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Glossary of Lease Terminology (A-C)

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Abatement
Often referred to as free rent or early occupancy and may occur outside or in addition to the primary term of the lease
Above building standard
Upgraded finishes and specialized designs necessary to accommodate a tenant's requirements
Absorption rate
The rate at which rentable space is filled. Gross absorption is a measure of the total square feet leased over a specified period with no consideration given to space vacated in the same geographic area during the same time period. Net absorption is equal to the amount occupied at the end of a period minus the amount occupied at the beginning of a period and takes into consideration space vacated during the period.
Ad valorem
Meaning "according to value," this is a tax imposed on the value of property that is typically based on the local government's valuation of the property.
Adjusted funds from operations (AFFO)
A measure of REIT performance or ability to pay dividends used by many analysts with concerns about quality of earnings as measured by funds from operations (FFO). The most common adjustment to FFO is an estimate of certain recurring capital expenditures needed to keep the property portfolio competitive in its marketplace.
Administrative fee
Usually stated as a percentage of assets under management or as a fixed annual dollar amount
Advances
Payments made by the servicer when the borrower fails to make a payment
Adviser
A broker, consultant or investment banker who represents an owner in a transaction. Advisers may be paid a retainer and/or a performance fee upon the close of a financing or sales transaction.
Aggregation risk
Risk associated with warehousing mortgages during the pooling process for future securitization
Alternative or specialty investments
Property types that are not considered conventional institutional-grade real estate investments. Examples include congregate care facilities, self-storage facilities, mobile homes, timber, agriculture and parking lots.
Amortization
The liquidation of a financial debt through regular periodic installment payments. For tax purposes, the periodic deduction of capitalized expenses such as organization costs
Anchor
The tenant that serves as the predominant draw to a commercial property, usually the largest tenant in a shopping center
Annual percentage rate (APR)
The actual cost of borrowing money. It may be higher than the note rate because it represents full disclosure of the interest rate, loan origination fees, loan discount points and other credit costs paid to the lender.
Appraisal
An estimate of a property's fair market value that is typically based on replacement cost, discounted cash flow analysis and/or comparable sales price
Appreciation
An increase in the value or price of an asset
Appreciation return
The portion of the total return generated by the change in the value of the real estate assets during the current quarter, as measured by both appraisals and sales of assets
Arbitrage
Buying securities in one market and then selling them immediately in another market to make a profit on the price discrepancy
As-is condition
The acceptance by the tenant of the existing condition of the premises at the time a lease is consummated, including any physical defects
Assessment
A fee imposed on property, usually to pay for public improvements such as water, sewers, streets, improvement districts, etc.
Asset management
The various disciplines involved with managing real property assets from the time of investment through the time of disposition, including acquisition, management, leasing, operational/financial reporting, appraisals, audits, market review and asset disposition plans
Asset management fee
A fee charged to investors based on the amount invested into real estate assets for the fund or account.
Asset turnover
Calculated as total revenues for the trailing 12 months divided by the average total assets
Assets under management
The current market value of real estate assets for which a manager has investment and asset management responsibilities
Assignee name
The individual or entity to which the obligations of a lease, mortgage or other contract have been transferred
Assignment
A transfer of the lessee's entire stake in the property. It is distinguishable from a sublease where the sublessee acquires something less than the lessee's entire interest.
Attorn
To agree to recognize a new owner of a property and to pay him/her rent.
Average common equity
Calculated by adding the common equity for the five most recent quarters and dividing by five
Average downtime
Expressed in months, the amount of time expected between the expiration of a lease and the commencement of a replacement lease under current market conditions
Average free rent
Expressed in months, the rent abatement concession expected to be granted to a tenant as part of a lease incentive under current market conditions
Average occupancy
The average occupancy rate of each of the preceding 12 months
Average total assets
Calculated by adding the total assets of a company for the five most recent quarters and dividing by five
Balloon, or bullet, loan
A loan with a maturity that is shorter than the amortization period
Balloon risk
The risk that a borrower will not be able to make a balloon (lump sum) payment at maturity due to a lack of funding
Bankrupt
The state of an entity that is unable to repay its debts as they become due
Bankruptcy
Proceedings under federal statutes to relieve a debtor who is unable or unwilling to pay its debts. After addressing certain priorities and exemptions, the bankrupt entity's property and other assets are distributed by the court to creditors as full satisfaction for the debt.
