Commercial Real Estate Glossary

We've compiled a list of terms that will help you understand commercial real estate professionals.

AAA Tenant - A tenant with a top credit rating.

Abatement -  A reduction or decrease; usually applies to the forgiveness of rent or a decrease of assessed valuation of ad valorem taxes after the assessment and levy.

Absorption Rate -  The rate (speed) at which vacant space is either leased or sold. This rate is usually expressed in square feet per year or, in the case of multi-family housing, in the number of units per year.

Acquisition, Development and Construction  (ADC) Loan -  A loan for the purchase of raw land for developement. Usually a construction loan or land sale is the source of repayment.

Ad valorem -  (According to value) Used in reference to general property tax, which is usually based on the official valuation of the property.

Alienation Clause -  A type of acceleration clause where a debt becomes due in its entirety upon the transfer of owndership of a secured property. 

Alt-A Loan - Alt-A loans (Alternative-documentation loans) are primarily credit-score driven, since the candidates for these loans tend to lack proof of income from traditional employment. The Alt-A loan reduces the gathering of documentation associated with fully documented loans, such as providing income verification and documentation of assets. On the other hand, borrowers do pay a slightly higher interest rate, often from a quarter, up to half-point more than fully documented loans.

Anchor Tenant -  A well-known commercial retail business such as a national chain or regional department store (AAA Tenant) strategically placed in a shopping center in order to generate the most customers for all of the stores in the shopping center.

Anchored Center - A shopping center with an anchor tenant.

Annual Debt Service - The total amoount of principal and interest to be paid eachyear to satisfy the obligations of a loan contract.

Annuity - Regular fixed payments or receipts over a designated time period.

Asset-based Lender -  A lender who loans money based primarily on the values of an asset - accounts receivable, inventory, a piece of equipment, real estate - rather than on the financial strength of the business, which is the primary criterion for banks.

Assignment - A transfer between parties of title to any property, real or personal, or of any rights or estates in the property. Common assignments include leases, mortgages and deeds of trust. 

Attornment -  A tenant's formal agreement to be a tenant of a new landlord.

Average Annual Effective Rate -  The average annual effective rent divided by the total square feet.

Average Annual Effective Rent -  The tenant's total effective rent divided by the lease term.

Base Rental Rate - The cost per square foot for real estate before factoring into account additional costs, such as parking, taxes, utilities, etc..

Base Year -  The year upon which a direct expense escalation of rent is based.

Basis Point - One-100th of 1 percent. Used primarily to describe changes in yield or price on debt instruments including mortgages and mortgage-backed securities.

Bond Lease - The tenant is fully responsible for operating expenses, maintenance, repairs, and replacements for the entire building and site, without limitation.

Boot - Non-like-kind property (cash or other property) given by one party to another party in a tax-deferred, like-kind exchange that is taxable. For instance, if you trade in a delivery truck on a new model, the cash you pay in addition to your old truck is boot. Boot received may be offset by boot given. See also Mortgage Boot.

Breakpoint - The sales thrshold 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.

Brownfields - Abandoned, idled, or under-used industrial and commercial facilities where expansion or redevelopment is complicated by real or perceived environmental contaminations.

Buffer -  A strip of land established as a transition between distinct land uses. May contain natural or planted shrubs, walls or fencing, singly or in combination.

Building Classifications - Class "A" - Building has excellent location and access to attract the highest-quality tenants. Building must be of superior construction and finish, relatively new or competitive with new buildings, and providing professional on-site management. Class "B" - Building with good location, management, construction and tenancy. Class "C" - Generally an older building with growing functional land or economic obsolescence. Class "D" - An older building in need of extensive renovation as a result of functional obsolescence or deterioration.

Build-to Suit 1031 Exchange - A tax-deferred, like-kind exchange whereby the Qualified Intermediary and/or Exchange Accommodation Titleholder acquires title and holds title to the replacement property on behalf of the Exchangor, during which time structures or improvements are constructed or installed on or within the replacement property. Also known as an Improvement or Construction Exchange.

