Below is a collection of commonly used terms in commercial real estate.
"As-Is" Condition
The acceptance by the tenant of the existing condition of the premises at the time the lease is consummated. This would include any physical defects.
Abatement
Often and commonly referred to as free rent or early occupancy and may occur outside or in addition to the primary term of the lease.
Above Building Standard
Upgraded finishes and specialized designs necessary to accommodate tenant's requirements.
Absentee Landlord
An owner of an interest in income producing property who does not reside near the premises and who may rely on a property manager to oversee operations.
Absolute Fee Simple Title
A title that is unqualified. Fee simple is the best title that can be attained and conveys the highest bundle of rights.
Absorption
The rate, expressed as a percentage, at which available space in the marketplace is leased during a predetermined period of time. Also referred to as Market Absorption.
Absorption Rate
The net change in space available for lease between two dates, typically expressed as a percentage of the total square footage.
Abstract
A condensed history of the title to a property, consisting of a summary of the original grant and all subsequent conveyances and encumbrances relating to the particular parcel of real estate.
Abstraction
Method of finding land value by deducting all improvement costs from the sales price.
Accessibility
The relative ease of entrance to the property by various means, a factor that contributes to the probable most profitable use of a property.
Accretion
Land buildup resulting from the deposit by natural action of sand or soil washed up from a river, lake or sea.
Accrual Basis
A system in accouting of allocating revenue and expense items on the basis of when the revenue is earned or the expense occurred, not on the basis of when cash is received or paid out.
Accrued Depreciation
Total depreciation taken from an asset from the time of acquisition. In an appraisal, the difference between reproduction or replacement cost and the appraised value as of the date of appraisal.
Accumulated Cost Recovery
Total cost recovery deductions taken throughout the holding period of a property.
Ad Valorem
According to value. This is a tax imposed on the value of property (references a general property tax), which is typically based on the local government's valuation of the property.
Add-On Factor
Often referred to as the Loss Factor or Rentable/Usable (R/U) Factor, it represents the tenant's pro-rata share of the Building Common Areas, such as lobbies, public corridors and restrooms. It is usually expressed as a percentage which can then be applied to the usable square footage to determine the rentable square footage upon which the tenant will pay rent. The ratio of rentable to useable square feet. Also known as the load factor and the rentable-to-useable ratio. Also see efficiency percentage. Formula: add-on factor = (rentable square feet / useable square feet)
Adjustable Rate Mortgage (ARM)
A loan with an interest rate that fluctuates according to the movements of a predetermined index.
Adjusted Basis
The original cost basis of a property plus capital improvements, less total accumulated cost recovery deductions and partial sales taken during the holding period.
Adjusted Funds From Operations (AFFO)
A measure of REIT performance or ability to pay dividends used by many analysts with concerns about quality of earnings as measured by funds from operations (FFO). The most common adjustment to FFO is an estimate of certain recurring capital expenditures needed to keep the property portfolio competitive in its marketplace.
Administrative Fee
Usually stated as a percentage of assets under management or as a fixed annual dollar amount.
Advances
Payments made by the servicer when the borrower fails to make a payment.
Adverse Land Use
A land use that has detrimental effect on market value of nearby properties.
Adviser
A broker, consultant or investment banker who represents an owner in a transaction. Advisers may be paid a retainer and/or a performance fee upon the close of a financing or sales transaction.
Aesthetic Value
Value relating to beauty, rather than functional considerations.
Agglomeration Economies
Cost reductions or savings that come about from efficiency gains associated with the concentration or clustering of firms/producers or economic activities and the formation of a localized production network.
Aggregation Risk
Risk associated with warehousing mortgages during the pooling process for future securitization.
Allowance Over Building Shell
Most often used in a yet-to-be constructed property, the tenant has a blank canvas upon which to customize the interior finishes to their specifications. This arrangement caps the landlord's expenditure at a fixed dollar amount over the negotiated price of the base building shell. This arrangement is most successful when both parties agree on a detailed definition of what construction is included and at what price.
Alpha
A coefficient which measures risk-adjusted performance, factoring in the risk due to the specific security, rather than the overall market. A high value for alpha implies that the stock or mutual fund has performed better than would have been expected given its beta (volatility).
Alternative or Specialty Investments
Property types that are not considered conventional institutional-grade real estate investments. Examples include congregate care facilities, facilities, mobile homes, timber, agriculture and parking lots.
Amenities
The qualities of being pleasant and agreeable. Features of a property from which the owner derives benefits other than monetary; satisfaction of possession and use arising from architectural excellence, scenic beauty, convenience, and social environment.
Amortization
The liquidation of a financial debt through regular periodic installment payments. For tax purposes, the periodic deduction of capitalized expenses such as organization costs.
Anchor
The tenant that serves as the predominant draw to a commercial property, usually the largest tenant in a shopping center.
Annual debt service (ADS)
The total amount of principal and interest to be paid each year to satisfy the obligations of a loan contract.
Annual Percentage Rate (APR)
The actual cost of borrowing money, expressed in the form of an annual interest rate. It may be higher than the note rate because it represents full disclosure of the interest rate, loan origination fees, loan discount points, and other credit costs paid to the lender.
Annuity
Regular fixed payments or receipts over a designated period of time. Appreciation. An investment's increase in value.
Appraisal
An estimate of opinion and value based upon a factual analysis of a property by a qualified professional.
Appreciation
The increased value of an asset.
Appreciation Potential
The possibility or probability that a real estate investment will increase in value during the holding period.
Appreciation Return
The portion of the total return generated by the change in the value of the real estate assets during the current quarter, as measured by both appraisals and sales of assets.
Arbitrage
Buying securities in one market and then selling them immediately in another market to make a profit on the price discrepancy.
Assessed Value
The value of real property established by the tax assessor for the purpose of levying real estate taxes.
Assessment
A fee imposed on property, usually to pay for public improvements such as water, sewers, streets, improvement districts, etc.
Asset Management
The various disciplines involved with managing real property assets from the time of investment through the time ofdisposition, including acquisition, management, leasing, operational/financial reporting, appraisals, audits, market review and asset disposition plans.
Asset Management Fee
A fee charged to investors based on the amount invested into real estate assets for the fund or account.
Asset Turnover
Calculated as total revenues for the trailing 12 months divided by the average total assets.
Assets Under Management
The current market value of real estate assets for which a manager has investment and asset management responsibilities.
Assignee Name
The individual or entity to which the obligations of a lease, mortgage or other contract have been transferred.
Assignment
A transfer by lessee of lessee's entire estate in the property. Distinguishable from a sublease where the sublessee acquires something less than the lessee's entire interest.
Attorn
To turn over or transfer to another money or goods. To agree to recognize a new owner of a property and to pay him/her rent. In a lease, when the tenant agrees to attorn to the purchaser, the landlord is given the power to subordinate tenant's interest to any first mortgage or deed of trust lien subsequently placed upon the leased premises.
Average Annual Effective Rate
The average annual effective rent divided by the square footage.
Average Annual Effective Rent
The tenant's total effective rent divided by the lease term.
Average Common Equity
Calculated by adding the common equity for the five most recent quarter and dividing by five.
Average Downtime
Expressed in months, the amount of time expected between the expiration of a lease and the commencement of a replacement lease under current market conditions.
Average Free Rent
Expressed in months, the rent abatement concession expected to be granted to a tenant as part of a lease incentive under current market conditions.
Average Occupancy
The average occupancy rate of each of the preceding 12 months.
Average Total Assets
Calculated by adding the total assets of a company for the five most recent quarters and dividing by five.
Averaging Method
A simple technique used to forecast next period's/year's vacancy rate by averaging previous year's vacancy rates; especially effective where vacancy rates have remained relatively flat or show little variability over time.
Balloon Payment
A large principal payment that typically becomes due at the conclusion of the loan term. Generally, it reflects a loan amortized over a longer period than that of the term of the loan itself (i.e. payments based on a 25 year amortization with the principal balance due at the end of 5 years). The final payment of balance due on a partially amortized loan. See "Bullet Loan".
Balloon Risk
The risk that a borrower will not be able to make a balloon (lump sum) payment at maturity due to a lack of funding.
Balloon, or bullet, loan
A loan with a maturity that is shorter than the amortization period.
Bankrupt
The condition or state of a person (individual, partnership, corporation, etc.) who is unable to repay it's debts as they are, or become, due.
Bankruptcy
Proceedings under federal statures to relieve a debtor who is unable or unwilling to pay its debts. After addressing certain priorities and exemptions, the bankrupt's property and other assets are distributed by the court to creditors as full satisfaction for the debt. See also: "Chapter 11".
Base Principal Balance
The original mortgage amount adjusted for subsequent funding and principal payments without regard to accrued interest or other unpaid debt.
Base Rent
A set amount used as a minimum rent in a lease with provisions for increasing the rent over the term of the lease. See also "Escalation Clause", "Operating Expense Escalation" and "Percentage Lease".
Base Year
Actual taxes and operating expenses for a specified base year, most often the year in which the lease commences. Once the base year expenses are known, the lease essentially becomes a dollar stop lease.
Basis
The total amount paid for a property including equity capital, commissions, and other expenses used to determine capital gains and capital losses for tax purposes.
Basis Point
1/100 of 1 percent.
Below-grade
Any structure or a portion of a structure located underground or below the surface grade of the surrounding land.
Beneficiary
An employee covered by an employee benefit plan.
Beta
A quantitative measure of the volatility of a given stock, mutual fund, or portfolio, relative to the overall market, usually the S&P 500. Specifically, the performance the stock, fund or portfolio has experienced in the last 5 years as the S&P moved 1% up or down. A beta above 1 is more volatile than the overall market, while a beta below 1 is less volatile.
Bid
An offer, stated as a price or spread, to buy whole loans or securities.
Blind Pool
A commingled fund accepting investor capital without prior specification of property assets.
Blockbusting
A fair housing violation and illegal practice of deliberately escalating the cost of a house in an attempt to keep out certain minorities, such as African Americans, from a particular neighborhood.
Book Value
Also referred to as common shareholder's equity, this is the total shareholder's equity as of the most recent quarterly balance sheet minus preferred stock and redeemable preferred stock.
Broker
A person who acts as an intermediary between two or more parties in connection with a transaction.
Build-out
Space improvements put in place per the tenant's specifications. Takes into consideration the amount of tenant finish allowance provided for in the lease agreement.
Build-to-suit
A method of leasing property whereby the developer/landlord builds to a tenant's specifications.
Buildable Acres
The area of land that is available to be built on after subtracting for roads, setbacks, anticipated open spaces and areas unsuitable for construction.
Building Classifications
Building classifications in most markets refer to Class "A", "B", "C" and sometimes "D" properties. While the rating assigned to a particular building is very subjective, Class "A" properties are typically newer buildings with superior construction and finish in excellent locations with easy access, attractive to credit tenants, and which offer a multitude of amenities such as on-site management or covered parking. These buildings, of course, command the highest rental rates in their sub-market. As the "Class" of the building decreases (i.e. Class "B", "C" or "D") one component or another such as age, location or construction of the building becomes less desirable. Note that a Class "A" building in one sub-market might rank lower if it were located in a distinctly different sub-market just a few miles away containing a higher end product.
Building Code
The various laws set forth by the ruling municipality as to the end use of a certain piece of property and that dictate the criteria for design, materials and type of improvements allowed.
Building or "Core" Factor
Represents the percentage of Net Rentable Square Feet devoted to the building's common areas (lobbies, rest rooms, corridors, etc.). This factor can be computed for an entire building or a single floor of a building. Also known as a Loss Factor or Rentable/Usable (R/U) Factor, it is calculated by dividing the rentable square footage by the usable square footage. See also "Rentable/Usable Ratio".
Building Standard
A list of construction materials and finishes that represent what the Tenant Improvement (Finish) Allowance/Work Letter is designed to cover while also serving to establish the landlord's minimum quality standards with respect to tenant finish improvements within the building. Examples of standard building items are: type and style of doors, lineal feet of partitions, quantity of lights, quality of floor covering, etc.
