Search:
(clear)
- AbsorptionIn the case of for lease property, absorption is the rate at which rentable area is leased up over a period of time in a given market. The net absorption figure considers construction of new space, demolition of exiting space and any additional vacancies during that period. It is often used to(...)
- AcreA unit of land that equals 43,560 square feet, or 4,047 square meters.
- Acuity SpectrumA range of care which encompasses the categories within senior living. The continuum typically ranges (in order of increasing acuity) from independent living to assisted living to memory care to nursing care.
- Adaptive ReuseA repositioning strategy in real estate whereby the investor converts the use and/or design of an existing building into something new. Typical scenarios include the conversion of industrial building, schools and churches into other building types such as residences, museums or art galleries.
- Add AlternateAn additional item of work that is priced out by a consultant/subcontractor during the contract negotiation or bid process, but isn’t yet part of the scope of work. It is an item that an owner is considering adding to the consultant/subcontractor’s contract, but has not yet been confirmed as(...)
- Adjusted Funds from Operations (AFFO)A superior metric compared to FFO when evaluating a REIT’s performance. AFFO is used in order to account for any additional expenses the landlord is expected to incur over the life of the asset (such as TIs, CAPEX, leasing commissions etc.). The measure is calculated as follows: AFFO = FFO –(...)
- ADRSee Average Daily Rate.
- Adverse PossessionAlso referred to as Squatter's Rights, adverse possession enables a person living on or using someone else's property to legally take ownership of said property if the original owner has abandoned and/or not claimed ownership over a certain period of time. This law came in to effect to(...)
- Average Daily RateThe average revenue generated per paid occupied room per day, calculated by dividing room revenue by the number of rooms sold. The ADR is commonly used in the hospitality industry together with the RevPAR metric to assess the property’s performance.
- Average Rate of ReturnA measure of the profitability of a real estate investment or a type of return metric. The average rate of return is calculated as the total net profit of an investment (total cash inflows minus total cash outflows), divided by the length of the investment, divided by the invested capital. The(...)
- AxonometricAn architectural drawing that depicts an object in three dimensions. Commonly created by architects to show others a more realistic depiction of a current project.
- Balance Sheet InvestingWhen an investor uses its own funds to invest in a real estate asset. This is in contrast to using 3rd party funds (when referring to equity) or securitization proceeds (when referring to debt).
- Base Year StopUpon lease commencement, the building owner will agree to pay the tenant's first year expenses (aka base year expenses) and will continue to pay the same amount in each of the subsequent years while the tenant will pay any additional costs above the amount realized in the base year. So, the(...)
- Bid and Award ProcessThe period during which the owner solicits bids from the numerous subcontractors within trades needed to build the project. Once the subs have responded to the bid requests, the general contractor may request additional information or conduct interviews and will awards a contract to the(...)
- BOMASee Building Owners and Managers Association
- Breakeven OccupancyThe occupancy at which the effective gross income is equal to the sum of the operating expenses plus debt service. Breakeven occupancy is an important metric for lenders, developers, and operators as it is the point at which the property shifts from an operating deficit to an operating(...)
- Breakup FeeA fee paid to one party in a real estate transaction by a counter-party when the counter-party backs out of the transaction. The breakup fee is generally a percentage of the purchase price or mortgage loan amount and is used to compensate the damaged party for time and resources spent on the(...)
- Bridge LoanAlso referred to as a mini-perm, in real estate a bridge loan is a short-term loan typically provided to developers and value-add real estate investors and is used to "bridge" periods during which the property is not eligible for permanent financing. The term of a bridge loan can be anywhere(...)
- Building CoreA main concrete structural component that goes the entire vertical length of a high-rise building and houses elevators, stairwells, and MEP vertical risers. In many cases, the core will also house the bathrooms in non-residential commercial buildings.
- Building Owners and Managers AssociationFounded in 1907, BOMA is an international real estate trade organization representing owners and managers of commercial real estate. The organization promotes, provides advocacy and develops various pertinent research publications in support of its members. BOMA members span the entire(...)
- Buildup RateAn alternative method for arriving at a capitalization rate for a real estate investment. The buildup rate is the sum of all risks of an investment (denoted in percentage) plus the risk-free interest rate. For example: Risk-Free Rate (e.g. 10-yr UST): 2.25% + Illiquid nature of(...)
- Cap RateThe Cap Rate, or Capitalization Rate, is the percentage derived from a stabilized asset's annual NOI divided by its purchase price. Cap Rate = Net Operating Income ÷ Stabilized Value Investors often look to cap rates that have been set in the market to begin getting a ball park idea of what(...)
- Capital ExpenditureAn expense used to upgrade a property which is expected to result in a long-term (longer than 1 year) improvement. Typical capital expenditures (CapEx) include roof repairs, HVAC replacement and other expenses generally related to the structural improvement of the building. For tax purposes,(...)
- Car StackerA hydraulic machine used to vertically stack cars in order to maximize parking efficiency. This technology is increasingly being used in high-density urban areas where land costs and parking rates make implementing this economically feasible.
- Cash-on-Cash ReturnBefore tax cash flow (BTCF = CFO - Debt Service) divided by the total equity contribution to date, expressed on an annual basis as a percentage. While the Cash-on-Cash Return (CoC) does not account for taxes and does not take into account the time value of money, it is a useful screening tool(...)
- Cash-Out RefinanceThe process by which a borrower takes out a new mortgage with sufficient loan proceeds to pay off the existing mortgage plus return all or part the borrower's invested capital in the investment. The Cash-Out Refinance is sought by owners of real estate, because it provides them an opportunity(...)
- Cash SweepThe use of any free cash flow (after deducting debt service payments) to pay down an outstanding loan balance. In real estate, a cash sweep is often implemented by a lender when a borrower is unable to payoff the balloon balance upon loan maturity.
- Catch Up ProvisionA provision included in certain real estate partnership agreements, whereby a special distribution tier is included in the equity waterfall that allows for the general partner (GP) to "catch up" with the limited partner's (LP) cash flow distributions. The reason for why the general partner's(...)
