CRE Library

Definitions of commercial real estate industry terms.


Absorption rate

The rate at which leasable space is filled.  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 account vacancies that occurred during the period.

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.


Payments made by the servicer when the borrower fails to make a payment.


A broker, consultant or investment banker who represents an investor in a transaction. Advisers may be paid a retainer and/or a performance fee upon the close of a financing or sales transaction.


Amortization, for tax purposes is the periodic deduction of capitalized expenses such as organization costs.


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.


An estimate of a property’s fair market value that is typically based on replacement cost.


An increase in the value of an asset.


Arbitrage means buying an asset in one location where it’s cheap, then immediately turning around and selling it in a place where it commands a higher price.

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 in real estate is the setting of a value on property, usually for the purpose of calculating real property taxes.  Values can also be adjusted due to a change in the physical nature of the property such as building permit additions or demolitions. The assessed value is multiplied by the tax rate to determine the annual tax bill.

Rent Abatement

Free rental period that occurs outside or in addition to the lease terms.

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Balloon loan

A loan with a maturity that is shorter than the amortization period.


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 rent

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

Basis point

One hundredth of one percent, used chiefly in expressing differences of interest rates.


Any structure or portion of a structure located underground or below the surface grade of the surrounding land.

Blind pool

A commingled fund accepting investor capital without prior specification of property assets.


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


Space improvements put in place per the tenant’s specifications. Takes into consideration the amount of tenant allowance provided for in the lease agreement.

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.

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Cap Rate (Capitalization Rate)

A property’s cap rate is the net operating income divided by the sales price or value of a property expressed as a percentage.

Capital Appreciation

The change in the property’s or portfolio’s market value when adjusted for capital improvements

Capital Expenditures

Investment of cash to acquire or improve an asset.  This differs from expenses that are that are considered part of normal operations.

Capital Gains

The amount by which net proceeds from the sale of a capital item exceeds the book value of the asset.

Capital Improvements

Capital Improvements are expenditures incurred to preserve an asset or add new improvements.

Cash calls

Cash calls are requests for payment for anticipated future capital and operating expenditures,

Cash Flow

A property’s cash flow is the revenue remaining after all cash expenses are paid.

Certificate of Occupancy

A certificate of occupancy or C-O is a document issued by a local government agency that certifies a building or area of the building has been satisfactorily inspected and is in a condition suitable for occupancy.

Chapter 11

This chapter of the Bankruptcy Code generally provides for reorganization, usually involving a corporation or partnership. A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in chapter 11.

Chapter 7

Chapter 7 bankruptcy is a liquidation of the debtor’s non-exempt assets.  They are sold by a trustee and the proceeds distributed to creditors according to the priorities established in the Code.

Class-A Property

A Class-A property is a real estate rating generally assigned to a property that’s thought to demand the highest rents per square foot due to the building’s quality and location.


Collateral is an asset or assets pledged to a lender to secure repayment of a loan in case of default.

Commercial mortgage-backed securities (CMBS)

Securities backed by loans on commercial real estate.

Commercial real estate

Buildings or land intended to generate a profit for investors, either from rental income or capital gain.

Common area

The common area of a building and its site is the space available for the non-exclusive use of all tenants

Common area maintenance (CAM)

CAM is rent that is assessed to the tenant in addition to the base rent to maintain the common areas.

Comparables (comps)

Comps are based on other properties with similar characteristics in order to determine the fair market rental rate or sale price.


Cash or cash equivalents expended by the landlord in the form of rental abatement, tenant allowance, moving expenses or other considerations to influence or persuade a tenant to sign a lease.

Consumer Price Index (CPI)

CPI measures inflation in relation to the change in the price of goods and services during a base period of time. The CPI is commonly used to periodically increase the base rent.

Contiguous Space

Multiple units within the same building or on the same site that can be combined and rented to a single tenant.

Convertible Debt

A mortgage that gives the lender the option to convert to a co-ownership or full ownership position in a property within a specified amount of time.


Transferring title to property between parties by deed.

Cost of Sale

Expressed as a percentage cost of sale is the estimate of the costs to sell an investment including; brokerage commissions, closing costs, fees and disposition expenses.


Agreements that are inserted into deeds or other legal instruments that stipulate performance or non-performance, or use or non-use of a property and/or land.


A property’s occupancy is the leased portion of a property expressed as a percentage of its total area or units.

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Debt service

Debt service is the amount required to meet all interest and principal payments during a given time period.

Deed of trust

A deed of trust is used in place of a mortgage by which property is transferred to a trustee to secure repayment of a debt.


The inability to meet a contractual duty or payment when due.

Demising wall

A demising wall is the wall that separates one tenant’s unit from another or from the building’s common areas.


Depreciation is a decrease or loss in property value.


