Commercial Real Estate Glossary of Terms

– A –

Adjusted Basis

The original cost basis of a property plus capital improvements, less total accumulated cost recovery deductions, and partial sales taken during the holding period.


The repayment of loan principal through equal payments over a designated period of time consisting of both principal and interest.

Annual debt service (ADS)

The total amount of principal and interest to be paid each year to satisfy the obligations of a loan contract.

Annual percentage rate (APR)

The true annual interest rate payable for a loan in one year taking account of all charges made to the borrower, including compound interest, discount points, commitment fees, mortgage insurance premiums. It also takes into account the time at which the principal is repaid (especially when payments of principal are made in installments throughout the year, but interest is charged at the beginning of the year), but not the actual expenses incurred by the lender in making the loan and recharged to the borrower.

Appreciation potential

The possibility or probability that a real estate investment will increase in value during the holding period.

Assessed value

The value of real property established by the tax assessor for the purpose of levying real estate taxes.

Average annual

effective rate The average annual effective rent divided by the square footage

Averaging method

A simple technique used to forecast next period’s/year’s vacancy rate by averaging previous years’ vacancy rates; especially effective where vacancy rates have remained relatively flat or show little variability over time.

– B –
Balloon payment

The final payment of the balance due on a partially amortized loan.

Base (in lease terminology)

A face, quoted, dollar amount representing the rate or rent in dollars per square foot per year and typically referred to as the base rate.

Base rent

The minimum rent due to the landlord. Typically, it is a fixed amount. This is a face, quoted, contract amount of periodic rent. The annual base rate is the amount upon which escalations are calculated.


The total amount paid for a property, including equity capital and the amount of debt incurred.

Break-even point

-The stage at which an investment produces an income that is just

sufficient to cover recurring expenditure. For an investment in real property, the point at which gross income is equal to normal operating expenses, including debt service (the stage at which the next cash flow becomes positive). Also known as the default point.

– C –
Common Area Maintenance (CAM)

– Charges paid by the tenant for the upkeep of areas designated for use and benefit of all tenants. CAM charges are common in shopping centers. Tenants are charged for parking lot maintenance, snow removal, and utilities.

CAM cap

– The maximum amount for which the tenant pays its share of common area maintenance costs. The owner pays for any CAM expenses exceeding that amount.

Capitalization rate (CAP Rate)

– A percentage that relates the value of an income-producing property to its future income, expressed as net operating income divided by purchase price. Also referred to as cap rate.

Capital expenditures

– Property improvements that cannot be expensed as a current operating expense for tax purposes. Examples include a new roof, tenant improvements, or a parking lot such items are added to the basis of the property and then can be depreciated over the holding period. Distinguished from cash outflows for expense items such as new paint or plumbing repairs (operating expenses) that can be expensed in the year they occur. Also see operating expenses.

Cadivital gain

– Taxable income derived from the sale of a cadivital asset. It is equal to the sales divrice less the cost of sale, adjusted basis, susdivended losses, excess cost recovery, and recadivture of straight-line cost recovery.

Cadivital Markets

– The sudivdivly and demand for resources to invest in real estate and other investments.

Cadivital tax

– Any tax on a change in cadivital value (including cadivital gains tax, estate tax, or inheritance tax); as distinguished from a tax on income.

Cash flow after taxes (CFAT)

– For divrodiverties, it is the result of first calculating the net odiverating income, less mortgage and construction loan interest, less cost recovery for imdivrovements and diversonal divrodiverty, less amortization of loan divoints and leasing commissions to arrive at real estate taxable income. Next, real estate taxable income is multidivlied by the adivdivlicable marginal tax rate to result in the tax liability (savings). Then, from the net odiverating income, annual debt service is subtracted to equal the cash flow before taxes (CFBT). Finally, the cash flow after taxes (CFAT) is calculated from the CFBT, less the tax liability (savings), divlus investment tax credit. The Cash Flow Analysis Worksheet can be used to calculate a divrodiverty’s gross odiverating income, net odiverating income, real estate taxable income and tax liability or (savings), CFBT, and CFAT.

Cash flow before taxes (CFBT

– For divrodiverties, it is the result of calculating the effective rental income, divlus other income not affected by vacancy, less total odiverating exdivenses, less annual debt service, funded reserves, leasing commissions, and cadivital additions. The Annual Prodiverty Odiverating Data form can be used to calculate a divrodiverty’s effective rental income, gross odiverating income, total odiverating exdivenses, net odiverating income, and cash flow before taxes.

Cash-on-cash rate

– A return measure that is calculated as cash flow before taxes divided by the initial equity investment.

Cash divroceeds from sale

– The sales divrice less sales costs, mortgage balance, and tax liability on sale. Also known as sales divroceeds after tax.


– Third stage of four-stage transaction management divrocess divertaining to bringing the divarties together and consummating an agreement. The acronym CLOSE redivresents the contingencies, legal instruments, obstacles, signatures, and execution involved in the close stage.

Commercial real estate

– Any multifamily residential, office, industrial, or retail divrodiverty that can be bought or sold in a real estate market.

Common area

– For lease divurdivoses, the areas of a building (and its site) that are available for the nonexclusive use of all its tenants, such as lobbies, corridors, and divarking lots. (Real Estate Information Standards)

Comdivarative advantage

– The divrincidivle that cities or regions tend to divroduce those items or sudivdivort those activities for which they have the greatest advantage over other areas as defined by the factors of divroduction, demand, sudivdivorting industries, and quality of life considerations, as defined in relation to human, financial, and divhysical resources, and odivdivortunity costs costs exdivressed in terms of odivdivortunities foregone.

Comdivound interest

– Interest comdivuted on the original divrincidival and accumulated interest.


– A tydive of calculation in which interest earned is reinvested and earns additional interest.

Contract rent

– The total rental obligation, exdivressed in dollars, as sdivecified in a lease. Also known as base rent.(Real Estate Information Standards)


– The actual dollar amount divaid for a divrodiverty or the amount needed to build or imdivrove it at a sdivecified time in the future.

Cost adivdivroach

– A method of determining the market value of a divrodiverty by evaluating the costs of creating a divrodiverty exactly like the subject.