- CCIMA commercial real estate designation issued by the CCIM Institute. The abbreviation CCIM stands for Certified Commercial Investment Member. To earn the CCIM designation, candidates must complete an education component, demonstrate experience in commercial real estate, and sit for a(...)
- Clawback ProvisionA provision included in certain real estate partnership agreements, whereby a special distribution tier is included in the equity waterfall that allows for the limited partner (LP) to “clawback” cash flow previously distributed to the general partner (GP). Reasons for including the clawback(...)
- Cold ShellAny building/rentable area that consists only of a bare, unimproved shell i.e. no interior finishes, HVAC, plumbing, lighting, elevators etc.
- Common Area Maintenance (CAM)Common Area Maintenance, commonly referred to as CAM, is a term used in commercial real estate leases that is meant to address the cost of building operations that all tenants benefit from and will pay for. Tenants usually pay a portion of CAM as determined by the negotiated agreement, but(...)
- Conceptual DesignA pre-design phase where owner and A & E team work together to bring shape to the project and outline it’s function and form. The conceptual design promotes an open dialogue between the architect and the owner, with concept sketches often being used to illustrate and communicate ideas and(...)
- ConcessionsAlso referred to as an "Inducement", any preferential financial treatment offered by one party to another in a real estate transaction. In the case of a lease agreement, a concession most often takes the form of free rent for a period of time or an agreement by the landlord to waive certain(...)
- Construction DocumentsDetailed documents of the development project put together by the architect after the Design Development Phase of the design process. The Construction Documents (CDs) reflect the finalized building design and provide specific details to communicate to the contractor and subcontractors how the(...)
- Construction FinancingA short-term loan, typically with a floating interest rate, issued by a lender to finance the construction of a real estate project. The loan is paid out to the borrower in draws as construction progresses. After construction is complete and the property is fully leased and/or sold, the loan(...)
- Construction-Perm LoanAlso referred to as a "Rollover Loan", a construction-perm loan is one that immediately converts into permanent debt financing once construction of the project is finalized.
- Contingency CostAn estimated amount set aside by the developer and/or the contractor in order to account for any unknown risks associated with the project. These costs are designed to cover unforeseen expenses which are not precisely known at the time of estimate but which the contractor expects will occur(...)
- Continuing Care Retirement Communities (CCRC’s)A senior living community that caters to a broad category of needs including independent and assisted living, and permanent skilled nursing care. CRC’s (also known as “life plan” communities) typically have high occupancy levels as they provide residents with the ability to “age in place”.
- Contract RentSometimes referred to as In-Place Rent, Contract Rent is the rent being charged/collected on existing leases at a property. In contrast to Market Rent, contract rent is not based on market conditions but rather is based on the lease contract signed between the landlord and tenant.
- In-Place RentSometimes referred to as In-Place Rent, Contract Rent is the rent being charged/collected on existing leases at a property. In contrast to Market Rent, contract rent is not based on market conditions but rather is based on the lease contract signed between the landlord and tenant.
- Contractor Controlled Insurance Program (CCIP)OCIP and CCIP are broad and all-encompassing insurance policies that usually cover, at a minimum, general liability insurance, worker’s compensation, and excess liability insurance for all contractors and subcontractors on a construction project. An OCIP is sponsored and held by the owner, in(...)
- CoreCore - (investment strategy) A real estate investment strategy categorized by low risk and commensurately low, stable returns. Coreinvestment strategies typically involve longer hold periods, lower levels of leverage, and higher quality assets. Core investments are generally stabilized(...)
- Core PlusCore Plus assets are properties that are otherwise Core assets, but with some component of risk (opportunity) attached to it. It may be a high street retail building with a tenant that takes 10% – 15% of the space vacating in 2 years and the space needs to be upgraded and re-leased. Or it(...)
- Cost Plus ContractA contract whereby the contractor is reimbursed for all the construction related costs, in addition to an agreed upon percentage of such costs covering the contractor’s overhead and profit. These contracts are typically used when the scope of works is unclear, however they require additional(...)
- CrystallizationAlso referred to as a partnership crystallization, a crystallization is a provision in a real estate joint venture agreement where the partners agree to adjust the ownership share in the venture at some pre-defined point in the future. It is most common to value-add and opportunistic(...)
- CurtailmentA type of prepayment which reduces a mortgage loan's outstanding principle balance. Curtailment can be done by either increasing one’s monthly payments or repaying a lump sum amount, both of which would shorten the loan maturity period.
- DCFSee Discounted Cash Flow
- Debt CovenantsDebt covenants are essentially rules written into the loan documents which govern the behaviour of a borrower once the debt is issued. There are 2 general types of covenants which either permit (affirmative covenant) or restrict (negative covenant) the borrower’s ability to perform certain(...)
- Debt Service Coverage RatioA financial metric used in real estate to measure a property’s ability to cover its debt obligations. The Debt Service Coverage Ratio (DSCR or DSC) is calculated by dividing the net operating income by the debt service payment and is often expressed as a multiple (i.e. a DSCR of 1.20x). The(...)
- Debt YieldThe ratio of Net Operating Income (NOI) to the mortgage loan amount, expressed as a percentage. The debt yield is useful to lenders as it represents the lender's return on cost were it to take ownership of the property. Among other metrics, lenders use debt yield to determine an appropriate(...)
- Deed in Lieu of ForeclosureThe voluntary transfer of a title deed by the borrower to the lender in order to satisfy a defaulting loan (thereby avoiding foreclosure proceedings). Also referred to as "giving back the keys" or Jingle Mail.
- jingle mailThe voluntary transfer of a title deed by the borrower to the lender in order to satisfy a defaulting loan (thereby avoiding foreclosure proceedings). Also referred to as "giving back the keys" or Jingle Mail.
- DefeasanceThe process of releasing a borrower from its debt obligation (mortgage loan) and substituting the lien on the property with acceptable replacement collateral (typically treasury bonds). This replacement collateral is expected to generate a comparable substitute cash flow, which would otherwise(...)
- Delaware Statutory TrustA distinct legal entity used by real estate investors seeking to defer their capital gains taxes through the use of a 1031 tax deferred exchange. The primary advantage of the DST is the trust’s ability to obtain favourable financing terms compared to other ownership structures (such as(...)