Building Standard Plus Allowance
The landlord lists, in detail, the building standard materials and costs necessary to make the premises suitable for occupancy. A negotiated allowance is then provided for the tenant to customize or upgrade materials.
Bullet Loan
Any short-term, generally five to seven years, financing option that requires a balloon payment at the end of the term and anticipates that the loan will be refinanced in order to meet the balloon payment obligation. Essentially, should the refinancing not be available, often due to the property not performing as anticipated, the borrower is "shot" and the property is subject to foreclosure. An example of this is when a developer borrows to cover the costs of construction and carry-costs for a new building with the expectation that it would be replaced by long-term (or "permanent") financing provided by an institutional investor once most of risk involved in construction and lease-up had been overcome resulting in an income-producing property.
Burden of Proof
As a matter of evidence, the duty to affirmatively approve facts in dispute of case; plaintiff carries burden of proof in civil case; burden shifts to defendant once plaintiff has met his or her burden.
Call Date
Periodic or continuous rights given to the lender to cause payment of the total principal balance prior to the maturity date.
Capital Appreciation
The change in market value of a property or portfolio adjusted for capital improvements and partial sales.
Capital Expenditures
Investment of cash or the creation of a liability to acquire or improve an asset, as distinguished from cash outflows for expense items that are considered part of normal operations.
Capital Expenses
This type of expense is most often defined by reference to generally accepted accounting principles (GAAP), but GAAP does not provide definitive guidance on all possible expenditures. Accountants will often disagree on whether or not to include certain items.
Capital Gain
The amount by which the net proceeds from the sale of a capital item exceeds the book value of the asset.
Capital Improvements
Expenditures that arrest deterioration of property or add new improvements and appreciably prolong its life.
Capital Markets
Public and private markets where businesses or individuals can raise or borrow capital.
Capitalization
A method of determining value of real property by considering net operating income divided by a predetermined annual rate of return. See "Capitalization Rate".
Capitalization Rate
The rate that is considered a reasonable return on investment (on the basis of both the investor's alternative investment possibilities and the risk of the investment). Used to determine and value real property through the capitalization process. Also called "free and clear return". See "Capitalization".
Carrying Charges
Costs incidental to property ownership, other than interest (i.e. taxes, insurance costs and maintenance expenses), that must be absorbed by the landlord during the initial lease-up of a building and thereafter during periods of vacancy.
Case Law
Reported cases as a body of jurisprudence; one of the sources of law.
Cash Flow
The revenue remaining after all cash expenses are paid.
Cash Flow Model
The framework used to determine cash flow from operations and the cash proceeds from sale.
Cash Value
What property would sell for at a private, non-installment sale; market value.
Cash-on-cash Yield
The relationship, expressed as a percentage, between the net cash flow of a property and the average amount of invested capital during an operating year. Measures the initial profitability of the property. This is expressed as a percentage, calculated by "Before Tax Cash Flow" divided by "Cash Equity".
Caveat Emptor
A Latin term meaning "let the buyer beware." A legal maxim stating that the buyer takes the risk regarding quality or condition of the property purchased, unless protected by warranty.
Certificate of Judgment
Legal instrument enabling judgment holder to file a lien against a debtor's real estate.
Certificate of Occupancy
A document presented by a local government agency or building department certifying that a building and/or the leased premises (tenant's space), has been satisfactorily inspected and is/are in a condition suitable for occupancy.
Certificate of Title
A document provided by a qualified source (such as a title company) that shows the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims.
Chain of Title
The history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent.
Chapter 11
That portion of the Federal Bankruptcy code that deals with business reorganizations. Chapter 7 is that part of the Federal Bankruptcy code that deals with business liquidations.
Chapter 7
That portion of the Federal Bankruptcy code that deals with business liquidations. Chapter 11 is that part of the Federal Bankruptcy code that deals with business reorganizations.
Circulation Factor
Interior space required for internal office circulation not accounted for in the Net Square Footage. Based upon our experience, we use a Circulation Factor of 1.35 x the Net Square Footage for office and fixed drywall areas and a Circulation Factor of 1.45 x the Net Square Footage for open area workstations. See also "Net Square Footage and "Usable Square Footage.
Class "A"
A real estate rating generally assigned to properties that will generate the highest rents per square foot due to their high quality and/or superior location.
Class "B"
Good assets that most tenants would find desirable but lack attributes that would permit owners to charge top dollar.
Class "C"
Buildings that offer few amenities but are otherwise in physically acceptable condition and provide cost-effective space to tenants who are not particularly image-conscious.
Clear-Span Facility
A building, most often a warehouse or parking garage, with vertical columns on the outside edges of the structure and a clear span between columns.
Closed-end Fund
A commingled fund that has a targeted range of investor capital and a finite life.
Closing
A period of time, usually less than seven days, after a registration statement is effective and the offering commences, giving the underwriters time to receive payment for the securities.
Cloud on Title
An invalid encumbrance on real property which, if valid, would affect the rights of the owner. Example: "A" sells Lot 1, Tract 1 to "B". The deed is mistakenly drawn to read Lot 2, Tract 1. A cloud is created on Lot 2 by the recording of the erroneous deed. The cloud may be removed by quitclaim deed, or, if necessary, by court action.
Co-investment
Cccurs when two or more pension funds or groups of funds share ownership of a real estate investment. In co-investment vehicles, relative ownership is always based on the amount of capital contributed. It also refers to an arrangement in which an investment manager or adviser co-invests its own capital alongside the investor.
Co-investment Program
An investment partnership or insurance company separate account that enables two or more pension funds to co-invest their capital in a single property or portfolio of properties. The primary appeal for investors is to achieve greater diversification or invest in larger properties typically outside the reach of small- to mid-sized tax-exempt funds, with a greater measure of control than is afforded in typical commingled fund offerings.
Coexclusive
Two real estate companies sharing an exclusive right to sell on a piece of property.
Collateral
Asset(s) pledged to a lender to secure repayment of a loan in case of default.
Collateralized Mortgage Obligation (CMO)
Debt obligations that are collateralized by and have payments linked to a pool of mortgages.
Commercial Mortgage-Backed Securities( CMBS):
Securities backed by loans on commercial real estate.
Commingled Fund
A pooled fund vehicle that enables qualified employee benefit plans to commingle their capital for the purpose of achieving professional management, greater diversification or investment positions in larger properties.
Common Area
There are two components of the term "common area". If referred to in association with the Rentable/Usable or Load Factor calculation, the common areas are those areas within a building that are available for common use by all tenants or groups of tenants and their invitees (i.e. lobbies, corridors, restrooms, etc.). On the other hand, the cost of maintaining parking facilities, malls, sidewalks, landscaped areas, public toilets, truck and service facilities, and the like are included in the term "common area" when calculating the tenant's pro-rata share of building operating expenses. For lease purposes, the areas of a building and its site that are available for the non-exclusive use of all its tenants, e.g., lobbies, corridors, etc.
Common Area Maintenance (CAM)
This is the amount of Additional Rent charged to the tenant, in addition to the Base Rent, to maintain the common areas of the property shared by the tenants and from which all tenants benefit. Examples include: snow removal, outdoor lighting, parking lot sweeping, insurance, property taxes, etc. Most often, this does not include any capital improvements (see "Capital Expenses") that are made to the property.
Common Assessment
An amount of money paid by each unit owner in a condominium of the maintenance and repair of common areas. The stipend per owner is based on their prorate ownership in the condominium property.
Community Property
In some western and southwestern states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse.
Comparables
Lease rates and terms of properties similar in size, construction quality, age, use, and typically located within the same sub-market and used as comparison properties to determine the fair market lease rate for another property with similar characteristics.
Compensatory Damages
The award, usually monetary, that is intended to compensate the claimant for injury sustained.
Compound Interest
Interest which is calculated not only on the initial principal but also the accumulated interest of prior periods.
Concessions
Cash or cash equivalents expended by the landlord in the form of rental abatement, additional tenant finish allowance, moving expenses, cabling expenses or other monies expended to influence or persuade the tenant to sign a lease.
Condemnation
The process of taking private property, without the consent of the owner, by a governmental agency for public use through the power of eminent domain. See also "Eminent Domain".
Conduit
An alliance between mortgage originators and an unaffiliated organization that acts as a funding source by regularly purchasing loans, usually with a goal of pooling and securitizing them.
Construction Loan
Interim financing during the developmental phase of a property.
Construction Management
The actual construction process is overseen by a qualified construction manager who ensures that the various stages of the construction process are completed in a timely and seamless fashion, from getting the construction permit to completion of the construction to the final walk-through of the completed leased premises with the tenant.
Consultant
Any company or individual that provides the following services to institutional investors: definition of real estate investment policy; adviser/manager recommendations; analysis of existing real estate portfolios; monitoring of and reporting on property asset, commingled fund and portfolio performance; and review of specified property and portfolio investment opportunities. Consultants are distinguished from investment advisers or investment managers in that a consultant does not source or execute transactions and does not directly manage assets.
Consumer Confidence
Measures confidence about state of the economy and spending power. Higher Confidence = More Purchases.
Consumer Price Index ("CPI")
Measures inflation in relation to the change in the price of a fixed market basket of goods and services purchased by a specified population during a "base" period of time. It is not a true "cost of living" factor and bears little direct relation to actual costs of building operation or the value of real estate. The CPI is commonly used to increase the base rental periodically as a means of protecting the landlord's rental stream against inflation or to provide a cushion for operating expense increases for a landlord unwilling to undertake the record keeping necessary for operating expense escalations.
Contiguous Space
(1) Multiple suites/spaces within the same building and on the same floor which can be combined and rented to a single tenant. (2) A block of space located on multiple adjoining floors in a building (i.e., a tenant leases floors 6 through 12 in a building).
Contract Documents
The complete set of design plans and specifications for the construction of a building or of a building's interior improvements. Working Drawings specify for the contractor the precise manner in which a project is to be constructed. See also "Specifications" and "Working Drawings".
Contract for Deed
A contract for the sale of real estate where the deed (title) of the property is transferred only after all the payments have been made. Also known as a land contract, conditional sales contract,or installment contract.
Contract Rent
The rental obligation, expressed in dollars, as specified in a lease. Also known as face rent.
Conventional Loan
A mortgage or deed of trust not obtained under a government insured program (such as FHA or VA).
Convertible Debt
A mortgage position that gives the lender the option to convert to a partial or full ownership position in a property within a specified time period.
Convertible Preferred Stock
Preferred stock that is convertible to common stock under certain formulas and conditions specified by the issuer of the stock.
Conveyance
Most commonly refers to the transfer of title to property between parties by deed. The term may also include most of the instruments by which an interest in real estate is created, mortgaged or assigned.
Cooperative
A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.
Core Factor
Represents the percentage of Net Rentable Square Feet devoted to the building's common areas (lobbies, rest rooms, corridors, etc.). This factor can be computed for an entire building or a single floor of a building. Also known as a Loss Factor or Rentable/Usable (R/U) Factor, it is calculated by dividing the rentable square footage by the usable square footage."
Core Properties
The major property types - specifically office, retail, industrial and multifamily. Core assets tend to be built withinthe past five years or recently renovated. They are substantially leased (90 percent or better) with higher-credit tenants and well-structured long-term leases with the majority fairly early in the term of the lease. Core assets generate good, stable income that, together with potential appreciation, is expected to generate total returns in the 10 percent to 12 percent range.
Cost Approach
A method of appraising real property whereby the replacement cost of a structure is calculated using current costs of construction.
Cost-approach Improvement Value
The current cost to construct a reproduction of, or replacement for, the existing structure less an estimate for accrued depreciation.
Cost-approach Land Value
The estimated value of the fee simple interest in the land as if vacant and available for development to its highest and best use.
Cost-of-sale Percentage
An estimate of the costs to sell an investment representing brokerage commissions, closing costs, fees and other necessary disposition expenses.
Coupon
The nominal interest rate charged to the borrower on a promissory note or mortgage.