Base principal balance
The original mortgage amount adjusted for subsequent fundings and principal payments without regard to accrued interest or other unpaid debt
Base rent
A set amount used as a minimum rent with provisions for increasing the rent over the term of the lease
Base year
Actual taxes and operating expenses for a specified year, most often the year in which a lease commences
Basis point
1/100 of 1 percent
Below-grade
Any structure or portion of a structure located underground or below the surface grade of the surrounding land
Beneficiary
An employee covered by an employee benefit plan
Beta
measure of a company's common stock price volatility relative to the market
Bid
An offer, stated as a price or spread, to buy whole loans or securities
Blind pool
commingled fund accepting investor capital without prior specification of property assets
Book value
Also referred to as common shareholder's equity, this is the total shareholder's equity as of the most recent quarterly balance sheet minus preferred stock and redeemable preferred stock.
Broker
A person who acts as an intermediary between two or more parties in connection with a transaction
Buildable acres
The area of land that is available to be built on after subtracting for roads, setbacks, anticipated open spaces and areas unsuitable for construction
Building code
The various laws set forth by the ruling municipality as to the end use of a certain piece of property. They dictate the criteria for design, materials and types of improvements allowed.
Building standard plus allowance
The landlord lists, in detail, the building standard materials and costs necessary to make the premises suitable for occupancy. A negotiated allowance is then provided for the tenant to customize or upgrade materials.
Build-out
Space improvements put in place per the tenant's specifications. Takes into consideration the amount of tenant finish allowance provided for in the lease agreement.
Build-to-suit
A method of leasing property whereby the developer/landlord builds to a tenant's specifications
Call date
Periodic or continuous rights given to the lender to cause payment of the total principal balance prior to the maturity date
Capital appreciation
The change in market value of a property or portfolio adjusted for capital improvements and partial sales
Capital expenditures
Investment of cash or the creation of a liability to acquire or improve an asset, as distinguished from cash outflows for expense items that are considered part of normal operations
Capital gain
The amount by which the net proceeds from the sale of a capital item exceeds the book value of the asset
Capital improvements
Expenditures that arrest deterioration of property or add new improvements and appreciably prolong its life
Capital markets
Public and private markets where businesses or individuals can raise or borrow capital
Capitalization
The total dollar value of various securities issued by a company
Capitalization rate
The rate at which net operating income is discounted to determine the value of a property. It is the net operating income divided by the sales price or value of a property expressed as a percentage.
Carrying charges
Costs incidental to property ownership that must be absorbed by the landlord during the initial lease-up of a building and thereafter during periods of vacancy
Cash flow
The revenue remaining after all cash expenses are paid
Cash-on-cash yield
The relationship, expressed as a percentage, between the net cash flow of a property and the average amount of invested capital during an operating year
Certificate of occupancy
A document presented by a local government agency or building department certifying that a building and/or the leased area has been satisfactorily inspected and is in a condition suitable for occupancy
Chapter 7
That portion of the federal bankruptcy code that deals with business liquidations
Chapter 11
That portion of the federal bankruptcy code that deals with business reorganizations
Circulation factor
Interior space required for internal office circulation not accounted for in the net square footage
Class "A"
A real estate rating generally assigned to properties that will generate the highest rents per square foot due to their high quality and/or superior location
Class "B":
Good assets that most tenants would find desirable but lack attributes that would permit owners to charge top dollar
Class "C"
Buildings that offer few amenities but are otherwise in physically acceptable condition and provide cost-effective space to tenants who are not particularly image-conscious
Clear-span facility
A building, most often a warehouse or parking garage, with vertical columns on the outside edges of the structure and a clear span between columns
Closed-end fund
A commingled fund that has a targeted range of investor capital and a finite life
Closing
A period of time, usually less than seven days, after a registration statement is effective and the offering commences, giving the underwriters time to receive payment for the securities
CMBS (commercial mortgage-backed securities):
Securities backed by loans on commercial real estate
CMO (collateralized mortgage obligation):
Debt obligations that are collateralized by and have payments linked to a pool of mortgages
Co-investment
Co-investment occurs when two or more pension funds or groups of funds share ownership of a real estate investment. In co-investment vehicles, relative ownership is always based on the amount of capital contributed. It also refers to an arrangement in which an investment manager or adviser co-invests its own capital alongside the investor.
Co-investment program
An investment partnership or insurance company separate account that enables two or more pension funds to co-invest their capital in a single property or portfolio of properties. The primary appeal for investors is to achieve greater diversification or invest in larger properties typically outside the reach of small- to mid-sized tax-exempt funds, with a greater measure of control than is afforded in typical commingled fund offerings.
