Glossary of

Commercial Real Estate Terms


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The amount of inventory or units of a specific commercial property type that become occupied during a specified time period (usually a year) in a given market, typically reported as the absorption rate.

Accredited Investor:

There are several ways to meet the definition of Accredited Investor, including but not limited to the following general categories:

    1. Individuals having a pre-tax income exceeding $200,000 annually ($300,000 together with spouse or spousal equivalent) for the two years preceding the investment with the expectation of that continuing in the next year;
    2. Individuals having a net worth of more than $1 million, excluding the value of the primary residence;
    3. Individuals holding certain professional certifications, designations, and licenses that are active and in good standing (Series 7, Series 82, Series 65 holders);
    4. Entities owning more than $5,000,000 in “investments” as defined in the Investment Company Act of 1940, and not formed for the specific purpose of acquiring the subject securities;
    5. Entities in which all equity owners are accredited;
    6. Trusts with total assets in excess of $5,000,000 not formed for the specific purpose of acquiring the subject securities.

This definition is intended to provide a general overview of ways to meet the definition of Accreditted Investor. For the full definition, please see 17 CFR § 230.501(a).

Administrative Fee:

The amount of inventory or units of a specific commercial property type that becomes occupied during a specified time period (usually a year) in a given market, typically reported as the absorption rate.


Alpha is a risk adjusted statistical measure of performance. Alpha takes the volatility (price risk) of a managed portfolio of equities or alternative assets and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund’s alpha. Alpha can be thought of as the abnormal rate of return on a security or portfolio in excess of what would be predicted by an equilibrium model like the capital asset pricing model (CAPM). It typically is thought of as a measure of the “value added” (or subtracted) by the portfolio manager in selecting the individual components of and engineering the interplay between components when constructing the portfolio. A positive alpha of 1.0 means the fund has outperformed its benchmark index by 1%. Correspondingly, a similar negative alpha would indicate an underperformance of 1%. If a CAPM analysis estimates that a portfolio should earn 12% based on the risk of the portfolio, for example, but the portfolio actually earns 14%, the portfolio’s alpha would be 2%. This 2% is the excess return over what would have been predicted using the same original inputs by the CAPM model.


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


An investment’s increase in value.

Assessed Value:

The value of real property that the tax assessor establishes for the purpose of levying real estate taxes.

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.

Asset Based Lending:

Any form of lending to a business that is collateralized or secured by a balance sheet asset. Pledged assets may include inventory, equipment or accounts receivable that will be redeemed in the event of default by the debtor.


Balloon Payment:

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

Barrier to Entry:

An obstacle preventing a competitor from coming into the marketplace. In terms of the real estate market, a barrier to entry is anything that keeps developers from creating supply in the market. Barriers to entry in real estate markets may result from geographic scarcity, uniqueness of locations, lack of access to capital markets, and land-use regulations.

Barrier to Growth:

Any hindrance to growth patterns and vectors. These may be physical barriers such as a river, mountain, or limited-access highway; political barriers such as an anti-growth city council; or intangible barriers such as a perception of an area as undesirable.

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. Escalations are calculated from the annual base rate. See contract rent.

Base Year:

Actual taxes and operating expenses for a specified year, most often the year in which a lease commences.


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

Basis Point:

1/100 of 1 percent.

Blind Pool:

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

Bridge Loan:

A temporary, limited amount of financing that serves as a ‘bridge’ until a long-term debt or equity investment can be secured.

Break-Even Point:

The stage when an investment produces an income that is just sufficient to cover recurring expenditures. For a property investment, it is the point at which gross income equals normal operating expenses, including debt service (when the next cash flow becomes positive). Also called default point.


The sales threshold over which percentage rent is due. It is calculated by dividing the annual base rent by the negotiated percentage applied to the tenant’s gross sales.


A contract in which the owner agrees to develop or finish a property or space to the specifications of the tenant. The tenant may partly carry the cost in the form of increased rent.


CAM Cap:

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

Capital Call:

When a general partner is ready to make an investment, it will ask its limited partners for the capital they’ve already committed to the fund.

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. They are 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. See operating expenses.

