Glossary of Terms

Abandonment – The voluntary relinquishment of an interest, claim, privilege or possession of property.

Abatement – A period of time when a renter takes possession of real property prior to or outside the time period of the primary term of the lease, also referred to as free rent or early occupancy.

Ad Valorem – From the Latin “according to value.” A tax imposed on a property as a percentage of the property’s value, usually based on the valuation of the property by the local government.

Adjusted Gross Income – Gross income of a building if fully rented, minus a percentage for estimated vacancies.

Adviser – An owner’s representative in a real estate transaction. An adviser may be a real estate broker, consultant or investment banker.  Advisers may be paid a retainer and/or a performance fee upon the close of a financing or sales transaction.

Alternative Or Specialty Investment – Unconventional property type that is not considered a standard institutional-grade real estate investment, such as self-storage units, mobile home parks, agricultural land, and parking lots.

Amenity – A natural or man-made feature that enhances the desirability of a property, such as a view, swimming pool or access to water, but that is not necessary to its use.

Apartment Conversion – When an apartment building is converted to individually owned units, such as a condominium.

Apartment Rehabilitation – The extensive renovation of an aging apartment building.

Application – The first step in the official loan approval process usually involves the form used to evaluate the potential borrower’s information needed for the underwriting process.

Appreciation – An asset’s increase in market value due to market changes, currency devaluation, or other economic factors.

As- Is Condition – A tenant’s or buyer’s acceptance of a property’s existing condition, including and regardless of any physical defects, at the time a sale/lease is contracted.

Assessment – A fee imposed on property owners, usually to pay for public improvements such as water, sewers, streets, or curb and sidewalk installations.

Assessor – A county or state government official who is responsible for determining the value of a property for the purpose of taxation.

Asset – Items of value owned by individuals or businesses, such as real property, cash, personal property.  Assets that can quickly be converted to cash are called “liquid assets” like stocks or similar equities.

Asset Management Or Property Management – The various disciplines involved with managing real property assets from the time of investment through the time of disposition.  Asset management includes appraising, acquisition, and financing; managing and leasing; operational and financial reporting; audits, market review and, ultimately, asset disposition.

Asset Management Fee – Fee charged for the management of a real estate investment, based on the amount invested into real estate assets for the fund or account, to the investors.

Assets Under Management – The total market value of real estate assets for which an asset or property manager has investment and asset management responsibility.

Assignee Name – Party or legal entity to which an asset, including any obligations attached to it such as leases, mortgages or other contracts, has been transferred.

Assignment – Transfer of the lessee’s interest in a property, including all of its obligations, as opposed to a sublease where the lessee transfers less than the lessee’s entire interest to the subletting party.   An assignment usually must be approved or consented to by the owner/landlord.

Average Common Equity – Calculation of total equity of a property by adding five most recent quarters and dividing by five.

Average Free Rent – The average monthly rent abatement allowed to a tenant as part of a lease incentive due to current market conditions.  An incentive commonly used in hard-to-rent areas or as a concession for tenant improvements.

Average Occupancy – The percentage of a property occupied over the preceding twelve (12) months divided by twelve (12). High occupancy rates are desired to maximize return on investment (ROI).

Bankrupt – The state of an entity or individual that is unable to repay its current obligations and debts.

Base Rent – A fixed amount of rent used as a basis for increasing the rent in the future, usually stated as a percentage of the base, over the term of the lease.

Base Year – Taxes and operating expenses for the first year of a lease. The base sets a foundation for follow-on years.

Basis Point – One-one hundredth of one percent.

Below-Grade – A portion of a building constructed below the surface “grade” level as defined by the building code.

Bid – An offer to buy.  In real estate, an offer for a building/house.

Blind Pool – A real estate investment fund that accepts investor capital without prior specification of what real estate will be invested in.

Broker – An intermediary licensed person who works between two or more parties connected to a transaction, such as real estate broker between the buyer and seller in a real estate sale.

Budget – A balance sheet or statement showing a detailed record of all income earned and spent during a specific period of time.

Buildable Acreage – The portion of a property measured in acres that is available to be built upon after subtracting for roads, setbacks, any open or green spaces and areas where the terrain or other factors make it unsuitable for building.

Building Code – The various regulations and laws set forth by the ruling government body as to the safety standards and construction standards. The code may dictate the criteria for allowable materials, construction and types of internal and external improvements.

Building Standard Plus Allowance – List of building standard materials and costs necessary to make a property suitable for occupancy.  The tenant can use the negotiated allowance to upgrade or customize the materials.

Build-Out – Tenant specified space improvements which take into account the amount of tenant finish allowance that the lease contract provides for.

Build-To-Suit – Leasing of a property where the developer or landlord builds to a tenant’s specifications.

Common Area Maintenance (CAM) – Maintenance charges for the upkeep of a building’s common areas, such lighting, insurance, and property taxes.

Capital Appreciation – A property’s or a group of properties’ change in market value adjusted for capital improvements and any partial sales.

Capital Expenditures – Investment of cash, or the borrowing of funds, for the expenditures resulting in the acquisition of or addition to fixed assets.

Capital Gain – The difference between the net proceeds from the sale of an asset or property and the asset’s or property’s book value.

Capital Improvements – Expenditures necessary to repair a property or to add new improvements and thus increase its life.

Cap Rate – An investor’s rate of return if the investor was to pay cash for a property with commercial income.

Carrying Charges – Incidental property ownership costs that a landlord absorbs during a building’s initial lease-up and during any vacancy periods afterwards.

