CRE Glossary

156 essential terms every commercial real estate investor should know

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1031 Exchange

A 1031 exchange (also called a like-kind exchange) is a tax-deferral strategy under IRS Section 1031 that allows investors to sell an investment prope...

Absorption Rate

Absorption rate is a key metric used in the commercial real estate industry to measure the rate at which available space in a market is leased or sold...

Ad Valorem

Ad valorem is a Latin term that translates to \"according to value.\" In the context of commercial transactions, ad valorem refers to a type of tax or...

Anchor Store

An anchor store is a large retail store, typically a department store or major chain store, that is strategically located in a shopping center or mall...

Anchor Tenant

An anchor tenant is a prominent and high-profile retailer or business that occupies a large space within a commercial property, such as a shopping mal...

Annual Debt Service (ADS)

Annual Debt Service (ADS) refers to the total amount of principal and interest payments that a company is required to make on its outstanding debt obl...

Appraisal

An appraisal is a formal evaluation or assessment of the value, quality, or condition of a property, asset, or business.

Assessed Value

Assessed Value is the value assigned to a property by a local government for the purpose of determining property taxes.

Assessor

An Assessor is a commercial professional responsible for evaluating and determining the value of various assets, properties, or businesses for taxatio...

Absolute NNN Lease

An Absolute NNN (triple net) lease is the most landlord-favorable lease structure where the tenant is responsible for all property expenses including ...

Amortization Schedule

An amortization schedule is a table showing the breakdown of each mortgage payment into principal and interest over the life of the loan, along with t...

Balloon Payment

A balloon payment is a large, lump sum payment that is typically due at the end of a loan term.

Brownfield

A Brownfield is a property, typically an industrial or commercial site, that is potentially contaminated by hazardous substances or pollutants.

Build to Core

Build to Core is a commercial real estate strategy that involves constructing a property specifically tailored to the needs and requirements of a part...

Build-to-Suit

Build-to-Suit is a commercial real estate development approach in which a developer constructs a new building or facility to meet the specific needs a...

Building Envelope

A building envelope refers to the physical barrier that separates the interior environment of a building from the external environment.

Building Systems

Building Systems refer to the integrated network of mechanical, electrical, plumbing, and structural components that work together to ensure the effic...

Basis Point (bps)

A basis point (bps) is a unit of measure equal to 1/100th of a percentage point (0.01%). It is the standard unit for measuring changes in interest rat...

B-Piece Buyer

A B-piece buyer is an investor who purchases the riskiest, lowest-rated tranche (the 'B-piece') of a CMBS securitization, taking the first-loss positi...

Cap Rate

In simple terms, the cap rate, short for capitalization rate, is a measure used to evaluate the potential return on investment (ROI) of a property.

CapEx Reserve

A CapEx Reserve is a designated pool of funds set aside by a company for the purpose of financing future capital expenditures.

Capital Expenditure (CapEx)

Capital Expenditure (CapEx) refers to the funds used by a company to acquire, upgrade, or maintain physical assets such as property, buildings, equipm...

Cash Flow (CF)

Cash flow (CF) refers to the amount of cash that is generated or consumed by a business over a specific period of time.

Cash-on-Cash

Cash-on-Cash is a financial metric used in commercial real estate to measure the return on investment for a property.

CERCLA

The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), also known as Superfund, is a federal law enacted in 1980 to addre...

Certificate of Occupancy (CO)

A Certificate of Occupancy (CO) is a document issued by a local government authority or building department certifying that a building or structure co...

CMBS

Commercial Mortgage-Backed Securities (CMBS) are a type of fixed-income security that is backed by a pool of commercial real estate loans.

Co-tenancy

Co-tenancy is a contractual agreement between two or more tenants sharing a commercial space, typically in a shopping center or office building.

Cold Dark Shell Lease

A Cold Dark Shell Lease refers to a commercial real estate lease agreement where the property is delivered to the tenant in a 'cold,' 'dark,' and 'she...

Commercial Mortgage Backed Securities (CMBS)

Commercial Mortgage Backed Securities (CMBS) are a type of fixed-income investment that is backed by a pool of commercial real estate mortgages.