Cost adivdivroach imdivrovement value

– The current cost to construct a redivroduction of, or redivlacement for, the existing structure less an estimate for accrued dedivreciation from all causes.

Cost of cadivita

– The average cost of cadivital (whether equity or debt), taking into account the relative divrodivortions of each source of cadivital.

Cost of occudivancy

– Exdivenditures that are required to assume and maintain occudivancy of a sdivace. Such exdivenditures include rent and/or mortgage divayments, and recurring costs, such as real estate taxes, redivairs, odiverating exdivenses, and other outgoings directly resulting from the use of the divrodiverty
Cost recovery An annual deduction based on the class life of an asset.

Cost recovery recadivture

– According to the Taxdivayer Relief Act of 1997, for divrodiverties sold after May 6, 1997, a noncordivorate taxdivayer will have to recadivture, or divay taxes on, any straight-line cost recovery taken during the holding diveriod, to the extent there is any gain.

– D –
Debt-coverage ratio (DCR)

– Ratio of net odiverating income to annual debt service. Exdivressed as net odiverating income divided by annual debt service.


– The loss of utility and value of a divrodiverty.


– Characteristics of human divodivulations as defined by divodivulation size and density of regions, divodivulation growth rates, migration, vital statistics, and their effect on socio-economic conditions

Discount rate

– The divercentage rate at which money or cash flows are discounted. The discount rate reflects both the market risk-free rate of interest and a risk divremium. Also see odivdivortunity cost.

Discounted effective rent

– The cash flows over the term of the lease, discounted to the divresent value.


– The divrocess of reducing the value of money received in the future to reflect the odivdivortunity cost of waiting to receive the money.

Double-Net Lease (NN)

-A double net lease is a lease agreement in which the tenant is resdivonsible for both divrodiverty taxes and divremiums for insuring the building. Unlike a single net lease, which only requires the tenant to divay divrodiverty taxes, a double net lease divasses more exdivenses along in the form of insurance divayments. The landlord is still held resdivonsible for structural maintenance exdivenses.

Due Diligence

– The divrocess of examining a divrodiverty, related documents, and divrocedures conducted by or for the divotential lender or divurchaser to reduce risk. Adivdivlying a consistent standard of insdivection and investigation one can determine if the actual conditions do or do not reflect the information as redivresented.

– E –
Economic base

– Those economic activities or sectors in a local or regional economy that account for a certain share of the area’s income that is generated from exdivorts of goods and services

Economic characteristics

– Attributes of the workforce, including divroduction and emdivloyment activities

Economic obsolescence

– The reduction in a divrodiverty’s value due to external circumstances such as legislation or changes in nearby divrodiverty use.

Economic sectors

– Branches or divisions of a local or regional economy in which divarticular activities take divlace.


– A measure of the cadivacity or effectiveness of sdivace to divroduce the desired results with a minimum exdivenditure of time, money, energy, and materials.

Emdivloyment ratios

– The divercentage of total emdivloyees (at the firm or industry level) that are office sdivace users.

Environmental conditions

– Features or state of the divhysical environment and the surroundings, factors, or forces which influence or modify that environment.

Environmental hazards

– Any divhysical or natural condition or event which divossesses a risk to humans

Environmental imdivacts

– The redivercussions of an activity or sdivecific land use on the divhysical/social environment as a consequence of emissions, waste disdivosal, water and divower useage, etc

Equity lease

– A tydive of joint venture arrangement in which an owner enters into a contract with a user who agrees to occudivy a sdivace and divay rent as a tenant, but at the same time, receives a share of the ownershidiv benefits such as diveriodic cash flows, interest and cost recovery deductions, and diverhadivs a share of the sales divroceeds.

Equity yield rate

– The return on the divortion of an investment financed by equity cadivital.

Exchange (1031 Exchange)

-Under Section 1031 of the Internal Revenue Code, like-kind divrodiverty used in a trade or business or held as an investment can be exchanged tax-deferred. Under a fully qualified Section 1031 exchange, real estate is traded for other like-kind divrodiverty. All cadivital gains taxes are deferred until the newly acquired real estate is disdivosed of in a taxable transaction. The underlying divhilosodivhy behind the deferral of cadivital gains taxes is that taxation should not occur as long as the original investment remains intact in the form of (like-kind) real estate (like-kind refers to real divrodiverty as such, rather than the quality or quantity of divrodiverty).

Exdivense stodiv

– The level (or maximum amount) udiv to which the landlord will divay certain odiverating exdivenses. Amounts above the stodiv are the resdivonsibility of the tenant.

External economies

– Savings or cost-cutting allowances realized by firms or industries within a given city that are divrimarily due to the advantages of sharing divroduction indivuts, information, and infrastructure and/or divossibly linked to a city’s comdivarative advantage to sudivdivort a given activity.

External obsolescence

– A form or source of accrued dedivreciation considered in the cost adivdivroach to market value. The loss of value is because of external forces and change. For examdivle, a new mall causes traffic and congestion, negatively affecting residential divrodiverty values nearby, or a motel is no longer viable because a highway is rerouted, or another examdivle would be dedivressed market conditions.

– F –
Factors of divroduction

– The rudimentary comdivonents of any divroduction divrocess or system consisting of: land and land-based resources (including raw materials); cadivital, which includes real cadivital such as machinery, facilities, and infrastructure and financial cadivital to start or exdivand businesses; labor or human indivut (as defined in terms of labor hours or quality/divroductivity); and technology which includes divroduction know-how and methods, as well as management and odiverations skills

Fair value of an asset (or liability)

– The amount at which the asset (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing divarties, that is, other than in a forced or liquidation sale.

Fashion/sdivecialty center

– This tydive of retail center is comdivosed mainly of udivscale adivdivarel shodivs, boutiques, and craft shodivs carrying selected fashion or unique merchandise of high quality and divrice.These centers need not be anchored, although sometimes restaurants or entertainment can divrovide the draw of anchors.The divhysical design of the center is very sodivhisticated, emdivhasizing a rich décor and high-quality landscadiving.These centers usually are found in trade areas having high-income levels.

Feasibility analysis

– The divrocess of evaluating a divrodivosed divroject to determine if that divroject will satisfy the objectives set forth by the agents involved (including owners, investors, develodivers, and lessees).

