A B C D E F G H I J L M N O P Q R S T U V W Y Z
Abatement: Often referred to as free rent or early
occupancy and may occur outside or in addition to the
primary term of the lease.
Above building standard: Upgraded finishes and specialized designs necessary
to accommodate a tenant's
requirements.
Absorption rate: The rate at which rentable space is filled. Gross absorption
is a measure of the total
square feet leased over a specified period with no consideration given to
space vacated in the same
geographic area during the same time period. Net absorption is equal to the
amount occupied at the end of a
period minus the amount occupied at the beginning of a period and takes into
consideration space vacated
during the period.
Ad valorem: Meaning "according to value," this is a tax imposed on
the value of property that is typically
based on the local government's valuation of the property.
Adjusted funds from operations (AFFO): A measure of REIT performance or
ability to pay dividends used by many
analysts with concerns about quality of earnings as measured by funds from
operations (FFO). The most common
adjustment to FFO is an estimate of certain recurring capital expenditures
needed to keep the property
portfolio competitive in its marketplace.
Administrative fee: Usually stated as a percentage of assets under management
or as a fixed annual dollar
amount.
Advances: Payments made by the servicer when the borrower fails to make a
payment.
Adviser: A broker, consultant or investment banker who represents an owner in
a transaction. Advisers may be
paid a retainer and/or a performance fee upon the close of a financing or
sales transaction.
Aggregation risk: Risk associated with warehousing mortgages during the
pooling process for future
securitization.
Alternative or specialty investments: Property types that are not considered
conventional institutional-grade
real estate investments. Examples include congregate care facilities,
self-storage facilities, mobile homes,
timber, agriculture and parking lots.
Amortization: The liquidation of a financial debt through regular periodic
installment payments. For tax
purposes, the periodic deduction of capitalized expenses such as organization
costs.
Anchor: The tenant that serves as the predominant draw to a commercial
property, usually the largest tenant
in a shopping center.
Annual percentage rate (APR): The actual cost of borrowing money. It may be
higher than the note rate because
it represents full disclosure of the interest rate, loan origination fees,
loan discount points and other
credit costs paid to the lender.
Appraisal: An estimate of a property's fair market value that is typically
based on replacement cost,
discounted cash flow analysis and/or comparable sales price.
Appreciation: An increase in the value or price of an asset.
Appreciation return: The portion of the total return generated by the change
in the value of the real estate
assets during the current quarter, as measured by both appraisals and sales of
assets.
Arbitrage: Buying securities in one market and then selling them immediately
in another market to make a
profit on the price discrepancy.
As-is condition: The acceptance by the tenant of the existing condition of the
premises at the time a lease
is consummated, including any physical defects.
Assessment: A fee imposed on property, usually to pay for public improvements
such as water, sewers, streets,
improvement districts, etc.
Asset management: The various disciplines involved with managing real property
assets from the time of
investment through the time of disposition, including acquisition, management,
leasing, operational/financial
reporting, appraisals, audits, market review and asset disposition plans.
Asset management fee: A fee charged to investors based on the amount invested
into real estate assets for the
fund or account.
Asset turnover: Calculated as total revenues for the trailing 12 months
divided by the average total assets.
Assets under management: The current market value of real estate assets for
which a manager has investment
and asset management responsibilities.
Assignee name: The individual or entity to which the obligations of a lease,
mortgage or other contract have
been transferred.
Assignment: A transfer of the lessee's entire stake in the property. It is
distinguishable from a sublease
where the sublessee acquires something less than the lessee's entire interest.
Attorn: To agree to recognize a new owner of a property and to pay him/her
rent.
Average common equity: Calculated by adding the common equity for the five
most recent quarters and dividing
by five.
Average downtime: Expressed in months, the amount of time expected between the
expiration of a lease and the
commencement of a replacement lease under current market conditions.
Average free rent: Expressed in months, the rent abatement concession expected
to be granted to a tenant as
part of a lease incentive under current market conditions.
Average occupancy: The average occupancy rate of each of the preceding 12
months.
Average total assets: Calculated by adding the total assets of a company for
the five most recent quarters
and dividing by five.
B
Balloon, or bullet, loan: A loan with a maturity that is shorter than the
amortization period.
Balloon risk: The risk that a borrower will not be able to make a balloon
(lump sum) payment at maturity due
to a lack of funding.
Bankrupt: The state of an entity that is unable to repay its debts as they
become due.
Bankruptcy: Proceedings under federal statutes to relieve a debtor who is
unable or unwilling to pay its
debts. After addressing certain priorities and exemptions, the bankrupt
entity's property and other assets
are distributed by the court to creditors as full satisfaction for the debt.
Base principal balance: The original mortgage amount adjusted for subsequent
fundings and principal payments
without regard to accrued interest or other unpaid debt.
Base rent: A set amount used as a minimum rent with provisions for increasing
the rent over the term of the
lease.
Base year: Actual taxes and operating expenses for a specified year, most
often the year in which a lease
commences.
Basis point: 1/100 of 1 percent.
Below-grade: Any structure or portion of a structure located underground or
below the surface grade of the
surrounding land.
Beneficiary: An employee covered by an employee benefit plan.
Beta: A measure of a company's common stock price volatility relative to the
market.
Bid: An offer, stated as a price or spread, to buy whole loans or securities.
Blind pool: A commingled fund accepting investor capital without prior
specification of property assets.
Book value: Also referred to as common shareholder's equity, this is the total
shareholder's equity as of the
most recent quarterly balance sheet minus preferred stock and redeemable
preferred stock.
Broker: A person who acts as an intermediary between two or more parties in
connection with a transaction.
Buildable acres: The area of land that is available to be built on after
subtracting for roads, setbacks,
anticipated open spaces and areas unsuitable for construction.
Building code: The various laws set forth by the ruling municipality as to the
end use of a certain piece of
property. They dictate the criteria for design, materials and types of
improvements allowed.
Building standard plus allowance: The landlord lists, in detail, the building
standard materials and costs
necessary to make the premises suitable for occupancy. A negotiated allowance
is then provided for the tenant
to customize or upgrade materials.
Build-out: Space improvements put in place per the tenant's specifications.
Takes into consideration the
amount of tenant finish allowance provided for in the lease agreement.
Build-to-suit: A method of leasing property whereby the developer/landlord
builds to a tenant's
specifications.
C
Call date: Periodic or continuous rights given to the lender to cause payment
of the total principal balance
prior to the maturity date.
Capital appreciation: The change in market value of a property or portfolio
adjusted for capital improvements
and partial sales.
Capital expenditures: Investment of cash or the creation of a liability to
acquire or improve an asset, as
distinguished from cash outflows for expense items that are considered part of
normal operations.
Capital gain: The amount by which the net proceeds from the sale of a capital
item exceeds the book value of
the asset.
Capital improvements: Expenditures that arrest deterioration of property or
add new improvements and
appreciably prolong its life.
Capital markets: Public and private markets where businesses or individuals
can raise or borrow capital.
Capitalization: The total dollar value of various securities issued by a
company.
Capitalization rate (CAP): The rate at which net operating income is discounted to
determine the value of a
property. The CAP rate is the net operating income divided by the sales price or
fair market value
of a property, expressed as a
percentage.
Carrying charges: Costs incidental to property ownership that must be absorbed
by the landlord during the
initial lease-up of a building and thereafter during periods of vacancy.
Cash flow: The revenue remaining after all cash expenses are paid.
Cash-on-cash yield: The relationship, expressed as a percentage, between the
net cash flow of a property and
the average amount of invested capital during an operating year.
Certificate of occupancy: A document presented by a local government agency or
building department certifying
that a building and/or the leased area has been satisfactorily inspected and
is in a condition suitable for
occupancy.
Chapter 7: That portion of the federal bankruptcy code that deals with
business liquidations.
Chapter 11: That portion of the federal bankruptcy code that deals with
business reorganizations.
Circulation factor: Interior space required for internal office circulation
not accounted for in the net
square footage.
Class "A": A real estate rating generally assigned to properties
that will generate the highest rents per
square foot due to their high quality and/or superior location.
Class "B": Good assets that most tenants would find desirable but
lack attributes that would permit owners to
charge top dollar.
Class "C": Buildings that offer few amenities but are otherwise in
physically acceptable condition and
provide cost-effective space to tenants who are not particularly
image-conscious.