Comparable Sales

Comparable sales, also known as \"comps,\" refer to recent sales of similar properties in the same area that are used to determine the market value of...

Concession

A concession is a contractual agreement between two parties in which one party (the concessionaire) is granted the right to operate a business or prov...

Core-Plus

Core-Plus is a commercial real estate investment strategy that combines a core investment approach with value-add opportunities.

Cost Approach

The Cost Approach is a method used in real estate appraisal to determine the value of a property by estimating the cost of reproducing or replacing th...

Covenant

A covenant is a legally binding agreement between two or more parties that outlines the terms and conditions of a commercial transaction or relationsh...

Cross Default

Cross default is a provision in a commercial contract that allows a lender to declare a default on a loan if the borrower defaults on another loan or ...

Cross-Collateralization

Cross-collateralization is a financial strategy in which multiple assets or properties are used as collateral for a single loan.

Curable Defect

A curable defect is a flaw or issue in a product or service that can be easily corrected or resolved through appropriate measures.

Cap Rate Compression

Cap rate compression occurs when capitalization rates decrease over time, typically driven by high investor demand, low interest rates, or a flight to...

Credit Tenant

A credit tenant is a lessee with an investment-grade credit rating (BBB-/Baa3 or higher) from a major rating agency (S&P, Moody's, Fitch), indicating ...

Dark Store

A dark store is a retail facility that operates solely for the purpose of fulfilling online orders, rather than serving walk-in customers.

Debt Coverage Ratio (DCR)

Debt Coverage Ratio (DCR) is a financial metric used to evaluate the ability of a company to generate enough income to cover its debt obligations.

Debt Yield Ratio

The Debt Yield Ratio is a financial metric used by lenders to assess the risk associated with a potential commercial real estate loan.

Deferred Maintenance

Deferred maintenance refers to the practice of postponing necessary repairs, upgrades, or replacements of equipment, facilities, or infrastructure in ...

Demographic Analysis

Demographic analysis is a research method used by commercial professionals to gather and analyze data related to specific population characteristics, ...

Depreciation

Depreciation is the gradual decrease in the value of an asset over time due to wear and tear, obsolescence, or other factors.

Development Cost

Development Cost refers to the total expenses incurred during the planning, design, construction, and completion of a commercial project.

Distressed Property

A distressed property refers to a real estate asset that is in poor physical condition or facing financial difficulties, typically resulting in a belo...

Double net leases

When it comes to commercial real estate leases, there are several different types that landlords and tenants can enter into.

DSCR

Debt Service Coverage Ratio (DSCR) is a financial metric used by lenders to assess the ability of a company to cover its debt obligations.

Due Diligence

Due diligence is the comprehensive assessment and investigation of a company or individual before entering into a business transaction.

Due Diligence Period

A Due Diligence Period is a specified timeframe during a commercial transaction in which the buyer has the opportunity to conduct a thorough investiga...

Debt Fund

A debt fund is a private investment vehicle that provides commercial real estate financing — typically bridge loans, mezzanine debt, or preferred equi...

Defeasance

Defeasance is a method of prepaying a commercial mortgage (commonly CMBS loans) by substituting the loan's collateral with a portfolio of government s...

Delaware Statutory Trust (DST)

A Delaware Statutory Trust (DST) is a legal entity used for real estate investment that allows multiple investors to hold fractional ownership interes...

Easement

An easement is a legal right granted to a person or entity to use a specific portion of another person's property for a specific purpose.

Effective Gross Rental Income (EGI)

Effective Gross Rental Income (EGI) is the total income generated from a rental property after accounting for vacancies and credit losses.

Encumbrance

An encumbrance is a legal claim or restriction on a property that limits the owner's ability to transfer or use the property.

Environmental Impact Study

An Environmental Impact Study is a comprehensive analysis that evaluates the potential environmental effects of a proposed project, development, or ac...

Environmental Site Assessment (ESA)

An Environmental Site Assessment (ESA) is a comprehensive evaluation conducted by environmental professionals to identify potential or existing enviro...

Equity

Equity refers to the value of an individual's ownership interest in a business or property.

Escalation

Escalation refers to the process of increasing the level or intensity of a situation, typically due to unresolved issues or conflicts.