Capital Gain:

Taxable income derived from the sale of a capital asset. It equals the sale price less the costs of sale, adjusted basis, suspended losses, excess cost recovery, and recapture of straight-line cost recovery.

Capitalization 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 known as cap rate.

Carried Interest:

Carried interest, or carry, is a share of any profits that the general partners of private equity and hedge funds receive as compensation, regardless of whether they contributed any initial funds. This method of compensation seeks to motivate the general partner (fund manager) to work toward improving the fund’s performance.

Cash-on-Cash Yield:

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

Cash Flow:

The net cash received in any period, taking into account net operating income, debt service, capital expenses, loan proceeds, sale revenues, and any other sources and uses of cash.

Cash Proceeds from Sale:

The sale price less sales costs, mortgage balance, and tax liability on sale. Also known as sale proceeds after tax.

Closed End Fund:

A commingled fund that has a targeted range of investor capital and a finite life.


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 Real Estate (CRE):

Any multifamily (residential income), office, industrial, or retail property that can be bought or sold in a real estate market.

Common Area:

Areas within a building and its site, such as lobbies, hallways, grounds, and parking lots, that are available for non-exclusive use by all tenants.

Common Area Maintenance (CAM):

Charges the tenant pays for the upkeep of areas designated for use and benefit of all tenants. CAM charges are common in shopping centers, where tenants are charged for items such as parking lot maintenance, snow removal, and utilities.


Used to determine the fair market lease rate or asking price, based on other properties with similar characteristics.

Consumer Price Index (CPI):

Measures inflation in relation to the change in the price of goods and services purchased by a specified population during a base period of time. The CPI is commonly used to increase the base rent periodically as a means of protecting the landlord’s rental stream against inflation or to provide a cushion for operating expense increases for a landlord unwilling to undertake the record-keeping necessary for operating expense escalations.

Contract Rent:

The total monetary rental obligation specified in a lease. See base rent.


Typically includes the four major property types — specifically office, retail, industrial and multifamily. Core assets are high-quality, multi-tenanted properties typically located in major metropolitan areas and built within the past five years or recently renovated. They are substantially leased (90 percent or better) with higher-credit tenants and well-structured, long-term leases with the majority fairly early in the term of the lease. Core investments are unleveraged or very low leveraged and generate good, stable income that, together with potential appreciation, is expected to generate total returns in the 8 percent to 10 percent range. (Note: In today’s low-yield environment, many investors are willing to accept core property returns below 8 percent.)

Core Properties:

The major property types – specifically office, retail, industrial and multifamily. Core assets tend to be built within the past five years or recently renovated. They are substantially leased (90 percent or better) with higher-credit tenants and well-structured long-term leases with the majority fairly early in the term of the lease. Core assets generate good, stable income that, together with potential appreciation, is expected to generate total returns in the 10 percent to 12 percent range.

Core Plus:

These investments possess similar attributes to core properties — providing moderate risk and moderate returns — but these assets offer an opportunity for modest value enhancement, typically through improved tenancy/occupancy or minor property improvements. This strategy might employ leverage in the range of 30 to 50 percent with return expectations of 9 percent to 12 percent.

Cost Approach:

A method of determining the market value of a property by evaluating the costs of creating a property exactly like it.

Cross Collateralization:

A grouping of mortgages or properties that serves to jointly secure one debt obligation.


Debt-Coverage Ratio (DCR):

Ratio of net operating income to annual debt service. Expressed as net operating income divided by annual debt service.

Debt Service:

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


A decrease or loss in property value due to wear, age or other cause. In accounting, depreciation is a periodic allowance made for this real or implied loss.

Discount Rate:

The percentage rate at which money or cash flows are discounted. The discount rate reflects both the market risk-free rate of interest and a risk premium. See opportunity cost.

Due Diligence:

The process of examining a property, related documents, and procedures conducted by or for the potential lender or purchaser to reduce risk. Applying a consistent standard of inspection and investigation can determine whether actual conditions reflect the information represented.



A right created by grant, reservation, agreement, prescription or necessary implication to use someone else’s property.

Economic Obsolescence:

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

Effective Gross Income (EGI):

The total income from a property generated by rents and other sources, less a vacancy factor estimated to be appropriate for the property. EGI is expressed as collected income before expenses and debt service.

