Real Estate Glossary
- Absorption Rate
- The number of units of property that will be
leased or sold in a market over a specific time
period. Pre-leased space in buildings under
construction is not included in order to avoid double
counting of tenants who are in the process of moving
within the market.
- After Tax Cash Flow (ATCF)
- The cashflow to the equity position after debt service and
taxes have been paid. The ATCF is the basis for calculating the Levered IRR.
- Amortization Period
- Repayment of a loan with periodic payments on both
principal and interest calculated to pay off the loan
at the end of a fixed period of time. The loan payment
consists of a portion that will be applied to the
accruing interest on the loan, with the remainder used
to pay the principal. Over time the interest portion
decreases as the loan balance decreases, and the
amount applied to principal increases so that the loan
is paid off (amortized) in the specified period.
- tenant that generally occupies the largest space
at a given property, serving as the primary draw of
customers to the property and usually receiving a
lower leasing cost. Anchor tenants are considered
lynchpins to the success of a major retail center
development and are normally located at the extremes
of the mall in order to draw customers through the
- Assignment of Rents
- A typical mortgage clause that allows the lender to receive rent
from a property in the event of default during the foreclosure process.
- Balloon Loan
- Also known as a bullet loan, it is a long-term
loan, often a mortgage, granted on the basis that
payments of principal will be deferred until the end
of the loan period and only interest will be payable
during the loan period. A balloon loan will often have
the advantage of very low interest payments, thus
requiring very little capital outlay during the life
of the loan. Since most of the repayment is deferred
until the end of the payment period, the borrower has
substantial flexibility to utilize the available
capital during the life of the loan.
- Base Year
- The 12 month period upon which an expense escalation of rent is based. This 12 month period is typically the first calendar year of the lease term.
- Bridge Loan
- A short-term loan granted to cover an intermediate
stage in business. In real estate, it is a loan
primarily for borrowers who have not yet sold their
previous property, but must close on a purchase
property. The bridge loan becomes the source of their
funds for the down payment.
- Broker’s Opinion of Value (BOV)
- An estimation of property value by a real estate broker. A BOV is often intended to provide market pricing guidance to property owners without incurring the time and expense of a real estate appraisal. However, it is important to note that a BOV is not a substitute for an appraisal. A fee may or may not be charged.
- Broker’s Price Opinion (BPO)
- See Broker’s Opinion of Value
- Capital Balance
- An investor’s current cash investment
balance in a particular investment.
- Capital Expenditure (Cap Ex)
- Expenditures incurred to acquire property for the
long term or to increase the permanent value of
property. In general, money spent on improvement,
alternation, or renewal is considered a capital
expenditure, but money spent on repair and maintenance
- Capitalization Rate (Cap Rate)
- A ratio used to estimate the value of
income-producing properties, which describes a return
rate acceptable to an investor taking the risk of a
capital investment. This ratio is calculated by
dividing the net operating income by the sales price
or value of a property expressed as a percentage, and
is developed by analyzing the selling price, gross
income and operating expenses of recent sales of
comparable properties in a particular market place.
The cap rate is one of many financial tools used by
investors, lenders and appraisers to establish a
reasonable purchase price for a given investment
property in a specific market region.
- Capital Reserves (CR)
- Money set aside for unforeseen property expenses
that you cannot budget for (e.g. carpet spills,
accidents in garages, etc).
- Cash Flow
- The cash generated by an investment after all
payments have been made that are necessary to sustain
the investment; it equals the income available to the
owner after the payment of all operating expenses, but
before depreciation and tax.
- Cash-on-Cash Return
- The relationship, expressed as a percentage,
between cash flow (i.e. the net income receivable
after debt service but before tax) and the total
equity outlay on an investment. In determining such a
return, the cash flow includes the effective gross
income less all outgoing expenses (e.g. real estate
taxes, operating expenses and interest or principal
owed on financing), but no account is taken of capital
appreciation, depreciation or equity build-up
resulting from repayments of principal on any loan
secured on the property.
- Central Business District (CBD)
- The center of a ‘downtown’ area within
a city. It is the core of an urban area where
generally there is the greatest concentration of
administrative and financial offices, retail
establishments, entertainment facilities and hotels.
In the United States, the CBD is the area that
historically was the center of a town or city for
business and shopping and was the area of highest land
values, i.e. the area where economic activity is at
its highest, creating the greatest amount of
competition for property.