Cash Flow – The net amount of cash generated by a company’s or property’s operation.  Net post-tax revenue minus expenses.

Certificate Of Occupancy – A local government agency’s or building department’s document certifying that a building and/or the leased area was inspected and found in a condition satisfactory for occupancy (usually after original construction or after a natural disaster).

Chain Of Title – An analysis of the history of a piece of property’s transfers of title.

Clear Title – A title to property that is free of liens or any legal questions or disputes as to the property’s ownership.

Cloud On Title – Any condition revealed by a title search that adversely affects the real property’s title despite the merits. Normally a cloud on title can’t be eliminated except by a quitclaim deed, release, or court action.

Co-Investment – Co-investment occurs 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.

Commercial Evaluation – A commercial appraiser will use Market Approach, Income Approach, or Cost Approach to Valuation to arrive at an opinion of value.

Commission – An amount, usually a percentage of the property sales/lease price, that is earned by a real estate professional as a fee for negotiating a real estate transaction.

Common Area – For lease purposes, the areas of a building and its grounds that are available for the non-exclusive use of all its tenants, such as stairwells, restrooms, lobbies, hallways, exterior walkways, and parking lots.

Comparables (Comps) – Other real estate properties with similar characteristics used to determine the fair market lease rate or sale price.

Comparative Market Analysis (CMA) – An estimate of the real estate value based on an analysis of sales of comparable properties in the same or similar geographical area.

Concessions – Cash or its equivalent, such as rental abatement, additional tenant finish allowance, or moving allowance, used by the landlord to persuade a potential tenant to sign a lease agreement.

Condemnation – A government’s process of taking private property through the power of eminent domain, without the consent of the owner, for public use.

Condominium – A form of property ownership in which buyers purchase and own a unit of housing in a multi-unit complex and share financial responsibility for the maintenance, taxes and insurance expenses of the common areas.

Condominium Hotel – A condominium that has rental units for short-term occupancy that is operated as a hotel with eating, cleaning and telephone connections as well as units that are owned by individuals.

Construction Management – The act of ensuring that all the stages of the construction project are completed on time and according to all the construction documents (sometimes performed by architects).

Contiguous Space – Multiple rental units that are next to each other on the same floor of a building, or a block of space located on multiple adjoining floors in a building, that can be combined and rented to a single tenant.

Contract Rent – The lessee’s monetary rental obligation, sometimes called face rent, specified in a lease.

Contract Sale Or Deed – A real estate agreement that does not take effect or transfer the title until certain conditions are met.

Cost-Approach (Improvement Value) – The current cost to build a replacement for an existing structure minus any accrued depreciation

Cost-Approach (Land Value) – The estimated value of the fee simple interest in land as if vacant and able to be developed to its best and highest use.

Cost-Of-Sale Percentage – The total cost of selling an investment property, denoted as a percentage of sales price, including broker’s commissions, fees, closing costs and other expenses relating to the sale.

Covenant – A written agreement inserted into a property’s deed or other legal instruments dictating a property’s uses, restrictions, or performance of certain acts or obligations related to the property.

Current Occupancy – The percentage of a property’s currently leased area or units out of the property’s total area or units.

Deal Structure – How a financing package for an acquisition is designed. Deals can be unleveraged or leveraged; traditional, participatory, or convertible debt; or joint venture.

Dedicate – To convert privately owned property to public ownership for a public use.

Deed – A legal instrument that transfers ownership title to real estate property from a seller to a buyer.

Demising wall – A fixed partition wall that defines the separation of one tenant’s space from another tenant or from the building’s common area.

Depreciation – In accounting, a periodic allowance for an asset’s real or implied loss in value due to wear, age and other factors.  In real estate, a decline in the value of property – the opposite of appreciation.  Depreciation can occur in real estate due to factors beyond the real property’s boundaries, such as the condition of the surrounding neighborhood.

Design/Build – A company (usually construction contractor) that is responsible for both the design and construction of a property.

Discretion – The amount of authority an adviser or manager has over the management and investment of a client’s account.

Diversification – The process of designing an investment portfolio to insulate against the risks of reduced interest yield or capital loss through allocating the individual investments among a several types of assets, each with different characteristics.

Dollar Stop – A maximum agreed-upon amount each commercial tenant will pay on a prorated basis for taxes and operating expense.

Due Diligence – Investigative activities carried out by a potential buyer of real property to assure that the property is as the seller represented, that all documents are true, no material is left out, and it is not subject to structural, environmental or other problems.

Earnest Money Deposit – The monetary deposit against the purchase of a property to show the buyer’s intention to fulfill a contract. Earnest money becomes part of the down payment if the offer is accepted, is returned if the offer is rejected by the seller, or is forfeited if the buyer rescinds their offer.

Easement – A right created by grant, reservation, agreement, or prescription to allow other parties to access someone else’s property.

Effective Date – A registration statement becomes effective and the sale of securities can start on that date.

Effective Gross Income (EGI) – The total income from a property from rents and other sources, minus any appropriate or established vacancy factor.  EGI is expressed as collected income before expenses and debt service.

Effective Gross Rent (EGR) – Net rent realized after subtracting any tenant improvements and other capital costs, lease commissions and other sales expenses.

Effective Rent – The actual rent achieved by the landlord after subtracting any concessions allowed to a tenant, usually expressed as an average rate over the lease’s term.

Eminent Domain – A government’s power to acquire or “take” the property owned by a private party by condemnation for a public use. In return, the government must pay just compensation of the current market value.

