Plain-English definitions of the commercial real estate terms that show up in deals, written by a practitioner and worked on real numbers. Browse by letter or search. Each term points to where it is taught in full.
A
Absolute Net Lease
A net lease where the tenant pays everything tied to the property, including taxes, insurance, maintenance, and repairs to the roof and structure, leaving the landlord almost no duties. Some call it absolute triple net. The owner collects rent with little cost or management, so the tenant's credit carries most of the risk.
See also: Triple Net Lease (NNN), Double Net Lease (NN), Credit Tenant
Absorption Rate
The pace at which a market or building fills space, measured in square feet or units per month or year. Net absorption counts move-ins minus move-outs. Divide available space by the rate to see how many months of supply sit on the market. Long supply signals pressure on rents.
Example: If tenants leased a net 60,000 square feet over 12 months, absorption is 5,000 square feet a month, so 100,000 vacant square feet equals 20 months of supply.
See also: Vacancy Rate, Submarket, Lease-Up
Accredited Investor
A person or entity that meets the SEC's definition for buying certain private securities offered without registration. Individuals usually qualify through income, net worth, or certain professional licenses, and entities through asset or ownership tests. The SEC revises the definition from time to time. It matters because many private real estate deals, including most syndications, are open only to accredited investors.
See also: Regulation D (506(b) and 506(c)), Syndication, Private Placement Memorandum (PPM)
Learn more: Raising Capital: Syndications, JVs and Private Equity →
Accrual vs. Cash Basis Accounting
Two ways to record income and expenses. Cash basis records money when it moves in or out of the bank. Accrual basis records revenue when earned and expenses when incurred, even if payment comes later. Lenders and larger owners usually use accrual, because it matches income to the period it belongs to.
See also: Generally Accepted Accounting Principles (GAAP), Income Statement, Balance Sheet
Acquisition Fee
A one-time fee a sponsor charges for finding, negotiating and closing a purchase, paid at closing and quoted as a percentage of the purchase price. It pays the sponsor for up-front work and is disclosed in the offering documents. Fee levels differ by sponsor and strategy. Investors weigh it against the sponsor's own money in the deal.
Example: A 1% acquisition fee on a $10,000,000 purchase is $100,000 ($10,000,000 x 0.01).
See also: Asset Management Fee, Disposition Fee, Sponsor Fees (Acquisition and Asset Management)
ADA Compliance
Meeting the accessibility standards of the Americans with Disabilities Act in commercial buildings. It covers features such as entrances, restrooms, parking, and paths of travel for people with disabilities. Investors check a property's condition because barriers can mean repair costs and legal claims. Both owners and tenants can carry responsibilities, depending on the lease and the situation.
See also: Property Condition Assessment, Building Code, Deferred Maintenance
Adaptive Reuse
Converting an existing building to a new use, such as an old office tower into apartments or a warehouse into retail and dining space. Buyers pursue it when the structure is sound but its original use has faded. Zoning approvals, code upgrades and construction costs decide whether the numbers work.
See also: Functional Obsolescence, Mixed-Use Property, Replacement Cost
Additional Rent
Charges a tenant pays on top of base rent, such as its share of common area maintenance, property taxes, insurance and sometimes utilities. Many leases define these charges as rent, which gives the landlord the same remedies for nonpayment. Investors track additional rent because it shows how much of the building's operating cost the tenants repay.
Example: If base rent is $10,000 a month and the tenant's share of taxes, insurance and common area charges is $2,500 a month, the tenant pays $12,500 a month.
See also: CAM Charges and Expense Recoveries, Operating Expense Pass-Through, Base Rent
Adjusted Basis
The tax cost of a property after adjustments. It starts with the purchase price plus certain closing costs, adds capital improvements, and subtracts depreciation taken. Adjusted basis sets the size of the gain or loss at sale. Years of depreciation lower the basis, which raises the taxable gain when the owner sells.
Example: A buyer pays $1,000,000, adds $100,000 of improvements, and takes $150,000 of depreciation, so adjusted basis is $1,000,000 + $100,000 – $150,000 = $950,000.
See also: Depreciation, Capital Gains, Depreciation Recapture
Agency Loan (Fannie Mae and Freddie Mac)
A loan on apartment properties backed by Fannie Mae or Freddie Mac, the government-sponsored companies that buy and guarantee mortgages. Approved lenders make the loan and deliver it to the agency. Investors like agency loans for competitive rates, long terms, and non-recourse structure, though underwriting is strict and early payoff usually costs money.
See also: Non-Recourse Loan, Prepayment Penalty, Debt Service Coverage Ratio (DSCR)
ALTA Survey
A detailed boundary and improvements survey prepared to standards set by the American Land Title Association and the National Society of Professional Surveyors. It shows property lines, buildings, easements, encroachments, and access. Lenders and title insurers often require one. It lets a buyer see what the land contains before closing.
See also: Easement, Encroachment, Title Insurance
Amortization
The gradual paydown of a loan through regular payments that cover both interest and principal. Early payments are mostly interest and later ones are mostly principal. The amortization period is often longer than the loan term, which leaves a balance due at maturity. A longer period lowers the payment but builds equity more slowly.
Example: On a $1,000,000 loan at 6% interest, month-one interest is $1,000,000 x 6% / 12 = $5,000, and the rest of the payment reduces principal.
See also: Balloon Payment, Interest-Only Period, Mortgage
Anchor Tenant
The large, well-known tenant that draws shoppers to a retail center, such as a grocery store or big-box retailer. Smaller shops pay rent to sit near that traffic. Lenders and buyers study the anchor's lease term and credit, because losing it can hurt sales for every other tenant and trigger special lease rights.
See also: Strip Center, Gross Lease vs. Net Lease, Vacancy Rate
Appraisal
A written opinion of a property's value prepared by a licensed or certified appraiser. Lenders order one to confirm the collateral supports the loan. The appraiser weighs the sales comparison, income and cost approaches and reconciles them into one figure. It is an estimate, and the actual sale price can land above or below it.
See also: Sales Comparison Approach, Income Approach, Cost Approach
Appreciation
An increase in a property's value over time. Market appreciation comes from rising rents, lower cap rates or strong demand. It differs from income and from gains an owner creates through improvements. Values can stay flat or fall, so conservative underwriting leans more on cash flow than on appreciation.
Example: A building bought for $2,000,000 and worth $2,200,000 two years later has appreciated $200,000, or 10% in total (200,000 / 2,000,000).
See also: Forced Appreciation, Cap Rate Compression, Total Return
Architect and Engineer
The design professionals who turn a development idea into buildable plans. The architect designs the building's layout and appearance. Engineers handle specialties such as civil site design, structural frames and mechanical, electrical and plumbing systems. Their fees are soft costs. Their drawings feed permit applications and contractor pricing, so design quality affects both cost and schedule.
See also: Hard Costs and Soft Costs, Building Permit, Pre-Development Costs
Asbestos
A group of heat-resistant mineral fibers once used in building materials such as insulation, floor tile and roofing. Disturbing damaged asbestos can release fibers that are a health hazard when inhaled. Older buildings may contain it. Investors check for it because testing, removal and handling during renovation can add cost and delay. Rules vary by jurisdiction.
See also: Phase I Environmental Site Assessment, Hazardous Materials, Property Condition Assessment
Assessed Value
The value a local tax authority assigns to a property to calculate its annual property tax. It can differ from market value, and some places apply a set ratio to market value. In some jurisdictions a sale triggers a reassessment, which raises operating expenses. Rules vary by state and county.
See also: Appraisal, Net Operating Income (NOI), CAM Charges and Expense Recoveries
Asset Management Fee
A recurring fee paid to the sponsor for overseeing the property and reporting to investors after closing. Depending on the deal, it is quoted as a percentage of collected revenue, invested equity or asset value. It pays for ongoing oversight and comes ahead of investor returns, so it affects cash flow. Offering documents list the base and rate.
Example: A 2% fee on $1,200,000 of collected revenue is $24,000 a year ($1,200,000 x 0.02).
See also: Asset Manager, Acquisition Fee, Disposition Fee
Asset Manager
The person or team that oversees a property as an investment on behalf of the owners. The asset manager sets strategy, approves budgets and capital projects, monitors the property manager and decides when to refinance or sell. The property manager handles day-to-day operations. The asset manager focuses on the property's financial performance and value over the hold period.
See also: Property Manager, Capital Plan, Asset Management Fee
Assignment of Contract
A transfer of a buyer's rights in a purchase contract to another party, who then closes on the deal in the buyer's place. Investors use it to pass along a contract before closing, sometimes for a fee. Many contracts limit or ban assignment without seller consent. Rules and licensing issues around the practice vary by state.
See also: Purchase and Sale Agreement (PSA), Earnest Money, Closing
Assumable Loan
An existing loan that a buyer can take over from the seller, keeping the original rate and terms. Lender approval and an assumption fee are common. It matters when the existing rate sits below current market rates, since the buyer inherits that rate. The buyer pays the seller the gap between the price and the loan balance, which can take extra equity.
See also: Seller Financing, Agency Loan (Fannie Mae and Freddie Mac), Prepayment Penalty
Attornment
A tenant's agreement to recognize a new owner as its landlord and keep performing the lease. It comes into play when a lender takes the property in foreclosure or when the owner sells. Leases often pair it with a subordination clause. Attornment keeps rent flowing to whoever holds title, so lenders and buyers rely on it.
See also: SNDA (Subordination, Non-Disturbance and Attornment Agreement), Subordination Clause, Estoppel Certificate
Average Daily Rate (ADR)
A hotel metric for the average room revenue earned per occupied room. Divide room revenue by room nights sold, meaning each occupied room for each night. It shows pricing power without regard to how many rooms sit empty. Investors read it alongside occupancy, since a hotel can raise ADR and lose guests. Together they drive RevPAR.
Example: A hotel earns $21,000 in room revenue from 140 room nights sold, so ADR = $21,000 / 140 = $150.
See also: Revenue Per Available Room (RevPAR), Occupancy Rate, Hotel and Hospitality Property
B
Bad Debt
Rent or other charges a tenant owes that the landlord cannot collect, often after an eviction or a tenant bankruptcy. Owners record it as a loss or reserve against income. High bad debt points to weak tenant screening or a soft submarket, so buyers look for it in the T-12 and the rent roll.
Example: A landlord bills $600,000 in rent for the year and cannot collect $9,000. Bad debt equals 1.5% of billed rent (9,000 / 600,000).
See also: Vacancy and Credit Loss, T-12 (Trailing Twelve Months), Rent Roll
Balance Sheet
A financial statement that lists what a property or company owns (assets), what it owes (liabilities), and what is left for the owners (equity) on one date. Assets always equal liabilities plus equity. Lenders read it to judge leverage and liquidity, and investors use it to see the debt behind a property.
Example: A property with $10,000,000 in assets and $6,000,000 in liabilities has $4,000,000 in equity.
See also: Income Statement, Generally Accepted Accounting Principles (GAAP), Accrual vs. Cash Basis Accounting
Balloon Payment
A large lump sum due when a loan matures, because the regular payments did not pay the balance down to zero. Many commercial loans amortize over 25 or 30 years but mature in five to ten. The borrower then has to refinance, sell, or pay cash, so credit markets at maturity become a real risk.
See also: Amortization, Refinance, Interest-Only Period
Barriers to Entry
Factors that make it hard to build new competing property in a market. Examples are scarce land, strict zoning, long approval times, high construction costs and impact fees. Strong barriers limit new supply, which can support rents and occupancy for existing owners. Weak barriers let developers add space quickly when rents rise.
See also: Supply Pipeline, Zoning, Infill Location
Base Case and Downside Case
The base case is the most likely set of assumptions for rent, vacancy, expenses and exit. The downside case uses weaker assumptions to show what happens when things go wrong. Comparing the two tells an investor how much cushion a deal has and whether the loan can still be paid under the weaker outcome.
Example: Gross potential income is $1,000,000 and expenses are $400,000. At 5% vacancy, NOI is $550,000. At 15% vacancy, NOI falls to $450,000 (1,000,000 x 0.85 – 400,000).
See also: Stress Test, Scenario Analysis, Sensitivity Analysis
Base Rent
The fixed rent a tenant pays for the space itself. In net leases it excludes taxes, insurance and maintenance, which the tenant pays on top. In gross leases it already covers some or all of those costs. Leases usually quote it per square foot per year and often step it up on a schedule. It forms the core of the landlord's income.
Example: A 4,000 square foot space at $30 per square foot per year costs $120,000 per year, or $10,000 per month.
See also: Additional Rent, Rent Escalations, Triple Net Lease (NNN)
Base Year
The reference year a lease uses to set the landlord's share of operating costs. Base rent covers the expenses of that year. The tenant then pays its share of any increase above that level in later years. A lease's base year decides how soon and how much the tenant pays on top of rent.
Example: If base year expenses are $8.00 per SF and they rise to $8.50, a 5,000 SF tenant pays $0.50 × 5,000 = $2,500 for the year.
See also: Expense Stop, Modified Gross Lease, CAM Charges and Expense Recoveries
Basis Point
One hundredth of one percentage point, written 0.01% or 1 bp. Investors use basis points to describe small moves in cap rates, interest rates and loan spreads without muddling a percent of a percent. One hundred basis points equal one full percentage point.
Example: A cap rate that moves from 6.00% to 6.25% has widened by 25 basis points.
See also: Capitalization Rate (Cap Rate), Cap Rate Compression, Debt Yield
Big-Box Retail
Large single-story stores, often tens of thousands of square feet, such as home improvement, warehouse club and general merchandise retailers. They sign long leases and anchor many centers. If one closes, the large space can be hard to fill and may need splitting into smaller units.
See also: Power Center, Dark Store, Go-Dark Clause
Bonus Depreciation
A tax rule that lets an owner deduct a share of the cost of qualifying property in the first year instead of spreading it over its full recovery period. In real estate it mostly reaches shorter-lived components, often found through cost segregation. The percentage allowed depends on current law, which Congress has changed more than once.
See also: Cost Segregation, Depreciation, Depreciation Recapture
Boot
Cash or other non-like-kind property received in a 1031 exchange on top of the replacement property. Net debt relief, where the new loan is smaller than the old one, can also count as boot. Boot is generally taxable up to the amount of gain in the deal, so it can trigger a tax bill inside an exchange built to defer tax.
See also: 1031 Exchange, Qualified Intermediary, Capital Gains
Break-Even Occupancy
The occupancy level at which rental income just covers operating expenses plus debt service, leaving zero cash flow. A lower number gives a bigger cushion before the property loses money. Lenders check it to see how far vacancy can rise before the loan is at risk. Some versions leave out debt service.
Example: With $400,000 of operating expenses and $300,000 of debt service against $1,000,000 of gross potential income, break-even occupancy is ($400,000 + $300,000) / $1,000,000 = 70%.
See also: Debt Service Coverage Ratio (DSCR), Operating Expense Ratio (OER), Vacancy Rate
Bridge Loan
A short-term loan that covers the gap until a property reaches permanent financing or sells. Lenders use them on deals that do not qualify for long-term debt yet, such as a half-empty building in lease-up. Terms run a few years, the rate is usually floating and higher than permanent debt, and payments are often interest-only.
See also: Fixed-Rate vs. Floating-Rate Loan, Interest-Only Period, Refinance
Broker Opinion of Value (BOV)
A broker's estimate of what a property could sell for, prepared for an owner considering a sale or a buyer sizing up an offer. It draws on comparable sales, current income and market feel. A BOV costs little or nothing, and it lacks the depth, appraiser credential and lender acceptance of a formal appraisal. State rules on these opinions vary.
See also: Appraisal, Comparable Sales (Comps), Sales Comparison Approach
Brownfield Site
Property where past use, such as a factory, gas station or dry cleaner, may have left contamination that complicates reuse. Buyers order environmental assessments. Cleanup cost and legal liability can change price and financing. Some governments offer incentives for cleanup, and those programs vary by state and locality.
See also: Phase I Environmental Site Assessment, Phase II Environmental Site Assessment, Hazardous Materials
Build-Out
The construction that turns raw or incomplete space into a usable tenant suite, such as walls, ceilings, flooring, lighting and plumbing. Either the landlord or the tenant can do the work, often paid in part by a tenant improvement allowance. Build-out takes time, which is why rent often starts after the lease begins.
See also: Tenant Improvement Allowance (TI), Turnkey Space, Rent Commencement Date
Build-to-Suit
A building designed and constructed to one tenant's needs, with a long lease signed before construction starts. The tenant gets tailored space. The owner or developer gets a committed tenant and, when the lease is strong, easier financing. Costly custom features can be hard to re-lease later.
See also: Speculative (Spec) Building, Single-Tenant Property, Sale-Leaseback
Building Code
The set of minimum standards for how buildings are designed and built, covering structure, fire safety, exits, electrical, plumbing and energy use. State or local governments adopt a code, often based on a model code, and enforce it through plan review and inspections. Older buildings may follow earlier versions, and major renovations can trigger upgrades.
See also: Building Permit, Certificate of Occupancy, Legal Nonconforming Use
Building Permit
Official approval from the local building authority to construct, alter or demolish a structure. The owner submits plans that reviewers check against the building code and zoning. Inspections occur during construction, and a certificate of occupancy usually follows. Unpermitted work can cause fines, forced removal and problems when selling or insuring the property. Requirements vary by locality.
See also: Building Code, Certificate of Occupancy, Entitlement
Buyer's Broker
A broker who represents the buyer in a purchase. The broker searches for properties, helps value them, assists with offers and negotiation, and coordinates the closing process. How and by whom the broker is paid is set by agreement and varies by state and by deal. Some states define the duties owed to the buyer by law.
See also: Commission, Letter of Intent (LOI), Tenant Representation Broker
C
Call for Offers
A sale process where the broker sets a deadline and asks all interested buyers to submit offers by that date. The seller then compares price, terms, deposit and closing timeline, and may ask finalists for improved bids. It creates a competitive window. Buyers need to complete enough analysis before the deadline to bid with confidence.
See also: Offering Memorandum (OM), Letter of Intent (LOI), Proof of Funds
CAM Cap
A limit on how much a tenant's common area maintenance charges can rise, either each year or over the lease. Caps may be fixed, compounding or cumulative, and many leases exclude items such as taxes and insurance from the cap. The landlord absorbs cost growth above the cap, which can squeeze net income.
Example: With a 5% annual cap and current charges of $8.00 per square foot, next year's charge cannot exceed $8.40 per square foot ($8.00 x 1.05).
See also: CAM Charges and Expense Recoveries, CAM Reconciliation, Operating Expense Pass-Through
CAM Charges and Expense Recoveries
In multi-tenant properties — office buildings, retail centers, industrial parks — Common Area Maintenance (CAM) charges allow the landlord to recover the cost of shared spaces and services from tenants.
CAM Reconciliation
The year-end true-up between estimated and actual common area maintenance costs. Tenants pay monthly estimates during the year. After the books close, the landlord totals real expenses, compares them with what each tenant paid, and bills or credits the difference. Leases set audit rights and caps, so errors here cost real money.
See also: CAM Charges and Expense Recoveries, Gross Lease vs. Net Lease, Operating Expenses
Cap Rate Compression
A decline in market cap rates over time, which raises property values when income stays the same. It tends to follow falling interest rates, strong investor demand or rising confidence in a market. Investors who count on it to lift their exit price take a risk, because cap rates can widen again.
Example: A property earning $650,000 of NOI is worth $10,000,000 at a 6.5% cap rate and about $10,833,333 at 6.0%.
See also: Capitalization Rate (Cap Rate), Basis Point, Terminal Cap Rate (Exit Cap Rate)
Cap Rate Spread
The gap between a property's cap rate and a benchmark interest rate, often the 10-year Treasury yield or the cost of debt. It shows how much extra yield an investor earns for taking property risk. A narrow or negative spread means buyers accept thin yields and have less cushion if rates rise or values fall.
Example: A property priced at a 6.5% cap rate when the 10-year Treasury yields 4.0% has a spread of 2.5 percentage points, or 250 basis points. These rates are examples.