Eminent Domain:

A power to acquire by condemnation private property for public use in return for just compensation.

Equity Multiple:

The total cash distributions received from an investment, divided by the total equity invested.

ERISA (Employee Retirement Income Security Act):

Legislation passed in 1974 and administered by the Department of Labor that controls the investment activities primarily of corporate and union pension plans. More public pension funds are adopting ERISA-like standards.

Estoppel Certificate:

A signed statement certifying that certain statements of fact are correct as of the date of the statement and can be relied upon by a third party, including a prospective lender or purchaser.

Evergreen Fund:

A fund that never closes and keeps fundraising to ensure consistent cash flows. See Open-End Fund.

Expense Stop:

The level (or maximum amount) up to which the landlord will pay certain operating expenses. Amounts above the expense stop are the tenant’s responsibility. See rent escalators.

External Obsolescence:

A form or source of accrued depreciation considered in the cost approach to market value. The loss of value is because of external forces and change. For example, a new mall causes traffic and congestion, negatively affecting residential property values nearby, or a motel is no longer viable because a highway is rerouted. Another example is depressed market conditions.


Fair Market Value:

The sale price at which a property would change hands between a willing buyer and willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts.

Family Office:

A firm that manages assets, investments and trusts for a wealthy family.

Fee Simple Interest:

When an owners owns all the rights in a real estate parcel.

Feasibility Analysis:

The evaluation of a proposed project to determine if it will satisfy the objectives set forth by the agents involved (including owners, investors, developers, and lessees). See market feasibility.


The Employee Retirement Income Security Act (ERISA) defines a fiduciary as any person who exercises any discretionary authority or control over a plan’s asset management, administration or disposition, or renders investment advice for a fee or other compensation with respect to a plan’s assets. Fiduciaries may include staff, trustees, investment board members, administrators, consultants, actuaries and investment managers. ERISA permits civil action to be brought by a beneficiary against any fiduciary that has breached its fiduciary duty. Fiduciaries can be held personally liable for any losses to a plan resulting from such breach.

Financial Feasibility:

The capability of the projected financial picture of a project to indicate sufficient profit to justify the risk to a particular investor or user.

Fixed Expenses:

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

Fixed Lease:

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

Flex Space:

Space that is flexible in terms of its potential use (for example, space that could be utilized for industrial or office activities).


The process by which the trustee or servicer takes over a property from a borrower on behalf of the lender.

Full Service Rent:

An all-inclusive rental rate that includes operating expenses and real estate taxes for the first year. The tenant is generally still responsible for any increase in operating expenses over the base year amount.

Fund of Funds:

A fund that invests in other funds. A fund-of-funds devotes all its time to evaluating fund managers, which usually leads to above-average returns. However, there are extra fees associated with investing in a fund-of-funds.

Functional Obsolescence:

A form or source of accrued depreciation considered in the cost approach to market value. It is the reduced capacity of a property or improvements to perform their intended functions due to new technology, poor design, or changes in market standards.


General Partner (GP):

A member of a partnership who has authority to bind the partnership and shares in the profits and losses of the partnership.

Going-In Cap Rate:

The capitalization rate computed by dividing the projected first year’s net operating income by the value of the property.

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 occupancy and exclusive use, including basements, mezzanines, and upper floors, measured from the center line of joint partitions and from outside wall faces. GLA is that area on which tenants pay rent; it is the area that produces income.

Gross Lease:

A lease in which the landlord pays all expenses associated with owning and operating the property. Contrast with net lease. See Full Service Rent.

Gross Operating Income (GOI):

The total income generated by property operations before payment of operating expenses. It is calculated from potential rental income, less vacancy and credit losses, plus other income not affected by vacancy. The Annual Property Operating Data form or the Cash Flow Analysis Worksheet can be used to calculate a property’s gross operating income.

Gross Rent Multiplier (GRM):

A method investors may use to determine market value. It calculates the market value of a property by using the gross rents an investor anticipates the property will produce at end of year one multiplied by a given factor. This factor is known as the gross rent multiplier, which is derived from the marketplace.