Covenant
A written agreement inserted into deeds or other legal instruments stipulating performance or non-performance of certain acts or, uses or non-use of a property and/or land.
Covenant of Quiet Enjoyment
The old "quiet enjoyment" paragraph, now more commonly referred to as "Warranty of Possession", had nothing to do with noise in and around the leased premises. It provides a warranty by Landlord that it has the legal ability to convey the possession of the premises to Tenant; the Landlord does not warrant that he owns the land. This is the essence of the landlord's agreement and the tenant's obligation to pay rent. This means that if the landlord breaches this warranty, it constitutes an actual or constructive eviction.
Credit Enhancement
The credit support needed in addition to the mortgage collateral to achieve a desired credit rating on mortgage-backed securities. The forms of credit enhancement most often employed are subordination, over-collateralization, reserve funds, corporate guarantees and letters of credit.
Cross-collateralization
A grouping of mortgages or properties that serves to jointly secure one debt obligation.
Cross-defaulting
Allows the trustee to call all loans in a group into default when any single loan is in default.
Cumulative Discount Rate
Expressed as a percentage of base rent, the interest rate used in finding present values that when applied to the rental rate takes into account all landlord lease concessions and then expressed as a percentage of base rent.
Cumulative Zoning
A system for zoning that begins with a low-intensity land use, such as a large-lot, single-family detached home and permits more intensive uses with each step up the ladder. At each step of the ladder not only are the uses for that step allowed but so are the uses for the steps below. The most intense zone, at the top of the ladder, would permit all uses below.
Current Occupancy
The current leased portion of a building or property expressed as a percentage of its total area or units.
Current Yield
For CMBS, the coupon divided by the price.
Deal Structure
With regards to the financing of an acquisition, deals can be unleveraged, leveraged, traditional debt, participating debt, participating/convertible debt or joint ventures.
Debt Service
The outlay necessary to meet all interest and principal payments during a given period.
Debt Service Coverage Ratio (DSCR):
The annual net operating income from a property divided by annual cost of debt service. A DSCR below 1.0 means the property is generating insufficient cash flow to cover debt payments. Indicates how well the cash flow covers debt and the capacity of the business to take on additional debt. Shows how much of cash profits are available to repay debt. Lenders look at this ratio to determine if there is adequate cash to make loan payments. Most lenders also have limits for the debt coverage ratio. The DCR must exceed 1.0 in order for a property to make a mortgage payment. Most lenders require a DCR of 1.2 to 1.3.
Dedicate
To appropriate private property to public ownership for a public use.
Deed
A legal instrument transferring title to real property from the seller to the buyer upon the sale of such property.
Deed In Lieu Of Foreclosure
A deed given by an owner/borrower to a lender to satisfy a mortgage debt and avoid foreclosure. See also "Foreclosure".
Deed of Purchase
Deed that uses valuable consideration, which is money, goods, or services in exchange for real property.
Deed Of Trust
An instrument used in many states in place of a mortgage by which real property is transferred to a trustee by the borrower (trustor), in favor of the lender (beneficiary), to secure repayment of a debt.
Default
The general failure to perform a legal or contractual duty or to discharge an obligation when due. Some specific examples are: 1) Failure to make a payment of rent when due. 2) The breach or failure to perform any of the terms of a lease agreement.
Deferred Maintenance Account
An account a borrower is required to fund that provides for maintenance of a property.
Deficiency Judgment
Imposition of personal liability on a borrower for the unpaid balance of mortgage debt after a foreclosure has failed to yield the full amount of the debt.
Demising Walls
The partition wall that separates one tenant's space from another or from the building's common area such as a public corridor.
Depositing Rent
Law enabling a tenant to place rent with a clerk of courts rather than paying the landlord when landlord is in breach of his or her state's statutory duties.
Depreciation
Spreading out the cost of a capital asset over its estimated useful life or a decrease in the usefulness, and therefore value, of real property improvements or other assets caused by deterioration or obsolescence.
Derivative Securities
Securities that are created artificially, i.e., derived from other financial instruments. In the context of CMBS, the most common derivative security is the interest-only strip.
Design/Build
A system in which a single entity is responsible for both the design and construction. The term can apply to an entire facility or to individual components of the construction to be performed by a subcontractor; also referred to as "design/construct".
Discount Rate
A yield rate used to convert future payments or receipts into present value.
Discretion
The level of authority granted to an adviser or manager over the investment and management of a client's capital. A fully discretionary account typically is defined as one in which the adviser or manager hastotal ability to invest and manage a client's capital without prior approval of the client.
Distraint
The act of seizing (legally or illegally) personal property based on the right and interest which a landlord has in the property of a tenant in default.
Diversification
The process of consummating individual investments in a manner that insulates a portfolio against the risk of reduced yield or capital loss, accomplished by allocating individual investments among a variety of asset types, each with different characteristics.
Dividend
Cash or stock distribution paid to holders of common stock. REITs must pay at least 90 percent of their taxable income in the form of dividends.
Dividend Yield
The annual dividend rate for a security expressed as a percent of its market price annual dividend/price = yield).
Dividend-ex Date
The first date on which a person purchasing the stock is no longer eligible to receive the most recently announced dividend.
Dollar Stop
An agreed dollar amount of taxes and operating expense (expressed for the building as a whole or on a square foot basis) over which the tenant will pay its prorated share of increases. May be applied to specific expenses (e.g., property taxes or insurance).
DownREIT
An organizational structure that makes it possible for REITs to buy properties using partnership units. The effect is the same as an UpREIT, however, the DownREIT is subordinate to the REIT itself, hence the name.
Due Diligence
Activities carried out by a prospective purchaser or mortgager of real property to confirm that the property is as represented by the seller and is not subject to environmental or other problems.
Due on Sale Clause
A covenant that makes a mortgage due if the property is sold before the maturity date.
Earnest Money
The monetary advance by a buyer of part of the purchase price to indicate the intention and ability of the buyer to carry out the contract.
Easement
A right of use over the property of another created by grant, reservation, agreement, prescription or necessary implication. It is either for the benefit of adjoining land ("appurtenant"), such as the right to cross A to get to B., or for the benefit of a specific individual ("in gross"), such as a public utility easement.
Easement Appurtenant
An easement for the benefit of another parcel of land, such as the right to cross parcel "A" to reach "B". The easement will pass with the transfer of property to a new owner.
Easement in Gross
An easement for the benefit of a person or company, rather than for the benefit of another parcel of land. Commonly, such easements as for public utilities.
Economic Feasibility
A building or project's feasibility in terms of costs and revenue, with excess revenue establishing the degree of viability.
Economic Rent
The market rental value of a property at a given point in time, even though the actual rent may be different.
Effective Date
The date on which a registration statement becomes effective and the sale of securities can commence.
Effective Gross Income (EGI)
The total income from a property generated by rents and other sources, less a vacancy factor estimated to be appropriate for the property. EGI is expressed as collected income before expenses and debt service.
Effective Gross Rent (EGR)
The net rent generated, after adjusting for tenant improvements and other capital costs, lease commissions and other sales expenses.
Effective Rent
The actual rental rate to be achieved by the landlord after deducting the value of concessions from the base rental rate paid by a tenant, usually expressed as an average rate over the term of the lease.
Efficiency Factor
Represents the percentage of Net Rentable Square Feet devoted to the building's common areas (lobbies, rest rooms, corridors, etc.). This factor can be computed for an entire building or a single floor of a building. Also known as a Core Factor or Rentable/Usable (R/U) Factor, it is calculated by dividing the rentable square footage by the usable square footage.
Egress
Access
Eminent Domain
A power of the state, municipalities, and private persons or corporations authorized to exercise functions of public character to acquire private property for public use by condemnation, in return for just compensation. See also "Condemnation".
Encroachment
The intrusion of a structure which extends, without permission, over a property line, easement boundary or building setback line.
Encumbrance
Any right to, or interest in, real property held by someone other than the owner, but which will not prevent the transfer of fee title (i.e. a claim, lien, charge or liability attached to and binding real property).
Environmental Impact Statement
Documents which are required by federal and state laws to accompany proposals for major projects and programs that will likely have an impact on the surrounding environment.
Equity
The fair market value of an asset less any outstanding indebtedness or other encumbrances.
Equity Investors
Investors who invest capital in a investment opportunity in return for ownership.
Equity Yield Rate
The return on the portion of an investment financed by equity capital.
Escalation Clause
A clause in a lease which provides for the rent to be increased to reflect changes in expenses paid by the landlord such as real estate taxes, operating costs, etc. This may be accomplished by several means such as fixed periodic increases, increases tied to the Consumer Price Index or adjustments based on changes in expenses paid by the landlord in relation to a dollar stop or base year reference.
Escrow
The depositing of money or documents from a real estate transaction with an impartial third party (escrow agent), to be disbursed to the rightful party when all conditions of the transaction have been met.
Escrow Agreement
A written agreement made between the parties to a contract and an escrow agent. The escrow agreement sets forth the basic obligations of the parties, describes the monies (or other things of value) to be deposited in escrow, and instructs the escrow agent concerning the disposition of the monies deposited.
Escrow Closing
The completion of a transaction whereby documents, consideration etc. are held in trust (either by the parties and their representatives or by an independent third party) pending the completion of certain conditions, at which time the items held in escrow are released and the transaction is completed.
Estate in Reversion
The right of an owner to re-occupy land once the estate he has granted to another person (such as an estate for years or an estate for life) has come to an end.
Estoppel Certificate
A signed statement certifying that certain statements of fact are correct as of the date of the statement and can be relied upon by a third party, including a prospective lender or purchaser. In the context of a lease, a statement by a tenant identifying that the lease is in effect and certifying that no rent has been prepaid and that there are no known outstanding defaults by the landlord (except those specified).
Excess Rent
The amount by which contract rent exceeds market rent at the time of the appraisal, created by a lease favorable to the landlord.
Exclusive Agency Listing
A written agreement between a real estate broker and a property owner in which the owner promises to pay a fee or commission to the broker if specified real property is leased during the listing period. The broker need not be the procuring cause of the lease.
Exit Strategy
Strategy available to investors when they desire to liquidate all or part of their investment.
Expense Stop
An agreed dollar amount of taxes and operating expense (expressed for the building as a whole or on a square foot basis) over which the tenant will pay its prorated share of increases. May be applied to specific expenses (e.g., property taxes or insurance).
Expense Stop Clause
Provision in a lease establishing the maximum level of operating expense(s) to be paid by the landlord. Expenses beyond this level are to be reimbursed by the tenant. May be applied to specific expenses only (eg, property taxes or insurance).
Face Rental Rate
The "asking" rental rate published by the landlord.
Fair Housing Act
The Fair Housing Act declares a national policy of fair housing throughout the United States. The law makes illegal any discrimination in the sale, lease or rental of housing, or making housing otherwise unavailable, because of race, color, religion, sex, handicap, familial status, or national origin.
Fair Market Value
The sale price at which a property would change hands between a willing buyer and willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts. Also known as FMV.
Fannie Mae (FNMA)
The Federal National Mortgage Association - A quasi-governmental corporation authorized to sell debentures in order to supplement private mortgage funds by buying and selling FHA (Federal Housing Administration) and VA (Veterans Affairs) loans at market prices.
Feasibility Study
An analysis of a proposed subject or property with emphasis on the attainment of income, probable expenses and most advantageous use and design. The purpose of such a study is to ascertain the success or failure of the project under consideration. A combination of a market study and an economic analysis that provides an investor with knowledge of both the environment where a project exists and the expected return on investment to be derived from it.
Fee Simple Interest
When an owners owns all the rights in a real estate parcel.
Fiduciary
The Employee Retirement Income Security Act (ERISA) defines a fiduciary as any person who exercises any discretionary authority or control over a plan's asset management, administration or disposition, or renders investment advice for a fee or other compensation with respect to a plan's assets. Fiduciaries may include staff, trustees, investment board members, administrators, consultants, actuaries and investment managers. ERISA permits civil action to be brought by a beneficiary against any fiduciary that has breached its fiduciary duty. Fiduciaries can be held personally liable for any losses to a plan resulting from such breach.