See also: Capitalization Rate (Cap Rate), Basis Point, 10-Year Treasury Yield
Capital Account
A running ledger for each partner in a partnership or LLC. It starts with the partner's contributions, adds the partner's share of profit, subtracts allocated losses and subtracts distributions. The agreement may use the balance to decide who gets what when the entity liquidates. Capital accounts also support the tax allocation of income and loss, and the rules are technical.
Example: A partner who contributes $200,000, is allocated $30,000 of income and receives $50,000 in distributions ends with $180,000 ($200,000 + $30,000 – $50,000).
See also: Operating Agreement, Distribution Waterfall, Capital Call
Capital Call
A formal notice from a sponsor asking investors to send money. In funds and staged deals, it draws capital investors already committed. When a syndication runs short, it can ask for extra money beyond the original investment, which may be optional. The operating agreement sets the notice period and what happens to investors who do not fund, such as dilution or loss of the stake.
See also: General Partner and Limited Partner, Syndication, Private Placement Memorandum (PPM)
Learn more: Raising Capital: Syndications, JVs and Private Equity →
Capital Expenditures (CapEx)
Capital expenditures are dollars spent on major, non-recurring improvements to a property — a new roof, an HVAC replacement, parking lot resurfacing, structural work — as distinct from the routine repairs and maintenance already sitting inside Operating Expenses.
Capital Gains
The profit from selling property for more than its adjusted basis. Tax law separates gains by holding period, and property held longer than one year generally produces a long-term gain, taxed differently from a short-term gain. Investment land is a capital asset, while rental property falls under a related business-property rule that often reaches similar treatment. Earlier depreciation can change how part of the gain is taxed.
Example: A property with a $950,000 adjusted basis that sells for $1,300,000 after selling costs produces a gain of $1,300,000 – $950,000 = $350,000.
See also: Adjusted Basis, Depreciation Recapture, 1031 Exchange
Capital Plan
A multi-year schedule of major spending to maintain or improve a property, such as roof replacement, parking lot repaving, elevator upgrades and unit renovations. It lists each project, its timing and its estimated cost, and it shows how the spending will be funded. It helps owners avoid surprise bills and supports reserve and refinance decisions.
See also: Capital Expenditures (CapEx), Reserves for Replacement, Deferred Maintenance
Capital Raise
The process of gathering money from outside investors or lenders to fund a deal or business. A sponsor presents the opportunity, collects commitments and closes the funding, often equity for the down payment and renovation. Raising money from investors involves securities laws, which vary with how the offering is structured, so sponsors work with securities attorneys.
See also: Syndication, Private Placement Memorandum (PPM), Regulation D (506(b) and 506(c))
Capital Stack
The layers of money that fund a property, ranked by who gets paid first and who absorbs losses first. Senior debt has the first claim, followed by mezzanine debt, preferred equity, and common equity last. Layers with earlier claims take less risk and earn lower returns. The stack shows who gets hurt first when a deal underperforms.
Example: A $10,000,000 purchase might use $6,500,000 of senior debt, $1,500,000 of mezzanine debt, and $2,000,000 of equity, which adds up to $10,000,000.
See also: Senior Debt, Mezzanine Debt, Preferred Equity
Capitalization Rate (Cap Rate)
The capitalization rate — universally called the cap rate — is the return a property would generate if purchased with all cash (no mortgage).
Carve-Outs (Bad Boy Guarantees)
Named exceptions that can turn an otherwise non-recourse loan into a recourse loan. Bad acts such as fraud, misusing rents or insurance money, hiding assets, or filing a voluntary bankruptcy can make the borrower or guarantor liable. Some carve-outs cover only the lender's losses. Others make the whole loan recourse. The loan documents decide which.
See also: Non-Recourse Loan, Personal Guarantee, Recourse Loan
Cash Flow After Tax (CFAT)
CFBT doesn’t account for taxes — it’s the cash in the bank before the investor’s own return is filed. Cash Flow After Tax (CFAT) is what’s actually left once income tax is paid on that cash flow.
Cash Flow Before Tax (CFBT)
NOI is the property’s income before financing. Cash Flow Before Tax (CFBT) is what the investor actually receives in their bank account after paying the lender.
Cash-on-Cash Return
Cash-on-cash return (CoC) measures the annual cash income generated by a property relative to the equity invested.
Cash-Out Refinance
Replacing an existing loan with a larger one and taking the difference as cash. The new loan pays off the old balance, and the borrower keeps the rest after costs. Investors use it to pull equity out of a property that gained value. The price is higher debt and a larger payment.
Example: A property worth $2,000,000 with a new 70% loan supports $1,400,000 of debt. After paying off a $900,000 balance, $500,000 remains before closing costs.
See also: Refinance, Loan-to-Value (LTV), Prepayment Penalty
Casualty and Condemnation Clause
A lease clause that covers two events. Casualty means physical damage, such as fire or storm. Condemnation means a government takes all or part of the property under eminent domain. The clause sets who rebuilds, whether rent is reduced, when either party may terminate, and who receives insurance or award money.
See also: Property Insurance, Force Majeure, Rent Abatement
Certificate of Occupancy
A document a local building department issues to confirm a building meets code and is safe to occupy for its stated use. New construction and major renovations need one before tenants move in. A change of use, such as office to restaurant, can require a new one. Names and rules vary by locality.
See also: Zoning, Site Plan, Entitlement
Change Order
A written amendment to a construction contract that changes the scope, price, or schedule. Owners request them for design changes, and contractors raise them for hidden site conditions. Change orders push budgets up fast. Developers track them against the contingency line and set approval rules before work starts.
See also: Construction Contingency, Guaranteed Maximum Price (GMP) Contract, Hard Costs and Soft Costs
Class A, B and C Properties
A rough grading of buildings by age, quality, location and tenant mix. Class A is the newest, best located and commands top rents. Class B is older but well kept. Class C is dated, often needs work and sits in weaker areas. No official standard exists, so grades shift by market and broker.
See also: Functional Obsolescence, Core, Core-Plus, Value-Add and Opportunistic, Submarket
Clawback
A provision that requires the general partner to return cash when earlier promote payments exceed what the GP earned over the whole deal. A sale early in the hold can pay a promote before later losses lower total profit. The clawback restores the intended split. Terms vary: some cap the amount, hold back part of the promote, or apply only at the end.
Example: A GP that received $300,000 of promote but is owed $220,000 over the full deal returns $80,000 ($300,000 – $220,000).
See also: Promote (Carried Interest), GP Catch-Up, Distribution Waterfall
Clear Height and Dock Doors
Clear height is the usable vertical space in a warehouse, measured from the floor to the underside of the lowest structural member such as a beam or joist. Some sources measure to the lowest sprinkler pipe or light instead. Dock doors are the loading doors where trucks back up. Taller clear height lets tenants stack higher, and more dock doors speed loading.
See also: Warehouse and Distribution Center, Industrial Property, Functional Obsolescence
Closing
The final step of a sale, when ownership transfers. The buyer's funds and loan proceeds are delivered, the seller signs and delivers the deed, documents are recorded and the seller is paid. The transfer happens through an escrow agent, title company or attorney, depending on local practice. After closing, the buyer owns the property and takes on its risks.
See also: Escrow, Closing Statement, Deed
Closing Costs
The fees and expenses paid when a sale closes, separate from the purchase price. They often include title insurance, escrow and attorney fees, recording fees, lender fees, survey costs, and transfer taxes. The contract and local custom decide who pays each item. Investors add them to the acquisition budget because they cut returns.
See also: Title Insurance, Escrow, Purchase and Sale Agreement (PSA)
Closing Statement
A document that itemizes every dollar moving at closing. It lists the purchase price, the buyer's deposit, loan proceeds, closing costs, prorations and the net amount due to the seller. Often called a settlement statement. Buyer and seller each review it before funds move. Errors in the figures can cost real money, so both sides check them.
See also: Prorations, Closing Costs, Escrow
CMBS Loan
A commercial mortgage-backed securities loan. A lender makes the loan, bundles it with many others in a trust, and sells bonds backed by the payments. A servicer then collects payments. These loans are usually fixed-rate and non-recourse with carve-outs. Rigid terms make prepayment, assumption, and modification harder than with a bank loan.
See also: Defeasance, Non-Recourse Loan, Yield Maintenance
Co-Tenancy Clause
A retail lease term that lets a tenant pay reduced rent, or leave, if a named anchor store closes or if the center's occupancy falls below a set level. It protects the tenant's customer traffic. Investors care because one anchor closing can cut the rent from many small shops at once.
See also: Percentage Rent, Rollover Risk, Rent Roll
Cold Dark Shell
The most basic delivery condition, typically structure, roof, exterior walls and a floor slab only. Cold means no heating or cooling system, and dark means no electrical service or lighting. The tenant installs the mechanical, electrical and plumbing systems and all finishes. Exact scope varies, so the work letter lists it. Tenants often negotiate a larger allowance or lower rent to offset that cost.
See also: Vanilla Shell, Build-Out, Tenant Improvement Allowance (TI)
Cold Storage
Temperature-controlled warehouse space for food, medicine and other perishable goods, kept refrigerated or frozen. Building and power costs run higher than for a standard warehouse, and the design is specialized. That makes new supply costly and the buildings harder to repurpose if a tenant leaves.
See also: Warehouse and Distribution Center, Special-Purpose Property, Industrial Property
Commercial Real Estate (CRE)
Property used to earn income or house a business, as opposed to a home the owner lives in. The main types are office, retail, industrial and multifamily (rental apartments), plus hotels, self-storage and medical space. Lenders often treat apartment buildings with five or more units as commercial. Investors earn rent and may gain from appreciation.
See also: Multifamily, Special-Purpose Property, Net Operating Income (NOI)
Commercial vs. Residential Real Estate
Residential property, in lender terms, means homes with one to four units. Commercial property is bought for income or business use and valued mainly on its net operating income, while homes are priced mostly by comparable sales. Apartment buildings with five or more units are residential in use but commercial for financing. Commercial leases run longer and loans tend to have shorter terms.
See also: Income Approach, Gross Lease vs. Net Lease, Small Multifamily (Duplex to Fourplex)
Commission
The fee a brokerage earns for arranging a sale or lease. Sale commissions are usually paid at closing. Lease commissions are often paid at signing or split between signing and move-in or rent start. Rates are negotiable, and written agreements set the amount, the payer and the split between brokers. It is a real transaction cost.
See also: Listing Agreement, Leasing Commission, Closing Costs
Commitment Letter
A lender's written offer to make a loan on stated terms once the borrower meets listed conditions. It is more detailed and firmer than a term sheet. It sets the amount, rate, term, fees, deadlines and conditions such as appraisal, survey and title. Borrowers often pay a deposit on acceptance, and the deposit can be at risk if the deal fails.
See also: Term Sheet, Rate Lock, Underwriting
Common Area
Parts of a property shared by all tenants and visitors, such as lobbies, hallways, restrooms, parking lots, walkways and landscaping. The landlord maintains these areas and usually recovers the cost from tenants through common area maintenance charges, split by each tenant's share.
See also: CAM Charges and Expense Recoveries, Gross Leasable Area (GLA), Rentable vs. Usable Square Feet (Load Factor)
Comparable Sales (Comps)
Recent sales of similar properties nearby, used to estimate what a subject property is worth. Good comps match on property type, size, age, condition, location and sale date. Appraisers and brokers adjust each comp's price for differences. Investors compare price per unit, price per square foot and cap rate across the set.
Example: If three similar buildings sold for an average of $180 per square foot, a 50,000 square foot building points to about $9,000,000.
See also: Sales Comparison Approach, Price Per Unit and Price Per Square Foot, Appraisal
Compound Interest
Interest earned on both the original amount and on interest already added. Growth speeds up each period because the base keeps getting bigger. Simple interest pays only on the original amount. Compounding helps explain why a longer hold and reinvested cash flow raise returns, and why a loan balance can grow when payments fall short of the interest owed.
Example: $10,000 at 5% a year earns $500 in year one. Year two earns $525 (5% of $10,500), so the balance reaches $11,025, versus $11,000 under simple interest.
See also: Future Value, Negative Amortization, Amortization
Comprehensive Plan
A long-range policy document a city or county adopts to guide growth, land use, transportation and public services. Also called a general plan or master plan. It sets the community's goals for where housing, retail, industry and open space belong. Zoning is meant to follow it. A rezoning request that conflicts with the plan faces a harder approval path.
See also: Land Use Designation, Zoning, Entitlement
Conditional Use Permit
Local government approval that lets a property owner carry out a use the zoning code allows only under certain conditions. Examples include a school, a bar or a drive-through in a particular zone. The approving body usually holds a hearing and can attach conditions. Names differ by area, such as special use permit or special exception. Rules vary by jurisdiction.
See also: Zoning, Variance, Entitlement
Construction Contingency
A reserve line in a construction budget for costs nobody can predict yet, such as hidden site conditions, material price jumps, and design gaps. Lenders usually require one, often set as a percentage of hard costs that rises with project risk, and some budgets add a separate soft cost contingency. Change orders draw against it. The contract and loan documents decide who keeps any unspent amount.
Example: A 5% contingency on $8,000,000 of hard costs sets aside $400,000.
See also: Change Order, Hard Costs and Soft Costs, Draw Schedule
Construction Loan
Short-term financing that pays for building a project, released in stages called draws as work is completed and inspected. The borrower pays interest only on the money drawn so far. Lenders often require an interest reserve, completion guarantees, and a plan for permanent financing or sale at the end. These loans carry more risk than loans on finished buildings.
See also: Loan-to-Cost (LTC), Bridge Loan, Personal Guarantee
Contingency
A condition written into a purchase contract that needs to be satisfied, or waived by the party it protects, for the deal to proceed. Common ones cover inspections, financing, title and appraisal. If the condition fails within the stated time, the protected party can usually cancel or renegotiate, often with the deposit returned. Exact rights depend on the contract language.
See also: Inspection Period, Financing Contingency, Purchase and Sale Agreement (PSA)
Core, Core-Plus, Value-Add and Opportunistic
Four labels for how much risk and work a deal carries. Core is stable, well-leased property in strong markets. Core-plus needs light fixes. Value-add needs real repositioning, such as renovations or lease-up. Opportunistic covers heavy-lift deals like development or distress. Higher risk targets higher return, often with more leverage.
See also: Class A, B and C Properties, Lease-Up, Internal Rate of Return (IRR)
Cost Approach
A valuation method that adds land value to the cost of rebuilding the structure, then subtracts depreciation for age and wear. Appraisers lean on it for new buildings and special-purpose properties with few comps or little income data. The idea behind it: buyers pay no more than a substitute would cost to build.
See also: Replacement Cost, Functional Obsolescence, Special-Purpose Property
Cost Segregation
An engineering-based study that splits a building's cost into components with different tax lives. Items such as flooring, fixtures, and site improvements can depreciate faster than the structure itself. Faster depreciation moves deductions earlier and can lower taxes in the early years. The study has a cost and can change how depreciation is recaptured at sale.
See also: Depreciation, Bonus Depreciation, Depreciation Recapture
Coworking Space
Shared office space where individuals and companies rent desks or private rooms on flexible, short terms, often under membership agreements, with shared amenities. Operators lease whole floors for years and rent space to members by the month, so they carry a gap between long obligations and short income. Landlords weigh the operator's financial strength.
See also: Office Building, Sublease, Month-to-Month Tenancy
Credit Spread
The extra interest a lender adds on top of a benchmark rate to cover the risk of the loan. A strong property, lower leverage and an experienced borrower earn a tighter spread. Weaker deals pay a wider spread. Spreads are quoted in basis points and shift with lender appetite and market conditions, so the same deal can price differently a year apart.
Example: A 4.00% benchmark plus a 225 basis point spread gives a 6.25% rate (4.00% + 2.25%).
See also: Basis Point, SOFR, Prime Rate
Credit Tenant
A tenant with strong financial standing and a low chance of missing rent. No single legal test applies, but the term points to a large company with high credit ratings or a long record of paying. Lenders will lend more against income from credit tenants, and buyers accept lower yields, because the rent is more reliable.
See also: Investment-Grade Tenant, Triple Net Lease (NNN), Anchor Tenant
Cross-Collateralization
A structure in which one loan is secured by several properties, or several loans share the same collateral. The lender can look to every pledged asset to recover what is owed. With a cross-default clause, which makes a default on one loan a default on the others, trouble at one property can put the rest at risk. It can raise loan size but makes selling one property alone harder.
See also: Lien, Loan Covenants, Loan Default
D
Dark Store
A retail space where the store has closed but the lease continues, so the tenant may still pay rent. The term can also mean a store used only to fill online orders. In property tax disputes, owners sometimes argue an open big-box should be assessed like a vacant one. Courts and states differ.
See also: Go-Dark Clause, Big-Box Retail, Tax Appeal
Data Center
A building that houses servers, networking gear and storage for companies and cloud providers. Power supply, cooling and network connections matter more than finishes. Leases are often priced by power capacity, not only by square foot, and tenants spend heavily on equipment, which makes them reluctant to move.
See also: Special-Purpose Property, Build-to-Suit, Triple Net Lease (NNN)
Daytime Population
The number of people present in an area during working hours. It adds workers who commute in to the residents and subtracts residents who commute out. It differs from resident population, which counts people by where they usually live. Retail and food tenants near office districts care about it because it measures who is nearby at lunch. Estimates come from census commuting data.
See also: Demographics, Trade Area, Office Building
Debt Fund
A pooled investment vehicle that raises money from investors and lends it against commercial real estate instead of owning property. Many debt funds make short-term bridge, transitional or construction loans that banks decline. They can close quickly and accept more risk, and they charge higher rates and fees. Fund investors earn interest income, so returns depend on borrowers repaying.
See also: Bridge Loan, Hard Money Loan, Real Estate Fund
Debt Service
The total of principal and interest payments due on a loan over a period, often quoted per month or per year. It is the first claim on a property's income after operating expenses. Lenders size loans by comparing debt service to NOI, and investors subtract it from NOI to find cash flow before tax.
Example: A $25,000 monthly payment equals $300,000 of annual debt service ($25,000 x 12).
See also: Debt Service Coverage Ratio (DSCR), Cash Flow Before Tax (CFBT), Principal and Interest
Debt Service Coverage Ratio (DSCR)
Debt Service Coverage Ratio (DSCR) measures whether a property generates enough NOI to cover its loan payments with room to spare.
Debt Yield
A lender's ratio that divides a property's NOI by the loan amount. It ignores interest rate and amortization, so it measures loan risk on its own. A higher debt yield means the property's income covers more of the loan balance. Many commercial lenders set a minimum debt yield for that reason.
Example: NOI of $750,000 against a $10,000,000 loan gives a debt yield of 7.5%.
See also: Debt Service Coverage Ratio (DSCR), Loan-to-Value (LTV), Net Operating Income (NOI)
Deed
The legal document that transfers ownership of real property from seller to buyer. The buyer records it in the county records to give public notice. Types differ in the promises the seller makes about title, such as general warranty, special warranty, and quitclaim deeds. Names and requirements vary by state.
See also: Title Insurance, Escrow, Title, Encumbrances, and Clear Title
Deed in Lieu of Foreclosure
An arrangement where a borrower hands the property back to the lender to settle a defaulted loan without going through foreclosure. The lender must agree to accept it. The borrower avoids a completed foreclosure and its costs, and the lender gets the asset sooner. Lenders check for other liens first, and any leftover debt depends on the agreement.
See also: Foreclosure (Judicial and Non-Judicial), Loan Workout, Short Sale
Deed of Trust
A document that pledges property as security for a loan, used in place of a mortgage in some states. It involves three parties: the borrower, the lender, and a neutral trustee who holds title until the loan is repaid. In many states it allows foreclosure without going to court. Which instrument applies varies by state.
See also: Mortgage, Promissory Note, Lien
Defeasance
A way to exit a loan early without paying it off, common on CMBS loans. The borrower replaces the property as collateral with a portfolio of government securities that covers every remaining payment. The loan stays in place and the property is released. The cost depends on interest rates and can be large when rates have fallen since the loan began.