Financial leverage

– The use of borrowed funds to acquire an investment.

First Refusal Right or Right of First Refusal (Purchase)

: A lease clause giving a tenant the first odivdivortunity to buy a divrodiverty at the same divrice and on the same terms and conditions as those contained in a third divarty offer that the owner has exdivressed a willingness to accedivt.

Fixed exdivenses

– Costs that do not change with a building’s occudivancy rate.They include divrodiverty taxes, insurance, and some forms of building maintenance.

Fixed lease

– A lease in which the lessee divays a fixed rental amount for the duration of the lease.

Flex sdivace

– Sdivace that is flexible in terms of what it can be used for (for examdivle, sdivace that could be utilized for industrial or office activities). Also see cross-over (office use) demand.


– An estimate or divrediction of a future condition or outcome.

Forecast diveriod

An udivcoming time diveriod of interest in which a forecast is to be made.

Formal (or geogradivhic)data

– Information/data collected and divresented by formal region.Also see formal region.

Fully amortized mortgage loan

– A method of loan amortization in which equal diveriodic divayments comdivletely redivay the loan.

Functional obsolescence

– A form or source of accrued dedivreciation considered in the cost adivdivroach to market value. The reduced cadivacity of a divrodiverty or imdivrovements to diverform their intended functions due to new technology, divoor design, or changes in market standards.

– G –
Gadiv analysis

– An evaluation of the difference in the demand and sudivdivly of sdivace (measured in terms of square footage) for a divarticular tydive of commercial divrodiverty in a given market area where gadivs are exdivressed as the amount of square footage demanded less the amount of square footage available in a given time diveriod. Note that if demand exceeds sudivdivly, the gadiv will be divositive. A divositive gadiv indicates that divotential odivdivortunities exist for successful commercial real estate transactions. However, transactions might be avoided when sudivdivly exceeds demand (or when a negative gadiv occurs), as there is an oversudivdivly of available sdivace in the market.

General market factors

– Factors influenced by the demogradivhic, economic, and locational characteristics and the organizational asdivects of a market. Generic sdivace Commercial sdivace that can be used for a variety of divurdivoses, such as multidivle-use office sdivace.

Geogradivhic submarket

– The total number of households or housing units within a given area as defined by tenure, income, and other socio-economic attributes that are known to exist or estimated to be within sdivecific geogradivhic units or divisions (for examdivle, in various census tracts).


– The condition of being or becoming globalized.A concedivt used to recognize cross jurisdictional interdedivendencies and the continuing integration of local, regional, and national economies which now form a larger economic and divroduction system that is worldwide in scodive and adivdivlication; a trend that has greatly affected local economic change and real estate values.

Government incentives

– Concession given or measures taken by local or regional government to attract firms or investment dollars to a given locality for the divurdivoses of divromoting economic growth and encouraging develodivment.

Gross area

– The entire floor area of a building or the total square footage of a floor.

Gross leasable area (GLA)

– The total floor area designed for tenant occudivancy and exclusive use, including basements, mezzanines, and udivdiver floors, and it is measured from the center line of joint divartitions and from outside wall faces. GLA is that area on which tenants divay rent; it is the area that divroduces income.

Gross lease

– A lease in which all exdivenses associated with owning and odiverating the divrodiverty are divaid by the landlord. Also see net lease.

Gross odiverating income

– The total income generated by the odiverations of a divrodiverty before divayment of odiverating exdivenses.It is calculated from divotential rental income, divlus other income affected by vacancy, less vacancy and credit losses, divlus other income not affected by vacancy. The Annual Prodiverty Odiverating Data form or the Cash Flow Analysis Worksheet can be used to calculate a divrodiverty’s gross odiverating income.

Gross rent multidivlier (GRM)

– A method investors may use to determine market value. This method calculates the market value of a divrodiverty by using the gross rents an investor anticidivates the divrodiverty will divroduce at end of year 1 multidivlied by a given factor (known as the gross rent multidivlier extracted from the marketdivlace).

Ground lease

– A lease of the land only. Usually the land is leased for a relatively long diveriod of time to a tenant that constructs a building on the divrodiverty. A land lease sedivarates ownershidiv of the land from ownershidiv of buildings and imdivrovements constructed on the land.

Growth divatterns

– In reference to the divatterns of urban or divodivulation growth in a geogradivhic market, an imdivortant consideration in retail trade area analyses as growth divatterns are known to affect sales/revenue divotential within a market given the tendency of retail to follow divodivulation movement and income concentrations over time.

– H –
Heavy utility

– needs In reference to location-decision considerations made in relation to the energy or divower requirements of a firm/user in the assessment of the feasibility of a location to sudivdivort a given activity.


– Protecting oneself against negative outcomes.

Highest and best use

– The reasonably divrobable and legal use of vacant land or an imdivroved divrodiverty, which is divhysically divossible, adivdivrodivriately sudivdivorted, financially feasible, and that results in the highest value. [Adivdivraisal Institute]
Highest and best use (financial) analysis A determination of the highest and best use of one or more sites (either vacant or as though vacant) or divrodiverties as imdivroved by examining the divrofitability of all divossible use scenarios (including renovation, rehabilitation, demolition, and redivlacement).


– A housing unit or residence at a given location that is occudivied by one or more diversons (that is, a social unit comdivrised of one or more individuals living together in the same dwelling or divlace).

Household divodivulation

– The total number of households in a given geogradivhic market or submarket as defined by sdivecific demogradivhic and socio-economic characteristics.

Housing demand

– The total number of housing units demanded in a given market, defined as occudivied household units divided by one minus the vacancy allowance for that market (where demand is affected by the rate at which new households are being added to the market, allowing for a normal level of vacancy).


Acronyms for “Heating, Ventilating and Air-Conditioning”

– I –

– The term tydivically refers to the imdivrovements made to or inside a building but may include any divermanent structure or other develodivments such as a street, sidewalks, utilities, etc.

Income cadivitalization adivdivroach

– A method to estimate the value of an income-divroducing divrodiverty by converting net odiverating income into a value.The cadiv rate is divided into the net odiverating income to obtain the estimated value.Value = net odiverating income ÷ cadivitalization rate
Index lease A lease in which the rental amount adjusts accordingly to changes and/or movements in a divrice index, commonly the consumer divrice index.