Final Value Estimate
The product of a real estate appraiser's completed work, an assessment of the value of a property based on all factors and taking into consideration the different evaluation methods available.
Finance Charge
The amount paid for the privilege deferring payment of goods or services purchased, including any charges payable by the purchaser as a condition of the loan.
Financial Leverage
Use of debt to increase the expected return on equity, measured by the ratio of assets to equity.
Finder's Fee
A fee paid to a broker by purchaser for finding real property for him to purchase.
First Generation Space
Generally refers to new space that is currently available for lease and has never before been occupied by a tenant. See also "Second Generation Space".
First Mortgage
The senior mortgage which, by reason of its position, has priority over all junior encumbrances. The holder of the first or senior mortgage has a priority right to payment in the event of default.
First Refusal Right or Right Of First Refusal (Adjacent Space)
A lease clause giving a tenant the first opportunity to lease additional space that might become available in a property at the same price and on the same terms and conditions as those contained in a third party offer that the owner has expressed a willingness to accept. This right is often restricted to specific areas of the building such as adjacent suites or other suites on the same floor.
First Refusal Right or Right Of First Refusal (Purchase)
A lease clause giving a tenant the first opportunity to buy a property at the same price and on the same terms and conditions as those contained in a third party offer that the owner has expressed a willingness to accept.
First-loss Position
The position in a security that will suffer the first economic loss if the underlying assets lose value or are foreclosed on. The first-loss position carries a higher risk and a higher yield.
Fixed Costs
Costs, such as rent, which do not fluctuate in proportion to the level of sales or production.
Fixed Expenses
Those expenses which remain the same regardless of circumstances.
Fixed Rate
An interest rate that remains constant over the term of the loan.
Flat Fee
A fee paid to an adviser or manager for managing a portfolio of real estate assets, typically stated as a flat percentage of gross asset value, net asset value or invested capital.
Flex Space
A building providing its occupants the flexibility of utilizing the space. Usually provides a configuration allowing a flexible amount of office or showroom space in combination with manufacturing, laboratory, warehouse distribution, etc. Typically also provides the flexibility to relocate overhead doors. Generally constructed with little or no common areas, load-bearing floors, loading dock facilities and high ceilings.
Float
The number of freely traded shares in the hands of the public.
Floor Area Ratio (FAR)
The ratio of the gross square footage of a building to the land on which it is situated. Calculated by dividing the total square footage in the building by the square footage of land area.
Force Majeure
A force that cannot be controlled by the parties to a contract and prevents said parties from complying with the provisions of the contract. This includes acts of God such as a flood or a hurricane or, acts of man such as a strike, fire or war.
Foreclosure
A procedure by which the mortgagee ("lender") either takes title to or forces the sale of the mortgagor's ("borrower") property in satisfaction of a debt. See also "Deed In Lieu Of Foreclosure".
Forward Commitments
Contractual obligations to perform certain financing activities upon the satisfaction of any stated conditions. Usually used to describe a lender's obligation to fund a mortgage.
Fraudulent Conveyance
The illegal transfer of property or assets, the intention of which is to defraud creditors or to avoid payment of an obligation.
Freddie Mac (FHLMC)
Federal Home Loan Mortgage Corp. - a corporation established by the Federal Home Loan Bank to issue mortgage-backed securities.
Full Recourse
A loan on which an endorser or guarantor is liable in the event of default by the borrower.
Full Service Rent
An all-inclusive rental rate that includes operating expenses and real estate taxes for the first year. The tenant is generally still responsible for any increase in operating expenses over the base year amount. See also "Pass Throughs".
Functional Obsolescence
Defects in a building or structure that detract from its value or marketability, usually the result of layout, design or other features that are less desirable than features designed for the same functions in newer property.
Funds Available for Distribution (FAD):
Funds from operations less deductions for cash expenditures for leasing commissions and tenant improvement costs.
Funds From Operations
A ratio intended to highlight the amount of cash generated by a company's real estate portfolio relative to its total operating cash flow. FFO is equal to net income, excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and amortization.
Future Proposed Space
Space in a proposed commercial development which is not yet under construction or where no construction start date has been set. Future Proposed projects include all those projects waiting for a lead tenant, financing, zoning, approvals or any other event necessary to begin construction. Also may refer to the future phases of a multi-phase project not yet built.
Future Value
Future Value is the expected value of an account, security, investment, lump sum of money, or a series of payments, at a specific time in the future.
General Contractor
The prime contractor who contracts for the construction of an entire building or project, rather than just a portion of the work. The general contractor hires subcontractors, (e.g., plumbing, electrical, etc.), coordinates all work, and is responsible for payment to subcontractors.
General Partner
A member of a partnership who has authority to bind the partnership. A general partner also shares in the profits and losses of the partnership. See also "Limited Partnership".
General Warranty Deed
A deed which conveys not only all the grantor's interests in and title to the property to the grantee, but also warrants that if the title is defective or has a "cloud" on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it) the grantee may hold the grantor liable.
Graduated Lease
A lease, generally long term in nature, which provides that the rent will vary depending upon future contingencies, such as a periodic appraisal, the tenant's gross income or simply the passage of time.
Grant
To bestow or transfer an interest in real property by deed or other instrument; either the fee or a lesser interest, such as an easement.
Grantee
One to whom a grant is made.
Grantor
The person making the grant.
Gross Absorption
A measure of the total square feet leased over a specified period of time with no consideration given to space vacated in the same geographic area during the same time period. See also "Net Absorption".
Gross Building Area
The total floor area of the building measuring from the outer surface of exterior walls and windows and including all vertical penetrations (e.g. elevator shafts, etc.) and basement space.
Gross Domestic Product (GDP)
As the barometer of the nation's total output of goods and services, GDP is the broadest of the nation's economic measures. The GDP is the aggregated monetary value of all the goods and services produced by the entire economy during the quarter.
Gross Leasable Area
The portion of total floor area designed for tenant's occupancy and exclusive use, including storage areas. It is the total area that produces rental income.
Gross Lease
A lease in which the tenant pays a flat sum for rent out of which the landlord must pay all expenses such as taxes, insurance, maintenance, utilities, etc.
Gross Rent Multiplier (GRM)
The quotient of the sale price divided by the gross rent. It is generally expressed as the monthly gross rent in a single family residential property and the yearly gross rent in multifamily units and commercial, office, or industrial property.
Gross Returns
Returns generated from the operation of real estate without dilution for adviser or manager fees.
Ground Rent
Rent paid to the owner for use of land, normally on which to build a building. Generally, the arrangement is that of a long-term lease (e.g. 99 years) with the lessor retaining title to the land.
Guarantor
One who makes a guaranty. See also "Guaranty".
Guaranty
Agreement whereby the guarantor undertakes collaterally to assure satisfaction of the debt of another or perform the obligation of another if and when the debtor fails to do so. Differs from a surety agreement in that there is a separate and distinct contract rather than a joint undertaking with the principal. See also "Guarantor".
Hard Cost
The cost of actually constructing the improvements (i.e. construction costs). See also "Soft Cost".
Hedging
Protecting oneself against negative outcomes.
Hereditaments
Any property, whether real or personal, tangible or intangible, that may be inherited.
High Rise
In the Central Business District, this could mean a building higher than 25 stories above ground level but in suburban sub-markets, it generally refers to buildings higher than 7 or 8 stories.
Highest and Best Use
The use of land or buildings which will bring the greatest economic return over a given time which is physically possible, appropriately supported, financially feasible.
Hold Over Tenant
A tenant retaining possession of the leased premises after the expiration of a lease.
Holdbacks
A portion of a loan commitment that is not funded until an additional requirement is met, such as completion of construction.
Holding Period
The length of time an investor expects to own a property from purchase to sale.
HVAC
The acronym for Heating, Ventilating and Air-Conditioning.
Hybrid Debt
A mortgage position with equity-like participation features in both cash flow and the appreciation of the property atthe time of sale or refinance.
Implied Cap Rate
Net operating income divided by the sum of a REIT's equity market capitalization and its total outstanding debt.
Implied Contract
An agreement which is not reduced to writing but is created, under the common law, on the basis of the behavior of the parties which suggests that they are acting under an agreement.
Improvements
In the context of leasing, the term typically refers to the improvements made to or inside a building but may include any permanent structure or other development, such as a street, sidewalks, utilities, etc. See also "Leasehold Improvements". See also "Leasehold Improvements" and "Tenant Improvements".
Incentive Fee
Applies to fee structures where the amount of the fee that is charged is determined by the performance of the real estate assets under management.
Incentive Zoning
Provides for give and take compromise on zoning restrictions, allowing for more flexibility to provide environmental protection. Incentive zoning allows a developer to exceed a zoning ordinance's limitations if the developer agrees to fulfill conditions specified in the ordinance. The developer may be allowed to exceed height limits by a specified amount in exchange for providing open spaces or plazas adjacent to the building.
Income Capitalization Value
The indication of value derived for an income-producing property by converting its anticipated benefits into property value through direct capitalization of expected income or by discounting the annual cash flows for the holding period at a specified yield rate.
Income Property
Real estate that is owned or operated to produce revenue.
Income Return
The percentage of the total return that is generated by the income from operations of a property, fund or account.
Indemnify
To compensate for an actual, sustained loss so as to restore to the condition prevailing before the loss.
Indirect Costs
Development costs, other than material and labor costs which are directly related to the construction of improvements, including administrative and office expenses, commissions, architectural, engineering and financing costs.
Individual Account Management
Accounts established for individual plan sponsors or other investors for investment in real estate, where a firm acts as an adviser in acquiring and/or managing a direct real estate portfolio.
Inflation
The annual rate at which consumer prices increase.
Inflation Hedge
An investment that tends to increase in value at a rate greater than inflation and helps contribute to the preservation of the purchasing power of a portfolio.
Ingress
Right of entrance.
Initial Investment
The outlay of cash needed to acquire an investment.
Initial public offering (IPO)
The first time a private company offers securities for sale to the public.
Installment Contract
A purchase agreement where the buyers do not receive the title to the property until all installments are paid.
Institute of Supply Management Index (ISM)
This is a measurement of whether the manufacturing economy is contracting or expanding. An index reading above 50 oercent = manufacturing economy is expanding. A reading below 50 percent = contracting.
Institutional-Grade Pproperty
Various types of real estate properties generally owned or financed by tax-exempt institutional investors. Core investments typically include office, retail, industrial and apartments. Specialty investments include hotels, congregate care facilities, land beneath existing improvements, vacant land, mixed-use properties (i.e., a property containing at least two property types) and mobile home parks.
Insurance Company Separate Account
A real estate investment vehicle that may only be offered by life insurance companies. This ownership arrangement enables an ERISA-governed fund to avoid the creation of unrelated taxable income for certain types of property investments and investment structures.
Interest
The price paid for the use of capital.
Interest Only Loan
A loan where only the interest is paid for an agreed term (usually a short period of one to five years) or during a construction period. The principle is then repaid over the remaining term of the loan by the conversion of repayments to Principle & Interest.
Interest Only Strip
A derivative security consisting of all or part of the interest portion of the underlying loan or security.
Interest Rate
The amount of interest charged, usually a percentage of the money borrowed, calculated over a year.
Internal rate of return (IRR)
A discounted cash-flow analysis calculation used to determine the potential total return of a real estate asset during an anticipated holding period. The most frequently used measurement of projected holding period overall returns. The IRR delivers in one number the investment return that integrates rental growth and property value appreciation.
Inventory
The total amount of rentable square feet of existing and any forthcoming space (whether it be a tenant vacating space or new buildings coming on the market), in a given category, for example, all warehouse space in a specified submarket. Inventory refers to all space within a certain proscribed market without regard to its availability or condition, and categories can include all types of leased space such as office, flex, retail and warehouse space.
Investment Committee
The governing body overseeing corporate pension investments. Also, the subcommittee of a board of trustees charged with developing investment policy for board approval.