See also: CMBS Loan, Yield Maintenance, Prepayment Penalty
Deferred Maintenance
Repairs and upkeep an owner has put off, such as a worn roof, failing HVAC or cracked paving. Buyers find it during inspections and price it into offers, because the cost passes from seller to buyer at closing. It can also point to wider neglect and hide problems behind a healthy-looking NOI.
See also: Capital Expenditures (CapEx), The Due Diligence Documents You'll Hear Named, Net Operating Income (NOI)
Delaware Statutory Trust (DST)
A trust that owns commercial property and sells beneficial interests to investors. Under IRS guidance, those interests can serve as replacement property in a 1031 exchange, so investors can defer gain without managing real estate. Owners hold no control over decisions, and interests are hard to sell, so liquidity is limited.
See also: Accredited Investor, Real Estate Investment Trust (REIT), Opportunity Zone
Learn more: Fund Structures: REITs, DSTs and Opportunity Zones →
Demographics
Statistics that describe the people in an area, such as population, age, household size, education and income. Investors use them to judge who will rent, shop or work near a property. Data usually comes from government sources like the census and from commercial providers. Trends over time matter as much as current figures.
See also: Median Household Income, Trade Area, Daytime Population
Density
A measure of how much development sits on a piece of land, most often residential units per acre. Zoning usually caps density for a site. Higher allowed density means more units on the same land, which spreads land cost over more rentable space. It sits alongside floor area ratio and height limits as a key development constraint.
Example: A project with 120 apartments on an 8-acre site has a density of 120 / 8 = 15 units per acre.
See also: Floor Area Ratio (FAR), Zoning, Garden-Style Apartments
Depreciation
A tax deduction that spreads the cost of a building and its improvements over a set number of years, even though the property may hold or gain value. It reduces taxable income without costing cash. Land does not depreciate. Depreciation also lowers a property's tax basis, which affects the tax calculation at sale.
See also: Adjusted Basis, Cost Segregation, Depreciation Recapture
Depreciation Recapture
The tax treatment of the part of a sale gain that comes from depreciation deductions taken during ownership. Tax rules can treat this portion differently from the rest of the gain. More years of depreciation mean more gain falls in this bucket. Investors account for it when estimating after-tax sale proceeds.
See also: Depreciation, Adjusted Basis, Capital Gains
Developer Fee
A fee paid to the developer for managing a project from concept through completion. It compensates the work of overseeing design, approvals, construction and lease-up. The amount and payment timing are negotiated and written into the partnership or development agreement. Part of it may be deferred until the project performs. Investors check what the fee covers and when it is paid.
Example: If an agreement set the fee at 3% of a $20,000,000 budget, the fee would be $20,000,000 x 0.03 = $600,000.
See also: Sponsor Fees (Acquisition and Asset Management), Hard Costs and Soft Costs, Joint Venture (JV)
Discount Rate
The annual rate used to convert future cash into today's dollars. It reflects the return an investor requires given the risk and the alternatives. A higher discount rate shrinks the present value of future cash flows and lowers the price an investor will pay.
Example: At a 10% discount rate, $110,000 received in one year is worth $100,000 today.
See also: Discounted Cash Flow (DCF), Net Present Value (NPV), Internal Rate of Return (IRR)
Discounted Cash Flow (DCF)
A valuation method that projects a property's cash flows over a hold period, including sale proceeds, and discounts each one to today's dollars. The sum is the property's present value. Investors use DCF when income changes year to year, such as during lease-up or renovation, where a single cap rate misses the timing.
See also: Discount Rate, Net Present Value (NPV), Terminal Cap Rate (Exit Cap Rate)
Disposition Fee
A fee paid to the sponsor when the property is sold, quoted as a percentage of the sale price. It covers the work of preparing, marketing and closing the sale. It is separate from any commission paid to an outside brokerage. Offering documents state the rate, and some deals do not charge one.
Example: A 1% disposition fee on a $15,000,000 sale is $150,000 ($15,000,000 x 0.01).
See also: Commission, Acquisition Fee, Asset Management Fee
Distribution Waterfall
The order in which a deal pays cash to investors and the sponsor. Money flows through tiers. Investors get their capital back or a preferred return first, then profit splits shift toward the sponsor as returns pass set hurdles. The waterfall decides who gets paid first and how much profit each side keeps.
See also: Preferred Return, Hurdle Rate, Promote (Carried Interest)
Double Net Lease (NN)
A net lease where the tenant pays base rent plus two of the three main property costs: property taxes, insurance and common area maintenance. Most often the tenant pays taxes and insurance, and the landlord keeps maintenance and usually the roof and structure. The mix differs by lease and market, so the contract sets the split.
See also: Single Net Lease (N), Triple Net Lease (NNN), Gross Lease vs. Net Lease
Draw Schedule
The timetable and conditions for releasing construction loan money in stages. As work progresses, the developer submits a draw request backed by the contractor's pay application, and the lender often sends an inspector to confirm progress before it funds. The owner usually withholds retainage from the contractor, and the lender funds net of it. A delayed draw can stall a job.
See also: Retainage, Hard Costs and Soft Costs, Change Order
The Due Diligence Documents You'll Hear Named
Beyond title, every commercial acquisition involves a short list of due diligence documents. As a beginner, your job is to recognize each one, know what risk it addresses, and know to order it. The deep mechanics of each are covered in I2: Due Diligence.
Full explanation: The Due Diligence Documents You’ll Hear Named →
Due Diligence Period
The window after a purchase contract is signed when the buyer can inspect the property, review documents, and test the deal. If something fails, the buyer can often renegotiate or cancel and recover the earnest money. The contract sets the length and the terms, and both are negotiable.
See also: Earnest Money, Purchase and Sale Agreement (PSA), The Due Diligence Documents You'll Hear Named
E
Earnest Money
A deposit the buyer puts down when signing a purchase contract to show good faith. An escrow or title company holds it and applies it to the price at closing. The contract spells out when the buyer gets it back and when the seller keeps it. Amounts and refund rules are negotiated and vary by state.
See also: Escrow, Due Diligence Period, Purchase and Sale Agreement (PSA)
Easement
A legal right for someone other than the owner to use part of a property for a set purpose, such as utility lines, a shared driveway, or access to a neighboring lot. It usually stays with the land when the property sells. Easements can limit where a buyer builds, so the title search and survey list them.
See also: Encroachment, ALTA Survey, Title, Encumbrances, and Clear Title
Economic vs. Physical Occupancy
Physical occupancy counts the share of units or space with a tenant in place. Economic occupancy counts the share of potential rent collected. Gaps come from free rent, concessions, bad debt and below-market units. Lenders and buyers weigh economic occupancy more, because a full building can still underperform.
Example: A building with 95 of 100 units occupied is 95% physically occupied; if it collects $132,000 of $150,000 in potential monthly rent, economic occupancy is 88%.
See also: Vacancy Rate, Effective Gross Income (EGI), Gross Potential Income (GPI)
Effective Gross Income (EGI)
Start with GPI — the theoretical ceiling — and then subtract reality. That’s Effective Gross Income, or EGI.
Encroachment
A structure, fence, or improvement that crosses a property line or extends into an easement or setback. A neighbor's parking lot built partly on your land is one example. Encroachments cloud title, can block financing, and may lead to disputes or removal. A survey is the main tool that finds them.
See also: ALTA Survey, Easement, Setback
Entitlement
The process of getting government approvals to build a project as planned. It can include rezoning, site plan approval, variances, permits, and environmental review. Entitled land is worth more than raw land because the approvals cut risk. The process costs time and money, and the outcome is never certain.
Equity Investor
A person or firm that puts cash into a deal in return for an ownership share and a claim on profits. Equity sits below debt in the capital stack, so lenders get paid first and equity investors absorb losses first. In exchange, equity investors gain from cash flow and appreciation, with no fixed return. They can be active partners or passive limited partners.
See also: Capital Stack, General Partner and Limited Partner, Preferred Equity
Equity Multiple
Total cash an investor gets back divided by the equity invested, including sale proceeds. A 2.0x multiple doubles the money. It ignores timing, so a five-year deal and a ten-year deal can show the same multiple with very different yearly returns. Investors pair it with IRR.
Example: An investor puts in $2,000,000 and receives $3,200,000 in total distributions and sale proceeds, so the equity multiple is 1.6x.
See also: Internal Rate of Return (IRR), Cash-on-Cash Return, Net Present Value (NPV)
Escrow
An arrangement where a neutral third party, the escrow agent, holds money and documents while a transaction moves toward closing. Title companies and attorneys often fill the role. The agent releases funds and the deed only when both sides meet the contract terms. The word also covers lender-held accounts that collect property taxes and insurance with each loan payment.
See also: Earnest Money, Closing Costs, Deed
Estoppel Certificate
A signed statement from a tenant confirming the facts of its lease: rent, term, deposit, and whether any default or dispute exists. A buyer or lender asks for one before closing. It lets them check that the lease on paper matches reality, and it limits the tenant's ability to raise new claims later.
See also: Rent Roll, Lease Abstract, SNDA (Subordination, Non-Disturbance and Attornment Agreement)
1031 Exchange
A tax-deferral rule, named for Section 1031 of the Internal Revenue Code, that lets an owner sell real estate held for investment or business use and reinvest in like-kind real property while postponing tax on the gain. Strict rules govern timing, identification of replacement property, and use of a qualified intermediary. The deferred gain carries into the new property's basis.
See also: Qualified Intermediary, Boot, Adjusted Basis
Exchange Period (1031)
The 180-day limit in a 1031 exchange to close on the replacement property. It runs at the same time as the 45-day identification period, not after it. The deadline can come sooner if the due date of the investor's tax return for the year of sale, including extensions, falls first. Tax law sets the exact rules, so tax advisers confirm the dates.
Example: If the old property closes on March 1, day 180 falls on August 28.
See also: Identification Period (1031), Qualified Intermediary, Boot
Exclusive Use Clause
A lease provision that bars the landlord from leasing to a competitor of the tenant, or to named business types, within the same center. A pharmacy or grocer may negotiate one. Remedies for a breach vary and can include reduced rent or termination. For an owner, exclusives limit the choice of future tenants.
See also: Radius Restriction, Co-Tenancy Clause, Strip Center
Exit Strategy
The plan for how and when an investor gets capital out of a property. Common routes are a sale, a refinance that returns equity, a 1031 exchange into another property, or holding long term for income. Lenders and partners ask for one up front, because it drives the hold period, the loan structure and the exit cap rate assumption.
See also: Hold Period, Refinance, 1031 Exchange
Expense Stop
A lease term that caps the landlord's share of operating costs at a fixed dollar amount per square foot. The tenant pays any cost above that stop. It works like a base year but uses a stated number. Investors check the stop because it decides who absorbs rising taxes, insurance, and maintenance.
Example: With a $9.00 per SF stop and actual costs of $9.75, a 4,000 SF tenant pays $0.75 × 4,000 = $3,000.
See also: Base Year, Modified Gross Lease, CAM Charges and Expense Recoveries
F
Fair Market Value
The price a property would sell for in an open market between a willing buyer and a willing seller. Both sides know the relevant facts, and neither faces pressure to act. Appraisers, lenders, tax authorities and courts each use a version of this standard, so investors meet it in loan underwriting, tax disputes and condemnation cases.
See also: Appraisal, Assessed Value
Financing Contingency
A contract condition that lets the buyer cancel if they cannot obtain a loan on stated terms by a set date. It protects the buyer's deposit when financing falls through. Sellers often resist it because it adds risk of a failed deal. Contract language sets the deadline, the loan terms that count and what happens to the deposit.
See also: Contingency, Commitment Letter, Earnest Money
Fixed Charge Coverage Ratio (FCCR)
A coverage ratio that compares cash flow to all fixed obligations, not only the loan payment. Depending on the lender's definition, fixed charges can include debt service, ground rent, equipment leases and required reserves. It shows whether income covers every commitment that cannot be skipped. Lenders use it on owner-operated assets such as hotels, and on business loans.
Example: Cash flow of $900,000 against $600,000 of debt service plus $100,000 of ground rent gives an FCCR of about 1.29 ($900,000 / $700,000).
See also: Debt Service Coverage Ratio (DSCR), Ground Lease, Interest Coverage Ratio (ICR)
Fixed-Rate vs. Floating-Rate Loan
A fixed-rate loan keeps the same interest rate for the term, so payments stay predictable. A floating-rate loan resets periodically, usually at a benchmark such as SOFR plus a set spread, so payments rise and fall with rates. Floating loans often start cheaper and suit shorter business plans. Many borrowers add an interest rate cap.
Example: On an interest-only $5,000,000 floating-rate loan, a 1% rate rise adds $5,000,000 x 1% = $50,000 of interest per year.
See also: SOFR, Bridge Loan, Interest-Only Period
Flex Space
A building that combines office and warehouse or light industrial space under one roof, often one or two stories with glass frontage and rear loading doors. Tenants include showrooms, labs, service firms and small distributors. Flex costs more to finish than a plain warehouse, and its rents often sit between office and warehouse rates.
See also: Mixed-Use Property, Gross Lease vs. Net Lease, Class A, B and C Properties
Flood Insurance
Coverage for damage caused by rising water, which standard property policies usually exclude. It can come from the federal flood program or from private insurers. Lenders often require it when a building sits in a mapped high-risk flood zone. Premiums, limits and eligibility vary by flood zone, building and insurer, and they can change an operating budget.
See also: Property Insurance, Lender Reserves, Tax and Insurance Escrow
Floor Area Ratio (FAR)
A zoning measure that compares a building's total floor area to the size of its lot. Codes cap it to control density. A higher allowed FAR lets a developer build more square feet on the same land, which raises what the site is worth. Codes differ on which floor area counts.
Example: A 25,000 SF lot with a FAR limit of 2.0 allows up to 25,000 × 2.0 = 50,000 SF of floor area.
See also: Zoning, Setback, Entitlement
Forbearance
A lender's agreement to hold off on enforcing its rights after a borrower misses payments or breaks a loan term, often for a set period. The debt remains, and interest usually keeps accruing. Forbearance gives the borrower room to fix the problem, sell, or refinance. The lender can end it if conditions break.
See also: Loan Workout, Non-Performing Loan (NPL), Foreclosure (Judicial and Non-Judicial)
Force Majeure
A clause that excuses or delays a party's duties when events outside its control occur, such as natural disasters, war or government orders. The wording decides which events count and which duties it covers. Many leases do not excuse rent payment under it. Investors read it to see how a disruption could affect income.
See also: Casualty and Condemnation Clause, Lease Default and Cure Period, Property Insurance
Forced Appreciation
Value an owner creates by raising net operating income, as opposed to waiting for the market to lift prices. Renovations, better management, cost cuts and re-leasing at higher rents all qualify. Because value equals NOI divided by the cap rate, each added dollar of NOI adds value equal to one dollar divided by the cap rate.
Example: NOI rises from $100,000 to $120,000 after renovations. At an 8% cap rate, value moves from $1,250,000 to $1,500,000, so the owner added $250,000 of value before the cost of the renovations.
See also: Core, Core-Plus, Value-Add and Opportunistic, Net Operating Income (NOI), Appreciation
Foreclosure (Judicial and Non-Judicial)
The legal process a lender uses to take and sell a property after the borrower defaults. Judicial foreclosure runs through the courts. Non-judicial foreclosure uses a power of sale in the loan documents, where the state allows it. Distressed investors buy at these sales, and the process carries real risk for bidders.
See also: Deed in Lieu of Foreclosure, Real Estate Owned (REO), Receivership
Franchise Agreement (Hotel Flag)
A contract that lets a hotel owner operate under a brand, known as the flag. The owner gets the name, reservation system and loyalty program. In return the owner pays fees, often tied to revenue, and meets brand standards, which can require renovations. Brands usually offer their own standard form, so negotiation room varies. Term, fees and exit terms affect value.
See also: Hotel and Hospitality Property, Revenue Per Available Room (RevPAR), Management Agreement
Free Rent (Concession)
Months at the start of a lease when the tenant pays no base rent, offered to win the deal without cutting the quoted rate. Landlords like it because the headline rent stays high. Investors care because it lowers real income in the early months and changes net effective rent, valuation, and lender underwriting.
Example: A tenant on $10,000 monthly rent with 3 months free saves 3 × $10,000 = $30,000 over the term.
See also: Net Effective Rent, Tenant Improvement Allowance (TI), Leasing Commission
Full-Service Gross Lease
A lease where the tenant pays one rent and the landlord covers the building's operating costs, including property taxes, insurance, maintenance, janitorial and utilities. Office leases often use it, with a base year or expense stop so tenants share later cost increases. Rent runs higher than in a net lease because it includes those costs.
See also: Base Year, Expense Stop, Gross Lease vs. Net Lease
Functional Obsolescence
Loss of value because a building's design no longer fits how tenants use space, even when the structure is sound. Examples include low ceilings in a warehouse, a poor floor plan, too little parking or outdated wiring. Appraisers deduct for it in the cost approach. Buyers weigh whether a fix costs less than the value it restores.
See also: Cost Approach, Adaptive Reuse, Deferred Maintenance
Future Value
What money invested today grows to after a set time at a given rate of return. It is the reverse of present value. Investors use it to project how equity could grow, to compare a property's projected proceeds with other uses of cash, and to see how a small change in rate or years changes the final amount.
Example: $10,000 earning 6% a year for 3 years grows to $11,910 (10,000 x 1.06 x 1.06 x 1.06 = $11,910.16).
See also: Present Value, Compound Interest, Time Value of Money
G
Garden-Style Apartments
Low-rise apartment complexes, usually one to three stories, spread across a landscaped site with surface parking and outdoor stairs or breezeways. They cost less to build per unit than elevator buildings and use more land. Density is measured in units per acre.
Example: A complex with 240 units on 12 acres has a density of 20 units per acre (240 / 12).
See also: Mid-Rise and High-Rise, Density, Multifamily
Gateway and Secondary Markets
Gateway markets are the largest, most liquid US metros with deep investor demand, such as New York, Los Angeles and Chicago. Secondary markets are smaller or mid-size metros with less competition and often higher cap rates. No official list exists, and labels shift as cities grow. Investors trade yield against liquidity and exit risk.
See also: Submarket, Capitalization Rate (Cap Rate), Class A, B and C Properties
General Contractor
The company that manages construction of a project. It hires and coordinates subcontractors, orders materials, keeps the schedule and builds to the plans. Contracts take different forms, such as a fixed price, cost plus a fee or a guaranteed maximum price. Licensing requirements vary by state. The owner's financial risk depends heavily on the contract type.
See also: Guaranteed Maximum Price (GMP) Contract, Change Order, Retainage
General Liability Insurance
Coverage for claims that someone was injured or that third-party property was damaged because of the owner's property or operations. A customer who slips in a parking lot is a typical example. The policy pays legal defense costs and covered settlements, up to its limits. It does not cover damage to the owner's own building. That falls under property insurance.
See also: Property Insurance, Operating Expenses, Indemnification
General Partner and Limited Partner
The two roles in a limited partnership. The general partner finds the deal, runs the property, and can carry personal liability for the partnership's debts, so sponsors often act through an entity. Limited partners supply money, take no day-to-day role, and generally risk only what they invest. Many syndications use an LLC, where the sponsor acts as manager and investors hold member interests.
See also: Syndication, Promote (Carried Interest), Joint Venture (JV)
Learn more: Raising Capital: Syndications, JVs and Private Equity →
Generally Accepted Accounting Principles (GAAP)
The standard rule set for financial reporting in the United States. GAAP statements use accrual accounting and consistent definitions, so different companies compare fairly. Lenders, institutional investors, and auditors often require them. Many small owners keep books on a cash or tax basis instead.
See also: Accrual vs. Cash Basis Accounting, Balance Sheet, Income Statement
Go-Dark Clause
A lease clause that lets a retail tenant stop operating while it keeps paying rent. Many leases instead require continuous operation, so a go-dark right is a negotiated exception. Landlords worry about it because an empty store cuts customer traffic and can trigger co-tenancy rights for neighbors.
