of assets, including office buildings, regional malls, neighborhood
and community shopping centers, hotels and destination resort properties, golf courses, convenience
stores and gas stations, apartment complexes, transportation rights-of-way, solar photovoltaic plants,
data centers, hospitals, subdivision developments, and a variety of industrial facilities including single
and multi-tenant distribution heavy manufacturing research & development facilities and cold-storage
Senior Managing Director &
Americas Practice Leader, Financial Reporting
Cushman & Wakefield of Illinois, Inc.
200 South Wacker Drive, Suite 2800
Chicago, Illinois 60606
T +1 (312) 470-1881
M +1 (847) 722 8992 and multi tenant distribution, heavy manufacturing, research & development facilities, and cold storage
warehouses. These studies have been in conjunction with real estate portfolio and joint-venture
valuations, merger and acquisition due diligence support, asset impairment studies, internal planning,
highest and best use analysis, financing, litigation support, sale-leasebacks, fresh start accounting, and
estate planning.
Over the past decade Mr. Andreasen has provided valuation and consulting services on more than $60
billion in transactional value, having performed numerous studies assisting public and private REIT
M +1 (847) 722-8992
marius.andreasen@cushwake.com
Functions and Specializations
 Valuation
 Buy-Side Advisory
 Financial Reporting
 Litigation Support
 Fractional Interest Valuations
 Debt Valuations
, g p g p p
clients in the application of FASB Statement No. 141R / ASC Topic 805 (Business Combinations),
FASB Statement No. 159 / ASC Topic 820 (Fair Value Measurements and Disclosures) and ASC Topic
852 (Reorganizations). Furthermore, Mr. Andreasen has extensive experience advising some of the
largest U.S. pension funds with regard to their real estate and infrastructure fund investments. Over
the past several years Mr. Andreasen has valued equity interests in funds which, in aggregate, total
more than $7 billion in assets under management, and span across all property types and investment
strategies, ranging from stabilized core assets to Greenfield infrastructure investments.
Education, Licenses, Certifications
 B.S. in Finance, University of Illinois at Urbana Champaign
 Member, Appraisal Institute, MAI Designation #12432
 Chartered Financial Analyst (CFA)
 Member of the CFA Society of Chicago
 International Valuation Standards Council (IVSC)
 Cushman & Wakefield Leadership Council, Board of Advisors
 Guest lecturer, University of Illinois at Urbana-Champaign
 Appraisal Institute Government Relations Committee 2013-Present
 Certified General Real Estate Appraiser in numerous states
Slide 10
g g gpp