Building Owners & Managers Association -  An organization of practitioners who own and manage buildings, most often office space. Sets the basis by which most regional expense standards are established. Address: 1221 Massachusetts Avenue, NE, Washington, D.C. 20005.

Bulk -  industrial space category that describes properties consisting of little more than four walls, a roof and a floor. They can be very large, averaging 50,000 square feet.

C.A.M. - Common Area Maintenance

C.A.M. Charges - Expenses for common area maintenance, such as snow and trash removal, HVAC repair and maintenance.

Capitalization - The conversion of a future net income stream into present value by using desired rate of earnings as a discount rate. This capitalization rate is divided into the expected periodic income to derive a capital value for the expected income.

Capitalization Rate - The rate of return on net operating income considered acceptable for an investor. A rate of return used to derive the capital value of an income stream. The formula is NOI / Sales Price. Also known as "Cap Rate". The higher the number, the better the price for the investor.

Carrying Charges -  Various costs that are incidental to property ownership (e.g. taxes, insurance costs, and maintenance expenses).

Carve Out - Specific items that a lender will require the borrower to personally guarantee for the life of the loan. Typically, they include, but are not limited to, environmental issues, fraud, misappropriation of funds, and theft.

Cash-on Cash Return - Somtimes called Equity Dividend Return, this formula enables investors to determine the return on their equity in leveraged properties. The formula is: NOI (minus debt service) / initial cash outlay.

CCIM -  Certified Commercial Investment Member. An commercial and investment real estate institute.

Certificate of Occupancy -  A certificate issued by a local government building department or agency stating that a building is in a condition suitable for occupancy. Sometimes also called a "C of O" or a Non-Residential Use and Occupancy Permit (NON RUP).

Charitable Remainder Trust - Upon creation, this type of trust pays the owner an annual fee of 5 percent or more for the remainder of the owner's life. Upon the owner's death, the trust is deeded to which ever charity the owner has specified.

Clear-Span Facility -  A parking structure with vertical columns on the outside edges of the structure and a clear span between columns, making it unecessary for vehicles to maneuver between columns. Some warehouses are also built this way.

Collateralized Debt Obligation (CDO) - A type of mutual fund backed by various types of debt - loans, bonds, etc. Due to the fact that several different types of debt are used to structure these obligations, they are typically stuctured in tranches, with each tranche representing a different risk level.

Collateralized Mortgage Obligation (CMO) - A type of mortgage-backed security that creates separate pools of pass-through rates for different classes of bondholders with varying maturities, called tranches. The repayments from the pool of pass-through securities are used to retire the bonds in the order specified by the bonds' prospectus.

Commercial Mortgage-Backed Security (CMBS) - A type of bond that is backed by mortgages on commercial properties rather than residential properties. They provide creater security against prepayment than residential mortgage-backed securities because many commercial mortgages have clauses defining penalties for prepayment.

Conduit -  An entity which issues mortgage-backed securities back by mortgages which were originated by other lenders.

Construction Loan - A short-term, interim loan for financing the costs of construction. The lender advances funds to the builder at periodic intervals as work progresses.

Contract Rent -  Rent paid under a lease. The actual renta as opposed to the market rental value of the property.

Core Factor - The percentage of common areas in a buiolding (rest rooms, hallways) that, when added to the net usable square footage equals the net rentable square footage. May be computed for a building or floor of a building.

Cost Recovery -  An annual deduction based on the class life an asset. Equal to the amount of depreciation taken on the asset.

Cross- Collateralization -  Net income shortfalls on one property are offset by excess cash flow from other properties in a pool of "crossed" loans. Significantly enhances a transaction from the viewpoint of investors and rating agencies.

Curb Cut - A flattening of the curb to allow access to a road or driveway.

Debt Service Coverage (DSC) Ratio - The ratio of income to debt service. For example, a debt service coverage ratio of less than 1 would mean that there is negative cash flow and not enough income to service the loan.