Encroachment – When a structure extends over the boundary/property line, easement boundary or building setback line of an adjacent property, without permission of the adjacent property’s owner,

Endorsement – An addition made to alter or clarify a document.  This is typically seen in a title policy or insurancepolicy.

Engineering Report – A report on the current physical condition of a real property and its major building systems, such as HVAC, exterior walls, structural components, parking lot, plumbing, electrical roof systems and appurtenances, created by an engineer or architect. The report can also estimate cost for any necessary replacement reserves.

Environmental Report – A report done by an environmental engineer following a study to reveal any known toxic contamination sites on or near the subject real property.  A Phase I report includes a research of the public environmental databases plus a physical site inspection. The report provides lenders with an analysis of the data and recommendations for the lender. The more inclusive Phase II report has the addition of an analysis of soil samples from the property. The soil samples are to detect any actual toxic contamination in the soil or ground water.

Escalation Clause – A clause in a lease contract that calls for an increase in rent to reflect increases in expenses, such as real estate taxes and operating costs, paid by the landlord. Also a clause in a purchase offer for a property that allows the offer to be automatically raised if a higher offer is received.

Estate – An individual’s legal ownership interest in real property.  Can be defined as the total of all real and personal property a person owns at their time of death.

Exclusive Agency Listing – A written contract between a property owner and a real estate broker in which the owner agrees to pay a fee or commission to the broker if the specified real property is leased/sold during the listing period.

Furniture, Fixtures & Equipment – Personal or business property which is used in the real property but which is not valued as part of the real property.

Facility Space – The floor area in a hospitality property dedicated to operating departments such as restaurants, bars, health clubs, coffee shops and gift shops that serve the guests or the general public in a way that is not directly related to room occupancy.

Fair Housing Act – The Federal law that prohibits discrimination in all facets of the home buying process on the basis of race, color, national origin, religion, sex, familial status, or disability.

Fair Market Value (FMV) – The amount at which a property or asset could be bought or sold between a willing buyer and willing seller – arms-length transaction, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts or being well informed of all material facts.  Not a forced or liquidation sale amount.

First Refusal, or Right Of First Refusal – A lease or contract right providing a tenant or buyer the first opportunity to buy a property or lease additional space in a property.

Fee Simple – The legal term defining complete ownership of real property without any limitations or conditions. The ownership of the property goes to the owner’s heirs upon their death intestate.

First-Generation Space – Generally refers to rental/leased space that has not been occupied by a tenant before.

Fixed Costs – Costs that are not affected by the level of sales or production.

Fixture – Personal property that turns into real property when attached in a permanent manner to real estate.

Flat Fee – A manager’s fee for managing a portfolio of real estate assets, usually stated as a flat percentage of the asset’s gross or net value, or invested capital.

Flex Space – A building that provides a changeable or flexible configuration allowing occupants or tenant’s flexibility in apportioning the amount of office or showroom space to the manufacturing, warehouse, or distribution space.

Float – A financial term defined as using funds generated as a result of timing differences in the banks’ check-clearing system.  This is common component in the insurance industry.

Flood Hazard Zone – Federal law defines this requirement as a land area that might experience damage from flooding for the purposes of insuring properties.  Lenders taking an interest in real property are compelled, by the National Flood Insurance Reform Act of 1994, to complete FEMA’s flood hazard determination form and retain a record of the form.  A lender is required to have flood insurance and have notice requirement obligations for any collateral property located in a designated flood hazard area.

Floor Area Ratio (FAR) – The ratio of the gross square footage of a building to the square footage of the land or defined lot on which it is situated.

Force Majeure – A natural force that cannot be controlled by the parties to a contract and prevents them from fulfilling the obligations of the contract. “Acts of God”, such as lightning, flood, storm, freezing or a hurricane, or “acts of man” such as a strike, fire, nuclear first strike or war.

Full-Service Rent – Rent that includes or incorporates all of the first year’s operating expenses and real estate taxes. Tenants are generally still responsible for any increases in operating expenses over base year amounts.

Funds From Operations (FFO) – A financial ratio that compares the cash generated by a company’s real estate portfolio relative to its total operating cash flow. FFO is equal to net income plus depreciation and amortization, less gains (or losses) from debt restructuring and property sales.

Future Proposed Space – Space in a proposed commercial development upon which the building has not yet started or where date for construction start has not been set.  May refer to the phases of a multi-phase project that are as yet not built (an example is sometime one can see a dirt lot with a sign that says “Build To Suit” or “Future Home of ABC Company”).

General Contractor – The contractor who contracts with the property owner for the overall construction of a building or project.  A subcontractor contracts with the general contractor for a portion of the construction project.  In addition to hiring subcontractors, a general contractor coordinates all work, is responsible for paying the subcontractors and enforcing the subcontracts.

General Partner – A member, sometimes the only active member, of a partnership who is authorized to bind and contract for the partnership and share in the partnership’s profits or losses.  The states’ corporations’ code defines the rights and responsibilities of general partners.

Going-In Capitalization Rate (Estimated Cap Rate) – The capitalization rate or cap rate computed by taking a property’s projected net operating income from the first year and dividing it by the property’s value.  It is one method of determining a property’s value.

Graduated Lease – A lease, typically long-term in nature, in which rent varies, primarily increasing, depending upon future contingencies and conditions, such as inflation, operating expenses and taxes.

Gross Building Area – The sum of each floor’s square footage, including basements, mezzanines and penthouses included within the main outside faces of the exterior walls.

Gross Investment In Real Estate (Historic Cost) – The total sum of equity and debt invested in a real estate property investment, including the gross purchase price, any acquisition expenses, and subsequent capital improvements, minus the proceeds from sales and partial sales of the property.

