Joint Venture – An investment entity formed under contract by two or more parties to pursue a specific business opportunity, such as purchase or develop and manage real property and/or other assets, and share in the profits or losses of the venture. JV’s are codified in state corporation’s codes.
Jumbo Mortgage – A mortgage loan on a home where the loan value exceeds the standard limits for conforming loans set by Fannie Mae and Freddie Mac, the government-sponsored institutions that buy loans from banks. As a result, the interest rates on these loans are higher because lenders don’t have the assurance that Fannie or Freddie will guarantee the purchase of the loans. If the loan value exceeds the conforming limit, there’s no assurance that Fannie and Freddie will guarantee the purchase of the loan. Brokers and lenders must be willing to take on greater risk to fund jumbo mortgages.
Just Compensation – Compensation which is fair to both the owner of private property and the public when the property is “condemned” for public use through eminent domain. Taken into consideration is the cost of reproducing the property, its fair market value and any resulting damage to the owner’s remaining property.
Implied Cap Rate – Net operating income divided by a property’s amount of equity market capitalization and outstanding debt.
Improvements – In the context of a lease, the improvements made to or inside a property, but can also include any permanent structure or a street, curbs, sidewalk, or utility upgrade.
Incentive Fee – A fee structure where the amount of fee that is charged is determined by the performance of the real estate assets under management.
Income Capitalization Value – A property valuation calculated for an income-generating property by directly capitalizing the expected income or by discounting the yearly cash flows for the holding period at a specified yield rate. Also known as a Cap-Rate value.
Income Property – Real estate that produces a positive cash flow from operations.
Income Return – A percentage value for the total return that is created by an operation’s income from property, a fund or an account.
Indirect Costs – In cost accounting, the method of allocating developmental or administrative costs, such as administrative salaries and office expenses, and financing costs, to various cost centers, product lines or projects being tracked. Direct costs, such as material and labor, are directly allocated to their specific cost centers.
Individual Account Management – The accounts established by a firm serving as an adviser or manager in purchasing and/or managing a real estate portfolio for investing in real estate, or for companies sponsoring individual plans or for other investors using real estate as their investment vehicle.
Inflation – The annual rate at which consumer prices increase (government’s definition), the annual loss in purchasing power of fiat currency due to deflationary monetary policies and actions of a central bank, such as the Federal Reserve (The Fed).
Inflation Hedge – An investment intended to retain or increase the value of an investment at a rate greater than inflation and preserve wealth and the purchasing power of a portfolio, usually a flight of capital from currency to commodities and real estate.
Initial Public Offering (IPO) – The first time a private corporation offers to sell its shares to the public on a public exchange.
Institutional-Grade Property – Real estate properties that tax-exempt institutional investors will purchase or finance. Properties usually include office, retail, industrial and apartments. Specialty properties include hotels, health care facilities, land beneath leased properties, undeveloped land, and mixed-use properties (such as property that has retail on first floor and residential on second floor).
Insurance – Financial protection against a specific loss over a period of time that is secured by the payment of regularly scheduled premium payments.
Internal Rate Of Return (IRR) – A discounted cash-flow analysis calculated to figure the potential overall return of a real estate asset during its anticipated period of ownership.
Investment Manager – Any legal entity or individual that has discretionary authority for the management and investment of a specified amount of real estate capital, assets and potential to invest that capital through a separate account, joint venture program or commingled fund in assets.
Investment Strategy – The investment principles used by an investment manager in structuring an investment fund’s or account’s portfolio and selecting the real estate assets for it. This includes a description of the types, locations and sizes of properties to be considered, the ownership positions that will be used, and the stages of the investment lifecycle.
Abandonment – The voluntary relinquishment of an interest, claim, privilege or possession of property.
Abatement – A period of time when a renter takes possession of real property prior to or outside the time period of the primary term of the lease, also referred to as free rent or early occupancy.