- Delaware Statutory Trust (DST)A distinct legal entity used by real estate investors seeking to defer their capital gains taxes through the use of a 1031 tax deferred exchange. The primary advantage of the DST is the trust’s ability to obtain favourable financing terms compared to other ownership structures (such as(...)
- Design DevelopmentThe period following schematic design whereby all design team consultants work together to further refine the project details. In this phase, the design team begins to select systems and materials and looks carefully at the coordination of all the components. The team will start to develop(...)
- Development SpreadThe difference, denoted in basis points, between the market cap rate and the yield-on-cost . The Development Spread measures the "development pop", or value-added by taking on the construction and lease-up risk. The greater the development spread, the more likely a development project will be(...)
- Development YieldA metric used in real estate development, Development Yield is calculated as the project's net operating income (or sometimes cash flow from operations) at stabilization divided by the total project cost. Development Yield is also referred to as a project's Yield-on-Cost.
- yield-on-costA metric used in real estate development, Development Yield is calculated as the project's net operating income (or sometimes cash flow from operations) at stabilization divided by the total project cost. Development Yield is also referred to as a project's Yield-on-Cost.
- Discount RateThe rate at which cash flows are discounted in a discounted cash flow (DCF) model. In real estate valuation models, the discount rate can be interpreted as the Cap Rate plus expected NOI growth, representing the income and growth components of total required rate of return respectively.
- Discounted Cash FlowAn investment analysis tool used regularly by real estate professionals to make buy, sell, hold, lend, and development investment decisions. The discounted cash flow (DCF) is a process by which the real estate professional forecasts the future cash flows of an investment (rents, expenses,(...)
- DSCRSee Debt Service Coverage Ratio
- DSTSee Delaware Statutory Trust
- Earn-OutA provision within a loan agreement that allows the borrower to receive additional funds from the lender upon completion of certain events (such as receiving a Certificate of Occupancy or surpassing pre-defined operating performance thresholds). Earn outs are structured using holdback agreements.
- Earnest Money DepositAn initial deposit paid by the buyer as a show of good faith to the seller. The money is typically held in escrow until the transaction closes and all suspensive conditions have been fulfilled, following which the earnest money is used to offset the initial purchase price paid by the buyer.(...)
- Economic VacancyThe difference between the gross potential rent at a property and the actual rent collected. An example of this would be an apartment complex with a 2-week preparation period for new tenants and a 50% annual tenant turnover. Assuming the property was 100% occupied (i.e. a physical vacancy of(...)
- Effective Gross RevenueAlso referred to as Effective Gross Income, EGR, or EGI. Effective Gross Revenue is the sum of total Rental Revenue and total Other Income, less any adjustment for general vacancy and credit loss. Effective Gross Revenue = Total Rental Revenue + Total Other Income - General Vacancy & Credit Loss
- ElevationAn architectural drawing that depicts an object in two dimensions and from a front, side, or back vantage point
- Entitlement ProcessThe process through which a real estate developer or land owner seeks the right to develop (or redevelop) property with government approvals for zoning, density, design, use, and occupancy permits. Upon securing all necessary entitlements from the applicable government(s), the real estate(...)
- Equity MultipleA return metric which shows how much an investor’s capital has grown over time. The equity multiple (EMx) is calculated by dividing the sum of all capital inflows (capital distributions) by the sum of all capital outflows (capital contributions). While the equity multiple does not account for(...)
- Expansion RightsThe legal right given by a landlord to a tenant to occupy additional leasable area in a building. These rights constrain the landlord’s ability to lease the building and are thus typically only seen when tenants have a high degree of negotiation leverage.
- Expense StopA mechanism in a Full Service Gross Lease, the Expense Stop is a fixed amount of operating expense above which the tenant is responsible to pay. Thus, the landlord is responsible to pay for all operating expenses below the Expense Stop, while the tenant is responsible for any amount above the(...)
- FF&EFurniture, Fixtures, and Equipment (FF&E). In real estate financial analysis, FF&E is most often found as a line item in development budgets and operating statements. It can generally be defined as any easily moveable object not permanently affixed to the building. Examples of FF&E are as(...)
- Financing MemorandumA request for mortgage financing given to lenders by commercial real estate borrowers (or their representatives) for the lenders' investment consideration. The memorandum will typically highlight various terms and property specifics such as the borrower's requested loan terms, a detailed(...)
- Fixed CostsCosts that do not change based upon of the property’s level of operation. For example. the landlord’s monthly insurance premiums will generally remain fixed regardless of whether the property is 50% or 80% occupied. In some real estate financial models, the user is given the option to choose(...)
- Floor Area RatioA ratio expressing the relationship between a building’s floor area (currently built or permitted) and the land on which the property is located. A higher FAR ratio indicates a higher density (i.e. the more square feet legally permissible to be built on the land). For example, if a plot of(...)
- Floor Area Ratio (FAR)A ratio expressing the relationship between a building’s floor area (currently built or permitted) and the land on which the property is located. A higher FAR ratio indicates a higher density (i.e. the more square feet legally permissible to be built on the land). For example, if a plot of(...)
- Floor PlanAn architectural drawing that depicts a floor layout of a specific floor or room of a building in two dimensions and from a top looking down vantage point.
- Floor PlateA term commonly used in commercial real estate to refer to an entire floor of a building. The term is commonly used when discussing square footage and/or variations in size and shape of floors within a building. Example of how it can be used: There are two different floor plates in this(...)
- Floor to Ceiling HeightThe height between each floor plate in a building measured from the top of a floor to the surface of the ceiling.
- Floor to Floor HeightThe height between each floor plate in a building measured from the top of a floor to the top of the floor above.
- Forward SaleA binding contract between two parties to enter into a purchase and sale agreement at a fixed future date, the terms and conditions of which are agreed upon today.
- Free and Clear ReturnThe total unlevered (before debt) pre-tax cash flow of a real estate project divided by the total capital invested, generally expressed as a percentage on an annual basis. While the Free and Clear Return does not account for taxes and does not take into account the time value of money, it is a(...)
