Commercial Real Estate Glossary

Anchor Tenant: Sometimes also called a prime tenant, a draw tenant, or a key tenant. This is the leading, featured, big-name business that rents office space in any given development, complex, or neighborhood. Also see, prominent tenant.

Architectural designs: The artist renderings behind the structural design of a building which includes the combined elements of the building to create a coherent and functional structure.

Balance Sheet: A balance sheet reports the assets, liabilities and shareholder equity at a specific?point?in time, while a P&L statement summarizes a company's revenues, costs, and expenses during a specific?period?of time. See "P&L"

Base rent: Base rent is calculated on the occupied square footage of a user, most often used in commercial. Typically you see a Rent plus NNN costs. The Rent in this case is considered the base rent. It is the contractually detailed cost to rent a space according to the lease. It is not typically a fluctuating amount.

Base Year: This is the first year of rent on a commercial lease, see "base rent"

Benchmark: A standard or point of reference against which things may be compared or assessed. To evaluate or check (something) by comparison with a standard.

Bridge loan: A hyper flexible loan arrangement to satisfy a short term financing need until an exit strategy, like a refinance or sale, can be executed. see article.

CAP, Capitalization rate: The CAP rate reflects the ratio of NOI (Net Operating Income) to property asset value. The CAP rate is the highest level view of a property and first step in the evaluation process to determine if a property is at or below market. When speaking about a high CAP rate, it is referenced in an inverse relationship, a High cap, is a high selling price. A 3 CAP is higher than an 8 CAP. or 3% vs 8%. CAP Rates are based on a cash purchase and do not include any debt or mortgage costs as a buyer may have different terms. CAP rates never include debt.

Capital expenses: These are the capital costs incurred when a business owner or investor acquires a new asset. Often also used to speak about adding value to a property in the form of renovations, remodels, expansion with the intention of increasing the profitability of an asset for future profit.?

Closing: This term refers to the date in when the purchase agreement concludes and the transaction is finalized. To close a deal means to have finalized and exchanged everything in the contract.

Commercial real estate agent: This is a licensed person conducting real estate transactions on behalf of themselves or someone else.

Commercial real estate broker: see real estate broker. This is a licensed agent who specializes only within the commercial real estate space. This term does not always mean this person holds a broker license but acts to broker deals. A broker license is an advanced license.

Commercial real estate leasing: The act of renting buildings or spaces to tenants for business purposes. They do not own the building they are using.

Commission: The favorite word for all sellers and agents in a deal. This is the fee paid to the agents involved in the contract who have successfully closed the deal. This is paid at funding to the broker of record for all agents involved. The commission fees are not allowed to be paid directly to non broker level agents. Any commission changes, concessions or negotiations must take place before closing and be handled accordingly prior to wet signatures on closing documents.

Common area maintenance: CAM are the fees paid by tenants of a property to landlords in order to cover their percentage of costs associated to the overhead and maintenance expenses incurred on the property. This is a direct proportion to your square footage rented in the property.

Compromise: an agreement or a settlement of a dispute that is reached by each side making concessions, often confused with negotiation.

Debt coverage ratio: This is the ratio of operating income to debt servicing (mortgage).

Depreciation: Referring to the monetary value of an asset reduction over time. This can be penciled out on paper over a specific time table according to the system lifespan. You can depreciate a building's costs, personal property and system assets on an accelerated rate or over the lifespan of those items. The accelerated depreciation of an asset or bonus depreciation is a new tax strategy enacted by President Trump. It allows an owner to fully depreciate a building now, and take that deduction now, instead of in small pieces over say 20 or 30 years.?

Epicenter: The central point of activity or visibility

Escalation clause: This is a contact clause that is used to increase costs for a specific portion of the contract. Typically seen in the rent section. You'll see the rent escalate every year by a certain percentage defined in this section of the contract.