Gross Leasable Area – The portion of total floor area designed for tenant occupancy and exclusive use, including storage areas that produce rental income.

Gross Lease – A lease in which the tenant pays a flat amount for rent. From this rent, the landlord pays all expenses such as taxes, insurance, maintenance, and utilities.

Gross Real Estate Value (Asset Value) – The total market value of all the real estate investments under management in a fund or individual accounts or individual portfolio.  Typically included is the total value of all equity positions, debt positions and ownership positions in joint ventures, and the amount of any mortgages or notes payable related to those assets.

Gross Real Estate Investment Value – The total market value of real estate investments in a portfolio not including debt, equal to the total of real estate investments as shown on a market-value basis on an assets and liabilities statement.

Gross Returns – Returns generated from the operation of real estate before subtracting fees like management fees.

Ground Rent – Rent paid to a property’s owner for use of land by lessee, usually on which to construct a building.  Generally, the arrangement is that of a long-term or 99 year ground lease in which the lessor retains title to the land.

HVAC – Heating, Ventilation and Air Conditioning.  The HVAC contractor installs the heater, or air conditioning system in a building.

Hard Cost – Actual cost of building property improvements or building structure not including the land.

Hazard Insurance – Insurance against losses caused by perils or hazards which are commonly covered in policies described as a “Homeowner Policy”.

High-Rise – As defined by the building code in a downtown commercial district, this is usually described as a building 25 or more stories above ground level.  In suburban areas, it usually a building more than seven or eight stories high.

Highest And Best Use – The reasonably probable and legal use of vacant land or an improved property that gives it the highest value for what is physically possible and financially feasible to build and appropriately support.  An appraiser is sometimes charged to determine the highest and best use of a vacant lot to determine maximum value.

Holding Period – The amount of time an investor plans to retain ownership of a property after buying and before selling for financial planning.

Hold-Over Tenant – A tenant retaining possession of a leased property after a lease’s expiration as defined in the law of property.

Home Inspection – Usually performed during a typical real estate transaction is defined as an examination of a building’s structure and mechanical systems to determine a home’s safety.  A home inspection helps to make the potential homebuyer aware of any repairs that may be needed.

Homeowner’s Insurance – Insurance that covers damage to the insured’s home and personal assets included in the policy’s coverage subject to exceptions and exclusions.  Liability claims made against the insured are subject to the policy terms, conditions, provisions; losses not insured provision and exclusions.

Home Warranty – A warranty that offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner’s insurance subject to exclusions and exceptions.  Coverage extends for a specific period of time and does not include the home’s structure.

Homeowner Insurance – An insurance policy that combines protection against damage to a dwelling and its contents along with protection against claims of negligence or inappropriate action that resulted in someone’s personal injury or property damage.

Implied Cap Rate – Net operating income divided by a property’s amount of equity market capitalization and outstanding debt.

Improvements – In the context of a lease, the improvements made to or inside a property, but can also include any permanent structure or a street, curbs, sidewalk, or utility upgrade.

Incentive Fee – A fee structure where the amount of fee that is charged is determined by the performance of the real estate assets under management.

Income Capitalization Value – A property valuation calculated for an income-generating property by directly capitalizing the expected income or by discounting the yearly cash flows for the holding period at a specified yield rate.  Also known as a Cap-Rate value.

Income Property – Real estate that produces a positive cash flow from operations.

Income Return – A percentage value for the total return that is created by an operation’s income from property, a fund or an account.

Indirect Costs – In cost accounting, the method of allocating developmental or administrative costs, such as administrative salaries and office expenses, and financing costs, to various cost centers, product lines or projects being tracked.  Direct costs, such as material and labor, are directly allocated to their specific cost centers.

Individual Account Management – The accounts established by a firm serving as an adviser or manager in purchasing and/or managing a real estate portfolio for investing in real estate, or for companies sponsoring individual plans or for other investors using real estate as their investment vehicle.

Inflation – The annual rate at which consumer prices increase (government’s definition), the annual loss in purchasing power of fiat currency due to deflationary monetary policies and actions of a central bank, such as the Federal Reserve (The Fed).

Inflation Hedge – An investment intended to retain or increase the value of an investment at a rate greater than inflation and preserve wealth and the purchasing power of a portfolio, usually a flight of capital from currency to commodities and real estate.

Initial Public Offering (IPO) – The first time a private corporation offers to sell its shares to the public on a public exchange.

Institutional-Grade Property – Real estate properties that tax-exempt institutional investors will purchase or finance. Properties usually include office, retail, industrial and apartments. Specialty properties include hotels, health care facilities, land beneath leased properties, undeveloped land, and mixed-use properties (such as property that has retail on first floor and residential on second floor).

Insurance – Financial protection against a specific loss over a period of time that is secured by the payment of regularly scheduled premium payments.

Internal Rate Of Return (IRR) – A discounted cash-flow analysis calculated to figure the potential overall return of a real estate asset during its anticipated period of ownership.

Investment Manager – Any legal entity or individual that has discretionary authority for the management and investment of a specified amount of real estate capital, assets and potential to invest that capital through a separate account, joint venture program or commingled fund in assets.

Investment Strategy – The investment principles used by an investment manager in structuring an investment fund’s or account’s portfolio and selecting the real estate assets for it. 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.

Joint Venture – An investment entity formed under contract by two or more parties to pursue a specific business opportunity, such as purchase or develop and manage real property and/or other assets, and share in the profits or losses of the venture.  JV’s are codified in state corporation’s codes.