- Class A Property
- Property with buildings of the highest quality in
terms of location, design, building standards,
efficiency and definitive market presence. Premier
businesses compete with each other to lease this
property thereby driving rents far above average for
the area. Property that falls short of this standard
may be classified as Class B or Class C as the
particular attributes merit.
- Closed-End Fund
- In real estate private equity funds, closed-end funds have a finite
investment horizon. In some instances, the investment time-frame may be extended to
accommodate market conditions.
- Closing Costs
- Monies expended by a party in completing a real
estate transaction above and beyond the purchase
price, including: legal fees, taxes, mortgage
application charges, interest adjustments,
registration fees, appraisal fees, etc.
- CMBS (Commercial Mortgage Backed Securities)
- Commercial mortgages that are
originated, pooled and tranched for sale as bonds in the secondary market. CMBS
creates liquidity for originators and investors by creating heterogeneous real estate debt
- As it pertains to commercial real estate, it is typically defined as an investing strategy that focuses on acquiring the best-located, highest quality and fully stabilized assets often referred to as "trophy assets". It is typically perceived to entail the least amount of risk of the four primary commercial real estate investing philosophies (see Core-Plus, Value-Added and Opportunistic) but offers in correlation, the lowest expected total returns. Core investing also typically features a range of no leverage to low-levels of leverage.
- The next step up from Core (see Core) in risk / return, Core-plus commercial real estate investing typically features well-located, high quality assets that are stabilized at the time of acquisition. It is generally considered a moderate risk / return strategy. A Core-plus investment strategy may entail higher levels of leverage in comparison to Core investing but at levels still considered conservative. In correlation, Core-plus is expected to deliver higher total returns than a Core strategy.
- Debtor in Possession (DIP)
- A debtor in possession in United States bankruptcy law is a person or corporation who has filed a bankruptcy petition but remains in possession of property upon which a creditor has a lien or equivalent security interest.
- Deed in Lieu of Foreclosure
- A deed instrument in which a mortgagor (i.e. borrower) conveys all interest in a real property to the mortgagee (i.e. lender) to satisfy a loan that is in default and subject to foreclosure proceedings. A deed in lieu is sometimes referred to as a form of “friendly foreclosure” in which the borrower and lender enter into such an agreement voluntarily and in good faith. A deed in lieu is designed to provide immediate relief of indebtedness to the borrower (with less damage to the borrower’s credit worthiness), while reducing time and costs associate with asset repossession to the lender.
- Effectively a pre-payment penalty, it is the
retirement of a debt in substance, but not in
practice, with the substitution of one form of
security for another. For example, if during a
loan’s lockout period the borrower wishes to
pre-pay the loan, they may use collateral (usually in
the form of U.S. Treasuries) as a substitute for the
mortgage securing the loan. The treasuries service the
borrower’s debt at a higher rate of interest
than normally would be incurred should the borrower
- Discount points
- A percentage of the loan amount that a lender charges a borrower for making a loan. [1 point equals 1% of the mortgage amount.]
- Discounted Payoff (DPO)
- The payoff of a loan in which the lender releases its lien for an amount less than the unpaid principal balance of the loan.
- Quarterly payments to investors made on a pro-rata
basis and represent cash-on-cash returns; preferred
distribution at SKB is approximately 10%.
- Due Diligence
- An investigation or audit of a potential acquisition that serves to confirm or disaffirm known material facts in regards to a transaction. In commercial real estate transactions, due diligence is typically conducted during the “Due Diligence Period” (see Due Diligence Period).
- Due Diligence Period
- Duration of time, typically 30 days, that allows a buyer to investigate a potential acquisition. Under normal circumstances, the buyer is granted the authority to cancel the transaction for any reason during this time period without forfeiture of its Earnest Money Deposit (see Earnest Money Deposit).
- Earnest Money Deposit
- A deposit, usually made into an escrow account (see Escrow), that demonstrates a buyer’s good faith and seriousness of intent to a seller in a real estate transaction. An earnest money deposit is usually refundable during the due diligence period (see Due Diligence Period). Upon expiration of the due diligence period, an earnest money deposit usually “goes hard” (see Hard Earnest Money) if a buyer elects to proceed with the transaction.
- A right granted to another person or entity to trespass upon land that the person or entity does not own. Easements are often granted to utility companies or neighboring land-locked properties. Monetary compensation may or not be given in exchange for an easement.