- Full Service Gross LeaseA commercial lease where the tenant pays a base rent and the landlord pays for all operating expenses related to the tenant's occupancy of the space such as common area maintenance, utilities, property insurance, and property taxes. Full Service Gross (FSG) leases generally include an Expense(...)
- Full Service HotelA hotel that has a dedicated F&B component and offers a full range of amenities and services such as concierge service, bars and restaurants, pool and spa, etc. Full service hotels have high fixed costs and appeal to the more affluent casual and business travelers who are able to afford the(...)
- Funds from Operations (FFO)A widely accepted metric used to analyze the performance of a REIT. Funds from Operations, or FFO, accounts for the fact that net income on a REIT’s income statement may be an inaccurate representation of the REIT’s true performance. As such, net income is adjusted as follows to arrive at(...)
- Furniture, Fixtures, and EquipmentSee FF&E
- Future Value FactorAlso called the Future Amount of One or FV Factor, the Future Value Factor is a formula used to calculate the Future Value of 1 unit today, n number of periods into the future. The FV Factor is equal to (1 +i)^n where i is the rate (e.g. interest rate or discount rate) and n is the number of(...)
- General ContractorAn entity that oversees the execution of a construction project on behalf of the ownership of a property. The General Contractor manages the day to day operations on site and oversees all the subcontractors.
- General Vacancy and Credit LossIn real estate underwriting, General Vacancy and Credit Loss is an adjustment to Gross Potential Income (Rental Revenue + Other Income) on the pro forma income statement. It is used to factor in likely vacancy loss due to market conditions and expected credit loss due to tenants' failure to pay.
- Good News MoneyAdditional funds paid out to the borrower by a mortgage lender upon the occurrence of certain “good news” events, such as the owner concluding a lease agreement with a major tenant in the building or reaching some pre-determined net operating income. Such additional funds are added to the(...)
- Gross Asset ValueA measure used to describe the market value of a property. The value includes debt and equity positions but excludes any acquisition/closing costs.
- Guarantee of Non-Recourse Carve-OutsAlso referred to as a "Bad-Boy Guarantee", a Guarantee of Non-Recourse Carve-Outs is a guarantee provided by an individual or entity which covers the extent of the recourse liability arising from any non-recourse carve-out.
- Guaranteed Maximum Price (GMP)A type of cost plus contract whereby the contractor is reimbursed for all construction related costs, plus a fixed fee. The agreed upon costs and fee are capped, transferring the risk of cost overruns to the contractor, whilst any savings resulting from cost underruns may either be a point of(...)
- Hangout and Hangout RiskThe hangout is the expected outstanding loan balance owed the lender by the borrower at the end of the lease term of a key tenant, while the hangout risk is the risk to the lender associated with the borrower's ability or inability to repay said loan. An especially important consideration in(...)
- Hard CostsAny development costs associated with the physical construction of a building. These costs are easy to quantify and typically include items such as raw materials, labor, and interior finish, etc. Hard costs are also referred to as Direct Costs.
- HectareA unit of land that equals 10,000 square meters or 107,639 square feet.
- Hold/Sell AnalysisThe process of analyzing whether to continue holding (i.e. owning) income-producing real estate, or whether to sell the real estate and reinvest the proceeds in an alternative opportunity. Many professional real estate asset and portfolio managers perform this analysis on regular basis, so as(...)
- Hotel "Flag"An informal term used to denote an operating brand within the hotel industry. Marriott, Hilton, and Best Western are examples of "Flags" used by owners of hotel properties.
- HUD HomeA residential property owned by the Department of Housing and Development (HUD). If a foreclosed home was acquired using proceeds from an FHA-insured loan, the FHA will pay out the lender for the balance due and ownership of the property will transfer to HUD.
- In arrearsTo pay for services after the work has been done.
- In-place RentSee Contract Rent. In-place Rent is the rent being charged/collected on existing leases at a property. In contrast to Market Rent, in-place rent is not based on market conditions but rather is based on the lease contract signed between the landlord and tenant.
- Contract RentSee Contract Rent. In-place Rent is the rent being charged/collected on existing leases at a property. In contrast to Market Rent, in-place rent is not based on market conditions but rather is based on the lease contract signed between the landlord and tenant.
- Institutional InvestorAn institutional real estate investor is a large company or organization with substantial capital and an allocation to real estate investments. Pension funds, life insurance companies, investment banks, sovereign wealth funds, and endowments are examples of institutional investors. Most often,(...)
- Interest ReserveA reserve account held by the lender of a construction loan and used by the borrower to cover loan interest shortfalls during construction and lease-up. The interest reserve is funded via the initial proceeds from the construction loan, and is calculated based either on expected future draws(...)
- Internal Rate of ReturnThe discount rate at which the net present value of an investment is equal to zero. The internal rate of return is a time value of money metric, representing the true annual rate of earnings on an investment. In real estate practice, IRR is used together with other return metrics such as(...)
- Jingle MailA colloquialism in real estate, a Jingle Mail is the letter a lender would receive containing a borrower’s keys (making a “jingle” sound as the keys bounced around). This situation typically occurs when there is a sharp decrease in the market value of property, such as occurred during the 2008(...)
- Deed in Lieu of ForeclosureA colloquialism in real estate, a Jingle Mail is the letter a lender would receive containing a borrower’s keys (making a “jingle” sound as the keys bounced around). This situation typically occurs when there is a sharp decrease in the market value of property, such as occurred during the 2008(...)
- Joint TenenacyAn ownership of real property by two or more people whereby if one person dies, the ownership held by the deceased passes on to the surviving owners.
- Key MoneyMoney provided by a hotel operator or hotel "flag" to a hotel owner in order to secure a hotel management or franchise agreement at a hotel property. In highly competitive hotel markets, where operators are looking to get a foothold or expand their brand, operators may use key money as one(...)
- Key Performance IndicatorA metric used to measure the performance of a property. Real estate-specific KPI’s include metrics such as Cap Rate, LTV, Debt Yield, Cash on Cash Return, Internal Rate of Return, Equity Multiple, among others.