Jumbo Mortgage – mortgage loan on a home where the loan value exceeds the standard limits for conforming loans set by Fannie Mae and Freddie Mac, the government-sponsored institutions that buy loans from banks.  As a result, the interest rates on these loans are higher because lenders don’t have the assurance that Fannie or Freddie will guarantee the purchase of the loans.  If the loan value exceeds the conforming limit, there’s no assurance that Fannie and Freddie will guarantee the purchase of the loan. Brokers and lenders must be willing to take on greater risk to fund jumbo mortgages.

Just Compensation – Compensation which is fair to both the owner of private property and the public when the property is “condemned” for public use through eminent domain.  Taken into consideration is the cost of reproducing the property, its fair market value and any resulting damage to the owner’s remaining property.

Kiting Or Check Kiting – An illegal practice of writing a check against insufficient funds that takes advantage of the float, the time between when a check is written and deposited in one bank and when it is presented for collection at another bank.

Knock-Down – To assign a sale to a bidder at a property auction by a knock or blow of the auctioneer’s hammer, or by any audible or visible announcement signifying to the bidder that he has the winning bid and is entitled to the property.

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 force rent payment or the fulfillment of some other lease obligation.

Lease – A written contract in which the owner, landlord or lessor of real property provides the use of a property to another party for a specified time period and for a specified value.

Lease Agreement – The formal legal contract entered into by a landlord and a tenant that defines the negotiated terms of a rental transaction.

Lease Assignment – An agreement between a property owner and a lender that assigns lease payments directly to the lender.

Lease Commencement – The date usually constitutes the beginning of a lease’s term, regardless of whether the tenant actually occupies the property on that date, as long as beneficial occupancy is available.

Leasehold Interest – The lessee’s right to use the leased property for a fixed period of time at a given price, without transfer of ownership.

Lease Option To Purchase – An agreement that assists low- to moderate-income homebuyers in purchasing a home by allowing them to lease it first with an option to buy. The rent payment is made up of the monthly rental payment plus an additional amount that is credited to a separate account for use as a down payment.

Leasehold Improvements – The cost of improvements for a leased property, often paid by the lessee, which define the amount of improvements added during leasehold period.

Leverage – The ability to control an investment by a small amount of capital outlay, such as a deposit or down payment.  The borrowing of funds to finance part of the purchase or development costs of a real-estate investment.

Lifecycle – A property’s developmental stages: planning, development, construction, leasing, operating and redevelopment, renovation or rehabilitation.

Like-Kind Property – A term used in an exchange of similar investment properties held for productive use in a trade or business or for investment. Section 1031 of the Internal Revenue Code postpones the tax consequences of the exchange unless cash or boot is received.

Limited Partnership – A partnership made up of one or more general partners and one or more limited partners.  General partners manage the partnership’s business and assume personal liability for the partnership’s debts.  Limited partners contribute capital and share in profits but remain “silent partners” who take no active part in running the business and limit their liability to their investment contribution.

Liquidity – The ability of a business or person to convert their assets into cash, preferably without any loss in value.

Listing Agreement – A written contract between a real estate broker and a property owner giving the broker authority to offer for sale or lease the property at a specified price or price range and terms in return for compensation, such as a commission.

Long-Term Lease – Commonly a lease whose term is three or more years from the date of initial signing to the date of expiration or renewal.

Lot – Generally a fractional part of a subdivision; one of several contiguous pieces of land making up a subdivided part of a block, the boundaries of which are on recorded plat or survey maps at the county where the parcel is located.

Low-Rise – A building four or less stories above ground level as defined by the building or zoning code.

Lump-Sum Contract – A construction contract that requires a general contractor to finish a building or project at a fixed cost.  Normally the fixed cost is established by competitive bidding and the contractor absorbs any loss or retains any profit.

Market Rental Rates – The rental income that a property most likely would command in the open market, as dictated by the current rents demanded and paid for at comparable spaces.  Market rents can be lower or higher than the actual rents.

Market Study – A study of current real estate trends to build a forecast of future demands for a certain type of real estate project, including a square footage estimate that can be absorbed and rents that can be charged.

Market Value – The highest price a property would command in a competitive and open market under all conditions requisite to a fair arm’s length sale.

Marketable Title – A property’s title free from all encumbrances that can be readily marketed and transferred.

Master Lease – A primary lease, which controls any subsequent leases and may cover more property than the subsequent leases.

Mechanic’s Lien – A claim created by the statute for the purpose of securing priority of payment of the value or price of work performed and/or added to a property, and or materials furnished in erecting, fixing, rehabilitating or improving a building or other structure that is attached to the land.

Median Income – The middle income level where half of the income is higher than the median income and half of the income is lower than the median income.  Not average income.

Metes And Bounds – The boundary lines of land with terminal points and angles.  The way of describing real property by listing the compass directions and distances of the boundaries, usually along with the co-ordinates used in the Government Survey System.  “Bounds” means direction and “metes” means distance.

Mixed-Use – The using of a building or project for more than one use, such as a building with a first floor for commercial use and a second floor for residential use.

Multi-Family Unit – Real property containing two or more residential dwelling units, such as duplexes, tri-plexes, and apartment buildings.

Net Investment In Real Estate – Total real estate investment minus the balance of the outstanding debt.

Net Investment Income – A portfolio’s or legal entity’s income or loss calculated by deducting all expenses, including portfolio and asset management fees, but before realized and unrealized gains and losses on investments, from total income.

Net Net Lease (NN) – Leases that require the tenant to pay property taxes and insurance in addition to the rent.  Not a triple net lease.

