Absorption
The amount of inventory or units of a specific commercial real estate type that become occupied during a specified time period (usually a year) in a given market, typically reported as the absorption rate.
Add-on factor
The ratio of rentable to usable square feet. Also known as the load factor and the rent able-to-useable ratio. Also see efficiency percentage. Formula:
Add-on factor =Rentable square feet/Usable square feet
Amortization
The repayment of loan principal through equal payments over a designated period of time for commercial real estate consisting of both principal and interest.
Appreciation potential
The possibility or probability that a commercial real estate investment will increase in value during the investor’s or owner’s holding period.
Assessed value
The value of real property established by the tax assessor for the purpose of levying real estate taxes.
Base
(Commercial Real Estate Lease terminology)A face, quoted, dollar amount representing the rate or rent in dollars per square foot per
year and typically referred to as the base rate.
Base rent
The minimum rent due to the landlord. Typically, it is a fixed amount. This is a face, quoted, contract amount of periodic rent. A calculation is made on the annual base to achieve escalations
Break-even point
The stage at which a commercial real estate investment produces an income that is just sufficient to cover recurring expenditure. For an investment in real property, the point at which gross income is equal to normal operating expenses, including debt service (the stage at which the next cash flow becomes positive).
CAM cap
The maximum amount for which the tenant pays its share of common area maintenance costs. The owner pays for any CAM expenses exceeding the capped amount.
Capital expenditures
Property improvements that cannot be used as an expense as a current operating expense for tax purposes. Examples include a new roof, tenant improvements, or a parking lot—such items are additions to the basis of the property and then can be used for depreciation over the holding period. These are distinguished from cash outflows for expense
items such as new paint or plumbing repairs(operating expenses)
Capitalization rate- CAP Rate– Valuation
A percentage that relates the value of an income-producing property to its future income, expressed as net operating income divided by purchase price.
Cash-on-cash rate
A return measure that is a calculation of cash flow before taxes divided by the initial equity investment
Commercial real estate
Any multifamily residential, office, industrial, or retail property that can have a purchase or a sell in a real estate market consisting of 5+ units.
Common area
For lease purposes, the areas of a building (and its site) that are available for the non-exclusive use of all its tenants, such as lobbies, corridors, and parking lots.
Common area maintenance (CAM)
Charges paid by the tenant for the upkeep of areas designated for use and benefit of all tenants. CAM charges are common in shopping centers. Tenants may have a charge for parking lot maintenance, snow removal, and utilities.
Cost approach improvement value- Appraisal
The current cost to construct a reproduction of, or replacement for,the existing structure less an estimate for accrued depreciation from all causes
Debt-coverage ratio (DCR)
Ratio of net operating income to annual debt service. Expressed as net operating income divided by annual debt service. Depreciation The loss of utility and value of a property.
Demand
The volume or quantity of a product or service purchasing, or being a purchase, in relation to price.
Capital that is set aside to make improvements to a commercial property during a lease period or ownership period.
Demand factors
Elements or forces that influence the demand for goods and services in a given market area
Due diligence
The process of examining a property, related documents, and procedures conducted by or for the potential lender or purchaser to reduce risk. Applying a consistent standard of inspection and investigation one can determine if the actual conditions do or do not reflect
the information as represented.
Estoppel
Used to verify an existing tenant’s lease and cash flow to a prospective buyer. Also given to a lender who has an interest in the property. More about Estoppels
Expense stop
The level (or maximum amount) up to which the landlord will pay certain operating expenses. Amounts above the stop are the responsibility of the tenant. More about expenses.
External obsolescence
A form or source of accrued depreciation considered in the cost approach to market value.The loss of value is because of external forces and change. For example, a new mall causes traffic and congestion, negatively affecting residential property values nearby, or a motel is no longer viable because a highway is re-routed
or another example would be lower market conditions
Feasibility analysis
The process of evaluating a proposed project to determine if that project will satisfy the objectives set forth by the agents involved (including owners, investors, developers, and tenants)
Space that is flexible in terms , it can be converted to space that could be utilized for industrial or office activities. Also known as as cheaper value office space.
Floor Plate
a plate (as of steel or iron) set in or forming part of a floor and sometimes provided with T slots to which heavy work and portable machine tools that a company can bolt to the floor to facilitate machining and erection. 2 : a wooden board lying flat on the floor and supporting the studs of a wall.
Foreign investment into Commercial Real Estate- There are IRS rules and USA rules and regulations regarding foreign investment. Become familiar with EB-5
Gross leasable area (GLA)
The total floor area designed for tenant occupancy and exclusive use, including basements,mezzanines, and upper floors, and measures from the center line of joint partitions and from outside wall faces. GLA is that area on which tenants pay rent; it is the area that produces income.
Gross lease
A lease in which all expenses associated with owning and operating the property are paid by the landlord. Also see Net lease
Gross rent multiplier (GRM)
A method investors may use to determine market value. This method calculates the market value of a property by using the gross rents an investor anticipates the property will produce at end of year 1 multiplied by a given factor (known as the gross rent multiplier
extracted from the marketplace).
Ground lease
A lease of the land only. Usually land has a lease for a relatively long period of time to a tenant that constructs a building on the property. A land lease separates ownership of the
Gross rent multiplier (GRM)
A method investors may use to determine market value. This method calculates the market value of a property by using the gross rents an investor anticipates the property will produce at end of year 1 multiplied by a given factor (known as the gross rent multiplier extracted from the marketplace).
Ground lease
A lease of the land only. Usually the land is leased for a relatively long period of time to a tenant that constructs a building on the property. A land lease separates ownership of the land from ownership of buildings and improvements constructed on the land
Income capitalization approach
A method to estimate the value of an income-producing property by converting net operating income into a value. The cap rate is arrived by dividing into the net operating income to obtain the estimated value. Value = net operating income ÷ capitalization rate
Industrial property
Commercial real estate properties that are used for the purposes of production, manufacturing, or distribution.
Internal rate of return (IRR)
The percentage rate earned on each dollar that remains in an investment each year. The IRR of an investment is the discount rate at
which the sum of the present value of future cash flows equals the initial capital investment.
Commercial Lease
A contract that creates the relationship of landlord and tenant. A contractually binding agreement that grants a right to exclusive possession or use of property, usually in return for a periodic payment called rent. Learn more about rent with a lease
Lease buyout
The process by which a landlord, tenant, or third party pays to extinguish the tenant’s remaining lease obligation and rights under its existing lease agreement
Leasehold interest The value (to the tenant) of the lease. The value of the leasehold interest is determined by present value of the difference between market rent
and the contract rent.
Net lease
A lease in which the tenant pays, in addition to a tenant’s rent, all operating expenses such as real estate taxes, insurance premiums, and maintenance costs. Also see
gross lease
.
Net operating income (NOI)
The potential rental income plus other income , less vacancy, credit losses, and operating expenses
Commercial Office property
A commercial real estate property type for maintaining or occupying professional or business offices. Such properties typically house management and staff operations. The term office can refer to whole buildings, floors, parts of floors, and office parks. Office space that can be useful for a variety of purposes is sometimes referred to as generic office space. Office spaces have classifications such as Class A, B, or C. Class A properties are the most functionally modern.Properties Classed B and C in the same market typically command lower rents because they are older and in need of modernization. They may not be as efficient or desirable as Class A properties because their design or condition causes functional problems.
Seller disclosure- A seller must disclose all property issues when a property is listed for sale or put up for sale, more information