Absorption

The amount of inventory or units of a specific commercial property type that becomes occupied during a specified time period (usually a year) in a given market, typically reported as the absorption rate.

Add-on Factor

Calculated by dividing rentable square feet by useable square feet, the add-on factor can be used to evaluate different sites with comparable rents. Also known as load factor and rentable-to-useable ration. Contrast with efficiency percentage.

Amortization

The repayment of loan principal and interest through equal payments over a designated time period.

Annual Percentage Rate (APR)

The true annual interest rate payable for a loan in one year taking into account all charges made to the borrower, including compound interest, discount points, commitment fees, and mortgage insurance premiums. APR also takes into account the time at which the principal is repaid (particularly payments of principal made in installments throughout the year, when. interest is charged at the beginning of the year), but not the actual expenses the lender incurs in making the loan that are recharged to the borrower.

Appreciation

An investment's increase in value.

Assessed Value

The value of real property that the tax assessor establishes for the purpose of levying real estate taxes.

Base Rent

The minimum rent due to the landlord. Typically, it is a fixed amount. This is a face, quoted, contract amount of periodic rent. Escalations are calculated from the annual base rate.

Build-to-Suit

A contract in which the owner agrees to develop or finish a property or space to the specifications of the tenant. The tenant may partly carry the cost in the form of increased rent.

CAM Cap

The maximum amount that the tenant pays for its share of common area maintenance costs. The owner pays any CAM expenses exceeding that amount.

Cap Rate

A ratio that represents the relationship between a particular year's cash flow and the present value or the interest applicable to the cash flow; usually assumed to be an overall capitalization rate unless stated otherwise. In appraisal, the term is typically proceeded by a description that identifies the applicable interest. For example, the capitalization rate found by dividning first year net operating income by the overall property value is called the overall capitalization rate. One approach to estimating the value of a property is to divide the current annual income of the property by an appropriate capitalization rate. Also called cap rate.

Capital Expenditures

Property improvements that cannot be expensed as a current operating expense for tax purposes. Examples include a new roof, tenant improvements, or a parking lot such items are added to the basis of the property and then can be depreciated over the holding period. They are distinguished from cash outflows for expense items such as new paint or plumbing repairs (operating expenses) that can be expensed in the year they occur.

Cash Flow

The net cash received in any period, taking into account net operating income, debt service, capital expenses, loan proceeds, sale revenues, and any other sources and uses of cash.

Depreciation

The loss of utility and value of a property.

Expense Stop

The level (or maximum amount) up to which the landlord will pay certain operating expenses. Amounts above the expense stop are the tenant's responsibility.

Fixed Lease

A lease in which the lessee pays a fixed rental amount for the duration of the lease.

Flex Space

Space that is flexible in terms of its potential use (for example, space that could be utilized for industrial or office activities).

Gross Lease

A lease in which the landlord pays all expenses associated with owning and operating the property. Contrast with net lease.

Gross Operating Income (GOI)

The total income generated by property operations before payment of operating expenses. It is calculated from potential rental incomes less vacancy and credit losses, plus other income not affected by vacancy. The Annual Property Operating Data form or the Cash Flow Analysis Worksheet can be used to calculate a property's gross operating income.

Ground Lease

A lease of the land only. Usually the land is leased for a relatively long time period to a tenant that constructs a building on the property. A ground lease separates ownership of the land from ownership of buildings and improvements constructed on the land.

High-Rise

An office building that the Building Owners and Managers Association defines as greater than 25 stories above ground.

Industrial Park

Industrial space category that is planned development often controlled and administered by one person or an investment entity such as a real estate investment trust (REIT). The types and character of uses are controlled to protect and preserve compatibility. Industrial parks can serve mixed-use, single-use, special scientific and technological uses, or sophisticated communications uses.

Industrial Property

Commercial properties that are used for the purposes of production, manufacturing, or distribution. Types of industrial properties include: but,, freestanding, industrial park, multi-tenant, office/service, office/warehouse, and research and development.

Internal Rate of Return (IRR)

The percentage rate earned on each dollar that remains in an investment each year. The IRR of an investment is the discount rate at which the use of the present value of future cash flows equals the initial capital investment.

Landlord

The owner of a leased property.

Lease

A contract stating the relationship between landlord and tenant that grants a right to exclusive possession or use of property, usually in return for a periodic payment called rent.

Leasing

A means of obtaining the physical and partial economic use of a property for a specified period without obtaining an ownership interest.

Lessee

The party renting or leasing a property

Lessor

The party who rents or leases a property to another.

Load Factor

The ratio of rentable area to usable area. The load factor can be used to evaluate different sites with comparable rents. Also known as the add-on factor and rentable-to-usable ratio. Contrasts with efficiency percentage.

Low-Rise

An office building that the Building Owners and Managers Association defines as few than seven stories above ground.

Market Analysis

The process of examining market supply and demand conditions, demographic characteristics, and opportunities; identifying alternative locations/sites that meet specific objectives or satisfy various criteria; and assessing the financial feasibility of those locations/sits to facilitate decision making regarding the commercial potential or suitability of various locations/sites to support. a given activity or use.