See also: Co-Tenancy Clause, Dark Store, Anchor Tenant
Going-In Cap Rate
The cap rate at purchase, found by dividing first-year NOI by the purchase price. It shows the starting yield before any rent growth, renovation or sale. Investors compare it with the exit cap rate and with recent sales to judge whether they are overpaying.
Example: NOI of $600,000 on a $10,000,000 purchase price is a 6.0% going-in cap rate.
See also: Capitalization Rate (Cap Rate), Terminal Cap Rate (Exit Cap Rate), Return on Cost
GP Catch-Up
A provision in a distribution waterfall that sends the general partner a large share of cash, often all of it, after investors collect their preferred return. It continues until the GP has caught up to its full promote percentage of total profit. Not every deal has one, and the catch-up share can be less than 100%.
Example: Investors put in $10,000,000 with an 8% preferred return and the GP earns a 20% promote. Investors receive $800,000 of preferred return first. A full catch-up then sends the next $200,000 to the GP, bringing the GP to 20% of the $1,000,000 of profit distributed so far ($200,000 / $1,000,000).
See also: Promote (Carried Interest), Preferred Return, Distribution Waterfall
Gross Leasable Area (GLA)
The total floor space in a property that tenants can occupy and pay rent on, measured in square feet. It leaves out common areas such as corridors. Retail owners use it to quote rent per square foot and the percent leased. Whether separately owned anchor space counts varies by source.
Example: A fully leased center with 100,000 square feet of GLA that collects $2,000,000 a year in base rent averages $20 per square foot ($2,000,000 / 100,000).
See also: Rentable vs. Usable Square Feet (Load Factor), Common Area, Occupancy Rate
Gross Lease vs. Net Lease
A commercial lease defines who pays which expenses. The two poles of the spectrum are gross leases and net leases — and everything in between.
Gross Potential Income (GPI)
Every CRE analysis starts at the top of the income statement with one question: if every unit in this property were leased at full market rent, with zero days of vacancy, how much money would come in each year? That theoretical maximum is called Gross Potential Income, or GPI.
Gross Rent Multiplier (GRM)
The Gross Rent Multiplier (GRM) is a quick-and-dirty valuation tool — a first filter to determine whether a property’s asking price is in the right ballpark before you do deeper analysis.
Gross-Up Provision
A lease clause that adjusts a building's variable operating costs, such as cleaning and utilities, to what they would be at a set occupancy level, commonly 95 to 100 percent. It keeps expense recoveries and base-year comparisons fair when the building is not full. The lease sets the percentage and which costs count.
Example: Variable costs of $380,000 at 80% occupancy gross up to $451,250 at a 95% target ($380,000 / 0.80 x 0.95).
See also: Base Year, Expense Stop, Operating Expense Pass-Through
Ground Lease
A long-term lease of land, often lasting decades, where the tenant owns or builds the buildings and pays rent for the ground. The landowner keeps the land and often gets the buildings back at the end. Lenders and buyers care about the remaining term, because a short one can limit financing and lower value.
See also: Gross Lease vs. Net Lease, Triple Net Lease (NNN), Right of First Refusal (ROFR)
Guaranteed Maximum Price (GMP) Contract
A construction contract where the contractor agrees the total cost will not exceed a set price. The owner pays actual costs plus the contractor's fee, up to that cap. If costs come in under, the contract often shares the savings. Its terms decide what counts as a cost and when the cap can change.
See also: Change Order, Construction Contingency, Hard Costs and Soft Costs
Guarantor
A person or company that promises to pay the tenant's lease obligations if the tenant does not. A guarantor can be an owner personally or a parent company. A guaranty may be full, capped, or limited in time, depending on the lease. A strong guarantor can make a weaker tenant easier to finance and lowers the landlord's risk.
See also: Credit Tenant, Personal Guarantee, Security Deposit
H
Hard Costs and Soft Costs
Hard costs are the physical construction expenses: materials, labor, and site work. Soft costs are the rest of what delivers a project, such as design, permits, legal fees, financing costs, and insurance. Lenders budget them separately. Soft costs often run over when schedules slip.
Example: A $10,000,000 budget, excluding land, with $8,000,000 of hard costs has $2,000,000 of soft costs, or 20% of that total.
See also: Construction Contingency, Impact Fees, Draw Schedule
Hard Money Loan
A short-term loan from a private lender that bases its decision mostly on the property's value and the deal, with less weight on the borrower's credit or income. Funding is fast, but rates and fees run well above bank loans. Investors use hard money for quick closings and rehabs, then refinance or sell within a year or two.
See also: Bridge Loan, Refinance, Lien
Hazardous Materials
Substances that can harm people or the environment, such as petroleum products, solvents, lead paint and asbestos. They may be stored on a property, used by a tenant or left behind from past use. Investors check for them because contamination can bring cleanup costs, lender concerns and reduced value. Environmental reports help identify known and likely issues.
See also: Phase I Environmental Site Assessment, Asbestos, Brownfield Site
Highest and Best Use
The use of a property that is legally allowed, physically possible, financially feasible and produces the highest value. Appraisers test those four things in order. A parking lot on land zoned for a tower may have a best use that differs from its current one. Investors use the idea to spot land and buildings that could earn more under a different plan.
See also: Zoning, Appraisal, Redevelopment
Hold Period
The length of time an investor owns a property, from purchase to sale. The business plan, loan terms and fund life set it. Plans range from a few years for value-add deals to a decade or more for core assets. A longer hold allows more cash flow and rent growth. A shorter one returns capital sooner and lifts IRR if the plan works.
See also: Exit Strategy, Reversion Value, Internal Rate of Return (IRR)
Holdover Tenant
A tenant who stays in the space after the lease ends without signing a new one. Many leases charge higher holdover rent and let the landlord start eviction. Investors care because a holdover blocks the next tenant, makes income uncertain, and can trigger legal steps that vary by state.
See also: Rollover Risk, Lease Abstract, Sublease
Hotel and Hospitality Property
A property that rents rooms by the night and often sells food, drink and event space. Income comes from daily room sales, not long leases, so it moves with demand and seasons. Brand and management quality matter a great deal. Investors track revenue per available room and average daily rate.
See also: Revenue Per Available Room (RevPAR), Average Daily Rate (ADR), Franchise Agreement (Hotel Flag)
HUD/FHA Multifamily Loan
A mortgage on apartment properties that the Federal Housing Administration, part of HUD, insures for the lender. HUD sets the program rules and HUD-approved lenders make the loans. Programs exist for purchase, refinance, new construction and substantial rehab of rental housing. Investors know them for long terms and slow processing. Rules, limits and costs are set by the program and change over time.
See also: Agency Loan (Fannie Mae and Freddie Mac), Multifamily, Non-Recourse Loan
Hurdle Rate
The return a deal must reach before the profit split changes. Sponsors often earn a bigger share once investors clear a hurdle, measured as IRR or cash yield. A second, looser use means the minimum return an investor requires before taking on a project. Investors compare the hurdle to their own target.
See also: Distribution Waterfall, Preferred Return, Promote (Carried Interest)
I
Identification Period (1031)
The 45-day window in a 1031 exchange for the investor to identify, in writing, the possible replacement properties. The count begins the day after the old property transfers. Tax law sets specific rules on how many properties can be named and how to deliver the notice. Missing the deadline can disqualify the exchange.
Example: If the old property closes on March 1, day 45 falls on April 15.
See also: Exchange Period (1031), Qualified Intermediary, 1031 Exchange
Impact Fees
One-time charges a local government collects from a developer to help pay for the roads, schools, parks, or utilities a new project will strain. Amounts and rules differ by city, county, and project type. They raise development cost, so developers check them early in site selection because they can decide whether a project works.
See also: Entitlement, Hard Costs and Soft Costs, Zoning
Income Approach
A valuation method that estimates value from the income a property produces. The two main forms are direct capitalization, which divides NOI by a cap rate, and discounted cash flow, which discounts projected cash. Appraisers and buyers lean on it for rental properties, since investors buy income.
Example: NOI of $500,000 at a 6.25% cap rate values a property at $500,000 / 0.0625 = $8,000,000.
See also: Capitalization Rate (Cap Rate), Discounted Cash Flow (DCF), Net Operating Income (NOI)
Income Statement
A financial statement that shows revenue, expenses, and profit over a period, such as a month or a year. Owners also call it a profit and loss statement (P&L). For a property, it runs from rental income down through operating expenses to net income. Investors compare it over time and against budget to spot trends.
See also: Net Operating Income (NOI), Balance Sheet, Operating Expenses
Indemnification
A promise by one party to cover the other's losses from stated claims, such as injuries on the premises or damage caused by the indemnifying party. Leases often pair indemnities with liability insurance requirements. The wording sets who pays when someone sues, so owners read these clauses together with the insurance terms.
See also: General Liability Insurance, Casualty and Condemnation Clause, Lease Default and Cure Period
Industrial Property
Buildings used to make, store or move goods, such as warehouses, distribution centers, manufacturing plants and flex space. Tenants care about ceiling height, truck access and highway proximity. The buildings are plain and leases are often long, so income can be steady when tenant demand holds.
See also: Warehouse and Distribution Center, Flex Space, Clear Height and Dock Doors
Infill Location
A site in an already developed area, surrounded by existing buildings, roads, utilities and customers. Land is scarce and costly, and approvals can be harder. Nearby demand is easier to measure than at a new edge-of-town site, and the limited supply of land keeps new competing buildings in check, though a weak neighborhood can still hurt results.
See also: Redevelopment, Barriers to Entry, Last-Mile Logistics
Inflation Hedge
An asset whose income or value tends to rise when prices rise, which protects buying power. Real estate can serve as one when leases reset to higher rents or include escalations, and when fixed-rate debt is repaid in cheaper dollars. Long leases with flat rent lag inflation, and higher rates can hurt values, so the protection varies.
See also: Rent Escalations, Fixed-Rate vs. Floating-Rate Loan, Triple Net Lease (NNN)
Inspection Period
The window after a contract is signed when the buyer can inspect the property and review documents. Inspectors check the roof, structure and mechanical systems, and the buyer reviews leases and financials. Length is negotiated. If the buyer finds a problem, the contract usually allows cancellation or a price renegotiation before the period ends.
See also: Due Diligence Period, Property Condition Assessment, Contingency
Installment Sale
A sale where the seller receives at least one payment after the tax year of the sale, often through seller financing. In many cases the tax on the gain spreads across the years payments arrive instead of landing in the sale year. Exceptions exist, including immediate reporting of certain ordinary-income depreciation recapture, so details need review.
Example: A seller sells for $1,000,000 with a $400,000 tax basis, so the gain is $600,000, or 60% of the price. If the seller receives $200,000 in year one, $120,000 of gain is reported that year (200,000 x 60%), ignoring recapture and interest.
See also: Capital Gains, Depreciation Recapture, Adjusted Basis
Interest Coverage Ratio (ICR)
A ratio of a property's net operating income to its interest payments only, with principal left out. A higher ratio means more cushion. Lenders use it on interest-only, bridge and construction loans, where little or no principal is being paid. It is looser than DSCR, which also counts principal, so ICR reads higher on the same loan.
Example: NOI of $600,000 and annual interest of $400,000 give an ICR of 1.5 ($600,000 / $400,000).
See also: Debt Service Coverage Ratio (DSCR), Interest-Only Period, Bridge Loan
Interest Rate
The percentage a lender charges each year for the use of borrowed money. It can stay fixed for the life of the loan or float with a benchmark index. The rate, the loan balance and the amortization schedule together set the payment. On commercial deals, the rate often reflects a benchmark plus a spread that the lender sets for the risk.
Example: At 6.5% on a $2,000,000 balance, a year of interest costs $130,000 ($2,000,000 x 0.065).
See also: Fixed-Rate vs. Floating-Rate Loan, Credit Spread, SOFR
Interest Rate Cap
A contract the borrower buys that sets a ceiling on a floating rate. If the benchmark rises above the agreed strike rate, the cap seller pays the difference on the covered loan amount, called the notional amount. The borrower pays a one-time premium up front. Lenders often require a cap on floating-rate and bridge loans because it limits how high payments can climb.
Example: With a 5.00% strike on a $10,000,000 notional amount, a benchmark at 6.50% produces a payout of $150,000 per year ($10,000,000 x 1.50%).
See also: Fixed-Rate vs. Floating-Rate Loan, Interest Rate Swap, Bridge Loan
Interest Rate Swap
A contract that exchanges one stream of interest payments for another. On a floating-rate loan, the borrower pays a fixed rate to the swap provider and receives the floating rate, which offsets the loan's floating payments. The net effect is a fixed cost. Ending a swap early can trigger a breakage payment, which depends on where rates stand at that time.
Example: A loan at SOFR plus 2.50% with a swap fixing SOFR at 4.00% costs 6.50% (4.00% + 2.50%).
See also: Interest Rate Cap, SOFR, Fixed-Rate vs. Floating-Rate Loan
Interest-Only Period
A stretch at the start of a loan when payments cover interest only and the principal balance stays flat. After it ends, payments usually rise to include principal. Interest-only periods improve early cash flow and coverage ratios, but the balance does not shrink during that time, so the borrower builds no equity through paydown.
Example: An interest-only $5,000,000 loan at 6% costs $5,000,000 x 6% = $300,000 per year, or $25,000 per month.
See also: Amortization, Balloon Payment, Debt Service Coverage Ratio (DSCR)
Internal Rate of Return (IRR)
The annual return rate that makes the present value of all cash flows, in and out, equal zero. It accounts for timing, so cash received sooner lifts it. Investors use IRR to compare deals with different hold periods. It assumes interim cash can be reinvested at the same rate, which can flatter a deal.
Example: Investing $100,000 and receiving $110,000 one year later is a 10% IRR.
See also: Equity Multiple, Net Present Value (NPV), Cash-on-Cash Return
Investment-Grade Tenant
A tenant whose debt carries a rating of BBB- or higher from S&P or Fitch, or Baa3 or higher from Moody's. These ratings signal a lower chance of default. Buyers of net lease properties often accept lower cap rates for investment-grade tenants because lenders and investors view the rent as safer.
See also: Credit Tenant, Capitalization Rate (Cap Rate), Triple Net Lease (NNN)
J
Job Growth
The rate at which the number of jobs in a market increases over a period. Rising employment feeds demand for apartments, offices, retail and industrial space. Investors look at which industries add jobs and whether growth is broad or tied to one employer. Reported figures are often revised later, so a single reading is a rough signal.
Example: A metro area with 500,000 jobs that rises to 510,000 over a year grew by (510,000 – 500,000) / 500,000 = 2.0%.
See also: Submarket, Absorption Rate, Supply Pipeline
Joint Venture (JV)
A partnership between two or more parties formed for one deal or project. A developer often brings the expertise and a capital partner brings the money, and they split profits under a written agreement. A JV shares risk and resources, and the agreement spells out control, funding duties, and exit rights.
See also: General Partner and Limited Partner, Distribution Waterfall, Capital Call
Learn more: Raising Capital: Syndications, JVs and Private Equity →
L
Land Use Designation
The category a local plan assigns to a parcel, such as low-density residential, commercial or industrial. It states the intended long-term use of the land. Zoning differs because it holds the detailed legal rules for what can be built today. When the plan allows more intense use than current zoning, a rezoning may be easier to win. When it allows less, a rezoning is harder.
See also: Comprehensive Plan, Zoning, Highest and Best Use
Landlord and Tenant
The landlord holds the right to lease the space, usually as its owner, and grants the tenant the right to use it. The tenant pays rent and agrees to follow the lease terms. The lease is the contract that sets who pays what, who repairs what, and how long the deal lasts. Investors read it to see who carries each cost and risk.
See also: Lease Term, Base Rent, Rent Roll
Last-Mile Logistics
The final leg of a delivery, from a local facility to the customer's door. Buildings that serve this leg sit close to dense population and are often smaller than big distribution centers. They tend to rent for more per square foot, because a nearby location cuts delivery time and cost.
See also: Warehouse and Distribution Center, Infill Location, Industrial Property
Lease Abstract
A short summary of a lease's key terms: tenant, space, rent, escalations, term, renewal options, expense recoveries, and special clauses. Investors and lenders use abstracts to review dozens of leases fast and to feed a financial model. Errors in an abstract pass into the underwriting, so reviewers spot-check them against the lease.
See also: Rent Roll, Estoppel Certificate, Rent Escalations
Lease Audit
A review that checks whether a tenant's billings match the lease. Tenants audit common area, tax and insurance charges for overbilling. Landlords audit tenants for sales reporting or insurance proof. Many leases limit when an audit may occur and who pays for it. Audits can lead to refunds or back charges.
See also: CAM Reconciliation, CAM Charges and Expense Recoveries, Percentage Rent
Lease Commencement Date
The date a lease term begins. The lease defines it, often as the day the tenant gets possession or the day the landlord finishes agreed work. The tenant's other obligations, such as insurance and its share of operating costs, may start here even when rent starts later. The date also fixes the expiration date.
See also: Rent Commencement Date, Lease Term, Build-Out
Lease Default and Cure Period
A default is a breach of the lease, such as unpaid rent or a violated covenant. The cure period is the time the breaching party gets to fix the problem after written notice, before the other side can use remedies like eviction or termination. Lengths vary by lease and often run shorter for unpaid rent than for other breaches.
See also: Security Deposit, Guarantor, Holdover Tenant
Lease Rollover Schedule
A table that shows which leases expire in each year, with the square footage and rent tied to each. It reveals how much income comes up for renewal at once. A buyer reads it to spot years when many leases expire together, because a cluster of expirations raises vacancy and re-leasing risk.
Example: If leases covering 12,000 of a center's 60,000 square feet expire in 2028, 20% of the space rolls that year (12,000 / 60,000).
See also: Rollover Risk, Weighted Average Lease Term (WALT), Rent Roll
Lease Term
The length of time a lease runs, from its commencement date to its expiration date. Small shops may sign for a few years, while large or specialized tenants often sign for ten years or more. Investors care because the term sets how long the rent is locked in, unless the lease gives the tenant a termination right, and when the space may come open.
See also: Lease Commencement Date, Renewal Option, Weighted Average Lease Term (WALT)
Lease-Up
The period after a new or renovated property opens, or after a large vacancy, while the owner fills space with tenants. Lenders and investors watch the pace, rent levels and concessions. Income runs low and the property has not stabilized, so cash flow is tight and loans often carry interest reserves.
See also: Absorption Rate, Stabilized NOI, Economic vs. Physical Occupancy
Leasing Commission
A fee a landlord pays a broker for bringing a tenant or for a renewal. Landlords often pay the tenant's broker plus their own, and the fee is a percentage of the rent over the lease term. Investors budget for it as a cost of filling space, so it cuts cash flow when leases roll.
Example: At an illustrative 5% of $500,000 in total base rent over the lease, the commission is $25,000.
See also: Tenant Improvement Allowance (TI), Free Rent (Concession), Rollover Risk
Legal Nonconforming Use
A use or building that was legal when built but no longer fits current zoning because the rules changed. Local law usually lets it continue, which people call grandfathering. Limits often apply. Expansion can be restricted, and rebuilding after major damage or a long vacancy can cost the status.
See also: Zoning, Variance, Certificate of Occupancy
Lender Reserves
Cash a lender requires the borrower to deposit and hold to cover future costs of the property. Common reserves cover property taxes, insurance, replacement items such as roofs, and tenant improvements and leasing costs. Lenders add them to protect the collateral. They tie up cash, so investors count them in the funds needed at closing.
See also: Tax and Insurance Escrow, Reserves for Replacement, Escrow
Letter of Intent (LOI)
A document that lays out the main terms of a deal before lawyers draft the contract: price, deposit, timeline, due diligence period, and key conditions. Buyers and tenants use it to agree on the business deal first. Most of an LOI does not bind either side, though confidentiality or exclusivity sections sometimes do.