Clear-span facility: A building, most often a warehouse or parking garage,
with vertical columns on the
outside edges of the structure and a clear span between columns.
Closed-end fund: A commingled fund that has a targeted range of investor
capital and a finite life.
Closing: A period of time, usually less than seven days, after a registration
statement is effective and the
offering commences, giving the underwriters time to receive payment for the
securities.
CMBS (commercial mortgage-backed securities): Securities backed by loans on
commercial real estate.
CMO (collateralized mortgage obligation): Debt obligations that are
collateralized by and have payments
linked to a pool of mortgages.
Co-investment: Co-investment occurs when two or more pension funds or groups
of funds share ownership of a
real estate investment. In co-investment vehicles, relative ownership is
always based on the amount of
capital contributed. It also refers to an arrangement in which an investment
manager or adviser co-invests
its own capital alongside the investor.
Co-investment program: An investment partnership or insurance company separate
account that enables two or
more pension funds to co-invest their capital in a single property or
portfolio of properties. The primary
appeal for investors is to achieve greater diversification or invest in larger
properties typically outside
the reach of small- to mid-sized tax-exempt funds, with a greater measure of
control than is afforded in
typical commingled fund offerings.
Collateral: Asset(s) pledged to a lender to secure repayment of a loan in case
of default.
Commingled fund: A pooled fund vehicle that enables qualified employee benefit
plans to commingle their
capital for the purpose of achieving professional management, greater
diversification or investment positions
in larger properties.
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, e.g., lobbies, corridors, etc.
Common area maintenance: Rent charged to the tenant in addition to the base
rent to maintain the common
areas. Examples include snow removal, outdoor lighting, parking lot sweeping,
insurance, property taxes, etc.
Comparables: Used to determine the fair market lease rate or asking price,
based on other properties with
similar characteristics.
Concessions: Cash or cash equivalents expended by the landlord in the form of
rental abatement, additional
tenant finish allowance, moving expenses or other monies expended to influence
or persuade a tenant to sign a
lease.
Condemnation: The process of taking private property, without the consent of
the owner, by a governmental
agency for public use through the power of eminent domain.
Conduit: An alliance between mortgage originators and an unaffiliated
organization that acts as a funding
source by regularly purchasing loans, usually with a goal of pooling and
securitizing them.
Construction loan: Interim financing during the developmental phase of a
property.
Construction management: The act of ensuring the various stages of the
construction process are completed in
a timely and seamless fashion.
Consultant: Any company or individual that provides the following services to
institutional investors:
definition of real estate investment policy; adviser/manager recommendations;
analysis of existing real
estate portfolios; monitoring of and reporting on property asset, commingled
fund and portfolio performance;
and review of specified property and portfolio investment opportunities.
Consultants are distinguished from
investment advisers or investment managers in that a consultant does not
source or execute transactions and
does not directly manage assets.
Consumer price index (CPI): Measures inflation in relation to the change in
the price of goods and services
purchased by a specified population during a base period of time. The CPI is
commonly used to increase the
base rent periodically as a means of protecting the landlord's rental stream
against inflation or to provide
a cushion for operating expense increases for a landlord unwilling to
undertake the record-keeping necessary
for operating expense escalations.
Contiguous space: Multiple suites/spaces within the same building and on the
same floor that can be combined
and rented to a single tenant, or a block of space located on multiple
adjoining floors in a building.
Contract documents: The complete set of design plans and specifications for
the construction of a building.
Contract rent: The rental obligation, expressed in dollars, as specified in a
lease. Also known as face rent.
Convertible debt: A mortgage position that gives the lender the option to
convert to a partial or full
ownership position in a property within a specified time period.
Convertible preferred stock: Preferred stock that is convertible to common
stock under certain formulas and
conditions specified by the issuer of the stock.
Conveyance: Most commonly refers to the transfer of title to property between
parties by deed. The term may
also include most of the instruments with which an interest in real estate is
created, mortgaged or assigned.
Core properties: The major property types - specifically office, retail,
industrial and multifamily. Core
assets tend to be built within the past five years or recently renovated. They
are substantially leased (90
percent or better) with higher-credit tenants and well-structured long-term
leases with the majority fairly
early in the term of the lease. Core assets generate good, stable income that,
together with potential
appreciation, is expected to generate total returns in the 10 percent to 12
percent range.
Cost-approach improvement value: The current cost to construct a reproduction
of, or replacement for, the
existing structure less an estimate for accrued depreciation.
Cost-approach land value: The estimated value of the fee simple interest in
the land as if vacant and
available for development to its highest and best use.
Cost-of-sale percentage: An estimate of the costs to sell an investment
representing brokerage commissions,
closing costs, fees and other necessary disposition expenses.
Coupon: The nominal interest rate charged to the borrower on a promissory note
or mortgage.
Covenant: A written agreement inserted into deeds or other legal instruments
stipulating performance or non-
performance of certain acts, or use or non-use of a property and/or land.
Credit enhancement: The credit support needed in addition to the mortgage
collateral to achieve a desired
credit rating on mortgage-backed securities. The forms of credit enhancement
most often employed are
subordination, over-collateralization, reserve funds, corporate guarantees and
letters of credit.
Cross-collateralization: A grouping of mortgages or properties that serves to
jointly secure one debt
obligation.
Cross-defaulting: Allows the trustee to call all loans in a group into default
when any single loan is in
default.
Cumulative discount rate: Expressed as a percentage of base rent, it is the
interest rate used in finding
present values that takes into account all landlord lease concessions.
Current occupancy: The current leased portion of a building or property
expressed as a percentage of its
total area or units.
Current yield: For CMBS, the coupon divided by the price.
Deal structure: With regard to the financing of an acquisition, deals can be
unleveraged, leveraged,
traditional debt, participating debt, participating/convertible debt or joint
ventures.
Debt service: The outlay necessary to meet all interest and principal payments
during a given period.
Debt service coverage ratio (DSCR) or (DCR): The annual net operating income from a
property divided by annual cost of
debt service. A DSCR or DCR below 1 means the property is generating insufficient
cash flow to cover debt payments.
Dedicate: To appropriate private property to public ownership for a public use.
Deed: A legal instrument transferring title to real property from the seller
to the buyer upon the sale of
such property.
Deed in lieu of foreclosure: A deed given by an owner/borrower to a lender to
satisfy a mortgage debt and
avoid foreclosure.
Deed of trust: An instrument used in place of a mortgage by which real
property is transferred to a trustee
to secure repayment of a debt.
Default: The general failure to perform a legal or contractual duty or to
discharge an obligation when due.
Deferred maintenance account: An account a borrower is required to fund that
provides for maintenance of a
property.
Deficiency judgment: Imposition of personal liability on a borrower for the
unpaid balance of mortgage debt
after a foreclosure has failed to yield the full amount of the debt.
Defined-benefit plan: An employee's benefits are defined, either as a fixed
amount or a percentage of the
beneficiary's salary at the time of retirement. Pension plans, Health and
Welfare plans, and some Keogh plans
are established as defined benefit plans.
Defined-contribution plan: An employee's benefits at retirement are determined
by the amount contributed by
the employer and/or the employee during his or her employment tenure, and by
the actual investment earnings
on those contributions over the life of the fund. Examples include 401(k),
thrift plans and profit sharing
plans.
Demising wall: The partition wall that separates one tenant's space from
another or from the building's
common areas.
Depreciation: A decrease or loss in property value due to wear, age or other
cause. In accounting,
depreciation is a periodic allowance made for this real or implied loss.
Derivative securities: Securities that are created artificially, i.e., derived
from other financial
instruments. In the context of CMBS, the most common derivative security is
the interest-only strip.
Design/build: A system in which a single entity is responsible for both the
design and construction.
Discount rate: A yield rate used to convert future payments or receipts into
present value.
Discretion: The level of authority granted to an adviser or manager over the
investment and management of a
client's capital. A fully discretionary account typically is defined as one in
which the adviser or manager
has total ability to invest and manage a client's capital without prior
approval of the client.
Distraint: The act of seizing personal property of a tenant in default based
on the right and interest a
landlord has in the property.
Diversification: The process of consummating individual investments in a
manner that insulates a portfolio
against the risk of reduced yield or capital loss, accomplished by allocating
individual investments among a
variety of asset types, each with different characteristics.
