Real Estate Glossary
ACREAGE a 2 dimensional measure of land equaling 160 square rods, 10 square chains, 4,840 square yards, or 43,560 square feet.
ADJUSTABLE RATE MORTGAGE a mortgage with an interest rate that changes periodically, according to an index that is selected when the mortgage is issued. The initial interest rate is lower than that of fixed-rate mortgages, but monthly payments can go up or down as the rate is adjusted.
ADJUSTMENT INTERVAL the period of time between changes in the interest rate for an adjustable-rate mortgage. Typical adjustment intervals are 6 months and one year.
ADMINISTRATOR A person appointed by the probate court to carry out the administration of a decedent’s estate when the decedent has left no will. If a woman is appointed, she is called an administratrix.
AMENITIES in appraisal, the non-monetary benefits derived from property ownership.
AMORTIZATION PERIOD the period or length of time over which the principal portion of a mortgage loan is scheduled to be paid down through periodic payments.
ANCHORED refers to a piece of commercial real estate property, which will have a main (large) tenant in the property.
ANCHORS a long term, credit worthy tenant. The presence of one or more “anchors” enhances the value and the ability to obtain financing for a shopping center.
ANNUAL PERCENTAGE RATE (A.P.R.): The yearly interest percentage of a loan, as expressed by the actual rate of interest paid. For example: 6% add-on interest would be much more than 6% simple interest, even though both would say 6%. The A.P.R. is disclosed as a requirement of federal truth in lending statutes.
ASSESSED VALUE the value a local central appraisal district (CAD), the entity which established values for local taxing authorities, places on a particular real estate property. These values will often be below market value in appreciating markets and above market value in depreciating markets as they typically lag the market.
ASSISTED LIVING type of senior housing that is typified by independent living and limited assistance to its renters.
ASSUMABILITY a mortgage loan which can be transferred to another person without a change in the terms of the loan.
AVAILABLE SF the square feet available for lease.
AVERAGE ANNUAL OCCUPANCY percentage of currently rented units, or square feet, in a building, city, neighborhood or complex.
AVERAGE DAILY RATE a hotel rate used to evaluate the average daily rate of a hotel inclusive of vacancy and seasonality.
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BALLOON PAYMENT one large payment for the remaining principal balance of a mortgage, due at a time specified in the contract.
BASIS POINT (BP) 1/100th of 1% when discussing rates.
BORROWING ENTITY TYPE the legal form under which property is owned.
BRIDGE/SHORT TERM LOAN a short-term or interim loan for borrowers who need more time to find permanent financing or are repositioning a commercial property.
BUILDING PERMIT a document, issued by government regulatory authority that allows a builder to construct or modify a structure.
BUILDING SF the usable square footage of the building.
CAP the maximum, which an adjustable-rate mortgage may increase, regardless of index changes. An interest rate cap limits the amount the interest can change, while a payment cap limits the increase in monthly payment to a specific dollar amount.
CAPITAL EXPENDITURES line items on a profit and loss statement that would not be expensed on an annual basis. This category would include replacement of major building systems, such as roofs, etc.
CAPITALIZATION RATE the ratio of the first year NOI to the asking price (NOI/Asking price). Not the rate of return.
CARVE OUT the definition used for the inclusion of recourse in loan documents for fraud and misrepresentation.
CASH OUT REFINANCING when the principal amount of a new mortgage involved in refinancing is greater than the principal amount outstanding of the existing mortgage being refinanced, and all or a portion of the equity is converted to cash.
CENTRAL BUSINESS DISTRICT (CBD) the downtown section of a city, generally consisting of retail, office, hotel, entertainment, and government land uses with some high-density housing.
CLEARANCE the distance between the building’s floor and effective storage ceiling.
CLIMATE CONTROLLED an industrial and self-storage term that represents temperature controlled commercial space.
CLOSING the meeting between the buyer, seller and lender (or their agents) where the property and funds legally change hands.
CLOSING COSTS the costs and fees associated with the official change in ownership of the property and with obtaining the mortgage, that is assessed at the closing.
CMBS (Commercial Mortgage Backed Security) %u2013 a bond or other financial obligation secured by a pool of mortgage loans.
COFI (Cost of Funds Index) index used to determine interest rate changes for adjustable rate mortgages. It is based on the cost of funds of the 11th District of the Federal Home Loan Bank.
COMMERCIAL LAND development and transitional land acquired for investment use: land for lots, site selection and assemblage of parcels.
COMPARATIVE MARKET ANALYSIS an estimate of the value of a property based on an analysis of sales of properties with similar characteristics.
CONDUIT the financial intermediary that sponsors the conduit between the lender(s) originating loans and the ultimate investor. The conduit makes or purchases loans from third party correspondents under standardized terms, underwriting and documents and then, when sufficient volume has been obtained, pools the loans for sale to investors in the CMBS market.