Market Area

A geographical area in which supply and demand operate to influence the course of industrial and commercial activities, for example, a Metropolitan Statistical Area (MSA).

Market Data

Information collected and displayed for a given market or by market area.

Market Pricing

The pricing of commodities, including rental rates of various types of commercial properties, determined by the forces and factors influencing a market.

Market Value

The most probable price that a property would bring in a competitive and open market under fair sale conditions. Market value also refers to an estimate of this price.

Mid-Rise

An office building that the Building Owners and Managers Association defines as between seven and 25 stories above ground.

Mortgage

The legal document that secures property for the repayment of funds borrowed to purchase real estate.

Net Lease

A lease in which the tenant pays, in addition to rent, all operating expenses such as real estate taxes, insurance premiums, and maintenance costs. Contrast with gross lease.

Net Operating Income (NOI)

The potential rental income plus other income, less vacancy, credit losses, and operating expenses.

Office Property

A commercial property type maintained or occupied by professional or business offices. Such properties typically house management and staff operations. The term office can refer to whole buildings, floors, parts of floors, and office parks. Office space that can be used for a variety of purposes sometimes is called generic office space. Office properties may be classified as Class A, B, or C. Class A properties are the most functionally modern. Class B and C properties in the same market typically command lower rents because they are older and in need of modernization.

Office/service

Industrial space category in attractive, park-like settings with landscaping. They are usually at the highest end of market rents and devote more than 25 percent of their space to offices. Office/service properties are similar to research and development facilities.

Office/warehouse

Industrial space category that may devote 5 to 25 percent of its space to office requirements and typically is constructed of metal, brick, block, or wood. This category usually features dock-high loading.

Outlet Center

A retail property type usually located in rural or occasionally in tourist locations. These centers consist mostly of manufacturers' outlet stores selling their own brands at a discount and typically are not anchored. A strip configuration is most common, although some are enclosed malls, and others can be arranged in a village cluster.

Owner

The party who has the right to possess, use, lease, and sell a property.

Passive Income

Income from rental activity, limited business interests, or other activities in which the investor does not materially participate. Contrast with active income.

Recession

A period of reduced economic activity or a general economic downturn marked by a decline in employment, production, sales, profits, and weak economic growth that is not as severe or prolonged as a depression. As a result, sales in real estate markets are slow, property values and price levels are flat or decreasing, and there is virtually no construction of new stock given excess supply of units in most real estate markets.

Rent Concession

A period of free rent or other allowance that the owner gives to the tenant.

Rent Escalators

Items specified in a lease such as base rent, operating expenses, and taxes that may increase by predetermined amounts at stated intervals by a constant annual percentage.

Rentable-to-Usable Ratio

The ratio of rentable area to useable area. This ratio can be used to evaluate different sites with comparable rents. Also known as add-on factor and load factor. Contrast with efficiency percentage.

Rentable Area

The computed area of a building defined by Building Owners and Managers Association guidelines and typically measured in square feet, including both core/structure and useable area. The actual square foot area for which the tenant will pay rent, it is the gross area of an office building, less uninterrupted vertical space (such as stairways and elevators). Unlike useable area, rentable are includes common areas such as lobbies, restrooms, and hallways, such as the measurement of structural columns and architectural projections.

Retail

The sale of goods to the public in relatively small quantities for use or consumption rather than for resale.

Retail Property

Property used to market and sell consumer goods and services. Types of retail properties include: community center, fashion/specialty center, neighborhood center, outlet center, power center, regional center, super regional center, and theme/festival center.

Service Area

The geographical area that encompasses/delineates the principal share of clients or customers that the property's tenants serve. This concept becomes less applicable as the service area of the customer base increases.

Shopping Center

A group of commercial establishments designed, built, and managed as a unit to service the immediate trade area. It provides on-site parking in proportion to the size, type, and number or stores in the center.

Sublease

A lease in which the original tenant (lessee)  sublets all or part of the leasehold interest to another tenant (known as a subtenant) while still retaining a leasehold interest in the property. Also known as a sandwich lease due to the sandwiching of the original lessee between the lessor and the subtenant.

Tenant

A person or entity that has possession of a property through a lease.

Tenant-Paid Tenant Improvements (TPTI)

The total cost (outlay) of necessary tenant improvements paid by the tenant netted against any allowance provided by the landlord.

Tenant Improvements (TI)

Preparation of leased premises prior to or during tenants occupancy, which may be paid for by either the landlord, the tenant, or both.

TI Allowance From Owner

Entry on the tenant's Lease Analysis Form. A specified amount of money the owner will pay for tenant improvements.

Vacancy

The number of units or space of a specific commercial type that is vacant and available for occupancy at a particular point in time within a given market (usually expressed as a vacancy rate).

Zoning

The designation of specific areas by a local planning authority within a given jurisdiction for the purpose of legally defining land use or land-use categories.