Net Operating Income (NOI) – A before-tax key indicator of financial strength computed by taking gross revenues minus operating expenses and a vacancy rate allowance.

Non-Owner Occupied Property – Property purchased by a borrower, not as a primary residence, but as a real estate investment with the intent of generating rental income, tax benefits, and/or profitable resale.  Also known as an investment property.

Net Present Value (NPV) – Net present value is used to compare the relative merits of two or more investment choices.  It is calculated by adding the total present value of incremental future cash flows to the present value of estimated proceeds from sale or transaction.

Net Purchase Price – Gross purchase price minus any financed debt.

Net Real Estate Investment Value – Market value of all real estate holdings less their property-level debt.

Net Returns – Total returns to investors less consultant or management fees, also known as net profit.

Net Sales Proceeds – Earnings from an asset’s sale, or a portion of an asset’s sale, minus the brokerage commissions, closing costs and associated expenses.

Nominal Yield – The yield to investors prior to making adjustments for fees, inflation or risk.

Non-Compete Clause – A lease clause specifying that a tenant’s business is exclusive in the property and that no other tenant may operate the same or a similar type of business in the building (like a shopping center or a mall).

NNN – Triple Net Lease – A lease where the tenant or lessee agrees to pay all real estate taxes, building insurance and common area maintenance on the leased property in addition to the normal fees, such as rent, that are expected in the agreement. The tenant or lessee is also responsible for all costs due to repairs or replacement of the structural building elements of the property.  Not a Net-Net lease.

Offer – A proposed stated sale price or price range for whole loans or securities.  Also known as a dollar figure representing the amount a willing buyer submits to a seller for the purchase of real property.

Open Space – A largely undeveloped area of land or water dedicated for public or private use.

Operating Cost Escalation – Escalation clauses are intended, through a variety of ways, to adjust rents by external reference standards such as a published index, negotiated wage levels, or ownership and operation expenses of a building.

Operating Expense – Actual costs associated with using a property, such as maintenance and repairs, management, taxes, utilities and insurance.

Out-Parcel – Individual retail site of each business in a shopping center or mall.

Planned Unit Development (PUD) – A housing development that usually consists of any combination of homes (one-family to four-family), condominiums, mixed-use (retail store and residential units sometimes all under one building roof) and various other styles.  In most PUDs, the individual housing or retail unit and the land upon which it sits are owned by the unit/homeowner; however, the homeowner’s association owns common facilities.

Partial Sales – The sale of an interest in real estate that is less than a 100% interest.  Some partial sales include easement rights, parcel of land or retail pad, or a single structure of a multi-building investment.

Partial Taking – The legal definition of condemning of part of an owner’s property under eminent domain laws.

Percentage Rent Or Lease – A rent structure, commonly used for large retail stores, where rent payable under a lease is calculated as a percentage of a tenant’s gross sales or gross revenues.

Plat – Map of a specific area, such as a subdivision, delineating the boundaries of the overall specific area of land and its individual lots along with the easements, streets, and other public improvements.

Pre-Cut Home – Typically a kit house, log or dome-style house in which building materials are factory-cut to design specifications, transported to the site and assembled in place.

Preleased – Area in a planned building that is leased prior to the start of construction or the issuance of a certificate of occupancy.

Premium – The payment made by a policyholder on a regular schedule that maintains insurance coverage.

Property Taxes – Taxes assessed and payable on real property, improved or not.  Property taxes are based on valuations by local and or state governments. Failure to pay property taxes results in a tax lien. After a specified period of time, a county government may auction land to satisfy a tax lien.

Pro Rata – From the Latin “according to a percentage or rate”.  In regards to a tenant, a proportionate share of expenses for the maintenance and operation of the property, usually proportioned by the number of units.

Punch List – An itemized list drawn up by the owner or buyer to document incomplete or unsatisfactory items after the contractor has notified the owner or buyer that the new constructed space is substantially complete.

Purchase Agreement – A written contract between a seller and buyer of real estate that states the price and terms of the sale.

Quarter Section – According to the divisions of a government survey, 180 acres or one quarter of a square mile of land.

Quit Claim Deed – A term used to describe the act of transferring the ownership of a home from the owner to another party, often a family member or a spouse.  However, a quitclaim deed gives no guarantee that the title of home is clear of liens.  Once this deed is issued by the homeowner (the grantor), the recipient (the grantee) assumes legal and financial responsibility for the property and any liens.  For example, if a couple is divorcing and own a home together, a husband could issue a quitclaim deed to transfer the ownership of his home to his ex-wife.

Quotation – A statement of the market price of a property, the price specified to a buyer.

Real Estate Investment Trust (REIT) – A business corporation formed as a trust that combines the investors’ capital to purchase or provide financing for real estate.  A trust that qualifies for REIT status typically pays out at least 90 percent of its taxable income as dividends.

Radon – A radioactive gas found in some homes that can cause health problems if it occurs in strong enough concentrations.

Raw Land or Bare Land – Unimproved land in its natural state, with no man-made improvements such as buildings, utilities, roads and drainage.

Raw Space – Shell or empty space in a building without any improvements.

Real Estate Agent – A person who is licensed to negotiate and arrange real estate sales and works with or for a real estate broker.

REALTOR – A real estate agent or broker who is a member of the National Association of REALTORS and its local or state associations.

Real Estate Fundamentals – The factors driving the value of real property, such as location, supply, demand and pricing for land or developed space in a given geographic region or economic market.