CONGREGATE CARE a type of senior housing that typified by a central eating facility, smaller rooms, and a higher level of care for its tenants.
CONSTANT MATURITY TREASURE (CMT) an index based on the U.S. Treasury that is used in the pricing of debt for banks.
CONSTRUCTION LOAN a short term loan to pay for the construction of commercial buildings. These loans typically provide periodic disbursements to the builder as each stage of the building is completed. When construction is completed a take-out or permanent loan is used to pay off the construction loan.
CONSTRUCTION TYPE the type of construction used for a commercial building, (i.e. concrete tilt-up, etc.).
CONTINGENCY an element of an agreement that must be satisfied before the total agreement can be consummated.
CREDIT TENANT a tenant, who has obtained a debt rating by S&P or Moody%u2019s of “BBB-” or better.
DEBT SERVICE the periodic payments (principal and interest) made on a loan.
DEBT SERVICE COVERAGE RATIO (DSCR),or DEBT COVERAGE RATIO (DCR) measures a mortgaged propertys ability to cover monthly payments defined as the ratio of net operating income over the periodic payments (principal and interest) made on a loan. A DSCR of less than 1.0 means that there is insufficient cash flow generated by the property to cover required debt payments.
DEFEASANCE a clause in a mortgage that gives the borrower the right to prepay a commercial mortgage by purchasing US Treasuries in an escrow account to pay off ongoing debt service.
DENSITY the number of buildings or persons occupying a certain area of land, generally an acre.
DISCOUNT RATE the rate of interest that the Federal Reserve charges member banks for loans.
DISTRIBUTION WAREHOUSE (also called Light Industrial) – generally the least intense industrial use. Office use is limited to management tasks for the distribution or warehouse facility, or about 15 percent of total space.
DUE DILIGENCE the legal definition: a measure of prudence, activity or assiduity, as is properly to be expected from, and ordinarily exercised by, a reasonable and prudent person under the particular circumstances. In CMBS due diligence is the foundation of the process because of the reliance securities investors must place on the specific expertise of the professionals involved in the transaction.
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EFFECTIVE GROSS INCOME gross income of a building if fully rented, less an allowance for estimated vacancies.
ENTITLEMENTS a right to benefits specified especially by law or contract.
ENVIRONMENTAL REPORT report generated by qualified environmental firms to determine potential environmental hazards in a building%u2019s region or within the building itself or on and in the area of a piece of raw land.
ENVIRONMENTAL RISK risk of loss of collateral value and of lender liability due to the presence of hazardous materials, such as asbestos, PCB%u2019s, radon or leaking underground storage tanks (LUSTS) on a property.
EQUITY the difference between the fair market value and current indebtedness, also referred to as ”owners interest.”
EQUITY LOAN a loan for an equity position which represents an ownership position in a property or a loan for the participation in the profits of the commercial property
ESCROW 1. A special account set up by the lender in which money is held to pay for taxes and insurance. 2. A third party who carries out the instructions of both the buyer and seller to handle the paperwork at the settlement.
FEDERAL FUNDS (FED FUNDS) Fed Funds is the interest rate charged by those banks with excess reserves on hand (reserves over and above the minimum required by the Federal Reserve) to those banks in need of overnight loans to meet reserve requirements. Since it is set daily, the Federal Funds rate is the most sensitive indicator of the direction of interest rates.
FINISH OUT tenant improvements within a commercial property.
FLOOR TO AREA RATIO (FAR) the relationship between the total amount of floor space in a multi story building and the base of that building. FARs are dictated by zoning laws, in effect, stipulate the maximum number of stories a building may have.
FREESTANDING RETAIL a building which contains only one retail business. Fast-food franchises and retail stores are often freestanding buildings.
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GENERAL PARTNERSHIP in a partnership, a partner whose liability is not limited. All partners in an ordinary partnership are general partners. A limited partnership must have at least one general partner.
GOOD FAITH DEPOSIT a deposit made by a purchaser of real estate to evidence an honesty.
INDEX an economic indicator, usually a published interest rate.
INTEREST RATE the sum charged for borrowing money, expressed as a percentage
INTEREST RATE CAP limits the interest rate or the interest rate adjustment to a specified maximum. This protects the borrower from increasing interest rates.
JOINT VENTURE an agreement by two or more individuals or entities to engage in a single project or undertaking. Joint ventures are used in real estate development as a means of raising capital and spreading risk. For all practical purposes a joint venture is similar to a general partnership. However, once the purpose of the joint venture has been accomplished, the entity ceases to exist.
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LEASE ASSIGNMENT an agreement between the commercial property owner and the lender that assigns lease payments directly to the lender.