Ground Lease:

A lease of the land only. Usually the land is leased for a relatively long time period to a tenant that constructs a building on the property. A ground lease separates ownership of the land from ownership of buildings and improvements constructed on the land.


One who makes a guarantee.


Agreement whereby the guarantor assures satisfaction of the debt of another or performs the obligation of another if and when the debtor fails to do so.


Highest and Best Use:

The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value, according to the Appraisal Institute.

Highest and Best Use Financial Analysis:

A determination of the highest and best use of one or more vacant or as though vacant properties as improved by examining the profitability of all possible use scenarios, including renovation, rehabilitation, demolition, and replacement.


A portion 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 investor expects to own a property from purchase to sale.


Incentive Fee:

Applies to fee structures where the amount of the fee that is charged is determined by the performance of the real estate assets under management.


The process by which a given geographic area absorbs new individuals/households from outside areas.

Income Capitalization Approach:

A method to estimate the value of an income-producing property by converting net operating income into a value. It is calculated by dividing net operating income by capitalization rate.


The annual rate at which consumer prices increase.

Institutional Investor:

An entity that invests capital on the behalf of organizations, companies or individuals. Examples include university endowments, insurance companies and pension funds.

Interest-Only Loan:

A method of loan amortization in which interest is paid periodically over the term of the loan and the entire original loan amount is paid at maturity.

Internal Rate of Return (IRR):

The percentage 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 present value of future cash flows equals the initial capital investment.


Joint Venture:

An investment entity formed by one or more entities to acquire or develop and manage real property and/or other assets.



Landlord The owner of a leased property. See lessor and owner.

Landlord Paid Tenant Improvements:

The total cost (outlay) of necessary tenant improvements the landlord pays netted against any tenant contribution.


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


A contract stating the relationship between landlord and tenant that grants a right to exclusive possession or use of property, usually in return for a periodic payment called rent.

Lease Buyout:

The process by which a landlord, tenant, or third party pays to terminate the tenant’s remaining lease obligation and rights under its existing lease agreement.

Lease Fee:

In exchange for permitting a tenant to use the property, the owner/lessor has the right to receive rental income and to repossess the property upon termination of the lease.

Leasehold Estate:

In exchange for rent, the tenant has the right to occupy and use the property 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 present value of the difference between market rent and the contract rent.


The party renting or leasing a property. See tenant.


The party who rents or leases a property to another. See landlord and owner.

Letter of Intent (LOI):

A preliminary agreement stating the proposed terms for a final contract.


The use of credit to finance a portion of the costs of purchasing or developing a real estate investment. Positive leverage occurs when the interest rate is lower than the capitalization rate or projected internal rate of return. Negative leverage occurs when the current return on equity is diminished by the employment of debt.

Limited Partnership (LP):

A type of partnership comprised of one or more general partners who manage the business and are personally liable for partnership debts, and one or more limited partners who contribute capital and share in profits but who take no part in running the business and incur no liability above the amount contributed.


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

Load Factor:

The ratio of rentable area to useable area. The load factor can be used to evaluate different sites with comparable rents. Also known as the add-on factor and rentable- to-useable ratio. Contrast with efficiency percentage.

Loan-to-Value Ratio (LTV):

The amount of money borrowed in relation to the total market value of a property. Expressed as the loan amount divided by the property value.

Loan Points:

Also known as points.


Mark to Market:

The process of increasing or decreasing the original investment cost or value of a property asset or portfolio to a level estimated to be the current market value.

Market Adjustment:

A change in market parameters or conditions brought about in response to one or more market signals, including price changes from shifts in supply and demand; typically characterized as cycles, fluctuations, or trends (categories that differ in terms of cause, duration, and impact on commercial real estate markets).

Market Analysis:

The process of examining market supply and demand conditions, demographic characteristics, and opportunities; identifying alternative locations/sites that meet specific objectives or satisfy various criteria; and assessing the financial feasibility of those locations/sites to facilitate decision making regarding the commercial potential or suitability of various locations/sites to support a given activity or use.

Market Area:

A geographical area in which supply and demand operate to influence the course of industrial and commercial activities, for example, a Metropolitan Statistical Area (MSA).