Ad Valorem – From the Latin “according to value.” A tax imposed on a property as a percentage of the property’s value, usually based on the valuation of the property by the local government.
Adjusted Gross Income – Gross income of a building if fully rented, minus a percentage for estimated vacancies.
Adviser – An owner’s representative in a real estate transaction. An adviser may be a real estate broker, consultant or investment banker. Advisers may be paid a retainer and/or a performance fee upon the close of a financing or sales transaction.
Alternative Or Specialty Investment – Unconventional property type that is not considered a standard institutional-grade real estate investment, such as self-storage units, mobile home parks, agricultural land, and parking lots.
Amenity – A natural or man-made feature that enhances the desirability of a property, such as a view, swimming pool or access to water, but that is not necessary to its use.
Apartment Conversion – When an apartment building is converted to individually owned units, such as a condominium.
Apartment Rehabilitation – The extensive renovation of an aging apartment building.
Application – The first step in the official loan approval process usually involves the form used to evaluate the potential borrower’s information needed for the underwriting process.
Appreciation – An asset’s increase in market value due to market changes, currency devaluation, or other economic factors.
As- Is Condition – A tenant’s or buyer’s acceptance of a property’s existing condition, including and regardless of any physical defects, at the time a sale/lease is contracted.
Assessment – A fee imposed on property owners, usually to pay for public improvements such as water, sewers, streets, or curb and sidewalk installations.
Assessor – A county or state government official who is responsible for determining the value of a property for the purpose of taxation.
Asset – Items of value owned by individuals or businesses, such as real property, cash, personal property. Assets that can quickly be converted to cash are called “liquid assets” like stocks or similar equities.
Asset Management Or Property Management – The various disciplines involved with managing real property assets from the time of investment through the time of disposition. Asset management includes appraising, acquisition, and financing; managing and leasing; operational and financial reporting; audits, market review and, ultimately, asset disposition.
Asset Management Fee – Fee charged for the management of a real estate investment, based on the amount invested into real estate assets for the fund or account, to the investors.
Assets Under Management – The total market value of real estate assets for which an asset or property manager has investment and asset management responsibility.
Assignee Name – Party or legal entity to which an asset, including any obligations attached to it such as leases, mortgages or other contracts, has been transferred.
Assignment – Transfer of the lessee’s interest in a property, including all of its obligations, as opposed to a sublease where the lessee transfers less than the lessee’s entire interest to the subletting party. An assignment usually must be approved or consented to by the owner/landlord.
Average Common Equity – Calculation of total equity of a property by adding five most recent quarters and dividing by five.
Average Free Rent – The average monthly rent abatement allowed to a tenant as part of a lease incentive due to current market conditions. An incentive commonly used in hard-to-rent areas or as a concession for tenant improvements.
Average Occupancy – The percentage of a property occupied over the preceding twelve (12) months divided by twelve (12). High occupancy rates are desired to maximize return on investment (ROI).
Bankrupt – The state of an entity or individual that is unable to repay its current obligations and debts.
Base Rent – A fixed amount of rent used as a basis for increasing the rent in the future, usually stated as a percentage of the base, over the term of the lease.
Base Year – Taxes and operating expenses for the first year of a lease. The base sets a foundation for follow-on years.
Basis Point – One-one hundredth of one percent.
Below-Grade – A portion of a building constructed below the surface “grade” level as defined by the building code.
Bid – An offer to buy. In real estate, an offer for a building/house.
Blind Pool – A real estate investment fund that accepts investor capital without prior specification of what real estate will be invested in.
Broker – An intermediary licensed person who works between two or more parties connected to a transaction, such as real estate broker between the buyer and seller in a real estate sale.
Budget – A balance sheet or statement showing a detailed record of all income earned and spent during a specific period of time.
Buildable Acreage – The portion of a property measured in acres that is available to be built upon after subtracting for roads, setbacks, any open or green spaces and areas where the terrain or other factors make it unsuitable for building.