- Effective Gross Revenue (EGR)
- Total income generated by a property, less
operating expenses, when it is fully leased and after
making allowance for vacancies and defaulting
- Efficiency Ratio
- The ratio of usable area to the rentable area of a
building or a floor in a building.
- The amount of an investor’s own funds paid
over to acquire a property. It can also be the
difference between the present market value of a
property and the amount of debt or mortgage loans
outstanding against the net worth of an owner’s
interest in a property.
- The deposit of deed, bond, monies, contract or
other written agreements with a third person to be
delivered or used only upon performance or fulfillment
of set conditions, as established in a written
agreement between two parties.
- Fee Simple Estate
- An estate in land that is limited only by the governmental powers of
taxation, police powers, eminent domain, and escheat.
- Gateway City
- A city that serves as the entry point to a country by acting as a primary arrival and departure point by airport or seaport. Within the US commercial real estate industry, it is commonly applied to cities such as New York, Los Angeles, San Francisco and Seattle and cited as a differentiator in estimating future demand for real estate.
- General Partner
- In real estate private equity funds, general partners are the minority
equity investor. The general partner is the active manager that solicits limited partners,
acquires, manages, and disposes of real estate investments. General partners have
direct liability from investments in the fund.
- The condition that results from a tenant’s closing its business during its lease term. “Going Dark” typically assumes that the tenant continues to maintain its lease payments. Some leases include language that allows for this possibility while other leases provide means for a landlord to void a lease and repossess the premises.
- Gross Lease
- A rental agreement that stipulates a lessee pays
only a fixed rent throughout the term of the lease
while the lessor pays all of the building operating
expenses and repairs, property taxes, insurance
premiums, etc. However, the tenant is responsible for
any utilities and other expenses directly relating to
the occupied space.
- Ground Lease
- A lease of raw land; although the lease may be
secured by a building or buildings erected by the
lessee at a later date. The lessee retains the right
to use and occupy any of the buildings erected on the
land for the term of the lease. At the end of the
lease, usually granted for periods in excess of 20
years, the land together with the improvements reverts
to the lessor.
- Hard Earnest Money
- An earnest money deposit (see Earnest Money Deposit) that is no longer refundable to the buyer in a real estate transaction following the expiration of the due diligence period (see Due Diligence Period). Should the buyer fail to close a transaction with hard earnest money, the earnest money is forfeited by the buyer and paid to the seller as both a penalty to the buyer for its failure to perform and as a means of compensation to the seller for its opportunity cost associated with the failed transaction.
- Hard Money
- Cash paid to acquire additional equity in an
investment, especially when used to repay existing
debt or required to offset an increase in the value of
- Heating, ventilation and air conditioning unit
(large capital cost due to high maintenance fees;
considered a capital expenditure).
- Impact Fee
- A fee that is charged by a municipality on a new or proposed development that is intended to offset costs associated with increased use a city's infrastructure.
- Initial Loan Fee (Lender Loan Fee)
- Fee that the lender charges for granting a loan request, usually 1% of loan amount.
- Infrastructure Improvements
- The installation of roads, sewers, water mains,
electricity lines and sidewalks in residential or
commercial properties, characterized as
“off-site” improvements. Once present, all
the “on-site” structures (house, building,
etc.) can begin construction.
- Internal Rate of Return (IRR)
- The compounded annual rate of return on the
investment over its life, from and after the closing
date, applied to the principal amount of the closing
contributions plus any subsequent contributions. It is
used to compare alternative investments as investors
decide if the return is sufficient to warrant parting
with money or if it is worth borrowing money at a
given interest to make an investment. Simply put, the
IRR is a measure of the inducement to invest because
it measures the return of capital, i.e. the derived
- Joint Tenants with Right of Survivorship (JTRS)
- Ownership of property by two or more people in
which the survivors automatically gain ownership of a
decedent’s interest without any distinct or
separate interest in the land.
- Leased Fee Estate
- The estate in land created when the fee simple owner transfers the right of exclusive use to a tenant via a lease.
- Leasehold Estate
- The estate in land of the tenant with the right of exclusive use granted via a lease.
- Leasing and Capital Costs
- The costs incurred by a landlord while supervising
a property, including tenant improvements (TI),
leasing commissions (LC), capital reserve and capital
expenses, marketing, legal fees, etc.
- Levered IRR
- The internal rate of return to the equity position from a real estate asset utilizing debt financing.
- Limited Partner
- In real estate private equity funds, limited partners are the majority equity investor. Limited Partners are passive and shielded from any liability incurred in the investment fund.