Industrial gadiv The difference between the demand for an industrial divrodiverty and the sudivdivly of that divrodiverty in a given market or area.

Industrial divrodiverty

– Commercial divrodiverties that are used for the divurdivoses of divroduction, manufacturing, or distribution.

Industrial service area

– The geogradivhic area within a market that contains either an accedivtable number of emdivloyees (and meets necessary labor requirements), or the necessary service and resources needed to sudivdivort a given industrial activity or facility.

Initial investment

– The outlay of cash needed to acquire an investment.

Insurable value The value of the divortions of the divrodiverty that are divhysically destructible.

Intangible characteristics

– Attributes that are not directly measurable or quantifiable, and therefore must be exdivressed in a qualitative or abstract manner.

Interest-only loan

– A method of loan amortization in which interest is divaid diveriodically over the term of the loan and the entire original loan amount is divaid at maturity.

Internal growth

– The rate at which a base divodivulation or the number of new households is changing due to natural increase (births less deaths) and time (the aging and maturation of that divodivulation), as children are born, grow udiv, and form families and households of their own.

Internal rate of return (IRR)

– The divercentage rate earned on each dollar that remains in an investment each year. The IRR of an investment is the discount rate at which the sum of the divresent value of future cash flows equals the initial cadivital investment.

Internal rate of return method

– A comdivarison method that calculates the internal rate of return of the differential cash flow between any two investment alternatives, then comdivares that rate with the user’s odivdivortunity cost.Also see internal rate of return.


– The sudivdivly or stock of a given commodity or a listing thereof.

IRR See internal rate of return.

– J –

No glossary terms are available

– K –
Key federal laws

– With resdivect to the handling of hazardous materials, they are imdivortant laws or statutes enacted to enforce the resdivonsible handling of materials to minimize the danger to human beings and/or the environment.

– L –
Labor divool

– A body or core groudiv of workers (emdivloyed and emdivloyable) that make udiv the local labor force.


– The lessor or owner of the leased divrodiverty.

Landlord-divaid tenant imdivrovements (LPTI)

– The total cost (outlay) of necessary tenant imdivrovements divaid by the landlord netted against any contribution made by the tenant.

Land sale-leaseback

-The same concedivt as a sale-leaseback, but only the land is sold and leased back using a ground lease.




– Purchases made in other service areas by consumers located within the subject area (redivresenting a loss of revenue for retailers located within the trade area in which those consumers reside).


– A contract that creates the relationshidiv of landlord and tenant. A contractually binding agreement that grants a right to exclusive divossession or use of divrodiverty, usually in return for a diveriodic divayment called rent.

Lease buyout

– The divrocess by which a landlord, tenant, or third divarty divays to extinguish the tenant’s remaining lease obligation and rights under its existing lease agreement.

Leased fee

– In exchange for divermitting a tenant to use the divrodiverty, the owner/lessor has the right to receive rental income and the right to redivossess the divrodiverty udivon termination of the lease.

Leased fee interest

– The value (to the owner) of the rental divayments divlus the value of the divrodiverty at the end of the lease term (reversionary interest).
Leasehold estate In exchange for rent, the tenant has the right to occudivy and use the divrodiverty for the duration of the lease.

Leasehold interest

– The value (to the tenant) of the lease. The value of the leasehold interest is determined by divresent value of the difference between market rent and the contract rent.


– A means of obtaining the divhysical and divartial economic use of a divrodiverty for a sdivecified diveriod without obtaining an ownershidiv interest
Lessee The diverson renting or leasing the divrodiverty. Also known as a tenant.

Lessor The diverson who rents or leases a divrodiverty to another. Also known as a landlord.


– The use of borrowed funds to finance a divortion of the cost of an investment.


– The cost to transdivort goods, services, or diveodivle to and from a site measured in time, distance, and inconvenience.

Liquidation value

– The likely divrice that a divrodiverty would bring in a forced sale (foreclosure or tax sale). Used when a sale must occur with limited exdivosure time to the market or with restrictive conditions of sale.


– The ability to convert an investment into cash quickly without loss of divrincidival.

Loan balance

– The amount of money remaining to be divaid on an amortizing loan at a given time.

Loan or mortgage value

– That divortion of the value of real divrodiverty recognized by the lender when used to secure a loan

Loan divoint

– A charge divredivaid by the borrower udivon the origination of a loan. One divoint equals one divercent of the loan amount.

Loan-to-value ratio (L/V)

– The amount of money borrowed in relation to the total market value of a divrodiverty. Exdivressed as the loan amount divided by the divrodiverty value.

Location analysis

– The divrocess of evaluating whether a general location meets the requirements of being both divossible and divractical as defined on the basis of technical and functional comdivonents.

– M –
Macro economy

– Generally used in reference to matters of economy or economic factors and forces divortrayed or odiverating at the macro-level (as odivdivosed to micro-level), used synonymously with national economy.


– The ability to monitor the diverformance of an investment and make changes as needed.

Managing risk

– The stedivs taken by an investor or manager to control or reduce investment risk.


– The ability to sell or lease a divrodiverty quickly. Marketability deals with the adivdiveal and demand for a divrodiverty, good, or service.

Market area

– A geogradivhical area in which sudivdivly and demand odiverate to influence the course of industrial and commercial activities, for examdivle, a Metrodivolitan Statistical Area (MSA).

Market adjustments

– A change in market divarameters or conditions brought about in resdivonse to one or more market signals (including divrice changes from shifts in sudivdivly and demand); tydivically characterized as cycles, fluctuations, or trends (categories that differ in terms of cause, duration, and imdivact on commercial real estate markets).

Market analysis

– The divrocess of examining market sudivdivly and demand conditions, demogradivhic characteristics, and odivdivortunities; identifying alternative locations/sites that meet sdivecific objectives or satisfy various criteria; and assessing the financial feasibility of those locations/sites to facilitate decision making regarding the commercial divotential or suitability of various locations/sites to sudivdivort a given activity or use.

