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.
Add-On Factor: Considered a loss factor, the percentage of gross rentable square footage which is lost to the tenant’s physical occupancy.
“As Is” Condition: Premises accepted by a buyer or tenant in the condition existing at the time of the sale or lease, including all physical defects.
Base Rent: A set amount used as a minimum rent in lease which also employs a percentage or other allocation for additional rent.
Base Year: The year upon which a direct expense escalation of rent is based. See also “Escalation Clause.”
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 Mgmt.. Class “B”—Building with good location, Mgmt., construction land tenancy. Can compete at low end of Class A. 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.
Buildout: The cost of configuring and finishing new or relet space in accordance with a tenant’s specifications.
Build To Suit: A method of leasing property whereby the landlord builds a new building in accordance with a tenant’s specifications.
Capitalization: A process of determining the value of real property in which project income is divided by a predetermined annual rate (capitalization rate). For example, a building with annual project income of $100,000 is worth $1,000,000 at a 10 per cent capitalization rate ($100,000/10% $1,000,000). See “Capitalization Rate.”
Capitalization Rate: The rate that is considered a reasonable return on investment (on the basis of both the investor’s alternative investment possibilities and the risk of the investment). Used to determine and value real property through the capitalization process. Also called “free and clear return.” See also “Capitalization.”
CCIM: Certified Commercial Investment Member
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).
Circulation Factor: A space’s Circulation Factor is the percentage of the space used by all occupants for movement in and about the space. It is a function of the individual and support areas that exist within the space. Circulation Area includes corridors, aisles and other similar space required for occupants to access means of egress and all other functions in and serving their space. When a floor plan is comprised of mostly open workstations, the Circulation Factor will typically be a greater portion of the total Useable Area than a space comprised of primarily enclosed offices.
Common Area: The total area within the shopping CTR that is not designed for rental to tenants but that is available for common use by all tenants or groups of tenants, their invitees, and adjacent stores. Parking and its appurtenances, malls, sidewalks, landscaped areas, public toilets, truck and service facilities, and the like are included in the common area.
Common Area Charges: Include income collected from tenants for operating and maintaining items pertaining to common areas. Shopping CTR leases usually contain a clause requiring the tenant to pay its share of operation and maintenance on common areas and defining the basis on which charges are made and the type of cost items allocable to maintenance of the common area. Of the ways to prorate the charges among tenants, the most common are (1) a prorated charge based on a tenant’s leased area as a portion of the total leasable area of the CTR or the linear exposure in store frontage, (2) a fixed charge for a stated period, and (3) a variable charge based on a percentage of sales. Some CTRs include a cost-of-living increase in the common area charges.
Competitive Space: Space in office buildings which contain or are intended to contain more than one occupant. In addition to the multiple tenant criterion, typical characteristics of Competitive Space include: tenants generally have short-term leases (10 years or less) and the interior of the building is not designed with one organization in mind but rather to accommodate the widest variety of tenants.
Concessions: Cash expended by the landlord in the form of rent abatement, build-out allowance, or other payments to induce the tenant to sign a lease.
Contiguous Space: Adjoining office space.
Contract Rent: Rent paid under a lease. The actual rent as opposed to the market rental value of the property.
CPM: Certified Property Manager
Demising Walls: The boundaries that separate tenant’s space from another tenant’s space and from a public corridor.
Depreciation: (1) Decrease in the usefulness, and therefore value, of real property improvements or other assets caused by deterioration or obsolescence. (2) A loss in value as an accounting procedure to use as a deduction for income tax purposes.
Easement: A right to use the property of another created by grant, reservation, agreement, prescription or necessary implication. It is either for the benefit of land “appurtenant,” such as the right to cross A to get to B, or “in gross,” such as a public utility easement.
Economic Rent: Calculations or analysis to determine market rental value of a property at any given time, even though the actual rent may be different.
Effective Rent: The rental rate actually achieved by the landlord after deducting the value of concessions from the base rental rate paid by a tenant, usually expressed as an average rate over the term of the lease.
Eminent Domain: A right of the government to acquire private property for public use by condemnation, in return for just compensation. See also “Condemnation.”
Escalation Clause: A clause in a lease providing for increased rent at a future time. May be accomplished 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, with periodic adjustments as the index changes; or (3) Direct expense—Rent adjustments based on changes in expenses paid by the landlord, such as tax increases, increased maintenance costs, etc.
Expense Stop: Provision in a lease establishing the maximum level of operating expense(s) to be paid by the landlord. Expenses beyond this level are to be reimbursed by the tenant. May be applied to specific expenses only (e.g., property taxes or insurance).