Gross lease structure: The gross lease is a lease typically seen in residential, it is an all encompassing all bills paid structure where the landlord is responsible for all utilities, maintenance, insurance, taxes and costs associated with the use and ownership of the property. There will sometimes be a modified Gross rate minus HVAC repairs for commercial in a multi-tenant building such as a retail strip. This usually applies to older buildings or reconfigured buildings where the individual units were divided later in to multiple units and individual utility meters are not in place to properly bill tenants.?It is utilized most commonly when you are sharing utilities with other users.

High-rise buildings: A structure higher than 75 feet or above seven stories, any class or type of property other than industrial equipment.?

Investment Property: Real Estate property in which an investor has acquired or has the ability to purchase in order to earn a profitable return on investment. see ROI, CAP rate, Market Rate, and NOI. Investment property is always a risk.

Investor: This is a person who purchases or owns property for non-personal use. This individual, firm, REIT, or mutual fund commits their raised capital to purchase a property or business with the intention of receiving a positive future financial return. Short or long term investors, investor class, sophisticated vs accredited investors are all examples of this type of person.?

Investor class: Referring to a person or a property. This has the potential to hold, flip or purchase for an immediate return on money. This person has the ability to buy investments, this property has the ability to give a market rate return.

IRR, Internal rate of return: After an investor has looked over the list of properties and determined the CAP rate is worth digging deeper, we will look at the IRR. This is the smart money play. Once the ROI and IRR are both nailed down, we have a good idea on if a deal is worth putting to paper. The IRR is the percentage of interest you earn on each dollar you have invested in a property over the life of your holding period. This is used to calculate an exit strategy and map out profitability. This is a a key component to a value add deal, cash out deals and frankly any leveraged deal with a mortgage.

Janitorial services: These are the cleaning fees for the common areas and sometimes include cleaning of your own space depending on the lease details. This is usually not a negotiable item but sometimes you can get a landlord to allow you to provide your own janitorial services for your space but not the common area. This is a part of your Net costs in a rental property.

Landlord: This is typically the owner of a building but this could also indicate the management company working for the owner. You may have more than one landlord entity and the owner's decisions are always at the top of the food chain.?

Lease structure: This is a reference to the lease agreement. The lease agreement maps out a plan or structure for each expense and costs associated to the use of a property. This speaks to the rent and associated costs of a tenant paid to the landlord.

Leasing agreement: A contract between a renter and the landlord that allows the renter rights to the use of a property owned or managed by the landlord for an agreed period of time and use.

Leasing term: This is the amount of time or detail within the lease agreement. You would see "terms" referring to a detail and "term" referring to a time period within the lease itself. A lease term is defined, fixed and not able to be negotiated or changed after the lease is signed. You can always renegotiate your lease terms at any time but that will require a new lease to be executed.

Lessee: Synonymous with landlord or owner of a rental property.

Lessor: Synonymous with tenant and renter.?You will see this on contracts. Lawyers love to complicate things.

Licensed Real Estate Agent: A person who holds the appropriate license to conduct real estate transactions for multiple clients. This is the lowest level of license required by most states. This indicates the person is not a REALTOR and does not hold a Brokers license.

Listing platforms: Referencing the marketing platforms used to notify the brokers and the public about a property for sale or lease. examples: CoStar, Loopnet, Brevitas, Crexi, BizBuySell, TotalCommercial, Craigslist, MLS, various in person or internal ways to communicate the listing to other parties. Sometimes called listing syndication tools.

Load factor: Load factor in CRE is speaking to the common areas of a property: Lobbies, Restrooms, Hallways, buildings, elevators, and amenities such as gyms, spas, etc.?

Low-rise buildings: A structure lower than three stories, any class or type of property. This is typically the height of a single family home, small apartment complex and Tilt wall warehouses. The most common structures are low-rise buildings.

Market analysis: This is the study of market trends and knowledge to determine a value for investment, disposition/ sale or acquisition/ purchase of an asset.?