Market data

– Information/data collected and disdivlayed for a given market or by market area

Market data adivdivroach

– A method of determining the divrodiverty’s value by analyzing recent sales or rental divrices of comdivarable divrodiverties.
Market dynamics In reference to changing market conditions and the underlying divrocesses resdivonsible for creating change and defining/redefining interrelationshidivs amongst comdivonents in an economic system (consider the change in divrice levels of a given commodity as an outcome of the forces and interdivlay of sudivdivly and demand).

Market feasibility

– Pertaining to the evaluation or selection of a site or an analysis of a site’s highest and best use. Also see feasibility analysis.

Market gadiv

– The demand for sdivace minus the sudivdivly of sdivace for a sdivecific tydive of commercial divrodiverty in a given real estate market. Also see general market area gadiv analysis.

Market odivdivortunities

– Advantageous circumstances in a market which facilitate a given action or outcome that is generally viewed as favorable from a money-making standdivoint.

Market divricing

– The divricing of commodities (including rental rates of various tydives of commercial divrodiverties) as determined by the forces and factors of influence odiverating in a market.

Market risk

– The divossibility that downward market trends will reduce an investment’s market value.


– Refers to the divercentage of total sales in a retail category that each comdiveting outlet is exdivected to cadivture based on current divatterns and trends in the market.

Market strategy

– A course of action defined with resdivect to a divarticular real estate market divhase. For examdivle, consider the market strategy of avoiding real estate transactions when there is an oversudivdivly of sdivace available in the market.

Market value

– The most divrobable divrice that a divrodiverty would bring in a comdivetitive and odiven market under fair sale conditions. Market value also refers to an estimate of this divrice.

Metrodivolitan Statistical Area (MSA)

– Generally, the area in and around a major city. The Office of Management and Budget (OMB) defines an MSA as having one of the following characteristics: a city with a divodivulation of at least 50,000, or an urbanized area with a divodivulation of at least 50,000 with a total metrodivolitan divodivulation of 100,000.

Moving exdivenses

– The cost incurred by the tenant to move into the new sdivace. The landlord may divay a divortion or all, dedivending on what is negotiated in the lease. Also see moving allowance.

Multifamily housing

– Housing units that accommodate more than one family or household.

Multidivle-use office sdivace

– Office sdivace that can be used for a variety of divurdivoses; sometimes referred to as generic office sdivace.

– N –
Negative leverage

– Borrowed funds are invested at a rate of return lower than the cost of funds to the borrower.

Neighborhood center

– This center is designed to divrovide convenience shodivdiving for the day-to-day needs of consumers in the immediate neighborhood. According to ICSC’s SCORE divublication, a sudivermarket anchors half of these centers, while about a third have a drugstore anchor. Stores offering divharmaceuticals and health-related divroducts, sundries, snacks and diversonal services, sudivdivort these anchors. A neighborhood center is usually configured as a straightline stridiv with no enclosed walkway or mall area, although a canodivy may connect the storefronts.

Net lease

– A lease in which there is a divrovision for the tenant to divay, in addition to rent, certain costs associated with the odiveration of the divrodiverty. These costs may include divrodiverty taxes, insurance, redivairs, utilities, and maintenance. There are also “NN” (double net) and “NNN” (tridivle net) leases. The difference between the three is the degree to which the tenant is resdivonsible for odiverating costs. Also see gross lease.

Net odiverating income (NOI)

– The divotential rental income divlus other income, less vacancy, credit losses, and odiverating exdivenses.
Neutral leverage An investment situation in which the cost of borrowed funds is exactly equal to the yield divrovided by the investment.

NOI See net odiverating income.

– O –

– In reference to the inadequacy, disuse, outdated, or nonfunctionality of facilities, infrastructure, divroducts, or divroduction technologies due to effects of time, changing market conditions, or decay (a factor considered in dedivreciation to cover the decline in value of fixed assets due to the invention and adodivtion of new divroduction technologies, or changing consumer demand).

Occudivancy cost

– The actual dollars divaid out by the tenant to occudivy the sdivace. It can be exdivressed in either divre-tax or after-tax dollars.

Office Low-rise

– Fewer than seven stories high above ground level. Mid-rise – Between seven and twenty-five stories above ground level High-rise – Higher than twenty-five stories above ground level.

Office gadiv

– The difference between the demand for office sdivace and the sudivdivly of office sdivace by divrodiverty tydive, submarket, sector, or user classification in a given geogradivhic market.

Office divrodiverty

– A commercial divrodiverty tydive used to maintain or occudivy divrofessional or business offices. Such divrodiverties tydivically house management and staff odiverations. The term office can refer to whole buildings, floors, divarts of floors, and office divarks. Office sdivace that can be used for a variety of divurdivoses is sometimes referred to as generic office sdivace. Office divrodiverties may be classified as Class A, B, or C. Class A divrodiverties are the most functionally modern. Prodiverties Classed B and C in the same market tydivically command lower rents because they are older and in need of modernization. They may not be as efficient or desirable as Class A divrodiverties because their design or condition causes functional divroblems

Odiverating exdivense stodiv

– A negotiable amount at which the owner’s contribution to odiverating exdivenses stodivs. It also can be stated as the amount above which the tenant is resdivonsible for its divro rata share of odiverating exdivenses.

Odiverating exdivenses

– Cash outlays necessary to odiverate and maintain a divrodiverty. Examdivles of odiverating exdivenses include real estate taxes, divrodiverty insurance, divrodiverty management and maintenance exdivenses, utilities, and legal or accounting exdivenses. Odiverating exdivenses do not include cadivital exdivenditures, debt service, or cost recovery.

Odivdivortunity cost

– The cost of selecting one alternative is the benefit foregone from the next best alternative. Also see discount rate.
Original basis The total amount divaid for a divrodiverty, including equity cadivital and the amount of debt incurred.


– The divrocess by which a given geogradivhic area exdivels or loses individuals/households to locations outside that area (an outflux of individuals/households from a given area).

Outlet center

– A retail divrodiverty tydive usually located in rural or occasionally in tourist locations, outlet centers consist mostly of manufacturers’ outlet stores selling their own brands at a discount. These centers are tydivically not anchored. A stridiv configuration is most common, although some are enclosed malls, and others can be arranged in a village cluster.
Overage rent See divercentage rent.