Building Code – The various regulations and laws set forth by the ruling government body as to the safety standards and construction standards. The code may dictate the criteria for allowable materials, construction and types of internal and external improvements.
Building Standard Plus Allowance – List of building standard materials and costs necessary to make a property suitable for occupancy. The tenant can use the negotiated allowance to upgrade or customize the materials.
Build-Out – Tenant specified space improvements which take into account the amount of tenant finish allowance that the lease contract provides for.
Build-To-Suit – Leasing of a property where the developer or landlord builds to a tenant’s specifications.
Common Area Maintenance (CAM) – Maintenance charges for the upkeep of a building’s common areas, such lighting, insurance, and property taxes.
Capital Appreciation – A property’s or a group of properties’ change in market value adjusted for capital improvements and any partial sales.
Capital Expenditures – Investment of cash, or the borrowing of funds, for the expenditures resulting in the acquisition of or addition to fixed assets.
Capital Gain – The difference between the net proceeds from the sale of an asset or property and the asset’s or property’s book value.
Capital Improvements – Expenditures necessary to repair a property or to add new improvements and thus increase its life.
Cap Rate – An investor’s rate of return if the investor was to pay cash for a property with commercial income.
Carrying Charges – Incidental property ownership costs that a landlord absorbs during a building’s initial lease-up and during any vacancy periods afterwards.
Cash Flow – The net amount of cash generated by a company’s or property’s operation. Net post-tax revenue minus expenses.
Certificate Of Occupancy – A local government agency’s or building department’s document certifying that a building and/or the leased area was inspected and found in a condition satisfactory for occupancy (usually after original construction or after a natural disaster).
Chain Of Title – An analysis of the history of a piece of property’s transfers of title.
Clear Title – A title to property that is free of liens or any legal questions or disputes as to the property’s ownership.
Cloud On Title – Any condition revealed by a title search that adversely affects the real property’s title despite the merits. Normally a cloud on title can’t be eliminated except by a quitclaim deed, release, or court action.
Co-Investment – Co-investment occurs when two or more pension funds or groups of funds share ownership of a real estate investment. In co-investment vehicles, relative ownership is always based on the amount of capital contributed. It also refers to an arrangement in which an investment manager or adviser co-invests its own capital alongside the investor.
Commercial Evaluation – A commercial appraiser will use Market Approach, Income Approach, or Cost Approach to Valuation to arrive at an opinion of value.
Commission – An amount, usually a percentage of the property sales/lease price, that is earned by a real estate professional as a fee for negotiating a real estate transaction.
Common Area – For lease purposes, the areas of a building and its grounds that are available for the non-exclusive use of all its tenants, such as stairwells, restrooms, lobbies, hallways, exterior walkways, and parking lots.
Comparables (Comps) – Other real estate properties with similar characteristics used to determine the fair market lease rate or sale price.
Comparative Market Analysis (CMA) – An estimate of the real estate value based on an analysis of sales of comparable properties in the same or similar geographical area.
Concessions – Cash or its equivalent, such as rental abatement, additional tenant finish allowance, or moving allowance, used by the landlord to persuade a potential tenant to sign a lease agreement.
Condemnation – A government’s process of taking private property through the power of eminent domain, without the consent of the owner, for public use.
Condominium – A form of property ownership in which buyers purchase and own a unit of housing in a multi-unit complex and share financial responsibility for the maintenance, taxes and insurance expenses of the common areas.
Condominium Hotel – A condominium that has rental units for short-term occupancy that is operated as a hotel with eating, cleaning and telephone connections as well as units that are owned by individuals.
Construction Management – The act of ensuring that all the stages of the construction project are completed on time and according to all the construction documents (sometimes performed by architects).
Contiguous Space – Multiple rental units that are next to each other on the same floor of a building, or a block of space located on multiple adjoining floors in a building, that can be combined and rented to a single tenant.