Market Equilibrium:

A state in which supply equals demand; that is, there is no upward or downward.

Market Value:

The most probable price that a property would bring in a competitive and open market under fair sale conditions. Market value also refers to an estimate of this price.

Maturity Date:

The date when the total principal balance comes due.

Metropolitan Statistical Area (MSA):

Generally, the area in and around a major city. The Office of Management and Budget defines an MSA as a city with a population of at least 50,000, or an urbanized area with a population of at least 50,000 within a total metropolitan population of 100,000.

Mezzanine Financing:

Mezzanine financing is somewhere between equity and debt. It is that piece of the capital structure that has senior debt above it and equity below it. There is both equity and debt mezzanine financing, and it can be done at the asset or company level, or it could be unrated tranches of CMBS. Returns are generally in the mid- to high-teens.


The legal document that secures property for the repayment of funds borrowed to purchase real estate.


Negative Leverage:

An investment situation in which borrowed funds are invested at a rate of return lower than the cost of funds to the borrower.

Neighborhood Center:

A center designed to provide convenience shopping for the day-to-day needs of consumers in the immediate neighborhood. Supermarkets and drug stores anchor many of these centers. Stores supporting these anchors offer pharmaceuticals and health-related products, sundries, snacks, and personal services. A neighborhood center usually is configured as a straight-line strip with no enclosed walkway or mall area, although a canopy may connect the storefronts.

Net Cash Flow:

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

Net Lease:

A lease in which the tenant pays, in addition to rent, all operating expenses such as real estate taxes, insurance premiums, and maintenance costs. Contrast with gross lease.

Net Operating Income (NOI):

The potential rental income plus other income, less vacancy, credit losses, and operating expenses.

Net Present Value (NPV):

The sum of all future cash flows discounted to present value and netted against the initial investment.

Net Returns:

Returns to investors net of fees to advisers or managers.

Net Sale Proceeds:

Proceeds from the sale of an asset or part of an asset less brokerage commissions, closing costs and market expenses.

Neutral Leverage:

An investment situation in which the cost of borrowed funds is equal to the yield provided by the investment.

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, realization on its assignment of leases and rents, and acquisition of the real estate.



The inadequacy, disuse, outdatedness, or non-functionality of facilities, infrastructure, products, or production technologies due to effects of time, changing market conditions, or decay. This factor is considered in depreciation to cover the decline in value of fixed assets due to the invention and adoption of new production technologies or changing consumer demand.

Occupancy Cost:

Expenditures required to assume and maintain occupancy of a space. These include rent and/or mortgage payments and recurring costs, such as real estate taxes, repairs, operating expenses, and other costs directly resulting from property use.
The occupancy cost is the actual dollars paid out by the tenant to occupy the space. It can be expressed in either pre-tax or after-tax dollars.

Open-End Fund:

A commingled fund that does not have a finite life, continually accepts new investor capital and makes new property investments.

Operating Expense Stop:

A negotiable amount at which the owner’s contribution to operating expenses stops. It also can be stated as the amount above which the tenant is responsible for its pro rata share of operating expenses.

Operating Expenses:

Cash outlays necessary to operate and maintain a property. Examples of operating expenses include real estate taxes, property insurance, property management and maintenance expenses, utilities, and legal or accounting expenses. Operating expenses do not include capital expenditures, debt service, or cost recovery.

Opportunity Cost:

The cost of selecting one alternative is the benefit foregone from the next best alternative. See discount rate and discounting.

Original Basis:

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

Out Parcel:

Individual retail sites in a shopping center.

Overage Rent:

Also known as percentage rent.


A phase in the real estate cycle in which the stock or supply of a given commercial
property type is greater than that which can be cleared under prevailing price levels and market conditions (for example, excess supply). Also, a phase of the real estate market cycle denoting that time period in which commercial real estate markets become saturated with units due to overbuilding.