Justin Glasser is a Senior Director and West Region Leader of the Financial Reporting Practice within the
Valuation & Advisory (V&A) Group at Cushman & Wakefield. The Financial Reporting Practice is a
specialty practice within V&A focusing on engagements involving real estate related consulting services,
with a primary focus on valuation for financial reporting (GAAP & IFRS) including fair value
Justin R. Glasser, ASA, MAI, MRICS
Senior Director & West Region Leader
Fi i l R ti
with a primary focus on valuation for financial reporting (GAAP & IFRS), including fair value
measurements (ASC Topic 820), purchase price allocations (ASC Topic 805), capital leases (ASC Topic
840), and reorganizations (ASC Topic 852).
Mr. Glasser joined the San Diego office of Cushman & Wakefield in 2015. Prior to joining Cushman &
Wakefield, Mr. Glasser held a senior management position in the real estate valuation practice of KPMG
LLP, where he consulted with real estate clients in a variety of industries, including hospitality, healthcare,Financial Reporting
Cushman & Wakefield Western, Inc.
4747 Executive Drive, 9th Floor
San Diego, CA 92121
T +1 (858) 558 5687
M +1 (619) 723 6110
justin.glasser@cushwake.com
, y , g p y, ,
retail, residential development, manufacturing, and financial services.
Mr. Glasser has provided tax consulting and transfer pricing services to public and private REITs with
respect to structuring real property leases for qualified lodging and healthcare properties. He has prepared
transfer pricing planning and documentation studies to determine the range of fair market lease payments
for taxable REIT subsidiaries (TRS). He has also provided guidance on structuring TRS leases.
Function and Specialization
 Litigation Support
Education, Licenses & Certifications
 Masters of Science in Real Estate, University of San Diego
 Alpha Sigma Gamma Award Recipient
 B.A. in Economics, University of California at San Diego
 Member, Appraisal Institute, MAI #497209
Mr. Glasser was a contributing editor to The Appraisal of Real Estate, 14th Edition and has presented to
the Appraisal Institute on Purchase Price Allocations for Financial Reporting & Tax and International
Valuation Standards. Speaking engagements also include presentations on valuation of real property for
tax purposes to the Society of Auditors/Appraisers at their annual conference September 2014 and to the
International Association of Assessing Officers Fall Appraisal Seminar in October 2014.
 Member, American Society of Appraisers, ASA # 106380
 Royal Institution of Chartered Surveyors, MRICS #6504539
 State of California Real Estate Appraisers License # AG045014
 State of Colorado Real Estate Appraiser License #CG100042083
 State of Florida Real Estate Appraisers License # RZ3544
 State of Hawaii Real Estate Appraisers License # CGA1038
 State of Maine Real Estate Appraisers License # CG3337
 State of Michigan Real Estate Appraisers License # 31944
 State of Montana RE Appraisers License # REA-RAG-LIC-6037
 State of Oregon Real Estate Appraisers License # C001151
 State of Pennsylvania Real Estate Appraisers License # GA004001
Representative Clients
 Ashford Hospitality Trust
 CBRE Global Investors
 DiamondRock Hospitality Co.
 Dubai World
 Pebblebrook Hotel Trust
 Terreno Realty Corp.
 The Blackstone Group
 Tropicana Entertainment
 Harrah’s Entertainment Inc
 Hilton Hotels Corporation
 Hyatt Corporation
 Luxury Resorts & Hotels
Slide 11
State o e sy a a ea state pp a se s ce se # G 00 00
 State of Texas Real Estate Appraisers License # 1380207
 State of Utah Real Estate Appraisers License # 8548636-CG00
 State of Virginia Real Estate Appraisers License # 4001017045
 State of Washington Real Estate Appraisers License # 1102240
 Dubai World
 EPR Properties
 GEM Realty Capital, Inc.
p
 UBS Realty Investors, LLC
 Westport Capital Partners LLC
y
 Marriott Vacation Worldwide Corp.
 MGM Mirage

Ms. Bookwalter is a Director of Financial Reporting within the Valuation & Advisory (V&A) Group at
Cushman & Wakefield. She specializes in a variety of engagements including debt valuation, ASC 805
financial reporting, acquisition due diligence and lease operating expense audits. These projects include
all property types located throughout the U S and internationally
Adriane F Bookwalter, CPA
Director, Financial Reporting
all property types located throughout the U.S. and internationally.
Prior to joining C&W, Ms. Bookwalter worked at PricewaterhouseCoopers, where she also focused on
commercial real estate consulting within an advisory group called Financial Instruments, Structured
Products, and Real Estate. Her clients included national/regional banks, REITS, hedge funds, insurance
companies, Fortune 500 companies, etc. Below is a more detailed summary of Adriane’s experience
throughout her career:
Cushman & Wakefield of Illinois, Inc.
200 South Wacker Drive, Suite 2800
Chicago, Illinois 60606
T +1 (312) 470-3805
adriane.bookwalter@cushwake.com
Function and Specialization
g
Responsible for overseeing acquisition due diligence investigations for retail, hotel, apartment
and office properties.
Valued commercial real estate loan pools related to the acquisition and recapitalization of banks.
Modeled future cash flows based on market, industry, and property level analysis.
A l d f i l t t d b dit li t f it d d bt i t t fFunction and Specialization
 Due Diligence
 Debt Valuation
 Operating Expense Audit
 Valuation
Education, Licenses & Certifications
 B.S. in Business, Indiana University - Bloomington (major:
Fi R l E t t )
Analyzed fair value measurements reported by audit clients for equity and debt investments for
quarterly and year-end financial statement purposes.
Valued real property assets and liabilities for purchase price allocations in conjunction with
mergers and acquisitions for a broad range of clients.
Analyzed distressed commercial loan portfolios to assist clients with strategic asset management
and disposition strategies Performed stratification loan underwriting and valuation for variousFinance-Real Estate)
 Licensed Certified Public Accountant (CPA) – State of Illinois
 Certified Commercial Investor Member (CCIM) Candidate –
Pending Credential
 Top Secret Government Security Clearance
and disposition strategies. Performed stratification, loan underwriting, and valuation for various
possible scenarios.
Performed credit risk reviews for the purposes of determining appropriate loan risk ratings and
estimating loan specific credit losses.
Managed the operations of the lease operating expense audits for PwC’s leased office space
located throughout the United States, which includes over 5.5 million square feet. Additionally,
Slide 12
performed lease operating expense audits for a variety of clients, which resulted in savings
recovered.