- Limited Liability Company (LLC)
- A type of investment structure where shareholders
cannot lose more than the amount they invested in the
organization. Therefore, shareholders are not
personally responsible for the debts and obligations
of the company in the event that those debts are not
fulfilled. For example, every time SKB completes a new
acquisition, the property is purchased via an LLC
formed by the investors (but managed by SKB) in order
to legally protect one another from losing more money
than the amount they personally invested in the
property should default occur.
- Loan-to-Cost (LTC)
- A ratio that expresses the amount of a first mortgage lien as a percentage of the total acquisition cost of real property that includes budgeted capital expenditures and leasing costs. The LTC ratio is useful in value-added acquisitions where a meaningful percentage of the project cost is anticipated to occur after the initial acquisition of the asset and in real estate development.
- Loan-to-Value (LTV)
- A ratio that expresses the amount of a first mortgage lien as a percentage of the acquisition price of real property.
- Market Value
- The dominant type of a value pursued in nearly every aspect of the real estate industry.
- Mezzanine Finance
- Debt scheme that incorporates equity-based
options, such as derivatives, with a lower-priority
debt, and schedules the payment of interest before any
dividends are remunerated to owners of the equity
capital. Mezzanine finance is actually closer to
equity than debt because it is partially unsecured and
carries a correspondingly higher risk level
characterized by an interest rate several percentage
points above the secured debt. It is often used to
finance acquisitions and buyouts where it can be used
to prioritize new owners ahead of existing owners in
the event that a bankruptcy occurs.
- Modified Gross Lease
- A type of lease agreement in which the tenant pays one or more of the expenses paid by the landlord under the terms of a full service gross lease but not all of the expenses as under the terms of a triple net lease (see Triple Net Lease).
- Net Lease
- Lease arrangement under which tenants are required
to pay the operating expenses resulting from their
occupation of the premises and other expenses such as
real estate taxes, assessments and insurance
- Net Operating Income (NOI)
- Net income receivable from a property after all
operating expenses have been paid and an allowance has
been made for bad debts and defaulting tenants, but
before payment of capital or interest on any loans and
- Tenants who generally occupy the smallest spaces
at a given property and who benefit from the customer
traffic drawn to the property by anchor tenants.
Non-anchor space is also referred to as “shop
space” and usually involves higher leasing rents
for those tenants.
- Note Acquisitions
- In the secondary real estate market, mortgage loans are bought and sold by a variety of investor classes. Note acquisitions have become more active since 2008 as banks and lending institutions seek to rebalance their portfolios and shed sub-performing and non-performing loans.
- Open-Ended Fund
- In real estate private equity funds, open-ended funds have an infinite investment horizon.
- The next step up from Value-added and furthest plotted point in the risk / return line, Opportunistic investing is generally considered a high risk / return strategy. Opportunistic investing typically involves a high degree of asset enhancement that may include entitlement changes, development, redevelopment, 100% lease ups, substantial capital investment, repositioning and, in general, correcting high levels of distress. This strategy is often deployed in a tactical manner at specific points of a real estate cycle and is typically paired with high levels of leverage.
- Overage Rent
- Rent that is in addition to base rent of a property. Overage rent is most common in retail settings where leases utilize percentage rent.
- Pre-development Costs
- Costs associated with the pre-construction phase
of a project such as architectural and engineering
fees, permit fees, financing fees and land option
payments. Pre-development cost are typically expended
to determine project feasibility or to obtain required
government approval; also known as “soft
- Pro Forma Statement
- A statement ‘according to form’, i.e.
one that shows how a situation might develop. For
example, a schedule of the projected income and
expenses for a real estate investment over a given
period of time.
- Real Estate Investment Trusts (REIT)
- A corporation, business trust, or association
managed by one or more trustees or directors who pool
the resources of individual investors for passive
investment in real estate, whether by direct
investment, by financing, by leasing arrangements, or
by a combination of such methods. Its unique feature
is its tax status which enables small investors to
participate in large real estate ventures without the
income derived from the underlying investments being
subjected to taxation at both a corporate and at an
individual level; in effect it subjects the beneficial
owners of the REIT to only one level of taxation.
- Rent Abatement
- Free rent provided by a landlord to a tenant that may or may not be included in the terms of a lease. It is typically offered as an inducement for a prospective tenant to take occupancy.
