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
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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
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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: The rate at which net operating income is
discounted to determine the value of a property. It is the net
operating income divided by the sales price or 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
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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): The annual net operating income
from a property divided by annual cost of debt service. A DSCR
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
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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
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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.
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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 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
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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
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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.
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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)
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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.
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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.
Developed in 1959 by Harry Markowitz, 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
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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 a key
indicator of financial strength.
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
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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 underperforming and/or
undermanaged 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
Overallotment: A practice through which underwriters offer
and sell more shares than they have agreed to buy from the
issuer
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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.
Preleased: 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
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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
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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
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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.
Sublessee: 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
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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
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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
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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 underperforming and/or undermanaged 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
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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
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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
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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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