See also: The Due Diligence Documents You'll Hear Named, Right of First Refusal (ROFR), Estoppel Certificate
Leverage
Using borrowed money to buy an asset so a given amount of equity controls a larger property. Debt can magnify returns when the property earns more than the loan costs. It also magnifies losses and raises default risk when income or value falls. Lenders limit leverage with ratios such as loan-to-value and debt service coverage.
Example: A buyer pays $1,000,000 with $700,000 of debt and $300,000 of equity. If value rises 10% to $1,100,000, the $100,000 gain equals 33.3% of the equity (100,000 / 300,000), before interest and costs.
See also: Loan-to-Value (LTV), Positive Leverage, Capital Stack
Levered vs. Unlevered Return
An unlevered return measures a property's performance as if the buyer paid all cash. A levered return measures the return on the investor's own equity after debt service and loan payoff are counted. Comparing the two shows how much the financing helps or hurts. Lenders, partners and investors often quote both for the same deal.
Example: A $2,000,000 property earns $140,000 NOI, a 7% unlevered yield. With a $1,200,000 loan costing $60,000 in interest, the investor keeps $80,000 on $800,000 of equity, a 10% levered yield.
See also: Leverage, Internal Rate of Return (IRR), Cash-on-Cash Return
Lien
A legal claim against a property that secures payment of a debt. A mortgage is a voluntary lien. Unpaid taxes, contractor bills, and court judgments can create involuntary liens. Liens attach to the property, so a buyer or lender usually needs them cleared or accounted for at closing. Priority among liens depends on the type of lien and recording order.
See also: Mortgage, Deed of Trust, Title, Encumbrances, and Clear Title
Life Insurance Company Loan
A commercial mortgage made by a life insurance company, which invests policyholder premiums in long-term assets. These lenders tend to favor high-quality properties in strong markets with conservative leverage, and often offer fixed rates and long terms. Underwriting is selective and the loans can carry prepayment restrictions. Terms vary by insurer and change with the market.
See also: Agency Loan (Fannie Mae and Freddie Mac), Prepayment Penalty, Fixed-Rate vs. Floating-Rate Loan
Life Science and Lab Space
Buildings made for research and development in biotech, pharmaceuticals and related fields. They have lab benches, extra power, heavy ventilation, specialized plumbing and strong floors, which cost far more to build than standard office space. Demand follows research funding and clusters near universities and hospitals.
See also: Special-Purpose Property, Office Building, Tenant Improvement Allowance (TI)
Listing Agreement
A contract between a property owner and a brokerage that gives the broker the right to market the property for sale or lease. It sets the length of the engagement, the pricing approach and how the broker gets paid. Exclusive and non-exclusive versions exist. Terms are negotiable and rules vary by state. It shapes who controls the sale process.
See also: Commission, Offering Memorandum (OM), Buyer's Broker
Load Factor
The percentage added to a tenant's usable square feet to cover its share of shared areas, such as lobbies, corridors and restrooms, which produces the rentable square feet it pays for. A higher load factor means the tenant pays for more space it cannot use alone. Some markets quote the gap as a loss factor on rentable area instead.
Example: A suite with 2,000 usable square feet and 2,300 rentable square feet has a 15% load factor (300 / 2,000).
See also: Rentable vs. Usable Square Feet (Load Factor), Common Area, Gross Leasable Area (GLA)
Loan Constant
A loan's annual debt service expressed as a percentage of the original loan amount. It folds the interest rate and amortization into one number. Compare it with the going-in cap rate: when the cap rate sits above the constant, borrowing adds to the equity return, which is positive leverage. An interest-only loan has a constant close to its interest rate.
Example: Annual payments of $77,300 on a $1,000,000 loan give a loan constant of 7.73% ($77,300 / $1,000,000).
See also: Positive Leverage, Debt Service, Going-In Cap Rate
Loan Covenants
Promises in the loan documents that set rules for the borrower. Affirmative covenants require actions, such as paying taxes and sending financial statements. Negative covenants restrict actions, such as selling the property or taking on more debt. Financial covenants set minimums, such as a minimum DSCR. Breaking a covenant can trigger a default even when payments are current.
See also: Loan Default, Debt Service Coverage Ratio (DSCR), Carve-Outs (Bad Boy Guarantees)
Loan Default
A failure to meet the terms of a loan. Payment default means a missed payment. Technical or covenant default means breaking another term, such as letting insurance lapse or missing a required ratio. The lender's remedies come from the loan documents and state law, and can include default interest, demanding the full balance and foreclosure.
See also: Forbearance, Foreclosure (Judicial and Non-Judicial), Loan Workout
Loan Modification
A negotiated change to the terms of an existing loan, agreed in writing by lender and borrower. It can change the rate, extend the maturity, lower payments or adjust covenants. Borrowers in distress, or facing a maturity in a tight market, often ask for one. Lenders agree when they expect to recover more than a foreclosure would return.
See also: Loan Workout, Forbearance, Maturity Date
Loan Term vs. Amortization Period
The loan term is how long until the loan comes due. The amortization period is the schedule used to size the payment. The two often differ. A 10-year term with a 30-year amortization gives lower payments than a 10-year payoff would, but it leaves a large balance due at maturity. Investors plan for that balloon by refinancing, selling or paying cash.
Example: On $5,000,000 at 6%, a 10-year term with a 30-year amortization leaves about $4.18 million due at maturity.
See also: Balloon Payment, Amortization, Maturity Date
Loan Workout
A negotiated fix for a loan in trouble. Borrower and lender agree on changed terms, such as lower payments, a longer term, or a payment pause, to avoid foreclosure. Lenders favor a workout when it recovers more than a forced sale would. Workouts often add fees, guarantees, or reporting duties.
See also: Forbearance, Special Servicer, Deed in Lieu of Foreclosure
Loan-to-Cost (LTC)
A ratio that compares the loan amount to the total cost of a project, including land, construction, and soft costs. Construction and value-add lenders use it to cap how much they lend, and equity covers the rest. A lower LTC means more borrower cash at risk and less risk for the lender.
Example: A $6,000,000 loan on a project with $8,000,000 of total cost is $6,000,000 / $8,000,000 = 75% LTC.
See also: Loan-to-Value (LTV), Construction Loan, Capital Stack
Loan-to-Value (LTV)
Loan-to-Value (LTV) is the ratio of the loan amount to the appraised value of the property.
Lockbox
A bank account controlled by the lender that receives a property's rent, so the lender controls the cash before the borrower can spend it. A hard lockbox has tenants pay straight into the account. A soft lockbox has tenants pay the owner, who then deposits the money. A springing lockbox starts only after a trigger, such as a low DSCR. CMBS loans often use them.
See also: CMBS Loan, Debt Service Coverage Ratio (DSCR), Loan Covenants
Loss to Lease
The gap between a unit's market rent and the lower rent a tenant pays under an existing lease. Pro formas track it as a deduction from gross potential rent. A large gap signals upside as leases roll, though a big rent jump can push tenants to leave.
Example: 100 units renting at $1,400 against a market rent of $1,500 lose $100 x 100 x 12 = $120,000 a year.
See also: Mark-to-Market (Rents), Gross Potential Income (GPI), Rent Escalations
M
MACRS
The Modified Accelerated Cost Recovery System is the main US tax depreciation method. It assigns each asset a recovery period by property class. Buildings recover straight-line over 27.5 years for residential rental property and 39 years for nonresidential property, while equipment and land improvements use shorter periods. Land is not depreciable. Cost segregation moves parts of a building into the shorter classes.
See also: Straight-Line Depreciation, Cost Segregation, Bonus Depreciation
Make-Ready
The work that prepares a vacant unit or suite for the next tenant. Typical tasks are cleaning, painting, minor repairs, replacing worn items and testing systems. Property managers track make-ready cost and days to complete, because each extra vacant day costs rent. Owners budget it as a turnover expense, apart from major renovation.
See also: Turnover Costs, Property Manager, Work Orders and Preventive Maintenance
Management Agreement
The contract between a property owner and a property manager. It states the manager's duties, spending authority, fee, reporting duties and term. It also covers how either side can end the arrangement and who bears costs for staff and vendors. Terms are negotiable. Owners read the termination and spending authority sections closely because those sections decide how much say the owner keeps.
See also: Property Manager, Property Management Fee, Operating Expenses
Manufactured Housing Community
A site where residents own factory-built homes and rent the land lot underneath, often called a mobile home park. The owner earns lot rent and maintains roads and utilities. Moving a home is costly, so residents tend to stay. Rules on rent increases and closures vary by state.
See also: Multifamily, Rent Control, Property Manager
Mark-to-Market (Rents)
Resetting in-place rents to current market levels as leases expire or renew. Buyers build it into value-add plans when existing rents sit below market. Timing depends on lease length, local rent regulations and tenant retention, since big increases can cause turnover and downtime. In accounting, the same phrase means restating an asset at current value.
Example: Moving a $1,400 rent to a $1,500 market rent is a 7.1% increase ($100 / $1,400).
See also: Loss to Lease, Rent Escalations, Core, Core-Plus, Value-Add and Opportunistic
Market Cycle
The repeating pattern of rising and falling demand, rents, construction and values in a property market. Analysts commonly describe four phases: recovery, expansion, hypersupply and recession. Each property type and city moves on its own timeline. Investors study where a market stands because timing affects both purchase price and exit value.
See also: Supply Pipeline, Cap Rate Compression, Submarket
Market Rent vs. Contract Rent
Contract rent is what a tenant pays under the lease in place. Market rent is what similar space would lease for today if it were vacant. When contract rent sits below market, the owner has upside as leases expire. When it sits above market, income is at risk at rollover. Buyers compare the two to judge future income.
Example: Contract rent is $28 per square foot and market rent is $32. On 10,000 square feet, the lease sits $40,000 a year below market (4 x 10,000).
See also: Loss to Lease, Mark-to-Market (Rents), Rent Roll
Maturity Date
The date a loan's full remaining balance comes due. On many commercial loans that balance is large, because the amortization schedule runs longer than the term. Unless the loan has an extension option, the lender has no duty to extend. Investors track maturity dates across a portfolio, because a loan maturing in a tight credit market can force a sale or a costly refinance.
See also: Balloon Payment, Refinance, Loan Term vs. Amortization Period
Median Household Income
The middle income figure for households in an area, where half earn more and half earn less. The median resists distortion from a handful of top earners, which is why analysts prefer it to the average. Retail and multifamily investors use it to gauge spending power and what rent local households can afford.
See also: Demographics, Trade Area, Market Rent vs. Contract Rent
Medical Office Building (MOB)
An office building designed for doctors, clinics, imaging centers and outpatient care. The plumbing, wiring and layouts suit exam rooms and equipment, so tenants invest heavily in build-out and tend to stay. Buildings on or next to a hospital campus are often the most sought after.
See also: Special-Purpose Property, Tenant Improvement Allowance (TI), Tenant Retention
Mezzanine Debt
Financing that sits between the senior loan and the owners' equity. The lender secures it with a pledge of the ownership interests in the property-owning entity instead of a lien on the real estate. It fills the gap between senior debt and equity, costs more than senior debt, and can often be enforced faster after a default.
See also: Senior Debt, Preferred Equity, Capital Stack
Mid-Rise and High-Rise
Apartment or office buildings taller than low-rise, served by elevators. The story count that separates mid-rise from high-rise varies by market, building code and lender. Taller buildings cost more to build and need more equipment, but they fit more units or space on a site.
See also: Garden-Style Apartments, Floor Area Ratio (FAR), Density
Millage Rate
A property tax rate expressed in mills. One mill equals one dollar of tax for each 1,000 dollars of assessed value, or 0.1 percent. Counties, school districts and cities each set their own millage, and the total of them applies to the property. Investors multiply assessed value by millage to estimate the tax bill.
Example: At 25 mills on an assessed value of $800,000, tax is $20,000 (800,000 / 1,000 x 25), or 2.5% of assessed value.
See also: Property Tax, Assessed Value, Tax Appeal
Mixed-Use Property
A property that combines two or more uses, such as ground-floor retail with apartments or offices above. Income comes from several tenant types, which can spread risk. Zoning, financing, insurance and management grow more complex, and analysts often value each use on its own line.
See also: Adaptive Reuse, Strip Center, Multifamily
Modified Gross Lease
A lease that sits between gross and net. The tenant pays base rent and covers some costs, such as utilities or increases above a base year, while the landlord pays the rest. The split differs from deal to deal, so investors read each lease to learn which expenses each side carries.
See also: Base Year, Expense Stop, Gross Lease vs. Net Lease
Month-to-Month Tenancy
A tenancy with no fixed end date that renews month by month until the landlord or tenant gives notice. It can start by agreement, or in some states when a tenant stays after a lease expires, though many leases treat that as a holdover with its own rent. Notice periods vary. Lenders and buyers value this income less because it can end quickly.
See also: Holdover Tenant, Lease Term, Rollover Risk
Mortgage
A legal document that pledges a property as collateral for a loan. If the borrower defaults, the lender can foreclose and sell the property to recover the debt. People also use the word for the loan itself. The promissory note holds the promise to repay, and the mortgage gives the lender a claim on the property.
See also: Promissory Note, Deed of Trust, Lien
Multi-Tenant Property
A building or center leased to several tenants. One vacancy costs less than in a single-tenant building, and lease expirations can be staggered to avoid losing many tenants at once. The owner handles more leases, shared areas and turnover. Income spreads across tenants, but upkeep and leasing work increase.
See also: Single-Tenant Property, Tenant Mix, Rollover Risk
Multifamily
Residential property with multiple separate units, from a duplex to a large apartment complex. Many lenders treat 1 to 4 units as residential and 5 or more as commercial, though the split varies by lender and program. Investors like multifamily for steady demand and many tenants sharing the income.
See also: Gross Rent Multiplier (GRM), Price Per Unit and Price Per Square Foot, Vacancy Rate
N
Negative Amortization
A loan feature where the payment is less than the interest owed, so the unpaid interest is added to the loan balance and the debt grows. It can appear in certain loans with payment caps or temporary payment relief. Investors face a rising balance, less equity and a larger balloon at maturity than the original loan amount.
Example: On a $1,000,000 loan at 6%, interest is $5,000 a month. A $4,000 payment adds $1,000 to the balance, making it $1,001,000.
See also: Amortization, Interest-Only Period, Balloon Payment
Negative Leverage
A situation where the loan costs more than the property yields, so borrowing lowers the return on equity. It shows up when interest rates sit above the cap rate. Buyers accept it only when they expect enough rent growth or value gains to offset the drag. Until then, the debt adds risk without adding current yield.
Example: A $1,000,000 property earns $60,000 NOI (6%). A $600,000 interest-only loan at 7.5% costs $45,000. The investor keeps $15,000 on $400,000 of equity, a 3.75% return versus 6% with no loan.
See also: Positive Leverage, Capitalization Rate (Cap Rate), Interest Rate
Net Effective Rent
Rent after you spread concessions, such as free rent and tenant allowances, across the lease term. It shows what a landlord earns per square foot compared with the quoted rate. Two leases with the same face rent can carry very different net effective rent. Some brokers also subtract commissions.
Example: A 5-year lease at $30 per SF with 3 months free pays $30 × 57 ÷ 60 = $28.50 per SF per year, before any tenant allowance.
See also: Free Rent (Concession), Tenant Improvement Allowance (TI), Leasing Commission
Net Operating Income (NOI)
Net Operating Income — NOI — is the single most important metric in commercial real estate. If you understand only one number from this course, it is this one.
Net Present Value (NPV)
The sum of all future cash flows discounted to today, minus the initial investment. A positive NPV means the deal earns more than the discount rate; a negative NPV means it earns less. NPV states the result in dollars, which makes it easy to weigh against the price.
Example: Investing $100,000 to receive $115,000 in one year, discounted at 10%, gives $115,000 / 1.10 = $104,545 today, so NPV is about $4,545.
See also: Discount Rate, Discounted Cash Flow (DCF), Internal Rate of Return (IRR)
Non-Performing Loan (NPL)
A loan where the borrower has stopped paying as agreed, often 90 days or more past due. Lenders and investors sell NPLs, usually at a discount to the balance owed. A buyer then tries to work out the loan or foreclose. The discount pays for the risk and the effort.
See also: Loan Workout, Special Servicer, Real Estate Owned (REO)
Non-Recourse Loan
A loan where the lender's remedy after default is limited to the property pledged as collateral, with no claim on the borrower's other assets. This caps the investor's personal exposure. Carve-outs can still create liability for acts such as fraud. Non-recourse debt often comes with stricter underwriting and is available only for certain properties and loan programs.
See also: Recourse Loan, Carve-Outs (Bad Boy Guarantees), Agency Loan (Fannie Mae and Freddie Mac)
O
Occupancy Cost
The total a tenant pays to occupy its space: base rent plus additional rent such as taxes, insurance and common area charges, and sometimes utilities. Retailers compare it to sales as an occupancy cost ratio. A high ratio signals strain, so landlords and investors watch it when judging whether a tenant can afford renewal.
Example: A retailer paying $90,000 a year in total occupancy cost on $900,000 of sales has a 10% ratio ($90,000 / $900,000).
See also: Additional Rent, Percentage Rent, Base Rent
Occupancy Rate
The share of a property's space that is leased or occupied, shown as a percentage of the total. It can be measured by area or by units. Physical occupancy counts space in use, while economic occupancy compares rent collected with the rent the full property could earn, so concessions and unpaid rent lower it. Low occupancy cuts income while most expenses stay.
Example: An office building has 50,000 square feet and 45,000 are leased, so occupancy is 90% (45,000 / 50,000).
See also: Economic vs. Physical Occupancy, Vacancy Rate, Break-Even Occupancy
Off-Market Deal
A property sale that skips public listing and wide marketing. The seller or an intermediary offers it to a limited group or to one buyer, often through personal relationships. Buyers like these deals because less competition can mean a smoother process. The tradeoff is that fewer bidders make it harder to know whether the price is fair.
See also: Call for Offers, Broker Opinion of Value (BOV), Comparable Sales (Comps)
Offering Memorandum (OM)
A marketing package a seller's broker prepares for a property on the market. It describes the asset, the location, the tenants and the financial performance, and it usually includes a rent roll summary and operating figures. Buyers use it to decide whether to bid. The seller supplies the numbers, so a buyer verifies them independently.
See also: Rent Roll, T-12 (Trailing Twelve Months), Call for Offers
Office Building
A building leased to businesses for desk-based work. Owners and brokers rank offices as Class A, B or C by quality and location, and quote rent per square foot. Value rests on tenant demand, lease length and when leases expire. Remote and hybrid work has cut demand for older space in many markets.
See also: Class A, B and C Properties, Coworking Space, Rollover Risk
Operating Agreement
The governing document of an LLC. It states who owns what percentage, who manages, how profits and cash are distributed, how votes work, what happens on a capital call and how members can transfer or exit. In a syndication, it holds the waterfall and sponsor fees. State law fills gaps when the agreement is silent.
See also: Distribution Waterfall, General Partner and Limited Partner, Subscription Agreement
Operating Expense Pass-Through
A lease term that lets the landlord bill tenants for their share of the building's operating costs. The share is often the tenant's square feet divided by the building's rentable square feet. Pass-throughs protect the owner's income from rising costs and mark a main difference between gross and net leases.
Example: A tenant with 5,000 of a building's 50,000 rentable square feet owes 10%, or $40,000 of $400,000 in expenses.
See also: CAM Charges and Expense Recoveries, CAM Cap, Expense Stop
Operating Expense Ratio (OER)
The Operating Expense Ratio (OER) tells you what percentage of a property’s gross income is consumed by operating expenses.
Operating Expenses
The recurring costs of running a property, such as property taxes, insurance, utilities, repairs, management fees, and payroll. They exclude loan payments, depreciation, and capital improvements. Subtract them from effective gross income to get net operating income, so errors here flow straight into value.
See also: Net Operating Income (NOI), Operating Expense Ratio (OER), Capital Expenditures (CapEx)
Opportunity Zone
A low-income census tract that a state nominated and the U.S. Treasury certified for tax incentives. Investors who put eligible capital gains into a Qualified Opportunity Fund can defer tax on that earlier gain, may reduce part of it, and can exclude the fund investment's own appreciation after a ten-year hold. Holding periods, deadlines, and investment rules apply, and Congress has changed them.