Investment Manager
Any company or individual that assumes discretion over a specified amount of real estate capital, invests that capital in assets via a separate account, co-investment program or commingled fund, and provides asset management.
Investment Policy
A document that formalizes an institution's guidelines for investment and asset management. An investment policy typically will contain goals and objectives; core and specialty investment criteria and methodology; and guidelines for asset management, investment advisory contracting, fees and utilization of consultants and other outside professionals.
Investment Strategy
The investment parameters used by the manager in structuring the portfolio and selecting the real estate assets for a fund or account. This includes a description of the types, locations and sizes of properties to be considered, the ownership positions that will be used, and the stages of the investment lifecycle.
Investment Structures
Unleveraged acquisitions, leveraged acquisitions, traditional debt, participating debt, convertible debt, triple-net leases and joint ventures.
Investment Value
The value to a specific investor, based on that investor's requirements, tax rate, or financing.
Investment-Grade CMBS
Commercial mortgage-backed securities with ratings of "AAA," "AA," "A" or "BBB".
Investor Status
In reporting to clients and consultants, all investors are divided into two categories: taxable and tax-exempt. The tax-exempt category includes all qualified pension and retirement accounts. The taxable category includes all other accounts under management, including off-shore capital.
Joint Venture
An investment entity formed by one or more entities to acquire or develop and manage real property and/or other assets.
Judgment
The final decision of a court resolving a dispute and determining the rights and obligations of the parties. Money judgments, when recorded, become a lien on real property of the defendant.
Judgment Lien
An encumbrance that arises by law when a judgment for the recovery of money attaches to the debtor's real estate. See also "Lien".
Just Compensation
Compensation which is fair to both the owner and the public when property is taken for public use through condemnation (eminent domain). The theory is that in order to be "just", the property owner should be no richer or poorer than before the taking.
Landlord's Lien
A type of lien that can be created by contract or by operation of law. Some examples are: (1) a contractual landlord's lien as might be found in a lease agreement; (2) a statutory landlord's lien; and (3) landlord's remedy of distress (or right of distraint), which in not truly a lien but has a similar effect. See also "Lien".
Landlord's Warrant
A warrant from a landlord to levy upon a tenant's personal property (e.g., furniture, etc.) and to sell this property at a public sale to compel payment of the rent or the observance of some other stipulation in the lease.
Lead Manager
The investment banking firm that handles the principal responsibilities for coordinating the new issuance of securities.
Lease
An agreement whereby the owner of real property (i.e., landlord/lessor) gives the right of possession to another (i.e., tenant/lessee) for a specified period of time (i.e., term) and for a specified consideration (i.e., rent).
Lease Agreement
The formal legal document entered into between a Landlord and a Tenant to reflect the terms of the negotiations between them; that is, the lease terms have been negotiated and agreed upon, and the agreement has been reduced to writing. It constitutes the entire agreement between the parties and sets forth their basic legal rights.
Lease Commencement Date
The date usually constitutes the commencement of the term of the Lease for all purposes, whether or not the tenant has actually taken possession so long as beneficial occupancy is possible. In reality, there could be other agreements, such as an Early Occupancy Agreement, which have an impact on this strict definition.
Lease Expiration Exposure Schedule
A listing of the total square footage of all current leases that expire in each of the next five years, without regard to renewal options.
Leasehold Improvements
Improvements made to the leased premises by or for a tenant. Generally, especially in new space, part of the negotiations will include in some detail the improvements to be made in the leased premises by Landlord. See also "Tenant Improvements".
Leasehold Interest
The right to hold or use property for a fixed period of time at a given price, without transfer of ownership.
Legal Description
A geographical description identifying a parcel of land by government survey, metes and bounds, or lot numbers of a recorded plat including a description of any portion thereof that is subject to an easement or reservation.
Legal Owner
The term is in technical contrast to equitable owner. The legal owner has title to the property, although the title may actually carry no rights to the property other than as a lien. See also "Lien".
Lessee
A person to whom a lease is granted; the user of the asset.
Lessor
the owner of property who allows another to use and possess it in return for payment of rent. When real estate is rented, the lessor is known as the landlord.
Letter Of Attornment
A letter from the grantor to a tenant, stating that a property has been sold, and directing rent to be paid to the grantee (buyer). See also "Attorn".
Letter Of Credit (LOC):
A commitment by a bank or other person, made at the request of a customer, that the issuer will honor drafts or other demands for payment upon full compliance with the conditions specified in the letter of credit. Letters of credit are often used in place of cash deposited with the landlord in satisfying the security deposit provisions of a lease.
Letter Of Intent (LOI)
A preliminary agreement stating the proposed terms for a final contract. They can be "binding" or "non-binding". This is the threshold issue in most litigation concerning letters of intent. The parties should always consult their respective legal counsel before signing any Letter of Intent.
Leverage
The use of credit to finance a portion of the costs of purchasing or developing a real estate investment. Positive leverage occurs when the interest rate is lower than the capitalization rate or projected internal rate of return. Negative leverage occurs when the current return on equity is diminished by the employment of debt.
Lien
A claim or encumbrance against property used to secure a debt, charge or the performance of some act. Includes liens acquired by contract or by operation of law. Note that all liens are encumbrances but all encumbrances are not liens.
Lien Waiver (Waiver of Liens)
A waiver of mechanic's lien rights, signed by a general contractor and his subcontractors, that is often required before the general contractor can receive a draw under the payment provisions of a construction contract. May also be required before the owner can receive a draw on a construction loan.
Lifecycle
The various developmental stages of a property: pre-development, development, leasing, operating and redevelopment (or rehab),
Like-Kind Property
A term used in an exchange of property held for productive use in a trade or business or for investment. Unless cash is received, the tax consequences of the exchange are postponed pursuant to Section 1031 of the Internal Revenue Code.
Limited Partnership
A type of partnership, created under state law, comprised of one or more general partners who manage the business and who are personally liable for partnership debts, and one or more special or limited partners who contribute capital and share in profits but who take no part in running the business and incur no liability over and above the amount contributed. See also "General Partner".
Liquidation Value
The net value realizable in the sale (ordinarily a forced sale) of a business or a particular asset.
Liquidity
The ease with which assets can be converted to cash without loss in value.
Lis Pendens
A legal notice recorded to show pending litigation relating to real property and giving notice that anyone acquiring an interest in said property subsequent to the date of the notice may be bound by the outcome of the litigation.
Listing Agreement
An agreement between the owner of a property and a real estate broker giving the broker the authorization to attempt to sell or lease the property at a certain price and terms in return for a commission, set fee or other form of compensation. See also "Exclusive Listing Agreement".
Loan Point
A charge paid by the borrower upon the origination of a loan. One point equals one percent of the loan amount.
Loan-to-value ratio (LTV)
The ratio of the value of the loan principal divided by the property's appraised value.
Lock-box Structure
A structure whereby the rental or debt-service payments are sent directly from the tenant or mortgagor to the trustee.
Lockout
The period during which a loan may not be prepaid.
London InterBank Offered Rate(LIBOR)
The interest rate offered on euro deposits traded between banks, also called swaps.
Long Term Lease
In most markets, this refers to a lease whose term is at least three years from initial signing until the date of expiration or renewal option.
Loss Severity
The percentage of principal lost when a loan is foreclosed.
Lot
Generally, one of several contiguous parcels of land making up a fractional part or subdivision of a block, the boundaries of which are shown on recorded maps and "plats".
Low Rise
A building with fewer than 4 stories above ground level.
Lump-Sum Contract
A type of construction contract requiring the general contractor to complete a building or project for a fixed cost normally established by competitive bidding. The contractor absorbs any loss or retains any profit.
Magic Page
Included in the offering prospectus, the magic page is a projected growth story, describing how a new REIT will accomplish its future expectations for funds from operations or funds available for distribution.
Maker
One who creates or executes a promissory note and promises to pay the note when it becomes due.
Mark to Market
The process of increasing or decreasing the original investment cost or value of a property asset or portfolio to a level estimated to be the current market value.
Market Capitalization
One measure of the value of a company; it is calculated by multiplying the current share price by the current number of shares outstanding.
Market Capitalization Rate
The average capitalization rate in the local market for similar properties.
Market Rent
The rental income that a property would command on the open market with a landlord and a tenant ready and willing to consummate a lease in the ordinary course of business; indicated by the rents that landlords were willing to accept and tenants were willing to pay in recent lease transactions for comparable space.
Market Rental Rates
The rental income that a property most likely would command in the open market, indicated by the current rents asked and paid for comparable space.
Market Study
A forecast of future demand for a certain type of real estate project that includes an estimate of the square footage that can be absorbed and the rents that can be charged. Also called "Marketability Study".
Market Value
The highest price a property would command in a competitive and open market under all conditions requisite to a fair sale with the buyer and seller each acting prudently and knowledgeably in the ordinary course of trade.
Marketable Title
A title which is free from encumbrances and could be readily marketed (i.e., sold) to a reasonably intelligent purchaser who is well informed of the facts and willing to accept such title while exercising ordinary business prudence. See also "Encumbrance".
Master Lease
A primary lease that controls subsequent leases and which may cover more property than subsequent leases. An Executive Suite operation is a good example in that a primary lease is signed with the landlord and then individual offices within the leased premises are leased to other individuals or companies.
Master Servicer
An institution that acts on behalf of a trustee for the benefit of security holders in collecting funds from a borrower, advancing funds in the event of delinquencies and, in the event of default, taking a property through foreclosure.
Maturity Date
The date when the total principal balance of a loan comes due.
Mechanic's Lien
A claim created by state statutes for the purpose of securing priority of payment of the price and value of work performed and materials furnished in constructing, repairing or improving a building or other structure, and which attaches to the land as well as to the buildings and improvements thereon.
Metes and Bounds
The boundary lines of land, with their terminal points and angles, described by listing the compass directions and distances of the boundaries. Originally, metes referred to distance and bounds referred to direction.
Mezzanine Financing
Mezzanine financing is somewhere between equity and debt. It is that piece of the capital structure thathas senior debt above it and equity below it. There is both equity and debt mezzanine financing, and it can be done at the asset or company level, or it could be unrated tranches of CMBS. Returns are generally in the mid to high teens.
Mid-Rise
A building with between four and eight stories above ground level although in a Central Business District, this might extend to buildings up to twenty-five stories.
Mixed-Use
Space within a building or project providing for more than one use (i.e., a loft or apartment project with retail, an apartment building with office space, an office building with retail space).
Mortgage
A written instrument creating an interest in real estate and that provides security for the performance of a duty or the payment of a debt. The borrower (i.e., mortgagor) retains possession and use of the property.
Mortgage Constant
The ratio of an amortizing mortgage payment to the outstanding mortgage balance.
Mortgage Deed
A legal document relating to the mortgage lender's financial interest in the property and containing the terms by which the loan has been agreed.
Negative Amortization
The accrual feature found in numerous participating debt structures that allows an investor to pay, for an initial period of time, an interest rate below the contract rate stated in loan documents.
Net Absorption
The square feet leased in a specific geographic area over a fixed period-of-time after deducting space vacated in the same area during the same period. See also "Gross Absorption".
Net Asset Value (NAV)
The value of an individual asset or portfolio of real estate properties net of leveraging or joint venture interests.
Net Asset Value Per Share
The current value of a REIT's assets divided by shares outstanding.
Net Assets
Total assets less total liabilities on a market-value basis.
Net Cash Flow
Generally determined by net income plus depreciation less principal payments on long-term mortgages.
Net Investment In Real Estate
Gross investment in real estate less the outstanding debt balance.
Net Investment Income
The income or loss of a portfolio or entity resulting after deducting all expenses, including portfolio and asset management fees, but before realized and unrealized gains and losses on investments.
Net Lease
A lease in which there is a provision for the tenant to pay, in addition to rent, certain costs associated with the operation of the property. These costs may include property taxes, insurance, repairs, utilities, and maintenance. There are also "NN" (double net) and "NNN" (triple net) leases. The difference between the three is the degree to which the tenant is responsible for operating costs. See also "Gross Lease".
