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Commercial Real Estate > CRE Terminology > Flashcards

CRE Terminology Flashcards

1
Q

abatement

A

Free rent or early occupancy. May occur outside or in addition to the primary term of the lease.

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2
Q

absorption

A

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.

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3
Q

add-on factor

load factor

A

= rentable sq. ft./ useable sq. ft.

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4
Q

adjusted basis

A

= original cost of property + capital improvements - total accumulated cost recovery deductions - partial sales taken during the holding period

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5
Q

annual debt service (ADS)

A

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

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6
Q

attorn

A

to agree to recognize a new owner of a property and to pay him/her rent

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7
Q

basis

A

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

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8
Q

basis point

A

1/100 of 1%

i.e. 1 bp = .0001, 100 bp = .01

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9
Q

breakpoint

A

sales threshold over which percentage rent is due

= annual base rent / negotiated % applied to tenant’s gross sales

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10
Q

CAM cap

common area maintenance

A

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

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11
Q

CAP rate

A

= NOI / property value (price)

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12
Q

CFTA

A

cash flow after taxes

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13
Q

CFBT

A

cash flow before taxes

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14
Q

class life

A

useful economic life of an asset set by the IRS

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15
Q

debt-service-coverage ratio (DSRC)

A

= NOI / annual debt service

ratio of < 1 means negative cash flow

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16
Q

discounted effective rent

A

present values of future cash flows over the term of the lease

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17
Q

displaced sales

A

sales that result from purchases made by customers who are not located in the subject service area

represents a revenue gain for retail establishments as sales are generated from consumers who reside outside the local trade area

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18
Q

economic base multiplier

A

measure that provides an estimate of how changes in basic employment will affect total employment in a given region

= total employment / basic employment

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19
Q

basic employment

A
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20
Q

total employment

A
21
Q

equilibrium point

A

price at which the quality supplied equals the quantity demanded

22
Q

equity lease

A

type of joint venture arrangement in which an owner enters into a contract with a user who agrees to occupy a space and pay rent as a tenant, but at the same time, receives a share of the ownership benefits, such as periodic cash flows, interest and cost recovery deductions, and perhaps a share of sales proceeds

23
Q

expected value (EV)

A

the sum of the weighted average of all possible outcomes of a probability distribution

can be applied to any outcome an investor choses; i.e. NOI, after tax cash flow, IRRs

= outcome value x probability weight + outcome value x probability weight + etc…

24
Q

probability distribution

A

collection of all possible outcomes for an event and their corresponding probabilities of occurrence

25
Q

expense stop

A

max amount to which a landlord will pay certain operating expenses. amounts above the stop are paid by the tenant.

26
Q

floor area ratio (FAR)

A

ratio of gross square footage of a building to the land on which it’s situated

27
Q

flex space

A

space that is flexible in terms of what it can be used for (i.e. industrial or office activities)

28
Q

future value (FV)

A

amount to which money grows over a designated period of time at a specified rate of interest

29
Q

gap analysis

A

evaluation of difference in the demand and supply of space (in sq. ft.) for a particular type of commercial property in a given market area

= sq. ft. demanded - sq. ft. available

positive gap indicates opportunity

30
Q

gross leasable area (GLA)

A

total floor area designed for tenant occupancy. the area on which tenants pay rent. the area that produces income.

31
Q

gross rent multiplier (GRM)

A

used by investors to determine market value. extracted from the marketplace.

32
Q

market value

A

= gross rent an investor anticipates the property will produce at the end of year 1 x GRM

33
Q

hard cost

A

cost of constructing property improvements

34
Q

soft costs

A

portion of an equity investment other than the actual cost of the improvements themselves, that may be tax-deductible in the first year

35
Q

internal rate of return (IRR)

A

percentage earned on each dollar that remains in an investment each year

the discount rate at which the sum of the PV of FCF equals the initial capital investment

36
Q

letter of intent (LOI)

A

informal, usually non-binding, agreement among parties indicating their desire to move forward with negotiations

37
Q

landlord paid tenant improvements (LPTI)

A

= total cost (outlay) of necessary tenant improvements paid by the landlord - any contribution maid by the tenant

38
Q

leakage (retail)

A

purchases made in other service areas by consumers located within the subject area

represents loss of revenue for retailers located within the trade area in which those consumers reside

39
Q

loan to value ratio (LTV)

A

the amount of money borrowed in relation to the total market value of a property

= loan amount / property value

40
Q

metropolitan statistical area (MSA)

A

area around a major city

41
Q

triple net lease (NNN)

A

lease in which the tenant pays, in addition to rent, all operating expenses (pass throughs) such as real estate taxes, insurance premiums, and maintenance costs

42
Q

net present value (NPV)

A

= discounted future cash flows - initial investment

43
Q

sublease

sandwich lease

A

lease in which the original tenant (lessee) sublets all or part of the leasehold interest to another tenant (subtenant) while still retaining a leasehold interest in the property

44
Q

standard industrial classification (SIC)

A

classification scheme used for general recording purposes by government and industry to categorize and account for economic employment activity by sector using a series of standardized and universally accepted codes

45
Q

subrogate

A

substitute one creditor for another

46
Q

substitute basis

A

basis in a property acquired in a qualified section 1031 exchange is reduced by deferred gain and becomes the substitute basis

example if the market value of a property given up is $200, and the basis of that property was $75, then realized gain equals $125.

Assume the market value of property acquired through a tax deferred exchange is $350, then the substitute basis equals $225 (substracting the unrecognized gain of $125).

the effect of this adjustment to basis is to build in the deferred $125 gain into the property acquired. if the new property were sold the next day for $350, a $125 gain would be reported.

47
Q

sunk costs

A

investment costs that are committed and cannot be recovered

48
Q

tenant improvements (TI)

A

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

49
Q

total effective rent

A

total cash flow that the tenant actually will pay out over the period analyzed

Commercial Real Estate (1 decks)

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