Contract Rent – The lessee’s monetary rental obligation, sometimes called face rent, specified in a lease.
Contract Sale Or Deed – A real estate agreement that does not take effect or transfer the title until certain conditions are met.
Cost-Approach (Improvement Value) – The current cost to build a replacement for an existing structure minus any accrued depreciation
Cost-Approach (Land Value) – The estimated value of the fee simple interest in land as if vacant and able to be developed to its best and highest use.
Cost-Of-Sale Percentage – The total cost of selling an investment property, denoted as a percentage of sales price, including broker’s commissions, fees, closing costs and other expenses relating to the sale.
Covenant – A written agreement inserted into a property’s deed or other legal instruments dictating a property’s uses, restrictions, or performance of certain acts or obligations related to the property.
Current Occupancy – The percentage of a property’s currently leased area or units out of the property’s total area or units.
Deal Structure – How a financing package for an acquisition is designed. Deals can be unleveraged or leveraged; traditional, participatory, or convertible debt; or joint venture.
Dedicate – To convert privately owned property to public ownership for a public use.
Deed – A legal instrument that transfers ownership title to real estate property from a seller to a buyer.
Demising wall – A fixed partition wall that defines the separation of one tenant’s space from another tenant or from the building’s common area.
Depreciation – In accounting, a periodic allowance for an asset’s real or implied loss in value due to wear, age and other factors. In real estate, a decline in the value of property – the opposite of appreciation. Depreciation can occur in real estate due to factors beyond the real property’s boundaries, such as the condition of the surrounding neighborhood.
Design/Build – A company (usually construction contractor) that is responsible for both the design and construction of a property.
Discretion – The amount of authority an adviser or manager has over the management and investment of a client’s account.
Diversification – The process of designing an investment portfolio to insulate against the risks of reduced interest yield or capital loss through allocating the individual investments among a several types of assets, each with different characteristics.
Dollar Stop – A maximum agreed-upon amount each commercial tenant will pay on a prorated basis for taxes and operating expense.
Due Diligence – Investigative activities carried out by a potential buyer of real property to assure that the property is as the seller represented, that all documents are true, no material is left out, and it is not subject to structural, environmental or other problems.
Earnest Money Deposit – The monetary deposit against the purchase of a property to show the buyer’s intention to fulfill a contract. Earnest money becomes part of the down payment if the offer is accepted, is returned if the offer is rejected by the seller, or is forfeited if the buyer rescinds their offer.
Easement – A right created by grant, reservation, agreement, or prescription to allow other parties to access someone else’s property.
Effective Date – A registration statement becomes effective and the sale of securities can start on that date.
Effective Gross Income (EGI) – The total income from a property from rents and other sources, minus any appropriate or established vacancy factor. EGI is expressed as collected income before expenses and debt service.
Effective Gross Rent (EGR) – Net rent realized after subtracting any tenant improvements and other capital costs, lease commissions and other sales expenses.
Effective Rent – The actual rent achieved by the landlord after subtracting any concessions allowed to a tenant, usually expressed as an average rate over the lease’s term.
Eminent Domain – A government’s power to acquire or “take” the property owned by a private party by condemnation for a public use. In return, the government must pay just compensation of the current market value.
Encroachment – When a structure extends over the boundary/property line, easement boundary or building setback line of an adjacent property, without permission of the adjacent property’s owner,
Endorsement – An addition made to alter or clarify a document. This is typically seen in a title policy or insurance policy.
Engineering Report – A report on the current physical condition of a real property and its major building systems, such as HVAC, exterior walls, structural components, parking lot, plumbing, electrical roof systems and appurtenances, created by an engineer or architect. The report can also estimate cost for any necessary replacement reserves.