See also: Delaware Statutory Trust (DST), Real Estate Investment Trust (REIT), Syndication
Learn more: Fund Structures: REITs, DSTs and Opportunity Zones →
Ordinary Income
Income taxed at the regular graduated rates that apply to wages and business profits, as opposed to the separate rates for long-term capital gains. For property owners, net rental income counts as ordinary income. So can some sale gain, such as profit on property held for sale to customers or recapture on certain equipment-class components.
See also: Capital Gains, Depreciation Recapture, Cost Segregation
Origination Fee
A fee the lender charges for processing and funding a loan, paid at closing and quoted as a percentage of the loan amount. It is one of the up-front costs that raises the true cost of borrowing above the stated rate. The size varies by lender, loan type and market, and some lenders negotiate it.
Example: A 1% fee on a $4,000,000 loan is $40,000 ($4,000,000 x 0.01).
See also: Points, Closing Costs, Term Sheet
Other Income
Income a property earns beyond base rent. Examples are parking, laundry, storage, pet fees, application fees, late fees, vending and cell tower leases. It can add meaningful NOI, and it counts toward value at the cap rate. Buyers check how much of it recurs, since fees tied to tenant behavior can fall.
Example: Laundry of $2,000, parking of $1,500 and fees of $500 a month total $4,000 a month, or $48,000 a year (4,000 x 12).
See also: Effective Gross Income (EGI), Net Operating Income (NOI), Multifamily
P
Pad Site and Outparcel
A pad site is a small lot at the edge of a shopping center, built for a freestanding building such as a bank, restaurant or pharmacy. An outparcel is a parcel next to the center that may be owned separately. Pads draw tenants who want visibility and drive-through access.
See also: Shopping Center, Ground Lease, Single-Tenant Property
Pari Passu
Latin for on equal footing. Parties paid pari passu share payments in proportion to what each put in or is owed, with none paid ahead of another. The term appears among investors in the same class and among lenders sharing one loan. In a waterfall it separates equal-priority claims from claims ranked above or below.
Example: Two investors who put in $600,000 and $400,000 share a $50,000 distribution pari passu as $30,000 and $20,000.
See also: Distribution Waterfall, Capital Stack, Preferred Return
Parking Ratio
The number of parking spaces compared with building size, stated per 1,000 square feet for office and retail, or per unit for apartments. Zoning codes often set a minimum, and tenants judge a property by it. Too few spaces limits leasing, while too many uses land that could hold buildings.
Example: An 80,000 square foot office building with 320 spaces has a parking ratio of 4.0 per 1,000 square feet (320 / 80).
See also: Zoning, Floor Area Ratio (FAR), Office Building
Pass-Through Entity
A business structure whose profits and losses flow to the owners' personal tax returns instead of being taxed at the entity level. Partnerships, S corporations and most LLCs are common examples. Multi-owner entities issue each owner a Schedule K-1 showing a share. Many real estate syndications use this structure so investors can report their share of income and depreciation.
See also: General Partner and Limited Partner, Syndication, Operating Agreement
Passive Activity Loss Rules
Tax rules that limit using losses from passive activities, such as most rental real estate, to offset other income like wages. Losses that cannot be used now generally carry forward against future passive income. When the owner sells the entire interest in a fully taxable sale, remaining suspended losses are generally released and can offset other income. Exceptions exist, including for some real estate professionals.
See also: Depreciation, Cost Segregation, Capital Gains
Payback Period
The time a property's cash flow needs to return the money invested. It ignores cash flow after payback and ignores the time value of money, so it works as a quick liquidity check, not a full measure of return. A short payback means capital comes back sooner and faces less exposure to later surprises.
Example: A $500,000 investment that returns $125,000 of cash flow each year pays back in 4 years (500,000 / 125,000).
See also: Cash-on-Cash Return, Internal Rate of Return (IRR), Total Return
Percentage Rent
Extra rent a retail tenant pays as a share of its sales above a set sales level, called the breakpoint. The tenant pays base rent regardless. Landlords earn more when a shop does well. Investors see it in malls and restaurants and treat it as variable, less reliable income.
Example: With $60,000 base rent and a 6% rate, the natural breakpoint is $60,000 ÷ 0.06 = $1,000,000 in sales; on $1,400,000 of sales the tenant owes 6% × $400,000 = $24,000 extra.
See also: Co-Tenancy Clause, Rent Escalations, Gross Lease vs. Net Lease
Personal Guarantee
A written promise by an individual to repay a loan if the borrowing entity cannot. It gives the lender a claim on the guarantor's personal assets. Guarantees come in several forms: full, partial, or limited to carve-out events. Even when an LLC owns the property, a guarantee ties the guarantor's personal finances to the loan.
See also: Recourse Loan, Carve-Outs (Bad Boy Guarantees), Non-Recourse Loan
Phase I Environmental Site Assessment
A records review, site visit, and set of interviews that look for signs of contamination on a property, following a recognized standard. It does not include soil or water sampling. Lenders usually require one. If it finds a concern, a Phase II with sampling may follow. Buyers use it to gauge environmental risk.
See also: Property Condition Assessment, The Due Diligence Documents You'll Hear Named, Due Diligence Period
Phase II Environmental Site Assessment
An investigation that follows a Phase I when that review finds a recognized environmental condition, meaning a sign of possible contamination. Consultants collect soil, groundwater or soil gas samples and send them to a lab to test whether contamination is present and at what levels. Further work may be needed to map its extent. Results guide cleanup cost estimates and price talks.
See also: Phase I Environmental Site Assessment, Hazardous Materials, Brownfield Site
Plat
A map that divides land into lots, streets, easements and common areas. A surveyor prepares it and the local government approves it before it is recorded in public land records. Developers file a plat to subdivide a larger tract into parcels that can be sold or built on separately. Approval standards vary by jurisdiction.
See also: Survey, Easement, Entitlement
Points
Up-front fees charged by a lender, where one point equals 1% of the loan amount. The word covers origination points, which pay the lender for making the loan, and discount points, which a borrower pays to buy a lower interest rate. Points add to the cash needed at closing, so investors compare them against the rate savings over the hold period.
Example: Two points on a $3,000,000 loan cost $60,000 ($3,000,000 x 2%).
See also: Origination Fee, Interest Rate, Closing Costs
Portfolio Lender
A lender that keeps the loans it makes on its own balance sheet instead of selling them to investors or packaging them into securities. Local and regional banks and credit unions are common examples. Because the lender holds the risk, it sets its own underwriting rules. That can allow flexible terms, though loans often carry shorter terms and recourse.
See also: CMBS Loan, Agency Loan (Fannie Mae and Freddie Mac), Recourse Loan
Positive Leverage
A situation where borrowing raises the return on equity because the property's yield is higher than the loan's cost. The debt earns more than it costs, and the owner keeps the difference. Rising rates or falling income can erase the gap, so investors compare the going-in cap rate with the loan's interest rate or constant.
Example: A $1,000,000 property earns $70,000 NOI (7%). A $600,000 interest-only loan at 5% costs $30,000. The investor keeps $40,000 on $400,000 of equity, a 10% return versus 7% with no loan.
See also: Negative Leverage, Going-In Cap Rate, Cash-on-Cash Return
Power Center
A large open-air shopping center anchored by several big-box stores, such as home improvement, electronics or discount retailers, with few small shops. The anchors draw shoppers from a wide area. Value depends on the strength and lease terms of those few large tenants.
See also: Big-Box Retail, Anchor Tenant, Shopping Center
Pre-Development Costs
Money a developer spends before construction begins. It covers land option payments, market studies, environmental and survey work, design, legal fees and entitlement applications. These costs are at risk because they are spent before approvals and financing are certain. If the project dies, much of the money can be lost, though some items, such as refundable deposits, may be recovered.
See also: Entitlement, Hard Costs and Soft Costs, Architect and Engineer
Preferred Equity
An ownership investment that gets paid ahead of common equity but behind all debt. It usually earns a fixed preferred return on a set payment schedule and may share in profits as well. A lien on the property does not secure it. Sponsors use it to reduce the common equity they must raise.
See also: Capital Stack, Mezzanine Debt, Senior Debt
Preferred Return
A priority payment to investors, set as an annual rate on invested capital, that comes before the sponsor shares in profit. People call it the pref. It does not guarantee payment. If the property earns too little, the pref may accrue unpaid or go unpaid, depending on the deal documents.
Example: With an illustrative 8% pref, $1,000,000 invested accrues $80,000 a year before the sponsor's profit share applies.
See also: Distribution Waterfall, Hurdle Rate, Promote (Carried Interest)
Prepayment Penalty
A fee a lender charges when a borrower pays off a loan before its scheduled maturity. It protects the lender's expected interest income. Common structures include a step-down percentage, yield maintenance, and defeasance. Some loans block prepayment entirely for a lockout period. The cost can shape when an investor sells or refinances.
See also: Yield Maintenance, Defeasance, Refinance
Present Value
What a future amount of money is worth today, after discounting it by a rate that reflects time and risk. A higher discount rate or a longer wait lowers present value. Investors use it to price a stream of future rents plus a sale, and to test whether an asking price fits the income the property should produce.
Example: At a 10% discount rate, $12,100 received in two years has a present value of $10,000 (12,100 / 1.10 / 1.10 = 12,100 / 1.21).
See also: Net Present Value (NPV), Discounted Cash Flow (DCF), Future Value
Price Per Key
A hotel pricing metric equal to the purchase price divided by the number of guest rooms, called keys. It lets buyers compare sales of different-size hotels the way price per unit compares apartments. It ignores revenue, quality and location differences, so it is a screening tool and not a value conclusion.
Example: A hotel sells for $12,000,000 and has 80 rooms, so price per key = $12,000,000 / 80 = $150,000.
See also: Price Per Unit and Price Per Square Foot, Revenue Per Available Room (RevPAR), Hotel and Hospitality Property
Price Per Unit and Price Per Square Foot
Two properties selling for $3,000,000 each are not comparable unless you know what you’re buying per unit. Enter price per unit and price per square foot — the normalized benchmarks professionals use to compare deals instantly.
Full explanation: Price Per Unit and Price Per Square Foot →
Prime Rate
A benchmark rate that U.S. banks publish as the base for many business and consumer loans. Banks set it in step with the Federal Reserve's target rate, so it moves when the Fed moves. Some floating-rate bank loans and credit lines are priced as prime plus a margin, so the borrower's cost rises and falls with it.
See also: SOFR, Fixed-Rate vs. Floating-Rate Loan, Interest Rate
Principal and Interest
The two parts of a loan payment. Principal is the amount borrowed that gets paid back. Interest is the lender's charge for using the money. On an amortizing loan, each payment covers both. Early payments are mostly interest and later payments are mostly principal. Investors track the split because principal payments build equity through loan paydown.
Example: On a $1,000,000 loan at 6% with a 25-year amortization, the monthly payment is about $6,443. Month one interest is $5,000 ($1,000,000 x 6% / 12), so about $1,443 goes to principal.
See also: Amortization, Debt Service, Interest-Only Period
Private Placement Memorandum (PPM)
A disclosure document a sponsor gives prospective investors in a private offering. It describes the deal, the business plan, fees, risks, conflicts of interest, and investor rights. The PPM helps investors judge the deal and helps the sponsor show it disclosed material facts. It does not make an investment safe.
See also: Regulation D (506(b) and 506(c)), Accredited Investor, Syndication
Learn more: Raising Capital: Syndications, JVs and Private Equity →
Pro Forma
A projected financial statement for a property, built from assumptions about rents, vacancy, expenses and financing. Sellers use it to show what a property could earn, and buyers build their own to test those claims. A pro forma is only as reliable as its assumptions, so every input deserves scrutiny.
See also: Underwriting, Stabilized NOI, Sensitivity Analysis
Promissory Note
The signed written promise to repay a loan on stated terms, including the amount, interest rate, payment schedule, and maturity date. The note is the debt itself. A mortgage or deed of trust is a separate document that pledges the property as security for the note. Together they form the core of a real estate loan.
See also: Mortgage, Deed of Trust, Lien
Promote (Carried Interest)
The extra share of profit a sponsor earns beyond its own invested money, paid for finding and running the deal. It often starts after investors receive their preferred return. Investors read the promote to see whether the sponsor's pay lines up with investor results.
See also: Distribution Waterfall, Preferred Return, General Partner and Limited Partner
Learn more: Raising Capital: Syndications, JVs and Private Equity →
Proof of Funds
Documents a buyer provides to show they can pay for a purchase, such as recent bank or brokerage statements or a lender's letter. Sellers and brokers ask for it before accepting an offer or sharing sensitive information. It shows the funds that existed on a given date. It does not guarantee they stay available and does not bind the buyer to buy.
See also: Earnest Money, Letter of Intent (LOI), Call for Offers
Property Condition Assessment
A professional report on the physical condition of a building, covering roof, structure, HVAC, plumbing, electrical, and site. It estimates needed repairs and the cost of replacing major systems in the coming years. Lenders often require one. Buyers use it to adjust price or build a capital budget.
See also: Reserves for Replacement, Capital Expenditures (CapEx), Due Diligence Period
Property Insurance
Coverage that pays to repair or replace a building and its contents after damage from covered events such as fire, wind or vandalism. Policies list covered perils, exclusions, deductibles and limits, and they often exclude flood and earthquake unless added or bought separately. Lenders usually require it. Terms and pricing vary by insurer, location and state.
See also: General Liability Insurance, Flood Insurance, Tax and Insurance Escrow
Property Management Fee
What an owner pays a management company to run a property, usually a percentage of collected or effective gross income. Some contracts add leasing, construction supervision, or setup fees. Market rates vary by property type and size. Underwriters include the fee even when the owner self-manages, because it is a real cost of operating the asset.
Example: At 4% of $500,000 in EGI, the fee is $20,000 per year.
See also: Operating Expenses, Effective Gross Income (EGI), Net Operating Income (NOI)
Property Manager
The person or company that runs a property's daily operations for the owner. Duties usually include leasing, rent collection, maintenance, vendor oversight, budgets and reporting. The manager is paid under a management agreement, often as a share of collected income. Licensing rules for property managers vary by state. Operating performance depends heavily on this role.
See also: Management Agreement, Property Management Fee, Asset Manager
Property Tax
An annual tax that local governments charge on real property, mainly to fund schools, roads, police and other services. The bill equals the assessed value times a tax rate, often stated in mills. Assessment methods, rates, exemptions and reassessment timing vary by state and county. It is a large operating expense, and net lease tenants usually pay it.
Example: An assessed value of $1,500,000 at a 1.2% tax rate produces a $18,000 bill (1,500,000 x 0.012).
See also: Assessed Value, Millage Rate, Triple Net Lease (NNN)
Prorations
Adjustments at closing that split ongoing income and expenses between buyer and seller based on the closing date. Typical items are rents collected, property taxes, utilities and service contracts. Each party pays or receives credit for the days it owned the property. The day-count method, such as a 30-day month or actual days, comes from the contract.
Example: A seller collected $6,000 of rent for a 30-day month and closing falls after 10 days of seller ownership. The buyer gets a credit for the other 20 days: $6,000 / 30 x 20 = $4,000.
See also: Closing Statement, Rent Roll, Property Tax
Purchase and Sale Agreement (PSA)
The contract between buyer and seller that sets the price, deposit, deadlines, contingencies, and closing terms for a property sale. Commercial deals often start with a letter of intent, then move to a PSA that attorneys negotiate. Once both sides sign, it binds them. Terms vary by deal and by state.
See also: Earnest Money, Due Diligence Period, Escrow
Q
Qualified Intermediary
A neutral third party that holds the sale proceeds and handles the paperwork in a 1031 exchange. The seller cannot take control of the cash without risking the tax deferral, so the intermediary receives the money at closing and uses it to buy the replacement property. Tax rules set who can serve in this role.
See also: 1031 Exchange, Boot, Capital Gains
R
Radius Restriction
A lease clause that bars a tenant from opening another location of the same business within a set distance of the leased store. The distance is negotiated. Landlords use it to protect sales at the center, which matters most when rent depends on a share of sales. Tenants try to shrink the distance or limit its length.
See also: Percentage Rent, Exclusive Use Clause, Shopping Center
Rate Lock
An agreement in which a lender fixes the interest rate or spread for a set period before closing, so market moves in that window do not change the borrower's rate. Locks often require a deposit and expire on a stated date. If closing slips past the expiration, the lender can reprice the loan or charge for an extension.
See also: Commitment Letter, Interest Rate, 10-Year Treasury Yield
Raw Land
Land with no buildings and often without utilities or roads. It earns no rent, so the owner pays property tax and carrying costs while waiting to sell or develop. Value depends on zoning, access, nearby utilities and the chance that approvals for a new use come through.
See also: Entitlement, Zoning, Highest and Best Use
Real Estate Crowdfunding
An online way for many investors to pool smaller amounts of money into real estate deals or funds listed on a platform that screens and presents them. Some platforms accept only accredited investors and others accept the general public, depending on the securities exemption the offering uses. Investors have limited control and hold stakes that are hard to sell early.
See also: Accredited Investor, Real Estate Fund, Syndication
Real Estate Fund
A pooled vehicle run by a manager that raises capital from investors and uses it to buy a portfolio of properties or loans over time. Unlike a single-property syndication, a fund spreads money across several assets and has a defined strategy and life span. Managers charge fees and often earn a promote, and investors commit capital that the manager draws as deals close.
See also: Capital Call, Syndication, Debt Fund
Real Estate Investment Trust (REIT)
A company that owns, and often operates, income-producing real estate or real estate loans. It pays out most of its taxable income to shareholders, which lets it avoid corporate-level tax if it meets IRS tests. Public REITs trade like stocks. Private and non-traded REITs do not. REITs let investors hold real estate without buying buildings.
See also: Delaware Statutory Trust (DST), Syndication, Opportunity Zone
Learn more: Fund Structures: REITs, DSTs and Opportunity Zones →
Real Estate Owned (REO)
Property a lender owns after a foreclosure sale, usually because no bidder offered more than the loan balance, so the lender took title itself. Banks typically want to sell REO quickly, so pricing and terms can be negotiable. Buyers often get the property as-is, with limited seller disclosure.
See also: Foreclosure (Judicial and Non-Judicial), Non-Performing Loan (NPL), Short Sale
Real Estate Professional Status
A US tax status for investors who meet detailed time tests in real property trades or businesses. If they also materially participate in their rentals, those rentals stop being passive, so losses may offset other income, subject to other limits such as basis, at-risk and excess business loss rules. Taxpayers need records to prove the tests.
See also: Passive Activity Loss Rules, Depreciation, Cost Segregation
Receivership
A court-supervised arrangement where a neutral person, called a receiver, takes control of a property to protect it and collect rents. Lenders often ask for one during a default or foreclosure. The receiver pays expenses and holds income as the court directs. Powers and rules differ by state and by the loan documents.
See also: Foreclosure (Judicial and Non-Judicial), Loan Workout, Special Servicer
Recourse Loan
A loan where the lender can pursue the borrower's other assets if selling the property does not cover the debt. A shortfall after foreclosure can become a personal or entity liability. Recourse gives the lender extra protection, so it can bring a lower rate or higher leverage. The extent of recourse varies by state and loan document.
See also: Non-Recourse Loan, Personal Guarantee, Carve-Outs (Bad Boy Guarantees)
Redevelopment
A major change to an existing property: tearing it down and building new, stripping it to the structure and rebuilding, or converting it to a new use. It needs permits, large capital and time. Redevelopment differs from renovation, which refreshes a building without changing its use. Returns depend on cost, approvals and finished value.
See also: Adaptive Reuse, Entitlement, Core, Core-Plus, Value-Add and Opportunistic
Refinance
Replacing an existing loan with a new one, often to get a lower rate, a longer term, different terms, or cash out. The new loan pays off the old one. Costs include lender fees, an appraisal, and any prepayment penalty on the old loan. Approval depends on the property's value and income when the new loan is underwritten.