LEASE TYPE Gross, Triple Net (NNN), Net Net (NN), Hybrid, etc.
LEASEHOLD IMPROVEMENTS the cost of improvements for a leased property, often paid by the tenant.
LIBOR (London Interbank Offered Rate) the rate that the most creditworthy international banks dealing in Eurodollars charge each other for large loans. Rates are quoted in monthly increments out to 1 year.
LIMITED LIABILITY COMPANY (LLC) the restriction of one%u2019s potential losses to the amount invested. The absence of personal liability. Provided to stockholders in a corporation and limited partners of a limited partnership.
LIMITED PARTNERSHIP one in which there is at least one partner who is passive and limits liability to the amount invested, and at least one partner whose liability extends beyond monetary investment.
LOAN PROCESSING FEE the fee charged by a lender, to handle the logistics of due diligence and closing the loan or mortgage.
LOAN TO VALUE RATIO (LTV) the ratio between the principal amount of a real estate loan, at origination or thereafter, to the current value of the underlying real estate collateral. The ratio is commonly expressed to a potential borrower as the percentage of value a lending institution is willing to finance. The ratio is dynamic, and varies by lending institution, property type, geographic location, property size, etc.
LOCK OUT PERIOD a period of time after loan origination during which a borrower cannot prepay the mortgage loan.
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MARGIN the amount that is added to an index rate to determine the total interest rate.
MAT Monthly Average Treasury
MATURITY 1. The termination period of a note (e.g., a 25-year mortgage has maturity of 25 years.) 2. In sales law, the date a note becomes due.
MEZZANINE LOAN a loan secured by a mortgage or trust deed, in which the lien is junior, or secondary, to another mortgage or trust deed.
MIXED USE a real estate development that contains two or more different uses all intended to be harmonious and complementary. An example would include a high-rise building with retail shops on the first two floors, office space on floors three through ten, apartments on the next ten floors, and a restaurant on the top floor.
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NEIGHBORHOOD CENTER (including Community Center) a shopping center anchored by a supermarket and/or drugstore, that provides convenience goods and services to a neighborhood. It is usually between 30,000 %u2013 100,000 square feet, and draws from a one to three mile radius.
NET EFFECTIVE RENT rental rate adjusted for lease concessions.
NET OPERATING INCOME (NOI) total income less operating expenses, adjustments, etc., but before mortgage payments, tenant improvements, leasing commissions, or any capital expenditures.
NET%u2013NET LEASE (NN) usually requires the tenant to pay for property taxes and insurance in addition to the rent.
NOTICE OF DEFAULT (NOD) to initiate a non-judicial foreclosure proceeding involving a public sale of the real property securing the deed of trust. The trustee under the deed of trust records a Notice of Default and Election to Sell (“NOD”) the real property collateral in the public records.
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PERCENTAGE LEASE commonly used for large retail stores. Rent payments include a minimum or ”base rent” plus a percentage of the gross sales “overage.” Percentages generally vary from 1% to 6% of the gross sales depending on the type of store and sales volume.
PHASE I ENVIRONMENTAL REPORT an assessment and report prepared by a professional environmental consultant who reviews the property both land and improvements to ascertain the presence or potential presence of environmental hazards at the property, such as underground water contamination, PCBs, abandoned disposal of paints and other chemicals, asbestos and a wide range of other potentially damaging materials. This Environmental Site Assessment (ESA) provides a review and makes a recommendation as to whether further investigation is warranted (a Phase II Environmental Site Assessment). This latter report would confirm or disavow the presence of an environmental hazard and, should one be found, will recommend additional review and/or mitigation efforts that should be undertaken.
POINTS (LOAN DISCOUNT POINTS) each point is equal to 1% of the total amount of a mortgage.
POTENTIAL GROSS RENT gross income of a building if fully rented.
PRE LEASED % to obtain lease commitments in a building or complex prior to its being available for occupancy.
PREPAYMENT PENALTY fees paid by borrowers for the privilege of retiring a loan early.
PRO FORMA (from Latin pro forma, “according to form”). financial statements showing what is expected to occur.
PROPERTY SUBTYPE a property description that provides additional information to the lender.
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RATE INDEX an index used to adjust the interest rate of an adjustable mortgage loan (e.g., the change in U.S. Treasury securities (T-Bills) with 1-year maturity. The weekly average yield on said securities, adjusted to a constant maturity of 1 year, which is the result of weekly sales, may be obtained weekly from the Federal Reserve Statistical Release H.15 (519). This change in interest rates is the “index” for the change in a specific Adjustable Mortgage Loan).
RECOURSE personal liability.
RENT ROLL a list of tenants leasing a property, which details terms of lease, area leased, and the amount of rent being paid.