Disclaimer
The views and materials presented in this webinar represent only the opinions
and views of the presenters and/or speakers. Although the materials may have
been reviewed by members of the Appraisal Institute, the views and opinions
expressed herein are not endorsed or approved by the Appraisal Institute asexpressed herein are not endorsed or approved by the Appraisal Institute as
policy unless adopted by the Board of Directors pursuant to the Bylaws of the
Appraisal Institute. While substantial care has been taken to provide accurate
and current data and information, the Appraisal Institute does not warrant the
accuracy or timeliness of the data and information contained herein Furtheraccuracy or timeliness of the data and information contained herein. Further,
any principles and conclusions presented in this webinar are subject to court
decisions and to local, state, and federal laws and regulations and any
revisions of such laws and regulations.
This webinar is presented for educational and informational purposes only with
the understanding that the Appraisal Institute is not engaged in rendering legal,
accounting, or other professional advice or services. Nothing in these materials
is to be construed as the offering of such advice or services. If expert advice or
Slide 13
services are required, readers are responsible for obtaining such advice or
services from appropriate professionals.

Slide 14

Section Overview
 GASB FrameworkGASB Framework
 GASB Statement 72
 Practical Applications
 Q&A
Slide 15

GASB Framework
Financial Accounting Foundation (FAF)
Financial Accounting
Foundation
(FAF)
Standards Board
Standards Advisory
Governmental
Accounting Standards
Governmental
Private Company
CouncilStandards Board
(FASB)
Council
(FASAC)
Board
(GASB)
Advisory Council
(GASAC)
Council
(PCC)
Slide 16

GASB Framework
Organization
Foundation
(FAF)
Standards Board
Standards Advisory
Governmental
Governmental
Private Company
(FASB)
Council
(FASAC)
Board
(GASB)
Advisory Council
(GASAC)
Council
(PCC)
 FAF Organization
 Independent, private-sector organization est. 1972
Slide 17

GASB Framework
Responsibilities
Foundation
(FAF)
Standards Board
Standards Advisory
Governmental
Governmental
Private Company
(FASB)
Council
(FASAC)
Board
(GASB)
Advisory Council
(GASAC)
Council
(PCC)
 FAF Primary Responsibilities FAF Primary Responsibilities
 Oversees, administers, and finances its standard setting
boards, the Financial Accounting Standards Board (FASB)
and the Governmental Accounting Standards Board
Slide 18
and the Governmental Accounting Standards Board
(GASB), and their Advisory Councils.

GASB Framework
Financial Accounting Standards Board
(FASB)
Foundation
(FAF)
Standards Board
Standards Advisory
Governmental
Governmental
Private Company
(FASB)
Council
(FASAC)
Board
(GASB)
Advisory Council
(GASAC)
Council
(PCC)
 FASB est. 1973
 Primary responsibilities are to establish and improve
standards for financial reporting for nongovernmental
Slide 19
standards for financial reporting for nongovernmental
entities. The FASAC advises FASB on technical issues.

GASB Framework
Governmental Accounting Standards Board
(GASB)
Foundation
(FAF)
Standards Board
Standards Advisory
Governmental
Governmental
Private Company
(FASB)
y
Council
(FASAC)
g
Board
(GASB)
g
Advisory Council
(GASAC)
Council
(PCC)
 GASB est. 1984
 Primary role is "to establish and improve standards of state
and local governmental accounting and financial reporting that
Slide 20
and local governmental accounting and financial reporting that
will…result in useful information for users of financial reports”

GASB Framework
Private Company Council (PCC)
Foundation
(FAF)
Standards Board
Standards Advisory
Governmental
Governmental
Private Company
(FASB)
Council
(FASAC)
Board
(GASB)
Advisory Council
(GASAC)
Council
(PCC)
 PCC est. 2012
 Primary role is "address the needs of users of private
company financial statements”
Slide 21
company financial statements

GASB Framework
Intended Use
 Financial Statements allow Users to
 Assess the finances of the government in its entirety
 Determine whether financial position improved or deterioratedDetermine whether financial position improved or deteriorated
 Evaluate whether current-year revenues were sufficient to pay
for current-year services
 See the cost of providing services See the cost of providing services
 See how programs are financed—through user fees and other
program revenues versus general tax revenues
U d t d th t t t hi h th t h i t d Understand the extent to which the government has invested
in capital assets, including roads, bridges, and other
infrastructure assets
Slide 22

