Glossary

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.

Broker

A person who acts as an intermediary between two or more parties in connection with a transaction.

Build-to-suit

A method of leasing property whereby the developer/landlord builds to a tenant’s specifications.

Base rent

A set amount used as a minimum rent with provisions for increasing the rent over the term of the lease.

Cash flow

The revenue remaining after all cash expenses are paid.

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.

Deed

A legal instrument transferring title to real property from the seller to the buyer upon the sale of such property.

Design build

A system in which a single entity is responsible for both the design and construction.

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.

Easement

A right created by grant, reservation, agreement, prescription or necessary implication to use someone else’s property.

Eminent domain

A power to acquire by condemnation private property for public use in return for just compensation.

Equity

The residual value of a property beyond mortgage or liability.

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.

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.

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.

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.

Foreclosure

The process by which the trustee or servicer takes over a property from a borrower on behalf of the lender.

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.

Grant

To bestow or transfer an interest in real property by deed or other instrument.

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.

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.

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.

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.

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.

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.

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.

Market value

The highest price a property would command in a competitive and open market under all conditions requisite to a fair sale.

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.

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.

Nominal yield

The yield to investors before adjustments for fees, inflation or risk.

Offer

Term used to describe a stated price or spread to sell whole loans or securities.

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.

Plat

Map of a specific area, such as a subdivision, that shows the boundaries of individual lots together with streets and easements.

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.

Renewal option

A clause giving a tenant the right to extend the term of a lease.

Roll-over risk

The risk that a tenant’s lease will not be renewed.

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.

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.

Tenant (lessee)

One who rents real estate from another and holds an estate by virtue of a lease.

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.

Vacancy rate

The total amount of available space compared to the total inventory of space and expressed as a percentage.

Value-added

A phrase generally used by advisers and managers to describe investments in underperforming and/or under-managed assets. The objective is to generate 13 percent to 18 percent returns.

Yield

The effective return on an investment, as paid in dividends or interest.

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.