Dividend: Cash or stock distribution paid to holders of common stock. REITs
must pay at least 90 percent of
their taxable income in the form of dividends.
Dividend yield: The annual dividend rate for a security expressed as a percent
of its market price (annual
dividend/price = yield).
Dividend-ex date: The first date on which a person purchasing the stock is no
longer eligible to receive the
most recently announced dividend.
Dollar stop: An agreed dollar amount of taxes and operating expense each
tenant will pay on a prorated basis.
DOWNREIT: An organizational structure that makes it possible for REITs to buy
properties using partnership
units. The effect is the same as an UPREIT, however, the DOWNREIT is
subordinate to the REIT itself, hence
the name.
Due diligence: Activities carried out by a prospective purchaser or mortgager
of real property to confirm
that the property is as represented by the seller and is not subject to
environmental or other problems. In
the case of an IPO registration statement, due diligence is a reasonable
investigation by the parties
involved to confirm that all the statements within the document are true and
that no material facts are
omitted.
Due on sale: A covenant that makes a mortgage due if the property is sold
before the maturity date.
E
Earnest money: The monetary advance of part of the purchase price to indicate
the intention and ability of
the buyer to carry out the contract.
Easement: A right created by grant, reservation, agreement, prescription or
necessary implication to use
someone else's property.
Economic feasibility: The feasibility of a building or project in terms of
costs and revenue, with excess
revenue establishing the degree of viability.
Economic rent: The market rental value of a property at a given point in time.
Effective date: The date on which a registration statement becomes effective
and the sale of securities can
commence.
Effective gross income (EGI): The total income from a property generated by
rents and other sources, less a
vacancy factor estimated to be appropriate for the property. EGI is expressed
as collected income before
expenses and debt service.
Effective gross rent (EGR): The net rent generated, after adjusting for tenant
improvements and other capital
costs, lease commissions and other sales expenses.
Effective rent: The actual rental rate to be achieved by the landlord after
deducting the value of
concessions from the base rental rate paid by a tenant, usually expressed as
an average rate over the term of
the lease.
Electronic Authentication: Any of several methods used to provide proof that a
particular document received
electronically is genuine, has arrived unaltered and came from the source
indicated.
Eminent domain: A power to acquire by condemnation private property for public
use in return for just
compensation.
Encroachment: The intrusion of a structure that extends, without permission,
over a property line, easement
boundary or building setback line.
Encumbrance: A right to, or interest in, real property held by someone other
than the owner that does not
prevent the transfer of fee title.
Environmental impact statement: Documents required by federal and state laws
to accompany proposals for major
projects and programs that will likely have an impact on the surrounding
environment.
Equity: The residual value of a property beyond mortgage or liability.
ERISA (Employee Retirement Income Security Act): Legislation passed in 1974
and administered by the
Department of Labor that controls the investment activities primarily of
corporate and union pension plans.
More public pension funds are adopting ERISA-like standards.
Escalation clause: A clause in a lease that provides for the rent to be
increased to reflect changes in
expenses paid by the landlord such as real estate taxes and operating costs.
Escrow agreement: A written agreement made between an escrow agent and the
parties to a contract setting
forth the basic obligations of the parties, describing the money (or other
things of value) to be deposited
in escrow, and instructing the escrow agent concerning the disposition of the
monies deposited.
Estoppel certificate: A signed statement certifying that certain statements of
fact are correct as of the
date of the statement and can be relied upon by a third party, including a
prospective lender or purchaser.
Exclusive agency listing: A written agreement between a real estate broker and
a property owner in which the
owner promises to pay a fee or commission to the broker if specified real
property is leased during the
listing period.
Exit strategy: Strategy available to investors when they desire to liquidate
all or part of their investment.
Face rental rate: The asking rental rate published by the landlord.
Facility space: The floor area in hospitality properties dedicated to
operating departments such as
restaurants, health clubs and gift shops that service multiple guests or the
general public on an interactive
basis not directly related to room occupancy.
FAD (funds available for distribution): Funds from operations less deductions
for cash expenditures for
leasing commissions and tenant improvement costs.
FAD multiple: Share price of a REIT divided by its funds available for
distribution.
Fair market value: The sale price at which a property would change hands
between a willing buyer and willing
seller, neither being under any compulsion to buy or sell and both having
reasonable knowledge of the
relevant facts.
Fannie Mae (FNMA): The Federal National Mortgage Association - A
quasi-governmental corporation authorized to
sell debentures in order to supplement private mortgage funds by buying and
selling FHA (Federal Housing
Administration) and VA (Veterans Affairs) loans at market prices.
Fee simple interest: When an owners owns all the rights in a real estate
parcel.
FFO (funds from operations): A ratio intended to highlight the amount of cash
generated by a company's real
estate portfolio relative to its total operating cash flow. FFO is equal to
net income, excluding gains (or
losses) from debt restructuring and sales of property, plus depreciation and
amortization.
FFO multiple: Share price of a REIT divided by its funds from operations.
Fiduciary: The Employee Retirement Income Security Act (ERISA) defines a
fiduciary as any person who
exercises any discretionary authority or control over a plan's asset
management, administration or
disposition, or renders investment advice for a fee or other compensation with
respect to a plan's assets.
Fiduciaries may include staff, trustees, investment board members,
administrators, consultants, actuaries and
investment managers. ERISA permits civil action to be brought by a beneficiary
against any fiduciary that has
breached its fiduciary duty. Fiduciaries can be held personally liable for any
losses to a plan resulting
from such breach.
Finance charge: The amount paid for the privilege of deferring payment of
goods or services purchased,
including any charges payable by the purchaser as a condition of the loan.
First mortgage: The senior mortgage that, by reason of its position, has
priority over all junior
encumbrances. The holder has a priority right to payment in the event of
default.
First refusal right, or right of first refusal: A lease clause giving a tenant
the first opportunity to buy a
property or lease additional space in a property at the same price and on the
same terms and conditions as
those contained in a third-party offer that the owner has expressed a
willingness to accept.
First-generation space: Generally refers to new space that is currently
available for lease and has never
before been occupied by a tenant.
First-loss position: The position in a security that will suffer the first
economic loss if the underlying
assets lose value or are foreclosed on. The first-loss position carries a
higher risk and a higher yield.
Fixed costs: Costs that do not fluctuate in proportion to the level of sales
or production.
Fixed rate: An interest rate that remains constant over the term of the loan.
Flat fee: A fee paid to an adviser or manager for managing a portfolio of real
estate assets, typically
stated as a flat percentage of gross asset value, net asset value or invested
capital.
Flex space: A building that provides a configuration allowing occupants a
flexible amount of office or
showroom space in combination with manufacturing, laboratory, warehouse,
distribution, etc.
Float: The number of freely traded shares in the hands of the public.
Floor area ratio (FAR): The ratio of the gross square footage of a building to
the square footage of the land
on which it is situated.
Force majeure: A force that cannot be controlled by the parties to a contract
and prevents them from
complying with the provisions of the contract. This includes acts of God such
as a flood or a hurricane, or
acts of man such as a strike, fire or war.
Foreclosure: The process by which the trustee or servicer takes over a
property from a borrower on behalf of
the lender.
Forward commitments: Contractual obligations to perform certain financing
activities upon the satisfaction of
any stated conditions. Usually used to describe a lender's obligation to fund
a mortgage.
Four quadrants of the real estate capital markets:
-Private equity - Direct real estate investments acquired privately.
-Public equity - REITs and other publicly traded real estate operating
companies.
-Private debt - Whole loan mortgages.
-Public debt - Commercial mortgage-backed securities and other securitized
forms of whole loan mortgage
interests.
Freddie Mac (FHLMC): Federal Home Loan Mortgage Corp. - a corporation
established by the Federal Home Loan
Bank to issue mortgage-backed securities.
Full recourse: A loan on which an endorser or guarantor is liable in the event
of default by the borrower.
Full-service rent: An all-inclusive rental rate that includes operating
expenses and real estate taxes for
the first year. The tenant is generally still responsible for any increase in
operating expenses over the
base year amount.
Fully diluted shares: The number of shares of common stock that would be
outstanding if all convertible
securities were converted to common shares.