Pari Passu:

Pari Passu is Latin for “on equal footing”. In the world of finance it refers to a situations where two or more classes of people or transactions are managed without preference. Assets, obligations, securities, investors, and creditors can all be managed with a pari passu structure. One classic example of pari passu is the way unsecured creditors are treated in a bankruptcy. All the unsecured creditors get paid at the same time and the same fractional rate of the debt they were owed. In commercial real estate the pari passu structure is often used in commercial mortgage backed securities (CMBS) or in the waterfall structure of commercial real estate partnerships.

Parking Ratio:

Dividing the total rentable square footage of a building by the building’s total number of parking spaces provides the amount of rentable square feet per each individual parking space.

Partially Amortized Mortgage Loan:

A loan in which the payments do not repay the loan over its term, so a lump sum (balloon) is required to repay the loan at the end of the term.

Participation Mortgage:

A mortgage that provides the lender a share in the property’s annual net cash flow, gain on sale, or proceeds from refinancing.

Passive Income:

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

Passive Losses:

Losses from the ownership of passive investments.

Percentage Lease:

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

Percentage Rent:

The rent over a base amount that tenants pay to owners on tenant sales over a specified dollar amount. It frequently is found in retail leases. Also known as overage rent.

Physical Depreciation or Deterioration:

Accrued depreciation that is considered in the cost approach to market value. This
physical decay or deterioration of a property may result from breakage, deferred maintenance, aging construction materials, and normal wear and tear.


Charges prepaid by the borrower upon origination of a loan. One point equals 1 percent of the loan amount. Also known as loan points.

Positive Leverage:

An investment situation in which borrowed funds are invested at a rate of return
higher than the cost of the funds to the borrower.

Potential Rental Income:

The total amount of rental income for a property if it were 100 percent occupied and rented at competitive market rates.

Preferred Return:

Profit distribution preference whereby profits, either from operations, sale, or refinance, are distributed to one class of equity before another until a certain rate of return on the initial investment is reached. The pref is stated as a percentage, such as an 8% cumulative return on initial investment; however it can also be stated as a certain equity multiple. This preference provides some comfort to investors since it subordinates the sponsor’s profits participation.

Present Value (PV):

The sum of all future benefits or costs accruing to the owner of an asset when such benefits or costs are discounted to the present by an appropriate discount rate.


The portion of a loan payment used toward reducing the original loan amount.

Principal Payments:

The return of invested capital to the lender.

Private Debt Real Estate:

One of the four quadrants of the real estate capital markets. Also known as “mortgages” or “whole loan mortgages,” but also can refer to participating mortgages, loan participations and loan syndications. Typically refers to commercial loans, but also can refer to direct lending to single family homeowners. Also can refer to privately syndicated mortgage or other real estate-backed debt securities issued by either private or public real estate operating companies.

Private Equity Real Estate:

One of the four quadrants of the real estate capital markets. Also known as “equity real estate” or “direct real estate.” Typically refers to commercial real estate investments, but also could include such private equity market investments as equity investments in homebuilding projects or properties, or in single family rental home investment programs, as well as private equity investments in real estate operating companies. Private equity investments can be structured in a variety of formats, from direct ownership to joint ventures to limited partnerships, private real estate investment trusts (REITs), group trusts, collective investment trusts, C-corps., limited liability companies and a variety of other legal structures.

Private Equity Real Estate Fund:

A pooled fund vehicle targeting institutional investors, individual investors, or both, typically structured as a private real estate investment trust (REIT), or other form of real estate operating company, or through some form of commingling arrangement, that invests in direct equity real estate holdings on behalf of its interest holders. The managers of these funds are called “private equity real estate managers,” or simply “real estate investment managers.” Private equity funds can be structured either as open-end funds or as closed-end funds.

Private Placement (PPM):

A sale of a security in a manner that is exempt from the registration rules and requirements of the Securities and Exchange Commission.

Private REIT:

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


Industry jargon for the sponsor’s disproportionate share of profits in a real estate deal above a predetermined return threshold. In almost any other form of alternative investment, a sponsor promote is referred to as “carried interest”.

Pro Rata:

In the case of a tenant, the proportionate share of expenses for the maintenance and operation of the property.

Promissory Note:

The written promise to repay the mortgage loan that accompanies the mortgage.

Prudent Man Rule:

The standard to which a fiduciary is held accountable under ERISA. “Act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man, acting in a like capacity and familiar with such matters, would use in the conduct of an enterprise of a like character and with like aims.”

