There are an endless amount of CRE terms that could probably fit in here, but we’ll focus on some of the most used/important ones.
1. Capitalization Rate (Cap Rate) – A percentage that represents the return on investment of a property based on the net operating income (NOI) it generates, divided by the property’s purchase price or market value.
2. Net Operating Income (NOI) – The total revenue generated from a property, less operating expenses (excluding financing costs), which represents the property’s profitability.
3. Gross Leasable Area (GLA) – The total floor area available for rent within a commercial building, typically measured in square feet or square meters.
4. Tenant Improvement Allowance (TIA) – A monetary allowance provided by the landlord to the tenant to cover the costs of customizing a leased space to the tenant’s specific requirements.
5. Triple Net Lease (NNN) – A lease agreement where the tenant is responsible for paying property taxes, insurance, and maintenance costs in addition to rent.
6. Common Area Maintenance (CAM) – The costs associated with maintaining and operating the common areas of a commercial property, such as lobbies, parking lots, and landscaping, which are typically shared by all tenants.
7. Leasehold Improvements – Modifications made to a leased space by the tenant or landlord to prepare it for the tenant’s specific use, such as adding walls, lighting, or flooring.
8. Build-to-Suit – A development approach where a property is designed and constructed to meet the specific requirements of a tenant or buyer.
9. Sale-Leaseback – A transaction in which the owner of a property sells it to an investor and then leases it back, allowing the original owner to free up capital while retaining occupancy.
10. Absorption – The rate at which available commercial space is leased or sold in a specific market over a specific period of time.
11. Usable Square Footage – The actual space that a tenant can use within a leased area, not including common areas or building infrastructure.
12. Escalation Clause – A provision in a lease that allows for periodic rent increases to account for inflation, increased property taxes, or other factors.
13. Letter of Intent (LOI) – A non-binding document outlining the basic terms of a proposed lease agreement, used as a starting point for negotiation between a landlord and tenant.
14. Due Diligence – The process of thoroughly investigating a property, including its financial, legal, and physical aspects, prior to purchasing or leasing it.
15. Debt Service Coverage Ratio (DSCR) – A financial metric used to evaluate a property’s ability to generate enough income to cover its debt payments, calculated by dividing NOI by the total debt service.
16. Amortization – The gradual repayment of a loan, typically in regular installments over a specified period of time.
17. Loan-to-Value Ratio (LTV) – A financial metric used by lenders to assess the risk of a loan, calculated by dividing the loan amount by the property’s appraised value or purchase price.
18. Anchor Tenant – A large, well-known tenant that serves as a primary draw for a commercial property, such as a shopping center or office building.
19. Subleasing – The practice of a tenant leasing all or part of their leased space to another tenant, subject to the terms of the original lease.
20. Zoning – The regulation of land use by a local government, which determines the types of activities that can occur on a specific property.
21. Mixed-Use Property – A property that combines multiple types of uses, such as residential, commercial, and retail, within a single development.
22. Pro Forma – A financial projection or model used to estimate the future performance of a property, typically based on assumptions about market conditions.
23. Market Comps (Comparables) – Recently sold or leased properties with similar characteristics, used to help determine the market value of a subject property by comparing their features, location, and transaction details.
24. Rent Abatement – A negotiated concession in a lease agreement that allows a tenant to forgo paying rent for a specified period of time, often in exchange for completing certain improvements or meeting other agreed-upon conditions.
25. Lease Term – The duration of a lease agreement, typically expressed in months or years, during which the tenant has the right to occupy the leased space and is obligated to pay rent.
26. Base Rent – The minimum monthly rent payable by a tenant, typically exclusive of additional charges such as taxes, insurance, and maintenance expenses.
27. Percentage Lease – A lease agreement in which the tenant pays a base rent plus a percentage of their gross sales or revenue, providing the landlord with a share of the tenant’s business success.
28. Tenant Rep (Tenant Representation) – A commercial real estate broker or agent who exclusively represents the interests of a tenant in lease negotiations and property search processes.
29. Landlord Rep (Landlord Representation) – A commercial real estate broker or agent who exclusively represents the interests of a landlord or property owner in lease negotiations and property marketing efforts.