The right of a landlord to seize the property of a tenant which is in the premises being rented, as collateral against a tenant that has not paid the rent or has otherwise defaulted on the lease,


Cash or stock distribution paid to holders of common stock. REITs must pay at least 90% of their taxable income in the form of dividends.

Dividend yield

The dividend yield is calculated by taking the annual dividend and dividing by the price.  (Annual divident/price = yield).

Due diligence

Due diligence is a comprehensive appraisal of a business undertaken by a prospective buyer, especially to establish its assets and liabilities and evaluate its commercial potential.

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Earnest money

Also known as a good faith deposit, earnest money is the money paid by buyers after mutual acceptance of a deal.


Easement is a right created by an agreement to use someone else’s property.

Economic rent

The market rental value of a property.

Effective rent

The average rental rate paid over the term of a lease after deducting concessions from the base rent.

Eminent domain

The right of a government or its agent to expropriate private property for public use, with payment of compensation.


The intrusion of a structure that extends, without permission, over a property line.

Environmental impact statement

An Environmental Impact Statement (EIS) is a document prepared to describe the effects for proposed activities on the environment. “Environment,” in this case, is defined as the natural and physical environment and the relationship of people with that environment.

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.

Estoppel certificate

An estoppel certificate is a “signed statement by a party certifying for another’s benefit that certain facts are correct, as that a lease exists, that there are no defaults, and that rent is paid to a certain date.

Exit strategy

Strategy available to investors when they desire to liquidate all or part of their investment.

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FFO (funds from operations)

FFO is a figure used by real estate investment trusts (REITs) to define the cash flow from their operations. It is calculated by adding depreciation and amortization expenses to earnings, and sometimes quoted on a per share basis.

Fiduciary duty

A fiduciary duty is a legal duty to act solely in another party’s interests. Parties owing this duty are called fiduciaries. The individuals to whom they owe a duty are called principals.

Fixed costs

Costs that do not fluctuate in proportion to the level of sales or production.

Flex space

A building that provides a configuration to allow occupants a flexible amount of office or showroom space in combination with manufacturing, laboratory, warehouse or distribution.


Float is an accounting term for the time between the writing of a check and the time that the check clears the bank account on which it is drawn.

Force majeure

The term force majeure relates to the law of insurance and is frequently used in construction contracts to protect the parties in the event that a segment of the contract cannot be performed due to causes that are outside the control of the parties, such as natural disasters.


Foreclosure is the process of taking possession of a mortgaged property as a result of the mortgagor’s failure to keep up mortgage payments.

Full recourse loan

A full recourse loan is one in which an endorser or guarantor is liable in the event of default by the borrower.

Funds available for distribution (FAD)

Cash on hand that is availableto be distributed as shareholder dividends. The value is calculated by finding the funds from operations (FFO) and subtracting recurring capital expenditures.

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General contractor

The general contractor 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

Graduated lease

A lease in which the payments are variable and adjusted periodically to reflect changes in the property’s appraised value or changes in a certain publicized benchmark rate, such as the Consumer Price Index (CPI).

Gross leasable area (GLA)

Gross leasable area (GLA) is the amount of floor space available to be rented in a commercial property. Specifically, gross leasable area is the total floor area designed for tenant occupancy and exclusive use, including any basements, mezzanines, or upper floors.

Ground lease

Ground leases, often called land leases, are simply a lease of the land only. Usually land is leased for a relatively long period of time (50-99 years) to a tenant that constructs a building on the property.


Guaranty is a back-up debtor who steps in if the primary debtor defaults. A guarantor is the one that makes the guaranty.

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Hard costs

The actual costs constructing property improvements.


Holdbacks are portions 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 asset is held (the time between the trade date of the purchase and the trade date of the sale).


HVAC is an acronym for heating, ventilating and air conditioning.

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Income property

Real estate that is owned or operated to produce revenue.

Indirect costs

A cost or expense that is used by multiple activities not directly traceable to a department, product or activity.  As a result indirect costs and expenses are often allocated to the department or product.


The annual rate at which consumer prices increase.

Initial public offering (IPO)

An initial public offering, or IPO, is the first sale of stock by a company to the public.

Institutional grade properties

Institutional grade properties are those of sufficient size and stature that they merit attention by large national or international investors,


The price paid for the use of capital.

Investment bank

Investment banks are a bridge between large enterprises and the investor. Their main roles are to advise businesses and governments on how to meet their financial challenges and to help them procure financing, whether it be from stock offerings, bond issues or derivative products.

Investment manager

Any company or individual that assumes discretion over real estate capital, invests that capital in assets via a separate account, co-investment program or commingled fund.

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Joint venture

A joint venture is a commercial enterprise undertaken jointly by two or more parties that otherwise retain their distinct identities.

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A lease is contract by which one party conveys land, property or services to another for a specified time, usually in return for a periodic payment.

