Giftwood Real Estate’s Glossary
Below is a comprehensive list of unique Commercial Real Estate (CRE) terms. These terms are specific to CRE, including terms one might expect in a textbook-style CRE glossary. The list is presented in alphabetical order for easy reference.
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List of Common CRE Terms
Absorption Rate:
The rate at which available CRE space is leased or sold in a specific market over a given period.
ADA Compliance:
Adherence to the standards set by the Americans with Disabilities Act (ADA) to ensure that a property is accessible to individuals with disabilities.
Amortization Schedule:
A table showing the breakdown of each loan payment into principal and interest.
Anchor Tenant:
A major tenant, often a large retailer, that attracts other tenants and customers to a property.
Appraisal:
A professional assessment of a property's market value, typically required for financing or investment purposes.
Balloon Payment:
A large payment due at the end of a loan term, typically covering the remaining balance, often used in CRE loans with shorter amortization periods than the loan term.
Base Rent:
The minimum rent due under a lease, excluding additional charges like operating expenses or percentage rent.
Bridge Debt:
A short-term loan used to finance a property until permanent financing is secured.
Broker:
A professional who acts as an intermediary between buyers and sellers in real estate transactions, helping to negotiate and facilitate the sale or lease of properties.
Broker's Opinion of Value (BOV):
An informal estimate of a property’s market value provided by a real estate broker, often used for preliminary assessments.
Building Operating Expenses:
The costs associated with operating and maintaining a property, often passed on to tenants.
Build-to-Suit:
A type of real estate transaction where a property is constructed specifically for a particular tenant according to their specifications.
Capitalization Rate (Cap Rate):
A measure of the expected return on investment, calculated as the ratio of net operating income to property value.
Cash Flow:
The net income generated by a property after accounting for all expenses, including mortgage payments, taxes, and maintenance costs. It is a key indicator of a property's financial performance.
Cash-on-Cash (CoC) Return:
A metric that calculates the annual return on the cash invested in a property.
Certificate of Occupancy (CO):
A document issued by a local government confirming that a property meets building codes and safety standards, allowing it to be legally occupied or used.
Class A, B, C Properties:
Classifications of commercial properties based on quality, location, and amenities.
Common Area Maintenance (CAM):
Fees paid by tenants for the upkeep of shared spaces in a property.
Comparative Market Analysis (CMA):
A report comparing similar properties to determine a property’s market value or rental rate.
Concessions:
Incentives or benefits provided by a landlord to a tenant to encourage them to sign a lease, such as free rent, tenant improvement allowances, or reduced rent rates.
Contingency:
A condition or provision in a contract that must be met for the agreement to be binding. In CRE, contingencies often relate to financing, inspections, or approvals.
Cost Approach:
A method of valuing a property based on the cost to replace or rebuild it, adjusted for depreciation, commonly used in CRE appraisals alongside other approaches.
Debt Service Coverage Ratio (DSCR):
A ratio measuring a property’s ability to cover its debt obligations with net operating income.
Demise:
In real estate, the portion of a property that is leased to a tenant, as opposed to the common areas.
Depreciation:
The gradual decrease in the value of a property's buildings and improvements over time, which can be used as a tax deduction for property owners.
Discounted Cash Flow (DCF):
A valuation method that estimates a property’s value based on projected future cash flows.
Due Diligence:
The process of investigating a property’s financial, legal, and physical condition before a transaction.
Easement:
A legal right to use another party’s property for a specific purpose, such as access or utilities.
Earnest Money:
A deposit made by a potential buyer to demonstrate their intent to purchase a property. It is typically held in escrow and can be forfeited if the buyer backs out of the deal without justification.
Encroachment:
When a structure or improvement illegally extends onto another property.
Entitlements:
Government approvals required for property development, such as zoning or land use permits.
Environmental Assessment:
A study or report that evaluates the potential environmental impacts of a proposed development or the environmental condition of an existing property, often required for financing or regulatory approval.
Equity Multiple:
A metric used to evaluate the total return on an investment relative to the initial equity invested.
Escalation Clause:
A lease provision that allows for rent increases based on predefined conditions, such as inflation or operating costs.
Escrow:
A neutral third-party account that holds funds or documents on behalf of parties involved in a transaction until certain conditions are met, ensuring a secure and fair exchange.
Estoppel Certificate:
A written statement from a tenant confirming the terms of their lease, often required by lenders or purchasers to verify the lease details.
Facilities Management:
The management of a property’s physical systems and services, such as HVAC, security, and cleaning.
Feasibility Study:
An analysis to determine the viability of a proposed development or investment.
Fee Simple:
The most comprehensive form of property ownership, where the owner has absolute control and can use, sell, or bequeath the property without restrictions, except those imposed by law.
Force Majeure:
A clause in a contract, including a real estate lease, that relieves a party from performing their obligations due to unforeseen circumstances beyond their control, such as natural disasters or acts of war.