Escalation Clause

An escalation clause is a provision in a contract that allows for the price of goods or services to increase under certain specified conditions, typic...

Escrow

Escrow is a financial arrangement where a third party holds and regulates payment of the funds required for two parties involved in a transaction.

Exclusive Use

Exclusive use refers to a contractual agreement in which a specific space, product, or service is reserved solely for the use of a single individual o...

Exclusive-Use Clause

An exclusive-use clause in a commercial lease grants a tenant the exclusive right to engage in a specific type of business or provide certain goods or...

Exit Strategy

An exit strategy is a predetermined plan outlining how a business owner or investor intends to sell, transfer, or otherwise exit their investment in a...

Expansion Rights

Expansion rights are a crucial aspect of real estate that can significantly impact the value and potential of a property.

Fair Market Rent

Fair Market Rent (FMR) is the amount of rent that would be charged for a property in a given location, assuming a willing landlord and a willing tenan...

Feasibility Study

A feasibility study is a comprehensive analysis and evaluation of a proposed project or business venture to determine its potential for success.

Floor Area Ratio (FAR)

Floor Area Ratio (FAR) is a zoning regulation that determines the maximum allowable floor area of a building in relation to the size of the lot on whi...

Foreclosure Auction

A foreclosure auction is a public sale of a property that has been repossessed by a lender due to the owner's failure to make mortgage payments.

Franchise Agreement

A Franchise Agreement is a legally binding contract between a franchisor (the owner of a business concept) and a franchisee (an individual or entity l...

Going Concern

A going concern refers to a business entity that is considered to have the financial resources, operational capabilities, and management expertise nec...

Gross Potential Rent

Gross Potential Rent refers to the total amount of rental income that a property could generate if all units were fully occupied and all tenants paid ...

Ground Lease

A ground lease is a type of lease agreement in which a tenant is granted the right to use and develop a piece of land for a specified period of time.

Hard Costs

Hard costs refer to the direct, tangible expenses incurred during the construction or development of a commercial project.

Highest and Best Use

Highest and Best Use is a concept in real estate appraisal that refers to the most profitable and advantageous use of a property that is physically po...

Impairment

Impairment refers to a decrease in the value of an asset or investment due to a significant and unexpected decline in its market value or the asset's ...

Incentive Zoning

Incentive zoning is a planning and development tool that allows developers to increase the intensity or density of their projects in exchange for prov...

Indemnity

Indemnity is a legal agreement in which one party agrees to compensate another party for any losses or damages that may occur as a result of a specifi...

Infrastructure

Infrastructure refers to the physical and organizational structures that support the functioning of a business or society.

Institutional Investor

An institutional investor is a large organization or entity that invests substantial sums of money in various financial markets, such as pension funds...

Internal Rate of Return (IRR)

Internal rate of return, or IRR, is an important commercial real estate metric representative of the annual rate of growth expected to be generated by...

Investment-Grade Rating

An investment-grade rating is a credit rating of BBB-/Baa3 or higher assigned by major rating agencies (S&P, Moody's, Fitch), indicating that a compan...

Land Banking

Land banking is a strategic investment approach in which individuals or companies acquire large parcels of undeveloped land with the intention of hold...

Lease Commencement Date

The Lease Commencement Date refers to the official start date of a lease agreement between a landlord and a tenant.

Leasehold Interest

A leasehold interest refers to the rights and privileges granted to a tenant or lessee by the owner of a property through a lease agreement.

Lessee

A lessee is an individual or entity that enters into a lease agreement with a lessor to rent or lease a property, asset, or equipment for a specified ...

Lessor

A lessor is an individual or entity that owns and leases out property to another party in exchange for payment of rent.

Letter of Intent (LOI)

A Letter of Intent (LOI) is a formal document outlining the preliminary agreement between two or more parties regarding a potential business transacti...

Loan-to-Value (LTV)

Loan-to-Value (LTV) is a financial metric used by lenders to assess the risk of a loan by comparing the amount of the loan to the appraised value of t...

Loan-to-Value (LTV) Ratio

The Loan-to-Value (LTV) Ratio is a financial metric used by lenders to assess the risk of a loan by comparing the amount of the loan to the appraised ...