Face Rental Rate: The “asking” or nominal rental rate published by the landlord.
Fair Market Value: A term usually found in appraisals that attempts to determine the cash price that would likely be negotiated between a willing seller and willing buyer in a reasonable amount of time. For a sale to be considered a reflection of “Fair Market Value,” it must meet all the conditions of a fair sale whereby: (1) both buyer and seller act prudently, knowledgeably and under no necessity to buy or sell, i.e., other than in a forced or liquidation sale; (2) the property must be offered on the open market for a reasonable amount of time, taking into consideration the property type and local market; and (3) payment is made in cash or terms equivalent to cash. When a sale is unlikely, i.e., when it is unlikely to be completed within 12 months, the appraiser must discount all cash flows generated by the property to ascertain the estimate of Fair Value.
First Refusal Right: A clause occasionally inserted in a lease that gives a tenant the first opportunity to buy a property if the owner decides to sell. The owner must have a legitimate offer which the tenant can match or refuse.
Flex Space: A one or 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 Ration (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 in the building by the square footage of land area.
Force Majeure: A force that cannot be controlled or resisted. In other words, something beyond the control of the parties involved. Includes acts of God (e.g., flood, tornadoes, etc.) and acts of man (e.g., riots, strikes, arson, etc.).
Foreclosure: A proceeding, in or out of court, designed to extinguish all rights, title, and interest of the owner(s) of property in order to sell the property to satisfy a lien against it.
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. See also: “Pass Throughs.”
Gross Absorption: Absorption is a measure of the amount of office space leased over a period of time. Gross absorption is a measure of the total square feet leased over a period of time with no consideration for office space vacated in the same area during the same period. See also: “Net Absorption.”
Gross Building Area: The total floor area in an office building measured in square feet or square meters that is associated with that building’s use as office building. The area extends to the outer surface of exterior walls and windows and includes office area, retail area, and other rentable areas such as vending machine space and storage area, but excludes parking and roof space.
Gross Lease: A lease that provides that the landlord shall pay all expenses of the leased property, such as taxes, insurance, maintenance, utilities, etc.
Ground Lease: A lease covering the use of land only, with the lease sometimes secured by improvements installed by the tenant. Also called a “Land Lease.”
Guarantor: One who makes a guaranty. See also “Guaranty.”
Guaranty: Agreement whereby the guarantor agrees to pay the debt or perform the obligation of another who fails to do so. Differs from la surety agreement in that there must be a failure to pay or perform before the guaranty can be in effects.
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. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility and maximum profitability.
HVAC: The acronym for Heating, Ventilating and Air Conditioning. Refers to the equipment used to heat and cool a building.
Improved Value: An appraisal term that encompasses the total value of land and improvements rather than the separate values of each.
Involuntary Conveyance: An involuntary transfer of real property without the consent of the owner, such as by a divorce decree, condemnation, etc.
Judgment: The decision of a court of law. Money judgments, when recorded, become a lien on real property of the defendant.
Landlord’s Lien: Several types of landlord’s liens are created by contract or by statute. Some examples are: 1) a contractual landlord’s lien; 2) statutory landlord’s lien; and 3) landlord’s remedy of distress (or right of distraint), which is not truly a lien but has a similar effect.
Lease: An agreement whereby the owner of real property (i.e., landlord) gives the right of possession to another (i.e., tenant) for a specified period of time (i.e., term) and for a specified consideration (i.e., rent).
Lease Commencement Date: The date on which beneficial occupancy commences and the legal terms of the lease go into effect.
Leasehold Improvements: Improvements made to leased premises by a tenant. See also “Tenant Improvements;” “Workletter.”
Legal Description: A method of geographically identifying a parcel of land that is acceptable in a court of law.
Legal Owner: The term is used to distinguish the legal owner form the equitable owner and not as opposed to an illegal owner. The legal owner has title to the property, although the title may actually carry no rights to the property other than to act as a lien.
Legal Title: Usually title without ownership rights, such as the title placed in a trustee under a deed of trust, or the title in a vendor under a land contract.
Letter of Credit: An engagement, pledge or commitment by a bank or person, made at the request of a customer, stating that the issuer will honor drafts or other demands for payment upon full compliance with the conditions specified in the letter of credit.
Letter of Intent: A formal method through which a prospective developer, buyer or tenant expresses his/her interest in property. Depending on the language, a legal obligation may be created.