Future proposed space: Space in a proposed commercial development that is not
yet under construction or where
no construction start date has been set. It also may refer to the future
phases of a multi-phase project not
yet built.
G
General contractor: The prime contractor who contracts for the construction of
an entire building or project,
rather than just a portion of the work. The general contractor hires
subcontractors, coordinates all work and
is responsible for payment to subcontractors.
General partner: A member of a partnership who has authority to bind the
partnership and shares in the
profits and losses of the partnership.
Going-in capitalization rate: The capitalization rate computed by dividing the
projected first year's net
operating income by the value of the property.
Graduated lease: A lease, generally long-term in nature, in which rent varies
depending upon future
contingencies.
Grant: To bestow or transfer an interest in real property by deed or other
instrument.
Grantee: One to whom a grant is made.
Grantor: The person making the grant.
Gross building area: The sum of areas at each floor level, including
basements, mezzanines and penthouses
included within the principal outside faces of the exterior walls and
neglecting architectural setbacks or
projections.
Gross investment in real estate (historic cost): The total amount of equity
and debt invested in real estate
investments, including the gross purchase price, all acquisition fees and
costs, plus subsequent capital
improvements, less proceeds from sales and partial sales.
Gross leasable area: The portion of total floor area designed for tenants'
occupancy and exclusive use,
including storage areas. It is the total area that produces rental income.
Gross lease: A lease in which the tenant pays a flat sum for rent out of which
the landlord must pay all
expenses such as taxes, insurance, maintenance, utilities, etc.
Gross real estate asset value: The market value of the total real estate
investments under management in a
fund or individual accounts. It typically includes the total value of all
equity positions, debt positions
and joint venture ownership positions, including the amount of any mortgages
or notes payable related to
those assets.
Gross real estate investment value: The market value of real estate
investments held in a portfolio without
regard to debt, equal to the total of real estate investments as shown on a
statement of assets and
liabilities on a market-value basis.
Gross rent multiplier (GRM): The GRM is calculated by dividing the fair market
value of a property by its monthly gross rental income. It is another
way to compare and estimate the value of income properties. The GRM is similar
to the Capitalization Rate (CAP Rate), except the gross rental income rather
than the net operating income (NOI) is used to estimate the value of the
property.
Gross returns: Returns generated from the operation of real estate without
dilution for adviser or manager
fees.
Ground rent: Rent paid to the owner for use of land, normally on which to
build a building. Generally, the
arrangement is that of a long-term lease (e.g. 99 years) with the lessor
retaining title to the land.
Guarantor: One who makes a guaranty.
Guaranty: Agreement whereby the guarantor assures satisfaction of the debt of
another or performs the
obligation of another if and when the debtor fails to do so.
H
Hard cost: The cost of actually constructing property improvements.
High-rise: In the central business district, this could mean a building higher
than 25 stories above ground
level, but in suburban markets, it generally refers to buildings higher than
seven or eight stories.
Highest and best use: The reasonably probable and legal use of vacant land or
an improved property that is
physically possible, appropriately supported, financially feasible and that
results in the highest value.
Holdbacks: A portion of a loan commitment that is not funded until an
additional requirement is met, such as
completion of construction.
Holding period: The length of time an investor expects to own a property from
purchase to sale.
Hold-over tenant: A tenant retaining possession of the leased premises after
the expiration of a lease.
HVAC: The acronym for heating, ventilating and air conditioning.
Hybrid debt: A mortgage position with equity-like participation features in
both cash flow and the
appreciation of the property at the time of sale or refinance.
I
Implied cap rate: Net operating income divided by the sum of a REIT's equity
market capitalization and its
total outstanding debt.
Improvements: In the context of leasing, the term typically refers to the
improvements made to or inside a
building but may include any permanent structure or other development, such as
a street, sidewalk, utilities,
etc.
Incentive fee: Applies to fee structures where the amount of the fee that is
charged is determined by the
performance of the real estate assets under management.
Income capitalization value: The indication of value derived for an
income-producing property by converting
its anticipated benefits into property value through direct capitalization of
expected income or by
discounting the annual cash flows for the holding period at a specified yield
rate.
Income property: Real estate that is owned or operated to produce revenue.
Income return: The percentage of the total return that is generated by the
income from operations of a
property, fund or account.
Indirect costs: Development costs other than
direct material and labor costs that are directly related to the
construction of improvements, including administrative and office expenses,
commissions, architectural,
engineering and financing costs.
Individual account management: Accounts established for individual plan
sponsors or other investors for
investment in real estate, where a firm acts as an adviser in acquiring and/or
managing a direct real estate
portfolio.
Inflation: The annual rate at which consumer prices increase.
Inflation hedge: An investment that tends to increase in value at a rate
greater than inflation and helps
contribute to the preservation of the purchasing power of a portfolio.
Initial public offering (IPO): The first time a private company offers
securities for sale to the public.
Institutional-grade property: Various types of real estate properties
generally owned or financed by tax-
exempt institutional investors. Core investments typically include office,
retail, industrial and apartments.
Specialty investments include hotels, congregate care facilities, land beneath
existing improvements, vacant
land, mixed-use properties (i.e., a property containing at least two property
types) and mobile home parks.
Insurance company separate account: A real estate investment vehicle that may
only be offered by life
insurance companies. This ownership arrangement enables an ERISA-governed fund
to avoid the creation of
unrelated taxable income for certain types of property investments and
investment structures.
Interest: The price paid for the use of capital.
Interest-only strip: A derivative security consisting of all or part of the
interest portion of the
underlying loan or security.
Internal rate of return (IRR): A discounted cash-flow analysis calculation
used to determine the potential
total return of a real estate asset during an anticipated holding period.
Inventory: All space within a certain proscribed market without regard to its
availability or condition.
Investment committee: The governing body overseeing corporate pension
investments. Also, the subcommittee of
a board of trustees charged with developing investment policy for board
approval.
Investment manager: Any company or individual that assumes discretion over a
specified amount of real estate
capital, invests that capital in assets via a separate account, co-investment
program or commingled fund, and
provides asset management.
Investment policy: A document that formalizes an institution's guidelines for
investment and asset
management. An investment policy typically will contain goals and objectives;
core and specialty investment
criteria and methodology; and guidelines for asset management, investment
advisory contracting, fees and
utilization of consultants and other outside professionals.
Investment strategy: The investment parameters used by the manager in
structuring the portfolio and selecting
the real estate assets for a fund or account. This includes a description of
the types, locations and sizes
of properties to be considered, the ownership positions that will be used, and
the stages of the investment
lifecycle.
Investment structures: Unleveraged acquisitions, leveraged acquisitions,
traditional debt, participating
debt, convertible debt, triple-net leases and joint ventures.
Investment-grade CMBS: Commercial mortgage-backed securities with ratings of
"AAA," "AA," "A" or "BBB".
Investor status: In reporting to clients and consultants, all investors are
divided into two categories:
taxable and tax-exempt. The tax-exempt category includes all qualified pension
and retirement accounts. The
taxable category includes all other accounts under management, including
off-shore capital.
J
Joint venture: An investment entity formed by one or more entities to acquire
or develop and manage real
property and/or other assets.
Just compensation: Compensation that is fair to both the owner and the public
when property is taken for
public use through condemnation (eminent domain).
L
Landlord's warrant: A warrant from a landlord to levy upon a tenant's personal
property (e.g., furniture,
etc.) and to sell this property at a public sale to compel payment of the rent
or the observance of some
other stipulation in the lease.
Lead manager: The investment banking firm that handles the principal
responsibilities for coordinating the
new issuance of securities.
Lease: An agreement whereby the owner of real property gives the right of
possession to another for a
specified period of time and for a specified consideration.
Lease agreement: The formal legal document entered into between a landlord and
a tenant to reflect the terms
of the negotiations between them.
Lease commencement date: The date usually constitutes the commencement of the
term of the lease, whether or
not the tenant has actually taken possession, so long as beneficial occupancy
is possible.
Lease expiration exposure schedule: A listing of the total square footage of
all current leases that expire
in each of the next five years, without regard to renewal options.
Leasehold interest: The right to hold or use property for a fixed period of
time at a given price, without
transfer of ownership.
Legal description: A geographical description identifying a parcel by
government survey, metes and bounds, or
lot numbers of a recorded plat including a description of any portion that is
subject to an easement or
reservation.