Real Property – Land and whatever is affixed to the land that would be personal property if not attached, such as buildings.  Standard definition is real property is an identified parcel or tract of land including improvements, easements, rights of way, undivided or future interests, and similar rights but excluding mineral rights, timber rights, or growing crops.

Real Rate Of Return – Yield to investors less a factoring for inflation.  The formula for calculating the real rate of return is [(1 + nominal yield) divided by (1 + inflation rate)] minus 1.

Recording – Any legal document that affects the ownership of real property is recorded in public records at the county recorder’s office. This gives official, actual public notice of property ownership.

Regional Diversification – The diversification of investments along predefined lines such as a geographic or economic region.  Definitions for the various regions vary among managers, consultants and plan sponsors.

Rehabilitation or Rehab – Extensive renovation intended to cure obsolete or out of fashion parts of a building or project.  An act to eliminate or mitigate a property’s obsolescence.

Renewal Option – A lease agreement clause giving a tenant the right to extend the term of a lease provided pre-conditions exist.

Rent – Monetary compensation or fee paid to an owner, lessee or landlord for the right to occupy and use of any real or private property such as rentalproperty, land, buildings, and equipment.

Rent Step-Up – A lease agreement where the rent increases at a predetermined rental period, usually annually, for a fixed amount of time or for the life of the lease.

Rental Concession – What landlords offer tenants in return for the tenants’ agreement to lease. Typical rental concessions are: rental abatement, below-market rental rates, increased tenant improvement allowance, free or larger signage, and moving allowances.

Rental Growth Rate – Expected or anticipated pattern in market rental rates over the period of analysis, expressed as a yearly percentage increase or decrease.

Rental Income Expenses – A commercial income property’s actual or projected expenses expressed as a percentage and an amount. Expenses include: management fees, insurance, rental vacancy factor, replacement and reserve expenses, and ongoing operating expenses such as water, gas, licenses, waste, and property taxes.

Rent-Up Period – The period during and following the building of a new structure when tenants are actively being sought to when the project approaches full occupancy.

Repayment Plan – An agreement between a lender and a borrower who is delinquent on their mortgage payments, in which the borrower agrees to make additional payments to pay down past due amounts while still making regularly scheduled payments.

Replacement Cost – The estimated current cost, using modern materials and current standards, design and layout, to construct a building with equivalent use as the building under evaluation or appraisal.

Replacement Reserves – A reserve account or allowance that provides funds for the periodic replacement of a structure’s components, such as HVAC, parking lot, carpets, building exterior, walkways, and roof, which wear out more rapidly than the structure itself and need to be replaced during the building’s economic life.

Rescission – Cancellation of a contract or a transaction.  A rescission can occur if the buyer elects to make the transaction invalid because of some fraud or misrepresentation by the seller about the condition of the property or when a law or technicality makes the transaction void.

Reserve Account – An account, such as a capital expenditure account or a deferred maintenance account that a borrower funds to protect the lender.

Return On Assets – The percentage calculated by dividing the average total assets by the income after taxes for the trailing twelve (12) months.

Return On Equity (ROE) – The percentage calculated by dividing the average common equity by the income available to common stockholders for the trailing 12 months.

Return On Investment (ROI) – The percentage calculated by dividing the average total long-term debt, other long-term liabilities and shareholder’s equity by the income after taxes for the trailing twelve (12) months.

Risk Management  A systematic way to identify and separate insurable risks from non-insurable risks, and evaluating the availability and costs of covering those risks with third-party insurance.

Roll-Over Risk – Risk that a tenant’s lease may not be renewed.

Sale-Leaseback – An agreement under which the owner-occupant of a real property agrees to sell all or part of it to an investor, then lease it back so as to continue occupying all or part of the property as a tenant.  The seller, now lessee benefits by being able to expense 100% of the lease payments.

Sales Comparison Value – A value derived by appraisers by comparing the property under appraisal to similar properties that have recently been sold in the same area.

Seller’s Contribution – A seller may pay some or all of a borrower’s closing costs – the amount of the contribution has limitations.

Seller’s Cost – The costs an owner incurs in selling their home. This could include realtor expenses and other miscellaneous expenses such as painting or minor repairs to prepare the home for sale.

Setback – The distance from a curb, centerline of road easement, property line or other reference point or boundary, within which construction of a building is forbidden.

Single-Family Detached Home (SFR) – A freestanding dwelling for a single family.

Site Analysis – An analysis to determine if a specific parcel of land is suitable for an intended specific use.

Site Development – The installation of the necessary public improvements to a site, such as sewer, water and roads, before construction of a building or project can begin on the site.

Site Plan – A detailed drawing showing the location of all improvements on a parcel or piece of land including a north arrow and a key.

Slab – The exposed wearing surface laid over the structural support members of a building or on grade to form the building’s foundation.

Soft Costs – The portion of an equity investment, not including the actual improvement costs, which may be tax-deductible in the first year.

Special Assessment – Special charges levied against real property for public improvements that benefit the assessed property.

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 leases or subleases that an income-producing real estate property or project is likely to achieve after exposure for leasing in the open market after a reasonable time period at terms and conditions similar to other competitive market offerings.

Strip Center – A shopping area made up of a row of retail stores traditionally anchored by a supermarket or large chain store.

Subcontractor – A contractor, a tradesman, working under subcontract to and being paid by a general contractor. Normally a specialist at a trade in nature, such as an electrical contractor, cement contractor, or plumbing contractor, with most trades in need of licensing by a state government.

Sublessee – A person or legal entity to which the rights of use and occupancy under a lease are transferred, while the original lessee retains primary responsibility to the lessor for the lease’s obligations.

