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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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