Net Operating Income (NOI)
A before-tax computation of gross revenue less operating expenses and an allowance for anticipated vacancy, not including debt service or income taxes. It is a key indicator of financial strength.
Net Present Value (NPV)
Net present value usually is employed to evaluate the relative merits of two or more investment alternatives. It is calculated as the sum of the total present value of incremental future cash flows plus the present value of estimated proceeds from sale. Whenever the net present value is greater than zero, an investment opportunity generally is considered to have merit.
Net Purchase Price
Gross purchase price less associated debt financing.
Net Real Estate Investment Value
The market value of all real estate less property-level debt.
Net Rentable Area
The floor area of a building that remains after the square footage represented by vertical penetrations, such as elevator shafts, etc., has been deducted. Common areas and mechanical rooms are included and there are no deductions made for necessary columns and projections of the building. (This is by the Building Owner and Manager Association - BOMA, Standard).
Net Returns
Returns to investors net of fees to advisers or managers.
Net Sales Proceeds
Proceeds from the sale of an asset or part of an asset less brokerage commissions, closing costs and market expenses.
Net Square Footage
The space required for a function or staff position. Also see "Circulation Factor and "Usable Square Footage".
Net Square Footage
The space required for a function or staff position.
Nominal Yield
The yield to investors before adjustments for fees, inflation or risk.
Non-Compete Clause
A clause that can be inserted into a lease specifying that the business of the tenant is exclusive in the property and that no other tenant operating the same or similar type of business can occupy space in the building. This clause benefits service-oriented businesses desiring exclusive access to the building's population (i.e. travel agent, deli, etc.).
Non-Conforming Use
The occupation and use of a property in a fashion which is contrary to the zoning regulations for the property. A Legal Non-conforming Use is one where the nonconforming use predates the zoning by-law such that, as long as it is continued, it is legal.
Non-Discretionary Funds
Funds allocated to an investment manager requiring the investor's approval on each transaction.
Non-Investment-Grade CMBS
Securities rated "BB" or "B," also referred to as high-yield CMBS.
Non-Performing Loan
A loan that is unable to meet its contractual principal and interest payments
Non-Recourse Loan
A loan which bars a lender from seeking a deficiency judgment against a borrower in the event of default. The borrower is not personally liable if the value of the collateral for the loan falls below the amount required to repay the loan.
Normal Wear and Tear
The deterioration or loss in value caused by the tenant's normal and reasonable use. In many leases the tenant is not responsible for "normal wear and tear".
Occupancy Agreement
An agreement between a member and the co-op that acts as a contract between the two parties. The occupancy agreement outlines the obligations of the member to the co-op, and the obligations of the co-op to the member.
Offer
Term used to describe a stated price or spread to sell whole loans or securities.
Open Listing
A listing agreement which provides that a broker will be paid if he sells the property, but will not get paid if sold by another including other brokers. Owners sometimes enter into multiple open listings.
Open Space
An unimproved area of land or water, or containing only such improvements as are appropriate to the use and enjoyment of the open area, and dedicated for public or private use or enjoyment or for the use and enjoyment of owners and occupants of land adjoining or neighboring such open spaces.
Open-End Fund
A commingled fund that does not have a finite life, continually accepts new investor capital and makes new property investments.
Operating Cost Escalation
Although there are many variations of escalation clauses, all are intended to adjust rents by reference to external standards such as published indexes, negotiated wage levels, or expenses related to the ownership and operation of buildings. During the past thirty years, Landlords have developed the custom of separating the base rent for the occupancy of the leased premises from escalation rent. This technique enables the landlord to better ensure that the "net" rent to be received under the lease will not be reduced by the normal costs of operating and maintaining the property. The landlord's definition of Operating Expenses is likely to be broad, covering most costs of operation of the building. Most landlords pass through proper and customary charges, but in the hands of an overly aggressive landlord, these clauses can operate to impose obligations which the tenant would not willingly or knowingly accept.
Operating Expense Escalation
Although there are many variations of operating expense escalation clauses, all are intended to adjust rents by reference to external standards such as published indexes, negotiated wage levels, or expenses related to the ownership and operation of buildings.
Operating Expenses
The actual costs associated with operating a property including maintenance, repairs, management, utilities, taxes and insurance. A landlord's definition of operating expenses is likely to be quite broad, covering most aspects of operating the building.
Opportunistic
A phrase generally used by advisers and managers to describe investments in underperforming and/or undermanaged assets that hold the expectation of near-term increases in cash flow and value. Total return objectives for opportunistic strategies tend to be 20 percent or higher. Opportunistic investments typically involve a high degree of leverage - typically 60 percent to 100 percent on an asset basis and 60 percent to 80 percent on a portfolio basis.
Option
In finance, an option is a contract whereby the contract buyer has a right to exercise a feature of the contract (the option) on or before a future date (the exercise date). The 'writer' (seller) has the obligation to honour the specified feature of the contract. Since the option gives the buyer a right and the seller an obligation, the buyer has received something of value. The amount the buyer pays the seller for the option is called the option premium.
Original Basis
The total amount paid for a property, including equity capital and the amount of debt incurred.
Originator
A company that sources and underwrites commercial and/or multifamily mortgage loans.
Out-Parcel
Individual retail sites in a shopping center.
Overallotment
A practice through which underwriters offer and sell more shares than they have agreed to buy from the issuer.
Parking Ratio or Index
The intent of this ratio is to provide a uniform method of expressing the amount of parking that is available at a given building. Dividing the total rentable square footage of a building by the building's total number of parking spaces provides the amount of rentable square feet per each individual parking space (expressed as 1/xxx or 1 per xxx). Dividing 1000 by the previous result provides the ratio of parking spaces available per each 1000 rentable square feet (expressed as x per 1000).
Partial Sales
The sale of an interest in real estate that is less than the whole property. This may include a sale of easement rights, parcel of land or retail pad, or a single building of a multibuilding an investment.
Partial Taking
The taking of part (a portion) of an owner's property under the laws of eminent domain.
Participating Debt
In addition to collecting a contract interest rate, participating debt allows the lender to have participatory equity rights through a share of increases in income and/or increases in residual value over the loan balance or original value at the time of loan funding.
Party In Interest
Under ERISA's 2002 Modernization Act: Parties in interest include employers, unions and, in certain circumstances, fiduciaries. It excludes service providers and their affiliates. Fiduciaries would only be partiesin interest where they act on behalf of a plan sponsor in entering into a transaction. An affiliate of a party in interest does not include remote affiliates of employers, unions and fiduciaries (e.g., 10 percent owners), as well as employees of such remote affiliates.
Pass Throughs
Refers to the tenant's pro rata share of operating expenses (i.e. taxes, utilities, repairs) paid in addition to the base rent.
Pass-Through Certificate
Payments of principal and interest from the underlying pool of mortgages are passed through to the holders of the certificates.
Passive Income
Passive income is income from business activities in which the taxpayer does not materially participate, and all rental activities (except those of qualified real estate professionals). See also "Active Income" and "Portfolio Income".
Passive Losses
Losses from the ownership of passive investments.
Payout Ratio
The percentage of the primary earnings per share, excluding extraordinary items, paid to common stockholders in the form of cash dividends during the trailing 12 months.
Pension Liability
The total amount of capital required to fund vested pension fund benefits.
Per autre vie
A life estate measured by the life of another person rather than the life of the tenant.
Percentage Lease
Refers to a provision of the lease calling for the landlord to be paid a percentage of the tenant's gross sales as a component of rent. There is usually a base rent amount to which "percentage" rent is then added. This type of clause is most often found in retail leases.
Percentage Rent
Rent payable under a lease that is equal to a percentage of gross sales or gross revenues received by the tenant. It is commonly used in retail center leases.
Performance
The quarterly changes in fund or account values attributable to investment income, realized or unrealized appreciation, and the total gross return to the investors both before and after investment management fees. Formulas for calculating performance information are varied, making comparisons difficult.
Performance Bond
A surety bond posted by a contractor guaranteeing full performance of a contract with the proceeds to be used to complete the contract or compensate for the owner's loss in the event of nonperformance.
Performance Measurement
The process of measuring an investor's real estate performance in terms of individual assets, advisers/managers and portfolios. The scope of performance measurement reports varies among managers, consultants and plan sponsors.
Performance-Based Fees
Fees paid to advisers or managers based on returns to investors, often packaged with a modest acquisition and asset-management fee structure.
Periodic Cash Flow
The amount of income received periodically (rents, dividends, etc.).
Permanent Loan
The long-term mortgage on a property.
Perpetual Renewal
Leaseholds capable of unending renewal.
Physical Depreciation
A property's loss of value resulting from wear and tear, disintegration, or action of the elements.
Plan Sponsor
The entity that establishes, contributes to and is responsible for the administration of an employee benefit plan, often used interchangeably to describe staff who administer the plan and trustees or investment board members who govern it.
Plat (Plat Map)
Map of a specific area, such as a subdivision, which shows the boundaries of individual parcels of land (e.g. lots) together with streets and easements.
Point-of-Sale Inspection
Ordinance requiring that a structure pass a building inspection before a real estate purchase transaction closes.
Portfolio Management
The portfolio management process involves formulating, modifying and implementing a real estate investment strategy in light of an investor's broader overall investment objectives. It also can be defined as the management of several properties owned by a single entity.
Portfolio Turnover
The average time from the funding of an investment until it is repaid or sold.
Positive Leverage
Borrowed funds are invested at a rate of return higher than the cost of the funds to the borrower.
Power Of Sale
Clause inserted in a mortgage or deed of trust giving the mortgagee (or trustee) the right and power, on default in the payment of the debt secured, to advertise and sell the property at public auction.
Precast Concrete
Concrete components (i.e. walls) of a building which are fabricated at a plant site and then shipped to the site of construction.
Preferred Shares
Stocks that have prior claim on distributions (and/or assets in the event of dissolution) up to a definite amount before the common shareholders are entitled to anything. As a form of ownership, preferred shareholders fall behind all creditors in dissolutions.
Preleased
Refers to space in a proposed building that has been leased before the start of construction or in advance of the issuance of a Certificate of Occupancy.
Prepayment Rights
Rights given to the borrower to make partial or full payment of the total principal balance prior to the maturity date without penalty.
Price to Earnings (PE) ratio
This ratio is calculated by dividing the current share price by the sum of the primary earnings per share from continuing operations, before extraordinary items and accounting changes, over the past four quarters.
Primary Issuance
The initial financing of an issuer.
Prime Space
This typically refers to first generation (new) space that is currently available for lease and which has never before been occupied by a tenant.
Prime Tenant
The major tenant in a building or, the major or anchor tenant in a shopping center serving to attract other, smaller tenants into adjacent space because of the customer traffic generated.
Principal Payments
The return of invested capital to the lender.
Private Placement
A sale of a security in a manner that is exempt from the registration rules and requirements of the Securities and Exchange Commission. An example would be a REIT directly placing an issue of stock with a pension fund.
Private REIT
An infinite- or finite-life real estate investment company structured as a real estate investment trust. Shares are placed and held privately rather than sold and traded publicly.
Pro Rata
Proportionately; according to measure, interest, or liability. In the case of a tenant, the proportionate share of expenses for the maintainenance and operation of the property. See also "Common Area" and "Operating Expenses".
Probate Court
A division of the Circuit Court that handles matters dealings with wills, administration of estates, guardianships, conservators, mental health procedures, sexually violent predator actions, and inheritance.
Producer Price Index (PPI)
An economic index that measures the price of goods at the wholesale level. It is one of the two most important ways to measure inflation (along with the CPI).
Production Acres
The area of land that can be used in agriculture or timber operations to produce income, not including areas used for crop or machinery storage, or other support areas.
Prohibited Transaction
ERISA defines the following transactions as prohibited between a pension plan and a party in interest: the sale, exchange or leasing of any property; a loan or other extension of credit; and the furnishing of goods or services. Other prohibited transactions include the transfer of plan assets to a party in interest or use of plan assets by a party in interest, and the acquisition of employer real property in excess of limits set by ERISA.