Market Knowledge: This speaks to the competence of an individual in a specific geographic, niche, asset class or type or even a demographic class. Examples: Commercial Real Estate, Texas, Austin, Office, Class A, High Net Worth, Student Housing, Senior Care, Office, Industrial, Tilt wall, Retail, Multifamily... it goes on. Market Knowledge extends beyond a geographic area and can mean national or even global stats in an area of expertise.??

Market trends: see "Market Knowledge." The trends are the statistics of an example of a niche market over time. When speaking about trending, this is real time, in the now, statistics over the recent past, usually the previous 6-12 months, election or market or economic cycle.

Mid-rise buildings: A structure between three and six stories, any class or type of property. This is typically the height of a medium apartment complex or office building. You will find these structures in higher traffic areas and denser populations. Land value must be higher to support going up instead of out.

Negotiation: A discussion aimed at reaching an agreement. This is by far and away the most important part of hiring a professional to negotiate. 98% of people don't know what negotiation looks like, much less how to perform it. Splitting the difference and getting a price in the middle are not the goals of a negotiation. That is compromise, not negotiation.?

Net income multiplier: The ratio of the market value of a property to the NOI.

NOI, Net Operating Income: The profitability formula used to determine or gauge if a real estate investment property is profitable or not. This is a key part to determining CAP rate and ROI. Net operating income is all income minus fixed expenses over a given 12 month period or calendar year. The NOI should not include capital expenses and only factor in expenses that are reoccurring year over year. The NOI is a benchmark to estimate the future profitability cash flow of an asset over time by using historical performance. An NOI can trend up or down and can be influenced by many factors including streamlining and perfecting fixed costs like replacing the onsite management with a professional offsite management company or renegotiating service contracts. See "T12" and "P&L"

Operating cash flow: This is the amount of pure money taken in before anything is paid out. This is the result of regular operating activities of a commercial business enterprise within a specific period, usually a month or quarter within a fiscal year. This should match the amount reported to the IRS on your business tax return. See "NOI"

Operational expenses/cost: The expenses or costs incurred to engage in activities not directly associated with the production of goods or services for a business. Examples include: rent, equipment, inventory costs, marketing, payroll, insurance, step costs, and funds allocated for research and development.

Premier space: Best or first place. Similar to deluxe, most desirable or trophy property.

P&L (Profit and Loss): P&L statements refer to a financial statement that summarizes the revenues, costs and expenses incurred during a specified period, usually a quarter, fiscal year, calendar year or trailing 12 months also referred to as a T12. A P&L is often confused with a balance sheet.

Pro-rata share: This is a Latin term uses in contacts by lawyers. It means in proportion of. Commonly used to balance out the math on rent and taxes based on the days of use for that specific year as these costs are usually a yearly rate.

Prominent tenants: These are tenants who pay the most significant part of the rent in a group of tenants. These typically have the largest space. Common wording in Retail, see "anchor tenant." You will usually see big box stores as the draw. You might see a high traffic retail tenant be placed in the middle surrounded by smaller tenants of similar type and class. example: dry cleaners placed in small retail strips on one end and a restaurant placed at the other along with smaller supporting businesses between that thrive due to the high foot traffic (fyi, a lot of times in smaller retail strip centers, the franchise or business that drives traffic to the location to help support it's smaller tenants is owned by the landlord).

Property Tax: These are the annual costs of owning a property in the USA. All property owners unless exempt pay government, municipal, and state taxes based on the assessed value of the property. This rate changes every year based on value and tax percentage changes. You may "own" the dirt but the government still basically rents it to you through this backdoor money grab. If you don't pay your property taxes 2 years in a row, the government will seize your property and auction it off to the highest bidder to pay off your tax debt. Technically the government can start the foreclosure process if you're only 60 days late and do not contest the bill. Pay your taxes or call a broker to sell it prior to an auction. There is almost always profit in selling the land prior to a tax auction.