RENT STEP UP a lease agreement in which the rent increases every period for a fixed amount of time or for the life of the lease.
RENTABLE SQUARE FEET (same as Net Leasable Area) in a building or project, floor space that may be rented to tenants. The area upon which rental payments are based. Generally excludes common areas and space devoted to the heating, cooling, and other equipment of a building.
REPLACEMENT RESERVES an amount set aside from net operating income to pay for the eventual wearing out of short-lived assets. Monthly deposits that a lender may require a borrower to a reserve in an account, along with principal and interest payments for future capital improvements of major building systems; i.e., HVAC, parking lot, carpets, roof, etc.
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SECONDARY MORTGAGE MARKET the buying and selling of first mortgages or trust deeds by banks, insurance companies, government agencies, and other mortgages. This enables lenders to keep an adequate supply of money for new loans. The mortgages may be sold at full value (“par”) or above, but are usually sold at a discount. Not to be confused with a “second mortgage.”
SHADOW ANCHORED a unanchored shopping center located near an anchored shopping center.
SPREAD number of basis points over a base rate index.
STRIP CENTER a string of stores in a commercial area, totaling less than 30,000 square feet, without central leasing, management, or theme.
STRUCTURAL/ENGINEERING REPORT a property Condition Report that outlines the current structural stability or instability of a property. The report will outline immediate costs needed to repair the property, as well as a maintenance program to maintain the property at its current status.
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TAX & INSURANCE IMPOUND monthly deposits that a lender may require to be included with principal and interest payments for the payment of taxes and insurance.
TENANT one who is given possession of real estate for a fixed period or at will.
TENANT IMPROVEMENTS (TI) the expense to physically improve the property to attract new tenants to new or vacated space which may include new improvements or remodeling. May be paid by tenant, landlord, or both. Typically, tenants are provided with a market rate TI allowance ($/sq. ft.) that the owner will contribute towards improvements. The tenant must pay for amounts above the TI allowance desired by the tenant.
TERM the length of a mortgage.
THIRD PARTY COSTS 3 costs resulting from third party reports, whether it be appraisal reports,
environmental reports or structural engineering reports.
TRIPLE%u2013NET LEASE (NNN) a lease that requires the tenant to pay for property taxes, insurance and maintenance in addition to the rent (also referred to as “Net Net Net Lease”).
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U.S. TREASURY BILL Treasury Bills, or T-Bills, are short term securities with maturities of up to one year. They are issued by the U.S. Government at a discount from face value. The price is quoted in yield, not dollars. At maturity, T-Bills are redeemed for full face value. T-bills are issued in three month, six month and 1 year maturities and are backed by the full faith and credit of the U.S. Government.
U.S. TREASURY BOND Treasury Bonds are long-term securities with maturities greater than 10 years. Treasury bonds are coupon bearing securities that pay interest on a semiannual basis. Treasury bonds are backed by the full faith and credit of the U.S. Government.
U.S. TREASURY NOTE Treasury Notes are intermediate term securities issued with 2, 3, 5, and 10 year maturities. Treasury notes are coupon bearing securities that pay interest on a semiannual basis. Treasury notes are backed by the full faith and credit of the U.S. Government.
UNANCHORED a tenant in a shopping center, which doesn’t have an anchored tenant.
UNDERWRITING the process of deciding whether to make a loan based on property cash flow, credit, and/or other factors.
YIELD the rate of return on a security, taking into consideration annual interest payments, purchase price, redemption value, and the time remaining until maturity.
YIELD MAINTENANCE a prepayment premium that allows investors to attain the same yield as if the borrower made all scheduled mortgage payments until maturity. Yield maintenance premiums are designed to make investors indifferent to prepayments and to make refinancing unattractive and uneconomical to borrowers.
YIELD TO AVERAGE LIFE yield calculation used, in lieu of “Yield to Maturity” or “Yield to Call,” where books are retired systematically during the life of the issue, as in the case of a “Sinking Fund,” with contractual requirements. Because the issuer will buy its own bonds on the open market to satisfy its sinking fund requirements if the bonds are trading below Par, there is, to that extent, automatic price support for such bonds; they therefore tend to trade on a yield-to-average-life basis.
YIELD TO MATURITY (YTM) concepts used to determine the rate of return an investor will receive if a long-term, interest-bearing investment, such as a bond, is held to its maturity date. It takes into account purchase price, redemption value, time to maturity, coupon yield and the time between interest payments. Recognizing time value of money, it is the discount rate at which the present value of all future payments would equal the present price of the bond (also referred to as “internal rate of return”). It is implicitly assumed that coupons are reinvested at the YTM rate. YTM can be approximated using a bond value table (also referred to as a “bond yield table”) or can be determined using a programmable calculator equipped for bond mathematics calculations.