Lease agreement

The formal legal document entered into between a landlord and a tenant to reflect the agreed upon terms of the lease.

Lease commencement date

A lease commencement date is the date in which the lease goes into effect, legally binding the parties to the terms of the lease.

Letter of credit

A letter of credit is issued by a bank to another bank to serve as a guarantee for payments made to a specified person or entity.

Letter of intent (LOI)

A preliminary agreement outlining the proposed terms of a final contract.


The use of credit to finance a portion of the costs of purchasing or developing a real estate investment.


A claim or encumbrance against property used to secure a debt.

Lien waiver

A document from a contractor, subcontractor, supplier or other party holding a mechanic’s lien stating that they have been paid in full and waiving future lien rights to the disputed property.

Like-kind exchange property (1031)

IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange. Gain deferred in a like-kind exchange under IRC Section 1031 is tax-deferred, but it is not tax-free.

Like-kind property

Any two assets or properties that are considered to be the same type, making an exchange between them tax free.


The ease with which assets can be bought or sold without affecting the price.

Loan Maturity Date

A loan maturity date refers to the final payment date of a loan or other financial instrument, at which point the principal (and all remaining interest) is due to be paid.

Loan to value (LTV)

LTV is the value of the loan principal divided by the property’s appraised value.


Lockout refers to the time period during which a loan may not be prepaid.

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Mark to market (MTM)

Mark to market refers to recording the price or value of a security, portfolio or account to reflect its current market value rather than its book value.

Market rental rates

The rental income that a property most likely would command, indicated by the current rents asked and paid for comparable space.

Market study

A forecast of future demand for real estate development that includes an estimate of the square footage that can be absorbed and the rental rates that the market would bear.

Market value

Market value is the amount for which a property can be sold on the open market.

Master lease

A lease between the owner of property and its direct tenant, with all other leases subject to the first one.  A tenant may sublease or assign part or all of its space on its own terms and conditions, but the parties will always be bound by the master lease because they are subordinate to it.

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 in which the total principal balance comes due.

Mechanic’s lien

A mechanic’s lien is a security interest in the title to property for the benefit of those who have supplied labor or materials that improve the property.

Mezzanine financing

Mezzanine financing is debt capital that gives the lender the rights to convert to an ownership or equity interest in the company, if the loan is not paid back in time and in full.

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Net asset value (NAV)

The value of an individual asset or portfolio of real estate properties net of leveraging or joint venture interests.

Net cash flow

Generally determined by net income plus depreciation less principal payments on long-term mortgages.

Net operating income (NOI)

NOI is the annual income generated by a property after taking into account all income collected from operations, and deducting all expenses incurred from operations.

Net present value (NPV)

NPV is the value in the present of a sum of money, in contrast to some future value it will have when it has been invested at compound interest.

Net purchase price

The net purchase price is the gross purchase price less associated debt financing.

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.

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.

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Operating Cost Escalation

Rent adjustments due to external factors such as published indexes, negotiated wage levels, or expenses related to the ownership and operation of a building.

Operating expense

Property operating costs including maintenance, repairs, management, utilities, taxes and insurance.


A company that sources and underwrites commercial and/or multifamily mortgage loans.


Individual retail sites in a shopping center.

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Parking ratio

The amount of rentable square feet in a building per each individual parking space.

Partial sales

The sale of an interest in real estate that is less than the whole property, including a sale of easement rights, parcel of land or retail pad, or a single building of a multi-building investment.

Percentage rent

Rent that is equal to a percentage of gross sales or gross revenues received by the tenant.

Performance-based fees

Fees paid to advisers or managers based on returns to investors.

Permanent loan

The long-term mortgage on a property.


Map that shows the boundaries of individual lots together with streets and easements.

Portfolio Management

The management of several properties owned by a single entity by formulating, modifying and implementing a real estate investment strategy.

Portfolio turnover

Time period from the funding of an investment until it is repaid or sold.


Space that has been leased before the start of construction of a building or in advance of the issuance of a certificate of occupancy.

Prime space

First-generation space that is available for lease.

Prime tenant

The major tenant in a building, or the anchor tenant in a shopping center.

Private REIT

An infinite- or finite-life real estate investment company structured as a real estate investment trust. Shares are placed and held privately.

Pro Rata

The proportionate share of expenses for the maintenance and operation of a property by the tenant.

Punch List

An itemized list of incomplete or unsatisfactory items in a tenant space after the contractor has notified the owner that it is substantially complete.

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Raw land

Unimproved land that is in its natural state.

Raw space

Unimproved shell space in a building.

Real property

Land, and usually whatever is erected or affixed to the land.


Any renovation with the purpose to cure obsolescence of a building or project.

REIT (Real estate investment trust)

A business trust or corporation that uses the capital of a group of investors to acquire or provide financing for real estate.