Depreciation Recapture - When property is sold at a gain, some element of that gain is attributable to depreciation deductions taken in prior years. Under current law, commercial property has a depreciable life of 39 years. This means that each year the owner must deduct 1/39th of the original cost of the building purchased after 1993. As a result of this depreciation, the adjusted tax basis of the property also decreases. Because the gain is the difference between the selling price and this adjusted basis, the depreciation element of the gain is taken into account and taxed as capital gain. This is called depreciation recapture. For all property sold after May 7, 1997 it is recaptured at a rate of 25%.

Derivative - Financial instruments or contracts which are valued based on (derived from) the value of other financial instruments. This is a financial Risk Financing strategy. These financial instruments can be highly leveraged and therefore highly volatile. A common form of derivative is a foreign currency hedge contract to finance overseas trade: the purchase of an option to buy or sell a foreign currency at a certain date for a certain price.

Designation Rights Sale - In the event of bankruptcy, the designation rights (the right to assume and assign leases) can be sold to a third party in lieu of forcing the debtor (the party in bankruptcy) to fullfill the terms of the lease.

downREIT - A downREIT is a structure developed to enable REITs that are not organized as UPREITs to compete effectively with UPREITs in acquiring properties. Unlike the word UPREIT, which is an acronym for Umbrella Partnership REIT, downREIT is not an acronym for anything. It was created simply in contrast to the word UPREIT

Due-on-Sale Clause: A provision in a mortgage that allows a lender to demand repayment when the property is sold.

Earnout - An earnout is a mechanism in which part of the purchase price is contingent upon future performance of the target business. A typical earnout might include payments to the Vendor every year for three to five years based on a percentage of the revenue or the profit of the target business.

Economic Rent -  Calculations or analysis to determine market rental value of a property at any given time, even though the actual, or contract, rent may be different.

Effective Rental Rate - The cost per square foot for real estate after all costs, such as parking, taxes, utilities, etc. have been taken into account.

Escalation Clause -  A clause in a lease providing for increased rent at a future time. May be accompanied by several means, such as (1) Fixed increase - A provision that calls for a definite, periodic rental increase; (2) Cost of Living - A clause that ties the rent to a government cost of living index charge; or (3) Direct Expense - Rent adjustments based on changes in expenses paid by the landlord, such as tax increases, increased maintenance costs, etc.

Estoppel Certificate - any signed statement certifying that certain facts are true, prepared for the purpose of preventing the signatory from asserting a contrary claim at a later time. Estoppel certificates are typically used in property transactions in which tenants are asked to confirm the terms of their leases and describe any deposit agreements.

Exchange Accommodation Titleholder (EAT) - An unrelated party that holds the Qualified Indicia of Ownership (customarily the title) of either the replacement or relinquished property in order to facilitate a reverse and/or build-to-suit tax-deferred, like-kind exchange transaction pursuant to Revenue Procedure 2000-37.

Expense Stop -  Provision in a lease establishing the maximum level of operating expenses to be paid by the landlord. Expenses beyond this level are to be reimbursed byt the tenant. May be applied to specific expenses only (e.g., property taxes or insurance).

Flex Space -  A one- ot two-story building with little or no common areas, high ceilings, load-bearing floors and loading dock facilities. Usually configured to allow a small amount of office space in combination with light assembly or warehouse/distribution uses.

Floor/Area Ratio (FAR) - The ratio of the bulk area of a building to the land on which it is situated. Calculated by dividing the total square footage of land area by the total square footage of building space.

Full Service Rent -  A rental rate that includes operating expenses and real estate taxes for the first year. The tenant is generally still responsible for any increases in operating expenses over the base year amount.

Graduated Lease - A lease, generally long-term in nature, with varied rental payments and usually based on periodic appraisals or simply the passage of time.

Gross Building Area (GBA) -  The total floor area in an office building measeured in square feet or square meters that is associated with the building's use as office building. The area extends to the outer surface of exterior walls and windows and includes office area, retial area, and other rentabl areas, such as vending machine space and storage areas, but excludes parking and roof space. 