GASB Framework
GASB Users
 Users of Financial Statements
 pension plans
 endowments
 buy- and sell-side analysts
 rating agenciesendowments
 public universities
 research institutes
l i l t d th i t ff
rating agencies
 bond holders
 general public
iti d t legislators and their staff
 municipal bond insurers
 citizen and taxpayer groups
 community organizations
Slide 23

GASB Framework
GASB Investments
 Examples of Investments Requiring Valuations
 Real estate meeting the definition of an investment asset
 Land and land rights classified as investments, including oilg , g
and gas properties or natural resources classified as
investments
 Invested securities lending collateral
 Alternative investments reported by endowments Alternative investments reported by endowments
 Equity securities (including unit investment trusts and closed-end mutual funds), stock
warrants and stock rights that do not have readily determinable fair values
 Intangible assets that meet the proposed definition of investments
 Co mingled investment pools that are not government sponsored Co-mingled investment pools that are not government sponsored
 Life settlement contracts—when there is no insurable interest the purpose of the
instrument is solely to generate cash and should be measured at fair value
 Debt securities reported as assets, regardless of whether they meet the definition of
an investment or they were acquired or originated by the government
Slide 24
an investment or they were acquired or originated by the government
 Securitized debt obligations

GASB Framework
GASB Statements
 Statement No. 34, Basic Financial Statements For State
and Local Governments (Jun 1999)
 Established basic financial statements and requiredEstablished basic financial statements and required
supplementary information
 Statement No. 52, Land & Other Real Estate Held as
Investments by Endowments (Nov 2007)Investments by Endowments (Nov 2007)
 Fair Value Requirements for Endowments & Governments
 Statement No. 72, Fair Value Measurement and
li i ( b 201 )Application (Feb 2015)
 Definition of Fair Value; Measurement; Application; and
Disclosures
Slide 25

Disclaimers
regulations.g
Slide 26

Deborah Beams, GASB Practice Fellow
Slide 27

Section Overview
 Q&A
Slide 28

GASB Statement 72
Highlights
 Statement provides further guidance on fair value measurements
 Basis is FASB Topic 820, “Fair Value Measurement”
 Scope is not limited to investmentsScope is not limited to investments
 Certain assets and liabilities measured at fair value
 Includes derivatives
T t St t t Two-part Statement
 Measurement
 Application
 Objective of the Statement
 Increased comparability between governments, greater
accountability, and a better measure of the resources available to
Slide 29
accountability, and a better measure of the resources available to
governments

GASB Statement 72
Key Ideas
 Definition of fair value
 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.
• Apply to assets and liabilities
 An exit price
 Other characteristics of fair value measurement
 Market-based
 Based on a government’s principal or most advantageous market Based on a government s principal or most advantageous market
Slide 30

GASB Statement 72
Key Ideas
 Unit of Account
 Stand-alone asset or liability or a group of assets or liabilities
 Determined by the standard that requires fair value measurementy q
 Market participants
 Fair value measurement determined using the assumptions market
participants would use in pricing the asset or liabilityparticipants would use in pricing the asset or liability
 Price
 Not adjusted for transaction costs
 When market information is not available
 Estimate the price at which an orderly transaction would take place
between market participants at that date (for example, a valuation
Slide 31
technique)

GASB Statement 72
Key Ideas
 Nonfinancial assets at fair value
 Value at the asset’s highest and best use
• A government’s current use is presumed to be the highest and best
use, unless otherwise suggested
• May be in combination with other assets and liabilities or on a stand-
alone basis
 Fair value is an accounting estimate
Slide 32

GASB Statement 72
Valuation Techniques
 Apply valuation technique(s) that best represent(s) fair value in
the circumstances
 Market approach – Using prices and other relevant information
generated by market transactions involving identical or similar
assets and / or liabilities
 Cost approach – Amount that would be required currently to
replace the service capacity of an asset
 Income approach – Converts expected future amounts to a single
current amount (i.e. present value techniques, option-pricing
models, etc.)
Slide 33