30. Environmental Impact Assessment (EIA) – A study conducted to evaluate the potential environmental consequences of a proposed development or construction project, often required as part of the permitting process.
31. Rent Roll – A document listing all of the tenants in a commercial property, along with details such as lease terms, rent amounts, and lease expiration dates, used by property managers and investors to evaluate the performance of a property.
32. Cash Flow – The net amount of cash generated by a property after accounting for all income and expenses, including debt service and capital expenditures.
33. Appraisal – A professional assessment of a property’s market value, typically conducted by a licensed appraiser, based on factors such as location, condition, and comparable properties.
34. Cost Approach – A method of valuing commercial real estate based on the estimated cost to reproduce or replace the property, taking into account factors such as depreciation and land value.
35. Income Approach – A method of valuing commercial real estate based on the income it generates, often using a capitalization rate to convert net operating income into an estimated property value.
36. Broker’s Opinion of Value (BOV) – An informal estimate of a property’s market value provided by a commercial real estate broker, typically based on local market knowledge and comparable property data.
37. Contingency – A provision in a contract that makes the agreement conditional upon the occurrence or non-occurrence of a specific event, such as obtaining financing or completing a satisfactory inspection.
38. Demising Wall – A partition wall that separates one tenant’s space from another within a multi-tenant commercial property.
39. Exclusive Listing – An agreement between a property owner and a commercial real estate broker, granting the broker the exclusive right to market and lease the property on behalf of the owner.
40. Option to Renew – A provision in a lease agreement that grants the tenant the right, but not the obligation, to extend the lease term under specified conditions, such as providing advance notice and agreeing to a pre-determined rent increase.
41. Pass-Throughs – Expenses incurred by the landlord that are passed on to the tenants, typically including taxes, insurance, and common area maintenance costs.
42. Return on Investment (ROI) – A performance metric used to evaluate the profitability of an investment, calculated by dividing the net profit by the initial investment amount, typically expressed as a percentage.
43. Right of First Refusal (ROFR) – A contractual provision granting a tenant or buyer the opportunity to match or exceed any offer received by a property owner before the owner can accept the offer from another party.
44. Tenant Estoppel Certificate – A document signed by a tenant that confirms the terms and conditions of their lease, often required by a lender or buyer during a property transaction to verify the lease’s validity and enforceability.
45. Yield – The income generated by a commercial property, expressed as a percentage of the property’s market value or purchase price, often used to compare the performance of different investments.
46. Gross Absorption – The total amount of commercial space leased or sold in a specific market over a specific period of time, without accounting for space that has been vacated during the same period.
47. Load Factor – The ratio of a building’s rentable square footage to its usable square footage, used to allocate a tenant’s share of common areas and building infrastructure.
48. Trophy Building – A prestigious, high-quality commercial property that is considered an iconic or landmark building within its market, often commanding premium rents and attracting high-profile tenants.
49. Underwriting – The process by which a lender evaluates the creditworthiness of a borrower and the potential risks associated with a loan, typically involving an assessment of the borrower’s financials and the property’s value.
50. Concessions – Incentives offered by a landlord to encourage a tenant to sign a lease, such as reduced rent, free rent periods, or tenant improvement allowances.
51. Gross Lease – A lease agreement where the landlord is responsible for paying property taxes, insurance, and maintenance costs, with the tenant typically only responsible for rent and utilities.
52. Step-Up Lease – A lease agreement in which the rent increases at predetermined intervals over the lease term, often used to account for anticipated growth in property values or expenses.
53. Tenant Mix – The composition of tenants within a multi-tenant commercial property, which can impact the property’s appeal, stability, and overall performance.
54. Debt Yield – A financial metric used to evaluate the risk of a loan, calculated by dividing the net operating income by the loan amount, typically expressed as a percentage.
55. Ground Lease – A lease agreement in which a tenant rents the land from the property owner and typically has the right to develop and use the land, subject to the terms of the lease.
56. Rentable Square Footage – The total square footage of a commercial property available for lease, including a tenant’s usable square footage and a proportionate share of common areas and building infrastructure.
57. Turnkey Property – A fully developed and ready-to-use commercial property, often including furnishings, fixtures, and equipment, which requires minimal customization or improvement by the tenant.
58. Vacancy Allowance – An estimate of the revenue lost due to vacant space within a commercial property, used by property owners and investors to account for potential downtime between tenants.