Legal owner: The legal owner has title to the property, although the title may
actually carry no rights to
the property other than as a lien.
Letter of credit: A commitment by a bank or other person that the issuer will
honor drafts or other demands
for payment upon full compliance with the conditions specified in the letter
of credit. Letters of credit are
often used in place of cash deposited with the landlord in satisfying the
security deposit provisions of a
lease.
Letter of intent: A preliminary agreement stating the proposed terms for a
final contract.
Leverage: The use of credit to finance a portion of the costs of purchasing or
developing a real estate
investment. Positive leverage occurs when the interest rate is lower than the
capitalization rate or
projected internal rate of return. Negative leverage occurs when the current
return on equity is diminished
by the employment of debt.
LIBOR (London InterBank Offered Rate): The interest rate offered on Eurodollar
deposits traded between banks,
also called swaps.
Lien: A claim or encumbrance against property used to secure a debt, a charge
or the performance of some act.
Lien waiver: Waiver of a mechanic's lien rights that is often required before
the general contractor can
receive a draw under the payment provisions of a construction contract. It may
also be required before the
owner can receive a draw on a construction loan.
Lifecycle: The various developmental stages of a property: pre-development,
development, leasing, operating
and redevelopment (or rehab).
Like-kind property: A term used in an exchange of property held for productive
use in a trade or business or
for investment. Unless cash is received, the tax consequences of the exchange
are postponed pursuant to
Section 1031 of the Internal Revenue Code.
Limited partnership: A type of partnership comprised of one or more general
partners who manage the business
and are personally liable for partnership debts, and one or more limited
partners who contribute capital and
share in profits but who take no part in running the business and incur no
liability above the amount
contributed.
Liquidity: The ease with which assets can be converted to cash without loss in
value.
Listing agreement: An agreement between the owner of a property and a real
estate broker giving the broker
authorization to attempt to sell or lease the property at a certain price and
terms in return for a
commission, set fee or other form of compensation.
Loan-to-value ratio (LTV): The ratio of the value of the loan principal
divided by the property's appraised
value.
Lock-box structure: A structure whereby the rental or debt-service payments
are sent directly from the tenant
or mortgagor to the trustee.
Lockout: The period during which a loan may not be prepaid.
Long-term lease: In most markets, this refers to a lease whose term is at
least three years from initial
signing to the date of expiration or renewal.
Loss severity: The percentage of principal lost when a loan is foreclosed.
Lot: Generally one of several contiguous parcels of land making up a
fractional part or subdivision of a
block, the boundaries of which are shown on recorded maps and plats.
Low-rise: A building with fewer than four stories above ground level.
Lump-sum contract: A type of construction contract requiring the general
contractor to complete a building or
project for a fixed cost normally established by competitive bidding. The
contractor absorbs any loss or
retains any profit.
M
Magic page: Included in the offering prospectus, the magic page is a projected
growth story, describing how a
new REIT will accomplish its future expectations for funds from operations or
funds available for
distribution.
Maker: One who creates or executes a promissory note and promises to pay the
note when it becomes due.
Mark to market: The process of increasing or decreasing the original
investment cost or value of a property
asset or portfolio to a level estimated to be the current market value.
Market capitalization: One measure of the value of a company; it is calculated
by multiplying the current
share price by the current number of shares outstanding.
Market rental rates: The rental income that a property most likely would
command in the open market,
indicated by the current rents asked and paid for comparable space.
Market study: A forecast of future demand for a certain type of real estate
project that includes an estimate
of the square footage that can be absorbed and the rents that can be charged.
Market value: The highest price a property would command in a competitive and
open market under all
conditions requisite to a fair sale.
Marketable title: A title free from encumbrances that could be readily
marketed to a willing purchaser.
Master lease: A primary lease that controls subsequent leases and may cover
more property than subsequent
leases.
Master servicer: An institution that acts on behalf of a trustee for the
benefit of security holders in
collecting funds from a borrower, advancing funds in the event of
delinquencies and, in the event of default,
taking a property through foreclosure.
Maturity date: The date when the total principal balance comes due.
Mechanic's lien: A claim created for the purpose of securing priority of
payment of the price and value of
work performed and materials furnished in constructing, repairing or improving
a building or other structure.
Meeting space: In hotels, space made available to the public to rent for
meeting, conference or banquet uses.
Metes and bounds: The boundary lines of land described by listing the compass
directions and distances of the
boundaries. Originally, metes referred to distance and bounds referred to
direction.
Mezzanine financing: Mezzanine financing is somewhere between equity and debt.
It is that piece of the
capital structure that has senior debt above it and equity below it. There is
both equity and debt mezzanine
financing, and it can be done at the asset or company level, or it could be
unrated tranches of CMBS. Returns
are generally in the mid- to high-teens.
Mid-rise: A building with four to eight stories above ground level. In a
central business district this might
extend to buildings up to 25 stories.
Mixed-use: Space within a building or project providing for more than one use.
Modern portfolio theory (MPT): An approach to quantifying risk and return in a
portfolio of assets. MPT is
the foundation for present-day principles of investment diversification. It
emphasizes the portfolio rather
than individual assets, and how assets perform in relation to each other based
on the assumption that
investors can benefit from diversification when asset class returns do not
move in lock step with one
another.
Mortgage: A legal document by which real property is pledged as security for
repayment of a loan until the
debt is repaid in full.
Mortgage constant: The ratio of an amortizing mortgage payment to the
outstanding mortgage balance.
N
NAREIT (National Association of Real Estate Investment Trusts): The national,
not-for-profit trade
organization that represents the real estate investment trust industry.
NCREIF (National Council of Real Estate Investment Fiduciaries): An
association of real estate professionals
who serve on working committees, sponsor research articles, seminars and
symposiums, and produce the NCREIF
Property Index.
NCREIF Property Index (NPI): The index reports quarterly and annual returns
consisting of income and
appreciation components. The index is based on data collected from the voting
members of NCREIF. Specific
property-type subindices include apartment, office, retail, industrial and
hotel; regional subindices include
West, East, South and Midwest.
Negative amortization: The accrual feature found in numerous participating
debt structures that allows an
investor to pay, for an initial period of time, an interest rate below the
contract rate stated in loan
documents.
Net asset value (NAV): The value of an individual asset or portfolio of real
estate properties net of
leveraging or joint venture interests.
Net asset value per share: The current value of a REIT's assets divided by
shares outstanding.
Net assets: Total assets less total liabilities on a market-value basis.
Net cash flow: Generally determined by net income plus depreciation less
principal payments on long-term
mortgages.
Net investment in real estate: Gross investment in real estate less the
outstanding debt balance.
Net investment income: The income or loss of a portfolio or entity resulting
after deducting all expenses,
including portfolio and asset management fees, but before realized and
unrealized gains and losses on
investments.
Net operating income (NOI): A before-tax computation of gross revenue less
operating expenses and an
allowance for anticipated vacancy. It is used to compare properties' financial
strength, and to estimate a property's fair market value by dividing its NOI
by a Capitalization Rate (Cap Rate).
Net present value (NPV): Net present value usually is employed to evaluate the
relative merits of two or more
investment alternatives. It is calculated as the sum of the total present
value of incremental future cash
flows plus the present value of estimated proceeds from sale. Whenever the net
present value is greater than
zero, an investment opportunity generally is considered to have merit.
Net purchase price: Gross purchase price less associated debt financing.
Net real estate investment value: The market value of all real estate less
property-level debt.
Net returns: Returns to investors net of fees to advisers or managers.
Net sales proceeds: Proceeds from the sale of an asset or part of an asset
less brokerage commissions,
closing costs and market expenses.
Net square footage: The space required for a function or staff position.
Nominal yield: The yield to investors before adjustments for fees, inflation
or risk.
Non-compete clause: A clause that can be inserted into a lease specifying that
the business of the tenant is
exclusive in the property and that no other tenant operating the same or
similar type of business can occupy
space in the building. This clause benefits service-oriented businesses
desiring exclusive access to the
building's population.
Non-discretionary funds: Funds allocated to an investment manager requiring
the investor's approval on each
transaction.
Non-investment-grade CMBS: Securities rated "BB" or "B,"
also referred to as high-yield CMBS.