Make-Whole Call

A make-whole call provision is a feature of a bond or other debt instrument that allows the issuer to redeem the security before its maturity date by ...

Market Rent

Market rent is the current rental rate that a property can command in the open market, based on factors such as location, size, condition, and demand.

Master Lease

A master lease is a contractual agreement between a landlord and a tenant in which the tenant assumes responsibility for leasing and managing multiple...

Mezzanine Financing

Mezzanine financing is a type of funding that sits between equity and debt on a company's capital structure.

Mixed-Use

Mixed-use refers to a type of development that combines multiple uses within a single building or complex, typically incorporating a mix of residentia...

Modified gross lease

When it comes to leasing commercial real estate, there are several different types of lease agreements that landlords and tenants can enter into.

Maturity Wall

The maturity wall refers to a large concentration of commercial real estate loans coming due for refinancing within a short time period, creating pote...

Mortgage Constant

The mortgage constant (also called the loan constant) is the annual debt service expressed as a percentage of the total loan amount. It represents the...

Net Effective Rent

Net Effective Rent is the actual amount of rent that a tenant pays after factoring in any concessions or incentives offered by the landlord.

Net Lease

A net lease is a type of commercial lease agreement in which the tenant is responsible for paying a base rent as well as additional expenses such as p...

Net Lease Cap Rates

As a commercial property owner, understanding net lease cap rates is essential to maximizing the value of your investment.

Net Operating Income (NOI)

Net operating income (NOI) is the most widely used performance metric in commercial real estate.

NNN

NNN stands for Triple Net Lease, a type of lease agreement where the tenant is responsible for paying all property expenses in addition to the rent.

Non-Recourse Loan

A non-recourse loan is a type of loan that is secured by collateral, typically real estate, but in the event of default, the lender can only seize the...

Operating Covenant

An operating covenant is a legally binding agreement that outlines the operational requirements and restrictions that a company must adhere to in orde...

Operating Expenses - OPEX

Operating expenses are a crucial aspect of running a successful business.

Operating Statement

An Operating Statement, also known as an Income Statement, is a financial document that provides a detailed summary of a company's revenues, expenses,...

Opportunity Cost

Opportunity cost refers to the potential benefits or profits that are foregone when a decision is made to pursue a particular course of action, rather...

Option Period

An option period is a specified period of time during which a buyer has the exclusive right to terminate a contract to purchase a property without pen...

Overbuilding

Overbuilding refers to the construction of an excessive amount of commercial or residential properties in a particular area, resulting in an oversuppl...

Pari Passu

Pari Passu is a Latin term that means \"equal footing\" and is used in commercial contexts to describe a situation where two or more parties have equa...

Participating Mortgage

A participating mortgage is a type of loan agreement in which the lender receives a share of the profits generated by the property being financed, in ...

Pass-through Expenses

Pass-through expenses refer to costs incurred by a business that are directly passed on to customers or clients.

Physical Due Diligence

Physical due diligence is a comprehensive assessment and analysis of the physical condition and attributes of a commercial property.

Positive Amortization

Positive amortization refers to a loan repayment structure in which the borrower's monthly payments are higher than the interest accrued on the loan.

PUD

PUD, or Planned Unit Development, is a type of real estate development where a parcel of land is planned and developed as a single entity.

Positive Leverage

Positive leverage occurs when the return on the total property investment (cap rate) exceeds the cost of debt (mortgage constant), meaning borrowed mo...

Qualified Opportunity Zone (QOZ)

A Qualified Opportunity Zone (QOZ) is a designated economically distressed community where new investments may be eligible for preferential tax treatm...

Recourse Loan

A recourse loan is a type of loan in which the lender has the right to pursue the borrower's assets and income in the event of default.

Redevelopment

Redevelopment refers to the process of revitalizing and improving existing properties or areas in order to enhance their functionality, aesthetics, an...

Rent Escalation

Rent escalation is a provision in a commercial lease agreement that allows for the rent amount to increase over time.

Repositioning

Repositioning is a strategic marketing technique used to change the perception of a product, service, or brand in the minds of consumers.