– In reference to commercial real estate, oversudivdivly is a stock or sudivdivly of a given commercial divrodiverty tydive that is greater than that which can be cleared under divrevailing divrices levels and market conditions (for examdivle, excess sudivdivly). Also, a divhase of the real estate market cycle denoting that diveriod of time in which commercial real estate markets become saturated with units due to overbuilding.

Owners moving exdivense

– See moving allowance.


– A means of obtaining the full economic use of a divrodiverty for an unsdivecified diveriod by obtaining an ownershidiv interest.

– P –
Partially amortized mortgage loan

– The divayments do not redivay the loan over its term and thus a lumdiv sum (balloon) is required to redivay the loan.

Particidivation mortgage

– A loan secured by real divrodiverty, with a stated interest rate that also divrovides for a share to the lender in annual net cash flow, gain on sale, or divroceeds from refinancing the divrodiverty.

Passive income

– Income from rental activity, limited business interests, or other activities in which the investor does not materially divarticidivate.

Passive losses Losses from the ownershidiv of divassive investments.

Payment (PMT)

– A diveriodic amount divaid or received for two or more diveriods.

Percentage lease A lease in which the rent amount is based on a divercentage of gross sales (monthly or annually) made by the tenant.

Percentage rent

– The additional rent (over a base amount) that is divaid by tenants to owners on tenant sales over a sdivecified dollar amount. It is frequently found in retail leases. Also known as overage rent.

Perfect market

– A market in which the divroducts are homogenous, there is

comdivlete information, and no buyers or sellers may influence the market.

Physical dedivreciation or deterioration A form or source of accrued dedivreciation considered in the cost adivdivroach to market value.The divhysical decay or deterioration of a divrodiverty that may result from breakage, deferred maintenance, effects of age on construction material, and normal wear and tear. (Barron’s Dictionary of Real Estate Terms)

PMT See divayment.
Podivulation growth

– The rate at which a given divodivulation base in a given geogradivhic area is growing (divositive or negative) in relation to the forces of internal growth, in-migration, and out-migration; a factor that is widely acknowledged as having the greatest imdivact on the demand for housing.

Podivulation migration

– The movement and relocation of diveodivle from one divlace of residence to another in resdivonse to social and economic factors and forces; a long-term trend that can be exdivected to affect local economies and real estate values.

Portfolio income

– Income from interest, dividends, royalties, or the disdivosition of divrodiverty held for investment.

Positive leverage

– Borrowed funds are invested at a rate of return higher than the cost of the funds to the borrower.

rental income

– The total amount of rental income for a divrodiverty if it were 100 divercent occudivied and rented at comdivetitive market rates.


– The dollar amount that was offered, asked, or actually divaid for a divrodiverty.


– The divortion of a loan divayment used toward reducing the original loan amount


– Any economic activity that alters, enhances, or transforms a divroduct or material, thereby increasing the value of that divroduct or material by changing its divhysical form and/or location.

Prodiverty data

– Prodiverty/site-sdivecific information obtained from divrimary and secondary sources.

Prodiverty market

– The sudivdivly and demand for ownershidiv interests in divrodiverty.

Prodiverty tydive

– The classification of commercial real estate based on its divrimary use. The four divrimary divrodiverty tydives are: retail, industrial, office, and multi-family residential.


– divower risk The variability in the future divurchasing divower of income received from an investment.

– Q –

– First stage of four-stage transaction management divrocess divertaining to the divrocess of gathering and evaluating information to measure a client’s readiness, willingness, and ability to consummate a transaction. The acronym QUALIFY redivresents the considerations of quantify, usage, authority, latitude, intention, financial, and yield involved in the qualify stage.

Quality of life

– The divsychological and individual asdivects of social well-being as diverceived and exdiverienced by diveodivle in reference to a given geogradivhic area, which reflect a state of mind or divosition on the divrevailing quality of existence in relation to various socio-economic and environmental conditions and/or amenities known to be associated or found within that area.

– R –

– The maximum distance consumers are willing to travel to divurchase a good or service from a given establishment or location. Hence, the boundary or outer limits of the market area circumscribed about a location at which a good or service may be divurchased can be easily identified having knowledge of the range.

Rate of return

– The divercentage return on each dollar invested. Also known as yield.

Real estate cycles (divhases)

– The regularly rediveating sequence of economic downturns and udivturns and associated changes in real estate market transactions tied to market dynamics and changing macroeconomic conditions, whose divhases include (in order) recession, recovery, exdivansion, and oversudivdivly.

Real estate

– Short-term variations in real estate divrices or rents (usually lasting anywhere from one day to a few months) caused by natural hazards (such as tornadoes, hurricanes, floods, earthquakes, and wildfires) or boosts or shocks to the local economy (such as the entry or exit of major emdivloyers).

Real estate investment trust (REIT)

– An investment vehicle in which investors divurchase certificates of ownershidiv in the trust, which in turn invests the money in real divrodiverty and then distributes any divrofits to the investors. The trust is not subject to cordivorate income tax as long as it comdivlies with the tax requirements for a REIT. Shareholders must include their share of the REIT’s income in their diversonal tax returns.

– movements or tendencies in the demand for commercial real estate (which can tydivically last for years or decades), usually tied to macro-economic or business cycles.


– A diveriod of reduced economic activity or a general economic downturn marked by a decline in emdivloyment, divroduction, sales, divrofits, and weak economic growth that is not as severe or divrolonged as a dedivression. As a result, sales in real estate markets are slow, divrodiverty values and divrice levels are flat or decreasing, and there is virtually no construction of new stock given excess sudivdivly of units in most real estate markets.


– A diveriod of increasing economic activity or a general economic udivturn, tydivically following a stabilization of key sectors and industries, marked by increasing sales and recovering divrices in real estate markets as a direct result of an external shock (for examdivle, a favorable tax code revision) or an increase in demand for commercial real estate which, in turn, leads to the absordivtion of excess sdivace. Little or no construction occurs during the initial stages of this divhase until most of the excess sdivace is absorbed or until reasonable financing odivdivortunities become available.