Non-performing loan: A loan that is unable to meet its contractual principal
and interest payments.
Non-recourse debt: A loan that, in the event of a default by the borrower,
limits the lender's remedies to a
foreclosure of the mortgage, realization on its assignment of leases and
rents, and acquisition of the real
estate.
O
Offer: Term used to describe a stated price or spread to sell whole loans or
securities.
Open space: An area of land or water dedicated for public or private use or
enjoyment.
Open-end fund: A commingled fund that does not have a finite life, continually
accepts new investor capital
and makes new property investments.
Operating cost escalation: Although there are many variations of escalation
clauses, all are intended to
adjust rents by reference to external standards such as published indexes,
negotiated wage levels, or
expenses related to the ownership and operation of a building.
Operating expense: The actual costs associated with operating a property,
including maintenance, repairs,
management, utilities, taxes and insurance.
Opportunistic: A phrase generally used by advisers and managers to describe
investments in under-performing
and/or under-managed assets that hold the expectation of near-term increases in
cash flow and value. Total
return objectives for opportunistic strategies tend to be 20 percent or
higher. Opportunistic investments
typically involve a high degree of leverage - typically 60 percent to 100
percent on an asset basis and 60
percent to 80 percent on a portfolio basis.
Originator: A company that sources and underwrites commercial and/or
multifamily mortgage loans.
Out-parcel: Individual retail sites in a shopping center.
P
Parking ratio: Dividing the total rentable square footage of a building by the
building's total number of
parking spaces provides the amount of rentable square feet per each individual
parking space.
Partial sales: The sale of an interest in real estate that is less than the
whole property. This may include
a sale of easement rights, parcel of land or retail pad, or a single building
of a multi-building investment.
Partial taking: The taking of part of an owner's property under the laws of
eminent domain.
Participating debt: In addition to collecting a contract interest rate,
participating debt allows the lender
to have participatory equity rights through a share of increases in income
and/or increases in residual value
over the loan balance or original value at the time of loan funding.
Party in interest: Under ERISA's 2002 Modernization Act: Parties in interest
include employers, unions and,
in certain circumstances, fiduciaries. It excludes service providers and their
affiliates. Fiduciaries would
only be parties in interest where they act on behalf of a plan sponsor in
entering into a transaction. An
affiliate of a party in interest does not include remote affiliates of
employers, unions and fiduciaries (e.
g., 10 percent owners), as well as employees of such remote affiliates.
Pass-through certificate: Payments of principal and interest from the
underlying pool of mortgages are passed
through to the holders of the certificates.
Payout ratio: The percentage of the primary earnings per share, excluding
extraordinary items, paid to common
stockholders in the form of cash dividends during the trailing 12 months.
Pension liability: The total amount of capital required to fund vested pension
fund benefits.
Percentage rent: Rent payable under a lease that is equal to a percentage of
gross sales or gross revenues
received by the tenant. It is commonly used in retail center leases.
Performance: The quarterly changes in fund or account values attributable to
investment income, realized or
unrealized appreciation, and the total gross return to the investors both
before and after investment
management fees. Formulas for calculating performance information are varied,
making comparisons difficult.
Performance bond: A surety bond posted by a contractor guaranteeing full
performance of a contract with the
proceeds to be used to complete the contract or compensate for the owner's
loss in the event of
nonperformance.
Performance measurement: The process of measuring an investor's real estate
performance in terms of
individual assets, advisers/managers and portfolios. The scope of performance
measurement reports varies
among managers, consultants and plan sponsors.
Performance-based fees: Fees paid to advisers or managers based on returns to
investors, often packaged with
a modest acquisition and asset-management fee structure.
Permanent loan: The long-term mortgage on a property.
Plan assets: The assets of a pension plan.
Plan sponsor: The entity that establishes, contributes to and is responsible
for the administration of an
employee benefit plan, often used interchangeably to describe staff who
administer the plan and trustees or
investment board members who govern it.
Plat: Map of a specific area, such as a subdivision, that shows the boundaries
of individual lots together
with streets and easements.
Portfolio management: The portfolio management process involves formulating,
modifying and implementing a
real estate investment strategy in light of an investor's broader overall
investment objectives. It also can
be defined as the management of several properties owned by a single entity.
Portfolio turnover: The average time from the funding of an investment until
it is repaid or sold.
Power of sale: Clause inserted in a mortgage or deed of trust giving the
mortgagee (or trustee) the right and
power, upon default in the payment of the debt secured, to advertise and sell
the property at public auction.
Preferred shares: Stocks that have prior claim on distributions (and/or assets
in the event of dissolution)
up to a definite amount before the common shareholders are entitled to
anything. As a form of ownership,
preferred shareholders fall behind all creditors in dissolutions.
Pre-leased: Space in a proposed building that has been leased before the start
of construction or in advance
of the issuance of a certificate of occupancy.
Prepayment rights: Rights given to the borrower to make partial or full
payment of the total principal
balance prior to the maturity date without penalty.
Price to earnings ratio: This ratio is calculated by dividing the current
share price by the sum of the
primary earnings per share from continuing operations, before extraordinary
items and accounting changes,
over the past four quarters.
Primary issuance: The initial financing of an issuer.
Prime space: Typically refers to first-generation space that is available for
lease.
Prime tenant: The major tenant in a building, or the major or anchor tenant in
a shopping center.
Principal payments: The return of invested capital to the lender.
Private placement: A sale of a security in a manner that is exempt from the
registration rules and
requirements of the Securities and Exchange Commission. An example would be a
REIT directly placing an issue
of stock with a pension fund.
Private REIT: An infinite- or finite-life real estate investment company
structured as a real estate
investment trust. Shares are placed and held privately rather than sold and
traded publicly.
Pro rata: In the case of a tenant, the proportionate share of expenses for the
maintenance and operation of
the property.
Production acres: The area of land that can be used in agriculture or timber
operations to produce income,
not including areas used for crop or machinery storage, or other support areas.
Prohibited transaction: ERISA defines the following transactions as prohibited
between a pension plan and a
party in interest: the sale, exchange or leasing of any property; a loan or
other extension of credit; and
the furnishing of goods or services. Other prohibited transactions include the
transfer of plan assets to a
party in interest or use of plan assets by a party in interest, and the
acquisition of employer real property
in excess of limits set by ERISA.
Prudent man rule: The standard to which a fiduciary is held accountable under
ERISA. "Act with the care,
skill, prudence and diligence under the circumstances then prevailing that a
prudent man, acting in a like
capacity and familiar with such matters, would use in the conduct of an
enterprise of a like character and
with like aims."
Punch list: An itemized list documenting incomplete or unsatisfactory items
after the contractor has notified
the owner that the tenant space is substantially complete.
Q
Qualified plan: Any employee benefit plan that is qualified by the IRS as a
tax-exempt plan. Among other
requirements, the plan's assets must be placed in trust for the sole benefit
of the employees covered by the
plan.
Quitclaim deed: A deed operating as a release that is intended to pass any
title, interest or claim that the
grantor may have in the property, but not guaranteeing such title is valid.
R
Rating: Grade, assigned by a rating agency, designating the credit quality or
creditworthiness of the
underlying assets.
Rating agencies: Independent firms engaged to rate the creditworthiness of
securities for the benefit of
investors. The major rating agencies are Fitch Ratings, Standard & Poor's
and Moody's Investors Service.
Raw land: Unimproved land that remains in its natural state.
Raw space: Unimproved shell space in a building.
Real estate fundamentals: The factors driving the value of real property
(i.e., the supply, demand and
pricing for land and/or developed space in a given geographic or economic
region or market).
Real property: Land, and generally whatever is erected or affixed to the land
that would be personal property
if not attached.
Real rate of return: Yield to investors net of an inflationary factor. The
formula for calculating the real
rate of return is [(1 + nominal yield) / (1 + inflation rate)] - 1.
Recapture: When the IRS recovers the tax benefit of a deduction or a credit
previously taken by a taxpayer,
which is often a factor in foreclosure because there is a forgiveness of debt.
As used in leases, it is a
clause giving the lessor a percentage of profits above a fixed amount of rent;
or in a percentage lease, a
clause granting the landlord the right to terminate the lease if the tenant
fails to realize minimum sales.