Lien: An encumbrance against property for money, either voluntary or involuntary. All liens are encumbrances but all encumbrances are not liens.
Loss Factor: A building’s Loss Factor is the percentage of the building’s area shared by tenants or spaces that are dedicated to the common areas of a building used to calculate the difference between the net (useable) and gross billable areas. That portion of the space is often considered “lost” because it cannot be directly leased and the maintenance and operation costs must be covered by the other rentable areas. The loss factor is often confused with load factor but the formulas for each term vary. The loss factor is calculated as follows: Loss Factor = (Rentable Area- Useable Area) /Rentable Area
MAI: Member of Appraisal Institute
Market Rent: The rental income that a property would most probably command on the open market; indicated by current rents paid and asked for comparable space as of the date of the appraisal.
Market Study: A forecast of future demand for a type of project along with recommendations as to quantity to be sold or leased and prices to be charged. Also called “Marketability Study.”
Marketable Title: Title to real property that can be readily marketed (i.e., sold) to a reasonably prudent purchaser aware of the facts and their legal meaning concerning liens and encumbrances.
Market Value: The most probable price which a property should bring a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit is this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and acting in what they consider their own best interests; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financial or sales concessions granted by anyone associated with the sale.
Mechanic’s Lien: A claim created by state statutes for the purpose of securing priority of payment for the price or value of work performed and materials furnished in construction or repair of improvements to land, and which attaches to the land as well as to the improvements.
Net Absorption: Absorption is a measure of the amount of office space leased over a period of time. Net absorption is a measure of the total square feet leased over a period of time taking into consideration office space vacated in the same area during the same period. See also: “Gross Absorption.”
Net Lease: A lease in which the tenant pays, in addition to rent, certain costs associated with a leased property, including property taxes, insurance premiums, repairs, utilities and maintenance. There are also “net-net” (double net) and “net-net-net” (triple net) leases, depending upon the degree to which the tenant is responsible for operating cost. See also “Gross Lease.”
Net Rentable Area: Floor area of a building less any vertical penetrations of the floors. No deductions are made for necessary columns and projections of the building. (BOMA Standard)
Operating Expenses: The actual cost of operating income-producing property, including utilities and similar day-to-day expenses, taxes, insurance and reserves for the replacement of items that wear out.
Operating Cost Escalation: Refers to the clause in a lease agreement used to adjust rents over the term of a lease.
Pass Throughs: Building and operating expenses that are paid by the tenant under the terms of a lease.
Percentage Lease: A lease, generally on a retail business property, in which the rent is calculated as a percentage of sales. There is usually a minimum or “base” rent in the event of poor sales.
“Phantom” Space: Generally refers to space that is under lease to a tenant but not presently occupied. Usually created when a tenant consolidates or reduces operations in space it leases prior to the end of its lease term. The vacant but leases space may or may not be formally marketed on a sublet basis or counted among a market’s vacancy.
PITI (Principal, Interest, Taxes and Insurance): Acronym used to indicate what is included in a monthly mortgage payment on real property. Principal, interest, taxes and insurance are the four major portions of a typical monthly payment.
Punch List: An itemized list noting incomplete or unsatisfactory construction. Usually prepared by the tenant architect after the contractor has notified the owner that the tenant space is substantially complete.
REO (Real Estate Owned): All real estate directly owned by a lender, including real estate taken to satisfy a debt. Includes real estate acquired by lenders through foreclosure; or in settlement of any other obligation to the lender.
Recapture: That portion of the gain from the sale of real estate that is taxed at ordinary income tax rates. Calculated as the difference between the accelerated depreciation taken and the straight-line depreciation that would have been allowed.
Renewal Option: The right of a tenant to renew (i.e., extend the term of) a lease for a stated period of time and rent at an amount that can be determined.
Rent: Consideration paid for the occupancy and use of real property. A general term covering any consideration (not only money.)
Rent Commencement Date: The date on which a tenant begins paying rent. Depending upon the nature of the marketplace, it may coincide with the lease commencement date or it may be several months after. It will never begin before the lease commencement date.
Rentable Square Feet: Useable 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 square feet on which a tenant’s rent is based.
Rent / Useable Ratio: The number resulting from dividing the Total Rentable Area in a building by the Useable Area. The inverse of this ratio describes the proportion of space that an occupant can expect to utilize.
Rental Concession: See “Abatement.”
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.
Right Of First Refusal: See “First Refusal Right.”