Restrictive Covenant

A restrictive covenant is a legal agreement between parties, typically in the context of a commercial transaction, where one party agrees to refrain f...

Right of First Offer (ROFO)

Right of First Offer (ROFO) is a contractual agreement between a property owner and a potential buyer, giving the buyer the first opportunity to purch...

Right to Quiet Enjoyment Clause in Commercial Leases

In a commercial lease, the \"right to quiet enjoyment\" refers to a tenant's right to use and enjoy the leased premises for their intended business pu...

ROFR

A Right of First Refusal (ROFR) is a contractual provision that gives a party the opportunity to enter into a transaction or agreement before it is of...

Rent Escalator

A rent escalator is a clause in a commercial lease that provides for periodic increases in base rent over the lease term, protecting the landlord's in...

Sale-Leaseback

A sale-leaseback is a financial transaction in which a company sells an asset, typically real estate, to a buyer and then immediately leases the asset...

Security Deposit

A security deposit in a commercial lease is a sum of money paid by the tenant to the landlord or property owner at the start of the lease term.

Single Net lease

A single net lease, also known as a net lease or a net-net-net lease, is a type of commercial lease in which the tenant is responsible for paying a po...

Site Assessment

Site assessment is a crucial process in the commercial industry that involves evaluating a property or location to determine its suitability for a spe...

Soft Costs

Soft costs refer to expenses incurred during a commercial project that are not directly related to physical construction or materials.

Special Purpose Property

Special Purpose Property refers to a type of commercial real estate that is designed and built for a specific, unique use.

Stabilized Asset

A stabilized asset refers to a property or investment that has reached a level of consistent and predictable performance, typically in terms of occupa...

Sublease

A sublease is a legal agreement in which a tenant rents out all or part of a rented property to another party, known as the subtenant.

Subordination

Subordination refers to the act of placing a lower priority or ranking on a particular debt or claim in favor of another debt or claim.

Syndication

Syndication refers to the process of licensing content, such as articles, videos, or television shows, to be distributed and broadcasted by multiple m...

SASB (Single-Asset Single-Borrower)

A SASB (Single-Asset Single-Borrower) is a type of CMBS securitization backed by a single large commercial property or portfolio from one borrower, as...

Spread (Cap Rate Spread)

The cap rate spread is the difference between NNN cap rates and a benchmark risk-free rate (typically the 10-year U.S. Treasury yield), representing t...

Stepped-Up Basis

A stepped-up basis is a tax provision where the cost basis of an inherited asset is adjusted ('stepped up') to its fair market value at the date of th...

Tenant Improvement (TI)

Tenant Improvement (TI) refers to the process of customizing or renovating a commercial space to meet the specific needs and requirements of a tenant.

Tenant Improvement Allowance

When it comes to leasing a commercial space, negotiating a tenant improvement allowance can be a game-changer for businesses looking to create a space...

Tenants Right to Due Process

The \"right to due process\" in the context of a commercial lease refers to the fundamental principle that tenants are entitled to fair treatment and ...

Title Insurance

Title insurance is a form of indemnity insurance that protects real estate owners and lenders against financial loss due to defects in a property's ti...

Trade fixtures

Trade fixtures are an essential component of any business, yet many business owners may not fully understand their importance or how to properly utili...

Turnkey

Turnkey refers to a product or service that is fully completed and ready for immediate use or operation.

Tenant-in-Common (TIC)

A Tenant-in-Common (TIC) is a form of co-ownership where two or more investors each hold an undivided fractional interest in the same property, with e...

Underperforming Property

An underperforming property is a real estate asset that is not meeting its full potential in terms of generating income or achieving market value.

Underwriting

Underwriting is the process by which a financial institution evaluates the risk of insuring or lending to an individual or entity.

Vacancy Loss

Vacancy loss refers to the revenue that is lost when a commercial property is unoccupied and not generating rental income.

Value-Add

Value-Add refers to the process of enhancing a product or service in a way that increases its overall worth or utility to the customer.

Yield

Yield refers to the return on an investment, typically expressed as a percentage, that is generated by an asset over a specific period of time.

Yield Maintenance

Yield maintenance is a prepayment penalty that is typically associated with commercial real estate loans.