Collateral
Asset(s) pledged to a lender to secure repayment of a loan in case of default
Commingled fund
A pooled fund vehicle that enables qualified employee benefit plans to commingle their capital for the purpose of achieving professional management, greater diversification or investment positions in larger properties
Common area
For lease purposes, the areas of a building and its site that are available for the non-exclusive use of all its tenants, e.g., lobbies, corridors, etc.
Common area maintenance
Rent charged to the tenant in addition to the base rent to maintain the common areas. Examples include snow removal, outdoor lighting, parking lot sweeping, insurance, property taxes, etc.
Comparables
Used to determine the fair market lease rate or asking price, based on other properties with similar characteristics
Concessions
Cash or cash equivalents expended by the landlord in the form of rental abatement, additional tenant finish allowance, moving expenses or other monies expended to influence or persuade a tenant to sign a lease
Condemnation
The process of taking private property, without the consent of the owner, by a governmental agency for public use through the power of eminent domain
Conduit
An alliance between mortgage originators and an unaffiliated organization that acts as a funding source by regularly purchasing loans, usually with a goal of pooling and securitizing them
Construction loan
Interim financing during the developmental phase of a property
Construction management
The act of ensuring the various stages of the construction process are completed in a timely and seamless fashion
Consultant
Any company or individual that provides the following services to institutional investors: definition of real estate investment policy; adviser/manager recommendations; analysis of existing real estate portfolios; monitoring of and reporting on property asset, commingled fund and portfolio performance; and review of specified property and portfolio investment opportunities. Consultants are distinguished from investment advisers or investment managers in that a consultant does not source or execute transactions and does not directly manage assets.
Consumer price index (CPI)
Measures inflation in relation to the change in the price of goods and services purchased by a specified population during a base period of time. The CPI is commonly used to increase the base rent periodically as a means of protecting the landlord's rental stream against inflation or to provide a cushion for operating expense increases for a landlord unwilling to undertake the record-keeping necessary for operating expense escalations.
Contiguous space
Multiple suites/spaces within the same building and on the same floor that can be combined and rented to a single tenant, or a block of space located on multiple adjoining floors in a building
Contract documents
The complete set of design plans and specifications for the construction of a building
Contract rent
The rental obligation, expressed in dollars, as specified in a lease. Also known as face rent.
Convertible debt
A mortgage position that gives the lender the option to convert to a partial or full ownership position in a property within a specified time period
Convertible preferred stock
Preferred stock that is convertible to common stock under certain formulas and conditions specified by the issuer of the stock
Conveyance
Most commonly refers to the transfer of title to property between parties by deed. The term may also include most of the instruments with which an interest in real estate is created, mortgaged or assigned.
Core properties
The major property types - specifically office, retail, industrial and multifamily. Core assets tend to be built within the past five years or recently renovated. They are substantially leased (90 percent or better) with higher-credit tenants and well-structured long-term leases with the majority fairly early in the term of the lease. Core assets generate good, stable income that, together with potential appreciation, is expected to generate total returns in the 10 percent to 12 percent range.
Cost-approach improvement value
The current cost to construct a reproduction of, or replacement for, the existing structure less an estimate for accrued depreciation
Cost-approach land value
The estimated value of the fee simple interest in the land as if vacant and available for development to its highest and best use
Cost-of-sale percentage
An estimate of the costs to sell an investment representing brokerage commissions, closing costs, fees and other necessary disposition expenses
Coupon
The nominal interest rate charged to the borrower on a promissory note or mortgage
Covenant
A written agreement inserted into deeds or other legal instruments stipulating performance or non-performance of certain acts, or use or non-use of a property and/or land
Credit enhancement
The credit support needed in addition to the mortgage collateral to achieve a desired credit rating on mortgage-backed securities. The forms of credit enhancement most often employed are subordination, over-collateralization, reserve funds, corporate guarantees and letters of credit.
Cross-collateralization
A grouping of mortgages or properties that serves to jointly secure one debt obligation
Cross-defaulting
Allows the trustee to call all loans in a group into default when any single loan is in default
Cumulative discount rate
Expressed as a percentage of base rent, it is the interest rate used in finding present values that takes into account all landlord lease concessions.
Current occupancy
The current leased portion of a building or property expressed as a percentage of its total area or units
Current yield
For CMBS, the coupon divided by the price

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