RPA: Real Property Administrator
Sale-Leaseback: A financing arrangement in which a property owner sells all or part of the property to an investor and then leases it back. Although the lease actually follows the sale, both are agreed to as part of the same transaction.
Security Deposit: Generally, a deposit of money by a tenant with a landlord to secure performance of a lease.
Site Analysis: The study of a specified parcel of land (and the surrounding area) to determine its suitability for a specific use.
Site Development: All improvements made to a site before a building may be constructed, such as grading, utility installation, etc.
Site Plan: A detailed plan, to scale, depicting development of a parcel of land and containing all information required by the zoning ordinance. See also “Master Plan.”
Slab: The exposed wearing surface laid over the structural support beams of a building.
Soft Dollars: That portion of equity investment that may be tax-deductible in the first year. See also “Hard Dollars.”
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.
Special Assessment: Any special charge levied against real property for public improvements (e.g., sidewalks, sewers, etc.) that benefit the assessed property.
Specific Performance: A lawsuit in which the court compels one of the parties to perform or carry out the provisions of a contract into which he has entered.
Speculative Space: Any prime space that has not been leased to tenant prior to commencing construction on a new building.
Step-Up 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.
Subordination Agreement: An agreement by which the priority of a mortgage lender is relinquished in favor of that of a lender that would otherwise be junior in status.
Survey: The measurement of the boundaries of a parcel of land, its area and sometimes its topography.
Tax Base: Assessed valuation of real property, which is multiplied by the tax rate to determine the amount of tax due.
Tenant: (1) A holder of property under a lease. (2) Originally, one who had the right to possession, irrespective of the title interest.
Tenant At Will: One who holds possession of premises by permission of the owner or landlord, but without agreement for a fixed term.
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. See also “Leasehold Improvements,” “Workletter.”
“Time Is Of The Essence”: Clause used in contracts to bind one party to performance at or by a specified time in order to bind the other party to performance.
Trade Fixtures: Personal property used in a business and attached to a structure, but removable upon sale because it is deemed to be part of the business, not of the real estate.
Triple Net (NNN) Rent: Rent stipulated in a lease in which the tenant agrees to pay a share of the landlord’s operating expenses or real estate taxes for the building proportionate to the amount of space it occupies. See also “Full Service Rent.”
Turn Key Project: A project in which the developer is responsible for the total completion of a building (including interior design and construction) or demised premises to the customized requirements of a future owner or tenant.
Under Contract: A property for which a purchase offer has been accepted by the seller is said to be “under contract.” Generally, the prospective buyer is given a certain period of time in which to perform feasibility studies and finalize financing arrangements. During the time, the seller cannot entertain offers from other buyers unless the purchase contract is allowed to expire without going to closing.
Use: Specific purpose for which a parcel of land or a building is designed, arranged, intended, occupied or maintained.
Useable Area: The Useable Area is the measured area of a space on a floor.
Vacancy Factor: The amount of gross revenue lost because of vacant space; an allowance item on pro forma income statements, usually calculated as a percentage of gross revenue.
Vacancy Rate: A measurement expressed as a percentage of the total amount of available space compared to the total inventory of space. Computed by multiplying vacant space times 100 and divided by total inventory.
Variance: A permit that grants a property owner relief from certain provisions of a zoning ordinance when, because of the particular physical surroundings, shape or topographical condition of the property, compliance would result in a particular hardship or practical difficulty which would deprive the owner of the reasonable use of the land or building involved.
Warranty: A binding promise made at the time of a sale whereby the seller gives the buyer certain assurances as to the condition of the property.
Wear and Tear: The deterioration or loss in value caused by the tenant’s normal and reasonable use. In many leases the tenant is not responsible for “normal wear and tear.”
Weighted Average Rental Rates: Rental rates averaged to the amount of space available in each building per market area.
Workletter: The standard building items that the landlord contributes as part of the tenant improvements. Examples of standard building items are: doors, partitions, lights, floor covering, telephone outlets, etc. The Workletter may specify the quantity and quality of the materials to be used and often carries a dollar value.
Working Drawings: The set of plans for a project that, in combination with a set of specifications, comprise the contract documents indicating the exact manner in which a project should be built. See also “Contract Documents.”
Workout: The process by which a borrower attempts to negotiate with a lender to restructure the borrower’s debt rather than go through foreclosure proceedings.
Zoning: A method of regulating use of real estate by dividing a city or other area into zones and designating which uses may be permitted for land in each zone.
Zoning Ordinance: The set of laws and regulations, generally at the city or county level, that control the use of land and construction of improvements in a given area or zone.