Gross Leasable Area (GLA) - The total floor area designed for tenant occupancy and exclusive use, including basements, mezzanines, and upper floors, is 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 are that produces income.

Gross Lease -  A lease of a commercial property whereby the landlord (lessor) is responsible for paying all property expenses, such as taxes, insurance, utilities, and repairs.

Gross Rent Multiplier - This is an easy rule of thumb to forecast value. Gross rent is the total rental income realized from a building if it were 100% leased. The formula is: sale price / projected monthly income. This tells us the number of times the rent is multiplied to determine the asking price.

Ground Lease -  A lease covering the use of land only, with the lease sometimes secured by improvements installed by the tenant. Typically a very long-term lease and usually any improvements to the land revert to the landlord and the end of the lease period, despite having been paid for by the tenant. Also called a Land Lease.

Hard Money Loan -  A specific type of financing in which a borrower receives funds based on the value of a specific parcel of real estate. Hard money loans are typically issued at much higher interest rates than conventional commercial or residential property loans and are almost never issued by a commercial bank or other deposit institution.

Holdover Tenant -  A tenant who retains possession after the expiration of a lease.

Index Lease -  A lease in which the rental amount adjusts according to changes and/or movements in a price index, commonly the consumer price index.

Infill Development - The redevelopment of sites that have adjacent buildings - usually the redevelopment of a plot that forms part of a continuous road frontage of buildings.

Internal Rate of Return (IRR) - The true annual rate of earnings on an investment. It equates the value of cash invested with cash returns and considers the application of compund interest. This is a method of placing a value on commercial property that looks at returns over the life of the investment. It's a fairly complicated calculation to make, but is widely considered to be tha most accurate valuation method.

Land Acquisition Loan - A loan made for th purpose of purchasing land only, not improvments on or to the land. Also called an "Acquisition Loan".

Leadership in Energy and Environmental Design (LEED) - Green Building Rating System, developed by the U.S. Green Building Council (USGBC), provides a list of standards for environmentally-sustainable construction.

Lease Abstract -  A detailed recap of office and retail leases including tenant name, suite number, square footage, current rental rate including increases, lease start date, term, CAM requirements, extension options and rates.

Leasing Commission (Reserve Escrow) - The annual cost related to the leasing and re-leasing of commercial office and retail space. The amount deducted from the net operating income prior to determining the net cash flow available for debt service coverage.

Letter of Intent (LOI) - A preliminary agreement stating the proposed terms for a final contract. The can be binding or non-binding.

Like-Kind Property - A tax term used in certain real property exchanges. Property must be exchanged for like-kind property and the tax consequences postponed pursuant to Section 1031 of the Internal Revenue Code. 

Market and Feasibility Study - A detailed analysis of activities in a market or region in regard to such influences as location, demand and competition, which may or may not affect the value of property. Includes an analysis of a real estate project to determine the most profitable use and the likelihood of the proposed use being a financial success. The study is often used by the promoter or developer to inure would-be investors to participate in the venture and to assist lenders in making their decision whether or not to loan the necessary funds.

Market Rent - The rental income that a property is likely to command under current market conditions. Market rent, also referred to as economic rent, may be either higher or lower than what the property is actually renting for under the terms of the lease.

Mezzanine Loan - A commercial loan collateralized not by the property itself, but by stock in the company that borrows the funds.

Micro Lending - (Also known as Microcredit) Microlending is the extension of small loans to entrepreneurs too poor to qualify for traditional bank loans.

Mixed-Use Project -  A real estate development that contains two or more different uses all intended to be harmonious and complementary. An example would include a high-rise building with retail shops on the first two floors, office space on floors three through ten, apartments on the next ten floors, and a restaurant on the top floor.

Modified Net (or Modified Gross) Lease - The tenant pays its own utilties, interior maintenance and repairs, and insurance. The landlord pays everything else, including real estate property taxes.