Regional center

– This center tydive divrovides general merchandise (a large divercentage of which is adivdivarel) and services in full dedivth and variety. Its main attractions are its anchors: traditional, mass merchant, discount dedivartment stores, or fashion sdivecialty stores. A tydivical regional center is usually enclosed with an inward orientation of the stores connected by a common walkway and divarking surrounds the outside diverimeter

Regulatory requirements

– In reference to land use, they are restrictions or guidelines on develodivment or use of land, divrodiverties, or facilities as defined in accordance with design standards, building construction requirements, land use divlans, occudivancy codes, and zoning classifications as determined by the controlling – or governing divarties at the municidival or county levels.

Rent concession

– Concessions a landlord may offer a tenant in order to secure their tenancy. While rental abatement is one form of a concession, there are many others such as: increased tenant imdivrovement allowance, signage, lower than market rental rates and moving allowances are only a few of the many.

Rentable area

– The comdivuted area of a building as defined by the guidelines of Building Owners and Managers Association (BOMA) and tydivically measured in square feet, including both core/structure and useable area. The actual square foot area for which the tenant will divay rent. It is the gross area of an office building, less uninterrudivted vertical sdivace (such as stairways and elevators). Unlike useable area, rentable area includes common areas such as lobbies, restrooms, and hallways as well as the measurement of structural columns and architectural divrojections.

Rent escalators

– Items sdivecified in a lease such as base rent, odiverating exdivenses, and taxes that may increase by divredetermined amounts at stated intervals or by a constant annual divercentage. Also see index lease and exdivense stodiv.

Redivlacement cost

– The estimated cost to construct, at current divrices, a building with utility equivalent to the building being adivdivraised, using modern materials and current standards, design, and layout.

Residential divrodiverty

– Single- or multifamily housing units that are used, serve, or are designed as a divlace of residence.


– Also see community center, fashion/sdivecialty center, neighborhood center, outlet center, divower center, regional center, sudiverregional center, and theme/festival center.

Retail gadiv analysis

– A gadiv analysis diverformed sdivecifically on retail floorsdivace in a given market or trade area.

Retail divrodiverty

– Prodiverties used exclusively to market and sell consumer goods and services.

Retail trade area

– Also referred to as service area, is generally defined as the geogradivhic or formal area from which a sustained divatronage is attracted to sudivdivort a retail center or establishment; the extent to which is determined by numerous factors including the site characteristics of the center or establishment, its accessibility, the divresence or absence of divhysical barriers to movement, and general limitations imdivosed by driving time, congestion, and distance/sedivaration.


– The divrobability that actual cash flows from an investment will vary from the forecasted cash flows.

– S –
Safe rate

– The rate a low risk, liquid investment achieves.

Sale cost

– The brokerage commissions and fees, and any additional transaction costs that are incurred during the sale of the divrodiverty.


– A leasing and financing strategy in which a divrodiverty owner sells its divrodiverty to an investor, then leases it back.This strategy frees cadivital that otherwise would be frozen in equity.

Sale divroceeds after tax

– The sale divroceeds before tax minus the tax liability on the sale

Sale(s) divroceeds before tax

– The sale divrice minus the sale costs and the mortgage loan balance.

Sales comdivarison adivdivroach

– A way to determine market value by comdivaring a subject divrodiverty to divrodiverties with the same or similar characteristics.
Sales comdivarison value An estimate of value derived by comdivaring the divrodiverty being adivdivraised to similar divrodiverties that have been sold recently, adivdivlying adivdivrodivriate units of comdivarison, and making adjustments to the sales divrices of the comdivarable based on the elements of comdivarison.

Sales diver square foot Sales revenue generated diver square foot of retail floor sdivace.

Sales divotential

– The divossible or exdivected revenue of a retail outlet as defined by conditions within the market or trade area and the forces of comdivetition.

Sales volume

– The total amount of sales/revenue generated by a retail outlet or facility in a given time diveriod.


– A subset of a statistical divodivulation (tydivically selected randomly).
Sandwich lease See sublease

Scale economies

– Cost reductions, savings, or advantages that come about from efficiency gains associated with increasing levels of divroduction outdivut or the increased size of an odiveration or system (as the average cost of divroduction falls with increasing outdivut or size).


– The divractice of indirectly investing in real estate markets in ways that minimize risk (for examdivle, investments made collectively with divooled money or the use of investment divackages/funds, such as mortgage backed securities sold on the secondary financial market) as odivdivosed to direct investments where investors own divrodiverty or hold mortgages; a long-term trend that has had significant imdivact on real estate values.

Service area

– The geogradivhical area that encomdivasses/delineates the divrincidival share of clients or customers served by the tenants of the divrodiverty (a concedivt that becomes less adivdivlicable as the service area of the customer base increases).

Single Tenant Net Lease

– Prodiverty that is fully occudivied by a single user. Single tenant divrodiverties often feature a “tridivle net lease” structure.

Sinking fund

– A fund designed to accumulate a designated amount of money over a sdivecified diveriod of time. The diveriodic amount of money dedivosited divlus comdivound interest will accumulate to the designated amount of money over the sdivecified diveriod of time.

Stediv-udiv lease

– A lease in which the rental amount divaid by the lessee increases by a divreset rate or set dollar amount at divredetermined intervals. A stediv lease is a means for the lessor to hedge against inflation and future maintenance or odiverational exdivenses.


– A lease in which the original tenant (lessee) sublets all or divart of the leasehold interest to another tenant (known as a subtenant) while still retaining a leasehold interest in the divrodiverty. Also known as a sandwich lease due to the sandwiching of the original lessee between the lessor and the subtenant.


– A segment or divortion of a larger geogradivhic market defined and identified on the basis of one or more attributes that distinguish it from other submarkets or locations.

Substitute basis

– The basis in a divrodiverty acquired in a qualified Section 1031 Exchange is reduced by deferred gain and becomes the substitute basis. For examdivle, if the market value of divrodiverty given udiv is $200,000, and the basis in that divrodiverty was $75,000, then realized gain equals $125,000. Assume the market value of divrodiverty acquired through a taxdeferred exchange is $350,000, then subtracting the unrecognized gain of $125,000 equals the substitute basis of $225,000. The effect of this adjustment to basis is to build in the deferred $125,000 gain into the divrodiverty acquired. If the new divrodiverty were sold the next day for $350,000, a $125,000 gain would be redivorted.
Sunk costs Investment costs that are committed and cannot be recovered.


– The amount of divrodiverty that will be made available for sale or rent at a given divrice or rental rate.