See also: Cash-Out Refinance, Prepayment Penalty, Balloon Payment
Regional Mall
A large, usually enclosed shopping center with department store anchors and many small shops, drawing shoppers from a wide area. Many malls have lost anchors and traffic as online shopping grew. Owners of weaker malls often look at redevelopment into mixed-use space.
See also: Anchor Tenant, Redevelopment, Shopping Center
Regulation D (506(b) and 506(c))
An SEC rule set that lets companies sell securities without registering the offering. Rule 506(b) bans general solicitation and advertising, and allows sales to any number of accredited investors plus a limited number of non-accredited investors who have enough financial sophistication. Rule 506(c) allows general solicitation but limits sales to accredited investors and requires the issuer to take reasonable steps to verify each one.
See also: Accredited Investor, Private Placement Memorandum (PPM), Syndication
Learn more: Raising Capital: Syndications, JVs and Private Equity →
Relocation Clause
A lease clause that lets the landlord move a tenant to other space in the building or center on notice. Multi-tenant offices use it to free up a larger block for another tenant. Limits vary by lease, such as requiring comparable space and payment of moving costs. Tenants often negotiate to narrow or remove it.
See also: Multi-Tenant Property, Tenant Improvement Allowance (TI), Lease Term
Renewal Option
A tenant's right to extend the lease for a stated period on terms set in the lease, such as a fixed rent or fair market rent. The tenant decides whether to renew, usually by giving notice before a deadline. If the tenant meets the lease conditions, such as no default, the landlord must honor it. For investors, options add uncertainty about when space frees up.
See also: Termination Option, Lease Term, Tenant Retention
Renewal Rate
The share of expiring leases in which the tenant stays. A renewal avoids vacancy, marketing and move-in costs, though a renewal commission or improvement allowance may still apply. A low rate can reflect tenant dissatisfaction, above-market rents or tenants closing or outgrowing the space. Investors read it with rent growth, since a high rate achieved by cutting rents may not help income.
Example: A property has 40 leases expiring this year and 26 tenants renew. The renewal rate is 26 / 40 = 65%.
See also: Tenant Retention, Turnover Costs, Rollover Risk
Rent Abatement
A period when the tenant owes reduced rent or none. Landlords grant it at the start of a lease as an incentive, and a lease may also provide it after fire damage or a landlord default. Abated rent is income the owner does not collect, so buyers check how the rent roll treats it.
Example: A 10-year lease at $10,000 a month with 3 months abated collects 117 months of rent, or $1,170,000 instead of $1,200,000.
See also: Free Rent (Concession), Rent Concession, Net Effective Rent
Rent Commencement Date
The date the tenant starts paying rent. It often falls after the lease commencement date to give the tenant time to build out the space or to cover a free rent period. A buyer checks this date because rent that has not started is not cash in hand, even when the lease is signed.
Example: A lease commences March 1 with 3 months of free rent, so rent commences June 1.
See also: Lease Commencement Date, Rent Abatement, Free Rent (Concession)
Rent Concession
Any incentive a landlord gives to win or keep a tenant, including free rent, a tenant improvement allowance, a lower starting rent, or payment of moving costs. Concessions tend to rise when vacancy is high. They lower the real income a lease produces, so investors compare effective rent, not only the quoted rate.
Example: A $30 per square foot lease for 5 years with 6 months free averages $27 per square foot per year ($30 x 54 paid months / 60 months).
See also: Net Effective Rent, Free Rent (Concession), Tenant Improvement Allowance (TI)
Rent Control
Local or state rules that limit how much a landlord can raise residential rent or how a tenancy can end. The design differs widely, from caps tied to inflation to limits on evictions. Some states restrict or prohibit local rent control. Investors check whether a property falls under such rules because they limit income growth and the ability to reset rents.
See also: Multifamily, Mark-to-Market (Rents), Loss to Lease
Rent Escalations
Long-term commercial leases almost always include rent escalation provisions — scheduled increases in base rent over the lease term. How those escalations are structured directly affects the property’s NOI growth and, therefore, its value.
Rent Growth
The rate at which rents rise over time, usually shown as a yearly percentage. Market rent growth reflects supply and demand in a submarket. A property's own rent growth also depends on lease terms such as escalations and rollover timing. Underwriters set it in the pro forma, and small changes compound into large differences in projected NOI and sale price.
Example: Rent of $20.00 per square foot growing 3% a year becomes $20.60 after one year and $21.22 after two (20.60 x 1.03 = 21.218).
See also: Rent Escalations, Pro Forma, Absorption Rate
Rent Roll
A table listing every tenant in a property: suite, size, lease start and end dates, current rent, escalations, deposits, and any unpaid balance. Buyers and lenders use it to verify income and see when leases expire. A rent roll is the seller's summary, so reviewers tie it to the leases and bank deposits.
See also: Lease Abstract, Estoppel Certificate, Weighted Average Lease Term (WALT)
Rentable vs. Usable Square Feet (Load Factor)
Usable square feet is the space a tenant occupies inside its walls. Rentable square feet adds a share of common areas such as lobbies and hallways. The load factor expresses that add-on, written as a multiplier such as 1.20 or as a 20% add-on. Tenants pay rent on rentable area, so a higher load factor raises the cost per usable foot.
Example: A suite with 9,000 usable SF and a 1.20 load factor has 9,000 × 1.20 = 10,800 rentable SF, so rent at $30 per rentable SF is $324,000 a year.
See also: Price Per Unit and Price Per Square Foot, Net Effective Rent, Lease Abstract
Replacement Cost
The estimated cost to build a building with the same utility today, using current materials, methods and codes. It anchors the cost approach. Reproduction cost, the price of an exact copy, is a separate measure. When market values sit below replacement cost, new construction rarely pencils, which limits competing supply. When values climb above it, developers start building.
See also: Cost Approach, Price Per Unit and Price Per Square Foot, Functional Obsolescence
Reserves for Replacement
Money set aside each year to replace big building components, such as roofs, HVAC units, and parking lots, when they wear out. Lenders often require a per-unit or per-square-foot annual amount, and underwriters deduct it to see truer cash flow. Amounts vary by property age and type.
Example: At $250 per unit per year, a 100-unit building reserves $25,000 annually.
See also: Capital Expenditures (CapEx), Property Condition Assessment, Net Operating Income (NOI)
Retail Property
Property leased to businesses that sell goods or services to the public, from a single storefront to a large mall. Rent is usually a base amount plus shared costs, and some leases add a share of the tenant's sales. Foot traffic, visibility and the strength of the anchor tenants drive value.
See also: Shopping Center, Anchor Tenant, Percentage Rent
Retainage
A percentage of each construction payment that the owner holds back until the work is complete. It gives the owner leverage to get punch-list items finished. The contract sets the percentage and the release terms. Some states limit how much an owner can hold and for how long.
Example: With 10% retainage on a $200,000 draw, the owner pays $180,000 and holds $20,000.
See also: Draw Schedule, Change Order, Guaranteed Maximum Price (GMP) Contract
Return on Cost
Stabilized NOI divided by total project cost, including land, construction, fees and financing costs. Developers and value-add investors use it, and some call it yield on cost. The gap between return on cost and the market cap rate shows the profit a project creates.
Example: Stabilized NOI of $1,200,000 on a $15,000,000 total cost is an 8.0% return on cost, 200 basis points above a 6.0% market cap rate.
See also: Stabilized NOI, Going-In Cap Rate, Capitalization Rate (Cap Rate)
Revenue Per Available Room (RevPAR)
A hotel metric showing room revenue per room available, whether or not it was sold. Divide total room revenue by available room nights, meaning rooms times nights in the period. It equals occupancy times average daily rate. Investors use it to compare hotels and track performance. It excludes food, beverage and other income.
Example: A 100-room hotel earns $10,500 in room revenue in one night, so RevPAR = $10,500 / 100 = $105. That matches 70% occupancy x $150 ADR = $105.
See also: Average Daily Rate (ADR), Occupancy Rate, Price Per Key
Reverse Exchange
A 1031 exchange in which the replacement property is acquired before the old property is sold. A third party called an exchange accommodation titleholder holds title to one property while the swap completes. The IRS safe harbor uses a 45-day window to identify the property to be sold and a 180-day limit to finish. These deals cost more and need tighter coordination.
See also: 1031 Exchange, Qualified Intermediary, Identification Period (1031)
Reversion Value
The projected sale price of a property at the end of the hold period, often shown net of selling costs. Underwriters usually estimate it by dividing the following year's NOI by an exit cap rate. In many deals it makes up a large share of total proceeds, so a small change in the exit cap rate can move returns a lot.
Example: For a sale at the end of year 5, year-6 NOI of $120,000 at a 7% exit cap rate gives a price of about $1,714,286. After 2% selling costs ($34,286), the reversion value is $1,680,000.
See also: Terminal Cap Rate (Exit Cap Rate), Discounted Cash Flow (DCF), Hold Period
Right of First Offer (ROFO)
A clause that requires an owner to offer space or a property to the holder first, on terms set out in the clause, before marketing it to others. A right of first refusal differs: it lets the holder match an offer from a third party. Tenants often seek a ROFO on nearby space for future expansion.
See also: Right of First Refusal (ROFR), Sublease, Letter of Intent (LOI)
Right of First Refusal (ROFR)
A contract right that lets the holder match any third-party offer before the owner sells or leases to someone else. Tenants, partners, and neighbors sometimes hold one. A ROFR can scare off buyers, slow a sale, and lower the price, so investors find and read every one during due diligence.
See also: Letter of Intent (LOI), Ground Lease, Estoppel Certificate
Rollover Risk
The chance that leases expire and the landlord cannot re-lease the space at the same rent or on time. Vacancy, downtime, commissions, and tenant improvements follow. A building where many leases end in the same year faces more risk than one with staggered expirations.
See also: Weighted Average Lease Term (WALT), Rent Roll, Leasing Commission
S
Sale-Leaseback
A deal where an owner sells the property and signs a lease to stay on as tenant. The seller frees up cash and keeps operating in place. The buyer gets a tenant and rent income. Price and rent depend on the tenant's credit and the lease length. Tax and accounting treatment vary.
Example: A company sells its building for $10,000,000 and leases it back on a triple net lease at $700,000 a year, so the buyer starts at a 7.0% cap rate ($700,000 / $10,000,000).
See also: Triple Net Lease (NNN), Credit Tenant, Single-Tenant Property
Sales Comparison Approach
A valuation method that estimates value from recent sales of similar properties, adjusted for differences in size, age, condition, location and timing. It works best where many comparable sales exist, such as apartments and small retail. It lags when the market moves fast, since old sales may not reflect current pricing.
See also: Comparable Sales (Comps), Appraisal, Income Approach
SBA 504 Loan
A business loan program for buying or building owner-occupied commercial property and other major fixed assets. It pairs a bank loan with a second loan funded through a Small Business Administration-backed certified development company, plus an equity contribution from the business. The owner's business has to occupy the property, so it does not suit pure investors. Terms are set by the program and lender, and change over time.
See also: SBA 7(a) Loan, Senior Debt, Portfolio Lender
SBA 7(a) Loan
The Small Business Administration's main general-purpose business loan program. Approved lenders make the loan and the SBA guarantees a portion, which lowers the lender's risk. Proceeds can fund working capital, equipment, a business purchase or owner-occupied real estate. As with the 504 program, the borrower runs a business in the property. Terms are set by the program and lender, and change over time.
See also: SBA 504 Loan, Personal Guarantee, Portfolio Lender
Scenario Analysis
Testing a deal under several complete sets of assumptions, such as strong, expected and weak markets, and comparing the outcomes side by side. Each scenario changes several inputs together, like rent growth, vacancy and exit cap rate. It differs from sensitivity analysis, which changes one input at a time.
Example: Strong case: exit-year NOI of $120,000 at a 6% exit cap rate gives $2,000,000. Expected case: $100,000 at 7% gives $1,428,571. Weak case: $85,000 at 8% gives $1,062,500. Each case moves NOI and cap rate together.
See also: Sensitivity Analysis, Base Case and Downside Case, Underwriting
Security Deposit
Money a tenant gives the landlord at signing as protection if the tenant defaults or damages the space. The lease sets the amount, what the landlord may deduct, and when any balance returns. Some leases accept a letter of credit instead of cash. Buyers confirm that deposits transfer at closing and appear in the books.
See also: Guarantor, Lease Default and Cure Period, Prorations
Self-Storage
Facilities that rent secure units by the month to people and businesses needing extra space. Expenses run low, tenants are many and small, and operators adjust rents often. Demand follows moves, life changes and small business activity. New supply can weaken rents in crowded markets.
See also: Special-Purpose Property, Vacancy Rate, Stabilized NOI
Seller Financing
An arrangement in which the property seller acts as the lender and carries a note from the buyer for part or all of the price, secured by the property. Rate, term and down payment are negotiable. It can speed a closing or fill a gap when bank financing falls short. If the seller has an existing loan, its due-on-sale clause can be triggered.
See also: Promissory Note, Mortgage, Assumable Loan
Senior Debt
The loan with first claim on a property's income and sale proceeds. It holds the first-position lien, gets paid before other lenders and investors, and usually carries the lowest interest rate in the capital stack. Senior lenders set the main loan terms, including loan-to-value limits, coverage ratios, and covenants.
See also: Capital Stack, Mezzanine Debt, Loan-to-Value (LTV)
Senior Housing
Residential communities for older adults, ranging from independent living with few services to assisted living and memory care with daily staff support. Revenue comes from resident rent and care fees, so operator skill drives results. Licensing and regulation vary by state and by care level.
See also: Special-Purpose Property, Multifamily, Property Manager
Sensitivity Analysis
Testing how a deal's results change when key assumptions change, such as rent growth, exit cap rate, vacancy or interest rate. Analysts change one or two inputs at a time and show results in a table. It reveals which assumptions drive returns and how much room a deal has before it fails.
Example: Raising the exit cap rate from 6.0% to 6.5% on $1,300,000 of NOI cuts the sale price from about $21,666,667 to $20,000,000.
See also: Terminal Cap Rate (Exit Cap Rate), Underwriting, Pro Forma
Setback
The minimum distance zoning requires between a building and a property line, street, or other boundary. Front, side, and rear setbacks each have their own numbers. They shrink the buildable area of a lot, so they affect how much a developer can build. A survey shows whether existing buildings meet them.
See also: Floor Area Ratio (FAR), Zoning, Variance
Shopping Center
A group of stores planned, built and managed as one property with shared parking. Types range from small strip centers to large anchored centers and malls. The owner collects rent from each tenant, often with charges for shared costs. Tenant mix and the draw of the anchor shape its value.
See also: Strip Center, Anchor Tenant, Power Center
Short Sale
A sale where the lender agrees to accept less than the loan balance. The borrower is underwater, so the lender takes the loss to avoid a longer foreclosure. The lender must approve the price and terms, which slows closing. Whether the borrower stays liable for the gap depends on the agreement and state law.
See also: Foreclosure (Judicial and Non-Judicial), Deed in Lieu of Foreclosure, Loan Workout
Short-Term vs. Long-Term Capital Gain
The tax treatment of sale profit depends on how long the owner held the asset. Gain on an asset held for one year or less is short-term and taxed like ordinary income. Gain on an asset held longer than one year is long-term and taxed at separate, usually lower, rates. Real estate sales add recapture rules on top.
See also: Capital Gains, Ordinary Income, Depreciation Recapture
Single Net Lease (N)
A net lease where the tenant pays base rent plus one cost, most often property taxes. The landlord pays insurance, maintenance and structural repairs. It leaves more expense risk with the owner than an NN or NNN lease does. Definitions differ by market and lease, so the contract controls what the tenant pays.
See also: Double Net Lease (NN), Triple Net Lease (NNN), Gross Lease vs. Net Lease
Single-Tenant Property
A building leased to one tenant. Income depends on that tenant's credit and lease length, so a missed payment or a move-out can stop all income at once. Many are net leased, which means the tenant pays most operating costs and the owner has fewer management tasks.
See also: Multi-Tenant Property, Triple Net Lease (NNN), Credit Tenant
Site Plan
A scaled drawing of a development site showing buildings, parking, driveways, landscaping, utilities, drainage, and boundaries. Cities review it against zoning and design rules before they issue permits. The approved site plan fixes what a developer can build and where, so changes often need another round of review.
See also: Zoning, Setback, Entitlement
Site Work and Infrastructure
The construction needed to make raw land ready for buildings. It covers grading, clearing, utilities, roads, drainage, curbs and paving. This work happens before vertical construction and often carries more cost uncertainty because soil and utility conditions are hidden until digging starts. Developers treat it as a hard cost and add a contingency.
See also: Hard Costs and Soft Costs, Raw Land, Construction Contingency
Small Multifamily (Duplex to Fourplex)
Buildings with two to four units. Many lenders treat them as residential, so financing resembles a home mortgage and value rests mostly on comparable sales. Buildings with five or more units are generally underwritten as commercial and valued on income. Lender rules vary.
See also: Multifamily, Commercial vs. Residential Real Estate
SNDA (Subordination, Non-Disturbance and Attornment Agreement)
A three-party agreement among a tenant, landlord, and lender. The tenant accepts that its lease ranks below the mortgage and agrees to recognize the lender as landlord after a foreclosure. The lender agrees not to disturb the tenant while the tenant keeps paying. Lenders often require one.
See also: Estoppel Certificate, Title, Encumbrances, and Clear Title, Lease Abstract
SOFR
The Secured Overnight Financing Rate, a benchmark interest rate published by the Federal Reserve Bank of New York and based on overnight borrowing secured by Treasury securities. It replaced LIBOR as the common base for floating-rate commercial loans. A lender usually sets the loan rate at SOFR plus a spread, so payments move with the benchmark.
See also: Fixed-Rate vs. Floating-Rate Loan, Bridge Loan, Interest-Only Period
Special Assessment
A charge placed on properties that benefit from a local improvement such as new sewers, sidewalks, lighting or a business improvement district. It sits on top of regular property tax, often on the same bill, and can be paid over several years. Rules vary by state. Buyers check for current or planned assessments because they add cost and can pass to a new owner.
Example: A $450,000 road project split equally across 15 parcels adds $30,000 per parcel (450,000 / 15).
See also: Property Tax, Impact Fees, Title, Encumbrances, and Clear Title
Special Servicer
A company that takes over a commercial mortgage loan when it defaults or heads toward default, mostly in securitized (CMBS) loans. It negotiates with the borrower on a modification, sale, or foreclosure, acting for the bondholders. Borrowers deal with a different counterparty than the regular servicer, with its own fees and approval process.
See also: Loan Workout, Non-Performing Loan (NPL), Forbearance
Special-Purpose Property
A property designed for one specific use, such as a hotel, hospital, church, car wash or bowling alley. Few buyers can use it as built, so the buyer pool is thin and conversion costs are high. Appraisers often lean on the cost approach, and lenders often underwrite the operating business as well as the real estate.
See also: Cost Approach, Self-Storage, Adaptive Reuse
Speculative (Spec) Building
A building constructed without a signed tenant, with the developer betting that tenants will lease it after completion. Spec projects carry lease-up risk, the time and cost of filling empty space. Lenders may require more equity or smaller loans than they would for a pre-leased project.
See also: Build-to-Suit, Lease-Up, Supply Pipeline
Sponsor (Operator)
The person or firm that finds a deal, arranges financing, runs the business plan and reports to investors. In a syndication, the sponsor is the general partner. Sponsors earn fees and a promote, and often invest their own money. Investors judge a sponsor by track record, communication and whether the sponsor's incentives match their own.
See also: General Partner and Limited Partner, Promote (Carried Interest), Syndication
Sponsor Fees (Acquisition and Asset Management)
Fees a deal's sponsor charges the partnership for its work, separate from any profit share. An acquisition fee pays for finding and closing the property. An asset management fee pays for overseeing it during the hold. Investors compare fees across deals because fees reduce returns whether or not the deal performs.