Renewal option

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

Renewal probability

The average percentage of tenants in a building that are expected to renew at market rental rates upon the expiration of their leases.


Fee paid for the occupancy and use of a rental property, land parcel or building.

Rent commencement date

Date the tenant begins paying rent.

Rent-up period

Time period after the construction of a new building when tenants are actively being sought.

Rentable / Usable Ratio

The total of a building’s rentable area divided by its usable area. It represents the tenant’s pro-rata share of the building’s common areas and can help determine the square footage the tenant will pay rent on.

Rental Concession

Terms landlords offer tenants to secure their tenancy, such as increased tenant improvement allowance, signage, below-market rental rates and moving allowances.

Rental growth rate

The expected increase in market rental rates over a set time period.

Replacement cost

An estimated cost to re-construct a building based on the current building’s appraisal.

Replacement reserves

An allowance for the replacement of building components that tend to wear out over time.

Roll-over risk

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

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An agreement where 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

Value based on the comparison of the property being appraised to similar properties that have been recently sold.

Second generation or secondary space

Previously occupied space that is available for lease, either directly from the landlord or as sublease.

Security deposit

A monetary deposit made by a tenant to a landlord to secure performance of a lease.


The distance from the curb, property line or other reference point, within which building is not allowed.

Site analysis

Determines the suitability of a specific parcel of land for a specific use.

Site development

The installation of required improvements made to a site before a building or project can be constructed.

Site plan

A detailed plan that shows the location of improvements on a parcel.


The surface laid over the structural support of a building to create the floor(s) of the building.

Space plan

A visual representation of a tenant’s space requirements, with wall and door locations, room sizes and even furniture layouts.

Special assessment

Charges levied against real property for public improvements that benefit the assessed property.

Speculative space

Any tenant space that hasn’t been leased prior to the start of construction on a new building.

Step-up lease (graded lease)

A lease specifying set increases in rent at certain 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 during the term of the lease.

Strip center

A shopping center comprised of a row of stores generally smaller than a neighborhood center that is anchored by a grocery store.


A person or entity to whom the rights of use and occupancy under a lease have been conveyed, while the original lessee is primarily responsible for the obligations of the lease.


The process by which a parcel is measured and its boundaries and contents ascertained.

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Tax base

The assessed valuation of all real property that lies within a taxing authority’s jurisdiction.

Tax lien

A statutory lien for nonpayment of property taxes that is attached only to the property upon which the taxes haven’t been paid.

Tax roll

A record with the descriptions of all land parcels within a county, the names of the owners or those receiving the tax bill, and the assessed values and tax amounts.

Tenant (lessee)

Someone who rents real estate and holds an estate by virtue of a lease.

Tenant at will

Someone who holds possession of a premises by permission of the owner or landlord.

Tenant mix

A phrase used to describe the quality of a property’s income stream.

Tenants in common

Joint-ownership of property by two or more related or unrelated entities (co-tenants) in equal or unequal shares.


The lifetime of a loan.

Tital search

A review of all recorded documents relating to a specific piece of property to determine the present condition of title.


The means whereby the owner has the just and full possession of real property.

Title insurance

A policy issued that insures against loss resulting from defects of title to a specific parcel of real property, or from the enforcement of liens existing against it at the time the title policy is issued.

Total assets

The sum of all gross investments, cash and equivalents, receivables, and assets on the balance sheet.

Total inventory

The total square footage of a type of property within a geographical area.

Total retail area

Total floor area of a retail center minus the common areas.

Trade fixtures

Personal property attached to a structure that is part of the business.

Triple net lease

A lease that requires the tenant to pay all expenses of the property being leased in addition to rent.

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. While a property is under contract, the seller is prohibited from fielding offers from other buyers.

UPREIT – Umbrellas Partnership Real Estate Investment Trust

An UPREIT is an organizational structure whereby a the assets of a Real Estate Investment Trust are owned by a holding company for tax purposes.

Use Clause

A use clause is typically a part of the lease that places restrictions on what a tenant can sell and/or how business is conducted.

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Vacancy Rate

The total amount of available space divided by the total inventory of space and expressed as a percentage.

Vacant Space

Existing tenant space that is empty and is being marketed for lease.


A phrase used by to describe an investment in a property that is under performing and/or under managed.

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The process of a borrower negotiating with a lender to restructure the borrower’s debt rather than go through foreclosure proceedings.


A write-off is an accounting procedure used when an asset is not collectible and charged as a loss.

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Yield is the return on an investment (ROI), most commonly paid in dividends or interest.

Yield – Cash-on-Cash

The cash-on-cash yield is the relationship between a property’s net cash flow and the average amount of invested capital during an operating year. Expressed as a percentage.

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Zoning is the division of an area into zones, as to restrict the number and types of buildings and their uses.

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