- Land AssemblageA tactic employed in land acquisition, where a real estate professional acquires two or more adjacent parcels, combining them into one. Land assemblage can be a time-consuming, complicated process - with the complexity increasing exponentially depending on the number of parcels and land(...)
- Lease DepthThe distance measured between the building window line and the building core wall’s exterior side.
- Leasing CommissionsA commission, generally paid by the landlord to a leasing broker, for procuring a tenant for a rentable piece of real estate. Leasing Commissions are typically paid at the start of the lease, and are commonly paid both when a new tenant occupies a space and when an existing tenant renews its(...)
- LesseeSomeone who leases or rents space. Someone who pays rent to the owner or lessor in order to occupy a space.
- LessorAn entity that owns and leases a property to a tenant or lessee.
- Levered Cash FlowThe net cash inflows and outflows of a real estate investment taking into account cash flows related to financing. Levered cash flows generally consist of total investment costs, loan fundings and payoffs, net operating cash flows after financing, and asset reversion cash flows (i.e. net(...)
- Limited PartnerA limited partner is a passive, in terms of management responsibility, partner in a real estate investment. In a typical real estate partnership, the general partner (sponsor or GP) manages the day-to-day aspects of the investment strategy and brings local and property type expertise. The(...)
- Limited Service HotelA hotel that provides only the basic amenities and services with some hotels offering facilities such as a swimming pool and/or business center. Limited service hotels (such as Fairfield Inn or Homewood Suites) operate on smaller budgets enabling them to pass on the cost savings to travelers(...)
- Load FactorRentable area / usable area = load factor Example: If a building has 50,000 sf of rentable area and 40,000 sf of usable area, the building has a load factor of 1.25 (50,000/40,000)
- Loan AmortizationThe repayment of the principal balance of a loan through periodic payments over time. In an amortizing loan, a portion of the loan payment each period is used to pay the interest owed for that period with the balance used to pay down principal on the loan. Although the periodic loan(...)
- Loan to CostIn real estate, Loan to Cost (LTC) is the ratio of the outstanding loan balance to total project cost. The higher the loan-to-cost, the less cash equity the borrower has invested in the property (i.e. less skin in the game) and therefore the higher the risk that the borrower will default on(...)
- Loan to ValueIn real estate, Loan to Value (LTV) is the ratio of the outstanding loan balance to the value of the property expressed as a percentage. The higher the loan-to-value, the less likely the borrower will be able to repay the loan at maturity. Real estate lenders use this important metric,(...)
- Loan WorkoutA resolution agreed upon between the lender and the borrower to restructure the terms of the loan before foreclosure of the property. Workouts typically involve negotiations regarding the minimum monthly payment and/or the amortization period. In some cases, a loan workout results in the(...)
- Lock OutA common clause in a CRE loan agreement. This is the period of time after disbursement that a borrower is not allowed to prepay the loan. Lenders will many times enforce a lock out period along with prepayment penalties after the lock out period as a way to ensure they are receiving earnings(...)
- Lock Out PeriodSee Lock Out
- Loss-to-LeaseThe difference between in-place rent (or contract rent) and market rent. The loss-to-lease concept is most often used in multifamily underwriting. Because contractual lease rates lag the actual market, the loss-to-lease metric acts to help the real estate professional forecast coming changes(...)
- Lump Sum ContractA contract whereby the total price of an entire construction project is negotiated and agreed to between the General Contractor and the Owner regardless of what the actual price ends up being at the end of the project. This type of contract shifts all risks (future price increases) and rewards(...)
- Make Ready CostsMost often seen on multifamily operating statements, 'Make Ready' costs refer to minor repairs and maintenance work to an apartment unit in order to ensure that the unit is in a suitable condition before being placed on the market and leased to a subsequent tenant. Activities included in this(...)
- Market RentThe rent a typical tenant would pay for a comparable unit or suite in the same or comparable market. A real estate owner will often compare the average contract rental rate at their property, to the market rent in the area to determine whether there is potential to increase rents at the real(...)
- Master TenantA tenant who leases directly from the property owner and subsequently subleases all (or portion of) the property to other tenants.
- Metropolitan Statistical AreaA Metropolitan Statistical Area, or MSA, is an area that usually includes a major city at its core and the surrounding towns and suburbs. It is not a legal area that is governed by any one entity, but an area to which numerous towns and a city, or cities have lots of inter-connectivity.
- Mezzanine DebtIn real estate, mezzanine debt or mezz, is a subordinate loan on real property secured by an interest in the entity that owns the real property rather than on the real property itself. In the event of default, because the entity rather than the real estate acts as collateral, the mezzanine(...)
- Millage RateThe rate used to calculate the property tax on real property. This is calculated in increments of $1,000, with each “mill” representing 0.1% of the property’s taxed assessed value (often lower than market value). For example, if a property's tax assessed value is $20,000,000 and has a millage(...)
- MOICAbbreviation for Multiple on Invested Capital, which is another term used for Equity Multiple. See Equity Multiple for the definition.
- equity multipleAbbreviation for Multiple on Invested Capital, which is another term used for Equity Multiple. See Equity Multiple for the definition.
- Mortgage ConstantA rate calculated by dividing the periodic loan payment by the initial loan amount. The Mortgage (or Loan) Constant is often used as a tool to efficiently calculate loan payments and is represented as a percentage. For instance, a mortgage loan with an annual payment of $16,000 and an initial(...)
- MSASee Metropolitan Statistical Area
- Multiple on Invested CapitalAnother term used for Equity Multiple. See MOIC, or Equity Multiple.
- Net Effective RentThe gross amount of rent payable by a tenant less any costs incurred by the landlord in order to lease the space to the tenant. Such costs typically include leasing commissions, tenant improvements and/or rent-free periods.
- Net LeaseA commercial lease where the tenant pays base rent plus pays for its pro rata share of some or all operating expenses related to the tenant's occupancy of the space. Types of net leases include single net, double net, triple net, and absolute triple net. Expenses may be billed directly to the(...)