Public Debt Real Estate:

One of the four quadrants of the real estate capital markets. Typically refers to Commercial Mortgage Backed Securities (CMBS) and Residential Mortgage Backed Securities (RMS), but also can include public bond issues from public and private companies and agencies.

Public Equity Real Estate:

One of the four quadrants of the real estate capital markets. Typically refers to investments in the securities of publicly traded real estate investment trusts (REITs) and other non-REIT publicly traded real estate operating companies.


Qualified Plan:

Any employee benefit plan that is qualified by the IRS as a tax-exempt plan. Among other requirements, the plan’s assets must be placed in trust for the sole benefit of the employees covered by the plan.


Real Estate Cycles/Phases:

The regularly repeating sequence of economic downturns and upturns and associated changes in real estate market transactions tied to market dynamics and changing macroeconomic conditions, whose phases include (in order) recession, recovery, expansion, and oversupply.

Real Estate Fluctuations:

Short-term variations in real estate prices or rents lasting from one day to a few months caused by natural disasters such as tornadoes, hurricanes, floods, earthquakes, and wildfires or boosts or shocks to the local economy, such as the entry or exit of major employers.

Real Estate Investment Trust:

An investment vehicle in which investors purchase ownership in a trust, which in turn invests the money in real estate and distributes at least 90 percent of its taxable income to investors. The trust is not subject to corporate income tax if it complies with REIT tax requirements. Shareholders must include their REIT income in their personal tax returns.

Real Estate Trends:

Long-term movements or tendencies in the demand for commercial real estate, typically lasting for years or decades, usually tied to macroeconomic or business cycles.


A period of reduced economic activity or a general economic downturn marked by a decline in employment, production, sales, profits, and weak economic growth that is not as severe or prolonged as a depression. As a result, sales in real estate markets are slow, property values and price levels are flat or decreasing, and there is virtually
no construction of new stock given excess supply of units in most real estate markets.

Renewal Probability:

Used to estimate leasing-related costs and downtime, it is the average percentage of tenants in a building that are expected to renew at market rental rates upon the expiration of their leases.


Compensation or fee paid for the occupancy and use of any rental property, land, buildings, equipment, etc.

Rent Concession:

A period of free rent or other allowance that the owner gives to the tenant.

Rent Escalators:

Items specified in a lease such as base rent, operating expenses, and taxes that may increase by predetermined amounts at stated intervals or by a constant annual percentage. See expense stop.

Rent Growth Rate:

The expected trend in market rental rates over the period of analysis, expressed as an annual percentage increase.

Rentable-to-Useable Ratio:

The ratio of rentable area to useable area. This ratio can be used to evaluate different sites with comparable rents. Also known as add-on factor and load factor.

Rentable Area:

The computed area of a building defined by Building Owners and Managers Association guidelines and typically measured in square feet, including both core/structure and useable area. The actual square foot area for which the tenant will pay rent, it is the gross area of an office building, less uninterrupted vertical space (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 projections.


Real estate owned by a savings institution as a result of default by borrowers and subsequent foreclosure by the institution.

Replacement Cost:

The estimated cost at current prices to construct a building with utility equivalent to a building being appraised, using modern materials and current standards, design, and layout, according to the Appraisal Institute.

Retail Property:

Property used to market and sell consumer goods and services. Types of retail properties include: community center, fashion/specialty center, neighborhood center, outlet center, power center, regional center, super-regional center, and theme/festival center.

Retail Trade Area:

Also referred to as service area, it generally is defined as the geographic or formal area from which a sustained patronage is attracted to support a retail center or establishment. This is determined by numerous factors including the site characteristics of the center or establishment; its accessibility; the presence or absence of physical barriers to movement; and general limitations imposed by drive time, congestion, and distance/separation.

Reversion Value:

A lump-sum cash benefit that an investor receives or expects to receive upon the sale of an investment.

RevPAR (Revenue per available room):

Total room revenue for the period divided by the average number of available rooms in a hospitality facility.

Roll-Over Risk:

Total room revenue for the period divided by the average number of available rooms in a hospitality facility.