GASB Statement 72
Inputs to Valuation Techniques
 Maximize use of relevant observable inputs and minimize use of
unobservable inputs (see next slide)
 Inputs should be consistent with the characteristics of the assetp
or liability
 Sometimes includes an adjustment, a premium or discount
 Do not include premium or discount that is inconsistent with the unit Do not include premium or discount that is inconsistent with the unit
of account established for the asset / liability
 Do not include premiums and discounts that reflect size as a
characteristic of a government’s holdingscharacteristic of a government s holdings
• For instance, blockage factors that adjusts the quoted price of an asset
or liability based on the market’s trading volume
Slide 34

GASB Statement 72
Fair Value Hierarchy
 Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities, most reliable
 Level 2: quoted prices for similar assets or liabilities, quotedq p , q
prices for identical or similar assets or liabilities in markets that
are not active, or other than quoted prices that are observable
 Level 3: unobservable inputs least reliable Level 3: unobservable inputs, least reliable
 Inputs categorized within different levels of the hierarchy
 Fair value measurement is categorized in its entirety in the same
l l th l t (i t f li bilit ) l l i t th t ilevel as the lowest (in terms of reliability) level input that is
significant to the entire measurement
Slide 35

GASB Statement 72
When Buyers Disappear
 Measuring fair value when volume or level of activity for an asset
or a liability has significantly decreased
 If it is determined that a transaction or a quoted price does not
represent fair value, an adjustment would be necessary
 Risk adjustments
• Includes a risk premium reflecting amount that market participantsp g p p
would demand as compensation for uncertainty
• Reflects an orderly transaction between market participants at the
measurement date under current market conditions
 Change in valuation technique(s) may be appropriate
Slide 36

GASB Statement 72
Transactions That Are Not Orderly
 More difficult to tell when there is a significant decrease in the
volume or level of activity for the asset or liability
 Assessment should be performed taking into account:p g
 Market exposure and marketing period
 Whether the sale was distressed or forced
 The transaction price compared to other recent similar transactions The transaction price compared to other recent similar transactions
 If the transaction is deemed to be not orderly, little weight
should be placed on the transaction price
 Quoted prices provided by third parties may be used if
developed in accordance with this standard
Slide 37

GASB Statement 72
Investments That Calculate NAV
 Net asset value per share (or its equivalent) may be used as a
practical expedient to estimate fair value
 Adjustment to NAV per share amount may be necessary to be
consistent with measurement principles
 May be applied on an investment-by-investment basis but must be
applied consistently to fair value measurement of the government’s
entire position in a particular investment
 If sale of a portion of an investment at an amount different
from net asset value per share is probable, the practicalo et asset a ue pe s a e s p obab e, t e p act ca
expedient may not be applied
Slide 38

GASB Statement 72
Application of Fair Value
 Definition of an investment
 A security or other asset that a government holds primarily for the
purpose of income or profit and with a present service capacity that
is based solely on its ability to generate cash or to be sold to
generate cash
 Investment asset
 Present service capacity
• Refers to a government’s mission to provide services
 Held primarily for income or profitHeld primarily for income or profit
• Acquired first and foremost for future income and profit
Slide 39

GASB Statement 72
 Measured at fair value
 Assets that meet the definition of an investment generally should be
measured at fair value
 Examples, if they meet the definition of an investment
 Land and land rights
 Real estate Real estate
 Oil and gas property
 Intangible assets
N l Natural resource assets
 Generally will be real property held by pension plans and
endowments as investments
Slide 40

GASB Statement 72
 Additional investment types that would be measured at fair value
 Investments that are already measured at fair value
 Alternative investments
 Equity securities (including unit investment trusts and closed-end
mutual funds), stock warrants, and stock rights that do not have
readily determinable fair valuesy
• Provided such investment-types are not reported according to the
equity method
Slide 41

GASB Statement 72
Disclosures
Classify Investments by Level of Inputs
Level
12/31/2015 1 2 3
Debt securities
U.S. Treasuries $85 $85
Commercial mortgage backed securities 50 $50Commercial mortgage backed securities 50 $50
Collateralized debt obligations 35 35
Residential mortgage backed securities 149 $24 125
Corporate bonds 93 9 84Corporate bonds 93 9 84
Total $412 $94 $108 $210
Slide 42

GASB Statement 72
Disclosures
 The following information for each class or type of assets and/or
liabilities measured at fair value should be disclosed:
 The fair value measurement at the end of the reporting period and
for nonrecurring fair value measurements, the reasons for the
measurement
 The level of the fair value hierarchy within which the fair value
measurements are categorized in their entirety (Level 1, 2, or 3)
 A description of the valuation technique(s)
Slide 43