Mortgage Boot - In a 1031 exchange, when you assume debt on your replacement property that is less than the debt on your relinquished property, you receive mortgage boot or mortgage relief. Generally speaking, mortgage boot received triggers the recognition of gain and is taxable, unless offset by cash boot added or given up in the exchange.

Mutual Indemnification - A clause in some contracts and leases which holds harmless each party to the contract and indemnifies them from any course of legal action or payment for errors, omissions or negligence by the other party. 

Net Leasable Area - In a building, the floor space that may be rented to tenants or the area upon which rental payments are based. Generally excludes common areas and space devoted to the heating, cooling and other equipment of a building.

Net (NN) Lease - Known as a "Double Net Lease". A lease whereby, in addition to the rent, it is stipulated that the lessee (tenant) pays such expenses as taxes and insurance. Although all leases are negotiable, in most cases NN Leases include all expenses other than repairs and maintenance. The landlord's rent receipt is thereby "net" of those expenses.

Net (NNN) Lease - Known as a "Triple Net Lease", these leases stipulate that all additional expenses, including insurance, taxes repairs and maintenance, will be paid by the lessee (tenant).

Net Operating Income (NOI) - The NOI of a property is the cash flow a property generates after expenses (except for debt servicing and taxes) are deducted.

Net Rentable Area - Floor area of a building less any verticle penetrations of the floors. Ne deductions are made for necessary columns and projections of the building (BOMA Standard).

Non-Disturbance Agreement - An agreement included in a lease which, in the event the landlord defaults on his loan, prohibits a landlord's lender or a new owner of a property from evicting a tenant after the property changes hands. 

Non-Recourse Financing - A type of debt for which a borrower is not personally liable. If you default on a nonrecourse loan, the lender must recover the amount you owe by foreclosing on the property by which the loan is secured. At-risk rules limit the amount of loss you can take from activities with nonrecourse financing. 

Occupancy Rate -  The ratio of the space rented to the toal amount of space available for rent. A 50-unit apartment complex in which 40 units are currently rented has an occupancy rate of 80%.

Operating Expense Stop - See "Expense Stop"

Operations and Maintenance Plan (O&M) -  A written plan detailing the removal of potentially environmentally sensitive materials.

Pari Passu - A Latin phrase that means "at the same time", and by extension also "fairly", "without partiality. In finance this term refers to two or more loans, bonds or series of preferred stock having equal rights of payment, i.e., having the same level of seniority.

Parking Ratio (or Index) -  A ratio which states the number of parking spaces required per thousand square feet. For example, a ratio of 4:1 would mean that for every 1,000 square feet of space, there must be 4 parking spaces.

Pass Throughs -  Building and operating expenses that are paid by the tenant under the terms of a lease.

Pass Through Rate - The net interest rate passed through to investors after deducting servicing, management, and guarantee fees from the gross mortgage coupon. 

Phase I Environmental Report -  A comprehensive report required by most commercial lenders and produced by an independant company that details the current environmental condition of a property. Typically requires an historical review of the property's previous uses and may require an O&M plan for the removal of asbestos and other harmful items.

Percentage Lease -  A type of lease used by landlords of retail space which requires the tenant to pay, in addition to base rent, a percentage of sales over a certain sales revenue amount. For instance, 1% of sales revenue over $200,000.

Physical Condition Report -  A comprehensive report required by most commercial lenders and produced by an independent company that details the current physical condition of a property. Typically includes specific items that require immediate repair as well as those items that should be replaced over the life of the loan. Basis used to establish the annual Replacement Reserve Escrow for the property.

Potential Gross Income -  (Also known as "Potential Rental Income") The amount of income that could potentially be produced by a property assuming there are no vacancies or collection losses. Does not include miscellaneous or other income.

Power Center -  A retail center dominated by several large anchors, including discount department stores, off-price stores, warehouse clubs, or category killers - stores that offer tremendous selection in a particular merchandise category at low prices. The center typically consists of several freestanding anchors and only a minimum of small specialty tenants.