- Net Operating IncomeThe net income from a property, in a given period, after deducting operating expenses but before deducting capital expenditures, debt service, and taxes. To calculate Net Operating Income, the real estate professional subtracts operating expenses from effective gross income (Effective Gross(...)
- NOISee Net Operating Income
- Non-Disclosure StateA state in the United States where the sales price of a sold property is not publicly available. In such situations, the sales value is estimated - for tax assessment and other purposes - using other metrics which are publicly available, such as the loan amount granted by the bank or the(...)
- Non-Recourse Carve-OutsReferred to colloquially as "Bad Boy Carve-outs", a list of actions or guarantees that may result in the borrower or guarantor taking on partial or full recourse liability for the loan. These actions initially were limited in scope to “bad acts” such as theft or voluntary bankruptcy by the(...)
- Occupancy CostThe total cost incurred by a tenant in order to occupy space in a building. These costs are all stipulated in the lease agreement and include items such as base rent, tenant reimbursement expenses, percentage rent, parking charges, etc.
- Offering Memorandum (OM)A presentation and legal document given to investors for their investment consideration summarizing a potential deal. The memorandum will typically highlight various aspects of the investment such as a detailed description of the property, the location and relevant demographic trends, a(...)
- Operating Supplies and EquipmentSee OS&E
- OpportunisticA real estate investment strategy categorized by high risk and high returns. Opportunistic real estate strategies typically involve a high degree of uncertainty, more volatility in cash flow and require greater subject matter expertise. These strategies will often employ more leverage and(...)
- OptionAn Option or Option Agreement is a formal agreement between a property owner and a potential buyer or lessee, in which the potential buyer or lessee usually pays the owner for the exclusive right to a negotiation in good faith over a certain time period for the purchase or lease of the property.
- OS&EOS&E is a common initialism used in the hotel industry for Operating Supplies and Equipment. OS&E refers to an enormous range of items that a hotel will need to operate. OS&E does not include items like stoves or washing machines or any major items that require installation. Examples of OS&E(...)
- Other IncomeIn real estate underwriting, Other Income refers to any revenue source not otherwise included in other income line items. Other income may include any number of revenue generators, from application fees to amenities fees. In the basic real estate pro forma setup, Other Income is combined with(...)
- Owner Controlled Insurance Program (OCIP)OCIP and CCIP are broad and all-encompassing insurance policies that usually cover, at a minimum, general liability insurance, worker’s compensation, and excess liability insurance for all contractors and subcontractors on a construction project. An OCIP is sponsored and held by the owner, in(...)
- Paid in arrearsSee 'In arrears'.
- Pari PassuA Latin term used to describe the equal treatment of investors, returns or securities. In real estate, the term is commonly used in waterfall distribution models to reference the pro-rata distribution of profits based on each investor’s initial equity contribution percentage. The term is(...)
- Parking IncomeIn real estate underwriting, Parking Income refers to revenue derived from renting parking spaces at the property. In standard apartment retail, office, and industrial underwriting, Parking Income is generally an Other Income item given that the income is secondary to the core rental revenue,(...)
- Permanent FinancingA long-term mortgage loan typically secured by a fully stabilized and performing real estate asset. A Permanent Loan (i.e. Permanent Financing) often includes a fixed interest rate with a longer loan term (7+ years). The permanent loan may or may not include an interest-only payment period for(...)
- Preferred ReturnA concept common to real estate partnership structures, preferred return refers to the preference given to a certain class of equity partners when distributing available cash flow. The preferred return is generally calculated as either a percentage return on contributed capital or a given(...)
- Premier SuburbThe most prolific, popular or expensive suburb within a city or town.
- Present ValueThe lump-sum value today of a string of future cash flows discounted back to today at a specified discount rate. In real estate, the Present Value of a real estate investment is the price that an investor would be willing to pay today for a string of future real estate cash flows so as to(...)
- Present Value FactorAlso called the Present Value of One or PV Factor, the Present Value Factor is a formula used to calculate the Present Value of 1 unit n number of periods into the future. The PV Factor is equal to 1 ÷ (1 +i)^n where i is the rate (e.g. interest rate or discount rate) and n is the number of(...)
- Project BuyoutThe Project Buyout is the time when the owner of a development project selects the General Contractor (GC) who then, either together with the project owner or alone, goes through the process of selecting and hiring all the subcontractors (subs) and pricing the project. A generic buyout process(...)
- PromoteA financial interest provided to the sponsor (investment manager) as an incentive to maximize performance. This is typically an outsized share of the profits, payable once the investors have received back their entire initial capital contributions and achieved certain profit thresholds. Also(...)
- PSASee 'Purchase and Sale Agreement'.
- Purchase and Sale AgreementA legally binding contract between a buyer and seller that outlines the terms and conditions of selling a property.
- Ratio Utility Billing System (RUBS)A method of calculating a resident’s utility bill based on specific factors such as occupancy rate or apartment square footage and then billing the tenant for their share of utility use. It is often used when the installation of sub meters is not financially feasible (due to the large up front(...)
- Real Estate Investment Trust (REIT)A real estate mutual fund, allowed by income tax laws to avoid the corporate income tax. It allows investors, large and small, to participate in large real estate ventures, without double taxation. A REIT sells shares of ownership and must invest in real estate or mortgage loans. Further, a(...)
- Real Estate Private Equity (REPE)Real Estate Private Equity, or REPE, is a term used to describe an individual or firm making direct investments in real estate using private capital, rather than public capital. This form of investment in real estate is generally thought of as high risk, high return given that the invested(...)
- RecourseIn real estate, recourse is the responsibility of the guarantor(s) of a mortgage loan to repay said loan in the event of borrower default. Similarly, a recourse mortgage loan is a loan in which the mortgage lender is protected against loss by one or more guarantors. For example, the(...)
- Renewal OptionA clause contained in a lease agreement giving the tenant the right to renew or extend their lease agreement. The option clause usually contains various predefined terms which both parties initially agree upon, such as a reversion to a ‘market-related’ rental rate.
- Rent ControlLaw that dictates the amount of rent a property owner/landlord can charge a tenant.