Real Estate Agent: A person who sells and/or rents buildings and land for clients (no license is needed if acting for yourself or a single person/ entity/business). A license is required in all 50 US states to act as an agent on behalf of someone else.

Real Estate Broker: This is a common term used by most licensed commercial real estate agents. In Texas there are two levels of R.E. Licenses, salesperson and broker, this is also common in many other states. Most commercial agents using the term broker are not actually in fact brokers in Texas. Be sure to ask your real estate "broker" if they hold the advanced broker's license. This way you can to ensure you have the highest skilled person to work for you. Historically, commercial agents consider themselves brokers by "brokering" deals. A majority of states as mentioned have advanced licenses that are considered a Brokers license. See "REALTOR."

Real Estate Listing: This is a contract required to be in writing by the state of Texas. This contract gives the real estate broker the authority to act as a selling agent on behalf of a property owner or a leasing agent on behalf of the landlord. There a various types of listing agreements. They are all required to have a start and end date as well as be in writing before a licensed agent can market the property to the public. Each listing agreement is negotiable but most owners and real estate companies have a standard practice they implement in all their listings so terms match across the board for their clients. Listing fees are not standard there is no set a market rate in any market. Listing fees will be detailed in writing within this agreement.

REALTOR: This is license real estate agent who is a member of the National Association of REALTORS (NAR). REALTORS are vastly different than Agents because REALTORS have a code of ethics and guidelines they are required to adhere to. Violating those ethical standards of practice could mean disciplinary actions from NAR. Agents are most commonly unlicensed. Agents have not taken an oath to uphold ethical guidelines. You will see leasing agents at apartment complexes and new home sales agents at residential development model homes. You might see a licensed agent at these places as well, however it is unlikely. Most residential MLS's (multiple listing services) require memberships to NAR in order to access the MLS. This is why a majority of residential agents are REALTORS. Commercial agents often do not subscribe to these residential MLS platforms and are not incentivized to join NAR as it requires them to adhere to the code of ethics and they incur more liability. Commercial agents are often simply licensed agents and not REALTORS. (I, Simon Hall am a Licensed Real Estate Broker and REALTOR).

Rentable square footage: This is the square footage according to the measurement standards for the asset class you're looking at. Office space measures to the middle of the wall stud, warehouse and retail measure differently. Rentable square footage can and most commonly includes common areas, amenities, lobbies, bathrooms, etc. See "Usable Square Footage."

ROI, Return on investment: The ROI is a measurement of investment gain after all expenses have been deducted. This is different than a CAP rate because it includes debt coverage or mortgage expenses. This is the owner's actual return when in the deal, after all of that owners expenses are penciled out. The ROI is not a speculative number like a CAP rate. See "IRR."

Subjectively: defining an idea in a way that is based on, or influenced by, a personal idea or conception about something.

T12 (Trailing 12): A Trailing 12 statement is a profit and loss statement that tracts the previous 12 months on a year to date statement. See "P&L"

Usable Square footage: Usable vs rentable. You may rent a specific amount and have more or less usable square footage, this is typically the actual square footage minus anything that's not functional (stairs, bathrooms, etc in your space, plus any additional space such as a designated portion of any space outside your suite, a designated loading dock, patio space, etc). Landlords magically seem to know both numbers when it's time to write the lease but can't figure it out in the marketing materials before hand as it is often including negotiable items.

Utility Costs: These are the costs of the utilities for the property, examples are: trash, water, waste water, electricity, internet, security, lighting and other services. Sometimes these are negotiable or scaled. A dentist for example uses a lot more water than a mattress company, but they may both be on the same meter. Landlords will take these users into account when creating the lease to ensure the payouts for utilities are equitable.

Valuation: Not an evaluation, but an estimation of value or worth of a property. Valuation is typically tied to an authority such as an appraisal of value or assessed value on the tax roll.