General Partner (GP):
In a limited partnership, the partner responsible for managing the CRE investment or property, bearing unlimited liability for the partnership’s debts and obligations.
Gross Lease:
A lease where the landlord pays for all operating expenses, and the tenant pays a fixed rent.
Gross Rent Multiplier (GRM):
A valuation metric used to estimate the value of a rental property based on its gross annual rent. It is calculated by dividing the property's sale price by its annual gross rent.
Ground Lease:
A type of lease where the land is leased, and the tenant is responsible for constructing and maintaining any buildings or improvements on the land.
Ground-Up Development:
The process of building a new property from scratch, starting with undeveloped land.
Holdover Tenancy:
A situation where a tenant remains in possession of a property after the expiration of their lease term, often requiring the landlord to take legal action to evict them.
Income Approach:
A method of valuing a property based on its ability to generate income, typically calculated using net operating income and a capitalization rate, widely used in CRE investment analysis.
Internal Rate of Return (IRR):
The discount rate at which the net present value of a property’s cash flows equals zero.
Lease Abstract:
A concise summary of key terms from a lease agreement, including financial, legal, and operational details.
Lien:
A legal claim or encumbrance on a property that can be used to secure payment of a debt or obligation. Common types include mortgage, tax, and judgment liens.
Limited Partner (LP):
In a limited partnership, a partner who provides capital for a CRE investment but does not manage operations, with liability limited to their investment amount.
Letter of Credit:
A financial instrument issued by a bank on behalf of a tenant, guaranteeing payment of rent and other obligations under a lease.
Letter of Intent (LOI):
A preliminary agreement outlining the basic terms of a lease or purchase before final contracts are signed.
Leveraged Acquisition:
Acquiring a property using a significant amount of borrowed capital.
Loan-to-Value Ratio (LTV):
The ratio of the loan amount to the appraised value of the property, expressed as a percentage. It is used by lenders to assess the risk of a mortgage loan.
Market Rent:
The rental rate that a property would command in the open market.
Mezzanine Debt:
A hybrid form of financing that combines debt and equity, often used in CRE acquisitions.
Mixed-Use Development:
A property that combines multiple uses, such as residential, commercial, and retail, in one project.
Net Lease:
A lease where the tenant pays base rent plus some or all of the property’s operating expenses.
Net Operating Income (NOI):
A property’s income after operating expenses but before debt service and taxes.
Operating Expenses:
The ongoing costs for operating and maintaining a property, such as management, taxes, insurance, utilities and repairs, typically passed to tenants in net leases.
Operating Expense Ratio:
A metric calculated as (Operating Expenses / Effective Gross Income) * 100, indicating the proportion of income consumed by operating costs.
Option to Renew:
A clause in a lease that gives the tenant the right to extend the lease term for a specified period under certain conditions, such as paying a predetermined rent.
Percentage Lease:
A lease where the tenant pays base rent plus a percentage of their revenue, common in retail.
Permanent Financing:
Long-term financing used to replace short-term loans, such as construction or bridge loans.
Pro Forma:
A financial statement that projects the future revenue and expenses of a property, used to estimate its potential income and cash flow.
Property Management Agreement (PMA):
A contract outlining the responsibilities of a property manager hired by the owner.
Recourse Debt:
A loan where the borrower is personally liable for repayment if the property’s value doesn’t cover the debt.
Rent Roll:
A list that details all the current leases for a property, including tenant names, suite numbers, rent amounts, and lease expiration dates.
Replacement Cost:
The cost to replace a property with a similar one, used in insurance and valuation.
Reserve Fund:
A fund set aside by property owners or managers to cover future repairs or capital improvements.
Right of First Refusal:
A contractual right that gives a party the opportunity to match any offer made for a property before it is sold or leased to another party.
Sales Comparison Approach:
A method of valuing a property by comparing it to recent sales of similar properties in the same market, adjusted for differences, commonly used in CRE appraisals.
Sublease:
An agreement where a tenant leases part or all of their space to another party.
Survey:
A detailed map or plan of a property that shows its boundaries, dimensions, and any features or improvements, often prepared by a licensed surveyor.
Tax Abatement:
A reduction or exemption in property taxes granted by a government entity, often as an incentive for development or renovation.
Tenant Improvement (TI):
Customizations or improvements made to a rental space, often funded by the landlord.
Title Insurance:
Insurance that protects against losses due to defects in the property’s title.
Triple Net Lease (NNN):
A lease where the tenant pays base rent plus taxes, insurance, and maintenance costs.
Vacancy Rate:
The percentage of unoccupied space in a property or market.
Value-Add Investment:
A strategy where investors improve a property to increase its value and returns.
Variance:
A legal exception to zoning regulations, allowing a property to deviate from standard requirements.
Yield on Cost:
The annual net operating income divided by the initial investment cost, with “untrended” as current yield and “trended” adjusted for inflation or trends.
Zoning:
Local regulations that dictate how a property can be used, such as for residential, commercial, or industrial purposes.