GASB Statement 72
Disclosures for Investments in Certain
Entities that Calculate NAV
 Information that helps users of its financial statements to
understand the nature and risks of the investmentsunderstand the nature and risks of the investments
 Information on whether the investments are probable of
being sold at amounts different from net asset value per
share (or its equivalent)share (or its equivalent)
 Fair value measurement of the investments in the class and a
description of the significant investment strategies of the
investee(s) in the class
Slide 44

GASB Statement 72
 If distributions are received through liquidation of the underlying
assets of investees, an estimate of the period of time over which, p
underlying assets are expected to be liquidated
 Amount of unfunded commitments related to investments in the
classclass
 General description of the terms and conditions upon which the
government may redeem investments in the class
h h h h d bl The circumstances in which an otherwise redeemable investment
in the class might not be redeemable; or if the investment is
currently restricted, when the restriction lapses
Slide 45

GASB Statement 72
 Any other significant restriction on the ability to sell
investments in the class at the measurement dateinvestments in the class at the measurement date
 If it is probable that the investment will be sold at an amount
different from NAV per share
Di l f th t t l f i l f ll i t t th t t th Disclosure of the total fair value of all investments that meet the
above and any remaining actions required to complete the sale
 If individual investments to be sold have not been identified,
di l f l t ll d i i ti i d tdisclosure of plans to sell and any remaining actions required to
complete the sale
Slide 46

Disclaimers
regulations.g
Slide 47

Slide 48

Section Overview
 Q&A
Slide 49

Practical Applications
Illustrations
 Capital Asset or Investment
 Multi-use or Mixed-use Assets
 Natural ResourcesNatural Resources
 Highest and Best Use
 Valuation Approaches & Techniques
 Discount Rate
 Transaction Costs
 Scenario 1 Scenario 1
 Scenario 2
 Scenario 3
Slide 50

Capital Asset or Investment
 Some tangible assets can be classified as either a
capital asset or an investment.
 Different governments holding similar assets may arrive
at different classifications based on the usage of the asset
and the purpose of the government.
• Warehouse used by a public transit district to store vehicles
and equipment (Capital Asset)
• Warehouse held by a pension plan as income producing
property that is rented to a private party (Investment)
Slide 51

Mixed-use or Multi-use Asset
 Classification of Mixed-use Assets
 The City rents retail space on the first floor of a
government building to generate rental income and
occupies the remainder of the building for its day-to-day
operations.
• The City must determine at the time of initial recognition
h th th it f t i t (th ti b ildi )whether the unit of account is one asset (the entire building)
or two assets (the rental space and the government space).
• The City must then determine classification (capital asset or
investment) of the unit(s) of accountinvestment) of the unit(s) of account.
• The classification must continue for financial reporting
purposes even if the use changes sometime in the future.
Slide 52

Natural Resource Assets
 Classification of Natural Resources
 Natural resources evaluated based on the unit of account.
• Current accounting standards do not address unit account
to be applied to natural resources
• Based on professional judgment
• The Board acknowledges that valuation specialists are
often required to value natural resources
Slide 53

Highest and Best Use (H&BU)
 A real property investment should be evaluated with its
current zoning.
 Board acknowledges governments are able to affect
H&BU by changing what is legally permissible
• A government may hold industrial land that could be
rezoned for multi-family housing
• Presumption is a government’s use of real property as it is
currently zoned is its H&BU
 H&BU of real property may provide maximum value to
k t ti i t t d l t imarket participants as a stand-alone asset, in
combination with other asset groups, or in combination
with other assets and liabilities.
Slide 54

Valuation Approaches and Techniques
 There are three acceptable approaches to measure fair
value: market, cost, and income.
 A valuation technique is a specific method or combination
of methods used to determine the value of an asset
 Valuation approaches allow for many possible valuation
techniques
 If transaction price is consistent with fair value at initial
recognition and a valuation technique will be used to
measure fair value in subsequent periods, then the
valuation technique should be used to test the purchase
price in order to calibrate the technique.
Slide 55

Discount Rate for Present Value Calculation
 The proper discount rate for a present value calculation
is the rate that would be used by market participants,
as with any input to a fair value measurement.
T ti C tTransaction Costs
 The price used in a fair value measurement are not
adjusted for transaction costs* however transactionadjusted for transaction costs*, however transaction
costs should be considered to determine the most
advantageous market; the most advantageous market is
the one that results in the greatest net benefit to thethe one that results in the greatest net benefit to the
participant.
 When utilizing the DCF method of the income approach
Slide 56
to derive fair value, transaction costs are applied to the
reversion.