Safe Rate:

The rate a low-risk, liquid investment achieves.


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

Sale Cost:

The brokerage commissions and fees plus any additional transaction costs incurred during the sale of a property.

Sales Comparison Approach:

A way to determine market value by comparing a subject property to properties with the same or similar characteristics.

Sales Comparison Value:

An estimated value used to compare a property being appraised to similar recently sold properties. It applies appropriate units of comparison and makes adjustments to the sales prices of the comparables based on the elements of comparison.

Sales per Square Foot:

Sales revenue generated per square foot of retail floor space.

Sidecar Fund or Investment:

A sidecar or over-allocation fund is a blind-pool co-investment vehicle under common sponsorship with a private equity fund. The sidecar fund has a right of second opportunity to participate in larger investments — where there is a need for additional equity capital to complete the deal — brought by the fund sponsor to the lead private equity fund.

The partner that “sponsors” a real estate investment, this individual or company is responsible for finding, acquiring and managing the investment. The sponsor generally brings market and property type expertise and plays the primary management role, whilst third party investors (limited partners) typically take on a more passive investment role. The Sponsor is also referred to as the General Partner (GP).

Standard Deviation:

A measure of the amount of dispersion or variation of data points or values from the mean. More than 95 percent of the values of a data set will lie within two standard deviations (plus or minus) of the mean.

Step Lease:

A lease in which the rental amount paid by the lessee changes by a preset rate or set dollar amount at predetermined intervals. A step lease is a means for the lessor to hedge against inflation and future maintenance or operational expenses.

Strip Center:

Any shopping area comprised of a row of stores but smaller than a neighborhood center anchored by a grocery store.


A person or identity to whom the rights of use and occupancy under a lease have been conveyed, while the original lessee retains primary responsibility for the obligations of the lease.


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


Tax Lien:

A statutory lien for nonpayment of property taxes that attaches only to the property upon which the taxes are unpaid.

Tax Shelter:

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

Tax Income:

Adjusted gross income less personal deductions and exemptions.


A person or entity that has possession of a property though a lease. See lessee.

Tenant Improvements (TI):

Preparation of leased premises prior to or during a tenant’s occupancy, which may be paid for by either the landlord, the tenant, or both.

TI Allowance:

Defines the fixed amount of money contributed by the landlord toward tenant improvements. The tenant pays any of the costs that exceed this amount.

Time value of Money (TVM):

An economic principle recognizing that a dollar today has greater value than a dollar in the future because of its earning power.

Triple Net Lease:

A lease that requires the tenant to pay all expenses of the property being leased in addition to rent. Typical expenses covered in such a lease include taxes, insurance, maintenance and utilities.

Total Effective Rent:

The total dollar amount (cash flow) that the tenant actually will pay out over the entire period analyzed.


Useable Square Footage:

The area contained within the demising walls of the tenant space that equals the net square footage multiplied by the circulation factor.



The number of units or space of a specific commercial type that is vacant and available for occupancy at a particular point in time within a given market (usually expressed as a vacancy rate).

Vacancy Allowance:

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

Vacancy Rate:

The percentage of the total supply of units or space of a specific commercial type that is vacant and available for occupancy at a particular point in time within a given market. It is calculated by dividing vacant space by total space.

Variable Expenses:

Costs, such as utility costs, that vary with a building’s occupancy rate.

Value Add:

A phrase generally used by advisers and managers to describe investments in underperforming and/or undermanaged assets that possess upside potential. NOI and property value can be positively affected through a change in marketing, operating or leasing strategy; physical improvements; and/or a new capital structure.


Weighted Average Cost of Capital (WACC):

The average cost of capital (whether equity or debt), that considers the relative proportions of each capital source.


The accounting procedure used when the book value of an asset is adjusted downward to better reflect current market value.


The accounting procedure used when an asset has been determined to be uncollectible and is therefore charged as a loss.



The percentage return on each dollar invested.

Yield Spread:

The difference in yield between a debt instrument or other investment and a benchmark value, typically U.S. Treasuries of the same maturity.



The designation of specific areas by a local planning authority within a given jurisdiction for the purpose of legally defining land use or land-use categories.