Survey – The process by which a parcel is measured and its metes, bounds and contents ascertained; also the plat, map or the statement of the survey’s results with the courses and distances and quantity of the land.

Sweat Equity – The use of labor to build, improve or rehabilitate a property instead of or in addition to a cash payment.

Taking – A common term for condemnation or any interference with the full use of private property rights, but it is not necessary that a physical seizure or appropriation takes place.

Tax Base – The assessed value of a real property that lies within a tax authority’s jurisdiction. The tax base is multiplied by the tax rate to determine the of real estate tax amount.

Tax lien – A statutory lien on a property for nonpayment of that property’s taxes.

Tax Roll – As defined by the government code the record listing the descriptions of all land parcels located within a county, the names of the owners and possibly those receiving the tax bill, assessed values, and tax amounts.

Tax Savings – The amount a person saves on taxes by itemizing their deductions on an income tax return.

Tenancy In Common (TIC) – Type of ownership whereby each of the multiple tenants (owners) holds and undivided interest in the property, with no right of survivorship. The interests may not be equal.

Tenant, Lessee – One who contracts through a lease agreement to rent real estate property from a landlord, owner or lessor and holds an estate by virtue of a lease.

Tenant At Will – One who holds a lease and rents property from an owner or landlord without any agreement as to the lease’s duration and with the right of either party to terminate the lease upon proper notice.

Tenant Improvement (TI) – A leased property’s improvements made by or for the tenant who stay with the property at the end of the lease.

Tenant Improvement (TI) Allowance – A fixed amount of money held in a fund by the landlord to be used toward any tenant improvements or expenses to physically improve the property to attract new tenants to new or vacated space which may include new improvements or remodeling.  The tenant pays any of improvement expenses that exceed the fund amount. The fund may be paid into by the tenant, landlord, or both.

Tenant Mix – A mixture of different types of tenants, used to describe the quality of the income stream of a property.  Institutional investors typically prefer a mixture of tenant types, including national credit tenants, regional credit tenants and local non-credit tenants.

Timeshare – A time limited ownership of the use of a vacation or resort property for a specific calendar period.

Title Search – An examination of all public records affecting a specific piece of property at the registry of deeds or other office which holds the title document records to determine if the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.

Total Inventory – The total square footage of a various types of property within a certain geographical area, regardless of whether the property is vacant or occupied.

Total Retail Area – A retail center’s total floor area from which sales are generated, not including the common areas.

Trade Fixtures – Personal property that is attached to a structure that belongs to and is used in the business, which is removed upon the lease’s termination.

Triple Net Lease – A lease, commonly referred to as “NNN” lease or “3N”, where the tenant or lessee agrees to pay all real estate taxes, building insurance and common area maintenance on the leased property in addition to the normal fees, such as rent, that are expected in the agreement.  The tenant or lessee is also responsible for all costs due to repairs or replacement of the structural building elements of the property.

Turn-Key Project – A construction project in which a third party is responsible for the building’s completion, or the construction of tenant improvements to the customized requirements and specifications of a future owner or tenant such that all the tenant or owner has to do is turn the key in the door and they are in business.

Under Construction – The time between when the building of a structure commences to the time the certificate of occupancy is issued by the building department.

Unencumbered – Real property that is free and clear of liens or any other encumbrances.

Unimproved Land – Real property without any improvements or buildings, but also can mean land in its natural state.

Usable Square Footage – The area contained within the tenant space’s demising walls that is equal to the net square footage multiplied by the circulation factor.

Use – The specific purpose for which a piece of land or a building is intended, designed or arranged to be used.  That enjoyment of real property which consists in its employment, occupation, exercise or practice.

Vacancy Factor – A measure of the loss of gross rental income due to vacancies.  The rate is expressed as a percentage of the total rentable square footage available in a property.  Vacancies could be due to market competition or terminating leases.

Vacant Space – Existing tenant space currently on the market for lease, not including sublease space available.

Value-Added – A phrase generally used by advisers and managers to describe opportunity style investments in underperforming and/or undermanaged commercial properties with the objective of realizing value creation over a short term time span.

Variance – A legal allowance granted by an authorized zoning body to a property owner, upon proof of need, to depart from the literal requirements of a zoning ordinance in utilizing his property in cases that, due to special circumstances, would cause a unique hardship.

Verification Of Deposit – A form utilized by mortgage lenders to corroborate the deposits or cash assets of a potential borrower when monthly statements are not available or not usable.

Verification Of Rent – A form utilized by mortgage lenders to confirm monthly rents paid and also describes the history of any late payments.

Warranty Deed – A deed where the seller guarantees that they hold clear title to a piece of real estate and have the right to sell it to the buyer. The guarantee is not limited to the time the seller owned the property; it extends back to the property’s origins.

Working Drawings – The set of plans for a building or project that encompass the contract documents that specify the precise manner in which a project is to be constructed.

Write-Down – An accounting procedure used when the book value of an asset is adjusted downward to more reflect its current market value.

Yield – Return on an investment paid as a dividend or interest expressed as an annual percentage.

Yield Spread – The difference in yields between a commercial mortgage and a benchmark value, such as U.S. Treasuries with the same maturity.

Zoning – The division of a city or town into zones and the creation and application of regulations covering the architectural design and structural and intended uses of buildings within such zones to prevent non-conformity and improve harmony of building and uses.

Zoning Ordinance – A set of laws and regulations controlling the use of land and construction of improvements in a given geographical area or zone.  Each local government typically has its own zoning ordinance.