Disclaimers
regulations.g
Slide 57

Slide 58

Scenario 1
 An endowment acquired a warehouse building 12
months ago. The warehouse is 100 percent leased to a
third party under a long term lease which was signed
prior to the acquisition and the rent is consistent with
asking rents for other buildings within the same
industrial park.
Slide 59

Scenario 1
 Valuation Approach – Income Approachpp pp
SUMMARY OF HYPOTHETICAL REVENUE AND EXPENSES
Annual Annual Total
Market Market Market
Tenant
Property
Size (GLA) Rent/Sq.Ft. Reimb $/SF Rent
Suite A 250,000 $ 12.00 $6.60 $ 4,650,553
Annual $/SF % of EGI
TOTAL POTENTIAL GROSS REVENUE $ 4,650,553 $18.60
Vacancy and Collection Loss @ 5.0% 232,528 0.93
EFFECTIVE GROSS REVENUE $ 4,418,026 $17.67 1.00%
OPERATING EXPENSES
CAM $ 625,000 $2.50 14.15%
Insurance 25,553 0.10 0.58%
Real Estate Taxes 1,000,000 4.00 22.63%
TOTAL EXPENSES $ 1,650,553 $6.60 37.36%
NET OPERATING INCOME $ 2,767,472 $11.07 62.64%
Overall Capitalization Rate 7.50% Value $/SF NRA
$ $
Slide 60
$ 36,899,631 $147.60
Rounded $ 36,900,000 $147.60

Scenario 1
 Valuation Approach – Income Approach (level 3 inputs)pp pp ( p )
SUMMARY OF HYPOTHETICAL REVENUE AND EXPENSES
Annual Annual Total
Market Market Market
Tenant
Property
Size (GLA) Rent/Sq.Ft. Reimb $/SF Rent
Suite A 250,000 $ 12.00 $6.60 $ 4,650,553
Annual $/SF % of EGI
TOTAL POTENTIAL GROSS REVENUE $ 4,650,553 $18.60
Vacancy and Collection Loss @ 5.0% 232,528 0.93
EFFECTIVE GROSS REVENUE $ 4,418,026 $17.67 1.00%
OPERATING EXPENSES
CAM $ 625,000 $2.50 14.15%
Insurance 25,553 0.10 0.58%
Real Estate Taxes 1,000,000 4.00 22.63%
TOTAL EXPENSES $ 1,650,553 $6.60 37.36%
NET OPERATING INCOME $ 2,767,472 $11.07 62.64%
Overall Capitalization Rate 7.50% Value $/SF NRA
$ $
Slide 61
$ 36,899,631 $147.60
Rounded $ 36,900,000 $147.60

Scenario 1
 An endowment acquired a warehouse building 12
months ago. The warehouse is 100 percent leased to a
third party under a long term lease which was signed
prior to the acquisition and the rent is consistent with
asking rents for other buildings within the same
industrial park.
 Other warehouses within the same industrial park have
similar utility, including lease terms and tenant profiles,
and four of them recently sold in an active market.and four of them recently sold in an active market.
Slide 62

Scenario 1
 Valuation Approach – Market Approachpp pp
SUMMARY OF IMPROVED SALES
PROPERTY INFORMATION TRANSACTION INFORMATION
No. Location
Net Rentable
Area (sf) Sale Date Sale Price $/SF NRA COMMENTS
S Subject Property 250,000
1 Same Industrial Park 260,000 1 Month Prior $39,000,000 $150 Directly West of Subject Property. Similar utility.
2 Same Industrial Park 265,000 2 Months Prior $39,750,000 $150 Directly East of Subject Property. Similar utility.
3 Same Industrial Park 235,000 3 Months Prior $35,250,000 $150 Directly North of Subject Property. Similar utility.
4 Same Industrial Park 240,000 2 Months Prior $36,000,000 $150 Directly South of Subject Property. Similar utility.
STATISTICS
Low 235,000 Current $35,250,000 $150.00
High 250,000 Current $37,500,000 $150.00
Average 265,000 Current $39,750,000 $150.00
Slide 63