See also: Promote (Carried Interest), Private Placement Memorandum (PPM), General Partner and Limited Partner
Learn more: Raising Capital: Syndications, JVs and Private Equity →
Stabilization
The point when a new or renovated property reaches steady operations, with occupancy and rents holding at market levels. Before then, income is uneven and risk runs higher. Lenders and buyers define the threshold differently, such as a target occupancy held for several months. Investors often value a property on its stabilized income.
See also: Net Operating Income (NOI), Capitalization Rate (Cap Rate), Gross Potential Income (GPI)
Stabilized NOI
The NOI a property should earn once it reaches normal occupancy and market rents, with lease-up and renovation complete. Buyers and lenders use it to value transitional properties. It is a forecast, so its reliability depends on the assumptions behind occupancy, rent and expenses.
See also: Net Operating Income (NOI), Lease-Up, Return on Cost
Step-Up in Basis
A reset of a property's tax basis to its fair market value when the owner dies, which can be higher or lower than the old basis. When it rises, heirs who sell measure gain from the new basis, so gain built up before death can drop out of taxable income. Depreciation restarts from the new basis. Rules vary by situation and can change with tax law.
Example: An owner bought for $500,000. At death the property is worth $1,200,000, so the heir's basis is $1,200,000. A sale at $1,250,000 produces a $50,000 gain, not $750,000.
See also: Adjusted Basis, Capital Gains, Depreciation Recapture
Straight-Line Depreciation
A method that spreads the depreciable cost of a building evenly over its recovery period, so the deduction is the same each year. US tax rules apply this method to real property, with a longer life for nonresidential buildings than for residential rentals. It is a paper expense that lowers taxable income without costing cash. Land is not depreciated.
Example: A nonresidential building with $1,000,000 of depreciable cost and a 39-year recovery period gives about $25,641 of depreciation a year (1,000,000 / 39), before first-year and last-year conventions adjust the amounts.
See also: Depreciation, MACRS, Depreciation Recapture
Stress Test
A model run with severe but plausible shocks, such as a big rent drop, higher vacancy or a jump in interest rates, to find the point where a deal breaks. Lenders stress DSCR and debt yield. Investors stress cash flow and exit value. The results show which assumption a deal depends on most.
Example: NOI of $500,000 against $350,000 of debt service gives a DSCR of 1.43. If NOI falls 20% to $400,000, DSCR drops to 1.14 (400,000 / 350,000).
See also: Debt Service Coverage Ratio (DSCR), Base Case and Downside Case, Break-Even Occupancy
Strip Center
A single-level row of small shops that share a parking lot out front, with no enclosed mall. Tenants often include restaurants, salons, dry cleaners and a small grocer or pharmacy. Many strip centers lease on net terms. Investors focus on tenant mix, lease terms and the traffic count on the adjoining road.
See also: Anchor Tenant, Gross Lease vs. Net Lease, CAM Charges and Expense Recoveries
Student Housing
Apartments or dorm-style buildings built for college students. Leases are often written by the bed, with a parent or guardian as guarantor, and follow the school year. Rents and occupancy depend on enrollment and distance to campus, so a change at one school can move results.
See also: Multifamily, Guarantor, Occupancy Rate
Sublease
An arrangement where an existing tenant rents all or part of its space to a third party for some or all of the remaining term. The original tenant stays liable to the landlord. Investors watch sublease space because it competes with their own vacancies and can signal that a tenant is shrinking.
See also: Holdover Tenant, Rollover Risk, Lease Abstract
Submarket
A defined district within a metro area that has its own rents, vacancy and tenant demand, such as a downtown core or an airport corridor. Brokers and data firms draw the boundaries, so they differ by source. Two submarkets in one city can perform far apart, so investors benchmark a property against its submarket.
See also: Gateway and Secondary Markets, Absorption Rate, Vacancy Rate
Subordination Clause
A lease clause stating that the lease ranks below the landlord's mortgage. When a lender forecloses, a subordinate lease can be wiped out unless a separate non-disturbance agreement protects the tenant. Lenders often require subordination in every lease as a loan condition. Tenants commonly ask for non-disturbance protection in return.
See also: SNDA (Subordination, Non-Disturbance and Attornment Agreement), Attornment, Lien
Subscription Agreement
The contract in which an investor commits to buy an interest in an offering and the sponsor agrees to accept the money. The investor states the amount, confirms details such as accredited status, and acknowledges the risks. The sponsor can reject it. It works alongside the PPM and operating agreement, and it creates legal obligations for both sides.
See also: Private Placement Memorandum (PPM), Accredited Investor, Operating Agreement
Supply Pipeline
The amount of new space planned or under construction in a market that will compete with existing properties. Analysts often compare it with existing inventory or with expected demand. A large pipeline can push up vacancy and hold down rents when it delivers. Projects at the planning stage can stall or get cancelled, so under-construction counts carry more weight.
Example: A submarket has 40,000 existing apartment units and 1,200 under construction. The pipeline equals 1,200 / 40,000 = 3.0% of existing stock.
See also: Absorption Rate, Vacancy Rate, Barriers to Entry
Survey
A drawing prepared by a licensed surveyor that shows a property's boundaries, buildings, fences, easements and access points. It reveals whether a structure crosses a lot line or whether a neighbor's improvement sits on the land. Lenders and title companies often rely on it. A more detailed standard version is the ALTA survey.
See also: ALTA Survey, Encroachment, Easement
Syndication
A deal where a sponsor pools money from several investors to buy a property that one investor might not afford alone. The sponsor runs the deal and investors hold a passive ownership stake, often through an LLC or limited partnership. Offering those stakes is a securities activity, so legal rules apply.
See also: General Partner and Limited Partner, Regulation D (506(b) and 506(c)), Distribution Waterfall
Learn more: Raising Capital: Syndications, JVs and Private Equity →
T
T-12 (Trailing Twelve Months)
A report of a property's actual income and expenses for the most recent 12 months, broken out month by month. Buyers and lenders use it to verify the seller's claims and to spot seasonality and trends. A buyer lines it up against the rent roll and the seller's pro forma.
See also: Pro Forma, Net Operating Income (NOI), The Due Diligence Documents You'll Hear Named
Tax Abatement
A temporary reduction or exemption from property taxes that a local government grants to encourage development, jobs or affordable housing. The cut may be a percentage of the bill and last a set number of years, often with a phase-out. Terms and eligibility vary by place. Buyers check whether an abatement transfers and what happens when it ends.
Example: A 50% abatement on a $100,000 tax bill saves $50,000 a year, or $500,000 over 10 years if the bill and the 50% cut stay flat.
See also: Property Tax, Tax Increment Financing (TIF), Opportunity Zone
Tax and Insurance Escrow
An account where the lender collects a portion of the annual property tax and insurance bills with each monthly loan payment, then pays those bills when due. It protects the lender's collateral from a tax lien or lapsed coverage. The base monthly amount is the annual total divided by 12. Lenders can add a cushion and can adjust the amount when the bills change.
Example: Annual taxes of $36,000 and insurance of $12,000 total $48,000, so the base escrow is $4,000 a month ($48,000 / 12), before any cushion.
See also: Escrow, Lender Reserves, Property Tax
Tax Appeal
A formal challenge to a property's assessed value, filed with the local board or assessor, to lower the tax bill. Owners often argue the assessment is too high compared with market value, recent sales of similar property or the income the property earns. Filing deadlines are short and vary by place. A lower assessment cuts an expense and can raise NOI.
Example: Cutting assessed value from $5,000,000 to $4,500,000 at 20 mills saves $10,000 a year (500,000 / 1,000 x 20).
See also: Assessed Value, Millage Rate, Net Operating Income (NOI)
Tax Increment Financing (TIF)
A local government tool that captures the growth in property tax revenue inside a defined district and uses it to pay for public improvements or repay bonds. Taxes on the base value keep flowing to normal uses. Only the increase after redevelopment feeds the fund, for a set number of years. State rules differ, and developers may receive subsidy from it.
Example: Taxes on a district's base value are $100,000 a year. After redevelopment they reach $400,000. The $300,000 increase goes to the TIF fund.
See also: Tax Abatement, Redevelopment, Entitlement
10-Year Treasury Yield
The annual return on 10-year U.S. Treasury notes, set by trading in the open market. Lenders use it as a benchmark for fixed-rate commercial loans, particularly 10-year terms. Investors watch it because loan rates tend to rise and fall with it. Cap rates often drift in the same direction over time, though not on a fixed schedule.
Example: If the 10-year Treasury yields 4.00% and a lender adds a 2.00% spread, the loan rate is 6.00% (4.00% + 2.00%).
See also: Credit Spread, Cap Rate Spread, Interest Rate
Tenant Improvement Allowance (TI)
Money a landlord gives a tenant, often stated per square foot, to build out or renovate the leased space. Landlords use it to win tenants, and it raises their upfront cost. Investors treat TI as a real cash cost at lease signing and model it on every new lease and many renewals.
Example: A $40 per SF allowance on a 5,000 SF suite costs the landlord $40 × 5,000 = $200,000.
See also: Net Effective Rent, Leasing Commission, Free Rent (Concession)
Tenant Mix
The combination of tenant types and sizes in a property. A good mix gives customers reasons to visit, such as a grocer, pharmacy, restaurants and services, which supports sales and the rent tenants can pay. Owners also watch how much income depends on any one tenant or industry.
See also: Anchor Tenant, Co-Tenancy Clause, Multi-Tenant Property
Tenant Representation Broker
A broker who works for the tenant, not the landlord, to find space, compare options and negotiate lease terms. Tenant brokers know market rents and concessions. How they get paid varies by market and agreement, and often the landlord's commission offer covers the fee. Investors meet them across the table in lease negotiations.
See also: Leasing Commission, Letter of Intent (LOI), Net Effective Rent
Learn more: Working with Brokers, Attorneys and PMs course →
Tenant Retention
The actions a landlord takes to keep tenants renewing, such as responsive service, space upgrades, early renewal talks and flexible terms. Keeping a tenant avoids vacancy, new leasing commissions and tenant improvement costs for a replacement. Retention shows up as a renewal rate, and investors use it to judge income stability.
See also: Renewal Rate, Renewal Option, Rollover Risk
Term Sheet
A short, often nonbinding document in which a lender or investor outlines the main terms of a proposed deal: loan amount, rate, term, amortization, fees, recourse and conditions. It comes before the full commitment and loan documents. Investors compare term sheets from several lenders, but final terms can change after underwriting and due diligence.
See also: Commitment Letter, Letter of Intent (LOI), Underwriting
Terminal Cap Rate (Exit Cap Rate)
The cap rate an analyst assumes when the property sells at the end of the hold period. Divide the following year's NOI by it to estimate the sale price. A small change moves the exit value a lot, so many underwriters set it at or above the going-in cap rate to allow for an older building.
Example: For a five-year hold, year-six NOI of $1,300,000 at a 6.5% exit cap rate gives a sale price of $20,000,000.
See also: Going-In Cap Rate, Cap Rate Compression, Sensitivity Analysis
Termination Option
A right in the lease for one party, usually the tenant, to end the lease before the term runs out. The lease sets the notice period and often a fee to pay for the right. Investors discount income that a tenant can cancel, because the stated term overstates how long the rent is secure.
See also: Lease Term, Rollover Risk, Renewal Option
Tertiary Market
A smaller city or town with limited population, fewer employers and thinner investor demand than primary and secondary markets. Prices are lower and cap rates are often higher, which reflects more risk and a smaller pool of buyers when an owner wants to sell.
See also: Gateway and Secondary Markets, Capitalization Rate (Cap Rate), Submarket
Time Value of Money
The idea that a dollar today is worth more than a dollar received later, because today's dollar can earn a return in the meantime. Present value, future value, discount rates and IRR all build on it. Real estate cash arrives over years, so investors use this idea to compare money received now with money promised later.
Example: $10,000 invested at 5% for one year becomes $10,500, so $10,500 in a year equals $10,000 today at that rate.
See also: Present Value, Future Value, Discount Rate
Title Company
A company that researches a property's ownership history, issues title insurance and often serves as the escrow or closing agent. It searches public records for liens, easements and ownership defects and reports what it finds. Its role varies by state. In some states attorneys handle closings, and the title company mainly issues the policy.
See also: Title Insurance, Title, Encumbrances, and Clear Title, Escrow
Title Insurance
A one-time policy that protects an owner or lender against covered losses from title defects, such as unknown liens, forged documents, or recording errors. A title search comes first, and the policy covers problems that existed at closing but went unseen. Exclusions and exceptions matter. Premiums and practices vary by state.
See also: Title, Encumbrances, and Clear Title, Deed, ALTA Survey
Title, Encumbrances, and Clear Title
Title is legal ownership. When you purchase commercial real estate, you receive a deed that transfers title from the seller to you. But title can come with strings attached — encumbrances — and identifying them before closing is critical.
Total Return
The full gain on an investment from all sources: cash flow received during the hold plus the sale profit or change in value, compared with the capital invested. It combines income return and appreciation. A property with a low cash yield can still post a high total return if its value rises, and the reverse also holds.
Example: An investor puts in $1,000,000, collects $60,000 a year for 5 years ($300,000), then sells for $1,150,000. Total gain is $450,000 ($300,000 + $150,000), a 45% total return before taxes and selling costs.
See also: Equity Multiple, Internal Rate of Return (IRR), Appreciation
Trade Area
The geographic area that supplies most of a property's customers. Analysts draw it as a radius or a drive-time boundary and then study the population and incomes inside it. Retailers use trade areas to choose locations, and landlords use them to judge tenant sales potential. Boundaries shift with competition, roads and the type of store.
See also: Demographics, Daytime Population, Retail Property
Traffic Counts
Measurements of how many vehicles pass a road or intersection, usually reported as vehicles per day. Government transportation agencies and private firms publish them. Retail investors use them to judge visibility and customer flow to a site. A high count helps only if drivers can reach the property easily, so access and turning movements matter too.
See also: Retail Property, Trade Area, Pad Site and Outparcel
Triple Net Lease (NNN)
A lease where the tenant pays base rent plus the property's taxes, insurance, and maintenance. The landlord's income is steadier and more predictable, so investors like NNN for passive ownership. Who handles the roof and structure varies by lease, so the fine print matters.
See also: Gross Lease vs. Net Lease, CAM Charges and Expense Recoveries, Capitalization Rate (Cap Rate)
Trophy Property
A top-tier building in its market, often rated above Class A, with prime location, premium design, strong amenities and well-known tenants. Few exist in any city. They draw the highest rents, and they often trade at lower cap rates than other buildings, with high prices to match.
See also: Class A, B and C Properties, Gateway and Secondary Markets, Capitalization Rate (Cap Rate)
Turnkey Space
Space the landlord has fully finished, so the tenant can move in and start operating with little or no construction. Finishes may include walls, flooring, ceilings and lighting, and sometimes furniture and cabling. Landlords offer turnkey suites to speed up leasing, and the cost of the work often shows up in the rent.
See also: Build-Out, Vanilla Shell, Tenant Improvement Allowance (TI)
Turnover Costs
The expenses an owner pays each time a tenant moves out and a new one moves in. They include cleaning, repairs, paint, marketing, leasing fees, free rent and the rent lost while the space sits empty. Multifamily owners often model them per unit. High turnover cuts NOI even when rents rise.
Example: A unit needs $1,200 of make-ready work, $300 of marketing and one month of lost rent at $1,500. Turnover cost is $3,000 (1,200 + 300 + 1,500).
See also: Make-Ready, Renewal Rate, Operating Expenses
U
Underground Storage Tank (UST)
A tank buried underground that holds fuel or other liquids, found at gas stations, auto shops and some older industrial or commercial sites. Leaks can contaminate soil and groundwater, and cleanup can be costly. Investors check for current or former tanks during due diligence because they can affect value and financing. Regulation varies by tank type and jurisdiction.
See also: Phase I Environmental Site Assessment, Phase II Environmental Site Assessment, Hazardous Materials
Underwriting
Analyzing a property and its deal to decide whether to buy, lend or pass. The analyst verifies income and expenses, tests assumptions, projects cash flow and runs return and risk metrics. Lenders also underwrite the borrower. Careful underwriting helps a buyer avoid overpaying.
See also: Pro Forma, Sensitivity Analysis, T-12 (Trailing Twelve Months)
Useful Life
The period an asset is expected to serve its purpose. For accounting, the owner estimates it. For US tax depreciation, the law assigns a fixed recovery period that can differ from real physical life. Roofs, HVAC and elevators wear out faster than the building shell, which is why owners plan capital reserves apart from tax lives.
See also: Straight-Line Depreciation, Reserves for Replacement, Cost Segregation
V
Vacancy and Credit Loss
An income deduction for rent not collected because space sits empty or tenants fail to pay. Underwriters subtract it from gross potential income to reach effective gross income. They base it on market vacancy, the property's history and tenant credit quality, and often keep a minimum even for fully leased buildings.
Example: On $1,200,000 of gross potential income, 5% vacancy ($60,000) and 1% credit loss ($12,000) leave effective gross income of $1,128,000.
See also: Effective Gross Income (EGI), Vacancy Rate, Gross Potential Income (GPI)
Vacancy Rate
The share of a property's units or space that sits empty, shown as a percentage. Analysts measure it in units or square feet, and a market's vacancy rate shows how tight or loose supply is. Vacancy shrinks income, so underwriters often apply a minimum vacancy allowance even to a full building.
Example: 8 empty units out of 100 is an 8% vacancy rate.
See also: Economic vs. Physical Occupancy, Effective Gross Income (EGI), Absorption Rate
Vanilla Shell
A space delivered in basic condition, often with demising walls, restrooms, basic lighting, and heating and cooling, but little floor or ceiling finish and no tenant-specific layout. The tenant then builds out the interior. What counts as vanilla shell varies by landlord and market, so the lease or work letter lists exactly what the landlord delivers.
See also: Cold Dark Shell, Build-Out, Turnkey Space
Variance
Official permission from a local board to depart from a zoning rule, such as a setback, height limit, or parking count. Applicants usually must show a hardship that comes from the land itself. Approval is discretionary and can carry conditions. Standards differ by jurisdiction.
See also: Zoning, Setback, Entitlement
W
Warehouse and Distribution Center
Large buildings that store goods and ship them onward. A warehouse mainly holds inventory. A distribution center sorts orders and moves them quickly to stores or customers. Size, ceiling height, dock doors and highway access set the rent. Online shopping has raised demand for this kind of space.
See also: Clear Height and Dock Doors, Last-Mile Logistics, Industrial Property
Weighted Average Lease Term (WALT)
The average time left on a property's leases, with each lease weighted by its size or rent. A longer WALT means income is locked in for more years, which signals stability. A short WALT means more rollover ahead. Buyers and lenders track it to judge rent risk.
Example: A 10,000 SF tenant with 2 years left and a 30,000 SF tenant with 6 years left give (10,000 × 2 + 30,000 × 6) ÷ 40,000 = 5.0 years, weighted by square feet.
See also: Rollover Risk, Rent Roll, Capitalization Rate (Cap Rate)
Work Orders and Preventive Maintenance
Work orders are requests to fix a specific problem, tracked from report to completion. Preventive maintenance is scheduled service on equipment, such as HVAC filters and roof checks, done before things break. Together they keep tenants satisfied and protect the building. Records show whether the manager spends money on planned upkeep or on costly emergency repairs.
See also: Deferred Maintenance, Reserves for Replacement, Operating Expenses
Y
Yield Maintenance
A prepayment penalty built to give the lender the interest income it would have earned had the loan run to maturity. The fee is often based on the gap between the loan's rate and a comparable Treasury yield, discounted to present value. The penalty grows when rates have fallen and shrinks when rates have risen. Exact formulas vary by loan document.
See also: Prepayment Penalty, Defeasance, CMBS Loan
Z
Zoning
Local government rules that control how land can be used and built on. They set allowed uses, such as retail, industrial, or residential, and limits on height, density, parking, and setbacks. Zoning affects what a property is worth and what an investor can do with it, so buyers confirm it early. Rules change by locality.
See also: Floor Area Ratio (FAR), Legal Nonconforming Use, Variance
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Educational definition only. Not investment, financial, or brokerage advice.