Promissory Estoppel
The doctrine of promissory estoppel prevents one party from withdrawing a promise made to a second party if the latter has reasonably relied on that promise and acted upon it.
Promissory Note
Legally binding contract between a lender and a borrower. The promissory note contains the terms and conditions of the loan, including how and when the loan must be repaid.
Proprietary Lease
A rental agreement between a cooperative housing corporation and a share holder allowing use of a certain unit in the premises.
Proration
The allocation of property taxes, interest, insurance premiums, rental income, etc., between buyer and seller proportionate to time of use.
Prudent Man Rule
The standard to which a fiduciary is held accountable under ERISA. "Act with the care, skill, prudence and diligenceunder the circumstances then prevailing that a prudent man, acting in a like capacity and familiar with such matters, would use in the conduct of an enterprise of a like character and with like aims."
Punch List
An itemized list, typically prepared by the architect or construction manager, documenting incomplete or unsatisfactory items after the contractor has notified the owner that the tenant space is substantially complete.
Pyramid Zoning
Zoning that permits more than one type of realty use; once new zoning is permitted, the old zoning is retained.
Qualified Fee
An estate in fee simple bound by limitations imposed by the grantor.
Quiet Title
A court action taken to establish title, often used to remove a cloud on the title.
Quitclaim Deed
This is a deed used to convey all interest, if any, held by the grantor in the property described in the quitclaim deed at the time the quit claim deed is executed. The quitclaim deed, unlike the grant deed, does not use the word "grant(s)" as operative conveyance language. The quitclaim deed is often used to renounce any claim to the property. The grantor, by signing the quitclaim deed, is not warranting any ownership interest. The quitclaim deed is very often used to clear a "cloud on the title" or to relinquish a purported interest held by the grantor, e.g., by virtue of the community property laws, etc. The quitclaim deed is a form of deed containing no warranties and conveying only the current right, titile and interest of the grantor, if any, to real property.
Rate of Return
The measure of profitability of an investment. It measures the income that may be obtained from an investment against its purchase price, or its current market price. The rate of return refers to either the yield to maturity on a bond or the current income return of an investment such as a security. Also known as return on investment (ROI), or yield.
Rating
Grade, assigned by a rating agency, designating the credit quality or creditworthiness of the underlying assets.
Raw Land
Unimproved land that remains in its natural state.
Raw Space
Unimproved "shell space" in a building.
Real Estate Fundamentals
The factors driving the value of real property (i.e., the supply, demand and pricing for land and/or developed space in a given geographic or economic region or market.
Real Estate Investment Trust (REIT)
A business trust or corporation that combines the capital of many investors to acquire or provide financing for real estate. A corporation or trust that qualifies for REIT status generallydoes not pay corporate income tax to the IRS. Instead, it pays out at least 90 percent of its taxable income in the form of dividends.
Real Estate Owned (REO)
Real estate that has come to be owned by a lender, including real estate taken to satisfy a debt. Includes real estate acquired by lenders through foreclosure or, in settlement of some other obligation.
Real Property
Land, and generally whatever is erected or affixed to the land, such as buildings, fences, and including light fixtures, plumbing and heating fixtures, or other items which would be personal property if not attached.
Real Rate of Return
Yield to investors net of an inflationary factor. The formula for calculating the real rate of return is [(1 + nominal yield) / (1 + inflation rate)] - 1.
Recapture
(1) When the IRS recovers the tax benefit of a deduction or a credit previously taken by a taxpayer, which is often a factor in foreclosure since there is a forgiveness of debt. (2) As used in leases, a clause giving the lessor a percentage of profits above a fixed amount of rent; or in a percentage lease, a clause granting the landlord a right to terminate the lease if the tenant fails to realize minimum sales.
Recourse
The right of a lender, in the event of a default by the borrower, to recover against the personal assets of a party who is secondarily liable for the debt (e.g. endorser or guarantor).
Red Herring
The preliminary prospectus for an initial public offering. Before the registration statement becomes effective, underwriters may use the preliminary prospectus to market the offering. The preliminary prospectus, however, must bear a legend printed in red ink stating that the offering has been filed but is not yet effective.
Regional Diversification
Definitions for what constitute various regions, for diversification purposes, vary among managers, consultants and plan sponsors. Some boundaries are defined based purely on geography; others have attempted to define boundaries along economic lines.
Rehab
An extensive renovation of a building or project which is intended to cure obsolescence of such building or project.
Renewal Option
A clause giving a tenant the right to extend the term of a lease, usually for a stated period of time and at a rent amount as provided for in the option language.
Renewal Probability
Used to estimate leasing-related costs and downtime, it is the average percentage of tenants in a building that are expected to renew at market rental rates upon the expiration of their leases.
Rent
Compensation or fee paid, usually periodically (i.e. monthly rent payments, for the occupancy and use of any rental property, land, buildings, equipment, etc.
Rent Commencement Date
The date on which a tenant begins paying rent. The dynamics of a marketplace will dictate whether this date coincides with the lease commencement date or if it commences months later (i.e., in a weak market, the tenant may be granted several months free rent). It will never begin before the lease commencement date.
Rent-Up Period
That period of time, following construction of a new building, when tenants are actively being sought and the project is approaching its stabilized occupancy.
Rentable Square Footage
Rentable Square Footage equals the Usable Square Footage plus the tenant's pro rata share of the Building Common Areas, such as lobbies, public corridors and restrooms. The pro-rata share, often referred to as the Rentable/Usable (R/U) Factor, will typically fall in a range of 1.10 to 1.16, depending on the particular building. Typically, a full floor occupancy will have an R/U Factor of 1.10 while a partial floor occupancy will have an R/U Factor of 1.12 to 1.16 times the Usable Area.
Rentable/Usable Ratio
That number obtained when the Total Rentable Area in a building is divided by the Usable Area in the building. The inverse of this ratio describes the proportion of space that an occupant can expect to actually utilize/physically occupy.
Rental Concession
Concessions a landlord may offer a tenant in order to secure their tenancy. While rental abatement is one form of a concession, there are many others such as: increased tenant improvement allowance, signage, lower than market rental rates and moving allowances are only a few of the many. See also "Abatement".
Rental Growth Rate
The expected trend in market rental rates over the period of analysis, expressed as an annual percentage increase.
Replacement Cost
The estimated current cost to construct a building with utility equivalent to the building being appraised, using modern materials and current standards, design and layout.
Replacement Reserves
An allowance that provides for the periodic replacement of building components that wear out more rapidly than the building itself and must be replaced during the building's economic life.
Representation Agreement
An agreement between the owner of a property and a real estate broker giving the broker the authorization to attempt to sell or lease the property at a certain price and terms in return for a commission, set fee or other form of compensation. See also "Exclusive Listing Agreement".
Request for Proposal (RFP)
The formalized Request for Proposal represents a compilation of the many considerations that a tenant might have and should be customized to reflect their specific needs. Just as the building's standard form lease document represents the landlord's "wish list", the RFP serves in that same capacity for the tenant.
Rescission
The cancellation or annulment of a transaction or contract by the operation of a law or by mutual consent. Borrowers usually have the option to cancel a refinance transaction within three business days after it has closed.
Reserve Account
An account that a borrower has to fund to protect the lender. Examples include capital expenditure accounts and deferred maintenance accounts.
Retention Rate
The percent of trailing 12-month earnings that have been ploughed back into the company. It is calculated as 100 minus the trailing 12-month payout ratio.
Return on Assets
The income after taxes for the trailing 12 months divided by the average total assets, expressed as a percentage.
Return on Equity
The income available to common stockholders for the trailing 12 months divided by the average common equity, expressed as a percentage.
Return on Investments
The trailing 12-month income after taxes divided by the average total long-term debt, other long-termliabilities and shareholders equity, expressed as a percentage.
Revenue Per Available Room (RevPAR)
Total room revenue for the period divided by the average number of available rooms in a hospitality facility.
Reversion Capitalization Rate
The capitalization rate used to determine reversion value.
Reversion Value
A lump-sum benefit that an investor receives or expects to receive at the termination of an investment.
Right Of First Refusal
See "First Refusal Right".
Risk Management
A systematic approach to identifying and separating insurable risks from non-insurable risks, and evaluating the availability and costs of purchasing third-party insurance.
Risk-Adjusted Rate of Return
Used to identify investment alternatives that can be expected to deliver a positive premium, after taking into consideration the expected volatility. The riskadjusted rate of return is defined as the expected rate of return of a given asset, less the expected return for T-bills, divided by the expected standard deviation of the returns for the assets.
Roll-over Risk
The risk that a tenant's lease will not be renewed.
Sale Leaseback
An arrangement by which the owner occupant of a property agrees to sell all or part of the property to an investor and then lease it back and continue to occupy space as a tenant. Although the lease technically follows the sale, both will have been agreed to as part of the same transaction.
Sales Comparison Value
A value indication derived by comparing the property being appraised to similar properties that have been sold recently.
Second Generation or Secondary Space
Refers to previously occupied space that becomes available for lease, either directly from the landlord or as sublease space. See also "First Generation Space.
Second Mortgage
A mortgage on property that ranks below a first mortgage in priority. Properties may have two, three, or more mortgages, deeds of trust, or land contracts as liens at the same time. Legal sequence priority, indicated by the date of recording, determines the designation first, second, third, etc.
Secondary Financing
A loan on real property secured by alien junior to an existing first mortgage loan.
Secondary Market
A market where existing mortgage loans are securitized and then bought and sold to other investors.
Securitization
The process of converting an illiquid asset, such as a mortgage loan, into a tradable form, such as mortgage-backed securities.
Security Deposit
A deposit of money by a tenant to a landlord to secure performance of a lease. This deposit can also take the form of a Letter of Credit or other financial instrument.
Seisen (Seizen)
Possession of real property under claim of freehold estate. This term originally referred to the completion of feudal investiture by which a tenant was admitted into the feud and performed the rights of homage and fealty. Presently it has come to mean possession under a legal right (usually a fee interest). As the old doctrine of corporeal investiture is no longer in force, the delivery of a deed gives seisin in law.
Senior Classes
With regard to securities, describes the classes with the highest priority to receive the payments from the underlying mortgage loans.
Separate Account
A relationship where an investment manager or adviser is retained by a single pension plan sponsor to source real estate product under a stated investment policy exclusively for that sponsor.
Servicer
An organization that acts on behalf of a trustee for the benefit of security holders.
Setback
The distance from a curb, property line or other reference point, within which building is prohibited.
Setback Ordinance
Setback requirements are normally provided for by ordinances or building codes. Provisions of a zoning ordinance regulate the distance from the lot line to the point where improvements may be constructed.
Shell Space
The interior condition of the tenant's usable square footage when it is without improvements or finishes. While existing improvements and finishes can be removed, thus returning space in an older building to its "shell" condition, the term most commonly refers to the condition of the usable square footage after completion of the building's "shell" construction but prior to the build out of the tenant's space. Shell construction typically denotes the floor, windows, walls and roof of an enclosed premises and may include some HVAC, electrical or plumbing improvements but not demising walls or interior space partitioning. In a new multi-tenant building, the common area improvements, such as lobbies, restrooms and exit corridors may also be included in the shell construction. With a newly constructed office building, there will often be a distinction between improvements above and below the ceiling grid. In a retail project, all or a portion of the floor slab is often installed along with the tenant improvements so as to better accommodate tenant specific under-floor plumbing requirements.
Site Analysis
The study of a specific parcel of land which takes into account the surrounding area and is meant to determine its suitability for a specific use or purpose.
Site Development
The installation of all necessary improvements, (i.e. installment of utilities, grading, etc.), made to a site before a building or project can be constructed upon such site.
Site Plan
A detailed plan which depicts the location of improvements on a parcel of land which also contains all the information required by the zoning ordinance.
Slab
The exposed wearing surface laid over the structural support beams of a building to form the floor(s) of the building or laid slab-on-grade in the case of a non-structural, ground level concrete slab.