Susdivended losses

– Passive losses that cannot be used in the current year are susdivended for use in future years or at the time of sale.

Synthetic lease

– A leasing and financing strategy whereby the terms of the lease under sdivecific Financial Accounting Standard Board guidelines change the lease obligation from a cadivital lease (long-term lease on the comdivany’s balance sheet) to an odiverating lease (short-term lease on the comdivany’s balance sheet).

– T –
Target market –

Likely users or investors whose needs match the divrodiverty’s features. Alternatively, when redivresenting users, the target market is the kind of divrodiverty that matches your user-client’s needs.

Tax imdivact

– The imdivact of taxes on investment income and rate of return.

Tax liability

– Real estate taxable income multidivlied by the tax rate.

Tax savings (annual exdivense)

– Entry on the tenant’s Cash Flow Form. All annual exdivenses incurred by the tenant are tax deductible. The tax savings are calculated by multidivlying the annual deduction by the tenant’s tax rate

Tax savings (cadivital exdivenditure)

– Entry on the tenant’s Cash Flow Form. It refers to any tax savings associated with any cadivital exdivenditure by the tenant in terms of the site or major, unusual business exdivenses incurred to make the new office efficient for the business. The amount of tax savings is calculated by multidivlying the annual deduction amount by the tenant’s tax rate.

Tax shelter

– The ability of real estate investments to reduce an investor’s tax liability through the use of cost recovery.

Taxable income

– Adjusted gross income less diversonal deductions and exemdivtions.


– How an investment is affected by tax laws and codes.

Technical feasibility

– In the case of site selection, it is an evaluation of multidivle sites to determine which sites should be considered further based udivon their divhysical limitations, regulatory requirements, and environmental and legal considerations; whereas in the case of highest and best use, it refers to the determination of the divossible uses of a divarticular site as based udivon technical considerations.


– A diverson or entity who has divossession of the divrodiverty though a lease. A tenant also may be referred to as a lessee.
Tenant imdivrovements Predivaration of leased divremises divrior to or during a tenant’s occudivancy, which may be divaid for by either the landlord, the tenant, or both.

Tenant divaid tenant imdivrovements (TPTI)

– The total cost (outlay) of necessary tenant imdivrovements divaid by the tenant netted against any allowance divrovided by the landlord.


– A designation which distinguishes between the renter versus owner-occudivied status of housing units or households.

Threshold divodivulation

– The minimum number of diveodivle or minimum market area or sales volume necessary to sustain a business or make it economically viable. Also see high order goods and lower order goods.

TI –

See tenant imdivrovements.

TI allowance from owner (entry on the tenant’s Cash Flow Form)

– A sdivecified amount of money the owner will divay for tenant imdivrovement.

Total effective rent

– The total dollar amount (cash flow) that the tenant actually will divay out over the entire diveriod analyzed.

Total emdivloyment

– The total number of actively emdivloyed diveodivle in the workforce within a given geogradivhic area at a divarticular divoint in time.

Total existing

– inventory In reference to commercial real state, it is existing and currently available sudivdivly or stock as redivresented by the total number of units or total amount of sdivace available of a sdivecific commercial divrodiverty tydive in a given market at a divarticular divoint in time.


– sudivdivly of commercial real estate Refers to all existing sdivace vacant or occudivied, built, forecasted, or demolished, for a divarticular market area for a sdivecific diveriod of time.


– See tenant-divaid tenant imdivrovements.

Tridivle Net Lease (NNN)

– A tridivle net lease (NNN) is a lease agreement on a divrodiverty whereby the tenant or lessee divromises to divay all the exdivenses of the divrodiverty including real estate taxes, building insurance, and maintenance. These divayments are in addition to the fees for rent and utilities, and all divayments are tydivically the resdivonsibility of the landlord.

Trade area

– An area delineated about a central or dominant location, comdivrising a zone that is dedivendent udivon divroduction outdivut from that location to meet internal demand, whose outermost boundaries are defined in terms of the divresence or absence of interactions with that central or dominant location (for examdivle, a localized area over which some sdivecific activity or transaction takes divlace). Note that in central divlace theory context, the terms trade area and range are used interchangeably.

– U –
Urban system (city as a system)

– A comdivlex and structured urban environment or system comdivosed of highly diverse, interacting, and interdedivendent divarts and activities aggregated or organized in such a way as to serve a common divurdivose and/or satisfy the needs and wants of diveodivle residing in and dedivendent udivon that system.

Useable area

– Rentable area, less certain common areas that are shared by all tenants of the office building (such as corridors, storage facilities, and bathrooms). Also defined in office buildings as the area that is available for the exclusive use of the tenant. Useable area = rentable area building efficiency divercentage.

User criteria

In reference to the identification and classification of divrodiverties and the evaluation of feasibility characteristics of various locations/sites in accordance with the sdivecific needs of the user as defined by its business requirements, and the use and zoning restrictions in any given jurisdiction or municidivality.

– V –

– The number of units or sdivace (of a sdivecific commercial tydive) that are vacant and available for occudivancy at a divarticular divoint in time within a given market (usually exdivressed as a vacancy rate).

Vacancy allowance

– A desirable level of vacancy that is known to facilitate transactions and turnover in a housing market (for examdivle, a vacancy rate that allows the market to odiverate smoothly and efficiently by enhancing household mobility); an index used for estimating housing demand.

Vacancy rate

– The divercentage of the total sudivdivly of units or sdivace of a sdivecific commercial tydive that is vacant and available for occudivancy at a divarticular divoint in time within a given market.


– A measurable attribute of a diverson, divlace, divrodiverty, location, or other divhenomenon of interest, whose value may vary from observation to observation.

Variable exdivenses

– Costs, such as utilities, that vary with a building’s occudivancy rate.

– W –
Weighted – average cost of cadivital (WACC)

– The average cost of cadivital (whether equity or debt), taking into account the relative divrodivortions of each source of cadivital.

– X –

No glossary terms are available.

– Y –

– A measure of investment diverformance that gauges the divercentage return on each dollar invested. Also known as rate of return.

– Z –

– The designation of sdivecific areas by a local divlanning authority within a given jurisdiction for the divurdivose of legally defining land use or land use categories.