59. As-Is Condition – A term used to describe a property that is being sold or leased in its current condition, with the buyer or tenant responsible for any repairs or improvements.
60. Graduated Lease – A lease agreement in which the rent increases or decreases at specified intervals, based on predetermined factors such as market conditions, inflation, or tenant performance.
61. Master Lease – A lease agreement between a property owner and a master tenant, who is then responsible for leasing individual spaces within the property to subtenants.
62. Net Rentable Area (NRA) – The total square footage of a commercial property that is available for rent, including a tenant’s usable square footage and a proportionate share of common areas, but excluding areas dedicated to building infrastructure.
63. Operating Expense Ratio (OER) – A financial metric used to evaluate a property’s operating efficiency, calculated by dividing total operating expenses by the property’s gross income.
64. Subordination, Non-Disturbance, and Attornment Agreement (SNDA) – A legal agreement that establishes the rights and obligations of a tenant, landlord, and lender in the event of a property foreclosure or change in ownership, ensuring that the tenant’s lease remains in effect.
65. Build-Out – The process of customizing a leased space to meet the specific requirements of a tenant, often involving construction.
66. Floor Area Ratio (FAR) – A zoning regulation that determines the maximum allowable building size on a given plot of land, calculated by dividing the building’s total floor area by the size of the plot.
67. BOMA Standards – Guidelines established by the Building Owners and Managers Association (BOMA) for measuring and calculating rentable square footage in commercial properties, ensuring consistency across the industry.
68. Core Factor – A measurement that represents the percentage of a building’s common areas and infrastructure in relation to its rentable square footage, used to allocate common area expenses among tenants.
69. Adaptive Reuse – The process of repurposing an existing building for a new use, often involving significant renovations or modifications to accommodate the new function while preserving the building’s historical or architectural features.
70. Anchor Ratio – The ratio of a shopping center’s anchor tenant(s) square footage to the total gross leasable area, used to evaluate the potential impact of an anchor tenant on the property’s performance and tenant mix.
71. Covenant – A legally binding promise or agreement made by a party in a contract, such as a lease, which can include performance obligations, restrictions, or other specified conditions.
72. Holdover Tenant – A tenant who continues to occupy a leased space after the expiration of their lease term, typically on a month-to-month basis, subject to the landlord’s approval and the terms of the original lease.
73. Shadow Anchor – A large, high-profile tenant located near a shopping center but not within the property itself, whose presence can have a positive impact on the center’s foot traffic and overall performance.
74. Reversionary Value – The estimated future value of a property at the end of a specified investment period, often used in discounted cash flow analysis to determine an investment’s potential return.
75. Break-Even Occupancy Rate – The occupancy rate at which a commercial property generates enough income to cover its operating expenses and debt service, without producing a profit or loss.
76. Co-Tenancy Clause – A provision in a lease agreement that allows a tenant to reduce their rent or terminate their lease if certain conditions related to the property’s occupancy or tenant mix are not met, such as the loss of an anchor tenant.
77. Eminent Domain – The government’s power to take private property for public use, subject to the payment of fair compensation to the property owner, as provided by the Fifth Amendment of the U.S. Constitution.
78. Lease Option – A provision in a lease agreement that grants the tenant the right, but not the obligation, to purchase the leased property under specified conditions, such as a predetermined purchase price or timeframe.
79. RevPAR (Revenue Per Available Room) – A performance metric used in the hotel and lodging industry, calculated by dividing the property’s total revenue by the number of available rooms, providing a measure of the property’s revenue-generating efficiency.
80. Time-Weighted Rate of Return – A financial metric used to evaluate the performance of an investment over a specified period, taking into account the impact of cash flows and changes in market value.
81. Class A, B, and C Properties – A classification system used to categorize commercial properties based on factors such as age, location, quality, and amenities, with Class A representing the highest-quality properties and Class C representing the lowest.
82. Defeasance – A provision in a commercial loan agreement that allows the borrower to substitute collateral (typically U.S. Treasury securities) for the property securing the loan, effectively releasing the property from the mortgage lien.
83. Mezzanine Financing – A hybrid form of financing that combines elements of debt and equity, typically used to provide additional capital for property acquisition.