Prelease - A signed lease for space in a multi-tenant office building that has not yet received a Certificate of Occupancy.

Prime Tenant - In a subleasing agreement, a tenant who is subleasing their space to another. In effect, they become the sublessor.

Private Annuity Trust (PAT) - An irrevocable trust to which owners of high-value items, such as commercial property or land, can sell the item and receive payments from the trust for the life of the seller. Upon selling the item to the trust, the trust turns around and sells the item and the payments to the previous are paid from the proceeds of the sale. PATs are often used to defer capital gains tax. 

Pro Forma - A projection, usually 5 or 10 years, of income and expenses for a business. Usually presented in spread sheet format and prepared for potential buyers.

Qualified Intermediary - An unrelated party who participates in the tax-deferred, like-kind exchange to facilitate the disposition of the Exchangors relinquished property and the acquisition of the Exchangors replacement property.

Real Estate Investment Trust (REIT - pronounced "Reet")  - A real estate mutual fund that sells shares of ownership in real estate or mortgages.

Recourse Financing - A loan obligation where the borrower is liable for the full amount of the remaining balance of the loan, even if the collateral value is less than the remaining balance.

Rehabilitation Tax Credit - The Tax Reform Act of 1986 provides a 20% tax credit for rehabilitating certified historic structures, and a 10% credit for other buildings that were placed in service after 1936.

Relinquished Property - The property to be sold or disposed of by the Exchangor in the tax-deferred, like-kind exchange transaction.

Rentable Square Feet - (Also known as Rentable Building Area or RBA) Usable square feet plus a percentage (the core factor) of the common areas on the floor, including hallways, bathrooms and telephone closets (and sometimes main lobbies). Rentable square footage is the number of sauare feet on which a tenant's rent is based.

Rent Up Period - The period of time following construction of a new building when tenants are actively sought and the project is approaching stabilized occupancy.

Replacement Property - The like-kind property to be acquired or received by the Exchangor in the tax-deferred, like-kind exchange transaction.

Request For Proposal (RFP)- A document typically issued by a tenant's agent to an owner(s) of real property, inviting the owner(s) to submit a proposal to the tenant for the leasing of a vacant space. The RFP sets forth the specific areas of concern to the tenant, such as the space in question, the lease term, expansion and renewal options, rental rate, and tenant improvements and other allowances to be provided by the owner.

Reverse 1031 Exchange - A tax-deferred, like-kind exchange transaction whereby the replacement property is acquired first and the disposition of the relinquished property occurs at a later date.

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

REVPAR (Revenue per Room) - Calculation is in underwriting (usually hotels) where the gross income is divded by the total number of rooms available.

Sale - Leaseback - A situation in which the grantor in a deed to a parcel of property sells it and retains possession by simultaneously leasing it from the grantee.

Same-Store Sales -  A statistic used in retail analysis. It compares sales of stores that have been open for a year or more. This statistic allows inverstors to determine what portion of new sales has come from sales growth and what portion from the opening of new stores. This analysis is important because, although new stores are good, a saturation point - where future sales growth is determined by same-store sales growth - eventually occurs.

Secured Compartmental Information Facility (SCIF) - Highly secure space containing such features as soundproofing, no windows, special hatches instead of doors, etc. Required by firms that deal in sensitive industries such as defense contractors or law firms, and government entities (FBI, CIA, NSA).

Setback - The distance from a curb, property line or other reference point within which a building is prohibited.

Shadow Anchor - A major retail tenant which provides significant drawing power to a retail center, but which itself may not be part of the particular shopping center or the specific collateral. For example, imagine a shopping center for which a WalMart serves as anchor for a shopping center consisting of several in-line stores. If that WalMart is not owned by the shopping center, the store nonetheless serves as a shadow anchor to the other property and in-line stores.