Environmental Report – A report done by an environmental engineer following a study to reveal any known toxic contamination sites on or near the subject real property. A Phase I report includes a research of the public environmental databases plus a physical site inspection. The report provides lenders with an analysis of the data and recommendations for the lender. The more inclusive Phase II report has the addition of an analysis of soil samples from the property. The soil samples are to detect any actual toxic contamination in the soil or ground water.
Escalation Clause – A clause in a lease contract that calls for an increase in rent to reflect increases in expenses, such as real estate taxes and operating costs, paid by the landlord. Also a clause in a purchase offer for a property that allows the offer to be automatically raised if a higher offer is received.
Estate – An individual’s legal ownership interest in real property. Can be defined as the total of all real and personal property a person owns at their time of death.
Exclusive Agency Listing – A written contract between a property owner and a real estate broker in which the owner agrees to pay a fee or commission to the broker if the specified real property is leased/sold during the listing period.
Furniture, Fixtures & Equipment – Personal or business property which is used in the real property but which is not valued as part of the real property.
Facility Space – The floor area in a hospitality property dedicated to operating departments such as restaurants, bars, health clubs, coffee shops and gift shops that serve the guests or the general public in a way that is not directly related to room occupancy.
Fair Housing Act – The Federal law that prohibits discrimination in all facets of the home buying process on the basis of race, color, national origin, religion, sex, familial status, or disability.
Fair Market Value (FMV) – The amount at which a property or asset could be bought or sold between a willing buyer and willing seller – arms-length transaction, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts or being well informed of all material facts. Not a forced or liquidation sale amount.
First Refusal, or Right Of First Refusal – A lease or contract right providing a tenant or buyer the first opportunity to buy a property or lease additional space in a property.
Fee Simple – The legal term defining complete ownership of real property without any limitations or conditions. The ownership of the property goes to the owner’s heirs upon their death intestate.
First-Generation Space – Generally refers to rental/leased space that has not been occupied by a tenant before.
Fixed Costs – Costs that are not affected by the level of sales or production.
Fixture – Personal property that turns into real property when attached in a permanent manner to real estate.
Flat Fee – A manager’s fee for managing a portfolio of real estate assets, usually stated as a flat percentage of the asset’s gross or net value, or invested capital.
Flex Space – A building that provides a changeable or flexible configuration allowing occupants or tenant’s flexibility in apportioning the amount of office or showroom space to the manufacturing, warehouse, or distribution space.
Float – A financial term defined as using funds generated as a result of timing differences in the banks’ check-clearing system. This is common component in the insurance industry.
Flood Hazard Zone – Federal law defines this requirement as a land area that might experience damage from flooding for the purposes of insuring properties. Lenders taking an interest in real property are compelled, by the National Flood Insurance Reform Act of 1994, to complete FEMA’s flood hazard determination form and retain a record of the form. A lender is required to have flood insurance and have notice requirement obligations for any collateral property located in a designated flood hazard area.
Floor Area Ratio (FAR) – The ratio of the gross square footage of a building to the square footage of the land or defined lot on which it is situated.
Force Majeure – A natural force that cannot be controlled by the parties to a contract and prevents them from fulfilling the obligations of the contract. “Acts of God”, such as lightning, flood, storm, freezing or a hurricane, or “acts of man” such as a strike, fire, nuclear first strike or war.
Full-Service Rent – Rent that includes or incorporates all of the first year’s operating expenses and real estate taxes. Tenants are generally still responsible for any increases in operating expenses over base year amounts.
Funds From Operations (FFO) – A financial ratio that compares the cash generated by a company’s real estate portfolio relative to its total operating cash flow. FFO is equal to net income plus depreciation and amortization, less gains (or losses) from debt restructuring and property sales.
Future Proposed Space – Space in a proposed commercial development upon which the building has not yet started or where date for construction start has not been set. May refer to the phases of a multi-phase project that are as yet not built (an example is sometime one can see a dirt lot with a sign that says “Build To Suit” or “Future Home of ABC Company”).