Scenario 1
 Valuation Approach – Market Approach (level 2 inputs)pp pp ( p )
SUMMARY OF IMPROVED SALES
PROPERTY INFORMATION TRANSACTION INFORMATION
No. Location
Net Rentable
Area (sf) Sale Date Sale Price $/SF NRA COMMENTS
S Subject Property 250,000
1 Same Industrial Park 260,000 1 Month Prior $39,000,000 $150 Directly West of Subject Property. Similar utility.
2 Same Industrial Park 265,000 2 Months Prior $39,750,000 $150 Directly East of Subject Property. Similar utility.
3 Same Industrial Park 235,000 3 Months Prior $35,250,000 $150 Directly North of Subject Property. Similar utility.
4 Same Industrial Park 240,000 2 Months Prior $36,000,000 $150 Directly South of Subject Property. Similar utility.
STATISTICS
Low 235,000 Current $35,250,000 $150.00
High 250,000 Current $37,500,000 $150.00
Average 265,000 Current $39,750,000 $150.00
Slide 64

Scenario 2
 The City leases an industrial garage as an investment to
a private contractor which historically provided services
to the City (e.g., street cleaning). The 20-year lease is
nearing the end of its term (6 months), but the tenant
would like to renew the lease at current market rents
for industrial space. Surrounding uses are primarily
residential and residential demand within the City is
extremely high due to the limited availability infill
locations.
 What is the highest and best use of the site
understanding the site is currently zoned Light Industrial
(LI-1)?
Slide 65
( )

Scenario 2
 The City allows for the lease to expire and the building
is now vacant. The property is no longer generating
income for the City and the improvements have fully
depreciated. Surrounding uses are primarily residential
and residential demand within the City is extremely high
due to the limited availability infill locations.
 Is the real property (effectively land) considered an asset
or an investment?
 What is the highest and best use?g
Slide 66

Scenario 2
 The City Council demolishes the improvements and
rezones the site for high density residential use (R-6).
There is demand by private investors to develop a
luxury for-sale housing. In order to meet demand for
affordable housing, the City Council votes to construct
an affordable housing project (owned and operated by
the City).
 What is the highest and best use of the land (as vacant)?
 Once the affordable housing project is constructed, will itOnce the affordable housing project is constructed, will it
be classified as an asset or investment?
Slide 67

Section Overview
 Q&A
Slide 68

Q&A
Use the Questions box to submit a question.
Submit yourSubmit your
question
Slide 69

Webinar Handouts
Webinar handouts can be downloaded from
the resource page which is included in yourthe resource page which is included in your
connection e-mail.
Slide 70

Webinars and You
Have an idea?
Do you have a webinar idea that would benefit real estate appraisers and other
professionals aligned with the industry?
Submit your suggestions and proposals for future AI webinars through the AI
website at http://www.appraisalinstitute.org/education/online-education/webinars.
Did o kno
:
Did you know:
• Webinar presenters receive 10 points (2 hrs) of AI CE credit (not state credit.)
These are applied after the webinar.
F t d d l t h t i f 125 i t• For requested development hours, presenters can earn a maximum of 125 points
(25 hrs) per 5-year AI CE cycle under “Service to AI”, and may add these to their
AI CE Log (hours should be entered and AI will convert to points).
Slide 71
BE A WEBINAR PRESENTER!

Upcoming Events
Upcoming Webinars
DATE TOPIC
September 16 Contamination and the Valuation ProcessSeptember 16 Contamination and the Valuation Process
September 30 Drones
November 18 Historical and Landmark Home SitesNovember 18 Historical and Landmark Home Sites
Slide 72

Upcoming Events, cont.
Upcoming Live Online (Synchronous) Programs
COURSE SESSIONSCOURSE SESSIONS
Unraveling the Mystery of Fannie Mae
Appraisal Guidelines
(One 4 hour day)
• October 13, 2015
(One 4 hour day)
Using Spreadsheet Programs in Real Estate
Appraisals – The Basics
(Two 3 1/2 hour days)
• October 6 – 7, 2015
(Two 3‐1/2 hour days)
Advanced Market Analysis
(Eight 4 hour days)
• October 19 – October 29,
2015
Advanced Concepts and Case Studies
(Eight 4.5 hour days)
• December 2015 TBD
Slide 73

Upcoming Events, cont.
Slide 74
http://www.appraisalinstitute.org/annualmeeting/

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Slide 75

Thank you for joining us.
Slide 76

GASB 2015 Webinar Presentation - Final

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