Small Business Administration (SBA) 504 Loan Program - The 504 option is a partnership between a third party lender and the business owner. Under the program, a bank or financial institution will lend up to 50% of the project cost, the Small Business Administration, through a third-party, will lend up to 40% and the business owner generally provides a minimum of 10% of the project cost.

Space Plan -  Sometimes called the preliminary plan. A graphic representation of a tenant's office space requirements, showing wall and door locations, room sizes, and some furniture layouts.

Stabilized Property - A property that is fully or mostly developed, constructed, leased or sold. As opposed to an unstabilized property, which is still in the developement or construction phase.

Step Lease (Graded Lease) -  A lease calling for set increases in rent at set intervals.

Straight Lease (Flat Lease) -  A lease calling for the same amount of rent to be paid periodically (usually monthly) for the entire term of the lease.

Strip Center -  Any shopping area, generally with common parking, comprised of a row of stores.

Structured Financing - While there is no set definition for structured financing, it is typically debt that is individualized to meet the specific needs of a borrower.

Subordination Clause -  A clause in a lease or mortgage which places the priority of one lien below another. As it relates to a mortgage, in the event of loan default, this allows the creditor with the highest priority lien to collect the remainder of what is owed on the loan first. As it relates to a lease, lenders will typically require that tenants make their leases subordinate to the landlord's mortgage, meaning that any liens on the landlord as a result of a lease will be subordinate to the lender's lien. 

1031 (Ten Thirty One) Exchange - A process by which an individual or entity can sell an income-producing property and buy a "like" property without paying taxes on the sale.

Tenant Improvements -  Improvements to land or buildings to meet the needs of tenants. May be new improvements or remodeling, and may be paid for by the landlord, the tenant, or shared.

Tenant Improvement (Reserve) Escrow - An account required by a commercial lender and established at the time of closing for the purpose of reserving funds estimated to be necessary to improve retail and office space. Funded through monthly contributions and maintained by the lender.

Two Hundred Percent (200%) Rule - The regulations regarding 1031 exchanges permit the identification of more than three replacement properties but only under the following circumstances. The total fair market value of ALL of the identified properties must not exceed twice (200%) the contract price of the property sold. Exceeding the 200% limit will void the exchange.

UPREIT - Umbrella Partnership REIT (UPREIT) is a REIT structure in which the REIT does not own a direct interest in properties, but rather in an umbrella partnership that owns interests in properties.

Useable Area - Area available for the exclusive use of the tenant. It is the tenant's rentable area less certain common areas shared by all tenants of the office building (such as corridors, storage facilities, and bathrooms). It is calculated by multiplying the rentable area by the building's efficiency percentage (which is the useable square feet divided by the rentable square feet).

Vacancy Rate - The percentage of all units or space that is unoccupied, not rented or from which there is no rental income. This amount is deducted from Potential Gross Income to derive the Effective Gross Income.

Workletter - A list of items to be completed by the landlord for a tenant prior to moving in, such as doors, partitions, light fixtures, etc., typically  found in office and retail spaces.

Wraparound Mortgage - A method of acquiring additional financing on real estate by placing the additional funds in a secondary or junior position to the existing debt. This method of financing is often used with commercial property where there is substantial equity in the property.

Yield Curve -  Also known as the term structure of interest rates, the yield curve is a graph that plots the yields of similar-quality bonds against their maturities, ranging from shortest to longest. The yield curve shows the various yields that are currently being offered on bonds of different maturities. It enables investors to compare the yields offered by short-term, medium-term, and long-term bonds. It can take 3 primary shapes. If short-term yields are lower than long-term yields (the line is sloping upwards), then the curve is referred to as positive or "normal", and it means that investors feel positive about the conomy's future.  If short-term yields are higher than long-term yields (the line is sloping downwards), then the curve is referred to as inverted or "negative" and it means that investors have concerns about the economy's future. Finally, a flat yield curve exists when there is little or no difference between short- and long-term yields, and it generally means that investors are unsure about the economy's future.

Zoning Ordinance -  The act of a city or county, or other authority, specifying the type of use to which property may be put in specific areas.