Recourse: The right of a lender, in the event of default by the borrower, to
recover against the personal
assets of a party who is secondarily liable for the debt.
Red herring: The preliminary prospectus for an initial public offering. Before
the registration statement
becomes effective, underwriters may use the preliminary prospectus to market
the offering. The preliminary
prospectus, however, must bear a legend printed in red ink stating that the
offering has been filed but is
not yet effective.
Regional diversification: Definitions for what constitute various regions, for
diversification purposes, vary
among managers, consultants and plan sponsors. Some boundaries are defined
based purely on geography; others
have attempted to define boundaries along economic lines.
Registration statement: Forms filed with the Securities and Exchange
Commission (or the appropriate state
regulatory agency) in connection with a proposed offering of new securities or
the listing of outstanding
securities on a national exchange.
Rehab: Extensive renovation intended to cure obsolescence of a building or
project.
REIT (Real estate investment trust): A business trust or corporation that
combines the capital of many
investors to acquire or provide financing for real estate. A corporation or
trust that qualifies for REIT
status generally does not pay corporate income tax to the IRS. Instead, it
pays out at least 90 percent of
its taxable income in the form of dividends.
REMIC (Real estate mortgage investment conduit): A product of the Tax Reform
Act of 1986, REMICs are designed
to hold a pool of mortgages for the exclusive purpose of issuing multiple
classes of mortgage-backed
securities in a way that avoids a corporate double tax.
Renewal option: A clause giving a tenant the right to extend the term of a
lease.
Renewal probability: Used to estimate leasing-related costs and downtime, it
is the average percentage of
tenants in a building that are expected to renew at market rental rates upon
the expiration of their leases.
Rent: Compensation or fee paid for the occupancy and use of any rental
property, land, buildings, equipment,
etc.
Rent commencement date: The date on which a tenant begins paying rent.
Rentable/usable ratio: A building's total rentable area divided by its usable
area. It represents the
tenant's pro-rata share of the building's common areas and can determine the
square footage upon which the
tenant will pay rent. The inverse describes the proportion of space that an
occupant can expect to actually
use.
Rental concession: What landlords offer tenants to secure their tenancy. While
rental abatement is one form
of a concession, there are many others such as increased tenant improvement
allowance, signage, below-market
rental rates and moving allowances.
Rental growth rate: The expected trend in market rental rates over the period
of analysis, expressed as an
annual percentage increase.
Rent-up period: The period following construction of a new building when
tenants are actively being sought
and the project is approaching its stabilized occupancy.
REO (Real estate owned): Real estate owned by a savings institution as a
result of default by borrowers and
subsequent foreclosure by the institution.
Replacement cost: The estimated current cost to construct a building with
utility equivalent to the building
being appraised, using modern materials and current standards, design and
layout.
Replacement reserves: An allowance that provides for the periodic replacement
of building components that
wear out more rapidly than the building itself and must be replaced during the
building's economic life.
Request for proposal (RFP): A formal request, issued by a plan sponsor or its
consultant, inviting investment
managers to submit information on their firms' investment strategy, historical
investment performance,
current investment opportunities, investment management fees, other pension
fund client relationships, etc.
Firms that meet the qualifications are requested to make a formal presentation
to the board of trustees and
senior staff members. Finalists are chosen at the completion of this process,
and contract negotiation
begins.
Reserve account: An account that a borrower has to fund to protect the lender.
Examples include capital
expenditure accounts and deferred maintenance accounts.
Resolution Trust Corp. (RTC): The RTC was established by Congress in 1989 to
contain, manage and sell failed
savings institutions and recover taxpayer funds through the management and
sale of the institutions' assets.
Retail investor: When used to describe an investor, retail refers to the
nature of the distribution channel
and the market for the services - selling interests directly to consumers.
Retention rate: The percent of trailing 12-month earnings that have been
ploughed back into the company. It
is calculated as 100 minus the trailing 12-month payout ratio.
Return on assets: The income after taxes for the trailing 12 months divided by
the average total assets,
expressed as a percentage.
Return on equity: The income available to common stockholders for the trailing
12 months divided by the
average common equity, expressed as a percentage.
Return on investments: The trailing 12-month income after taxes divided by the
average total long-term debt,
other long-term liabilities and shareholders equity, expressed as a percentage.
Reversion capitalization rate: The capitalization rate used to determine
reversion value.
Reversion value: A lump-sum benefit that an investor receives or expects to
receive at the termination of an
investment.
RevPAR (Revenue per available room): Total room revenue for the period divided
by the average number of
available rooms in a hospitality facility.
Risk management: A systematic approach to identifying and separating insurable
risks from non-insurable
risks, and evaluating the availability and costs of purchasing third-party
insurance.
Risk-adjusted rate of return: Used to identify investment alternatives that
can be expected to deliver a
positive premium, after taking into consideration the expected volatility. The
risk-adjusted rate of return
is defined as the expected rate of return of a given asset, less the expected
return for T-bills, divided by
the expected standard deviation of the returns for the assets.
Road show: A tour made by executives of a company that plans to go public,
where they travel to various
cities to meet with underwriters and analysts and make presentations regarding
their company and IPO. The
road show takes place during the marketing period before the registration
statement becomes effective.
Roll-over risk: The risk that a tenant's lease will not be renewed.
S
Sale-leaseback: An arrangement by which the owner-occupant of a property
agrees to sell all or part of the
property to an investor, then lease it back and continue to occupy space as a
tenant.
Sales comparison value: A value indication derived by comparing the property
being appraised to similar
properties that have been sold recently.
Second-generation or secondary space: Previously occupied space that becomes
available for lease, either
directly from the landlord or as sublease space.
Secondary financing: A loan on real property secured by a lien junior to an
existing first mortgage loan.
Secondary market: A market where existing mortgage loans are securitized and
then bought and sold to other
investors.
Secondary, or follow-on, offering: A stock offering made by an existing public
company.
Securities and Exchange Commission (SEC): The federal agency that supervises
and oversees the issuance and
exchange of public securities.
Securitization: The process of converting an illiquid asset, such as a
mortgage loan, into a tradable form,
such as mortgage-backed securities.
Security deposit: A deposit of money by a tenant to a landlord to secure
performance of a lease. It also can
take the form of a letter of credit or other financial instrument.
Seisen (seizen): Possession of real property under claim of freehold estate.
Self-administered REIT: When members of the management are employees of the
REIT or an entity having
essentially the same economic ownership as the REIT.
Self-managed REIT: A REIT whose employees are responsible for performing
property management functions.
Senior classes: With regard to securities, describes the classes with the
highest priority to receive the
payments from the underlying mortgage loans.
Separate account: A relationship where an investment manager or adviser is
retained by a single pension plan
sponsor to source real estate product under a stated investment policy
exclusively for that sponsor.
Servicer: An organization that acts on behalf of a trustee for the benefit of
security holders.
Setback: The distance from a curb, property line or other reference point,
within which building is
prohibited.
Shares outstanding: The number of shares of common stock currently
outstanding, less the shares held in
treasury.
Site analysis: Determines the suitability of a specific parcel of land for a
specific use.
Site development: The installation of all necessary improvements made to a
site before a building or project
can be constructed on the site.
Site plan: A detailed plan that depicts the location of improvements on a
parcel.
Slab: The exposed wearing surface laid over the structural support beams of a
building to form the floor(s)
of the building.
Social investing: Investments driven in whole or in part by social or
political (non-real estate) objectives.
Under ERISA, social investing is economically justified only if proper real
estate fundamentals are
considered first.
Soft cost: The portion of an equity investment other than the actual cost of
the improvements themselves that
may be tax-deductible in the first year.
Space plan: A graphic representation of a tenant's space requirements, showing
wall and door locations, room
sizes and sometimes furniture layouts.
Special assessment: Special charges levied against real property for public
improvements that benefit the
assessed property.
Special servicer: A firm that is employed to work out mortgages that are
either delinquent or in default.
Specified investing: Investment in individually specified properties or
portfolios, or investment in
commingled funds whose real estate assets are fully or partially specified
prior to the commitment of
investor capital.
Speculative space: Any tenant space that has not been leased before the start
of construction on a new
building.
Stabilized net operating income: Projected income less expenses that are
subject to change but have been
adjusted to reflect equivalent, stable property operations.