- Rent RollA list of tenants in an income producing real estate asset and the property owners’ reflection of all the rental income derived from the tenants at a specific time (usually at the end of the month). The rent roll often includes other information related to the tenants, such as a description of(...)
- Rentable AreaRentable area is the area within a building to which a landlord can charge rent. This includes the tenants' private and/or exclusive use space, as well as the building's common areas. Tenants usually pay rent for their exclusive space plus a share of the common area. A tenant's rentable(...)
- Replacement CostThis is the cost to build a brand new, similar, and competing project in the same location as an existing building. When underwriting a property, it is important to understand the replacement cost. If a brand new and almost identical building can feasibly be built for cheaper on a per(...)
- Residual Land Value AnalysisResidual land value is a method for calculating the value of development land. This is done by subtracting from the total value of a development, all costs associated with the development, including profit but excluding the cost of the land. The amount left over is the residual land value, or(...)
- Residual Pro FormaThe pro forma used to evaluate the residual/terminal value of a property. The residual pro forma seeks to forecast the net operating income a subsequent purchaser might use in valuing the subject property. This figure is often either the trailing twelve months (TTM) or the next twelve months(...)
- RetentionThe withholding of funds owed in order to increase the probability that the project will be fully completed to the standards initially promised by the contractor/subcontractor. An example of this would be an owner retaining say 10% of the funds owed to the contractor until the project is(...)
- Revenue Per Available RoomThe revenue generated per available room, calculated by dividing the total revenue by the number of available rooms. The RevPAR differs from the ADR in that it accounts for any unoccupied rooms.
- RevPARSee Revenue Per Available Room
- Right of First RefusalAlthough they can be numerous in iterations, a ROFR (pronounced Rōfer) is a contractual clause that enables a third party to step in and purchase and/or lease a property based on what was negotiated between the Owner and a potential buyer/lessee. As an example, let's say a tenant leases a(...)
- ROFRPronounced Rōfer. See Right of First Refusal.
- Sale LeasebackA transaction in commercial real estate where, upon completion of the sale, the seller immediately leases back the property from the new owner (i.e. buyer). The lease is generally NNN and long-term, and converts the seller/lessee from an owner to a tenant. This type of transaction typically(...)
- Schematic DesignThe first formal stage of the design phase after the conceptual design period, where initial design concepts are re-evaluated and many early-stage design documents are produced such as early iterations of site plans, floor plans, sections, and elevations. This phase is used to verify the(...)
- Short SaleThe sale of the property for less than the outstanding debt balance owed to all lienholders (typically senior and mezzanine debt providers). The property will fall into foreclosure if all parties do not reach a consensus agreement to sell.
- Soft CostsAny indirect development costs (i.e. not labor or materials). These costs range from architecture and engineering fees to project management and developer fees and can affect hard costs significantly (e.g. an architect’s efficient building design may reduce the need for structured parking hard(...)
- Sources and UsesA schedule which provides an overview of where capital for a real estate project is sourced from (sources) and how capital is deployed (uses). The sources side includes items such as loan proceeds and investor equity contributions, whilst the uses side includes items such purchase(...)
- Special ServicerThe designated party responsible for handling situations wherein the borrower defaults. A special servicer has the authority to structure loan workouts or institute foreclosure proceedings. This is in contrast with a standard mortgage servicer who has limited legal power and is primarily(...)
- Specific PerformanceA legal concept that requires a party to abide by the terms of an agreement. A simple example can be if a PSA is executed and then the seller decides not to sell the land. The buyer can sue for Specific Performance and a court can enforce the terms of the contract requiring the seller to(...)
- Specifications Manual (Spec Book)A project manual that details the various products, construction materials and methods to be used in the project development.
- SponsorThe partner that "sponsors" a real estate investment, this individual or company is responsible for finding, acquiring and managing the investment. The sponsor generally brings market and property type expertise and plays the primary management role, whilst third party investors (limited(...)
- Springing RecourseA form of loan guarantee only enforceable by a lender when certain default or credit events occur (e.g. if a borrower violates operating covenants, does not meet net worth requirements, files for voluntary bankruptcy, etc.). In springing recourse or springing liability, when such adverse(...)
- Stabilized Pro FormaAlso sometimes referred to as the Economic Pro Forma, the stabilized pro forma is used to evaluate the value of a property at the inception of the analysis period. The stabilized pro forma seeks to estimate the net operating income at time zero. The stabilized pro forma is used by acquirers to(...)
- Stacking PlanA visual representation of a building showing a breakdown of space occupied by tenants on each individual floor. The breakdown may extend to include other details of the tenant such as their company name, occupied square footage, lease expiration date or rental rate.
- Storage IncomeIn real estate underwriting, Storage Income refers to income derived from renting storage space to tenants. In apartment, office, retail, and industrial underwriting, Storage Income is generally an Other Income item given that the storage space is typically leased to existing tenants at the(...)
- Structured ParkingAny above-grade or below-grade, ramp accessible structure capable of accommodating vehicle parking. The multi-level design allows for greater parking densities and increasing land use efficiency.
- SubcontractorA company that specializes in a specific component of a project and is hired by the General Contractor and/or ownership to work on a development project. Some examples of subcontractors are plumbing, electrical, HVAC, drywall, glazing, insulation, and masonry to name a few.
- Takeout LoanA type of permanent financing used to repay the proceeds owed on existing short-term debt (e.g a construction loan). Takeout loans are typically structured with longer terms, fixed payments and other structures commonly seen in permanent mortgage loans.
- Tax Increment FinancingA financing method used by government to incentivize urban renewal and development within targeted areas. When new development occurs in the TIF zone, the property’s incremental taxes (above a fixed baseline amount) will be allocated to a TIF fund. These funds are then allocated towards(...)
- Temporary Certificate of OccupancyA certificate of occupancy issued prior to project completion allowing the tenant or owner occupancy of a space whilst construction is still ongoing. A Temporary Certificate of Occupancy typically expires within a finite time period, which varies by jurisdiction and property type.
- Tenancy By The EntiretyA type of property ownership unique only to married couples. In all other forms of ownership, when there are more than one owner, each owner has a part ownership in the property. With tenancy by the entirety, each spouse owns the entirety of the property.