General Contractor – The contractor who contracts with the property owner for the overall construction of a building or project. A subcontractor contracts with the general contractor for a portion of the construction project. In addition to hiring subcontractors, a general contractor coordinates all work, is responsible for paying the subcontractors and enforcing the subcontracts.
General Partner – A member, sometimes the only active member, of a partnership who is authorized to bind and contract for the partnership and share in the partnership’s profits or losses. The states’ corporations’ code defines the rights and responsibilities of general partners.
Going-In Capitalization Rate (Estimated Cap Rate) – The capitalization rate or cap rate computed by taking a property’s projected net operating income from the first year and dividing it by the property’s value. It is one method of determining a property’s value.
Graduated Lease – A lease, typically long-term in nature, in which rent varies, primarily increasing, depending upon future contingencies and conditions, such as inflation, operating expenses and taxes.
Gross Building Area – The sum of each floor’s square footage, including basements, mezzanines and penthouses included within the main outside faces of the exterior walls.
Gross Investment In Real Estate (Historic Cost) – The total sum of equity and debt invested in a real estate property investment, including the gross purchase price, any acquisition expenses, and subsequent capital improvements, minus the proceeds from sales and partial sales of the property.
Gross Leasable Area – The portion of total floor area designed for tenant occupancy and exclusive use, including storage areas that produce rental income.
Gross Lease – A lease in which the tenant pays a flat amount for rent. From this rent, the landlord pays all expenses such as taxes, insurance, maintenance, and utilities.
Gross Real Estate Value (Asset Value) – The total market value of all the real estate investments under management in a fund or individual accounts or individual portfolio. Typically included is the total value of all equity positions, debt positions and ownership positions in joint ventures, and the amount of any mortgages or notes payable related to those assets.
Gross Real Estate Investment Value – The total market value of real estate investments in a portfolio not including debt, equal to the total of real estate investments as shown on a market-value basis on an assets and liabilities statement.
Gross Returns – Returns generated from the operation of real estate before subtracting fees like management fees.
Ground Rent – Rent paid to a property’s owner for use of land by lessee, usually on which to construct a building. Generally, the arrangement is that of a long-term or 99 year ground lease in which the lessor retains title to the land.
HVAC – Heating, Ventilation and Air Conditioning. The HVAC contractor installs the heater, or air conditioning system in a building.
Hard Cost – Actual cost of building property improvements or building structure not including the land.
Hazard Insurance – Insurance against losses caused by perils or hazards which are commonly covered in policies described as a “Homeowner Policy”.
High-Rise – As defined by the building code in a downtown commercial district, this is usually described as a building 25 or more stories above ground level. In suburban areas, it usually a building more than seven or eight stories high.
Highest And Best Use – The reasonably probable and legal use of vacant land or an improved property that gives it the highest value for what is physically possible and financially feasible to build and appropriately support. An appraiser is sometimes charged to determine the highest and best use of a vacant lot to determine maximum value.
Holding Period – The amount of time an investor plans to retain ownership of a property after buying and before selling for financial planning.
Hold-Over Tenant – A tenant retaining possession of a leased property after a lease’s expiration as defined in the law of property.
Home Inspection – Usually performed during a typical real estate transaction is defined as an examination of a building’s structure and mechanical systems to determine a home’s safety. A home inspection helps to make the potential homebuyer aware of any repairs that may be needed.
Homeowner’s Insurance – Insurance that covers damage to the insured’s home and personal assets included in the policy’s coverage subject to exceptions and exclusions. Liability claims made against the insured are subject to the policy terms, conditions, provisions; losses not insured provision and exclusions.
Home Warranty – A warranty that offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner’s insurance subject to exclusions and exceptions. Coverage extends for a specific period of time and does not include the home’s structure.
Homeowner Insurance – An insurance policy that combines protection against damage to a dwelling and its contents along with protection against claims of negligence or inappropriate action that resulted in someone’s personal injury or property damage.