Stabilized occupancy: The optimum range of long-term occupancy that an
income-producing real estate project
is expected to achieve after exposure for leasing in the open market for a
reasonable period of time at terms
and conditions comparable to competitive offerings.
Step-up lease (graded lease): A lease specifying set increases in rent at set
intervals during the term of
the lease.
Straight lease (flat lease): A lease specifying a fixed amount of rent that is
to be paid periodically,
typically monthly, during the entire term of the lease.
Strip center: Any shopping area comprised of a row of stores but smaller than
a neighborhood center anchored
by a grocery store.
Subcontractor: A contractor working under and being paid by the general
contractor, often a specialist in
nature, such as an electrical contractor, cement contractor, etc.
Sub-lessee: A person or identity to whom the rights of use and occupancy under
a lease have been conveyed,
while the original lessee retains primary responsibility for the obligations
of the lease.
Subordinated classes: With regard to CMBS, describes those classes with the
lowest priority to receive
payments from the underlying mortgage loans.
Subordination: The process of sharing the risk of credit losses
disproportionately among two or more classes
of securities.
Surety: One who voluntarily binds himself to be obligated for the debt or
obligation of another.
Surface rights: A right or easement granted with mineral rights, enabling the
possessor of the mineral rights
to drill or mine through the surface.
Survey: The process by which a parcel is measured and its boundaries and
contents ascertained.
Synthetic lease: A transaction that appears as a lease from an accounting
standpoint but as a loan from a tax
standpoint.
T
Taking: A common synonym for condemnation, or any interference with private
property rights, but it is not
essential that there be physical seizure or appropriation.
Tax base: The assessed valuation of all real property that lies within a
taxing authority's jurisdiction.
When multiplied by the tax rate, it determines the amount of tax due.
Tax lien: A statutory lien for nonpayment of property taxes that attaches only
to the property upon which the
taxes are unpaid.
Tax roll: A list or record containing the descriptions of all land parcels
located within the county, the
names of the owners or those receiving the tax bill, assessed values and tax
amounts.
Tenant (lessee): One who rents real estate from another and holds an estate by
virtue of a lease.
Tenant at will: One who holds possession of premises by permission of the
owner or landlord. The
characteristics of the lease are an uncertain duration and the right of either
party to terminate on proper
notice.
Tenant improvement (TI): Improvements made to the leased premises by or for a
tenant.
Tenant improvement (TI) allowance: Defines the fixed amount of money
contributed by the landlord toward
tenant improvements. The tenant pays any of the costs that exceed this amount.
Tenant mix: A phrase used to describe the quality of a property's income
stream. In multi-tenanted
properties, institutional investors typically prefer a mixture of national
credit tenants, regional credit
tenants and local non-credit tenants.
Term: The lifetime of a loan.
Time-weighted average annual rate of return: The constant annual return over a
series of years that would
compound to the same return as compounding the actual annual returns for each
year in the series.
Title: The means whereby the owner has the just and full possession of real
property.
Title insurance: A policy issued by a title company that insures against loss
resulting from defects of title
to a specifically described parcel of real property, or from the enforcement
of liens existing against it at
the time the title policy is issued.
Title search: A review of all recorded documents affecting a specific piece of
property to determine the
present condition of title.
Total acres: All land area contained within a real estate investment.
Total assets: The sum of all gross investments, cash and equivalents,
receivables, and other assets presented
on the balance sheet.
Total commitment: The full mortgage loan amount that is obligated to be funded
if all stated conditions are
met.
Total inventory: The total square footage of a type of property within a
geographical area, whether vacant or
occupied.
Total principal balance: The total amount of debt, including the original
mortgage amount adjusted for
subsequent fundings, principal payments and other unpaid items (e.g.,
interest) that are allowed to be added
to the principal balance by the mortgage note or by law.
Total retail area: Total floor area of a retail center less common areas. It
is the area from which sales are
generated and includes any department stores or other areas (such as banks,
restaurants or service stations)
not owned by the center.
Total return: The sum of quarterly income and appreciation returns.
Trade fixtures: Personal property that is attached to a structure that is used
in the business. Because this
property is part of the business and not deemed to be part of the real estate,
it is typically removable upon
lease termination.
Tranche: A class of securities. CMBS offerings are generally divided into
rated and unrated classes, or
tranches, according to seniority and risk. Higher-rated tranches allow for
internal credit enhancements;
lower-rated classes offer higher yields.
Triple net lease: A lease that requires the tenant to pay all expenses of the
property being leased in
addition to rent. Typical expenses covered in such a lease include taxes,
insurance, maintenance and
utilities.
Trustee: The trustee oversees the flow of funds through the CMBS structure on
behalf of the bondholders. The
trustee is responsible for collecting principal and interest from the servicer,
distributing payments to
bondholders and reporting to bondholders.
Turn key project: The construction of a project in which a third party is
responsible for the total
completion of a building, or for the construction of tenant improvements to
the customized requirements and
specifications of a future owner or tenant.
U
Under construction: The period of time after construction has started but
before the certificate of occupancy
has been issued.
Under contract: The period of time after a seller has accepted a buyer's offer
to purchase a property and
during which the buyer is able to perform its due diligence and finalize
financing arrangements. During this
time, the seller is precluded from entertaining offers from other buyers.
Underwriter: A company, usually an investment banking firm, that guarantees or
participates in a guarantee
that an entire issue of stocks or bonds will be purchased.
Unencumbered: Property that is free of liens and other encumbrances.
Unimproved land: Most commonly refers to land without improvements or
buildings but also can mean land in its
natural state.
Unrated classes: Typically the most subordinated classes of CMBS.
UPREIT (Umbrella partnership real estate investment trust): Organizational
structure where a REIT's assets
are owned by a holding company for tax purposes.
Usable square footage: The area contained within the demising walls of the
tenant space that equals the net
square footage multiplied by the circulation factor.
Use: The specific purpose for which a parcel or a building is intended to be
used or for which it has been
designed or arranged.
V
Vacancy factor: The amount of gross revenue that pro forma income statements
anticipate will be lost because
of vacancies, often expressed as a percentage of the total rentable square
footage available in a building or
project.
Vacancy rate: The total amount of available space compared to the total
inventory of space and expressed as a
percentage.
Vacant space: Existing tenant space currently being marketed for lease
excluding space available for sublease.
Value-added: A phrase generally used by advisers and managers to describe
investments in under-performing and
/or under-managed assets. The objective is to generate 13 percent to 18 percent
returns.
Variable-rate: A loan interest rate that varies over the term of the loan,
usually tied to a predetermined
index. Also called adjustable-rate.
Variance: Permission that allows a property owner to depart from the literal
requirements of a zoning
ordinance that, because of special circumstances, cause a unique hardship.
Virtual storefront: An online business presence for sales.
W
Waiting period: The time between the initial filing of a registration
statement and its effective date.
Weighted-average coupon: The weighted average of the gross interest rates of
the mortgages underlying a pool
as of the issue date, with the balance of each mortgage used as the weighting
factor.
Weighted-average equity: The denominator of the fraction used to calculate
investment-level income,
appreciation and total returns on a quarterly basis, consisting of net assets
at the beginning of the period
adjusted for weighted contributions and distributions.
Weighted-average rental rates: The average proportion of unequal rental rates
in two or more buildings within
a market.
Working drawings: The set of plans for a building or project that comprise the
contract documents that
indicate the precise manner in which a project is to be built.
Workout: The process by which a borrower attempts to negotiate with a lender
to restructure the borrower's
debt rather than go through foreclosure proceedings.
Write-down: The accounting procedure used when the book value of an asset is
adjusted downward to better
reflect current market value.
Write-off: The accounting procedure used when an asset has been determined to
be uncollectible and is
therefore charged as a loss.
Y
Yield: The effective return on an investment, as paid in dividends or interest.
Yield maintenance premium: A penalty, paid by the borrower, designed to make
investors whole in the event of
early redemption of principal.
Yield spread: The difference in yields between a commercial mortgage and a
benchmark value, typically U.S.
Treasuries of the same maturity.
Z
Zoning: The division of a city or town into zones and the application of
regulations having to do with the
architectural design and structural and intended uses of buildings within such
zones.
Zoning ordinance: The set of laws and regulations controlling the use of land
and construction of
improvements in a given area or zone.
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