- Return on Equity (ROE)
- Also known as the earnings yield, it is a measure
of how well a company used reinvested earnings to
generate additional earnings. As a formula, it is
equal to a fiscal year's after-tax income divided by
book value, expressed as a percentage. ROE is used as
a general indication of the company's efficiency; in
other words, how much profit the company will generate
given the resources provided by its investors.
- Right of First Offer (ROFO)
- A contractual right that gives its holder the option to enter into negotiations with an asset owner before the asset owner is entitled to enter into a transaction with a third party but not at specified terms (see Right of First Refusal). If the rights holder and asset owner are unable to reach agreement on transaction terms, the asset owner has no further obligation to the rights holder and may then freely sell the asset.
- Right of First Refusal (ROFR)
- A contractual right that gives its holder the option to enter into a business with an asset owner, according to specified terms, before the owner is entitled to enter into a transaction with a third party. In essence, it functions similarly to a call option.
- Royalty Payment
- Percentage rent payments that fluctuate based on
the sales or revenue of a tenant using a
landlord’s property. This is common with retail
rents wherein the landlord gets a percentage of the
tenant’s gross sales dollars.
- The process of creating a financial instrument by pooling and tranching assets for sale in the secondary market.
- Shadow Anchor Tenant
- An anchor tenant that is not a part of the asset
being acquired, e.g. a store appearing to be part of a
shopping center but owned outside of the commercial
real estate asset. The shopping center enjoys the
traffic generated by the shadow anchor but not the
- Shell Space
- The condition of a vacant space before any improvements have been constructed.
- In CMBS, subordination is the level of junior bonds that will incur losses before principal in the senior tranches will be reduced.
- System Development Charge (SDC)
- Similar to an impact fee (see Impact Fee), an SDC is a one-time fee paid to a municipality on a proposed new use or increase in use of a property. An SDC is intended to offset costs associated with increased use of a city's infrastructure.
- SKB Real Estate Securities
- An affiliate of SKB that exists solely to allow
SKB’s business model to comply with SEC
regulations, and serves as the primary vehicle for
acquisition of new properties.
- Tenants in Common (TIC)
- A form of co-ownership that arises when two or
more persons have distinct but undivided ownership
rights to the same property, ownership that may be
separately and freely disposed of by grant or devise.
Each owner may deal with their portion of the property
as they wish (giving it away, mortgaging it, selling
it, bequeathing it, etc.) and, upon their death, their
interest passes to a chosen representative and not to
the surviving owner(s). Thus, the owners have sole and
several interests in the property as against the other
- Tenant Improvements (TI)
- Improvements to leased premises carried out by the tenant.
- Total Acquisition Costs (TAC)
- The total expenditure incurred by a purchaser of
property. Acquisition cost includes the actual price
paid, plus the transaction costs of obtaining the
title including legal fees and expenses, brokerage
fees, interest charges on mortgages, land transfer
taxes, title insurance, discounts, closing costs and
any other incidental costs directly related to the
- Total Operating Expenses (TOE)
- All of the expenses arising in the normal course
of managing a property investment and which are
necessary in the long run to maintain a given level of
income from the property and to ensure its proper
upkeep and operation. Includes contract services,
utilities, repair and maintenance, management fee
(about 3% of EGR), insurance, property taxes,
- Classes of CMBS bonds that appeal to different investors based on credit risk, weighted average life (WAL), and subordination (credit enhancement), as well as other characteristics.
- Triple Net Lease
- A lease that requires the tenant to pay all costs
of property ownership so that the landlord receives
his rent clear of all expenses and outgoings, or at
least, the three major expenses, namely taxes,
insurance and repairs. In return, tenants are usually
allowed to make drastic changes to the property to
suit their needs so long as the owners of the property
approve the changes.
- Unlevered IRR
- The internal rate of return of an asset without the use of debt financing. Also known as the asset level return or 100% equity return.
- Vacancy Rate
- The ratio of the number of vacant units or the
area of vacant space to the total number of units or
total area of the property available, normally
expressed as a percentage.
- The next step up from Core-plus (see Core-plus) in risk / return, Value-added is generally considered a medium-to-high risk / return strategy. This strategy will often involve acquiring a property, improving it and then selling it an opportune time for a gain. Methods deployed to improve a property or "add value" may include correcting operational deficiencies, leasing vacancies, implementing physical enhancements and curing capital constraints.
- Yield Maintenance
- A prepayment penalty that seeks to maintain the lender’s original yield. Borrower must make a lump sum payment equal to the present value of the difference between the prevailing market interest rate and the contract rate of the loan.
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