Social Investing
Investments driven in whole or in part by social or political (non-real estate) objectives. Under ERISA, social investing is economically justified only if proper real estate fundamentals are considered first.
Soft Cost
That portion of an equity investment other than the actual cost of the improvements themselves (i.e. architectural and engineering fees, commissions, etc.) and which may be tax-deductible in the first year. See also "Hard Cost".
Space Plan
A graphic representation of a tenant's space requirements, showing wall and door locations, room sizes, and sometimes includes furniture layouts. A preliminary space plan will be prepared for a prospective tenant at any number of different properties and this serves as a "test-fit" to help the tenant determine which property will best meet its requirements. When the tenant has selected a building of choice, a final space plan is prepared which speaks to all of the landlord and tenant objectives and then approved by both parties. It must be sufficiently detailed to allow an accurate estimate of the construction costs. This final space plan will often become an exhibit to any lease negotiated between the parties.
Special Assessment
Any special charge levied against real property for public improvements (e.g., sidewalks, streets, water and sewer, etc.) that benefit the assessed property.
Specific Performance
A requirement compelling one of the parties to perform or carry out the provisions of a contract into which he has entered.
Specified Investing
Investment in individually specified properties or portfolios, or investment in commingled funds whose real estate assets are fully or partially specified prior to the commitment of investor capital.
Speculative Space
Any tenant space that has not been leased before the start of construction on a new building. See also "First Generation Space".
Stabilized Net Operating Income
Projected income less expenses that are subject to change but have been adjusted to reflect equivalent, stable property operations.
Stabilized Occupancy
The optimum range of long-term occupancy that an income-producing real estate project is expected to achieve after exposure for leasing in the open market for a reasonable period of time at terms and conditions comparable to competitive offerings.
Step-Up Lease (Graded Lease)
A lease specifying set increases in rent at set intervals during the term of the lease.
Straight Lease (Flat Lease)
A lease specifying the same, a fixed amount, of rent that is to be paid periodically during the entire term of the lease. This is typically paid out in monthly installments.
Strip Center
Any shopping area, generally with common parking, comprised of a row of stores but smaller than the neighborhood center anchored by a grocery store.
Subcontractor
A contractor working under and being paid by the general contractor. Often a specialist in nature, such as an electrical contractor, cement contractor, etc.
Subdivision Plat
A detailed drawing which depicts the manner in which a parcel of land has been divided into two or more lots. It contains engineering considerations and other information required by the local authority.
Sublessee
A person or identity to whom the rights of use and occupancy under a lease have been conveyed, while the original lessee retains primary responsibility for the obligations of the lease.
Subordinated Classes
With regard to CMBS, describes those classes with the lowest priority to receive payments from the underlying mortgage loans.
Subordination
The process of sharing the risk of credit losses disproportionately among two or more classes of securities.
Subordination Agreement
As used in a lease, the tenant generally accepts the leased premises subject to any recorded mortgage or deed of trust lien and all existing recorded restrictions, and the landlord is often given the power to subordinate the tenant's interest to any first mortgage or deed of trust lien subsequently placed upon the leased premises.
Surety
One who at the request of another, and for the purpose of securing to him a benefit, voluntarily binds himself to be obligated for the debt or obligation of another. Although the term includes guarantor and the terms are commonly, though mistakenly, used interchangeably, surety differs from guarantor in a variety of respects.
Surface Rights
A right or easement granted with mineral rights, enabling the possessor of the mineral rights to drill or mine through the surface.
Survey
The process by which a parcel of land is measured and its boundaries and contents ascertained.
Synthetic Lease
A transaction that appears as a lease from an accounting standpoint but as a loan from a tax standpoint.
Taking
A common synonym for condemnation or any actual or material interference with private property rights but it is not essential that there be physical seizure or appropriation.
Tax Base
The assessed valuation of all the real property that lies within the jurisdiction of a taxing authority, which is then multiplied by the tax rate or mill levy to determine the amount of tax due.
Tax Lien
A statutory lien, existing in favor of the state or municipality, for nonpayment of property taxes which attaches only to the property upon which the taxes are unpaid.
Tax Roll
A list or record containing the descriptions of all land parcels located within the county, the names of the owners or those receiving the tax bill, assessed values and tax amounts.
Tenant (Lessee)
One who rents real estate from another and holds an estate by virtue of a lease.
Tenant At Will
One who holds possession of premises by permission of the owner or landlord, the characteristics of which are an uncertain duration (i.e. without a fixed term) and the right of either party to terminate on proper notice.
Tenant Improvement
Improvements made to the leased premises by or for a tenant. Generally, especially in new space, part of the negotiations will include in some detail the improvements to be made in the leased premises by the landlord. See also "Leasehold Improvements", "Workletter".
Tenant Improvement (TI) Allowance or Work Letter
Defines the fixed amount of money contributed by the landlord toward tenant improvements. The tenant pays any of the costs that exceed this amount. Also commonly referred to as "Tenant Finish Allowance.
Tenant Mix
A phrase used to describe the quality of a property's income stream. In properties, institutional investors typically prefer a mixture of national credit tenants, regional credit tenants and local non-credit tenants.
Term
The lifetime of a loan.
Time Is Of The Essence
Means that performance by one party within the period specified in the contract is essential to require performance by the other party.
Title
The means whereby the owner of lands has the just and full possession of real property.
Title Insurance
A policy issued by a title company after searching the title and which insures against loss resulting from defects of title to a specifically described parcel of real property, or from the enforcement of liens existing against it at the time the title policy is issued.
Title Search
A review of all recorded documents affecting a specific piece of property to determine the present condition of title.
Total Acres
All land area contained within a real estate investment.
Total Assets
The sum of all gross investments, cash and equivalents, receivables, and other assets presented on the balance sheet.
Total Commitment
The full mortgage loan amount that is obligated to be funded if all stated conditions are met.
Total Inventory
The total amount of square footage of a type of property (i.e. office, industrial, retail, etc.) within a geographical area, whether vacant or occupied. This normally includes owner-occupied space.
Total Principal Balance
The total amount of debt, including the original mortgage amount adjusted for subsequent fundings, principal payments and other unpaid items (e.g., interest) that are allowed to be added to the principal balance by the mortgage note or by law.
Total Retail Area
Total floor area of a retail center less common areas. It is the area from which sales are generated and includes any department stores or other areas (such as banks, restaurants or service stations) not owned by the center.
Total Return
The sum of quarterly income and appreciation returns.
Trade Fixtures
Personal property that is attached to a structure (i.e. the walls of the leased premises) that are used in the business. Since this property is part of the business and not deemed to be part of the real estate, it is typically removable upon lease termination.
Triple Net (NNN) Rent
A lease in which the tenant pays, in addition to rent, certain costs associated with a leased property, which may include property taxes, insurance premiums, repairs, utilities, and maintenances. There are also "Net Leases" and "NN" (double net) leases, depending upon the degree to which the tenant is responsible for operating costs. See also "Gross Lease".
Trustee
The trustee oversees the flow of funds through the CMBS structure on behalf of the bondholders. The trustee is responsible for collecting principal and interest from the servicer, distributing payments to bondholders and reporting to bondholders.
Turn Key Project
The construction of a project in which a third party, usually a developer or general contractor, is responsible for the total completion of a building (including construction and interior design) or, the construction of tenant improvements to the customized requirements and specifications of a future owner or tenant.
Umbrella Partnership Real Estate Investment Trust (UPREIT)
Organizational structure where a REIT's assets are owned by a holding company for tax purposes.
Under Construction
When construction has started but the Certificate of Occupancy has not yet been issued.
Under Contract
A property for which the seller has accepted the buyer's offer to purchase is referred to as being "under contract". Generally, the prospective buyer is given a certain period of time in which to perform its due diligence and finalize financing arrangements. During the period of time the property is under contract, the seller is precluded from entertaining offers from other buyers.
Underwriter
A company, usually an investment banking firm, that guarantees or participates in a guarantee that an entire issue of stocks or bonds will be purchased.
Unencumbered
Describes title to property that is free of liens and any other encumbrances. Free and clear. See also "Encumbrances.
Unimproved Land
Most commonly refers to land without improvements or buildings but can also mean land in its natural state. See also, "Raw Land".
Usable Square Footage
Usable Square Footage is the area contained within the demising walls of the tenant space. Total Usable Square Footage equals the Net Square Footage x the Circulation Factor. Also see: Circulation Factor and Net Square Footage.
Use
The specific purpose for which a parcel of land or a building is intended to be used or for which it has been designed or arranged.
Vacancy Factor
The amount of gross revenue that pro forma income statements anticipate will be lost because of vacancies, often expressed as a percentage of the total rentable square footage available in a building or project.
Vacancy Rate
The total amount of available space compared to the total inventory of space and expressed as a percentage. This is calculated by multiplying the vacant space times 100 and then dividing it by the total inventory.
Vacant Space
Refers to existing tenant space currently being marketed for lease. This excludes space available for sublease.
Value-Added
A phrase generally used by advisers and managers to describe investments in underperforming and/or undermanaged assets. The objective is to generate 13 percent to 18 percent returns.
Variable Rate
A loan interest rate that varies over the term of the loan, usually tied to a predetermined index. Also called adjustable-rate.
Variance
Refers to permission that allows a property owner to depart from the literal requirements of a zoning ordinance that, because of special circumstances, cause a unique hardship. Included would be such things as the particular physical surroundings, shape or topographical condition of the property and when compliance would result in a practical difficulty and would deprive the owner of the reasonable use of the property.
Waiting Period
The time between the initial filing of a registration statement and its effective date.
Warranty Deed
A deed with the greatest protection as grantor warrants goods, marketable title, that he or she will stand by.
Warranty of Possession
This is the old "quiet enjoyment" paragraph, which of course had nothing to do with noise in and around the leased premises. It provides a warranty by Landlord that it has the legal ability to convey the possession of the premises to Tenant; the Landlord does not warrant that he owns the land. This is the essence of the landlord's agreement and the tenant's obligation to pay rent. This means that if the landlord breaches this warranty, it constitutes an actual or constructive eviction.
Weighted Average Rental Rates
The mean proportion or medial sum made out of the unequal rental rates in two or more buildings within a market area.
Weighted-Average Coupon
The weighted average of the gross interest rates of the mortgages underlying a pool as of the issue date, with the balance of each mortgage used as the weighting factor.
Weighted-Average Equity
The denominator of the fraction used to calculate investment-level income, appreciation and total returns on a quarterly basis, consisting of net assets at the beginning of the period adjusted for weighted contributions and distributions.
Working Drawings
The set of plans for a building or project that comprise the contract documents that indicate the precise manner in which a project is to be built. This set of plans includes a set of specifications for the building or project.
Workletter
A list of the building standard items that the landlord will contribute as part of the tenant improvements. Examples of the building standard items typically identified include: style and type of doors, lineal feet of partitions, type and quantity of lights, quality of floor coverings, number of telephone and electrical outlets, etc. The Workletter often carries a dollar value but is contrasted with a fixed dollar tenant improvement allowance that can be used at the tenant's discretion. See also Leasehold Improvements and "Tenant Improvements.
Workout
The process by which a borrower attempts to negotiate with a lender to restructure the borrower's debt rather than go through foreclosure proceedings.
Write Down
The accounting procedure used when the book value of an asset is adjusted downward to better reflect current market value.
Write-off
The accounting procedure used when an asset has been determined to be uncollectible and is therefore charged as a loss.
Yield
The effective return on an investment, as paid in dividends or interest.
Yield Maintenance Premium
A penalty, paid by the borrower, designed to make investors whole in the event of early redemption of principal.
Yield Spread
The difference in yields between a commercial mortgage and a benchmark value, typically U.S. Treasuries of the same maturity.
Zoning
The division of a city or town into zones and the application of regulations having to do with the structural, architectural design and intended use of buildings within such designated zone (i.e. a tenant needing manufacturing space would look for a building located within an area zoned for manufacturing).
Zoning Ordinance
Refers to the set of laws and regulations, generally, at the city or county level, controlling the use of land and construction of improvements in a given area or zone.