- TenantSee Lessee.
- Tenant Estoppel CertificateA document signed between a landlord and an owner verifying certain facts are correct (such as whether or not a tenant is in good financial standing with the landlord). Tenant Estoppel Certificates are often required by lenders when financing a property or by a prospective buyer as part of(...)
- Tenant ImprovementsA form of inducement typically seen in office, retail, and industrial real estate, tenant improvements (TIs) are physical changes to a tenant's leased space to accommodate the specific needs of the tenant. TIs may include building or moving interior walls or partitions, floor covering,(...)
- Tenant Rollover RiskThe risk associated with expiring lease agreements at a property. This risk includes the possibility of not being able to re-lease the space should the a tenant vacate or alternatively, the possibility of signing a lease but on less favorable terms than the previous lease.
- Tenants in Common (TIC)An ownership structure whereby two or more individuals may own an equal or unequal undivided share in a property. This partnership structure enables lower income investors the opportunity to purchase more expensive real estate which they otherwise may not have been able to afford individually.(...)
- The Income ApproachOne of three appraisal methods used in commercial real estate to estimate the value of income-producing property. The Income Approach includes two methods. The first method, the Direct Capitalization Method, is a process whereby one year's Net Operating Income is divided by a market(...)
- Time Value of MoneyThe idea that money received today is worth more than the identical amount of money received in the future. This is because money received today can earn interest over time, thus making it worth more in the future. Time value of money is a core principal of finance, and the foundation of(...)
- Title InsuranceA form of insurance that protects property owners and/or lenders against any property loss arising due to legal defects on the property being transferred (outstanding liens, encumbrances on the property etc.).
- Total RevPARWhere RevPAR divides total revenue from room sales by available rooms in a given period, Total Revenue Per Available Room (TRevPAR or Total RevPAR) is a metric that includes total revenue from all hotel departments in addition to room revenue. Other departments are typically and formally(...)
- Trailing Twelve MonthsA TTM is a reflection of a properties last 12 months’ financial performance. The report shows actual historical data rather than forward looking estimates (typically presented by the broker) in the OM, thereby helping the investor make a more informed valuation of the property.
- Transfer TaxA charge levied by the state or local government when property is sold from one individual/entity to another.
- Trended RentsRental rate figures which are based upon some market growth projection. Trended rents use historical market data as an indicator of future growth, in contrast to “untrended rents” which assume no growth in annual rents. Real estate discounted cash flow models , which account for rental(...)
- TRevPARSee Total RevPAR
- Trophy AssetA term used in real estate to describe a property that is in exceptionally high demand by investors. These assets are usually iconic buildings situated in prime locations with strong underlying property fundamentals.
- Under WaterSituation whereby the outstanding loan balance exceeds the open market value of the property. This limits the owner from selling the asset and, unless a loan workout is negotiated, the property will be foreclosed.
- Unlevered Cash FlowThe net cash inflows and outflows of a real estate investment before taking into account cash flows related to financing. Unlevered cash flows generally consist of total investment costs, net operating cash flows before financing, and asset reversion cash flows (i.e. net proceeds from sale).(...)
- Urban InfillRepurposing property in an urban environment for new development. The term implies that the surrounding area is mostly built up and what is being developed will “fill in” the gaps. Urban infill usually focuses on repositioning underutilized buildings, often part of a community redevelopment program.
- Usable AreaSpace in a project that is available exclusively to the tenant for use. Usually office or retail space that the tenant has sole control over. Building common areas are not included in usable square footage.
- Valet TrashA trash collection service, most common in multifamily properties, offered by the landlord to remove trash from residents’ doorsteps and deposit the waste into the dumpster/compactor area. Residents are typically charged for the service and in many cases the service is mandatory.
- Value AddA real estate investment strategy categorized by medium-risk and medium returns. A Value-Add Strategy typically involves acquiring under-performing assets with upside potential and adding value through one or more repositioning strategies. These strategies may include property renovation,(...)
- Variable CostsCosts that vary based upon of the property’s level of operation. For example, property management fees vary directly based on the property’s revenue and therefore will likely be higher the greater the occupancy of the building. This is in contrast to Fixed Costs, which do not vary with the(...)
- Vertical Expansion OptionA real option which allows the owner of a development project to build and complete the project to a certain height with an option to increase the height of the building at some future point. The cost of a project when building with this option is estimated to add a 5-10% premium on standard(...)
- WalkabilityA measure of how amenable an area or property is to walking. The most popular measure of walkability is the “Walk Score” which measures and allocates a score to a subject property based on its ease of access to public transport and other nearby amenities.
- Wall Street Prime RateThe Wall Street Prime Rate (Prime Rate), is the interest rate charged between the largest banks in the United States. The rate is not linked to the Fed funds rate although there is typically a 300 basis points (3%) spread between them. The WSJP is widely utilized by lenders as an index against(...)
- War RoomIn real estate, the "War Room" is generally a virtual depository of vital investment-related information necessary to perform due diligence on a deal. Practically speaking, the "War Room" is a collection of computer folders, shared with stakeholders to a deal, that contain financial(...)
- Warm ShellAny building/rentable area that has been minimally fitted out with basic services (such as ceilings, lighting, plumbing and HVAC) and is now ready to lease to the tenant. Usually these “warm shell improvements” - necessary to convert the building from a cold shell to a warm shell - are only(...)
- Wrap Up InsuranceA insurance policy for larger construction projects that typically covers general liability insurance, worker’s compensation and excess liability coverage over the entire construction period for all contractors and subcontractors involved in the project. There are two types of wrap up(...)
- Yield-on-CostYield-on-cost is the net operating income (or sometimes cash flow from operations) at stabilization divided by the total project cost, whereas the capitalization rate (cap rate) is the stabilized net operating income (or sometimes cash flow from operations) divided by the market value of the(...)
- development yieldYield-on-cost is the net operating income (or sometimes cash flow from operations) at stabilization divided by the total project cost, whereas the capitalization rate (cap rate) is the stabilized net operating income (or sometimes cash flow from operations) divided by the market value of the(...)